REG - TP ICAP Group PLC - Final Results
15/03/2022 07:00
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RNS Number : 7989E TP ICAP Group PLC 15 March 2022
15 March 2022
TP ICAP Group plc
Financial and preliminary management report - for the year ended 31 December
2021 (the "Period")
TP ICAP Group plc (the "Company") announces its group (the "Group") results
for the Period today.
Nicolas Breteau, CEO of TP ICAP Group plc, said:
"Our performance naturally reflects the unusually quiet secondary markets that
we experienced in 2021, particularly in the first half of the year. However,
as market conditions started to improve in the second half, TP ICAP recovered
most of the ground and grew overall market share. We continued to deliver
double-digit revenue growth in Data & Analytics.
"We took pre-emptive action to mitigate margin pressure, including greater
operational efficiency, and delivered significant overall cost savings of £31
million. These measures helped to partly offset the impact of market
conditions which shifted activity to lower margin asset classes within Global
Broking. We are targeting a further £38m of incremental savings from 2022 to
2024.
"We also made substantial advances in our strategic transformation programme.
One year into what is a five-year programme to shift our broking activity from
high touch to more profitable low touch channels, 20% of in-scope Global
Broking revenue is already live on Fusion, our award-winning electronic
platform. We also achieved meaningful milestones in the build of Liquidnet's
Credit offering, and advanced our existing crypto offering, readying our
wholesale digital assets spot platform for launch, pending regulatory
approval.
"Market volatility has continued at more elevated levels in 2022, with the
return of inflation and geopolitical uncertainty driving higher volumes across
many of our markets. Our revenue in the year to date until 11 March 2022 was
approximately 16% higher than the corresponding period in 2021, in constant
currency, or 4% higher excluding Liquidnet. While it is too early to judge
whether this activity will be sustained, we believe the results of our many
actions will show through in improved performance across the group in 2022 and
beyond.
"Witnessing the tragic events unfolding in Ukraine has left us shocked and
deeply saddened. TP ICAP will donate to the relief fund that provides
humanitarian assistance to Ukrainians refugees with shelter, food, clean water
and other support. The war has resulted in sanctions against Russian
individuals, entities and their subsidiaries and consequently we continue to
actively manage our business and minimise our financial exposure. Overall
revenue from Russian clients accounted for around 0.5% of total Group revenue
in 2021.
"Our transformation programme is at the heart of our ambition to be a leading
electronic market infrastructure and information provider. This is how we will
deliver sustainable earnings growth over time."
Financial highlights
Reported:
2021 2020
Revenue £1,865m £1,794m
EBIT(1) £97m £178m
EBIT(1) margin 5.2% 9.9%
Profit before tax £24m £129m
Profit for the period(2) £5m £96m
Basic EPS 0.7p 15.4p
Total dividend per share(4) 9.5p 6.0p
Weighted average shares in issue (basic)(4) 759.3 625.0
Adjusted (excluding significant items):
2021 2020 2020
Constant Currency
Revenue £1,865m £1,794m £1,726m
EBITDA(3) £315m £328m £311m
EBIT(1) £233m £272m £256m
EBIT(1) Margin 12.5% 15.2% 14.8%
Profit before tax £177m £223m £207m
Profit for the period(2) £148m £183m £169m
Basic EPS 19.5p 29.3p 27.1p
Weighted average shares in issue (basic)(4) 759.3 625.0
1. Earnings before interest and tax
2. Attributable to equity holders of the parent
3. Earnings before interest, tax and depreciation & amortisation
4. 2020 has been restated to reflect the bonus element of the 2021 rights
issue
A table reconciling Reported to Adjusted figures, detailing significant items,
is included in the Financial and Operating Review. The percentage movements
referred to in the financial performance highlights below are in constant
currency.
Financial performance highlights
· A resilient revenue performance (£1,865m, up 8%), given subdued
secondary markets (particularly in the first half) and ongoing COVID-19
related disruption.
· Excluding Liquidnet's post-acquisition revenue of £159m (23
March 2021 onwards), the Group's revenue in the Period was 1% lower than the
prior year, in line with guidance.
· Revenue diversification continued with non-Global Broking revenue
accounting for 42% of Group revenue (2020: 36%).
· Global Broking revenue declined 2% following lower wholesale
trading volumes across asset classes. Energy & Commodities revenue
decreased 1% against a tough comparative period. We saw an improved second
half as energy market volatility provided our clients with trading
opportunities.
· Agency Execution revenue increased 180% due to the Liquidnet
acquisition. Excluding Liquidnet, revenue declined 1%.
· The high margin Data & Analytics business within Parameta
Solutions again delivered double-digit revenue growth (10%).
· Programme to save £35m of annualised costs by the end of 2021
(announced in 2020) achieved, delivering £19m of incremental savings in 2021.
· Liquidnet cost synergies: £12m achieved in 2021, exceeding the
target of £5m, and raising 2023 total synergy target from £20m to at least
£25m.
· Excluding Liquidnet, adjusted EBIT margin was 1.0%pts lower than
the prior year. This was driven primarily by a £20m contribution decline due
to a revenue shift within Global Broking towards lower margin asset classes.
· Reported EBIT margin was 4.2%pts lower due to an increase in
significant items, principally to generate future cost savings.
Strategic highlights
· Our transformation programme (electronification, liquidity
aggregation, diversification) continued at pace:
· Global Broking: 20% of in-scope revenue is now live on our
award-winning electronic platform, Fusion (55% of revenue in scope)
§ FX: c.35% of in-scope revenue on Fusion (c.90% of revenue in scope)
§ Rates: c.15% of in-scope revenue on Fusion (c.80% of revenue in scope).
· Energy & Commodities: c.60% of total revenue in scope. Launched
pilot Fusion Energy screen with clients.
· The Group completed the acquisition of Liquidnet, a global buy-side
focussed electronic Equities and Credit trading network. We have broadened
Liquidnet's distribution footprint, enhanced the Equities offering, launched
Liquidnet Primary Markets, and will launch a broad-based dealer-to-client
offering by mid-2022.
· Parameta Solutions: continued to launch higher margin products, new
distribution channels and diversify its client base.
Operational highlights
· The Group successfully concluded its redomiciliation from the UK
to Jersey, Channel Islands, delivering tangible capital benefits.
· Property rationalisation programme to deliver £14m of annualised
cost savings by the end of 2024.
· Completed a successful debt refinancing to realise finance cost
savings of £4m per annum from 2022 onwards.
· Our proprietary electronic Fusion platform was recognised as 'OTC
Platform of the Year' in the 2022 Risk Awards.
Dividend
The Board recommends a final dividend per share of 5.5 pence, bringing the
total full year dividend to 9.5 pence per share, in line with our dividend
policy of 2 times cover on adjusted post-tax earnings (2020: 6.0 pence per
share (rebased to take into account the bonus element of the rights issue
completed in February 2021)).
Near term outlook
The market environment to date in 2022 has driven more volume compared to the
prior year. Like other market operators, we are typically a beneficiary of
volatility, and the past few weeks have been characterised by high levels of
uncertainty. However, predicting future market activity is difficult. We would
also note that periods of extreme volatility, such as has been witnessed in
recent weeks, can have complex second-order effects on market participant
behaviour and activity drivers, such as risk-taking appetite, and liquidity
capacity.
2021 presentation
The Group will hold a virtual presentation and Q&A session via an audio
webcast at 0900 GMT on Tuesday, 15 March 2022. Please use the following
details to attend the presentation:
Webcast link:
https://streamstudio.world-television.com/854-1116-31747/en
(https://protect-eu.mimecast.com/s/KDHuCN9Q6fpPjRjum4FE5)
Joining by telephone
United Kingdom (Local) 020 3936 2999
United Kingdom (Toll Free) 0800 640 6441
United States (Local) 1 646 664 1960
All other locations +44 20 3936 2999
Participant access code: 767907
Participants will be greeted by an operator who will register their
details.
Forward looking statements
This document contains forward looking statements with respect to the
financial condition, results and business of the Company. By their nature,
forward looking statements involve risk and uncertainty and there may be
subsequent variations to estimates. The Company's actual future results may
differ materially from the results expressed or implied in these
forward-looking statements.
Enquiries:
Analysts and investors
Dominic Lagan
Direct: +44 (0) 20 3933 3040
Email: dominic.lagan@tpicap.com
Media
Richard Newman
Direct: +44 (0) 7469 039 307
Email: richard.newman@tpicap.com
Neil Bennett
Maitland
Direct: +44 ﴾0﴿20 7379 5151
Email: tpicap-maitland@maitland.co.uk
About TP ICAP
· TP ICAP connects buyers and sellers in global financial, energy
and commodities markets.
· It is the world's leading wholesale market intermediary, with a
portfolio of businesses that provide broking services, data & analytics
and market intelligence, trusted by clients around the world.
· We operate from more than 60 offices across 27 countries,
supporting brokers with award-winning and market-leading technology.
CEO review
Overview - Advancing our transformation
Through a mixed operating environment, TP ICAP demonstrated the inherent
strengths of its broking franchise, improving overall market share. Our Data
& Analytics business once again delivered double-digit revenue growth.
Importantly, we made material progress to improve the Group's operational
efficiency, as well as advancing our strategic transformation which, once
complete, will establish TP ICAP as a leading electronic market infrastructure
and information provider.
2021 achievements included:
· Implementing Fusion - our proprietary, award-winning OTC
electronic platform - on more FX and Rates desks in Global Broking. Fusion is
already live on desks comprising 20% of in-scope Global Broking 2021 revenue;
· Progressing the roll out of Fusion Energy to brokers and clients
in Energy & Commodities;
· Completing the acquisition of Liquidnet to materially accelerate
the execution of our strategy;
· Enhancing Liquidnet's offering since completion by broadening its
distribution footprint, strengthening its Equities offering and launching an
industry first in Credit - Liquidnet Primary Markets;
· Successfully executing the Liquidnet integration and realising
cost synergies ahead of the original target;
· Delivering double-digit revenue growth in our Data &
Analytics business within Parameta Solutions;
· Redomiciling our holding company, providing tangible capital
benefits;
· Commencing a programme to rationalise our property footprint to
reduce future premises-related costs;
· Refinancing our debt to reduce future finance costs; and
· Achieving our £35m annualised cost savings target, with further
savings targeted.
Our progress throughout the year means that TP ICAP is now better connected to
the world's capital markets than at any point in our history. We have strong
and long-held relationships with the world's leading investment banks. Through
Liquidnet, we have a network of more than 1,000 buy-side clients. Right across
the Group, we have top-tier talent and technology. We are therefore uniquely
positioned to connect buyers and sellers of financial, energy and commodity
products across both the sell-side and the buy-side.
Connectivity matters because it provides the deep liquidity pools clients need
to discover prices and transact efficiently. In turn, order and trade
information makes us a world-leading source for rare OTC market data, which
our clients need to make better decisions. Fundamentally, the better we
connect, the more relevant and valuable our offering becomes to wholesale
market participants, which positions the Group well to deliver increased
returns to shareholders over time.
Financial performance
2021 market activity was muted throughout the first six months, before a
pick-up in volumes in the second half, partly driven by rising energy prices
and the re-emergence of inflation in the final quarter.
In this context, our overall revenue performance has been resilient,
delivering £1,865m in 2021, 8%(1) higher than the prior year. Excluding
Liquidnet, which achieved revenues of £159m, revenues were 1% lower than the
prior year, in line with our guidance of being broadly in line with 2020.
Whilst revenues held up well, Group adjusted EBIT for the year was £233m,
down 9% against the prior year. Excluding Liquidnet's adjusted EBIT loss for
the year of £2m, which reflected investment in its growth strategy, Group
adjusted EBIT was £235m, down 8% against the prior year. This decrease
reflects the revenue mix in our Global Broking division, where we saw lower
revenues in our largest and most profitable asset class - Rates - compared to
strong revenue performance in our Equities asset class, which has a lower
contribution margin. Adjusted EBIT margin was 12.5%, down from 14.8% (in
constant currency) in 2020, while adjusted profit before tax was £177m (2020:
£223m).
Reported EBIT was £97m, 40% lower than the prior year (46% lower on a
reported basis), with a reported EBIT margin of 5.2% (2020: 9.9%). Reported
profit before tax was £24m, down from £129m in 2020. Basic reported earnings
per share ('EPS') were 0.7p (2020: 15.4p).
A detailed analysis of our financial performance can be found in the Financial
and Operating Review .
1. All percentage movements quoted are in constant currency, unless
otherwise stated
Operational efficiency - building a streamlined platform for growth
We took several steps to improve the operational efficiency of the business,
starting in February 2021 when we redomiciled our holding company from the UK
to Jersey, Channel Islands. Then in November 2021, we completed a successful
debt refinancing that will realise annual finance cost savings of £4m from
2022 onwards.
Turning to Liquidnet, upon completion of the acquisition we identified a cost
synergies target of £20m by 2023. We are ahead of schedule, having already
delivered £12m of savings in 2021 and we are increasing our overall target
for 2023 from £20m to at least £25m. Linked to Liquidnet, we have also
launched a programme to rationalise our property footprint, which will lead to
annualised savings of approximately £14m by the end of 2024.
We reorganised our front office and support functions and achieved our £35m
annualised cost savings target, which helped to partly offset the negative
contribution impact of a shift in revenue mix in Global Broking. The programme
delivered £19m of savings in 2021 and we are targeting an incremental £11m
of savings by the end of 2024. In aggregate, we are targeting Group savings of
£25m in 2022.
Turning to Brexit, whilst COVID-19 restrictions prevented us from executing
our transition plans in full, they did not prevent us from continuing to serve
our EU clients effectively throughout the year. Looking ahead, we will
continue to monitor and adapt our approach to reflect changes in regulation
and in our clients' operating models - for example, existing
London-based clients relocating certain businesses to Europe.
Strategic execution: electronification, aggregation and diversification
At our Capital Markets Day in December 2020, we outlined the case for the
strategic transformation of our Group. Our subsequent transformation programme
has three strategic pillars:
· Electronification - Migrating our broking activities from high
touch to low touch;
· Aggregation of liquidity - Giving clients easy and efficient
access to the Group's global liquidity pools;
· Diversification - Expanding our business towards the buy-side and
users of market information.
Deploying state-of-the-art technology is critical to executing the
electronification and aggregation pillars of our strategy in Global Broking
and Energy & Commodities. This is a multi-year programme that we commenced
in 2021 and plan to complete by 2025. Once complete, our clients will
benefit from a single sign-on, fully-customisable electronic platform from
which they can access our global liquidity pools across all products, all
asset classes, all regions and all our brands. We have developed this platform
internally and branded it Fusion. Reflecting its quality, Risk magazine has
recognised it as best-in-class, awarding it 'OTC Platform of the Year' for
2022.
TP ICAP's Fusion strategy is critical to the transformation of the earnings
profile of our Global Broking and Energy & Commodities businesses. By
implementing Fusion, we aim to progressively shift the profile of our broking
activity from high touch (i.e. a high level of broker involvement in
completing a transaction) to low touch (i.e. fully or mostly electronic
execution workflow) channels, thereby improving operating margins.
The majority of Fusion's development and implementation requirements are
concentrated in the 2021-2023 period. Importantly, the rollout of Fusion for a
given product will typically be followed by some degree of client connectivity
(e.g. API, desktop user interface) and user outreach work. We expect liquidity
to develop thereafter.
As the Fusion strategy progresses, we anticipate the pace of transition from
high touch to low touch workflows to vary by product segment. For example, in
products where liquidity tends to be continuous - such as highly commoditised
on-the-run government bonds - low touch volume should develop rapidly. As a
result, the mix of broking revenue in this product should shift quickly toward
low touch (and higher margin) channels.
In other areas, where instruments are less commoditised (e.g. swaptions)
and/or liquidity is sporadic (such as interest rate swaps), we expect low
touch liquidity to develop more slowly. We also expect a lower share of
transaction volume and broking revenue than is achievable in comparatively
liquid, commoditised product segments. As such, Fusion's rollout prioritises
product areas that represent relatively large revenue pools, and/or have a
high potential to shift towards low touch transaction formats.
Agency Execution
The acquisition of Liquidnet accelerates achievement of our strategic aims.
Liquidnet is a world-leading electronic trading network, with state-of-the-art
workflow and transaction technology, and deep connectivity to more than 1,000
buyside clients.
Since closing the acquisition in March 2021, we have developed plans to unlock
unrealised potential in the Equities franchise. In Fixed Income, we are well
advanced in executing a broad-based strategy to develop an attractive
electronic Credit trading and information ecosystem - addressing both buyside
and dealer needs - with innovative Primary Market offerings already launched
(and enhanced since launch) and with exciting Secondary Markets rollout plans
for 2022.
Parameta Solutions
In April 2021, we launched the Parameta Solutions brand. Parameta Solutions
comprises our Data & Analytics and Post Trade Solutions businesses. Giving
Parameta Solutions a distinct identity better equips the business to define
itself in the marketplace and accelerate the execution of its strategy, which
comprises three core elements:
· Go beyond providing raw data by developing new higher value
products
· Expand its client base, focusing particularly on the buy-side;
and
· Enhance its distribution capabilities, which includes increasing
the number of channel partners such as well-established cloud providers.
Business Division Review
Global Broking - the world's largest inter-dealer broker
Reflecting the impact of mixed market conditions on its wholesale client base,
at £1,105m, Global Broking's 2021 revenue was down 1% in constant currency
compared to 2020. However, relative to our listed peers, the division's
overall market share increased. Global Broking's enduring franchise strength,
and critical role in providing its dealer client base with the global
liquidity pools necessary for managing market risk, was recognised by Global
Capital as the 'Inter-dealer Broker of the Year' in the 2021 Global Derivative
Awards.
The strategic priority for Global Broking is to build on this position of
strength by deploying state-of-the-art technology and migrating execution
capabilities onto low touch protocols. Electronic workflow and transaction
channels improve client experience, increase the stickiness of customer
relationships, and improve productivity and operating margins.
The scope of the 2021-2025 programme to electronify and aggregate liquidity -
namely Fusion - covers activity in the Rates, FX, Credit and Emerging Markets
asset classes. In aggregate, the plans address product segments comprising
c.55% of Global Broking revenue(1). Global Broking's Equities business is
weighted toward specific types of activity and in predominantly
exchange-listed instruments, and although the asset class will benefit from
the Fusion platform, the potential for structural transformation is lower than
in the other asset classes.
The initial stages of our Global Broking Fusion roadmap focus on our largest
asset classes - Rates and FX - where approximately 80% and 90% of revenue
respectively is in scope for electronification. In Credit, approximately 70%
of revenue is in scope. In Emerging Markets, where a local desk will broker
transactions in several asset classes, approximately 25% of revenue is in
scope for receiving a platform.
As at the end of 2021, Fusion has been implemented on desks comprising c.20%
of total in-scope Global Broking revenue, including c.15% and 35% of in-scope
revenue in Rates and FX, respectively. Over the course of 2022, we expect to
introduce Fusion on desks comprising a further 20%-25% of in-scope revenue
(c.20% in Rates and c.30% in FX). The Fusion Credit rollout has not been a
focus of 2021-2022, as it will leverage the Liquidnet Credit initiative.
2021 Fusion Rates achievements included adding both the ICAP Sterling and Euro
inflation segments to the platform, including both periodic and all-day volume
matching. In Fusion FX, volume matching in G10 forwards was rolled out on
client desktops in EMEA and the US. In addition, the platform build process
for the 1-month Asian Non-Deliverable Forward (NDF) offering was completed.
Over the course of 2021, we also continued to develop existing platform
offerings. In FX options for example, we recently introduced volume matching
functionality, which is already producing attractive early trade flows. And in
interest rate options, we added functionality to allow more efficient trading
of multi-leg strategies, for both the Tullett Prebon and ICAP brands in EMEA.
Looking ahead, in 2022 we plan to further extend the reach of the Fusion
platform. In Fusion Rates, we will complete our cross-product and cross-brand
offering of GBP products. By the end of the year, we plan to have all ICAP and
Tullett Prebon's inflation and interest rate swaps activity in the GBP market
live on Fusion, with both central limit order book ('CLOB') and volume
matching protocols. We will also introduce Tullett Prebon EUR inflation to
Fusion with volume matching and CLOB protocols, and add CLOB functionality for
the ICAP EUR inflation offering, building on the 2021 launch of volume
matching.
In Fusion FX, we will focus on the client connectivity and user education
elements of commercialising the 1-month Asian NDF platform. The 1-month Asian
NDF market is highly electronic. The TP ICAP platform targets market
participants looking to achieve large size risk transfer, which we believe
will be a distinct and attractive addition to the 1-month market structure.
Importantly, the client connectivity established for 1-month NDFs - which will
take advantage of TP ICAP's new API strategy - is expected to support faster
and easier client adoption for subsequent Fusion launches across all asset
classes.
Impact: How Fusion realises the benefits of low touch on profitability
As the range of liquidity pools and trading protocols available on Fusion
expands and matures, the share of low touch volume within Global Broking's
overall activity mix is expected to grow, progressively and proportionately
improving operating margins.
Our confidence in achieving our aims stems from the success we have seen to
date with our mature low touch platforms, and the high level of client
engagement and progressive volume growth that we have seen with our newer
launches. We provide some illustrative examples of both mature and maturing
platforms below:
Platform #1:
· Platform maturity level: mature
· Products: interest rate options
· OTC liquidity characteristics: medium liquidity (large segment,
but liquidity can be sporadic)
· Execution protocol: volume matching
· 2021 low touch revenue: 42% of total
· 2021 contribution margin c.20%pts higher than average
Platform #2:
· Platform maturity level: mature
· Products: on-the-run government bonds
· OTC liquidity characteristics: high liquidity
· Execution protocol: central limit order book
· 2021 low touch revenue 100% of total
· 2021 contribution margin c.25%pts higher than average
Platform #3:
· Platform maturity level: immature (late 2020)
· Products: interest rate options
· OTC liquidity characteristics: medium liquidity (large segment,
but liquidity can be sporadic)
· Execution protocol: volume matching
· 2021 low touch revenue: 11% of total
· 2021 3%pts higher than average
1. All percentages are based on 2021 revenue.
Energy & Commodities - the world's leading E&C broking franchise
Like Global Broking, the first half of the year was characterised by extremely
quiet markets. In the second half, we capitalised on the increase in energy
market volatility that provided clients with trading opportunities. Against
this backdrop, 2021 revenue performance of £370m was slightly lower (down 1%
in constant currency) against a strong comparative period.
Our strategic aim for Energy & Commodities is to consolidate our global
leadership position, particularly in Energy. To achieve this, we have
continued to invest in electronifying our business and offering our clients
aggregated liquidity across our three market-leading brands: PVM, Tullett
Prebon and ICAP. We have branded this process Fusion Energy.
The scope of the 2021-2025 Fusion Energy programme covers broking activity
comprising c.60% of Energy & Commodities revenue and embraces a wide range
of products, from Oils - where TP ICAP has a leading market share - to
Environmentals.
Brokered Energy markets are far less electronified than the Financial markets,
from pre- to post-trade activities. The Oils segment is amongst the least
electronified. As such, a critical stage of the Fusion Energy project is the
internal rollout of a sophisticated new order management system (OMS), which
will capture all orders and trades electronically. Benefits will include:
· Aggregation of our internal liquidity for increased efficiency of
price dissemination amongst brokers;
· Provision of a real-time data stream, which Parameta Solutions
can commercialise;
· Linking the OMS with the client Fusion front end to enable a
fully low touch client transaction execution experience.
In Oils, E&C's largest product segment, c.70% of 2021 revenue is in scope.
We expect to have the OMS fully rolled out for Oils, capturing all order and
trade data, over the course of 2022.
In Environmentals, close to 80% of 2021 segment revenue is in scope.
Environmentals activity (e.g., emissions credit trading) is growing rapidly
and is a segment in which TP ICAP is looking to establish a leading position.
To that end, in September 2021 we launched Fusion Energy's first client-facing
screen, for the Norwegian green certificates market. Approximately 50 users
log in on a weekly basis. At present, the screen is read-only, but we expect
to roll out client execution capability in 2022.
We are also leveraging our market-leading connectivity to innovate and unlock
emerging revenue opportunities. For example, in June 2021, we announced our
plan to launch an industry first: a wholesale spot trading venue for
cryptoassets. The platform will feature an electronic marketplace for spot
cryptoasset trading, as well as providing connectivity and post-trade
infrastructure into a network of blue-chip digital asset custodians. Several
well-known market makers will be on the platform from launch, which we expect
to be by the end of Q2 2022, subject to regulatory approval. Ahead of this, we
are already receiving significant client interest in the offering,
commensurate with a growing demand for a quality, trusted institutional
provider.
Innovation is also driving the development of environmental products as the
world pivots to a low carbon economy. Primarily through our Energy &
Commodities and Parameta Solutions divisions, we are well placed to accompany
our clients in their transition journeys, helping to provide the necessary
market infrastructure, liquidity and data to accelerate their move from brown
to green in a sustainable way. For example, in 2021 we orchestrated a landmark
deal in Australia, bringing together a solar power and reinsurance company.
Additionally, in February 2022 we launched a new Energy broking desk in
Brazil, where 80% of energy produced is from renewables.
Our ambition relating to ESG is to be recognised as the broker for the
transition. In 2021, we made good progress towards achieving this goal, as
demonstrated by a 40% year-on-year increase in revenues derived from
environmental products. Furthermore, we won the bid to host the UK National
Grid Power interconnector auctions on our platform, while the ICAP Weather
desk was named best Weather Risk Management Broker for Europe and North
Americas in Environmental Finance's Annual Market Rankings 2021.
Agency Execution - a full-service agency proposition for the buyside
Our Agency Execution division is formed of Liquidnet - an electronic trading
and information network with a global Equities and Credit footprint - and
COEX, which provides institutional clients with a high touch agency brokerage
offering.
Revenues for Agency Execution were £246m for the year, up 180% against the
prior year in constant currency. Excluding Liquidnet, revenues were down 1%.
Liquidnet achieved £159 million of revenues over the period since acquisition
(23 March 2021).
Our focus in Agency Execution in 2021 has been threefold: integrate Liquidnet
into the Group; expand our offering to meet the changing needs of our clients;
and invest in strategic growth opportunities.
Liquidnet's integration is on track. Cost synergies are ahead of target and we
have developed and started to execute plans to grow the business.
The acquisition of Liquidnet accelerates our strategic transformation.
Liquidnet has deep electronic connectivity to more than 1,000 buyside clients,
with an established Equities franchise and a growing Fixed Income business.
The combination of Liquidnet's buyside expertise and client base with TP
ICAP's established sell side relationships and deep pools of liquidity,
provides us with sizeable growth opportunities in both Equities and via
dealer-to-client trading in Credit and Rates.
Turning first to Equities, we believe the full potential of this established
franchise has yet to be realised. We are therefore enhancing and broadening
our offering. Developments during the year include:
· Growing distribution by leveraging TP ICAP's global footprint and
expertise to deploy teams in Paris, Madrid, Frankfurt, Copenhagen, Chicago and
San Francisco;
· Advancing Liquidnet's algorithm suite to help clients move more
easily between execution protocols to access both dark and lit markets.
Liquidnet was awarded 'Best Algorithmic Trading Provider' in Waters
Technology's '2021 Waters Rankings';
· Growing Liquidnet's existing programme trading offering globally;
and
· Increasing our share of the cross-border trading market.
Turning to Liquidnet Credit, the growth potential for this business is
significant. Liquidnet Credit already has a connected client base of c.500
buyside firms globally. Our plan to build a comprehensive dealer-to-client
(D2C) offering was a principal motivation of TP ICAP's acquisition of
Liquidnet. As indicated at our Capital Markets Day held in December 2020, our
plan envisages achieving a 3%-6% market share of corporate bond trading by the
third full year post acquisition.
The core building blocks necessary for a successful D2C Credit offering are
well advanced:
1. Onboarding - Allowing dealers to interact with the buyside:
· Onboarding users is a major blocking factor for new platforms
(e.g. legal entities, IT work);
· TP ICAP's dealer clients are not onboarded with Liquidnet
entities, and vice versa;
· To address this, we have created internal workflows that allow
Liquidnet buyside clients to transact with TP ICAP dealer clients with no new
legal entity onboarding requirements.
2. Transaction technology deployment - Leveraging dealer and buyside
existing connectivity:
· Complementing our onboarding work (see above), we have been able
to leverage TP ICAP and Liquidnet's separate existing installed trading
technology networks to bring together our buyside and dealer client bases;
· Liquidnet buyside clients use the Liquidnet front end to trade
with each other and with dealers;
· Dealers can access Liquidnet offerings and clients via the Fusion
platform that their sell-side traders already use.
3. Platform functionality - Enriching client experience:
· Liquidnet's well-known legacy dark negotiation protocol attracted
hundreds of major asset management firms, but proved practically challenging
for buyside traders to use. We have improved the efficiency of the negotiation
protocol and added trade cover to assist clients;
· Primary markets:
o In September 2021, we launched Liquidnet Primary Markets - a new issue
workflow tool and CLOB;
o In January 2022, we enabled the first cohort of large dealers to transact
directly on the new issue CLOB. Traders from 30 sell-side institutions,
including Tier 1 dealers, are now able to trade;
o Over the course of 2022, we will expand the primary workflow tool's
end-to-end capability and third-party integrations, to allow more Liquidnet
clients to send orders directly to syndicate banks.
· Secondary markets:
o We have rolled out a new version of the Liquidnet user interface, which
allows for automatic push out of upgrades, which will facilitate the
introduction of new features and functionality for clients;
o We have introduced changes to the dark negotiation protocol to make it
easier for clients to use, as well as implemented trade cover to assist
clients;
o By mid-2022, we expect to launch key additional protocols, including
request-for-quote (RFQ).
4. Dealer liquidity: Helping the buyside to access more secondary market
liquidity
· Streaming Tier 1 dealer liquidity has been a "key ingredient"
missing from the Liquidnet ecosystem, and is needed for RFQ and other
protocols to work effectively;
· Through Fusion, we have connected major dealers for new issue
trading;
· For secondary trading, streaming dealer prices are critical.
Major dealers have already begun API work, and we expect to have a critical
number live in time for new trading protocols being made available to clients.
Parameta Solutions - a world leading provider of scarce OTC pricing data
Parameta Solutions rebranded in April 2021 and is formed of two business
segments: Data & Analytics (D&A) and Post Trade Solutions.
The D&A business provides independent and unbiased data products that
enable price and liquidity discovery; trading; enhanced transparency; superior
risk management; provide balance sheet relief; and improve operational
efficiency. It has access to more proprietary OTC data than any other
inter-dealer broker globally.
D&A is a high margin business with revenues that are largely
subscription-based and sticky (it commands a retention rate in excess of 98%)
so it provides excellent earnings diversification and sustainable growth
opportunities. Reflecting the value of the business, D&A was awarded
'Outstanding Market Data Provider' for 2021 by The Trade.
During the year, D&A grew revenue by 10% in constant currency as it
continued to benefit from its strategic initiatives. We continue to target
double-digit revenue CAGR over the medium term.
Our strategy for D&A has three elements:
· Expand the product offering by building new higher value
products;
· Expand the client base beyond the traditional sell-side into the
buyside, corporates, and energy and commodities clients; and
· Enhance our distribution capabilities, which includes increasing
the number of channel partners.
We continued to develop new higher margin products, expanding our evaluated
pricing suite by adding FX to complement Bonds. We launched a Global Risk-Free
Rate service that is driving significant new subscription revenues, and we
have been pleased with the reaction to our new environmental package,
supporting our clients' decarbonisation strategies. We launched a Trading
Analytics product using analytics driven by Artificial Intelligence to support
best execution. These high-margin, high-value products have been developed in
response to client needs to meet stricter regulatory disclosure and risk
management requirements. In 2022, we plan to augment this offering by
additional benchmarks and indices and regulatory products.
Turning to distribution, we expanded our sales coverage in markets where we
were underpenetrated. We have also partnered with leading Cloud providers to
create off-premise solutions for clients. Through our expanded distribution
channels, we offer clients the option to access our data through our channel
partners, via direct delivery (SURFIX), or via the public Cloud, with greater
speed and agility and in a more cost efficient way.
We are growing our client base by aligning our sales teams to specific client
segments: namely, buyside, sellside, corporates, and energy and commodities.
This is already proving a success with 40 new buyside clients, and 10 new
Energy & Commodities clients added in the year, with around 40% of net new
sales to non-sell side clients.
In Post-Trade Solutions, revenue declined 23% in constant currency primarily
due to the Matchbook resetting Rates business, which was adversely impacted by
the cessation of LIBOR. Following this structural change, we have developed a
new strategy for the business, which we have started to implement and which is
already producing positive results. For example, the compression service -
branded ClearCompress - grew significantly in the year by adding ten large
dealers to its client list. We have now built a working group of 27 dealers,
helping us shape new products and opportunities, which resulted in the launch
of two new services in response to client demand. Parameta Solutions was
awarded the Best Post Trade Company 2021 award in the European Markets Choice
Awards.
Dividend
The Board is recommending a final dividend per share of 5.5 pence, bringing
the total full year dividend to 9.5 pence per share, in line with our dividend
policy of 2x cover on adjusted post-tax earnings (2020: 6.0 pence (rebased to
take into account the bonus element of the rights issue completed in February
2021)).
Near term outlook
The market environment to date in 2022 has driven more volume compared to the
prior year. Like other market operators, we are typically a beneficiary of
volatility, and the past few weeks have been characterised by high levels of
uncertainty. However, predicting future market activity is difficult. We would
also note that periods of extreme volatility, such as has been witnessed in
recent weeks, can have complex second-order effects on market participant
behaviour and activity drivers, such as risk-taking appetite, and liquidity
capacity.
Concluding comments
Despite tough trading conditions during the first half of 2021, our second
half performance demonstrated that when market conditions started to improve,
we were well placed to capitalise. This underlines the strong fundamentals of
our business. That said, we recognise that we need to improve our performance
and earnings. To this end, we have in place the right strategy and actions to
manage our costs, both of which we are wholly focused on executing. The
outcome will be that we will transform our Group to be a leading electronic
market infrastructure and information provider, which is well placed to
deliver sustainable earnings growth over time.
Finally, I would like to take this opportunity to thank our clients and
partners for their continued trust and support; and my colleagues for their
sustained hard work and commitment throughout 2021.
Nicolas Breteau
Executive Director and Chief Executive Officer
15 March 2022
----------------------------------------------------------------------------------------------------
Financial and operating review
Introduction
Against a backdrop of challenging and uncertain market conditions, Group
revenue in 2021 of £1,865m was 4% ahead of the prior year on a reported basis
(8% ahead in constant currency), driven by the acquisition of Liquidnet on 23
March 2021. Excluding Liquidnet, revenue was 5% below the prior year on a
reported basis (1% lower in constant currency), with the momentum reflected in
our third quarter trading update continuing into the fourth quarter,
demonstrating the resilience of the core business. The Group's revenue and
EBIT margin was further impacted by FX headwinds with GBP strengthening 7%, on
average, against the USD year-on-year.
Adjusted operating costs of £1,642m were 7% higher on a reported basis (11%
higher in constant currency). Operating expenses, after significant items,
were £1,778m, 9% higher on a reported basis.
During the first half of the year the continuing impact of COVID-19, Brexit
and low interest rates, coupled with government pandemic support programmes,
resulted in subdued levels of both volatility and wholesale trading activity,
which impacted our broking businesses in particular and revenue was down 7%
(excluding Liquidnet, in constant currency) compared with the first half of
2020. Trading conditions improved in the second half leading to revenue
increasing by 6% year-on-year.
Our focus during the year has been on investing in and executing our growth
strategy, integrating Liquidnet into the Group, and continuing to make TP ICAP
more cost efficient. We have successfully completed our cost saving programme
to deliver £35m of annualised savings and are targeting further savings in
2022. In addition, we delivered Liquidnet cost synergies ahead of plan and are
increasing our overall target. Our programme to reduce the Group's property
footprint is also making good progress, while our successful debt refinancing
exercise in November 2021 will reduce net finance costs from 2022 onwards.
Although we retained our leading market position, the impact of market
conditions on the mix of revenue across our diverse portfolio of businesses
resulted in a lower overall contribution in 2021. Excluding Liquidnet, front
office costs, which vary with revenue, were in line with the prior year (in
constant currency), reflecting a revenue shift within Global Broking towards
asset classes with lower contribution margins, the additional costs acquired
with the acquisition of Louis Capital Markets ('LCM') and increased front
office investment in COEX and Parameta Solutions. These were partially offset
by the benefits of our cost saving programme and the resulting contribution
margin was 37.2% for 2021 compared with 37.9% in 2020, with total contribution
that was £20m lower year-on-year.
Excluding Liquidnet, total management and support costs were 1% lower than the
prior year (in constant currency) despite increased strategic investment in
technology and a foreign exchange loss on the retranslation of cash and
financial assets, as they benefited from our cost saving programme as well as
a reduction in the discretionary bonus accrual for the year that was made as a
result of lower overall Group performance.
Liquidnet revenue of £159m delivered a contribution of £68m (at a
contribution margin of 42.8%), which, after management and support costs of
£70m resulted in an adjusted EBIT loss of £2m. We remain confident in our
growth strategy for Liquidnet and are making good progress in both Equities
and Fixed Income.
The Group incurred significant items of £143m after tax in its reported
earnings (2020: £87m). While we continue to amortise intangible assets
arising on the acquisition of ICAP and now Liquidnet, we have incurred
additional costs in 2021 that will enable the Group to reduce its future cost
base.
In February 2022 the UK, EU and US imposed sanctions against certain Russian
individuals, entities and their subsidiaries. We have ceased trading activity
with sanctioned clients. The proportion of 2021 revenue from Russian clients
was approximately 0.5% of the total. As at 11 March 2022, the value of
realised losses on failed settlements is £4m. TP ICAP has also recognised
potential unrealised losses of £9m in relation to failed settlements and has
written down trade debtors with sanctioned clients by £1m. In addition, the
Group has outstanding unsettled matched principal transactions in Russian
financial instruments of a nominal value of around £12m where neither
counterparty has been able to settle at this time and where no net loss has
been recognised.
The increased volatility and secondary market activity in the second half of
2021 has continued in 2022. Group revenue in the year to date until 11 March
2022, excluding Liquidnet, was approximately 4% higher than the corresponding
period in 2021, in constant currency (16% higher including Liquidnet).
Robin Stewart
Executive Director and Chief Financial Officer
15 March 2022
Key financial and performance metrics
FY 2021 FY 2020 FY 2021 total vs. 2020 FY 2021 total vs. 2020
Group (exc. Liquidnet) Liquid-net(1) Total Reported Constant reported constant currency change
currency change
£m £m £m £m £m
Revenue 1,706 159 1,865 1,794 1,726 4% 8%
Adjusted
- Contribution 634 68 702 680 654 3% 7%
- Contribution margin 37.2% 42.8% 37.6% 37.9% 37.9% (0.3%pts) (0.3%pts)
- EBITDA 295 20 315 328 311 (4%) 1%
- EBIT 235 (2) 233 272 256 (14%) (9%)
- EBIT margin 13.8% (1.3%) 12.5% 15.2% 14.8% (2.7%pts) (2.3%pts)
Reported
- EBIT n/a n/a 97 178 162 (46%) (40%)
- EBIT margin n/a n/a 5.2% 9.9% 9.4% (4.7%pts) (4.2%pts)
Average:
- Broker headcount(2) 2,745 n/a 2,745 2,765 n/a (1%)
- Revenue per broker(3) (£'000) 561 n/a 561 589 567 (5%) (1%)
- Contribution per broker(4) (£'000) 200 n/a 200 215 207 (7%) (3%)
Period end:
- Broker headcount(2) 2,680 n/a 2,680 2,771 n/a (3%)
- Total headcount 4,869 434 5,303 4,926 n/a 8%
1. Liquidnet post-acquisition results included from 23 March 2021
onwards, the date the transaction completed.
2. Broker headcount excludes Liquidnet. Broker headcount for 2020 has
been restated to remove 26 average headcount and 23 period end headcount as a
result of the transfer of the Post-Trade Solutions business to Parameta
Solutions during the first half of 2021.
3. Revenue per broker is defined as total broking revenues (Global
Broking, Energy & Commodities and Agency Execution, excluding Liquidnet)
excluding inter-division revenues divided by average broker headcount. 2020
has been restated following the transfer of the Post-Trade Solutions business
to Parameta Solutions during 2021.
4. Contribution per broker represents broking contribution (as defined
in the Contribution section) for Global Broking, Energy & Commodities and
Agency Execution, excluding Liquidnet business, divided by average broker
headcount with the prior year comparative calculated on the same basis. 2020
has been restated following the transfer of the Post-Trade Solutions
business to Parameta Solutions during 2021.
Average broker headcount reduced by 1% from 2,765 in 2020 to 2,745 in 2021,
despite the acquisition of LCM. Average revenue per broker declined by 5% in
2021 compared with 2020 (1% decline in constant currency), but improved by 8%
in constant currency during the fourth quarter of 2021 compared with the
fourth quarter of 2020. The average contribution per broker decreased by 7%
(3% decline in constant currency), reflecting the less favourable revenue mix
in 2021. Total Group headcount increased by 8% to 5,303, driven primarily by
the Liquidnet acquisition. Excluding Liquidnet, Group headcount reduced by 1%.
Income Statement
The Group presents its reported results in accordance with International
Financial Reporting Standards ('IFRS'). The Group also presents adjusted
(non-IFRS) measures to report performance. Adjusted results and other
alternative performance measures ('APMs') may be considered in addition to,
but not as a substitute for, the reported IFRS results. The Group believes
that adjusted results and other APMs, when considered together with reported
IFRS results, provide stakeholders with additional information to better
understand the Group's financial performance and compare performance from
period to period. These adjusted measures and other APMs are also used by
management for planning and to measure the Group's performance.
Reported results are adjusted for significant items (which can be either cash
or non-cash costs) to derive adjusted results. A reconciliation from reported
to adjusted measures is provided in the Group income statement below. Analysis
of performance by Business Division and by Primary Operating Segment
(regional) follows the Group income statement analysis.
FY 2021 Adjusted Significant Reported
£m items £m
£m
Revenue 1,865 - 1,865
Employment, compensation and benefits (1,140) (12) (1,152)
General and administrative expenses (420) (56) (476)
Depreciation and impairment of PPE and ROUA (52) (16) (68)
Amortisation and impairment of intangible assets (30) (52) (82)
Impairment of other assets - - -
Operating expenses (1,642) (136) (1,778)
Other operating income 10 - 10
EBIT 233 (136) 97
Net finance expense (56) (17) (73)
Profit before tax 177 (153) 24
Tax (44) 21 (23)
Share of net profit of associates and joint ventures 18 (11) 7
Non-controlling interests (3) - (3)
Earnings 148 (143) 5
Basic average number of shares 759.3 759.3 759.3
Basic EPS 19.5p (18.8p) 0.7p
Diluted average number of shares 768.2 766.7 766.7
Diluted EPS 19.3p (18.6p) 0.7p
FY 2020 Adjusted Significant Reported
£m £m items £m
£m
Revenue 1,794 - 1,794
Employment, compensation and benefits (1,147) (6) (1,153)
General and administrative expenses (333) (27) (360)
Depreciation and impairment of PPE and ROUA (36) (1) (37)
Amortisation and impairment of intangible assets (20) (39) (59)
Impairment of other assets - (23) (23)
Operating expenses (1,536) (96) (1,632)
Other operating income 14 2 16
EBIT 272 (94) 178
Net finance expense (49) - (49)
Profit before tax 223 (94) 129
Tax (55) 7 (48)
Share of net profit of associates and joint ventures 16 - 16
Non-controlling interests (1) - (1)
Earnings 183 (87) 96
Basic average number of shares (restated) 625.0m 625.0m 625.0m
Basic EPS(1) 29.3p (13.9p) 15.4p
Diluted average number of shares 632.7m 632.7m 632.7m
Diluted EPS(1) 28.9p (13.7p) 15.2p
1. The average number of shares, used to calculate Basic EPS, has been
restated to integrate the bonus element of the rights issue completed in
February 2021.
Revenue
Reported Constant currency change
FY 2020 (constant currency) change
FY 2021 FY 2020
£m £m £m
By Business Division
Rates(1) 429 488 474 (12%) (9%)
Credit 82 90 86 (9%) (5%)
FX & Money Markets 170 186 180 (9%) (6%)
Emerging Markets 179 183 176 (2%) 2%
Equities 226 201 192 12% 18%
Inter-division revenues(2) 19 20 20 (5%) (5%)
Total Global Broking 1,105 1,168 1,128 (5%) (2%)
Energy & Commodities 367 388 372 (5%) (1%)
Inter-division revenues(2) 3 3 3 0% 0%
Total Energy & Commodities 370 391 375 (5%) (1%)
Excluding Liquidnet 87 91 88 (4%) (1%)
Liquidnet 159 - - n/a n/a
Total Agency Execution 246 91 88 170% 180%
Data & Analytics(1) 149 145 136 3% 10%
Post Trade Solutions 17 22 22 (23%) (23%)
Total Parameta Solutions(1) 166 167 158 (1%) 5%
Inter-division eliminations(2) (22) (23) (23) (4%) (4%)
Total Revenue 1,865 1,794 1,726 4% 8%
1. Following the formation of the Parameta Solutions business, the
Post-trade Solutions business reported in the Rates asset class within Global
Broking was transferred to Parameta Solutions. The comparative revenues of
Rates within Global Broking and Parameta Solutions have been restated to
reflect the restructuring. Third-party revenues in 2020 amounted to £22m.
Additionally, inter-division revenue has increased by £2m reflecting the sale
of clearing services to Post-trade Solutions, which eliminate on
consolidation. Adjusted EBIT within the Global Broking division has been
reduced by £9m with the corresponding increase reflected in the results of
Parameta Solutions.
2. Inter-division charges have been made by Global Broking and Energy
& Commodities to reflect the value of proprietary data provided to the
Parameta Solutions division. The prior year period has been restated in line
with the new presentation format. The Global Broking inter-division revenues
and Parameta Solutions inter-division costs are eliminated upon the
consolidation of the Group's financial results.
All percentage movements quoted in the analysis of financial results that
follows are in constant currency, unless otherwise stated.
Total Group revenue in 2021 of £1,865m was 8% higher than the prior year (4%
higher on a reported basis). This was driven by growth in Agency Execution
(+180%, including Liquidnet revenue from 23 March 2021 onwards) and Parameta
Solutions (+5%), which was partly offset by marginal revenue declines in
Global Broking (-2%) and Energy & Commodities (-1%), reflecting the more
challenging market conditions, particularly in the first half of 2021, with
the prior year also including record volumes in the first quarter. Diversified
(non-Global Broking) revenue as a proportion of total Group revenue was 42% in
2021 (2020: 36%).
Liquidnet revenue for the nine-month period of ownership in 2021 was £159m,
slightly below the lower end of the guided £160m to £180m range, reflecting
weaker than expected equity volumes in December 2021. Pro forma revenue for
the full year in 2021 was £221m, compared with £258m in 2020 on a reported
basis and £242m in constant currency. The prior year included significant
equity market volumes in the first quarter, following the onset of COVID-19,
and in the fourth quarter as market sentiment improved as a result of positive
vaccine news.
Pro forma Liquidnet revenue by quarter for 2021 and 2020 (in both reported and
constant currency) are shown in the table below:
2021 2020
Revenue Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
2020 at reported rates 68 50 50 52 221 86 62 51 60 258
2020 in constant currency 80 56 47 58 242
Excluding Liquidnet, Group revenue of £1,706m was 1% lower than 2020, per our
guidance of being broadly in line with 2020, and reflected strong growth in
the second half of the year.
Operating expenses
The table below sets out operating expenses, divided principally between front
office costs and management and support costs. Front office costs tend to have
a large variable component and are directly linked to the output of our
brokers. The largest element of this is broker compensation as well as other
front office costs, which include travel and entertainment, telecommunications
and information services, clearing and settlement fees as well as other direct
costs. The remaining cost base represents the management and support costs of
the Group.
FY 2021 FY 2020(1) Change Reported Constant
£m £m £m Change Currency
Change
Front office costs
- Broking(2) 1,012 1,056 (44) (4%) (1%)
- Liquidnet(2) 91 - 91
- Parameta Solutions 60 58 2 3% 9%
Total front office costs 1,163 1,114 49 4% 8%
Management and support costs
- Employment costs 226 224 2 1% 4%
- Technology and related costs 79 69 10 14% 16%
- Premises and related costs 28 27 1 4% 4%
- Depreciation and amortisation 82 56 26 46% 46%
- FX losses/(gains) 11 - 11 n/a n/a
- Other administrative costs 53 46 7 15% 20%
Total management and support costs 479 422 57 14% 16%
Total adjusted operating costs 1,642 1,536 106 7% 11%
Significant items(3) 136 96 40 42% n/a
Total operating expenses 1,778 1,632 146 9% n/a
1. Restated in line with our new divisional disclosures.
2. Includes all front office costs, including broker compensation,
travel and entertainment, telecommunications, information services, clearing
and settlement fees as well as other direct costs.
3. Constant currency changes shown against adjusted numbers only, to
highlight true underlying performance.
Total operating expenses were £1,778m, which was 9% higher than 2020 on
reported basis, driven by the acquisition of Liquidnet and an increase in
significant items.
Total front office costs of £1,163m increased by 8% compared to 2020 (an
increase of 4% on a reported basis) and were flat year-on-year when excluding
£91m of Liquidnet front office costs. Broking front office costs of £1,012m
declined by 1% (-4% on a reported basis), reflecting the benefit of the cost
saving programme which more than offset a revenue shift towards Global Broking
asset classes with lower contribution margins, a full year of LCM costs
(acquired in July 2020), and increased front office investment in the COEX
business. Parameta Solutions front office costs of £60m were 9% higher than
the prior year as a result of investment in distribution to support continued
revenue growth.
Total management and support costs of £479m, which included £71m of
Liquidnet costs and an FX loss of £11m, were 16% higher than the prior year
(14% higher on a reported basis). Excluding Liquidnet, management and support
costs were down 1% year on year.
Management and support costs movements by category were as follows:
§ Employment costs of £226m increased by 4% compared to 2020 reflecting the
LCM and Liquidnet acquisitions, partially offset by cost savings from
redundancies, and a lower discretionary bonus accrual in 2021.
§ Technology and related costs of £79m included £16m of Liquidnet costs.
Excluding Liquidnet, costs were 9% lower than the prior year, largely as a
result of lower IT consultancy fees.
§ Premises and related costs of £28m increased by 4%, while depreciation and
amortisation of £82m was 46% higher than the prior year. The increase in
depreciation and amortisation was driven by the new London headquarters
(+£3m) as well as additional Liquidnet costs (+£22m).
§ The £11m adverse change in FX gains and losses (2020: £nil) reflects the
strengthening of GBP against other currencies, in particular the US Dollar, on
the retranslation of net financial assets, including cash.
§ Excluding Liquidnet, other administrative costs were 7% lower than the
prior year, reflecting lower travel and entertainment and other consultancy
fees.
As noted in the introduction to the Financial Review we have made notable
progress in reducing our cost base:
§ We have successfully completed our programme to save £35m of annualised
costs, which we announced in the third quarter of 2020. The programme
delivered an incremental £19m of savings in 2021.
§ We also delivered £12m of Liquidnet cost synergies in 2021, exceeding our
initial target of £5m. We expect to complete our actions by the end of 2023,
realising annualised savings of at least £25m.
At the interim 2021 results, we signalled that we were reviewing property
savings across the Group, and that initiative is well underway. In addition to
the reduction in our property footprint already achieved from moving our
London headquarters in March 2021, we are targeting a further 25% footprint
reduction by the end of 2024, which will deliver approximately £14m of
annualised cost savings.
The above initiatives improved the Group's 2021 adjusted EBIT by £31m (with
costs to achieve the savings, included within significant items, amounting to
£29m). By the end of 2024 we expect a further reduction in our total cost
base of at least £38m on an annualised basis (with costs to achieve the
savings anticipated to be approximately £43m).
Incremental savings, split by front office and management and support costs,
as well as the one-off costs to achieve the savings, are summarised in the
table below.
Incremental P&L savings
2020 2021 2022 - 2024 (estimated) Cumulative (annualised)
£m £m £m £m
Front office cost savings
- £35m cost saving programme 1 12 9 22
- Liquidnet cost synergies - 4 6 10
Total 1 16 15 32
Management & support cost savings
- £35m cost saving programme 4 7 2 13
- Liquidnet cost synergies - 8 7 15
- Property rationalisation - - 14 14
Total 4 15 23 42
Total cost savings initiatives 5 31 38 74
One-off costs to achieve (sig. items)
- £35m cost saving programme (5) (5) - (10)
- Liquidnet cost synergies - (7) (15) (22)
- Property rationalisation - (17) (28) (45)
Total (5) (29) (43) (77)
The vast majority of 2022 to 2024 incremental front office savings will be
realised in 2022, while for management and support costs, approximately 50% of
savings relate to 2022. This equates to approximately £25m of total savings
in 2022. The majority of the residual management and support cost savings are
expected to be realised in 2023. Around 90% of the costs to achieve the future
savings will be incurred in 2022, with the balance expected to be incurred in
2023.
As a result of the EU recently stating that it is unlikely to grant UK-based
firms automatic market access equivalence, we expect to incur additional
ongoing employment costs in our 2022 adjusted results in relation to our
Brexit transition plan, as we relocate existing additional UK-based brokers
and hire brokers locally in Paris and Madrid. The increased costs result from
higher European employer-related taxes (primarily social security charges plus
irrecoverable VAT on cross border service costs).
The targeted incremental Group savings in 2022 will be impacted by the
additional Brexit costs, realised and unrealised losses from sanctioned
Russian clients of £14m, as well as inflationary increases.
During 2021, we incurred total strategic IT investment spend amounting to
£27m (£11m of operating expenses, £16m of capital expenditure). During 2022
we expect to incur total strategic IT investment of approximately £45m (£18m
of operating expenses, £27m of capital expenditure).
Significant items
Significant items are cash and non-cash items that are excluded from adjusted
measures to allow better comparability of financial performance from period to
period and to provide additional information to better understand the Group's
financial performance, when considered together with reported IFRS results.
The table below shows the Significant items in 2021 split between cash and
non-cash vs the 2020 total.
2021 2020
Cash Non-cash Total Total
£m £m £m £m
Restructuring & related costs 25 17 42 20
- Property related 9 16 25 4
- Liquidnet integration 7 - 7 -
- £35m cost saving programme 5 - 5 7
- Business redomiciliation 3 - 3 8
- Pension scheme past service and settlement costs - 1 1 1
- Other 1 - 1 -
Disposals, acquisitions and investment in new business 12 67 79 74
- Amortisation of intangible assets arising on consolidation - 46 46 39
- Liquidnet acquisition / capitalised development costs 8 6 14 11
- Losses on derivatives and foreign exchange 4 - 4 -
- Reversal of US tax indemnity provision(1) - 13 13 -
- Adjustment to deferred consideration - 2 2 2
- Goodwill impairment - - - 21
- Other impairment - - - 1
Legal & regulatory matters 15 - 15 -
EBIT 52 84 136 94
Financing 17 - 17 -
- Debt refinancing 16 - 16 -
- Liquidnet interest expense on Vendor Loan Notes 1 - 1
Profit before tax 69 84 153 94
Tax relief (21) (7)
Associate write down 11 -
Reported earnings 143 87
1. US tax related indemnity provision arose on the ICAP acquisition,
with an equal offsetting credit included within the Group's overall tax
expense
In 2021 total significant items amounted to £153 before tax and £143m post
tax and associates. This compares to lower significant items in 2020 of
£93m before tax and £87m post tax and associates with the increase in 2021
driven primarily by costs associated with the restructuring of the Group's
property portfolio, new Liquidnet integration costs and increased costs in
legal and regulatory matters.
Significant items can be categorised into the following five areas below.
Restructuring and related costs (£42m in 2021; £20m in 2020):
Restructuring and related costs arise from initiatives to reduce the ongoing
cost base and improve efficiency to enable the delivery of our strategic
priorities. These initiatives are significant in size and nature to warrant
exclusion from adjusted measures. Costs for other smaller scale restructuring
are retained within both reported and adjusted results.
As adjusted results include the benefits of material restructuring programmes
but some of the related costs have been excluded, they should not be regarded
as a complete picture of the Group's financial performance, which is presented
in the reported IFRS results.
In 2021, the following restructuring and related costs were considered to be
significant items:
§ £9m of property-related cash costs from the Group's property footprint
reduction programme which includes property costs associated with Tower 42, 2
Broadgate and 155 Bishopsgate of £5m following the transfer and consolidation
of the Group's space requirements to 135 Bishopsgate, and £4m of costs
related to the exit and sub-let of floorspace in Liquidnet's New York
property. In addition there was a £16m non-cash impairment of property,
plant & equipment and right-of-use assets related to these now vacant
properties (£3m related to the move to 135 Bishopsgate and £13m related to
Liquidnet).
§ £7m of costs incurred, including £1m of share-based expenses to achieve
synergies as part of the Liquidnet integration programme.
§ £5m in employee redundancy costs associated with the Group's £35m costs
saving programme completed in 2021.
§ £3m incurred on the Group's redomiciliation to Jersey, Channel Islands
consisting of £2m of legal fees and £1m of accountancy fees.
§ £1m pension scheme and past service cost from a remeasurement of the
Group's UK defined benefit scheme.
Disposals, acquisitions and investments in new businesses (£79m 2021; £74m
2020):
Costs, and any related income, related to disposals, acquisitions and
investments in new business are transaction dependent and can vary
significantly year-on-year, depending on the size and complexity of each
transaction. Amortisation of purchased and developed software is retained in
both the reported and adjusted results as these are considered to be core to
supporting the operations of the business.
§ £46m in the amortisation of intangible assets following the acquisitions
ICAP and Liquidnet of which £33m relates to ICAP, £11m relates to Liquidnet
and £2m relating to smaller acquisitions.
§ £8m in acquisition cash costs, mainly relating to Liquidnet, and £6m
non-cash impairment of intangible assets acquired with Liquidnet.
§ £4m of net losses on derivatives and foreign exchange, comprised of £8m
of derivative losses on forward contracts partly offset by foreign exchange
gains of £5m from economic hedging activities entered into to reduce the
Group's exposure to a strengthening US dollar ahead of the Liquidnet
acquisition and £1m exchange loss on the Liquidnet Vendor Loan Notes.
§ £13m non-cash expense relating to the remeasurement of an acquired tax
indemnification asset recognised during the ICAP acquisition.
§ £2m relates to the non-cash adjustment to deferred considerations, of
which £4m is due to the unwind of the discount to present value of the $75m
expected pay-out as part of the purchase of Liquidnet. This is partly offset
by £2m from the assessment of lower future payments relating to other
acquisitions.
As with other related acquisition costs and adjustments, management considers
goodwill impairment separately, due to significant variations year-on-year, to
aid comparability of results. There was no goodwill impairment in 2021. In
2020, the carrying value of the Asia-Pacific Cash Generating Unit was written
down by £21m.
Legal and regulatory matters (£15m cost in 2021; nil in 2020):
Costs, and recoveries, related to certain legal and regulatory cases are
treated as significant items due to their size and nature. Management
considers these cases separately due to the judgements and estimation
involved, the costs and recoveries of which could vary significantly
year-on-year.
Total expense of £15m in 2021 included the following cases:
§ £4m costs relating to the fine from the AMF following its investigation.
The Group filed an appeal against the ruling in October 2021.
§ £5m costs regarding the cum-ex investigation by the Frankfurt and Cologne
Public Prosecutors in Germany.
§ £2m in legal costs relating to the court cases in Australia. In the fourth
quarter of 2021 the Group agreed to an additional £2m settlement.
§ £2m in legal fees in the pursuit of claims for costs relating to the Group
Income Protection liabilities as a result of which the Group received a
settlement from NEX Group Limited.
Financing (£17m in 2021; nil in 2020):
§ £16m of debt refinancing costs, related to the part redemption of an
existing bond at an 8.408% premium to par value, paid for by the new 2028 bond
that will save the Group £4m per annum in net finance costs from 2022
onwards.
§ £1m related to the interest expense on the $50m Liquidnet Vendor Loan
Notes, which is part of the Liquidnet acquisition consideration.
Tax and associates (£10m net relief in 2021; £6m net relief in 2020):
§ £21m of tax relief that includes £12m of integration costs tax
deductions, £11m of intangible asset amortisation deductions and £11m of
other tax provision deductions, partially offset by a £16m impact of deferred
tax rate increases.
§ £11m impairment of the Group's investment in associate undertakings in
2021 as result of reduced performance of companies in which the Group owns a
minority stake.
Significant items - 2022 guidance
Based on our current outlook, we estimate significant items included in
reported 2022 EBIT to be approximately £125m (pre-tax) with around three
quarters expected to be non-cash items. This estimate excludes income and
expenses relating to legal and regulatory cases as these items are difficult
to predict accurately and can vary materially year on year.
The main significant items for 2022 are expected to be approximately:
§ c.£50m of amortisation of intangible assets from acquisitions with the
increase due to a full-year impact of the Liquidnet acquisition.
§ c.£40m of costs to achieve the cost savings programs initiated in 2021
(see Incremental P&L savings and costs to achieve table in the previous
section).
§ c.£20m of costs to achieve new savings initiatives currently being
planned.
§ c.£10m relating to the unwind of the discount of deferred consideration
relating to acquisitions.
§ c.£6m of Brexit related staff relocation costs following the EU stating it
is unlikely to grant UK-based firms automatic market access equivalence.
We expect significant items to reduce further in 2023.
Group net finance expense
The adjusted net finance expense of £56m in 2021, which comprised of £59m of
interest expense, less £3m of interest income, is £7m higher than the £49m
charged in 2020, reflecting the following additional costs:
§ £1m interest on the additional debt drawn to partially finance the
Liquidnet acquisition.
§ £2m cost of foreign currency options purchased to hedge the acquisition
consideration.
§ £3m of additional interest on finance lease liabilities on new offices in
135 Bishopsgate and the acquired Liquidnet leases.
§ £1m from higher amortisation of debt issue costs and facility fees.
During November 2021 the Group successfully issued a new £250m bond maturing
in 2028 with a coupon rate of 2.625% and used £200m of the new issuance to
part redeem the existing 2024 5.25% bond (par value of £184m; £16m
premium). As a result of this liability management exercise, we expect an
annual saving in Group net finance expenses of approximately £4m from 2022
onwards. The £16m premium was reported within significant items. The
remaining £1m finance cost reflects the interest expense on the $50m Vendor
Loan Notes of the Liquidnet acquisition.
Group Tax
The effective rate of tax on adjusted profit before tax is 24.9% (2020:
24.7%). The effective rate of tax on reported profit before tax is 95.8%
(2020: 37.2%). The higher rate on reported profit before tax is due
primarily to a £16m increase in the deferred tax liability recognised in
respect of intangible assets arising on consolidation following the
announcement of a future increase in the UK corporation tax rate, which is
included within significant items.
Basic EPS
The average number of shares used for the basic EPS calculation of 759.3m
reflects the 563.3m shares in issue at 31 December 2020, increased by 225.4m
shares issued under the rights issue, less 9.1m shares held by the TP ICAP plc
Employee Benefit Trust ('EBT') at the end of the period, less the time
apportionment impact of the rights issue of 20.6m, offset by the time
apportioned movements in shares held by the EBT used to settle deferred share
awards of 0.3m. The average number of shares in issue for December 2020 has
been restated from the published numbers of 557.0m to 625.0m reflecting the
impact of the bonus element of the rights issue. The TP ICAP plc EBT has
waived its rights to dividends.
The reported Basic EPS for 2021 was 0.7p (2020: 15.4p), and adjusted Basic EPS
for 2021 was 19.5p (2020 restated: 29.3p).
Dividend
The Board is recommending a final dividend for 2021 of 5.5p, which, when added
to the interim dividend of 4p, results in a total dividend for the year of
9.5p ﴾2020: 6.0p - rebased to take into account the bonus element of the
rights issue, completed in February 2021﴿. This is in line with the Group's
dividend policy which targets a dividend cover of approximately 2x adjusted
post-tax earnings. The final dividend will be paid on 17 May 2022 to
shareholders on the register at close of business on 8 April 2022. The
ex-dividend date will be 7 April 2022.
The Company offers a Dividend Reinvestment Plan ('DRIP'), where dividends can
be reinvested in further TP ICAP Group plc shares. The DRIP election cut-off
date will be 25 April 2022.
Guidance
The recovery in secondary market volumes in the second half of 2021 has
continued in 2022. Group revenue in the year to date until 11 March 2022,
excluding Liquidnet, was approximately 4% higher than the corresponding period
in 2021, in constant currency (16% higher including Liquidnet). However, it
remains difficult to accurately predict the level of volatility and
transaction volumes across the OTC markets in which we participate for the
remainder of the year, and therefore the level of expected revenue. Based on
our current market outlook, our guidance for 2022 is as follows:
§ Slight improvement in Group adjusted EBIT margin assuming a similar revenue
profile as 2021;
§ Incremental targeted cost savings of £25m - impacted by additional Brexit
costs, realised and unrealised losses from sanctioned Russian clients of
£14m, as well as inflationary increases;
§ Significant items, within reported results, are expected to be
approximately £125m (pre-tax), excluding potential income and costs
associated with legal and regulatory matters;
o Significant items are expected to reduce further in 2023
§ Group net finance expenses of approximately £52m;
§ Group strategic IT investments of £45m (cash) including £18m of operating
expenses;
§ Group capital expenditure expected to be £65m, including £27m of
strategic IT Investments;
§ Dividend cover of c.2x adjusted post-tax earnings; and
§ Impact of Russian sanctions (as at 11 March 2022):
o Russian clients accounted for c.0.5% of 2021 revenue
o Realised losses on failed settlements: £4m
o Potential unrealised losses: £9m
o Trade debtors written down: £1m
Performance by Business Division and by Primary Operating Segment
The Group presents below the results of its business both by Business Division
and by Primary Operating Segment with a focus on revenues and APMs used to
measure and assess performance.
Performance by Business Division
FY 2021 GB(1,2) E&C(2) AE(3) PS(1,2) Corp/ Total
£m £m £m £m Elim £m £m
Revenue:
- External 1,086 367 246 166 - 1,865
- Inter-division(2) 19 3 - - (22) -
1,105 370 246 166 (22) 1,865
Total front office costs:
- External (694) (248) (161) (60) - (1,163)
- Inter-division(2) (22) 22 -
(694) (248) (161) (82) 22 (1,163)
Contribution 411 122 85 84 - 702
Contribution margin 37.2% 33.0% 34.6% 50.6% - 37.6%
Net management and support costs:
- Management and support costs (211) (66) (66) (13) (41) (397)
- Other operating income(2) 2 - - - 8 10
Adjusted EBITDA 202 56 19 71 (33) 315
Adjusted EBITDA margin 18.3% 15.1% 7.7% 42.8% - 16.9%
- Depreciation and amortisation (29) (9) (25) (2) (17) (82)
Adjusted EBIT(5) 173 47 (6) 69 (50) 233
15.6% 12.7% (2.4)% 41.6% 12.5%
Adjusted EBIT margin
1,973 652 120 - - 2,745
Average broker headcount
Average sales headcount - - 234 - - 234
Revenue per broker(4) 550 563 719 - - 561
Contribution per broker(4) 208 187 142 - - 200
FY 2020 GB(1,2) E&C(2) AE PS(1,2) Corp/ Total
Elim
£m £m £m £m
£m
£m
Revenue:
- External 1,148 388 91 167 1,794
- Inter-division(2) 20 3 (23)
1,168 391 91 167 (23) 1,794
Total front office costs:
- External (726) (261) (69) (58) (1,114)
- Inter-division(2) (23) 23
(726) (261) (69) (81) 23 (1,114)
Contribution 442 130 22 86 680
Contribution margin 37.8% 33.2% 24.2% 51.5% 37.9%
Net management and support costs:
- Management and support costs (229) (70) (13) (12) (42) (366)
- Other operating income 3 1 10 14
Adjusted EBITDA 216 61 9 74 (32) 328
Adjusted EBITDA margin 18.5% 15.6% 9.9% 44.3% 18.3%
- Depreciation and amortisation (28) (8) (2) (1) (17) (56)
Adjusted EBIT(5) 188 53 7 73 (49) 272
16.1% 13.6% 7.7% 43.7% 15.2%
Adjusted EBIT margin
Average broker headcount 2,000 659 106 - - 2,765
Revenue per broker 574 589 857 - - 589
Contribution per broker 221 197 208 - - 215
FY 2020 (constant currency) GB(1,2) E&C(2) AE PS(1,2) Corp/ Total
Elim
£m £m £m £m
£m
£m
Revenue:
- External 1,108 372 88 158 - 1,726
- Inter-division(2) 19 3 - - (22) -
1,127 375 88 158 (22) 1,726
Total front office costs:
- External (699) (251) (67) (55) - (1,072)
- Inter-division(2) (22) 22 -
(699) (251) (67) (77) 22 (1,072)
Contribution 428 124 21 81 - 654
Contribution margin 37.9% 33.2% 23.9% 51.2% 37.9%
Net management and support costs:
- Management and support costs (221) (67) (12) (11) (46) (357)
- Other operating income 3 1 - - 10 14
Adjusted EBITDA 210 58 9 70 (36) 311
Adjusted EBITDA margin 18.6% 15.6% 10.2% 44.3% 18.0%
- Depreciation and amortisation (27) (8) (2) (2) (16) (55)
Adjusted EBIT(5) 183 50 7 68 (52) 256
16.2% 13.5% 7.9% 43.2% 14.8%
Adjusted EBIT margin
2,000 659 106 - - 2,765
Average broker headcount
Revenue per broker 554 564 830 - - 567
Contribution per broker 214 188 202 - - 207
GB = Global Broking; E&C = Energy & Commodities; AE = Agency
Execution, PS = Parameta Solutions, Corp/Elim = Corporate Centre, eliminations
and other unallocated costs.
1. Following the formation of the Parameta Solutions division, the
Post-Trade Solutions business reported in the Rates asset class within Global
Broking was transferred to Parameta Solutions. The comparative revenues of
Rates within Global Broking and Parameta Solutions have been restated to
reflect the restructuring. Third-party revenues in 2020 amounted to £22m.
Additionally, inter-division revenue has increased by £2m reflecting the sale
of clearing services to Post-Trade Solutions, which eliminate on
consolidation. Adjusted EBIT within the Global Broking division has been
reduced by £9m with the corresponding increase reflected in the results of
Parameta Solutions.
2. Inter-division charges have been made by Global Broking and Energy
& Commodities to reflect the value of proprietary data provided to the
Parameta Solutions division. The prior year period has been restated in line
with the new-presentation format. The Global Broking inter-division revenues
and Parameta Solutions inter-division costs are eliminated upon the
consolidation of the Group's financial results.
3. For 2021, £159m of revenue has been included within Agency
Execution relating to the Liquidnet acquisition that completed on 23 March
2021.
4. Revenue and contribution by broker are calculated as external
revenues and contribution of GB, E&C and AE, excluding Liquidnet, divided
by the average brokers for the Period. The Group revenue and contribution by
broker excludes revenue and contribution from PS and Liquidnet, included
within AE. Revenue and Contribution attributed to Liquidnet in 2021 was £159m
and £68m, respectively.
5. The Group has a matrix management structure and manages by business
by division and by region (its current Primary Operating segment). Adjusted
EBIT for each division reflects the operational basis by which it is managed
on a business level. Management and support costs are therefore allocated on a
basis that reflects the true cost of support and other back office charges.
The divisional allocation of management and support costs differs to the basis
reported within adjusted EBIT by Primary Operating Segment (regional basis),
which is more closely aligned to statutory reporting requirements, and
excludes certain costs, which under IFRS are required to be reported within
Group costs. The divisional basis of reporting includes the full IFRS 16
charge for leases (interest and depreciation) in each division's adjusted
EBIT, whereas for reporting by Primary Operating Segment, the interest element
of the IFRS 16 charge is excluded from adjusted EBIT and included in finance
costs.
All percentage movements quoted in the analysis of financial results that
follows are in constant currency, unless otherwise stated.
Global Broking
Global Broking revenue of £1,105m (which represents 58% of total Group
revenue) was 2% lower than in 2020 (5% lower on a reported basis), reflecting
lower wholesale trading volumes across all asset classes. Growth in Equities
and Emerging Markets was offset by revenue declines in Rates, Credit and FX
& Money Markets.
Rates revenue (our most profitable asset class which comprises 39% of Global
Broking revenue and 23% of total Group revenue) declined by 9% to £429m. This
was a robust performance against a strong 2020 comparative and the significant
decline in wholesale volumes year-on-year - indeed, the London Clearing House
notional SwapClear dealer volumes(1) in 2021 declined by c.14% compared with
2020. The fall in wholesale market activity was driven by the low interest
rate environment during 2021, a flat yield curve and continued quantitative
easing from Central Banks. Our 2022 outlook for the Rates business has
improved, as monetary policy begins to tighten in response to the rising
inflationary environment across our markets.
Revenue in FX & Money Markets reduced by 6% to £170m in 2021, marginally
outperforming the year-on-year decline of c.8% in CME FX Futures volumes.
Credit revenue of £82m was 5% lower than in 2020 reflecting lower secondary
trading volumes, despite strong new issuance growth. Total US corporate bond
trading volumes declined by c.6% in 2021 (Source: SIFMA), while total
MarketAxess Post-Trade Eurobonds(2) volumes declined by c.4% (Source:
MarketAxess). Equities revenue increased by 18% to £226m, with 2021
benefiting from a full year of trading from LCM, which was acquired on 31 July
2020. Excluding LCM from both periods, Equities revenue increased by 3%.
Volumes of equity and index derivatives contracts on Eurex(3) and Euronext(4)
declined by c.18% and c.9% year-on-year respectively, while the volume of CME
equity index derivatives (excluding micro products) declined by c.11%. Revenue
in Emerging Markets grew by 2% to £179m.
Total front office costs of £694m were 1% lower than 2020 reflecting a lower
average broker headcount, the 2% decline in revenue, and benefits of the cost
saving programme which offset the revenue shift towards asset classes that
have lower contribution margins. The resulting contribution margin was 37.2%
compared with 37.9% in the prior year in constant currency (37.8% on a
reported basis).
Management and support costs of £211m were 5% lower than the prior year,
despite increased investment in the roll-out of our electronic platform,
Fusion, while depreciation and amortisation increased by £2m to £29m.
The adjusted EBIT was £173m in 2021, with an adjusted EBIT margin of 15.6%
(2020: £183m, 16.2% in constant currency and £188m, 16.1% on a reported
basis).
1. Dealer volumes refer to all clearing volumes subtracted by all
client clearing volumes.
2. Former Trax Eurobonds, which we consider as a proxy for European
credit volumes.
3. Eurex Equity derivatives and Index derivatives traded contracts.
4. Euronext stock products and index products volumes.
Energy & Commodities
E&C revenue of £370m in 2021 (which represents 20% of total Group
revenue) was 1% lower than in 2020 (5% lower on a reported basis), with growth
in environmental markets, oil and bulk commodities being offset by lower
revenues in gas. By comparison the number of oil, gas and other energy
products traded on the Intercontinental Exchange ('ICE') increased by c.1% in
2021.
E&C markets had a volatile year, driven by the pandemic's impact on supply
and demand as well as the ongoing energy transition. The second half of the
year was particularly volatile with the Omicron variant impacting the market's
view on the demand for commodities. For instance oil prices for both Brent and
WTI were particularly volatile towards the end of the year. Our oil clients
have generally had a good year benefiting from a large number of trading
opportunities, and our revenue in oil was largely reflective of the market and
slightly ahead of exchange volumes.
Significant price swings led to a severe contraction in many clients' OTC
bilateral credit lines, resulting in reduced trading activity in OTC European
gas and power. The Group's US power and gas revenues were largely flat with
gains in power offsetting weaker gas revenues.
Of particular note in 2021 was the strong growth in our environmental products
revenue as clients focus activity in this product area as part of the energy
transition to a zero-emission future.
Front office costs of £248m were 1% lower than the prior year, in line with
the decline in revenue, while management and support costs of £66m were £1m
lower than 2020, with depreciation and amortisation increasing by £1m. This
resulted in a contribution margin of 33.0% (2020: 33.2% in both reported and
constant currency).
The adjusted EBIT was £47m in 2021, with an adjusted EBIT margin of 12.7%
(2020: £50m, 13.5% in constant currency and £53m, 13.6% on a reported
basis), with the lower revenue more than offsetting the decline in total
costs.
Agency Execution
Agency Execution revenue increased from £88m in 2020 to £246m in 2021 (which
represents 13% of total Group revenue), driven by the inclusion of Liquidnet
revenue of £159m from 23 March 2021 onwards (the date of the acquisition).
COEX
Excluding Liquidnet, Agency Execution revenue for COEX was £87m in 2021
compared to £88m in 2020, a decline of 1% (4% decline on a reported basis).
Growth in listed futures, rates and equity derivatives was offset by a decline
in the Relative Value ('RV') business, which was 13% lower year-on-year
against extraordinary volumes in the prior year, particularly in the first
half of 2020. Total RV revenue in the first half of 2021 declined by 34%
compared to the same period in 2020, with a strong recovery in second half
revenue, growing by 30% compared to the second half of 2020, and providing
good momentum for growth in 2022. Excluding the RV desks, COEX revenues grew
by 14% in 2021.
Total front office costs in COEX increased by 4% from £67m in 2020 to £70m
in 2021. The resulting contribution was £17m (2020: £22m as reported and
£21m in constant currency) with a contribution margin of 19.5% (2020: 24.2%
on a reported and 23.9% on a constant currency basis).
Management and support costs increased by £2m to £14m, while depreciation
and amortisation increased by £1m to £3m.
Adjusted EBIT for COEX was £nil (2020: £7m on both reported and constant
currency basis). The reduction in adjusted EBIT reflected the revenue decline
as well as investment during the year to drive future organic growth in the
business. We expect profitable growth from COEX in 2022 as we grow the number
of desks, while we also expect continued momentum in the RV revenue growth
seen in the second half of 2021.
Liquidnet
Liquidnet proforma revenue for the full year 2021 was £221m, a reduction of
8% compared to full year revenue in 2020 of £242m (in constant currency),
while Liquidnet post-acquisition revenue in 2021 of £159m was 6% lower than
the same period in 2020 (£170m, in constant currency). This reflected lower
wholesale equity market volumes across the US, Europe and Asia in 2021
compared with 2020. Volumes in the US on the S&P 500 declined by 24%
year-on-year, while volumes on the FTSE 100 declined by 22%. In Europe, the
CAC 40 experienced a decline of 29%. In Asia the decline in equity volumes was
not as significant, with Hong Kong's main index and Japan's Nikkei 225 both
declining by 5% year-on-year. The first quarter of 2020 saw significant equity
volumes globally as a result of the onset of the pandemic, while at the end of
2020 positive market sentiment following news of progress on COVID-19 vaccines
also generated significant volumes.
During 2021, Liquidnet's European market share of large-in-scale ('LIS')
transactions increased marginally to 29.1% on average (2020: 28.8% on
average). In the US, market share of Alternative Trading Systems ('ATS') venue
electronic block trading fell from 15.1% in 2020 to 13.5% in 2021, recovering
in the second half of the year with a market share of 12.7% in the second
quarter improving to 13.8% in the fourth quarter. Liquidnet's overall market
share of equity trading volumes across the US and EMEA was 0.27% and 2.23% in
2021 respectively, compared to 0.34% and 2.18% in 2020. Total front office
costs, since the completion of the acquisition, were £91m, while management
and support costs amounted to £48m. Depreciation and amortisation amounted to
£22m.
We are increasing our overall cost synergies target by the end of 2023 from
£20m to at least £25m.
The adjusted EBIT loss was £2m when excluding the interest element of the
IFRS 16 charge for leases of £4m (the divisional basis of reporting includes
the full IFRS 16 charge for leases (interest and depreciation) in each
division, whereas for reporting by Primary Operating Segment, the interest
element of the IFRS 16 charge is excluded- see footnote 5 to the divisional
tables). Liquidnet's adjusted EBIT margin in 2021 was -1.3%.
Parameta Solutions
In April 2021 we launched our new brand, Parameta Solutions, which now
includes Data & Analytics ('D&A') as well as Post Trade Solutions
('PTS'), which was previously reported under Global Broking.
Total Revenue in 2021 of £166m (which represents 9% of total Group revenue)
was 5% higher than the prior year (1% lower on a reported basis), with
double-digit revenue growth in D&A (10%) more than offsetting a revenue
decline in PTS of 23%.
D&A revenue continued to benefit from the launch of new higher value,
higher margin products (over a fifth of new sales are from new products
launched since 2019); an increasingly diversified and growing client base (40
new buyside clients and 10 new Energy & Commodities clients added in the
period, with around 40% of net new sales to non-sellside clients); increased
regional sales coverage, and multi-channel distribution methods (including
through channel partners and direct-to-client methods such as SURFIX or
through the cloud). The D&A business continues to target double-digit
revenue CAGR over the medium term.
PTS's MatchBook resetting Rates business was negatively impacted by the
cessation of LIBOR (approximately 40% of revenue has historically been derived
from LIBOR-based products), which was partly offset by significant growth in
ClearCompress (+496%), an electronic service which replaces multiple
offsetting derivatives, and eRepo (+119%), which enables the repurchase of
government securities.
The cessation of LIBOR also creates future growth opportunities in MatchBook
to help clients to mitigate risk associated with new benchmark indices and
cross-index swap matching, and a number of products are currently under
development to benefit from these opportunities. The risk-free rate ('RFR')
landscape is fragmented with many different alternative offerings across
currencies and geographies. Managing the transition of whole portfolios into a
single RFR or multiple new RFRs provides a growth opportunity for the
ClearCompress business. ClearCompress organised a working group of 27 dealers
to investigate and deliver optimal LIBOR migration for clients.
Total front office costs in Parameta Solutions increased by 6% from £77m in
2020 to £82m in 2021, marginally ahead of the growth in revenue. The
resulting contribution was £84m (2020: £86m as reported and £81m in
constant currency) with a contribution margin of 50.6% (2020: 51.5% as
reported and 51.2% in constant currency).
Management and support costs increased by £2m to £13m, reflecting increased
investment in the above-mentioned growth initiatives. Depreciation and
amortisation was held flat at £2m.
The 2021 adjusted EBIT was £69m, 1% ahead of the prior year (2020: £73m on a
reported basis and £68m in constant currency), with an adjusted EBIT margin
of 41.6% (2020: 43.7% on a reported basis and 43.2% in constant currency).
Performance by Primary Operating Segment
The Group has a matrix management structure. The Group's Chief Operating
Decision Maker ('CODM') is the Executive Committee ('ExCo') which operates as
a general executive management committee under the direct authority of the
Board. The ExCo members regularly review operating activity on a number of
bases, including by business division and by legal ownership which is
structured geographically based on the region of incorporation for TP ICAP
legacy entities, plus the addition of Liquidnet ('Primary Operating
Segments').
Each of the Primary Operating Segments has its own independent governance
structure including CEOs, board members and Sub-Group Risk Conduct and
Governance Committees with separate mind and management, autonomy of decision
making and the ability to challenge Group level strategy and initiatives
within its region. In the EMEA primary operating segment in particular, there
are also independent non-executive directors on the Regional Board that
further strengthens the independence and judgement of the governance
framework.
Following the redomiciliation of the Group's parent, the operational
responsibility of entities was aligned with their legal ownership and as a
result the Group currently considers that the Primary Operating Segments
represent the most appropriate view for the purposes of resource allocation
and assessment of the nature and financial effects of the business activities
in which the Group engages.
FY 2021 EMEA Americas APAC LQT(2) Corp/ Total
£m £m £m £m Treasury £m
£m
Revenue 872 605 229 159 - 1,865
Total front office costs (520) (407) (145) (91) - (1,163)
Contribution 352 198 84 68 - 702
Contribution margin 40.4% 32.7% 36.7% 42.8% - 37.6%
Management and support costs (155) (106) (54) (48) (34) (397)
Other operating income 5 4 1 - - 10
Adjusted EBITDA 202 96 31 20 (34) 315
Adjusted EBITDA margin 23.2% 15.9% 13.5% 12.6% - 16.9%
Depreciation and amortisation (37) (14) (9) (22) - (82)
Adjusted EBIT 165 82 22 (2) (34) 233
Adjusted EBIT margin 18.9% 13.6% 9.6% (1.3%) - 12.5%
EMEA Americas APAC LQT(2) Corp/ Total
£m £m £m £m Treasury £m
FY 2020 (£m) £m
Revenue(1): 890 668 236 - - 1,794
Total front office costs: (515) (445) (154) - - (1,114)
Contribution 375 223 82 - - 680
Contribution margin 42.1% 33.3% 34.7% - - 37.9%
Management and support costs (166) (115) (67) - (18) (366)
Other operating income 5 3 6 - - 14
Adjusted EBITDA 214 111 21 - (18) 328
Adjusted EBITDA margin 24.0% 16.6% 8.9% - - 18.3%
- Depreciation and amortisation (31) (16) (9) - - (56)
Adjusted EBIT(1) 183 95 12 - (18) 272
Adjusted EBIT margin 20.6% 14.2% 5.1% - - 15.2%
FY 2020 (constant currency) EMEA Americas APAC LQT(2) Corp/ Total
£m £m £m £m Treasury £m
£m
Revenue(1): 874 626 226 - - 1,726
Total front office costs: (508) (417) (147) - - (1,072)
Contribution 366 209 79 - - 654
Contribution margin 41.9% 33.4% 35.0% - - 37.9%
Management and support costs (161) (108) (64) - (24) (357)
Other operating income 5 3 6 - - 14
Adjusted EBITDA 210 104 21 - (24) 311
Adjusted EBITDA margin 24.0% 16.6% 9.3% - - 18.0%
- Depreciation and amortisation (32) (14) (9) - - (55)
Adjusted EBIT(1) 178 90 12 - (24) 256
Adjusted EBIT margin 20.4% 14.4% 5.3% - - 14.8%
FY 2020 (constant currency)
EMEA
£m
Americas
£m
APAC
£m
LQT(2)
£m
Corp/
Treasury
£m
Total
£m
Revenue(1):
874
626
226
-
-
1,726
Total front office costs:
(508)
(417)
(147)
-
-
(1,072)
Contribution
366
209
79
-
-
654
Contribution margin
41.9%
33.4%
35.0%
-
-
37.9%
Management and support costs
(161)
(108)
(64)
-
(24)
(357)
Other operating income
5
3
6
-
-
14
Adjusted EBITDA
210
104
21
-
(24)
311
Adjusted EBITDA margin
24.0%
16.6%
9.3%
-
-
18.0%
- Depreciation and amortisation
(32)
(14)
(9)
-
-
(55)
Adjusted EBIT(1)
178
90
12
-
(24)
256
Adjusted EBIT margin
20.4%
14.4%
5.3%
-
-
14.8%
1. The Group's geographic segments were re-organised following the
approval of the redomiciliation by the listed entity shareholders in February
2021. The amounts for 2020 have been restated to reflect the new segmentation.
Revenues in EMEA increased by £2m, offsetting the decrease in Americas;
Adjusted EBIT increased by £23m in EMEA with a decrease of £1m in Americas,
£4m in Asia and £18m in Corporate/Treasury.
2. LQT = Liquidnet. Due to the scale and strategic interest in the
results of Liquidnet, management have decided to report it as its own primary
operating segment.
Cash flow
The table below shows the changes in cash and debt for the period ending 31
December 2021 and 31 December 2020.
2021 2020
£m £m
EBIT reported 97 178
Depreciation, amortisation and other non-cash items 165 129
Movements in working capital (53) (37)
Taxes and Interest paid (98) (126)
Operating cash flow 111 144
Capital expenditure (58) (53)
Acquisition consideration paid (451) (18)
Cash acquired with acquisition 202 9
Deferred consideration paid on prior acquisitions (14) (22)
Other investing activities 32 31
Investing activities (289) (53)
Net proceeds from rights issue 309 -
Dividends paid to shareholders (47) (94)
Net funds received from issuance of 2028 Sterling Notes 247 -
Repayment of 2024 Sterling Notes including premium (200) -
Other financing activities (13) (11)
Financing activities 296 (105)
Change in cash 118 (14)
Foreign exchange movements - (13)
Cash at the beginning of the period 649 676
Cash at the end of the period 767 649
The Group's net cash flow from operating activities reduced by £33m from
£144m to £111m driven primarily by the reduction in reported EBIT of £81m
to £97m and the following cash flows:
§ A working capital outflow of £53m (2020: outflow of £37m) that
principally reflects increases in trade receivables of £25m and net matched
principle balances of £36m offset by a £10m reduced initial contract payment
asset and amounts due from clearing organisations of £12m. Net outflows on
other debtors, payables and provisions totalled £14m.
§ £59m interest paid, an increase of £6m on 2020, of which £3m was from
the payment of interest on the part-repurchase of the 2024 Sterling Notes and
the remainder from higher debt drawdown and finance leases.
§ £39m of tax payments. This is lower than the £73m paid in 2020 due to
lower profitability and because 2020 was a transitional period in which UK tax
was paid in relation to both 2019 and 2020 profits.
The key investing activities in the year were:
§ The £451m cash consideration paid for the acquisition of Liquidnet in
March 2021 (comprised of £382m (USD$525m) cash consideration and £69m ($95m)
of excess cash and working capital). Cash acquired as part of the Liquidnet
acquisition amounted to £202m.
§ Capital expenditure of £58m compared with £53m in 2020, including £13m
of capital expenditure relating to Liquidnet, incremental spending on our new
London Headquarters and ongoing IT strategic investment projects;
The primary financing activities in the year were:
§ The £309m net proceeds received from the £315m rights issue (with £6m of
transaction costs)
§ The issuance of the 2028 Sterling Notes for £247m net of issue costs.
£200m of net proceeds was used to repurchase a portion of the 2024 Sterling
Notes at a £16m premium. This will result in cash interest savings of £5m
from 2022 onwards (£4m net expense saving including amortisation of discount
and costs).
§ £22m increase in debt drawdown on the Group's credit facilities
§ £28m of finance lease capital repayments compared with £24m in 2021.
§ Dividends paid to shareholders of £47m, reflecting the 2020 final dividend
of 2p on the pre-rights issue share base and the 2021 interim dividend of 4p
on the enlarged share base following the rights issue.
As a result of the above, the Group's cash increased by £118m.
Debt finance
The composition of the Group's outstanding debt is summarised below.
At 31 At 31 December
December 2020
2021 £m
£m
5.25% £247m Sterling Notes January 2024(1) 252 440
5.25% £250m Sterling Notes May 2026(1) 250 250
2.625% £250m Sterling Notes November 2028(1) 248 -
Loan from related party (RCF with Totan) 51 28
Revolving credit facility drawn - banks - -
3.2% Liquidnet Vendor Loan Notes 38 -
Overdrafts 17 7
Debt (used as part of net (funds)/debt) 856 725
Lease liabilities 286 212
Total debt 1,142 937
1. Sterling Notes are reported at their par value net of discount and
unamortised issue costs and including interest accrued at the reporting date.
The Group's core debt, pre-lease liability has increased to £856m. The
increase was mainly due to the issuance of a £250m par value Sterling Note
maturing in November 2028, the proceeds of which were used in part to repay
£184m par value of the January 2024 Sterling Notes. A further Yen4bn was
drawn down of the Yen10bn credit facility with Totan, totalling Yen8bn
(£51m).
The Group has a £270m Revolving Credit Facility which matures in December
2023 and the Yen10bn Totan facility which matures in February 2024.
Vendor loan notes of $50m par value (£37m), maturing in March 2024, which
were issued as part of the purchase consideration of Liquidnet.
Exchange rates
The income statements and balance sheets of the Group's businesses whose
functional currencies are not GBP are translated into Sterling at average and
period end exchange rates respectively. The most significant exchange rates
for the Group are the US Dollar and the Euro. The Group's current policy is
not to enter into formal hedges of income statement or balance sheet
translation exposures. Average and period end exchange rates used in the
preparation of the financial statements are shown below.
Foreign exchange translation has been a headwind for the Group in 2021, caused
largely by GBP appreciation against the USD, with approximately 60% of Group
revenues and approximately 40% of costs in USD, resulting in a currency
mismatch. The average GBP:USD rate strengthened 7% year on year, while the
period end rate weakened by 1%.
Average Period end
FY FY FY FY FY FY
2021 2020 2019 2021 2020 2019
US Dollar $1.38 $1.29 $1.28 $1.35 $1.37 $1.32
Euro €1.16 €1.13 €1.14 €1.19 €1.12 €1.18
As at the end of February 2022, GBP:USD has weakened by 2% compared to the
full year 2021 average.
Pensions
The Group has one defined benefit pension scheme in the UK that is currently
in the process of being wound up. The wind-up of the Scheme commenced in
2019 and is expected to be completed towards the end of 2022.
Under UK legislation, once a Scheme commences wind-up, the assets of the
Scheme pass unconditionally to the Trustee to enable it to settle the Scheme's
liabilities. As a result, the Group applies the requirement of IFRIC 14, fully
restricting the Group's recognition of the £46m (2020: £49m) net surplus by
applying an asset recognition ceiling. Changes as a result of the
application of the asset ceiling are recorded in Other Comprehensive Income.
During the wind-up period, the Group continues to restrict the recognition of
the net surplus. Any benefits augmented during this period represent a past
service cost and are recorded as a significant item in the Income Statement as
and when such benefits are agreed. Costs associated with the settlement of the
Scheme's liabilities will also be recorded as a significant item in the Income
Statement as and when incurred. Past service and settlement costs amounted to
£1m in 2021 (2020: £1m).
Following the full settlement of the Scheme's liabilities and costs, the
Scheme will be wound up, and the Group expects to receive the remaining asset,
subject to applicable taxes at that time, currently 35%.
Regulatory capital
Following the Group's redomiciliation to Jersey on 26 February 2021, the Group
now falls under the regulation of the Jersey Financial Services Commission. At
a Group level, the Group is no longer subject to the consolidated capital
adequacy requirements under CRD IV and as a result the 'Financial Holding
Company test' and CRD IV waiver requirements of the FCA are no longer
applicable. The FCA has become the lead regulator of the Group's EMEA
businesses, sub-consolidated under a UK holding Company, for which the
consolidated capital adequacy requirements under CRD IV now apply. This
sub-group has not applied for a waiver from the FCA as the sub-group maintains
an appropriate excess of financial resources.
Many of the Group's broking entities are regulated on a 'solo' basis, and are
obliged to meet the regulatory capital requirements imposed by the local
regulator of the jurisdiction in which they operate. The Group maintains an
appropriate excess of financial resources in such entities.
Consolidated Income Statement
for the year ended 31 December 2021
2021 2020
Notes £m £m
Revenue 3 1,865 1,794
Employment, compensation and benefits (1,152) (1,153)
General and administrative expenses (476) (360)
Depreciation and impairment of PPE and ROUA (68) (37)
Amortisation and impairment of Intangible asset (82) (59)
Impairment of other assets - (23)
Total operating costs 4 (1,778) (1,632)
Other operating income 5 10 16
EBIT/Operating profit 97 178
Finance income 6 3 3
Finance costs 7 (76) (52)
Profit before tax 24 129
Taxation (23) (48)
Profit after tax 1 81
Share of results of associates and joint ventures 7 16
Profit for the year 8 97
Attributable to:
Equity holders of the parent 5 96
Non-controlling interests 3 1
8 97
Earnings per share(restated)(1)
- Basic 8 0.7p 15.4p
- Diluted 8 0.7p 15.2p
1. Earnings per share for December 2020 have been restated reflecting the
bonus element of the 2021 rights issue (Note 8).
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2021
2021 2020
£m £m
Profit for the year 8 97
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of defined benefit pension schemes 3 2
Equity instruments at FVTOCI - net change in fair value 1 -
Taxation - -
4 2
Items that may be reclassified subsequently
to profit or loss:
Fair value movements on net investment hedge 3 2
Effect of changes in exchange rates on translation 1 (30)
of foreign operations
Taxation (1) (1)
3 (29)
Other comprehensive income/(loss) for the year 7 (27)
Total comprehensive income for the year 15 70
Attributable to:
Equity holders of the parent 12 69
Non-controlling interests 3 1
15 70
Consolidated Balance Sheet
as at 31 December 2021
2021 31 Jan 2020 1 Jan 2020
(restated - Note 19)
Notes £m £m £m
Non-current assets
Intangible assets arising on consolidation 10 1,762 1,463 1,511
Other intangible assets 91 58 61
Property, plant and equipment 123 101 72
Right-of-use assets 187 163 91
Investment in associates 51 61 58
Investment in joint ventures 28 29 28
Other investments 21 18 20
Deferred tax assets 17 4 3
Retirement benefit assets 1 - -
Other long term receivables 44 24 26
2,325 1,921 1,870
Current assets
Trade and other receivables 11 2,068 1,549 1,089
Financial assets at fair value through profit or loss 12 158 383 171
Financial investments 16 115 127 148
Derivative financial instruments - 3 -
Cash and cash equivalents 16 784 656 676
3,125 2,718 2,084
Total assets 5,450 4,639 3,954
Current liabilities
Trade and other payables 13 (1,977) (1,451) (1,030)
Financial liabilities at fair value through profit or loss 12 (120) (381) (164)
Loans and borrowings 14,16 (77) (46) (11)
Lease liabilities 16 (34) (26) (23)
Derivative financial instruments (1) - -
Current tax liabilities (28) (28) (48)
Short term provisions 17 (5) (17) (21)
(2,242) (1,949) (1,297)
Net current assets 883 769 787
Non-current liabilities
Loans and borrowings 14,16 (779) (679) (678)
Lease liabilities 16 (252) (186) (117)
Deferred tax liabilities (107) (79) (83)
Long term provisions 17 (38) (23) (26)
Other long term payables (53) (23) (21)
Retirement benefit obligations (1) (2) (2)
(1,230) (992) (927)
Total liabilities (3,472) (2,941) (2,224)
Net assets 1,978 1,698 1,730
Equity
Share capital 197 141 141
Share premium - 17 17
Merger reserve - 1,384 1,384
Other reserves (1,005) (1,246) (1,205)
Retained earnings 2,769 1,383 1,375
Equity attributable to equity holders of the parent 1,961 1,679 1,712
Non-controlling interests 17 19 18
Total equity 1,978 1,698 1,730
Consolidated Statement of Changes in Equity
for the year ended 31 December 2021
Equity attributable to equity holders of the parent
Share Share Merger Reverse Re- Re- Hedging Own Retained Total Non-controlling Total
capital premium reserve acquisition organisation valuation and shares earnings interests equity
account reserve reserve reserve translation
2021 £m £m £m £m £m £m £m £m £m £m £m £m
Balance at 141 17 1,384 (1,182) - 4 (41) (27) 1,383 1,679 19 1,698
1 January 2021
Profit for the year - - - - - - - - 5 5 3 8
Other comprehensive - - - - - 1 3 - 3 7 - 7
income for the year
Total comprehensive income for the year - - - - - 1 3 - 8 12 3 15
Rights issue 56 259 - - - - - - - 315 - 315
Rights issue costs - (6) - - - - - - - (6) - (6)
Scheme of Arrangement: Cancellation of existing shares and reserves (197) (270) (1,384) 1,182 669 - - - - - - -
Scheme of Arrangement: Issue of ordinary shares 197 1,418 - - (1,615) - - - - - - -
Capital reduction - (1,418) - - - - - - 1,418 - - -
Dividends paid - - - - - - - - (47) (47) (2) (49)
Share settlement of share-based awards - - - - - - - 3 (3) - - -
Own shares acquired for employee trusts - - - - - - - (2) - (2) - (2)
Decrease in non-controlling interests - - - - - - - - - - (3) (3)
Credit arising on share-based awards - - - - - - - - 10 10 - 10
Balance at 197 - - - (946) 5 (38) (26) 2,769 1,961 17 1,978
31 December 2021
2020
Balance at 141 17 1,384 (1,182) - 5 (12) (16) 1,375 1,712 18 1,730
1 January 2020
Profit for the year - - - - - - - - 96 96 1 97
Other comprehensive - - - - - - (29) - 2 (27) - (27)
(loss)/income for the year
Total comprehensive income/(loss) for the year - - - - - - (29) - 98 69 1 70
Dividends paid - - - - - - - - (94) (94) (1) (95)
Gain on disposal of equity investments at FVTOCI - - - - - (1) - - 1 - - -
Share settlement of share-based awards - - - - - - - 3 (3) - - -
Own shares acquired for employee trusts - - - - - - - (14) - (14) - (14)
Increase in non-controlling interests - - - - - - - - - - 1 1
Credit arising on share-based awards - - - - - - - - 6 6 - 6
Balance at 141 17 1,384 (1,182) - 4 (41) (27) 1,383 1,679 19 1,698
31 December 2020
Consolidated Cash Flow Statement
for the year ended 31 December 2021
Notes 2021 2020
£m £m
Cash from operating activities 16 111 144
Investing activities
Sale/(purchase) of financial investments 11 18
Sale of equity instruments at FVTOCI - 2
Purchase of equity instruments at FVTOCI 5 -
Purchase of derivative financial instruments - (2)
Interest received 2 3
Dividends from associates and joint ventures 15 13
Expenditure on intangible fixed assets (35) (16)
Purchase of property, plant and equipment (23) (35)
Direct costs on acquiring right-of-use-assets - (2)
Deferred consideration paid (14) (22)
Investment in associates and joint ventures (1) (3)
Acquisition consideration paid (451) (18)
Cash acquired with acquisitions 202 9
Net cash flows from investment activities (289) (53)
Financing activities
Dividends paid 9 (47) (94)
Dividends paid to non-controlling interests (2) (1)
Proceeds of rights issue 315 -
Issue costs of rights issue (6) -
Purchase of non-controlling interest (3)
Own shares acquired for employee trusts (2) (14)
Net repayment of bank loans(1) 14 (5) -
Net borrowing of loans from related parties(1) 14 27 28
Funds received from issue of Sterling Notes 249 -
Repayment/repurchase of Sterling Notes(2) (200) -
Bank facility arrangement fees and debt issue costs (2) -
Payment of lease liabilities (28) (24)
Net cash flows from financing activities 296 (105)
Increase/(decrease) in cash and overdrafts 118 (14)
Cash and overdrafts at the beginning of the year 649 676
Effect of foreign exchange rate changes - (13)
Cash and overdrafts at the end of the year 16 767 649
Cash and cash equivalents 784 656
Overdrafts (17) (7)
767 649
1. The Group utilises credit facilities throughout the year,
entering into numerous short term bank and other loans where maturities are
less than three months. The turnover is quick and the volume is large and
resultant flows are presented net. Further details are set out in Note 14.
2. Relates to the repurchase of £184m of Sterling Notes 2024 (Note
25) plus £16m of premium paid. The premium paid is reported as part financing
activities, rather than operating activities. Interest paid is reported as a
cash outflow from operating activities.
Notes to the Consolidated Financial Statements
1. General information
As at 31 December 2021 TP ICAP Group plc (the 'Company') was a public company
limited by shares incorporated in Jersey under the Companies (Jersey) Law
1991. On 26 February 2021 following a Scheme of Arrangement, described in Note
2(c), TP ICAP Group plc acquired the entire share capital of TP ICAP plc,
resulting in TP ICAP Group plc becoming the Group's ultimate parent
undertaking.
2. Basis of preparation
(a) Basis of accounting
The financial information included in this document does not constitute the
Group's statutory accounts for the years ended 31 December 2021 or 2020, but
is derived from TP ICAP Group plc's group accounts for 2021 and TP ICAP
Limited's group accounts for 2020. Statutory accounts for 2020 have been
delivered to the Registrar of Companies and those for 2021 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 for 2021 did
not contain a statement under Article 11(1) and (2) of the Companies (Jersey)
Law 1991 and for 2020 did not contain a statement under section 498(2) or
498(3) of the Companies Act 2006.
The Group's Consolidated Financial Statements have been prepared in accordance
with UK adopted International Accounting Standards in conformity with the
requirements of the Companies (Jersey) Law 1991. On 31 December 2020, IFRS as
adopted by the European Union at that date was brought into UK law and became
UK-adopted International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. The Group transitioned
to UK-adopted International Accounting Standards in its consolidated financial
statements on 1 January 2021. This change constitutes a change in accounting
framework. However, there is no impact on recognition, measurement or
disclosure in the period reported as a result of the change in framework.
The Financial Statements have been prepared on the historical cost basis,
except for the revaluation of certain financial instruments.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, the going concern basis continues to be used in preparing these
Financial Statements.
(b) Basis of consolidation
The Group's Consolidated Financial Statements incorporate the Financial
Statements of the Company and entities controlled by the Company made up to 31
December each year. Under IFRS 10 control is achieved where the Company
exercises power over an entity, is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to use its
power to affect the returns from the entity.
(c) Corporate reorganisation
In February 2021 the Group adjusted its corporate structure. TP ICAP Group
plc was incorporated in Jersey on 23 December 2019 and became the new listed
holding company of the Group on 26 February 2021 via a court-approved scheme
of arrangement under Part 26 of the UK Companies Act 2006, with the former
holding company, TP ICAP plc subsequently being renamed TP ICAP Limited and
now renamed TP ICAP Finance plc. Under the scheme of arrangement, shares in
the former holding company of the Group were cancelled and the same number of
new ordinary shares were issued to the new holding company in consideration
for the allotment to shareholders of one ordinary share of 25 pence in the new
holding company for each ordinary share of 25 pence they held in the former
holding company. On 26 February 2021, TP ICAP Group plc effected a reduction
of its share capital by cancelling its share premium and recognising an
equivalent increase in the profit and loss account in reserves.
The share for share exchange between TP ICAP plc and TP ICAP Group plc was a
common control transaction and has been accounted for using merger accounting
principles. Under these principles the results and cashflows of all the
combining entities are brought into the consolidated financial statements from
the beginning of the financial year in which the combination occurs and
comparative figures also reflect the combination of the entities. The
Group's equity is adjusted to reflect that of the new holding company, but
in all other aspects the Group results and financial position are unaffected
by the change and reflect the continuation of the Group.
(d) Adoption of new and revised Accounting Standards
The following new and revised Standards and Interpretations have been endorsed
by the UK Endorsement Board and are effective from 1 January 2021 but they do
not have a material effect on the Group's financial statements:
Ø Amendments to IFRS 4: Insurance Contracts - deferral of IFRS 9;
Ø Amendments to IFRS 16: Leases - COVID-19-related Rent Concessions beyond
30 June 2021; and
Ø Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate
Benchmark Reform - Phase 2.
(e) Change in accounting policy
On 31 December 2021, Group changed its accounting policy for regular way
purchases and sales of non-derivative financial instruments from trade date to
settlement date accounting. In prior years, the Group recorded regular way
purchases and sales of non-derivative financial instruments on a trade date
basis.
The Group believes that the accounting policy change results in a more
relevant and reliable presentation of its Financial Position. In particular,
the change:
Ø Removes a significant amount of volatility from the balance sheet,
facilitating uniform trend analysis and permitting a simpler assessment of
relevant Balance Sheet key performance indicators;
Ø Provides a more accurate presentation of the settlements risk for unsettled
receivables and payable balances, with consideration given to market practice
of "delivery versus payment settlement basis"; and
Ø Provides consistency with managements internal view of reporting these
pending settlement balances.
This accounting policy change has no material impact on the profitability of
the Group and does not result in the restatement of the Group's profit or loss
reported in the Income Statement.
Unrealised gains and losses related to the change in fair value of these
non-derivative financial instruments between trade date and settlement date
are recognised within revenues at the applicable reporting date.
As the change in accounting policy is applied retrospectively and has a
material effect on the information reported in the balance sheet at the
beginning of the preceding period, the Group has presented a third balance
sheet as at that date (1 January 2020). Additional comparative information is
not included in the affected Notes as the quantitative impacts of the change
in accounting policy, and impact on prior year comparatives are set out in
Note 19.
3. Segmental analysis
Products and services from which reportable segments derive their revenues
The Group has a matrix management structure. The Group's Chief Operating
Decision Maker ('CODM') is the Executive Committee ('Exco') which operates as
a general management committee under the direct authority of the Board. The
Exco regularly reviews operating activity on a number of bases, including by
business division and legal ownership which is structured geographically based
on the region of incorporation for TP ICAP legacy entities, plus the addition
of Liquidnet ('Primary Operating Segments').
Each of the Primary Operating Segments has its own independent governance
structure including CEOs, board members and Sub-Group Risk Conduct and
Governance Committees with separate mind and management, autonomy of decision
making and the ability to challenge Group level strategy and initiatives
within its region. In the EMEA primary operating segment, in particular, there
are also independent non-executive directors on the Regional Board that
further strengthens the independence and judgement of the governance
framework.
Following the redomiciliation of the Group's parent, the operational
responsibility of entities were aligned with their legal ownership and as a
result the comparatives for the Primary Operating Segments have been
restated. The Group currently considers that the Primary Operating Segments
represent the most appropriate view for the purposes of resource allocation
and assessment of the nature and financial effects of the business activities
in which the Group engages. These are the Group's primary reportable segments
under IFRS 8 'Operating Segments'.
The Group's performance is assessed by the CODM on the basis of adjusted
performance that removes the effects of significant items from reported
results. Significant items are items that management identify and consider
separately in order to improve the understanding of the underlying trends and
performance of the business, that would otherwise distort year-or-year
comparison. These segmental results are therefore presented on an adjusted
basis.
In addition, the Group has presented its adjusted results by business
division: Global Broking, Energy & Commodities, Agency Execution and
Parameta Solutions. Segmental income and expenses include transfers between
segments and these transfers are conducted at arm's length. During the first
half of 2021, the Group relaunched the Data & Analytics division as
Parameta Solutions and transferred its Risk Management Services ('RMS')
business, previously reflected within the Global Broking division, therein.
Comparatives have been restated to reflect the new business segments.
Information regarding the Group's primary operating segments is reported
below:
Analysis by primary operating segment
31 December 2021 EMEA Americas Asia Pacific Liquidnet Corporate/Treasury Total
£m £m £m £m £m £m
Revenue 872 605 229 159 - 1,865
Total front-office costs (520) (407) (145) (91) - (1,163)
Contribution 352 198 84 68 - 702
Employment and general and administrative expenses (155) (106) (54) (48) (34) (397)
Other operating income 5 4 1 - - 10
Adjusted EBITDA 202 96 31 20 (34) 315
Depreciation and impairment of PPE and ROUA (20) (11) (9) (12) - (52)
Amortisation and impairment of intangibles (17) (3) - (10) - (30)
Adjusted EBIT 165 82 22 (2) (34) 233
31 December 2020 EMEA Americas Asia Pacific Corporate/ Total
Treasury
£m £m £m £m £m
Revenue(1) 890 668 236 - 1,794
Total front-office costs (515) (445) (154) - (1,114)
Contribution 375 223 82 - 680
Employment and general and administrative expenses (166) (115) (67) (18) (366)
Other operating income 5 3 6 - 14
Adjusted EBITDA 214 111 21 (18) 328
Depreciation and impairment of PPE and ROUA (15) (12) (9) - (36)
Amortisation and impairment of intangibles (16) (4) - - (20)
Adjusted EBIT(2) 183 95 12 (18) 272
1. The Group's geographic segments were re-organised following the approval of
the redomiciliation of the listed entity by shareholders in February 2021,
resulting in the creation of a Corporate / Treasury segment for our Jersey
operations and financing activities. For the year ended 31 December 2020,
revenues in EMEA increased by £2m offsetting the decrease in Americas.
2. For the year ended 31 December 2020, Adjusted EBIT/operating profit
increased by £23m in EMEA with a decrease of £1m in Americas, £4m in Asia
and £18m in Corporate/Treasury segments following the re-organisation of the
segments as referred to above.
There are no inter-segment sales included in the geographic segment revenue.
Analysis by division
31 December 2021 GB(1) E&C(1) AE(1) PM(1) Corp. Total
Centre
£m £m £m £m £m £m
Revenue:
- External 1,086 367 246 166 - 1,865
- Inter-division 19 3 - - (22) -
1,105 370 246 166 (22) 1,865
Total front office costs:
- External (694) (248) (161) (60) - (1,163)
- Inter-division - - - (22) 22 -
(694) (248) (161) (82) 22 (1,163)
Contribution 411 122 85 84 - 702
Employment and general and administrative expenses (211) (66) (66) (13) (41) (397)
Other operating income 2 - - - 8 10
Adjusted EBITDA 202 56 19 71 (33) 315
Depreciation and impairment of PPE and ROUA (16) (5) (14) (2) (15) (52)
Amortisation and impairment of intangibles (13) (4) (11) - (2) (30)
Adjusted EBIT 173 47 (6) 69 (50) 233
Year ended 31 December 2020 GB(1,2,3) E&C(1) AE(1) PM(1,2,3) Corp. Total
Centre
£m £m £m £m £m £m
Revenue:
- External 1,148 388 91 167 - 1,794
- Inter-division 20 3 - - (23) -
1,168 391 91 167 (23) 1,794
Total front office costs:
- External (726) (261) (69) (58) - (1,114)
- Inter-division - - - (23) 23 -
(726) (261) (69) (81) 23 (1,114)
Contribution 442 130 22 86 - 680
Management and support costs-cash (229) (70) (13) (12) (42) (366)
Other operating income 3 1 - - 10 14
Adjusted EBITDA 216 61 9 74 (32) 328
Depreciation and impairment of PPE and ROUA (15) (5) (1) (1) (14) (36)
Amortisation and impairment of intangibles (13) (3) (1) - (3) (20)
Adjusted EBIT 188 53 7 73 (49) 272
1. GB is Global Broking, E&C is Energy &
Commodities, AE is Agency Execution (and includes Liquidnet in 2021), PM is
Parameta Solutions
2. Following a restructuring of the asset classes
within the Group, Post-Trade Solutions, previously reflected in the Rates
asset class within Global Broking was transferred to Parameta Solutions, the
Group's newly established division which also includes the Data &
Analytics business, which was previously a separate business division and
segment. The comparative revenues of Rates within Global Broking and Parameta
Solutions have been restated to reflect the restructuring. Post-Trade Solution
third party revenues for the year ended 31 December 2020 amounted to £22m.
Additionally, inter-division revenues increased by £2m for the year ended 31
December 2020 reflecting sale of services to RMS, which eliminate on
consolidation.
3. Following the transfer of Post-Trade Solutions from
Global Broking to Parameta Solutions, Adjusted EBIT for the Global Broking
division reduced by £9m for the year ended 31 December 2020 with a
corresponding increase for Parameta Solutions.
Corporate Centre represents the cost of group and central functions that are
not allocated to the Groups divisions.
Analysis of significant items
31 December 2021 Restructuring Disposals, acquisitions and investment in new businesses Goodwill impairment Legal and regulatory matters Total
and other related costs
£m £m £m £m £m
Employment, compensation and benefits costs 12 - - - 12
Premises and related costs 9 - - - 9
Deferred consideration - 2 - - 2
Charge relating to significant legal and regulatory settlements - - - 6 6
Pension scheme past service and settlement costs 1 - - - 1
Acquisition costs - 8 - - 8
Net losses on derivative instruments - 8 - - 8
Net foreign exchange gains - (4) - - (4)
Other general and administration costs 4 13 - 9 26
Total included within general and administration costs 14 27 - 15 56
Depreciation and impairment of PPE and ROUA 16 - - - 16
Amortisation and impairment of intangible assets - 52 - - 52
Total included within operating costs 42 79 - 15 136
Included in financing items 16 1 - - 17
Total significant items before tax 58 80 - 15 153
Taxation on significant items (21)
Total significant items after tax 132
Impairment of investment in associates - reflected together with Share of 11
results of associates and joint ventures
Total significant items 143
31 December 2020 Restructuring and other related costs Disposals, acquisitions and investment in new businesses Goodwill impairment Legal and regulatory matters Total
£m £m £m £m £m
Employment, compensation and benefits costs 6 - - - 6
Premises and related costs 2 - - - 2
Deferred consideration - 2 - - 2
Credit relating to significant legal and regulatory settlements - - - (3) (3)
Pension scheme past service and settlement costs 1 - - - 1
Acquisition costs - 11 - - 11
Other general and administration costs 9 - - 5 14
Total included within general and administration costs 12 13 - 2 27
Depreciation and impairment of PPE and ROUA 1 - - - 1
Amortisation and impairment of intangible assets - 39 - - 39
Impairment of other assets 1 1 21 - 23
Total included within operating costs 20 53 21 2 96
Included in other operating income - - - (2) (2)
Total significant items before tax 20 53 21 - 94
Tax on significant items (7)
Total significant items after tax 87
Adjusted profit reconciliation
2021 Adjusted Significant items Reported
£m £m £m
EBIT/operating profit 233 (136) 97
Net finance costs (56) (17) (73)
Profit before tax 177 (153) 24
Taxation (44) 21 (23)
Profit after tax 133 (132) 1
Share of profit from associates and joint ventures 18 (11) 7
Profit for the year 151 (143) 8
2020 Adjusted Significant items Reported
£m £m £m
EBIT/operating profit 272 (94) 178
Net finance costs (49) - (49)
Profit before tax 223 (94) 129
Taxation (55) 7 (48)
Profit after tax 168 (87) 81
Share of profit from associates and joint ventures 16 - 16
Profit for the year 184 (87) 97
4. Operating costs
2021 2020
£m £m
Broker compensation costs 882 902
Other staff costs 258 244
Share-based payment charge 12 6
Charge relating to employee long-term benefits - 1
Employee compensation and benefits 1,152 1,153
Technology and related costs 191 167
Premises and related costs 37 29
Adjustments to deferred consideration 2 2
Charge/(credit) relating to significant legal and regulatory settlements 6 (3)
Pension scheme past service and settlement costs 1 1
Acquisition costs 20 11
Expected credit loss adjustment - (6)
Net foreign exchange loss/(gains) 3 (1)
Net loss on derivative instruments 12 -
Other administrative costs 204 160
General and administrative expenses 476 360
Depreciation of property, plant and equipment 23 13
Impairment of property, plant and equipment 10 -
Depreciation of right-of-use assets 29 23
Impairment of right-of-use assets 6 1
Depreciation and impairment of property, plant and equipment and right-of-use 68 37
assets
Amortisation of other intangible assets 30 20
Impairment of other intangible assets 6 -
Amortisation of intangible assets arising on consolidation 46 39
Amortisation and impairment of intangible assets 82 59
Goodwill impairment - 21
Impairment of finance lease receivables - 1
Impairment of associates - 1
Impairment of other assets - 23
1,778 1,632
5. Other operating income
Other operating income comprises:
2021 2020
£m £m
Business relocation grants 3 3
Employee related insurance receipts 2 2
Management fees 2 3
Legal settlement receipts 1 2
Other receipts 2 6
10 16
Other receipts include royalties, rebates, non-employee related insurance
proceeds, tax credits and refunds. Costs associated with such items are
included in administrative expenses.
6. Finance income
2021 2020
£m £m
Interest receivable and similar income 2 2
Interest receivable on finance leases 1 1
3 3
7. Finance costs
2021 2020
£m £m
Fees payable on bank and other loan facilities 2 2
Interest payable on bank and other loans 2 1
Interest payable on Sterling Notes January 2024 22 23
Interest payable on Sterling Notes May 2026 13 13
Interest payable on Sterling Notes November 2028 1 -
Interest payable on Liquidnet Vendor Loan Notes 1 -
Other interest payable 1 1
Amortisation of debt issue and bank facility costs 2 1
Borrowing costs 44 41
Interest payable on lease liabilities 14 11
Amortisation of options premium 2 -
Premium on repurchase of Sterling Notes January 2024 16 -
76 52
8. Earnings per share
2021 2020
(restated)
Basic 0.7p 15.4p
Diluted 0.7p 15.2p
The calculation of basic and diluted earnings per share is based on the
following number of shares:
2021 2020
No.(m) No.(m)
Basic weighted average shares - as previously reported 557.0
Impact of the bonus element of the 2021 Rights Issue 68.0
Basic weighted average shares 759.3 625.0
Contingently issuable shares - as previously reported 6.9
Impact of the bonus element of the 2021 Rights Issue 0.8
8.9 7.7
Diluted weighted average shares 768.2 632.7
The earnings used in the calculation basic and diluted earnings per share, are
set out below:
2021 2020
£m £m
Earnings for the year 8 97
Non-controlling interests (3) (1)
Earnings attributable to equity holders of the parent 5 96
9. Dividends
2021 2020
£m £m
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31 December 2020 16 -
of 2.0p per share
Interim dividend for the year ended 31 December 2021 31 -
of 4.0p per share
Final dividend for the year ended 31 December 2019 - 63
of 11.25p per share
Interim dividend for the year ended 31 December 2020 - 31
of 5.6p per share
47 94
A final dividend of 5.5 pence per share will be paid on 17 May 2022 to all
shareholders on the Register of Members on 8 April 2022.
During the year, the Trustees of the TP ICAP plc EBT have waived their rights
to dividends.
10. Intangible assets arising on consolidation
Goodwill Other Total
£m £m £m
At 1 January 2021 989 474 1,463
Recognised on acquisitions 187 154 341
Amortisation of acquisition related intangibles - (46) (46)
Effect of movements in exchange rates 4 - 4
At 31 December 2021 1,180 582 1,762
At 1 January 2020 993 518 1,511
Recognised on acquisitions 25 - 25
Amortisation of acquisition related intangibles - (39) (39)
Impairment of acquisition related intangibles (21) - (21)
Effect of movements in exchange rates (8) (5) (13)
At 31 December 2020 989 474 1,463
Other intangible assets at 31 December 2021 represent customer relationships,
£580m (2020: £469m), and business brands and trademarks, £2m (2020: £5m)
that arise through business combinations. Customer relationships are being
amortised between 10 and 20 years.
Goodwill arising through business combinations is allocated to groups of
individual cash-generating units ('CGUs'), reflecting the lowest level at
which the Group monitors and tests goodwill for impairment purposes. The
Group's CGUs are as follows:
2021 2020
£m £m
EMEA 686 686
Americas 255 253
Asia Pacific 50 50
Liquidnet 189 -
Goodwill allocated to CGUs 1,180 989
The Group's annual impairment testing of its CGUs is undertaken each
September, except for Liquidnet which was undertaken as at December. Between
annual tests the Group reviews each CGU for impairment triggers that could
adversely impact the valuation of the CGU and, if necessary, undertakes
additional impairment testing. During the year the Group undertook an
additional impairment tests as at 30 June triggered as a result of sensitivity
of the Asia Pacific CGU to reasonable possible changes in cash flow and
discount rate assumptions.
Determining whether goodwill is impaired requires an estimation of the
recoverable amount of each CGU. The recoverable amount is the higher of its
value in use ('VIU') or its fair value less cost of disposal ('FVLCD'). VIU
is a pre-tax valuation, using pre-tax cash flows and pre-tax discount rates
which is compared with the pre-tax carrying value of the CGU, whereas FVLCD is
a post-tax valuation, using post-tax cash flows, post-tax discount rates and
other post-tax observable valuation inputs, which is compared with a post-tax
carrying value of the CGU. The CGU's recoverable amount is compared with its
carrying value to determine if an impairment is required.
The key assumptions for the VIU calculations are those regarding expected
regional cash flows arising in future years, regional growth rates and
regional discount rates as considered by management. Regional specific
assumptions reflect the divisional mix in each region and the size and risk
profile of that region. Future projections are based on the most recent
financial projections considered by the Board which are used to project
pre-tax cash flows for the next five years. After this period a steady state
cash flow is used to derive a terminal value for the CGU.
In June 2021 the Group's Asia Pacific CGU was subject to impairment testing,
triggered as a result of changes in revenues and expected CGU cash flows. For
the 30 June 2021 impairment test the recoverable amount of the Asia Pacific
CGU was based on its VIU. The key assumptions for the VIU calculations are
those regarding expected cash flows arising in future periods, CGU growth
rates and the discount rates. Future projections were based on the most
recent financial projections considered by the Board which were used to
project pre-tax cash flows for the next five years. After this period a
steady state cash flow is used to derive a terminal value for the CGU. The
growth rate on underlying revenues for Asia Pacific was 1.1% (September 2020:
1.5%) over the five year projected period, with pre-tax discount rates of
11.6% (September 2020: 11.8%). The June 2021 testing did not result in an
impairment of the Asia Pacific. In June 2020, the recoverable amount for the
Asia Pacific CGU was estimated to be lower than its carrying value by £21m
and was impaired by that amount.
For the 30 September 2021 annual impairment testing, the recoverable amounts
for EMEA, Americas and Asia Pacific CGUs were based on their VIU. Growth
rates on underlying revenues were 1.4% for EMEA (September 2020: 1.8%), 1.1%
for Americas (September 2020: 0.8%) and 1.2% for Asia Pacific (September 2020:
1.5%) over the five year projected period, with pre-tax discount rates of
11.1% for EMEA (September 2020: 11.0%), 12.5% for Americas (September 2020:
13.4%) and 10.7% for Asia Pacific (September 2020: 11.8%). No further
impairments were identified as a result of the annual testing. As at 31
December 2021, the review of the indicators of impairment did require any
further testing.
Changes in discount rates and / or revenue assumptions, reflecting inherent
uncertainties in any long-term forecasting, including potential effects of
Brexit in EMEA and other structural changes, would impact the respective
carrying value of a CGU, with Americas being the most sensitive. Each CGU's
value would equate to its carrying value should the discount rate, revenue
growth over the forecast period , or revenues used in the terminal value fall
by the following:
Valuation Breakeven discount rate Valuation growth rates Breakeven growth rates Change in terminal value revenues
discount rate
CGU % % % % %
EMEA 11.1% 13.5% 1.4% -1.5% -11.0%
Americas 12.5% 14.2% 1.1% 0.1% -5.6%
Asia Pacific 10.7% 17.0% 1.2% -1.1% -11.3%
The impact on future cash flows resulting from falling growth rates does not
reflect any management actions that would be taken under such circumstances.
The Group's assessment of the financial risks and opportunities related to
climate change is ongoing and the Group recognises the increased uncertainty
in forecasting medium and long-term revenues, particular in the Energy &
Commodities ('E&C') division. Were E&C revenues to fall in 2027 from
our base assumptions by greater than 57% in EMEA, 34% in Americas and 54% in
Asia Pacific, and assuming no further growth opportunities, this would give
rise to an impairment in each CGU.
Liquidnet, acquired in March 2021 is a new CGU for the Group. Goodwill
arising on this acquisition has been tested for impairment as at 31 December
2021. In future periods the CGU will be subject to annual impairment testing
in September, in line with the other CGUs. As at 31 December 2021 the
recoverable amount for Liquidnet was based on its FVLCD. The Income Approach
was used for the FVLCD valuation under which the CGU had a FVLCD in excess of
its carrying value.
The key assumptions for the Income Approach are those regarding expected cash
flows, CGU growth rates and the discount rate. Future projections are based on
the most recent financial budgets considered by the Board which are used to
project cash flows for the next five years. After this period a steady state
cash flow is used to derive a terminal value for the CGU. Annual growth
rates on existing business of 3% to 2026 and 1% thereafter have been used with
post tax discount rates of 10.8%. The calculations have been subject to
stress tests reflecting reasonably possible changes in key assumptions.
Under this approach the recoverable amount for Liquidnet exceeded its carrying
value, but is sensitive to changes in the growth rate and the discount rate.
A reduction in the growth rate to 1.7% or an increase in the discount rate to
11.4% would eliminate the headroom. A permanent 5% reduction in 2022
revenues would result in an impairment of £4m. The impact on future cash
flows resulting from falling growth rates does not reflect any management
actions that would be taken under such circumstances, nor does the valuation
reflect expected future cash flows from new business development and
opportunities.
11. Trade and other receivables
2021 2020
(restated
Note 19)
£m £m
Non-current receivables
Finance lease receivables 30 5
Other receivables 14 19
44 24
Current receivables
Trade receivables 351 298
Amounts due from clearing organisation 73 3
Deposits paid for securities borrowed 1,516 1,124
Finance lease receivables 1 1
Other debtors 19 15
Accrued income 14 11
Owed by associates and joint ventures 5 5
Prepayments 86 90
Corporation tax 3 2
2,068 1,549
12. Financial assets and financial liabilities at fair value
through profit or loss
2021 2020
£m £m
Financial assets at fair value through profit or loss
Matched Principal financial assets 37 5
Fair value gains on unsettled Matched Principal transactions 121 378
158 383
Financial liabilities at fair value through profit or loss
Matched Principal financial liabilities (1) (3)
Fair value losses on unsettled Matched Principal transactions (119) (378)
(120) (381)
Notional contract amounts of unsettled 65,968 136,946
Matched Principal transactions
Fair value gains and losses on unsettled Matched Principal transactions
represent the price movement between trade date and the reporting date on
regular way transactions prior to settlement. Matched Principal transactions
arise where securities are bought from one counterparty and simultaneously
sold to another counterparty. Settlement of such transactions is primarily on
a delivery vs payment basis and typically take place within a few business
days of the transaction date according to the relevant market rules and
conventions.
The notional contract amounts of unsettled Matched Principal transactions
indicate the aggregate value of buy and sell transactions outstanding at the
balance sheet date. They do not represent amounts at risk.
13. Trade and other payables
2021 2020
(restated
Note 19)
£m £m
Trade payables 89 22
Amounts due to clearing organisations 47 1
Finance lease payable 2 -
Deposits received for securities loaned 1,504 1,106
Deferred consideration 7 12
Other creditors 19 13
Accruals 283 270
Owed to associates and joint ventures 2 3
Tax and social security 22 23
Deferred income 2 1
1,977 1,451
14. Loans and borrowings
Less than Greater than Total
one year one year
2021 £m £m £m
Overdrafts 17 - 17
Loans from related parties 51 - 51
Sterling Notes January 2024 6 246 252
Sterling Notes May 2026 1 249 250
Sterling Notes November 2028 1 247 248
Liquidnet Vendor Loan Notes March 2024 1 37 38
77 779 856
2020
Overdrafts 7 - 7
Loans from related parties 28 - 28
Sterling Notes January 2024 10 430 440
Sterling Notes May 2026 1 249 250
46 679 725
Settlement facilities and overdrafts
Where the Group purchases securities under matched principal trades but is
unable to complete the sale immediately, the Group's settlement agent finances
the purchase through the provision of an overdraft secured against the
securities and any collateral placed at the settlement agent. As at 31
December 2021, overdrafts for the provision of settlement finance amounted to
£17m (December 2020: £7m).
Bank credit facilities and bank loans
The Group has a £270m committed revolving facility that matures in December
2023. Facility commitment fees of 0.8% on the undrawn balance are payable on
the facility. Arrangement fees of £3m are being amortised over the maturity
of the facility.
As at 31 December 2021, the revolving credit facility was undrawn. Amounts
drawn down are reported as bank loans in the above table. Bank loans are
denominated in Sterling. During the year, the maximum amount drawn was £130m
(2020: £161m), and the average amount drawn was £60m (2020: £39m). The
Group utilises the credit facility throughout the year, entering into numerous
short term bank loans where maturities are less than three months. The
turnover is quick and the volume is large and resultant flows are presented
net in the Group's cash flow statement in accordance with IAS 7 'Cash Flow'.
Interest and facility fees of £3m were incurred in 2021 (2020: £3m).
Loans from related parties
In August 2020, the Group entered into a Yen 10bn committed facility with The
Tokyo Tanshi Co., Ltd, a related party, that matures in February 2024. As at
31 December, the Yen 10bn committed facility equated to £64m. Facility
commitment fees of 0.64% on the undrawn balance are payable on the facility.
Arrangement fees of less than £1m are being amortised over the maturity of
the facility.
As at 31 December 2021, Yen 8bn (£51m) (2020: Yen 4bn (£28m)) of the
facility was drawn. The Directors consider that the carrying amount of the
loan which is not held at fair value through profit or loss approximates to
its fair value. During the year, the maximum amount drawn was Yen 10bn, £64m
at year end rates (2020: Yen 10bn, £71m at 2020 year end rates), and the
average amount drawn was Yen 8bn, £53m at year end rates (2020:Yen 5bn, £36m
at 2020 year end rates). The Group utilises the credit facility throughout the
year, entering into numerous short term bank loans where maturities are less
than three months. The turnover is quick and the volume is large and resultant
flows are presented net in the Group's cash flow statement in accordance with
IAS 7 'Cash Flow'.
Interest and facility fees of £1m were incurred in 2021(2020: less than
£1m).
Amounts drawn down are reported as loans from related parties in the above
table.
Sterling Notes: Due January 2024
In January 2017 the Group issued £500m unsecured Sterling Notes due January
2024. The Notes have a fixed coupon of 5.25% payable semi-annually, subject to
compliance with the terms of the Notes. In May 2019, the Group repurchased
£69m of the Notes and a further £184m were repurchased in November 2021.
Repurchases have been accounted for as extinguishment of the Notes. The
repurchase in 2021 was at a £16m premium to the Note's carrying value, which
has been reported as part of finance costs in the Income Statement. At 31
December 2021, the fair value of the Notes (Level 1) was £264m (2020:
£473m). Accrued interest at 31 December 2021 amounted to £6m (2020: £10m).
Unamortised issue costs were £1m as at 31 December 2021.
Interest of £22m was incurred in 2021 (2020: £23m). The amortisation expense
of issue costs in 2021 and 2020 were less than £1m.
Sterling Notes: Due May 2026
In May 2019 the Group issued £250m unsecured Sterling Notes due May 2026. The
Notes have a fixed coupon of 5.25% paid semi-annually, subject to compliance
with the terms of the Notes. At 31 December 2021 the fair value of the Notes
(Level 1) was £278m (2020: £284m). Accrued interest at 31 December 2020
amounted to £1m. Unamortised issue costs were £1m as at 31 December 2021.
Interest of £13m was incurred in 2021 (2020: £13m). The amortisation expense
of issue costs in 2021 and 2020 were less than £1m.
Sterling Notes: Due November 2028
In November 2021 the Group issued £250m unsecured Sterling Notes due November
2028. The Notes were issued at a discount of £1m, raising £249m before issue
costs. The Notes have a fixed coupon of 2.625% paid semi-annually, subject to
compliance with the terms of the Notes. At 31 December 2021 the fair value of
the Notes (Level 1) was £249m. Accrued interest at 31 December 2021 amounted
to £1m. Unamortised discount and issue costs were £3m.
Interest of £1m was incurred in 2021. Issue costs of £2m were incurred in
2021 and their amortisation expense in 2021 was less than £1m.
Liquidnet Vendor Loan Notes Due March 2024
In March 2021, as part of the purchase consideration of Liquidnet, the Group
issued $50m (£37m at year end exchange rates) unsecured Loan Notes due March
2024. The Notes have a fixed coupon of 3.2% paid annually. At 31 December 2021
the fair value of the Notes (Level 2) was $49m (£36m). Accrued interest at 31
December 2021 was £1m.
15. Reconciliation of operating result to net cash from operating
activities
2021 2020
(restated)
£m £m
Operating profit 97 178
Adjustments for:
- Share-based payment charge 10 6
- Pension scheme's administration costs 1 1
- Pension scheme past service and settlement costs 1 1
- Depreciation of property, plant and equipment 23 13
- Loss on disposal of property, plant and equipment 1 -
- Impairment of property, plant and equipment 10 -
- Depreciation of right-of-use assets 29 23
- Impairment of right-of-use assets 6 1
- Amortisation of intangible assets 30 20
- Impairment of intangible assets 6 -
- Amortisation of intangible assets arising on consolidation 46 39
- Impairment of intangible assets arising on consolidation - 21
- Impairment of associates - 1
- Impairment of finance lease receivables - 1
- Remeasurement of deferred consideration 2 2
Net operating cash flow before movement in working capital 262 307
(Increase)/decrease in trade and other receivables (16) 6
(Increase)/decrease in net Matched Principal related balances(1) (36) 4
Increase in net balance with Clearing Organisations 12 -
(Increase)/decrease in net stock lending balances 6 (6)
Decrease in trade and other payables (14) (34)
Decrease in provisions (2) (7)
(Decrease)/increase in non-current liabilities (3) 1
Retirement benefit scheme contributions - (1)
Net cash generated from operations 209 270
Income taxes paid (39) (73)
Fees paid on bank and other loan facilities (2) (2)
Interest paid (42) (37)
Interest paid - finance leases (15) (14)
Net cash flow from operating activities 111 144
1 Restated to reflect the change in balance sheet line items following the
change in accounting policy set out in Note 2(f). There has been no change
to the working capital movements or net cash generated from operations.
16. Analysis of net debt
At 1 Cash Non-cash Acquired with acquisitions Exchange At 31
January flow items differences December
2021 £m £m £m £m £m £m
Cash and cash equivalents 656 129 - - (1) 784
Overdrafts (7) (11) - - 1 (17)
649 118 - - - 767
Financial investments 127 (11) - - (1) 115
Bank loan due within one year - 5(1) - - (5) -
Loans from related parties (28) (27) - - 4 (51)
Sterling Notes January 2024 (440) 2103 (22) - - (252)
Sterling Notes May 2026 (250) 132 (13) - - (250)
Sterling Notes November 2028 - (247)(4) (1) - - (248)
Liquidnet Vendor Loan Notes - - (37) - (1) (38)
Total debt excluding lease liabilities 718 (46) (73) - (2) (839)
Lease liabilities (212) 43(5) (26) (91) - (286)
Total financing liabilities (930) (3) (99) (91) (2) (1,125)
Net debt (154) 104 (99) (91) (3) (243)
At 1 Cash Non-cash Acquired with acquisitions Exchange At 31
January flow items differences December
2020 £m £m £m £m £m £m
Cash and cash equivalents 686 (17) - - (13) 656
Overdrafts (10) 3 - - - (7)
676 (14) - - (13) 649
Financial investments 148 (18) - - (3) 127
Bank loan due within one year - 1(1) (1) - - -
Loans from related parties - (28) - - - (28)
Sterling Notes January 2024 (440) 23(1) (23) - - (440)
Sterling Notes May 2026 (249) 13(1) (14) - - (250)
Total debt excluding lease liabilities (689) 9 (38) - - (718)
Lease liabilities (140) 38(2) (108) (5) 3 (212)
Total financing liabilities (829) 47 (146) (5) 3 (930)
Net debt (5) 15 (146) (5) (13) (154)
1 Relates to currency differences arising on foreign currency
drawdowns and repayments.
2 Relates to interest paid reported as a cash outflow from
operating activities.
3 Relates to principal repurchased of £184m reported as a cash
outflow from financing activities plus £26m of interest paid reported as a
cash outflow from operating activities.
4 Relates to principal received of £250m less £3m of discount and
debt issue costs reported as a cash outflow from financing activities.
5 Relates to interest paid of £15m (2020: £14m) reported as a
cash outflow from operating activities and principal paid of £28m (2020:
£24m) reported as a cash outflow from financing activities.
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 2021 cash and cash equivalents, net of overdrafts, amounted to £767m
(2020: £649m) of which £77m (2020:£10m) represent amounts subject to
regulatory restrictions and are not readily available to be used for other
purposes within the Group. Cash at bank earns interest at floating rates based
on daily bank deposit rates. Short term deposits are made for varying periods
of between one day and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short term
deposit rates.
Financial investments comprise short term government securities, term deposits
and restricted funds held with banks and clearing organisations.
Non-cash items represent interest expense, the amortisation of debt issue
costs and recognition of new lease liabilities.
17. Provisions
Property Re-structuring Legal Total
and other
2021 £m £m £m £m
At 1 January 7 9 24 40
Charge to income statement 6 6 6 18
Acquired with acquisitions 4 - - 4
Utilisation of provisions (1) (10) (6) (17)
Effect of movements in exchange rates - - (2) (2)
At 31 December 16 5 22 43
2020
At 1 January 6 8 33 47
Charge/(credit) to income statement 2 8 (5) 5
Utilisation of provisions (1) (7) (4) (12)
Effect of movements in exchange rates - - - -
At 31 December 7 9 24 40
2021 2020
£m £m
Included in current liabilities 5 17
Included in non-current liabilities 38 23
43 40
Property provisions outstanding as at 31 December 2021 relate to provisions in
respect of building dilapidations, representing the estimated cost of making
good dilapidations and disrepair on various leasehold buildings.
Restructuring provisions outstanding as at 31 December 2021 relate to
termination and other employee related costs. The movement during the year
reflects the actions taken under the Group's restructuring initiatives. It is
expected that the remaining obligations will be discharged during 2022.
Legal and other provisions include provisions for legal claims brought against
subsidiaries of the Group together with provisions against obligations for
certain long-term employee benefits and non-property related onerous
contracts. At present the timing and amount of any payments are uncertain and
provisions are subject to regular review. It is expected that the obligations
will be discharged over the next 25 years.
European Commission Yen LIBOR
In February 2015 the European Commission imposed a fine of €15m on NEX
International Limited (formerly ICAP plc), ICAP Management Services Limited
and ICAP New Zealand Limited for alleged competition violations in relation to
the involvement of certain of ICAP's brokers in the attempted manipulation of
Yen LIBOR by bank traders between October 2006 and January 2011. This matter
related to alleged conduct violations prior to completion of the Group's
acquisition of the ICAP global broking business and has been the subject of an
ongoing appeal. On 31 May 2021, the European Commission issued a fine
totalling €6.5m, that was settled in November 2021, closing the case. The
Group was fully provided for this amount.
Labour claims - ICAP Brazil
ICAP do Brasil Corretora De Títulos e Valores Mobiliários Ltda ('ICAP
Brazil') is a defendant in 8 (31 December 2020: 11) pending lawsuits filed in
the Brazilian Labour Court by persons formerly associated with ICAP Brazil
seeking damages under various statutory labour rights accorded to employees
and in relation to various other claims including wrongful termination, breach
of contract and harassment (together the 'Labour Claims'). As at 31 December
2021, the Group considers a loss in respect of certain claims to be probable
and estimates the amount payable in respect of such claims to be BRL2m (£1m).
18. Contingent liabilities
Bank Bill Swap Reference Rate case
On 16 August 2016, a complaint was filed in the United States District Court
for the Southern District of New York naming Tullett Prebon plc, ICAP plc,
ICAP Australia Pty LTD and Tullett Prebon (Australia) Pty. Limited as
defendants together with various Bank Bill Swap Reference Rate ('BBSW')
setting banks. The complaint alleges collusion by the defendants to fix
BBSW-based derivatives prices through manipulative trading during the fixing
window and false BBSW rate submissions. On 26 November 2018, the Court
dismissed all of the claims against the TP ICAP defendants and certain other
defendants. On 28 January 2019, the Court ordered that a stipulation signed by
the plaintiffs and the TP ICAP defendants meant that the TP ICAP defendants
were not required to respond to any Proposed Second Amended Class Action
Complaint ('PSAC') that the plaintiffs were seeking to file. On 3 April 2019
the plaintiffs filed a PSAC, however the TP ICAP defendants have no obligation
to respond. The plaintiffs have reserved the right to appeal the dismissal of
the TP ICAP defendants but have not as yet done so. It is not possible to
predict the ultimate outcome of the litigation or to provide an estimate of
any potential financial impact.
Labour claims - ICAP Brazil
ICAP do Brasil Corretora De Títulos e Valores Mobiliários Ltda ('ICAP
Brazil') is a defendant in 8 (31 December 2020: 11) pending lawsuits filed in
the Brazilian Labour Court by persons formerly associated with ICAP Brazil
seeking damages under various statutory labour rights accorded to employees
and in relation to various other claims including wrongful termination, breach
of contract and harassment (together the 'Labour Claims'). The Group estimates
the maximum potential aggregate exposure in relation to the Labour Claims,
including any potential social security tax liability, to be BRL 47m (£6m)
(31 December 2020: BRL 57m (£8m)). The Group is the beneficiary of an
indemnity from NEX in relation to any liabilities in respect of five of the
eight Labour Claims insofar as they relate to periods prior to completion of
the Group's acquisition of ICAP. This includes a claim that is indemnified by
a predecessor to ICAP Brazil by way of escrowed funds in the amount of BRL 28m
(£4m). Apart from the estimated losses which have already been provided for
(see Note 17), the Labour Claims are at various stages of their respective
proceedings and are pending an initial witness hearing, the court's decision
on appeal or a ruling on a motion for clarification. The Group intends to
contest liability in each of these matters and to vigorously defend itself.
Unless otherwise noted, it is not possible to predict the ultimate outcome of
these actions.
Flow case - Tullett Prebon Brazil
In December 2012, Flow Participações Ltda and Brasil Plural Corretora de
Câmbio, Títulos e Valores ('Flow') initiated a lawsuit against Tullett
Prebon Brasil S.A. Corretora de Valores e Câmbio and Tullett Prebon Holdings
do Brasil Ltda alleging that the defendants have committed a series of unfair
competition misconducts, such as the recruitment of Flow's former employees,
the illegal obtainment and use of systems and software developed by the
plaintiffs, as well as the transfer of technology and confidential information
from Flow and the collusion to do so in order to increase profits from
economic activities. The amount currently claimed is BRL 295m (£39m) (31
December 2020: BRL 272m (£38m)). The Group intends to vigorously defend
itself but there is no certainty as to the outcome of these claims. Currently,
the case is in an early evidentiary phase.
LIBOR Class actions
The Group is currently defending the following LIBOR related actions.
(i) Stichting LIBOR Class Action
On 15 December 2017, the Stichting Elco Foundation, a Netherlands-based claim
foundation, filed a writ initiating litigation in the Dutch court in Amsterdam
on behalf of institutional investors against ICAP Europe Limited ('IEL'), ICAP
plc, Cooperative Rabobank U.A., UBS AG, UBS Securities Japan Co. Ltd, Lloyds
Banking Group plc, and Lloyds Bank plc. The litigation alleges manipulation by
the defendants of the JPY LIBOR, GBP LIBOR, CHF LIBOR, USD LIBOR, EURIBOR,
TIBOR, SOR, BBSW and HIBOR benchmark rates, and seeks a declaratory judgment
that the defendants acted unlawfully and conspired to engage in improper
manipulation of benchmarks. If the plaintiffs succeed in the action, the
defendants would be responsible for paying costs of the litigation, but each
allegedly impacted investor would need to prove its own actual damages. It is
not possible at this time to determine the final outcome of this litigation,
but IEL has factual and legal defences to the claims and intends to defend the
lawsuit vigorously. A hearing took place on 18 June 2019 on Defendants motions
to dismiss the proceedings. On 14 August 2019 the Dutch Court issued a ruling
dismissing ICAP plc from the case entirely but keeping certain claims against
IEL relating solely to JPY LIBOR. On 9 December 2020, the Dutch Court issued a
final judgment dismissing the Foundation's claims in their entirety. The
Foundation has until March 2021 to appeal this final judgment. The Group is
covered by an indemnity from NEX in relation to any outflow in respect of the
ICAP entities with regard to these matters. It is not possible to estimate any
potential financial impact in respect of this matter at this time.
(ii) Swiss LIBOR Class Action
On 4 December 2017, a class of plaintiffs filed a Second Amended Class Action
Complaint in the matter of Sonterra Capital Master Fund Ltd. et al. v. Credit
Suisse Group AG et al. naming as defendants, among others, TP ICAP plc,
Tullett Prebon Americas Corp., Tullett Prebon (USA) Inc., Tullett Prebon
Financial Services LLC, Tullett Prebon (Europe) Limited, Cosmorex AG, ICAP
Europe Limited, and ICAP Securities USA LLC (together, the 'Companies'). The
Second Amended Complaint generally alleges that the Companies conspired with
certain bank customers to manipulate Swiss Franc LIBOR and prices of Swiss
Franc LIBOR based derivatives by disseminating false pricing information in
false run-throughs and false prices published on screens viewed by customers
in violation of the Sherman Act (anti-trust) and RICO. On 16 September 2019,
the Court granted the Companies' motions to dismiss in their entirety. The
plaintiffs have appealed the dismissal to the United States Court of Appeals
for the Second Circuit. The Companies intend to contest liability in the
matter and to vigorously defend themselves. It is not possible to predict the
ultimate outcome of this action or to provide an estimate of any potential
financial impact.
(iii) Yen LIBOR Class Actions
In April 2013, ICAP plc was added as a defendant to an existing civil
litigation originally filed in April 2012, Laydon v. Mizuho Bank, Ltd, against
certain Yen LIBOR and Euroyen TIBOR panel banks alleging purported
manipulation of the Yen LIBOR and Euroyen TIBOR benchmark interest rates. The
United States District Court for the Southern District of New York dismissed
the plaintiff's antitrust and unjust enrichment claims, but upheld the
plaintiff's claim for purported manipulation under the Commodity Exchange Act.
ICAP plc and certain other foreign defendants were dismissed in March 2015 for
lack of personal jurisdiction. The Court permitted plaintiffs to file an
amended complaint whereby they added new defendants to the action including
ICAP Europe Limited and Tullett Prebon plc. On 10 March 2017, both ICAP Europe
Limited and Tullett Prebon plc were dismissed for lack of personal
jurisdiction. On 23 October 2020, the plaintiffs served their formal notice of
intent to appeal the dismissal of the TP ICAP defendants. The Group is covered
by an indemnity from NEX in relation to any outflow in respect of ICAP Europe
Limited with regard to these matters. It is not possible to predict the
ultimate outcome of the litigation or to provide an estimate of any potential
financial impact.
Other plaintiffs filed a related complaint, Sonterra Capital Master Fund, Ltd.
v. UBS AG, which included ICAP plc, ICAP Europe Limited and Tullett Prebon plc
as defendants, asserting a cause of action for antitrust injury only as a
result of the purported manipulation of Yen LIBOR and Euroyen TIBOR by panel
banks and brokers. Defendants filed motions to dismiss for lack of
jurisdiction and failure to state a claim. On 10 March 2017, the Court issued
an order dismissing the entirety of the Sonterra case on the grounds that the
plaintiffs lacked antitrust standing. Plaintiffs appealed the dismissal, which
was then stayed to accommodate new settlements reached between the plaintiffs
and some of the defendants. The briefing on the appeal was completed on 28
January 2019 and oral argument was heard on 5 February 2020. On 1 April 1
2020, the Second Circuit Court of appeals reversed and remanded the dismissal.
In October 2020, the Company filed a renewed motion to dismiss on grounds that
were not reached in the original decision to dismiss including but not limited
to lack of personal jurisdiction. It is not possible to predict the ultimate
outcome of the litigation or to provide an estimate of any potential financial
impact. The Group is covered by an indemnity from NEX in relation to any
outflow in respect of ICAP Europe Limited with regard to these matters.
ICAP Securities Limited, Frankfurt branch - Frankfurt Attorney General
administrative proceedings
On 19 December 2018, ICAP Securities Limited, Frankfurt branch ('ISL') was
notified by the Attorney General's office in Frankfurt notifying ISL that it
had commenced administrative proceedings against ISL and criminal proceedings
against former employees and a former director of ISL, in respect of aiding
and abetting tax evasion by Rafael Roth Financial Enterprises GmbH ("RRFE").
It is possible that a corporate administrative fine may be imposed on ISL and
earnings derived from the criminal offence confiscated. ISL has appointed
external counsel and is in the process of investigating the activities of the
relevant desk from 2006-2009. This investigation is complicated as the
majority of relevant records are held by NEX and NEX failed to disclose its
engagement with the relevant authorities prior to the sale of ICAP to Tullett
Prebon in 2016. The Group has issued proceedings against NEX in respect of (i)
breach of warranties under the sale and purchase agreement, and (ii) an
indemnity claim under the tax deed entered into in connection with the IGBB
acquisition in relation to these matters. Since the proceedings are at an
early stage, details of the alleged wrongdoing or case against ISL are not yet
available, and it is not possible at present to provide a reliable estimate of
any potential financial impact on the Group.
ICAP Securities Limited and The Link Asset and Securities Company Limited -
Proceedings by the Cologne Public Prosecutor
On 11 May 2020, TP ICAP learned that proceedings have been commenced by the
Cologne Public prosecutor against ICAP Securities Limited ('ISL') and The Link
Asset and Securities Company Ltd ('Link') in connection with criminal
investigations into individuals suspected of aiding and abetting tax evasion
between 2004 and 2012. It is possible that the Cologne Public Prosecutor may
seek to impose an administrative fine against ISL or Link and confiscate the
earnings that ISL or Link allegedly derived from the underlying alleged
criminal conduct by the relevant individuals. ISL and Link have appointed
external lawyers to advise them. The Group has issued proceedings against
NEX in respect of (i) breach of warranties under the sale and purchase
agreement, and (ii) an indemnity claim under the tax deed entered into in
connection with the IGBB acquisition in relation to these matters. Since the
proceedings are at an early stage, details of the alleged wrongdoing or case
against ISL and Link are not yet available, and it is not possible at present
to provide a reliable estimate of any potential financial impact on the Group.
Portigon Ag v. TP ICAP Markets Limited and others
TP ICAP plc is a defendant in an action filed by Portigon AG in July 2021 in
the Supreme Court of the State of New York County of Nassau alleging losses
relating to certain so called "cum ex" transactions allegedly arranged by the
Group between 2005 and 2007. The Group intends to contest liability in the
matter and to vigorously defend itself. It is not possible to predict the
ultimate outcome of this action or to provide an estimate of any potential
financial impact.
MM Warburg & CO (AG & Co.) KGaA and others v TP ICAP Markets Limited,
The Link Asset and Securities Company Limited and others
TP ICAP Markets Limited ('TPIML') and The Link Asset and Securities Company
Limited ('Link') are defendants in a claim filed in Hamburg by MM Warburg
& CO (AG & Co.) KGaA and two other group companies (together
'Warburg') on 31 December 2020, but which only reached TPIML and Link on 26
October 2021. The claim relates to certain German "cum-ex" transactions that
took place between 2007 and 2011. In relation to those transactions Warburg
has been ordered to pay the German tax authorities EUR 185 million and is
subject to a criminal confiscation order of EUR 176.5 million. Warburg's
claims, are based on contract, tort and joint and several liability, are for
compensation for the amount it has been ordered to pay to the tax authorities,
the amount of the criminal confiscation order, further indemnification and
interest. TPIML and Link intend to contest liability in the matter and based
on legal advice and an assessment of the claim as at 31 December 2021, the
Group considers it is able to vigorously defend itself. Whilst it is not
possible to predict the ultimate outcome of this action, the Group does not
expect a material adverse financial impact on the Group's results or net
assets as a result of this case.
Autorité des Marchés Financiers ('AMF')
In August 2019, Tullett Prebon (Europe) Limited ('TPEL') was notified that the
AMF was investigating alleged facilitation of market abuse conduct concerning
historical transactions with a client undertaken in 2015 on Eurex. In June
2020, the AMF initiated enforcement proceedings before the Enforcement
Committee of the AMF. TPEL responded to the AMF's letter of grievance and an
investigation was carried out. The final hearing before the AMF Enforcement
Committee was held on 7 July 2021 during which each party was entitled to make
representations to the Enforcement Committee. The Enforcement Committee made
its decision by majority vote and published its Decision to fine TPEL Eur5m
(£4m) on 7 August 2021. The Group has settled the fine and has appealed the
Decision.
ICAP Australia - GFI recruitment raid
TP ICAP and GFI agreed a settlement in relation to this case in December 2021
and no further action is outstanding. During 2017 GFI orchestrated a
recruitment raid on ICAP Australia with GFI offering ICAP brokers forward
starting contracts that commenced once their ICAP employment agreements could
be terminated by notice. ICAP commenced proceedings (the 'ICAP Proceedings')
against GFI and two former ICAP employees for interference with contractual
relations, misuse of confidential information and breach of employment
contracts.
Six brokers who had signed GFI forward contracts decided to remain employed
with ICAP Australia. ICAP Australia indemnified these brokers against possible
claims brought by GFI for breach of contract for not joining them under the
forward contracts. GFI issued proceeding against the 6 brokers and ICAP
Australia (the 'GFI Proceedings') claiming breach of contract and interference
with contractual relations, claiming liquidated damages of approximately
A$11.9m (£6.5m).
General note
The Group operates in a wide variety of jurisdictions around the world and
uncertainties therefore exist with respect to the interpretation of complex
regulatory, corporate and tax laws and practices of those territories.
Accordingly, and as part of its normal course of business, the Group is
required to provide information to various authorities as part of informal and
formal enquiries, investigations or market reviews.
From time to time the Group's subsidiaries are engaged in litigation in
relation to a variety of matters. The Group's reputation may also be damaged
by any involvement or the involvement of any of its employees or former
employees in any regulatory investigation and by any allegations or findings,
even where the associated fine or penalty is not material.
Save as outlined above in respect of legal matters or disputes for which a
provision has not been made, notwithstanding the uncertainties that are
inherent in the outcome of such matters, currently there are no individual
matters which are considered to pose a significant risk of material adverse
financial impact on the Group's results or net assets.
The Group establishes provisions for taxes other than current and deferred
income taxes, based upon various factors which are continually evaluated, if
there is a present obligation as a result of past events, it is probable that
an outflow of resources embodying economic benefits will be required to settle
the obligation and a reliable estimate of the amount of the obligation can be
made.
In the normal course of business, certain of the Group's subsidiaries enter
into guarantees and indemnities to cover trading arrangements and/or the use
of third party services or software.
19. Impact of the change in Accounting policy
As set out in Note 2(e) the Group changed its accounting policy for regular
way Matched Principal transactions from trade date accounting to settlement
date. As a result, line items in the Group's balance sheets for 31 December
2020 and 1 January 2020 have been restated as follows:
31 December 31 December 1 January 1 January
2020 2020 2020 2020
(as reported) (as restated) (as reported) (as restated)
£m £m £m £m
Trade and other receivables
Settlement balances 68,487 - 48,295 -
Deposits paid for securities borrowed - 9 - 13
Financial assets at FVTPL
Matched Principal financial assets - 5 - 16
Fair value gains on unsettled Matched Principal transactions - 378 - 155
Gross assets 68,487 392 48,295 184
Trade and other payables
Settlement balances (68,476) - (48,275) -
Financial liabilities at FVTPL
Matched Principal financial liabilities - (3) - (9)
Fair value losses on unsettled Matched Principal transactions - (378) - (155)
Gross liabilities (68,476) (381) (48,275) (164)
Net assets 11 11 20 20
Notional contract amounts of open unsettled Matched Principal transactions - 136,946 - 96,532
The notional contract amounts of unsettled Matched Principal transactions
indicate the aggregate value of buy and sell transactions outstanding at the
balance sheet date. They do not represent amounts at risk.
20. Events after the balance sheet date
In February 2022 the UK, EU and US imposed sanctions against certain Russian
individuals, entities and their subsidiaries. TP ICAP has ceased any trading
activity with sanctioned clients.
The proportion of 2021 revenue from Russian clients was approximately 0.5% of
the total.
As at 11 March 2022 the value of realised losses on failed settlements with
sanctioned Russian clients is £4m. TPICAP has also recognised potential
unrealised losses of £9m in relation to failed settlements and written down
trade debtors with sanctioned Russian clients of £1m.
In addition, the Group has outstanding unsettled Matched Principal
transactions in Russian financial instruments of a nominal value of around
£12m where neither counterparty has been able to settle at this time and
where no net loss has been recognised.
Independent Auditors' Report to the Members of TP ICAP Group plc on the
Preliminary Announcement of TP ICAP Group plc
As the independent auditor of TP ICAP Group plc we are required by UK Listing
Rule LR 9.7A.1(2)R to agree to the publication of TP ICAP Group plc's
preliminary announcement statement of annual results for the year ended 31
December 2021.
The preliminary statement of annual results for the year ended 31 December
2021 includes operational performance, strategic highlights, financial
highlights, the dividend statement, the CEO review, financial review, the
consolidated financial statements and disclosures required by the Listing
Rules. We are not required to agree to the publication of presentations to
analysts.
The directors of TP ICAP Group plc are responsible for the preparation,
presentation and publication of the preliminary statement of annual results in
accordance with the UK Listing Rules.
We are responsible for agreeing to the publication of the preliminary
statement of annual results, having regard to the Financial Reporting
Council's Bulletin "The Auditor's Association with Preliminary Announcements
made in accordance with UK Listing Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of TP ICAP Group plc is complete
and we signed our auditor's report on 15 March 2022. Our auditor's report is
not modified and contains no emphasis of matter paragraph.
Our audit report on the full financial statements sets out the following key
audit matters which had the greatest effect on our overall audit strategy; the
allocation of resources in our audit; and directing the efforts of the
engagement team, together with how our audit responded to those key audit
matters and the key observations arising from our work:
Accounting for the acquisition of Liquidnet
Key audit matter description During the year, the Group acquired 100% of Liquidnet Holdings Inc. and its
subsidiaries (together 'Liquidnet'). The acquisition was accounted for as a
business combination in accordance with IFRS 3. The difference between the
fair value of the consideration paid of £526m and the fair value of net
assets acquired of £339m, including customer relationship and brand
intangible assets of £154m, was recognised as goodwill of £187m.
The determination of the fair value of net assets acquired, including the
valuation of the customer relationships intangibles, requires judgement and
the use of assumptions. As a result, the determination of the fair value is
inherently subjective with an increased risk of material misstatement due to
fraud or error.
How the scope of our audit responded to the key audit matter We obtained an understanding of relevant controls relating to accounting for
the acquisition of Liquidnet.
We performed an independent assessment of the acquisition accounting to assess
compliance with IFRS 3, which included the following:
· We independently determined the acquisition date, resulting
measurement period and the consideration paid, including deferred and
contingent consideration;
· We tested the balance sheet acquired, including any fair value
adjustments;
· Supported by our Valuation Specialists, we evaluated management's
approach to measure separately identifiable intangible assets, including
customer relationships; and
· We tested the mathematical accuracy of the cash flow forecasts
used to estimate the fair value of customer relationship and brand intangibles
and assessed the key assumptions.
We reviewed the disclosure of the Liquidnet acquisition in the financial
statements.
Key observations We concur with management's accounting for the Liquidnet acquisition,
including the valuation of the customer relationship intangibles, arising from
the acquisition.
Impairment of goodwill
Key audit matter description As required by IAS 36, goodwill is reviewed for impairment at least annually.
The Group performs its annual impairment assessment at 30 September.
Determining whether goodwill of £1,180m (2020: £989m) is impaired requires
an estimation of the recoverable amount of the Group's cash generating units
('CGUs'), or groups of CGUs, using the higher of the value in use or fair
value less costs to sell.
The value in use ('VIU') approach was used to estimate the recoverable amount
of the EMEA, Americas, and Asia Pacific groups of CGUs while the fair value
less cost of disposal ('FVLCD') approach was used to assess the recoverable
amount of the Liquidnet CGU.
Both of these approaches require management judgement in the estimation of
future cash flows, including revenue growth, and the selection of a suitable
discount rate. As a result, these assessments are inherently subjective with
an increased risk of material misstatement due to fraud or error.
How the scope of our audit responded to the key audit matter We obtained an understanding of relevant controls relating to the impairment
of goodwill.
We performed detailed analysis of the Group's assumptions used in the annual
impairment review, in particular the cashflow projections, forecast future
growth rates, and discount rates used by the Group in its impairment tests of
the regional groups of CGUs and the Liquidnet CGU. We challenged cash flow
projections and growth rates by evaluating recent performance, trend analysis
and comparing growth rates to those achieved historically and to external
market data where available. We worked with our internal valuations
specialists to independently derive discount rates which we compared to the
rates used by the Group and we benchmarked discount rates to available
external peer group data.
We performed scenario analysis, stressed key assumptions with reference to
historical performance, assessed for impairment triggers between 30 September
2021 and 31 December 2021.
Additionally, given the sensitivity of the VIU and FVLCD models to reasonably
possible changes in the revenue and discount rate assumptions, we reviewed
management's sensitivity disclosures in in Note 10 to the financial
statements.
Key observations We concluded that the cash flow forecasts used in the annual impairment review
were consistent with the most recent financial budgets approved by the Board
and were reasonable in the context of recent business performance. The growth
rates used by management were also considered to be reasonable.
The discount rates used were within a reasonable range.
We concur with the directors' conclusion that no impairment was required for
any of the regional groups of CGUs or the Liquidnet CGU in the current year
and concluded that the disclosures are reasonable.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we did not
provide a separate opinion on these matters.
Procedures performed to agree to the preliminary announcement of annual
results
In order to agree to the publication of the preliminary announcement of annual
results of TP ICAP Group plc we carried out the following procedures:
(a) checked that the figures in the preliminary announcement covering the
full year have been accurately extracted from the audited financial statements
and reflect the presentation to be adopted in the audited financial
statements;
(b) considered whether the information (including the management commentary)
is consistent with other expected contents of the annual report;
(c) considered whether the financial information in the preliminary
announcement is misstated;
(d) considered whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
(e) where the preliminary announcement includes alternative performance
measures ('APMs'), considered whether appropriate prominence is given to
statutory financial information and whether:
· the use, relevance and reliability of APMs has been explained;
· the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of calculation;
· the APMs have been reconciled to the most directly reconcilable
line item, subtotal or total presented in the financial statements of the
corresponding period; and
· comparatives have been included, and where the basis of
calculation has changed over time this is explained.
(f) read the management commentary, any other narrative disclosures and
any final interim period figures and considered whether they are fair,
balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on the financial
statements is to the company's members as a body, in accordance with Article
113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken
so that we might state to the company's members those matters we are required
to state to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body, for our
audit work, for our audit report or this report, or for the opinions we have
formed.
Fiona Walker FCA
(Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
15 March 2022
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