REG - TP ICAP Group plc - Final Results
12/03/2024 07:15
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RNS Number : 4446G TP ICAP Group plc 12 March 2024
TP ICAP Group plc
LEI: 2138006YAA7IRVKKGE63
12 March 2024
TP ICAP Group plc ('TP ICAP' or the 'Group')
Financial and preliminary management report for the year ended 31 December
2023
Nicolas Breteau, CEO of the Group, said:
"Group revenue increased by 3% in constant currency, building on last year's
strong performance. Our focus on productivity, contribution and cost
management generated an 8% uplift in Group adjusted EBIT to £300m, the
highest level of profit ever achieved by the Group. Energy & Commodities
played a key role in hitting this important milestone, delivering record
growth: revenue up 18%, and adjusted EBIT up a significant 45%.
Our transformation is progressing well. Fusion is delivering, with client
adoption an important focus. Turning to diversification, we have consolidated
our Credit activities across the Group; Liquidnet Credit is now being managed
by Global Broking to accelerate delivery of our dealer-to-client proposition.
The opportunity in the large, and growing, electronic Credit market is
substantial.
Parameta Solutions, our highly valuable data business, continues to grow and
develop - winning new clients, and broadening its distribution and product
suite. The Board believes that Parameta's significant growth prospects, and
the intrinsic value of the business, are not appropriately reflected in our
share price. We are therefore exploring options for unlocking value for
shareholders, whilst retaining ownership of the asset, which include a
potential IPO of a minority stake in the business.
Dynamic capital management is a key priority. We are starting today a second
buyback programme of £30m, having completed our initial £30m buyback. We
continue to assess opportunities to free up more cash to pay down debt, and/or
return capital to shareholders, subject to our balance sheet needs. The Board
is recommending a final dividend of 10.0 pence per share, up 27%, which would
bring the total 2023 dividend to 14.8 pence, an increase of 19%.
We have met, or exceeded, the majority of our revised 2023 targets. Since our
Capital Markets Day in 2020, the Group is growing the top line, is more
diversified, more profitable, and more cash generative. We are committed to
creating sustainable shareholder value by investing for growth in our
market-leading businesses, maximising the value of our strategic assets, and
delivering strong cash generation and dynamic capital management."
Results for the Period
Statutory results:
FY 2023 FY 2022
Revenue £2,191m £2,115m
EBIT £128m £163m
EBIT margin 5.8% 7.7%
Profit before tax 96m £113m
Profit for the period £74m £103m
Basic EPS 9.5p 13.2p
Total dividend per share 14.8p 12.4p
Weighted average shares in issue (basic) 777.7m 779.1m
Adjusted results (excluding significant items):
FY 2023 FY 2022 FY 2022
Constant Currency
Revenue £2,191m £2,115m £2,119m
EBITDA £373m £357m £359m
EBIT £300m £275m £277m
EBIT Margin 13.7% 13.0% 13.1%
Profit before tax £271m £226m
Profit for the period £227m £194m
Basic EPS 29.2p 24.9p
Weighted average shares in issue (basic) 777.7m 779.1m
A table reconciling Reported to Adjusted figures is included in the Financial
and Operating Review. The percentage movements referred to in the highlights
and CEO Review are in constant currency (unless stated otherwise). This is to
reflect the underlying performance of the business, before the impact of
foreign exchange movements year-on-year. Constant currency refers to prior
year comparatives being retranslated at current year foreign exchange rates.
Approximately 60% of the Group's revenue and approximately 40% of costs are US
Dollar denominated.
Financial highlights
Good revenue performance, tight cost management
· Group revenue up 3% (+4% in reported currency). Builds on 7%
increase in 2022 (+13% in reported currency);
· Global Broking(1) ('GB') revenue flat, following an exceptional
2022;
· GB productivity up: contribution per broker increased 12%(2);
· Energy & Commodities ('E&C') record revenue performance,
up 18%; double-digit growth in Oil, Power, Gas;
· Parameta Solutions revenue increased 8%; 11% growth in H2 2023;
· Liquidnet division(1) revenue declined 1%. Cash Equities revenue
down 9%: Global commission wallet at lowest level in 9+ years(3). Cash
Equities grew 13% in Q4 2023; revenue from rest of division(4) up 10%;
· Liquidnet integration complete; cost base right-sized. £43m cost
savings (annualised) delivered, exceeding £30m target. Adjusted EBIT for
division of £10m (2022: £2m).
Increased margins, higher profitability
· Group adjusted EBIT up 8% (+9% in reported currency) to £300m, a
record level (2022: £277m). Focus on productivity, contribution, and tight
cost control;
· Adjusted EBIT margin increased to 13.7% (2022: 13.1%);
· Reported EBIT, including £76m Liquidnet net impairment
(non-cash), down 21%, in reported currency, to £128m (2022: £163m).
1. Liquidnet Credit (both primary and secondary market trading protocols,
including Dealer-to-Client ('D2C')) is now reported as part of Global Broking.
FY 2023 disclosures are on this basis, with FY 2022 results restated, to
ensure a like-for-like comparison year-on-year. £9m of Credit revenue in 2022
have been reclassified from Liquidnet to Global Broking.
2. Contribution per broker increased by 7% when excluding Russian provisions in
2022.
3. Source: McLagan, Q3 2023.
4. Multi-asset (equity derivatives, rates, futures and advisory services) Agency
Execution offering, including COEX Partners, MidCap Partners, and Relative
Value desks.
Strategic highlights
Transformation
Fusion on track
· Fusion implemented on 44% of in-scope GB desks;
· Key launches: Interest Rate Options, European Government Bonds,
Inflation and FX Options;
· Adoption progressing well: unique client logins (Rates) up 24%,
FX up 16%;
· Building API connectivity in response to client needs; 43 of top
50 dealer clients API-integrated.
Diversification
Energy & Commodities ('E&C')
· Energy Transition
o New battery metals desk; first Brazilian carbon credit trade, major market
for voluntary carbon credits;
o More data & analytics solutions with Parameta: real-time oil pricing
and Energy Transition data.
Parameta Solutions
Strategic developments
· Consolidation of companies subject to regulatory approvals;
enables division to pursue more commercial/strategic opportunities;
· Exploring options for unlocking value, which include a potential
IPO of a minority stake.
Business developments
· Interest Rate Swap Volatility Indices launched with GB; Liquefied
Natural Gas ('LNG') Indices launched with E&C;
· Expanded E&C products: ICAP Australia, PVM US Domestic Crude;
· Historic Risk Free Rates product launched;
· Leveraging Fusion Connect as a direct distribution channel.
Liquidnet division
Diversifying cash equities proposition
· Increased market share in Europe and the US; 100 new clients
added;
· Client retention rate of 93%;
· Launched new pre-trade analytics product, marking entry into
Listed Derivatives;
· Revenue increased 13% in Q4 2023, momentum continued in 2024.
Growing multi-asset offering
· Continued growth in rest of division(5): revenue up 10% to
£138m, driven by a strong performance from Relative Value desks.
5. Multi-asset (equity derivatives, rates, futures and advisory services) Agency
Execution offering, including COEX Partners, MidCap Partners, and Relative
Value desks.
Liquidnet Credit
Strategic developments
· Group Credit activities merged: Liquidnet Credit, including
Dealer-to-Client ('D2C'), now led by GB, building on close collaboration with
Liquidnet. Leveraging GB's deep sell-side relationships;
Business developments
· 7 sell-side institutions now live across secondary market
platform protocols;
· Unique 'Targeted Axe' protocol in pilot phase: dealers provided
with targeted means of sourcing buy-side liquidity;
· Partnership with BondIT, a leading provider of investment
technology, to provide credit analytics.
Dynamic capital management
Reducing leverage ratio; re-financed January 24 bond
· 2023 leverage ratio(6): 1.9x (2022: 2.0x);
· Re-financed January 2024 bond; new £250m issuance, five times
over-subscribed.
Final dividend up 27%
• Board recommending a final dividend per share of 10.0 pence. Total full year
dividend of 14.8 pence, up 19% (2022: 12.4 pence);
• Final dividend to be paid to eligible shareholders on 24 May 2024. Ex-dividend
and record dates: 11 April 2024 and 12 April 2024, respectively.
New £30m buyback programme; initial £30m buyback completed
· Group announcing, starting today, a second buyback of £30m;
· Initial £30m buyback, completed on 3 January 2024;
· Alongside balance sheet requirements, assessing opportunities to
free up more cash to pay down debt, and/or return additional capital to
shareholders.
6. Total debt (excluding finance lease liabilities) divided by adjusted EBITDA as
defined by Rating Agency.
2020 Capital Markets Day: Strategic and financial delivery
Growing revenues, more diversified business, highly cash generative, Global
Broking future-proofed
· Group revenue grew 5%(7) a year on average since 2019;
· Non-Broking revenue more than doubled from 11% to 23%. Parameta
Solutions revenue up 40%;
· Cash conversion(8) ratio increased from 61% in 2019 to 124% in
2023 (2022: 156%);
· Fusion rollout, a key GB transformation driver, on track for
completion by end 2025.
Financial targets(9) delivered
· Met/exceeded majority of revised 2023 targets, including:
o GB(10):
§ Contribution margin of 39.8% (2023 target: 39% to 40%);
§ Adjusted EBIT margin of 17.8% (2023 target: 17% to 19%).
o E&C:
§ Contribution margin of 33.6% (2023 target: 33% to 35%);
§ Adjusted EBIT margin of 15.5% (2023 target: 13% to 15%).
o Group cash conversion: 124% (2023 target: c.80%).
7. Excluding the Liquidnet acquisition, Group revenue grew on average by 2% a
year since 2019.
8. Defined as: Free cash flow divided by adjusted earnings attributable to the
equity holders of the parent.
9. Group adjusted EBIT margin target updated from 18% to 14% at FY 2022 results,
to reflect pandemic impact, and difficult stock market conditions. All other
2023 CMD targets unchanged, with updated guidance in relation to each target
provided at FY 2022 results.
10. For comparison with 2023 CMD targets, Liquidnet Credit is excluded from Global
Broking, to ensure a like-for-like basis. The contribution margin also
excludes the 2023 reclassification of technology costs (£6m) from front
office costs to management & support costs.
Outlook
As ever, our outlook is largely subject to market conditions. Whilst we expect
interest rates to decrease during 2024, we believe they will remain elevated
versus recent history. This, combined with uncertainty around the pace and
quantum of interest rate cuts, elections globally, and ongoing geopolitical
events, will continue to drive volatility that is supportive of our Global
Broking and Energy & Commodities businesses, where we anticipate trading
volumes to remain solid. Liquidnet and Parameta Solutions showed an improving
growth trajectory in the second half of 2023 - providing good momentum into
2024.
The movement in foreign exchange rates, in particular Sterling vs US Dollar
(60% of Group revenue/40% of Group costs are US Dollar-denominated) will
continue to impact our results - with GBP strengthening having a negative
impact, and vice versa.
Against this backdrop, we will stay focused on developing, and growing, strong
client franchises; transforming and diversifying the Group; and managing our
capital dynamically. Tight cost management will continue to be a core focus.
We expect that growth in our total management & support costs will broadly
track the level of average UK inflation expected in 2024. Consequently, we
anticipate remaining well placed to deliver sustainable shareholder value over
the medium term.
Trading in the first two months of the year has been good. We remain
comfortable with current market expectations for full year 2024.
2023 results presentation
The Group will hold an in-person presentation and Q&A at 09:00 GMT today
in the Peel Hunt auditorium at 100 Liverpool Street, London, EC2M 2AT. For
those unable to attend in person, the presentation will also be broadcast via
a live video webcast.
A recording of the presentation will also be available via playback on our
website after the event at
https://tpicap.com/tpicap/investors/reports-and-presentations.
Forward looking statements
This document contains forward looking statements with respect to the
financial condition, results and business of the Group. By their nature,
forward looking statements involve risk and uncertainty and there may be
subsequent variations to estimates. The Group's actual future results may
differ materially from the results expressed or implied in these
forward-looking statements.
Enquiries:
Group Company Secretary
Vicky Hart
Email: companysecretarial@tpicap.com
Analysts and investors
Dominic Lagan
Direct: +44 (0) 20 3933 0447
Email: dominic.lagan@tpicap.com (mailto:dominic.lagan@tpicap.com)
Media
Richard Newman
Direct: +44 (0) 7469 039 307
Email: richard.newman@tpicap.com (mailto:richard.newman@tpicap.com)
About TP ICAP
• TP ICAP connects buyers and sellers in global financial, energy and
commodities markets.
• We are 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 28 countries, supporting brokers
with award-winning and market-leading technology.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CEO REVIEW
INTRODUCTION
We are a world-leading provider of market infrastructure and data-led
solutions. We connect institutional clients to global financial, energy and
commodities markets, creating deep liquidity, and unique data, in the process.
Our objective is to deliver sustainable shareholder value. We aim to do so
through leveraging our strong franchise, and delivering our strategy, which
has three key pillars: transformation, diversification and dynamic capital
management. We are making good progress on all fronts.
Now is an opportune time to assess (a) our progress in 2023 and (b) delivery
of our key 2023 targets and progress since the Capital Markets Day ('CMD') we
held in 2020, when we set out the main elements of our strategy. I will cover
both of these topics in detail.
DELIVERING IN 2023
Market developments
The era of easy money is over. Interest rates in the US and UK are at 22 and
15-year highs, respectively. Whilst these conditions were favourable for
Global Broking, the exceptional trading volumes in 2022 did not recur at the
same level in 2023.
Energy markets were buoyant, following a challenging 2022. ICE Gasoil average
volatility reduced from 61% (an historic high) last year to 37% in 2023. The
Energy Transition gained momentum as well. The International Energy Agency
('IEA') estimates renewables will provide approximately half of the world's
electricity by 2030.(11) Our brokers are active across all these sectors -
traditional and renewables - so we are well positioned for the future.
Equity market conditions were challenging. Block trading declined in Europe
and the US which are key markets for Liquidnet. According to McLagan data, in
Q3 2023 the global commission wallet for equities was at its lowest level in
over nine years. In the fourth quarter, however, there were signs of
improvement. In November, for example, according to the Bank of America Global
Fund Manager's Survey, equities allocations were overweight for the first time
since April 2022.
The demand for high quality over-the-counter ('OTC') financial markets data is
growing. Global spend on financial market data was $37bn in 2022, and industry
players forecast that 2023 growth will exceed historical rates(12). Other key
trends include a growing demand for ESG/energy-related data, independent fair
valuations of OTC derivatives, and benchmarks and indices.
11. World Energy Outlook, October 2023; International Energy Agency.
12. Burton-Taylor Consulting survey.
Business performance
Growing revenues, market-leading positions, tight cost management
Group revenue was up 3% (+4% in reported currency), building on the 7%
increase in 2022 (+13% in reported currency). As expected, total revenue
generated by Global Broking(13), our largest division, was flat, following an
exceptional 2022. Energy & Commodities ('E&C') delivered record
revenue growth of 18%. Double-digit growth was delivered across the three main
asset classes: Oil, Gas, and Power.
Liquidnet revenue declined by 1%. Cash equities revenue decreased by 9% in
2023, but grew 13% in the fourth quarter. This trend continued in 2024. The
rest of the division(14) performed well, with revenue up 10%, driven by a
strong performance from Relative Value.
Parameta Solutions recorded an 8% increase in revenue. The division's growth
rate moved up to 11% in the second half, with good momentum in 2024. Parameta
is a high-quality franchise with a compelling business model, characterised by
96% subscription-based revenue and a 98% client renewal rate.
All our divisions are market leaders: Parameta, for example, is the leading
provider in the OTC data market. In Liquidnet, we hold the number one position
in the EMEA 5x Large-in-Scale market. Our share of this market increased from
34.3% in 2022 to 35.9%(15). Our US market share (top 5 Agency Alternative
Trading System venues), where we are the second largest player, also increased
(2022: 23.2%; 2023: 24.0%(16)).
Cost management is another important driver of our performance. We delivered
£43m in annualised Liquidnet integration cost synergies, substantially
exceeding our target (£30m).
Contribution up, increased profitability
Our Group contribution margin(17) increased to 38.7% (2022: 37.6%(18)).
Adjusted EBIT was up 8%, or 9% in reported currency, to £300m (2022: £277m),
the highest ever level, and a significant Group milestone. This was driven by
a 8% uplift in Global Broking through a greater focus on contribution, and a
reduction in average broker headcount. GB revenue per broker was up 5%; broker
contribution increased by 12%(19). Double-digit revenue growth in E&C
generated a substantial 45% increase in its adjusted EBIT.
Group adjusted EBIT margin increased to 13.7% (2022: 13.1%). Reported EBIT,
including a £76m Liquidnet impairment (non-cash, net of £10m tax relief),
was down 21% to £128m (2022: £163m). The impairment in the carrying value of
the Liquidnet goodwill and acquired intangible assets primarily reflects
challenging block equity market conditions, and an increase in the discount
rate used to value the business, in line with higher interest rates.
13. Liquidnet Credit (both primary and secondary market trading protocols,
including Dealer-to-Client ('D2C')) is now reported as part of Global Broking.
FY 2023 disclosures are on this basis, with FY 2022 results restated, to
ensure a like-for-like comparison year-on-year. £9m of Credit revenue in 2022
have been reclassified from Liquidnet to Global Broking.
14. Multi-asset (equity derivatives, rates, futures and advisory services) Agency
Execution offering, including COEX Partners, MidCap Partners, and Relative
Value desks.
15. Source: Bloomberg.
16. Source: Financial Industry Regulatory Authority ('FINRA').
17. Contribution represents revenue less the direct costs of generating that
revenue. Contribution is calculated as the sum of Broking contribution and
Parameta Solutions contribution. Contribution margin is contribution expressed
as a percentage of reported revenue and is calculated by dividing contribution
by reported revenue.
18. Prior year numbers have been restated to reflect a £32m reclassification of
technology costs from front office costs to management & support costs, to
better reflect the nature of these costs. The reclassification impacts
Liquidnet (£26m), Global Broking (£6m) and Group only.
19. Contribution per broker increased by 7% when excluding Russian provisions in
2022.
Transformation
Fusion on track
Fusion, our electronic platform, provides best in class functionality, and
connectivity, via a single portal, to our deep liquidity pools. Clients use
Fusion for aggregated liquidity, price discovery, and seamless execution.
The Fusion roll-out is on track: it is now live on 44% of in-scope Global
Broking desks. Key desk launches in Rates included Interest Rate Options, ICAP
European Government Bonds and ICAP Inflation. In FX, Fusion was implemented in
one-month Non-Deliverable Forwards and FX options.
In Energy & Commodities, we are consolidating Energy Transition products
liquidity onto one screen. Fusion is live in the green certificates market,
the voluntary carbon market, and the Australian renewables/gas markets. The
use of technology in the highly mature OTC Oil market is more nascent. There
is client demand, however, for real-time pricing screens. We are expanding our
capabilities by partnering with a third party technology company to deliver
these screens.
Adoption of Fusion
Our brokers are driving client adoption. Our sales team adopt an agile
approach throughout this process. They determine the critical success factors
for each desk rollout, including client demand, market maturity, market
conditions, and liquidity profile. The pace of client adoption is encouraging.
The number of unique client logins for Rates, our largest Global Broking asset
class, increased by 24% in 2023, while FX was up 16%.
Clients are increasingly moving away from web-based connectivity. Responding
to this feedback, we focused on delivering API connectivity, and other
protocol enhancements, to Fusion-enabled desks. API integration and
Straight-Through-Processing ('STP') further cements the client relationship,
and ensures a seamless rollout of future platform enhancements. In 2023, 43 of
our top 50 clients were fully integrated into Fusion via an API connection.
An important element of the process, therefore, is gathering client feedback
to better understand future requirements. Other examples include chat-based
systems, 'click-to-trade' functionality, workflow automation and data
aggregation. Responding to these needs, we purchased a minority stake in
ipushpull, a UK fintech firm and our strategic Fusion partner.
Diversification
Our diversification strategy means winning new clients, expanding into
different asset classes and geographies, and generating more non-broking
revenue.
Energy & Commodities
Well positioned in mature and transitional markets
Energy & Commodities is the leading OTC broker. We serve a diverse client
base, through our multi-brand approach: Tullett Prebon, ICAP and PVM. We are
well placed to maximise the expected growth in traditional sectors, like Oil
and Gas. Global demand for oil is increasing - the IEA forecasts demand will
grow by 6% from 2022 to 2028.(20)
There is a substantial opportunity to grow our revenues through an even
greater focus on Energy Transition products: renewables, battery metals,
carbon credits etc. McKinsey estimates that demand for carbon credits could
increase by a factor of 15 or more by 2030. The expected growth in battery
metals, to support the electrification of transport, is an exciting
opportunity. The IEA has predicted growth could increase by a factor of more
than 40 between 2020 and 2040.(21) To capitalise on this opportunity, we are
launching a Battery Metals desk, and have recruited one of the most
experienced brokers in this sector to lead it.
E&C is working more closely with Parameta Solutions to monetise more of
its data, in particular the data being generated through the Energy
Transition. Fusion is integral to this accelerated collaboration.
20. Oil 2023, Analysis and forecast to 2028 - IEA June 2023.
21. The Role of Critical Minerals in Clean Energy Transitions, IEA 2021.
Parameta Solutions: the market leader
Parameta Solutions is the world leader in the provision of OTC data and
analytics.
Strategic developments
The consolidation of the various Parameta Solutions companies under a single
legal structure will be completed once we have received the necessary
regulatory approvals. This new structure enables us to explore options to
unlock value, and will also benefit the division commercially, by making it
easier to enter into data contracts with third parties, which is a key growth
focus.
We are focused on optimal shareholder value creation, including in relation to
Parameta Solutions. We believe that the intrinsic value of Parameta is not
appropriately reflected in our share price, and are therefore exploring
options to unlock value for shareholders, whilst retaining ownership of the
asset, which include a potential IPO of a minority stake in the business.
Business developments
The business is expanding its product range, diversifying its client base, and
broadening its distribution channels - all exciting growth prospects. A good
example is the launch of Liquefied Natural Gas Indices, in collaboration with
E&C and General Index, a leading energy and commodities data provider.
Parameta already administers nine TP ICAP Interest Rate Swap benchmarks, and
recently launched Interest Rate Swap Volatility indices, in partnership with
Global Broking. An Historic Risk Free Rates product for successor rates to
LIBOR was launched during the year, while the E&C product suite was
expanded to include ICAP Australia and PVM US Domestic Crude Oil. Parameta
Solutions is leveraging Fusion as a direct distribution channel.
Liquidnet division
Liquidnet is a global, multi-asset, technology-led agency execution
specialist, operating across 49 markets. It consists of a cash equities
franchise (acquired by the Group in 2021), as well as a multi-asset agency
execution offering. A leading buyside player, Liquidnet provides the group
with client and product diversification. We have rightsized the cost base and
strengthened our operational leverage. The cash equities franchise is ready
for any market normalisation. The division ended the year with an adjusted
EBIT of £10m (2022: £2m), driven by the strong performance from the
multi-asset offering (Relative Value in particular).
Diversifying cash equities
Liquidnet cash equities is pursuing an 'all weathers' strategy. This means
growing its client base, and product capabilities, in algorithmic trading,
programme trading, and inter-region trading. We added 100 new clients and grew
programme trading revenue by 26%. Of our clients that traded with us in 2022,
93% were retained in 2023. We also enhanced our algorithm offering. For
example, we launched Surge Opportunity, which enables clients to identify
block trading opportunities through regular alerts. In turn, we marked our
entry into the listed derivatives market by launching a pre-trade analytics
offering.
Liquidnet Credit
Strategic developments
We made a commercial decision to merge the Group's Credit activities. As a
consequence, the Liquidnet Credit business, including the Dealer-to-Client
('D2C') proposition, is now led by Global Broking(22). This enables the
business to more effectively leverage GB's deep sell-side relationships, and
accelerate connectivity: key growth drivers.
Business developments
The target addressable market in Credit is substantial, and a major
opportunity. Electronification is growing at pace, with electronic investment
grade corporate bond trading volumes having doubled in five years, whilst
high-yield volumes have almost trebled. Electronic trading accounts for
c.40% of the US market and c.55% in Europe(23).
Connecting dealers to the platform is central to growing liquidity. We now
have 7 sell-side institutions connected across the various secondary market
platform protocols, including two major banks connected on our D2C workflow,
with a further two added to the pipeline. A unique D2C protocol called
'Targeted Axe' is currently in pilot phase, providing dealers with a targeted
way to source buy-side liquidity. We also partnered with bondIT, a leading
provider of next-generation investment technology, to integrate their credit
analytics into our platform. This enables traders to anticipate market trends,
mitigate credit risk, and make more informed decisions faster.
22. Liquidnet Credit (both primary and secondary market trading protocols,
including Dealer-to-Client ('D2C')) is now reported as part of Global Broking.
FY 2023 disclosures are on this basis, with FY 2022 results restated, to
ensure a like-for-like comparison year-on-year. £9m of Credit revenue in 2022
have been reclassified from Liquidnet to Global Broking.
23. Financial Times, 26 April 2023.
Dynamic capital management
Dynamic capital management is a key priority. This means reducing our debt,
and returning surplus capital to shareholders, subject to our ongoing
investment needs and balance sheet requirements.
Reducing debt and leverage
We freed up £100m of cash before the end of 2023, ahead of schedule. Sources
of the freed up cash included the remittance of the pension surplus, following
the wind down of our Defined Benefit Scheme, and the capital released from the
consolidation of US broker-dealer entities.
This cash is being used to reduce debt and other financing obligations,
lowering our future net finance costs, and increasing our investment grade
headroom. Paydown of debt and other financing obligations to date of £88m
includes the outstanding part of our 2024 bond (£37m, paid in January 2024)
and Liquidnet deferred consideration (£51m, paid in February 2024). The
Group's 2023 leverage ratio(24) is 1.9 times (31 December 2022: 2.0 times).
The leverage ratio is expected to reduce further at our HY 2024 results in
August.
Clear dividend policy
We are committed to our dividend policy: a 50% pay-out ratio of adjusted
post-tax earnings for the year as a whole. The Board is recommending a final
dividend per share of 10.0 pence (up 27%). This would bring the total dividend
to 14.8 pence per share, up 19% (2022: 12.4 pence per share). The final
dividend will be paid to eligible shareholders on 24 May 2024, with an
ex-dividend and record date of 11 April 2024 and 12 April 2024, respectively.
Further buyback programme of £30m announced; £30m buyback completed.
Starting today, we are commencing a second buyback of £30m. A separate RNS is
available on our website at
https://tpicap.com/tpicap/regulatory-hub/regulatory-news.
The £30m share buyback programme we announced at our HY 2023 results on 9
August 2023, was completed on 3 January 2024. A total of 16,925,189 shares
were bought back at a weighted average share price of 177.25 pence per share.
Shares bought back are not included in the share count for earnings per share
and dividends per share purposes.
Subject to our balance sheet and investment needs, we are assessing
opportunities to free up more cash and pay down more debt, and/or return
additional capital to shareholders.
24. Total debt (excluding finance lease liabilities) divided by adjusted EBITDA as
defined by Rating Agency.
DELIVERING OUR CAPITAL MARKETS DAY STRATEGY
At our Capital Markets Day ('CMD') in 2020, we set out a strategy to deliver
two key objectives: a) future-proof our broking businesses, and b) grow the
Group, diversify, and generate more cash.
Future-proofing our broking businesses
Our starting point back in 2020 was clear. Our broking markets were changing
rapidly, driven by regulatory change, greater competition, and technology. We
aimed to embrace those changes - and transform Global Broking - through a
range of initiatives, including Fusion, our electronic platform.
Global Broking productivity, with Fusion a contributory factor, has grown by
23% since 2021. Desks with Fusion tend to be more productive, and have a
higher contribution.
Growing and diversifying
Global Broking, and Energy & Commodities, are market leaders. This was a
strong starting point when we launched our CMD strategy. But, it was not
enough. We knew it was important to grow our top line, bulk up our non-broking
businesses, and generate more cash. I am pleased to say we have done so.
Group revenue has grown on average by 5% a year since 2019(25). Non-broking
revenue, with Parameta Solutions a key driver, has more than doubled: 11% of
total revenue then, and 23% now. The quality of that revenue is another point
to bear in mind. Parameta's revenue base - up 40% since 2019 - is
subscription-based, with high client retention. The Group's cash conversion
ratio has improved from 61% in 2019 to 124% in 2023 (2022: 156%).
The acquisition of Liquidnet provided a valuable buyside diversification
opportunity and the potential to grow in Credit, especially D2C. The backdrop
has been challenging since the acquisition, however. I would like to
acknowledge the support, and constructive feedback, we have had from
shareholders since then. The Liquidnet Cash Equities franchise is a stronger
business now, with a more developed franchise and better operational leverage.
25. Excluding the Liquidnet acquisition, Group revenue grew on average by 2% a
year since 2019.
Delivering our key financial targets, including more cash generation
At our FY 2022 results, we revised our 2023 targets to reflect the impact of
the pandemic, and difficult stock market conditions(26) impacting Liquidnet. I
am pleased to note that we have met, or exceeded, the majority of these
revised targets, with some highlights below.
Highlights:
· Global Broking(27):
o Contribution margin of 39.8% (2023 target: 39% to 40%);
o Adjusted EBIT margin of 17.8% (2023 target: 17% to 19%).
· Energy & Commodities:
o Contribution margin of 33.6% (2023 target: 33% to 35%);
o Adjusted EBIT margin of 15.5% (2023 target: 13% to 15%).
· Group cash conversion(28): 124% in 2023 (2023 target: c.80%).
Delivering sustainable shareholder value
The discipline underpinning our 2020 CMD strategy is embedded across our
Group. So too is a clear approach to delivering sustainable shareholder value
by: a) Investing in key businesses and maximising our strategic assets, and b)
strong cash generation and dynamic capital management.
Investing in key businesses for growth, maximising the value of strategic
assets
We are the number one player in Global Broking, E&C, and OTC data. In
Global Broking, our biggest business, we are in the final phase of our Fusion
rollout which will be completed by the end of 2025. We will increase the
proportion of Fusion-derived revenue with, we believe, a positive impact on
productivity and contribution. Fusion is also central to our data ambitions
with Parameta Solutions. The more business we transact through Fusion, the
more data we monetise.
We will continue to invest in our E&C and Parameta Solutions businesses.
As the leading Oil and Gas broker, E&C is ready to leverage the IEA's
forecast growth in Oil, mentioned earlier. Energy Transition products, another
key area, are anticipated to grow even more. Parameta Solutions is positioned
to reap the benefits from the significant increase in Fusion-generated data.
We aim to maximise the value of our strategic assets. That is why we are
actively exploring options to unlock value in Parameta Solutions, including a
potential IPO of a minority stake of the business.
Strong cash generation and dynamic capital management
We will maintain our high profit to cash conversion. Our diversified model -
65% of revenue is generated outside the UK, 60% is US Dollar denominated - is
a key enabler in this respect. That focus on cash generation is coupled with
our commitment to returning more cash, where possible, to shareholders,
subject to our investment needs and balance sheet requirements. Our clear
dividend policy is very much in place.
We will deliver sustainable shareholder value by delivering our strategy,
including growing our businesses, and maximising the value of our strategic
assets, accompanied by high levels of cash generation, and dynamic capital
management. We look to the future with confidence.
26. Group adjusted EBIT margin target updated from 18% to 14% at FY 2022 results,
to reflect pandemic impact, and difficult stock market conditions. All other
2023 CMD targets unchanged, with updated guidance in relation to each target
provided at FY 2022 results.
27. For comparison with 2023 CMD targets, Liquidnet Credit is excluded from Global
Broking, to ensure a like-for-like basis. The contribution margin also
excludes the 2023 reclassification of technology costs (£6m) from front
office costs to management & support costs.
28. Defined as: Free cash flow divided by adjusted earnings attributable to the
equity holders of the parent.
Outlook
As ever, our outlook is largely subject to market conditions. Whilst we expect
interest rates to decrease during 2024, we believe they will remain elevated
versus recent history. This, combined with uncertainty around the pace and
quantum of interest rate cuts, elections globally, and ongoing geopolitical
events, will continue to drive volatility that is supportive of our Global
Broking and Energy & Commodities businesses, where we anticipate trading
volumes to remain solid. Liquidnet and Parameta Solutions showed an improving
growth trajectory in the second half of 2023 - providing good momentum into
2024.
The movement in foreign exchange rates, in particular Sterling vs US Dollar
(60% of Group revenue/40% of Group costs are US Dollar-denominated) will
continue to impact our results - with GBP strengthening having a negative
impact, and vice versa.
Against this backdrop, we will stay focused on developing, and growing, strong
client franchises; transforming and diversifying the Group; and managing our
capital dynamically. Tight cost management will continue to be a core focus.
We expect that growth in management & support costs (excluding FX gains or
losses), will broadly track the level of average UK inflation expected in
2024. Consequently, we anticipate remaining well placed to deliver sustainable
shareholder value over the medium term.
Trading in the first two months of the year has been good. We remain
comfortable with current market expectations for full year 2024.
Nicolas Breteau
Executive Director and Chief Executive Officer
12 March 2024
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Financial and operating review
All percentage movements quoted in the analysis of financial results that
follows are in reported currency, unless otherwise stated. Reported currency
refers to prior year comparatives translated using prior year foreign exchange
rates.
Introduction
The Group delivered a good financial performance: revenue increased 4% to
£2,191m (3% ahead in constant currency), building on the 13% growth in 2022.
In line with our expectations, following a strong performance in 2022, revenue
in our largest division, Global Broking, was unchanged. Energy &
Commodities delivered record revenue growth of 18%, benefitting from improved
market conditions. This included double-digit growth across all the key asset
classes (Oil, Power and Gas).
Liquidnet revenue (excluding Credit, now reported as part of our Credit asset
class in Global Broking) declined marginally. Cash Equities revenue was 8%
down, but outperformed the activity in large block market volumes -
Liquidnet's key market segment. We grew our market share in the US and EMEA
regions, underlining the strength of our franchise. Cash Equities revenue
increased by 9% in the fourth quarter, and this positive momentum has
continued so far in 2024.
Parameta Solutions, a world leader in the provision of OTC data and analytics,
grew its revenue by 8% and continues to benefit from the delivery of
multi-channel distribution and diversification of its client base.
Our focus on cost management (annualised Liquidnet integration cost synergies
of £43m), and broker productivity (average revenue per broker +10%),
increased our Group contribution margin to 38.7% (2022: 37.6%). We delivered a
record adjusted EBIT of £300m (2022: £275m), up 9%, with EBIT margin
increasing to 13.7% from 13.0%, despite a £11m foreign currency loss arising
from the retranslation of the Group's monetary assets and liabilities (2022:
£14m gain).
The Group incurred significant items of £153m post-tax in reported earnings
(2022: £91m) with the year-on-year increase driven by the £76m (net of tax)
in 2023 impairment of goodwill and acquired intangibles assets in Liquidnet.
The impairment reflects the particularly challenging equity markets seen over
the last two years, as well as an increase in the discount rate. Significant
items excluding the impairment and income and costs associated with legal and
regulatory matters, were lower than our previous guidance of £85m (pre-tax).
Group's reported EBIT was £128m (2022: £163m).
At our Capital Markets Day in 2020, we set out our strategy to transform,
grow, and diversify the Group. At the same time, we set out a range of 2023
targets which we adjusted last year to principally reflect the challenging
market conditions for Liquidnet Equities, and the impact of the pandemic. We
have exceeded the updated guidance for most of these targets.
Dynamic capital management is an important strategic priority for us. We freed
up our targeted £100m of cash, which is being used to reduce Group debt. Our
leverage ratio(1) is now 1.9 times, and is expected to reduce further, when we
report our half year 2024 results in August. We delivered strong cash
generation, with a cash conversion ratio of 124% (2022: 156%). We announced a
second share buyback programme of £30m, following the completion of the
initial £30m programme in January 2024. Finally, in line with our dividend
policy, the Board is recommending a final 2023 dividend of 10.0 pence per
share, representing a full year 2023 dividend of 14.8 pence per share, up
19.4%.
Robin Stewart
Executive Director and Chief Financial Officer
12 March 2024
1. Total debt (excluding finance lease liabilities) dividend
by adjusted EBITDA as defined by Rating Agency.
Key financial and performance metrics
£m 2023 2022 2022 Reported Constant Currency Change
Reported(2) Constant Currency(2) change
Revenue 2,191 2,115 2,119 4% 3%
Reported
- EBIT 128 163 165 (21%) (22%)
- EBIT margin 5.8% 7.7% 7.8% (1.9%) (2.0%)
Adjusted
- Contribution 848 795 797 7% 6%
- Contribution margin 38.7% 37.6% 37.6% 1.1% 1.1%
- EBITDA 373 357 359 4% 4%
- EBIT 300 275 277 9% 8%
- EBIT margin 13.7% 13.0% 13.1% 0.7% 0.6%
Average:
- Broker headcount(1) 2,556 2,680 2,680 (5%) (5%)
- Revenue per broker(1) (£'000) 716 652 653 10% 10%
- Contribution per broker(1) (£'000) 268 230 230 17% 17%
Period end:
- Broker headcount(1) 2,523 2,613 2,613 (3%) (3%)
- Total headcount 5,179 5,161 5,161 - -
1. Revenue per broker and contribution per broker are calculated as external
revenue and contribution of Global Broking, Energy & Commodities and
Liquidnet (excluding the acquired Liquidnet platform) divided by the average
broker headcount for the year. 2022 broker headcount restated to include
Liquidnet Credit platform to reflect the Credit platform merger with Global
Broking.
2. Prior year numbers have been restated to reflect £32m reclassification of
technology costs from front office costs to management & support costs to
better reflect the nature and management of these costs.
Income statement
Whilst not a substitute for IFRS, management believe adjusted figures provide
relevant information to better understand the underlying business performance.
These adjusted measures, and other alternative performance measures ('APMs'),
are also used by management for planning and to measure the Group's
performance.
2023 Adjusted Significant Reported
items
£m
Revenue 2,191 - 2,191
Employment, compensation and benefits (1,354) (6) (1,360)
General and administrative expenses (478) (33) (511)
Depreciation and impairment of PPE and ROUA (45) (11) (56)
Amortisation and impairment of intangible assets (28) (130) (158)
Operating expenses (1,905) (180) (2,085)
Other operating income 14 8 22
EBIT 300 (172) 128
Net finance expense (29) (3) (32)
Profit before tax 271 (175) 96
Tax (67) 27 (40)
Share of net profit of associates and joint ventures 25 (5) 20
Non-controlling interests (2) - (2)
Attributable Earnings 227 (153) 74
Basic average number of shares (millions) 777.7 777.7
Basic EPS (pence per share) 29.2p 9.5p
Diluted average number of shares (millions) 794.2 794.2
Diluted EPS (pence per share) 28.6p 9.3p
2022 Adjusted Significant Reported
items
£m
Revenue 2,115 - 2,115
Employment, compensation and benefits (1,296) (24) (1,320)
General and administrative expenses (474) (32) (506)
Depreciation and impairment of PPE and ROUA (49) (9) (58)
Amortisation and impairment of intangible assets (33) (65) (98)
Operating expenses (1,852) (130) (1,982)
Other operating income 12 18 30
EBIT 275 (112) 163
Net finance expense (49) (1) (50)
Profit before tax 226 (113) 113
Tax (58) 22 (36)
Share of net profit of associates and joint ventures 29 - 29
Non-controlling interests (3) - (3)
Attributable Earnings 194 (91) 103
Basic average number of shares (millions) 779.1 779.1
Basic EPS (pence per share) 24.9p 13.2p
Diluted average number of shares (millions) 790.6 790.6
Diluted EPS (pence per share) 24.5p 13.0p
All percentage movements quoted in the analysis of financial results that
follows are in constant currency, unless otherwise stated. Constant currency
refers to prior year comparatives being retranslated at current year foreign
exchange rates to support comparison on an underlying basis.
Revenue by division
Total Group revenue in 2023 of £2,191m was 3% higher than the prior year (+4%
in reported currency). Global Broking revenue was broadly in line, with the
performance underpinned by another strong year for Rates and growth in FX and
Money Markets. Energy & Commodities revenue increased by 18% supported by
improved market activity across Oil, Power and Gas. Supply disruptions caused
by the war in Ukraine receded and European gas prices returned to more normal
levels, leading to an increase in trading activity. In Liquidnet revenue was
down 1% due to challenging equity market conditions, particularly during H1
2023. However, an improvement in equity markets in Q4 saw Cash Equities
revenue rise 13%, providing good momentum for 2024. The rest of the Liquidnet
division delivered strong growth (+12%), driven by the Relative Value desks.
Parameta Solutions revenue was up 8% as it continued to benefit from growing
demand for high quality financial markets data. Growth accelerated to 11% in
H2 2023.
£m 2023 2022 2022 (restated constant currency) Reported currency change Constant currency change
(restated
reported currency)
By Business Division
Rates 566 567 567 - -
FX & Money Markets 312 302 302 3% 3%
Equities 237 246 246 (4%) (4%)
Credit(2) 121 125 125 (3%) (3%)
Inter-division revenue(1) 22 22 22 - -
Global Broking(3) 1,258 1,262 1,262 - -
Energy & Commodities 455 384 386 18% 18%
Inter-division revenue(1) 3 3 3 - -
Energy & Commodities 458 387 389 18% 18%
Liquidnet(2) 315 316 318 - (1%)
Data & Analytics 185 175 175 6% 6%
Inter-division revenue(1) 4 - - n/a n/a
Parameta Solutions(3) 189 175 175 8% 8%
Inter-division eliminations(1) (29) (25) (25) (16%) (16%)
Total Revenue 2,191 2,115 2,119 4% 3%
1. Inter-division revenue has been recognised in Global Broking and Energy &
Commodities to reflect the value of proprietary data provided to the Parameta
Solutions division. The Global Broking and Energy & Commodities
inter-division revenue and Parameta Solutions inter-division costs are
eliminated upon the consolidation of the Group's financial results.
2. Liquidnet Credit revenue of £11m is now reported as part of Global Broking.
2023 disclosures are on this basis, with 2022 results restated, to ensure a
like-for-like comparison year-on-year. £9m of Credit revenue in 2022 has been
reclassified from Liquidnet to Global Broking.
2. Parameta Solutions desks transferred into Global Broking reflecting the
change in focus of business activities. 2022 Revenue for Global Broking
increased by £2m, Parameta Solutions reduced by £2m.
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.
£m 2023 2022 2022 Reported
(restated(1) reported currency) (restated(1) constant currency) change Constant
currency
change
Front office costs
- Global Broking 761 798 799 (5%) (5%)
- Energy & Commodities 304 263 264 16% 16%
- Liquidnet 207 197 197 5% 5%
- Parameta Solutions 71 62 62 15% 15%
Total front office costs(2) 1,343 1,320 1,322 2% 2%
Management and support costs
- Employment costs 319 297 297 7% 7%
- Technology and related costs 93 93 93 - -
- Premises and related costs 29 28 28 4% 4%
- Depreciation and amortisation 73 82 82 (11%) (11%)
- Other administrative costs 37 46 46 (20%) (20%)
Total management & support costs 551 546 546 1% 1%
- FX (gains)/losses 11 (14) (14) n/a n/a
Total management & support costs (incl. FX losses/(gains) 562 532 532 6% 6%
Total adjusted operating costs 1,905 1,852 1,854 3% 3%
Significant items 180 130 128 38% 41%
Total operating expenses 2,085 1,982 1,982 5% 5%
1. Prior year numbers have been restated to reflect £32m
reclassification of technology costs from front office costs to management
& support costs to better reflect the nature of these costs. The
reclassification impacts Liquidnet, Global Broking and the Group.
2. Includes all front office costs, including broker compensation,
sales commission, travel and entertainment, telecommunications, information
services, clearing and settlement fees as well as other direct costs.
Total front office costs of £1,343m increased by 2% on reported and constant
currency basis compared with 2022, in line with increase in revenue. In 2022
there was a £21m P&L charge, net of recoveries relating to Russian
exposures. Excluding this charge, the front office costs increased by 3%,
Total management & support costs (excluding FX (gains)/losses) of £551m
remained broadly in line compared with the previous period. The FX impact from
the retranslation of monetary assets and liabilities reversed from a £14m
gain in 2022, to an £11m loss in 2023. We maintained tight cost discipline
and the impact of ongoing inflationary pressures and continuing investment in
Liquidnet Credit was largely offset by the delivery of further cost savings,
which has strengthened our operating leverage. We have now delivered £43m of
annualised Liquidnet integration cost synergies, exceeding our target of
£30m.
Total operating expenses of £2,085m, increased by 5% compared with 2022.
During 2023, we incurred total strategic IT investment spend amounting to
£26m (2022: £22m) comprising £7m of operating expenses and £19m of capital
expenditure. (2022: £8m operating expenses and £14m capital expenditure).
Capital and liquidity management
Capital management
The Group achieved its target of freeing up c.£100m of cash, six months ahead
of schedule. It is being used to reduce Group debt, thereby reducing our
future net finance costs, and increasing our investment grade headroom.
In April 2023, we issued £250m Sterling Notes maturing in 2030 under the
Group's Euro Medium Term Note ('EMTN') programme. The proceeds were used to
repay £210m of the outstanding Sterling Notes, in 2023 and the balance at
maturity, in January 2024.
Free cash flow generation was strong at £281m (2022: £302m), representing a
124% cash conversion(1) (free cash flow divided by adjusted attributable
earnings).
We announced a share buyback programme of up to £30m in August 2023 which was
executed during the second half of 2023 and completed in the first week of
January 2024. We have announced a second buyback of £30m. The Board remains
committed to identifying and returning any potential surplus capital to
shareholders, subject to the ongoing assessment of our balance sheet and
investment requirements.
(1) Cash conversion is defined as reported free cash flow (£281m) divided by
adjusted attributable earnings (£227m).
Liquidity management
The Group extended the £350m syndicated Revolving Credit Facility ('RCF') for
a further year to May 2026. In January 2024 the Yen10bn RCF with a Japanese
strategic partner has also been extended to February 2026.
Significant items
Items that distort comparisons due to their size, nature or frequency, are
excluded in order to provide additional understanding, comparability and
predictability of the underlying trends of the business, to arrive at adjusted
operating and profit measures.
Significant items are categorised as below:
Restructuring and related costs
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.
Disposals, acquisitions and investments in new businesses
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 contained in
both the reported and adjusted results as these are considered to be core to
supporting the operations of the business.
Impairment
The Group conducts its goodwill and intangible asset impairment test annually
in September, or more frequently if indicators of impairment exist. Impairment
assessments are performed by comparing the carrying amount of a cash
generating unit ('CGU'), to its recoverable amount. Judgement is involved in
estimating the future cash flows of the cash-generating units and the rates
used to discount these cash flows.
Legal and regulatory matters
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.
The table below shows the significant items in 2023 vs 2022, of which around
85% of the total 2023 costs are non-cash.
2023 2023 2023 2022 2022 2022
£m Gross Expense Tax Relief Net Amount Gross Expense Tax Relief Net Amount
Restructuring & related costs
- Property rationalisation(1) 15 (3) 12 16 (3) 13
- Liquidnet integration 9 (2) 7 9 (1) 8
- Group cost saving programme - - - 21 (3) 18
- Business restructuring(2) 2 - 2 2 - 2
- Remeasurement of employee group income protection ('GIP') provision - - - (7) 1 (6)
Subtotal 26 (5) 21 41 (6) 35
Disposals, acquisitions and investment in new business
- Amortisation of intangible assets arising on consolidation 44 (11) 33 45 (10) 35
- Liquidnet acquisition related(3) 10 (2) 8 (15) (6) (21)
- Foreign exchange losses (2) 1 (1) 5 - 5
- Adjustment to deferred consideration(4) (3) - (3) 8 - 8
- Strategic project costs - - - 3 - 3
Subtotal 49 (12) 37 46 (16) 30
Impairment(5)
- Liquidnet Goodwill 47 - 47 - - -
- Liquidnet Customer relationships 39 (10) 29 20 - 20
Subtotal 86 (10) 76 20 - 20
Legal & regulatory matters(6) - Subtotal 11 - 11 5 - 5
Total pre-financing cost 172 (27) 145 112 (22) 90
- Financing interest expense on Vendor Loan Notes, amortisation of discount on 3 - 3 1 - 1
deferred consideration and GIP provision
Total post-financing cost 175 (27) 148 113 (22) 91
Associate impairment(7) 5 - 5 - - -
Total 180 (27) 153 113 (22) 91
1. £12m Property rationalisation costs include costs relating to exiting
Liquidnet's Hong Kong and New York office.
2. £2m of Business restructuring costs include the ongoing work to simplify the
Group's legal entity structure and free up capital.
3. £8m of Liquidnet acquisition related costs relating to settling commercial
and regulatory matters arising from the Liquidnet acquisition.
4. £(3)m adjustment to deferred consideration includes the reduction of deferred
consideration on the Liquidnet earnout in the light of lower performance in
the equities business.
5. £76m recognised impairment of the carrying values of goodwill and acquired
customer relationships in Liquidnet as a result of prolonged adverse changes
in equity market conditions, and an increase in the discount rate that is
applied to cash flow projections.
6. £11m Legal & regulatory matters includes costs related to proceedings
issued by the Frankfurt and Cologne Prosecutors, civil claims relating to
'cum-ex', the defence of LIBOR actions and settlement, costs related to the
Company bringing a warranty claim against NEX Group and costs related to
ongoing regulatory investigations.
7. £5m relates to the impairment of the Group's carrying value of an associate
company on disposal - Corretaje e Informacion Monetaria Y de Divisas SA
('CIMD').
Net finance expense
The adjusted net finance expense of £29m (reported net finance expense
£32m), is comprised of £46m interest expense and £14m of net interest on
finance leases, offset by £31m interest income. The net finance expense is
£20m lower compared with £49m in 2022. This is mainly due to:
• £26m increase in interest income following concerted effort to maximise the
interest rate yield on increasing cash balances;
• £7m increase in interest expense from 2030 Sterling Notes refinanced at
higher rate (7.875%) compared with the 2024 Sterling Notes repaid (5.25%) and;
• £1m decrease in net financing leasing costs.
Tax
The effective rate of tax on adjusted profit before tax is 24.7% (2022:
25.7%). The effective rate of tax on reported profit before tax is 41.7%
(2022: 31.9%).
Basic EPS
The average number of shares used for the 2023 Basic EPS calculation is 777.7m
(2022: 779.1m). This reflects the 788.7m shares in issue as at 31 December
2022, less the 8.8m shares held in trust as at 31 December 2022, adjusted for
the time-apportioned movements in shares during 2023. Time-apportioned
movements during the year were an increase of 0.5m in respect of own shares
held in trust and a decrease of 2.7m in respect of treasury shares acquired
through the share buyback.
The TP ICAP plc EBT has waived its rights to dividends.
The reported Basic EPS for 2023 was 9.5p (2022: 13.2p) and adjusted Basic EPS
for 2023 was 29.2p (2022: 24.9p).
Dividend
The Board is recommending a final dividend for 2023 of 10.0p, which, when
added to the interim dividend of 4.8p, results in a total dividend for the
year of 14.8p, an increase of 19% from the previous year. This aligns to the
Group's dividend policy which targets a dividend cover of approximately two
times on adjusted post-tax earnings. The dividend distribution during the year
is typically based on a pay-out range of 30-40% of H1 adjusted post-tax
earnings with the balance paid in the final dividend. The final dividend will
be paid on 24 May 2024 to shareholders on the register at close of business on
12 April 2024. The ex-dividend date will be 11 April 2024.
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 02 May 2024.
Targets for 2023 and Guidance for 2024
At the Capital Markets Day ('CMD') in December 2020 we set out financial
targets for the end of 2023 and subsequently updated guidance to reflect
progress and updated following the impact of the pandemic and the challenging
equity market conditions for the Liquidnet platform alongside the Credit
proposition taking longer than planned. As we often highlight, it is difficult
to predict future levels of market activity, given the highly uncertain macro
and geopolitical outlook.
We have met most of our guidance.
Contribution Margin Total Group GB(1,2) E&C PS LN(1,2)
Latest guidance 39% to 40% 33% to 35% >50% c.30%
2023 Reported 39.8% 33.6% 49.2% 22.4%
Adjusted EBIT Margin Total Group GB(1,2) E&C PS LN(1,2)
Latest guidance c.14% 17% to 19% 13% to 15% >45%
2023 Reported 13.7% 17.8% 15.5% 40.7%
Cash Conversion Total Group
Latest guidance c.80%
2023 Reported 124%
1. Liquidnet Credit (both primary and secondary market trading protocols,
including Dealer-to-Client ('D2C')) is now reported as part of Global Broking.
FY 2023 disclosures are on this basis, with FY 2022 results restated, to
ensure a like-for-like comparison year-on-year. For comparison with 2023 CMD
targets, Liquidnet Credit is excluded from Global Broking, to ensure a
like-for-like basis when targets were announced.
2. For comparison with 2023 latest guidance, Liquidnet Credit is excluded from
Global Broking, to ensure a like-for-like basis. The contribution margin also
excludes the 2023 reclassification of technology costs (£6m) from front
office costs into management & support costs for Global Broking and
(£27m) for Liquidnet.
Our guidance for 2024 is as follows:
• Significant items in 2024 are expected to be c.£65m (pre-tax), excluding
potential income and costs associated with legal and regulatory matters;
• Group net finance expense of c.£25m;
• Dividend cover of c.2 times adjusted post-tax earnings; and
• Management & support costs (excluding FX gains or losses) are expected to
grow in line with inflation.
Performance by Primary Operating Segment (divisional basis)
The Group presents below the results of its business by Primary Operating
Segment with a focus on revenue and APMs used to measure and assess
performance.
2023
Corp/
£m GB(3,4,5) E&C LN(,4) PS(3) Elim Total
Revenue:
- External 1,236 455 315 185 - 2,191
- Inter-division(1) 22 3 - 4 (29) -
1,258 458 315 189 (29) 2,191
Total front office costs:
- External (761) (304) (207) (71) - (1,343)
- Inter-division(1) (4) - - (25) 29 -
(765) (304) (207) (96) 29 (1,343)
Contribution 493 154 108 93 - 848
Contribution margin 39.2% 33.6% 34.3% 49.2% - 38.7%
Net management and support costs:
- Management and support costs (259) (75) (87) (14) (54) (489)
- Other operating income 3 1 - - 10 14
Adjusted EBITDA 237 80 21 79 (44) 373
Adjusted EBITDA margin 18.8% 17.5% 6.7% 41.8% n/a 17.0%
- Depreciation and amortisation (31) (9) (11) (2) (20) (73)
Adjusted EBIT 206 71 10 77 (64) 300
Adjusted EBIT margin 16.4% 15.5% 3.2% 40.7% n/a 13.7%
Average broker headcount 1,815 599 142 2,556
Average sales headcount - - 107 107
Revenue per broker (£'000)(2) 681 759 972 716
Contribution per broker (£'000)(2) 272 257 262 268
2022 (reported currency)
Corp/
£m GB(3,4,5) E&C LN(4,5) PS(3) Elim Total(5)
Revenue:
- External 1,240 384 316 175 - 2,115
- Inter-division(1) 22 3 - - (25) -
1,262 387 316 175 (25) 2,115
Total front office costs:
- External (798) (263) (197) (62) - (1,320)
- Inter-division(1) - - - (25) 25 -
(798) (263) (197) (87) 25 (1,320)
Contribution 464 124 119 88 - 795
Contribution margin 36.8% 32.0% 37.7% 50.3% - 37.6%
Net management and support costs:
- Management and support costs (242) (65) (93) (7) (43) (450)
- Other operating income 2 - - - 10 12
Adjusted EBITDA 224 59 26 81 (33) 357
Adjusted EBITDA margin 17.7% 15.2% 8.2% 46.3% n/a 16.9%
- Depreciation and amortisation (36) (10) (25) (2) (9) (82)
Adjusted EBIT 188 49 1 79 (42) 275
Adjusted EBIT margin 14.9% 12.7% 0.3% 45.1% n/a 13.0%
Average broker headcount 1,908 632 139 2,680
Average sales headcount - - 119 119
Revenue per broker (£'000)(2) 650 607 894 652
Contribution per broker (£'000)(2) 243 196 200 230
2022 (constant currency)
Corp/
£m GB(3,4,5) E&C LN(4,5) PS(3) Elim Total(5)
Revenue:
- External 1,240 386 318 175 - 2,119
- Inter-division(1) 22 3 - - (25) -
1,262 389 318 175 (25) 2,119
Total front office costs:
- External (799) (264) (197) (62) - (1,322)
- Inter-division(1) - - - (25) 25 -
(799) (264) (197) (87) 25 (1,322)
Contribution 463 125 121 88 - 797
Contribution margin 36.7% 32.1% 38.1% 50.3% - 37.6%
Net management and support costs:
- Management and support costs (240) (66) (94) (7) (43) (450)
- Other operating income 2 - - - 10 12
Adjusted EBITDA 225 59 27 81 (33) 359
Adjusted EBITDA margin 17.8% 15.2% 8.5% 46.3% n/a 16.9%
- Depreciation and amortisation (35) (10) (25) (2) (10) (82)
Adjusted EBIT 190 49 2 79 (43) 277
Adjusted EBIT margin 15.1% 12.6% 0.6% 45.1% n/a 13.1%
Average broker headcount 1,908 632 139 2,680
Average sales headcount - - 119 119
Revenue per broker (£'000)(2) 650 610 895 653
Contribution per broker (£'000)(2) 243 198 199 230
GB = Global Broking; E&C = Energy & Commodities; LN = Liquidnet; PS
= Parameta Solutions, Corp/Elim = Corporate Centre, eliminations and other
unallocated costs.
1. 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 Global Broking inter-division revenue and Parameta
Solutions inter-division costs are eliminated upon the consolidation of the
Group's financial results.
2. Revenue per broker and contribution per broker are calculated as external
revenue and contribution of Global Broking, Energy & Commodities and
Liquidnet (excluding the acquired Liquidnet platform) divided by the average
brokers for the year. The Group revenue and contribution per broker excludes
revenue and contribution from Parameta Solutions and Liquidnet Division.
3. Parameta Solutions desks transferred into Global Broking reflecting the
change in focus of business activities. 2022 Revenue for Global Broking
increased by £2m, Parameta Solutions reduced by £2m. Front Office costs for
Global Broking increased by £1m, Parameta Solutions reduced by £1m.
4. Liquidnet Credit is now reported as part of Global Broking. 2023 disclosures
are on this basis, with 2022 results restated, to ensure a like-for-like
comparison year-on-year. 2022 Revenue for Global Broking increased by £9m,
Liquidnet reduced by £9m. Front Office costs for Global Broking increased by
£17m, Liquidnet reduced by £17m.
5. Prior year numbers have been restated to reflect £32m reclassification of
technology costs from front office costs to management & support costs to
better reflect the nature of these costs. The reclassification impacts
Liquidnet, Global Broking and the Group.
Global Broking(1)
Global Broking revenue of £1,258m (which represents 57% of total Group
revenue) was broadly in line with the strong prior period that saw 7% increase
compared with 2021 (in line in reported currency). Interest rates and market
volatility remained high supporting macro trading activity in Rates and FX
& Money Markets.
Revenue in Rates (comprising 45% of Global Broking revenue and 26% of total
Group revenue) was in line with 2022, as market volatility remained high. FX
& Money Markets revenue increased by 3% driven by strong growth in
emerging markets, while we saw declines in Equities and Credit of 4% and 3%
respectively. In 2023, Liquidnet Credit was merged with Global Broking to form
a new, Group-wide, Credit offering. This new arrangement will enable us to
leverage our deep sell-side relationships and deepen and accelerate
connectivity as well as drive efficiencies through a shared support
infrastructure. 2023 revenue from Liquidnet Credit was £11m (2022: £9m).
Revenue per broker increased by 5%, reflecting the delivery of the same
year-on-year revenue with 5% fewer brokers. Contribution per broker increased
by 12%, or by 7% when excluding the P&L charge related to Russian
exposures in 2022.
Front office costs were 4% lower, due to the non-recurrence of the £20m
P&L charge relating to Russian exposures in 2022 and lower average broker
headcount. The contribution margin increased to 39.2% compared with 36.7% in
the prior period.
Management and support costs (including depreciation and amortisation and net
of other operating income) of £287m increased by 5% due to increased
investment in the roll out of Fusion, our electronic platform. Adjusted EBIT
was £206m, with a margin of 16.4% (2022: £190m, 15.1% in constant currency,
£188m and 14.9% in reported currency).
Energy & Commodities
E&C revenue of £458m in 2023, representing 21% of total Group Revenue,
was 18% higher, benefitting from buoyant market conditions. Double-digit
growth was delivered across the key asset classes: Oil, Power and Gas. Trading
volumes increased in European gas and power as the impact of the supply
disruptions caused by the war in Ukraine were mitigated and prices returned to
more normal levels. ICE oil market volumes were up 19% and gas market volumes
up 16%, as the overall macro environment led to price volatility and increased
trading.
Revenue per broker increased by 24% and contribution per broker increased by
30%.
Front office costs which are variable with revenue, were 15% higher at £304m.
Contribution margin increased to 33.6% (2022: 32.1%).
Management and support costs (including depreciation and amortisation and net
of other operating income) of £83m increased by 9% due to higher direct
management costs and the adjusted EBIT was £71m, up 45% on the prior period
with a margin of 15.5% (2022: £49m, 12.6% in constant currency and 12.7% in
reported currency).
Liquidnet(1)
Liquidnet's revenue of £315m, which represents 14% of total Group revenue was
1% lower in constant currency compared with 2022 (in line with reported) with
strong performance in the Relative Value businesses offset by continued
challenges in Equities.
Liquidnet Equities continued to experience challenging market conditions
particularly in the first half of 2023. We took further action on our cost
base and have now delivered £43m of annualised integration synergies (vs our
£30m target), and strengthened our operational leverage significantly. In the
US, block market volumes by the top five Agency Alternative Trading System
('ATS') venues were down 13% compared with 2022 however, Liquidnet's market
share increased from 23.2% to 24.0%. In Europe, 5x Large in Scale transactions
('LIS') volumes were down 15% in 2023 compared with 2022. In this challenging
environment, Liquidnet's market share increased in 2023 to 35.9% compared with
34.3% in Q4 2022. Liquidnet showed an improving growth trajectory in the
second half of 2023 as investor expectations for a reduction in global
interest rates brought about a higher allocation of funds flow into Equities,
and an increase in institutional block activity as a result. Cash equities
revenue grew 13% in the fourth quarter of 2023.
The Relative Value businesses performed well as a result of the US regional
banking crisis in Q1 2023, and rising interest rates throughout the year.
Front office costs of £207m were 5% higher. This resulted in a contribution
margin of 34.3% (2022: 38.1%).
Management and support costs (including depreciation and amortisation and net
of other operating income) of £98m reduced by 18% mainly from cost management
actions and the adjusted EBIT increased to £10m, at 3.2% margin (2022: £2m,
0.6% in constant currency and £1m, 0.3% in reported currency).
Parameta Solutions(2)
Revenue of £189m, which represents 9% of total Group revenue, was 8% higher
compared with 2022. Revenue in the second half was 11% higher compared with
the prior period, providing positive momentum for the year ahead.
Subscription-based recurring revenue represents over 96% of total revenue.
Parameta Solutions continues to benefit from the successful delivery of its
strategy focussed on product development, multi-channel distribution and
further diversification of its client base. Thirty new clients were onboarded
in 2023, 80% of which were non-sell-side clients including buy-side,
corporates, professionals' services and energy & commodities firms. In
addition, we launched two benchmark indices focused on interest rate swap
volatility and the global Liquefied Natural Gas market.
Management and support costs (including depreciation and amortisation and net
of other operating income) of £16m increased by £7m from 2022 and the
adjusted EBIT was £77m, with a margin of 40.7% (2022: £79m, 45.1% in
reported & constant currency).
1. Liquidnet Credit is now reported as part of Global Broking. 2023 disclosures
are on this basis, with 2022 results restated, to ensure a like-for-like
comparison year-on-year. £9m of Credit revenue in 2022 have been reclassified
from Liquidnet to Global Broking.
2. Parameta Solutions desks transferred into Global Broking reflecting the change
in focus of business activities. 2022 Revenue for Global Broking increased by
£2m, Parameta Solutions reduced by £2m. Front Office costs for Global
Broking increased by £1m, Parameta Solutions reduced by £1m.
Cash flow
The table below shows the changes in cash and debt for the year ending 31
December 2023 and 31 December 2022.
2023 2022
EBIT reported 128 163
Depreciation, amortisation and other non-cash items 226 158
Disposal of property, plant and equipment - 12
Movement in working capital
- change in net Matched Principal balances (20) 27
- change in other working capital balances 104 62
Income taxes paid:
- periodic tax paid (57) (51)
- accelerated tax paid (32) -
Net interest and loan facility fees paid (33) (48)
Capital expenditure (55) (53)
Dividends received from associates and joint ventures 22 15
Dividends paid to non-controlling interests (2) (3)
Free Cash Flow 281 302
Receipt UK pension surplus, net of pension tax payment 30 -
Purchase of financial assets (19) (50)
Net other investing activities 7 (9)
Dividend paid to TP ICAP shareholders (99) (78)
Share buyback (29) -
Net borrowings 39 (47)
Payment of lease liabilities (29) (29)
Other financing activities (10) (6)
Total other investing and financing activities (110) (219)
Change in cash 171 83
Foreign exchange movements (40) 38
Cash at the beginning of the year 888 767
Cash at the end of the year 1,019 888
The Group's net cash balance of £1,019m, increased by £131m in the year.
Free cash flow is presented to show a more sustainable view of cash generation
and to enable the conversion of adjusted earnings into cash to be better
understood. This measure reflects the cash and working capital efficiency of
the Group's operations, and aligns tax with underlying items and interest
received with the operations of the group.
Free cash flow of £281m (2022: £302m) represents 124% conversion of adjusted
attributable earnings into cash (2022: 156%). This includes temporary cash
outflow of £20m on changes in Matched Principal balances (2022: £27m inflow)
that arose on delayed settlement of trades and accelerated tax paid of £32m
(2022: £nil) from the UK tax relief, that is expected to reverse in 2024 and
2025. Adjusting for these 2 items gives a free cash flow of £333m (2022:
£275m) and a conversion of adjusted attributable earnings into cash of 147%
(2022: 142%) caused principally by the cash inflow on working capital of
£104m (2022: £62m) from a significant improvement in collection of trade
receivables.
Total other investing and financing activities includes the net receipt of UK
pension surplus being, the gross amount of £46m less the 35% tax levied of
£16m, following the wind-up of the defined benefit pension schemes, a £29m
outflow from the £30m share buyback programme announced in August 2023, a
£99m outflow from increased dividend paid in 2023 and a £39m net cash inflow
from the refinancing of the 2024 Sterling Notes.
The strengthening of GBP, particularly against the USD, resulted in a foreign
exchange loss of £40m (2022: gain of £38m).
Debt finance
The composition of the Group's outstanding debt is summarised below.
At 31 At 31 December
December 2022
2023 £m
£m
5.25% £247m Sterling Notes January 2024(1) 37 253
5.25% £250m Sterling Notes May 2026(1) 250 250
2.625% £250m Sterling Notes November 2028(1) 249 248
7.875% £250m Sterling Notes April 2030(1) 251 -
Sub Total 787 751
Loan from related party (RCF with Totan)(2) - -
Revolving credit facility drawn - banks(2) - -
3.2% Liquidnet Vendor Loan Notes 40 43
Overdrafts 10 -
Debt (used as part of net (funds)/debt) 837 794
Lease liabilities 251 279
Total debt 1,088 1,073
1. Sterling Notes are reported at their par value net of discount and
unamortised issue costs and including interest accrued at the reporting date.
2. £350m committed revolving facility ('RCF') and Yen10bn committed
facility with The Tokyo Tanshi Co., Ltd were undrawn as at 31 December 2023.
The Group's gross debt, excluding lease liabilities, temporarily increased to
£837m compared with 31 December 2022. In April 2023, the Group issued a
£250m Sterling Note maturing in April 2030, the proceeds of which were used
to repay £210m of the January 2024 Sterling Notes. The residual proceeds of
the new issue are held as cash and the remaining £37m of the outstanding 2024
Notes were repaid at maturity in January 2024.
The Group's £350m main bank revolving credit facility, maturing in May 2026
and Yen10bn Totan facility, maturing in February 2026 were undrawn as at 31
December.
Exchange rates
The income statements and balance sheets of the Group's businesses whose
functional currencies are not GBP are translated into GBP at average and
period end exchange rates respectively. The most significant exchange rates
for the Group are the USD 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 had a mixed impact on the Group's P&L in
2023. The average USD: GBP rate for the year is unchanged compared with 2022
and hence had a minimal impact to the Group's revenue and costs. Approximately
60% of revenue and 40% of costs are in USD. The overall strengthening of GBP
over the 12-month period has generated a significant foreign exchange loss of
£11m at the end of the year compared with a £14m gain in 2022, on the
retranslation of monetary assets and liabilities at the year end.
Average Period End
2023 2022 2023 2022
US Dollar $1.24 $1.24 $1.27 $1.19
Euro €1.15 €1.18 €1.15 €1.16
Pensions
The defined benefit pension scheme (the Scheme) in the UK completed wind-up in
H2 2023. Following the settlement of the Scheme's liabilities, the Trustee
distributed the cash surplus in the Scheme to the Group of £30m, representing
£46m of remaining Scheme assets less applicable taxes at 35% amounting to
£16m.
Regulatory capital
Group level regulation falls under the Jersey Financial Services Commission.
The FCA is the lead regulator of the Group's EMEA businesses, which are
sub-consolidated under a UK holding Company, for which the consolidated
capital adequacy requirements under the Investment Firms Prudential Regime
('IFPR') apply. This 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.
Climate change considerations
This year, we have completed a detailed qualitative, and quantitative, climate
scenario analysis to deepen our understanding of how climate-related issues
could affect the Group and its finances. The analysis concludes that the Group
is not expected to be materially financially impacted by climate change over
the timeframes and climate scenarios considered. We are committed to the
ongoing assessment and management of climate risks and opportunities. As part
of this work, we incorporate climate change considerations into our financial
planning processes to monitor the impacts of climate-related issues on our
financial performance and position.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Income Statement
for the year ended 31 December 2023
2023 2022
Notes £m £m
Revenue 3 2,191 2,115
Employment, compensation and benefits (1,360) (1,320)
General and administrative expenses (511) (506)
Depreciation of property, plant and equipment and ROUA (45) (49)
Impairment of property, plant and equipment and ROUA (11) (9)
Amortisation of intangible assets (72) (78)
Impairment of Intangible assets (86) (20)
Total operating costs 4 (2,085) (1,982)
Other operating income 5 22 30
Earnings before interest and tax 128 163
Finance income 6 34 8
Finance costs 7 (66) (58)
Profit before tax 96 113
Taxation (40) (36)
Profit after tax 56 77
Share of results of associates and joint ventures 25 29
Impairment of associates (5) -
Profit for the year 76 106
Attributable to:
Equity holders of the parent 74 103
Non-controlling interests 2 3
76 106
Earnings per share
- Basic 8 9.5p 13.2p
- Diluted 8 9.3p 13.0p
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2023
2023 2022
£m £m
Profit for the year 76 106
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of defined benefit pension schemes 46 -
Taxation (16) -
30 -
Items that may be reclassified subsequently
to profit or loss:
(Loss)/gain on translation of foreign operations (83) 153
Taxation 2 (5)
(81) 148
Other comprehensive (loss)/income for the year (51) 148
Total comprehensive income for the year 25 254
Attributable to:
Equity holders of the parent 24 250
Non-controlling interests 1 4
25 254
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Balance Sheet
as at 31 December 2023
2023 2022
Notes £m £m
Non-current assets
Intangible assets arising on consolidation 10 1,605 1,780
Other intangible assets 110 97
Property, plant and equipment 92 110
Investment properties 12 -
Right-of-use assets 136 165
Investment in associates 51 63
Investment in joint ventures 38 34
Other investments 19 23
Deferred tax assets 41 15
Retirement benefit assets 3 1
Other long-term receivables 33 51
2,140 2,339
Current assets
Trade and other receivables 11 2,279 2,198
Financial assets at fair value through profit or loss 12 569 264
Financial investments 16 189 174
Cash and cash equivalents 16 1,029 888
4,066 3,524
Total assets 6,206 5,863
Current liabilities
Trade and other payables 13 (2,372) (2,149)
Financial liabilities at fair value through profit or loss 12 (541) (255)
Loans and borrowings 14,16 (93) (9)
Lease liabilities 16 (28) (29)
Current tax liabilities (35) (37)
Short-term provisions 17 (14) (9)
(3,083) (2,488)
Net current assets 983 1,036
Non-current liabilities
Loans and borrowings 14,16 (744) (785)
Lease liabilities 16 (223) (250)
Deferred tax liabilities (51) (85)
Long-term provisions 17 (31) (31)
Other long-term payables (5) (60)
Retirement benefit obligations (4) (3)
(1,058) (1,214)
Total liabilities (4,141) (3,702)
Net assets 2,065 2,161
Equity
Share capital 197 197
Other reserves (963) (854)
Retained earnings 2,814 2,800
Equity attributable to equity holders of the parent 2,048 2,143
Non-controlling interests 17 18
Total equity 2,065 2,161
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Statement of Changes in Equity
for the year ended 31 December 2023
Equity attributable to equity holders of the parent
Share Re- Re- Hedging Treasury Own Retained Total Non-controlling Total
capital organisation valuation and shares shares earnings interests equity
reserve reserve translation
2023 £m £m £m £m £m £m £m £m £m £m
Balance at 197 (946) 5 109 - (22) 2,800 2,143 18 2,161
1 January 2023
Profit for the year - - - - - - 74 74 2 76
Other comprehensive - - - (80) - - 30 (50) (1) (51)
(loss)/income for the year
Total comprehensive (loss)/income for the year - - - (80) - - 104 24 1 25
Dividends paid - - - - - - (99) (99) (2) (101)
Share settlement of share-based awards - - - - - 9 (10) (1) - (1)
Own shares acquired for employee trusts - - - - - (7) - (7) - (7)
Own shares acquired/share buyback - - - - (29) - - (29) - (29)
Disposal of equity instruments at FVTOCI - - (2) - - - 2 - - -
Credit arising on share-based awards - - - - - - 17 17 - 17
Balance at 197 (946) 3 29 (29) (20) 2,814 2,048 17 2,065
31 December 2023
2022 £m £m £m £m £m £m £m £m £m £m
Balance at 197 (946) 5 (38) - (26) 2,769 1,961 17 1,978
1 January 2022
Profit for the year - - - - - - 103 103 3 106
Other comprehensive - - - 147 - - - 147 1 148
income for the year
Total comprehensive income for the year - - - 147 - - 103 250 4 254
Dividends paid - - - - - - (78) (78) (3) (81)
Share settlement of share-based awards - - - - - 7 (7) - - -
Own shares acquired for employee trusts - - - - - (3) - (3) - (3)
Credit arising on share-based awards - - - - - - 13 13 - 13
Balance at 197 (946) 5 109 - (22) 2,800 2,143 18 2,161
31 December 2022
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Cash Flow Statement
for the year ended 31 December 2023
Notes 2023 2022
£m £m
Net Cash flow from operating activities 15 270 324
Investing activities
Purchase of financial investments (19) (50)
Interest received 30 7
Dividends from associates and joint ventures 22 15
Expenditure on intangible fixed assets (43) (35)
Purchase of property, plant and equipment (12) (18)
Sale of property, plant and equipment - 12
Deferred consideration paid (1) (10)
Sale of other investments 3 -
Investment in associates (5) -
Disposal of associates and joint ventures 10 1
Receipt of pension scheme surplus(1) 46 -
Net cash flows from investment activities 31 (78)
Financing activities
Dividends paid 9 (99) (78)
Dividends paid to non-controlling interests (2) (3)
Own shares acquired/share buyback (29) -
Own shares acquired for employee trusts (7) (3)
Dividend equivalent paid on equity share-based awards (1) -
Net repayment of bank loans(2) 14 - -
Net (repayment)/borrowing of loans from related parties(2) 14 - (47)
Funds received from issue of Sterling Notes 249 -
Repurchase of Sterling Notes (210) -
Bank facility arrangement fees and debt issue costs (2) (3)
Payment of lease liabilities (29) (29)
Net cash flows from financing activities (130) (163)
Increase in cash and overdrafts 171 83
Cash and overdrafts at the beginning of the year 888 767
Effect of foreign exchange rate changes (40) 38
Cash and overdrafts at the end of the year 16 1,019 888
Cash and cash equivalents 1,029 888
Overdrafts (10) -
1,019 888
1. Represents the cash inflow resulting from the repayment of the UK pension
scheme surplus by the Trustees. This has been classified as investing
activities reflecting the realisation of the underlying investments held
within the scheme prior to the proceeds being transferred to the Group, rather
than an operational return of historic contributions. £16m of associated tax
is included in 'income tax paid'.
2. 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.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Notes to the Consolidated Financial Statements
1. General information
As at 31 December 2023 TP ICAP Group plc (the 'Company') was a public company
limited by shares incorporated in Jersey under the Companies (Jersey) Law
1991. The Company's shares are listed on the London Stock Exchange with a
premium listing. It is the ultimate parent undertaking of the TP ICAP group of
companies (the 'Group').
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 2023 or 2022, but
is derived from TP ICAP Group plc's group accounts for 2023 and 2022.
Statutory accounts for 2022 have been delivered to the Registrar of Companies
and those for 2023 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 2022 did not contain a statement under Article
113A of the Companies (Jersey) Law 1991.
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.
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) 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 2023 but they do
not have a material effect on the Group's Consolidated Financial Statements:
• IFRS 17 'Insurance Contracts' including Amendments to IFRS 17;
• Amendments to IAS 12 'Income Taxes', Deferred Tax related to Assets and
Liabilities arising from a Single Transaction;
• Amendments to IAS 8 'Accounting policies', Changes in Accounting Estimates and
Errors - Definition of Accounting Estimates;
• Amendments to IAS 1 'Presentation of Financial Statements' and IFRS Practice
Statement 2 'Disclosure of Accounting policies'; and
• Amendments to IAS 12 'Income Taxes', International Tax Reform- Pillar Two
Model Rules. In respect of this amendment the Group has applied the mandatory
exception from recognising and disclosing information about deferred tax
assets and liabilities related to Pillar 2 income taxes.
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 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.
The balance of the CODM review of operating activity and allocation of the
Group's resources is primarily focused on business division and this is
considered to represent the most appropriate view for the assessment of the
nature and financial effects of the business activities in which the Group
engages.
Whilst the Group's Primary Operating Segments are by business division,
individual entities and the legal ownership of such entities continue to
operate with discrete management teams and decision making and governance
structures. Each regional sub-group has its own independent governance
structure including CEOs, board members and sub-group regional Conduct and
Governance Committees with separate autonomy of decision making and the
ability to challenge the implementation of Group level strategy and
initiatives within its region. For the EMEA regional sub-group there are
independent non-executive directors on the regional Board that further
strengthen the independence and judgement of the governance framework..
Information regarding the Group's primary operating segments is reported
below:
31 December 2023 GB(1) E&C(1) LN(1) PM(1) Corp(1) Total
£m £m £m £m £m £m
Revenue
External 1,236 455 315 185 - 2,191
Inter-division 22 3 - 4 (29) -
1,258 458 315 189 (29) 2,191
Total front office costs
External (761) (304) (207) (71) - (1,343)
Inter-division (4) - - (25) 29 -
(765) (304) (207) (96) 29 (1,343)
Contribution 493 154 108 93 - 848
Net management and support costs (259) (75) (87) (14) (54) (489)
Other operating income 3 1 - - 10 14
Adjusted EBITDA 237 80 21 79 (44) 373
Depreciation and amortisation expense (31) (9) (11) (2) (20) (73)
Adjusted EBIT 206 71 10 77 (64) 300
31 December 2022 GB(1) E&C(1) LN(1) PM(1) Corp(1) Total
(restated) £m (restated) (restated) £m £m
£m £m £m
Revenue:
- External(2) 1,240 384 316 175 - 2,115
- Inter-division 22 3 - - (25) -
1,262 387 316 175 (25) 2,115
Total front office costs:
- External(3, 4) (798) (263) (197) (62) - (1,320)
- Inter-division - - - (25) 25 -
(798) (263) (197) (87) 25 (1,320)
Contribution(5) 464 124 119 88 - 795
Net management and support costs(5) (242) (65) (93) (7) (43) (450)
Other operating income 2 - - - 10 12
Adjusted EBITDA(5) 224 59 26 81 (33) 357
Depreciation and amortisation expense (36) (10) (25) (2) (9) (82)
Adjusted EBIT(5) 188 49 1 79 (42) 275
1. GB is Global Broking, E&C is Energy & Commodities, LN is Liquidnet
(formerly Agency Execution), PM is Parameta Solutions and Corp is Corporate.
Divisional results for 2022 have been restated to be comparable with 2023's
divisional groupings and changes to management's internal financial reporting,
as Liquidnet Credit is now managed and operated within the Global Broking
division to leverage the credit broking experience and more effectively
leverage the deep relationships and accelerate connectivity, resulting in the
following restatements:
2. Liquidnet front office costs of £32m were reclassified to management and
support costs to align with the classification of similar costs within the
Group.
3. Subsequently Liquidnet Credit, previously reflected in Liquidnet, transferred
to Global Broking:
> Revenue for Global Broking increased by £9m, Liquidnet reduced by £9m.
> Front office costs for Global Broking increased by £17m, Liquidnet have
reduced by £17m.
> Management and support costs for Global Broking increased by £17m.
Liquidnet have reduced by £17m.
4. Parameta Solutions desks transferred to Global Broking:
> Global Broking revenue increased by £2m, Parameta Solutions reduced by
£2m.
> Global Broking front office costs increased by £1m. Parameta Solutions
reduced by £1m.
> Management and support costs for Global Broking increased by £1m.
Parameta Solutions reduced by £1m.
5. As a result of 2,3 and 4 above,
> Contribution for Global Broking decreased by £7m, Liquidnet increased by
£40m and Parameta Solutions reduced by £1m. Total contribution increased by
£32m.
> Net management and support costs for Global Broking increased by £18m,
Liquidnet increased by £15m, Parameta Solutions decreased by £1m. Total net
management and support costs by increased by £32m.
> Adjusted EBITDA for Global Broking decreased by £25m, Liquidnet
increased by £25m. There is no restatement to the consolidated Group Adjusted
EBITDA.
> Adjusted EBIT for Global Broking decreased by £25m, Liquidnet increased
by £25m. There is no restatement to the consolidated Group Adjusted EBIT.
Analysis of significant items
31 December 2023 Restructuring Disposals, acquisitions and investment in new businesses Impairment of intangible assets arising on consolidation Legal and regulatory matters Total
and other related costs
£m £m £m £m £m
Employment, compensation and benefits costs 4 2 - - 6
Premises and related costs 3 - - - 3
Deferred consideration - (3) - - (3)
Charge relating to significant legal and regulatory settlements - - - 19 19
Net foreign exchange gains - (2) - - (2)
Other general and administration costs 8 8 - - 16
Total included within general and administration costs 11 3 - 19 33
Depreciation and impairment of PPE and ROUA 11 - - - 11
Amortisation and impairment of intangible assets - 44 86 - 130
Total included within operating costs 26 49 86 19 180
Other operating income - - - (8) (8)
Included in finance income 1 2 - - 3
Total significant items before tax 27 51 86 11 175
Taxation on significant items (27)
Total significant items after tax 148
Impairment of associates 5
Total significant items 153
31 December 2022 Restructuring Disposals, acquisitions and investment in new businesses Impairment of intangible assets arising on consolidation Legal and regulatory matters Total
and other related costs
£m £m £m £m £m
Employment, compensation and benefits costs 24 - - - 24
Premises and related costs 1 - - - 1
Deferred consideration - 8 - - 8
Charge relating to significant legal and regulatory settlements - - - 6 6
Pension scheme past service and settlement costs - - - 1 1
Remeasurement of employee long-term benefits (7) - - - (7)
Gain on disposal of property, plant and equipment (3) - - - (3)
Gain on derecognition of right-of-use assets/lease liabilities (3) - - - (3)
Net foreign exchange gains - 4 - - 4
Other general and administration costs 20 5 - - 25
Total included within general and administration costs 8 17 - 7 32
Depreciation and impairment of PPE and ROUA 9 - - - 9
Amortisation and impairment of intangible assets - 45 20 - 65
Total included within operating costs 41 62 20 7 130
Other operating income - (16) - (2) (18)
Included in finance income - 1 - - 1
Total significant items before tax 41 47 20 5 113
Taxation on significant items (22)
Total significant items after tax 91
Adjusted profit reconciliation
2023 Adjusted Significant items Reported
£m £m £m
Earnings before interest and tax 300 (172) 128
Net finance costs (29) (3) (32)
Profit before tax 271 (175) 96
Taxation (67) 27 (40)
Profit after tax 204 (148) 56
Share of profit from associates and joint ventures 25 (5) 20
Profit for the year 229 (153) 76
2022 Adjusted Significant items Reported
£m £m £m
Earnings before interest and tax 275 (112) 163
Net finance costs (49) (1) (50)
Profit before tax 226 (113) 113
Taxation (58) 22 (36)
Profit after tax 168 (91) 77
Share of profit from associates and joint ventures 29 - 29
Profit for the year 197 (91) 106
4. Operating costs
2023 2022
(restated)
£m £m
Broker compensation costs(1) 986 960
Other staff costs(1) 340 340
Share-based payment charge 34 20
Employee compensation and benefits 1,360 1,320
Technology and related costs 220 216
Premises and related costs 29 28
Gains on disposal of property, plant and equipment - (3)
Gain on derecognition of right-of-use assets/lease liabilities - (3)
Adjustments to deferred consideration (3) 8
Charge relating to significant legal and regulatory settlements 19 7
Pension scheme past service and settlement costs - 1
Remeasurement of long-term employee benefits - (7)
Acquisition costs - 6
Impairment losses on trade receivables 5 5
Trade receivables expected credit loss adjustment (1) -
Net foreign exchange loss/(gains) 2 (21)
Net loss on FX derivative instruments 4 11
Other administrative costs 236 258
General and administrative expenses 511 506
Depreciation of property, plant and equipment 22 23
Depreciation of right-of-use assets 23 26
Depreciation of property, plant and equipment and right-of-use assets 45 49
Impairment of property, plant and equipment 5 5
Impairment of right-of-use assets 6 4
Impairment of property, plant and equipment and right-of-use assets 11 9
Amortisation of other intangible assets 28 33
Amortisation of intangible assets arising on consolidation 44 45
Amortisation of intangible assets 72 78
Impairment of intangible assets arising on consolidation - goodwill 47 -
Impairment of intangible assets arising on consolidation - customer 39 20
relationships
Impairment of intangible assets 86 20
2,085 1,982
1. Broker compensation cost and Other staff costs for 2022 have been increased
and decreased by £72m respectively, reflecting a reclassification of certain
staff as broking.
5. Other operating income
Other operating income comprises:
2023 2022
£m £m
Acquisition related income - 16
Business relocation grants 2 2
Employee-related insurance receipts 2 4
Employee contractual receipts 4 -
Management fees from associates 1 1
Legal settlement receipts 8 4
Other receipts 5 3
22 30
Other receipts include royalties, rebates, non-employee related insurance
proceeds, tax credits and refunds. Costs associated with such items are
included in administrative expenses. Acquisition-related income relates to
funds received following arbitration in connection with the purchase of
Liquidnet. The arbitration was completed after the one year measurement period
applicable to the acquisition.
6. Finance income
2023 2022
£m £m
Interest and similar income 32 6
Interest on finance leases 2 2
34 8
7. Finance costs
2023 2022
£m £m
Fees payable on bank and other loan facilities 3 2
Interest on bank and other loans 1 2
Interest on Sterling Notes January 2024 5 13
Interest on Sterling Notes May 2026 13 13
Interest on Sterling Notes November 2028 7 7
Interest on Sterling Notes April 2030 14 -
Interest on Liquidnet Vendor Loan Notes 1 1
Other interest 3 1
Amortisation of debt issue and bank facility costs 3 2
Borrowing costs 50 41
Interest on lease liabilities 16 17
66 58
8. Earnings per share
2023 2022
Basic 9.5p 13.2p
Diluted 9.3p 13.0p
The calculation of basic and diluted earnings per share is based on the
following number of shares:
2023 2022
No.(m) No.(m)
Basic weighted average shares 777.7 779.1
Contingently issuable shares 16.5 11.5
Diluted weighted average shares 794.2 790.6
The earnings used in the calculation basic and diluted earnings per share, are
set out below:
2023 2022
£m £m
Earnings for the year 76 106
Non-controlling interests (2) (3)
Earnings attributable to equity holders of the parent 74 103
9. Dividends
2023 2022
£m £m
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31 December 2022 62 -
of 7.9p per share
Interim dividend for the year ended 31 December 2023 37 -
of 4.8p per share
Final dividend for the year ended 31 December 2021 - 43
of 5.5p per share
Interim dividend for the year ended 31 December 2022 - 35
of 4.5p per share
99 78
A final dividend of 10.0 pence per share will be paid on 24 May 2024 to all
shareholders on the Register of Members on 12 April 2024.
During the year, the Trustees of the TP ICAP plc EBT and the TP ICAP Group plc
EBT waived their rights to dividends. Dividends are not payable on shares held
in Treasury on the relevant record dates.
10. Intangible assets arising on consolidation
Goodwill Other Total
£m £m £m
At 1 January 2023 1,232 548 1,780
Amortisation of acquisition related intangibles - (44) (44)
Impairment (47) (39) (86)
Effect of movements in exchange rates (29) (16) (45)
At 31 December 2023 1,156 449 1,605
At 1 January 2022 1,180 582 1,762
Amortisation of acquisition related intangibles - (45) (45)
Impairment - (20) (20)
Effect of movements in exchange rates 52 31 83
At 31 December 2022 1,232 548 1,780
As at 31 December 2023 the gross cost of goodwill and other intangible assets
arising on consolidation amounted to £1,453m and £812m respectively (2022:
£1,482m and £833m). Cumulative amortisation and impairment charges amounted
to £297m for goodwill and £363m for other intangible assets arising on
consolidation (2022: £250m and £285m).
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, as at 31 December, are as follows:
2023 2022
£m £m
Global Broking - excl Liquidnet - Credit 483 489
Liquidnet - Credit(1) 72 -
Global Broking 555 489
Energy & Commodities 150 156
Parameta Solutions 334 342
Liquidnet - Agency Execution 41 40
Liquidnet - Equities 76 -
Liquidnet platform (formerly Liquidnet - acquired business)(1) - 205
Goodwill allocated to CGUs 1,156 1,232
1. Reallocated in 2023 from Liquidnet platform (formerly Liquidnet - acquired
business) to Liquidnet - Credit and Liquidnet - Equities, as Liquidnet Credit
is now managed and operated within the Global Broking division to leverage the
credit broking experience and more effectively leverage the deep relationships
and accelerate connectivity. Consequently the cash inflows of Liquidnet Credit
are not considered to be independent from Global Broking and will be
considered for impairment purposes as a single CGU prospectively.
In November 2023 segmental responsibility and managerial reporting for
Liquidnet's credit operations were transferred from the Liquidnet platform
(formerly Liquidnet - acquired business) to Global Broking. As a result,
goodwill allocated to the Liquidnet platform CGU was reallocated to Liquidnet
- Credit and Liquidnet - Equities CGUs, based on the relative value of those
activities. Prior to the reallocation, the Liquidnet platform CGU was tested
for impairment.
The Group's annual impairment testing of its CGUs is undertaken each September
and consequently was completed on the same basis as in 2022, and prior to the
November 2023 re-organisation of the CGUs. 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.
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
divisional cash flows arising in future years, divisional growth rates and
divisional discount rates as considered by management. 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.
The key assumptions for FVLCD, using an Income Approach, are those regarding
expected revenue and terminal growth rates, and the discount rate. Future
projections are based on the most recent financial projections considered by
the Board which are then used to project cash flows for the next five years
and for the terminal value.
Impairment testing as at 30 April 2023
In April 2023 the Liquidnet platform (formerly Liquidnet - acquired business)
was tested for impairment, triggered by continued falls in equity markets,
resultant downward pressure on the business and expected delay in the market's
recovery. The impairment assessment was performed based on estimating the
FVLCD of the CGU, using the Income Approach, and did not identify any
impairment
Impairment testing as at 30 September 2023
Business divisions (excluding Liquidnet - platform)
For the 30 September 2023 annual impairment testing, the recoverable amounts
for Global Broking, Energy & Commodities, Parameta Solutions and Liquidnet
- Agency Execution were based on their VIU. Growth rates on five year
projected revenues, growth rates on terminal value cash flows and discount
rates used in the VIU calculations together with their respective breakeven
rates were as follows:
Valuation Breakeven Valuation Breakeven Valuation Breakeven
Discount Discount Revenue Revenue Terminal Terminal
rate rate Growth rates Growth Value Value
rates Growth rate Growth rate
September 2023 % % % % % %
CGU
Global Broking 13.2% 25.2% 1.8% (3.2%) 1.4% (38.3%)
Energy & Commodities 13.3% 18.2% 1.5% (0.4%) 1.7% (8.8%)
Parameta Solutions 13.3% 30.2% 7.1% (17.0%) 3.0% (75.7%)
Liquidnet - Agency Execution 13.4% 26.3% 3.0% (1.6%) 2.7% (42.7%)
Valuation Breakeven Valuation Breakeven Valuation Breakeven
Discount Discount Revenue Revenue Terminal Terminal
rate rate Growth rates Growth Value Value
rates Growth rate Growth rate
September 2022 % % % % % %
CGU
Global Broking 13.4% 17.4% 1.0% (1.4%) 1.0% (7.0%)
Energy & Commodities 13.2% 16.4% 2.1% 0.2% 2.1% (3.6%)
Parameta Solutions 13.8% 31.1% 6.0% (18.1%) 3.0% (85.0%)
Liquidnet - Agency Execution 13.6% 14.5% 3.0% 2.6% 2.0% 0.7%
No impairments were identified as a result of the annual testing of these
CGUs.
As shown in the table below, with the exception of Parameta Solutions, the VIU
of the CGUs is highly sensitive to reasonably possible changes of up to 3% in
growth rates. The impact on future cash flows resulting from falling growth
rates does not reflect any management actions that would be taken under such
circumstances. These stresses assume all other assumptions including gross
margins remain unchanged, as there is a degree of estimation involved in the
sensitivity forecasts.
Valuation revenue growth rate (Surplus)/ impairment at valuation growth rate -1% (Surplus)/ impairment at valuation growth rate -3%
CGU % £m £m
Global Broking 1.8% 669 321
Energy & Commodities 1.5% 46 (52)
Parameta Solutions 7.1% 535 450
Liquidnet - Agency Execution 3.0% 45 19
The Group does not expect climate change to have a material impact on the
financial statements. Climate scenario sensitivity analysis on the potential
impact to the financial forecasts used in goodwill impairment assessment and
valuation concludes that the Energy & Commodities CGU will continue to
have headroom (excess of the recoverable amount over the carrying amount of
the CGU) in its valuation to withstand the potential changes in market demand
across the Energy & Commodities asset classes with management taking
appropriate actions.
Liquidnet platform
For the 30 September 2023 annual impairment testing the recoverable amount for
the Liquidnet platform was based on its FVLCD. The Income Approach was used
for the FVLCD valuation.
Valuation Breakeven Valuation Breakeven Valuation Breakeven
Discount Discount Revenue Revenue Terminal Terminal
rate Rate(1) Growth rate Growth Value Value
Rate(1) Growth rate Growth rate(1)
Liquidnet platform % % % % % %
Liquidnet platform 10.7% - 11.0% - 2.2% -
Comprising:
Liquidnet - Equities 10.7% - 6.1% - 2.0% -
Liquidnet - Credit 10.7% - 48.3% - 3.0% -
Valuation Breakeven Valuation Breakeven Valuation Breakeven
Discount Discount Revenue Revenue Terminal Terminal
rate rate Growth rate Growth Value Value
rate Growth rate Growth rate
Liquidnet platform % % % % % %
September 2022 10.9% 12.3% 14.7% 13.1% 2.4% 0.5%
December 2021 10.8% 11.4% 3.0% 1.7% 1.0% 0.3%
1. As the CGU valuation equates to its carrying value, breakeven percentages are
not relevant.
The valuation revenue growth rate for Liquidnet platform has decreased from
14.7% in September 2022 to 11.0% as at September 2023. This reflects the
challenging market conditions for Liquidnet - Equities delaying the return of
revenue to pre-Covid levels and in Liquidnet - Credit the development of the
Dealer-to-Client platform proposition taking longer than planned, as a result
the recoverable amount for the Liquidnet platform was lower than its carrying
value resulting in a goodwill impairment of £47m.
The valuation remains sensitive to reasonably possible changes in the growth
rates and the discount rate. The most sensitive valuation assumption relates
to the growth in cash flows arising on new Credit business lines. 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 Income
Approach valuation is based on management forecasts which are unobservable and
is therefore a Level 3 fair value. Sensitivities to a reasonably possible
change of up to 3% in growth rate assumptions and a 1% increase in discount
rate are below. These stresses assume all other assumptions including gross
margins remain unchanged as there is a degree of estimation involved in the
sensitivity forecasts.
Valuation discount rate Incremental impairment at valuation discount rate +1% Valuation revenue growth rate Valuation revenue growth rate resulting in full impairment (Impairment) at valuation growth rate -1% (Impairment) at valuation growth rate -3%
Liquidnet platform % £m % % £m £m
Liquidnet - Equities 10.7% (21) 6.1% 2.9% (27) (76)
Liquidnet - Credit 10.7% (14) 48.3% 36.7% (7) (21)
Liquidnet - Equities
A combination of growth in the existing business of 2.8% and new initiatives
is forecasted to result in an overall compound annual revenue growth rate in
the Equities business of 6.1%. Given the higher estimation uncertainty in
forecasting for new business lines, there is an increased risk that the
expected levels of income from the new initiatives may not be achieved and as
a result the recoverable amount of the CGU may reduce. A 3% reduction in
revenue growth rate from 6.1% to 3.1% would result in a full impairment of
£76m, restricted to the carrying value of goodwill. A scenario of no growth
in the existing business, but where new initiatives are achieved in full,
would result in a £61m impairment. A scenario of expected growth in the
existing business but a 50% success rate in achieving new initiatives would
result in an impairment of £31m.
The Liquidnet - Equities valuation continues to be closely tied to the
performance of the equities volumes traded in the manner in which they are
serviced by the Liquidnet platform. The market share of Liquidnet - Equities
continues to increase.
Liquidnet - Credit
Liquidnet - Credit valuation is premised upon the expectation of future events
including the number of participants actively trading on the platform to
create sufficient scale to effectively match trades. It is uncertain as to
when sufficient participation is reached or the mix of how this is met through
new entrants or more active participation of existing users. The onboarding of
counterparties to increase the volume flows is not certain and it is binary to
a significant degree as to what level achieves the scale for efficient and
effective operation. The valuation revenue growth rate has been adjusted
downwards to reflect this uncertainty.
For the Credit platform, the valuation is based on revenue growth from the
development of the platform, resulting in a compound annual growth rate of
48.3% (2022: 47%) over five years. This growth rate has been risk adjusted
downwards to reflect the increased risk of growing revenues from the currently
low levels. A 3% reduction in the growth rate to 45.3% would result in £21m
reduction to the carrying value of the CGU. A 11% reduction in the growth rate
to 37% would eliminate goodwill in Liquidnet - Credit.
Impairment assessment as at 31 December 2023
As at 31 December 2023, following the change to the CGUs, to Global Broking,
Energy & Commodities, Parameta Solutions, Liquidnet - Agency Execution and
Liquidnet - Equities, the review of the indicators of impairment did not
require any further testing.
Other intangible assets
Other intangible assets at 31 December 2023 represent customer relationships,
business brands and trademarks that arise through business combinations.
Customer relationships are amortised over a period of up to 20 years. Other
intangible assets, along with other finite life assets, are subject to
impairment trigger assessment at least annually. As at 30 September 2023, the
Liquidnet platform customer relationships were subject to a full impairment
review, resulting in a impairment of £39m.
The valuation of customer lists is based on the 'Multi-period Excess Earnings
Methodology' or 'MEEM'. MEEM is a version of the Income Approach which seeks
to estimate the value by determining the net present value of the forecast
post-tax profits generated by the asset as of the valuation date, and reflects
assumptions regarding customer churn, operating profits and margins,
contributory asset charges, tax rates and discount rates. As these inputs are
unobservable, this is a Level 3 valuation.
Following the adjustment to the Liquidnet platform customer relationships'
carrying value, the asset will continue to be amortised over its remaining
useful life, but remains sensitive to reasonably possible changes in the
assumptions. As at the date of testing, a reduction in annual operating
profits of £3m from 2024 would impair the asset by £19m, and a 1% increase
in the discount rate to 11.7% would impair the asset by £5m.
11. Trade and other receivables
2023 2022
£m £m
Non-current receivables
Finance lease receivables(1) 27 38
Other receivables 6 13
33 51
Current receivables
Trade receivables 304 382
Amounts due from clearing organisation 37 77
Deposits paid for securities borrowed 1,776 1,575
Finance lease receivables 3 2
Other debtors(2) 41 45
Accrued income 11 15
Owed by associates and joint ventures 4 4
Prepayments(2) 98 94
Corporation tax 5 4
2,279 2,198
1. In 2023 £6m of finance lease receivables were transferred to Investment
Properties.
2. Prepayments have been reduced by £15m and other debtors increased by £15m
from that reported in 2022 following a reclassification of certain balances.
12. Financial assets and financial liabilities at fair value through profit or
loss
2023 2022
£m £m
Financial assets at fair value through profit or loss
Matched Principal financial assets 24 9
Fair value gains on unsettled Matched Principal transactions 545 255
569 264
Financial liabilities at fair value through profit or loss
Matched Principal financial liabilities - -
Fair value losses on unsettled Matched Principal transactions (541) (255)
(541) (255)
Notional contract amounts of unsettled
Matched Principal transactions
Unsettled Matched Principal Sales 125,673 104,886
Unsettled Matched Principal Purchases 125,645 104,876
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
2023 2022
£m £m
Trade payables 40 24
Amounts due to clearing organisations 6 46
Deposits received for securities loaned 1,773 1,573
Deferred consideration 51 1
Other creditors 85 108
Accruals 384 369
Owed to associates and joint ventures 3 3
Tax and social security 28 22
Deferred income 2 3
2,372 2,149
14. Loans and borrowings
Less than Greater than Total
one year one year
2023 £m £m £m
Overdrafts 10 - 10
Sterling Notes January 2024 37 - 37
Sterling Notes May 2026 1 249 250
Sterling Notes November 2028 1 248 249
Sterling Notes April 2030 4 247 251
Liquidnet Vendor Loan Notes March 2024 40 - 40
93 744 837
2022
Sterling Notes January 2024 6 247 253
Sterling Notes May 2026 1 249 250
Sterling Notes November 2028 1 247 248
Liquidnet Vendor Loan Notes March 2024 1 42 43
9 785 794
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 2023, overdrafts for the provision of settlement finance amounted to
£10m (December 2022: £nil).
Bank credit facilities and bank loans
The Group has a £350m committed revolving facility that matures in May 2026.
Facility commitment fees of 0.7% on the undrawn balance are payable on the
facility. Arrangement fees of £3m were paid in 2022 and are being amortised
over the maturity of the facility.
As at 31 December 2023, the revolving credit facility was undrawn. During the
year, the maximum amount drawn was £40m (2022: £140m), and the average
amount drawn was £18m (2021: £30m). 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 £2m were incurred in 2023 (2022: £3m).
Loans from related parties
The Group has a Yen 10bn committed facility with The Tokyo Tanshi Co., Ltd, a
connected party, that matures in August 2025. 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 2023, the Yen 10bn committed facility amounted to £56m and
was undrawn (2022: Yen nil). 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 8bn, £45m at year end rates (2022: Yen 10bn, £63m at 2022 year end
rates), and the average amount drawn was Yen 4bn, £24m at year end rates
(2022: Yen 9bn, £57m at 2022 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 2023 (2022: £1m).
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, in November 2021 the Group repurchased £184m of the Notes
and in April 2023 a further £210m of the Notes were repurchased.
Interest of £5m was incurred in 2023 (2022: £13m). The amortisation expense
of issue costs in 2023 and 2022 was less than £1m.
At December 2023 the fair value of the Notes (Level 1) was £38m (2022:
£241m).
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.
Interest of £13m was incurred in 2023 (2022: £13m). The amortisation expense
of issue costs in 2023 and 2022 was less than £1m.
Accrued interest at 31 December 2023 amounted to £1m (2022: £1m).
Unamortised issue costs were £1m as at 31 December 2023 (2022: £1m).
At 31 December 2023 the fair value of the Notes (Level 1) was £242m (2022:
£232m).
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.
Interest of £7m was incurred in 2023 (2022: £7m). The amortisation expense
of issue costs in 2023 and 2022 was less than £1m.
Accrued interest at 31 December 2023 amounted to £1m (2022: £1m).
Unamortised discount and issue costs were £2m (2022: £3m).
At 31 December 2023 the fair value of the Notes (Level 1) was £210m (2022:
£184m).
Sterling Notes: Due April 2030
In April 2023 the Group issued £250m unsecured Sterling Notes due April 2030.
The Notes were issued at a discount of £1m, raising £249m before issue
costs. The Notes have a fixed coupon of 7.875% paid semi-annually, subject to
compliance with the terms of the Notes.
Interest of £14m was incurred in 2023. The amortisation expense of issue
costs in 2023 was less than £1m.
Accrued interest at 31 December 2023 amounted to £4m. Unamortised discount
and issue costs were £3m.
At 31 December 2023 the fair value of the Notes (Level 1) was £269m.
Liquidnet Vendor Loan Notes Due March 2024
In March 2021, as part of the purchase consideration of Liquidnet, the Group
issued $50m (£39m at year end exchange rates (2022: £42m)) unsecured Loan
Notes due March 2024. The Notes have a fixed coupon of 3.2% paid annually.
Interest of £1m was incurred in 2023 (2022: £1m).
Accrued interest at 31 December 2023 amounted to £1m (2022: £1m).
At 31 December 2023 the fair value of the Notes (Level 2) was $45m (£41m)
(2022: $44m (£37m)).
15. Reconciliation of operating result to net cash from operating
activities
2023 2022
£m £m
Operating profit 128 163
Adjustments for:
- Share-based payment charge 17 13
- Pension scheme's administration costs - 1
- Pension scheme past service and settlement costs - 1
- Depreciation of property, plant and equipment 22 23
- Gain on disposal of property, plant and equipment - (3)
- Impairment of property, plant and equipment 5 5
- Gain on derecognition of right-of-use asset/lease liability - (3)
- Depreciation of right-of-use assets 23 26
- Impairment of right-of-use assets 6 4
- Amortisation of intangible assets 28 33
- Amortisation of intangible assets arising on consolidation 44 45
- Impairment of intangible assets arising on consolidation 39 20
- Impairment of 47 -
goodwill
- Remeasurement of deferred consideration (3) 8
- Unrealised foreign exchange (gain)/loss on Vendor Loan Notes (2) 5
Net operating cash flow before movement in working capital 354 341
Decrease/(increase) in trade and other receivables 69 (24)
(Increase)/decrease in net Matched Principal related balances (20) 27
Increase in net balances with Clearing Organisations - (1)
(Increase)/decrease in net stock lending balances (4) 12
Increase in trade and other payables 33 76
Increase/(decrease) in provisions 6 (4)
Increase in non-current liabilities - 3
Net cash generated from operations 438 430
Income taxes paid (89) (51)
Income taxes paid on receipt of pension scheme surplus (16) -
Fees paid on bank and other loan facilities (1) (2)
Interest paid (46) (36)
Interest paid - finance leases (16) (17)
Net cash flow from operating activities 270 324
16. Analysis of net debt
At 1 Cash Non-cash Exchange At 31
January flow items differences December
2023 £m £m £m £m £m
Cash and cash equivalents 888 181 - (40) 1,029
Overdrafts - (10) - - (10)
888 171 - (40) 1,019
Financial investments 174 19 - (4) 189
Sterling Notes January 2024 (253) 220¹ (4) - (37)
Sterling Notes May 2026 (250) 13² (13) - (250)
Sterling Notes November 2028 (248) 7² (8) - (249)
Sterling Notes April 2030 - (237)(3) (14) - (251)
Liquidnet Vendor Loan Notes (43) 1² - 2 (40)
Total debt excluding lease liabilities (794) 4 (39) 2 (827)
Lease liabilities (279) 45(4) (27) 10 (251)
Total financing liabilities (1,073) 49 (66) 12 (1,078)
Net (debt)/funds (11) 239 (66) (32) 130
At 1 Cash Non-cash Exchange At 31
January flow items differences December
2022 £m £m £m £m £m
Cash and cash equivalents 784 66 - 38 888
Overdrafts (17) 17 - - -
767 83 - 38 888
Financial investments 115 50 - 9 174
Loans from related parties (51) 47⁵ - 4 -
Sterling Notes January 2024 (252) 13² (14) - (253)
Sterling Notes May 2026 (250) 13² (13) - (250)
Sterling Notes November 2028 (248) 7² (7) - (248)
Liquidnet Vendor Loan Notes (38) 1(2) (1) (5) (43)
Total debt excluding lease liabilities (839) 81 (35) (1) (794)
Lease liabilities (286) 46(4) (18) (21) (279)
Total financing liabilities (1,125) 127 (53) (22) (1,073)
Net debt (243) 260 (53) 25 (11)
1. Relates to principal repurchased of £210m reported as cash flow from
financing activities plus £10m of interest paid reported as a cash outflow
from operating activities.
2. Relates to interest paid reported as a cash outflow from operating activities.
3. Relates to principal received of £249m, less £10m of interest reported as
cash outflow from operating activities and £2m debt issue costs reported as a
cash outflow from financing activities.
4. Relates to interest paid of £16m (2022: £17m) reported as cash outflow from
operating activities and principal paid of £49m (2022: £29m) reported as a
cash outflow from financing activities.
5. Relates to Totan loan repayment.
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 2023 cash and cash equivalents, net of overdrafts, amounted to
£1,019m (2022: £888m) of which £105m (2022: £104m) represents amounts
subject to 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/derecognition of lease liabilities.
17. Provisions
Property Re-structuring Legal Total
and other
2023 £m £m £m £m
At 1 January 2023 13 7 20 40
Charge to income statement - 6 12 18
Utilisation of provisions - (8) (4) (12)
Effect of movements in exchange rates (1) - - (1)
At 31 December 2023 12 5 28 45
2022
At 1 January 2022 16 5 22 43
Charge to income statement - 3 2 5
Utilisation of provisions (3) (1) (5) (9)
Effect of movements in exchange rates - - 1 1
At 31 December 2022 13 7 20 40
2023 2022
£m £m
Included in current liabilities 14 9
Included in non-current liabilities 31 31
45 40
Property provisions outstanding as at 31 December 2023 relate to provisions in
respect of building dilapidations, representing the estimated cost of making
good dilapidations and disrepair on various leasehold buildings, and are
expected to be utilised over the next 12 years.
Restructuring provisions outstanding as at 31 December 2023 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 2024.
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 17 years.
Critical judgements and key estimation uncertainties
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 the Racketeer Influenced and
Corrupt Organizations Act ('RICO'). The Group has entered into settlement
agreements to resolve this matter. On 16 May, 2023, the United States District
Court granted preliminary approval of those settlements. On 27 September 2023,
the Court signed an order granting final class approval of the settlement.
Pursuant to the settlement, the legacy 'Tullett' defendants have paid US$2.1m
(£1.7m) into escrow having provided for this amount for onward distribution.
Separately and consistent with its indemnity obligations, NEX International
Limited (formerly known as ICAP plc) has, in order to resolve claims against
the four 'ICAP' broker defendants (ICAP Europe Limited, ICAP Securities USA
LLC, NEX Group plc and Intercapital Capital Markets LLC) paid US$2.1m (£1.7m)
into escrow for onward distribution. This has been recorded as a provision and
settlement, together with the receipt of an indemnification asset from NEX.
This matter is now closed.
Commodities and Futures Trading Commission - Bond issuances investigation
ICAP Global Derivatives Limited ('IGDL'), ICAP Energy LLC ('Energy'), ICAP
Europe Limited ('IEL'), Tullett Prebon Americas Corp. ('TPAC'), tpSEF Inc.
('tpSEF'), TP ICAP E&C Limited (formerly Tullett Prebon Europe Limited)
('TPE&C') Tullett Prebon (Japan) Limited ('TPJL') and Tullett Prebon
(Australia) Limited ('TPAL') are currently responding to an investigation by
the CFTC in relation to the pricing of issuances utilising certain of TP
ICAP's indicative broker pricing screens and certain recordkeeping matters
including in relation to employee use of personal devices for business
communications and other books and records matters. The investigation remains
open and the Group is co-operating with the CFTC in its enquiries. Whilst it
is not possible to predict the ultimate outcome of the investigation, the
Group has made a provision reflecting management's best estimate as at this
date of the cost of settling the investigation. The actual outcome may differ
significantly from management's current estimate. As the relevant matters
occurred prior to the Group's acquisition of ICAP's Global Broking Business
('IGBB'), the Group issued proceedings against ICAP's successor company, NEX
Group Limited ('NEX'), in respect of breach of warranties under the sale and
purchase agreement in connection with the IGBB acquisition insofar as these
matters relate to the ICAP entities. Those proceedings against NEX have been
settled on confidential terms.
Supplier contractual dispute
The Group is party to numerous contractual arrangements with its suppliers
some of which, in the normal course of business, may become subject to dispute
over a party's compliance with the terms of the arrangement. In respect of one
such matter the Group has resolved a dispute for an amount within the
previously disclosed provision of £5m (US$6.8m). As the settlement is
commercially sensitive further disclosure is considered to be prejudicial.
18. Contingent liabilities
Labour claims - ICAP Brazil
ICAP do Brasil Corretora De Títulos e Valores Mobiliários Ltda ('ICAP
Brazil') is a defendant in 7 (31 December 2022: 7) 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 39.0m
(£6.4m) (31 December 2022: BRL 31.7m (£5.3m)). The Group is the beneficiary
of an indemnity from NEX in relation to any liabilities in respect of two of
the 7 Labour Claims insofar as they relate to periods prior to completion of
the Group's acquisition of ICAP Global Broking Business. This includes a claim
that is indemnified by a predecessor to ICAP Brazil by way of escrowed funds
in the amount of BRL 28.0m (£4.6m). Apart from an estimated loss of £0.1m
which has been provided for, 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. Subsequent to the year end, a provisional
settlement, subject to judicial approval, of BRL 25.0m (£4.0m) was reached in
respect of the indemnified claim covered by escrowed funds.
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 400m (£64.1m) (31
December 2022: BRL 354m (£59.1m)). 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 and awaiting the commencement of
expert testimony.
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 the 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 judgement dismissing the Foundation's claims in their entirety.
In March 2021, the Foundation filed a writ to appeal this final judgment which
remains pending. 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) Euribor Class Action
On 13 August 2015, ICAP Europe Limited, along with ICAP plc, was named as a
defendant in a Fourth Amended Class Action Complaint filed in the United
States District Court by lead plaintiff Stephen Sullivan asserting claims of
Euribor manipulation. Defendants briefed motions to dismiss for failure to
state a claim and lack of jurisdiction, which were fully submitted as of 23
December 2015. On 21 February 2017, the Court issued a decision dismissing a
number of foreign defendants, including the ICAP Europe Limited and NEX
International plc (previously ICAP plc now NEX International Limited), out of
the lawsuit on the grounds of lack of personal jurisdiction. Because the
action continued as to other defendants, the dismissal decision for lack of
personal jurisdiction has not yet been appealed. However, the plaintiffs
announced on 21 November 2017 that they had reached a settlement with the two
remaining defendants in the case. As a part of their settlement, the two bank
defendants have agreed to turn over materials to the plaintiffs that may be
probative of personal jurisdiction over the previously dismissed foreign
defendants. The remaining claims in the litigation were resolved by a
settlement which the Court gave final approval to on 17 May 2019. Plaintiffs
filed a notice of appeal on 14 June 2019, appealing the prior decisions on the
motion to dismiss and the denial of leave to amend. Defendants filed a
cross-notice of appeal on 28 June 2019 appealing aspects of the Court's prior
rulings on the motion to dismiss that were decided in the Plaintiffs' favour.
These appeals have been stayed since August 2019 pending a ruling in an
unrelated appellate matter involving similar issues. In December 2021, the
unrelated appeal was decided and the stay of the appeal and cross appeal was
lifted and commencing in May 2022 a briefing schedule was implemented. The
motions have been fully briefed but the appeal and cross appeal are not
anticipated to be ruled upon until sometime in 2024. It is not possible to
predict the ultimate outcome of this action 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 the ICAP entities with regard to these
matters.
ICAP Securities Ltd, Frankfurt branch - Frankfurt Attorney General
administrative proceedings
On 19 December 2018, ICAP Securities Limited, Frankfurt branch ('ISL') (now TP
ICAP Markets Limited) 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.
The Group issued proceedings against NEX in respect of breach of warranties
under the sale and purchase agreement in connection with the IGBB acquisition
in relation to these matters. The claim against NEX has been settled on
confidential terms. Since the Frankfurt 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') (now TP ICAP
Markets Limited) 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 issued
proceedings against NEX in respect of breach of warranties under the sale and
purchase agreement in connection with the IGBB acquisition in relation to
these matters. The claim against NEX has been settled on confidential terms.
Since the Cologne 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 and others v. TP ICAP Markets Limited and others
TP ICAP plc (now TP ICAP Finance 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. In June 2022, the Court
dismissed the action for lack of personal jurisdiction. In July 2022, the
plaintiffs filed a motion with the Court for reconsideration as well as a
notice of appeal. The plaintiff's motion for reconsideration was denied and
the plaintiffs have appealed the dismissal of its claims. Portigon's appeal
has been fully briefed and the parties are awaiting a date from the court in
mid-to-late 2024. 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.
The Group issued proceedings against NEX in respect of breach of warranties
under the sale and purchase agreement in connection with the IGBB acquisition
in relation to these matters. Those proceedings against NEX have been settled
on confidential terms.
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 ('TPIM') and Link are defendants in a claim filed in
Hamburg by Warburg on 31 December 2020, but which only reached TPIM 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 refunded EUR 185 million to the German tax authorities and is
subject to a criminal confiscation order of EUR 176.5 million. It has also
been ordered to repay a further EUR 60.8 million to the German tax authorities
and is subject to a related civil claim for EUR 48.8 million. Warburg's claims
are based primarily on joint and several liability (Warburg having now dropped
claims initially advanced in tort and most of the claims initially advanced in
contract). TPIM and Link filed their defence in April 2022 and received
Warburg's reply to the defence in September 2022. TPIM and Link filed their
rejoinder in response to Warburg's reply to TPIM and Link's defence on 6
December 2023. The court has recently scheduled a hearing date for 13 May
2024. TPIM and Link are contesting liability in the matter and 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. The Group issued proceedings against NEX in respect of
breach of warranties under the sale and purchase agreement in connection with
the IGBB acquisition in relation to these matters. Those proceedings against
NEX have been settled on confidential terms.
Securities Exchange Commission Information Request
In October 2022, Liquidnet Inc. ('Liquidnet') received an inquiry from the
Securities and Exchange Commission relating to, among other things, compliance
with SEC Rule 15c3-5 and audit trail and access permissions to its ATS
platforms. Liquidnet is still in the fact-finding phase and the Group is
co-operating with the SEC in its enquiries. It is not possible to predict the
ultimate outcome of the enquiry or to provide an estimate of any potential
financial impact at this time.
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.
Supplier contractual disputes
The Group is party to numerous contractual arrangements with its suppliers
some of which, in the normal course of business, may become subject to dispute
over a party's compliance with the terms of the arrangement. Such disputes
tend to be resolved through commercial negotiations but may ultimately result
in legal action by either or both parties.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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 2023.
The preliminary statement of annual results for the year ended 31 December
2023 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 12 March 2024. 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:
Impairment of goodwill and acquisition-related intangible assets
Key audit matter description The Group holds goodwill of £148m (2022: £205m) and acquisition-related
intangible assets, predominantly customer relationships, related to the
acquisition of the Liquidnet cash generating unit ("CGU").
As of 30 November 2023, the Group has disaggregated the Liquidnet Platform CGU
(formerly known as Liquidnet Acquired Business) into the Liquidnet Credit and
Liquidnet Equities CGUs and subsequently Liquidnet Credit has been merged into
the Global Broking Group of CGUs.
As detailed in the Group's accounting policy (note 3(i) to the Consolidated
Financial Statements), acquisition-related intangible assets are reviewed for
indicators of impairment at each balance sheet date and, if an indicator of
impairment exists, an impairment assessment is performed. Goodwill is assessed
for impairment at least annually, irrespective of whether or not indicators of
impairment exist. The Group performs its annual impairment assessment at 30
September.
Impairment assessments are performed by comparing the carrying amount of each
CGU, or Group of CGUs, to its recoverable amount, using the higher of value in
use ("VIU") or fair value less costs to dispose ("FVLCD").
The FVLCD approach was used to assess the recoverable amount of the Liquidnet
Platform CGU and the related customer relationships, as at 30 September 2023.
The impairment assessment requires management judgement in the estimation of
future cash flows, including revenue growth, contribution margin, 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. The Group has recognised an impairment charge of £86m (£76m
net of deferred tax). This impairment reduced the Liquidnet Platform goodwill
balance from £200m to £153m and the Liquidnet client-relationship intangible
assets from £110m to £71m excluding the impact of deferred tax.
Goodwill and acquisition-related intangible assets' disclosures are included
in the Significant Items section of the Financial and Operating Review Report
on pages 38 and 39 of the Annual Report, the Report of the Audit Committee in
the 2023 Annual Report and Accounts on page 103 of the Annual Report and Notes
3, 4, 5 and 13 to the Consolidated Financial Statements.
How the scope of our audit responded to the key audit matter We obtained an understanding of relevant controls in relation to the
impairment review process for goodwill and acquisition-related intangible
assets.
We challenged the assumptions used in the impairment reviews, in particular
the forecast revenue and contribution growth rates and discount rate used by
the Group in its impairment test of the Liquidnet Platform CGU as at 30
September 2023.
For forecast revenue and contribution growth rate assumptions, we challenged
management's assumptions with reference to recent performance, including
comparing growth rates to those achieved historically and to external market
data, where available. Working with our valuations specialists, we
independently derived a discount rate and compared this to the rate used by
the Group. Additionally, we benchmarked the discount rate used by the Group to
external peer data.
We performed scenario analysis and stressed key assumptions with reference to
historical performance. We also assessed for impairment triggers between 30
September 2023 and 31 December 2023 for both the Liquidnet Credit and
Liquidnet Equities CGUs.
Additionally, given the sensitivity of the FVLCD model to reasonably possible
changes in the revenue and discount rate assumptions, we reviewed management's
sensitivity disclosures in Note 13, including areas of key estimation
uncertainty (Note 3y to the Consolidated Financial Statements).
For acquisition-related intangible assets, we evaluated and challenged the
accuracy of inputs in the impairment assessment produced by management and
corroborated inputs to supporting evidence. We also assessed for impairment
triggers between 30 September 2023 and 31 December 2023.
Key observations We concur with management's conclusion to recognise a £47m impairment of
Liquidnet goodwill and a £39m impairment of customer relationships, and
concluded that the disclosures are reasonable.
Name passing revenue
Key audit matter description Name Passing revenue is earned for the service of matching buyers and sellers
of financial instruments. The Group is not a counterparty to the trade and
commissions are invoiced for the service provided by the Group.
Name Passing revenue is the Group's largest revenue stream and accounts for
approximately 62% of total revenue (Note 4 to the Consolidated Financial
Statements). In 2023, the Group recognised Name Passing revenue of £1,361m
(2022: £1,310m). There is a risk that incorrect brokerage rates are used to
calculate revenue and this risk increases where amendments are made to
contractual fees, held in the relevant systems, due to permissible manual
intervention by brokers.
Additionally, there is a longer cash collection period for Name Passing
revenue compared to other revenue streams. At 31 December 2023, the Group had
trade debtors of £309m (2022: £388m) and the majority of this is related to
Name Passing.
The testing of name passing revenue and associated debtors represents a
significant portion of our audit effort and is, therefore, considered to be a
key audit matter.
How the scope of our audit responded to the key audit matter We obtained an understanding of relevant controls relating to the calculation
of Name Passing revenue, invoicing, and cash collection. We observed
deficiencies in the controls over the entry of, and amendments to, brokerage
rates and exception reporting. As a result, we did not rely on controls and
modified the nature and extent of our substantive procedures. For a sample of
trades, we recalculated revenue based on the contractual rate cards or, where
amendments were made, correspondence with customers to support the change. For
paid invoices, we agreed the amounts to cash received. Where amounts remained
unpaid, we sent letters directly to customers to confirm the amount
outstanding. Where responses were not received, we inspected correspondence
between the Group and the customer to assess the amount and recoverability.
Key observations Through our testing, we concluded that Name Passing revenue was appropriately
recognised in the year.
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
12 March 2024
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