REG - TP ICAP Group plc - TP ICAP Group PLC - Final Results
14/03/2023 07:15
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RNS Number : 8371S TP ICAP Group plc 14 March 2023
14 March 2023
TP ICAP Group plc
Financial and preliminary management report for the year ended 31 December
2022
Nicolas Breteau, CEO of the Group, said:
"We delivered a strong performance: high single-digit revenue growth and an
increase in profitability. Significant monetary tightening in many economies
benefited Rates, our largest business.
Our transformation is going well. We have made good progress rolling out
Fusion, our electronic platform, and are working with clients to embed it
across their systems. Energy & Commodities has received FCA registration
on its spot crypto assets platform and is expanding its Environmentals
business. Parameta Solutions is growing its client, product and distribution
base. A partnership to provide independent fair valuations of OTC derivatives
- a growing market segment - is being launched today with Numerix, a global
OTC analytics firm. Liquidnet is building out its Primary Markets offering,
and the D2C Credit proposition is live.
Capital management is an important part of our strategy. We committed to
freeing up £100m of cash, and reducing debt, by the end of 2023. Progress has
been good with over £30m already freed up in H2 2022. In addition, as
previously announced, we continue to focus on identifying, and returning, any
potential surplus capital to shareholders, subject to the ongoing assessment
of our balance sheet and investment requirements. The Board is recommending a
final dividend per share of 7.9 pence, which would bring the total for the
year to 12.4 pence, a 31% increase.
We have a clear strategic roadmap and a strong franchise. Our market-leading
positions in broking, and our deep liquidity pools, mean we are well
positioned as central banks continue to withdraw liquidity and interest rates
remain elevated."
Results for the Period
Statutory results:
2022 2021
Revenue £2,115m £1,865m
EBIT £163m £97m
EBIT margin 7.7% 5.2%
Profit before tax £113m £24m
Profit for the period £103m £5m
Basic EPS 13.2p 0.7p
Total dividend per share 12.4p 9.5p
Weighted average shares in issue (basic) 779.1m 759.3m
Adjusted results (excluding significant items):
2022 2021 2021
Constant Currency
Revenue £2,115m £1,865m £1,976m
EBITDA £357m £315m £342m
EBIT £275m £233m £255m
EBIT Margin 13.0% 12.5% 12.9%
Profit before tax £226m £177m
Profit for the period £194m £148m
Basic EPS 24.9p 19.5p
Weighted average shares in issue (basic) 779.1m 759.3m
A table reconciling Reported to Adjusted figures is included in the Financial
and Operating Review.
The percentage movements referred to in the sections below are in constant
currency (unless otherwise indicated), 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. Percentage movements in reported currency
reflect the strengthening of the USD against GBP, which has been a tailwind
for the Group in 2022. Approximately 60% of the Group's revenue (and
approximately 40% of costs) are US Dollar denominated.
Financial highlights
Strong revenue performance
· Group revenue up 7% (+13% in reported currency);
· Global Broking (GB) revenue increased 7%. All asset classes
delivered high single digit growth. Higher margin Rates business performing
well;
· GB productivity up: revenue per broker increased 14%. Market
share up(1), underlining leadership position;
· Energy & Commodities (E&C) revenue declined 2% - in line
with exchange volumes. European Gas & Power: most challenging market
conditions for some time;
· Parameta Solutions(2) revenue up 8%; New partnerships launched:
partnership with Numerix announced today;
· Liquidnet division(3) revenue up 18%, reflecting 12-month
contribution in 2022 from acquired Liquidnet platform (completed in March
2021). Like-for-like revenue for Liquidnet platform declined, reflecting
difficult and volatile equity market conditions for block trading, and global
commission wallet lowest since early 2009(4).
Increased profitability
· Adjusted EBIT up 8% to £275m (2021: £255m), driven by strong
Rates performance. Increased 18% in reported currency;
· Reported EBIT increased 68% (in reported currency) to £163m
(2021: £97m);
· Adjusted EBIT margin, prior to Russian P&L charges of £21m,
increased to 14.0% (2021: 12.9%). Including Russian impact: 13.0%.
__________________________
1 Compared with the two other listed peers for H1 2022 vs FY 2021.
2 In previous reporting, Parameta Solutions included D&A and Post Trade
Solutions (PTS); The Matchbook and ClearCompress brands within PTS are now
reported under Global Broking, while e-Repo is now reported in the Liquidnet
division.
3 As previously announced in our Q3 Trading Update on 1 November 2022, the
Liquidnet division includes the Liquidnet platform (the acquired business),
COEX Partners, ICAP Relative Value, and from October 2022 onwards, MidCap
Partners, following the transfer into Liquidnet from Global Broking.
4 Source: McLagan
__________________________
Capital management review and cost savings highlights
· On track to free up £100m by end 2023 and reduce debt. Around
£30m freed up in H2 2022.
· Ongoing assessment of balance sheet and investment requirements.
· Achieved target to deliver £25m of Group P&L cost savings by
end 2022, alongside continued investment in the business. On track to deliver
at least £30m in Liquidnet integration cost synergies by end 2023; previous
target £25m.
Delivering 2023 Capital Markets Day targets (subject to market conditions)
· Parameta Solutions (50%), despite Covid-19 challenges, expected
to exceed Contribution Margin target by end-2023. Global Broking (40%)
expected to be close(1) to target. E&C (35%) expected to be relatively
close(1) to target.
· At Adjusted EBIT Margin level, Global Broking (19%) and E&C
(15%) expected to be relatively close to 2023 targets; Parameta Solutions
(45%) expected to exceed target.
· Contribution Margin target set for new combined Liquidnet
division and overall Group Adjusted EBIT Margin target updated:
o Group Adjusted EBIT Margin: 14% (from 18%); Liquidnet Contribution Margin:
30%.
_________________________________
1 Guidance that refers to being "close" to target is defined as within one
percentage point of target; "Relatively close" is defined as being within one
to two percentage points of target.
_________________________________
Strategic highlights
Transforming: Fusion on track.
· Fusion - on target - implemented on Global Broking desks covering
40% of in-scope revenue (FY21: 20%).
· On track to complete rollout across in-scope Global Broking
revenue (55% of total) by end 2025. Dedicated Fusion Sales team driving client
adoption.
· Fusion implemented across key desks: TP ICAP UK inflation and
interest rate swaps and TP ICAP EUR inflation. Key 2023 launches: UK Gilts and
TP ICAP Sterling IRS: volume matching.
Diversification: Environmentals, Digital Assets, Parameta Solutions, Liquidnet
· Environmentals:
o Fusion client-facing screen for environmental markets rolled out:
emissions and green certificates. First trades completed.
· Digital Assets:
o FCA registration obtained for spot crypto assets institutional platform.
o Full launch planned for 2023.
o Well received
· Parameta Solutions:
o First inter-dealer broker authorised by FCA as benchmark administrator.
Administering nine TP ICAP interest rate swaps benchmarks.
o Launched ClearConsensus in partnership with PeerNova. Helping institutions
to improve fair value assessments, ensuring more efficient capital allocation.
o Announcing today a partnership with Numerix, leading global OTC analytics
company. Delivering high quality, independent fair valuations of OTC
derivatives.
· Liquidnet:
o D2C Credit proposition live.
o Diversifying core equities franchise. Successfully launched pre-market
block trading capability at full day VWAP price in Hong Kong, Japan,
Australia.
o Expanded in cross-border, algo trading and programme trading: new business
wins already. Sales footprint extended to Paris, Madrid, Frankfurt, South
Africa.
Dividend
The Board recommends a final dividend per share of 7.9 pence, bringing the
total full year dividend to 12.4 pence per share, up 31% (2021: 9.5 pence per
share), in line with our policy. The policy targets dividend cover of c.2x on
adjusted post-tax earnings: a 50% pay-out ratio for the year.
Outlook
Our market-leading businesses, and our focus on transformation,
diversification and dynamic capital management, mean the Group is well
positioned to benefit from the continued withdrawal of central bank liquidity.
We expect the impact of inflation on our business in 2023 to be broadly
mitigated by our ongoing focus on cost efficiencies.
Global interest rates are expected to remain elevated in 2023; we expect that
volumes will continue to be solid, but moderated from the peaks at the
beginning of the war in Ukraine. The recent decline in the European gas price
has supported a more liquid, and stable, market so far this year. A sustained
recovery continues to depend on geopolitical developments.
2022 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. Please use the following details to attend the
presentation virtually:
Webcast link:
https://streamstudio.world-television.com/854-1116-35180/en
(https://protect-eu.mimecast.com/s/rDt5Cnrn9hDmqn7U9xvib?domain=streamstudio.world-television.com)
Joining by telephone
United Kingdom (Toll Free) +44 800 640 6441
United Kingdom Toll: +44 20 3936 2999
United States (Local) 1 646 664 1960
All other locations: +44 20 3936 2999
Participant access code: 048201
Participants will be greeted by an operator who will register their details.
Attendees via the webcast will be able to ask questions on the phone or by
typing them into the online platform.
A recording of the presentation will also available via playback on our
website after the event.
Forward looking statements
This document contains forward looking statements with respect to the
financial condition, results and business of the Company. By their nature,
forward looking statements involve risk and uncertainty and there may be
subsequent variations to estimates. The Company's actual future results may
differ materially from the results expressed or implied in these
forward-looking statements.
Enquiries:
Analysts and investors
Dominic Lagan
Direct: +44 (0) 20 3933 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.
· It is the world's leading wholesale market intermediary, with a
portfolio of businesses that provide broking services, data & analytics
and market intelligence, trusted by clients around the world.
· We operate from more than 60 offices across 28 countries,
supporting brokers with award-winning and market-leading technology.
_____________________________________
CEO review
Introduction
Our ambition is to be the world's most trusted, and innovative, liquidity and
data solutions specialist. To achieve this, we are focused on the delivery of
three strategic priorities:
· Transforming our business
· Diversification
· Dynamic capital management.
We aim to deliver sustainable shareholder value in the medium term. We have a
clear strategic roadmap and a strong franchise to do so. We are well
positioned for current market conditions through our developed business model,
market-leading positions, major geographical presence, deep liquidity pools,
and cutting-edge technology.
Our business performance
Strategic delivery: Future proofing our business
Our operational leverage delivered an increase in profitability as clients
sought out the deep liquidity we provide. As the world thankfully returned to
normality following the challenges posed by Covid-19, we delivered a smooth
return to the office and the successful execution of important deliverables.
Our markets have been transformed by, for example, regulatory changes
following the Global Financial Crisis, including the move away from
proprietary trading by investment banks. We have embraced those changes. We
have done so through the deployment of new technology and a client-centric
approach with a menu of voice, hybrid and electronic broking protocol options.
The recent return to elements of the pre-Global Financial Crisis environment -
more elevated interest rates and a bigger role for private sector liquidity
providers - underlines the enduring relevance of our broking franchise. The
role our brokers play, facilitating liquidity and price discovery, is - and
will remain - a key part of the financial services architecture.
We are seeking to future proof our core broking proposition. We are doing so
through key initiatives like Fusion, our award-winning, client-focused
electronic platform. We are on track to embed Fusion as the 'go-to' platform
for clients. In 2022, we moved from 20% to 40% of targeted in-scope revenue in
Global Broking covered by Fusion. We are on plan to complete the rollout by
2025 when it will encompass all the in-scope revenue (55% of total Global
Broking revenue). This is only part of the story, however. A key focus is the
adoption of Fusion by our clients as an essential daily working tool.
Market developments
Global Broking, particularly Rates, benefitted from the increased volatility
across a range of asset classes. Volatility was driven by: the terrible events
in Ukraine, substantiative monetary policy tightening, and a marked slowdown
in economic growth. The Federal Reserve, in one year, moved the short-term
target Federal Funds Rate to a range of 4.25% to 4.5%. For two years, it had
been at zero.
Our Energy & Commodities (E&C) division initially benefitted from
volatility too. But, as the year progressed, the geopolitical impact of war in
Ukraine had a pronounced impact on energy markets, especially European Gas
& Power, leading to an inauspicious trading environment. Excessive
volatility - ICE Gasoil registered an average volatility of 61%, a record high
- generated a major increase in exchange margin requirements and sharp volume
contraction. Average daily volumes on CME West Texas Intermediate (WTI) - an
important benchmark - fell below 1 million contracts for the first time since
2015.
Equity markets were challenging. In the US and Europe, key Liquidnet markets,
many indices recorded very significant declines in 2022, accompanied by high
levels of volatility, which negatively impacted block trading. The S&P 500
fell by 19%, its worst performance since 2008; the Stoxx 600 declined by 13%.
Accordingly, the commission wallet, in the third quarter, was the smallest
since early 2009(1). Parameta Solutions, on the other hand, benefitted from
growing demand for high quality, financial markets data. Regulatory change, a
key data driver, continues apace. One interesting example: the annual growth
rate for new pages of US regulation was recently up over 1%(2). These pages
deliver significant change, and a need for the insights we provide.
Strong revenue performance
At the Group level, we delivered 7%(3) revenue growth. On a reported currency
basis, we recorded 13% revenue growth. Global Broking delivered a strong
performance: revenues up 7%. All Global Broking asset classes reported high
single-digit growth. Energy & Commodities revenue declined by 2% - in line
with exchange volumes. Revenue at the Liquidnet division(4) was up 18%, driven
by a 12-month contribution in 2022 from the acquired Liquidnet platform (which
completed in March 2021). On a like-for-like basis, revenue for the Liquidnet
platform declined. This reflected the difficult market conditions (see above)
for many asset managers and subdued larger block trading - an important
segment for us. Parameta Solutions delivered an 8% increase in revenues: it
continued to leverage our high quality, and unique, OTC data.
As a leading liquidity provider, we again recorded market share gains: for
example, in Global Broking(5). Parameta Solutions underlined its position as
the leading provider of inter-dealer OTC data - we account for around three
quarters(6) of this market.
_____________________
1 Source: McLagan.
2 Source: The GW Regulatory Studies Centre, The George Washington University.
3 All percentages within the CEO review are in constant currency, unless
otherwise indicated.
4 As previously announced in our Q3 Trading Update on 1 November 2022, the
Liquidnet division includes the Liquidnet platform (the acquired business),
COEX Partners, ICAP Relative Value, and from October 2022 onwards, MidCap
Partners, following the transfer into Liquidnet from Global Broking.
5 Compared with the two other listed peers for H1 2022 vs FY 2021.
6 Source: TP ICAP estimates
_____________________
Increased profitability and CMD targets update
We saw a substantial increase in market activity at the short-dated end of the
yield curve. This benefitted the Rates franchise, our biggest, and most
profitable, asset class. Coupled with our operational leverage, this generated
an uptick in margin. Adjusted EBIT was up 8%, or 18% in reported currency.
Group revenue per broker was up 11% driven by the revenue uplift and a
reduction in the average number of brokers. Prior to the impact of the Russian
P&L charge of £21m, adjusted EBIT margin increased to 14.0% (2021:
12.9%). Including the Russian impact, adjusted EBIT margin was 13.0%. The
reported EBIT margin increased to 7.7% (2021: 5.2%).
We are also providing today an interim update on our progress against the
three-year targets set out at our Capital Markets Day in December 2020. For a
more detailed discussion, see the Financial and Operating Review. We will
update the market in due course about our progress in relation to the CMD
medium term targets.
Transforming our business
Delivering Fusion
Our transformation is being delivered at pace, including Fusion, our
award-winning electronic platform. Fusion is about providing more client-led
technology, and deeper liquidity. It has a range of client-centred features,
including a single login access, and access to aggregated liquidity for
specific asset classes. Client benefits include lower cost, greater speed and
increased efficiency. Benefits for us include enhanced profitability, and
stickier client revenue. In our EMEA Rates business, for example, there was a
material outperformance in contribution margin in 2022 for Fusion-derived
activity compared to desks without the platform. We are receiving ever more
positive Fusion feedback from our clients.
It has been a productive year for Fusion. As previously noted, the rollout is
on track: 40% of targeted in-scope Global Broking revenue is on the platform.
Highlights include Fusion's implementation across the TP and ICAP desks
covering Inflation and Interest Rate Swaps. Fusion is live on the TP and ICAP
EUR Inflation desks, including volume matching and Central Limit Order Book
(CLOB) functionality. Our focus in 2023 remains on Rates and FX, our largest
asset classes. We will also commence rolling out Fusion across Credit, another
significant asset class, and TP and ICAP Sterling Interest Rate Swaps: Volume
Matching.
In Energy & Commodities, brokered markets have not been electronified to
any great degree. Our emphasis is therefore on the internal implementation of
a new Order Management System or OMS. This is an essential prerequisite: it
captures all orders and trades electronically. We continue to implement the
rollout of OMS across our Oil desks, the largest asset class in Energy &
Commodities.
Driving client adoption
The Fusion delivery programme can be broken down into two key components. In
Phase One - from 2020 to end-2023 - the focus is on IT development and
implementation. In the Second Phase - to end-2025 - there will be an emphasis
on adoption by clients. In fact, the process is already underway. A dedicated
Fusion Sales team has been established in Global Broking to facilitate
adoption. Working closely with our brokers, the team will engage with existing
clients, and new ones too. They will help clients to get the best out of
Fusion, collecting and acting on their feedback, and delivering a
comprehensive marketing programme. We will work with clients on their Fusion
utilisation with a range of internal KPIs covering pace of delivery, client
usage, and return on investment.
Transformation, of course, is about ensuring we have the leadership in place
to drive every aspect of the change programme. It was therefore pleasing to
announce some new, key senior level appointments at this important time in our
strategic development. Daniel Fields, previously a Global Head of Markets at
Société Générale, joined in June to lead Global Broking and drive the
Fusion programme. Mark Govoni came on board in May and is leading our
Liquidnet division; Mark was the President of US Brokerage at Instinet.
Delivering on diversification
We are diversifying our business through a three-pronged approach focused on:
new clients, new asset classes, and more non-broking revenue.
Parameta Solutions
This strategy is exemplified by Parameta's emphasis on products, clients and
distribution to grow revenue and contribution. There has again been good
progress across these areas. In May, Parameta became an FCA-authorised
benchmark administrator - the first inter-deal broker to do so. We are now
administering the nine TP ICAP interest rate swaps benchmarks; they cover the
mid-price interest swaps from our Global Broking division. This enables
Parameta to provide more data-driven analysis for clients, including for risk
and compliance purposes: a growing area.
Parameta Solutions announced in August the launch of ClearConsensus, an
enhanced consensus pricing tool tailored to our global client base. We are
delivering this solution in partnership with PeerNova, a Silicon Valley data
management and analytics firm. This is a compelling proposition - it helps our
clients improve their fair value assessments, enabling more efficient capital
allocation and optimisation.
Maintaining the momentum, Parameta Solutions has announced today a new
partnership with Numerix, a leading global OTC analytics company. Together
with Numerix, Parameta Solutions will provide a best-of-breed solution to
clients. We will do so by leveraging our market-leading OTC data with
Numerix's analytical capability. Our goal is to ensure that clients have
automated, high-quality, independent fair valuations of OTC derivatives. This
is a high growth sector with a large addressable target market (US$6bn).
Energy & Commodities
We are the leading OTC energy and commodities broker, delivering for clients
through three key brands: Tullett Prebon, ICAP and PVM. Alongside
well-developed market positions in major areas like Oil, Gas and Power, we are
making good progress expanding our revenue streams in two new segments:
renewables and crypto assets.
The energy transition is, of course, already under way. The end state remains
unclear, however, and may remain so for some time to come. It is clear,
though, that there will be a continued, and important role, for Oil: currently
our largest asset class. The International Energy Agency (IEA), for instance,
in its recent STEPS scenario, sees Oil demand reaching a high point in
mid-2030 before slightly moderating at that stage. Natural Gas - another key
asset class for us - was designated at the recent COP27 as a low-emission
energy source.
Emissions credits trading will play a key role during the energy transition.
This is an area we are focusing on: we are building an environmental hub and
developing new products. In February, Tullett Prebon launched a well-received
Brazilian energy desk majoring on renewables. We also launched a client-facing
Fusion screen covering Green Certificates in Norway, voluntary emissions in
Europe, and Australian renewables. Client reaction is positive; trades have
already been completed through the platform.
Turning to crypto assets, we obtained FCA registration in December as a crypto
asset exchange provider. We are planning to launch our wholesale marketplace
in 2023. Our Fusion-enabled platform - for institutional clients only -
combines our expertise in operating venues, alongside the industry-leading
custodial expertise provided by Fidelity Digital Assets(SM). We are also
working closely with a range of market makers, including Virtu Financial, Flow
Traders, Jane Street, Susquehanna and Hudson River Trading.
Our Digital Assets proposition provides the credible infrastructure, and
assurance, needed for institutions to allocate capital to this growing asset
class. Research by Grayscale Investments suggests seven out of ten
professional investors believe institutions will hold 60% of all digital
assets within seven years; they currently hold 3% with retail investors owning
97%. Longer-term, we believe blockchain will lead to the tokenisation of
traditional asset classes, resulting in more efficient, automated trading and
settlement. We are well placed to capitalise on this structural shift. Early
client reaction to the Fusion Digital Assets trading & operating model is
positive.
Liquidnet
Liquidnet is a leading, technology-driven agency execution specialist with a
global Equities and Fixed Income footprint. Liquidnet's strong, and long
established, buyside connectivity brings us considerable client
diversification. So too does the Dealer-to-Client (D2C) Credit proposition.
Our strategy is focused on: (a) completing the Liquidnet integration, (b)
expanding the product suite to meet the changing needs of clients, and (c)
exploiting new growth opportunities like D2C Credit.
As I touched on earlier, Mark Govoni, joined in May as CEO of Liquidnet. Mark
has reviewed the business, and implemented an action plan, at an opportune
time. The integration programme is progressing well. The majority of
deliverables are completed. We are on track to complete the integration by the
end of 2023 and deliver at least £30m of integration cost synergies, ahead of
our £25m target.
Equity markets, in particular block trading, as previously discussed, were
challenging. Against this backdrop, Liquidnet is focused on growing - and
diversifying - its core Equities franchise. The plan includes an even greater
emphasis on developing existing clients, expanding the product suite into fast
growing market segments, and new client acquisition.
Client development initiatives include the successful launch of a pre-market
block trading capability at the full day Volume-weighted Average Price (VWAP)
in Hong Kong and Australia. Expansion of the product suite is being delivered
through initiatives designed to exploit changing market features. Expanding in
algorithmic (algo) trading is delivering results with algo revenue now 31% of
total revenue, compared with 29% in 2021. Algo trading - the ability to
process large amounts of data and automatically execute trades at speed based
on intelligent rules - is growing rapidly. Mordor Intelligence estimates CAGR
growth of just over 10% up to 2028. The US is the biggest market with Asia the
fastest growing segment.
Another focus area is programme trading where Liquidnet has recorded a number
of new business wins. In addition, cross-border trading now accounts for 18%
of total Liquidnet revenue. New client acquisition has included establishing,
for the first time, a presence in Paris, Madrid, Frankfurt, and South Africa,
including sales capability.
Growing Fixed Income is a priority: it is a substantial opportunity for the
Group. Liquidnet is making good progress on its Primary Markets Offering, a
strategic initiative towards our goal to electronify the full life cycle of a
bond. Liquidnet has partnered with 30 syndicate banks and increased new issue
announcements coverage (now at 80%). In Secondary, Liquidnet now has around
450 active firms and average daily liquidity of £15bn. On D2C, the
proposition went live, as planned, last summer. All of the client-facing tech
has been built and is in place. Feedback is good; the key issue now is growing
the liquidity on the platform. Major banks are already connected to the
platform, and we are working with many additional institutions. Covid-19 has
had a material impact on how dealers and potential clients for the platform
have been prioritising projects and IT tasks. We are pushing hard to be
further up their priority list. We have also identified opportunities for
greater collaboration between the Credit teams in Liquidnet and Global
Broking, including leveraging the latter's extensive dealer connectivity. The
D2C opportunity is substantial, however it will take us longer, given these
client realities, to move within our 3 to 6% target market share range.
Dynamic capital management
Our focus on capital management - returning, where possible, and appropriate,
surplus capital to shareholders - is an important element of our strategy. We
announced at our H1 2022 results, that we aimed to free up £100m of cash by
the end of 2023. Progress has been good. We have freed up around £30m of cash
in H2 2022. We are on track to free up the targeted £100m.
We also previously said that we are focused on identifying, and returning, any
potential surplus capital to shareholders, subject to the ongoing assessment
of our balance sheet and investment requirements.
Our emphasis on capital management is accompanied by a clear distribution
policy: a 50% pay-out ratio of adjusted post-tax earnings for the year as
whole.
Well advantaged with a clear strategic roadmap
We are well positioned as central banks withdraw liquidity and clients look to
us even more than before. Our deep liquidity pools, scale businesses, and
geographical reach and expertise are significant advantages in a world of
elevated interest rates.
Our strategy - transforming, diversifying, and dynamic capital management - is
about delivering sustainable shareholder returns, now and in the future.
We delivered a strong performance in 2022 and advanced our strategic agenda.
Our transformation continues at pace. The Fusion rollout is on track. Our
focus is increasingly turning to client adoption of the platform. A dedicated
team, overseen by our senior management in Global Broking, will drive
adoption.
The enduring strength of our core franchise is coupled with the significant
diversification opportunities we are pursuing. The strategic rationale for
Liquidnet remains in place: client and asset diversification. The prize is
substantial. We see real opportunities in Environmentals and Digital Assets.
These opportunities play to our strengths: deep expertise, true connectivity
and a track record of innovation.
As we move forward in 2023, I want to thank all my colleagues for their
contribution during a year when we delivered a great deal for stakeholders. We
look to the future with confidence.
Outlook
Our market-leading businesses, and our focus on transformation,
diversification and dynamic capital management, mean the Group is well
positioned to benefit from the continued withdrawal of central bank liquidity.
We expect the impact of inflation on our business in 2023 to be broadly
mitigated by our ongoing focus on cost efficiencies.
Global interest rates are expected to remain elevated in 2023; we expect that
volumes will continue to be solid, but moderated from the peaks at the
beginning of the war in Ukraine. The recent decline in the European gas price
has supported a more liquid, and stable, market so far this year. A sustained
recovery continues to depend on geopolitical developments.
Nicolas Breteau
Executive Director and Chief Executive Officer
14 March 2023
________________________________________________________________
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 being at prior year foreign exchange rates.
Introduction
The Group delivered a strong financial performance in 2022. Group revenue
increased 13% to £2,115m on a reported basis (7% ahead in constant currency).
Markets were heavily impacted by geopolitical events, and substantial monetary
tightening by Central Banks all around the world. Against this backdrop,
market volatility increased during the year, driving higher revenue.
Global Broking benefitted from this increased volatility delivering high
single digit revenue growth across all asset classes and an uplift in overall
contribution. Energy and Commodities (E&C) also initially benefitted from
market volatility; the war in Ukraine however drove the price of European gas
in Q2 and Q3 to levels not seen in some time and this sharply increased margin
requirements for our clients and led to a major reduction in trading activity.
While gas prices have since receded from the mid-year highs, they remain well
above historic averages. During the year, we took a P&L charge, net of
recoveries, of £21m on Russian exposures, primarily in Global Broking. These
unsettled trades resulted from the imposition of sanctions in February 2022
against Russian clients and counterparties.
In the new combined Liquidnet division (comprising of the acquired Liquidnet
platform, COEX Partners, ICAP Relative Value and MidCap Partners), market
conditions for the Liquidnet platform (predominantly Equities) were very
challenging. Equity indices declined significantly across the US and Europe,
accompanied by high volatility levels. This reduced trading activity of larger
blocks in these markets where Liquidnet has a leading position. Our planned
investment in the Dealer-to-Client (D2C) Credit proposition also impacted
profitability. The remaining Liquidnet division performed well, driven by the
growth in the Relative Value business as well as in Rates, Futures and FX.
Parameta Solutions, our market-leading provider of neutral OTC data, delivered
strong revenue growth. The division continues to leverage the increased
demand for high quality financial markets data.
Average revenue per broker (productivity) increased by 17% in 2022 compared
with 2021 (+11% in constant currency). The average contribution per broker
increased by 17% (+11% in constant currency).
We ended the year with a contribution margin of 36.1% compared with 37.6% in
2021 (37.7% in constant currency).
Including the full year cost of the Liquidnet platform and our investment in
the D2C business, the management and support costs were 4% higher on a
reported currency basis (flat in constant currency). Alongside continued
investment in the business, we maintained a strong focus on cost efficiency
and delivered our targeted Group savings of £25m in 2022 which helped offset
inflationary pressures.
Our adjusted EBIT margin increased from 12.5% to 13.0% in reported currency,
or 14.0% excluding charges relating to Russian exposures (2021: 12.9% in
constant currency). The Group's revenue and EBIT margin benefitted from a
foreign exchange (FX) tailwind as GBP weakened by, on average 10%, against the
USD.
The Group reported EBIT of £163m increased by 68% from £97m in 2021
benefitting from diversification and strength of our core franchise.
The Group incurred significant items of £113m pre-tax (2021: £153m), of
which around 80% are non-cash, in reported earnings. This is broadly in line
with our previous guidance of £110m.
We are managing our capital dynamically. The Group is on track to generate or
free up approximately £100m of cash by the end of 2023, to reduce debt. We
continue to assess our balance sheet and investment requirements and are
committed to identifying, and returning, any potential surplus capital to
shareholders.
Robin Stewart
Executive Director and Chief Financial Officer
14 March 2023
Key financial and performance metrics
£m 2022 2021 2021 Reported Constant Currency Change
Reported Constant Currency change
Revenue 2,115 1,865 1,976 13% 7%
Reported
- EBIT 163 97 112 68% 46%
- EBIT margin 7.7% 5.2% 5.7%
Adjusted
- Contribution 763 702 744 9% 3%
- Contribution margin 36.1% 37.6% 37.7%
- EBITDA 357 315 342 13% 4%
- EBIT 275 233 255 18% 8%
- EBIT margin 13.0% 12.5% 12.9%
Average:
- Broker headcount 2,637 2,770 (5%)
- Revenue per broker(1) (£'000) 659 562 592 17% 11%
- Contribution per broker(1) (£'000) 236 202 212 17% 11%
Period end:
- Broker headcount 2,561 2,707 2,707 (5%)
- Total headcount 5,161 5,304 5,304 (3%)
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
brokers for the year. The Group revenue and contribution per broker excludes
revenue and contribution from Parameta Solutions and Liquidnet Division.
Income Statement
The Group presents its reported results in accordance with International
Financial Reporting Standards ('IFRS'). The Group also presents adjusted
(non-IFRS) measures to report performance. Adjusted results and other
alternative performance measures ('APMs') may be considered in addition to,
but not as a substitute for, the reported IFRS results. The Group believes
that adjusted results and other APMs, and should be considered together with
reported IFRS results, provide stakeholders with additional information to
better understand the Group's financial performance and compare performance
from year to year. These adjusted measures and other APMs are also used by
management for planning and to measure the Group's performance.
Reported results are adjusted for significant items to derive adjusted
results. Adjusted measures exclude significant items to aid comparability of
financial performance from year to year and to provide additional information
to better understand the Group's financial performance, and should be
considered together with reported IFRS results. Significant items can be
either cash or non-cash costs. A reconciliation from reported to adjusted
metrics is provided in the Group income statement below. Analysis of
performance by Business Division follows the Group income statement analysis.
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)
Earnings 194 (91) 103
Basic average number of shares (millions) 779.1 779.1 779.1
Basic EPS (pence per share) 24.9p (11.7p) 13.2p
Diluted average number of shares 790.6 790.6 790.6
Diluted EPS 24.5p (11.5p) 13.0p
2021 Adjusted Significant Reported
items
£m
Revenue 1,865 - 1,865
Employment, compensation and benefits (1,140) (12) (1,152)
General and administrative expenses (420) (56) (476)
Depreciation and impairment of PPE and ROUA (52) (16) (68)
Amortisation and impairment of intangible assets (30) (52) (82)
Operating expenses (1,642) (136) (1,778)
Other operating income 10 - 10
EBIT 233 (136) 97
Net finance expense (56) (17) (73)
Profit before tax 177 (153) 24
Tax (44) 21 (23)
Share of net profit of associates and joint ventures 18 (11) 7
Non-controlling interests (3) - (3)
Earnings 148 (143) 5
Basic average number of shares 759.3 759.3 759.3
Basic EPS 19.5p (18.8p) 0.7p
Diluted average number of shares 768.2 768.2 768.2
Diluted EPS 19.3p (18.6p) 0.7p
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 2022 of £2,115m was 7% higher than the prior year
(+13% in reported currency). Revenue grew across all divisions with the
exception of Energy & Commodities. Global Broking benefitted from
increased market volatility and revenue was up 7%, growing across all asset
classes. Market volatility from the war in Ukraine resulted in a higher volume
of trading activity, particularly in the first half. This generated higher
revenue and contribution, which more than offset the impact of Russian P&L
charges, which totalled £21m in 2022. Energy & Commodities revenue fell
by 2% as markets continued to be very subdued, driven primarily by the war
in Ukraine and the resulting sharp price rises in European gas and power. Oil
markets demonstrated greater resilience particularly in the US and Asian
markets. Revenue in the Liquidnet division was challenged by volatile equity
markets but grew 18% due to a full year contribution from the Liquidnet
Platform, and growth in the Relative Value business and as well as in Rates,
Futures and FX. Parameta Solutions was up 8% benefitting from growing demand
for high quality financial markets data.
2022 2021 2021 (restated(2) constant currency) Reported currency Constant currency change
(restated(2) change
By Business Division reported currency)
£m
Rates 566 509 531 11% 7%
Credit 118 102 109 16% 8%
FX & Money Markets 302 263 277 15% 9%
Equities 243 214 227 14% 7%
Inter-division revenue 22 19 20 16% 10%
Total Global Broking(1) 1,251 1,107 1,164 13% 7%
Energy & Commodities 384 367 393 5% (2)%
Inter-division revenue(3) 3 3 3 n/m n/m
Total Energy & Commodities 387 370 396 5% (2%)
Total Liquidnet(4) 325 261 275 25% 18%
Total Parameta Solutions(5) 177 149 164 19% 8%
Inter-division eliminations(3) (25) (22) (23) (14%) (9%)
Total Revenue 2,115 1,865 1,976 13% 7%
1. In prior year reporting, the revenue breakdown of Global Broking
included Emerging Markets revenue as a separate line item. This revenue has
now been reclassified to the relevant asset classes within Global Broking.
Emerging Markets revenue reported in 2021 of £179m has been reclassified as
follows: Rates: £65m; Credit £20m, FX & Money Markets £93m, Equities
£1m.
2. Post Trade Solutions revenue has been reclassified from Parameta
Solutions to Global Broking and Liquidnet. Post Trade Solutions revenue
reported in 2021 of £17m has been reclassified as follows: Rates (Global
Broking): £15m & Liquidnet Platform: £2m. MidCap Partners revenue
reported in 2021 of £13m has been reclassified out of Global Broking and into
Liquidnet.
3. 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.
4. As previously announced in our Q3 Trading Update on 1 November
2022, the Liquidnet division includes the Liquidnet platform (the acquired
business), COEX Partners, ICAP Relative Value, and from 1 October 2022
onwards, MidCap Partners following the transfer from Global Broking).
5. In previous reporting, Parameta Solutions included D&A and Post
Trade Solutions (PTS). The Matchbook and ClearCompress brands within PTS are
now reported under Global Broking, while e-Repo is now reported in the
Liquidnet division.
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 2022 2021 2021 Reported Constant
(restated(1) reported currency) (restated(1) constant currency) change currency
change
Front office costs
- Global Broking(2) 780 694 729 12% 7%
- Energy & Commodities(2) 263 248 266 6% (1%)
- Liquidnet(2) 246 170 182 45% 35%
- Parameta Solutions(2) 63 51 55 24% 15%
Total front office costs 1,352 1,163 1,232 16% 10%
Management and support costs
- Employment costs 268 226 238 19% 13%
- Technology and related costs 87 79 83 10% 5%
- Premises and related costs 29 28 29 4% 0%
- Depreciation and amortisation 82 82 86 - (5%)
- FX (gains)/losses (14) 11 11 (227%) (227%)
- Other administrative costs 48 53 52 (9%) (8%)
Total management & support costs 500 479 499 4% 0%
Total adjusted operating costs 1,852 1,642 1,731 13% 7%
Significant items 130 136 n/a (4%) n/a
Total operating expenses 1,982 1,778 n/a 11% n/a
1. Post Trade Solutions front office costs have been reclassified from
Parameta Solutions to Global Broking and Liquidnet. Post Trade Solutions front
office costs reported in 2021 of £10m has been reclassified as follows: Rates
(Global Broking): £9m & Liquidnet Platform: £1m.
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 £1,352m, which are predominantly variable with
revenue, increased by 10% compared with 2021, (an increase of 16% in reported
currency) include an additional quarter of Liquidnet and the £21m P&L
charge relating to Russian exposures.
Total management and support costs of £500m were flat year-on-year in
constant currency. Excluding FX gains / (losses) on retranslation of net
financial assets the costs increased by 5%.
As a result, the total adjusted operating costs were £1,852m, which was 7%
higher than 2021 in constant currency (13% in reported currency). We achieved
in-year cost savings of £25m as per our target, including cost savings
initiatives on Liquidnet cost synergies.
During 2022, we incurred total strategic IT investment spend amounting to
£22m (£8m of operating expenses, £14m of capital expenditure).
Capital and liquidity management
Capital management
TP ICAP successfully redomiciled from the UK to Jersey, Channel Islands in
February 2021. This, together with the progress we are making on consolidating
legal entities, has enabled the Group to undertake a review to identify
opportunities to unlock cash. In aggregate, we expect to generate or free up
approximately £100m of cash by the end of 2023. The exact timing of release
for certain initiatives will be impacted by external (e.g. regulatory)
dependencies. Example initiatives include, but are not limited to:
· Consolidation of broker-dealer entities in the US;
· Distribution of the surplus following the wind-up of the UK
Defined Benefit Pension Scheme (dependent on approval from Trustees);
· Proceeds from the Liquidnet purchase price adjustment (see
significant items section below)
· Sale of office space in Paris;
· Closure of dormant UK regulated entities; and
· Efficiencies from reorganisation of settlement and clearing
arrangements.
We made good progress during the second half of the year and have already
freed up c. £30m of cash.
The cash generated or freed up from the above short-term initiatives will be
used for the repayment of debt - to increase our investment grade credit
rating headroom - and to reduce future finance costs. We are also exercising
prudence in the current environment of rising interest rates.
The Board is committed to identifying and returning any potential surplus
capital to shareholders, subject to the ongoing assessment of our balance
sheet and investment requirements.
Liquidity management
Following our successful debt refinancing in November 2021, we renewed our
Revolving Credit Facility (RCF) for a further three years on 31 May 2022. The
RCF increased from £270m to £350m, providing additional liquidity
flexibility, and adding new providers. The terms of the new facility were also
improved, including a reduction in margin from 2.00% to 1.75% over the
reference rate.
Significant items
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 retained in
both the reported and adjusted results as these are considered to be core to
supporting the operations of the business.
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 2022 vs 2021, of which around
80% of the total 2022 costs are non-cash.
£m 2022 2021
Restructuring & related costs
- Property rationalisation 16 25
- Liquidnet integration 9 7
- Group cost saving programme 21 5
- Business restructuring / re-domiciliation(1) 2 3
- Remeasurement of employee long-term benefits(2) (7) 1
- Other - 1
Subtotal 41 42
Disposals, acquisitions and investment in new business
- Amortisation of intangible assets arising on consolidation 45 46
- Liquidnet acquisition related(3) 5 14
- Foreign exchange losses 5 4
- Reversal of US Tax indemnity provision - 13
- Adjustment to deferred consideration 8 2
- Strategic project costs 3 -
Subtotal 66 79
Legal & regulatory matters(4) - Subtotal 5 15
Total pre-financing and tax 112 136
- Financing: Debt refinancing - 16
- Financing: Liquidnet interest expense on Vendor Loan Notes 1 1
Total post-financing cost 113 153
Tax relief (22) (21)
Associate write down - 11
Total 91 143
1. £2m of Business restructuring / re-domiciliation costs include
legal entity separation work to operationally separate Parameta division to
enable it to benefit from commercial partnerships and other venture
arrangements.
2. (£7m) Remeasurement of employee long-term benefits Group credit
relates to the reduction to the present value of the Group's income protection
liability.
3. £5m Liquidnet acquisition related costs mainly includes £20m
impairment of customer relationship related intangible assets as a result of
challenging equity market conditions, partly offset by £16m reimbursements
following the ruling of an independent arbitration on the purchase
consideration which is recognised in the income statement.
4. £5m Legal & regulatory matters mainly includes costs related
to the cum-ex investigation by the Frankfurt and Cologne Public Prosecutors in
Germany.
Net finance expense
The adjusted net finance expense of £49m (reported net finance expense
£50m), is comprised of £40m interest expense and £15m of net lease
financing costs, offset by £6m interest income. The £7m reduction compared
with £56m in 2021 is mainly from:
· £3m interest cost saved from liability management exercise in
2021 redeeming 2024 Sterling Notes;
· £2m non-recurring hedging costs incurred in 2021 for Liquidnet
acquisition consideration;
· £4m interest income from higher interest on cash balances;
· Offset by £2m increase in net lease financing costs.
Tax
The effective rate of tax on adjusted profit before tax is 25.7% (2021:
24.9%). The effective rate of tax on reported profit before tax is 31.9%
(2021: 95.8%). The higher rate on reported profit before tax in the prior
year arose primarily due to a £16m increase in the deferred tax liability
recognised in respect of intangible assets arising on consolidation following
the announcement of a future increase in the UK corporation tax rate, which
was included within significant items.
Basic EPS
The average number of shares used for the 2022 Basic EPS calculation is 779.1m
(2021: 759.3m) which reflects 788.7m shares in issue less 9.1m shares held by
the TP ICAP plc Employee Benefit Trust ('EBT') at 31 December 2021 and 0.5m of
the time apportioned movements in 2022 in shares held by the EBT used to
acquire and settle deferred share awards.
The TP ICAP plc EBT has waived its rights to dividends.
The reported Basic EPS for 2022 was 13.2p (2021: 0.7p) and adjusted Basic EPS
for 2022 was 24.9p (2021: 19.5p).
Dividend
The Board is recommending a final dividend for 2022 of 7.9p, which, when added
to the interim dividend of 4.5p, results in a total dividend for the year of
12.4p, an increase of 31% from prior 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 23 May
2023 to shareholders on the register at close of business on 14 April 2023.
The ex-dividend date will be 13 April 2023.
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 28 April 2023.
Group Guidance
2020 Capital Markets Day (CMD) targets (for 2023)
At our CMD in December 2020 we set out financial targets for the end of 2023.
As we often highlight, it is difficult to predict future levels of market
activity, given the highly uncertain macro and geopolitical outlook.
We are making good progress with more to do. Subject to current market
conditions continuing until the end of 2023, we expect Parameta Solutions to
exceed its contribution margin target (50%) by the end of 2023. We anticipate
Global Broking (40%) to be close to its target, while E&C (35%) is
expected to be relatively close to its target. At the adjusted EBIT margin
level, we expect Parameta Solutions to exceed its target (45%). Global Broking
(19%) and E&C (15%) are expected to be relatively close to their targets.
Guidance that refers to being "close" to target is defined as within one
percentage point of target; "Relatively close" is defined as being within one
to two percentage points of target.
A contribution margin target for the new combined Liquidnet division has been
set at 30% for 2023, and, as a result, the Group adjusted EBIT margin target
has been updated from 18% (the original CMD target) to 14%. This reflects the
impact of the pandemic on the Group and the challenging equity market
conditions for the Liquidnet platform due to market volatility, alongside the
D2C Credit proposition moving within its targeted 3 to 6% market share range
later than planned.
Our additional guidance for 2023 is as follows:
· Liquidnet synergies for end of 2023 to realise annualised cost
savings of at least £30m, an increase on the previous target of £25m;
· Significant items in 2023 are expected to be c. £85m (pre-tax),
excluding potential income and costs associated with legal and regulatory
matters;
· The UK corporate tax rate will increase from 19% to 25% in April
2023;
· Group net finance expense expected to be broadly in line with
2022 despite significant increase in the interest rate environment;
· Dividend cover of c. 2 times adjusted post-tax earnings.
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.
2022
GB(1) E&C(1) LN PS(1) Corp/ Total
£m Elim
Revenue:
- External 1,229 384 325 177 - 2,115
- Inter-division(1) 22 3 - - (25) -
1,251 387 325 177 (25) 2,115
Total front office costs:
- External (780) (263) (246) (63) - (1,352)
- Inter-division(1) - - - (25) 25 -
(780) (263) (246) (88) 25 (1,352)
Contribution 471 124 79 89 - 763
Contribution margin 37.6% 32.0% 24.3% 50.3% - 36.1%
Net management and support costs:
- Management and support costs (224) (65) (78) (8) (43) (418)
- Other operating income 2 - - - 10 12
Adjusted EBITDA 249 59 1 81 (33) 357
Adjusted EBITDA margin 19.9 % 15.2% 0.3% 45.8% n/m 16.9%
- Depreciation and amortisation (36) (10) (25) (2) (9) (82)
Adjusted EBIT(3) 213 49 (24) 79 (42) 275
Adjusted EBIT margin 17.0% 12.7% (7.4)% 44.6% n/m 13.0%
Average broker headcount 1,856 632 149 n/a n/a 2,637
Average sales headcount - - 318 n/a n/a 318
Revenue per broker (£'000)(2) 662 608 879 n/a n/a 659
Contribution per broker (£'000)(2) 254 196 151 n/a n/a 236
2021 (reported currency)
Corp/
£m GB(2) E&C LN(2) PS(2) Elim Total
Revenue:
- External 1,088 367 261 149 - 1,865
- Inter-division(1) 19 3 - - (22) -
1,107 370 261 149 (22) 1,865
Total front office costs:
- External (694) (248) (170) (51) - (1,163)
- Inter-division(1) - - - (22) 22 -
(694) (248) (170) (73) 22 (1,163)
Contribution 413 122 91 76 - 702
Contribution margin 37.3% 33.0% 34.9% 51.0% - 37.6%
Net management and support costs:
- Management & support costs(3) (200) (63) (63) (8) (63) (397)
- Other operating income 2 - - - 8 10
Adjusted EBITDA(5) 215 59 28 68 (55) 315
Adjusted EBITDA margin 19.4% 15.9% 10.7% 45.6% n/m 16.9%
- Depreciation and amortisation (29) (9) (25) (2) (17) (82)
Adjusted EBIT(5) 186 50 3 66 (72) 233
Adjusted EBIT margin 16.8 % 13.5% 1.1% 44.3% n/m 12.5%
Average broker headcount 1,971 652 147 n/a n/a 2,770
Average sales headcount - - 234 n/a n/a 234
Revenue per broker (£'000)(2) 552 563 695 n/a n/a 562
Contribution per broker (£'000)(2) 210 187 158 n/a n/a 202
2021 (constant currency)
Corp/
£m GB(2) E&C LN2,4 PS(2) Elim Total
Revenue:
- External 1,144 393 275 164 - 1,976
- Inter-division(1) 20 3 - - (23) -
1,164 396 275 164 (23) 1,976
Total front office costs:
- External (729) (266) (182) (55) - (1,232)
- Inter-division(1) - - - (23) 23 -
(729) (266) (182) (78) 23 (1,232)
Contribution 435 130 93 86 - 744
Contribution margin 37.4% 32.8% 33.8% 52.4% - 37.7%
Net management and support costs:
- Management & support costs (207) (65) (72) (12) (56) (412)
- Other operating income 2 - - - 8 10
Adjusted EBITDA(5) 230 65 21 74 (48) 342
Adjusted EBITDA margin 19.8% 16.4% 7.7% 45.1% - 17.3%
- Depreciation and amortisation (36) (11) (28) - (12) (87)
Adjusted EBIT(5) 194 54 (7) 74 (60) 255
Adjusted EBIT margin 16.7% 13.6% (2.5)% 45.1% - 12.9%
Average broker headcount 1,971 652 147 n/a n/a 2,770
Average sales headcount - - 234 n/a n/a 234
Revenue per broker (£'000)(3) 580 603 722 n/a n/a 592
Contribution per broker (£'000)(3) 221 199 166 n/a n/a 213
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. Post Trade Solutions revenue and front office costs have been
reclassified from Parameta Solutions to Global Broking and Liquidnet. Post
Trade Solutions revenue reported in 2021 of £17m has been reclassified as
follows: Rates (Global Broking): £15m & Liquidnet Platform: £2m. Post
Trade Solutions front office costs reported in 2021 of £10m has been
reclassified as follows: Rates (Global Broking): £(9)m & Liquidnet
Platform: £(1)m. MidCap Partners revenue reported in 2021 of £13m (with
front office costs of £9m) has been reclassified out of Global Broking and
into Liquidnet.
3. Revenue and contribution per broker are calculated as external
revenue and contribution of Global Broking, Energy & Commodities and
Agency Execution, excluding Liquidnet, divided by the average brokers for the
year. The Group revenue and contribution per broker excludes revenue and
contribution from Parameta Solutions and Liquidnet.
4. 2021 includes Liquidnet Platform post acquisition results from 23
March 2021, the date the transaction completed
5. Adjusted EBITDA and Adjusted EBIT for each division has been
restated to remove the IFRS 16 interest charge, previously charged to
divisional Adjusted EBIT. The restatement aligns with IFRS statutory reporting
where the IFRS 16 interest cost is disclosed within Group finance costs.
Global Broking
Global Broking revenue of £1,251m (which represents 59% of total Group
revenue) was 7% higher (13% higher in reported currency) than 2021, reflecting
increased market volatility across all asset classes and all regions.
Revenue from Rates increased by 7% to £566m. Rates is our most profitable
asset class and represents 45% of Global Broking revenue, and 27% of Group
revenue. After more than a decade of low interest rates, 2022 saw a return to
interest rate movements across most economies. Revenue in FX & Money
Markets increased by 9% to £302m in 2022. Revenue from Credit increased by 8%
to £118m, whilst Equities increased by 7% to £243m.
Front office costs, which are largely variable with revenue, of £780m were 7%
higher than 2021. Lower average broker headcount, cost savings during the
year, and a shift towards higher margin business resulted in higher
profitability. The resulting contribution margin was 37.6% compared with 37.4%
in 2021 (37.3% on a reported basis), including the £20m P&L charge
relating to Russian exposures. Excluding this charge, the contribution margin
was 39.2%.
Management and support costs of £224m were 8% higher than 2021 due to
increased investment in the roll-out of Fusion, our electronic platform.
Depreciation and amortisation expense of £36m was flat to prior year.
The adjusted EBIT of £213m resulted in an adjusted EBIT margin of 17.0%
(2021: £194m, 16.7% in constant currency, £186m and 16.8% in reported
currency).
Energy & Commodities (E&C)
E&C revenue of £387m in 2022 was 2% lower than in 2021 (5% higher on a
reported basis), due to challenges in the European Gas & Power market. The
number of oil, gas and other energy products traded on the Intercontinental
Exchange ('ICE') reduced by 4% in 2022.
The major reduction in the supply of gas from Russia led to sharp price rises
for gas and power. This resulted in increased margin requirements for clients
and a severe contraction in OTC bilateral credit lines leading to reduced
trading activity. Gas prices have trended down from the extreme highs in the
summer but are still many times higher than the historical average. Oil
revenue have been more resilient in the US and Asia where the impact of the
war has been less pronounced than in Europe.
Revenue growth from our environmentals business slowed in the second half;
clients were focused on managing the volatility from the war in Ukraine,
rather than the energy transition. Revenue growth outperformed exchange
volumes.
Front office costs of £263m were 1% lower. This resulted in a contribution
margin of 32.0% (2021: 32.8% in constant currency and 33.0% in reported).
Management and support costs of £65m were flat from 2021, while depreciation
and amortisation decreased by £1m.
The adjusted EBIT was £49m in 2022, with an adjusted EBIT margin of 12.7%
(2021: £54m and 13.6% in constant currency, £50m and 13.5% in reported
currency) with the lower revenue more than offsetting the decline in total
costs.
Liquidnet Division(1)
At £325m, Liquidnet's revenue (15% of total Group revenue) was up 18%. This
includes a full year contribution from the acquired Liquidnet platform
compared to nine months in 2021 (the acquisition completed March 2021).
The Liquidnet equities platform experienced challenging market conditions
during the year, including high levels of volatility, leading to subdued
volumes in larger block trading. In the US, block market volumes by the top 5
Agency Alternative Trading System (ATS) venues were flat, while in Europe,
Large in Scale (LIS) transaction volumes decreased by 15%. These are the two
market segments in which Liquidnet is most active. Liquidnet's block market
share within the top 5 Agency ATS venues moved from 24.8% in 2021 to 23.2% in
2022. Our European market share of LIS transactions went from 29.1% to 27.7%.
The rest of the division delivered a strong performance, driven by the
Relative Value business as well as from growth in Rates, Futures and FX.
Front office costs of £246m increased 35%, reflecting a full year of
Liquidnet platform costs and investment to drive future organic growth in the
business. The resulting contribution was £79m (2021: £93m in constant
currency and £91m in reported currency) with a contribution margin of 24.3%
(2021: 33.8% in constant currency and 34.9% in reported currency).
Management and support costs were £78m in 2022 compared with £72m for nine
months of ownership in 2021.
The adjusted EBIT was £(24)m and the adjusted EBIT margin was (7.4)% (2021:
£(7)m and (2.5)% in constant currency, £3m and 1.1% in reported currency).
___________________
1. As previously announced in our Q3 Trading Update on 1
November 2022, the Liquidnet division includes the Liquidnet platform (the
acquired business), COEX Partners, ICAP Relative Value, and from 1 October
2022 onwards, MidCap Partners (following the transfer from Global Broking).
___________________
Parameta Solutions(2)
Revenue of £177m was 8% higher than the prior year. 95% of total Parameta
Solutions revenue is subscription-based, and therefore recurring.
Parameta Solutions is benefiting from the successful delivery of its sales
strategy, including the establishment of a Global Strategic Accounts function,
client segmentation and revenue diversification. 53 new clients were onboarded
in 2022, 90% of which were non-sell-side clients including buy-side,
corporates, professionals services and energy & commodities firms. This
has been supported by the direct to client distribution strategy where an
online product inventory enables clients to explore content. Clients are
licensing historical, intraday and streaming multi brand data, set-up to be
delivered directly into their cloud environment or data warehouse.
ClearConsensus, our independent price verification tool that allows clients to
manage risk and optimise capital allocation has made good progress with
additional dealers participating in the proposition. Client data onboarding
has taken longer than initially anticipated which has delayed revenue
generation to 2023. Following benchmark administrator authorisation, Parameta
Solutions now has licensed clients paying for use of its benchmarks for
issuance activity.
Parameta Solutions onboarded its first client, a prominent bank in Asia, on
its Transaction Cost Analysis (TCA) platform. The rates evaluated pricing
service was launched for non-linear rates with further expansion of the
service scheduled for 2023.
Parameta Solutions has announced two further commercial partnerships in key
high growth areas. The first is with Numerix, a global leading OTC analytics
and derivatives pricing company where the business will work with them to
develop a OTC Derivatives Valuation service. The second partnership is with
General Index, a challenger benchmark provider in commodity markets, focused
on launching indices covering EU LNG markets.
Front office costs of £88m increased by 13%. The resulting contribution was
£89m, at a contribution margin of 50.3% (2021: 52.4% in constant currency and
51.0% in reported currency).
Management and support costs were £8m in 2022 compared with £12m in 2021.
The adjusted EBIT, also taking into account FX gains and losses, was £79m,
which is a margin of 44.6% (2021: £74m and 45.1% in constant currency,
£66m and 44.3% in reported currency).
__________________
2. In previous reporting, Parameta Solutions included D&A
and Post Trade Solutions (PTS). The Matchbook and ClearCompress brands within
PTS are now reported under Global Broking, while e-Repo is now reported in the
Liquidnet division.
__________________
Cash Flow
The table below shows the changes in cash and debt for the year ending 31
December 2022 and 31 December 2021.
£m 2022 2021
EBIT reported 163 97
Depreciation, amortisation and other non-cash items 178 165
Change in Net Matched Principal balances 27 (36)
Movements in working capital 62 (17)
Taxes and Interest paid (106) (98)
Operating cash flow 324 111
Capital expenditure (53) (58)
Disposal of property, plant and equipment 12 -
Acquisition consideration paid - (451)
Cash acquired with acquisition - 202
Deferred consideration paid on prior acquisitions (10) (14)
(Purchase) / sale of financial assets (50) 11
Other investing activities 23 21
Investing activities (78) (289)
Net proceeds from rights issue - 309
Dividends paid to shareholders (78) (47)
Net funds received from issuance of 2028 Sterling Notes - 247
Repayment of 2024 Sterling Notes including premium - (200)
Repayment of loan from related party (47)
Other financing activities (38) (13)
Financing activities (163) 296
Change in cash 83 118
Foreign exchange movements 38 -
Cash at the beginning of the year 767 649
Cash at the end of the year 888 767
The Group's net cash inflow from operating activities increased to £324m from
£111m in 2021 driven primarily by the following:
· Reported EBIT increased by £66m to £163m compared with 2021;
· £27m cash inflow (2021: outflow of £36m) from changes in
matched principal financial assets and liabilities;
· £62m cash inflow (2021: outflow of £17m) from movements in
working capital including an additional £47m bonus accruals and £15m of
trade and other payables, as well as £12m decrease in stock lending balances;
this was partly offset by a £24m increase in trade and other receivables;
· £106m cash outflow (2021: outflow of £98m) from taxes and
interest paid comprises of £51m taxes and £55m interest payments. Tax
payments increased by £12m in line with increased profit and interest
payments reduced by £4m as a result of refinancing activity in 2021 at lower
interest rates.
The key investing activities in the year were:
· £53m capital expenditure mainly represents technology and
strategic project spend. This compared with £58m in 2021 which included
office development expenditure;
· £12m cash inflow from the disposal of a freehold property in
Paris;
· £50m financial assets outflow driven by the purchase of
additional financial assets held as collateral;
· £23m other investing activities mainly includes dividends from
associates and joint ventures.
The primary financing activities in the year were:
· £78m dividend paid to shareholders comprised of the 2021 final
dividend of 5.5p and 2022 interim dividend of 4.5p paid in 2022;
· £47m repayment of the loan drawn down from the Totan credit
facility;
· £38m other financing activities mainly include finance lease
capital repayments.
Foreign exchange gain
· The weakening of GBP, particularly against the USD in 2022, has
resulted in a retranslation gain of £38m.
As a result of the above, the Group's cash balance increased by £121m.
Debt finance
The composition of the Group's outstanding debt is summarised below.
At 31 December 2022 At 31 December 2021
£m £m
5.25% £247m Sterling Notes January 2024(1) 253 252
5.25% £250m Sterling Notes May 2026(1) 250 250
2.625% £250m Sterling Notes November 2028(1) 248 248
Loan from related party (RCF with Totan) - 51
Revolving credit facility drawn - banks - -
3.2% Liquidnet Vendor Loan Notes 43 38
Settlement Overdrafts - 17
Debt (used as part of net (funds)/debt) 794 856
Lease liabilities 279 286
Total debt 1,073 1,142
1. Sterling Notes are reported at their par value net of discount and
unamortised issue costs and including interest accrued at the reporting date.
The Group's gross debt, excluding lease liabilities, has decreased to £794m
as a result of the repayment of the related party loan of £51m, and a £17m
decrease in settlement overdrafts at 31 December 2022 compared with 31
December 2021.
The Group refinanced its main bank revolving credit facility in May 2022
increasing its capacity to £350m and with a new initial maturity of May 2025.
As at 31 December 2022, this facility was undrawn. The Group also has access
to a Yen10bn Totan facility that, as at 31 December, was undrawn and has a
maturity of February 2025.
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 been a tailwind for the Group in 2022, caused
largely by GBP depreciation against the USD, with approximately 60% of Group
revenue and approximately 40% of costs in USD, resulting in a currency
mismatch. The average and the period end GBP:USD rate weakened 10%
year-on-year.
Average Period End
2022 2021 2022 2021
US Dollar $1.24 $1.38 $1.19 $1.32
Euro €1.18 €1.16 €1.16 €1.18
Pensions
The Group has one defined benefit pension scheme in the UK that is currently
in the process of being wound up. The wind-up of the Scheme commenced in
2019. During the year the Trustee completed the buy-out of the Scheme's
principal pension liabilities, a process that transferred each pension
obligation from the Scheme to Rothesay Life. The remaining Scheme's
obligations are expected to be settled in Q2 2023 allowing the wind-up to be
completed.
Under UK legislation, once a Scheme commences wind-up, the assets of the
Scheme pass unconditionally to the Trustee to enable it to settle the Scheme's
liabilities. As a result, the Group applies the requirement of IFRIC 14, fully
restricting the Group's recognition of the £45m (31 December 2021: £46m) net
surplus by applying an asset recognition ceiling. Changes as a result of the
application of the asset ceiling are recorded in Other Comprehensive Income.
During the wind-up period, the Group continues to restrict the recognition of
the net surplus. Any benefits augmented during this time represent a past
service cost and are recorded as a significant item in the Income Statement as
and when such benefits are agreed. Costs associated with the settlement of the
Scheme's liabilities will also be recorded as a significant item in the Income
Statement as and when incurred. There were £1m past service and settlement
costs in 2022 (2021: £1m).
Following the final settlement of the Scheme's liabilities and costs, the
Scheme will be wound up, and the Group expects to receive the remaining asset,
subject to applicable taxes at that time, currently 35%.
Regulatory capital
Since February 2021, 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
We are in the process of considering how material climate-related issues
affect our business strategy. In 2022, this has been carried forward by
engagement with senior management across the business. The high-level climate
change impact assessment has highlighted areas of exposure across our key
sites and business operations. We have also strengthened our understanding of
the exposure of our largest suppliers to climate change and the level of their
own emissions.
Our understanding of the impact of climate change grew as a result of our
engagement in 2022. By the end of 2023, following the completion of a detailed
qualitative, and quantitative, scenarios analysis, we expect to have mapped
out how climate-related issues could affect financial performance (e.g.,
revenue, costs) and financial position (e.g., assets, liabilities) and to have
that understanding inform our business plans.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Income Statement
for the year ended 31 December 2022
2022 2021
Notes £m £m
Revenue 3 2,115 1,865
Employment, compensation and benefits (1,320) (1,152)
General and administrative expenses (506) (476)
Depreciation and impairment of PPE and ROUA (58) (68)
Amortisation and impairment of Intangible assets (98) (82)
Total operating costs 4 (1,982) (1,778)
Other operating income 5 30 10
EBIT/Operating profit 163 97
Finance income 6 8 3
Finance costs 7 (58) (76)
Profit before tax 113 24
Taxation (36) (23)
Profit after tax 77 1
Share of results of associates and joint ventures 29 7
Profit for the year 106 8
Attributable to:
Equity holders of the parent 103 5
Non-controlling interests 3 3
106 8
Earnings per share
- Basic 8 13.2p 0.7p
- Diluted 8 13.0p 0.7p
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
2022 2021
£m £m
Profit for the year 106 8
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of defined benefit pension schemes - 3
Equity instruments at FVTOCI - net change in fair value - 1
- 4
Items that may be reclassified subsequently
to profit or loss:
Fair value movements on net investment hedge - 3
Effect of changes in exchange rates on translation 153 1
of foreign operations
Taxation (5) (1)
148 3
Other comprehensive income for the year 148 7
Total comprehensive income for the year 254 15
Attributable to:
Equity holders of the parent 250 12
Non-controlling interests 4 3
254 15
Consolidated Balance Sheet
as at 31 December 2022
2022 2021
Notes £m £m
Non-current assets
Intangible assets arising on consolidation 10 1,780 1,762
Other intangible assets 97 91
Property, plant and equipment 110 123
Right-of-use assets 165 187
Investment in associates 63 51
Investment in joint ventures 34 28
Other investments 23 21
Deferred tax assets 15 17
Retirement benefit assets 1 1
Other long term receivables 51 44
2,339 2,325
Current assets
Trade and other receivables 11 2,198 2,068
Financial assets at fair value through profit or loss 12 264 158
Financial investments 16 174 115
Cash and cash equivalents 16 888 784
3,524 3,125
Total assets 5,863 5,450
Current liabilities
Trade and other payables 13 (2,149) (1,977)
Financial liabilities at fair value through profit or loss 12 (255) (120)
Loans and borrowings 14,16 (9) (77)
Lease liabilities 16 (29) (34)
Derivative financial instruments - (1)
Current tax liabilities (37) (28)
Short term provisions 17 (9) (5)
(2,488) (2,242)
Net current assets 1,036 883
Non-current liabilities
Loans and borrowings 14,16 (785) (779)
Lease liabilities 16 (250) (252)
Deferred tax liabilities (85) (107)
Long term provisions 17 (31) (38)
Other long term payables (60) (53)
Retirement benefit obligations (3) (1)
(1,214) (1,230)
Total liabilities (3,702) (3,472)
Net assets 2,161 1,978
Equity
Share capital 197 197
Other reserves (854) (1,005)
Retained earnings 2,800 2,769
Equity attributable to equity holders of the parent 2,143 1,961
Non-controlling interests 18 17
Total equity 2,161 1,978
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Equity attributable to equity holders of the parent
Share Share Merger Reverse Re- Re- Hedging Own Retained Total Non-controlling Total
capital premium reserve acquisition organisation valuation and shares earnings interests equity
account reserve reserve reserve translation
2022 £m £m £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
2021 £m £m £m £m £m £m £m £m £m £m £m £m
Balance at 141 17 1,384 (1,182) - 4 (41) (27) 1,383 1,679 19 1,698
1 January 2021
Profit for the year - - - - - - - - 5 5 3 8
Other comprehensive - - - - - 1 3 - 3 7 - 7
income for the year
Total comprehensive income for the year - - - - - 1 3 - 8 12 3 15
Rights issue 56 259 - - - - - - - 315 - 315
Rights issue costs - (6) - - - - - - - (6) - (6)
Scheme of Arrangement: Cancellation of existing shares and reserves (197) (270) (1,384) 1,182 669 - - - - - - -
Scheme of Arrangement: Issue of ordinary shares 197 1,418 - - (1,615) - - - - - - -
Capital reduction - (1,418) - - - - - - 1,418 - - -
Dividends paid - - - - - - - - (47) (47) (2) (49)
Share settlement of share-based awards - - - - - - - 3 (3) - - -
Own shares acquired for employee trusts - - - - - - - (2) - (2) - (2)
Decrease in non-controlling interests - - - - - - - - - - (3) (3)
Credit arising on share-based awards - - - - - - - - 10 10 - 10
Balance at 197 - - - (946) 5 (38) (26) 2,769 1,961 17 1,978
31 December 2021
Consolidated Cash Flow Statement
for the year ended 31 December 2022
Notes 2022 2021
£m £m
Net cash flow from operating activities 15 324 111
Investing activities
(Purchase)/sale of financial investments (50) 11
Settlement of derivative financial instruments(1) - 5
Interest received 7 2
Dividends from associates and joint ventures 15 15
Expenditure on intangible fixed assets (35) (35)
Purchase of property, plant and equipment (18) (23)
Sale of property, plant and equipment 12 -
Deferred consideration paid (10) (14)
Disposal/(investment) in associates and joint ventures 1 (1)
Acquisition consideration paid - (451)
Cash acquired with acquisitions - 202
Net cash flow from investment activities (78) (289)
Financing activities
Dividends paid 9 (78) (47)
Dividends paid to non-controlling interests (3) (2)
Proceeds of rights issue - 315
Issue costs of rights issue - (6)
Purchase of non-controlling interest - (3)
Own shares acquired for employee trusts (3) (2)
Net repayment of bank loans(2) 14 - (5)
Net (repayment)/borrowing of loans from related parties(2) 14 (47) 27
Funds received from issue of Sterling Notes - 249
Repurchase of Sterling Notes(3) - (200)
Bank facility arrangement fees and debt issue costs (3) (2)
Payment of lease liabilities (29) (28)
Net cash flow from financing activities (163) 296
Increase in cash and overdrafts 83 118
Cash and overdrafts at the beginning of the year 767 649
Effect of foreign exchange rate changes 38 -
Cash and overdrafts at the end of the year 16 888 767
Cash and cash equivalents 888 784
Overdrafts - (17)
888 767
1. Relates to foreign exchange derivatives undertaken in 2021 in
respect of acquisition cash flows.
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.
3. Relates to the repurchase of £184m of Sterling Notes 2024 (Note
14) plus £16m of premium paid in 2021. The premium paid is reported as part
financing activities, rather than operating activities. Interest paid is
reported as a cash outflow from operating activities.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Notes to the Consolidated Financial Statements
for the year ended 31 December 2022
1. General information
As at 31 December 2022 TP ICAP Group plc (the 'Company') was a public company
limited by shares incorporated in Jersey under the Companies (Jersey) Law
1991. On 26 February 2021 following a Scheme of Arrangement, described in Note
2(c), TP ICAP Group plc acquired the entire share capital of TP ICAP plc,
resulting in TP ICAP Group plc becoming the Group's ultimate parent
undertaking.
2. Basis of preparation
(a) Basis of accounting
The financial information included in this document does not constitute the
Group's statutory accounts for the years ended 31 December 2022 or 2021, but
is derived from TP ICAP Group plc's group accounts for 2022 and 2021.
Statutory accounts for 2021 have been delivered to the Registrar of Companies
and those for 2022 will be delivered following the Company's Annual General
Meeting. The auditor has reported on those accounts; their reports were
unqualified, did not draw attention to any matters by way of emphasis without
qualifying their report and for 2021 did not contain a statement under Article
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) Corporate reorganisation
In February 2021 the Group adjusted its corporate structure. TP ICAP Group
plc was incorporated in Jersey on 23 December 2019 and became the new listed
holding company of the Group on 26 February 2021 via a court-approved scheme
of arrangement under Part 26 of the UK Companies Act 2006, with the former
holding company, TP ICAP plc subsequently being renamed TP ICAP Limited and
now renamed TP ICAP Finance plc. Under the scheme of arrangement, shares in
the former holding company of the Group were cancelled and the same number of
new ordinary shares were issued to the new holding company in consideration
for the allotment to shareholders of one ordinary share of 25 pence in the new
holding company for each ordinary share of 25 pence they held in the former
holding company. On 26 February 2021, TP ICAP Group plc effected a reduction
of its share capital by cancelling its share premium and recognising an
equivalent increase in the profit and loss account in reserves.
The share for share exchange between TP ICAP plc and TP ICAP Group plc was a
common control transaction and has been accounted for using merger accounting
principles. Under these principles the results and cashflows of all the
combining entities are brought into the consolidated financial statements from
the beginning of the financial year in which the combination occurs and
comparative figures also reflect the combination of the entities. The
Group's equity is adjusted to reflect that of the new holding company, but
in all other aspects the Group results and financial position are unaffected
by the change and reflect the continuation of the Group.
(d) Adoption of new and revised Accounting Standards
The following new and revised Standards and Interpretations have been endorsed
by the UK Endorsement Board and are effective from 1 January 2022 but they do
not have a material effect on
the Group's Consolidated Financial Statements:
Ø Amendment to IFRS 3 'Business Combinations';
Ø Amendments to IAS 16 'Property, Plant and Equipment';
Ø Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent
Assets'; and
Ø Annual Improvements 2018-2020.
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 for TP ICAP
legacy entities plus Liquidnet.
Following the redomiciliation of the Group's parent in February 2021, the
operational responsibility of entities was aligned with their legal ownership
and as a result the Group at that time considered that the Primary Operating
Segments continued to be the geographical regions of incorporation being
Americas, EMEA, APAC and Corporate/Treasury. Liquidnet, acquired in March 2021
with its own separate international legal structure, was managed separately by
the CODM, representing its own separate primary operating segment, even though
it itself had operations across Americas, EMEA and APAC and represented a
significant component of the Agency Execution business division, subsequently
renamed to Liquidnet Division.
In 2022, as a consequence of the inclusion of Liquidnet into Agency Execution,
the balance of the CODM review of operating activity and allocation of the
Group's resources had become more focused on business division. This structure
is now considered to represent the more appropriate view for the purposes of
Group resource allocation and assessment of the nature and financial effects
of the business activities in which the Group engages.
Whilst the Group's Primary Operating Segments are now 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. In the EMEA regional sub-group, in particular,
there are also independent non-executive directors on the regional Board of
directors, which further strengthens the independence and judgement of the
governance framework.
Information regarding the Group's primary operating segments is reported
below:
31 December 2022 GB(1) E&C(1) LN(1) PM(1) Corp(1) Total
£m £m £m £m £m £m
Revenue
External 1,229 384 325 177 - 2,115
Inter-division 22 3 - - (25) -
1,251 387 325 177 (25) 2,115
Total front office costs
External (780) (263) (246) (63) - (1,352)
Inter-division - - - (25) 25 -
(780) (263) (246) (88) 25 (1,352)
Contribution 471 124 79 89 - 763
Net management and support costs (224) (65) (78) (8) (43) (418)
Other operating income 2 - - - 10 12
Adjusted EBITDA 249 59 1 81 (33) 357
Depreciation and impairment of PPE and ROUA (20) (6) (12) (2) (9) (49)
Amortisation and impairment of intangibles (16) (4) (13) - - (33)
Adjusted EBIT 213 49 (24) 79 (42) 275
31 December 2021 GB(1) E&C(1) LN(1) PM(1) Corp(1) Total
£m £m £m £m £m £m
Revenue:
- External(2) 1,088 367 261 149 - 1,865
- Inter-division 19 3 - - (22) -
1,107 370 261 149 (22) 1,865
Total front office costs:
- External(3) (694) (248) (170) (51) - (1,163)
- Inter-division - - - (22) 22 -
(694) (248) (170) (73) 22 (1,163)
Contribution(4) 413 122 91 76 - 702
Net management and support costs(5) (200) (63) (63) (8) (63) (397)
Other operating income 2 - - - 8 10
Adjusted EBITDA(6) 215 59 28 68 (55) 315
Depreciation and impairment of PPE and ROUA (16) (5) (14) (2) (15) (52)
Amortisation and impairment of intangibles (13) (4) (11) - (2) (30)
Adjusted EBIT(6) 186 50 3 66 (72) 233
1 GB is Global Broking, E&C is Energy & Commodities, LN is
Liquidnet (formerly Agency Execution), PM is Parameta Solutions and Corp is
Corporate.
2 Divisional Revenue for 2021 has been restated to be comparable with
2022's divisional groupings. Revenue for Global Broking increased by £2m,
Liquidnet (formerly Agency Execution) increased by £15m and Parameta
Solutions reduced by £17m. There is no restatement of Group revenues.
3 Divisional Total front office costs for 2021 have been restated to be
comparable with 2022's divisional groupings. Total front office costs for
Liquidnet (formerly Agency Execution) have increased by £9m and Parameta
Solutions reduced by £9m. There is no restatement of Group Total front office
costs.
4 As a result of the restatements in footnotes 2 and 3 above, Divisional
contribution for Global Broking increased by £2m, Liquidnet (formerly Agency
Execution) increased by £6m and Parameta Solutions reduced by £8m. There is
no restatement of Group contribution.
5 As a result of the restatements in footnotes 2 and 3 above, Divisional
net management and support costs for Global Broking decreased by £3m,
Parameta Solutions decreased by £4m and Corporate increased by £7m.
Additionally, Divisional Net management and support costs have been restated
to remove the IFRS 16 interest charge. This restatement aligns with IFRS
statutory reporting where the IFRS 16 interest cost is disclosed within Group
finance costs. As a result Net management and support costs for Global Broking
reduced by £8m, Energy & Commodities reduced by £3m, Liquidnet (formerly
Agency Execution) reduced by £3m, Parameta Solutions reduced by £1m and
Corporate increased by £15m. There is no restatement of Group Net management
and support costs.
6 As a result of the above restatements Adjusted EBITDA and EBIT for
Global broking increased by £13m, Energy & Commodities increased by £3m,
Liquidnet (formerly Agency Execution) increased by £9m, Parameta reduced by
£3m and Corporate reduced by £22m. There is no restatement to the
consolidated Group Adjusted EBITDA or EBIT.
Analysis of significant items
31 December 2022 Restructuring Disposals, acquisitions and investment in new businesses Legal and regulatory matters Total
and other related costs
£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 - 65 - 65
Total included within operating costs 41 82 7 130
Other operating income - (16) (2) (18)
Included in finance income - 1 - 1
Total significant items before tax 41 67 5 113
Taxation on significant items (22)
Total significant items after tax 91
31 December 2021 Restructuring Disposals, acquisitions and investment in new businesses Legal and regulatory matters Total
and other related costs
£m £m £m £m
Employment, compensation and benefits costs 12 - - 12
Premises and related costs 9 - - 9
Deferred consideration - 2 - 2
Charge relating to significant legal and regulatory settlements - - 6 6
Pension scheme past service and settlement costs 1 - - 1
Acquisition costs - 8 - 8
Net loss on derivative instruments - 8 - 8
Net foreign exchange gains - (4) - (4)
Other general and administration costs 4 13 9 26
Total included within general and administration costs 14 27 15 56
Depreciation and impairment of PPE and ROUA 16 - - 16
Amortisation and impairment of intangible assets - 52 - 52
Total included within operating costs 42 79 15 136
Included in financing items 16 1 - 17
Total significant items before tax 58 80 15 153
Taxation on significant items (21)
Total significant items after tax 132
Impairment of investment in associates - reflected together with Share of 11
results of associates and joint ventures
Total significant items 143
Adjusted profit reconciliation
2022 Adjusted Significant items Reported
£m £m £m
EBIT/operating profit 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
2021 Adjusted Significant items Reported
£m £m £m
EBIT/operating profit 233 (136) 97
Net finance costs (56) (17) (73)
Profit before tax 177 (153) 24
Taxation (44) 21 (23)
Profit after tax 133 (132) 1
Share of profit from associates and joint ventures 18 (11) 7
Profit for the year 151 (143) 8
4. Operating costs
2022 2021
(restated)
£m £m
Broker compensation costs(1) 1,032 917
Other staff costs(1) 268 223
Share-based payment charge 20 12
Employee compensation and benefits 1,320 1,152
Technology and related costs 216 191
Premises and related costs 28 37
Gains on disposal of property, plant and equipment (3) -
Gain on derecognition of right-of-use assets/lease liabilities (3) -
Adjustments to deferred consideration 8 2
Charge relating to significant legal and regulatory settlements 7 6
Pension scheme past service and settlement costs 1 1
Remeasurement of long-term employee benefits (7) -
Acquisition costs 6 20
Impairment losses on trade receivables 5 -
Net foreign exchange losses (21) 3
Net loss on FX derivative instruments 11 12
Other administrative costs 258 204
General and administrative expenses 506 476
Depreciation of property, plant and equipment 23 23
Impairment of property, plant and equipment 5 10
Depreciation of right-of-use assets 26 29
Impairment of right-of-use assets 4 6
Depreciation and impairment of property, plant and equipment and right-of-use 58 68
assets
Amortisation of other intangible assets 33 30
Impairment of other intangible assets - 6
Amortisation of intangible assets arising on consolidation 45 46
Impairment of intangible assets arising on consolidation 20 -
Amortisation and impairment of intangible assets 98 82
1,982 1,778
1 Broker compensation cost and Other staff costs for 2021 have been
increased and decreased by £35m respectively, reflecting a reclassification
of certain staff as broking.
5. Other operating income
Other operating income comprises:
2022 2021
£m £m
Acquisition related income 16 -
Business relocation grants 2 3
Employee related insurance receipts 4 2
Management fees from associates 1 2
Legal settlement receipts 4 1
Other receipts 3 2
30 10
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
2022 2021
£m £m
Interest and similar income 6 2
Interest on finance leases 2 1
8 3
7. Finance costs
2022 2021
£m £m
Fees payable on bank and other loan facilities 2 2
Interest on bank and other loans 2 2
Interest on Sterling Notes January 2024 13 22
Interest on Sterling Notes May 2026 13 13
Interest on Sterling Notes November 2028 7 1
Interest on Liquidnet Vendor Loan Notes 1 1
Other interest 1 1
Amortisation of debt issue and bank facility costs 2 2
Borrowing costs 41 44
Interest on lease liabilities 17 14
Amortisation of options premium - 2
Premium on repurchase of Sterling Notes January 2024 - 16
58 76
8. Earnings per share
2022 2021
Basic 13.2p 0.7p
Diluted 13.0p 0.7p
The calculation of basic and diluted earnings per share is based on the
following number of shares:
2022 2021
No.(m) No.(m)
Basic weighted average shares 779.1 759.3
Contingently issuable shares 11.5 8.9
Diluted weighted average shares 790.6 768.2
The earnings used in the calculation basic and diluted earnings per share are
set out below:
2022 2021
£m £m
Earnings for the year 106 8
Non-controlling interests (3) (3)
Earnings attributable to equity holders of the parent 103 5
9. Dividends
2022 2021
£m £m
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31 December 2021 of 5.5p per share 43 -
Interim dividend for the year ended 31 December 2022 of 4.5p per share 35 -
Final dividend for the year ended 31 December 2020 of 2.0p per share - 16
Interim dividend for the year ended 31 December 2021 of 4.0p per share - 31
78 47
A final dividend of 7.9 pence per share will be paid on 23 May 2023 to all
shareholders on the Register of Members on 14 April 2023.
During the year, the Trustees of the TP ICAP plc EBT waived their rights to
dividends.
10. Intangible assets arising on consolidation
Goodwill Other Total
£m £m £m
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
At 1 January 2021 989 474 1,463
Recognised on acquisitions 187 154 341
Amortisation of acquisition related intangibles - (46) (46)
Effect of movements in exchange rates 4 - 4
At 31 December 2021 1,180 582 1,762
As at 31 December 2022 the gross cost of goodwill and other intangible assets
arising on consolidation amounted to £1,482m and £833m respectively (2021:
£1,428m and £797m). Cumulative amortisation and impairment charges amounted
to £250m for goodwill and £285m for other intangible assets arising on
consolidation (2021: £248m and £215m).
Goodwill arising through business combinations is allocated to groups of
individual cash-generating units ('CGUs'), reflecting the lowest level at
which the Group monitors and tests goodwill for impairment purposes. The
Group's CGUs are as follows:
2022 2021 (reallocated)
£m £m
Global Broking 489 466
Energy & Commodities 156 150
Parameta Solutions 342 336
Liquidnet - Agency Execution 40 39
Liquidnet - acquired business 205 189
Goodwill allocated to CGUs 1,232 1,180
As a result of the change in the Primary Operating Segments as at 1 January
2022, from the geographic grouping of CGUs to a Business Division grouping of
CGUs the goodwill allocated to the regional CGU groupings has been reallocated
to each Business Division based the relative value of those Business
Divisions. The goodwill arising on the Liquidnet acquisition has not been
reallocated and is reviewed and tested as its own group of CGUs. Immediately
prior to the reallocation, the Regional CGUs were tested for impairment. No
impairments were identified.
The Group's annual impairment testing of its CGUs is undertaken each
September. 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. As at 30 June 2022
impairment triggers were identified for the Global Broking and Liquidnet CGUs
which were subject to full impairment review as at that date.
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.
Impairment assessment and testing as at 30 June 2022
- Global Broking
In June 2022 the Group's Global Broking CGU was subject to impairment testing,
triggered as a result of the impact of inflation on expected cash flows,
coupled with a change in the discount rate. For the 30 June 2022 impairment
test the recoverable amount of the Global Broking CGU was based on its VIU.
Future projections were based on the most recent financial forecasts
considered by the Board which were used to project cash flows for the next
five years. After this period a steady state cash flow was used to derive a
terminal value for the CGU. Annual growth rates of 0.5% to 2027 and nil
thereafter were used with pre-tax discount rate of 12.5%. The calculations
were subject to stress tests reflecting reasonably possible changes in key
assumptions. No impairment was identified as at 30 June 2022 although the CGU
remained sensitive to reasonable possible changes in the assumptions.
As at June 2022, changes in discount rates and/or revenue assumptions,
reflecting inherent uncertainties in any long-term forecasting, including
potential effects of Brexit in EMEA and other structural changes, would impact
the respective carrying value of the CGU. The CGU's value would equate to its
carrying value should the discount rate, revenue growth over the forecast
period, or revenues used in the terminal value fall by the following:
Valuation Breakeven Valuation Breakeven Changes in
Discount Discount Revenue Revenue Terminal
rate rate Growth rate Growth Value
rate revenues
CGU % % % % %
Global Broking 12.5% 17.8% 0.5% (1.8%) (15.0%)
- Liquidnet acquired business
As the Liquidnet acquired business was measured on a FVLCD basis at 31
December 2021, a decline in equity market conditions triggered an impairment
review as at 30 June 2022. The full impairment test did not identify an
impairment although the outcome is highly sensitive to changes in valuation
assumptions. As at 30 June 2022 the recoverable amount for the Liquidnet
acquired business was based on its FVLCD. The Income Approach was used for the
FVLCD valuation under which the CGU had a FVLCD in excess of its carrying
value.
The key assumptions for the Income Approach are those regarding expected cash
flows, CGU growth rates and the discount rate. Future projections are based on
the most recent financial forecasts considered by the Board which are used to
project cash flows for the next five years. After this period a steady state
cash flow is used to derive a terminal value for the CGU. Annual growth rates
on the existing equities business of 2.8% to 2027 and 1% thereafter have been
used with post tax discount rate of 11.1%. Projected cash flows for new credit
business lines have been projected to 2027 at an annual growth rate of 62%,
based on the development and roll-out of the Credit platform, with growth
thereafter at 2%, and have been discounted at a post-tax discount rate of 15%,
reflecting the greater uncertainty associated with these projections. The
calculations have been subject to stress tests reflecting reasonably possible
changes in key assumptions.
Under this approach the recoverable amount for Liquidnet exceeded its carrying
value, but was sensitive to changes in the cash flow projections for new
business lines to 2027. An annualised reduction in the projected revenues for
new business lines of c.50% per annum over the period to 2027, would eliminate
the headroom. The impact on future cash flows resulting from lower new
business inflows or falling growth rates does not reflect any management
actions that would be taken under such circumstances.
Impairment testing as at 30 September 2022
- Business divisions (excluding Liquidnet - acquired business)
For the 30 September 2022 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 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%
Valuation Breakeven Valuation Breakeven Valuation Breakeven
Discount Discount Revenue Revenue Terminal Terminal
rate rate Growth rates Growth Value Value
rates Growth rate Growth rate
December 2021 (at date of reallocation of goodwill) % % % % % %
CGU
Global Broking 11.5% 11.7% 0.5% 0.4% 0.0% (0.3%)
Energy & Commodities 11.0% 14.7% 2.0% 0.2% 0.0% (6.4%)
Parameta Solutions 11.3% 20.9% 4.8% (6.0%) 0.0% (24.6%)
Liquidnet - Agency Execution 13.0% 15.0% 5.0% 4.1% 0.0% (2.0%)
No impairments were identified as a result of the 2022 annual testing.
As shown in the table above, the VIU of the Liquidnet - Agency Execution CGU
is sensitive to reasonably possible changes in the growth and discount 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.
The Group does not expect climate change to have a material impact on the
financial statements. However, the assessment of the financial risks and
opportunities related to climate change is ongoing and the Group recognises
the increased uncertainty in forecasting medium and long-term revenues,
particular in the Energy & Commodities ('E&C') division. A 5% decline
in E&C terminal growth rates from 2027 in Oil, Power and Gas, would
eliminate any headroom in the CGU.
- Liquidnet acquired business
For the 30 September 2022 annual impairment testing the recoverable amounts
for the Liquidnet acquired business was based on its FVLCD. The Income
Approach was used for the FVLCD valuation under which the CGU had a FVLCD in
excess of its carrying value.
The key assumptions for the Income Approach are those regarding expected cash
flows, growth rates and the discount rate. Future projections are based on the
most recent financial budgets considered by the Board which are used to
project cash flows for the next five years. After this period a steady state
cash flow is used to derive a terminal value for the CGU. Growth rates on the
five year projected revenues, growth rates on terminal value cash flows and
discount rates used in the FVLCD 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
Liquidnet acquired business % % % % % %
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%
The valuation revenue growth rate percentage have increased from 3% in
December 2021 to 14.7% as at September 2022. This reflects management's
expectation that the Equities business will return to a similar revenue
projection in 2027, but from a lower starting position in the September 2022
valuation, resulting in an annual growth rate of 6.7%. The September 2022
valuation now includes revenue growth on the roll-out of the Credit platform,
resulting in an annual growth rate of 61% to 2027. As at December 2021, the
valuation did not reflect the projected development of the new Credit
business. The calculations have been subject to stress tests reflecting
reasonably possible changes in key assumptions.
Under this approach the recoverable amount for the Liquidnet acquired business
exceeded its carrying value, but is sensitive to reasonably possible changes
in the growth rates and the discount rate as indicated in the table above. The
most sensitive valuation assumption relates to the growth in cash flows
arising on new credit business lines. The change in valuation revenue growth
rates from December 2021 to September 2022 The impact on future cash flows
resulting from falling growth rates does not reflect any management actions
that would be taken under such circumstances,
Impairment assessment as at 31 December 2022
As at 31 December 2022, the review of the indicators of impairment did not
require any further testing.
Other intangible assets
Other intangible assets at 31 December 2022 represent customer relationships,
£546m (2021: £580m) and business brands and trademarks, £2m (2021: £2m)
that arise through business combinations. Customer relationships are being
amortised between 10 and 20 years.
Other intangible assets, along with other finite life assets, are subject to
impairment trigger assessment at least annually. As at 30 September 2022, as a
result of difficult equity market conditions and subdued larger block trading,
the Liquidnet customer relationships were subject to a full impairment review.
As a result of this testing, the value of customer relationships has been
reduced by £20m. 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. Following the adjustment to the customer relationship's
carrying value, the asset will continue to be amortised over its remaining
useful life, but remains sensitive to reasonable possible changes in the
assumptions. A reduction in annual operating profits of £3m from 2023 would
impair the asset by £19m, and a 1% increase in the discount rate would impair
the asset by £8m.
11. Trade and other receivables
2022 2021
£m £m
Non-current receivables
Finance lease receivables 38 30
Other receivables 13 14
51 44
Current receivables
Trade receivables(1) 382 336
Amounts due from clearing organisations 77 73
Deposits paid for securities borrowed 1,575 1,516
Finance lease receivables 2 1
Other debtors(1) 30 34
Accrued income 15 14
Owed by associates and joint ventures 4 5
Prepayments 109 86
Corporation tax 4 3
2,198 2,068
1 Trade receivables have been reduced by £15m and other debtors
increased by £15m from that reported in 2021 as a result of a
reclassification of certain non-trading balances due from brokers.
12. Financial assets and financial liabilities at fair value through profit or
loss
2022 2021
£m £m
Financial assets at fair value through profit or loss
Matched Principal financial assets 9 37
Fair value gains on unsettled Matched Principal transactions 255 121
264 158
Financial liabilities at fair value through profit or loss
Matched Principal financial liabilities - (1)
Fair value losses on unsettled Matched Principal transactions (255) (119)
(255) (120)
Notional contract amounts of unsettled 209,762 65,968
Matched Principal transactions
Fair value gains and losses on unsettled Matched Principal transactions
represent the price movement between trade date and the reporting date on
regular way transactions prior to settlement. Matched Principal transactions
arise where securities are bought from one counterparty and simultaneously
sold to another counterparty. Settlement of such transactions is primarily on
a delivery vs payment basis and typically take place within a few business
days of the transaction date according to the relevant market rules and
conventions.
The notional contract amounts of unsettled Matched Principal transactions
indicate the aggregate value of buy and sell transactions outstanding at the
balance sheet date. They do not represent amounts at risk.
13. Trade and other payables
2022 2021
(restated)
£m £m
Trade payables(1) 24 17
Amounts due to clearing organisations 46 47
Finance lease payable - 2
Deposits received for securities loaned 1,573 1,504
Deferred consideration 1 7
Other creditors(1) 108 91
Accruals 369 283
Owed to associates and joint ventures 3 2
Tax and social security 22 22
Deferred income 3 2
2,149 1,977
1 Trade payables have been reduced by £72m and other creditors
increased by £72m from those reported in 2021 as a result of certain
non-trading balances due to customers being reclassified
14. Loans and borrowings
Less than Greater than Total
one year one year
2022 £m £m £m
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
2021
Overdrafts 17 - 17
Loans from related parties 51 - 51
Sterling Notes January 2024 6 246 252
Sterling Notes May 2026 1 249 250
Sterling Notes November 2028 1 247 248
Liquidnet Vendor Loan Notes March 2024 1 37 38
77 779 856
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 2022, overdrafts for the provision of settlement finance amounted to
£nil (December 2021: £17m).
Bank credit facilities and bank loans
The Group has a £350m committed revolving facility that matures in May 2025.
Facility commitment fees of 0.7% on the undrawn balance are payable on the
facility. Arrangement fees of £3m were paid in 2020 and are being amortised
over the maturity of the facility.
As at 31 December 2022, the revolving credit facility was undrawn. Amounts
drawn down are reported as bank loans in the above table. Bank loans are
denominated in Sterling. During the year, the maximum amount drawn was £140m
(2021: £130m), and the average amount drawn was £30m (2021: £60m). The
Group utilises the credit facility throughout the year, entering into numerous
short term bank loans where maturities are less than three months. The
turnover is quick and the volume is large and resultant flows are presented
net in the Group's cash flow statement in accordance with IAS 7 'Cash Flow'.
Interest and facility fees of £3m were incurred in 2022 (2021: £3m).
Loans from related parties
In August 2020, the Group entered into a Yen 10bn committed facility with The
Tokyo Tanshi Co., Ltd, a related party, that matures in February 2025. As at
31 December, the Yen 10bn committed facility equated to £63m. 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 2022, the facility was undrawn (2021: Yen 8bn (£51m). The
Directors consider that the carrying amount of the loan which is not held at
fair value through profit or loss approximates to its fair value. During the
year, the maximum amount drawn was Yen 10bn, £63m at year end rates (2021:
Yen 10bn, £64m at year end rates), and the average amount drawn was Yen 9bn,
£57m at year end rates (2021: Yen 8bn, £53m at 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 2022 (2021: £1m).
Amounts drawn down are reported as loans from related parties in the above
table.
Sterling Notes: Due January 2024
In January 2017 the Group issued £500m unsecured Sterling Notes due January
2024. The Notes have a fixed coupon of 5.25% payable semi-annually, subject to
compliance with the terms of the Notes. In May 2019, the Group repurchased
£69m of the Notes and a further £184m were repurchased in November 2021.
Repurchases have been accounted for as extinguishment of the Notes. The
repurchase in 2021 was at a £16m premium to the Note's carrying value, which
has been reported as part of finance costs in the Income Statement. At 31
December 2022, the fair value of the Notes (Level 1) was £241m (2021:
£264m). Accrued interest at 31 December 2022 amounted to £6m (2021: £6m).
Unamortised issue costs were £1m as at 31 December 2022 (2021: £1m).
Interest of £13m was incurred in 2022 (2021: £22m). The amortisation expense
of issue costs in 2022 and 2021 were less than £1m.
Sterling Notes: Due May 2026
In May 2019 the Group issued £250m unsecured Sterling Notes due May 2026. The
Notes have a fixed coupon of 5.25% paid semi-annually, subject to compliance
with the terms of the Notes. At 31 December 2022 the fair value of the Notes
(Level 1) was £232m (2021: £278m). Accrued interest at 31 December 2021
amounted to £1m (2020: £1m). Unamortised issue costs were £1m as at 31
December 2022 (2021: £1m).
Interest of £13m was incurred in 2022 (2021: £13m). The amortisation expense
of issue costs in 2022 and 2021 were less than £1m.
Sterling Notes: Due November 2028
In November 2021 the Group issued £250m unsecured Sterling Notes due November
2028. The Notes were issued at a discount of £1m, raising £249m before issue
costs. The Notes have a fixed coupon of 2.625% paid semi-annually, subject to
compliance with the terms of the Notes. At 31 December 2022 the fair value of
the Notes (Level 1) was £184m (2021: £249m). Accrued interest at 31 December
2022 amounted to £1m (2021: £1m). Unamortised discount and issue costs were
£3m (2021: £3m).
Interest of £7m was incurred in 2022 (2021: £1m). The amortisation expense
of issue costs in 2022 and 2021 was less than £1m.
Liquidnet Vendor Loan Notes Due March 2024
In March 2021, as part of the purchase consideration of Liquidnet, the Group
issued $50m (£42m at year end exchange rates) unsecured Loan Notes due March
2024. The Notes have a fixed coupon of 3.2% paid annually. At 31 December 2022
the fair value of the Notes (Level 2) was $44m (£37m) (2021: $49m (£36m)).
Accrued interest at 31 December 2022 was £1m (2021: £1m).
15. Reconciliation of operating result to net cash from operating
activities
2022 2021
£m £m
Operating profit 163 97
Adjustments for:
- Share-based payment charge 13 10
- Pension schemes administration costs 1 1
- Pension scheme past service and settlement costs 1 1
- Depreciation of property, plant and equipment 23 23
- (Gain)/loss on disposal of property, plant and equipment (3) 1
- Impairment of property, plant and equipment 5 10
- Gain on derecognition of right-of-use asset/lease liability (3) -
- Depreciation of right-of-use assets 26 29
- Impairment of right-of-use assets 4 6
- Amortisation of intangible assets 33 30
- Impairment of intangible assets - 6
- Amortisation of intangible assets arising on consolidation 45 46
- Impairment of intangible assets arising on consolidation 20 -
- Remeasurement of deferred consideration 8 2
- Unrealised foreign exchange loss on Vendor Loan Notes 5 -
Net operating cash flow before movement in working capital 341 262
(Increase) in trade and other receivables (24) (16)
Decrease/(increase) in net Matched Principal related balances 27 (36)
(Increase)/decrease in net balance with Clearing Organisations (1) 12
Decrease in net stock lending balances 12 6
Increase/(decrease) in trade and other payables 76 (14)
Decrease in provisions (4) (2)
Increase/(decrease) in non-current liabilities 3 (3)
Net cash generated from operations 430 209
Income taxes paid (51) (39)
Fees paid on bank and other loan facilities (2) (2)
Interest paid (36) (42)
Interest paid - finance leases (17) (15)
Net cash flow from operating activities 324 111
16. Analysis of net debt including lease liabilities
At 1 Cash Non-cash Acquired with acquisitions Exchange At 31
January flow items movements December
2022 £m £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) 47¹ - - 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 (1) - (5) (43)
Total debt excluding lease liabilities (839) 81 (35) - (1) (794)
Lease liabilities (286) 46⁵ (18) - (21) (279)
Total financing liabilities (1,125) 127 (53) - (22) (1,073)
Net debt (243) 260 (53) - 25 (11)
At 1 Cash Non-cash Acquired with acquisitions Exchange At 31
January flow items movements December
2021 £m £m £m £m £m £m
Cash and cash equivalents 656 129 - - (1) 784
Overdrafts (7) (11) - - 1 (17)
649 118 - - - 767
Financial investments 127 (11) - - (1) 115
Bank loan due within one year - 5(6) - - (5) -
Loans from related parties (28) (27) - - 4 (51)
Sterling Notes January 2024 (440) 210(3) (22) - - (252)
Sterling Notes May 2026 (250) 13(2) (13) - - (250)
Sterling Notes November 2028 - (247)(4) (1) - - (248)
Liquidnet Vendor Loan Notes - - (37) - (1) (38)
Total debt excluding lease liabilities (718) (46) (73) - (2) (839)
Lease liabilities (212) 43(5) (26) (91) - (286)
Total financing liabilities (930) (3) (99) (91) (2) (1,125)
Net debt (154) 104 (99) (91) (3) (243)
1 Relates to Total loan repayment.
2 Relates to interest paid reported as a cash outflow from
operating activities.
3 Relates to principal repurchased of £184m reported as a cash
outflow from financing activities plus £26m of interest paid reported as a
cash outflow from operating activities.
4 Relates to principal received of £250m less £3m of discount and
debt issue costs reported as a cash outflow from financing activities.
5 Relates to interest paid of £17m (2021: £15m) reported as a
cash outflow from operating activities and principal paid of £29m (2021:
£28m) reported as a cash outflow from financing activities.
6 Relates to currency differences arising on foreign currency
drawdowns and repayments.
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 2022 cash and cash equivalents, net of overdrafts, amounted to £888m
(2021: £767m) of which £104m (2021: £77m) represent amounts subject to
regulatory restrictions and are not readily available to be used for other
purposes within the Group. Cash at bank earns interest at floating rates based
on daily bank deposit rates. Short term deposits are made for varying periods
of between one day and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short term
deposit rates.
Financial investments comprise short term government securities, term deposits
and restricted funds held with banks and clearing organisations.
Non-cash items represent interest expense, the amortisation of debt issue
costs and recognition/derecognition of lease liabilities.
17. Provisions
Property Re-structuring Legal Total
and other
2022 £m £m £m £m
At 1 January 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 13 7 20 40
2021
At 1 January 7 9 24 40
Charge to income statement 6 6 6 18
Acquired with acquisitions 4 - - 4
Utilisation of provisions (1) (10) (6) (17)
Effect of movements in exchange rates - - (2) (2)
At 31 December 16 5 22 43
2022 2021
£m £m
Included in current liabilities 9 5
Included in non-current liabilities 31 38
40 43
Property provisions outstanding as at 31 December 2022 relate to provisions in
respect of building dilapidations, representing the estimated cost of making
good dilapidations and disrepair on various leasehold buildings.
Restructuring provisions outstanding as at 31 December 2022 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 2023.
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 24 years.
Yen LIBOR Class Actions
The Group has entered into settlement agreements with the plaintiffs in Laydon
v. Mizuho Bank, Ltd. et al. and Sonterra Capital Master Fund, Ltd. et al. in
order to settle these class actions relating to the alleged manipulation of
Yen LIBOR and Euroyen TIBOR benchmark interest rates. The United States
District Court for the Southern District of New York granted preliminary
approval of the settlements on 4 October 2022. Pending final approval from the
class, which the Group believes to be probable, the Group has paid US$2.4
million (c.£2.0 million) into escrow having provided for this amount.
Separately, pursuant to these settlements and consistent with its indemnity
obligations, NEX International Limited (formerly known as ICAP plc) has paid
US$2.4 million (c.£2.0 million) into escrow pending final class approval in
order to resolve claims against ICAP plc and ICAP Europe Limited. This has
been recorded as a provision and settlement, together with the receipt of an
indemnification asset from NEX.
18. Contingent liabilities
Bank Bill Swap Reference Rate case
On 16 August 2016, a complaint was filed in the United States District Court
for the Southern District of New York naming Tullett Prebon plc, ICAP plc,
ICAP Australia Pty LTD and Tullett Prebon (Australia) Pty. Limited as
defendants together with various Bank Bill Swap Reference Rate ('BBSW')
setting banks. The complaint alleges collusion by the defendants to fix
BBSW-based derivatives prices through manipulative trading during the fixing
window and false BBSW rate submissions. On 26 November 2018, the Court
dismissed all of the claims against the TP ICAP defendants and certain other
defendants. On 28 January 2019, the Court ordered that a stipulation signed by
the plaintiffs and the TP ICAP defendants meant that the TP ICAP defendants
were not required to respond to any Proposed Second Amended Class Action
Complaint ('PSAC') that the plaintiffs were seeking to file. On 3 April 2019
the plaintiffs filed a PSAC, however the TP ICAP defendants have no obligation
to respond. The plaintiffs have reserved the right to appeal the dismissal of
the TP ICAP defendants but have not as yet done so. It is not possible to
predict the ultimate outcome of the litigation or to provide an estimate of
any potential financial impact.
Labour claims - ICAP Brazil
ICAP do Brasil Corretora De Títulos e Valores Mobiliários Ltda ('ICAP
Brazil') is a defendant in 7 (2021: 8) 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 32m (£5m) (2021: BRL 47m
(£6m)). The Group is the beneficiary of an indemnity from NEX in relation to
any liabilities in respect of five of the eight Labour Claims insofar as they
relate to periods prior to completion of the Group's acquisition of ICAP. This
includes a claim that is indemnified by a predecessor to ICAP Brazil by way of
escrowed funds in the amount of BRL 28m (£4m). Apart from an estimated loss
of £0.1m which has already 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.
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 354m (£59m) (2021:
BRL 295m (£39m)). The Group intends to vigorously defend itself but there is
no certainty as to the outcome of these claims. Currently, the case is in an
early evidentiary phase.
LIBOR Class actions
The Group is currently defending the following LIBOR related actions.
(i) Stichting LIBOR Class Action
On 15 December 2017, the Stichting Elco Foundation, a Netherlands-based claim
foundation, filed a writ initiating litigation in the Dutch court in Amsterdam
on behalf of institutional investors against ICAP Europe Limited ('IEL'), ICAP
plc, Cooperative Rabobank U.A., UBS AG, UBS Securities Japan Co. Ltd, Lloyds
Banking Group plc, and Lloyds Bank plc. The litigation alleges manipulation by
the defendants of the JPY LIBOR, GBP LIBOR, CHF LIBOR, USD LIBOR, EURIBOR,
TIBOR, SOR, BBSW and HIBOR benchmark rates, and seeks a declaratory judgment
that the defendants acted unlawfully and conspired to engage in improper
manipulation of benchmarks. If the plaintiffs succeed in the action, the
defendants would be responsible for paying costs of the litigation, but each
allegedly impacted investor would need to prove its own actual damages. It is
not possible at this time to determine the final outcome of this litigation,
but IEL has factual and legal defences to the claims and intends to defend the
lawsuit vigorously. A hearing took place on 18 June 2019 on Defendants motions
to dismiss the proceedings. On 14 August 2019 the Dutch Court issued a ruling
dismissing ICAP plc from the case entirely but keeping certain claims against
IEL relating solely to JPY LIBOR. On 9 December 2020, the Dutch Court issued a
final judgment dismissing the Foundation's claims in their entirety. The
Foundation has until March 2021 to appeal this final judgment. The Group is
covered by an indemnity from NEX in relation to any outflow in respect of the
ICAP entities with regard to these matters.
(ii) Swiss LIBOR Class Action
On 4 December 2017, a class of plaintiffs filed a Second Amended Class Action
Complaint in the matter of Sonterra Capital Master Fund Ltd. et al. v. Credit
Suisse Group AG et al. naming as defendants, among others, TP ICAP plc,
Tullett Prebon Americas Corp., Tullett Prebon (USA) Inc., Tullett Prebon
Financial Services LLC, Tullett Prebon (Europe) Limited, Cosmorex AG, ICAP
Europe Limited, and ICAP Securities USA LLC (together, the 'Companies'). The
Second Amended Complaint generally alleges that the Companies conspired with
certain bank customers to manipulate Swiss Franc LIBOR and prices of Swiss
Franc LIBOR based derivatives by disseminating false pricing information in
false run-throughs and false prices published on screens viewed by customers
in violation of the Sherman Act (anti-trust) and RICO. On 16 September 2019,
the Court granted the Companies' motions to dismiss in their entirety. The
plaintiffs appealed the dismissal to the United States Court of Appeals for
the Second Circuit. Based upon a Second Circuit ruling in an unrelated case,
the parties have jointly moved to remand the case to the United States
District Court for the Southern District of New York for further proceedings.
The case is now remanded to the S.D.N.Y. where the plaintiffs on 23 November
2022, filed a third amended complaint. In October 2022, the four "ICAP" broker
defendants (ICAP Europe Limited, ICAP Securities USA LLC, NEX Group plc and
Intercapital Capital Markets LLC) reached a settlement in principle with the
plaintiffs which has been approved on a preliminary basis by the Court. On 27
January 2023, the remaining "Tullett" defendants (TP ICAP plc, Tullett Prebon
Americas Corp, Tullett Prebon (USA) Inc., Tullett Prebon Financial Services
LLC, Tullett Prebon (Europe) Limited and Cosmorex AG) filed a motion to
dismiss the third amended complaint on various grounds including statute of
limitations and failure to state a claim upon which relief can be granted. The
Companies intend to contest liability in the matter and to vigorously defend
themselves. It is not possible to predict the ultimate outcome of this action
or to provide an estimate of any potential financial impact.
(iii) EURIBOR Class Action
On 13 August 2015, the 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 ICAP Europe Limited and ICAP plc, 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 some time in 2023. 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 Limited, Frankfurt branch - Frankfurt Attorney General
administrative proceedings
On 19 December 2018, ICAP Securities Limited, Frankfurt branch ('ISL') was
notified by the Attorney General's office in Frankfurt notifying ISL that it
had commenced administrative proceedings against ISL and criminal proceedings
against former employees and a former director of ISL, in respect of aiding
and abetting tax evasion by Rafael Roth Financial Enterprises GmbH ("RRFE").
It is possible that a corporate administrative fine may be imposed on ISL and
earnings derived from the criminal offence confiscated. ISL has appointed
external counsel and is in the process of investigating the activities of the
relevant desk from 2006-2009. This investigation is complicated as the
majority of relevant records are held by NEX and NEX failed to disclose its
engagement with the relevant authorities prior to the sale of ICAP to Tullett
Prebon in 2016. The Group has issued proceedings against NEX in respect of (i)
breach of warranties under the sale and purchase agreement, and (ii) an
indemnity claim under the tax deed entered into in connection with the IGBB
acquisition in relation to these matters. Since the proceedings are at an
early stage, details of the alleged wrongdoing or case against ISL are not yet
available, and it is not possible at present to provide a reliable estimate of
any potential financial impact on the Group.
ICAP Securities Limited and The Link Asset and Securities Company Limited -
Proceedings by the Cologne Public Prosecutor
On 11 May 2020, TP ICAP learned that proceedings have been commenced by the
Cologne Public prosecutor against ICAP Securities Limited ('ISL') (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 has issued
proceedings against NEX in respect of (i) breach of warranties under the sale
and purchase agreement, and (ii) an indemnity claim under the tax deed entered
into in connection with the IGBB acquisition in relation to these matters.
Since the proceedings are at an early stage, details of the alleged wrongdoing
or case against ISL and Link are not yet available, and it is not possible at
present to provide a reliable estimate of any potential financial impact on
the Group.
Portigon AG v. TP ICAP Markets Limited and others
TP ICAP plc (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. Argument on the motion for reconsideration was held in
January 2023 and the motion remains pending with the Court. The Group intends
to contest liability in the matter and to vigorously defend itself. It is not
possible to predict the ultimate outcome of this action or to provide an
estimate of any potential financial impact.
MM Warburg & CO (AG & Co.) KGaA and others v TP ICAP Markets Limited,
The Link Asset and Securities Company Limited and others
TP ICAP Markets Limited ('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 and are for compensation
for the amount it has been ordered to pay to the tax authorities, the amount
of the criminal confiscation order, the amount claimed against it in the civil
claim and further indemnification and interest. 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.
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'), Tullett Prebon Europe Limited ('TPEL') 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 is still in the fact-finding phase and the Group is
co-operating with the CFTC in its enquiries. It is not possible to predict the
ultimate outcome of the investigation or to provide an estimate of any
potential financial impact at this time. As the relevant matters that occurred
prior to the Group's acquisition of the ICAP Global Broking Business ('IGBB')
from ICAP were not disclosed to the Group prior to completion of the
acquisition, the Group has initiated a court action against ICAP's successor
company, NEX, for breach of warranty in respect of the ICAP entities.
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 the
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. The Group is currently in
commercially sensitive discussions with a major supplier and until these
discussions have been concluded it is not possible to provide an estimate of
any potential financial impact.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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 2022.
The preliminary statement of annual results for the year ended 31 December
2022 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 14 March 2023. 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 £1,232m (2021: £1,180m) and acquisition-related
intangible assets of £548m (2021: £582m), of which £122m relate to a
Liquidnet client-relationship intangible asset. As a result of reduced revenue
due to lower market volumes in equity block trading, an impairment of £20m
was recognised on the Liquidnet client-relationship intangible asset,
decreasing the balance from £144m to £122m.
As detailed in the Group's accounting policy 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.
Impairment assessments are performed by comparing the carrying amount of each
cash generating unit ("CGU"), or Groups of CGUs, to its recoverable amount,
using the higher of the value in use ("VIU") or fair value less costs to
dispose ("FVLCD").
The VIU approach was used to estimate the recoverable amount of the Global
Broking, Energy and Commodities, Parameta Solutions and Agency Execution
Groups of CGUs while the FVLCD approach was used to assess the recoverable
amount of the Liquidnet CGU and the related customer relationships.
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.
Goodwill and acquisition-related intangible assets' disclosures are included
in the Significant Items section of the Financial and Operating Review Report
on page 14, the Report of the Audit Committee in the 2022 Annual Report and
Accounts on page 109 and Notes 3, 4 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 for Liquidnet and Agency
Execution, and discount rates used by the Group in its impairment tests of the
divisional Groups of CGUs.
For budgeted 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 discount rates and compared these to the rates used by
the Group. Additionally, we benchmarked the discount rates used by the Group
to external peer data.
We performed scenario analysis; stressed key assumptions with reference to
historical performance; and assessed for impairment triggers between 30
September 2022 and 31 December 2022.
Additionally, given the sensitivity of the VIU and FVLCD models to reasonably
possible changes in the revenue and discount rate assumptions, we reviewed
management's sensitivity disclosures in note 13.
We evaluated the impact of climate related risks on the forecasts prepared by
management.
For acquisition related intangible assets, we specifically tested the
assumptions used by management as part of the impairment review exercise to
assess whether they meet the requirements of IAS 36 "Impairment of Assets". We
challenged the key assumptions around the impairment triggers identified for
the Liquidnet client-relationship, which we have assessed for reasonableness,
and we evaluated the accuracy of the inputs used by management.
Key observations We concur with management's conclusion to recognise a £20m impairment with
respect to the Liquidnet customer relationships.
We concur with the directors' conclusion that no goodwill impairment was
required for any of the divisional Groups of CGUs or the Liquidnet CGU in the
current year and concluded that the disclosures are reasonable.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we did not
provide a separate opinion on these matters.
Procedures performed to agree to the preliminary announcement of annual
results
In order to agree to the publication of the preliminary announcement of annual
results of TP ICAP Group plc we carried out the following procedures:
(a) checked that the figures in the preliminary announcement covering the
full year have been accurately extracted from the audited financial statements
and reflect the presentation to be adopted in the audited financial
statements;
(b) considered whether the information (including the management commentary)
is consistent with other expected contents of the annual report;
(c) considered whether the financial information in the preliminary
announcement is misstated;
(d) considered whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
(e) where the preliminary announcement includes alternative performance
measures ('APMs'), considered whether appropriate prominence is given to
statutory financial information and whether:
· the use, relevance and reliability of APMs has been explained;
· the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of calculation;
· the APMs have been reconciled to the most directly reconcilable
line item, subtotal or total presented in the financial statements of the
corresponding period; and
· comparatives have been included, and where the basis of
calculation has changed over time this is explained.
(f) read the management commentary, any other narrative disclosures and
any final interim period figures and considered whether they are fair,
balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on the financial
statements is to the company's members as a body, in accordance with Article
113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken
so that we might state to the company's members those matters we are required
to state to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body, for our
audit work, for our audit report or this report, or for the opinions we have
formed.
Fiona Walker FCA
(Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
14 March 2023
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