REG - Tullett Prebon Plc - Half Yearly Report <Origin Href="QuoteRef">TLPR.L</Origin> - Part 1
06/09/2014 22:28
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Tullett Prebon PLC
29 July 2014
TULLETT PREBON PLC
Interim Management Report
for the six months ended 30 June 2014
Tullett Prebon plc (the "Company") today announced its results for the six
months ended 30 June 2014.
Financial Highlights
· Revenue £360.3m (2013: £439.8m)
· Underlying Operating profit £50.3m (2013: £71.4m)
· Underlying Operating margin 14.0% (2013: 16.2%)
· Underlying Profit before tax £43.2m (2013: £62.8m)
· Underlying Basic EPS 16.0p (2013: 22.4p)
· Reported Profit before tax £8.9m (2013: £52.5m)
· Reported Basic EPS 1.3p (2013: 18.5p)
· Interim dividend 5.6p per share (2013: 5.6p per share)
Notes:
Underlying figures are stated before the net charge arising in each period
related to the major legal actions between the Company and BGC, the charges in
2014 related to the cost improvement programme, costs in 2014 related to the
acquisition of PVM, and the tax related to those items.
A table showing Underlying and Reported figures for each period is included in
the Financial Review.
Terry Smith, Chief Executive, commented:
"Market conditions remained challenging throughout the first half as the
overall level of activity in the financial markets remained subdued.
Consistent with the lower level of market activity, revenue in the first half
of the year was 15% lower than in the same period last year.
We cannot predict when the level of activity in the financial markets we serve
may increase, and it would be prudent to expect that market conditions will
continue to be difficult. We therefore continue to focus on managing our
costs whilst maintaining our capability and seeking opportunities to develop
the business. We expect that the benefit of the actions being taken to
further reduce headcount and other fixed costs will be reflected in the
results for the second half of this year.
The business provides a valuable service to clients through its ability to
create liquidity through price and volume discovery to facilitate trading in a
wide range of financial instruments. The widespread tranquillity in the
markets we serve, the introduction of regulatory reforms in many of those
markets, and the structural pressures on many of our clients combine to make
the current environment challenging. We have taken action to strengthen the
business to seek to ensure that we are in a position to take advantage of
further opportunities to develop the business and to benefit when market
conditions improve."
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:
Nigel Szembel, Head of Communications
Tullett Prebon plc
+44 (0)20 7200 7722
Further information on the Company and its activities is available on the
Company's website: www.tullettprebon.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Overview
Market conditions remained challenging throughout the first half as the
overall level of activity in the financial markets remained subdued. The
Group generates revenue from commissions it earns by facilitating and
executing customer orders. The level of revenue is substantially dependent on
customer trading volumes which are affected by the level of volatility in
financial markets, by customers' risk appetite, and by their willingness and
ability to trade.
Volatility is one of the key drivers of activity in the financial markets.
Measures of financial market volatility have reached post financial crisis
lows during the first half, which has also seen further flattening of yield
curves and significant further spread compression in bond markets.
Market volumes also continue to be adversely affected by the more onerous
regulatory environment applicable to many of our customers. Regulators
worldwide have been adopting an increased level of scrutiny in supervising the
financial markets and have been generally tightening the capital, leverage and
liquidity requirements of commercial and investment banks, and taking steps to
limit or separate their activities in order to reduce risk. This has reduced
risk appetite and reduced the willingness and ability of our customers to
trade.
The introduction of new regulatory reforms directly affecting the operation of
the OTC derivatives markets has created uncertainty and the fragmentation of
liquidity pools which has also reduced market volumes.
Revenue of £360.3m in the first half of the year was 15% lower than in the
same period last year and was 2% higher than in the second half of last year,
at constant exchange rates. Consistent with the lower level of market
activity, revenue in the first four months of the year was 12% lower than last
year, and was 20% lower in the last two months of the period.
The lower level of revenue has resulted in lower operating profit and a lower
operating margin.
The Group continues to benefit from the actions taken in previous years
designed to preserve the variable nature of broker compensation in relation to
broking revenue in order to ensure that the business is well positioned to
respond to less favourable market conditions. Broker compensation costs as a
percentage of broking revenue have reduced to 56.7% in the first half of 2014,
1.5% points lower than in the first half last year. The overall contribution
margin of the business after broker employment costs and other front office
direct and variable costs was slightly higher than a year ago, but reflecting
the lower level of revenue, the absolute amount of contribution in the first
half was 13% lower at constant exchange rates than in the same period last
year.
The management and support costs of the business, however, are not directly
variable with revenue. As expected, these costs were slightly higher in the
first half of 2014 than in the same period last year, due to the increase in
the costs of the regulatory readiness project which covers the development,
launch and ongoing running costs of new electronic platforms and associated
technology infrastructure, and additional compliance resources. In the first
half of this year the charge in the income statement for these costs was
approaching 3% of revenue compared with just over 1.5% in the first half last
year. The absolute level of costs related to the project remains in line with
our previous expectations, but as a percentage of revenue the costs are higher
than previously expected due to the lower level of revenue.
Underlying operating profit for the first half was £50.3m, 30% lower than
reported for the first half of 2013, with an underlying operating margin of
14.0%, compared with 16.2% reported for the first half last year, and 14.4%
reported for the full year 2013.
In the light of the continuation of difficult market conditions a number of
actions are being taken to further reduce headcount and other fixed costs. It
is now anticipated that this cost improvement programme will reduce annual
fixed costs by over £40m through the exit of around 160 front office headcount
and around 50 back office headcount and vacating office space. The annualised
operating profit benefit from these actions is estimated to be £35m, with a
targeted benefit of around half that amount in the second half of this year.
The cost of these actions is currently estimated to be £42m, of which £18m are
non-cash charges relating to the write down of employment contract payments
made in advance. This cost, together with the £3.2m non-cash write down of an
employment incentive grant receivable that may not be recoverable due to the
reduction in headcount, will be charged as an exceptional item in the 2014
accounts. The £28.6m exceptional charge in the income statement for the first
half of the year relating to these items reflects the extent to which the
actions had already been taken or that the business was committed to take by
the end of June. It is expected that the balance of the exceptional charge
will be made in the second half of the year.
We continue to focus on delivering innovative products and a first class
broking service, and to take action to develop the business.
The Company announced on 9 May that agreement has been reached to acquire PVM
Oil Associates Limited and its subsidiaries ("PVM"), a leading independent
broker of oil instruments. The total consideration for the acquisition of the
equity of the business, which has no debt, and which is estimated to have nil
net working capital, is $160.0m (£93.6m at current exchange rates).
PVM's business is focused entirely on Energy products, and has a long history
as an international crude oil and products broker covering OTC swaps, forwards
and physical crude oil and refined products, and exchange traded instruments
including WTI, Brent and Gasoil futures. PVM's customers are major oil
companies, independent refiners and producers, government agencies, trading
houses, banks, investment funds and corporations.
The acquisition of PVM will increase the scale of the Group's activities in
the Energy sector and will give the Group a significant presence in broking
crude oil and petroleum products complementing its existing activities in
these areas. Crude oil is the world's most actively traded commodity. The
acquisition will also allow Tullett Prebon Information to expand its data
offering to include the current and historical oil price data generated from
the PVM business and to offer this data to a broader set of customers.
In the latest available audited accounts, for the year ended 31 July 2013, PVM
reported revenue of $107.5m (£62.9m at current exchange rates) and profit
before tax of $18.2m (£10.6m). The management accounts for the 10 months to
May 2014 show a small increase in revenue compared with the same period in the
previous year.
Completion of the transaction is subject to FCA Change of Control Approval
being obtained and the satisfaction of certain other conditions including
admission of the new Ordinary Shares to the Official List and to trading on
the London Stock Exchange.
The legal and professional costs incurred in relation to the acquisition of
PVM have been charged as an exceptional item in the income statement.
The majority of OTC product markets are not characterised by continuous
trading, and depend upon the intervention and support of voice brokers for
their liquidity and effective operation. The business has continued to focus
on its hybrid electronic broking offering, deploying platforms to comply with
regulatory requirements and to respond to market demand. The platforms we
offer provide clients with the flexibility to transact either entirely
electronically or in conjunction with the business's comprehensive voice
execution broker network.
The business in all three regions is supported by the deployment of the
Group's electronic broking platforms. The platforms facilitate client trading
through electronic execution or with voice broker support, and provide a range
of functionality including streaming prices, analytics, and auction
capability, and operate as highly efficient front end order management and
trade capture systems for both brokers and customers.
The Company's swap execution facility, tpSEF Inc. ("tpSEF") continues to
operate successfully, utilising many of the Group's electronic broking
platforms to offer trade execution and reporting services compliant with the
new regulatory framework in the United States for swaps. tpSEF started
operating in October last year when the rules for the capture and reporting of
all trades of instruments within scope came into effect. The requirement for
the mandatory execution within a SEF of trades in instruments that have been
determined by the CFTC to be "made available to trade" first came into effect
for certain interest rate and credit index instruments in February this year.
Third party analysis of the notional volume of trades reported through SEFs
shows that the market shares of the interdealer brokers have been maintained
at the levels before the rules were introduced.
In Europe, the implementation of EMIR, which contains provisions governing
mandatory clearing requirements and trade reporting requirements for
derivatives, is coming into effect in stages as the various technical
standards are agreed. The requirement that details of derivative contracts
must be reported to recognised trade repositories came into effect from 12
February 2014, the first clearing obligations are expected to come into effect
during 2015, subject to the authorisation of a relevant CCP, and margin
requirements for non-cleared trades will apply from 1 December 2015. The
legislative framework governing permissible trade execution venues, and
governance and conduct of business requirements for trading venues, (MiFID II)
and a new regulation (MiFIR), has been adopted by the EU Council and
Parliament, and the rules set out in MiFID II will become effective at the
beginning of 2017.
The Information Sales business was awarded, for the fourth consecutive year,
the title of Best Data Provider (Broker) at the Inside Market Data Awards in
May. Clients continue to demand an ever higher standard of independent,
quality data and the award, which is determined by an independent poll of
end-users, reaffirms the industry's recognition of our position as the leading
provider of the highest quality independent price information and data from
the global OTC markets.
Whilst the vast majority of the trades we arrange for customers involve voice
brokers, a significant proportion of our broking activity is supported by and
relies upon the functionality provided by electronic platforms. The revenue
from those products supported by electronic platforms, together with the
revenue from the Information Sales and Risk Management Services businesses,
accounted for over 30% of total revenue in the first half.
Our key financial and performance indicators for the first half of 2014
compared with those for the first half of 2013 are summarised in the table
below.
H1 2014 H1 2013 Change
Revenue £360.3m £439.8m -15%*
Underlying Operating profit £50.3m £71.4m -28%*
Underlying Operating margin 14.0% 16.2% -2.2% points
Average broker headcount 1,654 1,710 -3%
Average revenue per broker (£'000) 204 243 -12%*
Broker employment costs : broking revenue 56.7% 58.2% -1.5% points
Broker headcount (period end) 1,595 1,704 -6%
Broking support headcount (period end) 733 737 -1%
* at constant exchange rates
Operating Review
The tables below analyse revenue by region and by product group, and
underlying operating profit by region, for the first half of 2014 compared
with the equivalent period in 2013.
Revenue
A significant proportion of the Group's activity is conducted outside the UK
and the reported revenue is therefore impacted by the movement in the foreign
exchange rates used to translate the revenue from non-UK operations. The
tables therefore show revenue for the first half of 2013 translated at the
same exchange rates as those used for 2014, with growth rates calculated on
the same basis. The revenue figures as reported are shown in Note 5 to the
Condensed Consolidated Financial Statements.
The commentary below reflects the presentation in the tables.
Revenue by product group
H1 2014£m H1 2013£m Change
Treasury products 96.9 110.2 -12%
Interest Rate Derivatives 70.6 93.1 -24%
Fixed Income 103.0 119.8 -14%
Equities 20.3 21.9 -7%
Energy 46.6 53.9 -14%
Information Sales and Risk Management Services 22.9 23.7 -3%
At constant exchange rates 360.3 422.6 -15%
Exchange translation 17.2
Reported 360.3 439.8 -18%
Revenue was 15% lower in the first half of 2014 than in the same period in
2013 at constant exchange rates.
The lower revenue from Treasury products (FX and cash) reflects lower levels
of market activity in major currency spot and forward FX markets, and cash
deposit markets. Activity in emerging markets currencies particularly in
offshore Renminbi products in Asia was stronger than in the major currencies.
Levels of activity in most Interest Rate Derivatives products (swaps and
options) were subdued throughout the period, with weaker volumes in the swaps
markets for most currencies and in interest rate options.
The Fixed Income product group includes government and government agency
bonds, corporate bonds and related derivatives. The decline in revenue
reflects the generally subdued levels of activity in the government bond
markets. The corporate bond and the US municipal bond markets also
experienced lower levels of activity, but to a lesser extent.
The reduction in revenue in Equities reflects the lower level of activity in
equity derivatives in Europe and in Asia, partly offset by growth in the
Americas.
In Energy, the revenue from power and gas products held up well, but revenue
from oil products and commodities was lower than last year.
Revenue from Information Sales and Risk Management Services was 3% lower than
last year, due to the lower revenue from Risk Management Services where market
conditions have remained challenging reflecting low interest rate volatility.
Revenue in the Information Sales business has continued to increase through a
combination of expansion in its customer base and the addition of new content
sets distributed both directly and via its market data vendor customers.
Revenue by region
H1 2014£m H1 2013£m Change
Europe and the Middle East 209.0 254.2 -18%
Americas 102.7 117.8 -13%
Asia Pacific 48.6 50.6 -4%
At constant exchange rates 360.3 422.6 -15%
Exchange translation 17.2
Reported 360.3 439.8 -18%
Europe and the Middle East
Revenue in Europe and the Middle East was 18% lower than in 2013. Broking
revenue was 19% lower than last year, partly offset by growth in revenue from
Information Sales.
Broking revenue from each of the five product groups was lower than last year
reflecting the widespread impact of lower volatility and the reduction in
customer activity. The reduction in revenue was most marked in 'volatility'
products such as FX options, interest rate options and listed bond futures and
options and equity options, but the difficult market conditions also severely
affected the traditional major product areas of forward FX, interest rate
swaps and government bonds, which account for a significant proportion of the
revenue in the region. Revenue from emerging markets products held up better
than those in the G7 currencies, including a strong performance in South
African Rand bonds, benefiting from the opening of an office in Johannesburg,
and in Eastern European and Turkish forward FX.
The business has continued to develop its presence in continental Europe and
the Middle East through the expansion of existing offices and the opening of
new offices. Revenue from the offices in the Middle East increased by 8% in
the first half of 2014 compared with the same period in 2013. The recently
established offices in continental Europe which broker locally issued bonds
and serve a more diverse local client base also performed well. Average
broker headcount for the region was 4% lower than last year, with average
revenue per broker 16% lower than in the prior year reflecting the lower level
of market activity.
Americas
Revenue in the Americas was 13% lower in the first half than a year ago, with
lower revenue in both North America and in Brazil.
The reduction in the overall level of market activity in North America has
particularly affected the revenue from Treasury products (FX and cash),
Interest Rate Derivatives, and government and agency Fixed Income. Revenue
from municipal bonds and corporate bonds, where the customer base is broader
and more diverse, held up well compared with last year, and the business
continues to benefit from its investment in Equities where revenue was up over
30%. The business in Canada has also continued to perform well, benefiting
from the increased use of the tpCADdeal platform. The business in Brazil
experienced a decline in revenue in the first half reflecting a less buoyant
economy and lower market activity.
Broker headcount has continued to reduce in the USA reflecting the continuing
cost reductions, with headcount in Canada and Brazil unchanged, and with an
increase in Mexico as that new office is established. Average broker
headcount in the Americas was 3% lower than in the first half of 2013 in the
region, with average revenue per broker 9% lower.
Asia Pacific
Revenue in Asia Pacific was 4% lower than last year. Broking revenue was 2%
lower, and revenue from the Risk Management Services business which is
operated from the region was also lower than last year. Average broker
headcount was 3% lower than last year, with average revenue per broker up 1%
compared with the same period a year ago.
Over 80% of the revenue in the region comes from Treasury products and
Interest Rate Derivatives. Revenue from Treasury products was 15% higher than
last year, benefiting from the continuation of high levels of activity in
offshore Renminbi products, but activity in many of the interest rate swaps
markets in the region, particularly USD, JPY and AUD, was lower than a year
ago. The business increased its revenue from Energy and commodities where it
has continued to build its presence and extend its product coverage, but
experienced a reduction in revenue in Equities reflecting the lower volatility
in equity indices in the region.
Underlying Operating profit
The revenue, underlying operating profit and operating margin by region shown
below are as reported. The change in underlying operating profit is
calculated using constant exchange rates.
Revenue Underlying Operating profit
H1 2014£m H1 2013£m H1 2014£m H1 2013£m Change*
Europe and the Middle East 209.0 255.5 43.0 57.9 -25%
Americas 102.7 127.8 2.7 7.7 -61%
Asia Pacific 48.6 56.5 4.6 5.8 -8%
Reported 360.3 439.8 50.3 71.4 -28%
* at constant exchange rates
Underlying Operating margin by region H1 2014 H1 2013
Europe and the Middle East 20.6% 22.7%
Americas 2.6% 6.0%
Asia Pacific 9.5% 10.3%
14.0% 16.2%
Underlying operating profit in Europe and the Middle East of £43.0m was 25%
lower than last year, with the underlying operating margin falling by 2.1%
points to 20.6%. Broker employment costs as a percentage of revenue in the
region have fallen by 2.0% points, but the margin benefit from this has been
more than offset by the operational leverage effect of lower revenue.
The underlying operating profit in the Americas has fallen to £2.7m with the
underlying operating margin at 2.6%. Broker employment costs as a percentage
of revenue were 1.3% points lower in the first half compared with a year ago,
but in addition to the operational leverage effect of lower revenue the region
has incurred increased costs relating to the regulatory readiness project.
In Asia Pacific the reported underlying operating profit of £4.6m was 8% lower
than last year, and the underlying operating profit margin for the region has
reduced by 0.8% points to 9.5%. Broker employment costs as a percentage of
revenue in the region were 0.5% points lower than last year, with the
reduction in operating margin driven by the lower level of revenue.
Litigation
The outcome of the FINRA arbitration on the claims against BGC and former
employees brought by the subsidiary companies in the United States which were
raided by BGC Partners Inc. and certain of its subsidiaries in the second half
of 2009, along with various claims asserted against those subsidiary
companies, was determined in July.
The Arbitrators have determined that BGC and certain of the raided brokers
should pay $33.3m (£19.5m) in compensatory damages to the subsidiary companies
on account of the claims against them. The Arbitrators have also determined
that the subsidiary companies should pay $6.1m (£3.5m) in compensatory damages
to a representative of the former equity holders of Chapdelaine Corporate
Securities & Co. which the Company acquired in January 2007 on account of
certain of their claims, and $0.2m (£0.1m) to one of the raided brokers.
The separate action being pursued by the Company and certain of its
subsidiaries against BGC Partners Inc. in the New Jersey Superior Court,
alleging, among other causes of action, violations under the NJ RICO Act, is
currently scheduled to go to trial in the autumn of this year.
Consistent with the treatment adopted in previous years, the £4.4m of costs
incurred in the first half of this year in relation to these actions have been
included as an exceptional charge in the income statement. The compensatory
damages will be included as exceptional items in the income statement in the
second half of the year.
Financial Review
The results for the first half of 2014 compared with those for the first half
of 2013 are shown in the tables below.
H1 2014
Profit and Loss Underlying Exceptional items Reported
£m £m £m
Revenue 360.3 - 360.3
Operating profit 50.3 - 50.3
Charge relating to major legal actions - (4.4) (4.4)
Charge relating to cost improvement programme - (28.6) (28.6)
Acquisition costs - (1.3) (1.3)
Operating profit 50.3 (34.3) 16.0
Net finance expense (7.1) - (7.1)
Profit before tax 43.2 (34.3) 8.9
Tax (9.3) 2.2 (7.1)
Associates 1.2 - 1.2
Minorities (0.2) - (0.2)
Earnings 34.9 (32.1) 2.8
Average number of shares 217.8m 217.8m
Basic EPS 16.0p 1.3p
H1 2013
Profit and Loss Underlying Exceptional items Reported
£m £m £m
Revenue 439.8 - 439.8
Operating profit 71.4 - 71.4
Charge relating to major legal actions - (10.3) (10.3)
Operating profit 71.4 (10.3) 61.1
Net finance expense (8.6) - (8.6)
Profit before tax 62.8 (10.3) 52.5
Tax (14.6) 1.7 (12.9)
Associates 0.9 - 0.9
Minorities (0.3) - (0.3)
Earnings 48.8 (8.6) 40.2
Average number of shares 217.8m 217.8m
Basic EPS 22.4p 18.5p
Net finance expense
The net finance expense comprises a cash finance charge of £8.2m (2013: £9.3m)
partly offset by non-cash finance income of £1.1m (2013: £0.7m).
The cash finance charge comprises the £7.3m interest payable on the
outstanding Sterling Notes, £0.6m of amortisation of debt issue costs, the
commitment fee for the revolving credit facility of £0.8m, and other net
interest income of £0.5m. The cash finance charge is lower than in the first
half of 2013 as the charge for that period included £0.9m of accelerated
amortisation of debt issue costs related to the bank debt that was repaid in
April 2013.
The non-cash finance income comprises the deemed interest on the pension
scheme net asset of £1.1m. In 2013 the £0.9m deemed interest was partly
offset by the amortisation of the discount on deferred consideration.
Tax
The effective rate of tax on underlying PBT is 21.5% (2013: 23.2%). The
effective rate of tax reflects the estimated effective rate for the full year.
The actual effective rate of tax on underlying PBT for the full year 2013 was
22.5%. The 1.0% point reduction in the effective rate compared with the full
year 2013 reflects the reduction in the corporation tax rate in the UK to
21.0% with effect from 1 April 2014.
The tax credit on exceptional items in 2014 reflects tax relief at the
relevant rate for the jurisdiction in which the charges are borne, limited to
the availability of taxable profits.
Basic EPS
The average number of shares used for the basic EPS calculation of 217.8m
reflects the number of shares in issue at the beginning of the period, plus
the 0.3m shares that are issuable when vested options are exercised, less the
0.2m shares held throughout the period by the Employee Benefit Trust which has
waived its rights to dividends.
Exchange rates
The income statements and balance sheets of the Group's non-UK operations are
translated into sterling at average and period end exchange rates
respectively. The most significant exchange rates for the Group are the US
dollar, the Euro, the Singapore dollar and the Japanese Yen. Average and
period end exchange rates used in the preparation of the financial statements
are shown below.
Average Period End
H1 2014 H1 2013 H2 2013 30 June 2014 31 Dec2013 30 June2013
US dollar $1.67 $1.55 $1.57 $1.71 $1.66 $1.52
Euro E1.22 E1.18 E1.18 E1.25 E1.20 E1.17
Singapore dollar S$2.11 S$1.92 S$1.98 S$2.13 S$2.09 S$1.92
Japanese Yen ¥171 ¥145 ¥156 ¥173 ¥174 ¥151
Cash flow and financing
Cash flow before dividends and debt repayments and draw downs is summarised in
the table below.
H1 2014£m H1 2013£m
Underlying Operating profit 50.3 71.4
Share-based compensation and other non-cash items 0.5 0.6
Depreciation and amortisation 6.7 6.1
Accelerated depreciation - fire damaged assets - 1.5
EBITDA 57.5 79.6
Capital expenditure (net of disposals) (4.0) (8.7)
Decrease in initial contract prepayment 7.4 4.2
Working capital (33.1) (26.1)
Operating cash flow 27.8 49.0
Exceptional items - 2014 cost improvement programme (3.8) -
Exceptional items - 2011/12 restructuring (0.7) (2.2)
Exceptional items - major legal actions (4.4) (10.3)
Exceptional items - acquisition costs (1.3) -
Interest (2.4) (2.3)
Taxation (9.9) (14.7)
Dividends received from associates/(paid to minorities) 0.1 -
Acquisitions/investments (1.2) (0.4)
Cash flow 4.2 19.1
Operating cash flow of £27.8m for the first half of 2014 is lower than the
underlying operating profit reflecting the usual seasonal working capital
outflow.
The capital expenditure of £4.0m in the first half is much lower than in the
same period in 2013, as the rate of investment in the development of
electronic platforms and associated infrastructure related to the regulatory
readiness project has reduced.
The initial contracts prepayment balance has reduced, as payments in the
period were lower than the amortisation charge.
The working capital outflow reflects the higher level of trade receivables and
net settlement balances at June compared with the level at the previous year
end, reflecting the higher level of business activity towards the end of the
half year compared with that towards the year end, and the reduction in bonus
accruals which are at their highest at the year end.
During the first half the Group made £3.8m of cash payments relating to
actions taken as part of the 2014 cost improvement programme, and £0.7m
relating to the 2011/12 restructuring programme.
The major legal actions net cash flow and the acquisition costs reflect the
charges included in the period in the income statement.
The £1.2m expenditure on acquisitions and investments is the payment for the
purchase in February 2014 of our former partner's equity interest in our main
business in Japan, which was previously operated as a joint venture.
The movement in cash and debt is summarised below.
Cash£m Debt£m Net£m
At 31 December 2013 282.8 (227.6) 55.2
Cash flow 4.2 - 4.2
Dividends (24.5) - (24.5)
Amortisation of debt issue costs - (0.3) (0.3)
Effect of movement in exchange rates (2.7) - (2.7)
At 30 June 2014 259.8 (227.9) 31.9
At 30 June 2014 the Group's outstanding debt comprised £141.1m Sterling Notes
due July 2016, £80m Sterling Notes due June 2019, and £8.5m Sterling Notes
(subordinated debt) which will be repaid at their maturity date in August
2014. The Group has a committed £150m revolving credit facility that has
remained undrawn throughout the period, which matures in April 2016.
Dividend
As in previous years, the interim dividend for 2014 has been set at a level
equal to 50% of the final dividend paid for the previous year. This approach
to setting the interim dividend is expected to continue.
The 5.6p per share interim dividend will be paid on 13 November 2014 to
shareholders on the register at close of business on 24 October 2014.
Outlook
The overall level of activity in the financial markets has been subdued for
the last two years reflecting persistently low volatility, the more onerous
regulatory environment for our customers which has reduced their risk appetite
and their willingness and ability to trade, and the introduction of new
regulatory reforms directly affecting the operation of the OTC derivatives
markets which has created uncertainty and the fragmentation of liquidity
pools.
Periods of market calm can be protracted. The current calm in financial
markets, however, seems to be somewhat incompatible with the fragility of
underlying economic growth, the extreme monetary policy experiment being
conducted by a number of the world's major central banks, and the prevailing
geopolitical issues.
We cannot predict when the level of activity in the financial markets we serve
may increase, and it would be prudent to expect that market conditions will
continue to be difficult. We therefore continue to focus on managing our
costs whilst maintaining our capability and seeking opportunities to develop
the business. We expect that the benefit of the actions being taken to
further reduce headcount and other fixed costs will be reflected in the
results for the second half of this year.
The business provides a valuable service to clients through its ability to
create liquidity through price and volume discovery to facilitate trading in a
wide range of financial instruments. The widespread tranquillity in the
markets we serve, the introduction of regulatory reforms in many of those
markets, and the structural pressures on many of our clients combine to make
the current environment challenging. We have taken action to strengthen the
business to seek to ensure that we are in a position to take advantage of
further opportunities to develop the business and to benefit when market
conditions improve.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
TULLETT PREBON PLC
Condensed Consolidated Income Statement
for the six months ended 30 June 2014
Notes Underlying Exceptional items Total
£m £m £m
Six months ended 30 June 2014 (unaudited)
Revenue 5 360.3 - 360.3
Administrative expenses 6 (312.3) (34.3) (346.6)
Other operating income 7 2.3 - 2.3
Operating profit 5 50.3 (34.3) 16.0
Finance income 8 1.8 - 1.8
Finance costs 9 (8.9) - (8.9)
Profit before tax 43.2 (34.3) 8.9
Taxation (9.3) 2.2 (7.1)
Profit of consolidated companies 33.9 (32.1) 1.8
Share of results of associates 1.2 - 1.2
Profit for the period 35.1 (32.1) 3.0
Attributable to:
Equity holders of the parent 34.9 (32.1) 2.8
Minority interests 0.2 - 0.2
35.1 (32.1) 3.0
Earnings per share
- Basic 10 16.0p 1.3p
- Diluted 10 16.0p 1.3p
Notes Underlying Exceptional items Total
£m £m £m
Six months ended 30 June 2013 (unaudited)
Revenue 5 439.8 - 439.8
Administrative expenses 6 (376.3) (10.3) (386.6)
Other operating income 7 7.9 - 7.9
Operating profit 5 71.4 (10.3) 61.1
Finance income 8 1.7 - 1.7
Finance costs 9 (10.3) - (10.3)
Profit before tax 62.8 (10.3) 52.5
Taxation (14.6) 1.7 (12.9)
Profit of consolidated companies 48.2 (8.6) 39.6
Share of results of associates 0.9 - 0.9
Profit for the period 49.1 (8.6) 40.5
Attributable to:
Equity holders of the parent 48.8 (8.6) 40.2
Minority interests 0.3 - 0.3
49.1 (8.6) 40.5
Earnings per share
- Basic 10 22.4p 18.5p
- Diluted 10 22.4p 18.4p
Notes Underlying Exceptional items Total
£m £m £m
Year ended 31 December 2013
Revenue 5 803.7 - 803.7
Administrative expenses 6 (699.3) (15.2) (714.5)
Other operating income 7 11.0 - 11.0
Operating profit 5 115.4 (15.2) 100.2
Finance income 8 3.7 - 3.7
Finance costs 9 (19.5) - (19.5)
Profit before tax 99.6 (15.2) 84.4
Taxation (22.4) 2.4 (20.0)
Profit of consolidated companies 77.2 (12.8) 64.4
Share of results of associates 1.4 - 1.4
Profit for the year 78.6 (12.8) 65.8
Attributable to:
Equity holders of the parent 78.4 (12.8) 65.6
Minority interests 0.2 - 0.2
78.6 (12.8) 65.8
Earnings per share
- Basic 10 36.0p 30.1p
- Diluted 10 36.0p 30.1p
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
TULLETT PREBON PLC
Condensed Consolidated Statement of
Comprehensive Income
for the six months ended 30 June 2014
Six months ended30 June 2014(unaudited)£m Six months ended30 June 2013(unaudited)£m Year ended31 December2013
£m
Profit for the period 3.0 40.5 65.8
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of the defined benefit pension scheme 3.7 25.7 7.2
Taxation charge relating to items not reclassified (1.3) (9.0) (2.5)
2.4 16.7 4.7
Items that may be reclassified subsequently to profit or loss:
Revaluation of investments 0.2 (0.2) (0.5)
Effect of changes in exchange rates on translation of foreign operations (4.6) 11.9 (7.8)
Taxation (charge)/credit relating to items that may be reclassified (0.2) 0.2 0.2
(4.6) 11.9 (8.1)
Other comprehensive income for the period (2.2) 28.6 (3.4)
Total comprehensive income for the period 0.8 69.1 62.4
Attributable to:
Equity holders of the parent 0.5 68.9 62.5
Minority interests 0.3 0.2 (0.1)
0.8 69.1 62.4
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
TULLETT PREBON PLC
Condensed Consolidated Balance Sheet
for the six months ended 30 June 2014
30 June 2014(unaudited)£m 30 June 2013(unaudited)£m 31 December2013
£m
Non-current assets
Goodwill 274.4 282.0 275.6
Other intangible assets 20.2 22.5 21.8
Property, plant and equipment 27.2 27.2 28.8
Interest in associates 4.7 4.7 4.0
Investments 5.8 6.2 5.7
Deferred tax assets 2.8 3.0 2.9
Defined benefit pension scheme 55.0 68.0 50.5
390.1 413.6 389.3
Current assets
Trade and other receivables 18,605.0 37,340.5 5,820.2
Financial assets 9.4 33.0 31.2
Cash and cash equivalents 250.4 246.9 251.6
18,864.8 37,620.4 6,103.0
Total assets 19,254.9 38,034.0 6,492.3
Current liabilities
Trade and other payables (18,599.2) (37,321.5) (5,812.7)
Interest bearing loans and borrowings (8.5) - (8.5)
Current tax liabilities (15.8) (25.8) (19.3)
Short term provisions (4.0) (3.0) (1.8)
(18,627.5) (37,350.3) (5,842.3)
Net current assets 237.3 270.1 260.7
Non-current liabilities
Interest bearing loans and borrowings (219.4) (227.4) (219.1)
Deferred tax liabilities (19.5) (23.8) (17.9)
Long term provisions (5.5) (6.0) (4.3)
Other long term payables (9.4) (9.5) (10.3)
(253.8) (266.7) (251.6)
Total liabilities (18,881.3) (37,617.0) (6,093.9)
Net assets 373.6 417.0 398.4
Equity
Share capital 54.4 54.4 54.4
Share premium 17.1 17.1 17.1
Reverse acquisition reserve (1,182.3) (1,182.3) (1,182.3)
Other reserves 119.0 143.5 123.7
Retained earnings 1,364.1 1,381.8 1,383.4
Equity attributable to equity holders of the parent 372.3 414.5 396.3
Minority interests 1.3 2.5 2.1
Total equity 373.6 417.0 398.4
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
TULLETT PREBON PLC
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2014
Equity attributable to equity holders of the parent
Sharecapital Sharepremium account Reverseacquisitionreserve Re-valuationreserve Mergerreserve Hedgingand translation Ownshares Retained earnings Total Minorityinterests Totalequity
£m £m £m £m £m £m £m £m £m £m £m
30 June 2014 (unaudited)
Balance at 1 January 2014 54.4 17.1 (1,182.3) 1.9 121.5 0.4 (0.1) 1,383.4 396.3 2.1 398.4
Profit for the period - - - - - - - 2.8 2.8 0.2 3.0
Other comprehensive incomefor the period - - - 0.2 - (4.9) - 2.4 (2.3) 0.1 (2.2)
Total comprehensive incomefor the period - - - 0.2 - (4.9) - 5.2 0.5 0.3 0.8
Dividends paid - - - - - - - (24.5) (24.5) (0.1) (24.6)
Decrease in minority interests - - - - - - - (0.2) (0.2) (1.0) (1.2)
Credit arising on share-basedpayment awards - - - - - - - 0.2 0.2 - 0.2
Balance at 30 June 2014 54.4 17.1 (1,182.3) 2.1 121.5 (4.5) (0.1) 1,364.1 372.3 1.3 373.6
30 June 2013 (unaudited)
Balance at 1 January 2013 54.4 17.1 (1,182.3) 2.4 121.5 7.7
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