REG - TP ICAP PLC - Final Results <Origin Href="QuoteRef">TCAPI.L</Origin> - Part 1

TP IcapAnnouncement

14/03/2017 07:13

RNS Number : 3463Z
TP ICAP PLC
14 March 2017
TP ICAP PLC
Preliminary Statement of Results - for the year ended 31 December 2016
TP ICAP plc (the 'Company') today announced its preliminary statement of results for the year ended 31 December 2016.
Strategic and Operational Highlights
 Completion of the acquisition of ICAP's Global Broking and Information Business ('ICAP')
 Planning and commencement of the integration
 Reorganisation into new global product areas 
 Energy and Commodities revenues 28% of Group total
 New rigorous approach to client relationship management
 New product launches in our data and analytics business
 Ongoing focus on conduct and culture in all that we do
Financial Highlights
Underlying, before exceptional items and acquisition, disposal and integration costs
 Revenue 891.5m (2015: 796.0m)
 Operating profit 131.5m (2015: 107.9m)
 Operating margin 14.8% (2015: 13.6%)
 Profit before tax 121.6m (2015: 93.7m)
 Basic EPS 42.5p (2015: 32.2p)
Reported, after exceptional items and acquisition, disposal and integration costs (which reflect the fees and expenses of the ICAP acquisition)
 Operating profit 73.3m (2015: 121.9m)
 Operating margin 8.2% (2015: 15.3%)
 Profit before tax 56.8m (2015: 105.7m)
 Basic EPS 17.8p (2015: 34.0p)
A table showing Underlying and Reported figures for each year, detailing the exceptional items and acquisition, disposal and integration costs, is included in the Financial Review.
The average number of shares used for the EPS calculation for 2016 is 242.3m (2015: 243.6m).
Dividend
The Board declared a first interim dividend of 5.6p per share paid on 14 November 2016 and a second interim dividend of 11.25p per share paid on 13 January 2017 (with a record date of 23 December 2016), before the completion of the acquisition of ICAP. The Board is accordingly not recommending a final dividend and so, as advised in our interim announcement on 3 August 2016, the shareholders up to the date of completion of the acquisition of ICAP have received dividends of 16.85p per share for 2016. The Board expects to declare its next interim dividend payable in November 2017 when the 2017 interim announcement is made in August.
Commenting on the results, John Phizackerley, Chief Executive of TP ICAP plc, said:
"We achieved strong progress in our financial performance in 2016 against the backdrop of a challenging trading environment, but one which showed tentative signs of greater activity in the second half of the year. Revenue of 892m in 2016 was 4% higher than in 2015 at constant currency with underlying operating profit increasing by 22% to 132m. 
Underlying earnings per share for 2016 of 42.5p are 10.3p higher than for 2015.
We completed the acquisition of ICAP's Global Broking and Information Business on 30 December 2016, renaming the Group TP ICAP. The transaction creates the largest interdealer broker in the world. We play a pivotal role at the heart of the global financial system and are a vital source of pricing and liquidity in the OTC markets. We are now integrating the two businesses and extracting the considerable benefits of the combination.
We will continue to look for opportunities to deliver our strategic objective to build revenue and raise the quality and quantity of earnings through further diversification of our client base, investing in technology, expanding into new products, and building scale in the Americas and Asia Pacific, whilst preserving the business's core franchises."
Outlook
Revenue in the first two months of 2017, on a pro forma basis (including the prior period results of ICAP), was in line with the same period last year at constant exchange rates, and 11% higher as reported.
Although our primary focus in 2017 is the delivery of the synergies of the combination of Tullett Prebon and ICAP, we will continue to look for other opportunities to deliver our objectives to build revenue and raise the quality and quantity of earnings.
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
Sam Dobbyn, Head of FP&A
TP ICAP plc
Direct: +44 (0)20 7200 7147
email: sam.dobbyn@tpicap.com
Media
Rebecca Shelley, Group Head of Corporate Affairs
TP ICAP plc
Direct: +44 (0)20 7200 7750
email: rebecca.shelley@tpicap.com
Jamie Dunkley, Group Media Relations Director
TP ICAP plc
Direct: +44 (0)20 7200 7524
email: jamie.dunkley@tpicap.com
Brian Buckley, Eilis Murphy
Brunswick Group LLP
Direct: +44 (0)20 7404 5959
email:tpicap@brunswickgroup.com
Further information on the Company and its activities is available on the Company's website:
www.tpicap.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Chief Executive's review
Financialperformance
While 2016 was dominated by the successful closing of the acquisition of ICAP, the second half of the year also witnessed an improved performance in our heritage businesses, in particular interest rates, credit and FX which have been subdued for some time. In addition, Energy & Commodities, Equities and Information Sales recorded strong year on year revenue growth.
These factors were reflected in the Group's underlying financial performance. Our revenue in 2016 was 892m, on a constant currency basis, an increase of 4% in 2016 (12% on a reported basis) compared with 2015. 
We achieved underlying operating profit of 132m, an increase of 22% and underlying earnings of 103m, an increase of 31%. Reported operating profit of 73m was 40% lower than in 2015 (which included the net settlement of 64m from BGC), and reported operating margin of 8.2% is 7.1% points lower than in 2015.
We have continued to make progress on our strategic goal to diversify our sources of revenue. More than a quarter of our total revenues now comes from our Energy & Commodities business reflecting investments we have made in this division, which include our successful acquisitions of PVM and MOAB.
Our geographic mix of revenue is also changing with the Americas now contributing over 30% of our total, as we reap the benefits of rebuilding that business over the last five years. 
In the future, we expect to benefit further from economies of scale inherent in the combination with ICAP.
Operating model
TP ICAP will operate the Tullett Prebon and ICAP brands separately. The Global Executive Committee (GEC) of TP ICAP is made up of senior professionals from both Tullett Prebon and ICAP. From 1 January 2017 the Group now operates across four global business lines (Global Broking, Energy and Commodities, Data and Analytics, and Institutional Services) in a matrix with regional management. The TP ICAP Corporate Services division will provide a single, efficient, technology centric support function for the Group.
During 2016 we improved our client service and operational excellence. We use a sales management tool, which has improved the visibility and management of our client interaction. We expect it will grow revenues in existing accounts and drive new revenues from additional ones. 
In August we announced the establishment of a new technology nearshore centre in Belfast, Northern Ireland which will play a pivotal role in the delivery of our global technology strategy. By the end of 2019, we intend to have at least 300 employees at this site.
The security of our information and technology infrastructure is crucial for maintaining our applications and protecting our customers and brands. During 2016 we reviewed and assessed our resilience to and ability to recover from cyber attacks. We strengthened our ability to prevent, detect and respond to this threat by enhancing our governance and control frameworks so that they are now an integral part of our systems and processes. While we can never guarantee that we are immune from such threats, we will continue to examine, invest in and strengthen our defences.
We have started a programme of smarter procurement which will rationalise our panel of suppliers. This programme will continue during 2017, and will be extended across the supplier base we have inherited with ICAP. 
New hires, acquisitions and partnerships 
We recruited a high quality team of 14 specialist brokers in theUS who are leaders in the CDS product. They use our tpCreditdeal platform to provide an enriched and truly hybrid offering for our clients.
We entered into a partnership with a specialist listed futures and options broker, Coex, which has a varied and diverse client base, and an offering which is based on creative trading idea generation.
We acquired a long term licence for a hybrid trading technology which we renamed Nova. It will enable us to develop in-house proprietary, bespoke capabilities, and will allow us to build venue functionality which meets the requirements of MiFID II regulations which are timetabled to come into force in January 2018.
In October we signed an agreement with Brave New Coin to distribute digital currency data, which gives our customers transparency on intraday pricing from more than 50 digital currencies - including Bitcoin, Ethereum and Ripples. 
In November 2016 we partnered with Quarternion Risk Management, a leading risk analytics firm, to launch an innovative open source risk project in collaboration with Columbia University.
Culture and conduct 
At TP ICAP, we are fully aware that the markets that we intermediate are in the real economy. We are active across a broad range of products, and we believe that what we do and how we do it matters profoundly to market integrity and the wider population. We take that responsibility seriously and it underpins our culture and how we conduct ourselves as a firm and as individuals.
In 2016 we continued to drive home our key message on conduct and culture and continued to train our employees about our standards and required behaviours.
New talent recruitment 
Hiring the next generation of employees is a key '10 arrows' objective. We made material progress during 2016 on our objective to recruit, train and develop new talent. We successfully launched our early talent recruitment drive in September and received 2,000 applications within two weeks. We have hired more than 45 people on this programme so far.
People 
We continue to invest in the development of the Group's employees. We now have a group-wide programme of learning and training to ensure our people are equipped with the appropriate skills. 
As part of the drive to engage with employees, understand their needs, and ultimately improve performance, we conducted our first employee 'Pulse' engagement survey, covering a broad range of subjects. We were delighted that more than 67% responded and provided valuable feedback on how they perceive the Group and where we can improve. 
Brexit
The announcement of the result of the Brexit referendum that took place on 23 June caused a period of heightened activity and instils market uncertainty between the triggering of Article 50 and the final state of the United Kingdom's negotiation with the EU. There are material implications for financial markets between the so called 'soft' or 'hard' Brexit outcomes. 
In the future, we will likely manage more client relationships from within the Eurozone, where we already have a network of offices in Paris, Frankfurt, Madrid and in other locations.
We have a strategic planning workstream which examines the various Brexit scenarios and how we might want to adapt our business accordingly. 
Awards
We were delighted to win a number of awards during 2016, including taking first place in five out of seven categories from Global Capital: Interdealer Broker of the Year, Interest Derivatives Broker of the year, Swap Execution Facility of the Year, Data and Analytics vendor of the year, and FX Broker of the year. These awards are an endorsement of the strength of our offering and testament to our commitment to excellent client service.
Acquisitionof ICAP's Global Broking and Information Business
Much time and energy was invested in finalising the acquisition of ICAP which we signed in November 2015. We obtained all the necessary approvals and closed the transaction on 30 December 2016.
Between signing and completion we carried out extensive integration planning across all functions of the Group, so that we have a detailed route-map which we are now implementing, extracting the considerable benefits of the combination. I have been impressed by the quality of ICAP staff and their leadership team now that we are TP ICAP colleagues. In addition the business is delivering on the breadth and scale we envisaged during the due diligence process. 
Rebranding as TP ICAP 
On completion of our acquisition of ICAP we launched a re-branding of ourGroup as TP ICAP plc, reflecting the strength of our respective heritages.
Regulatory changes
During 2017, we will prepare for the forthcoming market structure reforms being implemented as a result of MiFID II. They will have a fundamental impact on trading in OTC markets in the EU, requiring the multilateral trading of OTC financial instruments to be effected on a multilateral trading facility (MTF) or an organised trading facility (OTF), the latter being a new type of trading venue covering voice and hybrid broking. As a result of our position in these markets we aspire to be a leader in the operation of a range of OTF and MTF venues and provision of broking services throughout the EU in the new regulatory regime.
Looking ahead
We achieved a great deal in 2016 and I am confident that our progress to date will help us deliver our long-term goals. 
We are now in a position to capitalise on these achievements and pursue our strategy for growth as the larger TP ICAP Group. 
Political and economic uncertainty is likely to persist during 2017 as the debate continues on the shape of the UK's exit from the European Union and because national elections take place in a number of countries on the Continent. Tensions in Russia, China and North Korea could add to a heightened sense of uncertainty compared to the recent political order. In the USA there is potential for regulatory reform that could impact markets. However, with a clear strategy and sustained focus on operational excellence, I am confident that TP ICAP will continue to be resilient and successful. A lot of our upside is in our hands. The re-emergence of the yield curve and returning market volatility contributed to improved market conditions. Should such factors persist there is cause for optimism that market conditions for interdealer brokers like TP ICAP will continue to improve.
Business and Operating review
The Group generates broking revenue from commissions it earns by intermediating and executing customer orders. The level of revenue depends substantially on customer trading volumes, which are affected by theconditions in the financial markets, bycustomers' risk appetite, and by their willingness and ability to trade.
The level of activity in the wholesale OTC financial markets during much of 2016 continued to be under pressure from the cyclical and structural factors affecting the interdealer broker industry. Volatility, and the steepness and absolute level of yield curves, are key drivers of activity in the financial markets. Measures of financial market volatility were broadly similar during 2016 to the prior year, and volatility and trading volumes in many product areas continued to be sporadic. Interest rates for many of the major currencies fell further during 2016, although with little change in the 'shape' of yield curves, we have not seen much change in the spread between short and longer term rates. However, the increase in interest rates in the United States towards the end of the year, together with other market events, including the 'Brexit' referendum and the US presidential election in November, drove a pick-up in activity inthe last quarter. The broking business's performance in 2016continued to benefit from the recent investments made in the Energy sector, withactivity in the Energy & Commodities markets, particularly in oil and oil-related financial products, which remain buoyant, reflecting the changes and volatility in oil prices throughout the year.
The Information Sales and Risk Management Services businesses also performed strongly. The Information Sales business benefited from the continued expansion of its client base and geographical presence, the enhancement of its sales capability and the extension of the data content it provides to customers, particularly from its expanded high quality Energy & Commodities data sets. 
Total revenue of 892m in 2016 was 12% higher than in 2015 as reported (4% higher atconstant exchange rates), with underlying operating profit increasing by 22% to 132m.
The underlying operating profit margin in 2016 of 14.8% is 1.2% points higher than in 2015, reflecting the full year effect of the investments and cost improvements being made in the business. Underlying earnings per share for 2016 of 42.5p are 10.3p higher than for 2015.
Reported operating profit of 73.3m was 40% lower than in 2015 (which included the net settlement of 64.4m from BGC), and reported operating margin of 8.2% is 7.1% points lower than in 2015. Reported operating profit is after exceptional and acquisition related items, and is described in the Financial Review. 
Broker headcount, which had decreased to 1,716 at December 2015, asaresult of actions taken under the cost improvement programme in Europe andNorth America, continued todecrease in the first half of 2016, to 1,707 as the cost improvement programme was finalised. Broker headcount, excluding the impact of ICAP, reduced further in the second half of the year to 1,672.
Average broker headcount during 2016 was2% lower than during the previous year,with a 5% increase in average revenue per broker, resulting in the 3% increase in broking revenue.
The year-end broking support headcount, excluding the impact of ICAP, of 849 was 5% higher than at the end of 2015, reflecting the continued strengthening ofthecontrol and support functions, withadditional headcount in customer relationship management, risk, human resources, and legal and compliance.
The acquisition of ICAP has increased broker headcount to 2,981, and the broking support headcount to 2,083 at December 2016.
Financial and Performance Measures

2016
2015**
Change
Broking revenue
823.3m
742.0m
+3%*
Information Sales and Risk Management Services revenue
68.2m
54.0m
+22%*
Total revenue
891.5m
796.0m
+4%*
Underlying operating profit
131.5m
107.9m
+22%
Underlying operating profit margin
14.8%
13.6%
+1.2% pts
Reported operating profit
73.3m
121.9m
-40%
Reported operating profit margin
8.2%
15.3%
-7.1% pts
Average broker headcount
1,702
1,735
-2%
Average revenue per broker (000)
484
461
+5%
Broker compensation costs: broking revenue
53.2%
54.6%
-1.4%pts
Period end broker headcount (excluding ICAP



- at June
1,707
1,739
-2%
- at December
1,672
1,716
-3%
- at December (including ICAP)
2,981
1,716
+74%
Period end broking support headcount (excluding ICAP)
849
811
+5%
Period end broking support headcount (including ICAP)
2,083
811
+157%
* At constant exchange rates
** 2015 comparative data that relates to headcount and headcount derived metrics has been restated to ensure consistency with the current period.
Revenue
The following tables analyse revenue by region and by product group, and underlying operating profit by region, for 2016 compared with 2015. The analysis excludes information relating to ICAP, and the product groups reflect the way the business was managed during the year. 
A significant portion of the Group's activity is conducted outside the UK and the reported revenue is therefore affected by the movement in the foreign exchange rates used to translate the revenue from non-UK operations. The tables therefore show revenue for 2015 translated at the same exchange rates as those used for 2016, withgrowth rates calculated on the samebasis. The revenue figures as reportedfor 2016 are shown in Note 3 to theConsolidated Financial Statements.
The commentary below reflects the presentation in the tables.
Revenue by Product Group

2016
m
2015
m
Change
Energy and Commodities
245.3
221.9
+11%
Interest Rate Derivatives
143.6
144.1
+0%
Fixed Income
183.0
184.8
-1%
Treasury Products
194.1
198.6
-2%
Equities
57.3
50.4
+14%
Information Sales and Risk Management Services
68.2
56.1
+22%
At constant exchange rates
891.5
855.9
+4%
Exchange translation

(59.9)

Reported
891.5
796.0
+12%
Revenue in 2016 was 4% higher than in 2015. The continuing benefit from our investment in Energy and Commodities, together with further growth in Equities and in Information Sales and Risk Management Services, has been partly offset by lower volumes in our heritage interdealer broker product groups of Treasury Products (FX and cash), Interest Rate Derivatives and Fixed Income that improved towards the end of the year.
Revenue from Energy and Commodities was 11% higher than the prior year, reflecting the inclusion for a full year of MOAB, the higher levels of activity in the oil markets generally, and the development of our activities in this sector in all three regions. Energy continues to be the business's largest product group with more than 25% of the total revenue.
Revenue from Interest Rate Derivatives products (swaps and options) was in line with 2015, with lower overall levels of activity in EMEA offset by stronger performance in the Americas, particularly in the second half of the year reflecting expectation of further movement in USD interest rates. 
The 1% decline in revenue from Fixed Income reflects the low liquidity and levels of activity across the government and corporate bond markets in EMEA and the Americas, although this was partly offset by higher revenue in North America following strategic hires in credit derivatives, and in Asia from hires in fixed income in Hong Kong.
Revenue from Treasury Products (FX and cash) was 2% lower than in 2015, with lower activity intheAmericas and in Asia Pacific partly offsetby a stronger performance in EMEA, particularly in forward FX and FX options.
Revenue in our Equities business, which was primarily focused on equity derivatives, was 14% higher than in 2015. The business has performed well in all three regions, where we have benefited from the higher levels of volatility inequity markets compared with a year ago.
Revenue from Information Sales and Risk Management Services was 22% higher than last year. The Information Sales business has benefited from the growing client demand for accurate, quality data due to increasing risk complexity, regulatory change and volatility. The business has increased revenue by addingnew data content sets as well as through broadening its customer base. Theinvestment in sales and marketing in theRisk Management Services business resulted in increased market share in USD andAsia Pacific currencies.
Revenue by Region

2016
m
2015
m
Change
Europe and Middle East
480.9
472.0
+2%
Americas
279.6
263.3
+6%
Asia Pacific
131.0
120.5
+9%

891.5
855.9
+4%
Exchange translation

(59.9)

Reported
891.5
796.0
+12%
Europe and the Middle East
Revenue in Europe and the Middle East was 2% higher than last year. While all areas benefitted from better market conditions in the final quarter of the year, with increased volatility following the Brexit vote and the US election, the broking business in the region continues to face difficult market conditions in many of our heritage product areas. Revenue in Interest Rate Derivatives and Fixed Income was lower than last year overall, partly offset by growth in futures and options with the inclusion of revenue from our arrangement with Coex, and in forward FX and FX options where we saw good growth in our Mirexa business.
Revenue from Energy and Commodities was higher than in 2015, with revenue from oil and other commodities partly offset by lower revenue in power and gas products. Equities revenue continues to grow year on year, reflecting the higher volatility in equity markets and the benefit from investment inbroadening the product coverage. 
Average broker headcount in the region was4% lower than last year, with average revenue per broker up 8%, primarily as a result of the cost improvement programme. Period-end broker headcount was 771.
Americas
Revenue in the Americas was 6% higher than last year. The growth in revenue in the region was largely attributable to recent acquisitions made in the US, including the full year benefit of MOAB as well as the addition of 14 credit derivative brokers in September 2016.
Additionally the region benefited from improved market activity following the Brexit vote and the US presidential election, and the expectation of further movement ininterest rates provided heightened activity in our heritage products in the final quarter of the year.
Revenue from Interest Rate Derivatives and Equities was up 9% and 13% respectively following strategic hires, investment in newproducts and slightly more beneficial market conditions.
Fixed Income continued to see restricted volumes, especially in the government and corporate bonds businesses, which offset the improvement made in credit derivatives. Forward FX saw subdued volumes following increased regulatory pressure on their customer base, particularly in the second halfof the year.
The Energy and Commodities business continues to be a strategic growth area in the region, with revenues 33% higher than last year. The Americas continue to add new products in both the physical and financial energy markets. Energy revenue represented over 18% of revenue in the Americas region in 2016 up from 15% in 2015.
Average broker headcount in the Americas was 2% lower than in 2015, with average revenue per broker 8% higher. Period-end broker headcount in the Americas was 525.
Asia Pacific
Revenue in Asia Pacific was 9% higher than last year, reflecting increased revenue from both the regional broking business and the Risk Management Services business which is operated from the region. 
Broking revenue in the region has benefitted from the growth in the investment made inour Fixed Income broking capability in corporate and sovereign bonds towards the end of 2015, and the continued growth in our Energy and Commodities broking activities which now accounts for around one fifth of the region's total broking revenue. 
Activity in Treasury Products was lower overall than in the prior year reflecting a slowdown in client trading in FX options and deteriorating sentiment in CNH products, although the market picked up considerably in Forward Yen. Revenue from Interest RateDerivatives was higher than last year reflecting improved market conditions for HK$ interest rate swaps during the year.
Average broker headcount in the region was3% higher than in 2015 with average revenue per broker up 3%. Period-end broker headcount in Asia Pacific was 376.
Operating margin and cost management
The Group continues to manage its direct cost base to reflect market conditions. The cost improvement programme implemented towards the end of 2015 was completed during the first half of 2016. The objective of the programme was to preserve the variable nature of broking compensation and to reduce it as a percentage of broking revenue, as a response to the level of activity and revenue in traditional interdealer product areas falling during 2015. This ensures the business is well positioned to respond to less favourable market conditions and to maintain its operating margins. The 5.2m cost of the actions taken in 2016 has been charged as an exceptional item in the 2016 accounts.
As a result of these actions, together with those taken in 2015, fixed broker employment costs in the traditional interdealer product areas in Europe and the Middle East, and in North America, have been reduced in line with the decline in revenue in those areas. Total broker compensation costs as a percentage of broking revenue have fallen by1.4% points to 53.2%, continuing the downward trend since 2012 when total brokercompensation costs as a percentage of broking revenue were 59.8%. The reduction in the overall broker employment costs to revenue percentage in 2016 has beenassisted by the improved efficiency ofbonus pool arrangements, despite the continued change in mix of the business, witha higher proportion of revenue in Energy and Commodities where broker compensation costs as a percentage of revenue tend to be alittle higher than average.
The overall contribution margin of the business, after broker employment costs and other front office direct and variable costs, was 1.6% points higher in 2016 than in the prior year, reflecting the reduction in the broker compensation to broking revenue percentage and the continuing growth in Information Sales and Risk Management Services which have a relatively low level ofvariable costs.
The Group has also continued to invest in developing its capabilities in managing newbusiness and strategic initiatives and instrengthening the control and support functions in readiness for the integration of ICAP and these have resulted in an increase in management and support costs and one-off project costs in the year. These investments are important for the business to retain its competitive advantage, to innovate, and togrow revenue and earnings.
Underlying operating profit
The revenue, underlying operating profit and operating margin by region shown below are as reported.
Revenue
m
2016
2015
Change
Europe and Middle East
480.9
455.3
+6%
Americas
279.6
234.5
+19%
Asia Pacific
131.0
106.2
+23%
Reported
891.5
796.0
+12%
Underlying operating profit
m
2016
2015
Change
Europe and Middle East
97.7
81.2
+20%
Americas
18.2
14.9
+22%
Asia Pacific
15.6
11.8
+32%
Reported
131.5
107.9
+22%
Underlying operating profit margin by region

2016
2015
Europe and Middle East
20.3%
17.8%
Americas
6.5%
6.4%
Asia Pacific
11.9%
11.1%
Reported
14.8%
13.6%
Europe and the Middle East
Underlying operating profit in Europe and the Middle East of 97.7m was 20% higher than in the prior year, and with revenue up 6%, the underlying operating margin has increased by 2.5% points, to 20.3%. The actions taken under the cost improvement programme at the end of 2015 and in the first half of 2016 have resulted in a 4% reduction in fixed broker employment costs in the region compared with the prior year, and together with an increase in broking revenue total broker employment costs as a percentage of broking revenue have fallen by 1.5% points. The benefit of the resulting higher contribution margin has been offset by higher management and support costs due to the investments being made in strengthening and developing the business,and one-off costs relating to technology and regulatory projects.
Americas
In the Americas, the underlying operating profit of 18.2m is 22% higher than in 2015 and the underlying operating margin has improved by 0.1% points to 6.5%. The actions taken under the cost improvement programme have resulted in a 5% reduction infixed broker employment costs in 2016 compared with 2015 (on a like for like basis), andtotal broker employment costs as a percentage of broking revenue have fallen by 1.9% points. The underlying operating profit has been adversely impacted by non-recurring costs incurred during the year, and as a result we expect to see some benefit in the operating profit in 2017.
Asia Pacific
Underlying operating profit in Asia Pacific has increased by 32% to 15.6m. Broker employment costs as a percentage of broking revenue are 0.8% points lower thanin the prior year, which is the mainreason for the improvement in theunderlying operating margin.
Financial Review
2016
Income statement
m
Underlying
Acquisition, disposal and integration costs
Exceptional items
Reported
Revenue
891.5


891.5
Operating profit
131.5


131.5
Charge relating to cost improvement programme


(5.2)
(5.2)
Pension scheme settlement gain


3.6
3.6
ICAP acquisition costs

(16.8)

(16.8)
ICAP integration costs

(19.3)

(19.3)
Acquisition related share-based payment charge

(16.3)

(16.3)
Amortisation of intangible assets arising on consolidation

(1.4)

(1.4)
Other acquisition and disposal items

(2.8)

(2.8)
Operating profit
131.5
(56.6)
(1.6)
73.3
Net finance expense
(9.9)
(6.6)

(16.5)
Profit before tax
121.6
(63.2)
(1.6)
56.8
Tax
(22.1)
5.3
(0.3)
(17.1)
Share of net profit of associates and joint ventures
4.0


4.0
Non-controlling interests
(0.5)


(0.5)
Earnings
103.0
(57.9)
(1.9)
43.2
Average number of shares
242.3m


242.3m
Basic EPS
42.5p


17.8p
2015
Income statement
m
Underlying
Acquisition, disposal and integration costs
Exceptional items
Reported
Revenue
796.0


796.0
Operating profit
107.9


107.9
Credit relating to major legal actions


64.4
64.4
Charge relating to cost improvement programme


(25.7)
(25.7)
Acquisition costs relating to ICAP

(12.1)

(12.1)
Acquisition related share-based payment charge

(10.5)

(10.5)
Amortisation of intangible assets arising on consolidation

(1.2)

(1.2)
Other acquisition and disposal items

(0.9)

(0.9)
Operating profit
107.9
(24.7)
38.7
121.9
Net finance expense
(14.2)
(2.0)

(16.2)
Profit before tax
93.7
(26.7)
38.7
105.7
Tax
(17.5)
3.0
(10.5)
(25.0)
Share of net profit of associates
2.6


2.6
Non-controlling interests
(0.4)


(0.4)
Earnings
78.4
(23.7)
28.2
82.9
Average number of shares
243.6m


243.6m
Basic EPS
32.2p


34.0p
Exceptional and acquisition, disposal and integration items
The Group presents its Consolidated Income Statement in a columnar format to aid the understanding of its results by separately presenting its underlying profit before acquisition, disposal and integration costs and exceptional items (see Note 2(c)). Underlying profit is reconciled to profit before tax on the face of the Consolidated Income Statement and is disclosed separately to give a clearer presentation of the Group's underlying trading results. Acquisition, disposal and integration costs are excluded from underlying results as they reflect the impact of acquisitions and disposals rather than underlying trading performance.
The 16.8m charge in 2016 relating to acquisition costs reflects the legal and professional costs incurred in relation to the acquisition of ICAP. Additional costs of 6.6m directly associated with the shares issued to acquire ICAP have been recorded directly in equity. 
The 19.3m charge for integration costs related to the acquisition of ICAP includes professional fees and staff costs relating to planning, setting up and running the integration workstreams, costs incurred in the marketing and branding of TP ICAP and some severance costs.
As part of the acquisition of PVM in November 2014, the payment to each individual vendor of their share of up to$48m of deferred consideration (which is subject to achieving revenue targets in the three years after completion) was linked to their continued service with the business, and is therefore amortised through the income statement over the relevant service period. The amortisation charge recognised in 2016 is 16.3m (2015: 10.5m).
The other acquisition and disposal items include a loss on the disposal of Unified Energy Services and costs relating to the acquisition of MOAB.
The charge for amortisation of intangible assets arising on acquisition recognised in 2016 is 1.4m (2015: 1.2m). 1.2m of this relates to intangible assets other than goodwill arising on the acquisition of PVM, reflecting the PVM brand and the value of customer relationships, that is being amortised through the income statement over the estimated useful lives of those assets, and 0.2m relating to MOAB. Amortisation of intangible assets arising on consolidation is excluded from underlying results to present the performance of the Group's acquired businesses consistently with its organically grown businesses where such intangible assets are not recognised.
The 5.2m exceptional charge in 2016 relating to the cost improvement programme is discussed previously. The 25.7m charge in 2015 relates to the cost improvement action taken in that year. The 3.6m pension scheme settlement gain reflects the difference between the assets used to settle liabilities relating to certain members of the pension scheme that transferred out during the year. The exceptional items in 2015 include the net 64.4m credit relating to the major legal actions with BGC. Exceptional items have been excluded from underlying results as they are non-recurring and do not relate to the underlying performance of the business. Whilst a charge for the cost improvement programme arose in each of 2016 and 2015, the programme was a discrete programme where the costs were recognised over a period of two years. 
Net finance expense
The underlying net cash finance charge comprises: 9.3m interest payable on the Sterling Notes; 2.1m interest payable on the revolving credit facility that was drawn down to refinance the Sterling Notes that matured in July 2016; 1.8m commitment fees for the undrawn revolving credit facility; 1.2m of amortisation of debt issue and arrangement costs; and other net interest income of 1.6m. 
The underlying net non-cash finance incomecomprises the deemed interest onthe pension scheme net asset of 3.2m, partly offset by the unwinding of discountedliabilities and provisions.
An analysis of the net finance expense is shown in the table below.
m
2016
2015
Receivable on cash balances
2.1
1.8
Payable on Sterling Notes July 2016
(5.1)
(9.9)
Payable on Sterling Notes June 2019
(4.2)
(4.2)
Interest payable on bank facilities
(2.1)
-
Commitment fees payable on bank facilities
(1.8)
(1.6)
Amortisation of debt issue and arrangement costs
(1.2)
(1.8)
Other interest
(0.5)
(0.4)
Net cash finance expense
(12.8)
(16.1)
Net non-cash finance income
2.9
1.9
Underlying net finance expense
(9.9)
(14.2)
Acquisition related finance expense
(6.6)
(2.0)
The acquisition related finance expense comprises: a 2.7m expense for the amortisation of arrangement costs relating to the 470m bank bridge facility the Company entered into in November 2015 to fund the repayment of the 330m of short term debt acquired with ICAP and the refinancing of the 141.1m notes that matured in July 2016. It also includes a 3.3m facility fee for the undrawn 470m bank bridge facility, that was incurred during the year in advance of the transaction completing. The delay in the completion of the ICAP acquisition also led to a 0.3m expense relating to the preparatory work undertaken for the issue of the bond originally planned to refinance the Notes, which was subsequently suspended as a result of the timing of the transaction. In addition we incurred a charge of 0.3m reflecting the unwinding of the discount on deferred consideration relating to the acquisition of PVM.
Tax
The effective rate of tax on underlying PBT is18.2% (2015: 18.7%). The reduction in the effective rate primarily reflects an increase in US taxable profits that continue to be sheltered by unrecognised tax losses together with provision releases that relate to tax uncertainties that have been resolved. Excluding the benefit from the release of provisions and prior year adjustments, the effective rate of tax on underlying PBT wouldhave been 19.3% (2015: 20.5%).
The tax charge on exceptional and acquisition related items reflects the net oftax charges and tax relief recognised onthose items at the relevant rate for the jurisdiction in which the charges are borne. No tax has been recognised on the exceptional charges and credits arising in the United States in either 2016 or 2015 due to the tax losses available in that jurisdiction.
The effective rate of tax on underlying Group profit before tax is expected to increase to around 26% from 2017 onwards. This is driven by the anticipated increase in the underlying taxable profits arising in the US as a result of the ICAP acquisition. In recent years the Group's US taxable profits have been relieved by tax losses.
Basic EPS
The average number of shares used for the basic EPS calculation of 242.3m reflects the 243.6m shares in issue at the beginning of the year, less the time apportioned element of the 1.7m shares acquired by the Employee Benefit Trust to satisfy deferred share awards made to senior management, less the 0.2mshares held throughout the year by theEmployee Benefit Trust, which has waived its rights to dividends. The 310.3m shares issued to acquire ICAP at the end of December 2016 have a nil weighting when calculating the weighted average number of shares for 2016 because the shares were issued at the end of the year and none of the earnings related to the newly issued shares.
Cash flow
The cash flow below reconciles the movement from underlying operating profit to cash flow before debt repayments and analyses principal cash flows during the year.
The reported cash flow is shown in the Consolidated Cash Flow Statement and further analysis is provided in Note 13.

2016
m
2015
m
Underlying operating profit
131.5
107.9
Share-based compensation and other non-cash items
4.5
2.2
Depreciation and amortisation
16.4
15.0
EBITDA
152.4
125.1
Capital expenditure (net of disposals)
(17.5)
(13.9)
Increase in initial contract prepayment
(0.4)
(0.9)
Other working capital
(5.0)
13.6
Underlying operating cash flow
129.5
123.9
Exceptional items - cost improvement programme 2015
(20.7)
(3.7)
Exceptional items - cost improvement programme 2014
(1.2)
(5.3)
Exceptional items - restructuring 2011/2012
(0.4)
(0.3)
Exceptional items - major legal actions net cash flow
-
64.4
ICAP acquisition costs
(11.0)
(12.1)
ICAP integration costs
(17.0)
-
Other acquisition and disposal items
(0.3)
(0.5)
Net interest expense
(19.1)
(14.6)
Share award purchases
(6.2)
-
Taxation
(16.7)
(19.5)
Dividends received from associates/(paid) to non-controlling interests
1.5
1.1
Acquisition consideration/investments (net of disposals)
(3.2)
(12.0)
Cash flow before debt repayments
35.2
121.4
The underlying operating cash flow in 2016 of 129.5mrepresents a conversion of 98%(2015: 123.9m and 115%) of underlyingoperating profit into cash.
Capital expenditure of 17.5m includes the development of electronic platforms and 'straight through processing' technology, andinvestment in IT and communications infrastructure, and the acquisition of a long-term licence of hybrid trading technology from the CME.
Initial contract payments in 2016 were broadly in line with the amortisation charge.
The other working capital outflow in 2016 primarily reflects the increase in trade receivables resulting from the higher level ofbroking activity towards the end of the year compared with 2015, partially offset by a corresponding increase in bonus accruals compared with the prior year end. 
During 2016, the Group made 20.7m of cash payments relating to actions taken under the2015 cost improvement programme, 1.2m relating to the 2014 cost improvement programme, and 0.4m relating to the 2011/12 restructuring programme.
Transaction cash payments relating to the acquisition of ICAP were 11.0m in the year. The Group also paid 17.0m for integration planning and other integration related actions. 
The Group paid 6.2m to purchase its own shares, to satisfy deferred share awards made to senior management during the year.
Interest payments in 2016 reflect the income statement charge for net cash finance expenses excluding the charge for the amortisation of debt issue costs.
Tax payments in 2016 of 16.7m include 13.7m paid in the UK. Tax payments in theUnited States continue to be low, reflecting the utilisation of tax losses. Tax paid inAsia has decreased primarily reflecting reduced payments due to overpaid tax in theprior year.
The 3.2m acquisitions and investments cashoutflow in 2016 is deferredconsideration relating to the acquisition of MOAB.
The movement in cash and debt is summarised below.
m
Cash*
Debt
Net
At 31 December 2015
379.2
(220.2)
159.0
Cash flow
35.2
-
35.2
Dividends
(40.7)
-
(40.7)
Bank facility arrangement fees
(3.8)
3.8
-
Repayment of Sterling Notes June 2016
(141.1)
141.1
-
Drawdown Bridge Facility
470.0
(470.0)
-
Amortisation of debt issue costs
-
(1.5)
(1.5)
Cash and financial assets acquired with ICAP
383.5
-
383.5
Loan acquired with ICAP
-
(330.0)
(330.0)
Repayment of loan acquired with ICAP
(330.0)
330.0
-
Effect of movement in exchange rates
33.3
-
33.3
At 31 December 2016
785.6
(546.8)
238.8
* Includes financial assets.
Debt finance
The composition of the group's outstanding debt is summarised below.
m
At 31
Dec 2016
At 31
Dec 2015
7.04% Sterling Notes July 2016
-
141.1
5.25% Sterling Notes June 2019
80.0
80.0
Bank bridge loan
470.0
-
Unamortised debt issue costs
(3.2)
(0.9)

546.8
220.2
During 2016, the Group refinanced the 141.1m Notes that matured in July 2016, by drawing down 140m of the 250m revolving credit facility (RCF) and using 1.1mof its own funds. When the acquisition of ICAP completed on 30 December, the Group drewdown the committed 470m bank bridge facility that the Company had entered into in November 2015, to repay the 140m drawn on the RCF, and the outstanding 330m debt obligation acquired with ICAP. 
The bank bridge loan was subsequently refinanced on 26 January 2017 following the issue of 500m 5.25% unsecured Sterling Notes that mature in January 2024.
Exchange and hedging
The income statements of the Group's non-UK operations are translated into sterling at average exchange rates. The most significant exchange rates for the Group are the US dollar and the Euro. The balance sheets of the Group's non-UK operations are translated into Sterling using year-end exchange rates. The major balance sheet translation exposure is to the US dollar. The Group's current policy is not to hedge income statement or balance sheet translation exposure. Average and year end exchange rates used in the preparation of the financial statements are shown below.

Average
Year end

2016
2015
2016
2015
US dollar
$1.37
$1.53
$1.24
$1.47
Euro
1.23
1.38
1.17
1.36
Pensions
The Group has one defined benefit pension scheme in the UK. The scheme is closed to new members and future accrual.
The triennial actuarial valuation of the scheme as at 30 April 2013 was concluded in January 2014. The actuarial funding surplus of the scheme at that date was 64.2m and under the agreed schedule of contributions the Company will continue not to make any payments into the scheme. The 30 April 2016 triennial actuarial valuation is currently in progress and has not been finalised as at the date of these Financial Statements.
The assets and liabilities of the scheme are included in the Consolidated Balance Sheet in accordance with IAS 19. The fair value of the scheme's assets at the end of the year was 317.0m (2015: 289.8m). The increase reflects the investment return on the assets of 21% less amounts paid as benefits and transfers. The value of the scheme's liabilities at the end of 2016, calculated in accordance with IAS 19, was 217.1m (2015: 201.6m). The valuation of the scheme's liabilities at the end of 2016 reflects the demographic assumptions adopted for the most recent triennial actuarial valuation and a discount rate of 2.5% (2015: 3.7%). Under IAS 19, the scheme shows a surplus, before the related deferred tax liability, of 99.9m at 31 December 2016 (2015: 88.2m).
The Trustees are currently making arrangements for the transfer of the scheme's assets and liabilities to a third a party who will take on responsibility forproviding the scheme's benefits, and remove the Company's responsibility for supporting thescheme financially (a 'Buy-out'). Securing such a Buy-out will give long term security to the Group. It should be noted that to the extent the premium charged by the third party exceeds the value of the scheme's liabilities calculated in accordance with IAS 19, the completion of the Buy-out will result in a reduction of the Group's net assets. This reduction, with its associated tax credit, will be reflected as an exceptional settlement expense in the Consolidated Income Statement.
Regulatory capital
The Group's lead regulator is the Financial Conduct Authority.
The Group has a waiver from the consolidated capital adequacy requirements under CRD IV. The Group's current waiver took effect on 30 December 2016, following the acquisition of ICAP, and will expire on 30 December 2026. Under the terms of the waiver, each investment firm within the Group must be either a limited activity or alimited licence firm and must comply with its individual regulatory capital resources requirements. TP ICAP, as the parent company, must continue to maintain capital resources in excess of the sum of the solo notional capital resources requirements foreach relevant firm within the Group, the'Financial Holding Company test'.
The terms of the waiver require the Group to eliminate the excess of its consolidated own funds requirements compared with its consolidated own funds ('excess goodwill') over the ten year period to 30 December 2026. The amount of the excess goodwill mustnot exceed the amount determined as atthe date the waiver took effect and must bereduced in line with a schedule over the ten years, with the first reduction of 25% required to be achieved by June 2019. The Company expects to achieve this reduction within its current business plan. The waiver also sets out conditions with respect to the maintenance offinancial ratios relating to leverage, debt service and debt maturity profile.
The Group's regulatory capital headroom under the Financial Holding Company test calculated in accordance with Pillar 1 was 1,922m (2015: 761m).
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.
Information disclosure under Pillar 3 isavailable on the Group's website: www.tpicap.com
Acquisition of ICAP's Global Broking and Information business
As the acquisition completed at the end of 2016, none of the results of ICAP are included in the results reported for 2016 on which the previous paragraphs provide a commentary. We have included below an unaudited pro forma income statement indicating what the aggregated results would have looked like if the combination had been effective from 1 January 2016.
Over the twelve months to 31 December 2016, ICAP had revenues of 795.1m and an operating profit of 108.0m giving an operating profit margin of 13.6%. 
The acquisition was achieved through the issue of approximately 310m ordinary shares, valuing the transaction at 1,283m. Under the terms of the transaction, TP ICAP assumed 330m of intercompany debt owed by the acquired business to its former parent. This was immediately repaid by drawing down the bank bridge facility, which was subsequently refinanced in January 2017 as described above.
TP ICAP 2016 unaudited pro forma income statement
m
TP
ICAP
Proforma
Revenue
891.5
795.1
1,686.6
Underlying operating profit
131.5
108.0
239.5
Underlying operating profit margin
14.8%
13.6%
14.2%
Finance income
5.3
3.0
8.3
Finance costs
(15.2)
(1.0)
(16.2)
Underlying profit before tax
121.6
110.0
231.6
Tax
(22.1)
(30.0)
(52.1)
Effective tax rate
18%
27%
23%
Share of JVs and associates less non-controlling interests
3.5
4.9
8.4
Net income
103.0
84.9
187.9
Exceptional items
(1.9)
-
(1.9)
Acquisition, disposal and integration costs
(57.9)
-
(57.9)
Earnings
43.2
84.9
128.1
Weighted average basic shares in issue
242.3
310.3
552.6
Underlying EPS
42.5p
27.4p
34.0p
Reported EPS
17.8p
27.4p
23.2p
The information included here represents what the income statement would have looked like had the transaction taken place on 1 January 2016. The unaudited pro forma Income Statement is compiled based on TP ICAP plc's 2016 from audited financial statements together with financial data extracted from the books and records of ICAP over the 12 month period to December 2016. The transaction has created an organisation with historical annual pro forma revenues of 1.7bn. Approximately 50% of the revenues are generated in the EMEA region, 36% from the Americas, and 14% from APAC.
The combined business has approximately 3,000 brokers.
Underlying operating profit in 2016 would have been 239.5m.
The pro forma 2016 underlying operating margin would have been 14.2%.
Integration and Target Synergies
We have developed a comprehensive integration plan over the past year while we waited for regulatory approvals for the acquisition.
The integration's main focus is on our global support functions. We do not anticipate making any material changes to the front office as we know that our clients value the pools of liquidity that both our long established brands bring to the market.
The global support functions have provided back and middle office support to two broadly similar businesses. We are confident that we can bring these support functions together in a manner that provides an enhanced quality of service, more efficient systems, and at substantially reduced costs.
In our shareholder circular issued we indicated an expectation that we would achieve synergies of 60m. We have now had full access to data, processes and people and have validated assumptions previously made and the preliminary integration plans we had prepared.
We now believe that a reasonable target for the annualised synergies to be achieved by the end of the three year programme is 80m. We have a further ambition to realise an additional 20m of annualised synergies from process optimisation by the end of 2020. For synergy savings to be recognised in a year's results, the work must be completed in the previous period.
The integration work will take three years and the costs will be front-loaded, while the synergy savings will be recognised predominantly in 2018 and 2019. We expect to achieve synergies in 2017, 2018, 2019 and 2020 of 10m, 50m, 20m and 20m respectively, at a cost in the respective years of 40m, 40m, 20m and 10m.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Income Statement
for the year ended 31 December 2016
Notes
Underlying
Acquisition,
disposal and
integration
costs
Exceptional
Items
Total
2016
m
m
m
m
Revenue
3
891.5
-
-
891.5
Administrative expenses
(763.5)
(56.6)
(5.2)
(825.3)
Other operating income
6
3.5
-
3.6
7.1
Operating profit
4,5
131.5
(56.6)
(1.6)
73.3
Finance income
7
5.3
-
-
5.3
Finance costs
8
(15.2)
(6.6)
-
(21.8)
Profit before tax
121.6
(63.2)
(1.6)
56.8
Taxation
(22.1)
5.3
(0.3)
(17.1)
Profit after tax
99.5
(57.9)
(1.9)
39.7
Share of results of associates and joint ventures
4.0
-
-
4.0
Profit for the year
103.5
(57.9)
(1.9)
43.7
Attributable to:
Equity holders of the parent
103.0
(57.9)
(1.9)
43.2
Non-controlling interests
0.5
-
-
0.5
103.5
(57.9)
(1.9)
43.7
Earnings per share
Basic
9
42.5p
17.8p
Diluted
9
41.0p
17.2p
2015
Revenue
3
796.0
-
-
796.0
Administrative expenses
(693.9)
(24.9)
(28.4)
(747.2)
Other operating income
6
5.8
0.2
67.1
73.1
Operating profit
4,5
107.9
(24.7)
38.7
121.9
Finance income
7
4.1
-
-
4.1
Finance costs
8
(18.3)
(2.0)
-
(20.3)
Profit before tax
93.7
(26.7)
38.7
105.7
Taxation
(17.5)
3.0
(10.5)
(25.0)
Profit after tax
76.2
(23.7)
28.2
80.7
Share of results of associates
2.6
-
-
2.6
Profit for the year
78.8
(23.7)
28.2
83.3
Attributable to:
Equity holders of the parent
78.4
(23.7)
28.2
82.9
Non-controlling interests
0.4
-
-
0.4
78.8
(23.7)
28.2
83.3
Earnings per share
Basic
9
32.2p
34.0p
Diluted
9
31.5p
33.3p
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
2016
2015
m
m
Profit for the year
43.7
83.3
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of defined benefit pension schemes
5.8
24.5
Taxation charge relating to item not reclassified
(2.0)
(8.6)

3.8
15.9
Items that may be reclassified subsequently
to profit or loss:
Revaluation of available-for-sale investments
0.8
0.1
Effect of changes in exchange rates on translation
of foreign operations
59.7
8.8
Taxation charge relating to items that may be reclassified
-
(0.5)
60.5
8.4
Other comprehensive income for the year
64.3
24.3
Total comprehensive income for the year
108.0
107.6
Attributable to:
Equity holders of the parent
107.3
107.1
Non-controlling interests
0.7
0.5
108.0
107.6
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Balance Sheet
as at 31 December 2016
Notes
2016
m
2015
m
Non-current assets
Intangible assets arising on consolidation
11
1,713.1
357.4
Other intangible assets
70.1
22.1
Property, plant and equipment
35.6
27.4
Investment in associates
53.5
6.0
Investment in joint ventures
8.0
-
Available-for-sale investments
23.5
8.5
Deferred tax assets
26.5
2.4
Retirement benefit assets
100.0
88.2
Other long term receivables
18.4
-
2,048.7
512.0
Current assets
Trade and other receivables
23,160.5
2,639.2
Financial assets
14
89.5
20.3
Cash and cash equivalents
14
696.1
358.9
23,946.1
3,018.4
Total assets
25,994.8
3,530.4
Current liabilities
Trade and other payables
(23,238.1)
(2,666.7)
Interest bearing loans and borrowings
14
(467.3)
(140.9)
Current tax liabilities
(41.7)
(17.3)
Short term provisions
(19.3)
(21.3)
(23,766.4)
(2,846.2)
Net current assets
179.7
172.2




Non-current liabilities
Interest bearing loans and borrowings
14
(79.5)
(79.3)
Deferred tax liabilities
(197.3)
(33.2)
Long term provisions
(9.4)
(7.8)
Other long term payables
(19.8)
(22.2)
Retirement benefit obligations
(3.3)
-
(309.3)
(142.5)
Total liabilities
(24,075.7)
(2,988.7)
Net assets
1,919.1
541.7




Equity
Share capital
138.5
60.9
Share premium
17.1
17.1
Merger reserve
1,377.5
178.5
Other reserves
(1,111.0)
(1,165.1)
Retained earnings
1,475.6
1,448.6
Equity attributable to equity holders of the parent
1,897.7
540.0
Non-controlling interests
21.4
1.7
Total equity
1,919.1
541.7
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
 Equity attributable to equity holders of the parent
Share
capital
Share
premium
account
Merger
reserve
Reverse
acquisition
reserve
Re-
valuation
reserve
Hedging
and
translation
Own
shares
Retained
earnings
Total
Non-controlling
interests
Total
equity
2016
m
m
m
m
m
m
m
m
m
m
m
Balance at
1 January 2016
60.9
17.1
178.5
(1,182.3)
1.4
15.9
(0.1)
1,448.6
540.0
1.7
541.7
Profit for the year
-
-
-
-
-
-
-
43.2
43.2
0.5
43.7
Other comprehensive
income for the year
-
-
-
-
0.8
59.5
-
3.8
64.1
0.2
64.3
Total comprehensive income for the year
-
-
-
-
0.8
59.5
-
47.0
107.3
0.7
108.0
Dividends paid
-
-
-
-
-
-
-
(40.7)
(40.7)
(0.5)
(41.2)
Own shares acquired for employee trusts
-
-
-
-
-
-
(6.2)
-
(6.2)
-
(6.2)
Issue of ordinary shares
77.6
-
1,205.6
-
-
-
-
-
1,283.2
-
1,283.2
Share issue costs
-
-
(6.6)
-
-
-
-
-
(6.6)
-
(6.6)
Non-controlling interests arising on acquisitions
-
-
-
-
-
-
-
-
-
19.5
19.5
Credit arising on share-based payment awards
-
-
-
-
-
-
-
20.7
20.7
-
20.7
Balance at 
31 December 2016
138.5
17.1
1,377.5
(1,182.3)
2.2
75.4
(6.3)
1,475.6
1,897.7
21.4
1,919.1












2015











Balance at
1 January 2015
60.9
17.1
178.5
(1,182.3)
1.4
7.6
(0.1)
1,378.8
461.9
1.6
463.5
Profit for the year
-
-
-
-
-
-
-
82.9
82.9
0.4
83.3
Other comprehensive
income for the year
-
-
-
-
-
8.3
-
15.9
24.2
0.1
24.3
Total comprehensive income for the year
-
-
-
-
-
8.3
-
98.8
107.1
0.5
107.6
Dividends paid
-
-
-
-
-
-
-
(41.0)
(41.0)
(0.4)
(41.4)
Credit arising on share-based payment awards
-
-
-
-
-
-
-
12.0
12.0
-
12.0
Balance at 
31 December 2015
60.9
17.1
178.5
(1,182.3)
1.4
15.9
(0.1)
1,448.6
540.0
1.7
541.7
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Consolidated Cash Flow Statement
for the year ended 31 December 2016
Notes
2016
2015
m
m
Cash flows from operating activities
13
58.6
144.0
Investing activities
Sale/(purchase) of financial assets
2.3
(10.7)
Sale/(purchase) of available-for-sale investments
0.2
(0.4)
Interest received
2.1
1.8
Dividends from associates
2.0
1.5
Expenditure on intangible fixed assets
(14.7)
(9.3)
Purchase of property, plant and equipment
(2.8)
(4.6)
Deferred consideration paid
(3.2)
-
Investment in joint ventures
(0.2)
-
Acquisition consideration paid
-
(11.6)
Cash acquired with acquisitions
316.3
1.7
Cash sold with subsidiaries
-
(0.3)
Net cash flows from investment activities
302.0
(31.9)
Financing activities
Dividends paid
10
(40.7)
(41.0)
Dividends paid to non-controlling interests
(0.5)
(0.4)
Own shares acquired for employee trusts
(6.2)
-
Drawdown of revolving credit facility
140.0
-
Repayment of maturing Sterling Notes
(141.1)
-
Funds received from bank debt
470.0
-
Repayment of revolving credit facility
(140.0)
-
Repayment of loan acquired with ICAP
(330.0)
-
Debt issue and bank facility arrangement costs
(3.9)
(4.3)
Net cash flows from financing activities
(52.4)
(45.7)
Net increase in cash and cash equivalents
308.2
66.4
Net cash and cash equivalents at the
beginning of the year
358.9
287.1
Effect of foreign exchange rate changes
29.0
5.4
Net cash and cash equivalents at the end of the year
14
696.1
358.9
Cash and cash equivalents
698.5
358.9
Overdrafts
(2.4)
-
Cash and cash equivalents at the end of the year
696.1
358.9
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
1. General information
TP ICAP plc (formerly Tullett Prebon plc) is a company incorporated in England and Wales under the Companies Act.
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 2016 or 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 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 did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
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) Presentation of the Income Statement
The Group maintains a columnar format for the presentation of its Consolidated Income Statement. The columnar format enables the Group to continue its practice of aiding the understanding of its results by presenting its underlying profit. This is the profit measure used to calculate underlying EPS (Note 9) and is considered to be the most appropriate as it better reflects the Group's underlying earnings. Underlying profit is reconciled to profit before tax on the face of the Consolidated Income Statement, which also includes acquisition, disposal and integration costs and exceptional items.
The column 'acquisition, disposal and integration costs' includes: any gains, losses or other associated costs on the full or partial disposal of investments, associates, joint ventures or subsidiaries and costs associated with a business combination that do not constitute fees relating to the arrangement of financing; amortisation or impairment of intangible assets arising on consolidation; any re-measurement after initial recognition of contingent consideration which has been classified as a liability, and any gains or losses on the revaluation of previous interests. The column may also include items such as gains or losses on the settlement of pre-existing relationships with acquired businesses and the re-measurement of liabilities that are above the value of indemnification.
Acquisition-related integration costs include costs associated with exit or disposal activities, which do not meet the criteria of discontinued operations, including costs for employee and lease terminations, or other exit activities. Additionally, these costs include expenses directly related to integrating and reorganising acquired businesses and include items such as employee retention costs, recruiting costs, certain moving costs, certain duplicative costs during integration and asset impairments.
Items which are of a non-routine nature and material, when considering both size and nature, are disclosed separately to give a clearer presentation of the Group's results. These are shown as 'exceptional items' on the face of the Consolidated Income Statement.
(d) Adoption of new and revised Accounting Standards
The following new and revised Standards and Interpretations have been adopted in the current year although their adoption has not had any significant impact on the Financial Statements:
 Amendments to IAS 1 'Presentation of financial statements' regarding disclosures;
 Annual Improvements to IFRSs (2012-2014 Cycle);
 Amendments to IAS 16 and IAS 38 regarding the clarification of acceptable methods of depreciation and amortisation; and
 Amendments to IFRS 11 regarding the accounting for acquisition of interests in Joint Operations.
3. Segmental analysis
Products and services from which reportable segments derive their revenues
The Group is organised by geographic reporting segments which are used for the purposes of resource allocation and assessment of segmental performance by Group management. These are the Group's reportable segments under IFRS 8 'Operating Segments'.
Each geographic reportable segment derives revenue from Energy and Commodities, Interest Rate Derivatives, Fixed Income, Treasury Products, Equities, and Information Sales and Risk Management Services.
Information regarding the Group's operating segments is reported below:
2016
2015
Revenue:
m
m
Europe and the Middle East
480.9
455.3
Americas
279.6
234.5
Asia Pacific
131.0
106.2
891.5
796.0
Operating profit:
Europe and the Middle East
97.7
81.2
Americas
18.2
14.9
Asia Pacific
15.6
11.8
Underlying operating profit
131.5
107.9
Acquisition, disposal and integration costs (Note 4)
(56.6)
(24.7)
Exceptional items (Note 5)
(1.6)
38.7
Reported operating profit
73.3
121.9
Finance income
5.3
4.1
Finance costs
(21.8)
(20.3)
Profit before tax
56.8
105.7
Taxation
(17.1)
(25.0)
Profit after tax
39.7
80.7
Share of results of associates and joint ventures
4.0
2.6
Profit for the year
43.7
83.3
There are no inter-segment sales included in segment revenue.
2016
2015
Revenue by product group
m
m
Energy and Commodities
245.3
204.3
Interest Rate Derivatives
143.6
135.3
Fixed Income
183.0
171.2
Treasury Products
194.1
185.0
Equities
57.3
46.3
Information Sales and Risk Management Services
68.2
53.9
891.5
796.0
4. Acquisition, disposal and integration costs
Acquisition, disposal and integration costs comprise:
2016
2015
m
m
ICAP acquisition costs
16.8
12.1
ICAP integration costs
19.3
-
Other acquisition costs
0.3
0.5
Acquisition related share-based payment charge
16.3
10.5
Amortisation of intangible assets arising on consolidation
1.4
1.2
Loss on disposal of subsidiary undertakings and associates
0.3
0.6
Adjustment to acquisition consideration
2.2
(0.2)
56.6
24.7
Finance costs (Note 8)
6.6
2.0
63.2
26.7
Taxation
(5.3)
(3.0)
57.9
23.7
ICAP integration costs incurred in the year can be analysed as follows:
2016
2015
m
m
Employee related costs
7.3
-
Premises and equipment
0.5
-
Other administrative costs
11.5
-
19.3
-
5. Exceptional items
Exceptional items comprise:
2016
2015
m
m
Pension scheme settlement gains
(3.6)
-
Net credit relating to major legal actions
-
(64.4)
Charge relating to cost improvement programmes
5.2
25.7
1.6
(38.7)
Taxation
0.3
10.5
1.9
(28.2)
6. Other operating income
Other operating income represents receipts such as rental income, royalties, insurance proceeds, settlements from competitors, business relocation grants and pension scheme settlement gain. Costs associated with such items are included in administrative expenses.
7. Finance income
2016
2015
m
m
Interest receivable and similar income
2.1
1.8
Deemed interest arising on the
defined benefit pension scheme surplus
3.2
2.3
5.3
4.1
8. Finance costs
Underlying
Acquisition
related
Total
m
m
m
2016
Interest and fees payable on bank facilities
3.9
3.3
7.2
Interest payable on Sterling Notes July 2016
5.1
-
5.1
Interest payable on Sterling Notes June 2019
4.2
-
4.2
Other interest payable
0.5
-
0.5
Amortisation of debt issue and bank facility costs
1.2
3.0
4.2
Total borrowing costs
14.9
6.3
21.2
Unwind of discounted liabilities
0.3
0.3
0.6
15.2
6.6
21.8
2015
Interest and fees payable on bank facilities
1.6
0.6
2.2
Interest payable on Sterling Notes July 2016
9.9
-
9.9
Interest payable on Sterling Notes June 2019
4.2
-
4.2
Other interest payable
0.4
-
0.4
Amortisation of debt issue and bank facility costs
1.8
1.1
2.9
Total borrowing costs
17.9
1.7
19.6
Unwind of discounted liabilities
0.4
0.3
0.7
18.3
2.0
20.3
Acquisition related items include 6.0m of fees and interest relating to the acquisition of ICAP that were incurred on facilities arranged in contemplation of the transaction, costs of 0.3m incurred on a planned refinancing of the Group's 141.1m Sterling Notes that was cancelled due to the acquisition, and 0.3m relating to unwinding the discount on PVM deferred consideration.
9. Earnings per share
2016
2015
Basic - underlying
42.5p
32.2p
Diluted - underlying
41.0p
31.5p
Basic earnings per share
17.8p
34.0p
Diluted earnings per share
17.2p
33.3p
The calculation of basic and diluted earnings per share is based on the following number of shares:
2016
No.(m)
2015
No.(m)
Basic weighted average shares(1)
242.3
243.6
Contingently issuable shares
9.1
5.1
Diluted weighted average shares(1)
251.4
248.7
Note:
1. The 310,314,296 shares issued to acquire ICAP at the end of December 2016 have a nil weighting when calculating the weighted average number of shares for 2016 because the shares were issued at the end of the year and none of the earnings related to the newly issued shares.
The earnings used in the calculation of underlying, basic and diluted earnings per share, are set out below:
2016
2015

m
m
Earnings for the year
43.7
83.3
Non-controlling interests
(0.5)
(0.4)
Earnings
43.2
82.9
Acquisition, disposal and integration costs (Note 4)
63.2
26.7
Exceptional and acquisition related items (Note 5)
1.6
(38.7)
Tax on exceptional and acquisition related items
(5.0)
7.5
Underlying earnings
103.0
78.4
10. Dividends
2016
2015
m
m
Amounts recognised as distributions to
equity holders in the year:
Interim dividend for the year ended 31 December 2016
of 5.6p per share
13.5
-
Final dividend for the year ended 31 December 2015
of 11.25p per share
27.2
-
Interim dividend for the year ended 31 December 2015
of 5.6p per share
-
13.6
Final dividend for the year ended 31 December 2014
of 11.25p per share
-
27.4
40.7
41.0
In respect of the current year, the Directors declared a second interim dividend of 11.25p per share amounting to 27.2m which was paid on 13 January 2017 to all shareholders that were on the Register of Members on 23 December 2016. This dividend has not been included as a liability in these Financial Statements.
The trustees of the Tullett Prebon plc Employee Benefit Trust 2007 have waived their rights to dividends.
11. Intangible assets arising on consolidation
Goodwill
Other
Total
2016
m
m
m
At 1 January 2016
347.5
9.9
357.4
Recognised on acquisitions - ICAP
687.0
639.0
1,326.0
Recognised on acquisitions - other
2.9
-
2.9
Amortisation of acquisition related intangibles
-
(1.4)
(1.4)
Effect of movements in exchange rates
26.5
1.7
28.2
At 31 December 2016
1,063.9
649.2
1,713.1
2015
At 1 January 2015
327.1
9.5
336.6
Recognised on acquisitions
14.5
1.1
15.6
Amortisation of acquisition related intangibles
-
(1.2)
(1.2)
Effect of movements in exchange rates
5.9
0.5
6.4
At 31 December 2015
347.5
9.9
357.4
Other intangible assets at 31 December 2016 represent customer relationships, 610.0m (2015: 8.5m), business brands and trademarks, 28.2m (2015: 1.4m), and other intangibles, 11.0m (2015: nil) that arise through business combinations. Customer relationships are being amortised over 20 years.
Goodwill arising through business combinations has been allocated to individual cash-generating units ('CGUs') for impairment testing as follows:
2016
2015
m
m
Europe and the Middle East
195.1
195.1
North America
93.5
75.9
Brazil
3.5
2.3
Asia Pacific
19.3
19.3
PVM
65.5
54.9
Goodwill allocated to CGUs
376.9
347.5
Unallocated goodwill
687.0
-
1,063.9
347.5
The provisional amount of goodwill arising on the acquisition of ICAP (Note 12) has not been allocated to CGUs due to the proximity of the acquisition to the year-end. As permitted by IAS 36 'Impairment of assets', allocation to relevant CGUs will be completed before the end of 2017. As the goodwill has not been allocated to relevant CGUs it has not been assessed for impairment in the current period.
Determining whether goodwill is impaired requires an estimation of the recoverable amount of each CGU. The recoverable amount of each CGU is the higher of its value in use ('VIU') or its net realisable value ('NRV').
As at 31 December 2016 VIU has been used to estimate recoverable amounts for all CGUs except for Brazil where the recoverable amount has been based on that CGU's NRV. For all CGUs, the estimate of the recoverable amount was higher than the carrying value. The key assumptions for the VIU calculations are those regarding expected cash flows arising in future periods, regional growth rates and the discount rates. Future cash flow 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. Goodwill has an indefinite life and this is reflected in the calculation of the CGU's terminal value. Estimated average growth rates, based on each region's constituent country growth rates as published by the World Bank, are used to estimate cash flows after the budgeted period. Discount rates used are based on the Group's weighted average cost of capital and are a function of the Group's cost of equity, derived using a Capital Asset Pricing Model ('CAPM'), and the Group's cost of debt. The cost of equity estimate depended on inputs in the CAPM reflecting a number of variables including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These inputs are based on external assessment of economic variables together with management's judgement.
The VIU calculations used annual growth rates of 2% for Europe and the Middle East (2015: 2%), 2.5% for North America (2015: 2.5%), 3% for Asia Pacific (2015: 3%) and 2% for PVM (2015: 2%). Terminal values for each CGU assumed no further growth reflecting longer term forecasting constraints. Resultant cash flows for Europe and the Middle East, North America, Asia Pacific and PVM have been discounted at a pre-tax discount rate of 10.5% (2015: 10.5% with 12.5% for North America).
These calculations have been subject to stress tests reflecting reasonably possible changes in key assumptions. All VIU calculations are insensitive to reasonably possible changes in the discount rate and are most sensitive to lower growth rate assumptions which reduce expected cash flows. With zero growth all CGUs' recoverable amounts were still higher than their carrying value. At this level the recoverable amount for Europe and the Middle East exceeded its carrying value by 203m, which reduces to nil if annual growth rates fall to negative 4% over the projected cash flow period, North America exceeded its carrying value by 145m, which reduces to nil if annual growth rates fall to negative 4% over the projected cash flow period, and Asia exceeded its carrying value by 106m, which reduces to nil if annual growth rates fall to negative 6% over the projected cash flow period. The impact on future cash flows resulting from falling growth rates does not reflect any management actions that would be taken under such circumstances.
12. Acquisitions
ICAP
On 30 December 2016, the Group issued 310.3m ordinary shares to acquire 100% of the share capital of ICAP Global Broking Holdings Limited ('ICAP'). The fair value of the shares issued was 1,283.2m, representing their market value at the date of issue. No further consideration is payable in respect of the acquisition.
Due to the proximity of the acquisition to the year end and its size and complexity, the identification and measurement of the fair value of the assets acquired are incomplete and provisional. Similarly, the allocation of the excess purchase price between identifiable intangible assets and goodwill that arise on the consolidation of ICAP are also provisional. As permitted by IFRS 3 'Business Combinations', the finalisation of the identification and measurement of the fair value of the assets and liabilities acquired, and the allocation of the excess purchase price, will be completed during the twelve month 'measurement period' ending on 30 December 2017. No measurement period adjustments have been recognised in 2016.
This transaction has been accounted for under the acquisition method of accounting.
Provisional
Fair value
m
Net assets acquired (provisional)

Intangible assets relating to purchased and developed software

41.2
Property, plant and equipment

10.6
Investment in associates

44.7
Investment in joint ventures

8.0
Available-for-sale investments

13.4
Deferred tax assets

22.6
Trade and other receivables

13,670.3
Financial assets

67.2
Cash and cash equivalents

316.3
Total assets

14,194.3
Trade and other payables

(13,685.8)
Loans and borrowings

(330.0)
Current tax liabilities

(24.5)
Deferred tax liabilities

(0.2)
Provisions

(13.8)
Retirement benefit obligations

(3.3)
Total liabilities

(14,057.6)
Non-controlling interests
(19.5)

117.2
Intangible assets arising on consolidation (provisional)

Other intangible assets

639.0
Deferred tax liabilities arising on other intangible assets

(160.0)
Goodwill

687.0
Fair value of total consideration

1,283.2

Satisfied by:

Issue of ordinary shares

1,283.2
Intangible assets arising on consolidation, have been provisionally allocated to the ICAP brand, 27.0m, the value of customer relationships, 601.0m, and other intangibles having finite lives, 11.0m. An associated deferred tax liability of 160.0m has been recognised on acquisition, based on the regional allocation of these assets and applicable tax rates, none of which has been offset against the Group's deferred tax assets. The balance of 687.0m has been provisionally recognised as goodwill, representing the value of the established workforce and the business's reputation.
The fair value of the brand has been estimated using a relief-from-royalty approach, based on empirical, market derived rates for such assets and is sensitive to changes in the royalty rate applied. The fair value of customer relationships has been estimated using the 'multi-period excess earnings methodology' which uses the net present value of forecast, post-tax profits generated by that asset. The fair value of customer relationships is sensitive to changes in: forecast post-tax profits; the discount rate applied; the assumed useful life of the assets; the expected rate of customer attrition; and, the level of contributory asset charges for the use of other assets, including a charge for the workforce. Changes to the provisional fair values of the identified intangible assets would result in a change to the associated deferred tax liability, with an equal and opposite change in the provisional amount of goodwill.
Trade and other receivables, financial assets, and cash and cash equivalents are disclosed at their provisional fair values but are not substantially different from their previous carrying values, reflecting the nature of those assets and the business acquired. Contractual amounts receivable are estimated to be 1.7m higher which are not currently expected to be received.
Indemnification assets of 15.5m, receivable from NEX, have been recognised on acquisition and are included with trade and other receivables. The fair value of these assets reflect the fair value of the provisions against which the indemnification has been received. No contingent liabilities are currently recognised at fair value as such liabilities cannot be reliably measured due to the proximity of the acquisition to the date these financial statements were approved. Should such contingent liabilities be recognised during the measurement period they would be matched by a further indemnification asset of an equal value. Recognition of these assets and liabilities would not change the provisional value of goodwill currently recognised.
Provisional goodwill is not expected to be deductible for tax purposes and no associated deferred tax asset has been recorded.
ICAP is not reflected in the Group's results for 2016. Had ICAP been acquired on 1 January 2016 revenue would have been 795.1m higher, underlying operating profit 108.0m higher and underlying earnings 84.9m higher. If the 310.3m ordinary shares issued to acquire ICAP had been issued on 1 January 2016 the basic weighted average shares (Note 9) would have been 552.6m, resulting in an underlying basic EPS 8.5p lower at 34.0p.
Acquisition costs, included in administrative expenses, amounted to 16.8m in 2016 and 12.1m in 2015. 6.6m of costs attributable to the issue of the ordinary shares have been expensed directly to equity.
Creditex
In July 2016, the Group announced the acquisition of Creditex's US hybrid voice brokerage business. Under the agreement, deferred contingent consideration is payable through to the third anniversary of completion. The amount of deferred contingent consideration is dependent upon the performance of the business over the three year period and has a fair value estimated to be US$3.8m (2.9m). The fair value of the net assets acquired is negligible which resulted in the recognition of US$3.8m (2.9m) of goodwill arising on consolidation.
Other acquisitions
During 2016 the Group acquired other interests on which no initial payments were made. Deferred consideration is payable with an estimated fair value of 0.3m. The fair value of the net assets acquired was 0.3m resulting in no goodwill being recognised.
13. Reconciliation of operating result to net cash from operating activities
2016
2015
m
m
Operating profit
73.3
121.9
Adjustments for:
 Share-based compensation expense
4.4
1.5
 Pension scheme's administration costs
0.9
0.7
 Depreciation of property, plant and equipment
8.0
7.7
 Amortisation of intangible assets
8.4
7.3
 Pension scheme settlement gains
(3.6)
-
 Acquisition related share-based payment charge
16.3
10.5
 Amortisation of intangible assets arising on consolidation
1.4
1.2
 Loss on disposal of property, plant and equipment
-
0.2
 Loss on derecognition of intangible assets
-
0.1
 Loss on disposal of associates and subsidiary undertakings
0.1
0.2
 Remeasurement of deferred consideration
2.2
0.4
 Impairment of available-for-sale investments
0.2
-
 Non cash movement in FVTPL balances
0.9
-
(Decrease)/increase in provisions for liabilities and charges
(17.7)
11.5
Decrease in non-current liabilities
(1.1)
(0.8)
Operating cash flows before movement in working capital
93.7
162.4
(Increase)/decrease in trade and other receivables
(17.9)
0.1
(Increase)/decrease in net settlement and trading balances
(2.5)
1.3
Increase in trade and other payables
23.1
16.5
Cash generated from operations
96.4
180.3

Income taxes paid
(16.7)
(19.5)
Interest paid
(21.1)
(16.8)
Net cash from operating activities
58.6
144.0
14. Analysis of net funds
At 1
January
2016
m
Cash
flow
m
Non cash
items
m
Acquired with acquisitions m
Exchange
rate
movements
m
At 31
December
2016
m
Cash
296.7
336.8
-
-
23.5
657.0
Cash equivalents
62.2
(26.2)
-
-
5.5
41.5
Overdrafts
-
(2.4)
-
-
-
(2.4)
Cash and cash equivalents
358.9
308.2
-
-
29.0
696.1
Financial assets
20.3
(2.3)
-
67.2
4.3
89.5
Total funds
379.2
305.9
-
67.2
33.3
785.6
Notes due within one year
(140.9)
141.1
(0.2)
-
-
-
Bank loan due within one year
-
(466.2)
(1.1)
-
-
(467.3)
Notes due after one year
(79.3)
-
(0.2)
-
-
(79.5)
(220.2)
(325.1)
(1.5)
-
-
(546.8)
Total net funds
159.0
(19.2)
(1.5)
67.2
33.3
238.8
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 2016 cash and cash equivalents, net of overdrafts, amounted to 696.1m (2015: 358.9m). 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 assets comprise short term government securities, term deposits and restricted funds held with banks and clearing organisations.
15. Provisions

Property
Re-structuring
Legal
and other
Total
2016
m
m
m
m
At 1 January 2016
5.6
21.4
2.1
29.1
Charge to income statement
1.1
3.1
2.2
6.4
Acquired with acquisitions - ICAP
1.0
-
12.8
13.8
Utilisation of provisions
(0.3)
(22.3)
(0.5)
(23.1)
Effect of movements in exchange rates
1.0
1.0
0.5
2.5
At 31 December 2016
8.4
3.2
17.1
28.7
2015
At 1 January 2015
5.9
8.9
1.5
16.3
(Credit)/charge to income statement
(0.2)
21.4
0.6
21.8
Utilisation of provisions
(0.3)
(9.4)
(0.1)
(9.8)
Effect of movements in exchange rates
0.2
0.5
0.1
0.8
At 31 December 2015
5.6
21.4
2.1
29.1
Property provisions outstanding as at 31 December 2016 relate to provisions in respect of onerous leases and building dilapidations. The onerous lease provision represents the net present value of the future rental cost net of expected sub-lease income. These leases expire in one to ten years (2015: one to eleven years). The building dilapidations provision represents the estimated cost of making good dilapidations and disrepair on various leasehold buildings. The leases expire in one to six years.
Restructuring provisions outstanding as at 31 December 2015 relate to termination and other employee related costs, the majority of which were discharged during 2016.
Legal and other provisions include provisions for legal claims brought against subsidiaries of the Group together with provisions against obligations for certain employee related costs and non-property related onerous contracts. At present the timing of any payments is uncertain and provisions are subject to regular review. It is expected that the obligations will be discharged over the next three years.
In February 2015 the European Commission imposed a fine of 12.8m (14.9m) on ICAP Europe Limited ('IEL') for alleged competition violations in relation to the involvement of certain of IEL's brokers in the attempted manipulation of Yen LIBOR by bank traders between October 2006 and January 2011. While this matter relates to alleged conduct violations prior to completion of the Company's acquisition of ICAP the Company notes that ICAP has appealed the fine imposed by the European Commission and is seeking a full annulment of the Commission's decision. This is recognised as a provision of 12.8m as at 31 December 2016. In the event that the Commission imposes a fine in excess of 15.0m such excess will be borne by NEX Group plc ('NEX').
16. Contingent liabilities
FCA investigation
Tullett Prebon Europe Limited ('TPEL') is currently under investigation by the FCA in relation to certain trades undertaken between 2008 and 2011, including trades which are risk free, which are alleged to have no commercial rationale or economic purpose, on which brokerage is paid, and trades on which brokerage may have been improperly charged. As part of its investigation, the FCA is considering the extent to which during the relevant period (i) TPEL's systems and controls were adequate to manage the risks associated with such trades and (ii) whether certain of TPEL's managers were aware of, and/or managed appropriately the risks associated with, the trades. The FCA is also reviewing the circumstances surrounding a failure in 2011 by TPEL to discover certain audio files and produce them to the FCA in a timely manner. As the investigation is ongoing, it is not possible to predict its ultimate outcome and accordingly any potential liability and/or financial impact cannot currently be reliably estimated.
Bank Bill Swap Reference Rate case
On 16 August 2016, a new litigation was filed in the United States District Court for the Southern District of New York naming the Company, ICAP plc, ICAP Australia Pty LTD ('IAPL') 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. Each of the defendants named above intend to defend the litigation vigorously. It is not possible to predict the ultimate outcome of the litigation or to provide an estimate of any potential financial impact.
Euroyen TIBOR case and Yen LIBOR case
ICAP plc was previously named as a defendant to an existing civil litigation originally filed in April 2012 against certain Yen LIBOR and Euroyen TIBOR panel banks in the US District Court for the Southern District of New York (the 'Laydon action'). The complaint alleges that the plaintiff, who traded positions in Euroyen TIBOR futures contracts, was injured as a result of the purported manipulation of Yen LIBOR and Euroyen TIBOR by certain panel banks and interdealer brokers. ICAP plc was dismissed as a defendant from the Laydon action in March 2015. However, at that time the plaintiff was given permission to add ICAP Europe Limited ('IEL') along with certain other parties as defendants. Other plaintiffs have filed a related complaint related to the Laydon action which includes IEL and ICAP plc as defendants (the 'Sonterra action'). In 2015 the Company was also named as a defendant in both the Laydon action and the Sonterra action. In March 2017, the Court dismissed the plaintiff's claims against the Company and IEL. No subsidiary of the Group is therefore currently named as a defendant in relation to these class actions.
EURIBOR case
In 2013, a civil class action was filed in the United States District Court for the Southern District of New York against a number of banks asserting claims of EURIBOR manipulation. On 13 August 2015, the plaintiffs filed a fourth amended complaint adding new defendants including ICAP plc and IEL. Defendants briefed motions to dismiss for failure to state a claim and lack of jurisdiction, which were fully submitted as of 23 December 2015. The Court dismissed the plaintiff's claims against ICAP plc and IEL in February 2017. No subsidiary of the Group is therefore currently named as a defendant in relation to this class action.
Labour claims - ICAP Brazil
ICAP do Brasil Corretora De Ttulos e Varoles Mobilirios Ltda ('ICAP Brazil') is a defendant in sixteen 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'). ICAP Brazil estimates the maximum potential aggregate exposure in relation to the Labour claims to be BRL 48.4m. The Company may also be exposed to a potential social security tax liability in relation to the Labour claims. The Group is covered by an indemnity from NEX in relation to any outflow in respect of the Labour claims.
Flow case - Tullett Prebon Brazil
In December 2012, Flow Participaes Ltda. and Brasil Plural Corretora de Cmbio, Ttulos e Valores ('Flow') initiated a lawsuit against Tullett Prebon Brasil S.A. Corretora de Valores e Cmbio 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 182m. Tullett intends to vigorously defend itself but there is no certainty as to the outcome of these claims. The case is currently in an early evidentiary phase and it is stayed pending discussion before the Superior Court of Justice regarding the production of evidence. Therefore, the case is not anticipated to be resolved in 2017.
ISDA Fix
The CFTC and other government agencies have requested information from the NEX Group in relation to the setting of the US dollar segment of a benchmark known as ISDA Fix. ICAP plc's successor firm, NEX, continues to cooperate with the agencies' inquiries into the setting of that rate. ICAP Capital Markets LLC ('ICM') was the collection agent for ISDA Fix panel bank submissions in US dollars, but was not a panel member itself. It is not possible to predict the ultimate outcome of the CFTC investigation or to provide an estimate of any potential financial impact. In September and October 2014, five class actions were filed alleging injury due to purported manipulation of the USD ISDA Fix rate. ICM is a defendant in those actions, which have now been consolidated into a single action, along with several ISDA Fix panel banks. Pursuant to the terms of the sale and purchase agreement between the Company and NEX it was agreed that ICM would transfer its activities and business to the Company but that ICM would not be transferred to the Company's ownership at completion. It was further agreed that in the event of any claims or losses arising in relation to ISDA Fix, these would be for the account of NEX. It is not possible to predict the ultimate outcome of the litigation or the CFTC's enquiries or to provide an estimate of any potential financial impact. The Company and its Group may nevertheless suffer financial loss either directly or as a consequence of damage to its reputation as a result of these matters.
Swaps civil litigation
In December 2016, ICAP SEF (US) LLC and ICAP Global Derivatives Limited were named in a class action alleging that they and certain dealer banks colluded to prevent buy side customers from accessing all-to-all anonymous electronic trading platforms and therefore prevented buy side customers from getting access to the best interest rate swap prices. The actions generally asserted claims of violation of antitrust laws and unjust enrichment. Each of ICAP SEF (US) LLC and ICAP Global Derivatives Limited intend to defend these litigation claims vigorously. It is not possible to predict the ultimate outcome of the litigation or to provide an estimate of any potential financial impact. The Company expects that it will benefit from the warranty provisions of the sale and purchase agreement with NEX such that any outflow in respect of the ICAP entities with regards to this litigation will be borne by NEX.
General note
From time to time the Company's subsidiaries are engaged in litigation in relation to a variety of matters, and is required to provide information to regulators and other government agencies as part of informal and formal enquiries or market reviews. The Company'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.
In the normal course of business, certain of the Company's subsidiaries enter into guarantees and indemnities to cover trading arrangements and/or the use of third party services or software.
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, there are no individual matters which are considered to pose a significant risk of material adverse financial impact on the Company's results or net assets.
The Group operates in a wide variety of jurisdictions around the world and uncertainties therefore exist with respect to the interpretation of complex tax laws and practices of those territories. 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.
17. Events after the balance sheet date
In January 2017, the Group issued 500m unsecured Sterling Notes due January 2024. The Notes have a semi-annual coupon of 5.25%, subject to compliance with the terms of the Notes. Proceeds were used to repay the 470m bank loan.
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OTHER INFORMATION
The Annual General Meeting of TP ICAP plc will be held on 11 May 2017 at 12.15pm.
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Independent Auditors' Report to the Members of TP ICAP plc on the Preliminary Announcement of TP ICAP plc
We confirm that we have issued an unqualified opinion on the full financial statements of TP ICAP plc.
Our assessment of risks of material misstatement
When planning our audit, we made an assessment of the relative significance of the key risks of material misstatement to the Group financial statements. The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.
We identified two new key risks of material misstatement relating to the accounting for the acquisition of ICAP's Global Broking Business ('ICAP') and presentation and disclosure of acquisition, disposal and integration related items. Both arise from the acquisition of ICAP. Last year, our audit report on the full financial statements also included Matched Principal revenue and the valuation of group tax provisions as key risks. In relation to Matched Principal revenue, we focus particularly on the risk of material misstatement in respect of revenue associated with trades which fail to settle within standard market settlement periods. As the revenue associated with such trades was not material at 31 December 2016 and 31 December 2015 this risk has not been included in our report in the current year. In relation to the valuation of group tax provisions, this risk required relatively less audit effort than in previous years, largely due to a reduction in the Group's potential tax exposures.
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 do not provide a separate opinion on these matters.
Name Passing revenue
Risk description
Name Passing revenue is earned for the service of matching buyers and sellers of financial instruments. The Group is not a counterparty to the trade and commissions are invoiced for the service provided by the Group. It accounts for approximately 76% of the Group's broking revenue.
As invoices for services provided are not issued until the end of each month, the cash collection period is typically longer than for Matched Principal revenue. The risk of misstatement of revenue increases where the invoice becomes past due or where post year-end trade adjustments or credit notes arise.
As the acquisition of ICAP was completed on 30 December 2016, no Name Passing revenue is reflected in the 2016 financial statements in respect of ICAP and therefore this risk was only applicable to the Tullett Prebon business in 2016.
How the scope of our audit responded to the risk
We tested the operating effectiveness of relevant controls relating to Name Passing invoicing and cash collection.
We confirmed a sample of trades to cash received throughout the year. We agreed a further sample of Name Passing transactions, which were outstanding at year-end, to cash received post year-end. We tested the aged debtor analysis through re-performance and, focusing on higher risk aged items, we confirmed that revenue recognised on each transaction was supportable by obtaining evidence to corroborate the validity of the underlying trade and reviewing communications with counterparties.
We tested a sample of post year-end trade adjustments and credit notes to evaluate whether these items were accurate and valid.
Key observations
Our testing of the effectiveness of internal controls over Name Passing invoicing and cash collection identified no issues. During 2016 the Group implemented improvements in controls over trade amendments. As the improved controls were not in place throughout the year, we performed additional substantive testing of trade amendments. No issues were identified from this testing.
No issues were identified through our detailed testing of cash receipts and aged debtors.
We determined the recognition of Name Passing revenue to be appropriate and in line with the Group's accounting policy.
Impairment of goodwill and other intangibles
Risk description
As required by IAS 36, goodwill and other intangible assets are reviewed for impairment at least annually. Determining whether the goodwill of 1,063.9m, other intangible assets of 70.1m and other intangible assets arising on consolidation of 649.2m are impaired requires an estimation of the recoverable amount of the Group's cash generating units ('CGUs'), using the higher of the value in use or fair value less costs to sell.
The value in use takes into account expected future cash flows and requires the selection of suitable discount rates and forecast future growth rates and is therefore inherently subjective. The value in use of each CGU is sensitive to changes in underlying assumptions. We focused our testing on the CGUs where we identified increased sensitivity to the growth rate assumptions.
The value in use method was used to assess the recoverable amount of all CGUs excluding ICAP.
Following the acquisition of ICAP, 687.0m of goodwill and 639.0m of other intangible assets were recognised as at 31 December 2016. The provisional amount of goodwill and other intangible assets arising on the acquisition of ICAP have not been allocated to CGUs due to the proximity of the acquisition to the year-end and therefore the Company is not required to assess the ICAP related goodwill for impairment as at 31 December 2016. As permitted by IAS 36, the initial allocation to CGUs will be completed before the end of 2017.
No impairment was recorded in the year for any of the CGUs.
How the scope of our audit responded to the risk
We challenged the identification of the Group's CGUs, by assessing whether the CGUs reflected the lowest aggregation of assets that generate largely independent cash flows.
We performed detailed analysis and challenge of the Group's assumptions used in the annual impairment review, in particular forecast future growth rates, the cash flow projections and discount rates used by the Group in its impairment tests of the CGUs. We challenged cash flow forecasts and growth rates by evaluating recent performance, trend analysis and comparing growth rates to those achieved historically and to external market data where available. Our internal valuations specialists independently derived discount rates which we compared to the rates used by the Group and we benchmarked discount and growth rates to available external peer group data.
As the impairment tests for the Europe and the Middle East, North America and Asia Pacific CGUs were sensitive to changes in the growth rate assumption, we assessed the point at which an impairment would occur and considered whether this was a reasonably possible change which required additional disclosure.
Key observations
We concluded that the Directors' impairment test was appropriate and that no impairment of goodwill and other intangibles has arisen. We determined the identification of CGUs to be appropriate.
The cash flow forecasts used in the annual impairment review were consistent with the most recent financial budgets considered by the Board and were reasonable in the context of recent business performance.
The discount rates used by the Group are within a reasonable range of rates implied by both our internally derived discount rates and peer benchmarks. The impairment tests are insensitive to reasonably possible changes in discount rates.
The growth rates used by management are reasonable and we considered that the disclosures made by the Directors that a reasonably possible change in the growth rate assumptions for the Europe and the Middle East, North America and Asia Pacific CGUs would result in the carrying value of these CGUs exceeding their recoverable amount is appropriate.
Accounting for the acquisition of ICAP
Risk description
The Group completed the acquisition of ICAP on 30 December 2016. The acquisition resulted in the recognition of 687.0m of goodwill and 639.0m of other intangible assets as at 31 December 2016.
Accounting for the acquisition gives rise to two key areas of management judgement and estimation uncertainty:
 the valuation and completeness of 639.0m of separately identifiable intangible assets; and
 the valuation and completeness of adjustments required to reflect the assets and liabilities of ICAP at their fair value as at 30 December 2016.
The Directors engaged external specialists to support their assessment of the completeness and valuation of intangible assets. A majority of the separately identifiable intangible assets comprise 601.0m relating to customer contracts and relationships and 27.0m relating to the ICAP brand and trademarks and hence we have focused on testing the assumptions to which the valuation of these assets are most sensitive.
As required by IFRS 3, the Directors have measured the fair value of assets and liabilities based on facts and circumstances that existed as at the acquisition date. The Directors have provisionally determined that no adjustments are required to the carrying value of assets and liabilities in ICAP's acquisition date balance sheet. The fair value of net assets acquired was 117.2m.
How the scope of our audit responded to the risk
We audited the Group's accounting for the acquisition, specifically focusing on the valuation and completeness of separately identifiable intangible assets and fair value adjustments.
We used our own internal valuation specialists to challenge the conclusions reached by the Directors in determining the separately identifiable intangible assets arising on acquisition. Our audit procedures included:
 assessing the objectivity and expertise of the Group's external specialist, meeting with them to discuss their approach and the findings within their final report;
 comparing the intangible assets recognised by the Group against a list of reasonably possible intangible assets for comparable businesses;
 testing the valuation methodology applied through comparison to industry practice;
 challenging the cash flow forecasts by reference to historical performance and the appropriateness of the underlying assumptions;
 challenging the appropriateness of other inputs and significant assumptions used in valuing the customer contracts and relationships and the ICAP brand and trademarks; and
 comparing the relative split between goodwill and other intangible assets recognised by the Group to recent and comparable acquisitions made by similar companies.
We have challenged the methodology applied by the Directors to determine that no fair value adjustments are required to the assets and liabilities of ICAP as at 30 December 2016 by independently assessing whether any additional fair value adjustments should be made based on the known facts and circumstances.
Key observations
The valuations and allocation are provisional and subject to change in the measurement period.
We considered the provisional identification of the ICAP brand and trademarks, the customer contracts and relationships and the provisional valuation methodology used to be appropriate and in line with industry practice.
We considered the cash flow forecasts, key inputs and assumptions to be reasonable in the context of the known facts and circumstances and historical performance. The provisional allocation between goodwill and other intangible assets is reasonable.
No material fair value adjustments were identified through our testing.
Presentation and disclosure of acquisition, disposal and integration related items
Risk description
The Group reports acquisition, disposal and integration related items of 63.2m before taxation. These include costs relating to the acquisition of ICAP of 16.8m and integration costs of 19.3m.
There is a risk that items that reflect the underlying performance of the Group are incorrectly presented as acquisition, disposal and integration related items. In addition, there is a risk that undue prominence is given to underlying results compared to the statutory results of the Group in the Annual Report.
How the scope of our audit responded to the risk
For a sample of acquisition, disposal and integration related items we obtained supporting evidence to confirm whether the items relate to acquisitions, disposals or integration or should be presented as part of the Group's underlying results.
We read the Annual Report and challenged the prominence given to underlying results relative to the Group's statutory results and whether the presentation was misleading. We read the description of the basis of underlying results and whether it was consistently applied. We also tested the completeness and accuracy of the reconciliation between underlying and statutory results.
Key observations
We identified no items within acquisition, disposal and integration related items that should be presented in underlying results. We considered that the presentation of the Group's underlying results is appropriately explained, is understandable and that the reconciliation to the Group's statutory results is complete and accurate. We considered that appropriate prominence has been given to the statutory results in the Annual 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 Chapter 3 of Part 16 of the Companies Act 2006. 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.
Deloitte LLP
Chartered Accountants and Statutory Auditor
14 March 2017

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