PRELIMINARY RESULTS - year ended 31 December 2006
TULLETT PREBON PLC
PRELIMINARY RESULTS - for the year ended 31 December 2006
Highlights
Tullett Prebon plc today announced its preliminary results for the year ended
31 December 2006. The highlights are:
- Demerger of Collins Stewart effective 19 December 2006.
- Return of £301.5m of capital to shareholders expected to be made on
20 March 2007.
- Proposed final dividend of 6p per share.
- Acquisition of Chapdelaine completed 11 January 2007.
Continuing operations results:
- Revenue £654.1m (2005: £649.4m) - underlying growth of 5%.
- Operating profit £114.8m (2005: £90.7m before exceptional items) -
growth of 27%.
- Profit before tax £125.0m (2005: £52.3m) - growth of 139%.
- Adjusted* EPS 33.0p (2005: 22.4p) - growth of 47%.
* excluding exceptional items and non cash gains and losses in net
finance income/(expense)
Commenting on the results, Keith Hamill, Chairman of Tullett Prebon
plc, said:
"2006 was a successful year. The split of Collins Stewart Tullett
plc has been completed: into Tullett Prebon, which is the world's second
largest inter-dealer broker, and Collins Stewart, which is the UK's leading
independent stock broker. At this stage in their development, the separation
will enable both businesses to achieve stronger growth. We expect to make a
return of cash to shareholders of £301.5m on or around 20 March.
The Tullett Prebon inter-dealer broker business had strong results.
Revenue was £654m, with underlying growth at 5 percent, and operating profits
before exceptional items were £115m (2005: £91m). Adjusted earnings per share
for continuing businesses were 33 pence - an increase of 47 percent."
Terry Smith, Chief Executive, added:
"The acquisition of Chapdelaine was completed in January 2007 for a
consideration of £48m (£29m of which was paid on completion). This is a long
established New York business which provides broking services in corporate
bonds, credit derivatives, mortgage backed securities and equities. The
acquisition will strengthen our North American business, particularly in
credit products.
The current outlook for Tullett Prebon is positive and the Board is
confident of creating future value for shareholders."
- Ends -
Enquiries:
Nigel Szembel, Head of Communications Mob: 07802 362088
Tullett Prebon plc
Further information on the Company and its activities is available
on the Company's website: www.tullettprebon.com.
chairman's statement
On 19 December 2006 Collins Stewart Tullett plc was split into two
independent businesses: Tullett Prebon plc, the world's second largest
inter-dealer broker, and Collins Stewart plc, which is the leading UK
independent stock broker - and which has recently acquired Hawkpoint, the
highly regarded UK corporate advisory business. The demerger was effected
because it was considered that at this stage of their development the two
companies would be able to grow more strongly if separated. The change also
allows a substantial return of capital to be made to the shareholders. Both
companies now have separate listings on the London Stock Exchange.
Total shareholder return for 2006 was 55 percent (calculated using
the Collins Stewart Tullett plc share price at the start of 2006 and the
combined Tullett Prebon plc and Collins Stewart plc share prices at the end of
that year). This was 19 percentage points above the FTSE 250 Index for 2006
and 9.5 percentage points above the General Financials Sector Index for the
same year.
On 26 February 2007 our shareholders approved a cash return of
capital of £301.5m. Subject to final Court approval, the effective date of the
reduction of capital is expected to be 15 March 2007 and shareholders are
expected to receive 142 pence per ordinary share in cash on or around 20 March
2007.
The Board is proposing a final dividend of 6 pence per share,
which, if approved will be payable on 14 June 2007 to shareholders on the
register on 25 May 2007. The level of the dividend has been set taking account
of the capital structure of the company after the return of capital. Collins
Stewart plc has also announced a proposed final dividend of 5 pence per share.
Tullett Prebon achieved strong results for 2006. Revenue amounted
to £654m (2005: £649m) and underlying revenues were up 5 percent. Operating
profits before exceptional items were £115m (2005: £91m). The results
reflected the completion of the integration of Prebon which was acquired in
2004 and benefited from the elimination of double running costs. Operating
margins rose to 17.6 percent of revenue from 14 percent of revenue. The
average return on capital employed was 28 percent. The adjusted earnings per
share for the continuing businesses were 33 pence per share, an increase of 47
percent.
The acquisition of Chapdelaine was completed in January 2007 for a
consideration of £48m (£29m of which was paid on completion). This is a long
established New York business which provides broking services in corporate
bonds, credit derivatives, mortgage backed securities and equities. The
acquisition will strengthen our North American business, particularly in
credit products.
The accounts also include the results of the Collins Stewart
stockbroking business prior to the demerger, shown as discontinued operations.
Earnings per share including the results of both businesses were up 107
percent at 60.6 pence per share.
Now that the demerger has been completed, we have a focused
business which is in a position to undertake the work needed to make further
progress, particularly in growing revenues in what will be a period of
continuing change in its markets. The current outlook for Tullett Prebon is
positive and the Board is confident of creating future value for shareholders.
Board Matters
Following the demerger, Terry Smith became Chief Executive of
Tullet Prebon. Lou Scotto, who led the integration of Tullett and Prebon,
stepped down from the Board in February 2007 to concentrate on his role as
Chief Executive of the Americas and in particular on the core initiatives of
developing our electronic platform and the integration of Chapdelaine. Paul
Mainwaring joined the Board as Finance Director in October 2006 and we are
already benefiting from his previous experience in that role in two other
businesses. His predecessor, Stephen Jack retired from the Board in November
2006 and we wish him well for the future.
Rupert Robson joined the non executive team in January 2007. He has
held a number of senior roles in financial services, most recently as Global
Head, Financial Institutions Group, Corporate Investment Banking and Markets
at HSBC. He has already made a strong contribution to the Board and we are
proposing his election at the AGM. Alistair Peel has also joined us from
Candover Investments plc as our Company Secretary and will be supporting us in
maintaining and developing the effectiveness of the Board.
John Spencer, who has been a non executive since the Collins
Stewart IPO in 2000, and Bernard Leaver, who joined the Board in 2003, have
both indicated that they will not be available to stand for re-election at the
AGM in June. The successful development of Collins Stewart into what has now
become the two independent businesses has not been without challenges,
requiring the Board to be robust in supporting the best interests of the
company and the shareholders, even when that might not have been the easiest
course. We would like to thank our retired and retiring colleagues for their
contribution. John Spencer has held the role of Senior Independent Director
and we will make an announcement about succession in that role at the AGM.
Keith Hamill
Chairman
13 March 2007
Overview of 2006
2006 was another successful year for the Company. A year ago we
announced our intention to effect the demerger of the Collins Stewart
stockbroking business and then subsequently to return at least £300m of
capital to shareholders.
The demerger became effective in December last year, and has
resulted in two separate listed companies, Collins Stewart plc owning the
stockbroking business, and Tullett Prebon plc owning the inter-dealer broking
business, each of which is better placed to focus fully on the development
opportunities available to them.
The demerger of the stockbroking business also allows Tullett
Prebon plc to operate with a more efficient capital structure. The
inter-dealer broking business does not take principal risk, and is a `limited
licence'/`limited activity' group under the Capital Requirements Directive
(`CRD') which came into effect on 1 January 2007. During the year the Company
applied for and received a waiver from the consolidated capital adequacy tests
under the regulatory requirements established by the CRD. The granting of this
waiver by the Financial Services Authority (`FSA') facilitates the return of
£301.5m of capital to shareholders, which will be effective before the end of
March this year.
We continued to strengthen the inter-dealer broking business.
Contribution rates in the business have been improved further as we realise
the full benefits of the integration of the Prebon business acquired in
October 2004 and the elimination of the double running costs incurred during
2005.
Our electronic trading platform, TradeBladeTM, has established a
significant market share in the products launched in the early part of 2006,
and we expect to achieve similar success with the products launched in the
middle of last year.
Our European business has continued to perform very strongly. The
performance in North America has been held back by our position in the
challenging fixed income market, but the business has been significantly
strengthened by the recent acquisition of Chapdelaine, which addresses our
weaknesses in this particular sector, and which has been quickly integrated
into our existing operations. Our Asian business has recovered strongly from
the disruption during 2005 as a result of competitor activity.
We continue to review new markets and geographies for opportunities
to develop the business, and a new head of product development will join the
team in April this year to spearhead this initiative.
The following table shows the results for the continuing operations
for 2006 compared with those for 2005. In 2006 management responsibility for
most of the domestic and international equities activities based in New York
was transferred from the inter-dealer broking business to the stockbroking
business. The results for 2005 have been restated accordingly. The
stockbroking business was demerged on 19 December 2006, and its results are
therefore shown as discontinued operations in both years. The following
narrative focuses on the continuing operations.
2006 2005
£m £m
Revenue 654.1 649.4
Operating profit before exceptional items 114.8 90.7
Exceptional items - Reorganisation costs - (38.3)
Operating profit 114.8 52.4
Net finance income/(expense) 10.2 (0.1)
Profit before tax 125.0 52.3
Taxation (41.0) (25.0)
Share of results of associates - 0.7
Profit for the year from continuing 84.0 28.0
operations
Discontinued operations 44.3 33.7
Profit for the year 128.3 61.7
Earnings per share
From continuing operations
- Adjusted basic 33.0p 22.4p
- Basic 39.7p 13.2p
From continuing and discontinued
operations
- Basic 60.6p 29.3p
Revenue and Operating Profit
Reported revenue increased by 1%. However, the underlying revenue
growth was 5%, adjusting for revenues lost during 2005 as a result of staff
losses in Asia (Hong Kong and Singapore), disposals (Sydney), and the closure
of the London cash equities business that never regained momentum following
the fire at Cable House (`discontinued activities'). Over the year, the impact
on reported revenue of changes in translation exchange rates was minimal, but
was much more significant in comparing the reported revenue for the half
years, with the average US dollar exchange rate for the second half of 2006
being 6% weaker than for the corresponding period in 2005.
Market conditions were generally favourable, with continuing strong
growth and volatility in a number of our markets notably foreign exchange,
interest rate derivatives and energy. Conditions in the fixed income markets
were more challenging, however, particularly in the Americas.
Operating profit before exceptional items increased by 27%, with
the operating margin before exceptional items increasing to 17.6% compared
with 14.0% for 2005. The improvement reflects the benefits of the completion
during 2005 of the integration of the inter-dealer broking business following
the acquisition of Prebon in October 2004, and the elimination of double
running costs. Year end broker headcount was 1,512 (2005: 1,588) and average
support staff headcount fell by over 10%. As a result the key indicators of
our operational performance continued to show improvement. Average revenue per
broker increased to £413,000 (2005: £377,000) with the ratio of brokers to
support staff also marginally increasing. Broker compensation to revenue at
57.9% is slightly higher than 2005 (57.7%).
The following tables analyse revenue by region and by product
group, and operating profit by region.
Revenue £m 2006 2005 Change
Europe 335.1 307.3 +9%
North America 252.8 259.8 -3%
Asia Pacific 66.2 56.7 +17%
654.1 623.8 +5%
Discontinued - 25.6 -
activities
Reported 654.1 649.4 +1%
Revenue £m 2006 2005 Change
Treasury Products 191.0 176.6 +8%
Interest Rate 166.5 153.1 +9%
Derivatives
Fixed Income 181.8 197.0 -8%
Equities 41.3 31.8 +30%
Energy 60.0 51.9 +16%
Information Sales 13.5 13.4 -
654.1 623.8 +5%
Discontinued - 25.6 -
activities
654.1 649.4 +1%
Operating Profit* £m 2006 2005 Change
Europe 65.9 41.6 +58%
North America 44.3 40.4 +10%
Asia Pacific 4.6 8.7 -47%
114.8 90.7 +27%
* before exceptional items
Our performance in Treasury Products benefited from exchange rate
volatility and our strong position in the non-bank cash markets. Changes in
interest rates and shifts in the yield curve in both Europe and the Americas
assisted our Interest Rate Derivatives business. Our Fixed Income business
suffered in a less buoyant market and although we maintained our revenues in
Europe, we experienced a significant decline in the Americas. Our Equities
business performed strongly, driven by equity derivatives. Our Energy business
has benefited from ongoing volatility in an increasingly liquid market, with
growing participation of investment banks and other financial institutions.
Information Sales revenue was maintained, with new business wins offsetting
the negative impact of the consolidation of previously separate Tullett and
Prebon contracts and the loss of a contract due to customer combination.
Europe delivered a good revenue performance in 2006 with growth of
9%, benefiting from the London operations working from a single broking floor
for the entire year, and helpful market conditions in a number of product
areas. We maintain a leading position in Treasury Products, evidenced by our
top ranking in currencies in the Risk magazine annual awards. Our NDF and spot
FX businesses benefited from expansion into emerging currencies, and market
volumes generally continued to be strong. In Interest Rate Derivatives we
continued to grow revenues in both sterling and Euro inflation products in
which we were ranked top in the Risk magazine awards, and we also benefited
from our investment in interest rate options, and from strong growth in
Eastern European and emerging market swaps. In Fixed Income both the corporate
bond and Euro government bond markets were relatively subdued, but we extended
our presence in gilts, and developed the business into stronger growth areas
such as emerging market bonds and high yield bonds. We maintained our leading
position in repo products, and we have diversified our credit derivatives
activities from traditional single names with expansion into structured
products and emerging market products. Following the decision to close the
London cash equities activities following the fire in the summer of 2005, we
have focused on equity derivatives and GDRs, with the latter performing
strongly as confidence increased in Eastern Europe, particularly in Russia,
and the former benefiting from our investment in index options. During 2006 we
also withdrew from equity finance. In Energy products we achieved strong
growth in power, natural gas and oil options products and have continued to
invest in the wet freight area. We extended our product coverage in early 2007
with the addition of a coal broking team.
Operating profit in Europe increased by 58% to £65.9m (2005:
£41.6m) as a result of the underlying growth in revenue, and the improvement
in operating margin to 19.7% (2005: 13.1%). The improvement in margin reflects
the significant reduction in support costs from 2005 as the completion of the
integration led to average support staff headcount falling by 12%, with the
double running costs incurred in 2005 also eliminated.
Revenue growth in North America was strong across all products
except Fixed Income. In Treasury Products we benefited from the development of
trading in emerging markets currencies driven by growth and increased
stability in those economies, and the ongoing development of the derivatives
markets. Our activities in the traditional currencies benefited from interest
rate movements during the first half of the year. In Interest Rate Derivatives
we maintained our leading position and increased revenues in many of the
products where desks were integrated during 2005. Our Equities business was
refocused following the transfer of the bulk of the equities activities to
Collins Stewart at the beginning of the year, and continued to deliver good
growth. Our Energy operations were strengthened during the year and as a
result of our increased product coverage and acquisitions made in previous
years we were well positioned to benefit from growth in the market. The Fixed
Income market was challenging, and revenues in 2006 were lower than 2005 in
both government and corporate bonds. Trading activity in these products has
been subdued, and some government bond trading has migrated onto electronic
platforms, and whilst we continued to grow in some specific niches of the
market this was not sufficient to offset the impact. The acquisition of
Chapdelaine gives us significantly increased liquidity in high grade and high
yield corporate bonds and credit derivatives, with leadership in a number of
specific areas. Our emerging markets fixed income activities also experienced
a more difficult market, with bond issuance moving from international US
dollar bonds back onshore.
Operating profit in North America increased by 10% to £44.3m (2005:
£40.4m) despite the reduction in revenues, with operating margin improving to
17.5% (2005: 15.5%). Direct costs are predominantly variable and reduced in
line with revenues, with the improvement in margin driven by a reduction in
average support staff headcount and the non-recurrence of double running costs
following the completion of the integration of Prebon in 2005.
The Asia Pacific region has recovered strongly from the disruption
to the business caused by staff losses and business disposals in 2005. The
focus in 2006 has been on stabilising the broking teams across the region and
progressively improving the quality of the teams through hiring without
increasing headcount. We have remained focused on building our activities in
the product areas in which we have been traditionally strong, and have
benefited from both increasing volumes for many of these products and
improvements in market share, leading to us regaining leadership positions in
a number of products. We have strong franchises in Treasury Products and
Interest Rate Derivatives across the region and have seen good growth in the
latter area in our joint venture in Tokyo and in our wholly owned business in
Korea where we commenced trading onshore in May 2005.
Reported operating profit in Asia Pacific fell by 47% to £4.6m
(2005: £8.7m) with operating margin of 6.9% (2005: 12.1%). The 2005 operating
profit is flattered by the inclusion of a number of one-off payments from
competitors associated with the staff and business changes during that year,
and the 2006 operating profit includes costs associated with the litigation
relating to our claim for damages against BGC following the poaching of some
50 brokers from our Singapore operation in February 2005. The region has
delivered an improvement in underlying margin, with an improvement in the
broker employment costs to revenue ratio and a 12% reduction in average
support staff headcount.
In the first week of 2006 we launched TradeBladeTM, our electronic
trading platform, with US dollar repo trading, and we have established a
significant market share in this product. In June 2006 we launched trading in
US treasuries and in November US Federal agency securities. The TradeBladeTM
project was initiated at the request of our clients and the ongoing
development of a credible electronic platform capable, in the medium term, of
generating returns in excess of voice broking returns in the relevant product
areas, is a key part of our strategy. The results of TradeBladeTM are included
in Americas, with the revenue included in Fixed Income.
Exceptional Items
There were no exceptional items in 2006. The exceptional items
charge of £38.3m in 2005 related to the costs associated with the integration
of Prebon.
Litigation
The only significant outstanding litigation is the company's claim
for damages against BGC, following the unlawful poaching of staff in
Singapore. A settlement agreement with BGC was reached following the trial in
November, but BGC have breached their obligations under the settlement
agreement by not paying the amounts due. We have brought an action in the
Singapore High Court against BGC. This trial is expected to take place in
April.
Net Finance Income/(Expense)
The continuing operations had net finance income of £10.2m (2005:
net expense of £0.1m). This includes non-cash gains on the mark to market of
derivative financial instruments (the equity swap and the Eurobond fair value
hedge) of £13.9m (2005: £8.6m) and non-cash net income on pension assets and
liabilities of £0.3m (2005: net charge of £1.2m). These items, net of related
tax, have been excluded in the calculation of adjusted EPS.
Excluding these items, the net finance charge in 2006 was £4.0m
(2005: £7.5m). This comprises interest payable on the £150m Eurobond at 8.25%,
interest payable on finance leases and short term borrowings, and the
amortisation of debt issuance costs, partly offset by interest income earned
on cash balances.
Taxation
The underlying effective rate of tax for the continuing operations,
excluding exceptional items and after adjusting for the non-cash items within
finance income/(expense) and for prior year tax items, is 40% (2005: 44%).
The effective rate is higher than the standard UK rate of 30%
reflecting the profits earned in the US, where the statutory rate is 46%, and
the extent of disallowable items. The reduction in the effective rate compared
with 2005 results mainly from the increased proportion of profit earned in the
UK relative to the US.
Earnings per Share
Adjusted earnings per share from the continuing operations,
calculated before exceptional items and non-cash gains and losses in finance
income/(expense) increased 47% to 33.0p. Including discontinued operations and
taking into account exceptional items, basic earnings per share increased by
107% to 60.6p.
Acquisitions
There were no acquisitions during the year. On 11 January 2007 the
acquisition of Chapdelaine Corporate Securities & Co. was completed. The
consideration for the acquisition is $95m (£48m) payable in cash, $57m (£29m)
of which was paid on completion, with the balance payable over the next three
years, part of which is dependent on Chapdelaine's performance.
Cash Flow
The net cash flow from continuing operations is summarised in the
table below.
2006 2005
£m £m
Operating profit before exceptional items 114.8 90.7
Reorganisation costs - (38.3)
Share option plan charges 5.0 4.6
Depreciation and amortisation 8.0 9.3
EBITDA 127.8 66.3
Capital expenditure (net of NBV of (3.7) (6.3)
disposals)
Working capital 12.8 (2.0)
Operating cash flow 136.9 58.0
Interest (3.6) (6.8)
Taxation (27.7) (20.1)
Contributions to defined benefit pension (2.1) (2.1)
schemes
Purchase of own shares/options cash (14.6) -
settled
Demerger transaction costs (2.2) -
Equity dividends paid (33.8) (18.3)
Dividends paid to minorities (0.2) -
Acquisitions/investment in associates - (5.0)
Issue of ordinary shares - 1.3
Net cash flow 52.7 7.0
Operating cash flow from the continuing operations was £136.9m (2005: £58.0m).
The increase reflects the higher operating profit, the absence in 2006 of
reorganisation costs, and a working capital inflow mainly driven by the
reduction in name give up receivables. The increased taxation payments reflect
the higher profits. During the year the Group purchased its own shares to
satisfy the vesting of awards under share option schemes and also cash settled
some exercises. The dividends paid in 2006 reflect the 2005 final and 2006
interim dividends totalling 16p per share.
The movement in the Group's net funds is summarised below.
£m
Opening net funds 121.5
Less Collins Stewart opening net funds (61.1)
Tullett Prebon opening net funds 60.4
Net cash flow 52.7
Intercompany settlements with Collins 11.2
Stewart
Effect of movements in exchange rates (14.6)
Movements in fair value/amortisation of 1.5
costs
Closing net funds 111.2
Financing and Treasury
At 31 December 2006 the Group held cash and cash equivalents of £263.4m (2005:
£276.4m) and borrowings of £152.2m (2005: £154.9m), giving net funds of
£111.2m (2005: £121.5m). The Group has a £150m Eurobond paying 8.25% which
accounts for the vast majority of the borrowings. The fair value of the bond
is part hedged by a cross currency interest rate swap under which the Group
receives fixed rate sterling interest and pays floating rate US dollar
interest. The net cash inflow under the swap during 2006 was £0.3m (2005:
£1.4m). The movement in the mark to market value of the interest rate swap
element of the cross currency interest rate swap and the hedged portion of the
bond, are included in net finance income/(expense). The Group's cash balances
earn interest at floating rates.
Subsequent to the year end the Group has entered into a £350m credit facility
agreement. £300m will be drawn down for the purposes of financing the return
of capital under a 5 year amortising loan. A further £50m may be drawn down
for general purposes under a 5 year revolving credit facility. The facilities
carry interest at floating rates.
Revenue and profits from the Group's overseas subsidiaries are translated at
average exchange rates. The most significant exchange rates for the Group are
the US dollar and the Euro. There are currently no contracts in place hedging
profit exposure.
The balance sheets of the Group's overseas subsidiaries are translated at year
end exchange rates. The major balance sheet translation exposure is to the US
dollar. The gross exposure at 31 December 2006 amounted to US$178m,
represented by US and Hong Kong net tangible assets, with the net exposure,
taking into account the cross currency swap, of US$61m.
Average and year end exchange rates for the US dollar and the Euro are shown
below:
Average Year End
2006 2005 2006 2005
US dollar $1.83 $1.81 $1.96 $1.72
Euro €1.46 €1.46 €1.48 €1.46
Pensions
The deficit of the Group's defined benefit pension schemes at 31
December 2006 under IAS19 is £26.2m (2005: £36.6m). The reduction in the
deficit mainly reflects the increase in the value of scheme assets over the
year.
The Group has undertaken to ensure that the deficits of the
schemes, on an accounting basis, will be eliminated by 31 December 2010, and
in addition, has granted the trustees of the schemes a first ranking charge
over £50m of gross assets of the Group's principal operating subsidiaries.
The triennial actuarial valuation of the main scheme will be
undertaken as at 30 April 2007.
Regulatory Capital
The Group maintained regulatory capital comfortably in excess of its
requirements under the terms of the Capital Adequacy Directive throughout the
year.
The Capital Requirements Directive (`CRD') came into effect in the UK from 1
January 2007. The Group has received a waiver from the consolidated capital
adequacy requirements of the CRD effective from the start of 2007. The Group
is subject to a financial holding company test, whereby the aggregate
financial resources of the Group are calculated by reference to the capital
and reserves of the parent company, Tullett Prebon plc, with the Group's
aggregate financial resources requirement calculated as the sum of the
requirements of all the Group's subsidiaries. The Group maintains adequate
excess financial resources under this test.
Return on Capital Employed
The return on capital employed of 28% has been calculated as
operating profit divided by average shareholders' funds adjusted to reflect
the demerger of the stockbroking business and to add back cumulative
amortised/impaired goodwill, the post tax impact of reorganisation costs, and
average debt less cash and cash equivalents.
FUTURE DEVELOPMENTS AND OUTLOOK
The business in the Americas has been strengthened by the
acquisition of Chapdelaine, and some significant organisational changes have
been made. In the Americas, in addition to overseeing the further growth of
the business in the region, Lou Scotto has taken specific responsibility for
TradeBladeTM and for the integration of Chapdelaine. A new head of product
development has been recruited to lead the initiatives to extend and deepen
our product and geographic coverage. These changes are part of a focus on
delivering value through accelerated revenue growth.
The acquisition of Chapdelaine for cash and the return of £301.5m
of capital to shareholders results in the Group being in a net debt position
which imposes a financial discipline on all our activities.
The Board is confident of creating future value for shareholders.
Terry Smith
Chief Executive
13 March 2007
consolidated income statement
for the year ended 31 December 2006
Notes 2006 2005
Continuing operations £m £m
Revenue 3 654.1 649.4
Other operating income 4 17.5 23.9
Administrative expenses
Exceptional items: reorganisation costs 5 - (38.3)
Other administrative expenses (556.8) (582.6)
Total administrative expenses (556.8) (620.9)
Operating profit 114.8 52.4
Finance income 6 30.4 21.5
Finance costs 7 (20.2) (21.6)
Profit before tax 125.0 52.3
Taxation (41.0) (25.0)
Profit of consolidated companies 84.0 27.3
Share of results of associates - 0.7
Profit for the year from continuing operations 84.0 28.0
Discontinued operations
Profit for the year from discontinued operations 10 44.3 33.7
Profit for the year 128.3 61.7
Attributable to:
Equity holders of the parent 127.6 61.0
Minority interests 0.7 0.7
128.3 61.7
Earnings per share
From continuing operations
Basic 8 39.7p 13.2p
Diluted 8 38.9p 13.1p
From total operations - continuing and
discontinued
Basic 8 60.6p 29.3p
Diluted 8 59.4p 28.9p
Adjusted earnings per share is disclosed in note 8
Consolidated statement of recognised income and expense
for the year ended 31 December 2006
2006 2005
£m £m
Gain/(loss) on net investment hedge 8.4 (7.2)
Effect of changes in exchange rates on translation of
foreign operations (14.3) 7.9
Actuarial gains on defined benefit pension schemes 8.0 0.9
Taxation on items taken directly to equity - continuing
operations 4.7 (0.2)
Taxation on items taken directly to equity -
discontinued operations 4.5 0.6
Net income recognised directly in equity 11.3 2.0
Profit for the year from continuing operations 84.0 28.0
Profit for the year from discontinued operations 44.3 33.7
Total recognised income and expense for the year 139.6 63.7
Attributable to:
Equity holders of the parent 138.9 63.0
Minority interest 0.7 0.7
139.6 63.7
consolidated balance sheet
as at 31 December 2006
Notes 2006 2005
£m £m
(as
restated)
Non-current assets
Goodwill 311.7 428.0
Other intangible assets 1.5 2.8
Property, plant and equipment 18.8 24.3
Interest in associates 2.6 2.8
Other financial assets 2.7 5.7
Deferred tax assets 28.2 31.0
Derivative financial instruments 5.8 -
371.3 494.6
Current assets
Trade and other receivables 14 12,627.0 11,998.7
Other financial assets 27.0 90.6
Cash and cash equivalents 236.4 235.3
Derivative financial instruments 9.8 5.4
12,900.2 12,330.0
Total assets 13,271.5 12,824.6
Current liabilities
Trade and other payables 14 (12,667.2) (12,026.2)
Other financial liabilities - (15.2)
Interest bearing loans and borrowings (0.9) (1.8)
Current tax liabilities (31.4) (32.6)
Derivative financial instruments - (1.9)
(12,699.5) (12,077.7)
Net current assets 200.7 252.3
Non-current liabilities
Interest bearing loans and borrowings (151.3) (153.1)
Retirement benefit obligations (26.2) (36.6)
Deferred tax liabilities (1.3) (1.0)
Long-term provisions (7.8) (7.2)
Other long-term payables (3.1) (3.3)
Derivative financial instruments - (1.2)
(189.7) (202.4)
Total liabilities (12,889.2) (12,280.1)
Net assets 382.3 544.5
Equity
Share capital 690.1 53.1
Share premium account - 250.9
Reverse acquisition reserve (1,182.3) -
Other reserves 100.7 121.8
Retained earnings 772.1 116.3
Equity attributable to equity holders of the 380.6 542.1
parent
Minority interest 1.7 2.4
Total equity 382.3 544.5
consolidated cash flow statement
for the year ended 31 December 2006
Notes 2006 2005
£m £m
Net cash from operating activities 11(a) 163.6 88.8
Investing activities
Sale of other financial assets 12.9 (1.9)
Interest received 15.5 10.7
Proceeds on disposal of property, plant and
equipment 2.0 -
Proceeds on disposal of available-for-sale
investments 7.2 1.2
Purchase of intangible fixed assets (0.6) (1.6)
Purchase of property, plant and equipment (5.0) (13.0)
Acquisition of subsidiaries/investment in
associates (4.4) (8.0)
Derecognised on demerger of Collins Stewart (122.3) -
Net cash used in investment activities (94.7) (12.6)
Financing activities
Dividends paid 9 (33.8) (18.3)
Dividends paid to minority interests (0.2) -
Issue of ordinary share capital - 1.3
Purchase of own shares/cash settlement of
share options (15.6) -
Taxation credit on share option exercises 1.5 -
Repayment of borrowings - (1.2)
Demerger transactions costs (4.5) -
Repayment of obligations under finance leases (0.5) (0.5)
Net cash used in financing activities (53.1) (18.7)
Net increase in cash and cash equivalents 15.8 57.5
Net cash and cash equivalents at the
beginning of the year 234.2 169.1
Effect of foreign exchange rate changes (13.8) 7.6
Net cash and cash equivalents at the end of
the year 236.2 234.2
Cash and cash equivalents 236.4 235.3
Overdrafts (0.2) (1.1)
Net cash and cash equivalents 236.2 234.2
Notes to the financial statements
for the year ended 31 December 2006
1. General information
Tullett Prebon plc is a company incorporated on 5 May 2006 in the
United Kingdom under the Companies Act 1985.
On 15 December 2006, Tullett Prebon plc became the holding company
of Collins Stewart Tullett plc in accordance with a court approved scheme of
arrangement under s425 of the Companies Act 1985. The acquisition of Collins
Stewart Tullett plc by Tullett Prebon plc constitutes a group reconstruction
and has been accounted for using reverse acquisition accounting principles as
set out in IFRS 3: Business Combinations. The Group results for the year ended
31 December 2006 as well as the 2005 comparatives are prepared on the basis of
the reverse acquisition principles.
On 19 December 2006, under the scheme of arrangement the Collins
Stewart stockbroking business was demerged from the Group. Results for Collins
Stewart for 2005 and 2006 have been included in the consolidated income
statement as discontinued operations. The consolidated balance sheet for 2005
contains both inter-dealer broking and stockbroking activities, whilst 2006
contains inter-dealer broking only. The impact of the demerger is reflected
throughout the financial statements.
2. Basis of preparation of accounts
Basis of accounting
The financial information included in this document does not
constitute the Group's statutory accounts for the years ended 31 December 2006
or 2005, but is derived from those accounts. Statutory accounts for 2005 have
been delivered to the Registrar of Companies and those for 2006 will be
delivered following the Company's annual general meeting. The auditors have
reported on those accounts; their reports were unqualified and did not contain
statements under sections 237(2) or 237(3) of the Companies Act 1985.
Accounting policies are consistent with those in the group financial
statements for the year ended 31 December 2006.
The financial statements have been prepared on the historical cost
basis, except for the revaluation of certain financial instruments. The
financial statements are rounded to the nearest hundred thousand (expressed as
millions to one decimal place - £m), except where otherwise indicated.
The demerger has resulted in some minor reclassifications in the
comparatives of the consolidated balance sheet, the consolidated cash flow
statement and in the notes to the consolidated financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company made up to 31
December each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee enterprise so as to
obtain benefits from its activities.
3. Segmental analysis
The Group's primary reporting format is geographical: Europe, North
America and Asia Pacific, and its secondary reporting format is product group.
The change in primary and secondary segments from 2005 is due to the demerger
of the Collins Stewart stockbroking business.
Continuing operations - geographical
Europe North America Asia Pacific Continuing
2006 2005 2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m £m £m
Revenue 335.1 317.2 252.8 260.5 66.2 71.7 654.1 649.4
Operating profit
before exceptional
items 65.9 41.6 44.3 40.4 4.6 8.7 114.8 90.7
Exceptional items - (19.4) - (12.0) - (6.9) - (38.3)
Operating profit 65.9 22.2 44.3 28.4 4.6 1.8 114.8 52.4
Finance income 30.4 21.5
Finance costs (20.2) (21.6)
Profit before tax 125.0 52.3
Taxation (41.0) (25.0)
Profit of consolidated companies 84.0 27.3
Share of results of associates - 0.7
Profit for the year from continuing operations 84.0 28.0
There are no inter-segment sales included in segment revenue. All
segment revenue is derived from sales to external customers.
4. Other operating income
Other operating income represents receipts other than those earned
through broking activities, such as rental income, royalties, insurance
proceeds, gains on currency hedges, settlements from competitors and asset
disposal proceeds. Costs associated with such items are included in
administrative expenses.
5. Exceptional items
There were no exceptional items in 2006. The exceptional items
charge of £38.3m in 2005 related to the costs associated with the integration
of Prebon.
6. Finance income
Continuing operations
2006 2005
£m £m
Interest receivable and similar income 10.0 7.4
Gain on fair value hedge accounting 0.5 -
Mark-to-market gain on equity swap 13.4 9.3
Expected return on pension schemes' assets 6.5 4.8
30.4 21.5
7. Finance costs
Continuing operations
2006 2005
£m £m
Interest payable on other loans 13.0 13.4
Finance charges payable under finance leases 0.2 0.4
Amortisation of debt issue costs 0.4 0.4
Other interest payable 0.4 0.7
Total borrowing costs 14.0 14.9
Loss on fair value hedge accounting - 0.7
Interest cost on pension schemes' liabilities 6.2 6.0
20.2 21.6
8. Earnings per share
Continuing operations 2006 2005
Adjusted basic 33.0p 22.4p
Basic 39.7p 13.2p
Diluted 38.9p 13.1p
The calculation of basic and diluted earnings per
share from continuing operations and total operations is based on the
following number of shares in issue:
2006 2005
No.(m) No.(m)
Weighted average shares in issue 210.7 208.5
Issuable on exercise of options 4.3 2.7
Diluted weighted average shares in issue 215.0 211.2
The earnings used in the calculation of adjusted, basic and diluted
earnings per share, are as described below:
Continuing operations 2006 2005
£m £m
Earnings 84.0 28.0
Minority interest (0.4) (0.4)
Earnings for the purposes of the basic and diluted 83.6 27.6
earnings per share
Exceptional items - 38.3
Mark-to-market gain on equity swap (13.4) (9.3)
(Gain)/loss on fair value hedge accounting (0.5) 0.7
Expected return on pension schemes' assets (6.5) (4.8)
Interest cost on pension schemes' liabilities 6.2 6.0
Taxation on above items 0.1 (11.7)
Adjusted earnings 69.5 46.8
9. Dividends
2006 2005
£m £m
Amounts recognised as distributions to equity holders in
the year:
Interim dividend for the year ended 31 December 2006 of
5.00p per share 10.6
Final dividend for the year ended 31 December 2005 of 23.2 -
11.00p per share
Interim dividend for the year ended 31 December 2005 of - 6.3
3.00p per share
Final dividend for the year ended 31 December 2004 of 5.75p 12.0
per share -
33.8 18.3
In respect of the current year, the directors propose that the
final dividend of 6p per share amounting to £12.7m will be paid to
shareholders on 14 June 2007. This dividend is subject to approval by
shareholders at the Annual General Meeting and has not been included as a
liability in these financial statements. The proposed dividend is payable to
all shareholders on the Register of Members on 25 May 2007.
10. Discontinued operations
On 19 December 2006, the Group demerged the Collins Stewart
stockbroking business.
The results of the discontinued operations, derived entirely from
stockbroking, which have been included in the consolidated income statement
were as follows:
Discontinued operations Europe North America Discontinued
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
Revenue 146.9 115.1 37.9 33.6 184.8 148.7
Operating profit 55.0 39.2 5.4 1.5 60.4 40.7
Finance income 5.7 4.9
Finance costs (0.5) (0.3)
Profit before tax 65.6 45.3
Taxation (21.3) (11.6)
Profit for the year from discontinued operations 44.3 33.7
Basic earnings per share from discontinued operations was 20.9p
(2005: 16.1p) and diluted earnings per share from discontinued operations was
20.5p (2005: 15.8p).
No profit or loss arose on the demerger of Collins Stewart, which
was carried out under a scheme of arrangement.
Cash flows from discontinued operations: 2006 2005
£m £m
Net cash from discontinued operating activities 74.6 51.9
Net cash used in discontinued investment activities (127.8) (49.9)
Net cash used in discontinued financing activities (2.1) (0.1)
The net assets of Collins Stewart derecognised at the date of
demerger and included in the consolidated balance sheet at 31 December 2005
were as follows:
19 Dec 2006 2005
£m £m
Goodwill 116.7 116.3
Property, plant and equipment 2.2 2.3
Deferred tax 4.8 0.2
Other non-current assets 2.6 0.8
Trade and other receivables 349.2 312.4
Other financial assets 21.1 43.4
Cash and cash equivalents 124.4 56.7
Trade and other payables (356.3) (317.8)
Bank overdraft (2.1) (1.1)
Current tax liability (8.5) (9.6)
Other financial liabilities (9.2) (25.0)
244.9 178.6
11. Notes to the cash flow statement
(a) Reconciliation of operating profit to net cash from operating activities
2006 2005
£m £m
Operating profit 175.2 93.1
Adjustments for:
(Profit)/loss on derivatives (1.9) 1.7
Expense arising from share option plans 6.9 6.5
Profit on sale of other financial assets (6.1) (0.5)
Profit on sale of property, plant and equipment (1.8) -
Depreciation of property, plant and equipment 8.0 9.2
Amortisation of intangible assets 1.1 1.4
Assets written off - 7.8
Increase/(decrease) in provisions for liabilities and
charges 1.1 (4.1)
Outflow from retirement benefit obligations (2.1) (2.1)
Increase in non-current liabilities 1.1 2.2
Operating cash flows before movement in working
capital 181.5 115.2
Decrease/(increase) in trade and other receivables 39.1 (45.4)
(Increase)/decrease in net settlement balances (13.9) 38.3
Decrease/(increase) in net long and short positions 22.0 (6.8)
(Decrease)/increase in trade and other payables (9.9) 24.3
Cash generated from operations 218.8 125.6
Income taxes paid (41.1) (23.7)
Interest paid (14.1) (13.1)
Net cash from operating activities 163.6 88.8
12. Cash flow from continuing operations
(a) Continuing cash flow statement
In addition to the statutory consolidated cash flow statement, an adjusted
continuing cash flow statement which includes the cash flows between the
Tullett Prebon and Collins Stewart businesses prior to demerger, is shown
below.
Notes 2006 2005
£m £m
Net cash from continuing operating activities 12(b) 89.0 37.0
Investing activities - continuing operations
Sale of other financial assets 7.4 3.4
Interest received 10.0 5.6
Proceeds on disposal of property, plant and
equipment 2.0 -
Proceeds on disposal of available-for-sale
investments 7.2 1.2
Purchase of intangible fixed assets (0.6) (1.5)
Purchase of property, plant and equipment (4.1) (12.4)
Acquisition of subsidiaries/investment in
associates - (5.0)
Net receipts from Collins Stewart 11.2 46.0
Net cash from continuing investment
activities 33.1 37.3
Financing activities - continuing operations
Dividends paid (33.8) (18.3)
Dividends paid to minority interests (0.2) -
Issue of ordinary share capital - 1.3
Purchase of own shares/cash settlement of
share options (14.6) -
Taxation credit on share option exercises 0.3 -
Repayment of borrowings - (1.1)
Demerger transaction costs (2.2) -
Repayment of obligations under finance leases (0.5) (0.5)
Net cash used in continuing financing
activities (51.0) (18.6)
Net increase in cash and cash equivalents
from
continuing operations 71.1 55.7
Net cash and cash equivalents at the
beginning of the year from continuing
operations 178.6 115.3
Effect of foreign exchange rate changes from
continuing operations (13.5) 7.6
Net cash and cash equivalents at the end of
the year 236.2 178.6
(b) Reconciliation of continuing operating profit to net cash from continuing
operating activities
2006 2005
£m £m
Continuing operations:
Operating profit 114.8 52.4
Adjustments for:
(Profit)/loss on currency derivatives (1.9) 1.7
Expense arising from share option plans 5.0 4.6
Profit on sale of other financial assets (6.1) (0.5)
Profit on sale of property, plant and equipment (1.8) -
Depreciation of property, plant and equipment 6.9 8.1
Amortisation of intangible assets 1.1 1.2
Assets written off - 7.8
Increase/(decrease) in provisions for liabilities and
charges 0.6 (3.4)
Outflow from retirement benefit obligations (2.1) (2.1)
Increase in non-current liabilities 1.1 2.2
Operating cash flows before movement in working
capital 117.6 72.0
Decrease/(increase) in trade and other receivables 29.6 (29.7)
(Increase)/decrease in net settlement balances (8.0) 17.0
Decrease/(increase) in net long and short positions 7.7 (7.8)
(Decrease)/increase in trade and other payables (16.3) 18.0
Cash generated from operations 130.6 69.5
Income taxes paid (28.0) (20.1)
Interest paid (13.6) (12.4)
Net cash from operating activities 89.0 37.0
13. Analysis of net funds
Total Continuing operations
operations
At 1 At 1 At 31
January January December
2006 2006 2006
£m £m £m
Cash in hand and at bank 215.7 169.4 160.7
Cash equivalents 6.9 6.9 73.4
Client settlement money 12.7 2.3 2.3
Overdraft (1.1) - (0.2)
234.2 178.6 236.2
Loans due within one year (0.1) (0.1) (0.1)
Loans due after one year (150.2) (150.2) (148.7)
Finance leases (3.5) (3.5) (3.2)
(153.8) (153.8) (152.0)
Other trading investments 41.1 35.6 27.0
Total net funds 121.5 60.4 111.2
14. Settlement balances restatement
The Group has reviewed its clearing and settlement arrangements on
certain matched principal transactions and it has been determined that certain
transactions settled through American clearing corporations are not required
to be recognised on the balance sheet. The 2005 comparative amounts have been
restated accordingly. The impact is a reduction in 2005 settlement balances
receivable and payable of £52,409.6m.
OTHER INFORMATION
The Annual General Meeting of Tullett Prebon plc will be held at
Cable House, 54-62 New Broad Street, London EC2M 1ST on 7 June 2007 at 2.30pm.
The directors recommend payment of a final dividend in respect of
2006 of 6p per ordinary share. Subject to the shareholders' approval at the
forthcoming Annual General Meeting, the dividend will be paid on 14 June 2007,
to ordinary shareholders whose names are on the Register of Members on 25 May
2007.
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