Preliminary Results - year ended 31 December 2008
TULLETT PREBON PLC
PRELIMINARY RESULTS - for the year ended 31 December 2008
Tullett Prebon plc today announced its preliminary results for the year ended
31 December 2008.
Financial Highlights
- Revenue £943.6m (2007: £753.8m) - growth of 25%
- Operating profit1 £175.1m (2007: £131.8m) - growth of 33%
- Operating margin1 18.6% (2007: 17.5%)
- Adjusted Profit before tax2 £155.4m (2007: £114.4m) - growth of 36%
- Adjusted EPS3 47.1p (2007: 33.5p) - growth of 41%
Notes
1. Operating profit and operating margin are stated before exceptional items
2. Adjusted Profit before Tax is stated before exceptional items and non cash
gains and losses in net finance income / (expense)
3. Adjusted EPS is stated before exceptional items and non cash gains and
losses in net finance income / (expense) net of tax, prior year tax items, and
capital tax items
Commenting on the results, Keith Hamill, Chairman of Tullett Prebon plc, said:
"Our excellent results for 2008 demonstrate the strength of our business and
the value of the service that we provide to participants in the world's
over-the-counter ("OTC") financial markets. Revenue of £943.6m was up 25% for
the year. Operating profit before exceptional items has increased by 33% to £
175.1m. Adjusted basic earnings per share were up 41% to 47.1p.
The business has low capital requirements and excellent cash flow
characteristics. In 2008, more than 100% of the operating profit was converted
into operating cash flow, the third year in a row that this has been achieved.
Cash flow before dividends and debt repayments was £124.6m, and net debt at the
end of the year was £17.4m (2007: £160.0m).
The Board is recommending an unchanged final dividend of 8.0p per share, making
the total dividend for the year 12.75p, an increase of 6% on the 12.0p per
share paid for 2007. The final dividend will be payable on 21 May 2009 to
shareholders on the register on 1 May 2009."
Terry Smith, Chief Executive, added:
"There have been significant changes in the structure of the financial services
industry in recent months and further changes are likely, but we believe that
our role as a leading intermediary in wholesale OTC markets will continue to be
vital.
Volatility in interest rates and exchange rates looks likely to persist for
some time, and government bond issuance is set to substantially increase. The
business has made a reasonable start to the year, and our European business in
particular continues to perform strongly. Revenue in the first two months of
2009 is slightly lower at constant exchange rates than in the same period last
year. The impact of currency movements on the translation of our non-UK
operations is favourable to reported results, and reported revenue for the
first two months of 2009 is 11% higher than last year.
Forecasting market activity for the year, however, remains difficult. We have
taken action to reduce fixed costs and to increase our flexibility to ensure
that we are well positioned to cope with potentially less favourable market
conditions if they occur.
We remain very focused on creating future value for shareholders."
Enquiries:
Nigel Szembel, Head of Communications Mobile: 07802 362088
Tullett Prebon plc
Further information on the Company and its activities is available on the
Company's website: www.tullettprebon.com
Overview
The excellent results for 2008 demonstrate the strength of our business and the
value of the service that we provide to participants in the world's
over-the-counter ("OTC") financial markets.
The wholesale OTC markets are critical to the effective functioning of the
world's financial system. Tullett Prebon, as the world's second largest
inter-dealer broker ("IDB"), has a vital role in facilitating trading in these
markets by finding and creating liquidity through price and volume discovery,
and by providing clients with anonymity in their trading activities.
The successful implementation of our strategy has ensured that we were well
positioned to meet the needs of our customers during a period of unprecedented
turmoil in financial markets. Our strategy is to continue to focus on providing
services as an intermediary in wholesale OTC markets, and to continue to build
a business with the scale and breadth to deliver superior performance and
returns, whilst maintaining strong financial management disciplines.
Whilst the upheaval in financial markets during 2008 has proved detrimental to
many financial services businesses, the high levels of volatility that
persisted throughout the year have been favourable to our business, although it
has presented challenges as well as opportunities. Prior to its collapse in
September, Lehman Brothers was one of our biggest clients, but the direct
impact of its failure on our operating profit was minimal, and was almost
entirely related to provisioning against invoiced receivables arising from Name
Give Up activities. This demonstrates both the robustness of our business
model, under which as an intermediary we do not take any trading risk and do
not hold principal trading positions, and the effectiveness of the OTC markets
and the related infrastructure in coping with such exceptional circumstances.
Our risk management policies and procedures, and our operational processes have
been stress tested under live conditions, and have been proven to be robust.
The historical strength of our business is in voice broking in the traditional
product sectors such as foreign exchange, interest rate swaps and government
bonds. Our expertise and depth of liquidity pools in these areas have been
particularly attractive to OTC market participants during the upheaval in
financial markets which has resulted in dramatic changes in interest rates and
foreign exchange rates.
Our performance in 2008 has also benefited from the steps we have taken over
the last two years to accelerate the rate of revenue growth, and to increase
the scale and breadth of the business. These actions include broker hires and
acquisitions focused on broadening our product coverage and deepening our
liquidity pools, particularly in the newer sectors of the market where we have
been under-represented, and the successful development and launch of electronic
broking platforms.
We now provide clients with electronic solutions to complement our voice
broking activities across a number of product groups. These include FX Options
in all three regions, Repos in North America and Europe, Agency bonds in North
America, Credit in Europe, and Energy in North America and Europe. In addition
we provide a post trade FRA matching tool in Asia and Europe. We will continue
to invest in the development of these and other platforms as well as in
straight through processing and other post trade services.
Our development effort in electronic broking has increasingly focused on
`hybrid' platforms. Under the hybrid model the electronic broking capability is
supporting other voice broking activity in similar products, and is part of the
set of tools that enable the voice brokers to provide a full broking service to
clients. The revenues facilitated by hybrid platforms, and the cost of their
development, are an integral part of the voice business, and we have therefore
brought together all the voice and electronic applications development
activities under common management. The costs of the development of our
electronic broking capabilities are now therefore integrated within our total
IT applications development spend. Our P&L expenditure on all applications
development activity including that relating to electronic broking, together
with the management and sales teams supporting electronic broking, was around £
8m higher in 2008 than in 2007.
Our key financial and performance indicators for 2008 compared with those for
2007 are summarised in the table below.
Change
2008 2007
Constant
Reported Exchange
Rates
Revenue £943.6m £753.8m +25% +20%
Operating profit before £175.1m £131.8m +33% +28%
exceptional items
Operating margin 18.6% 17.5% +1.1%
points
Broker headcount (period end) 1,653 1,636 +1%
Average revenue per broker (£ 548 463 +18% +13%
'000)
Broker employment costs : broking 57.5% 56.4% +1.1%
revenue points
Non-broker headcount (period end) 889 936 -5%
Revenue in 2008 of £943.6m was 20% higher than 2007 at constant exchange rates.
Average broker headcount was 6% higher, and average revenue per broker was 13%
higher at £548k. The increase in average broker headcount reflects the 125
brokers we contracted during 2007, who have all now started with the business,
the restructuring and extension of our joint venture in Tokyo, which was
completed at the end of 2007, and the acquisition of Primex Energy Brokers in
March 2008.
Operating profit before exceptional items for 2008 of £175.1m is 28% higher
than in 2007 at constant exchange rates, and the operating margin has increased
by 1.1% points to 18.6%. As expected, and in line with the half year results,
broker compensation as a percentage of revenue is slightly higher than a year
ago, reflecting the investment in hires in new product areas where revenues
have built up over the year. We have continued to exercise tight control over
support costs, and the improvement in the operating margin demonstrates the
operating leverage of the business and the benefit derived from increased
scale.
Towards the end of the year we undertook a cost review to ensure that the
business was well positioned to respond to potentially less favourable market
conditions. The objective of the exercise was to increase flexibility in front
office costs and to reduce absolute support costs, enhancing our ability to
maintain operating margins in the event of lower revenues. We have closed a
number of marginal desks, reduced broker headcount and other front office
costs, and reduced support staff headcount. The annual cost base across the
front and back office has been reduced by an amount similar to the £19.5m
one-off costs, which are shown as exceptional items. The impact of the exercise
on headcount levels at the year end in both the front and back office is
reflected in the table above.
Operating Review
The tables below analyse revenue and operating profit for 2008 compared with
2007. A significant proportion of the group's activity is conducted outside the
UK and the reported results are therefore impacted by the movement in the
foreign exchange rates used to translate the results of non-UK operations. In
order to give a more meaningful analysis of performance, the results for 2007
shown below are stated using translation exchange rates consistent with those
used for 2008, with revenue and operating profit growth rates calculated on the
same basis.
Revenue by product group 2008 2007 Change
£m £m
Treasury Products 246.1 215.1 +14%
Interest Rate Derivatives 220.9 187.5 +18%
Fixed Income 282.1 219.6 +28%
Equities 94.2 83.9 +12%
Energy 81.5 66.1 +23%
Information Sales 18.8 14.9 +26%
At constant exchange rates 943.6 787.1 +20%
Translation - (33.3)
Reported 943.6 753.8 +25%
Revenue in all product groups has benefited from the high levels of volatility
throughout the year.
Within Treasury Products, which covers FX and cash, we have benefited from our
market leading positions in forward FX across all three regions, as well as
from our continued development in non-deliverable forwards and in emerging
market currencies.
With the volatile interest rate environment during the year, volumes in
Interest Rate Derivatives have been strong, with good growth across both short
and medium term swaps, and interest rate options.
The growth in Fixed Income reflects the strength of our franchise in government
bonds in North America and Europe, and the benefit of the investments we have
made over the last two years in developing our Credit business, which accounts
for over 40% of our Fixed Income revenue. The acquisition of Chapdelaine in
North America at the beginning of 2007 added significant strength in this area
and the business continues to perform well. Through our broker hires in Credit
in Europe, we have re-established our presence in this market, and our position
has been further enhanced by the successful launch in the last quarter of 2008
of Creditdeal, our electronic trading platform.
Our Equities business covers both equity derivatives, where volumes have been
strong throughout the year, particularly in index options in Europe, and cash
equities, where volumes have been much more subdued.
Our Energy business has benefited from the expansion of our product coverage,
with the acquisition of Primex adding substantial liquidity in a wide range of
oil products, and from the ongoing volatility in Energy markets.
Growth in revenue from Information Sales reflects increased demand from
customers for both real time and end of day data, and an expansion of the
customer base, including into emerging markets.
Revenue by region 2008 2007 Change
£m £m
Europe 504.1 381.8 +32%
North America 339.6 320.7 +6%
Asia Pacific 99.9 84.6 +18%
At constant exchange rates 943.6 787.1 +20%
Translation - (33.3)
Reported 943.6 753.8 +25%
Europe
Revenue in Europe has increased by 32%. All product groups in Europe have seen
strong revenue growth. The business has benefited from high volumes in its
market leading activities in forward FX, government bonds and interest rate
swaps, and from the investments we have made in Credit and Energy. Average
revenue per broker has increased by 22%, and average broker headcount in Europe
increased by 9%. The increase in headcount reflects broker hires in Credit in
London, the addition of 35 brokers through the acquisition of Primex, and
broker hires in the continental European business.
The corporate bond and credit default swaps brokers we hired during 2007
started with the business at the beginning of 2008, and as they steadily
established their presence in the market, their revenue generation increased
over the course of the year, assisted towards the end of the period by the
introduction of Creditdeal, our electronic trading platform. The performance of
the Primex oil products broking business has also been encouraging, and we have
integrated the existing oil products brokers into the acquired business. London
accounts for the substantial majority of our European business, but our
operations in the other financial centres in Europe, which are focused on
serving local clients in Fixed Income and Treasury products, have also
delivered good revenue growth.
North America
In North America, revenue has increased by 6%. Average broker headcount fell by
5% and average revenue per broker increased by 11%. Performance by product
group was mixed. Although headcount in Fixed Income fell over the year, it
continues to be the largest product area in the region, accounting for over 40%
of the revenue, and we delivered good revenue growth in both government and
agency bonds, corporate bonds and credit derivatives.
The rate of growth in both Treasury Products and Interest Rate derivatives was
lower in the second half as volumes fell in the emerging markets business in
both areas. In Equities, the flat performance in cash equities in the year
offset good growth in equity derivatives. We experienced lower volumes,
particularly in the second half, in our Energy activities which are focused in
the power and gas markets.
Asia
Our business in Asia is predominantly focused on Treasury Products and Interest
Rate Derivatives. Revenue growth of 18% reflects the benefit of the buoyant
markets in the first half of the year and the extension of our Tokyo joint
venture which gives us presence in the local interest rate swap market beyond
Yen products and has added forward Yen FX to our portfolio. Average broker
headcount in Asia increased by 20% and average revenue per broker was little
changed compared with last year. The three largest centres in the region,
Singapore, Hong Kong and Tokyo, account for over 80% of the revenue, and these
centres increased revenue by 23% in the year.
The overall rate of growth was held back by the more subdued performance in the
smaller centres in Asia as volumes in some emerging markets products reduced,
particularly in the second half. We continue to look for opportunities to build
our presence in the region. Our pioneering joint venture in Shanghai, which has
been profitable for the last two years, has seen significant revenue growth in
2008, and provides a strong platform for us to expand our operations into other
centres in China.
Operating profit by region (1) 2008 2007 Change
£m £m
Europe 108.1 76.4 +41%
North America 57.8 50.0 +16%
Asia Pacific 9.2 10.6 -13%
At constant exchange rates 175.1 137.0 +28%
Translation - (5.2)
Reported 175.1 131.8 +33%
Operating margin by region (1) 2008 2007
Europe 21.4% 20.0%
North America 17.0% 15.6%
Asia Pacific 9.2% 12.5%
18.6% 17.5%
Note 1. Operating profit and operating margin are stated before exceptional
items.
Operating profit in Europe has increased by 41%, with operating margin
increasing to 21.4%. Broker employment costs as a percentage of revenue have
increased slightly reflecting the build up to the full run rate of revenue from
new hires, and support costs have increased due to the higher expenditure on
the development of our electronic broking capability. However, the operating
margin has improved as the rate of increase in support costs is much lower than
the growth in revenue.
Operating profit in North America has increased by 16%, with the operating
margin increasing to 17.0%. Broker employment costs as a percentage of revenue
are consistent with the prior year, and total support costs are also largely
unchanged, but operating profits and the improvement in operating margin have
been held back by the one off costs associated with office moves.
In our smallest region, Asia Pacific, operating profits have fallen, with
operating margin reducing to 9.2%. The reduction in operating margin is due to
dilution from the consolidation of the Tokyo joint venture, as we now include
100% of the costs, the increase in costs borne in the region supporting the
development of electronic broking, and an increase in employment costs to
retain staff in an environment where competitors are aggressively buying market
share.
Financial Review
The results for 2008 compared with those for 2007 are shown in the table below.
2008 2007
£m £m
Revenue 943.6 753.8
Operating profit before exceptional items 175.1 131.8
Cash finance expense (19.7) (17.4)
Adjusted Profit before tax * 155.4 114.4
Tax (56.0) (43.5)
Associates 1.3 0.8
Minority interests (0.5) (0.9)
Adjusted Earnings ** 100.2 70.8
Adjusted Earnings per share 47.1p 33.5p
* Adjusted PBT reconciles to reported PBT as 2008 2007
follows:
£m £m
Adjusted Profit before tax 155.4 114.4
Exceptional items (19.5) -
Non cash finance income/(expense) 1.1 (0.6)
Reported Profit before tax 137.0 113.8
** Adjusted Earnings reconciles to reported 2008 2007
Earnings as follows:
£m £m
Adjusted Earnings 100.2 70.8
Exceptional items (19.5) -
Tax relief on exceptional items 5.8 -
Non cash finance income/(expense) 1.1 (0.6)
Deferred tax on non cash finance income/(expense) (0.4) (0.3)
Prior year tax items 7.3 5.1
Capital tax items - (1.6)
Reported Earnings 94.5 73.4
Finance Income/(Expense)
The increase in cash finance expense in 2008 compared to 2007 reflects the
impact of lower yields on the group's cash balances and an increase in interest
payable, despite lower interest rates, due to the higher average bank debt
balance outstanding during the year. The bank debt was first drawn down in
March 2007 to finance the return of capital to shareholders. Non cash finance
income/(expense) in 2008 represents amortisation of discounted deferred
consideration and the expected return and interest on pension scheme assets and
liabilities.
Tax
The effective rate of tax on adjusted profit before tax is 36.0% (2007: 38.0%).
The reduction in the effective rate compared with 2007 results primarily from
the full year benefit of a rationalisation of intra-group financing
arrangements that was implemented in mid-2007. The effective rate is higher
than the average standard UK rate of 28.5% for the year, reflecting the profits
earned in the US where the average statutory rate is 46%, and the extent of
disallowable items.
Prior year tax items reflect the release of tax provisions made in previous
years as tax matters are settled, and do not relate to current period trading.
The capital tax charge in 2007 relates to potential tax arising due to the
restructuring of our joint venture in Tokyo.
Exceptional Items
The £19.5m exceptional items reflect the cost of actions taken to reduce
operating costs, including the costs of desk closures, redundancies and the
write down of sign on payments which are considered to be impaired.
Adjusted Basic EPS
Adjusted Basic EPS is calculated using underlying earnings shown in the table
above and the undiluted weighted average number of shares in issue of 212.8m
(2007: 211.3m).
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 group's current policy is not to
hedge income statement translation exposure.
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 gross exposure at 31 December 2008 amounted
to US$221m, represented by US and Hong Kong net assets. Historically the group
designated a cross currency interest rate swap as a net investment hedge of
US$117m of the US dollar denominated net assets. During the second half the
group decided not to hedge this balance sheet translation exposure. The swap
was de-designated as a net investment hedge and an FX forward contract was
executed to close out the FX position inherent in the swap.
Average and year end exchange rates for the US dollar and the Euro are shown
below.
Average Year End
2008 2007 2008 2007
US dollar $1.89 $2.00 $1.44 $1.99
Euro €1.28 €1.47 €1.03 €1.36
Cash flow and financing
Cash flow before dividends and debt repayments and draw downs is summarised in
the table below.
2008 2007
£m £m
Operating profit before exceptional items 175.1 131.8
Share based compensation 4.9 2.9
Depreciation and amortisation 7.8 7.2
EBITDA 187.8 141.9
Capital expenditure (net of disposals) (14.9) (6.4)
Working capital 20.2 5.0
Operating cash flow 193.1 140.5
Exceptional items - cash payments (1.4) -
Interest (18.8) (15.5)
Taxation (39.1) (32.9)
Defined benefit pension scheme funding (3.2) (2.5)
Share option related cash flow - (10.9)
Transaction costs - (1.0)
Dividends received from associates/(paid) (0.5) -
to minorities
Acquisitions/investments (5.5) (30.2)
Cash flow 124.6 47.5
In 2008 the group has again delivered operating cash flow in excess of
operating profit. Net capital expenditure was higher than depreciation and
amortisation due to office relocation projects. The net working capital inflow
of £20.2m reflects tight management of receivables and settlement balances.
The cash spend associated with the cost review was £1.4m in 2008. The remaining
cash expenditure will be incurred in the first half of 2009.
Interest and tax payments were higher in 2008 than in 2007 reflecting higher
profit and loss charges.
Expenditure on acquisitions and investments in 2008 includes £0.9m of initial
cash consideration and transaction expenses for Primex in March 2008, £1.5m of
initial cash consideration for Aspen Oil in November 2008, and £3.0m of
deferred consideration relating to the Chapdelaine acquisition. The expenditure
in 2007 included the initial cash consideration and transaction expenses for
the Chapdelaine acquisition of £29.7m.
The share option related cash flow in 2007 reflected the cost of acquiring
shares to satisfy share option exercises. Transaction costs in 2007 related to
the demerger of the Collins Stewart stockbroking business and the return of
capital.
The movement in cash and debt is summarised below.
£m Cash Debt Net
At 31 December 2007 290.5 (450.5) (160.0)
Cash flow 124.6 - 124.6
Dividends (27.2) - (27.2)
Funds acquired with Primex 1.6 - 1.6
Debt repayments/drawdowns (30.1) 30.1 -
Effect of movement in exchange rates 45.8 (1.0) 44.8
Movements in fair value/amortisation of - (1.2) (1.2)
costs
At 31 December 2008 405.2 (422.6) (17.4)
The group's net debt position has reduced very substantially, from £160.0m at
31 December 2007 to £17.4m at 31 December 2008. At 31 December 2008 the group
held cash, cash equivalents and other financial assets of £405.2m (2007: £
290.5m).
The group's borrowings at 31 December 2008 comprised the £150m Eurobond which
matures in August 2014, £270m drawn under an amortising term loan facility, and
a small amount of finance leases. The term loan is subject to repayments of £
30m in each year until and including 2011, with £180m maturing in January 2012.
Pensions
The deficits of the group's defined benefit pension schemes at 31 December 2008
under IAS19 total £8.5m (2007: £3.9m). The increase in the deficits reflects
the fall in the value of the schemes' assets over the year, partially offset by
a reduction in the valuation of the defined benefit obligations.
The group has entered into funding agreements with the Trustees of the schemes
with the aim of eliminating the actuarial deficits in the pension schemes by 31
December 2010. Under these agreements, the group will make regular
contributions to the schemes equal to pensions in payment and to fund
commutation lump sums, plus additional contributions of £4.5m in each of 2009
and 2010.
Return on capital employed
The return on capital employed of 50% (2007: 37%) has been calculated as
operating profit divided by average shareholders' funds plus net debt, and
adding back cumulative amortised goodwill and post tax reorganisation costs and
exceptional items.
Market Developments
There have been significant changes in the structure of the financial services
industry in recent months and further changes are likely, but we believe that
our role as a leading intermediary in wholesale OTC markets will continue to be
vital. Whilst the OTC markets have proved themselves to be robust throughout
this turbulent period for the financial markets, we support the calls for
further improvement in the quality and safety of the infrastructure that
supports them, including wider adoption of central counterparty services for
more derivatives, such as credit default swaps.
This issue of wider central counterparty clearing for the OTC markets is
clearly one of significant concern for shareholders and analysts, but much of
the discussion is bedevilled by jargon, knee jerk reaction, and self serving
pleading by market participants. In an effort to overcome this, we would put
forward the following observations:
- Whilst central counterparty clearing may be desirable in order to overcome
problems caused by a reduced willingness for banks to regard each other as
equivalent counterparties, it is not a simple solution to these problems. In
particular, the margin requirements of central counterparties, which offer the
protection against failure of a counterparty, absorb significant amounts of
participants' liquidity. Moreover, central counterparty clearing for derivative
instruments with long durations is not simple to implement.
- It is not axiomatic that in order to implement central counterparty clearing,
an instrument needs to be traded on an exchange, or needs to be traded
electronically. For example, a significant proportion of medium term interest
rate swaps, which are voice brokered, are cleared through Swapclear which acts
as a central counterparty. Nor is it true that exchange owned electronic
platforms would add anything to the transparency and liquidity provided by the
IDB owned electronic trading platforms in OTC products.
- Central counterparties should not be allowed to develop as monopolies or
possibly even as duopolies in the ownership of "for profit" organisations.
Conversely, the most efficient number of central counterparties is one. A
single central counterparty allows the most efficient operation with
counterparties able to use cross margining and netting of positions between
different products. The best way to solve these conflicting objectives is for
central counterparties to be owned by "not for profit" utilities owned and
operated by most major market participants.
- It is essential for the efficiency and flexibility of the markets that access
to central counterparties and other clearing mechanisms continues to be open to
all execution venues on an equal basis.
In addition to the implications of the possible development of central
counterparty clearing, the other subject which has preoccupied shareholders and
analysts for much of the past year has been the outlook for volumes in the OTC
markets and revenues for the IDB sector. We would also like to offer some
observations on this:
- It is easy to identify the possible negative trends which may impact volumes
and revenues in the IDB sector caused by de-leveraging. It is likely that the
number of counterparties in OTC markets (mainly banks), the amount of capital
they devote to trading in general, and their risk appetite, will decline
sharply as a result of the financial crisis. However, there are some
countervailing forces, including:
--The increase in volatility in markets caused by the financial crisis. The
reaction to the credit crunch has caused major changes in currency parities and
interest rate structures as well as the need for significant government bond
issuance. These are the products which make up the bulk of Tullett Prebon's
product mix.
--The OTC markets and the IDB sector are not synonymous. The majority of OTC
transactions are undertaken directly between banks and other counterparties. It
is possible that one side effect of the credit crisis is an increased use of
IDBs by banks - initially as the crisis has led to a greater desire for
anonymity and a greater value placed upon liquidity - but ultimately as a cost
saving measure as banks' direct sales forces have fewer transactions to
distribute.
Outlook
The unprecedented events in the world's financial markets in the last few
months have resulted in significant structural change in the banking industry
and adjustments to the business models of many of our customers. OTC market
volumes in some areas, including structured products and emerging markets
products, are expected to reduce. Volatility in interest rates and exchange
rates, however, looks likely to persist for some time, and government bond
issuance is set to substantially increase. We expect that our expertise and
depth of liquidity pools in these more traditional product areas, and the
service we provide for our customers, will continue to be attractive.
The business has made a reasonable start to the year, and our European business
in particular continues to perform strongly. Revenue in the first two months of
2009 is slightly lower at constant exchange rates than in the same period last
year. The impact of currency movements on the translation of our non-UK
operations is favourable to reported results, and reported revenue for the
first two months of 2009 is 11% higher than last year.
Forecasting market activity for the year, however, remains difficult. We have
taken action to reduce fixed costs and to increase our flexibility to ensure
that we are well positioned to cope with potentially less favourable market
conditions if they occur.
We remain very focused on creating future value for shareholders.
-------------------------------------------------
Consolidated Income Statement
for the year ended 31 December 2008
Notes 2008 2007
£m £m
Revenue 3 943.6 753.8
Other operating income 4 5.6 14.2
Administrative expenses (774.1) (636.2)
Exceptional items 5 (19.5) -
Operating profit 155.6 131.8
Finance income 6 24.8 21.1
Finance costs 7 (43.4) (39.1)
Profit before tax 137.0 113.8
Taxation (43.3) (40.3)
Profit of consolidated companies 93.7 73.5
Share of results of associates 1.3 0.8
Profit for the year 95.0 74.3
Attributable to:
Equity holders of the parent 94.5 73.4
Minority interests 0.5 0.9
95.0 74.3
Earnings per share
Basic 8 44.4p 34.7p
Diluted 8 44.0p 34.2p
Adjusted earnings per share is disclosed in
note 8
Consolidated Statement of Recognised Income and Expense
for the year ended 31 December 2008
2008 2007
£m £m
Revaluation of available for sale assets 0.5 0.1
(Loss) / gain on net investment hedge (17.2) 1.0
Effect of changes in exchange rates on translation of 45.5 0.2
foreign operations
Actuarial (losses) / gains on defined benefit pension (9.4) 19.0
schemes
Taxation credit / (charge) on items taken directly to 9.7 (3.7)
equity
Net income recognised directly in equity 29.1 16.6
Profit for the year 95.0 74.3
Total recognised income and expense for the year 124.1 90.9
Attributable to:
Equity holders of the parent 123.6 90.0
Minority interests 0.5 0.9
124.1 90.9
Consolidated Balance Sheet
as at 31 December 2008
Notes 2008 2007
£m £m
Non-current assets
Goodwill 387.7 355.9
Other intangible assets 5.8 2.8
Property, plant and equipment 27.6 18.7
Interest in associates 3.5 2.6
Other financial assets 4.7 2.4
Deferred tax assets 18.0 15.0
Derivative financial instruments - 7.2
447.3 404.6
Current assets
Trade and other receivables 13,547.6 6,923.4
Other financial assets 30.2 28.3
Cash and cash equivalents 375.0 262.2
Derivative financial instruments 4.6 -
13,957.4 7,213.9
Total assets 14,404.7 7,618.5
Current liabilities
Trade and other payables (13,648.5) (6,972.7)
Interest bearing loans and borrowings (30.6) (30.6)
Derivative financial instruments (14.3) -
Current tax liabilities (28.9) (26.5)
(13,722.3) (7,029.8)
Net current assets 235.1 184.1
Non-current liabilities
Interest bearing loans and borrowings (392.0) (419.9)
Retirement benefit obligations (8.5) (3.9)
Deferred tax liabilities (0.6) (0.3)
Long-term provisions (11.9) (14.7)
Other long-term payables (24.9) (17.5)
(437.9) (456.3)
Total liabilities (14,160.2) (7,486.1)
Net assets 244.5 132.4
Equity
Share capital 13 53.8 53.2
Share premium 13 9.9 -
Reverse acquisition reserve (1,182.3) (1,182.3)
Other reserves 139.9 97.3
Retained earnings 1,220.8 1,162.1
Equity attributable to equity holders of the 242.1 130.3
parent
Minority interests 2.4 2.1
Total equity 244.5 132.4
The financial statements were approved by the board of directors and authorised
for issue on 10 March 2009 and are signed on its behalf by:
Terry Smith
Chief Executive
Consolidated Cash Flow Statement
for the year ended 31 December 2008
Notes 2008 2007
£m £m
Net cash from operating activities 10(a) 136.0 82.8
Investing activities
Sale/(purchase) of other financial assets 0.9 (0.3)
Interest received 11.5 13.2
Dividends from associates 0.5 0.9
Dividends received from fixed asset investments - 0.2
Purchase of available for sale assets (0.1) (0.1)
Purchase of intangible fixed assets (3.4) (1.1)
Purchase of property, plant and equipment (13.2) (5.5)
Acquisition of subsidiaries (3.8) (25.9)
Repayment of acquisition consideration - 0.7
Net cash used in investment activities (7.6) (17.9)
Financing activities
Dividends paid 9 (27.2) (21.1)
Dividends paid to minority interests (1.0) (0.9)
Return of capital - (301.5)
Purchase of own shares to meet share based - (10.9)
awards (net)
Repayment of debt (30.1) -
Drawdown of bank loan - 297.2
Return of capital and demerger transaction costs - (1.0)
Repayment of obligations under finance leases (0.3) (0.5)
Net cash used in financing activities (58.6) (38.7)
Net increase in cash and cash equivalents 69.8 26.2
Net cash and cash equivalents at the beginning 262.1 236.2
of the year
Effect of foreign exchange rate changes 43.0 (0.3)
Net cash and cash equivalents at the end of the 374.9 262.1
year
Cash and cash equivalents 375.0 262.2
Overdrafts (0.1) (0.1)
Net cash and cash equivalents 374.9 262.1
Notes to the Consolidated Financial Statements
for the year ended 31 December 2008
1. General information
Tullett Prebon plc is a company incorporated in England and Wales under the
Companies Act 1985.
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 2008 or 2007, but is
derived from those accounts. Statutory accounts for 2007 have been delivered to
the Registrar of Companies and those for 2008 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.
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, these financial statements continue to be prepared on the going
concern basis.
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
Analysis by geographical segment
2008 2007
£m £m
Revenue
Europe 504.1 377.6
North America 339.6 300.5
Asia Pacific 99.9 75.7
943.6 753.8
Operating profit
Europe 108.1 75.5
North America 57.8 46.8
Asia Pacific 9.2 9.5
Operating profit before exceptional items 175.1 131.8
Exceptional items (note 5) (19.5) -
Reported operating profit 155.6 131.8
Finance income 24.8 21.1
Finance costs (43.4) (39.1)
Profit before tax 137.0 113.8
Taxation (43.3) (40.3)
Profit of consolidated companies 93.7 73.5
Share of results of associates 1.3 0.8
Profit for the year 95.0 74.3
There are no inter-segment sales included in segment revenue.
4. Other operating income
Other operating income represents receipts other than those earned through
broking activities, such as rental income, royalties, insurance proceeds,
settlements from competitors, asset disposal proceeds and business relocation
grants. Costs associated with such items are included in administrative
expenses.
5. Exceptional items
The exceptional items reflect the cost of actions taken to reduce operating
costs, including the costs of desk closures, redundancies and the write down of
sign on payments which are considered to be impaired.
6. Finance income
2008 2007
£m £m
Interest receivable and similar income 11.5 13.4
Hedge ineffectiveness on net investment hedge - 0.2
Fair value gain on derivative instruments 4.6 -
Expected return on pension schemes' assets 8.7 7.5
24.8 21.1
7. Finance costs
2008 2007
£m £m
Interest payable on bank loans 17.2 16.0
Interest payable on Eurobond 12.4 12.4
Other interest payable 0.3 0.9
Amortisation of debt issue costs 1.4 1.5
Total borrowing costs 31.3 30.8
Amortisation of discount on deferred consideration 0.5 0.9
Fair value loss on derivative instruments 4.5 -
Fair value loss on equity swap - 0.7
Interest cost on pension schemes' liabilities 7.1 6.7
43.4 39.1
8. Earnings per share
2008 2007
Adjusted basic 47.1p 33.5p
Basic 44.4p 34.7p
Diluted 44.0p 34.2p
The calculation of basic and diluted earnings per share is based on the
following number of shares in issue:
2008 2007
No.(m) No.(m)
Weighted average shares in issue 212.8 211.3
Contingently issuable shares 0.6 -
Issuable on exercise of options 1.3 3.1
Diluted weighted average shares in issue 214.7 214.4
The earnings used in the calculation of adjusted, basic and diluted earnings
per share, are as described below:
2008 2007
£m £m
Earnings 95.0 74.3
Minority interests (0.5) (0.9)
Earnings for calculating basic and diluted earnings per 94.5 73.4
share
Exceptional items 19.5 -
Fair value loss on equity swap - 0.7
Gain arising on net investment hedge ineffectiveness - (0.2)
Expected return on pension schemes' assets (8.7) (7.5)
Interest cost on pension schemes' liabilities 7.1 6.7
Amortisation of discount on deferred consideration 0.5 0.9
Tax on above items (5.4) 0.3
Prior year tax (7.3) (5.1)
Capital tax - 1.6
Adjusted earnings for calculating adjusted basic earnings 100.2 70.8
per share
9. Dividends
2008 2007
£m £m
Amounts recognised as distributions to equity holders in
the year:
Interim dividend for the year ended 31 December 2008 of 10.2 -
4.75p per share
Final dividend for the year ended 31 December 2007 of 8p 17.0 -
per share
Interim dividend for the year ended 31 December 2007 of 4p - 8.4
per share
- 12.7
Final dividend for the year ended 31 December 2006 of 6p
per share
27.2 21.1
In respect of the current year, the directors propose that the final dividend
of 8p per share amounting to £17.1m will be paid on 21 May 2009 to all
shareholders on the Register of Members on 1 May 2009. 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 trustees of the Tullett Prebon plc Employee Share Ownership Trust and the
trustees of Tullett Prebon plc Employee Benefit Trust 2007 have waived their
rights to dividends.
10. Notes to the cash flow statement
Reconciliation of operating profit to net cash from operating activities
2008 2007
£m £m
Operating profit 155.6 131.8
Adjustments for:
Share based compensation 4.9 2.9
Profit on sale of other non-current financial assets (1.3) -
Loss on sale of property, plant and equipment 2.0 0.2
Depreciation of property, plant and equipment 6.5 5.8
Amortisation of intangible assets 1.3 1.4
(Decrease) / increase in provisions for liabilities and (5.4) 2.8
charges
Outflow from retirement benefit obligations (3.2) (2.5)
Increase in non-current liabilities 0.7 -
Operating cash flows before movement in working capital 161.1 142.4
Decrease / (increase) in trade and other receivables 13.1 (15.1)
Decrease / (increase) in net settlement balances 5.1 (2.3)
Increase in trade and other payables 26.1 19.6
Cash generated from operations 205.4 144.6
Income taxes paid (39.1) (32.9)
Interest paid (30.3) (28.9)
Net cash from operating activities 136.0 82.8
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short-term highly
liquid investments with maturity of three months or less. 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 one week depending
on the immediate cash requirements of the Group, and earn interest at the
respective short-term deposit rates.
For the purposes of the consolidated cash flow statement, cash and cash
equivalents comprise the following at 31 December:
2008 2007
£m £m
Cash and cash equivalents 375.0 262.2
Bank overdrafts (0.1) (0.1)
374.9 262.1
11. Analysis of net funds
2008 At 1 Cash Non-cash Exchange At 31
January flow items differences December
2008 2008
£m £m £m £m £m
Cash 177.4 10.9 - 41.3 229.6
Cash equivalents 82.4 58.6 - 1.7 142.7
Client settlement money 2.4 0.3 - - 2.7
Overdraft (0.1) - - - (0.1)
262.1 69.8 - 43.0 374.9
Bank loans within one year (30.0) 30.0 (30.0) - (30.0)
Bank loans after one year (267.9) - 29.4 - (238.5)
Loans due within one year (0.1) 0.1 - - -
Loans due after one year (149.2) - (0.6) - (149.8)
Finance leases (3.2) 0.3 (0.3) (1.0) (4.2)
(450.4) 30.4 (1.5) (1.0) (422.5)
Other financial assets 28.3 (0.9) - 2.8 30.2
Total net funds (160.0) 99.3 (1.5) 44.8 (17.4)
12. Acquisitions
(a) Subsidiaries acquired during the year
Primex Energy Brokers Limited
On 14 March 2008 the Group acquired 100% of the share capital of Primex Energy
Brokers Limited ("Primex"), subsequently renamed Tullett Prebon (Oil) Limited.
The consideration paid on completion was £0.5m in cash and £10.5m in shares.
Further cash consideration of £1.1m is payable in 2009 together with further
shares deliverable in 2011 subject to certain performance requirements. As at
the date of acquisition the further consideration was estimated to be £6.9m.
The goodwill arising on the acquisition was £17.3m.
This transaction has been accounted for under the acquisition method of
accounting.
Book value Fair value
£m £m
Net assets acquired
Property, plant and equipment 0.2 0.2
Deferred tax asset 1.2 1.2
Trade and other receivables 2.5 2.5
Cash and cash equivalents 1.6 1.6
Trade and other payables (4.5) (4.5)
1.0 1.0
Goodwill 17.3
Total consideration 18.3
Satisfied by
Cash 0.5
Shares 10.5
Deferred consideration - cash 1.1
Deferred consideration - shares 5.8
Costs of acquisition 0.4
18.3
Net cash (outflow) arising on
acquisition
Cash consideration and costs of (0.9)
acquisition
Cash and cash equivalents acquired 1.6
0.7
Goodwill arising on acquisition 17.3
Changes to deferred consideration (0.1)
Goodwill 17.2
Other acquisitions
In November 2008, the Group invested £5.0m in the Aspen Group of companies,
being £1.5m cash and an estimated £3.5m in deferred contingent consideration.
The deferred consideration is payable over the next 4 years subject to certain
performance requirements. The initial fair value of assets acquired amounted to
£0.1m, resulting in the recognition of £4.9m goodwill.
(b) Analysis of deferred and contingent consideration in respect of
acquisitions
Certain acquisitions made by the Group are satisfied in part by deferred or
contingent deferred consideration. The Group has re-estimated the amounts due
where necessary, with any corresponding adjustments being made to goodwill.
2008 2007
£m £m
At 1 January 18.2 -
Acquisitions during the year 10.4 19.4
Cash consideration paid (3.0) -
Adjustments to goodwill during the year (6.4) -
Unwind of discount 0.5 0.9
Effect of movements in exchange rates 4.1 (2.1)
At 31 December 23.8 18.2
Amounts falling due within 1 year 3.1 3.0
Amounts falling due after more than 1 year 20.7 15.2
23.8 18.2
13. Share capital
On 14 March the Company issued 2,262,196 ordinary shares with a fair value of £
10.5m as part of the acquisition of Primex Energy Brokers Limited. Issued Share
capital was increased by £0.6m and the share premium account by £9.9m.
On 10 June the Company issued 82,569 ordinary shares of 25 pence at par value.
The shares were allotted to the Tullett Prebon plc Employee Benefit Trust 2007.
OTHER INFORMATION
The Annual General Meeting of Tullett Prebon plc will be held at Level 37,
Tower 42, 25 Old Broad Street, London EC2N 1HQ on 14 May 2009 at 2.30pm.
Latest directors dealings
- 1 day ago Savannah Energy
- 1 day ago Buccaneer Energy PLC
- 1 day ago Savannah Energy
- 1 day ago Carclo
- 1 day ago Schroder Japan Growth Fund