TIDMTCAP
RNS Number : 5689F
TP ICAP PLC
10 March 2020
TP ICAP PLC
Financial and Preliminary Management Report for the year ended
31 December 2019
TP ICAP plc (the "Company") today announces its results for the
year ended 31 December 2019. In 2019, TP ICAP improved its
underlying and reported operating profitability, despite the mixed
geopolitical environment, whilst completing successfully the ICAP
integration programme.
Operational performance
-- Group revenue of GBP1,833m grew 4% on a reported basis (1% at constant currency).
-- Group improved underlying and reported operating profitability.
-- Global Broking revenue decreased 1% on a reported basis (3%
at constant currency), as resilient Rates were offset by weaker
Credit and Equities businesses.
-- Energy & Commodities revenue increased 15% on a reported
basis (11% at constant currency) with strong organic growth,
strategic hires, Axiom acquisition and favourable markets.
-- Institutional Services revenue increased 23% on a reported
basis (21% at constant currency).
-- Data & Analytics revenue increased 15% on a reported basis (11% at constant currency).
Strategic highlights
-- Successfully completed the three-year ICAP integration
programme, generating GBP80m in synergy savings.
-- Increased earnings diversification through growth in non-broking businesses.
-- Built a new executive leadership structure to streamline revenue generation.
-- Evolved medium-term strategic themes focusing on aggregation,
electronification and diversification.
Financial highlights
Underlying (before acquisition, disposal and integration costs,
and exceptional items)
2019 2018
Revenue GBP1,833m GBP1,763m
Operating profit GBP279m GBP276m
Operating margin 15.2% 15.7%
Profit before GBP230m GBP245m
tax
Basic EPS 33.8p 34.2p
Statutory (after acquisition, disposal and integration costs,
and exceptional items)
2019 2018
Operating profit GBP142m GBP93m
Operating margin 7.7% 5.3%
Profit before GBP93m GBP62m
tax
Basic EPS 12.0p 5.7p
A table showing Underlying and Statutory figures for each
period, detailing the acquisition, disposal and integration costs,
and exceptional items is included in the Financial Review.
The average number of shares used for the basic EPS calculation
for the period is 559.4m.
Dividend
The Board declared an interim dividend of 5.6 pence per share
paid on 8 November 2019 and is recommending a final dividend of
11.25 pence per share to be paid on 19 May 2020 (with a record date
of 3 April 2020). Please see the Financial Calendar on the
Company's website for further information on upcoming dividend
timings, including dividend re-investment plan election dates.
Investor update
TP ICAP will provide the market with an Investor Update on the
17 June 2020.
Commenting on the results, Nicolas Breteau, Chief Executive of
TP ICAP plc, said:
"These results mark an important inflexion point for TP ICAP. We
have completed the three-year integration programme of the ICAP
business that we acquired at the end of 2016 and achieved the
planned commercial and cost synergies, emerging as the world's
leading inter-dealer broker. We also spent last year strengthening
our management team, enhancing our risk framework and developing
our growth strategy based on aggregation, electronification and
diversification. We have a powerful market position in Global
Broking and three exciting growth businesses which we aim to
develop strongly in the coming years.
"The overall macroeconomic backdrop remains uncertain driven
largely by Covid-19, global growth and ongoing Brexit negotiations.
While this environment impacts our clients' activity, the resulting
volatility also creates market opportunities that gives us
confidence for the future."
Forward looking statements
This document contains forward looking statements with respect
to the financial condition, results and business of the Company. By
their nature, forward looking statements involve risk and
uncertainty and there may be subsequent variations to estimates.
The Company's actual future results may differ materially from the
results expressed or implied in these forward looking
statements.
Enquiries:
Analysts and Investors
Al Alevizakos, Head of Investor Relations and FP&A
Direct: +44 0 79 9991 2672
email: Al.Alevizakos@tpicap.com
Media
William Baldwin-Charles, Group Media Relations Director
Direct: +44 0 7834 524833
email: William.Baldwin-Charles@tpicap.com
Neil Bennett
Maitland
Direct: +44 0 20 7379 5151
email: tpicap-maitland@maitland.co.uk
Further information on the Company and its activities is
available on the Company's website: www.tpicap.com
CEO review
Financial Performance
The Group delivered a resilient performance in 2019, with strong
growth in our non-Global Broking businesses as our diversification
strategy continued to bear fruit. While Global Broking faced
challenging conditions in the first half of the year, as our main
clients saw a significant drop in trading, we delivered a strong
performance in the second half.
Revenues grew by 4% on a reported basis, 1% on a constant
currency basis, to GBP1,833m. We achieved an underlying operating
profit of GBP279m, up 1% on the prior year.
On a statutory basis, operating profit increased 53% to GBP142m
from GBP93m in the prior year partially due to lower integration
costs and lower impairment of intangible assets. Our underlying
operating profit margin of 15.2% was 0.5% lower than in 2018 mainly
due to foreign exchange headwinds. On a statutory basis, the
operating margin was 7.7%, from 5.3% in the prior year. The margin
improvement was partially offset by the settlement of two legacy
legal cases for GBP18m.
Regional performance
Performance across our regions was resilient, with all regions
seeing growth in revenue on a reported basis. In EMEA, revenues
were up 2%, on a reported basis, 1% on a constant currency basis,
with growth in Energy & Commodities, Institutional Services and
Data & Analytics, offsetting a small decline in Global Broking
revenues. In the Americas, revenue was up 8% on a reported basis,
3% on a constant currency basis, driven by a strong performance in
Energy & Commodities and revenue growth in Global Broking
despite the difficult market conditions. In Asia Pacific, revenue
grew by 2% on a reported basis, down 1% on a constant currency
basis, as a very strong performance in Energy & Commodities
offset a decline in Global Broking revenues.
Global Broking
Global Broking is our largest division covering Rates, Credit,
Equities, Foreign Exchange & Money Markets, where we have
market leading positions. We offer clients a range of ways to
interact with us - through voice, hybrid or fully electronic venues
- depending on the nature of the market, product and
transaction.
Our current execution methodologies include: voice; voice and
indication of interest screen; volume matching sessions;
e-auctions; Request for Quote (RFQ); streaming; Central Limit Order
Book (CLOB); algorithmic trading; and odd lot matching.
Global Broking delivered a resilient performance in 2019, as
revenues increased in the second half following the first six
months when a number of macro-issues had a negative impact on
market volatility and volumes. We saw a strong pick up in markets
in the third quarter with trading again slowing down in the fourth
quarter. As a result, revenues for the 12 months were GBP1,262m
down 1% on a reported basis from GBP1,272m in 2018, and 3% on a
constant currency basis.
Despite the continued low interest rate environment, the Rates
business, our largest asset class in Global Broking, performed well
in the year, growing revenue from 2018, primarily due to a strong
third quarter. Conditions in Credit, Equities, FX and Money Markets
remained challenging as Credit suffered the impact of reduced
issuance and there was subdued activity in the other asset
classes.
During 2019 we reorganised and strengthened the management teams
in London and New York, continued to hire key talent across our
broking businesses as well as ensuring stability in existing
teams.
Our focus remains on aggregating liquidity, which means
providing the client with a single point of entry to multiple
liquidity pools, and in developing our hybrid and pure electronic
business. Allowing clients to access liquidity through one screen
creates a superior user experience, giving them insight to a
greater pool of liquidity via a login and connectivity. It benefits
TP ICAP by using any one brand's leadership position in a product
to improve the overall competitive position of the other brand.
In Rates, we successfully launched a hub for both brands in
Singapore, Japan and Australia. The hub also provides an enhanced
electronic workflow, making trade capture and Straight Through
Processing (STP) seamless. In Credit, we have successfully run pure
electronic matching sessions and launched two new platforms in the
US during the first half of the year. One was a portfolio
optimisation bond platform and the other was Crosstrade, which
enables asset management firms to transition bonds between
funds.
We are also diversifying our revenue streams. In June we
launched a Digital Assets Markets
business, initially operating in the cryptoasset derivatives
space, and are currently exploring further opportunities to grow in
this asset class. In December, we announced our intention to
acquire Louis Capital Markets. Louis Capital specialises in cash
equities and equity derivatives, fixed income and small
cap advisory services. It has a strong franchise in Continental
Europe and will complement our existing offering.
Our post-trade services group continues to perform well. In
Matchbook, which helps our clients' manage basis risk in their
trading portfolios, we are seeing strong profit growth. Matchbook
is currently in the process of rolling out three new products. We
acquired ClearCompress, a fintech company that provides a bilateral
compression service in cleared and uncleared interest rate swaps,
and that business is now trading and fully integrated into our Risk
Management Services business.
We will maintain our commitment to increase the
electronification and innovation to meet the changing demands of
our client base.
Energy & Commodities
Energy & Commodities is our second largest division and
operates through the Tullett Prebon, ICAP and PVM brands in all the
key commodities markets including oil, gas, power, renewables,
ferrous metals, base metals, precious metals, soft commodities and
coal. Clients include regional banks, corporates, hedge funds and
trading companies.
It was a strong year for the business with revenues up 15% on a
reported basis (up 11% on a constant currency basis) at GBP379m, up
from GBP331m in the prior year, due to a combination of positive
markets, strategic hires and the acquisition of Axiom at the end of
2018. Oil revenues increased by 9% year on year, with increased
market activity driven by events in the Middle East. Our Power and
Gas businesses both had strong years with revenues up as they
benefited from favourable market conditions.
The energy and commodities broking industry remains fragmented,
with many smaller players, particularly in the US. Energy &
Commodities has a core competency of acquiring and integrating
acquisitions into its existing business and we believe there
continue to be opportunities to do so, where such opportunities
meet our investment criteria.
We continue to look to diversify our client offering. In April
we hired a new team to run the ICAP Weather Derivatives business.
In August we entered into a joint venture with Enmore Investment
Group to offer brokerage in the Chinese OTC, cleared and physical
commodities markets. While we see this as a long term investment
opportunity, we are pleased with the progress so far. The JV has
onboarded clients, is conducting trading activity predominantly in
iron ore swaps and physical forwards and is making good progress on
LPG and naphtha. We are actively looking to increase broker
headcount.
Testing on our electronic whiteboard has progressed well and we
will be looking to roll out it out to all brokers in 2020. The
whiteboard enables the efficient capture of multiple data points
from client interaction. When fully deployed it will enable better
sharing of liquidity across the desks, automatic calculation of
spreads, and STP of executed trades. It will also feed through to
the machine learning application which is currently being tested
with a small number of users across the division. This machine
learning application will equip our brokers with tailored
analytics, personalised feeds of news, pricing, historical patterns
of activity and correlations, providing a better service to
clients.
Institutional Services
Institutional Services (IS) provides venue agnostic, agency
execution services to buy-side clients including hedge funds, asset
managers, and other non-bank financial institutions.
IS assists clients in the increasingly complex task of trade and
venue selection, order routing and post-trade analytics across
listed derivatives, FX, government bonds, cleared interest rate
swaps and, as of December 2019, cash equities. The year saw
continued expansion of the client portfolio and, notably,
significant progress in meeting demand for increased automation
through the entire trade lifecycle.
While the non-bank, agency execution model remains in its
infancy, we expect to see the total market size for this service
type to grow. It is becoming an accepted proposition which reflects
certain economic shifts on both the client and traditional dealer
side as well as growing belief that post trade reporting can do
more than meet regulatory minimums when provided by a non-risk
taking agent. The changes are very pronounced in some markets where
competitive pressures are seeing market structure become highly
fluid.
The business had good momentum with full year revenues of
GBP75m, up 23% on a reported basis, 21% on a constant currency
basis, compared to 2018. Growth was driven by its client demand in
our core product offering in FX, listed derivatives, relative value
execution and cleared interest rate swaps. We are well positioned
for further growth in 2020, driven by prudent geographic expansion
of established business lines as well as expected traction in
recently established new products. We also expect to see greater
scale benefits resulting from improvements in our deployment of FIX
messaging over the past year.
In addition to our existing growth initiatives, we will continue
to hire individuals who will help us achieve our next growth
objectives. We are pleased with our client acquisition rate, but it
is evident that documentation backlogs across the industry are
creating longer lead times to full client engagement.
While this may result in a lag in corresponding revenue
expansion, we are comfortable that ultimately, this proves
supportive for a substantial agency execution business such as IS
with access to the broader resources of the TP ICAP Group.
Data & Analytics
Our Data & Analytics business provides unbiased data
products that facilitate trading, enhance transparency, reduce risk
and improve operational efficiency. We are a leading provider of
neutral Over The Counter (OTC) pricing data. We have pricing,
reference data and analytical tools for major asset classes and
markets. We pride ourselves on our rigorous quality assurance
processes, which ensure the integrity and robustness of our
products. In 2019, we successfully unified Tullett Prebon, ICAP and
PVM data distribution and beta tested our new FIX delivery service
(known as SurFix) for client launch in H1 2020.
It was another strong year of growth for the Data &
Analytics business, with a 15% revenue increase on a reported
basis, 11% on a constant currency basis, to GBP135m, up from
GBP117m in the prior year. Growth was driven by the launch of new
products, through the acquisition of new clients and via expanding
our relationship with existing clients, as well as seeing new
regulatory requirements drive a growing demand for data.
New clients wins in 2019 include Non-Bank Liquidity providers,
Hedge Funds, Asset Managers, Asset Owners, and Channel Partners
spread across Europe, the Americas and Asia.
Our momentum in new product launches continued throughout the
year, with 16 new products launched in 2019, compared to four in
2018. We continue to look to expand our distribution partners and
in the year launched our first product on AWS Data Exchange. We
have continued to strengthen the senior management team and during
the year recruited a new Chief Technology Officer and a new head of
Global Sales as well as building out the product management
function and Channel Management functions.
While we are pleased with the growth momentum demonstrated by
Data & Analytics, we believe that there is more value that can
be captured by the business as we move up the value chain and we
continue to see it as a key driver of TP ICAP's diversification
strategy. While we have seen good organic growth within the D&A
business, we see selective opportunities to accelerate that
development.
Operational delivery
We outlined our four key priorities at the start of the year:
completing the integration of the ICAP voice business; the
implementation of a new global risk management framework; preparing
for Brexit; and ensuring we had the right senior management
team.
The integration
Since my appointment as CEO, I have been clear that the
successful completion of the integration of the two businesses by
the end of 2019 was a priority. I am pleased to say that this has
been successfully completed. We have achieved a synergy run rate of
GBP80m, against the revised target of GBP75m. We had previously
stated that we expected the total cost of integration to be
GBP160m, and in total integration costs were GBP164m.
The integration has been a significant focus of the business
and, now complete, it provides the Group with an infrastructure
that is scalable, will allow future innovation, and will allow us
to streamline our post-trade processing to increase efficiency and
reduce operational risk.
We have integrated senior management structures across the
businesses, regions and corporate functions. We have introduced
single HR and Finance platforms across the Group and have carried
out a major office consolidation programme at key hubs including
New York, Singapore, Hong Kong and for the Energy & Commodities
business in London, and are due to move into our new London head
office this year.
With regard to IT, we now have eight data centres globally, down
from 15 and have migrated 245 business desks to the combined
technology platforms, 131 of which were migrated this year. The
build out of our shared service centre in Belfast continues and we
now have just under 300 employees there carrying out a number of
different functions including operations, IT services, HR and
procurement.
We have stated our intention to reduce the number of legal
entities within the Group. On completion of the ICAP transaction we
had well over 200 separate legal entities, and we expect to reduce
this number materially. The reduction in legal entities will
simplify governance, accounting and audit processes as well as
reduce future governance costs significantly. It will also
streamline internal liquidity management making the flow of funds
within the group easier and more efficient.
The senior management team
One of my first priorities upon appointment was to establish a
strong senior management team that could drive the business
forward. This team was in place at the start of 2019, and I have
since focused on strengthening the next layer of management to help
implement and drive our new growth strategy, as well as ensuring we
had the right structure and reporting lines for the company.
We have been fortunate to hire a number of experienced and high
calibre individuals to help drive our strategy. In 2019 we hired a
new Global Head of Strategy, Global Head of HR, Chief Information
Officer and Group Head of Compliance and early in 2020 hired a new
Chief Transformation Officer, who will be responsible for putting
in place the implementation plan for our strategy.
We will be broadening our existing geographic operating profit
disclosure. From now, we will be reporting underlying operating
profit for each business line.
Responsibility for revenue generation naturally sits with the
four global business divisions who are more closely aligned with
their clients and needs. We have appointed regional CEOs to oversee
culture, risk, governance and the regional maintenance functions to
ensure that the support and control infrastructure in each region
has the capability to assist revenue generation and enhance the
success of our business.
These new appointments strengthen our governance significantly,
resulting in a more streamlined senior management team with clearer
responsibilities and accountability.
New risk framework
In 2019, we undertook a review of our global risk management
framework to take into account the increased scale and diversity of
our business and to respond to regulatory expectations. As a result
of this work, we introduced our new Enterprise Risk Management
Framework (ERMF) in the second half of the year.
The ERMF comprises of three mutually reinforcing components: a
sound risk management structure, a comprehensive risk management
and governance structure, and a range of risk management processes.
The Group is undertaking a range of actions to develop and embed
its risk management framework in response to changes in the
business and regulatory feedback. The framework continues to evolve
with the objective of improving the Group's risk management
capability and supporting the delivery of the Group's business
strategy.
A robust risk framework will enable us to play our role in
maintaining the integrity and professionalism of the markets where
we operate. It is also a competitive differentiator, particularly
as we go out to win new clients who in their selection of service
providers look beyond liquidity and pricing.
Brexit
Preparation for all Brexit eventualities has been a critical
focus for TP ICAP. Ensuring that we are in a position to continue
to service our clients has been a significant regulatory and
operational challenge.
To achieve this, we have set up and capitalised a new company in
Paris, called TP ICAP Europe, and moved our French, German, Spanish
and Danish trading branches to sit under this company. This means
that the business we currently transact from these offices is
protected in the event of a hard Brexit.
We have set up three new EU venues - one multilateral trading
facility (MTF) and two organised trading facilities (OTF) - so that
our EU activity can be conducted on MiFID II compliant venues.
These venues are now authorised and conducting business.
For the business we transact for EU based clients through our
broking desks located in the UK, we have plans in place to protect
this business by putting more front office staff in our EU offices
and changing some of our workflows.
We are yet to know what the terms of leaving are and how that
may impact our business but are prepared for all presently
foreseeable outcomes. In the meantime, we continue to liaise with
our clients to understand what plans they have so that we can
continue to provide them with a high quality service. Ultimately,
the distribution of our brokers between the UK and EU will depend
on our clients' requirements but with the proposed acquisition of
Louis Capital, which we announced in December, we will
significantly increase our footprint in Continental Europe with an
additional 70 brokers. We continue to expect the UK to remain a
major centre for financial, energy and commodities markets.
Building the business of the future
Our goal is to be the world's largest provider of inter-dealer
OTC marketplaces by ensuring that our offering evolves, and remains
relevant to our customers. Additionally, we plan to continue to
diversify our earnings by expanding the product range and customer
base for our data and analytics offering, as well as for our
institutional agency broking services.
The markets in which we operate are changing, as are the demands
of our customers, and it is imperative that we adapt to capitalise
on these changes. We have previously identified the following as
the key pillars of our strategic framework:
-- Electronification and technology;
-- Liquidity aggregation;
-- Diversification; and
-- People, conduct and compliance.
The Group's key financial performance indicators include:
-- Revenue growth;
-- Earnings diversification (i.e. earnings growth excluding Global Broking growth);
-- Contribution margin;
-- Underlying operating profit margin; and
-- Underlying earnings per share.
Electronification and technology
We intend to grow our profits by improving the efficiency of our
client-facing services and internal operations across the Group.
The integration we have just completed represents a major step on
our technology journey as we eliminated legacy platforms and begin
streamlining our processes.
We will introduce new technology to add value to our clients:
from onboarding new customers, to streamlining the trade lifecycle.
The degree and manner of electronification will depend on the
nature of the market and product.
Liquidity aggregation
In 2019 we were the largest inter-dealer broker by revenue, and
we intend to remain a global leader by using technology to improve
market depth - specifically, our customers' ability to access, and
interact with, the liquidity available across the Group's separate
and competing brands.
Diversification
We will seek to continue to leverage our OTC markets expertise
and capability to further diversify our revenues. The Group aims to
continue to invest in Data & Analytics division where we are
already a leading provider of OTC data products and services. We
accelerated the introduction of new products in 2019, and aim to
launch additional datasets, to grow the customer base for our data,
as well as to create and commercialise a suite of more
sophisticated value-added analytics products, targeted at a growing
number of regulatory and other use cases.
The majority of our execution-related revenues derive from
customers in the inter-dealer market. However, through our
Institutional Services division, we have been growing our presence
in the institutional market (i.e. asset managers and hedge funds).
We will continue to invest in this business, by expanding our
product and regional footprint, and broadening and deepening our
customer relationships.
People, conduct and compliance
The Group aims to continue to attract, develop and retain the
best-in-class for our staff and provide a respectful and enjoyable
workplace for our colleagues that supports innovation, high
performance with continuing personal and professional development.
A robust culture of conduct and compliance is essential to our
position as a trusted operator in highly regulated markets. In
2019, we appointed our regional CEOs whose focus includes ensuring
high standards of conduct, compliance and improve the communication
with various regulatory bodies.
Introduction of a new Jersey incorporated holding company
TP ICAP has seen meaningful growth in the size of its Asia
Pacific and Americas business due to the acquisition of ICAP in
2016. As a result, the Board has reviewed the appropriateness of
the Group's international corporate and governance structure.
Following the review, we are proposing to incorporate a new Group
holding company in Jersey. The proposed new structure is subject to
shareholder and regulatory approvals.
We believe that the proposal will result in a corporate
structure that should provide greater financial flexibility for the
Group, support the effective governance of the business and improve
the competitiveness of the Group. As a key part of the proposal,
the Group's tax domicile and location of its primary stock exchange
listing would remain in the UK. Shares in the new Group holding
would continue to be listed on the Premium segment of the Main
Market of the London Stock Exchange and are expected to be eligible
for FTSE index inclusion.
We do not believe our credit rating or outstanding bonds will be
affected by the proposal, and nor do we expect there to be any
impact on the location of employees. We intend to publish a
prospectus and circular summarising the proposal in Q2 2020 and,
subject to receiving the requisite third party
consents we expect the domiciliation to be complete before the
end of H1 2020.
Coronavirus
At the time of writing we have seen an increase in the number of
people who have been infected with Covid-19, or the coronavirus, in
many parts of the world. The situation is constantly evolving, and
we are monitoring its global spread.
Our people are our business, and we are doing all that we can to
safeguard them. In line with best practice guidelines we have put
precautions and measures in place including travel restrictions and
self-quarantine requirements. These measures will adapt and change
as we receive advice from health organisations and governments and
in this way we will endeavour to ensure the wellbeing of all our
colleagues, their families and others, as well as continue to
provide unbroken service to our clients.
Near term outlook
The overall macroeconomic backdrop remains uncertain driven
largely by Covid-19, global growth and ongoing Brexit negotiations.
While this environment impacts our clients' activity, the resulting
volatility also creates market opportunities that give us
confidence for the future.
Concluding comments
I am pleased with the progress we have made in 2019. We
delivered on our four priorities and have made significant strides
in developing the strategy that will ensure we can deliver
sustainable, profitable growth in the future. I am excited about
the opportunities for TP ICAP. We have achieved a considerable
amount in the past 12 months and this has only been possible
through the hard work and dedication of our employees. I would like
to thank them all for their very valuable contribution throughout
the year.
Nicolas Breteau
Chief Executive
10 March 2020
Financial Review
Statutory Income Statement
2019 Underlying Acquisition, Exceptional Statutory
GBPm disposal items
& integration
costs
----------------------------------- ----------- --------------- ------------ ----------
Revenue 1,833 - - 1,833
----------------------------------- ----------- --------------- ------------ ----------
Operating profit 279 - - 279
----------------------------------- ----------- --------------- ------------ ----------
Net charge relating to legal
settlements - - (10) (10)
ICAP integration costs - (34) - (34)
Impairment of intangible assets
arising on consolidation - (24) - (24)
Amortisation of intangible
assets arising on consolidation - (42) - (42)
Adjustments to acquisition
consideration - (6) - (6)
Charge relating to employee
long-term benefits - - (5) (5)
Charge relating to business
reorganisation - - (7) (7)
Other acquisition and disposal
items - (9) - (9)
----------------------------------- ----------- --------------- ------------ ----------
Operating profit 279 (115) (22) 142
Net finance expense (49) - - (49)
----------------------------------- ----------- --------------- ------------ ----------
Profit before tax 230 (115) (22) 93
Tax (55) 15 - (40)
Share of net profit of associates
and joint ventures 15 - - 15
Non-controlling interests (1) - - (1)
----------------------------------- ----------- --------------- ------------ ----------
Earnings 189 (100) (22) 67
=================================== =========== =============== ============ ==========
Average number of shares 559.4m 559.4m
Basic EPS 33.8p 12.0p
2018 Underlying Acquisition, Exceptional Statutory
GBPm disposal items
& integration
costs
----------------------------------------- ----------- --------------- ------------ ----------
Revenue 1,763 - - 1,763
----------------------------------------- ----------- --------------- ------------ ----------
Operating profit 276 - - 276
----------------------------------------- ----------- --------------- ------------ ----------
Net charge relating to legal
settlements - - (3) (3)
ICAP integration costs - (44) - (44)
Remeasurement of deferred consideration - (5) - (5)
Impairment of intangible assets
arising on consolidation - (65) - (65)
Impairment of associate interest - (3) - (3)
Amortisation of intangible
assets arising on consolidation - (40) - (40)
Charge relating to employee
long-term benefits - - (2) (2)
Charge relating to business
reorganization - - (18) (18)
Other items - (3) - (3)
----------------------------------------- ----------- --------------- ------------ ----------
Operating profit 276 (160) (23) 93
Net finance expense (31) - - (31)
----------------------------------------- ----------- --------------- ------------ ----------
Profit before tax 245 (160) (23) 62
Tax (63) 20 4 (39)
Share of net profit of associates
and joint ventures 12 - - 12
Non-controlling interests (3) - - (3)
----------------------------------------- ----------- --------------- ------------ ----------
Earnings 191 (140) (19) 32
========================================= =========== =============== ============ ==========
Average number of shares 558.5m 558.5m
Basic EPS 34.2p 5.7p
Our key financial and performance indicators for 2019 are
summarised in the table below together with comparatives from the
equivalent period in 2018 on a reported basis.
2019 2018 Change
------------------------------------- ---------- ---------- ----------
Total revenue GBP1,833m GBP1,763m +4%
------------------------------------- ---------- ---------- ----------
Operating profit:
- Underlying GBP279m GBP276m +1%
- Underlying margin 15.2% 15.7% -0.5% pts
- Statutory GBP142m GBP93m +53%
- Statutory margin 7.7% 5.3% +2.4% pts
------------------------------------- ---------- ---------- ----------
Contribution:
- Broking* GBP626m GBP624m +0%
- Broking margin 36.4% 37.5% -1.1% pts
- Data & Analytics* GBP68m GBP55m +24%
- Data & Analytics margin 50.4% 47.0% +3.4% pts
Total contribution GBP694m GBP679m +2%
------------------------------------- ---------- ---------- ----------
Underlying operating profit margin
(%):
- Global Broking 17.5% 19.9% -2.4% pts
- Energy & Commodities 12.0% 9.6% +2.4% pts
- Institutional Services 4.0% 1.6% +2.4% pts
- Data & Analytics 43.7% 41.9% +1.8% pts
------------------------------------- ---------- ---------- ----------
Average:
- broker headcount 2,740 2,727 +0%
- revenue per broker** (GBP'000) 620 604 +3%
- contribution per broker***
(GBP'000) 228 229 -0%
------------------------------------- ---------- ---------- ----------
Period end:
- Broker headcount 2,784 2,671 +4%
- Broker support headcount 1,824 1,704 +7%
- Other support headcount 300 369 -19%
------------------------------------- ---------- ---------- ----------
Broker compensation costs : broking
revenue**** 53.1% 52.2% +0.9% pts
* Broking and Data & Analytics contribution and contribution
margins are defined in the Contribution & Underlying Profit
by Division section. Prior year figures have been restated
due to inter-division revenues in Global Broking and Energy
& Commodities, and inter-division front-office costs in Data
& Analytics.
** Average revenue per broker is defined as Total Broking revenues
excluding inter-division revenues divided by average broker
headcount.
*** Average contribution per broker represents broking contribution
(as defined in the Contribution section) divided by the average
broker headcount.
**** Broker compensation costs : broking revenue is defined as
Total Broking compensation costs divided by Broking revenues
excluding inter-division revenues.
Average broker headcount was in line to 2,740 in 2019 from 2,727
in 2018, but with 3% increase in average revenue per broker, the
resulting broking revenue was 3% higher than 2018 on a reported
basis.
The period-end broking support headcount increased by 7%
primarily reflecting in-sourcing (including Belfast), and investing
in Risk and Compliance functions as a response to increasing
regulatory demands.
The tables that follow analyse revenue by business division as
well as revenue and underlying operating profit by region for 2019
compared with the equivalent period in 2018, on a reported basis.
The table also shows the change on a constant currency basis.
A significant portion of the Group's activity is conducted
outside the UK and the statutory revenue is therefore impacted by
the movement in the foreign exchange rates used to translate the
revenue from non-UK operations. The comparative data in the tables
below therefore shows the statutory revenue change, but also the
constant currency basis, where the revenues are translated at the
same exchange rates as those used for 2018.
Revenue
Total revenue of GBP1,833m in 2019 was 4% higher than 2018 on a
reported basis, and 1% higher at constant currency.
Revenue by business division
Constant
Reported Currency
GBPm 2019 2018 Change Change
------ ------ --------- ----------
Rates* 537 523 +3% +1%
Credit 94 101 -7% -10%
FX & Money Markets 201 207 -3% -5%
Emerging Markets 213 213 +0% -2%
Equities 199 210 -5% -7%
Inter-division revenues** 18 18 0% 0%
-------------------------------- ------ ------
Global Broking total 1,262 1,272 -1% -3%
-------------------------------- ------ ------
Energy & Commodities 379 331 +15% +11%
Inter-division revenues*** 3 2 +50% +50%
-------------------------------- ------ ------
Energy & Commodities
total 382 333 +15% +11%
Institutional Services
total* 75 61 +23% +21%
Data & Analytics
total 135 117 +15% +11%
-------------------------------- ------ ------
Inter-division eliminations*** (21) (20) +5% +5%
-------------------------------- ------ ------
Total Revenue 1,833 1,763 +4% +1%
================================ ====== ======
* For 2018 GBP24m of revenues have been reclassified from Rates
business into Institutional Services as the Global Broking
Relative Value (RV) Rates businesses have been reclassified
to move all RV desks under Institutional Services. This is
to reflect the mechanics of the underlying business.
** Institutional Services growth rate would have been 21% and
19% on a reported and constant currency basis respectively
excluding the aforementioned move of the RV desks.
*** Inter-division charges have been made by Global Broking and
Energy & Commodities to reflect the value of proprietary data
provided to the Data & Analytics division. Previous year has
been restated in line with the new presentation format. The
broking inter-segmental revenues and Data & Analytics inter-segmental
costs are eliminated upon the consolidation of the Group financial
results.
Conditions in financial markets have generally been challenging
in 2019 with an uncertain environment across the world. Muted
volatility and a flattening yield curve are generally negative
pressure for our broking divisions. Despite this macroeconomic
backdrop, Global Broking Rates, Energy & Commodities, Data
& Analytics and Institutional Services performance was strong
but was offset by subdued performances in Global Broking's Credit,
Equities and FX & Money Markets.
Inter-division revenue has been recognised in Global Broking and
Energy & Commodities to identify the value of data provided to
the Data & Analytics division. Additionally, the Relative Value
(RV) businesses from the Rates division in Global Broking have been
reclassified to move all RV desks within the Group under
Institutional Services. This leads to a GBP24m 2018 revenue
reclassification from Global Broking Rates to Institutional
Services.
Global Broking revenues were -1% on a reported basis (-3% on a
constant currency basis) with Rates division growing by 3% on
reported basis (+1% on constant currency basis). Conditions in
credit markets continue to remain challenging, with a number of new
competitors, lack of new issuance as well as restrictions on
clients' balance sheets, resulting in a reduction in Credit revenue
of -7% on a reported basis (-10% on a constant currency basis).
Equities and FX & Money Markets both saw revenue declines of
-5% (-7% on a constant currency basis) and -3% (-5% on constant
currency basis) respectively compared with prior year due to
subdued client activity on lower volume and volatility
Energy & Commodities revenue increased +15% on a reported
basis (+11% on a constant currency basis) compared to 2018 on a
reported basis due to a combination of positive markets, strategic
hires and the acquisition of Axiom at the end of 2018. Oil revenues
increased by 9% year-on-year, with increased market activity driven
by events in the Middle East. Separately, Power & Gas
businesses both reported strong revenue growth as they benefitted
from favourable market conditions.
Institutional Services revenue has grown by 23% (+21% on a
constant currency basis) compared to 2018 at reported basis. The
business performed well in its core products with higher client
appetite in relative value execution, FX, listed derivatives, and
cleared interest rate swaps. This was led by client demand
resulting from changing market dynamics as investment banks
reorganise their sales coverage teams. New hires and continued
improvement in client onboarding processes have also improved the
performance of the business. As explained above; the Relative Value
desk from the Rates division in Global Broking has been
reclassified to move all RV desks under Institutional Services. The
business would have grown 21% and 19% on a reported and constant
currency basis, excluding this reclassification.
Data & Analytics revenue was 15% higher than 2018 at
reported basis (11% at constant currency basis) with the business
executing a number of targeted organic growth opportunities during
the year that have enabled it to monetise more proprietary data by
releasing a higher number of new products with a larger salesforce.
In addition, the division continued to win a number of new clients
across hedge funds, sovereign wealth funds, market data vendors and
independent software vendors. Inter-segmental charges have been
made by Global Broking and Energy & Commodities to reflect the
value of proprietary data provided to the Data & Analytics
division. These inter-division charges are based on commercial
terms benchmarked against third party rates and rates charged by TP
ICAP's broking desks to third parties.
The broking inter-division revenues and Data & Analytics
inter-division costs are eliminated upon the consolidation of the
Group financial results.
Revenue by region
GBPm Constant
Reported Currency
2019 2018 Change Change
------- ------ --------- ----------
EMEA 900 886 +2% +1%
Americas 687 636 +8% +3%
Asia Pacific 246 241 +2% -1%
--------------- ------- ------
Total Revenue 1,833 1,763 +4% +1%
=============== ======= ======
EMEA
Revenue for the region increased by 2% in 2019 compared with
2018 on a reported basis (+1% at constant currency basis). Global
Broking revenue declined slightly, with Rates being the only asset
class to increase revenues year-on-year. The other four asset
classes saw small revenue declines. The first half of the year saw
a Brexit-related deadlock leading to a lack of volatility and lower
volumes amidst uncertainty. Equally, the prospect of additional
quantitative easing throughout Europe were additional headwinds.
However, the third quarter was better with a significant leap in
volatility and trading volumes, with macro-economic developments
around the UK elections, US/China trade war and the first Federal
reserve rate cut in 11 years, all contributing to higher
volumes.
Revenue from Energy & Commodities increased slightly in the
region year-on-year with both Tullett Prebon and ICAP brands
reported good revenue growth, partially offset by declines in PVM.
The growth came from fuel oil & middle distillates, precious
metals, power & gas, coals, liquefied natural gas ('LNG') and
gasoil physical.
Institutional Services saw a 25% year-on-year increase. This was
due to COEX growth, specifically in FX options with a larger
clientele. Market conditions have been overall favourable.
Americas
Americas increased revenues by 8% in 2019 versus 2018 on a
reported basis (+3% at constant currency basis). This was despite
difficult market conditions for TP ICAP's traditional Global
Broking business. Within the Global Broking business, general
market conditions worsened during 2018 due to a material volatility
decrease leading to reduced client appetite. Rates revenues
increased by 2% as USD swaps and Treasuries markets strengthened in
the second half of the year.
Rates continues to be Americas' largest asset class. Americas'
Equities revenue was down 6% year-on-year in spite of new product
development. This was due to lower volumes and volatility in US
Equities market. However, this product continues to be an area of
investment and new product expansion. Emerging Markets and FX &
Money Markets businesses saw small revenue declines in 2019. This
was due to lower volatility levels, client de-risking in Forward
FX, and some new competitors in Local markets. US fixed income
markets remained subdued, as TP ICAP reported single-digit revenue
decline.
The Americas' Energy & Commodities business performed
strongly, with a 23% revenue increase. There were increased
revenues in oil products and ethanol bolstered by the acquisition
of Axiom Commodities in November 2018. In addition, we saw strong
organic growth in our traditional power and gas businesses. Energy
& Commodities continues to be a targeted growth area for TP
ICAP Americas across all our brands.
Finally, TP ICAP's Institutional Services performed strongly in
2019. The business continues to expand its product offerings and it
remains an area for growth opportunities.
Asia Pacific
Revenue in Asia Pacific in 2019 versus 2018 increased 2% on a
reported basis (-1% at constant currency basis). This reflects
difficult conditions in Global Broking business, offset by very
strong revenue growth in Energy & Commodities. Global Broking
revenues in the region declined 8% year-on-year with both Tullett
Prebon and ICAP brands reporting lower figures compared with 2018.
For Tullett Prebon, the decline primarily reflects the departure of
certain credit brokers at the end of 2018. Hong Kong business was
impacted from subdued equity derivatives markets and lower FX
activity. In Singapore, rates business was affected by quieter
markets and personnel changes. Japan saw some revenue decline due
to fewer central bank stimulating actions compared to the prior
year. For the ICAP brand, revenues dropped 6%, mainly due to the
discontinuation of the Korea office in Q1, and the end-2018 closure
of Indonesia office. Within specific countries, the ICAP brand saw
meaningful increases in rates revenues in Hong Kong and Singapore,
partially offset by subdued equity derivatives markets in Hong Kong
and Japan. In Australia, we saw significant improvements as the
brand recovers post the broker departures in 2017.
Overall, conditions in the Energy & Commodities markets in
the region were favourable and revenues from these products grew
strongly by 31% year-on-year. The Tullett Prebon and PVM brands
enjoyed strong revenue increase, supported by the fuel oil
business, gasoline and LNG. The ICAP brand benefitted from
increased activity in iron ore options. Moreover, the Australian
energy business increased revenue by 61%, with strong electricity
revenues supported by favourable market conditions. In addition,
the gas business and the newly established precious metals desk
provided further revenue uplift.
Underlying administrative expenses
Total underlying administrative expenses of GBP1,570m in 2019
were 5% higher than 2018 on reported and 2% higher at constant
currency basis (see note 5 in the Financial statements for further
details).
Underlying administrative expenses
Constant
Reported Currency
2019 2018 Change Change Change
GBPm GBPm GBPm % %
Broker compensation 900 859 41 +5% +2%
Other front office costs 193 183 10 +5% +3%
Data & Analytics costs 46 42 4 +10% +7%
------------------------------- ------ ------ -------
Total front office costs 1,139 1,084 55 +5% +2%
Other staff costs 215 226 (11) -5% -6%
Technology and related
costs 59 52 7 +13% +11%
Premises and related costs 53 52 1 +2% 0%
Depreciation and amortisation 34 33 1 +3% 0%
Other administrative costs 77 52 25 +48% +45%
IFRS16 adoption (7) - (7)
------------------------------- ------ ------ -------
Total management and support
costs 431 415 16 +4% +2%
------------------------------- ------ ------ -------
Total costs 1,570 1,499 71 +5% +2%
=============================== ====== ====== =======
The table above sets out administrative expenses on the basis on
which management chooses to view this area, divided principally
between front office costs and management and support costs. Front
office costs tend to have a large variable component to them and
are directly linked to the output of our brokers. The largest
element of this is broker compensation as well as other front
office costs, which include travel and entertainment,
telecommunications and information services, clearing and
settlement fees as well as other direct costs. The remaining cost
base represents the management and support costs of the Group.
Overall, the underlying cost base has seen a 5% increase at
reported rates to GBP1,570m in 2019 compared with 2018 (+2% at
constant currency rates). This has been driven by an increase in
total front office costs. Broker compensation costs increased by
GBP41m (+GBP18m at constant currency rates) during the period
reflecting a 3% increase in broking revenue at reporting rates (+1%
at constant exchange rates) and an increase in the broker
compensation ratio from 52.3% to 53.1%. The increase in broker
compensation reflects the change in revenue mix between the two
periods towards businesses with higher compensation ratio, mainly
relating to the strong Energy & Commodities growth.
Other front office costs have increased by 5% (GBP10m) on a
reported basis (3% (GBP5m) at constant currency rates). Reductions
of GBP5m in Telecommunications and Information Services costs have
been offset by increases in Travel and Entertainment (GBP2m) and
Clearing and Settlement fees (GBP5m). The increase in front-office
Data & Analytics costs of 10% reflect high top-line growth.
The presentation above shows consistent year on year premises
and related costs on an IAS 17 basis as we have not adopted IFRS 16
for the prior year. The current year net IFRS 16 adoption item is
made up of GBP27m reduction in premises costs and an additional
GBP20m depreciation of right of use assets
The GBP11m reduction (GBP14m reduction at constant currency
rates) in other staff costs on a reported basis reflects the
further impact of synergy savings and further staff cost reduction
programme pursued during the period, offset by increased headcount
in Data & Analytics (GBP2m), Belfast
in-housing, Cyber security, Risk & Compliance.
Technology and related costs includes the costs of all external
technology services, including maintenance contracts, consultancy,
market data services and communications costs. During 2019 these
costs increased GBP7m on a reported basis year-on-year with a
modest amount of cost reductions offset by an GBP8m increase in
third party IT consultancy incurred in respect of Cyber
security.
The IFRS 16 adoption reduced administrative expenses relating to
operational leases by GBP7m on a reported basis.
The significant increase in other administrative costs (+GBP25m
on a reported basis, +GBP24m at constant currency rates) includes
an increase in Data & Analytics costs (GBP3m), substantial
increases in legal fees (GBP7m) arising in the US from Bond
Issuance investigation, Swaps Anti-trust class case and employee
litigation, one-off costs in respect of the Group strategy, Brexit
and other FX costs (GBP8m).
Synergy savings and administrative expenses
As at the end of December 2019 the cumulative annualised synergy
savings achieved from the integration programme were GBP80m, an
increase of GBP9m on the annualised GBP71m of synergy savings
reported at the end of 2018. Of the GBP9m additional run rate
synergies, GBP5m were recognised in the period. The table below
shows the movement in underlying administrative expenses between
2019 and 2018 re-categorised to reflect the impact of the movement
in synergy savings against other costs between the two periods.
IFRS Planned FX
2018 2018 Synergy 16 Net cost Broker New Planned head- 2019
reported FX constant savings adjusts. decrease compens. Invest. increases winds reported
1,499 36 1,535 (10) (7) (2) 18 13 15 8 1,570
--- ---------- --------- ---------- ---------- ---------- --------- ---------- ------- ----------
The net cost decrease of GBP2m includes back-office cost
savings, partially offset some increased legal costs in the US
(GBP7m).
Front Office costs have increased by GBP18m as explained in the
paragraphs above, largely driven by the increase in broking revenue
between the two periods, and the increase in the broker
compensation ratio.
The new investments include Data & Analytics resourcing
(GBP5m), strategy project (GBP3m), IT consultancy and project
management (GBP5m).
The planned increases include change & procurement (GBP2m),
compliance (GBP2m), risk (GBP3m), Brexit (GBP2m), other legal costs
(GBP1m) and cybersecurity (GBP5m). This was in line with our GBP15m
expected spend.
As the ICAP integration is now complete, the Group intends to
discontinue the above disclosure in future reports.
Contribution & Underlying Operating Profit by division
Contribution represents the revenue of our businesses less the
total front office costs described above. An improvement in the
absolute level of contribution is an important metric in driving
earnings growth for the Group. In 2019 the overall level of
contribution was +2% at GBP694m year-on-year. The overall
contribution margin decreased by 0.6 percentage point to 37.9% as
higher revenues were more than offset by higher front office costs.
This decline mainly reflects the broker compensation ratio
increase, due to revenue shift changes, combined with higher
initial contract payments (ICP) amortisation.
GB =Global Broking; E&C = Energy & Commodities; IS =
Institutional Services, D&A = Data & Analytics
Corp.
2019 (GBPm) GB E&C IS D&A Centre Total
----------------------------- ------ ------ ------ ------ -------- ------
Revenue:
- External 1,244 379 75 135 - 1,833
- Inter-division 18 3 - - (21) -
1,262 382 75 135 (21) 1,833
Total front office costs:
(1,
- External (775) (261) (57) (46) - 139)
- Inter-division - - - (21) 21 -
(1,
(775) (261) ( 57) ( 67) 21 139)
Contribution 487 121 18 68 - 694
Contribution margin 38.6% 31.7% 24.0% 50.4% n/a 37.9%
Net management and support
costs:
- Management and support
costs (268) (75) (15) (9) (64) (431)
- Other operating income 2 - - - 14 16
------ ------ ------ ------ -------- ------
(266) (75) (15) (9) (50) (415)
Underlying Operating profit
/ (loss) 221 46 3 59 (50) 279
====== ====== ====== ====== ======== ======
Underlying operating profit
margin 17.5% 12.0% 4.0% 43.7% n/a 15.2%
Corp.
2018 (GBPm) GB E&C IS D&A Centre Total
------------------------------ ------ ------ ------ ------ -------- --------
Revenue:
- External* 1,254 331 61 117 - 1,763
- Inter-division 18 2 - - (20) -
1,272 333 61 117 (20) 1,763
Total front office costs:
- External (764) (229) (49) (42) - (1,084)
- Inter-division - - - (20) 20 -
(764) (229) (49) (62) 20 (1,084)
Contribution 508 104 12 55 - 679
Contribution margin 39.9% 31.2% 19.7% 47.0% n/a 38.5%
Net management and support
costs:
- Management and support
costs (259) (72) (11) (6) (67) (415)
- Other operating income 4 - - - 8 12
------ ------ ------ ------ -------- --------
(255) (72) (11) (6) (59) (403)
Underlying Operating profit
/ (loss) 253 32 1 49 ( 59) 276
====== ====== ====== ====== ======== ========
Underlying operating profit
margin 19.9% 9.6% 1.6% 41.9% n/a 15.7%
* For 2018 GBP24m of revenues and all associated costs have
been reclassified from Rates business into Institutional Services
as the Global Broking Relative Value (RV) Rates businesses
have been reclassified to move all RV desks under Institutional
Services. This is to reflect the mechanics of the underlying
business. Institutional Services growth rate would have been
21% and 19% on a reported and constant currency basis respectively
excluding the aforementioned move of the RV desks.
Broker contribution (excluding Data & Analytics) was in-line
with GBP626m, as higher contribution from Energy & Commodities
and Institutional Services, was offset by lower contribution from
Global Broking, due to lower revenues and higher ICP
amortisation.
Data & Analytics contribution represents the revenue of the
Data & Analytics business less the total front office costs
associated with running the business, including the cost of
internally generated data from the broking businesses. In 2019 the
overall level of contribution increased by GBP13m or 24% to GBP68m.
The overall contribution margin increased by 6 percentage points to
50.4% driven by an 15% increase in revenue at reported rates.
Underlying operating profit
For 2019, we have introduced the underlying operating profit by
division for the first time which is after the allocation of net
management and support costs (excluding Corporate centre) to the
different divisions.
For Global Broking, the underlying operating profit decreased to
GBP221m, or 13% versus 2018. This was due to higher front-office
costs reflecting higher compensation ratio as a result of increased
retention efforts, as well as increased clearing and settlement
costs due to vendor cost increases. Moreover, other costs were
increased due to ongoing legal costs in the US, IT consultancy
investments, Cyber and Risk & Compliance costs. Operating
profit margin decreased 2.4 percentage points to 17.5%.
For Energy & Commodities, the underlying operating profit
increased to GBP46m, or 44% versus 2018. This is primarily due to
higher revenues, only partially offset by higher support costs. The
underlying operating profit margin improved 2.4 percentage points
to 12.0%.
Institutional Services improved its underlying operating profit
to GBP3m. The business has generated necessary scale to improve its
profitability, with very strong revenue growth. The underlying
operating profit margin improved to 4.0%, 2.4 percentage point
higher year-on-year.
Data & Analytics reported strong underlying operating profit
of GBP59m, or +20% versus 2018. The results benefited from strong
revenue growth and positive operational leverage. As such, the
underlying operating profit margin improved to 43.7%, 1.8
percentage points higher year-on-year.
The underlying operating profit of GBP279m is 1% higher than the
prior year, with an underlying operating profit margin of 15.2%.
This is 0.5 percentage points lower than 2018, due to the
aforementioned FX headwinds and minor increases in the net
management and support costs.
Underlying operating profit by region
The underlying operating profit and underlying operating profit
margin by region are shown below and are compared against reported
data for the prior period.
Underlying operating profit
GBPm 2019 2018 Change
EMEA 164 173 -5%
Americas 94 81 +16%
Asia Pacific 21 22 -5%
-------------- ----- -----
Underlying 279 276 +1%
============== ===== =====
Underlying operating profit margin by region
GBPm 2019 2018
EMEA 18.2% 19.5%
Americas 13.7% 12.7%
Asia Pacific 8.5% 9.1%
-------------- ------ ------
Underlying 15.2% 15.7%
============== ====== ======
EMEA
Underlying operating profit in EMEA of GBP164m was 5% lower than
2018, and with revenue up 2% on a reported basis, the underlying
operating profit margin has decreased by 1.3 percentage points, to
18.2%. The decrease reflects adverse FX movement, with slightly
inflated support costs mainly through increased employee
in-sourcing of IT consultancy and investment in strengthening risk
& compliance
Americas
In the Americas, the underlying operating profit of GBP94m is
16% higher than 2018 and the underlying operating profit margin has
improved by 1 percentage point to 13.7% reflecting higher revenue
growth.
Asia Pacific
Underlying operating profit in Asia Pacific decreased by GBP1m
to GBP21m in 2019, while the underlying operating profit margin has
reduced by 0.6 percentage points to 8.5% with the benefit of
reductions in management and support costs as a result of the
integration being more than offset by revenue decline.
Exceptional and acquisition, disposal and integration items
The Group presents its Consolidated Income Statement in a
columnar format to aid the understanding of its results by
separately presenting its underlying operating profit before
acquisition, disposal and integration costs and exceptional items.
Underlying operating profit is reconciled to profit before tax in
the Consolidated Income Statement and is disclosed separately to
give a clearer presentation of the Group's underlying trading
results.
Acquisition, disposal and integration costs are excluded from
underlying results as they reflect the impact of acquisitions and
disposals rather than underlying trading performance.
The GBP34m charge for integration costs related to the
acquisition of ICAP includes professional fees and staff costs
relating to planning, setting up and running the integration
workstreams and staff severance costs. As at the end of 2019, we
successfully completed the ICAP integration programme, generating
GBP80m annualised synergies.
The major elements of the integration costs in 2019 continued to
be staff costs (GBP20m), which include GBP8m of severance costs,
and other costs of GBP11m which include consultancy costs (GBP10m).
The GBP10m of consultancy cost charged in 2019 is primarily in
respect of reviews of the technology strategy and scope for cost
reduction, project management support and analysis, software
development and quality assurance and support for the project to
reduce and rationalise the legal entity structure.
A further amount of GBP42m has been charged through the income
statement reflecting the amortisation of intangible assets other
than goodwill arising on acquisitions, reflecting brand value, the
value of customer relationships and other intangible assets. This
non-cash item is excluded from underlying results to present the
performance of the Group's acquired businesses consistently with
its organically grown businesses where such intangible assets are
not recognised.
In accordance with its obligations under IAS 36 (see also Note
13), the Group has undertaken an impairment review of the carrying
value of its regional cash generating units ('CGU') to which
goodwill arising on acquisitions, including the acquisition of
ICAP, has been allocated. In determining whether goodwill is
impaired under IAS 36, the resulting value of each CGU has been
estimated based on its value in use. As a result of the review, the
carrying value of the Asia Pacific CGU has been written down by
GBP24m and this charge is included as an acquisition related item.
This non-cash impairment does not have an impact on the Group's
regulatory capital position, which excludes the carrying value
of intangible assets in the calculation of the Group's allowable
resources.
Other acquisition, disposal and integration costs include a
GBP6m charge for adjustments to acquisition consideration, due to
an increase in the expected deferred consideration on the Axiom and
COEX acquisitions due to their strong performance. There are also
GBP9m of other minor acquisition and disposal items that have been
excluded from underlying results, relating to the ClearCompress and
Louis Capital acquisition, plus an increase of a provision acquired
during COEX acquisition.
The GBP10m exceptional charge in 2019 reflects the net
settlement of exceptional legal provisions in connection with an
FCA regulatory fine (GBP15m), a further charge for the settlement
of a regulatory investigation in the US (GBP3m), other legal costs
(GBP1m), offset by a GBP9m legal settlement received regarding a
settlement from competitors relating to an employment case. Other
exceptional items include GBP5m in relation to a charge to employee
long-term benefits associated mainly with pension scheme past
service and closure costs, and GBP7m in relation to a charge for
business reorganisation including office moves the Group has
undertaken. Exceptional items have been excluded from underlying
results as they are non-recurring and do not relate to the
underlying performance of the business.
Net finance expense
The underlying net finance expense of GBP49m is GBP18m higher
than the GBP31m charged in 2018, driven primarily by the GBP12m
additional interest from the introduction of IFRS 16. This
comprises GBP55m of interest expense, of which GBP34m relates to
the Group's Sterling Notes, GBP3m of costs relating to interest
fees on bank facilities, GBP2m relating to the amortisation of debt
issue and bank facilities and GBP1m of other interest payable. The
interest expense includes an one-off charge of GBP3m for premium
paid for the early redemption of GBP69m for the Sterling Notes
issued in January 2017, and the aforementioned impact from IFRS16
introduction. The expense is offset by GBP5m of interest income and
GBP1m of income of finance lease receivables.
Tax
The effective rate of tax on underlying profit before tax is
23.9% (2018: 25.8%). The rate is lower than the prior year due to a
greater impact from the reduced US federal rate of tax (due to the
lessening of the impact of measures that broadened the US tax base)
and the conclusion of prior year tax liabilities at less that the
amount provided. The effective rate of tax on reported profit
before tax is 43% (2018: 62.9%), reflecting the tax deductibility
of certain acquisition, disposal and integration costs and
exceptional expenses. The outlook for the underlying tax rate is
for it to be around 25% in 2020, on the basis that during the UK
General Election campaign it was indicated that the scheduled
reduction in the UK corporation tax rate would be reversed.
Basic EPS
The average number of shares used for the basic EPS calculation
of 559.4m reflects the 563.3m shares in issue less the 2.6m shares
held by the Employee Benefit Trust at the beginning of the year,
less the difference between the time apportionment elements of the
2.0m of shares acquired by the Employee Benefit Trust to satisfy
deferred share awards made to senior management, and the 0.1m of
deferred shares meeting their vesting requirements in May. The
Employee Benefit Trust has waived its rights to dividends.
Dividend
The Group's proposed dividend remains at 16.85p (2018: 16.85p).
This is in line with our previous intention to keep the dividend
per share stable during TP ICAP's integration programme. For 2020,
we intend to pay at least 16.85p dividend per share, even under a
"normal downturn" scenario. We aim to announce our medium-term
capital allocation policy during 2020.
Cash Flow 2019
Other* = Acquisition, disposal and integration costs &
exceptionals
GBPm Under-lying Other* Reported
----------------------------------------- ------------ ------- ---------
Underlying Operating profit 279 (137) 142
Share based compensation and pension
admin fees 6 3 9
Depreciation and amortisation 36 4 40
Depreciation on leased assets 20 1 21
Exceptional non-cash items 1 6 7
Impairment & amortisation of intangible
assets arising on consolidation - 66 66
----------------------------------------- ------------
EBITDA 342 (57) 285
Change in Initial contract prepayments (2) 2 -
Working capital (21) 1 (20)
----------------------------------------- ------------
Cash generated from operations 319 (54) 265
Capital expenditure (33)
----------------------------------------- ------------
Underlying Operating cash flow 286
Income taxes paid (73) 9 (64)
Interest paid (53) (53)
----------------------------------------- ------------
Underlying Free cash flow 160
----------------------------------------- ------------
Reported net cash flow from operating
activities 148
---------
The cash flow presentation above reconciles the underlying cash
flow generation, excluding the impact of acquisition, disposal and
integration costs and exceptional items, to the reported net cash
flow from operations. The impact on EBITDA of acquisition, disposal
and integration costs and exceptional items was GBP57m during the
period principally relating to the costs of the integration.
During the period there was small movement in initial contract
prepayments. The working capital outflow of GBP21m mainly reflects
an increase in trade receivables, a reduction in provisions after
settling a legacy legal issue offset by a fall in net settlement
and trading balances. Capital expenditure has decreased to GBP33m
reflecting the non-recurrence of prior year's costs, included
office moves in New York, London, Singapore and Belfast. The 2019
expectation was higher but the slight delay in moving to our new
London HQ, led to lower capital expenditure.
After interest paid and underlying taxation paid, the underlying
free cash flow for the Group was GBP160m, an increase of GBP30m
versus 2018. This increase is driven by lower capital expenditure
associated with he prior year office moves, no impact from initial
contract prepayments and smaller increase in working capital. The
positive impact was partially offset by higher interest paid, due
to the higher long-term debt levels and the impact from the
classification of interest under IFRS 16 and from the early
redemption of debt. Finally, higher taxes paid relate to the fact
that US legacy losses were largely exhausted.
Cash Flow 2018
Other* = Acquisition, disposal and integration costs &
exceptionals
GBPm Under-lying Other* Reported
------------------------------------------ ------------ ------- ---------
Underlying Operating profit 276 (183) 93
Share based compensation and pension
admin fees 6 - 6
Depreciation and amortisation 35 4 39
Exceptional non-cash items - 6 6
Impairment & amortisation of intangibles
on consolidation - 105 105
Impairment of associate - 3 3
------------------------------------------ ------------
EBITDA 317 (65) 252
Change in Initial contract prepayments (10) - (10)
Working capital (29) - (29)
------------------------------------------ ------------
Cash generated from operations 278 (65) 213
Capital expenditure (73)
------------------------------------------ ------------
Underlying Operating cash flow 205
Income taxes paid (41) 11 (30)
Interest paid (34) (34)
------------------------------------------ ------------
Underlying Free cash flow 130
------------------------------------------ ------------ ---------
Reported net cash flow from operations 149
---------
Of the GBP824m cash and financial investments balance at the
period end, GBP723m is held in 61 regulated entities to meet
regulatory capital, margin and other trading requirements as well
as accrued profits, GBP76m is held in non-regulated entities for
working capital requirements as well as accrued profits and GBP25m
is held in corporate holding companies. The GBP723m of cash held in
regulated entities generally remains held within those Group's
entities for regulatory and operational reasons.
Debt finance
The composition of the Group's outstanding debt is summarised
below.
GBPm At 31 At 31
Dec 2019 Dec 2018
------------------------------ ---------- ----------
5.25% Sterling Notes June
2019 - 80
5.25% Sterling Notes January
2024 431 500
5.25% Sterling Notes May 250 -
2026
Revolving credit facility
drawn - 52
Unamortised debt issue
costs (2) (2)
Accrued interest 11 12
------------------------------ ---------- ----------
Gross Debt pre-IFRS 16 689 642
IFRS 16 lease liabilities 140 -
------------------------------ ---------- ----------
Total Debt 829 642
============================== ========== ==========
The revolving credit facility was refinanced in December 2018 on
improved terms increasing our overall facility to GBP270m from
GBP250m. The revolving credit facility now matures in December
2021, and no cash was drawn as at the balance sheet date (2018:
GBP52m). On 24 May 2019, the Group issued a GBP250m 5.25% note due
2026 under its GBP1bn Euro Medium Term Note Programme. The proceeds
of this were used to pay down the revolving credit facility ("RCF")
drawings, repay the GBP80m bond that matured in June 2019 and to
buy back GBP69m of the GBP500m 2024 bonds through a tender offer.
As a result, the Group's core gross debt has increased to
GBP689m.
Exchange rates
The income statements and balance sheets of the Group's
businesses whose functional currencies are not GBP are translated
into sterling at average and period end exchange rates
respectively. 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 or balance sheet translation exposure.
Average and period end exchange rates used in the preparation of
the financial statements are shown on the next page.
Average Period End
2019 2018 2019 2018
US dollar $1.28 $1.34 $1.32 $1.28
Euro EUR1.14 EUR1.13 EUR1.18 EUR1.13
Pensions
The Group had one defined benefit pension scheme in the UK.
During 2019, the Trustee commenced proceedings to 'buy-out' the
Scheme's liabilities, a process that will enable the Trustee to
exchange the Scheme's bulk annuity policy for individual policies
issued to, and directly held, by the Scheme's beneficiaries. To
proceed with 'buy-out', the Sponsor and Trustee commenced the
wind-up of the Scheme. Prior to this, the Trustee had no right to
unilaterally wind-up, or otherwise augment the benefits due to
members and based on those limitations the net surplus was
recognised in full by the Group. Under UK legislation, once a
Scheme commences wind-up, the assets of the Scheme pass
unconditionally to the Trustee to enable it to settle the Scheme's
liabilities. As a result, the Group has applied the requirement of
IFRIC 14, fully restricting the Group's recognition of the GBP52m
net surplus by applying an asset recognition ceiling. The asset
ceiling is recorded as a charge in other comprehensive income.
During the wind-up period, the Group will continue to restrict
the recognition of the net surplus. Should any member benefits be
augmented during this period, they will represent a past service
cost and will be recorded as exceptional costs in the Income
Statement (3m in second half of 2019) as and when those benefits
are agreed. Costs associated with the settlement of the Scheme's
liabilities will also be recorded as exceptional costs in the
Income Statement as and when incurred.
Following the full settlement of the Scheme's liabilities the
Scheme will be wound-up and the Sponsor expects to receive the
remaining asset. Any repayment received will also be subject to
applicable taxes at that time, currently 35%.
Regulatory capital
The Group's lead regulator is the FCA. The Group has a waiver
from the consolidated capital adequacy requirements under CRD IV.
The Group's current waiver took effect on 30 December 2016,
following the acquisition of ICAP, and will expire on 30 December
2026. Under the terms of the waiver, each investment firm within
the Group must be treated as either a limited activity or a limited
licence firm and comply with its individual regulatory capital
resources requirements. TP ICAP plc, as the parent Company, must
continue to maintain capital resources in excess of the sum of the
solo notional capital resources requirements for each relevant firm
within the Group (the 'Financial Holding Company test'). The terms
of the waiver require the Group to eliminate the excess of its
consolidated own funds requirement compared with its consolidated
own funds ('Excess Goodwill') over the ten-year period to 30
December 2026. The amount of the Excess Goodwill must not exceed
the amount determined as at the date the waiver took effect (the
'Excess Goodwill Ceiling'). The Excess Goodwill Ceiling is reduced
to nil in line with a schedule over ten-years to December 2026,
with the first reduction of 25% having occurred at the end of June
2019. The Excess Goodwill Ceiling continues to reduce 25% every 2.5
years on a straight line basis. The Group expects to reduce its
Excess Goodwill in accordance with the declining Excess Goodwill
Ceiling. The waiver also sets out conditions with respect to the
maintenance of financial ratios relating to leverage, debt service
and debt maturity profile.
The Group's regulatory capital headroom under the Financial
Holding Company test calculated in accordance with Pillar 1 was
GBP1,761m (2018: GBP1,605m). Many of the Group's broking entities
are regulated on a 'solo' basis, and are obliged to meet the
regulatory capital requirements imposed by the local regulator of
the jurisdiction in which they operate. The Group maintains an
appropriate excess of financial resources in such entities.
Information disclosure under Pillar 3 is available on the
Group's website: www.tpicap.com.
IFRS 16 'leases'
In line with International Financial Reporting Standards, the
Group has applied IFRS 16 for the year ending 31 December 2019. The
impact of this change is set out in Note 2(d) of the Consolidated
Financial Statements.
Consolidated Income Statement
for the year ended 31 December 2019
Acquisition,
disposal
and
integration Exceptional
costs items
(Note (Note
Underlying 5) 5) Total
2019 Notes GBPm GBPm GBPm GBPm
-------------------------------- ------ ----------- ------------- ------------ --------
Revenue 3 1,833 - - 1,833
Administrative expenses 4 (1,570) (115) (31) (1,716)
Other operating income 5,6 16 - 9 25
-------------------------------- ------ ----------- ------------- ------------ --------
Operating profit 3 279 (115) (22) 142
Finance income 7 6 - - 6
Finance costs 8 (55) - - (55)
-------------------------------- ------ ----------- ------------- ------------ --------
Profit before tax 230 (115) (22) 93
Taxation (55) 15 - (40)
-------------------------------- ------ ----------- ------------- ------------ --------
Profit after tax 175 (100) (22) 53
Share of results of associates
and joint ventures 15 - - 15
-------------------------------- ------ ----------- ------------- ------------ --------
Profit for the year 190 (100) (22) 68
================================ ====== =========== ============= ============ ========
Attributable to:
Equity holders of the
parent 189 (100) (22) 67
Non-controlling interests 1 - - 1
-------------------------------- ------ ----------- ------------- ------------ --------
190 (100) (22) 68
================================ ====== =========== ============= ============ ========
Earnings per share
- Basic 9 33.8p 12.0p
- Diluted 9 33.5p 11.9p
-------------------------------- ------ ----------- ------------- ------------ --------
2018
-------------------------------- ------ ----------- ------------- ------------ --------
Revenue 3 1,763 - - 1,763
Administrative expenses 4 (1,499) (160) (23) (1,682)
Other operating income 5,6 12 - - 12
-------------------------------- ------ ----------- ------------- ------------ --------
Operating profit 3 276 (160) (23) 93
Finance income 7 5 - - 5
Finance costs 8 (36) - - (36)
-------------------------------- ------ ----------- ------------- ------------ --------
Profit before tax 245 (160) (23) 62
Taxation (63) 20 4 (39)
-------------------------------- ------ ----------- ------------- ------------ --------
Profit after tax 182 (140) (19) 23
Share of results of associates
and joint ventures 12 - - 12
-------------------------------- ------ ----------- ------------- ------------ --------
Profit for the year 194 (140) (19) 35
================================ ====== =========== ============= ============ ========
Attributable to:
Equity holders of the
parent 191 (140) (19) 32
Non-controlling interests 3 - - 3
-------------------------------- ------ ----------- ------------- ------------ --------
194 (140) (19) 35
================================ ====== =========== ============= ============ ========
Earnings per share
- Basic 9 34.2p 5.7p
- Diluted 9 33.9p 5.7p
-------------------------------- ------ ----------- ------------- ------------ --------
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
2019 2018
GBPm GBPm
-------------------------------------------------- ----- -----
Profit for the year 68 35
-------------------------------------------------- ----- -----
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of defined benefit pension
schemes (52) (2)
Equity instruments at FVTOCI - net change
in fair value 1 7
Taxation relating to item not reclassified 19 1
-------------------------------------------------- ----- -----
(32) 6
-------------------------------------------------- ----- -----
Items that may be reclassified subsequently
to profit or loss:
Effect of changes in exchange rates on
translation
of foreign operations (44) 49
(44) 49
-----
Other comprehensive (loss)/income for the
year (76) 55
-------------------------------------------------- ----- -----
Total comprehensive (loss)/income for the
year (8) 90
================================================== ===== =====
Attributable to:
Equity holders of the parent (8) 86
Non-controlling interests - 4
-------------------------------------------------- ----- -----
(8) 90
================================================== ===== =====
Consolidated Balance Sheet
as at 31 December 2019
2019 2018
Notes GBPm GBPm
-------------------------------------------- ------ --------- ---------
Non-current assets
Intangible assets arising on consolidation 11 1,511 1,594
Other intangible assets 61 69
Property, plant and equipment 72 74
Right-of-use assets 91 -
Investment in associates 58 53
Investment in joint ventures 28 26
Other investments 20 20
Deferred tax assets 3 4
Retirement benefit assets 12 - 55
Other long term receivables 26 20
-------------------------------------------- ------ --------- ---------
1,870 1,915
-------------------------------------------- ------ --------- ---------
Current assets
Trade and other receivables 49,371 22,798
Financial investments 14 148 133
Cash and cash equivalents 14 676 667
-------------------------------------------- ------ --------- ---------
50,195 23,598
-------------------------------------------- ------ --------- ---------
Total assets 52,065 25,513
============================================ ====== ========= =========
Current liabilities
Trade and other payables (49,305) (22,735)
Interest bearing loans and borrowings 14 (11) (144)
Lease liabilities (23) -
Current tax liabilities (48) (55)
Short term provisions 15 (21) (31)
-------------------------------------------- ------ --------- ---------
(49,408) (22,965)
-------------------------------------------- ------ --------- ---------
Net current assets 787 633
============================================ ====== ========= =========
Non-current liabilities
Interest bearing loans and borrowings 14 (678) (498)
Lease liabilities (117) -
Deferred tax liabilities (83) (123)
Long term provisions 15 (26) (30)
Other long term payables (21) (64)
Retirement benefit obligations (2) (3)
-------------------------------------------- ------ --------- ---------
(927) (718)
-------------------------------------------- ------ --------- ---------
Total liabilities (50,335) (23,683)
-------------------------------------------- ------ --------- ---------
Net assets 1,730 1,830
============================================ ====== ========= =========
Equity
Share capital 141 141
Share premium 17 17
Merger reserve 1,384 1,384
Other reserves (1,205) (1,158)
Retained earnings 1,375 1,430
-------------------------------------------- ------ --------- ---------
Equity attributable to equity holders
of the parent 1,712 1,814
Non-controlling interests 18 16
-------------------------------------------- ------ --------- ---------
Total equity 1,730 1,830
============================================ ====== ========= =========
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Equity attributable to equity holders of the parent
Share Reverse Re- Hedging
Share premium Merger acquisition valuation and Own Retained Non-controlling Total
capital account reserve reserve reserve translation shares earnings Total interests equity
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Balance at
1 January 2019 141 17 1,384 (1,182) 4 31 (11) 1,430 1,814 16 1,830
Profit for the
year - - - - - - - 67 67 1 68
Other
comprehensive
(loss)/income
for the year - - - - 1 (43) - (33) (75) (1) (76)
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Total
comprehensive
income for the
year - - - - 1 (43) - 34 (8) - (8)
Dividends paid - - - - - - - (94) (94) (1) (95)
Share settlement
of share-based
awards - - - - - - 2 (3) (1) - (1)
Own shares
acquired
for employee
trusts - - - - - - (7) - (7) - (7)
Increase in
non-controlling
interests - - - - - - - 3 3 3 6
Credit arising
on share-based
awards - - - - - - - 5 5 - 5
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Balance at
31 December
2019 141 17 1,384 (1,182) 5 (12) (16) 1,375 1,712 18 1,730
================= ======== ======== ======== =========== ========= =========== ====== ========= ====== ================ =======
2018
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Balance at
1 January 2018 139 17 1,378 (1,182) 1 (17) (10) 1,494 1,820 13 1,833
Adjustment on
initial
application
of IFRS 9
(Note 2(d)) - - - - - - - (4) (4) - (4)
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Adjusted balance
at
1 January 2018 139 17 1,378 (1,182) 1 (17) (10) 1,490 1,816 13 1,829
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Profit for the
year - - - - - - - 32 32 3 35
Other
comprehensive
Income/(loss)
for the year - - - - 7 48 - (1) 54 1 55
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Total
comprehensive
income for the
year - - - - 7 48 - 31 86 4 90
Issue of
ordinary
shares 2 - 6 - - - - (2) 6 - 6
Dividends paid - - - - - - - (94) (94) (1) (95)
Gain on disposal
of equity
instruments
at FVTOCI - - - - (4) - - 4 - - -
Share settlement
of share-based
awards - - - - - - 4 (4) - - -
Own shares
acquired
for employee
trusts - - - - - - (5) - (5) - (5)
Credit arising
on share-based
awards - - - - - - - 5 5 - 5
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Balance at
31 December
2018 141 17 1,384 (1,182) 4 31 (11) 1,430 1,814 16 1,830
================= ======== ======== ======== =========== ========= =========== ====== ========= ====== ================ =======
Consolidated Cash Flow Statement
for the year ended 31 December 2019
Notes 2019 2018
GBPm GBPm
------------------------------------------- ------ ------ -----
Cash from operating activities 13 148 149
------------------------------------------- ------ ------ -----
Investing activities
(Purchase)/sale of financial investments (20) 4
Sale of equity instruments at FVTOCI 1 7
Purchase of equity instruments at (1) -
FVTOCI
Interest received 5 3
Dividends from associates and joint
ventures 10 10
Expenditure on intangible fixed assets (20) (26)
Purchase of property, plant and equipment (13) (47)
Deferred consideration paid (12) (3)
Investment in associates (5) (2)
Acquisition consideration paid - (18)
Cash acquired with acquisitions - 1
Net cash flows from investment activities (55) (71)
------------------------------------------- ------ ------ -----
Financing activities
Dividends paid 10 (94) (94)
Dividends paid to non-controlling
interests (1) (1)
Dividend equivalents paid on share-based (1) -
awards
Sale of equity to non-controlling 6 -
interests
Own shares acquired for employee trusts (7) (5)
Drawdown of revolving credit facility 39 87
Repayment of revolving credit facility (91) (35)
Funds received from loans from related 35 -
parties
Repayment of loans from related parties (38) -
Gain on derivative financial instruments 3 -
Funds received from issue of Sterling 250 -
Notes
Repayment/repurchase of Sterling Notes (149) -
Bank facility arrangement fees and
debt issue costs (2) (3)
Payment of lease liabilities (21) -
------------------------------------------- ------ ------ -----
Net cash flows from financing activities (71) (51)
------------------------------------------- ------ ------ -----
Net increase in cash and cash equivalents 22 27
Net cash and cash equivalents at the
beginning of the year 667 622
Adjustment on initial application
of IFRS 9 - (1)
Effect of foreign exchange rate changes (13) 19
------------------------------------------- ------ ------ -----
Net cash and cash equivalents at the
end of the year 14 676 667
------------------------------------------- ------ ------ -----
Cash and cash equivalents 686 680
Overdrafts (10) (13)
------------------------------------------- ------ ------ -----
Cash and cash equivalents at the end
of the year 676 667
=========================================== ====== ====== =====
No tes to the Consolidated Financial Statements
for the year ended 31 December 2019
1. General information
TP ICAP plc is a company incorporated in England and Wales under
the Companies Act.
2. Basis of preparation
(a) Basis of accounting
The financial information included in this document does not
constitute the Group's statutory accounts for the years ended 31
December 2019 or 2018, but is derived from those accounts.
Statutory accounts for 2018 have been delivered to the Registrar of
Companies and those for 2019 will be delivered following the
Company's Annual General Meeting. The auditor has reported on those
accounts; their reports were unqualified, did not draw attention to
any matters by way of emphasis without qualifying their report and
did not contain a statement under section 498(2) or 498(3) of the
Companies Act 2006.
The Financial Statements have been prepared on the historical
cost basis, except for the revaluation of certain financial
instruments.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, the going concern basis continues
to be used in preparing these Financial Statements.
(b) Basis of consolidation
The Group's Consolidated Financial Statements incorporate the
Financial Statements of the Company and entities controlled by the
Company made up to 31 December each year. Under IFRS 10 control is
achieved where the Company exercises power over an entity, is
exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to use its power to affect the
returns from the entity.
(c) Presentation of the Income Statement
The Group maintains a columnar format for the presentation of
its Consolidated Income Statement. The columnar format enables the
Group to continue its practice of aiding the understanding of its
results by presenting its underlying profit. This is the profit
measure used to calculate underlying EPS (Note 9) and is considered
to be the most appropriate as it better reflects the Group's
underlying earnings. Underlying profit is reconciled to profit
before tax on the face of the Consolidated Income Statement, which
also includes acquisition, disposal and integration costs and
exceptional items.
The column 'acquisition, disposal and integration costs'
includes: any gains, losses or other associated costs on the full
or partial disposal of investments, associates, joint ventures or
subsidiaries and costs associated with a business combination that
do not constitute fees relating to the arrangement of financing;
amortisation or impairment of intangible assets arising on
consolidation; any re-measurement after initial recognition of
contingent consideration which has been classified as a liability,
and any gains or losses on the revaluation of previous interests.
The column may also include items such as gains or losses on the
settlement of pre-existing relationships with acquired businesses
and the re-measurement of liabilities that are above the value of
indemnification.
Acquisition related integration costs include costs associated
with exit or disposal activities, which do not meet the criteria of
discontinued operations, including costs for employee and lease
terminations, or other exit activities. Additionally, these costs
include expenses directly related to integrating and reorganising
acquired businesses and include items such as employee retention
costs, recruiting costs, certain moving costs, certain duplicative
costs during integration and asset impairments.
Items which are of a non-routine nature and material, when
considering both size and nature, are disclosed separately to give
a clearer presentation of the Group's results. These are shown as
'exceptional items' on the face of the Consolidated Income
Statement.
(d) Adoption of new and revised Accounting Standards
The following new and revised Standards and Interpretations have
been adopted in the current year:
IFRS 16 'Leases'
The Group has adopted IFRS 16 'Leases' as at 1 January 2019,
using the cumulative catch-up approach. Under this transition
method, comparative information has not been restated and
cumulative adjustments on initial application are recognised in the
opening balance sheet as at 1 January 2019. Accordingly,
comparative information presented for 2018 is presented as
previously reported under IAS 17 and related interpretations.
Lessor accounting remains similar to previous accounting policies.
The details of the changes in the Group's accounting policies as a
lessee are disclosed below.
(i) Definition of a lease
The Group assesses whether a contract is, or contains, a lease
based on the new definition of a lease. Under IFRS 16 a contract
is, or contains, a lease if the contract conveys a right to control
the use of an identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16 the Group elected to apply the
practical expedient not to reassess whether a contract was or
contained a lease. The Group therefore applied IFRS 16 only to
contracts that had been previously identified as leases, in
accordance with IAS 17 and IFRIC 4, before 1 January 2019. The
Group has applied the definition of a lease and related guidance
set out in IFRS 16 to all lease contracts entered into or modified
on or after 1 January 2019. The Group considers that the new
definition in IFRS 16 will not change significantly the scope of
contracts that meet the definition of a lease.
At inception or on reassessment of a contract that contains a
lease component, the Group allocates the consideration in the
contract to each lease and non-lease component on the basis of the
relative stand-alone prices. However, for certain leases of
properties the Group has elected not to separate non-lease
components and will instead account for the lease and non-lease
components as a single lease component.
(ii) As a lessee
The distinction between operating leases and finance leases is
removed. Under IFRS 16 the Group now recognises right-of-use assets
and lease liabilities, which the Group has chosen to report
separately on its balance sheet.
The Group has elected not to recognise right-of-use assets and
lease liabilities for short-term leases and leases of low value
assets. The Group recognises the lease payments associated with
these leases as an expense on a straight-line basis over the lease
term.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date, the date at which power to control
the asset is obtained. The right-of-use asset is initially measured
at cost, and subsequently at cost less any accumulated depreciation
and impairment losses, and adjusted for certain remeasurements of
the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payments made.
It is remeasured when there is a change in the future lease
payments arising from a change in an index or a rate, a change in
the estimate of the amount expected to be payable under a residual
value guarantee, or as appropriate, changes in the assessment of
whether a purchase or extension option is reasonably certain to be
exercised or a termination option is reasonably certain not to be
exercised.
Lease cash flows, previously presented as operating cash flows,
are split into payments of principal and interest and are presented
as financing and operating cash flows respectively.
The Group has applied judgement to determine the lease term for
some lease contracts in which it is a lessee that includes
termination and/or renewal options and for leases which the Group
has enforceable rights that extend the lease agreement. The
assessment of whether the Group is reasonably certain to exercise
such options or whether the Group is able to enforce its additional
rights impacts the lease term, which affects the amount of lease
liabilities and right-of-use assets recognised.
(iii) Transition as at 1 January 2019
At transition, for leases classified as operating leases under
IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group's incremental
borrowing rate as at 1 January 2019. The right-of-use assets were
measured at an amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments, and any provisions
held in respect of onerous lease contracts.
The Group used the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
IAS 17:
Ø Applied the exemption not to recognise right-of-use assets and
lease liabilities for leases with less than 12 months of remaining
lease term;
Ø Relied on previous assessments on whether leases are
onerous;
Ø Excluded initial direct costs from the measuring the
right-of-use asset at the date of initial application; and,
Ø Used hindsight when determining the lease term if the contract
contains options to extend or terminate the lease. This expedient
has been applied in reassessing the lease terms associated with
three significant UK leases. Under an agreement with the landlord,
two property leases will be terminated once the Group has moved its
operations to a new leased property.
(iv) As a lessor
In contrast to lessee accounting, IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17. Under IFRS
16, a lessor continues to classify leases as either finance leases
or operating leases and account for those two types of leases
differently.
The Group sub-leases some of its leased properties. Under IAS
17, the head lease and sub-lease contracts were classified as
operating leases. Where the Group is an intermediate lessor, it
will account for the head lease and the sub-lease as two separate
contracts and is required to classify the sub-lease as either a
finance or operating lease by reference to the right--of--use asset
arising from the head lease.
Where sub-lease agreements are assessed as finance leases, the
Group will derecognise the right-of-use asset and record its
interest in finance lease receivables. As required by IFRS 9, an
allowance for expected credit losses will be recognised on the
finance lease receivables.
(v) Impact on transition
The impact on transition is summarised below:
1 January
2019
GBPm
------------------------------------------------------------ ----------
Right-of-use assets 101
Finance lease receivables (presented in other receivables) 8
Lease liabilities (145)
Property provisions (1)
------------------------------------------------------------ ----------
When measuring lease liabilities for leases that were classified
as operating leases the Group discounted lease payments using its
incremental borrowing rate as at 1 January 2019, reflecting the
lease term and the type of leased asset. The discount rates used in
the calculation of the lease liability involved estimation. The
weighted-average rate applied was 7.3%.
1 January
2019
GBPm
---------------------------------------------------------------- ----------
Lease liabilities
Operating lease commitment at 31 December 2018 as disclosed
in the Group's consolidated financial statements 313
- Recognition exemption for leases of low-value assets -
- Recognition exemption for leases with less than 12
months of lease term at transition (3)
- Termination and extension options reasonably certain
to be exercised(1) (89)
---------------------------------------------------------------- ----------
Gross lease commitments at 1 January 2019 221
================================================================ ==========
Lease liabilities recognised at 1 January 2019, discounted
using the incremental borrowing rate 145
================================================================ ==========
Right-of-use assets
Initial right-of-use assets at amounts equal to the associated
lease liability 145
- Adjustment for prepaid and accrued lease payments (29)
- Adjustment for provisions held in respect of onerous
leases (8)
- Adjustment for additional property provisions 1
Amounts recognised as finance lease receivables (8)
---------------------------------------------------------------- ----------
101
================================================================ ==========
1. Operating lease commitments have reduced by a net GBP89m
following a reassessment of three significant UK leases. Under an
agreement with the landlord, two property leases will be terminated
once the Group has moved its operations to a new leased property.
The new lease has a commencement date of February 2020 at which
date a lease liability and right-of-use asset of GBP65m will be
recognised. The gross lease commitment is GBP90m.
(vi) Impact for the year
During the year ended 31 December 2019, the Group, in relation
to leases under IFRS 16, has recognised depreciation and interest
costs, instead of IAS 17 operating lease expenses, as follows:
Recognised in the Operating
Income Statement during lease expense
the year ended 31 under IAS
December 2019 17
Depreciation Net Interest
Expense
GBPm GBPm GBPm
-------------- ------------- ------------- ---------------
EMEA 10 2 12
Americas 5 8 9
Asia Pacific 6 2 7
-------------- ------------- ------------- ---------------
21 12 28
============== ============= ============= ===============
As a result of the Group adopting IFRS 16 using the cumulative
catch-up approach to transition, prior periods have not been
restated. Consequently the results for the year ended 31 December
2019 are not directly comparable with those reported in the prior
period under the previous applicable accounting standard IAS17
'Leases'.
As at 1 January 2019 and 31 December 2019 the right-of-use
assets and lease liabilities were as follows:
31 December 1 January
2019 2019
GBPm GBPm
-------------------------------------- ------------ ----------
Right-of-use assets by type
- Properties 90 100
- Equipment 1 1
--------------------------------------- ------------ ----------
91 101
====================================== ============ ==========
Finance lease receivables (presented
in other receivables)
- Properties 8 8
8 8
-------------------------------------- ------------ ----------
Lease liabilities
- Current lease liabilities 23 17
- Non-current lease liabilities 117 128
--------------------------------------- ------------ ----------
140 145
====================================== ============ ==========
Other New Standards and Interpretations
The following new Standards and Interpretations are effective
from 1 January 2019 but they do not have a material effect in the
Group's financial statements:
Ø IFRIC 23 Uncertainty over Income Tax Treatments;
Ø Amendments to IFRS 9: Prepayment Features with Negative
Compensation;
Ø Amendments to IAS 28: Long-term Interests in Associates and
Joint Ventures;
Ø Annual Improvements to IFRS Standards (2015-2017 Cycle);
and
Ø Amendments to IAS 19: Plan Amendment, Curtailment or
Settlement.
3. Segmental analysis
Products and services from which reportable segments derive
their revenues
The Group is organised by geographic reporting segments which
are used for the purposes of resource allocation and assessment of
segmental performance by Group management. These are the Group's
reportable segments under IFRS 8 'Operating Segments'.
Revenue arising in each geographic reportable segment is derived
from four business divisions: Global Broking, Energy &
Commodities, Institutional Services, and Data & Analytics.
Information regarding the Group's operating segments is reported
below:
2019 2018
GBPm GBPm
--------------------------------------------- ------ ------
Revenue
EMEA 900 886
Americas 687 636
Asia Pacific 246 241
--------------------------------------------- ------ ------
1,833 1,763
============================================= ====== ======
Operating profit(1)
EMEA 164 173
Americas 94 81
Asia Pacific 21 22
--------------------------------------------- ------ ------
Underlying operating profit(1) 279 276
Acquisition, disposal and integration costs
(Note 5) (115) (160)
Exceptional items (Note 5) (22) (23)
--------------------------------------------- ------ ------
Reported operating profit 142 93
Finance income 6 5
Finance costs(2) (55) (36)
--------------------------------------------- ------ ------
Profit before tax 93 62
Taxation (40) (39)
--------------------------------------------- ------ ------
Profit after tax 53 23
Share of results of associates and joint
ventures 15 12
--------------------------------------------- ------ ------
Profit for the year 68 35
============================================= ====== ======
Under the IFRS 16 transition approach adopted by the Group, the
prior period prepared under IAS 17 has not been restated.
Consequently the results for the year ended 31 December 2019 are
not directly comparable with those reported for 31 December 2018
(Note 2(d)(vi)).
In relation to leases under IFRS 16:
1. Operating profit includes depreciation of GBP10m for EMEA,
GBP5m for Americas and GBP6m for Asia Pacific instead of operating
lease expense of GBP12m for EMEA, GBP9m for Americas and GBP7m for
Asia Pacific; and
2. Finance costs include the unwind of discounted lease
liabilities of GBP2m for EMEA, GBP8m for Americas and GBP2m for
Asia Pacific.
There are no inter-segment sales included in the geographic
segment revenue.
2019 2018
(restated)(1)
Revenue by Division GBPm GBPm
----------------------------- ------ ---------------
- Rates(1) 537 523
- Credit 94 101
- FX & Money Markets 201 207
- Emerging Markets 213 213
- Equities 199 210
----------------------------- ------ ---------------
Global Broking(1) 1,244 1,254
Energy & Commodities 379 331
Institutional Services(1) 75 61
Data & Analytics 135 117
----------------------------- ------ ---------------
1,833 1,763
============================= ====== ===============
Operating profit
Global Broking 221 253
Energy & Commodities 46 32
Institutional Services 3 1
Data & Analytics 59 49
Corporate Centre (50) (59)
----------------------------- ------ ---------------
Underlying operating profit 279 276
============================= ====== ===============
Note:
1. In 2019, broking business was transferred from Global Broking
to Institutional Services. 2018 revenue has been restated to
reclassify GBP24m from Global Broking to Institutional
Services.
Corporate centre represents the cost of group and central
functions that are not allocated to the Group's divisions.
4. Administrative expenses
Acquisition,
disposal
and
Underlying Underlying integration Exceptional
Front Office Support Total Underlying costs items Total
2019 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------- ---------- ---------------- ------------ ----------- -----
Broker compensation costs 900 - 900 - - 900
Other staff costs 19 209 228 18 2 248
Other share-based payment
charge/(credit) - 6 6 (1) - 5
Charge relating to employee
long-term benefits - - - - 1 1
-------------------------------------- ------------- ---------- ---------------- ------------ ----------- -----
Employment costs 919 215 1,134 17 3 1,154
Technology and related costs 99 59 158 - - 158
Premises and related costs - 26 26 - 1 27
Amortisation of other intangible
assets 1 22 23 4 - 27
Depreciation of property,
plant and equipment 1 12 13 - - 13
Depreciation of right-of-use
assets - 20 20 - 1 21
Amortisation of intangible
assets arising on consolidation
(Note 11) - - - 42 - 42
Impairment of intangible assets
arising on consolidation (Note
11) - - - 24 - 24
Adjustments to deferred consideration - - - 6 - 6
Adjustments to provisions
and contingent liabilities
acquired - - - 3 - 3
Charge relating to legal and
regulatory settlements - - - - 18 18
Pension scheme past service
and settlement costs - - - - 4 4
Acquisition costs - - - 2 - 2
Other administrative costs 119 77 196 17 4 217
-------------------------------------- ------------- ---------- ---------------- ------------ ----------- -----
1,139 431 1,570 115 31 1,716
Impairment loss on trade receivables - - - - - -
-------------------------------------- ------------- ---------- ---------------- ------------ ----------- -----
1,139 431 1,570 115 31 1,716
====================================== ============= ========== ================ ============ =========== =====
Acquisition,
disposal
Underlying and
Front Underlying Total integration Exceptional
Office Support Underlying costs items Total
2018 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------- ---------- ----------- ------------ ----------- -----
Broker compensation
costs 859 - 859 - - 859
Other staff costs 14 223 237 22 - 259
Other share-based payment
charge - 5 5 - - 5
Charge relating to employee
long-term benefits - - - - 2 2
--------------------------------- ---------- ---------- ----------- ------------ ----------- -----
Employment costs 873 228 1,101 22 2 1,125
Technology and related
costs 94 52 146 - - 146
Premises and related
costs - 52 52 1 14 67
Amortisation of other
intangible assets 2 23 25 1 - 26
Depreciation of property,
plant and equipment - 10 10 - 3 13
Amortisation of intangible
assets arising on consolidation
(Note 11) - - - 40 - 40
Impairment of intangible
assets arising on consolidation
(Note 11) - - - 65 - 65
Impairment of associate - - - 3 - 3
Adjustments to deferred
consideration - - - 5 - 5
Net change relating
to legal settlement - - - - 3 3
Acquisition costs - - - 3 - 3
Other administrative
costs 115 49 164 20 1 185
--------------------------------- ---------- ---------- ----------- ------------ ----------- -----
1,084 414 1,498 160 23 1,681
Impairment loss on trade
receivables - 1 1 - - 1
--------------------------------- ---------- ---------- ----------- ------------ ----------- -----
1,084 415 1,499 160 23 1,682
================================= ========== ========== =========== ============ =========== =====
5. Acquisition, disposal and integration costs, and Exceptional items
Acquisition, disposal and integration costs comprise:
2019 2018
GBPm GBPm
--------------------------------------------- ----- -----
ICAP integration costs
- Employee related costs 16 22
- Share-based payment credit (1) -
- Premises, equipment and other intangible
assets - 1
- Amortisation of other intangible assets 4 1
- Other administrative costs 15 20
--------------------------------------------- ----- -----
34 44
Acquisition and disposal costs
- Acquisition costs 6 3
- Amortisation of intangible assets arising
on consolidation 42 40
- Impairment of intangible assets arising
on consolidation 24 65
- Impairment of associate - 3
- Adjustment to acquisition consideration 6 5
- Adjustments to provisions and contingent 3 -
liabilities acquired
--------------------------------------------- ----- -----
115 160
Taxation (15) (20)
--------------------------------------------- ----- -----
100 140
============================================= ===== =====
Exceptional items comprise:
2019 2018
GBPm GBPm
------------------------------------------------ ----- -----
Charge relating to business reorganisation 7 18
Pension scheme past service and settlement 4 -
costs
Charge relating to employee long-term benefits 1 2
Charge relating to legal costs 1 -
Charge relating to legal and regulatory
settlements 18 3
------------------------------------------------ ----- -----
31 23
Employment related legal settlement receipt (9) -
------------------------------------------------ ----- -----
22 23
Taxation - (4)
------------------------------------------------ ----- -----
22 19
================================================ ===== =====
6. Other operating income
Other operating income comprises:
2019 2018
Underlying Underlying
GBPm GBPm
--------------------------------------- ----------- -----------
Business relocation grants 3 1
Employee related insurance receipts 2 1
Management fees from associates 1 1
Sub-lease rental income (pre IFRS 16) - 2
Other receipts 10 7
--------------------------------------- ----------- -----------
16 12
======================================= =========== ===========
Other receipts include royalties, rebates, insurance proceeds,
tax credits and refunds.
Costs associated with other income are included in
administrative expenses.
7. Finance income
2019 2018
GBPm GBPm
----------------------------------------- ----- -----
Interest receivable and similar income 5 4
Interest receivable on finance leases 1 -
Deemed interest arising on the
defined benefit pension scheme surplus - 1
----------------------------------------- ----- -----
6 5
========================================= ===== =====
8. Finance costs
2019 2018
GBPm GBPm
---------------------------------------------- ----- -----
Interest and fees payable on bank facilities 3 4
Interest payable on Sterling Notes June
2019 2 4
Interest payable on Sterling Notes January
2024 24 26
Interest payable on Sterling Notes May 8 -
2026
Other interest payable 1 1
Amortisation of debt issue and bank facility
costs 2 1
---------------------------------------------- ----- -----
Total borrowing costs 40 36
Interest payable on lease liabilities 12 -
Premium on repurchase of Sterling Notes 3 -
January 2024
---------------------------------------------- ----- -----
55 36
============================================== ===== =====
9. Earnings per share
2019 2018
---------------------- ------ ------
Basic - underlying 33.8p 34.2p
Diluted - underlying 33.5p 33.9p
Basic 12.0p 5.7p
Diluted 11.9p 5.7p
---------------------- ------ ------
The calculation of basic and diluted earnings per share is based
on the following number of shares:
2019 2018
No.(m) No.(m)
--------------------------------- -------- --------
Basic weighted average shares 559.4 558.5
Contingently issuable shares 4.2 5.6
--------------------------------- -------- --------
Diluted weighted average shares 563.6 564.1
================================= ======== ========
The earnings used in the calculation of underlying, basic and
diluted earnings per share, are set out below:
2019 2018
GBPm GBPm
--------------------------------------- ----- -----
Earnings for the year 68 35
Non-controlling interests (1) (3)
--------------------------------------- ----- -----
Earnings 67 32
Acquisition, disposal and integration
costs (Note 5) 115 160
Exceptional items (Note 5) 22 23
Taxation (15) (24)
--------------------------------------- ----- -----
Underlying earnings 189 191
======================================= ===== =====
Under the IFRS 16 transition approach adopted by the Group, the
prior period prepared under IAS 17 has not been restated.
Consequently the results for the year ended 31 December 2019 are
not directly comparable with those reported for 31 December 2018
(Note 2(d)(vi)).
10. Dividends
2019 2018
GBPm GBPm
----------------------------------------------- ----- -----
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31 December
2018
of 11.25p per share 63 -
Interim dividend for the year ended 31
December 2019
of 5.6p per share 31 -
Final dividend for the year ended 31 December
2017
of 11.25p per share - 63
Interim dividend for the year ended 31
December 2018
of 5.6p per share - 31
----------------------------------------------- ----- -----
94 94
=============================================== ===== =====
In respect of the current year, the Directors propose a final
dividend of 11.25p per share amounting to GBP63m which will be paid
on 19 May 2020, if approved by shareholders at the Annual General
Meeting on 13 May 2020, to all shareholders that are on the
Register of Members on 3 April 2020. This dividend has not been
included as a liability in these Financial Statements.
The Trustees of the TP ICAP plc Employee Benefit Trust have
waived their rights to dividends.
11. Intangible assets arising on consolidation
Goodwill Other Total
2019 GBPm GBPm GBPm
------------------------------------- --------- ------ ------
At 1 January 1,030 564 1,594
Recognised on acquisitions 7 - 7
Remeasurement period adjustments:
- Remeasurement of other intangible
assets (5) 5 -
- Increase in net assets acquired (2) - (2)
Amortisation of acquisition
related intangibles - (42) (42)
Impairment of acquisition
related intangibles (24) - (24)
Effect of movements in exchange
rates (13) (9) (22)
-------------------------------------- --------- ------ ------
At 31 December 993 518 1,511
====================================== ========= ====== ======
2018
------------------------------------- --------- ------ ------
At 1 January 1,052 590 1,642
Recognised on acquisitions 31 2 33
Remeasurement period adjustments (2) 2 -
Amortisation of acquisition
related intangibles - (40) (40)
Impairment of acquisition
related intangibles (65) - (65)
Effect of movements in exchange
rates 14 10 24
-------------------------------------- --------- ------ ------
At 31 December 1,030 564 1,594
====================================== ========= ====== ======
Other intangible assets at 31 December 2019 represent customer
relationships, GBP506m (2018: GBP543m), business brands and
trademarks, GBP10m (2018: GBP16m), and other intangibles, GBP2m
(2018: GBP5m) that arise through business combinations. Customer
relationships are being amortised between 10 and 20 years.
Goodwill arising through business combinations is allocated to
groups of individual cash-generating units ('CGUs'), reflecting the
lowest level at which the Group monitors and tests goodwill for
impairment purposes. The CGU groupings are as follows:
2019 2018
CGU GBPm GBPm
---------------------------- ----- ------
EMEA 663 654
Americas 262 281
Asia Pacific 68 95
---------------------------- ----- ------
Goodwill allocated to CGUs 993 1,030
============================ ===== ======
Determining whether goodwill is impaired requires an estimation
of the recoverable amount of each CGU. The recoverable amount is
the higher of its value in use ('VIU') or its fair value less cost
of disposal ('FVLCD').
CGUs, to which goodwill has been allocated, are tested for
impairment at least annually. During the year the Group undertook
impairment assessments as at 30 June and as at 31 December,
triggered as a result of changes in expected CGU cash flows.
Determining whether goodwill is impaired requires an estimation of
the recoverable amount of each group of CGUs. The recoverable
amount is the higher of its value in use ('VIU') or its fair value
less cost of disposal ('FVLCD'). VIU is a pre-tax valuation, using
pre-tax cash flows and pre-tax discount rates which is compared to
the pre-tax carrying value of the CGU, whereas FVLCD is a post-tax
valuation, using post-tax cash flows, post-tax discount rates and
other post-tax observable valuation inputs, which is compared to a
post-tax carrying value of the CGU.
The key assumptions for the VIU calculations are those regarding
expected cash flows arising in future periods, regional growth
rates and the discount rates. Future projections are based on the
most recent financial projections considered by the Board which are
used to project pre-tax cash flows for the next five years. After
this period a steady state cash flow is used to derive a terminal
value for the CGU.
As at 30 June 2019 the recoverable amount for each CGU was based
on their VIU. Growth rates on underlying revenue, equating to a
0.9% compound annual growth rate over the five year projected
period, were used for all CGUs, with pre-tax discount rates of
11.0% for EMEA, 13.6% for Americas and 11.8% for Asia Pacific. At
that time no CGUs were impaired however the Asia Pacific CGU was
sensitive to reasonably possible changes in the VIU
assumptions.
As at 31 December 2019 the recoverable amount for each CGU was
based on their VIU. Growth rates on underlying revenues over the
five year projected period, were 2.1% for EMEA. 1.6% for Americas
and 1.2% for Asia Pacific, with pre-tax discount rates of 11.0% for
EMEA, 13.6% for Americas and 11.6% for Asia Pacific. As a result,
the recoverable amount for the Asia Pacific CGU was estimated to be
lower than its carrying value by GBP24m and has been impaired by
this amount.
As at 31 December 2019 the Asia Pacific CGU remains sensitive to
reasonably possible changes in the VIU assumptions. Further
impairment of the Asia Pacific CGU would be required if there are
changes in the applicable assumptions. A reduction in the growth
rate over the period by 0.5% would increase the impairment charge
by GBP17m and a 1% increase in the discount rate would increase the
charge by GBP10m. The impact on future cash flows resulting from
falling growth rates does not reflect any management actions that
would be taken under such circumstances.
12. Retirement benefits
The Group has a defined benefit pension scheme in the UK and a
small number of schemes operated in other countries.
2019 2018
GBPm GBPm
------------------------------------------------------------- ----- -----
Defined benefit scheme surplus -
UK 52 55
Impact of asset ceiling on UK scheme
surplus:
* Charged to Other Comprehensive Income (remeasurement
of defined benefit pension schemes) (52) -
------------------------------------------------------------- ----- -----
Recognised in the Consolidated Balance
Sheet - 55
============================================================== ===== =====
Defined benefit schemes deficit -
Overseas (2) (3)
============================================================== ===== =====
Movements in the UK Scheme's assets and liabilities were as
follows:
2019 2018
GBPm GBPm
--------------------------------------- ------ ------
Fair value of Scheme assets:
Opening balance 243 260
Deemed interest income 6 6
Return on Scheme assets - Trustee
administered funds (1) (2)
Return on Scheme assets - revaluation
of insurance policies 23 (9)
Benefits paid/transfers out (13) (11)
Administrative and settlement costs (1) (1)
---------------------------------------- ------ ------
Closing balance 257 243
======================================== ====== ======
Present value of Scheme liabilities:
Opening balance (188) (203)
Deemed interest cost (5) (5)
Past service cost (3) -
Actuarial (losses)/gains (22) 9
Benefits paid/transfers out 13 11
---------------------------------------- ------ ------
(205) (188)
======================================= ====== ======
Scheme surplus 52 55
======================================== ====== ======
In 2017 the Group reported that the Trustee had insured the
Scheme's defined benefit liabilities through the purchase of a bulk
annuity 'buy-in' policy from Rothesay Life. The policy is in the
name of the Scheme and is a Scheme asset.
During 2019 the Trustee commenced proceedings to 'buy-out' the
Scheme's liabilities, a process that will enable the Trustee to
exchange the Scheme's bulk annuity policy for individual policies
issued to, and directly held, by the Scheme's beneficiaries. To
proceed with the 'buy-out', the Sponsor and Trustee commenced the
wind-up of the Scheme. Prior to this, the Trustee had no right to
unilaterally wind-up, or otherwise augment the benefits due to
members and based on those limitations the net surplus was
recognised in full by the Group. Under UK legislation, once a
Scheme commences wind-up, the assets of the Scheme pass
unconditionally to the Trustee to enable it to settle the Scheme's
liabilities. As a result, the Group has applied the requirements of
IFRIC 14, restricting the Group's recognition of the net surplus by
applying an asset recognition ceiling. The asset ceiling is
recorded in other comprehensive income.
During the wind-up period, the Group will continue to restrict
the recognition of the net surplus. During 2019, member benefits
have been augmented resulting in a GBP3m past service cost which
has been recorded as an exceptional costs in the Income Statement.
Costs associated with the settlement of the Scheme's liabilities
are recorded as exceptional costs in the Income Statement.
Settlement costs amounted to GBP1m in 2019.
Following the full settlement of the Scheme's liabilities the
Scheme will be wound up and the Sponsor expects to receive the
remaining assets. Any repayment received will also be subject to
applicable taxes at that time, currently 35%.
13. Reconciliation of operating result to net cash from operating activities
2019 2018
GBPm GBPm
------------------------------------------------ ----- -----
Operating profit 142 93
Adjustments for:
- Share-based payment charge 5 5
- Pension scheme past service and settlement
costs 4 1
- Depreciation of property, plant and
equipment 13 13
- Depreciation of right-of-use assets 21 -
- Amortisation of intangible assets 27 26
- Amortisation of intangible assets arising
on consolidation 42 40
- Impairment of intangible assets arising
on consolidation 24 65
- Loss on disposal of property, plant
and equipment 1 -
- Loss on disposal of associates - 1
- Impairment of associates - 3
- Remeasurement of deferred consideration 6 5
Operating cash flows before movement in
working capital 285 252
Increase in trade and other receivables (24) (37)
(Decrease)/increase in net settlement
and trading balances 8 (14)
Increase in trade and other payables 4 1
Decrease in provisions (5) (1)
(Decrease)/increase in non-current liabilities (2) 13
Retirement benefit scheme contributions (1) (1)
------------------------------------------------ ----- -----
Cash generated from operations 265 213
Income taxes paid (64) (30)
Interest paid (41) (34)
Interest paid - finance leases (12) -
------------------------------------------------ ----- -----
Cash from operating activities 148 149
================================================ ===== =====
14. Analysis of net funds
Adoption
At 1 of IFRS Cash Non-cash Exchange At 31
January 16 flow items differences December
2019 GBPm GBPm GBPm GBPm GBPm
----------------------- --------- --------- ------- --------- ------------- ----------
Cash 670 - 21 - (13) 678
Cash equivalents 10 - (2) - - 8
Overdrafts (13) - 3 - - (10)
----------------------- --------- --------- ------- --------- ------------- ----------
Cash and cash
equivalents 667 - 22 - (13) 676
Financial investments 133 - 20 - (5) 148
----------------------- --------- --------- ------- --------- ------------- ----------
Total funds 800 - 42 - (18) 824
======================= ========= ========= ======= ========= ============= ==========
Bank loan due
within one year (52) - 52 - - -
Loans from related
parties - - 3 - (3) -
Sterling Notes
June 2019 (80) - 82(1) (2) - -
Sterling Notes
January 2024 (510) - 97 (1) (27) - (440)
Sterling Notes (241)
May 2026 - - (1) (8) - (249)
Lease liabilities - (145) 33 (1) (32) 4 (140)
----------------------- --------- --------- ------- --------- ------------- ----------
Total debt (642) (145) 26 (69) 1 (829)
======================= ========= ========= ======= ========= ============= ==========
Total net funds/(debt) 158 (145) 68 (69) (17) (5)
======================= ========= ========= ======= ========= ============= ==========
2018
----------------------- --------- --------- ------- --------- ------------- ----------
Cash 609 - 43 (1) 19 670
Cash equivalents 13 - (3) - - 10
Overdrafts - - (13) - - (13)
----------------------- --------- --------- ------- --------- ------------- ----------
Cash and cash
equivalents 622 - 27 (1) 19 667
Financial investments 139 - (4) - (2) 133
----------------------- --------- --------- ------- --------- ------------- ----------
Total funds 761 - 23 (1) 17 800
======================= ========= ========= ======= ========= ============= ==========
Bank loan due
within one year - - (52) - - (52)
Sterling Notes
June 2019 (80) - 4(1) (4) - (80)
Sterling Notes
January 2024 (509) - 26(1) (27) - (510)
----------------------- --------- --------- ------- --------- ------------- ----------
Total debt (589) - (22) (31) - (642)
======================= ========= ========= ======= ========= ============= ==========
Total net funds 172 - 1 (32) 17 158
======================= ========= ========= ======= ========= ============= ==========
1. Principal changes plus payment of interest and debt issue costs where applicable.
Cash and cash equivalents comprise cash at bank and other short
term highly liquid investments with an original maturity of three
months or less. As at 31 December 2019 cash and cash equivalents,
net of overdrafts, amounted to GBP676m (2018: GBP667m). Cash at
bank earns interest at floating rates based on daily bank deposit
rates. Short term deposits are made for varying periods of between
one day and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective
short term deposit rates.
Financial investments comprise short term government securities,
term deposits and restricted funds held with banks and clearing
organisations.
Non-cash items represent additions to lease liabilities, accrued
interest, the amortisation of debt issue costs and the impact of
IFRS 9's expected credit loss requirements.
15. Provisions
Legal
Property Re-structuring and other Total
2019 GBPm GBPm GBPm GBPm
------------------------------------------------------------- --------- --------------- ----------- ------
At 1 January 14 10 37 61
Charge to income statement - 8 23 31
Utilisation of provisions - (10) (26) (36)
Adoption of IFRS 16:
* onerous lease provisions offset against right-of-use
assets (7) - - (7)
Effect of movements in exchange
rates (1) - (1) (2)
------------------------------------------------------------- --------- --------------- ----------- ------
At 31 December 6 8 33 47
============================================================= ========= =============== =========== ======
2018
------------------------------------------------------------- --------- --------------- ----------- ------
At 1 January 5 27 29 61
Charge to income statement 11 10 7 28
Utilisation of provisions (2) (27) - (29)
Effect of movements in exchange
rates - - 1 1
------------------------------------------------------------- --------- --------------- ----------- ------
At 31 December 14 10 37 61
============================================================= ========= =============== =========== ======
2019 2018
GBPm GBPm
------------------------------------------------------------- --------- --------------- ----------- ------
Included in current liabilities 21 31
Included in non-current liabilities 26 30
------------------------------------------------------------- --------- --------------- ----------- ------
47 61
============================================================= ========= =============== =========== ======
Property provisions outstanding as at 31 December 2019 relate to
provisions in respect of building dilapidations, representing the
estimated cost of making good dilapidations and disrepair on
various leasehold buildings. Onerous provisions as at 31 December
2018 have been offset against the right-of-use asset arising on the
adoption of IFRS 16 (Note 2(d)).
Restructuring provisions outstanding as at 31 December 2019
relate to termination and other employee related costs. The
movement during the year reflects the actions taken under the
Group's integration of ICAP and other business reorganisations. It
is expected that the remaining obligations will be discharged
during 2020.
Legal and other provisions include provisions for legal claims
brought against subsidiaries of the Group together with provisions
against obligations for certain long-term employee benefits and
non-property related onerous contracts. At present the timing and
amount of any payments are uncertain and provisions are subject to
regular review. It is expected that the obligations will be
discharged over the next 25 years.
European Commission Yen LIBOR
In February 2015 the European Commission imposed a fine of
GBP13m (EUR15m) on NEX International Limited (formerly ICAP plc),
ICAP Management Services Limited and ICAP New Zealand Limited for
alleged competition violations in relation to the involvement of
certain of ICAP's brokers in the attempted manipulation of Yen
LIBOR by bank traders between October 2006 and January 2011. While
this matter relates to alleged conduct violations prior to
completion of the Group's acquisition of the ICAP global broking
business, it is noted that the fine imposed by the European
Commission has been appealed, seeking a full annulment of the
Commission's decision. In the event that the Commission imposes a
fine in excess of EUR15m such excess will be borne by NEX Group plc
('NEX'). In November 2017, the European General Court granted a
partial annulment of the Commission's findings. The Commission
appealed this decision in February 2018 and the Group served its
reply during April 2018. A decision from the Courts of Justice of
the European Union was received on 10 July 2019 which determined
that the decision of the European Commission in relation to the
competition violations still stands but the decision of the
European Commission imposing the fine was annulled. The European
Commission is likely to adopt new articles in relation to a fine
however and the Group has retained a GBP8m (EUR10m) provision in
its accounts in connection with this matter.
CFTC Investigation
In June 2018, the Group recorded an exceptional legal provision
in the amount of GBP8m (US$10m) in connection with an ongoing
regulatory investigation into its subsidiary, Tullett Prebon
Americas Corp. ('TPAC'), relating to alleged broker conduct on the
TPAC USD Medium Term Interest Rate Swaps desk in 2013 and 2014. In
September 2019, TPAC settled this matter with the CFTC for an
aggregate amount of GBP11m (US$13m) and the matter is now
concluded.
FCA Investigation
On 11 October 2019 the FCA issued its Final Notice in respect of
its investigation into Tullett Prebon Europe Limited ("TPEL"). The
FCA imposed a financial penalty on TPEL of GBP15m. The matter
related to certain trades undertaken between 2008 and 2011 which
were alleged to have no commercial rationale or economic purposes,
on which brokerage was paid and the failure by TPEL to discover
certain audio files and produce them to the FCA in a timely manner.
The FCA found that certain former managers in TPEL's Global Broking
Division and in TPEL's Compliance Department failed to act with due
skill, care and diligence. It was found that at the time there were
inadequate systems and controls in place to deal with the risk of
improper broker conduct. The investigation also related to the
account given by TPEL to the FCA as to how those files were
discovered.
16. Contingent liabilities
Bank Bill Swap Reference Rate case
On 16 August 2016, a litigation was filed in the United States
District Court for the Southern District of New York naming Tullett
Prebon plc, ICAP plc, ICAP Australia Pty LTD and Tullett Prebon
(Australia) Pty. Limited as defendants together with various Bank
Bill Swap Reference Rate ('BBSW') setting banks. The complaint
alleges collusion by the defendants to fix BBSW-based derivatives
prices through manipulative trading during the fixing window and
false BBSW rate submissions. On 26 November 2018, the Court
dismissed all of the claims against the TP ICAP defendants and
certain other defendants. On 28 January 2019 the Court ordered that
a stipulation signed by the Plaintiffs and the TP ICAP defendants
meant that the TP ICAP defendants were not required to respond to
any Proposed Second Amended Class Action Complaint ('PSAC') that
the Plaintiffs were seeking to file. On 3 April 2019 the Plaintiffs
filed a PSAC. However the TP ICAP defendants have no obligation to
respond. The Plaintiffs have reserved the right to appeal the
dismissal of the TP ICAP defendants but have not as yet done so. It
is not possible to predict the ultimate outcome of the litigation
or to provide an estimate of any potential financial impact.
Labour claims - ICAP Brazil
ICAP do Brasil Corretora De Títulos e Varoles Mobiliários Ltda
('ICAP Brazil') is a defendant in 13 (31 December 2018: 19) pending
lawsuits filed in the Brazilian Labour Court by persons formerly
associated with ICAP Brazil seeking damages under various statutory
labour rights accorded to employees and in relation to various
other claims including wrongful termination, breach of contract and
harassment (together the 'Labour claims'). The Group estimates the
maximum potential aggregate exposure in relation to the Labour
claims, including any potential social security tax liability, to
be BRL 49m (GBP11m) (31 December 2018: BRL 67m (GBP14m)). The Group
is the beneficiary of an indemnity from NEX in relation to any
outflow in respect of materially all of these Labour claims insofar
as they relate to periods prior to completion of the Group's
acquisition of ICAP. The Company intends to contest liability in
each of these matters and to vigorously defend itself. It is not
possible to predict the ultimate outcome of these actions.
Flow case - Tullett Prebon Brazil
In December 2012, Flow Participações Ltda and Brasil Plural
Corretora de Câmbio, Títulos e Valores ('Flow') initiated a lawsuit
against Tullett Prebon Brasil S.A. Corretora de Valores e Câmbio
and Tullett Prebon Holdings do Brasil Ltda alleging that the
defendants have committed a series of unfair competition
misconducts, such as the recruitment of Flow's former employees,
the illegal obtainment and use of systems and software developed by
the plaintiffs, as well as the transfer of technology and
confidential information from Flow and the collusion to do so in
order to increase profits from economic activities. The amount
currently claimed is BRL 243m (GBP44m) (31 December 2018: BRL 222m
(GBP45m)). The Group intends to vigorously defend itself but there
is no certainty as to the outcome of these claims. The case is
currently in an early evidentiary phase.
LIBOR Class actions
The Group is currently defending two LIBOR related actions.
(i) Stichting LIBOR Class Action
On 15 December 2017, the Stichting Elco Foundation, a
Netherlands-based claim foundation, filed a writ initiating
litigation in the Dutch court in Amsterdam on behalf of
institutional investors against ICAP Europe Limited ('IEL'), ICAP
plc, Cooperative Rabobank U.A., UBS AG, UBS Securities Japan Co.
Ltd, Lloyds Banking Group plc, and Lloyds Bank plc. The litigation
alleges manipulation by the defendants of the JPY LIBOR, GBP LIBOR,
CHF LIBOR, USD LIBOR, EURIBOR, TIBOR, SOR, BBSW and HIBOR benchmark
rates, and seeks a declaratory judgment that the defendants acted
unlawfully and conspired to engage in improper manipulation of
benchmarks. If the plaintiffs succeed in the action, the defendants
would be responsible for paying costs of the litigation, but each
allegedly impacted investor would need to prove its own actual
damages. It is not possible at this time to determine the final
outcome of this litigation, but IEL has factual and legal defences
to the claims and intends to defend the lawsuit vigorously. A
hearing took place on 18 June 2019 on Defendants motions to dismiss
the proceedings. On 14 August 2019 the Dutch Court issued a ruling
dismissing ICAP plc from the case entirely but keeping certain
claims against IEL relating solely to JPY LIBOR. The Group is
covered by an indemnity from NEX in relation to any outflow in
respect of the ICAP entities with regard to these matters. It is
not possible to estimate any potential financial impact in respect
of this matter at this time.
(ii) Swiss LIBOR Class Action
On 4 December 2017, a class of plaintiffs filed a Second Amended
Class Action Complaint in the matter of Sonterra Capital Master
Fund Ltd. et al. v. Credit Suisse Group AG et al. naming as
defendants, among others, TP ICAP plc, Tullett Prebon Americas
Corp., Tullett Prebon (USA) Inc., Tullett Prebon Financial Services
LLC, Tullett Prebon (Europe) Limited, Cosmorex AG, ICAP Europe
Limited, and ICAP Securities USA LLC (together, the 'Companies').
The Second Amended Complaint generally alleges that the Companies
conspired with certain bank customers to manipulate Swiss Franc
LIBOR and prices of Swiss Franc LIBOR based derivatives by
disseminating false pricing information in false run-throughs and
false prices published on screens viewed by customers in violation
of the Sherman Act (anti-trust) and RICO. On 16 September 2019, the
Court granted the Companies' motions to dismiss in their entirety.
The plaintiffs have appealed the dismissal to the United States
Court of Appeals for the Second Circuit. The Companies intend to
contest liability in the matter and to vigorously defend
themselves. It is not possible to predict the ultimate outcome of
this action or to provide an estimate of any potential financial
impact.
ICAP Securities Limited, Frankfurt branch - Frankfurt Attorney
General administrative proceedings
On 19 December 2018, the Attorney General's office of Frankfurt
notified ICAP Securities Limited (Frankfurt Branch) ('ISL'), that
administrative offence proceedings have been initiated against ISL
in connection with criminal investigations into two former
employees and a former Director of ISL suspected of aiding and
abetting tax evasion for the benefit of a third party between 2007
and 2008. The Attorney General's office is considering imposing a
corporate administrative fine against ISL or confiscating the
earnings that ISL derived from the underlying alleged criminal
conduct by the former employees and former Director. Not all
details of the alleged wrongdoing or of the case against ISL are
yet available. External lawyers have been instructed to represent
ISL and to seek further access to the Attorney General's case file.
As a result, it is not possible at this stage to provide a reliable
estimate of any potential financial impact on the Group.
General note
The Group operates in a wide variety of jurisdictions around the
world and uncertainties therefore exist with respect to the
interpretation of complex regulatory, corporate and tax laws and
practices of those territories. Accordingly, and as part of its
normal course of business, the Group is required to provide
information to various authorities as part of informal and formal
enquiries or market review.
From time to time the Group's subsidiaries are engaged in
litigation in relation to a variety of matters. The Group's
reputation may also be damaged by any involvement or the
involvement of any of its employees or former employees in any
regulatory investigation and by any allegations or findings, even
where the associated fine or penalty is not material.
Save as outlined above in respect of legal matters or disputes
for which a provision has not been made, notwithstanding the
uncertainties that are inherent in the outcome of such matters,
there are no individual matters which are considered to pose a
significant risk of material adverse financial impact on the
Group's results or net assets.
The Group establishes provisions for taxes other than current
and deferred income taxes, based upon various factors which are
continually evaluated, if there is a present obligation as a result
of past events, it is probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation and a reliable estimate of the amount of the obligation
can be made.
In the normal course of business, certain of the Group's
subsidiaries enter into guarantees and indemnities to cover trading
arrangements and/or the use of third party services or
software.
OTHER INFORMATION
The Annual General Meeting of TP ICAP plc will be held at the
offices of Allen & Overy LLP, One Bishops Square, London E1 6AD
on 13 May 2020 at 2.15pm.
Independent Auditors' Report to the Members of TP ICAP plc on
the Preliminary Announcement of TP ICAP plc
As the independent auditor of TP ICAP plc we are required by UK
Listing Rule LR 9.7A.1(2)R to agree to the publication of TP ICAP
plc's preliminary announcement statement of annual results for the
year ended 31 December 2019.
The preliminary statement of annual results for the year ended
31 December 2019 includes operational performance, strategic
highlights, financial highlights, the dividend statement, the CEO
review, financial review, the consolidated financial statements and
disclosures required by the Listing Rules. We are not required to
agree to the publication of presentations to analysts.
The directors of TP ICAP plc are responsible for the
preparation, presentation and publication of the preliminary
statement of annual results in accordance with the UK Listing
Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The Auditor's Association
with Preliminary Announcements made in accordance with UK Listing
Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of TP ICAP plc is
complete and we signed our auditor's report on 10 March 2020. Our
auditor's report is not modified and contains no emphasis of matter
paragraph.
Our audit report on the full financial statements sets out the
following key audit matters which had the greatest effect on our
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team, together with how
our audit responded to those key audit matters and the key
observations arising from our work:
Name Passing revenue
Key audit Name Passing revenue is earned for the service of
matter matching buyers and sellers of financial instruments.
description The Group is not a counterparty to the trade and commissions
are invoiced for the service provided by the Group.
It accounts for the majority of the Group's revenue
of GBP1,833m.
As invoices for services provided are not issued until
the end of each month, the cash collection period
is typically longer than for other revenue streams.
We identified a risk of material misstatement of revenue,
due to fraud or error, related to invoices past due
or where post year-end trade adjustments or credit
notes arise.
--------------------------------------------------------------
How the We obtained an understanding of relevant controls
scope of relating to Name Passing invoicing and cash collection.
our audit We confirmed a sample of trades to cash received throughout
responded the year. We agreed a further sample of Name Passing
to the transactions, which were outstanding at year-end,
key audit to cash received post year-end or where amounts remained
matter unpaid to other evidence to corroborate the validity
of the revenue booked.
We reviewed communications with counterparties and
tested a sample of post year-end trade adjustments
and credit notes to evaluate whether these items were
accurate and valid.
--------------------------------------------------------------
Key observations No issues were identified through our testing of past
due Name Passing revenue or in relation to post year-end
trade adjustments and credit notes.
--------------------------------------------------------------
Impairment of goodwill and other intangibles
Key audit As required by IAS 36, goodwill and other intangible
matter assets are reviewed for impairment at least annually.
description Determining whether the goodwill of GBP993m, other
intangible assets arising on consolidation of GBP518m
and other intangible assets of GBP61m are impaired
requires an estimation of the recoverable amount
of the Group's cash generating units ("CGUs"), using
the higher of the value in use or fair value less
costs to sell.
The value in use approach was used to assess the
recoverable amount of all CGUs.
The value in use approach involves discounting expected
future cash flows and hence requires the selection
of suitable discount rates and forecast future growth
rates. It is therefore inherently subjective with
an increased risk of material misstatement due to
error or fraud. The value in use of each CGU can
be sensitive to changes in underlying assumptions.
We focused our testing on the Asia Pacific CGU where
we identified increased sensitivity to the forecast
future growth rate and discount rate assumptions.
An impairment of GBP24m was recorded in the year
for the Asia Pacific CGU.
--------------------------------------------------------------
How the We obtained an understanding of relevant controls
scope of relating to the impairment of goodwill and other
our audit intangibles. We performed detailed analysis of the
responded Group's assumptions used in the annual impairment
to the review, in particular forecast future growth rates,
key audit the cash flow projections and discount rates used
matter by the Group in its impairment tests of the CGUs.
We challenged cash flow forecasts and growth rates
by evaluating recent performance, trend analysis
and comparing growth rates to those achieved historically
and to external market data where available. We worked
with our internal valuations specialists to independently
derive discount rates which we compared to the rates
used by the Group and we benchmarked discount rates
to available external peer group data.
We re-performed the Group's assessment of whether
the impairment tests were sensitive to reasonably
possible changes in assumptions and cash flows to
determine whether the Group's disclosures of sensitivities
in the financial statements were sufficient and appropriate.
--------------------------------------------------------------
Key observations We concluded that the Directors' valuation used in
the impairment test and the recognition of an impairment
charge in respect of the Asia Pacific CGUs was appropriate.
The cash flow forecasts used in the annual impairment
review were consistent with the most recent financial
budgets approved by the Board and were reasonable
in the context of recent business performance. The
growth rates used by management were reasonable and
the discount rate was within a reasonable range.
--------------------------------------------------------------
Presentation and disclosure of integration related items
Key audit The Group reports profit before "acquisition, disposal
matter description and integration related items" of GBP115m before
taxation of which GBP34m related to integration.
Judgement is required in determining and applying
the Group's policy on integration related items.
There is a risk that items that reflect the underlying
performance of the Group are incorrectly presented
as integration related items, whether due to fraud
or error. In addition, there is a risk that undue
prominence is given to underlying results compared
to the statutory results of the Group.
----------------------------------------------------------
How the We obtained an understanding of relevant controls
scope of relating to the classification of items as integration
our audit related.
responded We reviewed the recognition of integration related
to the key items to assess whether it was in line with the
audit matter Group's policy.
For a sample of items we obtained supporting evidence
to assess whether the items relate to integration
or should be presented as part of the Group's underlying
results.
We challenged the prominence given to underlying
results relative to the Group's statutory results
and whether the presentation was misleading. We
read the description of the basis of underlying
results and whether it was consistently applied.
We also tested the completeness and accuracy of
the reconciliation between underlying and statutory
results.
----------------------------------------------------------
Key observations We did not identify any material items that did
not meet the Group's policy on integration related
items set out in Note 2(c).
We considered that the presentation of the Group's
underlying results is appropriately explained, is
understandable and that the reconciliation to the
Group's statutory results is complete and accurate.
We considered that appropriate prominence has been
given to the statutory results.
----------------------------------------------------------
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we did not provide a separate opinion on these
matters.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of TP ICAP plc we carried out the
following procedures:
(a) checked that the figures in the preliminary announcement
covering the full year have been accurately extracted from the
audited financial statements and reflect the presentation to be
adopted in the audited financial statements;
(b) considered whether the information (including the management
commentary) is consistent with other expected contents of the
annual report;
(c) considered whether the financial information in the
preliminary announcement is misstated;
(d) considered whether the preliminary announcement includes a
statement by directors as required by section 435 of CA 2006 and
whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
(e) where the preliminary announcement includes alternative
performance measures ("APMs"), considered whether appropriate
prominence is given to statutory financial information and
whether:
-- the use, relevance and reliability of APMs has been explained;
-- the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of
calculation;
-- the APMs have been reconciled to the most directly
reconcilable line item, subtotal or total presented in the
financial statements of the corresponding period; and
-- comparatives have been included, and where the basis of
calculation has changed over time this is explained.
(f) read the management commentary, any other narrative
disclosures and any final interim period figures and considered
whether they are fair, balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on
the financial statements is to the company's members as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for our audit report or this report, or for the
opinions we have formed.
Alan Chaudhuri
(Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
10 March 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FIFVRVSIILII
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March 10, 2020 03:00 ET (07:00 GMT)
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