TIDMTCAP
RNS Number : 6098R
TP ICAP Group plc
09 March 2021
09 March 2021
TP ICAP
Financial and Preliminary Management Report of TP ICAP Limited
(the "Company") (formerly TP ICAP plc) for the year ended 31
December 2020 (the "Period")
TP ICAP announces its group (the "Group") results for the Period today.
Nicolas Breteau, CEO of TP ICAP, said:
" We delivered a robust 2020 financial performance demonstrating
our enhanced operational strength and the benefits of our
diversified business model.
"To manage the impact of COVID-19, we swiftly deployed
innovative technology and workflows meaning we were well-equipped
to provide clients with continuous high quality service and play a
systemic role in keeping markets open and liquid during a period of
exceptional stress.
"2020 was a transformational year for TP ICAP. We set out a new
strategy to deliver higher shareholder returns and made good
progress in executing initiatives across all of our businesses to
advance our strategic pillars of electronification, aggregation and
diversification.
"We strengthened our financial position by redomiciling our
Group's holding company and embedding a new risk management
framework. And we announced the acquisition of Liquidnet, an
electronic buyside-focused trading platform that will accelerate
our strategy and transform the Group's growth trajectory. The
acquisition is expected to complete at the end of this month, and
together we will create a modern, global market infrastructure
powerhouse, with strong sell-side and buy-side networks, and
leading franchises across all major asset classes.
"During these unprecedented times I would like to thank our
shareholders for their overwhelming support in relation to the
acquisition of Liquidnet, the successful rights issue, and the
redomiciliation of our Group's holding company. I would also like
to thank my colleagues for their hard work and commitment and our
clients for their ongoing trust and support."
Financial highlights
Commentary on year on year performance is on a reported and
constant currency basis.
Adjusted (before significant items)
2020 2019 Change (%)
Revenue GBP1,794m GBP1,833m -2%
Operating profit
(EBIT) GBP272m GBP279m -3%
Op.profit margin 15.2% 15.2% 0% pts
Profit before
tax GBP223m GBP230m -3%
Basic EPS 32.9p 33.8p -3%
Reported (after significant items)
2020 2019 Change (%)
Revenue GBP1,794m GBP1,833m -2%
Operating profit
(EBIT) GBP178m GBP142m +25%
Op. profit margin 9.9% 7.7% +2.2% pts
Profit before
tax GBP129m GBP93m +39%
Basic EPS 17.2p 12.0p +43%
A table showing Adjusted and Reported figures for each period,
detailing significant items is included in the Financial
Review.
The average number of shares used for the basic 2020 EPS
calculation for the period is 557.0m (2019: 559.4m).
Operational highlights
-- Delivered a solid financial performance, demonstrating our
strong operational capability and the growing success of our
diversification strategy, against the difficult macroeconomic
backdrop and reduced secondary volumes in the wider interdealer
broker market.
-- Revenue of GBP1,794m marginally declined 2% on a reported
basis (1% lower at constant currency).
-- Diversified revenue(1) increased 6% (7% higher at constant currency)
-- Reported operating profit was 25% higher than 2019. Adjusted
was 3% lower, as lower revenues were only partially offset by tight
cost discipline. Global Broking revenue decreased by 6% on a
reported basis (5% lower at constant currency), as despite a strong
first quarter, volumes shrunk as clients appetite for risk
decreased. Energy & Commodities revenue increased 2% on a
reported basis (3% higher at constant currency) with good growth in
the majority of products, boosted by strategic hires.
-- Institutional Services revenue increased 21% on a reported
and at constant currency basis, as the business benefited from
investment in talent and enhanced asset classes and geographic
coverage.
-- Data & Analytics revenue increased 7% on a reported basis
(9% at constant currency), capitalising on the launch of new,
higher-value products, whilst growing and deepening its client
base.
(1) Diversified revenue is defined as the sum of Energy &
Commodities, Institutional Services and Data & Analytics
revenues.
Strategic highlights
-- Adapted our business quickly to manage the impact of the
pandemic by deploying new technology and workflows. Protecting our
employees' welfare enabled us to provide seamless, high-quality
service to our clients, and maintain a strong balance sheet.
-- Announced the transformational acquisition of Liquidnet, an
electronic, buy-side focused trading network, expected to be
completed by the end of Q1 2021, after the successful completion of
our GBP315m rights issue.
-- Continued to invest in and execute our electronification and
aggregation strategy, while diversifying and growing our non-Global
Broking businesses
-- Enhanced the enablers of our strategy, including a new Global
Risk Framework and implementing a new ESG Reporting Framework.
Dividend
For 2020, the Board is recommending a final dividend per share
(DPS) of 2p that equates to GBP16m. The dividend will be paid on 18
May 2021 (with a record date of 9 April 2021).
This will take the full-year DPS to 6p, (rebased to take into
account the bonus element of the rights issue completed in February
2021), an one-off 50% reduction to the prior year, in line with the
statement made on 9 October regarding the proposed Liquidnet
acquisition.
This reduction will help fund the Liquidnet acquisition and
minimise dilution of earnings on a per share basis. For 2021
onwards, we will target a dividend cover of approximately 2x
adjusted earnings. The new dividend policy reflects a balanced
approach to capital allocation and is expected to allow TP ICAP to
drive growth, while allowing dividends to increase in line with
adjusted earnings.
Please see the Financial Calendar on the Company's website for
further information on upcoming dividend timings, including
dividend re-investment plan election dates.
2021 guidance and outlook
-- The first two months' revenue per trading day is marginally
higher than the prior year. March 2020 was a record month in terms
of revenues, with very strong secondary volumes and exceptional
volatility. As such, given this tough comparative, our Q1 2021
revenues may be lower than in the prior year. For 2021, we expect
full year revenue to grow at low-single digit at constant currency
basis.
-- As we outlined, in our Capital Markets Day ("CMD"), we are
targeting cGBP30m of strategic cash investments in 2021, which
includes cGBP13m of operating expenses.
-- We forecast that our contribution margin will be stable at
c38% year on year, as higher investment will be offset by
continuous cost-cutting initiatives in the front and
back-office.
-- With regard to Brexit, despite the complications caused by
COVID, we are executing our plans, leveraging our EU network, and
moving brokers to our Paris hub. As a result, we continue to cover
our EU clients effectively .
-- All the aforementioned targets exclude any potential impact
from the completion of the Liquidnet acquisition.
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
Direct: +44 (0) 203 933 3040
Email: Alevizos.Alevizakos@tpicap.com
Media
William Baldwin-Charles
Direct: +44 (0) 207 200 7124
Email: William.Baldwin-Charles@tpicap.com
Neil Bennett
Maitland
Direct: +44 0 20 7379 5151
Email: tpicap-maitland@maitland.co.uk
About TP ICAP
-- TP ICAP brings together buyers and sellers in global
financial, energy and commodities markets.
-- It is the world's largest wholesale market intermediary, with
a portfolio of businesses that provide broking services, data &
analytics and market intelligence, trusted by clients around the
world.
-- We operate from offices in 26 countries, supporting
award-winning brokers with market-leading technology.
CEO review
2020 was a year in which the Group made material progress in
enhancing its position as a leading, global market infrastructure
and data solutions provider.
We unveiled and started the execution of our new strategy to
drive higher returns to shareholders. We announced the acquisition
of Liquidnet, an electronic, buy-side focused trading network,
which will fundamentally accelerate the execution of our strategy
and transform our future growth prospects. We made good progress on
the redomiciliation of our Group holding company, which will
provide greater financial flexibility for the Group and became
effective on 26 February 2021. And we continued to enhance the
enablers of our strategy, such as embedding our Global Risk
Framework and developing and launching our new ESG Reporting
Framework.
That such progress was achieved against the backdrop of COVID-19
serves only to underline the operational strength and flexibility
of our Group, which in turn positions us well to continue to
execute our strategy to drive higher returns to shareholders over
time.
Managing COVID-19
COVID-19 caused a considerable shock to the global economy and
had a significant impact on the markets in which we operate. We saw
a substantial increase in volatility in the early part of the year,
although this dropped materially after April as clients assumed
more risk averse positions and therefore traded significantly less.
We saw a degree of normalisation of trading in OTC markets towards
the end of the year.
Following the emergence of the pandemic, we acted quickly to
adapt our operational processes to protect our staff and meet the
various COVID-19 guidelines that were issued in the 26 countries
where we operate. In a matter of weeks we introduced new digital
technology and amended workflows which allowed a significant
proportion of brokers to work from home. For those brokers who
remained in the office during this time, we reconfigured the layout
of our offices to provide adequate space to socially distance.
Through these actions, and at a time of unprecedented market
volatility, we ensured that all desks continued to be fully
operational, that our clients benefited from continuous global
coverage across all asset classes, and that global markets remained
open and liquid.
The overwhelming majority of our support staff have worked from
home throughout the pandemic. Where required, particularly in the
compliance, risk, regulatory and IT functions, we have enabled a
small number of employees to come into our offices to support
brokers.
Despite the challenges posed by the pandemic, we made
significant progress during the year. We announced our new strategy
in March, which was explained in detail at our Capital Markets Day
in December 2020. We have started the execution of this strategy,
albeit at a slower than originally intended pace as we took a
prudent approach to investment given the uncertainty caused by
COVID-19.
The acquisition of Liquidnet, approved by shareholders on 1
February 2021, will accelerate the execution of our strategy as
well as provide our firm with significant new growth opportunities.
Furthermore, we made progress in the redomiciliation of the holding
company of TP ICAP, which came into effect on 26 February 2021. The
redomiciliation will provide the Group with greater financial
flexibility.
To partially fund the acquisition, we launched a rights issue to
raise GBP315 million. This issue was successfully completed with
existing shareholders taking up more than 98% of the new shares,
with the remainder offered into the market. The new shares
commenced trading on the London Stock Exchange on 17 February.
Financial performance
The Group delivered a robust performance in 2020. The year
started with high market volatility, resulting in a very good
performance in the first three months of the year. Markets were
materially slower thereafter, with a consequential impact on
revenues. This underlined the importance and growing success of our
diversification strategy as lower full year revenues in Global
Broking were partially offset by strong full year revenue growth in
Energy & Commodities, Institutional Services and Data &
Analytics ('D&A').
In 2020, revenues from our faster growing, non-global broking
businesses accounted for 35% of total revenues, compared to 32% in
2019.
Group revenue declined 2% to GBP1,794m against GBP1,833m for the
prior year on a reported basis (1% at constant currency) as
although Global Broking experienced a weaker year we saw continued
good growth in our other three businesses. We achieved a reported
operating profit of GBP178m for the Group, up 25% on the prior
year, with our adjusted operating profit of GBP272m, down 3% from
last year. The increase in reported operating profit was mainly due
to 2020 being the first year following the completion of the ICAP
integration and therefore benefiting from no integration costs. Our
reported operating profit margin of 9.9% was up 2.2% on last year,
and the adjusted operating profit (EBIT) margin of 15.2% is flat on
the prior year, due to strict cost controls. We reported a
statutory profit before tax of GBP129m, 39% higher than last year
with the adjusted profit before tax of GBP223m, down 3% from
GBP230m in the prior year.
Basic reported earnings per share ('EPS') were 17.2p with
adjusted earnings per share of 32.9p, and we are paying a dividend
of 6.0p per share for the full year (rebased to take into account
the bonus element of the rights issue), in line with our intention
stated in the announcement regarding the acquisition of Liquidnet
on 9 October 2020.
Regional performance
Revenue for the EMEA region was GBP888m, a 1% decrease on a
reported basis (1% at constant currency). Global Broking revenue
decreased 6% as a very strong first half, particularly in Rates and
FX, was more than offset by a significantly weaker second half with
the Emerging Markets business performance suffering from the
pandemic driven slow-down in Turkey and South Africa. Energy &
Commodities was up against a strong prior year performance,
Institutional Services grew revenues as it continued to scale up
and Data & Analytics delivered another year of strong
growth.
The Americas reported revenue of GBP670m was down 2%
year-on-year on a reported basis (down 1% in constant currency).
Strong growth in E&C, Institutional and D&A was offset by
Global Broking which faced difficult market conditions.
In Asia Pacific, revenue at GBP236m decreased 4% year-on-year on
a reported basis (3% on constant currency). This reflected very
good growth in Energy & Commodities, Institutional Services and
D&A, with more challenging Global Broking figures, as trading
appetite dampened due to the pandemic placing practical constraints
on market activity.
Strategic delivery
In March 2020 we identified the three key strategic pillars
which would underpin our medium-term growth strategy:
electronification; aggregation of liquidity; and diversification of
our revenues. On 1 December we held a Capital Markets Day at which
senior management presented in detail how this strategy would be
executed across the Group.
For our Global Broking and Energy & Commodities businesses,
we are executing a hub strategy for the asset classes of Rates,
Foreign Exchange, Credit, and Oil. These hubs will drive
electronification and liquidity aggregation. They will offer
clients a single sign-on to access via a single screen a multitude
of TP ICAP products and brands all with a common look and feel. The
hubs will provide robust pre- and post-trade processing, improved
connectivity and straight-through processing ("STP").
The overall outcome from the hub strategy will be
institutionalising volumes and client relationships. We have
already launched several electronic platforms, and these are
already demonstrating tangible benefits for TP ICAP and our
clients. The hubs will result in increased revenues. With these
platforms client volume tends to be stickier, and brokerage rates
more standardised. Silos between bank traders should erode enabling
more cross-asset or cross-instrument transaction activity which
will result in increased volume. With more client activity
conducted via platforms and common screens, there will also be more
opportunity for us to provide targeted data and analytics products.
Most importantly, we expect them to result in lower costs.
In Data & Analytics, our focus is on moving up the value
chain in terms of product offering, going beyond selling raw data
to selling value-adding solutions, something for which clients will
pay a premium. We will also innovate in how we distribute,
delivering our solutions both directly through a webstore but also
partnering with other well-established cloud providers. Finally,
our focus is to expand to new buy-side clients, and increase our
market share of the wallet with existing clients.
In Institutional Services, the focus will remain on expanding
product coverage as well as building out regional customer
coverage.
Liquidnet
To materially accelerate our strategy we announced the proposed
acquisition of Liquidnet, a premier, technology-driven, global
electronic trading network focused on the buy-side. The acquisition
will also bring deep expertise in the cash equities asset class as
well as provide us with compelling new growth opportunities as we
explained in detail at our Capital Markets Day.
The total consideration for the acquisition is between US$575m
and US$700m, comprising cash of US$525m, subject to customary
adjustments, payable on completion and with deferred consideration
of US$50m and contingent deferred consideration of up to
US$125m.
Liquidnet's electronic network incorporates extensive buyside
trade workflow connectivity, including integrations with all major
order management and execution management systems. We intend to
build on Liquidnet's capabilities and connectivity, and expand its
offering, particularly in respect of Dealer-2-Client ("D2C")
electronic trading in Credit and Rates. Furthermore, we expect to
leverage the data assets and analytics expertise of both
organisations to drive non-transaction-related earnings.
We believe that TP ICAP's strong dealer relationships and
product expertise are highly complementary to Liquidnet's
electronic capabilities and global buyside customer base. In
addition, its global low-touch block cash Equities franchise
complements our existing high-touch derivatives and cash Equities
activities. Combined, TP ICAP and Liquidnet will be able to offer
our clients compelling electronic trading and analytics solutions,
driving sustained growth and shareholder value creation over the
medium and long term.
While this new strategy will drive the medium-term growth of TP
ICAP, we took the decision to slow investment in 2020 adopting a
prudent approach to managing through the crisis and prioritised our
liquidity and capital buffers under stressed scenarios.
Despite the aforementioned deceleration, we were still able to
progress with a number of strategic initiatives and detail some of
these in the business division reviews below. We intend to
accelerate the execution of our strategy in 2021 and the following
years.
Business Review
Global Broking
Global Broking is our largest division covering Rates, Credit,
Equities, Foreign Exchange & Money Markets and Emerging
Markets, where we have market leading positions. We bring together
buyers and sellers providing a range of professional intermediary
services that enable them to execute trades successfully. We
operate through Tullett Prebon and ICAP brands separately. We also
offer clients a range of ways to interact with us - through voice,
hybrid or electronically - depending on the nature of the market,
product and transaction. One of our fundamental strengths is the
long-established relationships we have with top-tier banks, and our
ability to operate deep liquidity pools.
Global Broking had a very strong first quarter of 2020 primarily
due to abnormal levels of volatility in March leading to
significant trading volumes. In the ensuing months, many clients
decided to wind down any positions they had and reduced their risk
appetite. Consequently, from May through to October markets were
much quieter with a resulting negative impact on revenues. Trading
in the final months of the year improved slightly to more
normalised patterns, albeit not with the levels of activity usually
associated with a US Presidential election.
As a consequence of these macro conditions, revenues for the
year were down 6% in reported currency (5% lower at constant
currency) at GBP1,188m from GBP1,262m in the prior year. It is
important to highlight that while the large Tier 1 investment banks
are our main client base, their revenue performance is not always a
good proxy for that of Global Broking. Global Broking is paid on
volumes on secondary markets while Investment Banks benefit from,
inter alia, primary issuance in the equity and debt markets, from
principal trading and mark-to-market changes in inventory
positions. We believe a better guide is provided by the public
information on secondary volumes in the relevant market
infrastructure markets, mainly exchanges and other platforms.
Our largest business, Rates, saw revenues decline 5% on a
reported basis (4% in constant currency) year-on-year following a
stand-out start to the year due to the impact of many countries
also reducing interest rates to near zero and embracing
quantitative easing. Our Equities business was flat on the year in
reported currency, (2% higher in constant currency), as although
the market was buoyant for cash equities, our business is geared
toward Equity Derivatives which experienced a quieter period. We
saw the benefit of the LCM acquisition towards the end of the year
as the transaction closed. FX and Money Markets' revenue declined
7% on a reported basis (down 7% in constant currency) due to
subdued client activity from lower volatility and volumes. The
Credit market remained subdued for interdealer brokers as new
market participants continued to take market share and new issuance
growth did not translate into secondary trading, which resulted in
a 4% revenue decline on a reported basis, and 3% lower in constant
currency. The Emerging Markets business was affected by the
practical impact the pandemic had on those countries with revenues
declining 14% on a reported basis (12% at constant currency).
Despite the difficult macroeconomic backdrop, we continue to
identify opportunities to fill gaps in coverage and offer
additional products for our clients as well as continue to expand
our hybrid and electronic matching technology offering.
We made progress in rolling out the hub strategy, although, as
stated, at a slower pace than we had anticipated at the start of
the year. For the Rates hub, we introduced several enhancements to
our market leading ICAP Interest Rate Options ("IRO") platform and
achieved our first cross-product electronic aggregation of
liquidity, by bringing inflation swaps/index, conventional gilts,
and interest rate swaps onto a single trading platform. We achieved
cross-brand aggregation in September when we introduced the ICAP
Interest Rate Options platform to the Tullett Prebon brand.
For the FX hub, we launched FXO Hub, our cross brand platform
for trading FX Options in March this year and we are encouraged by
its initial performance, increasing our market share for this asset
class by approximately 5% pts.
In Credit, we increased electronification through launching the
Matchbook Rebalance platform. This is a pure-electronic platform
used for Emerging Market, Investment Grade, High Yield, Financial
and Sterling Corporate Bonds. The platform, which has common TP
ICAP branding, runs auctions allowing traders to clear up unwanted
odd-lot risk on their books based on a total P&L marker, and
has also recently been launched in the US.
Energy & Commodities
Energy & Commodities ('E&C') is our second largest
division and operates through the Tullett Prebon, ICAP and PVM
brands in all key commodities markets including oil, gas, power,
renewables, ferrous metals, base metals, precious metals and soft
commodities. Clients include regional banks, corporates, hedge
funds and trading companies.
The energy and commodities markets experienced high volatility
in the first four months of the year as markets reacted to global
trade wars and the pandemic, with clients adjusting positions to
pandemic levels of supply and demand. A combination of clients
assuming a risk off position and more people working from home led
to quieter months between May and September before market activity
returned to more normal levels for the remainder of the year.
E&C delivered a good performance in 2020. Revenues were up
2% in reported currency (3% in constant currency) to GBP391
million, against a particularly strong prior year performance. The
primary driver of growth was new hires as a result of our
successful hiring pipeline.
We saw growth across the majority of product areas, with Oils,
our largest business, benefiting from the extraordinary conditions
seen in the first part of the year as well as the continued build
out of the ICAP oil desk. We recorded a strong performance in
Liquified Natural Gas as the natural gas market became a global
rather than regional market, and experienced good growth in Metals
and Environmental products.
We continued to build and develop the business throughout the
year, despite the practical constraints imposed by COVID-19: our
successful Weather Derivatives desk in the US is now linking into
our Global power desks; we are broking Japanese power contracts out
of Singapore with a local Japanese entity due to launch shortly; we
have a new ICAP desk covering power markets in Central and Eastern
Europe; and have dedicated resource who are successfully growing
our hedge fund platform.
We are making solid progress on building the Oil Hub, which will
ultimately allow clients to view aggregated liquidity across our
competing brands. We have started to roll out the electronic
matching engine, and we are aiming for this to be on every broker's
desk in Q2 2021. We have implemented an Order Management System on
the platform to facilitate and manage trades and provide straight
through processing.
Decarbonisation has become a significant theme of the energy and
commodities markets and we are positioning our business to capture
the benefits of this change. Approximately 40% of our revenues come
from positive, transitional or neutral products and we anticipate
this increasing over time.
Institutional Services
Institutional Services, which in 2021 will be renamed Agency
Execution as it better describes the business and its activities,
provides execution services to buy side clients including hedge
funds, asset managers and corporates. The role of the division is
to power clients' ability to manage their investment or trading
process - from trade origination and execution through to post
trade analytics. Institutional Services seeks to ensure clients
receive the best pricing available in the market ; routing orders
into multiple sources of pricing such as exchanges, partner bank
liquidity providers and other venues whilst guaranteeing anonymity
and neutrality. It is an important part of the Group's
diversification strategy bringing in a new revenue stream from a
different client base.
Institutional Services delivered an excellent performance in
2020, continuing its strong growth trajectory, with revenues up 21%
on a reported basis (21% on constant currency) to GBP91m, up from
GBP75m in 2019. Growth was driven by the investments already made
in people, product coverage, geographic reach and technology as the
business has greater capacity to service clients and meet their
expanding needs.
Whilst exchange traded derivatives performed extremely well, we
were particularly pleased with the ongoing and diversifying growth
in FX , equity derivatives, IRS and government bonds which in
aggregate secured our positive performance trajectory in all
regions.
During the year we experienced significant growth in requests
from investors that have traditionally sought execution services
exclusively from banks. It is our belief that this trend will
continue . Banks appear to be de-prioritising investment in agency
execution services, consistent with the demands to "do more with
less". Banks' investments are increasingly geared to businesses
with better ability to capitalise on available leverage. At the
same time our Institutional Services business has grown its breadth
and quality of coverage to a point where we have a significant
footprint and a growing reputation as an alternative to traditional
banks' sales desks - evidenced in our ongoing market share
growth.
As well as adding clients, we also note that the number of
existing clients engaged in two or more products with us is
increasing. This is an extremely encouraging development and one
that we think becomes an important driver in our next growth
phase.
Our strategy for Institutional Services remains to continue to
grow the business and diversify our revenues through: adding more
asset classes to our coverage; broadening our geographic reach; and
investing in further electronification.
Data & Analytics
Our D&A business provides unbiased data products that
facilitate trading, enhance transparency, reduce risk and improve
operational efficiency. It is the leading provider of OTC pricing
data and has access to 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.
D&A is a fast growing, high margin business with revenues
that are largely subscription-based - more than 90% of revenues
were recurring in 2020 - so it provides us with excellent earnings
diversification and sustainable growth opportunities.
Revenues for 2020 were up 7% on a reported basis (9% in constant
currency) at GBP145m which was a strong performance given estimates
that financial market data companies will have seen growth of
between 4-5% for the year, according to Burton Taylor estimates.
While the pandemic caused D&A to experience weaker growth in
the first half of the year, it saw an improved performance in the
second half with a particularly strong final quarter where revenues
grew 11%. We remain confident that the business will deliver
double-digit revenue growth in 2021.
The business also made further progress with its growth strategy
in the period. It invested in its people and processes, introducing
new sales methodology, appointing Regional Heads of Sales, and
hiring sales specialists focused on Energy and Commodities. This
new, systematic approach should lead to a shorter sales cycle and
lasting revenue benefits.
We continued to develop new products, launching six new
offerings, including, importantly, our first "information" product:
Bond Evaluated Pricing ("BEP"). BEP combines our data with third
parties' data to create intra-day, transparent insight with
observable pricing from our neutral broking partners. We created
the product after our clients told us that meaningful transparency
in fixed income pricing has become critical as regulators globally
require more detailed disclosure and stricter risk management. We
intend to roll out further information products in 2021.
In the energy and commodities sector, we began the roll out of
our new Oil Market Data Feed, on the crude and refined oil markets
aimed at trading houses, major oil companies, buy-side funds and
the banks. We have also enhanced our offering in Liquified Natural
Gas expanding coverage to include additional markets such as US
Gulf Coast and WIM (West India Marker).
In terms of distribution initiatives, we launched a new direct
to client service, known as SURFIX, which provides clients direct
access to our critical mass of breadth across our multiple brands,
including Tullett Prebon, ICAP and PVM, in the easy-to use,
industry standard FIX format. We expanded our Channel Partners to
include the public cloud providers, providing clients with options
on moving market data infrastructure into the cloud. This will
allow client to operate with greater agility and a lower total cost
of ownership.
We will continue to roll out new products covering other asset
classes, third party data partnerships and moving up the value
pyramid. We plan to capitalise on regulatory opportunities,
including new risk free rates in connection with the retirement of
LIBOR, and the need for regulated benchmarks and indices. This
includes an Interest Rate Options Volatility Index based on our
Global Broking data, and index partnerships, in Energy and
Commodities.
Environmental, Social & Governance
Increasingly, clients, investors, ratings agencies, regulators,
Non-Governmental Organisations and other core stakeholders
including current and prospective employees incorporate
environmental, social and corporate governance ("ESG") performance
into their decision-making process. Consequently, TP ICAP believes
that performing well in ESG represents a licence to do business and
is a critical factor in achieving sustainable growth.
To strengthen how we measure, manage and report on the
components of ESG that are most relevant to our Group in 2020 we
undertook a comprehensive materiality assessment that led to us
establishing an ESG Reporting Framework formed of 15 data
disclosure areas. Each disclosure has an associated set of metrics
according to internationally recognised standards. To ensure
ownership and accountability, individual disclosure areas have been
assigned to a relevant senior manager, and governance has been
strengthened up to and including Board level. Having identified
these 15 ESG disclosure areas, we have also begun to report against
them.
Whilst important, we recognise that robust reporting is but one
step forward in our sustainability journey. We have more to do, the
next step being to develop an overarching ESG strategy that is
aligned to our purpose. We commit to completing this strategy by
the end of 2021, with execution to commence in 2022.
We introduced a new Enterprise Risk Management framework
("ERMF") in the second half of 2019 which took into account the
increased scale and diversity of our business and responded to
regulatory expectations. One of the key matters for the Risk
Committee was the monitoring of the operation of the new ERMF with
the objective of ensuring that this has been embedded across all
areas of the Group (both organisationally and geographically). This
includes the new Governance, Risk Management and Compliance ("GRC")
system that underpins the ERMF and the delivery of risk management
training to all staff. The EMRF has now had extensive third-party
reviews which have found that the framework has been embedded
consistently across the Group with no adverse findings. TP ICAP has
now attested to the embedding and ongoing operation of the ERMF. We
have reviewed our principal risks and evolved the ERMF to account
for factors including the impact of Covid-19, the potential impact
of Brexit on Financial Services and execution risk of the Liquidnet
acquisition.
Near term outlook
-- The first two months' revenue per trading day was slightly
higher year on year. March 2020 was a record month in terms of
revenues, with very strong secondary volumes on record-high
volatility. As such, given this tough comparative, we believe that
our Q1 2021 revenues may be lower than in the prior year. For 2021,
we forecast full year revenue to grow at low-single digit rates at
constant currency basis. This excludes any positive revenue
contribution following the completion of the Liquidnet
acquisition.
-- As we outlined in our Capital Markets Day ("CMD"), we are
targeting cGBP30m of strategic cash investments in 2021, which
includes cGBP13m of operating expenses.
-- With regard to Brexit, despite the complications caused by
COVID, we are executing our plans, leveraging our EU network, and
moving brokers to our Paris hub. As a result, we continue to cover
our EU clients effectively.
Concluding comments
2020 was in many ways a landmark year in the development of the
Group. We announced a new strategy; unveiled a transformational
transaction; and continued to adapt and strengthen our platform
against the most challenging of backdrops. Consequently, TP ICAP is
well placed to adapt and remain relevant as markets and clients'
needs continue to evolve. In so doing, we will drive sustainable
growth and higher returns to our shareholders over time and extend
our position as a leading, global market infrastructure and data
solutions provider.
During these unprecedented times I would like to thank our
shareholders for their overwhelming and continued support in
relation to the acquisition of Liquidnet, the successful rights
issue and redomiciliation of our Group's holding company. I would
also like to thank all of my colleagues at TP ICAP for the
remarkable fortitude they have demonstrated throughout 2020, and of
course our clients for their continuing trust in us. I look forward
to working with you all in the coming year, one that I approach
with confidence.
Nicolas Breteau
Chief Executive Officer
9 March 2021
Financial Review
Introduction
During 2020, we faced a unique macroeconomic backdrop marked by
the emergence and continuous impact of the COVID-19 pandemic. The
pandemic led us to adjust our ambitious 2020 IT investment plan as
our primary focus has been the well-being of our employees, the
seamless provision of our services, the support of financial
market, and the protection of shareholders' value.
This once-in-a-generation environment initially led to record
volatility and boosted market volumes. This was especially
pronounced in March, across all our broking products. However,
market volumes materially softened as the year progressed, most
notably during the summer months. This was due to the fact that
governments started to lower interest rates to support the wider
economy and restarted large quantitative easing programmes. In
addition, traders decided to de-risk.
Against this backdrop, Group revenues were slightly lower
year-on year on a reported and constant currency basis. This is a
big testament of the success of our diversification strategy. Our
high-growth businesses, Institutional Services and Data &
Analytics offered high top-line growth, whilst Energy &
Commodities continued to grow its market share and capitalise on
specific market opportunities.
Operating costs in 2020 have declined materially year-on-year
following the completion of the integration of ICAP in 2019,
reflected in a reduction in ' Significant items ' . Management
adjusts for such items for planning purposes and measuring the
Group ' s performance, and to aid comparability from period to
period. They are also useful measures for investors and analysts
when considered together with reported results .
Despite our initial plans to invest heavily in our core
strategy, COVID-19 meant that we re-prioritised investment in cloud
technology and workflows to support our brokers to work from home.
Despite these unplanned investments and other costs regarding
recent acquisitions, we were able to reduce our overall management
and support costs year-on-year by GBP9m (GBP4m on a constant
currency basis), which included material bonus adjustments. This
highlights our ability to adapt our cost base to various
macroeconomic circumstances. Looking forward, the proposed
Liquidnet acquisition means that we will incur some non-recurring
costs in 2021. However, we are all very excited to partner with
Liquidnet as its cutting-edge technology, market-leading
connectivity and well-known franchise will help us develop new,
high-growth revenue streams.
Key financial and performance metrics
Our key financial and performance metrics for 2020 are
summarised in the table below together with comparatives from the
equivalent period in 2019 on a reported basis.
2020 2019 Change
---------------------------------- ---------- ---------- ----------
Total revenue (reported) (1) GBP1,794m GBP1,833m -2%
---------------------------------- ---------- ---------- ----------
Operating profit (EBIT):
- Reported GBP178m GBP142m +25%
- Reported margin 9.9% 7.7% +2.2% pts
- Adjusted GBP272m GBP279m -3%
- Adjusted margin 15.2% 15.2% 0% pts
---------------------------------- ---------- ---------- ----------
Contribution (2) :
- Broking GBP606m GBP626m -3%
- Broking margin 36.3% 36.4% -0.1% pts
- Data & Analytics GBP68m GBP68m +24%
- Data & Analytics margin 50.4% 50.4% +3.4% pts
Total contribution GBP680m GBP694m -2%
---------------------------------- ---------- ---------- ----------
Adjusted operating profit margin
(%):
- Global Broking 16.6% 17.5% -0.9% pts
- Energy & Commodities 13.6% 12.0% +1.6% pts
- Institutional Services 7.7% 4.0% +3.7% pts
- Data & Analytics 44.1% 43.7% +0.4% pts
---------------------------------- ---------- ---------- ----------
Average:
- Broker headcount 2,789 2,740 +2%
- Revenue per broker (GBP'000)
(3) 591 620 -5%
- Contribution per broker
(GBP'000) (4) 217 228 -5%
---------------------------------- ---------- ---------- ----------
Period end:
- Broker headcount 2,793 2,784 0%
- Broker support headcount 1,846 1,824 +1%
- Other support headcount 287 300 -4%
---------------------------------- ---------- ---------- ----------
Broker compensation costs :
broking revenue (5) 54.7% 53.1% +1.6% pts
Average broker headcount was 2% higher to 2,789 in 2020 from
2,740 in 2019 due to the acquisition of Louis Capital Markets (LCM)
and the consolidation of our business in Malaysia. However, with a
5% decrease in average revenue per broker, the resulting broking
revenue was 3% lower than 2019 on a reported basis (2% lower on a
constant currency basis). The period-end broking support headcount
increased 1% primarily reflecting in-sourcing (including Belfast),
and investing in Risk and Compliance functions as a response to
increasing regulatory demands.
(1) On a reported basis. Revenues declined 1% at constant currency
(2) Broking includes contribution from Global Broking, Energy
& Commodities and Institutional Services. Figures include
inter-division revenues in Global Broking and Energy &
Commodities, and inter-division front-office costs in Data &
Analytics.
(3) Average revenue per broker is defined as Total Broking
revenues excluding inter-division revenues divided by average
broker headcount.
(4) Average contribution per broker represents broking
contribution (as defined in the Contribution section) divided by
the average broker headcount.
(5) Broker compensation costs: broking revenue is defined as
Total Broking compensation costs divided by Broking revenues
excluding inter-division revenues
The tables that follow analyse revenue by business division as
well as revenue and Adjusted operating profit by region for 2020
compared with the equivalent period in 2019.. 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 following tables therefore
shows the statutory revenue change, but also the constant currency
basis, where the 2019 revenues are translated at the same exchange
rates as those used for 2020.
Income Statement
The Group presents its reported results in accordance with IFRSs
as detailed in the financial statements. The Group also presents
adjusted, non-IFRS, measures to report performance. Adjusted
results and other alternative performance measures ('APMs') may be
considered in addition to, but not as a substitute for, the
reported results presented in accordance with IFRS. The Group
believes that adjusted results and other APMs, when considered
together with reported results, provide shareholders, analysts and
other stakeholders with additional information to better understand
the Group's financial performance and compare financial performance
from period to period. These adjusted measures and other APMs are
also used by management for planning and to measure the Group's
performance. Management also uses adjusted measures to allow better
comparability of information between operating segments. Investors
and analysts should not rely on any single financial measure but
should review the Annual Report, including the financial statements
and notes, in their entirety.
Reported results are adjusted for significant items to derive
adjusted results. A reconciliation from reported to adjusted
measures is provided in the table below. The Group's adjusted
performance is derived by adjusting reported results for
Significant items. For 2020, the Group's adjusted and reported
operating profit (or Earnings before interest and tax, 'EBIT') of
GBP272m and GBP178m, versus GBP279m and GBP142m in the prior year.
Reported operating profit (EBIT) increased by 25% due to a material
reduction in the Significant items.
Adjusted operating profit (EBIT) decreased by 3% as lower
revenues were only partially offset by lower costs.
2020 2019
---------------------------- ---------------------------------- ----------------------------------
GBPm Adjusted Significant Reported Adjusted Significant Reported
items items
---------------------------- --------- ------------ --------- --------- ------------ ---------
Revenue 1,794 - 1,794 1,833 - 1,833
---------------------------- --------- ------------ --------- --------- ------------ ---------
Employment, compensation
and benefit (1,147) (6) (1,153) (1,134) (20) (1,154)
General and administrative
expenses (333) (27) (360) (380) (55) (435)
Depreciation and
impairment of PPE
and ROUA (36) (1) (37) (33) (1) (34)
Amortisation and
impairment of int.
assets (20) (39) (59) (23) (46) (69)
Impairment of other
assets - (23) (23) - (24) (24)
---------------------------- --------- ------------ --------- --------- ------------ ---------
Operating expenses (1,536) (96) (1,632) (1,570) (146) (1,716)
Other operating income
(1) 14 2 16 16 9 25
---------------------------- --------- ------------ --------- --------- ------------ ---------
Operating profit
(EBIT) (1) 272 (94) 178 279 (137) 142
Operating profit
margin 15.2% - 9.9% 15.2% - 7.7%
Net finance expense
(1) (49) - (49) (49) - (49)
---------------------------- --------- ------------ --------- --------- ------------ ---------
Profit before tax 223 (94) 129 230 (137) 93
Tax (10) (55) 7 (48) (55) 15 (40)
Share of net profit
of associates and
JVs 16 - 16 15 - 15
Non-controlling interests (1) - (1) (1) - (1)
---------------------------- --------- ------------ --------- --------- ------------ ---------
Equity attributable
to the eq. holders
of the parent 183 (87) 96 189 (122) 67
============================ ========= ============ ========= ========= ============ =========
Average number of
shares 557.0m 557.0m 557.0m 559.4m 559.4m 559.4m
Basic EPS (1) 32.9p (15.7p) 17.2p 33.8p (21.8p) 12.0p
(1) 2019 has been restated to remove the initial IFRS16 impact
that was adopted in 2019
Revenue
Total revenue of GBP1,794m in 2020 was 2% lower than 2019 on a
reported basis, and 1% lower at constant exchange rates. 2020
marked an unprecedented period due to the emergence of the COVID-19
pandemic. This created a turbulent and uncertain environment
globally. Throughout the period, much management attention was
given to ensuring the continuity of our business and the broader
financial services markets across every location during the
evolving stages of the pandemic. We were taking into account
varying external requirements and the safety and welfare of our
staff and the need to maintain an appropriate level of supervision
of broking activities in working from home conditions.
Revenue by business division
Constant
Reported Currency
2020 2019 Change Change
------ ------ --------- ----------
By region GBPm GBPm % %
------ ------ --------- ----------
EMEA 888 900 -1% -1%
Americas 670 687 -2% -1%
Asia Pacific 236 246 -4% -3%
------ ------ --------- ----------
Total Revenues 1,794 1,833 -2% -1%
------ ------ --------- ----------
By business division GBPm GBPm % %
Rates 510 537 -5% -4%
Credit 90 94 -4% -3%
FX & Money Markets 186 201 -7% -7%
Emerging Markets 183 213 -14% -12%
Equities 201 199 0% +2%
Inter-division revenues(1) 18 18 0% 0%
------ ------ --------- ----------
Total Global Broking 1,188 1,262 -6% -5%
------ ------ --------- ----------
Energy & Commodities 388 379 +2% +3%
Inter-division revenues(2) 3 3 0% 0%
------ ------ --------- ----------
Total Energy & Commodities 391 382 +2% +3%
Institutional Services 91 75 +21% +21%
Data & Analytics 145 135 +7% +9%
------ ------ --------- ----------
Inter-division eliminations
(2) (21) (21) 0% 0%
------ ------ --------- ----------
Total Revenues 1,794 1,833 -2% -1%
------ ------ --------- ----------
(1) Inter-division revenues have been received by Global Broking
and Energy & Commodities to reflect the value of proprietary
data provided to the Data & Analytics division. The broking
inter-segmental revenues and Data & Analytics inter-segmental
costs are eliminated upon the consolidation of the Group financial
results.
(2) Presented in line with our divisional disclosures
Regarding regional performance, EMEA revenue for the region
decreased by 1% in 2020 compared with 2019 on a reported basis (1%
lower on a constant currency basis), with mixed results in
different asset classes. During 2020, our broking staff headcount
increased to 1,260 mainly due to the Louis Capital Markets (LCM)
acquisition and ICAP Oil hires.
Americas revenues decreased by 2% in 2020 versus 2019 on a
reported basis (1% lower on a constant currency basis). This was
due to difficult market conditions for TP ICAP's traditional Global
Broking business, offset by strong growth in our growing
Institutional Services and Energy & Commodities divisions.
Revenue in Asia Pacific in 2020 versus 2019 decreased 4% on a
reported basis (3% lower on a constant currency basis). This was
driven mainly by a decline in Global Broking, partially offset by
revenue increases in Energy & Commodities, Institutional
Services and Data & Analytics.
Regarding divisional performance, volatility indices spiked
during the first quarter across a number of asset classes,
including equities and energy. However, this trend largely reversed
as the year progressed. Since May, we witnessed reduced volatility,
a new round of quantitative easing, lowering interest rates and
flattening yield curves. These trends are generally negative for
our broking divisions. Despite this mixed environment, Energy &
Commodities, Data & Analytics and Institutional Services
performance remained strong. This performance was offset by subdued
performances in Global Broking, especially in Emerging Markets.
We continued to recognise Inter-division revenue in Global
Broking and Energy & Commodities to identify the value of data
provided to the Data & Analytics division.
Global Broking revenues were 6% lower on a reported basis (5%
lower on a constant currency basis). Rates division shrunk by 5% on
a reported basis (4% lower on a constant currency basis). While
rates activity was strong during the first quarter, new measures of
governments' support globally, including interest rate reductions
and quantitative easing, painted a weak picture since the summer.
Conditions in credit markets were challenging for interdealer
brokers, as a number of new competitors continued to gain market
share and the issuance growth did not lead to high secondary
trading. This led Credit revenue to decline 4% on a reported basis
(3% lower on a constant currency basis). FX & Money Markets and
Emerging Markets both saw revenue declines of 7%
(7% on a constant currency basis) and 14% (12% on a constant
currency basis) respectively compared with the prior year due to
subdued client activity on lower volume and volatility. Emerging
Markets were especially impacted due to the earlier impact of
COVID-19. Finally, Equities revenues were flat on a reported basis
(2% higher on a constant currency basis). Market was favourable for
cash equities trading, but TP ICAP is geared to equity derivatives,
which was very mixed especially during the summer months.
Energy & Commodities revenue increased 2% on a reported
basis (3% higher on a constant currency basis) compared to 2019 as
market volatility provided a number of trading opportunities,
especially between January and April. Revenues increased in most
products, including Oil and Power. There was notable double-digit
revenue growth in Gas and Environmental products. Other notable
successes include the build-out of ICAP Oil business, Japanese
Power, PVM US Gas & Power and Weather Derivatives.
Institutional Services revenue grew by 21% on a reported basis
(21% higher on a constant currency basis) compared to 2019 on a
broadened asset market coverage, expanded geographical presence and
focusing on higher value electronic execution services. Revenues
grew strongly in the key product lines, including exchange traded
derivatives, equity derivatives, government bonds and FX. This
performance was led by higher volatility and increased client
demand. We also benefitted from changing market dynamics as our
agency execution model continues to gain ground. We continued to
add new hires and accelerate our client onboarding processes, which
have also improved the performance of the business.
Data & Analytics revenue was 7% higher than 2019 on a
reported basis (9% on a constant currency basis). Like most
companies in the financial market data sector, we initially
experienced a setback to growth earlier this year due to the impact
of COVID-19. This was due to higher cancellation rates, deferral of
clients' new initiatives and regulators' compliance dates for new
regulations. However, the business recovered strongly through the
second half of the year, producing double-digit growth for the last
quarter. During 2020, we launched six new products, including our
first Information product, started a direct-to-service service and
expanded our Channel Partners to include the public cloud
providers. We continue to show Inter-segmental revenues received by
Global Broking and Energy & Commodities to reflect the value of
proprietary data provided to the Data & Analytics division.
These inter-division revenues 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
interdivision costs are eliminated upon the consolidation of the
Group financial results.
Operating expenses
Total operating costs were GBP1,632m, which was 5% lower than in
2019 on a reported basis. Total adjusted operating costs of
GBP1,536m in 2020 were 2% lower than 2019 (1% lower on a constant
currency basis (see Note 5 in the Financial Statements for further
details)). This has been driven by a decrease in front office and
management and support costs.
Constant
2019 Reported Currency
2020 (1) Change Change Change
------ ------ ------- --------- ----------
GBPm GBPm GBPm % %
------ ------ ------- --------- ----------
Broker compensation 902 900 2 0% +1%
Other front office costs 162 193 (31) -16% -14%
Data & Analytics costs 50 46 4 +9% +9%
------ ------ ------- --------- ----------
Total front office costs
(2) 1,114 1,139 (25) -2% -1%
------ ------ ------- --------- ----------
Other employment costs 224 215 9 +4% +5%
Technology and related
costs (3) 69 59 10 +17% +19%
Premises and related costs
(4) 27 26 1 +4% +4%
Depreciation and amortisation
(4) 56 56 0 0% 0%
Other administrative costs
(4) 46 75 (29) -39% -38%
Total management and support
costs 422 431 (9) -2% -1%
------ ------ ------- --------- ----------
Total adjusted operating
costs 1,536 1,570 (34) -2% -1%
------ ------ ------- --------- ----------
Significant items: 96 146 (50) -34% n/a
Restructuring and other
related items 20 12
Disposals and acquisitions
and investments in new businesses 53 57
Goodwill impairment 21 24
Settlements and provisions
in connection with legal
and regulatory matters 2 19
ICAP integration costs - 34
------ ------ ------- --------- ----------
Total operating expenses 1,632 1,716 (84) -5% n/a
(1) 2019 has been restated to remove the initial IFRS16 impact
that was adopted in 2019
(2) Presented in line with our divisional disclosures
(3) Included in general and administrative expenses
(4) Includes depreciation and impairment of PPE and ROUA and
Amortisation and impairment of intangibles.
The table above sets out administrative expenses on the basis
reviewed by management, divided principally between front office
and management and support costs. Front office costs have a larger
variable component to them and are directly linked to the output of
our brokers.
The largest element of the front office is broker compensation
and travel and entertainment. Other front office costs are
telecommunications and information services, clearing and
settlement fees as well as other direct costs. The remaining total
cost base represents the management and support costs of the
Group.
Broker compensation costs marginally increased on a reported
basis (+GBP9m or +1% at constant currency) due to the acquisition
of LCM. Excluding this acquisition, broker compensation costs were
flat at constant currency. This is despite lower revenues, due to
the shift in revenue mix towards businesses with a higher
compensation ratio, mainly to Energy & Commodities, but also
Institutional Services which is still in growth mode.
Overall, broker compensation ratio increased to 54.7% (+1.6% pts
year-on-year). A proportion of the increase is due to the resulting
decline in travel and entertainment caused by the pandemic during
the year. Travel and entertainment costs are usually recharged to
the brokers. This increases the broker compensation ratio but does
not have an impact on contribution. The rest of the broker
compensation ratio increase is due to the aforementioned revenue
shift toward higher compensation ratio businesses.
Other front office costs have decreased by 16% (GBP31m) on a
reported basis (14% lower on a constant currency basis). There were
reductions of GBP22m in travel and entertainment and GBP5m lower
expected credit losses on customer receivables, partly offset by
higher telecommunications and information services costs. The
increase in front-office Data & Analytics costs of 9% on a
reported basis (9% higher on a constant currency basis) reflects
its investment to achieve top-line growth. The GBP9m increase in
the other staff costs on a reported basis (GBP11m on a constant
currency basis reflect increased technology (GBP5m), risk (GBP1m)
and legal and compliance (GBP1m) support costs as we enhance these
functions to fulfil our increased IT strategic needs and ensure
compliance in an ever-changing environment. Technology and related
costs includes the costs of all external technology services,
including maintenance contracts, consultancy, market data services
and communications costs. During 2020, these costs increased by
GBP10m on a reported basis (GBP11m higher on a constant currency
basis) due to a combination of planned increases regarding IT
infrastructure modernisation, cyber and surveillance IT projects,
other IT investments and COVID-19 related IT spending,
such as investment in cloud services. The significant decrease
in other administrative costs (GBP29m lower on a reported basis,
GBP28m lower on a constant currency basis) includes lower corporate
travel and entertainment (GBP4m), GBP9m lower consultancy and
agency fees, lower Brexit costs (GBP3m), and lower currency
exchange net losses arising on monetary assets and liabilities in
the current year (GBP8m) compared to 2019.
Significant items
Significant items are material items, that may span several
accounting periods, that are excluded from adjusted measures to
allow better comparability of financial performance from period to
period and give additional information to better understand the
Group's financial performance when considered together with
reported results.
Total significant items amounted to GBP94m in 2020 (2019:
GBP84m). Significant items include:
Restructuring and related costs of GBP20m (2019: GBP12m)
Restructuring and related costs arise from initiatives to reduce
the ongoing cost base and improve efficiency in the business to
enable the delivery of our strategic priorities. These initiatives
are material in size and nature to warrant exclusion from adjusted
measures. These initiatives may span several accounting periods.
Costs for other smaller scale restructuring are retained within
both reported and adjusted results. In 2020, the following
restructuring and related costs were considered to be significant
items:
(i) GBP8m relating to the Group's re-domiciliation to Jersey
announced in December 2019. These were mainly professional advisory
fees in readiness preparation of the Group leading up to the
re-domiciliation which was successfully undertaken on 26 February
2021. The nature of this project is one-off and costs are not
expected to be incurred after 2021;
(ii) GBP4m of premises related costs following various office
integrations, mainly in relation to ongoing costs of maintaining
property which became vacant or is available to be sub-let;
(iii) GBP4m additional costs incurred from the restructuring of
senior management within the Global broking division relating to
the Group's cost reduction reorganisation programme announced in
November 2020;
(iv) GBP2m relates to additional costs whilst transferring
capabilities to our Belfast office which is part of the Group's
cost effectiveness programme;
(v) GBP1m of on-going costs incurred in winding up the Group's
UK defined benefit which commenced in 2019 (GBP4m for 2019);
and
(vi) other employee long-term benefit costs of GBP1m relating to
remeasurement of uninsured Group income protection liabilities
(2019: GBP1m).
As adjusted results include the benefits of material
restructuring programmes but some of the related costs have been
excluded, they should not be regarded as a complete picture of the
Group's financial performance, which is presented in the reported
results.
Disposals, acquisitions and investments in new businesses GBP53m
(2019: GBP57m)
Costs, and any related income, related to disposals,
acquisitions and investments are transaction dependent and can vary
significantly year on year, depending on the size and complexity of
each transaction. These amounts, including the amortisation of
intangible assets arising on consolidation, are excluded in
deriving adjusted results to better reflect the trading performance
of the Group and its segments. Amortisation of intangible assets
arising on consolidation is treated in line with acquisition
related costs, the exclusion of which normalises the impact of deal
dependent pricing and allows comparability of performance from
period to period. Amortisation of purchased and developed software
is retained in both the reported and adjusted results as these are
considered to be core to supporting the operations of the
business.
In 2020 the following disposal, acquisition and investment costs
were considered to be significant items:
(i) acquisition costs of GBP11m related mainly to the proposed
Liquidnet acquisition. For 2019, we incurred GBP6m principally for
the Axiom, ClearCompress and LCM acquisitions;
(ii) GBP39m (2019: GBP42m) relating to the amortisation of
intangibles arising on acquisitions;
(iii) Adjustments to deferred or contingent consideration of
GBP2m (2019: GBP6m) arose mainly from changes in estimates relating
to the Axiom acquisition, partly offset by changes in estimates on
the LCM and ClearCompress acquisitions;
(iv) The Group also impaired the carrying value of an investment in an associate by GBP1m.
As adjusted results include the benefits of acquisitions but
some of the related costs have been excluded, they should not be
regarded as a complete picture of the Group's financial
performance, which is presented in the reported results.
Goodwill impairment
As with other related acquisition costs and adjustments,
management consider goodwill impairment separately, due to
significant variations year-on-year, to aid comparability of
results. In H1 2020, the carrying value of the Asia-Pacific CGU has
been written down by GBP21m (2019: GBP24m) ( see note 13).
Legal and regulatory matters
Costs, and recoveries, related to certain legal and regulatory
cases are treated as significant items due to their size and nature
. Management consider these cases separately due to the judgements
and estimation involved, the costs and recoveries of which could
vary significantly year-on-year. In 2020, costs were GBP2m
(2019:GBP19m). In 2020, this was made up of GBP5m costs relating to
various ongoing material cases offset by a GBP3m provision release
in relation to the European Commission Yen Libor. In 2019, costs of
GBP19m were incurred, relating primarily to a GBP15m FCA fine.
Recoveries GBP2m (2019: GBP9m)
GBP2m was recovered from the CME Group under the terms of the
ICAP acquisition and have been reported within other operating
income. In 2019, GBP9m was recovered in relation to an
employment-related legal settlement
Regional analysis
2020 (GBPm) EMEA Americas Asia Pacific Total
------ --------- ------------- --------
Revenue 888 670 236 1794
------ --------- ------------- --------
Total front office costs (518) (442) (154) (1,114)
------ --------- ------------- --------
Contribution 370 228 82 680
Contribution margin 41.2% 34.0% 34.7% 37.9%
------ --------- ------------- --------
Management and support costs (216) (135) (71) (422)
Other operating income 6 3 5 14
------ --------- ------------- --------
Adjusted operating profit
(EBIT) 160 96 16 272
Adjusted operating profit
margin 18.0% 14.3% 6.8% 15.2%
2019 (GBPm) EMEA Americas Asia Pacific Total
------ --------- ------------- --------
Revenue 900 687 246 1,833
------ --------- ------------- --------
Total front office costs (524) (458) (157) (1,139)
------ --------- ------------- --------
Contribution 376 229 89 694
Contribution margin (%) 41.8% 33.3% 36.2% 37.9%
------ --------- ------------- --------
Management and support costs (222) (140) (69) (431)
Other operating income 10 5 1 16
------ --------- ------------- --------
Adjusted operating profit
(EBIT) 164 94 21 279
Adjusted operating profit
margin (%) 18.2% 13.7% 8.5% 15.2%
EMEA
Revenue for the region decreased by 1% in 2020 compared with
2019 on a reported basis (1% lower on a constant currency basis),
with mixed results in different asset classes. During 2020, our
broking staff headcount increased to 1,266 mainly due to the Louis
Capital Markets (LCM) acquisition and ICAP Oil hires.
Global Broking revenues fell 6% versus 2019. Overall, the
division had a very strong first half of 2020 with exceptional
volatility levels in March and April, caused by the pandemic.
However, since May, market dynamics reversed as many clients
decided to reduce risk and close out position and government
reduced interest rates to very low levels and restarted
quantitative easing. In terms of products, Rates and FX reported
lower revenues as strong H1 was offset by lowering interest rates
and traders working from home as the year progressed. Emerging
Markets revenues were materially lower year-on-year as many
emerging market economies were hit hard by COVID-19, especially
South Africa and Turkey. Credit revenues increased during the year
through higher primary issuance, stronger CDS and insurance
markets, offset by weaker performance in some other products.
Finally, Equities were slightly up year-on-year, primarily due to
the LCM acquisition. LCM was able to offset the decline on Q2
dividend season that was severely impacted due to the pandemic.
Energy & Commodities revenues increased slightly
year-on-year. This was materially due to the oil price volatility
witnessed in the first half of the year. The second half saw some
decline with less freight being transported around the world and
continued uncertainty regarding forward contracts. The flight to
gold enabled the precious metals business to have a very strong
year. We continued to grow our ICAP brand with important hires in
our oil products.
Institutional Services revenues saw a 17% increase versus 2019.
The division expanded its EMEA product offering by opening a COEX
Rates desk during the year as well as growing its exchange traded
derivatives (ETD) business.
Data & Analytics were less impacted by market volatility due
to the nature of its subscription business. However, the broadening
of its product range and customer base led to 9% revenue increase
year-on-year. Contribution margin for the region reduced by 0.6
percentage points to 41.2%, mainly due to lower revenues, increased
costs associated with adjusting to a working from home environment
and higher compensation ratio.
Adjusted operating profit in EMEA of GBP160m was 2% lower than
2019, and with revenue down 1% on a reported basis (and 1% lower on
a constant currency basis), the adjusted operating profit margin
has decreased by 0.2 percentage points, to 18.0%. This was a result
of reduced revenues, the completion of Louis Capital Markets
acquisition and continuous investment in IT and Hub Strategies,
offset by some reduction in the support head headcount.
Americas
Americas revenues decreased by 2% in 2020 versus 2019 on a
reported basis (1% lower on a constant currency basis). This was
due to difficult market conditions for TP ICAP's traditional Global
Broking business, offset by strong growth in our Institutional
Services and Energy & Commodities divisions.
Within the Global Broking business, the volatility in March and
April boosted our first half markets. However, general market
conditions worsened as the year progressed and clients reduced
their risk appetite. Overall, Global Broking revenues declined 5%
year on year. All asset classes, excluding Equities, posted lower
revenues versus 2019.
Rates revenues decreased by 10% as USD swaps and Treasuries
markets weakened in the second half of the year. Rates continues to
be the largest asset class in the Americas. Emerging Markets
revenues were the worst performing class for 2020, as developing
markets were asymmetrically affected by the pandemic and working
offsite conditions.
Equities revenues were up marginally year-on-year due to new
product development. While cash equities market was very strong,
equity derivatives (EQD) faced a mixed year, affected by a slower
Q2 dividend season. FX & Money Markets businesses saw small
revenue declines in 2020, due to lower volatility levels and client
de-risking in Forward FX.
US fixed income markets remained subdued for inter-broker
dealers, as market structure is changing and new market entrants
surface. TP ICAP reported single-digit revenue decline.
The Americas' Energy & Commodities business demonstrated
another strong year, with a 4% revenue increase. There were
increased revenues in oil 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 was the standout
performer of the Americas' region in 2020, with 29% revenue growth.
The business expanded its product offerings and it remains an area
for growth opportunities.
Contribution margin improved 0.6 percentage points to 14.3%, as
lower revenues were more than offset by materially lower travelling
and entertainment.
In the Americas, the adjusted operating profit of GBP96m is 2%
higher than 2019 but the adjusted operating profit margin has
increased by 0.6 percentage point to 14.3% on higher contribution
margin and tight cost management, partially offset by continuous
investment in IT and Hub Strategies.
Asia Pacific
Revenue in Asia Pacific in 2020 versus 2019 decreased 4% on a
reported basis (3% lower on a constant currency basis). This was
driven mainly by a decline in Global Broking, partially offset by
revenue increases in Energy & Commodities, Institutional
Services and Data & Analytics.
Global Broking revenue declined year-on-year by 8% to GBP184m.
The year started healthily but going into the second quarter, the
impact of the pandemic began to cause a reduction in risk appetite
and trading volumes. A low interest rate environment, especially in
Australia where rates got capped during the year, kept market
volumes at muted levels. Japanese markets were relatively quiet
after the first quarter and remained slow throughout the year.
During the year, we undertook a review of underperforming desks and
took some actions, including targeted compensation adjustments and
selected staff exits where appropriate, while maintaining our
service to customers across all key asset classes. This review led
to limited impact on revenue but was positive on Asia Pacific's
contribution rate. During the year, we took majority control of our
Malaysian business and started to consolidate it to our regional
revenues.
Energy & Commodities revenue grew by 11% year-on-year. This
reflected the benefit of a number of recently established desks as
we have increased the scale and diversification of our business.
These new desks brought in new revenue and included TP middle
distillates, PVM Gasoline, and ICAP branded Precious Metals.
Importantly, the competing desks already operating under other
brands continued to perform well.
Institutional Services initiated FX Option business in Singapore
in 2019 and this business continued to develop during 2020, though
at a relative low pace given similar headwinds to those affecting
the
Global Broking business.
The overall contribution margin decreased year-on-year by 1.6%
from 36.3% to 34.7%. This deterioration in contribution rate arose
in Global Broking, Energy & Commodities and also from the
impact of starting up the Institutional Services business.
Adjusted operating profit in Asia Pacific decreased to GBP16m in
2020 (GBP5m lower than in 2019), while the adjusted operating
profit margin has reduced by 1.7 percentage points to 6.8% with the
benefit of reductions in management and support costs as a result
of the integration being more than offset by revenue decline and
costs relating with the scaling of Institutional Services.
Contribution margin declined 1.5 percentage point to 34.7%. This
deterioration is contribution rate arose due to lower revenues in
Global Broking, but also from the impact of starting up the
Institutional Services business.
Overall, adjusted profit margin of 6.8% in 2020 was lower than
the 8.5% 2019 margin, as lower revenues & contribution,
combined with central allocations regarding IT investments could
not be offset by support cost savings.
Divisional Analysis
This section demonstrates the performance of TP ICAP Group by
division in terms of revenues, contribution and operating profit.
The broking inter-segmental revenues and Data & Analytics
inter-segmental costs are eliminated upon the consolidation of the
Group financial results. Broker contribution (excluding Data &
Analytics) declined 3% to GBP606m, 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.
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 2020 the overall level of
contribution was 2% lower at GBP680m year-on-year. The overall
contribution margin was flat at 37.9% as lower revenues were more
than offset by lower front office costs. There was some broker
compensation ratio increase, due to revenue shift changes and lower
travel and entertainment that is usually recharged to the brokers,
offset by lower discretionary bonuses and lower clearing and
settlement fees. TP ICAP's adjusted operating profit (EBIT) of
GBP272m is 3% lower than the prior year, as lower revenues were
only partially offset by lower front office and net management and
support cost savings. The operating profit (EBIT) margin stayed
flat at 15.2%.
GB =Global Broking; E&C = Energy & Commodities; IS =
Institutional Services, D&A = Data & Analytics
Corp.
2020 (GBPm) GB E&C IS D&A Centre Total
---------------------------- ------ ------ ------ ------ -------- --------
Revenue:
- External 1,170 388 91 145 - 1,794
- Inter-division 18 3 - - (21) -
1,188 391 91 145 (21) 1,794
Total front office costs:
- External (734) (261) (69) (50) (1,114)
- Inter-division - - - (21) 21 -
(734) (261) (69) (71) 21 (1,114)
Contribution 454 130 22 74 - 680
Contribution margin 38.2% 33.2% 24.2% 51.0% n/a 37.9%
Net management and support
costs:
- Management and support
costs (260) (78) (15) (10) (59) (422)
- Other operating income 3 1 - 10 14
------ ------ ------ ------ -------- --------
(257) (78) (15) (10) (49) (408)
Adjusted Operating profit
/ (loss) 197 53 7 64 (49) 272
====== ====== ====== ====== ======== ========
Adjusted operating profit
margin 16.6% 13.6% 7.7% 44.1% n/a 15.2%
Significant items (94)
Reported operating profit
(EBIT) 129
Reported operating profit
margin 9.9%
Corp.
2019 (GBPm) GB E&C IS D&A Centre Total
---------------------------- ------ ------ ------ ------ -------- --------
Revenue:
- External
- Inter-division 1,244 379 75 135 - 1,833
18 3 - (21) -
Total front office costs: 1,262 382 75 135 (21) 1,833
- External
- Inter-division (775) (261) (57) (46) (1,139)
- - - (21) 21 -
Contribution (775) (261) (57) (67) 21 (1,139)
Contribution margin
487 121 18 68 - 694
Net management and support
costs: 38.6% 31.7% 24.0% 50.4% n/a 37.9%
- Management and support
costs
- Other operating income (268) (75) (15) (9) (64) (431)
------ ------ ------ ------ -------- --------
2 - - 14 16
Adjusted Operating profit
/ (loss) (266) (75) (15) (9) (50) (415)
====== ====== ====== ====== ======== ========
221 46 3 59 (50) 279
Adjusted operating profit
margin 17.5% 12.0% 4.0% 43.7% n/a 15.2%
Significant items (137)
Reported operating profit
(EBIT) 142
Reported operating profit
margin 7.7%
Global Broking revenues were 6% lower on a reported basis (5%
lower on a constant currency basis). Following a strong first
quarter, activity significantly abated as the year progressed. This
led to a weaker performance in most asset classes. Rates, FX &
Money Markets, Emerging Markets and Credit. This performance was
only partially offset by small growth in Equities.
Lower revenues led to a small 0.4% pts decline in contribution
margin, as the impact of smaller top-line was absorbed by lower
discretionary bonuses, lower travel and entertainment and lower
clearing and settlement fees.
The adjusted operating profit (EBIT) decreased to GBP197m, or
11% lower versus 2019. This was a result of reduced revenue,
increased costs associated with adjusting to a working from home
environment for many staff, the region becoming Brexit ready, the
Louis Capital Markets (LCM) acquisition and continued investment in
IT, Cyber and Risk & Compliance costs and our Hub strategy.
Operating profit (EBIT) margin decreased 0.9 percentage points to
16.6%.
Energy & Commodities revenues increased 2% on a reported
basis (3% higher on a constant currency basis) compared to 2019 as
market volatility provided a number of trading opportunities,
especially between January and April. Revenues increased in most
products, including Oil and Power. There were notable double-digit
revenue growth in Gas and Environmental products.
Contribution increased 7% year on year to GBP130m, mainly due to
higher revenues offset mainly through the broker compensation ratio
increase, due to revenue shift changes, combined with higher
initial contract payments ('ICP') amortisation.
The adjusted operating profit (EBIT) increased to GBP53m, or 15%
higher versus 2019. This is primarily due to higher revenues,
supported by some front-office, management related savings and
contract re-negotiations partially offset by higher ICP. The
Adjusted operating profit (EBIT) margin improved 1.6 percentage
points to 13.6%.
Institutional Services revenue grew by 21% on a reported basis
(21% higher on a constant currency basis) compared to 2019 on a
broadened asset market coverage, expanded geographical presence and
focusing on higher value electronic execution services. Revenues
grew strongly in the key product lines, including exchange traded
derivatives, equity derivatives, government bonds and FX. This
performance was led by higher volatility, increased client demand
but also stemming from changing market dynamics as our agency
execution model continues to gain ground and investment banks
continue to reorganise their sales coverage teams. We continued to
add new hires and accelerate our client onboarding processes, which
have also improved the performance of the business.
Contribution increased to GBP22m, with contribution margin
increasing slightly by 0.2% pts to 24.2%. The increase is due to
strong revenue growth, offset by higher trading costs, compensation
and IT costs as we continue to build scale.
Institutional Services improved its adjusted operating profit
(EBIT) to GBP7m (233% higher year-on-year). The business continues
to generate necessary scale to improve its profitability, with very
strong revenue growth. The adjusted operating profit (EBIT) margin
improved to 7.7%, 3.7 percentage points higher year-on-year.
Data & Analytics revenue was 7% higher than 2019 on a
reported basis (9% on a constant currency basis). Like most
companies in the financial market data sector, we initially
experienced a setback to
growth earlier this year due to the impact of COVID-19. This was
due to higher cancellation rates, deferral of clients' new
initiatives and regulators' compliance dates for new regulations.
However, the business recovered strongly through the second half of
the year, producing double-digit growth for the last quarter.
During 2020, we launched six new products, including our first
Information product,
started a direct-to-service service and expanded our Channel
Partners to include the public cloud providers. We continue to show
Inter-segmental charges 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.
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 2020,
Contribution improved to GBP74m (9% higher year-on-year) mainly due
to higher revenues, as Data & Analytics continues to build
scale, launching new higher-value products, improving distribution
channels and increasing the number of clients in the buy-side and
the sell-side. Contribution margin increased to 51.0% or 0.6
percentage points higher year-on-year.
Finally, Data & Analytics reported strong adjusted operating
profit (EBIT) of GBP64m, or 8% higher versus 2019. The results
benefited from strong revenue growth and positive operational
leverage. As such, the adjusted operating profit (EBIT) margin
improved to 44.1%, 0.4 percentage points higher year-on-year
Net finance expense
The reported net finance expense of GBP49m is in line with the
GBP49m charged in 2019, as lower finance costs were offset by lower
interest income. Interest expense was GBP52m, of which GBP36m
relates to the Group's Sterling Notes, GBP3m of bank facility
costs, GBP1m relating to the amortisation of debt issue and bank
facilities and GBP1m of other interest payable. The interest
expense includes GBP11m interest payable on IFRS16 lease
liabilities. The expense is offset by GBP2m of interest income and
GBP1m of income of finance lease receivables.
Tax
The effective rate of tax on reported profit before tax is 37%
(2019: 43%), reflecting the tax deductibility of certain
expenditure classed as significant items. The effective rate of tax
on adjusted profit before tax is 24.7% (2019: 23.9%). The rate is
consistent with the outlook previously given, noting that the prior
year effective tax rate was lower due to a greater impact from the
conclusion of prior year tax liabilities at less than the amount
provided.
Basic EPS
The average number of shares used for the basic EPS calculation
of 557m reflects the 563.3m shares in issue less the 4.5m shares
held by the Employee Benefit Trust at the beginning of the year,
less the difference between the time apportionment element of the
4.8m of shares acquired by the Employee Benefit Trust to satisfy
deferred share awards made to senior management, and the 0.7m of
deferred shares meeting their vesting requirements in June. The
Employee Benefit Trust has waived its rights to dividends. Post
year-end, the number of shares in issue increased to 788m due to
the rights issue that was completed on 16 February 2021.
Dividend
For 2020, the Group proposes a full-year dividend per share
("DPS") of 6p that equates to GBP47m (2019 DPS: 11.9p, rebased to
take into account the bonus element of the rights issue completed
on 16 February 2021), a one-off c50% reduction to the prior year.
This reduction will help fund the Liquidnet acquisition and
minimise dilution of earnings on a per share basis. For 2021
onwards, we will target a dividend cover of approximately 2x
adjusted earnings. The new dividend policy reflects a balanced
approach to capital allocation and is expected to allow TP ICAP to
drive growth, while allowing dividends to increase in line with
adjusted earnings.
Cash flow statement
The cash flow presentation reconciles the adjusted cash flow
generation, excluding the impact of Significant items, to the
reported net cash flow from operations. The impact on EBITDA of
significant items was GBP30m mainly due to acquisition and business
reorganisation costs.
During the year, there was a 6% decline in reported operating
cash flow of, as higher reported operating profit (EBIT) was offset
by higher initial contract prepayments (ICP), changes in working
capital and incremental capital expenditure regarding our new
London Headquarters and investment in IT.
During the period there was a small increase in initial contract
prepayments. The working capital outflow of GBP28m which mainly
reflects the reduced management and support bonuses and associated
payroll taxes. Capital expenditure has increased to GBP53m
reflecting incremental spending on our new London Headquarters and
continued IT spending on routine, mandatory and investment
projects.
After interest paid and adjusted taxation paid, the adjusted
free cash flow for the Group was GBP119m, a decrease of GBP41m year
on year, mainly due to higher capital expenditure.
Cash Flow
Other* = Significant items
2020 (GBPm) Adjusted Other* Reported
------------------------------------------ --------- ------- ---------
Operating profit (EBIT) 272 (94) 178
Share based payment charge and
pension scheme administration fees 9 (1) 8
Depreciation and amortisation 33 - 33
Depreciation on leased assets 23 - 23
Non-cash items - 5 5
Impairment & amortisation of intangible
assets
arising on consolidation 60 60
Change in Initial contract prepayments (4) - (4)
Working capital (28) (5) (33)
Cash generated from operations 305 (35) 270
Capital expenditure (53) - (53)
--------- ------- ---------
Operating cash flow 252 (35) 217
Interest paid (53) - (53)
Tax paid (80) 7 (73)
--------- ------- ---------
Free cash flow 119 (28) 91
--------- ------- ---------
2019 (GBPm) Adjusted Other* Reported
------------------------------------------ --------- ------- ---------
Operating profit (EBIT) 279 (137) 142
Share based payment charge and
pension scheme administration fees 6 3 9
Depreciation and amortisation 36 4 40
Depreciation on leased assets 20 1 21
Non-cash items 1 6 7
Impairment & amortisation of intangible
assets
arising on consolidation 66 66
Change in Initial contract prepayments (2) 2 -
Working capital (21) 1 (20)
Cash generated from operations 319 (54) 265
Capital expenditure (33) - (33)
--------- ------- ---------
Operating cash flow 286 (54) 232
Interest paid (53) - (53)
Tax paid (73) 9 (64)
--------- ------- ---------
Free cash flow 160 (45) 115
--------- ------- ---------
Debt finance
The revolving credit facility provided by a syndicate of banks
was refinanced in December 2018 on improved terms increasing our
overall facility to GBP270m from GBP250m. The main revolving credit
facility now matures in December 2023,
The composition of the Group's outstanding debt is summarised
below. In August 2020 the Group entered into a revolving credit
facility with Tokyo Tanshi Co., Ltd. ('Totan') for JPY 10 bn
(cGBP70m equivalent) with an initial maturity of two years. This
facility can be extended for six months by mutual agreement
semi-annually. The current maturity date is 27 February 2023. JPY 4
bn (GBP28m
equivalent) was drawn as at the period-end (2019: GBP0m). During
2020, no refinancing actions were carried out on the bonds issued
by the Group under its GBP1bn Euro Medium Term Note Programme.
The amounts of bonds outstanding remain GBP250m 5.25% Notes due
2026 (2019: GBP250m) and GBP431m 5.25% Notes due 2024 (2019:
GBP431m).
At 31 At 31
GBPm Dec 2020 Dec 2019
------------------------------ ---------- ----------
5.25% Sterling Notes January
2024 431 431
5.25% Sterling Notes May
2026 250 250
Revolving credit facility
drawn - Banks - -
Revolving credit facility
drawn - Totan 28 -
Overdraft 7 -
Unamortised debt issue
costs (2) (2)
Accrued interest 11 11
------------------------------ ---------- ----------
Gross Debt pre-IFRS 16 725 689
IFRS 16 lease liabilities 212 140
------------------------------ ---------- ----------
Total Debt 937 829
Cash and cash equivalent
Of the GBP783m cash and financial investments balance at the
period end, GBP687m is held in 74 regulated entities to meet
regulatory capital, margin and other trading requirements as well
as accrued profits, GBP86m is held in non-regulated entities for
working capital requirements as well as accrued profits and GBP10m
is held in corporate holding companies. The GBP687m of cash held in
regulated entities generally remains held within those Group's
entities for regulatory and operational reasons.
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 below.
Average Period End
2020 2019 2020 2019
US dollar $1.29 $1.28 $1.37 $1.28
Euro EUR1.13 EUR1.14 EUR1.12 EUR1.14
Pensions
The Group has one defined benefit pension scheme in the UK that
is currently in the process of being wound up.
The Sponsor and Trustee commenced the wind-up of the Scheme in
2019 to enable the Trustee to exchange the Scheme's bulk annuity
policy for individual policies that will be held directly by the
Scheme's beneficiaries, in a process known as a 'buy-out'. 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 GBP49m (2019: 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 a significant item in the Income
Statement as and when those benefits are agreed. Costs associated
with the settlement of the Scheme's liabilities will also be
recorded as a significant item in the Income Statement as and when
incurred. Past service and settlement costs amounted to GBP1m in
2020 (2019: GBP3m).
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
As at 31 December 2020 the Group's lead regulator was the FCA.
Following the Group's redomiciliation to Jersey on 26 February
2021, the Group now falls under the regulation of the Jersey
Financial Services Commission. As at 31 December 2020 the Group
held an FCA waiver from the consolidated capital adequacy
requirements under CRD IV. The waiver took effect on 30 December
2016, following the acquisition of ICAP, with an expiry of 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
as at 31 December 2020, 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 waiver also sets out conditions with respect to the
maintenance of financial ratios relating to leverage, debt service
and debt maturity profile. As at 31 December 2020, the Group's
regulatory capital headroom under the Financial Holding Company
test calculated in accordance with Pillar 1 was GBP1,550m (2019:
GBP1,591m). 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 .
Following the redomiciliation to Jersey, the Group will no longer
be subject to the consolidated capital adequacy requirements under
CRD IV and as a result the 'Financial Holding Company test' and CRD
IV waiver requirements of the FCA are no longer applicable. The FCA
has become the lead regulator of the Group's sub-consolidated
activities, legally headed by the UK, for which the consolidated
capital adequacy requirements under CRD IV now apply. This
sub-group has not applied for a waiver as the sub-group maintains
an appropriate excess of financial resources.
Consolidated Income Statement
for the year ended 31 December 2020
2020 2019
Notes GBPm GBPm
------------------------------------------- ------ -------- --------
Revenue 3 1,794 1,833
------------------------------------------- ------ -------- --------
Employment, compensation and benefits (1,153) (1,154)
General and administrative expenses (360) (435)
Depreciation and impairment of PPE
and ROUA (37) (34)
Amortisation and impairment of Intangible
asset (59) (69)
Impairment of other assets (23) (24)
------------------------------------------- ------ -------- --------
Total operating costs 4 (1,632) (1,716)
Other operating income 5 16 25
------------------------------------------- ------ -------- --------
Operating profit 178 142
Finance income 6 3 6
Finance costs 7 (52) (55)
------------------------------------------- ------ -------- --------
Profit before tax 129 93
Taxation (48) (40)
------------------------------------------- ------ -------- --------
Profit after tax 81 53
Share of results of associates and
joint ventures 16 15
------------------------------------------- ------ -------- --------
Profit for the year 97 68
=========================================== ====== ======== ========
Attributable to:
Equity holders of the parent 96 67
Non-controlling interests 1 1
------------------------------------------- ------ -------- --------
97 68
=========================================== ====== ======== ========
Earnings per share
- Basic 8 17.2p 12.0p
- Diluted 8 17.0p 11.9p
------------------------------------------- ------ -------- --------
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
2020 2019
GBPm GBPm
-------------------------------------------------- ----- -----
Profit for the year 97 68
-------------------------------------------------- ----- -----
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement of defined benefit pension
schemes 2 (52)
Equity instruments at FVTOCI - net change
in fair value - 1
Taxation - 19
-------------------------------------------------- ----- -----
2 (32)
-------------------------------------------------- ----- -----
Items that may be reclassified subsequently
to profit or loss:
Fair value movements on net investment
hedge 2 -
Effect of changes in exchange rates on
translation
of foreign operations (30) (44)
Taxation (1) -
(29) (44)
-----
Other comprehensive loss for the year (27) (76)
-------------------------------------------------- ----- -----
Total comprehensive income/(loss) for the
year 70 (8)
================================================== ===== =====
Attributable to:
Equity holders of the parent 69 (8)
Non-controlling interests 1 -
-------------------------------------------------- ----- -----
70 (8)
================================================== ===== =====
Consolidated Balance Sheet
as at 31 December 2020
2020 2019
Notes GBPm GBPm
-------------------------------------------- ------ --------- ---------
Non-current assets
Intangible assets arising on consolidation 10 1,463 1,511
Other intangible assets 58 61
Property, plant and equipment 101 72
Right-of-use assets 163 91
Investment in associates 61 58
Investment in joint ventures 29 28
Other investments 18 20
Deferred tax assets 4 3
Retirement benefit assets - -
Other long term receivables 24 26
-------------------------------------------- ------ --------- ---------
1,921 1,870
-------------------------------------------- ------ --------- ---------
Current assets
Trade and other receivables 70,027 49,371
Financial investments 13 127 148
Derivative financial instruments 3 -
Cash and cash equivalents 13 656 676
-------------------------------------------- ------ --------- ---------
70,813 50,195
-------------------------------------------- ------ --------- ---------
Total assets 72,734 52,065
============================================ ====== ========= =========
Current liabilities
Trade and other payables (69,927) (49,305)
Loans and borrowings 11,13 (46) (11)
Lease liabilities 13 (26) (23)
Current tax liabilities (28) (48)
Short term provisions 14 (17) (21)
-------------------------------------------- ------ --------- ---------
(70,044) (49,408)
-------------------------------------------- ------ --------- ---------
Net current assets 769 787
============================================ ====== ========= =========
Non-current liabilities
Loans and borrowings 11,13 (679) (678)
Lease liabilities 13 (186) (117)
Deferred tax liabilities (79) (83)
Long term provisions 14 (23) (26)
Other long term payables (23) (21)
Retirement benefit obligations (2) (2)
-------------------------------------------- ------ --------- ---------
(992) (927)
-------------------------------------------- ------ --------- ---------
Total liabilities (71,036) (50,335)
-------------------------------------------- ------ --------- ---------
Net assets 1,698 1,730
============================================ ====== ========= =========
Equity
Share capital 141 141
Share premium 17 17
Merger reserve 1,384 1,384
Other reserves (1,246) (1,205)
Retained earnings 1,383 1,375
-------------------------------------------- ------ --------- ---------
Equity attributable to equity holders
of the parent 1,679 1,712
Non-controlling interests 19 18
-------------------------------------------- ------ --------- ---------
Total equity 1,698 1,730
============================================ ====== ========= =========
Consolidated Statement of Changes in Equity
for the year ended 31 December 2020
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
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Balance at
1 January 2020 141 17 1,384 (1,182) 5 (12) (16) 1,375 1,712 18 1,730
Profit for the
year - - - - - - - 96 96 1 97
Other
comprehensive
(loss)/income
for the year - - - - - (29) - 2 (27) - (27)
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Total
comprehensive
income/(loss)
for the year - - - - - (29) - 98 69 1 70
Dividends paid - - - - - - - (94) (94) (1) (95)
Gain on disposal
of equity
investments
at FVTOCI - - - - (1) - - 1 - - -
Share settlement
of share-based
awards - - - - - - 3 (3) - - -
Own shares
acquired
for employee
trusts - - - - - - (14) - (14) - (14)
Increase in
non-controlling
interests - - - - - - - - - 1 1
Credit arising
on share-based
awards - - - - - - - 6 6 - 6
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
Balance at
31 December
2020 141 17 1,384 (1,182) 4 (41) (27) 1,383 1,679 19 1,698
================= ======== ======== ======== =========== ========= =========== ====== ========= ====== ================ =======
2019
----------------- -------- -------- -------- ----------- --------- ----------- ------ --------- ------ ---------------- -------
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
(loss)/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
================= ======== ======== ======== =========== ========= =========== ====== ========= ====== ================ =======
Consolidated Cash Flow Statement
for the year ended 31 December 2020
Notes 2020 2019
GBPm GBPm
----------------------------------------------- ------ ------ ------
Cash from operating activities 12 144 148
----------------------------------------------- ------ ------ ------
Investing activities
Sale/(purchase) of financial investments(1) 18 (20)
Sale of equity instruments at FVTOCI 2 1
Purchase of equity instruments at
FVTOCI - (1)
Purchase of derivative financial instruments (2) -
Interest received 3 5
Dividends from associates and joint
ventures 13 10
Expenditure on intangible fixed assets (16) (20)
Purchase of property, plant and equipment (35) (13)
Direct costs on acquiring right-of-use-assets (2)
Deferred consideration paid (22) (12)
Investment in associates and joint
ventures (3) (5)
Acquisition consideration paid (18) -
Cash acquired with acquisitions 9 -
Net cash flows from investment activities (53) (55)
----------------------------------------------- ------ ------ ------
Financing activities
Dividends paid 9 (94) (94)
Dividends paid to non-controlling
interests (1) (1)
Dividend equivalents paid on share-based
awards - (1)
Sale of equity to non-controlling
interests - 6
Own shares acquired for employee trusts (14) (7)
Net repayment of bank loans(2) 11 - (52)
Net borrowing/(repayment) of loans
from related parties(2) 11 28 (3)
Gain on derivative financial instruments - 3
Funds received from issue of Sterling
Notes - 250
Repayment/repurchase of Sterling Notes - (149)
Bank facility arrangement fees and
debt issue costs - (2)
Payment of lease liabilities (24) (21)
----------------------------------------------- ------ ------ ------
Net cash flows from financing activities (105) (71)
----------------------------------------------- ------ ------ ------
(Decrease)/increase in cash and overdrafts (14) 22
Cash and overdrafts at the beginning
of the year 676 667
Effect of foreign exchange rate changes (13) (13)
----------------------------------------------- ------ ------ ------
Cash and overdrafts at the end of
the year 13 649 676
----------------------------------------------- ------ ------ ------
Cash and cash equivalents 656 686
Overdrafts (7) (10)
----------------------------------------------- ------ ------ ------
649 676
=============================================== ====== ====== ======
1. The Includes the impact of changes in restricted funds during the year.
2. The Group utilises credit facilities throughout the year,
entering into numerous short term bank and other loans where
maturities are less than three months. The turnover is quick and
the volume is large and resultant flows are presented net. Further
details are set out in Note 11.
1. General information
As at 31 December 2020 TP ICAP plc (the 'Company') was a public
company limited by shares incorporated in England and Wales under
the Companies Act. On 26 February 2021 following a Scheme of
Arrangement TP ICAP Group plc acquired the entire share capital of
the Company, resulting in TP ICAP Group plc becoming the Group's
ultimate parent undertaking. On 8 March 2021 the Company
re-registered as a limited company.
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 2020 or 2019, but is derived from those accounts.
Statutory accounts for 2019 have been delivered to the Registrar of
Companies and those for 2020 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
Previously the Group presented a columnar format for its
Consolidated Income Statement in order to aid the understanding of
the 'underlying' performance measures used by the Group's Chief
Operating Decision Maker ('CODM') and to provide a reconciliation
to the Group's IFRS reported numbers. For 2020 the information
considered by the Group's CODM is contained in Note 3 'Segmental
Analysis', and in the Financial and Operating Review.
(d) Adoption of new and revised Accounting Standards
The following new and revised Standards and Interpretations are
effective from 1 January 2020 but they do not have a material
effect on the Group's Consolidated financial statements:
Ø Amendments to IAS 1 and IAS 8: Definition of Material;
Ø Amendments to References to the Conceptual Framework in IFRS
Standards;
Ø Amendments to IFRS 3 Business Combinations; and
Ø Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate
Benchmark Reform.
3. Segmental analysis
Products and services from which reportable segments derive
their revenues
The Group has a matrix management structure. The Group's Chief
Operating Decision Maker ("CODM") is the Executive Committee
("Exco") which operates as a general management committee under the
direct authority of the Board. The Exco regularly reviews operating
activity on a number of bases, including by geographical region and
by business division. The Group considers that geographic segments
represent the most appropriate view for the purposes of resource
allocation and assessment of the nature and financial effects of
the business activities in which the Group engages. These are the
Group's primary reportable segments under IFRS 8 'Operating
Segments'.
The Group's performance is assessed by the CODM on the basis of
adjusted performance that removes the effects of significant items
from reported results. Significant items are items that management
identify and consider separately in order to improve the
understanding of the underlying trends and performance of the
busines, that would otherwise distort year-or-year comparison.
These segmental results are therefore presented on an adjusted
basis.
In addition the Group has presented its adjusted results by
business division: Global Broking, Energy & Commodities,
Institutional Services, and Data & Analytics. Segmental income
and expenses include transfers between segments and these transfers
are conducted at arm's length.
Information regarding the Group's operating segments is reported
below:
Analysis by geographic segment
EMEA Americas Asia Pacific Total
2020 GBPm GBPm GBPm GBPm
----------------------------------- ------ --------- ------------- --------
Revenue 888 670 236 1,794
Total front-office costs (518) (442) (154) (1,114)
----------------------------------- ------ --------- ------------- --------
Contribution 370 228 82 680
----------------------------------- ------ --------- ------------- --------
Employment and general and
administrative expenses (185) (119) (62) (366)
Depreciation and impairment
of property, plant and equipment
and right-of-use-assets (15) (12) (9) (36)
Amortisation and impairment
of intangibles (16) (4) - (20)
----------------------------------- ------ --------- ------------- --------
Total management and support
costs (216) (135) (71) (422)
----------------------------------- ------ --------- ------------- --------
Other operating income 6 3 5 14
----------------------------------- ------ --------- ------------- --------
Adjusted operating profit 160 96 16 272
=================================== ====== ========= ============= ========
2019
----------------------------------- ------ --------- ------------- --------
Revenue 900 687 246 1,833
Total front-office costs (524) (458) (157) (1,139)
----------------------------------- ------ --------- ------------- --------
Contribution 376 220 89 694
----------------------------------- ------ --------- ------------- --------
Employment and general and
administrative expenses (190) (124) (60) (374)
Depreciation and impairment
of property, plant and equipment
and right-of-use-assets (14) (12) (8) (34)
Amortisation and impairment
of intangibles (18) (4) (1) (23)
----------------------------------- ------ --------- ------------- --------
Total management and support
costs (222) (140) (69) (431)
----------------------------------- ------ --------- ------------- --------
Other operating income 10 5 1 16
----------------------------------- ------ --------- ------------- --------
Adjusted operating profit 164 94 21 279
=================================== ====== ========= ============= ========
There are no inter-segment sales included in the geographic
segment revenue.
Analysis by division
Energy
Global & Institutional Data Corporate
Broking Commodities Services & Analytics Centre Total
2020 GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- ------------ ------------- ------------ --------- -------
Reported Revenue 1,188 391 91 145 (21) 1,794
- External 1,170 388 91 145 - 1,794
- Inter-division 18 3 - - (21) -
----------------------- -------- ------------ ------------- ------------ --------- -------
Total front-office
costs (734) (261) (69) (71) 21 (1,114)
- External (734) (261) (69) (50) - (1,114)
- Inter-division - - - (21) 21 -
----------------------- -------- ------------ ------------- ------------ --------- -------
Contribution 454 130 22 74 - 680
----------------------- -------- ------------ ------------- ------------ --------- -------
Total management and
support costs (260) (78) (15) (10) (59) (422)
Other operating income 3 1 - - 10 14
----------------------- -------- ------------ ------------- ------------ --------- -------
Adjusted operating
profit 197 53 7 64 (49) 272
======================= ======== ============ ============= ============ ========= =======
2019
----------------------- -------- ------------ ------------- ------------ --------- -------
Reported Revenue 1,262 382 75 135 (21) 1,833
- External 1,244 379 75 135 - 1,833
- Inter-division 18 3 - - (21) -
----------------------- -------- ------------ ------------- ------------ --------- -------
Total front-office
costs (775) (261) (57) (67) 21 (1,139)
- External (775) (261) (57) (46) - (1,139)
- Inter-division - - - (21) 21 -
----------------------- -------- ------------ ------------- ------------ --------- -------
Contribution 487 121 18 68 - 694
----------------------- -------- ------------ ------------- ------------ --------- -------
Total management and
support costs (268) (75) (15) (9) (64) (431)
Other operating income 2 - - - 14 (16)
----------------------- -------- ------------ ------------- ------------ --------- -------
Adjusted operating
profit 221 46 3 59 (50) 279
======================= ======== ============ ============= ============ ========= =======
Corporate centre represents the cost of group and central
functions that are not allocated to the Group's divisions.
Significant items are centrally managed and controlled by the
Group and are not allocated to regional or divisional segments.
Analysis of Significant items
Settlements
Disposal, and provisions
Restructuring acquisitions in connection
and other and investment with legal
related in new Goodwill and regulatory
costs businesses impairment matters Total
2020 GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------- --------------- ----------- --------------- -----
Employment, compensation
and benefits costs 6 - - - 6
--------------------------------- ------------- --------------- ----------- --------------- -----
Premises and related
costs 2 - - - 2
Deferred consideration - 2 - - 2
Credit relating to
significant legal and
regulatory settlements - - - (3) (3)
Pension scheme past
service and settlement
costs 1 - - - 1
Acquisition costs - 11 - - 11
Other general and administration
costs 9 - - 5 14
--------------------------------- ------------- --------------- ----------- --------------- -----
Total included within
general and administration
costs 12 13 - 2 27
Depreciation and impairment
of PPE and ROUA 1 - - - 1
Amortisation and impairment
of intangible assets - 39 - - 39
Impairment of other
assets 1 1 21 - 23
--------------------------------- ------------- --------------- ----------- --------------- -----
Total included within
operating costs 20 53 21 2 96
Included in other operating
income - - - (2) (2)
--------------------------------- ------------- --------------- ----------- --------------- -----
Total significant items 20 53 21 - 94
================================= ============= =============== =========== =============== =====
Restructuring Settlements
and other Disposal, and provisions
related acquisitions in connection
costs and investment with legal
ICAP integration in new Goodwill and regulatory
costs businesses impairment matters Total
2019 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------------- ------------- --------------- ----------- --------------- -----
Employment, compensation
and benefits costs 15 3 2 - - 20
---------------------------- ---------------- ------------- --------------- ----------- --------------- -----
Premises and related
costs - 1 - - - 1
Deferred consideration - - 6 - - 6
Adjustments to provisions
and contingent liabilities
acquired - 3 - - 3
Charge relating to
significant legal
and regulatory settlements - - - - 18 18
Pension scheme past
service and settlement
costs - 4 - - - 4
Acquisition costs - - 2 - - 2
Other general and
administration costs 15 3 2 - 1 21
---------------------------- ---------------- ------------- --------------- ----------- --------------- -----
Total included within
general and administration
costs 15 8 13 - 19 55
Depreciation and
impairment of PPE
and ROUA 4 1 - - - 5
Amortisation and
impairment of intangible
assets - - 42 - - 42
Impairment of other
assets - - - 24 - 24
---------------------------- ---------------- ------------- --------------- ----------- --------------- -----
Total included within
operating costs 34 12 57 24 19 146
Included in other
operating income - - - - (9) (9)
---------------------------- ---------------- ------------- --------------- ----------- --------------- -----
Total significant
items 34 12 57 24 10 137
============================ ================ ============= =============== =========== =============== =====
The Group's reported performance includes significant items. A
reconciliation from adjusted operating profit, as considered by
CODM, to Group reported performance is included:
Adjusted profit reconciliation
2020 2019
GBPm GBPm
------------------------------------------- ----- ------
Adjusted operating profit 272 279
Significant items (94) (137)
------------------------------------------- ----- ------
Operating profit 178 142
Net finance costs (49) (49)
------------------------------------------- ----- ------
Profit before tax 129 93
Taxation on significant items 7 15
Taxation on adjusted profit before tax (55) (55)
------------------------------------------- ----- ------
Profit after tax 81 53
Share of profit from associated and joint
ventures 16 15
------------------------------------------- ----- ------
Profit for the year 97 68
=========================================== ===== ======
4. Operating costs
2020 2019
GBPm GBPm
------------------------------------------- ----- -----
Broker compensation costs 902 900
Other staff costs 244 248
Share-based payment charge 6 5
Charge relating to employee long-term
benefits 1 1
-------------------------------------------- ----- -----
Employee compensation and benefits 1,153 1154
-------------------------------------------- ----- -----
Technology and related costs 167 158
Premises and related costs 29 27
Adjustments to deferred consideration 2 6
Adjustments to provisions and contingent
liabilities acquired - 3
(Credit)/charge relating to significant
legal and regulatory settlements (3) 18
Pension scheme past service and settlement
costs 1 4
Acquisition costs 11 2
Expected credit loss adjustment (6) -
Other administrative costs 159 217
-------------------------------------------- ----- -----
General and administrative expenses 360 435
-------------------------------------------- ----- -----
Depreciation of property, plant and
equipment 13 13
Depreciation of right-of-use assets 23 21
Impairment of right-of-use assets 1 -
-------------------------------------------- ----- -----
Depreciation and impairment of property,
plant and equipment and right-of-use
assets 37 34
-------------------------------------------- ----- -----
Amortisation of other intangible assets 20 27
Amortisation of intangible assets
arising on consolidation 39 42
-------------------------------------------- ----- -----
Amortisation and impairment of intangible
assets 59 69
-------------------------------------------- ----- -----
Goodwill impairment 21 24
Impairment of finance lease receivables 1 -
Impairment of associates 1 -
-------------------------------------------- ----- -----
Impairment of other assets 23 24
-------------------------------------------- ----- -----
1,632 1,716
=========================================== ===== =====
5. Other operating income
Other operating income comprises:
2020 2019
GBPm GBPm
------------------------------------- ----- -----
Business relocation grants 3 3
Employee related insurance receipts 2 2
Management fees 3 1
Legal settlement receipts 2 9
Other receipts 6 10
------------------------------------- ----- -----
16 25
===================================== ===== =====
Other receipts include royalties, rebates, non-employee related
insurance proceeds, tax credits and refunds. Costs associated with
such items are included in administrative expenses.
6. Finance income
2020 2019
GBPm GBPm
---------------------------------------- ----- -----
Interest receivable and similar income 2 5
Interest receivable on finance leases 1 1
3 6
======================================== ===== =====
7. Finance costs
2020 2019
GBPm GBPm
------------------------------------------------ ----- -----
Fees payable on bank and other loan facilities 2 2
Interest payable on bank and other loans 1 1
Interest payable on Sterling Notes June
2019 - 2
Interest payable on Sterling Notes January
2024 23 24
Interest payable on Sterling Notes May
2026 13 8
Other interest payable 1 1
Amortisation of debt issue and bank facility
costs 1 2
------------------------------------------------ ----- -----
Borrowing costs 41 40
Interest payable on lease liabilities 11 12
Premium on repurchase of Sterling Notes
January 2024 - 3
------------------------------------------------ ----- -----
52 55
================================================ ===== =====
8. Earnings per share
2020 2019
--------- ------ ------
Basic 17.2p 12.0p
Diluted 17.0p 11.9p
--------- ------ ------
The calculation of basic and diluted earnings per share is based
on the following number of shares:
2020 2019
No.(m) No.(m)
--------------------------------- -------- --------
Basic weighted average shares 557.0 559.4
Contingently issuable shares 6.9 4.2
--------------------------------- -------- --------
Diluted weighted average shares 563.9 563.6
================================= ======== ========
The earnings used in the calculation basic and diluted earnings
per share, are set out below:
2020 2019
GBPm GBPm
----------------------------------------- ----- -----
Earnings for the year 97 68
Non-controlling interests (1) (1)
----------------------------------------- ----- -----
Earnings attributable to equity holders
of the parent 96 67
========================================= ===== =====
9. Dividends
2020 2019
GBPm GBPm
----------------------------------------------- ----- -----
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 31 December
2019
of 11.25p per share 63 -
Interim dividend for the year ended 31
December 2020
of 5.6p per share 31 -
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
----------------------------------------------- ----- -----
94 94
=============================================== ===== =====
Dividends in respect of the current year and future dividend
policy are discussed in the Financial Review.
During the year, the Trustees of the TP ICAP plc Employee
Benefit Trust have waived their rights to dividends.
10. Intangible assets arising on consolidation
Goodwill Other Total
GBPm GBPm GBPm
------------------------------------- --------- ------ ------
At 1 January 2020 993 518 1,511
Recognised on acquisitions 25 - 25
Amortisation of acquisition
related intangibles - (39) (39)
Impairment of acquisition
related intangibles (21) - (21)
Effect of movements in exchange
rates (8) (5) (13)
-------------------------------------- --------- ------ ------
At 31 December 2020 989 474 1,463
====================================== ========= ====== ======
At 1 January 2019 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 2019 993 518 1,511
====================================== ========= ====== ======
Other intangible assets at 31 December 2020 represent customer
relationships, GBP469m (2019: GBP506m), business brands and
trademarks, GBP5m (2019: GBP10m), and other intangibles, GBPnil
(2019: GBP2m) 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 Group's CGUs are as follows:
2020 2019
GBPm GBPm
---------------------------- ----- -----
EMEA 686 663
Americas 253 262
Asia Pacific 50 68
---------------------------- ----- -----
Goodwill allocated to CGUs 989 993
============================ ===== =====
CGUs, to which goodwill has been allocated, are tested for
impairment at least annually. Review for indicators of impairment
are undertaken at each reporting date. During the year the Group
undertook impairment tests as at 30 June and as at 30 September,
triggered as a result of sensitivity of the Asia Pacific CGU to
reasonable possible changes in cash flow and discount rate
assumptions.
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'). 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 regional cash flows arising in future years, regional
growth rates and regional discount rates as considered by
management. Regional specific assumptions reflect the divisional
mix in each region and the size and risk profile of that region.
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 2020, the recoverable amount for the Asia Pacific
CGU was estimated to be lower than its carrying value by GBP21m and
was impaired by that amount. Growth rates on underlying revenues
were 1.4% (2019: 2.1%) for EMEA, 1.1% (2019: 1.6%) for Americas and
2.0% (2019: 1.2%) for Asia Pacific over the five year projected
period, with pre-tax discount rates of 10.6% (2019: 11.0%) for
EMEA, 13.2% (2019: 13.6%) for Americas and 11.6% (2019: 11.6%) for
Asia Pacific.
As at 30 September 2020, growth rates on underlying revenues
were 1.8% for EMEA, 0.8% for Americas and 1.5% for Asia Pacific
over the five year projected period, with pre-tax discount rates of
11.0% for EMEA, 13.4% for Americas and 11.8% for Asia Pacific. No
further impairment was identified.
As at 31 December 2020, the review of the indicators of
impairment did not result in a requirement to undertake further
impairment testing.
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 result in a reduction in the value of the CGU
by GBP25m and a 1% increase in the discount rate would reduce the
value of the CGU by GBP13m. A permanent 5% reduction in projected
2021 revenues in each CGU would lead to a GBP52m reduction in the
value of the Asia Pacific CGU and result in an impairment of GBP2m.
The impact on future cash flows resulting from falling growth rates
does not reflect any management actions that would be taken under
such circumstances.
The recoverable amounts of EMEA and Americas CGU continue to be
in excess of their carrying value and are not sensitive to
reasonable possible changes in the VIU assumptions.
11. Loans and borrowings
Less than Greater Total
one year than
one year
2020 GBPm GBPm GBPm
----------------------------- ---------- ---------- ------
Overdrafts 7 - 7
Loans from related parties 28 - 28
Sterling Notes January 2024 10 430 440
Sterling Notes May 2026 1 249 250
------------------------------ ---------- ---------- ------
46 679 725
============================= ========== ========== ======
2019
Sterling Notes January 2024 10 430 440
Sterling Notes May 2026 1 248 249
11 678 689
============================= ========== ========== ======
Overdrafts
Overdrafts arising as a result of settling security transactions
pending the completion of the onward sale.
Bank credit facilities and bank loans
The Group has a GBP270m committed revolving facility that
matures in December 2023. Facility commitment fees of 0.8% on the
undrawn balance are payable on the facility. Arrangement fees of
GBP3m are being amortised over the maturity of the facility.
As at 31 December 2020, the revolving credit facility was
undrawn. Amounts drawn down are reported as bank loans in the above
table. Bank loans are denominated in Sterling. During the year, the
maximum amount drawn was GBP161m (2019: GBP39m), and the average
amount drawn was GBP39m. The Group utilises the credit facility
throughout the year, entering into numerous short term bank loans
where maturities are less than three months. The turnover is quick
and the volume is large and resultant flows are presented net in
the Group's cash flow statement in accordance with IAS 7 'Cash
Flow'.
Interest and facility fees of GBP3m were incurred in 2020 (2019:
GBP3m).
Loans from related parties
In August 2020, the Group entered into a Yen 10bn committed
facility with The Tokyo Tanshi Co., Ltd, a related party, that
matures in February 2023. As at 31 December, the 10bn Yen committed
facility equated to GBP71m. Facility commitment fees of 0.64% on
the undrawn balance are payable on the facility. Arrangement fees
of less than GBP1m are being amortised over the maturity of the
facility.
As at 31 December 2020, Yen 4bn (GBP28m) of the facility was
drawn. The Directors consider that the carrying amount of the loan
which is not held at fair value through profit or loss approximates
to its fair value. During the year, the maximum amount drawn was
GBP75m, and the average amount drawn was GBP36m. The Group utilises
the credit facility throughout the year, entering into numerous
short term bank loans where maturities are less than three months.
The turnover is quick and the volume is large and resultant flows
are presented net in the Group's cash flow statement in accordance
with IAS 7 'Cash Flow'.
Interest and facility fees of less than GBP1m were incurred in
2020.
Amounts drawn down are reported as loans from related parties in
the above table.
Sterling Notes: Due January 2024
In January 2017 the Group issued GBP500m unsecured Sterling
Notes due January 2024. The Notes have a fixed coupon of 5.25%
payable semi-annually, subject to compliance with the terms of the
Notes. In May 2019, the Group repurchased GBP69m of the Notes. At
31 December 2020, the fair value of the Notes (Level 1) was
GBP473m. Accrued interest at 31 December 2020 amounted to GBP10m.
Unamortised issue costs were GBP1m.
Interest of GBP23m was incurred in 2020 (2019: GBP24m). The
amortisation expense of issue costs in 2020 and 2019 were less than
GBP1m.
Sterling Notes: Due May 2026
In May 2019 the Group issued GBP250m unsecured Sterling Notes
due May 2026. The Notes have a fixed coupon of 5.25% paid
semi-annually, subject to compliance with the terms of the Notes.
At 31 December 2020 the fair value of the Notes (Level 1) was
GBP284m. Accrued interest at 31 December 2020 amounted to GBP1m.
Unamortised issue costs were GBP1m.
Interest of GBP13m was incurred in 2020 (2019: GBP8m). Issue
costs of GBP1m were incurred in 2019 and their amortisation expense
in 2020 and 2019 was less than GBP1m.
12. Reconciliation of operating result to net cash from operating activities
2020 2019
GBPm GBPm
------------------------------------------------ ----- -----
Operating profit 178 142
Adjustments for:
- Share-based payment charge 6 5
- Pension scheme's administration costs 1 -
- Pension scheme past service and settlement
costs 1 4
- Depreciation of property, plant and
equipment 13 13
- Depreciation of right-of-use assets 23 21
- Amortisation of intangible assets 20 27
- Amortisation of intangible assets arising
on consolidation 39 42
- Impairment of intangible assets arising
on consolidation 21 24
- Impairment of associates 1 -
- Loss on disposal of property, plant
and equipment - 1
- Impairment of right-of-use assets 1 -
- Impairment of finance lease receivables 1 -
- Remeasurement of deferred consideration 2 6
Net operating cash flow before movement
in working capital 307 285
Decrease/(increase) in trade and other
receivables 6 (24)
(Increase)/decrease in net settlement
and trading balances (2) 8
(Decrease)/increase in trade and other
payables (34) 4
Decrease in provisions (7) (5)
Increase/(decrease) in non-current liabilities 1 (2)
Retirement benefit scheme contributions (1) (1)
------------------------------------------------ ----- -----
Net cash generated from operations 270 265
Income taxes paid (73) (64)
Fees paid on bank and other loan facilities (2) (2)
Interest paid (37) (39)
Interest paid - finance leases (14) (12)
------------------------------------------------ ----- -----
Net cash flow from operating activities 144 148
================================================ ===== =====
13. Analysis of net debt
At 1 Cash Non-cash Acquired Exchange At 31
January flow items with acquisitions differences December
2020 GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------- ------- --------- ------------------- ------------- ----------
Cash and cash
equivalents 686 (17) - - (13) 656
Overdrafts (10) 3 - - - (7)
----------------------- --------- ------- --------- ------------------- ------------- ----------
676 (14) - - (13) 649
----------------------- --------- ------- --------- ------------------- ------------- ----------
Financial investments 148 (18) - - (3) 127
----------------------- --------- ------- --------- ------------------- ------------- ----------
Bank loan due
within one year - 1 (1) (1) - - -
Loans from related
parties - (28) - - - (28)
Sterling Notes
January 2024 (440) 23 (1) (23) - - (440)
Sterling Notes
May 2026 (249) 13 (1) (14) - - (250)
Lease liabilities (140) 38 (2) (108) (5) 3 (212)
----------------------- --------- ------- --------- ------------------- ------------- ----------
Total financing
liabilities (829) 47 (146) (5) 3 (930)
----------------------- --------- ------- --------- ------------------- ------------- ----------
Net debt (5) 15 (146) (5) (13) (154)
======================= ========= ======= ========= =================== ============= ==========
At 1 Cash Non-cash Adoption Exchange At 31
January flow items of IFRS differences December
16
2019 GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------- --------- --------- --------- ------------- ----------
Cash and cash
equivalents 680 19 - - (13) 686
Overdrafts (13) 3 - - - (10)
----------------------- --------- --------- --------- --------- ------------- ----------
667 22 - - (13) 676
----------------------- --------- --------- --------- --------- ------------- ----------
Financial investments 133 20 - - (5) 148
----------------------- --------- --------- --------- --------- ------------- ----------
Bank loan due
within one year (52) 53(1) (1) - - -
Loans from related
parties - 3 - - (3) -
Sterling Notes
June 2019 (80) 82(3) (2) - - -
Sterling Notes
January 2024 (510) 97(4) (27) - - (440)
Sterling Notes
May 2026 - (241)(5) (8) - - (249)
Lease liabilities - 33(2) (32) (145) 4 (140)
----------------------- --------- --------- --------- --------- ------------- ----------
Total financing
liabilities (642) 27 (70) (145) 1 (829)
======================= ========= ========= ========= ========= ============= ==========
Net funds/(debt) 158 69 (70) (145) (17) (5)
======================= ========= ========= ========= ========= ============= ==========
1 Relates to interest paid reported as a cash outflow from
operating activities
2 Relates to interest paid of GBP14m (2019: GBP12m) reported as
a cash outflow from operating activities and principal paid of
GBP24m (2019:GBP21m) reported as a cash outflow from financing
activities
3 Relates to principal repayment of GBP80m reported as a cash
outflow from financing activities plus GBP2m of interest paid
reported as a cash outflow from operating activities
4 Relates to principal repayment of GBP69m reported as a cash
outflow from financing activities plus GBP28m of interest paid
reported as a cash outflow from operating activities
5 Relates to principal received of GBP250m less GBP2m of debt
issue costs reported as a cash outflow from financing activities
and GBP7m of interest paid reported as cash outflow from operating
activities
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 2020 cash and cash equivalents,
net of overdrafts, amounted to GBP649m (2019: GBP676m) of which
GBP10m represent amounts subject to regulatory restrictions and are
not readily available to be used for other purposes within the
Group. 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 interest expense, the amortisation of
debt issue costs and recognition of new lease liabilities.
14. Provisions
Legal
Property Re-structuring and other Total
2020 GBPm GBPm GBPm GBPm
------------------------------------- --------- --------------- ----------- ------
At 1 January 6 8 33 47
Charge/(credit) to income statement 2 8 (5) 5
Utilisation of provisions (1) (7) (4) (12)
Effect of movements in exchange - - - -
rates
------------------------------------- --------- --------------- ----------- ------
At 31 December 7 9 24 40
===================================== ========= =============== =========== ======
2019
------------------------------------- --------- --------------- ----------- ------
At 1 January 14 10 37 61
Charge to income statement - 8 23 31
Utilisation of provisions - (10) (26) (36)
Effect of movements in exchange
rates (1) - (1) (2)
------------------------------------- --------- --------------- ----------- ------
At 31 December 6 8 33 47
===================================== ========= =============== =========== ======
2020 2019
GBPm GBPm
------------------------------------- --------- --------------- ----------- ------
Included in current liabilities 17 21
Included in non-current liabilities 23 26
------------------------------------- --------- --------------- ----------- ------
40 47
===================================== ========= =============== =========== ======
Property provisions outstanding as at 31 December 2020 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 1 January
2019 were offset against the right-of-use asset arising on the
adoption of IFRS 16.
Restructuring provisions outstanding as at 31 December 2020
relate to termination and other employee related costs. The
movement during the year reflects the actions taken under the
Group's restructuring initiatives. It is expected that the
remaining obligations will be discharged during 2021.
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
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. Whilst
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 stood 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. Based on the
latest review, the Group updated the provision to EUR6.5m (GBP6m)
in December 2020.
IFUS
On 11 May 2020, Tullett Prebon (Europe) Ltd ("TPE") received
notice of the instigation of disciplinary proceedings by ICE
Futures U.S. ("IFUS") relating to activities undertaken between
March 2018 and September 2019. Following engagement and
consultation with IFUS, TPE agreed a settlement with IFUS dated 13
August 2020 under which TPE agreed and paid a fine of less than USD
1m (less than GBP1m) in respect of failures of block trades,
general record requirements, order ticket requirements, minimum
quantity requirements, disclosure of customer identity and failure
to supervise. As part of that agreement TPE agreed to enhance its
compliance manual, take reasonable proactive and appropriate
measures to be in compliance with Exchange Rules, conduct training
covering Exchange Rules and to require all TPE brokers to
acknowledge receipt and understanding of such training and to
cooperate with periodic audits of TPE compliance in connection with
Exchange Rules.
15. Contingent liabilities
Bank Bill Swap Reference Rate case
On 16 August 2016, a complaint 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 TÃtulos e Valores Mobiliários Ltda
('ICAP Brazil') is a defendant in 11 (31 December 2019: 13) 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 56.8m (GBP8m) (31 December 2019: BRL 49m (GBP11m)). The
Group is the beneficiary of an indemnity from NEX in relation to
any liabilities in respect of 7 of the 11 Labour Claims insofar as
they relate to periods prior to completion of the Group's
acquisition of ICAP. This includes a claim that is indemnified by a
predecessor to ICAP Brazil by way of escrowed funds in the amount
of BRL 28 million (GBP4million). The Labour Claims are at various
stages of their respective proceedings and are pending an initial
witness hearing, the court's decision on appeal or a ruling on a
motion for clarification. The Group 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, TÃtulos 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 272m (GBP38m) (31 December 2019: BRL 243m
(GBP44m)). The Group intends to vigorously defend itself but there
is no certainty as to the outcome of these claims. Currently the
case is in an early evidentiary phase.
LIBOR Class actions
The Group is currently defending the following 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. On 9 December
2020, the Dutch Court issued a final judgment dismissing the
Foundation's claims in their entirety. The Foundation has until
March 2021 to appeal this final judgement. 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.
(iii) Yen LIBOR Class Actions
In April 2013, ICAP plc was added as a defendant to an existing
civil litigation originally filed in April 2012, Laydon v. Mizuho
Bank, Ltd, against certain Yen LIBOR and Euroyen TIBOR panel banks
alleging purported manipulation of the Yen LIBOR and Euroyen TIBOR
benchmark interest rates. The United States District Court for the
Southern District of New York dismissed the plaintiff's antitrust
and unjust enrichment claims, but upheld the plaintiff's claim for
purported manipulation under the Commodity Exchange Act. ICAP plc
and certain other foreign defendants were dismissed in March 2015
for lack of personal jurisdiction. The Court permitted plaintiffs
to file an amended complaint whereby they added new defendants to
the action including ICAP Europe Limited and Tullett Prebon plc. On
10 March 2017, both ICAP Europe Limited and Tullett Prebon plc were
dismissed for lack of personal jurisdiction. On 23 October 2020,
the plaintiffs served their formal notice of intent to appeal the
dismissal of the TP ICAP defendants. The Group is covered by an
indemnity from NEX in relation to any outflow in respect of ICAP
Europe Limited with regard to these matters. It is not possible to
predict the ultimate outcome of the litigation or to provide an
estimate of any potential financial impact.
Other plaintiffs filed a related complaint, Sonterra Capital
Master Fund, Ltd. v. UBS AG, which included ICAP plc, ICAP Europe
Limited and Tullett Prebon plc as defendants, asserting a cause of
action for antitrust injury only as a result of the purported
manipulation of Yen LIBOR and Euroyen TIBOR by panel banks and
brokers. Defendants filed motions to dismiss for lack of
jurisdiction and failure to state a claim. On 10 March 2017, the
Court issued an order dismissing the entirety of the Sonterra case
on the grounds that the plaintiffs lacked antitrust standing.
Plaintiffs appealed the dismissal, which was then stayed to
accommodate new settlements reached between the plaintiffs and some
of the defendants. The briefing on the appeal was completed on 28
January 2019 and oral argument was heard on 5 February 2020. On 1
April 1 2020, the Second Circuit Court of appeals reversed and
remanded the dismissal. In October 2020, the Company filed a
renewed motion to dismiss on grounds that were not reached in the
original decision to dismiss including but not limited to lack of
personal jurisdiction. It is not possible to predict the
ultimate outcome of the litigation or to provide an estimate of
any potential financial impact. The Group is covered by an
indemnity from NEX in relation to any outflow in respect of ICAP
Europe Limited with regard to these matters.
ICAP Securities Limited, Frankfurt branch - Frankfurt Attorney
General administrative proceedings
On 19 December 2018, ICAP Securities Limited, Frankfurt branch
('ISL') was notified by the Attorney General's office in Frankfurt
notifying ISL that it had commenced administrative proceedings
against ISL and criminal proceedings against former employees and a
former director of ISL, in respect of aiding and abetting tax
evasion by Rafael Roth Financial Enterprises GmbH ("RRFE"). It is
possible that a corporate administrative fine may be imposed on ISL
and earnings derived from the criminal offence confiscated. ISL has
appointed external counsel and is in the process of investigating
the activities of the relevant desk from 2006-2009. This
investigation is complicated as the majority of relevant records
are held by NEX and NEX failed to disclose its engagement with the
relevant authorities prior to the sale of ICAP to Tullett Prebon in
2016. The Group has issued proceedings against NEX in respect of
(i) breach of warranties under the sale and purchase agreement, and
(ii) an indemnity claim under the tax deed entered into in
connection with the IGBB acquisition in relation to these matters.
Since the proceedings are at an early stage, details of the alleged
wrongdoing or case against ISL are not yet available, and it is not
possible at present to provide a reliable estimate of any potential
financial impact on the Group.
ICAP Securities Limited and The Link Asset and Securities
Company Limited - Proceedings by the Cologne Public Prosecutor
On 11 May 2020, TP ICAP learned that proceedings have been
commenced by the Cologne Public prosecutor against ICAP Securities
Limited ('ISL') and The Link Asset and Securities Company Ltd
('Link') in connection with criminal investigations into
individuals suspected of aiding and abetting tax evasion between
2004 and 2012. It is possible that the Cologne Public Prosecutor
may seek to impose an administrative fine against ISL or Link and
confiscate the earnings that ISL or Link allegedly derived from the
underlying alleged criminal conduct by the relevant individuals.
ISL and Link have appointed external lawyers to advise them. The
Group has issued proceedings against NEX in respect of (i) breach
of warranties under the sale and purchase agreement, and (ii) an
indemnity claim under the tax deed entered into in connection with
the IGBB acquisition in relation to these matters. Since the
proceedings are at an early stage, details of the alleged
wrongdoing or case against ISL and Link are not yet available, and
it is not possible at present to provide a reliable estimate of any
potential financial impact on the Group.
Autorité des Marchés Financiers ('AMF')
In August 2019, Tullett Prebon (Europe) Limited ('TPEL') was
notified that the AMF was investigating alleged facilitation of
market abuse conduct concerning historical transactions with a
client undertaken in 2015 on Eurex. In June 2020, the AMF initiated
enforcement proceedings before the Enforcement Committee of the
AMF. TPEL has responded to the AMF's letter of grievance and is
waiting to hear further. It is not possible at present 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, investigations or market reviews.
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,
currently 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.
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF TP ICAP LIMITED
(PREVIOUSLY 'TP ICAP PLC') ON THE PRELIMINARY ANNOUNCEMENT OF TP
ICAP LIMITED
As the independent auditor of TP ICAP Limited we are required by
UK Listing Rule LR 9.7A.1(2)R to agree to the publication of TP
ICAP Limited's preliminary announcement statement of annual results
for the period ended 31 December 2020.
The preliminary statement of annual results for the period ended
31 December 2020 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 Limited 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 Limited
is complete and we signed our auditor's report on 09 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 is the largest revenue stream of the Group and
accounts for approximately 70% of the Group's revenue
and so a significant amount of audit time is utilised
on this area. It also has a longer cash collection
period than the other revenue streams of the Group.
Revenue associated with past due trade debtors was
GBP90.2m (89% of total trade debtors) at 31 December
2020.
We identified a risk of material misstatement of
revenue, due to fraud or error, related to revenue
incurred during the year but remain unpaid for 60
or more days as at year-end.
---------------------------------------------------------------
How the We obtained an understanding of relevant controls
scope of relating to Name Passing invoicing and cash collection.
our audit The Group's control environment continues to be decentralised
responded and reliant on manual processes, and there are improvements
to the required to the IT environment. As a result we did
key audit not adopt a controls reliance approach.
matter We agreed a sample of Name Passing transactions,
which were outstanding at year-end, to cash received
post year-end or where amounts remained 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 Our substantive procedures were completed satisfactorily.
We consider Name Passing revenue incurred during
the year, but remaining unpaid for 60 or more days
as at year-end, to be appropriate.
---------------------------------------------------------------
Impairment of goodwill
Key audit As required by IAS 36, goodwill is reviewed for impairment
matter at least annually. The Group has changed its annual
description impairment assessment from 31 December to 30 September
and annually thereafter. Determining whether the
goodwill of GBP998m is impaired requires an estimation
of the recoverable amount of the Group's cash generating
units ("CGUs"), or a group of 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 the EMEA, Americas and APAC
Group of CGUs .
The value in use approach involves an estimation
of future cash flows arising for the CGUs or group
of CGUs 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 or group of CGU can
be sensitive to changes in underlying assumptions.
We focused our testing on the EMEA CGU cashflows,
due to the impact of Brexit, and the Asia Pacific
CGU which was sensitive to the forecast future growth
rate. Management have also assessed for impairment
triggers between 30 September 2020 and 31 December
2020 and concluded no impairment triggers were identified.
An impairment of GBP21m 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.
our audit We performed detailed analysis of the Group's assumptions
responded used in the annual impairment review, in particular
to the the cashflow projections, forecast future growth
key audit rates, and discount rates used by the Group in its
matter impairment tests of the group of CGUs. We challenged
cash flow projections 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 have also assessed the impact of the UK based
subsidiaries losing their regulatory permissions
to service clients in a number of EU countries subsequent
to the UK leaving the EU on the EMEA CGU cashflows.
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 performed scenario analysis, flexed key assumptions,
assessed for impairment triggers between 30 September
2020 and 31 December 2020 and considered the appropriateness
of the disclosures in the notes to the financial
statements.
--------------------------------------------------------------
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.
We identified the discount rate for the EMEA CGU
was not within the reasonable range calculated by
our internal valuation specialist, however, the recoverable
value of the EMEA CGU is not sensitive to a reasonable
possible change in discount rates. We concurred with
the directors' conclusion that no impairment was
required.
--------------------------------------------------------------
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 Limited 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 or draft 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.
Fiona Walker, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
09 March 2021
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END
FR JLMFTMTIMMFB
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March 09, 2021 02:03 ET (07:03 GMT)
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