Tullett Prebon PLC Half-year Report (9084F)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Tullett Prebon	LSE:TLPR	London	Ordinary Share	GB00B1H0DZ51	ORD 25P

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

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RNS Number : 9084F

Tullett Prebon PLC

02 August 2016

TULLETT PREBON PLC

Financial and Interim Management Report

For the six months ended 30 June 2016

Tullett Prebon plc (the "Company") today announced its results for the six months ended 30 June 2016.

Financial Highlights

Underlying, before exceptional and acquisition related items

   --       Revenue of GBP430.3m, an increase of 4% on prior period (2015: GBP415.7m) 
   --       Operating profit GBP67.0m, an increase of 11% on prior period (2015: GBP60.6m) 
   --       Operating margin of 15.6% (2015: 14.6%) 
   --       Profit before tax GBP60.3m (2015: GBP52.9m) 
   --       Basic EPS 21.0p (2015: 17.7p)

Reported, after exceptional and acquisition related items

   --       Operating profit GBP45.4m (2015: GBP118.8m*) 
   --       Profit before tax GBP35.5m (2015: GBP111.1m*) 
   --       Basic EPS 11.9p (2015: 36.2p*)

*Includes the impact of the GBP64.4m credit relating to major legal actions.

A table showing Underlying and Reported figures for each period, detailing the exceptional and acquisition related items is included in the Financial Review.

The average number of shares used for the basic EPS calculation for period is 242.7m.

Operational Summary

   --       Resilient performance from the broking business in challenging market conditions 
   --       Strong performance in Energy and Commodities, and Equities products 
   --       Strong contribution from Information Sales and Risk Management Services ("RMS") 
   --       Tullett Prebon Information named best data provider for sixth consecutive year

Strategic Developments

-- Planning for the integration of ICAP's global hybrid voice broking and information business ("IGBB") progressing well

   --       The Company continues to pursue strategic partnerships and high quality acquisitions

Dividend

As in previous years, the interim dividend for 2016 has been set at a level equal to 50% of the final dividend paid for the previous year. This approach to setting the interim dividend is expected to continue. A 5.6p per share interim dividend will be paid on 14 November 2016 to shareholders on the register at close of business on 2 September 2016. For more details on future dividend payment schedules see page 14 of this interim management report.

Commenting on the results, John Phizackerley, Chief Executive of Tullett Prebon plc, said:

"I am pleased with the financial performance in the first half of 2016. A resilient performance from the broking business in challenging markets saw the subdued client demand in some of our heritage product areas more than offset by the performance of our Energy and Commodities, and Equities products. Revenue of GBP430m was 4% higher than in 2015 with underlying operating profit increasing by 11% to GBP67m.

Our goal is to become the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking. Our acquisition of IGBB, which provides a unique opportunity to accelerate the delivery of our strategy, is on track. We are in advanced planning for the integration of the two businesses after completion of the transaction, which we expect will be during the latter part of 2016.

At the same time we continue to look for opportunities to increase revenues and raise the quality and quantity of earnings. This will be achieved through further diversification of the client base, continued expansion into Energy and Commodities, building scale in the Americas and Asia Pacific, and preserving the business' core franchises."

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:

Andrew Baddeley, Chief Financial Officer

Tullett Prebon plc

Direct: +44 20 7200 7995

   email:    abaddeley@tullettprebon.com

Alexandra Wick, Marketing and Communications Director

Tullett Prebon plc

Direct: +44 20 7200 7579

email: awick@tullettprebon.com

Craig Breheny, Director

Brunswick Group LLP

Direct: +44 20 7396 7429

   email:    cbreheny@brunswickgroup.com

Further information on the Company and its activities is available on the Company's website: www.tullettprebon.com

Overview

Our strategic review, the results of which were communicated to the market in June last year, concluded that the central role played by interdealer brokers at the heart of the global wholesale OTC markets remains secure, and that the majority of OTC product markets, which are not characterised by continuous trading, depend upon the intervention and support of voice brokers for their liquidity and effective operation.

We are wholly committed to the hybrid voice broking model, and to developing the technology and services that support it. This is where the business is positioned, and we aim to be the best operator and best provider of liquidity and trusted partner to our clients.

The review also concluded that revenue declines were likely to continue in a number of traditional interdealer broker products. The review concluded that the Energy and Commodities markets do not currently face all the same pressures. Market conditions in 2015 and the first half of 2016 were consistent with these conclusions. Activity in many of the traditional interdealer broker products remained subdued. In contrast, activity in the Energy and Commodities markets, particularly in oil and oil related financial products, was buoyant reflecting the significant changes and volatility in oil prices throughout the period.

We have continued to actively manage the direct cost base to reflect market conditions. In the light of the reductions in market volumes in the traditional interdealer broker product areas, cost improvement action was taken towards the end of 2015 to reduce headcount and other fixed costs in the products and geographies most affected by the reduction in market volumes and revenue. The benefit of these actions has been seen in the improvements achieved in some of our key expense ratios and the operating margin.

The Information Sales and RMS businesses have also performed strongly with significant increases in revenues and contribution to operating profits. The Information Sales business has benefited from the continued expansion of its client base and geographical presence, the enhancement of its sales capability and the extension of the data content it provides to customers.

Revenue of GBP430m in H1 2016 was 4% higher than in H1 2015 with underlying operating profit increasing by 11% to GBP67m. The underlying operating profit margin for the six months to 30 June 2016 of 15.6% is 1% point better than in 2015 reflecting the improvements being made in the business.

Strategy and Business development

The Company's goal is to become the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking. The Company plans to grow revenue and raise the quality and quantity of earnings through further diversification of the client base, continued expansion into Energy and Commodities, and building scale in the Americas and Asia Pacific, whilst preserving the business's core franchises.

Progress against our strategic initiatives

One of the outputs of the strategic review was the launch of ten key initiatives, the "10 Arrows", each of which has a number of projects and work-streams which are designed to optimise the existing business and to pursue opportunities to add new high quality revenue and earnings to the group.

The first four arrows are focused on building revenue in the most attractive areas of our markets by: strategically adding brokers; building out our Energy and Commodities business; winning new all-to-all client business; and further building out our Information Sales business. The remaining arrows are focused on improving the functions in the business that support the revenue generating divisions by: investing strategically in IT; adopting a focused and disciplined customer relationship management approach; developing our acquisition and partnership capabilities; creating a robust investment framework; developing our HR function; and marketing and developing our brand.

During the first half of this year work has continued on the various business optimisation projects and work-streams that flow from the 10 Arrows and we are making good progress. It is our intention the 10 Arrows will continue to be implemented, on a larger platform, after the completion of the acquisition of IGBB.

Acquisition of IGBB

The Company announced in November 2015 that it had agreed terms with ICAP for the acquisition by Tullett Prebon of IGBB. The transaction will position the group as the leading inter-institutional liquidity provider in OTC products and as a nexus of product knowledge, broking experience and client relationships, and provides a unique opportunity to accelerate the delivery of the Company's strategy.

Since then the Company has worked with the relevant regulatory authorities to secure approval for the transaction. In June, following completion of its Phase 1 review, the Competition and Markets Authority ("CMA") did not find competition concerns in 19 of the 20 product categories it considered. The CMA raised concerns around the broking of oil products (in EMEA) and as a result the Company and ICAP have undertaken to divest IGBB's London-based oil desk within a specified timeframe. The Company remains confident that clearance from the CMA will be obtained. Clearance has been obtained from competition authorities in the United States, Singapore and Australia, and the acquisition of IGBB remains on track to close in 2016.

The costs of completing the acquisition of IGBB are discussed below but amount to almost GBP13m (including transaction financing costs) in the six months ended 30 June 2016. Overall it is expected that the total costs associated with the transaction to be incurred in the full year, will comprise approximately GBP19m of transaction costs, GBP7m of transaction financing costs, and GBP11m of integration expenses.

While the Company waits for regulatory approval a significant amount of time and resource has been devoted to integration planning for the combination of the two businesses. Individual work-streams have been established across all functional disciplines and geographies to undertake 'Day 1 integration planning' and synergy analysis prior to closing the transaction. Teams have been assigned specific value driver initiatives and are developing detailed measurable integration plans with budget accountability. Upon closing the integration work-stream teams will immediately begin implementing the approved plans to create the target operating model of the enlarged organisation. We have developed a well-defined, disciplined and transparent approach to driving value and tracking synergies which will both minimise the time required and maximise the value to be realised. As a result the Company remains confident in its guidance on management and support cost synergies of at least GBP60m post completion.

Beyond the efforts being made with the IGBB acquisition, we have made progress in a number of other areas.

Creditex

In July, we signed an agreement to acquire Creditex's US voice brokerage business from Intercontinental Exchange, a team of 14 brokers that provide voice and hybrid voice broking and trading services for credit derivatives, with approximately $11m (GBP8m) of annual revenues. This acquisition, which is subject to FINRA approval, demonstrates our ability to leverage our scale and capability in a challenging regulatory climate to pursue our strategic initiatives.

Later today we will be announcing a strategic IT development that will represent a critical step forward in the provision of this function for our business and will be a key part of our synergy realisation from the IGBB integration.

Impact of the UK's proposed exit from the European Union ("Brexit")

The outcome of the UK's referendum on EU membership was a momentous political event. It has already led to a change in leadership of the Government and gave rise to exceptional volatility in the financial markets. Although it is too early to speculate on the long term impact of Brexit, the Company has in the immediate aftermath seen little adverse impact and in fact the increase in volatility has resulted in higher levels of activity recently. The Company is well positioned to support its clients during this period and we are grateful that they have continued to place their confidence in us as a trusted partner.

From an FX perspective a fall in the value of Sterling will result in a positive impact on reported revenue. In the six months to 30 June 2016 over 80% of revenue is in non-sterling currencies of which over 60% is in USD and over 10% is in EUR.

The risks of Brexit have been well publicised in the media and we believe that the global and diversified nature of our operations positions us well.

The UK and the EU are now entering uncharted waters. Once a formal negotiation procedure has been triggered, there is considerable uncertainty about the outcome that will be achieved. We are following political events very closely, but any decisions that we have to make will be based on facts and not speculation. We have a global business with a wide European footprint, so we will always be where our clients need us to be.

MiFID II

MiFID II fully comes into effect on 3 January 2018. We are planning for changes to our business and operations to ensure that we will be able to meet the regulatory deadlines. Among other things, we expect that this will involve reconfiguration of part of our business to make use of the new trading venue, the Organised Trading Facility, which will attract much of the multilateral trading currently taking place in Europe's OTC markets. This presents us with technical and operational challenges, which we will meet, but also an opportunity to become a leader in voice and hybrid broking in regulated trading venues, while streamlining our electronic platforms. For our clients, our investment in technology and operations, in particular, will lead to greater transparency and new ways of accessing liquidity in a MiFID II-compliant environment.

The uncertainty surrounding Brexit has raised questions about the implementation of MiFID II, but so far the message from regulators has been to carry on. The implementation of MiFID II has to take place at least a year before any expected Brexit event, and in most planning scenarios the UK will maintain alignment with MiFID II at least for the foreseeable future.

Regulatory matters

The Company is currently under investigation by the FCA in relation to certain trades undertaken between 2008 and 2011, including trades which are risk free, with no commercial rationale or economic purpose, on which brokerage was paid, and trades on which brokerage may have been improperly charged. As part of its investigation, the FCA is considering the extent to which during the relevant period (i) the Company's systems and controls were adequate to manage the risks associated with such trades and (ii) whether certain of the Company's managers were aware of, and/or managed appropriately the risks associated with, the trades. The FCA is also reviewing the circumstances surrounding a failure in 2011 to discover certain audio files and produce them to the FCA in a timely manner. As the investigation is ongoing, any potential liability arising from it cannot currently be quantified.

Financial Performance

Our key financial and performance indicators for the first half of 2016 are summarised in the table below together with comparatives from the equivalent period in 2015.

 
                                           H1 2016   H1 2015**      Change 
                                        ----------  ----------  ---------- 
 
 Broking Revenue                         GBP398.5m   GBP388.5m        -0%* 
 Information Sales/RMS Revenue            GBP31.8m    GBP27.2m       +15%* 
 Total Revenue                           GBP430.3m   GBP415.7m        +1%* 
 
 Underlying Operating profit              GBP67.0m    GBP60.6m        +11% 
 Underlying Operating margin                 15.6%       14.6%    +1.0% pt 
 
 Average broker headcount                    1,713       1,730         -1% 
 
 Average revenue per broker (GBP'000)          233        231*        +0%* 
 
 Broker compensation costs: broking 
  revenue                                    53.2%       54.5%   -1.3% pts 
 
 Period end broker headcount                 1,707       1,739         -2% 
 
 Period end broking support headcount          815         817         -0% 
 
 *At constant exchange rates 
 **H1 2015 comparative data that relates to headcount and 
  headcount derived metrics has been restated to ensure consistency 
  with the current period.

Average broker headcount during the first half of 2016 was 1% lower than during the first half of 2015, with a 1% increase in average revenue per broker, resulting in broking revenue being flat year on year (at constant exchange rates).

Operating Review

The tables below analyse revenue by region and by product group, and underlying operating profit by region, for the first half of 2016 compared with the equivalent period in 2015.

Revenue

A significant proportion of the group's activity is conducted outside the UK and the reported revenue is therefore impacted by the movement in the foreign exchange rates used to translate the revenue from non-UK operations. The comparative data in the tables below therefore show revenue for H1 2015 translated at the same exchange rates as those used for H1 2016, with growth rates calculated on the same basis. The revenue figures as reported for H1 2015 are shown in Note 5 to the Condensed Consolidated Financial Statements.

The commentary below reflects the presentation in the tables.

 
 Revenue by product group      H1 2016   H1 2015    Change 
                                  GBPm      GBPm 
 
 Energy and Commodities          117.6     104.9      +12% 
 Interest Rate Derivatives        70.2      77.8      -10% 
 Fixed Income                     88.8      96.7       -8% 
 Treasury Products                94.3      98.6       -4% 
 Equities                         27.6      22.3      +24% 
 Information Sales and RMS        31.8      27.6      +15% 
                              --------  --------  -------- 
 At constant exchange rates      430.3     427.9       +1% 
 Exchange translation                     (12.2) 
 Reported                        430.3     415.7       +4% 
                              ========  ========  ========

Revenue in the first half of 2016 was 1% higher than in the equivalent period in 2015 at constant exchange rates. The growth in Energy and Commodities, Equities and in Information Sales and RMS, has been partly offset by lower volumes from subdued activity in the traditional interdealer broker product groups of Treasury Products (FX and cash), Interest Rate Derivatives and Fixed Income. Energy and Commodities continues to be the business's largest product group by revenue.

Revenue from Energy and Commodities was 12% higher than in H1 2015, reflecting the benefit from the acquisition of MOAB and higher levels of activity in the oil markets generally, and the development of our activities in this sector in all three regions.

Equities revenue was 24% higher than in H1 2015. Our Equities businesses, which are primarily focused on equity derivatives, continue to perform well in all three regions where we have benefited from the higher levels of volatility in equity markets compared with the same period last year, and from the investments we have made in broadening our product coverage, including alternative investments and real estate instruments.

Revenue from Information Sales and RMS was 15% higher than last year's comparative period. The Information Sales business has benefited from the growing client demand for independent data for use in risk management, compliance and valuation, and has increased revenue by adding new data content sets and through broadening its customer base, notably in the energy sector. The continuing investment in sales and marketing in the RMS business has enabled the business to benefit from increased activity in Asia and the anticipation of upward momentum in US short rates which has driven participation in our USD product.

 
                                   Revenue                                   Underlying Operating 
                                                                                     profit 
                  ----------------------------------------        ------------------------------------------ 
 GBPm              H1 2016   H1 2015         Change                H1 2016     H1 2015         Change 
                                       Reported   Constant                               Reported   Constant 
 
 Europe and the 
  Middle East        234.2     241.9        -3%     -5%               47.5        46.3        +3%        +4% 
 Americas            134.1     117.9       +14%     +8%               10.8         7.1       +52%       +21% 
 Asia Pacific         62.0      55.9       +11%     +6%                8.7         7.2       +21%        +6% 
                  --------  --------  ---------  ---------        --------  ----------  ---------  --------- 
 Reported            430.3     415.7        +4%     +1%               67.0        60.6       +11%        +7% 
                  ========  ========  =========  =========        ========  ==========  =========  ========= 
  Underlying Operating margin by region                                  H1 2016          H1 2015 
 
 Europe and the Middle East                                                20.3%            19.1% 
 Americas                                                                   8.1%             6.0% 
 Asia Pacific                                                              14.0%            12.9% 
                                                                  --------------  --------------- 
                                                                           15.6%            14.6% 
                                                                  ==============  ===============

Europe and the Middle East

Revenue in Europe and the Middle East was 3% lower than the comparative period as reported and 5% lower at constant exchange rates. The broking revenue in the region was 4% lower than last year as reported (6% lower at constant exchange rates), partly offset by growth in revenue from Information Sales and RMS.

The broking business in the region continues to face difficult market conditions in many of the traditional major product areas. Revenue from government and corporate bonds, and from cash and interest rate derivatives were all lower than last year.

Revenue from Equities was higher benefiting from volatility in equity markets. Revenue from Energy and Commodities was slightly up on the prior period with higher revenues from oil and other commodities offset by lower revenue in gas products. Energy and Commodities continues to be the largest product group by revenue in the region, and accounts for over one third of the region's total revenue.

Average broker headcount in the region was 3% lower than last year with average revenue per broker also down 3%. Period end broker headcount was 790.

The operating performance in Europe and the Middle East showed improvements. Despite a 3% decline in revenue, operating profit increased by 3% (4% higher at constant exchange rates) as the operating margin improved to 20.3%. While trading volumes were down, as commented above, broker compensation was lower as a result of the cost improvement programme that commenced at the end of 2015, leading to an increased contribution on revenues from the traditional products. The improved contribution margin together with foreign exchange movements drove the 1.2% points increase in operating margin.

Americas

Revenue in the Americas was 14% higher than the comparative period as reported and 8% higher at constant exchange rates. The region has benefited significantly from the recent investments in Energy and Commodities, particularly the acquisition of MOAB in 2015, and Energy and Commodities activities now make up 19% of the total revenue in the region.

The investments made in the Equities business over the last two years have resulted in continued revenue growth in that area in the period and more than offset declines in product areas impacted by lower levels of market activity where the business is particularly dependent on serving the traditional interdealer broker client base, most notably corporate bonds Fixed Income as well as revenue from Treasury Products (other than Forward FX).

Average broker headcount in the Americas was 3% lower than in 2015, with average revenue per broker 12% higher. Period end broker headcount in the Americas was 531.

In the Americas broker compensation was reduced following the cost improvement programme leading to improved contribution. The MOAB business performed ahead of expectation and this performance combined with the improved contribution margin in the US business and favourable foreign exchange movements drove the 52% increase in operating profit (21% higher at constant exchange rates) and the 2.1% points improvement in operating margin.

Asia Pacific

Revenue in Asia Pacific was 11% higher than last year as reported and 6% higher at constant exchange rates, reflecting the benefit of investments made in the region and increased revenue from the RMS businesses operated from the region.

The broking revenue in the region has benefited from the investment made in our Fixed Income broking capability, most notably the hiring of a Hong Kong-based Credit and Bond desk, which more than offset the negative impact of the continuing trend towards risk aversion in our core customer base of banks, and the impact of a low interest rate and flat yield curve environment in many key markets. We continued to develop our Energy and Commodities broking activities which now account for more than one sixth of the region's total broking revenue.

Specific headwinds that faced the Asian business included the reduction in activity in offshore Chinese markets. However, while this had a direct negative impact on certain desks, we benefited from some indirect effects such as volatility in other Asian currencies. The impact on revenue was partially offset by the benefit of improved market conditions in Japanese Yen forward currency products in the first half. Revenue from Interest Rate Derivatives was lower than last year but there was a pick-up in Equity derivatives revenue reflecting the benefit of restructuring of our business in the region.

Average broker headcount in the region was 7% higher than in 2015 with average revenue per broker down 3%. Period end broker headcount in Asia Pacific was 387. Operating performance showed a 21% improvement in operating profit (6% higher at constant exchange rates) and the 1.1% points increase in operating margin.

The performance of our Chinese associate, TP Sitico, is also a key part of our Asian business and its increasingly positive results are included within the share of results of associates in the Income Statement.

Financial Review

The results for the first half of 2016 compared with those for the first half of 2015 are shown in the tables below.

 
 H1 2016 
-------------------------------------  -------------  -----------------  ----------- 
                                                            Exceptional 
   Income Statement                                     and acquisition 
   GBPm                                   Underlying      related items     Reported 
 
 Revenue                                       430.3                           430.3 
                                       -------------  -----------------  ----------- 
 
 Operating profit                               67.0                            67.0 
 Charge relating to cost improvement 
  programme                                                       (5.2)        (5.2) 
 Acquisition costs related to 
  IGBB                                                            (9.5)        (9.5) 
 Acquisition related share-based 
  payment charge                                                  (5.5)        (5.5) 
 Amortisation of intangible assets 
  arising on consolidation                                        (0.6)        (0.6) 
 Other acquisition and disposal 
  items                                                           (0.8)        (0.8) 
 
 Operating profit                               67.0             (21.6)         45.4 
 Net finance expense                           (6.7)              (3.2)        (9.9) 
                                       -------------  -----------------  ----------- 
 Profit before tax                              60.3             (24.8)         35.5 
 
 Tax                                          (10.8)                2.9        (7.9) 
 Share of results of associates                  1.7                             1.7 
 Minority interests                            (0.3)                           (0.3) 
                                       -------------  -----------------  ----------- 
 Earnings                                       50.9             (21.9)         29.0

                                       =============  =================  =========== 
 
 Average number of shares                     242.7m                          242.7m 
 Basic EPS                                     21.0p                           11.9p 
 
 
 H1 2015 
------------------------------------------------------------------------------------ 
                                                          Exceptional 
   Income Statement                                   and acquisition 
   GBPm                                 Underlying      related items     Reported 
 
 Revenue                                     415.7                           415.7 
                                     -------------  -----------------  ----------- 
 
 Operating profit                             60.6                            60.6 
 Credit relating to major legal 
  actions                                                        64.4         64.4 
 Acquisition related share-based 
  payment charge                                                (5.2)        (5.2) 
 Amortisation of intangible assets 
  arising on consolidation                                      (0.7)        (0.7) 
 Other acquisition and disposal 
  items                                                         (0.3)        (0.3) 
 
 Operating profit                             60.6               58.2        118.8 
 Net finance expense                         (7.7)                           (7.7) 
                                     -------------  -----------------  ----------- 
 Profit before tax                            52.9               58.2        111.1 
 
 Tax                                        (10.8)             (12.9)       (23.7) 
 Share of results of associates                1.2                             1.2 
 Minority interests                          (0.3)                           (0.3) 
                                     -------------  -----------------  ----------- 
 Earnings                                     43.0               45.3         88.3 
                                     =============  =================  =========== 
 
 Average number of shares                   243.6m                          243.6m 
 Basic EPS                                   17.7p                           36.2p

Exceptional and acquisition related items

The GBP5.2m charge in H1 2016 relating to the cost improvement programme is in respect of actions taken during the period that had been planned but not finalised during 2015. We do not expect to incur any further costs as part of this programme.

The GBP9.5m charge in H1 2016, relating to acquisition costs of IGBB, reflects legal and professional costs incurred in relation to the agreement to acquire ICAP's global hybrid voice broking and information business.

The Company completed the acquisition of PVM on 26 November 2014. The payment to each individual vendor of their share of up to $48m of deferred compensation (which is 'consideration' subject to the achievement of revenue targets in the three years after completion) is linked to their continued service with the business, and is therefore charged through the income statement over the three year period. The charge recognised in H1 2016 is GBP5.5m (H1 2015: GBP5.2m).

Intangible assets other than goodwill of GBP9.5m arising on the acquisition of PVM relate to the PVM brand and the value of customer relationships. This amount is being amortised through the income statement over the estimated useful lives of those assets. The amortisation charge recognised in H1 2016 is GBP0.6m (H1 2015: GBP0.7m).

The other acquisition and disposal item in the period is an adjustment to the deferred consideration for PVM and MOAB.

Net finance expense

The underlying net cash finance charge comprises the GBP7.0m interest payable on the Sterling Notes, the commitment fees for the revolving credit facility ("RCF") of GBP1.2m, GBP0.8m of amortisation of debt issue and arrangement costs, partly offset by other net interest income of GBP0.9m.

The underlying net non-cash finance income comprises the deemed interest on the pension scheme net asset of GBP1.6m, partly offset by the unwinding of discounted provisions of GBP0.2m.

The acquisition related finance expense comprises: GBP3.1m of commitment fees and amortisation of arrangement costs relating to the GBP470m bank bridge facility that the Company entered into in November 2015, and GBP0.1m relating to the unwinding of the discount on deferred consideration relating to the acquisition of PVM.

Tax

The effective rate of tax on underlying PBT is 18.0% (H1 2015: 20.5%). The effective rate of tax reflects the estimated effective rate for the full year. The reduction in the effective rate reflects the benefit of increased taxable profits in the USA being sheltered by previously unrecognised tax losses, a change in mix of taxable profits in the period from lower tax jurisdictions and the reduction in the UK statutory rate of corporation tax to 20.0% for 2016, 0.25% points lower than for 2015.

The tax charge on exceptional and acquisition related items reflects the net of tax charges and tax relief recognised on those items at the relevant rate for the jurisdiction in which the charges are borne. No tax relief has been recognised on the exceptional charges and credits arising in the USA in either 2016 or 2015 due to the tax losses available in that jurisdiction.

Basic EPS

The average number of shares used for the basic EPS calculation of 242.7m reflects the 243.5m shares in issue at the beginning of the year, less a pro rata element of the 1.7m shares that were market purchased in March 2016 for the special and deferred equity awards awarded to senior management plus the 0.3m shares that are issuable when vested options are exercised, less the 0.2m shares held throughout the year by the Employee Benefit Trust which has waived its rights to dividends.

Dividend

In previous years the Company's interim dividend has been set at a level equal to 50% of the final dividend for the preceding financial year; this approach is expected to continue for 2016 subject to the mechanism described below.

The acquisition of IGBB is expected to complete towards the end of 2016 and, therefore, the results for the full year are expected to include a contribution from IGBB for a short period. The Board wishes to ensure that the dividends paid to shareholders recognise their period of ownership of the Company and in this regard notes that the ICAP shareholders will be receiving new Tullett Prebon shares issued at the time of completion.

The Board has declared a first interim dividend of 5.6p to be paid on 14 November to the shareholders on the register at close of business on 2 September.

The Board announces its intention to declare a second interim dividend as soon as the date of completion can be determined with reasonable certainty. The second interim dividend will be paid on the earlier of 17 days after completion and 12 May 2017 (being the anticipated date for payment of the final dividend in respect of the current financial year), with a record date being at the close of business on the earlier of the last eligible business day preceding completion, and 28 April 2017 (being the anticipated record date for this year's final dividend). The amount of the second interim dividend will be based on the expected annual dividend for the current financial year of 16.85p but apportioned so as to reflect the proportion of the financial year that has elapsed prior to completion, less the amount of the first interim dividend.

The Board expects that the final dividend for the year will be 16.85p less the amounts of the first and second interim dividends, and will be paid on 12 May 2017.

Exchange rates

The income statements and balance sheets of the Group's businesses whose functional currency is 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, the Euro, the Singapore dollar and the Japanese Yen. Average and period end exchange rates used in the preparation of the financial statements are shown below.

 
                     Average                       Period End 
                    ----------------------------  ---------------------------- 
                     H1 2016   H1 2015   H2 2015   30 Jun    31 Dec    30 Jun 
                                                    2016      2015      2015 
 
 US dollar           $1.44     $1.53     $1.54     $1.34     $1.47     $1.57 
 Euro                EUR1.30   EUR1.36   EUR1.40   EUR1.20   EUR1.36   EUR1.41 
 Singapore dollar    S$2.00    S$2.06    S$2.14    S$1.80    S$2.09    S$2.12 
 Japanese Yen        Yen164    Yen183    Yen188    Yen137    Yen177    Yen192

Cash flow

 
                                                   H1 2016   H1 2015 
                                                      GBPm      GBPm 
 
 Underlying Operating profit                          67.0      60.6 
 Share-based compensation and other non-cash 
  items                                                2.9       0.3 
 Depreciation and amortisation                         7.8       7.4 
 EBITDA                                               77.7      68.3 
 
 Capital expenditure (net of disposals)              (5.1)     (6.3) 
 Decrease/(increase) in initial contract 
  prepayment                                           0.6     (2.2) 
 Other working capital                              (28.8)    (13.7) 
                                                  --------  -------- 
 Operating cash flow                                  44.4      46.1 
 
 Exceptional items - cost improvement programme     (17.0)         - 
  2015 
 Exceptional items - cost improvement programme 
  2014                                               (0.6)     (3.8) 
 Exceptional items - restructuring 2011/2012         (0.2)     (0.2) 
 Exceptional items - major legal actions 
  net cash flow                                          -      64.4

 Acquisition costs related to IGBB                   (9.5)         - 
 Share award purchases                               (6.2)         - 
 Interest                                            (1.9)     (2.1) 
 Taxation                                           (10.7)     (4.6) 
 Dividends received from associates/(paid)             1.9         - 
  to minorities 
 Acquisition consideration/investments 
  (net of disposals)                                     -     (0.5) 
 
 Cash flow                                             0.2      99.3 
                                                  ========  ========

Capital expenditure of GBP5.1m includes the development of electronic platforms and 'straight through processing' technology, and investment in IT and communications infrastructure.

Initial contract payments in 2016 were broadly in line with the amortisation charge.

The working capital outflow reflects the higher level of trade receivables and settlement balances at June compared with the level at the previous year end, due to the higher level of business activity towards the end of the half year compared with that towards the year end, and the reduction in bonus accruals which are at their highest at the year end.

During the first half of 2016 the group made GBP17.0m of cash payments relating to actions taken under the 2015 cost improvement programme, GBP0.6m relating to the 2014 cost improvement programme, and GBP0.2m relating to the 2011/12 restructuring programme.

The GBP9.5m of costs relating to the acquisition of IGBB are in line with the charge in the income statement.

The Company incurred GBP6.2m of costs relating to the purchase of its own shares to satisfy deferred equity awards made to senior management in the period.

Tax payments in the period of GBP10.7m include GBP8.7m paid in the UK, an increase compared with the prior year largely due to the phasing of payments relating to the BGC receipt in 2015. Tax payments in the United States continue to be at low levels reflecting the use of tax losses.

The movement in cash and debt is summarised below.

 
 GBPm                                  Cash      Debt      Net 
 
 At 31 December 2015                  379.2   (220.2)    159.0 
 Cash flow                              0.2         -      0.2 
 Dividends                           (27.2)         -   (27.2) 
 Bank facility fees                   (2.9)         -    (2.9) 
 Amortisation of debt issue costs         -     (0.3)    (0.3) 
 Effect of movement in exchange 
  rates                                20.7         -     20.7 
 
 At 30 June 2016                      370.0   (220.5)    149.5 
                                    =======  ========  =======

Debt Finance

The composition of the group's outstanding debt is summarised below.

 
                                   At 30   At 31   At 30 
                                     Jun     Dec     Jun 
 GBPm                               2016    2015    2015 
 
 7.04% Sterling Notes July 2016    141.1   141.1   141.1 
 5.25% Sterling Notes June 2019     80.0    80.0    80.0 
 Unamortised debt issue costs      (0.6)   (0.9)   (1.1) 
 
                                   220.5   220.2   220.0 
                                  ======  ======  ======

The Company drew down GBP140m of its GBP250m committed RCF in July to repay the GBP141.1m Sterling Notes on their maturity. This drawing will be repaid when the acquisition of IGBB completes, at which time the Company will draw down the committed GBP470m bank bridge facility which it entered into in November 2015. The bank bridge facility will also be used to repay the GBP330m debt that will be acquired with IGBB.

The GBP250m revolving credit facility matures in April 2019 and the bank bridge facility has a final maturity in December 2017.

Outlook

We achieved a good overall financial performance in the first half of 2016 against the backdrop of a trading environment that continues to be challenging and subdued client demand. Our strategic review concluded that the central role played by interdealer brokers at the heart of the global wholesale OTC markets remains secure, but a number of our traditional product areas continue to show declines.

It is not possible to predict when the structural and cyclical factors currently adversely affecting the interdealer broker industry will ease, or when the level of activity in the wholesale OTC financial markets may increase. Our recent performance has benefited from the investment we have made in the Energy and Commodities sectors where we serve a more diverse and larger client base and where markets, particularly in oil and oil related financial instruments, have remained buoyant but this level of activity may not persist.

We will continue to invest in the business' capabilities to identify and implement business initiatives and roll out our cultural, legal, compliance and risk governance frameworks to deliver on our commitment to instil the highest standards of conduct. These investments coupled with increasing regulatory costs continue to bring pressure on our margins. However, we believe they make us a more robust and attractive service provider for our clients.

We will look to invest in opportunities to grow our revenue and raise the quality and quantity of our earnings through diversification of the client base. We continue to pursue our goal to become the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking. The agreement for the acquisition of IGBB provides a unique opportunity to accelerate the delivery of our strategy, and we are in the process of planning the integration of the two businesses to be implemented after completion of the transaction which we expect will be later this year.

Condensed Consolidated Income Statement