Tullett Prebon plc Annual Report 2010
Operating proﬁt of £152.4m was 11% lower than for 2009 with the operating margin at 16.8% compared to 18.0% for 2009. There is some operational leverage in the business and the reduction in operating margin primarily reﬂects the effect of the reduction in revenue in North America. In addition broker compensation as a percentage of broking revenue increased by 0.5% points to 58.5% due to the increased costs of employment in North America as a result of the unlawful poaching raid on the business by BGC, and the initial inefﬁciencies experienced as the affected desks were re-established. The 5% reduction in broking support headcount reﬂects cost reduction action taken in North America. Litigation On 18 March 2010 Judgment was handed down in the legal action that the Company had taken in London against BGC, two of BGC’s senior directors and 10 former Company brokers, in response to a raid by BGC in early 2009 on the London business. The Judge held that there was an unlawful conspiracy between BGC and its two senior directors to poach the Company’s employees and that the Company was and is entitled to a 12 month injunction against all but one of the former brokers, and also against BGC, as well as ﬁnancial remedies. The Judge dismissed BGC’s counter-claim against the Company. BGC’s appeal against some of the grounds in the Judgment was heard in December 2010. On 22 February 2011 the Court of Appeal handed down its Judgment which rejected all the appeals lodged by BGC. The Company is seeking substantial damages from BGC. The damages trial has been ﬁxed for four weeks commencing in March 2011. Legal action continues to be pursued against BGC and former employees in the United States. The subsidiary companies in the United States directly affected by the raid have brought a claim against BGC in arbitration pursuant to the rules of the Financial Industry Regulatory Authority (‘FINRA’). The outcome of this case is unlikely to be determined before 2012. A separate action brought by Tullett Prebon plc issued in the United States Court for the District of New Jersey against BGC alleging, among other causes of action, violations of the New Jersey RICO statute has been dismissed, and is under appeal. This case was dismissed by the Judge on technical grounds, in part based on the pendency of the FINRA arbitration, and which did not consider the merits of the claim. This appeal is likely to be heard in 2012. Legal action also continues to be pursued against former employees in Hong Kong and Singapore who have unlawfully terminated their employment with the Company in order to join BGC.
The tables on pages 09 and 10 analyse revenue and operating proﬁt for 2010 compared with 2009. A signiﬁcant proportion of the Group’s activity is conducted outside the UK and the reported results are therefore impacted by the movement in the foreign exchange rates used to translate the results of non-UK operations. In order to give a more meaningful analysis of performance, revenue and operating proﬁt growth rates for 2010 shown on pages 09 and 10 are presented both as reported, and calculated using translation exchange rates for 2009 consistent with those used for 2010. The following commentary refers to growth rates at constant exchange rates. Revenue in most product areas was higher in 2010 than 2009 reﬂecting the strength of the business in the traditional ‘ﬂow’ products of foreign exchange and interest rate swaps, and the continuing development of the Energy business. Within Treasury Products, good growth in forward FX in all three regions, particularly in emerging market forward FX including non-deliverable forwards, offset a decline in revenue from cash and deposits broking. FX options revenue was little changed. Similarly, within Interest Rate Derivatives, revenue growth was driven by the strong performance in emerging market interest rate derivatives across all three regions. Revenue from G7 interest rate swaps and interest rate options was also higher than last year. The decline in revenue in Fixed Income reﬂects the impact of the broker defections in North America, together with the decline in activity in credit derivatives in both Europe and North America, and in agency bonds in North America. The traditional ‘ﬂow’ European government bond business continued to perform well, boosted by the volatility in those markets in periods during the year, and the business increased market share in exchange traded futures and options. In Equities, the decline in revenue was primarily driven by reductions in activity in cash equities, including the equities business acquired with Chapdelaine that was exited as part of the satellite ofﬁce closures. Revenue from equity derivatives was also slightly lower than last year. Energy markets were relatively buoyant during the year and the Energy business in Europe which covers power, gas and oil products performed strongly, and offset a decline in revenue from the Energy business in North America which is mainly focused on power products.