Notes to the Group Financial Statements
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| 8. Discontinued operations (Brokerage) | ||
| On 30 March 2007 the Group Board announced that it intends to separate its Brokerage business, effected by an initial public offering on the New York Stock Exchange of a majority interest in the Brokerage business (to be renamed ‘MF Global’) and is intended to take place in the third calendar quarter of 2007, subject to market conditions remaining favourable and shareholder approval. As a result, Brokerage has been reclassified as a discontinued operation in these financial statements. | ||
| Results for discontinued operations comprise: | ||
| 2007 $m |
Restated+ 2006 $m |
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| Revenue | 2,392 | 1,537 |
| Cost of sales | (1,445) | (912) |
| Other operating income (a) | 85 | 12 |
| Other operating expenses | (3) | – |
| Administrative expenses (b) | (779) | (560) |
| Operating profit from discontinued operations (c) | 250 | 77 |
| Net finance income (d) | 11 | 5 |
| Share of after tax profit of associates and joint ventures | 2 | – |
| Profit before tax from discontinued operations | 263 | 82 |
| Taxation | (89) | (28) |
| Profit after tax from discontinued operations | 174 | 54 |
| (a) Included in other operating income are exceptional items relating to: | ||
| Gain on sale of NYMEX seats | 53 | – |
| Income received from a legal settlement | 28 | – |
| (b) Included in administrative expenses are exceptional items relating to: | ||
| Costs directly relating to the planned sale of Brokerage | (35) | – |
| Termination costs in relation to US pension schemes | (18) | – |
| Costs directly relating to a legal settlement | (10) | – |
| Refco integration costs | (12) | (70) |
| (c) Operating profit from discontinued operations is after charging: | ||
| Fair value gains on available for sale financial assets (transfer from equity) | (58) | (12) |
| Amortisation of other intangibles | 18 | 7 |
| Depreciation of property, plant and equipment | 16 | 12 |
| Operating lease rentals – land and buildings | 12 | 6 |
| (d) Net finance income comprises: | ||
| Finance income | 175 | 94 |
| Finance expense | (164) | (89) |
| 11 | 5 | |
| +The restatement in the comparative period relates to the classification of Brokerage as a discontinued operation. A fuller explanation is given in Policy C in the Principal Accounting Policies section. In addition, revenue and cost of sales have been amended to reduce both lines by $106 million to eliminate intra-group transactions. | ||
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| Staff costs of discontinued operations comprise: | ||
| 2007 $m |
2006 $m |
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| Wages and salaries | 635 | 421 |
| Share based payment charge | 22 | 19 |
| Social security costs | 52 | 44 |
| Other pension costs | 36 | 10 |
| 745 | 494 | |
| Average number of employees of discontinued operations: | ||
| 2007 Number |
2006 Number |
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| 3,174 | 2,067 | |
| Analysis of tax charge in the period for discontinued operations: | ||
| 2007 $m |
2006 $m |
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| Current tax | ||
| UK Corporation tax on profits of the year | 69 | 39 |
| Adjustments to tax charge in respect of previous periods | – | 2 |
| Foreign tax | 22 | 2 |
| Adjustments to tax charge in respect of previous periods | (4) | – |
| Total current tax | 87 | 43 |
| Deferred tax: | ||
| Origination and reversal of temporary differences | (1) | (15) |
| Adjustments to tax charge in respect of previous periods | 3 | – |
| Total tax charge | 89 | 28 |
| Tax on items (credited) charged to equity: | 9 | – |
| Current tax | (19) | (22) |
| Deferred tax | (10) | (22) |
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| Balance sheet reclassification of discontinued operations comprise: | |||
| 2007 $m |
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| Assets of the disposal group held for sale: | |||
| Property, plant and equipment (Note 12) | 44 | ||
| Goodwill (Note 13) | 103 | ||
| Other intangible assets (Note 13) | 191 | ||
| Investments in associates and joint ventures (Note 14) | 12 | ||
| Other non-current investments (Note 15) | 484 | ||
| Deferred tax assets (Note 16) | 12 | ||
| Non-current receivables (Note 17) | 264 | ||
| Trade and other receivables (Note 18): | |||
| Amounts owed by broker dealers on secured stock lending and borrowing | 24,187 | ||
| Securities transactions in the course of settlement | 2,517 | ||
| Futures transactions | 714 | ||
| Reverse repurchase contracts | 3,589 | ||
| Other trade receivables | 942 | ||
| Prepayments and accrued income | 86 | ||
| Other categories of receivables | 62 | ||
| Current tax assets | 32,097 | ||
| Short-term investments (Note 20): | 3 | ||
| Long stock positions held for matching CFD positions in Brokerage | 7,053 | ||
| Treasury bills | 5,872 | ||
| Mutual funds | 72 | ||
| Certificates of deposit | 2,052 | ||
| Clearing house deposits | 45 | ||
| 15,094 | |||
| Cash and cash equivalents | 1,858 | ||
| 50,162 | |||
| Intra-Group assets held for sale (amounts owed from continuing operations) | 623 | ||
| 50,785 | |||
| Liabilities of the disposal group held for sale: | |||
| Deferred tax liabilities (Note 16) | 62 | ||
| Non-current trade payables (Note 21) : | |||
| Repurchase contracts | 261 | ||
| Short inventory | 257 | ||
| Other creditors | 518 | ||
| Trade and other payables (Note 21): | 9 | ||
| Amounts owed to broker dealers on secured stock lending and borrowing | 27,727 | ||
| Securities transactions in the course of settlement | 4,821 | ||
| Futures transactions | 2,273 | ||
| Short stock positions held for hedging | 1,147 | ||
| Repurchase contracts | 4,203 | ||
| Short inventory | 3,589 | ||
| Other trade payables | 3,317 | ||
| Other taxation and social security costs | 1 | ||
| Accrued expenses | 359 | ||
| Other categories of payables | 37 | ||
| 47,474 | |||
| Current tax liabilities | 24 | ||
| Short-term borrowings and overdrafts (Note 22) | 8 | ||
| 48,095 | |||
| Intra-Group liabilities held for sale | 2,047 | ||
| 50,142 | |||
| The intra-Group balances with continuing operations are shown in the above table to show the actual net asset position of Brokerage. | |||
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| The financial assets and financial liabilities of discontinued operations are denominated in the following currencies: | |||||
| US dollar $m |
Sterling $m |
Euro $m |
Other $m |
Total $m |
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| Financial assets: | |||||
| Other non-current investments | 475 | 2 | 3 | 4 | 484 |
| Non-current receivables | 257 | 4 | – | 3 | 264 |
| Trade and other receivables | 19,735 | 6,946 | 5,416 | – | 32,097 |
| Short-term investments | 7,983 | 5,765 | 679 | 667 | 15,094 |
| Cash and cash equivalents | 1,457 | 23 | 86 | 292 | 1,858 |
| 29,907 | 12,740 | 6,184 | 966 | 49,797 | |
| Financial liabilities: | |||||
| Non-current trade payables | 518 | – | – | – | 518 |
| Other creditors | 7 | – | – | 2 | 9 |
| Current trade and other payables | 26,644 | 13,635 | 6,422 | 773 | 47,474 |
| Short-term borrowings and overdrafts | 7 | – | – | 1 | 8 |
| 27,176 | 13,635 | 6,422 | 776 | 48,009 | |
| The financial assets and financial liabilities of discontinued operations attract the following types of interest rates: | |||||
| Floating rate $m |
Fixed rate $m |
Non-interest bearing $m |
Total $m |
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| Financial assets: | |||||
| Other non-current investments | – | 261 | 223 | 484 | |
| Non-current receivables | 3 | 257 | 4 | 264 | |
| Trade and other receivables | 263 | 3,589 | 28,245 | 32,097 | |
| Short-term investments | 40 | 4,559 | 10,495 | 15,094 | |
| Cash and cash equivalents | 1,124 | – | 734 | 1,858 | |
| 1,430 | 8,666 | 39,701 | 49,797 | ||
| Financial liabilities: | |||||
| Non-current trade payables | – | 518 | – | 518 | |
| Other creditors | – | – | 9 | 9 | |
| Trade and other payables | 29,134 | 7,893 | 10,447 | 47,474 | |
| Short-term borrowings and overdrafts | – | – | 8 | 8 | |
| 29,134 | 8,411 | 10,464 | 48,009 | ||
| As required by the United Kingdom Financial Services and Markets Act 2000 and by the US Commodity Exchange Act, the discontinued operation maintains certain balances on behalf of clients with banks, exchanges, clearing houses and brokers in segregated accounts totalling, at 31 March 2007, $15,927 million (2006: $14,796 million). | |||||