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5 Apr 2018 15:13
5 April 2018
TP ICAP plc 2017 Annual Report
TP ICAP plc (the "Company") has today published its 2017 Annual Report and circular to shareholders incorporating the Notice of the 2018 Annual General Meeting. Both documents can be viewed at or downloaded from www.tpicap.com/investors.
Copies of both these documents, together with the Form of Proxy, will shortly be available for inspection via the National Storage Mechanism at www.morningstar.co.uk/uk/nsm.do.
The following disclosures comply with Disclosure and Transparency Rule 6.3.5. The Company's full year results announcement of 13 March 2018 contained a management report and condensed financial information derived from the Group's audited statutory accounts. A description of risks and uncertainties, details of related party transactions and the Directors' Responsibility Statement, extracted in full unedited text from the 2017 Annual Report, are set out below. This information should be read in conjunction with, and not as a substitute for, reading the full 2017 Annual Report. Page numbers and notes in the following appendices refer to page numbers and notes in the Company's 2017 Annual Report.
Appendix A: Principal Risks
The Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
In undertaking this assessment on behalf of the Board, the Risk Committee has considered a wide range of information, including regulatory requirements, reports provided by the Risk function, presentations by senior management and the findings from the Group's 'bottom-up' and 'top-down' risk assessment processes.
Risk
Adverse change to regulatory framework
Description
The Group is exposed to the risk of a fundamental change to the regulatory framework which has a material adverse impact on its business and economic model.
Potential impact
> | Reduction in broking activity |
> | Reduced earnings and profitability |
> | Material change in applicable regulatory rules and their interpretation including loss of consolidation waiver |
Change in risk exposure since 2016
Increase
Mitigation
> | Close monitoring of regulatory developments |
> | Active involvement in consultation and rule setting processes |
Key risk indicator
> | Key regulatory changes |
> | Status of regulatory change initiatives |
Related strategic objectives (4, 8)
> | Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can be created |
> | Continuing to develop the Data & Analytics business where the product suite and delivery channels can be expanded |
Risk
Deterioration in the commercial environment
Description
The risk that due to adverse macro-economic conditions or geopolitical developments, market activity is suppressed leading to reduced trading volumes.
Potential impact
> | Reduction in broking activity |
> | Reduced earnings and profitability |
Change in risk exposure since 2016
No change
Mitigation
> | Clearly defined business development strategy to maintain geographical and product diversification |
Key risk indicator
> | Operating profit |
> | Revenues by region |
> | Trade volumes |
> | Revenue forecast |
> | Stress testing scenario outcomes |
Related strategic objectives (1,2,3,10)
> | Seeking to improve the business's brand awareness and coverage |
> | Extending the business's broking offering to service clients where the market is receptive to a broadening of the client base |
> | Seeking to continue to build the business's activities in energy and commodities products |
> | Seeking to add brokers to maintain and grow presence in those products with high market attractiveness where the business has a high ability to compete, and where its presence can be developed |
Risk
Failure to respond to client requirements
Description
The risk that the Group fails to respond to rapidly changing customer requirements, including the demand for enhanced electronic broking solutions for certain asset classes.
Potential impact
> | Loss of market share |
> | Reduced earnings and profitability |
Change in risk exposure since 2016
No change
Mitigation
> | Proactive engagement with clients through customer relationship management process |
> | Clearly defined business development strategy which continues to enhance the Group's service offering |
Key risk indicator
> | Operating profit |
> | Trade volumes |
> | New business initiatives |
> | Client satisfaction surveys |
Related strategic objectives (5,6)
> | Investing in technology and realigning the mix between owned and outsourced platforms to maximise the business's intellectual property to ensure that the business has the technology capabilities that customers seek |
> | Investing in client relationship management to bring focus and discipline to how the business targets and covers clients, to seek to broaden and institutionalise relationships |
Risk
The impact of Brexit
Description
The risk that the Group is unable to implement the legal structure to operate within the EU post-Brexit in a timely manner putting revenue at risk. Additionally, given the political uncertainty, the risk of a 'Hard Brexit' exists which may result in a fragmentation of liquidity across the sector and consequential reduction in trading volumes and revenue.
Potential impact
> | Reduction in broking activity |
> | Loss of market share |
> | Reduced earnings and profitability |
Change in risk exposure since 2016
New
Mitigation
> | Adoption of a Brexit plan which would accommodate a range of potential Brexit scenarios (including a 'Hard Brexit') |
> | Leveraging the Group's continental European footprint |
> | Proactive engagement with European regulators and clients |
Key risk indicator
> | Key regulatory changes |
> | Brexit plan tracking |
Related strategic objectives (3, 6)
> | Extending the business's broking offering to service clients where the market is receptive to a broadening of the client base |
> | Investing in client relationship management to bring focus and discipline to how the business targets and covers clients, to seek to broaden and institutionalise relationships |
Risk
Failure to deliver integration
Description
The risk that the Group fails to achieve the targeted operational efficiencies and associated synergies due to a failure to successfully integrate the ICAP business, or that the cost to achieve these synergies is too high.
Potential impact
> | Double running costs leading to reduced profitability |
> | Lack of investor confidence |
Change in risk exposure since 2016
Increase
Mitigation
> | Clearly defined integration plan |
> | Robust integration governance structure |
> | Management of synergies realised and monitoring of integration costs |
Key risk indicator
> | Integration plan tracking (status) |
Related strategic objectives (7)
> | Developing the business's capability to source, execute and integrate acquisitions |
Risk
Failure to retain and recruit talent
Description
The Group operates in a highly competitive recruitment market and is exposed to the risk that it fails to retain or recruit the employees required to deliver its strategy.
Potential impact
> | Potential loss of expertise and client relationships |
> | Increase in employee costs as the Group seeks to counter aggressive competitor activity |
Change in risk exposure since 2016
No change
Mitigation
> | Proactive management of broker contracts |
> | Competitive remuneration and performance management |
> | Early Careers Programme |
Key risk indicator
> | Complaints and conduct issues |
> | Voluntary leavers |
> | Performance appraisal ratings |
> | Training undertaken |
Related strategic objectives (9)
> | Developing the HR function and processes to hire and train staff and to manage compensation appropriately to encourage good long term behaviours |
Risk
Cyber-security and data protection
Description
The risk that the Group fails to adequately protect itself against cyber-attack and/or to adequately secure the data it holds, resulting in loss of operability as well as potential loss of critical business or client data.
Potential impact
> | Loss of revenue |
> | Remediation costs |
> | Severe damage to reputation |
> | Regulatory sanctions |
> | Payment of damages/compensation |
Change in risk exposure since 2016
Increase
Mitigation
> | Monitor and assess the evolving, and increasingly sophisticated, cyberthreat landscape |
> | Ensure that the Group's control framework is appropriate to address the potential cyber-threats to which it is exposed |
Key risk indicator
> | System outages |
> | Data loss events |
> | Cyber-security events/losses |
> | Vulnerability monitoring |
Related strategic objectives (5, 8)
> | Investing in technology and realigning the mix between owned and outsourced platforms to maximise the business's intellectual property to ensure that the business has the technology capabilities that customers seek |
> | Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can be created |
Risk
Operational failure
Description
The Group is exposed to operational risk in nearly every facet of its role as a hybrid voicebroker, including from its dependence on:
> | The accurate execution of a large numbers of processes, including those required to execute, clear and settle trades; and |
> | A complex IT infrastructure. |
Potential impact
> | Financial loss which could, in extreme cases, impact the Group's solvency and liquidity |
> | Damage to the Group's reputation as a reliable market intermediary |
Change in risk exposure since 2016
No change
Mitigation
> | Appropriate control framework to manage operational risk within risk appetite |
> | Reverse stress tests to identify key risks that could undermine the Group's viability |
> | Effective business continuity plans and capability |
> | Incident and crisis management plans |
Key risk indicator
> | Residual balances |
> | Risk events |
> | Crisis incidents |
> | Settlement fails |
> | Margin calls |
Related strategic objectives (5, 8)
> | Investing in technology and realigning the mix between owned and outsourced platforms to maximise the business's intellectual property to ensure that the business has the technology capabilities that customers seek |
> | Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can be created |
Risk
Breach of regulatory requirements
Description
The Group operates in a highly regulated environment and is subject to the laws and regulatory frameworks of numerous jurisdictions. Failure to comply with applicable regulatory requirements could result in enforcement action being taken. See Note 33 to the Consolidated Financial Statements.
Potential impact
> | Regulatory enforcement action including censure, fines or loss of operating licence |
> | Severe damage to reputation |
Change in risk exposure since 2016
Increase
Mitigation
> | Group compliance function to ensure that staff are aware of regulatory requirements, and for monitoring compliance with these requirements |
> | Cultural framework to implement the Group's core values and principles |
> | Comprehensive compliance training Programme |
Key risk indicator
> | Regulatory fines or other enforcement action |
> | Policy breaches |
Related strategic objectives (8, 9)
> | Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can be created |
> | Developing the HR function and processes to hire and train employees and to manage compensation appropriately to encourage good long term behaviours |
Risk
Counterparty credit risk
Description
The Group is exposed to counterparty credit risk arising from brokerage receivables owed by clients, unsettled matched principal trades held with clients and from cash deposit counterparties.
Change in risk exposure since 2016
New
Potential impact
> | Financial loss which could, in extreme cases, impact the Group's solvency and liquidity |
Change in risk exposure since 2016
No change
Mitigation
> | Counterparty exposures managed against thresholds, calibrated to reflect client creditworthiness |
> | Exposure monitoring and reporting by independent credit risk function |
> | Exposure concentration limits to prevent excessive exposure to one institution |
Key risk indicator
> | Matched Principal trade exposure |
> | Name Passing receivables |
> | Group cash peak exposure |
Related strategic objectives (6, 8)
> | Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can be created |
> | Investing in client relationship management to bring focus and discipline to how the business targets and covers clients, to seek to broaden and institutionalise relationships |
Risk
Liquidity risk
Description
The Group is exposed to potential margin calls from clearing houses and correspondent clearers. The Group also faces liquidity risk through being required to fund matched principal trades which fail to settle on settlement date.
Potential impact
> | Reduction in Group's liquidity resources which could, in extreme cases, impact the Group's liquidity |
Change in risk exposure since 2016
No change
Mitigation
> | Broking limits that restrict potential margin exposure |
> | Group maintains significant cash resources in each operating centre to ensure immediate access to funds |
> | Committed £250m revolving credit facility ('RCF') |
Key risk indicator
> | Unplanned intra-Group funding calls |
> | RCF draw-down |
> | Level of margin call |
Related strategic objectives (8)
> | Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can be created |
Appendix B: Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.
The total amounts owed to and from associates and joint ventures at 31 December 2017, which also represent the value of transactions during the year, are set out below:
Amounts owed by related parties | Amounts owed to related parties | |||
2017 £m | 2016 £m | 2017 £m | 2016 £m | |
Associates Joint Ventures
| 3 1
| 3 1
| - (2)
| - (2)
|
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
Directors
Costs in respect of the Directors who were the key management personnel of the Group during the year are set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the individual Directors is provided in the audited part of the Report on Directors' Remuneration on pages 69 to 89.
2017 £m | 2016 £m | |
Short term benefits | 4 | 5 |
Social security costs | 1 | 1 |
5 | 6 |
Appendix C: Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge:
> | the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; |
> | the Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and |
> | the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy. |
Enquiries:
Richard Cordeschi, Group Company Secretary
TP ICAP plc
Direct: +44 (0)20 7200 7331
email: richard.cordeschi@tpicap.com
Media
Jamie Dunkley, Group Media Relations Director
TP ICAP plc
Direct: +44 (0)20 7200 7524
email: jamie.dunkley@tpicap.com
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