Annual Financial Report

RNS Number : 0084K

TP ICAP PLC

05 April 2018

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

(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.