Annual Financial Report

RNS Number : 6690V

TP ICAP PLC

09 April 2019

 

9 April 2019

TP ICAP plc 2018 Annual Report and Notice of 2019 Annual General Meeting

TP ICAP plc (the 'Company') has today published its 2018 Annual Report and circular to shareholders incorporating the Notice of the 2019 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 on 19 March 2019 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 2018 Annual Report, are set out below. This information should be read in conjunction with, and not as a substitute for, reading the full 2018 Annual Report. Page numbers and notes in the following appendices refer to page numbers and notes in the Company's 2018 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 Group Risk function, presentations by senior management and the findings from the Group's 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 2017

No change

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

>	Build and sustain our technology offering
>	Enhance our operational excellence
>	Diversify customers and services

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.

The impact of Brexit is addressed separately below.

Potential impact

>	Reduction in broking activity
>	Pressure on brokerage
>	Reduced earnings and profitability

Change in risk exposure since 2017

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

>	Diversify customers and services

Risk

The impact of Brexit

Description

The risk that Brexit leads to a macro-economic downturn and a consequential reduction in trading

volumes and revenue.

The risk that the Group is unable to obtain the necessary permissions and implement an appropriate legal structure to preserve cross-border broking between UK and EU clients, resulting in a fragmentation of liquidity and reduced trading volumes.

Potential impact

>	Reduction in broking activity
>	Loss of market share
>	Reduced earnings and profitability

Change in risk exposure since 2017

Increase

Mitigation

>	Adoption of a Brexit plan which would accommodate a range of potential Brexit scenarios (including a 'no deal Brexit')
>	Incorporation of a new EU subsidiary to hold EU-based business
>	Proactive engagement with European regulators and clients

Key risk indicator

>	Key regulatory changes
>	Brexit plan tracking

Related strategic objectives

>	Build and sustain our technology offering
>	Enhance our operational excellence
>	Diversify customers and services

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 2017

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
>	Revenues by region
>	New business initiatives
>	Client satisfaction surveys

Related strategic objectives

>	Build and sustain our technology offering
>	Enhance our operational excellence
>	Diversify customers and services

Risk

Failure to deliver integration

Description

The risk that the Group fails to achieve the targeted operational efficiencies due to a failure to successfully integrate the ICAP business, or that the cost to complete the integration programme is too high.

Potential impact

>	Double running costs leading to reduced profitability
>	Lack of investor confidence

Change in risk exposure since 2017

Decrease

Mitigation

>	Clearly defined integration plan
>	Robust integration governance structure
>	Management of synergies released and monitoring of integration costs

Key risk indicator

>	Integration plan tracking (status)

Related strategic objectives

>	Build and sustain our technology offering
>	Enhance our operational excellence
>	Develop our people
>	Diversify customers and services

Risk

Failure to retain and recruit talent

Description

The Group operates in a highly competitive 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 2017

No change

Mitigation

>	Proactive management of broker contracts
>	Competitive remuneration and performance management
>	Early Careers Programme

Key risk indicator

>	Staff turnover
>	Revenue per broker
>	Performance appraisal ratings

Related strategic objectives

>	Develop our people

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
>	Damage to reputation
>	Regulatory sanctions
>	Payment of damages/compensation

Change in risk exposure since 2017

No change

Mitigation

>	Monitor and assess the evolving, and increasingly sophisticated, cyber-threat landscape
>	Ensure the Group's control framework to address the potential cyber-threats to which it is exposed is appropriate

Key risk indicator

>	System outages
>	Data loss events
>	Cyber-security events/losses
>	Vulnerability monitoring

Related strategic objectives

>	Build and sustain our technology offering

Risk

Operational failure

Description

The Group is exposed to operational risk in nearly every facet of its role as an interdealer broker, including from its dependence on:

>	the accurate execution of a large number 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 2017

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

>	Risk events
>	Execution failure
>	Settlement fails
>	Margin calls

Related strategic objectives

>	Build and sustain our technology offering
>	Enhance our operational excellence

Risk

Failure to protect proprietary data

Description

The risk that the Group fails to protect unauthorised dissemination of Group's proprietary data leading to loss of potential revenue streams.

Potential impact

>	Failure to achieve future revenue growth targets due to non-contractual use of our market information
>	Damage to reputation

Change in risk exposure since 2017

New

Mitigation

>	Periodic audit of licences
>	Appropriate legal remedies incorporated within licence agreements

Key risk indicator

>	Coverage against defined data audit plan
>	Data audit findings

Related strategic objectives

>	Diversify customers and services

Risk

Breach of legal and 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 legal and regulatory requirements could result in enforcement

action being taken.

See Notes 24 and 33 to the Consolidated Financial Statements.

Potential impact

>	Regulatory and legal enforcement action including censure, fines or loss of operating licence
>	Severe damage to reputation

Change in risk exposure since 2017

No change

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

>	Policy breaches
>	Regulatory and legal enforcement action

Related strategic objectives

>	Enhance our operational excellence

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.

Potential impact

>	Financial loss which could, in extreme cases, impact the Group's solvency and liquidity

Change in risk exposure since 2017

No change

Mitigation

>	Counterparty exposures managed against threshold, calibrated to reflect counterparty 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

>	Enhance our operational excellence
>	Diversify customers and services

Risk

FX exposure

Description

There is a risk that the Group suffers loss as a result of a movement in FX rates whether through transaction risk or translation risk.

Potential impact

>	Financial loss which could, in extreme cases, impact the Group's solvency and liquidity

Change in risk exposure since 2017

New

Mitigation

>	Ongoing monitoring of Group's FX positions

Key risk indicator

>	Net currency position
>	FX exposure

Related strategic objectives

>	Enhance our operational excellence

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 the Group's liquidity resources which could, in extreme cases, impact the Group's liquidity

Change in risk exposure since 2017

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 £270m revolving credit facility ('RCF')

Key risk indicator

>	Unplanned intra-Group funding calls
>	RCF draw-down
>	Level of margin call

Related strategic objectives

>	Enhance our operational excellence
>	Diversify customers and services

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 2018, which also represent the value of transactions during the year, are set out below:

	Amounts owed by related parties		Amounts owed to related parties
	2018 £m	2017 £m	2018 £m	2017 £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 85 to 93.

	2018 £m	2017 £m
Short term benefits	3	4
Social security costs	-	1
	3	5

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: [phone]

email: [e-mail] 

Media

William Baldwin-Charles, Media Relations & Internal Communications Director

TP ICAP plc

Direct: [phone]

email: [e-mail]

 

END

 

 

ACSLLFLESRIAIIA