REG - TP ICAP PLC - Annual Financial Report <Origin Href="QuoteRef">TCAPI.L</Origin>
RNS Number : 7992BTP ICAP PLC06 April 20176 April 2017
TP ICAP plc 2016 Annual Report
TP ICAP plc ("the Company") has today published its 2016 Annual Report and circular to shareholders incorporating the Notice of the 2017 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, have been submitted to the UK Listing Authority's Document Viewing Facility via the National Storage Mechanism and will shortly be available for inspection atwww.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 14 March 2017 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 2016 Annual Report, are set out below. This information should be read in conjunction with, and not as a substitute for, reading the full 2016 Annual Report. Page numbers and notes in the following appendices refer to page numbers and notes in the Company's 2016 Annual Report.
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 conducted in 2016.
Risk
Adverse change toregulatory framework
Description
The Group is exposed to the risk of a fundamental change to the regulatory environment it operates within resulting in a reduced role for Interdealer brokers or restricted client trading activity, such as MiFID II.
Potential impact
Reduction in broking activity
Reduced earnings and profitability
Mitigation
Close monitoring of regulatory developments
Active involvement in consultation and rule setting processes
(including FCA consultations onMiFID II)Key risk indicator
Key regulatory changes
Status of regulatory change initiatives
Related strategic objectives (as set out on page 8)
Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can becreated
Continuing to develop the Data & Analytics business where the product suiteand delivery channels can be expanded
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
Mitigation
The Group continues to monitor and assess the evolving and increasingly sophisticated cyber-threat landscape to ensure that its control framework isappropriate to address the potential cyber-threats to which it isexposed
Key risk indicator
System outages
Data loss events
Cyber-security events/losses
Related strategic objectives (as set out on page 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 becreated
Risk
Deterioration in the commercial environment
Description
The Group's performance would be adversely affected by a sustained period of suppressed market activity leading to reduced revenues. This could arise as a result of adverse macro-economic conditions or geopolitical developments, such as Brexit.
Potential impact
Reduction in broking activity
Reduced earnings and profitability
Mitigation
Adoption of a clearly defined business development strategy tomaintain geographic and product diversification
Establishment of working group to prepare the Group's response to Brexit
Key risk indicator
Operating profit
Revenues by region
Trade volumes
Revenue forecast
Stress testing scenariooutcomes
Related strategic objectives (as set out on page 8)
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 productsSeeking 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 developedRisk
Failure to respond to client requirements
Description
The markets in which the Group competes are characterised by rapidly changing technology and evolving customer requirements, including the demand for electronic broking solutions. The Group is exposed to the risk that it fails to respond to customer requirements in a timely manner.
Potential impact
Loss of market share
Reduced earnings and profitability
Mitigation
Proactive engagement with clients through customer relationship management process
Adoption of a clearly defined business development strategy which continues to enhance the Group's service offering
Key risk indicator
Trade volumes
Operating profit
New business initiatives
Client satisfaction surveys
Related strategic objectives (as set out on page 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 seekInvesting 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 Group's business strategy is dependent on the successful integration of ICAP, and achieving the targeted operational efficiencies.
Potential impact
Double running costs leading to reducedprofitability
Lack of investor confidence
Reduced access to the capital markets
Mitigation
Adoption of clearly defined integration plan
Implementation of robust integration governance structure
Measurement of synergies realised and monitoring of costs of theintegration
Key risk indicator
Integration plan tracking (status)
Related strategic objectives (as set out on page 8)
Developing the business's capability tosource, execute and integrate acquisitions
Risk
Failure to retain and recruit talent
Description
The Group operates in a highly competitive market for talent, 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 Group seeks to counter aggressive
competitor activityMitigation
Proactive management of brokercontracts
Competitive remuneration andperformance management
Operation of Early Careers Programme
Key risk indicator
Complaints and conductissues
Voluntary leavers
Performance appraisalratings
Trainings conducted
Related strategic objectives (as set out on page 8)
Developing the HR function and processes to hire and train staff and to manage compensation appropriately to encourage good long term behaviours
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
A complex IT infrastructure.
Potential impact
Financial loss which could, in extreme cases, impact the Group's solvency
and liquidityDamage to the Group's reputation as a reliable intermediary in the
financial marketsMitigation
Implementation of an appropriate control framework to ensure that operational risk exposure is managed within risk appetite
Reverse stress tests undertaken toidentify key risks which could undermine viability of the Group
Maintenance of effective business continuity plans and capability
Adoption of Incident and Crisis Management Plan to ensure all key stakeholders involved in the event of a major incident
Key risk indicator
Residual balances
Loss events
Crisis
Incidents
Settlement fails
Margin calls
Related strategic objectives (as set out on page 8)
Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can becreated
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
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. These include laws relating to conduct of business, financial crime, market abuse and anti-bribery and corruption.
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 fines
Potential loss of regulatory licence
Severe damage to reputation
Mitigation
The Group's Compliance function is responsible for ensuring that staff are made aware of all applicable regulatory requirements, and for monitoring compliance with theserequirements
Adoption of Cultural Framework which seeks to implement the Group's core values and principles throughout all areas of the business
Adoption of comprehensive Compliance training programme
Key risk indicator
Regulatory fines
Financial crime breaches
Market abuse breaches
Conflict of interest breaches
Related strategic objectives (as set out on page 8)
Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can becreated
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.
Potential impact
Financial loss which could, in extreme cases, impact the Group's solvency
and liquidityMitigation
Counterparty exposures managed against exposure reporting thresholds, calibrated to reflect client creditworthiness
Exposures subject to ongoing monitoring and reporting by independent
Credit functionExposure concentration limits toprevent excessive exposure toone institution
Key risk indicator
Matched Principal tradeexposure
Name Passing receivables
Group cash peakexposure
Related strategic objectives (as set out on page 8)
Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can becreated
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 failto settle on settlement date.
Potential impact
Reduction in Group's liquidity resources which could, in extreme cases, impact
the Group's liquidityMitigation
Brokers subject to broking limits which restrict potential margin exposure
Group maintains significant cashresources in each operatingcentre to ensure immediate access to funds
Committed 250m revolving creditfacility
Key risk indicator
Unplanned intra-group funding calls
RCF draw-down
Tax issues
Credit reviews past due
Level of margin call
Related strategic objectives (as set out on page 8)
Working within a robust investment framework so that the business allocates capital and resources to areas where the most value can becreated
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 related parties and associates at 31 December 2016, which also represents the value of transactions during the year are set out below:
Amounts owed by related parties
Amounts owed to related parties
2016
m
2015
m
2016
m
2015
m
Associates
Joint Ventures
Related Parties
3.2
0.5
-
0.7
-
-
(0.2)
(1.8)
-
-
-
-
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.
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, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Enquiries
Media
Rebecca Shelley, Group Head of Corporate Affairs
TP ICAP plc
Direct: +44 (0)20 7200 7750
email: rebecca.shelley@tpicap.com
Jamie Dunkley, Group Media Relations Director
TP ICAP plc
Direct: +44 (0)20 7200 7524
email: jamie.dunkley@tpicap.com
This information is provided by RNSThe company news service from the London Stock ExchangeENDACSLIFVASVIRIID
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