10th Jun 2014 17:20
ICAP plc (the "Company")
The Company has issued to shareholders the annual report and financial statements for the year ended 31 March 2014, the notice of 2014 annual general meeting and the form of proxy.
The Company's annual general meeting will be held on Wednesday 16 July 2014 at 11.00 am at 2 Broadgate, London, EC2M 7UR.
Copies of the annual report and financial statements for the year ended 31 March 2014 and the notice of 2014 annual general meeting are available to view or download from the Company's website, www.icap.com.
Copies of the annual report and financial statements for the year ended 31 March 2014, the notice of 2014 annual general meeting and the form of proxy, have been uploaded to the National Storage Mechanism at www.hemscott.com/nsm.do.
The company announced its preliminary results for the year ended 31 March 2014 on 14 May 2014. A condensed set of financial statements formed part of that announcement and included an indication of the important events that occurred during the year together with a responsibility statement regarding the annual report and the financial statements. Certain further information in relation to the annual report and financial statements is provided in full unedited text as required under the Disclosure and Transparency Rules in the appendices to this announcement. This announcement should be read together with the preliminary results announcement.
10 June 2014
ENDS
Appendices:
The following appendices should be read in conjunction with, and not as a substitute for, reading the full annual report and financial statements for the year ended 31 March 2014. Note references and definitions in the text below are as in the annual report and financial statements for the year ended 31 March 2014.
Appendix A: Principal risks and uncertainties
Principal risks
Strategic risk | ||||
Overview | Potential manifestations and appetite | Mitigation | ||
Definition Inherent risk that Group services become obsolete to existing or future customers, resulting in diminishing corporate financial performance. Drivers The Group sets out its business strategy in response to both external and internal factors, in order to achieve its goal of being the leading provider of trade execution services and market infrastructure to the global wholesale financial sector. Consequently this creates a first order risk, including external (regulators, customers, competitors etc) and internal (governance) drivers. | Potential manifestations Inability to respond to a continually changing and challenging environment through the business strategy. Failure to adhere to regulatory changes and align business strategy to remain compliant in jurisdictions. The move towards electronic trading, central clearing of derivatives, increased capital demands and the continued uncertainty of the final shape of the reforms. Appetite ICAP has a proactive appetite for this risk exploring the introduction of new innovative products and service lines from organic growth and acquisitions and a desire to lead its competition. | ICAP maintains constant dialogue with customers, regulatory bodies and other key stakeholders in order to leverage environmental and changing customer needs and remains aware of changes arising in the industry. ICAP's risk management strategy is aligned to the internal business strategy. This ensures that internal drivers are assessed and mitigations put in place. ICAP is therefore able to use its strengthened position at the heart of the wholesale financial markets to provide and enhance services that are: - relevant;- scalable; - flexible; and - have realistic opportunities for growth and longevity. |
Operational risk | ||||
Overview | Potential manifestations and appetite | Mitigation | ||
Definition Risk of financial (losses, fortuitous gains, fines) or non-financial impact (reputational, opportunity, costs)resulting from human errors, inadequate or failed internal processes or systems, or external events.
Drivers First order risk driven by internal (e.g. human error, system failure) and external (e.g. terrorism, fraud) events. | Potential manifestations Trade execution or processing errors. Extended failure of IT networks, systems or communication. Internal or external events affecting buildings or people. Loss of critical staff. Inadequately managed projectsincluding new business initiatives.
Appetite ICAP has a cautious appetite for operational risk as ICAP accepts that operational risk is inherent in its business and even after mitigating controls there will be residual risk which could lead to losses. | Operational risk is mitigated by implementing the Operational Risk Framework in each line of business. These frameworks contain: - risks and controls that are identified, assessed and transparently monitored; and- owners for the risks with assigned roles and responsibilities. The Group invests in infrastructure and people. Formal business continuity plans and appropriate remote data back-up and disaster recovery facilities are available for each key location. | ||
Liquidity risk | ||||
Overview | Potential manifestations and appetite | Mitigation | ||
Definition Risk that any part of the Group does not have sufficient financial resources available to enable it to meet its financial obligations as they fall due. This may result in the inability to fund operational liquidity outflows or any margin calls.
Drivers Main manifestation would be through the second order impact from potential operational and credit events. Also some first order risk driven by internal (operating model) factors in exchange traded and matched principal broking. | Potential manifestations Requirement to place margin or collateral at a clearing house or third-party clearing provider due to counterparty not fulfilling its obligations or timing issues.
Appetite ICAP has a cautious appetite for liquidity risk but no appetite for not meeting financial obligations as they fall due. | Daily stress testing is performed to ensure that available liquidity and funding lines available to both the regions and the Group are adequate. There is a centralised provision of liquidity and a Contingency Funding Plan for Group trading entities; each entity additionally has access to appropriate liquidity which includes third party arrangements to attain margin netting benefits. The appropriate liquidity needs and funding lines are assessed periodically to ensure that the Group has sufficient liquidity lines. Historical and progressive analysis is performed to quantify the needs. |
Other significant risks
Credit risk | ||||
Overview | Potential manifestations and appetite | Mitigation | ||
Definition Risk of a counterparty failing in its obligations. Financial losses include loss of commissions. Liquidity outflows may arise through a counterparty's failure to meet obligations by way of market risk or margin requirements.
Drivers First order risk driven by external (counterparty default) events which may create a second order liquidity event. | Potential manifestations A counterparty failure may result inICAP having: - an open market position; - unpaid receivables; and- loss of access to or loss of funds that the Group has deposited with financial institutions.
Appetite ICAP has minimal tolerance for financial loss as a result of credit risk. | Processes and controls are in place to limit and monitor potential and actual credit exposure including: - client on-boarding and limit setting process based on internal ratings;- regional accounts receivable teams monitoring non-receipt of commissions and fee income; and - limit setting on Treasury counterparties. |
Legal and compliance risk |
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Overview | Potential manifestations and appetite | Mitigation |
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Definition Risk of a loss of legal, human or financial integrity, reputationor capital as the result of government action, legislation, contract or other laws or regulations.
Drivers First order risk driven by internal shortfalls/failures (failure to comply with laws, regulations, rules, related self-regulatory organisation standards and codes of conduct), resulting in legal or regulatory sanctions, financial loss and/or reputational damage. | Potential manifestations Inappropriate or incorrect documentation or responsibility in the conduct of business could lead to a loss arising from defending a claim. Operational or human failures, employee breaches of policy or regulations may lead to regulatory investigation and fines, resulting in financial loss. Appetite ICAP has an adverse appetite for financial loss as a result of this risk. We accept that due to the nature of the complex commercial and regulatory environment in which ICAP operates its companies may become involved in contentious matters and litigation and may be required to respond to regulatory inquiries. | ICAP has an internal legal department which acts as an independent advisory and investigation function and is directed to both enable and defend the Group's strategic aims. The Group maintains an independent compliance function which mitigates compliance risk by way of the compliance risk management framework. Advice is regularly taken from appropriately qualified external advisers and professionals. Training is provided to staff on an on-going basis. Legal and compliance risks are assessed and mitigated in the processes and procedures of risk, compliance and audit. |
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Reputational risk | |||||
Overview | Potential manifestations and appetite | Mitigation | |||
Definition Risk of financial loss arising from negative perception on the part of third-party relationships including customers, counterparties, shareholders, investors or regulators.
Drivers Second order event as a result of the perception that the Group either had material, persistent operational defects or was unable to appropriately identify and mitigate its other risks | Potential manifestations Third-party relationships would be impacted resulting in events such as: - a significant decline in share price; - fewer willing lenders; - potential credit downgrade; - greater difficulty in hiring and retaining high quality staff; and - a decline in customer activity. Appetite ICAP has an averse appetite for financial loss as the relationships of openness and trust with its customers and regulators is key to its business model. | As a second order impact, appropriate controls and management of the other risks assists in mitigation of this risk. | |||
Financial risk | |||||
Overview | Potential manifestations and appetite | Mitigation | |||
Definition Risk that the Group is exposed to losses due to adverse movements in interest, FX and tax rates.
Drivers First order risk driven by external (changing market rates) events. | Potential manifestations Currency risk arising from consolidated financial statements denominated in pound sterling but business conducted in a number of other currencies. Interest rate risk arising from the Group financing itself through fixed and floating rate debt obligations. FX risk through maintaining cash on its balance sheet to meet a combination of local regulatory capital rules, clearing house depositing and other commercial requirements, including margin calls
Appetite ICAP has minimal appetite for financial loss as a result of this risk. | Details of the Group's interest rate and currency risk hedging strategy are contained in note 26 to the financial statements. | |||
Market risk | |||||
Overview | Potential manifestations and appetite | Mitigation | |||
Definition Risk of losses in on and off-balance sheet positions arising from adverse movements in market prices. ICAP does not actively take market risk.
DriversThis category is a second order impact of a credit or operational event which results in exposure to a change in the value of the trade. |
| Potential manifestations As a result of providing its clients with matched principal brokerage and exchange execution ICAP may be exposed to a variety of market risks, for example:- equity price;- interest rate;- FX; and/or - commodity price.
Appetite ICAP has minimal appetite for financial loss as a result of market risk. | Matched principal-out trades are minimised wherever possible and every effort is made to liquidate the position as practicably as possible. Exchange traded business control functions monitor all unmatched positions on an ongoing basis; issues are escalated appropriately. Daily analysis is provided to senior management on any potential/actual market risks arising from overnight exposures. | ||
Appendix B: Related party transactions
Group
(a) IPGL
IPGL is a company controlled by Michael Spencer, the Group Chief Executive Officer of ICAP plc. A number of transactions take place between IPGL and its subsidiaries and the Group and these are detailed below.
IPGL
The Group collected revenue on behalf of IPGL of £2,786 (2012/13 - £39,252). During the year, the Group charged IPGL £841 (2012/13 - £nil) in respect of employees of the Group who provided services to IPGL and its investments and £1,727 (2012/13 - £1,466) in respect of other services. As at 31 March 2014, IPGL owed the Group £6,125 (2012/13 - £nil).
Exotix Holdings Ltd (Exotix)
As part of the disposal of Exotix Holdings Ltd to IPGL in 2007, the Group loaned employees of Exotix Ltd, a subsidiary of Exotix, £1.5m to enable them to purchase a shareholding. Interest of £924 (2012/13 - £2,606) has been charged on these loans during the year. The Group collected revenue of £7.0m (2012/13 - £11.6m) on behalf of Exotix and recharged Exotix £255,210 (2012/13 - £270,707) for clearing-related services and £288,435 (2012/13 - £237,845) for other services provided during the year. As at 31 March 2014, there was a balance due to Exotix from the Group of £0.4m (2012/13 - £1.6m). The Group holds £1.9m as collateral from Exotix on deposit.
City Index Ltd
During the year the Group has charged FXSolutions (an indirect subsidiary of IPGL) £15,000 (2012/13 - £0.4m) for the provision of FX data from its EBS platform. As at 31 March 2014, there was no balance outstanding with the Group (2012/13 - £nil).
(b) TFS-ICAP LLC, TFS-ICAP Australia, TFS-ICAP Japan, TFS-ICAP Ltd and TFS-ICAP Singapore
The Group invoices and collects revenue on behalf of TFS-ICAP LLC. During the year, the Group invoiced and collected £0.1m (2012/13 - £0.3m) for which it did not receive a fee. During the year, the Group recharged the various joint ventures a fee as compensation for overheads and IT support costs as follows: TFS-ICAP LLC - £123,527 (2012/13 - £nil); TFS-ICAP Ltd - £25,475 (2012/13 - £16,750). As at 31 March 2014, the outstanding balance from all the joint ventures to the Group was £1.2m (2012/13 - £2.9m due from the Group).
(c) BSN Capital Partners Ltd (BSN)
The Group provides BSN Capital Partners Ltd (BSN), an associate undertaking, with office space and facility services. During the year, the Group charged BSN £144,627 (2012/13 - £159,147) for these services. The Group also has a preferred brokerage agreement with BSN and has recognised revenue of £0.2m (2012/13 - £0.1m) during the year. As at 31 March 2014, the outstanding balance was £385,822 (2012/13 - £136,994).
(d) Shanghai CFETS-ICAP International Money Broking Co Ltd (CFETS-ICAP)
The Group provides CFETS-ICAP, an associate company based in China, with office space and facilities services. During the year, the Group charged the company £nil (2012/13 - £19,131) for these services. The Group also invoiced and collected revenue of £201,703 for CFETS-ICAP in the year (2012/13 - £696,561). As at 31 March 2014, there was a balance due to CFETS-ICAP from the Group of £1,500,949 (2012/13 - £1,520,569).
(e) Capital Shipbrokers Ltd
The Group collected revenue on behalf of Capital Shipbrokers Ltd, an associate based in Hong Kong, of £2.0m (2012/13 - £2.7m). The Group also recharged Capital Shipbrokers Ltd £143,649 (2012/13 - £395,278) for overheads. The total outstanding balances due from the Group was £1.0m (2012/13 - £1.9m).
(f) FCB Harlow Butler Pty Ltd
The Group loaned some minority shareholders of FCB Harlow Butler Pty Ltd, a subsidiary company in South Africa, £629,558 in order to acquire 140,800 shares in the company from the Group. Interest of £11,078 (2012/13 - £nil) was charged on the loan during the year. As at 31 March 2014, the outstanding balance due on the loan was £94,085 (2012/13 - £139,376).
(g) CLS Aggregation Services LLC (CLSAS)
The Group recharged CLSAS, an associate company, £3.8m (2012/13 - £4.4m) as compensation for technical services during the year. As at 31 March 2014, the total outstanding balance due to the Group was £0.7m (2012/13 - £1.3m). The Group received £6.3m (2012/13 - £5.2m) from CLSAS during the year.
Related party transactions are made on an arm's length basis.
Company
ICAP plc is the Group's ultimate parent company and is incorporated and domiciled in the UK.
During the year, the Company entered into the following transactions with subsidiaries:
Year ended31 March2014 £m | Year ended31 March2013 £m | ||
Management services expenses | - | - | |
Net interest from related parties | 6.4 | 1.0 |
Amounts owed to the Company from subsidiaries are disclosed in note 17 and amounts owed by the Company to subsidiaries are disclosed in note 18 to the financial statements. In March 2009, the Company novated the Group's bank facilities to its immediate subsidiary ICAP Group Holdings plc (IGHP) and simplified its intra-Group lending and borrowing with its subsidiaries.
Related Shares:
IAP.L