T
P
I
C
A
P
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
6
Creating the
world’s largest
interdealer broker
Annual Report and Accounts 2016
Introduction
TP ICAP is a global brokerage and information firm that plays
a central role at the heart of the world’s wholesale financial,
energy and commodities markets.
> Our brokers match buyers and sellers of financial, energy and
commodities products and facilitate price discovery
> We provide independent data to participants in the financial,
energy and commodities markets, including live and historical
pricing content, and advanced valuation and risk analytics
> We are a trusted partner to our clients, enabling them to transact
with confidence
> We facilitate the flow of capital and commodities around the world,
enhancing investment and contributing to economic growth
This Annual Report has been prepared for, and only for, the members of the Company as a body, and no other persons. The Company,
its Directors, employees, agents or advisers do not accept or assume responsibility to any other person to whom this document is shown
or into whose hands it may come and such responsibility is expressly disclaimed. By their nature, the statements concerning the risks
and uncertainties facing the Group in this Annual Report involve uncertainty since future events and circumstances can cause results
and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information
available at the date of preparation of this Annual Report and the Company undertakes no obligation to update these forward-looking
statements. Nothing in this Annual Report should be construed as a profit forecast.
Strategic report
Highlights
Who we are
Our transformation and the
benefits it creates
Our business model
Our strategy
Key performance indicators
Chairman’s statement
Chief Executive’s review
Business and operating review
Financial review
Risk management
Our principal risks and uncertainties
Resources, relationships
and responsibilities
Governance report
Chairman’s Governance review
Board of Directors
Corporate governance report
Report of the Nominations Committee
Report of the Audit Committee
Report of the Risk Committee
Report on Directors’ Remuneration
Directors’ report
Statement of Directors’ Responsibilities
Financial statements
Independent Auditor’s Report to the
Members of TP ICAP plc
Consolidated Income Statement
Consolidated Statement
of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement
of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated
Financial Statements
Company Balance Sheet
Statement of Changes in Equity
Notes to the Financial Statements
Shareholder information
Group undertakings
Glossary
1
2
4
6
8
10
12
14
18
26
32
34
38
42
44
46
50
51
54
56
78
81
82
90
91
92
93
94
95
138
139
140
143
144
153
TP ICAP Annual Report and Accounts 2016
Strategic report Governance report
Financial statements
1
Highlights1
Revenue
(£m)
891.5
796.0
703.5
Operating profit
(£m)
121.9
107.9
100.7
131.5
73.3
47.6
2014
2015
2016
2014
2015
2016
Operating margin
(%)
Profit before tax
(£m)
15.3
14.3
13.6
14.8
6.8
8.2
105.7
93.7
86.6
56.8
33.5
121.6
in all that we do
2014
2015
2016
2014
2015
2016
Basic earnings per share
(p)
Average broker headcount
42.5
1,735
1,702
32.3
34.0
32.2
1,625
11.2
17.8
2014
2015
2016
2014
2015
2016
Reported2
Underlying3
Notes:
1 These highlights relate to the performance of the Group prior to the acquisition of the ICAP Global Broking and
Information Business, which completed on 30 December 2016. The performance of the acquired business is not
reflected in the financial results for the year ended 31 December 2016.
2 Reported results represent the statutory results after acquisition, disposal and integration costs and exceptional
items. Please refer to page 26 to 27 of the Financial Statements.
3 Underlying results represent the performance of the Group before acquisition, disposal and integration costs and
exceptional items. Please refer to pages 26 to 27 of the Financial Statements.
Strategic and
operational highlights
Strategic developments
> Completion of acquisition of ICAP’s
Global Broking and Information
Business (‘ICAP’)
> Planning and commencement
of the integration
> Strategic reorganisation into new
global product areas complete
> Energy & Commodities revenues
28% of Group total
Operational summary
> Introduction of new rigorous approach
to client relationship management
> New product launches in our Data
& Analytics business
> Ongoing focus on conduct and culture
Dividend
> Second interim dividend of 11.25p
declared 9 December 2016 and paid
13 January 2017. Accordingly, no final
dividend to be declared for 2016. Total
dividends declared and paid for 2016
– 16.85p. (2015: 16.85p)
Key to our strategy
To help you see where our activities
are in line with our strategy, look for
these icons:
Hire brokers
Energy & Commodities
Broader client base
Data & Analytics
Investing in technology
Client relationship management
Acquisitions
Investment framework
HR
Brand
www.tpicap.com
2
Strategic report
Who we are
We are a global brokerage and information
firm that plays a central role at the heart of
the world’s wholesale financial, energy and
commodities markets.
Our business
TP ICAP provides broking professional
intermediary services to match buyers and
sellers of different financial, energy and
commodities products. Our role is to create
liquidity and price discovery in these
markets and provide insight and context
to our clients.
We operate a hybrid model, where brokers
provide business-critical intelligence to
clients, supplemented by proprietary screens
that provide historical data, analytics and
execution functionality.
We are the leading provider of proprietary
over the counter (‘OTC’) pricing information
in the world with a unique source of data on
financial, energy and commodities products.
Our market data is independent, unbiased
and non-position influenced.
Our clients include banks, insurance
companies, pension funds, asset managers,
hedge funds, central banks, energy
producers and refiners, risk and compliance
managers and charities.
Our divisions
Global Broking
Our Global Broking division covers Rates,
FX and Money Markets, Emerging Markets,
Equities and Credit products and brings
together buyers and sellers, providing them
with a range of services and venues that
enables them to execute trades efficiently
and successfully.
Energy & Commodities
Our Energy & Commodities division operates
markets in oil, gas, power, renewables,
ferrous metals, base metals, precious metals,
soft commodities and coal.
Data & Analytics
Our Data & Analytics division provides
unique data sets of OTC pricing products
to enable clients to analyse, trade and
risk manage their portfolios.
Institutional Services
Our Institutional Services division provides
broking and execution services to a range
of institutions such as asset managers,
hedge funds and insurance companies.
Corporate Services
Our Corporate Services division provides
technology, compliance, risk, finance,
HR and other essential services to our
business divisions.
Following the acquisition of the ICAP Global Broking and Information Business, from January 2017, TP ICAP will
report the performance of the divisions above. We have reported the performance for the year end 31 December 2016
on a regional basis in line with the management structure of the Group during 2016.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
3
Where we operate
EMEA
Americas
UK
USA
Austria
Brazil
Bahrain
Canada
Denmark
Colombia
Dubai
Ecuador
France
Mexico
Germany
Luxembourg
Netherlands
Norway
Poland
South Africa
Spain
Switzerland
Asia Pacific
Singapore
Australia
China
Hong Kong
India
Indonesia
Japan
New Zealand
Philippines
South Korea
Thailand
73 locations
31 countries
www.tpicap.com 4
Strategic report
Our transformation and
the benefits it creates
Combining Tullett Prebon and ICAP
creates value for all stakeholders.
On 30 December 2016 Tullett Prebon
acquired ICAP to create the largest
interdealer broker in the world. The deal
combines the complementary strengths of
two leading global hybrid voice broking
franchises with a leading market position,
and revenue diversity by region and
product mix.
Rationale
The acquisition of ICAP is truly transformational for TP ICAP, for our shareholders, our clients
and our employees. In creating the world’s largest interdealer broker in wholesale markets,
we have a platform from which to pursue our strategy and develop our services to our clients.
Unaudited Pro Forma Income Statement
Revenue
Underlying operating profit
Underlying operating profit margin
Finance income
Finance costs
Underlying profit before tax
Tax
Effective tax rate
Share of JVs and associates less
non-controlling interests
Net income
Exceptional items
Acquisition, disposal and integration costs
Earnings
Weighted average shares in issue
Underlying EPS
Reported EPS
2016
TP
£m
891.5
131.5
14.8%
5.3
(15.2)
121.6
(22.1)
18%
3.5
103.0
(1.9)
(57.9)
43.2
242.3
42.5p
17.8p
2016
ICAP
£m
2016
Pro forma
£m
795.1
108.0
13.6%
3.0
(1.0)
110.0
(30.0)
27%
4.9
84.9
–
–
84.9
310.3
27.4p
27.4p
1,686.6
239.5
14.2%
8.3
(16.2)
231.6
(52.1)
23%
8.4
187.9
(1.9)
(57.9)
128.1
552.6
34.0p
23.2p
The information included here represents what the income statement would have looked
like had the transaction taken place on 1 January 2016. The unaudited pro forma Income
Statement is compiled based on TP ICAP plc’s 2016 audited financial statements discussed
in this Annual Report together with financial data extracted from the books and records
of ICAP over the 12 month period to December 2016.
The transaction has created an organisation with historical annual pro forma revenues of
£1.7bn. Approximately 50% of the revenues are generated in the EMEA region, 36% from
the Americas, and 14% from Asia Pacific.
The combined business has approximately 3,000 brokers.
Underlying operating profit in 2016 on a pro forma basis would have been £239.5m.
The pro forma 2016 underlying operating margin was 14.2%.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
5
Target of £80m of synergies and a further
£20m from process optimisation
In our shareholder circular we indicated an
expectation that we would achieve synergies
of £60m. We have now had full access to
data, processes and people and have
validated assumptions previously made
and the preliminary integration plans we
had prepared.
We now believe that a reasonable target
for the annualised synergies to be achieved
by the end of the three year programme is
£80m. We have a further ambition to realise
an additional £20m of annualised synergies
from process optimisation by the end of
2020. For synergy savings to be recognised in
a year’s results, the work must be completed
in the previous period.
Integration
We have developed a comprehensive integration plan over the past year while we waited
for regulatory approvals for the acquisition.
The integration’s main focus is on our global support functions. We do not anticipate making
any material changes to the front office as we know that our clients value the pools of
liquidity that both our long established brands bring to the market.
The global support functions have provided back and middle office support to two broadly
similar businesses. We are confident that we can bring these support functions together in a
manner that provides an enhanced quality of service, more efficient systems, and at
substantially reduced costs.
The integration work will take three years and the costs will be front-loaded, while the
synergy savings will be recognised predominantly in 2018 and 2019 as illustrated below.
Illustrative Cumulative Synergies
£10m
£60m
£80m
£100m
20.0
m
£
100
80
60
40
20
0
20.0
50.0
10.0
2017
synergies
2018
synergies
2019
synergies
2020
synergies
Illustrative cost to achieve synergies
£40m
£40m
£20m
£10m
Unaudited pro forma revenue by region
(£m)
Unaudited pro forma headcount by region
EMEA
Americas
Asia Pacific
£842m
£611m
£234m
EMEA
Americas
Asia Pacific
2,392
1,780
1,138
www.tpicap.com 6
Strategic report
Our business model
We provide our clients with voice,
hybrid and electronic execution services,
and data products and analytics.
How we transact
Our business model
We provide our clients with voice, hybrid
and electronic execution services, and data
products and analytics.
How we create value
The Group’s business model is primarily
based on generating a return from providing
an intermediation service to clients, enabling
them to trade efficiently and effectively. This
service can be provided without actively
taking credit and market risk. As well as
providing an intermediary service, we also
have a data and analytics business that sells
OTC pricing data that is generated from our
broking activities.
Our business is structured along business
division (see page 2) and regional lines, and
is operated under competing brands as this
provides our clients with different sources
of liquidity.
The intermediary service we provide is across
a wide range of financial and commodity
products, which are traded in numerous
markets and geographies. These trades may
be bespoke in nature, complex and of high
nominal value so the access our brokers have
to the largest pools of liquidity provides us
with a competitive advantage. Our brokers’
relationships with market participants,
together with the operations and
infrastructure they are provided with, are
key determinants of the ongoing success
of the Group and a key source of value.
Name Passing
Around 76% of the Group’s broking revenue
is derived from Name Passing activities,
where the Group identifies and introduces
a buyer and seller who wish to transact but
is not a counterparty to the trade itself,
and where its exposure to a client is limited
to outstanding invoices for commission.
Almost all of the Group’s activities in
derivatives, such as forward FX, FX options,
interest rate swaps, interest rate options,
credit derivatives, and the vast majority
of the Energy & Commodities business are
transacted under the Name Passing model.
Matched Principal
Around 19% of the Group’s broking revenue
is derived from Matched Principal activities,
where the Group is the counterparty to both
the buyer and the seller of a matching trade.
The vast majority of the Group’s activities
conducted under the Matched Principal
model are in government and agency bonds,
municipal bonds, mortgage backed
securities, and corporate bonds. The Group
bears the risk of counterparty default during
the period between execution and
settlement of the trade.
Executing Broker
Around 5% of the Group’s broking revenue
is derived from operating as an Executing
Broker, where the Group executes
transactions on certain regulated exchanges
as per client orders, and then ‘gives-up’ the
trade to the relevant client (or its clearing
member). The majority of the Group’s
revenue generated under the Executing
Broker model relates to listed equity
derivatives and listed interest rate futures
and options on futures to the relevant client
(or its clearing member).
The majority of the Group’s revenue
generated under the Executing Broker model
relates to listed equity derivatives and listed
interest rate futures and options on futures.
Our people
Our people include skilled and specialist
brokers and data experts who have
extensive product and industry experience
and deep and trusted relationships
with clients.
Our front office people work in close
partnership with our technology developers
who are experienced at developing
applications, software and electronic
platforms that are tailored to the needs
of the markets in which we focus.
Our businesses are supported by our finance,
operations, risk, compliance, legal, HR and
facilities functions.
We pride ourselves on our dynamic,
professional, ambitious and collaborative
approach to how we work. Our values of
Honesty, Integrity, Respect and Excellence
underpin our corporate culture and guide
how we behave every day and how we
serve clients.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
7
Our brands
We operate a portfolio of highly respected brands, each with a separate and distinct client offering.
www.tpicap.com 8
Strategic report
Our strategy
The Group’s strategy is to continue
to develop its business in the wholesale
financial, energy and commodities
markets to deliver superior performance,
underpinned by strong financial
discipline.
In 2015 Tullett Prebon presented its strategy
for the Group entitled 'the ten arrows'.
This strategy, which is summarised below,
identified those actions and products,
regions, clients and technologies that
in management’s view offered the most
attractive prospect for the Company going
forward. The initiative targets maximising
these opportunities and remains as valid
today as when we established it, so we have
adopted the ten arrows strategy for the
combined TP ICAP group. This page
summarises the ten high level initiatives.
Key to our strategy
To help you see where our activities
are in line with our strategy, look
for these icons.
Hire brokers
Energy & Commodities
Broader client base
Data & Analytics
Investing in technology
Client relationship management
Acquisitions
Investment framework
HR
Brand
Our strategy
The Group will build revenue in
the most attractive areas of the
markets through:
The Group will improve the functions
that support the revenue generating
divisions through:
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;
Seeking to continue to build the
business’s activities in energy and
commodities products;
Extending the business’s broking
offering to service clients where the
market is receptive to a broadening
of the client base; and
Continuing to develop Data & Analytics
where the product suite and delivery
channels can be expanded.
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;
Developing the business’s capability
to source, execute and integrate
acquisitions;
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; and
Seeking to improve the business’s
brand awareness and coverage.
TP ICAP Annual Report and Accounts 2016
Strategic report Governance report
Financial statements
9
What we did
During 2016 we took actions to develop our business as a leader in
wholesale OTC markets in broking and information services through:
> setting up a joint venture to develop a
new institutional all-to-all real estate
trading portal for the issuance and
secondary trading of indirect real
estate instruments.
> acquiring a long term licence for a
trading technology which we are
developing in-house to provide
proprietary, bespoke capabilities,
in key customer facing technologies.
> increasing our capabilities and
expanding our team in client relationship
management, and launching a more
structured and systematic approach
to building contacts at many levels
of our clients.
> launching our new careers page on
our Company website and on LinkedIn.
.
> completing the acquisition of ICAP on
30 December 2016. This was achieved
by issuing 310m shares valued at
£1,283m to the ultimate shareholders
of NEX Group plc. Prior to completion,
clearances were obtained from
competition authorities and regulators
responsible for supervising the markets
in which we operate.
In addition we created further shareholder
value by:
> adding senior expertise in broking
alternative assets.
> extending our PVM brand into a
multi-commodity options offering with
the creation of a new desk in London
covering gas, coal, emissions and
power options.
> entering into a partnership with a
specialist listed futures and options
broker, Coex, adding more than 20
brokers in London, Paris and New York,
who serves a diverse client base.
> pioneering the execution and processing
of swap execution facility (‘SEF’) trades
for clearing at the Japan Securities
Clearing Corporation, demonstrating
our ability to adapt to a changing
regulatory landscape and offer clients
solutions globally.
> entering into an agreement with a
provider of smart commodity data
management software licences to
redistribute our real-time energy market
data including European power,
European gas, fuel oil, middle distillates,
biofuels, international coal and global oil.
What we are going to do
In the coming year, we will continue
to add to our brokerage footprint,
expand and improve the tools that
we provide our brokers, and enhance
our Corporate Services through:
> integrating the Corporate Functions
to build a lean, scalable and efficient
operating model.
> reviewing our broking capability
footprint in TP ICAP and hiring
selectively to add to our roster
of products and expertise.
> proactively engaging with our clients
to understand clearly where there is
potential for us to serve them more
comprehensively, gathering their
feedback more systematically
and frequently.
> enhancing some of our electronic
platforms to provide better straight
through processing, and a more intuitive
user experience.
> expanding our suite of proprietary
analytics to give our brokers and
clients a faster, more accurate and
sophisticated service.
> providing data and analytics services
and products that meet client needs as
the regulatory and business environment
changes with the introduction of new
rules governing bank capital, valuation
and risk mitigation.
> using our technology to provide clients
with easier ways to manage large flows
of market information to enable them to
increase their efficiency in selecting and
executing trades.
www.tpicap.com 10
Strategic report
Key performance indicators
Measuring our strategic progress
Financial
Revenue growth (at constant exchange
rates)
(%)
Underlying operating profit margin
(%)
Average revenue per broker1
(£000s)
Underlying earnings per share ('EPS')
Ratio of front office to support
(p)
function employees1 2
4
14.3
13.6
14.8
484
425
400
-10
-2
42.5
32.3
32.2
Non-financial
(%)
186
177
160
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
Link to our strategy
KPI definition
Revenue growth is defined as growth in
total revenues excluding the impact of
foreign exchange (at constant exchange
rates, see page 20 for a reconciliation to
reported revenue).
Comment
Revenue growth reflects not only the market
conditions we operate in but also our ability
to further diversify and strengthen our
franchise. Revenue growth in the past has
been driven not only by volatility and market
conditions but also by targeted acquisitions.
2016 was a good year for revenue growth as
the Group benefitted from increased market
volatility as well as expectations around
future interest rate rises in the USA.
KPI definition
Underlying operating profit margin is
calculated by dividing underlying operating
profit by revenue for the period.
KPI definition
Average revenue per broker is calculated
by dividing revenue by the average number
of brokers employed during the period.
Comment
Underlying operating margin is a measure
of the profitability of the business
and is principally driven by revenue,
broker compensation and other
administrative expenses.
Comment
The average revenue per broker is an
indication of the level of market activity
as well as the productivity and efficiency
of the broking business.
The underlying operating margin in 2016 has
benefited from an improvement in the
contribution margin offset by an increase in
management and support costs as the
Group invests in developing its capabilities.
Average revenue per broker in 2016
benefitted from increased trading
activity, particularly in our Energy
& Commodities business, as well
as a reduction in the number of brokers
through our cost improvement programmes.
Note:
1
Includes impact of acquisition of PVM in 2014, and excludes broker headcount relating to ICAP.
KPI definition
KPI definition
Underlying earnings per share is calculated
Ratio of front office to support function
by dividing the underlying profit after tax by
employees is calculated by dividing the
the basic weighted average shares in issue.
number of front office revenue generating
Comment
Over the long term, growth in shareholder
value and returns is linked to growth
Comment
employees by the number of support
function employees.
in underlying EPS, which measures the
The ratio of front office employees to back
underlying profitability of the Group
office employees measures the efficiency
after tax and interest costs.
of our business model.
The growth in underlying EPS in 2016 reflects
The ratio decline in recent years reflects the
the improved underlying profitability of
reduction in broker headcount through our
the Group.
cost improvement programmes, and the
increased back office headcount through
continued investment in legal, compliance
and risk management functions, to preserve
the integrity of risk and control in response
to increasing regulatory demands.
TP ICAP Annual Report and Accounts 2016
Strategic report Governance report
Financial statements
11
Financial
rates)
(%)
4
-10
-2
Link to our strategy
Revenue growth (at constant exchange
Underlying operating profit margin
Average revenue per broker1
(%)
(£000s)
Underlying earnings per share ('EPS')
(p)
14.3
13.6
14.8
484
425
400
42.5
32.3
32.2
Non-financial
Ratio of front office to support
function employees1 2
(%)
186
177
160
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
KPI definition
KPI definition
KPI definition
Revenue growth is defined as growth in
Underlying operating profit margin is
Average revenue per broker is calculated
total revenues excluding the impact of
calculated by dividing underlying operating
by dividing revenue by the average number
foreign exchange (at constant exchange
profit by revenue for the period.
of brokers employed during the period.
rates, see page 20 for a reconciliation to
reported revenue).
Comment
Comment
Underlying operating margin is a measure
The average revenue per broker is an
Comment
of the profitability of the business
Revenue growth reflects not only the market
and is principally driven by revenue,
indication of the level of market activity
as well as the productivity and efficiency
conditions we operate in but also our ability
broker compensation and other
of the broking business.
to further diversify and strengthen our
administrative expenses.
franchise. Revenue growth in the past has
been driven not only by volatility and market
conditions but also by targeted acquisitions.
The underlying operating margin in 2016 has
benefitted from increased trading
benefited from an improvement in the
activity, particularly in our Energy
contribution margin offset by an increase in
& Commodities business, as well
Average revenue per broker in 2016
2016 was a good year for revenue growth as
management and support costs as the
as a reduction in the number of brokers
the Group benefitted from increased market
Group invests in developing its capabilities.
through our cost improvement programmes.
volatility as well as expectations around
future interest rate rises in the USA.
KPI definition
Underlying earnings per share is calculated
by dividing the underlying profit after tax by
the basic weighted average shares in issue.
Comment
Over the long term, growth in shareholder
value and returns is linked to growth
in underlying EPS, which measures the
underlying profitability of the Group
after tax and interest costs.
KPI definition
Ratio of front office to support function
employees is calculated by dividing the
number of front office revenue generating
employees by the number of support
function employees.
Comment
The ratio of front office employees to back
office employees measures the efficiency
of our business model.
The growth in underlying EPS in 2016 reflects
the improved underlying profitability of
the Group.
The ratio decline in recent years reflects the
reduction in broker headcount through our
cost improvement programmes, and the
increased back office headcount through
continued investment in legal, compliance
and risk management functions, to preserve
the integrity of risk and control in response
to increasing regulatory demands.
Note:
2 Excludes impact of the acquisition of PVM in 2014 numbers.
Key to our strategy
To help you see where our activities
are in line with our strategy, look
for these icons.
Hire brokers
Energy & Commodities
Broader client base
Data & Analytics
Investing in technology
Client relationship management
Acquisitions
Investment framework
HR
Brand
www.tpicap.com
12
Strategic report
Chairman’s statement
“ During 2016 we received approvals from
competition authorities and regulatory
authorities, and consents from
shareholders and various other parties.
We completed the transaction on
30 December 2016 and we have
renamed the company TP ICAP plc.”
Rupert Robson
Chairman
We have continued to engage actively with
our shareholders during 2016, particularly
as we progressed the Acquisition. We have
established a useful and constructive
dialogue to ensure that the Board stays
abreast of the development of shareholder
views on governance, remuneration, and
other key issues.
We have included greater detail on our
corporate governance in that section of the
Annual Report, which can be found on pages
42 to 81.
Outlook
Revenue in the first two months of 2017, on
a pro forma basis (including the prior period
results of ICAP), was in line with the same
period last year at constant exchange rates,
and 11% higher as reported.
Although our primary focus in 2017 is the
delivery of the synergies of the combination
of Tullett Prebon and ICAP, we will continue
to look for other opportunities to deliver our
objectives to build revenue and raise the
quality and quantity of earnings.
Rupert Robson
Chairman
14 March 2017
I am pleased to report that the Group made
strong progress in 2016. Against a backdrop
of challenging but improving market
conditions, we have grown sales, increased
profit and generated a strong cash flow.
Good progress has been seen on all the
important strands of the strategic initiatives,
‘the ten arrows’, which we launched in 2015
and continued to implement during 2016.
Our focus on client service and innovation
has been at the forefront of this success.
As I noted in my report last year, in
November 2015 we announced that the
Company had agreed terms with ICAP plc
for Tullett Prebon to acquire ICAP’s Global
Broking and Information Business. During
2016 we received approvals from
competition authorities and regulatory
authorities, and consents from the
shareholders of both companies and various
other parties. We completed the transaction
(the ‘Acquisition’) on 30 December 2016 and
we have renamed the company TP ICAP plc.
Trading and dividend
Revenue of £892m in 2016 was 12% higher
than in 2015 as reported (4% higher at
constant exchange rates) with underlying
operating profit increasing by 22% to
£132m1. Our performance reflected
particularly strong underlying revenue
growth in our Energy & Commodities and
Information and Risk Management Services
businesses. The underlying operating profit
margin in 2016 of 14.8% is 1.2% points higher
than in 2015 reflecting the investments being
made in the business, and strong cost control.
Reported earnings per share were 17.8p and
reflect the one-off fees and expenses of the
Acquisition. Underlying earnings per share
for 2016 of 42.5p are 10.3p higher than
for 2015.
The Board declared a first interim dividend
of 5.6p per share paid on 14 November 2016
and a second interim dividend of 11.25p per
share paid on 13 January 2017 (with a record
date of 23 December 2016, before the
completion of the Acquisition of ICAP).
The Board is accordingly not recommending
a final dividend and so, as advised in our
interim announcement on 3 August 2016, the
shareholders up to the date of completion
of the Acquisition have received dividends
of 16.85p per share for 2016 (2015: 16.85p).
The Board expects to declare its next interim
dividend payable in November 2017 when
the 2017 interim announcement is made
in August.
Board and governance
Your Board is committed to high standards
of corporate governance and to instilling
the right culture, behaviours and approach
to how we do business.
In 2016, our external board evaluation
concluded that we operated effectively but
that certain adjustments might usefully be
made in order to optimise our performance
in light of the increased size and complexity
of the Group following the Acquisition.
In that regard, we will be adding two
new non-executive directors during 2017,
to be drawn from North America and
Asia respectively, reflecting the Group’s
substantially increased footprint in
those markets.
Note:
1 Reported operating profit was £73m, down 40% from £122m, largely as a result of integration costs relating to
the Acquisition in 2016, implementing the cost improvement programme in 2015, and a non-recurring credit relating
to legal actions in 2015. A reconciliation of underlying operating profit to reported is given on pages 26 to 27.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
13
Case study
Building a
culture which
motivates
people to do
the right thing
We recognise that the measure of our culture is
not slogans on a website, but how our employees
and clients feel that our actions, behaviours and
mindset, are living up to the promise always
to do the right thing.
Link to our strategy on page 8
We are instilling a culture that is rooted
in our core values of Honesty, Integrity,
Respect and Excellence, and which is
dynamic, professional, ambitious and
collaborative. We ensure all our employees
know and understand the behaviour that
is expected of them.
During 2016 we worked hard to
communicate our Code of Conduct in a way
that is engaging and easy to understand,
using the simple format of ‘5 things that
you need to know’. This was rolled out in
November through leaflets, screensavers,
posters and emails. This initiative was
accompanied by training for our senior
brokers which focused on practical examples
of real-life situations and role play to
illustrate important concepts.
It empowered them to act as leaders, able to
cascade our culture and values to all levels of
the organisation.
www.tpicap.com
14
Strategic report
Chief Executive’s review
“ Tullett Prebon entered 2017 as TP ICAP,
a better, stronger and greater company,
and the biggest interdealer broker in
the world. We are ready to embrace the
opportunities ahead with confidence
and optimism.”
John Phizackerley
Chief Executive
This year has been a busy and eventful one
for us and I am pleased to report progress
on many fronts. Tullett Prebon entered 2017
as TP ICAP, a better, stronger and greater
company and the biggest interdealer
broker in the world. We are ready to embrace
the opportunities ahead with confidence
and optimism.
We achieved underlying operating profit of
£132m, an increase of 22% and underlying
earnings of £103m, an increase of 31%.
Reported operating profit of £73m was 40%
lower than in 2015 (which included the net
settlement of £64m from BGC), and reported
operating margin of 8.2% is 7.1% points
lower than in 2015 (see page 27).
Financial performance
While 2016 was dominated by the successful
closing of the acquisition of ICAP, the second
half of the year also witnessed an improved
performance in our heritage businesses, in
particular interest rates, credit and FX which
have been subdued for some time. In
addition, Energy & Commodities, Equities
and Information Sales recorded strong year
on year revenue growth.
These factors were reflected in the Group’s
underlying financial performance. Our
revenue in 2016 was £892m, on a constant
currency basis, an increase of 4% (12% on
a reported basis) compared with 2015.
We have continued to make progress on our
strategic goal to diversify our sources of
revenue. More than a quarter of our total
revenues now comes from our Energy &
Commodities business reflecting investments
we have made in this division, which include
our successful acquisitions of PVM and MOAB.
Our geographic mix of revenue is also
changing with the Americas now contributing
over 30% of our total, as we reap the
benefits of rebuilding that business over
the last five years.
In the future, we expect to benefit further
from economies of scale inherent in the
combination with ICAP.
“ During 2016 we improved
our client service and
operational excellence.”
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
15
Operating model
TP ICAP will operate the Tullett Prebon
and ICAP brands separately. The Global
Executive Committee (‘GEC’) of TP ICAP is
made up of senior professionals from both
Tullett Prebon and ICAP. From 1 January
2017 the Group now operates across four
global business lines (Global Broking, Energy
& Commodities, Data & Analytics, and
Institutional Services) in a matrix with
regional management. The TP ICAP
Corporate Services division will provide a
single, efficient, technology centric support
function for the Group.
During 2016 we improved our client service
and operational excellence.
We use a sales management tool, which has
improved the visibility and management of
our client interaction. We expect it will grow
revenues in existing accounts and drive new
revenues from additional ones.
In August we announced the establishment
of a new technology nearshore centre in
Belfast, Northern Ireland which will play
a pivotal role in the delivery of our global
technology strategy. By the end of 2019,
we intend to have at least 300 employees
at this site.
The security of our information and
technology infrastructure is crucial for
maintaining our applications and protecting
our customers and brands. During 2016 we
reviewed and assessed our resilience to and
ability to recover from cyber attacks. We
strengthened our ability to prevent, detect
and respond to this threat by enhancing our
governance and control frameworks so that
they are now an integral part of our systems
and processes. While we can never
guarantee that we are immune from such
threats, we will continue to examine, invest
in and strengthen our defences.
We have started a programme of smarter
procurement which will rationalise our panel
of suppliers. This programme will continue
during 2017, and will be extended across the
supplier base we have inherited with ICAP.
New hires, acquisitions and partnerships
We recruited a high quality team of 14
specialist brokers in the USA who are
leaders in Credit Default Swaps (‘CDS’).
They use our tpCreditdeal platform to
provide an enriched and truly hybrid
offering for our clients.
We entered into a partnership with a
specialist listed futures and options broker,
Coex, which has a varied and diverse client
base, and an offering which is based on
creative trading idea generation.
We acquired a long term licence for
a hybrid trading technology which we
renamed Nova. It will enable us to develop
in-house proprietary, bespoke capabilities,
and will allow us to build venue functionality
which meets the requirements of MiFID II
regulations which are timetabled to come
into force in January 2018.
In October we signed an agreement
with Brave New Coin to distribute digital
currency data, which gives our customers
transparency on intraday pricing from more
than 50 digital currencies – including Bitcoin,
Ethereum and Ripple.
In November 2016 we partnered with
Quarternion Risk Management, a leading
risk analytics firm, to launch an innovative
open source risk project in collaboration
with Columbia University.
www.tpicap.com
16
Strategic report
Chief Executive’s review
continued
Culture and conduct
At TP ICAP, we are fully aware that the
markets that we intermediate are in the real
economy. We are active across a broad range
of products, and we believe that what we
do and how we do it matters profoundly to
market integrity and the wider population.
We take that responsibility seriously and it
underpins our culture and how we conduct
ourselves as a firm and as individuals.
In 2016 we continued to drive home
our key message on conduct and culture and
continued to train our employees about our
standards and required behaviours.
New talent recruitment
Hiring the next generation of employees is
a key ‘ten arrows’ objective (see page 8).
We made material progress during 2016 on
our objective to recruit, train and develop
new talent. We successfully launched our
early talent recruitment drive in September
2016 and received 2,000 applications within
two weeks. We have hired more than 45
employees on this programme so far.
People
We continue to invest in the development
of the Group’s employees. We now have
a group-wide programme of learning
and training to ensure our employees
are equipped with the appropriate skills.
As part of the drive to engage with
employees, understand their needs, and
ultimately improve performance, we
conducted our first employee Pulse
engagement survey, covering a broad
range of subjects. We were delighted that
more than 67% responded and provided
valuable feedback on how they perceive
the Group and where we can improve.
Brexit
The announcement of the result of the Brexit
referendum that took place on 23 June
caused a period of heightened activity
and instils market uncertainty between
the triggering of Article 50 and the final
state of the UK negotiation with the EU.
There are material implications for financial
markets between the so called ‘soft’ or ‘hard’
Brexit outcomes.
In the future, we will likely manage
more client relationships from within the
Eurozone, where we already have a network
of offices in Paris, Frankfurt, Madrid and
in other locations.
We have a strategic planning workstream
which examines the various Brexit scenarios
and how we might want to adapt our
business accordingly.
Awards
We were delighted to win a number of
awards during 2016, including taking first
place in five out of seven categories from
Global Capital: Interdealer Broker of the
Year, Interest Derivatives Broker of the Year,
Swap Execution Facility of the Year,
Data and Analytics Vendor of the Year,
and FX Broker of the Year. These awards
are an endorsement of the strength of our
offering and testament to our commitment
to excellent client service.
Acquisition of ICAP’s Global Broking
and Information Business
Much time and energy was invested in
finalising the acquisition of ICAP which we
signed in November 2015. We obtained all
the necessary approvals and closed the
transaction on 30 December 2016.
Between signing and completion we carried
out extensive integration planning across all
functions of the Group, so that we have a
detailed route-map which we are now
implementing, extracting the considerable
benefits of the combination. I have been
impressed by the quality of ICAP employees
and their leadership team now that we are
TP ICAP colleagues. In addition the business
is delivering on the breadth and scale we
envisaged during the due diligence process.
Rebranding as TP ICAP
On completion of our acquisition of ICAP
we launched a rebranding of our Group as
TP ICAP plc, reflecting the strength of our
respective heritages.
Regulatory changes
During 2017, we will prepare for the
forthcoming market structure reforms being
implemented as a result of MiFID II. They will
have a fundamental impact on trading in
OTC markets in the EU, requiring the
multilateral trading of OTC financial
instruments to be effected on a multilateral
trading facility (MTF) or an organised
trading facility (OTF), the latter being a new
type of trading venue covering voice and
hybrid broking. As a result of our position in
these markets we aspire to be a leader in the
operation of a range of OTF and MTF venues
and provision of broking services throughout
the EU in the new regulatory regime.
Looking ahead
We achieved a great deal in 2016 and
I am confident that our progress to date
will help us deliver our long-term goals.
We are now in a position to capitalise on
these achievements and pursue our strategy
for growth as the larger TP ICAP Group.
Political and economic uncertainty is likely to
persist during 2017 as the debate continues
on the shape the UK’s exit from the EU and
because national elections take place
in a number of countries on the Continent.
Tensions in Russia, China and North Korea
could add to a heightened sense of
uncertainty compared with the recent
political order. In the USA there is potential
for regulatory reform that could impact
markets. However, with a clear strategy and
sustained focus on operational excellence, I
am confident that TP ICAP will continue to
be resilient and successful. A lot of our upside
is in our hands.
The re-emergence of the yield curve and
returning market volatility contributed to
improved market conditions. Should such
factors persist there is cause for optimism
that market conditions for interdealer
brokers such as TP ICAP will continue
to improve.
Our employees work in fast-moving
environments and provide diverse and
complex services to a demanding and
sophisticated client base. The results we
have delivered are a testament to the
quality, dedication and creativity of
our people.
I would like to take this opportunity to
thank my colleagues across the TP ICAP
Group for their positive approach and their
service to our clients. I am extremely grateful
for their hard work and continuing
commitment.
John Phizackerley
Chief Executive
14 March 2017
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
17
Case study
Strategic
acquisitions
The successful acquisition of PVM established
Tullett Prebon as a leading oil broker, and immediately
added a large and diverse customer base.
Link to our strategy on page 8
The deal also enabled Tullett Prebon
Information (‘TPI’) to expand its data
offering to a broader set of customers,
expanding its suite of energy products to
deepen its global crude, refined and middle
distillates coverage.
In November 2014, we completed the
acquisition of PVM, a leading independent
oil brokerage firm, along with its subsidiaries.
The transaction added 33 new broking
desks to the Group, as well as significantly
increasing our coverage of oil products in
Asia and the USA markets. Adding 350
brokerage customers, the deal increased
the diversity of the Group’s revenue and
client base. Alongside PVM’s main broking
activities in crude oil and petroleum
products, the acquisition also brought
a global oil futures business, Singapore
distillates and Urals to the Group.
www.tpicap.com
18
Strategic report
Business and operating review
“ Total revenue of £892m in 2016 was 12%
higher than in 2015 as reported (4% higher
at constant exchange rates).”
Andrew Baddeley
Chief Financial Officer
The Group generates broking revenue from
commissions it earns by intermediating and
executing customer orders. The level of
revenue depends substantially on customer
trading volumes, which are affected by
the conditions in the financial markets,
by customers’ risk appetite, and by their
willingness and ability to trade.
The broking business’s performance in
2016 continued to benefit from the recent
investments made in the Energy sector,
with activity in the energy and commodities
markets, particularly in oil and oil-related
financial products, which remain buoyant,
reflecting the changes and volatility in oil
prices throughout the year.
The Information Sales and Risk Management
Services (‘RMS’) businesses also performed
strongly. The Information Sales business
benefited from the continued expansion
of its client base and geographical presence,
the enhancement of its sales capability and
the extension of the data content it provides
to customers, particularly from its expanded
high quality Energy & Commodities
data sets.
Total revenue of £892m in 2016 was 12%
higher than in 2015 as reported (4% higher
at constant exchange rates), with underlying
operating profit increasing by 22% to £132m.
The level of activity in the wholesale OTC
financial markets during much of 2016
continued to be under pressure from the
cyclical and structural factors affecting the
interdealer broker industry. Volatility, and
the steepness and absolute level of yield
curves, are key drivers of activity in the
financial markets. Measures of financial
market volatility were broadly similar during
2016 to the prior year, and volatility and
trading volumes in many product areas
continued to be sporadic. Interest rates for
many of the major currencies fell further
during 2016, although with little change
in the shape of yield curves, we have not seen
much change in the spread between short
and longer term rates. However, the increase
in interest rates in the United States towards
the end of the year, together with other
market events, including the Brexit
referendum and the US presidential election,
in November, drove a pick-up in activity
in the last quarter.
“Increases in interest rates,
together with other
market events, including
Brexit and the US
presidential election,
drove a pick up in
activity in the last
quarter of 2016.”
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
19
Financial and performance measures
Broking revenue
Information Sales/RMS revenue
Total revenue
Underlying operating profit
Underlying operating profit margin
Reported operating profit
Reported operating profit margin
Average broker headcount
Average revenue per broker (£000)
Broker compensation costs: broking revenue
Period end broker headcount (excluding ICAP)
– at June
– at December
– at December (including ICAP)
Period end broking support headcount (excluding ICAP)
Period end broking support headcount (including ICAP)
2016
20151 2
Change
£823.3m
£68.2m
£891.5m
£131.5m
14.8%
£73.3m
8.2%
1,702
484
53.2%
1,707
1,672
2,981
849
2,083
£742.0m
£54.0m
£796.0m
£107.9m
13.6%
£121.9m
15.3%
1,735
461
54.6%
1,739
1,716
1,716
811
811
+3%
+22%
+4%
+22%
+1.2% pts
-40%
-7.1% pts
-2%
+5%
-1.4% pts
-2%
-3%
+74%
+5%
+157%
Notes:
1 At constant exchange rates.
2 2015 comparative data that relates to headcount and headcount derived metrics has been restated to ensure consistency with the current period.
The underlying operating profit margin in
2016 of 14.8% is 1.2% points higher than in
2015, reflecting the full year effect of the
investments and cost improvements being
made in the business. Underlying earnings
per share for 2016 of 42.5p are 10.3p higher
than for 2015.
Reported operating profit of £73.3m was
40% lower than in 2015 (which included the
net settlement of £64.4m from BGC), and
reported operating margin of 8.2% is 7.1%
points lower than in 2015. Reported
operating profit is after exceptional and
acquisition related items, and is described
on page 27.
Broker headcount, which had decreased
to 1,716 at December 2015, as a result of
actions taken under the cost improvement
programme in Europe and North America,
continued to decrease in the first half of
2016, to 1,707 as the cost improvement
programme was finalised. Broker headcount,
excluding the impact of ICAP, reduced
further in the second half of the year to 1,672.
Average broker headcount during 2016
was 2% lower than during the previous
year, with a 5% increase in average revenue
per broker, resulting in the 3% increase in
broking revenue.
The year end broking support headcount,
excluding the impact of ICAP, of 849 was
5% higher than at the end of 2015, reflecting
the continued strengthening of the control
and support functions, with additional
headcount in customer relationship
management, risk, HR, and legal and
compliance.
The acquisition of ICAP has increased broker
headcount to 2,981, and the broking support
headcount to 2,083 at December 2016.
www.tpicap.com 20
Strategic report
Business and operating review
continued
Revenue
The following tables analyse revenue by region and by product group, and underlying
operating profit by region, for 2016 compared with 2015. The analysis excludes information
relating to ICAP, and the product groups reflect the way the business was managed
during the year. The new business divisions that we will report against in 2017 are outlined
on page 2.
A significant portion of the Group’s activity is conducted outside the UK and the reported
revenue is therefore affected by the movement in the foreign exchange rates used to
translate the revenue from non-UK operations. The tables therefore show revenue for 2015
translated at the same exchange rates as those used for 2016, with growth rates calculated
on the same basis. The revenue figures as reported for 2016 are shown in Note 4 to
the Consolidated Financial Statements.
The commentary below reflects the presentation in the tables.
Revenue by product group
Energy & Commodities
Interest Rate Derivatives
Fixed Income
Treasury Products
Equities
Information Sales and RMS
At constant exchange rates
Exchange translation
Reported
2016
£m
245.3
143.6
183.0
194.1
57.3
68.2
891.5
891.5
2015
£m
221.9
144.1
184.8
198.6
50.4
56.1
855.9
(59.9)
796.0
Change
+11%
+0%
-1%
-2%
+14%
+22%
+4%
+12%
Revenue in 2016 was 4% higher than in 2015. The continuing benefit from our investment
in Energy & Commodities, together with further growth in Equities and in Information Sales
and RMS, has been partly offset by lower volumes in our heritage interdealer broker product
groups of Treasury Products (FX and cash), Interest Rate Derivatives and Fixed Income which
improved towards the end of the year.
Revenue from Energy & Commodities was 11% higher than the prior year, reflecting the
inclusion for a full year of MOAB, the higher levels of activity in the oil markets generally,
and the development of our activities in this sector in all three regions. Energy continues
to be the business’s largest product group with more than 25% of the total revenue.
Revenue from Interest Rate Derivatives
products (swaps and options) was in line with
2015, with lower overall levels of activity in
EMEA offset by stronger performance in the
Americas, particularly in the second half of
the year reflecting expectation of further
movement in USD interest rates.
The 1% decline in revenue from Fixed Income
reflects the low liquidity and levels of activity
across the government and corporate bond
markets in EMEA and the Americas, although
this was partly offset by higher revenue in
North America following strategic hires in
credit derivatives, and in Asia Pacific from
hires in fixed income in Hong Kong.
Revenue from Treasury Products (FX and
cash) was 2% lower than in 2015, with lower
activity in the Americas and in Asia Pacific
partly offset by a stronger performance
in EMEA, particularly in forward FX and
FX options.
Revenue in our Equities business, which was
primarily focused on equity derivatives, was
14% higher than in 2015. The business has
performed well in all three regions, where
we have benefited from the higher levels
of volatility in equity markets compared
with a year ago.
Revenue from Information Sales and
RMS was 22% higher than last year. The
Information Sales business has benefited
from the growing client demand for
accurate, quality data due to increasing risk
complexity, regulatory change and volatility.
The business has increased revenue by
adding new data content sets as well as
through broadening its customer base.
The investment in sales and marketing in
the RMS business resulted in increased market
share in USD and Asia Pacific currencies.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
21
Case study
New talent
recruitment
We are adding to our ranks of talented brokers, data
specialists and support staff through a programme
of hiring. Our talent academy runs an ability-based
recruitment process that identifies the best candidates
irrespective of educational background.
Link to our strategy on page 8
All the Early Careers Programme hires
attended a two week induction programme
where they received tailored education on
our business, products and services, and
training in essential skills, before starting
their rotations around the Group.
In 2016 we launched new careers on our
website and on our LinkedIn site, and
conducted a significant recruitment drive.
We attracted more than 2,000 applications
for our London Early Careers Programme.
Candidates underwent two stages of
ability-based screening and profiling,
followed by an Audition Day, a final
interview and a Q&A panel. We selected
two groups: one to join our Global Broking
business and the second to join our Energy
& Commodities business.
www.tpicap.com
22
Strategic report
Business and operating review
continued
Revenue by region
EMEA
Americas
Asia Pacific
At constant exchange rates
Exchange translation
Reported
2016
£m
480.9
279.6
131.0
891.5
891.5
2015
£m
472.1
263.3
120.5
855.9
(59.9)
796.0
Change
+2%
+6%
+9%
+4%
+12%
EMEA
Revenue in EMEA (Europe Middle East and Africa) was 2% higher than last year.
While all areas benefited from better market conditions in the final quarter of the year, with
increased volatility following the Brexit vote and the US presidential election, the broking
business in the region continues to face difficult market conditions in many of our heritage
product areas. Revenue in Interest Rate Derivatives and Fixed Income was lower than last
year
overall, partly offset by growth in futures and options with the inclusion of revenue from
our arrangement with Coex, and in forward FX and FX options where we saw good growth
in our Mirexa business.
Revenue from Energy & Commodities was higher than in 2015, with revenue from oil and
other commodities partly offset by lower revenue in power and gas products. Equities revenue
continues to grow year on year, reflecting the higher volatility in equity markets and the
benefit from investment in broadening the product coverage.
Average broker headcount in the region was 4% lower than last year, with average revenue
per broker up 8%, primarily as a result of the cost improvement programme. Period-end
broker headcount was 771.
Americas
Revenue in the Americas was 6% higher than last year.
The growth in revenue in the region was largely attributable to recent acquisitions made in
the USA, including the full year benefit of MOAB as well as the addition of 14 credit
derivative brokers in September 2016.
Additionally the region benefited from improved market activity following the Brexit vote
and the US presidential election, and the expectation of further movement in interest rates
provided heightened activity in our heritage products in the final quarter of the year.
Revenue from Interest Rate Derivatives and Equities was up 9% and 13% respectively
following strategic hires, investment in new products and slightly more beneficial
market conditions.
Fixed Income continued to see restricted volumes, especially in the government and
corporate bonds businesses, which offset the improvement made in credit derivatives.
Forward FX saw subdued volumes following increased regulatory pressure on its customer
base, particularly in the second half of the year.
The Energy & Commodities business continues to be a strategic growth area in the region,
with revenues 33% higher than last year. The Americas continue to add new products in both
the physical and financial energy markets. Energy revenue represented over 18% of revenue
in the Americas region in 2016 up from 15% in 2015.
Average broker headcount in the Americas
was 2% lower than in 2015, with average
revenue per broker 8% higher. Period-end
broker headcount in the Americas was 525.
Asia Pacific
Revenue in Asia Pacific was 9% higher
than last year, reflecting increased revenue
from both the regional broking business
and the RMS business which is operated
from the region.
Broking revenue in the region has benefited
from the growth in the investment made
in our Fixed Income broking capability in
corporate and sovereign bonds towards the
end of 2015, and the continued growth in
our Energy & Commodities broking activities
which now accounts for around one fifth
of the region’s total broking revenue.
Activity in Treasury Products was lower
overall than in the prior year reflecting a
slowdown in client trading in FX options and
deteriorating sentiment in offshore renminbi
products, although the market picked up
considerably in Forward Yen. Revenue from
Interest Rate Derivatives was higher than last
year reflecting improved market conditions
for HK$ interest rate swaps during the year.
Average broker headcount in the region
was 3% higher than in 2015 with average
revenue per broker up 3%. Period-end broker
headcount in Asia Pacific was 376.
Operating margin and cost management
The Group continues to manage its direct
cost base to reflect market conditions. The
cost improvement programme implemented
towards the end of 2015 was completed
during the first half of 2016. The objective of
the programme was to preserve the variable
nature of broking compensation and to
reduce it as a percentage of broking revenue,
as a response to the level of activity and
revenue in traditional interdealer product
areas falling during 2015. This ensures the
business is well positioned to respond to
less favourable market conditions and to
maintain its operating margins. The £5.2m
cost of the actions taken in 2016 has been
charged as an exceptional item in the
2016 Consolidated Financial Statements.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
23
Case study
Investing in
technology
Establishing an IT centre of excellence in Belfast to support
our global broking business is a strategic decision that will
help us to enhance our technological capabilities.
Link to our strategy on page 8
Recruitment has started and we have
already hired 24 managers, development
specialists and administrative employees.
When the Belfast centre is fully operational
in 2019, we expect it to employ approximately
300 employees.
In August 2016, we announced the
establishment of a new technology centre in
Northern Ireland. It will provide technical
and development support for our global
business, increasing our IT capability and
capacity, and making us more agile and
responsive to business and client needs.
The new centre will enable us to bring more
of our development in-house, reduce our
reliance on outside vendors and allow us to
retain and control more of the valuable
intellectual property we create.
www.tpicap.com
24
Strategic report
Business and operating review
continued
As a result of these actions, together with
those taken in 2015, fixed broker employment
costs in the traditional interdealer product
areas in EMEA and in North America have
been reduced in line with the decline in
revenue in those areas. Total broker
compensation costs as a percentage of
broking revenue have fallen by 1.4% points
to 53.2%, continuing the downward trend
since 2012 when total broker compensation
costs as a percentage of broking revenue
were 59.8%. The reduction in the overall
broker employment costs to revenue
percentage in 2016 has been assisted
by the improved efficiency of bonus pool
arrangements, despite the continued
change in mix of the business, with a
higher proportion of revenue in Energy &
Commodities where broker compensation
costs as a percentage of revenue tend to
be a little higher than average.
The overall contribution margin of the
business, after broker employment costs and
other front office direct and variable costs,
was 1.6% points higher in 2016 than in the
prior year, reflecting the reduction in the
broker compensation to broking revenue
percentage and the continuing growth in
Information Sales and RMS which have a
relatively low level of variable costs.
The Group has also continued to invest in
developing its capabilities in managing
new business and strategic initiatives and
in strengthening the control and support
functions in readiness for the integration
of ICAP, and these have resulted in an
increase in management and support costs
and one-off project costs in the year. These
investments are important for the business
to retain its competitive advantage, to
innovate, and to grow revenue and earnings.
Underlying operating profit
The revenue, underlying operating profit and operating profit margin by region shown below
are as reported.
Revenue
EMEA
Americas
Asia Pacific
Reported
Underlying operating profit
EMEA
Americas
Asia Pacific
Reported
Underlying operating profit margin by region
EMEA
Americas
Asia Pacific
Reported
2016
£m
480.9
279.6
131.0
891.5
2016
£m
97.7
18.2
15.6
131.5
2015
£m
455.3
234.5
106.2
796.0
2015
£m
81.2
14.9
11.8
107.9
2016
20.3%
6.5%
11.9%
14.8%
Change
+6%
+19%
+23%
+12%
Change
+20%
+22%
+32%
+22%
2014
17.8%
6.4%
11.1%
13.6%
EMEA
Underlying operating profit in EMEA of £97.7m was 20% higher than in the prior year, and
with revenue up 6%, the underlying operating profit margin has increased by 2.5% points, to
20.3%. The actions taken under the cost improvement programme at the end of 2015 and in
the first half of 2016 have resulted in a 4% reduction in fixed broker employment costs in the
region compared with the prior year, and together with an increase in broking revenue total
broker employment costs as a percentage of broking revenue have fallen by 1.5% points. The
benefit of the resulting higher contribution margin has been offset by higher management
and support costs due to the investments being made in strengthening and developing the
business, and one-off costs relating to technology and regulatory projects.
Americas
In the Americas, the underlying operating profit margin of £18.2m is 22% higher than in
2015 and the underlying operating profit margin has improved by 0.1% points to 6.5%. The
actions taken under the cost improvement programme have resulted in a 5% reduction in fixed
broker employment costs in 2016 compared with 2015 (on a like for like basis), and total broker
employment costs as a percentage of broking revenue have fallen by 1.9% points. The
underlying operating profit has been adversely impacted by non-recurring costs incurred
during the year, and as a result we expect to see some benefit in the operating profit in 2017.
Asia Pacific
Underlying operating profit in Asia Pacific has increased by 32% to £15.6m. Broker
employment costs as a percentage of broking revenue are 0.8% points lower than
in the prior year, which is the main reason for the improvement in the underlying
operating profit margin.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
25
Case study
Building Energy
& Commodities
Our Energy & Commodities division includes oil, coal, power,
gas, freight, base and precious metals, emissions and soft
commodities. We can provide cross-asset class services to clients,
and have coverage in all the main energy centres in the world,
including London, New York, Houston and Singapore.
Link to our strategy on page 8
During 2016, we continued to integrate our
acquisitions of PVM and MOAB, increasing
their links with our other energy businesses to
optimise the opportunities for cross-selling.
We built on our enlarged presence through
adding new broking capability in physical
oil, power, natural gas and liquefied
petroleum gas.
We also added capabilities in refined
petroleum products and began
incorporating new algorithmic trading
strategies into our execution services for soft
commodities and other products. We also
expanded our suite of broking services for
environmental products, including
renewable energy, biofuel and carbon.
www.tpicap.com
26
Strategic report
Financial review
The results for 2016 compared with those for 2015 are shown in the tables below.
2016
Income Statement
Revenue
Underlying operating profit
Charge relating to cost improvement programme
Pension scheme settlement gain
ICAP acquisition costs
ICAP integration costs
Acquisition related share-based payment charge
Amortisation of intangible assets arising on consolidation
Other acquisition and disposal items
Operating profit
Net finance expense
Profit before tax
Tax
Share of net profit of associates and joint ventures
Non-controlling interests
Earnings
Average number of shares
Basic EPS
2015
Income Statement
Revenue
Underlying operating profit
Credit relating to major legal actions
Charge relating to cost improvement programme
ICAP acquisition costs
Acquisition related share-based payment charge
Amortisation of intangible assets arising on consolidation
Other acquisition and disposal items
Operating profit
Net finance expense
Profit before tax
Tax
Share of net profit of associates
Non-controlling interests
Earnings
Average number of shares
Basic EPS
Acquisition,
disposal and
integration
costs
£m
Exceptional
items
£m
(5.2)
3.6
(1.6)
(1.6)
(0.3)
(16.8)
(19.3)
(16.3)
(1.4)
(2.8)
(56.6)
(6.6)
(63.2)
5.3
(57.9)
(1.9)
Acquisition,
disposal and
integration
costs
£m
Exceptional
items
£m
64.4
(25.7)
38.7
38.7
(10.5)
(12.1)
(10.5)
(1.2)
(0.9)
(24.7)
(2.0)
(26.7)
3.0
(23.7)
28.2
Underlying
£m
891.5
131.5
131.5
(9.9)
121.6
(22.1)
4.0
(0.5)
103.0
242.3m
42.5p
Underlying
£m
796.0
107.9
107.9
(14.2)
93.7
(17.5)
2.6
(0.4)
78.4
243.6m
32.2p
Reported
£m
891.5
131.5
(5.2)
3.6
(16.8)
(19.3)
(16.3)
(1.4)
(2.8)
73.3
(16.5)
56.8
(17.1)
4.0
(0.5)
43.2
242.3m
17.8p
Reported
£m
796.0
107.9
64.4
(25.7)
(12.1)
(10.5)
(1.2)
(0.9)
121.9
(16.2)
105.7
(25.0)
2.6
(0.4)
82.9
243.6m
34.0p
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
27
Exceptional and acquisition, disposal and integration items
The Group presents its Consolidated Income Statement in a columnar format to aid the understanding of its results by separately presenting
its underlying profit before acquisition, disposal and integration costs and exceptional items (see Note 2(c) to the Consolidated Financial
Statements). Underlying profit is reconciled to profit before tax on the face of the Consolidated Income Statement and is disclosed separately
to give a clearer presentation of the Group’s underlying trading results. Acquisition, disposal and integration costs are excluded from
underlying results as they reflect the impact of acquisitions and disposals rather than underlying trading performance.
The £16.8m charge in 2016 relating to acquisition costs reflects the legal and professional costs incurred in relation to the acquisition of ICAP.
Additional costs of £6.6m directly associated with the shares issued to acquire ICAP have been recorded directly in equity.
The £19.3m charge for integration costs related to the acquisition of ICAP includes professional fees and employee costs relating to planning,
setting up and running the integration workstreams, costs incurred in the marketing and branding of TP ICAP and some severance costs.
As part of the acquisition of PVM in November 2014, the payment to each individual vendor of their share of up to US$48m of deferred
consideration (which is subject to achieving revenue targets in the three years after completion) was linked to their continued service with the
business, and is therefore amortised through the income statement over the relevant service period. The amortisation charge recognised in
2016 is £16.3m (2015: £10.5m).
The other acquisition and disposal items include a loss on the disposal of Unified Energy Services and costs relating to the acquisition
of MOAB.
The charge for amortisation of intangible assets arising on acquisition recognised in 2016 is £1.4m (2015: £1.2m). £1.2m of this relates to
intangible assets other than goodwill arising on the acquisition of PVM, reflecting the PVM brand and the value of customer relationships,
that is being amortised through the income statement over the estimated useful lives of those assets, and £0.2m relating to MOAB.
Amortisation of intangible assets arising on consolidation is excluded from underlying results to present the performance of the Group’s
acquired businesses consistently with its organically grown businesses where such intangible assets are not recognised.
The £5.2m exceptional charge in 2016 relating to the cost improvement programme is discussed previously. The £25.7m charge in 2015 relates
to the cost improvement action taken in that year. The £3.6m pension scheme settlement gain reflects the difference between the assets used
to settle liabilities relating to certain members of the pension scheme that transferred out during the year. The exceptional items in 2015
include the net £64.4m credit relating to the major legal actions with BGC. Exceptional items have been excluded from underlying results
as they are non-recurring and do not relate to the underlying performance of the business. Whilst a charge for the cost improvement
programme arose in each of 2016 and 2015, the programme was a discrete programme where the costs were recognised over a period
of two years.
www.tpicap.com 28
Strategic report
Financial review
continued
Net finance expense
The underlying net cash finance charge comprises: £9.3m interest payable on the outstanding Sterling Notes; £2.1m interest payable on
the revolving credit facility that was drawn down to refinance the Sterling Notes that matured in July 2016; £1.8m commitment fees for
the undrawn revolving credit facility; £1.2m of amortisation of debt issue and arrangement costs; and other net interest income of £1.6m.
The underlying net non-cash finance income comprises the deemed interest on the pension scheme net asset of £3.2m, partly offset
by the unwinding of discounted liabilities and provisions.
An analysis of the net finance expense is shown in the table below.
Receivable on cash balances
Payable on Sterling Notes July 2016
Payable on Sterling Notes June 2019
Interest payable on bank facilities
Commitment fees payable on bank facilities
Amortisation of debt issue and arrangement costs
Other interest
Net cash finance expense
Net non-cash finance income
Underlying net finance expense
Acquisition related finance expense
2016
£m
2.1
(5.1)
(4.2)
(2.1)
(1.8)
(1.2)
(0.5)
(12.8)
2.9
(9.9)
(6.6)
2015
£m
1.8
(9.9)
(4.2)
–
(1.6)
(1.8)
(0.4)
(16.1)
1.9
(14.2)
(2.0)
The acquisition related finance expense comprises: a £2.7m expense for the amortisation of arrangement costs relating to the £470m
bank bridge facility the Company entered into in November 2015 to fund the repayment of the £330m of short term debt acquired with ICAP,
and the refinancing of the £141.1m Notes that matured in July 2016. It also includes a £3.3m facility fee for the undrawn £470m bank bridge
facility, that was incurred during the year in advance of the transaction completing. The delay in the completion of the ICAP acquisition also
led to a £0.3m expense relating to the preparatory work undertaken for the issue of the bond originally planned to refinance the Notes, which
was subsequently suspended as a result of the timing of the transaction. In addition we incurred a charge of £0.3m reflecting the unwinding
of the discount on deferred consideration relating to the acquisitions of PVM.
Tax
The effective rate of tax on underlying Profit Before Tax (‘PBT’) is 18.2% (2015: 18.7%). The reduction in the effective rate primarily reflects
an increase in US taxable profits that continue to be sheltered by unrecognised tax losses together with provision releases that relate to tax
uncertainties that have been resolved. Excluding the benefit from the release of provisions and prior year adjustments, the effective rate
of tax on underlying PBT would have been 19.3% (2015: 20.5%).
The tax charge on exceptional and acquisition related items reflects the net of tax charges and tax relief recognised on those items at the
relevant rate for the jurisdiction in which the charges are borne. No tax has been recognised on the exceptional charges and credits arising
in the US in either 2016 or 2015 due to the tax losses available in that jurisdiction.
The effective rate of tax on underlying Group PBT is expected to increase to around 26% from 2017 onwards. This is driven by the anticipated
increase in the underlying taxable profits arising in the US as a result of the ICAP acquisition. In recent years the Group’s US taxable profits
have been relieved by tax losses.
Basic EPS
The average number of shares used for the basic EPS calculation of 242.3m reflects the 243.6m shares in issue at the beginning of the year,
less the time apportioned element of the 1.7m shares acquired by the Employee Benefit Trust to satisfy deferred share awards made to
senior management, less the 0.2m shares held throughout the year by the Employee Benefit Trust, which has waived its rights to dividends.
The 310.3m shares issued to acquire ICAP at the end of December 2016 have a nil weighting when calculating the weighted average number
of shares for 2016 because the shares were issued at the end of the year and none of the earnings related to the newly issued shares.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
29
Cash flow
The cash flow below reconciles the movement from underlying operating profit to cash flow before debt repayments and analyses principal
cash flows during the year.
The reported cash flow is shown on page 94 and further analysis is provided in Note 31 to the Consolidated Financial Statements.
Underlying operating profit
Share–based compensation and other non–cash items
Depreciation and amortisation
Underlying EBITDA
Capital expenditure (net of disposals)
Increase in initial contract prepayment
Other working capital
Underlying operating cash flow
Exceptional items – cost improvement programme 2015
Exceptional items – cost improvement programme 2014
Exceptional items – restructuring 2011/2012
Exceptional items – major legal actions net cash flow
ICAP acquisition costs
ICAP integration costs
Other acquisition and disposal items
Net interest expense
Share award purchases
Taxation
Dividends received from associates/(paid) to non-controlling interests
Acquisition consideration/investments (net of disposals)
Cash flow before debt repayments
2016
£m
131.5
4.5
16.4
152.4
(17.5)
(0.4)
(5.0)
129.5
(20.7)
(1.2)
(0.4)
–
(11.0)
(17.0)
(0.3)
(19.1)
(6.2)
(16.7)
1.5
(3.2)
35.2
2015
£m
107.9
2.2
15.0
125.1
(13.9)
(0.9)
13.6
123.9
(3.7)
(5.3)
(0.3)
64.4
(12.1)
–
(0.5)
(14.6)
–
(19.5)
1.1
(12.0)
121.4
The underlying operating cash flow in 2016 of £129.5m represents a conversion of 98% (2015: £123.9m and 115%) of underlying operating
profit into cash.
Capital expenditure of £17.5m includes the development of electronic platforms and ‘straight through processing’ technology, and investment
in IT and communications infrastructure, and the acquisition of a long-term licence of hybrid trading technology from the CME.
Initial contract payments in 2016 were broadly in line with the amortisation charge.
The other working capital outflow in 2016 primarily reflects the increase in trade receivables resulting from the higher level of broking
activity towards the end of the year compared with 2015, partially offset by a corresponding increase in bonus accruals compared with
the prior year end.
During 2016, the Group made £20.7m of cash payments relating to actions taken under the 2015 cost improvement programme,
£1.2m relating to the 2014 cost improvement programme, and £0.4m relating to the 2011/12 restructuring programme.
Transaction cash payments relating to the acquisition of ICAP were £11.0m in the year. The Group also paid £17.0m for integration planning
and other integration related actions.
The Group paid £6.2m to purchase its own shares, to satisfy deferred share awards made to senior management during the year.
Interest payments in 2016 reflect the underlying income statement charge for net cash finance expenses excluding the charge for the
amortisation of debt issue costs.
www.tpicap.com 30
Strategic report
Financial review
continued
Tax payments in 2016 of £16.7m include £13.7m paid in the UK. Tax payments in the USA continue to be low, reflecting the utilisation of tax
losses. Tax paid in Asia Pacific has decreased primarily reflecting reduced payments due to overpaid tax in the prior year.
The £3.2m acquisitions and investments cash outflow in 2016 is deferred consideration relating to the acquisition of MOAB.
The movement in cash and debt is summarised below.
At 31 December 2015
Cash flow
Dividends
Bank facility arrangement fees
Repayment of Sterling Notes June 2016
Drawdown Bridge Facility
Amortisation of debt issue costs
Cash and financial assets acquired with ICAP
Loan acquired with ICAP
Repayment of loan acquired with ICAP
Effect of movement in exchange rates
At 31 December 2016
Note:
1
Includes financial assets.
Debt finance
The composition of the Group’s outstanding debt is summarised below.
7.04% Sterling Notes July 2016
5.25% Sterling Notes June 2019
Bank bridge loan
Unamortised debt issue costs
Cash1
£m
379.2
35.2
(40.7)
(3.8)
(141.1)
470.0
–
383.5
–
(330.0)
33.3
785.6
Debt
£m
(220.2)
–
–
3.8
141.1
(470.0)
(1.5)
–
(330.0)
330.0
–
(546.8)
Net
£m
159.0
35.2
(40.7)
–
–
–
(1.5)
383.5
(330.0)
–
33.3
238.8
At
31 December
2016
£m
At
31 December
2015
£m
–
80.0
470.0
(3.2)
546.8
141.1
80.0
–
(0.9)
220.2
During 2016, the Group refinanced the £141.1m Notes that matured in July 2016, by drawing down £140m of the £250m RCF and using
£1.1m of its own funds. When the acquisition of ICAP completed on 30 December, the Group drew down the committed £470m bank bridge
facility that the Company had entered into in November 2015, to repay the £140m drawn on the RCF, and the outstanding £330m debt
obligation acquired with ICAP.
The bank bridge loan was subsequently refinanced on 26 January 2017 following the issue of £500m 5.25% unsecured Sterling Notes that
mature in January 2024.
Exchange and hedging
The income statements of the Group’s non-UK operations are translated into sterling at average exchange rates. The most significant
exchange rates for the Group are the USD and the Euro. The balance sheets of the Group’s non-UK operations are translated into Sterling using
year end exchange rates. The major balance sheet translation exposure is to the USD The Group’s current policy is not to hedge income
statement or balance sheet translation exposure. Average and year end exchange rates used in the preparation of the Financial Statements
are shown below.
USD
Euro
Average
Year end
2016
$1.37
€1.23
2015
$1.53
€1.38
2016
$1.24
€1.17
2015
$1.47
€1.36
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
31
Pensions
The Group has one defined benefit pension scheme (the ‘Scheme’) in the UK. The Scheme is closed to new members and future accrual.
The triennial actuarial valuation of the Scheme as at 30 April 2013 was concluded in January 2014. The actuarial funding surplus of the
Scheme at that date was £64.2m and under the agreed schedule of contributions the Group will continue not to make any payments
into the Scheme. The 30 April 2016 triennial actuarial valuation is currently in progress and has not been finalised as at the date of the
Consolidated Financial Statements.
The assets and liabilities of the Scheme are included in the Consolidated Balance Sheet in accordance with IAS 19. The fair value of the Scheme’s
assets at the end of the year was £317.0m (2015: £289.8m). The increase reflects the investment return on the assets of 21% less amounts
paid as benefits and transfers. The value of the Scheme’s liabilities at the end of 2016, calculated in accordance with IAS 19, was £217.1m
(2015: £201.6m). The valuation of the Scheme’s liabilities at the end of 2016 reflects the demographic assumptions adopted for the most
recent triennial actuarial valuation and a discount rate of 2.5% (2015: 3.7%). Under IAS 19, the Scheme shows a surplus, before the related
deferred tax liability, of £99.9m at 31 December 2016 (2015: £88.2m).
The Trustees are currently making arrangements for the transfer of the Scheme’s assets and liabilities to a third a party who will take on
responsibility for providing the Scheme’s benefits, and remove the Group’s responsibility for supporting the Scheme financially, a ‘Buy-out’.
Securing such a Buy-out will give long term security to the Group. It should be noted that to the extent the premium charged by the third party
exceeds the value of the Scheme’s liabilities calculated in accordance with IAS 19, the completion of the Buy-out will result in a reduction of
the Group’s net assets. This reduction, with its associated tax credit, will be reflected as an exceptional settlement expense in the
Consolidated Income Statement.
Regulatory capital
The Group’s lead regulator is the Financial Conduct Authority (‘FCA’).
The Group has a waiver from the consolidated capital adequacy requirements under CRD IV. The Group’s current waiver took effect on
30 December 2016, following the acquisition of ICAP, and will expire on 30 December 2026. Under the terms of the waiver, each investment
firm within the Group must be either a limited activity or a limited licence firm and must comply with its individual regulatory capital
resources requirements. TP ICAP, as the parent company, must continue to maintain capital resources in excess of the sum of the solo
notional capital resources requirements for each relevant firm within the Group, the ‘Financial Holding Company test’.
The terms of the waiver require the Group to eliminate the excess of its consolidated own funds requirements compared with its consolidated
own funds (‘Excess Goodwill’) over the ten year period to 30 December 2026. The amount of the Excess Goodwill must not exceed the amount
determined as at the date the waiver took effect and must be reduced in line with a schedule over the ten years, with the first reduction of 25%
required to be achieved by June 2019. The Group expects to achieve this reduction within its current business plan. The waiver also sets out
conditions with respect to the maintenance of financial ratios relating to leverage, debt service and debt maturity profile.
The Group’s regulatory capital headroom under the Financial Holding Company test calculated in accordance with Pillar 1 was £1,922m
(2015: £761m).
Many of the Group’s broking entities are regulated on a ‘solo’ basis, and are obliged to meet the regulatory capital requirements imposed by
the local regulator of the jurisdiction in which they operate. The Group maintains an appropriate excess of financial resources in such entities.
Information disclosure under Pillar 3 is available on the Group’s website: www.tpicap.com
Acquisition of ICAP
As the acquisition completed at the end of 2016, none of the results of ICAP are included in the results reported for 2016 on which the
previous paragraphs provide a commentary. On page 4 we have included an unaudited Pro Forma Income Statement indicating what the
aggregated results would have looked like if the combination had been effective from 1 January 2016. The unaudited Pro Forma Income
Statement is compiled based on TP ICAP plc’s 2016 audited financial statements discussed in this Annual Report together with financial
data extracted from the books and records of ICAP over the 12 month period to December 2016.
Over the 12 months to 31 December 2016, ICAP had revenues of £795m and an operating profit of £108m giving an operating profit
margin of 13.6%.
The Acquisition was achieved through the issue of approximately 310m ordinary shares, valuing the transaction at £1,283m. Under the terms
of the transaction, TP ICAP assumed £330m of intercompany debt owed by the acquired business to its former parent. This was immediately
repaid by drawing down the bank bridge facility, which was subsequently refinanced in January 2017 as described above.
www.tpicap.com 32
Strategic report
Risk management
Effective risk management is essential for the financial
strength and resilience of the Group and for the
achievement of its business objectives. This section sets
out a summary of how risk is managed by the Group,
covering the Enterprise Risk Management Framework
and the Group’s principal risks.
Enterprise Risk Management Framework
The Enterprise Risk Management Framework
(‘ERMF’) enables the Group to understand
the risks it is exposed to and to manage
them in line with its business objectives
and within the stated risk appetite.
The ERMF comprises four mutually
reinforcing components: risk management
philosophy, risk management culture,
risk management governance structure
and risk management processes.
Philosophy and culture
The Group’s risk management philosophy
is underpinned by a set of core principles
that establish the context for the Group’s
risk management activities. The principles
dictate that risk management should be
value enhancing, address the expectations
and requirements of key stakeholders and
be integrated into the business processes
of the Group.
Risk management should also be
proportionate to the type and complexity
of the business model and the nature
of the associated risks. Furthermore, risk
oversight and assurance functions should
be sufficiently independent of business
decision taking and supported by
adequate resources.
The Board recognises that embedding a
sound risk management culture throughout
the Group is fundamental to the effective
operation of the ERMF, specifically to ensure
that all employees are aware of, and act in
conformity with, the desired values and
behaviours adopted by the Group in their
day-to-day activities.
The Group seeks to achieve the
implementation of its desired risk
management culture through a
combination of frameworks, policies,
practices and incentive schemes.
Governance
The Group has implemented a risk management governance structure based on three lines of defence that segregate risk management
(first line of defence) from risk oversight (second line of defence) and risk assurance (third line of defence), and is subject to Board and
Risk Committee oversight:
The Board has overall responsibility for the management
of risk within the Group. This includes:
> determining its risk appetite and defining expectations
for the Group’s risk culture
> ensuring that it has an appropriate and effective
risk management framework monitoring performance
so that the Group remains within its risk appetite
The Group’s Risk Committee governance structure
ensures the effective oversight of the implementation
and operation of the ERMF. It comprises:
> Board Risk Committee (‘BRC’)
> Group Executive Risk Committee (‘GERC’)
> three regional risk committees (in EMEA,
Americas and Asia Pacific)
> other function specific committees
Board
BRC
GERC
EMEA
Americas
Asia Pacific
Functional
Risk
Committees
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
33
First line of defence
Risk management within the business
Second line of defence
Risk oversight and challenge
Third line of defence
Independent assurance
The first line of defence comprises
the management of the business units
and support functions.
The second line of defence comprises the
risk and compliance functions, which are
independent from operational management.
Internal Audit provides independent
assurance on the design and operational
effectiveness of the ERMF and
associated activity.
The first line of defence has primary
responsibility for ensuring that the
business operates within risk appetite
on a day-to-day basis.
The functions are responsible for overseeing
and challenging the first line of defence
as it undertakes the identification,
assessment and management of risks,
and for assisting the Board (and its various
committees) in discharging its overall risk
oversight responsibilities.
Risk appetite
The Group’s risk appetite represents the type and level of risk which it
is willing to accept in pursuit of its business objectives. Risk appetite
is articulated by the Board through the Group’s risk appetite
statements which are reviewed on at least an annual basis.
The Group’s risk appetite statements are set by reference to five
‘risk impacts’ and can be summarised as follows:
Risk management processes
The ERMF sets out the core risk management activities undertaken
by the Group to identify, assess and manage its risk profile within
the prescribed risk appetite.
Board
oversight
Review
risk
universe
Mgt. and
governance
committees
Set risk
appetite
Exposure
monitoring
and reporting
Assess
financial
resources
4. Report
1. Identify
Risk
management
philosophy
and culture
3. Monitor
and control
2. Assess
Adopt risk
mgt. policy
framework
Undertake
RCSAs
Impact
Capital
Liquidity
Assure
controls and
policies
Review key
controls
Conduct
stress and
scenario
analysis
Perform
top down
risk
assessment
Reputation
Regulatory standing
Access to capital markets
Statement
The Group must ensure it holds
sufficient capital to meet any
applicable regulatory capital
requirements in both expected
and stressed business conditions
Each operating entity must maintain,
or have access to, sufficient liquidity to
meet all of its funding obligations and
comply with any minimum regulatory
requirements, in both normal and
stressed conditions.
The Group’s objective is to maintain
its reputation for being a sound, trusted
and reliable market intermediary,
with market integrity at the heart
of its business, as articulated in the
Group’s Cultural Framework.
The Group’s objective is to maintain its
good standing with all of its regulators
and to fully comply with all applicable
laws and regulations to which the
Group is subject.
The Group’s objective is to ensure
that it maintains access to the capital
markets, and complies with existing
bank lending covenants, even in
stressed operating conditions.
The Group implements its risk appetite statements through the
adoption of risk thresholds at individual risk level. These thresholds
constitute the operational parameters which the first line of defence
must operate within on a day-to-day basis.
www.tpicap.com 34
Strategic report
Our principal risks and uncertainties
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
Description
Adverse change
to regulatory
framework
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
Cyber-security and
data protection
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.
> Loss of revenue
> Remediation costs
> Severe damage to reputation
> Regulatory sanctions
> Payment of damages/compensation
Deterioration in
the commercial
environment
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.
> Reduction in broking activity
> Reduced earnings and profitability
Failure to respond
to client
requirements
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.
> Loss of market share
> Reduced earnings and profitability
Failure to deliver
integration
The Group’s business strategy is dependent on the successful
integration of ICAP, and achieving the targeted
operational efficiencies.
> Double running costs leading to
reduced profitability
> Lack of investor confidence
> Reduced access to the capital markets
> Integration plan
tracking (status)
> Developing the business’s capability to source, execute
and integrate acquisitions.
Mitigation
Key risk indicator
Related strategic objectives (as set out on page 8)
> Close monitoring of regulatory
developments.
> Active involvement in consultation
> Key regulatory changes
> Status of regulatory
change initiatives
and rule setting processes
(including FCA consultations
on MiFID II).
> The Group continues to monitor
and assess the evolving and
increasingly sophisticated
cyber-threat landscape to ensure
that its control framework
is appropriate to address the
potential cyber-threats to which it
is exposed.
> Adoption of a clearly defined
business development strategy
to maintain geographic and
product diversification.
> Establishment of working group
to prepare the Group’s response
to Brexit.
> System outages
> Data loss events
> Cyber-security
events/losses
> Operating profit
> Revenues by region
> Trade volumes
> Revenue forecast
> Stress testing
scenario outcomes
> 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.
> Trade volumes
> Operating profit
> New business
initiatives
> Client satisfaction
surveys
> Adoption of clearly defined
integration plan.
> Implementation of robust
integration governance structure.
> Measurement of synergies realised
and monitoring of costs of
the integration.
> 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.
> 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.
> 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.
> 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.
TP ICAP Annual Report and Accounts 2016 The Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business
Principal risks
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
Description
Adverse change
to regulatory
framework
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
Cyber-security and
The risk that the Group fails to adequately protect itself against
data protection
cyber-attack and / or to adequately secure the data it holds, resulting
> Loss of revenue
> Remediation costs
in loss of operability, as well as potential loss of critical business or
client data.
> Severe damage to reputation
> Regulatory sanctions
> Payment of damages/compensation
Deterioration in
the commercial
environment
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
> Reduction in broking activity
> Reduced earnings and profitability
or geopolitical developments, such as Brexit.
Failure to respond
The markets in which the Group competes are characterised by
to client
requirements
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.
> Loss of market share
> Reduced earnings and profitability
Failure to deliver
The Group’s business strategy is dependent on the successful
integration
integration of ICAP, and achieving the targeted
operational efficiencies.
> Double running costs leading to
reduced profitability
> Lack of investor confidence
> Reduced access to the capital markets
Strategic report Governance report
Financial statements
35
Mitigation
Key risk indicator
Related strategic objectives (as set out on page 8)
> Close monitoring of regulatory
developments.
> Active involvement in consultation
> Key regulatory changes
> Status of regulatory
change initiatives
and rule setting processes
(including FCA consultations
on MiFID II).
> The Group continues to monitor
and assess the evolving and
increasingly sophisticated
cyber-threat landscape to ensure
that its control framework
is appropriate to address the
potential cyber-threats to which it
is exposed.
> Adoption of a clearly defined
business development strategy
to maintain geographic and
product diversification.
> Establishment of working group
to prepare the Group’s response
to Brexit.
> System outages
> Data loss events
> Cyber-security
events/losses
> Operating profit
> Revenues by region
> Trade volumes
> Revenue forecast
> Stress testing
scenario outcomes
> 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.
> Trade volumes
> Operating profit
> New business
initiatives
> Client satisfaction
surveys
> 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.
> 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.
> 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.
> 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.
> Integration plan
tracking (status)
> Developing the business’s capability to source, execute
and integrate acquisitions.
> Adoption of clearly defined
integration plan.
> Implementation of robust
integration governance structure.
> Measurement of synergies realised
and monitoring of costs of
the integration.
www.tpicap.com 36
Strategic report
Our principal risks and uncertainties
continued
Risk
Description
Potential Impact
Mitigation
Key risk indicator
Related strategic objectives (as set out on page 8)
Failure to retain
and recruit talent
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 loss of expertise and client
relationships.
> Increase in employee costs as Group seeks
to counter aggressive competitor activity.
Operational failure
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
> Financial loss which could, in extreme
cases, impact the Group’s solvency
and liquidity.
> Damage to the Group’s reputation
as a reliable intermediary in the
financial markets.
> Proactive management of
broker contracts.
> Competitive remuneration
and performance management.
> Operation of Early Careers
Programme.
> Complaints and
conduct issues
> Voluntary leavers
> Performance
appraisal ratings
> Trainings conducted
> Implementation of an appropriate
> Residual balances
> Loss events
> Crisis
> Incidents
> Settlement fails
> Margin calls
> Developing the HR function and processes to
hire and train staff and to manage compensation
appropriately to encourage good long
term behaviours.
> 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 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.
Breach of
regulatory
requirements
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.
> Regulatory fines
> Potential loss of regulatory licence
> Severe damage to reputation
Failure to comply with applicable regulatory requirements could
result in enforcement action being taken.
See Note 33 to the Consolidated Financial Statements.
> Regulatory fines
> Financial crime
breaches
> Market abuse
> Conflict of interest
breaches
breaches
> 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.
Counterparty
credit risk
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.
> Financial loss which could, in extreme
cases, impact the Group’s solvency
and liquidity.
> Counterparty exposures managed
> Matched Principal
> Working within a robust investment framework
so that the business allocates capital and resources
to areas where the most value can be created.
Liquidity risk
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.
> Reduction in Group’s liquidity resources
which could, in extreme cases, impact
the Group’s liquidity.
> Brokers subject to broking limits
> Unplanned intra-group
> Working within a robust investment framework
so that the business allocates capital and resources
to areas where the most value can be created.
control framework to ensure that
operational risk exposure is
managed within risk appetite.
> Reverse stress tests undertaken
to identify 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.
> The Group’s Compliance function is
responsible for ensuring that staff
are made aware of all applicable
regulatory requirements, and for
monitoring compliance with
these requirements.
> 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.
against exposure reporting
thresholds, calibrated to reflect
client creditworthiness.
> Exposures subject to ongoing
monitoring and reporting by
independent Credit function.
> Exposure concentration limits
to prevent excessive exposure
to one institution.
which restrict potential
margin exposure.
> Group maintains significant
cash resources in each
operating centre to ensure
immediate access to funds.
> Committed £250m revolving
credit facility.
trade exposure
> Name Passing
receivables
> Group cash
peak exposure
funding calls
> RCF draw-down
> Tax issues
> Credit reviews past due
> Level of margin call
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
37
Risk
Description
Potential Impact
Mitigation
Key risk indicator
Related strategic objectives (as set out on page 8)
Failure to retain
and recruit talent
The Group operates in a highly competitive market for talent, and
> Potential loss of expertise and client
is exposed to the risk that it fails to retain or recruit the employees
relationships.
required to deliver its strategy.
> Increase in employee costs as Group seeks
to counter aggressive competitor activity.
Operational failure
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
and liquidity.
those required to execute, clear and settle trades; and
> A complex IT infrastructure
> Financial loss which could, in extreme
cases, impact the Group’s solvency
> Damage to the Group’s reputation
as a reliable intermediary in the
financial markets.
Breach of
regulatory
requirements
The Group operates in a highly regulated environment and is subject
> Regulatory fines
to the laws and regulatory frameworks of numerous jurisdictions.
These include laws relating to conduct of business, financial crime,
> Potential loss of regulatory licence
> Severe damage to reputation
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.
Counterparty
credit risk
The Group is exposed to counterparty credit risk arising from
> Financial loss which could, in extreme
brokerage receivables owed by clients, unsettled matched principal
cases, impact the Group’s solvency
trades held with clients and from cash deposit counterparties.
and liquidity.
Liquidity risk
The Group is exposed to potential margin calls from clearing houses
and correspondent clearers. The Group also faces liquidity risk
> Reduction in Group’s liquidity resources
which could, in extreme cases, impact
through being required to fund matched principal trades which
the Group’s liquidity.
fail to settle on settlement date.
> Proactive management of
broker contracts.
> Competitive remuneration
and performance management.
> Operation of Early Careers
Programme.
> Implementation of an appropriate
control framework to ensure that
operational risk exposure is
managed within risk appetite.
> Reverse stress tests undertaken
to identify 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.
> The Group’s Compliance function is
responsible for ensuring that staff
are made aware of all applicable
regulatory requirements, and for
monitoring compliance with
these requirements.
> 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.
> Counterparty exposures managed
against exposure reporting
thresholds, calibrated to reflect
client creditworthiness.
> Exposures subject to ongoing
monitoring and reporting by
independent Credit function.
> Exposure concentration limits
to prevent excessive exposure
to one institution.
> Brokers subject to broking limits
which restrict potential
margin exposure.
> Group maintains significant
cash resources in each
operating centre to ensure
immediate access to funds.
> Committed £250m revolving
credit facility.
> Complaints and
conduct issues
> Voluntary leavers
> Performance
appraisal ratings
> Trainings conducted
> Residual balances
> Loss events
> Crisis
> Incidents
> Settlement fails
> Margin calls
> Developing the HR function and processes to
hire and train staff and to manage compensation
appropriately to encourage good long
term behaviours.
> 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 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.
> Regulatory fines
> Financial crime
breaches
> Market abuse
breaches
> Conflict of interest
breaches
> 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.
> Matched Principal
trade exposure
> Name Passing
receivables
> Group cash
peak exposure
> Unplanned intra-group
funding calls
> RCF draw-down
> Tax issues
> Credit reviews past due
> Level of margin call
> Working within a robust investment framework
so that the business allocates capital and resources
to areas where the most value can be created.
> Working within a robust investment framework
so that the business allocates capital and resources
to areas where the most value can be created.
www.tpicap.com 38
Strategic report
Resources, relationships and responsibilities
We aim to manage our business responsibly, for
the long-term benefit of all stakeholders as well as
society more broadly. This is reflected in our ongoing
commitment to maintaining a professional culture
and sound business practices and relationships,
developing our employees, and supporting the
communities where we operate.
Our role in society
Our primary role in society is rooted in
creating economic value. We contribute
to the stability and prosperity of local
economies by helping governments and
companies raise capital and manage risk,
we provide transparency for customers, and
we help maintain the liquidity of markets.
This provision of liquidity, particularly at
times of economic uncertainty, facilitates
investment in businesses and pension funds,
thus contributing to economic growth and
sustaining society.
Over and above this role, and our public
commitment to act responsibly, we are
in the process of developing a corporate
responsibility strategy for the enlarged
business. This will map out how our business
can influence and bring about positive
change. In a time of public distrust towards
big business and financial firms, it’s important
we maintain our efforts to strengthen our
reputation, as well as enhance the Company
in the eyes of existing and prospective
investors, employees, customers, and
partners, as well as wider society.
In the past few years, the Company has
taken some specific actions with regard
to corporate responsibility, and in 2016
implemented a Group Corporate and Social
Responsibility Policy. Now, as TP ICAP, we
are making good progress in framing the
new business’s corporate responsibility
objectives and developing an overarching
strategy, and will announce more detail as
we move through 2017.
Resources
We recognise that our success depends
on building a high-quality, sustainable
workforce. We therefore make a significant
investment in recruitment and training to
attract, develop and retain the people
we need.
Employee numbers and gender diversity
At 31 December 2016 (excluding ICAP
employees acquired on 30 December
2016), the Board comprised two women and
six men, the same as last year. The mix of
senior managers at 31 December 2016 was
12 women and 56 men (from six women and
53 men in 2015). Overall employee numbers
on 31 December 2016 were 599 women and
2,130 men (2015 reported 556 women and
2,129 men).
Longevity of service
At 31 December 2016 (excluding ICAP
employees acquired on 30 December 2016),
the data on length of service was as follows:
Less than
5 years 5-10 years
10+ years
EMEA
Americas
Asia Pacific
41%
51%
50%
23%
19%
24%
36%
30%
26%
Equal opportunities
In June 2016, we updated our Global Equal
Opportunities Policy. It describes the Group’s
support of equal opportunity in employment,
and our opposition to all forms of unlawful or
unfair discrimination. It applies to all aspects
of the employment relationship, such as
recruitment, training, career prospects,
terms and conditions and performance
management. We will not directly or
indirectly discriminate against employees,
ex-employees, or candidates on the basis
of any protected characteristics, and will
not tolerate unlawful discrimination by
employees. The policy aims to ensure we
respect the backgrounds, beliefs and cultures
of all employees, and that the working
environment is free from discrimination,
harassment and bullying. In the event that
an employee becomes disabled, the Group’s
policy is to make reasonable adjustments,
including arranging training, to enable the
employee to continue working for the Group.
Recruitment
Public misgivings about our sector may
potentially have an impact on our ability
to attract the brightest and the best, and so
we have implemented some new initiatives
for hiring and training the next generation
of brokers. Our Early Career Talent Academy
matches recruits’ key attributes to our
business needs, rather than focusing on their
academic background, and features an
audition day based on ‘The Apprentice’ TV
show format. In November we selected ten
trainee brokers to start with us in London,
from 2,000 applicants. In January 2017,
another ten successful candidates from a
second Talent Academy event became our
first Energy Early Career cohort.
Our early talent strategy will rely heavily on
online channels to interact with potential
candidates. We launched a new careers
page on our website, advertising our
vacancies globally and offering the
functionality for candidates to download
job descriptions and upload their CVs.
This will in time become a fully functioning
careers campaign site. In addition, we
launched a careers page on LinkedIn.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
39
Culture
We recognise that culture is a critical element
of the long-term performance of any business,
especially when two different cultures are
brought together. A healthy culture, regularly
reviewed, can enhance company value and
be a source of competitive advantage. We
strongly believe our culture will need to
create this value in a balanced way, focusing
on risk mitigation and conduct, while at the
same time creating an employee value
proposition to attract and retain the
workforce we want.
Tullett Prebon launched a Cultural
Framework in December 2014, recognising
the importance of a set of unwavering
standards and expectations in weathering
stress and pressure. In the years since, we
have reinforced these standards with our
brokers, and the working environment
has improved accordingly. There is more
awareness of the importance of culture,
and recognition that this is a daily effort
and continuous journey.
Both Tullett Prebon and ICAP have been
on a cultural journey to being a modern
professional services broker. Now we are
clear about our key propositions for our
future culture as TP ICAP, we recognise that
a number of areas require attention and
development. These form a list that we will
continue to test fully and develop further,
before putting together our target culture
and detailed plan of action, which we will
align to the broader integration plan. This
plan will go to the Board during Q2 2017.
From there, to make our plans a reality, we
will work together as a leadership team to
emphasise the importance of delivering
this plan.
Development, training and
new e-learning modules
We believe in the ongoing development
of all employees, and offer training,
development opportunities and support
through our performance management
system and regular HR offering. We
launched a new Global Training policy
where employees can request sponsorship
for appropriate training.
We now have e-learning modules available
to all employees as part of our commitment
to employee learning and development
around the Group. The video modules range
from a broad overview of financial markets
and the major participants, to a more
detailed explanation of specific markets
covering cash, securities, rates and
commodities.
Performance management and reward
Building on the launch of performance
management in 2015, in 2016 we introduced
the performance management cycle to all
employees. In the UK and across EMEA we
continued to roll out the formal assessment
linking broker compensation to our values
and conduct.
All non-broking employees are set objectives
at the start of the year which, along with
behaviour linked to our values and conduct,
will form their year-end appraisal.
The pulse survey
In October 2016, we carried out a short pulse
survey across Tullett Prebon and ICAP,
achieving 67% participation, with 3,460
total responses. The feedback is now helping
us understand employees’ views on today’s
leadership, communication and culture, and
what they would like to see happen in the
future. We supplemented the initial survey
with follow on interviews and focus groups to
discuss feedback. We shared the results with
all concerned. We have a full engagement
survey planned for 2017.
Relationships
Business ethics
We require high standards of ethical
behaviour throughout the business, and
policies and procedures exist to ensure
employees and contractors at all levels
understand and maintain these.
The policies aim to ensure:
> we maintain high standards of
compliance and risk management,
ultimately the responsibility of the
Chief Executive, and monitored by
the Board and Audit Committee.
> we comply fully with the legal and
regulatory requirements wherever we
operate, including the FCA’s Conduct
of Business Sourcebook and the Bank of
England’s Non-Investment Products Code.
> we prohibit corrupt practices, such
as inappropriate payments to any
third party, directly or indirectly.
> we comply fully with tax laws wherever
we operate.
> we trade fairly, knowing our clients
and properly understanding our trades
with clients. We have a policy of not
participating in trading activities we
suspect may not be for legitimate trading
purposes, or whose sole purpose appears
to be tax reduction by the counterparty.
> we guide employees involved in
procurement, including a requirement
to adhere to the highest ethical and
social standards.
> we maintain appropriate guidelines
on gifts, hospitality, entertainment
and conflicts of interest.
> all our employees adhere to and
continually demonstrate our Company
values of Honesty, Integrity, Respect
and Excellence, which are outlined in our
Code of Conduct, to ensure a welcoming,
safe and secure workplace.
In addition, we support the UN Guiding
Principles on Business and Human Rights.
This includes implementing our obligations
under the UK Modern Slavery Act. As a newly
formed business, TP ICAP is undertaking a
thorough review of its Corporate Social
Responsibility practices and as such a
fuller statement on modern slavery will
appear on our Company website as soon
as it is finalised.
www.tpicap.com 40
Strategic report
Resources, relationships and responsibilities
continued
New social media and online policy
Social media continues to change the way
employees and businesses interact and
communicate. To safeguard our brand,
reputation and employees when
communicating on social media or online
at work, we have set clear rules and policies
on the use of social media and online
communications by launching a social
media strategy. We have also produced
a social media best practice guide.
Working with governments and regulators
We work with governments and regulatory
authorities to maintain a detailed, up to
date understanding of any legislation and
regulation that affects us and our customers,
to allow us to respond efficiently to change.
Our values
Our culture is founded on shared values
and principles. We have a defined set of
values that underpin everything we do.
We are known in the market for our honesty,
integrity and excellence in the provision
of service to our clients. Above all else,
we respect our clients and each other,
without bias.
> Honesty
> Integrity
> Respect
> Excellence
Responsibilities
Management of corporate
social responsibility
In September 2016, Tullett Prebon launched
its Group Corporate Social Responsibility
policy statement internally. This sets out the
intentions of the Group in relation to equal
opportunities, employee development,
health, safety, welfare and the environment.
The Group has also published a Code of
Conduct and values, to help guide
employees in their business relationships.
Charitable giving policy
We want to encourage all employees
to support not-for-profit organisations
through volunteering and charitable giving.
Therefore we launched our Charitable
Giving Policy this year, offering a range of
ways employees can make either monetary
or in-kind donations. Monetary schemes
include a matching scheme, where the
Group will match donations raised by an
employee, and one where the Group will
directly sponsor appropriate charitable
organisations introduced by an employee.
We also run a Give As You Earn scheme for
charitable payroll deductions. In addition,
we encourage employees to take up
volunteering opportunities to help approved
not-for-profit organisations, or to provide
personal expertise freely in support. As an
example, in October 2016, we sponsored
20 employee volunteers to support NY Cares
Day for Schools – a fundraising campaign
that brings together volunteers to help
schools in New York City. Our team organised
book rooms, planted bulbs and helped paint
school facilities.
New safety system rolled out
The safety and security of our employees
is our top priority. With this in mind, we
implemented an Emergency Notification
System, with Asia Pacific and EMEA
collecting all emergency contact data,
in partnership with Everbridge. This is
part of our Corporate Business Continuity
Management programme.
Environment
As an office-based business, we do not
generate a large environmental impact.
Our main impact on the environment is the
emission of greenhouse gases as a result
of office-based business activities and from
business travel. Statistics relating to these
are set out in the Directors’ Report, where
we also publish our annual carbon footprint.
Despite this, we do aim to minimise our
impact on the environment and to meet or
exceed any relevant legislative requirements
or codes of practice. We will continue to
improve our management of energy,
emissions, use of resources and waste, and
provide training and resources to support
this. Having recently grown our business by
acquisition, we will be reviewing our strategy
for reducing our environmental impact and
will report more on this in due course.
Tax and other social payments
The Group continues to maintain a low risk
rating from HMRC. The Group has earned
this low risk rating in each of the last eight
years since HMRC started to disclose the
names of those companies achieving this
important status. TP ICAP is registered,
regulated and publicly listed in the UK and
will continue to pay the right amount of tax
at the right time.
The Group made payments to tax authorities
in the UK and the USA (the main jurisdictions
in which it operates) for 2016 of £215m
(2015: £193m), comprising corporation tax,
premises taxes, employer’s social security
payments, income taxes and social security
paid on behalf of employees and VAT/sales
taxes. In addition, the Group makes further
tax payments to the tax authorities in other
tax jurisdictions in which it operates.
HM Treasury has adopted the requirements
set out under CRD IV and issued the Capital
Requirements Country-by-Country Reporting
Regulations 2013. The legislation requires
the Company to publish additional
information, in respect of the year ended
31 December 2016, by 31 December 2017.
This information will be available by this
date on TP ICAP’s website, www.tpicap.com.
The 2016 Strategic Report, from page 2 to
page 40, has been reviewed and approved
by the Board of Directors on 14 March 2017.
John Phizackerley
Chief Executive
Andrew Baddeley
Chief Financial Officer
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
41
Case study
Growing Data
& Analytics
Our Data & Analytics Division continues to grow and
innovate, adding new products to meet clients’ changing
needs as markets shift and regulation changes.
Link to our strategy on page 8
We plan to increase the depth and breadth
of products Burton-Taylor delivers to clients
and to continue to expand its services into
new sectors, making Data & Analytics a key
part of TP ICAP’s ongoing growth story.
In 2016, we acquired the market research,
analytics and business consulting firm
Burton-Taylor International, a globally
recognised leader in the provision of unique
data and insight across key industries,
including financial services, media and
software. Its in-depth reports cover financial
market data, risk, exchange services, media
intelligence and public relations, and have
become trusted sources of information in
these markets. Burton-Taylor’s core values of
independence, lack of bias and authoritative
accuracy accord with those of TP ICAP’s
Data & Analytics division.
www.tpicap.com
42
Governance report
Chairman’s governance review
“ There is increasing recognition of the
fact that corporate culture plays an
important part in how companies
perform successfully.”
Rupert Robson
Chairman
Dear shareholder
On behalf of the Board, I am pleased
to introduce our report on corporate
governance for 2016. It outlines how we
continued to apply good governance
practice by following the principles and
provisions of the UK Corporate Governance
Code (the ‘Code’) throughout the year.
Following the Code does not just mean
ensuring the Board has the right mix of
talents, operating in the most effective
manner, though we have been working to
that end. There is increasing recognition
of the fact that corporate culture plays an
important part in how companies perform
successfully while managing risk, and that
this culture should be set and ‘lived’ by the
Board. This, too, we have been working on,
and I will describe these matters in further
detail below.
Leadership and effectiveness
We are not a different company simply
because we have made an acquisition and
rebranded, but we are a new company in
that we are now leaders in our market,
following the acquisition of ICAP. The Board
needs to ensure that, by the time we have
integrated the businesses, we will have
created the world’s leading interdealer
broker on merit, and that means on the
quality of the job our brokers do for their
clients, not just on the number of brokers
we have. This, for me, is the link between
governance and strategy.
To that end we have been considering
both the effectiveness and composition
of our Board. During the fourth quarter,
the Board undertook an evaluation
exercise conducted by Independent
Audit, a review which also encompassed
the performance of the Board’s committees.
We discussed the recommendations
at the December Board meeting. As one
consequence, we will be searching for two
new Non-executive Directors, one from the
Americas and another from Asia, so the
Board has more global representation.
There is more detail on both of these
matters in the following pages.
Culture and relationships
It is widely accepted that one of
the main roles for a Board is to establish,
exemplify and reinforce the culture, values
and ethics of a company. The financial
services sector is under the spotlight in
this regard, more so than most sectors.
We firmly believe a sound culture, with
strong and visible buy-in from the Board,
is fundamental to the success of our strategy
and our business, which is why we have
been working on our Company culture
for a number of years. You will find a short
summary of this work on page 39. In
essence, we take a rounded approach
focusing on risk mitigation and conduct
while at the same time cultivating an
employee value proposition to attract and
retain the workforce we want. Ultimately,
we want an organisation that is prosperous,
energetic and ambitious and that is always
honest and transparent, a high quality
organisation that is both the best in its
sector, and the best behaved.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
43
Following the successful pulse survey in
October 2016, completed by both Tullett
Prebon and ICAP employees, we will be
putting in place a global training and
development policy to help support
employees during the integration period.
This will start in early 2017. During the
process of acquiring ICAP we have enjoyed
a considerable amount of shareholder
communication, and I am grateful to all
our shareholders for their support, and to
those who have provided feedback. You
can find further information on shareholder
engagement later in this section, and more
detail of employee programmes, and
relationships with other stakeholders,
on page 39.
Accountability and remuneration
This year we completed the first full-year
cycle of the Risk Committee, which we
created in July 2015. The Committee
has made good progress in strengthening
our risk policies and infrastructure, and in
preparing for the ICAP acquisition.
During 2016 the Nominations Committee
reviewed in depth the appropriate
governance structure of TP ICAP and has
considered both immediate and long-term
succession plans. This year the Audit
Committee was engaged in a number of
workstreams as detailed on page 52.
During 2016, the Remuneration Committee
conducted a full review of our remuneration
policy. As stated in last year’s Annual Report,
we will be seeking shareholder approval for
a new policy at our AGM in 2017. This new
policy strongly aligns the interests of
management and shareholders with the
successful integration of the recently
acquired ICAP business over the next three
years. The Board and the Remuneration
Committee are hugely aware of the climate
concerning the topic of remuneration. This
policy is being put forward to shareholders
after a first round of consultation with the
majority of our register and then a second
round of intensive and constructive
consultation with our leading shareholders.
We are especially grateful to our top
shareholders for their prompt and helpful
response which has determined the structure
set out in the proposed new policy. In
summary, the profile of the proposed new
remuneration structure has been pushed
out to the end of the 2017-2019 period and
beyond. Illustratively, the Chief Executive’s
annual remuneration (salary and bonus) will
accordingly be very substantially lower in
2017 than in 2016 in order to motivate
behaviours aimed at maximising the
creation of shareholder value over the
medium term. The rest of the GEC will also
participate in the same scheme as the
Executive Directors to ensure internal
alignment. You can find further details in
the Remuneration Committee Report in the
following pages.
Conclusion
In summary, I consider the Board and
Company to have fully met their obligations
as regards governance during 2016. We will
continue to do so throughout 2017 as we
undertake the major task of successfully
integrating ICAP and developing our
business into the leading interdealer
broker on any measure.
Rupert Robson
Chairman
14 March 2017
We have complied fully with the UK
Corporate Governance Code issued by
the Financial Reporting Council (‘FRC’)
in September 2014, throughout the year
ended 31 December 2016. A copy of the
Code can be found on the FRC website,
www.frc.org.uk
In April 2016, the FRC updated the Code,
publishing a revised UK Corporate
Governance Code. The revised Code is
not applicable to the Company for the year
ended 31 December 2016 and will apply
to the year ending 31 December 2017.
www.tpicap.com 44
Governance report
Board of Directors
Rupert Robson 1
Chairman
John Phizackerley 2
Chief Executive
Andrew Baddeley 3
Chief Financial Officer
Rupert Robson was appointed to the
Board in January 2007 and to Chairman
in March 2013. He is Chairman of the
Nominations Committee.
He has held a number of senior roles in
financial institutions, most recently
Chairman of Charles Taylor plc,
Non-executive Director of London Metal
Exchange Holdings Ltd and Non-executive
Director of OJSC Nomos Bank, Global Head,
Financial Institutions Group, Corporate
Investment Banking and Markets at HSBC
and Head of European Insurance, Investment
Banking at Citigroup Global Markets.
He is also Chairman of EMF Capital
Partners, Sanne Group plc, a Non-executive
Director of Savills plc and a Governor of
Sherborne School.
John Phizackerley was appointed to
the Board and as Chief Executive
in September 2014.
Andrew Baddeley was appointed to
the Board and as Chief Financial Officer
in May 2016.
From 1986 to 2009 he held various positions
in Lehman Brothers including Head of Equity
Research, Head of Equity Sales in Europe,
Global Head of Pan-European Cash Equities,
Co-Head of European Equities and Chief
Administrative Officer, Europe and Middle
East. He remained with the firm following
the Nomura acquisition in 2009 and held
a number of positions, including Chief
Operating Officer of Nomura International
and Chief Executive Officer of Nomura Bank
International, becoming Chief Executive
Officer of Nomura International plc in 2011.
He qualified as a Chartered Accountant in
1987 and as a Chartered Tax Adviser in 1990,
specialising in the taxation of insurance
business while working for EY and then PwC.
In 1998 he joined General Re, where he
served in a number of roles including, latterly,
as Chief Financial Officer of its UK and
Ireland operations. In 2007 Andrew was
appointed Group Finance Director at Atrium,
and in 2013, he joined Brit Insurance as
Chief Financial Officer. He has considerable
experience in the implementation of new
financial reporting processes and systems,
and IT platform upgrades.
Andrew is a Non-executive Director at
Cobalt Insurance Holdings Limited, where
he chairs the Audit Committee, a Director of
Ponos Consulting Ltd and is a Governor at
Walthamstow Hall School.
Angela Knight 4
Roger Perkin 5
Stephen Pull 6
Senior Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Angela Knight was appointed to the Board in
Roger Perkin was appointed to the Board
Stephen Pull was appointed to the Board
September 2011. She is a member of the Audit,
in July 2012. He is Chairman of the Audit
in September 2011. He is Chairman of the
Remuneration and Nominations Committees.
Committee and a member of the Risk and
Remuneration Committee and a member
Nominations Committees.
of the Nominations Committee.
She was formerly the Chief Executive of
Energy UK until 31 December 2014, the Chief
He was a partner at EY and spent 40 years
He was Chairman of Corporate Broking at
Executive of the British Bankers’ Association
in the accounting profession before retiring
Nomura between 2008 and 2011 following
from 2007 to 2012 and the Chief Executive of
from the firm in 2009. He was formerly a
its acquisition of Lehman Brothers Europe
the Association of Private Client Investment
Non-executive Director at The Evolution
for whom he worked from 2002 as Head of
Managers and Stockbrokers from 1997 to
Group plc until its acquisition in December
Corporate Broking, and then as Chairman
2006. She was also formerly the Member of
2011, Friends Life Group until its acquisition
of Corporate Broking. He has also held a
Parliament for Erewash from 1992 to 1997,
in April 2015 and Nationwide Building
number of other senior roles in the City,
serving as a Treasury Minister from 1995 to
Society until July 2016.
including Managing Director of Corporate
Broking at Merrill Lynch and Head of UK
Equity Sales at Barclays de Zoete Wedd.
He is a Non-executive Director of Electra
Private Equity plc and AIB Group (UK) plc.
He is a trustee of two charities, Chiddingstone
Castle and The Conservation Volunteers.
1997. Her previous Non-executive Director
appointments include Lloyds TSB plc,
Scottish Widows, LogicaCMG plc, Transport
for London, Port of London Authority and
Brewin Dolphin Holdings plc.
Angela was appointed as a Non-executive
Director of Taylor Wimpey Plc on 1 November
2016 and Arbuthnot Latham & Co Ltd in
October 2016. She is also Chair of Tilman
Brewin Dolphin and the Office of Tax
Simplification.
David Shalders 7
Independent Non-executive Director
Carol Sergeant 8
Independent Non-executive Director
David Shalders was appointed to the
Board in February 2014 and is a member
of the Remuneration, Nominations and
Risk Committees.
Carol Sergeant CBE was appointed to the
Board in July 2015. She chairs the Board’s
Risk Committee and is also a member of
the Audit and Nominations Committees.
He is Group Operations & Technology
Director at Willis Towers Watson plc,
responsible for IT, operations, real estate
and change management functions. He
joined Willis Towers Watson from the Royal
Bank of Scotland Group where he served
for over a decade in senior operations and
IT roles, most recently as Global Chief
Operating Officer for Global Banking and
Markets. He also led the division’s regulatory
response to Basel 3. Prior to that, he led the
Group’s integration with ABN Amro and
held roles as Head of London and Asia
Operations and Head of Derivative
Operations for NatWest.
She was a Non-executive Director at Secure
Trust Bank plc until December 2015. She has
enjoyed a distinguished City career, holding
various senior positions, including Head of
Major Banks’ Supervision at the Bank of
England, Managing Director at the Financial
Services Authority and Chief Risk Officer at
Lloyds Banking Group.
She is the Chair of the Standards Policy and
Strategy Committee of the British Standards
Institute, Trustee of the Lloyds Register
Foundation and Chair of the UK whistle
blowing charity, Public Concern at Work.
She is currently a Non-executive Director
at Danske Bank Group.
TP ICAP Annual Report and Accounts 2016
Strategic report Governance report
Financial statements
45
Rupert Robson 1
Chairman
John Phizackerley 2
Chief Executive
Andrew Baddeley 3
Chief Financial Officer
Rupert Robson was appointed to the
John Phizackerley was appointed to
Andrew Baddeley was appointed to
Board in January 2007 and to Chairman
the Board and as Chief Executive
the Board and as Chief Financial Officer
in March 2013. He is Chairman of the
in September 2014.
in May 2016.
Nominations Committee.
From 1986 to 2009 he held various positions
He qualified as a Chartered Accountant in
He has held a number of senior roles in
in Lehman Brothers including Head of Equity
1987 and as a Chartered Tax Adviser in 1990,
financial institutions, most recently
Chairman of Charles Taylor plc,
Research, Head of Equity Sales in Europe,
specialising in the taxation of insurance
Global Head of Pan-European Cash Equities,
business while working for EY and then PwC.
Non-executive Director of London Metal
Co-Head of European Equities and Chief
In 1998 he joined General Re, where he
Exchange Holdings Ltd and Non-executive
Administrative Officer, Europe and Middle
served in a number of roles including, latterly,
Director of OJSC Nomos Bank, Global Head,
East. He remained with the firm following
as Chief Financial Officer of its UK and
Financial Institutions Group, Corporate
the Nomura acquisition in 2009 and held
Ireland operations. In 2007 Andrew was
Investment Banking and Markets at HSBC
a number of positions, including Chief
appointed Group Finance Director at Atrium,
and Head of European Insurance, Investment
Operating Officer of Nomura International
and in 2013, he joined Brit Insurance as
Banking at Citigroup Global Markets.
and Chief Executive Officer of Nomura Bank
Chief Financial Officer. He has considerable
International, becoming Chief Executive
experience in the implementation of new
Officer of Nomura International plc in 2011.
financial reporting processes and systems,
He is also Chairman of EMF Capital
Partners, Sanne Group plc, a Non-executive
Director of Savills plc and a Governor of
Sherborne School.
and IT platform upgrades.
Andrew is a Non-executive Director at
Cobalt Insurance Holdings Limited, where
he chairs the Audit Committee, a Director of
Ponos Consulting Ltd and is a Governor at
Walthamstow Hall School.
Angela Knight 4
Senior Independent Non-executive Director
Roger Perkin 5
Independent Non-executive Director
Stephen Pull 6
Independent Non-executive Director
Angela Knight was appointed to the Board in
September 2011. She is a member of the Audit,
Remuneration and Nominations Committees.
Roger Perkin was appointed to the Board
in July 2012. He is Chairman of the Audit
Committee and a member of the Risk and
Nominations Committees.
Stephen Pull was appointed to the Board
in September 2011. He is Chairman of the
Remuneration Committee and a member
of the Nominations Committee.
He was a partner at EY and spent 40 years
in the accounting profession before retiring
from the firm in 2009. He was formerly a
Non-executive Director at The Evolution
Group plc until its acquisition in December
2011, Friends Life Group until its acquisition
in April 2015 and Nationwide Building
Society until July 2016.
He is a Non-executive Director of Electra
Private Equity plc and AIB Group (UK) plc.
He is a trustee of two charities, Chiddingstone
Castle and The Conservation Volunteers.
He was Chairman of Corporate Broking at
Nomura between 2008 and 2011 following
its acquisition of Lehman Brothers Europe
for whom he worked from 2002 as Head of
Corporate Broking, and then as Chairman
of Corporate Broking. He has also held a
number of other senior roles in the City,
including Managing Director of Corporate
Broking at Merrill Lynch and Head of UK
Equity Sales at Barclays de Zoete Wedd.
She was formerly the Chief Executive of
Energy UK until 31 December 2014, the Chief
Executive of the British Bankers’ Association
from 2007 to 2012 and the Chief Executive of
the Association of Private Client Investment
Managers and Stockbrokers from 1997 to
2006. She was also formerly the Member of
Parliament for Erewash from 1992 to 1997,
serving as a Treasury Minister from 1995 to
1997. Her previous Non-executive Director
appointments include Lloyds TSB plc,
Scottish Widows, LogicaCMG plc, Transport
for London, Port of London Authority and
Brewin Dolphin Holdings plc.
Angela was appointed as a Non-executive
Director of Taylor Wimpey Plc on 1 November
2016 and Arbuthnot Latham & Co Ltd in
October 2016. She is also Chair of Tilman
Brewin Dolphin and the Office of Tax
Simplification.
David Shalders 7
Carol Sergeant 8
Independent Non-executive Director
Independent Non-executive Director
David Shalders was appointed to the
Carol Sergeant CBE was appointed to the
Board in February 2014 and is a member
Board in July 2015. She chairs the Board’s
of the Remuneration, Nominations and
Risk Committee and is also a member of
Risk Committees.
the Audit and Nominations Committees.
He is Group Operations & Technology
She was a Non-executive Director at Secure
Director at Willis Towers Watson plc,
Trust Bank plc until December 2015. She has
responsible for IT, operations, real estate
enjoyed a distinguished City career, holding
and change management functions. He
various senior positions, including Head of
joined Willis Towers Watson from the Royal
Major Banks’ Supervision at the Bank of
Bank of Scotland Group where he served
England, Managing Director at the Financial
for over a decade in senior operations and
Services Authority and Chief Risk Officer at
IT roles, most recently as Global Chief
Lloyds Banking Group.
Operating Officer for Global Banking and
Markets. He also led the division’s regulatory
response to Basel 3. Prior to that, he led the
Group’s integration with ABN Amro and
held roles as Head of London and Asia
Operations and Head of Derivative
Operations for NatWest.
She is the Chair of the Standards Policy and
Strategy Committee of the British Standards
Institute, Trustee of the Lloyds Register
Foundation and Chair of the UK whistle
blowing charity, Public Concern at Work.
She is currently a Non-executive Director
at Danske Bank Group.
3
4
5
6
7
8
2
1
www.tpicap.com
46
Governance report
Corporate governance report
Leadership
The Board currently comprises two Executive
Directors, five independent Non-executive
Directors and a Non-executive Chairman.
Over half the Board is therefore composed
of independent Non-executive Directors.
The Chairman, Rupert Robson, was
independent of the Company and
management at appointment but, as
Chairman, is not classified as independent
under the Code. His other significant
commitments are noted in his biography
on page 44.
The Directors’ biographies demonstrate
the depth and breadth of experience
and skill available to the Board. Six of the
Directors (including five of the Non-executive
Directors) have extensive experience at
senior levels in the financial services sector.
Two of the Directors are chartered
accountants, one of whom was an audit
partner in a major firm of accountants.
The Chief Financial Officer has been
CFO of several other companies.
There is a clearly defined and documented
division of responsibilities between the
Chairman and the Chief Executive, reviewed
annually. The primary responsibility of the
Chairman is to lead the Board. The primary
responsibility of the Chief Executive is to run
the Group’s operations, maintaining
effective management and developing
and implementing strategy to maximise
shareholder value.
The Board allows Executive Directors to take
up appointments with other companies
provided the time involved is not too onerous
and would not conflict with their duties here.
Diversity
Male Directors
Female Directors
Independence
75%
25%
Independent Directors
excluding the Chairman
Executive Directors
71%
29%
The terms of the Directors’ service
agreements and letters of appointment
are summarised in the Report on Directors’
Remuneration. Non-executive Directors’
contracts are for specific terms and subject
to annual re-election by shareholders.
The service agreements and the letters of
appointment are available for inspection
during normal business hours at our
registered office, and at the AGM from
15 minutes prior to the meeting until
its conclusion.
The Nominations Committee conducts
the search for Board candidates on merit
against objective criteria, though with due
regard to the benefits of diversity on the
Board, including gender. We would like to
increase the percentage of female Board
members as quickly as we are able. However,
we do have a fundamental obligation to
ensure we appoint candidates who are best
able to promote the success of the Company.
Our ability to appoint female Board members
depends on the recruitment, development
and retention of women both within our
Group and throughout the business
and professional community. Therefore
our success in recruiting will be subject to
the availability of suitable candidates.
Additionally, and in light of the independent
Board evaluation outlined on page 48,
the Nominations Committee will be
searching for two new independent
Non-executive Directors, one from the
Americas and one from Asia Pacific, to
join the Board during 2017.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
47
Length of Non-executive Directors’ tenures
Under 3 years
3 – 6 years
40%
60%
Independence of Directors
The Board has determined that all of the Non-executive Directors are independent in
character and judgement, and there are no relationships or circumstances which are likely
to affect, or could appear to affect, any Director’s judgement. The Senior Independent
Non-executive Director is responsible for discussing with shareholders any concerns they
have failed to resolve through the normal channels of Chairman, Chief Executive or Chief
Financial Officer, or for which such contact is inappropriate. The Senior Independent
Non-executive Director provides a sounding board for the Chairman and is available
to act as an intermediary for other Directors when necessary.
Delivering the Board’s strategy
The GEC chaired by John Phizackerley is responsible for ensuring the successful
implementation of our strategy, and will monitor and govern the commercial and financial
performance across the regions, global business lines and global corporate functions.
After a rigorous and extensive review of the best initial structure for TP ICAP, and following
the acquisition of ICAP on 30 December 2016, the composition of the GEC is as follows:
Regional leadership
Frits Vogels
James Potter
John Abularrage
Nick Deflora
Hugh Gallagher
Barry Dennahy
Business leadership
Nicolas Breteau
David Casterton
Frank Desmond
Andrew Polydor
Sam Ruiz
Corporate leadership
John Phizackerley
Andrew Baddeley
Carrie Heiss
Mihiri Jayaweera
Giles Triffitt
Philip Price
Rebecca Shelley
CEO ICAP EMEA, CEO TP ICAP EMEA
CEO Tullett Prebon EMEA, Deputy CEO TP ICAP EMEA
CEO Tullett Prebon Americas, CEO TP ICAP Americas
CEO ICAP Americas, Deputy CEO TP ICAP Americas
CEO ICAP APAC, CEO TP ICAP APAC
CEO Tullett Prebon APAC, Deputy CEO TP ICAP APAC
CEO, Tullett Prebon Global Broking
CEO, ICAP Global Broking
CEO, TP ICAP Data & Analytics
CEO, TP ICAP Energy & Commodities
CEO, TP ICAP Institutional Services
Chief Executive and Executive Director
CFO and Executive Director
Group Head of HR
Group Head of Strategy
Group Chief Risk Officer
Group General Counsel and Head of Compliance
Group Head of Corporate Affairs
www.tpicap.com 48
Governance report
Corporate governance report
continued
Effectiveness
Board evaluation
At the December 2016 Board meeting,
we discussed the results of an independent
Board and committee evaluation
undertaken by Independent Audit. While
the Board evaluation confirmed that the
Board and its committees operate
effectively, with all Directors contributing
to the success of the Group, it did identify
two important areas for refinement and
optimisation. This is against the background
that TP ICAP is now the world’s largest
interdealer broker. We are not just
integrating two companies over the next
two to three years, thereby generating
substantial shareholder value, but making
sure that by the end of that process we are
fit for purpose for the next decade. We have
determined that we need to enhance the
composition of the Board and adapt the
way in which we run Board meetings.
While we have made some progress on
gender diversity, we have not on cultural or
international diversity. For this reason we
will recruit two new Non-executive Directors,
one from the Americas and one from Asia
Pacific. In doing this, we also need to achieve
a diversity of skills, adding more markets
skills to those we have in risk, audit,
technology and banking.
The challenge facing all financial services
boards is to cope with the necessary
oversight of compliance and regulation at
board level over and above the requirements
of normal corporate governance whilst
preserving an appropriate level of strategic
and financial dialogue. So we need to refine
the way we conduct Board business to allow
explicitly for a greater degree of business
and strategic discussion as well as more
sectoral and competitive data insight and
discussion. This will include a step up in the
interaction of the Board with management
and staff below Board level.
Role of Board and committees
The Board has a formal Schedule of Matters
reserved to it for decisions, which you can
view at www.tpicap.com.
Beneath the Board is a structure setting
out the authority levels delegated to the
individual Directors and senior management.
The Board has Audit, Remuneration, Risk
and Nominations Committees, to which it
delegates some of its responsibilities. Each
committee’s Terms of Reference can be
viewed at www.tpicap.com. The Board
reviews these terms each year to ensure
they cover the relevant areas. You can find
separate reports for the Nominations, Audit,
Risk and Remuneration Committees later in
this section.
The Board and its committees are provided
with appropriate and timely information.
All Directors receive written reports before
each meeting, helping them make informed
decisions on corporate and business issues.
All Board meetings are minuted and any
unresolved concerns are recorded in
those minutes.
The Group has a comprehensive system
for financial reporting, subject to review by
internal and external audit. Budgets, regular
re-forecasts and monthly management
accounts including KPIs, income statements,
balance sheets and cash flows are prepared
at all levels of the business and the Board
reviews consolidated reports of these.
The Board has a schedule of eight meetings
a year to discuss the Group’s ordinary course
of business. Every effort is made to arrange
these meetings so all Directors can attend;
additional meetings are arranged as
required. Due to the acquisition of ICAP
there were additional meetings in 2016.
The table on page 49 shows the Board and
committee attendance record during
the year.
The Company Secretary is responsible for
ensuring the Board stays up to date with
key changes in legislation which affect the
Company. The appointment or removal of
the Company Secretary is a matter reserved
for the Board.
All Directors have access to the services
of the Company Secretary, and there are
procedures in place for taking independent
professional advice at the Company’s
expense if required. The Company
maintains liability insurance for its
Directors and officers.
Board activity during 2016
During the year the main focus of Board
meeting discussion was the acquisition
of ICAP, which took up a substantial amount
of the Board’s time. The other key areas
discussed and reviewed by the Board in 2016
were as follows:
> Chief Executive’s Reports
> Chief Financial Officer’s Reports
> principal risks faced by the Company
> reports of the activities of the Audit,
Risk, Remuneration and Nominations
Committees
> delivery of the ten arrows
> responsibilities and obligations under
the Listing Rules and Disclosure and
Transparency Rules
> conflicts of interest
> corporate governance updates
> investor relations reports
> Board evaluation
> culture, people, development,
succession planning
> approval of year end results, the Annual
Report and Accounts, the AGM Circular
and dividends.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 49
Board and committee membership attendance record3
Executive Directors
John Phizackerley
Andrew Baddeley (appointed 13.05.16)
Paul Mainwaring (resigned 05.05.16)
Non-executive Directors
Rupert Robson
Angela Knight
Roger Perkin
Stephen Pull
Carol Sergeant
David Shalders
Board1,2
Audit
Committee
Risk
Committee
Remuneration
Committee
Nominations
Committee
8/8
5/5
2/2
8/8
8/8
8/8
8/8
8/8
8/8
–
–
–
–
4/4
4/4
–
4/4
–
–
–
–
–
–
4/4
–
4/4
4/4
–
–
–
–
5/5
–
5/5
–
5/5
–
–
–
2/2
2/2
2/2
2/2
–
–
Notes:
1
2 Eight scheduled Board meetings were held during the year. The Board had various other meetings and calls primarily in connection with the acquisition of ICAP. Due to the
Excludes meetings of committees of the Board appointed to complete routine business or business previously approved by the Board.
short notice of these meetings David Shalders and Carol Sergeant were each unable to attend one of these meetings. They provided input to the Chairman in advance of the
meeting so their views were known by other Board members.
3 Shows attendance of Board and committee members only.
Board development
Induction, professional development
and corporate awareness
All Directors receive an induction on joining
the Board, with relevant training available.
The Chairman is responsible for ensuring
Directors continually update their skills
and knowledge, and familiarity with the
Company, so as to fulfil their role. The Audit,
Risk and Remuneration Committees receive
regular briefings on relevant current
developments. The Board is kept informed
of any material shareholder correspondence,
broker reports on the Company and sector,
institutional voting agency recommendations
and documents reflecting current
shareholder thinking. In addition, members
of the GEC make presentations to the Board.
The Non-executive Directors take advantage
of relevant conferences, seminars and
training events, and receive training
materials from the Company and other
professional advisers. They are also able to
meet members of the management teams
regularly, and periodically visit the
Company’s international offices, usually
in connection with other activities.
Performance evaluation
This year, we evaluated the effectiveness
and commitment of individual Directors
to identify the need for any training or
development. Over the last three months the
Chairman met the Non-executive Directors
in the absence of the Executive Directors to
evaluate the performance of the individual
Executive Directors. Similarly, the Senior
Independent Non-executive Director and
the other Non-executive Directors met to
evaluate the Chairman’s performance,
having first obtained feedback from the
Executive Directors. They also considered
the Chairman’s commitment of time to the
Company in light of his other commitments,
as noted in his biography on page 44,
and concluded that he fully satisfied his
obligations to the Company. All provided
appropriate feedback following these
meetings. The Chairman has also provided
feedback on performance to the
Non-executive Directors.
Relations with
shareholders
The Board recognises the importance
of communicating with shareholders.
The Company website, www.tpicap.com,
provides information for shareholders
and prospective investors on the
Group’s activities, results, products
and recent developments.
We enjoy regular dialogue with institutional
investors, fund managers and analysts,
which includes providing presentations
of the results announcements, and also
meetings on request. The Company has
held a number of investor roadshows in the
UK, US, France and Germany as well as
individual meetings with shareholders and
sell side analysts. During 2016 the Company
recorded a webcast of its 2016 interim results
presentation, which is also now available
to download on the Company’s website.
There was particularly intense dialogue
with certain shareholders during the
recent formulation of the proposed new
Remuneration Policy.
All Non-executive Directors are available
to meet shareholders, if requested, and the
Board is regularly updated on shareholder
feedback and in particular any specific
comments from institutional shareholders.
For future dividends, the Company has in
place a facility for payments to be made
by CREST.
Annual General Meeting
The Board uses the AGM to communicate
with investors and welcomes their
participation. We send notice of the AGM
and related papers to shareholders at
least 20 working days before the meeting.
The Chairman aims to ensure all Directors,
including chairs of the committees of the
Board, are available at AGMs to answer
questions and meet shareholders. The proxy
votes cast on each resolution proposed at
general meetings are disclosed at those
meetings. To encourage shareholder
participation, shareholders whose shares
are held on the CREST system are offered
the facility to submit their proxy votes
through CREST.
www.tpicap.com
50
Governance report
Report of the Nominations Committee
Rupert Robson
Chairman, Nominations Committee
Chairman’s Statement
Composition
The Nominations Committee (the
‘Committee’) is chaired by Rupert Robson.
The other members throughout the year
were Angela Knight, Roger Perkin and
Stephen Pull. The other Non-executive
Directors and Executive Directors are invited
to attend meetings where appropriate.
David Shalders and Carol Sergeant joined
the Committee in January 2017.
All members of the Committee, other than
the Chairman, are Independent
Non-executive Directors.
The Board has delegated responsibility
to the Committee for:
> reviewing the balance and skill,
knowledge and experience of the Board
> agreeing and implementing
procedures for the selection of
new Board appointments
> making recommendations to the Board
on all proposed new appointments,
elections and re-elections of Directors
at AGMs
The Committee is authorised to obtain all
necessary information from within the
Company, and to access professional
advice from inside and outside the
Company, as it considers necessary.
The Terms of Reference of the Committee
are available at www.tpicap.com
appointments to the Board and to senior
management, to maintain an appropriate
balance of skills and experience within the
Company and on the Board, and to ensure
the progressive refreshing of the Board.
This included the nomination of Andrew
Baddeley as Chief Financial Officer of the
Company, and also the search for new
Non-executive Directors as outlined
previously. It also includes supporting the
Board in its work with respect to diversity.
The Committee agreed formal succession
plans in the event that the Chief Executive
or Chief Financial Officer were absent on
short notice.
In February the Committee similarly agreed
with the Chief Executive’s formal succession
plans for each member of the GEC. The
Committee also considered longer term
succession within the Group at a senior level,
and has discussed this topic with the CEO
and the Group Head of HR.
The external search consultancy retained by
the Board in respect of the appointment of
Andrew Baddeley was MWM. The Company
does not have any connection with MWM.
In May the Committee met to review in
depth the governance structure of TP ICAP
and how this would be appropriately
resourced to achieve a successful TP ICAP
integration, to establish the Group as a
platform for growth, transform the business
in line with the strategic plan and to make it
fit for the future.
Work of the Nominations Committee
The main tasks of the Committee are to
consider Board composition and manage
succession planning. The Company has plans
in place for orderly succession for
Rupert Robson
Chairman
Nominations Committee
14 March 2017
TP ICAP Annual Report and Accounts 2016 Report of the Audit Committee
Strategic report Governance report
Financial statements
51
“ We have monitored the integration plan
recognising that the harmonisation
of good financial controls is essential
following the acquisition of ICAP.”
Roger Perkin
Chairman, Audit Committee
Chairman’s Statement
Dear shareholder
As Chairman of the Audit Committee (the
‘Committee’), I am pleased to introduce this
report which sets out how the Committee has
discharged its responsibilities during the
year. The Committee’s primary focus is to
ensure the integrity of financial reporting by
reviewing the controls in place and those
areas where judgement is required.
I regularly report to the Board on how the
Committee has discharged its
responsibilities. As requested by the Board,
the Committee has considered the processes
and controls in place to help ensure that the
Annual Report presents a fair, balanced and
understandable view of the business. As a
result of this work the Committee concluded
that the processes and controls were
appropriate and was able to provide
positive assurance to the Board.
One of the key areas for the Committee this
year has been discussing the arrangements
for the internal and external audit of the
business and companies acquired through
the acquisition of ICAP as well as the
accounting judgements in respect of the
acquisition. We have monitored the
integration plan recognising that the
harmonisation of good financial controls is
essential following the acquisition of ICAP.
Outside of the formal Committee meetings,
I maintain regular dialogue with internal
and external auditors. I visited the Group
in Singapore and New York where I met with
both local management and auditors in
order better to understand local issues and
the respective audit arrangements.
The Committee undertook a thorough
annual self- assessment of its performance
and effectiveness to review that good
governance practices are in place.
The results indicated that the Committee
was effective in carrying out its duties.
The Risk Committee has primary oversight
of the Group’s risk management framework
and complements the review of the control
framework undertaken by the Committee.
The Report of the Risk Committee is set out
on page 54.
Roger Perkin
Chairman
Audit Committee
14 March 2017
Composition
Roger Perkin chaired the Committee during
the year. The other members of the
Committee during the year were Angela
Knight and Carol Sergeant. All members
of the Committee are Independent
Non-executive Directors. The Committee
Chairman has recent and relevant financial
experience and the other members of the
Committee also combine knowledge and
experience of financial matters, risk
management and internal controls. The
Chairman of the Committee is also a
member of the Risk Committee.
The table on page 49 sets out the Directors’
attendance at Committee meetings during
the year.
The Chairman, the Executive Directors, the
Company’s external and internal auditors,
and other senior risk management and
finance personnel all attend Committee
meetings by invitation. Additionally, other
members of management are invited to
attend to update the Committee on progress
in responding to auditor findings. The
Committee has a discussion with the external
auditor at least once a year without the
Executive Directors being present, to ensure
that there are no unresolved issues of concern.
Terms of Reference
The Committee is responsible for the
effective governance of the Group’s financial
reporting, including the adequacy of
financial disclosures and both the external
and internal audit function.
The full Terms of Reference of the Committee
are available on the Company’s website,
www.tpicap.com
www.tpicap.com 52
Governance report
Report of the Audit Committee continued
Areas of focus in 2016
The Committee was engaged in a number
of activities during 2016, the more significant
of which are described below:
> reviewing significant financial reporting
judgements
> review of the Annual Report and
Financial Statements and half year results
> reviewing the Group’s basis for going
concern and the longer-term
viability statement
> review of the effectiveness of external audit
> review of external auditor independence
> review of the policy for, and provision of,
non-audit services by the external auditor
> review of the effectiveness of the
Group’s systems of risk management
and internal control
> review and approval of Internal Audit’s
annual audit plan
> review of the results and findings of
Internal Audit’s work
> review of the effectiveness of
Internal Audit
> review of whistleblowing arrangements
The Committee members also received updates
from the external auditor on accounting
developments, corporate governance and
viability statement requirements.
Significant financial reporting
judgements in 2016
The Committee considered the following
judgements in connection with the 2016
Consolidated Financial Statements and were
satisfied that the judgements were appropriate.
Accounting for the acquisition of ICAP
The accounting for the acquisition of ICAP
is described in Note 30 to the Consolidated
Financial Statements and the procedures
adopted by the external auditor are
described in their report.
Recognising that, at this stage, the
acquisition accounting is provisional, the
Committee understood the judgements
taken by management, considered whether
the information provided to the Group’s
external valuation specialists was complete
and reviewed the procedures performed by
the external auditor including the
involvement of their own valuation
specialists. Based on the above, the
Committee is satisfied with the provisional
accounting and related disclosures included
in these financial statements.
Presentation of acquisition, disposal
and integration related items
The approach to defining acquisition,
disposal and integration related items is set
out in Note 2(c) to the Consolidated Financial
Statements. The Committee was most
concerned to be satisfied as to the rationale
for exclusion of items from underlying results
and the subsequent presentation, ensuring
that undue prominence was not given to
non-statutory measures.
The above was challenged in Committee
and the external auditor’s view was sought
and their procedures, as set out in their
report, were reviewed. On the basis of the
above, the Committee is satisfied as to the
appropriateness of the definition, the
disclosure and the computation.
Impairment of goodwill and other
intangibles
The Group’s assessment of goodwill and
other intangibles for impairment is described
in Note 13 to the Consolidated Financial
Statements; and the procedures adopted
by the external auditor are described in
their report.
The Committee considered whether the facts
taken into account were complete and
consistent with the Group’s business planning
process, and challenged both management
and the external auditor as to the extent to
which they had examined potential stress
outcomes to the base case used, particularly
in respect of sensitivities to reasonably
possible alternative assumptions.
Based on the above the Committee is
satisfied with the process undertaken and
the resultant financial statement impact.
Review of the financial statements
The Committee reviewed the integrity
of the Consolidated Financial Statements
included in the half-year and preliminary
announcements of results and the 2016
Annual Report, prior to their approval
by the Board.
When conducting the review, the Committee
considered the continuing appropriateness
of the accounting policies, important
financial reporting judgements and the
adequacy and appropriateness of
disclosures. The Committee also reviewed
the content of the Annual Report and
advised the Board that, in its view, the
Annual Report, taken as a whole, is fair,
balanced and understandable and provides
the information necessary for shareholders
to assess the Group’s position, performance,
business model and strategy.
Going concern and viability statement
The assumptions relating to the going
concern review and viability statement were
considered, including the medium term
projections, stress tests and mitigation plans.
On the basis of the review, the Committee
advised the Board that it was appropriate
for the Annual Report and Financial
Statements to be prepared on the going
concern basis. The Committee also reviewed
the long term viability statement taking into
account the Group’s current position and
principal risks and uncertainties and advised
the Board that the viability statement and
the three year period of the assessment were
appropriate.
External auditor effectiveness and
independence
In considering the 2016 Annual Report,
the Committee reviewed the objectivity
and independence of the external auditor.
The Committee considered the professional
and regulatory guidance on auditor
independence and Deloitte’s policies and
procedures for managing independence
and was satisfied with the auditor’s
representations.
During the year the Committee considered
the effectiveness of the external audit
process including their expertise, efficiency,
global service delivery and cost
effectiveness. This review included
consideration of the FRC’s Annual Quality
Inspection Annual Report 2015/16 on
Deloitte and its review of Deloitte’s 2015
audit of the Group. It also included a review
of the external auditor’s plans for the audit
of the combined Group, and incorporated
feedback received from senior management.
The effectiveness of management in the
external audit process was also assessed,
principally in relation to the timely
identification and resolution of areas of
accounting judgement, the quality and
timeliness of papers analysing those
judgements, management’s approach to the
value of independent audit and the booking
of any audit adjustments arising and the
timely provision of draft public documents
for review by the external auditor and the
Committee.
The FRC’s Audit Quality Review (‘AQR’) team
monitors the quality of audit work of UK
audit firms. During 2016, the AQR reviewed
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
53
Deloitte’s 2015 audit of the Group. The
review did not note any findings and
commended Deloitte on the particularly
high standard of their planning and risk
assessment and co-ordination and review
of component auditors.
The conclusion of the Committee was that
the 2016 external audit had been effective.
Non-audit services
In order to safeguard the external auditor’s
independence and objectivity, the Company
does not engage Deloitte for any non-audit
services except where it is work that they
must, or are clearly best suited to, perform.
All proposed services must be pre-approved
in accordance with the non-audit services
policy, which is reviewed and approved
annually. As part of the EU audit reform, with
effect from 1 January 2017, the FRC’s Ethical
Standard places further restrictions on
auditors undertaking non-audit services.
Accordingly, we have revised our policies for
the engagement of the external auditor to
undertake non-audit services.
The Committee reviewed the level of fees
paid to the external auditor in respect of the
various non-audit services provided during
2016 (which are disclosed in Note 6 to the
Consolidated Financial Statements). During
the period under review the non-audit
services performed by the external auditor
amounted to £1.4m, 39% compared with the
£3.6m of audit fees. These non-audit services
include £0.9m of fees related to the
acquisition of ICAP, in respect of due
diligence services (£0.3m) and acting as
reporting accountant (£0.6m), which the
Committee believed Deloitte were clearly
best placed to provide due to their
knowledge of the business and the synergies
that existed between this work and the 2016
external audit of the Group. Excluding these
fees, the proportion of non-audit fees to
audit fees was 14%. Deloitte confirmed to
the Committee that they did not believe that
the level of non-audit fees had affected their
independence.
External audit tenders
Deloitte has been the Company’s auditor
since its listing in December 2006.
In 2013 the Board put the external audit
contract out for tender and concluded that
Deloitte should be re-appointed and that a
new lead audit partner, Robert Topley, would
be appointed to the Company’s audit by
Deloitte in 2014 in accordance with normal
rotation practices. The Committee will
monitor developments in best practice with
regard to audit tender arrangements.
At the same time that the external audit
was put out for tender, the Committee also
reviewed the Company’s internal audit
arrangements. The Committee concluded
that its internal audit services will continue
to be outsourced.
In the context of the acquisition of the ICAP
business, the Committee considered the
audit arrangements for the combined Group
going forward. It concluded that in light of
the recent audit tender referred to above
and taking into account the results of the
review of the effectiveness of the external
audit above, the Committee would continue
with Deloitte as external auditor of the newly
enlarged Group.
The Company confirms its compliance with
the requirements of the Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014
throughout the year ended 31 December
2016. The Committee is now solely
responsible for negotiating and agreeing
the external auditor’s fees, agreeing the
scope of the statutory audit, initiating and
supervising a competitive tender process for
the external audit where appropriate to do
so, and make recommendations to the Board
as to the external auditor’s appointment
pursuant to any such process.
Risk management and internal control
The Board is responsible for setting the
Group’s risk appetite and ensuring that
it has an appropriate and effective risk
management framework and for monitoring
the ongoing process for identifying,
evaluating, managing and reporting the
significant risks faced by the Group. The
ERMF and principal risks are described
in the Risk Management section of the
Strategic Report.
The Board is also responsible for the Group’s
system of internal control and for reviewing
its effectiveness. The system is designed to
manage rather than eliminate the risk of
failure to achieve business objectives, and
can only provide reasonable and not
absolute assurance against misstatement
or loss. In discharging its responsibilities in
this respect, the Board has appointed the
Committee to carry out an annual review
of the effectiveness of the internal control
and risk management systems and to report
to the Board thereon. The Committee
conducted a formal review of the
effectiveness of the Group’s internal control
systems for 2016, considering reports from
management, external audit and the work of
the Group Risk and Internal Audit functions.
This process has been in place for the year
under review and up to the date of approval
of the Annual Report, is reviewed regularly
by the Board and accords with the FRC’s
‘Internal Control: Guidance for Directors’.
Internal Audit
The Committee is responsible for monitoring
and reviewing the effectiveness of Internal
Audit. The internal audit plan is approved by
the Committee and kept under review during
the year, in order to reflect the changing
business needs and to ensure new and
emerging risks are considered. During 2016
the Committee reviewed the work and
reports of Internal Audit, together with
implementation of internal audit
recommendations and monitored progress
against the internal audit plan during 2016
to ensure that the audit plan had been
completed effectively.
The Committee reviewed and approved the
internal audit plan for the new internal audit
year, running from 1 July 2016 to 30 June
2017, prepared by the Head of Internal
Audit, and reviewed the work and reports
of Internal Audit since 1 January 2016.
Taking account of both the effective
performance of the outsourced internal
audit provider to Tullett Prebon and that
they also acted as internal auditor of ICAP,
the Committee confirmed their continuing
appointment in respect of the
enlarged Group.
Subsequent to the year end, following the
acquisition of ICAP, the Committee has
approved the updated internal audit plan
for the combined business for the first half
of 2017.
Whistleblowing
The Committee reviewed arrangements
by which employees may, in confidence, raise
concerns about improprieties in matters
of financial reporting or other matters. In
conducting the review, the Committee took
into account whether the policies were in line
with guidance published by the FCA.
www.tpicap.com 54
Governance report
Report of the Risk Committee
“ Overall I can report good progress
on strengthening the risk policies
and infrastructure, and preparation
for the acquisition of ICAP.”
Carol Sergeant
Chairman, Risk Committee
Chairman’s Statement
Dear shareholder
As Chairman of the Risk Committee (the
‘Committee’), I am pleased to introduce this
report which sets out how the Committee
discharged its responsibilities during 2016.
The Committee’s role is not to eliminate
risk, but rather to consider and recommend
to the Board the Group’s risk appetite, risk
principles and policies such that the risks
(including reputational risk) are reasonable
and appropriate for the Group, and can be
managed and controlled within the limits of
the financial, human and systems resources
of the Group; and finally, to ensure the
adherence to these principles and thresholds.
During 2016, in addition to chairing the
Committee, I have attended key meetings
of the Executive Risk Committee and
Technology Risk Committee, and travelled
to Singapore, Hong Kong and New York to
review the regional risk functions and
Risk Committees and I was satisfied
that these committees are fit for purpose.
I plan to continue attending Executive Risk
Committees from time to time, and report
on any findings to the Committee.
As part of our on-going commitment to the
strengthening of our governance, the length
and format of the management information
reviewed by the Committee has been subject
to review and improvement; additionally
a new policy framework has been
implemented and the Committee has
challenged and approved 17 new Group
Policy Statements, beneath which sit all
of the Group’s policies.
We have also approved the adoption of a
fully transparent process for risk acceptance
where mitigation is not economically or
practically viable. As in 2016 I will continue
to request that leaders of our business attend
the Committee to demonstrate strong risk
control measures and effective execution in
each business.
Overall I can report good progress on
strengthening the risk policies and
infrastructure, and preparation for the
successful acquisition of ICAP.
Carol Sergeant
Chairman
Risk Committee
14 March 2017
“ The Committee’s role
is not to eliminate risk,
but rather to consider
and recommend to the
Board the Group’s risk
appetite... such that
risks are reasonable
and appropriate
for the Group and
can be managed
and controlled.”
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
55
Compliance
The Committee receives regular Compliance
updates from the Group General Counsel
and Head of Compliance. We have reviewed
the work undertaken to ensure compliance
with current regulatory requirements and
‘lessons learned’ from legacy issues.
The Committee authorised the introduction
of both a new trade surveillance system, and
a unified communications surveillance tool.
Other operational risk
Operational risk accounts for the
majority of the Company’s risk exposure.
The Committee receives extensive data
including information on loss events and
near-misses with a view to ensuring that
appropriate corrective actions and
preventative measures are put in place.
The Committee has also reviewed and
challenged the output of the Global Risk
and Control Self-Assessment process.
The Committee receives comprehensive
reporting on all of the Group’s main
risks and has continued to apply particular
focus to the key risk issues faced by the
organisation, and has undertaken
additional work in these areas.
The ICAP acquisition
The Committee has continued to review
and challenge the risks associated with
the acquisition, as well as the plans to
align the risk appetite and policy framework
of the respective organisations. A combined
business activity review was presented to
the Committee, considering the business
currently undertaken by ICAP but not by
Tullett Prebon. The Committee has
commissioned a review of the control
environment of business activities which are
new to the Group for review and challenge
during the second quarter of 2017.
People and culture
The Committee has challenged and
approved initiatives to enhance conduct and
culture; these include Leadership training for
broker Desk Heads and policy, conduct and
behaviour awareness programmes (5 things
that you need to know).
Cyber security
During 2016 the Committee received an
independent external review of the Group’s
cyber security arrangements. The Committee
also challenged deep dive presentations
from the Group Chief Information Officer on
this subject, which remains a focus both for
the Committee and TP ICAP’s Executive.
Composition
Carol Sergeant chaired the Committee
during the year. The other members of
the Committee during the year were Roger
Perkin and David Shalders. All members
of the Committee are Independent
Non-executive Directors. The Committee
Chairman has recent and relevant risk
experience. The Chairman of the Committee
is also a member of the Audit Committee.
The Chairman, the Executive Directors, the
Company’s external and internal auditors,
and other senior risk management and
finance personnel attend Committee
meetings by invitation.
Terms of Reference
The Terms of Reference of the Committee
are available on the Company’s website,
www.tpicap.com.
Work of the Risk Committee during 2016
Preparation for the acquisition of ICAP
has been a key feature of the work of
the Committee this year, and as such
it has approved the Company’s target
operating models for Risk and Compliance,
recommended the appointment of the
Chief Risk Officer, and provided approval
in principle for the Group’s risk
governance structure.
The Committee routinely asks business
leaders to present an overview of their risk
management practices; during 2016 HR,
Compliance and Technology leaders were
challenged by the Committee on this subject.
Further such business reviews are scheduled
for 2017. ‘Deep dive’ presentations on the
risks associated with key business issues
(such as the exchange give-up process and
the prime brokerage business) were also
reviewed and challenged by the Committee
in 2016.
www.tpicap.com 56
Governance report
Report on Directors’ Remuneration
“ The ICAP acquisition is transformational.
Our proposed remuneration policy has been
developed to realise the potential of this
unique opportunity.”
Stephen Pull
Chairman, Remuneration Committee
Chairman’s statement
Dear shareholder
On behalf of the Board, I am pleased to
present the Directors’ Remuneration Report
(‘DRR’) for the year to 31 December 2016.
The report comprises:
> the Annual Report on Remuneration,
which explains how we applied our Policy
in 2016; and
> the proposed Directors’ Remuneration
Policy for 2017-2019
We will be seeking approval for the
2016 DRR and for the new Directors’
Remuneration Policy at the AGM to
be held in May 2017.
Performance and reward outcomes
for 2016
In 2016, we have again achieved a
substantial increase in the Bonus Pool
Operating Profit (see page 62), despite the
difficult business environment that prevailed
for much of the year. In the context of a
hugely transformational year, the results
were very strong seeing a 22% increase year
on year in terms of underlying operating
profit and achieving a Total Shareholder
Return (‘TSR’) for 2016 of 25%.
Executive Director bonuses are calculated
with respect to Bonus Pool Operating Profit
although, as in 2015, we have capped the
Bonus Pool Operating Profit at 150% of
the prior year giving a 2016 Bonus Pool
Operating Profit of £121.05m. It would have
been £124.3m if the cap had not operated.
Our Chief Executive is eligible for a bonus of
1.825-2.175% of Bonus Pool Operating Profit
and our Chief Financial Officer is eligible
for a bonus of 0.675-0.825% of Bonus Pool
Operating Profit. The bonus awarded within
the range is determined by the Executive
Directors’ performance against individual
targets. The Remuneration Committee
awarded our Chief Executive 33 basis
points out of a potential 35 basis points
for performance against these objectives,
resulting in a 2016 bonus of £2,608,628. Our
Chief Financial Officer was awarded 14 basis
points out of a potential 15 basis points based
on his performance against objectives,
resulting in a 2016 bonus of £648,695. In
2016 our Executive Directors delivered an
outstanding performance against personal
objectives and in the intensive preparations
required for the integration of ICAP. We report
on the individual performance objectives
in detail on pages 63 and 64. For the Chief
Financial Officer, the 2016 Bonus was
pro-rated to reflect the period he was
employed during 2016.
The Executive Directors are required to invest
50% of their post-tax bonus in the Company’s
shares, retained for three years.
Departing Finance Director
As announced on 6 May 2016, Paul
Mainwaring stood down as a Director of the
Company and subsequently left employment
on 30 June 2016 (the ‘Termination Date’).
He will not receive a bonus for 2016 and
his outstanding Long Term Incentive Scheme
(‘LTIS’) awards have been pro-rated in line
with the rules of the plan. Full details on the
payments made to Paul Mainwaring are set
out on pages 67 and 68.
Base salary restraint
In accordance with our Remuneration Policy,
approved by shareholders in 2014, our Chief
Executive received no base salary increase
in 2016.
Looking ahead – our new
Remuneration Policy
During 2016, working with our advisors New
Bridge Street, we undertook a fundamental
review of our Directors’ Remuneration Policy
(the ‘Policy’) in light of the expected (and
now completed) acquisition of ICAP.
This Acquisition is transformational. The
combined business has the opportunity to
achieve substantial synergies and, in turn,
significant cost savings, increases in revenue
and growth in EPS over the medium term.
Our new Policy strongly aligns the interests
of management and shareholders with the
successful integration of ICAP. We have
designed the new Policy specifically to
encourage the Executive Directors to aim
to achieve the demanding synergy targets
arising from the acquisition, and to create
shareholder value. The Policy covers the
expected period it will take to integrate the
two businesses, which is three years from
January 2017.
We are putting forward this Policy after
consulting with shareholders and their
representatives, who together form the
majority of our share register, as well as
a second, intensive, consultation with our
leading shareholders. I am especially
grateful to our leading shareholders for
their prompt and helpful response which
has determined the structure of our
proposed Policy.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
57
The GEC will also participate in the same
Long Term Incentive Plan (‘LTIP’) as the
Executive Directors, to ensure the GEC’s long
term reward potential is aligned to the same
overarching performance goals. It should be
noted that, whilst this approach creates
alignment, the basic structure of remuneration
differs as between the Executive Directors
and the other members of the GEC. The LTIP
is a fundamental element of Executive
Director remuneration, to the extent that
it pays out, whereas the LTIP is largely
incremental for the other members of the
GEC and therefore only partially substitutes
for standard remuneration.
In summary, we have rebalanced
compensation towards long-term
performance and the delivery of shareholder
value. For the Executive Directors, the total
cash opportunity (salary and bonus) will be
substantially lower under the new Policy than
in 2016, while we have enhanced long-term
pay to reward our executive team for the
creation of sustainable shareholder value
over the medium term.
Proposed Remuneration Policy
The proposed Policy directly aligns to
our strategy.
Fixed remuneration
Chief Executive
John Phizackerley joined the Company in
September 2014. His starting salary was
£550,000, markedly lower than his
predecessor (whose salary was £650,000).
This reflected that he was new to the role.
The Company’s Policy is to offer very modest
additional benefits compared with practices
common elsewhere: neither Executive
Director receives a pension contribution
nor cash in lieu of a pension contribution,
and benefits in 2016 were £1,000 for
each Executive Director.
John Phizackerley’s performance since he
joined has been excellent – leading the
acquisition of ICAP while achieving a strong
financial performance at Tullett Prebon.
Over two years, underlying operating profit
is up 31% to £131.5m (from £100.7m in 2014)
and underlying operating margin has
increased to 14.8% (from 14.3% in 2014).
The median total fixed pay for Chief
Executives in the top half of the FTSE 250 is
£736,000. John Phizackerley’s current fixed
pay is £551,000 and has not increased since
he joined the Company.
In light of his performance over the last
two years, his enlarged role following the
acquisition of ICAP, and external market
data, the Board feels an increase in base
salary to £600,000 is fully justified; this
would be effective from 1 January 2017.
As he does not receive a pension allowance
and benefits are negligible, the Chief
Executive’s total fixed pay remains
significantly below the market median.
How the proposed Policy links to our strategy
Strategy
Short-term
KPIs
Long-term
KPIs
Annual bonus
Lead measures:
> Employee culture
> Strategic initiatives
Financial measures:
> Operating profit
> Returns (RoE)
Transformation LTIP
> Share price growth
and dividends
> Increased earnings
per share
Successful integration
of ICAP business
> Realise significant
cost synergies
> Create additional
efficiencies
> Grow revenues
> Capitalise on brand
> Invest in talent
> Leverage
technology platform
Chief Financial Officer
The annual fixed pay for our Chief Financial
Officer, Andrew Baddeley, was £400,000
when he joined the Company in May 2016.
This compares with a median total fixed pay
of £486,000 for Chief Financial Officers
in the top half of the FTSE 250.
Following the acquisition, as part of the
harmonisation of salaries between the ICAP
and Tullett Prebon GEC members, we expect
salaries to be adjusted to between £425,000
and £500,000 depending on role and level
of responsibility.
Taking account of the changes to Andrew’s
role as a result of the acquisition, the external
market data and internal comparisons,
we propose his salary becomes £425,000,
effective from 1 January 2017. As with the
Chief Executive, the CFO’s total fixed pay
remains significantly below the market median.
Annual discretionary bonus
We propose a more conventional capped
annual bonus arrangement for the Chief
Executive and the CFO, rather than the
profit-share structure currently in place.
The Chief Executive’s maximum bonus
opportunity will be 2.5 x base salary.
The CFO’s maximum bonus opportunity
will be 2 x base salary. Pay-out under
the annual bonus will depend on their
achieving demanding financial and
strategic performance targets aligned to
our three-year integration plan, as well as
adhering to our KPIs for conduct and risk
appetite. For on-target performance, the
plan would pay 60% of maximum, resulting
in annual bonus pay-outs of £900,000 and
£510,000 for the Chief Executive and CFO
respectively. These are significantly lower
than the actual bonuses paid for 2016 of
£2,608,628 and £986,558 (annualised)
respectively. They are also much lower than
the potential pay-outs would be if the current
Policy applied in 2017.
In addition, 50% of the actual bonus
awarded each year will be deferred into
shares, which will vest three years from the
date of being granted. Strong malus and
clawback provisions will also apply.
www.tpicap.com 58
Governance report
Report on Directors’ Remuneration
continued
Transformation Long Term Incentive Plan
This is a one-off long-term plan aligned to the three-year integration period for Tullett Prebon and ICAP (January 2017 – December 2019).
We have designed the LTIP to reward Executive Directors and the GEC for the value created from the acquisition, and to incentivise and
retain them over the period of intense activity required to achieve the stated objectives. There would be no further awards under the existing
LTIS over this period.
We gave very careful consideration to the merit of awarding LTIPs annually, as is the more common practice elsewhere. However, while an
award in 2017 would align with the three-year integration period, awards in subsequent years would result in performance periods extending
beyond 2019, which the Board believes would reduce the focus on the unique opportunity available to the Company.
We recognise that some of our shareholders prefer rolling long-term incentive awards. However, the Board’s view, and that of our leading
shareholders, is that the proposed Remuneration Policy provides the best means of focusing our Executive Directors and GEC on achieving
the targets of the three-year integration plan. Retaining and motivating our senior team is essential if we are to reach this goal.
The proposed LTIP provides a maximum pool of £60m. This pool will be allocated between the Executive Directors and the wider GEC – 59%
of the pool is reserved for the GEC while the Chief Executive will receive a 25% share (maximum pay-out £15m) and the CFO will receive a
share of 16% (maximum pay-out £9.6m). As explained earlier, it should be noted that the annual target bonus potential for both the Chief
Executive and the CFO will be substantially lower under the new Policy than in previous years.
At the end of the performance period, the LTIP pool will be determined (based on the absolute TSR and EPS performance described below)
and converted into awards of shares. Shares will be subject to a holding period and will be released 1/3 in April 2021, 1/3 in April 2022 and
1/3 in April 2023. During the holding period, the shares cannot be sold (other than to cover the cost of any applicable taxes).
LTIP performance measures
Under the proposed LTIP, there are two performance elements which will determine the ultimate vesting under the plan: 75% of the
weighting will be absolute TSR and the remaining 25% will be EPS. Incorporating two measures into the LTIP reflects the overall view
of shareholders as shared during the consultation process.
The proposed performance targets are shown below. We have also shown the estimated total cost synergies required to achieve these
targets, assuming a broadly constant share-price earnings multiple. This compares with the target of £60m published in our prospectus and
£80m over three years and £100m over four years as stretching targets outlined on page 5. It is clear that these are very demanding targets
indeed, and offers further demonstration of the Committee`s choice of a one-off three-year LTIP to focus management performance on
these targets.
2019 Performance Targets
TSR CAGR (Q1 2017 to Q1 2020)
Illustrative Share Price1
Illustrative value created2
2019 underlying EPS
Illustrative cost synergies3
Weighting
Base
Threshold
(25% pay-out)
Target (50%
pay-out)
Maximum
(100%
pay-out)
75%
25%
14%
–
£6.15
£4.65
£1,241m
–
42.5p4
60p
£60m5 £85-£105m £125-£145m £160-£180m
8%
£5.20
£669m
48p
11%
£5.65
£947m
54p
Includes dividends paid and assuming unchanged dividends throughout the period.
Notes:
1 Actual base price will be the average 2017 Q1 share price. Excludes dividends paid.
2
3 Based on financial modelling which looks at the impact of multiple inputs.
4 Underlying Tullett Prebon EPS in 2016.
5 Cost synergy target published in prospectus dated 1 March 2016.
We have chosen absolute TSR as the primary measure for a number of reasons. It is clear and understandable by the wider management
team, and correlates directly with the value created for shareholders. We concluded that relative TSR, while preferred by some shareholders,
was less appropriate, as our two principal competitors, BGC Partners Inc. and Compagnie Financiare Tradition, do not have shares that are
fully distributed. Relative TSR would therefore need to be measured relative to an index or a broader financial services comparator group.
The Committee felt that this would considerably reduce the clarity of the scheme for management.
The threshold performance level of 8% reflects the wishes of our leading shareholders. This is also consistent with our TSR CAGR over the six
years to 31 December 2016 of 8%.
With respect to the 2019 EPS targets, it should be noted that the prospectus stated that the ICAP acquisition is expected to dilute Tullett
Prebon’s EPS in the first year, that the delivery of cost synergies and additional efficiencies in the second year is expected to at least offset
that dilution, and the acquisition is expected to result in EPS accretion on a fully-phased basis.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
59
Opportunity under the new Policy
The Policy has been designed so that executives will only receive maximum pay-out if exceptional performance is achieved:
Chief Executive
)
m
£
(
n
o
i
t
a
r
e
n
u
m
e
R
18
15
12
9
6
3
0
£3.4m
7%
77%
16%
Actual1
2016
£17.1m – of which LTIP
pay-out of £15m only
made if at least £1,241m
of TSR is created1
88%
9%
4%
£9m – of which LTIP pay-out
of £7.5m only made if at least
£947m of TSR is created1
83%
10%
7%
£2.1m
71%
29%
£0.6m
100%
Maximum
Minimum
Target
2019
Maximum
£0.6m
100%
Minimum
£1.5m
60%
40%
Target
2017
£2.1m
71%
29%
£0.6m
100%
Maximum
Minimum
£1.5m
60%
40%
Target
2018
Fixed pay
Annual bonus
Long-term incentives
Chief Financial Officer
)
m
£
(
n
o
i
t
a
r
e
n
u
m
e
R
12
10
8
6
4
2
0
£0.9m
72%
28%
Actual
£1.5m
8%
65%
27%
100%
Annualised
2016
£0.4m
100%
Minimum
£0.9m
54%
46%
Target
2017
£1.3m
67%
33%
£0.4m
100%
Maximum
Minimum
£0.9m
54%
46%
Target
2018
Fixed pay
Annual bonus
Long-term incentives
Notes:
1 Based on Chief Executive’s 2016 single figure (includes 2014 LTIS vesting).
> based on illustrative base share price of £4.65.
> 2016 actual based on 2016 single figure (includes 2014 LTIS vesting).
> 2016 actual based on 2016 single figure.
> 2016 annualised includes 2016 LTIS award (valued at 50%).
£10.9m – of which LTIP pay-out
of £9.6m only made if at least
£1,241m of TSR is created1
88%
8%
4%
£5.7m – of which LTIP pay-out
of £4.8m only made if at least
£947m of TSR is created1
84%
9%
7%
£1.3m
67%
33%
£0.4m
100%
Maximum
Minimum
Target
2019
Maximum
www.tpicap.com
60
Governance report
Report on Directors’ Remuneration
continued
Improving alignment with shareholders
The diagram below demonstrates the rebalancing of the total reward packages towards the longer term and reflects the significant
reduction in annual bonus opportunity. The rebalancing results from the replacement of the current annual bonus calculation with a bonus
cap expressed as a multiple of base.
Pay
measurement
Pay
mix
Current
Proposed
Current
Proposed
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cash
Shares
Short-term
Long-term
Notes:
> current based on Chief Executive’s actual bonus in 2016 and target LTIS (50% of grant). Proposed based on ‘target’ performance.
> pay measurements are based on variable pay only.
Summary of changes
Element
Base salary
Annual bonus
Long-term incentives
Shareholding requirements
Current Policy
CEO: £550,000
CFO: £400,000
CEO: 1.825 – 2.175% of Bonus Pool
Operating Profit
2016 actual 4.7 x base
CFO: 0.675 – 0.825% of Bonus Pool
Operating Profit
2016 annualised: 2.5 x base
Annual awards equivalent to the higher
of aggregate base salary and 25%
of the prior-year aggregate variable
remuneration, settled in cash subject
to TSR, cash flow and return on equity.
CEO: 300% of base salary
CFO: 150% of base salary
Revised Policy
CEO: £600,000
CFO: £425,000
CEO: 2.5 x salary
CFO: 2 x salary
One-off three-year LTIP to cover integration period, with a
maximum pool of £60m. 25% interest for CEO and
16% interest for CFO. 59% available to incentivise GEC. Two
performance measures – absolute TSR (75%) and EPS (25%).
Holding period post vesting of up to three years.
CEO: 300% of base salary
CFO: 200% of base salary
I hope that you will agree that our revised Policy will increase alignment with long-term shareholder value and appropriately rewards
Executives for meaningful returns delivered over the long-term.
Stephen Pull
Chairman Remuneration Committee
14 March 2017
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
61
Governance
The Remuneration Committee is chaired by Stephen Pull. The other members of the Remuneration Committee during 2016 were Angela
Knight and David Shalders. All members of the Remuneration Committee are independent Non-executive Directors.
The Remuneration Committee is responsible on behalf of the Board for developing and maintaining formal and transparent policies on
remuneration for the Company’s employees, the framework in which that Policy is applied, and its cost. In addition, the Remuneration
Committee regularly reviews remuneration policies to ensure that they continue to be compliant with the relevant corporate governance
and regulatory requirements, including the Remuneration Code.
There has been no significant change to how the Remuneration Committee operates. The Terms of Reference of the Remuneration
Committee are available on the Company’s website, www.tpicap.com.
The Report on Directors’ Remuneration has been prepared in accordance with the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013, the UKLA Listing Rules and the UK Corporate Governance Code. The Companies
Act 2006 requires the auditor to report to the Company’s members on certain parts of the Report on Directors’ Remuneration and to state
whether in their opinion those parts of the report have been properly prepared in accordance with the regulations.
The Remuneration Committee Chairman’s statement, the Directors’ Remuneration Policy and certain parts of the Annual Report on
Remuneration (indicated in that report) are unaudited.
Definitions used in this report
‘Executive Director’ means any executive member of the Board;
‘Senior Management’ means those members of the Company’s Global Executive Committee (other than the Executive Directors) and the first
level of management below that level;
‘Broker’ means front office revenue generators;
‘Control Functions’ means those employees engaged in functions such as Compliance, Legal, HR, Finance, Operations and Risk Control;
‘Remuneration Code’ means the Remuneration Code of the FCA; and
‘2013 Regulations’ means the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.
www.tpicap.com 62
Governance report
Report on Directors’ Remuneration
continued
Annual Report on Remuneration
The Annual Statement made by the Chairman on pages 56 to 60 and this Annual Report on Remuneration are subject to a shareholders’
advisory vote at the forthcoming AGM. Information in this report on pages 62 to 70 is audited except where stated.
Members of the Remuneration Committee during the year were: Stephen Pull (Chairman), David Shalders, and Angela Knight.
The single total remuneration for each of the Directors who held office during the year ended 31 December 2016 was as follows:
Executive Directors
John Phizackerley
Andrew Baddeley2
Paul Mainwaring3
Non-executive Directors
Rupert Robson4
Angela Knight
Roger Perkin
Stephen Pull5
David Shalders
Carol Sergeant
Salaries and fees
Benefits
Bonus1
LTIS
Pension
Total
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
550
253
123
200
65
70
70
60
70
1,461
550
–
350
196
64
67
67
59
68
1,421
1
1
1
–
–
–
–
–
–
3
1 2,609
649
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
2 3,258
1,699
–
633
–
–
–
–
–
–
2,332
2216
–
987
–
–
–
–
–
–
319
–
–
808
–
–
–
–
–
–
80
–
–
–
–
–
–
–
–
–
–
– 3,381
903
–
222
–
–
200
–
65
–
70
–
70
–
60
70
–
– 5,041
2,250
–
1,064
196
64
67
67
59
68
3,835
Notes:
1 50% of the bonus is subject to investment in the Company’s ordinary shares as detailed in the 2014 Directors’ Remuneration Policy.
2 Appointed 13 May 2016. Prior to joining, Andrew Baddeley had a consultancy agreement with the Company through Ponos Consulting Ltd and received £16,800 in fees.
3 Stepped down 6 May 2016. See full details of termination payments on page 67.
4
5
6 Based on performance against TSR and Cash Flow performance measures. Performance against ROE metric will be assessed in June 2017 and any adjustments
In addition he received £4,000 as a pension trustee.
In addition he received £4,000 as a pension trustee.
set out in the 2017 report.
7 Value of 2014 and 2015 LTIS vested. The award vested following the termination of employment on 30 June 2016. See page 68 for further information.
8 Based on performance to 31.12.15. Payment in respect of TSR and Cash Flow performance metrics was disclosed in the 2015 report. ROE was tested in June 2016, the 2015
amount has been adjusted to reflect performance against the ROE target. Further details are on page 68.
Fixed remuneration
The fixed remuneration of the Chief Executive, John Phizackerley remained unchanged throughout 2016 at £550,000. The fixed
remuneration of the former Finance Director, Paul Mainwaring, remained unchanged in 2016 at an annual rate of £350,000. Andrew
Baddeley, the Chief Financial Officer, received fixed remuneration for the period of employment from 6 May 2016 on a pro-rata basis
reflecting an annual fixed remuneration of £400,000.
Executive
John Phizackerley
Andrew Baddeley
Paul Mainwaring
Base salary
£550,000
£400,000
£350,000
Annual bonus
The Remuneration Committee determined that the Bonus Pool Operating Profit for 2016 should amount to £121.05m.
The Remuneration Policy requires that for any bonus to be awarded to the Executive Directors, operating profit must exceed a threshold
calculated as the weighted average cost of capital times the average capital employed. The Committee determined that the Bonus Pool
Operating Profit had exceeded this threshold.
Bonus Pool Operating Profit
The maximum Bonus Pool Operating Profit is capped at 150% of the prior year Bonus Pool Operating Profit of £80.7m. The cap means that
the 2016 Bonus Pool Operating Profit is restricted to £121.05m. Without the application of this cap, the Bonus Pool Operating Profit would
have been £124.3m. This is based on reported operating profit of £73.3m adding back the acquisition and integration costs relating to the
ICAP acquisition, the PVM acquisition related share-based payment charge and other PVM acquisition related items, less the net settlement
gain relating to the bulk transfer exercise offered to deferred members of the Tullett Prebon defined benefit pension scheme.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 63
Our Chief Executive is eligible for a bonus of 1.825-2.175% of Bonus Pool Operating Profit and our Chief Financial Officer is eligible for a
bonus of 0.675-0.825% of Bonus Pool Operating Profit (pro-rata for time employed in 2016).
In determining annual bonus awards, the Committee also confirmed, in consultation with the Board Risk Committee, that the Company
and individual Executives had operated within agreed risk controls and regulatory compliance requirements.
50% of the 2016 bonus net of tax has to be invested in the Company’s ordinary shares to be held for three years and will be subject during
this time to claw-back as described in the Directors’ Remuneration Policy. The reinvestment requirement does not have any service or other
non-performance conditions attached to it.
The actual bonus awards to each of the Executive Directors (within the range available) is based on their personal contribution, relative
responsibilities and their performance against specific objectives agreed with each Executive Director during 2016:
Chief Executive (unaudited)
The Performance Objectives set for the Chief Executive, the allocation of the bonus pool for each objective, and the assessment by the
Remuneration Committee of the performance against each objective is shown below.
Chief Executive performance targets
Deliver day 1 integration (subject to deal
completion – discretionary if incomplete)
Improve operational efficiency
(on a like for like basis) measured
by operating margin
Improve the value and contribution
outlook for the data business
Continue to push CRM, diversify revenues
from heritage businesses and further
embed e-commerce into the businesses
Increase interaction with clients,
shareholders and the media
Continue to set the tone, drive and
embed a risk management culture
Continued development of best in class
executive management team
Recruit next generation brokers
Continue to build relations and support
from our many regulators
Execute on the target state Technology
architecture and establish a new
Technology capability in Belfast
At the discretion of the
Remuneration Committee
Total
Potential award
(Basis Points)
Overall
score
Assessment of performance
3
3
3
4
2
3
3
2
3
3
6
35
3
3
Lead architect. Exceptional performance in establishing Day 1
management structure and overall business readiness for Day 1.
Underlying operating margin of 14.8% is 1.2% points higher than
2015 reflecting the full year effect of the investment and cost
improvement being made in the business.
1 Good financial results for TPI, but there is further scope to achieve
significant growth in this area and to diversify revenue streams.
4
2
3
3
2
3
Took every opportunity to drive the CRM agenda. Appointed a
Global Head of CRM. Established the new Institutional Services
division to drive the diversification of revenues and reduce reliance
on traditional revenue streams.
Significant increase in public profile and overall media presence.
Has established excellent relationships with clients and shareholders.
Leads by example. Drove the agenda at Town Halls and through
regular communication. Held the wider management team
accountable for driving and embedding the risk management
culture throughout the organisation. Reinforced the messaging
through demonstrated support for key Risk initiatives including
‘5 Things that you need to Know’.
Led senior leadership appointments including the hiring of the new
CFO, Director of Corporate Affairs and CEO of Institutional Services.
Championed the Early Career Programme. Clear and demonstrated
commitment to bringing on board the next generation of brokers.
Continued to build constructive and open dialogue with our
many regulators.
3 Oversaw the setting up of the Belfast technology centre and
sponsored the external review of the combined technology
platforms to determine the optimal future state technology design.
Excellent overall leadership through a truly transformational year.
Underlying EPS up from 32.2p and 42.5p.
6
33
www.tpicap.com 64
Governance report
Report on Directors’ Remuneration
continued
Chief Financial Officer (unaudited)
The performance objectives set for the Chief Financial Officer, the allocation of the bonus pool for each objective, and the assessment
by the Remuneration Committee of the performance against each objective is shown below.
Chief Financial Officer performance targets
Manage the completion of the purchase
of ICAP (subject to deal completion –
discretionary if incomplete)
Deliver day 1 integration plan: Day 1
readiness and plan to progress to achieve
target operating model (subject to deal
completion – discretionary if incomplete)
Manage the delivery of the 2016 financial
outcomes including monitoring
performance, delivery of a controlled
forecasting and reporting process
Development of enhanced management
reporting and overarching forecasting
model to incorporate acquired businesses
Planning for refinancing and debt issues
– including refinancing of maturing bonds
and delivering plan for refinancing of the
Group’s debt issues
Pension Scheme exposure mitigation –
deliver plan to support the de-risking
of the investment mandate
At the discretion of the
Remuneration Committee
Total
Potential award
(Basis Points)
Overall
score Assessment of performance
2
2
2
2
2
1
4
15
2
2
Significant contribution to the overall deal completion and played
a pivotal role in the final negotiations.
Took the lead in ensuring that the Company was business ready for
Day 1 and all functions required to provide Day 1 and future Target
Operating Models to identify steps to achieve target synergies.
2 Oversaw the production of all required 2016 reports completed to
an excellent standard by Group Finance.
2 Drove the development of enhanced monthly MI and interactive
modelling for TP ICAP.
2
Successfully achieved – maturing bonds refinanced and plan for
refinancing delivered.
1
De-risking plan developed and partially executed in 2016.
Took on additional responsibility as acting COO in addition to
CFO responsibilities.
3
14
2016 bonus payments
This performance resulted in the following payments:
Element
Bonus based on financial performance (% of Bonus Pool Operating Profit
Bonus based on achieving personal objectives (% of Bonus Pool Operating Profit)
Total bonus (% of Bonus Pool Operating Profit)
Bonus Pool Operating Profit
Actual bonus (prior to pro-rating)
Pro-rata for time employed in 2016
The 2016 bonus award for the CFO Andrew Baddeley is a pro-rata reflecting 240 days of employment in 2016.
No 2016 bonus was awarded to the outgoing Finance Director, Paul Mainwaring.
Chief
Executive
Chief
Financial
Officer
1.825%
0.33%
2.155%
0.675%
0.14%
0.815%
£121.05m £121.05m
£986,558
£648,695
£2,608,628
N/A
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 65
2016 Bonus (unaudited)
)
s
0
0
0
£
(
s
u
n
o
b
l
a
t
o
T
3,000
2,500
2,000
1,500
1,000
500
0
John
Phizackerley
Andrew
Baddeley
2.5%
2.1%
1.7%
1.2%
0.8%
0.4%
0%
s
u
n
o
b
f
o
e
g
a
t
n
e
c
r
e
P
t
fi
o
r
p
g
n
i
t
a
r
e
p
o
l
o
o
p
Personal performance
Financial performance
Vesting of 2014 LTIS awards
In 2014, the Chief Executive was awarded an LTIS award with a face value of £400,000. The portion of the 2014 LTIS that has vested is shown
in the Remuneration table on page 62. 75% of the LTIS award made in 2014 is subject to performance conditions measured to December
2016. The vesting conditions and performance against targets is shown below:
Performance measure Weighting
Relative TSR1
Average cash flow2
Return on equity3
Total
50%
25%
25%
100%
Threshold performance
target (25% vesting)
Stretch performance
target (100% vesting) Actual performance
Median
Upper quartile
£40m
Equal to IDB
competitors’ average
£150m
3 x IDB competitors’
average
53rd out of 183
companies
£67m
To be assessed post
30 June 2017
Vesting
88.93%
43.4%
–
Notes:
1 TSR versus constituents of FTSE 250. Excludes investment trusts.
2 Before debt repayments and dividends.
3 The companies comprising the comparator group BGC Partners Inc. and Compagnie Financière Tradition in 2016.
The performance against the TSR and cash flow targets result in a payment of £221,260 to the Chief Executive to be made in 2017.
Vesting for the ROE element will be measured in June 2017 once IDB competitors have released their accounts. The additional amount for this
vesting will be shown in the 2017 Directors’ Remuneration Report.
www.tpicap.com
66
Governance report
Report on Directors’ Remuneration
continued
2016 LTIS awards
Under our Remuneration Policy and in accordance with the rules of the LTIS, approved by shareholders in 2014, the annual Scheme Pool is
defined as the higher of aggregate base salary and 25% of the prior year aggregate variable remuneration of Executive Directors in office
at the date of the award (or base salary for a new Executive Director).
Awards under the LTIS made in 2016 were:
Executive
John Phizackerley
Andrew Baddeley
Nature of award1
Cash
Cash
Face value
£654,545
£245,455
Threshold
vesting
25%
25%
End of
performance
period
31.12.18
31.12.18
Note:
1 Awards have a normal vesting date of 30 June 2019 and are subject to malus as described in the Directors’ Remuneration Policy. There have been no changes to the
performance conditions.
Shareholding requirements (unaudited)
Half of the 2016 bonus awarded to each of the Executive Directors was subject to a condition that the net of tax amount to be paid at the end
of March 2017 would be invested in the Company’s shares, to be held for a minimum of three years. This investment requirement can be met,
in part or in full, by ordinary shares already held, excluding any shares already being counted towards investment requirements in relation
to previous bonus payments.
Non-executive Directors are not required to hold interests in the Company’s shares and the decision to invest is left to their personal
discretion. All Executive Directors who served during the year complied with the Company’s requirements in respect of their interests
in the shares of the Company.
Directors’ interests
The interests (all beneficial) as at 31 December 2016 during the year in the ordinary share capital of the Company were as follows:
Director
Rupert Robson
John Phizackerley
Andrew Baddeley1
Paul Mainwaring 2
Angela Knight
Roger Perkin
Stephen Pull
David Shalders
Carol Sergeant
Notes:
1 Appointed 13 May 2016.
2
Interest as at 6 May 2016.
3 There have been no changes to the holdings between 31 December 2016 and 13 March 2017.
Shares3
7,000
174,700
15,000
279,741
–
–
7,000
–
9,038
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
67
Non-executive Directors’ fees
As disclosed in the 2015 Directors’ Remuneration Report, with effect from 1 March 2016 the fees for chairing a committee increased to
£10,000 per annum. All other non-executive fees were unchanged:
Role
Chairman
Base fee
Senior Independent Director
Chairman of the Audit Committee1
Chairman of the Remuneration Committee1
Chairman of Risk Committee1
Note:
1
Fee from 1 January 2016 – 29 February 2016 was £7,500.
Fee (£)
200,000
60,000
5,000
10,000
10,000
10,000
Some Non-executive Directors also act as trustees of the Company’s occupational pension scheme. They are entitled to an attendance
fee of £1,000 per meeting for this role.
Termination payments for Paul Mainwaring
Paul Mainwaring stood down as a Director of the Company with effect from 6 May 2016.
The following information is provided in accordance with section 430(2B) of the Companies Act 2006.
All payments are in line with the Company’s stated Directors’ Remuneration Policy (published in the 2013, 2014 and 2015 Annual Reports)
and approved by the shareholders at the 2014 Annual General Meeting.
Salary and accrued entitlements
Paul Mainwaring was paid in respect of accrued salary and contractual benefits up to and including the 30 June 2016 the ‘Termination Date’.
He was also paid in respect of any outstanding accrued but untaken holiday entitlement in accordance with the Company’s legal obligations.
Payment in Lieu of Notice (PILON)
Paul Mainwaring was paid the sum of £293,366 in lieu of salary and contractual benefits he would have received during the remainder of his
12-month contractual notice period (subject to deductions for income tax and national insurance contributions). The PILON payment did not
include any payment in lieu of bonus.
Annual bonus
Paul Mainwaring did not receive a bonus payment in respect of 2016.
Termination payment
Paul Mainwaring was paid the sum of £78,962 by way of compensation for loss of employment and to mitigate any claims against
the Company.
www.tpicap.com 68
Governance report
Report on Directors’ Remuneration
continued
LTIS
The Remuneration Committee determined, pursuant to the rules of the LTIS, that the Awards would vest on the Termination Date subject
to the applicable performance conditions and pro-rating from the date each Award was made to the Termination Date.
LTIS
20141
20152
Total (following pro-ration)
Award Value
Award Date
£200,000
£245,455
6.11.2014
1.5.2015
Relative TSR
(50%)
Average cash
flow (25%)
Return on
equity (25%)
Amount vested
total
Amount vested
pro-rated
0%
100%
29.15%
32.82%
58.50%
81.50%
£43,825
£192,879
£27,283
£71,078
£98,361
Performance against vesting conditions
Notes:
1 Time apportionment 602 days/ 967 day.
2 Time apportionment 426 days/ 1,156 days.
Paul Mainwaring had a 2013 LTIS award of £200,000 measuring performance from 2013 to 2015. As disclosed in the 2015 Directors’
Remuneration Report, the Relative TSR and Average cash flow measures partially vested (34.73% and 48.6% respectively). The Return on
Equity (ROE) element was measured in June 2016 following the release of competitor accounts. ROE performance was above the average
for the competitor group but less than the maximum target (three times the average). 48.6% of this element of the award vested as a result
leading to a total cash payment for the 2013 LTIS of £80,415. As Paul Mainwaring was employed for the entire vesting period, this award
was not pro-rated. As the award reflected a performance period which ended in 2015, the 2015 LTIS figure has been updated to reflect the
additional vesting from the ROE element of the award. The total amount released to Paul Mainwaring in respect of all his outstanding and
vested LTIS awards was £178,776.
Legal fees
In addition, the Company made a payment to Paul Mainwaring’s legal advisers of £7,500 plus VAT, as a contribution towards legal advice in
connection with Paul Mainwaring’s termination of office.
The following information is not subject to audit.
Advice provided to the Remuneration Committee
Throughout 2016, New Bridge Street, part of Aon Hewitt, was the only external remuneration adviser to the Remuneration Committee.
They advised on aspects of our Remuneration Policy and practice.
Fees payable to New Bridge Street during 2016 amounted to £106,000. The Committee is satisfied that these fees are appropriate for the
work undertaken. New Bridge Street provide no other services to the Company.
Simmons and Simmons, Herbert Smith Freehills LLP and Allen & Overy LLP provided advice on law and regulation in relation to employee
incentive matters. All three firms also provide general legal advice to the Company.
Outside directorships
John Phizackerley does not have any outside directorships from which he received any remuneration in 2016. Andrew Baddeley is a
Non-executive Director of Cobalt Insurance Holdings Ltd, where he chairs the Audit Committee. In the period from his appointment to the
Board of TP ICAP to 31 December 2016, he received remuneration from Cobalt Insurance Holdings Ltd of £14,000.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 69
Performance graph
A graph depicting the Company’s TSR in comparison to other companies in the FTSE 250 index (excluding investment trusts) in the eight years
to 31 December 2016 is shown below:
The Board believes that the above index is most relevant as it comprises listed companies of similar size.
Total Shareholder return
£
)
d
e
s
a
b
e
r
(
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
600
500
400
300
200
100
0
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
TP ICAP
FTSE 250 Index (excluding Investment Trusts)
Source: datastream (Thomson Reuters)
This graph shows the value, by 31 December 2016, of £100 invested in TP ICAP on 31 December 2008, compared with the value of £100
invested in the FTSE 250 Index (excluding Investment Trusts) on the same date.
The other points plotted are the values at intervening financial year-ends.
Chief Executive Remuneration History
Year ended
Name
31 December 2016
31 December 2015
31 December 2014
31 December 2013
31 December 2012
31 December 2011
31 December 2010
31 December 2009
John Phizackerley1
John Phizackerley1
John Phizackerley2
Terry Smith3
Terry Smith
Terry Smith
Terry Smith
Terry Smith
Terry Smith
Notes:
1 Percentage represents the overall percentage score achieved on individual performance targets.
2 For the 4 month period from 1 September 2014.
3 For the 8 month period from 1 January 2014 – 31 August 2014.
4 Variable remuneration was uncapped in the years 2009-2012.
5 Based on achievement against the TSR and cash flow elements.
Change in Chief Executive Remuneration
Chief Executive1
Senior Management
Total
Remuneration
£’000
Annual Bonus
% of
max payout
LTI %5
of max
vesting
3,381
2,250
720
433
2,856
3,153
4,929
4,344
4,652
94%
80%
N/A
N/A
51%
N/A
N/A
N/A
N/A
74%
N/A
N/A
–
–
–
45%
–
–
% change
Salary
% change
Benefits
% change in
annualised
bonus payment
0%
5%
0%
N/A
54%
25%
This table shows the change of the Chief Executive’s fixed and variable remuneration compared to senior management on a like for like basis
to senior management employed throughout 2015 and 2016.
Note:
1
John Phizackerley has not received a base salary increase in 2016.
www.tpicap.com
70
Governance report
Report on Directors’ Remuneration
continued
A large portion of the Group’s remuneration is payable to Brokers, who earn a significant portion of their income as contractual bonus based
on a formula linked to revenue. The Remuneration Committee considered that comparison of the Chief Executive’s remuneration with that of
Senior Management would accordingly be more meaningful than comparison with all employees.
Relative importance of spend on remuneration
The table below shows the expenditure and percentage change in overall spend on employee remuneration and dividend payments:
£m
Employee remuneration1
Shareholder dividends paid2
2016
568.7
41.0
2015
534.4
41.0
% change
+6%
0%
Notes:
1
2 Shareholder dividends comprises the dividends paid.
Employee remuneration includes employer’s social security costs and pension contributions.
Voting at the 2016 AGM At the AGM held on 12 May 2016 the following votes were cast in respect of the Report on Directors’ Remuneration:
Vote on Approval of the Report of Director’s Remuneration as below
For
Against
Votes withheld
Number
%
Number
%
172,856,824
84% 32,809,993
16%
Number
795,610
Notes:
1 Votes ‘For’ and ‘Against’ are expressed as a percentage of votes cast. A ‘Vote withheld’ is not a vote in law.
2 Votes ‘For’ includes those giving the Chairman discretion.
Following consultations with shareholders and their agents, it was concluded that the 15.9% vote against was as a consequence of the
structure of our 2014 Policy. Market practices have changed since shareholders approved this Policy. However, the Committee is bound to
operate within the Policy until shareholders approve a new one. In developing our new Policy, to be put to shareholders for approval at our
2017 AGM, the Committee has taken account of the comments received following the 2016 AGM.
For 2016, the Remuneration Committee undertook a comprehensive performance assessment in the awarding of bonuses for our Executive
Directors in accordance with our Policy and commitments.
2017 AGM
Copies of the Executive Directors’ service agreements, the Non-executive Directors’ letters of appointment are available for inspection at the
registered office of the Company during normal business hours and will be available for shareholders to view at the 2017 AGM.
Implementation of Remuneration Policy in 2017
In 2017 we will implement a new Remuneration Policy for our Executive Directors. Under the new Policy we will again set individual
performance targets which will be disclosed retrospectively.
The policies set out in the Policy table in the Remuneration Policy section of the Report on Directors’ Remuneration will apply in 2017 subject
to a binding vote at the 2017 AGM in May 2017.
Specifically in connection with the Transformation LTIP, if an Executive Director is appointed to the Board during the Transformation LTIP
performance period, the Committee may, at its sole discretion, (taking into account the portion of the performance period which has lapsed)
allow the newly appointed Executive Director to participate in the LTIP on a time apportioned basis. The maximum total pool would remain
unchanged. Alternatively the Executive Director may be granted a conventional Performance Share Plan award (‘PSP’). If a PSP award is
made in lieu of participation in the Transformation LTIP, the maximum aggregate variable pay, including annual bonus and PSP, would be
500% of base salary (or 600% in exceptional circumstances), of which a maximum of 250% (or 300% in exceptional circumstances) of base
salary may be in the form of annual bonus. These limits exclude any awards that are required to replace deferred remuneration from a
previous employer that is forfeited on joining. The final determination will be at the discretion of the Committee.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
71
Directors’ Remuneration Policy
The new Directors’ Remuneration Policy will be proposed to shareholders at the 2017 AGM. The Remuneration Policy table applicable to
2016 can be found in previous copies of the Annual Report.
Background
In reviewing and approving the general principles of the Company’s Remuneration Policy which applies throughout the Group, the
Remuneration Committee took account of the Company’s goal to become the world’s most trusted source of liquidity in hybrid OTC markets
and the best operator in global hybrid voice broking. The Remuneration Committee was mindful that the Group’s strategy to achieve that
objective is to continue to develop its business, operating as an intermediary in the world’s major wholesale OTC and exchange traded
financial and commodity markets, with the scale and breadth to deliver superior performance and returns, underpinned
by strong financial management disciplines and without actively taking credit and market risk.
The Remuneration Committee took into account general practices in the parts of the financial services sector in which the Company
operates, and in particular those of the Company’s competitors which include BGC Partners Inc. and Compagnie Financière Tradition.
These practices are characterised by high levels of variable remuneration. The Remuneration Committee concluded that it is in the best
interests of the Company and shareholders to pay remuneration in line with market practice in the sectors in which the Company operates.
The Company’s Remuneration Policy is designed to attract, motivate and retain employees with the necessary skills and experience to deliver
the strategy, in order to achieve the Group’s objectives.
Risk
The Remuneration Committee considered the relationship between incentives and risk when approving the Remuneration Policy which will
apply throughout the Group.
Details of the Group’s key risks and risk management are set out in the Strategic Report of this Annual Report on pages 32 to 37.
The majority of transactions are brokered on a Name Passing basis where the business is not a counterparty to a trade.
Commissions earned on these activities are received monthly in cash. The business does not take any trading risk and does not hold principal
trading positions. The business only holds financial instruments for identified buyers and sellers in matching trades which are generally settled
within one to three days. The business does not retain any contingent market risk and is not exposed to any material counterparty credit risk.
The business does not have valuation issues in measuring its profits.
The Remuneration Committee concluded that the Company’s Remuneration Policy reflects the risk profile of the Group, is consistent with
and promotes sound and effective risk management, and does not encourage risk taking.
The Remuneration Committee considers that the Company’s Remuneration Policy is consistent with the measures set out in the business’s
compliance manuals relating to conflicts of interest.
The Company’s policy is to ensure that variable remuneration is not paid through vehicles or methods that facilitate avoidance of the
Remuneration Code.
www.tpicap.com 72
Governance report
Report on Directors’ Remuneration
continued
Policy table
The policy set out in this table is the proposed policy which will be put to shareholders at the May 2017 AGM.
How remuneration supports the Company’s
short and long term strategic objectives
Fixed remuneration
To provide a level of fixed remuneration
reflecting the scope of individual responsibilities
to attract and retain high calibre individuals.
Benefits
To provide basic benefits but otherwise
to limit provision of benefits.
Pension
To make basic pension provision.
Annual discretionary bonus
Aim is to motivate and retain Executive Directors,
consistent with the risk appetite determined
by the Board and thereby to achieve superior
returns for shareholders. It provides a direct link
between the achievement of annual business
performance targets and reward.
The shareholding requirements align Directors’
interests with shareholders.
Minimum shareholding
Aligns Directors’ interests with shareholders by
focusing on longer term shareholder returns.
Transformation LTIP
Aligns Directors’ interests with shareholders by
focusing on longer term shareholder returns.
Non-executive Directors
Fees
To attract high calibre, experienced
Non-executive Directors.
Operation
Maximum payable
Performance framework
Recovery/withholding
Paid monthly in arrears. Reviewed periodically to ensure it is not significantly out of line
with the market.
N/A
None
Medical cover and participation in any schemes available to all UK employees such as the Group
life assurance and income protection plans.
Relocation or the temporary provision of accommodation may be offered where the Company
requires an Executive Director to relocate.
The Remuneration Committee may determine that Executive Directors should receive other
reasonable benefits if appropriate, taking into account typical market practice.
Membership of a defined contribution pension scheme.
6% of fixed remuneration up
None
None
None
None
No new benefits will be
None
introduced during the term
of this Remuneration Policy,
unless such benefits are
made available to all
UK employees.
to a cap set at £105,600
unless otherwise made
available to all
UK employees.
Annual assessment of performance against performance objectives. The performance objectives
will be set on an annual basis and disclosed retrospectively.
Executive Directors will have a mandatory 50% Bonus Deferral each year – such deferral
to be awarded in Company shares with a three year deferral period. These shares can be used
to meet the investment requirement.
The maximum CEO annual
Annual performance targets will be set.
Malus and claw-back provisions apply to the whole annual bonus which
bonus will be 2.5 x base salary.
The targets will include key financial
enables the Committee to recoup pay-outs under the plan either by
metrics and applicable behavioural metrics.
reducing or cancelling any unvested deferred awards or reclaiming
The maximum CFO annual
bonus will be 2 x base salary.
Achievement of performance targets will
amounts paid.
result in 60% pay-out.
Directors must hold a minimum number of the Company’s ordinary shares equivalent
to 300% of base salary in respect of the Chief Executive and 200% of base salary for
all other Executive Directors.
One-off three-year LTIP (2017-2019) linked directly to achievement of strategic
targets for the integration.
TSR will be measured from Q1 2017 to Q1 2020. Underlying EPS will be full year 2019
underlying EPS.
Shares will be subject to a holding period and will be released 1/3 in April 2021, 1/3 in April 2022
and 1/3 in April 2023. During the holding period the shares can not be sold (other than to cover
the cost of any applicable taxes thereon).
Paid monthly in arrears. Periodically benchmarked against other UK listed companies
of comparable size and activities. Additional fees for additional responsibilities of the
Senior Independent Non-executive Director, for chairing each of the Audit and
Remuneration Committees or other services performed such as acting as a trustee
of a Company pension scheme.
Aggregate annual fees
as listed in the Articles of
None
Association
None
Malus or claw-back may be applied where there is a material adverse,
misstatement of performance for the period to which the bonus related
event or a material misstatement of results for the period to which the
bonus related or, an Executive Director’s conduct is found to amount to
gross misconduct and/or fraud, wilful dishonesty or accounting malfeasance.
None
None
None
CEO – £15,000,000
Absolute TSR and 2019 Underlying EPS
Malus and claw-back provisions apply to the Transformation LTIP which
CFO – £9,600,000
metrics will apply.
enables the Committee to recoup pay-outs under the plan either by
reducing or cancelling any unvested deferred awards or reclaiming
TSR conditions1 (75% of award)
Threshold: 8% CAGR increase (25% pay-out)
amounts paid.
Target: 11% CAGR increase (50% pay-out)
Malus or claw-back may be applied where there is a material adverse,
Max: 14% CAGR increase (100% pay-out)
misstatement of performance for the period to which the bonus related
event or a material misstatement of results for the period to which the
bonus related or, if an Executive Director’s conduct is found to amount to
gross misconduct and/or fraud, wilful dishonesty or accounting malfeasance.
2019 underlying EPS2 (25% of award)
Threshold: 48p (25% pay-out)
Target: 54p (50% pay-out)
Max: 60p (100% pay-out)
Straight line interpolation applies.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
73
Policy table
The policy set out in this table is the proposed policy which will be put to shareholders at the May 2017 AGM.
How remuneration supports the Company’s
short and long term strategic objectives
Operation
Fixed remuneration
reflecting the scope of individual responsibilities
with the market.
to attract and retain high calibre individuals.
Benefits
To provide basic benefits but otherwise
Medical cover and participation in any schemes available to all UK employees such as the Group
to limit provision of benefits.
life assurance and income protection plans.
Relocation or the temporary provision of accommodation may be offered where the Company
requires an Executive Director to relocate.
The Remuneration Committee may determine that Executive Directors should receive other
reasonable benefits if appropriate, taking into account typical market practice.
Pension
To make basic pension provision.
Membership of a defined contribution pension scheme.
Maximum payable
Performance framework
Recovery/withholding
To provide a level of fixed remuneration
Paid monthly in arrears. Reviewed periodically to ensure it is not significantly out of line
N/A
No new benefits will be
introduced during the term
of this Remuneration Policy,
unless such benefits are
made available to all
UK employees.
None
None
None
6% of fixed remuneration up
to a cap set at £105,600
unless otherwise made
available to all
UK employees.
None
None
None
Aim is to motivate and retain Executive Directors,
Annual assessment of performance against performance objectives. The performance objectives
consistent with the risk appetite determined
will be set on an annual basis and disclosed retrospectively.
Executive Directors will have a mandatory 50% Bonus Deferral each year – such deferral
to be awarded in Company shares with a three year deferral period. These shares can be used
to meet the investment requirement.
The maximum CEO annual
bonus will be 2.5 x base salary.
The maximum CFO annual
bonus will be 2 x base salary.
Annual performance targets will be set.
The targets will include key financial
metrics and applicable behavioural metrics.
Achievement of performance targets will
result in 60% pay-out.
Malus and claw-back provisions apply to the whole annual bonus which
enables the Committee to recoup pay-outs under the plan either by
reducing or cancelling any unvested deferred awards or reclaiming
amounts paid.
Malus or claw-back may be applied where there is a material adverse,
misstatement of performance for the period to which the bonus related
event or a material misstatement of results for the period to which the
bonus related or, an Executive Director’s conduct is found to amount to
gross misconduct and/or fraud, wilful dishonesty or accounting malfeasance.
Annual discretionary bonus
by the Board and thereby to achieve superior
returns for shareholders. It provides a direct link
between the achievement of annual business
performance targets and reward.
The shareholding requirements align Directors’
interests with shareholders.
Minimum shareholding
Aligns Directors’ interests with shareholders by
Directors must hold a minimum number of the Company’s ordinary shares equivalent
focusing on longer term shareholder returns.
to 300% of base salary in respect of the Chief Executive and 200% of base salary for
all other Executive Directors.
Transformation LTIP
Aligns Directors’ interests with shareholders by
One-off three-year LTIP (2017-2019) linked directly to achievement of strategic
focusing on longer term shareholder returns.
targets for the integration.
TSR will be measured from Q1 2017 to Q1 2020. Underlying EPS will be full year 2019
underlying EPS.
Shares will be subject to a holding period and will be released 1/3 in April 2021, 1/3 in April 2022
and 1/3 in April 2023. During the holding period the shares can not be sold (other than to cover
the cost of any applicable taxes thereon).
Non-executive Directors
Fees
Non-executive Directors.
To attract high calibre, experienced
Paid monthly in arrears. Periodically benchmarked against other UK listed companies
of comparable size and activities. Additional fees for additional responsibilities of the
Senior Independent Non-executive Director, for chairing each of the Audit and
Remuneration Committees or other services performed such as acting as a trustee
of a Company pension scheme.
None
None
None
CEO – £15,000,000
CFO – £9,600,000
Absolute TSR and 2019 Underlying EPS
metrics will apply.
TSR conditions1 (75% of award)
Threshold: 8% CAGR increase (25% pay-out)
Target: 11% CAGR increase (50% pay-out)
Max: 14% CAGR increase (100% pay-out)
2019 underlying EPS2 (25% of award)
Threshold: 48p (25% pay-out)
Target: 54p (50% pay-out)
Max: 60p (100% pay-out)
Straight line interpolation applies.
Malus and claw-back provisions apply to the Transformation LTIP which
enables the Committee to recoup pay-outs under the plan either by
reducing or cancelling any unvested deferred awards or reclaiming
amounts paid.
Malus or claw-back may be applied where there is a material adverse,
misstatement of performance for the period to which the bonus related
event or a material misstatement of results for the period to which the
bonus related or, if an Executive Director’s conduct is found to amount to
gross misconduct and/or fraud, wilful dishonesty or accounting malfeasance.
Aggregate annual fees
as listed in the Articles of
Association
None
None
Notes to the Policy table: Performance measures
The performance measures attached to the long-term incentive are as follows:
Metric
Absolute TSR1
Underlying EPS2 A key indicator of the underlying profit performance of the Group, reflecting both revenues and costs and taking into account dilution.
The performance measures attached to the annual bonus may vary to align to the Company strategy at that time but will retain an element related to company profitability.
Why it is chosen.
Aligns with the creation of value for our shareholders through share price growth and dividends.
www.tpicap.com 74
Governance report
Report on Directors’ Remuneration
continued
Policy on Directors’ remuneration
compared with employees generally
As a general rule, the same principles are
applied to Directors’ fixed remuneration,
pension contributions and benefits as are
applied to employees throughout the
organisation. A competitive level of fixed
remuneration is paid to all employees taking
into account their responsibilities and
experience and minimal pension provision
and benefits are provided, the Board
considering that employees are best placed
to determine priorities for funds set aside
for remuneration.
There are a number of different bonus
schemes in operation throughout the
Group for brokers, management and other
employees. Brokers’ bonus schemes are
described below; all other bonuses are
generally discretionary. In addition, the
Deferred Bonus Plan introduced for Senior
Managers for the 2015 bonus year has again
been operated for the 2016 bonus year.
Under this Plan, employees identified
as Senior Managers had 20% of their
discretionary 2016 bonus award deferred
into Equity for a three year period. The
grants of equity are expected to be made in
March 2017 and are subject to forfeiture, in
whole or in part, in the event the employee
resigns or employment is terminated
for gross misconduct as defined in the
Employee Handbook. Sixty-one employees
participated in the 2016 Deferred Bonus
Plan with participants located in London,
New York, New Jersey, Frankfurt and
Singapore. The Remuneration Committee
has proposed the introduction of a cap on
Executive Directors’ bonuses as part of the
new Remuneration Policy. This step
rebalances the remuneration of the
Executive Directors to a mid to longer term
alignment with shareholders. The annual
remuneration for the Executive Directors
will be significantly reduced on a year by
year basis but with an increased overall
compensation target over a three year
period if specific financial results are
achieved by the Company.
However, the Remuneration Committee
does not believe that the formal capping of
bonuses for Senior Management and brokers
is consistent with the delivery of enhanced
returns to shareholders and accordingly
no caps have been introduced on Senior
Management’s or Brokers’ bonuses at this
time. We will continue to review this matter
in light of any future changes to the
Remuneration Code.
Remuneration policies for brokers
The Company’s Remuneration Policy for
Brokers is based on the principle that
remuneration is directly linked to financial
performance, generally at a desk team level,
and is calculated in accordance with
formulae set out in contracts of employment.
These formulae take into account the fixed
costs of the Brokers; variable remuneration
payments are therefore based on the profits
that the Brokers generate for the business
together with an assessment of individual
performance and conduct against core
Group values – Honesty, Integrity, Respect
and Excellence. Initial contract payments are
only paid upfront when a claw-back provision
is included in the contract of employment.
Typically, brokers receive a fixed salary paid
regularly throughout the year, with a
significant portion of variable remuneration
dependent on their revenue, conduct and
performance, which is paid after the revenue
has been fully received in cash.
Remuneration policies for
control functions
The Company’s Remuneration Policy for
control functions is that remuneration
is adequate to attract qualified and
experienced employees, is in accordance
with the achievement of objectives linked to
their functions, and is independent of the
performance of the business areas they
support. Employees in such functions report
through an organisation structure that is
separate to and independent from the
business units. Heads of Control Functions
are designated as Remuneration Code staff
and accordingly their remuneration is
reviewed by the Remuneration Committee
as part of the Senior Manager bonus review
undertaken in January/February each year.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
75
Illustrations of the application of the Remuneration Policy
Total remuneration for each of the Executive Directors for a minimum target and maximum performance for 2017, 2018 and 2019 is presented
in the charts below:
Chief Executive
)
m
£
(
n
o
i
t
a
r
e
n
u
m
e
R
18
15
12
9
6
3
0
£0.6m
100%
Minimum
£1.5m
60%
40%
Target
2017
£2.1m
71%
29%
£0.6m
100%
Maximum
Minimum
£1.5m
60%
40%
Target
2018
Fixed pay
Annual bonus
Long-term incentives
Chief Financial Officer
)
m
£
(
n
o
i
t
a
r
e
n
u
m
e
R
12
10
8
6
4
2
0
£0.4m
100%
Minimum
£0.9m
54%
46%
Target
2017
£1.3m
67%
33%
£0.4m
100%
Maximum
Minimum
£0.9m
54%
46%
Target
2018
Fixed pay
Annual bonus
Long-term incentives
£17.1m – of which LTIP
pay-out of £15m only
made if at least £1,241m
of TSR is created1
88%
9%
4%
£9m – of which LTIP pay-out
of £7.5m only made if at least
£947m of TSR is created1
83%
10%
7%
£2.1m
71%
29%
£0.6m
100%
Maximum
Minimum
Target
2019
Maximum
£10.9m – of which LTIP pay-out
of £9.6m only made if at least
£1,241m of TSR is created1
88%
8%
4%
£5.7m – of which LTIP pay-out
of £4.8m only made if at least
£947m of TSR is created1
84%
9%
7%
£1.3m
67%
33%
£0.4m
100%
Maximum
Minimum
Target
2019
Maximum
Notes:
1 Based on illustrative base share price of £4.65.
> ‘Minimum’ includes salary and current benefits only.
> ‘Target’ is based on annual bonus paying out at 60% of maximum. Long-term incentive is based on the Transformation LTIP paying out at 50% of maximum. Amount has
been annualised.
> ‘Maximum’ is based on annual bonus paying out in full. Long-term incentive is based on the Transformation LTIP paying out in full (annualised). There will be no share price
growth as shares will be granted at vest.
www.tpicap.com
76
Governance report
Report on Directors’ Remuneration
continued
Executive Directors’ service agreements
and loss of office entitlements
The Chief Executive’s contract may be
terminated by either party on the expiry
of six months’ written notice by either party
(save in circumstances justifying summary
termination) or by making payment in lieu
of notice at the Company’s election.
The Company will consider the scope for
requiring the Executive Director to mitigate
their loss when taking account of all the
circumstances surrounding the termination
of employment. The Executive Director
would also be entitled to accrued but
untaken holiday.
The Chief Financial Officer’s contract may
be terminated by either party on the expiry
of six months’ written notice by either party
(save in circumstances justifying summary
termination) or by making payment in lieu
of notice at the Company’s election. The
Company will consider the scope for
requiring the Executive Director to mitigate
his loss when taking account of all the
circumstances surrounding the termination
of employment. The Executive Director
would also be entitled to accrued but
untaken holiday.
Where the Executive Director is deemed
to be a “good leaver”, the Remuneration
Committee may, at its sole discretion,
award a part-year bonus for the period
worked. The bonus will be assessed on
demonstrated performance over the
part-year. Post-termination restrictive
covenants also apply to each Executive
Director. The determination of ‘good leaver’
status will be determined at the sole
discretion of the Remuneration Committee.
In addition to the contractual rights to a
payment on loss of office, any employee
including the Executive Directors may have
additional statutory and/or common law
rights to certain additional payments, for
example in a redundancy situation.
When determining payments for loss of
office, the Company will take account of
all relevant circumstances on a case by
case basis including (but not limited to):
the contractual notice provisions and
outstanding holiday; the best interests of the
Company; whether the Executive Director
has presided over an orderly handover; the
contribution of the Executive Director to the
success of the Company during their tenure;
and the need to compromise any claims that
the Executive Director may have or to pay
the Executive Director’s legal costs on a
settlement agreement.
The LTIS rules provide for an award to lapse
in all circumstances where an Executive
Director ceases to hold office or employment
with a Group company other than death,
unless the Remuneration Committee
determines otherwise, in which case any
award would vest to the extent that the
performance conditions had been met
and the extent that the performance period
had elapsed.
Under the proposed LTIP, the full terms and
condition of the awards are contained in the
Plan documents. In the event that an
Executive Director leaves employment prior
to 31 December 2019, the default position is
that they will forfeit participation in the LTIP.
The Remuneration Committee can choose to
exercise their discretion and consider the
employee to be a “good leaver”. Good
leavers will (other than in exceptional
circumstances) be eligible for a time reduced
participation under the LTIP at the discretion
of the Remuneration Committee. The
payment will reflect the period of active
employment from 1 January 2017 to the
termination date subject to relevant
shareholder and proxy guidelines. Payments
will be subject to the performance conditions
and paid at the normal vesting date.
Non-executive Directors’
appointment letters
The Non-executive Directors serve under
letters of appointment which are terminable
on the earliest of the Director not being
re-elected at an AGM, removed as a Director
or required to vacate office under the Articles
of Association, on resignation, at the request
of the Board or subject to six months’ notice
for the Chairman or three months’ notice for
the other Non-executive Directors.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
77
Recruitment of Directors
The Remuneration Committee’s approach
to setting remuneration for new Executive
Directors is to ensure that the Company pays
market rates, with reference to internal pay
levels, the external market, location of the
Executive and remuneration received from
the previous employer.
Listing Rule exemption to make such buy-out
awards where doing so is necessary to
facilitate, in exceptional circumstances,
the recruitment of the relevant individual.
Relocation payments may also be set, within
limits to be determined by the Remuneration
Committee, where considered appropriate
and in the Company’s best interests to do so.
In cases of appointing a new Executive
Director by way of internal promotion,
the Group will honour any contractual
commitments made prior to their
promotion to Executive Director.
The fee payable to a new Non-executive
Director will be in line with the fee structure
for Non-executive Directors in place at the
date of appointment.
Approved by the Board and signed on its
behalf by
Stephen Pull
Chairman
Remuneration Committee
14 March 2017
Salary will be provided in line with market
rates, and the Remuneration Committee
reserves discretion to offer appropriate
pension and benefit arrangements, which
may include the continuation of benefits
received in a previous role in exceptional
circumstances only. On-going variable pay
awards for a newly appointed Executive
Director will be as described in the Policy
table, subject to the same maximum
opportunities. It is not currently intended
that future service contracts for Executive
Directors would contain terms differing
materially from those summarised in
this report, including with respect to
notice provisions.
The Remuneration Committee may consider
offering additional cash or share-based
payments to buy-out existing awards
forfeited by a new Executive Director when it
considers these to be in the best interests of
the Company and its shareholders. Any such
buy-out payments would mirror so far as
possible the remuneration lost when leaving
the former employer. The Remuneration
Committee may avail itself of the current
www.tpicap.com 78
Governance report
Directors’ report
Set out below is additional statutory
information that the Company is required to
disclose in its Directors’ Report. Some of the
matters required to be included in the
Directors’ Report have instead been included
in the Strategic Report on pages 2 to 40 as
the Board considers these to be of strategic
importance. An indication of the likely future
developments in the business of the Group
is included in the Strategic Report.
Listing Rule 9.5.4 Disclosure
There are no disclosures to be made other
than the trustee of the Employee Benefit
Trust waived its rights to receive dividends on
shares held by them.
Results and dividends
The results for the year ended 31 December
2016 are set out in the Consolidated Income
Statement on page 90.
The Board declared a first interim dividend
of 11.25p (2015: 11.25p) per ordinary share,
paid on 14 November 2016. A second
interim dividend of 5.6p per ordinary share
(2015: 5.6p) was declared to shareholders
on the register on 23 December 2016 and
paid on 13 January 2017. The Board is
accordingly not recommending a final
dividend and so, as advised in our Interim
Announcement on 3 August 2016, the
shareholders up to the date of completion
of the acquisition of ICAP have received
dividends of 16.85p per share for 2016
(2015: 16.85p).
Post balance sheet events
In January 2017, the Group issued £500m
unsecured Sterling Notes due January 2024.
The Notes have a fixed coupon of 5.25%
paid semi-annually, subject to compliance
with the terms of the Notes. Proceeds were
used to repay the £470m bank loan.
Branches outside the UK
Details of branches operated by the Group
can be found on page 144 to 152.
Board of Directors
The Directors who served throughout the
year, except as noted, were as follows:
Rupert Robson
Non-executive Chairman
John Phizackerley
Chief Executive
Andrew Baddeley
Chief Financial Officer
(appointed 13 May 2016)
Paul Mainwaring
Finance Director (resigned 5 May 2016)
Angela Knight
Senior Independent Non-executive Director
Roger Perkin
Independent Non-executive Director
Stephen Pull
Independent Non-executive Director
Carol Sergeant
Independent Non-executive Director
David Shalders
Independent Non-executive Director
Biographical details of the Directors are
set out on pages 44 to 45. Details of
Directors beneficial and non-beneficial
interests in the shares of the Company are
shown on page 66.
Directors’ conflicts
The Directors are required to notify the
Company of any potential conflicts of
interest that may affect them in their roles as
Directors of TP ICAP. All potential conflicts of
interest are recorded and reviewed by the
full Board at least annually.
Directors’ indemnity arrangements
The Company has made qualifying third
party indemnity provisions for the benefit
of its Directors, which remain in place at the
date of this report. The principal employer of
the Tullett Prebon Pension Scheme has given
indemnities to the Directors who are trustees
of that Scheme. The Company maintains
liability insurance for its Directors
and officers.
Appointment and replacement
of Directors
With regard to the appointment and
replacement of Directors, the Company is
governed by its Articles of Association (the
Articles), the UK Corporate Governance
Code, the Companies Act 2006 and related
legislation. The Articles may be amended by
special resolution of the shareholders and
were last amended at the Company’s AGM
in May 2012. A resolution to amend the
current Articles will be put to a shareholder
vote at the 2017 AGM and details are
included in the Notice of Meeting. At each
AGM all the Directors who held office on the
date seven days before the Notice of that
AGM must retire from office and each
Director wishing to serve must submit
themselves for election or re-election
by shareholders.
Corporate Governance Report
A separate Corporate Governance Report
is included within this Annual Report on
pages 42 to 76 and which is, where relevant,
incorporated into this Directors’ report
by reference. The Corporate Governance
Report on pages 42 to 76 includes the
information that fulfils the requirements of
section 7 of the Disclosure and Transparency
Rules (‘DTR’) with the exception of the
information referred to in DTR 7.2.6 which
is included in this Directors’ Report.
Share capital and control
Details of the issued share capital, together
with details of the movements in the
Company’s issued share capital during
the year, are shown in Note 27 to the
Consolidated Financial Statements which
is incorporated into this Directors’ report
by reference.
The Company has one class of ordinary
shares, which carry no right to fixed income.
Each share carries the right to one vote
at general meetings of the Company.
No person has any special rights of control
over the Company’s share capital and all
issued shares are fully paid.
The voting rights of the ordinary shares held
by the Tullett Prebon plc Employee Benefit
Trust 2007 are exercisable by the trustees
in accordance with their fiduciary duties.
The right to receive dividends on these
shares has been waived. Details of employee
share schemes are set out in Note 29 to the
Consolidated Financial Statements which
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
79
is incorporated into this Directors’ Report
by reference.
Restriction on transfer of securities and
variation of rights
There are no specific restrictions on the size
of a holding nor on the transfer of shares,
which are both governed by the provisions
of the Articles and prevailing legislation. The
Directors are not aware of any agreements
between holders of the Company’s shares
that may result in restrictions on the transfer
of securities or on voting rights, nor are there
any arrangements by which, with the
Company’s co-operation, financial rights
carried by securities are held by a person
other than the holder of those securities.
Power of the Company issuing or buying
back shares
The powers of the Directors include the
authorities to allot shares and to buy the
Company’s shares in the market as granted
by shareholders at the AGM. At the last AGM
resolutions were passed to authorise the
Directors to allot up to a nominal amount of
£40,586,037.75 (subject to certain restrictions)
and to purchase up to 24,351,622 ordinary
shares. Similar authorities will be proposed
at this year’s AGM. At an Extraordinary
General Meeting on 24 March 2016 a
resolution was passed to approve the
allotment of an additional 325,426,232
shares. Details of the shares issued during
the year and up to the date of this Annual
Report are set out in Note 27 to the
Consolidated Financial Statements.
At the date of this Annual Report, no shares
had been purchased in the market under
the authority granted at the 2016 AGM.
The allotment and buy-back authorities
will expire at the conclusion of the next AGM
or, if earlier, on 1 July 2017, unless renewed
before that time.
Further powers of the Directors are described
in the Schedule of Matters Reserved for
the Board, which is available on the
Company’s website.
Related Party Transactions
Details of Related Party Transactions are set
out in Note 36 to the financial statements.
Significant agreements and change of control
The Company’s banking facilities give the lenders the right not to renew loans and
to cancel commitments in the event of a change of control. The Company’s Share Schemes
contain provisions relating to change of control, subject to the satisfaction of relevant
performance conditions and pro ration for time, if appropriate. The Company are not
aware of any other significant agreements that take effect, alter or terminate upon a
change of control of the Company, nor any agreements with the Company and its
employees or Directors for compensation for loss of office or employment that occurs
because of a takeover bid.
Substantial shareholders
As at the year-end, and at 9 March 2017, being the latest practicable date before signing of
this document, the following (not being Directors, their families or persons connected, within
section 252 of the Companies Act 2006) had notified the Company in accordance with DTR
5 that they were interested in the following voting rights of the issued ordinary share capital
of the Company:
Schroders plc
Jupiter Asset Management
Old Mutual plc
Oppenheimer Funds, Inc
Silchester International Investors LLP
Mr Michael Spencer
31 December
2016 %
9 March
2017 %
13.28
8.57
N/A
5.01
4.62
8.97
12.86
8.57
7.10
5.01
4.62
–
Corporate responsibility
Information concerning the Group’s policies on equal opportunities, employee engagement,
and the employment of disabled staff is included in the Resources, Relationships and
Responsibility section of the Strategic report on pages 38 to 40, which is, where relevant,
incorporated into this Directors’ report by reference.
Greenhouse gas emissions
The estimated Group greenhouse gas emissions for 2016 and 2015 are set out below:
Combustion of fuel, vehicles,
fugitive emissions (scope 1)
Purchased electricity (scope 2)
Total
Total emissions per employee
Tonnes of CO2e
2016
2015
629
8,977
9,606
3.4
584
8,156
8,740
3.4
The emission statistics were calculated by Sustain Limited and cover all material sources of
emissions for which the Group is directly responsible. The methodology used was that of the
‘Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard’ (revised
edition, 2004). Responsibility for emissions sources was determined using the operational
control approach. The estimate covers all TP ICAP operations that are consolidated in the
financial statements. Data was collected for the Group’s largest offices which employ
approximately 45% of the Group’s employees, and extrapolated to cover all the Group’s
offices, as well as for the Group’s disaster recovery sites and any corporate vehicles. Collected
data was converted to greenhouse gas estimates using the UK Government’s GHG
Conversion Factors for Company Reporting 2016.
www.tpicap.com 80
Governance report
Directors’ report
continued
Political donations
It is the Company’s policy not to make cash
contributions to any political party. However,
within the normal activities of the Group
there may be occasions when an activity
might fall within the broader definition
of ‘political expenditure’ contained within
the Companies Act 2006. During 2016
no political donations were made by the
Group (2015: £nil).
Information on financial instruments
Information relating to financial instruments
can be found in Note 26 to the Consolidated
Financial Statements.
Going concern
The Group’s business activities and
performance, and the financial position
of the Group, its cash flows, liquidity position,
borrowing facilities and hedging strategy,
together with the factors likely to affect
its future development, performance and
position, are explained in the Strategic
report on pages 2 to 40. Analysis of the
Group’s key risks and approach to risk
management is also set out in the Strategic
Report. Details of the Group’s interest
bearing loans and borrowings, long term
provisions, other long term payables
and financial instruments are set out in
Notes 23 to 26 to the Consolidated
Financial Statements.
The Group has considerable financial
resources both in the regions and at the
corporate centre comfortably to meet the
Group’s ongoing obligations.
After making enquiries, the Directors have
a reasonable expectation that the Company
and the Group have adequate resources to
continue in operational existence for the
foreseeable future. Accordingly, the Annual
Report and Financial Statements continue
to be prepared on the going concern basis.
Viability Statement
The Directors have assessed the prospects for
and viability of the Group over a three year
period to the end of December 2019. We
believe that a three year time horizon is the
most appropriate timeframe over which the
Directors should assess the long-term
viability of the Group as it has a sufficient
degree of certainty in the context of the
current position of the Group and the
assessment of its principal risks, and it
matches the business planning cycle with
regard to the integration of ICAP.
The assessment has been made taking into
account the following:
> the current liquidity position of the Group
and its base case and stressed case cash
flow forecasts;
> the liquidity stress testing and reverse
stress testing which are undertaken as
part of the Group’s Review of Capital
Adequacy and its UK regulatory
obligations;
> the due diligence and working capital
analysis undertaken prior to the
completion of the acquisition of ICAP;
> the ICAAPs undertaken by the Group’s
FCA regulated entities;
> the assessment of the Group’s principal
risks, including those that would threaten
the Group’s business model, future
performance, solvency and liquidity. These
risks are discussed in the risk management
report on pages 34 to 37; and
> the effectiveness of the Group’s
risk management and internal
control systems
The Directors consider that they have
undertaken a robust assessment of the
prospects of the Group and its principal risks
over the three year period, and the Directors
have a reasonable expectation that the
Group will be able to continue in operation
and meet its liabilities as they fall due over at
least the period of assessment.
In arriving at this conclusion, the Directors’
assumptions included:
> maintaining access to liquidity through
the Group’s £250m revolving credit
facility (Note 23);
> reducing the ‘excess goodwill’ in
accordance with the terms agreed with
the FCA in the Group’s waiver from
consolidated capital adequacy
requirements under CRD IV (page 31);
> refinancing the £80m Notes that mature
in June 2019 (Note 23); and
> the successful integration of the ICAP
business and delivery of the expected
synergies
Statement of Directors’ responsibilities
The Directors’ Statement regarding their
responsibility for preparing the Annual
Report is set out on page 81.
Auditor
Deloitte LLP have expressed their willingness
to continue in office as auditor and a
resolution to re-appoint them will be
proposed at the forthcoming AGM.
Disclosure of information to the auditor
Each of the persons who is a Director at the
date of approval of this Annual Report
confirms that:
> so far as the Director is aware, there is
no relevant audit information of which
the Company’s auditor is unaware; and
> the Director has taken all the steps that
he ought to have taken as a Director
in order to make himself aware of any
relevant audit information and to
establish that the Company’s auditor
is aware of that information.
This confirmation is given and should be
interpreted in accordance with the provisions
of section 418 of the Companies Act 2006.
Annual General Meeting
The AGM of the Company will be held
at 12.15pm on 11 May 2017. A Special
Resolution to amend the articles will be put
to shareholders at the AGM plus a resolution
to adopt a new share plan. Details of the
resolutions to be proposed at the AGM
are set out in a separate Notice of Meeting
which will be sent to all shareholders entitled
to receive such Notice. Only members on the
register of members of the Company as at
close of business on 9 May 2017 (or two days
before any adjourned meeting, excluding
non business days) will be entitled to attend
and vote at the AGM. Any proxy must be
lodged with the Company’s registrars or
submitted to CREST at least 48 hours,
excluding non-business days, before the
AGM or any adjourned meeting thereof.
Resolutions dealing with the authority to
allot shares, disapplication of pre-emption
rights, authority to buy back shares and to
convene general meetings other than annual
general meetings on no less than fourteen
days’ notice will be put to the AGM as special
business. The resolutions are set out in a
Notice of Annual General Meeting together
with explanatory notes which are set out in
a separate circular to shareholders which
accompanies this Annual Report.
By order of the Board
Tiffany Brill
Company Secretary
14 March 2017
TP ICAP Annual Report and Accounts 2016 Statement of Directors’ Responsibilities
Strategic report Governance report
Financial statements
81
In the case of the Parent Company Financial
Statements, the Directors are required to:
> select suitable accounting policies and
then apply them consistently;
> make judgements and estimates that are
reasonable and prudent;
> state whether applicable UK Accounting
Standards have been followed, subject to
any material departures disclosed and
explained in the Financial Statements; and
> prepare the Financial Statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the Company and
enable them to ensure that the Financial
Statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the Company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
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
On behalf of the Board
John Phizackerley
Chief Executive
14 March 2017
The Directors are responsible for preparing
the Annual Report and the Financial
Statements in accordance with applicable
law and regulations.
Company law requires the Directors to
prepare Financial Statements for each
financial year. Under that law the Directors
are required to prepare financial statements
for the Group in accordance with
International Financial Reporting Standards
(‘IFRS’) as adopted by the European Union
and Article 4 of the IAS Regulation and
have chosen to prepare the parent company
financial statements in accordance with
United Kingdom Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards and applicable
law), including FRS 101 ‘Reduced Disclosure
Framework’. Under company law the
Directors must not approve the accounts
unless they are satisfied that they give a true
and fair view of the state of affairs of the
Company and of the profit or loss of the
Company for that period.
In the case of Group Financial Statements,
International Accounting Standard 1 requires
that directors:
> select and apply accounting policies
properly;
> present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
> provide additional disclosures when
compliance with the specific requirements
in IFRS are insufficient to enable users to
understand the impact of particular
transactions, other events and conditions
on the entity’s financial position and
financial performance; and
> make an assessment of the Company’s
ability to continue as a going concern
www.tpicap.com 82
Financial statements
Independent Auditor’s Report to the
Members of TP ICAP plc
Opinion on the Financial Statements of TP ICAP plc
Our opinion on the Financial Statements of TP ICAP plc is unmodified.
In our opinion:
> the Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2016
and of the Group’s profit for the year then ended;
> the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’)
as adopted by the European Union;
> the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including FRS 101 ‘Reduced Disclosure Framework’; and
> the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group Financial Statements, Article 4 of the IAS Regulation.
The financial statements that we have audited comprise:
> the Consolidated Income Statement;
> the Consolidated Statement of Comprehensive Income;
> the Consolidated Balance Sheet;
> the Consolidated Statement of Changes in Equity;
> the Consolidated Cash Flow Statement;
> the related Consolidated Financial Statement Notes 1 to 38;
> the Parent Company Balance Sheet;
> the Parent Company Statement of Changes in Equity; and
> the related Parent Company Notes 1 to 9.
Summary of our audit approach
The financial reporting framework that has been applied in the
preparation of the Group Financial Statements is applicable law
and IFRSs as adopted by the European Union.
The financial reporting framework that has been applied in
the preparation of the Parent Company Financial Statements
is applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice),
including FRS 101 ‘Reduced Disclosure Framework’.
Significant changes
in our approach
Following the acquisition of ICAP’s Global Broking and Information Business (‘ICAP’) on 30 December 2016 we revised
our audit approach to reflect the size and scale of the combined Group and reassessed the key risks, materiality and
group scoping.
Key risks
The key risks that we identified in the current year were:
> Name Passing revenue;
> impairment of goodwill and other intangibles;
> accounting for the acquisition of ICAP; and
> presentation and disclosure of acquisition, disposal and integration related items.
Within this report, any new risks are identified with
identified with
and any risks which are the same as the prior year are
Materiality
Scoping
The materiality that we used in the current year was £8.0m which was determined on a blended basis
by reference to underlying profit before tax and net assets.
Our Group audit scope focused primarily on seven locations (2015: 11 locations) with 27 subsidiaries
(2015: 23 subsidiaries) subject to a full scope audit.
The subsidiaries selected for a full scope audit or an audit of specified account balances represent the principal business
units within each of the four operating segments. These subsidiaries account for 96% of the Group’s total assets, 95%
of the Group’s total liabilities, 93% of the Group’s revenue and 96% of the Group’s profit before tax.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 83
Our assessment of risks of material misstatement
When planning our audit, we made an assessment of the relative significance of the key risks of material misstatement to the Group Financial
Statements. The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of the engagement team.
We identified two new key risks of material misstatement relating to the accounting for the acquisition of ICAP and presentation and
disclosure of acquisition, disposal and integration related items. Both arise from the acquisition of ICAP. Last year, our report also included
Matched Principal revenue and the valuation of group tax provisions as key risks. In relation to Matched Principal revenue, we focus
particularly on the risk of material misstatement in respect of revenue associated with trades which fail to settle within standard market
settlement periods. As the revenue associated with such trades was not material at 31 December 2016 and 31 December 2015 this risk has not
been included in our report in the current year. In relation to the valuation of group tax provisions, this risk required relatively less audit effort
than in previous years, largely due to a reduction in the Group’s potential tax exposures.
The description of risks below should be read in conjunction with the significant judgements considered by the Audit Committee discussed
on page 52.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Name Passing revenue
Refer to the summary of significant accounting policies on pages 97 to 102 and ‘How we transact’ on page 6.
Risk description
Name Passing revenue is earned for the service of matching buyers and sellers of financial instruments.
The Group is not a counterparty to the trade and commissions are invoiced for the service provided by the Group.
It accounts for approximately 76% of the Group’s broking revenue.
As invoices for services provided are not issued until the end of each month, the cash collection period is typically longer
than for Matched Principal revenue. The risk of misstatement of revenue increases where the invoice becomes past due
or where post year end trade adjustments or credit notes arise.
As the acquisition of ICAP was completed on 30 December 2016, no Name Passing revenue is reflected in the 2016
financial statements in respect of ICAP and therefore this risk was only applicable to the Tullett Prebon business in 2016.
We tested the operating effectiveness of relevant controls relating to Name Passing invoicing and cash collection.
We confirmed a sample of trades to cash received throughout the year. We agreed a further sample of Name Passing
transactions, which were outstanding at year end, to cash received post year end. We tested the aged debtor analysis
through re-performance and, focusing on higher risk aged items, we confirmed that revenue recognised on each
transaction was supportable by obtaining evidence to corroborate the validity of the underlying trade and reviewing
communications with counterparties.
How the scope
of our audit
responded
to the risk
We tested a sample of post year end trade adjustments and credit notes to evaluate whether these items were
accurate and valid.
Key observations Our testing of the effectiveness of internal controls over Name Passing invoicing and cash collection identified no issues.
During 2016 the Group implemented improvements in controls over trade amendments. As the improved controls were
not in place throughout the year, we performed additional substantive testing of trade amendments. No issues were
identified from this testing.
No issues were identified through our detailed testing of cash receipts and aged debtors.
We determined the recognition of Name Passing revenue to be appropriate and in line with the Group’s accounting
policy on page 97.
www.tpicap.com 84
Financial statements
Independent Auditor’s Report to the
Members of TP ICAP plc
continued
Impairment of goodwill and other intangibles
Refer to the summary of significant accounting policies on pages 97 to 102, accounting estimates and judgements on page 102, the
intangible assets arising on consolidation Note on pages 110 to 111 and the other intangible assets Note on page 111.
Risk description
As required by IAS 36, goodwill and other intangible assets are reviewed for impairment at least annually. Determining
whether the goodwill of £1,063.9m, other intangible assets of £70.1m and other intangible assets arising on
consolidation of £649.2m are impaired requires an estimation of the recoverable amount of the Group’s cash
generating units (‘CGUs’), using the higher of the value in use or fair value less costs to sell.
The value in use takes into account expected future cash flows and requires the selection of suitable discount rates and
forecast future growth rates and is therefore inherently subjective. The value in use of each CGU is sensitive to changes
in underlying assumptions. We focused our testing on the CGUs where we identified increased sensitivity to the growth
rate assumptions.
The value in use method was used to assess the recoverable amount of all CGUs excluding ICAP.
Following the acquisition of ICAP, £687.0m of goodwill and £639.0m of other intangible assets were recognised as at
31 December 2016. The provisional amount of goodwill and other intangible assets arising on the acquisition of ICAP
have not been allocated to CGUs due to the proximity of the acquisition to the year end and therefore the Group
is not required to assess the ICAP related goodwill for impairment as at 31 December 2016.
As permitted by IAS 36, the initial allocation to CGUs will be completed before the end of 2017.
No impairment was recorded in the year for any of the CGUs.
We challenged the identification of the Group’s CGUs, by assessing whether the CGUs reflected the lowest aggregation
of assets that generate largely independent cash flows.
We performed detailed analysis and challenge of the Group’s assumptions used in the annual impairment review, in
particular forecast future growth rates, the cash flow projections and discount rates used by the Group in its impairment
tests of the CGUs. We challenged cash flow forecasts and growth rates by evaluating recent performance, trend analysis
and comparing growth rates to those achieved historically and to external market data where available. Our internal
valuations specialists independently derived discount rates which we compared to the rates used by the Group and
we benchmarked discount and growth rates to available external peer group data.
How the scope
of our audit
responded to
the risk
As the impairment tests for the Europe and the Middle East, North America and Asia Pacific CGUs were sensitive to
changes in the growth rate assumption, we assessed the point at which an impairment would occur and considered
whether this was a reasonably possible change which required additional disclosure.
Key observations We concluded that the Directors’ impairment test was appropriate and that no impairment of goodwill and other
intangibles has arisen. We determined the identification of CGUs to be appropriate.
The cash flow forecasts used in the annual impairment review were consistent with the most recent financial budgets
considered by the Board and were reasonable in the context of recent business performance.
The discount rates used by the Group are within a reasonable range of rates implied by both our internally derived
discount rates and peer benchmarks. The impairment tests are insensitive to reasonably possible changes in
discount rates.
The growth rates used by management are reasonable and we considered that the disclosures made by the Directors
that a reasonably possible change in the growth rate assumptions for the Europe and the Middle East, North America
and Asia Pacific CGUs would result in the carrying value of these CGUs exceeding their recoverable amount is appropriate.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 85
Accounting for the acquisition of ICAP
Refer to the key areas of judgement on page 102, significant accounting policies on pages 97 to 102 and Note 30 on pages 127 to 128.
Risk description
As detailed on pages 127, the Group completed the acquisition of ICAP on 30 December 2016. The acquisition resulted
in the recognition of £687.0m of goodwill and £639.0m of other intangible assets as at 31 December 2016.
How the scope
of our audit
responded
to the risk
Accounting for the acquisition gives rise to two key areas of management judgement and estimation uncertainty:
> the valuation and completeness of £639.0m of separately identifiable intangible assets; and
> the valuation and completeness of adjustments required to reflect the assets and liabilities of ICAP at their fair
value as at 30 December 2016.
The Directors engaged external specialists to support their assessment of the completeness and valuation of intangible
assets. A majority of the separately identifiable intangible assets comprise £601.0m relating to customer contracts and
relationships and £27.0m relating to the ICAP brand and trademarks and we have focused on testing the assumptions to
which the valuation of these assets are most sensitive.
As required by IFRS 3, the Directors have measured the fair value of assets and liabilities based on facts and
circumstances that existed as at the acquisition date. The Directors have provisionally determined that no adjustments
are required to the carrying value of assets and liabilities in ICAP’s acquisition date balance sheet. The fair value of net
assets acquired was £117.2m.
We audited the Group’s accounting for the acquisition, specifically focusing on the valuation and completeness of
separately identifiable intangible assets and fair value adjustments.
We used our own internal valuation specialists to challenge the conclusions reached by the Directors in determining
the separately identifiable intangible assets arising on acquisition. Our audit procedures included:
> assessing the objectivity and expertise of the Group’s external specialists, meeting with them to discuss their
approach and the findings within their final report;
> comparing the intangible assets recognised by the Group against a list of reasonably possible intangible assets
for comparable businesses;
> testing the valuation methodology applied through comparison to industry practice;
> challenging the cash flow forecasts by reference to historical performance and the appropriateness of the
underlying assumptions;
> challenging the appropriateness of other inputs and significant assumptions used in valuing the customer contracts
and relationships and the ICAP brand and trademarks; and
> comparing the relative split between goodwill and other intangible assets recognised by the Group to recent and
comparable acquisitions made by similar companies.
We have challenged the methodology applied by the Directors to determine that no fair value adjustments are required
to the assets and liabilities of ICAP as at 30 December 2016 by independently assessing whether any additional fair
value adjustments should be made based on the known facts and circumstances.
The valuations and allocation are provisional and subject to change in the measurement period.
Key observations
We considered the provisional identification of the ICAP brand and trademarks, the customer contracts and
relationships and the provisional valuation methodology used to be appropriate and in line with industry practice.
We considered the cash flow forecasts, key inputs and assumptions to be reasonable in the context of the known facts
and circumstances and historical performance. The provisional allocation between goodwill and other intangible assets
is reasonable.
No material fair value adjustments were identified through our testing.
www.tpicap.com 86
Financial statements
Independent Auditor’s Report to the
Members of TP ICAP plc
continued
Presentation and disclosure of acquisition, disposal and integration related items
Refer to the basis of preparation Note on pages 95 to 96 and Note 6 on pages 105 to 106.
Risk description
The Group reports acquisition, disposal and integration related items of £63.2m before taxation. These include costs
relating to the acquisition of ICAP of £16.8m and integration costs of £19.3m.
There is a risk that items that reflect the underlying performance of the Group are incorrectly presented as acquisition,
disposal and integration related items. In addition, there is a risk that undue prominence is given to underlying results
compared to the statutory results of the Group in the Annual Report.
For a sample of acquisition, disposal and integration related items we obtained supporting evidence to confirm
whether the items relate to acquisitions, disposals or integration or should be presented as part of the Group’s
underlying results.
How the scope
of our audit
responded
to the risk
We read the Annual Report and challenged the prominence given to underlying results relative to the Group’s statutory
results and whether the presentation was misleading. We read the description of the basis of underlying results and
whether it was consistently applied. We also tested the completeness and accuracy of the reconciliation between
underlying and statutory results.
Key observations We identified no items within acquisition, disposal and integration related items that should be presented in underlying
results. We considered that the presentation of the Group’s underlying results is appropriately explained, is
understandable and that the reconciliation to the Group’s statutory results is complete and accurate. We considered
that appropriate prominence has been given to the statutory results in the Annual Report.
Our application of materiality
We define materiality as the magnitude of misstatement in the Financial Statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality £8.0m (2015: £4.9m)
Basis for
determining
materiality
and rationale
for the benchmark
applied
Last year we determined materiality for the Group to be £4.9m based on approximately 5% of underlying profit before
tax of £93.7m and this equated to less than 1% of equity.
Given the ICAP acquisition was completed on 30 December 2016, the balance sheet of the Group has increased
significantly without a commensurate increase in the Group’s results. As a result, we concluded that materiality based
solely on the profit of the Group was not appropriate.
We determined materiality to be £8.0m by reference to a range of £6.0m to £8.7m based on 5% of normalised
underlying profit before tax1 of £120.2m and 1% of normalised net assets2 of £855.2m respectively. Materiality of £8.0m
equates to 6.7% of normalised profit before tax and 0.9% of normalised net assets.
1 We have determined normalised underlying profit before tax as underlying profit before tax of £121.6m less amortisation of intangible assets arising on consolidation
of £1.4m. As amortisation of intangibles arising on consolidation are recurring costs arguably they reflect underlying business performance.
2 We have determined normalised net assets as net assets of £1,919.1m less goodwill of £1,063.9m. Goodwill is excluded given its significance.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.4m (2015: £0.1m), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified when assessing the overall presentation of the Financial Statements.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 87
An overview of the scope of our audit
Following the acquisition of ICAP on 30 December 2016, we revised the scope of our audit to reflect the size and scale of the combined Group.
Our Group audit scope focused primarily on seven locations (2015: 11 locations) with 27 subsidiaries (2015: 23 subsidiaries) subject to
a full scope audit. The decrease in the number of locations reflects the relative significance of locations following the acquisition of ICAP.
The increase in the number of subsidiaries reflects the increased number of entities in the Group and their relative size. Our audit procedures
in respect of the balance sheet of ICAP as at 30 December 2016 were performed in the UK and US given the locations of ICAP’s financial
reporting systems and processes. In addition we performed specified audit procedures on account balances in a number of other subsidiaries
to support our opinion on the Consolidated Financial Statements.
The subsidiaries selected for a full scope audit or specified audit procedures represent the principal business units within each of the Group’s
operating segments. The subsidiaries subject to full scope audit account for 96% (2015: 94%) of the Group’s total assets, 95% (2015: 95%) of
the Group’s total liabilities, 93% (2015: 95%) of the Group’s revenue and 96% (2015: 96%) of the Group’s profit before tax. The subsidiaries
were selected to provide an appropriate basis of undertaking audit work to address the risks of material misstatement including those
identified above. Our audits of each of the subsidiaries were performed using lower levels of materiality based on their size relative to the
Group. The materiality for each subsidiary audit ranged from £2.8m to £4.4m (2015: £2.95m).
Revenue
%
Profit before tax
%
Total assets
%
Full scope
Specified audit procedures
Analytical procedures only
93
0
7
Full scope
Specified audit procedures
Analytical procedures only
96
0
4
Full scope
Specified audit procedures
Analytical procedures only
96
3
1
We tested the Group’s consolidation process and carried out analytical procedures to confirm that there were no significant risks of material
misstatement in the aggregated financial information of the remaining subsidiaries not subject to a full scope audit or specified audit
procedures. We also performed high level analytical review procedures in respect of those entities not included in the scope of our audit
to identify any fluctuations or relationships that are inconsistent with other relevant information and obtained adequate explanations.
The Senior Statutory Auditor has responsibility for overseeing all aspects of the audit work of the component auditors. The Senior Statutory
Auditor is also the lead audit partner for the EMEA component. In discharging this responsibility, he visited the US and Singapore during
the audit to meet local management and to oversee the audits of the subsidiaries based in the Americas and Asia. The Group audit team
performed a remote file review of the work performed by two other component auditors. The Group audit team maintained dialogue with
all component auditors throughout all phases of the audit and received written reports from component auditors setting out the results of
their audit procedures.
www.tpicap.com 88
Financial statements
Independent Auditor’s Report to the
Members of TP ICAP plc
continued
Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the Group
We have nothing to report on going concern and the Directors’ assessment of the principal risks that would threaten the solvency
or liquidity of the Group.
As required by the Listing Rules we have reviewed the Directors’ statement regarding the appropriateness of the going concern basis of
accounting contained within Note 2 to the Consolidated Financial Statements and the Directors’ statement on the longer-term viability of the
Group contained within the Directors’ Report on page 80.
We have nothing material to add or draw attention to in relation to:
> the Directors’ confirmation on page 80 that they have carried out a robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance, solvency or liquidity;
> the disclosures on pages 34 to 37 that describe those risks and explain how they are being managed or mitigated;
> the Directors’ Statement in Note 2 to the Financial Statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them and their identification of any material uncertainties to the Group’s ability to continue to do so
over a period of at least twelve months from the date of approval of the Financial Statements; and
> the Director’s explanation on page 80 as to how they have assessed the prospects of the Group, over what period they have done so and
why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue
as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and confirm that we are independent
of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We confirm that we are independent
of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not
provided any of the prohibited non-audit services referred to in those standards.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
> the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
> the information given in the Strategic report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
> the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report and the Directors’ Report.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 89
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report
in respect of these matters.
> we have not received all the information and explanations we require for our audit; or
> adequate accounting records have not been kept by the Parent Company, or returns adequate
for our audit have not been received from branches not visited by us; or
> the Parent Company financial statements are not in agreement with the accounting records
and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of
Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be
audited is not in agreement with the accounting records and returns.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate Governance Statement
relating to the Company’s compliance with certain provisions of the UK Corporate Governance Code.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if,
in our opinion, information in the annual report is:
> materially inconsistent with the information in the audited financial statements; or
> apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the Group acquired in the course of performing our audit; or
> otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our
knowledge acquired during the audit and the Directors’ statement that they consider the annual report is
fair, balanced and understandable and whether the annual report appropriately discloses those matters
that we communicated to the audit committee which we consider should have been disclosed.
We have nothing to report
arising from these matters.
We have nothing to report
arising from our review.
We confirm that we have
not identified any such
inconsistencies or
misleading statements.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial
Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also comply with International
Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are
effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and
independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance
that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the
Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material
inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on,
or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Robert Topley FCA
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
14 March 2017
www.tpicap.com 90
Financial statements
Consolidated Income Statement
for the year ended 31 December 2016
2016
Revenue
Administrative expenses
Other operating income
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit after tax
Share of results of associates and joint ventures
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
– Basic
– Diluted
2015
Revenue
Administrative expenses
Other operating income
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit after tax
Share of results of associates
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
– Basic
– Diluted
Acquisition,
disposal and
integration
costs
£m
Exceptional
items
£m
Notes
Underlying
£m
–
(56.6)
–
(56.6)
–
(6.6)
(63.2)
5.3
(57.9)
–
(57.9)
(57.9)
–
(57.9)
–
(24.9)
0.2
(24.7)
–
(2.0)
(26.7)
3.0
(23.7)
–
(23.7)
(23.7)
–
(23.7)
–
(5.2)
3.6
(1.6)
–
–
(1.6)
(0.3)
(1.9)
–
(1.9)
(1.9)
–
(1.9)
–
(28.4)
67.1
38.7
–
–
38.7
(10.5)
28.2
–
28.2
28.2
–
28.2
4
5
6
8
9
10
6
11
11
4
5
6
8
9
10
6
11
11
891.5
(763.5)
3.5
131.5
5.3
(15.2)
121.6
(22.1)
99.5
4.0
103.5
103.0
0.5
103.5
42.5p
41.0p
796.0
(693.9)
5.8
107.9
4.1
(18.3)
93.7
(17.5)
76.2
2.6
78.8
78.4
0.4
78.8
32.2p
31.5p
Total
£m
891.5
(825.3)
7.1
73.3
5.3
(21.8)
56.8
(17.1)
39.7
4.0
43.7
43.2
0.5
43.7
17.8p
17.2p
796.0
(747.2)
73.1
121.9
4.1
(20.3)
105.7
(25.0)
80.7
2.6
83.3
82.9
0.4
83.3
34.0p
33.3p
TP ICAP Annual Report and Accounts 2016 Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
Strategic report Governance report
Financial statements
91
Profit for the year
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit pension schemes
Taxation charge relating to items not reclassified
Items that may be reclassified subsequently to profit or loss:
Revaluation of available-for-sale investments
Effect of changes in exchange rates on translation of foreign operations
Taxation charge relating to items that may be reclassified
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
35
10
10
2016
£m
43.7
5.8
(2.0)
3.8
0.8
59.7
–
60.5
64.3
108.0
107.3
0.7
108.0
2015
£m
83.3
24.5
(8.6)
15.9
0.1
8.8
(0.5)
8.4
24.3
107.6
107.1
0.5
107.6
www.tpicap.com 92
Financial statements
Consolidated Balance Sheet
as at 31 December 2016
Non-current assets
Intangible assets arising on consolidation
Other intangible assets
Property, plant and equipment
Investment in associates
Investment in joint ventures
Available-for-sale investments
Deferred tax assets
Retirement benefit assets
Other long term receivables
Current assets
Trade and other receivables
Financial assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Interest bearing loans and borrowings
Current tax liabilities
Short term provisions
Net current assets
Non-current liabilities
Interest bearing loans and borrowings
Deferred tax liabilities
Long term provisions
Other long term payables
Retirement benefit obligations
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Other reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
2016
£m
13
14
15
16
17
18
20
35
21
21
19
32
22
23
24
23
20
24
25
35
27
28(a)
28(a)
28(b)
28(c)
28(c)
28(c)
1,713.1
70.1
35.6
53.5
8.0
23.5
26.5
100.0
18.4
2,048.7
23,160.5
89.5
696.1
23,946.1
25,994.8
(23,238.1)
(467.3)
(41.7)
(19.3)
(23,766.4)
179.7
(79.5)
(197.3)
(9.4)
(19.8)
(3.3)
(309.3)
(24,075.7)
1,919.1
138.5
17.1
1,377.5
(1,111.0)
1,475.6
1,897.7
21.4
1,919.1
2015
£m
357.4
22.1
27.4
6.0
–
8.5
2.4
88.2
–
512.0
2,639.2
20.3
358.9
3,018.4
3,530.4
(2,666.7)
(140.9)
(17.3)
(21.3)
(2,846.2)
172.2
(79.3)
(33.2)
(7.8)
(22.2)
–
(142.5)
(2,988.7)
541.7
60.9
17.1
178.5
(1,165.1)
1,448.6
540.0
1.7
541.7
The Consolidated Financial Statements of TP ICAP plc (registered number 5807599) were approved by the Board of Directors and authorised
for issue on 14 March 2017 and are signed on its behalf by
John Phizackerley
Chief Executive
TP ICAP Annual Report and Accounts 2016 Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
Strategic report Governance report
Financial statements
93
Equity attributable to equity holders of the parent (Note 28)
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Reverse
acquisition
reserve
£m
Re-
valuation
reserve
£m
Hedging
and
translation
£m
Own
shares
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
equity
£m
Total
£m
60.9
–
17.1
–
178.5
–
(1,182.3)
–
1.4
–
15.9
–
(0.1) 1,448.6
43.2
–
540.0
43.2
1.7 541.7
43.7
0.5
–
–
–
–
–
–
–
–
–
–
–
–
77.6
–
– 1,205.6
(6.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.8
59.5
0.8
–
59.5
–
–
–
–
3.8
64.1
0.2
64.3
47.0
(40.7)
107.3
(40.7)
0.7 108.0
(41.2)
(0.5)
–
–
–
–
–
–
–
–
–
–
(6.2)
–
(6.2)
–
(6.2)
–
–
–
–
– 1,283.2
(6.6)
–
– 1,283.2
(6.6)
–
–
–
19.5
19.5
20.7
20.7
–
20.7
138.5
17.1 1,377.5
(1,182.3)
2.2
75.4
(6.3) 1,475.6 1,897.7
21.4 1,919.1
60.9
–
17.1
–
178.5
–
(1,182.3)
–
1.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7.6
–
8.3
8.3
–
–
(0.1) 1,378.8
82.9
–
461.9
82.9
1.6
0.4
463.5
83.3
–
–
–
–
15.9
24.2
0.1
24.3
98.8
(41.0)
107.1
(41.0)
0.5
(0.4)
107.6
(41.4)
12.0
12.0
–
12.0
60.9
17.1
178.5
(1,182.3)
1.4
15.9
(0.1) 1,448.6
540.0
1.7
541.7
2016
Balance at
1 January 2016
Profit for the year
Other
comprehensive
income for the year
Total
comprehensive
income for the year
Dividends paid
Own shares
acquired for
employee trusts
Issue of ordinary
shares
Share issue costs
Non-controlling
interests arising on
acquisitions
Credit arising
on share-based
payment awards
Balance at
31 December 2016
2015
Balance at
1 January 2015
Profit for the year
Other
comprehensive
income for the year
Total
comprehensive
income for the year
Dividends paid
Credit arising
on share-based
payment awards
Balance at
31 December 2015
www.tpicap.com 94
Financial statements
Consolidated Cash Flow Statement
for the year ended 31 December 2016
Cash flows from operating activities
Investing activities
Sale/(purchase) of financial assets
Sale/(purchase) of available-for-sale investments
Interest received
Dividends from associates
Expenditure on intangible fixed assets
Purchase of property, plant and equipment
Deferred consideration paid
Investment in joint ventures
Acquisition consideration paid
Cash acquired with acquisitions
Cash sold with subsidiaries
Net cash flows from investment activities
Financing activities
Dividends paid
Dividends paid to non-controlling interests
Own shares acquired for employee trusts
Drawdown of revolving credit facility
Repayment of maturing Sterling Notes
Funds received from bank debt
Repayment of revolving credit facility
Repayment of loan acquired with ICAP
Debt issue and bank facility arrangement costs
Net cash flows from financing activities
Net increase in cash and cash equivalents
Net cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Net cash and cash equivalents at the end of the year
Cash and cash equivalents
Overdrafts
Cash and cash equivalents at the end of the year
Notes
31
2016
£m
58.6
2015
£m
144.0
2.3
0.2
2.1
2.0
(14.7)
(2.8)
(3.2)
(0.2)
–
316.3
–
302.0
(40.7)
(0.5)
(6.2)
140.0
(141.1)
470.0
(140.0)
(330.0)
(3.9)
(52.4)
(10.7)
(0.4)
1.8
1.5
(9.3)
(4.6)
–
–
(11.6)
1.7
(0.3)
(31.9)
(41.0)
(0.4)
–
–
–
–
–
–
(4.3)
(45.7)
308.2
66.4
358.9
287.1
29.0
696.1
698.5
(2.4)
696.1
5.4
358.9
358.9
–
358.9
12
32
TP ICAP Annual Report and Accounts 2016 Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
Strategic report Governance report
Financial statements 95
1. General information
TP ICAP plc (formerly Tullett Prebon plc) is a company incorporated in
England and Wales under the Companies Act. The address of the
registered office is given on page 143. The nature of the Group’s
operations and its principal activities are set out in the Directors’
Report on pages 78 to 80 and in the Strategic Report on pages 2 to 40.
2. Basis of preparation
(a) Basis of accounting
The Group’s consolidated Financial Statements have been prepared
in accordance with International Financial Reporting Standards
(‘IFRSs’) adopted by the European Union and comply with Article 4
of the EU IAS Regulation.
The Financial Statements are presented in Pounds sterling because
that is the currency of the primary economic environment in which
the Group operates and are rounded to the nearest hundred
thousand (expressed as millions to one decimal place – £m), except
where otherwise indicated. The significant accounting policies are
set out in Note 3.
The Financial Statements have been prepared on the historical
cost basis, except for the revaluation of certain financial instruments
held at fair values at the end of each reporting period, as explained
in the accounting policies. Historical cost is generally based
on the fair value of the consideration given in exchange for goods
and services.
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that
price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the
Group takes into account the characteristics of the asset or liability
if market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. Fair
value for measurement and/or disclosure purposes in these
Consolidated Financial Statements is determined on such a basis,
except for share-based payment transactions that are within the
scope of IFRS 2, leasing transactions that are within the scope of IAS
17, and measurements that have some similarities to fair value but
are not fair value, such as net realisable value in IAS 2 or value in use
in IAS 36.
For financial reporting purposes, fair value measurements are
categorised into Level 1, 2 or 3 based on the degree to which inputs
to the fair value measurements are observable and the significance
of the inputs to the fair value measurement in its entirety, which are
described as follows:
> Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities;
> Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
> Level 3 inputs are unobservable inputs for the asset or liability
(b) Basis of consolidation
The Group’s Consolidated Financial Statements incorporate the
Financial Statements of the Company and entities controlled by
the Company made up to 31 December each year. Under IFRS 10
‘Consolidated Financial Statements’, control is achieved where the
Company exercises power over an entity, is exposed to, or has rights
to, variable returns from its involvement with the entity and has the
ability to use its power to affect the returns from the entity.
The results of subsidiaries acquired or disposed of during the
year are included in the Consolidated Income Statement from the
effective date of acquisition or up to the effective date of disposal,
as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring the accounting policies
used into line with those used by the Group. All inter-company
transactions, balances, income and expenses are eliminated
on consolidation.
Non-controlling interests in subsidiaries are identified separately
from the Group’s equity therein. Those interests of non-controlling
shareholders that are present ownership interests entitling their
holders to a proportionate share of net assets upon liquidation
may initially be measured at fair value or at the non-controlling
interests’ proportionate share of the fair value of the acquiree’s
identifiable net assets. Other non-controlling interests are initially
measured at fair value. The choice of measurement is made on an
acquisition by acquisition basis. Subsequent to acquisition, the
carrying amount of non-controlling interests is the amount of those
interests at initial recognition plus the non-controlling interests’
share of subsequent changes in equity. Total comprehensive income
is attributed to non-controlling interests even if this results in the
non-controlling interest having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a
loss of control are accounted for as equity transactions. The carrying
amount of the Group’s interests and the non-controlling interests
are adjusted to reflect the changes in their relative interests in the
subsidiaries. Any differences between the amount by which the
non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity
and attributed to the owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on
disposal is calculated as the difference between (i) the aggregate of
the fair value of the consideration received and the fair value of any
retained interest and (ii) the previous carrying amount of the assets,
including goodwill, less liabilities of the subsidiary and any non-
controlling interests. Amounts previously recognised in other
comprehensive income in relation to the subsidiary are accounted
for in the same manner as would be required if the relevant assets or
liabilities are disposed of. The fair value of any investment retained
in the former subsidiary at the date when control was lost is regarded
as the fair value on initial recognition for subsequent accounting
under IAS 39 ‘Financial Instruments: Recognition and Measurement’
or, when applicable, the cost on initial recognition of an investment
in an associate or jointly controlled entity.
www.tpicap.com 96
Financial statements
2. Basis of preparation continued
(c) Presentation of the Income Statement
The Group maintains a columnar format for the presentation of its
Consolidated Income Statement. The columnar format enables the
Group to continue its practice of aiding the understanding of its
results by presenting its underlying profit. This is the profit measure
used to calculate underlying EPS (Note 11) and is considered to be
the most appropriate as it better reflects the Group’s underlying
earnings. Underlying profit is reconciled to profit before tax on the
face of the Consolidated Income Statement, which also includes
acquisition, disposal and integration costs and exceptional items.
The column ‘acquisition, disposal and integration costs’ includes: any
gains, losses or other associated costs on the full or partial disposal
of investments, associates, joint ventures or subsidiaries and costs
associated with a business combination that do not constitute
fees relating to the arrangement of financing; amortisation or
impairment of intangible assets arising on consolidation; any
remeasurement after initial recognition of contingent consideration
which has been classified as a liability; and any gains or losses on the
revaluation of previous interests. The column may also include items
such as gains or losses on the settlement of pre-existing relationships
with acquired businesses and the remeasurement of liabilities that
are above the value of indemnification. Acquisition related
integration costs include costs associated with exit or disposal
activities, which do not meet the criteria of discontinued operations,
including costs for employee and lease terminations, or other exit
activities. Additionally, these costs include expenses directly related
to integrating and reorganising acquired businesses and include
items such as employee retention costs, recruiting costs, certain
moving costs, certain duplicative costs during integration and asset
impairments.
Items which are of a non-routine nature and material, when
considering both size and nature, are disclosed separately to
give a clearer presentation of the Group’s results. These are
shown as ‘exceptional items’ on the face of the Consolidated
Income Statement.
(d) Going concern
The Directors have, at the time of approving the Financial
Statements, a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. Thus they continue to adopt the going concern basis of
accounting in preparing the Financial Statements. Further detail is
contained in the going concern section and viability statement
included in the Directors’ Report on pages 78 to 80.
(e) Adoption of new and revised Standards
The following new and revised Standards and Interpretations have
been adopted in the current year although their adoption has not
had any significant impact on the Financial Statements:
> Amendments to IAS 1 ‘Presentation of financial statements’
regarding disclosures;
> Annual Improvements to IFRSs (2012–2014 Cycle);
> Amendments to IAS 16 and IAS 38 regarding the clarification
of acceptable methods of depreciation and amortisation; and
> Amendments to IFRS 11 regarding the accounting for acquisition
of interests in Joint Operations.
At the date of authorisation of these Financial Statements, the
following EU endorsed Standards and Interpretations were in issue
but not yet effective. The Group has not applied these Standards
or Interpretations in the preparation of these Financial Statements:
> IFRS 9 ‘Financial Instruments’; and
> IFRS 15 ‘Revenue from Contracts with Customers’.
The adoption of IFRS 9 will impact both the measurement and
disclosures of financial instruments but it is not practicable to provide
a complete estimate of its effect until a detailed review has been
completed prior to implementation. The adoption of IFRS 15 may
have an impact on revenue recognition and related disclosures.
The following Standards and Interpretations have not been endorsed
by the EU and have not been applied in the preparation of these
Financial Statements:
> IFRS 16 ‘Leases’;
> Amendments to IAS 12 ‘Income Taxes’ regarding the recognition
of deferred tax assets for unrealised losses;
> Amendments to IAS 7 ‘Cash flow statements’ regarding disclosures;
> Clarifications to IFRS 15 ‘Revenue from Contracts
with Customers’;
> Amendments to IFRS 2 ‘Share-based payment transactions’
regarding the classification and measurement of share-based
payment transactions;
> Annual Improvements to IFRS Standards (2014-2016 Cycle); and
> IFRIC Interpretation 22 relating to foreign currency transactions
and advance consideration.
The adoption of IFRS 16 will change how leases are recognised and
will impact the Group’s reported assets, liabilities, income statement
and cash flows. Furthermore, extensive disclosures will be required
by IFRS 16. It is not practicable to provide a complete estimate
of its effect until a detailed review has been completed prior to
implementation. The Directors do not expect the adoption of the
other Standards and Interpretations will have a material impact
on the Financial Statements of the Group in future periods.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 97
3. Summary of significant accounting policies
(a) Income recognition
Revenue, which excludes sales taxes, includes brokerage including
commissions, fees earned and subscriptions for information sales.
Fee income is recognised when the related services are completed
and the income is considered receivable.
Revenue comprises:
(i) Name Passing brokerage, where counterparties to a transaction
settle directly with each other. Revenue for the service of
matching buyers and sellers of financial instruments is stated net
of sales taxes, rebates and discounts and is recognised in full on
trade date;
(ii) Matched Principal brokerage revenue, being the net proceeds
from a commitment to simultaneously buy and sell financial
instruments with counterparties, is recognised on trade date;
(iii) Executing Broker brokerage, where the Group executes
transactions on certain regulated exchanges and then ‘gives-up’
the trade to the relevant client, or its clearing member. Revenue
for the service of matching buyers and sellers of financial
instruments is stated net of sales taxes, rebates and discounts
and is recognised in full on trade date; and
(iv) Fees earned from the sales of price information from financial
and commodity markets to third parties is recognised on an
accruals basis to match the provision of the service.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable.
Dividend income from investments is recognised when the Group’s
right to receive the payment is established.
(b) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using
the acquisition method. The consideration for each acquisition is
measured at the aggregate of the fair values (at the date of
exchange) of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control
of the acquiree. Acquisition costs are recognised in profit or loss
as incurred.
Where applicable, the consideration for the acquisition includes
any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition date fair value. Subsequent
changes in such fair values are adjusted against the cost of the
acquisition where they qualify as measurement period adjustments.
The measurement period is the period from the date of acquisition
to the date the Group obtains complete information about the facts
and circumstances that existed as of the acquisition date, and is
subject to a maximum of one year. All subsequent changes in the fair
value of contingent consideration classified as an asset or a liability
are accounted for in accordance with relevant IFRSs. Changes in
the fair value of contingent consideration classified as equity are
not recognised.
Where a business combination is achieved in stages, the Group’s
previously held interests in the acquired entity are remeasured to
fair value at the acquisition date and any resulting gain or loss
is recognised in profit or loss. Amounts arising from interests in
the acquiree prior to the acquisition that have previously been
recognised in other comprehensive income are reclassified to profit
or loss, where such treatment would be appropriate if that interest
was disposed of.
The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 (2008) are
recognised at their fair value at the acquisition date, except that:
> deferred tax assets or liabilities are recognised and measured
in accordance with IAS 12 ‘Income Taxes’;
> liabilities or assets related to employee benefit arrangements
are recognised and measured in accordance with IAS 19
‘Employee Benefits’;
> acquiree share-based payment awards replaced by Group
awards are measured in accordance with IFRS 2 ‘Share-based
Payments’; and
> assets or disposal groups that are classified for sale are measured
in accordance with IFRS 5 ‘Non-current Assets Held for Sale and
Discontinued Operations’.
If the initial accounting for a business combination is incomplete by
the end of the reporting period in which the business combination
occurs, provisional amounts are reported. Those provisional amounts
are adjusted during the measurement period, or additional assets
or liabilities recognised, to reflect the facts and circumstances that
existed as at the acquisition date.
Non-controlling interests in the acquired entity are initially measured
at the non-controlling interest’s proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised.
(c) Investment in associates
An associate is an entity over which the Group is in a position to
exercise significant influence. Significant influence is the power to
participate in the financial and operating decisions of the investee
but is not control or joint control over these policies.
The results and assets and liabilities of associates are incorporated
in these Financial Statements using the equity method of
accounting except when classified as held for sale. Investments
in associates are carried in the balance sheet at cost as adjusted
by post-acquisition changes in the Group’s share of the net assets
of the associate, less any impairment in the value of individual
investments. Losses of the associates in excess of the Group’s
interest in those associates are recognised only to the extent that
the Group has incurred legal or constructive obligations or made
payments on behalf of the associate.
Any excess of the cost of acquisition over the Group’s share of the
fair values of the identifiable net assets of the associate at the date
of acquisition is recognised as goodwill. Any discount in the cost
of acquisition below the Group’s share of the fair value of the
identifiable net assets of the associate at the date of acquisition
(i.e. discount on acquisition) is credited to profit and loss in the
year of acquisition.
www.tpicap.com 98
Financial statements
3. Summary of significant accounting policies continued
(c) Investment in associates continued
Where a Group company transacts with an associate of the Group,
profits and losses are eliminated to the extent of the Group’s interest
in the relevant associate. Losses may provide evidence of
impairment of the asset transferred in which case appropriate
provision is made for impairment.
(d) Interests in joint arrangements
A joint arrangement is a contractual arrangement whereby the
Group and other parties undertake an economic activity that
is subject to joint control.
Joint ventures are joint arrangements which involve the
establishment of a separate entity in which each party has rights
to the net assets of the arrangement. The Group reports its
interests in joint ventures using the equity method of accounting.
Investments in joint ventures are carried in the balance sheet at
cost as adjusted by post-acquisition changes in the Group’s share
of the net assets of the joint venture, less any impairment in the
value of individual investments. Losses of the joint venture in
excess of the Group’s interest in those joint ventures are recognised
only to the extent that the Group has incurred legal or constructive
obligations or made payments under the terms of the joint venture.
(e) Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group’s interest in the fair value of
the identifiable assets, liabilities and contingent liabilities of
a subsidiary or associate at the date of acquisition. Goodwill is
initially recognised at cost and is subsequently measured at cost
less any accumulated impairment losses. Goodwill arising on
acquisitions before the date of transition to IFRS has been
retained at the previous UK GAAP amounts at that date.
Goodwill recognised as an asset is reviewed for impairment at
least annually. Any impairment loss is recognised as an expense
immediately and is not subsequently reversed. For the purpose of
impairment testing goodwill is allocated to each of the Group’s
cash-generating units expected to benefit from the synergies of
the combination. Cash-generating units to which goodwill has been
allocated are tested for impairment annually, or more frequently
when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than the
carrying amount of any goodwill allocated to the unit, the
impairment loss is allocated first to reduce the carrying amount
of any goodwill allocated to the unit and then to the other assets
of the unit pro rata on the basis of the carrying amount of each
asset in the unit.
Goodwill arising on the acquisition of an associate or joint venture is
included within the carrying value of the associate or the joint
venture. Goodwill arising on the acquisition of subsidiaries is
presented separately in the balance sheet.
On disposal of a subsidiary, associate or joint venture, the
attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
(f) Intangible assets
Software and software development costs
An internally generated intangible asset arising from the Group’s
software development is recognised at cost only if all of the following
conditions are met:
> an asset is created that can be identified;
> it is probable that the asset created will generate future
economic benefits; and
> the development costs of the asset can be measured reliably.
Where the above conditions are not met, costs are expensed
as incurred.
Acquired separately or from a business combination
Intangible assets acquired separately are capitalised at cost and
intangible assets acquired in a business acquisition are capitalised
at fair value at the date of acquisition. The useful lives of these
intangible assets are assessed to be either finite or indefinite.
Amortisation charged on assets with a finite useful life is taken
to the income statement through administrative expenses.
Other than software development costs, intangible assets created
within the business are not capitalised and expenditure is charged to
the income statement in the year in which the expenditure is incurred.
Intangible assets are amortised over their finite useful lives generally
on a straight-line basis, as follows:
Software:
Purchased or developed
Software licences
Acquisition intangibles:
Brand/Trademarks
Customer relationships
Other intangibles
– up to 5 years
– over the period of the licence
– up to 5 years
– 2 to 20 years
– over the period of the contract
Intangible assets are subject to impairment review if there are events
or changes in circumstances that indicate that the carrying amount
may not be recoverable.
Gains or losses arising from derecognition of an intangible asset are
measured as the difference between the net disposal proceeds and
the carrying amount of the asset and are recognised in the income
statement when the asset is derecognised.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 99
(i) Broker contract payments
Payments made to brokers under employment contracts which are
in advance of the expected economic benefit due to the Group are
accounted for as prepayments and included within trade and other
receivables. Payments made in advance are subject to repayment
conditions during the contract period and the prepayment is
amortised over the shorter of the contract term and the period
the payment remains recoverable. Amounts that are irrecoverable,
or become irrecoverable, are written off immediately.
Payments made in arrears are accrued and are included within trade
and other payables.
(j) Financial assets and financial liabilities
Financial assets and financial liabilities are recognised on the
Group’s balance sheet when the Group has become a party
to the contractual provisions of the instrument.
Financial instruments are derecognised when all derecognition
criteria of IAS 39 are met and the Group no longer controls the
contractual rights that comprise the financial instrument. This is
normally the case when the instrument is sold, or all of the cash flows
attributable to the instrument are passed through to an independent
third party.
Financial assets are classified on initial recognition as ‘available-for-
sale’, ‘loans and receivables’ or ‘at fair value through profit or loss’
(‘FVTPL’). Financial liabilities are classified on initial recognition as
either ‘at fair value through profit or loss’ (‘FVTPL’) or as ‘other
financial liabilities’.
Available-for-sale
Certain of the Group’s investments are classified as available-for-sale
financial assets. Subsequent to initial recognition, they are measured
at fair value and changes therein, other than impairment losses and
foreign exchange gains and losses on available-for-sale monetary
items, are recognised directly in other comprehensive income.
For equity financial assets, where the fair value cannot be reliably
measured, the assets are held at cost less any provision for
impairment. These assets are generally expected to be held for the
long term and are included in non-current assets. Assets such as
holdings in exchanges, cash related instruments and long term equity
investments that do not qualify as associates or joint ventures are
classified as available-for-sale. When an investment is derecognised,
the cumulative gain or loss in other comprehensive income is
transferred to profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial instruments that
have fixed or determinable payments that are not listed in an active
market. Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment. Interest income
is recognised using the effective interest rate, except for short term
receivables when the recognition of interest would be immaterial.
Settlement balances, trade receivables, loans and other receivables
are classified as ‘loans and receivables’.
3. Summary of significant accounting policies continued
(g) Property, plant and equipment
Freehold land is stated at cost. Buildings, furniture, fixtures,
equipment and motor vehicles are stated at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation is provided on all tangible fixed assets at rates
calculated to write off the cost, less estimated residual value based
on prices prevailing at the date of acquisition, of each asset on a
straight-line basis over its expected useful life as follows:
Furniture, fixtures, equipment
and motor vehicles
Short and long leasehold
land and buildings
Freehold land
Freehold buildings
– 3 to 10 years
– period of the lease
– infinite
– 50 years
Assets held under finance leases are depreciated over their expected
useful lives on the same basis as owned assets or, where shorter, the
term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in income.
(h) Impairment of tangible and intangible assets
excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts
of its tangible and intangible assets with finite lives to determine
whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the
impairment loss. Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset
belongs. Intangible assets with indefinite useful lives are tested for
impairment annually and whenever there is an indication that the
asset may be impaired.
Recoverable amount is the higher of fair value less any cost to sell
and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present values using a pre-tax discount
rate that reflects current market assessments of the time value
of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (or cash-generating unit) is reduced to its recoverable
amount. Impairment losses are recognised as an expense
immediately. Where an impairment loss subsequently reverses, the
carrying amount of the asset (or cash-generating unit) is increased
to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised as income
immediately, unless the relevant asset is carried at a revalued
amount, in which case the reversal of the impairment loss is treated
as a revaluation increase.
www.tpicap.com 100
Financial statements
3. Summary of significant accounting policies continued
(j) Financial assets and financial liabilities continued
The Group acts as an intermediary between its customers for
collateralised stock lending transactions. Such trades are complete
only when both the collateral and stock for each side of the
transaction are returned. The gross amounts of collateral due to and
receivable are disclosed in the balance sheet as deposits paid for
securities borrowed and deposits received for securities loaned.
Fair value hedges
Changes in the fair value of derivatives that are designated
and qualify as fair value hedges are recorded in profit or loss
immediately, together with any changes in the fair value of the
hedged item that is attributable to the hedged risk. The changes
in the fair value of the hedging instrument and the changes in
the hedged item attributable to the hedged risk are recognised
in the line of the income statement relating to the hedged item.
Fair value through profit or loss
Financial assets and liabilities can be designated at fair value
through profit or loss where they meet specific criteria set out in IAS
39 ‘Financial Instruments: Recognition and Measurement’ or where
assets or liabilities are held for trading. Subsequent changes in fair
value are recognised directly in the income statement.
Other financial liabilities
Other financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs, and are subsequently
measured at amortised cost using the effective interest method, with
interest expense recognised on an effective yield basis.
Financial assets, other than those at fair value through profit or loss,
are assessed for indicators of impairment at each balance sheet
date. Financial assets are impaired where there is objective evidence
that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of
the investment have been impacted. Impairment is recognised in the
income statement.
(k) Derivative financial instruments
Derivative financial instruments, such as foreign currency contracts
and interest rate swaps, are entered into by the Group in order
to manage its exposure to interest rate and foreign currency
fluctuations or as simultaneous back-to-back transactions with
counterparties. The Group does not use derivative financial
instruments for speculative purposes.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. The resulting gain or
loss is recognised immediately unless the derivative is designated
and effective as a hedging instrument, in which event the timing
of the recognition in profit or loss depends on the nature of the
hedge relationship.
A derivative is presented as a non-current asset or a non-current
liability if the remaining maturity of the instrument is more than
12 months and it is not expected to be realised or settled within
12 months. Other derivatives are presented as current assets or
current liabilities.
(l) Hedge accounting
Derivatives designated as hedges are either ‘fair value hedges’
or ‘hedges of net investments in foreign operations’.
Hedge accounting is discontinued when the Group revokes the
hedging relationship, the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting.
The adjustment to the carrying amount of the hedged item arising
from the hedged risk is amortised to profit or loss from that date.
Net investment hedges
The effective portion of changes in the fair value of derivatives that
are designated and qualify as net investment hedges is recognised in
the hedging and translation reserve in other comprehensive income.
The gain or loss relating to the ineffective portion is recognised
immediately in profit or loss, and is included in financial income
or financial expense respectively.
Gains and losses deferred in the hedging and translation reserve
are recognised in profit or loss on disposal of the foreign operation.
(m) Settlement balances
Certain Group companies engage in Matched Principal brokerage
whereby securities are bought from one counterparty and
simultaneously sold to another counterparty. Settlement of such
transactions typically takes place within a few business days of
the transaction date according to the relevant market rules and
conventions. The amounts due from and payable to counterparties
in respect of as yet unsettled Matched Principal transactions are
shown gross, except where a netting agreement, which is legally
enforceable at all times, exists and the asset and liability are either
settled net or simultaneously.
(n) Derivative financial instrument balances arising from
business activities
The Group undertakes Matched Principal broking involving
simultaneous back-to-back derivative transactions with
counterparties. These transactions are classified as financial
instruments at fair value through profit or loss (‘FVTPL’) and are
shown gross, except where a netting agreement, which is legally
enforceable at all times, exists and the asset and liability are either
settled net or simultaneously.
(o) Cash and cash equivalents
Cash comprises cash in hand and demand deposits which may be
accessed without penalty. Cash equivalents comprise short term
highly liquid investments with a maturity of less than three months
from the date of acquisition. For the purposes of the Consolidated
Cash Flow Statement, cash and cash equivalents consist of cash
and cash equivalents as defined above, net of outstanding
bank overdrafts.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 101
3. Summary of significant accounting policies continued
(o) Cash and cash equivalents continued
The Group holds money, and occasionally financial instruments,
on behalf of customers (client monies) in accordance with local
regulatory rules. Since the Group is not beneficially entitled to these
amounts, they are excluded from the Consolidated Balance Sheet
along with the corresponding liabilities to customers.
Exchange differences arising are classified as other comprehensive
income and transferred to the Group’s translation reserve. Such
translation differences are recognised as income or as expense in
the year in which the operation is disposed of. Income and expense
items are translated at average exchange rates for the year, unless
exchange rates fluctuate significantly during that year, in which case
the exchange rates at the date of transactions are used.
Restricted funds comprise cash held with a central counterparty
clearing house (‘CCP’), or a financial institution providing the Group
with access to a CCP, and funds set aside for regulatory purposes, but
excluding client money. The funds represent cash for which the Group
does not have immediate and direct access or for which regulatory
requirements restrict the use of the cash.
(s) Taxation
The tax expense represents the sum of current tax payable
arising in the year, movements in deferred tax and movements
in tax provisions. The tax expense includes any interest and
penalties payable.
(p) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value,
being the consideration received net of issue costs associated
with the borrowing.
After initial recognition, interest bearing loans and borrowings are
measured at amortised cost using the effective interest rate method.
Amortised cost is calculated taking into account any issue costs and
any discounts or premium on settlement. Gains and losses are
recognised in the income statement when the liabilities are
derecognised, as well as through the amortisation process.
(q) Provisions
Provisions are recognised when the Group has a present obligation,
legal or constructive, as a result of a past event where it is probable
that this will result in an outflow of economic benefits that can be
reliably estimated.
Provisions for restructuring costs are recognised when the Group has
a detailed formal plan for the restructuring, which has been notified
to affected parties.
(r) Foreign currencies
The individual financial statements of each Group company are
prepared in the currency of the primary economic environment in
which it operates, its functional currency. For the purpose of the
Consolidated Financial Statements, the results and financial position
of each Group company are expressed in Pounds sterling, which is
the functional currency of the Company and the presentation
currency for the Consolidated Financial Statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the functional currency are
recorded at the rates of exchange prevailing on the dates of the
transactions. Gains and losses arising from the settlement of these
transactions, and from the retranslation of monetary assets and
liabilities denominated in currencies other than the functional
currency at rates prevailing at the balance sheet date, are recognised
in the income statement. Non-monetary assets and liabilities
denominated in currencies other than the functional currency
that are measured at historical cost or fair value are translated
at the exchange rate at the date of the transaction or at the date
the fair value was determined.
For the purpose of presenting Consolidated Financial Statements,
the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the balance sheet date.
The current tax payable arising in the year is based on taxable profit
for the year using tax rates that have been enacted or substantively
enacted by the balance sheet date, and any adjustment to tax
payable in respect of prior years.
Deferred tax is accounted for using the balance sheet liability
method in respect of temporary differences arising between
the carrying amount of assets and liabilities in the Financial
Statements and the corresponding tax basis used in the
computation of taxable profit. Deferred tax liabilities are generally
recognised for all temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
may be utilised. Temporary differences are not recognised if they
arise from goodwill or from initial recognition of other assets and
liabilities in a transaction which affects neither the tax profit nor
the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax is calculated at the rates that are expected to apply
when the asset or liability is settled or when the asset is realised.
Deferred tax is charged or credited in the income statement,
except when it relates to items credited or charged directly to other
comprehensive income or equity, in which case the deferred tax is
also dealt with in other comprehensive income or equity.
(t) Leases
Assets held under finance leases, which transfer to the Group
substantially all the risks and benefits incidental to ownership of the
leased item, are capitalised at the inception of the lease at the fair
value of the leased property or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating leases.
Operating lease payments are recognised as an expense in the
income statement on a straight-line basis over the lease term.
www.tpicap.com 102
Financial statements
3. Summary of significant accounting policies continued
(u) Retirement benefit costs
Defined contributions made to employees’ personal pension
plans are charged to the income statement as and when incurred.
For defined benefit retirement plans, the cost of providing the
benefits is determined using the projected unit credit method.
Actuarial gains and losses are recognised in full in the year in which
they occur. They are recognised outside the income statement and
are presented in other comprehensive income.
Past service cost is recognised immediately to the extent that the
benefits have already vested, and is otherwise amortised on a
straight-line basis over the average period until the amended
benefits become vested.
The amount recognised in the balance sheet represents the net of
the present value of the defined benefit obligation as adjusted for
actuarial gains and losses and past service cost, and the fair value of
plan assets. Any asset resulting from this calculation is limited to the
unrecognised actuarial losses and past service cost, plus the present
value of available refunds and reductions in future contributions to
the plan.
(v) Share-based payments
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at
fair value at the date of grant. The fair value determined at the grant
date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group’s
estimate of shares that will eventually vest.
The fair value of share options issued is determined using
appropriate valuation models. The expected life used in the models
has been adjusted, based on management’s best estimate for the
effects of non-transferability, exercise restrictions and behavioural
considerations.
The estimated fair value of shares granted is based on the share price
at grant date, reduced where shares do not qualify for dividends
during the vesting period. Market-based performance conditions
for equity-settled payments are reflected in the initial fair value
of the award.
(w) Equity instruments
Equity instruments issued by the Company are recorded at the value
of proceeds received, net of direct issue costs. An equity instrument
is any contract that evidences a residual interest in the assets of the
Group after deducting all of its liabilities.
(x) Treasury shares
Where share capital recognised as equity is repurchased, the amount
of the consideration paid, including directly attributable costs, net
of any tax effects, is recognised as a deduction from equity. When
treasury shares are sold or re-issued subsequently, the amount
received is recognised as an increase in equity, and the resulting
surplus or deficit on the transaction is transferred to or from
retained earnings.
(y) Accounting estimates and judgements
In the application of the Group’s accounting policies, the Directors
are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
Estimates and assumptions are reviewed on an ongoing basis and
revisions to accounting estimates are recognised in the period an
estimate is revised. Significant judgement and estimates are
necessary in relation to the following matters:
Identification and measurement of intangible assets arising
on consolidation
Accounting for business combinations requires the excess of the
purchase price of acquisitions to be allocated to the identifiable
assets and liabilities of the acquired entity. The Group makes
judgements and estimates in relation to the fair value allocation of
the purchase price and in selecting valuation techniques and setting
valuation assumptions to determine the acquisition date fair values
of the intangible assets that arise on consolidation and to estimate
the useful lives of these assets. Note 30 provides details of the
acquisitions undertaken during the year.
Impairment of goodwill and intangible assets
Determining whether goodwill and intangible assets are impaired
requires an estimation of the value in use of the cash-generating
units to which these assets have been allocated. The value in use
calculation requires estimation of future cash flows expected to arise
for the cash-generating unit, the selection of suitable discount rates
and the estimation of future growth rates. Note 13 describes the
assumptions used together with an analysis of the sensitivity to
reasonably possible changes in key assumptions.
Provisions
Provisions are established by the Group based on management’s
assessment of relevant information and advice available at
the time of preparing the Financial Statements. Outcomes are
uncertain and dependent on future events. Where outcomes differ
from management’s expectations, differences from the amount
initially provided will impact profit or loss in the period the
outcome is determined. Note 24 and Note 33 provide details
of the Group’s provisions and contingent liabilities.
Retirement benefit asset
The Group’s retirement benefit asset is the net of its defined benefit
scheme’s assets and the related defined benefit obligation. The
defined benefit obligation represents the scheme’s future liabilities,
which are estimated using actuarial and other financial assumptions,
discounted to a current value using a discount rate set by reference
to market yields on high quality corporate bonds. The value of the
defined benefit obligation is sensitive to changes in the actuarial,
financial and discount rate assumptions, changes to which would
be reflected in other comprehensive income in the period the
change occurs. Note 35 describes the assumptions used together
with an analysis of the sensitivity to changes in key assumptions.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 103
4. Segmental analysis
Products and services from which reportable segments derive their revenues
The Group is organised by geographic reporting segments which are used for the purposes of resource allocation and assessment
of segmental performance by Group management. These are the Group’s reportable segments under IFRS 8 ‘Operating Segments’.
Each geographic reportable segment derives revenue from Energy & Commodities, Interest Rate Derivatives, Fixed Income,
Treasury Products, Equities, and Information Sales and Risk Management Services.
Information regarding the Group’s operating segments is reported below:
Analysis by geographical segment
Revenue
EMEA
Americas
Asia Pacific
Operating profit
EMEA
Americas
Asia Pacific
Underlying operating profit
Acquisition, disposal and integration costs (Note 6)
Exceptional items (Note 6)
Reported operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit after tax
Share of results of associates and joint ventures
Profit for the year
2016
£m
480.9
279.6
131.0
891.5
97.7
18.2
15.6
131.5
(56.6)
(1.6)
73.3
5.3
(21.8)
56.8
(17.1)
39.7
4.0
43.7
2015
£m
455.3
234.5
106.2
796.0
81.2
14.9
11.8
107.9
(24.7)
38.7
121.9
4.1
(20.3)
105.7
(25.0)
80.7
2.6
83.3
There are no inter-segment sales included in segment revenue.
TP ICAP plc is domiciled in the UK. Revenue attributable to the UK amounted to £422.4m (2015: £399.7m) and the total revenue from other
countries was £469.1m (2015: £396.3m).
www.tpicap.com 104
Financial statements
4. Segmental analysis continued
Other segmental information
Capital additions
EMEA – UK
EMEA – Other
Americas
Asia Pacific
Depreciation and amortisation
EMEA – UK
EMEA – Other
Americas
Asia Pacific
Share-based compensation
EMEA – UK (including £16.0m relating to acquisitions (2015: £10.2m))
EMEA – Other
Americas (including £0.1m relating to acquisitions (2015: £0.1m))
Asia Pacific (including £0.2m relating to acquisitions (2015: £0.2m))
Segment assets
EMEA – UK
EMEA – Other
Americas
Asia Pacific
Unallocated goodwill arising on the acquisition of ICAP (Note 13)
Segment liabilities
EMEA – UK
EMEA – Other
Americas
Asia Pacific
Segment assets and liabilities exclude all inter-segment balances.
2016
£m
15.2
0.1
1.3
0.9
17.5
2016
£m
10.2
0.8
4.6
0.8
16.4
2016
£m
18.6
0.2
1.5
0.4
20.7
2016
£m
2015
£m
10.4
0.8
2.0
0.7
13.9
2015
£m
9.1
0.8
4.4
0.7
15.0
2015
£m
11.1
–
0.6
0.3
12.0
2015
£m
Non-current
£m
Current
£m
809.2
14.6
387.4
150.5
1,361.7
687.0
2,048.7
7,591.0
46.3
16,181.8
127.0
23,946.1
–
23,946.1
8,400.2
60.9
16,569.2
277.5
25,307.8
687.0
25,994.8
1,436.8
26.7
1,987.9
79.0
3,530.4
–
3,530.4
Non-current
£m
Current
£m
2016
£m
2015
£m
135.6
5.8
138.3
29.6
309.3
7,550.3
44.2
16,054.6
117.3
23,766.4
7,685.9
50.0
16,192.9
146.9
24,075.7
1,059.2
21.6
1,867.0
40.9
2,988.7
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 4. Segmental analysis continued
Analysis by product group
Revenue
Energy & Commodities
Interest Rate Derivatives
Fixed Income
Treasury Products
Equities
Information Sales and Risk Management Services
Strategic report Governance report
Financial statements 105
2016
£m
245.3
143.6
183.0
194.1
57.3
68.2
891.5
2015
£m
204.3
135.3
171.2
185.0
46.3
53.9
796.0
5. Other operating income
Other operating income represents receipts such as rental income, royalties, insurance proceeds, settlements from competitors, business
relocation grants and pension scheme settlement gain (Note 35). Costs associated with such items are included in administrative expenses.
6. Profit for the year
The profit for the year has been arrived at after charging/(crediting):
Depreciation of property, plant and equipment (Note 15)
Amortisation of intangible assets (Note 14)
Amortisation of acquisition related intangible assets (Note 13)
Staff costs (Note 7)
Net foreign exchange (gains)/losses
Auditor’s remuneration for audit services (see below)
Acquisition, disposal and integration costs comprise:
ICAP acquisition costs
ICAP integration costs
Other acquisition costs
Acquisition related share-based payment charge
Amortisation of intangible assets arising on consolidation
Loss on disposal of subsidiary undertakings and associates
Adjustments to acquisition consideration (Note 30(b))
Finance costs (Note 9)
Taxation
2016
£m
8.0
8.4
1.4
589.4
(2.1)
3.6
2016
£m
16.8
19.3
0.3
16.3
1.4
0.3
2.2
56.6
6.6
63.2
(5.3)
57.9
2015
£m
7.7
7.3
1.2
546.4
0.1
2.3
2015
£m
12.1
–
0.5
10.5
1.2
0.6
(0.2)
24.7
2.0
26.7
(3.0)
23.7
www.tpicap.com 106
Financial statements
6. Profit for the year continued
ICAP integration costs incurred in the year can be analysed as follows:
Employee related costs
Premises and equipment
Other administrative costs
Exceptional items comprise:
Pension scheme settlement gain (Note 35)
Net credit relating to major legal actions
Charge relating to cost improvement programmes
Taxation
The analysis of auditor’s remuneration is as follows:
Audit of the Group’s annual accounts
Audit of the Company’s subsidiaries and associates pursuant to legislation
Total audit fees
Audit related assurance services
Taxation compliance services
Other taxation advisory services
Corporate finance services1
Other services
Total non-audit fees
2016
£m
7.3
0.5
11.5
19.3
2016
£m
(3.6)
–
5.2
1.6
0.3
1.9
2016
£000
1,362
2,234
3,596
283
129
34
899
44
1,389
2015
£m
–
–
–
–
2015
£m
–
(64.4)
25.7
(38.7)
10.5
(28.2)
2015
£000
393
1,882
2,275
237
103
28
1,703
21
2,092
Audit fees payable to the Company’s auditor and its associates in respect of associated pension schemes
18
13
Note:
1 Corporate finance services relate primarily to the acquisition of ICAP, £200,000 (2015: £1,220,000) relating to due diligence services and £600,000 (2015: £463,000) as
reporting accountants.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 107
7. Staff costs
The average monthly number of full time equivalent employees and Directors of the Group was:
EMEA
Americas
Asia Pacific
The aggregate employment costs of staff and Directors were:
Wages, salaries, bonuses and incentive payments
Social security costs
Defined contribution pension costs (Note 35(c))
Acquisition related share-based payment expense
Other share-based compensation expense
8. Finance income
Interest receivable and similar income
Deemed interest arising on the defined benefit pension scheme surplus (Note 35(b))
9. Finance costs
2016
Interest and fees payable on bank facilities
Interest payable on Sterling Notes July 2016
Interest payable on Sterling Notes June 2019
Other interest payable
Amortisation of debt issue and bank facility costs
Total borrowing costs
Unwind of discounted liabilities (Note 30(b))
2015
Interest and fees payable on bank facilities
Interest payable on Sterling Notes July 2016
Interest payable on Sterling Notes June 2019
Other interest payable
Amortisation of debt issue and bank facility costs
Total borrowing costs
Unwind of discounted liabilities (Note 30(b))
2016
No.
1,267
838
599
2,704
2016
£m
518.9
42.6
7.2
16.3
4.4
589.4
2016
£m
2.1
3.2
5.3
Underlying
£m
Acquisition
related
£m
3.9
5.1
4.2
0.5
1.2
14.9
0.3
15.2
1.6
9.9
4.2
0.4
1.8
17.9
0.4
18.3
3.3
–
–
–
3.0
6.3
0.3
6.6
0.6
–
–
–
1.1
1.7
0.3
2.0
2015
No.
1,261
848
585
2,694
2015
£m
486.7
40.6
7.1
10.5
1.5
546.4
2015
£m
1.8
2.3
4.1
Total
£m
7.2
5.1
4.2
0.5
4.2
21.2
0.6
21.8
2.2
9.9
4.2
0.4
2.9
19.6
0.7
20.3
Acquisition related items include £6.0m of fees and interest relating to the acquisition of ICAP that were incurred on facilities arranged in
contemplation of the transaction, costs of £0.3m incurred on a planned refinancing of the Group’s £141.1m Sterling Notes that was cancelled
due to the acquisition, and £0.3m relating to unwinding the discount on PVM deferred consideration.
www.tpicap.com 108
Financial statements
10. Taxation
Current tax
UK corporation tax
Overseas tax
Prior year UK corporation tax
Prior year overseas tax
Deferred tax (Note 20)
Current year
Prior year
Tax charge for the year
The charge for the year can be reconciled to the profit in the income statement as follows:
Profit before tax
Tax based on the UK corporation tax rate of 20% (2015: 20.25%)
Tax effect of expenses that are not deductible
Tax effect of non-taxable income
Unrecognised timing differences
Prior year adjustments
Impact of overseas tax rates
Other
Tax charge for the year
2016
£m
11.0
5.5
0.3
(0.4)
16.4
1.0
(0.3)
0.7
2015
£m
22.7
4.2
(0.4)
(1.6)
24.9
0.2
(0.1)
0.1
17.1
25.0
2016
£m
56.8
11.4
9.5
(0.1)
(8.5)
(0.4)
4.8
0.4
17.1
2015
£m
105.7
21.4
5.0
(0.4)
(1.7)
(2.1)
3.0
(0.2)
25.0
The UK corporation tax rate for 2016 is 20% (2015: 20.25%,reflecting three months at 21% and nine months at 20%).
In addition to the income statement charge, the following current and deferred tax items have been included in other comprehensive income
and equity:
2016
Current tax charge relating to:
– Exchange movement on net investment loans
Deferred tax charge relating to:
– Increase in the defined benefit pension scheme surplus
– Change in fair value of available-for-sale investments
Tax charge on items taken directly to other comprehensive
income and equity
2015
Current tax charge relating to:
– Exchange movement on net investment loans
Deferred tax charge relating to:
– Increase in the defined benefit pension scheme surplus
– Change in fair value of available-for-sale investments
Tax charge on items taken directly to other comprehensive
income and equity
Recognised
in other
comprehensive
income
£m
Recognised
in equity
£m
–
2.0
–
2.0
0.4
8.6
0.1
9.1
–
–
–
–
–
–
–
–
Total
£m
–
2.0
–
2.0
0.4
8.6
0.1
9.1
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 109
11. Earnings per share
Basic – underlying
Diluted – underlying
Basic earnings per share
Diluted earnings per share
The calculation of basic and diluted earnings per share is based on the following number of shares:
Basic weighted average shares1
Contingently issuable shares
Diluted weighted average shares1
2016
42.5p
41.0p
17.8p
17.2p
2016
No.(m)
242.3
9.1
251.4
2015
32.2p
31.5p
34.0p
33.3p
2015
No.(m)
243.6
5.1
248.7
Note:
1 The 310,314,296 shares issued to acquire ICAP at the end of December 2016 have a nil weighting when calculating the weighted average number of shares for 2016 because
the shares were issued at the end of the year and none of the earnings related to the newly issued shares.
The earnings used in the calculation of underlying, basic and diluted earnings per share are set out below:
Earnings for the year
Non-controlling interests
Earnings
Acquisition, disposal and acquisition costs (Note 6)
Exceptional items (Note 6)
Tax on exceptional and acquisition related items
Underlying earnings
12. Dividends
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 31 December 2016 of 5.6p per share
Final dividend for the year ended 31 December 2015 of 11.25p per share
Interim dividend for the year ended 31 December 2015 of 5.6p per share
Final dividend for the year ended 31 December 2014 of 11.25p per share
2016
£m
43.7
(0.5)
43.2
63.2
1.6
(5.0)
103.0
2016
£m
13.5
27.2
–
–
40.7
2015
£m
83.3
(0.4)
82.9
26.7
(38.7)
7.5
78.4
2015
£m
–
–
13.6
27.4
41.0
In respect of the current year, the Directors declared a second interim dividend of 11.25p per share amounting to £27.2m which was paid
on 13 January 2017 to all shareholders that were on the Register of Members on 23 December 2016. This dividend has not been included
as a liability in these Financial Statements.
The trustees of the Tullett Prebon plc Employee Benefit Trust 2007 have waived their rights to dividends.
www.tpicap.com 110
Financial statements
13. Intangible assets arising on consolidation
At 1 January 2016
Recognised on acquisitions – ICAP
Recognised on acquisitions – other
Amortisation of acquisition related intangibles
Effect of movements in exchange rates
At 31 December 2016
At 1 January 2015
Recognised on acquisitions
Amortisation of acquisition related intangibles
Effect of movements in exchange rates
At 31 December 2015
Goodwill
£m
347.5
687.0
2.9
–
26.5
1,063.9
327.1
14.5
–
5.9
347.5
Other
£m
9.9
639.0
–
(1.4)
1.7
649.2
9.5
1.1
(1.2)
0.5
9.9
Total
£m
357.4
1,326.0
2.9
(1.4)
28.2
1,713.1
336.6
15.6
(1.2)
6.4
357.4
Other intangible assets at 31 December 2016 represent customer relationships, £610.0m (2015: £8.5m), business brands and trade marks,
£28.2m (2015: £1.4m), and other intangibles, £11.0m (2015: £nil) that arise through business combinations. Customer relationships are
being amortised over 20 years.
Goodwill arising through business combinations has been allocated to individual cash-generating units (‘CGUs’) for impairment testing
as follows:
CGU
EMEA
North America
Brazil
Asia Pacific
PVM
Goodwill allocated to CGUs
Unallocated goodwill
2016
£m
195.1
93.5
3.5
19.3
65.5
376.9
687.0
1,063.9
2015
£m
195.1
75.9
2.3
19.3
54.9
347.5
–
347.5
The provisional amount of goodwill arising on the acquisition of ICAP (Note 30) has not been allocated to CGUs due to the proximity of the
acquisition to the year end. As permitted by IAS 36 ‘Impairment of assets’, allocation to relevant CGUs will be completed before the end of
2017. As the goodwill has not been allocated to relevant CGUs it has not been assessed for impairment in the current period.
Determining whether goodwill is impaired requires an estimation of the recoverable amount of each CGU. The recoverable amount of each
CGU is the higher of its value in use (‘VIU’) or its net realisable value (‘NRV’).
As at 31 December 2016 VIU has been used to estimate recoverable amounts for all CGUs except for Brazil where the recoverable amount
has been based on that CGU’s NRV. For all CGUs, the estimate of the recoverable amount was higher than the carrying value.
The key assumptions for the VIU calculations are those regarding expected cash flows arising in future periods, regional growth rates and
the discount rates. Future cash flow projections are based on the most recent financial budgets considered by the Board which are used to
project cash flows for the next five years. After this period a steady state cash flow is used to derive a terminal value for the CGU. Goodwill
has an indefinite life and this is reflected in the calculation of the CGU’s terminal value. Estimated average growth rates, based on each
region’s constituent country growth rates as published by the World Bank, are used to estimate cash flows after the budgeted period.
Discount rates used are based on the Group’s weighted average cost of capital and are a function of the Group’s cost of equity, derived using
a Capital Asset Pricing Model (‘CAPM’), and the Group’s cost of debt. The cost of equity estimate depended on inputs in the CAPM reflecting
a number of variables including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These inputs are
based on external assessment of economic variables together with management’s judgement.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements
111
13. Intangible assets arising on consolidation continued
The VIU calculations used annual growth rates of 2% for EMEA (2015: 2%), 2.5% for North America (2015: 2.5%), 3% for Asia Pacific
(2015: 3%) and 2% for PVM (2015: 2%). Terminal values for each CGU assumed no further growth reflecting longer term forecasting
constraints. Resultant cash flows for EMEA, North America, Asia Pacific and PVM have been discounted at a pre-tax discount rate
of 10.5% (2015: 10.5% with 12.5% for North America).
These calculations have been subject to stress tests reflecting reasonably possible changes in key assumptions. All VIU calculations are
insensitive to reasonably possible changes in the discount rate and are most sensitive to lower growth rate assumptions which reduce
expected cash flows. With zero growth all CGUs’ recoverable amounts were still higher than their carrying value. At this level the recoverable
amount for EMEA exceeded its carrying value by £203m, which reduces to £nil if annual growth rates fall to negative 4% over the projected
cash flow period, North America exceeded its carrying value by £145m, which reduces to £nil if annual growth rates fall to negative 4% over
the projected cash flow period, and Asia exceeded its carrying value by £106m, which reduces to £nil if annual growth rates fall to negative
6% over the projected cash flow period. The impact on future cash flows resulting from falling growth rates does not reflect any management
actions that would be taken under such circumstances.
14. Other intangible assets
Cost
At 1 January 2016
Additions
Acquired with acquisitions – ICAP
Acquired with acquisitions – other
Amounts derecognised
Effect of movements in exchange rates
At 31 December 2016
Accumulated amortisation
At 1 January 2016
Charge for the year
Amounts derecognised
Effect of movements in exchange rates
At 31 December 2016
Carrying amount
At 31 December 2016
Cost
At 1 January 2015
Additions
Amounts derecognised
Effect of movements in exchange rates
At 31 December 2015
Accumulated amortisation
At 1 January 2015
Charge for the year
Amounts derecognised
Effect of movements in exchange rates
At 31 December 2015
Carrying amount
At 31 December 2015
Purchased
software
£m
Developed
software
£m
Total
£m
58.7
14.7
41.2
0.3
(4.9)
4.7
114.7
(36.6)
(8.4)
4.9
(4.5)
(44.6)
49.5
14.2
38.8
–
(2.2)
2.8
103.1
(30.4)
(6.8)
2.2
(3.6)
(38.6)
64.5
70.1
41.8
7.4
(0.3)
0.6
49.5
(23.6)
(6.2)
0.2
(0.8)
(30.4)
49.2
9.3
(0.9)
1.1
58.7
(29.1)
(7.3)
0.8
(1.0)
(36.6)
19.1
22.1
9.2
0.5
2.4
0.3
(2.7)
1.9
11.6
(6.2)
(1.6)
2.7
(0.9)
(6.0)
5.6
7.4
1.9
(0.6)
0.5
9.2
(5.5)
(1.1)
0.6
(0.2)
(6.2)
3.0
www.tpicap.com 112
Financial statements
15. Property, plant and equipment
Cost
At 1 January 2016
Additions
Acquired with acquisitions – ICAP
Disposals
Effect of movements in exchange rates
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charge for the year
Disposals
Effect of movements in exchange rates
At 31 December 2016
Carrying amount
At 31 December 2016
Cost
At 1 January 2015
Additions
Acquired with acquisitions
Disposals
Effect of movements in exchange rates
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charge for the year
Disposals
Effect of movements in exchange rates
At 31 December 2015
Carrying amount
At 31 December 2015
No assets are held under finance leases.
16. Investment in associates
At 1 January
Acquired with acquisitions – ICAP
Disposals
Share of profit for the year
Dividends received
Effect of movements in exchange rates
At 31 December
Summary financial information for associates
Aggregated amounts (for associates at the year end):
Total assets
Total liabilities
Net assets
Aggregated amounts (for associates during the year):
Revenue
Profit for the year
Group’s share of profit for the year
Dividends received from associates during the year
Land, buildings and
leasehold
improvements
£m
Furniture, fixtures,
equipment and
motor vehicles
£m
28.3
0.5
6.0
(0.1)
3.4
38.1
(15.2)
(2.1)
0.1
(1.7)
(18.9)
19.2
25.4
2.3
0.5
(0.4)
0.5
28.3
(13.2)
(1.9)
0.1
(0.2)
(15.2)
13.1
56.0
2.3
4.6
(1.8)
6.5
67.6
(41.7)
(5.9)
1.8
(5.4)
(51.2)
16.4
53.9
2.3
0.2
(1.2)
0.8
56.0
(36.7)
(5.8)
1.3
(0.5)
(41.7)
14.3
2016
£m
6.0
44.7
(0.1)
4.2
(2.0)
0.7
53.5
120.0
(55.9)
64.1
48.3
12.7
4.0
2.0
Total
£m
84.3
2.8
10.6
(1.9)
9.9
105.7
(56.9)
(8.0)
1.9
(7.1)
(70.1)
35.6
79.3
4.6
0.7
(1.6)
1.3
84.3
(49.9)
(7.7)
1.4
(0.7)
(56.9)
27.4
2015
£m
5.0
–
–
2.6
(1.5)
(0.1)
6.0
29.5
(12.0)
17.5
32.1
7.8
2.6
1.5
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements
113
16. Investment in associates continued
Interests in associates are measured using the equity method. All associates are involved in broking activities and have either a 31 December
or 31 March year end. The difference in year ends to that of the Group is not considered to have a material impact on their results.
Country of incorporation
and operation
Associated undertakings
Bahrain
China
India
Japan
Malaysia
Spain
Thailand
United States
Note:
1 31 March year end.
ICAP (Middle East) W.L.L.1
Tullett Prebon SITICO (China) Limited
Prebon Yamane (India) Limited
ICAP IL India Private Limited1
Totan ICAP Co., Ltd.1
Central Totan Securities Co. Ltd1
Amanah Butler Malaysia Sdn Bhd1
Corretaje e Informacion Monetaria y de Divisas SA1
Wall Street Tullett Prebon Limited
First Brokers Securities LLC1
17. Investment in joint ventures
At 1 January
Additions
Acquired with acquisitions – ICAP
Share of result for the year
At 31 December
Summary financial information for joint ventures
Aggregated amounts (for joint ventures at the year end):
Total assets
Total liabilities
Net assets
Aggregated amounts (for joint ventures during the year):
Revenue
Result for the year
Group’s share of result for the year
Dividends received from joint ventures during the year
Percentage
held
49%
33%
48%
40%
40%
20%
32.1%
21.5%
49%
40%
2016
£m
–
0.2
8.0
(0.2)
8.0
10.4
(6.5)
3.9
–
(0.4)
(0.2)
–
2015
£m
–
–
–
–
–
–
–
–
–
–
–
–
Interests in joint ventures are measured using the equity method. All joint ventures are involved in broking activities and have a 31 December
year end.
Country of incorporation
and operation
Colombia
England
Mexico
United States
Joint ventures
SET-ICAP FX SA
SET-ICAP Securities S.A.
tpSynrex Ltd
SIF ICAP, S.A. de C.V.
Energy Curves LLC
Percentage
held
47.9%
47.4%
50%
50%
50%
www.tpicap.com 114
Financial statements
18. Available-for-sale investments
At 1 January
Additions
Acquired with acquisitions – ICAP
Disposals
Impairment
Revaluation in the year recognised in other comprehensive income
Effect of movements in exchange rates
At 31 December
Available-for-sale investments carried at fair value
– unlisted
– listed
Loans and receivables
2016
£m
8.5
–
13.4
(0.2)
(0.2)
0.8
1.2
23.5
17.2
3.3
3.0
23.5
2015
£m
5.2
3.2
–
–
–
0.1
–
8.5
5.0
0.7
2.8
8.5
The fair values of unlisted available-for-sale investments and loans and receivables are based on derived valuations as disclosed in Note 26(i).
Listed available-for-sale investments comprise equity securities that do not qualify as associates or joint ventures. Fair values are based on
their quoted market price (Level 1 valuation).
19. Financial assets
Short term government securities
Term deposits
Restricted funds
2016
£m
17.5
1.2
70.8
89.5
2015
£m
13.7
6.6
–
20.3
Financial assets are liquid funds held on deposit with banks and clearing organisations. Restricted funds comprise cash held with a central
counterparty clearing house (‘CCP’), or a financial institution providing the Group with access to a CCP, and funds set aside for regulatory
purposes. The funds represent cash for which the Group does not have immediate and direct access or for which regulatory requirements
restrict the use of the cash.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements
115
20. Deferred tax
Deferred tax assets
Deferred tax liabilities
The movement for the year in the Group’s net deferred tax position was as follows:
At 1 January
Charge to income for the year
Charge to other comprehensive income for the year
Recognised with acquisitions – ICAP
Effect of movements in exchange rates
At 31 December
Deferred tax balances and movements thereon are analysed as:
2016
£m
26.5
(197.3)
(170.8)
2016
£m
(30.8)
(0.7)
(2.0)
(137.6)
0.3
(170.8)
2015
£m
2.4
(33.2)
(30.8)
2015
£m
(21.8)
(0.1)
(8.7)
–
(0.2)
(30.8)
2016
Share-based payment awards
Defined benefit pension scheme
Tax losses
Bonuses
Intangible assets arising on consolidation
Other timing differences
2015
Share-based payment awards
Defined benefit pension scheme
Tax losses
Other timing differences
At
1 January
£m
Recognised
in profit
or loss
£m
Recognised
in other
comprehensive
income
£m
Recognised
with
acquisitions
£m
Effect of
movements
in exchange
rates
£m
At
31 December
£m
0.5
(30.9)
–
0.3
–
(0.7)
(30.8)
0.2
(21.7)
0.4
(0.7)
(21.8)
0.1
(2.1)
0.1
0.8
–
0.4
(0.7)
0.3
(0.6)
(0.4)
0.6
(0.1)
–
(2.0)
–
–
–
–
(2.0)
–
(8.6)
–
(0.1)
(8.7)
1.2
1.9
0.1
17.9
(160.0)
1.3
(137.6)
–
–
–
–
–
–
–
–
0.4
–
(0.1)
0.3
–
–
–
(0.2)
(0.2)
1.8
(33.1)
0.2
19.4
(160.0)
0.9
(170.8)
0.5
(30.9)
–
(0.4)
(30.8)
At the balance sheet date, the Group has gross unrecognised temporary differences of £134.7m with the unrecognised net tax amount being
£32.9m (2015: gross £109.7m and net tax £24.8m respectively). This includes gross tax losses of £101.1m with the net tax amount being £22.9m
(2015: gross £87.7m and net tax £16.8m respectively), which are potentially available for offset against future profits. Of the unrecognised
gross losses £57.4m (2015: £74.0m) are expected to expire within 20 years and £43.7m (£13.7m) have no expiry.
A deferred tax asset of £0.2m in respect of tax losses has been recognised in 2016 as it was considered probable that future tax profits
should arise.
A deferred tax liability of £160.0m has been recognised in relation to the intangible assets of £639.0m that arise on the acquisition of ICAP
(Note 30). The tax rate applied reflects the regional allocation of these assets.
No deferred tax has been recognised on temporary differences associated with unremitted earnings of subsidiaries as the Group is able
to control the timing of distributions and overseas dividends are largely exempt from UK tax. As at the balance sheet date, the Group
had unrecognised deferred tax liabilities of £2.3m (2015: £0.8m) in respect of unremitted profits of subsidiaries of £22.5m (2015: £6.2m).
www.tpicap.com 116
Financial statements
21. Trade and other receivables
Non-current receivables
Other debtors
Current receivables
Trade receivables
Settlement balances
Deposits paid for securities borrowed
Financial assets at FVTPL
Financial assets
Other debtors
Prepayments
Accrued income
Corporation tax
Owed by associates and joint ventures
2016
£m
18.4
2015
£m
–
249.0
22,169.8
575.0
92.5
23,086.3
15.0
48.3
6.7
0.5
3.7
23,160.5
94.2
2,434.1
–
73.2
2,601.5
7.3
24.1
4.7
0.9
0.7
2,639.2
The Directors consider that the carrying amount of trade and other receivables which are not held at fair value through profit or loss
approximate to their fair values.
As at 31 December 2016 trade receivables that were past due but not impaired were as follows:
Less than 30 days
Between 30 and 90 days
Over 90 days
Trade receivables
2016
£m
140.6
67.6
40.8
249.0
2015
£m
66.5
20.5
7.2
94.2
Trade receivables are shown net of a provision of £3.4m (2015: £1.5m) against certain trade receivables due after 90 days.
As at 31 December 2016 settlement balances that were due and those that were past due but not impaired were as follows:
Amounts not yet due
Amounts past due
Settlement balances
2016
£m
21,579.6
590.2
22,169.8
2015
£m
2,300.9
133.2
2,434.1
Settlement balances arise on Matched Principal brokerage whereby securities are bought from one counterparty and simultaneously sold to
another counterparty. The above analysis reflects only the receivable side of such transactions. Corresponding payable amounts are shown
in Note 22 ‘Trade and other payables’.
Deposits paid for securities borrowed arise on collateralised stock lending transactions. Such trades are complete only when both the
collateral and stock for each side of the transaction are returned. The above analysis reflects the receivable side of such transactions.
Corresponding deposits received for securities loaned are shown in Note 22 ‘Trade and other payables’.
Financial assets at FVTPL arise on simultaneous back-to-back derivative transactions with counterparties. The above analysis reflects only
the asset side of such transactions. Corresponding liability amounts are shown in Note 22 ‘Trade and other payables’.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements
117
22. Trade and other payables
Trade payables
Settlement balances
Deposits received for securities loaned
Financial liabilities at FVTPL
Financial liabilities
Tax and social security
Other creditors
Accruals
Deferred income
Deferred consideration (Note 30)
Owed to associates and joint ventures
2016
£m
16.2
22,148.9
585.7
93.4
22,844.2
29.1
20.8
319.2
10.9
11.9
2.0
23,238.1
The Directors consider that the carrying amount of trade and other payables which are not held at fair value through profit or loss
approximate to their fair values.
23. Interest bearing loans and borrowings
2016
Bank loan due December 2017
Sterling Notes June 2019
2015
Sterling Notes July 2016
Sterling Notes June 2019
Less than
one year
£m
Greater than
one year
£m
467.3
–
467.3
140.9
–
140.9
–
79.5
79.5
–
79.3
79.3
2015
£m
4.4
2,433.8
–
73.2
2,511.4
17.0
2.0
132.8
0.9
2.6
–
2,666.7
Total
£m
467.3
79.5
546.8
140.9
79.3
220.2
All amounts are denominated in Sterling and are stated after unamortised transaction costs. An analysis of borrowings by maturity has been
disclosed in Note 26(f).
Sterling Notes: Due July 2016
The £141.1m 7.04% Guaranteed Notes were repaid in July 2016.
Sterling Notes: Due June 2019
In December 2012 £80m Sterling Notes, due June 2019, were issued. The Notes have a coupon of 5.25% paid semi-annually. At 31 December
2016 their fair value (Level 1) was £83.6m (2015: £81.7m).
Bank loan: Due December 2017
The Group entered a £470m committed bridge financing facility that could be extended to December 2017. Drawdown was conditional on
the completion of the ICAP acquisition. £470m was drawn in December 2016 with proceeds used to repay £140m outstanding on the Group’s
bank credit facility and £330m to repay a loan acquired with the ICAP acquisition. Facility fees of £3.3m were incurred in 2016, based on fees
of 0.4%, increasing over time to 0.83%, on the undrawn balance. Interest is payable on amounts drawn based on libor plus a variable margin.
Arrangement fees are amortised over the facility life. The carrying amount of the bank loan approximates to its fair value.
Bank credit facility
The Group has a £250m committed revolving credit facility, the maturity of which has been extended by a year to April 2019. During the year,
£140m was drawn to repay the Group’s Sterling Notes that matured in July 2016. The amount drawn was repaid from the proceeds of the
bank loan. The facility was undrawn at the end of the year. Facility fees of 1% are payable on the undrawn balance. Arrangement fees are
amortised over the maturity of the facility.
Sterling Notes: Due January 2024
In January 2017 (see Note 38), the Group issued £500m unsecured Sterling Notes due January 2024. The Notes have a fixed coupon of 5.25%
paid semi-annually, subject to compliance with the terms of the Notes. Proceeds were used to repay the £470m bank loan.
www.tpicap.com 118
Financial statements
24. Provisions
2016
At 1 January 2016
Charge to income statement
Acquired with acquisitions – ICAP
Utilisation of provision
Effect of movements in exchange rates
At 31 December 2016
2015
At 1 January 2015
(Credit)/charge to income statement
Utilisation of provision
Effect of movements in exchange rates
At 31 December 2015
Included in current liabilities
Included in non-current liabilities
Property
£m
Restructuring
£m
Legal
and other
£m
5.6
1.1
1.0
(0.3)
1.0
8.4
5.9
(0.2)
(0.3)
0.2
5.6
21.4
3.1
–
(22.3)
1.0
3.2
8.9
21.4
(9.4)
0.5
21.4
2.1
2.2
12.8
(0.5)
0.5
17.1
1.5
0.6
(0.1)
0.1
2.1
2016
£m
19.3
9.4
28.7
Total
£m
29.1
6.4
13.8
(23.1)
2.5
28.7
16.3
21.8
(9.8)
0.8
29.1
2015
£m
21.3
7.8
29.1
Property provisions outstanding as at 31 December 2016 relate to provisions in respect of onerous leases and building dilapidations. The
onerous lease provision represents the net present value of the future rental cost net of expected sub-lease income. These leases expire in one
to ten years (2015: one to eleven years). The building dilapidations provision represents the estimated cost of making good dilapidations and
disrepair on various leasehold buildings. The leases expire in one to six years.
Restructuring provisions outstanding as at 31 December 2015 relate to termination and other employee related costs, the majority of which
were discharged during 2016.
Legal and other provisions include provisions for legal claims brought against subsidiaries of the Group together with provisions against
obligations for certain employee related costs and non-property related onerous contracts. At present the timing of any payments is
uncertain and provisions are subject to regular review. It is expected that the obligations will be discharged over the next three years.
In February 2015 the European Commission imposed a fine of £12.8m (€14.9m) on ICAP Europe Limited (‘IEL’) for alleged competition
violations in relation to the involvement of certain of IEL’s brokers in the attempted manipulation of Yen LIBOR by bank traders between
October 2006 and January 2011. While this matter relates to alleged conduct violations prior to completion of the Company’s acquisition
of ICAP the Company notes that ICAP has appealed the fine imposed by the European Commission and is seeking a full annulment of the
Commission’s decision. This is recognised as a provision of £12.8m as at 31 December 2016. In the event that the Commission imposes a fine
in excess of €15.0m such excess will be borne by NEX Group plc (‘NEX’).
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements
119
25. Other long term payables
Accruals and deferred income
Deferred consideration (Note 30)
2016
£m
11.2
8.6
19.8
2015
£m
8.4
13.8
22.2
Accruals and deferred income includes deferred leasehold rental accruals that build up during rent free periods which are subsequently
utilised over the rental payment period of the lease.
26. Financial instruments
(a) Financial and liquidity risk
The Group does not take trading risk and does not hold proprietary trading positions. Consequently, the Group is exposed to trading book
market risk only in relation to incidental positions in financial instruments arising as a result of the Group’s failure to match clients’ orders
precisely. The Group has limited exposure to non-trading book market risk, specifically to interest rate risk and currency risk. Thus the overall
approach to the planning and management of the Group’s capital and liquidity is to ensure the Group’s solvency, i.e. its continued ability to
conduct business, deliver returns to shareholders, and support growth and strategic initiatives. This risk profile meets the necessary conditions
for an investment firm consolidation waiver and the Group benefits from a waiver under the CRD IV provisions, the details of which are set
out in the Regulatory Capital section of the Strategic Report on page 31.
The Group seeks to ensure that it has access to an appropriate level of cash, other forms of marketable securities and liquidity facilities to
enable it to finance its ongoing operations on cost effective terms. Cash and cash equivalent balances are held with the primary objective
of capital security and availability, with a secondary objective of generating returns. Funding requirements are monitored by the Group’s
Finance and Treasury functions.
As a normal part of its operations, the Group faces liquidity risk through the risk of being required to fund transactions that fail to settle on
the due date. From a risk perspective, the most problematic scenario concerns ‘fail to deliver’ transactions, where the business has received
a security from the selling counterparty (and has paid cash in settlement of the same) but is unable to effect onward delivery of the security
to the buying counterparty. Such settlement ‘fails’ give rise to a funding requirement, reflecting the value of the security which the Group
has ‘failed to deliver’ until such time as the delivery leg is finally settled and the business has received the associated cash.
The Group has addressed this funding risk by arranging overdraft facilities to cover ‘failed to deliver’ trades, either with the relevant
settlement agent/depository or with a clearing bank. Under such arrangements, the facility provider will fund the value of any ‘failed to
deliver’ trades until delivery of the security is effected. Certain facility providers require collateral (such as a cash deposit or parent company
guarantee) to protect them from any adverse mark-to-market movement and some also charge a funding fee for providing the facility.
The Group is also exposed to potential margin calls from clearing houses and correspondent clearers, in both the UK and the United States.
In the event of a liquidity issue arising, the firm has recourse to existing global cash resources, after which it could draw down on its £250m
committed revolving credit facility as additional contingency funding.
(b) Capital management
The Group’s policy is to maintain a capital base and funding structure that maintains creditor, regulator and market confidence and provides
flexibility for business development whilst also optimising returns to shareholders. The capital structure of the Group consists of debt, as set
out in Note 23, cash and cash equivalents, other current financial assets and equity attributable to equity holders of the parent, comprising
issued capital, reserves and retained earnings as disclosed in Notes 27 and 28.
The Group has an investment firm consolidation waiver under which it is required to monitor its compliance with a Financial Holding
Company test which takes into account the Company’s shareholders’ funds and the aggregated credit risk, market risk and fixed
overhead requirements of the Company’s subsidiaries. A number of the Company’s subsidiaries are individually regulated and are
required to maintain capital that is appropriate to the risks entailed in their businesses according to definitions that vary according
to each jurisdiction.
www.tpicap.com 120
Financial statements
26. Financial instruments continued
(c) Categorisation of financial assets and liabilities
Financial assets
2016
Available-for-sale investments
Financial assets
Trade receivables
Settlement balances
Deposits paid for securities borrowed
Financial assets at FVTPL
Cash and cash equivalents
2015
Available-for-sale investments
Financial assets
Trade receivables
Settlement balances
Deposits paid for securities borrowed
Financial assets at FVTPL
Cash and cash equivalents
Financial liabilities
Financial liabilities are all held at amortised cost.
2016
Bank loan due December 2017
Sterling Notes June 2019
Trade payables
Settlement balances
Deposits received for securities loaned
Financial liabilities at FVTPL
2015
Sterling Notes July 2016
Sterling Notes June 2019
Trade payables
Settlement balances
Deposits received for securities loaned
Financial liabilities at FVTPL
Available-for-
sale assets
£m
Loans and
receivables
£m
Financial
assets at
FVTPL
£m
20.5
17.5
–
–
–
–
–
38.0
5.7
13.7
–
–
–
–
–
19.4
3.0
72.0
249.0
22,169.8
575.0
–
696.1
23,764.9
2.8
6.6
94.2
2,434.1
–
–
358.9
2,896.6
–
–
–
–
–
92.5
–
92.5
–
–
–
–
–
73.2
–
73.2
Amortised
cost
£m
467.3
79.5
16.2
22,148.9
585.7
–
23,297.6
140.9
79.3
4.4
2,433.8
–
–
2,658.4
Financial
liabilities
at FVTPL
£m
–
–
–
–
–
93.4
93.4
–
–
–
–
–
73.2
73.2
Total
£m
23.5
89.5
249.0
22,169.8
575.0
92.5
696.1
23,895.4
8.5
20.3
94.2
2,434.1
–
73.2
358.9
2,989.2
Total
£m
467.3
79.5
16.2
22,148.9
585.7
93.4
23,391.0
140.9
79.3
4.4
2,433.8
–
73.2
2,731.6
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements
121
26. Financial instruments continued
(d) Offsetting financial assets and financial liabilities
Financial instruments at fair value through profit or loss include simultaneous back-to-back derivative transactions with counterparties
which are reported as separate financial assets and financial liabilities in the statement of financial position. These transactions are subject
to ISDA (International Swaps and Derivatives Association) Master Netting Agreements which provide a legally enforceable right of offset
on the occurrence of a specified event of default, or other events not expected to happen in the normal course of business, but are not
otherwise enforceable.
Financial instruments subject to enforceable Master Netting Agreements
and similar arrangements
2016
Financial instruments at FVTPL
Related amounts not offset in the statement of financial position
Net position
2015
Financial instruments at FVTPL
Related amounts not offset in the statement of financial position
Net position
Financial
assets
£m
Financial
liabilities
£m
92.5
(92.5)
–
73.2
(73.2)
–
(92.5)
92.5
–
(73.2)
73.2
–
As at 31 December 2016, financial liabilities at FVTPL of £0.9m (2015:£nil) were not subject to offsetting arrangements. Their notional value
was £48.6m (2015: £nil).
(e) Credit risk
The Group is exposed to credit risk in the event of non-performance by counterparties in respect of its Name Passing, Matched Principal,
Executing Broker and corporate treasury operations. The Group does not bear any significant concentration risk to either counterparts
or markets.
The credit risk in respect of the Name Passing business and the information sales and risk management services is limited to the collection
of outstanding commission and transaction fees and this is managed proactively by the Group’s accounts receivable functions. As at the
year end, a majority of the Group’s counterparty exposure is to investment grade counterparts (rated BBB-/Baa3 or above).
The Matched Principal business involves the Group acting as a counterparty on trades which are undertaken on a delivery versus payment
basis. The Group manages its credit risk in these transactions through appropriate policies and procedures in order to mitigate this risk
including stringent on-boarding requirements, setting appropriate credit limits for all counterparts which are closely monitored by the
regional credit risk teams to restrict any potential loss through counterparty default. Settlement of these transactions takes place according
to the relevant market rules and conventions and the credit risk is considered to be minimal. Deposits paid for securities borrowed arise on
collateralised stock lending transactions. Such trades are complete only when both the collateral and stock for each side of the transaction
are returned. As at the year end, a substantial majority of the Group’s counterparty exposure is to investment grade counterparts.
The credit risk on cash, cash equivalents, financial assets and financial assets at FVTPL are subject to frequent monitoring. All financial
institutions that are transacted with are approved and internal limits are assigned to each one based on a combination of factors including
external credit ratings. As at the year end, a significant proportion of cash and cash equivalents is deposited with investment grade rated
financial institutions.
www.tpicap.com 122
Financial statements
26. Financial instruments continued
(f) Maturity profile of financial liabilities
The table below reflects the contractual maturities, including future interest obligations, of the Group’s financial liabilities as at 31 December:
2016
Settlement balances
Deposits received for securities loaned
Financial liabilities at FVTPL
Trade payables
Bank loan due December 2017
Sterling Notes June 2019
2015
Settlement balances
Deposits received for securities loaned
Financial liabilities at FVTPL
Trade payables
Sterling Notes July 2016
Sterling Notes June 2019
Due
between
3 months
and
12 months
£m
Due
between
1 year and
5 years
£m
Due
after
5 years
£m
–
540.5
37.4
1.6
–
4.2
583.7
–
–
49.9
–
151.1
4.2
205.2
–
–
–
–
–
86.3
86.3
–
–
–
–
–
90.5
90.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Due within
3 months
£m
22,148.9
45.2
56.0
14.6
472.1
–
22,736.8
2,433.8
–
23.3
4.4
–
–
2,461.5
Total
£m
22,148.9
585.7
93.4
16.2
472.1
90.5
23,406.8
2,433.8
–
73.2
4.4
151.1
94.7
2,757.2
(g) Foreign currency sensitivity analysis
The table below illustrates the sensitivity of the profit for the year with regard to currency movements on financial assets and liabilities
denominated in foreign currencies as at the year end. The sensitivity of the Group’s equity with regard to its net foreign currency investments
at the year end, excluding ICAP, is also shown below.
Based on a 10% weakening in the US dollar and Euro exchange rates against Sterling, the effects would be as follows:
2016
2015
USD £m
EUR £m
USD £m
EUR £m
Change in foreign currency financial assets and liabilities – profit or loss
(2.6)
(1.4)
(1.1)
Change in translation of foreign operations – equity
(31.0)
(0.8)
(23.9)
(1.1)
(0.6)
The Group would experience an equal and opposite foreign exchange movements should the US dollar and Euro exchange rates strengthen
against Sterling.
(h) Interest rate sensitivity analysis
Interest on floating rate financial instruments is reset at intervals of less than one year. The Group’s exposure to interest rates arises on cash
and cash equivalents and money market instruments. The Sterling Notes are fixed rate financial instruments.
A 100 basis point change in interest rates, applied to average floating rate financial instrument assets and liabilities during the year, would
result in the following impact on profit or loss:
Income/(expense) arising on:
– floating rate assets
– floating rate liabilities
Net income/(expense) for the year
2016
2015
+100pts
£m
-100pts
£m
+100pts
£m
-100pts
£m
3.7
(0.7)
3.0
(3.7)
0.2
(3.5)
3.5
–
3.5
(1.7)
–
(1.7)
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 123
26. Financial instruments continued
(i) Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which the fair value is observable:
> Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
> Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
> Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
2016
Available-for-sale investments
– unlisted
– listed
Loans and receivables
Financial assets
– short term government securities
– financial assets at FVTPL
Financial liabilities
– financial liabilities at FVTPL
2015
Available-for-sale investments
– unlisted
– listed
Loans and receivables
Financial assets
– short term government securities
– financial assets at FVTPL
Financial liabilities
– financial liabilities at FVTPL
–
3.3
–
17.5
–
–
20.8
–
0.7
–
13.7
–
–
14.4
8.0
–
–
–
92.5
(93.4)
7.1
–
–
–
–
73.2
(73.2)
–
9.2
–
3.0
–
–
–
12.2
5.0
–
2.8
–
–
–
7.8
In deriving the fair value of financial instruments at FVTPL valuation models were used which incorporated observable market data.
There were no significant inputs used in the models that were unobservable.
There were no transfers between Level 1 and 2 during the year.
Reconciliation of Level 3 fair value measurements of financial assets:
Balance as at 1 January
Unrealised gain in other comprehensive income
Additions
Acquired with acquisitions – ICAP
Disposals
Transfers to level 2
Impairments
Effect of movements in exchange rates
Balance as at 31 December
2016
£m
7.8
–
–
8.2
(0.2)
(4.0)
(0.2)
0.6
12.2
17.2
3.3
3.0
17.5
92.5
(93.4)
40.1
5.0
0.7
2.8
13.7
73.2
(73.2)
22.2
2015
£m
4.2
0.4
3.2
–
–
–
–
–
7.8
There were no financial liabilities subsequently remeasured at fair value on a Level 3 fair value measurement basis. Transfers to level 2 reflect
the availability of additional observable price information.
The revaluation gain of £0.4m in 2015 was included within the ‘Revaluation reserve’.
www.tpicap.com 124
Financial statements
27. Share capital
Allotted, issued and fully paid
Ordinary shares of 25p
As at 1 January
Issue of ordinary shares
As at 31 December
28. Reconciliation of shareholders’ funds
(a) Share capital, Share premium account, Merger reserve
2016
As at 1 January 2016
Issue of ordinary shares
Share issue costs
As at 31 December 2016
2015
As at 1 January and 31 December 2015
2016
No.
2015
No.
243,516,227
310,616,444
554,132,671
243,516,227
–
243,516,227
Share
capital
£m
60.9
77.6
–
138.5
Share
premium
account
£m
Merger
reserve
£m
Total
£m
17.1
–
–
17.1
178.5
1,205.6
(6.6)
1,377.5
256.5
1,283.2
(6.6)
1,533.1
60.9
17.1
178.5
256.5
Share capital/Merger reserve
On 30 December 2016 the Group issued 310,314,296 ordinary shares with a fair value of £1,283.2m to acquire the issued share capital of ICAP
Global Broking Holdings (‘ICAP’). The £1,205.6m difference between the nominal value of the shares issued and their fair value has been
credited to the merger reserve. The costs associated with this share issue have been charged against the reserve. As at 1 January 2016 the
merger reserve related to prior share-based acquisitions and represented the difference between the value of those acquisitions and the
amount required to be recorded in share capital. On 27 September, 302,148 ordinary shares were issued to the Tullett Prebon plc Employee
Benefit Trust 2007.
(b) Other reserves
2016
As at 1 January 2016
Revaluation of investments
Exchange differences on translation of foreign operations
Taxation on components of other comprehensive income
Total comprehensive income
Own shares acquired for employee trusts
As at 31 December 2016
2015
As at 1 January 2015
Revaluation of investments
Exchange differences on translation of foreign operations
Taxation on components of other comprehensive income
Total comprehensive income
As at 31 December 2015
Reverse
acquisition
reserve
£m
Revaluation
reserve
£m
Hedging
and
translation
£m
Own
shares
£m
Other
reserves
£m
(1,182.3)
–
–
–
–
–
(1,182.3)
(1,182.3)
–
–
–
–
(1,182.3)
1.4
0.8
–
–
0.8
–
2.2
1.4
0.1
–
(0.1)
–
1.4
15.9
–
59.5
–
59.5
–
75.4
7.6
–
8.7
(0.4)
8.3
15.9
(0.1)
–
–
–
–
(6.2)
(6.3)
(0.1)
–
–
–
–
(0.1)
(1,165.1)
0.8
59.5
–
60.3
(6.2)
(1,111.0)
(1,173.4)
0.1
8.7
(0.5)
8.3
(1,165.1)
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 125
28. Reconciliation of shareholders’ funds continued
(b) Other reserves continued
Reverse acquisition reserve
The acquisition of Collins Stewart Tullett plc by Tullett Prebon plc in 2006 was accounted for as a reverse acquisition. Under IFRS the
consolidated accounts of Tullett Prebon plc are prepared as if they were a continuation of the consolidated accounts of Collins Stewart
Tullett plc. The reverse acquisition reserve represents the difference between the initial equity share capital of Tullett Prebon plc and the share
capital and share premium of Collins Stewart Tullett plc at the time of the acquisition. This resulted in the consolidated net assets before and
after the acquisition remaining unchanged.
Revaluation reserve
The revaluation reserve represents the remeasurement of assets in accordance with IFRS that have been recorded in other
comprehensive income.
Hedging and translation
The hedging and translation reserve records revaluation gains and losses arising on net investment hedges and the effect of changes in
exchange rates on translation of foreign operations recorded in other comprehensive income. As at 31 December 2016, £10.0m relates to
amounts arising on previous net investment hedges (2015: £10.0m).
Own shares
As at 31 December 2016, the Tullett Prebon plc Employee Benefit Trust 2007 held 1,927,575 ordinary shares (2015: 202,029 ordinary shares)
with a fair value of £8.4m (2015: £0.8m). During the year 302,148 ordinary shares were issued to the Trust that were used to satisfy share
option exercises. The Trust also purchased 1,725,546 ordinary shares in the open market at a cost of £6.2m.
(c) Total equity
2016
As at 1 January 2016
Profit for the year
Revaluation of available-for-sale investments
Exchange differences on translation
of foreign operations
Remeasurement of defined benefit pension schemes
Taxation on components of other comprehensive income
Total comprehensive income
Dividends paid
Own shares acquired for employee trusts
Issue of ordinary shares
Share issue costs
Non-controlling interests arising on acquisitions
Credit arising on share-based payment awards (Note 29)
As at 31 December 2016
2015
As at 1 January 2015
Profit for the year
Revaluation of available-for-sale investments
Exchange differences on translation of foreign
operations
Remeasurement of defined benefit pension schemes
Taxation on components of other comprehensive income
Total comprehensive income
Dividends paid
Credit arising on share-based payment awards (Note 29)
As at 31 December 2015
Equity attributable to equity holders of the parent
Total from
Note 28(a)
£m
Total from
Note 28(b)
£m
Retained
earnings
£m
256.5
–
–
(1,165.1)
–
0.8
1,448.6
43.2
–
–
–
–
–
–
–
1,283.2
(6.6)
–
–
1,533.1
256.5
–
–
–
–
–
–
–
–
256.5
59.5
–
60.3
–
(6.2)
–
–
–
–
(1,111.0)
(1,173.4)
–
0.1
8.7
–
(0.5)
8.3
–
–
(1,165.1)
–
5.8
(2.0)
47.0
(40.7)
–
–
–
–
20.7
1,475.6
1,378.8
82.9
–
–
24.5
(8.6)
98.8
(41.0)
12.0
1,448.6
Total
£m
540.0
43.2
0.8
59.5
5.8
(2.0)
107.3
(40.7)
(6.2)
1,283.2
(6.6)
–
20.7
1,897.7
461.9
82.9
0.1
8.7
24.5
(9.1)
107.1
(41.0)
12.0
540.0
Non-
controlling
interests
£m
1.7
0.5
–
0.2
–
–
0.7
(0.5)
–
–
–
19.5
–
21.4
1.6
0.4
–
0.1
–
–
0.5
(0.4)
–
1.7
Total
equity
£m
541.7
43.7
0.8
59.7
5.8
(2.0)
108.0
(41.2)
(6.2)
1,283.2
(6.6)
19.5
20.7
1,919.1
463.5
83.3
0.1
8.8
24.5
(9.1)
107.6
(41.4)
12.0
541.7
www.tpicap.com 126
Financial statements
29. Share-based payments
Share option awards
During the year the outstanding awards under the Group’s equity-based long term incentive plan, the Tullett Prebon Long Term Incentive
Plan, were exercised.
Outstanding at the beginning of the year
Exercised during the year
Outstanding at end of year
Exercisable at end of year
2016
No.
302,148
(302,148)
–
–
2015
No.
302,148
–
302,148
302,148
Share-based Deferred Bonus Plan
Annual awards are made under the Group’s Deferred Bonus Plan that commenced in 2015.
Under this plan, employees identified as Senior Managers have 20% of their annual discretionary bonus deferred into equity. These awards
are subject to the completion of service conditions and the fulfilment of other conduct requirements. The number of deferred shares in respect
of a bonus year are determined after the close period for that year at the then market price, and vest over three years from the grant. The fair
value of the deferred shares equates to the monetary value of the awards at grant date and includes the value of expected dividends that will
accrue to the beneficiaries.
As part of the introduction of the Deferred Bonus Plan in 2015, a Special Award was granted to these employees. The Special Award will vest
in the period to May 2018.
Deferred Bonus Plan awards will be settled by the Tullett Prebon plc Employee Benefit Trust 2007 from shares purchased by it in the
open market.
Outstanding at the beginning of the year
Granted during the year
Expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
2016
No.
2015
No.
–
1,783,888
(3,603)
1,780,285
–
–
–
–
–
–
At the year end closing share price of 433.3p the estimated total number of deferred shares for the 2016 bonus year would be 838,498.
Acquisition related share-based payments
As part of the acquisition of PVM, certain former shareholders are eligible to receive additional payments after three years’ service provided
they remain as employees and PVM achieves revenue performance targets over that period. The Group has the sole right to issue equity or
cash to satisfy these additional payments, which, although deferred consideration in substance, are conditional on future employment, and
the fair value of the payments as at the date of acquisition, which was estimated to be US$48.0m (£34.9m), is being recognised as a share-
based expense, through the income statement and equity, over the three year service term. The share-based expense recognised
in future periods will be adjusted to reflect actual service and revenue performance.
Charge arising from the share-based Deferred Bonus Plan
Charge arising from acquisition related share-based payments
2016
£m
4.4
16.3
20.7
2015
£m
1.5
10.5
12.0
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 127
30. Acquisitions
(a) Subsidiaries acquired during the year
ICAP
On 30 December 2016, the Group issued 310.3m ordinary shares to acquire 100% of the share capital of ICAP Global Broking Holdings
Limited (‘ICAP’). The fair value of the shares issued was £1,283.2m, representing their market value at the date of issue. No further
consideration is payable in respect of the acquisition.
Due to the proximity of the acquisition to the year end and its size and complexity, the identification and measurement of the fair value of
the assets acquired are incomplete and provisional. Similarly, the allocation of the excess purchase price between identifiable intangible
assets and goodwill that arise on the consolidation of ICAP are also provisional. As permitted by IFRS 3 ‘Business Combinations’, the
finalisation of the identification and measurement of the fair value of the assets and liabilities acquired, and the allocation of the excess
purchase price, will be completed during the 12 month ‘measurement period’ ending on 30 December 2017. No measurement period
adjustments have been recognised in 2016.
This transaction has been accounted for under the acquisition method of accounting.
Net assets acquired (provisional)
Intangible assets relating to purchased and developed software
Property, plant and equipment
Investment in associates
Investment in joint ventures
Available-for-sale investments
Deferred tax assets
Trade and other receivables
Financial assets
Cash and cash equivalents
Total assets
Trade and other payables
Loans and borrowings
Current tax liabilities
Deferred tax liabilities
Provisions
Retirement benefit obligations
Total liabilities
Non-controlling interests
Intangible assets arising on consolidation (provisional)
– Other intangible assets
– Deferred tax liabilities arising on other intangible assets
– Goodwill
Fair value of total consideration
Satisfied by:
– Issue of ordinary shares
Provisional
Fair value
£m
41.2
10.6
44.7
8.0
13.4
22.6
13,670.3
67.2
316.3
14,194.3
(13,685.8)
(330.0)
(24.5)
(0.2)
(13.8)
(3.3)
(14,057.6)
(19.5)
117.2
639.0
(160.0)
687.0
1,283.2
1,283.2
Intangible assets arising on consolidation, have been provisionally allocated to: the ICAP brand, £27m; the value of customer relationships,
£601m; and other intangibles having finite lives, £11m. An associated deferred tax liability of £160m has been recognised on acquisition,
based on the regional allocation of these assets and applicable tax rates, none of which has been offset against the Group’s deferred tax
assets. The balance of £687m has been provisionally recognised as goodwill, representing the value of the established workforce and the
business’s reputation.
www.tpicap.com
128
Financial statements
30. Acquisitions continued
The fair value of the brand has been estimated using a relief-from-royalty approach, based on empirical, market derived rates for such assets,
and is sensitive to changes in the royalty rate applied. The fair value of customer relationships has been estimated using the ‘multi-period
excess earnings methodology’ which uses the net present value of forecast, post-tax profits generated by that asset. The fair value of customer
relationships is sensitive to changes in: forecast post-tax profits; the discount rate applied; the assumed useful life of the assets; the expected
rate of customer attrition; and the level of contributory asset charges for the use of other assets, including a charge for the workforce.
Changes to the provisional fair values of the identified intangible assets would result in a change to the associated deferred tax liability,
with an equal and opposite change in the provisional amount of goodwill.
Trade and other receivables, financial assets, and cash and cash equivalents are disclosed at their provisional fair values but are not
substantially different from their previous carrying values, reflecting the nature of those assets and the business acquired. Contractual
amounts receivable are estimated to be £1.7m higher which are not currently expected to be received.
Indemnification assets of £15.5m, receivable from NEX, have been recognised on acquisition and are included with trade and other
receivables. The fair value of these assets reflect the fair value of the provisions against which the indemnification has been received.
No contingent liabilities are currently recognised at fair value as such liabilities cannot be reliably measured due to the proximity of the
acquisition to the date these financial statements were approved. Should such contingent liabilities be recognised during the measurement
period they would be matched by a further indemnification asset of an equal value. Recognition of these assets and liabilities would not
change the provisional value of goodwill currently recognised.
Provisional goodwill is not expected to be deductible for tax purposes and no associated deferred tax asset has been recorded.
ICAP is not reflected in the Group’s results for 2016. Had ICAP been acquired on 1 January 2016 revenue would have been £795.1m higher,
underlying operating profit £108.0m higher and underlying earnings £84.9m higher. If the 310.3m ordinary shares issued to acquire ICAP had
been issued on 1 January 2016 the basic weighted average shares (Note 11) would have been 552.6m, resulting in an underlying basic EPS
8.5p lower at 34.0p.
Acquisition costs, included in administrative expenses, amounted to £16.8m in 2016 and £12.1m in 2015. £6.6m of costs attributable to the
issue of the ordinary shares have been expensed directly to equity.
Creditex
In July 2016, the Group announced the acquisition of Creditex’s US hybrid voice brokerage business. Under the agreement, deferred
contingent consideration is payable through to the third anniversary of completion. The amount of deferred contingent consideration is
dependent upon the performance of the business over the three year period and has a fair value estimated to be US$3.8m (£2.9m). The fair
value of the net assets acquired is negligible which resulted in the recognition of US$3.8m (£2.9m) of goodwill arising on consolidation.
Other acquisitions
During 2016 the Group acquired other interests on which no initial payments were made. Deferred consideration is payable with
an estimated fair value of £0.3m. The fair value of the net assets acquired was £0.3m resulting in no goodwill being recognised.
(b) Analysis of deferred and contingent consideration in respect of acquisitions
Certain acquisitions made by the Group are satisfied in part by deferred or contingent deferred consideration. The Group has re-estimated
the amounts due where necessary, with any corresponding adjustments being made profit or loss.
At 1 January
Acquisitions during the year
Remeasurement charge taken to operating profit
Unwind of discount
Cash paid
Effect of movements in exchange rates
At 31 December
Amounts falling due within one year
Amounts falling due after one year
At 31 December
2016
£m
16.4
3.2
2.2
0.3
(3.2)
1.6
20.5
11.9
8.6
20.5
2015
£m
6.4
8.4
0.4
0.3
–
0.9
16.4
2.6
13.8
16.4
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 129
31. Reconciliation of operating result to net cash from operating activities
Operating profit
Adjustments for:
– Share-based compensation expense
– Pension scheme’s administration costs
– Depreciation of property, plant and equipment
– Amortisation of intangible assets
– Pension scheme settlement gains
– Acquisition related share-based payment charge
– Amortisation of intangible assets arising on consolidation
– Loss on disposal of property, plant and equipment
– Loss on derecognition of intangible assets
– Loss on disposal of associates and subsidiary undertakings
– Remeasurement of deferred consideration
– Impairment of available-for-sale investments
– Non-cash movement in FVTPL balances
(Decrease)/increase in provisions for liabilities and charges
Decrease in non-current liabilities
Operating cash flows before movement in working capital
(Increase)/decrease in trade and other receivables
(Increase)/decrease in net settlement and trading balances
Increase in trade and other payables
Cash generated from operations
Income taxes paid
Interest paid
Net cash from operating activities
2016
£m
73.3
4.4
0.9
8.0
8.4
(3.6)
16.3
1.4
–
–
0.1
2.2
0.2
0.9
(17.7)
(1.1)
93.7
(17.9)
(2.5)
23.1
96.4
(16.7)
(21.1)
58.6
2015
£m
121.9
1.5
0.7
7.7
7.3
–
10.5
1.2
0.2
0.1
0.2
0.4
–
–
11.5
(0.8)
162.4
0.1
1.3
16.5
180.3
(19.5)
(16.8)
144.0
www.tpicap.com 130
Financial statements
32. Analysis of net funds
2016
Cash
Cash equivalents
Overdrafts
Cash and cash equivalents
Financial assets
Total funds
Notes due within one year
Bank loan due within one year
Notes due after one year
At
1 January
£m
Cash flow
£m
Non-cash
items
£m
Acquired
with
acquisitions
£m
Exchange
rate
movements
£m
At
31 December
£m
296.7
62.2
–
358.9
20.3
379.2
(140.9)
–
(79.3)
(220.2)
336.8
(26.2)
(2.4)
308.2
(2.3)
305.9
141.1
(466.2)
–
(325.1)
–
–
–
–
–
–
(0.2)
(1.1)
(0.2)
(1.5)
(1.5)
–
–
–
–
–
(140.9)
140.4
(0.5)
–
–
–
–
67.2
67.2
–
–
–
–
67.2
–
–
–
–
–
–
–
–
–
23.5
5.5
–
29.0
4.3
33.3
–
–
–
–
657.0
41.5
(2.4)
696.1
89.5
785.6
–
(467.3)
(79.5)
(546.8)
33.3
238.8
5.7
(0.3)
5.4
(1.1)
4.3
–
–
–
296.7
62.2
358.9
20.3
379.2
(140.9)
(79.3)
(220.2)
4.3
159.0
Total net funds
159.0
(19.2)
2015
Cash
Cash equivalents
Cash and cash equivalents
Financial assets
Total funds
Notes due within one year
Notes due after one year
223.3
63.8
287.1
10.7
297.8
–
(219.7)
(219.7)
67.7
(1.3)
66.4
10.7
77.1
–
–
–
Total net funds
78.1
77.1
(0.5)
Cash and cash equivalents comprise cash at bank and other short term highly liquid investments with an original maturity of three months or
less. As at 31 December 2016 cash and cash equivalents, net of overdrafts, amounted to £696.1m (2015: £358.9m). Cash at bank earns interest
at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods of between one day and three months
depending on the immediate cash requirements of the Group, and earn interest at the respective short term deposit rates.
Financial assets comprise short term government securities, term deposits and restricted funds held with banks and clearing organisations.
33. Contingent liabilities
FCA investigation
Tullett Prebon Europe Limited (‘TPEL’) is currently under investigation by the FCA in relation to certain trades undertaken between 2008 and
2011, including trades which are risk free, which are alleged to have no commercial rationale or economic purpose, on which brokerage is
paid, and trades on which brokerage may have been improperly charged. As part of its investigation, the FCA is considering the extent to
which during the relevant period (i) TPEL’s systems and controls were adequate to manage the risks associated with such trades and (ii)
whether certain of TPEL’s managers were aware of, and/or managed appropriately the risks associated with, the trades. The FCA is also
reviewing the circumstances surrounding a failure in 2011 by TPEL to discover certain audio files and produce them to the FCA in a timely
manner. As the investigation is ongoing, it is not possible to predict its ultimate outcome and accordingly any potential liability and/or
financial impact cannot currently be reliably estimated.
Bank Bill Swap Reference Rate case
On 16 August 2016, a new litigation was filed in the United States District Court for the Southern District of New York naming the Company,
ICAP plc, ICAP Australia Pty LTD (‘IAPL’) and Tullett Prebon (Australia) Pty. Limited as defendants together with various Bank Bill Swap
Reference Rate (‘BBSW’) setting banks. The complaint alleges collusion by the defendants to fix BBSW-based derivatives prices through
manipulative trading during the fixing window and false BBSW rate submissions. Each of the defendants named above intend to defend the
litigation vigorously. It is not possible to predict the ultimate outcome of the litigation or to provide an estimate of any potential financial impact.
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements
131
33. Contingent liabilities continued
Euroyen TIBOR case and Yen LIBOR case
ICAP plc was previously named as a defendant to an existing civil litigation originally filed in April 2012 against certain Yen LIBOR and
Euroyen TIBOR panel banks in the US District Court for the Southern District of New York (the ‘Laydon action’). The complaint alleges that the
plaintiff, who traded positions in Euroyen TIBOR futures contracts, was injured as a result of the purported manipulation of Yen LIBOR and
Euroyen TIBOR by certain panel banks and interdealer brokers. ICAP plc was dismissed as a defendant from the Laydon action in March 2015.
However, at that time the plaintiff was given permission to add ICAP Europe Limited (‘IEL’) along with certain other parties as defendants.
Other plaintiffs have filed a related complaint related to the Laydon action which includes IEL and ICAP plc as defendants (the ‘Sonterra
action’). In 2015 the Company was also named as a defendant in both the Laydon action and the Sonterra action. In March 2017, the Court
dismissed the plaintiff’s claims against the Company and IEL. No subsidiary of the Group is therefore currently named as a defendant in
relation to these class actions.
EURIBOR case
In 2013, a civil class action was filed in the United States District Court for the Southern District of New York against a number of banks
asserting claims of EURIBOR manipulation. On 13 August 2015, the plaintiffs filed a fourth amended complaint adding new defendants
including ICAP plc and IEL. Defendants briefed motions to dismiss for failure to state a claim and lack of jurisdiction, which were fully
submitted as of 23 December 2015. The Court dismissed the plaintiff’s claims against ICAP plc and IEL in February 2017. No subsidiary
of the Group is therefore currently named as a defendant in relation to this class action.
Labour claims – ICAP Brazil
ICAP do Brasil Corretora De Títulos e Varoles Mobiliários Ltda (‘ICAP Brazil’) is a defendant in 16 pending lawsuits filed in the Brazilian
Labour Court by persons formerly associated with ICAP Brazil seeking damages under various statutory labour rights accorded to employees
and in relation to various other claims including wrongful termination, breach of contract and harassment (together the ‘Labour claims’).
The Group estimates the maximum potential aggregate exposure in relation to the Labour claims to be BRL 48.4m. ICAP Brazil may also be
exposed to a potential social security tax liability in relation to the Labour claims. The Group is covered by an indemnity from NEX in relation
to any outflow in respect of the Labour claims.
Flow case – Tullett Prebon Brazil
In December 2012, Flow Participações Ltda. and Brasil Plural Corretora de Câmbio, Títulos e Valores (‘Flow’) initiated a lawsuit against Tullett
Prebon Brasil S.A. Corretora de Valores e Câmbio and Tullett Prebon Holdings do Brasil Ltda alleging that the defendants have committed a
series of unfair competition misconducts, such as the recruitment of Flow’s former employees, the illegal obtainment and use of systems and
software developed by the plaintiffs, as well as the transfer of technology and confidential information from Flow and the collusion to do so
in order to increase profits from economic activities. The amount currently claimed is BRL 182m. Tullett intends to vigorously defend itself but
there is no certainty as to the outcome of these claims. The case is currently in an early evidentiary phase and it is stayed pending discussion
before the Superior Court of Justice regarding the production of evidence. Therefore, the case is not anticipated to be resolved in 2017.
ISDA Fix
The CFTC and other government agencies have requested information from the NEX Group in relation to the setting of the US dollar segment
of a benchmark known as ISDA Fix. ICAP plc’s successor firm, NEX, continues to co-operate with the agencies’ inquiries into the setting of that
rate. ICAP Capital Markets LLC (‘ICM’) was the collection agent for ISDA Fix panel bank submissions in US dollars, but was not a panel
member itself. It is not possible to predict the ultimate outcome of the CFTC investigation or to provide an estimate of any potential financial
impact. In September and October 2014, five class actions were filed alleging injury due to purported manipulation of the USD ISDA Fix rate.
ICM is a defendant in those actions, which have now been consolidated into a single action, along with several ISDA Fix panel banks.
Pursuant to the terms of the sale and purchase agreement between the Company and NEX it was agreed that ICM would transfer its activities
and business to the Company but that ICM would not be transferred to the Company’s ownership at completion. It was further agreed that in
the event of any claims or losses arising in relation to ISDA Fix, these would be for the account of NEX. It is not possible to predict the ultimate
outcome of the litigation or the CFTC’s enquiries or to provide an estimate of any potential financial impact. The Company and its Group
may nevertheless suffer financial loss either directly or as a consequence of damage to its reputation as a result of these matters.
Swaps civil litigation
In December 2016, ICAP SEF (US) LLC and ICAP Global Derivatives Limited were named in a class action alleging that they and certain
dealer banks colluded to prevent buy side customers from accessing all-to-all anonymous electronic trading platforms and therefore
prevented buy side customers from getting access to the best interest rate swap prices. The actions generally asserted claims of violation of
antitrust laws and unjust enrichment. Each of ICAP SEF (US) LLC and ICAP Global Derivatives Limited intend to defend these litigation claims
vigorously. It is not possible to predict the ultimate outcome of the litigation or to provide an estimate of any potential financial impact. The
Company expects that it will benefit from the warranty provisions of the sale and purchase agreement with NEX such that any outflow in
respect of the ICAP entities with regard to this litigation will be borne by NEX.
www.tpicap.com 132
Financial statements
33. Contingent liabilities continued
General note
From time to time the Company’s subsidiaries are engaged in litigation in relation to a variety of matters, and it is required to provide
information to regulators and other government agencies as part of informal and formal enquiries or market reviews. The Company’s
reputation may also be damaged by any involvement or the involvement of any of its employees or former employees in any regulatory
investigation and by any allegations or findings, even where the associated fine or penalty is not material.
In the normal course of business, certain of the Company’s subsidiaries enter into guarantees and indemnities to cover trading arrangements
and/or the use of third party services or software.
Save as outlined above in respect of legal matters or disputes for which a provision has not been made, notwithstanding the uncertainties
that are inherent in the outcome of such matters, there are no individual matters which are considered to pose a significant risk of material
adverse financial impact on the Company’s results or net assets.
The Group operates in a wide variety of jurisdictions around the world and uncertainties therefore exist with respect to the interpretation of
complex tax laws and practices of those territories. The Group establishes provisions for taxes other than current and deferred income taxes,
based upon various factors which are continually evaluated, if there is a present obligation as a result of past events, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the
obligation can be made.
34. Operating lease commitments
Minimum operating lease payments recognised in the income statement
2016
£m
18.1
2015
£m
14.7
At 31 December 2016 the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases,
which fall due as follows:
Within one year
Within two to five years
Over five years
2016
2015
Buildings
£m
Other
£m
Buildings
£m
25.7
78.7
106.7
211.1
1.0
0.5
–
1.5
13.8
41.3
37.8
92.9
Other
£m
0.8
0.3
–
1.1
35. Retirement benefits
(a) Defined benefit schemes
The Group has a defined benefit pension scheme in the UK and a small number of schemes operated in other countries. The overseas schemes
are not significant in the context of the Group.
Defined benefit scheme surplus – UK
Defined benefit schemes surplus – Overseas
Defined benefit schemes deficit – Overseas
2016
£m
99.9
0.1
100.0
(3.3)
2015
£m
88.2
–
88.2
–
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 133
35. Retirement benefits continued
(b) UK defined benefit scheme
The Group’s UK defined benefit pension scheme is the defined benefit section of the Tullett Prebon Pension Scheme (the ‘Scheme’).
The Scheme is a final salary, funded pension scheme that is closed to new members and future accrual. For members still in service there
is a continuing link between benefits and pensionable pay. The Principal Employer is Tullett Prebon Group Limited.
The assets of the Scheme are held separately from those of the Group, either in separate trustee administered funds or in contract-based
policies of insurance.
The latest funding actuarial valuation of the Scheme was carried out as at 30 April 2013 by independent qualified actuaries. A valuation
as at 30 April 2016 is currently in progress but has not been finalised as at the date of approval of these Financial Statements.
The Trustees of the Scheme are currently making arrangements for the transfer of the Scheme’s liabilities to a third party to take on
responsibility for the provision of benefits, removing the Company’s responsibility for supporting the Scheme financially. In 2016, as part
of the preparation for a transfer, the Trustees offered all deferred members an option, for a limited time, to benefit from a transfer of their
benefits to another provider. The offer resulted in approximately 63 members transferring a total of £29.1m in assets out of the Scheme.
A net gain of £3.6m arose as a result of this settlement, representing the difference between the £29.1m transferred out and the
corresponding liabilities, measured on an IAS 19 basis, at the date that the settlement became binding.
The amounts included in the balance sheet arising from the Group’s obligations in respect of the Scheme are as follows:
Fair value of Scheme assets
Present value of Scheme liabilities
Defined benefit scheme surplus
Deferred tax liability (Note 20)
2016
£m
317.0
(217.1)
99.9
2015
£m
289.8
(201.6)
88.2
(35.0)
(30.9)
The main financial assumptions used by the independent qualified actuaries of the Scheme to calculate the liabilities under IAS 19 were:
Key assumptions
Discount rate
Expected rate of salary increases
Rate of increase in LPI pensions in payment1
Inflation assumption
2016
%
2.50
4.75
2.40
2.40
2015
%
3.70
4.65
2.30
2.30
Note:
1 This applies to pensions accrued from 6 April 1997. The majority of current and future pensions receive fixed increases in payment of either 0% or 2.5%.
The mortality assumptions are based on standard mortality tables and allow for future mortality improvements and are the same as those
adopted for the 2013 funding valuation. Assumptions for the Scheme are that a member who retires in 15 years’ time at age 60 will live on
average for a further 31.5 years (2015: 31.4 years) after retirement if they are male and for a further 32.9 years (2015: 32.8 years) after
retirement if they are female. Current pensioners are assumed to have a generally shorter life expectancy based on their current age.
www.tpicap.com 134
Financial statements
35. Retirement benefits continued
The valuation of the Scheme liabilities is sensitive to changes in the assumptions used. The effect of changes in the discount rate, inflation and
mortality assumptions, assuming an independent change in one assumption with all others held constant, on the liabilities is shown below:
As at 31 December 2016
Following a 0.25% decrease in the discount rate
Following a 0.25% increase in the inflation assumption
Life expectancy increases by 3 years
Note:
The above analysis does not reflect any inter-relationship between the assumptions.
Scheme
assets
£m
317.0
Scheme
liabilities
£m
(217.1)
Surplus/
(deficit)
£m
99.9
0%
317.0
0%
317.0
0%
317.0
(6.0%)
(230.1)
(13.0%)
86.9
(2.7%)
(223.0)
(5.9%)
94.0
(7.0%)
(232.3)
(15.2%)
84.7
Change
New value
Change
New value
Change
New value
Changes to the risks inherent in the Scheme would result in changes to the Scheme’s carrying value. The most significant risks are: investment
performance – the liabilities are calculated using a discount rate set by reference to bond yields. If assets underperform this yield, this would
result in the carrying value of the Scheme reducing; changes in bond yields – a decrease in corporate bond yields will increase the value
placed on the Scheme’s liabilities; inflation risk – some of the Scheme’s liabilities are linked to inflation, and higher inflation would lead to
higher liabilities (mitigated by a cap on the level of inflationary increases which protects against extreme inflationary increases); and life
expectancy – the majority of the Scheme’s obligations are for the life of the member, so increases in life expectancy will result in an increase
in the liabilities.
The amounts recognised in the income statement in respect of the Scheme were as follows:
Deemed interest arising on the defined benefit pension scheme surplus
Scheme’s administrative expenses
Pension scheme settlement gain
2016
£m
3.2
(0.9)
3.6
Deemed interest arising on the defined benefit pension scheme surplus has been included within finance income (Note 8).
The amounts recognised in other comprehensive income in respect of the Scheme were as follows:
Return on Scheme assets (excluding deemed interest income) – Trustee administered funds
Return on Scheme assets (excluding deemed interest income) – revaluation of insurance policies
Actuarial losses arising on the revaluation of insurance policies
Actuarial losses arising from changes in financial assumptions
Actuarial losses arising from changes in demographic assumptions
Actuarial gains arising from experience adjustments
Remeasurement of the defined benefit pension scheme
2016
£m
50.0
0.6
(0.6)
(40.3)
(7.6)
3.7
5.8
2015
£m
2.3
(0.7)
–
2015
£m
29.8
–
–
(0.8)
(6.7)
2.2
24.5
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 135
35. Retirement benefits continued
(b) UK defined benefit scheme continued
Movements in the present value of the Scheme liabilities were as follows:
At 1 January
Deemed interest cost
Settlement gains
Actuarial losses on the revaluation of insurance policies
Actuarial losses arising from changes in financial assumptions
Actuarial losses arising from changes in demographic assumptions
Actuarial gains arising from experience adjustments
Benefits paid/transfers out
At 31 December
Movements in the fair value of the Scheme assets were as follows:
At 1 January
Deemed interest income
Return on Scheme assets (excluding deemed interest income) – Trustee administered funds
Return on Scheme assets (excluding deemed interest income) – revaluation of insurance policies
Benefits paid/transfers out
Administrative expense
At 31 December
The major categories and fair values of the Scheme assets as at 31 December were as follows:
Cash and cash equivalents
Equity instruments
– Consumer products
– Industrials
– Business services
Government bonds
Insurance policies
Other receivables
At 31 December
2016
£m
(201.6)
(6.8)
3.6
(0.6)
(40.3)
(7.6)
3.7
32.5
(217.1)
2016
£m
289.8
10.0
50.0
0.6
(32.5)
(0.9)
317.0
2016
£m
4.4
179.2
19.0
30.4
228.6
78.3
4.9
0.8
317.0
2015
£m
(193.6)
(7.1)
–
–
(0.8)
(6.7)
2.2
4.4
(201.6)
2015
£m
255.7
9.4
29.8
–
(4.4)
(0.7)
289.8
2015
£m
3.9
222.8
21.1
36.3
280.2
–
4.4
1.3
289.8
All equity instruments have quoted prices in active markets (Level 1). The Scheme does not hedge against foreign currency exposures or
interest rate risk. After the year end, as part of the arrangements for the transfer of the Scheme’s liabilities, the Trustees transferred all of the
Scheme’s equity investments into fixed income securities and bonds.
The Scheme duration is an indicator of the weighted average time until benefit payments are made. For the Scheme as a whole, the duration
is around 20 years reflecting the approximate split of the defined benefit liability between current employees (duration of 25 years), deferred
members (duration of 23 years) and current pensioners (duration of 13 years).
The estimated amounts of contributions expected to be paid into the Scheme during 2017 is £nil.
www.tpicap.com 136
Financial statements
35. Retirement benefits continued
(c) Defined contribution pensions
The Group operates a number of defined contribution schemes for qualifying employees. The assets of these schemes are held separately
from those of the Group.
The defined contribution pension cost for the Group charged to administrative expenses was £7.2m (2015: £7.1m), of which £2.6m
(2015: £2.0m) related to overseas schemes.
As at 31 December 2016, there was £0.1m outstanding in respect of the current reporting period that had not been paid over to the schemes
(2015: £0.6m).
36. 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 2016, which also represent the value of transactions during
the year, are set out below:
Associates
Joint ventures
Amounts owed by
related parties
Amounts owed to
related parties
2016
£m
3.2
0.5
2015
£m
0.7
–
2016
£m
(0.2)
(1.8)
2015
£m
–
–
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 56 to 77.
Short term benefits
Social security costs
2016
£m
5.0
0.7
5.7
2015
£m
3.8
0.5
4.3
TP ICAP Annual Report and Accounts 2016Notes to the Consolidated Financial Statementscontinuedfor the year ended 31 December 2016 Strategic report Governance report
Financial statements 137
37. Principal subsidiaries
At 31 December 2016, the following companies were the Group’s principal subsidiary undertakings. A full list of the Group’s undertakings,
the country of incorporation and the Group’s effective percentage of equity owned is set out in the listing on pages 144 to 152. All subsidiaries
are involved in broking or information sales activities and have either a 31 December or 31 March year end as identified below.
Country of
incorporation
and operation
Principal subsidiary undertakings
Issued ordinary
shares, all voting
Australia
Bermuda (operating in England) PVM Oil Associates Limited
Brazil
ICAP Brokers Pty Limited1
England
ICAP do Brasil Corretora de Títulos e Valores Mobiliários Ltda1
Tullett Prebon Brasil S.A.
ICAP Energy Limited1
ICAP Europe Limited1
ICAP Global Derivatives Limited1
ICAP Information Services Limited1
ICAP Management Services Limited1
ICAP Securities Limited1
ICAP WCLK Limited1
The Link Asset and Securities Company Limited1
Tullett Prebon (Europe) Limited
Tullett Prebon (Securities) Limited
PVM Oil Futures Limited
Guernsey (operating in England) Tullett Prebon Information Limited
Hong Kong
ICAP (Hong Kong) Limited1
ICAP Equities Asia Limited1
ICAP Securities Hong Kong Limited1
Tullett Prebon (Hong Kong) Limited
PT. Inti Tullett Prebon Indonesia
Tullett Prebon (Japan) Limited
ICAP AP (Singapore) Pte. Limited1
ICAP Management Services Private Limited1
Tullett Prebon Energy (Singapore) Pte. Ltd.
Tullett Prebon (Singapore) Limited
PVM Oil Associates Pte. Ltd.
Tullett Prebon (Dubai) Limited
ICAP Corporates LLC1
ICAP Energy LLC1
ICAP Information Services Inc.1
ICAP Securities USA LLC1
ICAP SEF (US) LLC1
Tullett Prebon Americas Corp.
Tullett Prebon Financial Services LLC
PVM Futures Inc
Tullett Prebon Information Inc
Indonesia
Japan
Singapore
UAE
United States
Note:
1 31 March year end.
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
57.52%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
As at 31 December 2016, £21.4m (2015: £1.7m) is due to non-controlling interests relating to those subsidiaries that are not wholly owned.
Movements in non-controlling interests are set out in Note 28(c). No individual non-controlling interest is material to the Group. There are
no significant restrictions on the ability of the Group to access or use assets and settle liabilities relating to these subsidiaries.
38. Events after the balance sheet date
In January 2017, the Group issued £500m unsecured Sterling Notes due January 2024. The Notes have a fixed coupon of 5.25% paid
semi-annually, subject to compliance with the terms of the Notes. Proceeds were used to repay the £470m bank loan.
www.tpicap.com 138
Financial statements
Company Balance sheet
as at 31 December 2016
Non-current assets
Investment in subsidiary undertakings
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Interest bearing loans and borrowings
Current tax liabilities
Net current (liabilities)/assets
Total assets less current liabilities
Non-current liabilities
Interest bearing loans and borrowings
Other long term payables
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium
Merger reserve
Own shares
Profit and loss account
Total equity
Notes
2016
£m
2015
£m
4
5
6
8
8
7
9
2,542.1
1,077.2
364.6
5.0
369.6
2,911.7
(28.9)
(467.3)
–
(496.2)
(126.6)
2,415.5
(79.5)
–
(79.5)
(575.7)
2,336.0
138.5
17.1
1,256.0
(6.3)
930.7
2,336.0
3.1
74.9
78.0
1,155.2
(18.4)
–
(1.8)
(20.2)
57.8
1,135.0
(79.3)
(6.4)
(85.7)
(105.9)
1,049.3
60.9
17.1
57.0
(0.1)
914.4
1,049.3
The Company reported a profit for the financial year ended 31 December 2016 of £36.3m (2015: £96.2m).
The Financial Statements of TP ICAP plc (registered number 5807599) were approved by the Board of Directors and authorised for issue on
14 March 2017 and are signed on its behalf by
John Phizackerley
Chief Executive
TP ICAP Annual Report and Accounts 2016 Statement of Changes in Equity
for the year ended 31 December 2016
Strategic report Governance report
Financial statements 139
2016
Balance at 1 January 2016
Profit and other comprehensive income for the year
Dividends paid
Own shares acquired for employee trusts
Issue of ordinary shares
Share issue costs
Credit arising on share-based awards
Balance at 31 December 2016
2015
Balance at 1 January 2015
Profit and other comprehensive income for the year
Dividends paid
Credit arising on share-based awards
Balance at 31 December 2015
Share
capital
£m
60.9
–
–
–
77.6
–
–
138.5
60.9
–
–
–
60.9
Share
premium
account
£m
17.1
–
–
–
–
–
–
17.1
17.1
–
–
–
17.1
Merger
reserve
£m
57.0
–
–
–
1,205.6
(6.6)
–
1,256.0
57.0
–
–
–
57.0
Own
shares
£m
Profit and
loss account
£m
Total
equity
£m
(0.1)
–
–
(6.2)
–
–
–
(6.3)
(0.1)
–
–
–
(0.1)
914.4
36.3
(40.7)
–
–
–
20.7
930.7
847.2
96.2
(41.0)
12.0
914.4
1,049.3
36.3
(40.7)
(6.2)
1,283.2
(6.6)
20.7
2,336.0
982.1
96.2
(41.0)
12.0
1,049.3
www.tpicap.com 140
Financial statements
Notes to the Financial Statements
for the year ended 31 December 2016
1. Basis of preparation
Following the publication of FRS 100 ‘Application of Financial Reporting Requirements’ by the Financial Reporting Council, the Company
adopted FRS 101 ‘Reduced Disclosure Framework’ as its accounting framework in 2015. No disclosures previously made in the Company’s
Financial Statements are omitted on the application of FRS 101.
The separate Financial Statements of the Company are presented as required by the Companies Act. They have been prepared under the
historical cost convention, except for the revaluation of certain financial instruments held at fair values at the end of each reporting period,
as explained in the accounting policies. and in accordance with applicable United Kingdom law and United Kingdom Generally Accepted
Accounting Practice. As discussed on page 80 of the Directors’ Report, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable future. Accordingly, the going concern basis continues to be used
in preparing these Financial Statements.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to
share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets,
presentation of a cash flow statement and certain related party transactions.
2. Significant accounting policies
The principal accounting policies adopted are the same as those set out in Note 3 to the Consolidated Financial Statements except
as noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
The Company has share-based payment arrangements involving employees of its subsidiaries. The cost of these arrangements is measured
by reference to the fair value of equity instruments on the date they are granted. Cost is recognised in ‘investment in subsidiary undertakings’
and credited to the ‘profit and loss account’ reserve on a straight-line basis over the vesting period. Where the cost is subsequently recharged
to the subsidiary, it is recognised as a reduction in ‘investment in subsidiary undertakings’.
The Company is the sponsor of the Tullett Prebon plc Employee Benefit Trust 2007 and applies the ’look-through’ approach to the Trust’s
assets, liabilities and results which are included as part of the Company.
3. Profit for the year
As permitted in section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the year.
The auditor’s remuneration for audit and other services is disclosed in Note 6 to the Consolidated Financial Statements. The Company has
no employees (2015: nil). information about individual Directors is provided in the audited part of the Report on Directors’ Remuneration on
pages 62 to 70.
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
141
4. Investment in subsidiary undertakings
Cost
At 1 January
Capital contribution arising on share-based awards
Increase in investment in subsidiary undertaking
Acquisition of subsidiary undertaking
At 31 December
2016
£m
2015
£m
1,077.2
20.7
161.0
1,283.2
2,542.1
1,040.8
12.0
24.4
–
1,077.2
On 30 December 2016, the Group issued 310.3m shares with a fair value of £1,283.2m to acquire 100% of the share capital of ICAP Global
Broking Holdings Limited (‘ICAP’). No further consideration is payable in respect of the acquisition.
Further information about subsidiaries, including disclosures about non-controlling interests, is provided in the ‘Group Undertakings’ section
of this Annual Report.
5. Trade and other receivables
Amounts owed by Group undertakings
Financial assets at FVTPL
Prepayments and accrued income
6. Trade and other payables
Accruals and deferred income
Amounts due to Group undertakings
Deferred consideration
7. Other long term payables
Deferred consideration
2016
£m
362.8
0.2
1.6
364.6
2016
£m
21.6
–
7.3
28.9
2016
£m
–
2015
£m
–
–
3.1
3.1
2015
£m
5.1
13.3
–
18.4
2015
£m
6.4
www.tpicap.com 142
Financial statements
Notes to the Financial Statements
for the year ended 31 December 2016
8. Interest bearing loans and borrowings
2016
Bank loan due December 2017
Sterling Notes June 2019
2015
Sterling Notes June 2019
Less than
one year
£m
Greater than
one year
£m
467.3
–
467.3
–
79.5
79.5
Total
£m
467.3
79.5
546.8
–
79.3
79.3
Sterling Notes: Due June 2019
In December 2012 £80m Sterling Notes, due June 2019, were issued. The Notes have a coupon of 5.25% paid semi-annually. At 31 December
2016 their fair value (Level 1) was £83.6m (2015: £81.7m). The Notes were guaranteed by a fellow Group undertaking, TP Holdings Limited,
whilst the Group’s Sterling Notes due July 2016 were outstanding.
Bank loan: Due December 2017
The Company entered a £470m committed bridge financing facility that could be extended to December 2017. Drawdown was conditional
on the completion of the ICAP acquisition. £470m was drawn in December 2016 with proceeds used to repay £140m outstanding on the
Company’s bank credit facility and £330m lent to ICAP to enable repayment of a loan acquired with the ICAP acquisition. Facility fees of
£3.3m were incurred in 2016, based on fees of 0.4%, increasing over time to 0.83%, on the undrawn balance. Interest is payable on amounts
drawn based on libor plus a variable margin. Arrangement fees are amortised over the facility life. The carrying amount of the bank loan
approximates to its fair value.
Bank credit facility
The Company has a £250m committed revolving credit facility, the maturity of which has been extended by a year to April 2019. During the
year, £140m was drawn and invested in a fellow Group undertaking to enable it to repay its Sterling Notes that matured in July 2016. The
amount drawn by the Company was repaid from the proceeds of the bank loan. The facility was undrawn at the end of the year. Facility fees
of 1% are payable on the undrawn balance. Arrangement fees are amortised over the maturity of the facility.
Sterling Notes: Due January 2024
In January 2017, the Company issued £500m unsecured Sterling Notes due January 2024. The Notes have a fixed coupon of 5.25% paid semi-
annually, subject to compliance with the terms of the Notes. Proceeds were used to repay the £470m bank loan.
9. Share capital
Allotted, issued and fully paid
Ordinary shares of 25p
2016
No.
2015
No.
554,132,671
243,516,227
The movement in the number of shares during the year is shown in Note 27 to the Consolidated Financial Statements.
Allotted, issued and fully paid
Ordinary shares of 25p
2016
£m
138.5
2015
£m
60.9
310,314,296 ordinary shares were issued on 30 December 2016 with a fair value of £1,283.2m in connection with the acquisition of ICAP. On
27 September 2016, 302,148 ordinary shares were issued to the Tullett Prebon plc Employee Benefit Trust 2007 that were used to satisfy share
option exercises.
Descriptions of the merger reserve and own shares, together with the movements in those reserves, are disclosed in Note 28 to the
Consolidated Financial Statements.
TP ICAP Annual Report and Accounts 2016 Shareholder Information
Strategic report Governance report
Financial statements 143
Financial calendar for 2017
11 May at 12.15pm
Annual General Meeting
Dividend mandate
Shareholders who wish their dividends to be paid directly into a bank or building society account should contact Capita Asset Services
for a dividend mandate form. This method of payment removes the risk of delay or loss of dividend cheques in the post and ensures that
shareholders’ accounts are credited on the dividend payment date.
Dividend Reinvestment Plan (‘DRIP’) – The Company offers a DRIP, for further information contact Capita Asset Services.
Shareholder information on the internet
The Company maintains an investor relations page on its website, www.tpicap.com, which allows access to share price information,
Directors’ biographies, copies of Company reports, selected press releases and other useful investor information.
Share certificates
Share certificates in TP ICAP plc were issued on 12 January 2017 to new shareholders and to replace all existing share certificates in
Tullett Prebon plc, which are now deemed to be cancelled.
Registered office
TP ICAP plc
Tower 42, Level 37
25 Old Broad Street
London EC2N 1HQ
United Kingdom
Tel: +44 (0)20 7200 7000
Website: www.tpicap.com
All administrative enquiries relating to shareholdings should be directed to Capita Asset Services.
Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel: 0871 664 0300*
From overseas: +44 (0) 371 64 0300
Email: shareholderenquiries@capita.co.uk
* Calls cost 12p per minute plus your phone company’s access charge. From overseas +44 (0) 371 664 0300 calls outside the United Kingdom
will be charged at the applicable international rate. We are open 9.00am – 5.30pm, Monday to Friday excluding public holidays
in England and Wales.
To access and maintain your shareholding online: www.capitashareportal.com
Auditor
Deloitte LLP
Chartered Accountants and Statutory Auditor
Hill House
1 Little New Street
London EC4A 3TR
United Kingdom
www.deloitte.com
TP ICAP plc is a company incorporated and registered in England and Wales with number 5807599
www.tpicap.com 144
Financial statements
Group undertakings
In accordance with section 409 of the Companies Act 2006, a full list of related undertakings, the country of incorporation and the effective
percentage of equity owned, as at 31 December 2016 are listed below. Unless otherwise stated the undertakings below are wholly owned
and the share capital disclosed comprises ordinary shares or common stock (or the local equivlant thereof) which are indirectly held by
TP ICAP plc.
Company name/Address
Country of incorporation
Interest Note
50.1%
70%
85%
49%
Suite 304, L.G. Smith Boulevard 62, Oranjestad Oost, Aruba
Fulton Prebon Holdings N.V.
Level 27, 9 Castlereagh Street, Sydney, New South Wales, 2000, Australia
ICAP Australia Pty Ltd
ICAP Brokers Pty Limited
ICAP Europe Limited, Australia Branch
ICAP Futures (Australia) Pty Ltd
iSwap AUD NZD Pty. Ltd.
Level 36, 60 Margaret Street, Sydney NSW 2000, Australia
Tullett Prebon (Australia) Pty Ltd
Euro Plaza - Building G, Am Euro Platz 2 , 1120 Vienna, Austria
PVM Data Services GmbH
P.O. Box 5482, Manama Centre, 104/105 Government Road, Manama 316, Bahrain
Marshalls (Bahrain) W.L.L.
PO Box 20526, Flat No.31, Building 104, Manama Centre, Entrance 4, 3rd Floor,
Govt Avenue 383, Manama 316, Bahrain
Tullett Liberty (Bahrain) Co. W.L.L.
PO Box 5488, 43rd Floor, 4301, West Tower, Bahrain Financial Harbour, Bahrain
ICAP (Middle East) W.L.L.
Cumberland House, 9th Floor, 1 Victoria Street, Hamilton, HM11, Bermuda
PVM Oil Associates Ltd
4, parte, Avenida Pedroso de Moraes, 1201, 2nd Floor, Pinheiros, Sao Paulo, 05419-001, Brazil
Tullett Prebon Brasil S.A.
Tullett Prebon Holdings Do Brasil Ltda.
Av. das Américas, 3.500, 2º andar, salas 201-205, 219 e 220, Ed. Londres, Barra da Tijuca,
Rio de Janeiro, Brazil
ICAP do Brasil Corretora de Títulos e Valores Mobiliários Ltda
ICAP do Brasil Participações Ltda
Aruba
Australia
Australia
Operating in Australia
Australia
Australia
Australia
Austria
Bahrain
Bahrain
Bahrain
Bermuda
Brazil
Brazil
Brazil
Brazil
P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands
Catrex Limited
British Virgin Islands
Portcullis (BVI) Ltd, Portcullis Chambers, PO Box 3444, Road Town, Tortola,
British Virgin Islands
Vantage Capital Holdings Limited
British Virgin Islands
1 Toronto Street, Suite 301, PO Box 20, Toronto, Ontario, M5C 2V6, Canada
Tullett Prebon Americas Corp., Toronto Branch
Operating in Canada
Tullett Prebon Canada Limited
Prebon Technology Services (Canada) Limited
Canada
Canada
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 145
Company name/Address
Country of incorporation
Interest Note
100 King Street West, Suite 6600 1 First Canadian Place, Toronto, ON, M5X1B8, Canada
ICAP Capital Markets (Canada) Inc.
400 3rd Avenue SW, Suite 3700, Calgary, AB T2P 4H2, Canada
PVM Oil Associates Canada Ltd
Avenida Andres Bello 2711, Piso 8, Santiago, Chile
SIF ICAP Chile Holdings Ltda
SIF ICAP Chile SpA
9th Floor, Room 1001, DBS Tower, No.1318, Lujiazui Ring Road, Shanghai, 200120, China
Tullett Prebon SITICO (China) Limited
Unit 2547, 25/F One Prime, 1361 North Sichuan Road, Hongkou District, Shanghai, China
ICAP Shipping (Shanghai) Co,. Ltd.
Canada
Canada
Chile
Chile
China
China
9th Floor, Room 1002, DBS Tower, No.1318, Lujiazui Ring Road, Shanghai, 200120, China
Prebon Yamane International Limited, Shanghai Representative Office
Operating in China
Carrera 11 No. 93-46 - 403 Office, Bogotá, Colombia
SET-ICAP Securities S.A.
Carrera 13 No. 97-76 - Office 501, Bogota, Colombia
ICAP Colombia Holdings S.A.S.
Carrera 7, No. 71-21 Torre B Of, Bogotá, Colombia
SET-ICAP FX S.A.
Rentemestervej 14, Copenhagen NV, DK-2400, Denmark
ICAP Scandinavia Fondsmæglerselskab A/S
Eloy Alfaro 2515 y Catalina Aldáz, Quito, Ecuador
ICAP del Ecuador S.A.
89/91 rue de faubourg, Saint Honore, 75008 Paris, France
Colombia
Colombia
Colombia
Denmark
Ecuador
2
50%
30%
33%
18
47.4%
94.2%
47.9%
Tullett Prebon (Europe) Limited, Paris Branch
Operating in France
Bleidenstraße 6-10, 60311 Frankfurt am Main, Germany
Tullett Liberty GmbH
Tullett Prebon (Securities) Limited, Frankfurt Branch
Tullett Securities GmbH Deutschland
Stephanstrasse 14-16, 60313 Frankfurt am Main, Germany
Astley & Pearce Deutschland GmbH
ICAP Deutschland GmbH
ICAP Ltd. & Co. oHG
1
1
Germany
Operating in Germany
Germany
Germany
Germany
Germany
ICAP Securities Limited, Frankfurt Branch
Operating in Germany
Stephanstrasse 3, 60313 Frankfurt am Main, Germany
Intermoney AP & Co. Geld-und Eurodepotmakler OHG
Germany
75%
2
Suite 1, Burns House, 19 Town Range, Gibraltar
ICAP US Holdings No 1 Limited
ICAP US Holdings No 2 Limited
Regency Court Glategny Esplanade St Peter Port, GY1 1WW, Guernsey
Tullett Prebon Information Limited
Gibraltar
Gibraltar
Guernsey
www.tpicap.com 146
Financial statements
Group undertakings
continued
Company name/Address
Country of incorporation
Interest Note
29th Floor, The Center, 99 Queen’s Road, Central, Hong Kong
ICAP Securities Hong Kong Limited
ICAP (Hong Kong) Limited
ICAP Equities Asia Limited
ICAP Management Services Hong Kong Limited
Suite 1001, 10/F CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong
M.W. Marshall (Hong Kong) Limited
Marshalls (London) Investment Limited
Tullett Prebon (Hong Kong) Limited
Tullett Prebon Asia Group Limited
4th Floor, Kalpataru Heritage, 127 M. G. Road, Fort Mumbai 400 001, India
Prebon Yamane (India) Limited
Office No. 6, 3rd Floor, C Wing, Laxmi Towers, Bandra Kurla Complex, Bandra (E),
Mumbai, 400051, Maharashtra, India
ICAP IL India Private Limited
ICAP Institutional Stock Exchange of India Limited
Menara Dea Tower II 12th Floor, Kawasan Mega Kuningan, Jl. Mega Kuningan Barat Kav.
E4.3, Jakarta 12950, Indonesia
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
India
India
India
16
48%
12
40%
38%
PT ICAP Indonesia
Indonesia
85%
Wisma 46, Kota BNI, 9th Floor, JL Jendral Sudirman Kav.1, Jakarta, 10220, Indonesia
P.T. Inti Tullett Prebon Indonesia
Indonesia
57.52%
4-10 Nihonbashi-Muromachi, 4-chome, Chuo-ku, Tokyo, 103-0022, Japan
Central Totan Securities Co. Ltd
ICAP Totan Securities Co., Ltd.
7th Floor, Totan Muromachi Building, 4-4-10 Nihonbashi Muromachi, Chuo-ku,
Tokyo, 103-0022, Japan
Totan ICAP Co., Ltd.
Akasaka Tameike Tower 4th Floor, 2-17-7 Akasaka Minato-ku, Tokyo 107-0052, Japan
tpSEF Inc., Tokyo Branch
Prebon Limited, Tokyo Branch
Tullett Prebon (Europe) Limited, Tokyo Branch
Tullett Prebon (Japan) Limited
Tullett Prebon ETP (Japan) Ltd
Equity Trust House 28-30 The Parade St Helier, JE1 1EQ, Jersey
M.W. Marshall (Overseas) Limited (Jersey)
Prebon Marshall Yamane (C.I.) Limited
20%
60%
40%
Japan
Japan
Japan
Operating in Japan
Operating in Japan
Operating in Japan
Japan
Japan
Jersey
Jersey
11th Floor, Seoul YWCA Bldg, 1-1, Myung-dong 1-ga, Jung Gu, Korea, Republic of
ICAP Foreign Exchange Brokerage Limited
Korea, Republic of
6th Floor, Samsung Fire & Marine Insurance Building, 29 Euljiro, Joong-gu, Seoul, Korea
Tullett Prebon Money Brokerage (Korea) Limited
Korea, Republic of
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 147
Company name/Address
Country of incorporation
Interest Note
17 Boulevard du Prince Henri, L-1724 Luxembourg, Luxembourg
ICAP Luxembourg Holdings (No. 1) S.A.R.L
ICAP Luxembourg Holdings (No. 2) S.A.R.L
Luxembourg
Luxembourg
ICAP US Holdings No 2 Limited, Luxembourg Branch
Operating in Luxembourg
2, Rue Henri Schnadt, L-2530 Luxembourg
Tullett Prebon (Europe) Limited, Luxembourg Branch
Operating in Luxembourg
802, 8th Floor, Block C, Kelana Square, 17 Jalan SS7/26, 47301 Petaling Jaya,
Selangor Darul Ehsan, Malaysia
Amanah Butler Malaysia Sdn Bhd
Malaysia
32.1%
Level 14 Chulan Tower, No. 3, Jalan Conlay, Kuala Lumpur, Wilayah Persekutuan,
50450, Malaysia
KAF-Astley & Pearce Sdn. Bhd.
Malaysia
40%
Av. de Vasco de Quiroga 1900, Piso 4, Oficina 403, Colonia Centro Ciudad Santa Fe,
Delegación Álvaro Obregón, C.P. 01210, México, Distrito Federal
Tullett Prebon Mexico SA de C.V.
Paseo de la Reforma No 255, Piso 7, Colonia Cuauhtemoc, 06500 D F Mexico, Mexico
ICAP Bio Organic S. de RL de C.V.
Plataforma Mexicana de Carbono S. de R.L. de C.V.
SIF Agro S.A. de C.V.
SIF ICAP Derivados, S.A. de C.V.
SIF ICAP Servicios, S.A. de C.V.
SIF ICAP, S.A. de C.V.
Coengebouw - Suite 8.02, Kabelweg 37, Amsterdam, 1014 BA, Netherlands
Astley & Pearce (International) B.V.
Astley & Pearce B.V.
Astley & Pearce Investments B.V.
BGU Brokers Europe B.V.
ICAP Holdings (Nederland) B.V.
ICAP Investments (Nederland) B.V.
ICAP Latin American Holdings B.V.
ICAP Securities (No. 1) B.V.
ICAP Securities (No. 2) B.V.
Teleport Towers, 7th Floor, 7th Floor Kingsfordweg 151, Amsterdam, 1043 GR, Netherlands
ICAP Energy AS, Netherlands Branch
Telestone 8 - Teleport, Naritaweg 165, 1043 BW, Amsterdam, Netherlands
Prebon Holdings B.V.
Level 12, 36 Customhouse Quay, Wellington, 6000, New Zealand
Harlow Butler (NZ) Limited
ICAP New Zealand Limited
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Operating in
The Netherlands
Netherlands
New Zealand
New Zealand
25%
50%
50%
50%
50%
50%
2
2
13
14
15
1
1, 19
www.tpicap.com 148
Financial statements
Group undertakings
continued
Company name/Address
Country of incorporation
Interest Note
Plot 1679, 4th Floor, African Re-Insurance Building, Karimu Kotun Street, Victoria Island,
Lagos State, Nigeria
ICAP African Brokers Limited
Storetveitvegen 96, 5072 Bergen, Norway
ICAP Energy AS
Pasaje Acuña 106 - Lima, Peru
Datos Técnicos, S.A.
Nigeria
66.3%
Norway
Peru
25%
14th Floor, RCBC Savings Bank Corporate Centre, 26th and 25th Streets, Bonifacio South,
Bonifacio Global City, Taguig City, 1634, Philippines
ICAP Philippines Inc.
Philippines
99.9% 9
ICAP Management Services Limited, Philippine Branch
Operating in Philippines
25th Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City, Philippines
Tullett Prebon (Philippines) Inc.
al Jerozolimskie 65/79, 00-697 Warsaw, Poland
Tullett Prebon (Polska) S.A.
1 Kim Seng Promenade, #11-05, Great World City, 237994, Singapore
PVM Oil Associates Pte. Ltd
PVM Oil Futures Pte. Ltd
10 Marina Boulevard, #21-01, Marina Bay Financial Centre, Singapore, 018983, Singapore
ICAP AP (Singapore) Pte. Limited
ICAP Currency Options Pte. Ltd.
ICAP Financial Products Pte. Ltd.
Noranda Investments Pte Ltd
50 Raffles Place, #39-00, Singapore Land Tower, 048623, Singapore
Prebon (Singapore) Holdings Ltd
Prebon Technology Services (Singapore) Pte. Ltd.
Tullett Prebon (Singapore) Limited
Tullett Prebon Energy (Singapore) Pte. Ltd.
8 Marina Boulevard, #05-02, Marina Bay Financial Centre, 018981, Singapore
ICAP Energy Limited, Singapore Branch
ICAP Energy Pte. Ltd.
ICAP Management Services Private Limited
19 Impala Road, Block A GF, Chislehurston, Sandton, 2196, South Africa
Garban South Africa (Pty) Limited
ICAP Broking Services South Africa (Pty) Ltd
ICAP Holdings South Africa (Pty) Limited
ICAP Securities South Africa (Proprietary) Limited
2nd Floor, West Tower, Nelson Mandela Square, Maude Street, Sandton, 2196, South Africa
Tullett Prebon South Africa (Pty) Limited
Avenida de la Vega 1,Edificio, Planta 3, Office 15, Madrid, 28108 Alconedas, Spain
Philippines
51%
Poland
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Operating in Singapore
Singapore
Singapore
South Africa
South Africa
South Africa
South Africa
South Africa
66.3%
66.3%
66.3%
66.3%
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements 149
Company name/Address
ICAP Energy AS, Spain Branch
Country of incorporation
Interest Note
Operating in Spain
Torre Europa, Paseo de la Castellana 95, planta 10, 28046 Madrid, Spain
Tullett Prebon (Europe) Limited, Spanish Branch
Operating in Spain
Torre Picasso, Pza Pablo Ruiz Picasso, s/n-Plantas 22 y 23, 28020 Madrid, Spain
Corretaje e Informacion Monetaria y de Divisas SA
Spain
21.5% 4
rue des Battoirs 7, c/o PKF Geneva SA, 1205 Geneve, Switzerland
ICAP Energy Suisse S.A.
Switzerland
route de Pré-Bois 29, World Trade Center II, 1215 Genève 15 cases, Switzerland
Tullett Prebon (Securities) Limited, Geneva Branch
Operating in Switzerland
Zürcherstrasse 66, 8800 Thalwil, Switzerland
Cosmorex AG
No. 55 Wave Place Building, 13th Floor, Wireless Road, Khwaeng Lumpini,
Khet Putumwan, Bangkok, 10330, Thailand
ICAP Securities Co., Ltd.
ICAP-AP (Thailand) Co., Ltd.
Nextgen Holding Co., Ltd.
Wall Street Tower Building, 13th Floor 33-64 Surawong Road, Bangrak,
Bangkok 10500, Thailand
Wall Street Tullett Prebon Limited
Wall Street Tullett Prebon Securities Limited
117 Jermyn Street, London, SW1Y 6HH, England
P V M Oil Consultants Limited
P V M Oil Futures Limited
PVM Smart Learning Limited
PVM Oil Associates Ltd, UK Branch
3 Field Court, Gray’s Inn, London, WC1R 5EF, England
Tullett Liberty (Number 2) Limited
ISIS Building, Marsh Wall, London, E14 9SG, England
Automated Confirmation Service Limited
KPMG LLP, 15 Canada Square, Canary Wharf, London, E14 5GL, England
ICAP IEB Z Limited
MKI Securities International, Limited
Garban Broking Holdings (Europe) Limited
Tower 42, Level 37, 25 Old Broad Street, London, EC2N 1HQ, England
Altex-ATS Limited
Cleverpride Limited
Exco Bierbaum AP Limited
Exco International Limited
Exco Nominees Limited
Exco Overseas Limited
99.96% 8
18
49%
49%
50%
1
75.75%
1, 3, 4, 19
1, 19
1, 3, 4
Switzerland
Thailand
Thailand
Thailand
Thailand
Thailand
UK
UK
UK
Operating in UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
www.tpicap.com 150
Financial statements
Group undertakings
continued
Company name/Address
Fulton Prebon Group Limited
Gains International Infocom Holdings B.V.
Garban Group Holdings Limited
Garban International
Garban-Intercapital (2001) Limited
Garban-Intercapital US Investments (Holdings) Limited
Garban-Intercapital US Investments (No 1) Limited
Harlow (London) Limited
ICAP America Investments Limited
ICAP Corporates LLC, UK Branch
ICAP Energy Limited
ICAP Europe Limited
ICAP Global Broking Finance Limited
ICAP Global Broking Holdings Limited
ICAP Global Broking Investments
ICAP Global Derivatives Limited
ICAP Holdings (Asia Pacific) Limited
ICAP Holdings (EMEA) Limited
ICAP Holdings (Latin America) Limited
ICAP Holdings (UK) Limited
ICAP Holdings Limited
ICAP Information Services Limited
ICAP Management Services Limited
ICAP Securities Limited
ICAP Securities USA LLC, UK Branch
ICAP UK Investments No. 1
ICAP UK Investments No. 2
ICAP US Holdings No 1 Limited, UK Branch
ICAP US Holdings No 2 Limited, UK Branch
ICAP WCLK Limited
iSwap Euro Limited
iSwap Limited
M.W. Marshall (U.K.) Limited
M.W. Marshall Nominees Limited
Patshare Limited
Prebon Group Limited
Prebon Limited
Prebon Yamane International Limited
Swardgreen Limited
Country of incorporation
Interest Note
UK
Operating in UK
UK
UK
UK
UK
UK
UK
UK
Operating in UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Operating in UK
UK
UK
Operating in UK
Operating in UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
1
5
50.1%
50.1% 10
1
3
50%
99.92%
TP ICAP Annual Report and Accounts 2016 Strategic report Governance report
Financial statements
151
Company name/Address
Country of incorporation
Interest Note
The Link Asset and Securities Company Limited
TP Holdings Limited
tpSynrex Ltd
Tullett Liberty (European Holdings) Limited
Tullett Liberty (Futures Holdings) Limited
Tullett Liberty (Power) Limited
Tullett Liberty (Securities Holdings) Limited
Tullett Liberty B.V.
Tullett Liberty Brokerage Services (UK) Limited
Tullett Prebon (Equities) Limited
Tullett Prebon (Europe) Limited
Tullett Prebon (No. 1)
Tullett Prebon (No. 3) Limited
Tullett Prebon (Oil) Limited
Tullett Prebon (Securities) Limited
Tullett Prebon (UK) Limited
Tullett Prebon Administration Limited
Tullett Prebon Group Holdings plc
Tullett Prebon Group Limited
Tullett Prebon Information Limited
Tullett Prebon Investment Holdings Limited
Tullett Prebon Latin America Holdings Limited
Gate Village 1, Level 1, Suite 107/108, PO Box 506787, DIFC, Dubai, UAE
50%
UK
UK
UK
UK
UK
UK
UK
Operating in UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Tullett Prebon (Dubai) Limited
United Arab Emirates
101 Hudson Street, Jersey City, New Jersey, 07302, United States
PVM Energy LLC
1209, Orange Street, Wilmington, Delaware, 19801, United States
Exco Noonan Pension LLC
First Brokers Securities LLC
ICAP Broking Holdings North America LLC
ICAP Corporates LLC
ICAP Futures Holdings Inc
ICAP Global Broking Inc.
ICAP Information Services Inc
ICAP Media LLC
ICAP North America Inc.
ICAP Securities USA LLC
ICAP SEF (US) LLC
ICAP Services North America LLC
US
US
US
US
US
US
US
US
US
US
US
US
US
5, 17
6
11
6
6
6
6
6
40%
www.tpicap.com 152
Financial statements
Group undertakings
continued
Company name/Address
ICAP Spot USA LLC
ICAP United Inc.
ICAP US Financial Services LLC
iSwap US Inc
Linkbrokers Derivatives LLC
Pronous Asset Management LLC
PVM Oil Associates Inc
Wrightson ICAP LLC
EnergyCurves LLC
2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808, United States
Prebon Financial Products Inc.
tpSEF Inc.
Tullett Prebon (Americas) Holdings Inc.
Tullett Prebon Americas Corp.
Tullett Prebon Financial Services LLC
Tullett Prebon Information Inc
47 Water Street, Norwalk, Connecticut, 06854, United States
MOAB Oil Inc.
80 State Street, Albany, New York 11207-2573, United States
M.W. Marshall Inc.
820 Bear Tavern Road, West Trenton, New Jersey, 08628, United States
PVM Futures Inc
9931 Corporate Campus Drive, Suite 2400, Louisville, Kentucky, 40223, United States
ICAP Energy LLC
CT Corporation, 111 Eighth Avenue, New York, 10011, United States
ICAP Merger Company LLC
In liquidation as at 31 December 2016
Notes:
1
2 Partnership interest
3 A ordinary shares
4 B ordinary shares
5 Directly held
6 Membership interest
7 Class A common shares, class B common shares and series B preferred shares
8 Class B ordinary
9 A ordinary shares (99.9%)
10 B ordinary and A2 shares
11 Class B units
12 Non-cumulative non-convertible redeemable preference shares (100%) and ordinary shares (40%)
13 Series I ordinary shares and series II ordinary shares
14 Series IB shares
15 Class I Shares and Class II Shares
16 Ordinary shares & Redeemable Preference shares
17 Ordinary and deferred shares
18 Group A & B ordinary shares
19 Dissolved after 31 December 2016
Country of incorporation
Interest Note
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
50.1%
70%
50%
6
7
6
6
6
TP ICAP Annual Report and Accounts 2016 Glossary
Act
The Companies Act 2006
AGM
Annual General Meeting
APAC
Asia Pacific
Acquisition
The acquisition of ICAP’s Global Broking
and Information Business
AQR
Annual Quality Reward
Board
The Board of Directors of TP ICAP plc
BRC
Board Risk Committee
CCP
Central counter party house clearing
CAGR
Compound Annual Growth Rate
CAPM
Capital Asset Pricing Model
CDS
Credit Default Swaps
CME
Chicago Mercantile Exchange
CFS
Consolidated Financial Statements
CGU
Cash Generating Unit
CNH
Renminbi
Code
The UK Corporate Governance Code
COO
Chief Operating Officer
Company
TP ICAP plc
CRD IV
Capital Requirements Directive
CREST
Certificateless Registry for Electronic
Share Transfer
Deloitte
Deloitte LLP
DRIP
Dividend Reinvestment Plan
EBITDA
Earnings before interest, tax, depreciation
and amortisation
EMEA
Europe, Middle East and Africa
EPS
Earnings per Share
ERMF
Enterprise Risk Management Framework
EU
European Union
FCA
Financial Conduct Authority
FX
Foreign Exchange Currency
FRC
Financial Reporting Council
GEC
Global Executive Committee of TP ICAP plc
GERC
Group Executive Risk Committee
Group
TP ICAP plc and all of its subsidiaries
HKD
Hong Kong Dollar
HK $
Hong Kong dollar
HMRC
Her Majesty’s Revenue & Customs
HR
Human Resources
IAS
International Accounting Standards
ICAP
ICAP Global Broking and Information
Business, acquired by TP ICAP plc on 30
December 2016
IFRS
International Financial Reporting Standard
IGBB
ICAP Global Broking Business
ISDA
International Swaps and
Derivatives Association
KPI
Key Performance Indicator
LTIS
Long Term Incentive Scheme
LTIP
Long Term Incentive Plan
MI
Management Information
MiFID II
Markets in Financial Instruments Directive
MOAB
Moab Oil Inc.
MTF
Multilateral Trading Facility
NEX
Nex Group plc
NRV
Net Realisable Value
OTC
Over the Counter
OTF
Organised Trading Facility
Pillar 1
Minimum capital requirements under CRD IV
Pillar 3
Disclosure requirements under CRD IV
PBT
Profit before Tax
PVM
PVM Oil Associates Ltd and its subsidiaries
RCSA
Risk and Control Self Assessment
RCF
Revolving Credit Facility
RMS
Risk Management Services
ROE
Return on Equity
SEF
Swap Execution Facility
SPA
Sale and Purchase Agreement
TP ICAP plc
Changed its name from Tullett Prebon plc
on 28 December 2016
TSR
Total Shareholder Return
TPI
Tullett Prebon Information
Tullett Prebon PLC
Changed its name to TP ICAP plc on
28 December 2016
UK
United Kingdom
USD/US$
US Dollars
US/USA
United States of America
VAT
Value Added Tax
VIU
Value in use
Consultancy, design and production by luminous.co.uk
TP ICAP plc
Tower 42, Level 37
25 Old Broad Street
London
United Kingdom
EC2N 1HQ
www.tpicap.com
T
P
I
C
A
P
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
6