Annual Report • Mar 31, 2015
Annual Report
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ICAP plc Annual Report for the year ended 31 March 2015
ICAP is a markets, technology and risk solutions business.
We are here to help improve markets for the long term. Our strategic purpose is to shape, enable and operate dynamic, efficient and safer financial markets for the benefit of our customers and their customers.
To achieve that goal we have built capabilities and services across the trade life cycle, delivered by specialist people and platforms.
We create value for customers through the quality of our services and the way we engage: partnering with the market to develop innovative, critical solutions that become industry standards.
We continue to deliver this promise and strengthen our reputation as trusted partners because ICAP people demonstrate excellence and drive.
| Inside this report | |
|---|---|
| Strategic report | |
| Our divisions | 02 |
| What we do | 04 |
| Market landscape | 06 |
| Group CEO's review | 08 |
| ICAP's business model | 13 |
| Strategy and performance | 14 |
| Strategy in action | 16 |
| Charity Day | 21 |
| Key performance indicators | 22 |
| Risk management | 24 |
| Resources, relationships and responsibilities | 31 |
| Results for 2014/15 | 35 |
| Governance and directors' report | |
| Chairman's statement | 48 |
| Directors' biographies | 50 |
| Corporate governance statement | 52 |
| Global Executive Management Group | 68 |
| Other statutory information | 69 |
| Remuneration report | 72 |
| Independent auditors' report | 91 |
| Financial statements | |
| Consolidated income statement | 96 |
| Consolidated statement of comprehensive income | 98 |
| Consolidated and Company balance sheet | 99 |
| Consolidated statement of changes in equity | 100 |
| Company statement of changes in equity | 101 |
| Consolidated and Company statement of cash flow | 102 |
| Basis of preparation | 103 |
| Index to the notes to the financial statements | 106 |
| Notes to the financial statements | 107 |
ICAP plc is incorporated as a public limited company and is registered in England and Wales with the registered number 3611426. ICAP plc's registered office is 2 Broadgate, London EC2M 7UR. The directors present the Annual Report for the year ended 31 March 2015. References to 'ICAP', the 'Group', the 'Company', 'we', or 'our' are to ICAP plc or to ICAP plc and its subsidiary companies where appropriate. Pages 02 to 90, inclusive, of this Annual Report comprise the strategic report, governance and directors' report and the remuneration report that has been drawn up and presented in accordance with English company law and the liabilities of the directors in connection with that report shall be subject to the limitations and restrictions provided by such law.
Our geographic reach We operate in all the world's major financial centres – with offices in 32 countries and more than 60 locations
60+
locations
32
countries
ICAP facilitates the efficient flow of capital, investment and risk safely through the financial system and supports government and corporate borrowing. We play an important role in contributing to the stability of the financial markets.
Efficient financial markets are vital to global and national economies. As a leading markets operator ICAP provides a wide variety of electronic execution, risk mitigation, messaging, broking and information services for wholesale market participants throughout the trade life cycle.
Markets that are more liquid and have a high degree of consistent buying and selling interest are most efficiently traded on electronic platforms. Automated platforms allow users to execute large volumes of deals quickly, easily and with greater certainty. We operate a number of electronic platforms in a range of asset classes and instruments. The largest of these are EBS Market and EBS Direct for spot FX currencies, NDFs and precious metals, and the BrokerTec platform for US and European government debt and US and EU repo. In addition, we also operate a number of other platforms including MyTreasury, a leading money markets platform for corporates, and i-Swap, our global electronic trading platform for IRS.
Market participants can use ICAP's voice and hybrid broking services to assess trading availability and successfully execute trades. Our brokers draw on market expertise and our suite of pre trade price discovery screens to identify potential trading interest, and in so doing create transparency, liquidity and facilitate the price discovery process. This is particularly important in markets where there is a wide range of potential transaction types and the number of parties willing to enter into certain transactions at any moment may be limited. We offer broking services for a wide range of asset classes including rates, FX, commodities, emerging markets, credit and equities. For each of these asset classes, ICAP has electronic capability which gives customers the choice to enter prices and execute trades electronically, directly via one of ICAP's electronic trading systems, and/or to engage with a broker to identify and help negotiate trades. Customers range from banks in our fixed income products to end-user corporates.
Read more p41
Our PTRI services help wholesale financial participants to reduce operational and systemwide risks. This increases the efficiency of trading, clearing and settlement and lowers costs. Our information business empowers customers to make trading decisions with market information across key asset classes. The Post Trade Risk and information division comprises:
More than 1,000 institutions use our post trade risk services.
| Group | 252 |
|---|---|
| Global Broking | 62 |
| Post Trade Risk and Information 97 | |
| Electronic Markets | 93 |
| £m |
* before acquisition and disposal costs and exceptional items
Pre trade transparency is essential in helping market participants make more informed trading decisions and assess market levels and activity prior to the execution of a trade.
Managing risk through the life cycle of a trade is crucial. EBS Liquidity Optimization addresses the entire FX workflow, providing customers with the tools needed to price end-client business more effectively and maximise the value they retain for more consistent profitability.
Traiana CreditLink provides our customers with full credit life cycle management, from the legal framework underpinning relationships, directly into active trade and position monitoring for pre and post trade certainty of clearing.
ICAP Information Services leverages the Company's unique position in the wholesale financial markets to provide access to an unrivalled array of OTC market information including high-quality benchmark pricing, live and historic trading and a variety of compliance, risk and research solutions.
Execution Venues and opportunities for trade execution
ICAP provides customers with a choice of trading venues and services to allow them to select the execution method appropriate for the liquidity of the product and their specific needs. Market participants can trade products via an executing broker or through direct access to ICAP's portfolio of electronic platforms.
Global Broking provides customers with the ability to speak with and execute trades with an ICAP broker, a particularly valuable service in less liquid or commoditised markets.
BrokerTec and EBS Market are the world's leading global electronic platforms for the trading of fixed income and FX products. These central limit order books provide efficient and effective exchangelike trading solutions to more than 2,800 customers in over 50 countries. EBS Direct offers a relationship-based streaming service to a broader customer base. These electronic platforms are built on ICAP's bespoke networks connecting participants in financial markets. These platforms facilitate efficient price discovery for both manual traders and users who access via automated interfaces.
ICAP's SEF provides customers with the ability to trade OTC derivatives, across the five main asset classes (rates, credit, FX, commodities and equities) in line with the CFTC regulatory framework under the Dodd-Frank Act.
ISDX is a listing and trading venue for equities and debt instruments, facilitating access to capital and providing a liquid secondary market service.
ICAP plays a pivotal role in bringing buyers and sellers together in the global wholesale financial markets. We help our customers manage and mitigate their risks and provide them with a choice of trading venues and methods ranging from fully electronic to broker assisted trades. This allows them to select the most appropriate execution method depending on the liquidity of the product and their
specific needs. They also have access to an unrivalled source of financial markets data. Our risk mitigation services help customers reduce both their operational risk and market exposure.
We continue to innovate and develop new products and services as the markets and our customers' needs evolve.
The market landscape for ICAP, its competitors and customers continues to be impacted by significant structural and cyclical changes. In recent years the former has been driven by regulation and technology while the latter largely takes the form of macro drivers such as volatility across different asset classes. The three biggest structural changes to impact ICAP and its customers are:
Regulatory changes in recent years continue to be the key driver of market structure for ICAP's businesses as well as ICAP's customer base. The business models and strategic focus of ICAP's bank customers are increasingly focused on reducing balance sheets, risks and costs to improve their return on equity. Consequently they are evolving their trading franchises to focus on customer flows rather than principal risk taking.
ICAP is well positioned to benefit from these changes having invested in technological solutions across the whole trade life cycle in pre trade, execution and post trade. Many of these innovative technology-based offerings have become industry standard market infrastructures in helping banks reduce balance sheet risk and simplify operational workflow. Moreover, 2014/15 was also characterised by the continued shift of ICAP's profit towards electronic platforms, post trade services and data.
A variety of cyclical macro factors also had a significant impact on ICAP's revenue during 2014/15 as well as over previous years. Record low interest rates and flat yield curves continued to be headwinds. Increasing divergence between the monetary policy stances of major central banks resulted in increased FX volatility in the latter part of 2014/15. Low medium-term interest rates also underpinned heightened levels of corporate bond issuance.
Basel III requirements around capital, balance sheet size/leverage and liquidity have driven ICAP's traditional customer banks to shrink their balance sheets over recent years. The initial focus was on reducing risky assets that underpin risk-weighted asset calculations with a more recent focus on lower return businesses that negatively impact gross leverage ratios. Regulators have also introduced higher gross leverage ratio requirements for systemically important financial institutions which have impacted many of the banks which own leading FICC trading franchises.
These changes, as well as the Volcker Rule included in the Dodd-Frank Act, have resulted in a significant reduction of principal risk-taking by ICAP's bank customers and an increased focus on the strength and efficiency of their client franchises. In previous years Basel III led to a significant shrinkage in the inventory of corporate bonds held by banks at the same time that asset manager inflows into bond funds surged. This resulted in a significant shrinkage of the interbank markets in credit securities and an increase in flow from banks to the buy side in that asset class. More recently, as the focus has moved to gross leverage ratios, banks have begun to shrink their rates businesses which were typically the largest part of their balance sheets. This included OTC interest rate derivatives (which have also been impacted by higher margining requirements in the US relative to interest rates futures contracts)
as well as repo books. Areas such as equities and FX (especially in cash products) have been relatively smaller users of balance sheet and capital and hence less impacted by the regulatory changes.
Reduced principal risk taking has been a headwind for all of ICAP's execution platforms albeit with a greater impact on Global Broking than on EBS and BrokerTec. TriOptima's triReduce OTC derivatives portfolio compression service has been the main beneficiary within ICAP of the requirement to shrink balance sheet size. This is a market leader in this particular area with a differentiated product offering and a wide footprint across both bilateral and centrally cleared OTC derivatives markets.
In 2013/14 the Dodd-Frank Act in the US and EMIR rules in Europe resulted in new transparency requirements for OTC derivatives. These created significant new opportunities for ICAP's businesses. The adoption of SEF in the US resulted in an increased use of technology and electronic trading in ICAP's US dollar interest rate swaps business with its first non-bank customers. The requirement of pre trade credit checking and execution certainty under SEF rules created an opportunity for Traiana to expand into this space. Traiana's CreditLink service has established a leading position in this.
In Europe, EMIR requirements from September 2013 prescribed more strict processing standards of OTC derivatives, including regular portfolio reconciliation. This has been a key driver of growth for TriOptima's market leading portfolio reconciliation service, triResolve, which saw a surge in customer growth in 2013/14 which has continued into 2014/15. Increased focus on operational and credit risk by all banks globally has also underpinned triResolve's expansion. New EMIR requirements also created opportunities for Traiana to provide a new regulatory reporting service which means that customers do not have to be connected to multiple repositories across different jurisdictions and asset classes.
The post financial crisis world is also characterised by increased focus on all areas of risk management. ICAP's Reset business is
a market leader in the reduction of basis risk in OTC derivatives portfolios resulting from mismatches of exposures.
A post Basel III world of higher capital requirements as well as increased transparency requirements and compliance costs has resulted in an increased focus by banks on the strength and efficiency of their customer flow businesses. Banks are increasing their proportion of electronic trading in both interbank and bank to customer markets. In addition to the benefits that anonymous central order books have traditionally provided in terms of 'risk transfer', electronic trading is becoming increasingly attractive because of the cost benefits in the form of reduced sales forces as well as the clearly auditable trail which is beneficial from a compliance perspective. Many leading banks are also using electronic distribution and automated/algorithmic trading to differentiate themselves.
Electronic trading is more established in the equities and spot FX markets but is now gathering in pace across liquid FICC markets. In the interbank markets this typically takes the form of anonymous central order books albeit there is an increasing penetration of matching sessions and request-for-quote (RFQ) technology in some less liquid markets. In the bank to customer markets (where the customer side can range from traditional asset managers to hedge funds, regional banks and corporates) banks are increasingly connecting with their customers through electronic disclosed liquidity models including RFQ and streaming technology. These can take the form of the banks' own single dealer platform or a third party multi-dealer platform through which customers are able to access many bank liquidity providers.
ICAP's electronic trading franchises are increasingly expanding from the central order book interbank market to the bank to customer market. The most notable example is EBS Direct which has leveraged the desktop real estate and connectivity of EBS to regional and smaller banks and offered an executable streaming price service initially connecting bank liquidity providers to bank liquidity consumers but also to an increasing number of non-bank liquidity consumers such as hedge funds. Volume growth over the financial year 2014/15 has been extremely strong and ICAP plans to expand EBS Direct to FX swaps/forwards, corporates (leveraging MyTreasury) and fixed income (leveraging BrokerTec) in 2015/16. Moreover i-Swap, ICAP's interest rate swap joint venture with leading banks, has expanded recently from a central order book only to a streaming offering in euro interest rate swaps. ICAP's Global Broking business has also continued to expand its use of technology. As well as the buildout of the i-Swap offerings, the Fusion front-end is being used to distribute an increasing number of broker-assisted matching sessions in products with more episodic liquidity.
MiFID II, which is likely to come into force in early 2016, aims to normalise competition between trading venues (exchanges, MTFs and the newly created OTF category) in the EU and to increase price transparency in financial markets for both market users and regulators. There is potential in due course for direct competition with the derivatives exchanges in listed futures.
MiFID II is likely to have a meaningful impact on the ICAP Group. Our business objectives are aligned with those of MiFID II as we support the move of liquid instruments to electronic venues and a greater emphasis on both pre and post trade transparency. We have witnessed how volumes have already started to migrate from our OTC infrastructure to our established venues where product standardisation and liquidity allow. Irrespective of the venue, a key role for ICAP continues to be the fostering of transparency by continually providing pre trade information to the market, whether through pre trade price screens or order book type structures. The demand for such solutions, against the background of the regulatory standards, stands to increase significantly over the coming year as the industry gears up to MiFID II implementation.
A key challenge for ICAP, as for the rest of the industry, is the scale of change required by new regulation. The organisational structures, alongside the implementation of some of the transparency and microstructural requirements, will impact all areas of ICAP. It will be interesting to see how the UK government's initiative around fair and effective markets will complement the MiFID II rules in these areas.
Given that the vast majority of ICAP's revenue is derived from transaction fees from trading entities such as banks, cyclical drivers such as macro-economic events that drive volatility and directional moves in asset classes can have a huge impact on ICAP's performance. Higher levels of market volatility, especially when driven by macro-economic developments, are typically positive for ICAP's revenue, not only because overall industry volume increases but also as banks look to offset risk in the interbank market rather than warehouse it and match against other customer flows (i.e. internalise flows).
The greatest drivers of macro volatility are government intervention or changes in direction of economic data. The former has taken the shape of central bank action influencing interest rates, both overnight rates by direct policy changes and medium-term interest rates through the aggressive use of quantitative easing (i.e. central bank purchases of their own sovereign debt). In the post financial crisis world of relatively conservative government policy, central banks have been increasingly focused on using interest rates to drive growth as well as control inflation. The US Federal Reserve, ECB and Bank of Japan have all been aggressive in this space in recent years. These clearly impact local fixed income markets but where there is a divergence in the extent of interest rate changes/ monetary easing this of course also results in increased FX volatility and directional moves in FX rates.
The structural reduction in bank balance sheets outlined earlier has two additional consequences which are relevant when discussing cyclical drivers. Firstly, in times of higher macro driven volatility this will underpin less internalisation with customer flow being offset in the interbank markets. Secondly, the structural changes have also resulted in higher volatility which is not always accompanied by higher trading volumes. Volatility is typically only positive when it is driven by macro-economic developments and in this case is the consequence of the reduced market making capacity of banks and the resulting lower liquidity and wider spreads.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 (restated) £m |
Change % |
|
|---|---|---|---|
| Revenue | 1,276 | 1,378 | (7) |
| Trading operating profit | 252 | 290 | (13) |
| Trading profit before tax | 229 | 271 | (15) |
| Profit before tax | 95 | 121 | (21) |
| pence | pence | Change % |
|
| Trading EPS (basic) | 28.7 | 33.2 | (14) |
| EPS (basic) | 13.0 | 15.7 | (17) |
| Dividend per share | 22.0 | 22.0 | – |
2013/14 results were restated to reflect the adoption of new accounting standards on joint ventures. See basis of preparation statement on page 103.
Trading results are before acquisition and disposal costs and exceptional items.
Read more p35 and 44
The past year has been one marked by dynamic and challenging opportunities across many of our businesses.
Since the financial crisis we have seen seismic changes in financial markets which have been reflected in our own business operations. Yet, in my view, 2014/15 has been a catalyst year both for us and for our customers. Our bank customers have re-prioritised their sales and trading franchises and continued to reduce balance sheet risk. Our regulators continued their important work for market efficiency, embracing greater transparency and tighter, more risk averse financial systems. Against this backdrop of a transformed market environment, we have rebalanced our portfolio of assets with our Electronic Markets and Post Trade Risk and Information divisions now contributing three quarters of the Group's profitability. We have materially re-engineered ICAP, with a significant reshaping of our Global Broking division and the merging of EBS and BrokerTec. We have had some excellent successes with EBS Direct, the new emerging currencies on EBS, and in our Post Trade Risk and Information division with risk reduction services from TriOptima. These factors, combined with our ongoing investment in technology-based solutions, have set us on the path to growth.
As a result of the changes we have made, ICAP is better placed to capitalise on the opportunities available and better able to serve a broader range of customers. ICAP is profitable and cash generative. We will continue to invest in people, training, technology and systems to ensure we have the right skills, remain innovative and agile, and grow our business.
For the year ended 31 March 2015, the Group reported revenue of £1,276 million, 7% below the prior year. On a constant currency basis, revenue from Post Trade Risk and Information was up 10%, which was offset by decreases of 1% in Electronic Markets and 11% in Global Broking.
During the course of the year, the Group's trading performance was impacted by a combination of structural and cyclical factors. Bank deleveraging, in response to stricter regulatory capital requirements, negatively impacted the trading activity of ICAP's customers, particularly in the Global Broking division. This was partly offset in the second half of the year by the European quantitative easing announcements and the speculation on the timing of a US interest rate rise which resulted in increased volatility. Some of the revenue loss within Global Broking was as a result of closed businesses as the Group successfully completed its restructuring programme.
The 10% increase in Post Trade Risk and Information revenue was driven through increased participation in triReduce portfolio compression cycles and the uptake of the portfolio reconciliation service, triResolve. Subscription-based revenue increased in products such as CreditLink and cross-asset regulatory reporting in Traiana. Electronic Markets' revenue decreased 1% on a constant currency basis, with EBS revenue increasing by 2%, offset by a 2% decrease in BrokerTec.
Group net trading operating expenses of £1,024 million were 6% lower than the previous year, mostly driven by an 11% decrease in Global Broking as the cost saving programme initiated over the past three financial years has taken £175 million of cumulative annualised costs out of the business. £41 million of net cost savings were achieved from the successful completion of the Group's 2014/15 restructuring programme. A further £12 million of incremental net annualised savings attributable to the prior year cost reduction initiatives was also achieved. Additionally, the flexibility of the cost base continued to be enhanced through the restructuring of broker compensation as contracts became due for renewal. The total broker and support headcount in Global Broking reduced by 740 in the year to 2,336 employees and the broker compensation ratio was reduced by four percentage points to 53%.
Consistent with the Group's growth strategy, ICAP continues to make significant investment in the Electronic Markets and Post Trade Risk and Information divisions. During the year the Group invested £43 million in new business lines including EBS Direct, the ICAP SEF, triCalculate and Traiana Limithub, an increase of £1 million compared to the same period last year. The total headcount of Electronic Markets and Post Trade Risk and Information businesses expanded by 119 during the year to 1,226 employees.
The Group reported a trading operating profit of £252 million, 13% down on the prior year. The Group's trading operating profit margin reduced to 20% (2013/14 – 21%). The proportion of the Group's trading operating profit generated from the Electronic Markets and Post Trade Risk and Information divisions increased to 75%, reflecting a five percentage point increase on the prior year.
Group trading profit before tax of £229 million and trading EPS (basic) of 28.7p were 15% and 14% down on the prior year respectively. Profit before tax was £95 million (2013/14 – £121 million), reflecting a £15 million decrease in acquisition and disposal costs partially offsetting the £42 million decrease in trading profit before tax. Basic EPS declined 17% to 13.0p.
The directors recommend a final dividend of 15.4p per share which will result in a full-year dividend of 22.0p (2013/14 – 22.0p). This reflects the Group's strong cash generation and the board's confidence in the medium-term prospects for the business.
An important development this year has been the combination of the EBS and BrokerTec businesses. Our aim is to build a truly world leading electronic OTC transaction platform with a multi-product offering. Our EBS and BrokerTec businesses are both flagship electronic platforms that provide trading solutions across FX and fixed income products. Bringing EBS and BrokerTec together will allow us to scale our technology assets and leverage our sales capability. This will deliver new products and we will reach new client segments. We demonstrated that we are able to deliver successful new trading solutions with the launch of EBS Direct in November 2013, which has experienced exceptional volume growth. We plan to continue to expand our addressable market with the launch of innovative products into other asset classes.
The Post Trade Risk and Information division benefited from increased demand for its variety of pre trade, post trade and information products and services. The performance of TriOptima was particularly notable, reflecting its position as a provider of product and technological solutions that address customer needs in the new regulatory environment. Our triReduce service reduces risk and provides OTC derivatives trade compression. It has capitalised on and benefited significantly from the requirements of new capital rules and leverage ratios. The introduction of new regulatory requirements such as portfolio reconciliation, cross asset reporting and certainty of clearing has increased demand for TriOptima's triResolve and Traiana's products including CCP Connect and Creditlink.
Coming into 2014/15 the Global Broking division was experiencing an extremely challenging trading environment. Volumes in the first half continued to decline amid bank deleveraging, low volatility and new regulatory requirements that make it more onerous for our core bank clients to trade at the levels we had seen historically. We took some difficult but necessary decisions to take into account this new reality, proceeding on the basis that some of these changes are permanent.
We therefore implemented a restructuring programme. We reviewed all of the geographies and asset classes in which we operate and exited those that are not core to our strategy. This delivered net annualised savings of £70 million in 2014/15, exceeding the target of £60 million. The savings were derived from headcount reduction in the broking population and related infrastructure roles and the reduction of broker compensation as a percentage of revenue. These savings are in addition to the £125 million of annualised cost savings delivered in the three years to 2013/14. The benefit of these savings is a Global Broking business with stronger profitability which has adapted successfully to the market environment and is fit for purpose for the future. While the restructuring is essentially complete, we continue to focus on the cost base of Global Broking.
Global Broking is now well positioned to look to the future to invest in technology and in its electronic capability in areas such as Fusion and its SEF. We will push forward with the development of hybrid and electronic trading offerings such as i-Swap and other matching platforms. Another area of focus will be those businesses where we have market leading franchises and which have benefited from rising volatility, such as in OTC European Interest Rate Derivatives. This is how we will continue to differentiate ourselves from our traditional broking competitors.
We aim to be at the forefront of product and technological innovation. We remain focused on driving the future growth of the business through the development of new products and services and expansion into new markets. We continue to invest in all aspects of our business especially the ongoing development of electronic trading platforms and post trade services.
We will use our scale and breadth to master the complexity of the new landscape. We are investing in people, training, technology and systems to ensure we have the right skills, maintain our innovative market edge, share expertise and best practice around the world and grow our business.
Definitions
ICAP's world class businesses are led by an experienced team, the Global Executive Management Group, seen here in March 2015 at ICAP's New Jersey office.
From left to right: Gil Mandelzis, Ken Pigaga, Duncan Wales, Michael Spencer, John Nixon, Seth Johnson, Hugh Gallagher, David Casterton, Laurent Paulhac, David Ireland
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ICAP's success has always been based on its people. That's not just about our skills but about the way we do things, about what we value and what we believe in. Our culture matters and it sets us apart.
As a business we have adapted and evolved. We are reviewing our culture and where it may need to change. Our Chairman, Charles Gregson, outlines in his statement the many steps we have taken to ensure we are doing the right things, ranging from continuing to improve our approach to risk and compliance to strengthening our governance framework and ensuring we have the right leadership from the top.
Led by the Group Head of HR we have launched an initiative specifically focused on the important issue of our corporate culture, looking at how we define, embed and measure the right culture throughout ICAP. This initiative will continue into 2015 and 2016, along with a senior leadership development programme, a more rigorous approach to internal communications, a focus on talent management and an exercise to benchmark the ICAP brand.
Taken together, these activities will help strengthen our organisation and make sure we take steps to change where we need to.
By far the single most important manifestation of the ICAP culture and the engagement of our employees is our annual Charity Day which this year took place on 3 December 2014. We are incredibly proud that together we raised £8 million. It brings the total amount donated by ICAP to charities worldwide since 1993 to £120 million. This is a fantastic achievement which would not have been made possible without the ongoing support of our customers, employees, suppliers and our distinguished guests who work hard to make a tangible difference to hundreds of charities around the world. This year ICAP supported 200 charities globally and has supported nearly 2,000 charities since the first Charity Day in 1993.
Since the start of the financial year the external environment has been mixed and we continue to expect near term headwinds as the pick up in market activity remains episodic. The restructuring programme has delivered on its target, the benefits of which will be to contribute to funding our continuing investment in new initiatives.
Ultimately, we are and will continue to build a stronger, leaner organisation, thereby enhancing our profitability and providing a solid base for future business growth with all the benefits which that entails for us, our employees and customers alike.
I would like to thank all our employees for their hard work and commitment during the past 12 months. Without their unstinting efforts we would not be facing the future with such confidence, knowing that we are well positioned to maximise the opportunities that lie ahead.
Group Chief Executive Officer
ICAP provides trade execution platforms and technology based workflow/risk mitigation solutions to the global financial markets. Our services connect market participants and facilitate the flow of money and assets safely through the systems needed to make economies work efficiently. We are focused on providing our customers with innovative products that enhance their efficiency, reduce their risk and improve their cost effectiveness.
Our customers trust us to provide consistent and efficient access to the right product at the right price. The barriers to entry in this arena appear relatively low, but our hard-won and rigorously maintained reputation gives us a competitive advantage and presents a real challenge to incomers.
Our reputation is founded on our people, their knowledge, their expertise and the culture in which they operate – all of which are driven from the very top. Our people are a vital asset in our business. The balance of skills needed is changing, with an increased emphasis on those with technical expertise, and we are ahead of this curve. Another of our major assets is the symbiotic relationship between our extensive understanding of the financial markets and their functioning and the deep technical expertise we have developed. Our ability to transfer this knowledge throughout the Company gives us a distinctive advantage.
We understand that trusted relationships are built through the best customer service combined with leading products. At the heart of what we do are our relationships with our customers and with the governmental organisations regulating the markets. These are mutually beneficial, with customers and officials looking to us for insight and advice, and helping us to understand problems and issues in the market so we can tailor appropriate responses. We have also developed important relationships with the suppliers of our hardware and connectivity and close associations with those organisations with which we share our data, and with our joint venture partners. Our joint ventures provide us with access to specific regional expertise and also help us to meet local regulatory requirements.
ICAP has developed an efficient model, concentrating on scalability in certain asset classes and geographies and based on organic growth. Our value creation process starts by being highly cash generative due to the fast turnaround of fees in our high-volume trading activities. We use this cash flow to reinvest in the development of new products and technologies, differentiated through leveraging our existing infrastructure and our extensive experience. These products and services have higher margins, which generate the sustainable returns that allow us to invest in the people and technology which make it possible and to deliver returns to our shareholders.
ICAP has developed an efficient model, concentrating on scalability in certain asset classes and geographies, based on organic growth
| Strategic priorities | Our performance during the year |
|---|---|
| Expanding our addressable market |
• EBS Direct spot FX continues to grow having been launched in November 2013. Average daily volume reached a monthly record of \$19 billion by September 2014 with \$17 billion in March 2015. • i-Swap continues to expand its offering including first non-bank participants in US\$ order book and disclosed streaming offering in euro. |
| Seizing opportunities created by regulatory change |
• TriOptima delivered constant FX 34% revenue growth with significant growth in both triReduce (compression) and triResolve (reconciliation). triReduce compressed \$150.0 trillion in 2014/15 compared to \$112.1 trillion in the prior year. • triResolve's number of customers has increased from 987 during 2013/14 to more than 1,380 in 2014/15. |
| Leveraging into growth markets |
• EBS NDF and CNH reported average daily volume of \$2.9 billion (+102%) and \$3.8 billion (+528%) over 12-month period, both ending the year strongly: March average daily volume was \$4.2 billion for NDFs and \$6.4 billion for CNH. • Global Broking continues to see better revenue trends in Asia Pacific relative to other geographies. Key drivers include significant year-on-year growth in renminbi products both onshore and offshore. |
| Focusing on market leading franchises |
• Global Broking reshaped to focus on market leading franchises with several business lines exited as well as desk closures. Cost savings achieved of £70 million during 2014/15 with £41 million positive impact to 2014/15 and a further £29 million annualised effect in 2015/16. Global Broking reported operating profit margin rose from 4% in the first half to 12% in the second half. • Continued to protect/grow market share in core products such as EBS Market G7 pairs, BrokerTec UST/repos and Global Broking G7 IRS. |
| Evolving culture | • Emphasis on managing people as a key asset, including significant change in the way we communicate with all employees. • Group-wide leadership programmes were attended by more than 60 senior managers and over 200 desk heads, increasing cross-divisional relationships and strengthening alignment and collaboration. |
Governance and directors' report
Financial statements
Definitions
| Future outlook | Strategic risks | |
|---|---|---|
| • EBS Direct spot FX continues to grow having been launched in November 2013. Average daily volume reached a monthly record of \$19 billion by September 2014 • i-Swap continues to expand its offering including first non-bank participants in US\$ order book and disclosed streaming offering in euro. |
• EBS Direct to be expanded to FX swaps/forwards and corporates in coming financial year. • BrokerTec Direct to be in beta testing by the end of the coming financial year. • Expansion of i-Swap to wider group of customers including more non-bank participants in the US and more regional banks in Europe. |
• Increased competition from existing single bank and multi-bank electronic platforms. • Time to market of technology/functionality to support new product offerings. • A lack of post trade anonymity in US swaps markets. Read more p16 |
| • TriOptima delivered constant FX 34% revenue growth with significant growth in both triReduce (compression) and triResolve (reconciliation). triReduce compressed \$150.0 trillion in 2014/15 compared to \$112.1 trillion in the prior year. • triResolve's number of customers has increased from 987 during 2013/14 to more |
• Banks looking to reduce balance sheet and operational risk are likely to continue to show strong demand for portfolio compression and portfolio reconciliation tools. • triReduce is being expanded to new clearing houses (for example CME, Japan Securities Clearing Corporation) and new asset classes (for example CLS FX forwards). • triCalculate counterparty credit valuation product to move from beta testing to commercial launch. |
• A shift to futures shrinking swaps inventory significantly. • Competition from clearing house coupon blending compression offerings. • Ability to compete with banks own in-house valuation tools or other third party vendors. Read more p17 |
| • EBS NDF and CNH reported average daily volume of \$2.9 billion (+102%) and \$3.8 billion (+528%) over 12-month period, both ending the year strongly: March average daily volume was \$4.2 billion for NDFs and \$6.4 billion for CNH. • Global Broking continues to see better revenue trends in Asia Pacific relative to other geographies. Key drivers include significant year-on-year growth in renminbi |
• Expecting continued growth in EBS emerging markets currencies in coming financial year. • SGX joint venture – EBS plans to offer customers access to SGX listed FX futures in block sizes via the EBS platforms. |
• Competitive pressure and macro/volatility outlook. Pace of financial liberalisation also key to structural growth of markets. Read more p18 |
| • Global Broking reshaped to focus on market leading franchises with several business lines exited as well as desk closures. Cost savings achieved of £70 million during 2014/15 with £41 million positive impact to 2014/15 and a further £29 million annualised effect in 2015/16. Global Broking reported operating profit margin rose from 4% in the first half to 12% in the second half. • Continued to protect/grow market share in core products such as EBS Market G7 pairs, BrokerTec UST/repos and Global Broking G7 IRS. |
• Global Broking operating profit margins continue to improve in line with the levels in the second half of 2014/15 driven by lower broker compensation ratio and cost savings in infrastructure costs. • Full annualised effect of the 2014/15 £70 million cost savings will come through in 2015/16. Costs will continue to be an area of focus. |
• Further bank deleveraging results in declining interdealer broker industry revenues. • Competitive threats from other interdealer brokers, electronic platforms and exchange groups. Read more p19 |
| • Emphasis on managing people as a key asset, including significant change in the way we communicate with all employees. • Group-wide leadership programmes were attended by more than 60 senior managers and over 200 desk heads, increasing cross-divisional relationships and strengthening alignment and collaboration. |
• Culture to be reviewed to ensure it aligns with and reinforces our brand and inspires and aligns our people to achieve outstanding performance. • Renewed emphasis on performance feedback and talent development. |
• Continuing competition for specialist skills may result in higher turnover and additional challenges in integrating new staff into the culture. • Increased remuneration regulation originally designed for financial services firms with much higher risk profiles may impact |
Read more p20
Large investment banks and universal banks remain our core customer base in most asset classes but we are evolving our product offerings in line with the business models of these major customers. Moreover in areas such as Asia Pacific we continue to build on our strong relationships with large regional banks.
As our major bank customers are increasingly focused on trading with their customers (including both buy side and regional banks) rather than with each other we are building out our infrastructure to connect with these customers. Primarily this takes the form of disclosed liquidity electronic platforms. EBS Direct is the most established example of this with an offering currently in spot FX expanding to FX swaps/forwards in the coming months as well as corporates through our MyTreasury platform. Other examples include i-Swap euro which has expanded recently from a central limit order book market to disclosed streaming. We also plan to expand our Direct offering to BrokerTec fixed income markets by the end of 2015/16.
Non-bank participants have become increasingly important in recent years. In Global Broking this is largely in the form of end users and physical trading houses in energy markets. In Electronic Markets this is in the form of proprietary trading firms. In Post Trade Risk and Information this is in the form of a wide array of buy side participants.
Business model: EBS Direct is a disclosed liquidity offering where liquidity providers can stream tailored prices to liquidity consumers.
Existing customer base: there has been significant fragmentation in FX markets in recent years with single bank and multi-bank disclosed liquidity platforms connecting leading banks with their customers, including a significant proportion of regional banks that may have traditionally been the customers of the EBS anonymous central limit order book. One of EBS Direct's key competitive advantages is the existing connectivity of EBS to these regional banks, most of which are connected to EBS through Bloomberg-like desktop workstations. Consequently, so far, the vast majority of EBS Direct's liquidity consumers have been these regional banks. In total EBS currently has 20 liquidity providers and 350 liquidity consumers.
Expanding into new FX pairs: EBS has traditionally been the central marketplace for a specific group of FX pairs (euro/dollar, dollar/yen, euro/Swiss franc) with Reuters the central marketplace for Commonwealth currencies. By expanding into the disclosed liquidity space EBS has expanded its penetration in a wider number of leading currencies. For instance in 2014/15 50% of EBS Direct's volume was generated from Commonwealth and emerging markets currencies.
Expanding the EBS Direct product offering: EBS is currently in beta testing on EBS Select which leverages the EBS Direct infrastructure and customer base but also offers anonymous segregated liquidity which is essentially a hybrid of EBS's existing two main offerings. In the coming months EBS Direct will also go into beta testing followed by commercial launch in FX forwards/swaps. This is a substantial market, as large as spot FX, contributing the vast bulk of trading volumes on the platforms of EBS Direct's competitors.
Expanding the customer base: EBS Direct currently has 20 non-bank liquidity consumers which are largely hedge funds and proprietary trading firms. In the coming financial year EBS Direct will be expanded to corporates, leveraging the customer relationships and connectivity of ICAP's leading money market fund platform, MyTreasury, has with the treasury departments of a wide range of corporates. EBS Direct continues to expand its geographical footprint with regulatory approvals from around 20 new countries in 2014/15.
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Governance and directors' report
Financial statements
The pace of regulatory change has been unprecedented in recent years. This includes the direct impact of regulatory changes with the Dodd-Frank Act driven requirements for SEF trading in the US and EMIR driven requirements for regular portfolio reconciliation in Europe. Even more profound has been the indirect impact of new capital/leverage ratio requirements for our bank customers. We believe our post trade services play well into the trend of banks looking to reduce balance sheet and operational risk as well as to improve efficiency and returns. These include our industry standard offerings in portfolio reconciliation (triResolve), portfolio compression (triReduce), basis risk mitigation (Reset), pre trade SEF credit checks (CreditLink) and Traiana trading reporting.
Business model: triResolve provides proactive counterparty exposure management which reduces operational and credit risk for its customers. Operational risk is reduced by providing a central hub where market participants can reconcile their portfolios and resolve trade disputes and valuation discrepancies between counterparties as well as CCPs, trade repositories and/or fund administrators. Counterparty credit risk is reduced by preventing margin call disputes and further allowing for efficient and transparent tracking of collateral posted by counterparties through the central platform.
Regulatory tailwind: with the adoption of the Dodd-Frank Act in the US and EMIR in Europe, the majority of OTC derivatives market participants have to reconcile their portfolios proactively and resolve disputes within established timeframes. This resulted in triResolve seeing a steep surge in customer numbers in the latter part of calendar year 2013 and more frequent reconciling of positions by existing customers.
Growing customer base: the number of customers using triResolve has increased from 987 in 2013/14 to 1,380 in 2014/15. This includes a broad range of institutions including banks, the buyside, energy companies, end user/corporates and insurance companies. These are in turn roughly evenly split across three different types of customer offering: direct customers, indirect customers through aggregators such as custody banks, and customers that are on a basic free service.
Products covered: triResolve covers all asset classes, product structures and types of derivatives including collateralised, uncollateralised and exchange-traded. The main asset classes reconciled are OTC Interest rate and FX derivatives. triResolve reconciles more than 75% of all bilateral OTC derivatives trades globally.
Functionality: new services and value added functionality are constantly being added to the triResolve platform. This includes triResolve trade repository reconciliations which align parties' portfolios to data recorded in the various trade repositories. More than 70 subscribers are already using the repository reconciliation service.
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Emerging markets and Asian capital markets continue to grow at a faster pace than the more developed European and US capital markets especially in the FICC space. Moreover emerging markets and local Asian banks have not been impacted as much by bank de-leveraging as some global players. EBS has seen significant growth in volumes in Asian currencies in recent years which is discussed in the case study below. The businesses which form part of our post trade services continue to expand in emerging markets products with triReduce successfully adding several new IRS markets such as Mexico and Turkey and triResolve expanding its customer base in Asia Pacific.
ICAP's Global Broking business in Asia Pacific continues to show better trends than the overall Global Broking business with significant year-on-year growth in RMB products both onshore in our associate CFETS-ICAP and in offshore markets. In addition ICAP's dry bulk commodities with an emphasis on iron ore continue to improve with volumes up significantly year-on-year. Australasia remains a key component of Global Broking's strategy and a number of the smaller regional emerging market centres have outperformed the prior year. The Global Broking emerging markets offshore business in New York and London continues to grow. Moreover ICAP has stakes in several leading local interdealer brokers in Japan (Totan), China (CFETS), Mexico and other emerging markets.
Rising market volumes: faster economic growth than Western economies, coupled with growing capital markets penetration and financial market liberalisation has resulted in the rapid growth of FX trading volumes in emerging Asia. Geopolitical changes as well as interest rate movements have driven a surge in offshore activity in Indian rupee, the most liquid Asian NDF currency. The widening of the trading band by the People's Bank of China for onshore renminbi also underpinned the structural growth in offshore CNH traded largely in Hong Kong.
Shift from voice to electronic: there has been a significant shift of trading activity in Asian emerging markets from voice broking to pure electronic trading in 2014/15. ICAP estimates 40% of Asian NDF and 95% of CNH volumes are traded on electronic interbank platforms rather than voice brokered which compares with around 20% and 80% respectively a year ago. This has also resulted in a diversification of EBS Asian NDF volumes from largely Indian rupee to a broad range of currencies including Korean won, Malaysian ringgitt, Philippine peso and Taiwan dollar.
Growing market share: EBS has gained market share across most Asian emerging markets pairs and also very noticeably in CNH. ICAP estimates EBS's market share in Asian NDFs at over 40% in 2014/15 which compares with 20-25% in 2013/14.
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2014 2015
Governance and directors' report
Financial statements
ICAP has several market leading franchises within Global Broking as well as our Electronic Markets and Post Trade and Risk Information divisions. In recent years, however, Global Broking has continued to expand its geographic and product footprint to a diverse range of markets. Many of the individual businesses lacked scale or overlap with other parts of Global Broking and a shrinking FICC and interdealer broker market put significant pressure on their profitability.
In 2014/15, in response to the structural changes to the marketplace and our customers, Global Broking was reshaped to focus on its leading franchises with many businesses exited or reduced to minority holdings. The cost base of Global Broking was also fundamentally re-engineered with the focus going forward on a more technology driven growth strategy.
Cost savings plan: ICAP delivered incremental cost savings across the Group of £70 million during 2014/15 with a £41 million positive impact on 2014/15 profit and a further £29 million annualised effect to hit 2015/16 results. This was achieved by streamlining infrastructure across the Group as well as reducing broker headcount and broker compensation payout ratios in Global Broking. As a result Global Broking's operating profit margins rose from 4% in the first half of 2014/15 to 12% in the second half of 2014/15 with a further uplift expected in 2015/16 as the full impact of cost savings flow through. Moreover the broker compensation to revenue ratio declined from 57% in 2013/14 to 53% in 2014/15 with the second half levels below this.
Geographic/product footprint: In terms of product and geographic focus Global Broking remains committed to a wide footprint centred around its market leading OTC interest rate derivatives franchises with strong market positions in many other asset classes as well. That said, the refocusing of the business during 2014/15 resulted in several areas being either largely exited (for example financial futures), merged with competitors to drive scale (for example shipbroking) or sold down to minority stake (for example First Brokers in US corporate bonds). Global Broking also has a wide range ownership stakes in associate companies with exposure to Asia Pacific emerging markets. These include the CFETS-ICAP joint venture in China and the Totan joint venture in Japan.
Leveraging technology: Global Broking is increasingly growing its electronic product offerings. The i-Swap central order book has been well established in Europe for several years and in 2014/15 started to see traction in the US dollar medium-term interest rate swap market contributing an increasing proportion of ICAP's SEF US dollar IRS volumes. There has also been significant growth in revenue generated by Global Broking's electronic matching platforms and further expansion here is a key strategy priority as customers become increasingly comfortable with such offerings. As well as Global Broking's electronic offerings its pre trade screens, transaction data and related reference pages provide invaluable price discovery tools for market participants.
Benefiting from rising volatility: As macro factors resulted in heightened volatility and market activity levels in the second half of the financial year Global Broking also saw better activity levels. This was most pronounced in markets where Global Broking continues to have market leading franchises and hence market participants rely on it as an intermediary to facilitate risk transfer. The best example is Global Broking's leading European OTC Interest Rate Derivatives franchise where increased demand for hedging of bond issuance drove a significant increase in activity levels in the final quarter of the financial year outpacing activity levels in exchange-traded futures markets. Moreover it is worth noting that in such OTC markets the major underlying driver of this change in activity levels was 'natural interest' from end users which was offset by banks in the interbank market in contrast to a higher proportion of speculators which characterise other markets including many exchange-traded ones.
ICAP's culture has been key to our success and must continue to evolve as our business changes. Culture is a differentiating factor between success and failure when it comes to commercial performance, employee engagement and good conduct. We have defined culture in a broad sense as 'what we value as an organisation', 'how we get things done' and 'how we behave'. Our ability to adapt to new markets and opportunities is a direct result of each employee's ability and willingness to contribute and influence how we conduct our business. The board and our senior leadership play a critical role in setting the tone from the top.
In an effort to strengthen the skills, commitment and alignment of our organisation's leaders, more than 60 of our senior managers were selected to attend a two-day leadership development programme that ran between November 2014 and April 2015. The programme was designed with input from the board and the GEMG. It focused on equipping our senior managers to lead a culture that places the right emphasis on controls and values, drives performance and great execution, is externally orientated and innovative, and develops talent at all levels.
As well as having the chance to learn and build skills, the programme gave our top leaders an opportunity to reflect on the implications of ICAP's current and future context for their leadership responsibilities. By discussing everything from culture, values and ethics to business strategy, performance and reputation, in mixed groups, the programme also had the very positive effect of encouraging greater cross-functional and crossbusiness collaboration. This two-day programme forms part of our continued investment into ongoing leadership development and, in addition to providing continued development support to those who attended the programme, the learnings and insights from this initiative are being used to shape our activities on culture and to define further work on talent development throughout the organisation.
ICAP's leadership programme forms part of ICAP's continued investment in leadership development and cultural evolution. From left to right: Garry Stewart - Executive Managing Director and Deputy Chief Executive Officer, EMEA Broking, Vanessa Cruwys - Group Head of HR, Mireille Dryberg - Chief Operating Officer, TriOptima, Rupak Ghose - Group Strategy Director.
As an integral part of the financial markets we believe that ICAP contributes to the economies in which we operate; we recognise the impact we have and how our behaviours and activities can have a positive effect.
Our annual ICAP Charity Day event demonstrates this and reflects ICAP's strong culture. It unites our employees globally, our customers and suppliers. It has a positive impact on our employees and the public's awareness not only of ICAP, but of the broader financial services community of which we are a member.
ICAP Charity Day has had an enormous impact. By donating all our revenue on one day each year, we have positively changed the lives of thousands of people around the world. Thanks to the efforts of our customers, suppliers and employees, on 3 December 2014, an incredible £8 million/US\$12.5 million was raised bringing the total amount over 22 years to £120 million.
This special occasion is one of the most important days of ICAP's year. Charity Day is something of which employees are tremendously proud of – that they are part of an organisation that takes its charitable giving very seriously. Every division of ICAP around the globe unites and the entire revenue and commissions on the day are donated directly to 200 chosen charities around the world.
The whole Company channels energy and enthusiasm into Charity Day. Read more about the projects we have supported and the incredible 'Success Stories' at www.icapcharityday.com/success-stories.
Financial statements
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Governance and directors' report
Electronic Markets Post Trade Risk and Information Global Broking Bank execution Subscription Non-bank execution
Trading operating profit split between ICAP's divisions of Electronic Markets, Post Trade Risk and Information and Global Broking.
ICAP's long-term strategy is to grow the Electronic Markets and Post Trade Risk and Information divisions and to reshape Global Broking in response to recent market changes. 2014/15 saw the Electronic Markets and Post Trade Risk and Information contribution to the Group's trading operating profit increase to 75%, their highest contribution in the Company's history.
Percentage of ICAP's revenue derived from bank and non-bank transaction revenue and total subscription fees.
ICAP aims to reduce the volatility of earnings through growth in businesses whose revenue is less susceptible to fluctuations in market volumes. Bank execution remains ICAP's largest revenue contributor but 2014/15 saw it reduce to 65%, reflecting the structural and cyclical factors currently impacting our bank customers. Subscription revenue continues to increase its share of ICAP's revenue reflecting the continued growth in our Post Trade Risk and Information business, which generates a majority of its revenue through recurring subscription-fee income sources.
Trading operating profit divided by revenue from trading operations.
The Group's overall trading operating profit margin % fell by 1 percentage point to 20% reflecting the revenue decline in the first half of the year partially offset by the continued implementation of the Company's restructuring programme in the second half of 2014/15. The full-year operating profit margins of the Electronic Markets and Post Trade Risk and Information divisions were 36% and 43% respectively.
Trading EPS (basic) is the profit after tax attributable to the equity holders of the Group divided by the weighted average number of shares in issue during the year, excluding shares held to satisfy employee share plans and shares purchased by the Group and held as Treasury Shares.
ICAP aims to deliver superior EPS growth for our investors. Trading EPS fell this year to 28.7p, the fall largely reflecting a trading operating profit decline in the first half of the year partially offset by a second half of 2014/15 trading EPS of 18.6p. Given the prospects of ICAP's business strategy we remain confident superior EPS growth is achievable over the medium term.
Conversion of trading profit to cash is calculated as cash generated from trading operations, excluding acquisition and disposal costs and exceptional items, less cash flows from operations relating to non-controlling interests, interest, tax and capital expenditure, plus dividends received from associates and investments, measured as a percentage of trading profit.
The Group's business model efficiently converts trading profit into cash and we expect a 100% conversion over the medium to long term. The 75% achieved in 2013/14 was unusually low, principally reflecting the reversal of prior year working capital timing differences and increased capital investment in new product initiatives. 2014/15 has seen the Group return to above expected levels, converting 106% of its profit into cash.
2013 2014 2015
53
Total employee costs (including salary, commission and other benefits) for brokers employed in the Group's Global Broking division divided by Global Broking revenue.
ICAP aims to ensure that broker remuneration is aligned with the strategy and objectives of the Group as a whole. Broker compensation as a percentage of revenue has fallen as a result of the restructuring exercise which, in addition to exiting brokers, also included a review of broker employment contracts to reduce or remove certain fixed elements of compensation and reduce payout ratios.
Expenditure on the maintenance and development of information technology as a percentage of total revenue.
Following a spike last year, technology spend as a percentage of revenue was 14% in 2015, in line with the Company's long-term trend. The spike in 2014 reflected increased investment in new products including ICAP SEF, EBS Direct, triOptima's triResolve and Traiana's CreditLink services.
During the past financial year our risk and compliance focus has included: further embedding of our conduct agenda evaluating the expected professional behaviour of our employees; assessing and managing actively our credit exposure during market turmoil, in particular in Latin America and EMEA; developing capital mitigation approaches for extreme but plausible risks; and building out our risk function's capabilities.
Looking forward to the coming year we expect market conditions to remain challenging with ongoing focus on credit exposure; development of new and existing markets and products; demands of regulatory changes, in particular MiFID II, requiring assessment of threats and opportunities; and further enhancement to our risk-based capital management process and improvements to business intelligence provided to key stakeholders.
ICAP recognises nine core risk categories: strategic, operational, liquidity, reputational, credit, legal and compliance, cross-risk, financial and market.
ICAP's profile of these risks is continually evolving driven by:
Consistently ICAP seeks to generate attractive returns through informed risk taking and robust risk management. As such the effective management and control of both the upside of risk taking and its potential downside is a fundamental core competency of the Group.
The Group does not intend or expect to take material losses during the ordinary course of its activities. This is because of its fee and commission earning business model. It does not wish to expose itself to material credit or market risks and does not intentionally hold or deal in assets that stay on its balance sheet for any longer than the normal settlement cycle on the occasions when it is involved in 'matched principal' or exchange-traded broking.
The Group does not leverage the balance sheet in any material way during the provision of its services. Its earnings are predominantly attributable to fees and commissions based on levels of customer activity and usage of its services. The Group proactively seeks to invest in and develop innovative products and services.
ICAP actively manages its Group-wide risks to protect against unexpected variance in the cost and revenue streams and the negative impacts to the reputation of the Group.
Key Group risk management themes during the financial year were:
The board has overall responsibility for the governance of ICAP's risk management and ensures there are adequate and effective internal systems of control with clear responsibilities for the setting of risk appetites, the identification and assessment of risks, their monitoring, reporting and mitigation. During 2014/15, focus has included risk appetite development, risk-based capital adequacy, culture and conduct risk.
The board sets and monitors risk appetite through the nine risk categories: strategic, operational, liquidity, reputational, credit, legal and compliance, cross-risk, financial and market.
Each year ICAP's risk appetite statements and respective limits are set alongside its strategic plans, recognising the key drivers of the risks ICAP expects to face as a Group in the coming 12 months.
ICAP's risk management framework is designed to identify, assess, monitor, report and mitigate the risks that could impact the ability to execute our strategy and meet our stakeholders' expectations. To ensure a consistent risk management approach globally, the framework is used across all risk disciplines with the following pillars:
Global events and deteriorating economic conditions in the eurozone and Latin America have led to ICAP executing additional due diligence in respect of stressed market conditions during 2014/15. Argentina experienced its second sovereign default within the past 20 years; both Brazil and Venezuela were downgraded by nationally recognised statistical rating organisations, while in Europe the decoupling of the Swiss franc from the euro led to significant market volatilities, and the threat of a Greek exit from the European single currency had financial institutions refreshing their contingency plans.
Under these stressed market conditions, for all of the above countries and factoring in potential contagion consequences, ICAP's risk management team has worked in step with business heads globally to target ICAP's risks, providing additional evaluation of the exposure by leveraging market intelligence in the liquidity and volatilities in underlying instruments, and support mitigation strategies by the provision of accurate business intelligence. Working together, both first and second lines of defence helped maintain a stable environment during these uncertain conditions.
The Group's governance structure is designed such that the business is the first line of defence, the risk management and compliance departments the second line of defence with internal audit representing the third line of defence.
First line of defence: the business is responsible for the identification, control and management of its own risks.
Second line of defence: the risk management and compliance departments ensure that well designed risk and compliance frameworks are in place for the first line to facilitate its risk management responsibilities and provide independent oversight and challenge of the execution and risk profile of the business.
Third line of defence: internal audit provides independent testing and verification of business line compliance as well as assurance that the risk management process is functioning as designed.
A key aspect of the three lines of defence model is that senior management, in particular those with the responsibility for front office, support functions and Group functions, have full accountability for the management of the risks in their specific businesses. This is done within the limits and the control environment established by the Group. All staff and managers are required to take a prudent approach to risk taking and to review regularly the effectiveness of their control environment and compliance with the Group's risk appetite. The Group's risk management processes must be dynamic, reflecting changes in the Group's strategies and the external risk drivers in the global market in which it operates.
The following areas have been of particular focus for the Group and continue to be so:
Strategic report
The following table summarises those risks of principal importance to ICAP over the financial period, their key drivers, Group appetite and key mitigating actions.
| Principal Group risks | Importance to ICAP | Key drivers | Mitigation |
|---|---|---|---|
| Strategic risk | |||
| The risk arising from inappropriate strategic decisions that fail to reflect the full business operating environments, and full impacts on execution, or fail to adequately or timely identify changes to the business model. |
To ensure ICAP remains competitive in its chosen strategic markets, identifying and optimising commercial opportunities requires ICAP to assess the risks, rewards and costs associated with each. Strategic risks generally manifest over a medium timeframe allowing corrective proactive management. Appetite ICAP will innovate and grow through considered initiatives and acquisitions that are scalable, experience positive switching/network effects or show a competitive advantage. |
Regulatory landscape impacting our business or our customers' businesses. Commercial/market conditions. Internal business/operating model. |
Business case and risk assessment of significant business initiatives. Defined product, country, client strategies. Surveillance of market, regulatory landscape and customer demand. Risk scenario contingency planning. |
| Operational risk | |||
| The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. |
ICAP's reputation is built on strong execution of service. ICAP actively identifies, monitors and controls the risk that its people, process or systems fails leading to a reduction in the quality of service to our customers and an increase in our operating costs. Operational risks could manifest themselves across any timeframe. Appetite ICAP will take measures to identify and proportionally manage operational risk to a desired level through mitigating systems, processes and controls, but recognises operational risk is inherent in its business activities. |
Internal business/ operating model. External threats. Market conditions. |
ICAP maintains an operational risk framework, with independent risk function oversight. Timely escalation and mitigation of risk events. Provision of training and guidance. Information security breach monitoring. Critical technology performance monitoring. Risk scenario contingency planning. |
| Liquidity risk | |||
| The risk that the Group or any of its entities does not have sufficient liquid resources or is unable to deploy such resources to meet its actual or potential obligations in a timely manner as they fall due. |
ICAP has short-term liquidity requirements arising from settlement and clearing arrangements, in the form of collateral and margin requirements for clearing houses or financial institutions providing clearing access. It is possible large liquidity demands can arise on the same or next day, due to reasons beyond ICAP's direct control. The Group ensures adequate liquidity resources are maintained to meet these requirements in support of its trading activities. Longer-term requirements arise in relation to the timing of the Group's operating cash inflows against outflows, principally for capital expenditure and dividends. The Group maintains a diversified funding base with sufficient committed headroom to forecast requirements. Appetite ICAP will have sufficient and accessible financial resources so as to meet financial |
Operational risk. Credit risk (events). Internal business/ operating model. |
Periodic reviews including going concern assessments. Use of financial institutions for clearing access. \$250 million of committed liquidity held centrally for same and next day utilisation. Contingency funding arrangements and procedures in place. |
| Principal Group risks | Importance to ICAP | Key drivers | Mitigation |
|---|---|---|---|
| Reputational risk | |||
| The risk that the Group fails to meet expectations of stakeholders, is unable to build or sustain relationships with customers, incurs regulatory censure or experiences more costly access to funding sources. |
ICAP remains focused on maintaining and constantly strengthening relationships with shareholders, customers, regulators, lenders, clearing and settlement providers, market infrastructure providers and employees. Reputation risk can manifest over the near term with long-term impacts. Appetite ICAP will adhere to its core values and fulfil its corporate responsibilities by ensuring it acts responsibly, ethically and with integrity. |
Operational risk. Regulatory risk – conduct risk. Strategic risk. |
Active assessment via investor relationship surveys, media surveys, employee statistics. Culture and conduct training and monitoring. |
| Credit risk | |||
| The risk of a financial loss due to the failure of a customer to meet its obligation to settle outstanding amounts. |
While ICAP enters into transactions only when executing on behalf of customers, providing customer access to clearing or provides additional fee-based services, there does exist short-term credit exposure prior to clearing and settlements, and outstanding receivables risk that ICAP manages. Appetite ICAP will engage only in activities which it believes will not result in loss due to credit risk. |
Market conditions. Counterparty credit worthiness. |
Counterparty due diligence. Credit limits. Risk scenario and stress contingency planning. |
| Legal and compliance risk | |||
| Legal risk arises from defective transactions, failing to take appropriate measures to protect assets, changes in law and/or breach of law or acceptable practice and claims resulting in a liability or loss to a company/ies within the Group. Compliance risk is the risk of material loss, regulatory sanctions or reputational damage arising from the failure to comply with relevant regulatory requirements. |
ICAP operates in multiple jurisdictions and remains focused on ensuring they recognise and respect the rules and laws to which they are held. ICAP also recognises that the conduct of the Group and its employees is of paramount importance to its strategic aims and reputation. Legal and compliance risk can manifest over the near and long term. Appetite ICAP will ensure it has in place the necessary processes, controls and frameworks in order to comply with legal and regulatory requirements; ICAP will use appropriate external legal advisors for contentious matters and litigation. For the avoidance of doubt, ICAP has no appetite for legal or regulatory breaches. |
Multiple and dynamic regulatory regimes. Regulatory risks – conduct risk. |
ICAP has internal legal and compliance departments which act as independent advisory and investigation functions to enable and defend the Group's strategic aims. Both legal policies and compliance risk management frameworks strengthen this defence. Advice is regularly taken from appropriately qualified external advisors and professionals. Training is provided to staff on an ongoing basis. Culture and conduct training and monitoring. |
In addition to the principal risks the Group also recognises and actively manages the following Group risks:
| Other Group risks | Importance to ICAP | Key drivers | Mitigation |
|---|---|---|---|
| Cross-risk | |||
| The risk that the Group and its divisions fails to maintain its commercial targets due to either internal or external factors. |
In support of achieving its commercial targets, ICAP works diligently with all stakeholders to identify all threats and opportunities. Appetite ICAP will monitor its internal and external environment in order to maintain stable and robust financial performance over the long term. |
ICAP's credit worthiness. Market competition. |
Predictability of earnings – discipline is applied to existing performance and new business proposals. Maintenance of ICAP's external credit rating. |
| Financial risk | |||
| The risk that the Group is exposed to significant losses due to adverse movements in interest and exchange rates. |
Interest rate risk from the Group's exposure to rate fluctuations on cash balances and borrowings. Currency translation risk arising from the conversion of foreign currency needed to pound sterling for the preparation of ICAP plc's consolidated financial statements. Currency risk for the Group's entities arising from transactions, assets or liabilities denominated in a foreign currency for an individual entity. Appetite ICAP will manage its financial risks in accordance with approved policies for the Group. |
Market rates. Trading volume. Geographic profile. Regulatory and working capital requirements. |
Details of the Group's management of interest rate and currency risks are contained in notes 9 and 28 to the financial statements. Established Group policies for the management of interest rate and currency exposures. Long-term debt raised with fixed rates with the option to swap to variable rates. Quarterly review of currency exposures and hedging levels. |
| Market risk | |||
| Risk of losses in on and off-balance sheet positions arising from adverse movements in market prices. |
ICAP does not actively take market risk. Where it does arise this is due to failures in our expected business processes, systems or human error. As such it is identified and treated as operational risk. Appetite ICAP will not engage in proprietary trading or actively seek market exposure and will actively reduce any incidental market exposure resulting from its activities as soon as reasonably practicable. |
Volume and complexity of trade booking. Market movements/ liquidity. |
Monitoring and timely mitigation of unmatched positions. Exposure modelling. |
While facing the same inherent risks to which the Group as a whole is exposed, the business models, markets and risk profiles of the divisions are unique. ICAP's risk management and governance frameworks are designed to support the top down assessment of risk for the Group, as well as supporting relevant business decision making and risk management of the revenue generating entities.
Each division is responsible for the management of its risks. The risk and compliance functions provide independent oversight and subject matter challenge to the first line in support of its risk management responsibilities.
The key risks faced by each division in the 2014/15 financial year are set out below:
| Division risk drivers | Key changes | Risks |
|---|---|---|
| Electronic Markets | ||
| • Relationships – customers, employees. • Infrastructure (including for clearing and settlement, IT). • Regulatory licences. • Short-term credit exposure to customers prior to clearing. • Liquidity to settle trades and meet margin calls. |
• New products/hybrid/exchanges. • Stressed market conditions. • Regulatory landscape. • Protect and grow market share. |
Strategic/reputation risk – failure to deliver existing or new products, competition. Operational risk – failure in its provision of technology service to clients. Credit/liquidity risk – material intra-day liquidity demands for settlement/margin. Regulatory risk – maintaining and receiving licence to operate in chosen jurisdictions. |
| Post Trade Risk and Information | ||
| • Relationships – customers, employees. • Infrastructure (including IT). • Regulatory licences. |
• Volume and customer growth. • New product development. • Regulatory landscape – MiFID II. |
Regulatory risk – upstream requirements e.g. MiFID II. Reputation risk. Operational risk – failure to manage market and client data integrity and run processes completely, accurately and in a timely fashion. |
| Global Broking | ||
| • Relationships – customers, employees. • Infrastructure (including for clearing and settlement, IT). • Regulatory licences. • Short-term credit exposure to customers in the settlement cycle (typically <t+3 days). • Market data infrastructure. |
• Stressed market conditions. • Focus on leading franchises. • Cost management. • Internal consolidation. |
Regulatory risk – upstream requirements e.g. MiFID II, conduct risk. Strategic risk – market consolidation, reducing margin. Credit risk – stressed market conditions. |
Strategic report Resources, relationships and responsibilities
ICAP employs more than 4,300 people in 32 countries. We recognise the importance of investing in our people and ensuring that we have the right mix of experience and skills to support the continued success of the business.
Our outstanding ability to adapt to new markets and opportunities is a direct result of each employee's ability and willingness to contribute and influence how we conduct our business.
Our culture and people are key to our success and must continue to evolve as our business develops. Our values are extremely important and underpin our business and behaviour. Recognising the significant amount of change our business has undertaken in recent years, our values are currently under review to ensure we have values that strongly resonate with our business of today.
ICAP aims to deliver 'best in industry' results, both financially and operationally. We aspire to be the standard setter for our industry across a broad range of measures, establishing the performance benchmarks that other companies use to judge themselves.
The board and our senior leadership play a critical role in setting the 'tone from the top'. In particular, our leadership development groups and desk head training sessions have helped us to articulate our desired culture, develop a new model for internal communication and talent management and ensure reward models reinforce our goals and beliefs.
The challenge for the coming year will be to ensure that, through the ICAP leadership team, all our employees understand and engage with our values and aspirations.
The achievement of our corporate goals ultimately depends on the quality of the people we have in our business – specifically their capabilities, ethics and motivation.
We have made and will continue to make a significant investment to develop the skills and capabilities of our people and to ensure that each employee is aware of their responsibilities. Compliance and risk management training is delivered to ICAP employees and contractors. The leadership and management training provided to more than 60 senior managers and over 200 desk heads reinforces our cultural values and builds best business practice.
Since the ICAP global graduate recruitment programme began in 2006, 341 graduates have joined the Group. We are proud of our record of nurturing and retaining this pool of high potential individuals. By building strong links with universities round the world we are able to attract fresh talent into our businesses. Our graduate programme, combined with internships, apprenticeships and insight opportunities, ensures that we continue to identify and connect with a broad range of individuals at all levels and from diverse backgrounds.
We have developed world-class, proprietary processes and procedures across our chosen markets. This means that our clients have access to expertise, proven technologies and experience to match all their requirements.
Technology is at the heart of our business. The ability to transact on systems with the highest level of stability, and that are up to date and future proof, is of vital importance to our customers. We work to ensure that our global broking, electronic and post trade products and services not only meet the current needs of our customers but also anticipate the greater reliance on electronic transactions as regulatory changes come into force in Europe and the US.
We are a leading provider of market infrastructure to the global financial sector through the provision of trade execution, workflow and risk mitigation solutions. This position has been achieved as a result of significant investment in our electronic technology and market infrastructure capabilities over many years. In 2014/15 we spent £177 million on technology.
We increasingly provide services that are embedded in our customers' operational flows and regulatory compliance and are also embedded in the infrastructure of our customers and other market participants. Technology constitutes a major component of ICAP's cost base. An increasing proportion of our capital expenditure is used in product and technological innovation. Both in-house and external suppliers are involved in the development of our technology and we operate technology research and development hubs in New Jersey, Stockholm and Tel Aviv.
As evident within the wider financial industry, the threat of cyber attack is ever evolving in sophistication and scope. To mitigate and reduce the industry-wide risk, ICAP continually enhances the security of its global systems. We have increased the size and capability of our IT security function globally and have made significant new investments in technical and procedural controls.
ICAP's position as a leading market infrastructure provider is the result of a significant investment in our technology capabilities over many years.
Our reputation is important to us, both as a service provider to the global financial services industry and as a key part of the communities in which we operate.
The ICAP brand is a hugely important and valuable business asset which influences the opinions and behaviours of external and internal stakeholders. Our brand image and business reputation is an outcome of how we operate as a business, what services we provide, how we communicate and how we treat our customers, colleagues and partners. While recognising that corporate and marketing communications are an important factor, the customer experience through the delivery of ICAP's portfolio of products and services is ultimately the most important driver of brand reputation and strength.
As an international business operating in 32 countries we aim to conduct our business in a socially responsible manner and to contribute to the communities in which we work, and we respect the needs of employees, investors, customers, suppliers, regulators and other stakeholders.
We endeavour to behave in accordance with established best practice in each of the countries in which we operate, to be a responsible employer, and to adopt values and standards designed to help guide our employees in their conduct and business relationships. We engage with our stakeholders in an open and co-operative way, ensuring full, transparent, fair, accurate, timely and understandable disclosure to encourage sustained and long-term mutually rewarding relationships. We operate a Code of Ethics and Business Conduct policy, which is approved by the board.
Remuneration is a key lever in encouraging and rewarding the right people for doing the right things, both in the current year and in delivering future success. It also represents the single biggest investment in assets for ICAP.
This year variable pay has continued to emphasise sustainable growth and key measures around governance and people as well as financial goals, reinforcing our strategy of organic growth through innovative products and technology solutions.
ICAP is committed to employment policies that provide and promote equal employment opportunities for all our employees and applicants and to maintaining a workplace that ensures tolerance, respect and dignity for all our employees. No employee, applicant, contractor or temporary worker is treated less favourably, victimised or harassed on the grounds of disability, sex, marital or civil partnership status, race, nationality, colour, ethnicity, religion or similar philosophical belief, sexual orientation, age or any distinction other than merit. Consideration is always given to human rights principles as part of the Group's working practices.
ICAP seeks to anticipate industry change, assess and develop new business opportunities and manage the risks that inevitably arise in this process. To do this the Company must attract, motivate and retain creative people, and manage itself and its infrastructure and processes in a way which fosters agility and provides an environment where employees are heard and valued.
As at 31 March 2015 the board of ICAP plc comprised two executive directors and five non-executive directors of whom one non-executive director is female. The senior managers of the Company (excluding the board) comprised 11 women and 72 men and the Group employed 1,100 women and 3,206 men.
| Gender ratio Board of directors |
||
|---|---|---|
| Male | 86% | |
| Female | 14% | |
| Gender ratio Senior management |
||
| Male | 87% | |
| Female | 13% | |
| Gender ratio | ||
| Employees | ||
| Male Female |
74% 26% |
|
The Group has a health and safety policy which is approved by the board and owned by the Global Chief Operating Officer. Regional health and safety committees ensure there is an effective structure for delivering compliance with the policy. Under the policy all managers have the responsibility to ensure that a healthy and safe working environment is in place for all employees. As the great majority of the Group's employees work in office environments, there are no significant areas of risk on which to report.
We believe that enhancing leadership skills throughout the Group and emphasising the integrity of our approach to business and customers creates an environment in which innovation and entrepreneurship can flourish within a compliance and riskfocused culture that is in keeping with our values.
ICAP invests in its compliance and control risk infrastructure, including trade surveillance, communications monitoring, operating a whistleblowing hotline, and a comprehensive training policy.
Definitions
As a key part of the global financial infrastructure, ICAP respects both the spirit and the letter of the control, compliance and assurance environment within which the Group operates worldwide.
ICAP endeavours to build and maintain a relationship of openness and trust with our customers, partners, investors and regulators. To do this the Company and our employees are expected to behave consistently and within standards of ethical and professional conduct at all times.
ICAP is committed to employment policies that provide and promote equal employment opportunities for all our employees and applicants and to maintaining a workplace that ensures tolerance, respect and
Group Head of HR
The Group is committed to undertaking business to the highest standards and has very clear ethical guidelines which are issued to all Group companies in both English and, where appropriate, local languages. Compliance with these ethical guidelines is monitored by the Audit Committee and through the Group's internal audit procedures. The Group has a zero-tolerance attitude towards the payment of any kind of bribe and a programme of internal training is in place to ensure that all employees are aware of the Group's policies.
The quality of our relationships with our customers is a core element of our strategy. Our customers rely on us to provide insight into the marketplace and expertise in applying knowledge and skills to their advantage. They also require us to be absolutely trustworthy and professional in everything we do.
We have a broad and growing customer base. Our traditional customers are primarily banks, with the relative size of specific customers varying considerably by product and geography. No single customer represents more than 10% of our revenue. One of our key strategic priorities is to expand and diversify our customer base outside our traditional areas of expertise.
We have ongoing relationships at various levels with governments and regulatory authorities in our countries of operation to ensure we have a current and detailed understanding of the relevant legislation and regulatory frameworks in which we and our customers have a presence. These relationships help shape the policy formation process and enable us to communicate and co-ordinate policy and regulatory change across all relevant parts of ICAP's business. They also provide timely input that can assist in the formation of strategy. This relationship thus mutually benefits all parties by assisting authorities and the ICAP Group in meeting wider objectives through the sharing of knowledge and expertise.
ICAP has formal relationships with a number of other organisations around the world which offer specialist products and services to a broader range of customers. These provide us with access to specific regional expertise and also help us to meet local regulatory requirements. We also have several associated companies which cover a wide range of services from treasury consultancy to highly specialised broking businesses.
The Group's environmental policy is approved by the board and owned by the Group Finance Director. Wherever possible, ICAP takes into account the direct and indirect environmental impact of its activities. As a service-orientated business, the major sources of greenhouse gases arise from the running of our global network of offices and employee travel commitments.
Emissions associated with electricity consumption increased slightly from 19,513 tonnes of CO2 e during 2013/14 to 19,746 in 2014/15. Emissions from air travel decreased by 20% from 6,353 tonnes of CO2 e during 2013/14 to 5,055 in 2014/15.
Year ended 31 March 2015
| Tonnes of CO2 e emissions |
|
|---|---|
| Scope 1* | 442 |
| Scope 2** | 18,143 |
| Scope 3*** | 12,967 |
| Total | 31,552 |
* Scope 1 includes direct greenhouse gas emissions from sources that are owned or controlled by the Company such as natural gas combustion and company owned vehicles.
Total emissions per full time employee has reduced from 6.65 tonnes of CO2 e in 2013/14 to 6.57 tonnes of CO2 e in 2014/15.
As in previous years, we will be mitigating our total carbon emissions by investment in carbon reducing projects.
The above estimates were prepared by The CarbonNeutral Company, an environmental consultancy. CarbonNeutral's assessment was carried out in accordance with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard. Responsibility for emissions sources was determined using the operational control approach.
We believe that ICAP contributes to the economies in which we operate by helping companies and organisations manage and mitigate their business risks and by helping government and companies raise capital.
Our principal contribution is to help the efficient functioning of the global markets. Our broking and electronic platforms provide transparency, source liquidity and enable price discovery for our customers. The move towards electronic trading in OTC markets, where ICAP is a leader, together with our Post Trade Risk and Information division, helps to make markets more resilient, safer and more transparent.
We have a small direct footprint in terms of social and community issues as traditionally defined, but we recognise that the markets in which we operate have a considerable impact in these areas and our behaviour and activities can have a positive effect.
This is directly reflected in our annual Charity Day event. This positively reflects ICAP's culture. It unites all our employees globally, our customers and suppliers together in an effort to raise money for charitable causes. It has a positive impact on public awareness not only of ICAP but, possibly more importantly now, of the broader financial services community of which we are a member.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 (restated) £m |
Change % |
|
|---|---|---|---|
| Revenue | 1,276 | 1,378 | (7) |
| Trading operating profit | 252 | 290 | (13) |
| Trading profit before tax | 229 | 271 | (15) |
| Profit before tax | 95 | 121 | (21) |
| pence | pence | Change % |
|
| Trading EPS (basic) | 28.7 | 33.2 | (14) |
| EPS (basic) | 13.0 | 15.7 | (17) |
| Dividend per share | 22.0 | 22.0 | – |
2013/14 results were restated to reflect the adoption of new accounting standards on joint ventures. See basis of preparation statement on page 103.
Trading results are before acquisition and disposal costs and exceptional items.
Trading operating profit, trading profit before tax and trading EPS (basic) exclude acquisition and disposal costs and exceptional items (see the basis of preparation statement on page 103. The 2013/14 income statement was restated to reflect the adoption of new accounting standards on joint ventures.
For the year ended 31 March 2015, the Group reported revenue of £1,276 million, 7% below the prior year. On a constant currency basis, revenue from Post Trade Risk and Information was up 10%, which was offset by decreases of 1% in Electronic Markets and 11% in Global Broking.
During the course of the year, the Group's trading performance was impacted by a combination of structural and cyclical factors. Bank deleveraging, in response to stricter regulatory capital requirements, negatively impacted the trading activity of ICAP's customers, particularly in the Global Broking division. This was partly offset in the second half of the year by the European quantitative easing announcements and the speculation on the timing of a US interest rate rise which resulted in increased volatility. Some of the revenue loss within Global Broking was as a result of closed businesses as the Group successfully completed its restructuring programme.
In response to the challenging trading conditions experienced towards the end of 2013/14 and into the first half of 2014/15, the Group embarked on a comprehensive review and restructuring of the Global Broking division. As a result of this action, coupled with improved market volumes and new product initiatives, in the second half of 2014/15 the Group delivered a trading profit before tax of £143 million, an increase of 8% on the prior year.
The 10% increase in Post Trade Risk and Information revenue was driven through increased participation in triReduce portfolio compression cycles and the uptake of the portfolio reconciliation service, triResolve. Subscription-based revenue increased in products such as CreditLink and cross-asset regulatory reporting in Traiana. Electronic Markets' revenue decreased 1% on a constant currency basis, with EBS revenue increasing by 2%, offset by a 2% revenue decrease in BrokerTec.
Group net trading operating expenses of £1,024 million were 6% lower than the previous year, mostly driven by an 11% decrease in Global Broking as the cost saving programme initiated over the past three financial years has taken £175 million of cumulative annualised costs out of the business. £41 million of net cost savings were achieved from the successful completion of the Group's 2014/15 restructuring programme. A further £12 million of incremental net annualised savings attributable to the prior year cost reduction initiatives was also achieved. Additionally, the flexibility of the cost base continued to be enhanced through the restructuring of broker compensation as contracts became due for renewal. The total broker and support headcount in Global Broking reduced by 740 in the year to 2,336 employees and the broker compensation ratio was reduced by four percentage points to 53%.
Consistent with the Group's growth strategy, ICAP continues to make significant investment in the Electronic Markets and Post Trade Risk and Information divisions. During the year the Group invested £43 million in new business lines including EBS Direct, the ICAP SEF, triCalculate and Traiana Limithub, an increase of £1 million compared with the same period last year. The total headcount of Electronic Markets and Post Trade Risk and Information businesses expanded by 119 during the year to 1,226 employees.
The Group reported a trading operating profit of £252 million, 13% down on the prior year. The Group's trading operating profit margin reduced to 20% (2013/14 – 21%). The proportion of the Group's trading operating profit generated from the Electronic Markets and Post Trade Risk and Information divisions increased to 75%, reflecting a five percentage point increase on the prior year.
Group trading profit before tax of £229 million and trading EPS (basic) of 28.7p were 15% and 14% down on the prior year respectively. Profit before tax was £95 million (2013/14 – £121 million), reflecting a £15 million decrease in acquisition and disposal costs partially offsetting the £42 million decrease in trading profit before tax. Basic EPS declined 17% to 13.0p.
| Revenue | 2015 £m |
2014 £m |
Change % |
|---|---|---|---|
| BrokerTec | 128 | 133 | (4) |
| EBS | 124 | 122 | 1 |
| Other electronic platforms | 7 | 10 | (25) |
| Total – reported | 259 | 265 | (2) |
| – constant currency | 262 | (1) | |
| Trading operating profit | 93 | 107 | (13) |
| Trading operating profit margin |
36% | 40% | (4ppt) |
ICAP operates BrokerTec and EBS, which are electronic trading platforms in fixed income and FX. These platforms offer efficient and effective trading solutions to customers in more than 50 countries across a range of instruments including spot FX, US Treasuries, European government bonds and EU and US repo. These electronic platforms are built on ICAP's bespoke networks connecting participants in financial markets.
In December 2014, ICAP announced plans to combine its electronic business to create EBS-BrokerTec. The combined business allows ICAP to leverage BrokerTec's market leading platform, client relationships and strong team, as well as EBS's technology and innovation pipeline, to deliver unique products and services to the industry and expand the addressable market of both platforms.
For the year ended 31 March 2015, Electronic Markets' revenue decreased by 2% to £259 million (2013/14 – £265 million). The overall trading operating profit margin declined by four percentage points to 36% mainly as a result of increased investment in EBS Direct.
BrokerTec is the global electronic platform for the trading of US Treasuries, European government bonds and EU and US repo. BrokerTec facilitates trading for institutions, banks and non-bank professional trading firms.
For the year ended 31 March 2015, revenue decreased by 4% to £128 million (2013/14 – £133 million) reflecting a 3% increase in US Treasury average daily volumes to \$163 billion, a 1% increase in US repo to \$220 billion and a 7% decrease in European repo to \$233 billion.
During the year, BrokerTec marginally improved its leading market share in the interdealer US Treasury on-the-run market, reflecting the continued technology and infrastructure improvements to the platform. Volumes on BrokerTec benefited from the Federal Reserve's tapering programme and the end of quantitative easing in the US. Geopolitical events and economic unrest during the course of the year also drove investors to buy US Treasuries in a 'flight to quality' trade and to take advantage of the wide spread between EU and US yields.
The repo market is pivotal to the effective functioning of almost all financial markets, and provides an efficient source of collateralised money market funding. During the year, the main headwind of both the US and European repo markets was regulatory change, as firms deal with the new capital and liquidity requirements that emerged from Basel III.
European government bond volumes on BrokerTec improved as a number of new market-making initiatives resulted in higher volumes. Increased client footprint, most notably in Italy, with more domestic regional banks using BrokerTec, complemented ongoing efforts to improve market share in the Italian sovereign bond market.
EBS, ICAP's electronic FX business, is a reliable and trusted source of orderly, executable and genuine liquidity across major and emerging market currencies. It has responded to changing market dynamics by transitioning from a business with a single offering to one that can support multiple execution methods and multiple ways of trading through a common distribution network.
Overall activity levels in the major currency pairs during the first five months of the year remained subdued, as FX volatility remained at historically low levels. A number of central bank interventions, for example by the ECB in September, the Bank of Japan in October and the Swiss National Bank in January, drove an increase in FX volatility resulting in an increase in volume on EBS. In addition, quantitative easing in Europe was a major driver of activity levels in euro/dollar. As a result, average daily volume on EBS was 42% higher in the second half compared to the first half of the year. Average daily volume for the year was 6% higher than in 2013/14. Revenue for the year ended 31 March 2015 increased by 1% to £124 million (2013/14 – £122 million).
EBS Market, the exchange-like flagship platform, is a central limit order book that allows customers to match interest anonymously with other participants in the market. It has maintained its position as a primary interbank venue for the trading of the world's most actively traded currency pairs, including euro/dollar and dollar/yen. The unpegging of the Swiss franc in January resulted in significantly increased trading volumes in euro/Swiss franc and dollar/Swiss franc, demonstrating the pivotal position EBS has in the FX markets during times of high volatility.
Consistent with the strategy to expand into growth markets, volume traded in emerging market currency pairs saw a significant growth of 101% on 2013/14. The dollar/offshore Chinese renminbi remains one of the most actively traded currency pairs on EBS Market, and volumes have grown by more than 400% during 2014/15. NDFs also experienced both positive growth and broader customer interest, with a 102% increase in volume on the previous year.
EBS Direct, which launched in November 2013, is a fully disclosed relationship-based platform that allows liquidity providers to stream tailored prices directly to liquidity consumers. It has continued to grow steadily following a hiatus to allow for a technology upgrade at the end of 2014. Average daily volume increased from \$5 billion in April 2014 to \$17 billion in March 2015. The platform now has 20 liquidity providers and over 350 liquidity consumers using the service. Interest in EBS Direct continues to grow, with an additional 200 new customers in the pipeline in addition to 20 new liquidity providers.
EBS Direct, which launched in November 2013, is a fully disclosed relationship-based platform that allows liquidity providers to stream tailored prices direct to liquidity consumers.
EBS Direct is expected to remain in an investment phase in 2015/16 as new functionality, services and products are added to the platform, including the launch of FX swaps and outright forwards and the integration of MyTreasury, a service for corporate customers. During the year £23 million has been invested in EBS Direct, of which £7 million has been capitalised.
In March 2015, a new global liquidity platform, EBS Select, went live with a beta launch to complement the existing multi-product offerings. EBS Select will provide customers with the option of trading in a non-disclosed environment using a multi-prime broker model. 30 liquidity consumers and six liquidity providers are participating in the beta roll-out.
EBS Hedge, a new innovative product, was designed for systematically driven risk management, allowing e-FX trading desks to match with other e-FX desks when interests cross. Having launched the beta phase in December 2014, it has experienced exceptional support from the EBS community, with seven customers currently live and another six customers connecting to the test lab environment, and a further 20 customers have expressed a strong interest to participate in the product in the coming year.
i-Swap, ICAP's global electronic trading platform for IRS, has continued to build on its market position and has brought increased transparency, greater efficiency and lower transaction costs to the world's largest OTC derivative market. i-Swap is central to ICAP's SEF strategy and is the trading platform utilised for required and permitted interest rate derivative transactions. Electronic momentum in dollar interest rate swaps is building on the i-Swap platform as banks transition liquidity from voice to electronic venues to take advantage of lower execution costs, enhanced trade opportunities and post trade efficiencies.
In Europe, while there is consistent liquidity on the platform at the two, five and ten-year points, activity levels are conditional on the levels of market volatility. Targeted streaming has been introduced recently with five liquidity providers actively providing tiered pricing to a subset of platform users. As the MiFID II requirements unfold over the coming months, this is likely to be a further catalyst to increase the transition to electronic trading.
| Revenue | 2015 £m |
2014 £m |
Change % |
|---|---|---|---|
| TriOptima | 67 | 54 | 24 |
| Traiana | 53 | 47 | 11 |
| Reset | 39 | 41 | (5) |
| Information Services | 69 | 70 | (1) |
| Total – reported | 228 | 212 | 8 |
| – constant currency | 207 | 10 | |
| Trading operating profit | 97 | 96 | 1 |
| Trading operating profit margin |
43% | 45% | (2ppt) |
The Post Trade Risk and Information division operates market infrastructure for post trade processing and risk management across asset classes and enables users of financial products to reduce operational, second order financial and system-wide risks. The services offered by Post Trade Risk and Information enable customers to increase the efficiency of trading, clearing and settlement and facilitate the effective management of capital and risk weighted assets and associated cost.
The portfolio risk services businesses comprise TriOptima and Reset, which identify, neutralise, remove and reconcile risk within portfolios of derivatives transactions; Traiana, which provides pre trade risk and post trade processing solutions; and the information and data sales business.
During the year, Post Trade Risk and Information invested more than £18 million in development in order to offer new products and enhance the functionality of existing services.
For the year ended 31 March 2015, revenue increased by 10% on a constant currency basis and by 8% on a reported basis to £228 million (2013/14 – £212 million) reflecting strong revenue growth in both TriOptima and Traiana. Trading operating profit increased by 1% reflecting an increase in investment in new products and a reduction in revenue from higher margin products.
TriOptima, through triReduce and triResolve, is a leader in risk mitigation solutions for OTC derivatives, primarily through the elimination and reconciliation of outstanding transactions. It continues to benefit from the strategic alignment of its offerings with the G20 policy objectives of transparency and risk reduction in the financial system.
For the year ended 31 March 2015, revenue increased by 34% on a constant currency basis and by 24% on a reported basis to £67 million (2013/14 – £54 million) driven by increased participation in triReduce portfolio compression cycles and the uptake of the portfolio reconciliation service, triResolve.
During the year triReduce terminated \$150 trillion of gross notional outstanding (2013/14 – \$112 trillion). The more stringent leverage ratio included within the Basel III rules continues to drive demand from banks for the triReduce compression service. Since its launch in 2003, triReduce has eliminated more than \$609 trillion in total notional volume from the OTC derivatives market for more than 251 legal entities, including both bank and non-bank institutions. triReduce is working with multiple clearing houses to facilitate portfolio compression for cleared trades. In December, triReduce announced that it had completed the first compression cycle for Japanese yen interest rates swaps at the Japanese Securities Clearing Corporation and, in March 2015, announced that it had entered into an agreement with the CME to offer multilateral compression services.
triReduce continues to offer new services, including cross-currency swaps, in which it has already successfully run compression cycles in currencies such as the Mexican peso, the South African rand and the Turkish lira. triReduce recently announced plans to collaborate with CLS to deliver an FX forward compression service.
Strong demand for triResolve continues to be driven by the introduction of regulatory requirements for regular reconciliation of derivative portfolios. The number of customers using the triResolve service has increased from 987 during 2013/14 to more than 1,380 who participate in 330,000 party-to-party reconciliations each month (2013/14 – 283,000). triResolve recently announced its first customer in Taiwan as market participants in the Asia Pacific region have begun to reconcile regularly to accommodate their US and European counterparties. A further offering born out of the new rules is repository reconciliation where triResolve supports interfaces to both European and US trade repositories.
triCalculate, the counterparty credit risk analytics service based on an innovative new methodology, is now in its pilot phase and is expected to go into commercial launch in 2015/16. New regulatory requirements under the Basel III framework will introduce the need for further new products.
TriOptima, through triReduce and triResolve, is the market leader in risk mitigation solutions for OTC derivatives, primarily through the elimination andreconciliation of outstandingtransactions.
Traiana operates the leading market infrastructure for pre and post trade risk management and post trade processing across multiple asset classes. Its robust and proven product suite automates trade processing across the life cycle for FX, cash equities, equity swaps, futures, OTC derivatives and fixed income. Traiana's Harmony network connects more than 750 global banks, broker/dealers, buy side firms and trading platforms.
For the year ended 31 March 2015, revenue increased by 10% on a constant currency basis and by 11% on a reported basis to £53 million (2013/14 – £47 million). The increase is primarily attributable to subscription-based revenue in products such as CreditLink, the real-time platform for pre and post trade certainty of clearing and cross-asset regulatory reporting, specifically CCP Connect and Trade Reporting. The Harmony platform saw a decline in the number of FX transactions processed as a result of low FX volatility during the first half of the year.
While FX remains its largest revenue segment, Traiana continues to innovate, grow and diversify its business into other asset classes, delivering network based solutions for all financial market participants, while also continuing to innovate in FX. There has been a focus on investment in real-time credit management and allocation systems and the expansion of regulatory reporting into multiple jurisdictions. Regulatory approval was recently received from three separate regulatory bodies and three pan-European clearing houses for the launch of Equity CCP Connect, a clearing service which provides banks with immediate expense and risk reduction through the netting and clearing of OTC equity transactions.
Reset is a provider of services that reduce the basis risk within portfolios from fixings in the interest rate, FX and inflation derivatives and bonds markets. Basis risk results from the structure of the instruments traded and unintended mismatches of exposure over time.
Reset's revenue is largely correlated to the movement in both actual and forecast short-term interest rates. For the year ended 31 March 2015, revenue decreased by 2% on a constant currency basis and by 5% on a reported basis to £39 million (2014/15 – £41 million). Minimal interest rate volatility and flat short-term yield curves continued to constrain activity levels. Reset remains well positioned to benefit from a return to normalised levels of interest rate volatility.
IIS delivers independent data solutions to financial market participants, generating subscription-based fees from a suite of products and services. ICAP Indices charges licence fees based on financial instruments linked to proprietary indices as well as licensing other index administrators for the use of ICAP data in their indices.
For the year ended 31 March 2015, revenue increased by 1% on a constant currency basis and marginally decreased on a reported basis to £69 million (2013/14 – £70 million). The IIS product offering and development strategy have expanded to meet the evolution in market demand. IIS has continued to broaden its distribution options based on customer demand.
IIS has expanded its offering within its interest rate derivatives suite, most recently with the launch of real-time, end of day and historical tick data services. IIS continues to leverage its collaborative relationships with third party data, analytics and technology providers to improve its offerings, expand its customer base and enter new markets. For example, its partnership with industry specialists Prism Valuations widens the addressable market for IIS's services.
ICAP's Post Trade Risk and Information division invests in new companies developing innovative technology-led offerings via Euclid Opportunities. Euclid identifies and provides investment to emerging financial technology firms providing new platforms, business models and technologies that have the potential to drive efficiency, transparency and scale across the post transaction life cycle. Example investments are Duco, a rapidly growing reconciliation on-demand provider, OpenGamma, an award winning risk analytics provider, and Enso Financial, a portfolio analytics provider to asset managers and hedge funds. Further investments are anticipated in the forthcoming financial year.
| Revenue by asset class | 2015 £m |
2014 £m (restated) |
Change % |
|---|---|---|---|
| Rates | 269 | 318 | (15) |
| Commodities | 148 | 169 | (12) |
| Emerging markets | 132 | 150 | (12) |
| Equities | 103 | 113 | (8) |
| FX and money markets | 74 | 78 | (5) |
| Credit | 63 | 73 | (14) |
| Total – reported | 789 | 901 | (12) |
| – constant currency | 885 | (11) | |
| Trading operating profit | 62 | 87 | (29) |
| Trading operating profit margin |
8% | 10% | (2ppt) |
Global Broking provides services to wholesale markets across a wide range of geographies and asset classes. ICAP's 1,571 brokers, leveraging their deep customer relationships, help identify potential trading interest, access liquidity and facilitate price discovery in a vast array of financial instruments. Global Broking's revenue by asset class for the year ended 31 March 2015 is set out above.
During the course of the year, the trading performance of Global Broking was impacted by a combination of structural and cyclical factors. Bank deleveraging, in response to stricter regulatory capital requirements, constrained the trading activity of ICAP's customers. This was partly offset in the second half of the year by the European quantitative easing announcements, speculation on the timing of a US interest rate rise, the dramatic fall in oil prices and the ripple effect of various European general elections which had increased volatility.
Against this market backdrop ICAP undertook a fundamental review of the business evaluating the current contributions and future prospects by desk and location. As a result broker headcount reduced by approximately 500 brokers to 1,571. In addition, broker compensation continues to be adjusted in order to enhance the variable nature of broker costs. This resulted in annualised cost savings of £70 million net of revenue loss. The focus in 2015/16 will be around the development of our people, complemented by the integrated smart use of technology, a key tool to growing our market share.
For the year ended 31 March 2015, revenue decreased by 11% on a constant currency basis and by 12% on a reported basis to £789 million (2013/14 – £901 million). This reflects a year-onyear decline of 15% in the first half of the year followed by a 6% decline in the second half of the year. Trading operating profit reduced by 29% to £62 million resulting in a modest reduction in the overall operating profit margin to 8%. The trading operating profit margin improved to 12% in the second half of the year compared to 4% in the first half. The decline in revenue was partially offset by cost savings arising from the ongoing cost reduction programme outlined above.
The rates business comprises interest rate derivatives, government bonds, repos and financial futures. Rate products contribute the largest share of Global Broking's revenue (34%) of which interest rate derivatives represent the most significant component. For the year ended 31 March 2015, revenue decreased by 15% on a reported basis.
The enduring low interest rate environment and bank customers' reduced risk appetite remains a headwind for trading activity in addition to ongoing pressure on brokerage. In the second half of the year, however, the macroeconomic environment in Europe benefited from the introduction of quantitative easing resulting in lower euro rates. This development spurred an unprecedented level of bond issuance and related hedging activity in the swaps markets.
The trend to execute on electronic platforms impacted some of the desks as activity in the off-the-run US Treasuries migrated to BrokerTec and US swaps to i-Swap. The hybrid matching platform has continued its success and is fully supported by the brokers, ensuring that ICAP maintains its top position in the volume matching market. During the course of the year a review of the existing global financial futures business was concluded, and this business now operates on a streamlined, execution only, regional model which is better suited to serve ICAP's customers' requirements.
The commodities business comprises energy (including electricity, crude oil, refined products, natural gas, coal, and alternative fuels), environmental markets, shipping, metals, agriculture and soft commodities.
For the year ended 31 March 2015, revenue decreased by 12% on a reported basis, with the largest decreases coming from US natural gas and electricity. Range bound natural gas prices continued to drift lower as supply continued to outstrip demand, which meant less volatile electricity prices, both of which provided fewer trading opportunities. A volatile oil price, however, resulted in a positive performance despite the strengthening US dollar creating currency headwinds for commodity prices. As part of the Group restructuring process, ICAP withdrew from the LME metals business, streamlined the carbon business and scaled back the alternative fuels desk.
The shipping business produced revenue in line with the previous year as improvements in tanker markets offset the adverse impact of low dry rates. On 1 April 2015, ICAP's shipping business and Howe Robinson Group Pte Ltd, the shipbroking group, formed a new venture, Howe Robinson Partners, which has commenced trading. ICAP has taken a 35% shareholding in the new venture.
ICAP is active in emerging markets across Asia Pacific, Latin America, Central and Eastern Europe and Africa. Emerging market revenue includes domestic activity in local markets and crossborder activity in globally traded emerging market money and interest rate products.
For the year ended 31 March 2015, revenue decreased by 12% on a reported basis. The majority of the reduction came in the first half with the second half revenue 2% above that recorded in the second half of 2013/14. The return of volatility relating to geopolitical factors, a falling oil price as well as some specific local factors helped to improve performance in the second half of the year, especially on the Asian desks. NDF volumes have grown on the back of the implementation of matching sessions as well as market driven increases. Liberalisation of the renminbi as a settlement currency continues to drive growth in related products.
The equities business principally comprises equity derivatives. For the year ended 31 March 2015, revenue decreased by 8% as a number of bank customers downsized their desks, restricted balance sheets and internalised trades. During the second half of 2014/15 macroeconomic developments in the Eurozone contributed to an uptick in trading activity. There has been a steady flow of small boutique hedge funds replacing the bank flow.
The FX and money markets business comprises spot, forwards and cash products. For the year ended 31 March 2015 revenue fell by 5% on a reported basis. After a period of low exchange rate volatility in the first half of the year, central banks' actions and geopolitical developments drove increased volatility and trading activity in FX markets. Cash products performed well, especially in the Americas, as customers used the product to manage short-term funding requirements.
The credit business comprises corporate bonds and credit derivatives, and contributes the smallest share of Global Broking's revenue (8%). The credit business has been restructured and product offerings have been streamlined, with 13 desk closures and the reduction of ICAP's stake in the First Brokers business (down to 40%).
Revenue for the year ended 31 March 2015 is 14% below the prior year on a reported basis. The remaining business benefited from a pick up in recent bond issuance following Eurozone quantitative easing as participants look to lock in low funding costs. In January 2015, Scrapbook was launched, an anonymous, session-based e-solution for the corporate bond market. Accessed via ICAP's e-Commerce portal, Scrapbook helps corporate bond traders identify opportunities and manage their positions more efficiently.
Rate products contribute to the largest share of Global Broking's revenue (34%) of which interest rate derivatives represent the most significant component.
Richard Bigwood Executive Managing Director, London Rates, and Global Managing Director, IRS
The results for 2014/15 section of the strategic report (pages 35 to 47) focus on the Group's divisional revenue and trading operating profit as management plans and reviews the financial performance of the business using trading results that exclude acquisition and disposal costs and exceptional items (see the basis of preparation statement).
We choose to focus on trading profit as we believe that it provides a clearer view of business performance and in particular is expected to convert fully into cash over the medium term.
On page 45, we provide a reconciliation between the Group's trading profit for the year and the reported Group profit.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|
|---|---|---|
| Trading operating profit | 252 | 290 |
| Net finance costs | (31) | (27) |
| Share of profit of joint ventures after tax | 4 | 4 |
| Share of profit of associates after tax | 4 | 4 |
| Trading profit before tax | 229 | 271 |
| Tax | (44) | (59) |
| Trading profit for the year | 185 | 212 |
The Group's £252 million trading operating profit (2013/14 – £290 million) converted to a trading profit before tax of £229 million (2013/14 – £271 million) after deducting net finance costs of £31 million (2013/14 – £27 million) and recording a share of profit of joint ventures and associates after tax of £8 million (2013/14 – £8 million).
Trading net finance costs were £4 million higher than the prior year. Interest payable and similar charges were £3 million lower this year, primarily benefiting from the lower charges on the new eurobond. Excluding the adverse effect from the double running of the bonds in 2014/15, the annualised savings in finance costs from the new eurobond will be £6 million. The double running of the bonds until July 2014 also resulted in a £1 million increase in interest income. The £4 million benefit to 2014/15 trading net finance costs from lower charges and higher interest income was more than offset as no dividends were received from the available-for-sale investments in the current year (2013/14 – £3 million). Additionally, the prior year included certain one-off credits of £5 million.
Movements in exchange rates had a £32 million adverse impact on year-on-year revenue and a £14 million adverse impact on trading profit before tax. These impacts were primarily driven by the strengthening of the US dollar against sterling.
The Group's tax charge of £44 million on trading profit before tax represents an effective tax rate (ETR) of 19% (2013/14 –22%), as shown in the chart below. The ETR primarily reflects the various statutory tax rates applied to taxable profits in territories in which the Group operates.
| 19% | 2015 |
|---|---|
| 22% | 2014 |
| 2013 26% |
The trading ETR is three percentage points lower this year, driven by a decrease in the UK statutory tax rate from 22% to 21% and certain one-off prior year adjustments. In the absence of one-off prior year adjustments, the underlying ETR is in the range of 23% to 25%.
The Group manages its tax affairs in accordance with its tax strategy. The tax strategy was presented to the Audit Committee during the year (see the Audit Committee report in the Governance section on pages 60 to 62).
Trading EPS (basic) is calculated based on the trading profit for the year.
We believe that trading EPS (basic) is the most appropriate EPS measurement ratio for the Group as this most closely reflects the ongoing generation of cash attributable to shareholders and in turn the Group's ability to fund sustainable dividends. In line with this, the Remuneration Committee considers trading EPS (basic) in its review of management performance and uses that metric in the remuneration of the executive directors. A reconciliation between trading EPS (basic) and the reported EPS (basic) is presented in note 5 to the financial statements.
| Year ended 31 March 2015 pence |
Year ended 31 March 2014 pence |
|
|---|---|---|
| Trading EPS (basic) | 28.7 | 33.2 |
| Full-year dividend per share | 22.0 | 22.0 |
The Group reported a trading EPS of 28.7p per share, a decrease of 14% on the prior year. This reflects a 15% decrease in the trading profit before tax, which was partially offset by a three percentage point reduction in the ETR.
The directors recommend a final dividend of 15.4p per share, reflecting strong cash generation and the board's confidence in the medium term prospects for the business. If approved, the final dividend will be paid on 24 July 2015 to shareholders on the register at the close of business on 3 July 2015. The shares will be quoted ex-dividend from 2 July 2015.
The full-year dividend will be 22.0p (2013/14 – 22.0p) including the payment of the 6.6p interim dividend on 6 February 2015. The full-year dividend per share is covered 1.3 times (2013/14 – 1.5 times) by trading EPS of 28.7p.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|
|---|---|---|
| Cash generated from operating activities* | 313 | 314 |
| Interest and tax | (66) | (100) |
| Cash flow from trading activities | 247 | 214 |
| Capital expenditure | (57) | (67) |
| Dividends from associates, joint ventures and investments |
6 | 12 |
| Trading free cash flow | 196 | 159 |
| Free cash flow conversion | 106% | 75% |
*before exceptional items
ICAP is cash generative and we continue to expect free cash flow and post tax trading profit to converge over the medium term.
Free cash flow conversion for the year was 106% (2013/14 – 75%) of the Group's trading profit. The 31 percentage point improvement is primarily due to timing differences on working capital and tax payments. The 75% cash conversion in 2013/14 was unusually low as a result of unfavourable timing differences from working capital and significant higher capital expenditure in that year compared with depreciation and amortisation charges recorded.
Cash generated from operating activities before exceptional items of £313 million was marginally down on the prior year, as a £38 million decrease in trading operating profit in the year was offset by the reversal of an adverse timing difference in working capital movements in the prior year. For further information, see note 11 to the financial statements.
Net payments in respect of interest and tax have decreased by £34 million to £66 million, primarily driven by timing differences related to tax payments. Interest and tax paid of £66 million (2013/14 – £100 million) includes £35 million (2013/14 – £31 million) of net interest and £31 million (2013/14 – £69 million) of tax. Net interest payments are £4 million higher this year due to the double running of eurobonds up to July 2014. Net payments in relation to tax benefited from a combination of a lower tax charge in the current year and tax refunds received relating to certain overpayments in the prior year.
Cash flow from trading activities of £247 million (2013/14 – £214 million) was used to pay £141 million in dividends to shareholders as the Group continues to maintain strong dividend payments. To propel future growth, £57 million was invested primarily in technology assets and £36 million was invested to successfully complete the Group's restructuring programme.
Additionally, a significant amount of cash spend on technology during the year was directly charged to the income statement. ICAP's market leading position has been achieved and maintained through substantial investment over many years in technology and marketuser infrastructure. ICAP is committed to maintaining a high level of Investment in technology assets, especially in growth areas in Electronic Markets and Post Trade Risk and Information, over the coming years as we continue our drive to improve and widen our product offerings to our customers.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
|
|---|---|---|
| Trading profit for the year | 185 | 212 |
| Acquisition and disposal costs after tax | (44) | (48) |
| Exceptional items after tax | (57) | (64) |
| Profit for the year | 84 | 100 |
Acquisition and disposal costs in the year were £59 million (2013/14 – £74 million) before a tax credit of £15 million (2013/14 – £26 million). The acquisition and disposal costs in the year primarily represent amortisation of acquired intangibles. See notes 3 and 14 to the financial statements for a more detailed breakdown of the Group's acquisition and disposal costs.
The £15 million decrease in acquisition and disposal costs reflects an £11 million impairment charge recorded in 2013/14. There was no impairment charge recorded in 2014/15.
The Group discloses separately items that are non-recurring and material in terms of both size and nature. This allows appropriate visibility of these items and reflects how information is reviewed by management. It allows focus on the Group's trading performance, as well as due attention specifically on the exceptional matters.
For the year to 31 March 2015 exceptional items were £75 million (2013/14 – £76 million) before a tax credit of £18 million (2013/14 – £12 million).
The Group has now completed its restructuring programme. The Group recorded a £60 million charge during the year to implement the restructuring programme, of which £24 million is non-cash expense, comprising property related provisions and other accruals.
The remaining £15 million relates to regulatory matters including a £11 million provision relating to a €14.9 million fine imposed by the European Commission for alleged competition violations in relation to yen Libor, in respect of the same underlying matters that ICAP Europe Limited, a subsidiary of ICAP's Global Broking division, settled with the Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) in September 2013. ICAP has appealed and is seeking a full annulment of the Commission's decision.
For further information, see note 4 to the financial statements.
| As at 31 March 2015 £m |
As at 31 March 2014 £m (restated) |
|
|---|---|---|
| Net assets | ||
| Intangible assets arising on consolidation | 930 | 933 |
| Cash and cash equivalents | 481 | 698 |
| Borrowings | (549) | (787) |
| Other net assets | 156 | 139 |
| Total net assets | 1,018 | 983 |
The Group's net assets as at 31 March 2015 were £35 million higher at £1,018 million (31 March 2014 – £983 million). The retained deficit in the year of £57 million (net of £141 million dividend payments) was offset by a £91 million favourable FX movement, principally as a result of a stronger US dollar on the net assets, including goodwill, on our US businesses.
The significant balance sheet line items, including intangible assets arising on consolidation, cash and cash equivalents and borrowings are discussed below.
| Total | 930 |
|---|---|
| Global Broking | 89 |
| Post Trade Risk and Information | 318 |
| Electronic Markets | 523 |
| £m | |
The Group's goodwill and other intangible assets arising from consolidation as at 31 March 2015 was £930 million (2013/14 – £933 million), with 90% of the balance represented by the Electronic Markets and Post Trade Risk and Information divisions.
Other intangible assets were amortised by £55 million (2013/14 – £64 million) during the year. Additionally, £15 million of goodwill and other intangible assets were transferred to disposal group as the sale of the Group's shipbroking business was classified as held for sale as at 31 March 2015, see note 10 to the financial statements.
This £70 million combined decrease was partially offset by a £67 million favourable movement in FX. Strengthening of the US dollar resulted in an increase of £76 million in the balance during the year, which was partially offset by a £9 million decrease in euro-denominated assets resulting from the weakening of the euro against sterling in the year. These currencies represented 77% of the Group's goodwill and other intangibles.
The board reviewed the Group's goodwill and other intangibles assets arising on consolidation for impairment as at 31 March 2015 and concluded that there was no impairment at that date.
The review was based on certain estimates and assumptions, including future cash flow projections and discount rates. The Audit Committee challenged management's judgements and estimates and has approved the appropriateness of management assumptions. See the Audit Committee section in the Governance Report on page 61 and note 14 to the financial statements.
The Group's overall funding position as at 31 March 2015 remains strong.
The gross debt position including overdrafts of £33 million (2013/14 – £1 million), net of fees, decreased by £238 million to £549 million as at 31 March 2015 as the Group repaid €300 million of senior notes in July 2014, with the repayment financed by the issuance of a €350 million bond in March 2014.
The \$193 million (equivalent to £130 million) of guaranteed subordinated loan notes is due in June 2015. As at 31 March 2015, the Group had committed undrawn headroom under its core credit facilities of £425 million (2013/14 – £425 million).
In December 2014, as part of a peer review with another interdealer broker, Moody's downgraded the Group's long-term issuer default rating on senior debt from Baa2 (negative) to Baa3 (negative), reflecting its opinion on pressure facing the interdealer brokers. The rating by Fitch remained unchanged at BBB (stable).
| Total | 479 |
|---|---|
| Global Broking | 381 |
| Post Trade Risk and Information | 30 |
| Electronic Markets | 68 |
| £m | |
*Cash includes cash and cash equivalents of £481 million and £43 million of restricted funds.
ICAP operates its business under an investment firm waiver which currently runs until April 2016. The waiver modifies the basis on which regulatory capital is calculated for the Group and, at 31 March 2015, ICAP had £0.7 billion (2013/14 – £0.9 billion) of headroom on this basis. The effect of the waiver is to exclude goodwill and other intangibles from the calculation and, in doing so, allows the Group to undertake acquisitions using debt rather than equity finance. In the event that the waiver was not renewed, applying a consolidated approach to credit and market risks would give an incremental regulatory capital requirement of approximately £0.5 billion which, in line with recent precedent, would most likely be eliminated through retained profit over time.
ICAP operates 45 regulated subsidiaries globally. Each is locally capitalised and regulated. Together these entities hold £430 million of cash (including restricted funds) of which £357 million (2013/14 – £375 million) is held by the Global Broking businesses. Electronic Markets and Post Trade Risk and Information hold £55 million (2013/14 – £45 million) and £18 million (2013/14 – £17 million) respectively.
Net debt decreased by £21 million in the year to £68 million as at 31 March 2015. The decrease in net debt was principally driven by the 106% free cash flow conversion in the year. After payments of £141 million in dividends to shareholders and £48 million in exceptional payments, there was an excess of £7 million in trading free cash flow. The net debt position also benefited from a £14 million favourable movement in FX, principally in eurodenominated debt.
Net debt of £68 million excludes Group's restricted funds of £43 million as at 31 March 2015 (31 March 2014 – £39 million).
The strategic report was approved by the board and signed on its behalf by:
Group Chief Executive Officer 19 May 2015
Charles Gregson Chairman
Culture is a differentiating factor between success and failure when it comes to commercial performance, employee engagement and good conduct.
I am pleased to introduce the governance section of the 2015 Annual Report which sets out the board's governance framework and provides a report of its activities over the past year. These activities focus on the board's responsibility to create and deliver long-term sustainable shareholder value.
As the Group CEO's review describes, this has been another challenging year for ICAP and the board has led and supported the executive management in the achievement of a number of business and strategic objectives, including the reshaping of Global Broking. Good progress has been made against the key objectives set by the board and their link to the remuneration strategy is discussed in more detail in the remuneration report.
The objective I wish to focus on is that of culture, the 'tone from the top'. This was identified by the board as an area of focus for 2014/15. Although culture can be difficult to define, and even more difficult to measure, there is much value in attempting to do so as culture is a differentiating factor between success and failure when it comes to commercial performance, employee engagement and good conduct.
We have defined culture in a broad sense as 'what we value as an organisation', 'how we get things done' and 'how we behave' – doing the right thing at the right time. As a board we believe that by setting out to further enhance and embed a corporate culture that is clear and consistent on these three points we will not only meet the expectations of our regulators but will also ensure that we have an environment where our people can flourish, where governance and controls are respected, where creativity and execution are enabled and encouraged and where outstanding service and value can always be delivered to our customers. Many initiatives have been launched during the year as the board has made culture one of the five themes included in the executive management's objectives. I look forward to reporting on some of the key metrics in the 2016 Annual Report.
To achieve the Group's long-term goal of creating shareholder value, the board recognises that a strong governance framework, internal controls, values and culture, firmly embedded across the organisation, are vitally important. Since January 2014, I have been based at our London office which has provided me with further insight into the Group and an opportunity to meet on a regular basis with a large number of desk managers, product heads and infrastructure support heads. I have also visited ICAP businesses in Bangkok, Hong Kong, Jersey City, Johannesburg, Louisville, Manhattan and Shanghai. We held six board meetings during the period in London or Jersey City, ICAP's largest offices, and the board used this opportunity to meet with members of the GEMG and other senior managers.
The value of the governance framework, and the performance of the board within this, are reviewed annually using an external consultant. The outcomes of this review, and those of the committees, are detailed within the relevant governance sections but there are a couple of points I would like to highlight here.
The review recognised that the current overlap between the board's priorities and the strategic priorities of the business were indicative of a high-performing board. Its composition is highly rated and the board environment leads to challenging debate and constructive outcomes.
The evaluation asked the board to consider the impact of any progress and learnings from previous events and a significant improvement in culture was felt to have been made. Business audit reviews have been implemented to assess the control culture and to reinforce the responsibility of management for ensuring controls are adhered to. The Group's leadership development programme has focused on ICAP's culture to reinforce the message that leaders are responsible for communicating and embedding the right culture across the firm. These are examples of some of the initiatives the board has supported in addressing culture. We recognise, however, that ICAP's reputation is defined by its behaviour and we remain vigilant in leading and supporting the embedding of good corporate behaviour within the organisation.
One of the important areas of discussion with shareholders is the dividend. Like many companies, we do not have a formal dividend policy but have adopted a model whereby the interim dividend is set at 30% of the prior year dividend in order to provide a level of certainty in the market. The financial year (2014/15) has seen the difficult market conditions continue, with evidence that certain markets and clients have changed structurally. The board has discussed the implications of these changes in coming to its recommendation for a final dividend of 15.4p per share for the year ended 31 March 2015. If approved, the full-year dividend, including the interim dividend paid in February 2015, will be 22.0p and will be covered 1.3 times by trading EPS of 28.7p. The board feels that this level of dividend supports the strategic objective of building dividend cover and investment in ICAP's growth.
A change in the UK Listing Authority's regulations has created an opportunity to review the timing of, and need for, market updates to shareholders. The board's view is that, unless there is something material to report, there is no benefit in producing interim management statements other than for the half year.
As we announced in last year's Annual Report, we reviewed our remuneration policy during the year and a proposal was discussed with some of our shareholders. These changes to executive remuneration align to the plans to develop a reward and performance management framework for the Group which will encourage the right behaviours and incentivise good employee conduct. As a result of this consultation, changes were made. Although it is recognised that shareholders hold differing views as to, for example, the appropriate performance conditions for long term incentive plans, I believe that the policy being proposed takes into account many of the previous concerns expressed by shareholders. I would like to thank those shareholders who provided feedback in the consultation process. Details of the policy are given in the remuneration report. The board recommends its approval at the annual general meeting.
Once again, ICAP's Charity Day was fantastic, raising £8 million for more than 200 charities around the world. I would like to add my thanks to all those involved in such a tremendous achievement. This truly does represent the best of ICAP's culture and the engagement of employees. More details of where the money is donated can be found at www.icapcharityday.com.
Your board has undergone some changes during 2014/15. Two of our directors left during the year. Iain Torrens, the Group Finance Director, left at the end of 2014 to take up a position with TalkTalk Group. As announced last year, John Nixon, who has been with the Group for 16 years, retired at the end of March 2015. On behalf of the board, I would like to thank both Iain and John for their significant contributions to ICAP. Stuart Bridges will be joining the board as the Group Finance Director in September and we look forward to working with him.
On behalf of the board, I would like to thank David Ireland for stepping up to the role of Interim Group Finance Director. This has been an excellent example of succession planning which has enabled the board to rely on the finance team to bridge the period since Iain's departure.
I would like to thank the remaining members of the board, Michael, John, Diane, Robert and Ivan for their continuing support, guidance and high level of engagement with ICAP. All non-executive directors remain independent and committed to their role and will be standing for re-election at the annual general meeting.
I am pleased to report that the principles and provisions of the 2012 UK Corporate Governance Code have been complied with in full during the year. In respect of Code provision C.3.7, which requires external audit contracts to be put out to tender at least every ten years, the Company has not retendered within that period but the Audit Committee has considered the approach to tendering and details of this are set out in the Audit Committee report.
The board has considered the required statement that it considers the Annual Report, taken as a whole, to be fair, balanced and understandable. The assurance process to support this statement has been led by the Audit Committee, on behalf of the board, and details of the key issues considered are included in the committee's report on pages 60 to 62.
On behalf of the board I would like to thank all shareholders for their continuing support and look forward to meeting those who attend the Company's annual general meeting in July.
Chairman 19 May 2015
Charles has served as a director on a number of boards in the financial services sector, including St James's Place plc, where he was non-executive chairman, Provident Financial plc, where he was deputy chairman, MAI plc and International Personal Finance plc, and in the media services sector, including United Business Media plc and PR Newswire Europe Limited. He was also non-executive chairman on the board of CPP Group plc. Charles brings considerable senior board level experience as well as experience of managing relationships with the media, the regulator and the institutional investor community.
Charles holds a degree in Law from the University of Cambridge and qualified as a solicitor.
Charles is a non-executive director of Caledonia Investments plc and Non-Standard Finance plc.
Member of the Governance and Nomination Committees
Michael has worked in the financial services industry for more than 30 years. He founded Intercapital in 1986 and became its Chairman and Chief Executive in October 1998, following the Exco/Intercapital merger. He chairs the GEMG, the executive committee responsible for strategy and its implementation.
Michael brings entrepreneurial and substantial senior management expertise to the board as well as vast experience of the markets in which ICAP operates.
Michael, together with IPGL and its subsidiary companies, is a substantial shareholder in the Company.
Michael holds a degree in Physics from the University of Oxford.
Michael is chairman of IPGL and is on the boards of many of IPGL's investments. He is the chairman of The Conservative Party Foundation Limited.
Ivan has worked in investment banking for more than 30 years, based in the UK, Asia and Australia. Ivan was the Head of Latin America, Central and Eastern Europe, the Middle East and Africa across all products for Barclays Investment Bank. He served on the Executive Committee for Barclays Investment Bank and was a non-executive director of ABSA Group and an executive director of Barclays' Saudi Arabia board. Ivan was also a non-executive director of EBS Group Limited.
Ivan has been a member of numerous industry committees including the New York Federal Reserve Foreign Exchange Committee, the Bank of England Foreign Exchange Joint Standing Committee and the Singapore Foreign Exchange Markets Committee. He brings extensive experience of the markets in which ICAP operates, particularly in electronic trading.
Ivan is a non-executive director of ICAP Global Derivatives Limited and ICAP SEF (US) LLC.
Ivan holds an honours degree in Finance from the University of New South Wales, Australia.
Ivan is a director of IPGL Fund Investments Limited and chairman of Exotix Partners.
From left to right: Ivan Ritossa, Robert Standing, Charles Gregson, Michael Spencer, John Nixon, Diane Schueneman, John Sievwright
Risk and Remuneration Committees
Diane was an independent consultant to the US Internal Revenue Service Commissioner for McKinsey & Company. She started her career at Bank of America Merrill Lynch (formerly Merrill Lynch) in 1971 where she held a number of roles and, until 2008, was Senior Vice President, Head of Global Infrastructure Solutions and a member of the Executive Operating Committee. Diane was responsible for all technology, infrastructure, client services and operations worldwide for capital markets, private wealth and asset management. She brings extensive experience of technology, change management, risk management and organisational restructuring.
Diane is a non-executive director of ICAP Global Derivatives Limited and ICAP SEF (US) LLC.
Diane previously served on two not-for-profit boards, Year Up and National Cooperative Cancer Network Foundation, and was on the advisory board of United Bank of Africa Group – New York Branch.
Chairman of the Audit and Risk Committees and a member of the Governance and Nomination Committees
John has extensive experience in investment banking including a 20-year career with Bank of America Merrill Lynch (formerly Merrill Lynch) where he held a number of senior management positions including that of Chief Operating Officer, International, based in New York, Tokyo and London. He was previously senior independent director of FirstGroup plc and was chairman of their audit committee. John brings extensive financial and operational experience of the financial services sector to the board.
John holds an MA degree in Accounting and Economics from the University of Aberdeen and is a member of the Institute of Chartered Accountants in Scotland.
Chairman of the Remuneration Committee and a member of the Nomination, Audit and Risk Committees
Robert is a principal of LDF Advisers LLP which was founded within the JPMorgan group in 1995 and spun out in 2002. Robert joined Chemical Bank in 1982, spending two years developing new products before joining the Capital Markets division in 1985. Following acquisitions by JPMorgan, he worked in a range of roles before becoming Head of Fixed Income and Foreign Exchange for EMEA in 1998.
Robert is one of the founders of the Hedge Fund Standards Board. He has extensive product knowledge and senior management experience.
Robert holds a degree in Engineering from the University of Cambridge.
Robert is a director of London Diversified Fund Management (UK) Limited.
Group Executive Director, Americas, appointed in 2008. Age 60 Retired on 31 March 2015.
appointed in 2010. Age 46 Resigned from the board on 12 December 2014.
All ICAP directors have a good understanding of the markets, regions and regulatory frameworks within which the Group operates as well as the technology it uses. The non-executive directors all have experience of ICAP's business divisions gained internationally. The above biographies of the directors highlight the skills and experience each director brings to the board.
Governance and directors' report
Financial statements
Definitions
The board is accountable to the Company's shareholders and seeks to promote good relations and effective and transparent dialogue with them. The board receives regular investor reports which detail the feedback from investor meetings and roadshows attended by executive directors and senior management. It also receives the results of investor perception studies which are undertaken by external consultants. This feedback helps inform board discussion particularly as it relates to the views of investors and analysts on strategy. This dialogue will continue in 2015/16.
Movements on the share register are monitored and reviewed at board meetings to ensure a continuing understanding of the share register.
The Chairman, the Chairman of the Remuneration Committee, the Group Company Secretary and the executive directors have met with key institutional investors during the year to discuss succession planning and the proposals for the 2015/16 remuneration policy.
The Company publishes its half and full-year financial statements, stock exchange announcements and analyst presentations via the investor relations section of its website, www.icap.com. In addition there are regular meetings during the year with investors and analysts (subject to regulatory constraints) to update them on developments in the Group's strategy and performance.
| UK | 61% |
|---|---|
| US | 21% |
| Rest of Europe | 11% |
| Rest of world | 7% |
Percentage at 31 March 2015
| BlackRock |
|---|
| Fidelity Worldwide Investment (FIL) |
| Jupiter Asset Management |
| Legal and General Asset Management |
| Marathon Asset Management |
| Norges Bank Investment Management |
| Oppenheimer Funds |
| Schroder Investment Management |
| Silchester International Investors |
| State Street Global Advisors |
The Company's seventeenth annual general meeting will be held on Wednesday 15 July 2015 at 2 Broadgate, London EC2M 7UR. This gives shareholders the opportunity to ask questions of the directors on the Group's business. All directors attended the 2014 annual general meeting.
In accordance with the Code and the Company's articles of association all directors will stand for re-election in July 2015.
Details of the resolutions to be proposed at the annual general meeting are set out in the notice of annual general meeting. The notice is made available to shareholders on the Company's website, or sent to them if they have elected to receive hard copies, at least 20 working days before the meeting. Details of proxy votes for and against each resolution, together with votes withheld, will be made available after the vote has been dealt with on a show of hands.
The total number of proxy votes cast for the 2014 annual general meeting represented over 80% of the total voting rights.
| Resolution | Votes for and discretionary % | Votes against % |
|---|---|---|
| Annual Report | 99.98 | 0.02 |
| Dividend | 100.00 | 0.00 |
| Resolutions to appoint and re-elect directors |
97.49 – 99.92 | 0.08 – 2.51 |
| Re-appoint auditor | 99.93 | 0.07 |
| Set auditor remuneration | 99.96 | 0.04 |
| Remuneration report | 99.76 | 0.24 |
| Directors' remuneration policy |
67.36 | 32.64 |
| Allot relevant securities | 85.31 | 14.69 |
| Disapply pre-emption rights | 86.24 | 13.76 |
| Market purchases | 99.98 | 0.02 |
| Political donations | 99.91 | 0.09 |
| General meeting notice | 97.43 | 2.57 |
The corporate governance statement sets out how the Company has applied the principles of the Code during the year ended 31 March 2015 and details ICAP's governance framework and practices, together with the remuneration report on pages 72 to 90. The Code can be found on the FRC's website at www.frc.org.uk.
The board is responsible for providing leadership of the Group and for ensuring the Group has the appropriate people, financial resources and controls in place to deliver the long-term objectives, commercial strategy and risk management strategy set by the board. Details of the strategic priorities and the business model are given in the strategic report on pages 13 to 20.
The roles of Chairman and Group Chief Executive Officer are clearly defined and distinctly separate. This division of responsibilities has been set out in writing and approved by the board. The roles and responsibilities of the Chairman, the Group Chief Executive Officer, non-executive directors and the Group Company Secretary are summarised below.
ICAP is headed by an appropriately experienced board. During the year, the board comprised the Chairman, three executive directors, (the Group Chief Executive Officer, the Group Executive Director, Americas and the Group Finance Director) and four independent
non-executive directors. Iain Torrens, Group Finance Director, resigned from the board on 12 December 2014. David Ireland, Chief Finance Officer, Group Finance, was appointed as Interim Group Finance Director and will continue in that role until the new Group Finance Director takes office in September. John Nixon retired from his role as Group Executive Director, Americas and resigned from the board on 31 March 2015.
John Sievwright is the senior independent director and is available to shareholders should they have concerns which contact through the normal channels of Chairman, Group Chief Executive Officer or other executive director has failed to resolve or for which such contact is inappropriate. No such concerns have been raised during the year.
The independence of the non-executive directors is reviewed on an annual basis as part of the directors' evaluation process. This takes into account length of tenure, ability to provide objective challenge to management and any relationships that might be considered as a factor when determining independence. All have shown independence of character and exercised independent judgement. The board has determined that all directors are independent against the criteria stated in the Code.
The non-executive directors are members of the principal committees of the board, these being Governance, Nomination, Audit, Risk and Remuneration. The Nomination Committee makes recommendations for appointments to the Audit and Risk Committees. The board makes all other committee appointments.
| Chairman • Leadership of the board • Facilitates and encourages directors to maximise their contributions to the board • Ensures effective communication with shareholders and other stakeholders • Sets clear expectations concerning ICAP's culture, values and behaviours and the style and tone of board discussions |
Leadership | Group Chief Executive Officer • Leads the Global Executive Management Group • Oversees the operational performance of the Group • Recommends the Group's commercial strategy to the board and ensures its implementation • Supports the Chairman to ensure appropriate standards of governance |
|---|---|---|
| Knowledge | Experience | |
| Non-executive directors • Provide independent and constructive challenge to board and management decisions • Represent a broad range of experience and independent judgement • Support the Chairman and executive directors in instilling appropriate culture, values and behaviours of the board • Serve on the principal committees of the board (Governance, Nomination, Audit, Risk and Remuneration) |
Effectiveness | Group Company Secretary • Works closely with the Chairman and the executive directors to set the agenda for meetings of the board and its committees • Ensures the timely presentation of high-quality information to the board and its committees to enable the directors to exercise their judgement in the discharge of their duties • Facilitates the induction of new directors to the board and the Group • Provides advice on corporate governance issues • Ensures board procedures and applicable rules are observed |
The Chairman is responsible for the leadership of the board and for ensuring effective communication with shareholders.
The Chairman, in consultation with the executive directors and the Group Company Secretary, sets the agenda for board meetings. All directors receive documentation prior to each meeting on the matters to be discussed to enable them to exercise their judgement in the discharge of their duties. GEMG members and other senior executives attend meetings by invitation to present on their areas of expertise and responsibility within the business. During the year this included a presentation from Global Broking's management regarding the restructuring of its business, as well as management updates from Traiana, the ICAP SEF and Global Business Services, the Group's shared services function. The board also received various product updates from senior management.
The board operates in accordance with an approved schedule of matters reserved for the board. The board specifies policies and delegated authorities to which all members of the Group are required to adhere. Details of the principal matters reserved for the board include the following:
Six board meetings were held during the year. Between these meetings, the board convened by conference calls to receive trading reports and updates on current issues which included regulatory investigations and the recruitment of the new Group Finance Director.
The following table sets out the directors who served on the board during the year and their meeting attendance. Where a director did not attend meetings owing to prior commitments or other unavoidable circumstances, he received the relevant papers and provided input to the Chairman in advance of the meeting so that his views were known.
| Total | Attended | |
|---|---|---|
| Charles Gregson | 6 | 6 |
| Michael Spencer | 6 | 6 |
| John Nixon | 6 | 6 |
| Iain Torrens* | 4 | 4 |
| Ivan Ritossa | 6 | 5 |
| Diane Schueneman | 6 | 6 |
| John Sievwright | 6 | 6 |
| Robert Standing | 6 | 6 |
*Iain Torrens resigned from the board on 12 December 2014.
• Considered the appropriate responses to key regulatory changes faced by the Group and industry as a whole including the Fair and Effective Markets Review recommendations.
On joining the board, new directors receive a tailored and comprehensive induction programme, comprising a combination of briefings on specialist topics and meetings with the directors, the Group Company Secretary and a wide range of senior management. This covers directors' duties and the UK listing regime, an overview of the business, its operations, risk and regulatory matters, governance, finance and investor relations. The purpose of the programme is to provide a new director with appropriate knowledge of the opportunities and challenges facing ICAP, enabling the director to contribute fully to the board's strategic discussions and oversight of the business.
During the year all directors received a number of updates on the regulatory environment, from both external advisors and ICAP's senior managers, and update briefings on governance changes and their implications for ICAP. The board evaluation process identified specific areas of development for the coming year.
Directors may also obtain independent professional advice in respect of their duties to the board and to its committees at the Company's expense.
Board meetings are held at various Group locations to assist with the board's greater understanding of the business and to provide an opportunity for the directors to meet with local management and employees to gain a wider view of these businesses.
To assist the board in carrying out its duties, certain roles and responsibilities are delegated to the board committees – Governance, Nomination, Audit, Risk and Remuneration. During the year, the Operational Risk Framework Implementation Committee assessed the achievement of its objectives and agreed that the operational risk framework was sufficiently advanced, such that the responsibility for this work could be continued through the risk management team. The final committee meeting was held in November 2014.
Details of the membership and work of these committees are shown on pages 58 to 90.
During the year ended 31 March 2015, an independent evaluation of the board and the board committees was externally facilitated by Lintstock. All board members and the Group Company Secretary were asked to complete a questionnaire and participated in interviews conducted by Lintstock regarding responses to the questionnaire. The objective of the evaluation was to provide insight into the effectiveness of the board and to identify actions for improving performance.
Lintstock does not provide any other advisory services to ICAP.
This year's review focused on the composition and tenure of the board, succession planning arrangements and the board's strategic and operational oversight of the Group. The overall view of the board's performance was positively rated. In particular, the review confirmed that the level of engagement of all directors, their involvement between board meetings and their understanding of the views of investors had improved since the last evaluation.
The current overlap between the board's priorities and the strategic priorities of the business was considered indicative of a high-performing board.
The Chairman's evaluation was led by John Sievwright as senior independent director. It concluded that the Chairman's leadership of the board is effective. It was noted that the Chairman sets agendas with sufficient time for transparent and honest discussion and debate at board meetings. The Chairman's management of the board was highly rated; he has the confidence of the directors and has built a positive, open and productive relationship with them.
The board has procedures in place for the disclosure of conflicts of interest. Directors are aware of their responsibility to avoid a situation whereby they have an actual or potential conflict of interest and the requirement to inform the Chairman and the Group Company Secretary of any change in their situation. An effective procedure is in place for the board to authorise conflict situations should they arise, in accordance with the Companies Act 2006 and the Company's articles of association. The Group Company Secretary is responsible for keeping appropriate records, including the scope of any authorisations granted by the board, and ensuring the board undertakes regular reviews of conflict authorisations.
It is the board's view that for the year ended 31 March 2015, subject to external audit tendering as noted in the Chairman's statement, the Company has been fully compliant with all the principles and provisions set out in the Code.
Where directors did not attend meetings owing to prior commitments or other unavoidable circumstances, they received the relevant papers and provided input to the Chairman in advance of the meeting so that their views were known.
| Total | Attended | |
|---|---|---|
| Charles Gregson (Chairman) | 5 | 5 |
| Michael Spencer | 5 | 4 |
| John Sievwright | 5 | 5 |
| Iain Torrens* | 4 | 3 |
*Iain Torrens resigned from the board on 12 December 2014.
An annual work plan is prepared to ensure all areas of significance are considered by the committee and that business and reporting requirements are met.
During the year, the committee reviewed its terms of reference to include regulatory enquiries. The committee receives regular updates on any regulatory investigations.
The committee continued to oversee the delivery of both the Undertakings agreed with the CFTC and the FCA Body of Orders which were required to be implemented following the yen Libor settlements. The committee received and discussed updates on the remediation programme throughout the year and has received final reports confirming that all the actions were completed during the year. These final reports included details of controls which have been put in place to ensure ongoing compliance for the Audit Committee to review as part of its workplan.
The committee has reviewed subsidiary governance oversight and approval of new business divisional governance arrangements and well as reviewing the EMEA control environment for regulated businesses.
During the year, the committee reviewed the remit of the GOC and the Group Risk and Capital Committee. The committee established the new GFC, replacing the Group Risk and Capital Committee, to better align the executive responsibility with the governance environment.
Under the committee's responsibility for reviewing core governance standards, the committee has reviewed the Company's compliance with the Code and explanations to shareholders as to how its implementation is consistent with good governance.
An external evaluation of the Governance Committee rated its performance positively. In particular, the committee's oversight of regulatory permissions and reporting of the Group's subsidiaries was highly rated, as was the committee's work in reviewing and approving terms of reference of the board and the Group's executive management committees.
The committee's focus for 2015/16 will include improved oversight of the Group's regulated subsidiaries and a regular review of the committee's terms of reference, to ensure best practice is being employed.
The committee is responsible for the review of governance arrangements. It offers recommendations and makes decisions in relation to all aspects of the governance environment of the Group and its principal subsidiaries to ensure that the Group's governance facilitates efficient, effective management that can deliver shareholder value over the longer term. It is authorised by the board to carry out any activity within its terms of reference, which are available to view on the Company's website at www.icap.com.
The principal areas of responsibility are:
The committee reports to the board.
The Governance Committee membership is made up of the Chairman of the board, the senior independent director, the Group Chief Executive Officer and the Group Finance Director. The Chairman of the board is Chairman of the committee and the Global Chief Operating Officer and the Group General Counsel are attendees.
The following table sets out the directors who served on the Governance Committee during the year and their committee meeting attendance:
Charles Gregson Chairman, Nomination Committee
The committee is responsible for reviewing the structure, size, composition and succession planning of the board.
The Nomination Committee operates within its terms of reference which are available on the Company's website at www.icap.com.
The committee reports to the board.
The committee members are appointed by the board and comprise a majority of independent non-executive directors. The Chairman of the board is the Chairman of the committee.
The following table sets out the directors who served on the Nomination Committee during the year and their committee meeting attendance:
| Total | Attended | |
|---|---|---|
| Charles Gregson (Chairman) | 3 | 3 |
| Michael Spencer | 3 | 3 |
| John Sievwright | 3 | 3 |
| Diane Schueneman | 3 | 3 |
| Robert Standing | 3 | 3 |
During the year the committee reviewed the balance of skills and experience of the board as a whole in determining whether further non-executive director appointments should be made. It was agreed that there was no specific skills or experience gap within the composition of the current board but that this would continue to be reviewed in line with the development of the Group's strategy.
Following Iain Torrens's decision to resign as a director, the committee evaluated the knowledge and experience required to fill this position. Based on an agreed role, person and skill set specification, the appointment of Stuart Bridges as Group Finance Director was facilitated by an external recruitment firm, Spencer Stuart, which worked with the Chairman and the committee to determine a range of suitable candidates. Members of the committee met with a short list of candidates, after which the committee was able to formulate its recommendation. The final recruitment decision was determined by the full board of directors.
Spencer Stuart does not provide any other services to the Group other than recruitment services.
As part of the committee's discussions, succession planning was reviewed for directors and other senior executives to ensure there continued to be the appropriate mix of skills and experience within the Group to cover the various challenges and opportunities facing the Company.
An example of succession planning in action has been the appointment of David Ireland as Interim Group Finance Director to lead the finance team following the departure of Iain Torrens in December 2014 until the new Group Finance Director arrives in September.
The committee has also reviewed the tenure of non-executive directors as part of non-executive director succession planning to ensure that a majority of independent non-executive directors continues to be maintained.
ICAP is committed to providing and promoting equality of opportunity in employment and advancement and an environment that ensures tolerance and respect for all employees. ICAP's policy is that no employee, applicant, contractor or temporary worker will be treated less favourably, victimised or harassed on the grounds of disability, gender, marital or civil partnership status, race, nationality, colour, ethnicity, religion or similar philosophical belief, sexual orientation, age or any distinction other than merit. Accordingly, all board appointments are made on merit, acknowledging the benefits a diverse range of skills, experience, background and gender can bring to the board and the committee therefore does not support the implementation of quotas.
The performance of the Nomination Committee in reviewing the composition of the board and the committee's management of succession planning for executive and non-executive directors was positively rated by the external evaluation.
The importance of the committee continuing to focus on board succession planning was highlighted as a priority for 2015/16. It was noted that, as the business transitions in response to market changes, the board may require the addition of different expertise in order to ensure its continued effectiveness.
John Sievwright Chairman, Audit Committee
As Chairman of the Audit 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.
While the principal areas of judgement for the committee remained the same as the prior year, the committee spent time considering the significance, both in nature and size, of the costs of the reshaping of Global Broking and the associated infrastructure costs, in order to be satisfied that these could be presented as exceptional items with the necessary disclosure. The discussion on the goodwill impairment review was more easily concluded for 2014/15 as the annual review testing, using the same methodology as in previous years, showed significant headroom between the businesses' net assets and recoverable amounts. Further details of the areas which were addressed can be found in this report on pages 61 and 62.
The board is also required to provide a statement that, taken as a whole, it believes the Annual Report and financial statements to be fair, balanced and understandable. The governance framework to provide such assurance to the committee and to the board is set out in this report on pages 61 and 62. The statement itself is on page 71.
The effectiveness of ICAP's external auditor and auditor tenure have remained high on the committee's agenda during the year. PwC (and its predecessor firms) have been ICAP's auditor since 1999. The committee recognises this is a significant length of time and regularly reviews PwC's effectiveness through the quality of the audit findings and management's response and through an annual review process. The committee also ensures that audit partners are rotated regularly to maintain independence. PwC's audit and non-audit fees are set, monitored and reviewed by the committee throughout the year. The non-audit spend was in line with the current policy of not exceeding 75% of the audit fee. The committee considers that the relationship with the external auditor continues to work well and remains satisfied with its effectiveness and independence.
The committee has discussed the requirements of the Code and the final order published by the Competition and Markets Authority in respect of tendering the Group's external audit and has recommended to the board that it does not carry out a tender process for 2015/16. In making this assessment, the committee has considered the transition process required ahead of an audit tender to ensure that a tender process would include a full range of audit firms which are considered independent and cleared of conflict. The position will be kept under regular review by the committee.
Chairman, Audit Committee 19 May 2015
The Audit 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 functions. It is authorised by the board to carry out any activity within its terms of reference, which are available to view on the Company's website at www.icap.com.
The committee may seek any information it requires from any employee, and all employees are directed to co-operate with any request made by the Audit Committee. The committee may obtain outside legal or other independent professional advice, and to secure the attendance of outsiders with relevant experience and expertise, if the committee considers this necessary, at the Group's expense.
The Audit Committee reports to the board.
The Audit Committee members are all independent non-executive directors and the committee is chaired by John Sievwright. The board is satisfied that all committee members have recent and relevant financial experience and bring extensive financial expertise to the committee. Under the committee's terms of reference, and to ensure a free flow of information, at least one member of the Audit Committee should be a member of the Risk Committee. Currently, all members of the committee are also members of the Risk Committee.
The following table sets out the directors who served on the Audit Committee during the year and their committee meeting attendance:
| Total | Attended | |
|---|---|---|
| John Sievwright (Chairman) | 5 | 5 |
| Diane Schueneman | 5 | 5 |
| Robert Standing | 5 | 5 |
Meetings are regularly attended by the Chairman of the board, Group Finance Director or Interim Group Finance Director, Global Chief Operating Officer, Group General Counsel, Chief Finance
Officer Group Finance, Group Head of Internal Audit and the external audit partner.
The Chairman of the Audit Committee maintains contact with attendees throughout the year. There have been two meetings during 2014/15 when the committee has met with the Group Head of Internal Audit and the external audit partner without any executive director or member of management present.
An annual work plan is prepared to ensure all areas of significance are considered by the committee and that business and reporting requirements are met.
The committee reviews the Group's accounting policies; it monitors the integrity of the Group's financial statements, including the half-year and annual reports and interim management statements, and other announcements relating to the Group's financial performance to ensure that these present a balanced and clear assessment of the Group's financial position and outlook.
During the year, the committee considered certain accounting and financial reporting areas to be of a more subjective nature. Throughout the year, management presented to the committee its position on those areas that were material in nature and involved significant management judgement and assumptions.
The committee considered and approved the Group's significant accounting policies, including management's position on provisions and its definition of exceptional items (see the basis of preparation statement), which remained consistent with the prior year. The committee discussed and approved the appropriateness of items, considering their nature and materiality, that were presented in the exceptional items column in the consolidated income statement. The committee, where appropriate, discussed management's judgements and estimates with the external auditor, and approved the provisions as at 31 March 2015.
The committee considers the annual goodwill impairment review to be a significant judgement area and, as such, reviewed the impairment testing which had been undertaken by management during March 2015. The impairment test identified that there was no impairment. The committee also reviewed the appropriateness of classification of the shipping business as a held for sale asset and the impairment testing of the held for sale asset. There was no impairment charge recorded. In reviewing this area, the committee considered the appropriateness of management's judgements and estimates and, where appropriate, discussed these judgements and estimates with the external auditor, see note 14 to the financial statements.
Additionally, the auditing standards require the external auditor to presume risks of fraud in revenue recognition as a significant audit risk area and to perform procedures to address those risks. The committee concluded that, based on the findings reported by the external and internal auditors, and from its own review of internal control and the risk management system, the financial statements for the year ended 31 March 2015 were not exposed to a material risk arising from this risk area.
The committee considered and approved the Group's tax strategy, the strategic objectives of which were to deliver shareholder value by complying with all tax obligations and being open and transparent with the relevant tax authorities.
The work described above, together with a review of the messaging and content of the strategic report, provided the assurance to the committee, and to the board, that the Annual Report for the year ended 31 March 2015, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and the Company's performance, business model and strategy.
The committee has delegated responsibility for the day-to-day financial management and monitoring of financial controls to the Group Finance Committee.
The internal audit function, which is outsourced to KPMG, reports to the Audit and Risk Committees. Internal audit establishes an annual audit plan based on discussions with management and an assessment of the risks inherent in the Group's activities. The results of these audits provide assurance to management and to the Audit and Risk Committees that the system of internal control achieves its objectives and highlights gaps and areas for improvement.
An evaluation of the KPMG internal audit team and its work was carried out through a questionnaire during the year. The results showed that the relationship with the KPMG team was good and that significant progress had been made since 2012 in enhancing the process around internal audits. There is general satisfaction with virtually every aspect of the internal audit outsource arrangement. Reporting lines into the Audit Committee are clear and understood and actions and recommendations are completed efficiently. The internal audit priorities for 2015/16 will be on thematic audits that focus on the big areas of concern and risk for the Group.
In light of the Code's transitional arrangements and the final order published by the Competition and Markets Authority, which came into force on 1 January 2015, it is not considered necessary to require PwC to tender for the audit work for 2015/16. As part of its planning for an audit tender, the committee has reviewed the work undertaken by other audit firms for the Group so that it can ensure that the maximum number of appropriately experienced audit firms may participate in a tender and will not be precluded due to conflict.
During the year, the committee reviewed and approved the proposed audit fee and terms of engagement for the 2014/15 audit and recommended to the board that it proposes to shareholders that PwC be re-appointed as the Group's external auditor for 2015/16. PwC expressed their willingness to continue as auditor of the Company and resolutions proposing their re-appointment and determination of their remuneration will be proposed at the annual general meeting to be held on 15 July 2015.
A policy is in place whereby the expenditure with the Group's auditor on non-audit fee should not exceed 75% of the audit fee. The committee monitors the balance of spend on audit and non-audit fees to ensure their continued independence. During the year PwC provided a limited amount of non-audit fee work, including regulatory, corporate restructuring and tax advisory work. The total spend on these services was £800,000 being 21% of the audit fee (2013/14 – 19%). Any proposed non-audit assignments, with fees in excess of £100,000, are subject to the Audit Committee's prior approval and fees below this limit are approved by the Chairman of the Audit Committee and reported to the committee. Note 3 to the financial statements details the fees paid to the external auditors for audit and non-audit services.
An evaluation of the effectiveness of the external audit process for 2013/14 was carried out through a questionnaire following the completion of the audit for that year. The results of this assessment were reviewed by the committee in February and March 2015 and the committee concluded that the external audit team continued to be effective throughout the Group. The assessment of the effectiveness of the external audit process for 2014/15 will be undertaken following completion of the Group audit.
The results of an external evaluation showed that the effectiveness of the Audit Committee and in particular the performance of the committee in testing and reviewing the work of the internal and the external auditor was very highly rated.
The committee's areas of focus for 2015/16 will be to prioritise additional training on technical accounting matters and annual report disclosures and a continued focus on financial reporting processes.
John Sievwright Chairman, Risk Committee
I am pleased to introduce the Risk Committee report and to use this opportunity to highlight a number of areas that are significant to the committee and its focus during the year.
The committee is responsible for ensuring that an appropriate risk culture is properly embedded within the organisation. In order to assess the embedding of risk within the business and the effectiveness of the first line of defence, the Risk Committee has added business risk reviews to its annual workplan. These are presented by senior management within the businesses rather than by members of the risk function and have been very successful in demonstrating an understanding of risks within the businesses they manage and their management of those risks.
To assess the Group's significant risks, the committee uses the ICAAP. An annual FCA requirement, ICAAPs form an assessment of:
Within the Group, ICAAPs are owned by the appropriate regulated subsidiary board and, at Group level, it is owned by the board and driven by the executive directors and senior management, with oversight, review and challenge from risk management and the committee. On behalf of the committee, I reviewed the ICAAP methodology including the scenarios, stress testing and the financials which support the process. The committee also held additional meetings to consider the outcomes of the Group ICAAP which form an integral part of ICAP's strategic decision making processes.
Wendy Phillis was appointed the Chief Risk Officer in April 2014. With the support of the Risk Committee, Wendy has undertaken a review of the risk management function and appointed a new senior management team within the risk management function. Gerry Harvey, Group Head of Compliance, stepped down from his role at the end of March 2015. As part of his succession planning, and following a review of both the risk management and the compliance functions, it was agreed that the reporting lines for the compliance function would be assumed by the Chief Risk Officer with effect from 1 April 2015. This structure seeks to align the work of these control functions more closely while maintaining the operation of distinct compliance and risk functions, retaining their independent status. Risk and compliance management are both discussed further within the Risk Committee's report.
As part of the committee's review of the risk appetite statement, the key drivers of risk were reviewed and, as a result of changing market and regulatory environment, the committee agreed that the principal risks be extended to six. These principal risks, with the key drivers and mitigation, are explained on pages 24 to 30.
The Risk Committee recognises the increasing threat of cyber risk to the business and the reputational damage that can be inflicted. The committee receives information on the cyber threat landscape and the Group's technological defences and risk framework in place to mitigate against these risks. This will remain on the Risk Committee's agenda.
Chairman, Risk Committee 19 May 2015
The committee is responsible for setting the overall risk strategy, risk appetite and risk tolerance for the Group to ensure that the risk management function within the Group promotes the success of the Company within this framework. The Risk Committee is authorised by the board to carry out any activity within its terms of reference, which are available on the Company's website at www.icap.com.
The principal areas of responsibility are:
To ensure and reinforce the independence of the risk and compliance functions, the committee is responsible for approving the appointment and dismissal of the Chief Risk and Compliance Officer and for making recommendations to the Remuneration Committee regarding her compensation.
The committee reports to the board.
The Risk Committee members are independent non-executive directors and the committee is chaired by John Sievwright. Three members of the committee are also members of the Audit Committee facilitating full and free flow of information.
The following table sets out the directors who served on the Risk Committee during the year and their committee attendance.
Where directors did not attend meetings owing to prior commitments or other unavoidable circumstances, they received the relevant papers and provided input to the Chairman in advance of the meeting so that their views were known.
| Total | Attended | |
|---|---|---|
| John Sievwright (Chairman) | 7 | 7 |
| Ivan Ritossa | 7 | 6 |
| Diane Schueneman | 7 | 6 |
| Robert Standing | 7 | 7 |
The Chairman of the board, the Group Finance Director, the Interim Group Finance Director, the Global Chief Operating Officer, the Group General Counsel, the Chief Risk Officer, the Group Head of Compliance, the Group Head of HR, the Group Head of Internal Audit, the KPMG IT Internal Audit Partner and the external audit partner regularly attend meetings of the committee.
During the year the Group Head of HR was invited to attend the Risk Committee to provide a link to the culture initiative.
The Chairman of the Risk Committee maintains contact with attendees throughout the year and has met with the Chief Risk Officer and the Group Head of Compliance without other members of the executive being present.
An annual work plan is prepared to ensure all areas of significance are considered by the committee and that business and reporting requirements are met.
To support the Risk Committee in the day-to-day risk management of the Group certain responsibilities have been delegated to the GOC. The Audit Committee, the Risk Committee and the GOC have terms of reference that require all aspects of the Group's risk management activities to be regularly reviewed. The Chief Risk Officer is a member of the GOC, the executive committee with responsibility for the operations of the Group. In addition to the Audit Committee, the Risk Committee and the GOC, all lines of business and regions have risk committees which are responsible for supervising risk levels in their respective businesses and regions and acting as the interface between front office management and the Group risk function.
The effectiveness of the Risk Committee was highly rated by an external evaluation with the performance of the Chairman of the committee being particularly strong. The quality of the committee's review and monitoring of the Group's risk management framework, internal audit function and internal audit programme were also very highly rated.
The committee's areas of focus for 2015/16 will include ongoing regulatory requirements training, an enhanced focus on risk appetite methodology and metrics, and increased dialogue with senior members of the risk management team.
The significant risks of the Group are continually monitored, assessed and managed by operating a three lines of defence model for the risk and control of the businesses; the model adopted is demonstrated in the diagram above. The three lines of defence model is an industry standard concept. The basic tenet is that risk is owned and managed across the organisation with each employee understanding their role and responsibility in managing risk.
All staff and managers are required to take a prudent approach to risk taking and to review regularly the effectiveness of their control environment predominantly through a risk and control self-assessment process. The Group's independent control functions (risk, compliance and internal audit) are responsible for ensuring that the control environment is fit for purpose and able to identify and escalate to senior management the Group's key risks and to mitigate these risks where appropriate.
Representing the second line of defence, the Group's risk management function operates independently to the first line under the mandate set by the board. The Chief Risk and Compliance Officer reports to the Risk Committee and, functionally, to the Global Chief Operating Officer. The risk function is organised to recognise the individual risk profiles, oversight and challenge needs of the divisions, as well as the need for consistent identification, assessment and monitoring of risk across the Group in support of the board's requirements. The Chief Risk and Compliance Officer is a member of the GOC and attends the Risk Committee. She also attended the Operational Risk Framework Implementation Committee before it was disbanded during the year.
Day-to-day management of risk and its mitigation is the responsibility of business heads. Risk management provides an independent assessment of the Group's risks and supports the business heads in identifying, monitoring, mitigating and reporting key risks through the use of a range of tools. In this way, risk management reviews and challenges the Group's activities both functionally and globally.
These tools include:
A number of qualitative and quantitative measures are monitored by risk management to ensure that the businesses' risks remain within acceptable risk appetite and tolerances. Using these measures, the Group produces a number of risk intelligence reports which are disseminated through the governance structures at all levels as appropriate.
Representing the second line of defence, the Group's compliance function operates independently to the first line of defence under the mandate set by the board. During the year, the Group's compliance department reported to the Group Head of Compliance, who in turn reported to the Risk Committee and, functionally, to the Global Chief Operating Officer. From 1 April 2015, the compliance department reports to the Chief Risk and Compliance Officer. Dedicated compliance departments support the businesses operating in EMEA, the Americas and Asia Pacific regions, each under the leadership of regional heads of compliance who are members of regional and business level risk committees.
The Group's compliance department operates under the mandate set by the board. This mandate, inter alia, establishes the compliance department as an independent global control and assurance function which implements and manages ICAP's compliance risk management framework. This framework is designed to provide assurance that ICAP's business is conducted in accordance with applicable rules, regulations and regulatory standards. As such, the compliance risk management framework incorporates the requirements of applicable law and published international best practice standards, including business advisory support, compliance risk assessment and mitigation, compliance monitoring and surveillance, anti-money laundering compliance and the reporting and escalation of potential and crystallised risks.
The Group's compliance department undertakes an annual risk assessment in each region as the basis for the annual compliance plan for those legal entities, desks, offices, business and operating units which will be the subject of compliance review and examination. ICAP's compliance risk management framework is risk based, which means that ICAP assesses and ranks its compliance risks and prioritises its compliance resources accordingly on a Group, regional and business unit basis.
The board is responsible for reviewing the effectiveness of the risk management and the internal control system, which management is responsible for maintaining, and it does this through the Audit and Risk Committees. A description of the key risks faced by each division are detailed on page 30. The day-to-day business of the Group is managed through a system of financial, operational and compliance controls and monitored by a series of risk management systems. Internal controls are designed to manage rather than eliminate risks and can provide only reasonable and not absolute assurance against material misstatement or loss. The effectiveness of the internal control system is reviewed regularly by the independent internal audit function.
The Group has investments in a number of joint ventures and associates. Internal control procedures for joint ventures and associates rests with the senior management of these operations and the Company seeks to monitor such investments and exert influence through board representation. The board's review of the effectiveness of the system of internal control in those entities is consequently less comprehensive than in its directlyowned subsidiaries.
The committee, reporting to the board, was established in September 2013 to provide oversight of the operational risk areas identified as requiring improvement. The purpose of the committee was to ensure the effective implementation of an appropriate operational risk framework globally and to oversee the embedding of risk within the business and as an integral part of ICAP's culture.
The committee was appointed by the board from the directors and senior managers of the Company and consisted of the Chairman of the board, a non-executive director, the Group Finance Director, the Group General Counsel, the Global Chief Operating Officer, the Chief Risk Officer and the Chief Executive Officer, Global Broking. The Chairman of the committee was the Chairman of the board.
The committee met five times during the year to discuss and review progress of the implementation of the operational risk framework programme. During the year, the committee assessed the achievement of its objectives and agreed that the operational risk framework was sufficiently advanced, such that the responsibility for this work could be continued through the risk management team. The final meeting was held on 3 November 2014.
The board has delegated the executive management of the Group to the Group Chief Executive Officer and his executive management team, where the primary body is the GEMG. The role of the GEMG is to propose commercial strategy to the board, to oversee the performance of Group business and to set the commercial direction of these businesses. The GEMG operates under terms of reference delegated to it by the board. The committee is responsible for ensuring there is clear executive management accountability for all parts of ICAP's businesses, joint ventures and key investments and for generating an annual strategic plan and preparing a Group budget and forecast for recommendation to the board.
During the year, members of the committee were the Group Chief Executive Officer (Chairman), the Group Executive Director, Americas, the Group Finance Director or the Interim Group Finance Director and the following members of senior management.
Since September 2012, David Casterton has been responsible for the Global Broking division with regional management teams reporting to him. David had previously been responsible for all voice broking and related support functions in London and EMEA. Between 1995 and 2008, David worked in a number of senior broking roles and had responsibility for interest rate derivatives, money markets, repos, government bonds and financial futures. Prior to joining ICAP in 1995 he was with MW Marshalls and Guy Butler International.
Since September 2010, Hugh Gallagher has been responsible for voice broking, technology and support functions throughout Asia Pacific. Hugh was appointed to the GEMG in January 2012. He has held several senior positions within ICAP since joining in 1988, including Chief Executive Officer ICAP Australia. Prior to joining ICAP, Hugh worked for Citibank and Lloyds in FX and money markets. Hugh has more than 25 years' experience working in OTC markets in the Asia Pacific region.
David Ireland was appointed the Interim Group Finance Director in December 2014 following Iain Torrens's resignation. David joined ICAP in June 2011 as Group Head of Tax, and later that year, he assumed responsibility for the Group treasury function as Group Head of Tax and Treasury. In October 2012, he was appointed Chief Finance Officer, Group Finance, where he had responsibility for consolidated financial reporting and Group regulatory capital in addition to responsibility for tax and treasury. Prior to joining ICAP, David had been Head of Tax, UK and EMEA for Barclays Capital. From 1995 to 2007, he was at Deloitte LLP were he held several roles including Director, Banking and Capital Markets Tax. David chairs the GFC and is a member of the GOC.
Seth Johnson is responsible for developing Global Broking's strategy, focussing on growing revenue, improving the application of technology to its business model and expanding customer coverage. Prior to this, Seth led the expansion of ICAP's Electronic Markets product portfolio in his role as Chief Executive Officer of both BrokerTec and ISDX. He joined ICAP as a graduate trainee and has worked in the Company for more than 20 years. For ten years, Seth was the Managing Director of the interest rates options and inflation swaps desks. He oversaw the introduction of new and innovative trading solutions, including the volume match system.
Since December 2014, Gil Mandelzis has been responsible for the combined EBS-BrokerTec business. Prior to this, he led the Group's electronic FX business, EBS. Gil co-founded Traiana in April 2000. Gil led Traiana's growth from a small start-up to a recognised global leader in post trade services resulting in Traiana's acquisition by ICAP in 2007. Gil was appointed to the New York Federal Reserve's Foreign Exchange Committee in 2012.
Laurent Paulhac joined ICAP in April 2014. He is responsible for leading ICAP's global SEF initiative as well as the SEF's strategic direction with regard to new regulatory reforms and the Company's alliances and partnerships with exchanges and CCPs. Laurent is also involved in managing i-Swap in the US. Laurent joined ICAP from the CME Group where he was a member of the management team and Senior Managing Director for Interest Rate and OTC Products and Services with responsibility for CME Group's global listed interest rate franchise and all OTC businesses, including OTC clearing. Prior to CME, Laurent served as Chief Executive Officer of CMA, a provider of credit derivatives market data, analytics and trading support services, which was purchased by CME in 2008.
Ken Pigaga was appointed Global Chief Operating Officer in November 2013 and was appointed a member of the GEMG. He joined ICAP in 2006 as Chief Operating Officer for ICAP Americas and led the programme on the use of technology to implement efficiency and control. He also led a multi-disciplined team responsible for the development of ICAP's SEF. Prior to joining ICAP, Ken was a managing director at JPMorgan in the Investment Bank focused on e-commerce activities. From 1991 to 2001 he was at Goldman Sachs where he held several roles in emerging markets trading, portfolio structuring and e-commerce. Ken chairs the GOC and is a member of the GFC.
Duncan Wales oversees the legal and government affairs functions. He has occupied a number of senior roles within ICAP, including director of government affairs, General Counsel EMEA and Asia Pacific and senior counsel to the electronic broking division. Prior to its acquisition by ICAP in 2003, Duncan was director of legal affairs at BrokerTec. He spent five years at Clifford Chance as a derivatives and markets specialist. Duncan is a member of the GOC. He is a member of the GC 100 Group, the Council of the Wholesale Markets Brokers' Association and the City of London's International Regulatory Strategy Group.
Governance and directors' report
Set out below is additional statutory information that ICAP is required to disclose in its directors' report.
Some of the matters normally included in the directors' report have instead been included in the strategic report on pages 2 to 47 as the board considers these to be of strategic importance.
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic report. The financial position of the Group, its cash flow, liquidity position, facilities and borrowing position are described in the financial review. Notes 10 and 12 to the financial statements provide further detail on the Group's borrowings and management of financial risks. The strategic report includes an analysis of the key risks facing the Group and the Group's approach to risk management. After reviewing the Group's annual budget, liquidity requirements, plans and financing arrangements, the directors are satisfied that the Group and the Company have adequate resources to continue to operate for the foreseeable future and confirm that the Group and the Company are going concerns. For this reason they continue to adopt the going concern basis in preparing these financial statements.
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the Company's auditor in connection with preparing its report, of which the Company's auditor is unaware. Each director has taken all the steps that he is obliged to take as a director in order to make him 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 the Companies Act 2006.
Details of related party transactions are set out in note 29 to the financial statements.
No political donations were made during the year (2013/14 – nil).
Details of the Group's environmental policy are given on page 34.
Details of the Company's policies in respect of employee involvement, diversity and human rights are given on page 32 of the strategic report.
Throughout the financial year the Company has maintained Directors' and Officers' liability insurance in respect of itself and its directors and officers, when acting in their capacity as a director of the Company or associated companies.
The Company's articles of association may be amended by a special resolution at a general meeting of shareholders. No changes to the articles of association are proposed this year. The articles of association are available on the Company's website at www.icap.com.
| Fully paid ordinary shares of 10p each | 31 March 2015 | 31 March 2014 |
|---|---|---|
| Issued share capital | 664,537,006 | 664,537,006 |
| Treasury Shares | 15,314,513 | 16,707,521 |
| Treasury Shares as a % of issued share capital |
2.30% | 2.51% |
Subject to the Company's articles of association and prevailing legislation, each ordinary share in issue carries equal rights including one vote per share on a poll at general meetings of the Company. Treasury Shares carry neither voting rights nor an entitlement to a dividend while held as Treasury Shares. There are no other restrictions on the transfer of ordinary shares.
The Company did not purchase any of its own shares during the year (2013/14 – nil). As at 31 March 2015, and at 12 May 2015, the Company had an unexpired authority to repurchase shares up to a maximum of 64,831,120 ordinary shares of 10p each. All changes in share capital are detailed in note 26 to the financial statements.
The directors recommend a final dividend of 15.4p per share to be paid on 24 July 2015 to shareholders on the register on 3 July 2015. The shares will be quoted ex-dividend from 2 July 2015.
| Year end | Amount | Payment date | |
|---|---|---|---|
| Interim | 31 March 2015 | 6.6p | 6 February 2015 |
| Final | 31 March 2014 | 15.4p | 25 July 2014 |
| Interim | 31 March 2014 | 6.6p | 7 February 2014 |
| Final | 31 March 2013 | 15.4p | 19 July 2013 |
| Interim | 31 March 2013 | 6.6p | 8 February 2013 |
Financial statements
As at 31 March 2015, the Company has been notified of the following voting rights in its issued share capital disclosable under the FCA's Disclosure and Transparency Rules:
| Percentage of voting rights | |||
|---|---|---|---|
| Indirect | Direct | Total | |
| Michael Spencer together with IPGL, IPGL Limited, INFBV and INCAP Overseas BV* |
16.29 | 0.59 | 16.88 |
| Schroders plc | 13.31 | – | 13.31 |
| Silchester International Investors LLP | 10.98 | – | 10.98 |
| FIL Ltd | 4.95 | – | 4.95 |
| Newton Investment Management Ltd | – | 4.91 | 4.91 |
| AXA S.A. | 3.78 | 0.80 | 4.58 |
* Michael Spencer owns a majority shareholding in IPGL, of which INFBV is a wholly-owned subsidiary. Michael Spencer is deemed to be interested in all the shares in ICAP plc held by INFBV and its indirect wholly-owned subsidiary, INCAP Overseas BV, totalling 105,819,560 shares. This includes IPGL Limited's 250,000 shares acquired via a contract for difference. A further 3,516,558 shares are held by Sanne Fiduciary Services Limited as trustee of the ICAP Trust. The shares held in the ICAP Trust include basic awards to Michael Spencer under the BSMP and matching awards under the BSMP in respect of which there are no unsatisfied performance or continuity of employment conditions. Michael Spencer has a direct interest in 283,426 shares.
As of 12 May 2015, the Company was notified that Schroders plc held 14.97% and Silchester International Investors LLP held 10.94% of the voting rights in its issued share capital.
The ICAP Trust holds ordinary shares which may be used to satisfy options and awards granted under the Company's share plans. The voting rights of ordinary shares held in the ICAP Trust are exercisable by the trustees in accordance with their fiduciary duties. The right to receive dividends has been waived in respect of the shares held in the ICAP Trust.
The majority of the disclosures required under Listing Rule 9.8.4 are not applicable to ICAP. The table below sets out the location of the disclosures for those requirements that are applicable:
| Applicable sub-paragraph within Listing Rule 9.8.4 | Disclosure provided |
|---|---|
| (5) details of any arrangements under which a director of the Company has waived or agreed to waive any emoluments from the Company or any subsidiary undertaking |
p88 |
| (6) where a director has agreed to waive future emoluments, details of such waiver together with those relating to emoluments which were waived during the period under review |
p88 |
| (12) details of any arrangements under which a shareholder has waived or agreed to waive any dividends |
p70 |
| (13) where a shareholder has agreed to waive future dividends, details of such waiver together with those relating to all dividends which are payable during the period under review |
p70 |
As at 31 March 2015, share awards and options existed over 17,536,903 of the Company's ordinary shares in relation to employee share awards and option schemes. Of this figure, 5,573,089 are awards and options over existing shares which are held in the ICAP Trust. Awards granted under the Company's share plans are expected to be satisfied by either new issues of shares, the use of Treasury Shares or by shares held in the ICAP Trust. The rules of the Company's share plans contain provisions which may cause options and awards granted to employees under the schemes to vest on a change of control.
On 1 April 2015, ICAP completed the disposal of the shipbroking businesses to Howe Robinson Group Pte Limited for a 35% equity stake in the resulting combined group business.
The directors are responsible for preparing the Annual Report, the strategic report, the remuneration 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 have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.
In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors confirm that they consider the Annual Report, taken as a whole, to be fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and the Company's performance, business model and strategy.
The directors are responsible for the maintenance and integrity of the information on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors are also required by the Disclosure and Transparency Rules to include a management report containing a fair review of the business and a description of the principal risks and uncertainties facing the Group and the Company. The directors of the Company who were in office during the year, and up to the date of signing the Annual Report, were Charles Gregson, Michael Spencer, Ivan Ritossa, Diane Schueneman, John Sievwright and Robert Standing. Each of these directors, whose function is listed in the directors' biographies, confirms that, to the best of their knowledge and belief:
By order of the board
Group Company Secretary ICAP plc 2 Broadgate London EC2M 7UR Company number 3611426 19 May 2015
Achieving the right balance of short and longer-term remuneration to evolve the culture and deliver the right performance.
Robert Standing Chairman, Remuneration Committee
I am pleased to present the directors' remuneration report for 2014/15 recommending our new remuneration policy and explaining in our report on remuneration how we implemented the current policy in 2014/15.
The committee's primary focus is to ensure that ICAP's remuneration policies and practices are fully aligned with the Group's strategy, that they reinforce and contribute to evolving the culture and meet both regulatory and shareholder expectations.
In my 2013/14 report I signalled that the Remuneration Committee planned to undertake a review of the remuneration arrangements for executive directors, recognising that, while the current policy has served us well for a number of years, our strategy, regulatory requirements and shareholder expectations have changed significantly.
The most significant concern was that the mix of fixed and variable pay and short and long-term pay was aligned neither to the business nor to external expectations, particularly with the significant impact that European directives have on rebalancing in favour of fixed pay in order to discourage excessive risk taking. Having recognised this concern, the next challenge was to set the right mix of salary, annual bonus and longer-term awards to result in a material reduction in maximum pay and a significant increase in longer-term share awards with stretching performance conditions.
Market practice helped inform our decision making, in particular in establishing realistic salary levels, given that our previous policy was not to increase the Group Chief Executive Officer's salary but rather drive his reward primarily through annual profit performance. We recognise that the new salary for Michael Spencer is, in both absolute and percentage terms, very much higher than before. This is balanced, however, by a modest pension provision, significant decreases in maximum opportunity and maximum cash, and a material increase in longer-term, at risk, share awards.
As we worked through this process we also focused on developing a model that could be adapted easily to reward a much wider population than just the executive directors, providing alignment deep into the organisation.
Our new arrangements are set out in detail in the policy report section, but to summarise:
In terms of transition, in 2014/15 annual bonuses were determined under the existing policy, with PSP awards to be granted in 2015 under the new policy, subject to approval by shareholders.
We consulted with our key shareholders and UK institutional investor bodies as part of the review of our remuneration arrangements and are grateful to them for their time and the insights we gained through this dialogue, resulting in a number of changes to our original proposals, particularly with regard to key performance measures.
Moving on to remuneration decisions for the financial year, there were some significant achievements during the year.
The ICAP share price performed strongly both in absolute terms and relative to our peers. Changes that will positively impact our future success included the restructure of Global Broking, reorganisation of the electronic businesses, new product launches and countering some competitive challenge.
Although Global Broking's trading operating profit is down 29% due to changing market conditions, we have reacted successfully through an extensive cost saving exercise within this division and continued development across the rest of the Group such that, overall, we are in a strong position to move forward, even though Group trading operating profit for 2014/15 is 13% down.
A much increased focus on strategic measures helped to drive major positive changes in our brand and culture. Accordingly achievement of the executive directors against strategic objectives was assessed at 85% of maximum.
The BSMP 2012 matching award did not vest as it failed to meet the performance condition as a result of challenging trading conditions.
The shape of the board changed during the year with the departure of Iain Torrens in December 2014 and John Nixon in March 2015. A new Group Finance Director, Stuart Bridges, has been appointed to replace Iain and will join us in September.
Full details on the leaving arrangements for Iain Torrens and John Nixon and the remuneration structure for our new Group Finance Director, Stuart Bridges, can be found on page 84. Both exit and joining arrangements are in line with our remuneration policy.
Regulation will continue to evolve and we have worked towards remuneration arrangements which can be adapted to comply with new rules. The Company will continue to monitor business practice and regulatory developments, including the European Banking Authority consultation paper requirements released on 4 March 2015, and any other future regulatory changes.
The directors' remuneration policy will again be put to a binding vote and the remuneration report will be put to an advisory vote at the 2015 annual general meeting. We look forward to receiving your support for both of these resolutions.
Chairman, Remuneration Committee 19 May 2015
The following sections of this report set out our directors' remuneration policy (the policy), which will be put to shareholders for their approval at the 2015 annual general meeting in accordance with section 439A of the Companies Act 2006.
In last year's directors' remuneration report, we indicated that we would undertake a full review of our executive director remuneration policy.
As outlined in the Remuneration Committee's Chairman's statement, we have developed a revised framework to reflect:
our desire to have greater alignment of board and below board remuneration and move to a more market aligned structure;
shareholder feedback, particularly in respect of the previously uncapped individual bonus opportunity and the operation of a bonus share matching plan; and
We believe the new arrangements promote our reward philosophy and approach to remuneration which is in line with our business and is aligned with shareholder interests.
Shareholders will note that no changes have been made to the levels and operation of pension and benefits which remain the same as approved by shareholders last year.
If approved, the policy will be effective from the beginning of the 2015/16 financial year and will be effective for three years, or until another remuneration policy is approved by shareholders.
The table below summarises the policy in respect of each component of remuneration for executive directors.
| Element of pay | Purpose and link to ICAP's strategy |
Operation | Maximum opportunity | Performance measures |
|---|---|---|---|---|
| Salary | Reflects individual role and experience. Set at a level to attract the right talent into the Group to deliver the business strategy. |
Salaries are reviewed annually in the context of total remuneration opportunity. Factors considered include: • size and scope of individual responsibilities; • skills, experience and performance; • typical salary levels for comparable roles within appropriate pay comparators; and • reward levels and structure below the board. Any increase usually takes effect from 1 April. The committee may award increases at any other time, for example where there is a significant change in the role or responsibilities of the executive director. |
Maximum levels of salary have not been set by the committee but executive director salary increases will normally be in line with the wider employee population. Higher increases than the average for the wider employee population may be awarded in exceptional circumstances, at the Remuneration Committee's discretion, including for a significant increase in scope and/ or responsibility of the individual's role, rebalancing of fixed and variable pay or to take into account any future regulatory changes. Where an executive director has been appointed to the board at a lower than typical salary, larger increases may be awarded as they develop in the role. |
There are no specific performance conditions attached to salary increases, although overall performance of the individual and the company will be one of the considerations in setting salary levels. |
| Pension | Element of remuneration to assist employees with retirement planning. |
Directors are normally enrolled in the relevant pension plan (if any) for senior managers in their country of residence. |
The maximum pension contribution is equivalent to 5% of salary. Directors may opt out of the defined contribution plan and instead receive an equivalent cash allowance. A bonus sacrifice arrangement is also offered. Individual arrangements are shown on page 80. |
None. |
| Element of pay ICAP's strategy Operation Maximum opportunity Performance measures Element of remuneration to Executive directors are eligible to Benefits are generally set taking None. Benefits provide a competitive and receive certain benefits that vary into account affordability and cost-effective benefits by director and may include (but local market practice for package. are not limited to) medical, life comparable roles. insurance, car and travel benefits The committee has not set a reflecting the director's location maximum limit for benefits. and individual circumstances. The benefit policy and levels The current Group Chief are kept under review and the Executive Officer has the use of a committee may remove benefits driver. In order to recognise the that executive directors receive unique circumstances of the role or introduce other benefits if it and the travel requirements considers it appropriate. involved, in certain circumstances our executive directors may also be accompanied by their spouse/ partner on business trips. This will only be where there is a genuine business reason. |
|||
|---|---|---|---|
| received is shown on page 81. Where executive directors are |
The value of actual benefits | ||
| required to relocate or complete an international assignment, or perform duties outside their home location, the Remuneration Committee may offer additional expatriate benefits, if considered appropriate, or vary benefits according to local practice. This may include cover for additional taxation and support with tax reporting. |
|||
| The annual bonus plan The level of award is determined The maximum annual bonus Annual bonus and incentivises executive by the committee based on opportunity is 300% of salary. DSBP directors to achieve the performance against the relevant financial measures. Company's key financial performance criteria. metrics and strategic Awards are delivered in a strategic and/or individual objectives, while also combination of cash and shares, objectives. aligning their interests with with at least 50% deferred for at those of shareholders. least three years into ICAP shares to adjust the balance of the Deferral of a significant under the DSBP. A further proportion of the bonus six-month retention period may into shares helps to align also be applied on awards under will always have a greater the long-term interests of the DSBP. executives with those of The committee may award individual element. our shareholders. dividend equivalents in respect Payouts will range from 0 – of dividends declared over the deferral period. Dividend equivalent payments are made for achieving 'on-target' atthe end of the deferral period performance. in either cash or shares. The committee may apply malus or clawback to annual bonus awards in certain exceptional circumstances. Further details on malus and clawback provisions are |
At least 70% of the annual bonus opportunity is assessed against The balance will be subject to The committee retains the right measures on an annual basis. The financial element, however, weighting than the strategic/ 100% of the maximum, with 50% of the maximum payable |
| Element of pay | Purpose and link to ICAP's strategy |
Operation | Maximum opportunity | Performance measures |
|---|---|---|---|---|
| Performance Share Plan (PSP) |
ICAP's long-term incentive plan is to reward sustained Company performance and the creation of shareholder value over time. |
Annual award of ICAP shares subject to performance conditions over a period of at least three years. An additional holding period of at least two years will apply following vesting. Participants may receive a payment equivalent to the value of dividends paid on any vested shares when the participant receives those shares at the end of the holding period. Payment of dividend equivalents may be in either cash or shares. The committee may apply malus or clawback to PSP awards. Further details on malus and clawback provisions are provided in the notes to the table. |
The maximum PSP opportunity is 300% of salary. |
Performance measures will include the Company's financial performance and a share price-based measure, which will usually be equally weighted. These measures are reviewed regularly to ensure that they remain appropriate to business strategy, are sufficiently challenging and appropriate for incentivising executive directors. In future, the committee may decide that it is appropriate to introduce additional measures such as ICAP's key long-term strategic objectives, however, in any case, at least 80% of the award will continue to be based on financial and share price based measures. Threshold performance results in 25% vesting, rising to full vesting for maximum performance. |
| Shareholding requirement |
To create alignment with shareholders by encouraging longer-term focus. |
Executive directors are required to build up over time, and thereafter maintain, a holding in the Company's shares. The minimum shareholding requirement for the Group Chief Executive Officer is 500% of base salary and for the other executive directors is 300% of base salary. |
The committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with the policy set out above, where the terms of the payment were agreed:
For these purposes 'payments' include the committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are 'agreed' at the time the award is granted.
In particular, under the 2003 BSMP, a bonus in lieu of dividend is paid on vested but unexercised awards.
The performance conditions for both the annual bonus and PSP are selected to align directly with our short and long-term strategy.
The profit before tax and EPS measures under the annual bonus and PSP incentivise the achievement of continuing financial growth, with the total shareholder return measure providing a direct link to the creation of shareholder value. We also use strategic measures to focus on the achievement of the key short and long-term strategic objectives of the Company.
Performance targets are set annually by the committee taking into account the board's business plans and building in an appropriate level of stretch. The committee may vary both measures and targets year-by-year to ensure that they remain fully aligned with our strategy and continue to be reflective of the Company's business plans.
More detail on the annual bonus and PSP measures and targets can be found on pages 87 to 88.
All variable pay may be subject to malus and clawback in any of the following circumstances, for a period of up to five years in line with corporate governance timeframes:
Malus and clawback parameters will remain under review in line with regulatory guidance.
Governance and directors' report
Financial statements
| Purpose and link to ICAP's strategy | Operation and fee levels |
|---|---|
| To attract and retain a high-performing Chairman and non-executive directors with the right level of skills, international experience and industry knowledge. |
The Chairman receives a fee for the role, as determined by the Remuneration Committee. The Chairman is entitled to an additional fee for the chairmanship of the Nomination Committee but has waived his entitlement to this additional fee. |
| The non-executive directors receive an annual fee in respect of their duties. Further fees may be paid in respect of chairmanship of board committees and for the senior independent director. No fees are paid for membership of a board committee. Additional fees are paid to non-executive directors who sit on the board of the ICAP SEF entities and/or any other subsidiary boards due to the additional time commitment required for discharging these roles. Non-executive directors' fees are considered and approved by the executive directors and the Chairman. |
|
| Fees are set at a level which is considered appropriate to attract and retain the calibre of individuals required by the Company. Fees are reviewed regularly against comparable companies and may be adjusted from time to time. |
|
| Expenses incurred in the performance of non-executive duties for the Company may be reimbursed or paid for directly by the Company, as appropriate. The Chairman is provided with an office and is reimbursed for a proportion of the cost of a car and driver to assist with the performance of his duties. |
|
| The current fee levels can be found in the annual report on remuneration on page 88. |
In determining remuneration for new appointments to the board, the committee will apply the following principles:
Generally, pay on recruitment will be consistent with the usual policy for executive directors, as set out in the policy table above. The committee, however, considers it important that the recruitment policy has sufficient flexibility in order to attract the calibre of individual that the Company may require to continue to grow a successful business.
The committee may, in its absolute discretion, include remuneration components or awards which are not specified in the policy table, where necessary. The committee will ensure that this is done only where there is a genuine commercial need and in the best interests of the Company and its shareholders. The committee commits to explain to shareholders the rationale for the relevant arrangements following any appointment.
Where the new appointment is replacing a previous executive director, salaries, pension and total remuneration opportunity may be higher or lower than the previous incumbent dependent on skills and experience.
Where an executive director is appointed from within the Group, the normal policy of the Company is that any existing arrangements would be honoured in line with the original terms and conditions. Similarly, if an executive director is appointed following an acquisition of or merger with another company, legacy terms and conditions would be honoured.
The maximum level of variable pay which may be awarded to a new executive director in respect of their appointment shall be limited to that set out in the policy table above for each component of remuneration. This excludes any one-off awards made to compensate the director for awards forfeited from their previous employer.
In order to facilitate recruitment, the committee may make a one-off award to 'buy-out' incentive awards and any other compensation arrangements that a new director has had to forfeit on leaving their previous employer. In doing so, the committee will take into account all relevant factors, including any performance conditions attached to the forfeited awards, the likelihood of these conditions being met, the proportion of the vesting/performance period remaining and the form of the award (for example cash or shares). Where possible, the forfeited awards will normally be bought-out on a like-for-like basis.
The committee is at all times conscious of the need to pay no more than is necessary, particularly when determining any possible buy-out arrangements.
The Company's usual policy on notice periods is up to 12 months' notice by the Company or executive director to provide a reasonable balance between the need to retain the services of key individuals and the need to limit the liabilities of the Company in the event of the termination of a contract.
In the event of the appointment of a new Chairman and/or non-executive director, their remuneration framework will normally be in line with the table on page 88.
Key terms relating to ICAP's policy in the event of termination of an executive director are set out in the table below.
| Provision | Policy |
|---|---|
| Notice period | Up to 12 months' notice by the Company or executive director. |
| Termination payment | Contractual entitlement would be limited to salary and benefits (including pension) over the notice period. |
| The Company would normally expect executive directors to mitigate any loss on their departure. | |
| Incentive plans | Participation in all incentive plans is non-contractual and at the committee's discretion. |
| Annual bonus An executive director will not be eligible to receive an annual bonus unless the committee, in its absolute discretion, decides otherwise. In determining whether to award a bonus, the committee will assess performance during the financial year and apply pro rata as deemed appropriate. It will normally be the case that a proportion of any bonus would continue to be deferred under the DSBP (see below). The committee, however, reserves the right to make any such payment in cash with no requirement to defer any bonus. |
|
| DSBP Unvested awards will lapse except under certain circumstances (i.e. ill-health, injury or disability, the participant's employing company ceasing to be a group member, or any other reason) and at the committee's discretion (other than in the case of summary dismissal), when deferred awards under the DSBP will vest at the normal time. The number of shares released in such circumstances will be determined by the committee in its absolute discretion, taking into account the period until cessation of employment. In the case of death, awards will vest on the date of death. |
|
| PSP Unvested awards will lapse except under certain circumstances (i.e. ill-health, injury or disability, the participant's employing company ceasing to be a group member, or any other reason) and at the committee's discretion (other than in the case of summary dismissal), when PSP awards will vest and be released at the normal time. The number of shares released in such circumstances will be determined by the committee in its absolute discretion, taking into account the period until cessation of employment. In the case of death, awards will vest and be released on the date of death. If the individual leaves prior to the release of awards but after the end of the vesting period, the awards will continue to be released |
|
| at the end of the holding period, except on the grounds of summary dismissal, in which case they will lapse. |
The key termination provisions of ICAP's current and proposed executive directors' contracts are set out below:
Michael Spencer's notice period is 12 months. He is entitled to receive salary and benefits for the duration of his notice period. His contract includes a pay in lieu of notice clause which allows the Company to make a payment equal to this amount in lieu of any applicable period of notice. He may be eligible to receive a discretionary bonus.
Stuart Bridges's notice period is 12 months from the Company, six months from the employee. He is entitled to receive salary and benefits for the duration of his notice period. He may be eligible to receive a discretionary bonus.
In the event of a change of control or a voluntary winding up of the Company, DSBP and PSP awards will vest at that time, taking into account, unless the board determines otherwise, the extent to which any performance conditions have been met and the time elapsed since the grant date.
The committee, however, may require or permit individuals to exchange any awards for equivalent awards in the acquiring company.
The non-executive directors and the Chairman of the Company have letters of appointment which set out their duties and responsibilities. They do not have service contracts. The key terms of the appointments are set out in the table below:
| Provision | Policy |
|---|---|
| Notice period | Non-executive directors and the Chairman are not entitled to compensation on leaving the board, other than fees in respect of any notice period. |
| There is no notice period, other than in the event of change in control for non-executive directors and the Chairman in which case a three–month notice period will apply. |
Directors' service contracts are available for inspection at the Company's registered office.
There are consistent overarching principles of remuneration which apply across the Group.
Given the nature of our business, there is no single structure of remuneration that applies to all employees throughout the Group. For example, the pay structure for brokers is different from that of other employees. A significant element of pay, however, is performance-linked, ensuring that all ICAP's employees are focused on delivering strong financial results and achieving our strategic goals.
For members of the GEMG and other senior executives in the Group, a proportion of remuneration is deferred into Company shares and awards made under an equivalent plan to the PSP, ensuring long-term alignment with the interests of shareholders. The committee takes into consideration the pay and conditions of employees throughout the Group when determining remuneration arrangements for executive directors. ICAP manages the costs of employment at the corporate level and expects changes in total remuneration for directors to reflect changes in the Company's performance.
Notwithstanding a change in structure of the overall package for the executive directors in 2014/15, changes in salary are normally aligned to both policy and practice for increases for the wider population in terms of annual increases, market positioning and adjustments for promotions and changes of role.
Director remuneration over time is expected to correlate with corporate performance and as such has the potential to be much more volatile than that of the wider population.
The Company does not consult directly with employees on the policy but information relating to wider workforce remuneration is provided in regular updates to the committee.
The committee is committed to ongoing dialogue with shareholders and seeks the views of its largest shareholders when any major changes are being made to remuneration policy and arrangements for executive directors. Accordingly, the Chairman of the Company and the Chairman of the Remuneration Committee corresponded with many of the Company's key shareholders and UK institutional investor bodies, and also met with a number of them in person to seek their views on the proposed executive remuneration arrangements. Following the consultation process, the committee met to discuss the key views emerging from the meetings and made a number of adjustments to the original proposals to reflect shareholder views.
The committee may make minor amendments to the policy set out above (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for any such amendments.
The charts shown illustrate the policy for 2015/16 in line with the policy table on pages 74 to 76. The charts show hypothetical values for the remuneration package for executive directors under three different performance scenarios:
| Minimum | • Fixed elements of pay only • No bonus payout or vesting under the PSP |
|---|---|
| Performance in line with expectations |
• Fixed elements of pay • 50% of maximum annual bonus including deferral (i.e. 150% of salary for the Group Chief Executive Officer and 100% of salary for the Group Finance Director) • 25% of maximum vesting under the PSP (i.e. 75% of salary for the Group Chief Executive Officer and 50% for the Group Finance Director) |
| Maximum | • Fixed elements of pay • 100% of maximum annual bonus including deferral (i.e. 300% of salary for the Group Chief Executive Officer and 200% of salary for the Group Finance Director) • 100% of maximum vesting under the PSP (i.e. 300% of salary for the Group Chief Executive Officer and 200% for the Group Finance Director) |
| from 1 April 2015 |
Anticipated 2015/16 |
In line with policy |
Total fixed pay | |
|---|---|---|---|---|
| Group Chief Executive | ||||
| Officer | £750,000 | £106,348 | £37,500 | £893,848 |
| Group Finance Director £500,000 | £2,743 | £21,600 | £524,343 |
The information in this section up to and including the 'statement of directors' shareholding and share interests' section is subject to audit. The annual report on remuneration is subject to an advisory vote by shareholders.
The following table sets out the total remuneration for executive directors and non-executive directors for the years ended 31 March 2015 and 31 March 2014:
| Salary and fees (a) £'000 |
Benefits (b) £'000 |
Annual bonus (c) £'000 |
Pension/cash allowance (d) £'000 |
Subtotals £'000 |
dividend (e) £'000 |
Bonus in lieu of | Total £'000 |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Executive directors | ||||||||||||||
| Michael Spencer | 360 | 360 | 106 | 119 | 1,818 | 700 | 18 | 18 | 2,302 | 1,197 | 1,018 | 1,018 | 3,320 | 2,215 |
| John Nixon1 | 310 | 314 | 7 | 17 | 1,212 | 1,300 | – | – | 1,529 | 1,631 | 259 | 308 | 1,788 | 1,939 |
| Iain Torrens | 169 | 225 | 1 | 2 | 625 | 1,000 | 7 | 11 | 802 | 1,238 | 61 | 87 | 863 | 1,325 |
| Non-executive directors | ||||||||||||||
| Charles Gregson | 300 | 300 | 24 | 31 | – | – | – | – | 324 | 331 | – | – | 324 | 331 |
| Ivan Ritossa | 106 | 58 | – | – | – | – | – | – | 106 | 58 | – | – | 106 | 58 |
| Diane Schueneman | 99 | 80 | – | 3 | – | – | – | – | 99 | 83 | – | – | 99 | 83 |
| John Sievwright | 110 | 110 | 5 | 6 | – | – | – | – | 115 | 116 | – | – | 115 | 116 |
| Robert Standing | 90 | 90 | – | – | – | – | – | – | 90 | 90 | – | – | 90 | 90 |
1 The elements of John Nixon's remuneration that are paid in dollars have been converted to pound sterling using the average exchange rate for the year of \$1.6131 (2013/14 – \$1.5816).
(a) Salary and fees – the base salary or fees paid in respect of the relevant financial year.
(b) Benefits – the taxable value of all benefits paid in respect of the relevant financial year. Benefits vary for each executive director but include medical, car and travel benefits. Michael Spencer also has use of a driver. The Chairman is provided with an office and is reimbursed for a proportion of the cost of a car and driver to assist with the performance of his duties.
(c) Annual bonus – this represents the bonus awarded in respect of the 2014/15 performance year, including the deferred portion.
(d) Pension/cash allowance – During the year, Michael Spencer participated in the UK defined contribution plan. Iain Torrens ceased participation in the UK defined contribution plan and received a cash alternative. As a US-based director, John Nixon did not participate in any pension arrangements.
(e) Bonus in lieu of dividend – the amounts shown reflect payments in lieu of dividends received on the basic and matching awards for 2009 and basic awards and promises granted under the BSMP for 2010, 2011 and 2012.
The 2014/15 bonus scheme was structured to incentivise executive directors to increase profit and to align their interests with those of shareholders. As such the bonus scheme includes a profit level below which no bonus is payable, and a maximum level above which no additional bonus is payable.
The scheme was designed so that significant upside was only made available to executive directors for growing the Group's profitability by achieving trading profit before tax in line with the financial year 2011/12 figure (£354 million), adjusted for RPI plus 3% growth per annum. This is consistent with the original objective of the plan to reward long-term growth.
For 2014/15, the payment table is shown below. The bonus pool was capped at a maximum achievement of 120% of the target profit figure of £361 million.
| Tier | Trading profit before tax £m | Marginal bonus rate for 2014/2015 % |
|---|---|---|
| 1 | 0 – 83 | 0 |
| 2 | 84 – 167 | 2.41 |
| 3 | 168 – 251 | 3.06 |
| 4 | 252 – 334 | 3.72 |
| 5 | 335 – 360 | 4.38 |
| 6 | 361 – 433 | 8.75 |
| 7 | 434 + | 0 |
| Calculating the bonus pool | ||
|---|---|---|
| Threshold levels |
Marginal bonus rate accrual |
Actual trading profit before tax |
Bonus pool value | ||
|---|---|---|---|---|---|
| £433 million | 8.75% | ||||
| £360 million | 4.38% | ||||
| £334 million | 3.72% | ||||
| £251 million | £229 million | £3.92 million | |||
| 3.06% | x | £62 million | = | £1.90 million | |
| £167 million | 2.41% | x | £84 million | = | £2.02 million |
| £83 million £0 million |
0% | x | £83 million | = | 0 |
Vesting under the financial element was calculated based on actual trading profit before tax.
Actual trading profit before tax was £229 million, and therefore £2.02 million of the pool accumulated for the portion between £83 million and £167 million, and £1.9 million accumulated for the portion between £167 million and £229 million. The total bonus pool was therefore £3.92 million.
Of the total bonus pool, 25% (or £0.98 million) related to the strategic element. The committee judged 85% of this element to have been met and therefore only £0.83 million of this element paid out.
After adjusting for the strategic outcome, the overall pool was £3.77 million, which was distributed among the executive directors at the committee's discretion.
Of the bonus pool, 75% relates to achievement of the financial objective and 25% to achievement of the strategic objectives over which the committee exercised its judgement as to the level of achievement. The objectives assessed by the committee for the year ended 31 March 2015 were based on five key areas:
| Key strategic areas | Results |
|---|---|
| Growth and protection | • Achievement of sustainable top-line growth within the parameters set was largely met with strong revenue growth in target areas. There was also good retention of market share across many key business areas. This was all achieved against tough market conditions. |
| Profitability | • Although actual trading profit before tax was above analyst projections and costs were strongly managed, revenue growth was not achieved across all target businesses. As a result, the committee determined that majority, but not all, of the objective for the year had been achieved. |
| Controls and governance | • The reinforcement of defence models and review of roles and responsibilities is an ongoing process and will remain so. A new compliance/risk model was created in the year and key appointments in risk and control functions responsible for global implementation of consistent risk frameworks were made. Risk management functions also continued to be developed inside business lines. The committee judged that good progress has been made during the year and the objective has accordingly been assessed as meeting the majority of requirements. |
| People | • The creation and implementation of a new leadership programme has been a great success across the business. Work continues on the development of talent management and organisational review, including focus on the talent framework, learning and diversity strategies, but good progress has been made during the year. |
| Culture | • An integrated plan for brand, culture and internal communication has been developed over the course of the year through engagement with stakeholders and leaders across the business. Progress has been made in the year across all areas of the business and we will continue to build on this over the coming year to ensure that it is embedded in behaviours and performance across the business. |
The committee agreed that 85% of the strategic objectives for 2014/15 had been achieved.
The bonus pool has been allocated between the executive directors as follows:
| Executive directors | Total bonus |
|---|---|
| Michael Spencer | £1,818,000 |
| John Nixon | £1,212,000 |
| Iain Torrens | £625,000 |
50% of Michael Spencer's total bonus will be deferred into ICAP shares vesting equally over a three-year period.
In previous years, executives were required to use 50% of the total bonus to acquire investment shares under the BSMP, with matching shares granted. As part of the transitional arrangements to the new structure, the Group Chief Executive Officer will be obliged to acquire investment shares although no matching shares will be awarded under the BSMP. Instead, awards of an equivalent value will be granted under the new PSP for the first time. Further details are set out on page 80.
The BSMP matching award granted in 2012 was subject to a performance condition based on adjusted basic EPS growth over the three financial years to 31 March 2015. The matching award is released only if adjusted basic EPS has grown by at least 9% above RPI over the three financial years to 31 March 2015.
The Company's adjusted basic EPS growth over the three-year period was -17% and therefore the award did not vest.
On 22 May 2014, BSMP matching awards were granted to the three executive directors in respect of the 2013/14 annual bonus as shown in the table below:
| Type of award | Number of shares | Face value (£) | Threshold vesting (% of face value) |
Maximum vesting (% of face value) |
Performance period end |
|
|---|---|---|---|---|---|---|
| Michael Spencer | Nil-cost option over ordinary 10p shares in the Company |
91,657 | 348,773 | 10% | 100% | 31 March 2017 |
| John Nixon | Conditional share award | 170,221 | 647,725 | 10% | 100% | 31 March 2017 |
| Iain Torrens | Nil-cost option over ordinary 10p shares in the Company |
130,939 | 498,249 | 10% | 100% | 31 March 2017 |
The face value of awards is based on the average closing price for the five business days following the preliminary announcement of the 2013/14 results (£3.8052).
The committee selected trading EPS as the performance condition on the basis that it safeguards the progress that has been made in the Group's performance and underpins continuing forward growth in the Group's earnings and therefore promotes the long-term success of the Company.
The performance condition for the 2014 BSMP matching award is based on graduated vesting where 10% of the matching award will vest at RPI + 6% per annum, increasing to 100% vesting at RPI + 15% per annum over a three-year period.
Where awards have been granted in the form of options, the exercise price of the nil-cost options is £1. The exercise period for these options will commence on the day of the announcement of the Company's annual results for the financial year ending on 31 March 2017 and will last for a period of five years.
Michael Spencer and, until his departure from the Company, Iain Torrens participated in the HMRC approved ICAP plc 2008 Sharesave Scheme (SAYE), under which participants may be granted options at a 20% discount to market value at grant. Options granted under the SAYE are not subject to a performance condition.
On 13 June 2014, 1,490 options over ordinary shares in the Company were granted to both Michael Spencer and Iain Torrens at an option price of £3.02.
For Michael Spencer, the exercise period for the options will commence on 1 August 2017 and will last for a period of six months to 31 January 2018. Iain Torrens's SAYE options lapsed on cessation of employment.
Stuart Bridges will join the Company at the beginning of September and will be appointed as Group Finance Director, subject to FCA approval, at that point. His remuneration will comprise:
In addition, Stuart Bridges will receive two grants of ICAP plc shares each to the value of £450,000 and vesting after 12 and 24 months of service. Both awards are subject to continued service, malus and clawback. Stuart Bridges will also be granted a PSP award to the value of £900,000 subject to all plan rules and restrictions. This additional compensation is recompense for deferred awards foregone from his previous employment.
No payments to past directors have been made in the year.
Iain Torrens resigned from his role as an executive director of ICAP plc with effect from 12 December 2014 and ceased to be an employee of the Company with effect from 31 December 2014. He continued to receive his usual salary, benefits and pension until 31 December 2014, the date of his departure from the Company, as follows:
As disclosed above, a bonus payment of £625,000 was made to Iain Torrens in respect of 2014/15. In determining this bonus, the committee took into account his individual performance over the period up to his departure. The bonus award was also pro-rated to reflect the period over which Iain performed his duties as an executive director. No award under the BSMP was made to him in respect of the 2014/15 bonus.
All outstanding matching awards under the BSMP lapsed on Iain Torrens's cessation of employment.
John Nixon announced his intention to retire from the board on 31 March 2014 and ceased to be an employee of the Company with effect from 31 March 2015. He continued to receive his usual salary and benefits until 31 March 2015, the date of his departure from the Company as follows.
As disclosed above, a bonus payment of £1,212,000 was made to John Nixon in respect of 2014/15. As a result of his departure from the Company at the end of the financial year, no award under the BSMP was made to him in respect of the 2014/15 bonus.
As disclosed in the 2014 report, the Company entered into a three-year consulting agreement with John Nixon effective 1 April 2015 to provide advice, support and oversight relating to various strategic and new business initiatives as identified by the Company and provide advice and support relating to the Company's senior level customer relationships, including the maintenance of such relationships.
For these services ICAP intends to pay John Nixon a monthly consulting fee of \$83,333.
His consulting agreement also contains specific provisions relating to non-competition for the duration of the agreement.
Minimum shareholding guidelines for executive directors and members of the GEMG have been in place since 2012.
These shareholdings will be built up over time and, for these purposes, will include vested share awards under long term incentive plans but will not include any unvested rights to shares awarded under long term incentive plans or any unexercised options. Any vested shares subject to a holding period under the new PSP will count towards the shareholding guidelines.
Other shares that count towards the guideline include those that are beneficially owned and shares held by the ICAP Trust in respect of BSMP basic awards and any vested but not exercised BSMP matching and unvested PSP awards.
The minimum shareholding guideline for the Group Chief Executive Officer is 500% of base salary and for the other executive directors is 300% of base salary. Each executive director had exceeded their target as at 31 March 2015, based on the share price at the close of business on that date.
The table below details the share interests of the directors in office at 31 March 2015.
| Director | Note | Share interests as at 31 March 2015 |
Share interests as at 31 March 2014 |
Outstanding BSMP awards with performance condition |
Outstanding unapproved options with performance condition |
Outstanding SAYE options without performance condition |
|---|---|---|---|---|---|---|
| Charles Gregson | 236,263 | 229,612 | – | – | – | |
| Michael Spencer | 1,2 | 3,799,984 | 3,120,668 | 4,583,991 | – | 4,774 |
| John Nixon | 721,773 | 209,386 | 1,300,352 | 250,000 | – | |
| Iain Torrens | 3 | 193,802 | 427,211 | – | – | – |
| Ivan Ritossa | – | – | – | – | – | |
| Diane Schueneman | – | – | – | – | – | |
| John Sievwright | 20,000 | 20,000 | – | – | – | |
| Robert Standing | 10,000 | 10,000 | – | – | – |
Note:
Details of Michael Spencer's shareholding, including his connected parties, are set out in a note to the substantial shareholders' section on page 70. 2. The outstanding BSMP awards with performance conditions include the 2008 BSMP matching award which has vested and remains unexercised.
Iain Torrens's shareholding is correct as at 12 December 2014.
Between 31 March 2015 and 12 May 2015 there were no transactions in the Company's shares by the directors.
The Company recognises the opportunities and benefits to both the Company and executive directors serving as non-executive directors of other companies. Executive directors are permitted to take on non-executive directorships with other companies with the approval of the Nomination Committee. Any fees arising from such appointments are retained by the individual.
Michael Spencer received a fee of £66,667, which he retained, for his directorship of Tungsten Corporation plc. Michael resigned this directorship on 31 December 2014.
The total shareholder return on a holding of the Company's ordinary shares compared with the FTSE 100, FTSE 250 and the FTSE All-Share indices for the six financial years to 31 March 2015 is shown in the graph on the next page. As a constituent of the FTSE 100 index from June 2006 to September 2012, the Company considers both the FTSE 100 and the FTSE 250 the appropriate indices for comparison.
During this period the performance conditions for the long term incentive awards made in 2009, 2010, 2011 and 2012 were not met. Executive directors, therefore, did not receive the shares relating to these awards.
Six financial years ended 31 March 2015
| 2009/10 | 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | |
|---|---|---|---|---|---|---|
| Single total figure of remuneration (£'000) | 6,069 | 10,727 | 5,524 | 4,326 | 2,215 | 3,320 |
| Percentage of maximum bonus paid | n/a | n/a | 56% | 41% | 12% | 25% |
| Percentage of maximum BSMP opportunity vesting | 100% | 100% | 0% | 0% | 0% | 0% |
Note:
No maximum bonus stated prior to 2011/12.
The table below shows the percentage change in remuneration awarded to the Group Chief Executive Officer and all other employees of the Group between 2013/14 and 2014/15.
| Salary | Benefits | Bonus | |
|---|---|---|---|
| Group Chief Executive Officer | 0% | -11% | 160% |
| All other employees | -7% | 54% | -10% |
Benefits include £6 million of charges taken to the 2014/15 income statement (2013/14 was £1 million credit) in relation to share-based payment awards. See note 8 to the financial statements.
| 2014/15 £m |
2013/14 £m |
Change % |
|
|---|---|---|---|
| Total remuneration | £743 | £771 | -4 |
| Dividends | £141 | £141 | 0 |
As outlined in the Remuneration Committee's Chairman's statement, we have made a number of changes to our proposed remuneration policy to reflect our changing business focus, drive long-term performance and promote the right culture. 2015/16 will be the first financial year in which our new remuneration policy is proposed to come into effect.
In particular, we consider that the proposed remuneration arrangements for 2015/16:
As mentioned in the Chairman's statement, we consulted with major shareholders and institutional investor bodies as we developed our new remuneration policy.
Subject to shareholder approval at the 2015 annual general meeting, our remuneration policy for 2015/16 will be as outlined below.
As part of our new approach to remuneration, we are changing the balance of fixed and variable pay to align more closely with the Company risk profile and with regulatory developments. Although salaries have been increased as a result, this is balanced by a much more significant reduction in the variable pay opportunity, leading to a lower overall total remuneration opportunity.
The revised salary levels will be effective from 1 April 2015, subject to shareholder approval at the 2015 annual general meeting.
| Salary | |
|---|---|
| Group Chief Executive Officer | £750,000 |
| Group Finance Director | £500,000 |
Michael Spencer participates in the UK defined contribution plan, receiving a pension contribution equivalent to 5% of salary. Stuart Bridges has indicated that he will not participate in the UK defined contribution plan. He will receive a cash allowance in place of a contribution equivalent to 5% of salary less employer's national insurance.
The bonus structure for 2015/16 is consistent with that detailed in the remuneration policy section of this report.
As outlined earlier in this report, this year we are moving away from a bonus pool approach and introducing an individual cap on awards expressed as a percentage of salary. The previous approach was based on business performance expectations which were out of step with our developing business strategy.
Annual bonuses will continue to be assessed based on trading profit before tax performance and strategic priorities. We have increased the proportion of the annual bonus based on strategic priorities from 25% to 30% of the overall award, reflecting the increased importance we place on these objectives.
| Maximum | Group Chief Executive Officer: 300% of base salary |
|---|---|
| opportunity for 2015 | Group Finance Director: 200% of base salary |
| Performance | The committee has selected measures to directly support ICAP's strategy. |
| measures | The 2015 annual bonus will be subject to the following performance measures: |
| Financial objectives (70%): | |
| 1. Growth and protection – innovation and sustainable growth in key businesses and new products |
|
| 2. Profitability – market-leading profitability through achievement of targets and appropriate cost management |
|
| Strategic priorities (30%): | |
| 1. People and culture – the right people working together in the right way |
|
| 2. Controls and governance – efficient and effective controls |
|
| The targets set for the performance measures are commercially sensitive and (as permitted by the regulations) are not being disclosed in advance. Further details will be provided in next year's Annual Report with as much context as possible on performance against those targets and the resulting bonus outturn within commercial constraints. |
|
| Deferral | Half of any bonus award will be paid in cash, with the balance deferred into ICAP shares for a further three-year period. |
| Performance adjustment |
The committee may apply malus or clawback to any portion of the bonus award (both cash and share elements) in line with the policy outlined on page 76. |
Further details are set out below:
In light of shareholder feedback, we have decided to remove the link between our annual bonus and long-term incentive arrangements. As such, it is proposed to replace the BSMP with a new PSP, which will be fully aligned with our business model and strategic goals.
In the 2015/2016 financial year, the intention is to make awards under the proposed PSP to the Group Chief Executive Officer and the Group Finance Director. Further details are set out below:
| Maximum | Group Chief Executive Officer: 300% of base salary | ||||||
|---|---|---|---|---|---|---|---|
| opportunity | Group Finance Director: 200% of base salary | ||||||
| Performance period | Performance will be measured over a three-year performance period. Once they have vested, awards will be subject to an additional two-year holding period. |
||||||
| Performance | The performance period will run from 1 April 2015 – 31 March 2018. | ||||||
| measures and targets | TSR (50% of the award) Half the 2015 PSP award will be subject to a Total Shareholder Return performance condition. ICAP's TSR will be measured relative to a sector-specific group of 13 international comparator companies: |
||||||
| BGC | Markit | MarketAxess | |||||
| BOVESPA | Hong Kong Stock Exchange | NASDAQ OMX Group | |||||
| CBOE | InterContinental Exchange | Singapore Exchange | |||||
| CME | London Stock Exchange | Tullett Prebon | |||||
| Deutsche Börse | |||||||
| Vesting of awards under the TSR element will be in line with the following schedule: | |||||||
| TSR performance Below median |
Percentage of TSR element vesting 0% |
||||||
| Median | 25% | ||||||
| Upper quartile | 100% | ||||||
| With performance plotted against a straight-line between the median and upper quartile of comparator group. | |||||||
| EPS (50% of the award) | The remaining 50% of the 2015 award will be subject to a point-to-point EPS performance condition. Awards under this element will vest in line with the following schedule: |
||||||
| 3-year EPS growth CPI + 20% |
Percentage of EPS element vesting 25% |
||||||
| CPI + 45% | 100% | ||||||
| Performance adjustment |
The committee may apply malus or clawback to PSP awards in line with the policy outlined on page 76. |
The table below shows the non-executive director fee structure as at 1 April 2015:
| Position | Fee |
|---|---|
| Chairman | £300,000 |
| Non-executive director | £80,000 |
| Additional fees | |
| Senior independent director | £10,000 |
| Chairman of the Audit Committee | £10,000 |
| Chairman of the Remuneration Committee | £10,000 |
| Chairman of the Risk Committee | £10,000 |
| Chairman of the Nomination Committee* | £5,000 |
| Membership of the ICAP SEF board and/or any other subsidiary board** | £15,000/\$25,000 |
* Charles Gregson waived his entitlement to the additional fee for his role as chairman of the Nomination Committee. There are no fees paid for membership of board committees.
** Additional fees are paid to non-executive directors who sit on the board of ICAP SEF entities due to the additional time commitment for discharging this role.
The Remuneration Committee is authorised by the board to review and approve proposals to ensure that ICAP's global reward and employee benefits approach supports the business strategy of the Group.
The committee's responsibility is the oversight of the remuneration strategy for the Group, to ensure that ICAP's approach to remuneration is aligned with the interests of employees and shareholders and to comply with current best practice and regulatory requirements. Full terms of reference can be found on the Company's website at www.icap.com.
The committee's principal areas of responsibility are:
The committee members are appointed by the board and comprise independent non-executive directors. The chairman of the committee is appointed by the board.
The following table sets out the directors who served on the Remuneration Committee during the year and their committee meeting attendance.
Where a director did not attend a meeting owing to a prior commitment, he received the relevant papers and provided input to the Chairman in advance of the meeting so that his views were known.
| Total | Attended | |
|---|---|---|
| Robert Standing (Chairman) | 4 | 4 |
| Ivan Ritossa | 4 | 3 |
| Diane Schueneman | 4 | 4 |
The principal activities and matters addressed by the committee during the year included:
The overall effectiveness of the Remuneration Committee was rated highly by an external evaluation, including the performance of the committee in setting and reviewing the remuneration policy for the board and executive management.
The committee's areas of focus for 2015/16 will include improving the transparency and performance data for executive management and GEMG remuneration as well as benchmarking ICAP compensation policies against other organisations. The committee will also increase its focus on reviewing the development needs of key personnel.
Details of the committee's responsibilities and membership during the year are shown on page 89. The committee is supported by the Group Chief Executive Officer, the Group Finance Director, the Interim Group Finance Director, the Group Head of HR and the Group Company Secretary.
The committee received external advice from Deloitte LLP in relation to the design and implementation of the new executive remuneration arrangements. Deloitte LLP is a member of the Remuneration Consultants Group and as such voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK. Deloitte LLP was appointed by the Company. The committee is satisfied that the advice received from Deloitte LLP was independent and objective. The total fee in respect of the advice provided was £71,550. Deloitte LLP also provided other services, including tax, consulting and corporate finance services to ICAP during the year.
At the 2014 annual general meeting votes cast in respect of the remuneration report and directors' remuneration policy were:
| Remuneration report | Directors' remuneration policy | |||
|---|---|---|---|---|
| Total number of votes | Votes cast | Total number of votes | Votes cast | |
| For | 528,730,931 | 99.76% | 357,041,526 | 67.36% |
| Against | 1,285,178 | 0.24% | 172,980,778 | 32.64% |
| Number of votes cast | 530,016,109 | 530,022,304 | ||
| Votes withheld | 2,521,259 | 2,515,064 |
The committee was pleased that the remuneration report was almost universally agreed. We have listened to shareholders' concerns over the directors' remuneration policy and have made some significant changes to the policy this year which we hope will address previous concerns.
Governance and directors' report
In our opinion:
ICAP plc's financial statements comprise:
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
The judgements that have the most effect on the nature, extent and timing of our audit procedures – materiality, scoping and the key areas of audit focus – are summarised here and explained in detail below.
The areas of focus for our audit to which we allocated the greatest amount of our resources and effort were:
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as areas of focus in the table on page 92 We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Definitions
| Area of focus | How our audit addressed the area of focus |
|---|---|
| Presentation and disclosure of exceptional items | |
| Refer to page 61 (Audit Committee report) to page 103 (basis of preparation) and to note 4 (exceptional items). Assessment of the Group's performance generally focuses on trading profit, being operating profit before acquisition and disposal costs and exceptional items. This is the third consecutive year that ICAP has incurred and reported exceptional costs, although the nature of these costs has varied from year to year. During the year ICAP took a number of actions intended to bring significant cost reductions and communicated these plans to shareholders. The expenses incurred during the year as a result of these actions varied, with the resultant risk that the expenses recognised as exceptional may not meet the criteria to be classified as such as set out in the accounting policy on page 106. We focused on the risk that these costs could be incorrectly classified between the columns of the financial statements, with an impact on the disclosed underlying business performance. |
We understood management's basis for determining whether or not expenses incurred in connection with each element of the cost reduction plan fell within the classification of 'exceptional items' as described in the accounting policy. We then used our understanding of the nature of the action being taken and our broader industry knowledge to challenge this basis. We selected a sample of expenses that had been identified as exceptional items and, based on our knowledge of the Group's cost reduction plans and its day to day operations, formed our own judgement as to whether they were appropriately included in exceptional items. We found no material exceptions in these tests. We examined the Group's disclosures in respect of exceptional items considering the correlation between the narrative provided and the underlying expenses incurred and agreed that this appropriately reflected the nature of the underlying expenses. |
| Goodwill impairment assessment | |
| Refer to page 61 (Audit Committee report) and to note 14 (intangible assets arising on consolidation). We focused on this area due to the size of the goodwill balance (£877m), and because the directors' assessment of the carrying value of the Group's cash generating units ('CGUs') involves judgements about the future results of the business and the discount rate applied to the future cash flow forecasts. The value in use method was used to assess the recoverable amount of each CGU and no impairment charge was recognised during the period. |
We tested the directors' future cash flow forecasts by comparing them to the latest board approved budgets. We compared the current year results with the equivalent figures included in the prior year forecast to test historical budgeting accuracy, which provided support for the effectiveness of the budgeting process undertaken by management. We challenged the directors' key assumptions for long-term growth rates by comparing rates used to past results and to economic and industry forecasts. We also challenged the discount rate by independently recalculating the Group's cost of capital, which was consistent with the discount rate used. We performed sensitivity analyses over the key assumptions of the cash flow forecast. Having ascertained the extent of change in those assumptions that either individually or collectively would be required for the goodwill to be impaired, we considered the likelihood of such a movement in the key assumptions arising. We paid particular attention to the Global Broking business due to it's performance being impacted by cyclical factors including low interest rates and foreign exchange volatility, including Shipping given the proposed disposal. The management restructuring programme also predominantly focused on the Global Broking division. We also evaluated the adequacy of disclosures made in Note 14 to the Group financial statements and determined that they are consistent with the requirements of accounting standards. |
| Recognition and presentation of revenue | |
| Refer to note 1 (segmental information). | We evaluated and tested the relevant IT and manual internal controls over |
| We focused on the completeness, accuracy and timing of the recognition and presentation in the income statement of: • commissions from the Group's Global Broking division including agency |
the accuracy and timing of commissions and fees recognised in the financial statements. Where control issues were identified, we were able to rely on the testing of compensating controls or performed additional tests of detail. We also tested the following: |
| and matched principal businesses; • brokerage and access fees from its Electronic Markets division; and • fees from the provision of Post Trade Risk and Information. |
• the reconciliations between the revenue systems used by the Group and its financial ledgers and did not identify any unusual or long-standing reconciling items; |
| Given the high volume of transactions in Global Broking and Electronic Markets, robust internal controls over trade recording and settlement are important to ensure the completeness and accuracy of revenues. For the agency business, the risk of revenue misstatement increases when amounts become past due, given that the invoices are raised at the end of each month in arrears and, for the matched principal business, when trades fail to settle within the standard market settlement period (two to three business days). |
• revenue recognised by agreeing to cash received or accounts receivable as appropriate. We tested journal entries posted to revenue accounts to identify unusual or irregular items. This did not identify any items which could not be substantiated or were recognised in the wrong accounting periods; • the timing of revenue recognition, checking the necessary contractual obligations had been fulfilled; and |
| Access fees in Electronic Markets and revenue from Post Trade Risk and Information are recognised on an accruals basis to match the provision of the service which includes estimation with regard to stage of completion. |
• the recoverability of overdue year end account receivables on a sample basis by obtaining invoices to validate the underlying revenue and obtaining an understanding for the aged item including agreeing to subsequent cash receipts where applicable. |
No exceptions were noted in our testing.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group reports its operating results and financial position along three business lines, being Electronic Markets, Post Trade Risk and Information and Global Broking. The Group financial statements are a consolidation of these business lines, which comprise 242 separate legal entities located in 32 countries, and the Group's centralised functions.
We identified 15 reporting units across the Global Broking and Electronic Markets business lines and centralised functions that, in our view, required an audit of their complete financial information, either due to their size or their risk characteristics. As part of our planning procedures, the Group engagement team visited the UK and US component teams (the two most significant countries in the Group). Specific audit procedures on certain balances and transactions were performed at a further 13 reporting units, which included the three largest entities in the Post Trade Risk and Information segment, located in Sweden, Tel Aviv and Singapore.
In aggregate, our audit procedures accounted for:
| Components | Proportion of total income |
Proportion of total assets |
|---|---|---|
| Audit of the complete financial information of full scope components and adjusting items | 51% | 83% |
| Specific audit procedures for certain financial line items of the other two components | 27% | 15% |
| Out of scope | 22% | 2% |
| Total | 100% | 100% |
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, and consistent with last year, we determined materiality for the financial statements as a whole as follows:
| Overall Group materiality |
£11.45 million (2013/14 – £13.6 million). |
|---|---|
| How we determined it | 5% of profit before tax, acquisition and disposal costs and exceptional items. |
| Rationale for benchmark applied |
We based materiality on profit before tax, acquisition and disposal costs and exceptional items. The removal of these items mitigates undue volatility in determining our materiality. |
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £500,000 (2013/14 – £500,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Under the Listing Rules we are required to review the directors' statement, set out on page 69, in relation to going concern. We have nothing to report having performed our review.
As noted in the directors' statement, the directors have concluded that it is appropriate to prepare the financial statements using the going concern basis of accounting. The going concern basis presumes that the Group and the Company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's and the Company's ability to continue as a going concern.
In our opinion, 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.
Under ISAs (UK & 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 and Company acquired in the course of performing our audit; or – otherwise misleading. • the statement given by the directors on page 71, in accordance with provision C.1.1 of the UK Corporate Governance Code (the Code), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's and Company's performance, business model and strategy is materially inconsistent with our knowledge of the Group and |
We have no exceptions to report arising from this responsibility. We have no exceptions to report arising from this responsibility. |
|||
|---|---|---|---|---|
| Company acquired in the course of performing our audit. • the section of the Annual Report on pages 60 and 61, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. |
We have no exceptions to report arising from this responsibility. |
|||
| Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or |
they give a true and fair view. | Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the Directors' Responsibilities Statement set out on page 71, the directors are responsible for the preparation of the financial statements and for being satisfied that Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing |
||
| • the Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Directors' remuneration Directors' Remuneration Report – Companies Act 2006 opinion |
Practices Board's Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves 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 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 our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from these responsibilities. |
||||
| Corporate governance statement Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company's compliance with nine provisions of the UK Corporate Governance Code. We have nothing to report having performed our review. |
We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
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.
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London, United Kingdom 19 May 2015
| Note | Trading £m |
Acquisition and disposal costs £m |
Exceptional items £m |
Total £m |
|
|---|---|---|---|---|---|
| Revenue | 1 | 1,276 | – | – | 1,276 |
| Operating expenses | 3 | (1,026) | (59) | (75) | (1,160) |
| Other income | 2 | – | – | 2 | |
| Operating profit | 1 | 252 | (59) | (75) | 118 |
| Finance income | 9 | 4 | – | – | 4 |
| Finance costs | 9 | (35) | – | – | (35) |
| Share of profit of joint ventures after tax | 22 | 4 | – | – | 4 |
| Share of profit of associates after tax | 23 | 4 | – | – | 4 |
| Profit before tax | 229 | (59) | (75) | 95 | |
| Tax | 7 | (44) | 15 | 18 | (11) |
| Profit for the year | 185 | (44) | (57) | 84 | |
| Attributable to: | |||||
| Owners of the Company | 185 | (44) | (57) | 84 | |
| Non-controlling interests | – | – | – | – | |
| 185 | (44) | (57) | 84 | ||
| Earnings per ordinary share (pence) | |||||
| – basic | 5 | 28.7 | 13.0 | ||
| – diluted | 5 | 28.1 | 12.8 | ||
Year ended 31 March 2014
Governance and directors' report
| Acquisition and disposal |
Exceptional | ||||
|---|---|---|---|---|---|
| (restated) | Note | Trading £m |
costs £m |
items £m |
Total £m |
| Revenue | 1 | 1,378 | – | – | 1,378 |
| Operating expenses | 3 | (1,094) | (79) | (76) | (1,249) |
| Other income | 6 | – | – | 6 | |
| Operating profit | 1 | 290 | (79) | (76) | 135 |
| Finance income | 9 | 11 | 6 | – | 17 |
| Finance costs | 9 | (38) | (1) | – | (39) |
| Share of profit of joint ventures after tax | 22 | 4 | – | – | 4 |
| Share of profit of associates after tax | 23 | 4 | – | – | 4 |
| Profit before tax | 271 | (74) | (76) | 121 | |
| Tax | 7 | (59) | 26 | 12 | (21) |
| Profit for the year | 212 | (48) | (64) | 100 | |
| Attributable to: | |||||
| Owners of the Company | 213 | (48) | (64) | 101 | |
| Non-controlling interests | (1) | – | – | (1) | |
| 212 | (48) | (64) | 100 | ||
| Earnings per ordinary share (pence) | |||||
| – basic | 5 | 33.2 | 15.7 | ||
| – diluted | 5 | 32.6 | 15.4 | ||
Financial statements
| Note | Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|
|---|---|---|---|
| Profit for the year | 84 | 100 | |
| Other comprehensive income/(expense) | |||
| Items that will be reclassified subsequently to profit or loss when specific conditions are met: |
|||
| Revaluation gain in the year | 27 | 1 | – |
| Cash flow hedges | |||
| – fair value (losses)/gains | 27 | (37) | 6 |
| – fair value gains transferred to income statement | 27 | 29 | 2 |
| (8) | 8 | ||
| Exchange differences | 91 | (135) | |
| Income taxes | – | (1) | |
| Other comprehensive income/(expense) for the year, net of tax | 84 | (128) | |
| Total comprehensive income/(expense) for the year | 168 | (28) | |
| Total comprehensive income/(expense) attributable to: | |||
| Owners of the Company | 164 | (27) | |
| Non-controlling interests | 4 | (1) | |
| 168 | (28) |
Governance and directors' report
Financial statements
Definitions
| As at As at 31 March As at As at 31 March 2014 31 March 31 March £m 2014 2015 2015 Note (restated) £m £m £m Assets Non-current assets Intangible assets arising on consolidation 14 933 – 930 – Intangible assets arising from development expenditure 13 95 – 108 – Property and equipment 25 44 – 40 – Investment in subsidiaries 21 – 2,036 – 2,036 Investment in joint ventures 22 10 – 13 – Investment in associates 23 65 1 68 1 Deferred tax assets 7 11 – 6 – Trade and other receivables 18 6 124 5 124 Available-for-sale investments 24 18 – 17 – 1,182 2,161 1,187 2,161 Current assets Held for sale assets 15 – – 21 – Trade and other receivables 18 22,935 99 24,411 97 Restricted funds 11 39 – 43 – Cash and cash equivalents 11 698 – 481 – 23,672 99 24,956 97 24,854 2,260 Total assets 26,143 2,258 Liabilities Current liabilities Trade and other payables 19 (22,912) (391) (24,378) (279) Borrowings 10 (247) – (163) – Tax payable (66) – (39) – Held for sale liabilities 15 – – (4) – Provisions 16 (10) – (20) – (23,235) (391) (24,604) (279) Non-current liabilities Trade and other payables 19 (9) – (37) – Borrowings 10 (540) (135) (386) (134) Deferred tax liabilities 7 (74) – (73) – Retirement benefit obligations (4) – (6) – Provisions 16 (9) – (19) – (636) (135) (521) (134) (23,871) (526) Total liabilities (25,125) (413) 983 1,734 Net assets 1,018 1,845 Equity Capital and reserves Called up share capital 26 66 66 66 66 Share premium account 454 454 454 454 Other reserves 27 86 1 79 1 Translation (44) – 43 – Retained earnings 379 1,213 330 1,324 941 1,734 Equity attributable to owners of the Company 972 1,845 Non-controlling interests 42 – 46 – |
Group | Company | |||
|---|---|---|---|---|---|
| Total equity | 1,018 | 983 | 1,845 | 1,734 |
The financial statements on pages 96 to 150 were approved by the board on 19 May 2015 and signed on its behalf by:
Group Chief Executive Officer
| Year ended 31 March 2015 | Share capital £m |
Share premium £m |
Other reserves (note 27) £m |
Translation £m |
Retained earnings £m |
Attributable to owners of the Company £m |
Non controlling interests £m |
Total £m |
|---|---|---|---|---|---|---|---|---|
| Balance at 1 April 2014 | 66 | 454 | 86 | (44) | 379 | 941 | 42 | 983 |
| Profit for the year | – | – | – | – | 84 | 84 | – | 84 |
| Other comprehensive income/(expense) |
||||||||
| Cash flow hedges | – | – | (8) | – | – | (8) | – | (8) |
| Exchange differences | – | – | – | 87 | – | 87 | 4 | 91 |
| Revaluation gains realised in the year |
– | – | 1 | – | – | 1 | – | 1 |
| Total comprehensive income/(expense) for the year |
– | – | (7) | 87 | 84 | 164 | 4 | 168 |
| Own shares acquired for employee trusts |
– | – | – | – | 1 | 1 | – | 1 |
| Share-based payments in the year (note 8) |
– | – | – | – | 7 | 7 | – | 7 |
| Dividends paid in the year | – | – | – | – | (141) | (141) | – | (141) |
| Balance at 31 March 2015 |
66 | 454 | 79 | 43 | 330 | 972 | 46 | 1,018 |
| Year ended 31 March 2014 (restated) | Share capital £m |
Share premium £m |
Other reserves (note 27) £m |
Translation £m |
Retained earnings £m |
Attributable to owners of the Company £m |
Non controlling interests £m |
Total £m |
|---|---|---|---|---|---|---|---|---|
| Balance at 1 April 2013 | 66 | 454 | 78 | 91 | 414 | 1,103 | 53 | 1,156 |
| Profit for the year | – | – | – | – | 101 | 101 | (1) | 100 |
| Other comprehensive income/(expense) |
||||||||
| Cash flow hedges | – | – | 8 | – | – | 8 | – | 8 |
| Income taxes | – | – | – | – | (1) | (1) | – | (1) |
| Exchange differences | – | – | – | (135) | – | (135) | – | (135) |
| Total comprehensive income/(expense) for the year |
– | – | 8 | (135) | 100 | (27) | (1) | (28) |
| Own shares acquired for employee trusts |
– | – | – | – | 4 | 4 | – | 4 |
| Other movements in non-controlling interests |
– | – | – | – | 2 | 2 | – | 2 |
| Dividends paid in the year | – | – | – | – | (141) | (141) | (10) | (151) |
| Balance at 31 March 2014 | 66 | 454 | 86 | (44) | 379 | 941 | 42 | 983 |
| Year ended 31 March 2015 | Share capital £m |
Share premium account £m |
Capital redemption reserve £m |
Retained earnings £m |
Total £m |
|---|---|---|---|---|---|
| Balance as at 1 April 2014 | 66 | 454 | 1 | 1,213 | 1,734 |
| Profit for the year | – | – | – | 251 | 251 |
| Total comprehensive income for the year | – | – | – | 251 | 251 |
| Dividends paid in the year | – | – | – | (141) | (141) |
| Own shares acquired for employee trusts | – | – | – | 1 | 1 |
| Balance as at 31 March 2015 | 66 | 454 | 1 | 1,324 | 1,845 |
| Year ended 31 March 2014 | Share capital £m |
Share premium account £m |
Capital redemption reserve £m |
Retained earnings £m |
Total £m |
| Balance as at 1 April 2013 | 66 | 454 | 1 | 1,185 | 1,706 |
| Profit for the year | – | – | – | 165 | 165 |
| Total comprehensive income for the year | – | – | – | 165 | 165 |
| Dividends paid in the year | – | – | – | (141) | (141) |
| Own shares acquired for employee trusts | – | – | – | 4 | 4 |
| Balance as at 31 March 2014 | 66 | 454 | 1 | 1,213 | 1,734 |
Governance and directors' report
| Note | Group | Company | |||
|---|---|---|---|---|---|
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
||
| Cash flows from operating activities | 11(a) | 199 | 142 | – | – |
| Cash flows from investing activities | |||||
| Dividends received from subsidiaries | – | – | 141 | 167 | |
| Dividends received from associates | 4 | 4 | – | – | |
| Dividends received from joint ventures | 1 | 4 | – | – | |
| Other equity dividends received | – | 3 | – | – | |
| Payments to acquire property and equipment | (9) | (14) | – | – | |
| Intangible development expenditure | (48) | (53) | – | – | |
| Proceeds from disposal of available-for-sale investments | – | 1 | – | – | |
| Proceeds from disposal of interest in subsidiaries | – | 3 | – | – | |
| Acquisition of interests in subsidiaries | (1) | – | – | – | |
| Proceeds from disposal of subsidiaries | 1 | – | – | – | |
| Acquisition of associates and joint ventures | – | (6) | – | – | |
| Net cash flows from investing activities | (52) | (58) | 141 | 167 | |
| Cash flows from financing activities | |||||
| Dividends paid to non-controlling interest | – | (10) | – | – | |
| Proceeds from exercise of share options | – | 4 | – | 4 | |
| Dividends paid to owners of the Company | (141) | (141) | (141) | (141) | |
| Repayment of borrowings | (259) | (121) | – | – | |
| Funds received from borrowing, net of fees | – | 349 | – | 12 | |
| Receipts from subsidiaries | – | – | – | 2 | |
| Payments to subsidiaries | – | – | – | (44) | |
| Net cash flows from financing activities | (400) | 81 | (141) | (167) | |
| Net (decrease)/increase in cash and cash equivalents | (253) | 165 | – | – | |
| Net cash and cash equivalents at beginning of the year | 697 | 592 | – | – | |
| FX adjustments | 4 | (60) | – | – | |
| Net cash and cash equivalents at end of the year* | 11(c) | 448 | 697 | – | – |
*Net of £33m overdraft as at 31 March 2015 (2013/14 – £1m).
The consolidated financial statements of the Group and the separate financial statements of ICAP plc have been prepared in accordance with IFRSs, as issued by the IASB and the interpretations issued by the IFRS Interpretations Committee (IFRIC) and their predecessor bodies, and as endorsed by the EU and the Companies Act 2006 applicable to companies reporting under IFRS. In publishing the parent company financial statements here together with the Group financial statements, ICAP plc has taken advantage of the exemption in section 408(3) of the Companies Act 2006 not to present its individual income statement, individual statement of comprehensive income and related notes that form a part of these financial statements. The financial statements are prepared in pound sterling, which is the functional currency of the Company and presented in millions. ICAP plc is incorporated and domiciled in the UK.
The significant accounting policies adopted by the Group and the Company are included within the notes to which they relate and are shaded in blue.
The preparation of financial statements requires management to apply judgements and the use of estimates and assumptions about future conditions. Management considers impairment of goodwill and other intangible assets arising on consolidation (note 14) to be the area where increased judgement is required. Further information about key assumptions concerning the future, and other key sources of estimation uncertainty, are set out in the relevant notes to the financial statements. Estimates and assumptions are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based on amounts which differ from those estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
During the year Group adopted the following new accounting standards:
The adoption of IFRS11 'Joint Arrangements' and IAS28 'Investments in Associates and Joint Ventures' had a material effect on the consolidated income statement as the Group's joint ventures are now accounted for using the equity accounting method under IAS28. Income statement and balance sheet line items for the prior year comparatives have been restated. The impact of the retrospective adoption on the profit after tax for the year ended 31 March 2014 was £nil, but restated revenue and operating expenses were £19m and £14m lower, respectively. The balance sheet impact was immaterial, hence an opening balance sheet as at 1 April 2014 has not been presented. Restated non-current assets were £5m higher, offset by a decrease of £7m in restated current assets. The £2m net decrease in restated total assets was offset by a £2m decrease in restated current trade and other payables.
The adoption of other standards had no material impact on the financial statements for the year ended 31 March 2015.
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 improving the understanding of its results by presenting its trading profit. This is the profit measure used to calculate trading EPS (note 5) and is considered to be the most appropriate as it better reflects the Group's trading earnings. Trading profit is reconciled to profit before tax on the face of the consolidated income statement, which also includes acquisition and disposal costs and exceptional items.
The column 'acquisition and disposal 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 re-measurement after initial recognition of deferred 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 re-measurement of liabilities that are above the value of indemnification.
Items which are of a non-recurring 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.
The Group's consolidated financial statements include the results and net assets of the Company, its subsidiaries and the Group's share of joint ventures and associates.
An entity is regarded as a subsidiary if the Group has control over its strategic, operating and financial policies and intends to hold the investment on a long-term basis for the purpose of securing a contribution to the Group's activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of acquisition is measured at fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in the business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the costs of the acquisition are less than the fair value of the net assets acquired, the difference is recognised directly in the consolidated income statement.
Fees associated with an acquisition are expensed as incurred. When the Group increases its investment in an entity resulting in an associate becoming a subsidiary, the intangibles related to the acquisition are valued and the element of those not previously recognised as a share of net assets are recorded as revaluation gains realised in the year in other comprehensive income. A change of ownership that does not result in a loss of control is classified as an equity transaction, with the difference between the amount by which the non-controlling interest is recorded and the fair value of the consideration received recognised directly in equity.
Where the Group has issued a put option over shares held by a non-controlling interest, the Group derecognises the non-controlling interests and instead recognises a contingent deferred consideration liability for the estimated amount likely to be paid to the noncontrolling interest on exercise of those options. The residual amount, representing the difference between any consideration paid/ payable and the non-controlling interest's share of net assets, is recognised in equity. Movements in the estimated liability after initial recognition are recognised within the consolidated income statement. Where the Group has a call option over shares held by a noncontrolling interest, the Group continues to recognise the non-controlling interest until it is certain that the option will be called. At that point the accounting treatment is the same as for a put option.
The results of companies acquired during the year are included in the Group's results from the effective date of acquisition. The results of companies disposed of during the year are included up to the effective date of disposal.
The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
On consolidation, the accounting policies of Group companies (the Company and its subsidiaries) are consistent with those applied by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated as part of the consolidation process. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
A joint venture is an entity in which the Group has an interest and, in the opinion of the directors, exercises joint control over its operating and financial policies. An interest exists where an investment is held on a long-term basis for the purpose of securing a contribution to the Group's activities. Following the adoption of IFRS11 'Joint Arrangements' and IAS28 'Investments in Associates and Joint Ventures' on 1 April 2014, investments in joint ventures are recognised using the equity method. Under this method, such investments are initially stated at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition change in the Group's share of net assets.
The Group classifies investments in entities over which it has significant influence, but not control, and that are neither subsidiaries nor joint ventures, as associates. Investments in associates are recognised using the equity method. Under this method, such investments are initially stated at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition change in the Group's share of net assets.
In individual entities, transactions denominated in foreign currencies are recorded at the prior month closing exchange rate between the functional currency and the foreign currency. At each end of the reporting period, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period. Exchange differences are recognised in the consolidated income statement, except for exchange differences arising on non-monetary assets and liabilities where these form part of the net investment of an overseas business or are designated as hedges of a net investment or cash flow and, therefore, the changes in value resulting from exchange differences are recognised directly in other comprehensive income.
On consolidation, the results of businesses with non-pound sterling functional currencies are translated into the presentational currency of the Group at the average exchange rates for the year where these approximate to the rate at the date of the transactions. Assets and liabilities of overseas businesses are translated into the presentational currency of the Group at the exchange rate prevailing at the end of the reporting period. Exchange differences arising are recognised within other comprehensive income. Cumulative translation differences arising after the transition to IFRS are taken to the consolidated income statement on disposal of the net investment.
Goodwill and fair value adjustments arising on the acquisition of a non-pound sterling entity are treated as assets and liabilities of that entity and translated into the presentational currency of the Group at the period closing rate. Where applicable, the Group has elected to treat goodwill and fair value adjustments arising before the date of transition to IFRS as denominated in the presentational currency of the Group.
In the consolidated statement of cash flows, cash flows denominated in foreign currencies are translated into the presentational currency of the Group at the average exchange rates for the year or at the rate prevailing at the time of the transaction where more appropriate.
At 31 March 2015, the following standards have been issued by the IASB which are not effective for these consolidated financial statements:
The impact on ICAP financial statements from the adoption of these IFRS standards is currently being assessed and will be disclosed closer to the time of the adoption.
| Note number |
Page number |
|
|---|---|---|
| Segmental information | 1 | 107 |
| FX exposures | 2 | 110 |
| Operating expenses | 3 | 111 |
| Exceptional items | 4 | 112 |
| Earnings per share | 5 | 113 |
| Dividends payable | 6 | 113 |
| Tax | 7 | 114 |
| Employee information and expense | 8 | 116 |
| Net finance expense | 9 | 118 |
| Borrowings | 10 | 120 |
| Cash | 11 | 122 |
| Capital and liquidity planning and management |
12 | 123 |
| Intangible assets arising from development expenditure |
13 | 125 |
| Intangible assets arising on consolidation | 14 | 126 |
| Disposal group | 15 | 130 |
| Note number |
Page number |
|
|---|---|---|
| Provisions | 16 | 130 |
| Contingent liabilities, contractual commitments and guarantees |
17 | 131 |
| Trade and other receivables | 18 | 132 |
| Trade and other payables | 19 | 135 |
| Financial assets and liabilities | 20 | 137 |
| Principal subsidiaries | 21 | 139 |
| Investment in joint ventures | 22 | 140 |
| Investment in associates | 23 | 141 |
| Available-for-sale investments | 24 | 142 |
| Property and equipment | 25 | 143 |
| Share capital | 26 | 144 |
| Reserves | 27 | 146 |
| Currency risk management | 28 | 147 |
| Related party transactions | 29 | 149 |
| Events after the balance sheet date | 30 | 150 |
The Group has determined its operating segments based on the management information including trading revenue and trading operating profit reviewed on a regular basis by the Company's board. The Group considers the executive members of the Company's board to be the Chief Operating Decision Maker (CODM). ICAP's three operating segments are Electronic Markets, Post Trade Risk and Information and Global Broking.
Revenue comprises brokerage or access fees from its Electronic Markets business, fees from the provision of Post Trade Risk and Information services and commission from the Group's Global Broking division.
The Group acts as a broker for FX, interest rate derivatives, fixed income products and credit default swaps through the Group's electronic platforms. Revenue is generated from brokerage fees which are dependent on the average trading volumes. The Group also charges fees to use the electronic trading platform for access to liquidity in the FX or precious metal markets.
The Group receives fees from the sale of financial information and provision of post trade risk and information services to third parties. These are stated net of VAT, rebates and other sales taxes and recognised in revenue on an accruals basis to match the provision of the service. Amounts receivable at the year end are reported as other trade receivables within trade and other receivables (note 18).
Certain Group companies are involved in a non-advisory capacity as principals in the matched purchase and sale of securities and other financial instruments between our customers. Revenue is generated from the difference between the purchase and sale proceeds and is recognised in full at the time of the commitment by our customers to sell and purchase the security or financial instrument. The revenue generated by the stock lending business is not material to the Group.
The Group acts in a non-advisory capacity to match buyers and sellers of financial instruments and raises invoices for the service provided. The Group does not act as principal in name give-up transactions and only receives and transmits orders between counterparties. Revenue is stated net of rebates and discounts, VAT and other sales taxes and is recognised in full on the date of the trade. Amounts receivable at the year end are reported as other trade receivables within trade and other receivables (note 18).
For the shipbroking business, the Group acts in a non-advisory capacity to match buyers and sellers of services and recognises revenue, net of rebates and discounts, VAT and other sales taxes when the Group has a contractual entitlement to commission, normally the point at which there is a completion of contractual terms between the principals of a transaction. Amounts receivable at the year end are included in the disposal group (note 15).
The Group also acts as a broker of exchange-listed products, where the Group executes customer orders as principal and then novates the trade to the underlying customer's respective clearing broker for settlement. Revenue is generated by raising an invoice and is recognised on the trade date.
| Year ended 31 March 2015 | |||||
|---|---|---|---|---|---|
| Electronic Markets £m |
Post Trade Risk and Information £m |
Global Broking £m |
Group £m |
||
| Revenue | 259 | 228 | 789 | 1,276 | |
| Trading operating profit | 93 | 97 | 62 | 252 | |
| Profit from associates | – | (2) | 6 | 4 | |
| Profit from joint ventures | – | – | 4 | 4 | |
| Trading EBIT* | 93 | 95 | 72 | 260 | |
| Trading depreciation | 8 | 3 | 4 | 15 | |
| Trading amortisation | 20 | 6 | 8 | 34 | |
| Trading EBITDA** | 121 | 104 | 84 | 309 | |
| Trading operating profit margin | 36% | 43% | 8% | 20% | |
| Reconciliation to the consolidated income statement: | |||||
| Trading EBIT* | 260 | ||||
| Trading net finance cost*** (note 9) | (31) | ||||
| Trading profit before tax | 229 | ||||
| Acquisition and disposal costs | (59) | ||||
| Exceptional items (note 4) | (75) | ||||
| Profit before tax | 95 | ||||
| Tax | (11) | ||||
| Profit for the year | 84 | ||||
| Other segmental information | |||||
| Capital expenditure on intangible developments**** | 23 | 12 | 12 | 48 |
* Trading EBIT is the trading profit before deducting net finance cost and tax.
** Trading EBITDA is the trading profit before deducting net finance cost, tax and amortisation and depreciation charges. Segments' trading EBITDA best represents the cash generated from their ongoing operations.
*** Given the Group's debt financing arrangements are managed centrally through a treasury function, the ICAP plc board does not incorporate net finance cost in the assessment of the segments' performance.
****Total capital expenditure on intangible developments for the Group includes £1m (2013/14 – £1m) investment made to develop corporate intangible assets, which are not segment specific.
| Year ended 31 March 2014 (restated) | ||||||
|---|---|---|---|---|---|---|
| Electronic Markets £m |
Post Trade Risk and Information £m |
Global Broking £m |
Group £m |
|||
| Revenue | 265 | 212 | 901 | 1,378 | ||
| Trading operating profit | 107 | 96 | 87 | 290 | ||
| Profit from associates | – | (1) | 5 | 4 | ||
| Profit from joint ventures | – | – | 4 | 4 | ||
| Trading EBIT* | 107 | 95 | 96 | 298 | ||
| Trading depreciation | 8 | 2 | 8 | 18 | ||
| Trading amortisation | 17 | 4 | 7 | 28 | ||
| Trading EBITDA** | 132 | 101 | 111 | 344 | ||
| Trading operating profit margin | 40% | 45% | 10% | 21% |
| Reconciliation to the consolidated income statement: | |
|---|---|
| Trading EBIT* | 298 |
|---|---|
| Trading net finance cost*** (note 9) | (27) |
| Trading profit before tax | 271 |
| Acquisition and disposal costs | (74) |
| Exceptional items (note 4) | (76) |
| Profit before tax | 121 |
| Tax | (21) |
| Profit for the year | 100 |
| Other segmental information | |
Capital expenditure on intangible developments**** 25 10 17 53
* Trading EBIT is the trading profit before deducting net finance cost and tax.
** Trading EBITDA is the trading profit before deducting net finance cost, tax and amortisation and depreciation charges. Segments' trading EBITDA best represents the cash generated from their ongoing operations.
*** Given the Group's debt financing arrangements are managed centrally through a treasury function, the ICAP plc board does not incorporate net finance cost in the assessment of the segments' performance.
****Total capital expenditure on intangible developments for the Group includes £1m (2013/14 – £1m) investment made to develop corporate intangible assets, which are not segment specific.
The Group did not earn more than 10% of its total revenue from any individual customer.
The Group earned revenue of £434m (2013/14 – £470m) and £460m (2013/14 – £515m) from entities in the UK and US respectively. The remainder of £382m (2013/14 – £393m) came from various entities outside the UK and US. ICAP's UK regulated companies, those that are within the scope of CRD IV disclosures, will disclose certain financial and other information in their 2014/15 financial statements as required under the scope of CRD IV disclosure requirements.
The table below shows the actual impact on the Group's 2014/15 results of the movement during the year of the dollar and euro exchange rates in terms of transactional and translational exposure:
| For the year ended 31 March 2015 | For the year ended 31 March 2014 (restated) | |||||
|---|---|---|---|---|---|---|
| Dollar £m |
Euro £m |
Total £m |
Dollar £m |
Euro £m |
Total £m |
|
| Group trading operating profit | (11) | (4) | (15) | – | (7) | (7) |
| Other | – | – | – | – | – | – |
| Group operating profit | (11) | (4) | (15) | – | (7) | (7) |
The Group does not hedge the translation of those profits or losses earned by its non-pound sterling operations.
The principal exchange rates which affected the Group, expressed in currency per pound sterling, are shown below:
| Closing rate as at 31 March 2015 |
Closing rate as at 31 March 2014 |
Average rate year ended 31 March 2015 |
Average rate year ended 31 March 2014 |
|
|---|---|---|---|---|
| Dollar | 1.48 | 1.67 | 1.61 | 1.59 |
| Euro | 1.38 | 1.21 | 1.28 | 1.19 |
The table below shows the impact on the Group's 2014/15 results of a 10 cent appreciation, which the Group considers to be an appropriate sensitivity measure, in the dollar and euro in terms of transactional and translational exposure:
| Dollar £m |
Euro £m |
Total £m |
|
|---|---|---|---|
| Group trading operating profit | 15 | 4 | 19 |
| Other | – | – | – |
| Group operating profit | 15 | 4 | 19 |
See note 28 for the Group's currency risk management approach.
| Year ended 31 March 2015 |
31 March 2014 £m |
|
|---|---|---|
| Profit before tax is stated after charging: | £m | (restated) |
| Trading operating expenses | ||
| Employee costs* | 691 | 746 |
| Information technology costs** | 129 | 147 |
| Professional and legal fees (including auditors' remuneration) | 34 | 37 |
| Depreciation and impairment of property and equipment (excluding IT) | 6 | 5 |
| Governance costs* | 22 | 21 |
| Clearing and settlement fees | 19 | 19 |
| Operating lease rentals – minimum lease payments | 23 | 25 |
| Exchange adjustments | (4) | 2 |
| Other | 106 | 92 |
| Trading operating expenses | 1,026 | 1,094 |
| Acquisition and disposal costs | ||
| Amortisation of intangible assets arising on consolidation | 55 | 64 |
| Impairment of intangible assets arising on consolidation | – | 11 |
| Other acquisition and disposal costs | 4 | 4 |
| Acquisition and disposal costs | 59 | 79 |
| Exceptional items (note 4) | 75 | 76 |
| Total | 1,160 | 1,249 |
| Auditors' remuneration | ||
|---|---|---|
| Fees payable to the Company's auditors for the audit of the parent Company's and consolidated financial statements |
0.8 | 0.8 |
| Fees payable to the Company's auditors for other services: | ||
| – the auditing of any subsidiary of the Company | 3.0 | 2.8 |
| – audit-related assurance services | 0.2 | 0.2 |
| – taxation compliance services | – | – |
| – taxation advisory services | 0.2 | 0.1 |
| – other assurance services | 0.4 | 0.4 |
| 4.6 | 4.3 |
* Employee costs as per note 8(a) are £743m (2013/14 – £761m). Remaining employee costs of £35m are included in the £75m exceptional costs for the year. Governance costs include fees associated with risk, compliance, internal audit and legal. Additionally, £17m (2013/14 – £15m) of employee costs are included in governance costs.
** Information technology costs include £43m of depreciation and amortisation charges. The remaining £86m of costs incurred include purchase of assets that are individually below the Group's capitalisation threshold, maintenance expenditures, certain enhancements not eligible for capitalisation and research phase related expenditures. Information technology costs does not include employee costs relating to the development of software assets that were not capitalised.
The Group places reliance on a number of key suppliers to carry out its business and has procedures to ensure that purchasing decisions balance cost against other factors, including service quality, global reach and resilience.
The settlement of matched principal and exchange-traded businesses requires access to clearing houses either directly or through third party providers of clearing and settlement services. In North America the Group is a member of the FICC and NSCC through which it clears US Treasury products, and agency, mortgage and equity trades for its customer base. Clearing arrangements for certain US matched principal and exchange-traded transactions are outsourced to third parties. In Europe and Asia Pacific the majority of the Group's clearing activities are outsourced to third parties where ICAP seeks to partner with one of the leading clearing providers in each market.
Year ended
Governance and directors' report
Exceptional items are non-recurring significant items that are considered material in both size and nature. These are disclosed separately to enable a full understanding of the Group's financial performance.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
|
|---|---|---|
| Exceptional items before tax | ||
| Restructuring programme – employee termination costs | 35 | – |
| Restructuring programme – property exits | 18 | – |
| Restructuring programme – other | 7 | – |
| Regulatory matters including associated legal and professional fees | 15 | 76 |
| Total exceptional items before tax | 75 | 76 |
| Tax credit | (18) | (12) |
| Total exceptional items after tax | 57 | 64 |
In response to the prevailing market conditions, the Group has completed a restructuring programme aimed at focusing and realigning systems, processes and legal entity structures and increasing workforce productivity. The programme covers all of the Group's activities, with a particular focus on the Global Broking division and Group infrastructure.
In the year ended 31 March 2015, 496 brokers and 244 infrastructure employees left the Company, which resulted in one-off employee termination costs of £35m.
Additionally, office spaces in key regions including London, New York and Singapore have been vacated and are currently being marketed for sublease. As such, £18m of property exit costs including onerous lease provisions and associated moving costs were charged to the income statement. This included a provision for onerous lease and associated costs of £17m, net of £3m of estimated income from the sublease of one of the properties. As at 31 March 2015, income from subleasing of other properties could not be reliably estimated, hence the provision only reflects the present value of rental charges of the obligations over the lease periods of these properties. In 2015/16, it is possible that some of the provision will be released when there are more certainties over income from the subleasing of the properties. See note 16 for the provisions.
Other restructuring costs is primarily driven by £3m impairment of IT assets and £4m of legal and professional fees connected with the Group reorganisation.
Regulatory matters include £11m provision relating to a €14.9m fine imposed by the European Commission for alleged competition violations in relation to yen Libor, in respect of the same underlying matters that ICAP Europe Limited, a subsidiary of ICAP's Global Broking division, settled with the Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) in September 2013. ICAP has appealed and is seeking a full annulment of the Commission's decision.
The remaining £4m relates to associated legal and professional costs incurred during the year on regulatory matters, principally as ICAP continues to co-operate with the CFTC in their investigation into the setting of USD ISDAfix rates. See note 17.
The Group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. The Group also calculates trading EPS from the trading profit. The Group believes that this is the most appropriate measurement for assessing ICAP's performance since it better reflects the business's trading earnings.
The diluted EPS is calculated by adjusting share capital in issue for additional weighted average number of ordinary shares that are likely to be issued under various employee share award schemes as at the balance sheet date.
| Year ended 31 March 2015 | Year ended 31 March 2014 | ||||||
|---|---|---|---|---|---|---|---|
| Trading basic and diluted | Earnings £m |
Shares millions |
Earnings per share pence |
Earnings £m |
Shares millions |
Earnings per share pence |
|
| Trading basic | 185 | 645 | 28.7 | 213 | 642 | 33.2 | |
| Dilutive effect of share options | – | 14 | (0.6) | – | 12 | (0.6) | |
| Trading diluted | 185 | 659 | 28.1 | 213 | 654 | 32.6 |
| Basic and diluted | Year ended 31 March 2015 | Year ended 31 March 2014 | ||||
|---|---|---|---|---|---|---|
| Earnings £m |
Shares millions |
Earnings per share pence |
Earnings £m |
Shares millions |
Earnings per share pence |
|
| Basic | 84 | 645 | 13.0 | 101 | 642 | 15.7 |
| Dilutive effect of share options | – | 14 | (0.2) | – | 12 | (0.3) |
| Diluted | 84 | 659 | 12.8 | 101 | 654 | 15.4 |
Weighted average number of ordinary shares excludes the weighted average number of shares held as Treasury Shares of 15m (2013/14 – 17m) and those owned by employee share trusts relating to employee share schemes on which dividends have been waived, being 6m shares (2013/14 – 6m). Further information is contained in note 26.
The Company recognises the final dividend payable only when it has been approved by the shareholders of the Company in a general meeting. The interim dividend is recognised when the amount due has been paid.
| Amounts recognised as distributions to equity holders in the year | Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
|---|---|---|
| Final dividend for the year ended 31 March 2014 of 15.40p per ordinary share (2013 –15.40p) | 99 | 99 |
| Interim dividend for the year ended 31 March 2015 of 6.60p per ordinary share (2014 – 6.60p) | 42 | 42 |
| Total dividend recognised in year | 141 | 141 |
The final dividend for the year ended 31 March 2014 and the interim dividend for the year ended 31 March 2015 were both satisfied in full with cash payments of £99m and £42m respectively.
The directors have proposed a final dividend of 15.40p per share for the year ended 31 March 2015. This has not been recognised as a liability of the Group at the year end as it has not yet been approved by shareholders. Based on the number of shares in issue at the year end, the total amount payable would be £99m. Therefore, subject to shareholders' approval of the proposed final dividend of 15.40p per share, the full-year dividend will be 22.00p per share, which will be covered 1.3 times (2013/14 – 1.5 times) by the trading EPS of 28.70p per share (2013/14 – 33.20p per share).
The right to receive dividends has been waived in respect of the shares held in employee share trusts and no dividend is payable on Treasury Shares.
Tax on the profit for the year comprises both current and deferred tax as well as adjustments in respect of prior years. Tax is charged or credited to the consolidated income statement, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the tax is also included in other comprehensive income or directly within equity respectively.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted, or substantively enacted, by the end of the reporting period.
Deferred tax is recognised using the liability method, in respect of temporary differences between the carrying value of assets and liabilities for reporting purposes and the tax bases of the assets and liabilities. Deferred tax is calculated at the rate of tax expected to apply when the liability is settled or the asset is realised. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures, associates and intangibles arising on consolidation, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax liabilities are offset against deferred tax assets within the same taxable entity or qualifying local tax group where there is both the legal right and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Calculations of current and deferred tax liability have been based on ongoing discussions with the relevant tax authorities, management's assessment of legal and professional advice, case law and other relevant guidance. Where the expected tax outcome of these matters is different from the amounts that were recorded initially, such differences will impact the current and deferred tax amounts in the period in which such determination is made.
| Year ended 31 March 2015 |
Year ended 31 March 2014 £m |
|
|---|---|---|
| Tax on trading profit | £m | (restated) |
| Current tax | ||
| Current year | 41 | 68 |
| Adjustment to prior years | (6) | (28) |
| 35 | 40 | |
| Deferred tax | ||
| Current year | 7 | 4 |
| Adjustment to prior years | 2 | 15 |
| 9 | 19 | |
| Tax charge on trading profit | 44 | 59 |
| Tax credit on acquisition and disposal costs | ||
| Current year | – | (1) |
| Adjustment to prior years | – | (19) |
| Deferred tax current | (15) | (19) |
| Deferred tax adjustment to prior years | – | 13 |
| Total tax credit on acquisition and disposal costs | (15) | (26) |
| Tax credit on exceptional costs | ||
| Current year | (16) | (11) |
| Adjustment to prior years | (2) | (5) |
| Deferred tax charge on exceptional items | – | 4 |
| Total tax credit on exceptional costs | (18) | (12) |
| Total tax charge to the consolidated income statement | 11 | 21 |
The Group's share of profit of associates in the consolidated income statement is shown net of tax of £2m (2013/14 – £2m).
The Group's share of joint ventures in the consolidated income statement is shown net of tax of £1m (2013/14 – £1m).
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|
|---|---|---|
| Trading profit before tax | 229 | 271 |
| Tax on trading profit at the standard rate of Corporation Tax in the UK of 21% (2013/14 – 23%) | 48 | 62 |
| Reconciling items: | ||
| Expenses not deductible for tax purposes | (1) | 4 |
| Non-taxable income | (2) | (3) |
| Impact of overseas tax rates and bases | 1 | 9 |
| Prior year adjustment to current and deferred tax | (4) | (13) |
| Impact of change in rates | 2 | – |
| (4) | (3) | |
| Total tax charge on trading profit | 44 | 59 |
The Group's 2014/15 effective tax rate on trading profit is 19% (2013/14 – 22%).
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|
|---|---|---|
| Profit before tax | 95 | 121 |
| Tax on profit at the standard rate of Corporation Tax in the UK of 21% (2013/14 – 23%) | 20 | 27 |
| Reconciling items: | ||
| Trading profit (see above) | (4) | (3) |
| Acquisition and disposal costs and exceptional items not deductible for tax purposes | 4 | 14 |
| Impact of overseas tax rates on adjusted items | (7) | (5) |
| Impact of change in rates on adjusted items | – | (1) |
| Impact of prior years' adjustments on adjusted items | (2) | (11) |
| (9) | (6) | |
| Total tax charged to the consolidated income statement | 11 | 21 |
The standard rate of Corporation Tax in the UK changed from 23% to 21% with effect from 1 April 2014. Further reductions to the main rate have been enacted reducing it to 20% from 1 April 2015. Deferred tax will therefore unwind at a rate of 20% in the period to 31 March 2016.
| Net balances (67) |
(63) |
|---|---|
| Deferred tax liabilities (73) |
(74) |
| Deferred tax assets | 11 6 |
| As at 31 March 2015 £m |
As at 31 March 2014 £m (restated) |
| Goodwill £m |
Intangible assets arising on consolidation £m |
Employee related items £m |
Deferred income and accrued expenses £m |
Losses carried forward £m |
Other £m |
Total £m |
|
|---|---|---|---|---|---|---|---|
| Net balances at 1 April 2014 | (62) | (29) | 22 | 4 | 1 | 2 | (62) |
| Tax (charge)/credit | (7) | 15 | 2 | (1) | (1) | (2) | 6 |
| FX adjustments | (9) | (1) | 2 | (1) | – | (2) | (11) |
| Net balances as at 31 March 2015 | (78) | (15) | 26 | 2 | – | (2) | (67) |
| (restated) | Goodwill £m |
Intangible assets arising on consolidation £m |
Employee related items £m |
Deferred income and accrued expenses £m |
Losses carried forward £m |
Other £m |
Total £m |
|---|---|---|---|---|---|---|---|
| Net balances at 1 April 2013 | (37) | (61) | 22 | 7 | 9 | 9 | (51) |
| Tax (charge)/credit | (29) | 29 | 2 | (2) | (8) | (8) | (16) |
| FX adjustments | 4 | 3 | (2) | (1) | – | 1 | 5 |
| Net balances as at 31 March 2014 | (62) | (29) | 22 | 4 | 1 | 2 | (62) |
Deferred tax assets of £23m (2013/14 – £25m) have not been recognised in respect of certain trading losses because it is not probable that future profits will be available against which the Group can utilise the benefits. The principal movement in deferred tax relates to the ongoing release of the deferred tax liability on the amortisation and impairment of intangibles arising on consolidation.
ICAP operates a number of pension plans throughout the Group including both defined benefit and defined contribution schemes. Payments to defined contribution schemes are recognised as an expense in the consolidated income statement as they fall due. Any difference between the payments and the charge is recognised as a short-term asset or liability.
The Group awards share options and other share-based payments as part of its employee incentive schemes as well as other share-based payment transactions. The fair value of services acquired is measured by the fair value of the shares or share options awarded at the grant date and is charged to employee expenses over the period the service is received on a straight-line basis. A corresponding amount is recognised in equity.
| Year ended 31 March 2015 |
Year ended 31 March 2014 £m £m (restated) |
|---|---|
| Gross salaries (including bonuses) 714 |
739 |
| Social security costs 53 |
57 |
| Share-based payments (note 8(c)) | – 7 |
| Pension costs 10 |
8 |
| Gross employee costs 784 |
804 |
| Employee costs capitalised as internally generated intangible assets (note 13) (41) |
(43) |
| Net employee costs 743 |
761 |
Net employee costs of £743m includes £708m charged to the trading column in the income statement and £35m presented as exceptional costs (note 4).
As at 31 March 2015, there is a net defined benefit liability position of £6m (2013/14 – £4m).
| Average | Year end | |||
|---|---|---|---|---|
| Year ended 31 March 2015 |
Year ended 31 March 2014 (restated) |
As at 31 March 2015 |
As at 31 March 2014 (restated) |
|
| Electronic Markets | 571 | 519 | 607 | 543 |
| Post Trade Risk and Information | 593 | 535 | 619 | 564 |
| Global Broking | 2,671 | 3,126 | 2,336 | 3,076 |
| Infrastructure | 778 | 754 | 744 | 757 |
| 4,613 | 4,934 | 4,306 | 4,940 |
The total charge to the consolidated income statement in respect of employee share awards in the year was £7m (2013/14 – £nil), of which £1m is charged to acquisition and disposal costs.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
|
|---|---|---|
| Bonus Share Matching Plan (BSMP) | – | (2) |
| Long term incentive plan (LTIP) | 4 | 1 |
| SAYE | 1 | 1 |
| Other share-based payments schemes | 2 | – |
| Total | 7 | – |
The BSMP is a long-term incentive plan for the executive directors where the directors are granted a number of ICAP plc shares with a value equal to half their pre-tax cash bonus. A matching award equivalent to half of the cash bonus is awarded. These awards are subject to certain service and performance conditions.
The LTIP is a long-term incentive plan awarded to the GEMG members and certain other senior managers in the Company. These share awards consist of basic and matching awards. Under the basic awards, a certain percentage of the pre-tax bonus is deferred in ICAP plc shares for three years with no performance conditions attached. The matching awards equal the basic awards, but are subject to certain service and performance conditions.
In the prior year, the vesting probability of the 2012 and 2013 LTIP and BSMP awards were revised down to nil, which resulted in a credit to the income statement. Other share-based payment schemes includes £1m relating to new share awards this year in one of the Group subsidiaries, where the awards are in the shares of that subsidiary.
Key management consists of the members of the GEMG, including the executive directors of the board. The aggregate remuneration for key management was £15m (2013/14 – £10m). The executive directors' remuneration of £6m (2013/14 – £5m) is disclosed separately in the remuneration report.
A debit of £1m (2013/14 – credit of £2m) was recognised in the consolidated income statement relating to share options held by key management. As disclosed in the remuneration report, the vesting of the matching shares awarded to key management are subject to the satisfaction of certain performance conditions.
Retirement benefits accrued to five (2013/14 – eight) members of the GEMG under defined contribution schemes and during the year key management received £0.1m (2013/14 – £0.1m) in post-retirement benefits.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|
|---|---|---|
| Finance income | ||
| Interest receivable and similar income | ||
| Bank deposits | 4 | 3 |
| 4 | 3 | |
| Other finance income | ||
| Dividends received on equity investments | – | 3 |
| Revaluation of deferred considerations* | – | 6 |
| Other | – | 5 |
| – | 14 | |
| Total finance income | 4 | 17 |
| Finance costs | ||
| Interest payable and similar charges | ||
| Bank loans and overdrafts | (34) | (38) |
| Other finance costs | (1) | – |
| Unwinding of deferred consideration* | – | (1) |
| Total finance costs | (35) | (39) |
| Net finance expense | (31) | (22) |
*The revaluation and unwinding of deferred consideration are presented in the acquisition and disposal costs column of the income statement, in line with the Group's presentation of the income statement policy as disclosed on page 103.
In 2013/14 dividends received on equity investments included £2m received from Corretaje e Información Monetaria y de Divisas SA. The investment in Corretaje e Información Monetaria y de Divisas SA became an associate in May 2013 (see note 23).
The Group has an exposure to fluctuations in interest rates on both its cash positions and borrowings which it manages through a combination of pound sterling, euro, yen and dollar debt drawn on fixed and floating rate terms. The Group's objective is to minimise its interest cost and the impact of interest rate volatility on the Group's consolidated income statement. In addition to debt, the Group's treasury policies also permit the use of derivatives including interest rate swaps, interest rate options, forward rate agreements and cross currency swaps to meet these objectives.
At 31 March 2015, after taking into account the impact of cross currency swaps and FX swaps, the interest rate profile of the Group's cash and debt was as follows:
| Year ended 31 March 2015 | Year ended 31 March 2014 (restated) | |||||
|---|---|---|---|---|---|---|
| Floating rates £m |
Fixed rates £m |
Total £m |
Floating rates £m |
Fixed rates £m |
Total £m |
|
| Pound sterling | ||||||
| Cash | 160 | – | 160 | 394 | – | 394 |
| Debt | (31) | (303) | (334) | (164) | (412) | (576) |
| Dollars and currencies closely related to the dollar | ||||||
| Cash | 215 | – | 215 | 208 | – | 208 |
| Debt | – | (130) | (130) | – | (117) | (117) |
| Other currencies | ||||||
| Cash | 106 | – | 106 | 96 | – | 96 |
| Debt | (3) | (82) | (85) | – | (94) | (94) |
| Total | ||||||
| Cash | 481 | – | 481 | 698 | – | 698 |
| Debt | (34) | (515) | (549) | (164) | (623) | (787) |
A 100 basis-points parallel increase in Libor and Libid rates, which the Group considers to be an appropriate sensitivity measure, would decrease net finance costs by £1m in relation to pounds sterling and by £2m in relation to dollars. In the event that Libor and Libid rates each diverge by an additional 100 basis-points, net finance costs would increase by £2m in relation to pounds sterling and by £2m in relation to dollars.
The Company is only exposed to interest rate movements as a result of a loan from a subsidiary of £140m. It is estimated that the impact of a 100 basis-point movement in interest rates would have a £1m impact on the net finance costs of the Company.
Long-term borrowings are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. At subsequent reporting dates long-term borrowings are held at amortised cost using the effective interest rate method, with changes in value recognised through the consolidated income statement. Transaction costs are recognised in the consolidated income statement over the period of the borrowings using the effective interest rate method.
| As at 1 April 506 124 540 135 New long-term borrowings 299 11 – – Reclassified as short-term borrowings (246) (117) – Exchange adjustment (16) (37) (1) Fair value hedging adjustment (3) – – 540 135 As at 31 March 386 134 Fair value Fair value Group Group Company Company as at as at as at as at as at as at 31 March 31 March 31 March 31 March 31 March 31 March |
|---|
| 2014 2014 2014 2015 2015 2015 Analysis of long-term borrowings £m £m £m £m £m £m |
| Five-year senior notes repayable 2019 289 288 262 252 – |
| Subordinated loan notes repayable 2015 117 117 – – – |
| Retail bond repayable 2018 134 124 124 133 124 124 |
| Ten-year senior notes repayable 2023 12 11 11 13 10 10 |
The five-year senior notes are presented on the balance sheet at amortised cost, net of fees. To enable the Group to manage the translational exposure which arises as a result of the notes being denominated in euros and to meet its risk management objective of minimising both interest cost and the impact of interest volatility on its consolidated income statement, the Group entered into a number of cross currency swaps to convert its obligations over the life of €250m of the notes from euros to pound sterling at an FX rate of 1.21. These swap from a fixed effective euro interest rate of 3.20% to a fixed pound sterling interest rate of 4.39%. The swaps have been accounted for as a cash flow hedge and at 31 March 2015 have a fair market value of £28m liability (2013/14 – £1m asset) and they offset the effect of FX on the notes. This resulted in a £nil charge (2013/14 – £nil) being recognised in the consolidated income statement and a £nil credit (2013/14 – £nil) in other comprehensive income during the year. The remaining €100m of the notes remain in euros and have been designated as a net investment hedge of the Group's euro-denominated net assets.
408 386 552 540 134 135
The Group's £425m RCF was undrawn at 31 March 2015 (2013/14 – undrawn) and so is not shown in the table above. The RCF has a maturity date of December 2016 and incorporates a \$200m swingline facility of which \$75m is available as a late day fronted solution. The weighted average effective interest rate for the year was 2.5% (2013/14 – 2.5%).
The Group's bank facilities contain a number of customary financial and operational covenants. Included in these, the Company is required to remain as the ultimate holding company in the Group. The Group and Company remained in compliance with the terms of all its financial covenants throughout the year ended 31 March 2015.
Fair values of the five-year senior notes repayable 2019 and the retail bond repayable 2018 have been measured using level 1 fair value measurement inputs. The fair value measurements of the subordinated loan notes repayable 2015 and the ten-year senior notes repayable 2023 use level 2 fair value measurement inputs, which are derived from the fair values of similar bonds.
At 31 March 2015, the Group had committed headroom under its core credit facilities of £425m (2013/14 – £425m).
| Group | Group | Group | Group | |
|---|---|---|---|---|
| as at | as at | as at | as at | |
| 31 March | 31 March | 31 March | 31 March | |
| 2015 | 2015 | 2014 | 2014 | |
| £m | £m | £m | £m | |
| Drawn | Undrawn* | Drawn | Undrawn* | |
| Less than one year | 130 | – | 246 | – |
| Between one and two years | – | 425 | 117 | – |
| Between two and five years | 376 | – | 412 | 425 |
| More than five years | 10 | – | 11 | – |
| 516 | 425 | 786 | 425 |
*The undrawn balance has been classified based on the maturity date of the facility.
At 31 March 2015, the Group's long-term issuer ratings were Baa3 (negative) by Moody's and BBB (stable) by Fitch. In December 2014, Moody's downgraded its rating from Baa2 to Baa3, reflecting its opinion on pressure facing the interdealer broking industry.
The retail bond and ten-year senior notes are issued in the Company.
| Fair value | Group | Fair value | Group | Company | Company | |
|---|---|---|---|---|---|---|
| as at | as at | as at | as at | as at | as at | |
| 31 March | 31 March | 31 March | 31 March | 31 March | 31 March | |
| 2015 | 2015 | 2014 | 2014 | 2015 | 2014 | |
| £m | £m | £m | £m | £m | £m | |
| Five-year senior notes repayable 2015 | – | – | 252 | 246 | – | – |
| Subordinated loan notes repayable 2015 | 130 | 130 | – | – | – | – |
| Overdrafts | 33 | 33 | 1 | 1 | – | – |
| 163 | 163 | 253 | 247 | – | – |
Since October 2012, the Group has entered into a series of yen 10bn term loans with Tokyo Tanshi Co Limited, borrowing each for a term of up to six months. These loans have been refinanced either immediately on maturity or a few days thereafter with similar terms. The most recent loan was repaid on 27 March 2015 and a new loan was entered into on 9 April 2015.
The £130m (2013/14 – £117m) subordinated loan notes are denominated in US dollars. The notes are repayable in June 2015.
Bank overdrafts are for short-term funding and are repayable on demand, and are generally repaid within a very short time period.
Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments which are subject to insignificant risk of change in fair value and are readily convertible into a known amount of cash with less than three months' maturity.
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.
Restricted funds comprise cash held with a CCP clearing house, or a financial institution providing ICAP 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.
| Group year ended 31 March 2015 £m |
Group year ended 31 March 2014 £m (restated) |
|
|---|---|---|
| Profit before tax | 95 | 121 |
| Operating exceptional items | 75 | 76 |
| Share of profit of associates after tax | (4) | (4) |
| Share of profit of joint ventures after tax | (4) | (4) |
| Amortisation of intangible assets arising on consolidation | 55 | 64 |
| Impairment of intangible assets arising on consolidation | – | 11 |
| Amortisation and impairment of intangible assets arising from development expenditure | 34 | 30 |
| Depreciation and impairment of property and equipment | 15 | 18 |
| Other acquisition and disposal costs | 3 | 3 |
| Share-based payments | 7 | – |
| Net finance expense | 31 | 22 |
| Release of trading provision | – | (3) |
| Operating cash flows before movements in working capital | 307 | 334 |
| Decrease in trade and other receivables | 33 | 30 |
| Timing differences on unsettled match principal trades | (29) | 9 |
| Increase in restricted funds | (4) | (2) |
| Increase/(decrease) in trade and other payables | 6 | (57) |
| Cash generated by operations before exceptional items | 313 | 314 |
| Operating exceptional items paid* | (48) | (72) |
| Cash generated by operations | 265 | 242 |
| Interest received | 4 | 3 |
| Interest paid | (39) | (34) |
| Tax paid | (31) | (69) |
| Cash flow from operating activities | 199 | 142 |
*Includes £8m settled in the year with the SEC (note 16).
The movement in trade and other receivables and trade and other payables excludes the impact of the gross-up of matched principal trades as permitted by IAS7 'Statement of Cash Flows'. The gross-up has no impact on the cash flow or net assets of the Group. The cash flow movement in trade and other receivables includes the net movement on matched principal transactions and deposits for securities borrowed/loaned.
(b) Net debt Net debt comprises total cash less other debt.
| Group | ||
|---|---|---|
| Group | as at | |
| as at | 31 March | |
| 31 March | 2014 | |
| 2015 | £m | |
| £m | (restated) | |
| Gross debt (note 10) | (549) | (787) |
| Cash and cash equivalents | 481 | 698 |
| Net debt | (68) | (89) |
| Total cash | 491 | 736 |
|---|---|---|
| Restricted funds | 43 | 39 |
| Net cash and cash equivalents | 448 | 697 |
| Overdrafts | (33) | (1) |
| Cash and cash equivalents | 481 | 698 |
| Group as at 31 March 2015 £m |
Group as at 31 March 2014 £m (restated) |
| As at 31 March 2015 | Electronic Markets £m |
Post Trade Risk and Information £m |
Global Broking £m |
Central treasury £m |
Group £m |
|---|---|---|---|---|---|
| Cash and cash equivalents | 62 | 30 | 345 | 44 | 481 |
| Overdrafts | – | – | (33) | – | (33) |
| Net cash and cash equivalents | 62 | 30 | 312 | 44 | 448 |
| Restricted funds | 6 | – | 36 | 1 | 43 |
| Total cash | 68 | 30 | 348 | 45 | 491 |
| As at 31 March 2014 (restated) | Electronic Markets £m |
Post Trade Risk and Information £m |
Global Broking £m |
Central treasury £m |
Group £m |
|---|---|---|---|---|---|
| Cash and cash equivalents | 55 | 30 | 367 | 246 | 698 |
| Overdrafts | – | – | (1) | – | (1) |
| Net cash and cash equivalents | 55 | 30 | 366 | 246 | 697 |
| Restricted funds | 2 | – | 36 | 1 | 39 |
| Total cash | 57 | 30 | 402 | 247 | 736 |
At 31 March 2015, the Group held client money of £10m (2013/14 – £13m). This amount, together with the corresponding liabilities to customers, is not included in the Group's consolidated balance sheet.
Restricted funds comprise cash held at a CCP clearing house or a financial institution providing ICAP with access to a CCP. The balance fluctuates based on business events around the year end and increased during the year by £4m to £43m at 31 March 2015.
The Group does not seek to take proprietary market risk positions, so does not seek to expose its capital to market risk, and it does not undertake any form of maturity transformation so does not seek liquidity 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 continues to benefit from a waiver under the CRD IV provisions in force since 1 January 2014.
The Group incurs exposure to liquidity risk as a result of trades executed as principal and trades executed on exchange on behalf of clients. Since principal trades are executed as matched principal there is no net funding requirement in the normal course of business and the liquidity requirements arise only in relation to the margin and collateral requirements of clearing houses, either directly or via financial institutions that provide ICAP with access to the clearing houses.
In order to execute and clear matched principal trades in securities the relevant entities need access to clearing and settlement facilities, which requires access to credit during the settlement cycle, so typically only for a one to three-day period. In order to execute trades in on-exchange derivatives the entities need access to credit facilities to carry the trades until they are taken up by customers.
In both cases, the Group can be required to post collateral or margin to support the credit lines, so access to liquidity is needed to ensure trades can continue to be supported uninterrupted. The most significant margin requirements arise in the US where, as part of its Global Broking and Electronic Markets businesses, ICAP provides clearing services to customers and is required to deposit margins with the FICC and NSCC. Trading entities of the Group use locally held highly liquid assets, predominantly cash held to meet capital requirements, together with committed and uncommitted credit facilities to meet their liquidity requirements.
The Group has a centralised approach to the provision of contingency funding for its trading entities. Through the GFC, the board periodically reviews the liquidity demands of the Group and the financial resources available to meet these demands. The GFC ensures that the Group, in totality and by subsidiary, has sufficient liquidity available in order to provide constant access, even in periods of market stress, to an appropriate level of cash, other forms of marketable securities and committed funding lines to enable it to finance its ongoing operations, proposed acquisitions and other reasonable unanticipated events on cost-effective and attractive terms. Therefore, to meets its liquidity requirements, the Group has maintained minimum core liquidity, in the form of centrally held cash and undrawn debt facilities, of \$250m throughout the year.
As at 31 March 2015, the Group had gross debt of £549m (2013/14 – £787m), the maturity analysis of which is set out in note 10, and cash and cash equivalents of £481m (2013/14 – £698m) (see note 11(c)). Cash held at clearing houses, or a financial institution providing ICAP with access to a CCP, to which the Group has no immediate access in practice is disclosed as restricted funds in the financial statements (note 11(f)).
The Group invests its cash balances in a range of capital protected instruments including money market deposits, AAA-rated liquidity funds, and government bonds with the objective of optimising the return, while having regard to counterparty credit risk and liquidity. With the exception of some small, local cash management balances, surplus cash is invested with strong institutions which have an equivalent credit rating of A or better.
The Company's policy is to ensure that it has constant access to an appropriate level of liquidity to enable it to finance its forecast ongoing operations, proposed acquisitions and other reasonable unanticipated events on cost-effective and attractive terms. If the Company has any cash, it is loaned intra-Group for further investment. With the exception of the retail bond of £125m repayable 2018, and the €15m bond repayable 2023, all of the Company's financial liabilities are payable within three months.
The Group's capital strategy is to maintain an efficient and strong capital base which maximises the return to its shareholders, while also maintaining flexibility and ensuring compliance with supervisory regulatory requirements. The capital structure of the Group consists of debt (note 10) and equity, including share capital (note 26), share premium, other reserves (note 27) and retained earnings.
The Group seeks to ensure that it has sufficient regulatory capital at Group level and in individual regulated trading entities to meet regulatory requirements. The FCA has granted a waiver until April 2016 that allows the Group to disregard the application of the consolidated capital requirements of CRD IV and their requirements include the Group being prohibited from taking proprietary positions. The Group continues to comply with these requirements.
The waiver modifies the calculation of the Group regulatory capital position and in effect excludes goodwill adjustments from the capital computation. As a result of the waiver, the Group's Pillar 1 regulatory capital headroom represents the difference between the capital resources of the Company, on a stand-alone basis, and the regulatory capital requirements of the Group calculated, in accordance with the requirements of the waiver, on an aggregate basis. Pillar 1 headroom is approximately £0.7bn (2013/14 – £0.9bn) and is relatively stable due to the low amount of market and credit risk in the Group, but may fluctuate due to the timing of dividends and the distribution of subsidiaries' profits to the Company.
Regulatory capital at solo entity level depends on the jurisdiction in which it is incorporated and operates. In each case the approach is to hold an appropriate surplus over the local minimum. The highest capital requirements arise in the UK, where they are predominantly driven by the fixed overhead requirement, which is based on the fixed costs of the prior year and so does not fluctuate significantly within the year. As the Group does not take proprietary positions it does not have an inventory of assets so regulatory capital is mostly represented by cash.
ICAP also evaluates at a Group and individual legal entity level the risks facing the business, to determine whether its capital is sufficient to cover any expected losses. The Group uses a scenario-based model which assesses the economic capital required to cover expected risks. The process followed at Group level is consistent with the CRD requirement for ICAP's FCA regulated entities to perform an internal capital adequacy assessment process (ICAAP) under Pillar 2. The results for both are documented, updated and approved annually by the board and the UK regulated entity boards respectively. The Group overall and each regulated trading company complied with their regulatory capital requirements throughout the year.
In general, higher levels of market volatility can result in increased demand for the Group's services. However, as the regulatory capital requirement is driven predominantly by the fixed cost base, the impact of changes in volumes on the capital requirement is significantly dampened. As such, absent a material acquisition, loss of the waiver or a change in the computation basis, existing capital resources are viewed as sufficient to operate and to continue to invest in the development of the Group's businesses.
Development expenditure on software is recognised as an intangible asset in accordance with the provisions of IAS38 'Intangible Assets'. Capitalised expenditure is recognised initially at cost and is presented subsequently at cost less accumulated amortisation and provisions for impairment. Amortisation of these assets is charged to the consolidated income statement on a straight-line basis over the expected useful economic life of the asset of three to five years. The Group reviews the useful economic lives of these assets on a regular basis.
Development costs are incurred and capitalised when a final development plan (including the specifics of the assets to be developed) is signed off by a committee with appropriate delegated authority (including business management boards). As part of the approval process, the committee considers the commercial viability and technological feasibility of bringing the asset into use. When a project is abandoned in the development phase, costs are charged to the income statement. Prior to this stage, costs incurred in the research phase including undertaking feasibility studies are recorded in the income statement. Once an internally generated software asset is brought into use, any ongoing related costs are charged to the income statement to the extent that they relate to ongoing maintenance of the asset. Where any costs are identified by an appropriately authorised management committee to be an enhancement to the original asset, these costs are capitalised and amortised over the remaining expected useful life of the asset.
The Group has an internal threshold for capitalisation of £5,000 for individual assets and £125,000 for software-related projects.
The key component of the development costs is compensation of employees. Each of the Group's businesses and the Group's infrastructure area have their own dedicated IT project development teams.
Amortisation and impairment of intangible assets arising from development expenditure is charged within operating expenses. Amortisation is charged against assets from the date at which the asset becomes available for use.
| Group | 2014/15 £m |
2013/14 £m (restated) |
|---|---|---|
| Cost | ||
| As at 1 April | 245 | 202 |
| Additions* | 48 | 53 |
| Disposals | (32) | (9) |
| Reclassifications | – | 13 |
| Exchange adjustments | 13 | (14) |
| As at 31 March | 274 | 245 |
| Accumulated amortisation and impairment | ||
| As at 1 April | 150 | 120 |
| Amortisation charge for the year | 34 | 28 |
| Impairment in the year | 3 | – |
| Disposals | (32) | (7) |
| Reclassifications | – | 16 |
| Exchange adjustments | 11 | (7) |
| As at 31 March | 166 | 150 |
| Net book value | ||
| As at 31 March | 108 | 95 |
*Included within additions are £41m (2013/14 – £43m) of employee costs (note 8(a)).
Intangible assets arising from development expenditure as at 31 March 2015 includes assets under development of £27m (2013/14 – £32m). No amortisation charge was recorded on these assets. The £3m impairment charge in the year relates to the restructuring programme (note 4). The additions and amortisation charge during the year is disclosed by operating segments in note 2 to the financial statements. During the year, £32m of fully amortised assets were retired from use.
Since 1 April 2004, intangible assets arising on consolidation include goodwill and other separately identifiable intangible assets such as customer relationships and customer contracts that arose on business combinations. The amortisation and any impairment is included in the consolidated income statement within the column 'Acquisition and disposal costs'. The Group reviews the performance of the acquired businesses and reassesses the period over which the acquired intangible asset is likely to continue to generate cash flows that exceed the carrying value.
Goodwill arises on the acquisition of subsidiaries when the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest and the fair value of any previously held equity interest in the acquiree exceed the amount of the identifiable net assets acquired. If the amount of the identifiable assets and liabilities acquired is greater, the difference is recognised immediately in the income statement. Goodwill is initially recognised at cost and is subsequently held at cost less any provision for impairment.
Goodwill arises on the acquisition of investments in joint ventures when the cost of investment exceeds ICAP's share of the net fair value of the joint venture's identifiable assets and liabilities. Goodwill arising on the acquisition of joint ventures is included in 'Investments in joint ventures' and is not tested separately for impairment. See note 22.
Goodwill arises on the acquisition of interests in associates when the cost of investment exceeds ICAP's share of the net fair value of the associate's identifiable assets and liabilities. Goodwill arising on the acquisition of associates is included in 'Interests in associates' and is not tested separately for impairment. See note 23.
Where the Group makes an acquisition and the balances are reported as provisional at the year end, the Group has a measurement period of up to 12 months from the date of acquisition to finalise the provisional amounts where new information becomes available about facts and circumstances that existed at the balance sheet date, which could impact the value of goodwill and intangible assets arising on consolidation. The measurement period ends as soon as the information required is received.
On disposal of a subsidiary, joint venture or associate, the attributable goodwill is included in the calculation of the profit or loss on disposal, except for goodwill written off to reserves prior to 1998, which remains eliminated.
The Group has recognised separately identified intangible assets on acquisitions where appropriate. These generally include customer contracts and customer relationships. Intangible assets acquired by the Group are stated initially at fair value and are adjusted subsequently for amortisation and any impairment. Amortisation and impairment of intangibles arising on consolidation are recognised in the second column of the consolidated income statement. Where an impairment has taken place, the asset is reviewed annually for any reversal of the impairment. Any reversals of impairment are credited to the consolidated income statement. All intangible assets have a finite life.
Amortisation of separately identifiable intangible assets is charged to the consolidated income statement on a straight-line basis over their estimated useful lives as follows:
| Customer relationships | 2 – 10 years |
|---|---|
| Customer contracts | Period of contract |
| Other intangible assets | Period of contract |
A deferred tax liability is recognised against the asset for which the amortisation is non-tax deductible. The liability unwinds over the same period as the asset is amortised.
Goodwill is not amortised but is tested for impairment annually and whenever there is an indicator of impairment. Goodwill and other intangible assets arising on consolidation are allocated to a CGU at acquisition for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill is monitored for internal management purposes. The identification of CGUs is reviewed where there is a significant change to the Group's segmental reporting structure. Impairment testing is performed by comparing the recoverable amount of a CGU with its carrying amount. The carrying amount of a CGU is based on the assets and liabilities of each CGU, including attributable goodwill. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value in use (VIU). VIU is the present value of the expected future cash flows from a CGU. Where the carrying value of the asset exceeds its VIU, an impairment charge is recognised immediately in the consolidated income statement, and the asset is stated at cost less accumulated impairment losses. For goodwill, impairment charges previously recognised are not reversed and impaired intangible assets are reviewed annually for reversal of previously recognised impairment.
This process requires the exercise of significant judgement by management; if the estimates made prove to be incorrect or performance does not meet expectations which affect the amount and timing of future cash flows, goodwill and intangible assets may become impaired in future periods.
(a) Intangible assets arising on consolidation
| Goodwill £m |
Other £m |
Total £m |
|
|---|---|---|---|
| Cost | |||
| As at 1 April 2014 | 1,013 | 622 | 1,635 |
| Transfer to held for sale (note 15) | (13) | (2) | (15) |
| Exchange adjustments | 62 | 5 | 67 |
| As at 31 March 2015 | 1,062 | 625 | 1,687 |
| Amortisation and impairment | |||
| As at 1 April 2014 | 185 | 517 | 702 |
| Amortisation charge for the year | – | 55 | 55 |
| As at 31 March 2015 | 185 | 572 | 757 |
| Net book value | |||
| As at 31 March 2015 | 877 | 53 | 930 |
| (restated) | Goodwill £m |
Other £m |
Total £m |
| Cost | |||
| As at 1 April 2013 | 1,072 | 632 | 1,704 |
| Disposals | (2) | – | (2) |
| Exchange adjustments | (57) | (10) | (67) |
| As at 31 March 2014 | 1,013 | 622 | 1,635 |
| Amortisation and impairment | |||
| As at 1 April 2013 | 174 | 453 | 627 |
| Amortisation charge for the year | – | 64 | 64 |
| Impairment in the year | 11 | – | 11 |
| As at 31 March 2014 | 185 | 517 | 702 |
| Net book value | |||
| As at 31 March 2014 | 828 | 105 | 933 |
The Group recognises £930m of intangible assets arising on consolidation, with £877m relating to goodwill and £53m relating to other intangible assets. The other intangible assets at 31 March 2015 mainly represent customer relationships, and have varying remaining amortisation periods across CGUs.
During the year, goodwill and other intangible assets of £15m attributed to Global Brokings' shipping business were reclassified to disposal group (note 15). The net carrying value of the disposal group including goodwill was tested separately and no impairment charge was recorded.
The individual CGUs' goodwill, other intangible assets arising on consolidation and net assets were tested for impairment. No impairment charge was recorded in the year.
The comparatives were restated as a result of the adoption of IFRS11 'Joint Arrangements' and IAS28 'Investments in Associates and Joint Ventures', therefore the goodwill attributable to joint ventures is now included within the investment in joint ventures (note 22).
Governance and directors' report
Financial statements
Definitions
(b) Impairment testing of intangible assets arising on consolidation continued
| As at 31 March 2015 | |||||
|---|---|---|---|---|---|
| CGU | Business segment | % of total goodwill and other intangibles |
Goodwill £m |
Other £m |
Net book value £m |
| BrokerTec | Electronic Markets | 16 | 145 | – | 145 |
| EBS | Electronic Markets | 40 | 345 | 33 | 378 |
| Reset | Post Trade Risk and Information | 15 | 141 | – | 141 |
| TriOptima | Post Trade Risk and Information | 6 | 52 | – | 52 |
| Traiana | Post Trade Risk and Information | 13 | 103 | 19 | 122 |
| Information | Post Trade Risk and Information | – | 3 | – | 3 |
| Global Broking | Global Broking | 10 | 88 | 1 | 89 |
| Total | 100 | 877 | 53 | 930 |
| As at 31 March 2014 (restated) | |||||||
|---|---|---|---|---|---|---|---|
| CGU | Business segment | % of total goodwill and other intangibles |
Goodwill £m |
Other £m |
Net book value £m |
||
| BrokerTec | Electronic Markets | 16 | 145 | – | 145 | ||
| EBS | Electronic Markets | 39 | 307 | 54 | 361 | ||
| Reset | Post Trade Risk and Information | 13 | 126 | – | 126 | ||
| TriOptima | Post Trade Risk and Information | 9 | 60 | 21 | 81 | ||
| Traiana | Post Trade Risk and Information | 12 | 91 | 25 | 116 | ||
| Information | Post Trade Risk and Information | – | 3 | – | 3 | ||
| Global Broking | Global Broking | 11 | 96 | 5 | 101 | ||
| Total | 100 | 828 | 105 | 933 |
The recoverable amount of a CGU is determined using VIU calculations, which are based on discounting management's pre-tax cash flow projections for the CGU. The pre-tax discount rate used is the weighted average cost of capital (WACC) ICAP allocates to investments in the businesses within which the CGU operates. A long-term growth rate estimate is used to extrapolate the cash flows in perpetuity because of the long-term nature of the businesses in the CGUs.
For the 2014/15 annual impairment testing of Traiana, management's cash flow projections for the three years ending 31 March 2018 were used. For all other CGUs, management cash flow projections for the year ending 31 March 2016 were used.
In the prior year, consideration received from the sale of the minority stake in Traiana was considered as a proxy for Traiana's fair value and was compared to net assets of Traiana including goodwill for recoverability assessment.
Governance and directors' report
(b) Impairment testing of intangible assets arising on consolidation continued
| Key assumptions | Discount rate | Long-term growth rate | |||
|---|---|---|---|---|---|
| 2015 % |
2014 % |
2015 % |
2014 % |
||
| BrokerTec | 8.7 | 9.3 | 4.9 | 4.8 | |
| EBS | 8.9 | 9.6 | 4.6 | 4.6 | |
| Reset | 9.0 | 9.7 | 4.6 | 4.5 | |
| TriOptima | 8.5 | 9.4 | 4.5 | 4.1 | |
| Traiana | 8.5 | n/a | 5.1 | n/a | |
| Global Broking | 8.9 | 9.6 | 0.0 | 0.0 |
The Group's pre-tax WACC was 8.5% (2013/14 – 9.3%), reflecting an 80 basis-points decrease in the risk-free rate (represented by the 20-year UK gilt yield). The Group's WACC is 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 the market's assessment of economic variables and management judgement, which are subject to scrutiny by the GFC and the Audit Committee (see page 60). All inputs to the CAPM model were externally sourced. The CGU-specific WACCs were then derived by adjusting the Group WACC for business specific risk factors.
The growth rate reflects weighted average real GDP growth and inflation for the countries within which the CGUs operate. The rates are based on the International Monetary Fund's medium term forecasts as they are deemed to be reliable estimate of likely future trends. The rates applied do not exceed the expected growth in the local economy or, for businesses which operate on a global scale, the global GDP. Given continuing challenges, a nil terminal growth rate was applied for Global Broking.
The cash flow projections for each CGU are based on plans approved by the board of directors. The key assumptions included in the cash flow projections of the CGUs are discussed below:
BrokerTec cash flow projections show continued growth of the US Treasury Actives market and forecast improvement in the volume of US Treasury off-the-run trading. The cash flow projections will be lower in 2015/16 as a result of the investment in a new platform. The key challenges to the cash flow projections arise from potential increased competition in the US Treasury Actives market and from uncertainty around how regulatory reforms, such as higher capital requirements for banks, will affect the US and European repo markets.
The key assumptions included in the cash flow projections for EBS are that the increase in revenue is driven by new EBS initiatives, upturn in market activity impacting EBS Market's average daily volume growth and other growth areas. The key challenge to the cash flow projections is a worse than anticipated decrease in EBS Market revenue driven by a decrease in FX market activity.
The cash flow projections for Reset are anticipated to remain in line with 2014/15. Our ability to achieve the budgeted cash flow for Reset could be challenged if central banks continue their policy of quantitative easing (QE), in particular the QE programme recently undertaken by the ECB, and low and stable interest rates. The impact could be offset by some positive changes to the macroeconomic environment, specifically some sporadic or small increase in the volatility expectations around the US dollar and pound sterling.
The key assumption included in the cash flow projections for TriOptima reflect muted growth as management believes that triReduce is a maturing business facing increased competition and thus reducing trading volumes on its core products. TriOptima is anticipating the launch of new products which contribute to the cash flow projections in 2015/16, which over three years show increased growth due to investments to be made in 2015/16.
The three-year cash flow projections for Traiana up to 2017/18 were taken from the approved strategic plan for the CGU. The key assumptions for the cash flow projections were continued growth in revenue along with improvement in operating leverage with volume increases year-on-year. The key risk to the projections arises from certain technology risks, including capacity bottleneck and data security.
The cash flow projections for Global Broking are based on management's assumption that the improvement in market conditions experienced in many asset classes in the later part of 2014/15 will continue in 2015/16 and the reduced fixed cost base is maintained. The key risks to the 2015/16 cash flow assumptions arise from worsening market volumes and brokerage rates and the impact of short-term uncertainties arising from regulatory reforms continuing to be felt next year.
Based on the conditions at the balance sheet date and having assessed sensitivities of the key assumptions, management determined that a reasonably possible change in any of those key assumptions noted above would not cause an impairment in any of the CGUs.
Financial statements
Disposal groups (including both the assets and liabilities of the disposal groups) are classified as held for sale when their carrying amounts will be recovered principally through sale, they are available for sale in their present condition and their sale is highly probable. Disposal groups are measured at the lower of their carrying amount and fair value less cost to sell, except for those assets and liabilities that are not within the scope of the measurement requirements of IFRS5 'Non-current Assets Held for Sale and Discontinued Operations'. Immediately before the initial classification as held for sale, the carrying amounts of the assets and liabilities in the disposal group are measured in accordance with applicable IFRSs.
During the year, ICAP agreed to dispose of its shipbroking businesses to Howe Robinson Group Pte Limited for a 35% equity stake in the resulting combined group business. The sale is expected to be completed in 2015. As at 31 March 2015, assets and liabilities attributable to ICAP's shipping businesses formed part of the disposal group. The fair value of 35% of equity in the combined group, net of disposal costs, is estimated to be higher than the carrying value of the net assets attributable to shipping.
| As at 31 March 2015 |
|
|---|---|
| Assets held for sale | £m |
| Goodwill and other intangibles arising from consolidation | 15 |
| Other | 6 |
| Total assets held for sale | 21 |
| Liabilities held for sale | |
| Other | (4) |
| Net assets held for sale | 17 |
A provision is recognised where there is a present obligation, either legal or constructive, as a result of a past event for which it is probable there will be a transfer of economic benefits to settle the obligation. A provision is only recognised where a reliable estimate can be made of the value of the obligation.
| Restructuring £m |
Regulatory matters £m |
Legal £m |
Other £m |
Total £m |
|
|---|---|---|---|---|---|
| As at 1 April 2014 | – | 13 | 1 | 5 | 19 |
| Amounts recognised in the income statement | 17 | 11 | 1 | – | 29 |
| Settled during the year | – | (8) | – | – | (8) |
| Reclassified from accruals | – | – | – | 1 | 1 |
| Exchange adjustments | – | (1) | – | (1) | (2) |
| As at 31 March 2015 | 17 | 15 | 2 | 5 | 39 |
| As at 1 April 2013 | – | – | 7 | 7 | 14 |
| Amounts recognised in the income statement | – | 13 | – | – | 13 |
| Released to the income statement | – | – | (3) | (1) | (4) |
| Released against receivables | – | – | (2) | – | (2) |
| Exchange adjustments | – | – | (1) | (1) | (2) |
| As at 31 March 2014 | – | 13 | 1 | 5 | 19 |
The expected maturity profile of these provisions is disclosed in note 19.
As part of the Group restructuring programme, office spaces in key regions including London, New York and Singapore have been vacated. Onerous lease provisions were recorded to reflect the present value of rental obligations on ICAP until the end of the lease period, net of estimated sublease income of £3m. The present value of the provision is shown net of a discount of £1m. As at 31 March 2015, sublet rental income for only one of the three office spaces could be reliably estimated. The Group is looking at opportunities to sublet the other vacant office spaces.
In February 2015 the European Commission imposed a fine of £10.9m (€14.9m) on ICAP for alleged competition violations in relation to yen Libor, in respect of the same underlying matters that ICAP Europe Limited, a subsidiary of ICAP's Global Broking division, settled with the Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) in September 2013. ICAP has appealed and is seeking a full annulment of the Commission's decision.
Regulatory matters also include the settlement of £8m during the year with the SEC. A provision of £8m was recorded as at 31 March 2014.
The Group's contingent liabilities include possible obligations that arise from past events whose existence will be confirmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the control of ICAP. Additionally, contingent liabilities also include present obligations that have arisen from past events but are not recognised because it is not probable that settlement will require the outflow of economic benefits, or because the amount of the obligations cannot be reliably measured. Contingent liabilities are not recognised in the financial statements but are disclosed unless the probability of the outflow of the Group's economic resources is remote. Judgements applied in concluding the appropriateness of contingent liabilities disclosure are confirmed after consultation with external counsel and discussions with the Audit Committee.
The Company and its subsidiaries continue to co-operate with the government agencies in Europe and in the US relating to their investigations into the setting of yen Libor. The Company is no longer a named defendant in the US civil litigation against various yen Libor and euroyen Tibor setting banks. However, the plaintiff in that litigation has been given permission to add ICAP Europe Limited as a defendant in that action, which ICAP Europe Limited intends to defend vigorously. The plaintiff is also taking steps to appeal the dismissal of ICAP plc. It is not practicable to predict the ultimate outcome of these inquiries or the litigation. As a result it is not possible to provide an estimate of any potential financial impact on the Group.
ICAP continues to co-operate with inquiries by the US government agencies into the setting of USD ISDAFIX rates. During the reporting period, civil lawsuits were filed in the US against USD ISDAFIX setting banks, where a subsidiary of the Company is also a named defendant. Those suits have now been consolidated into a single action. The Company intends to defend these litigation claims vigorously. It is not practicable to predict the ultimate outcome of these inquiries or the litigation. As a result it is not possible to provide an estimate of any potential financial impact on the Group.
From time to time the Group is engaged in litigation in relation to a variety of matters, and is required to provide information to regulators and other government agencies as part of informal and formal inquiries.
Details of regulatory and other matters that have a provision recognised for them are detailed in note 16.
At the end of the financial year, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:
| As at 31 March 2015 £m |
As at 31 March 2014 £m |
|
|---|---|---|
| Within one year | 22 | 24 |
| Between one and five years | 64 | 71 |
| After five years | 17 | 30 |
| 103 | 125 |
The commitments include onerous lease provisions charged to the income statement in the year, but before the estimated receipt of £3m under a non-cancellable sublease as at 31 March 2015 (2013/14 – £nil). Operating lease commitments relate to the rental of premises for office space in the UK, US, Israel and Asia Pacific.
In the normal course of business certain Group companies enter into guarantees and indemnities to cover clearing and settlement arrangements and/or the use of third party services/software. It is not possible to quantify the extent of any potential liabilities, but there are none currently expected to have a material impact on the Group's consolidated results or net assets. As at 31 March 2015, the Group has given £373m (2013/14 – £357m) of guarantees to counterparties.
ICAP plc has provided a subordinated guarantee to a subsidiary company in respect of the \$193m subordinated loan notes repayable in 2015. The fair value of the guarantee at 31 March 2015 was not considered material.
Trade receivables are recognised initially at fair value and subsequently reviewed for recoverability. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments, are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of the future cash flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the consolidated income statement within 'operating expenses'. When a trade receivable is determined to be uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against 'Operating expenses' in the consolidated income statement.
Loans and receivables are non-derivative financial instruments which have a fixed or determinable value. They are recognised at cost, less any provisions for impairment in their value.
Fair value through profit or loss assets are designated as such where they meet the conditions of IAS39 'Financial Instruments: Recognition and Measurement'. They are recognised initially at fair value and any subsequent changes in fair value are recognised directly in the consolidated income statement. These assets are usually held for short-term gain, or are financial instruments not designated as hedges. The accounting policy for derivative financial instruments is included in note 28.
Matched principal transactions are those where the Group acts in a non-advisory capacity as principal in the commitment to purchase and sell securities and other financial instruments through two or more transactions between our customers. Such trades have no contractual settlement date and are complete only when all sides of the transaction are settled, and therefore an aged analysis of matched principal trade receivables is not appropriate. Substantially all matched principal receivables and payables settle within a short period of time, usually within three days of the trade date. All amounts due to and payable by counterparties in respect of matched principal business are shown gross as matched principal trade receivables and matched principal trade payables (note 19), except where a netting agreement, which is legally enforceable at all times, exists and the asset and liability are either settled net or simultaneously. If any unmatched trades remain outstanding, the asset or liability is held within matched principal trade receivables or payables as appropriate and fair valued through the consolidated income statement until the trade is completed.
The Group acts as an intermediary between our 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 (note 19).
Financial instruments not held at fair value are impaired where there is objective evidence that the value may be impaired. The amount of the impairment is calculated as the difference between the carrying value and the present value of any expected future cash flows, with any impairment being recognised in the consolidated income statement. Subsequent recovery of amounts previously impaired are credited to the consolidated income statement.
| Group as at 31 March 2015 £m |
Group as at 31 March 2014 £m (restated) |
Company as at 31 March 2015 £m |
Company as at 31 March 2014 £m |
|
|---|---|---|---|---|
| Non-current receivables | ||||
| Deposits | 2 | 2 | – | – |
| Derivative financial instruments | – | 1 | – | – |
| Other receivables | 3 | 3 | 124 | 124 |
| 5 | 6 | 124 | 124 | |
| Current receivables | ||||
| Matched principal trade receivables | 23,351 | 21,821 | – | – |
| Deposits paid for securities borrowed | 758 | 795 | – | – |
| Other trade receivables | 196 | 188 | – | – |
| Impairment of other trade receivables | (3) | (3) | – | – |
| Amounts owed by subsidiaries | – | – | 97 | 99 |
| Amounts owed by joint ventures | – | 3 | – | – |
| Amounts owed by associates | 3 | 2 | – | – |
| Amounts owed by other related parties | 1 | 5 | – | – |
| Derivative financial instruments | 7 | 4 | – | – |
| Other receivables | 58 | 65 | – | – |
| Prepayments | 40 | 55 | – | – |
| 24,411 | 22,935 | 97 | 99 |
The Group is exposed to credit risk in the event of non-performance by counterparties in respect of its name give-up, matched principal, exchange-traded and corporate treasury operations. The Group does not bear any significant concentration risk to either counterparts or markets.
The credit risk in respect of name give-up and post trade risk and information services businesses is limited to the collection of outstanding commission and transaction fees and this is managed proactively by the Group's accounts receivable function with oversight from the independent credit risk function.
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. A significant portion of the Group's counterparty exposure at any given point throughout the year is to investment grade counterparts (rated BBB-/Baa3 or above). The Group's potential stressed counterparty credit risk calculated in the ICAAP is less than 5% of the Group's total capital resources.
The credit risk on core cash, cash equivalents and derivative financial instruments are monitored on a daily basis. All financial institutions that are transacted with are approved by the GFC and internal limits are assigned to each one based on a combination of factors including external credit ratings. The majority of cash and cash equivalents is deposited with investment grade rated financial institutions.
The Company is exposed to credit risk in the event of non-performance by counterparties. This risk is considered minimal as all counterparties are Group companies and the risk of non-payment is viewed as low.
Other trade receivables represent amounts receivable in respect of agency business and information services. All receivables are individually assessed for impairment at the reporting date. Management judgement is applied in determining whether there is objective evidence that a loss event has occurred and, if so, the measurement of the impairment allowance. In determining whether there is objective evidence that a loss event has occurred, judgement is exercised in evaluating all relevant information on indicators of impairment, which is not restricted to the consideration of whether payments are contractually past due but includes broader consideration of factors indicating deterioration in the financial condition and outlook of customers affecting their ability to pay. For those receivables where objective evidence of impairment exists, management determines the size of the allowance required based on a range of factors including probability of default and, if defaulted, expectation of recovery. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and the reversal is recognised in the income statement.
As at 31 March 2015, £3m of other trade receivables remain impaired (2013/14 – £3m). There have been no new impairments during the year.
Past due but not impaired trade and other receivables are those in respect of which the debtor has failed to make a payment or a partial payment in accordance with the contractual terms of the invoice, but there is no major concern over the credit worthiness of the counterparty, therefore they are not impaired. In the prior reporting periods, receivables past a 'normal settlement date' were considered past due and were reported on that basis. As at 31 March 2015 the following other trade receivables were past due but not impaired:
| As at 31 March 2015 £m |
As at 31 March 2014 £m (restated) |
|
|---|---|---|
| Less than 30 days overdue | 113 | 105 |
| Over 30 days, but less than 90 days overdue | 54 | 58 |
| Over 90 days, but less than 180 days overdue | 12 | 10 |
| Over 180 days overdue | 14 | 12 |
| 193 | 185 |
Since 2012/13, the Group has operated under a clearing arrangement for certain US matched principal transactions on a fully disclosed clearing basis, which provides the Group with the legally enforceable right to set off the recognised amounts and settle on a net basis. As such, certain matched principal trade receivables and payables (note 19) are recorded on a net basis.
| As at 31 March 2015 £m |
As at 31 March 2014 £m |
|
|---|---|---|
| Gross recognised receivable | 171,599 | 128,545 |
| Gross recognised payable | 171,182 | 128,151 |
| Gross amounts that are netted | 171,182 | 128,151 |
| Gross amounts subject to netting arrangements that are not offset | 417 | 394 |
| Deposit securities paid (collateral) | 15 | 10 |
The table below shows the concentration of the Group's trade receivables by currency:
| Group | Pound sterling £m |
Dollar £m |
Euro £m |
Yen £m |
Other currencies £m |
Total £m |
|---|---|---|---|---|---|---|
| Matched principal trade receivables | 4,533 | 13,475 | 3,120 | 356 | 1,867 | 23,351 |
| Deposits paid for securities borrowed | – | 758 | – | – | – | 758 |
| Other trade receivables (net) | 32 | 120 | 19 | 3 | 19 | 193 |
| 4,565 | 14,353 | 3,139 | 359 | 1,886 | 24,302 |
| Group | Pound sterling £m |
Dollar £m |
Euro £m |
Yen £m |
Other currencies £m |
Total £m |
|---|---|---|---|---|---|---|
| Matched principal trade receivables | 4,441 | 10,494 | 4,799 | 459 | 1,628 | 21,821 |
| Deposits paid for securities borrowed | – | 795 | – | – | – | 795 |
| Other trade receivables (net) | 30 | 111 | 21 | 3 | 20 | 185 |
| 4,471 | 11,400 | 4,820 | 462 | 1,648 | 22,801 |
Accounts payable are recognised initially at fair value based on the amounts exchanged and subsequently held at amortised cost.
The accounting policies for matched principal transactions and collateralised stock lending are included within the trade and other receivables note (note 18).
Details of the accounting policy relating to derivative financial instruments is included in note 28.
| Group as at 31 March 2015 £m |
Group as at 31 March 2014 £m (restated) |
Company as at 31 March 2015 £m |
Company as at 31 March 2014 £m |
|
|---|---|---|---|---|
| Current payables | ||||
| Matched principal trade payables | 23,307 | 21,765 | – | – |
| Deposits received for securities loaned | 758 | 836 | – | – |
| Other trade payables | 15 | 11 | – | – |
| Amounts owed to subsidiaries | – | – | 277 | 388 |
| Amounts owed to joint ventures | 2 | – | – | – |
| Amounts owed to related parties | 1 | – | – | – |
| Derivative financial instruments | 10 | 16 | – | – |
| Accruals | 231 | 224 | – | – |
| Other tax and social security | 13 | 17 | – | – |
| Deferred income | 21 | 18 | – | – |
| Other payables | 16 | 22 | 2 | 3 |
| Contingent deferred consideration | 3 | 2 | – | – |
| Deferred consideration | 1 | 1 | – | – |
| 24,378 | 22,912 | 279 | 391 |
| Group as at 31 March 2015 £m |
Group as at 31 March 2014 £m (restated) |
Company as at 31 March 2015 £m |
Company as at 31 March 2014 £m |
|
|---|---|---|---|---|
| Non-current payables | ||||
| Accruals | 1 | 4 | – | – |
| Contingent deferred consideration | 1 | 3 | – | – |
| Derivative financial instruments | 30 | – | – | – |
| Other payables | 1 | 1 | – | – |
| Deferred income | 4 | 1 | – | – |
| Total | 37 | 9 | – | – |
As at 31 March 2015 the fair value of trade and other payables is not materially different from their book values.
The table below shows the maturity profile of the Group's financial liabilities included within trade and other payables based on the contractual amount payable on the date of repayment:
| Less than three months £m |
Three months to one year £m |
One to five years £m |
Greater than five years £m |
Total £m |
|
|---|---|---|---|---|---|
| Matched principal trade payables | 23,307 | – | – | – | 23,307 |
| Deposits received for securities loaned | 758 | – | – | – | 758 |
| Other trade payables | 15 | – | – | – | 15 |
| Derivative financial instruments | 10 | – | 30 | – | 40 |
| Amounts owed to joint ventures | 2 | – | – | – | 2 |
| Amounts owed to related parties | 1 | – | – | – | 1 |
| Other payables | 13 | 3 | 1 | – | 17 |
| Contingent deferred consideration | 2 | 1 | 1 | – | 4 |
| Deferred consideration | – | 1 | – | – | 1 |
| Provisions | 3 | 17 | 19 | – | 39 |
| Accruals | 59 | 172 | 1 | – | 232 |
| 24,170 | 194 | 52 | – | 24,416 |
| Less than three months £m |
Three months to one year £m |
One to five years £m |
Greater than five years £m |
Total £m |
|
|---|---|---|---|---|---|
| Matched principal trade payables | 21,765 | – | – | – | 21,765 |
| Deposits received for securities loaned | 836 | – | – | – | 836 |
| Other trade payables | 6 | 5 | – | – | 11 |
| Derivative financial instruments | – | 16 | – | – | 16 |
| Other payables | 17 | 5 | 1 | – | 23 |
| Contingent deferred consideration | – | 2 | 3 | – | 5 |
| Deferred consideration | – | 1 | – | – | 1 |
| Accruals | 78 | 146 | 2 | 2 | 228 |
| 22,702 | 175 | 6 | 2 | 22,885 |
The gross amounts payable have been disclosed above, rather than their net present value. Based on their short-term nature there is no material difference between the net present value and gross amount of the balances disclosed above.
The current portion of trade and other payables of £279m (2013/14 – £391m) are all due within 90 days.
The carrying value less impairment of current trade receivables and payables are assumed to approximate their fair values due to their short-term nature.
As at 31 March 2015 and 2014, the fair values of financial assets are not materially different from their book values.
| Hedging instruments £m |
Available for-sale £m |
Loans and receivables £m |
Total £m |
|
|---|---|---|---|---|
| Cash and cash equivalents | – | – | 481 | 481 |
| Restricted funds | – | – | 43 | 43 |
| Available-for-sale investments | – | 17 | – | 17 |
| Matched principal trade receivables | – | – | 23,351 | 23,351 |
| Deposits paid for securities borrowed | – | – | 758 | 758 |
| Non-current deposits paid | – | – | 2 | 2 |
| Other trade receivables (net) | – | – | 193 | 193 |
| Amounts owed by associates | – | – | 3 | 3 |
| Amounts owed from other related parties | – | – | 1 | 1 |
| Derivative financial instruments | 7 | – | – | 7 |
| Other receivables | – | – | 61 | 61 |
| 7 | 17 | 24,893 | 24,917 |
| Hedging instruments £m |
Available for-sale £m |
Loans and receivables £m |
Total £m |
|
|---|---|---|---|---|
| Cash and cash equivalents | – | – | 698 | 698 |
| Restricted funds | – | – | 39 | 39 |
| Available-for-sale investments | – | 18 | – | 18 |
| Matched principal trade receivables | – | – | 21,821 | 21,821 |
| Deposits paid for securities borrowed | – | – | 795 | 795 |
| Non-current deposits paid | – | – | 2 | 2 |
| Other trade receivables (net) | – | – | 185 | 185 |
| Amounts owed from joint ventures | – | – | 3 | 3 |
| Amounts owed by associates | – | – | 2 | 2 |
| Amounts owed from other related parties | – | – | 5 | 5 |
| Derivative financial instruments | 5 | – | – | 5 |
| Other receivables | – | – | 68 | 68 |
| 5 | 18 | 23,618 | 23,641 |
(a) Financial assets continued
| As at 31 March 2015 £m |
As at 31 March 2014 £m (restated) |
|
|---|---|---|
| Current receivables (note 18) | 24,411 | 22,935 |
| Non-current receivables | 5 | 6 |
| Available-for-sale financial investments (note 24) | 17 | 18 |
| Cash and cash equivalents including restricted funds | 524 | 737 |
| Excluded: | ||
| Prepayments | (40) | (55) |
| 24,917 | 23,641 |
Prepayments and certain items included within other receivables are not defined as financial assets under IAS39.
As at 31 March 2015 and 2014, the fair values of financial liabilities are not materially different from their book values except for the fair value of the retail bond repayable in 2018 (note 10).
| 31 March 2015 | 31 March 2014 (restated) | ||||||
|---|---|---|---|---|---|---|---|
| Hedging instruments £m |
Amortised cost £m |
Total £m |
Hedging instruments £m |
Amortised cost £m |
Total £m |
||
| Matched principal trade payables | – | 23,307 | 23,307 | – | 21,765 | 21,765 | |
| Deposits received for securities loaned | – | 758 | 758 | – | 836 | 836 | |
| Other trade payables | – | 15 | 15 | – | 11 | 11 | |
| Derivative financial instruments | 40 | – | 40 | 16 | – | 16 | |
| Amounts owed to joint ventures | – | 2 | 2 | – | – | – | |
| Amounts owed to related parties | – | 1 | 1 | – | – | – | |
| Other payables | – | 17 | 17 | – | 23 | 23 | |
| Contingent deferred consideration | – | 4 | 4 | – | 5 | 5 | |
| Deferred consideration | – | 1 | 1 | – | 1 | 1 | |
| Accruals | – | 232 | 232 | – | 228 | 228 | |
| Borrowings and overdrafts | – | 549 | 549 | – | 787 | 787 | |
| Provisions | – | 32 | 32 | – | 4 | 4 | |
| 40 | 24,918 | 24,958 | 16 | 23,660 | 23,676 |
| As at 31 March 2015 £m |
As at 31 March 2014 £m (restated) |
|
|---|---|---|
| Current payables | 24,378 | 22,912 |
| Non-current payables | 37 | 9 |
| Borrowings and overdrafts (note 10) | 549 | 787 |
| Provisions (note 16)* | 32 | 4 |
| Excluded: | ||
| Tax and social security | (13) | (17) |
| Deferred income | (25) | (19) |
| 24,958 | 23,676 |
*Excludes non-contractual provisions.
Taxes payable, deferred income and certain provisions are not classified as financial liabilities under IAS39.
% held
(b) Financial liabilities continued Company
All the Company's financial assets are classified as loans and receivables and the financial liabilities are held at amortised cost. The fair value of these assets and liabilities is not materially different from their book values.
An entity is regarded as a subsidiary if the Company has control over its strategic, operating and financial policies and intends to hold the investment on a long-term basis for the purpose of securing a contribution to the Group's activities.
The Company recognises investments in subsidiaries initially at fair value, and subsequent changes in value as a result of impairment are recognised in the income statement.
The Company's immediate subsidiary companies are ICAP Group Holdings plc, Intercapital Limited and Garban Group Holdings Limited, all of which are incorporated in England and Wales and are 100% owned by the Company. At 31 March 2015 these investments had a cost and net book value of £2,036m (2013/14 – £2,036m). During the year, the Group sold 60% of First Brokers Securities LLC to AO-FB LLC. There were no significant acquisitions of subsidiaries during the year. There were no impairment charges recognised during the year.
All of the Company's other subsidiaries are indirectly owned. The Company has taken advantage of the exemption under section 410 of the Companies Act 2006 by providing information only in relation to subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affect the financial statements. A complete list of subsidiaries, joint ventures and associates will be included in the Company's next annual return and filed with Companies House. The Company's principal subsidiaries, their country of incorporation and the Group's ownership are listed below:
| Australia | ICAP Australia Pty Limited | 100 |
|---|---|---|
| ICAP Brokers Pty Limited | 100 | |
| Brazil | ICAP do Brasil Corretora de Títulos e Valores Mobiliários Ltda | 100 |
| England | EBS Dealing Resources International Limited | 100 |
| ICAP Energy Limited | 100 | |
| ICAP Europe Limited | 100 | |
| ICAP Global Derivatives Limited | 100 | |
| ICAP Management Services Limited | 100 | |
| ICAP Securities Limited | 100 | |
| iSwap Limited | 50.1 | |
| Japan | ICAP Totan Securities Co Limited | 60 |
| Singapore | Reset Private Limited | 100 |
| Sweden | TriOptima AB | 100 |
| Switzerland | EBS Service Company Limited | 100 |
| United States | BrokerTec Americas LLC* | 100 |
| EBS Dealing Resources Inc | 100 | |
| ICAP Capital Markets LLC | 100 | |
| ICAP Corporates LLC | 100 | |
| ICAP Energy LLC | 100 | |
| ICAP Securities USA LLC | 100 | |
| ICAP Services North America LLC | 100 | |
| Traiana Inc | 86.7 |
*Due to corporate restructuring the company name was changed from ICAP Electronic Broking LLC on 31 March 2015.
The percentage held represents the percentage of issued ordinary share capital held (all classes) and also represents the voting rights of the Company.
The Group has an economic interest of 40.2% in iSwap Limited, but the investment is classed as a subsidiary because the Group is the largest single shareholder (next largest economic interest is 14.2%). The Group also employs the key management personnel of iSwap Limited.
ICAP do Brasil Corretora de Títulos e Valores Mobiliários Ltda has a 31 December year end as required as part of local regulatory requirements. All other subsidiaries have a 31 March year end.
All companies operate in their country of incorporation. ICAP Energy Limited, ICAP Europe Limited, ICAP Securities Limited, EBS Dealing Resources International Limited, ICAP Securities USA LLC, ICAP Corporates LLC and BrokerTec Americas LLC also operate from branches outside the countries of incorporation.
All subsidiaries are involved in Electronic Markets, Post Trade Risk and Information or Global Broking activities.
Investments in joint ventures are recognised using the equity method. Under this method, such investments are initially stated at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition change in the Group's share of net assets.
Investments in joint ventures are reviewed for indicators of impairment under IAS39 'Financial instruments: Recognition and Measurement'. Whenever application of IAS39 indicates that an investment may be impaired, the carrying amount of the investment, including attributed goodwill, is tested for impairment as a single asset under IAS36, by comparing the carrying amount with its recoverable amount (the higher of VIU and fair value less costs to sale).
The Group adopted IFRS11 'Joint Arrangements' and IAS28 'Associates and Joint Ventures' for the financial year beginning 1 April 2014. Previously, the Group proportionally consolidated the joint ventures' results and position of its joint ventures under IAS31. The Group determined that as a result of the adoptions of IFRS11 and IAS28 the joint ventures' results will not be proportionately consolidated in the Group financial statements but will be treated under the equity accounting method.
| As at 31 March | 13 | 10 |
|---|---|---|
| Dividends received | (1) | (4) |
| Share of profit for the year | 4 | 4 |
| As at 1 April | 10 | 10 |
| 2014/15 £m |
2013/14 £m (restated) |
The Group's share of joint ventures' assets, liabilities and profit is given below:
| As at 31 March 2015 £m |
As at 31 March 2014 £m (restated) |
|
|---|---|---|
| Assets | 16 | 15 |
| Liabilities | (5) | (7) |
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|
| Revenue | 18 | 19 |
| Operating expenses | (13) | (14) |
| Profit before tax | 5 | 5 |
| Tax | (1) | (1) |
Governance and directors' report
Financial statements
Definitions
Principal
The Group's joint ventures and their country of incorporation are listed below:
| % held | activity | ||
|---|---|---|---|
| England | TFS-ICAP Limited | 23.0 | Broking |
| Germany | Tradition Financial Services GmbH | 33.3 | Broking |
| Mexico | SIF ICAP, SA de CV | 50.0 | Broking |
| United States | TFS-ICAP LLC | 23.0 | Broking |
All joint ventures have a 31 December year end. The difference in the joint ventures' year ends to the Group's year end is not considered to have a material impact on their results.
Investments in associates are recognised using the equity method. Under this method, such investments are initially stated at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition change in the Group's share of net assets.
Investments in associates are reviewed for indicators of impairment under IAS39 'Financial instruments: Recognition and Measurement'. Whenever application of IAS39 indicates that an investment may be impaired, the carrying amount of the investment, including attributed goodwill, is tested for impairment as a single asset under IAS36, by comparing the carrying-amount with its recoverable amount (higher of VIU and fair value less costs to sell).
| 2014/15 £m |
2013/14 £m |
|
|---|---|---|
| As at 1 April | 65 | 59 |
| Additions | 1 | 4 |
| Transfer from available-for-sale investment | – | 10 |
| Share of profit for the year | 4 | 4 |
| Dividends received | (4) | (4) |
| Exchange adjustments | 2 | (8) |
| As at 31 March | 68 | 65 |
The Group's share of associates' assets, liabilities and profit is given below:
| 31 March 2015 £m |
31 March 2014 £m |
|
|---|---|---|
| Assets | 67 | 61 |
| Liabilities | (26) | (26) |
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
|
| Revenue | 41 | 32 |
| Operating expenses | (35) | (26) |
| Profit before tax | 6 | 6 |
| Tax | (2) | (2) |
| Share of profit of associates after tax | 4 | 4 |
During the year, the Group sold a 60% stake in First Brokers Securities LLC, a leading interdealer broker in US dollar-denominated corporate debt. The remaining 40% investment has been reclassified as an associate.
As at
As at
The Group's associates and their country of incorporation are listed below:
| % held | Principal activity | ||
|---|---|---|---|
| China | Shanghai CFETS-ICAP International Money Broking Co Limited | 33.0 | Broking |
| England | BSN Capital Partners Limited | 25.1 | Broking |
| Hong Kong | Capital Shipbrokers Limited | 49.0 | Broking |
| Japan | Totan ICAP Co Limited | 40.0 | Broking |
| Central Totan Securities Co Limited | 20.0 | Broking | |
| Jersey | Enso LP | 39.4 | Post Trade Risk and Information |
| Malaysia | Amanah Butler Malaysia Sdn Bhd | 32.1 | Broking |
| Spain | Corretaje e Información Monetaria y de Divisas SA | 21.5 | Broking |
| United States | CLS Aggregation Services LLC | 42.5 | Post Trade Risk and Information |
| ICAP Patent Brokerage LLC | 49.0 | Broking | |
| First Brokers Securities LLC | 40.0 | Broking | |
| OpenGamma Inc | 15.4 | Post Trade Risk and Information |
All share holdings are in ordinary shares except for the investment in Capital Shipbrokers Limited which is a combination of voting and non-voting shares.
BSN Capital Partners Limited, Shanghai CFETS-ICAP International Money Broking Co Limited, CLS Aggregation Services LLC and OpenGamma Inc have 31 December year ends. The difference in these associates' year ends to the Group's year end is not considered to have a material impact on their results. All other associates have a 31 March year end.
Available-for-sale financial assets are debt and equity non-derivative financial assets and are initially recognised at fair value.
Available-for-sale investments in equity assets that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, are subsequently recorded at cost less impairment. If there is objective evidence that an impairment loss has been incurred on such financial assets, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
All other available-for-sale financial assets are fair valued subsequently at each period end. Any subsequent changes in fair value are recognised directly in other comprehensive income. When a decline in the fair value of an available-for-sale financial asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative unrealised loss that had been recognised in other comprehensive income is transferred to the consolidated income statement.
Impairment losses recognised in the consolidated income statement for an investment in an available-for-sale equity instrument are not reversed through the consolidated income statement. Dividends on available-for-sale equity investments are recognised in the consolidated income statement when the right to receive payment is established. When an available-for-sale financial asset is derecognised, any cumulative unrealised gain or loss recognised previously in other comprehensive income is transferred to the consolidated income statement.
These assets are generally expected to be held for the long term and are included in non-current assets. Assets such as shares or seats 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.
| 2014/15 £m |
2013/14 £m (restated) |
|
|---|---|---|
| As at 1 April | 18 | 29 |
| Additions | – | 1 |
| Disposals | (2) | (1) |
| Impairment | (1) | – |
| Revaluation in the year recognised in other comprehensive income | 1 | – |
| Transfer to associates | – | (10) |
| Exchange adjustments | 1 | (1) |
| As at 31 March | 17 | 18 |
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
|
|---|---|---|
| Non-current available-for-sale investments | ||
| Held at fair value | 2 | 1 |
| Held at cost less impairment | 15 | 17 |
| Total | 17 | 18 |
The fair value of £2m (2013/14 – £1m) was determined using level 1 inputs, being the quoted prices of the equity instruments.
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m (restated) |
|||||
|---|---|---|---|---|---|---|
| Listed securities | ||||||
| Equities listed in the US | 1 | – | ||||
| Equities listed in the rest of the world | 1 | 1 | ||||
| Total listed securities | 2 | 1 | ||||
| Unlisted securities | ||||||
| Equity investments | 15 | 16 | ||||
| Other | – | 1 | ||||
| Total unlisted securities | 15 | 17 | ||||
| Total available-for-sale investments | 17 | 18 | ||||
| Available-for-sale investments are denominated in the following currencies: | ||||||
| Group | Pound sterling £m |
Dollar £m |
Euro £m |
Yen £m |
Other currencies £m |
Total £m |
Property and equipment is recognised initially at cost including the original purchase price of the asset and the costs attributable to bringing the asset into its intended use. Property and equipment is subsequently presented at initial cost less accumulated depreciation and any provisions for impairment in its value. It is depreciated on a straight-line basis over its expected useful economic life as follows:
As at 31 March 2015 6 3 1 5 2 17
| Short leasehold property improvements | Period of lease |
|---|---|
| Furniture, fixtures and equipment | 3 – 5 years |
The Group reviews its depreciation rates regularly to take account of any changes in circumstances. These rates are determined on consideration of factors such as the expected rate of technological development and anticipated usage levels.
When a leasehold property becomes surplus to the Group's foreseeable business requirements, a provision is made on a discounted basis for the expected future net cost of the property.
| 2014/15 | 2013/14 | |||||
|---|---|---|---|---|---|---|
| Group | Short leasehold property improvements £m |
Furniture, fixtures and equipment £m |
Total £m |
Short leasehold property improvements £m (restated) |
Furniture, fixtures and equipment £m (restated) |
Total £m (restated) |
| Cost | ||||||
| As at 1 April | 49 | 114 | 163 | 35 | 144 | 179 |
| Additions | – | 9 | 9 | 1 | 12 | 13 |
| Disposals | (6) | (33) | (39) | – | (9) | (9) |
| Reclassifications | – | – | – | 17 | (20) | (3) |
| Exchange adjustments | 2 | 7 | 9 | (4) | (13) | (17) |
| As at 31 March | 45 | 97 | 142 | 49 | 114 | 163 |
| Accumulated depreciation | ||||||
| As at 1 April | 31 | 88 | 119 | 15 | 114 | 129 |
| Charge for the year | 4 | 11 | 15 | 4 | 14 | 18 |
| Disposals | (6) | (33) | (39) | – | (9) | (9) |
| Reclassifications | – | – | – | 14 | (20) | (6) |
| Exchange adjustments | 2 | 5 | 7 | (2) | (11) | (13) |
| As at 31 March | 31 | 71 | 102 | 31 | 88 | 119 |
| Net book value | ||||||
| As at 31 March | 14 | 26 | 40 | 18 | 26 | 44 |
Property and equipment as at 31 March 2015 includes assets under construction that are expected to become available for use of £4m (2013/14 – £6m). No depreciation charge was recorded on these assets.
Ordinary shares are recognised in equity as share capital at their nominal value. The difference between consideration received and the nominal value is recognised in the share premium account.
Company shares held in trust in connection with the Group's employee share schemes are deducted from consolidated shareholders' equity. Purchases, sales and transfers of the Company's shares are disclosed as changes in the consolidated shareholders' equity. The assets and liabilities of the trusts are consolidated in full into the Group's consolidated financial statements.
Treasury Shares are recognised in equity and are measured at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from the sale and original cost being taken to retained earnings.
| 2014/15 | 2013/14 | ||||
|---|---|---|---|---|---|
| Allotted, called up and fully paid | Number of shares millions |
Nominal value £m |
Number of shares millions |
Nominal value £m |
|
| As at 1 April | 665 | 66 | 665 | 66 | |
| Issued during the year | – | – | – | – | |
| As at 31 March | 665 | 66 | 665 | 66 |
During the year no ordinary shares were issued (2013/14 – nil) or cancelled (2013/14 – nil).
The number of ordinary shares in issue at 31 March 2015 was 664,537,006 (2013/14 – 664,537,006) with 15,314,513 (2013/14 – 16,707,521) held as Treasury Shares and 5,573,089 (2013/14 – 5,721,011) held in employee share trusts. The cost of Treasury Shares is deducted from retained earnings. The cost of shares held in employee share trusts is loaned to the trusts by the Company and is reported as other receivables.
Governance and directors' report
Certain employees hold options over the Company's shares, which are potentially issuable as follows:
| Weighted | Number of shares millions | |||||
|---|---|---|---|---|---|---|
| Year of grant | average exercise price (pence) |
Exercise period from |
Exercise period to |
As at 31 March 2015 |
As at 31 March 2014 |
|
| 2005/06 | 297.0 | 01/07/2008 | 30/06/2015 | 0.5 | 1.0 | |
| 2006/07 | 486.0 | 01/06/2009 | 06/09/2016 | 1.2 | 1.3 | |
| 2010/11 | 288.0 | 01/08/2013 | 31/03/2014 | – | 0.5 | |
| 2011/12 | 346.0 | 01/08/2014 | 23/11/2021 | 0.2 | 0.3 | |
| 2012/13 | 285.4 | 24/05/2015 | 26/06/2022 | 1.1 | 1.4 | |
| 2013/14 | 272.0 | 01/08/2016 | 31/03/2017 | 1.0 | 1.3 | |
| 2014/15 | 302.0 | 01/08/2017 | 31/01/2018 | 1.0 | – | |
| Total potential issues of share capital | 5.0 | 5.8 |
The Company has established employee share trusts in respect of the SEEPP, the BSMP, the Traiana Plan and the LTIP which are funded by the Company and have the power to acquire shares in the open market to meet the Company's future obligations under these schemes. As at 31 March 2015, these trusts owned 5,573,089 ordinary shares in the Company (2013/14 – 5,721,011) with a market value of £29m (2013/14 – £22m).
| Number of shares millions | |||
|---|---|---|---|
| 2014/15 | 2013/14 | ||
| As at 1 April | 6 | 6 | |
| Acquired during the year | – | – | |
| Exercised by employees during the year | – | – | |
| As at 31 March | 6 | 6 |
During the year the Company did not purchase any of its own shares (2013/14 – nil), but transferred 1,393,008 shares (2013/14 – 1,638,660) to employees under its share-based payments schemes. As at 31 March 2015, the number of shares held as Treasury Shares was 15,314,513 (2013/14 – 16,707,521).
| Number of shares millions | ||
|---|---|---|
| 2014/15 | 2013/14 | |
| As at 1 April | 17 | 18 |
| Acquired during the year | – | – |
| Transferred to employees | (2) | (1) |
| As at 31 March | 15 | 17 |
Financial statements
| Group | Merger reserve £m |
Capital redemption reserve £m |
Hedging reserve £m |
Revaluation reserve £m |
Total other reserves £m |
|---|---|---|---|---|---|
| As at 1 April 2014 | 28 | 1 | 2 | 55 | 86 |
| Unrealised (loss)/gain in the year | – | – | (8) | 1 | (7) |
| As at 31 March 2015 | 28 | 1 | (6) | 56 | 79 |
| Group | Merger reserve £m |
Capital redemption reserve £m |
Hedging reserve £m |
Revaluation reserve £m |
Total other reserves £m |
| As at 1 April 2013 | 28 | 1 | (6) | 55 | 78 |
| Unrealised gain in the year | – | – | 8 | – | 8 |
| As at 31 March 2014 | 28 | 1 | 2 | 55 | 86 |
The merger reserve was created on the merger of Garban and Intercapital in 1999 and also includes goodwill arising before 1 January 1998 written off to reserves. This amount remains eliminated.
The capital redemption reserve was created as a result of shares cancelled in 1998 and 2005. The revaluation reserve represents revaluations of available-for-sale investments. The hedging reserve arises from fair value movements of derivative financial instruments that were designated as cash flow hedges on the balance sheet.
The Company has retained earnings of £1,324m (2013/14 – £1,213m) of which £512m (2013/14 – £512m) is not distributable.
The Group uses various financial instruments as hedges to reduce exposure to FX and interest rate movements. These can include forward FX contracts, currency options and cross currency swaps. All derivative financial instruments are initially recognised on the balance sheet at their fair value, adjusted for transaction costs. Where derivative financial instruments do not qualify for hedge accounting, changes in the fair value are recognised immediately in the consolidated income statement, along with transaction costs. Where they do qualify, gains and losses are recognised according to the nature of the hedge relationship and the item being hedged. Hedges are either classified as fair value hedges, cash flow hedges or net investment hedges.
The fair values of the Group's derivative financial instruments are determined using appropriate valuation techniques from observable data, including discounted cash flow analysis, as no active markets with quoted prices exist for the instruments held by the Group.
The method of recognising the movements in the fair value of a derivative depends on whether the instrument has been designated as a hedging instrument and, if so, the nature of the exposure being hedged. To qualify for hedge accounting, the terms of the hedge must be documented clearly at inception and there must be an expectation that the derivative will be highly effective in offsetting changes in the fair value or cash flows attributable to the hedged risk. Hedge effectiveness is tested throughout the life of the hedge and, if at any point it is concluded that the relationship can no longer be expected to remain highly effective in achieving its objective, the accounting for the hedge relationship is terminated.
Fair value hedges: derivative financial instruments are classified as fair value hedges when they hedge an exposure to changes in the fair value of a recognised asset or liability that is attributable to a particular risk that could affect the consolidated income statement. The hedging instrument is recorded at fair value on the balance sheet, with changes in its fair value being taken through the consolidated income statement. For periods in which the hedge is shown to be effective, the gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognised in the consolidated income statement. The gain or loss relating to the ineffective portion is recognised in the consolidated income statement.
Cash flow hedges: derivative financial instruments are classified as cash flow hedges when they hedge the Group's exposure to changes in the cash flows attributable to a particular asset or liability or a highly probable forecast transaction. Gains or losses on designated cash flow hedges are recognised directly in other comprehensive income, to the extent that they are determined to be effective. Any remaining ineffective portion of the gain or loss is recognised immediately in the consolidated income statement. On recognition of the hedged asset or liability, any gains or losses relating to the hedging instrument that had previously been recognised directly in other comprehensive income are included in the initial measurement of the fair value of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity remains there and is recognised in the consolidated income statement when the forecast transaction is ultimately recognised. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is transferred immediately to the consolidated income statement.
Net investment hedges: changes in the value of foreign-denominated investments due to currency movements are recognised directly in other comprehensive income. The accounting treatment for a net investment hedging instrument, whether it is a derivative financial instrument or a recognised asset or liability on the balance sheet, is consistent with the aforementioned treatment for a cash flow hedge. Gains and losses accumulated in other comprehensive income are included in the consolidated income statement on the ultimate disposal of the foreign-denominated investment. The gain or loss relating to any ineffective portion is recognised in the consolidated income statement.
The Group presents its consolidated financial statements in pound sterling and conducts business in a number of other currencies, principally the dollar and euro. Consequently the Group is exposed to FX risk due to exchange rate movements which affect the Group's transactional revenue and the translation of the earnings and net assets of its non-pound sterling operations.
The principal exchange rates which affect the Group are disclosed in note 2 to the financial statements.
The Group's policy is for all subsidiaries to hedge their material non-functional currency transactional exposures through a combination of forward FX contracts and options for up to two years forward. The majority of these exposures relate to dollar and euro sales arising in pound sterling functional currency companies. The Group revised its hedging policy during the year such that, under the revised policy, a minimum of 75% of the forecast exposures are hedged for the first six months, 50% for the following six months and 25% for the next six months.
The Group has contracts in place, designated as cash flow hedges under IAS39 where appropriate, with a total notional value of 62% of its forecast dollar and 64% of its forecast euro transactional exposures for the year to 31 March 2016. These contracts are at average rates of \$1.6124/£ and €1.2655/£ respectively.
The Group is exposed to balance sheet translational exposures at the local entity level where the local consolidated balance sheet may contain monetary assets or liabilities denominated in a currency other than the entity's functional currency. Where material, it is the Group's policy to hedge 100% of these exposures using a mix of foreign currency swaps and forward FX contracts.
Balance sheet translational exposures also arise on consolidation as a result of the retranslation of the balance sheet of the Group's non-pound sterling operations, principally dollar and euro, into pound sterling, the Group's presentational currency. The Group's general policy is not to actively manage these exposures, as active management using instruments with a shorter tenure than the underlying net asset can give rise to a net cash outflow. However, from time to time it will use forward FX contracts, cross currency swaps or nonpound sterling denominated borrowings to mitigate these exposures. As at 31 March 2015 the Group has \$235m of forward FX contracts, the \$193m subordinated loan notes, €100m of the 2019 five-year senior notes and the €15m 2023 ten-year senior notes, designated as hedging instruments against the underlying dollar and euro exposures respectively. As at 31 March 2015 these exposures were \$1.5bn (2013/14 – \$1.6bn) and €0.2bn (2013/14 – €0.2bn) including intangible assets arising on consolidation, but before \$0.4bn (2013/14 – \$0.2bn) and €0.1bn (2013/14 – €0.1bn) of hedging.
The Group discloses in note 2 the actual impact and anticipated impact on the Group's 2014/15 operating profit from the movements during the year of the dollar and euro exchange rates in terms of transactional and translational exposures. The table below shows the actual impact on the Group's equity of movements in the dollar and euro exchange rates in terms of transactional and translational exposures. The table below also discloses the anticipated impact on the Group's equity of a 10 cent weakening, which the Group considers to be an appropriate sensitivity measure, in the dollar and euro in terms of transactional and translational exposure.
| 2014/15 | 2013/14 | |||||
|---|---|---|---|---|---|---|
| Dollar £m |
Euro £m |
Total £m |
Dollar £m |
Euro £m |
Total £m |
|
| Actual impact | 68 | (9) | 59 | (92) | (6) | (98) |
| 10 cent weakening | (60) | (7) | (67) | (45) | (11) | (56) |
Among other methods, the Group uses derivative financial instruments to implement its FX policy. These include the use of forward FX contracts to hedge a portion of its transactional dollar and euro exposures and cross currency interest rate swaps to hedge the FX and interest rate risks on its senior notes. Where these are designated and documented as cash flow hedges in the context of IAS39 and are demonstrated to be effective, mark-to-market gains and losses are recognised directly in other comprehensive income and transferred to the consolidated income statement on derecognition of the underlying item being hedged. The table below presents the carrying value of the Group's derivative financial instruments:
| As at 31 March 2015 | As at 31 March 2014 | |||
|---|---|---|---|---|
| Assets £m |
Liabilities £m |
Assets £m |
Liabilities £m |
|
| Forward FX contracts – cash flow hedges | 7 | (12) | 4 | (6) |
| Cross currency swaps – cash flow hedges | – | (28) | – | (10) |
| Cross currency swaps – fair value hedges | – | – | 1 | – |
| Forward FX contracts – net investment hedges | – | – | – | – |
| 7 | (40) | 5 | (16) |
No amounts (2013/14 – £nil) were recognised in the consolidated income statement in the year as a result of ineffective hedges.
Fair value hierarchy for the derivative financial instruments:
| As at 31 March 2015 | As at 31 March 2014 | |||||
|---|---|---|---|---|---|---|
| Level 1 £m |
Level 2 £m |
Level 3 £m |
Level 1 £m |
Level 2 £m |
Level 3 £m |
|
| Derivative assets | – | 7 | – | – | 5 | – |
| Derivative liabilities | – | (40) | – | – | (16) | – |
In deriving fair value of all derivative instruments as at 31 March 2015, valuation models were used which incorporated observable market data. There were no significant inputs used in the models that were unobservable.
The Company is exposed to balance sheet translational exposures where the balance sheet contains financial assets or liabilities denominated in a currency other than pound sterling. While it is the Group's policy to hedge 100% of these exposures at Group level, at Company level these exposures can affect the Company's profit after tax.
At 31 March 2015, the Company had £10m of financial assets or liabilities denominated in foreign currencies which related to its ten-year senior notes (2013/14 – £11m).
(a) IPGL
IPGL is a company controlled by Michael Spencer, the Group Chief Executive Officer of ICAP plc. During the year, a number of transactions took place between IPGL and its subsidiaries and the Group and these are detailed below.
The Group collected revenue on behalf of IPGL of £156 (2013/14 – £2,786). During the year, the Group charged IPGL £144 (2013/14 – £841) in respect of employees of the Group who provided services to IPGL and its investments and £nil (2013/14 – £1,727) in respect of other services. As at 31 March 2015, IPGL owed the Group £6,113 (2013/14 – £6,125).
As part of the disposal of Exotix to IPGL in 2007, the Group loaned employees of Exotix Limited, a subsidiary of Exotix, £1.5m to enable them to purchase a shareholding. Interest of £5,069 (2013/14 – £924) has been charged on these loans during the year. The Group collected revenue of £8,439,804 (2013/14 – £6,970,687) on behalf of Exotix and recharged Exotix £230,049 (2013/14 – £255,210) for clearing-related services and £25,063 (2013/14 – £288,435) for other services provided during the year. As at 31 March 2015, there was a balance due to Exotix from the Group of £10,169,250 (2013/14 – £356,119). The Group holds £1.9m (2013/14 – £1.9m) as collateral from Exotix on deposit.
During the year the Group has charged FXSolutions (an indirect subsidiary of IPGL) £nil (2013/14 – £15,000) for the provision of FX data from its EBS platform. As at 31 March 2015 there was £nil balance outstanding with the Group (2013/14 – £nil).
The Group invoices and collects revenue on behalf of TFS-ICAP LLC. During the year, the Group invoiced and collected £nil (2013/14 – £90,736) for which it did not receive a fee. During the year the Group recharged the various joint ventures a fee as compensation for overheads and IT support costs as follows: TFS-ICAP LLC – £nil (2013/14 – £123,527); TFS-ICAP Limited – £11,247 (2013/14 – £25,475). As at 31 March 2015 the outstanding balance from all the joint ventures to the Group was £533,494 (2013/14 – £1,175,713 due from the Group).
The Group provides BSN, an associate undertaking, with office space and facility services. During the year, the Group charged BSN £74,268 (2013/14 – £144,627) for these services. The Group also has a preferred brokerage agreement with BSN and has recognised revenue of £87,657 (2013/14 – £188,257) during the year. As at 31 March 2015 the outstanding balance was £497,824 (2013/14 – £385,822).
The Group provides CFETS-ICAP, an associate company based in China, with office space and facilities services. During the year, the Group charged the company £nil (2013/14 – £nil) for these services. The Group also invoiced and collected revenue of £163,145 for CFETS-ICAP in the year (2013/14 – £201,703). As at 31 March 2015 there was a balance due to CFETS-ICAP from the Group of £369,773 (2013/14 – £1,500,949).
The Group collected revenue on behalf of Capital Shipbrokers Limited, an associate based in Hong Kong, of £6,542 (2013/14 – £2,024,346). The Group also recharged Capital Shipbrokers Limited £2,642 (2013/14 – £143,649) for overheads and wrote off bad debt provisions of £309,023. The total outstanding balance due to the Group was £808,123 (2013/14 – £1,028,590 due from the Group).
In a prior year, the Group loaned some minority shareholders of ICAP Holdings South Africa Pty Limited, a subsidiary company, £629,558 in order to acquire 140,800 shares in the company from the Group. Interest of £7,247 (2013/14 – £11,078) was charged on the loan during the year. As at 31 March 2015, the outstanding balance due on the loan was £57,462 (2013/14 – £94,085).
The Group recharged CLSAS, an associate company, £4,410,083 (2013/14 – £3,796,920) as compensation for technical services during the year. As at 31 March 2015 the total outstanding balance due to the Group was £459,588 (2013/14 – £712,917). The Group received £4,322,394 (2013/14 – £6,313,049) from CLSAS during the year.
The Group recharged First Brokers Securities Inc, an associate company since February 2015, £424,835 (2013/14 – £nil) for overheads and recharges during the year. As at 31 March 2015, the outstanding balance due to the Group was £461,638 (2013/14 – £nil).
The Group recharged ICAP Patent Brokerage LLC, an associate company, £452 for overheads and recharges during the year. During the year, the Group loaned ICAP Patent Brokerage LLC £726,338 (2013/14 – £1,138,146). As at 31 March 2015, the outstanding balance due to the Group was £2,004,064 (2013/14 – £1,138,146).
Related party transactions are made on an arm's length basis.
ICAP plc is the Group's ultimate parent company and is incorporated and domiciled in the UK.
During the year the Company entered into the following transactions with subsidiaries:
| Year ended 31 March 2015 £m |
Year ended 31 March 2014 £m |
|
|---|---|---|
| Management services expenses | – | – |
| Net interest from related parties | 3.0 | 6.4 |
Amounts owed to the Company from subsidiaries are disclosed in note 18 and amounts owed by the Company to subsidiaries are disclosed in note 19.
On 1 April 2015 ICAP confirmed the details of the transaction to dispose of its shipbroking businesses to Howe Robinson Group Pte Limited for a 35% equity stake in the resulting combined group business.
In the Annual Report the following words shall have the following meanings.
an international regulatory framework, developed by the Basel Committee on Banking Supervisions, to strengthen the regulation, supervision and risk management of the banking sector
BSMP the ICAP 2003 and 2013 Bonus Share Matching Plan
CCP central counterparty
CDS
credit default swaps
CFETS Shanghai CFETS-ICAP International Money Broking Co. Limited
CFTC US Commodity Futures Trading Commission
CGU cash generating unit
represents the exchange rate of renminbi that trades offshore in Hong Kong
Code
FRC's UK Corporate Governance Code published in September 2012
Companies Act Companies Act 2006 (as amended)
Company or ICAP ICAP plc (formerly Garban-Intercapital plc and Garban plc)
CPI consumer price index
CRD Capital Requirements Directive
demerger the demerger of Garban from United Business Media plc on 17 November 1998
Dodd-Frank Act The Dodd-Frank Wall Street Reform and Consumer Protection Act
dollar or \$ unless otherwise specified all references to dollars or \$ symbol are to the currency of the US
DSBP ICAP plc 2015 Deferred Share Bonus Plan
ECB European Central Bank
EMIR European Market Infrastructure Regulation
EPS earnings per share
ETR effective tax rate
EU European Union
Exco plc, which changed its name to Intercapital plc on 26 October 1998
Exco/Intercapital merger
the acquisition of the Intercapital companies by Exco on 26 October 1998
Financial Conduct Authority, a successor to the Financial Services Authority
FICC Fixed Income Clearing Corporation
Fitch Fitch Ratings Limited
FRC Financial Reporting Council
FTSE 100
index comprised of the 100 largest companies listed on the London Stock Exchange in terms of their market capitalisation
FTSE 250 index comprised of medium-capitalised companies listed on the London Stock Exchange not included in the FTSE 100 index
FTSE All-Share the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices
FX foreign exchange
Garban Garban plc
GDP gross domestic product
GEMG Global Executive Management Group
GFC Global Finance Committee
GOC Global Operating Committee
Group the Company and its subsidiary undertakings
Group CEO Group Chief Executive Officer
HMRC Her Majesty's Revenue & Customs
IAS International Accounting Standards
IASB International Accounting Standards Body
ICAAP internal capital adequacy assessment process
ICAP shares ICAP plc ordinary shares of 10p each
ICAP Trust ICAP Employee Share Trust
International Financial Reporting Standards
IIS ICAP Information Services
INFBV INCAP Finance BV
Intercapital Intercapital Limited (formerly Intercapital plc)
Intercapital companies those companies acquired from IPGL Limited at the time of their merger with Exco in October 1998
IPGL IPGL (Holdings) Limited
ISDA International Swaps and Derivatives Association
ISDX ICAP Securities & Derivatives Exchange Limited
Libid London interbank bid rate
Libor London interbank offered rate
LTIP long term incentive plan
merger the merger of Garban and Intercapital on 9 September 1999
MiFID Markets in Financial Instrument Directive
Moody's Moody's Investors Services
MTF multilateral trading facility
NDF non-deliverable forward
non-bank
encompassing the professional trading community including hedge funds, trading houses and corporates
NSCC National Securities Clearing Corporation
over-the-counter markets in which instruments are traded directly between participants by telephone and/or electronically rather than via an exchange
OTF
organised trading facility, a category of trading revenue proposed by MiFID
PSP
ICAP plc 2015 Performance Share Plan
PwC PricewaterhouseCoopers LLP
RCF revolving credit facility
Reset Holdings Private Limited and its subsidiaries
RIE Recognised Investment Exchange
RPI retail price index
SEC
Securities Exchange Commission, a US regulator
ICAP Senior Executive Equity Participation Plan
SEF swap execution facility
Tokyo interbank offered rate
Traiana Traiana Inc and its subsidiaries
shares as defined by the Companies Acquisition of Own Shares (Treasury Shares) Regulations 2003 which came into force on 1 December 2003
TriOptima AB and its subsidiaries
In this document, according to context, the expressions ICAP and the Group are also used to mean the ICAP plc Group as a whole, or ICAP plc and/or its relevant subsidiaries. The business of ICAP plc is solely that of a holding company. ICAP plc itself conducts no broking or other activities.
The Annual Report contains certain forward-looking statements with respect to the expectations, plans and aims of the Group relating to future performance, financial position and results. All forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group's control and/or that may 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. However, we can give no assurance that expectations will not differ materially from actual outcomes and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual Report should be construed as a profit forecast.
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ICAP plc 2 Broadgate London EC2M 7UR United Kingdom
T: +44 (0) 20 7000 5000 F: +44 (0) 20 7000 5975 E: [email protected] www.icap.com
Company number 3611426
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