The directors present the strategic report for the year ended 31 December 2023.
Tallon Commodities Limited (“Tallon” or “Firm”), is an FCA regulated financial services firm focused on the commodities sector and with permissions to carry out the following regulated activities in relation to professional clients and eligible counterparties:
Dealing as Principal on a matched principal basis;
Dealing as Agent;
Making arrangements with a view to transactions in investments;
Arranging (bringing about) deals in investments;
The Firm’s activities in relation to the commodities markets, are focused in, including but not limited to, Crude & Petroleum Products, Power & Natural Gas, Coal & Carbon Emissions, Wet & Dry Freight, and Base Metals.
Calendar Year 2023 was a challenging year for commodity financial markets as the company coped with:
Inflationary pressures and high interest rate environment:
Federal Funds Rates rose to 5.50% by July 2023
ECB deposit rate rose from 2.50% to 4.00% within 2023
Israeli - Gaza crisis increased the war premium in the region.
The above adds to the current war between Russia and Ukraine which has connecting interests and spill over effects due to the geopolitical differences and conflicting agendas between East and West.
In such a high entropy market environment that made any short term and medium term forecasting efforts extremely uncertain, Tallon continued its growth path under the strict regulatory supervision of FCA.
Price Risk:
Tallon trade on a matched principal basis without maintaining a prop-book. As a result, all positions are booked back-to-back to the market and Tallon bears no direct market price risk.
Client Credit Risk:
Tallon trade with their customers on a bilateral basis. To mitigate client credit risk, Tallon perform a credit check for each client during the onboarding process, and any resulting credit terms provided are approved by the Credit Committee. The terms received by clients can include a multiplication factor of the margins set by the Clearing Exchanges basis SPAN margin. Tallon employs a zero-tolerance policy with respect to any delays of Variation Margin payments by clients and as such, any client failure to make the required payments will result in closure of positions.
Financial Instruments:
The Company holds financial instruments including cash, trade receivables and payables as detailed in the Balance Sheet.
Liquidity Risk:
To ensure sufficient Operational Liquidity in an adverse business environment, Tallon maintain cash reserves (above the required regulatory capital) to cover a full year worth of operating expenses. Moreover, beyond the aforementioned operational liquidity, due to the fact that clients are margined to a multiple versus the SPAN margin requirement, that results to excess liquidity that can address any shot term liquidity shortfall.
Foreign Exchange Risk:
Tallon has very limited FX Risk. Transactional FX Risk (from client transactions) is non-existent as the transactions and associated collaterals are back-to-back and all denominated in the same currency of the assets. Balance Sheet FX Risk (from the multi-currency income) is limited and proportionately hedged every year.
The Board recognises the importance of monitoring overall business performance and profitability and, as such, tracks relevant key performance data on a monthly basis. The company is in continuous dialogue with clients to ensure they are satisfied with the services provided.
The Board monitors the profitability and cost base of the company to ensure the financial health of the business is secure and are a key factor before any key decisions are made.
The operating profit was €2,838,937 (2022:€2,069,125). As at 31st December 2023 the Company had net assets of €3,694,423 (2022:€3,013,174).
The directors of the company have acted in a way that they consider, in good faith, would most likely promote the success of the company for the benefit of its shareholders, employees and customers as a whole, and in doing so, the directors have considered (amongst other matters):
The likely consequences of any decision in the long term: the Board takes full responsibility for all strategic matters and meets formally on a regular basis. There are other subordinate forums which have a degree of delegated authority, principally the Executive Management Committee which deals with all matters HR related and the Credit and Risk Committee which deals with client trading, but both of them report directly to the Board. Despite being a small company with less than 10 personnel the constitution of the Board is of 4 Directors each with clearly delineated areas of responsibility.
The interest of the company's employees: as a company with few employees all personnel are viewed as key staff and the fact that the only departures since formation have been due to retirement provides evidence of the collegiate environment the company has cultivated. Annual appraisals provide positive feedback for personal and professional development and the company supports aspirations for further training and qualification. There exists a clear framework of policies and procedures that accord with the legal requirements around equality and diversity, regulatory responsibilities and employment rights but perhaps more importantly the firm has fostered an atmosphere in which all personnel feel comfortable to speak openly on any matter the feel they need to.
The need to foster the company's business relationships with customer and others: as an STP broker in the institutional energy market derivative space the firm services both its suppliers and the clients. The relationship is governed through sector standard ISDA agreements. The firm has a BWRA system in place around risks associated with the business and operates in accordance with FCA SMCR requirements including annual Conduct Risk training around the following areas:
-You must act with integrity.
-You must act with due skill, care and diligence
-You must be open and cooperative with the FCA, the PRA and other regulators.
-You must pay due regard to the interests of customers and treat them fairly.
-You must observe proper standards of market conduct
Community & environment: the firm takes its broader responsibilities very seriously and operates an active internship programme which offers opportunities to aspiring young people to complete a 6 month desk rotation that allows them to understand the complexities and nuances of the energy and environmental commodity markets for their future career development. The Firm is also committed to sustainability and sponsors ESG events that promote sustainable growth. More broadly the firm also provides sponsorship to a local football academy that promotes exercise and wellbeing to over 100 children in the 5-15 age bracket.
The desirability of the company maintaining a reputation for high standards of business conduct: the company maintains the highest standards of integrity and reputation and would be unable to deal with institutional counterparties in the global energy markets if this were not the case.
The need to act fairly among shareholders, employees and customers of the company: the company shareholders are represented on the Board and are responsible for driving over 70% of the revenue through the company. The Board are acutely aware of this symbiosis and defer to the shareholders as necessary.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 9.
Ordinary dividends were paid amounting to €1,900,000. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Markets are getting more complex and regulated and the need for financial structuring expertise is continuous.
-Tallon has a high expertise in trading all petroleum/energy/shipping/environmental commodity products at any market (exchange or OTC)
-Motor Oil group continuously grows in all such directions
-Regional Industrial companies face similar challenges
-Shipping Companies are getting regulated (CO2, Methane)
The next three years are extremely significant for the continuous growth of Tallon and the opportunity is ahead, as financial markets are becoming more crucial and price management takes a leading role in corporate management and profitability.
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience of the financial services sector;
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including the Financial Conduct Authority (FCA), Companies Act 2006, taxation legislation, anti-bribery, anti-money-laundering, employment;
we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud;
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations; and
understanding the design of the company’s remuneration policies.
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates as set out in note 2 were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
reading the minutes of meetings of those charged with governance;
enquiring of management as to actual and potential litigation and claims; and
reviewing correspondence with HMRC, relevant regulators including the FCA and reviewing the company’s compliance monitoring procedures and findings.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or through collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Tallon Commodities Ltd is a private company limited by shares incorporated in England and Wales. The registered office is 67 Grosvenor Street, London, England, W1K 3JN.
The financial statements are prepared in euros, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest €.
The following exchanges rates were used
£1 : €1.1535 spot rate at 31st December 2023 for balance sheet items
£1 : €1.1523 average rate from 1st January 2023 to 31st December 2023 for profit and loss items
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The directors do not consider there to be any critical judgements or key sources of estimation uncertainty involved in the preparation of the company's financial statements.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
There are no subsequent events to report.
The remuneration of key management personnel is as follows.
During the year Tallon Commodities Limited received services of €36,897 (2022: €25,369) whereby a director of the supplier is also a director of the company. At the year end a creditor of €27,684 (2022: €13,564) is due to the company.
During the year the company provided commodity trading services to a shareholder in the company. The total trading income recognised amounted to €3,141,000 (2022: €2,914,304). At the year end, a sum of €94,880,714 (2022: €16,065,543) included the other creditors.
During the year, the company provided investment management & consultancy services to a shareholder in the company. The total other income recognised amounted to €235,308 (2022: €364,886), out of which €235,308 (2022: €241,905) due from the company.
During the year Tallon PTE ltd provided consultancy services of €600,000 (2022: €600,000) to the Tallon Commodities Limited, these companies are related to due common ownership.