Marex Spectron International Limited. Annual Report and Financial Statements. Year ended 31 December Registered number:

Transcription

1 Annual Report and Financial Statements Year ended 31 December Registered number:

2 Contents Page Company Information Directors' Report Strategic Report Auditors' Report Income Statement Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Shareholder's Equity Statement of Cash Flows Notes to the Financial Statements

3 COMPANY INFORMATION COUNTRY OF INCORPORATION England and Wales LEGAL FORM DIRECTORS Private limited company J K D Elliot I T Lowitt S H Sparke K D C Nutt SECRETARY AND REGISTERED OFFICE N R Edwards 155 Bishopsgate, London, EC2M 3TQ COMPANY NUMBER AUDITORS BANKERS Ernst & Young LLP, 1 More London Place, London, SE1 2AF Royal Bank of Scotland Plc, 36 St Andrew Square, Edinburgh, EH2 2YB, 1

4 DIRECTORS' REPORT The directors present their report and audited financial statements for Marex Spectron International Limited ('MSIL' or 'the Company') for the year ended 31 December. The Company is a fully owned subsidiary of the Marex Spectron Company Limited ('the Group'). As part of the Group's reorganisation, the Company was renamed from Spectron Energy Services Limited. Principal activity The principal activity of the Company continued to be the arranging of contracts for Gas, UK Power, European Power, Emissions, Metals, Options and Coal on behalf of its clients via Spectron's electronic market place and traditional voice broking. During the year, the Company commenced brokering activities for agricultural commodities and financial products. These activities were previously undertaken by Marex USA Limited ( MUSA ) a fellow subsidiary of the Group. This decision resulted in the novation of client contracts from MUSA to MSIL. The Company is regulated by the Financial Conduct Authority ('FCA') and the National Futures Association ('NFA') on behalf of the Commodity and Futures Trading Commission ( CFTC ) to transact trades on certain US exchanges. Directors The following directors have held office throughout the year and to the date of the report, except where noted: G S Bennett (resigned 14 August ) J K D Elliot (appointed 18 August ) I T Lowitt K D C Nutt (appointed 14 April ) S H Sparke Indemnity of Directors Each director is indemnified out of the assets of the Company against all costs, charges, losses and liabilities incurred by them in the proper exercise of their duties. Directors who have resigned during the year also benefit from the same indemnity arrangement. In addition, the directors are covered by an insurance policy. Going Concern After reviewing the Company's annual budget, liquidity requirements, plans and financial arrangements, the directors are satisfied that the Company has adequate resources to continue to operate for the foreseeable future and confirm that the Company is a going concern. For this reason they continue to adopt the going concern basis in preparing these financial statements. Dividends No dividends were paid during the year ended 31 December (: $nil). 2

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6 DIRECTORS' REPORT (CONTINUED) Directors' responsibilities The directors are responsible for preparing the Annual Report and the Company financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the directors to prepare Company financial statements for each financial year. Under that law, the directors are required to prepare Company financial statements under International Financial Reporting Standards ('IFRS') as adopted by the European Union. Under Company Law the directors must not approve the Company financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Company financial statements the directors are required to: present fairly the financial position, financial performance and cash flows of the Company; select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; make judgments that are reasonable; provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company s financial position and financial performance; and state whether the Company financial statements have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Company financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 4

7 STRATEGIC REPORT Review of the financial performance revenues in 31 December were $101,348,000 (: $93,275,000). During the year, the Company commenced brokering activities for agricultural commodities and financial products. This decision resulted in the novation of client contracts from MUSA to MSIL. The Company s profit before tax for the year to 31 December was $10,536,000 (: $11,587,000). Overview of risk management Effective risk management is at the core of MSIL s business operations. In place are clear risk management objectives which are delivered through established risk management processes. The Company views risk management as a key factor in delivering its strategic business aims and objectives whilst ensuring its long term sustainability and effective corporate governance. Business strategy, risk strategy and risk appetite are all linked to ensure that decision making across the Company reflects the correct approach to risk and that it is in line with the risk appetite and risk strategy of the organisation. The Company places reliance on the overall risk management function of the Marex Spectron Group Limited. Governance structure The Group risk governance model underpins how the risk management structure is directed across the Group. In pursuit of effective risk governance, a Three Lines of Defence model has been adopted in conjunction with a strong risk culture, good communication and understanding and a strong sense of risk awareness across the Group: the first line of defence covers the controls in place to deal with and manage the day to day risk management within the business units, support functions and embedded operational risk staff; the second line of defence consists of the specialist control functions which make up the Risk Management infrastructure of the Group; and the third line of defence is Group s Internal Audit Function auditing and covering all aspects of both the first and second lines of defence. Risk control and reporting framework There is a clearly defined suite of risk tools, processes, policies and procedures in place that allow for the successful monitoring and control of the risks of the Group and a clearly defined escalation / reporting process in place feeding to Senior Management and key staff within the Group. The Control Framework consists of the following components: 5

8 STRATEGIC REPORT Risk policy framework The policy framework sets out the rules and guidelines for drafting, approving, communicating, implementing, embedding and monitoring compliance for all risk-related policies across the Group. The policy framework defines the key policies necessary to manage all risks arising within each risk category across the Group and aims to deliver a focused and consistent enterprise-wide view of risk. Specific policies and procedures have been implemented to address each of the principal risks (see below). The process and methodology for addressing each risk may differ depending on the relevant business unit. The policy framework sets the minimum standards for how each risk is: identified the method used to identify risk exposures; measured how the likelihood, severity and impact /quantum of those risks are measured; managed how minimum standards are set to manage the risks; controlled the controls in place to help mitigate the risks; reported how the risks are communicated, reported, and escalated; and assured how the risk management process is overseen by an independent function. Internal audit The Group has an internal audit function and this represents the Group's third line of defence providing independent assurance to senior management and the board. The objectives of Internal Audit are to assess the effectiveness of the Group s risk management, internal controls and governance process; whether operational and financial controls are appropriate and consistently applied; the effectiveness of internal controls for the safeguarding of assets; the reliability and integrity of management information; and the adequacy of processes to ensure compliance with applicable laws and regulations. Principal risks and uncertainties The Company faces a variety of risks that are inherent in its normal course of business. The following are deemed to be the principal risks and uncertainties that could affect the Company s activities. Credit risk Credit risk refers to the risk of loss arising when a third party, who owes the Company money, securities or other assets, fails to perform on their contractual obligations arising from their activities with the Company. This situation may arise due to their lack of liquidity, bankruptcy, operational failure as well as other reasons. In addition, a failure or concerns regarding default of a large financial institution could lead to liquidity problems, losses or subsequent defaults by other institutions which could, subsequently, adversely affect the Company. 6

9 STRATEGIC REPORT Market risk The price level or volatility of the markets in which the Company operates can adversely affect its ability to meet its business objectives and earnings. The Company s overall exposure to market risk is mitigated by its operation as an intermediary on most transactions. As an intermediary, the Company aims to minimise its market risk by matching buyers and sellers. However, from time to time, the Company will take the risk of a given trade onto its own books within pre-defined parameters and risk limits which are monitored and controlled by the Risk Department. Foreign currency risk As the majority of the revenue and assets and liabilities of the Company are generated in US Dollars, the Company is subject to minimal structural currency risk. Interest rate risk The Company is exposed to interest rate risk on cash and investment balances it holds. The Company s view is that the main interest rate risk is derived from interest bearing deposits, in which the Company invests surplus funds. Operational risk Operational risk is the risk of loss arising through failures associated with personnel, processes or systems, or from external events. It is inherent in every business organisation and covers a wide spectrum of issues. Operational risk is managed through systems and procedures in which processes are documented, authorisation is independent, and transactions are monitored and reconciled. Liquidity risk The Company only conducts business on an agency basis and therefore it does not consider primary liquidity risk to be a material risk to the conduct of its business. The Company is not involved in taking matched or unmatched principal positions and therefore it is not subject to the primary liquidity risk of realising unmatched principal positions. The performance of the Company can be affected by the liquidity of the markets in which it operates; however this secondary liquidity risk is to a large extent beyond our control. The Company manages this risk by having a diverse portfolio of broking desks. Legal and compliance risk Compliance or regulatory risk arises from a failure or inability to comply with the laws, regulations or codes applicable specifically to the financial services industry. Non compliance can lead to fines, public reprimands, enforced suspensions of services, or in extreme cases, withdrawal of authorisation to operate. 7

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11 AUDITOR'S REPORT INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MAREX SPECTRON INTERNATIONAL LIMITED We have audited the financial statements of for the year ended 31 December which comprise the Income Statement, Statement of Comprehensive Income, Statement of Changes in Shareholder's Equity, Statement of Financial Position and Statement of Cash Flows, and related notes on pages 17 to 37. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union. This report is made solely to the Company's shareholder, in accordance with Chapter 3 of Part 16 of the Companies Act 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 auditors' 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 shareholder, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors' Responsibilities Statement, set out on page 5, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express and opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors' and Strategic reports to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company's affairs as at 31 December and of its profit for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors' and Strategic reports for the financial year for which the financial statements are prepared is consistent with the financial statements. 9

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13 INCOME STATEMENT Notes Revenue 2 101,348 93,275 Operating expenses (90,877) (79,286) Provision for doubtful debts 9 (40) (365) Operating profit 10,431 13,624 Other expenses 4 - (2,145) Finance income Profit before tax 10,536 11,587 Taxation 7 (2,621) (3,362) Profit after tax 7,915 8,225 All operations are continuing for the current and prior years. The notes on pages 17 to 37 form part of these financial statements. 11

14 STATEMENT OF COMPREHENSIVE INCOME Profit after tax 7,915 8,225 Total comprehensive income 7,915 8,225 The notes on pages 17 to 37 form part of these financial statements. 12

15 STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER Assets Notes Non-current assets Property, plant and equipment Deferred tax Total non-current assets Current assets Trade and other receivables 9 62,709 49,358 Corporation tax 1,412 - Cash and cash equivalents ,687 Total current assets 64,809 59,045 Total assets 64,937 59,154 Liabilities Current liabilities Trade and other payables 10 4,073 5,663 Corporation tax liability 2,600 3,142 Total current liabilities 6,673 8,805 Total liabilities 6,673 8,805 TOTAL NET ASSETS 58,264 50,349 13

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17 STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY Share capital Share premium Retained earnings Total At 1 January ,943 42,124 Profit for the year - - 8,225 8,225 At 31 December ,168 50,349 Profit for the year - - 7,915 7,915 At 31 December ,083 58,264 15

18 STATEMENT OF CASH FLOWS Notes Operating activities Profit before tax 10,536 11,587 Adjustments to reconcile profit before tax to net cash flows: Depreciation of property, plant and equipment Impairment of goodwill - 2,057 Impairment of intangible and investments - 88 Operating cash flows before changes in working capital 10,591 13,827 Working capital adjustments: Increase in trade and other receivables 9 (13,351) (4,778) Decrease in trade and other payables 10 (1,590) (6,919) Cash (outflow) / inflow from operating activities (4,350) 2,130 Corporation tax paid (4,604) (2,537) Net cash outflow from operating activities (8,954) (407) Purchase of fixed assets 8 (45) - Net cash outflow from investing activities (45) - Net decrease in cash and cash equivalents (8,999) (407) Cash and cash equivalents at 1 January Cash available on demand and short term deposits 9,687 10,094 Decrease in cash and cash equivalents (8,999) (407) 688 9,687 Cash available on demand and short term deposits ,687 Cash and cash equivalents at 31 December 688 9,687 16

19 NOTES TO THE FINANCIAL STATEMENTS 1. Accounting Policies Basis of preparation The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) as well as interpretations issued by the IFRS Interpretations Committee ( IFRIC ) as endorsed by the European Union ( EU ). The financial statements have been prepared on a going concern basis and under the historical cost basis. The principal accounting policies adopted in the preparation of the financial statements are set out below and have been consistently applied during the years presented unless otherwise stated. Revenue Revenue is recognised when it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable taking into account any volume rebates granted by the Company. Revenue represents commission receivable for trades executed during the year, net of VAT and any other sales related taxes, and is recognised at the point of execution. Finance income and expense Finance income is earned on balances held at banks. Finance expenses are paid on overdrawn bank balances. Finance income and expenses are recognised on an amortised cost basis using effective interest rates ('EIR'). Current versus non-current classification The Company presents assets and liabilities in statement of financial position based on current / non-current classification. An asset is current when it is: Expected to be realised or consumed in normal operating cycle Expected to be realised within twelve months after the reporting period, or Cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. 17

20 1. Accounting Policies (Continued) Current versus non-current classification (Continued) A liability is current when it is: Expected to be settled in normal operating cycle Expected to be settled within twelve months after the reporting period, or There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Company (a 'finance lease'), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the Income Statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an 'operating lease'), the total rentals payable under the lease are charged to the Income Statement on a straight-line basis over the lease term. Foreign currency The financial statements are presented in US Dollars ('USD'), which is also the the currency of the primary economic environment ('functional currency') of the Company. Transactions entered into in a currency other than USD are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the Income Statement. 18

21 1. Accounting Policies (Continued) Income taxes Taxes on profits are reflected in the financial statements in accordance with IAS 12, Income Taxes, and represent management's best assessment of estimated current and future taxes to be paid. Income tax expense for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case tax is also recognised in other comprehensive income or directly in equity. Current tax expense is the amount of tax estimated to be payable or recoverable in respect of the taxable income or loss of a period as well as adjustments in respect of previous periods. Current tax is calculated on the basis of the tax laws and rates enacted or substantively enacted at the balance sheet date. Deferred tax represents the amount of income taxes payable or recoverable in respect of temporary differences, unused tax losses and unused tax credits. Deferred tax is recognised in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements subject to the following exceptions. Deferred tax is not accounted for if it arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences and carried forward unused tax credits and unused tax losses can be utilised. Deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilised. Deferred tax is determined using tax laws and rates that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the recognised amounts and the relevant deferred tax assets and liabilities are intended to be settled either simultaneously or on a net basis. In financial statements current tax is presented as part of current assets or liabilities and deferred tax as part of non-current assets or liabilities. 19

22 1. Accounting Policies (Continued) Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation is provided on property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Furniture, fixtures and fittings - 20 to 50% per annum straight line Computer equipment - 20 to 50% per annum straight line Impairment of non-financial assets Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit (i.e. the smallest group of assets in which the asset belongs for which there are separately identifiable cash flows). Impairment charges are included in the other non-operating expenses line item in the Income Statement. Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the 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 may be impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the appropriate original effective interest rate. 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 profit. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off or provided for are also included within operating profit in the income statement. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 20

23 1. Accounting Policies (Continued) Retirement benefits: defined contribution schemes The Company operates a defined contribution scheme. Contributions are charged to the Income Statement in the year to which they relate. Cash and cash equivalents Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less. Offsetting of financial assets and liabilities Financial assets and liabilities are offset and the net amount reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention and ability to settle on a net basis, or to realise the assets and liabilities simultaneously. Critical accounting estimates and judgments The Company makes estimates and assumptions regarding the future. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Impairment of non-financial assets The Company s impairment test for goodwill is based either on fair value less costs to sell or a value in use calculation. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm s length transaction on similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. 21

24 1. Accounting Policies (Continued) New and amended standards and interpretations The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments IFRS 9, as issued, reflects the first phase of the IASB s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January In subsequent phases, the IASB is addressing hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Company s financial assets, but will not have an impact on classification and measurements of the Company s financial liabilities. IFRS 13 Fair Value Measurement The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable). These changes are not expected to have any significant impact on the Financial Statements of the Company. IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2017 with early adoption permitted. The Company is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date. The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. These changes do not have any significant impact on the Financial Statements of the Company. IAS 24 Related Party Disclosures The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. 22

25 1. Accounting Policies (Continued). New and amended standards and interpretations (Continued) Annual improvements Cycle These improvements are effective from 1 July and are not expected to have a material impact on the Company. Annual improvements Cycle These improvements are effective from 1 Janaury 2016 and are not expected to have a material impact on the Company. 23

26 2. Revenue Revenue arises from: Broker activities 101,348 93, Operating profit This has been arrived after charging / (crediting): Staff costs 50,124 47,882 Payments under operating leases Depreciation and amortisation Foreign exchange loss / (gain) 310 (412) Audit fees for the Company for the year ended 31 December of $181,237 (: $196,506) are borne and paid by a Group undertaking. 4. Other expenses Impairment of goodwill - 2,057 Impairment of investments ,145 During the prior year, the Company impaired the carrying value of goodwill on acquisition of its Branch in Norway. As part of the rationalisation of the legal entity structure of the Group in the prior year, Spectron Gmbh which has been dormant, was put into liquidation and the carrying value of the investment of $88,000 fully impaired. 24

27 5. Staff costs Aggregate wages and salaries 43,546 41,559 Employer's National Insurance Contributions and similiar taxes 6,445 6,250 Short-term monetary benefits Defined contribution pension cost 8-50,124 47,882 The average monthly number of employees, including directors, during the year to 31 December was 85 (: 89). As at 31 December, There were no pension contribution (: $nil) payable to the pension scheme by the Company. The remuneration to directors for their services to the Company was as follows: Directors emoluments Staff costs (including directors) comprise: Aggregate emoluments Short-term monetary benefits The directors emoluments for the current year was borne and paid by a fellow group undertaking. There were no directors in the defined pension contribution scheme at 31 December (: nil). 6. Finance income Interest receivable from fellow subsidiary 99 - Bank interest received

28 7. Taxation 7.a. Tax charge Current tax UK and foreign tax profit for the year 2,716 3,082 Adjustment in respect of previous years (95) 274 2,621 3,356 Deferred tax Origination and reversal of temporary differences arising in the current year (1) 11 Origination and reversal of temporary differences arising in the prior year 1 (5) - 6 Tax charge for the year 2,621 3,362 7.b.Reconciliation of the total tax charge A reconciliation between tax expense and the accounting profit multiplied by the United Kingdom's weighted average domestic tax rate applicable to the Company for the years ended 31 December and is as follows: Profit before tax 10,536 11,587 Expected tax charge based on the standard rate of corporation tax in the UK of 21.50% (: 23.25%) 2,265 2,694 Expenses not deductible for tax purposes Deferred tax restatement due to legislated change in future tax rate - 6 Effects of overseas tax rates Utilisation of prior year losses (346) (20) Foreign exchange differences and other 229 (119) Prior year adjustments (95) 269 Tax charge for the year 2,621 3,362 26

29 7. Taxation (Continued) 7.c. Deferred tax asset Depreciation in excess of capital allowances (71) (42) Total deferred tax asset (71) (42) At 1 January (42) (36) Credited to the income statement for the year (1) (6) Transfer of capital allowance pool to fellow subsidiary (39) - Foreign exchange differences 11 - At 31 December (71) (42) The applicable Corporate Income Tax rate in the UK was reduced from 23% to 21% with effect from 1 April resulting in a blended rate of 21.5% for the period. The applicable rate will be further reduced to 20% with effect from 1 April Property, plant & equipment Computer equipment Furniture, fixtures and fittings Total Cost: At 1 January Additions At 31 December Accumulated depreciation: At 1 January Charge for the year At 31 December Net book value: At 31 December At 31 December

30 9. Trade and other receivables Trade debtors 12,865 12,242 Amounts owed from group undertaking 49,617 36,800 Loans receivable Prepayments and other debtors Other tax and social security taxes 23-62,709 49,358 Trade debtors are stated after deducting an impairment provision of $31,909 (: $85,522). The movement in the impairment provision is as follows: At 1 January Charged income statement Bad debts written off (94) (295) At 31 December See note 13 on credit risk of trade receivables, which discloses how the Company manages and measures credit quality of trade receivables that are neither past due nor impaired. 10. Trade and other payables Accruals and deferred income 751 1,095 Amounts owed to group undertakings - 4,495 Other tax and social security taxes 3, Other creditors ,073 5,663 28

31 11. Cash and cash equivalents Cash at bank and on hand 688 9, Leases The Company has entered into commercial leases on its properties. The lessee has the option of renewal on the lease subject to negotiation between the Company, as lessee, and the landlord in the period preceding the expiration of each lease. There were no restrictions placed upon the lessee by entering into these leases. The total future minimum lease payments are due as follows: Not later than one year Later than one year and not later than five years At 31 December Financial risk management objectives and policies The Company's activities expose it to a number of financial risks including credit risk, market risk, liquidity risk and operational risk as discussed in the strategic report. Credit risk The maximum credit risk exposure relating to financial assets is represented by the fair value as at the balance sheet date. Credit risk in the Company principally arises from cash and cash equivalents and exposures from transactions relating to customers and counterparties. 29

32 13. Financial risk management objectives and policies (Continued) Credit risk (Continued) The table below shows the credit quality of the Company s financial assets: Fair value trade debtors: (Fitch ratings or equivalent S&P/ Moody's ratings) AA AA A A - 3,035 A BBB Lower rated and non-rated 12,830 6,891 Total 12,865 12,242 Cash balances A A 139 8,897 A Total 688 9,687 The largest concentration of cash balances as at 31 December was 75.1% (: 91.8%) to a UK based, A rated global banking Company (: A). Although invoices for commissions are typically payable after 30 days notice, (there are some exceptions for example Environmentals, where payment is only due following physical settlement which can be at some point in the future) industry practice is for payment to be delayed, potentially significantly. This is due to myriad of factors including that the clearing members will, in many cases, not even examine the invoices for 90 days. Our experience is that all the receivables are collected through our robust collection efforts and almost without exception within a year. Accordingly, the director s view is that presenting an aged analysis of debtors past due, but not impaired, in accordance with IFRS 7, would not provide any useful information to a user of the financial statements. Market risk The Company activities expose it to financial risks primarily generated through foreign exchange, interest rate and commodity market price exposures which are outlined in the strategic report. The Company's overall exposure to market risks is mitigated by its operations as an intermediary on most transactions. However, from time to time the Company will hold positions which are within the pre-defined parameters and are monitored and controlled by the Risk Department. 30

33 13. Financial risk management objectives and policies (Continued) Liquidity risk The Company defines liquidity risk as the failure to meet its day to day capital and cash flow requirements. To mitigate liquidity risk the Company has implemented robust cash management policies and procedures in relation to the products and the duration that surplus funds can be invested. The maturity profile of the Company s financial liabilities as at the end of the reporting period, based on contractual undiscounted payments, is as follows: on demand Less than 3 month 3 months to 12 months Total Accruals and deferred income Other tax and social security taxes - 3,320-3,320 Other creditors Total - 4,073-4,073 On demand Less than 3 months 3 months to 12 months Total Accruals and deferred income - 1,095-1,095 Amounts owed to Group undertakings 4, ,495 Other tax and social security taxes Other creditors Total 4,495 1, ,663 31

34 13. Financial risk management objectives and policies (Continued) Operational risk Operational risk is the risk of loss arising through failures associated with personnel, processes or systems, or from external events. It is inherent in every business organisation and covers a wide spectrum of issues. Operational risk is managed through systems and procedures in which processes are documented, authorisation is independent, and transactions are monitored and reconciled. The Company maintains disaster recovery or contingency facilities to support operations and ensure business continuity. The innovation of these facilities is regularly tested. Interest rate risk The Company is exposed to interest rate risk on cash balances it holds. The Company's view is that the main interest rate risk is derived from interest bearing deposits in which the Company invests surplus funds. Management monitors interest rate risk by placing funds in overnight deposits, and for longer period deposits, management conducts market analysis of interest rate expectations before placing amounts. Foreign currency risk As the majority of the revenue, assets and liabilities of the Company are generated in US Dollars, the Company is subject to minimal currency risk. This risk is mitigated by constantly monitoring currency exposures and ensuring that revenues generated in currencies other than USD are sold off on a regular basis. Due to this foreign currency exposure management strategy, the Company does not expect any significant impact on the profit due to fluctuations in foreign exchange rates. Other risk management In addition to the financial risks above, the Company is also exposed to various elements of operational risk; most evident amongst this is internal control failure. Compliance, legal and reputation risk Compliance or regulatory risk arises from a failure or inability to comply with the laws, regulations or codes applicable specifically to the financial services industry. Non-compliance can lead to fines, public reprimands, enforced suspensions of services, or in extreme cases, withdrawal of authorisation to operate. The Company is subject to authorisation and regulatory requirements regimes in the United Kingdom, United States of America, Norway and Germany. 32

35 14. Capital management The primary objective of the Company s capital management is to ensure that it maintains strong healthy capital ratios in order to support its business growth as well as to maximise shareholder value. is regulated by the FCA as a Exempt BIPRU Commodity firm. The Company has fully complied with its externally imposed capital requirements in the year. The capital resources requirement as at 31 December was $9,529,000 and 31 December was $7,872,000. This compares to the regulatory Capital of $58,030,000 at 31 December and $49,728,000 at 31 December. is also regulated in the USA by the NFA, on behalf of the CFTC. The Company has fully complied with its externally imposed adjusted capital requirements in the year. The Company had adjusted net capital of $1,702,000 which was $1,657,000 in excess of the minimum requirement of $45, Fair value measurements recognised in the statement of financial position The Company uses the following hierarchy for determining the fair value of financial instrument by valuation techniques: Level 1: Level 2: Level 3: quoted (adjusted) prices in active markets for identical assets or liabilities; other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. 33

36 15. Fair value measurements recognised in the statement of financial position (Continued) Set out below is an analysis by category of the carrying amounts and fair value of the Company's financial instruments that are carried in the financial statements. Due to the nature of the underlying assets and liabilities, the carrying value approximates fair value. Financial assets Fair and book value Fair and book value At Fair value through the income statement: Trade debtors 12,865 12,242 Deferred tax Prepayment and other debtors Other tax and social security taxes 23-13,036 12,600 At amortised cost: Amounts owed from group undertakings 49,617 36,800 Loans receivable ,744 36,800 Total 62,780 49,400 Financial liabilities At Fair value through the income statement Accruals and deferred income 751 1,095 Amounts owed to group undertakings - 4,495 Other tax and social security taxes 3, Other payables ,073 5,663 Total 4,073 5,663 34

37 16. Share capital Number Number Authorised Ordinary shares of $ each 1,000, ,000, Issued and fully paid Ordinary shares of $ each 960, , Reserves Share premium Retained earnings Total At 1 January ,943 42,108 Profit for the year - 8,225 8,225 At 31 December ,168 50,333 Profit for the year - 7,915 7,915 At 31 December ,083 58,248 The following describes the nature and purpose of each reserve within owners' equity. Reserves Share capital Share premium Retained earnings Description and purpose Amount subscribed for share capital at nominal value. Amount of consideration received over and above par value of shares. Cumulative net gains and losses recognised in the income statement or the statement of comprehensive income. 35

38 18. Related party transactions The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year. For information regarding outstanding balances at 31 December and, refer to notes 9 and 10. Amounts owed to related parties Amounts owed by related parties Amounts owed to related parties Amounts owed by related parties Marex Financial Limited - 48,926-36,294 Marex North America LLC Spectron Services Limited Spectron Commodities Limited - - 4, ,617 4,495 36,800 Nature of relationship Amounts included in operating profit Amounts included in operating profit Spectron Services Limited Fellow subsidiary (53) (6,927) Marex Financial Limited Fellow subsidiary (16,262) (2,238) Marex North America LLC Fellow subsidiary (2,289) (3,529) Spectron Energy Inc. Fellow subsidiary (13,824) (10,106) (32,428) (22,800) The Company benefits from the services provided by Spectron Services Limited. The amount presented in the table above represent the amounts paid for the services provided and are included in operating expenses. The Company benefits from the central functions which are provided by Marex North America in the US and Marex Financial Limited in Europe. The amounts presented in the table above represent the amounts paid for the services provided and are included in operating expenses. The Company receives an allocation of costs resulting from the brokering services provided by employees of Spectron Energy Inc. The amount presented in the table above represents the total charge included in operating expenses. 36

39 19. Events after the reporting period The Company has evaluated events through to 31 March 2015, the issuance date of the financial statements. 20. Ultimate and immediate parent undertaking As at 31 December the immediate parent undertaking is Marex Spectron Group Limited, a private limited company registered in England and Wales, in whose consolidated financial statements the Company was included. These consolidated financial statements will be available from its registered office at 155 Bishopsgate, London, EC2M 3TQ. In the directors' opinion, the ultimate and controlling party is Amphitryon Limited, a company incorporated in Jersey, Channel Islands. 37