The directors present the strategic report for the Period ended 31 March 2022.
Due to a re-alignment of the group’s financial year to coincide with the standard UK tax year, the accounts relate to a 17-month trading period running from 1 st November 2020 to 31 st March 2022.
By the time the first month of the new trading period had ended, all employees had returned to full time working and sales had returned to pre-COVID-19 levels. This level of trading continued into the first quarter of 2021, but as the month of April 2021 commenced, it became apparent that a majority of our automotive customers were encountering supply chain issues, resulting in a reduction in orders of up to 30% in some months. The main issue related to the much-publicised shortage of semi-conductor chips. The notification of order reductions from certain customers was sometimes as little as 48 hours, which made production planning difficult as the business tried to re-act as best as it could to a rapidly changing order book.
However, due to the significant reduction in sales from April to July 2021 inclusive, during this period the Board decided to utilise the Government support that was available via the furlough scheme. Subsequently, after returning from the summer shutdown in August, the majority of supply chain issues started to ease and once again sales started to increase with all employees returning to full-time working.
From October 2021 onwards, several projects, with both new and existing customers commenced, with some projects starting with demand which was double the volumes previously forecasted by the customer. All of these new projects had been secured back in 2019 and their introductions were delayed due to COVID-19. With normal sales levels returning and combined with the influx of the new work, manufacturing operations became stretched working at near maximum capacity on some machine ranges. During the final quarter of the financial year, monthly sales were over 80% up on 2019 levels.
From January 2022 onwards, it became apparent that along with the on-going supply chain delivery issues with various factory consumables, the costs of these items were also starting to increase month on month. Despite having increased sales during the final quarter, margins were being eroded due to these significant increases. In addition, due to the introduction of new projects earlier in the year, a lot of exceptional one-off costs were incurred, plus the costs to finance and install new equipment. Due to the complexity of the new parts and using non-standard “exotic” materials, a steep learning curve was faced, this resulted in the business not operating as efficiently as it traditionally had. There was also a requirement to increase the labour force to cope with the new demand and due to a shortage of skilled workers in the labour market, the business had no alternative but to employ un-skilled workers and invest time and resources into training. This labour scenario also contributed to the learning curve issues previously mentioned, which temporarily hindered levels of efficiency during the year.
All of these factors, coupled with the sudden reduction in turnover in the middle of the year for 4 months, resulted in the year again becoming a very challenging one on several fronts. The consolidated loss before tax in 2022 is therefore £523,802 compared to £961,619 in the previous year.
Although total sales of £12,957,806 were generated in the 17-month trading period, due to the new projects, it is worth noting that £3.5M of this total related to tooling sales, so the adjusted casting sales figure gives a monthly average of £556,341, compared to £418,653 in 2020 and £696,108 in 2019. So even though casting sales have increased from 2020, they were still some way off being back to pre-COVID sales levels on a consistent month-on-month basis.
Price Risk
Since the start of the financial year, raw material (aluminium ingot) prices have continued to increase from £1,425 per metric ton and currently stand at £2,270 per metric ton. This is mostly due to the increase in smelters energy costs resulting in the continued uncertainty of aluminium prices. However, this is mitigated by agreements that allow the business to pass on any movements in price to the customer.
Interest Rate Risk
The group's invoice discounting facility is linked to the Bank of England base rate and the recent increases to curb the rise in inflation have exposed the business to an element of interest rate risk and will continue to do so over the coming months.
Economy Risk
As was seen in 2009, an economic downturn within the UK and the rest of Europe can severely impact on the trading ability of the business. With a global recession predicted the business is exposed to such a risk.
Energy Risk
With gas and power contracts due for renewal in 2023, due to the current volatility in the energy markets, the business is at risk of facing significant increases in its cost base as the aluminium die-casting process is a high consumer of energy.
Profit ratio Pre-tax profit margin -4.0 4 % (2020: -1 9.11 %)
Activity ratio Stock turnover 7.40% (2020: 30.53%)
Capital ratio |
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Interest cover -2.80 (2020: -9.63) |
On behalf of the board
The directors present their annual report and financial statements for the Period ended 31 March 2022.
The results for the Period are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the Period and up to the date of signature of the financial statements were as follows:
In line with the significant increase in sales, the business has continued to invest during the year and has installed new CNC machining cells and automated washing equipment. There are further plans for capital expenditure on additional CNC machining cells and automated high pressure die casting plant, along with further extensions to the business premises to cater for the additional floor space required. This capital expenditure has been financed via support from HSBC plc via asset finance and the Recovery Loan Scheme.
There is an on-going recruitment drive for both Managerial and operator positions and currently the labour force has increased by some 35% and continues to grow in order for the business to service its full order book. The new projects have life spans of between 5-7 years and most of them are now at, or close to reaching peak volumes. The parts are cast, machined and some require assembly, which means that all manufacturing processes are operating at near full capacity during this time frame.
Over the last 3 years the business has been investing into and developing its structure to enable it to achieve a casting sales turnover of £15M plus, so the Directors are confident in the future of the business as it moves into a sustained period of growth which will allow it to generate several years of consistent profits and returns on its investments.
On the negative side, the Board does have concerns about the increasing rate of inflation in the UK and the direct impact it is having on operational costs due to significant increases in factory consumables and payroll costs.
Finally, there are on-going negotiations for new utility contracts that are due to commence in 2023. Like all business throughout the UK and abroad, the hostilities in Ukraine have contributed to a very volatile energy market. Depending on how long these hostilities continue and until additional supplies are available to reduce the prices of energy, significant increases are expected as the aluminium die-casting process is a heavy consumer of energy. The Board have commenced negotiations with its customer base regarding price increases required in 2023 to cover the rise in energy costs. On the basis that all industries are faced with this issue and the business has long-standing relations with most of its customers, the Board are confident that the impact of the rise in energy costs can be mitigated. Potentially Government support continued past April 2023, could also reduce the impact of these energy increases.
We have audited the financial statements of J. H. Lavender (Holdings) Limited (the 'parent company') and its subsidiaries (the 'group') for the Period ended 31 March 2022 which comprise the group profit and loss account, the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard , and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
We draw attention to Note 1. 5 in the financial statements, going concern accounting policy, which states that the group incurred a net loss before tax of £523,802 during the period ended 31 March 2022 and as at that date group current liabilities exceeded its total assets by £ 179,036. These conditions, along with the expected substantial increase to utility costs and issues with supply chain as set forth in Note 1.5, indicate that a material uncertainty exists that may cast significant doubt on the group ’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
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.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
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' r eport for the financial Period for which the financial statements are prepared is consistent with the financial statements ; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identifie d material misstatements in the strategic report or the directors' r eport .
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' r esponsibilities s tatement, 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 parent 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 parent 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 .
We identified and assessed the risks of material misstatement of the financial statements, in respect of irregularities whether due to fraud or error, or non compliance with laws and regulations and then designed and performed audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following:
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Company by discussion and enquiry with the directors and management team and our general knowledge and experience of the aluminium diecasting 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 Companies Act 2006, taxation legislation, data protection, employment, and health and safety legislation;
We assessed the extent of compliance with the laws and regulations identified above through making enquiries of management, reviewing correspondence with relevant regulators.
We assessed the susceptibility of the Company’s financial statements to material misstatement, including how fraud might occur. Audit procedures performed included but were not limited to:
Discussions with directors and management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud;
Confirming our understanding of controls by performing a walk through test or observation and enquiry ;
Performing analytical procedures to identify any unusual or unexpected relationships;
Challenging assumptions and judgements made by management in respect of freehold property
Identifying and testing journal entries;
Reviewing unusual or unexpected transactions; and
Agreeing the financial statement disclosures to underlying supporting documentation.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. 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 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.
As permitted by s408 Companies Act 2006, the c ompany has not presented its own profit and loss account and related notes. The c ompany’s profit for the year was £18,505 (2020 - £112,472 loss).
J. H. Lavender (Holdings) Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales . The registered office is Hall Green Works, Crankhall Lane, West Bromwich, West Midlands, B71 3JZ.
The group consists of J. H. Lavender (Holdings) Limited and all of its subsidiaries.
These financial statements are presented for a period that is longer than a year, for the 17 months ended 31 March 2022. The comparative amounts within the financial statements are not entirely comparable.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties at fair value. The principal accounting policies adopted are set out below.
The consolidated group financial statements consist of the financial statements of the parent company J. H. Lavender (Holdings) Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates .
All financial statements are made up to 31 March 2022 . Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the g roup.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
These financial statements are prepared on the going concern basis. The directors have a reasonable expectation that the group will continue in operational existence for the foreseeable future. However, the directors are aware of certain material uncertainties which may cause doubt on the group's ability to continue as a going concern.
Due to a shortage of parts across the automotive sector, there have been delays in sales which has had a negative effect on sales during the current financial year, although this is out of the control of the directors, they are aware that a further delay in parts will have a negative effect on the results for the year ended 31 March 2023 and beyond. HSBC have indicated they will support the business via its invoice discounting facility and the directors are considering other areas where they can cut costs in the short-term. They are confident that once parts are available, sales will return to forecasted levels.
Having reviewed the energy increase expected in the coming 12 months, costs are expected to increase by 368% which, without support from customers and assistance from government bodies regarding energy price caps, are unsustainable.
The directors are seeking the advice of energy consultants to look at ways costs can be reduced and customers will be advised of price increases. At the time of approving the accounts the directors have not received confirmation that the price increases will be accepted or that the parts for certain orders will be available, thus a material uncertainty has been disclosed relating to going concern .
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
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 recognised in the profit and loss account .
Freehold land and buildings have been measured at fair value, with valuations carried out with sufficient regularity to ensure that the carrying amount does not materially differ from that which would be determined using fair value at the end of the reporting period.
Revaluation gains and losses
Revaluation gains/increases are recognised in the revaluation reserve, except where, and to the extent that, they reverse a revaluation decrease/impairment that has previously been recognised in operating expenditure, in which case they are credited to expenditure to the extent of the decrease previously charged there. Revaluation losses/decreases that do not result from a loss of economic value or service potential are charged to the revaluation reserve to the extent that there is an available balance for the asset concerned, and thereafter are charged to expenditure. Gains and losses recognised in the revaluation reserve are reported in the Profit and Loss account as an item of 'other comprehensive income'.
I n the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
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.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
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 m ethod 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.
Financial assets, other than those held at fair value through profit and loss , are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group 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 group 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 paymen ts 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.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group 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 group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account , except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets .
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease d asset are consumed.
Government grants are recognised at the fair value of the asset receive d or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received. This represents a change in accounting policy. Given the performance requirements have been met in the current year and previous year adjustments would have been immaterial, the effects of the change have been reported in these financial statements. The effect of this change is that £139,073 was released to income from deferred capital grants, previously shown as creditor due wither < 1 year or > 1 year. The change better reflects the use of the grant within the business.
A grant that specifies performance conditions is recognised in income when the performance conditions are met . Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable . A grant received before the recognition criteria are satisfied is recognised as a liability.
In the application of the group’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 following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
This key judgement is in respect of reliably estimating the carrying value of the freehold land and buildings. The fair value of the land and buildings has been determined by Sellers Chartered Surveyors at 1 November 2018, 31 October 2019, and 31 October 2020. The fair value of the land and buildings has been determined by Bruton Knowles LLP at 01 December 2022. All valuations were completed on the basis of fair value to comply with FRS102.
Their independent valuation has been carried out in accordance with Royal Institute of Chartered Surveyors - RICS Valuation - Global Standards (the 'Red Book'), and other relevant RICS guidance notes, by RICS qualified valuers.
A provision for doubtful trade receivables is set up when the likelihood of recovering the debt has diminished. The level of provision will be based on any current repayment plan entered into and which is being adhered to by the debtor, together with an estimate of the likelihood of the amounts due being fully recovered. The directors are satisfied that there is no impairment of trade receivables at the year end.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
Work in progress, is valued at the selling price less a percentage determined by the directors to take into account direct costs and labour.
Tangible fixed assets are depreciated according to their useful lives as estimated by the directors.
The average monthly number of persons (including directors) employed by the group and company during the Period was:
Their aggregate remuneration comprised:
The actual charge/(credit) for the Period can be reconciled to the expected credit for the Period based on the profit or loss and the standard rate of tax as follows:
In addition to the amount charged to the profit and loss account, the following amounts relating to tax have been recognised directly in other comprehensive income:
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
The impairment losses in respect of financial assets are recognised in other gains and losses in the profit and loss account.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
More information on impairment movements in the Period is given in note 11.
The valuation at 01 December 2022 was conducted by Bruton Knowles LLP. Previous valuations at 31 October 2020, 31 October 2019, and 1 November 2016 were conducted by Sellers Chartered Surveyors. Both are independent valuers who hold appropriate qualifications with relevant experience in this field.
The valuation was prepared in accordance with RICS Valuation - Global Standards.
The method used in determining the valuation of freehold land and buildings is the fair value as being: the price that would be received to see an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
The following asse t s are carried at valuation. If the assets were measured using the cost model, the carrying amounts would be as follows:
Details of the company's subsidiaries at 31 March 2022 are as follows:
Included in the above trade debtors figure are balances totalling £2,288,417 (2020 - £1,123,595) that are subject to invoice finance arrangements. The trade debtor balances have been transferred to the counterparty, though the transaction does not qualify for derecognition on the basis that the late payment risk is retained by the company. The associated liability recognised in creditors amounts to £1,919,789 (2020 - £297,924).
Secured debts - Group
The finance leases are secured by a chattels mortgage, dated 01/10/2010, and there is a legal assignment of contract monies, dated 26/03/2014, both with HSBC Asset Finance (UK) Ltd and HSBC Equipment Finance (UK) Ltd.
The invoice discounting account is secured by a fixed charge on non-vesting debts and floating charge, dated 22/09/2009, and a legal mortgage dated 05/04/2016, covering the property known as Hall Green Works, Crankhall Lane, West Bromwich, and other assets, both with HSBC Invoice Finance (UK) Limited.
The bank borrowings are further secured by a debenture with HSBC Bank Plc, dated 24/09/2009, a composite company unlimited multilateral unlimited guarantee with HSBC Plc dated 24/09/2009, a legal assignment of contract monies, with HSBC Bank Plc, dated 10/07/2012 and a chattels mortgage, against certain machinery, with HSBC Equipment Finance (UK) Ltd dated 16/01/2020.
All bank borrowings of the subsidiary company, J.H. Lavender & Company Limited, are secured with a legal mortgage with HSBC Bank Plc, dated 05/07/2012, on the freehold property known as Hall Green Works, Crankhall Lane, West Bromwich and a further legal mortgage with HSBC, dated 23/07/2012, on the freehold property at 128 Hall Green Road, Crankhall Lane, West Bromwich.
J. H. Lavender (Holdings) Limited holds a legal mortgage with HSBC Bank Plc for the land on the east side of Crankhall Lane, dated 03/11/2017, to secure the debt of its subsidiary J.H. Lavender & Company Limited.
A debenture comprising fixed and floating charges over all the assets and undertakings of J. H. Lavender (Holdings) Limited including all present and future and leasehold property, book and other debts, chattels goodwill uncalled capital, both present and future, is held with HSBC Bank Plc dated 18/12/2019.
The CBILS loan is also covered by a guarantee in favour of HSBC UK Bank Plc given by the directors guaranteeing all liabilities, limited to £100,000 in total.
Secured debts - Company
All bank borrowings of the subsidiary company, J.H. Lavender & Company Limited are secured with a legal mortgage with HSBC Bank Plc, dated 05/07/2012, on the freehold property known as Hall Green Works, Crankhall Lane, West Bromwich and a further legal mortgage with HSBC Bank Plc, dated 23/07/2012, on the freehold property at 128 Hall Green Road, Crankhall Lane, West Bromwich.
A legal mortgage with HSBC Invoice Finance (UK) Limited, dated 05/04/2016, covering the property known as Hall Green Works, Crankhall Lane, dated 03/11/2017, to secure the debt of its subsidiary J.H. Lavender & Company Limited.
A debenture comprising fixed and floating charges over all the assets and undertakings of J. H. Lavender (Holdings) Limited holds a legal mortgage with HCBS Bank Plc for the land on the east side of Crankhall Lane, dated 03/11/2017, to secure the debt of its subsidiary J.H. Lavender & Company Limited.
A debenture comprising fixed and floating charges over all the assets and undertakings of J. H. Lavender (Holdings) Limited including all present and future and leasehold property, book and other debts, chattels goodwill uncalled capital, both present and future, is held with HSBC Bank Plc dated 18/12/2019.
Terms - Group
The CBILS loan had an initial repayment free period of 12 months from the date the loan was drawn. It is then repayable by equal instalments over 60 months with an interest rate of 3.99% per annum over the BoE base rate.
The bank loan is repayable within 5 years, and interest is charged on this loan at 2.95% per annum above the BoE base rate.
Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 5 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
Deferred income is included in the financial statements as follows:
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: