The directors present the strategic report for the year ended 31 December 2021.
In 2022, India announced that it would begin enforcing its own SUP bans of plastic straws for both normal straws and U-Bend straws. Transcend estimates that the Indian market represents an Industrial Straw® market equivalent in size to Europe and a larger market for normal straws. The trend of replacement of plastic straws with paper is continuing and presents global opportunities for well situated players.
Folding Cartons and Cups
The Folding Carton and Cups segment saw declining revenues from 2020 to 2021 of 1 5 % this was largely due to the decline of revenues from PPE which was sold during the pandemic. In 2020, faced with uncertainty about the future of restaurant openings, the management team of Transcend conducted a review of its asset base to see what products we could manufacture with our technology that would i) provide continuity of manufacturing so that our employees could maintain their skills, ii) a revenue base to offset declines in our other business and iii) assist the country in dealing with the pandemic. Our team developed a disposable face visor in 2 weeks which was then CE marked for use within another 3 weeks’ time. By May 2020, we had repurposed our folding carton machinery to manufacture disposable visors for customers. Life Science Hub Wales was a great help in assisting us with the certification processes and introducing us to a new customer base. By May 2020 we were able to return our sales levels to pre-pandemic levels through PPE sales.
While the significant revenues from the face visors was crucial to our performance in 2020, this was a one-time revenue opportunity which was exhausted in 2020. Transcend managed to replace the bulk of this one-time revenue with another temporary product line of cup carriers. Due to the significant increase in drive-thru and take away volumes in 2021, there was a Europe wide shortage of moulded fibre cup carriers which come in 2 and 4 cup formats. We were requested by a large customer to make these products in folding carton board and we sold over 80 million units in late 2020 and through September 2021.
In late 2021 our customer was able to secure sufficient supplies of moulded fibre cup carriers and discontinued the product. Looking forward, the Folding Carton and Cup segment will be increasingly driven by the production of paper cups. Transcend is focused on launching PE free paper cups which will provide a more sustainable alternative for customers moving forward. Belgium has banned the use of PE lined cups from September 2022 and we expect many other countries will follow suit once alternatives become more readily available. This transition from PE lined cups to PE Free cups will take years as there are significant material and manufacturing challenges.
2021 OPERATING PERFORMANCE
In 2021 the Company’s operating losses increased from 2020 largely due to the launch of the Industrial Straw® product. The manufacturing technology for the product was completely new machines that were purpose built for the product. The product is complicated to manufacture and must be done to tight tolerances. This required a significant ramp up in staff for both manufacture and the quality control process. This led to a significant decrease in gross margin from 26.4% in 2020 to 17.4% in 2021. Margins were significantly impacted in the second half of 2021 by rising paper costs. Between June and December, paper prices increase d by 50% across the majority of grades that the Company uses. Although the Company has price adjustment mechanisms in substantially all of its contracts, there is a delay of between 6 and 12 months for those clauses to take effect. In 2022, the Company has experience d improving margins as the Industrial Straw® product launch is behind us and the price adjustment mechanisms have been implemented.
In addition to the increase in labour and machinery costs associated with the Industrial Straw® launch, Transcend made significant investments in research and development, sales force and managerial staff in anticipation of the significant growth ahead.
The Company is expecting very rapid growth for the next 5-7 years which will require significant investment in additional machinery and operational staff to successfully execute. The Company believes that 2021 will represent the peak of operational losses as 2022 performance has improved significantly.
The packaging market is experiencing the greatest amount of change that has been seen in our lifetimes. This is being driven by a myriad of factors including changing consumer preferences, regulation and innovation.
As it relates to consumer preferences, the pandemic has acted as an accelerant for trends that had already been developing. With people confined to their homes – delivery became the biggest winner. Whether this was e-commerce seeing unprecedented demand or restaurants and businesses forced to very quickly develop an online or delivery model in record time to survive. We have seen initial indications from places where restrictions have lifted that these changes are persistent and represent a lasting change in behavior. As the millennial generation and their successors gen-Z age and become the majority of consumer spending, we are seeing other significant changes in preferences. This base of consumers, by in large, shares the values that Transcend has which is to see an improved stewardship of our environment. There is a broad recognition that we need to reduce our carbon footprint and our waste footprint. This is reflected in increasing preferences for electric cars, renewable energy and less and better packaging.
The regulatory landscape is changing as fast or faster than consumer preferences. The announcement of the UK SUP ban in May 2019 was a watershed event for Transcend, banning outright several categories of everyday products including plastic straws and plastic cutlery. In the case of plastic straws, there was a ready alternative in paper straws, however, there is still no good alternative to plastic cutlery. The UK legislation was only the beginning. In June 2019 the EU followed suit announcing the EU SUP directive which had much in common with the UK SUP legislation, but had further reaching consequences. The UK SUP legislation passed in March 2020 and went into effect in July 2020 with some elements phased in through July 2021. The EU SUP directive required each individual country to create legislation consistent with the directive with implementation required by 3 rd July 2021. Many of the EU member states have implemented far tougher regulation than contemplated by the EU SUP directive. For example, the French implementing legislation has required banned single use packaging for in-store dining from 2025 and a complete elimination of single use plastic by 2040. From 2025, patrons of QSR outlets in France will need to use reusable plates, cutlery and cups when they dine in store. This will require a massive change in the way our customers operate, forcing them to adopt new products and a complete process to collect, clean and sanitize the re-useable products. As mentioned above, Belgium went further adding PE lined paper cups (which represent over 95% of all paper cups) to the list of banned products by 2022.
The full implementation of the various SUP legislation together represent a sea change in the industry, however there are now several passed and contemplated legislations in addition. In July 2020 as part of the Covid recovery fund, the EU Commission passed the EU Packaging Levy which is commonly called the plastic tax. The plastic tax is expected to raise between €6 and €8 billion per year from EU member countries. Each EU member country will decide how the tax is implemented, but it is based on each country’s plastic consumption at a rate of €800 per tonne on a product that generally sells for about €1,600-2,000 per tonne depending on the type and grade. The UK has followed suit and announced a new plastic packaging tax in its Finance Bill 2021. We do not intend this to be a comprehensive list of legislative action, but rather to give the reader a flavour of the regulatory environment we are operating in.
Finally, as a result of the changes in consumer behaviour and the regulatory environment, we are beginning to see significant innovation in packaging. The roughly 60-year period from 1960 to 2020 could be described as the rise of plastic. Plastic due to many of its impressive qualities became pervasive and ever present in our lives. From the toothpaste container in the morning, to your plastic coffee mug, to a plastic window patch in your sandwich pack at lunch, to opening a package of plastic flow wrapped vegetables to cook dinner and ending the day with a final squeeze of that plastic tooth paste tube you are in nearly constant contact with plastic.
While in many ways plastic is a miracle material, the world is beginning to realize that it has some significant problems as it relates to its end of life. Generally speaking it is difficult to impossible to recycle, it is principally made from unrenewable petrochemicals, it takes centuries to biodegrade in the environment, and when it degrades, particularly in a marine environment, it creates microplastics that are eaten by fish and ultimately us. We believe that these drawbacks have become more and more apparent which has resulted in a groundswell of sentiment against plastic which has resulted in the increasingly punitive regulatory environment for plastic.
Fortunately for all of us, solutions to these problems are starting to appear. The pace of innovation in packaging is gathering speed. At Transcend we believe that fibre based solutions will play an important part of the solution to reducing plastic consumption. However, for fibre based solutions to replace plastic we will need significant innovation in materials to provide both moisture and oxygen barriers. For example a paper cup without a polyethylene liner becomes useless in minutes. We are actively working with paper mills, coating companies and converters to develop new solutions that will allow for paper cups that will be easily recyclable and home compostable. Replacing plastic in both short and long shelf life products, will require creative solutions and breakthroughs in materials.
Beyond materials, we are seeing new packaging forms that reflect the changing nature of the QSR and restaurant market as deliver and take-away become an increasingly large share of the business. Maintaining the quality of food as it leaves the kitchen so that the customer has a positive experience with the brand has never been more important. As well as providing better tamper proofing so that the customer has high confidence in the received product.
This is a time of unprecedented change in the packaging market. This is creating enormous opportunities for companies like Transcend who view innovation, disruption and sustainability as core to their mission. However, we must remain vigilant. Our government affairs team is constantly in contact with members of local and national government, trade bodies and the media to keep abreast of this changing marketplace. For a relatively small player, this is a challenge, but one that is extremely important to maintain our edge on innovation and make sure that we are allocating our finite resources to the right market segments.
LIQUIDITY AND FINANCE
As part of the investment in Roda Packaging, the Company initiated a Convertible Loan programme with IW Capital in March of 2021 and that programme was continued into 2022. As of the date of this letter, the Company has raised £7.6 million under this programme.
As will be further discussed in the Outlook below, the Company will now be significantly expanding its operations including geographic and product line expansion. In order to finance this growth, the Company is launching its Series C fundraise in September 2022 with a target of raising at least £30 million. This will be step change in the Company’s liquidity and flexibility to grow.
CIRCULARITY AND IMPACT
Sustainability must be at the core of all the products we produce. We are focused on continued innovation to make sure that we are able to achieve the best end-of-life disposal options for our customers be that recyclable or compostable. We are working with industry groups, legislators, environmental groups and governments to advise on-end-of-life of these types of products and how to make this clearer for the customer.
As part of our measurement of our internal management and accountability, in 2022 the Company participated in an environmental, social and governance (“ESG”) audit. The audit was principally a gaps analysis which has provided a framework to better understand where we are succeeding and highlight areas for improvement. The Company is formulating a plan to tackle the various gaps identified and ensure that the Company is striving to attain the highest levels of corporate and social accountability.
We believe that there is an enormous opportunity for packaging to be a force for good by developing products that are truly circular where we can use fiber from agricultural waste to replace items currently made using plastic such as coffee cup lids, bowls and yoghurt pots. At the end of life these products can be easily recycled or composted. If composted, the compost can be returned to local farms improving soil health and growing the next crop of food. The United Nations Food and Agriculture Organization has estimated that there may be as little as 60 years left of topsoil if current rates of degradation continue. We believe that fully compostable food packaging made from agricultural waste can be an important part of the solution to improving our soil health.
In 2021, we implemented a number of environmental goals including continued deployment of LED lighting throughout the factory, implementing a shallow geothermal heating and cooling system at Roda, and launching a salary sacrifice programme for electric vehicles open to all employees. We will address and identify opportunities to reduce our carbon footprint such as combined heat and power and photovoltaic energy production where possible with the ultimate aim of carbon neutrality before 2030 with all products we manufacture 100% compostable and recyclable.
AWARDS AND HONOURS
Winner - Firm of the Year – Newcomer - Packaging Excellence awards. Firms of the Year are selected based on their track record in the market, specifically the projects they have worked on that support advancements in packaging technology, innovation and sustainability. Sustainability is a major focus area of the wider industry and major brand customers. This award recognises achievement and innovation in bringing game-changing innovations to market.
Runner Up - Mediwales - Covid Response Award – Transcend was recognised for outstanding achievements relating to the national effort to combat Covid 19. Throughout the pandemic, Transcend converted some of its production lines with assistance from Life Sciences Hub Wales to allow the company to supply over 15 million protective face shields to the NHS and UK Department of Health and Social Care.
Finalist - ‘Scale Up Team of the Year Award’ - UK Business Angels Association . The award recognises the most active and dynamic entrepreneurial team who, through strong leadership and teamwork, have achieved fast growth and scale of their highly innovative business.
SUMMARY AND OUTLOOK
2021 continued to be a challenging year starting with lockdowns and ending with the beginnings of a supply chain crisis which intensified in 2022. While it was a difficult year the Company achieved many milestones and successfully onboarded many new customers.
We are operating in rapidly changing marketplace with many opportunities and many pitfalls. As we look ahead to 2022 we are focused on a few key objectives:
Conclusion of the Industrial Straw® Implementation . The product launched at scale in 2021, however the manufacturing optimi s ation and productivity targets are our target for 2022. By achieving the operational targets set out from the product launch, the Company will achieve good margins and return on investment from the project.
Manufacturing technology improvement . We have identified several technologies that can be upgraded and retrofitted to provide improved productivity and lower costs. Transcend is targeting specific products where we believe that we can significantly increase production levels with similar or slightly lower headcounts.
Continued Innovation . As we have noted, we are surrounded by change, challenges and opportunities. We cannot, must not, stop innovating. As an organi s ation, Transcend will continue to invest time, energy and resources in research and development for new product categories. This will have a negative impact on our near term financials, but will open entire new product categories that we do not currently produce.
We may no longer be a start-up, however we are still a very young Company with a huge mission. We are honored to have such a world class customer base. We hope that we are able to continue to meet their needs and develop new products to help them transition to a more sustainable future. Our committed and professional workforce is a source of pride and we hope to continue to provide opportunities to acquire new skills, grow and develop. This journey takes the commitment and dedication of the entire team. We appreciate the continued support of our shareholders.
We will continue to work tirelessly to provide financial returns to our shareholders, a meaningful environment for our employees, innovative, sustainable products to our customers and hopefully do our part to help improve our responsibility to provide better stewardship of our planet so that future generations will enjoy a thriving planet.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2021.
The results for the year are set out on page 12.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
In accordance with the company's articles, a resolution proposing that Azets Audit Services be reappointed as auditor of the group will be put at a General Meeting.
We have audited the financial statements of Transcend Packaging Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2021 which comprise 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 in relation to going concern
We draw attention to note 1. 4 in the financial statements, which indicates that the group has incurred a net loss of £ 7,212,002 during the year ended 31 December 202 1 and, as of that date, the group and company's current liabilities exceeded its current assets by £ 2,809,548 and £2,585,911 respectively . The directors have raised additional funds subsequent to 31 December 2021 and have identified that they will need to raise further additional funds to enable the company to continue as a going concern. Whilst the likely sources of these further funds have been identified the availability of these funds is not committed. Th is along with other matters as set out in note 1. 4 , indicate that a material uncertainty exists that may cast doubt on the group and company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
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 year for which the financial statements are prepared is consistent with the financial statements ; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the 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 .
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.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.
We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework. Based on this understanding, we identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.
In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:
Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud;
Reviewing minutes of meetings of those charged with governance;
Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the entity through enquiry and inspection;
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;
Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
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.
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 loss for the year was £6,658,362 (2020 - £2,871,650 loss).
Transcend Packaging Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales . The registered office is .
The group consists of Transcend Packaging Limited and all of its subsidiaries.
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 and to include investment properties and certain financial instruments 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 Transcend Packaging 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 December 2021 . 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.
Entities in which the group holds an interest and which are jointly controlled by the group and one or more other venturers under a contractual arrangement are treated as joint ventures. Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the group exercises a significant influence, are treated as associates.
Investments in joint ventures and associates are carried in the group balance sheet at cost plus post-acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.
If the group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further losses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the group’s interest in the entity.
The financial statements have been prepared on the going concern basis which assumes the group and company will have sufficient funds to discharge its obligations as and when they become p ayable, for a period of at least 12 months from the date the financial statement are a uthorised for issue.
As at 31 December 202 1 the group and company has net current liabilities of £2,809,548 and £2,585,911respectively, and the group has recorded a loss for the period of £7,212,002.
To address the necessary funding requirement during the year, the directors have ra i sed finance through the issue of ordinary shares and convertible loans which they have continued to do subsequent to 31 December 2021. They have also undertaken a programme to monitor the group ’s ongoing working capital and development requirements closely through the year.
In making their assessment of Going Conce r n, the Directors have prepared a cash flow forecast for the next 12 months which indicates a continued requirement to raise additional funds to enable the company to continue as a going concern , whilst the directors have identified the likely source of the additional funds, these additional funds are not committed. .
The Directors are confident that sufficient additional funding will be obtained, o n this basis, the Directors consider it appropriate to prepare the financial statements on the going concern basis.
In the event that the group was not able to successfully complete the fundraising referred to above, significant uncertainty would exist as to whether the group and company will continue to operate.This indicates that a material uncertainty exists that may cast doubt on the group and company's ability to continue as a going concern.
The financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the group and company not continue as a 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.
When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.
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.
Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated .
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 .
Equity in vest ments are measured at fair value through profit or loss , except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably , which are recognised at cost less impairment until a reliable measure of fair value becomes available.
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.
An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.
Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the g roup’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.
Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.
In the parent c ompany financial statements, investments in associates are accounted for at cost less impairment.
Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities .
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.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets, 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.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value th r ough profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
The component parts of compound instruments issued by the group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity net of income tax effects and is not subsequently remeasured.
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.
Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight line basis over the lease term.
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.
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.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
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 average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual (credit)/charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Details of the company's subsidiaries at 31 December 2021 are as follows:
Details of associates at 31 December 2021 are as follows:
On the 1st of October 2021 the group acquired the business of Roda Packaging Limited. The investment is accounted for using the equity method.
The company has entered into a contract that provides invoice discounting facilities in respect of its trade debts. An amount of £1,555,535 (2020: £1,154,511) is included in other creditors in respect of such balances. The balance is secured by means of a fixed charge over the assets of the company.
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 7 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The net proceeds received from the issue of the convertible loan notes have been split between the financial liability element and an equity component, representing the fair value of the embedded option to convert the financial liability into equity.
The liability component is measured at amortised cost, and the difference between the carrying amount of the liability at the date of issue and the amount reported in the Balance Sheet represents the effective interest rate less interest paid to that date.
The effective rate of interest is 6%.
The equity component of the convertible loan notes has been credited to the equity reserve.
Deferred income is included in the financial statements as follows:
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:
Amounts contracted for but not provided in the financial statements:
During the year the group entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date: