The directors present the strategic report for the 6 month period ended 31 December 2021.
The company is a wholly owned subsidiary of Danfoss Scotland Ltd, and is ultimately controlled by Danfoss A/S, a company registered in Denmark. For the period ended 31 December 2021, the company's principal activity was to hold intellectual property for Digital Displacement®, a new technology revolutionising the hydraulics industry with greater efficiency and improved productivity.
As shown in the company's statement of income and retained earnings, the company's turnover for the period was £nil (June 2021 - £2,661k). The loss before taxation was £160k (June 2021 - £390k). As shown in the company's balance sheet, the company's net assets at 31 December 2021 were £3,452k (June 2021 - £3,612k).
In 2022, we intend to continue managing our intellectual property portfolio, and to earn royalties by licensing it to the Danfoss group to sell products based on Digital Displacement® technology.
Risk management
The Danfoss Group’s central finance department is responsible for the overall monitoring and control of financial and operational risk management. Strategic/operational risk covers the following areas; supplier management, contract management, company acquisition and integration and illegal copying of Danfoss products. Financial risk covers the following areas; currency exposure, interest rate risk, liquidity risk, credit risk, other hedging and pension obligations risk.
The company’s activities expose it to various types of risk in the normal course of business. The following is not intended as a comprehensive summary of all risks.
Foreign currency risk
The company is exposed to foreign currency risk on its transactions that are denominated in currencies other than Great British Pounds. It is therefore exposed to the movement in exchange rates.
Interest rate and credit risk
Interest rate risk is negligible as the company does not maintain any external debt. Exposure takes the form of customers who may not meet their obligation to agreed terms; the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.
Liquidity and cash flow risk
As at 31 December 2021 the company had no cash resources (June 2021 - £nil) as it uses the Danfoss Group cash pool facility for its operational expenses.
Going concern disclosure
The company will continue to be dependent on funding from its ultimate parent company, Danfoss A/S, for a period of at least 12 months from the date of signing these financial statements. The ultimate parent company has confirmed that it is aware of the Company’s present financial situation, that it has full confidence in the management of the company, that its current policy is to support the Company commercially and financially, and has placed an intercompany credit facility of a maximum amount of £1m at disposal of the Company.
The policy is not legally binding and the credit facility is uncommitted, and the Directors have therefore concluded this results in a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.
Although the ultimate parent company’s support is not legally binding, the directors and management team have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future, and continue to adopt the going concern basis in preparing the annual report and financial statements.
Financial Key Performance Indicators
The company’s key financial performance indicators are set by the Group to assess performance, including turnover and operating profit. In the period under review, turnover decrease to £nil because the company transitioned from being a trader to an intellectual property holding business. Operating losses on continuing activities decreased by £168k.
The success of our business is dependent on the support of all stakeholders. Building positive relationships with stakeholders that share our values is very important to us and working together towards shared goals helps us to deliver sustainable success.
Danfoss comprises a number of business units, all of which have extensive engagement with their unique stakeholders as well as other businesses in the Danfoss Group. The Group’s governance framework delegates authority for local decision making to local Country Leaders Teams up to certain defined levels. This allows individual businesses and Country Leadership teams to take account of the need of their own stakeholders during the decision making process.
Through continued dialogue with key stakeholders, the individual businesses have been able to develop a clear understanding of their stakeholder needs, assess their views and monitor their impact on our strategic ambition and culture. During the business’ decision-making process, the impact of decisions on relevant stakeholders are considered. Other broader factors are also considered whilst making decisions, these include the impact of the Company’s operations on the community and environment, responsible business practices and the likely consequences of decisions in the long term.
The leadership teams of each business unit and the Country Leadership team make decisions with a long term view and with the highest standards of conduct in line with Group policies. In order to fulfil their duties, the Directors of each business and the Danfoss Group itself take care to be mindful of the consequences on all stakeholders of the decision and actions which they make. Where possible, decisions are discussed with affected groups.
Presentations are regularly made to the Group Board by the business units about the strategy, performance and key decisions taken. The feedback allows the Group Board to evaluate that proper consideration is given to stakeholders. Group is also informed on the views of stakeholders through regular feedback, reporting and analysis. This feedback is used to inform the Group’s decisions and how they are determined.
The Group’s key stakeholders are as follows:
Shareholders
The shareholders are closely involved in the decision making process of the Group. Discussion with shareholders cover all aspects of the business activities of the Group and include financial performance, strategy, outlook, governance and ethical practices.
Employees
There are many forums through which the Group's management engages with employees. These include surveys, face to face briefings, town hall meetings, intranet updates and newsletters. Employees are regularly asked to complete anonymous surveys so the Group can get unbiased feedback from employees. Key areas of focus include well being and health, opportunities, pay and benefits.
Customers
We strive to ensure that Danfoss is as easy as possible to deal with and therefore try to ensure that we constantly get feedback on our performance from customers and through this build strong relationships. We regularly perform customer surveys and seek feedback through customer meetings at every level. We use this knowledge to inform our decision making on the services and products we provide, and to ensure they remain in line with our customers’ requirements.
Suppliers
We aim to build strong partnerships with our suppliers in order to ensure mutually benefit relationships. We regularly seek feedback from our suppliers through various interactions which are aimed at strengthening our relationships. The Group’s management realises that strong relationships with suppliers are essential to Danfoss’ success and the Group’s management are focused on developing theses relationships and are therefore briefed regularly on this area.
Communities
Local management seek to engage with the local communities in which we operate to ensure that they understand the local issues. An example of this is that a local charity committee has been set up in order to raise money for local causes. The impact of Danfoss activities on a local and national level is considered by the Local Leadership teams.
Government and regulators
Danfoss engage with the government and regulators through a number of Associations, for example BEAMA, and through meetings. Key areas of focus are compliance with laws and regulations, health and safety and product safety. The Country Leadership team is updated on legal and regulatory developments, and these are taken in to accounts when future actions are considered.
On behalf of the board
The directors present their annual report and financial statements for the 6 month period ended 31 December 2021.
The results for the period are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the period and up to the date of signature of the financial statements were as follows:
The auditor, Harwood Hutton Limited, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
The Danfoss group, of which Artemis Intelligent Power Limited is a member, is a globally leading technology partner in energy efficiency and sustainable solutions. The group has proven and reliable solutions to meet many of the climate, urbanisation and food challenges faced globally. It also strives to improve the sustainability of its internal operations, as well as bringing innovative greener solutions to market.
The Danfoss group provides group level reporting on sustainability initiatives and strategy withing the Our Business section of its 2021 Annual Report. The annual report can be downloaded from www.danfoss.com .
The directors have reviewed the required energy and carbon reporting for the period ended 31 December 2021 and have concluded that its inclusion in this report is impractical. The directors are committed to improving collation of this data at the UK level so that barriers to reporting are removed in future periods.
Basis for opinion
Material uncertainty related to going concern
We draw attention to note 1.3 in the financial statements which indicates that the company will continue to be dependent upon funding from its ultimate parent company for at least 12 months from the signing date of the financial statements. Whilst the ultimate parent company has confirmed that it will support the company commercially and financially with a maximum credit facility of £1m, the policy is not legally binding. These events or conditions indicate that a material uncertainty exists which may cast significant doubt on the company'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
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.
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 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 are to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements .
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below .
We assessed the susceptibility of the company's financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquiries of management as to where they considered there was a susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; and
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations.
At a group level, a clear and robust internal control expectation is set and applied across all subsidiary companies. These controls include consistent transaction processes, regular and timely reconciliations, and effective segregation of controls and authorisation procedures. The company also adopted Danfoss group rules for internal audit. The strong internal control environment indicated that the susceptibility of the financial statements to material misstatement as a result of fraud or error was reduced.
The directors reported that they had no knowledge of actual, suspected or alleged fraud in the year, but as auditors we remain vigilant for any indicators of fraud nonetheless.
The potential for misappropriation of assets such as cash were considered, but were assessed to be low risk by us given the controls and mechanisms surrounding these assets.
The engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations.
We identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience of the 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 and data protection, anti-bribery, employment and health and safety legislation and quality assurance regulations.
We did not identify any laws and regulations as being significant in the context of the entity directly, apart from those laws and regulations usually applicable to a company operating within the United Kingdom.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
reviewing minutes of appropriate meetings of those charged with governance; and
enquiring with management as to actual and potential litigation claims.
We obtained an understanding how the entity is complying with the relevant legal and regulatory framework by making enquiries with management, reviewing appropriate legally required reporting and reviewing legal and professional fee invoices.
To address the risk of fraud through management override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries for appropriateness and to identify unusual transactions; and
investigated the rationale behind significant or unusual transactions.
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 member 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 member those matters we are required to state to the member 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 member, for our audit work, for this report, or for the opinions we have formed.
Artemis Intelligent Power Limited is a private company limited by shares incorporated in Scotland . The registered office is 27 Lauriston Street, Edinburgh, Scotland, EH3 9DQ. The principal place of business is Unit 3, Edgefield Industrial Estate, Loanhead, Scotland, EH20 9TB.
The reporting period has been shortened to the 6 months from 1 July 2021 to 31 December 2021 in order to align with the immediate parent company. The comparative amounts and related notes are therefore not entirely comparable.
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 £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements , including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group . T he company has therefore taken advantage of e xemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues : Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument
Section 26 ‘Share based Payment’ : Share based payment arrangements required under FRS 102 paragraphs 26.18(b), 26.19 to 26.21 and 26.23;
Section 33 ‘Related Party Disclosures’ : Compensation for key management personnel .
The financial statements of the company are consolidated in the financial statements of Danfoss A/S . These consolidated financial statements are available from its registered office, 6430 Nordborg, Denmark.
The Company’s business activities and factors likely to affect its future development and financial position are set out in the strategic report.
As part of the Directors’ going concern review the 2022 year to date financial performance of the Company has been analysed. In addition, the financial position and performance of the Danfoss Group has also been reviewed in light of the Covid-19 pandemic and the impact that it has had to date on the Company.
The company will continue to be dependent on funding from its ultimate parent company, Danfoss A/S, for a period of at least 12 months from the date of signing these financial statements. The ultimate parent company has confirmed that it is aware of the Company's present financial situation, that it has full confidence in the management of the company, that its current policy is to support the Company commercially and financially, and has placed an intercompany credit facility of a maximum amount of £1m at disposal on the Company’s bank account. The policy is not legally binding and the credit facility is uncommitted, and the Directors have therefore concluded this results in a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.
Although the ultimate parent company’s support is not legally binding, the directors and management team have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future, and continue to adopt the going concern basis in preparing the annual report and financial statements.
The useful lives of individual intangible assets vary and have been reviewed; management consider these bases to be prudent.
Short term debtors are measured at transaction price less any provision for impairment. Loans receivable are measured initially at fair value, net of transaction costs and are subsequently carried at amortised costs using the effective interest method, less any provision for impairment.
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.
Short term creditors are measured at transaction price. Other financial liabilities, including bank loans and other loans, are measured initially at fair value, net of transaction costs and are subsequently carried at amortised costs using the effective interest method.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
In the directors' opinion, there are no key judgements or key sources of estimation uncertainty applied to these financial statements.
There are no audit fees to disclose in the current period as the entity is a subsidiary where audit fees are paid by the group and not recharged.
The average monthly number of persons (including directors) employed by the company during the period was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 0 (June 2021 - 5).
The actual charge 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:
Unrelieved research and development expenditure credits totalling £355,112 (June 2021 - £355,112) have not been recognised due to insufficient evidence as to its recoverability in the near future. This asset would be recoverable against future trading profits of the company. There is no expiry date on these unused tax credits.
As detailed in the Strategic Report, the trade and assets of the company were transferred in February 2021 in the prior period into the immediate parent company, Danfoss Scotland Limited. Following this transfer, the entity now holds intellectual property related to its patented technology. As a result, all operations have been considered discontinued unless they were directly attributable to the intellectual property maintenance.
Government grants were receivable from Innovate UK for the research and development work related to high efficiency digital hydraulic motors for renewable power and off-road vehicles; and from The Rail Safety and Standards Board for the application of Digital Displacement® to high efficiency auxiliary drives for the rail industry.
There are no unfulfilled conditions or contingencies attached to these grants. Included in the profit and loss is grant income of £nil (June 2021 - £1,459,681).
Government grants were also receivable in respect of the Coronavirus Job Retention Scheme. There are no unfulfilled conditions or contingencies attached to these grants. Included in the profit and loss is grant income of £nil (June 2021 - £131,101).
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Following the hive up of trade and assets to the company's immediate parent, Danfoss Scotland Limited, the directors sought the consent of the landlord to assign the company's leased facility . This was accepted by the landlord but the lease was not formally novated.
The company has not disclosed transactions with its parent company, or with members of the same group that are wholly owned, from the point that it became a wholly owned subsidiary.
Danfoss Scotland Ltd is the immediate parent company by virtue of owning 100% of the company's issued share capital.
The ultimate controlling party is Danfoss A/S, which is registered in Denmark. The financial statements of the company are consolidated in the financial statements of the ultimate controlling party. These consolidated financial statements are available from its registered office: 6430 Nordborg, Denmark.