The director presents the strategic report for the year ended 31 August 2020.
Dalton Metal Recycling Limited group is a scrap metal merchant operating out of three depots across the central belt of Scotland.
The results for the group show a n operating profit of £1,711,316 (2019 - operating loss of £ 12,232) for the year with turnover of £ 13.4 m (201 9 - £ 14.9 m).
The group 's profitability is heavily dependant on the underlying price and demand for metals. With continued investment in the plant and tight controls on costs and margins, the group has managed to achieve growth in operating profit despite a reduction in turnover in what has been a difficult year, largely as a result of the COVID-19 pandemic. With continued investment in plant and machinery at depots, the directors is confident the group can capitalise once the market recovers.
The director is of the opinion that analysis using KPIs is not necessary for an understanding of the development, performance and position of the business, given the straightforward nature of its operations.
At the year end the group continued to maintain a strong balance sheet with net assets amounting to £4,169,744 (2019 - £2,980,804).
The key business risks affecting the group are as follows:-
Fluctuations in raw material prices
Movements in exchange rates
Brexit
Demand for metal in the UK and worldwide market
The directors have in place a risk management system which aims to manage and reduce the above risks to which the group is exposed.
Following the global outbreak of the Covid-19 virus during the year under review, there has been a significant increase in risk and uncertainty in the economy.
The Covid-19 pandemic and subsequent Government enforced lockdown towards the end of March 2020 presented unprecedented challenges on the economy but our depots were authorised to work throughout both government forced lockdowns though we had a significant plant breakdown at this time.
During this time, the group took advantage of Government support measures where available and managed its working capital and cash flow closely to ensure it maintained sufficient financial resources at all times.
The group is following Government guidance concerning all aspects of the pandemic to ensure best practice precautions are applied and risk to staff is mitigated. The group continues to communicate regularly with its staff, its suppliers, and customers as Government advice develops.
Whilst it is too early to predict the long term impact of Covid-19 on the scrap metal sector, the group continues to build up stock reserves and identify new customers to ensure adequate cash reserves are maintained.
Overall, we believe the group is well placed to meet the unprecedented challenges presented by Covid-19 and we remain positive about the future outlook for the group .
Objectives
Our financial risk management objectives are to ensure there is sufficient working capital and cash flow to meet the operating needs of the group and to ensure there is sufficient support for its growth strategy. This is achieved through careful management of our cash resources and utilisation of finance leases to improve the quality and efficiency of plant. No treasury transactions of derivatives are entered into.
Risks
The group trades with entities based in the UK and sells significant volumes to buyers in the Far East. As a result, the entity is exposed to credit risk and forex risk. The company mitigates this risk by seeking payment in advance of shipping goods where appropriate.
On behalf of the board
The director presents his annual report and financial statements for the year ended 31 August 2020.
The results for the year are set out on page 8.
Ordinary dividends were paid amounting to £168,554. The director does not recommend payment of a further dividend.
The director who held office during the year and up to the date of signature of the financial statements was as follows:
The auditor, Azets Audit Services, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of Dalton Metal Recycling Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 August 2020 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 a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 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 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.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the director's use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the director has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue .
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 director is responsible for the other information. 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.
In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. 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 director's 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 director's 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 its environment obtained in the course of the audit, we have not identifie d material misstatements in the strategic report and the director's r eport .
We have nothing to report in respect of the following matters where 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 director's r esponsibilities s tatement, the director is 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 director determines 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 director is 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 director either intends to liquidate the company or to cease operations, or has 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 for the audit of the financial statements is located 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.
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 £151,758 (2019 - £205,594 profit).
Dalton Metal Recycling Limited (“the company”) is a private limited company domiciled and incorporated in Scotland. The registered office is Dalton House, 15 Youngs Road, East Mains Industrial Estate, Broxburn, Near Edinburgh, United Kingdom, EH52 5LY.
The group consists of Dalton Metal Recycling Limited and its subsidiary.
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 investment properties at fair value. The principal accounting policies adopted are set out below.
The consolidated financial statements incorporate those of Dalton Metal Recycling Limited and its subsidia ry (ie the entit y that the g roup controls through its power to govern the financial and operating policies so as to obtain economic benefits).
All financial statements are made up to 31 August 2020 .
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.
The director is required to prepare the statutory financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. In satisfaction of this responsibility the director ha s considered the group 's ability to meet its liabilities as they fall due.
The group meets its day to day working capital requirements utilising cash reserves and finance leases. Management information tools including budgets and cash flow forecasts are used to monitor and manage current and future liquidity.
Despite the ongoing impact of COVID-19, the group has posted strong results in the year under review. The group's profitability is heavily dependant on the underlying price and demand for metals. With continued investment in the plant and tight controls on costs and margins, the company has managed to achieve growth in operating profit despite a reduction in turnover in what has been a difficult year. With continued investment in plant and machinery at depots, the director is confident the group can capitalise once the market recovers. The director acknowledges this could change suddenly depending on how the situation evolves but is confident in the group's ability to react and adapt to future events.
The director is confident that the existing funding facilities and cash reserves will provide sufficient headroom to meet the forecast cash requirements having considered any additional requirements arising in relation to the COVID-19 pandemic,
As such, the director consider s that it is appropriate to prepare the financial statements on the going concern basis.
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.
Income from insurance claims is recognised when it is virtually certain that the entity will received such reimbursement. Where the recovery is virtually certain, management make a prudent estimate of the amount recoverable. These amounts are included within other operating income and other debtors.
Assets in the course of construction are stated at cost. These assets are not depreciated until they are available for use.
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 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 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.
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 director is 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 estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
Stock is carried at the lower of cost and net realisable value. Calculation of the net realisable value requires management to use estimates regarding future selling prices and other projections which includes a degree of uncertainty.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected charge/(credit) for the year based on the profit or loss and the standard rate of tax as follows:
Investment property was valued on an open market basis on 31 August 2020 by the directors.
Details of the company's subsidiaries at 31 August 2020 are as follows:
Bank borrowings are secured by a bond and floating charge over the assets of the group and standard security over the investment property held by the parent company.
The loans are repayable by regular monthly instalments with final balloon payments due in October and December 2023. Interest is accruing on the two loans at 4.13% and 2.75% over base rate respectively.
Obligations under finance leases represent rentals payable by the group under hire purchase and lease asset purchase agreements for certain items of plant and machinery and motor vehicles. The average remaining lease term is 7 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
Lease asset purchase agreements and hire purchase contracts are secured over the assets to which they relate.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
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.
The company has one class of share capital. There are no restrictions on the distribution of dividends or repayment of capital.
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:
The company has taken advantage of exemption, under the terms of Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', not to disclose related party transactions with wholly owned subsidiaries within the group.
During the year the Company entered into the following transactions with related parties:
Stephen G Dalton & Son
A partnership in which Mr S G Dalton Jnr is a partner.
During the year Stephen G Dalton & Son Partnership was invoiced for scrap sales totalling £428,860 (2019 - £77,873).
Rent was charged by the Partnership during the year of £124,000 (2019 - £124,000)
At the balance sheet date, the group was due £99,318 from the Partnership (2019 - £89,028).
Dalton Developments Limited
A company in which Mr S G Dalton Jnr is a director and shareholder.
At the balance sheet date, the group was due £266,425 to Dalton Developments Limited (2019 - £266,425).
DMR Exports Limited
A company in liquidation which Mr S G Dalton Jnr is a director and shareholder.
During the year DMR Exports Limited was invoiced for scrap sales totalling £284,076.
Dividends totalling £168,554 (2019 - £193,493) were paid in the year in respect of shares held by the company's directors.