Company registration number:
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COMPANY INFORMATION
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CONTENTS
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STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
The Company has again made significant progress with substantial increases in sales, EBITDA (profit before interest, tax, depreciation and amortisation) and cash generation. The Company sales revenue track record of sustained growth continued with this financial year recording an increase of +12.6% to £14.5m. The revenue mix for the year reflects the continued push into the IT managed services, Complex Networking and Cyber Security markets, with growth supported by expansion into more complex Collaboration solutions in addition to existing and long standing Collaboraiton offerings.
With a continued focus on recurring revenue acceleration, the Company has delivered above target recurring revenue levels of 89.0%. This has been achieved in addition to adding more highly technical consultative capability and professional service offerings into the solution portfolio. Gross profit margins remained stable at 50.7% (2021: 49.9%) as existing contracts were renewed and extended, tracking general industry trends. The overhead structure continues to benefit from synergies from previous acquisitions. Integration intensity has been exceptionally high in the year as the complex mix of solutions offerings is bedded into a unified organisation with common operational applications and purpose. The Company has invested heavily in new customer experience, sales and marketing and employee experience platforms in the year, all aimed at creating an enhanced end user and employee experience, whilst developing the internal platforms for scalability. The Company acheived EBITDA of £4.4m.
The "Arrow Group", to which the Company is a part of, is well funded and resourced to continue its growth strategy. The Directors have reviewed detailed business forecasts and scenarios, including for cash flow and borrowing facility headroom for the forthcoming years and have concluded there are no material going concern risks. This review included a worst case forecast and the directors are confident that the business will continue to trade profitably and generate sufficient cash to cover all eventualities.
The key business risks and uncertainties affecting the Company have the potential to be impacted in the longer-term by trends in other markets and the wider economic environment. In order to mitigate the risk of a downturn in one market having a significant impact on the Company, management try to ensure that all of the trading activities in the Company have market diversification where possible. The Company’s customer base is highly diversified across a wide range of sectors, both private and public. Whilst the customer base is predominantly located in the UK an element of the supply chain is globally located and therefore presents procurement risks for timeliness of delivery. Such risks are proactively managed and minimized where at all possible.
Pricing continues to be a risk to the Company, both in terms of regulatory changes and competition. This risk is mitigated by offering new services that offer additional value and by cress selling products supplied via the various acquisitions. The growth strategies provide greater scale and therefore buying economy opportunities
The Company’s main key performance indicator is earnings before interest, tax, depreciation, and amortisation (EBITDA). The Company achieved an EBITDA of £4.4m.
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STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
The principal financial instruments of the Company comprise of bank balances, trade debtors and trade creditors.
Working capital requirements are met principally out of trade debtors and trade creditors which arise directly from the Company’s normal operations. The Company’s banking facilities are utilised to fund acquisitions and will be repaid out of operating cash flow. The Company’s finance facilities are held in sterling and the Company does not enter any hedging arrangements. Trade debtors are managed in respect of credit and there is a policy to minimise any risk by assessing new customer’s credit risk and monitoring existing customer’s creditworthiness. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Trade creditors liquidity risk is managed by ensuring sufficient funds are available to meet amounts due. Cash flow is closely monitored as part of day to day control procedures and the directors review cash flow projections on a weekly basis and ensure appropriate facilities are available to be drawn upon, as necessary.
This report was approved by the board and signed on its behalf.
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DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
The Directors present their report and the financial statements for the year ended 31 December 2022.
The Directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
∙select suitable accounting policies for the Company's financial statements and then apply them consistently;
∙make judgements and accounting estimates that are reasonable and prudent;
∙prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The profit for the year, after taxation, amounted to £4,330,201 (2021 -£3,904,458).
The directors have not recommended payment of dividends.
The Directors who served during the year were:
The directors are planning on further acquisitions in 2023 alongside integration of subsidiaries within the group so as to simplify the corporate structure via corporate hiving-up of the assets and liabilities in advance of commencing strike-off proceedings for those legal entities.
The Company has chosen in accordance with Section 414C(II) of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 to set out within the Company’s Strategic Report, the information required by Schedule 7 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulation 2008. This includes information that would have been included in the business review, details of the principal risks and uncertainties and subsequent events.
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DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
The auditors, Menzies LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
This report was approved by the board and signed on its behalf.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW BUSINESS COMMUNICATIONS (SCOTLAND) LIMITED
We have audited the financial statements of Arrow Business Communications (Scotland) Limited (the 'Company') for the year ended 31 December 2022, which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity and the related notes, 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 Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
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 Auditors' 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 United Kingdom, including the Financial Reporting Council'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.
We draw attention to note 2.3 in the financial statements, which indicates that the Company ceased trade after the end of the year and hived the trade and assets up into a group company. As stated in note 2.3, these events or conditions, along with the other matters as set forth in note 2.3, indicate that a basis other than going concern is suitable for the preparation of the Company's financial statements. No material adjustments arose as a result of ceasing to apply the going concern
basis. Our opinion is not modified in respect of this matter.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
The other information comprises the information included in the Annual Report other than the financial statements and our Auditors' 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.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW BUSINESS COMMUNICATIONS (SCOTLAND) LIMITED (CONTINUED)
In our opinion, based on the work undertaken in the course of the audit:
∙the information given in the Strategic Report and the Directors' Report 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 Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors' Report.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW BUSINESS COMMUNICATIONS (SCOTLAND) LIMITED (CONTINUED)
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 Auditors' 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation. We determined that the following laws and regulations were most significant:
∙The Companies Act 2006;
∙Financial Reporting Standard 102;
∙UK employment legislation;
∙UK health and safety legislation;
∙General Data Protection Regulations;
∙UK tax legislation; and,
∙OFCOM
We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
We understood how the Company is complying with those legal and regulatory frameworks by, making inquiries to management, those responsible for legal and compliance procedures and the company secretary.
The engagement partner assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations. The assessment did not identify any issues in this area
We assessed the susceptibility of the Company financial statements to material misstatement, including how fraud might occur. Audit procedures performed by the engagement team included:
∙Identifying and assessing the measures management has in place to prevent and detect fraud;
∙Understanding how those charged with governance considered and addressed the potential for override of controls or other inappropriate influence over the financial reporting process;
∙Challenging assumptions and judgments made by management in its significant accounting estimates; and
∙Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations.
As a result of the above procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following areas:
∙The use of management override of controls to manipulate results, or to cause the Group to enter into transactions not in its best interests; or
∙Posting of unusual journals and complex transactions.
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 is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW BUSINESS COMMUNICATIONS (SCOTLAND) LIMITED (CONTINUED)
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors' 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 Auditors' Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
for and on behalf of
Chartered Accountants
Statutory Auditor
Lynton House
7-12 Tavistock Square
London
WC1H 9LT
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STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
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STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
The financial statements were approved and authorised for issue by the board and were signed on its behalf by:
The notes on pages 12 to 19 form part of these financial statements.
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STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Arrow Business Communications (Scotland) Limited is a private company, limited by shares, incorporated in the England and Wales under the Companies Act 2006. The address of the registered office is given on the Company Information page, which is also the principal trading address. The principal activities of the company and the nature of its operations are set out in the Strategic Report.
The financial statements are prepared in Pound Sterling, which is the functional currency of the entity.
2.Accounting policies
The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Company's accounting policies. The Directors do not consider there to be any significant accounting estimates or judgements.
The following principal accounting policies have been applied:
The Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by the FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland":
∙the requirements of Section 7 Statement of Cash Flows;
∙the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d);
∙the requirements of Section 11 Financial Instruments paragraphs 11.42, 11.44 to 11.45, 11.47, 11.48(a)(iii), 11.48(a)(iv), 11.48(b) and 11.48(c);
∙the requirements of Section 12 Other Financial Instruments paragraphs 12.26 to 12.27, 12.29(a), 12.29(b) and 12.29A;
∙the requirements of Section 33 Related Party Disclosures paragraph 33.7.
This information is included in the consolidated financial statements of Arrow Communications Holdings Limited as at 31 December 2022 and these financial statements may be obtained from Companies House.
The directors ceased the trade within the Company after the end of 2022 and hived its trade and assets/liabilities into another group company. Due to this, it would not be suitable for the Company to prepare its financial statements on a going concern basis. There have not been any adjustments in the financial statements in the year to 31 December 2022 from this change in accounting policy.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2.Accounting policies (continued)
Revenue from one off sale of goods is recognised when the risks and rewards of ownership have been passed to the customer, being once they have been delivered. Where revenue from services is part of a fixed length contract, the revenue is spread evenly across the length of the contract, along with any associated costs which have been incurred in securing the contract.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method.
The estimated useful lives range as follows:
The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2.Accounting policies (continued)
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 on 10 June 2021. These include increment of the rate of corporation tax to 25 percent from 19 percent from April 2023.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Profit and loss account
15.Financial commitments
Loans included within entities of the group that the Company is a part are secured by fixed and floating charges over the assets of the Company and the group. At the year end the loans amounted to £186,225,036 (2021: £176,242,950).
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
The ultimate parent entity is Arrow Communications Holdings Limited, to which consolidated accounts include this company. The consolidated accounts are available from Companies House for the year ended 31 December 2022. The ultimate controlling party of Arrow Communications Holdings Limited is MML Capital Europe VII Equity I S.A., a company based in Luxembourg. MML Capital Europe VII Equity I S.A is a 100% subsidiary of MML Partnership Capital VII SCSp acting by its general partner MML Partnership Capital VII GP S.a.r.l.
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