Company registration number 02481321 (England and Wales)
KOSTAL UK LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
KOSTAL UK LIMITED
COMPANY INFORMATION
Directors
S Bennett
H Herrmann
Dr T Naumann
(Appointed 1 November 2022)
Company number
02481321
Registered office
The Balance Pinfold Street
Suite 6F
Sheffield
S1 2GU
Auditor
Kingswood LLP
3 Coldbath Square
London
EC1R 5HL
KOSTAL UK LIMITED
CONTENTS
Page
Strategic report
1 - 3
Directors' report
4 - 5
Independent auditor's report
6 - 8
Profit and loss account
9
Balance sheet
10
Statement of changes in equity
11
Notes to the financial statements
12 - 24
KOSTAL UK LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 1 -
The directors present their strategic report on the company for the year ended 31 December 2022.
Review of the business and future developments
Demand in the automotive industry rose in 2022, though this was not always able to be supported on the supply side. This was due to the long term effects of COVID (in particular the lock down on parts of China in early 2022 having a major impact on the supply chain for KOSTAL and other suppliers) and the disruption caused by Russia’s invasion of Ukraine, which created logistical disturbances for the industry.
High volatility on the currency market increased exchange gains to £1,728,372 (2021: loss £3,937,330) mainly due to the revaluation of EURO denominated balance sheet accounts (a movement of a loss of £2,039,348 vs a gain of £2,400,547) and currency hedge contracts (a movement of a loss of £1,966,147 vs a loss of £598,496).
The company’s profit after tax for the year was £5,236,872 (2021: £582,273). The directors propose a final distribution of £41,700,000 relating to 2022 (2021: nil).
For 2022, the main objective was to complete the transformation of the business to be a distribution business with a small UK presence providing customer support. The focus remains to keep liquidity and profitability at expected levels. In late 2022, revenue from part of the business was moved away to another site who also have manufacturing responsibility. In 2023 this objective will be extended and revenue for the UK business will be moved to other sites in totality. By mid-year 2023 the business model for the UK site will be based on commission from sales made by other sites rather than direct customer generated revenues.
Because of this change to the business model, revenues for KOSTAL UK have reduced since the previous year and will reduce further through 2023.
Strategy
The company’s overriding goal in its new form is to ensure satisfaction for our key British multi-national automotive customers by managing the relationship and supporting the sales, design, manufacture and delivery of quality products from all entities in the global KOSTAL group.
Whilst we remain a trading company, the key elements to achieving this are:
Maintain liquidity
Win new business for the global KOSTAL organisation
Support the manufacturing locations to ensure performance and quality meets customer expectations
Maintain our commitment to the environment and health and safety
Deliver and reward exceptional performance
The company uses the following financial key performance indicators to assess its performance:
Key Performance Indicators (KPIs)
2022
2021
Growth / (decrease) in sales (%)
(32.9)
13.0
Gross margin (%)
22.5
15.8
Stock days
38
43
Day sales outstanding
48
39
Creditor days
32
15
Stock days excludes Contract Work In Progress.
KOSTAL UK LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 2 -
Principal risks and uncertainties
The management of the business and the execution of the company’s strategy are subject to a number of risks. With the FTA now in place with the EU, we have now experienced acceptable logistics chains. We are therefore now in a period of stability and expect this to continue.
Inflationary pressures and increases in interest rates may impact KOSTAL UK’s cost base in 2023 and beyond.
In order to continue successfully the business will stay focused around these 3 priorities:
1) Employees health and wellbeing
2) Liquidity
3) Supporting the profitability of the group
Financial risk management
The company’s operations expose it to a variety of financial risks including the effects of credit risk, liquidity risk and interest rates on debt. The company has risk management procedures which identify and monitor market, fiscal, operational, regulatory, environmental and product led risks. These processes are also used to identify performance and business development opportunities.
Credit risk
The company’s principal financial assets are bank balances and trade debtors’ which represent the company’s maximum exposure to credit risk in relation to financial assets. The company’s credit risk is primarily attributable to its trade debtors. Credit risk is managed by monitoring the aggregate amount and duration of exposure to any one customer depending upon their credit rating. The amounts presented in the balance sheet are net of allowances for doubtful debts, estimated by the company’s management based on prior experience and their assessment of the current economic climate.
Liquidity risk
The company’s security with regards to liquidity is achieved through management of working capital, and where necessary borrowings from other group companies. The amount of these facilities is renegotiated from time to time as required.
Interest rate risk
Interest bearing assets comprise cash and bank deposits and interest receivable from group undertaking, all of which earn interest at a fixed rate. Interest bearing liabilities comprise intercompany loans with fixed interest and repayment terms. The directors monitor the overall level of borrowing and interest costs to limit any adverse effect on the financial performance of the company.
Going concern
Taking into account the change to the company's business model, the directors have have prepared forecasts for a period of more than 12 months from the date of approval of these financial statements which indicate that the company will have sufficient funds, through the group cash facility available from the ultimate parent company, to meet its liabilities as they fall due for that period.
The directors have have received confirmation from the group that they will continue to make available the cash reserves in the cash pooling facility in the event that the company requires monies to continue to pay its debts as they fall due, however even in the worst case scenario considered, the company does not expect that this will be required.
Consequently, the directors are confident that the company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.
KOSTAL UK LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 3 -
s172 Companies Act 2006
As a Board we have always taken decisions for the long-term and collectively and individually our aim is always to uphold the highest standard of conduct and act fairly. Similarly, we understand that our business can only grow and prosper over the long-term if we understand and respect the views and needs of our customers, colleagues and the communities in which we operate, as well as our suppliers, the environment and the shareholders to whom we are accountable. This is reflected in our business principles.
We ensure that the requirements of s172 Companies Act 2006 are met and the interests of our stakeholder groups are considered through a combination of the following:
The appointment of Mazars as external Company Secretary in September 2021
Financial reporting by the Management and Financial Accounting team for KOSTAL UK (based in our head office in Germany) to the Board of Directors on a monthly basis.
Regular engagement with our stakeholders, including, but not limited to, suppliers, customers and employees.
Consideration of the impact of the Company’s operations on the community and the environment, and how this can be improved
S Bennett
Director
1 November 2023
KOSTAL UK LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 4 -
The directors present their annual report and financial statements for the year ended 31 December 2022.
Principal activities
The principal activity of the company continued to be that of the trade of electromechanical components for the automotive industry.
Directors
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
C N Sanders
(Resigned 1 November 2022)
K Knickmann
(Resigned 1 November 2022)
S Bennett
H Herrmann
Dr T Naumann
(Appointed 1 November 2022)
Business relationships
Fostering business relationships with key stakeholders, such as customers and suppliers, is also important to a company's success. A board should have visibility of these relationships so that it is able to take stakeholders' considerations into account when making decisions. In regards to our customer engagement, key account holders with group wide responsibility ensure close relationships with focus on future products and concepts as well as maintaining a closed feedback loop. As a participating member of The Society of Motor Manufacturing and Trades (SMMT) we engage with other business partners within our industry.
Energy and carbon report
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
Statement of directors' responsibilities
The directors are responsible for preparing the annual 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 United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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 and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
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 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.
KOSTAL UK LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 5 -
Strategic report
The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report.
Statement of disclosure to auditor
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.
On behalf of the board
S Bennett
Director
1 November 2023
KOSTAL UK LIMITED
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBER OF KOSTAL UK LIMITED
- 6 -
Opinion
We have audited the financial statements of Kostal UK Limited (the 'company') for the year ended 31 December 2022 which comprise the profit and loss account, the balance sheet, the statement of changes in equity 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).
In our opinion the financial statements:
give a true and fair view of the state of the company's affairs as at 31 December 2022 and of its profit for the year then ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
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
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.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
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 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' 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.
KOSTAL UK LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBER OF KOSTAL UK LIMITED
- 7 -
Matters on which we are required to report by exception
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.
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, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, 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 intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
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.
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 the 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, anti-bribery, employment, environmental and health and safety legislation;
we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting correspondence; and
identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company's financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquires of management as to where they considered there was susceptibility to fraud, either 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.
KOSTAL UK LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBER OF KOSTAL UK LIMITED
- 8 -
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
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;
inspecting legal documentation for indications of non-compliance with laws and regulations; and
enquiring of management as to actual and potential litigation and claims.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the director and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
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.
Richard Behan FCA (Senior Statutory Auditor)
For and on behalf of Kingswood LLP
1 November 2023
Chartered Accountants
Statutory Auditor
3 Coldbath Square
London
EC1R 5HL
KOSTAL UK LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 9 -
2022
2021
Notes
£
£
Turnover
3
38,240,084
56,987,732
Cost of sales
(29,630,122)
(48,000,985)
Gross profit
8,609,962
8,986,747
Distribution costs
(823,137)
(1,338,000)
Administrative expenses
(6,649,770)
(7,848,851)
Profit on disposal of freehold property
4
3,605,218
Operating profit/(loss)
5
4,742,273
(200,104)
Interest receivable and similar income
9
1,265,743
882,864
Interest payable and similar expenses
10
(6,371)
Profit before taxation
6,008,016
676,389
Tax on profit
11
(771,144)
(94,116)
Profit for the financial year
5,236,872
582,273
There are no items of other comprehensive income for either the year or the prior year other than the profit for the year. Accordingly, no statement of other comprehensive income has been presented.
KOSTAL UK LIMITED
BALANCE SHEET
AS AT
31 DECEMBER 2022
31 December 2022
- 10 -
2022
2021
Notes
£
£
£
£
Fixed assets
Tangible assets
12
326,422
1,205,062
Current assets
Stocks
13
3,144,547
4,836,498
Debtors
14
52,588,559
41,711,158
Cash at bank and in hand
105,341
836,953
55,838,447
47,384,609
Creditors: amounts falling due within one year
15
(7,702,205)
(5,363,879)
Net current assets
48,136,242
42,020,730
Net assets
48,462,664
43,225,792
Capital and reserves
Called up share capital
18
5,850,000
5,850,000
Other reserves
19
7,790,000
7,790,000
Profit and loss reserves
19
34,822,664
29,585,792
Total equity
48,462,664
43,225,792
The financial statements were approved by the board of directors and authorised for issue on 1 November 2023 and are signed on its behalf by:
S Bennett
Director
Company Registration No. 02481321
KOSTAL UK LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
- 11 -
Share capital
Capital contribution reserve
Profit and loss reserves
Total
£
£
£
£
Balance at 1 January 2021
5,850,000
7,790,000
29,003,519
42,643,519
Year ended 31 December 2021:
Profit and total comprehensive income for the year
-
-
582,273
582,273
Balance at 31 December 2021
5,850,000
7,790,000
29,585,792
43,225,792
Year ended 31 December 2022:
Profit and total comprehensive income for the year
-
-
5,236,872
5,236,872
Balance at 31 December 2022
5,850,000
7,790,000
34,822,664
48,462,664
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
- 12 -
1
Accounting policies
Company information
Kostal UK Limited is a private company limited by shares incorporated in England and Wales. The registered office is The Balance Pinfold Street, Suite 6F, Sheffield, S1 2GU.
1.1
Accounting convention
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 amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
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. The company has therefore taken advantage of exemptions 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: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Leopold Kostal GmbH & Co. KG. These consolidated financial statements are available from its registered office, An der Bellmerei 10, 58513 Ludenscheid, Germany.
1.2
Going concern
Following the closure of the company's manufacturing site in September 2021, the company's main objective has been to transition to a distribution business with a small UK presence providing customer support. In late 2022true, revenue from part of the business was moved away from the company to another group company to reflect manufacturing responsibility. Post year end, revenue for the UK business has been transferred to other group companies in totality, with the company's business model now based on commission from sales made by other group companies rather than direct customer generated revenues. The company's revenue and profits will therefore be lower than historic levels.
Taking into account the change to the company's business model, the directors have have prepared forecasts for a period of more than 12 months from the date of approval of these financial statements which indicate that the company will have sufficient funds, through the group cash facility available from the ultimate parent company, to meet its liabilities as they fall due for that period.
The directors have have received confirmation from the group that they will continue to make available the cash reserves in the cash pooling facility in the event that the company requires monies to continue to pay its debts as they fall due, however even in the worst case scenario considered, the company does not expect that this will be required.
Consequently, the directors are confident that the company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 13 -
1.3
Turnover
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.
Revenue from contracts for the provision of professional services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.
Profit from long-term contract tooling and development projects, the outcome of which can be foreseen with a reasonable degree of certainty, is recognised on the completion of the project when the risks and rewards of ownership are transferred. Full provision is made for any losses on tooling and development projects as soon as they are anticipated. Invoiced turnover recognised to date, less amounts received on account is included in work in progress in debtors. To the extent that amounts received from customers exceed related work in progress, such excess is included in creditors.
1.4
Research and development expenditure
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.
1.5
Tangible fixed assets
Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:
Freehold land and buildings
25 years straight line
Fixtures and fittings
5 years straight line
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 credited or charged to profit or loss.
1.6
Impairment of fixed assets
At each reporting period end date, the company 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.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 14 -
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.
1.7
Stocks
Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost is based on the weighted average principle and includes expenditure incurred in acquiring the stocks, production or conversion costs and other costs in bringing them to their existing location and condition. In the case of manufactured stocks and work in progress, cost includes an appropriate share of overheads based on normal operating capacity,
At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.
1.8
Cash and cash equivalents
Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.
1.9
Financial instruments
The company 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 company's balance sheet when the company becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset, with 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
Basic financial assets, which include #tErm6, loans to fellow group companies 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 method 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.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 15 -
Impairment of financial assets
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.
Derecognition of financial assets
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company 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.
Classification of financial liabilities
In accordance with FRS 102.22, financial instruments issued by the Company are treated as equity only to the extent that they meet the following two conditions:
They include no contractual obligations upon the company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the company; and
where the instrument will or may be settled in the company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company's own equity instruments or is a derivative that will be settled by the company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.
Basic financial liabilities
Basic financial liabilities, including creditors and loans from fellow group companies, 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 payments 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.
Derecognition of financial liabilities
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 16 -
1.10
Equity instruments
Equity instruments issued by the company 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 company.
1.11
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current 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 company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax
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 when the company has 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.
1.12
Provisions
Provisions are recognised when the company has a legal or constructive present obligation as a result of a past event, it is probable that the company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation. Where the effect of the time value of money is material, the amount expected to be required to settle the obligation is recognised at present value. When a provision is measured at present value, the unwinding of the discount is recognised as a finance cost in profit or loss in the period in which it arises.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
1.13
Employee benefits
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.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 17 -
1.14
Retirement benefits
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
1.15
Leases
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 leases asset are consumed.
1.16
Foreign exchange
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. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. Gains and losses arising on translation in the period are included in profit or loss.
1.17
Interest receivable and similar income includes interest receivable on funds invested. Interest income is recognised in profit or loss as it accrues, using the effective interest method.
2
Judgements and key sources of estimation uncertainty
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.
Critical judgements
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Contract revenue and profit recognition
Revenue associated with contract tooling and development projects is recognised on the completion of the project stage when the risks and rewards of ownership are transferred. The related profit is recognised at the end of the project. This is assessed on a contract by contract basis depending on the specific terms of each contract to ensure that the recognition criteria of the accounting standard continues to be met.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
2
Judgements and key sources of estimation uncertainty
(Continued)
- 18 -
Key sources of estimation uncertainty
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.
Valuation of stock
The Company is exposed to stock obsolescence caused through changing customer requirements and the risk of over production. Provisions are recorded to reduce the value of stocks to their net realisable value as determined by production forecasts.
Warranty provisions
Products produced are subject to warranties to customers. Provisions are recorded to recognise the expected costs associated with claims made.
3
Turnover and other revenue
Turnover arises entirely from the principal activity of the company, and all arose in the UK. An analysis of the turnover by activity is as follows:
2022
2021
£
£
Turnover analysed by class of business
Sale of goods
37,198,819
50,349,732
Long term contract revenue
426,399
2,032,000
Others
614,866
4,606,000
38,240,084
56,987,732
2022
2021
£
£
Other revenue
Interest income from group companies
1,265,743
882,864
4
Exceptional item
2022
2021
£
£
Profit on disposal of freehold property
(3,605,218)
-
During the year, following the closure of its manufacturing facility, the company sold its freehold property together with the associated fixtures and fittings.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 19 -
5
Operating profit/(loss)
2022
2021
Operating profit/(loss) for the year is stated after charging/(crediting):
£
£
Exchange (gains)/losses
(1,728,372)
3,937,331
Research and development costs
504,571
909,301
Depreciation of owned tangible fixed assets
254,198
1,162,468
Profit on disposal of tangible fixed assets
-
(545,883)
Operating lease charges
232,143
491,695
6
Auditor's remuneration
2022
2021
Fees payable to the company's auditor and associates:
£
£
For audit services
Audit of the financial statements of the company
40,000
60,000
For other services
Taxation compliance services
5,000
5,000
7
Employees
The average monthly number of persons (including directors) employed by the company during the year was:
2022
2021
Number
Number
Indirect staff
10
57
Manufacturing staff
-
59
Total
10
116
Their aggregate remuneration comprised:
2022
2021
£
£
Wages and salaries
510,862
7,140,173
Social security costs
58,094
566,829
Pension costs
22,193
152,352
591,149
7,859,354
Salaries cost includes £nil (2021: £3.3m) of redundancies costs. Redundancy costs represented compensation for redundancies of 224 staff, due to the reorganisation of production processes and facilities.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 20 -
8
Directors' remuneration
2022
2021
£
£
Remuneration for qualifying services
101,808
399,000
Company pension contributions to defined contribution schemes
6,300
6,000
108,108
405,000
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2021 - 1).
Certain directors do not receive any emoluments for their services as directors of the UK Company as an allocation of any amounts in relation to this entity would be insignificant, and are remunerated through Leopold Kostal GmbH.
9
Interest receivable and similar income
2022
2021
£
£
Interest income
Interest on bank deposits
544
165
Interest receivable from group companies
1,253,814
882,699
Other interest income
11,385
Total income
1,265,743
882,864
10
Interest payable and similar expenses
2022
2021
£
£
Other interest
6,371
11
Taxation
2022
2021
£
£
Current tax
UK corporation tax on profits for the current period
588,619
Adjustments in respect of prior periods
125,219
51,680
Total current tax
713,838
51,680
Deferred tax
Origination and reversal of timing differences
(143,374)
181,878
Changes in tax rates
(85,984)
Adjustment in respect of prior periods
200,680
(53,458)
Total deferred tax
57,306
42,436
Total tax charge
771,144
94,116
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
11
Taxation
(Continued)
- 21 -
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
2022
2021
£
£
Profit before taxation
6,008,016
676,389
Expected tax charge based on the standard rate of corporation tax in the UK of 19.00% (2021: 19.00%)
1,141,523
128,514
Tax effect of expenses that are not deductible in determining taxable profit
603
699
Adjustment in respect of chargeable gains
(596,914)
Adjustments in respect of prior years
325,899
(1,778)
Permanent capital allowances in excess of depreciation
(65,557)
Depreciation on assets not qualifying for tax allowances
9,015
Reduction in tax rate on deferred tax balances
(34,410)
(42,334)
Taxation charge for the year
771,144
94,116
12
Tangible fixed assets
Freehold land and buildings
Fixtures and fittings
Total
£
£
£
Cost
At 1 January 2022
6,540,202
8,196,371
14,736,573
Disposals
(6,540,202)
(7,269,807)
(13,810,009)
At 31 December 2022
926,564
926,564
Depreciation and impairment
At 1 January 2022
6,050,095
7,481,416
13,531,511
Depreciation charged in the year
7,191
247,007
254,198
Eliminated in respect of disposals
(6,057,286)
(7,128,281)
(13,185,567)
At 31 December 2022
600,142
600,142
Carrying amount
At 31 December 2022
326,422
326,422
At 31 December 2021
490,107
714,955
1,205,062
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 22 -
13
Stocks
2022
2021
£
£
Raw materials and consumables
681,534
715,009
Contract work in progress
112,637
623,037
Finished goods and goods for resale
2,350,376
3,498,452
3,144,547
4,836,498
Raw materials, consumables and changes in finished goods and work in progress recognised as cost of sales in the year amounted to £27,109,824 (2021: £35,841,136). The write-down of stocks to net realisable value amounted to £254,292 (2021: £266,874). The write-down is included in cost of sales.
14
Debtors
2022
2021
Amounts falling due within one year:
£
£
Trade debtors
4,991,272
6,126,182
Corporation tax recoverable
279,305
993,143
Amounts owed by group undertakings
47,062,914
32,914,885
Other debtors
135,983
1,500,557
52,469,474
41,534,767
Deferred tax asset (note 16)
119,085
176,391
52,588,559
41,711,158
15
Creditors: amounts falling due within one year
2022
2021
£
£
Trade creditors
1,583,788
428,178
Amounts owed to group undertakings
4,503,395
3,358,218
Taxation and social security
38,827
43,987
Accruals and deferred income
1,576,195
1,533,496
7,702,205
5,363,879
No interest is charged on the amounts due to group undertakings and all amounts are payable on demand.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 23 -
16
Deferred taxation
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
Assets / (Liabilities)
Assets / (Liabilities)
2022
2021
Balances:
£
£
Accelerated capital allowances
117,644
(9,887)
Other
1,441
186,278
119,085
176,391
2022
Movements in the year:
£
Asset at 1 January 2022
(176,391)
Charge to profit or loss
57,306
Asset at 31 December 2022
(119,085)
The deferred tax asset set out above is expected to partially reverse within 12 months and relates to the utilisation of future capital allowances against future expected profits of the same period.
17
Retirement benefit schemes
2022
2021
Defined contribution schemes
£
£
Charge to profit or loss in respect of defined contribution schemes
22,193
152,352
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.
There was a pension creditor at the year-end amounting to £5,763 (2021: £5,735).
18
Share capital
2022
2021
2022
2021
Ordinary share capital
Number
Number
£
£
Issued and fully paid
Ordinary shares of £100 each
58,500
58,500
5,850,000
5,850,000
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
KOSTAL UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 24 -
19
Reserves
Capital contribution reserve
In respect of losses incurred, the principle shareholder sought to restore the financial position of the Company through a €10m loan waiver on 31 December 2014. This capital contribution equated to £7,790,000 translated at an exchange rate of £0.779/€.
20
Financial commitments, guarantees and contingent liabilities
The Company had bank guarantees totalling £621,200 in place at the balance sheet date.
21
Operating lease commitments
Lessee
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:
2022
2021
£
£
Within one year
42,935
65,000
Between two and five years
87,931
16,000
130,866
81,000
22
Related party transactions
Amounts owed by group undertakings include a balance of £46,510,985 (2021: £31,423,091) on which interest is receivable at 3% (2021: 3%).
23
Ultimate controlling party
The ultimate controlling party is Leopold Kostal GmbH & Co. KG, incorporated in Germany.
The largest group in which the results of the Company are consolidated is that headed by Leopold Kostal GmbH & Co. KG, incorporated in Germany. The consolidated financial statements of this group is available to the public and may be obtained from their registered office, An der Bellmerei 10, 58513 Ludenscheid, Germany.
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