Company registration number 06045354 (England and Wales)
FRANKE COFFEE SYSTEMS UK LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
FRANKE COFFEE SYSTEMS UK LIMITED
COMPANY INFORMATION
Directors
M Zancolo
R Gaemperli
(Appointed 1 January 2023)
Secretary
R Besi (appointed 1 May 2023)
Company number
06045354
Registered office
6a Handley Page Way
Colney Street
St Albans
Hertfordshire
AL2 2DQ
Auditor
Hart Shaw LLP
Europa Link
Sheffield Business Park
Sheffield
S9 1XU
FRANKE COFFEE SYSTEMS UK LIMITED
CONTENTS
Page
Strategic report
1
Directors' report
2 - 3
Independent auditor's report
4 - 6
Income statement
7
Statement of financial position
8 - 9
Statement of changes in equity
10
Statement of cash flows
11
Notes to the financial statements
12 - 32
FRANKE COFFEE SYSTEMS UK LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 1 -
The directors present the strategic report for the year ended 31 December 2022.
Principal activities
The principal activity of the company continued to be that of the the sale, distribution and maintenance of coffee machines.
Review of the business
The company has successfully regained historical trade sales levels and shifted its focus towards expanding its business through an extensive distributor network, thereby capturing new segments of the market.
It is worth noting that administrative expenses have experienced an increase, primarily due to the reintegration of employees into the workforce after the initial impact of the coronavirus pandemic.
Encouragingly, there are positive indicators pointing to future product rollouts and tender opportunities, which further contribute to our optimism about the company's prospects.
The directors are satisfied that the company is well placed to manage its financial position.
Principal risks and uncertainties
Principal risks and uncertainties relate to fluctuations in raw material prices, increase in competition and the ongoing impact of the current economic climate on the company's operating sector.
Key performance indicators
The company's key performance indicators during the year were as follows:
2022
2021
£
£
Turnover
27,754,371
17,565,519
Gross profit %
42%
41%
Operating profit/(loss)
2,054,662
(2,009,927)
Operating profit/loss %
7%
11%
R Gaemperli
Director
3 November 2023
FRANKE COFFEE SYSTEMS UK LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 2 -
The directors present their annual report and financial statements for the year ended 31 December 2022.
Results and dividends
The results for the year are set out on page 7.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
Directors
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
M Zancolo
R Gaemperli
(Appointed 1 January 2023)
J Nicholson
(Resigned 31 January 2023)
Financial instruments
The company is exposed to various risks in relation to financial instruments. Given the nature of the company's financial assets and liabilities the main types of risk are market risk, credit risk and liquidity risk.
The company's risk management is coordinated by the board of directors, and focuses on actively securing the company's short to medium-term cash flows by minimising the exposure to volatile financial markets.
The company does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Company is exposed are described below.
Market risk analysis
The Company is exposed to market risk through its use of financial instruments specifically to currency risk.
Most of the Company's transaction are carried out in GBP. Exposure to currency exchange rates arise from Group's overseas sales and purchases, which are primarily denominated in CHF and EUR.
The Company does not enter into currency contracts to mitigate the exposure to foreign currency.
Credit risk analysis
Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Group is exposed to this risk for various financial instruments, for example allowing receivables to customers, placing deposits etc. The Company's maximum exposure to credit risk is limited to the carrying amount of trade and other receivables recognised at 31 December.
The company's management considers that materially all financial assets are not impaired. Those past their due date at 31 December do not give risk to a material credit risk concern. In general management consider that the receivables are of good credit quality.
The credit risk for cash and cash equivalents is considered negligible since the counterparties are reputable banks with high quality external credit ratings.
Liquidity risk analysis
Liquidity risk is that the Company might be unable to meet its obligations. The Company manages its liquidity needs by monitoring forecast cash inflows and outflows due in day-to-day business. Liquidity needs are monitored on a week-to-week basis.
Future developments
Events after the reporting date are disclosed in note 27.
FRANKE COFFEE SYSTEMS UK LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 3 -
Auditor
Hart Shaw LLP were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
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 International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom. 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, International Accounting Standard 1 requires that directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
make an assessment of the company's ability to continue as a going concern.
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.
Statement of disclosure to auditor
Each director in office at the date of approval of this annual report confirms that:
so far as the director is aware, there is no relevant audit information of which the company's auditor is unaware, and
the director has taken all the steps that he / she ought to have taken as a director in order to make himself / herself aware of any relevant audit information and to establish that the company's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.
On behalf of the board
R Gaemperli
Director
3 November 2023
FRANKE COFFEE SYSTEMS UK LIMITED
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF FRANKE COFFEE SYSTEMS UK LIMITED
- 4 -
Opinion
We have audited the financial statements of Franke Coffee Systems UK Limited (the 'company') for the year ended 31 December 2022 which comprise the income statement, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards.
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 UK adopted international accounting standards; 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.
FRANKE COFFEE SYSTEMS UK LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBERS OF FRANKE COFFEE SYSTEMS UK LIMITED
- 5 -
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 directors' 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.
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.
Extent to which the audit was considered capable of detecting irregularities, including fraud and the audit response
At the planning stage we identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors and other management, as required by auditing standards. The potential effect of any laws and regulation on the financial statements can vary considerably. There are laws and regulations that directly affect the financial statements (e.g. the Companies Act) as well as many other operational laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements. Owing to the size, nature and complexity of the organisation and the applicable laws and regulations to which it must adhere, the risk of material misstatement was deemed to be low, therefore the procedures performed by the audit team were limited to:
Communicating identified laws and regulations at planning throughout the audit team to remain alert to any indications of non-compliance throughout the audit.
Enquiry of management and those charged with governance around actual and potential litigation and claims as well as non-compliance with laws and regulations.
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations.
FRANKE COFFEE SYSTEMS UK LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBERS OF FRANKE COFFEE SYSTEMS UK LIMITED
- 6 -
We have assessed the overall susceptibility of the financial statements to material misstatement due to fraud. Management override is the most common way in which fraud might present itself and is therefore inherently high risk on any audit. Management override which may cause there to be a material misstatement within the financial statements may present itself in a number of ways, for example:
Override of internal controls (e.g. segregation of duties)
Entering into transactions outside the normal course of business, especially with related parties
Fraudulent revenue recognition, including fictitious sales and sales being recorded in the wrong period
Presenting bias in accounting judgements and estimates, particularly the ones disclosed in note 2 to the financial statements.
In order to reduce the risk of material misstatement to an acceptable level, numerous audit procedures were performed including:
Enquiries of management as to whether they had any knowledge of any actual or suspected fraud
Review of material journal entries made throughout the year as well as those made to prepare the financial statements
Reviewing the underlying rationale behind transactions in order to assess whether they were outside the normal course of business
Increased substantive testing across material income streams
Assessing whether management’s judgements and estimates indicated potential bias, particularly those that we considered to be key.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected material misstatements in the financial statements, even though we have performed our audit in accordance with auditing standards. Furthermore, as with all audits, there is a higher risk of irregularities (especially those relating to fraud) being undetected, as these may involve the override of internal controls, collusion, intentional omissions and misrepresentations etc. We are not responsible for preventing non-compliance or fraud and therefore cannot be expected to detect all instances of such. Our audit was not designed to identify misstatements or other irregularities that would not be considered to be material to the financial statements. The further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.
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 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.
Adam Shield (Senior Statutory Auditor)
For and on behalf of Hart Shaw LLP
3 November 2023
Chartered Accountants
Statutory Auditor
Europa Link
Sheffield Business Park
Sheffield
S9 1XU
FRANKE COFFEE SYSTEMS UK LIMITED
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 7 -
2022
2021
as restated
Notes
£
£
Revenue
3
27,754,371
17,565,519
Cost of sales
(16,181,648)
(10,433,929)
Gross profit
11,572,723
7,131,590
Distribution costs
(927,346)
(603,171)
Administrative expenses
(7,740,715)
(6,523,346)
Exceptional items
4
(850,000)
(2,015,000)
Operating profit/(loss)
5
2,054,662
(2,009,927)
Investment revenues
8
10,281
Finance costs
9
(114,108)
(121,132)
Profit/(loss) before taxation
1,950,835
(2,131,059)
Income tax (expense)/income
10
(540,192)
365,523
Profit/(loss) and total comprehensive income for the year
1,410,643
(1,765,536)
The income statement has been prepared on the basis that all operations are continuing operations.
FRANKE COFFEE SYSTEMS UK LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
31 December 2022
- 8 -
2022
2021
as restated
Notes
£
£
Non-current assets
Intangible assets
11
77,013
202,020
Property, plant and equipment
12
2,408,187
2,639,704
Deferred tax asset
19
367,258
2,485,200
3,208,982
Current assets
Inventories
13
6,032,224
6,421,224
Trade and other receivables
14
5,924,001
4,628,729
Current tax recoverable
144,455
91,470
Cash and cash equivalents
7,463,469
5,372,482
19,564,149
16,513,905
Current liabilities
Trade and other payables
17
2,614,162
2,805,007
Lease liabilities
18
384,384
496,738
Provisions
20
271,700
401,000
Deferred revenue
21
1,453,787
863,624
4,724,033
4,566,369
Net current assets
14,840,116
11,947,536
Non-current liabilities
Lease liabilities
18
1,707,770
1,910,469
Deferred tax liabilities
19
8,000
Long term provisions
20
850,000
Deferred revenue
21
214,895
112,041
2,780,665
2,022,510
Net assets
14,544,651
13,134,008
Equity
Called up share capital
23
100
100
Share premium account
24
2,149,900
2,149,900
Retained earnings
12,394,651
10,984,008
Total equity
14,544,651
13,134,008
FRANKE COFFEE SYSTEMS UK LIMITED
STATEMENT OF FINANCIAL POSITION (CONTINUED)
AS AT 31 DECEMBER 2022
31 December 2022
- 9 -
The financial statements were approved by the board of directors and authorised for issue on 3 November 2023 and are signed on its behalf by:
R Gaemperli
Director
Company registration number 06045354 (England and Wales)
FRANKE COFFEE SYSTEMS UK LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
- 10 -
Share capital
Share premium account
Retained earnings
Total
£
£
£
£
As restated for the period ended 31 December 2021:
Balance at 1 January 2021
100
2,149,900
12,749,544
14,899,544
Year ended 31 December 2021:
Loss and total comprehensive income
-
-
(1,765,536)
(1,765,536)
Balance at 31 December 2021
100
2,149,900
10,984,008
13,134,008
Year ended 31 December 2022:
Profit and total comprehensive income
-
-
1,410,643
1,410,643
Balance at 31 December 2022
100
2,149,900
12,394,651
14,544,651
FRANKE COFFEE SYSTEMS UK LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
- 11 -
2022
2021
as restated
Notes
£
£
£
£
Cash flows from operating activities
Cash generated from operations
31
3,140,681
4,727,461
Interest paid
(114,108)
(121,132)
Income taxes paid
(217,919)
(674,093)
Net cash inflow from operating activities
2,808,654
3,932,236
Investing activities
Purchase of intangible assets
(10,021)
(5,031)
Purchase of property, plant and equipment
(124,187)
(1,009,649)
Proceeds from disposal of property, plant and equipment
17,700
994,211
Interest received
10,281
Net cash used in investing activities
(106,227)
(20,469)
Financing activities
Payment of lease liabilities
(588,513)
(510,460)
Net cash used in financing activities
(588,513)
(510,460)
Net increase in cash and cash equivalents
2,113,914
3,401,307
Cash and cash equivalents at beginning of year
5,372,482
1,971,175
Effect of foreign exchange rates
(22,927)
Cash and cash equivalents at end of year
7,463,469
5,372,482
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
- 12 -
1
Accounting policies
Company information
Franke Coffee Systems UK Limited is a private company limited by shares incorporated in England and Wales. The registered office is 6a Handley Page Way, Colney Street, St Albans, Hertfordshire, AL2 2DQ. The company's principal activities and nature of its operations are disclosed in the directors' report.
1.1
Accounting convention
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the United Kingdom and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, except as otherwise stated.
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.
1.2
Going concern
The directors have at the time of approving the financial statements, a reasonable expectation that the truecompany has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
1.3
Revenue
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The company recognises revenue when it transfers control of a product or service to a customer.
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.
The company recognises revenue from the following major sources:
Machine sales
Support and maintenance
The nature, timing of satisfaction of performance obligations and significant payment terms of the company's major sources of revenue are as follows:
Machine sales
Machine sales are recognised upon the date the machine is delivered, and if applicable installed, at the delivery address.
Support and maintenance
Support and maintenance income is recognised evenly over the term of the contract.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 13 -
1.4
Intangible assets other than goodwill
Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.
Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.
Amortisation 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:
Software 20% on cost
1.5
Property, plant and equipment
Property, plant and equipment 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:
Leasehold land and buildings
10% on cost
Fixtures and fittings
15 - 33% on cost
Motor vehicles
25% on cost
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 income statement.
1.6
Impairment of tangible and intangible assets
At each reporting end date, the company reviews the carrying amounts of its tangible and intangible 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.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.
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.
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.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 14 -
1.7
Inventories
Inventories are stated at the lower of cost and estimated selling price less costs to complete and sell. Inventories are valued using the average cost method.
Inventories held for distribution at no or nominal consideration are measured at the lower of cost and replacement cost, adjusted where applicable for any loss of service potential.
Net realisable value is the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
1.8
Cash and cash equivalents
Cash and cash equivalents 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 assets
Financial assets are recognised in the company's statement of financial position when the company becomes party to the contractual provisions of the instrument. Financial assets are classified into specified categories, depending on the nature and purpose of the financial assets.
At initial recognition, financial assets classified as fair value through profit and loss are measured at fair value and any transaction costs are recognised in profit or loss. Financial assets not classified as fair value through profit and loss are initially measured at fair value plus transaction costs.
Financial assets held at amortised cost
Financial instruments are classified as financial assets measured at amortised cost where the objective is to hold these assets in order to collect contractual cash flows, and the contractual cash flows are solely payments of principal and interest. They arise principally from the provision of goods and services to customers (eg trade receivables). They are initially recognised at fair value plus transaction costs directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment where necessary.
Derecognition of financial assets
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
1.10
Financial liabilities
The company recognises financial debt when the company becomes a party to the contractual provisions of the instruments. Financial liabilities are classified as either 'financial liabilities at fair value through profit or loss' or 'other financial liabilities'.
Other financial liabilities
Other financial liabilities, including borrowings, trade payables and other short-term monetary liabilities, are initially measured at fair value net of transaction costs directly attributable to the issuance of the financial liability. They are subsequently measured at amortised cost using the effective interest method. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Derecognition of financial liabilities
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 15 -
1.11
Equity instruments
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
1.12
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 income statement 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 is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary 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 income statement, 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.
1.13
Provisions
Provisions are recognised when the company has a legal or constructive present obligation as a result of a past event and 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 a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Warranties
Provisions for the expected cost of warranty obligations are recognised at the date of sale of the relevant products, at the directors' best estimate of the expenditure required to settle the company's obligation.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 16 -
1.14
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 inventories or non-current 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.
1.15
Retirement benefits
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
1.16
Leases
At inception, the company assesses whether a contract is, or contains, a lease within the scope of IFRS 16. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where a tangible asset is acquired through a lease, the company recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are included within property, plant and equipment, apart from those that meet the definition of investment property.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date plus any initial direct costs and an estimate of the cost of obligations to dismantle, remove, refurbish or restore the underlying asset and the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of other property, plant and equipment. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the company's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee, and the cost of any options that the company is reasonably certain to exercise, such as the exercise price under a purchase option, lease payments in an optional renewal period, or penalties for early termination of a lease.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in: future lease payments arising from a change in an index or rate; the company's estimate of the amount expected to be payable under a residual value guarantee; or the company's assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less, or for leases of low-value assets including IT equipment. The payments associated with these leases are recognised in profit or loss on a straight-line basis over the lease term.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 17 -
1.17
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. Gains and losses arising on translation in the period are included in profit or loss.
2
Critical accounting estimates and judgements
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, if the revision affects only that period, or in the period of the revision and future periods if 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 outlined below.
Key sources of estimation uncertainty
Inventory provision
The Company makes a provision for slow moving inventory. The provision requires estimates for whether the item of inventory would be sold above cost. The company provides for any inventory which is over 1 year old in full. The quantum of the provision is disclosed in the inventory note, actual outcomes may vary significantly from this estimate.
Provision for non-routine tax liabilities
During the year it became apparent that, in multiple previous years, numerous transactions charged to and paid by the company were not business-related but private. The company initiated a self-declaration to the UK tax authority, HMRC, to report about tax irregularities in the past. The company has committed to a comprehensive internal review to uncover the full extent of the tax non-compliance and have every intention of remedying the situation.
As a result the Directors have included a provision for their best estimate of the tax that has been underpaid as a result of these transactions, however given the nature of the estimate actual results could vary significantly from this estimate as further information comes to light and as discussions with HMRC progress.
3
Revenue
2022
2021
£
£
Revenue analysed by class of business
Coffee machine
12,418,335
6,306,842
Spare parts
7,170,743
5,422,138
Service contracts
3,038,641
1,591,442
Labour
4,502,325
3,692,950
Miscellaneous
624,327
552,147
27,754,371
17,565,519
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 18 -
4
Exceptional items
2022
2021
£
£
Expenditure
Impairment of goodwill
-
2,015,000
Provision for non-routine tax liability
850,000
-
850,000
2,015,000
In the current year a provision has been made in relation to a non-routine tax liability that the company expects to incur, for further information see note 20.
In the previous year the directors made the decision that the goodwill held by the company was not recoverable and therefore impaired it in full, given the material nature of the impairment this has been included as an exceptional item.
5
Operating profit/(loss)
2022
2021
Operating profit/(loss) for the year is stated after charging/(crediting):
£
£
Exchange losses
22,927
19,525
Fees payable to the company's auditor for the audit of the company's financial statements
18,000
18,000
Depreciation of property, plant and equipment
582,039
651,268
Profit on disposal of property, plant and equipment
(15,590)
(8,486)
Amortisation of intangible assets (included within administrative expenses)
135,028
112,796
Cost of inventories recognised as an expense
12,882,208
7,864,840
6
Employees
The average monthly number of persons (including directors) employed by the company during the year was:
2022
2021
Number
Number
Service and service admin
100
107
Sales
13
13
Finance
6
6
Total
119
126
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
6
Employees
(Continued)
- 19 -
Their aggregate remuneration comprised:
2022
2021
£
£
Wages and salaries
5,908,754
4,655,431
Social security costs
758,250
644,608
Pension costs
90,544
95,093
6,757,548
5,395,132
7
Directors' remuneration
2022
2021
£
£
Remuneration for qualifying services
277,200
305,986
Remuneration disclosed above include the following amounts paid to the highest paid director:
2022
2021
£
£
Remuneration for qualifying services
277,200
305,986
8
Investment income
2022
2021
£
£
Interest income
Financial instruments measured at amortised cost:
Bank deposits
7,217
Interest on taxation
3,064
Total interest revenue
10,281
Income above relates to assets held at amortised cost, unless stated otherwise.
9
Finance costs
2022
2021
£
£
Interest on lease liabilities
114,108
121,132
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 20 -
10
Income tax expense
2022
2021
£
£
Current tax
UK corporation tax on profits for the current period
164,934
Adjustments in respect of prior periods
3,473
Total UK current tax
164,934
3,473
Deferred tax
Origination and reversal of temporary differences
375,258
(368,996)
Total tax charge/(credit)
540,192
(365,523)
The UK corporation tax rate was 19% during the year, it is set to increase to 25% from 1 April 2023. Deferred tax calculations are on the basis that the applicable tax rate will be 25%.
The charge for the year can be reconciled to the profit/(loss) per the income statement as follows:
2022
2021
£
£
Profit/(loss) before taxation
1,950,835
(2,131,059)
Expected tax charge/(credit) based on a corporation tax rate of 19.00% (2021: 19.00%)
370,659
(404,901)
Effect of expenses not deductible in determining taxable profit
2,018
223
Unutilised tax losses carried forward
413,173
Under/(over) provided in prior years
3,473
Deferred tax adjustments in respect of prior years
3,699
Depreciation in excess of capital allowances
124,296
Deferred tax
(423,667)
IFRS 16 lease adjustment
7,872
(78,120)
Exceptional item - not deductible
161,500
Short term timing differences - not provided
1,525
Other enhanced deductions
(7,081)
Taxation charge/(credit) for the year
540,192
(365,523)
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 21 -
11
Intangible assets
Goodwill
Software
Total
£
£
£
Cost
At 1 January 2021
2,015,000
2,015,000
Additions
-
5,031
5,031
Disposals
(2,015,000)
(2,015,000)
Reclassifications
-
681,798
681,798
At 31 December 2021
686,829
686,829
Additions - purchased
10,021
10,021
At 31 December 2022
696,850
696,850
Amortisation and impairment
Charge for the year
112,796
112,796
Impairment loss
2,015,000
2,015,000
Eliminated on disposals
(2,015,000)
(2,015,000)
Reclassifications
372,013
372,013
At 31 December 2021
484,809
484,809
Charge for the year
135,028
135,028
At 31 December 2022
619,837
619,837
Carrying amount
At 31 December 2022
77,013
77,013
At 31 December 2021
202,020
202,020
At 31 December 2020
2,015,000
-
2,015,000
The impairment movement in the prior year is included as an exceptional item.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 22 -
12
Property, plant and equipment
Leasehold land and buildings
Fixtures and fittings
Motor vehicles
Total
£
£
£
£
Cost
At 1 January 2021
1,717,898
1,240,164
1,070,412
4,028,474
Additions
2,021,666
4,811
456,998
2,483,475
Disposals
(1,310,228)
(76,918)
(1,387,146)
Reclassifications
(681,798)
(681,798)
At 31 December 2021
2,429,336
563,177
1,450,492
4,443,005
Additions
102,178
295,469
397,647
Disposals
(104,037)
(502,366)
(606,403)
At 31 December 2022
2,429,336
561,318
1,243,595
4,234,249
Accumulated depreciation and impairment
At 1 January 2021
404,795
720,040
800,632
1,925,467
Charge for the year
233,335
108,320
309,613
651,268
Eliminated on disposal
(327,559)
(73,862)
(401,421)
Reclassifications
(372,013)
(372,013)
At 31 December 2021
310,571
456,347
1,036,383
1,803,301
Charge for the year
242,933
80,111
258,995
582,039
Eliminated on disposal
(101,878)
(457,400)
(559,278)
At 31 December 2022
553,504
434,580
837,978
1,826,062
Carrying amount
At 31 December 2022
1,875,832
126,738
405,617
2,408,187
At 31 December 2021
2,118,765
106,830
414,109
2,639,704
Property, plant and equipment includes right-of-use assets, as follows:
Right-of-use assets
2022
2021
£
£
Net values at the year end
Property
1,667,875
1,829,097
Motor vehicles
351,374
375,226
2,019,249
2,204,323
Total additions in the year
273,460
2,456,495
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
12
Property, plant and equipment
(Continued)
- 23 -
Depreciation charge for the year
Property
202,167
192,569
Motor vehicles
239,148
217,388
441,315
409,957
13
Inventories
2022
2021
£
£
Finished goods
6,032,224
6,421,224
Included in inventories is a provision for slow moving/obsolete items of £855,279 (2021 - £40,000)
14
Trade and other receivables
2022
2021
£
£
Trade receivables
5,421,892
4,647,648
Provision for bad and doubtful debts
(64,724)
(187,588)
5,357,168
4,460,060
Amounts owed by fellow group undertakings
83,613
44,876
Other receivables
-
1,700
Prepayments and accrued income
483,220
122,093
5,924,001
4,628,729
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
15
Trade receivables - credit risk
Fair value of trade receivables
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value. The directors have included an immaterial provision for potential credit risk based on historical experience and overdue balances at the yearend.
No significant receivable balances are impaired at the reporting end date.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
15
Trade receivables - credit risk
(Continued)
- 24 -
Movement in the allowances for impairment of trade receivables
2022
2021
£
£
Balance at 1 January 2022
187,588
-
Additional allowance recognised
64,724
187,588
Allowance reversed
(187,588)
-
Balance at 31 December 2022
64,724
187,588
16
Fair value of financial liabilities
The directors consider that the carrying amounts of financial liabilities carried at amortised cost in the financial statements approximate to their fair values.
17
Trade and other payables
2022
2021
£
£
Trade payables
571,603
164,082
Amount owed to parent undertaking
558,193
1,351,360
Amounts owed to fellow group undertakings
328,752
732,960
Accruals
241,674
33,408
Social security and other taxation
888,843
523,197
Other payables
25,097
2,614,162
2,805,007
Trade and other payables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
The company has fixed and floating charges over all property and assets present and future, in respect of a £200,000 credit facility with Lloyds Bank PLC.
18
Lease liabilities
2022
2021
Maturity analysis
£
£
Within one year
477,653
513,990
In two to five years
1,181,967
1,403,620
In over five years
832,000
1,088,000
Total undiscounted liabilities
2,491,620
3,005,610
Future finance charges and other adjustments
(399,466)
(598,403)
Lease liabilities in the financial statements
2,092,154
2,407,207
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
18
Lease liabilities
(Continued)
- 25 -
Lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
2022
2021
£
£
Current liabilities
384,384
496,738
Non-current liabilities
1,707,770
1,910,469
2,092,154
2,407,207
2022
2021
Amounts recognised in profit or loss include the following:
£
£
Interest on lease liabilities
114,108
121,132
Lease liabilities are measured at amortised cost.
19
Deferred taxation
2022
2021
£
£
Deferred tax liabilities
8,000
Deferred tax assets
(367,258)
8,000
(367,258)
Deferred tax assets are expected to be recovered within one year
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon during the current and prior reporting period.
ACAs
Tax losses
Total
£
£
£
Liability at 1 January 2021
1,735
1,735
Deferred tax movements in prior year
Charge/(credit) to profit or loss
44,180
(413,173)
(368,993)
Asset at 1 January 2022
45,915
(413,173)
(367,258)
Deferred tax movements in current year
Charge/(credit) to profit or loss
(37,915)
413,173
375,258
Liability at 31 December 2022
8,000
8,000
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 26 -
20
Provisions for liabilities
2022
2021
£
£
Warranty provision
271,700
401,000
Non-routine tax liability
850,000
-
1,121,700
401,000
Provisions are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
Current liabilities
271,700
401,000
Non-current liabilities
850,000
1,121,700
401,000
Movements on provisions:
Warranty provision
Non-routine tax liability
Total
£
£
£
At 1 January 2022
401,000
-
401,000
Additional provisions in the year
-
850,000
850,000
Net movement
(129,300)
-
(129,300)
At 31 December 2022
271,700
850,000
1,121,700
Warranty provision
A 12 month warranty is issued on the sale of all new machines. The company provides for the expected cost of honouring warranties based the volume of machine sales and the historic cost of claims. The provision has not been discounted because the effect of discounting is not material.
Non-routine tax liability
As detailed in the events after the reporting period note, note 27, during the year it became apparent that, in multiple previous years, numerous transactions charged to and paid by the company were not business-related but private. The company initiated a self-declaration to the UK tax authority, HMRC, to report about tax irregularities in the past. The company has committed to a comprehensive internal review to uncover the full extent of the tax non-compliance and have every intention of remedying the situation. As a result the company has included a provision for their best estimate of the tax that has been underpaid as a result of these transactions, however given the nature of the estimate actual results could vary significantly from this estimate.
As noted in the contingent liability note, note 25, there is the potential for HMRC to issue interest and penalties on this amount. The Directors intend to fully co-operate with HMRC.
21
Deferred revenue
2022
2021
£
£
Arising from service contracts
1,668,682
975,665
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21
Deferred revenue
(Continued)
- 27 -
Deferred revenues are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
2022
2021
£
£
Current liabilities
1,453,787
863,624
Non-current liabilities
214,895
112,041
1,668,682
975,665
The deferred revenue has not been discounted because the effect of discounting is not material.
22
Retirement benefit schemes
2022
2021
Defined contribution schemes
£
£
Charge to profit or loss in respect of defined contribution schemes
90,544
95,093
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.
23
Share capital
2022
2021
2022
2021
Ordinary share capital
Number
Number
£
£
Authorised
Ordinary shares of £1 each
100
100
100
100
Issued and fully paid
Ordinary shares of £1 each
100
100
100
100
24
Share premium account
2022
2021
£
£
At the beginning and end of the year
2,149,900
2,149,900
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 28 -
25
Contingent liabilities
Potential for penalties & interest
As a result of the described event after the reporting period, note 27, the company initiated a self-declaration to the UK tax authority, HMRC, to report about tax irregularities in the past. The company has committed to a comprehensive internal review to uncover the full extent of the tax non-compliance and have every intention of remedying the situation.
As a result, included in Provisions, note 20, is £850,000 which is the Directors’ best estimate of the tax expected to be paid to HMRC.
As a result of this repayment there is the potential for HMRC to charge interest and penalties on the amount owed. Due to the nature of the repayment, there is the possibility that HMRC could issue a penalty of between 0% and 100% of the amount due. Any interest charged would likely be at 2.5% above the Bank of England base rate in line with HMRC's policy.
The Directors intend to fully co-operate with HMRC.
26
Capital risk management
The Company's capital management objective are:
To ensure the Company's ability to continue as a going concern.
To provide an adequate return to shareholders by pricing services in a way that reflects the level of risk involved in providing those services.
The Company monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented in the statement of financial position.
The Company's goal in capital management is to maintain a capital to overall financing ratio of in excess of 1:1.
Management assess the Company's capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Company's various classes of debt. The Company manages the capital structure and makes adjustment to it in the light of changes in economic conditions and the characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debts.
The company is not subject to any externally imposed capital requirements.
27
Events after the reporting date
In the second half of 2022, concerns came up that in multiple previous years numerous transactions charged to and paid by the company were not business-related but private and therefore not in the interest of the company. After a detailed review in the year 2023, Directors are confident that these activities did not have a material impact in the financial year to 31 December 2022.
In March 2023, the company was able to achieve a first compensation for all known undue transactions as of the date. This event has been treated as a non-adjusting event. The overall impact expected in the year to 31 December 2023, as a result of this achievement reached to date, is an adjustment to profit after tax of £830,000 (increase).
28
Related party transactions
Remuneration of key management personnel
They key management personnel of the company is considered to be the directors.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
28
Related party transactions
(Continued)
- 29 -
Other transactions with related parties
During the year the company entered into the following transactions with related parties:
Sale of goods
Purchase of goods
2022
2021
2022
2021
£
£
£
£
Parent company
11,603,212
7,716,642
Other related parties
547,000
101,305
1,245,315
817,853
547,000
101,305
12,848,527
8,534,495
Remuneration
2022
2021
£
£
Other related parties
142,237
161,625
Remuneration to "other related parties" includes the close family of key management personnel. All other transactions and balances with "other related parties" are with fellow group companies.
The following amounts were outstanding at the reporting end date:
2022
2021
Amounts due to related parties
£
£
Parent company
558,192
1,351,360
Other related parties
328,752
732,960
886,944
2,084,320
The following amounts were outstanding at the reporting end date:
2022
2021
Amounts due from related parties
£
£
Other related parties
83,613
44,876
29
Controlling party
The Company is a subsidiary undertaking of Franke Kaffeemaschinen AG. The ultimate parent company is Artemis Holding AG.
The largest group in which the results of the company are consolidated is that headed by Artemis Holding AG, 6052 Hergiswil, Switzerland. The consolidated financial statements of this group are not available to the public.
The ultimate controlling party is Michael Pieper.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 30 -
30
Financial Instruments risk
Risk management objectives and policies
The company is exposed to various risks in relation to financial instruments. Given the nature of the company's financial assets and liabilities the main types of risk are market risk, credit risk and liquidity risk.
The company's risk management is coordinated by the board of directors, and focuses on actively securing the
company's short to medium-term cash flows by minimising the exposure to volatile financial markets.
The company does not actively engage in the trading of financial assets for speculative purposes nor does it
write options. The most significant financial risks to which the Company is exposed are described below.
Market risk analysis
The Company is exposed to market risk through its use of financial instruments specifically to currency risk.
Most of the Company's transaction are carried out in GBP. Exposure to currency exchange rates arise from Group's overseas sales and purchases, which are primarily denominated in CHF and EUR.
The Company does not enter into currency contracts to mitigate the exposure to foreign currency.
Credit risk analysis
Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Group is exposed to this risk for various financial instruments, for example allowing receivables to customers, placing deposits etc. The Company's maximum exposure to credit risk is limited to the carrying amount of trade and other receivables recognised at 31 December.
The company's management considers that materially all financial assets are not impaired. Those past their due date at 31 December do not give risk to a material credit risk concern. In general management consider that the receivables are of good credit quality.
The credit risk for cash and cash equivalents is considered negligible since the counterparties are reputable
banks with high quality external credit ratings.
Liquidity risk analysis
Liquidity risk is that the Company might be unable to meet its obligations. The Company manages its liquidity needs by monitoring forecast cash inflows and outflows due in day-to-day business. Liquidity needs are monitored on a week-to-week basis.
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 31 -
31
Cash generated from operations
2022
2021
£
£
Profit/(loss) for the year before income tax
1,950,835
(2,131,059)
Adjustments for:
Finance costs
114,108
121,132
Investment income
(10,281)
Net book value of assets disposed
45,015
-
Gain on disposal of property, plant and equipment
(15,590)
(8,486)
Amortisation and impairment of intangible assets
135,028
2,127,796
Depreciation and impairment of property, plant and equipment
582,039
651,268
Foreign exchange gains on cash equivalents
22,927
-
Increase in provisions
720,700
401,000
Movements in working capital:
Decrease/(increase) in inventories
389,000
(786,963)
(Increase)/decrease in trade and other receivables
(1,295,272)
2,303,079
(Decrease)/increase in trade and other payables
(190,845)
1,074,029
Increase in deferred revenue outstanding
693,017
975,665
Cash generated from operations
3,140,681
4,727,461
32
Prior period adjustment
Reconciliation of changes in equity
1 January
31 December
2021
2021
Notes
£
£
Equity as previously reported
14,899,544
13,924,297
Adjustments to prior year
Provision of deferred revenue
(ii)
-
(975,665)
Increase in corporation tax credit
(ii)
-
185,376
Equity as adjusted
14,899,544
13,134,008
Analysis of the effect upon equity
Retained earnings
-
(790,289)
FRANKE COFFEE SYSTEMS UK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
32
Prior period adjustment
(Continued)
- 32 -
Notes to reconciliation
(i) Wages and salaries
Certain prior year wages and salaries have been reclassified for consistency with current year presentation. These reclassifications had no effect on the reported operating loss, however they ensure that direct staff costs are presented in cost of sales. A presentational adjustments has been made between administrative expenses and cost of sales, with amounts reported previously being £11,107,435 and £7,864,840 respectively.
(ii) Deferred revenue
The company provide service contracts. As these extend past the year end, the income apportioned to the period after the yearend should be deferred over the period to which it relates, in line with the company's accounting policies. No provision was made in the previous year's financial statements and so a prior year adjustment has been made in respect of this as this is the earliest period in which it was practical to make the restatement. This has had the effect of reducing revenue and increasing the operating loss reported by £975,665. Furthermore this had a consequential effect of increasing the corporation tax credit reported and the corresponding deferred tax asset. Overall the net effect on equity was £790,289.
(iii) Exceptional item & goodwill
In the prior year the goodwill held by the company was impaired in full, this was included in Administrative expenses at £2,015,000. In these financial statements the prior year has been restated to include this as an exceptional item. Furthermore, following a change in ownership & management, the directors are of the opinion that this goodwill should have been disposed of as it relates to a former business and is no longer relevant to the continuing trade. This had no effect on the overall equity previously reported.
(iv) Cashflow statement - lease payments
The cashflow statement has been restated to account for new leases entered into in the year. In the previous financial statements the "payment of lease liabilities" was £963,366 of cash inflow. This has been restated to be the actual lease payments of £510,460, cash outflow.
(v) Balance sheet reclassifications
A number of balances have been adjusted within the balance sheet in order to give a fairer representation of their substance along with being in line with the treatment in the current year. These adjustments were all presentational and did not impact the reported equity balances. The adjustments were as follows;
Warranty provisions were included in accruals in the 2021 year end and have been reclassified to provisions
Corporation tax repayable was included in payables in the 2021 year end and has now been reclassified to receivables.
Bad debt provision was netted off with Trade receivables in the 2021 year end and has now been split out to bad debt provision
Trade payables for a fellow group company have been reclassified from trade payables to amounts due to fellow group undertakings.
Trade receivables for a fellow group company have been reclassified from trade receivables to amounts owed by fellow group undertakings.
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