The directors present the strategic report for the year ended 31 March 2023.
Principal activities
During the year, TIAA Limited ("the Company") continued to provide business assurance and advisory services to the Health, Housing, Local Government, Charity, Education and Emergency Services sectors.
Inflation poses the biggest risk to the Company as internal cost pressures heighten, most notably staff costs. These costs are managed to ensure that their growth tracks in line with revenue. The Board has implemented further changes to protect the business. Most of the business activity serves the public sector which generally provide more assurance for future income.
The next largest risk facing the Company is limited availability of suitably qualified professionals to support the Company’s growth in contracted services. The Company has been quick to adjust and successfully developed and internal TIAA Pathway program to develop sufficient resources to meet future need.
Analysis of the development and performance of the business
The Company has been through significant transition in the reporting period. The retirement of the Managing Director led to the recruitment of Chief Executive, Corporate and Senior Management Team. These appointments ensure that the Company can maintain high standards of Corporate Governance, in line with best practice and over and above the requirements of a medium size business. The new structure will enable the Company to deliver ambitious growth targets over the next five years.
The Company continues to recognise the importance of Environmental Social and Governance (ESG) values and has successfully maintained level 3 accreditation with Green Dragon, further demonstrating the Company’s ongoing commitment to becoming a net zero business by 2030.
These financial statements for the year-ended 31 March 2023 are the first that the company has prepared in accordance with IFRS. Accordingly, comparative data for the period ended 31 March 2022 was prepared. In preparing the financial statements, the company's opening statement of financial position was prepared as at 1 April 2021, the company's date of transition to IFRS.
The key financial performance indicators used by the company's directors to assess the performance of the company are; turnover; gross profit and EBITDA (earnings before interest, tax and depreciation). The company has achieved the Business Plan target for 2022/23 of £9m revenue with growth of 2%. The gross profit for 2023 (£8,999k) is higher than the comparative period in 2022 by over £100K. The Operating Profit (£360k) is lower than 2022, this is caused by extraordinary one-off transition costs of circa £200k related to the retirement of the Managing Director and additional expenditure for the extraordinary costs in preparation for proposed listing. This has resulted in a lower EBITDA margin of 7.3% compared to 13.6% in 2022.
As with other corporate members of the Pensions Trust’s Social Housing Pension Scheme (SHPS), during the year the position regarding the past service deficit for the scheme worsened with an increase in net liabilities of £0.4 million, primarily because of unfavourable changes in the financial assumptions underlying the present value of the defined benefit obligation and an increase in the discount rate. The Company has an affordable plan in place to discharge the deficit in accordance with the pension trustees’ requirements.
Total assets have remained strong and generally comparable with the previous financial year end.
The cash position remains positive at over £1.8m. Changes in the profile of current and non-current liabilities including a decrease in the CBIL, have resulted in Net Assets being £50k more than the 2022 comparative
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2023.
The results for the year are set out on page 10.
Dividends were paid in respect of Ordinary shares during the year, totalling £119,612. These comprised a final dividend in respect of the 2022 financial year of £91,048 and an interim dividend in respect of the 2023 financial year of £28,564.
Participating Preference dividends were paid amounting to £9,301 comprising a final dividend in respect of the 2022 financial year of £7,080 and an interim dividend in respect of the 2023 financial year of £2,221.
The directors recommend a final dividend of £1.20 per Ordinary share and Participating Preference share, amounting to £106,944 and £8,316 respectively.
Financial instruments
Details of the company's financial instruments are provided within note 20 of the financial statements.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Shipleys 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.
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 the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report.
We have audited the financial statements of Tiaa Limited (the 'company') for the year ended 31 March 2023 which comprise the income statement, the statement of comprehensive income, 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
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.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The 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.
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 and the directors' report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept, 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.
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.
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. 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
The objectives of our audit, in respect to fraud, are: to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and its management.
Our approach was as follows:
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), and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations;
We considered the legal and regulatory frameworks directly applicable to the financial statements reporting framework (UK-adopted international accounting standards and the Companies Act 2006) and the relevant tax compliance regulations in the UK;
We considered the nature of the industry, the control environment and business performance, including the key drivers for management’s remuneration;
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit;
We considered the procedures and controls that the company has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programmes and controls.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included: testing manual journals; reviewing minutes of meetings with those charged with governance; reviewing the financial statement disclosures and testing to supporting documentation; performing analytical procedures; and enquiring of management, and were designed to provide reasonable assurance that the financial statements were free from fraud or error.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/Our-Work/Audit/Audit-and-assurance/Standards-and-guidance/Standards-and-guidance-for-auditors/Auditors-responsibilities-for-audit/Description-of-auditors-responsibilities-for-audit.aspx. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
The Statement of Comprehensive Income has been prepared on the basis that all operations are continuing operations.
Tiaa Limited is a private company limited by shares incorporated in England and Wales. The registered office and principle place of business is Artillery House, Fort Fareham, Newgate Lane, Fareham, PO14 1AH.
The company's principal activities and nature of its operations are the provision of business assurance and associated business services, mainly to the Health, Housing, Local Government, Charity, Education and Emergency Services sectors.
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 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.
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 the income statement, 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 the income statement, 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.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
The company recognises financial debt when the company becomes a party to the contractual provisions of the instruments. The company's financial liabilities are classified as basic financial liabilities.
Basic financial liabilities
Basic financial liabilities, including trade and other payables, borrowings and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest.
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.
The tax expense represents the sum of the tax currently payable and deferred tax.
The net interest element is determined by multiplying the net defined benefit liability by the discount rate, taking into account any changes in the net defined benefit liability during the period as a result of contribution and benefit payments. The net interest is recognised in the income statement as other finance revenue or cost.
Remeasurement changes comprise actuarial gains and losses, the effect of the asset ceiling and the return on the net defined benefit liability excluding amounts included in net interest. These are recognised immediately in other comprehensive income in the period in which they occur and are not reclassified to the income statement in subsequent periods.
The net defined benefit pension asset or liability in the balance sheet comprises the total for each plan of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information, and in the case of quoted securities is the published bid price. The value of a net pension benefit asset is limited to the amount that may be recovered either through reduced contributions or agreed refunds from the scheme.
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 the income statement 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 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.
In preparing these financial statements, the first-time IFRS has been adopted by the company in the preparation of its financial statements, the company has prepared its financial statements in accordance with UK-adopted international accounting standards as extant at 31 March 2023.
There are a number of standards, amendments to standards, and interpretations which have been issued that are effective in future accounting periods that the company has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2023:
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
Definition of Accounting Estimates (Amendments to IAS 8); and
Deferred Tax Related to Assets and Liabilities from a Single Transaction (Amendments to IAS 12).
IFRS 17 Insurance contracts
The following amendments are effective for the period beginning 1 January 2024:
IFRS 16 Leases (Amendment Liability in a Sale and Leaseback)
IAS 1 Presentation of Financial Statements (Amendment - Classification of Liabilities as Current or
Non current)
IAS 1 Presentation of Financial Statements (Amendment - Non current Liabilities with Covenants)
The company is currently assessing the impact of these new standards, interpretations and amendments but does not expect these to have significant impact on the financial statements in the year of adoption
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
In determining the amounts to be capitalised, management estimates the time that personnel have spent in bringing an asset into working condition for its intended use.
The cost of the defined benefit pension plan and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate, management considers the interest rates of corporate bonds in currencies consistent with the currencies of the post-employment benefit obligation with at least an ‘AA’ rating or above, as set by an internationally acknowledged rating agency, and extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation. The underlying bonds are further reviewed for quality. Those having excessive credit spreads are excluded from the analysis of bonds on which the discount rate is based, on the basis that they do not represent high quality corporate bonds.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.
All of the company's revenue during the years ended 31 March 2023 and 31 March 2022, was derived from the services it provides in the UK. The nature of the company's operations are the provision of business assurance and associated business services, mainly to the Health, Housing, Local Government, Charity, Education and Emergency Services sectors.
Contract assets comprise incremental costs directly attributable to the planning and necessary performance of the contract with the customer, which in accordance with IFRS 15 are capitalised within Contract assets and amortised over the performance of the contract.
Contract liabilities relate to deferred income, where the company has received consideration in advance of it satisfying the performance obligations associated with the contract.
The average monthly number of persons (including directors) remunerated by the company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2022 - 0).
The charge for the year can be reconciled to the profit per the income statement as follows:
In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised directly in other comprehensive income:
Factors that may affect future tax expense
The current Corporation Tax rate of 19% generally applies to all companies whatever their size. From 1 April 2023, this rate will cease to apply and will be replaced by variable rates ranging from 19% to 25%. This was substantively enacted on 24 May 2021 and as such deferred tax has been recalculated accordingly.
A small profits rate of 19% will apply to companies whose profits are equal to or less than £50,000.
The main Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by marginal relief. The marginal relief acts to adjust the rate of tax paid gradually increasing liability from 19% to 25%.
During the year ended 31 March 2022, the company's management reassessed its Assure software development intangible assets and recorded an impairment on the asset value of £144,000. The recoverable amount of the asset is its value-in-use, determined using management's expectation of the operational savings which will be derived from the use of the software use within the business. During 2022 management anticipated the market shifting towards other alternative software products, which significantly reduced the the expected life of the Assure software, causing the impairment.
The company has leases for its offices and vehicle fleet. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected in the statement of financial position as a right-of-use asset and a lease liability.
Each lease generally imposes a restriction that, unless there is a contractual right for the company to sublet the asset to another party, the right-of-use asset can only be used by the company. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to purchase the underlying leased asset outright at the end of the lease, or to extend the lease for a further term. The company is prohibited from selling or pledging the underlying leased assets as security. For leases over office buildings the company must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease. Further, the company must insure right-of-use assets and incur maintenance fees on such items in accordance with the lease contracts.
At 31 March 2023, the leases for office buildings were approaching their term, and were subsequently renewed on similar terms after the balance sheet date. Vehicle contract hire leases are typically obtained on 3-4 year terms.
Peter Hammond and Andrew Townsend together hold one £1 ordinary share of the issued share capital in The Internal Audit Association (HA) Limited in trust for TIAA Limited. The Internal Audit Association (HA) Limited is a dormant Co-operative and Community Benefits Society registered in England and Wales.
The net carrying value of trade receivables is considered a reasonable approximation of fair value.
Both the current and comparative impairment provisions apply the IFRS 9 expected loss model. Note 19 includes disclosures relating to the credit risk exposures and analysis relating to the allowance for expected credit losses.
The bank loan was issued in May 2020 in response to the COVID-19 global pandemic. It is supported by the Coronavirus Business Interruption Scheme ('CBILS') and managed by the British Business Bank on behalf of, and with the financial backing of, the Secretary of State for Business, Energy and Industrial Strategy. Under the CBILS, the Secretary of State has agreed to provide the bank with a partial guarantee. Under the terms of the arrangement, interest will be payable at a fixed rate of 2.09% over base rate per annum. Repayments are due 13 months from the borrowing date, payable in equal monthly instalments for a period of 5 years.
For the first 12 months, the interest was paid directly by the UK Government, and throughout the loan term the interest rate is considered to be preferential due to the loan being government backed as part of the UK Coronavirus support packages. Accordingly, the company recognises the difference between the interest cost incurred on the loan and that of a market interest rate for an equivalent loan, as a government grant. For the year ended 31 March 2023 the company has recognised £nil (31 March 2022: £6,023) as government grant.
The carrying value of trade and other payables are considered to be a reasonable approximation of fair value. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Other taxation and social security relates to VAT and employment taxes payable by the company at the balance sheet date.
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:
Risk management objectives and policies
The company’s objectives when managing capital are to safeguard the company’s ability to operate as a going concern and to maintain an optimal capital structure to cover the expected peak cash requirements of the business. The company’s capital sources primarily comprise share capital, undistributed profits and borrowing facilities. The company holds or issues financial instruments in order to finance its operations, details of which are disclosed in note 20.
The company is exposed to various risks in relation to financial instruments. The main types of risks are market risk (mainly interest rate risk), credit risk and liquidity risk.
The company’s risk management is coordinated at its headquarters, in close cooperation with 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. Long-term financial investments are managed to generate lasting returns.
The company does not actively engage in the trading of financial assets for speculative purposes nor does it enter into hedging arrangements. The most significant financial risks to which the company is exposed are described below:
Market rate risk
The company has minimal exposure to market risk through its use of financial instruments which result from both its operating and investing activities.
The company's financial instruments are all denominated in sterling and therefore not subject to foreign currency risks. The company's financial instruments which are exposed to interest rate risk, comprise of a short-term bank overdraft facility subject to variable interest rates but unutilised at the balance sheet date; a CBILS bank loan subject to interest rate of 2.09% above base rate and participating preference shares with a fixed coupon rate.
Credit risk
Credit risk is the risk that a counterparty fails to discharge an obligation to the company. The company is exposed to credit risk from financial assets in respect of trade and other receivables.
The company continually monitors the credit quality of customers and utilises, where available, external credit ratings and/or reports on customers. The company's policy is to deal only with credit worthy counterparties. The credit terms range between 30 and 120 days. The credit terms for customers as negotiated with customers are subject to an internal approval process which considers the credit worthiness of the customer. The ongoing credit risk is managed through regular review of ageing analysis, together with credit limits per customer.
The company applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers.
The expected loss rates are based on the payment profile for sales over the past 48 months before 31 March 2023 and 31 March 2022 respectively as well as the corresponding historical credit losses during that period. The historical rates are adjusted to reflect current and forwarding looking macroeconomic factors affecting the customer’s ability to settle the amount outstanding. However, given the short period exposed to credit risk, the impact of these macroeconomic factors has not been considered significant within each annual reporting period.
Trade receivables are written off (ie derecognised) when there is no reasonable expectation of recovery.
Liquidity risk
Liquidity risk is that the company might be unable to meet its obligations. The company manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecast cash inflows and outflows due in day-to-day business. Net cash requirements are compared to available borrowing facilities in order to determine headroom or any shortfalls. This analysis shows that available borrowing facilities are expected to be sufficient for at least the next 12 months.
Liquidity and interest risk tables
The following tables detail the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed payment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the period. The contractual maturity is based on the earliest date on which the Company may be required to pay.
The following information provides details of the Company’s expected maturity for its non-derivative financial assets.
The information has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary in order to understand the Company’s liquidity risk management as the liquidity is managed on a net asset and liability basis.
The directors consider that the carrying amounts of financial assets and financial liabilities carried at amortised cost in the financial statements approximate to their fair values. All of the Company’s financial assets and financial liabilities fall within Level 3 of fair value hierarchy.
Deferred taxes arise from temporary timing differences between the recognition of income and expenditure in the financial statements and when they become subject to, or deductible from taxable profits. Deferred taxes are measured at the expected future tax rate that the underlying timing difference is expected to reverse. At 31 March 2023 deferred tax balances are predominately measured on a 25% tax rate (31 March 2022: 19%).
Deferred tax balances are summarised as follows:
The amounts recognised in other comprehensive income relate to the remeasurement of the defined benefit pension scheme net liability. A deferred tax asset arises on the Defined benefit pension schemes as the company will receive tax relief in future on payments it makes to settle the Defined benefit pension scheme deficit. The future reversal of the deferred tax asset on the Defined benefit pension scheme is therefore intrinsically linked to the timing of the future settlement of the Defined benefit pension scheme, and hence is presented within non-current assets (see note 22).
The remaining net deferred tax asset, primarily relates to tax losses arising on the transition to and application of IFRS 15. These tax losses will be used to reduce future tax liabilities on taxable profits arising from the performance company, and based on the projections prepared by management, are expected to be consumed in the near future.
The charge to statement of comprehensive income in respect of the defined contribution schemes was £345,829 (2022 - £236,295).
A full actuarial valuation for the scheme was carried out with an effective date of 30 September 2020. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit credit method.
The scheme exposes the company to actuarial risks such as interest rate risk, investment risk, longevity risk and inflation risk:
Interest rate risk – The present value of the defined benefit liability is calculated using a discount rate determined by reference to market yields of high quality corporate bonds. The estimated term of the bonds is consistent with the estimated term of the defined benefit obligation and it is denominated in sterling. A decrease in market yield on high quality corporate bonds will increase the company’s defined benefit liability, although it is expected that this would be offset partially by an increase in the fair value of certain of the plan assets.
Investment risk – The plan assets at 31 March 2023 are predominantly liability driven investments, equity and debt instruments. The fair value of the plan assets is exposed to fluctuations in stock market prices and macro-economic performance of the UK generally.
Longevity risk – The company is required to provide benefits for life for the members of the defined benefit liability. Increase in the life expectancy of the members, particularly in the UK where the pension payments are linked to CPI, will increase the defined benefit liability.
Inflation risk – A significant proportion of the defined benefit liability is linked to inflation. An increase in the inflation rate will increase the company’s liability. A portion of the plan assets are inflation-linked debt securities which will mitigate some of the effects of inflation.
Assumed life expectations on retirement at age 65:
Amounts recognised in the income statement
Amounts recognised in other comprehensive income
The amounts included in the statement of financial position arising from the company's obligations in respect of defined benefit plans are as follows:
Movements in the present value of defined benefit obligations
Pension contributions to be made by the company in 2024 are expected to be at a similar level to 2023.
The defined benefit obligations arise from plans funded as follows:
Movements in the fair value of plan assets:
The significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate, the salary growth rate and the average life expectancy, as disclosed above.
Those assumptions were developed by management with the assistance of independent actuaries. Discount factors are determined close to each period-end by reference to market yields of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension obligation. Other assumptions are based on current actuarial benchmarks and management’s historical experience.
The weighted average duration of the defined benefit obligation at 31 March 2023 is 15 years (31 March 2022: 19 years).
The following table summarises the effects of changes in these actuarial assumptions on the defined benefit liability at 31 March:
The present value of the defined benefit obligation has been calculated with the same method (project unit credit) as the defined benefit obligation recognised in the consolidated statement of financial position. The sensitivity analyses are based on a change in one assumption while not changing all other assumptions. This analysis may not be representative of the actual change in the defined benefit obligation as it is unlikely the change in any of the assumptions would occur in isolation of one another as some of the assumptions are correlated.
The fair value of plan assets at the reporting period end was as follows:
Ordinary shares rank pari pasu with each other in all respects, except that the A Ordinary shares are not subject to the Staff Shareholding Rules.
Between August 2018 and October 2018, 6,941 Participating Preference shares were issued for the sum of £74,963. The Participating Preference shares carry no voting rights and receive a fixed cumulative preferential dividend at a rate of 2.5% per annum alongside participating in all other distributions made by the company. The fair value of the obligation to pay 2.5% per annum in perpetuity was calculated on inception to be £12,494 and is classed as a liability (split between payable within one year and payable in more than one year). The remaining element of the total amount paid for the shares is recognised in equity, as £347 within Share capital and £62,122 within Share premium.
Own shares (Treasury shares)
Excluded from the amounts disclosed above and deducted from equity within the Own shares reserve, the company also holds a number of shares in treasury.
At 31 March 2023 the company held 6,278 Ordinary shares of £0.05 each in treasury (31 March 2022: 6,459 Ordinary shares of £0.05 each). The treasury reserve of Ordinary shares arose from previous buy-backs of shares completed by the company.
During the year ended 31 March 2022, 181 Ordinary shares of £0.05 each held in treasury were acquired by an employee of the company for an amount of £1,996.
Prior year adjustment
A prior year adjustment has been made within these financial statements to correct the opening balance on the Shares Held in Treasury reserve at 1 April 2022, to £323 from that previously disclosed as £344. There is no impact on previously reported profits, net assets or equity as a result of this restatement.
Proceeds received in addition to the nominal value of the shares issued, are included in share premium, less associated registration costs directly attributable to the issue of the shares.
Share Premium Account
This reserve represents the premium arising on shares issued at a value that exceeds their nominal value.
Retained earnings reserve
This reserve represents retained earnings and accumulated losses.
Shares Held in Treasury
This reserve is a non-distributable reserve and represents the nominal value of shares purchased by the company.
On 9 November 2017 a debenture was issued in favour of National Westminster Bank PLC, securing a fixed and floating charge over all assets and future assets of the company.
There have been no significant events affecting the company since the year end.
The company's related parties are primarily its key management personnel. Key management of the company comprise the company's board of directors including its non-executive directors. Details of their remuneration are disclosed in note 8.
During the year ended 31 March 2023 dividends totalling £53,317 (31 March 2022: £14,618) were paid in respect of shares held by the company's directors.
Mr P Hammond is a director and principal shareholder in Peter Hammond Consulting Limited. During the year ended 31 March 2023 the company purchased consultancy services amounting to £109,424 (31 March 2022: £179,644) from Peter Hammond Consulting Limited.
These financial statements, for the year ended 31 March 2023, are the first the company has prepared in accordance with IFRS. For periods up to and including the year ended 31 March 2022, the company prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102 "the Financial Reporting Standard applicable to the UK and Republic of Ireland" (UK GAAP).
Accordingly, the company has prepared financial statements that comply with IFRS applicable as at 31 March 2023, together with the comparative period data for the year ended 31 March 2022, as described in the summary of significant accounting policies. In preparing the financial statements, the company's opening statement of financial position was prepared as at 1 April 2021, the company's date of transition to IFRS. This note explains the principal adjustments made by the company in restating its UK GAAP financial statements, including the statement of financial position as at 1 April 2021 and the financial statements as of, and for the year ended 31 March 2022.
Exemptions applied
IFRS 1 allows first-time adopters certain exemptions from the retrospective application of certain requirements under IFRS.
The company has applied the following exemptions:
IFRS 3 Business Combinations has not been applied to either acquisitions of subsidiaries that are considered businesses under IFRS, or acquisitions of interests in associates and joint ventures that occurred before 1 April 2021. Use of this exemption means that the UK GAAP carrying amounts of assets and liabilities, that are required to be recognised under IFRS, are their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with IFRS. Assets and liabilities that do not qualify for recognition under IFRS are excluded from the opening IFRS statement of financial position. The company did not recognise any assets or liabilities that were not recognised under the UK GAAP or exclude any previously recognised amounts as a result of IFRS recognition requirements.
IFRS 2 Share-based Payment has not been applied to equity instruments in share-based payment transactions that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7 November 2002 that vested before 1 April 2021. For cash-settled share-based payment transactions, the company has not applied IFRS 2 to liabilities that were settled before 1 April 2021.
The company assessed all contracts existing at 1 April 2021 to determine whether a contract contains a lease based upon the conditions in place as at 1 April 2021. Lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at 1 April 2021. Right-of-use assets were measured at the amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before 1 April 2021. The lease payments associated with leases for which the lease term ends within 12 months of the date of transition to IFRS and leases for which the underlying asset is of low value have been recognised as an expense on either a straight-line basis over the lease term or another systematic basis.
Estimates
The estimates at 1 April 2021 and at 31 March 2022 are consistent with those made for the same dates in accordance with UK GAAP (after adjustments to reflect any differences in accounting policies).
Under UK GAAP, a lease is classified as a finance lease or an operating lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. Under IFRS, as explained in Note 1.14, a lessee applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets and recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
At the date of transition to IFRS, the company applied the transitional provision and measured lease liabilities at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of transition to IFRS. Right-of-use assets were measured at the amount equal to the lease liabilities adjusted by the amount of any prepaid or accrued lease payments. As a result, the company recognised an increase of £254,199 (31 March 2022: £339,815) of lease liabilities included under interest bearing borrowings and and equivalent amount of £254,199 (31 March 2022: £339,815) of right-of-use assets.
The adoption of IFRS has significantly changed the company's accounting for revenue on contracts with customers. Under UK GAAP, the company recognised revenue from the performance of contracts with customers, by reference to the stage of completion of the contract, which was measured by reference to chargeable time incurred to date as a percentage of total chargeable time expected to fulfil the contract. The company recognised a receivable within debtors where the value of the stage of completion of the contract exceeded consideration received to date, Under IFRS the company is required to follow the principals of IFRS 15 in assessing for each contract the performance obligations to be delivered, with the contracted revenue allocated to each performance obligation, and recognised once the performance obligation has been satisfied.
At the date of transition to IFRS the company has derecognised the receivables recognised under UK GAAP for accrued contract revenues, and instead recognised contract assets and contract liabilities in accordance with IFRS 15. The effect is that at the date of transition, amounts receivable under contracts within debtors have been reduced by £914,100 (31 March 2022: £716,782).
The adoption of IFRS has fundamentally changed the company's accounting for impairment losses for financial assets by replacing incurred loss approach under UK GAAP with a forward-looking expected credit loss (ECL) approach. IFRS requires the company to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets.
At the date of transition to IFRS, the company recognised additional impairment on its Trade receivables of £41,033(31 March 2022: £23,396), which resulted in a decrease in retained earnings by the same amount.
The various transitional adjustments resulted in various temporary differences. According to the accounting policies in Note 1.11, the company has to recognise the tax effects of such differences.
At the date of transition to IFRS, the aggregate affect of the transition adjustments generated tax losses to the company, for which a deferred tax asset has been recognised of £173,679 (31 March 2022: £96,596), with an impact on the reported profit of the company for the year ended 31 March 2022 of an increased tax charge amounting to £77,083).