Objectives
Higgidy Limited’s (“the Company”) long term objective is to grow profitably to support continued investment. In pursuing this objective, the Company intends to maintain sound financial management and avoid excessive risks.
The Company is a supplier of quality chilled products under the Higgidy brand. Higgidy specialises in the manufacture of premium branded savoury pastry products, such as quiches, pies, and rolls, to major food retailers in the UK. The food sector remains highly competitive as consumer eating habits have continued to evolve and volume has been challenged by the cost-of-living crisis that has impacted on consumer spending. The Company has adapted to these changes by building on our core business through continued innovation and new product development while exploring opportunities to expand into adjacent channels.
Capital investment was £11.0m (2021: £2.0m) in the period. During the year we invested heavily in a site expansion project. This project has significantly increased our production capacity in addition to providing additional office space in order to support the business for future growth.
The Directors use sales and gross profit as key performance indicators (“KPI”) to monitor the business. Sales for the 15-month period were £43.3m (2021: £36.0m) which is an increase of 21.4%. The revenue increase was primarily due to the change in accounting reference date as the prior period result is over a 12-month comparative. On a like for like basis, volume has decreased slightly, partly due to the impact of the cost-of-living crisis in the second half of the period, as there is some evidence that consumers have traded down to own label alternatives. Volume was also constrained in the peak summer months by the bakery expansion, which was completed in September 2022. Gross profit margin decreased to 27.3% (2021: 34.1%). The decrease was primarily due to input cost inflation, as while the Company has secured some price increases with our customers, we have absorbed some of the inflation, which has eroded gross margin. Gross margin has also been adversely affected by some inefficiency caused by the significant bakery expansion in the period.
The Company recorded a loss before tax of £3.4m (2021: profit of £1.8m). The decline in profitability in the period is primarily due to significant raw material cost inflation and bakery disruption caused by the site expansion. The combined depreciation and amortisation charge has also increased by £0.5m to £1.2m driven by the increased capital investment.
The Directors monitor staff numbers as a KPI. Average staff numbers were 340 (2021: 328) in the period. As a business, we look to engage and motivate our staff with our culture and invest in training and development to help our staff realise their full potential. This allows the business to maintain labour stability that is so important in producing our quality products, together with providing excellent customer service.
Product innovation and recipe development are fundamental to successfully developing and growing the business. The Company invests heavily in its development and technical staff to ensure the Higgidy brand is supported by exciting product innovation to our consumers.
Future Outlook
The Company expects 2023 to be a challenging year, but the Directors are optimistic about the future. The Company expects further significant cost inflation and are working with our customers on inflation recovery and cost mitigation. We are targeting an increase in sales through new product development and gross margin improvement from bakery efficiency projects to reduce the loss before taxation.
Colleague Involvement
The Company places considerable value on its people and has continued its policy of communication, consultation, and involvement. Information about each business is provided by individual line managers at weekly team briefings. Broader information is also available every three months at the quarterly business brief.
Health and Safety
Health & Safety is integral to the way we do business and ensures we keep our colleagues, visitors, and members of the public safe as they go about their work and daily activities. It is a fundamental part of our values.
2022 was a difficult period as we adjusted to new ways of working and renewed our focus on traditional health & safety topics, following the Covid restrictions, which remained in place for the first 6-months of the period. We completed a health & safety gap analysis programme and focused our resources on addressing any gaps.
Risk Management
The Board sets the strategy for the Company and ensures the associated risks are effectively identified and managed through the implementation of the risk management and control frameworks.
Our Approach
Higgidy Limited became a wholly owned subsidiary of Samworth Brothers (Holdings) Limited (“the Group”) during the period and adopted various group wide policies. The consolidated financial statements for the Group are included in the Samworth Brothers (Holdings) Limited financial statements. The Board of Samworth Brothers (Holdings) Limited has overall responsibility for the risk management framework. The Board delegates the ongoing review of the framework to the GEB (Group Executive Board) through the Risk Management Group, which is chaired by the Group Chief Financial Officer. The Risk Management Group consists of key senior managers who meet regularly throughout the period. The framework is designed to ensure that all key risks are considered, reviewed, and managed appropriately.
The Company uses risk registers to capture the likelihood and impact of risks and any relevant mitigation. The process is overseen by the Risk Management Group, who evaluate the effect of significant or common risks on the Company and monitor the status of mitigating actions.
Risk Appetite
The Company’s activities expose it to several risks that fall within Strategic, Commercial, Financial and Operational categories. As a private food manufacturer, the Company seeks to minimise exposure to Financial and Operational risk, particularly in the areas of product quality, food safety, legal compliance, health & safety and cyber security. The Company accepts a slightly higher level of risk in respect of Strategic and Commercial opportunities, where there can be a balance of risk versus reward.
Emerging Risks
Emerging risks are new risks or familiar risks in a new or unfamiliar context (re-emerging), which at present do not have a significant effect on the Company but may have in the future. The Company considers emerging risks as part of the risk management framework. During the period, key emerging risks included: the effects of a prolonged UK recession; and the impact of climate change (including extreme weather) on the Company’s operations and supply chain.
Key Events Impacting on our Principal Risks & Uncertainties
The Company operated in a changing and challenging economic environment during the period. Whilst the operational effects from Covid-19 and Brexit lessened, the Company was exposed to the effects of high inflation due to increased demand on commodities and energy following the global post-Covid recovery and the invasion of Ukraine, and changes in consumer buying behaviours as UK household budgets face increases to interest rates and are impacted by the cost-of-living crisis.
Ukraine Conflict
Following the Russian invasion of Ukraine, the Company assessed the impact on its principal risks and identified the following scenarios, for which it has mitigation plans in place or in development: an increased risk of Russian cyber-attacks against the Company or supply chain; an increased risk of rising energy costs and power outages during high energy demand peaks; and an increased cost or disruption to the supply of commodities and key raw materials. The Company will continue to closely assess the risks and issues associated with the ongoing conflict.
Cost of Living and Inflation
The UK economy is experiencing a period of high inflation and labour disputes, which is affecting both the Company and the food industry. Increased food and energy costs coupled with lower disposable household incomes has impacted consumer buying behaviours with evidence that some consumers have opted to eat-in, traded down to own-label products and switched to discount retailers. To mitigate the financial impact, the Company has recovered some of the inflation experienced over the last 12 months and continues to focus on inflation recovery and operational and supply chain cost reduction initiatives. In addition, the Company continues to review its product portfolio to meet consumer demands and has rolled out health, wellbeing, and cost of living assistance initiatives for colleagues.
Climate Change
The Company has continued to work towards the Group's climate change commitments set out within its Positive Impact Plan. Central to these commitments are the setting of Net Zero targets, which are aligned with the Science Based Targets Initiative (a collaboration between the Carbon Disclosure Project, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature). The Company has developed a better understanding of total food waste performance within the bakeries through better quality data and analysis, this in turn has created focused action plans to further reduce food waste. Overall, in the short term, the principal risk impact is relatively low, but with time this may increase driven mainly by customer requirements and NGO stakeholder activity.
Cybersecurity
Global cybersecurity incidents were high during the period, with frequent incidents reported in the UK and food industry. This, together with the increased risk of Russian cyber-attacks following their invasion of Ukraine, has led the Company to increase its risk rating. The Company is incorporating cybersecurity incident responses into operational business continuity plans.
The Company has a complex supply chain, which requires careful management to ensure we can manufacture and distribute our products to our customers. Regular communication with our suppliers is critical, particularly in the current environment as we continue to face into challenges with inflation and material availability. The procurement team interact with our suppliers daily; this enables us to identify issues as they arise and work with our supply partners to address them in real time. Our suppliers are vital to our responsible business performance, and we work in partnership with them to ensure our ingredients are ethically sourced.
Customer Engagement
The Company has long standing relationships with all our main customers and these relationships are critical to the Company. We interact with our customers daily and at multiple levels within the business. We work closely on new product development and innovation to ensure we are responding to changes in consumer behaviour and demands. Our dedicated insight and category teams regularly share analysis on market and consumer data. We also collaborate closely on sustainability, for example working on projects to reduce food waste and single use packaging.
Strategy
The Company has a strategy to build on the Higgidy brand by increasing brand awareness and diversifying into adjacent categories and channels. The key pillars of this strategy are:
The heart of the business – The underlying focus of the Higgidy brand is on making great food that helps people to live well. New product development and innovation is critical to the future of the business but the core products – quiches, pies, and rolls - are the heart of our business and will continue to underpin the Company.
Diversification – leveraging existing capability in new ways to create sales growth outside of core categories and channels that will provide longer-term sustainability to the business.
Responsible business – Higgidy has always tried to play a leading role in the community. In August 2021, we achieved B corp accreditation and we have continued to actively work to reduce our impact on the world around us. We are committed to leaving the world a better place than we found it by contributing more than we take.
Developing our future – The Covid-19 pandemic and recent world events have created challenging market conditions, while the cost-of-living crisis has increased the pressure on consumers. We recognise the need to innovate and mitigate cost increases where possible.
Key Decisions Made in the Period
Response to the War in Ukraine and Inflationary Pressure
The war in Ukraine commenced on 24 February 2022. The war has caused supply chain disruption and commodity shortages in areas such as gas, vegetable oil, wheat and corn and has led to a period of high inflation. As a result, we have seen a significant increase in input costs and supply chain disruption with certain key ingredients being unavailable during the period.
Supply chain issues were mitigated by working with our customers to rationalise product ranges and leveraging the relationships we have with our suppliers to ensure continuity of supply. Where products were not available, we used alternative ingredients where possible, as agreed with our customers.
The increased input costs have been most pronounced in raw materials, packaging, and utilities. We have been able to mitigate the inflationary impact through a combination of price increases, range innovations and operational efficiencies. We also have price recovery mechanisms in place to recover raw material and packaging cost increases with several customers.
Carbon Net Zero
While the climate emergency remains in sharp focus for many, the calls on governments and industry to reduce carbon emissions and to set robust targets towards achieving net zero carbon emissions has been tempered by geopolitical tensions and dramatic increases in energy costs. These have not diverted Higgidy form our long-term net zero goals.
In 2022 Higgidy continued to purchase certified renewable grid-supplied electricity and carried out carbon foot-printing to develop its net zero pathway.
Food Waste
Tackling food waste is a key focus area for the Company, aligned closely with our values as a family-run business. By reducing food waste throughout our value chain, we can reduce impacts on food insecurity, agricultural water emissions and carbon emissions associated with food loss.
Higgidy support the Group as it continues to engage with customers and industry stakeholders on food waste, including Champions 12.3 and WRAP. We support SDG 12.3, the halving food waste per capita by 50% by 2030 against the national 2017 baseline. We have continued to support local food charities and food redistribution partners including FareShare and The Company Shop, redistributing over 830 tonnes of surplus food in 2022 (2021: 650 tonnes). We have also revised our historic food waste data and reporting. The Group's total food waste intensity was 9.8% for 2022, a slight increase from 9.6% in the prior period. This is a different basis for calculating food waste intensity, and it includes food surplus. This is expected to be the high point, with 2022 impacted by the Company’s recovery from the Covid-19 pandemic and global events which impacted the availability of labour and raw materials. This had a knock-on effect on our ability to manage waste, as the number of production runs increased to manage the disruption.
Higgidy supports the Group initiatives in place to reduce food waste. These include a new governance framework for food waste, establishment of food waste working groups resourced and led by the senior leadership teams and with a specific focus on edible food waste and analysis of site food waste, with data reported and discussed each month. The Group's recycling rate for all waste including food waste has increased to 83.6% (2021: 83.2%), with 100% of food waste diverted from landfill.
Sustainable Packaging
Identifying food safe and sustainable packaging solutions continues to be a focus area for the business. We are signatories to the UK Plastics Pact. We are committed to eliminating single-use and problematic packaging in conjunction with our major customers across UK retail and coffee shops and food service. We also seek to enable recycling packaging through our ambition for 100% recyclable packaging by 2025. Much work in 2022 has focused on evaluating packaging reduction opportunities.
Bank Loans and Overdrafts
During the period the Company closed the HSBC invoice factoring account and became part of the group HSBC cash pool facility.
Treating People Fairly
Supplier selection and approval, and the ongoing monitoring of supplier performance, is a major focus for the business. We work in partnership with our suppliers to source ingredients ethically and do business responsibly. Given that we procure numerous raw materials from across the globe via complex supply chains, we work with our key suppliers and customers to ensure risks associated with these materials, in relation to human rights and environmental sustainability, are identified and mitigated. 91% of our suppliers are linked to us on the SEDEX platform, giving us visibility of supplier performance on these key responsible sourcing criteria. Compliance with the Modern Slavery Act is outlined in our Modern Slavery Statement and is available on our website.
Sourcing with Care for the Planet
We remain committed to sourcing Roundtable for Sustainable Palm Oil (RSPO) certified sustainable palm oil for our products. In 2022, we became signatories to the UK Soy Manifesto, an industry leading coalition on deforestation and land use conversion free soy. Sustainable seafood is also an important area of focus also and we have continued to source materials from Marine Stewardship Council (MSC) certified sources where possible. Our procurement and responsible sourcing teams continue to develop our sourcing principles in line with customer codes of practice and global sourcing guidelines. On human rights, the ETI Base Code provides an essential baseline for all suppliers. We have also developed our Samworth Brothers Sourcing Charter in 2022. This provides our core requirements of suppliers and is being shared across our supply base.
Our Communities
Through donations and community projects, we support local activities and disadvantaged groups. We engage with local schools and career fairs to encourage young people to consider the food and drink industry as a career and to develop their life skills. Through our connections with local partners, we mentor secondary school and college pupils on interview techniques and CV writing.
We are passionate about making a positive contribution to society and have developed links that focus on reducing food insecurity and improving the health & wellbeing of our colleagues and our communities. Examples of such community engagement activities include running Pop-up pantries that ensure children do not go hungry during school holidays and the distribution of food parcels to those who need our help.
Developing our Portfolio
As a family business, we take our responsibility to help the nation make healthier food choices seriously. The Company is committed to producing a wide range of healthy and nutritious foods as part of its portfolio.
This commitment has resulted in assessment of our current product portfolio using the Nutrient Profile Model, and developing a segmentation of our portfolio which supported our dialogue with our major customers on strategic health and nutrition developments. This work has demonstrated that we have a balanced portfolio and identified opportunities to further develop.
Streamlined Energy and Carbon Reporting
The Company has taken the exemption to not include the streamlined energy and carbon reporting in the financial statements on the grounds that the Company is a full owned subsidiary of a qualifying Group, Samworth Brothers (Holdings) Limited.
The directors of the company consider, that collectively and individually, that they have acted in a way that
promotes the success of the company for the benefit of its shareholders as set out in s172(1) (a-f) of the Act.
The strategic report has been approved by the Board and is signed on its behalf by
The directors present their annual report and financial statements for the period ended 1 January 2023 (referred to as “2022” and “period” throughout the report, with 2021 referring to the 52 week period ended 3 October 2021).
Change of Accounting Reference Date
During the period the company changed its accounting reference date from 3 October to 1 January to become co-terminus with its holding company, Samworth Brothers Limited.
The results for the period are set out on page 19.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the period and up to the date of signature of the financial statements were as follows:
The Company maintains liability insurance for its Directors and officers, which is a qualifying third-party indemnity provision for the purposes of the Companies Act 2006.
The Company’s activities expose it to financial risks including price risk, credit risk, cash flow risk and liquidity risk. The Company’s principal financial assets are bank balances and cash, trade and other debtors. The nature of the industry means the working capital cycle is short. The Company has no external borrowings. Key customers are blue chip retail companies and therefore customer credit risk is considered low. The amount presented in the balance sheet in respect of trade debtors and other debtors is net of an allowance for doubtful debtors.
The Company is exposed to commodity price risks, but carefully manages its exposure on a practical and cost benefit basis.
The Company has continued to invest in research and development in relation to its principal activities during the period under review. This has included investment in the development of new products for our customers.
The Company expects a challenging year but the Directors are optimistic about the future. The Company expects further cost inflation in 2023 and are working with our customers on inflation recovery and cost mitigation. The Company continues to invest in both the brand and the business. Further detail is included in the Strategic Report from page 2 of this report.
Health & Safety is integral to the way we do business and ensures we keep our colleagues, their visitors, and members of the public safe as they go about their work and daily activities. It is a fundamental part of our values. Further detail on how we work can be found in the Strategic Report from page 2 and forms part of this report by cross reference.
Social and Environmental Responsibility
As a responsible business that makes a positive contribution to society, the Company is committed to leaving the world a better place than that which we found, passing on this legacy from generation to generation. Further detail on our corporate social responsibility can be found in the Strategic Report from page 2 and forms part of this report by cross reference. The Group’s Streamlined Energy and Carbon Reporting can be found in the Samworth Brothers (Holdings) Limited financial statements.
Stakeholder Engagement
Stakeholder engagement is a clear priority for the business. We maintain good relationships with our colleagues, customers, suppliers, and lenders and ensure that we engage with them on key decisions where appropriate.
In forming their assessment, the directors have considered the financial position and prospects of the Company, including budgets and forecasts covering the period to 31 December 2024, using these budgets and forecasts to assess the level of funding required. They have also considered reasonably foreseeable events and circumstances which may impact the level of facilities required.
The Company is party to the group banking facilities and Samworth Brothers (Holdings) Limited has confirmed its intention to provide any required support to enable the Company to settle its liabilities as they fall due.
In assessing the ability of the Company to continue as a going concern, the Directors have considered the continued availability of the banking facilities for the wider Samworths group, including the cash needs of the overall group and compliance with its banking covenants, with no issues being identified. Further details of the Group’s assessment can be found in the Group’s financial statements for the year ended 31 December 2022.
In conclusion, having considered all plausible scenarios and taking into account the support pledged by the Group and continued access to the Group’s banking facilities, the directors have concluded it has adequate resources to continue to operate for the foreseeable future and therefore it is appropriate to adopt the going concern basis in the preparation of these financial statements.
In accordance with section 489 of the Companies Act 2006 and the recommendation of the Group's Audit Committee, a resolution is to be proposed at the AGM for the reappointment of BDO as auditor of the Company.
Basis for 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
Other Companies Act 2006 reporting
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 period 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.
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.
Extent to which the audit was considered capable of detecting irregularities, including fraud
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:
Non-compliance with laws and regulations
Based on:
Our understanding of the Company and the industry in which it operates;
Discussions with management and those charged with governance; and
Obtaining and understanding of the Company’s policies and procedures regarding compliance with laws and regulations
We considered the significant laws and regulations to be UK Accounting Standards and the Companies Act 2006.
The Company is also subject to laws and regulations where the consequence of non-compliance could have a material effect on the amount or disclosures in the financial statements, for example through the imposition of fines or litigations. We identified such laws and regulations to be Corporate Tax, VAT and Employment Tax legislation, Health & Safety legislation, Food Hygiene and the Bribery Act 2010.
Our procedures in respect of the above included:
Review of minutes of meeting of those charged with governance for any instances of non-compliance with laws and regulations;
Review of correspondence with regulatory authorities for any instances of non-compliance with laws and regulations;
Review of the Company’s accounting policies for non-compliance with relevant standards;
Review of the financial statement disclosures and agreeing them to supporting documentation; and
Review of legal expenditure to understand the nature of expenditure incurred.
Fraud
We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our risk assessment procedures included:
Enquiry with management and those charged with governance regarding any known or suspected instances of fraud;
Obtaining an understanding of the Company’s policies and procedures relating to:
- Detecting and responding to the risks of fraud; and
- Internal controls established to mitigate risks related to fraud.
Review of minutes of meeting of those charged with governance for any known or suspected instances of fraud;
Discussion amongst the engagement team as to how and where fraud might occur in the financial statements; and
Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud.
Based on our risk assessment, we considered the areas most susceptible to fraud to be revenue recognition and management override of controls.
Our procedures in respect of the above included:
Testing of journal entries throughout the period which met a defined risk criteria (which included manual journals posted to revenue), agreeing them to supporting documentation to check they were correctly recorded and supported by appropriate evidence;
Incorporating unpredictability in our testing;
Challenging and assessing the appropriateness of the significant estimates and judgements made by management for evidence of bias, having regard to supporting evidence and historical outcomes. These included;
- Customer rebate provisions
Testing any significant transactions that appeared to be outside the normal course of business for evidence of bias.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were all deemed to have appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to 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.
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.
There was no other comprehensive income for 2022 (2021: £nil).
The Statement of Comprehensive Income has been prepared on the basis that all operations are continuing operations.
The notes on pages 21 to 40 form part of these financial statements.
Higgidy Limited is a private company limited by shares incorporated in England and Wales. The registered office is Unit 60, Dolphin Road, Shoreham by Sea, West Sussex, BN43 6PB.
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 £.
These financial statements are for 15 months whereas the comparative figures are for a year. As a result, the comparative figures are not entirely comparable.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Depreciation methods, useful lives and residual values are reviewed if there is an indication of a significant change since the last annual reporting date in the pattern by which the company expects to consume an asset's future economic benefits.
Business combinations are accounted for using the purchase method as at the acquisition date, which is the date on which control is transferred to the Company. At the acquisition date, the Company recognises goodwill at the acquisition date as:
the fair value of the consideration (excluding contingent consideration) transferred; plus
estimated amount of contingent consideration (see below); plus
the fair value of the equity instruments issued; plus
directly attributable transaction costs; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities and contingent liabilities assumed.
Non-financial asset
The carrying amounts of the Company’s non-financial assets, other than stocks, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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 the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing is allocated to cash-generating units, or (“CGU”) that are expected to benefit from the synergies of the combination. For the purpose of goodwill impairment testing, if goodwill cannot be allocated to individual CGUs or groups of CGUs on a non-arbitrary basis, the impairment of goodwill is determined using the recoverable amount of the acquired entity in its entirety, or if it has been integrated then the entire entity into which it has been integrated.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss is reversed if and only if the reasons for the impairment have ceased to apply.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Other Income
Rental Income
Rental income from operating leases (net of any incentives given to lessees) is recognised on a straight line basis over the lease term.
Government Grants
Government grants made as a contribution towards fixed assets are recognised over the expected useful economic lives of the related assets.
Customer rebates
The Company provides rebate arrangements, or other incentive arrangements, to its customers. In assessing sales related accruals, the Company reviews sales in the period and ensures that any accruals are in line with agreements in place with each customer.
Useful economic lives of property, plant and equipment
The judgements in relation to the useful economic lives of property, plant and equipment are reported in note 1.6.
There has been no impairment in the period following a review by the Company.
Dilapidations provision
The basis of recognition for the dilapidations provision are referred to in note 17.
Trade debtor recoverability
The Company assess the recoverability of all trade debtor balances. Any balances with significant uncertainty are provided for and unrecoverable debt is written off.
The recharge of wages and salaries is referred to in note 23.
All turnover arose within the United Kingdom.
The average monthly number of persons (including directors) employed by the company during the period was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (2021 - 3) and totalled £14,405 (2021: £11,139).
Pension contributions made to the highest paid director were £5,527 (2021: £6,431).
The directors are considered to be key management personnel and their compensation is disclosed above.
The actual charge for the period can be reconciled to the expected (credit)/charge for the period based on the profit or loss and the standard rate of tax as follows:
Corporation tax is calculated at 19% (2022:19%) of the estimated assessable profit for the year. The UK government announced on 3rd March 2021 that the government are intending to increase the corporation tax rate from 19% to 25% from April 2023. As this rate was substantively enacted at the balance sheet date it has been used to calculate the deferred tax balances.
Amortisation charges are included within 'Administrative expenses' in the Statement of Comprehensive Income.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Bank loans and overdrafts refer to funds overdrawn in the HSBC current account. This current account is part of a group cash pool facility. See note 24.
The amounts owed to group undertakings are interest free and repayable on demand.
Finance lease payments represent rentals payable by the company for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 4.5 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The hire purchase liabilities are secured on the assets to which they relate.
The dilapidations provision has been recognised to provide for expected re-instatement costs when the short leasehold leases expire. The directors obtained an independent professional surveyor report from Stiles Harold Williams in November 2018, which forms the basis of the current period provision. The total dilapidations provision estimated which is expected to be settled at the lease expiry date (the earliest of which is March 2032) is £1.33m, discounted to present value at a rate of 6.3%.
During the period the discount rate was increased to 6.30% (2021: 6.17%) resulting in the unwinding of discount decrease.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
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.
The company operates a number of defined contribution plans. The total expense relating to these plans in the current period was £326,870 (2021: £252,647) and at the balance sheet date £53,301 (2021: £69,817) was outstanding.
During the year A, B, C and D shares were fully reclassified to £0.01 Ordinary shares.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
During the period £1,021,664 was recognised as an expense in the profit and loss account in respect of operating leases (2021 - £481,013).
Amounts contracted for but not provided in the financial statements:
During the period, the Company was invoiced rent and service charges amounting to £126,965 (2021 - £101,928) by Jericho Management Company Limited, a company of which two of the directors are also directors and shareholders. All transactions are settled in cash, payable within 30 days and are unsecured. At the balance sheet date £1,965 (2021 - £26,928 ) was due to Jericho Management Company Limited.
During the period, Jericho Management Company Limited funded a company bonus of £599,964 following the completion of the full sale of the business to Samworth Brothers (Holdings) Limited. This transaction was fully settled in cash within 30 days of the employee remuneration.
During the period, the Company was invoiced rent and service charges amounting to £50,419 (2021 - £64,741) by JMC Pension Scheme, a pension scheme of which the directors are also trustees and beneficiaries. All transactions are settled in cash, payable within 30 days and are unsecured. At the balance sheet date £nil (2021 - £nil) was due to JMC Pension Scheme.
The Company has taken advantage of the exemption under FRS 102.33 'Related Party Transaction" for wholly owned subsidiaries not to disclose intra-group transactions.
Key management personnel includes all Directors of the Company, who together have authority and responsibility for planning, directing and controlling the activities of the Company. There are no key management personnel other than the Directors of the Company. The total compensation, including employer NI contributions, paid to key management personnel for services provided to the company was £981,191 (2021 - £775,946).
The Company is party to a multilateral guarantee on the bank accounts of Samworth Brothers (Holdings) Limited and its subsidiaries.
The Directors regard the Trustees of a number of Private Trusts to be the ultimate controlling body of the Company by virtue of their interest in the share capital of Samworth Brothers (Holdings) Limited.
The largest group in which the results of the Company are consolidated is that headed by Samworth Brothers (Holdings) Limited. The consolidated financial statements of the Group are available to the public and may be obtained from Chetwode House, 1 Samworth Way, Melton Mowbray, Leicestershire LE13 1GA.
The ultimate controlling party is Cibus Holdings Unlimited, a Company incorporated in Jersey.