The directors present the strategic report for the period ended 1 July 2023.
The principal activity of the group continued to be research and design, sourcing, distribution, import and sale of electrical and houseware products.
Highlights
Turnover for the period ending 1 July 2023 was £190.4m, a 49.6% improvement vs the prior year (FY22: £127.4m) thanks to exceptional growth in sales of air fryers which saw high levels of consumer demand throughout the reporting period. Compared to 2020, the cumulative average growth rate (CAGR) of the group’s turnover was an impressive 32.4% per annum.
The group continued to grow market share in several key categories during the year. The Tower brand maintained dominance by volume in the air fryer market and grew share considerably in vacuum cleaners, proving again that the group is able to gain traction and accelerate growth in new areas.
The group continued to invest in digital transformation projects during the year and will deploy a new ERP system in Q2 2024 which will enable a step change in operational efficiency and service delivery.
Finally, the group purchased the Goblin brand from Glen Electric in January 2023. This acquisition fits perfectly within the existing brand portfolio being a renowned historic British brand name in vacuuming, a category which the group has identified for growth and investment.
Market overview
The consumer durables market remained robust throughout the reporting period. Demand for energy saving products increased substantially, following a surge in the cost of gas and electricity, whilst higher interest rates impacted household disposable income putting pressure on volumes in some categories.
The share of small appliances purchased online as apposed to in physical retail stores continued to increase during the year and is expected to exceed 50% of the market in the years ahead.
Consumers continue to demand time saving appliances that are functional, stylish and good value for money.
The group is well placed to benefit from these factors thanks to a rapid product development cycle that follows consumer trends and a wide distribution network with strong relationships with both traditional retailers and online pure players.
Strategic goals
The primary strategic goal of the group is to deliver continued profitable growth through the design, sourcing and distribution of competitively priced high quality consumer goods. International expansion is a key part of delivering this strategy and good progress has been made during the year with turnover generated outside of the United Kingdom increasing by 20.2% to £10.3m (FY22: £8.4m).
The continued shift in consumer spending towards online sales brings further opportunities for growth as existing strong relationships with key players such as Amazon can be leveraged to access more consumers and product fulfilment capabilities.
The group continues to invest in the systems, people and processes required to continue accelerating growth. These investments are closely monitored to ensure that they deliver results as planned.
The group faces several risks and uncertainties in the course of doing business. Effective strategies have been developed to ensure that these risks are minimized, with a particular focus on the following areas:
Credit risk is a significant concern, as the group may face challenges collecting payments from customers. Comprehensive credit insurance policies and stringent internal limit management policies are in place to mitigate risk in this area.
Foreign currency exchange rate volatility is recognized as a risk factor and mitigated via a policy designed to secure rates at least 6 months in advance.
Sourcing and supply chain management need close management to ensure that instances of over and under stocking are minimized. The group ensures that products are sourced from a wide range of suppliers and countries to minimize the risk of disruption in this area.
Macroeconomic factors such as high rates of interest and inflation can affect demand for non-food products and therefore represent a risk to turnover and profitability. The group mitigates this risk by developing mass-market products and category managing them to offer high quality at affordable price points.
Key performance indicators
Turnover for the period ending 1 July 2023 was £190.4m, an impressive 49.6% increase compared to the previous year (FY22: £127.4m)
Gross profit for the period was £43.4m representing 22.8% of turnover, an improvement of 3.2% pts compared to the prior year (FY22: £24.9m; 19.6%) helped by more favourable shipping costs in the second half of the financial year.
Administrative expenses were £26.2m, an increase of £5.6m on the prior year (FY22: £20.6m) driven mainly by further investment in advertising and promotion activities, quality assurance and back-office support functions.
Operating profit for the period ended 1 July 2023 was £16.1m (FY22: £1.9m loss) thanks to the increased level of turnover and gross margin percentage improvement.
Net current assets were £24.1m as at 1 July 2023, an increase of £6.5m vs the previous year (FY22: £17.6m) coming from a decrease in creditors due within one year (FY23: £89.3m; FY22: £67.1m)
Performance in fiscal year 2024 to date has been in line with expectations in terms of turnover growth, market share gain and profitability. Historical and continued investment in new product development has produced a healthy roadmap of new product launches and is expected to deliver continued growth in the years ahead.
Future developments
Whilst inflation is currently high compared to the average for the previous decade, it is expected to fall in the coming years which will ease pressure on household incomes.
The markets in which the group operates are forecast to continue to grow for the foreseeable future, fuelled by consumer demand for time saving energy efficient goods.
CAGR for the UK home and small appliance market as a whole is forecast to be 4.8% to 2027. The group intends to substantially outperform the market over this period by expanding its’ brand and product portfolios and opening new international channels of distribution.
The quality and sustainability of products is a priority for consumers and the group has invested funds to ensure that the highest standards are met.
We have had regard to the matters set out in section 172(1)(a) to (f) of the Companies Act 2006 when performing our duty under section 172.
We have made consideration of:
- the likely consequences of any decision in the long term
- the interests of the company's employee
- the need to foster the company's business relationships with suppliers, customers and others
- the impact of the company's operations on the community and the environment
- the desirability of the company maintaining a reputation for high standards of business conduct, and
- the need to act fairly as between members of the company.
On behalf of the board
The directors present their annual report and financial statements for the period ended 1 July 2023.
The results for the period are set out on page 12.
An interim ordinary dividend was paid amounting to £1,750,000. 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 group's policy is to consult and discuss with employees, through unions, staff councils and at meetings, matters likely to affect employees' interests.
Information about matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the group's performance.
There is no employee share scheme at present, but the directors are considering the introduction of such a scheme as a means of further encouraging the involvement of employees in the company's performance.
The group has followed the 2019 HM Government Environmental Reporting Guidelines. The group has also used the GHG Reporting Protocol – Corporate Standard and have used the 2020 UK Government’s Conversion Factors for Company Reporting
The chosen intensity measurement ratio is total gross emissions in metric tonnes CO2e per average employee.
The group is always looking for ways to reduce its carbon footprint.
Qualified opinion
We have audited the financial statements of Sutton Venture Group Limited (the 'parent company') and its subsidiaries (the 'group') for the period ended 1 July 2023 which comprise the group income statement, the group statement of comprehensive income, the group statement of financial position, the company statement of financial position, the group statement of changes in equity, the company statement of changes in equity, the group 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 United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for qualified opinion
The directors have included intangible assets at market value, as they believe there is an active market place for brands and trademarks and have obtained professional valuations to support the amounts in the financial statements. On this basis the directors have presented the brand at its fair value on the balance sheet rather than at cost.
This constitutes a departure from accounting standard FRS102 which indicates that there is a presumption that there is no active market place for trademarks and brands separable to the trade, and that accordingly the asset cannot be shown at valuation.
Had the directors adopted the presumption in FRS102, the trademarks/brands would be valued at a cost of £2,248,000 (2022:1,071,000), deferred tax liabilities would be stated at £3,424,580 (2022: £3,197,260), and the net assets of the group would be stated at £44,457,180 as at 1 July 2023 (2022: £34,790,526).
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 group and parent 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 qualified 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 group's and parent 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 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.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company 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 parent 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 parent 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.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience of the company;
we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; and
considering the internal controls in place to mitigate risks of fraud and non compliance with laws and regulations.
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions; and
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
assessing the valuation of the brands and the reasonableness of the presumptions made;
reading the minutes of meetings of those charged with governance;
enquiring of management as to actual and potential litigation and claims; and
reviewing correspondence with HMRC, relevant regulators including the Health and Safety Executive, and the company’s legal advisors.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
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 income statement has been prepared on the basis that all operations are continuing operations.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £52,084,574 (2022 - Loss - £18,794,151).
Sutton Venture Group Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Sutton House, Berry Hill Road, Fenton, Stoke on Trent, Staffordshire, ST4 2NL.
The group consists of Sutton Venture Group Limited and all of its subsidiaries.
The financial reporting period was extended by a day to facilitate the intra-group purchase of a trademark.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006, other than where a true and fair override has been applied as noted in accounting policy note 1.7 - Intangible fixed assets.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.
The company is a qualifying entity for the purposes of FRS 102, being the parent of the group that prepares publicly available consolidated financial statements, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:
- Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures.
The consolidated financial statements incorporate those of Sutton Venture Group Limited and all of its subsidiaries (ie entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes.
All financial statements are made up to 1 July 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The following subsidiaries have been included in the group financial statements using the purchase method of accounting. Accordingly, the group profit and loss account and statement of cash flows includes the results and cashflows of the subsidiaries from the date of acquisition.
R K Wholesale Limited
Powerforce Distribution Limited
Clearco Specialists Limited (Dormant)
Powerforce Homewares Limited (Dormant)
Connextions Logistics Limited (Dormant
Sourcing Partner Limited
Powerforce Distribution Ireland Limited
Andrew James (Homewares) Limited
Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the group exercises a significant influence, are treated as associates. In the group financial statements, associates are accounted for using the equity method.
Entities in which the group holds an interest and which are jointly controlled by the group and one or more other venturers under a contractual arrangement are treated as joint ventures. In the group financial statements, joint ventures are accounted for using the equity method.
At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue from rentals of property are recognised when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue from royalty agreements is recognised on an accruals basis in accordance with the substance of the agreement (usually on the sale of the right to use the entity's trademark), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Where the directors consider the carrying amount of an intangible fixed asset is equal to it's recoverable amount, no amortisation is charged.
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.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors, cash and bank balances and amounts due from fellow group companies, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
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 group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans and loans from fellow group companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting end date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the statement of financial position as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight line basis over the lease term.
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
In the application of the group’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.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Stock is valued at the lower cost and net realisable value. Net realisable value includes, where necessary, provisions for slow moving and obsolete stocks.
A provision for bad debts is made where, in the opinion of the directors, the recoverability of the debt is no longer considered probable.
The directors use the market opinion of qualified, external valuers when valuing freehold land and buildings.
A key judgement applied to the treatment of owned trademarks and brands is that there is a current and future active market for these assets, which differs to the presumption included in section 18 of FRS102.
The directors have undertaken research regarding market data for trademarks and brands in respect of consumer products in this sector and believe that there is such an active market place, which rebuts the presumption within FRS102.
Accordingly, the directors present the brand at its fair value on the balance sheet rather than at cost. For the same reason the directors believe that there is also a residual value at the end of its useful economic life, and that the policy of amortising fair value less residual value over its useful economic life is appropriate.
The company employed an external valuer (BDO) to undertake a valuation of the brand. The external valuation applied the relief from royalty valuation method, using a discounted cash flow model.
Had the directors adopted the presumption in FRS102, the trademarks/brands would be valued at a cost of £2,248,000 (2022:1,071,000) Deferred tax liabilities would be stated at £3,424,580 (2022: £3,197,260), and the net assets of the group would be stated at £44,457,180 as at 1 July 2023 (2022: £34,790,526).
The directors use the market opinion of qualified, external valuers when valuing intangible assets.
An analysis of the group's turnover is as follows:
Due to the effects of the global pandemic on the movement and storage of goods, the group incurred exceptional demurrage costs in the financial period over and above the normal level of trade. These exceptional costs are not expected to be repeated.
The average monthly number of persons (including directors) employed by the group and company during the period was:
Their aggregate remuneration comprised:
The actual charge for the period can be reconciled to the expected charge/(credit) for the period based on the profit or loss and the standard rate of tax 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 charges:
The UK Budget 2021 announcements on 3 March 2021 included measures to support economic recovery as a result of the ongoing COVID-19 pandemic. These included an increase to the UK's main corporation tax rate to 25%, which is due to be effective from 1 April 2023. These changes were substantively enacted at the balance sheet date and hence have been reflected in the measurement of deferred tax balances at the year end.
If revalued assets were stated on an historical cost basis rather than a fair value basis, the total amounts included would have been as follows:
The brands were revalued by an independent valuer, BDO LLP in May 2021 to current market value, by applying relief from royalty valuation method, using a discounted cash flow model. In the opinion of the directors the carrying amount of the asset remains equal to its recoverable amount.
An annual impairment review is carried out at each balance sheet date.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Freehold land and buildings with a carrying amount of £23.08m were revalued at 16 March 2021 by Mark Weller MRCIS of Lambert Smith Hampton, independent valuers not connected with the company on the basis of market value. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties.
The following assets are carried at valuation. If the assets were measured using the cost model, the carrying amounts would be as follows:
Investment property comprises residential and commercial property.
The fair value of residential investment property has been arrived at on the basis of a valuation carried out by the directors. The valuation was made on an open market value basis by reference to market evidence of transaction prices for similar properties.
The fair value of commercial investment property has been arrived at on the basis of a valuation carried by Mark Weller MRICS of Lambert Smith Hampton, independent valuers not connected with the company on the basis of market value. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties.
Details of the company's subsidiaries at 1 July 2023 are as follows:
Net obligations under finance lease and hire purchase contracts are secured by fixed charges on the assets to which they relate.
Debt is in the form of a bank loan which is secured by a fixed charge over properties held at Stone Business Park, Berryhill Road, Fenton and Bute Street, Fenton.
The bank loan is a monthly repayment (capital and interest) instrument, maturing in May 2024.
The interest rate is calculated at a percentage rate equal to 2.65% per annum above LIBOR.
Finance lease payments represent rentals payable by the company or group 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 3 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
Deferred tax assets and liabilities are offset where the group or company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred income is included in the financial statements as follows:
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
Each class of ordinary shares carry full voting, dividend and capital distribution rights.
The revaluation reserve represents the excess of the fair value of assets over their book value.
The retained earnings reserve holds the retained earnings of the Group, after the deduction of any dividends paid in the period.
On 21 July 2023, Sutton Venture Group Limited acquired 45% of the share capital of Swan Products Limited. Consideration payable included £2,500,000 on completion.
Since the year end, the Group has refinanced its current borrowing arrangements with HSBC and agreed an arrangement with Close Brothers Finance Limited.
Interest free loans have been granted by the group to its directors as follows:
The ultimate controlling party is Mr R Sutton by virtue of his majority shareholding.