The directors present the strategic report for the year ended 31 December 2022.
In preparing the strategic report, the directors have complied with s414C of the Companies Act 2006. The accounts for Cult Wines Limited are prepared on a consolidated basis. This report has been prepared for the Group in its entirety.
Principal activities
Cult Wines is a fine wine investment company, buying and selling to private individuals and trade businesses globally with a focus on markets in the United Kingdom, Asia & North America.
In reviewing the past year, Cult Wines Ltd is proud to reflect on a period marked by progress, resilience, and innovation. This year, even amidst considerable global challenges, we've remained dedicated to our mission of transforming the way people buy, sell, collect, and invest in fine wine. We continue to be a pioneer in fine wine portfolio management, grow the category through our activities and enhance our position as a global leader.
The financial year ending December 2022 brought significant growth across our key target metrics:
Financial Performance: Our top-line revenue increased by 30% to £87.1m (comparing 2022 to a 12-month pro rata basis for the prior period). Gross profit also increased by 44% to £12.8m compared to the previous 12 months. EBITDA loss improved by 25% to a loss of £874k compared to the previous 12 months. Our continued commitment to scale and transform our business model resulted in recurring revenues rising 92% to £4.0m for the period. On our current growth run-rate, ARR is likely to increase to £5m per calendar year by 2023.
Investing in Global Expansion: This year we've continued to consolidate our global presence, with teams operating locally in North America, Middle East and the Far East.
Continued Investment in Technology and Data: We continued to invest in data and technology in 2022, with a focus around our three core objectives to leverage data to improve and automate business processes, increase liquidity across our ecosystem and improve our customer experience. This resulted in the prioritisation of projects in 2022 such as the new Cult Wine Investment Platform and App (which launched Q2 2023), building our proprietary market pricing models leveraging our wine-searcher data partnership and continuing the development of CultX (beta launched Q1 2023).
Strengthening Client Base and Assets under Management: 2022 was a great year for the fine wine market, with wine delivering the best returns of any asset class. This helped us to deliver +14% returns (unrealised) on average across client portfolios, which enabled us to increase our ability to bring in new inflows. In 2022 this totalled £65m in new asset inflows (+44% YoY), £30m of which came from new customers (+50% YoY) with only 5% of AUM outflows. This combined to increase our AUM to £284m (+29% YoY).
Warehousing and Logistics: 2022 saw the opening of our new warehouse facility at Drakelow, part of the LCB network, with our logistics team beginning the movement of stock from our European warehouses in order to consolidate our holdings across our two UK bonded sites.
This strategic planned investment in our business model has, indeed, impacted short-term profitability but has also paved the way for accelerating growth in sales revenue, our global customer base, and, importantly, our ability to provide exceptional performance and service to our customers.
As a group, and as a team, we remain steadfastly committed to our mission. We will continue to leverage our expertise, global presence, technology, and data investments to enhance our customers' experience in the realm of fine wine ownership and investment.
After partnering with Carbon Footprint Limited in 2020/2021 to conduct an audit on the company’s carbon footprint, the journey continues, building on initiatives that were started such as minimising our paper and cardboard use, implementing a 'bike to work' scheme and promoting electric cars for our UK employees. We've also adopted virtual conferencing for international meetings to minimise travel. These efforts underscore our ongoing commitment to reducing our environmental impact.
Cult Wines is committed to continually reviewing its practices and partners to minimise and, where possible, mitigate carbon emissions where achievable.
|
Unit | Tonnes 2022 | Tonnes 2021 |
Emissions from combustion of gas | TCO2e | 0.90 | 0.90 |
Emissions from consumption of fuel from transport | TCO2e | 23.07 | 24.29 |
Emissions from purchased electricity | TCO2e | 50.12 | 88.80 |
Emissions from business travel rental cars | TCO2e | 0.00 | 0.00 |
Outsourced Freight (Scope 3) | TCO2e | 13.80 | 14.52 |
Total Gross Emissions | TCO2e | 87.89 | 128.51 |
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Emissions |
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|
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Intensity Ratio |
| 0.00101 | 0.00191 |
The carbon footprint appraisal is derived from a combination of client data collection and data computation by third party analysts. The analysts used the 2020 conversion factors developed by the UK Department for Environment, Food and Rural Affairs (Defra) and the Department for Business, Energy & Industrial Strategy (BEIS). These factors are multiplied with the company’s GHG activity data.
Analysis of Key Performance Indicators
Growth in top line revenues for 2022 reflects the growth of the business in key markets, the performance of the asset class and our increasing ability to attract new asset inflows at a time when demand and interest was high. Our revenue model will see our management fee income grow year on year as we continue to increase the total value of customer assets we are managing. Overall, 2022 was a positive year in top line revenue growth, but disappointing in overall profitability, as the business costs increased in line with the additional operational requirements to support the size of the business growth.
|
2022 | Prorated 2021 |
2021 |
% Change |
| £m | £m | £m |
|
Gross Sales Revenue | 83.1 | 64.7 | 86.3 | 28% |
ARR (management fees) | 4.0 | 2.1 | 2.8 | 90% |
Total Revenue | 87.1 | 66.8 | 89.1 | 30% |
EBITDA | (0.87) | (1.17) | (1.56) | -25% |
Management monitors the company’s operations through the use of several performance measures including EBITDA. The following table is the reconciliation of this measure to Operating loss, which is the most directly comparable measure included in the Consolidated Statement of Comprehensive Income:
|
2022 | Prorated 2021 |
2021 |
% Change |
| £m | £m | £m |
|
Operating loss | (1.85) | (1.61) | (2.15) | 15% |
Add: Depreciation (Note 5) | 0.26 | 0.26 | 0.34 |
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Add: Amortisation (Note 5) | 0.72 | 0.18 | 0.25 |
|
EBITDA | (0.87) | (1.17) | (1.56) | -25% |
The continued high costs of running and supporting the business as it is today, is a key focus and challenge. The challenge will be in finding ways to improve operational processes, through IT and tech development, which can help unlock resources and reduce overall costs. The business believes its plan to focus on investments in technology and data will provide the platform and infrastructure needed to significantly improve processes and enable cost optimization through automation.
2022 calendar year, ended with record breaking performance numbers, but some warning signs of slowing and waning demand were apparent at the tail end of the year. This mixed with the increasingly complicated macro-economic and geo-political backdrop, means that in 2023, the wine market is unlikely to mirror the stellar performance of 2022.
As a result, the business is focused on delivering the key IT projects which are still in flight as of the end of 2022, namely the new Cult Wine Investment Platform and App, CultX and IMS. The management believe that to enable the business to better support the growth in customers and assets under management, it is essential to find a way to do so more cost efficiently, the business needs to be able to leverage technology to automate more processes and create more operational efficiencies.
The Company is subject to potential financial assets and liabilities which along with its day to day operations exposes it to Interest Rate, cyber security & inventory risk.
Interest Rate
Rising Interest Rates have the potential to impact business performance through reducing demand in alternative asset classes and the underlying asset prices being affected by reduced demand for luxury goods.
Cyber Security
During the period, management have considered the increasing threat to cyber security, we continue to work with our IT partners to monitor any potential risk and have appropriate insurance coverage in this area.
Inventory Risk
The Company’s final major risk is the demand for fine wines, this is mitigated by holding an optimal stock level to negate any potential negative price movement along with a diversified sales strategy.
The Board of Directors considers, both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole (having regard to the stakeholders and matters set out in s172(1)(a-f) of the Act) in the decisions taken during the period ended 31 December 2022. The Board has developed a rolling business plan which is based around achieving our long-term goal of being regarded as the global leader in fine wine investment recognised for the excellence of our portfolio and for the service that we provide to our customers.
Our team of staff remains fundamental to the achievement of our business plan. In addition to aiming to be a responsible employer in our approach to pay and benefits, we continue to engage with our team to ascertain which training and development opportunities should be made available to improve our team's productivity and our individual employees' potential within the business.
We continue to engage with our clients. Our aim is to understand how they are developing their fine wine portfolios and therefore which range of wines we can provide which will enhance their portfolio.
We work with a relatively small number of suppliers. Our aim is to develop and enter into long-term arrangements with our key suppliers as this enables us to develop a consistent and long-term partnerships with them. We remain committed to being fair and transparent in our dealings with all suppliers.
The Board takes sustainability and environmental responsibility very seriously, we are committed to reducing our carbon footprint. Cult Wines is proudly invested in offsetting carbon emissions through dedicated projects around the world, championing sustainability, supporting ethical practices and actively contributing to the future of the wine industry with impactful initiatives.
The Board's intention is to behave responsibly and to ensure that the management team operates the business in a responsible manner, acting with the high standards of business conduct and good governance expected of a business of our nature and size. In doing so, we believe we will achieve our long-term business strategy and also further develop our reputation in our sector.
The directors and the group are committed to high standards of business conduct reflected in Human Resources policies. Where there is a need to seek advice on particular issues, the directors will seek advice from its professional advisors to ensure the consideration of business conduct and its reputation are maintained. They expect the same standards of business conduct from the people and organisations with which they do business. The board of directors are consulted on all key decisions, it is in their best interest to protect their interest and this is considered in all proposed strategies and objectives.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2022.
The results for the year are set out on page 12.
Ordinary dividends were paid amounting to £457,426. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Group has in place, a Directors’ and officers’ liability insurance policy with a limit of indemnity of two million pounds.
Going concern
The wine industry remains competitive amongst global grape growers including oversupply. These conditions in isolation and aggregate could have posed material uncertainty to the Group’s going concern status but the alternative investment market and investment in wine continues to offer investors a lucrative platform with attractive returns.
The Group has performed well and in line with budgetary expectations. Our budget for the forthcoming year reflects continued growth in our core investment business.
The Group made some operational changes and management feel actions during the course of normal business review are satisfactory that while uncertainty remains, they will have no material impact on going concern despite the net liability position and the period loss as this is due to futureproofing to deliver future forecasts.
At the year end, the Group had net liabilities of £6,108,835 (2021: £3,318,739) which could indicate a material uncertainty with regards to going concern. However, during 2023, the Group has already secured funds from SAFE round of investment and currently negotiating further significant external cash injection which is in advanced stage negotiations to ensure the adequacy of working capital and sustainable growth. The directors are confident that this funding will be secured imminently and will be sufficient to cover the cash flow requirement of the group.
The directors have reviewed the Group’s position/cashflows for at least a 12-month period including the forthcoming funding from the date of signing these financial statements and consider it appropriate that the accounts are prepared on a going concern basis.
The company is subject to potential financial assets and liabilities which, along with its day to day operations, exposes it to credit risk, liquidity risk & currency risk.
Credit risk
The Company’s trade receivables present a potential credit risk. All credit terms are verified and receivables are monitored on an ongoing basis to minimise the potential of any financial loss to the business through bad debt. In addition, the risk is distributed over a large number of clients. Therefore, we perceive no significant threat of exposure to credit risk.
Liquidity risk
Liquidity risk to the business is mitigated through robust cash flow forecasting and budgetary control. There is constant review of the cash position and we utilise robust credit terms with suppliers along with effective receivables management which has facilitated all growth activities to be self-funded with no reliance on short or long-term financing.
Currency risk
The business is open to foreign currency risk through transacting with suppliers and customers worldwide and is therefore subject to foreign exchange rate fluctuation which can impact trade profitability. This is minimised through continual review and dynamic approach to our forward exchange contract policy.
Matters covered in the Group strategic report
The directors have included a business review within the strategic report. Also included in the strategic report are details for the future development of the Company, the principal risk and uncertainties, the streamlined carbon emission reporting, a review of the key performance indicators as assessed by the directors and engagement with customers and suppliers in accordance with section 414C (11) of the Companies Act 2006.
During 2023, the Company has secured funds from SAFE round of investment for continued growth in terms of CultX marketplace platform and investment in enhancing customer experience.
During 2023, the Company acquired the remaining share capital in Cult Wines Canada Limited to bring the holding to 100%.
The auditor, Azets Audit Services, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
We have audited the financial statements of Cult Wines Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2022 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows, the company 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 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 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 opinion.
Material uncertainty related to going concern
In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
However, we draw attention to note 1.5 to the financial statements, which indicate the Group is in a net liabilities position at the year end and in advanced negotiations to raise cash to ensure the adequacy of working capital for the foreseeable future. As stated in note 1.5, these events or conditions, indicate a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
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 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.
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.
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 and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.
We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework. Based on this understanding, we identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.
In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:
Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud;
Reviewing minutes of meetings of those charged with governance;
Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the entity through enquiry and inspection;
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;
Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
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.
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 £688,922 (2021 - £744,690 loss).
Cult Wines Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Clockwork Building, 45 Beavor Lane, Ravenscourt Park, London, United Kingdom, W6 9AR.
The group consists of Cult Wines Limited and all of its subsidiaries.
The comparatives information covers the period between 01 September 2020 and 31 December 2021. These differing length accounting periods will have an impact on the comparability of certain numbers within these financial statements.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
A prior year error was noted in respect of development costs incorrectly capitalised. This resulted in an adjustment to the financial statements as disclosed in note 27.
The consolidated financial statements present the results of the Company and its own subsidiaries ("the Group") as if they form a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the Balance Sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the Consolidated Statement of Comprehensive Income from the date on which control is obtained. They are deconsolidated from the date control ceases.
The wine industry remains competitive amongst global grape growers including oversupply. These conditions in isolation and aggregate could have posed material uncertainty to the Group’s going concern status but the alternative investment market and investment in wine continues to offer investors a lucrative platform with attractive returns.
The Group has performed well and in line with budgetary expectations. Our budget for the forthcoming year reflects continued growth in our core investment business.
The Group made some operational changes and management feel actions during the course of normal business review are satisfactory that while uncertainty remains, they will have no material impact on going concern despite the net liability position and the period loss as this is due to futureproofing to deliver future forecasts.
At the year end, the Group had net liabilities of £6,108,835 (2021: £3,318,739) which could indicate a material uncertainty with regards to going concern. However, during 2023, the Group has already secured funds from SAFE round of investment and currently negotiating further significant external cash injection which is in advanced stage negotiations to ensure the adequacy of working capital and sustainable growth. The directors are confident that this funding will be secured imminently and will be sufficient to cover the cash flow requirement of the group.
The directors have reviewed the Group’s position/cashflows for at least a 12-month period including the forthcoming funding from the date of signing these financial statements and consider it appropriate that the accounts are prepared on a going concern basis.
Turnover is recognised at the fair value of the consideration received or receivable for goods provided in the normal course of business, and is shown net of VAT.
Revenue from the sale of goods is recognised when the rights and obligations under the terms of the sale have been fully transferred. Revenue in respect of en primeur sales is recognised when the sale is made as at this point, the entity has transferred to the buyer the significant risks and rewards of ownership of the goods, the amount of revenue can be recognised reliably, it is probable that economic benefits associated with the transaction will flow to the entity and the cost incurred in respect of the transaction can be measured reliably. From the point of sale, the en primeur investment belongs to the customer, and the customer retains all future risks and rewards including price fluctuations and inventory risk. Cult Wines has continuing managerial involvement after the sale, this is covered by the separate management fee and as such the conditions for revenue recognition have been satisfied, being accrued monthly from purchase and being invoiced on the anniversary of the client's first purchase.
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 profit and loss account.
Interests in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.
A subsidiary is an entity controlled by the Company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.
Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.
Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.
In the parent company financial statements, investments in associates are accounted for at cost less impairment.
Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.
At each reporting end date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply.
Debtors
Short-term debtors are measured at transaction price less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
Creditors
Short-term creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
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 balance sheet 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 and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method.
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 Company transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
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.
Basic financial liabilities, including trade and other payables, are initially recognised at transaction price.
Trade payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts 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 payables 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.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
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 tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The 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.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset 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 balance sheet 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.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date end, 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 are included in profit or loss for the period.
Dividends
Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.
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.
(a) Critical judgements in applying the Group's accounting policies
The Company makes a number of assessments which require judgement in preparing the accounts and can have a significant effect upon the financial statements. The most significant judgement in applying the Group's accounting policies is in relation to en-primeur revenue. All revenue is recognised when the rights and obligations of the sale have fully transferred.
(b) Stock
The company review stock for impairment comparing purchase price to market value. The company would consider impairment should market value fall below the purchase price. Having carried out the review for the period, no impairment is necessary.
(c) Joint venture
The company has adopted the consolidation method of accounting for Cult Wines Canada Limited in which it owns a 50% holding as Cult Wines Limited possesses effective control and the entity is controlled and managed as 100% owned subsidiaries within the Group.
(d) Key accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. Significant accounting estimates include any provision against doubtful trade debtors.
The exceptional items relate to the write off of historical debtors and creditors at the year end.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 December 2022 are as follows:
Registered office addresses:
Amounts owed by group undertakings are unsecured, interest free and payable on demand.
Trade creditors include clients' deposit of £5,474,033 (2021: £2,617,877) earmarked for the procurement of wine as part of the ordinary course of business.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The Group operates a defined contributions pensions scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost charge represents contributions payable by the Group to the fund and amounts to £306,357 (2021: £115,304). Contributions totalling £17,944 (2021: £13,737) were payable to the fund at the reporting date and are included in creditors.
Translation reserve
Includes exchange gains / (losses) arising from consolidating subsidiaries with a different presentational currency.
Profit and loss account
Includes all current and prior period retained profit and losses.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
At the start of the year, the amount owed to the Company in the directors accounts was £1,130,538 (2021: £989,360). During the year, this increased to £1,182,933 (2021: £1,130,538). These amounts are interest free and repayable on demand. Dividends of £457,426 (2021: £480,000) were awarded to directors.
The directors are considered key management personnel and received no remuneration during the period or the prior year.
During 2023, the Company has secured funds of £1,900,000 from SAFE round of investment for continued growth in terms of geography, CultX marketplace platform and investment in enhancing customer experience.
During 2023, the Company acquired the remaining share capital in Cult Wines Canada Limited to bring the holding to 100%.