The directors present the strategic report for the period ended 31 October 2023.
Our objective is to present a balanced view of the groups performance and development during the year and at the year end. The review will seek to address any risks and uncertainties we face.
The group is predominantly a catering butcher, processing and supplying portion control and bespoke meat to the food service industry while continuing to develop its range of retail outlets.
The review is based upon known information available to the directors as at the review date.
The group continues to face competitive pressures and operates in the wider difficult economic climate.
The economy continued to be impacted heavily by inflationary pressures, impacting directly on consumer discretionary income, hitting the foodservice sector and its supply chain.
Whilst labour availability improved from 12 months prior, an almost 10% increase to national minimum wage in April 2023 impacted significantly across all areas (6 month impact c£200k), with a similar trend continuing into April 2024 and possibly beyond.
Bank of England base rate increased by 3% across the year, negatively impacting directly on the business PBT and cashflow (c-£100k). However, at the date of writing, we have seen interest rates remain stable with forecasts indicating small reductions by the end of 2024.
The Board of Directors continue to be mindful of these risks and uncertainties but remains confident that the overall business strategy will continue to provide a solid platform for the future.
During the year, the business undertook an ownership and financing restructure due to the formal retirement of key shareholders, introducing this new ultimate parent company Underwood Meat Topco Limited. Being the first year of Underwood Meat Topco, reported income is a half year running May to October with sales of £33m and operating loss of £274k and loss before tax of £761k.
This involved significant one-off costs, impacting on the current year profits in the region of £227k (note 4).
With continued investment in efficiency improvements and 2023 H2 cost saving initiatives, the business managed to mitigate the severity of the in-year impact and turn a corner as it moved into the new financial year.
Overall, the directors of the business are clearly disappointed with the result and with the loss after tax of £735k but are confident that the initiatives now in place will continue to drive profitability forward through 2024 and beyond.
The main key performance indicators remain profitability and cash flow. PBT moved to a loss making position vs the prior year profit, whilst cash flow was managed accordingly in line with non-funded capex and strategic stock purchase requirements.
The group considers the views and needs of its stakeholders in all long-term decision making as well as the consequences of these decisions across the entire group.
The likely consequences of any decision in the long term
The directors of the group operate a fluid, fast acting business model where scenarios are mapped out and decision made quickly. This ensures that long term growth and security is maintained, such as the fast turnaround on capex investment and achievement of respective payback periods.
The interests of the groups employees
The group values its employees as its best asset and encourages employee participation wherever possible. We have a track record of promoting from within and actively offer training opportunities in specialist areas as well as apprenticeship development.
The need to foster the groups business relationships with suppliers, customers and others
The group engages with all external stakeholders through supply chain audits and ensuring both Underwood Meat and its partners adhere to CSR policies. This helps to strengthen long term business relationships in addition to enhancing the long-term decision-making process.
The impact of the groups operations on the community and the environment
The group tries where possible to employ from the local community. To minimise its environmental impact, the group has introduced a number of initiatives to encourage the reduction of waste and recycle where possible.
The desirability of the group maintaining a reputation for high standards of business conduct
The group strives to maintain its reputation for high standards by adhering to its Conflicts of Interest policy and actively promoting anonymous whistleblowing via a dedicated line and feedback boxes. This ensures conduct, governance, integrity and ethics are maintained throughout.
The need to act fairly between members of the group
As a privately owned group, the primary shareholder ensures all decisions are agreed accordingly at board level with the group Managing Director and Finance Director to ensure fair balance, integrity and a strong level of corporate governance.
On behalf of the board
The directors present their annual report and financial statements for the period ended 31 October 2023.
The results for the period are set out on page 9.
Ordinary dividends were paid amounting to £564,089. The directors do not recommend payment of a further 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.
BHP LLP were appointed as auditor to the group and in accordance with section 485 of the Companies Act 2006, and are deemed to be re-appointed under section 487(2) of the Companies Act 2006.
This Streamlined Energy Carbon Report ("SECR") relates to the activities of the group for the year ended 31 October 2023.
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 £m turnover, the recommended ratio for the sector.
The group continues to look into energy efficiency where there is a direct contribution to bottom line profitability. This includes the replacement of fluorescent tube lighting with LED equivalent and assessing the viability of electric vehicles as part of the fleet, whilst working with its key customers to minimise deliveries and mileage.
We have audited the financial statements of Underwood Meat (Topco) Limited (the 'parent company') and its subsidiaries (the 'group') for the period ended 31 October 2023 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 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.
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.
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 group through discussions with directors and other management, and from our commercial knowledge and experience of the trade;
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company;
we assessed the extent of compliance with the laws and regulations considered 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 risks of fraud through management bias and override controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
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;
reading the minutes of meetings of those charged with governance;
enquiring of management as to actual and potential litigation and claims; and
discussions with senior management regarding relevant regulations and reviewing the company’s legal and professional fees.
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 director’s and other management and the inspection of regulatory and legal correspondence.
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.
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 £576,532.
Underwood Meat (Topco) Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is 15 Ashley Business Court, Rawmarsh Rd, Rotherham, S60 1RU.
The group consists of Underwood Meat (Topco) Limited and all of its subsidiaries as detailed in note 16.
The company was incorporated on 22 November 2022 and the financial year end was shortened to 31 October 2023 in order to be co terminus with the existing subsidiaries.
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.
The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, 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;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The consolidated group financial statements consist of the financial statements of the parent company Underwood Meat (Topco) Limited together with all entities controlled by the parent company (its subsidiaries).
All financial statements are made up to 31 October 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.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
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 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.
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.
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.
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.
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 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.
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.
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, 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.
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.
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 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.
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 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.
The group estimates the useful lives and residual values of property, plant and equipment in order to calculate depreciation charges. Changes in these estimates could result in changes being required to annual depreciation charges in the statement of comprehensive income and the carrying values of property, plant and equipment.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
Stocks are stated at the lower of cost and net realisable value. The directors will assess the requirement for any provision for obsolete stock, stock utilisation patterns, regular inspection and counting of physical items.
Bad debt provisions are stated based upon known situations, such as persistent late payments, credit reference agency monitoring and regular credit control reviews.
The first exceptional item is in relation to the write off of a related party loan with R Bennett the father of T M S Bennett a director and shareholder of the company.
The second exceptional item is in relation to costs associated with a group refinance and restructure.
The third exceptional item is in relation to costs associated with an employee settlement.
The average monthly number of persons (including directors) employed by the group and company during the period was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 2.
The actual (credit)/charge for the period can be reconciled to the expected credit for the period based on the profit or loss and the standard rate of tax as follows:
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Details of the company's subsidiaries at 31 October 2023 are as follows:
Included in other creditors is £4,271,936 in respect of Invoice factoring. The Invoice factoring is secured by way of fixed and floating charge against the assets of the group.
Bank loan - see note 21 for security details.
Finance lease - see note 22 for security details.
Bank loan - see note 21 for security details.
Finance lease - see note 22 for security details.
The loans are secured by way of a legal charge over the group's freehold property
During the period the group obtained the following loans:
Bullet loan
The loan amount was £866,665 and interest is charged at base rate plus 1.75%. A bullet loan is a loan where payment of the entire principal is due at the end of the loan term. The loan term is 5 years.
Term loan
The loan amount was £433,335 and interest is charged at base rate plus 1.75%. The loan term is 5 years and the monthly repayments are £8,317.
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 lease terms range from 3-10 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The leases are secured over the assets to which they relate.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The deferred tax liability set out relates to accelerated capital allowances and other timing differences that are expected to mature in future accounting periods.
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.
Accrued pension contributions at the year end in respect of defined contribution schemes amounted to £14,003.
Both the Ordinary A and B shares have attached to them full voting, dividend and capital distribution (on winding up) rights. They do not confer any rights of redemption.
The other reserve is created on consolidation to show the nominal value of shares issued at fair value.
On 5 May 2023 the group acquired 100 percent of the issued capital of Underwood Meat (Holdings) Limited.
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:
Amounts contracted for but not provided in the financial statements:
During the period a loan totalling £80,457 to R Bennett, the father of T M S Bennett was written off and included in exceptional items in the statement of comprehensive income.
Included in trade creditors is an amount of £868,718 due to Foundry Food Group Ltd, a company in which Mr T M S Bennett is a director. During the year the company made sales of £877,648 and made purchases from Foundry Food Group Ltd of £11,472,056. At the year end a balance of £2,645 is included in trade debtors.
J D Heeley resigned as a director from the subsidiary company Underwood Meat (Holdings) Limited on 5 May 2023, at that date previous loans made to J D Heeley totalling £528,080 were repaid. During the year interest of £5,224 was charged on the loan and at the year end £13,190 remained outstanding and is included within other debtors.
On 5 May 2023 Underwood Meat (TopCo) Limited acquired 100% of the issued share capital of Underwood Meat (Holdings) Limited. Following the acquisition deferred consideration amounting to £2,257,402 is due to J Heeley a former director and shareholder of Underwood Meat (Holdings) Limited and is included in other creditors due under and over one year.