The directors present the strategic report for the year ended 30 April 2023.
During the year, net sales have decreased by 17.5% to £8.1 million (2022: £10.0 million) following the material disruption in the last year due to the Russian invasion of Ukraine and the subsequent material impacts of the cost of living crisis. The trading environment continued to be difficult during the year ended 30 April 2024, and, as a result, sales declined by a further 6% or approximately £400,000. The directors are pleased to say that the trading position has subsequently stabilised and that sales are forecast to recover to over £8.5million in the year ending 30 April 2025.
The company’s main customers remain high quality U.K. retailers including Holland & Barrett, Boots, Waitrose and Amazon. The company sells products under it’s own Tisserand brand and also undertakes contract manufacturing work for selected retailers.
The group operates in the natural health and wellbeing markets and remains one of the leading operators in the essential oil market. The group blends, bottles and undertakes product development work to provide natural wellbeing solutions for everyday problems such as sleep and stress.
Gross margins have decreased to 28.7% (2022: 32.2%) due to the significant input pressure following the invasion of Ukraine by Russia which in turn has led to the cost of living crisis. Whilst price increases were implemented there remains a lag in increasing prices to customers and, therefore, a number of costs had to be absorbed.
EBITDA decreased to loss of £0.4 million (2022: profit £0.3million) with EBITDA decreasing to -4.6% (2022: 2.5%) with fixed costs taking time to be removed from the operating cost base where possible.
As a result of the significant external events the group initiated a recovery plan during the year which we expect to realise operating cost savings of in excess of £0.5 million through a combination of procurement improvements and a reduction in personnel costs.
The operations of the group expose it to a variety of financial risks that include the effect of currency risk, credit risk and liquidity risk. The group use a range of practices to mitigate this risk including natural hedging for currency risks. The material increase in financial risk for the group has been the increase in interest rates through which the group’s cash interest costs continues to increase as the majority of it’s interest costs remains variable. Over 30% of the group’s interest cost, however, accrues to the term of it’s loans thereby minimising the immediate cash interest burden on the group.
Economic impact of global event
U.K. businesses continue to face a range of uncertainties following the impacts of Brexit, COVID 19, the Russian invasion of Ukraine and the cost of living crisis. These uncertainties continue to impact the group through increased input costs, supply chain disruptions, labour shortages and increased wage costs.
The directors have carried out an assessment of the potential impact of these uncertainties on the business, including the impact of mitigation measures, and have concluded that these are non-adjusting events with the greatest impact on the business expected to be from input price increases which continue to be passed on to customers. The directors have taken account of these potential impacts in their going concern assessment.
The group continues to work with its partners to minimise any impacts of these events and continue to develop new opportunities across the next 3 years.
KPIs | 2023 | 2022 |
|
Sales |
8,247,544 |
9,999,900 |
(17.5%) |
Cost of sales | (5,882,017) | (6,776,463) |
|
Gross margin | 2,365,527 | 3,223,437 |
|
GPM | 28.7% | 32.2% |
|
Operating (loss)/profit | (872,188) | (340,414) |
|
Add back: Share based payments | 0 | (9,552) |
|
Add back: Depreciation | 157,153 | 139,175 | Note 12 |
Add back: Amortisation | 337,624 | 349,763 | Note 11 |
Add back: Exceptional costs | 0 | 108,930 | Note 4 |
Adjusted EBITDA* | (377,411) | 247,902 | (336.3%) |
EBITDA Margin | (4.6%) | 2.5% |
|
* Adjusted EBITDA is after share based payment expense and exceptional costs.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 April 2023.
The results for the year are set out on page 10.
No ordinary dividends were paid. 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:
Expenditure on research activities is recognised as an expense in the period in which it is incurred. In accordance with FRS 102, section 18 'Intangible Assets other than Goodwill', internally generated intangible assets will be capitalised: (i) where an asset has entered the development phase and the expected future expected economic benefits are attributable to the asset; (ii) it is probable that the future economic benefits of the asset will flow to the group; and (iii) the costs of the asset can be measured reliably. internally generated intangible assets are amortised on a straight-line basis over the useful lives of between one and five years in line with the expected product cycle of each produce. Where no internally generated intangible assets can be recognised, development expenditure is recognised as an expense in the period in which it incurred. The development expense incurred during the year was £1,610 credit (2022: £1,918 credit).
The directors consider that potential sources of uncertainty affecting the group include the continuing consequences of Brexit, Covid 19, environmental sustainability , geopolitical events and the continuing squeeze on customers’ finances due to the cost of living crisis. Overall the directors consider the trading environment faced by the group to be challenging.
The group made a substantial loss in the year and draft accounts indicate that the subsidiary, First Natural Brands Limited, made a further loss of approximately £0.7 million in the year ended 30 April 2024. The directors have instigated a series of cost cutting measures and have discontinued low margin products in order to increase overall profitability.
The parent company, First Natural Limited, has given First Natural Brands Limited an unlimited guarantee to secure all of its liabilities.
Presently, the group is in breach of its loan covenants with regards to amounts owing to its bankers, Santander plc, who have indicated their willingness to work together with the group to improve its finances though they have not waived the covenant breaches. The group is dependent upon the continuing support of its bankers.
The directors are in the process of trying to secure additional finance either from shareholders and/ or new investors. Following the end of the financial year, the group raised £0.5million from its shareholders to strengthen the balance sheet.
As a result of the above, the directors consider it appropriate to prepare the financial statements on a going concern basis.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
We have audited the financial statements of First Natural Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 April 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, 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
We draw attention to Note 1.4 in the financial statements, which indicates that the subsidiary company incurred a net loss of £0.7 million during the year ended 30 April 2024 and, as of that date, the subsidiary's total liabilities exceeded its total assets. As stated in Note 1.4, these events or conditions , along with other matters as set forth in Note 1.4, indicate that a material uncertainty exists that may cast significant doubt on the subsidiary company's, and the group as a whole, ability to continue trading as a going concern. Our opinion is not modified in respect of this matter.
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
Except for the matter described in the Basis for qualified opinion section of our report, 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.
The objectives of our audit are to identify and assess the risks of material misstatement of the financial statements due to fraud or error; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud or error; and to respond appropriately to those risks. The extent to which our procedures are capable of detecting such irregularities is detailed below:.
Based on our understanding of the company and industry, and through discussion with the directors and other management (as required by auditing standards), we identified that the principal risks of non-compliance with laws and regulations related to the Companies Act 2006, employment law, Data Protection Act, GDPR, and other relevant legislation.
We considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements, being FRS 102. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase income or reduce expenditure, related party transactions, management bias in accounting estimates and judgemental areas of the financial statements. Audit procedures performed by the engagement team included:
Discussions with management and assessment of known or suspected instances of non-compliance with laws and regulations (including health and safety) and fraud, and review of the reports made by management; and
A review of relevant correspondence, including correspondence with HM Revenue & Customs, for signs of potential non-compliance with laws and regulations; and
A review of specific nominal codes within the accounting records that would highlight costs associated with non-compliance of relevant laws and regulations; and
Assessment of identified fraud risk factors; and
Challenging assumptions and judgements made by management in its significant accounting estimates; and
Performing analytical procedures to identify any unusual or unexpected relationships, including related party transactions, that may indicate risks of material misstatement due to fraud; and
Confirmation of related parties with management, and review of transactions throughout the period to identify any previously undisclosed transactions with related parties outside the normal course of business; and
Review of significant and unusual transactions and evaluation of the underlying financial rationale supporting the transactions; and
Identifying and testing journal entries, in particular any manual entries made at the year-end for financial statement preparation, as well as throughout the year.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
As part of an audit in accordance with ISAs (UK), we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
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. 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.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our Auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our Auditor's report. However, future events or conditions may cause the company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
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.
These financial statements have been prepared in accordance with the provisions relating to medium-sized groups.
These financial statements have been prepared in accordance with the provisions relating to medium-sized companies.
First Natural Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Millennium House, Unit 2, King Business Centre, Reeds Lane, Sayers Common, Hassocks, West Sussex, BN6 9LS.
The group consists of First Natural Limited and all of its 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 consolidated group financial statements consist of the financial statements of the parent company First Natural Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.
All financial statements are made up to 30 April 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.
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. 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.
Investments in joint ventures and associates are carried in the group balance sheet at cost plus post-acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.
If the group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further losses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the group’s interest in the entity.
These financial statements are prepared on the going concern basis. The directors have a reasonable expectation that the group will continue in operational existence for the foreseeable future. However, the directors are aware of certain material uncertainties which may cause doubt on the group's ability to continue as a going concern.
The directors consider that potential sources of uncertainty affecting the group include the continuing consequences of Brexit, Covid 19, environmental sustainability , geopolitical events and the continuing squeeze on customers’ finances due to the cost of living crisis. Overall the directors consider the trading environment faced by the group to be challenging.
The group made a substantial loss in the year and draft accounts indicate that the subsidiary, First Natural Brands Limited, made a further loss of approximately £0.7 million in the year ended 30 April 2024. The directors have instigated a series of cost cutting measures and have discontinued low margin products in order to increase overall profitability.
The parent company, First Natural Limited, has given First Natural Brands Limited an unlimited guarantee to secure all of its liabilities.
Presently, the group is in breach of its loan covenants with regards to amounts owing to its bankers, Santander plc, who have indicated their willingness to work together with the group to improve its finances though they have not waived the covenant breaches. The group is dependent upon the continuing support of its bankers.
The directors are in the process of trying to secure additional finance either from shareholders and/ or new investors. Following the end of the financial year, the group raised £0.5million from its shareholders to strengthen the balance sheet.
As a result of the above, the directors consider it appropriate to prepare the financial statements on a going concern basis.
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.
Turnover from the sale of goods is recognised when all of the following conditions are satisfied:
The group has transferred the significant risks and rewards of ownership to the buyer;
The group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
The amount of turnover can be measured reliably;
It is probable that the group will receive consideration due under the transaction; and
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
In the research phase of an internal project, it is not possible to demonstrate that the project will generate future economic benefits and, hence, all expenditure on research shall be recognised as an expense when it it incurred. Related enhanced tax claims are treated as grants, and recognised within 'Other operating income' in the financial statements.
Intangible assets are recognised from the development phase of a project if, and only if, certain specific criteria are met in order to demonstrate the asset will generate probable future economic benefits, and that its cost can be realisably measured. The capitalised development costs are subsequently amortised on a straight line basis over their useful economic lives, which range from 2 to 5 years.
If it is not possible to distinguish between the research phase and the development phase of an internal project, the expenditure is treated as if it were all incurred in the research phase only.
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, associates and jointly controlled entities 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.
Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. Where there is any indication that an asset may be impaired, the carrying value of the asset (or cash generating unit to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s (or CGU’s) fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased.
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.
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, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future 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.
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.
The group operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. Once the contributions have been paid the group has no further obligations.
The contributions are recognised as an expense in the Statement of Comprehensive Income when they fall due. Amounts not paid are shown in 'Other creditors' as a liability in the Statement of Financial Position. The assets of the plan are held separately from the group in independently administered funds.
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to profit or loss over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each Statement of Financial Position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
The fair value of the award also takes into account non-vesting conditions. These are either factors beyond the control of either party (such as a target based on an index) or factors which are within the control of one or other of the parties (such as the company keeping the scheme open or the employee maintaining any contributions required by the scheme).
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period.
Where equity instruments are granted to persons other than employees, profit or loss is charged with fair value of goods and services received.
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 and balances
Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions.
At each period end, foreign currency monetary items are translated using the closing exchange rate. Non-monetary items measured at historical cost are translated using the exchange rate applicable at the date of the transaction, and non-monetary items measured at fair value are translated using the exchange rate applicable when the fair value was determined.
Foreign exchange gains and losses resulting from the settlement of transactions and from the translations using the period end exchange rate of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income.
Exceptional items
Exceptional items are transactions that fall within the ordinary activities of the group but are presented separately due to their size or incidence.
Interest payable and similar expenses
Interest payable and similar expenses are charged to profit or loss over the term of the debt using the effective interest method, so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
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.
On acquisition, the group determines a reliable estimate of the useful life of goodwill and intangible assets based upon factors such as the expected use of the acquired business, forecast of expected future results and cash flows, and any legal , regulatory or contractual provisions that can limit useful life. at each subsequent reporting date, the directors consider whether there are any factors such as technological advancements or changes in market conditions that indicate a need to reconsider the useful life of goodwill and intangible assets.
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.
In assessing whether there have been any indicators of impairment of assets, the directors have considered both external and internal sources of information such as market conditions, counterparty credit ratings and experience of recoverability. There have been no indicators of impairments identified during the current financial year.
Exceptional costs of £Nil (2022: £108,930) relate to the closure of the Market Rasen site in Lincolnshire.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
During the year, retirement benefits were accruing to 2 directors (2022: 2) in respect of defined contribution pension schemes.
The total remuneration of key management personnel of the group is £256,752 (2022: £668,941).
The actual charge/(credit) 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:
Factors that may affect future tax charges
The U.K. Government announced in the 2021 budget that from 1 April 2023, the rate of corporation tax in the United Kingdom would increase from 19% to 25%. Companies with profits of £50,000 or less will continue to be taxed at 19%, which is the new small profits rate. Where taxable profits exceed £250,000 the higher tax rate of 25% will apply. Where taxable profits are between £50,000 and £250,000, a marginal tax rate will apply as profits increase. These tax bands will be reduce dependent upon the number of associated companies form a group for tax purposes.
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 30 April 2023 are as follows:
Inventories are stated after provisions for impairment of £Nil (2022: £Nil).
The parent company did not hold any stock at the year end.
Trade debtors are stated after provision for impairment of £Nil (2022: £5,433).
Included in the trade debtor balance shown above is £1,585,818 (2022: £1,338,473) which is subject to and given as security for an invoice discounting facility.
Amounts owed by group undertakings are unsecured, interest free and repayable on demand.
Amounts owed to group undertakings are unsecured, interest free and repayable on demand.
An unlimited company guarantee has been given by the company's parent, First Natural Limited.
In November 2021, the company entered into a refinance agreement with Santander UK plc. The company entered into 3 facilities with Santander:
incorporating a £1.75 million Growth Capital loan which is repayable in 4 years in November 2025;
and a 12 month £4 million confidential invoice discounting facility, which has been extended for another 12 months.
Interest on the Growth Capital Loan is 5% per annum above the U.K. base rate of which 5% per annum is payable in cash on a quarterly basis, and 5% accrues to the term of the Growth Capital Loan. Interest on the trade loan is 3% above the Bank of England’s base rate. Interest on the confidential invoice discounting facility is 2.15% above Santander's base rate.
The above loans are secured by way of fixed and floating charges over all assets of the group.
The obligations under finance leases are secured by way of a charge over the assets held under finance lease agreements.
See note 17 for details of the terms and conditions relating to bank loans.
See note 17 for details of the terms and conditions relating to bank loans.
Loan notes have been issued over a number of years in various tranches. Interest is payable quarterly at a fixed rate of 10%. Repayment has been extended in the 2020 year end to May 2024 in agreement with the loan note holders.
The 2022 loan notes issued in the year are unsecured, interest is payable monthly at a variable rate of 8% and are repayable 30 April 2023.
Repayment has been further extended in the 2023 year end to November 2025 in agreement with the loan note holders.
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. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
These amounts are secured by way of a charge over the assets held under finance lease contracts.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
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.
Contributions totalling £Nil (2022: £9,634) were payable to the fund at the reporting date and are included within 'Other creditors'.
During the year, the company issued 24,849 Ordinary shares of £0.01 each for an issue price of £1.00 each and a further 2,000 Ordinary shares of £0.01 each for an issue price of £1.75 each. The company received £28,349 in cash for the shares issued.
This reserve represents the consideration paid to the company in exchange for shares, which is in excess to the nominal value of the shares purchased.
Operating lease payments represent rentals payable on the premises from which the group operates.
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:
The remuneration of key management personnel is as follows.
The group has taken advantage of the exemption permitted in Section 33.1A ‘Related Party Disclosures’ of FRS 102, not to disclose transactions entered into with other wholly-owned members of the group.
At the year end, Robin Russell, a director, held £10,000 of loan notes (2022: £10,000) with £11,317 outstanding at the year-end. He also held nil £1.75 warrants (2022: 2,000 £1.75 warrants).
The spouse of Robin Russell held £10,000 (2022: £10,000) of loan notes during the year.
At the year end, Sanam Shah, a director, held £Nil of loan notes (2022: £20,000). He also held 1,500 £1 warrants and 2,000 £1.75 warrants (2022: 1,500 £1 and 2,000 £1.75 warrants).
The spouse of Sanam Shah held £10,000 (2022: £10,000) of loan notes during the year, with £10,934 outstanding at the year end.
At the year end, a sibling of Sanam Shah held 3,000 £1 warrants (2022: 3,000 £1 warrants).
At the year end, the spouse of Mark Palmer, who acted as a director during the year, held £10,000 of loan notes (2022: £10,000) with £10,934 outstanding at the year end.
At the year-end within accruals was £Nil (2022: £Nil) in respect of accrued directors salaries and employer’s pension contributions.
The group pays management fees of £600 per month to Mark Palmer, who was a director during the period.
The company issued in July 2023 6,160,417 Ordinary shares of £0.01 each at an issue price of £0.08 per share raising £492,833 in additional capital. The company also proposed the issue of warrants to subscribe up to 320,000 Ordinary shares of £0.01 each in the capital of the company.