The directors present the strategic report for the year ended 31 December 2023.
The group’s turnover increased by 4.6% during the year to £57.3m (2022: £54.8m) and gross margins increased to 38.5% (2022: 35.6%). The increase in administrative costs reflects general inflation but also the active decision to bolster the retail teams and infrastructure in order to improve the customer experience and build a sustainable and scalable operating model. Operating profits increased to £2.00m (2022: £1.78m), while underlying EBITDA increased a little to £3.10m (2022: £3.06m).
The results above were achieved in the face of significant headwinds in the post pandemic economy, which include the war in Ukraine, high inflation and interest rates, dampening UK consumer confidence and a slow housing market.
Having opened our new flagship Hendon showroom early in 2023, the group operated 54 showrooms throughout the rest of the year. Our Birmingham showroom was re-located to significantly improved premises at Brierley Hill.
Product innovation gathered some great momentum over the year with the introduction of the Ascot, new Hypnos mattresses, heat across our core riser ranges, the Bramham and late in the year, the start of production of the new Knaresborough collection.
2023 was a year of change and renewal in the board of directors. After seven years of service that included overseeing the expansion of our retail estate and steering the business through the pandemic, Guy Critchlow and Paul Roberts took the decision to leave the business in the first half of 2023. After ten years’ service that saw him oversee the transformation of the group’s manufacturing capabilities, Kevin Wall took early retirement in summer 2023. Leanne Eastwood and Ben Waters, representing the third generation of the founding family, both stepped up onto an operational board now lead by Venessa Hodgson as Managing Director.
The directors are pleased with the performance delivered during the year and are optimistic about prospects for 2024 and beyond.
The group faces a number of risks in both the day-to-day operation of its business, and in implementing its strategic plans. The board regularly reviews these risks and implements process improvements and mitigating actions, wherever possible, to manage risk.
Risks that could potentially have the most significant impact on the group are outlined below, together with mitigating actions taken. Other risks which are either not currently known or not considered material could also impact upon the group’s reported performance or net assets.
Business strategy
The group’s success depends upon the design and implementation of a successful strategy. The group’s strategy is discussed at board meetings, including meetings specifically held to undertake longer term horizon-scanning and strategic planning.
Longer-term development is also addressed at regular operational meetings which include the extensive involvement of directors and members of HSL’s family board, the group’s senior management team and other colleagues. Each department’s objectives are closely aligned with the group’s strategy, and performance against those objectives is regularly reviewed throughout the year. Colleague incentive schemes are based upon the group’s performance, to align all colleagues with delivering the group’s strategic and operational plans.
Economic conditions
UK economic conditions can impact upon consumer buying behaviour and spending levels. The group’s success is therefore dependent upon its ability, through its brand and marketing activity, to encourage customers into its retail channels and for those customers to place an order. As such, appropriate retail and marketing key performance indicators are reviewed daily and continuous actions are taken to maximise performance and respond to the impact of external factors.
During 2023, consumer confidence across much of the retail industry was negatively impacted by both geopolitical events and UK economic conditions, including high inflation and interest rates. The wider furniture industry can be considered to represent items of higher-value discretionary spend, and the nature of the group’s customer base in particular can mean that it is amongst the first to react cautiously to such economic uncertainty. However, HSL’s offering is weighted towards consumers with a need for specialist furniture which improves comfort, posture, and wellbeing. This offers protection against such negative economic conditions and, furthermore, should drive the fastest pace of recovery as market conditions improve.
Although the group’s performance is also exposed to the actions of competitors in the retail sector, this is further mitigated by HSL’s specialism in the design and sale of furniture which improves health and wellbeing informed by long-standing partnerships with Occupational Therapists.
Supply chain
The group’s success is dependent upon a reliable, high quality supply chain. As with many other businesses at this time, the group is exposed to risks of supply chain disruption and inflation in the purchase price of raw material, subcontract manufactured furniture and bought-in services.
A significant majority of the products sold by HSL are designed and manufactured in its own factory in West Yorkshire. Furthermore, the vast majority of deliveries are now completed by the group’s in-house logistics operation. As well as ensuring a consistently high-quality product and service for customers, these strategies help to defend against cost increases and lead time extensions.
To ensure continuity of supply the group continuously reviews future order expectations and works in close partnership with its suppliers to ensure that appropriate stock levels are held in or close to the UK to mitigate the risk of supply chain delays. The group closely reviews all external sources of supply of both parts and services and maintains flexible supply arrangements wherever possible, to maintain competitiveness and ensure consistently high-quality standards.
Key performance indicators used by the directors to monitor the group include the following:
|
| 2023 | 2022 |
|
|
|
|
|
| £000 | £000 |
|
|
|
|
Sales |
| 57,336 | 54,835 |
|
|
|
|
EBITDA |
| 3,104 | 3,066 |
|
|
|
|
EBITDA Margin % | 5.4% | 5.6% | |
|
|
| |
Net cash |
| 4,454 | 3,555 |
|
|
|
|
EBITDA reconciliation |
|
| |
|
|
|
|
Profit before tax | 1,927 | 1,668 | |
|
|
| |
Depreciation |
| 1,100 | 1,085 |
|
|
|
|
Interest |
| 77 | 115 |
|
|
|
|
Exceptional Items | 0 | 198 | |
|
|
| |
|
| 3,104 | 3,066 |
Other
In addition, the directors use a number of other financial and operational key performance indicators which they consider are effective in monitoring the performance of the company. These include footfall, order and profitability data by channel and by location, and customer satisfaction indices.
The directors of High Seat Holdings Limited consider that, in both the individual and collective decision making which took place during the year ended 31 December 2023, they have acted in a way which is most likely to promote the success of the company for the benefit of the group’s shareholders as a whole, whilst having regard to the stakeholders and matters set out in s172(1)(a-f) of the Companies Act 2006.
The directors’ objective is to promote the long-term financial viability and success of the company. In doing so they have considered matters including the following:
the expected long-term consequence of the decisions they make.
the impact upon HSL’s retail customers.
the interests of colleagues across the company.
the company’s bank and other funding partners.
relationships with the company’s suppliers and other business partners.
the impact of operations on society and the environment.
the need to maintain a reputation for high standards of business conduct; and
the need to act fairly as between all shareholders of the company.
In this regard, the directors discharge their duties as follows:
Risk management
The directors have consideration of long-term risks to the group, which are managed through a continuous exercise of risk identification, risk appraisal and, where appropriate, the implementation of mitigating actions. This exercise includes regular review of risks in board meetings, which take place at least monthly, and input from colleagues within relevant areas of the business and from a range of external sources.
The principal risks and uncertainties faced by the group are outlined on page 2.
Customers
As a retailer serving a typically older demographic, the directors always recognise the group’s responsibility to its customers. All key strategic and operational decisions include consideration of the impact on the customer experience, product quality, service standards, and value-for-money. This includes gathering feedback directly from customers via surveys, independent customer reviews, customer listening groups and seeking input from colleagues who work within the group’s retail channel.
Colleagues
The directors recognise the critical role that all colleagues play in protecting HSL’s heritage and unique culture and values, which in turn help promote the success of the group.
The directors are committed to treating all colleagues with fairness, respect and equality, and continue to assess ways of enhancing the pay and benefits and wider support available to all colleagues. Health and safety and colleague wellbeing are key focuses and are managed by measures including a group health & safety committee which reports into the group board of directors, trained mental health first-aiders, wellbeing content provided to colleagues via a range of channels and a free-to-use Employee Assistance Programme.
Colleague feedback is gathered regularly through a variety of formal and informal channels. Further information is detailed in the directors’ report on pages 6 to 8.
Bank and funding partners
HSL’s strategic plans are developed and appraised with careful regard to the interests of the group’s bank and other funding partners. The directors seek to ensure that appropriate facilities remain available to meet current needs, and to provide sufficient headroom for future investment and unexpected events.
The group has a proactive and transparent relationship with all funding partners, including its bank, NatWest. The group’s approach includes sharing budgetary and financial information regularly and meeting periodically to discuss trading performance and strategic plans.
Suppliers and business partners
HSL works with carefully selected third party manufacturers and service partners, and suppliers of manufacturing components and support services, which together are key to its ability to continue to offer high quality products and service standards for its customers.
The directors and key members of the senior management team regularly engage with suppliers to discuss performance, quality, price and how, by working in close partnership, the group can continually improve its supply chain. Further information on the group’s supply chain is outlined on page 2.
Society and the environment
The group seeks to positively impact on the lives of customers and colleagues, and it sets a strategy and operational plans which pay careful regard to the communities it operates in and its wider social responsibilities.
As a national retailer, the group recognises its responsibility to all areas of society and sets out to support these through local and national charitable activities.
In 2023, the company made several steps forward with regards to its environment and sustainability strategy. Its key focuses for the year under review included refining processes and utilising technology effectively to reduce waste.
Over the course of 2023, HSL developed processes which enabled the company to reuse over 14,000 units of its own furniture packaging. HSL continued to work closely with the British Heart Foundation to divert over 1,000 tons of furniture from landfill between 2022 and 2023. The company also installed a new and more efficient extraction system in their manufacturing facility and expanded LED lighting throughout the factory building.
Looking forward, the board is developing ambitions for the future including the installation of solar panels at their Leeds distribution centre.
Business conduct and shareholders
The directors are committed to acting responsibly to all stakeholders and ensuring that the business is operated in a responsible manner, with appropriately high standards of business conduct and governance. The directors understand that maintaining these standards will support the delivery of the group’s strategy and promote its longterm success.
All key beneficial shareholders of the company are represented on the group board of directors.
Through regular board meetings, which include reports which review the business and its performance, prepared by the directors and senior management team and circulated in advance, shareholders are able to properly consider and input to matters relevant to them as shareholders and ensure that the group’s activities remain compliant with these conduct standards.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 12.
Ordinary dividends of £1.1m (2022: £1.625m) were paid during the year. The directors do not recommend payment of a further dividend in relation to the year.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The group maintains a colleague intranet, ourHSL, providing information on matters of interest. In addition, colleagues receive regular briefings from the directors and the senior management team through a number of other channels, highlighting matters relevant to them, including the economic, financial, and commercial factors affecting the performance of the group.
The group also periodically undertakes listening groups across all areas of the business, ad hoc questionnaires and an annual survey to measure colleague engagement levels and canvass views on significant matters. In 2022 the group started a partnership with Best Companies Limited and earned its first Best Companies accreditation.
The auditor, Azets Audit Services Limited, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
In accordance with the Streamlined Energy and Carbon (“SECR”) reporting requirements, the directors report on the group’s energy usage and greenhouse gas emissions for the year ended 31 December 2023.
In accordance with the requirements, energy usage data reflect the group’s electricity and gas use during the year at HSL’s factory, office and warehouse premises as well as across the estate of showrooms. In addition, reported energy use captures fuel used by company operated vehicles and machinery, and business mileage undertaken by colleagues in privately owned cars.
Emissions have been calculated using conversion factors available from public information sources. Emissions and intensity ratios are presented on both a location-basis and market-basis, in the latter case reflecting the impact of a renewable energy tariff.
|
| Year ended 31 December 2023 | Year ended 31 December 2022 |
Total UK energy use | Thousand kWh | 6,592 | 6,680 |
Total UK emissions – location based | Tonnes of CO2e | 1,518 | 1,523 |
Intensity ratio – location based | tCO2e per £’million of turnover | 26.5 | 27.8 |
|
|
|
|
Total UK emissions – market based | Tonnes of CO2e | 1,072 | 1,342 |
Intensity ratio – market based | tCO2e per £’million of turnover | 18.7 | 24.5 |
We are pleased to report that HSL re-entered a renewable electricity tariff at all its sites from 1 December 2022 and has remained on this tariff throughout 2023 and to date. This has had the impact of significantly lowering market based C02 emissions.
Activities undertaken to reduce the group’s carbon footprint include the following:
Installation of LED lighting across the group’s factory and showroom estate;
Investment in On-Demand Dust Collection systems in the factory. This dynamically adjusts the ventilation based on real-time demand from the machinery and significantly lowers electricity usage.
Installation of a solar energy system at the group’s distribution centre is scheduled for the first half of 2024.
The directors are pleased with progress in 2023 and are looking forward to measuring scope 3 emissions as the next significant step in the journey to net zero.
We have audited the financial statements of High Seat Holdings Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 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 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;
Performing audit work over the timing and recognition of revenue and in particular whether it has been recorded in the correct accounting period.
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 £974,650 (2022 - £1,622,622 profit).
High Seat Holdings Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Units 1-3a Grange Road Industrial Estate, Grange Road, Batley, West Yorkshire, WF17 6LN.
The group consists of High Seat Holdings 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 £1.
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 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The consolidated group financial statements consist of the financial statements of the parent company High Seat Holdings 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 31 December 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.
At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
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.
Assets in the course of construction are not depreciated.
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.
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 period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's 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.
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.
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.
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 estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The stock provision has been calculated based on estimated net realisable value of demonstration stock items. The directors have assumed that a consistent stock provision will be needed against all stock lines in all stores, based upon stock type, and the historical stock write downs will remain consistent in the future.
The returns provision has been calculated based on historical levels of customer returns. The directors have assumed that the future level of returns will continue to be consistent with historical levels.
A cut-off adjustment has been posted to the financial statements for dispatches where title had not passed to the customer at the year end. The directors have calculated this adjustment based on information obtained during the stock counts performed internally and at the company's two largest carriers, covering a significant majority of dispatches.
£179,713 of prior year exceptional costs relate to the write-down of legacy costs incurred and capitalised in relation to a business-wide IT project. The remainder of prior year exceptional costs are in relation to redundancies within the year and the costs from store closures.
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/(credit) for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The UK corporation tax rate was 19% to 5 April 2023 and 25% from 6 April 2023.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
The directors applied the amendments to FRS102, effective 1 January 2019, and as a result elected to transfer investment properties at deemed cost to tangible fixed assets at this date. These properties are owned by the company and leased to other entities within the group.
Details of the company's subsidiaries at 31 December 2023 are as follows:
Registered office addresses (all UK unless otherwise indicated):
Obligations under finance leases are secured against the assets to which they relate.
Finance lease payments represent rentals payable by the company or group for certain items of fixtures and fittings. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 3 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
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 above is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.
Deferred tax is not recognised in respect of tax losses of £4,631,244 (2022 - £7,637,026) as it is not probable that they will be recovered against the reversal of deferred tax liabilities or future taxable profits. Had this not been the case a deferred tax asset of £1,157,811 (2022 - £1,909,257) would have been recognised when calculated at the estimated future rate of 25% (2022 - 25%).
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.
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:
During the year the group paid rent of £60,850 (2022 - £95,445) to P Burrows, a relative of Mr W J Burrows, a director.
The prior period adjustments do not give rise to any effect upon profit and loss in either the group or the company.
Employee Benefit Trust
The employee benefit trust has been consolidated in the accounts this year due to the nature of the EBT’s activities being controlled by the company it has also been consolidated in the prior year.