The directors present the strategic report for the year ended 31 December 2023.
The company owns Down Hall Hotel, one of England’s most established country house hotels located in Hatfield Heath, near Bishop’s Stortford on the Hertfordshire and Essex border.
During the year ended 31 December 2023, the hotel has faced new challenges following the Covid pandemic reflecting domestic and global social, economic and political issues. Those challenges are reflected by increased costs of operation, supply shortages and a tight labour market. However, the hotel has adapted effectively to these challenges and continues to navigate through these difficulties. Despite the obstacles, the hotel has shown resilience and has successfully adjusted its operations to meet the evolving demands of the current domestic and global environment.
There are several principal risks and uncertainties that impact operations and financial performance of the company:
Economic conditions: Fluctuations in the overall economic environment, such as recessions or downturns, can have a significant impact on the demand for hotel services. Reduced consumer spending, decreased business travel, and lower discretionary income can lead to decreased occupancy rates and revenue.
Competitive landscape: The hotel industry is highly competitive. Increased competition, emergence of alternative accommodation options, and changing customer preferences can pose risks to hotel profitability.
Market demand and seasonality: Demand for hotel accommodation can vary significantly based on factors such as travel trends, local events and seasonality.
Operational risks: The hotel can face operational risks such as maintenance issues, supply chain disruptions, technology failures, and regulatory compliance. These risks can result in reputational damage, guest dissatisfaction, increased costs, or even legal consequences.
Health and safety concerns: The hotel industry is particularly sensitive to health and safety concerns, including outbreaks of diseases, natural disasters, or other unforeseen events. Such incidents can lead to reduced travel, cancellations, or changes in travel patterns, negatively impacting hotel performance.
Environmental factors: The hotel must contend with environmental risks such as climate change, natural disasters, and sustainability expectations. These factors can affect infrastructure, property damage, insurance costs, and operational efficiencies.
Financial risks: The hotel faces financial risks and uncertainties related to the use of financial instruments. The directors' report aims to provide a comprehensive understanding of how the company utilise financial instruments to support its operations and manage financial risks effectively.
The directors monitor and manage these risks effectively through comprehensive risk assessment, contingency planning, strategic pricing, brand differentiation, investment in technology, and continuous adaptation to changing market dynamics. Throughout the year, the company remained committed to investing in its infrastructure to ensure ongoing sustainability. Significant investments were made in renovation projects aimed at enhancing the overall hospitality experience and ensuring that the hotel can meet the demands and expectations of its guests. These renovations have positively contributed to the hotel's ability to deliver exceptional service, improve guest satisfaction, and maintain a competitive edge in the market. By continually investing in the property, the company strives to provide a welcoming and comfortable environment that exceeds guest expectations and fosters long-term loyalty.
During the year ended 31 December 2023, revenue increased from £6,139,994 to £7,705,370, resulting in an operating profit of £198,837 (2022: £1,362,218). The company made a loss after taxation of £176,791 during the year ended 31 December 2023 (2022: profit of £975,636).
The 2022 results are stated after recognising the reversal of a previous impairment of the hotel, amounting to £1,618,884. The reversal was recognised through the profit and loss account and an additional impairment loss reversal of £263,520, recognised through other comprehensive income. No such transactions occurred in 2023. The decision to reverse the impairment loss was taken by management based on their assessment that the overall valuation of the hotel had increased during the comparative period. The increase in valuation was attributed to the benefits derived from ongoing renovations, which enhanced the hotel's facilities, as well as an improvement in guest satisfaction. These factors played, and continue to play, a significant role in driving improved performance.
Net current liabilities at 31 December 2023 were £18,822,128 (2022: £12,757,386) and net liabilities at 31 December 2023 were £373,903 (2022: £197,112). Such amounts include loans from the parent company, amounting to £12,523,400 (2022: £12,523,400). The parent company has pledged its continuing support.
The directors consider the company's financial position and future prospects at 31 December 2023 to be in line with expectations.
The directors receive monthly divisional updates in order to track and assess key performance indicators (“KPIs”) against targets set every year. The KPIs monitored include gross profit and operating profit.
Gross profit: £1,755,097 (2022: £1,148,025)
Gross profit percentage: 22.78% (2022: 18.70%)
Operating profit: £198,837 (2202: £1,362,218)
Operating profit percentage: 2.58% (2022: 22.19%)
Operating profit/(loss), adjusted to discount the effect of impairment: £198,837 (2022: £(256,666))
Operating profit/(loss) percentage, adjusted to discount the effect of impairment: : 2.58% (2022: (4.18%))
The directors are cautiously optimistic about the company’s future prospects and will continue to prioritise investment in its people to enable it to deliver excellent guest service, continue the renovation work and further development of the hotel.
The directors are pleased to report that the company continues to operate as a going concern. Despite the current domestic and global political, social and economic issues, combined with the diminishing effects of the covid pandemic, the hotel has shown resilience and is on a continuing path of financial improvement.
The positive trends observed in the industry are promising. The management team have worked diligently to adapt the hotel's operations to address the new economic challenges and changing conditions in the industry. Ongoing renovations to the hotel continue to attract guests, resulting in reasonable occupancy levels. This has contributed to improved financial performance and stability. With capacity in occupancy levels, the directors are confident that the improvements in financial performance witnessed to date will continue.
The company renewed its bank loan facility in June 2024. Under the terms of the new facility, the loan is repayable in June 2029.
On the basis of the parent company’s support and the renewed availability of bank loan facilities, the directors are of the opinion that the company will continue to possess the ability to meet its financial obligations as they fall due and therefore consider it appropriate to adopt the going concern basis in preparing the financial statements.
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 8.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year up to the date of the signature of the financial statements were as follows:
The company operates a treasury function which is responsible for managing the liquidity, interest and foreign currency risks associated with the company’s activities. As the company has significant borrowings, credit and liquidity risks are particularly important. The loan facility in place at 31 December 2023 was renewed in June 2024 and is now available to the company until June 2029. The directors have sufficient expertise to manage these risks.
The directors maintain strong internal policies and procedures to ensure that liquidity risk is suitably managed. Monthly performance reports, forecasts and cash flows are reviewed and action taken where appropriate.
The company’s principal financial instruments could include derivative financial instruments, the purpose of which is to manage currency risks and interest rate risks arising from the company’s activities, and bank overdrafts, loans and corporate bonds, the main purpose of which is to raise finance for the company’s operations. In addition, the company has various other financial assets and liabilities such as trade debtors and trade creditors arising directly from its operations. In accordance with company’s treasury policy, derivative instruments are not entered into for speculative purposes.
The company manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.
The company is exposed to fair value interest rate risk on its fixed rate borrowings and cash flow interest rate risk on floating rate deposits, bank overdrafts and loans. The company permits to use interest rate derivatives to manage the mix of fixed and variable rate debt so as to reduce its exposure to changes in interest rates. No such derivatives were used during the year ended 31 December 2023. The board of directors has the expertise to manage this risk and to structure long term borrowing to enable the company to make sufficient investment returns.
The company’s principal currency is sterling therefore the risk exposure is low.
Investments of cash surpluses, borrowings and derivative instruments are made through banks and companies which must fulfil credit rating criteria approved by the Board. All customers who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
Having reviewed the company’s exposure to credit risk, liquidity risk and cash flow risk, the directors are of the view that these are manageable notwithstanding adverse market conditions
The company continues to develop new processes and services to improve and enhance its customer service and customer experience.
During the post year end period, the company renewed its bank loan facility. The terms of the new facility extend until June 2029.
The auditor, PK Audit LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
The company is not required to present an energy and carbon report, as it qualifies for an exemption based on its classification as a medium-sized company.
Basis for 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 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
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.
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 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 company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the company through discussions with the directors and from our commercial knowledge and experience of the sector; we focused on those laws and regulations which we considered may have a direct material effect on the financial statements or the company's operations, including the Companies Act 2006, taxation legislation, data protection, employment, environmental and health and safety legislation;
we assessed the extent of compliance with the laws and regulations identified above through enquiries of management;
we enquired of the company's solicitor as to whether there have been any litigation and claims;
identified laws and regulations were communicated within the audit team who remained alert to instances of non-compliance throughout the audit;
we assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by making enquiries of management as to where they considered there was susceptibility to fraud and their knowledge of actual, suspected and alleged fraud; and
we considered the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations.
Based on our understanding of the company and industry, and through discussion with the directors and other management, we identified that the principal risks were in relation to:
management bias in relation to the risk of management override of controls;
management assumptions in the accounting estimates associated with property impairment, the depreciation of assets and deferred tax assets;
not complying with relevant rules and regulations;
not complying with bank covenants and the associated risk of going concern;
revenue recognition
errors in the calculation of the company's corporation tax provision; and
accuracy of fixed assets classification and capital allowance claims.
In response to the risk of irregularities, including fraud and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
performing analytical procedures to identify any unusual or unexpected relationships and transactions;
auditing the risk of management override of controls, including through testing journal entries and other adjustments for appropriateness, and evaluating the business rationale of significant transactions outside the normal course of business;
assessing whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias;
agreeing disclosures within the financial statements to underlying supporting documentation;
requesting minutes of meetings of those charged with governance;
enquiring of management, those charged with governance and the entity’s solicitors around actual and potential litigation and claims;
for an appropriate sample of transactions, identifying the revenue recognition point for the provision of services and testing for completeness by ensuring the transactions were properly recorded in the sales nominal ledger account;
for an appropriate sample of transactions checking the accuracy of the assets' classification and accuracy of associated capital allowance claims;
identifying the terms and conditions of loans and assessing whether their covenants were met;
enquiring of the entity's staff involved in the tax and compliance functions to identify any instances of non-compliance with laws and regulations;
reviewing correspondence with HM Revenue and Customs, bankers and the company’s relevant costs; and
discussing the existence of related parties with management and obtaining confirmation of inter-company balances.
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 is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The Profit And Loss Account has been prepared on the basis that all operations are continuing operations.
Down Hall Hotel Limited is a company limited by shares incorporated in England and Wales. The registered office address is at 7-12 Half Moon Street, Mayfair, London, W1J 7BH. The company's trading address is Matching Road, Hatfield Heath, Bishop's Stortford, CM22 7AS.
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.
This 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:
Section 4 ‘Statement of Financial Position’ – Reconciliation of the opening and closing number of shares;
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’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; 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 26 ‘Share based Payment’ – Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Veladail Hotels Limited. These consolidated financial statements are available from Companies House.
Interest income is recognised when it is probable that the economic benefits will flow to the company and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.
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 credited or charged to profit or loss.
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 are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, 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 company 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 company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company 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 company.
In the application of the company’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.
Assets are valued at the lower of cost and net realisable value. Calculation of net realisable value in use requires judgements to be made, which include estimated future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value of future cash flows.
The carrying amount of fixed assets at 31 December 2023 was £18,448,225 (2022: £18,440,904) after an impairment loss reversal of £ NIL (2022: £1,618,884), recognised through the profit and loss account, and an additional impairment loss reversal of £ NIL (2022: £263,520), recognised through the other comprehensive income statement. In determining the impairment reversal, the company used a discounting factor of 9.50%, being the weighted average cost of capital for the travel and leisure sector.
The deferred tax asset in respect of unrelieved tax losses is recognised only to the extent that it is probable that it will be recovered against the reversal of deferred tax liabilities or other future taxable profits in the company or the group. The company's ability to generate future taxable profits is dependent on many factors, amongst which is its ability to continue to build occupancy rates and to consolidate on the hotel's improvements and developments made to date. The recovery of the deferred tax asset may also be influenced by the tax policy decisions made by the group of which the company forms a part.
By its very nature, the recognition and measurement of deferred tax requires assumptions to be made about the future. The company estimates that, as at 31 December 2023, the deferred tax asset in respect of unrelieved tax losses amounted to £772,486 (2022: £632,686). The directors, whilst confident as to the recoverability of the deferred tax asset, feel it inappropriate to provide an estimate of the time period over which this asset may be recovered.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives. The residual value of the freehold property is calculated as a sum of the value of the land and 60% of the core building. As at 31 December 2023 the estimated residual value of the freehold amounted to £10.6 million (2022: £10.6 million).
An analysis of the company's turnover is as follows:
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The actual credit for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:
Reversals of previous impairment losses have been recognised in profit or loss as follows:
More information on impairment movements in the year is given in note 10.
The freehold property is held at deemed cost following transition to FRS 102 in 2015. The historical cost, had the asset not been revalued, is £14,684,194 and depreciation £904,586.
The bank loan is secured by a fixed and floating charge over the assets of the company. The loan is subject to an average interest rate of 7.83%, while the effective interest rate, taking into account any additional fees or charges, is 8.31%.
Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
The deferred tax asset set out above is expected to reverse in a timeframe exceeding one year, and is influenced by various factors including the company's future profits, those of the group if which it forms a part and the broader group tax planning policy.
The deferred tax provision is calculated using a corporation tax rate of 25% (2022: 25%). Future changes to corporate tax laws that affect the prevailing rate may in turn affect the deferred tax assets and liabilities. Any movements in the assets and liabilities resulting from such changes will be reflected as part of the tax charge included in the financial statements for future periods.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
The company has one class of ordinary shares which carry full voting rights.
The company's bank loan, totalling £5,906,210, is classified within creditors due withing one year as at 31 December 2023. The bank loan was disclosed as a short-term creditor of £172,000 and a long-term creditor of £5,880,630 in 2022. Subsequent to the year end, in June 2024, the bank loan was renewed for the next five years.