The directors present the strategic report for the year ended 31 December 2023.
The business worked through and experienced the toughest market and trading conditions since we started. It was a challenging year with many casualties within our industry and the directors suspect there may still be more to come in 2024. The directors expected a post-COVID-19 normalisation for our industry, however they did not predict it to drop to the level it did.
2023 saw the closure of three of our largest customers. ProBike Kit, Chain Reaction Cycles and Wiggle. Their combined purchases in 2022 were £2.3m (approx. 22% of 2022 turnover). The UK cycle market also saw the closure of some of our competitors, signaling the tough trading conditions that exist. However, this has meant that we have been able to pick up some new brands for distribution within the UK, we are confident that this will help boost our turnover and overall profitability.
The UK cycle market in 2023 remained flooded with excess stock and this has caused gridlock with some dealers and cashflow problems for many others, and we experienced a downturn in orders placed and revenue in 2023.
Revenue for the year was £7.95m compared to £10.87m achieved in the comparative period, a 26.9% decrease, and gross profit margin fell from 17.39% in 2022 to 12.88% in 2023. These KPI's were affected significantly as a result of the above comments.
The directors will continue to explore strategies to increase market share with continued investment in advertising, and are planning a strong presence at trade shows and other biking events in 2024 and beyond.
Our in-house brands, DMR and Kinesis UK, continue to perform consistently, accounting for about 30% of total sales. The business will continue to invest in R&D for these two brands. We will also be investing in the development of our B2B eCommerce infrastructure in 2024.
Stock levels are closely monitored, and provisions made where necessary for old and slow-moving stock.
Unfortunately, Brexit has undoubtedly had a negative effect on our business and our sales and in the short term at least, we will struggle to sell into Ireland and mainland Europe.
We are optimistic that, starting in 2024, the medium to long term outlook for our business is positive as people continue to enjoy riding bikes, as working from home begins to decline as people return to the office and seek more affordable commute options. Plus, with more and more e-bike/e-cargo options becoming available and affordable, we expect people will look to replace their car or at least one of the family’s cars for a bike. The directors strongly believe the market will rebound, and global targets for carbon reduction and people seeking healthier lifestyle options should give us huge opportunities to grow in the years ahead.
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.
For the year ended 31 December 2023, the group declared an ordinary dividend of £345,368. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The group operates a treasury function which is responsible for managing the liquidity and foreign currency risks associated with the group’s activities.
The group’s principal financial instruments include derivative financial instruments, the purpose of which is to manage currency risks arising from the group’s activities. In addition, the group has various other financial assets and liabilities such as trade receivables and trade payables arising directly from its operations. Derivative transactions which the group enters into principally comprise forward exchange contracts. In accordance with the group’s treasury policy, derivative instruments are not entered into for speculative purposes.
The group manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the group has sufficient liquid resources to meet the operating needs of the business.
The group’s principal foreign currency exposures arise from trading with overseas companies. Group policy permits but does not demand that these exposures may be hedged in order to fix the cost in sterling. This hedging activity involves the use of foreign exchange forward contracts.
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 receivables are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
The group aims to produce bikes and parts at certain price points and performance standards. Research and development is carried out across a number of products and always involves the commercial assessment of the designs, production of prototypes and performance testing.
The directors believe that there are currently no major future developments requiring disclosure.
The auditor, Sumer Audit, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of Upgrade Group 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 statement of financial position, the company statement of financial position, 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.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following:
Obtaining and understanding of the legal and regulatory framework in which the group operates, focusing on those laws and regulations that had a direct effect on the financial statements and operations;
Obtaining an understanding of the group's policies and procedures on fraud risks, including knowledge of any actual, suspected or alleged fraud; and
Discussing among the engagement team how and where fraud might occur in the financial statements and any potential indicators of fraud through our knowledge and understanding of the companies and our sector-specific experience.
As a result of these procedures, we considered the opportunities and incentives that may exist within the group for fraud. We are also required to perform specific procedures to respond to the risk of management override. As a result of performing the above, we identified the following areas as those most likely to have an impact on the financial statements: health & safety, employment law and compliance with the UK Companies Act.
In addition to the above, our procedures to respond to risks identified included the following:
Making enquiries of management about any known or suspected instances of non-compliance with laws and regulations and fraud;
Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to stock provisions; and
Auditing the risk of management override of controls, including through testing journal entries and other adjustments for appropriateness.
Due to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). For instance, the further removed non-compliance is from the events and transactions reflected in the financial statements, the less likely the auditor is to become aware of it or to recognise the non-compliance.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the company has not presented its own income statement and related notes. The company’s profit for the year was £3,456,585 (31 December 2022 - £169,012).
These financial statements have been prepared in accordance with the provisions relating to medium-sized companies.
Upgrade Group Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Amelia House, Crescent Road, Worthing, West Sussex, BN11 1RL.
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, modified to include the revaluation of certain financial instruments at fair value. 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;
The consolidated group financial statements consist of the financial statements of the parent company and its subsidiary. The subsidiary is consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.
At the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. The directors have considered relevant information, including the company’s principal risks and uncertainties, forecast future cash flows and the impact of subsequent events in making their assessment.
Based on these assessments and having regard to the resources available to the entity, the directors have concluded that there is no material uncertainty in relation to the appropriateness of continuing to adopt the going concern basis in preparing the annual report and accounts.
Revenue is recognised to the extent that the group obtains the right to consideration in exchange for its performance. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty. The following criteria must also be met before revenue is recognised:
Sales of goods
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 group and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Commissions receivable
Revenue from commissions receivable is recognised when the individual transaction, for which the commission is earned, has been completed.
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 income statement.
In the parent company financial statements, investments in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
At each reporting end date, the group reviews the carrying amounts of its tangible 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).
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset 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.
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 statement of financial position when the group becomes party to the contractual provisions of the instrument.
The group enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities including trade and other accounts receivable and payable, loans from banks and loans from related parties.
Debt instruments including loans and other accounts receivable and payable are initially measured at transaction price and subsequently at amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received.
The group also enters into other financial instruments in the use of forward foreign currency contracts in order to reduce exposure to foreign exchange rates.
Derivative financial instruments are initially measured at fair value on the date on which a derivative contract is entered into and are subsequently measured at fair value through profit or loss. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The fair value of the forward currency contracts is calculated by reference to current forward exchange contracts with similar maturity profiles and carried out by a third party.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity. Financial liabilities are derecognised when, and only when, the group's obligations are discharged, cancelled, or they expire.
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 income statement 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.
The costs of short-term employee benefits are recognised as a liability and an expense.
For defined contribution schemes the amount charged to the profit and loss account in respect of pension costs and other post-retirement benefits is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.
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 directors have made key assumptions in determining the appropriate impairment provision against inventory items held at the end of the reporting period, based on the ageing of inventory lines purchased in excess of 18 months prior to the statement of financial position date, as well as any adjustments for specific identified items.
The directors revalued freehold land and buildings to fair value on 31 July 2023, prior to the transfer of the assets from the subsidiary company via a dividend in specie, Upgrade Bikes Limited. This valuation was based on a the results of an independent professional valuation which took place on 15 November 2021.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 2 (2022 - 2). The directors are considered to be the only key management personnel of the group.
The actual (credit)/charge 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:
In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised directly in other comprehensive income:
Freehold land and buildings, including property improvements, with a carrying amount of £1,070,628 were revalued by the directors at 31 July 2023. The revaluation was based on an independent valuation by SHW at 12 November 2021.The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties.
The revaluation of the property took place in the subsidiary company, Upgrade Bikes Limited, prior to the transfer of ownership of the property to Upgrade Group Limited via a dividend in specie. A transfer of £1,529,372, being equivalent to the gain on revaluation of the property, has been made from retained earnings to the revaluation reserve in Upgrade Group Limited. A further transfer of £1,519 has been made from the revaluation reserve to retained earnings in Upgrade Group Limited, being excess depreciation charges as a result of the revaluation.
The following assets are carried at valuation. If the assets were measured using the cost model, the carrying amounts would be as follows:
Details of the company's subsidiaries at 31 December 2023 are as follows:
The group purchases forward foreign currency contracts to manage currency exposure on future commitments. The fair values of the assets and liabilities held at fair value through profit and loss at the statement of financial position date are determined using quoted prices. At the statement of financial position date the group has agreed forward contracts totalling £nil (2022 - £3,631,144) for the purchase of foreign currency.
The replacement cost of stock held by the group as at the reporting date is estimated at £4,022,000 (2022 - £5,710,000).
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
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.
Ordinary A shares have attached to them full voting, dividend and capital distribution (including on winding up) rights.
Ordinary B shares are non-voting shares and hold no rights but may be considered separately by the directors when declaring dividends.
At the statement of financial position date, the directors were owed £12,427 (2022 - £345,094) by the group and company, this amount is included within other payables. The loans are interest free and have no fixed repayment date.
At the statement of financial position date a shareholder was owed £12,438 (2022 - £123,327) by the group and company, this amount is included within other payables. This loan is interest free and has no fixed repayment date.