The directors present the strategic report for the year ended 31 December 2023.
The company continued to increase its portfolio of companies via the acquisition of AC Electrical Services Group during the year ended 31 December 2023. The company acquired a majority (80%) stake in AC Electrical, a leading electrical contractor in the UK, which specialises in commercial building fit-outs, LED installation and refurbishments.
The company is funded by way of loans from its ultimate parent company, Storskogen Group AB. The company made pre-tax losses of £13,768,760 for the period and at 31 December 2023 had net liabilities of £4,839,876.
The principal risks and uncertainties facing the company relate to the general uncertainty as to the level of economic activity going forward, continued high inflation and interest rates which will effect the company and its subsidiary businesses, the availability of quality acquisition targets and the availability of capital with which to fund future acquisitions.
The Directors are of the opinion that analysis using key performance indicators is not necessary for an understanding of the business at the present time.
The Directors consider that in conducting the business of the company over the course of the year they have complied with section 172(1) (a) to (f) of the Companies Act 2006 (“S172(A)”) by fulfilling their duty to promote the success of the company, When making decisions, each director ensures that they act in the way that would most likely promote the company’s success for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the following matters:
The likely consequences of any decision in the long term
The company’s strategy is to acquire businesses for long-term growth. The directors do not intend to divest businesses and make investments with an infinite ownership horizon in mind. Therefore the long term consequences are firmly within the sights of the Board when all material decisions are made.
The interest of the company’s employees
People are a key factor to the success of the company. The directors seek to retain people for the long term and our recruitment strategy is based on offering our employees both fulfilling careers and balanced lives. We look to our employees to contribute ideas for our future growth, and share the rewards of the business through our long term incentive plan.
The need to foster the company’s business relationships with suppliers, customers and others
The directors seek to promote strong, long term, mutually beneficial relationships with suppliers and its subsidiary undertakings. Such general principles are critical in the delivery of the company’s strategy.
The impact of the company’s operations on the community and the environment
The directors take overall responsibility for the company’s impact on the local communities in which the company operates and the environment. Storskogen’s approach to sustainability is detailed in the annual report of Storskogen Group AB for the year ended 31 December 2023, which details the key priority areas of responsible business, minimised environmental impact and being a sustainable employer.
The desirability of the company maintaining a reputation for high standards of business conduct
The directors recognise the importance of acting in ways which promote high standards of business conduct. The board periodically reviews and approves clear operating frameworks, to ensure that its high standards are maintained both within the businesses and the business relationships the company has with stakeholders.
The need to act fairly as between members of the company
The company is a wholly owned subsidiary of Storskogen Group International AB.
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 11.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The principal risks facing the business relate to the following:
Liquidity risk is the risk that the company will be unable to meet its payment obligations when they become due.
The company monitors its liquidity position regularly and maintains sufficient liquidity facilities to conduct its business.
Interest rate risk is the risk that fair value or future cash flows from a financial instrument will vary due to changes in market interest rates.
The company is primarily exposed to interest rate risk regarding the company’s intercompany loans at variable interest rates. At the balance sheet date, all the company’s intercompany loans are at variable interest rates.
Currency risk is the risk that fair values and cash-flows relating to financial instruments may fluctuate when the value of foreign currencies changes.
The company is not exposed to any significant currency risk.
As the parent company of a large group with over 250 employees within the group, Storskogen UK Limited recognises the importance of engaging with our workforce and ensuring that the interests and well-being of employees are considered in decision-making. Most employees are employed by our subsidiaries and each subsidiary company operates its own employee engagement and communication processes independently. The Board, however, oversees and monitors the effectiveness of these processes at the Group level.
During the financial year ended 31 December 2023, the Company ensured that each subsidiary was responsible for managing its own employee communication and engagement activities. These initiatives were tailored to the specific needs of the workforce within each subsidiary and included, but were not limited to:
1. Independent Communication Channels: Each subsidiary maintained its own internal communication strategies, with regular updates on business performance, company developments, and other key information shared through channels such as emails, newsletters, and local meetings. The Board encourages this decentralised approach, recognising that subsidiaries are best positioned to communicate directly with their workforce on local matters.
2. Management and Employee Engagement: Internal meetings between subsidiary management teams and employees were held independently within each entity. These meetings provided employees the opportunity to discuss local operational matters and give feedback to their respective management teams.
3. Training and Development: Each subsidiary operated its own employee training and development programmes, which were designed to meet the specific needs of its workforce. The Group encouraged this decentralised approach, allowing each subsidiary to focus on building relevant skills within their teams.
Although employee engagement and communication are handled at the subsidiary level, Storskogen UK Limited remains involved in monitoring and overseeing these processes to ensure that the Group’s overall standards and values are upheld.
Following the year end, Storskogen Group AB assigned £86,782,933 of its loans outstanding from Storskogen UK Limited to Storskogen Group International AB. On 28 March 2024, Storskogen UK Limited issued 60 new ordinary shares to Storskogen Group International AB for an aggregate subscription price of £86,782,933, which was settled by the release of the loan liability outstanding to Storskogen Group International AB to the same amount.
Since the balance sheet date the company has received dividend income of £2.5m from its subsidiary undertakings.
Following the balance sheet date, the Company has entered into a parent company guarantee on behalf of one of its subsidiaries. The guarantee relates to the performance of that subsidiary in a third party contract and is limited to a maximum of £5.5m.This guarantee is not expected to result in any material outflow of resources.
The company continues to look at further acquisition opportunities with a view to diversifying its portfolio of well-managed and profitable small and medium-sized companies.
The auditor, Moore Kingston Smith LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
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.
As part of an audit in accordance with ISAs (UK) we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Explanation as to what extent 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, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the company.
Our approach was as follows:
We obtained an understanding of the legal and regulatory requirements applicable to the company and considered that the most significant are the Companies Act 2006, UK financial reporting standards as issued by the Financial Reporting Council, and UK taxation legislation.
We obtained an understanding of how the company complies with these requirements by discussions with management and those charged with governance.
We assessed the risk of material misstatement of the financial statements, including the risk of material misstatement due to fraud and how it might occur, by holding discussions with management and those charged with governance.
We inquired of management and those charged with governance as to any known instances of non-compliance or suspected non-compliance with laws and regulations.
Based on this understanding, we designed specific appropriate audit procedures to identify instances of non-compliance with laws and regulations. This included making enquiries of management and those charged with governance and obtaining additional corroborative evidence as required.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Use of our report
This report is made solely to the company's member 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 member those matters we are required to state to the member 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 member, for our audit work, for this report, or for the opinions we have formed.
The Statement of Comprehensive Income has been prepared on the basis that all operations are continuing operations.
The notes on pages 14 to 30 form part of these financial statements.
The notes on pages 14 to 30 form part of these financial statements.
The notes on pages 14 to 30 form part of these financial statements.
Storskogen UK Limited is a private company limited by shares incorporated in England and Wales. The registered office is Sweden House, 5 Upper Montagu Street, London, England, W1H 2AG.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The 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.
Consideration payable for the options over minority interests are initially recognised at the estimated amount payable to be recognised in creditors, and is subsequently remeasured with adjustments made to the cost of the investment in the subsidiary.
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.
Basic financial assets, which include debtors, 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 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 and loans from fellow group companies 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. Interest calculated using the effective interest method on borrowings are recognised in interest payable and similar expenses. 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.
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. Any premium above par value is recognised as share premium. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the Black-Scholes model or a Monte Carlo simulation, as appropriate.
The fair value determined is recognised over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the company’s estimate of the number of equity instruments that will ultimately vest. The profit and loss account expense or credit for the period represents the movement in cumulative expense recognised as at the beginning and end of the period and is recognised in the employee benefits expense.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
Put and call options
The company holds put and call options over the purchase of the residual non-controlling interests in its subsidiary undertakings. These put and call options are initially recognised at fair value against the valuation of investment together with a corresponding liability. At each reporting date, the options are revalued with any movement in fair value recognised against the investment and liability.
Interest
Interest receivable
Interest income is recognised when it is probable that economic benefits will flow to the company and can be measured reliably.
Interest payable
Interest is charged to profit and loss over the term of the debt using the effective interest method so that the amount charged is at a constant rate on the carrying amount.
Dividend
Dividend income from investments is recognised when the shareholders right to receive payment has been established.
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 estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
Options to purchase non-controlling interests are valued using a discounted cash flow model based on expected future cash flows and an appropriate discount rate, and are revalued at each balance sheet date. The uncertainty in this revaluation lies in the applied discount rate and future profitability of the entities over which the options are held, which is based on the same estimates and assumptions as those made in the company's impairment reviews detailed below.
To assess the need for impairment, the recoverable amount for each asset or cash generating entity is calculated based on expected future cash flows and using an appropriate interest rate to be able to discount the cash flows. Uncertainties lie in assumptions about future operating profit and the determination of an appropriate discount rate. The rate used to discount the forecast cash flows from the investments is between 10.8% and 11.4% (2022: 8.4% and 9.0%) and long-term growth rates are set around 2% (2022: 2%).
During its valuation, the company ran sensitivity analysis for key assumptions including the discount rate, the terminal growth rate, and the margin. In the sensitivity analysis performed, an adverse change of 1% in either of these estimates would not cause any investments' carrying amount to exceed its recoverable amount by a material amount.
Although management believes that its judgements, assumptions and estimates are appropriate, actual results may differ from these estimates under different assumptions or market or macro-economic conditions.
A total impairment charge of £5.0m (2022: £nil) has been recognised during the year and recognised in profit and loss.
The average monthly number of persons (including directors) employed by the 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).
Interest payable to group undertakings includes interest on group borrowings of £19,777,493 and interest on overdrawn cash pool balances of £358,663.
The actual credit for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Additions in the year include acquisitions of new subsidiaries and fair value movements on options over minority interests held by the Company.
One of the company’s investments has not performed in line with expectations due to a challenging economic environment and a very competitive market. Although the Directors expect the long-term performance of the company to return to pre-acquisition levels, a short-term reduction in profit margins has led the directors to conclude that an impairment of £5m to give a revised carrying value of £27.8m for this investment is appropriate.
Details of the company's subsidiaries at 31 December 2023 are as follows:
Registered office addresses (all UK unless otherwise indicated):
Amounts owed to group undertakings includes accrued interest on group borrowings of £953,671 which is payable quarterly, and overdrawn cash pool balances of £11,981,795.
As part of the Storskogen Group's treasury operations, all subsidiary companies participate in an interest-bearing bank account sweeping arrangement whereby cash balances and overdrafts are physically swept to the header accounts on a daily basis. As at year end, interest is charged at 6.78% on overdraft positions and 5.19% on credit positions, depending on the currency in which the cash is held. The overdrawn cash pool position is shown within amounts owed to group undertakings.
The company has entered into several loan agreements with its ultimate parent undertaking, Storskogen Group AB, to fund the acquisition of subsidiaries and facilitate cash flow.
At 31 December 2023, £60,000 was outstanding with an interest rate of 1.6% per annum. Other loans totaling £247,951,232 are outstanding with an interest rate of Sonia + 2.86% and £21,800,000 are outstanding with an interest rate of Sonia + 3.02%. These loans have various repayment dates with the earliest being April 2032.
Interest on all loans is payable quarterly in arrears.
The following are the major deferred tax liabilities and assets recognised by the 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.
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.
During the year ended 31 December 2023 the company’s ultimate holding company, Storskogen Group AB, implemented two share-related incentive programmes for employees in Storskogen UK Limited: a share savings programme and an option programme. The programmes both pertain to the shares of the ultimate holding company.
Share savings programme
8 employees were offered the opportunity to acquire or allocate already held shares in Storskogen Group AB as savings shares on 16 June 2023.
These shares entitled the holders to receive performance shares free of charge if held for a period of three years and depending on the performance of the Group.
The savings shares were valued by Optio Incentives at either 6.2 SEK or 10.205 SEK each depending on the performance criteria attached.
Option programme
8 employees were granted options in Storskogen Group AB on 16 June 2023.
Each option entitles the holder to subscribe for 1 share in Storskogen Group AB.
The options were valued by Optio Incentives using a Black-Scholes valuation. They were valued at 1.76 SEK each.
The resultant share based payment charge recognised in the income statement in the year ended 31 December 2023 for the above programmes and existing programmes was £152,727 (2022: £106,623).
The company has one class of ordinary shares which carry one vote per share but carry no right to fixed income.
In April 2023, the company issued 8 £1 ordinary shares for cash consideration of £1,400,000 and for the settlement of a loan due to a fellow group undertaking with a fair value of £10,361,992.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Following the year end, Storskogen Group AB assigned £86,782,933 of its loans outstanding from Storskogen UK Limited to Storskogen Group International AB. On 28 March 2024, Storskogen UK Limited issued 60 new ordinary shares to Storskogen Group International AB for an aggregate subscription price of £86,782,933, which was settled by the release of the loan liability outstanding to Storskogen Group International AB to the same amount.
Since the balance sheet date the company has received dividend income of £2.5m from its subsidiary undertakings.
Following the balance sheet date, the Company has entered into a parent company guarantee on behalf of one of its subsidiaries. The guarantee relates to the performance of that subsidiary in a third party contract and is limited to a maximum of £5.5m.This guarantee is not expected to result in any material outflow of resources.
During the year the company entered into the following transactions with related parties:
Management fees of £1,096,660 were receivable from its subsidiaries (2022: £710,000);
Management fees of £734,394 were payable to its ultimate holding company (2022: £709,780);
Dividends of £14,288,924 were receivable from wholly owned subsidiaries (2022: £5,600,000); and
Interest of £19,777,493 was payable on loans from its ultimate holding company (2022: £8,589,739).
As at the balance sheet date the following balances were outstanding with related parties:
Current tax receivable relating to surrendered tax losses to subsidiary undertakings of £nil (2022: £191,352);
Loans due to the ultimate holding company of £269,811,232 (2022: £248,011,232);
Amounts due to the ultimate holding company of £11,979,540 (2022: due from £952,714); and
Interest due on loans from and management fees payable to the ultimate holding company of £953,671 (2022: £6,603,333).