The directors present the strategic report for the period ended 31 July 2023.
COVID-19 still impacted the period of trading and continued to slow the underlying positive development of the business as overseas opportunities were stunted by equipment shortages and excessive pricing for equipment and services. All key areas of the business suffered the consequences of reduced trading, but the trading base and offering to our existing client base and those enquiring into our new product lines remain firm for the coming trading year.
The demand for Techflow Marine’s engineering and application knowledge remains a positive constant and this has been demonstrated with expansion into the North and South American markets where our technology, offshore and onshore capabilities have been particularly welcomed in those two continents.
Despite difficult trading conditions experienced EBITDA excluding FOREX loss for the 18 month period was £1,020,996 (12 months to 31 January 2022 - £765,826), and group net assets as at 31 July 2023 was £8,555,794 (31 January 2022 - £9,830,060).
Future developments
The group is continuing to pursue development in current and future markets. It is enhancing and expanding its product range to new and existing sectors. It will look to further develop into all sectors where fluid transfer technology is required both offshore and onshore.
The management of the business and the execution of the group's strategy are subject to a number of risks. The board reviews these risks and puts in place policies to mitigate them. The key business and financial risks are:
Employees
The group understands the effect that the loss of key employees may have on the business and therefore provides competitive pay conditions to all its employees.
Environment, health and safety incidents
Appropriate measures are implemented to ensure the risk of any environmental and health and safety issues are minimised. The group currently holds a BS ISO 9001:2008 certificate for quality control and strives to maintain high standards in these areas.
Credit risk
The group monitors credit risk and considers that its current policy of strict credit checks meets its objectives of managing its exposure.
Liquidity risk
The directors regularly monitor the financial information to ensure that any risks in this area are considered on a timely basis.
Foreign exchange rate risk
In order to reduce the exposure to fluctuations in foreign exchange rates, the group holds amounts in bank accounts of foreign currencies.
The directors consider turnover, gross profit margin, EBITDA (earnings before interest, tax, depreciation and amortisation) and EBITDA per employee to be the key measures of the group's performance.
• Turnover has increased during the 18 month period to £32,908,436 (12 months to 31 January 2022 - £18,604,431).
• Gross profit margin has decreased in the 18 month period to 28.6% (12 months to 31 January 2022 - 30.2%).
• EBITDA for the 18 month period was (£166,903) (12 months to 31 January 2022 - £740,219),
• EBITDA excluding FOREX loss for the 18 month period was £1,020,996 (12 months to 31 January 2022 - £765,826),
• EBITDA per employee for the 18 month period was (£2,692) (12 months to 31 January 2022 - £12,135).
The directors consider the group's results to be satisfactory in the light of current trading conditions.
The directors have assessed the parent company's and group's ability to continue as a going concern for the foreseeable future and the appropriateness of the preparation of the accounts on the going concern basis. In making such an assessment the directors have considered the parent company's and group's exposure to relevant commercial and economic forces effective at the date of approval of these accounts, including but not limited to: the forward order book; financial forecasts in excess of 12 months from accounts sign off, the group's performance since the reporting date, and the availability of facilities and resources to meet its working capital requirements.
The directors recognise that the economic climate remains challenging and the oil and gas industry is highly susceptible to liquidity and credit default. The strategy of the group to enhance and expand its product range to new and existing sectors, and intention to further develop into all sectors where fluid transfer technology is required both offshore and onshore will diversify the group’s customer base and help mitigate this risk. The directors have also implemented active measures to increase the efficiency of the business and increase the profitability to mitigate this risk.
In light of this the directors have a reasonable expectation that the parent company and group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue 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 period ended 31 July 2023.
The results for the period are set out on page 8.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the period and up to the date of signature of the financial statements were as follows:
In accordance with the company's articles, a resolution proposing that Sumer Auditco Limited be reappointed as auditor of the group will be put at a General Meeting.
We have audited the financial statements of Techflow Marine Limited (the 'parent company') and its subsidiaries (the 'group') for the period ended 31 July 2023 which comprise the group profit and loss account, 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 period 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.
Discussions with and enquiries of management and those charged with governance were held with a view to identifying those laws and regulations that could be expected to have a material impact on the financial statements. During the engagement team briefing, the outcomes of these discussions and enquiries were shared with the team, as well as consideration as to where and how fraud may occur in the entity.
The following laws and regulations were identified as being of significance to the entity:
Those laws and regulations considered to have a direct effect on the financial statements including UK financial reporting standards, Company Law, Tax and Pensions legislation, and distributable profits legislation.
Those laws and regulations for which non-compliance may be fundamental to the operating aspects of the business and therefore may have a material effect on the financial statements include the Environmental and Health & Safety Regulations.
Audit procedures undertaken in response to the potential risks relating to irregularities (which include fraud and non-compliance with laws and regulations) comprised of: inquiries of management and those charged with governance as to whether the entity complies with such laws and regulations; enquiries with the same concerning any actual or potential litigation or claims; testing the appropriateness of journal entries; and the performance of analytical review to identify unexpected movements in account balances which may be indicative of fraud.
No instances of material non-compliance were identified. However, the likelihood of detecting irregularities, including fraud, is limited by the inherent difficulty in detecting irregularities, the effectiveness of the entity's controls, and the nature, timing and extent of the audit procedures performed. Irregularities that result from fraud might be inherently more difficult to detect than irregularities that result from error. As explained above, there is an unavoidable risk that material misstatements may not be detected, even though the audit has been planned and performed in accordance with ISAs (UK).
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 profit and loss account and related notes. The company’s loss for the period was £2,433,976 (31 January 2022 - £682,053 profit).
Techflow Marine Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Unit 4, Silverton Court, Northumberland Business Park, Cramlington, Northumberland, NE23 7RY.
The group consists of Techflow Marine Limited and all of its subsidiaries.
The reporting period was extended to 31 July 2023 for commercial reasons. The current period presents the financial statements of the group for 18 months from 1 February 2022 to 31 July 2023, and as such, the prior period financial statements (including the related notes) for the year ended 31 January 2022 are not entirely comparable.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
Techflow Marine Limited, as an individual entity, meets the definition of a qualifying entity per FRS 102 and has taken advantage of the exemption available in paragraph 1.12 of FRS 102 from presenting a company-only statement of cash flows. These consolidated financial statements include a consolidated statement of cash flows which include the cash flows of Techflow Marine Limited.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes.
The consolidated group financial statements consist of the financial statements of the parent company Techflow Marine 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 July 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.
The directors have assessed the parent company's and group's ability to continue as a going concern for the foreseeable future and the appropriateness of the preparation of the accounts on the going concern basis. In making such an assessment the directors have considered the parent company's and group's exposure to relevant commercial and economic forces effective at the date of approval of these accounts, including but not limited to: the forward order book; financial forecasts in excess of 12 months from accounts sign off, the group's performance since the reporting date, and the availability of facilities and resources to meet its working capital requirements.
The directors recognise that the economic climate remains challenging and the oil and gas industry is highly susceptible to liquidity and credit default. The strategy of the group to enhance and expand its product range to new and existing sectors, and intention to further develop into all sectors where fluid transfer technology is required both offshore and onshore will diversify the group’s customer base and help mitigate this risk. The directors have also implemented active measures to increase the efficiency of the business and increase the profitability to mitigate this risk.
In light of this the directors have a reasonable expectation that the parent company and group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the financial statements.
Turnover represents amounts receivable for the installation of hosing systems, exclusive of VAT and trade discounts.
In respect of long term contracts, turnover represents the value of work done in the year, including estimates of amounts not invoiced. Turnover in respect of long term contracts is recognised by reference to the stage of completion. The stage of completion is calculated by reviewing milestones set out in the sales contracts against the work carried out up to the period end. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.
Service income receivable for use of hosing systems is recognised on a straight line basis over the term of use.
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.
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.
At each reporting period 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).
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, if considered material to the financial statements.
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 following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
In assessing whether there have been any indicators of impairment in assets, the directors have considered both external and internal sources of information such as market conditions and experience of recoverability. There have been no indicators of impairments identified during the current financial year.
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 group uses the percentage of completion method to recognise project revenue for fixed-price contracts. This method requires the directors to estimate the level of completion by reviewing the milestones set out in the sales contracts and measuring these against the work carried out at each reporting date. Variations to estimates could result in the over or under recognition of revenue.
Where an indication of impairment exists the directors will carry out an impairment review to determine the recoverable amount, which is the higher of fair value less costs to sell and value in use. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the asset and a suitable discount rate in order to calculate present value.
The group depreciate tangible assets over their estimated useful lives. The estimation of the useful lives of assets is based on historic performance as well as expectations about future use and therefore requires estimates and assumptions to be applied by management.
Judgement is applied by management when determining the residual values of tangible assets. When determining the residual value management aim to assess the amount that the company would currently obtain for the disposal of the asset, if it were already of the condition expected at the end of its useful economic life.
The carrying amount of tangible fixed assets at the reporting date was £2,140,951 (31 January 2022 - £1,675,496).
The group establishes a provision for debtors that are estimated not to be recoverable. When assessing recoverability the directors consider factors such as the ageing of the debtors, past experience of recoverability, and the credit profile of individual or groups of customers. No provision was deemed necessary by the directors at 31 July 2023 and 31 January 2022.
The group establishes a provision for any impairments in stock value identified. When assessing impairment the directors consider factors such as the estimated selling price and costs to complete and sell. No provision was deemed necessary by the directors at 31 July 2023 and 31 January 2022.
The average monthly number of persons (including directors) employed by the group and company during the period was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (31 January 2022 - 3).
The main rate of corporation tax increased to 25% from 1 April 2023 under the Finance Bill 2021. Deferred tax has been provided at the rates expected to be in place when the timing differences reverse. A marginal rate of 20.34% has been used for the period to 31 July 2023 when assessing the corporation tax charge as below.
The actual charge for the period can be reconciled to the expected (credit)/charge for the period based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 July 2023 are as follows:
Obligations under finance leases are secured over the assets to which they relate.
Obligations under finance leases are secured over the assets to which they relate.
Bank loans are repayable in monthly instalments until May 2024 and interest is charged at 2.07% per annum. Loans are secured on the assets of Techflow Marine Limited.
Finance lease payments represent rentals payable by the company for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. 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:
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.
Included within creditors at year end are pension contributions payable of £17,007 (31 January 2022 - £23,370).
Bank guarantees given by the company are secured over all monies due, or to become due, from the company to Barclays Bank Plc.
No liabilities are expected to arise as a result of the above guarantees.
More detailed information is shown in the directors' remuneration note (note 6).
The following amounts were outstanding at the reporting end date:
The following amounts were outstanding at the reporting end date:
Transactions in relation to loans with directors during the period are outlined in the table below:
There are no fixed terms for repayment or interest payable on the loan.