The Directors present the Strategic report for Cloetta UK Limited ("the Company") for the year ended 31 December 2023.
The Company is a wholly owned subsidiary of a group of entities headed up by Cloetta AB ("the Group").
The results of the year show a loss after taxation of £6,244,817 (2022: £7,905,575). Cloetta UK Limited has net liabilities of £24,027,178 at the year-end (PY: net liabilities of £17,782,361).
Operating loss of £5,739,604 (2022: £7,786,806), in addition to the ongoing challenges regarding cost pressure in the Market, the companies biggest, and most profitable customer, Wilko, fell into administration in July 2023. Subsequently Wilko went bankrupt with no viable rescue deal on the table, in addition to the loss of scale and profitable volume, Cloetta also had £2.1m in outstanding receivables, this has been written off in 2023, any potential for some value recovery related to this debt is of course now tied into the administration process.
Losing such a key customer, particularly in these circumstances, proved to be a significant drag on reported operational profit. Mitigating this impact within 2023 was impossible, action taken since has been more focused on 2024 regarding impact, this a more realistic timeline for required transformation in a now a new situation.
Immediate action was taken by the Directors to restructure the business, deliver additional efficiencies were possible, also, to take price increases with other portfolio customers to help compensate for this major shift in UK portfolio.
Whilst the Directors of course acknowledge that this represents a major setback, it is also true that action taken has largely addressed the challenges Wilko’s bankruptcy brought to the business. The Wilko situation has been a major point of disruption, however, the business has also quickly adjusted and broadly compensated for this impact moving forward.
Although there is disappointment in the 2023 reported numbers, the action now taken to mitigate, delivers value improvement longer term.
Potential vulnerability to cost pressure, the company has taken appropriate action to mitigate, however, the risk is a further acceleration of costs and inflationary pressure in the category.
The current crisis in Ukraine, Israel / Hamas, and the Red Sea situation, these all clearly impact on global pricing. Foreign exchange also remains an unpredictable commodity, sometimes favorable, other times a break on P&L performance.
The Directors are satisfied that appropriate action has been taken within 2023 to respond to the loss of Wilko, and to deliver longer term improvement. This is also achieved with our customer’s support, which has been exceptional.
The Directors are confident regarding future sales and value creation through enhanced top-line growth.
The Company's key mission remains to deliver profitable growth and to this goal, the Directors are fully committed.
As Directors of Cloetta UK Limited, our key responsibility is to promote the success of the Company. This principle is embodied in our terms of reference and is the cornerstone of our discussions and our decision making. Each Director is cognisant that in discharging this key responsibility, they must have regard to:
The likely consequences of any decisions in the long-term
The interests of the Company’s employees
The need to foster the Company’s business relationships with suppliers, customers, and others
The impact of the Company’s operations on the community and environment
The desirability of the Company maintaining a reputation for high standards of business conduct; and
The need to act fairly between shareholders of the Company.
The Directors of Cloetta UK Limited consider, both individually and collectively, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole (having regard to the stakeholders and matters set out in s172(1) (a-f) of the Act).
The Board’s approach to section 172(1) and decision making
The Board’s terms of reference, which are reviewed annually, clearly articulate the Board’s responsibilities, the role of the Chair and matters reserved for the Board. They also set out which of the Board’s powers and responsibilities may be delegated to other committees and the governance mechanisms by which the Board monitors those committees’ activities and performance. The Chair ensures that these terms of reference are adhered to and, by doing so, ensures that Directors have due regard for all appropriate factors during the decision-making process.
The Board is responsible for several key strategic decisions, including approving the business plans, objectives, and strategy of the Company. It is also responsible for conduct risk strategy and appetite for recommending dividends and for setting dividend policy.
The Company’s strategy and business plans are approved annually by the Board. The Board also assesses how the strategy underpins long-term value creation by discussing and approving a four-year plan. Such matters are also discussed at the Group’s strategy review and planning meetings, in which the Directors of the Company and its parent and sister Companies participate. On-going performance is discussed and monitored at Board meetings.
The Directors’ assessment of long-term value creation also considers the Company’s resilience. The Directors determine and monitor underwriting, reserving, business, operational, credit, market and liquidity risk appetites and tolerances. They ensure the Company has an effective risk management framework in place, approve its conduct risk strategy and appetite.
All relevant factors are appropriately addressed by the Board when considering matters reserved for it, as set out in its terms of reference.
The Board also ensures that appropriate consideration is given to relevant factors by the committees to which it delegates responsibilities. The Board reviews the terms of reference of such committees on an annual basis and receives regular updates and reports from those committees’ chairs.
The Board also reviews the Company’s key policies on an annual basis, ensuring that all relevant considerations to assist it discharge its responsibilities are embedded in the key operations of the business. These policies help to promote the long-term success of the Company by focusing on areas such as the key operations of the Company.
The Board reviews its key stakeholder map on an annual basis. New key stakeholder relationships are identified through information received and considered by the Board on a regular basis, or through the Board’s consideration and approval of substantial contracts and commitments.
Training
To assist the Directors in discharging their responsibilities, they are provided with on-going training and development opportunities.
For the wider workforce, there is a comprehensive staff development programme tailored to meet individual needs. Elements of this training are mandatory, with all staff required to successfully complete nano e-learning modules on key areas such as money laundering, bribery and corruption, data protection, fraud, and cyber risk.
Our culture
Building and maintaining the Company’s reputation and its high standards of business conduct are essential to the future success of the Company. This is embedded in our culture.
The Company also maintains a ‘Code of Conduct’ setting out the standard we expect from all our staff. This is regularly reviewed and updated, and compliance is attested to by each employee on an annual basis.
In order to generate value, we recognise that our people, culture, social and community strategies must be both sustainable and aligned to the long-term interests of all our stakeholders. We seek to make both a positive contribution to society and to be aware of the long-term consequences of our actions. We also seek to generate new commercial opportunities by developing strong stakeholder relationships and by recruiting and retaining a highly skilled, engaged, and motivated workforce.
Our stakeholders
The Board recognises the importance of engaging with its broader stakeholder base. We are focused on responding to the needs, and building long-term relationships with, our customers. Other key stakeholders are the producers and suppliers who we purchased goods and services from.
The Company seeks to make information available for financial stakeholders. This includes contact details should stakeholders wish to discuss anything directly.
On behalf of the board
The Directors of Cloetta UK Limited, registered Company number 01726257, (“the Company”) present their annual report and audited financial statements for the year ended 31 December 2023.
The results for the year are set out on page 11.
No ordinary or preference dividends will be distributed for the year ended 31 December 2023 (2022: Nil).
No Directors' indemnity insurance is held.
The Directors who held office during the year and up to the date of signature of the financial statements were as follows:
Growing profitable sales remains the key future priority, this the focus across the portfolio. The loss of Wilko the business has mitigated, cost pressure also, however, UK also needs further value add to reposition as a profit contributor to Cloetta Group.
For Packed, Chewits continues its exciting growth journey with a strong program of activity and innovation planned across the next 24 months.
For Pick & Mix, value increase comes from price inflation, this plus recent distribution gains in existing customers. Additional opportunities exist for further new customer recruitment; however, the bigger prize must always be to sell more from existing space in store.
The Directors acknowledge that short term development is of course not ideal. Given action taken and subsequent impact, 2023 is more categorized as an interruption in the journey, we lost a year in our development, however, have since reset and are now back on track.
The financial statements have been prepared on the going concern basis of accounting. This presumes that the Company will remain in operational existence for the foreseeable future. Due to historic trading results the Company does require support from the Group this support is expected to continue to be required for at least the next 12 months from signing of the financial statements.
The Company has received a letter of support from the parent undertaking to confirm their willingness to provide this support for at least the required period. The Directors' have, in making their assessment of going concern, considered the ability of the parent entity to continue to provide the required support and are satisfied that the parent has sufficient facilities available to enable them to provide the required financial support.
HJS Accountants has been reappointed as auditors for the year ended 31 December 2024 for the Company.
The Company applies the detailed Financial Policy set by Cloetta AB Group which covers all aspects of Financial Strategy including the financing policy, cash management policy, interest-rate risk policy and currency risk policy.
The Company is exposed to all of these risks and deal with these through the various Group policies as detailed further below.
Foreign currency exchange rate risk
As a consequence of its international activities, the Company is exposed to changes in foreign exchange rates. These exposures derive primarily from purchases in foreign currencies (transaction exposure) or from holdings of foreign net assets, debtors and creditors, in currencies other than GBP (translation exposure). Transaction exposure is present since sales are mainly denominated in the local currency (GBP) and purchasing is denominated in a number of currencies (EUR, SEK, GBP).
The Company has taken steps to mitigate transaction risk by maintaining a proportion of its purchases with UK suppliers. In addition, where possible, income from sales in Euros is retained in a Euro bank account to naturally hedge against purchases settled in Euros.
Liquidity risk
Liquidity risk is minimised by matching cash surpluses and deficits between Group Companies within a cash pool in order to use the additional credit facilities as efficiently and seldom as possible.
Price risk
The Company is exposed to price risk as a result of its operations. The risk associated with increased commodity prices are mitigated by a Group Purchasing department who review the market and liaise with current and potential suppliers on an ongoing basis.
Credit risk
The Company does not have any significant concentrations of credit risk. Customers are subject to a credit policy which requires appropriate credit checks on potential customers before sales are made. Sales are subject to payment conditions which vary per customer. A loss allowance for trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired.
Interest rate risk
The Company has interest-bearing non-current and current liabilities. Loans with other Group entities are taken out on a fixed interest basis which minimises the level of interest rate risk. Bank loans and overdrafts are at floating rates. The Company continuously monitors exposure to interest rate risk and would take action such as derivative financial instruments to manage the level of interest rate risk if deemed appropriate.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the company and industry, we identified that the principal risks of noncompliance with laws and regulations related to breaches of UK regulatory principles, such as those governed by the relevant Hygiene Standards authorities within the UK. We also considered the laws and regulations which have a direct impact on the financial statements such as the Companies Act 2006.
We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to management bias in accounting estimates and judgemental areas of the financial statements.
Audit procedures performed by the audit engagement team included:
Discussions with senior management, including consideration of known or suspected instances of noncompliance with laws and regulation or instances of fraud;
Identifying and testing journal entries based on risk criteria;
Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
Testing transactions entered into outside of the normal course of the company's business;
Reviewing any potential litigation or claims against the entity which indicate any potential noncompliance issues.
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 though collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations. The notes on pages 16 to 30 form part of these financial statements.
Cloetta UK Limited (“the Company”) is a private Company limited by shares incorporated in England and Wales and domiciled in the United Kingdom. The registered office is Fort Southwick, James Callaghan Drive, Fareham, Hampshire, England, PO17 6AR.
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 Company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this Company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The Company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’: Interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
Rebates are accrued for over the period for which they relate. The Company issues rebates to customers based on the relevant sales activity in the financial year for the purpose of contributing towards the marketing costs for the Company's products.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the Company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow Group Companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities 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.
Financial liabilities are derecognised when the Company’s contractual obligations expire, are discharged or cancelled.
Equity instruments issued by the Company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the Company.
Preference Shares
Preference shares contractual terms are considered when deciding on how to treat them in the financial statements. Where the preference shares are redeemable for a fixed or determinable amount at a fixed date or determinable future date, or give the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial liability. Otherwise it will be included within equity.
In the application of the Company’s accounting policies, which are described in note 1 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.
There are no critical accounting estimates or key judgements expressed in these financial statements which may be reasonably expected to have a movement which would create a material impact on the financial statements in the next 12 months.
An analysis of the Company's turnover is as follows:
The average monthly number of persons (including Directors) employed by the Company during the year was:
Aggregate employee remuneration (including Directors) comprised:
The number of Directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2022 - 1).
The other Directors receive remuneration for their services from within the Cloetta AB Group as their services as Directors of the Company were considered incidental to their other services within the Cloetta AB Group of Companies. It is not possible to determine an allocation of costs to the Company and no amounts have been directly recharged.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate will increase to 25%. This was substantively enacted on 24 May 2021 and this rate has been used to calculate the deferred tax balance.
The actual charge 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:
It is Cloetta's initiative to centralise all UK sales within the Cloetta group in the UK with respect to the group restructuring of sales organisations. Therefore the UK distribution rights for listed products gives Cloetta UK the right to sell these products in the UK. The rights were bought form Cloetta Italia S.r.l and Lonka Sales B.V.
As part of the Company’s acquisition of Cloetta UK Dormant Limited in 2019, the net book value of the intangible assets in relation to UK distribution rights were recognised. These rights were originally acquired by Cloetta UK Dormant Limited from Cloetta Italia S.r.l and Lonka Sales B.V. in 2016.
There are no commitments in relation to contracted capital expenditure.
Finished goods are stated after provision for impairment of £137,237 (2022: £88,332)
Trade debtors are stated after provision for impairment of £1,786,393 (2022: £27,351).
The amounts owed by Group undertakings are all interest free, unsecured and repayable on demand.
The bank overdraft is part of a Group cash pool. This is repayable on demand and is incurring interest at 1 month STIBOR + 1%.
Included in the amounts due to Group Companies are loans that are interest free and repayable on demand expect for one loan which has the following terms:
One loan is incurring interest of 3 months EURIBOR + mark-up of 1.15% and £7,751,373 (2022: £7,580,270) is recognised within Creditors: amounts falling due after more than one year.
The Company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the Company in an independently administered fund.
The pension charge represents contributions payable by the company to a defined contribution fund administered by Benefex and held with Scottish Equitable. There were outstanding contributions due to the fund at the balance sheet date of £17,858 (2022: £17,787).
The ordinary shares, 'B' ordinary shares and preferred shares rank pari passu for voting purposes. If a dividend is declared on the ordinary shares or 'B' ordinary shares, the preferred shares are ignored for the purpose of calculating the entitlement of the holders of the ordinary shares or 'B' ordinary shares to any dividend declared.
The redeemable shares have no dividend or voting rights and will be entitled to a return of capital only, on a winding-up of the Company. There are no restrictions on the date of redemption, and redemption is at the option of the shareholder. No premiums are payable on redemption.
During the year ended 31 December 2019, the trade and assets from Cloetta UK Dormant Limited were acquired by the Company. Due to the nature of the acquisition being a transfer of trade and assets from another wholly owned subsidiary within the Cloetta AB Group, this was essentially a merger of two businesses. The amounts were therefore transferred at net book value at the date of acquisition. As Cloetta UK Dormant Limited held no trade or assets following the acquisition, the increase in the investment was transferred to the equity reserve.
The capital redemption reserve represents the nominal value of own shares that have been acquired by the company and cancelled.
Included within other reserves are amounts paid by the former parent as a capital contribution.
The profit and loss reserve represents all current and prior period retained profits and losses.
On the bank agreement there is a £1.25m clearing service which has been guaranteed by Cloetta AB.
Operating lease payments represent rentals payable by the Company in respect of property and motor vehicles used. The contract term in relation to the property concludes on 31 July 2024, although this included a break date of 31 July 2020.
At the reporting date the Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
As the Company is a wholly owned subsidiary of the Cloetta AB Group, it has taken advantage of the exemption contained in FRS 102 'Related Party Disclosures' and has therefore, not disclosed transactions or balances with entities which form part of that Group.
Transactions with Directors comprised wages as detailed in the Directors' remuneration note. There were no other transactions with Directors or other disclosable related party transactions.
Cloetta AB is the smallest and largest Group to consolidate the results of the Company.
The consolidated financial statements of this Group are available to the public at Landsvägen 50A, Sundbyberg, Sweden and at cloetta.com.