The directors present the strategic report for the year ended 31 December 2023.
Pergwm Holdings Limited was incorporated on 25 April 2022 with the principal activity to be that of a holding company. On 30 July 2022, Pergwm Holdings Limited acquired the entire equity share capital of Energybuild Limited, a company whose principal activity is the development of the Aberpergwm mine, located in the Neath and Dulais Valleys of South Wales, which has significant anthracite coal reserves. On the same date the entire equity share capital of two dormant companies, Energybuild Mining Limited and Mineral Extraction and Handling Limited, was also acquired. On 5 May 2023 the company subsequently acquired the entire share capital of EGL Puracite Limited, a company whose complimentary principal activity is that of the production and distribution of puracite, a premium quality anthracite filter media.
New loan finance of £21,961,000 (2022: £19,034,000) has been provided to Pergwm Holdings Limited from a third party which is related to the company by virtue of common ownership to facilitate the acquisition, suppport on-going operations and allow the group to implement its future strategy. As at 31 December 2023, the group had net assets of £8,152,000 (2022: £868,000) but net current liabilities of £16,088,000 (2022: £17,910,000), inclusive of the related party loan finance.
The strategy of the business is the re-establishment of the Aberpergwm mine as a leading supplier of high quality anthracite coal to key targeted markets, generating attractive and sustainable rates of profitability and growth, alongside the provison of its premium quality anthracite filter media, Puracite. To successfully achieve this, the group has recruited individuals with extensive experience of operating in this sector globally, both from a mineral extraction and market facing perspective. Whilst the success of the business is dependent upon a range of factors, the directors believe that the successful implementation of their strategy will allow the group to take advantage of opportunities as they arise and are confident that it will see the group succeed in the future.
Key performance indicators
The company was incorporated at the start of the current financial period and the trading subsidiary was acquired part way through that period. The key performance indicators for the group will be utilised moving forward to monitor performance are as follows:
|
2023 2022 |
Financial KPI’s |
|
Turnover | £32,242,000 £7,830,000 |
|
|
Operating profit before exceptional items | £7,330,000 £891,000
|
Profit for the financial year | £7,284,000 £868,000 |
|
|
Non Financial KPI’s |
|
Number of reportable accidents | None None |
The nature of the business environment in which the group operates is inherently risky. Whilst it is not possible to eliminate all such risks and uncertainties, the group has a risk management and internal control system in place to manage them.
The directors and management meet regularly to identify the risks that are considered most likely to have an impact on the business and its strategic priorities. If emerging risks are identified, these are incorporated immediately into the risk management process.
The following sets out the principal risks faced by the group and how they are mitigated:
Mining exploration and development risks
Mining exploration and development activity is subject to numerous risks, including failure to achieve estimated mineral resource, recovery and production rates and capital and operating costs. The group mitigates this risk by being prudent with its forecasts and carries insurance against mine collapse and other insurable risks.
Success in identifying economically recoverable reserves can never be guaranteed. The group also cannot guarantee that it will be able to obtain the necessary permits and approvals required for development of its projects. To mitigate this risk, it works closely with the planning authorities and the community to ensure that it complies with planning consents and that the planning authority and the community understand the group’s objectives and plans.
The group may be required to undertake clean-up programmes resulting from any contamination from its operations or to participate in mine rehabilitation programmes which may vary from project to project. The group follows all relevant laws and regulations and is not aware of any present material issues in this regard. It also carries public liability insurance.
People
The group depends on a skilled, flexible, diverse and well-motivated workforce. If the group does not succeed in attracting, developing and retaining skilled people, as well as understanding and embracing the diversity of those people, it will not be able to grow the business as anticipated.
The group has in place procedures to monitor staff turnover closely and to monitor pay and conditions against the prevailing market to ensure that the group remains competitive. Succession planning and staff development are managed at all levels in the group, underpinned by a training process which is designed to assist in the career development of its staff and also to identify potential successors to key roles.
Reputation and corporate responsibility
The group's ability to win new business and its relationship with customers, supply chain partners, employees and other stakeholders depends in large part on a good reputation. The group's growth targets may not be achieved if its reputation is adversely affected.
The steps taken to maintain, protect and enhance the group's reputation include effective leadership, community engagement and striving to operate a safe and sustainable business.
The group takes its corporate responsibility seriously and is committed to implementing appropriate policies and systems, including concern for employees and their health and safety, the environment and the community.
Health and safety and the environment
The group's activities are often complex and require the continuous monitoring and management of health, safety and environmental risks. Failure to manage these risks could expose the group to a significant potential liability and to reputational damage.
Detailed policies and procedures exist to mitigate such risks and are subject to review and monitoring by the business and external specialists. Compliance is monitored in a number of ways including audit, leadership involvement and inspections.
The environmental policy of the group is to mitigate pollution, comply with environmental legislation and to maintain management systems to a high standard in order to ensure that environmental incidents are kept to a minimum.
Treasury operations and financial instruments
The group's operations expose it to a variety of financial risks that include the effects of price risk, credit risk, liquidity risk and interest rate risk.
The group has in place an informal risk management programme that seeks to limit the adverse effects on the financial performance of the company by monitoring levels of debt finance and the related finance costs.
Given the size of the group, the directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the board. The policies set by the board of directors are implemented by the group's finance department.
Price risk
The group is exposed to commodity price risk as a result of its operations. The price of commodities depends on a wide range of factors, most of which are outside of the control of the group. Where possible the group will seek to mitigate the risk by fixing prices at favourable terms. However, given the current size of the group's operations, the costs of managing exposure to commodity risk exceed any potential benefits. The directors' will revisit the appropriateness of this policy as the group's operations change in size or nature.
Credit risk
The group has in place policies that require appropriate credit checks on potential customers to be undertaken before sales are made. The amounts of exposure to any individual counterparty will be continually monitored in line with the group's credit control procedures.
Liquidity risk and interest rate risk
The group actively maintains short-term and long-term debt finance that is designed to ensure the group has sufficient available funds for operations and planned expansions. The directors are satisfied that the group has sufficient funds and facilities for the planned operations. The directors recognise that unforeseen events could change the assumption but are sufficiently satisfied that available steps to raise finance would ensure there are sufficient funds for the period.
Exposure to interest rate fluctuations is minimal as the group currently has no external bank debt. The loan payables are with related parties and interest rates, where applicable, will be agreed at a fixed rate of interest.
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 in the annexed financial statements. The directors have not and do not recommend the payment of a dividend during or in respect of the period ended 31 December 2023.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Going concern
As at 31 December 2023 the group had net assets of £8,152,000 (2022: £868,000) but net current liabilities of £16,088,000 (2022: £17,910,000), albeit inclusive of related party loan finance received in the year of £21,961,000 (2022: £19,034,000).
The directors have reviewed the balance sheet, the likely future cash flows of the business and have considered the facilities that are in place at the date of signing the report. Based on this information, as detailed in note 1, the directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis.
The strategy and future developments in the business are set out in the Strategic Report.
The auditor, Azets Audit Services, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of Pergwm Holdings Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2023 which comprise the group statement of comprehensive income, the group 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
Material uncertainty relating to going concern
In forming our opinion, which is not modified, we have considered the adequacy of the disclosures made in note 1 of the financial statements concerning the group and parent company's ability to continue as a going concern. Should the forecasts prepared by the board not be realised or should the proposed loan facility not be provided, further sources of funding would need to be sought to bridge the cashflow position. These conditions may indicate the existence of a material uncertainty which may cast significant doubt about the group and parent company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group or parent company was unable to continue as a going concern.
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.
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.
Extent to which 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 and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.
We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework. Based on this understanding, we 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. This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.
In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:
Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud;
Reviewing minutes of meetings of those charged with governance;
Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the entity through enquiry and inspection;
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;
Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk 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.
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 notes on pages 16 to 36 form part of these financial statements.
The notes on pages 16 to 36 form part of these financial statements.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £nil (2022: £nil).
The notes on pages 16 to 36 form part of these financial statements.
The notes on pages 16 to 36 form part of these financial statements.
Pergwm Holdings Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Aberpergwm Colliery, Engine Cottage Site, Glynneath, Neath, West Glamorgan, United Kingdom, SA11 5AJ.
The group consists of Pergwm Holdings Limited and all of its subsidiaries.
The financial period ending 31 December 2023 is the second period for which financial statements have been prepared following incorporation on 25 April 2022. The comparative period is from the date of incorporation to 31 December 2022.
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 £'000.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.
The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The consolidated group financial statements consist of the financial statements of the parent company Pergwm Holdings 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 December 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.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
These financial statements are prepared on the going concern basis. The directors have a reasonable expectation that the group will continue in operational existence for the foreseeable future. However, the directors are aware of certain material uncertainties which may cause doubt on the group's ability to continue as a going concern.
Pergwm Holdings Limited was incorporated on 25 April 2022 and on 30 July 2022 acquired the entire equity share capital of Energybuild Limited, a company whose principal activity is the development of the Aberpergwm mine, located in the Neath and Dulais Valleys of South Wales, which has significant anthracite coal reserves. On 5 May 2023 the company subsequently acquired the entire share capital of EGL Puracite Limited, a company whose complimentary principal activity is that of the production and distribution of puracite, a premium quality anthracite filter media. New loan finance of £21,961,000 (2022: £19,034,000) has been provided to Pergwm Holdings Limited from a third party which is related to the company by virtue of common ownership to facilitate the acquisitions, suppport on-going operations and allow the group to implement its future strategy. As at 31 December 2023 the group had net assets of £8,152,000 (2022: £868,000) but net current liabilities of £16,088,000 (2022: £17,910,000), inclusive of the related party loan finance received.
The directors have reviewed the balance sheet, the likely future cash flows of the business and have considered the facilities that are in place at the date of signing the report.
With the proposed on-going new finance in place, the group is forecast to continue to operate within its existing facilities. The success of the business does remain dependent upon a range of external factors, however the directors are confident that the quality of product that they will be able to provide to key targeted markets will stand the group in good stead. In addition, the recruitment of individuals with extensive experience of operating globally should help to mitigate risks caused by potential changes in markets and import/export procedures.
Whilst the directors have received confirmation of the intended provision of the required financial support based on the forecasts in place, a formal facility for the entirety of the committed financing is not in place as at the date of signing these financial statements. This represents a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern.
Based on the future forecasts of the group, a review of the facilities in place and discussions with the group's shareholders on their expected continued support, the directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.
Turnover comprises the sales of coal and the undertaking of ancillary mining activities. Turnover is recognised on the dispatch of coal to customers.
Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.
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.
Mine development
The purpose of the mine development is to establish secure working conditions and infrastructure to allow the safe and efficient extraction of recoverable reserves. The cost of mine development includes all costs, including labour and materials directly attributable to development of the mine infrastructure and surface. Depreciation on mine development is not charged until full production commences or the assets are put to use. On commencement of full production, depreciation is charged on a tonnage-extracted basis over the estimated life of the recoverable reserves. Prior to coal production, costs incurred are allocated between mine development costs and operating costs on an appropriate basis taking into account expected long run operating costs per tonne of the mine.
Surface mine development and restoration assets
Expenditure incurred in identifying, assessing and obtaining leases and licences for surface mine sites is written off as incurred. Subsequent expenditure incurred in developing surface mine sites prior to the commencement of production, net of any residual value, is capitalised within tangible fixed assets and charged to the profit and loss account over the coaling life of the site. The restoration asset includes the estimated cost of restoration and closure.
Grant income, including Coal Investment Aid
Grant income including Coal Investment Aid is received as a contribution towards expenditure by the Company. If the actual expenditure has been charged to the cost of sales in the profit and loss account, then the Grant Income or Investment Aid is accounted for in the same period as the actual expenditure to which it relates. Where the Grant Income or Investment Aid relates to the purchase of fixed assets, the Grant income or Investment Aid is held on the balance sheet as deferred income and is credited to the profit and loss account over the life of the assets to which it relates.
Restoration and closure costs
Surface mines – the total costs of reinstatement of soil excavation and of surface restoration are recognised as a provision on site commissioning when the obligation arises. The amount provided represents the present value of the expected costs. Costs are charged to the provision as incurred. A tangible fixed asset is created for an amount equivalent to the initial provision. This is charged to the profit and loss account on a unit of production basis over the life of a site.
Drift mines – closure costs relating to drift closure and pit-top restoration are recognised as a provision on a discounted basis at the commissioning stage or on acquisition. The amount provided represents the present value of the expected costs. Costs are charged to the provision as incurred. A tangible fixed asset is created for an amount equivalent to the initial provision and is depreciated in accordance with the accounting policy set out above. Provision for other closure costs is made when there is a demonstrable commitment to the closure.
Investments are stated at the lower of cost and net realisable value.
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 company 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). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. The value in use has been derived by using the reserves multiple approach. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
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.
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.
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, 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.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the 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.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
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.
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.
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.
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The group considers whether tangible assets are impaired. Where an indication of impairment is identified or where the reasons for a previous impairment have ceased to apply, the estimation of recoverable value will require estimation of the recoverable value of the cash generating units as detailed in the accounting policy set out in note 1.
Provision is made for restoration and aftercare obligations. These provisions require managements best estimate of the costs that will be incurred based on legislative and contractual requirements. In addition, the timing of cash flows and the discount rates used to establish net present value of the obligations require managements judgement.
Provision is made for those items of stock which are obsolete and where the net realisable value is estimated to be lower than cost. Net realisable value is based on both historic experience and assumptions regarding future selling values, and is consequently a source of estimation uncertainty.
Tax losses are available to be utilised against future profits. Further there are fixed asset timing differences. The directors have taken the decision not to recognise a deferred tax asset in respect of these due to uncertainty over utilisation.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual (credit)/charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
There is an unprovided deferred tax asset at 31 December 2023 of £29.3m (2022: £31.3m) which relates to fixed asset timing differences and losses carried forward. This deferred tax asset has not been provided as there is uncertainty as to its recoverability.
An increase in the UK Corporation Tax rate to 25% for profits arising on or after 1 April 2023 as set out in the Finance Bill 2021 was substantively enacted on 24 May 2021. The calculation of the unrecognised deferred tax asset as at 31 December 2023 reflects this rate (31 December 2022: 25%).
Details of the company's subsidiaries at 31 December 2023 are as follows:
The directors believe that the carrying values of the investments are supported by their underlying net assets and forecast future financial performance at the end of the period.
Under s479A of the Companies Act 2006, EGL Puracite Limited (registered number 04962402) is exempt from the requirements of the Act relating to the audit of individual accounts. Pergwm Holdings Limited has guaranteed the liabilities of EGL Puracite Limited.
Other debtors includes £711,000 (2022: £149,000) of amounts owed by LCC Group Limited, a related party of the group as at 31 December 2023. The amounts are interest free and unsecured.
Amounts owed by group undertakings are due from the subsidiary company, Energybuild Limited, and are unsecured, interest-free and have no fixed date of repayment.
Other creditors includes amounts owed to LCC Group Limited of £1,918,000 (2022: £841,000), a related party of the group as at 31 December 2023. The amounts are interest free and unsecured.
The loans from related parties relate to amounts owed to LCC Group Holdings Limited, a related party of the company as at 31 December 2023. The amounts are interest free, unsecured and have no fixed terms for repayment.
Restoration and closure costs – Drift mines
Drift closure and pit-top provisions are made to meet the liability to fill and cap all mine drifts and return pit-top areas to a condition consistent with the required planning permission. No transfer of economic benefits will arise until the decommissioning of each individual colliery. The current pit-top provision reflects existing planning permissions that require pit-top areas to be restored to former use, usually agriculture.
The provision level has been reassessed and the amount of £2,995,000 (2022: £2,943,000) represents the cost of the restoration obligations discounted at 6% risk free rate per annum to present day value. The provision is not expected to be utilised for at least ten years.
The provision, along with the mine life, will be considered annually.
Restoration and closure costs – Surface mines
This provision relates to the total estimated costs of reinstatement of soil excavation and of surface restoration such as topsoil replacement and landscaping. Restoration costs will be payable when individual sites are completed and payments against aftercare liabilities will extend beyond the life of each contract. The costs accrued are expected to be incurred during the next two years.
The provision level was assessed and the amount of £68,000 (2022: £79,000) represents the cost of restoration obligations. The restoration liability is expected to be completed in the near term and therefore discounting the provisions is not required.
Deferred income is included in the financial statements as follows:
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.
On incorporation 100 ordinary shares of £1 each were issued at par.
On 5 May 2023 the group acquired 100% of the issued capital of EGL Puracite Limited.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
LCC Group Limited are a related party of the group by virtue of common shareholders and directors. During the period ended 31 December 2023, total sales to LCC Group Limited amounted to £11,309,000 (2022: £3,353,000). In addition, included in deferred income due within one year is a balance of £2,423,000 (2022: £456,000). Purchases from LCC Group Limited during the year amounted to £8,900,000 (2022: £nil).
Details of loans from related parties are set out in note 18 and details of closing receivables and payables balances in notes 15 and 16 respectively.
The directors did not receive any remuneration for their services to the group or company during the financial year (2022: £nil). Key management personnel, other than the directors, received remuneration for their services of £227,000 (2022: £205,000) and company pension contributions to defined contribution schemes of £3,000 (2022: £3,000).