The directors present the strategic report for the year ended 31 December 2023.
Inspirit Paddington Bidco is the parent company of Pelta Medical Papers Ltd and therefore asseses its performance based on the results and performance of Pelta Medical Papers Ltd which was acquired on 31 October 2021. Whilst the comparative period in these accounts covers the 14.5 month period ended 31 December 2022 the strategic report below has used Pelta Medical Papers comparative performance indicators for the period from 1 January 2022 to 31 December 2022. This is to ensure figures are comparable.
Pelta Medical Papers Ltd is a manufacturer of sterile barrier papers used for the packaging of both re-usable and single-use medical devices. Production is carried out at the specialised paper mill situated in Milnthorpe, UK, and products are sold globally to customers in 48 countries (2022: 48). Surplus capacity is used to manufacture grease resistant paper for quick service restaurants.
During 2023, the business continued the implementation of a focused business strategy towards the medical packaging market, which resulted in the Sales mix of medical versus non-medical grade paper growing by 3% to 66% of total volume.
The strategy will see Pelta Medical Papers Ltd transform into a focused partner to the medical packaging industry; with continued investment to upgrade the manufacturing facility to medical standards and to add enhanced quality capability; through development and expansion of the medical products portfolio; and achieve an industry leading position in the business’ Environmental, Social, Governance (ESG) position.
Overview
The company’s key financial and other performance indicators during the year were as follows;
| 2023 | 2022 | % Change |
Total Revenue (£’000) | 45,421 | 58,108 | -21.8% |
Trading EBITDA (£’000) | -2,598 | 1,263 | -305.7% |
Trading EBITDA margin | -5.7% | 2.2% | -7.4 points |
Sales Tonnes | 24,932 | 35,518 | -29.8% |
Production Tonnes | 24,895 | 34,196 | -27.2% |
Following on from the challenges of the European energy cost crisis, the business entered into a hedged position at the end of 2022 to protect it from volatile swings in the wholesale market through 2023. As a result, the business was unable to access favourable market rates in 2023 as prices fell. Energy costs remained a significant proportion of variable costs in 2023 and despite an overall reduction in total cost (£14,421k in prior year, down 14.5% to £12,327 in 2023), the cost per tonne increased 18.5% to £493/t (from £416/t in prior year). The difference between the price of forward bought energy versus open market prices in 2023 was £3,995k, which would have resulted in a positive Trading EBITDA of £1,632k.
A further challenge to the business was global de-stocking, which saw a dramatic fall in demand from Q2 through Q4 in all subsegments. Both sales and production tonnes saw significant reductions year on year, with revenue falling 21.8% to £45,421k from prior year (£58,108k).
Despite the market backdrop during 2023 the business made good progress with the implementation of various strategic initiatives. With the enriched medical Sales mix resulting in an overall improvement in average selling price (ASP) from prior year to partly offset the energy cost hedge; and achievement of Ecovadis Silver ESG certification.
Innovation and business development remained firmly in focus as a new high-added value product was launched to address an opportunity identified in North America, and the continued market interest in usage of high-end reinforced medical papers created a strong pipeline of projects that are now in validation phase.
During 2023 a strategic reorganisation of the Management Board team was undertaken to accelerate the business transformation and growth in the target markets.
Given the positive trading performance once adjustment is made for the hedged energy position, which is a realised position from Q2 2024 onwards; and also following a recovery in market demand, with January and February 2024 sales circa 25% up on the latter months of 2023.
Net fixed asset additions in 2023 amounted to £1,101k (2022: £1,644k). Major projects totalled £1,048k, with major investments in upgrading the mill to bring it inline with medical production requirements. Minor projects totalled £53k.
Depreciation charged in the year was £778k (2022: £860k) and capital employed (total assets less current liabilities) as at 31st December 2023 totalled £8.6m (2022: £12.4m).
Pelta Medical Papers Ltd is affected by the general economic climate, changes in exchange rates and other factors that are more specific to the company. Pelta Medical Papers Ltd endeavours to minimise risk through preventive measures. Wherever possible, risk is hedged or insured against. The following describes the factors that are significant in assessing Pelta Medical Papers Ltd’s operating risk and financial risk.
Operating risks
Description of Risks | Risk Management |
Variations in market prices and volumes for products | The customer base is subject to change. Customer agreements are made with consideration and respect of pricing, volumes, payment, stock terms and conditions. These are typically re-negotiated regularly on a three-six month basis. Major customers are incentivised through retrospective bonus agreements. |
Customer dependence and credit risk
| Customers range from being large international, listed packaging groups through to privately-owned SMEs. Typically carrying out conversion of paper into bags and wrappings. Customer agreements and relations go back many years. Credit terms vary with market and product and credit is insured and managed by the Finance Team. |
Fibre price risk
| Pulp supply agreements are negotiated and secured with suppliers through a pooled purchasing association. |
Energy price risk
| A purchasing strategy is in place to mitigate the risk of market price increases by arranging forward contracts. |
Environmental impact | Permits are obtained from The Environment Agency to regulate and minimise environmental impact. Key staff are trained in environmental issues to ensure the impact is managed. |
Seasonal variations
| Pelta Medical Paper Ltd is relatively unaffected by seasonality. Orders remain constant throughout the year, with the only impact being a 2 week shutdown of production in Summer, and reduced sales volumes prior to Christmas. |
Financial risks
Description of Risks | Risk Management |
Currency risk - transaction exposure | All currency transactions are made at spot rate. Where possible we ensure that receipts in currency are utilised to pay suppliers in the same currency. Currency exposure is restricted by trading in Euros, GBPs and US Dollars. |
The Directors of the Company must act in accordance with a set of personal duties. These duties are detailed in s172 of the UK Companies Act 2006 summarised as follows:
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
the likely consequences of any decision 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 the environment,
the desirability of the company maintaining a reputation for high standards of business conduct, and
the need to act fairly as between members of the company.
In particular Pelta Medical Papers Ltd's Directors ensure:
Sustainable wood supply - All purchasing of wood raw material is based on the FSC® and PEFC™ Chain of Custody standards
Responsible supply chain - covers areas such as statutory compliance, business ethics, human rights and labour law, health and safety and the environment
Engaging workplaces - Sustainable leadership capable of effectively leading, engaging, communicating and driving change
Resource-efficient production - quality and environmentally certified in accordance with ISO 9001 and ISO 14001
Responsible business - Group-wide policies, standards and processes, which contribute towards consistent development, implementation and follow-up of steering documents.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 10.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
We have audited the financial statements of Inspirit Paddington Bidco Limited (the 'company') for the year ended 31 December 2023 which comprise the statement of comprehensive income, the balance sheet, the statement of changes in equity 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
Emphasis of matter - financial statements prepared on a basis other than going concern
We draw attention to note 1.3 in the financial statements which explain that the company's trading subsidiary entered administration in December 2024. Therefore, the directors do not consider it to be appropriate to adopt the going concern basis of accounting. Accordingly, the financial statements have been prepared on a basis other than going concern as described in Note 1.3. Our opinion is not modified in respect of this matter.
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;
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 company 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.
Inspirit Paddington Bidco Limited is a private company limited by shares incorporated in England and Wales. The registered office is 2 Babmaes Street, London, Englan, SW1Y 6HD.
The comparative period covers from incorporation on 15 October 2021 to 31 December 2022. Therefore, the comparative amounts are not entirely comparable.
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 £.
This 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 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 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Inspirit Paddington Topco Limited. These consolidated financial statements are available from its registered office, 2 Babmaes Street, London, United Kingdom, SW16 6HD.
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 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. 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 company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
On completion of the acquisition of Pelta Medical Papers Ltd the company received a vendor loan of £1.5m. Repayments due on this loan were contingent on the trading performance of the subsidiary, the loan was therefore classified as a non-basic financial liability held at fair value through profit and loss.
On 8 February 2023 it was agreed that the vendor loan would be settled for £1.2m. As a result of the loan being settled with a third party within close proximity of the period end it was deemed appropriate to use this as the period end fair value for the period ended 31 December 2022. The resulting gain of £260k was recognised in the profit and loss account in the period ended 31 December 2022.
As this loan has now been fully repaid there is no balance as at 31 December 2023.
The average monthly number of persons employed by the company during the year was:
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
The impairment losses in respect of financial assets are recognised in other gains and losses in the profit and loss account.
Details of the company's subsidiaries at 31 December 2023 are as follows:
On completion of the acquisition of Pelta Medical Papers Ltd the company received a vendor loan of £1.5m. Repayments due on this loan were contingent on the trading performance of the subsidiary, the loan was therefore classified as a non-basic financial liability held at fair value through profit and loss.
On 8 February 2023 the vendor loan was settled for £1.2m.
The company has entered an unlimited cross company guarantee to meet liabilities of Pelta Medical Papers Ltd in respect of Arbuthnot Latham & Co. Ltd. As at the balance sheet date the maximum potential liability under this arrangement amounted to £6,904,396 (2022: £6,038,800).
The company has entered an unlimited cross company guarantee to meet liabilities of Pelta Medical Papers Ltd in respect of Inspirit Paddington Topco Limited. As at the balance sheet date the maximum potential liability under this arrangement amounted to £1,945,426 (2022: £1,748,772).
On 11 January 2024 the company issued 112 £1 A ordinary shares for consideration of £1,000,000.
Post year end the company has taken an additional loan of £1m.
Pelta Medical Papers Ltd entered administration in December 2024.