The directors present the strategic report for the year ended 30th May 2024.
The group consists of four companies, Khan Investment Holdings Ltd ("Parent"), Khan Estates Limited, PFG Group Limited and The Pentagon Food Group Ltd ("subsidiaries").
The below strategic report has a focus on The Pentagon Food Group Ltd (PFG), as the majority of the trade within the Group is in relation to this subsidiary.
For the fiscal year ending 2024, The Pentagon Food Group (PFG) continued to build on its strong foundation, focusing on strategic growth, operational efficiency, and customer satisfaction. Here is a detailed review of the year:
Strategic Growth and Expansion: PFG remained committed to driving revenue growth through key strategic acquisitions and organic growth. The Freshways Click and Collect Branches were a significant focus, as they are integral to the business. The company also explored vertical and horizontal acquisition opportunities to expand its market presence. In March 2024, PFG launched its Direct-to-consumer home delivery business from its flagship site in Stoke on Trent, further diversifying its service offerings.
Operational Efficiency and Cost Management: Throughout the year, PFG maintained a strong focus on cost management and operational efficiency. The company continued to drive efficiencies and productivity to combat inflation and minimize the burden on customers. All cost sectors were under constant review, and operational effectiveness was a key area of focus for the management team. PFG also re-assessed its credit policy, ensuring strict adherence to credit terms and implementing new internal controls to mitigate credit risk and exposure.
Supply Chain and Inventory Management: PFG's proactive approach to supply chain management was evident as the company carried buffer stock to mitigate sales loss and ensure product availability for customers. The company maintained clear communication with customers regarding price increases driven by rising fuel, energy, and operating costs. PFG’s new 1400 Pallet state-of-the-art cold store completed post-year-end 2023, provided increased storage capacity and optimized operations.
Customer engagement and service: PFG's three click and collect centres continued to demonstrate strong growth, with customers favouring this convenient option over traditional delivery. This shift helped alleviate the burden on distribution amid driver and staff shortages and allowed PFG to re-optimize operations to control operational expenses and budgets. The company remained focused on delivering a consistent supply of food service products, maintaining clear communication with customers, and ensuring customer satisfaction.
Financial Health and IT Investment: PFG maintained a low level of debt and a considerable cash reserve, ensuring financial stability. The company had a strong working relationship with its bankers, who supported PFG's growth and ambitious plans. PFG remained active in IT developments and investments, aligning with its digital strategy. The introduction of a Corporate Performance Management (CPM) solution and a balanced scorecard across business functions ensured complete organizational alignment. The use of data and business intelligence tools enabled real-time reporting and analysis, allowing PFG to proactively address potential threats and control key budget drivers.
Commitment to Vision and Mission: PFG's commitment to its vision and mission was unwavering. The company focused on delivering its promise to the food service sector and customers by planning, coordinating, and forecasting demand while dealing with challenging supply chain conditions. PFG's efforts in managing working capital, optimizing inventory, and ensuring operational effectiveness were key contributors to maintaining margins and achieving business goals.
The new cold storage facility had a significant positive impact on PFG's operations. The added storage capacity allowed PFG to buy in bulk, which supported the gross profit margin by taking advantage of bulk purchasing discounts.
This strategic move not only helped in managing costs but also ensured that PFG could maintain a consistent supply of products, even during periods of high demand or supply chain disruptions.
Additionally, the increased storage capacity enabled PFG to explore new frozen product lines, thereby enhancing the range and offering available to customers. This expansion into new product lines allowed PFG to cater to a broader customer base and Segments and meet diverse customer needs, further strengthening its market position.
Overall, the new cold storage facility played a crucial role in optimizing operations, supporting financial performance, and expanding PFG's product offerings.
As PFG moves forward, the company remains dedicated to driving growth, optimizing operations, and enhancing customer satisfaction. The strategic initiatives and investments made in FY24 position PFG for accelerated growth in the coming years.
The process of risk acceptance and risk management is addressed through a framework of policies, procedures and internal controls. All policies are subject to Board approval and ongoing review by management. Compliance with regulations, legal and ethical standards is a high priority for the Group and the finance department take on an important oversight role in this regard, to ensure that a proper internal control framework exists to manage financial risk and that controls operate effectively.
The key risks facing the group continues to be maintaining gross margins to generate cash flow and the impact of exchange rate fluctuations on goods bought overseas, as well as the risks associated with Brexit. The group has lending facilities with Lloyds plc. The company continues to make loan repayments within the terms of the agreement whilst maintaining positive cash flows.
Developments and Performance
The Pentagon Food Group (PFG) has seen significant developments throughout the financial year 2024. The company has continued to expand its market presence and enhance its product offerings. Notable developments include:
New Product Launches: PFG introduced several new products and brands to its portfolio, which have been well-received by existing and new customers.
Improved Operational Efficiency: We have adopted a new WMS (Warehouse Management System), allowing our pickers to pick at a 100% accuracy, minimising Shortage claims and credit notes, this has resulted in a huge increase in CSAT levels.
Organizational Changes: The organizational chart was updated to align the structure and roles within the company to its growth strategy.
Cold Storage Investment: PFG invested in cold storage and commissioned a new Cold Store in August 2023, providing an additional capacity of 700 pallets. This investment has enhanced PFG's range capability and storage.
Stock Management System: We have developed a new stock replenishment and management system to reduce our Working Capital tied into Inventory and replenish stock inline with demand, overall reducing inventory levels and Increasing Order Fill rate.
PFG's strategic objectives for the financial year 2025 are centred around growth, sustainability, and excellence. The key objectives include:
Expansion through Acquisitions: PFG aims to grow through a buy-and-build strategy, targeting acquisitions that will add significant value to the group. The focus is on businesses that can be integrated seamlessly and contribute to the overall revenue and EBITDA growth.
Enhancing Market Position: PFG is committed to strengthening its market position by leveraging its financial strength, industry knowledge, and support functions. The company plans to expand into new geographic markets and increase its product base.
Sustainability and Responsibility: PFG continues to prioritize sustainability and responsibility in its operations. The company is dedicated to providing long-term value and building lasting relationships with all stakeholders.
Customer Base and Volume Growth: PFG's objective for 2025 is to grow its customer base and volume. With inflation easing and the prices of some goods falling, PFG maintained growth in its volume output throughout 2024 and the number of new customers it is now serving.
Plans for the Future
Looking ahead, PFG has outlined several plans to ensure continued growth and success:
International Expansion: PFG plans to establish international sales offices in major cities across Asia and the MENA region. This expansion will help the company tap into new markets and increase its global footprint.
Resource Investment: PFG will invest in resources, including hiring new talent and enhancing departmental structures, to support its growth plans. The company aims to achieve a target of £100 million in revenue with an 8% EBITDA Margin by 2028.
Sales Force Development: PFG is investing heavily in its Sales Force strategy, including BDM’s, Outbound Calling and Inbound Lead Management, the Sale Force is designed to support the rapid Sales growth ambitions and targets we have as a business and is aligned with our overall strategic objectives and strategy.
Innovation and Product Development: PFG will continue to innovate and develop new products to meet the evolving needs of its customers. The company is committed to maintaining its reputation for delivering quality and service.
New Branches: PFG has identified regions to roll out its Freshways Branches, this will start from Q3 & 4 of our Financial Yr 2025, and then throughout 2026-2028.
The director’s business KPI’s for the financial period are as follows:
Turnover £54.4m (2023: £54.0m)
Gross profit 14.4% (2023: 14.0%)
EBITDA £1.8m (2023: 1.8m)
Liquidity 1.81 : 1 (2023: 1.67: 1)
The Directors do not consider there to be any other key performance indicators it uses to manage the business other than those noted above.
This statement by the Board of Directors describes how they approached their responsibilities under s172(1)(a) to (f) of the Companies Act 2006 in the financial year ended 30 May 2024.
The stakeholders of the company include employees, clients and suppliers of the company.
The directors consider they have acted in good faith to promote the success of the company on behalf of its stakeholders, in relation to the matters set out in s172 of the Act.
The directors monitor and review strategic objectives against long term plans. Regular reviews are held across key business areas, including financial performance, risks and opportunities, health & safety, human resources and operations. The company's performance and progress are reviewed regularly at department, senior leadership and Board meetings.
The fundamental principle in the governance of the company is that of ensuring transparent conduct which reflects fairness in all dealings with employees, clients and suppliers.
The company has a policy of equal opportunities in all aspects of employment. The company's employees are vital to the success of the company. The directors understand that it is critical to engage with and understanding their views and to ensure that all employees' interests are considered. Throughout the company there is consultation at all levels of staff on matters of concern. The consultations evolve to meet the changing needs of the company and are considered valuable by everyone. The policy of the company is to consult and discuss matters with employees and to resolve any problems in accordance with relevant procedures and legislation.
The company's customers and suppliers are fundamental to the success of the company and the company strives to continually improve and strengthen its solution delivery and customer offering for the mutual benefit of all stakeholders.
The company has adopted a policy of only dealing with creditworthy clients. The directors understand the needs for debtor management and so liaises with its clients to minimise any risk of non-payment of debts.
The directors' intentions are to behave responsibly toward all stakeholders and to treat them fairly and equally to ensure everyone benefits from the long-term success of the company.
Environmental matters are taken into consideration by the directors as part of their decision-making process, in order to minimise the company's impact on the environment wherever possible.
The directors have overall responsibility for determining the company's purpose, values and strategy and for ensuring high standards of governance. The primary aim of the directors is to promote a sustainable success for the long-term of the company, generating value for all stakeholders. Throughout the next financial year the directors will continue to review and challenge how the company can improve its engagement with all stakeholders.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 May 2024.
The results for the year are set out on page 12.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Ms Shaqayeq Hemmatian
Mr Adnan Sajid (resigned 31st May 2023)
Mr Arfat Khan
Mr Ashfaq Khan
The group manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the group has sufficient liquid resources to meet the operating needs of the business.
The group is exposed to fair value interest rate risk on its fixed rate borrowings and cash flow interest rate risk on floating rate deposits, bank overdrafts and loans. The group uses interest rate derivatives to manage the mix of fixed and variable rate debt so as to reduce its exposure to changes in interest rates.
The group’s principal foreign currency exposures arise from trading with overseas companies. Group policy permits but does not demand that these exposures may be hedged in order to fix the cost in sterling. This hedging activity involves the use of foreign exchange forward contracts.
Investments of cash surpluses, borrowings and derivative instruments are made through banks and companies which must fulfil credit rating criteria approved by the Board.
All customers who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
In accordance with the company's articles, a resolution proposing that AMS Accountants Corporate Ltd be reappointed as auditor of the group will be put at a General Meeting.
As the company has consumed more than 40,000 kWh of energy in this reporting period, it is required to report on its emissions, energy consumption and energy efficiency activities.
The group has followed the 2019 HM Government Environmental Reporting Guidelines. The group has also used the GHG Reporting Protocol – Corporate Standard and have used the 2020 UK Government’s Conversion Factors for Company Reporting
The chosen intensity measurement ratio is total gross emissions in metric tonnes CO2e per full-time employee, the recommended ratio for the sector.
Throughout the fiscal year, PFG has remained steadfast in its commitment to fostering energy efficiency and sustainability within its operations. We have actively pursued various initiatives aimed at reducing our carbon footprint and optimizing energy usage across our facilities.
1. Facility Upgrades: Upgrading lighting systems to energy-efficient LED fixtures, employing smart sensors for automated lighting controls, and optimizing HVAC systems for improved energy performance.
2. Technology Integration: Incorporating advanced technologies and automation to streamline processes, reduce energy waste, and enhance overall operational efficiency.
3. Employee Engagement: Conducting comprehensive training programs and awareness campaigns to empower our workforce with energy-saving practices, encouraging a culture of conscious energy consumption throughout the organization.
4. Renewable Energy Adoption: Exploring and investing in renewable energy sources such as solar or wind power to diversify our energy portfolio and reduce reliance on non-renewable resources.
These initiatives have yielded notable outcomes, including reduced energy consumption and cost savings.
As we move into the next fiscal year, PGH remains committed to raising the bar for energy efficiency. Planned initiatives on our roadmap include:
1. Further Infrastructure Enhancements: Continuing facility upgrades, exploring innovative technologies, and investing in energy-efficient equipment to consistently drive down energy consumption and emissions.
2. Partnerships and Collaborations: Forming strategic partnerships with industry experts and suppliers to explore new sustainable solutions and integrate cutting-edge technologies into our operations.
3. Sustainability Goals: Setting ambitious yet achievable energy efficiency targets aligned with global sustainability frameworks, demonstrating our commitment to environmental responsibility.
We have audited the financial statements of Khan Investments Holdings Ltd (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 May 2024 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
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
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.
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 non -compliance with laws and regulations related to pensions legislation, UK tax legislation and UK employment legislation, and we considered the extent to which non- compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of 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 posting inappropriate journal entries to increase revenue or manipulate expenditure and management bias in accounting estimates. Audit procedures performed by the audit engagement team included:
• Discussions with management, including consideration of known or suspected instances of non- compliance with laws and regulation and fraud;
• Review of the financial statement disclosures to underlying supporting documentation;
• Challenging assumptions and judgements made by management in their significant accounting estimates;
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by senior management.
There are inherent limitations in the audit procedures described above and the further removed non- compliance with laws and regulations is from the events and transaction reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
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.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £7,753 (2023 - £52,966 loss).
Khan Investments Holdings Ltd (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is 2nd Floor, 9 Portland Street, Manchester, M1 3BE.
The group consists of Khan Investments Holdings Ltd and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment 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 Khan Investments Holdings Ltd 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 30 May 2024. 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.
Entities in which the group holds an interest and which are jointly controlled by the group and one or more other venturers under a contractual arrangement are treated as joint ventures. Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the group exercises a significant influence, are treated as associates.
Investments in joint ventures and associates are carried in the group balance sheet at cost plus post-acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.
If the group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further losses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the group’s interest in the entity.
At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
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.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight line basis over the lease term.
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.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.
Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.
Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.
In the parent company financial statements, investments in associates are accounted for at cost less impairment.
Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible 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.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
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.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting end date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability.
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.
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.
Subsidiary undertakings exempt from audit
Under Section 479a of the Companies Act 2006 available to subsidiary undertakings, the company provides a guarantee in respect of the below subsidiary undertakings claiming exemption from audit.
The Pentagon Food Group Limited (03943556)
Khan Estates Limited (08373027)
PFG Group Limited (09125954)
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.
In line with the requirements of FRS102, the revaluation of investment properties requires a corresponding deferred tax liability. This is an estimate of the expected tax liability on the sale of the properties. This is reviewed annually to ensure that it is at the effective tax rate expected at the date of sale. As a result of the changes in the corporation tax rate effective 1st April 2023, there has been an adjustment to the deferred tax liability in the prior year period.
The fair value of investment properties is based on property valuations by the directors which are derived from a number of assumptions and the general strength of the property market and the wider economy. Significant changes to any of these factors may affect the fair value of the properties either in a negative or positive manner. The directors are satisfied at the year end that the market value of the investment properties remains appropriate.
An analysis of the group's turnover is as follows:
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual 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:
The standard rate of tax applied to deferred taxation balances is 25% (2023 - 25%). The applicable tax rate has changed following the substantive enactment of the Finance Act 2021.
Investment property comprises freehold land and buildings. The fair value of the investment property has been arrived at on the basis of a valuation carried out in May 2022 by Registered Chartered Surveyors, who are not connected with the company on an open market basis by reference to market evidence of similar property valuations.
Between valuations the Directors review the properties for indicators of impairment or significant increase in value based on property indices.
Details of the company's subsidiaries at 30 May 2024 are as follows:
The investments in subsidiaries are all stated at cost.
The registered office address for all subsidiaries is the same as that of the company.
Borrowings are secured by an unlimited debenture incorporating a fixed and floating charge, in addition to first legal charges over all investment properties owned in favour of Lloyds PLC.
The company has five loan facilities, below are the terms of each facility:
The company has 4 bank loans:
Bank loan 1 is capital repayment, interest payable at a fixed rate of 2.3% over Base Rate with a term expiring in October 2033.
Bank loans 2-4 are capital repayment, interest payable at a fixed rate of 2.5% with a term expiring in May 2026.
Other loans are subject to a fixed interest rate of 12% per annum. For the term of the loan the repayment is interest only, with the term expiring June 2030.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
The profit and loss account is the cumulative retained earnings of the company comprising of both distributable and non-distributable reserves.
At the year end £13,773,773 retained earnings relates to a fair value gain on investment properties in a prior year.
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:
During the year the group entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The following amounts were outstanding at the reporting end date:
The company has taken advantage of FRS 102, section 33.1A available for transactions with wholly owned subsidiaries, and has chosen not to disclose related party transactions within the group.
Amounts due from and to related parties are owed from companies which have common directorship or common shareholding. These amounts are interest free, with no security and are repayable on demand.
Key management personnel is deemed to be the same individuals as the directors and this information is disclosed in note 7.
Dividends totalling £0 (2023 - £32,000) were paid in the year in respect of shares held by the company's directors.
At the year end, a balance of £1,108,144 (2023: £1,201,376) was due to the directors.
At the year end, a balance of £9,098 (2023: £9,098) was due from the directors.
The above balance is interest free with no fixed date for repayment.
The financial statements for the year ended 30 May 2023 in Khan Estates Limited and consequently the consolidated accounts of Khan Investment Holdings Ltd did not include the total deferred taxation of the fair value uplift of investment property that is required under FRS 102.
As a result, the comparative for deferred taxation has increased by £1,118,698 at 30 May 2023.
The impact of this prior year adjustment was to increase the deferred taxation liability by £1,118,698 and to decrease reserves by £1,118,698.