The directors present the strategic report for the year ended 31 December 2023.
2023 concluded as a year of mixed fortunes with periods of promise and mild disappointment in equal measure.
Following a largely positive 2022, and with that feeling of positivity continuing through into the early stages of 2023, and with the business holding a robust orderbook, growth plans were implemented to capitalise on the upward trajectory. The business committed its working capital resources to increased machine stock to ensure that inventory was available to react on the promise of growth. The business also looked to expand its product portfolio dipping its toe into the Metal Fabrication market having been approached by a high quality Swiss manufacture requesting representation.
Over the course of the year revenues did indeed grow by 6.2%, and Gross Profit grew by 5.3%, however the growth was fuelled by an increase in sales from bespoke and standard workholding and spares parts, and not from machine sales as expected.
Robust economic indicators throughout the year did not translate fully into investment decisions for Capital Equipment resulting in machines sales being fairly flat in 2023 compared to 2022. With growth in machine sales not materialising the financial resources devoted created a technical breach of the banking facility. The pressure on cashflow was alleviated through deferring further stock purchases until stock levels were normalised, albeit at a reduced margin. As a result, whilst there was a higher proportion of Workholding and Spares sales, the overall Gross Margin % fell by 0.3%.
In addition to the working capital employed, the Group invested in greater resources to prepare for and support growth, increasing overheads by 8.9%. The increase in overhead was larger than the increase in Gross Margin resulting in a reduction in the Group’s EBITDA for the year. The EBITDA reduced from 4.2% of sales to 3.1% of sales, the final EBITDA for 2023 being £691,662 (2022: £874,136). However the investment in people and enhancement in skills will benefit the Group in the future years.
A significant success during the year was the securing of one of the largest long-term machine supply and support orders seen in the industry. ETG brokered, on a commission basis, an order with a major player in the defence sector. The agreement to supply multiple multi-million-pound machines over a three year period with a subsequent 10 year support program. The revenues from this order will underpin growth and profitability for the business for the next 13 years.
The reduced EBITDA coupled with the rapid rise in interest rates created additional interest expense pushed the PBT for the Group into a loss position of (£118,452).
The Group continues to secure Turnkey Projects with an increasing focus on automation with average order values increasing year over year as more companies seek to focus on productivity. Looking ahead it is acknowledged that 2023 promised growth in Capital Equipment yet failed to deliver. The financing of the growth plan that created a technical breach in the banking facility, whilst waived by the bank, highlighted the need for a more suitable Working Capital and this is the focus.
Fair Review of the Business continued
The machine orderbook at the end of 2023 was further enhanced compared to the end of 2022 offering a positive start to 2024. The workholding orderbook also increased offering an improved outlook for 2024 for that aspect of the business This is a good indicator that the manufacturing economy remain buoyant and busy from a production perspective.
Summarising the Groups traditional KPI’s, compared to the prior year turnover increased by 6.2% and Gross Margin increased by 5.3% in value terms.
Gross Margin as a % of sales decreased by 0.3 percentage points from 34.3% (2022) to 34.3% due to a lower proportionate content of machine sales compared to aftercare and workholding sales.
The Groups EBITDA for the period decreased by £182,474 to £691,662 (2022 – EBITDA Profit of £874,136).
The Group continues to invest in its Sales and Support functions across its Machine and Workholding divisions, as well enhancing its core brands, further strengthening and developing its Turnkey solution capability.
Principal Risks and Uncertainties
The principal short term risk and uncertainty continues to relate to the general economic environment. The ongoing war in the Ukraine, energy costs, and raw material prices are all having an impact on product costs and pricing. Whilst the issues are still valid current pricing has been adjusted and will take affect for new orders although due to the gestation period and lead-time of products the impact may not been seen until the middle of 2024 and into 2025. The longer term principal risks to the company remain the general fluctuations in the UK manufacturing economy, continued higher interest rates, and fluctuations in major currencies which may have an adverse effect on machine costs. These risks are mitigated by maintaining its current diversified spread of revenue between its Capital Equipment, Operations, and Manufacturing divisions, and increasing its diversification amongst the industries within the manufacturing sector. Exchange rate fluctuations would impact primarily on the Capital Equipment division. Currency movements are closely monitored with any fluctuations having a similar effect on the primary competitors which offers some mitigation. The risk is further mitigated through the use of currency sharing agreements with some key suppliers, as well as the groups’ concentration on added value services sourced in the UK.
The dynamic and balanced sectorial nature of the Group is such that resources can be deployed to focus on areas of the business with demand and the Group can adapt to new environments quickly which can mitigate such risks to a certain extent.
Future Developments
The Directors are not expecting to make any significant changes in the nature of the business in the near future. Going forward the trade of the Group will continue to focus on the long term customer and supplier relationships across a number of industry sectors which suit the high technology, high productivity, turnkey solutions designed, developed, and implemented by the Group, supplemented with a first class aftersales service.
The Group will also continue to develop its product portfolio to increase its market share within the UK and Republic of Ireland.
On behalf of the board
The directors present their annual report and financial statements for the year 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:
The results for the year are set out on page 10.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
No preference dividends were paid. The directors do not recommend payment of a final dividend.
The Group's financial risk management objective is to seek to make neither profit nor loss from exposure to interest rate risks. Its policy is to finance working capital through a combination of retained earnings and fixed and variable rate borrowings, and to finance fixed assets through rate borrowings over a term broadly expected to match the useful economic life of the asset.
The directors do not consider any other risks attaching to the use of financial instruments to be material to an assessment of its financial position or profit.
The auditor, Burgis & Bullock, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of The Engineering Technology Group 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, the company 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 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 conclusions are based on the audit evidence obtained up to the date of our report. Any unpredicted future events or conditions could impact the group/company’s ability to continue as a going concern.
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We gained an understanding of the legal and regulatory framework applicable to the company and the industry in which it operates and assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Based on our understanding of the group, company and industry we identified that the principal risk of non-compliance with laws and regulations related to breaches of Companies Act 2006, UK Tax Legislation and UK Employment Law. We also evaluated management incentive and opportunities for fraudulent manipulations of the financial statements.
Audit procedures performed included:
Reviewing returns made to Companies House and HMRC;
Discussions with management, including consideration of known or suspected incidences of non-compliance with laws and regulation and fraud;
Identifying and assessing the design effectiveness of controls in management have in place to prevent and detect fraud;
Challenging assumptions and judgments made by management in their significant accounting estimates and assessing if these indicate evidence of management bias;
Reviewing the accounting records for large and unusual journal entries and testing any identified and in particular the rationale for any transactions outside the company’s normal course of business;
Reviewing the accounting records for large and unusual bank payments and testing any identified and in particular the rationale for any transactions outside the company’s normal course of business;
Reviewing the accounting records for large and unusual transactions and testing any identified and in particular the rationale for any transactions outside the company’s normal course of business;
Testing a sample of debit entries in the profit and loss account to check they are bona-fide costs of the business; and
Testing a sample of bank payments to source documentation.
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 is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
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 £160,746 (2022 - £1,238,148 loss).
These financial statements have been prepared in accordance with the provisions relating to medium-sized companies.
The Engineering Technology Group Holdings Limited (“the Company”) is a private Company, limited by shares, domiciled and incorporated in England and Wales. The registered office is Wellesbourne Distribution Park, Unit 16, Loxley Road, Wellesbourne, Warwickshire, CV35 9JY.
The Group consists of The Engineering Technology Group Holdings Limited 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 certain financial instruments at fair value. The principal accounting policies adopted are set out below.
The consolidated group financial statements consist of the financial statements of the parent company The Engineering Technology Group 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.
Although, as anticipated at the end of 2022, activity levels increased during 2023, due to general UK and Worldwide economic pressures, margins were inevitably squeezed. Also, because of the decision to acquire additional machine stock on the back of the success of 2022 and then customers delaying making capital goods investment, cashflow management once again became the focus for the management team. Unfortunately, by the end of 2023, the Group had breached one of the financial covenants required by its bankers and as a consequence its bank loan has been shown in the Balance Sheet as at 31 December 2023 as falling due on demand due to this technical default. However, the bank has subsequently issued a waiver in relation to this breach.
The Group entered the start of 2024 with a positive position however subsequent growth in sales has not been at the level anticipated, due to a combination of customers delaying purchasing decisions and the Group facing the challenges of an under-resourced sales force. Consequently, at the time of approving these financial statements, further breaches of the bank’s financial covenants have been noted and there have been additional pressures on the Group’s cash flows which continue to be managed with the support of creditors, including HMRC, and the shareholders.
The Directors have prepared short term cashflow forecasts and profit forecasts covering the year to 31 December 2026 and consider that these are based on attainable activity levels, despite the current uncertainty levels in the UK manufacturing sectors and the forthcoming increases in employment costs. These forecasts have been subject to sensitivity analysis to understand the possible impact should there be a slowdown in machine sales. This analysis indicates that should the Group see a significant downturn in sales orders compared to that forecast or compared to that achieved in 2024 it would need to consider sourcing additional headroom, either through changing their working capital finance model; extension of creditor and HMRC payment terms and/or financial support from the shareholders. The Board are already positively exploring alternative working capital models which may be more appropriate to deal with the volatility in the day to day working capital requirements which capital goods distributors typically experience. This volatility usually arises due to the quantum values associated with purchases of machinery as well as the need to hold some stock levels ready to meet customer demand. However, the value of machine order sales in the first quarter of 2025 reveals an increase over that achieved in the same period for 2024 and, based on current economic forecasts, the Directors believe that there is likely to be opportunity to see a further increase towards the end of 2025.
At the time of concluding this assessment, the USA have announced the potential implementation of tariffs on goods imported to the USA. The announcements have created worldwide economic uncertainty and it is not yet possible to conclude what the future impact might be on the UK economy, particularly as changes are continuing to be announced. The Directors have reviewed the Group’s customer base to understand how many could be impacted by the imposition of significant import tariffs, primarily those connected to the UK car manufacturing sector. Whilst it is acknowledged that some are likely to be negatively impacted, the Directors also recognise that some other customers may nevertheless gain a competitive advantage over their competitors who manufacture in countries who may face the imposition of higher tariff rates than the UK.
Going concern (continued)
Having, to date, demonstrated their ability to manage working capital whilst experiencing fluctuating sales patterns and together with their belief and confidence that appropriate funding resources will be made available for the foreseeable future and there being a return to suitable activity levels throughout 2025 and beyond, the Directors have continued to adopt the going concern basis of accounting for the preparation of these 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.
Revenue from contracts for the provision of services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.
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.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
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.
Government grants relating to income or expenditure are recognised as income over the periods when the related costs are incurred. Grants relating to an asset are recognised in income systematically over the asset's expected useful life. If part of such a grant is deferred it is recognised as deferred income rather than being deducted from the asset's carrying amount.
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 estimates the warranty provision based on the terms of warranties given in the year and historical costs incurred.
In relation to potentially obsolete stocks, the directors have made key assumptions regarding the provision to be included within the financial statements. Stock included on the balance sheet is net of any provision.
Goodwill with a remaining net book value of £143,984 relates to the acquisition of the HK Group in 2019 which is being amortised over 5 years. The directors have made key assumptions over the future profitability of the underlying business acquired and its amortisation period and they remain confident that the anticipated returns will match or exceed the the goodwill valuation.
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:
Directors remuneration was paid by a subsidiary.
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (2022 - 3).
The actual charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised/(reversed) in profit or loss:
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Details of the company's subsidiaries at 31 December 2023 are as follows:
* Shares are held by HK ( Holdings) Limited
** Shares are held by H K Technologies Limited
The registered office of all UK subsidiaries apart from Hyfore Workholding Limited is Unit 16, Wellesbourne Distribution Park Loxley Road, Wellesbourne, Warwick, England, CV35 9JY, UK.
The registered office of Hyfore Workholding Limited is Unit 2, 67 Blackhorse Road, Longford, Coventry, West Midlands, England, CV6 6DP, UK.
The registered office of ETG CNC Machinery Limited is Unit 17, Newbridge Industrial Estate, Athgarvan, Newbridge, Co. Kildare, EH28 8PJ, Republic of Ireland.
Finance lease payments represent rentals payable by the Company or Group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 3 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The bank loans and overdrafts are secured by a debenture over all the assets and undertakings of the Group, together with cross corporate guarantees with all UK subsidiary companies.
The debenture loan notes are secured by a debenture over all the assets and undertakings of the Group, no interest is payable on the debenture loan notes.
The Senior bank loan is repayable in quarterly instalments over 5 years at a current rate of interest of 3.5% + Bank of England base rate. The year end balance on this loan was £1,200,000.
The RLS bank loan is repayable in quarterly instalments over 5 years at a current rate of interest of 4.45% + Bank of England base rate. The year end balance on this loan was £275,000.
The RLS bank loan is 80% guaranteed by the Government.
Other loans are secured by a charge over trade debtors.
Deferred tax assets and liabilities are offset where the Group or Company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
The deferred tax liability set out above relates predominantly to fair value adjustments that are expected to reverse in line with the goodwill accounting policy.
Other provisions relate to future warranty costs anticipated to be incurred in relation to goods sold up to the balance sheet date.
Deferred income is included in the financial statements as follows:
Government grants were recognised in the year for the purchase of capital assets.
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.
At the year end, contributions amounting to £40,475 (2022 - £28,173) were payable and are included within other creditors.
C Ordinary Shares are non-voting, other than in relation to any proposed change of class rights and have no dividend entitlement. On any sale or return of capital the C Ordinary Shares as a class are entitled to a varying % of total equity consideration received based on certain thresholds of consideration being achieved.
D Ordinary Shares are non-voting, other than in relation to any proposed change of class rights and have no dividend entitlement. On any sale or return of capital the D Ordinary Shares as a class are entitled to a varying % of total equity consideration received based on certain thresholds of consideration being achieved. Their entitlement to consideration also varies depending on whether the return is within 5 years of the date of issue of the shares or thereafter.
Any equity proceeds not allocated to the C and D Ordinary Shares will be distributed to the holders of the A and B Ordinary Shares pro rata to their holdings as currently set out in the Articles of Association.
The preference shareholders are not entitled to dividends or to vote other than in relation to any proposed change of class rights and the shares are redeemable at par value on exit only. The preference shareholders are entitled to participate in a distribution on a return of capital, on liquidation or capital reduction of the company following the payment of any unpaid arrears of dividends declared but not paid to the holders of Ordinary shares.
On 1 September 2022 the group disposed of its 50% holding in Advance Manufacturing Training Centre Limited. Included in these financial statements in the comparative figures are profits of £2,728 arising from the company's interests in up to the date of its disposal.
Group
As at 31 December 2023 the Group had entered into short-term forward foreign currency exchange contracts amounting to £1,031,335 (2022 - £309,925).
There is a contingent liability in respect of a guarantee given by Santander UK PLC to HMRC for £100,000 (2022 - £100,000) with recourse to the Group under counter indemnity.
The directors have given a personal indemnity in favour of the Group's bankers in respect for any potential losses on the Company's invoice discounting agreement.
Company
An unlimited debenture has been given by the Company in favour of the Group's bankers in respect of loans and overdrafts due by Group undertakings. The balance on these bank loans and overdrafts at the year end was £164,641 (2022 - £605,309).
Operating lease payments represent rentals payable by the Group for properties and motor vehicles.
The property lease has a term of ten years from 2020 with an option to break after five years. The vehicle rentals are predominantly fixed for three years.
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:
As at 31 December 2023 £500,000 (2022 - £500,000) was owed to J Temple.
During a previous year the Group made a loan of £45,000 to a director, interest was charged at the beneficial rate of 2.5% - 3% and £46,048 (2022 - £ 46,048) was outstanding at the year end. There is no fixed date for repayment.
During a previous year the Group made a loan of £44,895 to a director, the loan is interest free and £44,895 (2022 - £44,895) was outstanding at the year end. There is no fixed date for repayment.
The company's ultimate controlling party is Mr M J Doyle.