The directors present the strategic report for the Period ended 30 November 2023.
The period was dominated by the operational and financial consequences associated with the demobilisation of Covid-19 related government contracts together with the ongoing Serco contractual dispute referred to in prior periods. These matters materially impacted the reported financial performance for the period and resulted in significant exceptional losses, costs and provisioning adjustments together with operational demobilisation activity and cash flow timing uncertainty associated with the disputed contract position.
The reported financial results for the period were materially distorted by exceptional contract demobilisation and dispute-related items and therefore do not fully reflect the underlying recurring trading activities of the group.
Throughout the reporting period ending November 2023, management continued actively pursuing recovery of the disputed Serco balances through legal and mediation processes and continued to receive legal and commercial advice supporting the group’s underlying contractual position and prospects of material recovery. At that time, the directors considered substantial recovery of the disputed balances and associated cash inflows to be likely based upon the group’s underlying contractual position, ongoing legal advice and continuing commercial engagement.
The directors’ confidence during the period was further supported by the successful award to subsidiary SSGC Ltd of a position on the Crown Commercial Service RM6257 framework, one of only nineteen providers nationally appointed. During the period the group had already commenced participation in framework bidding activity and considered the framework award to represent significant strategic validation of the group’s operational capability and improved visibility of future public sector tender opportunities.
As a consequence, operational planning, Covid-19 demobilisation activities and going concern assessments during the period were undertaken on the basis that the principal dispute position remained unresolved but likely to achieve satisfactory commercial resolution, alongside the expectation of future revenue opportunities arising from the newly secured government procurement framework position.
At the reporting period end, the directors considered the financial presentation adopted in relation to the Serco dispute and associated downstream supplier positions to be prudent and conservative in the context of the information then available. The group continued carrying associated supplier liabilities at full value whilst recognising the disputed Serco recovery position only at a materially discounted level relative to the group’s asserted contractual entitlement.
The directors believed this approach appropriately reflected both the uncertainty inherent within the ongoing mediation process and the need for prudent financial reporting whilst legal and commercial discussions remained ongoing.
The principal Serco mediation and settlement process did not conclude until April 2024, after the reporting period end. As a result, certain consequences of the final mediation outcome, including the practical scale, duration and complexity of associated downstream supply chain reconciliations, only became fully apparent following the post year-end settlement process.
A significant management challenge arising from the Serco matter involved the coordination and management of a substantial number of Tier 3 suppliers and subcontractors connected to the historic Covid-19 mobilisation activities. Due to the dependency on the principal Tier 1 settlement position, many of these downstream reconciliations and commercial negotiations could not substantially commence until after the April 2024 mediation outcome and therefore continued into the subsequent accounting period and beyond.
At the reporting period end, the ultimate financial effect and timing of resolution of many of these downstream matters remained uncertain and subject to ongoing reconciliation, negotiation and professional review.
The directors believe the complexity, scale and duration of these interconnected supply chain matters materially contributed to prolonged uncertainty regarding the timing and coordination of associated settlement and reconciliation activities following the period end.
Following conclusion of the April 2024 mediation, the group continued progressing the associated supplier, operational, tax and contract settlement reconciliation matters whilst continuing operational demobilisation, overhead rationalisation and efficiency measures across the wider group.
The directors note that subsequent developments following the April 2024 mediation process resulted in materially improved recovery outcomes relative to the prudently discounted carrying values recognised within the YE23 financial statements. The directors further note that subsequent supplier reconciliation outcomes proved materially more favourable than the conservative gross liability assumptions carried at the reporting period end. The directors believe these subsequent developments materially supported the prudence exercised in the group’s accounting estimates, provisioning and recoverability assessments at the reporting period end.
Whilst the financial results reflect these exceptional matters, management believes the underlying trading position of the group remained resilient throughout the period. The group continued securing new corporate clients and maintaining strong relationships across both public and private sector markets.
The group continues to position itself as a technology-enabled specialist security and workforce management business focused on service quality, compliance, operational delivery and scalable national account capability. The group’s operational systems support workforce deployment, scheduling, compliance management, payroll processing, client reporting and real-time operational oversight across its service activities.
Growth strategy
The strategy of the group remains focused on achieving sustainable and profitable long-term growth through continued investment in technology, operational systems, workforce capability and service innovation.
During the period, subsidiary SSGC Ltd secured a position on the Crown Commercial Service RM6257 framework, one of only nineteen providers nationally appointed to the framework. The directors believe this represented significant strategic validation of the group’s operating model and provided an important platform for future direct public sector procurement opportunities.
The group also continued engaging in consultation relating to the successor RM6378 framework, which is intended to modernise and consolidate existing government procurement structures. The directors believe the group’s specialist technology-led operational capability, compliance infrastructure and workforce management systems are well aligned to the evolving requirements of public sector procurement.
The acquisition and development of Security 2000 Limited, completed in the prior period, continued to support the group’s strategy of acquiring and developing complementary security businesses with scalable national growth potential. During the period the group continued integrating operational processes, systems and compliance functions across the wider group structure whilst repositioning operations around a more normalised recurring revenue base following the exceptional Covid-19 trading environment of prior years.
The group continued implementing operational efficiency initiatives throughout the period, including operational demobilisation activities associated with the reduction from exceptional Covid-19 trading volumes, overhead rationalisation, increased use of technology-enabled workflows and further development of paperless operational processes.
The directors remained alert to the risks prevalent within the group’s operating environment throughout the reporting period and continued to review and strengthen the group’s risk management processes. Principal risks were reviewed regularly at Board level together with associated mitigation strategies.
Tier 1 Contract Dispute and Recovery Risk
Details
The group continued to manage the financial and operational consequences associated with disputed revenues and delayed payments connected to a Covid-19 related contract operated through a Tier 1 contractor.
Mitigating actions/factors
Throughout the reporting period the group actively pursued legal and mediation processes whilst continuing to receive legal and commercial advice supporting the group’s underlying contractual position and prospects of material recovery. At the reporting period end, management adopted a cautious approach to financial provisioning and recoverability assumptions associated with the dispute.
The principal mediation process concluded post year-end during April 2024. Management has since continued progressing associated downstream supplier reconciliations, tax reviews and operational settlement matters, many of which extended into subsequent accounting periods due to the scale and complexity of the interconnected supply chain position.
The directors note that subsequent developments following the April 2024 mediation process resulted in materially improved recovery outcomes relative to the prudently discounted carrying values recognised within the YE23 financial statements. The directors believe these subsequent developments materially supported the prudence exercised in the group’s accounting estimates and recoverability assessments at the reporting period end.
Supply Chain Reconciliation Risk
Details
The historic Covid-19 mobilisation activities involved a substantial downstream supply chain comprising a substantial number of Tier 3 suppliers and subcontractors. Resolution of these positions became dependent upon conclusion of the principal Tier 1 mediation process.
Mitigating actions/factors
The group has continued engaging directly with affected suppliers and subcontractors following the April 2024 mediation outcome in order to progress reconciliations and commercial settlements in an orderly and controlled manner.
The directors further note that subsequent supplier reconciliation outcomes proved materially more favourable than the conservative gross liability assumptions carried at the reporting period end, further supporting the prudence exercised in the group’s provisioning and accounting judgements whilst the principal Tier 1 mediation process remained unresolved.
Contractual Settlement Timing and Cash Flow Risk
Details
The timing of receipts associated with disputed contract balances, together with the associated downstream supplier reconciliation process, created uncertainty regarding the timing of certain contract-related cash flows and settlement obligations connected to the historic Covid-19 mobilisation activities.
Many downstream supplier positions remained commercially and contractually interconnected with the unresolved principal Tier 1 dispute position and therefore could not be fully progressed until conclusion of the principal mediation process.
Mitigating actions/factors
Management maintained enhanced cash flow forecasting and operational oversight processes throughout the period together with ongoing engagement with legal advisers, suppliers and other key stakeholders in order to manage the timing and coordination of dispute-related settlement activities.
Covid-19 Demobilisation and Operational Transition
Details
The exceptional operational scale achieved during the Covid-19 response period reduced significantly during the period, requiring substantial demobilisation of personnel, infrastructure and associated operational cost bases.
Mitigating actions/factors
Management implemented operational demobilisation, overhead rationalisation and operational transition measures throughout the period in order to align the group’s cost base with post-Covid trading levels and recurring revenue streams.
Cyber and Technology Risk
Details
The group remains dependent upon technology systems and operational platforms for workforce deployment, payroll processing, compliance management and client reporting.
Mitigating actions/factors
The group maintains cloud-based infrastructure, off-site backups, recovery protocols and cyber insurance arrangements intended to minimise operational disruption and financial exposure in the event of cyber incidents or system failures.
The Board uses a combination of financial and non-financial key performance indicators to monitor performance and support strategic decision-making.
The principal financial KPIs used by management are set out below:
Metric 2023 2022*
Revenue (£) £10.8m £80.4m
Gross Profit (£) £1.6m £6.6m
Gross Profit % 15% 8%
EBITDA% -6.2% 0.6%
*The 2022 figures are prepared including the exceptional Covid-19 project revenue and partial write down of Tier 1 non-payment.
Management also monitors a range of operational KPIs including client retention, service delivery performance, compliance metrics, workforce engagement and cash flow forecasting.
Going concern and development
The financial statements have been prepared on a going concern basis as outlined further within Note 1 to the financial statements. The directors have prepared forecasts and cash flow projections based upon current trading expectations, existing order book visibility, operational demobilisation and cost-base alignment actions already implemented and ongoing financing discussions.
At the reporting period end, the directors considered satisfactory commercial resolution of the principal Serco dispute to be likely together with future growth opportunities arising from the recently secured RM6257 government procurement framework position.
At that stage, however, the directors recognised that the timing, structure and ultimate commercial outcome of the mediation process remained inherently uncertain and dependent upon ongoing legal, operational and commercial negotiations.
The directors acknowledge the existence of material uncertainties as described in Note 1, particularly relating to the timing of certain liabilities, tax reconciliations and contract-related settlement obligations arising from the historic Serco dispute and the substantial associated downstream supply chain reconciliation process.
The directors note that the principal Serco mediation process did not conclude until April 2024, after the reporting period end, and that a significant number of associated Tier 3 supplier reconciliations and related matters therefore continued into the following accounting period and beyond.
The directors considered that the combination of the group’s underlying trading activities, the expected progression of the principal mediation process, the prudently conservative accounting treatment adopted at the reporting period end and the operational transition activities already undertaken supported the continued adoption of the going concern basis of preparation, whilst recognising the material uncertainties disclosed within the financial statements.
Environmental actions statement and SECR
The Board recognises the importance of environmentally responsible business practices and continues to encourage initiatives designed to reduce waste, improve efficiency and minimise environmental impact where practicable.
Actions undertaken during the period included:
increased use of electric vehicles;
continued adoption of paperless operational processes; and
rationalisation and mothballing of underutilised office space following Covid-19 demobilisation.
Given the nature of the group’s activities, the directors consider the direct environmental impact of operations to be relatively limited.The Board believes good environmental practices, such as recycling, minimising waste and energy conservation, support strategy by our enhancing reputation. However, due to the nature of our activities generally, we do not have a significant environmental impact.
Efficiency Actions Taken
The following actions have been taken by the Company in the year:
Increased use of electric vehicles
Widespread use of a paperless approach wherever possible
Mothballing of the unutilised head office areas
The directors have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, having regard to the matters set out in section 172(1) of the Companies Act 2006.
In carrying out their duties, the directors considered:
the likely long-term consequences of decisions;
the interests and wellbeing of employees;
relationships with customers, suppliers and other stakeholders;
the impact of operations on the community and environment; and
the importance of maintaining high standards of business conduct.
The Board maintained regular engagement with employees, customers, suppliers, professional advisers and financing stakeholders. The Board also continued to review trading performance, liquidity, operational transition activities, dispute resolution developments and operational forecasts on a regular basis throughout the period.
Decisions relating to operational investment, Covid-19 demobilisation activities and growth opportunities during the period were considered in the context of preserving long-term operational sustainability and supporting future growth.
Social matters, charities and community
The Board believes that operating a sustainable and growing business which creates employment opportunities and supports local economies forms an important part of responsible corporate behaviour.
The group continues to support workforce development through training initiatives and operational development programmes. The group also continues to benefit from longstanding relationships with veterans’ organisations and recruitment networks.
Diversity and inclusion
The group is committed to equal opportunities and seeks to maintain an inclusive working environment where individuals are treated fairly and with respect regardless of background or personal characteristics.
Political donations
The group made no political donations in the period. (2022: £nil)
Modern slavery
The group remains committed to preventing modern slavery and human trafficking within its operations and supply chains. Appropriate supplier review and compliance procedures continue to be maintained.
Anti-Bribery policy
The group maintains a zero-tolerance approach to bribery and corruption and continues to operate policies and procedures designed to promote ethical conduct and regulatory compliance across the business.
On behalf of the board
The directors present their annual report and financial statements for the Period ended 30 November 2023.
The group recorded a loss for the period after taxation of £1,057,292 (2022: profit of £150,613), principally reflecting exceptional contract demobilisation and dispute-related provisioning adjustments as further described within the Strategic Report.
The directors do not recommend payment of a dividend for the period (2022: £nil).
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the Period and up to the date of signature of the financial statements were as follows:
The group places considerable value on the involvement of its employees and making sure that employees feel involved in the group and are committed to its goals. If we are to keep them engaged, communication must be a two-way culture that encourages employee feedback. To that end we formalise the staff feedback process through regular surveys and publish transparently the results, using these are sources for our development planning.
The directors recognise the importance of employee engagement and maintaining open communication throughout the organisation. The group encourages employee feedback and seeks to maintain a collaborative and supportive working environment.
Throughout the period the Board continued to monitor trading performance, operational transition activities, contractual dispute developments, cash flow forecasting and key operational risks across the group. The directors maintained regular engagement with legal advisers, operational management and key stakeholders in relation to the ongoing Serco dispute and associated downstream supply chain matters.
The directors also continued reviewing operational forecasts, provisioning assumptions and contract-related settlement obligations in light of the evolving commercial and operational position during the period.
The directors considered the appropriateness of the going concern basis of preparation having regard to operational forecasts, ongoing contractual dispute developments and the matters described within Note 1 and the Strategic Report.
United Kingdom company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have elected to prepare the group and parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company, and of the profit or loss of the group for that period.
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and parent company, and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and parent company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
We have audited the financial statements of SGTS Holdings Limited (the 'parent company') and its subsidiaries (the 'group') for the Period ended 30 November 2023 which comprise the group profit and loss account, the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
Material uncertainty related to going concern
Other information
Opinions on other matters prescribed by the Companies Act 2006
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group's and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or parent company or to cease operations, or have no realistic alternative but to do so.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We obtained an understanding of the legal and regulatory framework applicable to both the company itself and the industry in which it operates. We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience and through discussion with the directors and other management. The most significant were identified as the Companies Act 2006, UK GAAP (FRS102) and relevant tax legislation.
We considered the extent of compliance with those laws and regulations as part of our procedures on the related financial statements. Our audit procedures included:
making enquires of directors and management as to where they consider there to be a susceptibility to fraud and whether they have any knowledge or suspicion of fraud;
obtaining an understanding of the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
assessing the design effectiveness of the controls in place to prevent and detect fraud;
assessing the risk of management override including identifying and testing journal entries;
challenging the assumptions and judgements made by management in its significant accounting estimates.
Despite the audit being planned and conducted in accordance with ISAs (UK) there remains an unavoidable risk that material misstatements in the financial statements may not be detected owing to inherent limitations of the audit, and that by their very nature, any such instances of fraud or irregularity likely involve collusion, forgery, intentional misrepresentations, or the override of internal controls.
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 parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by section 408 of the Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £467,572 (2022 - £4,116,056 profit).
SGTS Holdings Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Unit 19 Ergo Business Park, Kelvin Road, Swindon, Wiltshire, SN3 3JW.
The group consists of SGTS Holdings Limited and all of its subsidiaries.
The financial statements are presented for an 18-month period. As a result, the comparative amounts presented in the financial statements (including the related notes) are not entirely comparable.
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. The principal accounting policies adopted are set out below.
The company has taken advantage of the following exemptions in its individual financial statements:
From preparing a statement of cash flows, on the basis that it is a qualifying entity and the consolidated statement of cash flows, included in these financial statements, includes the company’s cash flows.
The consolidated group financial statements consist of the financial statements of the parent company SGTS 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 30 November 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
These financial statements are prepared on the going concern basis. The directors have a reasonable expectation that the group will continue in operational existence for the foreseeable future. However, the directors are aware of certain material uncertainties which may cause doubt on the group's ability to continue as a going concern.
Post year end, the group’s current liabilities exceed its current assets. While the asset side of the Serco mediation (refer to the Strategic Report for detail) was concluded in April 2024, that included a requirement to resolve matters with thirty-four affected supply chain partners, at the time of reporting that work is materially complete but ongoing.
The tax liabilities of the associated works were calculated and reported upon in the group's 2021 financial statements, pre-dating the dispute. The veracity of Shopworks staff attendance records is now established (refer to the Strategic Report for detail). The directors therefore believe that the group overstated its tax liabilities in prior periods in relation to corporation tax and employment tax. A significant and complex tax records reconciliation will be required once complete. HMRC have been kept fully informed on the matter from April 2022. The full tax effects and indeed unwinding of this position are still to complete. Management is unable to determine, with any certainty, the timing and value of the associated cash outflows still related to this dispute or indeed the stance of all parties involved.
On the back of settling the Serco dispute and the RM6257 government procurement framework award, the group is pursuing debt and equity fund-raising and potential disposal opportunities aimed at achieving a cash injection.
As a result, the Directors resolved that the going concern basis is appropriate.
The Directors recognise that there is a material uncertainty related to the above events and conditions that may cast significant doubt on the group's ability to continue as a going concern, and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Revenue comprises sales of goods or services provided to customers net of value added tax and other sales taxes, less an appropriate deduction for actual and expected returns and discounts. Revenue is recognised when performance obligations are satisfied and the control of goods or services is transferred to the buyer. Where the performance obligation is satisfied over time, revenue is recognised in accordance with its progress towards complete satisfaction of that performance obligation.
When cash inflows are deferred and represent a financing arrangement, the promised consideration is adjusted for the effects of the time value of money, which is recognised as interest income.
Revenue from contracts for the provision of professional 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 are recoverable.
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.
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.
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.
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 July 2022 Serco claimed to hold attendance records indicating a £4.1m credit was required in relation to our billing associated for services delivered starting in July 2021. SSGC had already booked all disputed services (raised in July 22) into its accounts ending May 2022 and therefore already reported revenue, wages, employment tax and corporation tax without accounting for this £4.1m dispute. In Aug 23 Serco admitted an overholding of payment and paid SSGC £509k reducing its dispute value to £3.6m as reported in the prior period. This dispute has the effect on bad debt and related liabilities outlined below.
At this year end Serco continued to withhold unpaid invoices. In these accounts, management have provided for £1.3m (2022: £2.2m) of bad debts in respect of this matter. Post year end in Apr 24 the matter was fully resolved at mediation.
In April 24 and following the current year end SSGC and Serco mediated and established the veracity of the Shopworks attendance data. Under settlement SSGC provided Serco a service credit and is now working to correct its supply liabilities and its own overpaid PAYE wages, we have yet to reconcile and correct associated tax liabilities.
The £2.7m 'in contract' Serco dispute affected around twenty sub-suppliers for whom SSGC was simply the contracting intermediary, some being at Serco's direct request.
These sub-suppliers were owed £1.9m of the initial £2.7m Serco dispute, and this dispute is flowed through to the affected sub-suppliers.
Post year end, SSGC have agreed settlement terms with these sub-suppliers, and have been issued with supplier credit notes totalling £1.9m of this liability.
A provision for these credit notes has been reflected in these financial statements.
The average monthly number of persons (including directors) employed by the group and company during the Period was:
Their aggregate remuneration comprised:
The actual charge for the Period can be reconciled to the expected (credit)/charge for the Period based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 30 November 2023 are as follows:
Amounts owed by group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
Trade debtors are stated after provisions for impairment of £1.3m (2022: £2.2m). The Directors review of the matter is detailed in the KPI table in the Strategic Report.
Invoice discounting & financing is secured by way of fixed and floating charges over the assets and undertakings of the group
The following are the major deferred tax liabilities and assets recognised by the group and company:
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, a loan balance of £152,738 (2022: £120,209) was owed to the group by Tutandos Limited, a company owned by Mr G Dungworth and Mr D Stubbs, directors of the group. This loan is unsecured, interest free, has no fixed date of repayment and is repayable on demand.
At the year end, a loan balance of £145,159 (2022: £144,859) was owed to the group by Instaeng Limited, a company owned by Mr G Dungworth and Mr D Stubbs, directors of the group. This loan is unsecured, interest free, has no fixed date of repayment and is repayable on demand.
At the year end, a loan balance of £921,497 (2022: £921,497) was owed to the group by Family Office DS Limited, a company owned by Mr D Stubbs, director of the group. This loan is unsecured, interest free, has no fixed date of repayment and is repayable on demand.
At the year end, a loan balance of £921,497 (2022: £921,497) was owed to the group by Family Office GD Limited, a company owned by Mr G Dungworth, director of the group. This loan is unsecured, interest free, has no fixed date of repayment and is repayable on demand.
Advances or credits have been granted by the company to its directors as follows: