Registered number:
FOR THE PERIOD ENDED 31 MARCH 2023
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COMPANY INFORMATION
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CONTENTS
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STRATEGIC REPORT
FOR THE PERIOD ENDED 31 MARCH 2023
The directors present their strategic report on the Company for the period ended 31 March 2023.
The strategic report is consistent with the size and non-complex nature of the business and is written in the context of the risks and uncertainties the Company faces. The principal activity of the Company continues to be that of manufacturing, supplying and distributing life safety control systems. The Company develops and manufactures high quality and reliable life safety related control systems for commercial and industrial applications which are sold through professional system integrators and specialist distribution channels. The Company has developed manufacturing and support systems which allow greatly reduced lead times to customers compared with the industry norm yet maintaining the business' ability to provide bespoke and OEM products to major users. To remain competitive, the directors plan to expand the business with a wireless solutions and system sales approach.
This report is the short period from January 2023 to March 2023, as the Hochiki Head office in Tokyo, Japan has decided to change the financial period from January – December to April – March.
There is no substantial change on this short period as Business has another challenging period following rising inflation, persisting supply shortages and political instability during January to March 2023. Despite this, the Company had exceeded its sales targets and together provided record sales and growth with turnover increasing to £ 6.1M or 105.8% compared to Budget. Compared to budget, external sales enjoyed growth in sales supported by strong order book with extinguishant products even without wireless device business. Group continued to outperform with increased Latitude. GPM% slightly improved for external mainly due to increased proportion of UK sales with higher margin, whilst Group saw a significant increase in profitability against 2022 simply due to price increase. Although the likelihood of a recession has fallen, growth is expected to be negative in 2023 on the back of a squeeze on household real incomes and the impacts of past interest rate increases. Elevated inflation continues to act as a drag on real incomes, and the evolution of energy prices. • UK inflation is set to fall sharply this year, after inflation reached a peak of 11.1% in October 2022, driven by a combination of rising food prices, increases in energy costs, as well as strained global supply chains. Forecast says the recent fall in wholesale natural gas prices and global food prices is expected to lead to a slowdown in UK inflation during 2023. •BoE's base interest rate is expected to remain at the current level for a period. As the economy cools and inflation returns to back to target, BoE may cut the rates gradually next year. •Higher costs of borrowing and slowing growth outlook are expected to lead to weakening business investment. Government measures aiming to boost investment is likely to only have a temporary effect on growth. •The labour market is at a turning point. Whilst unemployment rate has stayed relatively low, this would reverse as employers adjust their headcount considering rising costs and falling demand. The unemployment rate (currently 3.7%) is expected to peak at around 4.7% by the middle of next year. The company has seen Gross Profit Margins slightly reduced to 30.10% in Jan-Mar 2023 from 31.6% In Jan- Mar 2022 and achieved March monthly budget at 120.1%, despite days lost for production due to stocktake for the first time in March. Consequently, the mini fiscal period ended with sales over £6.1M, achieving both budget and 2022, the five consecutive quarters having over £6M since Q1 (Jan to Mar) 2022. Although lack of wireless systems sales driven by supply chain issues have reduced UK business by £540K for Q1 compared to 2022, UK maintained positive results exceeding budget at 107.9% with increased KIP partners by 14
The deterioration of the profitability is simply attributable to the continuous cost pressure for raw materials such as semiconductors by the global supply issues. Although the competitive UK labour market had given the Company pressure on staff issues, the Company managed to increase both productivity and efficiencies through flexible resource allocation and Increased production outputs.
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STRATEGIC REPORT (CONTINUED)
FOR THE PERIOD ENDED 31 MARCH 2023
The operating profit margin has decreased from 8.34% in Jan – Mar 2022 to 5.82 % in Jan – Mar 2023. This is due a significant increase in Production and Purchase price variance started settling down toward the end of 2023 with supply chain disruption slowdown and reduced purchase volumes. Purchase and usage are currently under review by Operations, and we will be able to have a clear picture of how stock will generate sales and cash inflow for next financial year 2023-2024.
The company's financial position continues to remain healthy with tight cost control throughout the mini year. March ended with cash reduced of £29.46K mainly due to increased purchase such as wireless device. Increased payables because of Deposit paid for Wireless device stock to APW Group by £148K. The directors believe that the reduced financial health was a short-term effect and will be resolved shortly as global supply chain issues settle down and materials markets return to normal.
Principal risks and uncertainties
The directors, who are responsible for internal control systems which identify and manage various risks that pose a threat to achieving the Company's objectives, have identified the principal risks as follows:
- The current economic environment in the world under elevated inflation and ongoing Russia and Ukraine war, which have disrupted supply chains around the world. Fundamental changes in consumer behaviour, supply chains, and routes to market are severely impacting companies. The scale of its impact requires continuous end-to-end assessment, optimisation and monitoring and Management team will respond rapidly to sustain business operations to serve its customers, communities, as well as protect and support its employees. - There is still uncertainty around how Brexit will affect UK business and the economy. Any new trade agreements entered into by the UK may impact on the Company's export trade. Staff shortages resulting from tougher immigration rules are likely to lead to an acceleration in wages and reduce the company's productivity. The Company ls continually monitoring the political environment and its impact on the economic climate so that it can react to any fundamental changes. - There is uncertainty about the regulatory framework that the Company currently operates within. Changes in the political environment may possibly lead to revisions to the current European and US fire regulations. The company feels that it is well placed to adapt to any changes in regulations as significant investment has been made to create a larger Research and Development (R&D) department. - The Company continues to face pressure to recruit, train and retain highly skilled and motivated members of staff. The Company will continue to review its Human Resources policies in 20 to further mitigate this risk. The Company is exposed to foreign exchange risk particularly between USD and GBP. The majority of the exposure is managed by natural hedging and will continue to exist within 2023. Any surplus of USD cash is kept to a minimum to reduce exposure. - Compliance with Health, Safety and Environmental matters is fundamental to the Company’s reputation, existence and the safety of its employees, subcontractors and the public at large. It is therefore paramount that the Company maintains and stays abreast of current legislation as well as best practice within this area. The company strengthened its compliance team in the prior year to ensure it continues to prioritise these three key areas as well as quality assurance. - The Company has become increasingly reliant on Information Technology (IT) and our ERP system is central to the business. The Company will continue to upgrade its IT infrastructure within 2023 as part of a disaster recovery overhaul to mitigate against business interruption. As part of this upgrade the Company is also prioritising network security to ensure it can tackle the increasing rise of Cyber security threats. - The Company operates within a highly regulated and technical industry. There is an ongoing threat from competition in terms of pricing, product innovations and service which may lead to a loss in market share to competitors. The company is investing heavily in R&D to ensure that it is at the forefront of product innovations. By maintaining a technical support department, the Company can deal directly with product issues but also maintain communication with our customers so that we can understand the market needs and be best placed to react to the changes. The directors themselves and through delegated management, periodically review the effectiveness of the Company’s internal control systems to ensure that the principal risks faced by the businesses are adequately managed and controlled.
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STRATEGIC REPORT (CONTINUED)
FOR THE PERIOD ENDED 31 MARCH 2023
The directors use a number of performance measures to assess the Company’s success in meeting its objectives. The key performance indicators are:
- Comparison of actual sales against budget - Gross profit margins - Variances between actual and budgeted standard costing - Operating profit percentage - Aged debtors - Working capital cycle The directors consider the key performance indicators for the year to be satisfactory.
This report was approved by the board and signed on its behalf.
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DIRECTORS' REPORT
FOR THE PERIOD ENDED 31 MARCH 2023
The directors present their report and the financial statements for the period ended 31 March 2023.
Principal activity
The principal activity of the Company in the period under review was that of manufacturing, supplying and distributing life safety control systems.
The profit for the period, after taxation, amounted to £329,361 (2022 - £1,290,779).
The results for the year and financial position of the Company are as shown in the annexed financial statements. The Company had a successful year by moving forward with system sales offerings and enjoyed growth both in turnover and profit. Although the global supply chain disruption had continued to adversely impact on cost structure and financial health of the company, the company took immediate actions to sustain business operations.
In 2023, Taktis/Latitude will continue to be confidently positioned as a core product to our system sales business as a part of the Group business strategy. Our new branding management for system sales and channel management will help to eliminate market confusion and increase sales opportunities for the entire Group. The sales made by the Company vary from small customers in the UK to large organisations both within the UK and in regions outside the UK. In line with this, the sales in the accounts have been split geographically as follows - in the UK, Europe and Rest of the World.
The Company's business activities, together with the factors likely to affect its future development, its financial position, financial risks management objectives and its exposure to foreign currency, price, credit and liquidity risk are described in the Strategic Report on page 1.
The Company benefits from the support of membership of a strong global group under its ultimate parent undertaking, Hochiki Corporation and has long term relationships with a number of customers and suppliers across different geographic areas and industries. Consequently, the directors believe that the Company is well placed to manage its business risks successfully. After making enquiries, the directors have a reasonable expectation that they have adequate resources to continue in operational. existence for the foreseeable future. The management of Hochiki Group in Japan Is expecting growth from expansion in international business. Therefore, the Japanese management has set a higher target for 2023. Accordingly, it is felt appropriate to adopt the going concern basis in preparing the financial statements.
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DIRECTORS' REPORT (CONTINUED)
FOR THE PERIOD ENDED 31 MARCH 2023
The directors who served during the period were:
We are aware that any plans for the future development of the business may be subject to unforeseen events outside of our control. However, to remain competitive, we will plan to invest and develop our undeveloped export markets.
There have been no significant events affecting the Company since the year end.
The auditors, Greenback Alan LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
This report was approved by the board and signed on its behalf.
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DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE PERIOD ENDED 31 MARCH 2023
The directors are responsible for preparing the Strategic report, the Directors' report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'. 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 Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the directors are required to:
−select suitable accounting policies for the company's financial statements and then apply them consistently;
−make judgments and accounting estimates that are reasonable and prudent;
−prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF KENTEC ELECTRONICS LIMITED
We have audited the financial statements of KENTEC ELECTRONICS LIMITED (the 'Company') for the period ended 31 March 2023, which comprise the Statement of income and retained earnings, the Statement of financial position and the related notes, including a summary of 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).
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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 responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF KENTEC ELECTRONICS LIMITED (CONTINUED)
The other information comprises the information included in the Annual Report other than the financial statements and our Auditors' report thereon. The directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In our opinion, based on the work undertaken in the course of the audit:
−the information given in the Strategic report and the Directors' report for the financial period 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.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic report or the Directors' report.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF KENTEC ELECTRONICS LIMITED (CONTINUED)
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
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 obtained a general understanding of the company’s legal and regulatory framework through enquiry of management concerning: their understanding of relevant laws and regulations; the entity’s policies and procedures regarding compliance; and how they identify, evaluate and account for litigation claims. We also drew on our existing understanding of the company’s industry and regulation.
We understand that the company complies with the framework through having in place robust procedures and policies that are develop with and monitored by the parent company and the wider group, and by outsourcing and taking external professional legal, tax and accounting advice on relevant specialist functions and areas including the preparation of financial statements and corporate tax compliance. In the context of the audit, we considered those laws and regulations: which determine the form and content of the financial statements; which are central to the company’s ability to conduct its business; and where failure to comply could result in material penalties. We identified the following laws and regulations as being of significance in the context of the company:
∙The Companies Act 2006, FRS 102, UK corporate tax laws.
The senior statutory auditor led a discussion with all members of the engagement team regarding the susceptibility of the entity's financial statements to material misstatements, including how fraud might occur. The areas identified in this discussion were:
∙Debtor recoverability arising from overstating the debtors balance and not impairing for debtors that cannot or do not pay post yearend;
∙Manipulation or error in revenue recognition leading to overstatement of revenue (and debtors) to inflate the results, and reversing these following the yearend close;
∙Manipulation or error in calculating average costs leading to over- or under-valuation of stock, resulting in profits being recognised either later or earlier (respectively) than appropriate;
∙Manipulation or error in raising accruals and provisions for costs incurred but not invoiced before the balance sheet date that often entails a significant degree of judgement.
The procedures we carried out to gain sufficient appropriate audit evidence in the above areas included:
∙Identifiying and assessing the design effectiveness of controls management has in place to prevent and detect fraud and error;
∙Understanding the potential for override of these controls on the financial reporting process, and how those charged with governance address these override potentials;
∙Performing tests of controls and substantive testing on appropriate samples, and investigating any discrepancies identified;
∙Documenting the assumptions and judgements made by management in their significant accounting estimates and challenging these with management;
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF KENTEC ELECTRONICS LIMITED (CONTINUED)
∙Identifying and testing journal entries, in particular those around the period end, and involving unusual postings, account combinations, or amounts.
Overrall, the senior statutory auditor was satisfied that the engagement team collectively had the appropriate competence and capabilities to identify or recognise irregularities. in particular, both the senior statutory auditor and the audit manager have anumber of years experience in dealing with similar manufacturing companies, that prepare accounts under FRS 102.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors' 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 Auditors' 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.
for and on behalf of
Chartered Accountant
Statutory Auditor
89 Spa Road
SE16 3SG
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STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE PERIOD ENDED 31 MARCH 2023
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STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2023
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STATEMENT OF FINANCIAL POSITION (CONTINUED)
AS AT 31 MARCH 2023
The financial statements were approved and authorised for issue by the board and were signed on its behalf by:
The notes on pages 14 to 27 form part of these financial statements.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
Kentec Electronics Limited is a private company limited by shares which was incorporated in the United Kingdom.
2.Accounting policies
The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies (see note 3).
The following principal accounting policies have been applied:
The Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by the FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland":
−the requirements of Section 7 Statement of Cash Flows;
−the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d);
−the requirements of Section 33 Related Party Disclosures paragraph 33.7.
This information is included in the consolidated financial statements of Hochiki Corporation as at 31 March 2021 and these financial statements may be obtained from 2-10-43 Kamiosaki, Shinagawa-ku, Tokyo 141-8660 Japan.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
2.Accounting policies (continued)
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method.
Depreciation is provided on the following basis:
The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
2.Accounting policies (continued)
Functional and presentation currency
Transactions and balances
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
2.Accounting policies (continued)
Provisions are measured as the best estimate of the amount required to settle the obligation, taking into account the related risks and uncertainties. If it is not possible to distinguish between the research phase and the development phase of an internal project, the expenditure is treated as if it were all incurred in the research phase only.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
2.Accounting policies (continued)
In respect of estimates and assumptions, and judgements made as a result, made by management in preparing these financial statements, the following are considered to have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities presented: Provisions – see Note 21 In respect of other significant management judgements in applying the accounting policies of the Company, the following have the most significant effect on the financial statements: Carrying value of stock – (see Note 2.5) management consider that there is no impairment to stock Recoverability of debtors – (see Note 2.6) management consider that there is no impairment to debtors
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
Analysis of turnover by country of destination:
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
11.Taxation (continued)
The Finance Act 2021 announced an increase in the rate of corporation tax from 19% to 25% from 1 April 2023 for companies with taxable profits over £250,000, this increased rate was substantively enacted on 24 May 2021.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MARCH 2023
Profit and loss account
Kentec Electronics Limited is a private limited company registered in England and Wales. The address of the registered office is Unit 25&26 Fawkes Avenue, Questor, Dartford, Kent, DA1 1JQ.
The immediate and ultimate parent undertaking is
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