The directors present the strategic report for the year ended 31 March 2020.
The business has been operating in a challenging environment but with its focus on customer service levels, retention and new acquisitions, combined with operating cost and margin control, the business is expected to deliver its future financial plans. This approach has also enabled it to largely withstand and adapt through the broader macro challenges of the impact of COVID not only on itself but of its domestic and business customer base.
During the full year of trading, the group has further increased the strategic focus on tariffs, cost to supply and operating overheads. A resultant increase in turnover of £1.1m to £65.8m (2019: £64.7m) delivered an increase in gross profit of £3.8m to £8.2m (2019: £4.4m). Whilst administration expenses increased by £ 3 . 5 m to £1 1 . 4 m (2019: £7.9m), excluding the goodwill amortisation and impairment would have seen operating loss reduce by £0.5m to £2.9m (2019: £3.4m). This continues the trend of improvement in the financial performance year on year.
To tackle the dominance of the big six energy suppliers PFP Energy Limited has been engaging with policy makers and influencers at the highest level, campaigning for more transparency in the energy sector.
Wholesale Market Risk
PFP Energy Limited minimises the risk of wholesale cost fluctuations with a sophisticated hedging program which matches forward purchases with forecasted customer requirements. The group does not speculate in the energy market.
The group is neither exposed to nor benefits from market movements in either direction. Purchase contracts, customer demand and pricing a re reviewed daily with ongoing adjustments made to minimise the financial impact of variations.
Cash flow Risk
The group considers cash in a professional manner modelling both short and long terms positions and requirements. Daily cashflow models are extended out three months and reviewed weekly by key management, whilst long term models give transparency in the sensitivity impact of movements in key assumptions allowing the group to react and readjust in a timely manner.
Credit risk
The group has a strict credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on customers before supply is commenced with discounts given on direct debit payment terms. Customer balances and payments are continually reviewed with processes for non-payment in line with licence conditions.
COVID risk
The impact of COVID at the end of the reported financial period and post year end has brought significant challenges to the business due to the impact of the wider macro environment. Particularly, its business customer base was impacted significantly. However, the business adapted quickly by ensuring that first and foremost, colleagues working within the business were able to continue to support its customer base safely by working remotely. The quality of the systems and responsiveness of the team ensured that there was no material impact to either the levels in customer service or adverse financial impact.
The group ’s KPI’s are revenue, gross margin, number of meters and EBITDA. Management continue to monitor performance against these KPIs on a regular basis.
20 20 201 9
Revenue £65.8m £64.7m
Gross margin £8.2m £4.4m
Gross margin % 12.5% 6.8 %
Number of meters 85,867 91,786
EBITDA (£ 1.7 m ) (£ 2.3 m)
The Company is reliant on the income from PFP Energy Limited the main trading subsidiary of the group.
The group balance sheet as at 31 March 2020 shows a net current liabilities position. The Directors have considered this when assessing the appropriateness of the going concern basis of the preparation of the financial statements.
The Directors are confident that the Company and Group will have sufficient funds available within the current arrangement to continue to meet its liabilities as they fall due for the period of 12 months from the date of approval of the financial statements. The Directors are actively looking at refinance or alternative growth strategies for the group and feel that the group will be able to meet its liabilities as they fall due beyond the period of 12 months and therefore have prepared the financial statements on a going concern basis.
Throughout the year the group has continued its strong relationship with its key supplier. The Directors consider this to be vital in providing the continuing financial support available to date and the Directors have no reason to believe that this would not be forthcoming in the future.
The business financial controls include a three-year rolling business plan that takes into account variations in energy costs and customer pricing, combined with sensitivity analysis to allow for variances in market forces and forecasted growth rates.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2020.
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 8.
Preference dividends were accrued amounting to £32,500. The directors do not recommend payment of a further dividend.
In accordance with the company's articles, a resolution proposing that MHA Moore and Smalley be reappointed as auditor of the group will be put at a General Meeting.
In our opinion the financial statements:
give a true and fair view of the state of the group's and the parent company's affairs as at 31 March 2020 and of the group's loss for the year then ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
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 Auditor's 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 UK, including the FRC’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.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue .
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. 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.
In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. 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.
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' r eport 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.
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identifie d material misstatements in the strategic report and the directors' r eport .
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' r esponsibilities s tatement, 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 the 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 the parent company or to cease operations, or have no realistic alternative but to do so.
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 auditor’s 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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://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.
As permitted by s408 Companies Act 2006, the c ompany has not presented its own profit and loss account and related notes. The company's loss for the year was £46,000 (2019: £3,000 profit)
Sands Investments Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Datum House, Electra Way, Crewe, CW1 6ZF.
The group consists of Sands Investments 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 a mounts in these financial statements are rounded to the nearest £'000.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The company is a qualifying entity for the purposes of FRS 102, being a member of a group which prepares these consolidated financial statements, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ : Interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income ;
Section 33 ‘Related Party Disclosures’ : Compensation for key management personnel .
The consolidated financial statements incorporate those of Sands Investments Limited and all of its subsidiaries (ie entities that the g roup controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes.
All financial statements are made up to 31 March 2020 . 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 g roup.
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.
The Company is reliant on the income from PFP Energy Limited the main trading subsidiary of the group.
The group balance sheet as at 31 March 2020 shows a net current liabilities position. The Directors have considered this when assessing the appropriateness of the going concern basis of the preparation of the financial statements.
The Directors are confident that the Company and Group will have sufficient funds available within the current arrangement to continue to meet its liabilities as they fall due for the period of 12 months from the date of approval of the financial statements. The Directors are actively looking at refinance or alternative growth strategies for the group and feel that the group will be able to meet its liabilities as they fall due beyond the period of 12 months and therefore have prepared the financial statements on a going concern basis.
Throughout the year the group has continued its strong relationship with its key supplier. The Directors consider this to be vital in providing the continuing financial support available to date and the Directors have no reason to believe that this would not be forthcoming in the future.
The company was incorporated on 16 April 2018 and so the previous accounting period relates to the period from incorporation to 31 March 2019. The current accounting period relates to the 12 months to 31 March 2020. As such, the two periods are not entirely comparable.
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 sales discounts.
Turnover arises from the supply of electricity and gas and related services, which is recognised based on the date of use by customers according to meter read data and tariff rates. This includes an estimates of the sales value of units supplied to customers between the date of the last meter reading and the year end.
Accrued income, representing electricity and gas supplies since the last billing date, is recognised in the balance sheet and is netted off against deferred income to the extent that it can be matched against specific customer payments.
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.
I n the parent company financial statements, investments in subsidiaries 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.
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. Financial assets classified as receivable within one year are not amortised.
Other financial assets 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 .
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 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 paymen ts 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. Trade creditors are recognised initially at transaction price .
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 though 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.
The company mitigates its exposure to fluctuation in commodity prices by hedging. When these contracts are initiated as to fulfil the supply requirement for customers, the company classifies them as 'own use' and outside the scope of FRS 102 section 11 and 12. The volume of energy delivered to the company is in line with customer usages and no contracts are entered into on a speculative basis.
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 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 lease d 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.
Revenue for the supply of electricity and gas is recognised using customer tariff rates and industry usage data for each meter point. There is an inherent risk of estimation involved as not all customer meters have a reading at the year end date, and therefore an element of each customer’s revenue is based upon an estimate. Following the year end, management review updated revenue estimations which are increasingly accurate as meter readings are obtained. Revenue for the year is corrected to take account of any significant variations identified post year end.
Impairment against trade receivables are recognised where the loss is probable. Management have based their assessment of the level of impairment on collection rates experienced by the company to date. The estimates and assumptions used to determine the level of provision will continue to be reviewed periodically and could lead to changes in the impairment provision methodology which would impact the statement of comprehensive income in future years.
During the year an impairment review of the goodwill was performed. The goodwill was written down to £5,100,000 which the Director's consider to be the fair value.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
The group has tax losses of £16,462,000 available for use against future taxable profits.
The Chancellor stated his intention to maintain the main rate of corporation tax at 19%. This change to previously announced policy was substantively enacted on 17 March 2020.
More information on the impairment arising in the year is given in note 4.
Details of the company's subsidiaries at 31 March 2020 are as follows:
Included within trade creditors is a balance of £10,291,000 (2019: £9,119,000) which is secured by way of a fixed and floating charge over all assets of the subsidiary.
The long term loans are unsecured. There is a fixed annual interest rate of 7.5% per cent in respect of the loans.
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.
On 2 March 2020, the company issued a 750,000 £1 preference shares at par.
The company has one class of ordinary shares which carry no right to fixed income but hold all of the voting rights. Additionally, the company has in issue 6,750,000 preference shares which carry a right to fixed income but not voting rights.
On 15 August 2019, the group acquired a further 38.1% shareholding in PFP Energy Limited, before acquiring the remaining 11.8% on 17 March 2020. A total of £100,000 was paid in total to acquire these shares.
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:
The remuneration of key management personnel is as follows.
During the year the group entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The ultimate controlling party was Mr S B S Soin throughout the period.