Financial Statements
Lux Group Holdings LTD
For the year ended 31 December 2021
Registered number: 11707773
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Company Information
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Patrick Burke (resigned 31 January 2023)
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Iain Christopher O'Mahony
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Jacky Mostovicz (appointed 23 October 2022, resigned 29 November 2022)
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Maria Filomena Correia (appointed 20 June 2023)
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Acuity Secretaries Limited
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Chartered Accountants & Statutory Auditors
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National Westminster Bank PLC
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Contents
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Directors' responsibilities statement
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Independent auditor's report
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Statement of comprehensive income
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Statement of financial position
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Statement of changes in equity
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Notes to the financial statements
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Strategic report
For the year ended 31 December 2021
The directors present their reports and the statements for the year ended 31 December 2021.
In December 2018, the Company acquired the trade and assets of the businesses trading as Smallbone of Devizes, Mark Wilkinson Furniture and Brookmans (all luxury furniture manufacturers) from an Administrator. In July 2019, it also acquired the trade and assets of McCarron & Co, another luxury furniture manufacturer, from its Administrator.
The acquired furniture brands, in particular Smallbone, are long established and recognised internationally. The directors and shareholders have ambitions to rejuvenate and grow the Company’s sales and reputation worldwide and, thereby, enhance the value of the brand names and trademarks acquired. To this end the shareholders have invested heavily over these first 3 years of trading to:
∙Preserve brand value;
The directors and shareholders chose to honour customer contracts on which deposits of £9.7million (including VAT) had been paid prior to the Administrators’ appointments (“prior deposit contracts”). The Company has, therefore, made little; no; or, due to substantial material cost rises, negative margins on fulfilling these contracts which has led to much of the large net losses shown in the Company’s account to date. At 31 December 2021, some £800,000 of prior deposit contracts remain to be fulfilled, so over 91% of this burden has been satisfied.
∙Drive efficiencies; and
By 31 December 2021, the Company had invested over £1.3m in plant, equipment and systems to improve productivity capacity and incurred some £1.1m in redundancy costs to ‘right size’ the business operations. The Covid-19 pandemic has had a massive negative impact on demand for the company’s products, more especially because of the international nature of the Company’s business, so the efficiencies are only being felt as the world recovers from the pandemic mindset. In addition, Covid-19 led to serious supply chain issues and rapid material cost inflation.
∙Position the business to maximise future growth.
In addition to multiplying the production capacity, the directors have invested some £4.5m in establishing a ‘luxury pavilion’ in London’s prime retail and residential location (at Brompton Gate, 197-205 Brompton Road, Knightsbridge, London SW3 1LB) to showcase the Company’s products. This was partially opened in early 2021 but, due to heavy and persistent flooding at the property, has still not fully been able to be opened. These delays and the state of the property is the subject of pre-litigation discussions between the Company and the landlord (referred to in note 30 to the accounts), which the directors believe will lead to very substantial compensation for reimbursement of remedial expenses, loss of trade and profits. In the meantime, the trading impact of not having a fully-fitted, fully-operative showroom has curtailed the Company’s growth ambitions for 2021, 2022 and 2023. However, the directors are hopeful that the dispute will be settled shortly and have sought to mitigate the impact by using the space that can be used to launch an art gallery, under the brand name ‘The ARX’.
Page 1
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Strategic report (continued)
For the year ended 31 December 2021
Principal risks and uncertainties
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The directors consider that the principal risks and uncertainties faced by the Company are in the following categories:
Economic risk
The risk of increased interest rates and or inflation having an adverse impact on our markets.
Competitor risk
The directors of the Company manage competition through close attention to customer service levels. Also, any competitor would have to make a very substantial investment over many years to build an international brand with the recognition of Smallbone of Devizes.
Financial risk
Apart from some assets that are directly funded by leases and bank finance, the Company has been fully funded by its shareholders and the only charges over its assets are held by the shareholders or their associated companies. This lack of reliance on external finance is both an existing strength and a future opportunity to raise external funds as the business grows.
Brexit
The Company trades on an international basis but with relatively small exposure at present to European markets, both in sales and purchases. Therefore, whilst the business faces some risk from the uncertainties that Brexit may bring, the directors have plans to negotiate the potential risks.
COVID-19 outbreak
Whilst the Covid-19 pandemic was still a drag on trading performance and increased risk exposures during the 2021 trading year, the world has since gradually returned to pre-Covid trading levels across many sectors, including our industry. The directors believe that the Company will be better prepared for any new Covid-19 like pandemic and, hopefully, the governments of most of our main markets (the UK and USA) will have learnt lessons too such that the disruption to normal business will be less than in the Covid-19 response.
2022 was also a difficult trading year for the Company which evoked significant further investment from the shareholders and led to further restructuring and redundancies. However, the beginning of 2023 has started more promisingly with significant new contract wins in the UK and advanced negotiations with contracts in the US. The company has a significant forward order book of some £9million and expect to increase that order book over the 2023 period as international demand has come into play.
Financial key performance indicators
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The Company's key performance indicators are turnover and EBITDA.
This report was approved by the board and signed on its behalf.
Page 2
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Directors' report
For the year ended 31 December 2021
Lux Group Holdings Limited was incorporated on 3 December 2018. The financial statements cover the year ended 31 December 2021.
The Company's principal activity is design, manufacture and installation of bespoke fitted kitchens.
The loss for the year, after taxation, amounted to £11,680,272 (2020 - loss £4,105,615).
The directors have not recommend a dividend (2020: £Nil).
The directors who served during the year were:
Patrick Burke (resigned 31 January 2023)
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Iain Christopher O'Mahony
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Jacky Mostovicz (appointed 23 October 2022, resigned 29 November 2022)
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The financial statements have been prepared on a going concern basis which assumes that the Company will continue in operational existence for at least twelve months from the date of approval of the financial statements.
The Company had net liabilities of £11,961,765 for the financial year ended 31 December 2021 (2020: net liabilities £281,493). The Company remains dependent on the continuing support of its stakeholders and shareholders to meet payments as they fall due. In June 2023, the Company entered into an arrangement with Greyson Holdings LLC to secure funding facility amounting to £2,500,000 for the purpose of financing the working capital needs of the Company’s business and to repay existing and short term third-party indebtedness. This funding is repayable in September 2024.
In the event refinancing of the £2,500,000 in September 2024 does not proceed and the repayment of the current loan will be required, there is no guarantee that the Company will be in a position to continue to trade as a going concern. These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern.
Notwithstanding this, the directors have reviewed the short, medium and long term cash flow forecasts for the Company and are confident from their review and their assumptions in preparing the cash flows that the Company has sufficient funding available to continue trading for the foreseeable future. Management monitors the performance of the Company closely and continues to take actions to ensure that the Company turns profitable in the future by driving profitable activity together with managing expenses and overheads, preparation of forecasts of expected performance and cashflows to assist in managing the capital and liquidity position.
Based on historical experience, the pipeline of new funding from investors, the Company’s forecasts for the following twelve months and beyond, and the continued support of its stakeholders and shareholders, the directors have a reasonable expectation that the Company will have sufficient access to financial resources available to it to continue in operational existence for the foreseeable future. The directors have therefore concluded it is appropriate to prepare the financial statements on the going concern basis.
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Directors' report (continued)
For the year ended 31 December 2021
The Company plans to continue its present activities with a focus on future growth and managing the future cost base.
Disclosure of information to auditor
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Each of the persons who are directors at the time when this Directors' report is approved has confirmed that:
∙so far as the director is aware, there is no relevant audit information of which the Company's auditor is unaware, and
∙the director has taken all the steps that ought to have been taken as a director in order to be aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
On February 4th 2021 an accident by a tradesman working for the Landlord at South Kensington Estate caused a massive flooding into the nearly completed showroom. As a result tens of thousand of gallons poured in to the premises causing significant damages to the premises and contents. Lux Group Holdings Limited has to date not received any remuneration from SKE or any insurance company and has borne all costs of flood mitigation and restoration. The parties are in the midst of negotiations to settle the claim and management expects a successful outcome. There is no guarantee that the claim will be settled successfully via the current mediation process and litigation might ensue.
Post balance sheet events
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Post year end the Company entered into an arrangement with Greyson Holdings LLC to secure a funding facility amounting to £2,500,000 which is repayable in September 2024. Lux Group Holding Limited has also received significant funding from the shareholders in the region of £20Million in order to meet working capital requirments of the company.
The auditor, Grant Thornton, 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 year ended 31 December 2021
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;
∙state whether applicable UK 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 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.
On behalf of the board
Ronnie Shemesh
Director
Date: 3 October 2023
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Independent auditor's report to the members of Lux Group Holdings LTD
We have audited the financial statements of Lux Group Holdings LTD ('the Company'), which comprise the Statement of comprehensive income, the Statement of financial position, the Statement of changes in equity, the Statement of cash flows for the year ended 31 December 2021, and the related notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the 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).
In our opinion, Lux Group Holdings LTD's financial statements:
∙give a true and fair view in accordance with United Kingdom Generally Accepted Accounting Practice of the assets, liabilities and financial position of the Company as at 31 December 2021 and of its financial performance and cash flows for the year then ended; and
∙have been prepared in accordance with the requirements of the Companies Act 2006.
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 'Responsibilities of the auditor 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, namely the FRC's Ethical Standard and the ethical pronouncements established by Chartered Accountants Ireland, applied as determined to be appropriate in the circumstances of the entity. 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.
Material uncertainty related to going concern
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In forming our opinion, which is not modified, we draw attention to the disclosures made in the Directors' report and Note 2.2 to the financial statements concerning the Company’s ability to continue as a going concern.
The Company had net liabilities of £11,961,765 for the financial year ended 31 December 2021 (2020: net liabilities £281,493). The Company remains dependent on the continuing support of its stakeholders and shareholders to meet payments as they fall due. A facility agreement amounting to £2,500,000 was signed on 23 June 2023 which is repayable in September 2024. In the event that the company continues to incur the level of losses and its net deficit position continues to rise, as well as in the event refinancing does not proceed and repayment of the current loan is required, the Company may not be in a position to continue to trade as a going concern. These conditions indicate that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity'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. The financial statements have been prepared on a going concern basis which assumes that the Company will continue in operational existence for the foreseeable future. The validity of the assumption, as stated in the Directors’ Report and Note 2.2 to the financial statements is dependent on the continuing support of its stakeholders and shareholders.
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Independent auditor's report to the members of Lux Group Holdings LTD (continued)
Material uncertainty related to going concern (continued)
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue in existence.
Other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon, including the Directors' report and the Strategic Report. The directors are responsible for the other information. Our opinion on the financial statements does not cover the 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 in the financial statements, 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 the audit:
∙the information given in the Directors' report and the Strategic Report for the year for which the financial statements are prepared is consistent with the financial statements, and
∙the Directors' report and the Strategic Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
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In the light of the knowledge and understanding of the company and its environment we have obtained in the course of the audit, we have not identified material misstatements in the Directors' report and the Strategic Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
∙adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
∙the 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.
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Independent auditor's report to the members of Lux Group Holdings LTD (continued)
Responsibilities of management and those charged with governance for the financial statements
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Management is responsible for the preparation of the financial statements which give a true and fair view in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102 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, management is responsible for assessing the 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 management either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Responsibilities of the auditor for the audit of the financial statements
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The objectives of an auditor 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 their 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 an auditor's 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 auditor's report.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
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. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatement in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with ISAs (UK).
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below:
Based on our understanding of the Company and industry, we identified that the principal risks of non-compliance with laws and regulations related to compliance with data protection and employment laws, health and safety regulation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006 and UK tax legislation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial performance and management bias through judgements and assumptions in significant accounting estimates, in particular in relation to significant one-off or unusual transactions. We apply professional scepticism through the audit to consider potential deliberate omission or concealment of significant transactions, or incomplete/inaccurate disclosures in the financial statements.
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Independent auditor's report to the members of Lux Group Holdings LTD (continued)
Responsibilities of the auditor for the audit of the financial statements (continued)
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud (continued)
In response to these principal risks, our audit procedures included but were not limited to:
∙enquiries of management and the board on the policies and procedures in place regarding compliance with laws and regulations, including consideration of known or suspected instances of non-compliance and whether they have knowledge of any actual, suspected or alleged fraud;
∙inspection of the company’s regulatory and legal correspondence and review of minutes of board meetings during the year to corroborate inquiries made;
∙gaining an understanding of the internal controls established to mitigate risk related to fraud;
∙discussion amongst the engagement team in relation to the identified laws and regulations and regarding the risk of fraud, and remaining alert to any indications of non-compliance or opportunities for fraudulent manipulation of financial statements throughout the audit;
∙identifying and testing journal entries to address the risk of inappropriate journals and management override of controls;
∙designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
∙challenging assumptions and judgements made by management in their significant accounting estimates, including estimating useful lives of tangible fixed assets, estimating allowance for impairment losses on intangible and tangible assets, construction contract revenue recognition and determining net realisable value of stock; and
∙review of the financial statement disclosures to underlying supporting documentation and inquiries of management.
The primary responsibility for the prevention and detection of irregularities including fraud rests with those charged with governance and management. As with any audit, there remains a risk of non-detection or irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or override of internal controls.
The purpose of our audit work and to whom we owe our responsibilities
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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.
Kevin Foley (FCA) (Senior statutory auditor)
for and on behalf of
Grant Thornton
Chartered Accountants
& Statutory Auditors
Dublin 2
Date:4 October 2023
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Statement of comprehensive income
For the year ended 31 December 2021
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Exceptional administrative expenses
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Other interest receivable and similar income
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Interest payable and similar charges
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Loss for the financial year
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All amounts relate to continuing operations.
There were no recognised gains and losses for 2021 or 2020 other than those included in the statement of comprehensive income.
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The notes on pages 16 to 34 form part of these financial statements.
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Page 10
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Lux Group Holdings LTD
Registered number:11707773
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Statement of financial position
As at 31 December 2021
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Debtors: amounts falling due within one year
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Creditors: amounts falling due within one year
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Total assets less current liabilities
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Creditors: amounts falling due after more than one year
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The financial statements were approved and authorised for issue by the board and were signed on its behalf by:
The notes on pages 16 to 34 form part of these financial statements.
Page 11
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Statement of changes in equity
For the year ended 31 December 2021
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At 1 January 2021 (as previously stated)
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At 1 January 2021 (as restated)
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Comprehensive income for the year
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Statement of changes in equity
For the year ended 31 December 2020
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Comprehensive income for the year
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The notes on pages 16 to 34 form part of these financial statements.
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Page 12
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Statement of cash flows
For the year ended 31 December 2021
Cash flows from operating activities
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Loss for the financial year
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Amortisation of intangible assets
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Depreciation of tangible assets
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Decrease/(increase) in stocks
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Decrease/(increase) in debtors
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Net cash used in operating activities
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Cash flows from investing activities
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Purchase of tangible fixed assets
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Purchase of unlisted and other investments
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Government grants received
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Net cash used in investing activities
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Cash flows from financing activities
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Movement on finance leases
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Net cash from financing activities
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Net (decrease) in cash and cash equivalents
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Statement of cash flows (continued)
For the year ended 31 December 2021
Cash at beginning of year
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Cash and cash equivalents at the end of year
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Cash and cash equivalents at the end of year comprise:
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The notes on pages 16 to 34 form part of these financial statements.
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Page 14
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Analysis of Net Debt
For the year ended 31 December 2021
The notes on pages 16 to 34 form part of these financial statements.
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Page 15
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Notes to the financial statements
For the year ended 31 December 2021
Lux Group Holdings Limited ("the Company") is incorporated in the United Kingdom and registered under the number 11707773. Its registered office is located at The Hopton Workshop, Hopton Road, Devizes, United Kingdom. The Company's principal activity is design, manufacture and installation of bespoke fitted kitchens.
2.Accounting policies
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Basis of preparation of financial statements
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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).
Consolidation accounts have not been prepared for the financial year ended 31 December 2021 as the company is exempt under the obligation to prepare and deliver company accounts under section 401 of the companies Act 2006 whereby the company and all its subsidiary undertakings are included in the consolidated accounts for a larger company drawn up by its ultimate parent undertaking, Sapphire Cabinetry (UK) LLC. Consequently, the accounts present information about the company as an individual entity and not about its group.
The following principal accounting policies have been applied:
The financial statements have been prepared on a going concern basis which assumes that the Company will continue in operational existence for at least twelve months from the date of approval of the financial statements.
The Company had net liabilities of £11,961,765 for the financial year ended 31 December 2021 (2020: net liabilities £281,493). The Company remains dependent on the continuing support of its stakeholders and shareholders to meet payments as they fall due. In June 2023, the Company entered into an arrangement with Greyson Holdings LLC to secure funding facility amounting to £2,500,000 for the purpose of financing the working capital needs of the Company’s business and to repay existing and short term third-party indebtedness. This funding is repayable in September 2024.
In the event refinancing of the £2,500,000 in September 2024 does not proceed and the repayment of the current loan will be required, there is no guarantee that the Company will be in a position to continue to trade as a going concern. These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern.
Notwithstanding this, the directors have reviewed the short, medium and long term cash flow forecasts for the Company and are confident from their review and their assumptions in preparing the cash flows that the Company has sufficient funding available to continue trading for the foreseeable future. Management monitors the performance of the Company closely and continues to take actions to ensure that the Company turns profitable in the future by driving profitable activity together with managing expenses and overheads, preparation of forecasts of expected performance and cashflows to assist in managing the capital and liquidity position.
Page 16
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Notes to the financial statements
For the year ended 31 December 2021
2.Accounting policies (continued)
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Going concern (continued)
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Based on historical experience, the pipeline of new funding from investors, the Company’s forecasts for the following twelve months and beyond, and the continued support of its stakeholders and shareholders, the directors have a reasonable expectation that the Company will have sufficient access to financial resources available to it to continue in operational existence for the foreseeable future. The directors have therefore concluded it is appropriate to prepare the financial statements on the going concern basis.
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Foreign currency translation
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Functional and presentation currency
The Company's functional and presentational currency is GBP.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions.
At each period end foreign currency monetary items are translated using the closing rate. Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value are measured using the exchange rate when fair value was determined.
Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the Statement of comprehensive income within 'interest payable and expenses'. All other foreign exchange gains and losses are presented in Statement of comprehensive income within 'administration expenses'.
Costs of long term contracts include all direct costs and attributable profits. Provision is made in full for any foreseeable losses.
Long term contracts are assessed on a contract by contract basis and reflected in the Statement of comprehensive income by recording turnover and related costs as contract activity progresses. No profit is recognised until the outcome of a long term contract can be assessed with reasonable certainty. Work in progress represents costs incurred net of amounts transferred to costs of sales, less foreseeable losses and applicable payments on account not matched with turnover.
Page 17
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Notes to the financial statements
For the year ended 31 December 2021
2.Accounting policies (continued)
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Operating leases: the Company as lessee
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Rentals paid under operating leases are charged to profit or loss on a straight line basis over the lease term.
Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight line basis over the lease term, unless another systematic basis is representative of the time pattern of the lessee's benefit from the use of the leased asset.
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Finance leases: the Company as lessee
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Assets obtained under hire purchase contracts and finance leases are capitalised as tangible fixed assets. Assets acquired by finance lease are depreciated over the shorter of the lease term and their useful lives. Assets acquired by hire purchase are depreciated over their useful lives. Finance leases are those where substantially all of the benefits and risks of ownership are assumed by the company. Obligations under such agreements are included in creditors net of the finance charge allocated to future periods. The finance element of the rental payment is charged to profit or loss so as to produce a constant periodic rate of charge on the net obligation outstanding in each period.
Grants are accounted under the accruals model as permitted by FRS 102. Grants relating to expenditure on tangible fixed assets are credited to profit or loss at the same rate as the depreciation on the assets to which the grant relates. The deferred element of grants is included in creditors as deferred income.
Grants of a revenue nature are recognised in the Statement of comprehensive income in the same period as the related expenditure.
Interest income is recognised in profit or loss using the effective interest method.
Finance costs are charged to profit or loss over the term of the debt using the effective interest method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
Defined contribution pension plan
The Company operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. Once the contributions have been paid the Company has no further payment obligations.
The contributions are recognised as an expense in profit or loss when they fall due. Amounts not paid are shown in accruals as a liability in the Statement of financial position. The assets of the plan are held separately from the Company in independently administered funds.
Page 18
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Notes to the financial statements
For the year ended 31 December 2021
2.Accounting policies (continued)
Tax is recognised in profit or loss except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Company operates and generates income.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the Statement of financial position date, except that:
∙The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits; and
∙Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
Exceptional items are transactions that fall within the ordinary activities of the Company but are presented separately due to their size or incidence.
Goodwill
Goodwill represents the difference between amounts paid on the cost of a business combination and the acquirer’s interest in the fair value of its identifiable assets and liabilities of the acquiree at the date of acquisition. Subsequent to initial recognition, goodwill is measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is amortised on a straight line basis to the Statement of comprehensive income over its useful economic life. Intangible assets are not subject to amortisation in the year of acquisition.
Other intangible assets
Intangible assets are initially recognised at cost. After recognition, under the cost model, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses.
All intangible assets are considered to have a finite useful life. If a reliable estimate of the useful life cannot be made, the useful life shall not exceed ten years. Intangible assets are not subject to amortisation in the year of acquisition.
Page 19
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Notes to the financial statements
For the year ended 31 December 2021
2.Accounting policies (continued)
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Intangible assets (continued)
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The estimated useful lives range as follows:
Tangible fixed assets under the cost model are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
At each reporting date the company assesses whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognised where the carrying amount exceeds the recoverable amount.
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:
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Long-term leasehold property
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Factory, plant & equipment
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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.
Investments in subsidiaries are measured at cost less accumulated impairment.
Investments in unlisted Company shares, whose market value can be reliably determined, are remeasured to market value at each balance sheet date. Gains and losses on remeasurement are recognised in the Statement of comprehensive income for the period. Where market value cannot be reliably determined, such investments are stated at historic cost less impairment.
Investments in listed company shares are remeasured to market value at each Statement of financial position date. Gains and losses on remeasurement are recognised in profit or loss for the period.
Page 20
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Notes to the financial statements
For the year ended 31 December 2021
2.Accounting policies (continued)
Stocks are stated at the lower of cost and net realisable value, being the estimated selling price less costs to complete and sell. Cost is based on the cost of purchase on a first in, first out basis. Work in progress and finished goods include labour and attributable overheads.
At each reporting date, stocks are assessed for impairment. If stock is impaired, the carrying amount is reduced to its selling price less costs to complete and sell. The impairment loss is recognised immediately in profit or loss.
Short term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, inclusive of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
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Cash and cash equivalents
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Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.
In the Statement of cash flows, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Company's cash management.
Short term creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, inclusive of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
The Company only enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other debtors and creditors.
Debt instruments (other than those wholly repayable or receivable within one year), including loans and other accounts receivable and payable, are initially measured at present value of the future cash flows and subsequently at amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year, typically trade debtors and creditors, are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received. However, if the arrangements of a short-term instrument constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or in case of an out-right short-term loan that is not at market rate, the financial asset or liability is measured, initially at the present value of future cash flows discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost, unless it qualifies as a loan from a director in the case of a small company, or a public benefit entity concessionary loan.
Financial assets that are measured at cost and amortised cost are assessed at the end of each reporting period for objective evidence of impairment. If objective evidence of impairment is found, an impairment loss is recognised in the Statement of comprehensive income.
Page 21
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Notes to the financial statements
For the year ended 31 December 2021
2.Accounting policies (continued)
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Financial instruments (continued)
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For financial assets measured at amortised cost, the impairment loss is measured as the difference between an asset's carrying amount and the present value of estimated cash flows discounted at the asset's original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
For financial assets measured at cost less impairment, the impairment loss is measured as the difference between an asset's carrying amount and best estimate of the recoverable amount, which is an approximation of the amount that the Company would receive for the asset if it were to be sold at the reporting date.
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Judgments in applying accounting policies and key sources of estimation uncertainty
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Preparation of the financial statements requires management to make significant judgments and estimates.
Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may ultimately differ from these estimates. In the process of applying the Company’s accounting policies, management has made the following judgment and estimate, which have the most significant effect on the amounts recognized in the financial statements:
3.1 Critical Management Judgments in Applying Accounting Policies
The following are significant management judgments in applying the accounting policies of the Company that have the most significant effect on the financial statements.
Going concern
The directors have assessed the Company’s ability to continue as a going concern based on forecasts for the following twelve months and beyond and the continued support of the stakeholders and shareholders and are satisfied that it has the resources to continue its business for the foreseeable future. Furthermore, the directors are not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis (see note 2.2).
Assessing whether an agreement is a finance or operating lease
Management assess at the inception of the lease whether an arrangement is a finance or operating lease based on who bears substantially all risk and benefits incidental to the ownership of the leased items. Based on the management's assessment, the risk and rewards of owning the items leased by the Company are retained by the lessor and therefore accounts for such lease as operating lease. Otherwise, the lease will be accounted for as finance lease.
3.2 Key Sources of Estimation Uncertainty
Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.
Page 22
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Notes to the financial statements
For the year ended 31 December 2021
3.Judgments in applying accounting policies and key sources of estimation uncertainty (continued)
Estimating useful lives of intangible and tangible fixed assets
The Company estimates the useful lives of intangible fixed assets (note 14) and tangible fixed assets (note 15) based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. In addition, estimation of the useful lives of tangible fixed assets is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. Actual results, however, may vary due to changes in estimates brought about by changes in factors mentioned above.
Estimating allowance for impairment losses on intangible and tangible assets
The Company assesses impairment on intangible (note 14) and tangible assets (note 15) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Company considers important which could trigger an impairment review include the following:
∙significant underperformance relative to expected historical or projected future operating results;
∙significant changes in the manner of use of the acquired assets or the strategy for overall business; and
∙significant negative industry or economic trends.
In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets, the Company is required to make estimates and assumptions that can materially affect the financial statements.
These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss would be recognised whenever evidence exists that the carrying value is not recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
An impairment loss is recognised and charged to profit or loss if the discounted expected future cash flows are less than the carrying amount. Fair value is estimated by discounting the expected future cash flows using a discount factor that reflects the risk-free rate of interest for a term consistent with the period of expected cash flows.
Construction contract revenue recognition
Recognised amounts of construction contract revenues (note 4) and related work in progress reflect management's best estimate of each contract's outcome and stage of completion. This includes the assessment of the profitability of on-going construction contracts and the order backlog. For more complex contracts in particular costs to complete and contract profitability are subject to estimation uncertainty.
Determining net realisable value of stocks
Management estimates the net realisable values of stocks, taking into account the most reliable evidence available at each reporting date. The future realisation of these stocks may be affected by market-driven changes that may reduce future selling prices (Note 17).
Allowances for impairment of debtors
The Company estimates the allowance for doubtful trade and intercompany debtors based assessment of specific accounts where the Company has objective evidence comprising default in payment terms or significant financial difficulty that certain customers are unable to meet their financial obligations. In these cases, judgement used was based on the best available facts and circumstances including but not limited to, the length of the relationship.
Page 23
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Notes to the financial statements
For the year ended 31 December 2021
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An analysis of turnover by class of business is as follows:
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All turnover arose within the United Kingdom.
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Government grants / Business interruption relief receivable
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The operating loss is stated after charging:
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Research & development charged as an expense
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Differences on foreign exchange
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Amortisation - trademarks
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Fees payable to the Company's auditor and its associates for the audit of the Company's annual financial statements
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Page 24
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Notes to the financial statements
For the year ended 31 December 2021
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Staff costs, including directors' remuneration, were as follows:
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Cost of defined contribution scheme
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The average monthly number of employees, including the directors, during the year was as follows:
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Directors' salaries and national insurance
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Other interest receivable
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Interest payable and similar expenses
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Page 25
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Notes to the financial statements
For the year ended 31 December 2021
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Current tax on profits for the year
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Taxation on (loss)/profit on ordinary activities
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Factors affecting tax charge for the year
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The tax assessed for the year is lower than (2020 - lower than) the standard rate of corporation tax in the UK of 19% (2020 - 19%). The differences are explained below:
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Profit/(loss) on ordinary activities before tax
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Profit/(loss) on ordinary activities multiplied by standard rate of corporation tax in the UK of 19%
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Expenses not deductible for tax purposes
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Capital allowances for year in excess of depreciation
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Short term timing difference leading to an increase (decrease) in taxation
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Unrelieved tax losses carried forward
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Research and development tax credit
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Total tax charge for the year
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Factors that may affect future tax charges
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A deferred tax asset of £4,176,227 (2020: £2,431,573) has not been recognised in the financial statements.
Page 26
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Notes to the financial statements
For the year ended 31 December 2021
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The Company acquired the trade and assets of the business from an Administrator. Deposits paid to this business prior the appointment of Administrator were not included in the purchase agreement however the directors took the strategic decision to recognise and honour these customer deposits. This resulted in a net exceptional cost of £542,133 (2020: £271,646) being recorded during the financial period. During the financial period as a result of reorganisation the Company recognised redundancy costs of £Nil (2020: £208,124) which due to their nature and size are considered exceptional costs. These exceptional costs are disclosed separately to provide further understanding of the financial performance of the Company.
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Charge for the year on owned assets
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Page 27
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Notes to the financial statements
For the year ended 31 December 2021
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Long-term leasehold property
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Factory, plant & equipment
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Showrooms include assets under construction at year end. These assets have not been brought into use at year end and are not depreciated.
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Page 28
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Notes to the financial statements
For the year ended 31 December 2021
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Other fixed asset investments
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The company purchased a 100% shareholding in The ARX Group Limited a company registered in England and Wales. The company registered office is 197-205 Brompton Road Knightsbridge, London, SW3 1LB, United Kingdom. The company's main trade is the retail sale in commercial art galleries.
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Raw materials and consumables
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Work in progress on long term contracts
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Finished goods and goods for resale
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The net replacement cost of stocks is not expected to be materially different from that shown above.
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Debtors: Amounts falling due within one year
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Amounts owed by group undertakings
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Page 29
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Notes to the financial statements
For the year ended 31 December 2021
18.Debtors: Amounts falling due within one year (continued)
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The debtors have been reviewed by the directors for indicators of impairment. An impairment allowance of £570,132 (2020: £Nil) was recognised against trade debtors.
Amounts owed by group undertakings are unsecured, interest free and are repayable on demand.
Other debtors relate to a specific customer contract which is ongoing at year end.
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Cash and cash equivalents
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Creditors: Amounts falling due within one year
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Amounts owed to group undertakings
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Other taxation and social security
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Obligations under finance lease and hire purchase contracts
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Trade and other creditors, including accruals, are payable at various dates over the coming months in accordance with the suppliers’ usual and customary credit terms.
Corporation tax and other taxes including social insurance are repayable at various dates in accordance with the applicable statutory provisions.
Deposits held are realisable in stages over the life of the relevant contracts.
The balance owing from to the group undertakings is interest free, unsecured and repayable on demand. The group company will not seek repayments of amounts due to it from the Company in such a manner as to jeopardise the ability of the Company to continue to trade.
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Page 30
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Notes to the financial statements
For the year ended 31 December 2021
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Creditors: Amounts falling due after more than one year
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Net obligations under finance leases
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Analysis of the maturity of loans is given below:
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Amounts falling due within one year
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Amounts falling due 2-5 years
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Minimum lease payments under hire purchase fall due as follows:
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Finance leases are secured by the underlying assets.
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Page 31
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Notes to the financial statements
For the year ended 31 December 2021
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Allotted, called up and fully paid
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13,689,243 (2020 - 13,689,243) Ordinary shares of £1.00 each
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There is a single class of equity shares. There are no restrictions on the distribution of dividends and the repayment of capital, subject to the availability of distributable reserves. All shares carry equal voting rights and rank for dividends to the extent to which the total amount on each share is paid up.
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Profit and loss account
Includes all current and prior period retained profits and losses.
In the prior year, one of the operating leases of the Company included lease incentive which was not recognised in 2020 financial statements. The comparative information has been restated to reflect the lease incentives. Arising from the process, the year end 2020 loss for the financial year of £3,132,421 as shown in the 2020 financial statements has been restated to £4,105,615 and the accruals have been restated from £1,677,583 to £2,650,777.
At 31 December 2021 the Company had capital commitments totalling £Nil million (2020: £2 million).
The Company operates a defined contributions pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to £380,777 (2020: £351,175). Contributions totaling £111,055 (2020: £29,632) were payable to the fund at the reporting date and are included in accruals.
Page 32
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Notes to the financial statements
For the year ended 31 December 2021
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Commitments under operating leases
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At 31 December 2021 the Company had future minimum lease payments under non-cancellable operating leases as follows:
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Later than 1 year and not later than 5 years
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Events occurred during the year
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On February 4th 2021 an accident by a tradesman working for the Landlord at South Kensington Estate caused a massive flooding into the nearly completed showroom. As a result tens of thousand of gallons poured in to the premises causing significant damages to the premises and contents. Lux Group Holdings Limited has to date not received any remuneration from SKE or any insurance company and has borne all costs of flood mitigation and restoration. The parties are in the midst of negotiations to settle the claim and management expects a successful outcome. There is no guarantee that the claim will be settled successfully via the current mediation process and litigation might ensue.
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Related party transactions
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The Company has availed itself of the exemptions in FRS102 Section 33, Paragraph 33.1A which allows non-disclosure of transactions between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.
Transactions in the year with key management personal amounted to £120,000 (2020: £120,000). These individuals are deemed key management personal as a result of been senior decision makers within the organisiation.
The company bought furniture products during the year from WJ White Limited, a company in which R Shemesh is a director and shareholder, to the value of £1,719,362 (2020: Nil). At 31 December 2021 the balance outstanding to WJ White Limited from Lux Group Holdings Limited was £Nil (2020: £Nil).
Lux Group Holdings Limited at 31 December 2021 owed £4,087,348 (2020: £Nil) to Investors.
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Post balance sheet events
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Post year end the Company entered into an arrangement with Greyson Holdings LLC to secure a funding facility amounting to £2,500,000 which is repayable in September 2024. Lux Group Holding Limited has also received significant funding from the shareholders in the region of £20Million in order to meet working capital requirments of the company.
Page 33
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Notes to the financial statements
For the year ended 31 December 2021
The Company's immediate parent Company is Sapphire 700 Limited registered in the United Kingdom. The Company's ultimate parent Company is Sapphire Cabinetry (UK) LLC registered in the United States of America. The results are consolidated into the results of Sapphire Cabinetry (UK) LLC, the smallest and largest group company to prepare consolidated accounts. As of date of signing of these financial statements these consolidated accounts are not publicly available. These accounts present information about the company as an individual undertaking.
Page 34
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