Melling Commercial Limited - Limited company accounts 20.1

REGISTERED NUMBER: 05751934 (England and Wales)

STRATEGIC REPORT, REPORT OF THE DIRECTORS AND

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 JULY 2020

FOR

MELLING COMMERCIAL LIMITED

Page

Company Information

1

Strategic Report

2

Report of the Directors

4

Report of the Independent Auditors

5

Income Statement

7

Other Comprehensive Income

8

Statement of Financial Position

9

Statement of Changes in Equity

10

Notes to the Financial Statements

11

DIRECTORS:

C Melling

L Edwards

SECRETARY:

S J Melling

REGISTERED OFFICE:

Westwood Motor Group

Manchester Road

Ince

Wigan

Lancashire

WN2 2EA

REGISTERED NUMBER:

05751934 (England and Wales)

AUDITORS:

Fairhurst

Statutory Auditor

Chartered Accountants

Douglas Bank House

Wigan Lane

Wigan

Lancashire

WN1 2TB

BANKERS:

Lloyds TSB

3rd Floor

53 King Street

Manchester

M60 2LE

The directors present their strategic report for the year ended 31 July 2020.

REVIEW OF BUSINESS

The Directors are pleased to report a strong operating performance for the year, despite the economic uncertainties in 2020.

The Directors are pleased to report a year on year increase in turnover of 14% across the retail and rental operations of the company and a significant increase in net profit year on year.

The Company's strategy and ethos which were set out in 2008 have continued to pay dividends, and many of the plans set out and implemented over the previous years have come to fruition, contributing to the performance of the Company for the financial year to 31 July 2020

Retail sales have continued to perform strongly, with an increase in both turnover and margin, alongside a decrease in costs.

Due to our increased investment in rental stock, we have also become self sufficient in terms of retail stock and are no longer reliant on external stock purchases. This can be seen as stock values decreased from £370,000 in 2019 to £60,000 in 2020. This has allowed us to streamline the retail operation and reduce costs including external fees, and reduced vehicle repair and preparation expenses.

Although our Retail operation was forced to close in the initial lockdown for COVID-19, we focused strongly on our Flexible Hire and 12 month Contract Hire products. This proved to be very attractive to our customers, due to the ongoing economic uncertainty.

COVID-19 did have an initial impact on our hire operations but this was short lived due to gains in new markets and increased demand in key sectors (logistics, pharmaceuticals, grocery providers and local authorities)

We increased our net rental fleet holding by £1.8 million in the period to 31 July 2020 in response to the robust level of demand in the rental sector.

Despite the temporary closure of our Retail operation, we reacted to the changing situation quickly, and implemented a plan to move to online selling and invested heavily in a marketing campaign to support this, which is evidenced by our results for the year.

We were able to benefit from pent up demand in the retail sector despite national stock shortages due to the ready availability of our own fleet stock, which not only held its value well, but in many cases increased in value. The commercial vehicle market has seen strong used values both before and after the COVID-19 national lockdown.

We have invested in our team and premises throughout the year, strengthening particularly in the accounting and administration areas of the business. This has contributed to improved processes and more robust credit control procedures. We have invested heavily in new software and systems to process payments more efficiently. Although wages and salaries have seen an increase, this has more than been repaid with increases in efficiencies and decreases in costs.

Although the Company was, and remains in a strong financial and cash position and therefore did not require any government related loans or other bank funding during the pandemic, it did benefit from the local authority grant and furlough monies relating to the temporary closure of our retail operation.

In summary, 2020 has been a very successful year, building on our strong foundation and showing the benefits of several years' strategic planning, with 2021 promising continued success. We would like to thank our staff, customers and suppliers for all their hard work and support during these difficult times.

Key performance indicators for the 12 month period ending 31 July 2020:

Management use certain financial information as key performance indicators ("KPI's"), including sales split between rental and retail operations, margins and operating costs as a percentage of turnover.

In addition there are various non financial KPI's used including customer satisfaction, employee training and development, and key supplier relationships.

PRINCIPAL RISKS AND UNCERTAINTIES

The UK automotive industry and Rental Sector is highly competitive and management are mindful of the need for regular review of market pricing, contract profitability and competitor activity within the sector.

The company uses various financial instruments, which include cash and asset financing arrangements together with other items such as trade debtors and trade creditors that arise directly from its operations.

The existence of these financial instruments exposes the company to a number of financial risks. These are mainly liquidity risk and credit risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Liquidity risk

Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities. The directors manage liquidity risk by maximising cash generation from its operations and short-term flexibility is achieved through the company's asset finance arrangements.

Credit risk

The company's trade debtors relate to amounts owed by individuals, SME's and large national corporates. Given the current economic uncertainty, the directors and management carefully monitor any default credit risk on an ongoing basis.

ON BEHALF OF THE BOARD:

C Melling - Director

7 December 2020

The directors present their report with the financial statements of the company for the year ended 31 July 2020.

PRINCIPAL ACTIVITY

The principal activity of the company in the year under review was that of the sale and lease of motor vehicles, including contract hire and rentals.

DIVIDENDS

The total distribution of dividends for the year ended 31 July 2020 will be £ 237,000 .

DIRECTORS

The directors shown below have held office during the whole of the period from 1 August 2019 to the date of this report.

C Melling

L Edwards

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Strategic Report, the Report of the Directors 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 United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the 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 and then apply them consistently;

-	make judgements and accounting estimates that are reasonable and prudent;

-	prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and 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.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the company's auditors are unaware, and each director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

ON BEHALF OF THE BOARD:

C Melling - Director

7 December 2020

Opinion

We have audited the financial statements of Melling Commercial Limited (the 'company') for the year ended 31 July 2020 which comprise the Income Statement, Other Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

-	give a true and fair view of the state of the company's affairs as at 31 July 2020 and of its profit 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 Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the 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 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 in the Strategic Report and the Report of the Directors, but does not include the financial statements and our Report of the Auditors 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 the audit:

-	the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and

-	the Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Report of the Directors.

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, 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.

Responsibilities of directors

As explained more fully in the Statement of Directors' Responsibilities set out on page four, 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 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 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 company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

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 a Report of the Auditors 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 www.frc.org.uk/auditorsresponsibilities. This description forms part of our Report of the Auditors.

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 a Report of the Auditors 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.

John B S Fairhurst BA (Hons) FCA (Senior Statutory Auditor)

for and on behalf of Fairhurst

Statutory Auditor

Chartered Accountants

Douglas Bank House

Wigan Lane

Wigan

Lancashire

WN1 2TB

7 December 2020

TURNOVER

11,699,162

10,233,091

Cost of sales

8,611,453

7,585,365

GROSS PROFIT

3,087,709

2,647,726

Administrative expenses

2,230,359

2,067,642

857,350

580,084

Other operating income

92,949

34,614

OPERATING PROFIT

4

950,299

614,698

Interest payable and similar expenses

5

257,304

186,076

PROFIT BEFORE TAXATION

692,995

428,622

Tax on profit

6

322,000

122,117

PROFIT FOR THE FINANCIAL YEAR

370,995

306,505

PROFIT FOR THE YEAR

370,995

306,505

OTHER COMPREHENSIVE INCOME

-

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

370,995

306,505

FIXED ASSETS

Intangible assets

8

-

-

Tangible assets

9

8,280,248

6,427,318

8,280,248

6,427,318

CURRENT ASSETS

Stocks

10

57,675

370,688

Debtors

11

1,341,534

1,233,768

Cash at bank and in hand

968,718

523,407

2,367,927

2,127,863

CREDITORS

Amounts falling due within one year

12

5,739,082

5,525,845

NET CURRENT LIABILITIES

(3,371,155

)

(3,397,982

)

TOTAL ASSETS LESS CURRENT LIABILITIES

4,909,093

3,029,336

CREDITORS

Amounts falling due after more than one year

13

(2,748,920

)

(1,325,158

)

PROVISIONS FOR LIABILITIES

16

(712,000

)

(390,000

)

NET ASSETS

1,448,173

1,314,178

CAPITAL AND RESERVES

Called up share capital

17

100

100

Retained earnings

18

1,448,073

1,314,078

SHAREHOLDERS' FUNDS

1,448,173

1,314,178

The financial statements were approved by the Board of Directors and authorised for issue on 7 December 2020 and were signed on its behalf by:

C Melling - Director

Called up

share

Retained

Total

capital

earnings

equity

£

£

£

Balance at 1 August 2018

100

1,246,073

1,246,173

Changes in equity

Dividends

-

(238,500

)

(238,500

)

Total comprehensive income

-

306,505

306,505

Balance at 31 July 2019

100

1,314,078

1,314,178

Changes in equity

Dividends

-

(237,000

)

(237,000

)

Total comprehensive income

-

370,995

370,995

Balance at 31 July 2020

100

1,448,073

1,448,173

1.	STATUTORY INFORMATION

Melling Commercial Limited is a private company, limited by shares , registered in England and Wales. The company's registered number and registered office address can be found on the Company Information page.

2.	ACCOUNTING POLICIES

Basis of preparing the financial statements

These financial statements have been prepared in accordance with Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Companies Act 2006. The financial statements have been prepared under the historical cost convention.

Financial Reporting Standard 102 - reduced disclosure exemptions

The company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland":

•

the requirements of Section 7 Statement of Cash Flows;

•

the requirement of paragraph 33.7.

Significant judgements and estimates

Preparation of the financial statements requires management to make significant judgements and estimates. The items in the financial statements where these judgements are estimates have been made include:

a) Useful economic lives

The useful economic lives of Vehicles on Rental are assessed as being in line with the underlying lease agreement. The useful economic lives of remaining fixed assets are assessed on an annual basis based on the latest available information. Management believe that the useful economic lives being used are still appropriate.

Turnover

Turnover represents the fair value of income received from the sale and rental of motor vehicles, excluding discounts and value added tax.

The company recognises revenue from the sales of stock items when the vehicles have been delivered and the title has passed.

The company recognises revenue from vehicle rentals on a straight line basis over the hire term.

Goodwill

Goodwill, being the amount paid in connection with the acquisition of the business in 2006, has been fully written down.

Tangible fixed assets

Depreciation is provided at the following annual rates in order to write off the cost less estimated residual value of each asset over its estimated useful life.

Plant and machinery

-

20% on reducing balance

Fixtures and fittings

-

15% on reducing balance

Vehicles on rental

-

33% on cost and over the remaining term of the lease

Computer equipment

-

20% on reducing balance

Tangible fixed assets are stated at cost or valuation, less depreciation and impairment.

Impairment of assets

At each reporting date assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset is estimated and compared with its carrying amount. If the estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in the profit and loss.

Where an impairment loss subsequently reverses, the carrying amount of each asset is increased to the revised estimate of its recoverable amount, to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Other income

Other income relates to amounts receivable under the government furlough scheme and other COVID-19 awards.

Stocks

Stocks of motor vehicles for sale are valued at the lower of cost and estimated selling price less costs to sell.

Financial instruments

Trade and other debtors are initially recognised at the transaction price and thereafter stated at amortised cost using effective interest method, less impairment losses for bad and doubtful debts except where the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts.

Short term trade creditors are measured at transaction price. Financial liabilities that have no stated interest rate and are payable within one year shall be measured at the undiscounted amount due.

Related party loans have no stated interest rate, are payable on demand and are measured at the undiscounted amount due.

Taxation

Taxation for the year comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

Current or deferred taxation assets and liabilities are not discounted.

Current tax is recognised at the amount of tax payable using the tax rates and laws that have been enacted or substantively enacted by the statement of financial position date.

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the statement of financial position date.

Timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements. Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the year end and that are expected to apply to the reversal of the timing difference.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Leasing commitments

Assets obtained under hire purchase contracts or finance leases are capitalised in the balance sheet. Those held under hire purchase contracts are depreciated over their estimated useful lives. Those held under finance leases are depreciated over their estimated useful lives or the lease term, whichever is the shorter.

The interest element of these obligations is charged to profit or loss over the relevant period. The capital element of the future payments is treated as a liability.

Rentals payable under operating leases are charged to the profit or loss on a straight line basis over the term of the lease.

Short term employee benefits

Short-term employee benefits are recognised as an expense in the period in which they are incurred.

3.	EMPLOYEES AND DIRECTORS

2020

2019

£

£

Wages and salaries

479,290

427,271

Social security costs

5,714

4,282

485,004

431,553

The average number of employees during the year was as follows:

2020

2019

Admin

18

16

2020

2019

£

£

Directors' remuneration

58,871

53,782

The number of directors to whom retirement benefits were accruing was as follows:

Money purchase schemes

1

1

4.	OPERATING PROFIT

The operating profit is stated after charging:

2020

2019

£

£

Depreciation - owned assets

1,343,061

1,195,478

Auditors' remuneration

9,500

-

5.

INTEREST PAYABLE AND SIMILAR EXPENSES

2020

2019

£

£

Corporation tax interest

-

241

Hire purchase

257,304

185,835

257,304

186,076

6.

TAXATION

Analysis of the tax charge

The tax charge on the profit for the year was as follows:

2020

2019

£

£

Current tax:

Under provision in prior year

-

86

Tax recoverable on prior year

-

(27,969

)

Total current tax

-

(27,883

)

Deferred tax

322,000

150,000

Tax on profit

322,000

122,117

Reconciliation of total tax charge included in profit and loss

The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is explained below:

2020

2019

£

£

Profit before tax

692,995

428,622

Profit multiplied by the standard rate of corporation tax in the UK of 19% (2019 - 19%)

131,669

81,438

Effects of:

Expenses not deductible for tax purposes

266,556

232,183

Capital allowances in excess of depreciation

(398,225

)

(313,621

)

Deferred tax

322,000

122,117

Total tax charge

322,000

122,117

7.

DIVIDENDS

2020

2019

£

£

Interim

237,000

238,500

8.	INTANGIBLE FIXED ASSETS

Goodwill

£

COST

At 1 August 2019

and 31 July 2020

50,000

AMORTISATION

At 1 August 2019

and 31 July 2020

50,000

NET BOOK VALUE

At 31 July 2020

-

At 31 July 2019

-

9.	TANGIBLE FIXED ASSETS

Fixtures

Plant and

and

Vehicles

Computer

machinery

fittings

on rental

equipment

Totals

£

£

£

£

£

COST

At 1 August 2019

34,520

131,941

7,220,239

38,752

7,425,452

Additions

2,698

19,315

7,923,922

8,284

7,954,219

Disposals

-

-

(6,141,257

)

-

(6,141,257

)

At 31 July 2020

37,218

151,256

9,002,904

47,036

9,238,414

DEPRECIATION

At 1 August 2019

18,875

60,476

895,054

23,729

998,134

Charge for year

1,582

12,176

1,325,555

3,748

1,343,061

Eliminated on disposal

-

-

(1,383,029

)

-

(1,383,029

)

At 31 July 2020

20,457

72,652

837,580

27,477

958,166

NET BOOK VALUE

At 31 July 2020

16,761

78,604

8,165,324

19,559

8,280,248

At 31 July 2019

15,645

71,465

6,325,185

15,023

6,427,318

10.

STOCKS

2020

2019

£

£

Stocks

57,675

370,688

11.

DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

2020

2019

£

£

Trade debtors

952,355

781,627

Amounts owed by group undertakings

291,516

329,721

Other debtors

70,688

80,621

Tax

-

27,969

Prepayments

26,975

13,830

1,341,534

1,233,768

12.

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

2020

2019

£

£

Hire purchase contracts (see note 14)

5,151,803

4,919,886

Trade creditors

244,166

264,058

Tax

-

28,210

Social security and other taxes

38,268

22,261

Other creditors

287,523

200,154

Directors' current accounts

105

188

Accrued expenses

17,217

91,088

5,739,082

5,525,845

13.

CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

2020

2019

£

£

Hire purchase contracts (see note 14)

2,748,920

1,325,158

14.	LEASING AGREEMENTS

Minimum lease payments under hire purchase fall due as follows:

2020

2019

£

£

Net obligations repayable:

Within one year

5,151,803

4,919,886

Between one and five years

2,748,920

1,325,158

7,900,723

6,245,044

15.	SECURED DEBTS

The following secured debts are included within creditors:

2020

2019

£

£

Hire purchase contracts

7,900,723

6,245,044

Hire Purchase liabilities are secured by a fixed charge over the asset concerned together with a debenture over the assets of the company.