The_Kite_Factory_Limited - Accounts

The Kite Factory Limited is an independent Performance media planning & buying agency with a focus on audience insights and media consumptions to generate business outcomes.

Business Performance

2019 was an investment year where we successfully rebranded from MC&C Media to The Kite Factory, which received a positive response from the market. We moved premises to a new space in New Oxford Street and continued to develop our proprietary technology plus recruit talent to diversify our service offering.

We won a number of new clients, including Leigh Day, Residently, Netwealth, Lawn Tennis Association, Triodos, Unicef Australia, and Little Freddie which is all part of our strategy to diversify our client base and offering.

We had a record year winning multiple industry awards, 12 in total. These reflect the increasing range of clients we work with and our industry leading media strategy and planning.

The advertising and media sector continues to be highly competitive and we suffered two key client losses which in conjunction to investing in the above impacted our profit for the year. We responded by reviewing our costs and subsequently restructured the agency to best meet our client’s needs.

The results, as set out on pages 7 to 9, reflects this impact of the agency rebrand and relocation with an operating loss of £4k (2018: profit of £766k). Our operating costs reduced to £6,129k (2018: £6,426k), and of these we incurred substantial non-recurring restructuring costs of £672k, as set out in Note 11 of the accounts. Operating profit before non-recurring costs was £676k (2018: £1,210k).

Subsequent to the year end, the World Health Organisation declared a novel Coronavirus, COVID-19, a pandemic.

The company had delivered a record breaking Q1 EBITDA before COVID-19 disruption started early in Q2 where many clients were instantly impacted. The company began removing any income at risk from projections and engaged in a programme of cost deferral and reduction proportionate to any anticipated drop off in revenues and cash inflows.

Our core client base has proved incredibly robust despite the disruption, and additionally the company has won over 20 new clients in the period. Therefore, we anticipate 2020 being a better year than 2019 with regard EBITDA and exit cash position.

The business measures gross profit and EBITDA before non-recurring expenditure as its key performance indicators. Gross profit was £6,125k (2018: £7,192k) and EBITDA before non-recurring expenditure was £1,038k (2018: £1,500k).

In common with others in the advertising and media sector, the principal risk is fluctuating demand levels amongst clients. The Company’s major financial assets continue to be its bank balances and its trade receivables. We have no significant concentration of credit risk, with our exposure spread over a number of clients.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2019.

The principal activity of the company continued to be that of marketing, direct response, creative design and performance media planning and buying.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The results for the year are set out on page 7.

No ordinary dividends were paid. The directors do not recommend payment of a final dividend.

The auditor, Moore Kingston Smith LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

The directors are responsible for preparing the annual 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 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;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     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.

We have audited the financial statements of The Kite Factory Limited (the 'company') for the year ended 31 December 2019 which comprise the Statement of Income and Retained Earnings, the Balance Sheet, the Statement of Cash Flows 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 FRS 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 December 2019 and of its loss for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

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

• the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.

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

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.

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the 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.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs (UK) we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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 for no purpose other than to draw to the attention of the company’s members those matters we are required to include in an auditor's report addressed to them. To the fullest extent permitted by law, we do not accept or assume responsibility to any party other than the company and the company’s members as a body, for our work, for this report, or for the opinions we have formed.

The Profit And Loss Account has been prepared on the basis that all operations are continuing operations.

The Kite Factory Limited is a private company limited by shares incorporated in England and Wales. The registered office is 55 New Oxford Street, London, WC1A 1BS.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest pound.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

The company has taken advantage of the following exemptions applicable to qualifying entities:

• The requirement of Section 33 Related Party Disclosures paragraph 33.7 to disclose the remuneration of key management personnel.

The company is a subsidiary of The Kite Factory Group Limited, and the results of this company are included in the consolidated financial statements of The Kite Factory Group Limited.

The Company made a loss for the year of £60,880 and as at the balance sheet date has available cash reserves of £2,083,687. Subsequent to the year end, the World Health Organisation declared a novel Coronavirus, COVID-19, a pandemic.true

The Company has assessed the risks and the potential impact on the business as a result of the pandemic and measures have been taken to mitigate such risks and their impact. The Company remains profitable since the year end, does not have a high level of fixed costs and is engaged in a programme of cost deferral and reduction which will be proportionate to any anticipated drop off in revenues and cash inflows. The directors have prepared cash flow forecasts that demonstrate the Company has sufficient cash flow reserves to continue trading for 12 months from the date of signing of the accounts. As a result the directors are confident that they have the ability to respond effectively to continued uncertainty and meet its liabilities as they fall due. Accordingly, the financial statements have been drawn up on a going concern basis.

Turnover represents the value of gross billings, net of VAT, discounts and fair value to the right to consideration in exchange for the performance of its contractual obligations of work carried out in respect of services provided to customers.

Commissions are recognised as income when the related media is aired. Fees are recognised as income when they are earned in accordance with the contractual agreement with the client. Where revenue has been earned before the end of an accounting period but has not been billed, revenue is accrued into the financial statements.

Acquired goodwill is written off in equal annual instalments over its estimated useful economic life of 10 years.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.

At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Cash at bank and in hand are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts.

The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

The costs of short-term employee benefits are recognised as a liability and an expense.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Rentals payable under operating leases, including any lease incentives received, are charged to income on a straight line basis over the term of the relevant lease.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation are included in the profit and loss account for the period.

In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.

An analysis of the company's turnover is as follows:

The average monthly number of persons (including directors) employed by the company during the year was:

Their aggregate remuneration comprised:

The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (2018 - 6).

The actual charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:

Interest is charged at 3% on the long-term loan which is wholly provided by The Kite Factory Group Limited, the parent company.

The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.

There was an amount outstanding at the year end of £12,600 (2018: £13,022) in respect of staff pension contributions included in other creditors.

No guarantees have been given or received.

During the year sales of £247,024 (2018: £310,287) and purchases of £nil (2018: £193,524) were made to Click Chilli Limited, a company under common control. At the year end £41,104 (2018:-£1,219,706) was due from Click Chilli Limited.

During the year sales of £nil (2018: £nil) and purchases of £204,754 (2018: £40,048) were made to The kite Factory Group Limited, the parent company, At the year end, £22,019 (2018: -£188,254) was due to The Kite Factory Group Limited in respect of these transactions.

At the year end, £1,219,548 was due from (2018: £824,960) WHCO3 Limited, the ultimate parent company.

The company also received a loan from The Kite Factory Group Limited in 2014 for £2,242,558, on which interest is being charged at 3%. During 2018, an additional loan of £369,132 was made. Repayments in the year amounted to £nil and interest charged on the loan was £56,983. The amount outstanding at the year end in respect of the loan was £1,685.069 (2018: £1,628,086).

The immediate controlling company is The Kite Factory Group Limited, a company registered in England and Wales, by virtue of its controlling stake in The Kite Factory Limited.

The ultimate controlling company is WHCO3 Limited, a company registered in England and Wales, by virtue of its controlling stake in The Kite Factory Group Limited.

Results of The Kite Factory Limited are included in the consolidated accounts of WHCO3 Limited.

Copies of the accounts for WHCO3 Limited are available from Companies House, Crown Way, Cardiff, CF14 3UZ.

There is no ultimate controlling party.