Merlin Diesel Systems Limited - Limited company accounts 20.1

REGISTERED NUMBER: 02539463 (England and Wales)

Merlin Diesel Systems Limited

Strategic Report, Report of the Directors and

Financial Statements

for the Year Ended 31 July 2020

Page

Company Information

1

Strategic Report

2

Report of the Directors

3

Report of the Independent Auditors

5

Income Statement

7

Other Comprehensive Income

8

Balance Sheet

9

Statement of Changes in Equity

10

Notes to the Financial Statements

11

DIRECTORS:

K Bramley

LK Bramley

S Bramley

M Rawlinson

MF Brown

DJ Henry

AT Ashcroft

AG James

SECRETARY:

EL Bramley

REGISTERED OFFICE:

189/191 Bradkirk Place

Walton Summit

PRESTON

Lancashire

PR5 8AJ

REGISTERED NUMBER:

02539463 (England and Wales)

AUDITORS:

McMillan & Co LLP

Chartered Accountants and

Statutory Auditor

28 Eaton Avenue

Matrix Office Park

Buckshaw Village

Chorley

Lancashire

PR7 7NA

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

REVIEW OF BUSINESS

Merlin Diesel Systems Limited is a company dedicated to the supply of parts and servicing of fuel systems for diesel engines. In addition the company manufactures the machinery necessary for servicing and testing fuel systems for all diesel engines including large marine engines and generators.

The company recorded sales in the year ended 31 July 2020 of £35.3m, an increase of 4.1% on the sales achieved in 2019 of £34.0m. The weakness of Sterling against the Euro has continued to make the company's products very attractive to the European market.

The company's trade was affected in the final 4 months of the year by the COVID 19 pandemic, due to the UK lockdown reducing demand in April and May 2020. Trading did however recover through June and July 2020, and continues to be strong as the business adapts to new practices.

The gross margin percentage dropped slightly to 22.7% (2019: 24.7%). The increased activity flowed through to create profit before taxation of £3.2m (2019: £3.6m).

The company continued to invest in stock holding during the year and the closing net stock balance was £14.5m (2019: £13.4m).

At 31 July 2020 the net assets were £13.7m (2019: £11.5m).

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties facing the company relate to:

-

Maintaining margins and cash management.

-

Maintaining a quality stockholding.

-

Liquidity risk and annual renewal of overdraft facility.

-

Adverse exchange rate movements.

COVID 19 continues to have an impact on trading, but the effects are not as material as in the initial stages, due to the essential nature of the business.

Brexit may present future challenges to the export side of the business, and these are being actively management by the Board.

KEY PERFORMANCE INDICATORS

2020

2019

Gross profit margins (gross profit/turnover)

22.7%

24.7%

Net stockholding

£14.5m

£13.4m

Stock turn (stock/cost of sales x 365 days)

194 days

191 days

ON BEHALF OF THE BOARD:

LK Bramley - Director

27 April 2021

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

DIVIDENDS

A dividend of £558,433 was paid in the year (2019: £1,263,405).

FUTURE DEVELOPMENTS

The company is totally dedicated to maintaining a high quality service, with the right machinery and the necessary highly skilled engineers. Despite the ongoing COVID-19 pandemic, the company is well placed to increase its share of the market.

DIRECTORS

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

K Bramley

LK Bramley

S Bramley

M Rawlinson

MF Brown

DJ Henry

Other changes in directors holding office are as follows:

AT Ashcroft - appointed 2 September 2019

AG James was appointed as a director after 31 July 2020 but prior to the date of this report.

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 ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

ON BEHALF OF THE BOARD:

LK Bramley - Director

27 April 2021

Opinion

We have audited the financial statements of Merlin Diesel Systems Limited (the 'company') for the year ended 31 July 2020 which comprise the Income Statement, Other Comprehensive Income, Balance Sheet, 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 three, 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.

Neil McMillan FCA (Senior Statutory Auditor)

for and on behalf of McMillan & Co LLP

Chartered Accountants and

Statutory Auditor

27 April 2021

TURNOVER

3

35,334,314

33,953,257

Cost of sales

27,328,588

25,568,845

GROSS PROFIT

8,005,726

8,384,412

Distribution costs

3,679,451

3,637,606

Administrative expenses

1,323,579

1,127,641

5,003,030

4,765,247

3,002,696

3,619,165

Other operating income

220,740

-

OPERATING PROFIT

5

3,223,436

3,619,165

Interest payable and similar expenses

6

45,616

66,018

PROFIT BEFORE TAXATION

3,177,820

3,553,147

Tax on profit

7

513,551

597,011

PROFIT FOR THE FINANCIAL YEAR

2,664,269

2,956,136

PROFIT FOR THE YEAR

2,664,269

2,956,136

OTHER COMPREHENSIVE INCOME

-

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

2,664,269

2,956,136

FIXED ASSETS

Tangible assets

9

808,005

770,527

CURRENT ASSETS

Stocks

10

14,534,481

13,360,029

Debtors

11

6,269,864

5,203,374

Cash in hand

48,008

64,441

20,852,353

18,627,844

CREDITORS

Amounts falling due within one year

12

7,702,435

7,473,059

NET CURRENT ASSETS

13,149,918

11,154,785

TOTAL ASSETS LESS CURRENT LIABILITIES

13,957,923

11,925,312

CREDITORS

Amounts falling due after more than one year

13

(200,000

)

(298,000

)

PROVISIONS FOR LIABILITIES

17

(102,855

)

(78,080

)

NET ASSETS

13,655,068

11,549,232

CAPITAL AND RESERVES

Called up share capital

18

91,920

91,920

Share premium

19

20,880

20,880

Capital redemption reserve

19

48,500

48,500

Retained earnings

19

13,493,768

11,387,932

SHAREHOLDERS' FUNDS

13,655,068

11,549,232

The financial statements were approved by the Board of Directors and authorised for issue on 27 April 2021 and were signed on its behalf by:

LK Bramley - Director

Called up

Capital

share

Retained

Share

redemption

Total

capital

earnings

premium

reserve

equity

£

£

£

£

£

Balance at 1 August 2018

91,920

9,695,201

20,880

48,500

9,856,501

Changes in equity

Dividends

-

(1,263,405

)

-

-

(1,263,405

)

Total comprehensive income

-

2,956,136

-

-

2,956,136

Balance at 31 July 2019

91,920

11,387,932

20,880

48,500

11,549,232

Changes in equity

Dividends

-

(558,433

)

-

-

(558,433

)

Total comprehensive income

-

2,664,269

-

-

2,664,269

Balance at 31 July 2020

91,920

13,493,768

20,880

48,500

13,655,068

1.	STATUTORY INFORMATION

Merlin Diesel Systems 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.

The presentation currency of the financial statements is the Pound Sterling (£).

The amounts in the financial statements have been rounded to the nearest £1.

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.

At 31 July 2020 the Company had an excess of assets over liabilities of £13,655,068. The Directors have considered the ongoing COVID 19 pandemic and the uncertainty caused by this and are satisfied to prepare the financial statements on the going concern basis.

Financial Reporting Standard 102 - reduced disclosure exemptions

The company has taken advantage of the following disclosure exemption 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.

Turnover

The turnover shown in the profit and loss account represents the fair value of all goods and services, delivered during the year, at selling price exclusive of discounts, rebates, Value Added Tax and other sales taxes. Sales are recognised at the point at which the company has fulfilled its contractual obligations to the customer.

Goodwill

Goodwill, being the amount paid in connection with the acquisition of a business in 2005, was amortised evenly over its estimated useful life of three years.

Tangible fixed assets

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

Freehold property

-

5% on cost and 1% on cost

Short leasehold

-

5% on cost

Plant and machinery

-

20% on cost

Fixtures and fittings

-

20% on cost

Motor vehicles

-

25% on cost

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

Stocks

Stocks are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items.

Financial instruments

Financial instruments are classified and accounted for according to the substance of the contractual arrangement as financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

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 balance sheet date.

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet 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.

Research and development

Expenditure on research and development is written off in the year in which it is incurred.

Foreign currencies

Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of transaction. Exchange differences are taken into account in arriving at the operating result.

Hire purchase and leasing commitments

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

Pension costs and other post-retirement benefits

The company operates a defined contribution pension scheme. Contributions payable to the company's pension scheme are charged to profit or loss in the period to which they relate.

3.

TURNOVER

The turnover and profit before taxation are attributable to the one principal activity of the company.

An analysis of turnover by geographical market is given below:

2020

2019

£

£

UK

11,096,437

11,235,632

Overseas

24,237,877

22,717,625

35,334,314

33,953,257

4.	EMPLOYEES AND DIRECTORS

2020

2019

£

£

Wages and salaries

2,809,245

2,532,505

Social security costs

250,747

236,538

Other pension costs

440,945

399,977

3,500,937

3,169,020

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

2020

2019

Engineers

28

27

Sales

38

38

Warehouse

19

18

Administration

12

12

97

95

2020

2019

£

£

Directors' remuneration

79,612

50,568

Directors' pension contributions to money purchase schemes

71,254

50,990

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

Money purchase schemes

6

4

5.	OPERATING PROFIT

The operating profit is stated after charging/(crediting):

2020

2019

£

£

Other operating leases

230,860

220,303

Depreciation - owned assets

237,391

189,265

Profit on disposal of fixed assets

(10,913

)

(6,882

)

Auditors' remuneration

7,700

7,500

6.

INTEREST PAYABLE AND SIMILAR EXPENSES

2020

2019

£

£

Bank interest

33,177

30,669

Bank loan interest

12,439

27,192

Other interest

-

8,157

45,616

66,018

7.

TAXATION

Analysis of the tax charge

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

2020

2019

£

£

Current tax:

UK corporation tax

488,776

593,436

Group tax relief

-

962

Total current tax

488,776

594,398

Deferred tax

24,775

2,613

Tax on profit

513,551

597,011

Reconciliation of total tax charge included in profit and loss

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

2020

2019

£

£

Profit before tax

3,177,820

3,553,147

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

603,786

675,098

Effects of:

Expenses not deductible for tax purposes

2,527

1,265

Changes in tax rates

9,186

(9,186

)

Research & development relief

(100,879

)

(71,648

)

Restrictions on capital allowances and capital gain

(1,069

)

1,482

Total tax charge

513,551

597,011

8.

DIVIDENDS

2020

2019

£

£

Dividends paid

558,433

1,263,405

9.	TANGIBLE FIXED ASSETS

Freehold

Short

Plant and

property

leasehold

machinery

£

£

£

COST

At 1 August 2019

363,751

-

1,317,298

Additions

-

5,406

261,859

Disposals

-

-

(15,710

)

Transfer

(363,751

)

363,751

-

At 31 July 2020

-

369,157

1,563,447

DEPRECIATION

At 1 August 2019

138,550

-

909,238

Charge for year

-

18,378

165,014

Eliminated on disposal

-

-

(2,618

)

Transfer

(138,550

)

138,550

-

At 31 July 2020

-

156,928

1,071,634

NET BOOK VALUE

At 31 July 2020

-

212,229

491,813

At 31 July 2019

225,201

-

408,060

Fixtures

and

Motor

fittings

vehicles

Totals

£

£

£

COST

At 1 August 2019

480,691

129,365

2,291,105

Additions

20,696

-

287,961

Disposals

-

(14,243

)

(29,953

)

Transfer

-

-

-

At 31 July 2020

501,387

115,122

2,549,113

DEPRECIATION

At 1 August 2019

406,013

66,777

1,520,578

Charge for year

30,418

23,581

237,391

Eliminated on disposal

-

(14,243

)

(16,861

)

Transfer

-

-

-

At 31 July 2020

436,431

76,115

1,741,108

NET BOOK VALUE

At 31 July 2020

64,956

39,007

808,005

At 31 July 2019

74,678

62,588

770,527

A freehold property was sold to Merlin Diesel Holdings Limited in 2019. The improvement have been transferred from freehold to leasehold, as the property is now leased from Merlin Diesel Holdings Limited.