TRANSCEND_PACKAGING_LIMIT - Accounts

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

Transcend was founded with a mission: to be part of the change from fossil fuel based, single-use plastics to more sustainable solutions. In order to achieve this mission, we have set out to develop a number of products that will, over time, allow the substitution of plastic. Plastic itself is a very useful substance and has some incredible properties which is why it has become ubiquitous in our modern world. However, as a material, it has real problems when it comes to end-of-life disposal: it is difficult to develop a recycling system to handle the numerous types and grades of plastic and if it is not recycled, it can take hundreds of years to degrade creating micro-plastics in the process. Currently the most effective solution for plastic is to incinerate it which is no different than burning fossil fuels for power.

Since its inception, Transcend Packaging has grown significantly and 2020 was no different. Overall, we grew revenues from £2.7 million in 2019 to £10.4 million in 2020 representing a revenue growth of 286%.

2020 vs 2019 Segment Revenues (Consolidated)

KPI                2020        2019        Growth

Paper Straws            £4.9m        £2.3m        110%

Folding Cartons and Cups        £5.5m        £0.4m        1,300%

Total                £10.4m        £2.7m        285%

Paper Straws

We began the year with significant positive momentum posting our highest revenue quarter in our history. However, the arrival of Covid-19 and the associated lock down in April 2020 put significant pressure on the business. In March of 2020 85% of our revenues were from our quick service restaurant (“QSR”) customers for paper straws. On 23rd March 2020 the UK Prime Minister announced the first national lockdown. Immediately afterwards, we started to receive significant order cancellations from our customers who were preparing to close their entire restaurant networks chains for the first time in their histories. We saw a roughly 90% revenue decline from the month of March to April reflecting our revenue exposure to QSR customers.

The remainder of 2020 remained roller coaster for the Paper Straw category. With the easing of lockdowns in May we saw a significant return in sales activity. Our QSR customers have extremely high hygiene standards, financial resources and the personnel and resources to develop alternative delivery methods quickly. This has enabled them to weather the pandemic about as well as possible and benefit from shifts in customer spending as business shifted to drive through and delivery. We have deepened our relationships with these customers during this difficult time. We were able to continue uninterrupted supply as they re-opened their stores and began to regain business. Transcend posted record sales months for the category in June, July, August and September. We benefited greatly from a few trends that have persisted into 2021: increase in delivery/take-away business and drive through. With the 2nd National lockdown implemented the 5th November, we saw a decline in volumes, however, at a much reduced rate from the 1st lockdown. We ended the year with a reasonably strong December with sales 42% above 2019 levels, however lower than we had expected due to Covid-19.

Another large category in this product category is the hotel, restaurant and catering (HoReCa) market segment. This category was particularly hard hit by the pandemic with many restaurants unable to reopen during the 2nd and 3rd lockdowns due to their inability to operate profitably within Covid-19 regulations. Many distributors had been holding significant paper straw stocks going into the 1st national lockdown in anticipation of the UK single use plastics (“SUP”) ban of the category which was planned for implementation 3rd July 2020. Due to the pandemic, the UK government delayed the implementation of the SUP ban on plastic straws to October 2020. This delay combined with the unprecedented demand declines due to restaurant closures left the HoReCa market with significant stock levels of both plastic and paper straws. This overstock scenario has persisted into 2021 with the 3rd national lockdown and continued difficulties in the HoReCa market.

Fortunately, Transcend had very limited exposure to the HoReCa market prior to the pandemic. However, the HoReCa segment was a target growth area for the Company in 2020 which did not develop. We do not believe that we will see normalised volume levels in the HoReCa segment until the 4th Quarter of 2021. The EU HoReCa market faces the same issues and challenges as the market in the UK which has limited our opportunities to pursue export opportunities.

In 2020 we made significant steps forward in the launch of our Industrial Straw© category. The Industrial Straw© is a paper straw that is affixed to an aseptic carton or otherwise packaged with a store shelf product. Typical uses are juice boxes and milk-based products for children that need to be consumed using a straw that is used to pierce the product. We believe that, globally, there are over 130 billion single use aseptic cartons that are consumed with straws. There are two principal formats of straw used which are i) U-Bend straws which have a 180° bend and a diagonal cut to aid in piercing and ii) the I-Straw which is a short paper straw with a diagonal cut. These straws tend to have a very small diameter of 4mm to 5mm compared to our QSR straws which are 6mm or larger diameter which makes them exponentially more difficult to manufacture using standard machines.

Both the UK SUP ban and the EU SUP ban apply to plastic straws for aseptic cartons. Both bans become effective in July 2021 but have a stock run off provision which will allow for a transition period from plastic straws. Transcend estimates that in countries where the bans are effective there are approximately 20 billion plastic U-Bend and I-Straws that will need to be replaced in paper with the vast majority being the U-Bend format. Prior to 2019 we do not believe that any company in the world had manufacturing for U-bend paper straws at scale. This massive shift from plastic to paper represents an enormous opportunity and challenge for Transcend.

Transcend began the development project for Industrial Straws© at the end of 2019. We believed that the solution needed to be precise, high-speed and scalable due to size of the market and the rigorous quality demands of the customers. The product is delivered in a bandolier which is fed into an applicator that affixes the straw to the aseptic carton at speeds in excess of 200 pieces per minute. We engaged a large, European machine partner with extensive experience with high-speed manufacturing technology to work with us on our development project. In July 2020 we opened a manufacturing plant in Italy with our Italian partner I.C.I.S. S.p.A and installed the U-bend straw line. We began machine testing and development of our Industrial Straw© product for customers. The category was a small part of our overall sales in 2020 at about 5% of revenues. With both the UK and EU SUP bans of plastic straws, we expect this category to be a significant growth market in 2021 and 2022.

Folding Cartons and Cups

We saw significant growth in this segment in 2020 as it provided crucial diversification from the Paper Straw category as revenue grew to 5.6 million at a 1300% growth rate from 2019. As mentioned above with the 1st national lockdown in March/April/May of 2020, we experienced a 90% revenue decline. Faced with uncertainty about the future of restaurant openings, the management team of Transcend conducted a review of its asset base to see what products we could manufacture with our technology that would i) provide continuity of manufacturing so that our employees could maintain their skills, ii) a revenue base to offset declines in our other business and iii) assist the country in dealing with the pandemic. Our team developed a disposable face visor in 2 weeks which was then CE marked for use within another 3 weeks’ time. By May 2020, we had repurposed our folding carton machinery to manufacture disposable visors for customers. Life Science Hub Wales was a great help in assisting us with the certification processes and introducing us to a new customer base. By May 2020 we were able to return our sales levels to pre-pandemic levels through PPE sales.

In 2020 our Folding Cartons and Cups segment was focused on 3 principal market categories: i) PPE, ii) packaging for food shelf life products and iii) take-away and delivery products. The segment had very low revenues in Q1 2020 accounting a minimal portion of sales. However, with the growth in the PPE product in Q2 and Q3 the segment accounted for 39% of sales. In late Q3 and Q4 we made significant headway in developing products for take-away and delivery for our QSR customers. In Q4 during the 2nd national lockdown, delivery, take-away and drive through were the only “on-the-go” food options available. We saw significant growth in these products.

Overall, the Folding Cartons and Cups segment accounted for 55% of our 2020 revenues versus 15% of our 2019 revenues. We believe that this result has validated our strategy of providing a range of products to our key customers. Had we limited our business to paper straws only, we would have experienced substantially lower results in 2020. We are very fortunate to have developed a good supply relationship with several of the world’s leading QSR brands such as Costa, Five Guys, KFC, McDonald’s and Starbucks. We are continuing to innovate and develop products that are relevant to their needs in what is a rapidly evolving marketplace for packaging.

The product category that was a disappointment in 2020 was the paper cup product. We had expected a strong year of growth in this product with expected revenues of £0.4 million. We had signed a significant contract with a customer to supply 12oz double wall cups. Unfortunately, this customer provides a beverage product to airlines, trains and buses. With the travel being one of the most affected markets by the pandemic, we ended the year with only minimal revenues considerably below our expectations. Post year end, we won several key contracts and are thus optimistic that the category will begin to realize its potential in 2021.

2020 OPERATING PERFORMANCE

Being a start-up Company with two greenfield manufacturing sites, we have been ramping our business and improving our margins since inception. In 2020, we were able to significantly narrow our operating losses from 2019.

Consolidated Revenue, EBITDA and Operating Income by Quarter

    Q1 Q2 Q3 Q4 2020 2019 Change

Revenue        £1.2 £1.7 £3.0 £4.5 £10.4 £2.7 £7.5

EBITDA     (1.1) (0.2) (0.3) (0.5) (2.1) (5.1) £2.7

Operating loss        (1.4) (0.3) (0.5) (0.7) (2.9) (5.5) £2.5

The significant growth in revenues in 2020 aided us in achieving improved economies of scale in our operations. We saw our largest losses in Q1 2020. As we began to achieve better economies of scale and product mix in Q3 and Q4, we were able to narrow our operating losses significantly.

Transcend continues to grow significantly and will continue to grow for the foreseeable future. With the opening of our Italian Factory in Q3, we incurred significant start-up costs and ramp-up losses totaling £0.4 million for the year. The development of the Industrial Straw© category really began in Q3 and will be continuing through 2021. This product category will require significant investment in machinery, product development and people through 2021. As we do not expect to see volumes hit high levels until the SUP bans come into effect, we expect these costs to have an adverse effect on our results until the second half of 2021.

One key area of investment for Transcend is research and development. Transcend is constantly evaluating market opportunities and experimenting with new products, materials, machines and processes. We cannot realize our long-term opportunity unless we continue to invest heavily in research and development. In 2020 we spent in excess of £1 million in research and development. This does not fully include all of the costs of product development and implementation that we incurred in the year. We will continue to spend significant sums in research and development for the foreseeable future.

THE MARKET AND REGULATION

The packaging market is experiencing the greatest amount of change that has been seen in our lifetimes. This is being driven by a myriad of factors including changing consumer preferences, regulation and innovation.

As it relates to consumer preferences, the pandemic has acted as an accelerant for trends that had already been developing. With people confined to their homes – delivery became the biggest winner. Whether this was e-commerce seeing unprecedented demand or restaurants and businesses forced to very quickly develop an online or delivery model in record time to survive. We have seen initial indications from places where restrictions have lifted that these changes are persistent and represent a lasting change in behavior. As the millennial generation and their successors gen-Z age and become the majority of consumer spending, we are seeing other significant changes in preferences. This base of consumers, by in large, shares the values that Transcend has which is to see an improved stewardship of our environment. There is a broad recognition that we need to reduce our carbon footprint and our waste footprint. This is reflected in increasing preferences for electric cars, renewable energy and less and better packaging.

The regulatory landscape is changing as fast or faster than consumer preferences. The announcement of the UK SUP ban in May 2019 was a watershed event for Transcend, banning outright several categories of everyday products including plastic straws and plastic cutlery. In the case of plastic straws, there was a ready alternative in paper straws, however, there is still no decent alternative to plastic cutlery. The UK legislation was only the beginning. In June 2019 the EU followed suit announcing the EU SUP directive which had much in common with the UK SUP legislation, but had further reaching consequences. The UK SUP legislation passed in March 2020 and went into effect in July 2020 with some elements phased in through July 2021. The EU SUP directive required each individual country to create legislation consistent with the directive with implementation required by 3rd July 2021. Many of the EU member states have implemented far tougher regulation than contemplated by the EU SUP directive. For example, the French implementing legislation has required banned single use packaging for in-store dining from 2025 and a complete elimination of single use plastic by 2040. From 2025, patrons of QSR outlets in France will need to use reusable plates, cutlery and cups when they dine in store. This will require a massive change in the way our customers operate, forcing them to adopt new products and a complete process to collect, clean and sanitize the re-useable products. Belgium went further adding PE lined paper cups (which represent over 95% of all paper cups) to the list of banned products by 2022.

The full implementation of the various SUP legislation together represent a sea change in the industry, however there are now several passed and contemplated legislations in addition. In July 2020 as part of the Covid recovery fund, the EU Commission passed the EU Packaging Levy which is commonly called the plastic tax. The plastic tax is expected to raise between €6 and €8 billion per year from EU member countries. Each EU member country will decide how the tax is implemented, but it is based on each country’s plastic consumption at a rate of €800 per tonne on a product that generally sells for about €1,600-2,000 per tonne depending on the type and grade. The UK has followed suit and announced a new plastic packaging tax in its Finance Bill 2021. We do not intend this to be a comprehensive list of legislative action, but rather to give the reader a flavour of the regulatory environment we are operating in.

Finally, as a result of the changes in consumer behaviour and the regulatory environment, we are beginning to see significant innovation in packaging. The roughly 60-year period from 1960 to 2020 could be described as the rise of plastic. Plastic due to many of its impressive qualities became pervasive and ever present in our lives. From the toothpaste container in the morning, to your plastic coffee mug, to a plastic window patch in your sandwich pack at lunch, to opening a package of plastic flow wrapped vegetables to cook dinner and ending the day with a final squeeze of that plastic tooth paste tube you are in nearly constant contact with plastic.

While in many ways plastic is a miracle material, the world is beginning to realize that it has some significant problems as it relates to its end of life. Generally speaking it is difficult to impossible to recycle, it is principally made from unrenewable petrochemicals, it takes centuries to biodegrade in the environment, and when it degrades, particularly in a marine environment, it creates microplastics that are eaten by fish and ultimately us. We believe that these drawbacks have become more and more apparent which has resulted in a groundswell of sentiment against plastic which has resulted in the increasingly punitive regulatory environment for plastic.

Fortunately for all of us, solutions to these problems are starting to appear. The pace of innovation in packaging is gathering speed. At Transcend we believe that fibre based solutions will play an important part of the solution to reducing plastic consumption. However for fibre based solutions to replace plastic we will need significant innovation in materials to provide both moisture and oxygen barriers. For example a paper cup without a polyethylene liner becomes useless in minutes. We are actively working with paper mills, coating companies and converters to develop new solutions that will allow for paper cups that will be easily recyclable and home compostable. Replacing plastic in both short and long shelf life products, will require creative solutions and breakthroughs in materials.

Beyond materials, we are seeing new packaging forms that reflect the changing nature of the QSR and restaurant market as deliver and take-away become an increasingly large share of the business. Maintaining the quality of food as it leaves the kitchen so that the customer has a positive experience with the brand has never been more important. As well as providing better tamper proofing so that the customer has high confidence in the received product.

This is a time of unprecedented change in the packaging market. This is creating enormous opportunities for companies like Transcend who view innovation, disruption and sustainability as core to their mission. However, we must remain vigilant. Our government affairs team is constantly in contact with members of local and national government, trade bodies and the media to keep abreast of this changing marketplace. For a relatively small player, this is a challenge, but one that is extremely important to maintain our edge on innovation and make sure that we are allocating our finite resources to the right market segments.

LIQUIDITY AND FINANCE

In June of 2020 we completed the first close of our largest capital raise to date with IW Capital for £3.5 million. This capital raise was completed to help fund the growth of our business and in particular fund the development and launch of our Industrial Straw© product category. In 2020 we acquired £5.5 million in machinery to begin the launch. We have budgeted a total capital investment of approximately £17 million to which is backed by long-term contracts to secure our position as a European leader in this category.

Subsequent to the close of the 2020 financial year, we have taken additional steps to improve our liquidity and financial position. On 19th May we closed a new receivables asset finance facility with Leumi Bank Ltd. with a £6 million finance availability. This facility is sized for our next two years of growth. It has specific availability for export revenues which are becoming an increasingly large part of our business as we begin to export more to Europe. On 25th of May, we completed a £1.5 million first close of a convertible loan note facility led by IW Capital and the British Business Bank Future Fund to provide additional liquidity to the Company.

CIRCULARITY AND ESG

The environmental, social and governance (“ESG”) criteria at Transcend are a part of our DNA and are core to our values and mission. We understand the need to measure this for all stakeholders so that we may better understand where we are succeeding and highlight areas for improvement. To this end, we have instigated a comprehensive ESG audit to be undertaken in 2021. This will encompass not only our finished products but our supply chain the well-being of our employees and how we can implement systems to monitor and use this information for the betterment of the business going forward.

Sustainability must be at the core of all the products we produce. We are focused on continued innovation to make sure that we are able to achieve the best end-of-life disposal options for our customers be that recyclable or compostable. We are working with industry groups, legislators, environmental groups and governments to advise on-end-of-life of these types of products and how to make this clearer for the customer.

We believe that there is an enormous opportunity for packaging to be a force for good by developing products that are truly circular where we can use fiber from agricultural waste to replace items currently made using plastic such as coffee cup lids, bowls and yoghurt pots. At the end of life these products can be easily recycled or composted. If composted, the compost can be returned to local farms improving soil health and growing the next crop of food. The United Nations Food and Agriculture Organization has estimated that there may be as little as 60 years left of topsoil if current rates of degradation continue.

We believe that fully compostable food packaging made from agricultural waste can be an important part of the solution to improving our soil health.

We will complete two audits in 2021. Firstly, as cited above, a full ESG audit including supply chain and a second audit commissioned by Transcend to be undertaken by APP – A Plastic Planet, to work towards a plastic free workplace. Plastic Planet are a widely accredited kite mark for plastic free packaging and workplace environments.

The ESG audit will give us the framework and timeframe for what we need to accomplish and how to do it and by enrolling with A Plastic Planet, we aim to be the only converter in the UK that will be working towards a plastic free environment with the Plastic Free kite mark.

We have immediate environmental goals that we will achieve in the next few months such as our charging points for electric cars, cycle shed for employees and cycle to work scheme. We have nearly completed the installation of LED lighting throughout our 166,000 square foot facility. We will address and identify opportunities to reduce our carbon footprint such as combined heat and power and photovoltaic energy production where possible with the ultimate aim of carbon neutrality before 2030 with all products we manufacture 100% compostable and recyclable.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2020.

The principal activity of the company and group continued to be that of the manufacture of sustainable packaging and products.

The results for the year are set out on page 13.

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

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

On 7 September 2020 Group Audit Service Limited trading as Baldwins Audit Services changed its name to Azets Audit Services Limited. The name they practice under is Azets Audit Services and accordingly they have signed their report in their new name.

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 auditor of the company 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 auditor of the company 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 group and company, and of the profit or loss of the group 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 group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

We have audited the financial statements of Transcend Packaging Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2020 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including 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 group's and the parent company's affairs as at 31 December 2020 and of the group's loss for the year then ended;

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

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

Basis for opinion

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

Material uncertainty in relation to going concern

We draw attention to note 1.4 in the financial statements, which indicates that the group has incurred a net loss of £3,334,694 during the year ended 31 December 2020 and, as of that date, the company’s current liabilities exceeded its current assets by £1,760,229. As a consequence of the measures taken by the UK Government to manage the impact of COVID-19, the operations of the business continue to be disrupted and uncertainty remains over when the hospitality industry will fully resume . These events or conditions, along with other matters as set forth in note 1.4, indicate that a material uncertainty exists that may cast doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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 group and the parent 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 by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

As explained more fully in the directors' 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 parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

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

A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Extent to which 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 and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.

We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework.  Based on this understanding, we 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.  This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.

In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:

• Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud; 

• Reviewing minutes of meetings of those charged with governance;

• Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the entity through enquiry and inspection; 

• Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;

• Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias. 

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation.  This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance.  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.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £2,871,650 (2019 - £5,629,720 loss).

Transcend Packaging Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is .

The group consists of Transcend Packaging Limited and all of its subsidiaries.

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

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

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.

In the parent company financial statements, the cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably, and is adjusted for changes in contingent consideration after the acquisition date. Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date. Investments in subsidiaries, joint ventures and associates are accounted for at cost less impairment.

Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised in a business combination accounted for using the purchase method and the amounts that can be deducted or assessed for tax, considering the manner in which the carrying amount of the asset or liability is expected to be recovered or settled. The deferred tax recognised is adjusted against goodwill or negative goodwill.

The consolidated group financial statements consist of the financial statements of the parent company Transcend Packaging Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.

All financial statements are made up to 31 December 2020. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.

Entities in which the group holds an interest and which are jointly controlled by the group and one or more other venturers under a contractual arrangement are treated as joint ventures. Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the group exercises a significant influence, are treated as associates.

Investments in joint ventures and associates are carried in the group balance sheet at cost plus post-acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.

If the group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further losses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.

Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the group’s interest in the entity.

The financial statements have been prepared on the going concern basis which assumes the company will have sufficient funds to discharge its obligations as and when they become payable, for a period of at least 12 months from the date the financial statement are authorised for issue.

As at 31 December 2020 the company has net current liabilities of £1,760,229 (2019: £871,507) and has recorded a loss for the period of £3,334,694 (2019: £5,629,720). As a consequence of the measures taken by the UK Government to manage the impact of Covid-19, the day to day operations of the business has been disrupted. During the year, management were quick to diversify their product offering to manufacturing PPE to assist with the demand from the NHS which was a significant income stream in the year.

To address the necessary funding requirement during the year, the directors have raIsed finance through the issue of ordinary shares and convertible loans. They have also undertaken a programme to monitor the company’s ongoing working capital and development requirements closely through the year.

In making their assessment of Going Concern, the Directors have prepared a cash flow forecast for the next 12 months which indicates a continued requirement to raise additional funds to enable the company to continue as a going concern. Also built in to the forecasts is the underlying assumption that sales will increase significantly through the year as lockdown restrictions begin easing.

The Directors are confident that they will be able to secure the additional investment and sales forecasts that is required to provide the company with sufficient funding to meet its working capital requirements and to support the continued growth and development of the company. On this basis, the Directors consider it appropriate to prepare the financial statements on the going concern basis.

In the event that the company was not able to successfully complete the fundraising and enhanced sales referred to above, significant uncertainty would exist as to whether the company will continue as a going concern, and, therefore, whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial statements.

The financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the company not continue as a going concern.

Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.

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 recognised in the profit and loss account.

Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.

In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.

Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.

Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.

In the parent company financial statements, investments in associates are accounted for at cost less impairment.

Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.

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

The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.

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.

Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks to their present location and condition.

Stocks held for distribution at no or nominal consideration are measured at the lower of the lower of cost and replacement cost, adjusted where applicable for any loss of service potential.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

Cash and cash equivalents 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. Bank overdrafts are shown within borrowings in current liabilities.

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

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

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

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs 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.

Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Basic financial liabilities, including creditors, 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.

Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.

Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.

Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.

The component parts of compound instruments issued by the group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity net of income tax effects and is not subsequently remeasured.

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

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

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

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

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

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight line basis over the lease term.

Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.

A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.

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 in the period are included in profit or loss.

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

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

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

Their aggregate remuneration comprised:

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

The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.

Details of the company's subsidiaries at 31 December 2020 are as follows:

The company has entered into a contract that provides invoice discounting facilities in respect of its trade debts. An amount of £1,154,511 (2019: £391,540) is included in other creditors in respect of such balances. The balance is secured by means of a fixed charge over the assets of the company.

Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 7 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The net proceeds received from the issue of the convertible loan notes have been split between the financial liability element and an equity component, representing the fair value of the embedded option to convert the financial liability into equity.

The liability component is measured at amortised cost, and the difference between the carrying amount of the liability at the date of issue and the amount reported in the Balance Sheet represents the effective interest rate less interest paid to that date.

The effective rate of interest is 6%.

The equity component of the convertible loan notes has been credited to the equity reserve.

Deferred income is included in the financial statements as follows:

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Amounts contracted for but not provided in the financial statements:

During the year the group entered into the following transactions with related parties:

The following amounts were outstanding at the reporting end date: