TRANSCEND_PACKAGING_LIMIT - Accounts

The directors present the strategic report for the year ended 31 December 2022.

Transcend was founded with a mission: to be part of the change from fossil fuel based single-use plastics to more sustainable solutions. 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 an extremely 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 Group has grown significantly and 2022 was a continuation of the trend. Overall, sales grew from £16.5 million in 2021 to £18.9 million in 2022 representing a 15 % growth.

2022 SEGMENT PERFORMANCE

2022 vs 2021 Segment Revenues (Consolidated)

KPI                2022        2021        Growth

Paper Straws            £16.3m        £11.8m        380%

Folding Cartons and Cups        £1.9m        £4.7m        -60%

Moulded Fibre / Other        £0.7m        -        100%

Total                £18.9m        £16.5m        14%

Paper Straws

Having seen a resurgence in sales following the lifting in Covid restrictions in the second Quarter of 2021 sales volumes have continued to increase in this sector.

The growth in the paper straw revenues was driven by 3 principal drivers:

• Further Environmental Changes targeted at reducing single use plastic products (SUP) covering straws in the UK and EU

• Growth in the Industrial Straw® category

• Increase in associate production from Ala our Italian site and our Serbian manufacturing facility.

The investment in 50% of the equity of an associate paper straw manufacturer in Serbia, Roda Packaging D.o.o., in 2021 has provided the Company with a growth platform to serve the continental European market from a logistically advantageous location. The group share of the results of Roda Packaging are included in our financials. Subsequent to 31 December 2022 the group has required the remaining 50% of the equity , and we expect significant growth in the future from this investment.

In 2022, Transcend entered the Industrial Straw® market in a significant way. Both facilities in Wales and Ala, Italy ramped production significantly from 2021 levels. This category of straws is continuing to experience growth in 2022 and we expect to see continued growth in the segment going forward. Transcend estimates in European 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 Packaging Group.

Folding Cartons and Cups

While the core underlying sales grew in 2022, the growth was adversely impacted by a global disruption in supply chains which led to difficulty in obtaining adequate supplies of paper board for our customers’ demands. The supply chain disruptions were particularly acute in the supply of paper cup stock.

Looking forward, the Folding Carton and Cup segment is forecast to see major transformation in 2023 driven by the increased production of paper cups. There was significant unmet customer demand in 2022 due to the supply chain issues mentioned above for cup stock. This began ease in early 2023 and Transcend expects a positive improvement in 2023 in this segment.

A key component within 2022 has been the positioning of the Group to prepare a major fund-raising exercise and preparation of a five-year plan across various business sectors. The fundraising preparation has been undertaken with the assistance of a financial advisor and this was matched with internal planning to facilitate the expansion of both current and new business sectors driven by the specialist know how and research capabilities which the business has built developed within its staff base.

The first close of the fundraise occurred in April 2023 when Itochu Coporation of Japan invested in the Group. The Group expects the close the fundraise by year end 2023. This funding will lead to a transformation in the levels of business growth in 2023 and beyond allowing The Group to fully develop its operational efficiency targets and significantly expand its operations including geographic and product line expansion across specific growth areas within the packaging materials sector which afford rapid growth trajectories. This will result in a step change in the ?Group's liquidity allowing it the flexibility to grow within a controlled operational framework.

In addition to the increase in labour and machinery costs associated with the Industrial Straw® launch, Transcend made significant investments in research and development, sales force and managerial staff in anticipation of significant growth ahead. The investments in research and development, sales force and managerial positions are now delivering results allowing Transcend Packaging to enter new market segments and attract further Blue-Chip customers and facilitate further Governance controls and adoption of best practice operations supported by key procedures which do not stifle business operations but develop staff ownership throughout the process.

The Group is expecting rapid growth for the next 5-7 years, which will require significant machinery investment allowing the attainment of world class efficiency standards along with increased quality these elements will afford the business opportunities to improve planning certainty, reduce working capital levels which when combined with greater research and development skills will facilitate the business expansion into new sectors. The Group believes that 2022 represents the peak of operational losses as 2023 performance has significantly improved.

LIQUIDITY AND FINANCE

A key component within 2022 has been the positioning of the Group to prepare a major fund-raising exercise and preparation of a five-year plan across various business sectors. The fundraising preparation has been undertaken with the assistance of Deloitte and this was matched with internal planning to facilitate the expansion of both current and new business sectors driven by the specialist know how and research capabilities which the business has built developed within its staff base.

One key element has already been realised in mid-2023 and a second tranche is expected in the fourth Quarter of 2023. This funding will lead to a transformation in the levels of business growth in 2023 and beyond allowing The Group to fully develop its operational efficiency targets and significantly expand its operations including geographic and product line expansion across specific growth areas within the packaging materials sector which afford rapid growth trajectories. This will result in a step change in the Group's liquidity allowing it the flexibility to grow within a controlled operational framework.

The financial statements have been prepared on the going concern basis which assumes the group and 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 2022 the group and company has net current liabilities of £6,171,554 and £5,791,196 respectively, and the group has recorded a loss for the period of £7,929,690.

To address the necessary funding requirement during the year, the directors have raised finance through the issue of convertible loans. Subsequent to 31 December 2022 they have raised £8m of additional equity funding and holders of £12m of convertible debt have exercised their option to convert their debt into equity. They have also undertaken a programme to monitor the group’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 that additional funds will be required in order to develop the group's business to meet the opportunities that are available to it as set out in the strategic report. Whilst the directors have identified the likely source of the additional funds, these additional funds are not committed. The directors have prepared additional forecasts which show that the Group will be able to continue as a going concern for a period of at least 12 months from the date the financial statement are authorised for issue with the current sources of committed funding that it holds . These forecasts reflect lower levels of growth and capital expenditure. On this basis, the Directors consider it appropriate to prepare the financial statements on the going concern basis.

CIRCULARITY AND IMPACT

Sustainability is the core business objective and is inherent across every product we produce. The business is focused on continued innovation to ensure that it achieves the best practice end-of-life disposal options for our customers, be that recyclable or compostable. To deliver this the business is working with universities, industry groups, legislators, environmental groups, and governments to advise on-end-of-life options across various product classes and develop innovative approaches to effectively communicate this across our customer base.

As part of our measurement of our internal management and accountability, in 2022 the Company participated in an environmental, social and governance (“ESG”) audit. The audit was principally a gaps analysis which has provided a framework to better understand where we are succeeding and highlight areas for improvement. The Company is formulating a plan to tackle the various gaps identified and ensure that it delivers the highest levels of corporate and social accountability.

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. These products can be easily recycled or composted. If composted, the compost can be returned to local farms improving soil health enhancing crop outputs. The United Nations Food and Agriculture Organisation 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.

In 2022, we implemented several environmental goals across our operations. 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 aim of carbon neutrality before 2030 with all products we manufacture being 100% compostable and recyclable.

2022 continued to be a challenging year with an intensifying supply chain crisis which hampered our machinery development plans. Despite the removal of Covid restrictions there was still a level of business uncertainty. However, the Company never lost sight of its plans to grow by attaining targeted capital support, building key business plans for each operational segment whilst onboarding many new customers.

The business operates in a rapidly changing marketplace with numerous opportunities and potential pitfalls. As we look ahead to 2023, we are focused on a few key objectives:

1.    Completing key fund-raising initiatives This will transform the business and facilitate entry into new market segments with a wider geographic reach. Also, through the expansion of symbiotic relationships in the raw materials sector margins, and working capital positions will dramatically improve.

2.    Manufacturing technology improvement. We have identified several technologies that can be upgraded and retrofitted to provide improved productivity and lower costs. Transcend is targeting specific improvements where we believe that we can significantly increase production levels with similar or slightly lower headcounts.

3.    Continued Innovation. As we have noted, we are surrounded by change, challenges, and opportunities. We cannot, must not, stop innovating. As an organisation, Transcend will continue to invest time, energy and resources in research and development for new product categories. This has had a negative impact on our financials but will open entirely new product categories that we do not currently produce. This J curve principle has influenced the 2022 results, but the business fully believes it will see positive benefits being delivered in 2023.

We may no longer be a start-up; however, we are still a very young Company with a huge mission. We are honoured to have such a world class customer base. We are continually striving to ensure we continue to meet their needs and develop new products to facilitate their transition to a more sustainable future. Our committed and professional workforce is a source of pride, and the business will continue to provide opportunities to acquire new skills, grow and develop. This journey takes the commitment and dedication of the entire team. Also, we appreciate the continued support of our shareholders.

We will continue to work tirelessly to provide financial returns to our shareholders, a meaningful environment for our employees, innovative, sustainable products to our customers whilst focussing on our Environmental, Social and Governance responsibility to providing better stewardship of our planet ensuring future generations will enjoy a thriving planet. We will also deliver on our social responsibilities to the community in which the business and employees reside.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2022.

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 10.

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:

In accordance with the company's articles, a resolution proposing that Azets Audit Services be reappointed as auditor of the group will be put at a General Meeting.

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 ;

•     prepare the on the going concern basis unless it is inappropriate to presume that the group and 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 2022 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 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 group's and the parent company's affairs as at 31 December 2022 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 group and parent 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

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

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 their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept 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 parent 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 £7,882,811 (2021 - £6,658,362 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 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 2022. 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 group and 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 2022 the group and company has net current liabilities of £6,171,554 and £5,791,196 respectively, and the group has recorded a loss for the period of £7,929,690.

To address the necessary funding requirement during the year, the directors have raised finance through the issue of convertible loans. Subsequent to 31 December 2022 they have raised £8m of additional equity funding and holders of £12m of convertible debt have exercised their option to convert their debt into equity. They have also undertaken a programme to monitor the group’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 that additional funds will be required in order to develop the group's business to meet the opportunities that are available to it as set out in the strategic report. Whilst the directors have identified the likely source of the additional funds, these additional funds are not committed. The directors have prepared additional forecasts which show that the Group will be able to continue as a going concern for a period of at least 12 months from the date the financial statement are authorised for issue with the current sources of committed funding that it holds . These forecasts reflect lower levels of growth and capital expenditure. On this basis, the Directors consider it appropriate to prepare the financial statements on the going concern basis.

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 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.

Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

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 2022 are as follows:

Details of associates at 31 December 2022 are as follows:

On the 1st of October 2021 the group acquired the business of Roda Packaging Limited. The investment is accounted for using the equity method.

The company has entered into a contract that provides invoice discounting facilities in respect of its trade debts. An amount of £2,468,275 (2021: £1,555,535) 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.

The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:

Deferred income is included in the financial statements as follows:

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:

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

The following amounts were outstanding at the reporting end date: