Henbury Engineering Limited - Limited company accounts 23.2

REGISTERED NUMBER: 10633736 (England and Wales)

Group Strategic Report,

Report of the Directors and

Consolidated Financial Statements

for the Year Ended 30 September 2023

for

Henbury Engineering Limited

Page

Company Information

1

Group Strategic Report

2

Report of the Directors

4

Report of the Independent Auditors

5

Consolidated Profit and loss account

9

Consolidated Balance Sheet

10

Company Balance Sheet

11

Consolidated Statement of Changes in Equity

12

Company Statement of Changes in Equity

13

Consolidated Cash Flow Statement

14

Notes to the Consolidated Cash Flow Statement

15

Notes to the Consolidated Financial Statements

16

DIRECTORS:

P R Morgan

J Fowler

J Dudley-Toole

REGISTERED OFFICE:

Hall Lane Works

Elton

Sandbach

Cheshire

CW11 3TU

REGISTERED NUMBER:

10633736 (England and Wales)

AUDITORS:

Thompson Wright Limited

Chartered Accountants

and Statutory Auditors

Ebenezer House

Ryecroft

Newcastle under Lyme

Staffordshire

ST5 2BE

The directors present their strategic report of the company and the group for the year ended 30 September 2023.

REVIEW OF BUSINESS

The continuation of improved financial performance is being driven by the management team at Newfield Fabrication Company Limited. The Business has developed a Senior Leadership Team to focus on strategic objectives, the additions include an Operations Director & Head of Commercial Services.

The prior investment in automation, coupled with growth in new sectors, has allowed the company to grow profits despite the impact of the coronavirus pandemic and resulting cost of living crisis.

Investment in the development of new products and processes continues to be a key focus for the business as it starts to work with new customers and within new sectors.

Energy and raw material prices continue to cause inflationary pressure demonstrated in the financial performance of the business.

Newfield is in regular contact with all customers to mitigate the effect of inflation on the business.

There has been a 32.6% increase in turnover in the year. This has been driven by the introduction of several new key customers operating in alternate markets, including Medical and Ministry of Defence. The increased capacity from the investment in capital equipment has allowed the business to offer a shortened lead time and increase it's gross profit levels.

The expectation is that there will be a continuation of this trend throughout 2024 and 2025, as demonstrated in the forecasts.

Key performance indicators are gross margin, stock turnover, debtors days and operating profit:

2023

2022

- Gross Margin

34.2%

34.3%

- Stock turnover

50 days

89 days

- Debtor days

57 days

87 days

- Operating profit

4.5%

2.3%

PRINCIPAL RISKS AND UNCERTAINTIES

The directors have identified the key risks faced by the group to be market risk, financial risk, credit risk and exchange rate risk.

The directors are constantly monitoring both the quality and price of the products it acquires and the range of goods it supplies, to minimise the market risk.

The group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.

The group's policy throughout the year has been to maintain liquid funds at the bank and avoid incurring overdraft interest whilst also funding the repayment of finance lease and loan obligations.

To achieve short term flexibility, the group operates an invoice discounting facility and hire purchase facilities, which means that it is exposed to interest rate risk.

Where the group has had to undertake short term borrowings, the company's exposure to interest rate fluctuations on its borrowings is managed by the use of fixed and floating facilities. It is the group's policy to minimise the amount of borrowings at floating rates of interest.

The maturity of borrowings is set out in notes 15 and 16 to the financial statements.

The principal credit risk arises from its trade debtors.

In order to manage credit risk, the directors set limits for its customers based on a combination of payment history and third party credit references. Where available credit insurance is also taken out. Credit limits are reviewed by the credit controller on a regular basis in conjunction with debt ageing and collection history.

During 2023, credit risk exposure was spread over a large number of customers.

FUTURE DEVELOPMENTS

Looking to the future, the directors want to maintain appropriate investment levels in the company to maintain and secure the company's position in the market. The directors closely monitor the market place to ensure that the company can deliver the best products at the best prices.

ON BEHALF OF THE BOARD:

P R Morgan - Director

13 December 2023

The directors present their report with the financial statements of the company and the group for the year ended 30 September 2023.

PRINCIPAL ACTIVITY

The principal activity of the group in the year under review was that of steel fabricators.

DIVIDENDS

No dividends will be distributed for the year ended 30 September 2023.

DIRECTORS

The directors shown below have held office during the whole of the period from 1 October 2022 to the date of this report.

P R Morgan

J Fowler

J Dudley-Toole

DISCLOSURE IN THE STRATEGIC REPORT

Future developments and principal risks and uncertainties are disclosed in the strategic report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing the financial statements, the directors are required to:

- select suitable accounting policies and then apply them consistently;

- state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

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

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

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The directors are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

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

AUDITORS

The auditors, Thompson Wright Limited, will be proposed for re-appointment at the forthcoming Annual General Meeting.

ON BEHALF OF THE BOARD:

P R Morgan - Director

13 December 2023

Opinion

We have audited the financial statements of Henbury Engineering Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 September 2023 which comprise the Consolidated Profit and loss account, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated Cash Flow Statement and Notes to the Consolidated Cash Flow Statement, Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

-	give a true and fair view of the state of the group's and of the parent company affairs as at 30 September 2023 and of the group's profit for the year then ended;

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

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

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the group 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 the 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 directors are responsible for the other information. The other information comprises the information in the Group Strategic Report and the Report of the Directors, but does not include the financial statements and our Report of the Auditors thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether 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 the audit:

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

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

Matters on which we are required to report by exception

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

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

-	adequate accounting records have not been kept 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.

Responsibilities of directors

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

In preparing the financial statements, the directors are responsible for assessing the group's and 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 group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

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

The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:

- the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;

- we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience.

- we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including the Companies Act 2006, taxation legislation, data protection, anti-bribery, employment and health and safety legislation and FSC and PEFC compliance;

- we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and

- identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.

We assessed the susceptibility of the company's financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:

- making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of

actual, suspected and alleged fraud; and

- considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations.

To address the risk of fraud through management bias and override of controls, we:

- performed analytical procedures to identify any unusual or unexpected relationships;

- tested journal entries to identify unusual transactions;

- assessed whether judgements and assumptions made in determining the accounting estimates were indicative of

potential bias; and

- investigated the rationale behind significant or unusual transactions.

In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:

- agreeing financial statement disclosures to underlying supporting documentation;

- reading the minutes of meetings of those charged with governance;

- enquiring of management as to actual and potential litigation and claims; and

- reviewing correspondence with HMRC, relevant regulators including the Health and Safety Executive, and the

company's legal advisors.

There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.

Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our Report of the Auditors.

Use of our report

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

Jeremy Bostock BA BFP FCA (Senior Statutory Auditor)

for and on behalf of Thompson Wright Limited

Chartered Accountants

and Statutory Auditors

Ebenezer House

Ryecroft

Newcastle under Lyme

Staffordshire

ST5 2BE

13 December 2023

TURNOVER

3

15,793,104

11,914,759

Cost of sales

10,393,751

7,831,302

GROSS PROFIT

5,399,353

4,083,457

Administrative expenses

4,627,979

3,756,931

OPERATING PROFIT

5

771,374

326,526

Interest payable and similar expenses

6

438,883

358,869

PROFIT/(LOSS) BEFORE TAXATION

332,491

(32,343

)

Tax on profit/(loss)

7

(1,096

)

(281,238

)

PROFIT FOR THE FINANCIAL YEAR

333,587

248,895

OTHER COMPREHENSIVE INCOME

-

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

333,587

248,895

Profit attributable to:

Owners of the parent

333,587

248,895

Total comprehensive income attributable to:

Owners of the parent

333,587

248,895

FIXED ASSETS

Intangible assets

9

(708,063

)

(755,066

)

Tangible assets

10

2,323,878

2,535,663

Investments

11

-

-

1,615,815

1,780,597

CURRENT ASSETS

Stocks

12

1,444,758

1,920,154

Debtors

13

3,030,211

3,454,612

Cash at bank and in hand

489,918

736,588

4,964,887

6,111,354

CREDITORS

Amounts falling due within one year

14

4,821,679

5,920,870

NET CURRENT ASSETS

143,208

190,484

TOTAL ASSETS LESS CURRENT LIABILITIES

1,759,023

1,971,081

CREDITORS

Amounts falling due after more than one year

15

(647,269

)

(1,191,818

)

PROVISIONS FOR LIABILITIES

19

(59,972

)

(61,068

)

NET ASSETS

1,051,782

718,195

CAPITAL AND RESERVES

Called up share capital

20

120

120

Capital redemption reserve

21

30

30

Retained earnings

21

1,051,632

718,045

SHAREHOLDERS' FUNDS

1,051,782

718,195

The financial statements were approved by the Board of Directors and authorised for issue on 13 December 2023 and were signed on its behalf by:

P R Morgan - Director

FIXED ASSETS

Intangible assets

9

-

-

Tangible assets

10

-

-

Investments

11

4,750,000

4,750,000

4,750,000

4,750,000

CURRENT ASSETS

Debtors

13

70

70

CREDITORS

Amounts falling due within one year

14

4,748,695

4,748,695

NET CURRENT LIABILITIES

(4,748,625

)

(4,748,625

)

TOTAL ASSETS LESS CURRENT LIABILITIES

1,375

1,375

CAPITAL AND RESERVES

Called up share capital

20

120

120

Capital redemption reserve

21

30

30

Retained earnings

21

1,225

1,225

SHAREHOLDERS' FUNDS

1,375

1,375

Company's profit for the financial year

-

-

The financial statements were approved by the Board of Directors and authorised for issue on 13 December 2023 and were signed on its behalf by:

P R Morgan - Director

Called up

Capital

share

Retained

redemption

Total

capital

earnings

reserve

equity

£

£

£

£

Balance at 1 October 2021

120

469,150

30

469,300

Changes in equity

Total comprehensive income

-

248,895

-

248,895

Balance at 30 September 2022

120

718,045

30

718,195

Changes in equity

Total comprehensive income

-

333,587

-

333,587

Balance at 30 September 2023

120

1,051,632

30

1,051,782

Called up

Capital

share

Retained

redemption

Total

capital

earnings

reserve

equity

£

£

£

£

Balance at 1 October 2021

120

1,225

30

1,375

Changes in equity

Balance at 30 September 2022

120

1,225

30

1,375

Changes in equity

Balance at 30 September 2023

120

1,225

30

1,375

Cash flows from operating activities

Cash generated from operations

1

1,451,246

957,754

Interest paid

(346,749

)

(244,467

)

Interest element of hire purchase payments paid

(92,136

)

(114,402

)

Tax paid

(5,480

)

317,135

Net cash from operating activities

1,006,881

916,020

Cash flows from investing activities

Purchase of tangible fixed assets

(344,640

)

(356,541

)

Sale of tangible fixed assets

16,444

-

Net cash from investing activities

(328,196

)

(356,541

)

Cash flows from financing activities

Loan repayments in year

(85,199

)

(78,357

)

Invoice discounting facility

(277,507

)

326,097

Capital repayments in year

(461,245

)

(143,920

)

Amount withdrawn by directors

(101,404

)

-

Net cash from financing activities

(925,355

)

103,820

(Decrease)/increase in cash and cash equivalents

(246,670

)

663,299

Cash and cash equivalents at beginning of year

2

736,588

73,289

Cash and cash equivalents at end of year

2

489,918

736,588

1.	RECONCILIATION OF PROFIT/(LOSS) BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS

2023

2022

£

£

Profit/(loss) before taxation

332,491

(32,343

)

Depreciation charges

489,173

473,137

Loss on disposal of fixed assets

3,806

-

Finance costs

438,883

358,869

1,264,353

799,663

Decrease/(increase) in stocks

475,396

(87,615

)

Decrease/(increase) in trade and other debtors

429,881

(350,889

)

(Decrease)/increase in trade and other creditors

(718,384

)

596,595

Cash generated from operations

1,451,246

957,754

2.	CASH AND CASH EQUIVALENTS

The amounts disclosed on the Cash Flow Statement in respect of cash and cash equivalents are in respect of these Balance Sheet amounts:

Year ended 30 September 2023

30.9.23

1.10.22

£

£

Cash and cash equivalents

489,918

736,588

Year ended 30 September 2022

30.9.22

1.10.21

£

£

Cash and cash equivalents

736,588

73,289

3.	ANALYSIS OF CHANGES IN NET DEBT

Other

non-cash

At 1.10.22

Cash flow

changes

At 30.9.23

£

£

£

£

Net cash

Cash at bank

and in hand

736,588

(246,670

)

489,918

736,588

(246,670

)

489,918

Debt

Finance leases

(1,584,935

)

461,245

-

(1,123,690

)

Debts falling due

within 1 year

(2,416,976

)

362,707

(68,426

)

(2,122,695

)

Debts falling due

after 1 year

(68,426

)

-

68,426

-

(4,070,337

)

823,952

-

(3,246,385

)

Total

(3,333,749

)

577,282

-

(2,756,467

)

1.	STATUTORY INFORMATION

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

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

2.	ACCOUNTING POLICIES

Basis of preparing the financial statements

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

After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future, being the 12 month period from the date of these accounts being approved, given the impact of the Coronavirus upon the economy, and therefore the financial statements have been prepared on a going concern basis.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the company and all subsidiary undertakings, together with the group's shares of the net assets and results of associated undertakings and joint ventures. The financial statements of all group companies are adjusted, where necessary, to ensure the use of consistent accounting policies. Acquisitions are accounted for under the acquisition method. The results of companies acquired or disposed of are included in the group profit and loss account from or up to the date that control passes respectively.

Related party exemption

The company has taken advantage of exemption, under the terms of Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', not to disclose related party transactions with wholly owned subsidiaries within the group.

Transactions between group entities which have been eliminated on consolidation are not disclosed within the financial statements.

Significant judgements and estimates

The company makes significant judgements and estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are detailed below.

Impairment of debtors

Management makes an estimate of the recoverable value of trade and other debtors. When assessing impairment of trade and other debtors, management considers factors including the progress and stage reached of individual cases.

Stock provision

The company sells products which are subject to changing customer demands and product degradation. As a result it is necessary to consider the recoverability of the cost of stocks and the associated provisioning necessary. When calculating the stock provision, management considers the nature and condition of the stock as well as reviewing sales and purchase history.

Turnover

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 any trade discounts, settlement discounts and volume rebates.

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 despatch 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 in respect of the transaction can be measured reliably.

Goodwill

Goodwill, being the amount paid in connection with the acquisition of a business in 2018, is being amortised evenly over its estimated useful life of twenty years.

The amortisation write off period has been deemed appropriate by the directors.

Intangible assets

Intangible assets are initially measured at cost. After initial recognition, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses.

Computer software is being amortised evenly over its estimated useful life of nil years.

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

Computer software - over 2 -15 years

Tangible fixed assets

Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life or, if held under a finance lease, over the lease term, whichever is the shorter.

Plant and machinery

-

over 1 to 20 years and 50 years

Fixtures and fittings

-

over 2 to 15 years

Motor vehicles

-

over 4 to 5 years

Stocks

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

Cost is calculated using the first-in, first-out method and includes all purchase, transport, and handling costs in bringing stocks to their present location and condition.

Stock and work in progress are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving stock.

Cost compromises 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.

Financial instruments

The company has chosen to adopt the Sections 11 and 12 of FRS 102 in respect of financial instruments.

(i) Financial assets

Basic financial assets, including trade and other debtors, and cash and bank balances are initially recognised at transaction price, 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. Such assets are subsequently carried at amortised cost using the effective interest method.

At the end of each reporting period financial assets measured at amortised cost are assessed for objective evidence of impairment. 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.

(ii) Financial liabilities

Basic financial liabilities, including trade and other creditors and loans from fellow group companies, 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 receipts discounted at a market rate of interest. 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. Trade creditors are classified as current liabilities if payment is due within one year or less. If not, they are presented as creditors due after more than one year. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Taxation

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

Current or deferred taxation assets and liabilities are not discounted.

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

Deferred tax

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

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

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

Foreign currencies

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