COMPANY_3___METHOD_LONDON - Accounts
COMPANY_3___METHOD_LONDON - Accounts
The director presents the strategic report for the year ended 31 December 2022.
Change in reporting period
The company changed its financial year end from 31 March to 31 December with effect from the previous financial period 31 December 2021 to align with the rest of the entities within the Infinity Group it sits within. The financial statements for the current financial year are made up from 1 January 2022 to 31 December 2022. The comparative figures are for the nine months from 1 April 2021 to 31 December 2021.
Principal activities
The Company provides creative services and applied technologies to the film, television and advertising communities.
The results for the Company show a profit after tax of £46,544 (Period ended 31 December 2021: loss of £244,756) and turnover of £12,600,053 (Period ended 31 December 2021: £6,746,253). The increase in profit after tax for the current year, as compared to the previous period, can be attributed to an increase in turnover partially offset by a rise in administrative expenses and the absence of coronavirus job retention scheme grant, which had contributed to a portion of the profits in the period ending on 31 December 2021. During the year one-off non-recurring items relating to historical related party balances no longer payable were recorded totalling £180,029 (Period ended 31 December 2021: £30,435).
The Company continues to work with major film studios, advertising agencies and large brands on some of their major projects. Despite the WGA and SAG-AFTRA strikes during the 2023 financial year, the Company has performed well and is expected to perform above budget.
It is considered that turnover, gross profit and EBITDA (operating profit adding back depreciation and amortisation) are the key performance indicators of the business. The results for continuing operations are:
KPI | Year ended 31 December 2022 | Period ended 31 December 2021 | Increase/ (decrease) | Comments |
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Turnover | 12,600 | 6,746 | 87% | The increase in turnover is due to the shorter prior period. It’s a 40% YoY increase when prior period numbers are annualized. Increase is attributable to a strong pipeline in the second half of the year, this was driven by continued expansion in Advertising revenue. |
Gross profit | 4,551 | 1,448 | 214%
| When factoring in the shorter prior period, annualising 2021 costs results in a 14% increase which are in line with increased revenue. |
EBITDA | 3,593 | 2,102 | 71% | Increase in EBITDA is driven by the increase in revenue partially offset by increased administrative expenses. |
The Company’s performance is impacted by the general economic climate in the UK and North America. This risk is managed by ensuring that the group operates across a range of markets with a broad client base. On 31 January 2021 the UK left the EU, the directors believe that any associated risk is low given the current group operations and locations. However, the Director continues to monitor the situation, particularly with respect to supply chains. The Company has been affected by the COVID-19 pandemic in all the locations it has operations. COVID-19 has impacted our colleagues, operations, customers with the extent dependent on factors including but not limited to, length of lockdowns, virus recurrence, nature and extent of any government interventions, severity of economic effects and the speed and nature of recovery. Employees have successfully been able to work from home which has minimised disruption to the business. Some major productions were impacted during the COVID-19 peaks which has had a knock-on effect on project margin and delivery during the early part of 2022. As with other companies in the film industry, the Company has been affected by the ongoing WGA and SAG-AFTRA strikes, however, the impact of the strikes is not material.
The Board of Directors of Company 3 / Method London Limited (“the Company”) has acted in the way it considers, in good faith, would be most likely to promote the success of the Company for the benefit of its employees as a whole and having regard (amongst other matters) to factors (a) to (f) s172 Companies Act 2006, in the decisions taken during the year ended 31 December 2022.
By way of background, the Board is currently comprised of one director, Stefan Sonnenfeld, who is the President & Chief Executive Officer of Company 3 / Method London Limited’s parent company. In carrying out his director duties on behalf of the Board and consistent with the points herein, Mr. Sonnenfeld is regularly advised by and consults with his global executive team which includes the presidents of various business units and multiple officers, including, among others, the heads of the technology, legal and human resources departments.
With this in mind, the Board regularly undertakes a review of the Company’s strategy including its long-term business plan. This informs the annual budgets, resource plans and investment decisions. In making decisions concerning the future strategy the Board has regard for a variety of matters including the interests of shareholders, clients, staff and the community in which the Company is based and the consequences of our decisions in the long term.
The Board recognises the Company’s employees are fundamental to the long-term success of the business. The aim is to be a responsible employer in the Company’s approach to the pay and benefits our employees receive. Their health, safety, development, and wellbeing are primary considerations in the way we operate and the support we provide to them.
Our strategy prioritises sustainable growth through selling services to both existing and new clients; this relies on maintaining and developing strong client relationships and finding solutions, often through innovation, to their needs. The Board is briefed on major contract renegotiations and strategy with regards to key customers and suppliers.
The Board considers the impact of the Company’s operations on the community and environment and our wider societal responsibilities. Where and when possible, the Company supports local charities in the locations it is based in, enables staff charity events and is an active corporate citizen. As a Company, we are an active organisation in terms of equality, diversity and inclusion. The Company employs a Vice President, Diversity & Organizational Development, who, along with their team, advise the Board and lead the Company’s initiatives in this regard. An employee-led collective knowns as “Company 3 For Good” draws from all parts and levels of the Company and also drives this work.
The Board’s intention is to behave responsibly and ensure that management operates the business in a responsible manner, upholding a high standard of business conduct and practicing good governance. This commitment is being actively realized through regular training and workshops for both employees and leadership, comprehensive ethical guidelines that are consistently communicated and reinforced, as well as the implementation of compliance mechanisms. The Board remains steadfast in its dedication to maintaining this proactive approach as a fundamental element of the Company’s operational philosophy.
It is the Board’s intention to behave responsibly towards the Company’s employees and treat them fairly and equally.
On behalf of the board
The director presents his annual report and financial statements for the year ended 31 December 2022.
No ordinary dividends were paid. The director does not recommend payment of a final dividend.
The director who held office during the year and up to the date of signature of the financial statements was as follows:
The Company’s operations expose it to a variety of financial risks that include the effects of credit risk, interest, exchange rate risk, industry risk and the current risks of rising inflation and global energy crisis. The Company is reliant on its board of directors to actively manage its risk exposure. Given the size of the Company, the directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the board. The policies set by the board of directors are implemented by the group’s finance department.
Credit risk
The Company has implemented policies that require appropriate credit checks on potential customers before sales are made. Where debt finance is utilised, this is subject to pre-approval by the board of directors and such approval is limited to respected financial institutions.
Interest and exchange rate cash flow risk
The Company has interest bearing liabilities and foreign currency assets. Interest bearing liabilities includes an intercompany loan which accrues interest at a fixed rate. Foreign currency assets include trade receivables in foreign currency.
Industry risk
The Company expects a short-term impact on the revenue pipeline due to the ongoing SAG-AFTRA strike, however, a full recovery is expected once the strike is resolved. Due to the strong local pipeline this impact is not material.
Inflation and global energy crisis
Due to the current economic climate and levels of inflation at the date of issuance of the financial statements, the Company’s exposure to inflation risk has resulted in a higher degree of focus by senior management. Inflation levels have not had a significant impact on the majority of the Company’s cost base which is largely driven by staff, software and facility costs. We anticipate that these costs would remain stable. To mitigate the risk of inflation, the Company is focusing on creating flexibility in the global staff workforce.
The global energy crisis has not had a direct material impact on the Company’s operations.
Employees
Although the Company is in the process of developing a formal performance management program, each of the Company’s departments are tasked with appraising and assessing employee performance and career development based on their own internal calendars and as needed. There are a wide range of informal and formal training opportunities available to staff at all levels.
Company-wide staff presentations are held on an as-needed basis.
Pursuant to applicable law, it is the Company’s policy that disabled persons or persons who become disabled whilst in the employment of the Company should be considered for employment, training, career development and promotion on the basis of their abilities and aptitudes in common with all employees.
Political Donations
No political donations were made during the year (period ended 31 December 2021: £nil).
The prior period year was 9 months long therefore results are not entirely comparable.
The directors have considered that Infinity Group provides financial support to the Company and note that Infinity Group’s ability to continue as a going concern is dependent on its ability to refinance or renegotiate maturing debt obligations and covenant levels. Discussions with lenders are ongoing however no agreement to refinance is in place yet and there can be no certainty that the facility will be renewed or that the level of facility will be sufficient to cover cash flow requirements. This matter indicates the existence of a material uncertainty related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. Based on their enquiries the directors believe that it remains appropriate to prepare the financial statements on a going concern basis.
The auditor, Azets Audit Services, is deemed to be reappointed under section 487 (2) of the Companies Act 2006.
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.
give a true and fair view of the state of the company's affairs as at 31 December 2022 and of its profit for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
Material uncertainty related to Going Concern
Other information
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 director's report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the director's report have been prepared in accordance with applicable legal requirements.
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of 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 director's responsibilities statement, the director is 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 director determines 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 director is responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the director either intends to liquidate the company or to cease operations, or has 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 company 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.
Company 3 / Method London Limited is a private company limited by shares incorporated in England and Wales. The registered office is 28 Chancery Lane, London, United Kingdom, WC2A 1LB.
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 £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
The financial statements of the company are consolidated in the financial statements of Infinity Bidco US LLC. These consolidated financial statements are available from its registered office, 28 Chancery Lane, London, England, WC2A 1LB.
The company has incurred a net profit during the year, and on 31 December 2022 has a net deficit of £2,634,758 (2021: £2,681,301). The company's continuation as a going concern is dependent upon its ability to develop and attain profitable operations and generate funds therefrom. The parent company have provided a committment that it will financially support the company, if required.
The Directors note that the Group’s ability to provide this support is dependent on its ability to refinance or renegotiate the maturing debt obligations and covenant levels. Management have been actively engaged in discussions with lenders and are confident of the Group’s ability to successfully refinance or renegotiate these obligations. However, at the date of approving these financial statements no agreement to refinance is in place and there can be no certainty that the facility will be renewed or that the level of facility will be sufficient to cover cash flow requirements.
Based on the expectation that a successful refinancing will occur, the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis. However, this matter indicates the existence of a material uncertainty related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.
The prior period year was 9 months long therefore results are not entirely comparable.
Included within leasehold improvements are some assets which are under construction and are not depreciated.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
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.
Trade and other debtors
Trade and other debtors are measured at transaction price less any impairment unless the arrangement constitutes a financing transaction in which case the transaction is measured at the present value of the future receipts discounted at the prevailing market rate of interest.
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 are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company 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.
Trade and other creditors
Trade and other creditors are measured at their transaction price unless the arrangement constitutes a financing transaction in which case the transaction is measured at present value of future payments discounted at prevailing market rate of interest. Other financial liabilities are initially measured at fair value net of their transaction costs. They are 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 company’s contractual obligations expire or are discharged or cancelled.
The preparation of financial statements requires management to make judgements, estimates and assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying 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 a continuing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The director considers that there are no significant judgements or estimates in the preparation of these financial statements.
The turnover and profit before taxation are attributable to the one principal activity of the company.
The average monthly number of persons (excluding directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The Director of the company has been remunerated for their services through other group companies.
The actual charge/(credit) for the year can be reconciled to the expected charge/(credit) for the year based on the profit or loss and the standard rate of tax as follows:
The company had unrecognised tax losses available of £3,336,862 (2021: £4,116,380).
Factors that may affect future tax charges
The UK Government announced in the 2021 budget that from 1 April 2023, the rate of corporation tax in the United Kingdom will increase from 19% to 25%. Companies with profits of £50,000 or less will continue to be taxed at 19%, which is a new small profits rate. Where taxable profits are between £50,000 and £250,000, the higher 25% rate will apply but with a marginal relief applying as profits increase.
During the audit of the financial statements for the year ended 31 December 2022, management became aware of adjustments required in relation to the existence of a transfer pricing agreement with the Company 3 group. The transfer pricing agreement is designed to ensure that all entities within the group achieve similar profit margins when conducting transactions at arm's length.
Company 3 / Method London Limited has historically incurred losses, and as a result, adjustments are required to account for the income received from the parent company in order to align with the desired profit margin. The agreement was formulated after the close of the financial year 2022, and as a consequence, it has been applied retrospectively, leading to adjustments in the prior year's financials as detailed in note 17.
At the year end the company owed £78,786 (2021: £38,203) in respect of employer pension contributions.
The deferred tax liability set out above relates to accelerated capital allowances.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
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. There are no related party transactions in the period to disclose.
Company 3 / Method London is a wholly owned subsidiary of C3 UK Holdings Limited.
The ultimate parent company is Infinity Topco Limited, a UK Company.
During the audit of the financial statements for the year ended 31 December 2022, management became aware of adjustments required in relation to the existence of a transfer pricing agreement with the Company 3 group. The transfer pricing agreement is designed to ensure that all entities within the group achieve similar profit margins when conducting transactions at arm's length.
Company 3 / Method London Limited has historically incurred losses, and as a result, adjustments are required to account for the income received from the parent company in order to align with the desired profit margin. The agreement was formulated after the close of the financial year 2022, and as a consequence, it has been applied retrospectively, leading to adjustments in the prior year's financials