The directors present the strategic report for the year ended 31 March 2023.
Fair review of the business
The Company is a utility contracting business, currently working solely for Southern Water. The Company is owned and supported jointly by J. Browne Construction Company Limited and Cappagh Contractors Construction (London) Limited.
The financial performance of the Company was as follows:
The Company achieved sales of £65,702,245 (2022: £47,533,325) and delivered a profit before tax of £48,086 (2022: £16,644). The net current assets were £245,263 (2022: £225,268). Cash in bank at 31st March 2023 was £567,592 (2022: £3,257,278).
Business environment
The Company operates in the U.K. water sector. Southern Water awarded the Company their React & Maintain Sewerage Operations contract in late 2014 and field activities under the contract commenced on 1st April 2015. The contract was subsequently extended by a further five years to 2025 and the Company aims to be awarded contract works past 2025 into the AMP8 regulatory period.
Under the contract, the Company provides sewerage network maintenance services across Southern Water's entire region - Sussex, Kent, Hampshire and the Isle of Wight.
Business model
The Company has the potential to undertake multiple contracts for different clients but was specifically established to deliver the R&M Sewerage Operations contract for Southern Water. We continue to ensure that we deliver that contract well, providing exceptional customer focus, frontier safety performance, resilient solutions for the environment and excellent value for money.
We continue to innovate and drive performance. We are continuing to invest both directly and jointly with Southern Water in technology, process improvement, and in our people to continue development.
Development and performance
Our principal focus in the year has been to further enhance the customer experience, to reduce our cost base and to further improve our delivery processes and efficiency. We continue to innovate, improving our performance in each area.
We have also met the challenges of an extreme winter event through increasing resources materially in the year. Workload coming through both reactive and planned procurement routes has increased significantly.
The Company continually monitors customer and operational performance which has a significant impact on the performance of Southern Water. The Contract between the Company and Southern Water includes incentive payments based on performance.
The Company has seen key indicators such as Customer Service continue an upward trend. We are working closely with Southern Water to increase the Customer Measure of Experience (C-MeX) and improve Environmental outcomes.
Social responsibility
We continue to support the work of the Living Wage Foundation and the Company has been accredited as a Real Living Wage employer. This means everyone working at the Company will receive a minimum hourly wage which is significantly higher than the national minimum wage and the new minimum wage premium for over 25’s.
We are looking to bring new people into the industry through our supervisor and operative apprenticeship and training programmes, our graduate engagement scheme with local colleges and universities, and though employment of ex-services personnel. Working with the Civil Engineering Technical College (CETC) in particular we have increased our intake of apprentices in the year.
The Company has fully supported Southern Water's corporate charity events as well as sponsored a number of employees in their charitable efforts.
We have a diverse workforce and provide equal opportunities for all.
Health Safety and Wellbeing
The Company has a dedicated Health, Safety, Quality and Environment (HSQE) and compliance team.
All levels of management are required to undertake SHE monitoring activities, from SHE tours by directors to SHE surveys by senior managers and SHE inspections by site and workplace management.
It is the Company’s policy to report all accidents regardless of severity. Accident and incident reports are assessed to identify their main cause and analysed to identify trends and areas for improvement in the same way as for findings of inspection, tours and surveys.
We are very focused on continuous improvement. We invest in our frontline managers through training and development, investing in our support systems, and in wider management information tools to drive performance and in Health and Safety related applications to help our workforce to stay safe and improve their personal wellbeing.
Key performance indicators
The directors have established a number of key performance indicators which they use to measure and monitor the performance of the Company in a number of different areas during monthly reviews.
The target range for gross profit as a percentage of turnover is set out below.
|
| 2023 | 2022 |
Gross Profit Margin |
|
| |
| Upper range target | 12.0% | 12.0% |
| Actual performance | 11.2% | 10.8% |
| Lower range target | 10.0% | 10.0% |
The Company’s safety record is monitored using the Accident Frequency Rate (ARF) on reportable accidents. The rate of 0.00 was measured for the year to 31 March 2023 (2022: 0.25).
Principal risks and uncertainties
Risks are captured in the Company's risk register which is supported by various plans, policies and procedures to mitigate the consequences of those risks.
As well as the risks associated with undertaking the Company's routine operational activities; health, safety, environmental, streetworks, public interaction, the Company's more general principal risks are fluctuating workload, operational performance, cost increases and resource availability.
In particular, since the beginning of 2022, due to global events and national inflation pressures, we have been working with our client and supply chain partners to manage the effects of material supply shortages, volatility of fuel, energy and materials costs as well as facing a challenging labour market in relation to recruiting and retaining our workforce and support staff.
The Company has a good understanding of its exposure in respect of these ongoing risks and has plans in place to mitigate and manage them.
Liquidity risk
The Company monitors and manages its liquidity closely and pays particular attention to its cash flow. Adequate reserves are maintained by continuously reviewing actual and forecast cash flow movements.
Credit Risk
The Company currently works solely for Southern Water under contractual agreements which include clearly defined payment terms. Staff work closely with the client to minimise the risk of financial loss due to late payments.
Promoting the success of the company - Section 172 Companies Act 2006 statement
The directors confirm that, during the year, they continued to act in good faith to promote the success of the company for the benefit of its members as a whole and confirm their commitment to ensuring due consideration of, amongst other matters:
the likely consequences of any decision in the long term;
the interests of the company's employees;
the need to foster the company's business relationships with suppliers, customers and others;
the impact of the company's operations on the community and the environment;
the desirability of the company maintaining a reputation for high standards of business conduct; and
the need to act fairly between members of the company.
Likely long-term consequences of any decision
The directors meet on a monthly basis throughout the year supported by senior management providing detailed, timely information to assist any necessary decision making. As well as utilising a wide range of technical and industrial experience, the directors aim to make informed, fact/data based strategic and operational decisions, where possible backed up by thorough research, in-depth deliberation and careful consideration of likely long-term consequences.
Employees
The directors recognise the value of the people employed by the company. As our employees are key to our success, we invest in training and development to enable them to grow their skills and maintain their motivation. We respect the rights and dignity of every employee and treat them fairly and without discrimination; team working and sharing of knowledge are encouraged with individual/team contributions being rewarded appropriately.
Relationships with suppliers, customers and others
The company continually works towards maintaining and further developing the strong working relationship established with its sole customer and aims to build strong relationships with suppliers which then foster loyalty, mutual success and facilitate sustainable, safe, and efficient operations.
Community and the environment
The company aims to be responsive to the needs of the communities in which it works and to be aware of and minimise the impact of its operations on the environment.
Business conduct
The directors always make decisions with the highest standard of business conduct in mind so the risk of reputational damage to the company and its stakeholders is minimised.
Shareholders
The directors recognise their role in overseeing the strategy of the business and acting fairly between shareholders.
Outlook
Whilst the volume of work is variable, the nature of the contract means that Southern Water's reactive work flows to us and there is a significant volume of capital delivery and Network Development work to be undertaken as well. We are well placed to continue to deliver an increased volume of this work.
The Company is preparing to tender ahead of the AMP8 regulatory period from 2025 to 2030 and continues to develop the business to resecure principal contracts. This includes significant investment in plant and equipment to support the business in the years ahead. We are also continuing to develop our service offering for our customers, through collaboration, innovative thinking and action, and through increasing efficiency. We always look for more innovative ways of carrying out our work through technology and smarter working methods, and this will continue.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2023.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
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 company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company's strategic report information required by Large and Medium Companies and Groups (Accounts and Reports) Regulation 2008, Sch.7 to be contained in the directors' report. It has done so in respect of Future Developments.
The auditor, Ad Valorem (Audit) LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
Basis for 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 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
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.
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 company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to UK taxation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to management override of controls. Audit procedures performed by the engagement team included:
- Reviewing minutes of meetings of those charged with governance;
- Enquiry of management and those charged with governance around actual and potential litigation and claims;
- Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations, and
- Auditing the risk of management override of controls, including through testing journal entries and other adjustments for appropriateness and testing accounting estimates (because of the risk of management bias).
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentation, or through collusion.
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.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Cappagh Browne Utilities Limited is a private company limited by shares incorporated in England and Wales. The registered office is Meelin House, Unit 2, Pavillion Business Centre, 6 Kinetic Crescent, Enfield, United Kingdom, EN3 7FJ.
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 “percentage of completion method” is used to determine the appropriate amount to recognise in a given period. The stage of completion is measured by the proportion of contract costs incurred for work performed to date compared to the estimated total contract costs. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. These costs are presented as stocks, prepayments or other assets depending on their nature, and provided it is probable they will be recovered.
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.
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 company 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.
Equity instruments issued by the company 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 company.
In the application of the company’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 company during the year was: 198 (2022; 173).
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
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 year end, included within amounts owed to group undertakings are the amounts of £2,653,487 (2022 : £1,791,537) and £2,682,000 (2022 : £1,745,045) due to Cappagh Contractors Construction (London) Limited and J Browne Construction Company Limited. Both of these companies are the equal immediate parent companies. There is no interest being charged on the balances owed and there is also no securities over the balances owed.
Included within the profit & loss are management charges of £3,250,000 (2022 : £2,190,000) and £3,250,000 (2022 : £2,190,000) to both Cappagh Contractors Construction (London) Limited and J Browne Construction Company Limited.
During the year, the company purchased services in the amount of £4,070,783 (2022 : £1,173,082) and £4,086,678 (2022 : £386,829) with Cappagh Contractors Construction (London) Limited and J Browne Construction Company Limited.
There are no other post balance sheet events that have taken place between 31 March 2023 and the date of this report that are required to be brought to the attention of shareholders.
The immediate controlling parties are J. Browne Construction Company Limited and Cappagh Contractors Construction (London) Limited. Both companies are registered in the United Kingdom.