The directors present the strategic report for the year ended 30 June 2023.
The company’s results for the year comprised turnover of £58.1m (2022 - £50.7m), a gross loss of £1.2m (2022 - £2.5m gross profit), operating loss of £3.0m (2022 – £1m operating profit) and loss on ordinary activities before taxation of £2.4m (2022 - profit before tax of £1m).
However, the past year was once again marked by hyper-inflationary conditions, supply chain and logistical challenges, and difficulties with subcontractors, all of which have had a notable impact on the profit margins of our ongoing legacy construction projects. Despite these challenges, the group achieved significant milestones by successfully securing and initiating four new contracts with a combined value of £60 million. Additionally, the group finalised three land deals, incorporating two associated contracted construction projects with new clients for the Group in Octopus Real Estate at Alton for a 67 bedroom care home and Inspired Villages Group at Horndean for a zero-carbon Integrated Retirement Community. Throughout the year, the group completed, or was in the contractual process for, a total of 344 homes across various sites. Furthermore, progress was made as the group commenced construction on two new care homes and three housing schemes. Notably, four care homes with a total of 263 beds were successfully completed during the year, and the group is poised to deliver three more care homes with a combined capacity of 184 beds by the end of the 2024 financial year.
While the challenges posed by the uncertainties of COVID and Brexit are largely behind us, the aftermath has ushered in a new set of risks on some of our legacy projects for the group, some of which were underscored in the strategic report of the previous year.
The key risks and uncertainties expected to impact the group in the future include:
Escalating inflation in the construction sector, particularly in essential materials such as plasterboard, timber, and steel, with annual price hikes surpassing 20%.
Shortages of skilled labour in critical trades, a pervasive issue across the industry, impacting project timelines. These risks are actively addressed through proactive engagement with our supply chain ahead of schedule and a strategic focus on core supply chain partners.
Challenges in the planning process within our operational area, exacerbated by staff shortages in local authorities and the substantial impact of regulatory requirements (water neutrality, nitrates, phosphates), which continue to impede the pace of delivery and contribute significantly to the costs of the development process.
Political uncertainty and the effects the Autumn Budget released by then Prime Minister, Liz Truss, had on the investment market; specifically for the Group in respect of care homes, where the cost of borrowing and investment returns based upon a yield calculation had made some new schemes unviable for the time being.
The potential for subcontractors facing liquidation poses a risk of incurring additional costs on ongoing contracts.
The group's primary strategy revolves around the successful execution of partnership activities, involving the sourcing of land, navigating through the planning process, and subsequently developing (constructing/selling) in collaboration with housing associations, local authorities, or private sector owners/managers. This approach enables the group to maintain a positive cash position while extracting favourable margins from identified sites. Emphasising a balanced delivery across care homes, retirement living, and housing sites, the group perceives these sub-sectors as possessing enduring long-term growth prospects.
Complementing this core strategy, the group aims to sustain its robust contracting business, focusing on core competencies in housing, care homes, and retirement living products.
In the short term, the group boasts a pipeline exceeding £120 million in its contracting business, and collectively, with other associated companies under the same control, holds ownership or control over approximately 3,000 housing sites and 9 care home sites. The Directors express confidence in the ongoing success and growth of the group in the short term.
While the broader economic outlook anticipates a general weakening, the business has proactively mitigated much of this risk by diversifying its operations between construction and development in collaboration with partners. Moreover, the strategic product base spanning care, retirement, and housing aligns with sustained strong demand trends.
The prosperity of our business hinges on the unwavering support of our stakeholders. Establishing and nurturing positive relationships with those who share our values is a paramount focus for us. Collaborating towards common objectives not only reinforces our shared values but also plays a pivotal role in achieving enduring, sustainable success.
Our group operates cohesively as a consolidated entity, seamlessly integrating both development and contracting activities under a unified executive board. This board, comprised of Directors from all group companies, oversees and evaluates major decisions made by the group. Additionally, there is an oversight board featuring Directors from Highwood Holdings Ltd. This structure ensures that decisions endorsed by the executive board undergo thorough review, aligning consistently with the company's high standards and values.
Regular reviews of our long-term plan, conducted at least annually, form a crucial part of our strategic approach. In these reviews, a comprehensive assessment is made of all stakeholders, spanning from our dedicated staff to the extensive supply chain and valued business partners. An annual summary communication event serves as a platform to update all employees on the outcomes of these plan discussions, outlining the strategic trajectory of the business.
Employees: Employees are at the heart of the business, and our management prioritises regular engagement with them through various channels such as news updates, communication events, and away day gatherings. Despite being a relatively small business with 76 employees at year-end, we place a strong emphasis on fostering meaningful individual relationships with each team member. To ensure an open dialogue, the company conducts an annual staff survey, providing a platform for anonymous feedback on any issue. This proactive approach allows management to comprehend and address key concerns raised by our valued staff.
As part of our unwavering commitment to creating an exceptional workplace, the group has introduced several enhanced benefits since April 2022. These improvements encompass a more robust pension plan, increased life cover, enhanced income support, and the option for employees to join a private medical scheme. Our dedication to supporting a positive work environment remains steadfast, and we will persist in refining our efforts toward that goal.
The board takes this opportunity to express gratitude to all staff members for their collective efforts in contributing to the success of the year, overcoming various challenges along the way.
Customers: Our business thrives on partnerships, underscoring the paramount importance of the relationship between the company and our valued partners/customers. This dynamic is a central focus for all levels of management and employees, emphasising regular and transparent communication. Highwood takes pride in its commitment to delivering a superior service and product, a cornerstone of our organisational culture that ensures enduring customer relationships. To fuel our expansion plans, senior management actively seeks out new partnerships, reinforcing our dedication to sustainable growth.
Suppliers: Our supply chain is integral to the seamless delivery of our products, and the company has cultivated a longstanding reputation as a preferred business partner, grounded in trust, consistent communication across all management levels, and steadfast fulfilment of commitments. We particularly pride ourselves on maintaining excellent payment terms for our suppliers, recognizing it as a pivotal factor in fostering positive relationships and loyalty. This strong bond has played a crucial role in mitigating supply chain interruptions, addressing the risks highlighted in this report.
Environment: The Highwood group is acutely aware of the environmental impact of construction activities and is unwaveringly committed to implementing the requirements of the Streamlined Energy and Carbon Reporting (SECR), introduced on April 1, 2019. This commitment underscores our dedication to environmental responsibility and sustainability in our operations.
An independent assessment determined the scope of Highwood's activities requiring reporting on energy use and associated gas emissions, adhering to the methodology outlined in the Government's Streamlined Energy and Carbon Reporting (SECR) Guidance. During this 12-month period, carbon emissions measured at 2.3 tonnes CO2e per £1 million turnover. Demonstrating environmental responsibility, Highwood Group commits to achieving net-zero carbon emissions from Scope 1 & 2 activities covered by SECR by 2025.
To enhance energy efficiency, upcoming development sites will incorporate more energy-efficient portacabins for use as site offices. These feature advanced elements like PIR and LED lighting, insulated walls, programmable wall heaters, and door closers, aimed at optimizing electrical and heating efficiency. Progress at our head office includes the conversion of most light fittings to LED, and efforts are underway to explore the feasibility of installing rooftop solar panels. Encouraging eco-friendly practices, an electric vehicle salary sacrifice scheme is available to all employees, complemented by the installation of two electric vehicle charging points at the head office, utilised daily by both employees and customers. Highwood's decarbonisation strategy includes nature-based carbon capture solutions on development sites, emphasising the protection and additional planting of trees to contribute to environmental sustainability.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 June 2023.
The results for the year are set out on page 9.
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:
The company operates a treasury function which is responsible for managing the liquidity and interest risks associated with the company's activities.
The company's principal financial instruments include bank balances, trade debtors and trade creditors arising directly from its operations.
The company manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.
Investments of cash surpluses and borrowings are made through financial institutions which must fulfil credit rating criteria approved by the Board.
All customers who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
The directors consider that the company faces the usual pricing risk of any other company operating in a competitive, commercial environment.
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-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report. It has done so in respect of strategies and future outlook.
The auditor, Fiander Tovell Limited, 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.
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.
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, environmental and health and safety legislation.
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.
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 set out in Note 2 were indicative of potential bias.
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.
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 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.
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.
Highwood Construction Limited is a private company limited by shares, incorporated in England and Wales. The registered office is The Hay Barn, Upper Ashfield Farm, Hoe Lane, Romsey, Hampshire, SO51 9NJ.
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 £1,000.
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;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income
Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel.
The financial statements of the company are consolidated into the financial statements of Highwood Group Limited which are consolidated into the financial statements of Highwood Holdings Limited and then consolidated into the ultimate parent Highwood Group Holdings Limited. All sets of consolidated financial statements are available from Companies House.
The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare consolidated accounts. The financial statements present information about the company as an individual entity and not about its group.
Highwood Construction Limited is a wholly owned subsidiary of Highwood Group Limited and the results of Highwood Construction Limited are included in the consolidated financial statements of Highwood Group Limited which are available from Companies House.
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.
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 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.
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.
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.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
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 estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
Recognition of revenue and profit is based on judgements made in respect of the ultimate profitability of a contract. Such judgements are arrived at through the use of estimation in relation to costs and value of work performed to date and to be performed in bringing contracts to completion. These estimates are made by reference to recovery of pre-contracts costs, variations in work scopes, claim recoveries and expected contract costs to complete. The company has appropriate control procedures to ensure all estimates are determined on a consistent basis and subject to review and authorisation. The amount included in cost accruals which has been estimated based on the expected profit margin for the contract is £10,535,000 (2022: £9,977,000).
An analysis of the company's turnover is as follows:
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The employees noted above are employed by Highwood Resources Limited (a fellow subsidiary of Highwood Group Limited). The costs of employment are recharged from Highwood Resources Limited to the rest of the group based on activity. The directors have included disclosure of the relevant employee numbers and costs of the staff allocated to the company as they believe that this provides a more true and fair view of the company's performance.
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 6 (2022 - 7).
The actual charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 30 June 2023 are as follows:
During the year ended 30 June 2023, the company acquired a 100% shareholding in Highwood Ventures 2 Limited. The results for the year for this subsidiary has been consolidated into the financial statements of the parent company, Highwood Group Limited.
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.
The amount payable at the year end amounted to £Nil (2022: £Nil).
Ordinary A shares have attached to them full voting, dividend and capital distribution (including on winding up) rights.
The company has taken advantage of the provision of FRS102 section 33 to not disclose transactions with other wholly owned members of the group.
The immediate parent company is Highwood Group Limited, a company incorporated in England and Wales. Its registered office is The Hay Barn Upper Ashfield Farm, Hoe Lane, Romsey, Hampshire SO51 9NJ and copies of the consolidated financial statements can be obtained from Companies House.
The ultimate parent is Highwood Group Holdings Limited consolidated accounts can be obtained from Companies House. Its registered office is The Hay Barn Upper Ashfield Farm, Hoe Lane, Romsey, Hampshire SO51 9NJ.