The directors present the strategic report for the year ended 31 August 2023.
The results of the group for the year, as set out on pages 9 to 11, show a loss after taxation of £1,185,689 (2022: loss after taxation of £779,695). The group also had net assets of £1,840,039 (2022: £220,815). The increased loss was due to 2022 including negative goodwill amortisation income, offset by increased home occupancy.
The group provide high quality residential children's homes and provide therapeutic support for young people to enable them to achieve their full potential, regardless of the challenges they face. We can support 20 children and young people in our 4 purpose built homes, registered with Ofsted. Each home is carefully designed to provide a therapeutic approach to care at the highest quality of service.
We believe that each young person is unique and should be enabled to feel confident about their future, no matter what they have been through in life.
Our colleagues are key to this, and they work tirelessly to offer the best services and support for those children and young people within our care. From our clinical staff to our managers, from team leaders to residential care workers, even to our administrative functions – we believe that diversity is a strength, and we celebrate the differences amongst our children and colleagues and the wide breadth of personal experience and skills that they bring. They uphold our mission - "Fiercely believing in children, so they can believe in themselves...”.
During this period we have delivered on a significant build project including 4 new 6 bedroomed homes, including recruitment and training of new teams and the registration of these new homes. Within this period we have begun to infill and move towards break even occupancy figures, as we look forward to the financial year ahead we feel confident that the group is on a sure footing and is well positioned to continue to deliver on its strategic objectives.
Risk management policy Regulatory and Legislative Risks
The residential care operation is registered with Ofsted as providers of social care. Inspections and reviews are carried out regularly by Ofsted on all registered establishments.
The group regularly updates its policies and procedures in order to ensure compliance with required standards.
Reputational Risk
The group's activities give rise to certain reputational risks. These are managed through robust policies and procedures which are checked and monitored by our Responsible Individual.
Financial risk management policy
The group’s principal financial instruments comprise cash, trade debtors and creditors, loans and borrowings and certain other debtors and accruals. The main risks associated with these financial assets and liabilities are set out below.
Credit risk
The group’s customers are Local Authorities and have a good payment history. The directors believe the Group's exposure to bad debts is not significant.
Liquidity risk
The group is funded by way of loans from the parent Company, operational cash generation, mortgages on its properties and unsecured loans.
Interest rate risk
The group’s interest rate risk is managed by utilising fixed rate mortgages and loans.
Market price risk
Due to the nature of the principal activity, the directors do not believe the group is exposed to significant movements in market prices of its services.
As part of the monthly financial review, the SLT report on Key Performance Indicators to the Board and Key Funders and Stakeholders.
The group regularly tracks 'KPls' to assist in the understanding of the progress, performance and status of the business. The KPls used by the group to measure its own performance include Ofsted ratings, Quality outcomes, Incidents, % occupancy, revenue and EBITDA %.
By having a blend of both quality and financial performance indicators we are able to spot trends and provide deeper analysis for business leaders and stakeholders
Future outlook
The underlying growth opportunities for the business remains strong with the forecast market demand growing significantly year on year and is currently fragmented across a high number of small predominantly private and private equity backed providers.
Our commitment to quality, alongside investment in personnel, systems and technology position it well for future growth.
We have seen referrals for children increase alongside increasing complexity of children’s needs and behaviors. Spending by local authorities in England on independent sector children’s homes and fostering increased by a further 5% to £2.39 billion in 2021/22 compared to a year earlier. Over the last 6 years this spending has grown by 50% in real terms.
Children’s homes services spending has experienced the biggest growth, more than doubling since 2015/16, whilst spending with independent fostering agencies has increased at a much lower rate and is reported to have declined in 2021/22.
The market conditions will allow us to reach maximum occupancy in the current financial year and create the opportunity for further growth.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 August 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 further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The group finances its operations through retained profits, operational bank accounts and bank loans, the interest on which are at market rate.
The directors' objectives are to retain sufficient liquid funds to enable the group to meet its day to day obligations as they fall due and to maximise returns on funds.
The group's funds are held primarily in current accounts which the directors believe give the group flexibility to release cash resources at short notice and allows the group to take advantage of changing economic and industry conditions as they arise.
In addition, various financial instruments such as trade debtors and trade creditors arise directly from the group's operations.
On 30 November 2023 the company issued 41,528 B Ordinary shares for a total consideration of £250,000.
On the 14 December 2023 the company re-purchased 50,000 A Ordinary shares for a total consideration of £5. These shares were subsequently cancelled.
Edwards were appointed as auditor to the group and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
These financial statements are prepared on the going concern basis. The directors have a reasonable expectation that the group will continue in operational existence for the foreseeable future.
In assessing the going concern basis, the directors have considered the group’s business activities and its financial position. As at 31 August 2023 the group had cash reserves of £339,840, net current assets of £52,664 and net assets of £1,840,039. The directors continue to closely monitor the group's liquidity and capital adequacy and in doing so, forecasts have been produced covering a period of at least twelve months from the date that the financial statements are approved.
The directors therefore consider that the group will be able to generate sufficient income and generate sufficient cash to fund its operations for the foreseeable future and to meet its liabilities as they fall due. As a result, the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
We have audited the financial statements of Forge Care Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 August 2023 which comprise the group profit and loss account, the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
The prior period financial statements have not been subject to audit. As such, our opinion does not extend to the corresponding amounts included within these financial statements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
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.
We obtained an understanding of the legal and regulatory frameworks within which the Group operates, focusing on those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. The laws and regulations we considered in this context were the OFSTED regulations, Companies Act 2006, employment law and health & safety compliance.
We identified the greatest risk of material impact on the financial statements from irregularities, including fraud, to be in the following areas: the override of controls by management, revenue journals, inappropriate treatment of non-routine transactions and areas of estimation uncertainty, specifically surrounding the valuation of freehold land and buildings and intangible fixed assets. Our audit procedures to respond to these risks included enquiries of management about their own identification and assessment of the risks of irregularities, review and discussion of non-routine transactions, sample testing on the posting of journals and review of accounting estimates for biases.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
These inherent limitations are particularly significant in the case of misstatement resulting from fraud as this may involve sophisticated schemes designed to avoid detection, including deliberate failure to record transactions, collusion or the provision of intentional misrepresentations.
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.
These financial statements have been prepared in accordance with the provisions relating to medium-sized groups.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £20,000 (2022 - £0 profit).
Forge Care Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is The Forge, Waggestaff Drive, Nuneaton, Warwickshire, CV10 9SL.
The group consists of Forge Care Limited and all of its subsidiaries.
The company has previously changed its financial year end from 31 January to 31 August to align with group reporting periods. The comparatives within these financial statements are therefore for the 8 month period ended 31 August 2022. The change in accounting period means that the comparative amounts presented in the financial statements (including the related notes) are not entirely comparable.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties at fair value. The principal accounting policies adopted are set out below.
The 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 for parent company information presented within the consolidated financial statements:
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: Interest income/expense and net gains/losses for financial instruments not measured at fair value; 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 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The consolidated group financial statements consist of the financial statements of the parent company Forge Care Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.
All financial statements are made up to 31 August 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
These financial statements are prepared on the going concern basis. The directors have a reasonable expectation that the group will continue in operational existence for the foreseeable future.
In assessing the going concern basis, the directors have considered the group’s business activities and its financial position. As at 31 August 2023 the group had cash reserves of £339,840, net current assets of £52,664 and net assets of £1,840,039. The directors continue to closely monitor the group's liquidity and capital adequacy and in doing so, forecasts have been produced covering a period of at least twelve months from the date that the financial statements are approved.
The directors therefore consider that the group will be able to generate sufficient income and generate sufficient cash to fund its operations for the foreseeable future and to meet its liabilities as they fall due. As a result, the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
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 inclusive of VAT as the group is exempt from such taxes.
Freehold land is 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 recognised in the profit and loss account.
In the parent company financial statements, interests in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
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 group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
The group operates a defined contribution pension scheme for certain employees and contributions to the scheme are charged to the profit and loss account as they are incurred.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
Corresponding amounts
The directors have re-analysed certain corresponding amounts to correctly present investments in subsidiaries that were previously included within debtors and creditors.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
Negative goodwill represents the excess of the fair value of net assets acquired over the cost of acquisition of a business. It is initially recognised as a liability at cost and is subsequently measured at cost less accumulated amortisation. Negative goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life, which is 10 years.
Freehold land and buildings are initially measured at cost and subsequently measured at valuation, net of depreciation and any impairment losses. The group’s freehold land and buildings were valued on a market value basis as at 31 May 2022 by Cushman & Wakefield.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 5 (2022 - 5).
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
In addition to the amount charged to the profit and loss account, the following amounts relating to tax have been recognised directly in other comprehensive income:
The carrying value of land and buildings comprises:
Freehold land and buildings with a carrying amount of £12,140,000 were revalued at 31st May 2022 by Cushman & Wakefield, independent valuers not connected with the group, on the basis of market value. This valuation was adopted by the group from 1st September 2022. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties.
If freehold land and buildings were measured using the cost model, the carrying amounts would have been £6,185,978 (2022 - £6,351,353), being cost £6,392,884 (2022 - £6,392,884) and depreciation to date £206,906 (2022 - £41,531).
Details of the company's subsidiaries at 31 August 2023 are as follows:
Bank loans are secured by way of a fixed and floating charge over the group's assets. Interest is charged at various rates, between 7.90% and 15.61% per annum. The loans are being repaid in equal monthly instalments.
During the year, the group refinanced its loans resulting in longer repayment terms.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
On 14 June 2023 the company reclassified its 1,166,181 Ordinary shares into 932,558 Ordinary shares, 50,000 A Ordinary shares, 166,181 B Ordinary shares, 15,504 C Ordinary shares and 1,938 D Ordinary shares.
On the 29 June 2023 the company re-purchased 3,876 C ordinary shares for a total consideration of £20,000. These shares were subsequently cancelled.
The rights attached to each class of share can be found in the company's Articles of Association.
On 4 March 2022 the group acquired 100 percent of the issued capital of The Forge (Nuneaton) Limited. The fair value of the net assets acquired amounted to £550,358 as detailed below:
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
On 30 November 2023 the company issued 41,528 B Ordinary shares for a total consideration of £250,000.
On the 14 December 2023 the company re-purchased 50,000 A Ordinary shares for a total consideration of £5. These shares were subsequently cancelled.