The directors present the strategic report for the year ended 30 June 2023.
The principal activity of the company is residential property development. The main business activities are the construction of private housing for sale. In prior years, the company also manufactured timber frames for its housebuilding operations and external customers but ceased this activity on 1 July 2022, when the company transferred its Timber Frame business to Kirkwood Timber Frame Limited, a party with common ownership and control.
During the year the company had housing developments in Dundee and Aberdeenshire building quality homes for private individuals. They were also involved in construction of affordable homes for Housing association and local authority customers which contributed towards the Scottish Governments affordable housing targets.
Despite the challenging market conditions experienced by the company as a result of underlying economic factors including increased bank interest rates, the company delivered a strong result with turnover of £60m for the year ended 30 June 2023 and profit before tax of £1.6m.
Revenue was also delivered from ongoing sales from sites in Tayside and Aberdeenshire. In Tayside the company continued to sell units at its successful Balgillo Heights development in Broughty Ferry which is now into its final phase and also sold and handed over homes at the company’s new development at Drumoig, near St Andrews. In Aberdeenshire the company sold the final units from developments at Stonehaven, Countesswells and Dunecht and launched a further phase at Sauchen and new sites in Banchory, Alford and at Blackdog. In addition to the construction and sale of homes for private individuals, the company also successfully handed over affordable housing at Inchmarlo and Alford and commenced construction of an 80 unit affordable housing development at Blackdog.
The result for the year reports turnover of £60.0m (2022: £60.6m) with the decrease compared with the prior year partly as a result of the transfer of the manufacturing business to Kirkwood Timber Frame Limited. Profit before taxation was £1.6m and EBITDA for the year was £3.3m (2022: £2.2m) as a result of improved margins and overhead cost control.
The company's net assets increased from £21.1m to £22.5m, in line with profit generated in the period.
The board regularly review the risks and uncertainties affecting the business and have procedures in place to monitor and mitigate these risks.
The principal risks affecting the company are set out below.
Demand for homes
As a housebuilder, the company has exposure to the overall macroeconomic conditions that impact the demand for new homes including interest rates, availability of finance and overall consumer confidence in addition to local economic conditions. The company manages this risk at the site acquisition stage by performing detailed appraisals on all developments including analysing market demand. At ongoing developments, the company manages this risk by close monitoring of performance against plan and the wider economic environment allowing the company to take appropriate action to mitigate this risk should circumstances change.
Land availability
The company’s ability to grow and continue to deliver its quality product at the best locations is dependent on its ability to secure appropriately serviced land with planning consent for future housebuilding. The company manages this risk by employing an experienced land team who proactively identify future development sites and maintain a strong pipeline of future sites.
Funding and interest rate risk
The company is funded by a combination of equity and revolving credit and working capital facilities with Bank of Scotland. The directors recognise that one of the principal risks is the availability of finance and the cost of borrowing and monitor cash flows closely on a regular basis including the preparation of cash flow forecasts. The directors continue are working closely with the bank in terms of ongoing funding requirements and facilities.
Quality, safety and environmental
The company has a proud reputation for building high quality homes which provides a level of differentiation from competitors. The company has appropriate quality controls in place throughout the build process from design to completion to ensure that these high standards are maintained. Compliance with Health and Safety and Environmental rules and regulations is also a key area of focus for the business and controls are in place throughout the organisation to ensure compliance.
Availability of raw materials
The availability and cost of raw materials and labour remain a risk for the business with the global shortage of certain construction materials being a risk to the business. The directors mitigate this risk by employing an experienced buyer, careful forward planning and the holding of appropriate levels of stocks of materials.
Financial key performance indicators include revenue and EBITDA as noted above. Non-financial key performance indicators include customer satisfaction, health and safety and environmental compliance.
Future developments
Whilst the increase in mortgage interest rates has had an impact on market demand and may result in more challenging selling conditions, the company has continued to experience strong demand in the market generally and for the specific locations of the company’s developments, evidenced by the number of secured reservations in the current year. The directors continue with a cautious approach of land acquisition where there is known demand for our product and the company has secured additional development opportunities within these areas with land acquisition planned for the coming months and years, which will allow growth in these targeted areas.
S172 statement
In accordance with s172 of the Companies Act 2006, the directors must act in a way that they consider, in good faith would be most likely to promote the success of the company for the benefit of its members as a whole. All decisions taken by the board are taken with the long-term strategy of the company in mind; whether this is restructuring of the workforce, land acquisition, company expansion, funding decisions or dividend policy.
The quality of our homes is a key factor of the success of our business, and this is made possible by a skilled workforce. The importance of maintaining a skilled and experienced workforce in delivering this level of quality is such that the interests of the workforce are considered when the board make decisions particularly in regard to health and safety and employee retention.
The directors recognise the importance of business relationships with suppliers and subcontractors and have established long-term working relationships with our subcontractor and supplier base. The importance of maintaining high standards of business conduct is an integral part of the company’s strategy with directors being involved in ensuring integrity and a straightforward approach to dealings with others.
The company has a reputation for building quality homes and as such we take pride in the quality of the product and customer satisfaction. The company complies with all relevant planning and environmental laws and as part of the planning process considers the impact of the company’s operations on the community and environment and we engage with our communities as part of the planning process.
S172 statement (continued)
The directors recognise the importance of maintaining a reputation for high standards of business conduct and these principles are communicated across the business including honesty, integrity, and fairness.
The directors meet regularly and in considering decisions are mindful of the duty to promote the success of the business and the need to act fairly between members of the company.
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 11.
No ordinary dividends were paid (2022 - £nil). 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 directors have the benefit of the indemnity provisions contained in the Articles and the company maintains directors’ and officers’ liability insurance for the benefit of the directors and the company’s officers. The company has also entered into qualifying third party indemnity arrangements with each of its directors in a form and scope which comply with the Companies Act 2006. Each of these arrangements remain in force as at the date of this Annual Report.
The auditor, Johnston Carmichael LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
Reporting Parameters
The company’s energy usage and carbon emissions are set out in the tables below for the year ended 30 June 2023.
The methodology follows the Environmental Guidelines issued by HM Government dated March 2019 including the use of reports from suppliers and invoices. The reporting uses the 2023 Government emission conversion factors for greenhouse gas (and 2022 comparatives).
We have measured all supplies of electricity, gas, transport fuel and gas oil across all of our sites and offices in the year to June 2023.
Transport includes the purchase of fuel for operation of company vehicles and fuel used in the reimbursement of business mileage for employees own vehicles.
We have followed the 2019 HM Government Environmental Reporting Guidelines. We have also used the GHG Reporting Protocol – Corporate Standard and have used the 2020 UK Government’s Conversion Factors for Company Reporting.
The directors' consider TCo2E as a proportion of per m turnover as an appropriate intensity ratio.
Our homes are constructed using timber frames which are a low carbon material. Using wood instead of other materials saves C02 emissions both through carbon captured in the timber product and the avoidance of alternative more C02 intensive products. Timber frame is key component of all our homes.
We comply with all planning requirements around energy efficiency. The energy efficiency of our new homes is a key consideration in the design of new homes ensuring we comply with industry standards including the installation of solar panels and air source heat pumps at certain developments. Energy efficiency is also considered in the design of street lighting for our developments which include the use of LEDs and the carbon reduction from planting trees is considered as part of any landscape plan.
We will consider the use of electric and hybrid vehicles when our existing fleet of vans require to be replaced and offer the option and encourage employees to select a fully electric or hybrid vehicle as company car choice.
Heating for our head office, yard and factory complex is provided by a biomass boiler which is fueled by timber waste which would be otherwise be treated as waste. Biomass is considered a renewable form of energy production as biomass growth removes carbon dioxide from the atmosphere and stores it in the soil, plants, or trees.
The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the Strategic Report information required by Large and Medium-sized Companies and Groups (Account and Reports) Regulations 2008, Sch. 7 to be contained in the Directors' Report. It has done so in respect of future developments, financial risks, and in respect of how the company fosters its relationships with suppliers, customers and others.
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 set out on page 7, 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 for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit is 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, 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 assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations by considering their experience, past performance and support available.
All engagement team members were briefed on relevant identified laws and regulations and potential fraud risks at the planning stage of the audit. Engagement team members were reminded to remain alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and the sector in which it operates, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The most relevant frameworks identified include:
UK GAAP
Companies Act 2006
Corporation Tax legislation
VAT legislation
Health and Safety Legislation
Extent to which the audit is considered capable of detecting irregularities, including fraud (continued)
We gained an understanding of how the company is complying with these laws and regulations by making enquiries of management and those charged with governance. We corroborated these enquires through our review of relevant correspondence with regulatory bodies and legal fees.
We assessed the susceptibility of the company's financial statements to material misstatement, including how fraud might occur by meeting with management and those charged with governance to understand where it was considered there was susceptibility to fraud. This evaluation also considered how management and those charged with governance where remunerated and whether this provided an incentive for fraudulent activity. We considered the overall control environment and how management and those charged with governance oversee the implementation and operation of controls. In areas of the financial statements where the risks were considered to be higher, we performed procedures to address each identified risk. We identified a heightened fraud risk in relation to:
Management override of controls
Revenue recognition
In addition to the above, following procedures were performed to provide reasonable assurance that the financial statements were free of material fraud or error:
Reviewing level and reasoning behind the company's procurement of legal and professional services;
Performing audit procedures over the risk of revenue recognition, including testing of the completeness of revenue and the recoverability of year end work in progress;
Performing audit work procedures over the risk of management 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 judgements made by management in their calculation of accounting estimates for potential management bias;
Completion of appropriate checklists and use of our experience to assess the Company's compliance with the Companies Act 2006; and
Agreement of the financial statement disclosures to supporting documentation.
Our audit procedures were designed to respond to the risk of material misstatements in the financial statements, recognising that 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 intentional concealment, forgery, collusion, omission or misrepresentation. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.
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 statement of comprehensive income has been prepared on the basis that all operations are continuing operations.
Kirkwood Homes Limited is a limited company domiciled and incorporated in Scotland. The registered office is Johnstone House, 52-54 Rose Street, Aberdeen, AB10 1HA. The business address is Kirkwood Business Park, Sauchen, Inverurie, AB51 7LE.
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 £'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 4 ‘Statement of Financial Position’ – Reconciliation of the opening and closing number of shares;
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 each category of financial instrument and basis of determining fair values;
Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel and transactions with members of the same group that are wholly owned.
Disclosures are given in the group financial statements of KHL Holding Limited. These are available to the public and can be obtained from Companies House, Crown Way, Cardiff, CF14 3UZ.
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.
Freehold property is included at a deemed cost based on market value at the date of transition to FRS 102, being 1 April 2012.
At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.
Development land and land options are included within work in progress at cost. If, or when, it becomes apparent that an option on land relating to a potential development site will not receive the necessary approvals, the options will be charged in full to profit or loss or written down to its estimated recoverable value.
Part exchange properties are held within work in progress and are initially recognised at cost, and subsequently held at the lower of cost and net realisable value. Net realisable value is based on estimated selling price less costs of disposal.
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 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. All of the company's financial liabilities are classified as basic.
Basic financial liabilities, including trade and other payables and bank loans are initially recognised at transaction price.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less.
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.
In order to allocate an appropriate level of costs to plots sold, management must estimate the total expected costs for each given development site. This involves a significant degree of estimation. These estimates are calculated by individuals with the relevant qualifications and experience to enable them to estimate such values accurately and are reviewed against actual costs incurred on a regular basis.
In order to recognise the appropriate level of revenue and costs on construction contracts, the company must estimate the costs to complete and total expected revenue. Only then can the stage of completion be assessed accurately in order to calculate the amount of revenue and costs to be recognised. This also involves a significant degree of estimation and as above these estimates are made by individuals with the relevant qualifications and experience to enable them to do so accurately. The estimates are also reviewed against actual revenue and costs on a regular basis.
In assessing the carrying value of land as part of an impairment review, the company is required to estimate selling price and costs to complete and sell and where carrying value is greater than selling price less costs to complete and sell an impairment is recognised. The assessment of selling price and costs to sell is subjective and involves a degree of estimation of selling prices and costs to complete and sell. Such estimates are calculated by individuals with experience of selling prices and build costs and are benchmarked against latest prices and market information.
An analysis of the company's turnover is as follows:
Grants received in the prior year included amounts received under the Coronavirus job retention scheme.
The average monthly number of persons (including directors) employed by the 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 2 (2022 - 2).
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 Finance Act 2021 was substantially enacted in May 2021 and increased the corporation tax rate from 19% to 25% with effect from 1 April 2023. The deferred tax balances have been measured using the rates expected to apply in the reporting periods when the timing differences reverse.
Freehold Land with a carrying value of £222k (2022 - £222k) is not depreciated.
Freehold Property at cost includes property with a deemed cost on transition to FRS 102 of £2,255k. This property was valued at the point of transition. The historic cost was £1,133k.
During the year, the company disposed of tangible fixed assets with net book value of £1,621k (2022: £nil) to other related parties.
Investment property comprises an office building which is leased. The fair value of the investment property has been arrived at by the directors, taking into consideration formal valuations and market evidence of transaction prices for similar properties. The directors have deemed that the open market value of the property at 30 June 2023 is not materially different to the amount at which it is carried in the accounts.
The historic cost of the investment properties is £230k (2022 - £230k).
Amounts owed to group undertakings are repayable on demand and do not bear interest.
The company meets its day to day working capital and longer-term financing requirements through a revolving credit and overdraft facility with Bank of Scotland.
The revolving credit facility has a maturity date of February 2024, and has therefore been disclosed as payable within one year.
The bank facilities are secured by a bond and floating charge over the assets of the company and standard securities over certain property, including certain development sites included in work in progress, and interest is payable based on SONIA with an applicable margin.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
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 independently administered funds.
Contributions unpaid at the year end are £23,331 (2022 - £26,363).
The company has one class of ordinary shares which carry full voting rights but no right to fixed income or repayment of capital. Distributions are at the discretion of the company.
The share premium reserve account represents amounts received on the issue of shares, over and above the par value of these shares.
The revaluation reserve account represents the cumulative effect of revaluations of tangible fixed assets where a policy of revaluation has been adopted.
The capital redemption reserve represents amounts capitalised to maintain fixed capital following the repurchase or redemption of shares.
The profit and loss reserve account represents the accumulated comprehensive income for the period and prior periods, less distributions.
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:
During the year, the company's leases were assigned to a related entity.
Amounts contracted for but not provided in the financial statements:
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The following amounts were outstanding at the reporting end date:
Other related parties comprise entities in which the company's directors have common control over.
Amounts owed by other related parties include an amount of £1.7m (2022: £nil) that attracts interest at 3% per annum. Included within this balance is £50k (2022 - £nil) of accrued interest.
All other amounts due from / to related parties are interest free and all amounts are repayable on demand.
The parent and ultimate parent company is KHL Holding Limited, a company registered in Scotland.
The ultimate controlling party is I Dunbar, director.