The directors present the strategic report for the year ended 31 October 2023.
Turnover was as expected at £38.2m for the year (2022: £33.4m) with gross margins at 13.1% (2022: 16%).
The directors report that the Company had a satisfactory year, with an operating profit of £0.694m at 1.8% margin (2022: £0.876m at 2.6%).
The net profit before tax was £0.850m (2022: £1.01m).
The directors also report that the Company’s net assets were £7.2m (2022: £6.4m) including distributable profits of £6.6m (2022: £5.9m).
Current assets exceeded current liabilities by £6.6m (2022: £5.9m).
Our strong cash reserves continue to give our clients confidence when appointing us to undertake their projects.
The directors are focused on continuing the policy to procure work where possible via negotiated and partnered activity. This strategy has served the company well to date and further framework opportunities will continue to be actively pursued as the preferred method of obtaining turnover. Design and build continues to be the main means of procurement within the frameworks in which we operate. The directors are ensuring that the management of this type of work is appropriately resourced. Any increases in turnover will always be managed to the standards expected both by clients and ourselves.
The directors’ preferred platform for growth remains, where possible, to pursue an incremental increase in the average size of the projects we undertake. Whilst this has been achieved continuously over many years and continues to underpin our growth strategy both the market and the work pipeline of regular clients can affect this. Specific impacts upon the construction market have been the effect of increased interest rates and inflationary pressure upon client budgets. The average project size this year was £4.8m (2022: £3.4m). The value of the largest project undertaken by the company was £11.4m (2022: £11.2m).
Strategies
‘Responsible Construction Strategy’ – guides our approach to responsible construction, procurement and carbon management. This policy is also used to engage our key supply chain members.
Our ‘Social Responsibility’ and ‘Health and Safety’ strategies have been developed and improved during the last four years. These focus on the occupational health and well-being of our employees, supply chain members and the communities in which we work. We continue to develop our vision and values with supply chain partners through joint business improvement events. This collective work with our supply chain includes several charities and community programmes that are benefitting from our long-term links.
Re-accreditations and Awards
We are delighted to have received a tenth successive RoSPA Gold Award for Health and safety performance.
Our annual re–accreditation for CHAS (Construction Health & Safety Scheme) took place and is current until September 2024.
We remained successful in retaining Cyber Essentials and Cyber Essentials Plus Certification in April 2023.
We were also successful in maintaining our ISO 9001:2015 standard for Quality Management, 14001:2015 for our Environmental Management Systems and ISO 45001:2018 for Health & Safety Management.
In addition, we also achieved Investors in People Gold in March 22.
Our average Considerate Constructor Scheme Score for the year was 42.6.
The company is aware of its obligations under the Modern Slavery Act and has reviewed and updated the Modern Slavery and Whistleblowing policies. These are publicised on our website - www.conlon-construction.co.uk - in offices and on sites to raise awareness amongst employees, supply chain members, clients and visitors. Posters have been designed and strategically placed to highlight the Modern Slavery telephone helpline numbers.
We have appointed ‘Unseen’ to assist us in preventing any potential contraventions of our Modern Slavery Policy within our supply chain and the manufacture of any materials specified on our projects. Unseen has also been chosen to be our annual ‘Charity of The Year’ for a second term for their work in providing safehouses and support in the community for survivors of trafficking and modern slavery. Our fundraising page is www.justgiving.co/page/conlon-construction-unseen.
Financial Key Performance Indicators are outlined in the ‘Review of the Business’ section above. They include Net Profit Before Tax and Net Assets.
Non-financial Key Performance Indicators are measured on an annual basis via a “Customer Satisfaction - Analysis of Performance Questionnaire”. This process forms part of our ISO 9001:2015 accredited management system. Clients and/or End Users are asked to score the Conlon Construction business on 18 indicators, including Customer Satisfaction with the Product, Service, the Time it has taken to complete the works, Communication, Environment, Health & Safety, Project Team staff and After Care service. In the 2022/23 year, the business achieved an average score of 9.4 out of 10 compared to an industry average score of 8 out of 10. Any scores or client feedback that require improvement feature as agenda items at our regular Business Improvement days. As a result, we are continuously improving our performance and service.
The on-going War in Ukraine and civil unrest in the Middle East continues to affect materials, labour and energy. We are very aware of the impacts that this is having on our business and our stakeholders. We are committed to protecting our business operations and minimising risks wherever possible.
The Group embodies a risk aware strategy approach to all its activities in order to deliver a strong financial performance, enabling us to strengthen our strategic path and long-term sustainability of the business. In particular, risks to the following two aspects of our main business activity are managed as follows:
Bidding
The company bids selectively for a large number of contracts between £500k and £20m. Each potential project is carefully appraised by senior commercial staff in accordance with our Quality Management Systems. Projects are assessed for risk, particularly in terms of design, buildability and programme; as well as checks on both client and supply chain credit ratings, as appropriate. Projects are taken through to a detailed estimate stage and are then placed before our tender review panel prior to final submission.
Delivery
Project delivery is managed through the infrastructure of Construction Operations. Each project is managed using approved procedures including regular and frequent reviews of build progress, cost control, supply chain management and client satisfaction, against a background of rigorous health and safety compliance. Any issues affecting project delivery are continuously monitored so that any operational or commercial matters can be addressed in a timely and efficient manner.
This statement by the Board of Directors describes how they have approached the responsibilities under s172(1)(a) to (f) of the Company's Act 2006 in the financial year ending 31 October 2023. The Board considers that they have acted in good faith to promote the success of the company on behalf of its stakeholders who consist of shareholders, employees, clients and the supply chain.
The Board monitors and reviews the strategic objectives against forward plans. Regular reviews are held across key business areas, including; health, safety & the environment, operational and financial performance, risks and opportunities. The company's performance is reviewed on a monthly basis.
The overriding principle in the governance of Conlon Construction Limited is that of ensuring transparent conduct which reflects fairness in all dealings with employees, clients and the supply chain. A testament to this, is reflected in the length of service of our employees and senior management team.
The company has an Equal Opportunities and Diversity Policy relating to all aspects of employment. Employees are kept informed of matters of concern to them in a variety of ways, including business improvement days, newsletters, meetings and regular communications to staff. The aim of these communications are to ensure a high level of awareness among employees regarding the performance of the business.
The Board’s aim is to forge lasting business relationships with its stakeholders by conducting the business with honesty, integrity and professionalism.
The Board takes environmental matters into consideration as part of its decision-making process, in order to minimise the company's impact on the environment wherever possible. By communicating our aims to employees and our supply chain, we ensure that all parties are aware of their environmental responsibilities.
The Board’s intentions are to behave responsibly towards all stakeholders and to treat them fairly and equally, to ensure they all benefit from the long-term success of the company.
The directors have overall responsibility for determining the company's purpose, values and strategy and for ensuring high standards of governance. The primary aim of the directors is to promote the long-term sustainable success of the company, generating value for stakeholders. Throughout the next financial year, the directors will continue to review and challenge how the company can improve engagement with all stakeholders.
Summary
Customer commitment remains at the heart of everything we do. Our staff and valued supply chain continue to nurture these business relationships enhancing our core values and reputation within the industry.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 October 2023.
The results for the year are set out on page 11.
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 finances its operations through a mixture of retained profits and where necessary to fund capital expansion or capital expenditure programmes, through bank borrowings.
The directors' objectives are to:
Retain sufficient liquid funds to enable the company to meet its day to day obligations as they fall due whilst maximising returns on surplus funds;
Minimise the company's exposure to fluctuating interest rates when seeing new borrowings; and
Match the repayment schedule of any external borrowings or overdrafts with the expected future cash flows expected to arise from the company's trading activities.
Hedge accounting is not used by the company.
Where appropriate funds are invested in short term variable rate deposit bank accounts, as well as instant access call accounts. The directors believe that this gives them the flexibility to release cash resources at short notice and also allows them to take advantage of changing conditions in the finance markets as they arise. All deposits are with UK institutions.
In accordance with the company's articles, a resolution proposing that Beever and Struthers be reappointed as auditor of the company will be put at a General Meeting.
The company is not required to report its carbon emissions and energy use data because this information is disclosed, on a consolidated basis, in the financial statements of Conlon Holdings Limited. Copies of these financial statements can be obtained from Companies House, Crown Way. Cardiff, CF14 3UZ.
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.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
In identifying and addressing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following:
We obtained an understanding of laws and regulations that affect the Company, focusing on those that had a direct effect on the financial statements or that had a fundamental effect on its operations. Key laws and regulations that we identified included the Companies Act 2006 and tax legislation.
We enquired of the directors and reviewed correspondence and directors meeting minutes for evidence of non-compliance with relevant laws and regulations. We also reviewed controls the directors have in place, where necessary, to ensure compliance.
We gained an understanding of the controls that the directors have in place to prevent and detect fraud. We enquired of the directors about any incidences of fraud that had taken place during the accounting period.
The risk of fraud and non-compliance with laws and regulations and fraud was discussed within the audit team and tests were planned and performed to address these risks.
We reviewed financial statements disclosures and tested to supporting documentation to assess compliance with relevant laws and regulations discussed above.
We enquired of the directors about actual and potential litigation and claims.
We performed analytical procedures to identify any unusual or unexpected relationships that might indicate risks of material misstatement due to fraud.
In addressing the risk of fraud due to management override of internal controls we tested the appropriateness of journal entries and assessed whether the judgements made in making accounting estimates were indicative of a potential bias.
Due 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. For example, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing fraud or non-compliance with laws and regulations and cannot be expected to detect all fraud and non-compliance with laws and regulations.
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 Statement of Comprehensive Income has been prepared on the basis that all operations are continuing operations.
Conlon Construction Limited is a company limited by shares incorporated in England and Wales. The registered office is Charnley Fold Lane, Bamber Bridge, Preston, PR5 6BE.
The financial statements are prepared in sterling, which is the functional currency of the company and group. 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 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;
The requirement of Section 33 Related Party Disclosures paragraph 33.7.
The financial statements of the company are consolidated in the financial statements of Conlon Holdings Limited. These consolidated financial statements are available from Companies House, Crown Way, Cardiff, CF14 3UZ.
All other operating income is recognised only when the company becomes eligible to recognise it, being when due service has been delivered or upon cash receipt.
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.
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.
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 and loans from fellow group companies 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.
All of the company's financial liabilities are basic financial instruments.
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.
Bad debts and provisions
At each balance sheet date management undertake a review of the outstanding trade debtor balances and any balances not considered recoverable are provided for by way of a bad debt provision. Such provisions are reversed if the debt is subsequently recovered or reversed.
Other provisions are recognised when management deem that an asset is not recoverable.
Provisions are recognised as an expense in the profit and loss account.
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 following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
The narrative within notes 1.5 and 1.6 to the financial statements provide further information in this area. The company engage the services of a suitably qualified external Surveyor to offer a considered opinion as to the valuation of this asset. The directors consider that this reduces the estimation uncertainty to an acceptable level.
This is a natural area of estimation uncertainty given the industry in which the company operates. The narrative within notes 1.4 and 1.8 to the financial statements provides further information.
The company uses suitably qualified Quantity Surveyors to assess the level of work done, associated revenue and thus profit recognition. These assessments are then reviewed by the company's finance team, providing an additional level of internal assurance that reduces the estimation uncertainty to an appropriate level.
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.
At each balance sheet date, management undertake a review of the outstanding trade debtor balances and estimate the balance that should either be impaired or provided against.
This calculation is based on the financial position of the customers, the historical speed of payment and any ongoing discussions.
At each balance sheet date management review the recoverable value of the company’s equity investments and of the loan notes it has granted. This review includes enquiries as to the latest trading and financial positions of the entities involved, alongside the evaluation of other information they are privy to.
The directors concluded that an impairment charge was required in the previous period, as detailed within note 4 to the financial statements.
At each balance sheet date management review the remaining useful economic life of assets held within tangible fixed assets and estimate whether an impairment is required.
This calculation is based on the useful economic life of similar assets, the condition of such assets and any known factors which may adversely affect the value of such assets.
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 number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 7 (2022 - 7).
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:
In March 2021 the Chancellor confirmed, in the budget, an increase in the corporation tax rate from 19% to 25%. The Finance Bill 2021 had its third reading on 24 May 2021 and is now considered substantively enacted. The timing differences expected to reverse on or after 1 April 2023 have been accounted for at 25%.
Included within freehold land and buildings is land valued at £140,000 (2022: £140,000) which is not depreciated.
Land and buildings with a carrying amount of £731,000 (2022: £750,000) were revalued at 31 October 2022 by Parker and Company Chartered Surveyors, independent valuers not connected with the company on the basis of market value. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties. The directors deem this valuation to be appropriate as at 31 October 2023.
If revalued assets were stated on an historical cost basis rather than at valuation, the total amounts included would have been as follows:
Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
The deferred tax liability set out above is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.
The deferred tax liability set out above is not expected to materially reverse over the upcoming 12 months and relates to accelerated capital allowances and the opposite effect of short term timing differences that are not expected to reverse within the same period.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
At the balance sheet date the company owed £36,000 (2022: £33,000) in respect of defined contribution payments, which are stated within creditors.