The directors present the strategic report for the year ended 31 December 2023.
The directors consider the key performance indicators (KPIs) for the company to be the turnover, the cost of sales and the value of new orders received. Revenues for the year decreased from £103m in 2022 to £51m in 2023. Seven major projects were active on-site during 2023 and this continued into 2024 for completion. The company was in a loss of £11.4m for the financial year mainly due to the prolonged programmes. The new project awards during the year 2023 was £48m.
At the year end, the company's balance sheet showed net liabilities of £11.7m (2022: net liability of £0.4m). The company is dependent upon the continuing support of its ultimate parent company. The directors of the ultimate parent company have confirmed their intentions to continue to provide adequate financial support to the company for the foreseeable future.
The principal risks and uncertainties that the business faced in recent years (economic conditions affecting the construction industry, the failure to secure target projects, continued pressure on margins due to excess capacity, and the effects of global exchange rate policies) have also affected the business in 2023. The implications upon new awards and project progress were driven by the fluctuation of shipping costs globally, continuous war between Ukraine and Russia, and the inflation in Europe and rest of the world. The concerns in terms of the outlook for 2024 are also with the availability of and stability of competent staff and skilled installation labour within the industry due to the increased cost of living.
The potential fluctuations of sterling relative to that of the Chinese Renminbi Yuan/$ US and, to a lesser extent, the Euro will continue to play an important role in our ability to secure projects within the market sector and profitability from operating. We remain cautious on the uncertainty with the backup plan.
We were expecting shipping costs in 2024 to be lower than 2023. However, the Houthis attacks on vessels in the Red Sea forced commercial vessels rerouting which resulted the higher shipping cost again. Also. The higher mortgage interest rates in the housing market could continuously cause pressures on the demands which we are in close monitoring.
Good opportunities remain within the mid-high end residential development sector as exampled by our project list. The primary focus of growth has been in the residential section in London, the Southeast and potentially other major cities in England. The UK business is still strong in London and in the residential sector despite the various pressures, and we have therefore benefited from the sustained development of this sector, which is expected recovering well in 2024 and beyond. We have got strong trading relations with the local clients and the Chinese investors entering UK Markets with whom we have trading relationships also in the PRC, and we will continue to seek to leverage these relationships in the UK market.
2023 also saw the major completion of Royal Arsenal Riverside 10, Art Otel Hoxton, Prince Of Wales Drive and Chelsea Creek projects. There has also been positive progression of other projects which contributed to strengthening the position and reputation of the company as a leading player in the UK façade industry, particularly in the high-rise residential sector.
In accordance with ‘The Companies (Miscellaneous Reporting) Regulations 2018’, for financial periods commencing 1 January 2019, the directors are required to explain how they have complied with the Reporting Standards appropriate to a company of its size.
The directors understand the need to foster the company’s business relationships with suppliers, customers and other stakeholders, and their obligation to act in the way 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, and in doing so have regard (amongst other matters) to:
The likely consequences of any decision in the long term: Yuanda UK are part of a European group of companies, Yuanda Europe Ltd, whose ultimate parent is Yuanda China Holdings. Thus, there are multiple layers of both governance and decision-making processes within the group. Strategic direction is given at the higher layers based on the long-term objectives of the group, and backed-up by local input and guidance from the local (European and UK) entities. The local consequences of group directions are thus studied at local level via the UK board, management and departmental team meetings in order to analyse the risks, opportunities and potential consequences of any decisions taken at local (UK) level. A key role of the UK subsidiary is to determine how best to implement, at local level, the strategic directions provided by the higher layers in a manner which benefits the interests of the business and its stakeholders and employees.
The interests of the company's employees
Due, in particular, to the bespoke and complex nature of our business, the need to retain, motivate and fairly remunerate our employees is a key aspect of our business model. The business needs to retain market share and to remain profitable, to provide both stable employment for its staff but also opportunities for career progression. A key aspect of our personnel development process is to ‘promote from within’ allowing our employees the opportunities, combined with the necessary academic and practical training, to develop their careers and progress as individuals. As a business within the construction sector, health and safety is of paramount importance to all tiers of our business. We have robust safety procedures in place at site level, and a competent and experienced Safety Supervisory and Management team in place. This is backed-up by regular external training in all aspects of safety issues, appropriate to all levels of staff within the business from site labour to directors of the business. Such safety training is mandatory within our business. The company has ‘in-house’ Human Resource Management, but also relies on external specialists in order to ensure that employees have access to issues which may affect them, for example occupational or mental health issues. The company offers a wide range of benefits to its staff, such as pension contributions, Private Health Care, Income protection and Life Insurance schemes. Communication with our employees is important at both formal and informal levels, and this is achieved via the use of an internal (Yammer) intranet tool which permits information to be readily shared. Staff reviews are a key part of our human resource process, and this is where performance is evaluated, feedback received, and training requirements identified.
The need to foster the company's business relationships with suppliers; customers and others.
Due to the nature of the business model that we have (tall buildings, bespoke facades, predominantly residential, London and South East) the potential customer base that we have is small. Projects are few in quantity, but large in size and value. Therefore, the majority of our client base is known to us, or we are to them (as we are one of a few ‘Tier 1’ façade contractors operating in this UK sector). Maintaining trust and effective, cooperative working relationships with a small client base is therefore critical to the success of the business. Fostering relationships and regular communication with our clients typically occurs at both site level (regular progress meetings), director level (key issue review meetings) and at divisional director/COO/CEO level, as and when necessary. Our business development team principally interact with the procurement teams of our clients, and a key focus for the company is to secure repeat business with existing clients. In terms of supplier relationships, Yuanda's principal supplier is its parent company, who is the manufacturer of the product we install. Thus, our supply base is limited, and readily managed by our procurement department, but where we do have regular site-based requirements these are, wherever possible, established under framework or call-off arrangements. A key activity for the local market is the installation of our products shipped from the parent in China, we have established ‘installation partners’ during the last five years in order to optimise quality and output, and to enable closer and more effective working relationships and improved communication with a selective group of partners.
The impact of the company's operations on the community and the environment
Yuanda’s operations are assessed and certified annually as part of our membership of the Considerate Contractors’ Scheme (CCS). As such, our site operations have little impact on the community in the vicinity of the sites on which we work. Our site operations are neither noisy nor dirty, as our products are engineered and prefabricated off-site. We respect the client’s constraints upon permissible noise and disturbance levels, and upon site working hours, particularly in built-up residential areas. Yuanda are ISO 14001 (Environmental Quality Management) accredited and reviewed independently for compliance. Yuanda’s façade products are high-performance in terms of reducing heat losses from a building and minimising heat gain into a building, and our site operations are designed to minimise waste, conserve resources and prevent accidental releases. In this respect, our packaging materials are designed to be returned to our parent company, the fabricator and supplier of our products, and re-cycled. It is the Environmental Policy of Yuanda to do all that is reasonably practicable to protect the environment from any adverse impacts created by the company’s business activities, this policy is published annually by the company.
The desirability of the company maintaining a reputation for high standards of business conduct
Given our relatively small potential client base, and our desire to undertake repeat business with existing clients, it is imperative that we conduct our business activities with transparency and to the standards expected from our clients, who are usually industry leaders in their field. Our operational procedures are standardised and available to all staff via our Integrated Management System. This system is audited annually as part of our ISO 9001, 14001 and 45001 accreditation. In terms of financial conduct, key activities are audited by, or advice sought from, external accountancy specialists in the fields of taxation and duties, as we are a major importer of finished goods from outside the EU. Our operations, both in the UK and at our manufacturing plant in China, are audited by our clients and we thus enjoy a transparent and collaborative approach with them, which requires that we conduct our business procedures in both the high standards expected by them, and by the directors of this business.
The need to act fairly as between members of the company
The company tries to be as flexible as possible in dealing with individual working requirements, within the constraints of running site operations. The directors recognise that staff are free to leave the business as they see fit, and thus a key responsibility for all directors is to retain and motivate their employees. Acting in a fair and reasonable manner to our employees is an integral part of our staff retention policy. Where conflicts do arise, the employees’ employment contracts contain formal grievance procedures which must be followed to safeguard the rights of both the employer and employee, in accordance with the relevant Employment Acts. The group's employment policy is to provide equal opportunity to all current and prospective employees without discrimination of any form. We provide a workplace environment in which all individuals are treated with dignity and respect.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 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 group operates a treasury function, centrally, which is responsible for managing the liquidity, interest and foreign currency risks associated with the company’s contracting activities.
The group’s principal financial instruments include derivative financial instruments, the purpose of which is to manage currency risks and interest rate risks arising from the group’s activities, bank overdrafts and loans, the main purpose of which is to raise finance for the group’s operations. In addition, the company has various other financial assets and liabilities such as trade debtors and trade creditors arising directly from its operations. Derivative transactions which the group enters into principally comprise forward exchange contracts between the Chinese currency and the local currency of the project. In accordance with group’s treasury policy, derivative instruments are not entered into for speculative purposes.
The company manages its cash and borrowing requirements in order to maximise operating income and minimise operating expense, ensuring the company has sufficient liquid resources to meet the operating needs of the business. Where necessary, additional liquidity is provided by the group in lieu of local bank loan funding.
The group is exposed to fair value interest rate risk on its fixed rate borrowings and cash flow interest rate risk on floating rate deposits, bank overdrafts and loans.
The group’s principal foreign currency exposures arise from trading with its overseas subsidiaries. Group policy permits but does not demand that these exposures may be hedged in order to fix the cost in sterling in relation to payments made by the company to its parent for goods and services provided. This hedging activity involves the use of foreign exchange forward contracts. A risk of lesser nature exists in relation to design and engineering services provided by Yuanda Europe to the company, in general, this risk is not hedged.
Group investments of cash surpluses, borrowings and derivative instruments are made through banks and companies which must fulfil credit rating criteria approved by the Board. All customers who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
The company specialises in the development of bespoke products for its projects in order to comply with the aesthetic, buildability, safety and performance requirements of its clients, and the local Standards and National Building Regulations. As such, the use of ‘standard systems’ or products is not appropriate for the sector of the market in which we operate. This requires constant development of new systems and research into the products which are available for incorporation into our facades. Differing building designs and geometries often dictate bespoke installation methodologies and the equipment which supports such methodologies. Much of this research and development takes place at our D&E headquarters in Basel, for our UK projects, whilst installation process development takes place in the UK office. The company claims eligible credits under the Governments’ RDEC Scheme.
In accordance with the company's articles, a resolution proposing that Gravita Audit II Limited be reappointed as auditor of the company will be put at a General Meeting.
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
The directors do not consider there to be any material post balance sheet events. Future developments have been considered in the Strategic report.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations. The laws and regulations applicable to the company were identified through discussions with directors and other management, and from our commercial knowledge and experience of construction industry. Of these laws and regulations, we focused on those that we considered may have a direct material effect on the financial statements or the operations of the company, including the Health and Safety at Work etc Act 1974, The Management of Health and Safety at Work Regulations 1999, Construction (Design and Management) Regulations 2015, Companies Act 2006, Coronavirus Act 2020, taxation legislation, data protection, anti-bribery, anti-money-laundering, employment and environmental legislation. The extent of compliance with these laws and regulations identified above was assessed through making enquiries of management and inspecting legal correspondence. The identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud;
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations; and
understanding the design of the company’s remuneration policies.
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates set out in note 2 were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
reading the minutes of meetings of those charged with governance;
enquiring of management as to actual and potential litigation and claims; and
reviewing correspondence with relevant regulators and the company’s legal advisors.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Yuanda (UK) Co. Limited is a private company limited by shares incorporated in England and Wales. The registered office is South Quay Building, 10th Floor, 77 Marsh Wall, London, E14 9SH.
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 of the company are consolidated in the financial statements of Shenyang Yuanda Industry Engineering Co. Ltd. These consolidated financial statements are available from the registrar at 30-32 Dong Ling Road, Dong Ling District, Shenyang, China.
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 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.
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.
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.
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.
As explained in the accounting policies, revenue from construction contracts is recognised over time. Such revenue and profit recognition on uncompleted projects is dependent on estimating the total budgeted contract costs of the contract, as well as the contract costs incurred to date. The actual outcomes in the terms of total cost may be higher or lower than estimated at the end of the reporting period, which would affect the revenue and profit recognised in the future years as an adjustment to the amounts recorded to date.
Trade debtors and contract assets are reviewed by management at the end of each reporting period to determine their recovery. Management base their estimates on the historical experience, adjusted for factors that are specific to the debtors and assessments of both current and forecast general economic conditions. Credit risk assessments focus on the customers’ past history of making payments when due and current ability and willingness to pay, taking into account the financial position of the customers and the macroeconomic environment in which the customers operate. The credit assessments also consider the status of the construction project, i.e. whether there is any delay, any unresolved lawsuits or contentious matters with customers. If the financial conditions of the customers and/or the macroeconomic environment were to deteriorate, resulting in an impairment of their ability to repay, additional impairment provisions would be required.
As explained in the accounting policies, the company generates income from long term construction contracts and it recognises the revenue based on the percentage completion of the project. Where it is probable that total contract costs will exceed total contract turnover, the expected loss should be provided for immediately.
Operating in the construction industry there is a risk that litigation could arise from any damages to the property, the contractors could claim if there is breach of contract, there could be claims under Health & Safety regulations by employees or other non-compliance with the various laws and regulations that construction companies are subject to.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
As of 1 April 2023, the main rate of UK corporation tax increased from 19% to 25%. As the company’s financial year straddles this date, a blended corporation tax rate of 23.5% has been applied which is calculated by apportioning the two tax rates on a weighted basis for the proportion of the financial year for which each main tax rate was applicable.
The actual (credit)/charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:
At the reporting date there are tax losses carried forward of £12,053,582 (2022: £761,159).
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 reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
The company has taken advantage of the exemption available in accordance with Section 33 of FRS 102 'Related Party Disclosures' not to disclose transactions entered into between two or more members of a group, as the company is a wholly owned subsidiary undertaking of the group to which it is party to the transactions.
The accounts of Shenyang Yuanda Aluminium Industry Engineering Co. Ltd are the smallest group in which the results of the company are consolidated.