The directors present the strategic report for the year ended 30 November 2023.
Principal activity
The principal activity of the company continued to be that of the construction of commercial buildings and related works.
The Company experienced a significant rise in turnover compared to the previous year, driven by the retention of valued clients, successful negotiations, and strategic tendering. Despite intense competition in the UK market, increasing construction costs, and the global economic slowdown, the Company has maintained robust trading levels. Furthermore, new tenders have been successfully secured for the upcoming accounting periods.
This year, the Company's gross profit margin rose by 4.51%, a result of strategic pricing and diligent cost management. The directors and management team regularly review pricing, costing, and project evaluations to refine costing models. Consequently, the Company is well-positioned to continue maximizing gross profit while effectively managing cost reductions.
Overhead costs have increased by £1.5 million. While the Directors have closely monitored and reduced overheads where possible, the Company has also made significant investments in its workforce, procedures, and information technology. These investments are aimed at securing profitable contract work in the coming years.
The Company's financial health has improved, as evidenced by the rise in working capital. Net current assets increased by £1.2 million, reaching £18.2 million in 2023, up from £17 million in 2022. Additionally, the cash balance grew by £1.6 million, now standing at £5.3 million in 2023 compared to £3.7 million in 2022. This increase is primarily due to a more efficient system for timely collection of debtor payments, which has boosted the cash balance.
The construction industry has faced numerous challenges, including global supply chain disruptions and rising inflation. The Company has successfully navigated these issues by maintaining flexibility in sourcing materials, adopting innovative construction technologies, and optimising operational efficiencies. Despite these challenges, the Company has kept all operational sites fully functional and ensured a seamless transition back to full-time office work for its employees.
The Company remains committed to the health and safety of all employees. A dedicated health and safety manager continuously monitors and ensures the well-being of everyone working for the Company.
For a detailed financial review of the business, please refer to the Company's Profit and Loss Account and Balance Sheet on pages 10 and 12, respectively.
The Company has identified inflation, the Ukraine war, and rising energy costs as the primary drivers of increased expenses, posing a significant risk to its operations. In response, a strategic approach was adopted, involving careful and transparent negotiations with clients to recuperate the heightened costs in both the short and long term. By proactively addressing these challenges, the Company aims to safeguard its financial stability and maintain a sustainable business model.
Financial Risk
The Directors have recognised that the Company faces financial risks associated with rising construction costs, inflation, energy expenses, and the overall economic uncertainty following the Covid-19 pandemic, Brexit, and the war in Ukraine. The Company has observed an upward trend in raw material prices and labour costs, which have had some impact on project costs and profit margins. However, the Company has successfully minimized these effects by effectively negotiating cost increases for individual contracts.
Reputational Risk
The Directors are aware of the ongoing reputational risk to the Company arising from customer claims. The Company promptly responds to these claims and settles them when necessary. To mitigate the occurrence of future claims, the Company diligently records all claims and implements procedures aimed at prevention.
Economic Risk
The Directors acknowledge the importance of maintaining strong relationships with key customers to identify early signs of potential financial difficulties. They regularly review sales trends in major markets to enable timely actions in case of declining sales. Contracts are carefully reviewed throughout their duration, and close relationships with key customers are maintained to minimize the risk of disputes. Furthermore, the Company actively works on mitigating supply chain risks by diversifying its supplier base.
Development and performance
Safety
Safety is a paramount concern for the Directors and all Company employees due to the inherent hazards associated with its activities. The Company rigorously monitors its health, safety, and environmental practices through regular meetings of key management. Compliance reviews conducted by a third party help ensure adherence to safety protocols, and ongoing staff training further enhances safety. The Company takes pride in its strong safety record, which is a testament to its unwavering commitment to a safety-first culture.
People
The Company relies on a skilled and motivated executive team and workforce. It places great importance on providing excellent training and development opportunities to maintain high standards. Investing significantly in employee recruitment and training improves productivity and ensures the Company maintains exceptional levels of quality.
The Company's key financial performance indicators during the year were as follows:
| Unit | 2023 | 2022 |
Turnover | £ | 55,078,068 | 49,723,730 |
Gross profit | % | 14.97 | 10.46 |
Administrative expenses | £ | 4,133,323 | 2,621,593 |
Profit before taxation | £ | 4,116,858 | 2,527,971 |
Net current assets | £ | 18,218,344 | 17,004,538 |
The directors believe there are no non-financial KPIs that are of strategic importance to the Company.
Future developments
The Company's success has been driven by its ability to innovate, adopt new technologies, and embrace novel approaches to enhance workforce safety, maintain operational continuity, and deliver completed projects to customers. The Company remains dedicated to researching and developing innovative construction methods and techniques, with a focus on safety enhancement, efficient project delivery, utilisation of new materials and working methods, energy efficiency, and information modelling.
Sustainability: The Company is firmly committed to enhancing environmental sustainability, reducing its carbon footprint, and incorporating green building practices into its work.
Health and Safety: The Company successfully obtained ISO45001 certification, underscoring its strong focus on maintaining a safe and healthy work environment for all employees.
Supply Chain Optimisation: The Company continuously works on mitigating supply chain risks by diversifying its supplier base, ensuring a more robust and reliable procurement process.
In line with Companies (Miscellaneous Reporting) Regulations 2018, the Directors of the Company are required to give an annual statement on how they have discharged their duty under section 172 of the Companies Act 2006 to promote the success of the Company for the benefit of its members as a whole and with regard to broader stakeholder interests. This section of the Strategic Report states how the Directors have had regard to the matters set out in section 172 1) (a) to (f) during the year as required by section 414CZA, of the Companies Act 2006.
The Company is an indirectly wholly owned subsidiary of Faircloth Holdings Limited as explained in note 23 Ultimate Controlling Party. Individual subsidiary companies are used for the operation of the business. Notwithstanding this, the Board of the Company undertakes engagement activities with the employees and external stakeholders.
The Company has identified their stakeholders as being their customers, employees, suppliers, subcontractors, surveyors, and the communities in which they operate.
The Directors acknowledge the effective and meaningful engagement with stakeholders and employees is key to promoting the success of the Company. Details of the action taken to support these objectives are set out as follows:
The Company continues to develop strengths, credit and relationships with suppliers and subcontractors. Customer relationships remain a priority to the Directors in negotiating ongoing and future contracts.
The interest of all employees, their health and safety, safety in the workplace and wellbeing are the key responsibilities of the Directors. All employees are encouraged to contribute actively towards achieving a work environment that is free of accidents, incidents, and ill health.
The Company has a wealth of in-house resources and prides itself on quality workmanship and shares its customers' goals and visions, ensuring a personal and first-class service.
The Company has not been subject to any environmental fines to date. The Company is fully committed to minimising its impact on climate change and mitigating the business risk that climate change presents. Optimising environmental performance forms a key component of the Company’s new sustainability strategy and is essential for driving efficiencies and winning work.
Whilst infrastructure already has a hugely positive impact on people’s lives, markets now require the Company to demonstrate the social value of its operations in economic terms. To benefit local areas, the Company uses local supply chain partners, employees, and materials wherever possible, and invests in future talent through rigorous staff training led by experienced Project Managers and Directors.
Whilst short term performance is very important, the Directors run the business for the long term, to enhance and generate more value and mitigate risk. They are committed to delivering on their priorities in a responsible and sustainable way, which makes a positive contribution to all stakeholders. This approach is integrated into their business decision making, including a commitment to health and safety and investments in building good quality commercial properties and in developing their people.
The Directors are aware that in some situations, stakeholder interests will be conflicted. The Directors work closely with the stakeholders, this enabled them to fully understand the key issues relevant to each stakeholder and the stakeholders are encouraged to provide feedback and opinions into the decision makings of the Directors.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 November 2023.
The results for the year after taxation are shown on the profit and loss account of the financial statements.
Further commentary is given in the Strategic Report.
Ordinary dividends were paid amounting to £1,194,638. 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's principal financial instruments comprise of bank and loan balances. The main purpose of its financial instrument is to finance the company's operations.
The financial risk management objectives & policies and information on exposure to various risks are described in detail in Principal risks and uncertainties section in the Strategic Report.
The most significant risk identified by the company is an increase in costs as a result of inflation, the Ukrainian war, and rising energy costs. To reduce risk, a deliberate and controlled negotiation with Clients was carried out to recover increased costs in the short and long term.
In respect of bank balances, the liquidity risk is managed by managing working capital between payment to suppliers and receipts from debtors. Funds are maintained to maximise cash whilst not impacting on the immediate financial needs of the company.
Trade debtors are managed in respect of credit and cash flow risk by policies concerning the credit offered to customers and the regular monitoring of amounts outstanding for both time and credit limits.
Liquidity risk in respect of creditors is managed by ensuring sufficient funds are available to meet amounts due.
The company's strengths, credit, and relationships with suppliers and subcontractors are all growing. In negotiating ongoing and future contracts, the Directors continue to prioritise customer relationships. The Directors' primary responsibilities include the interests of all employees, their health and safety, workplace safety, and well-being.
This is described in detail in Section 172 statement section in the Strategic Report.
There are no post-reporting date events that occurred.
Future developments are described in detail in Future developments section in the Strategic Report.
The auditor, HW Fisher LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
The company has taken the exemption not to report on their greenhouse gas emissions, on the basis they are a subsidiary undertaking, and their results are incorporated within the group accounts of Faircloth Holdings Limited.
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.
Detection of 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.
As part of our planning process:
We enquired of management the systems and controls the company has in place, the areas of the financial statements that are most susceptible to the risk of irregularities and fraud, and whether there was any known, suspected or alleged fraud. The company did not inform us of any known, suspected or alleged fraud.
We obtained an understanding of the legal and regulatory frameworks applicable to the company. We determined that the following were most relevant: FRS 102, Companies Act 2006, health and safety.
We considered the incentives and opportunities that exist in the company, including the extent of management bias, which present a potential for irregularities and fraud to be perpetuated, and tailored our risk assessment accordingly.
Using our knowledge of the company, together with the discussions held with the company at the planning stage, we formed a conclusion on the risk of misstatement due to irregularities including fraud and tailored our procedures according to this risk assessment.
The key procedures we undertook to detect irregularities including fraud during the course of the audit included:
Identifying and testing journal entries and the overall accounting records, in particular those that were significant and unusual.
Reviewing the financial statement disclosures and determining whether accounting policies have been appropriately applied.
Reviewing and challenging the assumptions and judgements used by management in their significant accounting estimates including revenue recognition of construction contracts, and provisions for litigation, onerous contracts, remedial work and warranty work.
Assessing the extent of compliance, or lack of, with the relevant laws and regulations.
Testing key revenue lines, in particular cut-off, for evidence of management bias.
Obtaining third-party confirmation of material bank and loan balances.
Documenting and verifying all significant related party balances and transactions.
Reviewing documentation such as the company board minutes for discussions of irregularities including fraud.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements even though we have properly planned and performed our audit in accordance with auditing standards. The primary responsibility for the prevention and detection of irregularities and fraud rests with the directors.
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 member 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 member those matters we are required to state to the member 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 member, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Faircloth Construction Limited is a private company limited by shares incorporated in England and Wales.
The registered office is:
The Old Library
Dudley Road
Tunbridge Wells
Kent
TN1 1LE
The nature of the Company's operations and its principal activities are set out in the Strategic Report.
These financial statements have been prepared using the historical cost convention. The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £1.
The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2.
In these financial statements, the Company has applied the exemptions available under FRS102 in respect of the following disclosures:
A cash flow statement and related notes (Section 7) – The Company has taken advantage of the exemption from preparing a cash flow statements, on the basis that it is a qualifying entity and it’s ultimate parent Company, Faircloth Holdings Limited, includes the Company’s cash flows in its consolidated financial statements.
Related party transaction notes (Section 33) – The Company only discloses transactions with related parties which are not wholly owned with the same group. It does not disclose transactions with its parent or with members of the same group that are wholly owned.
Disclosures in respect of the compensation of key management personnel (Section 33) – The Company has taken the advantage of the exemption from the requirements to disclose key management personnel when the key management personnel and directors are the same.
The financial statements of the company are consolidated in the financial statements of Faircloth Holdings Limited. These consolidated financial statements are available from its registered office: The Old Library, Dudley Road, Tunbridge Wells, Kent, United Kingdom, TN1 1LE.
The significant accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated.
The stage of completion is measured by completed Quantity Surveyors reports of work done.
Contract revenue comprises of the initial amount of revenue agreed in the contract and variations in the contract work and claims that can be measured reliably. A variation or a claim is recognised as contract revenue when it is probable that the customer will approve the variation or negotiations have reached an advanced stage such that it is probable that the customer will accept the claim.
Contract cost is measured by reference to the ratio of contract work certified during the year to the amount of revenue agreed in the contract over the total estimated cost for the contract. When it is not probable that contract costs are recoverable from the customers, in which case, such costs are recognised as an expense immediately.
At the balance sheet date, the amount recoverable on contracts within ‘Debtors’ are the accumulative recoverable costs incurred to date less recoverable costs charged to the profit and loss account. Where the recoverable costs charged to the profit and loss account exceeds the accumulative recoverable cost incurred to date, the balance is presented as amount payable on contracts within ‘Creditors’.
Progress billings not yet paid by customers and retentions by customers are included within 'Debtors'. Advances received are included within trade creditors.
The accrued income is estimated by the Project Managers by reference to the work programme or instructions from the the customers.
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.
Retention
Retention income is recognised once there is sufficient certainty over the probability it will be received and the amount to be received can be measured reliably.
Retention expense is recognised when it is paid.
Holiday pay accrual
A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the balance sheet date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.
The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the income and expenses and the carrying amounts of assets and liabilities within the next financial year are addressed below.
The Company’s accounting for contract and margin recognition policies, which are set out in note 1, are central to how the Company values the work it has carried out in each financial year. Contract accounting requires estimates to be made and in many cases these contractual obligations span more than one financial period.
These policies require forecast to be made of the outcome of the construction obligations which require both estimates and judgements to be made of both cost and income recognition on each contract. No margin is recognised until the outcome of the contract can be estimated with reasonable certainty. On the cost side, estimates of budgeted and irrecoverable costs are made on each contract in addition to potential costs to be incurred for any maintenance and defects liabilities. On the income side, estimates and judgements are made on variations to consideration which typically include variations due to changes in scope of work, recoveries of claim income from customers, and potential liquidated damages that may be levied by the customers.
These income and costs may be affected by a number of uncertainties that depend on the outcome of future events and may need to be revised as events unfold and uncertainties are resolved.
The recoverability of debtors especially trade debtors, accrued income, retentions and gross amount due from customers for contract work, are regularly reviewed in the light of the available economic information specific to each receivable and specific provisions are recognised for balances considered to be irrecoverable.
Provisions are liabilities of uncertain timing or amount; therefore in making a reliable estimate of the quantum and timing of liabilities, judgement is applied and re-revalued at each reporting date. The range of potential outcomes as the result of uncertain future events could result in a materially positive or negative impact on profit or loss and cash flow.
More specifically provisions for onerous contract are made for all known or expected losses on individual contracts once such losses are foreseen.
The Company also sets aside provisions for remedial and warranty work for any liabilities arising due to defects over the latent defect period stated in the contract. The provision for remedial work reflects the present obligation to rectify the work defects on completed contracts in order to recover retentions withheld by customers. In the year ended 30 November 2023, the provision for remedial works has been estimated to be 10% of total retentions outstanding (2022: 10%). The provision for warranty work reflects the present obligation to rectify the work defects on completed contracts within the warranty period, which can be up to 12 years after completion. A provision for warranty work is only recognised when a reliable estimate can be made.
The Company has recognised provisions of £272,431 (2022 £637,164). Please refer to note 17.
The Company also considers Going Concern as a significant area of judgement and has included specific disclosure in relation this within note 1.3.
All turnover arose from trading activities within the United Kingdom.
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 4 (2022 - 3).
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
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 rate of tax increased from 19% to 25% on 1 April 2023.
Included in other debtors is amount due from customers for contract work of £871,803 (2022 £1,258,940).
Amounts due by group undertakings being unsecured, interest free and repayable on demand.
Included in other creditors is amount due to customers for contract work of £1,637,023 (2022 £627,034).
The company currently has an outstanding secured loan of £Nil (2022 £1,264,492) with a fixed interest rate of 1.56%. The company has paid off the oustanding loan in full during the year .
Provision for litigation
The directors have raised an additional provision for litigation costs relating to the retention of a completed contract. In June 2023 the full brought forward provision was utilised as the dispute was settled.
Provision for onerous contract
When it is probable that the total contract costs will exceed the total contract revenue on construction contracts, the Company recognises the expected losses as an expense immediately with a corresponding provision for losses. These provisions are expected to be utilised within one year after the balance sheet date.The provision for onerous contracts was £Nil (2022 £Nil) as at the balance sheet date.
Provision for remedial work
The Company has a present obligation to rectify the work defects on completed contracts in order to recover retentions withheld by customers. These provisions are expected to be utilised within two years after the balance sheet date.
Provision for warranty
The directors have provided for an additional warranty provision for works covered under warranty required on two contracts. The brought forward provision was settled in June 2023.
The above provisions are made when a reliable estimate can be made based on the management's best estimate of known loss making contracts, remedial work, defects and warranty on contracts and legal actions.
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 year end £21,826 (2022 £10,034) was payable to the scheme and is included in creditors.
Financial commitments and guarantees
Performance guarantees were provided by the bank to customers covered by indemnities given to the bank. The amount of the financial guarantee contract is £3,237,950 (2022 £1,546,211).
Contingent liabilities
Provisions have been made for the Directors’ best estimate of known legal claims, remedial work and warranty work for any defects work and contract losses. No provision is made where the Directors consider, based on legal advice and past practice that the claims or action are unlikely to succeed or that the Company can not make a sufficiently reliable estimate of the potential obligations.
The Company in the normal course of business has given guarantees in respect of bonds relating to the Company’s own contracts. Guarantees are treated as contingent liabilities until such time as it becomes probable payment will be required under the terms of the guarantee.
Charges
The company's bankers hold a fixed and floating charge over the undertaking and all property and assets present and future, including goodwill, uncalled capital, buildings, fixtures, fixed plant and machinery.
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 group consolidated financial statements of Faircloth Holdings Limited, are available upon request from The Old Library, Dudley Road, Tunbridge Wells, Kent, United Kingdom, TN1 1LE.
During the year the company entered into the following transactions with related parties:
a) During the year the Company invoiced construction work of £69,750 (2022 £62,534) and received services amounting to £119,348 (2022 £144,981) to and from a company owned by a family member of the Directors. At the end of the previous year the long outstanding amount due to the Company of £62,534 was deemed irrecoverable and therefore was written off. At the current year no such amount written off.
b) At the end of the year an outstanding amount due to the Company of £437,201 (2022 £244,924) was from a company of which a Director is also a director and the ultimate controlling party of that company. There was an increase in the amount due to new advance in the year. The loan is interest free and repayable on demand.
c) During the year the Company invoiced construction work of £4,546 (2022 £15,992) to a company of which some of the Directors and their family are also the directors and the ultimate controlling party of that company. At the end of the year the outstanding amount due to the Company was £1,183,504 (2022 £683,126). The loan is interest free and repayable on demand.
Pension Scheme
The Directors who are members of the Faircloth family are the Trustees and the Members of an independent administered Pension Scheme. During the year the Company invoiced interest on a loan of £2,427 (2022 £2,060) to the Pension Scheme. The Pension Scheme charged office rent of £32,000 (2022 £29,000) to the Company. At the end of the year the amount due to the Company was £57,575 (2022 £49,016). The loan is repayable on demand.
The key management personnel are the also the directors of the Company. Please see note 5 Directors' Remuneration.