The directors present the strategic report and financial statements for East West Connect Ltd for the year ended 31st March 2024.
East West Connect Ltd is the main trading subsidiary of East West Group Ltd, it has continued to grow since it was established over 35 years ago by John O’Hanlon. Today the group remains majority owned by the O’Hanlon family and Kathleen O’Hanlon took on the role of Chairperson in 2014. The family will maintain its active leadership through the Chairperson and will further develop the role of family members at both operational and board level to maintain continuity and provide direction to the management team as the business grows. Over the last year Angus Duguid has come in as Non exec Director and Deputy Chair to support both the shareholders and the wider business as we develop, he brings a wealth of experience in commercial, governance and structuring business to support growth.
Running of the business is under the stewardship of Marcus Allen as Managing Director and the team of directors headed up by Ross Carroll. In recent years as part of a long-term incentive strategy, key management have been given the opportunity to become A and B shareholders and these long-term incentives plans continue to be rolled out to help ensure the management team is retained and built upon for the future.
The market has settled somewhat from the turmoil of the previous few years, although inflation has dropped the ongoing challenges with the financial strength of parts of the supply chain remain a risk, however we are confident that we have established strong commercial relationships with a range of key partners and developed processes which will allow for early risk identification and mitigation. We do not see the position changing in the short to medium term, as the market is required to absorb economic and political shocks.
The figures are for the 12 months to the end of March, which show a continued resilient position for the present time coupled with strong financials in what has been another troubled year and even harder times to predict, with a greater number of challenges and insolvencies affecting the stability of both market and supply chain. But East West Connect maintains a very strong position with the nature of our works and clients including a variety of negotiated projects and potential 2 stage tenders helping to alleviate these pressures.
East West Connect maintains a very strong position with completed major infrastructure and decarbonisation projects exceeding £50M with single clients and a backlog of £50M secured across several key clients and still to deliver over the next 2-3 years, and a number of other contracts being negotiated that will continue to bolster the order book. We continue works with key long-term clients like Takenaka at Lombard Street following earlier phases and push ahead with works commencing on major plant and infrastructure replacement, this should continue well into 2025-26 and several others opportunities being reviewed within the other building portfolios.
We continue to expand our works within a variety of niche markets many of these project would be considered high profile works within the Japanese business sector, and in live complex building environments including heritage Palace works and continued works within the CAT A market nearing completion at 41 Lothbury with Wates Construction and 84 Moorgate with Osborne, although with Osborne filing for voluntary administration at the time of writing, this project has been written back and East West Connect are in discussion with the owners of the building for completion of the works directly.
Having now converted further highly prestigious projects including another long-term degasification and plant replacement project within the City of London for a major financial institution, receiving orders for several phases of work direct for the client with an estimated budget of £25M over 3-4 years commencing construction later this year, this will allow us to redistribute resources from other major programmes coming to a close and maintaining high rates of labour utilisation.
Our tender schedule continues to enjoy a good balance of direct to end users on infrastructure works giving greater margin and control, coupled with continuation of works for a very select number of tier 1 contractors or management agents including Takenaka, Wates, Walter Lilly and CBRE. Although we are continuing to tender works, they are focused on longer term works being our main target supplemented with a few smaller immediate works with known sources or client direct infrastructure works that are low in management and labour. This gives a further £40-£50M of real opportunity in the pipeline for the years 2024-26 turnover.
We have continued to develop a multi discipline-in-house delivery approach, complimented and cross selling all areas of the business maximising opportunities with clients where we have already established a positive relationship. This approach has been particularly successful in the maintenance division with high-profile long-term contract work driven out of the project delivery. We also continue to invest and grow our direct delivery capacity with a large pool of direct labour across all trades to facilitate the control and quality required in such live complex and prestige environments.
Social Housing contracts have been a significant part of the business since the 1990s and now with Peabody following a variety of mergers, coupled with renewal of our 10 years frameworks providing secured packages of M&E at £80M and Fire management works tenders of £20M with over 8 years to run. We continue to become more integral in the considerable challenge of delivering a full package of services to the newly expanded Peabody now with over 100,000 properties, this creates a stable and growing income stream upon which to further build our capability in this market.
Our maintenance team remains in a great place as they expand with new clients in the build to rent market with Quintain and seeing lots of new contracts continuing with Galliford Try, Walter Lilly and Japanese/ Swiss embassies Market.
We are pleased to report another year of growth and sustainable profit for the group with a good year maintaining organic growth and profits in line with previous years. Turnover is above that projected, as we catch up with several major projects that did see slippage in the previous year, across the group we have turned over £55.1M (against budget of £46M), this is complemented with a profit margin @ 13.5% (Budget – 14.1% this includes a reasonable level of write back against Geoffery Osborne) giving GP £7.4M and net profit before Tax £2.9M (again against projected £2.2M). These consolidated figures now include our sister company East West Compass (formerly Chas West) that services the reactive maintenance market for Peabody and has agreed a further extension of 5 years on the framework.
Our cash flow projections highlight our liquidity position, despite any administration affects already highlighted, our projections indicate a continued healthy cash flow, supported by our diverse client base and ongoing revenue streams. Our actual and projected cash flow closing cash position are in excess of £4.5 million and we continue to collect a substantial amount of cash as we head into the new financial year. We are predicting that this balance will continue to grow throughout the year.
Our current debt structure remains manageable. We do not have any bank loans outstanding nor any overdue HMRC debts, as we pay all our dues on a monthly basis as and when it falls due. Our current Creditors days (Efficiency - Based on Previous 12 months) is under 22 days which was 32 days this time last year. Hence, we have maintained a consistent track record of meeting our debt obligations promptly.
We have robust working capital facilities in place, which include a revolving daily credit line of £1.5m with HSBC Bank, providing us with additional liquidity flexibility. These facilities are part of our strategic financial management practices, ensuring we can navigate any short-term cash flow variances effectively.
Our financial strategy is designed to maintain stability and support growth, even in challenging circumstances. We are an owner managed business, which has maintained a policy of retaining a large proportion of its profits for many years to fund its growth for the long term and are not reliant on external debt. To further demonstrate this, the group operates from our offices in Perivale, which we own outright without a mortgage. We are confident in our ability to sustain our operations and continue to meet our financial commitments.
Our focus on margin remains but moderated to secure contracts with robust projects / clients giving longevity and payment certainty / improved cash flow, particularly during these less certain markets. These types of contracts are often government funded directly or indirectly.
We closely monitor and manage cash flow and have not needed to resort to our bank funding facility within the year, which however remains in place on an in case of need basis, but we have continued to grow a strong bank balance to fund the growing projects requirements, and this coupled with a growth of our assets leads to ever increasing security for the larger projects.
The company's policy is to pay suppliers to the agreed terms upon which business is conducted and continue to build an extremely strong and robust supply chain. The directors regularly review the financial requirements of the company, and the risks associated therewith. The company's operations are primarily financed from retained earnings and we have again increased our assets through investment within the business and property, and a board policy of profit retention, however a bank loan relating to trading premises and overdraft facility is available but presently unused.
As can be seen from our strong account operation and working capital position, we continue to be mindful of cash flow with a keen eye on building a reserve and accruals of all future payments including VAT, hence maintaining flexibility whilst maximising our available capital. Our banking accounts have been restructured to maximise our position with our increasing reserves and interest rates to ensure whilst remaining agile with our reserves. At this stage we are likely to continue with our dividend policy of retaining 50% of the profit within the business to ensure
our stability and growth, this leads to our strong balance in these times. To further our development of our staff we continue to review employment packages and provide above market employment packages to build a team for the future.
During this financial year we have heavily invested in a new finance package 4PS finance system to replace the exchequer systems that is now fully implemented for the start of the new financial year 2024-2025, this gives greater control, understanding and transparency of the company finance from cradle to grave and will use this opportunity to overhaul and invest across the business in new procurement process to enhance transparency and accountability.
Against many unstable and unpredictable market factors , including inflation, the election and government uncertainty and supply chain challenges our business has continued to grow across the board and we presently see more many opportunities, secured works and tender pipeline than ever in our history.
So therefore, although we acknowledge and continue to plan for financial challenges, slippage, changing market, client mergers and supply and cost challenges we see ourselves in a strong position driven through hard work, diversity, good reputation and a constantly growing management and delivery team that is the best in the industry.
Maintaining margin growth against this background will be challenging but we continue to plan effectively, adapting our processes and systems to create high levels of transparency and improve financial planning and analysis and early identification and mitigation of issues.
We go into 2024/25 in a strong position with 85% of our income budget secured and supported by signed contracts with highly credit rated clients. A considerable level of our projects provide secured works extending well into 2025-26 underwriting a large element of the following year’s activities and allowing continued investment in staff and systems. The business has strong relationships with a growing list of key and highly rated clients, coupled with a reputation that is opening the door to more and more great opportunities introducing some new key clients.
Recently secured negotiated works again strengthen the position along with the renewed contracts with our social housing client and our reactive business taking this further to 2029. East West Connect have continued the growth following full accreditation in specialist fire protection and works to complement our already extensive fire alarm and fire doors works; now building our in-house capability and direct delivery to ensure our development in our ever-changing market.
We have continued with considerable growth, investment and development across the company has led to expansion of the Quality, Health and Safety department into a Compliance department to take the relevant standards, health and safety and quality (ISO 9001 & 14001 and transition from OHSAS 18001 to 45001) into the next era.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2024.
The results for the year are set out on page 11.
Interim dividends were paid amounting to £1,000,000.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
In accordance with the company's articles, a resolution proposing that Rickard Luckin Limited be reappointed as auditor of the company will be put at a General Meeting.
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our: general commercial and sector experience; through verbal and written communications with those charged with governance and other management and via inspection of the company’s regulatory and legal correspondence.
We discussed with those charged with governance and other management the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations to our team and remained alert to any indicators of non-compliance throughout the audit, we also specifically considered where and how fraud may occur within the company.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the company is subject to laws and regulations that directly affect the financial statements, including: the company’s constitution, relevant financial reporting standards; company law; tax legislation and distributable profits legislation and we assess the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly the company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on the amounts or disclosures in the financial statements, for instance through the imposition of fines and penalties, or through losses arising from litigations. We identified the following areas as those most likely to have such an affect: employment legislation; health and safety legislation; trade legislation; data protection legislation; anti-bribery and anti-corruption legislation.
ISAs (UK) limit the required procedures to identify non-compliance with these laws and regulations to the procedures, and no procedures over and above those already noted are required. These limited procedures did not identify any actual or suspected non-compliance which laws and regulations that could have a material impact on the financial statements.
In relation to fraud, we performed the following specific procedures in addition to those already noted:
Challenging assumptions made by management in its significant accounting estimates, in particular: accounting for contracting income and share based payments;
Identifying and testing journal entries during the year and post balance sheet, in particular any entries posted with unusual nominal ledger account combinations, journal entries crediting cash or any revenue account, and journal entries posted by senior management;
Performing analytical procedures to identify unexpected movements in account balances which may be indicative of fraud;
Ensuring that testing undertaken on both the performance statement, and the Balance Sheet includes a number of items selected on a random basis;
Discussions with management; and
Reviewing board minutes.
These procedures did not identify any actual or suspected fraudulent irregularity that could have a material impact on the financial statements.
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 ISAs (UK). For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the procedures that we are required to undertake would identify it. In addition, as with any audit, there remains a high risk of non-detection of irregularities, as these might involve collusion, forgery, intentional omissions, misrepresentation, or the override of internal controls. We are not responsible for preventing non-compliance with laws and regulations or fraud, and cannot be expected to detect non-compliance with all laws and regulations or every incidence of fraud.
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 profit and loss account has been prepared on the basis that all operations are continuing operations.
East West Connect Limited is a private company limited by shares incorporated in England and Wales. The registered office is 1st Floor, County House, 100 New London Road, Chelmsford, Essex, CM2 0RG.
The previous reporting period was reduced to a 9 month period to remain in line with the period of the parent company which was also reduced to 9 months. The comparative amounts presented in the financial statements are therefore not entirely comparable as they relate to a 9 month period.
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 £.
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: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of East West Group Limited. These consolidated financial statements are available from its registered office, 1st Floor, County House, 100 New London Road, Chelmsford, Essex, CM2 0RG.
Revenue from contracts for the provision of services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.
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.
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.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
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.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
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.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
Dividends
Dividends are recognised when the shareholders right to receive payment is established.
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.
Revenue from amounts recoverable on contracts is valued by reference to the stage of contract completion, which is judged by reviewing the costs to date incurred as a percentage of the final expected contract costs. Using this percentage of completion, an adjustment is made for to recognise the appropriate revenue.
An expense in relation to share based payments is recognised in profit or loss at the point when the shares issued to individuals meet their vesting conditions. The expense is recognised in the company where the individuals who have been granted the share options and employed. Shares are valued at their deemed market value on the day of them being granted.
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 (2023 - 7).
Key Management Personnel consist only of directors.
During the year, the parent company East West Group Limited, granted share options which vested in full. The individuals for who share options vested are all employee of East West Connect and therefore this company has recognised the share based payment expense of £81,509 (2023: £nil) which relates to equity based payment transactions. The share based payment expense in relation to directors of East West Connect Limited is £67,169 (2023: £nil).
The change in the effective tax rate is as a result of an amendment to Corporation Tax rates by HM Revenue & Customs for businesses.
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:
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 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.
The company has one class of ordinary shares which carry no right to fixed income. Each ordinary share carries one voting right.
All profit and loss reserves are deemed distributable.
At 31 March 2024 the company's banker held a multilateral guarantee in respect of East West Connect Limited and East West Group Limited. This is in respect of security over group assets for the bank loans and overdrafts. At 31 March 2024 the total borrowings against this guarantee were £Nil (2023: £Nil) of which £Nil (2023: £Nil) is included within the creditors of this company's financial statements.
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:
At the year end the company owed the directors a total of £110,078 (2023: £206,232).
At the year end the company was owed a total of £15,000 (2023: £566,124) by a fellow group company.
At the year end the company was owed a total of £733,942 (2023: £922,951) by its parent company.
At the year end the company owed £4,296 (2023:£nil) to a company with common directorships. During the year, the company made purchases from this related party totalling £13,890 (2023: £14,320).
The company has taken advantage of the exemption available in FRS102 whereby it has not disclosed transactions with any wholly owned group members.