The directors present the strategic report for the year ended 30 April 2024.
Pro Rail Services is a family-owned construction and plant hire company operating mostly on rail infrastructure. Since being founded in 2012, we have grown to operate across the following disciplines:
Civil Engineering
Earthworks & Drainage
On-Track Plant Hire
Surveys
Permanent-Way
Labour and Safety Critical Supply
The company's head office is based at Welwyn Garden City with many depots throughout the country, enabling us to support our clients nationwide. In the past year we have expanded with new depots in Dunfermline and Bournemouth.
Performance
The Directors are pleased to report that overall, it has been a challenging year for the business, with a reduction in turnover due to general market uncertainties and investment programmes from our clients. However, all our projects were built safely and delivered to the same high standard expected by our clients, strengthening our position as a leader in our industry.
The reduction in turnover was due to significant budget constraints from the Department for Transport and Network Rail coinciding with the end of Control Period 6, Network Rail’s five-year budget plan period. Control Period 7 (CP7) began in April and has seen a notable upturn in spending, within the first nine months of our financial year our turnover has exceeded that of last year. Our business has been impacted by sustained inflation through the 2023/24 financial year, with market conditions limiting our ability to pass cost on, these pressures have reduced through 2024/25.
CP7 will see £45 billion invested into renewing and maintaining Britain’s railways over the next five years, an investment programme and time horizon few industries benefit from. We are well placed to benefit from the strategic changes Network Rail has made in CP7, with increases in drainage and earthwork spending to improve climate resilience, the disciplines which drives more revenue than any other for our business. The impact of climate change on the railway means our our specialism in emergency and reactive works, such as track flooding and landslips, are in increasing demand. Our 24/7 365 day a year reactive capability ensures our clients can rely on us to deliver works quickly and safely to ensure the railway remains operational.
During the year we have continued our strategy of both widening our existing client base as well as the type of work we undertake for our existing clients. A renewed focus on our survey division has seen a significant increase in revenue and a new client base that has led to additional opportunities for other parts of the business. We have successfully aligned ourselves with the majority of Network Rail’s new Control Period 7 tier one framework contractors, enabling us to expand in new regions and disciplines.
We have begun expanding into new sectors of infrastructure development, including projects to support the green transition and the water industries AMP 8 investment programme. The current financial year saw our first project supporting the development of a new nuclear power plant, with further projects to support the green economy to be delivered this year.
We remain committed to investing in our fleet of specialised on-track plant. This is a key differentiator and allows us to provide industry leading plant reliability and safe delivery of plant operations for our clients in-house.
Health & Safety is at the forefront of what we do and part of our business ethics, our stringent monitoring and measurements, helps maintain our continued improvement and excellent record. Since we were founded, we have never had a RIDDOR, and we have maintained our zero Lost Time Injury Frequency Rate. This outstanding safety record is a testament to our teams and the way we plan, manage and deliver our works.
We are committed to our environmental responsibilities and continue to support and work with our clients with the overall aim of reducing emissions, unnecessary waste and increase recycling amongst others. As the UK’s rail operations continue to be impacted by climate change, we are conscious for our responsibility to mitigate our impact on the environment both in our day-to-day operations and the delivery of our projects. We are committed to supporting Network Rail and our client’s goal of achieving biodiversity net gain in the delivery of projects by 2035.
Economic uncertainty remains the single biggest risk within the construction sector, and we manage these risks through robust systems and procedures. Our industry is highly dependant on central Government funding; however, we do not expect the Government to deviate from existing spending commitments as defined by Office for Road and Rail. The Government has continued to emphasise the importance of new infrastructure supporting economic growth and the transition to a greener economy, as such there is the potential that budgets will increase further. We have a strong forward order book for 2024/25 and beyond and continue to expand our key client list through our reputation of delivery and relationships within the sector.
The impact from high inflation on labour levels and supply chain is being closely monitored and managed as is the effect on materials.
The Company is continuing to expand its customer base both within and outside the current sectors and firmly believe it has a good foundation to weather any unforeseen outcomes in the near future. With the strength of our balance sheet and our business model, we are confident that we can keep the ongoing impact of those challenges to a minimum.
There are a number of potential risks and uncertainties which could impact the Company’s performance, and these are considered by the Board on a regular basis. The Board of Directors and the relevant management teams consider the risks of all significant business decisions and changes in the external environment and in the company’s operations. The key risks affecting the business are as follows:
Operating Risk - the Company manages this risk by providing added value services to its clients, having fast response times not only in supplying products and services but also in handling all client queries and by maintaining strong relationships with clients. The Company's operating risk is reduced due to the market share of their clients as many of the Company's clients are long standing market leaders in their field. The Company has spread its operating risk by not only actively seeking to widen its client base but also through continued expansion of its activities in the South of England.
Market Risk - the Company seeks to maintain a competitive advantage by offering an appropriate and relevant service range and providing a high level of customer service from professional and dedicated staff. The Company keeps abreast of developments in the market through maintaining strong relationships with its clients and monitoring the wider economic environment.
Personnel Risk – the Company is a privately-owned business and places great emphasis on recruiting, training, rewarding and retaining high quality people. The Directors consider staff resourcing on a regular basis. We promote from within whenever we can to maintain the Company culture. We also embrace new people from elsewhere as they bring fresh ideas and the benefits of their experience. The Board have tried to ensure that the knowledge base of the operational management team is shared as much as possible throughout the Company.
Taxation risk -the Company is exposed to financial risks from increases in tax rates and changes to the basis of taxation including corporation tax and VAT. Principal controls to mitigate this risk include regular monitoring of legislative proposals and the engagement of experienced executives and the use of experienced sector-specific professional advisers to mitigate the impact of any changes and ensure compliance.
Financial Risk- the Company finances its operation through the generation of cash from operating activities. The financial risk management objectives of the Company in relation to financial instruments are set by the board of Directors with a view to minimising exposure to price risk, credit risk, liquidity risk and cash flow risk. Financial monitoring, forecasting, and planning are ever present processes with the care taken to achieve a reasonable profit margin and investment in resources whilst maintaining delivery of a high-quality service to its clients - see also Financial instruments.
Information Technology – the Company relies heavily on systems to operate its business, ordering goods, paying suppliers, ensuring health and safety records are accurate, accounting and payroll. The risk of Cyber-attacks is ever present and an increasing risk to every business. Ensuring we have robust and up to date Cyber security measures and vigilant users is critical to the successful running of these systems, as well as employing appropriately skilled and experienced staff and external specialist support as required.
Economic risk - the Directors have identified and evaluated risks and uncertainties and have controls in place to mitigate these. Responsibility for management of each key risk is identified and delegated. The Company is exposed to the economic risks that could lower the Company's revenues and operating results in the future. However, actions continue to be taken to maximise the Company's performance in all aspects of the business.
The balance sheet on page 12 of the financial statements shows that the Company's financial position at the year end is, in terms of both net assets and liquidity, has improved marginally over the previous year.
The Company regularly reviews a number of financial and non-financial key performance indicators at both board and operational levels. The Company carries out monthly detailed reviews of each operational and support function at which all aspects of each business and key performance indicators are reviewed. The key financial and non financial performance indicators used to determine the progress and performance of the Company are set out below:
2024 2023
Turnover £11,700,879 £13,194,978
Gross profit £1,691,424 £2,380,573
Gross margin 14.5% 18.0%
Operating (loss/) profit £(17,640) £461,403
Operating profit as a % of sales (0.1)% 3.5%
Net assets £2,623,220 £2,608,216
Net cash balance £734,440 £2,172,364
Market Share
The Company is a medium-sized privately owned construction company based in England. Although difficult to quantify the Company is estimated to have a strong market share.
Cash measure
The net cash balance (cash and cash equivalents less borrowings) is a measure of the strength of the balance sheet and to confirm that the Company has the funds necessary to continue to fund its operations and to continue to grow organically.
At the year end, the Company had a net cash balance of £734,440 (2023: £2,172,364), a decrease of £1,437,924 on the previous year.
The Company reviews non-financial KPIs on a regular basis in a number of areas:
Health & Safety
The importance of Health & Safety is at the forefront of everything that we do in terms of our moral and legal duty and of course, the potential of any breach. The Company aims to achieve year-on-year improvement in accident incidence rate and remain below the Health and Safety Executive benchmark for the UK. We continue to maintain an excellent health and safety record.
Customer Experience
The Company aspires to deliver a high level of customer satisfaction which is key to supporting sustainable long term growth in the sectors in which we operate. Feedback received demonstrated that all of our customers are totally or mostly satisfied with our services.
Directors remain in direct contact with all our principal customers and have developed relationships to ensure we have full understanding of their objectives and our part in delivering those. Regular internal team meetings are held to discuss all aspects of these ongoing relationships.
Environment
The Company recognizes the importance of its environmental responsibilities, monitors its impact on the environment and designs and implements policies to reduce any damage that might be caused by the Company’s activities. Initiatives designed to minimize the Company’s impact on the environment include safe disposal of any product waste, recycling and reducing energy consumption. The Directors are taking steps to expand its environmental department and are continually striving to improve their environmental policies.
Accreditations and memberships
We have retained and developed a range of industry accreditations and memberships:
Accreditations:
RISQS
Network Rail Plant Operations Scheme
Acclaim - Safety Schemes in Procurement
Constructionline Gold
ISO 9001
ISO 14001
ISO 45001
FORS Silver
Memberships
5% Charter Signatory
Amenity Forum Member
Arboricultural Association Member
Constructing Better Help Member
CECA Member
CIRAS Member
Construction Plant-Hire Association Member
Rail Plant-Hire Association Member
Freight Transport Association Member
IMEA Member
ISO
O Licence
Permenant Way Association Member
Rail Forum Member
Supply Chain Sustainability School Member
Staff turnover – employees who leave and the reasons thereto.
Tenders - enquiry success rate for tenders and price estimates.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 April 2024.
The results for the year are set out on page 11.
Ordinary dividends were paid amounting to £150,000. 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:
Objectives and policies
The Company's principal financial instruments comprise bank balances, trade creditors, trade debtors and loans to related companies. The main purpose of these instruments is to raise funds for the Company's operations and to finance the Company's operations. The Company's approach to managing other risks applicable to the financial instruments concerned is shown below.
Cash flow and liquidity risk
In respect of bank balances the liquidity risk is managed by maintaining a balance between continuity of funding and flexibility through and agreed payment policy. Strict payment terms are negotiated with the Company's customers which enables it to ensure that it is paid promptly once an application has been issued. This policy ensures that sufficient funds are available to meet amounts due to trade creditors.
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 and the timely chasing of outstanding debt.
In respect of loans to and from related companies, these are unsecured, at an agreed rate of interest, with no fixed date for repayment. Loans from group companies are unsecured, interest-free and repayable on demand, with no fixed date for repayment.
The Company sees R&D activity as a vital part of sustaining competitive advantage and when presented with technical challenges, will seek to develop the optimal solution.
During the year the Company undertook several Research and Development (‘R&D’) projects that sought to achieve advancements in technology in carrying out various railway infrastructure projects
The Company is focused on securing profitable work and to continuing to increase its market share by expanding its customer base and is working towards securing more work as trusted partner for our clients. The Directors believe that the Company is well positioned to respond to trading conditions and to profit from the opportunities in newer markets.
Our strategy of self-delivery and specialism within the delivery of world class infrastructure projects remains.
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
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.
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows;
the engagement partner ensured the engagement team had the appropriate competence, capabilities and skills to identify or recognise possible non-compliance with applicable laws and regulations.
we identify significant laws and regulations applicable to the company through discussions with directors, along with our commercial knowledge and experience of the construction sector in which our client operates.
we focused on specific laws and regulations which we consider may have a material effect on the financial statements or operations of the company, including the Companies Act 2006, taxation legislation, data protection, health and safety, and employment law.
We assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
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;
Considered the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations.
To address the risk of fraud through management bias and override of controls, we:
have performed analytical procedures to identify any unusual variances
reviewed and tested journal entries and other adjustments to identify any unusual transactions
assessed judgements and assumptions used in determining the accounting estimates which could indicated any potential bias
investigated the rational 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:
reviewing disclosures in the financial statements and testing to supporting documentation.
reviewing meeting minutes where available
discussions with management regarding actual or potential litigations and / or claims.
reviewing correspondence with HMRC and other relevant regulators.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from the financial transactions, the less likely it is that we would become aware or any possible non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of directors and other management and the inspection of regulatory and legal correspondence, if any.
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.
Other matters which we are required to address
The financial statements for the year ended 30 April 2023, forming the corresponding figures (as restated) of the financial statements for the year ended 30 April 2024, are unaudited as the directors’ claimed exemption from audit under section 477 of the Companies Act 2006 relating to small companies.
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.
Pro Rail Services Limited is a private Company limited by shares incorporated in England and Wales. The registered office is 17 Pennine Parade, Pennine Drive, London, NW2 1NT.
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 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.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Revenue recognition is a key area of judgement especially in companies operating in the construction industry. The calculation of contract turnover, gross amounts due from customers and work in progress is contingent on the accurate measurement of work done and internal valuations by key management personnel. The amounts due from contract customers requires the company to make a judgement in relation to the stage of completion of the contracts ongoing at the year end. Management are provided with internal valuations by experienced personnel based on the costs incurred to date and the terms and conditions of the contract.
The directors have ensured that generally accepted industry practices and methodologies are followed by all relevant personnel and that accounting and quality management systems are regularly evaluated and certified
Management regularly review intercompany balances for recoverability.
Management regularly review the depreciation rates given to each class of fixed asset to ensure they are carrying the asset at the appropriate value. Where necessary the impairment of assets is also considered where the net book value seems unrealisable.
An analysis of the company's turnover is as follows:
The company incurred bad and doubtful debts in the sum of £132,948 (2023: £0) in the year.
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 1 (2023 - 1).
From 1 April 2023 the rate of corporation tax increased from 19% to 25%.
The actual credit 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:
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Certain Plant & Machinery and Motor Vehicles with a net carrying amount as stated above have been pledged to secure finance lease borrowings of the company. The company is not allowed to pledge these assets as security for other borrowings or to sell them to another entity, unless otherwise agreed with the lender or until the liability is settled.
At 30 April 2024, retentions held by customers for contract work amounted to £41,599 (2023 - £0).
Included in other debtors are amounts owed by related companies. The amounts are unsecured, interest-free and repayable on demand.
The amounts owed to group undertakings are unsecured, interest-free and repayable on demand with no fixed repayment terms.
Included in other creditors are amounts owed to related companies. The amounts are unsecured, interest-free and repayable on demand.
Obligations under finance leases falling due within one and after more than one year amounting to £2,334,378 (2023: £2,035,826) are secured - see Note 11.
The bank loan is unsecured and has an annual fixed interest the rate of 10.2%.
The 60-month CBILS loan was taken out in July 2020 and is repayable from August 2021 in 48 monthly instalments ending in July 2025.
Finance lease payments represent rentals payable by the Company for certain items of plant and machinery and motor vehicles. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 4 years. All leases are on a fixed repayment basis.
At 30 April 2024, the Company's parent company, Pro Rail Holdings Limited has agreed to indemnify certain finance lease obligations amounting to £365,356 (2023: £285,938).
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
£90,870 of the deferred tax liability set out above is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.
The 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.
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 remuneration of key management personnel is as follows.
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The amounts owed to related parties are unsecured, interest-free, have no fixed dates of repayment and are repayable on demand.
The following amounts were outstanding at the reporting end date:
The amounts owed by related parties are unsecured, interest-free, have no fixed dates of repayment and are repayable on demand.
The amounts outstanding are unsecured and will be settled in cash.
As set out in Note 18, Parent Company, Pro Rail Holdings limited has indemnified certain obligations under finance leases of the Company. At 30 April 2024, the unpaid liabilities indemnified amounted to £365,356 (2023: £285,938).
Dividends totalling £0 (2023 - £0) were paid in the year in respect of shares held by the Company's Directors.
Loans have been granted by the company to its directors as follows:
The maximum outstanding during the year was £150,000. The loan is unsecured and repayable on demand. Interest of £0 was charged at a rate of 2%.
In preparing these financial statements, errors in accounting for deferred tax and issued share capital were identified.
Cumulative trading losses arising as a result of excess capital allowances were not taken into account when calculating the deferred tax provision in the prior period accounts. As a result the deferred tax provision was not correctly reflected in the prior year financial statements and was overstated by £148,197. Accordingly, these financial statements have restated the positions previously reported at 1 May 2023. These adjustments have now been reflected in the financial statements.
Issued share capital was overstated due to a share issue that didn't take place at the time of the share for share exchange in 2016. As a result the issued share capital was not correctly reflected in the prior year financial statements and was overstated by £98. Accordingly, these financial statements have restated the positions previously reported at 1 May 2023 and 30 April 2022. These adjustments have now been reflected in the financial statements. There is no effect on the opening reserves.