The directors present the strategic report for the year ended 31 August 2024.
2024 has been another difficult year for the business as demand across the garden buildings market continued to weaken. As a result, turnover for the year ended 31 August 2024 fell to £20.2m, a decrease of £5.4m (21%) compared with the year ended 31 August 2023.
In response to the change in market conditions, a number of actions have been taken by management to align the cost base of the business with the new level of market demand. These actions were started in May 2023 and continued in 2024, and include new product development, a focus on manufacturing capacity and productivity, and a hybrid delivery solution. We have seen improvements in gross margin, rising from 37.5% in 2023 to 41.1% in 2024, and overheads falling, and looking forward the business is forecasting a return to profitability for the year ending 31 August 2024.
The management of the business and the nature of the Group's strategy are subject to a number of risks. The directors have set out below the principal risks facing the business.
The directors are of the opinion that a thorough risk management process is adopted which involves the formal review of all the risks identified below. Where possible, processes are in place to monitor and mitigate such risks.
Economic downturn
The success of the business is reliant on consumer spending. An economic downturn, resulting in reduction of consumer spending power will have a direct impact on the income achieved by the Group. In response to this risk, senior management aim to keep abreast of economic conditions. In cases of severe economic downturn, marketing and pricing strategies are modified to reflect the new market conditions.
Competition
The market in which the Group operates is competitive. It is imperative that we continue to meet our customers' expectations. Policies of constant price monitoring and ongoing market research are in place to mitigate such risks.
Fluctuations in currency exchange rates
Purchases are made from overseas. As a Group, we are therefore exposed to foreign currency fluctuations.
The Group manages its foreign exchange exposure on a net basis, and if required uses forward foreign exchange contracts and other financial instruments to reduce the exposure. In addition wherever possible we negotiate in sterling.
The hedging activity does note mitigate the exposure completely, and the results and the financial condition of the Company may be adversely impacted by foreign currency fluctuations.
Financial risk management objectives and policies
The Group uses various financial instruments including loans, cash and various items, such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The existence of these financial instruments exposes the Group to a number of financial risks, the main areas being currency risk, credit risk, liquidity risk and interest rate risk.
The directors review and agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Short term flexibility is achieved by overdraft facilities.
Credit risk
The Group is exposed to credit risk by extending credit terms to customers. The risk is managed via credit insurance where considered necessary.
Currency risk
The Group's policy for managing currency risk is described above.
Interest rate risk
The Group finances its operations through retained profits.
Payment policy and practice
It is the Group's policy to settle the terms of payment with suppliers when agreeing the terms of the transaction, to ensure that suppliers are aware of these terms and abide by them.
At 31 August 2023, the Group had trade creditors outstanding for an average 52 days (2022: 17 days). There were no trade creditors outstanding in the Company itself.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 August 2024.
The results for the year are set out on page 8.
Preferred ordinary dividends were paid amounting to £300,000. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
UHY Hacker Young were appointed as auditor to the group and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
We have audited the financial statements of The Garden Buildings Group Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 August 2024 which comprise the group profit and loss account, the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
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 group's and parent 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined below, 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.
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 that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the group through discussions with directors and other management, and from our commercial knowledge and experience of the relevant sector;
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the group, including the Companies Act 2006;
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 group'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; and
considering 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:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial statements, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £533,055 (2023 - £321,088 profit).
These financial statements have been prepared in accordance with the provisions relating to medium-sized companies.
The Garden Buildings Group Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Mercia Garden Products, Old Great North Road, Sutton-ON-Trent, Newark, Nottinghamshire, NG23 6QN.
The group consists of The Garden Buildings Group Limited and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, [modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value]. The principal accounting policies adopted are set out below.
The 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 for parent company information presented within the consolidated financial statements:
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 consolidated group financial statements consist of the financial statements of the parent company The Garden Buildings Group Limited together with all entities controlled by the parent company (its subsidiaries).
The Garden Buildings Group Limited was incorporated on 10 May 2021 to act as the new parent Company for the Group, previously Rosimian Limited. The new parent was inserted into the Group via a share for share exchange. Shares with a nominal value of £1,745 were issued for exchange for all the shares in Rosimian Limited.
The Company has applied guidance in generally accepted accounting standards and accounted for the transaction using the principles of group reconstructions under FRS 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland.
The consolidated financial statements incorporate the results of the business combinations using the merger accounting method. Where the merger accounting method is used, the carrying amounts of the acquired Group's assets and liabilities are not adjusted to fair value so no new goodwill arises. The difference between the nominal value of the shares issued and the nominal value of the shares received in exchange is shown as a movement in the merger reserve in the consolidated financial statements.
All financial statements are made up to 31 August 2024. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
Trading and cash flow of the group post year end remains strong. Forecasts for the 12 months ahead show the Group continuing to remain cash positive even when modelled using worst case scenarios.
At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
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 recognised in the profit and loss account.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Debtors and creditors with no stated interest rate and receivable or payable within one year are recorded at transaction price. Any losses arising from impairment are recognised in the profit and loss account in other administrative expenses.
Equity instruments issued by the group 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 group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Share-based payments
During the period ended 31 August 2022, C ordinary and D ordinary shares were issued to select employees. A share based payment charge has been calculated and spread over the expected vesting period (to exit); the charge is recognised in the Consolidated Statement of Comprehensive Income and is remeasured at each reporting date as this is a cash settled share based payment arrangement. See note 7 for further details.
In the application of the group’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.
The Group exercises judgement to determine useful lives and residual values of tangible fixed assets. The assets are depreciated down to their residual values over their estimated useful lives. Management considers that the carrying value of tangible fixed assets is reasonable and therefore that no impairment charge is required in the current year.
Provisions have been made for trade debtors and inventory obsolescence and returns. These provisions are an estimate of the actual costs, and the timing of future cash flows is dependent on future events. The difference between expectations and the actual future liability will be accounted for in the period when such determination is made.
Based on an assessment of future performance, management believes that intra-group balances are recoverable in full and therefore no provision is required in the current year.
Management has calculated the present value of the debt element of the instrument using a discounted cash flow calculation. The key sensitivities which affect the estimate are the assumption relating to the discount rate and profit. A discount rate of 8.25% is considered appropriate by the directors.
Share based compensation is measured at grant date, based on estimated fair value of the award and is recognised as an expense over the expected vesting period (to exit). Management has calculated the expected charge and the key sensitivities which affect the calculation are the expected value of the Group if an exit took place and the expected period of time before an exit will take place.
All turnover relates to the groups principal activities as laid out in the Directors' report.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
Wages and salaries above includes a share based payment charge of £41,678 (2023: £37,779). This charge relates to the following share categories:
- 3,108 C Ordinary shares of £0.01 each
- 3,603 D Ordinary shares of £0.01 each
The directors are remunerated by other group companies for their services to the group as a whole. It is not practicable to allocate their remuneration between their services to company and other group companies.
The actual credit for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
The Finance Act 2021 was substantively enacted in May 2021 and has increased the corporation tax rate from 19% to 25% with effect from 1 April 2023 on profits over £250,000. The rate for small profits under £50,000 will remain at 19%. When the company's profits fall between £50,000 and £250,000, the lower and upper limits, it will be able to claim an amount of marginal relief providing a gradual increase in corporation tax rate. The deferred taxation balances have been measured using the rates expected to apply in the reporting periods when the timing differences reverse.
Details of the company's subsidiaries at 31 August 2024 are as follows:
Registered office addresses (all UK unless otherwise indicated):
Stocks are stated after impairment provisions of £76,427 (2023: £94,048).
Amounts owed by group undertakings are interest free and repayable on demand.
Trade debtors are stated after impairment provisions of £nil (2023: £96,758).
The Preferred Ordinary shares guarantee a return and therefore there is an obligation on the Company under FRS 102. These shares are classified as a compound financial instrument. The best estimate of the present value of the guaranteed return based on a discounted cash flow calculation has been classified as a creditor due in more than one year. The key sensitivities which affect the estimate are the assumptions relating to the discount rate and profit. A discount rate of 8.25% (2023: 8.5%) is considered appropriate by the directors.
Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. 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 1 year. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The deferred tax asset set out above is expected to reverse within and relates to the utilisation of tax losses against future expected profits of the same period.
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
Contributions totalling £22,472 (2023: £19,669) were payable to the fund at the reporting date and are included in creditors,
The Preferred Ordinary shares guarantee an annual return which is equal to the higher of £0.3m and 4% of the net profits. Therefore, there is an obligation on the company under FRS 102. These shares are classified as a compound financial instrument. The best estimate of the present value of the guaranteed return based on a discounted cash flow calculation has been classified as a creditor due in more than one year.
Other reserves include the adjustment in relation to compound financial instruments. The corresponding credit is recognised within creditors due in more than one year.
The profit and loss reserve represents cumulative profits or losses, net of dividends paid and other adjustments.
Merger reserve
The merger reserve includes adjustments that arose on the group reconstruction in July 2021.
The group has provided a debenture to HSBC UK Bank plc that secures the bank's borrowings over the groups assets. At 31 August 2024 there were no borrowings (2023: £nil).
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Amounts contracted for but not provided in the financial statements:
The parent Company has taken advantage of the exemption under FRS 102 from disclosing transactions with other wholly owned group companies that are part of The Garden Buildings Group Limited group.
Directors I Burgess and G J M Rees are directors of and have interests in Branded Garden Products Limited during the year ended 31 August 2024.
The Group purchases goods from Branded Garden Products Limited to the value of £911 (2023: £10,300). At 31 August 2024 the Group owed Branded Garden Products Limited £374 (2023: £360).
The Group sold goods to Branded Garden Products Limited to the value of £nil (2023: £1,500).
The Group paid management fees to BGF Investment Management Limited to the value of £12,668 (2023: £24,800). At 31 August 2024 the Group owed BGF Investment Management Limited £nil (2023: £7,601). During the year the Group paid a final preferred ordinary dividend of £298,504 (2023: £298,504) to BGF Investment Management Limited.
During the year the Group paid a final preferred ordinary dividend of £1,496 (2023: £1,496) to statutory director D Cox.
Key management personnel are considered to be consistent with directors of the Group.
The following prior year adjustments have been made:
The company acquired Rosimian Limited in 2021 via a share for share exchange as part of a group reorganisation of the previous parent company BVG Group Limited. The Company elected to account for the acquisition using merger accounting principles since the criteria were met; the following prior year adjustments have been made to correct group reserves in order to properly reflect the merger accounting:
The group balance sheet previously showed a Merger reserve of £747,295 (debit); this included unamortised goodwill of £750,000 that was in the Rosimian Limited group balance sheet prior to the merger. The group continues to use acquisition accounting principles for entities below Rosimian Limited, therefore the goodwill should have carried forward into the new group. Eliminating goodwill is effectively an “impairment” which should have been debited to the Profit & Loss Reserve.
a Merger reserve of £1,645 (debit) should have been recorded, being the difference between the nominal value of the share capital issued, £1,745, and the nominal value of the share capital acquired, £100.
There has been no impact on group equity shareholders as a result of the above.
There group previously created a share based payment provision within Creditors in relation to C Ordinary & D Ordinary shares issued to certain employees. The group has historically correctly recognised the fair value of the share awards as an expense in the Profit & Loss account over their expected vesting period, however as there is no liability that the company has to settle the provision should have been classified as a credit to reserves. The total prior year adjustment of £142,743 represents the £104,964 charge/provision made in 2022 and the further £37,779 charge/provision made in 2023.