The directors present the strategic report for the year ended 31 March 2024.
The company was established to develop homes on surplus land owned by its shareholder, London Borough of Croydon (LBC). The company is wholly funded by means of loans from LBC and the proceeds of sales of completed units.
In 2021, LBC determined that the Company should not develop any further sites and should complete sites that were under construction and sell off the units and any surplus land it owns. All activities of the Company since have been carried out in accordance with this this direction. During the year to 31 March 2024 individual apartments were sold to owner occupiers and undeveloped 2 sites were sold to the sole shareholder LBC. During the year the Company made loan repayments to its Lender LBC. Sales proceeds arising from the sale are used to pay suppliers of services, company overheads and to make repayments to LBC, in accordance with the general terms of the LBC loan facility. Since the year end a development of 157 apartments was sold to an investor and further loan repayments were made to LBC. The company does not own any homes.
The Board remains in regular contact with its Lender/Shareholder to ensure alignment on methods to ensure repayments to LBC and the solvent orderly winddown of the Company’s activities. At the date of signing the accounts, the company is in the process of selling off undeveloped land, and freeholds of blocks in order to proceed further with the winddown. The Shareholder is in discussions with party/parties that wish to acquire the company.
Funding –The Company has a loan facility from LBC. The facility agreement provides the company with the security of funding, based on its cashflow projections, to continue to sell its developments in an orderly manner to maximise potential returns to the lender. If and when a sale of the Company takes place, any remaining loan balance due to LBC, will be written off. The risk of funding for unexpected costs would have to be reassessed.
Interest Rate risk –The facility agreement is at a fixed rate of 6.25% per annum. Interest is no longer being charged to the Company by LBC pending the sale of the Company.
Inflation – The Company faces increased costs from suppliers in terms of services and post completion works to properties. The Company assesses its accruals for future works on a periodic basis.
At 31 March 2024, no construction was underway. During the year the company received income from sales of completed apartments of £2.77m. Undeveloped land scheduled for sale was revalued based on third party valuations.
The company has a number separate relationships with London Borough of Croydon, in its day to day activities. Each of these are managed by different individuals on behalf of LBC to ensure that the relevant interests are considered separately and adequately.
LBC is the sole shareholder of the company and receives regular updates from the company on its performance and is entitled under certain circumstances to given written direction on significant matters that affect it as shareholder. These directions are at times part of public decisions made by LBC Cabinet Meetings.
LBC is the sole lender to the company. LBC as lender has a charge over the company's assets. Lender approval is required for certain asset sales and certain money transfers under the operating rules of the loan facility agreement. Prior to any corporate sale, any debt due to LBC will be written off.
Sales –The Board monitor the completion of sales against forecasts, by means of quarterly reports. After the year end the company completed the sale of its final development. Future sales forecasts relate to sales of undeveloped land and freeholds of blocks, where the apartments have already been sold.
Profit/(Loss) – The company has incurred a net loss of £12m due to write downs in expected sales prices for completed developments, increase in cost of defect remediation and the level of interest payable to LBC. The Board monitor the profit and loss by means of detailed quarterly management accounts and forecasts
Availability of funding – The Board monitor the availability of funding by means of a quarterly detailed cashflow. The Company has an agreed facility which provides sufficient funds from recycled sales proceeds to finance its expenditure on projects and company overheads.
During the financial year the directors have complied with their duty to meet the requirements of section 172 (1) of the Companies Act 2006. The directors believe they have acted in a way they consider, in good faith, would promote the success of the Company for the benefit of its sole member and have maintained regular communication with the member to ensure that to the extent possible under the prevailing circumstances the interests of the member are considered when making decisions.
The directors consider the key stakeholders affected by the actions of the Company to be customers, suppliers, its bank, its sole lender,(which is the same entity as its sole member), employees, government organisations’, and regulators. The directors, on behalf of the Company, engage with each of these stakeholders in a way that meets their level of interest and influence.
The directors consider principal decisions to be those that have a material impact on the Company and its stakeholders. During the financial year the Company has taken a number of strategic and operational decisions that the directors consider will promote the long-term interests of its lender, sole member and other stakeholders. The key elements of this are aligned with the strategy of the parent entity.
The directors have engaged in a number of initiatives having regard to the impact of the company’s operations on the community and the environment.
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 9.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The company operates a treasury function which is responsible for managing the liquidity and interest risks associated with the company’s activities.
The company’s principal financial instruments include parent company loans, the main purpose of which is to raise finance for the company’s operations. In addition, the company has various other financial assets and liabilities such as trade debtors and trade creditors arising directly from its operations.
The Board monitor the availability of funding by means of a detailed cashflow, which is discussed with its sole lender LBC.
Increasing interest rates are not a risk to the costs of the company as the facility agreement is at a fixed rate of 6.25% per annum.
The principal credit risk is with debtors, the company minimises this risk as funds are required on completion of a sale, payable to our solicitor into a client account and then passed on to the company. The credit risk is considered to be low.
Included in the Strategic report.
In accordance with the company's articles, a resolution proposing that Ensors Accountants LLP be reappointed as auditor of the company will be put at a General Meeting.
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
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;
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
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.
We have audited the financial statements of Brick by Brick Croydon Limited (the 'company') for the year ended 31 March 2024 which comprise the income statement, the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
Material uncertainty in relation 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.
We would like to draw your attention to note 1.2 of the financial statements, it is the director’s intention to either commence winding up of the company within the 12 months following the date of approval of these financial statements or for the shareholder to sell the company to a 3rd party which would probably see a change in the board of directors. There is a material uncertainty in respect of whether the company will cease trading and commence formal winding up proceedings or whether the company will have a change of ownership, either would be likely to have a significant impact upon the future of the company and whether or not it can be considered as a going concern. Our opinion is not modified in respect of this matter.
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.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Our audit was designed to include tests of detail together with an assessment of the control environment to enable us to obtain reasonable assurance about whether the financial statements are free from material misstatement due to fraud.
In planning and designing our audit procedures we assessed the risks of material misstatement due to fraud.
Consideration was given to the control environment (including management’s own process for identification and risk assessment) as well as the nature of the entity, the industry in which it operates and the underlying performance. Consideration is also given to the attitudes and incentives of management to commit fraud.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they are likely to involve deliberate concealment or collusion.
To address these risks we performed the following audit procedures:
Review of journal entries and other adjustments for appropriateness and evaluating the business rationale of any transactions outside of the normal course of business.
Assessment of key accounting estimates within the financial statements in order to assess their reasonableness and determine whether there is any bias in management’s estimates.
Review of meeting minutes of directors and those charged with governance.
All team members were informed of the relevant laws and regulations and potential fraud risks at the planning stage and reminded to remain alert to any indications of fraud or non-compliance.
Enquiring of management whether there have been any alleged, suspected or actual instances of fraud during the year.
Enquiring of management and those charged with governance whether there have been any actual or potential litigation or claims.
Reviewing correspondence with relevant legal authorities.
There are, however, inherent limitations to our above audit procedures. Auditing standards only require us to enquire of the directors and management regarding non-compliance with laws and regulations, as well as review regulatory and legal correspondence (if there is any). It is therefore possible that instances of non-compliance could be missed, particularly where the law in itself is far removed from any financial transactions.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's member in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's member those matters we are required to state to the member in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's member, for our audit work, for this report, or for the opinions we have formed.
The income statement has been prepared on the basis that all operations are continuing operations.
Brick by Brick Croydon Limited is a private company limited by shares incorporated in England and Wales. The registered office is Zone A, Bernard Weatherill House, Mint Walk, Croydon, CR0 1EA.
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 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: The disclosure requirements of paragraphs 11.42, 11.44, 11.45, 11.47, 11.48(a)(iii), 11.48(a)(iv), 11.48(b), 11.48(c), 12.26, 12.27, 12.29(a), 12.29(b), and 12.29;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of London Borough of Croydon. These consolidated financial statements are available from its registered office Bernard Weatherill House , Mint Walk , Croydon , CR0 1EA.
At the time of approving the financial statements the future of the company is uncertain. The principal shareholder has previously instructed the directors to start a process of winding down the company in an orderly fashion, however parallel to this is the potential that the company might be sold to a 3rd party who may choose to continue to use the company for future construction projects. In the absence of any contractual agreements for the sale of the company that the directors are aware of, the directors have considered the going concern status of the company.
The directors have a reasonable expectation that should the company not be sold that it will continue to be wound up in an orderly fashion based upon the support formally expressed by its shareholder. Thus, the directors continue to adopt the going concern basis of accounting in preparing the financial statements. In the absence of any 3rd party sale the directors expect that an orderly winding up will continue, which is likely to require a period of more than 12 months from the date of the adoption of these financial statements. However, the directors have considered the impact the company’s future development, performance, cashflows and financial position along with the company’s current liquidity in forming their conclusion on the applicability of the going concern basis.
The company is reliant upon the continued support of its parent undertaking to enable the company to continue to bring its orderly winddown to a conclusion. Should continuing support not be forthcoming from the parent undertaking then there would be a risk of a material uncertainty with regards to the applicability of the going concern basis. The directors have reached their conclusion that the company remains a going concern partly based upon the expressed intention of the parent undertaking to provide the financial support necessary to enable an orderly winddown of the company.
In addition, the nature of the company’s business is in the normal course of events exposed to the movement in property market relating to sales values for completed properties and land.
Whilst the directors have made reasonable estimates in respect of the expected sale values of the remaining property assets and are therefore confident that work in progress is included in the financial statements at the lower of cost and net realisable value by its very nature this is uncertain. As a result, the company and its directors believe that it is appropriate to continue to prepare the financial statements on a going concern basis but noting that the factors highlighted above represent a fundamental uncertainty over the company’s ability to continue as a going concern.
The parent undertaking has indicated to the directors that the company will be brought to an orderly conclusion in the next few years and as a result, as projects are completed the directors do not envisage any new projects commencing. In the director’s opinion this decision has no significant impact on the carrying values of assets or liabilities in the financial statements.
Should the company be sold to a 3rd party the directors’ opinion is that such a sale would only be completed if the company were put into a solvent financial position either by the formal writing off remaining loans from the existing shareholder or the introduction of new financial support from a new controlling shareholder.
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 trade and other receivables 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.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including trade and other payables, 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 payables 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 payables 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.
Borrowing costs
Finance costs are charged to the Statement of Comprehensive Income or capitalised and included in work in progress where the directors are certain that these finance costs our recoverable.
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.
All remaining projects in inventories are complete and valued at net realisable value (which is lower than cost), based on sales obtained post-year-end or valuations from qualified surveyors. These valuations represent the best estimate of the potential sales value that may be achieved, though this remains inherently uncertain.
Provision for the cost to complete includes estimated expenditure necessary to finalise the developments. These provisions can persist for several years post-sale of the developments, encompassing potential costs related to rectifying defects, void costs, and development expenditure. Due to the inherent nature of these provisions and the variability across multiple developments, there is an element of uncertainty.
All the company's revenue is from the UK market.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
No interest was capitalised as work in progress during 2024.
The actual charge 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:
Unused taxable losses being carried forward at the year end amount to £36 million (2023:£29 million)
Work in progress and inventories recognised as an expense during the year was £8,393,598 (2023: £70,179,045)
Cash and cash equivalents includes restricted bank accounts totalling £5,512,604 (2023: £15,318,964) jointly controlled by London Borough of Croydon and the company. The company has the beneficial entitlement of these funds.
Other borrowings are owed to the parent undertaking.
The loans payable to group relate to partially secured loan facilities arranged with the London Borough of Croydon. These are secured on fixed and floating charges over the assets of the company.
A loan agreement dated 27th May 2021 consolidated existing agreements. Interest under the new agreement accrues at a rate of 6.25%.
There were breaches in the loan covenants during the year, which means this loan is due on demand.
The above contributions include both the employer contributions to the defined contribution scheme and the employer contributions to the defined benefit scheme, the LGPS.
The employer contributions to the LGPS during the year were £6,204 (2023: £24,199).
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 employer contributions to this scheme during the year were £16,365 (2023: £29,421).
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: