The directors present the strategic report for the year ended 30 June 2024.
The HFD Construction Group’s principal activity continues to be that of property construction and development. The Group turnover in the period amounted to £23.8m (2023: £12.1m). At the year end the group had shareholders’ funds of £28.2m (2023: £29.9m).
The turnover of the construction division has increased throughout the year, primarily due to heightened activity on a Grade A office refurbishment in Glasgow City Centre. This project, which achieved practical completion post year end, included a combination of category A (basic level of finishing above shell and core) and B (completed fit-out to tenant's specific requirements) fitouts for newly acquired tenants. During the year the Group also completed a Data Centre fitout in the basement of a 13-story commercial building, including backup generation on the roof, and continued to develop HFD related party owned commercial property assets which has assisted in the launch of HFD’s serviced office brand OSPA.
Despite this, the Group has presented a loss in the financial period which relates to legacy issues on completed projects. The board currently anticipates that any continued legacy issues will not lead to future losses.
The wider HFD Group has several major projects in the pipeline for which HFD Construction Group will be the main contractor for, these include a 9-story city centre commercial property refurbishment, a 3-story out of town business park commercial property refurbishment, a grade A listed city centre office refurbishment and several major Data Centre projects. Considering the strong pipeline, the board is confident that the Group will generate profits in the future. Each of these projects will necessitate detailed planning and preparation, with the expectation that the next financial year will be focused on consolidation and preparation for upcoming projects.
The group finances its operations through a mixture of retained profits and secure bank deposits. The group does
not rely upon any bank debt to finance its current construction activities. The board closely monitors the economic
outlook within the construction sector with a view to manage risk to achieve:
Maximum return on funds employed through construction and development activities;
Retention of sufficient funds for day-to-day obligations and to cover potential unforeseen risks and liabilities; and
Reduce price, building and delivery risk to acceptable levels.
The principal risks impacting the group are price and delivery risk, these are monitored through a competitive tender
process with suppliers and subcontractors and actively monitoring progress on site.
The directors use a number of indicators to monitor and improve the position of the business. The directors consider the financial key performance indicators of the group to be profitability, cashflow and net assets.
Non-financial key performance indicators include customer satisfaction levels.
KPI | 2024 | 2023 |
Gross Profit Margin | -5% | 4% |
Cash position | £757k | £1,957k |
Net assets | £28,179k | £29,946k |
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 June 2024.
The results for the year are set out on page 9.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
On 29th October 2024, HFD Construction Group Limited as a subsidiary of HFD Group Holdings Limited was acquired by HFD Holdco Limited as part of internal restructuring of the business.
The group has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch.7 to be contained in the directors' report. It has done so in respect of future developments.
The auditor, Johnston Carmichael LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of HFD Construction Group Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 June 2024 which comprise 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
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
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.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement set out on page 4, 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 parent 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 parent 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.
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.
Extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
We assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations by considering their experience, past performance and support available.
All engagement team members were briefed on relevant identified laws and regulations and potential fraud risks at the planning stage of the audit. Engagement team members were reminded to remain alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and the parent company and the sector in which they operate, focusing on those provisions that had a direct effect on the determination of material amounts and disclosures in the financial statements. The most relevant frameworks we identified include:
UK Generally Accepted Accounting Practice (FRS 102)
Companies Act 2006;
UK Corporation Tax legislation;and
UK VAT legislation.
We gained an understanding of how the group and the parent company are complying with these laws and regulations by making enquiries of management and those charged with governance. We corroborated these enquiries through our review of relevant correspondence with regulatory bodies and board meeting minutes.
We assumed the susceptibility of the group's and parent company's financial statements to material misstatement, including how fraud might occur, by meeting with management and those charged with governance to understand where it was considered there was susceptibility to fraud. This evaluation also considered how management and those charged with governance were remunerated and whether this provided an incentive for fraudulent activity. We considered the overall control environment and how management and those charged with governance oversee the implementation and operation of controls. We identified a heightened fraud risk in relation to:
Management override of controls
Revenue recognition
In addition to the above, the following procedures were performed to provide reasonable assurance that the financial statements were free of material fraud or error:
Reviewing minutes of meetings of those charged with governance for reference to: breaches of laws and regulation or for any indication of any potential litigation and claims; and events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud;
Reviewing the level of and reasoning behind the group’s and parent company’s procurement of legal and professional services;
Performing audit procedures over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and assessing judgements made by management in their calculation of accounting estimates for potential management bias;
Assessing significant estimates, including contract accounting adjustments, made by management for bias;
Substantively testing revenue transactions to invoice ensuring that they are recorded in the correct accounting period by verifying the accuracy of sales and the amount of revenue being recognised in the period;
Completion of appropriate checklists and use of our experience to assess the group’s and parent company’s compliance with the Companies Act 2006; and
Agreement of the financial statement disclosures to supporting documentation.
Our audit procedures were designed to respond to the risk of material misstatements in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve intentional concealment, forgery, collusion, omission or misrepresentation. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.
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.
These financial statements have been prepared in accordance with the provisions relating to medium-sized groups.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £1,945,176 (2023 - £176,381 loss).
HFD Construction Group Limited (“the company”) is a private limited company domiciled and incorporated in Scotland. The registered office is 177 Bothwell Street, Glasgow, G2 7ER.
The group consists of HFD Construction 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 £000.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The company is a qualifying entity for the purposes of FRS 102 and has taken advantage of the exemption available from the requirement to present a company only cash flow statement and related notes and disclosures.
The consolidated group financial statements consist of the financial statements of the parent company HFD Construction Group Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.
All financial statements are made up to 30 June 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.
The directors are required to prepare the statutory financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
During the year ended 30 June 2024, the group reported a pre tax loss of £2.4 million. While this loss is significant, the directors believe that the company remains well-positioned to continue its operations and meet its financial obligations as they fall due. The group and company maintains solid financial position with net current asset of £56.8m. (company: £26.7m) and net assets of £28.2m (company: £26.9m).
The company meets its day to day working capital requirements through its day to day trading. The company closely monitors and manages its funding position and liquidity risk throughout the year to ensure that it has access to sufficient funds to meet forecast cash requirements. The current and future financial position of the company, its cash flows and liquidity position have been reviewed by the directors and deemed satisfactory for going concern. The financial statements have therefore been prepared on a going concern basis which assumes that the company will continue in operational existence for the foreseeable future. The directors expect the company to achieve profitability in the future.
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.
Turnover includes:
Income from property construction and development;
Income from property rental;and
Income from liquidated and ascertained damages.
The group's policy in respect of long term contracts is outlined at note 1.13.
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, associates and jointly controlled entities 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.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group 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 group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
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.
Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the reporting end date. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable.
When it is probable that total contract costs will exceed total contract turnover, the expected loss is recognised as an expense immediately.
Where the outcome of a construction contract cannot be estimated reliably , contract revenue is recognised to the extent of contract costs incurred where it is probable that they will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When costs incurred in securing a contract are recognised as an expense in the period in which they are incurred, they are not included in contract costs if the contract is obtained in a subsequent period.
The "percentage of completion method" is used to determine the appropriate amount to recognise in a given period. The stage of completion is measured by the proportion of contract costs incurred for work performed to date compared to the estimated total contract costs. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. These costs are presented as stocks, prepayments or other assets depending on their nature, and provided it is probable they will be recovered.
Contracts for which the group is the main contractor recognise profit by each stage within the contract where fixed price contracts have been entered in to and that stage has been completed or substantially completed.
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.
Liquidated damages
As part of the Group's contractual arrangements, certain contracts contain provisions for liquidated damages in the event of delays or failure to meet specific performance criteria. Liquidated damages are pre-agreed amounts payable by the Group for non-compliance with contractual terms, such as delayed project completion or failure to meet quality standards.
At the reporting date, the Group has assessed the potential liabilities related to liquidated damages under active contracts. The Group estimates that potential liabilities for liquidated damages may arise based on the terms of the contracts, the progress of the projects, and any risks associated with delays or breaches of contract.
The Group recognises liquidated damages as a liability when it becomes probable that the amount will be payable, and the amount can be reliably estimated. This provision is also reviewed periodically to ensure it accurately reflects any changes in the expected outcome of the contracts.
The group estimates the outcome of its construction contracts. This is normally measured by the proportion that contracts costs incurred for work performed to date bear to the estimated total contract costs, except where this would not be representative of the stage of completion.
Estimated total contract costs are based on management's detailed budgets and projections. Where management judge that the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred where it is probable they will be recoverable.
In 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.
All turnover arose within the United Kingdom.
Their aggregate remuneration comprised:
Contractually all employees of HFD Construction Group Limited (the group) sit within HFD Payroll Limited. However an average of
Remuneration costs were borne by HFD Payroll Limited and recharged to HFD Construction Group Limited (the group).
The amounts recognised represent the disposal value of High Blantyre Construction Limited and Strathclyde Park (Developments) Limited following the voluntary winding-up of these 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:
Details of the company's subsidiaries at 30 June 2024 are as follows:
Newhouse North Construction Limited have taken the exemption from the requirement to have their individual financial statements audited. The exemption is available under section 479A of the Companies Act 2006.
On 26 June 2024, the Group's subsidies, High Blantyre Construction Limited and Strathclyde Business Park (Developments) Limited commenced voluntary liquidation. The decision to wind up the subsidiary was made by the Board of Directors due to strategic realignment.
Amounts owed by group undertakings are repayable on demand and are interest free.
Amounts owed to group undertakings are repayable on demand and attract no interest.
Other creditors include £497k (2023: £120k) of amounts payable to related parties. These amounts are also repayable on demand and attract no interest.
Amounts included within Accruals & Deferred Income relate to amounts received in advance from a customer for contracted works not performed.
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.
The company has one class of Ordinary shares. There are no restrictions in respect to distribution of dividends and the repayment of capital.
The profit and loss reserves represents cumulative profit and losses, less any dividends paid.
On 29th October 2024, HFD Construction Group Limited as a subsidiary of HFD Group Holdings Limited was acquired by HFD Holdco Limited as part of internal restructuring of the business.
During the year the group entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The following amounts were outstanding at the reporting end date:
As permitted by exemption of FRS 102, no intra group transactions have been disclosed with wholly owned group companies that are consolidated within HFD Group Holdings Limited, the group's ultimate parent company.
All transactions noted above were carried out at normal commercial rates and amounts owed by/to related undertakings are interest free (except a stated) and have no fixed terms of repayment.