The director presents the strategic report for the year ended 31 March 2022.
The group continues to focus on its core activity of groundworks, civil engineering and plant hire. The focus of the management team is to deliver high quality service to our clients.
The holding company, J Ffrench Group Limited, did not trade during the year and held investments in the subsidiary undertakings only.
Group turnover has increased to £17,371,787 (2021: £15,876,439). However, the gross profit margin has decreased from 19% in 2021, to 13% in 2022.
The loss before tax for the year for the group amounted to £904,999 (2021: £752,245 profit) which, in the opinion of the director is disappointing.
Trading conditions were difficult throughout the year and this has continued post year end. This is as a result of the impact of the pandemic, inflationary pressures and labour supply issues within the sector.
These issues have created pressure on the group’s cashflows and led to one of the group’s subsidiaries ceasing to trade post year end. The Director has managed the group's cashflow by seeking additional funding and arranging payment plans with key creditors and the Group have sold surplus assets which has eased the pressure on cash flow to date. The director has also focused on securing contracts whilst limiting the exposure to risk for these issues.
In addition to this, the Group is in the process of securing a tenant for the property which, if successful, will generate surplus cash to repay the outstanding creditors and provide funds to reinvest into the Group.
Management continually monitor the key risks facing the company, together with assessing the controls used for managing these risks. The board of directors formally reviews and documents the principal risks facing the business at least annually.
The principal risks and uncertainties facing the company are as follows:
Contract risk –Time is invested in the tendering process, ensuring a realistic programme and margin to reduce this risk. Projects are closely monitored for performance and any indicators of performance issues are swiftly reviewed and monitored by a pro-active management team.
Competitor pressure – trading conditions remain competitive, and therefore competitor pressure could result in losing sales to key competitors. The company manages this risk by carrying out high quality work and maintaining strong relationships with its key customers.
People – The company depends upon its management team and highly skilled workforce but acknowledge the increasingly competitive market for people. Management seek to ensure that all personnel are appropriately remunerated and ensure that good performance is rewarded.
Health & safety issues – The company operates high standards of health & safety with regular training for all employees and subcontractor’s.
Management use a range of performance measures to monitor and manage the business. The KPIs used to determine the progress and performance of the group are set out below:
Gross profit margin - the group's gross profit margin in the year under review has decreased to 13% (2021: 19%).
Net current liabilities - net current liabilities represent the liquidity of the group and amounted to £2,306,343 (2021: £385,793).
Financing - the group continues to operate bank debt to help provide funding for the group.
The director is focusing on hiring out plant, to generate income, and managing cashflow. Surplus assets are being disposed off to reduce asset finance commitments.
On behalf of the board
The director presents his annual report and financial statements for the year ended 31 March 2022.
No ordinary dividends were paid. The director does not recommend payment of a further dividend.
The director who held office during the year and up to the date of signature of the financial statements was as follows:
The group's principal financial instruments comprise of bank balances. The main purpose of its financial instrument is to finance the group's operations.
In respect of bank balances, the liquidity risk is managed by transferring funds between the accounts of the group to obtain the maximum rate of interest, whilst not impacting on the immediate financial needs of the group.
Trade debtors are managed in respect of credit and cash flow risk by policies concerning the credit offered to customers and the regular monitoring of amounts outstanding for both time and credit limits.
Liquidity risk in respect of creditors is managed by ensuring sufficient funds are available to meet amounts due.
One of the company's subsidiaries, J Ffrench Ltd has discontinued its operations after the year end.
For the 2022 financial year, the financial statements of the subsidiary have been prepared on a going concern basis, and no adjustments have been made to the carrying value of the subsidiary’s assets and liabilities as at the balance sheet date.
The cessation of trading occurred after the balance sheet date and therefore has not been reflected in the financial statements, except for the disclosure in this note.
Mercer & Hole LLP 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 J Ffrench Group Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 March 2022 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
Emphasis of Matter - Post Year End Event
Material uncertainty related to going concern
We draw your attention to note 1.3 in the financial statements, which indicates that the Director is currently negotiating payment plans with key creditors, seeking additional funding and selling assets which will allow them to manage their cash flows.
As noted in 1.3, these conditions represent a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern. The strain on cash inflows may result in the Group and Company being unable to discharge its liabilities in the normal cause of business.
Notwithstanding the above, in auditing the financial statements we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Our responsibilities and the responsibilities of the director 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 director's report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the director's 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.
We gained an understanding of the legal and regulatory framework applicable to the company and the industry in which it operates and considered the risk of acts by the company that were contrary to applicable laws and regulations, including fraud. These included, but were not limited to, the Companies Act 2006 and tax legislation.
We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements and the financial report (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate entries including journals to overstate revenue or understate expenditure and management bias in accounting estimates.
Audit procedures performed by the engagement team included:
discussions with management, including considerations of known or suspected instances of non- compliance with laws and regulations and fraud;
gaining an understanding of management's controls designed to prevent and detect irregularities; and
identifying and testing journal entries.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non- compliance and cannot be expected to detect non-compliance with all laws and regulations.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matters which we are required to address
In the previous accounting period the director of the Company took advantage of audit exemption under s477. Therefore the prior period financial statements were not subject to audit.
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 loss for the year was £300,000 (2021 - £0 profit).
J Ffrench Group Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Unit 3 Beamish Close, Middlefield Industrial Estate, Sandy, Hertfordshire, SG19 1SD.
The group consists of J Ffrench 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. 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 J Ffrench 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.
J Ffrench Group Limited, the parent company, acquired the entire share capital of J Ffrench Limited and J Ffrench Plant Hire Limited on 9 September 2019 via a share for share exchange. For the consolidated financial statements of the group, prepared under FRS 102, the principles of merger accounting were applied. J Ffrench Group Limited became the immediate parent company of J Ffrench Limited and J Ffrench Plant Hire Limited through this restructuring.
By applying the principles of merger accounting, the group is presented as if J Ffrench Group Limited had always owned and controlled J Ffrench Limited and J Ffrench Plant Hire Limited. Accordingly, the assets and liabilities of J Ffrench Limited and J Ffrench Plant Hire Limited were recognised at their historical carrying amounts, the results for the periods prior to the date the company legally obtained control were recognised and the financial information and cash flows reflect those of J Ffrench Limited and J Ffrench Plant Hire Limited. The comparative and current year group consolidated results were adjusted to reflect the statutory share capital and merger reserves as if it had always existed.
All financial statements are made up to 31 March 2022. 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.
Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.
These financial statements are prepared on the going concern basis. The director has a reasonable expectation that the group will continue in operational existence for the foreseeable future. However, the director is aware of certain material uncertainties which may cause doubt on the group's ability to continue as a going concern.
Trading conditions were difficult throughout the year and this has continued post year end. The Director has managed the group's cashflow by seeking additional funding and arranging payment plans with key creditors. The Group have also sold surplus assets which has eased the pressure on cash flow to date.
Furthermore, the group is in the process of securing a tenant for the property which will, if successful, generate cash to continue repaying the outstanding loans and provide further cashflows into the group.
However, there will continue to be significant pressure on cash flows which represent a material uncertainty that may cast significant doubt upon the Group and Company's ability to continue as a going concern.
Turnover is recognised at the fair value of the consideration received or receivable for plant hire 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.
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, 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.
At each reporting period end date, the group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
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.
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.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
In the application of the group’s accounting policies, the director is 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 uses the percentage of completion method to recognise project revenue for fixed-price contracts. This method requires the director to estimate the level of services performed at each reporting date as a proportion of the total services to be performed to complete the contract. Variations to estimates could result in the over or under recognition of revenue.
The group establishes a provision for receivables that are estimated not to be recoverable. When assessing recoverability the director considers factors such as the aging of the receivables, past experience of recoverability and the credit profile of individuals or groups of customers.
The group depreciates tangible assets over their estimated useful lives. The estimation of the useful lives of the assets is based on historic performance as well as expectations about future use and therefore requires estimates and assumptions to be applied by management. The actual lives of these assets can vary depending on a variety of factors, including technological innovation, product life cycles and maintenance programmes.
Judgement is applied by management when determining the residual values for tangible fixed assets. When determining the residual value management aim to assess the amount that the company would currently obtain for the disposal of the asset, if it were already of the condition expected a the end of its useful economic life. Where possible this is done with reference to external market prices.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
The impairment losses reported of £300,000 related to the Company's investment in J Ffrench Limited.
Details of the company's subsidiaries at 31 March 2022 are as follows:
The directors consider that the carrying amounts of financial assets and liabilities carried at amortised cost in the financial statements are approximate to their fair values.
The long-term loans are secured by fixed charges over property of the group.
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 five years. 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:
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.
Profit and loss account - This reserve records retained earnings and accumulated losses.
Other reserve
This represents the merger reserve and is the difference between the cost of investment and the nominal value of the share capital acquired in J Ffrench Limited and J Ffrench Plant Hire Limited under merger accounting plus any other non distributable reserves of the subsidiary undertaking. The merger reserve was created following a restructuring of the group on 9 September 2019.
One of the company's subsidiaries, J Ffrench Ltd has discontinued its operations after the year end. During the year to 31 March 2022, the subsidiary generated a loss of £977k and had net assets of £2.26m at the year end.
For the 2022 financial year, the financial statements of the subsidiary have been prepared on a going concern basis, and no adjustments have been made to the carrying value of the subsidiary’s assets and liabilities as at the balance sheet date.
The cessation of trading occurred after the balance sheet date and therefore has not been reflected in the financial statements, except for the disclosure in this note.
At the year end, an amount of £916,259 was owed to the Director. This amount is interest free and payable on demand.