AVS_FENCING_SUPPLIES_LIMI - Accounts

The directors present the strategic report for the year ended 31 December 2019.

Strategy and business model

The company’s principal activity comprises the distribution of fencing and landscaping

products to trade and retail customers. The company operates primarily in the south east of England through a branch network supported by online sales. The company’s strategy is to extend its geographical coverage by opening new branches together with increasing sales from a range of online products.

The performance for the year was satisfactory. Turnover increased by £4.0m (20.9%) to £23.1m.

Gross profit increased by £1.1m and despite competition and the uncertainty around Brexit, gross margin fell slightly from 27.7% to 27.6%.

Operating profit after exceptional items has increased to £1.0m from £0.7m last year, an increase of 42% and the directors expect operating profits to increase further during 2020. The company's net assets increased to £1.9m.

The directors have identified the following principal risks and uncertainties affecting the company:

Market risk

The group is affected by the general economy in the UK, and especially in the south east of England where the company’s branches are situated.

Demand for fencing and landscaping products could be influenced by a number of factors including housing supply, uncertainty for the construction industry including pricing, employment levels and other factors that determine consumers disposable income.

Commodity pricing risk

The company is exposed to commodity price changes, in particularly the demand for timber and timber related products. The company manages the risk by entering into long term relationship with suppliers and, wherever possible, based on long term contracts.

Credit risk

Before offering credit to prospective customers, the company makes use of a specialist credit rating agency and takes independent references and subsequently undertakes regular credit checks on larger customers. Credit limits are set for each customer which is monitored by the finance team and the directors. There is minimal concentration of credit risks with the risk spread across a large number of customers.

Liquidity risk

The company’s annual business plans includes cash flow forecasts supported by detailed cash flow forecasts to monitor and manage cash requirements.

Technology risk

The company is subject to risks relating to its ability to implement and maintain effective systems to process a high volume of transactions with customers. A failure to manage technology infrastructure and systems would adversely affect company performance. The company has retained a specialist company to provide support to ensure that the management and financial information systems are available throughout the year.

The company monitors progress across a range of financial targets. The main key performance indicators are sales growth, growth margins and operating profit

            2019        2018

Turnover            £23.1m        £19.1m

Turnover growth        20.9%        16.0%

Gross profit margin    27.6%        27.7%

Operating profit         4.3%        3.5%

On the 17 February 2020, the company was acquired by Lawsons (Holdings) Ltd. Lawsons is a family owned business operating from 17 branches across the south east of England whose principal activity includes sale and distribution of timber and building products.

Following the acquisition, the company will retain its own brand identity and will continue to operate separately under Lawsons (Holdings) Limited.

The directors have implemented processes and controls to ensure that the company can operate during the COVID-19 event. The measures include a COBRA committee which consists of key employees to manage the shortage of staff by moving staff across branches and stock supplied to branches and delivery to customers. Financial control has been implemented to minimise discretionary expenditure and laid off contractors. Detailed cash flow forecasts have been built to strengthen controls on customer credit limits.

The company has completed scenario plans to ensure the company is prepared for the reasonable outcomes over a longer-term impact over the next 12 months. On the assumptions adopted by the directors the company has sufficient cash availability for the foreseeable future.

On behalf of the board

The principal activity of the company continued to be that of the distribution and sale of fencing, decking materials and other landscaping supplies to trade and retail customers.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The results for the year are set out on page 8.

No ordinary dividends were paid. The directors do not recommend payment of an ordinary dividend.

The directors' consideration of future events, including the principal risks and uncertainties related to these, are included within the Strategic Report.

The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company's 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 financial instruments and the associated risks.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

The directors are responsible for preparing the Strategic Report, Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgements and accounting estimates that are reasonable and prudent;

- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

- 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 AVS Fencing Supplies Limited (the 'company') for the year ended 31 December 2019 which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in equity 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).

In our opinion the financial statements:

•     give a true and fair view of the state of the company's affairs as at 31 December 2019 and of its profit for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

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 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

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. 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.

In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. 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 company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

•     adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

•     the 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, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

The Statement of Comprehensive Income has been prepared on the basis that all operations are continuing operations.

AVS Fencing Supplies Limited is a private company limited by shares incorporated in England and Wales. The registered office is The Manor House, Graylands Estate, Langhurstwood Road, Horsham, West Sussex, RH12 4QD.

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 £1.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

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 4 ‘Statement of Financial Position’ – Reconciliation of the opening and closing number of shares;

• 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’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; 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 financial statements of the company are consolidated in the financial statements of AVS Group Holdings Limited. These consolidated financial statements are available from Companies House.

Atruet the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

The going concern assumption has been based on the possible outcomes from the COVID-19 event through to 12 months from the date of signing these financial statements.

Revenue represents amounts receivable for goods and services net of VAT and trade discounts. Revenue is recognised when the company obtains the right to consideration in exchange for the goods and services provided.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Goodwill arising on an acquisition of a trade undertaking is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities acquired.

Acquired goodwill is written off in equal annual instalments over its estimated useful economic life of ten years.

Impairment tests on the carrying value of goodwill are undertaken:

•     at the end of the first full financial year following acquisition

•     in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Property, plant and equipment are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Freehold land is not depreciated.

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.

At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible 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.

Inventories are stated at the lower of weighted average cost and estimated selling price less costs to complete and sell. At each reporting date, provisions are made for obsolete and slow moving stock.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts.

The company 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.

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. Financial assets classified as receivable within one year are not amortised.

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. Financial liabilities classified as payable within one year are not amortised.

Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs.

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.

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 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 non-current assets.

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.

Rentals payable under operating leases, including any lease incentives received, are charged to income on a straight line basis over the term of the relevant lease.

Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease.

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.

The useful lives of the assets and residual values may vary depending upon a number of factors including, but not limited to, technological innovation, actual usage and maintenance levels. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

The useful life of goodwill may vary depending upon a number of factors including, but not limited to the actual and projected quantum and timing of future returns from the acquisition of a trade undertaking, competition or other market demand, supply or other legislative factors.

If there are indicators that the useful life of a tangible or intangible asset has changed since the most recent annual reporting period previous estimates shall be reviewed and, if current expectations differ the depreciation or amortisation method or useful life shall be amended. Changes shall be accounted for as a change in accounting estimate

The directors have made key assumptions in determining the appropriate impairment provision against inventory items held at the end of the reporting period.

All revenue is derived from the United Kingdom.

The exceptional costs in the current year relate to redundancy costs, the costs relating to the sale and leaseback of Bishop Stortford branch and the prior year costs relating to a long term employee Loyalty Award.

The prior year exceptional costs were made up of redundancy costs, the professional costs relating to the Remuneration Trust, and costs in relation to the capital restructure of the company.

The average monthly number of persons (including directors) employed by the company during the year was:

Their aggregate remuneration comprised:

The actual charge for the year can be reconciled to the expected 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.

Included within cash and cash equivalent in the comparative year was a security deposit of £350,000, which was held in an interest bearing account in order to secure the bank loans. The deposit was released this year once the criteria was achieved.

Bank loans and other borrowings are secured by a legal charge over the company's assets, as detailed in note 17

Included within other payables is £170,744 (2018 - £63,216) which is owed to HMRC. Details of the terms are in note 16.

Bank loans

Bank loans are secured by a legal charge over the company's assets, as detailed in note 17.

Other payables

Other payables is the amount due to HMRC. The balance is repayable over 5 years with an effective rate of interest of 3.51%.

Bank loans

The bank loan has an outstanding balance of £705,419 (2018 - £939,080) and is repayable over 4 years. Interest rate of 4.28% plus the Bank of England base rate is charged on the remaining balance.

The bank loans are secured by way of a floating charge over all the assets in the company.

Other loans

There is an invoice financing facility of £2,000,000 available to the company. At the financial reporting date there is an outstanding balance of £620,103 (2018 - £191,179). See note 22 for detail on security.

Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

The directors have considered that it's not possible to estimate when the deferred tax assets and liabilities will reverse as it's dependant on events, which are not yet known.

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 holders of the ordinary A shares are entitled to receive notice of, attend, and vote at any general meeting of the company.

Bank loan

The bank loan liability of £705,419 (2018 - £2,323,728) is secured by a cross guarantee across all the companies within the group.

The bank loan liability is secured by way of a floating charge over all the assets in the company.

Invoice financing

The invoice finance facility is £2,000,000. At the financial reporting date the company has an outstanding liability of £620,103 (2018 - £191,179) relating to an invoice finance agreement. The liability is secured over the trade receivables in the company, as well as a multi-party guarantee by the other companies within the group.

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:

On 17 February 2020 the company was purchased by Lawsons (Holdings) Ltd. Please refer to the Strategic Report for further information.

As part of the sale, the bank loans totalling £705,419 and invoice financing liability of £620,103 were repaid and the related charges satisfied. Further to this, the company became party to the Lawsons (Holdings) Ltd inter group cross guarantee arrangements with Barclays Bank Plc.

During the year the company paid rent of £225,000 (2018 - £180,000) to a Self-Invested Personal Pension Plan entity in which a director has a beneficial interest.

In addition, the Bishops Stortford land and property was sold to the aforementioned Self-Invested Personal Pension Plan for £1,110,000.

At the financial reporting date, the directors owed the company £170,113 (in the prior year the company owed the directors £9,499). No interest is charged on the balance and is considered repayable on demand.

Following the acquisition by Lawsons (Holdings) Ltd on 17 February 2020 the directors balance was fully repaid.

The immediate parent company is AVS Group Holdings Limited, a company registered in England and Wales. The registered office of AVS Group Holdings Limited is The Manor House, Graylands Estate, Langhurstwood Road, Horsham, West Sussex, RH12 4QD.

AVS Group Holdings Limited prepares group accounts and copies can be obtained from Companies House.

At the reporting date the ultimate controlling party was Ian Faires by virtue of his majority shareholding. Following the acquisition on 17 February 2020 the ultimate parent company has changed to Lawsons (Holdings) Ltd, a company registered in England and Wales, whose registered office is Tyttenhanger Farm, Coursers Road, Colney Heath, Hertfordshire, AL4 0PG.