MODEBEST_BUILDERS_LIMITED - Accounts

The directors present the strategic report for the year ended 31 January 2017.

The company is a well established groundworks and frame contractor trading for over 20 years. The company's head office in Wembley enables it to service its customer base in London as well as the South of England. The company also operates a construction service in Holland.

During the year the company has experienced significant expansion with turnover increasing by just over 27%. Please refer to key performance indicators for more details. The sustained growth was achieved despite challenging market conditions and increased competition. Improved efficiencies in project delivery and commercial management have both contributed to the achievements of the company coupled with the the outstanding performance of its loyal and committed workforce.

The company continues to successfully tender for key contracts and continues to receive repeat orders from satisfied customers and thereby continues to maintain its established customer base.

Commercial Risk

The company manages this risk by providing added value services to its clients, having fast response times not only in supplying products and services but also in handling all client queries and by maintaining strong relationships with clients. The company's commercial risk is reduced due to the market share of their clients as many of the company's clients are long standing market leaders in their field. The company has spread its commercial risk by not only actively seeking to widen its client base but also through continued expansion of its activities in the South of England and Europe.

Taxation risk

The company is exposed to financial risks from increases in tax rates and changes to the basis of taxation including corporation tax and VAT. Principal controls to mitigate this risk include regular monitoring of legislative proposals and the engagement of experienced executives and the use of experienced sector-specific professional advisers to mitigate the impact of changes.

Management risk

The company is reliant on its small high calibre team of operational managers, surveyors and board of directors. The company recruits and develops high calibre employees, many of whom have been with the company for a number of years. The board have tried to ensure that the knowledge base of the operational management team is shared as much as possible throughout the company.

Financing risk

See Financial instruments.

Economic risk

The directors have identified and evaluated risks and uncertainties and have controls in place to mitigate these. Responsibility for management of each key risk is identified and delegated. The company is exposed to the risks of the economic downturn that could lower the company's revenues and operating results in the future. However, actions continue to be taken to maximise the company's performance in all aspects of the business.

The balance sheet on page 10 of the financial statements shows that the company's financial position at the year end is, in both net assets and liquidity terms, an improvement over the previous year.

The key financial and non financial performance indicators used to determine the progress and performance of the company are set out below:

     2017                   2016

Turnover                          £121,108,219            £95,164,898

Gross profit                          £5,788,950             £3,865,631

Gross margin                          4.8%             4.1%

Operating profit                          £3,762,327         £1,667,647

Earnings before interest, tax, depreciation, amortisation

(EBITDA)                         £3,774,646         £1,680,194

Market Share

The company is a large privately owned construction service provider company based in the South East of England. The company enjoys greater than national average market share. Although difficult to quantify within a given criteria it is estimated to have a significant market share. Turnover has increased by just over 27% from £95.1m to £121.1m in 2017.

Gross Profit Margin

The company's gross profit margin has improved slightly from 4.1% in 2016 to 4.8% in 2017, and reflects the increased diversification of work undertaken and despite the prevailing highly competitive nature of the market place, and in what has been a period of significant expansion in the company's trading activities.

Operating profit and EBITDA percentage of sales.

The directors view operating profit as a percentage of sales as a key performance indicator for the business and this is reviewed regularly. The ratio has increased from just over 1.7% in 2016 to just over 3% in 2017, after allowing for internal management charges. The EBITDA is often regarded as a more comparable measure of the performance of the business which shows that EBITDA percentage of sales has also increased from 1.75% to 3.1% over the course of the year. It is the intention of the company to focus on strengthening its financial performance in the industry by concentrating on customer retention, while at the same time monitoring both direct and indirect costs.

Safety, health and environmental policies

The company continues to strive to improve its safety, health and environmental standards and performance. These are monitored regularly throughout the year and reviewed in response to performance and changes in legislation.

The company recognises the significance of health and safety in the workplace to ensure its work force is free from risk, through investment in continuing improvement in the occupational health and safety field.

In recognising the significance of health and safety, the company made significant investment in, occupational health, a behavioural culture programme (Incident and Injury Free), ongoing external monitoring, evaluation of environmental impact, risk reduction methods, the employment of professionally qualified personnel and a specialist health and safety team.

The implementation of the behavioural cultural programme (Incident and Injury Free), the monitoring of the employees' health and welfare through regular site visits on each of its projects and the continuation of an extensive training programme, ensuring competency in the workplace, continue to play a major part in protecting the company's workforce.

The company recognises the importance of its environmental responsibilities, monitors its impact on the environment and designs and implements policies to reduce any damage that might be caused by the company's activities. Initiatives designed to minimise the company's impact on the environment include safe disposal of any product waste, recycling and reducing energy consumption.

Accreditations and memberships

The company has also now achieved accreditation in Quality Management Systems (ISO 9001: 2008), Environmental Management Systems (ISO 14001:2004) and in the Occupational Health and Safety Management Systems (OHSAS 18001:2007).

In addition, the company has also achieved accreditations from, or is a member of, the following organisations:

- Achilles Building Confidence accreditation

- The Contractors Health & Safety Assessment Scheme (CHAS) - accredited contractor,

- Constructionline - members

- Exor Bronze + accreditation

- Safety Management Advisory Services Ltd (SMAS)- Worksafe Contractor membership

- Safecontractor accreditation.

- Fleet Operator Recognition Scheme (FORS) - Silver level accreditation - Fleet Operator Recognition Scheme

- Delta Membrane Systems Ltd - registered Installer.

- The Concrete Society - members.

- ASUC - full members

- Premium member of the Builders Profile

- Membership of the Durkan Take Five Network - Safe method of Working

- NRSWA certification for Roads and Street Works Projects

- Environment Agency approved Upper Tier Carrier/Broker/Dealer for waste

- Plant Operators licence for the Modebest fleet

In the opinion of the directors this will improve the company's internal and external processes.

Awards

The company has also previously won the Weston Homes Plc Health and Safety Performance award.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 January 2017.

The principal activities and operation of the company has continued to be that of construction and providing services to the construction industry.

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 9.

Ordinary dividends were paid amounting to £2,500,000. The directors do not recommend payment of a final dividend.

Objectives and policies

The company's principal financial instruments comprise bank balances, trade creditors, trade debtors, loans to the company by its parent company. The main purpose of these instruments is to raise funds for the company's operations and to finance the company's operations. The company's approach to managing other risks applicable to the financial instruments concerned is shown below.

Price risk

Due to the nature of the financial instruments used by the company there is no exposure to price risk.

Cash flow and liquidity risk

In respect of bank balances the liquidity risk is managed by maintaining a balance between continuity of funding and flexibility through and agreed payment policy. Strict payment terms are negotiated with the company's customers which enables it to ensure that it is paid promptly once an application has been issued. This policy ensures that sufficient funds are available to meet amounts due to trade creditors. 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.

In respect of loans due from related companies, these are interest-free with no fixed date for repayment.

In respect of loans due to the parent and related companies, these are interest-free with no fixed date for repayment which allows the company sufficient funds to meet its payments to creditors.

Over the last few years the company has engaged in a number of construction projects using processes that were regarded as being eligible for a research and development claim. The directors have confirmed that several R&D claims were submitted during the year and credits obtained subsequent to the year end - see also Note 8.

The company is focussed on securing profitable work and to increasing its market share by expanding its customer base. It continues to seek to diversify the work it undertakes within its core sector to mitigate the effects of the prevailing difficult trading conditions.

The directors believe the company is well positioned to respond to the trading conditions experienced during 2016-17, and to continue to profit from opportunities in newer markets.

At the date of approval of the financial statements, the company has a healthy secured order book considering the market conditions that have prevailed, with a number of confirmed contracts from repeat customers. As a result, the directors have considered the year ahead and believe that the company is well placed to manage its business risks successfully.

The auditor, Goldblatts, is deemed to be reappointed under section 487(2) of the Companies Act 2006.

The directors are responsible for preparing the annual 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.

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.

We have audited the financial statements of Modebest Builders Limited for the year ended 31 January 2017 set out on pages 9 to 24. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".

This report is made solely to the company’s member, 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 member 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 member as a body, for our audit work, for this report, or for the opinions we have formed.

As explained more fully in the Directors' Responsibilities Statement set out on pages 5 - 6, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

In our opinion the financial statements:

• •    give a true and fair view of the state of the company's affairs as at 31 January 2017 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.

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.true

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.

The Profit And Loss Account has been prepared on the basis that all operations are continuing operations.

Modebest Builders Limited is a private company limited by shares incorporated in England and Wales. The registered office is 171-173 Gray's Inn Road, London, WC1X 8UE.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.

These financial statements have been prepared on a going concern basis which assumes that the company will continue in operational existence for the foreseeable future. The validity of this assumption is dependent upon the continued support from its parent undertaking and related companies.

The directors have received assurances from the related companies under common control that existing liabilities will not be called upon until Modebest Builders Limited is in a position to repay them. In addition, indications have been given that continued funding will be provided to support Modebest Builders Limited for the foreseeable future and to enable it to meet its day-to-day commitments from cash flows.

As a consequence, the directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook. In view of the above, and at 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.

If the company were unable to trade, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify fixed assets and long term liabilities as current assets and liabilities.

Turnover represents the invoiced amount of goods sold and services provided less returns and allowances, excluding VAT and trade discounts.

Profit is recognised on long-term contracts, if the final outcome can be assessed with reasonable certainty, by including in the profit and loss account turnover and related costs as contract activity progresses. Turnover is calculated as that proportion of total contract value which costs to date bear to total expected costs for that contract.

Amounts recoverable on long term contracts, which are included in debtors, are stated at the net sales value of the work done after provision for contingencies and anticipated future losses on contracts, less amounts received as progress payments on account. Excess progress payments are included in creditors as payments on account.

Tangible fixed assets 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:

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.

Stock and work in progress are valued at the lower of cost and net realisable value. Cost includes all direct costs and an appropriate proportion of fixed and variable overheads. Work in progress is reflected in the accounts on a contract by contract basis and represents the unbilled direct and indirect costs incurred as at the year end. These typically arise where mid month valuations have occurred and a time apportioned estimate of the cost of measured work has been calculated. Net realisable value represents the certified value of the measured work carried out in a particular period, invoiced subsequent to the year end.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

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 costs are recognised as expenses in the period in which they are incurred and contract revenue is recognised to the extent of contract costs incurred where it is probable that they will be recoverable.

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.

Cash at bank and in hand 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. Bank overdrafts are shown within borrowings in current liabilities.

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.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

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 company’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 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.

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 except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation are included in the profit and loss account for the period.

Research and development

Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.

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 following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

Revenue recognition is a key area of judgement especially in companies operating in the construction industry. The calculation of contract turnover, gross amounts due from customers and work in progress is contingent on the accurate measurement of work done and internal valuations by key management personnel. The directors have ensured that generally accepted industry practices and methodologies are followed by all relevant personnel and that accounting and quality management systems are regularly evaluated and certified.

An analysis of the company's turnover is as follows:

During the year, there were exceptional bad debt provisions written off included in administrative expenses amounting to £340,435 (2016: £648,427).

Exchange differences recognised in profit or loss during the year, except for those arising on financial instruments measured at fair value through profit or loss, amounted to £527 (2016 - £444).

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

Their aggregate remuneration comprised:

The company has outsourced its payroll and during the year all payroll costs were recharged from a related company,

Investment income includes the following:

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 adjustments in respect of prior periods represents tax refunds received subsequent to the year end in respect of research and development claims.

At 31 January 2017, retentions held by customers for contract work amounted to £4,116,484 (2016 - £2,412,600).

The amounts due from companies under common control included within other debtors, are unsecured, interest-free, have no fixed repayment date and are repayable on demand.

The amounts due to group undertakings and companies under common control (included within other creditors), are unsecured, interest-free, have no fixed repayment date and are repayable on demand.

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 deferred tax liability set out above is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.

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 company has one class of ordinary shares which carry no right to fixed income.

The company has provided guarantees in respect of unpaid hire purchase liabilities of several related and group companies as part of a cross-company guarantee in favour of the company's bankers. At 31 January 2017, the outstanding hire purchase liability in those related companies, which are not included in the company's balance sheet, amounted to £4,495,702 (2016: £2,372,575) - see also Note 23 'Related party transactions'.

The outstanding hire purchase liability included in the balance sheet of the company's ultimate parent undertaking at 31st January 2017, amounted to £0 (2016: £155,280).

Operating lease payments represent rentals payable by the company for office space occupied by the company. Leases are negotiated for an average term of 1 year.

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:

The remuneration of key management personnel is as follows.

The current year compensation comprises £12,000 (2016: £12,000) recharged from a related company - see note 6.

During the year the company entered into the following transactions with related parties:

The following amounts were outstanding at the reporting end date:

Sales of goods to related parties were made at the company's usual list price. Purchases were made at market price discounted to reflect the quantity of services purchased and the relationships between the parties.

The amounts outstanding are unsecured and will be settled in cash.

The following amounts were outstanding at the reporting end date:

Sales of goods to related parties were made at the company's usual list price. Purchases were made at market price discounted to reflect the quantity of services purchased and the relationships between the parties.

The amounts outstanding are unsecured and will be settled in cash.

As set out in Note 21, the company has entered into a cross-company guarantee with its bankers to secure HP liabilities in the several other group and related companies which are also controlled by E Scanlon and A Dravins.

The ultimate parent company of Modebest Builders Limited is Modebest Group Holdings Limited and its registered office is 171-173 Gray's Inn Road London WC1X 8UE.

The ultimate controlling parties are the families of E Scanlon and A Dravins who are equal shareholders of Modebest Group Holdings Limited, the ultimate parent company.

The smallest and largest group financial statements that consolidate this company is Modebest Group Holdings Limited. Copies of the group accounts are available to the public from the company at Unit 2, 29 Fourth Way, Wembley Middlesex HA9 0LH.