FAIRALLS_(BUILDERS_MERCHA - Accounts
FAIRALLS_(BUILDERS_MERCHA - Accounts
The directors present the strategic report for the year ended 31 December 2017.
2017 was a successful year for Fairalls (Builders Merchants) Limited "the Company", with revenues of over £12.3m and growth of 14.1% on the previous year. The Company's markets continued to show the consistent growth experienced in 2016 and strong final quarters performance (up 26.6% on previous year) which contributed to the overall success of 2017. The good results throughout the summer carried over into the final quarter owing to a warmer, drier year. This saw external works continue later into the year than normal impacting out strong performance.
The gross margin has decreased to 35.45% on the previous year 38.23%, this has been effected by pricing strategies and promotions in place during the year to drive sales. Increase in sales volume has increased cost of purchases by 20% compared to the sales increase of 14.1%.
The company continued to maintain effective cost management in most areas. Staff costs have been an area which has increased not only effecting gross profit but also in the distribution and administration roles as the company continues to invest in its staff and improve the management of the business. The Premises rent has increased in line with market conditions following a long period of a generous rate. As a result the company's profit before tax has increased to £831,262 and net profit margin has decreased to 6.71% from 7.28%.
The company operates in a market and an industry which by their very nature are subject to a number of inherent risks which it is able to mitigate by adopting different strategies and maintaining a strong system of internal control but it has to accept a level of risk in order to generate suitable returns.
Market conditions - The performance of the market is affected by general economic conditions and a number of specific drivers of construction and DIY activity, including housing transactions, net disposable income, house price inflation, consumer confidence, interest rates and unemployment. The impact could potentially be an adverse effect on the financial results. Should market conditions deteriorate then the company has a range of options based on the severity of the change. Historically this has been cost reduction and lowering capital investment.
Competitive pressures - Market trends, particularly in respect of customers' preferences for purchasing materials through a range of supply channels, large companies trying to out price the buying groups and manufacturers deciding to deal directly with the end users. This could potentially have an adverse effect on the financial results. The company has a large customer base which reduces the risk and also tracks changes to market practice so strategy can be amended where risk increases.
Recruitment, retention and succession - The ability to recruit, retain and motivate suitably qualified staff is an important driver of the overall performance. Ensuring proper development of employees and the succession for key positions is important. This could impact the ability to develop and execute the development plans and may create a competitive disadvantage. The company does provide training programmes and salaries are benchmarked to remain competitive.
The company is satisfied with its position at the year end.
Strong financial capital management is a fundamental component of the overall strategy. The company maintains a capital structure that is both appropriate to the on-going needs of the business and ensures it remains within the covenant limits that apply to its banking arrangements. The company continues to invest in capital to ensure its ability to deliver the service and competitive edge. This has seen the company invest in fixed assets in the year of £485.6k. The continued forecasted improvements in the market has lead to the increase in working capital requirements in anticipation of continued growth.
Net assets have improved by £668k. £288k of this is a direct result of an increase in the debtor with Fairalls of Godstone Ltd (fellow subsidiary) to continue to support their bank finance repayments which has allowed for the investment in the Sevenoaks Branch in 2014 and to be ready to take advantage of opportunities as they arise. Additionally, trade payable days have improved from 42 days (2016) to 38 days with trade receivable and inventory days remaining fairly static. The directors are happy with this position and continue to work towards lowering the payable days.
This improvement will allow the company to increase investment in working capital as it expands and continues to generate sufficient free cash flows to sustain growth. With the change in the market conditions and the improving financial position the directors remain aware of growth opportunities to expand their operations in terms of business services and geographical coverage. No material growth plans are yet to be implemented.
The key financial highlights for the year are as follows:
On behalf of the board
The directors present their report and audited financial statements of the company for the year ended 31 December 2017.
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.
The results for the period and the position at the period end were considered to be satisfactory by the directors. The directors do not recommend payment of an ordinary dividend.
The company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest any cash assets safely and profitably. The policy throughout the year has been to ensure continuity of funding by using debt from the bank. Debt is structured so repayments can be made out of cash generated through operations.
The company is exposed to interest rate risk as it borrows funds with fixed interest rates. The overall risk is managed by the company to ensure that overall risk is kept minimal. This is primarily done by keeping borrowings low. There are no hedging activities.
On 1 July 2017 the shares in the company were acquired by Fairalls Group Limited, a company incorporated and domiciled in England and Wales with offices registered at 44-46 High Street, Godstone, Surrey, RH9 8LW.
The ultimate controlling party is Mr R G Fairall together with members of his close family by virtue of a controlling interest in the issued share capital of Fairalls Group Limited.
as the director is aware, there is no relevant audit information of which the company’s auditor is unaware ; and t s taken all the necessary steps that he/she ought to have taken as directors in order to make him/herself aware of a ny relevant audit information and to establish that the company’s auditor is aware of that information.
The auditor, Plummer Parsons, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
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.
give a true and fair view of the state of the company's affairs as at 31 December 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.
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.
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.
Fairalls (Builders Merchants) Limited ("the company") operates as a general builders merchants providing a diverse range of building materials and products. The company supplies material through physical branches, stores and increasingly online, as well as providing delivery services in the South East.
The company is a private company limited by shares and is incorporated and domiciled in England and Wales. The registered office is 44-46 High Street, Godstone, Surrey, RH9 8LW.
Statement of compliance
The individual financial statements of Fairalls (Builders Merchants) Limited have been prepared in compliance with United Kingdom Accounting Standards, including Financial Reporting Standard 102, "The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland" ("FRS 102") and the Companies Act 2006.
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of Preparation
These financial statements are prepared on a going concern basis, under the historical cost convention, as modified by the revaluation of land and buildings and to include investment properties and certain financial assets and liabilities measured at fair value through profit or loss.
The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise its judgements in the process of applying the company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statement are disclosed in note 2.
Exemptions for qualifying entities under FRS 102
FRS 102 allows a qualifying entity certain disclosure exemptions. The company has taken advantage of the exemptions, under FRS 102 paragraph 1.12, 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.
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.
Sale of goods
The company operates retail stores, branches and internet based transactions for the sale of building materials and certain related products. Sales of goods are recognised on the sale to the customer, which is the point of delivery. Sales of goods are usually by cash, credit or payment card, or with a credit term of 30 days. The element of financing is deemed immaterial and is disregarded in the measurement of revenue.
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.
Land and buildings leasehold comprised short leaseholds with terms expiring within 50 years.
At each reporting period end date, the company 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.
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.
Cost is determined using the average cost (AVCO) method. Cost includes the purchase price, including taxes and duties directly attributable to bring the inventory to its present location and condition.
At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of inventories 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.
Basic financial assets, including trade and other receivables, cash and bank balances, are initially recognised at transaction price, 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.
Such assets are subsequently carried at amortised cost using the effective interest method.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price.
Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including trade and other payables, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value though profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities 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.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
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 annual depreciation charge for tangible assets is sensitive to changes in the estimated useful economic lives and residual values of assets. The useful economic lives and residual values are re-assessed annually. They are amended when necessary to reflect current estimates, based on technological advancements, future investments, economic utilisation and the physical condition of the assets. See note 10 for the carrying value of property, plant and equipment and note 1.4 for the useful economic lives for each class of asset.
The company makes an estimate of the recoverable value of trade and other debtors. When assessing impairment of trade and other debtors, management considers factors including the current credit rating of the debtor, the ageing profile of the debtors and historical experience. See note 12 for the net carrying amount of the debtors and associated impairment provision.
The company receives rebates on the costs of goods sold dependent on the total level of purchases made by the company along with total purchases made by customers of the suppliers in the buying groups in which the company belongs. As a result it is necessary to consider as estimate of rebates recoverable in relation to purchases in the year. When calculating the rebate provision, management consider the historical average rate of the rebates received and review this annually and make adjustments where additional information exists to improve the accuracy of the estimate. See note 12 for the carrying value of rebates provision.
The company receives rebates against purchases at non-fixed rates after the purchases have been made and therefore not included in the AVCO calculation. Inventory is subject to obsolescence, damage, loss, etc. When calculating the inventory provision, management consider the nature and condition of inventory along with the amount of rebates relating to closing inventory which is reviewed annually. See note 11 for the net carrying amount of the inventory.
An analysis of the company's revenue is as follows:
In accordance with SI2008/489 the company has not disclosed the fees payable to the company's auditor for 'Other services' as this information is included in the consolidated financial statements of Fairalls Group Limited.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2016 - 0).
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:
Commercial vehicles with a carrying amount of £0 (2016: £95,999) have security placed on them through hire purchase agreement (see note 14).
All other assets with a carrying amount of £961,236 (2016: £733,186) are pledged as security for an intercompany guarantee (see note 20).
Amounts owed by group undertakings are unsecured, have no fixed repayment date and where included as receivable within one year are interest free and repayable on demand. Those held as receivable in more than one year have interest charged at 2.1% above base and are not repayable on demand.
Trade receivables are stated after provisions for impairments of £19,934 (2016: £12,284).
Other receivables include estimates for rebates receivable of £346,823 (2016: £387,186).
The finance lease was settled in the year.
Finance lease payments represent amounts payable by the company for commercial vehicles included within property, plant and machinery. They are provided through a hire purchase agreement and 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 2 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent payments.
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 net deferred tax liability expected to reverse in 2018 is £26,871. This wholly relates to the reversal of timing difference on capital allowances.
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.
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:
Guarantees
Fairalls of Godstone Limited has a long-term loan in which security is placed across all assets of all group companies. The outstanding liability at the balance sheet date of this loan is £1,636,566 (2016: £1,784,474).
Remuneration of key management personnel
The company has taken advantage of the exemption under paragraph 1.12(e) of FRS 102 from the requirement to disclose the total of key management personnel compensation.
Transactions with related parties
The company has taken advantage of the exemption under paragraph 33.1A of FRS 102 not to disclose transactions entered into between two or more members of a group where the subsidiary which is party to the transaction is wholly owned by the other party.
At the period end the balance due from group companies was £1,833,750 and the group company concerned is Fairalls of Godstone Limited.
The immediate and ultimate parent company up to 30 June 2017 was Fairalls of Godstone Limited.
The ultimate controlling party was Mr R G Fairall together with members of his close family by virtue of a controlling interest in the issued share capital of the holding company.
On 1 July 2017 the entire share capital was acquired by Fairalls Group Limited, a company incorporated and domiciled in England and Wales with offices registered at 44-46 High Street, Godstone, Surrey, RH9 8LW. The ultimate controlling party is Mr R G Fairall together with members of his close family by virtue of a controlling interest in the issued share capital of Fairalls Group Limited.