The directors present the strategic report and financial statements for East West Connect Ltd for the period ended 31st March 2023, please note this covers a 9-month period.
Review of the business
East West Connect Ltd is the main trading subsidiary of East West Group Ltd, it has continued to grow since it was established over 30 years ago by John O’Hanlon. Today the group remains majority owned by the O’Hanlon family and Kathleen O’Hanlon took on the role of Chairperson in 2014. The family will maintain its active leadership through the Chairperson and will further develop the role of family members at both operational and board level to maintain continuity and provide direction to the management team as the business grows. Running of the business is under the stewardship of Marcus Allen as Managing director and the team of directors headed up by Ross Carroll.
In recent years as part of a long-term incentive strategy, key management have been given the opportunity to become A and B shareholders and these long-term incentives plans continue to be rolled out to help ensure management team is retained and built upon for the future.
The market has settled somewhat from the turmoil of the previous few years, ongoing inflation and supply chain issues continue to create a level of risk however we believe that we have established strong commercial processes to help manage this ongoing issue. We do not see the position changing in relation to inflation, but this now is the accepted normal in the market and clients are planning on this basis to limit impact.
The figures are for the 9 months to end of March, we have moved our end of year to be aligned with our clients and general market, these figures show a continued resilient position for the present time coupled with strong financials in what has been another troubled year and even harder times to predict. But East West Connect maintains a very strong position with the nature of our works and clients including a variety of negotiated projects and potential 2 stage tenders helping to alleviate these pressures.
East West Connect maintains a very strong position with completed major infrastructure works exceeding £45M and yet a further £15M secured and still to deliver over the next 2 years, and further negotiations ongoing. Works with Takenaka at Lombard Street following earlier phases push ahead with works commencing on major plant and infrastructure replacement commenced, that should continue well into 2025-26 and several others being reviewed within the other building portfolios. We continue to expand our works within a variety of niche markets including a variety of high profile works within the Japanese business sector, numerous high profile live complex building environments including a selection of heritage Palace works and continued works within the CAT A market with successfully securing projects at 41 Lothbury with Wates Construction and 84 Moorgate with Osborne giving a further £20M of secured works over the next 12 months that are progressing well.
Our tender schedule continues to enjoy a good balance of direct to end users on infrastructure works giving greater margin and control, coupled with continuation of works for a very select number of main contractors with key potentials still with Takenaka, Tide, Waites, Walter Lilly, Osborne’s. Although we are continuing to tender works, they are focused on longer term works being our main target supplemented with a few smaller immediate works with known sources or client direct infrastructure works that are low in management and labour. This gives a further £40-£50M of real opportunities still be developed over the coming years to ensure any slippage is well covered and contingency for the years 2023-25 turnover.
Having now converted further highly prestigious projects including another long-term degasification and plant replacement project within the heart of London for the banking sector, receiving the first of several orders working direct for the client with an estimated budget of £25M over 3-4 years commencing construction later this year, this will allow us to redistribute resources from other major programmes coming to a close and maintaining high rates of labour utilisation.
We have continued to develop a multi-in-house delivery approach, complimented and cross feeding between facets of the business and creating client contract opportunities where we have already established a positive relationship. This is particularly seeing benefit in the maintenance division with high-profile long-term contract work driven out of the project delivery. We also continue to invest and grow our direct delivery capacity with a large pool of direct labour across all trades to facilitate the control and quality required in such live complex and prestige environments.
Social Housing contracts have been a significant part of the business since the 1990s and with the completion of the Catalyst and Peabody merger, coupled with recent renewal of our 5 plus 5 years frameworks providing secured packages of M&E at £80M and Fire management works tenders of £20M over 10 years, our maintenance team remains in a great place as they expand. We continue to become more integral in the considerable challenge of delivering a full package of services to the newly expanded Peabody now with over 100,000 properties, this creates a stable and growing income stream upon which to further build our capability in this market.
The maintenance division is seeing lots of new contracts and potential from cross pollination with the other sectors of the business, supported by continued works for L&Q, Galliford Try and Japanese/ Swiss embassies Market . We are confident that this will act as a catalyst securing more contracts and revenue within these markets and have already closed deals with several commercial real estate owners to spread our portfolio across both public and private income streams.
We are pleased to report another year of growth and sustainable profit for the group with a good year maintaining organic growth and profits in line with previous years. Turnover is above that projected, even with several of our major projects seeing slippage on commencement dates, across the group we have turned over £31.9M (against budget of £27.3M) which equates to more than £40M pro-rata over 12 months, this is complemented with an increased margin @ 16.4% (Budget – 10.9%) giving GP £5.2M and net profit before Tax £2.3M (again against projected £605K). These consolidated figures now include our sister company East West Compass (formerly Chas West) that services the reactive maintenance market for Peabody and is in the process of renegotiating a further 10-year framework and will be fully rebranded as East West Compass part of the East West Group.
The focus on margin remains but moderated to secure contracts with robust projects / clients giving longevity and payment certainty / improved cash flow, particularly during these unpredictable times. These types of contracts are often government funded directly or indirectly.
We closely monitor and manage cash flow and have not needed to resort to our bank funding facility within the year, which however remains in place on an in case of need basis, but we have continued to grow a strong bank balance to fund the growing projects requirements, and this coupled with a growth of our assets leads to ever increasing security for the larger projects.
The company's policy is to pay suppliers to the agreed terms upon which business is conducted and continue to build an extremely strong and robust supply chain. The directors regularly review the financial requirements of the company and the risks associated therewith. The company's operations are primarily financed from retained earnings and we have again increased our assets through investment within the business and property, and a board policy of profit retention, however a bank loan relating to trading premises and overdraft facility is available but presently unused.
As can be seen from our strong account operation and working capital position, we continue to be mindful of cash flow with a keen eye on building a reserve and accruals of all future payments including VAT, hence maintaining flexibility whilst maximising our available capital. Our banking accounts have been restructured to maximise our position with our increasing reserves and interest rates to ensure whilst remaining agile with our reserves. At this stage we are likely to continue with our dividend policy of retaining 50% of the profit within the business to ensure our stability and growth, this leads to our strong balance in these times. To further our development of our staff we continue to review employment packages and provide above market employment packages to build a team for the future.
This coming year will see the investment and implementation of a full new 4PS finance system to replace the exchequer systems utilised for the last 10 years to give greater control, understanding and transparency of the company finance from cradle to grave and will use this opportunity to overhaul and invest across the business in new procurement process to enhance transparency and accountability.
Against many unstable and unpredictable market factors , including inflation, potential of recession and supply chain challenges our business has continued to grow across the board and we presently see more many opportunities, secured works and tender pipeline than ever in our history. So therefore, although we acknowledge and continue to plan for financial challenges, slippage, changing market, client mergers and supply and cost challenges we see ourselves in a strong position driven through hard work, diversity, good reputation and a constantly growing management and delivery team that is the best in the industry. Maintaining margin growth against this background will be challenging but we continue to plan effectively, adapting our processes and systems to create high levels of transparency and improve financial planning and analysis and early identification and mitigation of issues.
The key business risks and uncertainties affecting the company are related to future contracts and economic conditions, inflation and supply chain issues which have been strongly influence by the likes of COVID-19, Brexit, political uncertainty and Ukraine; we go into 2023/24 in a strong position with 90% of our income budget secured and supported by signed contracts with highly credit rated clients. A considerable level of our projects provide secured works extending well into 2025-26 underwriting a large element of the following year’s activities and allowing continued investment in staff and systems. The business has strong relationships with a growing list of key and highly rated clients, coupled with introducing some new key main contractors. Recently secured negotiated works again strengthen the position along with the renewed contracts with our social housing client and our reactive business taking this further to 2029.
East West Connect have continued the growth following full accreditation in specialist fire protection and works to complement our already extensive fire alarm and fire doors works; now building our in-house capability and direct delivery to ensure our development in our ever-changing market and with recent successful tenders have key contracts secured running for circa 5-10 years. we have continued with considerable growth, investment and development across the company has led to expansion of the Quality, Health and Safety department into a Compliance department to take the relevant standards, health and safety and quality (ISO 9001 & 14001 and transition from OHSAS 18001 to 45001) into the next era.
We continued working closely with several key clients and consultants with the intentions to expand within the Energy and Carbon Neutral market as part of our confirmed 5 years growth plan, that is also being reviewed and updated during the next 12 months.
On behalf of the board
The directors present their annual report and financial statements for the period ended 31 March 2023.
The results for the period are set out on page 10.
Interim dividends were paid amounting to £600,000.
The directors who held office during the period and up to the date of signature of the financial statements were as follows:
In accordance with the company's articles, a resolution proposing that Rickard Luckin Limited be reappointed as auditor of the company will be put at a General Meeting.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
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 period 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.
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 is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our: general commercial and sector experience; through verbal and written communications with those charged with governance and other management and via inspection of the company’s regulatory and legal correspondence.
We discussed with those charged with governance and other management the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations to our team and remained alert to any indicators of non-compliance throughout the audit, we also specifically considered where and how fraud may occur within the company.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the company is subject to laws and regulations that directly affect the financial statements, including: the company’s constitution, relevant financial reporting standards; company law; tax legislation and distributable profits legislation and we assess the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly the company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on the amounts or disclosures in the financial statements, for instance through the imposition of fines and penalties, or through losses arising from litigations. We identified the following areas as those most likely to have such an affect: employment legislation; health and safety legislation; trade legislation; data protection legislation; anti-bribery and anti-corruption legislation.
ISAs (UK) limit the required procedures to identify non-compliance with these laws and regulations to the procedures, and no procedures over and above those already noted are required. These limited procedures did not identify any actual or suspected non-compliance which laws and regulations that could have a material impact on the financial statements.
In relation to fraud, we performed the following specific procedures in addition to those already noted:
Challenging assumptions made by management in its significant accounting estimates, in particular: accounting for contracting income;
Identifying and testing journal entries, in particular any entries posted with unusual nominal ledger account combinations, journal entries crediting cash or any revenue account, and journal entries posted by senior management;
Performing analytical procedures to identify unexpected movements in account balances which may be indicative of fraud;
Ensuring that testing undertaken on both the performance statement, and the Balance Sheet includes a number of items selected on a random basis;
Discussions with management; and
Reviewing board minutes.
These procedures did not identify any actual or suspected fraudulent irregularity that could have a material impact on the financial statements.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with ISAs (UK). For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the procedures that we are required to undertake would identify it. In addition, as with any audit, there remains a high risk of non-detection of irregularities, as these might involve collusion, forgery, intentional omissions, misrepresentation, or the override of internal controls. We are not responsible for preventing non-compliance with laws and regulations or fraud, and cannot be expected to detect non-compliance with all laws and regulations or every incidence of fraud.
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 profit and loss account has been prepared on the basis that all operations are continuing operations.
East West Connect Limited is a private company limited by shares incorporated in England and Wales. The registered office is 1st Floor, County House, 100 New London Road, Chelmsford, Essex, CM2 0RG.
The reporting period for these financial statements has been reduced to 9 months. The period has been reduced to remain in line with the period of the parent company, which has also been reduced to 9 months. The comparative amounts presented in the financial statements are therefore not entirely comparable as they relate to a 12 month period.
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 £.
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 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of East West Group Limited. These consolidated financial statements are available from its registered office, 1st Floor, County House, 100 New London Road, Chelmsford, Essex, CM2 0RG.
Revenue from contracts for the provision of services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.
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.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial assets 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.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Government grants
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
Government grants relating to turnover are recognised as income over the periods when the related costs are incurred. Grants relating to an asset are recognised in income systematically over the asset's expected useful life. If part of such a grant is deferred it is recognised as deferred income rather than being deducted from the asset's carrying amount.
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.
Revenue from amounts recoverable on contracts is valued by reference to the stage of contract completion, which is judged by reviewing the costs to date incurred as a percentage of the final expected contract costs. Using this percentage of completion, an adjustment is made for to recognise the appropriate revenue.
An analysis of the company's turnover is as follows:
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 7 (2022 - 8).
Key Management Personnel consist only of directors.
The actual charge for the period can be reconciled to the expected charge for the period based on the profit or loss and the standard rate of tax as follows:
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 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. Each ordinary share carries one voting right.
All profit and loss reserves are deemed distributable.
At 31 March 2023 HSBC held a multilateral guarantee in respect of East West Connect Limited and East West Group Limited. This is in respect of security over group assets for the bank loans and overdrafts. At 31 March 2023 the total borrowings against this guarantee were £Nil (2022: £Nil) of which £Nil (2022: £Nil) is included within the creditors of this company's financial statements.
At the year end the company owed the directors a total of £206,232 (2022: £237,233).
At the year end the company was owed a total of £566,124 (2022: £624,575) by a fellow group company.
At the year end the company was owed a total of £922,951 (2022: £907,051) by its parent company .
The company has taken advantage of the exemption available in FRS102 whereby it has not disclosed transactions with any wholly owned group members.
In this and the preceding financial year, the immediate and ultimate parent undertaking is East West Group Limited, a company incorporated in England and Wales. Consolidated financial statements are available from Companies House.
The controlling party is Mrs K O'Hanlon by virtue of her shareholding in the parent company, in both the current and preceding year.