The directors present their strategic report for the year ended 31 December 2016.
The trading results for the year are set out in the annexed financial statements.
The strategy of the business is to increase its share of the building contracting and civil engineering market by focussing on strong customer service.
The company enjoys a number of competitive advantages including a strong reputation for quality; a well established reputation for price competitiveness; a knowledgeable and enthusiastic workforce and a strong customer focus.
Despite a competitive and challenging economic environment, the directors were satisfied with the performance of the company during the year.
Turnover reduced in FY'17 by £7,639,000 (16.9%) to £37,506,000 driven by reduced contract activity.
The gross margin percentage earned on contracts undertaken in the year increased in the year to 5.7% in FY'17 reflecting an improved focus on contract profitability.
Administrative expenses decreased by £997,673 (82.9%) in FY'17 salary costs.
Whilst trading conditions are expected to remain competitive throughout FY'18 the board consider the company to be well positioned to manage and take on the challenge. The directors believe the company is well placed to take advantage of any opportunities that might arise.
The company ’s key performance indicators (KPI’s) are summarised below:
KPI’s |
2017 |
2016 |
Turnover |
£37,506k |
£45,145k |
Gross Margin |
£2,132k |
£(1,533)k |
Operating profit |
£1,927k |
£(2,736)k |
Gross assets |
£8,308k |
£4,971k |
The nature of the business environment in which the company operates is inherently risky. Whilst it is not possible to eliminate all such risks and uncertainties, the company has an established risk management and internal control system in place to manage them.
A risk management committee meets regularly and identifies the risks that it considers most likely to have an impact on the business and its strategic priorities. If emerging risks are identified in between these reviews, these are incorporated immediately into the risk management process.
The following sets out the principal risks faced by the group and how they are mitigated:
Contract delivery
The company has a number of contracts in progress at any point in time. Dependent on the nature, location and duration of the work and the legal framework of the contract, there is a risk that ineffective contract management could result in reputational damage, financial impact or failure to deliver on contracts.
Contracts in progress are controlled and managed through the companies operating structure and procedures. This includes regular monthly contract reviews of contract-to-date financial performance against budget as well as comparing end-life forecast against tender. Project risk registers are also reviewed.
People
The company depends on a flexible, diverse and well-motivated workforce. If the company does not succeed in attracting, developing and retaining skilled people, as well as understanding and embracing the diversity of those people, it will not be able to grow the business as anticipated.
The company monitors staff turnover closely. Pay and conditions are reviewed regularly against the prevailing market to ensure that we remain competitive. Succession planning and staff development are managed at all levels in the company. The company has a performance review process which is designed to assist in the career development of its staff and also to identify potential successors to roles within the company, including at board level.
Contract pricing
The work for which the company tenders can often be complex with significant associated risks. Tender assumptions may be inaccurate or the risks associated with the tender may not be fully understood. If tenders are under-priced, contract losses and potential reputational damage will result. If tenders are over-priced, order books may suffer.
Current mitigation includes the close involvement of the board in all complex tender negotiations which is designed to ensure a consistent approach with respect to the management of contract risks across the company.
Safety
The company's activities are often complex and require the continuous monitoring and management of health, safety and environmental risks. Failure to manage these risks could result in injury to employees, sub-contractors or members of the public or damage to the environment. This could also expose the company to a significant potential liability and to reputational damage.
Detailed policies and procedures exist to mitigate such risks and are subject to review and monitoring by the business and external specialists. Compliance is monitored in a number of ways including audit, leadership tours and inspections.
Reputation
The company's ability to tender and win new business and its relationship with customers, supply chain partners, employees and other stakeholders depends in large part on the good reputation that it has established and how it is perceived by others. The company's growth targets may not be achieved if its reputation is adversely affected.
The steps taken to maintain, protect and enhance the Company's reputation include effective leadership, community engagement and striving to operate a safe and sustainable business.
Treasury operations and financial instruments
The company's operations expose it to a variety of financial risks that include the effects of price risk, credit risk, liquidity risk and foreign exchange risk.
The company has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the company by monitoring levels of debt finance and the related finance costs. The company does not use derivative financial instruments to manage interest rate costs and a such, no hedge accounting is applied.
Given the size of the company, the directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the board. The policies set by the board of directors are implemented by the company's finance department.
Liquidity risk
The company actively maintains a mixture of long term and short term debt finance that is designed to ensure that the company has sufficient funds for operations and planned expansions.
Foreign exchange rate risk
The company maintains adequate cash reserves and manages its trade creditor payments to try and ensure that foreign exchange rate fluctuations are managed effectively.
Credit risk
The company's financial assets are cash and debtors. The company's credit risk is primarily attributable to its debtors which are presented in the balance sheet net of allowances for doubtful debts. The group has implemented policies that require appropriate credit checks on potential customers before sales are made.
Price risk
The company is exposed to commodity price risk as a result of its operations. However, given the size of the company's operations, the cost of managing exposure to commodity price risk exceed any potential benefits. The directors will revisit the appropriateness of this policy should the company's operations change in size or nature.
On behalf of the board
The directors present their annual report and financial statements 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.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The strategy and future developments of the business have been set out in the Strategic Report.
MHA Broomfield Alexander were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
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.
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.
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.
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 a mounts in these financial statements are rounded to the nearest £'000.
These financial statements have been prepared on the going concern basis, under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom.
A summary of the more important accounting policies of the company, which have been applied consistently, is set out below.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements , including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group . T he company has therefore taken advantage of e xemptions 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 f low and related notes and disclosures ;
Section 33 ‘Related Party Disclosures’
Dawnus Southern Limited is a wholly owned subsidiary of Dawnus Group Limited and the results of Dawnus Southern Limited are included in the consolidated financial statements of Dawnus Group Limited which are available from the registered office - Unit 7, Dyffryn Court, Riverside Business Park, Swansea Vale, Swansea, SA7 0AP.
A t the time of approving the financial statements , t he directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus t he directors continue to adopt the going concern basis of accounting in preparing the financial statements.
The directors have reviewed the balance sheet, the likely future cash flows of the business and have considered the facilities that are in place at the date of signing the report. The directors have concluded, based on this review, that it is appropriate to prepare the financial statements on a going concern basis.
The company's ability to continue as a going concern is dependent on the continued support of the company's bankers and on its providers of working capital maintaining the existing level of funding on terms and conditions similar to those currently in place.
Long term contracts
Amounts receivable on long term contracts, which are included in debtors, are stated at the net sales value of the work done after provisions for contingencies and anticipated future losses on contracts less amounts received as progress payments on accounts. Excess progress payments are included in creditors as payments received on account.
The stage of completion is measured in relation to the length of each contract on a straight line basis.
Interests in subsidiaries are initially measured at fair value . The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.
A subsidiary is an entity controlled by the company . Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
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.
Bank interest accruing on capital borrowed to fund the production of long term contracts is carried forward within long term contract balances.
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts, when applicable, are shown within borrowings in current liabilities.
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.
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 creditors and loans from fellow group companies, 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 paymen ts 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. A m ounts 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 direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.
In the application of the group'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.
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.
Tax losses within the UK are available to be utilised against future profits. The directors have taken the decision to recognise, in full, the deferred tax asset related to tax losses of the UK business.
The estimates and underlying assumptions applied to determine depreciation are reviewed on an on-going basis. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.
The estimates and associated assumptions used to determine contract provisions are based on knowledge of individual contracts and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed continuously.
An analysis of the company's turnover is as follows:
The total turnover of the company for the year has been derived from its principal activity which is considered to be a single business segment. All turnover arose in the United Kingdom.
No persons other than the Directors were employed during the year or the prior year. The directors' did not receive any emoluments from this company in respect of qualifying services either in 201 7 or 201 6 .
The emoluments of the directors' are paid by other companies within the group. Each of the directors are directors' of the parent company and a number of fellow subsidiaries and it is not possible to make an accurate apportionment of their emoluments in respect of each of the subsidiaries. Accordingly, no emoluments in respect of the directors are disclosed within these financial statements.
Key management compensation
Key management personnel are those who have authority and responsibility for planning, directing and controlling the activities of the company. The board consider that only the Directors of the company fulfil this definition.
The actual charge for the year can be reconciled to the expected charge/(credit) for the year 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 deferred tax asset is expected to reverse within 12 months and relates to the utilisation of tax losses against future expected profits.
The A and B ordinary shares rank parri passu in all respects.
The company has guaranteed the bank overdraft of a fellow group company, the amount of the borrowing at 31 December 2017 totalled £5,518,000 (2016: £7,345,000).
The immediate parent company is Dawnus Construction Holdings Limited, which itself is a wholly owned subsidiary of Dawnus Group Limited.
The parent company and controlling party is Dawnus Group Limited which is the parent company of the largest and smallest group to consolidate these financial statements.
The directors do not consider there to be an ultimate controlling party of the group.
Copies of the Dawnus Group Limited consolidated financial statements can be obtained from the company's registered office - Unit 7, Dyffryn Court, Riverside Business Park, Swansea Vale, Swansea, SA7 0AP.