ANNUAL REPORT AND FINANCIAL STATEMENTS 2010
The leading service provider to the public sector offering comprehensive and sustainable regeneration solutions, innovative products and services in affordable housing and investing in community infrastructure.
Community regeneration is complex, creating numerous challenges and opportunities. Government policy, through strategic drivers and demanding performance measures, creates an environment where Local Authorities and public agencies ie Registered Social Landlords need to innovate constantly, in order to meet these Government targets and, at the same time, satisfy the needs of their customers. Regeneration means working with all stakeholders within communities to transform quality of life, across the built environment, place shaping and delivering services for younger people through to our older generation. Now more than ever, the UK’s public sector is facing greater pressure to achieve and deliver. For over 80 years, Keepmoat has been assisting its partners to meet the demands of their markets and customers, by working with them in innovative ways to deliver regeneration services that provide long-term and sustainable benefits for their communities.
Contents Keepmoat Limited Annual Report and Financial Statements for the year ended 31 March 2010
Annual Report
Financial Statements
— Financial Summary
2
— Consolidated profit and loss account
21
— Chief Executive’s Review
4
— Business Review
7
— Consolidated statement of total recognised gains and losses
22
— The Keepmoat Board
12
— Balance sheets
23
— Directors’ report
14
— Consolidated cash flow statement
24
— Statement of Directors’ responsibilities
16
— Statement of accounting policies
25
— Independent auditors’ report
18
— Notes to the financial statements
28
01 Annual Report and Financial Statements — 2010
Financial Summary
Performance £m
2010
2009 Growth
Revenue
604.4
570.5
6%
EBITDA†
70.7
65.7
7%
Adjusted operating profit*
68.9
63.7
11%
Financial indicators Net cash flow from operating activities Cash conversion to EBITDA Dividends paid
2010
2009
£59.7m
£52.5m
85%
80%
£42m
£44.4m
Profit before taxation (£m)
Turnover (£m)
557557
570 570
604 604
61.7 61.7
2008 2008
2009 2009
2010 2010
2008 2008
Refurbished homes (all social housing) (1000’s)
63.9 63.9
2009 2009 (adjusted) (adjusted)
68.8 68.8
2010 2010
New homes to the social housing sector
40.5 40.5
43.5 43.5
49.8 49.8
358 358
434 434
682 682
2008 2008
2009 2009
2010 2010
2008 2008
2009 2009
2010 2010
(† Earnings before Interest, Taxation, Depreciation and Amortisation. * Items have been adjusted to be shown before exceptional items).
02 Annual Report and Financial Statements — 2010
ÂŁ200,000 donated to community projects
245 97%
Considerate Constructor Customer satisfaction Awards
300 Trainees and apprenticeships
Outstanding training record with over
12,000 days training provided to employees 03 Annual Report and Financial Statements — 2010
Chief Executive’s Review
With the new coalition government in place, spending cuts are widely expected across all sectors of public services. The uncertainties over the limited visibility of public expenditure in our markets will lift with the budget and the autumn’s comprehensive spending review. Both parties to the coalition government have made pre-election commitments to the UK’s socio-economic agendas on public services, regeneration and social inclusion.
Keepmoat is at the forefront of the housing regeneration agenda. Being selected to 11 out of 14 Housing Market Renewal (HMR) Pathfinders as the preferred partner, we aspire to offer products and services of unparalleled quality and innovation to government, local authorities and local communities. Through efficiencies, value engineering, design and manufacturing innovations, Keepmoat will provide a range of affordable, quality and environmentally friendly homes.
The fragile recovery of the British economy and the unprecedented credit malfunction in the financial system has reflected for another year on consumer confidence. There has been marginal improvement of the housing market. Interest rates have remained at an unprecedented low level, yet first and second-time house buyers are faced with major obstacles in obtaining affordable mortgages.
Our partners express their commitment and confidence to Keepmoat, as a stakeholder, facilitator, innovator and partner to deliver comprehensive community regeneration solutions. It is our belief that the new political era will bring about more autonomy to local government to provide regeneration solutions and address pressing housing issues of their communities. In excess of 4.5 million people need social housing in the UK, including more than 600,000 families that are living in unsuitable and overcrowded accommodation and 57,000 families that local authorities across the UK classify as homeless.
Amidst indications of major difficulties for mainstream house builders, Keepmoat remains positive and realistic about the state of the markets in which it operates. Demand for affordable homes is strong, despite the limited availability of mortgages to first and second time buyers. Our markets clearly link housing with regeneration and the provision of affordable, ecological and modern homes. Irrespective of the economic background and the ensuing austerity environment on public services, one thing is pretty certain: demand for regeneration services will increase. Keepmoat is relishing the chance to prove that it can deliver integrated regeneration solutions in a difficult economic environment.
Through a range of internal and external measures aimed at increasing our efficiencies, we have been capable of shaping the Keepmoat Group in the most optimal way to face the challenges of the future. Our people, with their resilience to adversity and their eagerness to adopt change have pioneered over the past year a phenomenal transformation of the way we go about delivering community regeneration.
04 Annual Report and Financial Statements — 2010
We have established a distinctively integrated approach to business development, an approach which aspires to bring a variety of solutions and services to our public sector customers and stakeholders. Our business development approach brings together traditional features of networking and marketing with a range of sophisticated sustainable solutions including investment to solve current problems and issues faced by local authorities, RSLs and ALMOS. We have received very encouraging feedback from our customers that the Keepmoat offering is unique to the market. We forecast that there will be an increased demand for new build social housing across the UK, which, combined with a sustainable demand for refurbishment and responsive maintenance of existing housing stock, will allow the Keepmoat Group to offer a one-stop shop, and comprehensive range of solutions to our public sector partners. We also believe that there will be a huge demand for retrofitting the housing stock of the UK to comply with environmental requirements. We have pioneered the sustainability agenda by having completed several successful pilot ‘eco refurbishment’ projects to save energy, water and waste and we were the first provider of Sustainable Homes Level 4 in England. We are working on one of the first zero carbon developments in the UK. We see a huge potential to introduce energy from micro-generation technology to community level solutions, as well as integrating energy and CO2 considerations with broader sustainability impacts of EcoHomes and we look forward to developing and demonstrating projects to our stakeholders in the near future. On the Health and Safety front, Keepmoat has achieved OHSAS 18001, a milestone standard that points our delivery of affordable homes towards its future direction.
More than 3,000 new home completions projected for 2010 / 2011
We predict that modern solutions to the construction process, such as modular construction, together with efficient traditional build methods will offer our customers value for money options and unblock many new-build frameworks. We have embraced such innovative solutions and we have integrated them to our comprehensive range of affordable homes for sale, mixed use and tenure regeneration initiatives, extra care and retirement solutions and responsive and planned maintenance. Keepmoat is passionate in raising living standards, increasing community capacity, providing social enterprise and contributing towards social and environmental sustainability. We believe that community regeneration will be delivered through innovative synergies between the public and private sectors. We will offer holistic solutions to customers in existing and new geographical markets, aligning our strategy with government policy and remaining totally committed to the pivotal role regeneration and housing play in social cohesion in the UK. Keepmoat’s corporate ethos is underpinned by well embedded principles such as prudent management, customer satisfaction, quality products and services, innovation and continuous development. We firmly believe in market making opportunities and through tested public private partnerships, will offer genuine solutions in community regeneration to central and local government. The financial performance for the year 2009-2010 reflects on a remarkable effort of the Keepmoat Group amidst a difficult and uncertain economic environment which allowed us to deliver exemplary results for our shareholders and our people. Keepmoat’s focus for the year ahead will be on sustainable growth of our products and services in existing and new geographical markets. I take immense pride and pleasure to announce this set of results which reflect on the quality and dedication of our people and express an enormous debt of gratitude to my fellow Directors for their hard work and loyalty to Keepmoat.
David Blunt Chief Executive Officer, Keepmoat Limited
05 Annual Report and Financial Statements — 2010
A forward order book of
£3bn
Committed to developing our people through the Keepmoat Academy
Experts in innovative asset-based Public Private Partnerships
Employing over
3,000 people across the business
NHBC accredited as
‘Excellent’ for 7 years running
Over
1,500 new homes for sale, rent and shared ownership every year
06 Annual Report and Financial Statements — 2010
Business Review
The Group’s expertise in comprehensive social housing solutions and affordable homes for sale demonstrates the compatibility and responsiveness of our strategy with public policies. The Group works closely as a service provider of integrated regeneration solutions with Local Authorities, Registered Social Landlords, Arms Length Management Organisations (ALMO’s), New Deal for Communities Boards, Regional Development Agencies and Homes and Communities Agency on numerous Decent Homes and Housing Market Renewal Initiatives (HMRI) across the North and Midlands of England. REVIEW OF THE YEAR AND FUTURE OUTLOOK
During the year the Group achieved a 6% increase in turnover to £604m (2009: £570m), and an 11% increase in adjusted operating profit to £70.6m (2009: £63.7m) which the Board believe to be an excellent performance given the very difficult economic environment. This strong performance is attributed to our strategic focus as a key public housing solutions provider in the UK. We have achieved year on year growth in turnover through an increase in business with public sector partners. This has offset the downturn in the private housing market caused by the shortage of mortgage finance. A detailed financial review of the year is contained in the Finance Director’s report. The Group has an impressive social housing regeneration order book of £1.3bn (2009 £1.5bn), and secured plots in hand totalling 11,557 (2009: 7,463) which positions Keepmoat as a major provider in the sector. We have achieved turnover of £130.0m (2009: £79.1m) on new build homes to the social housing sector representing 21.5% (2009: 13.9%) of total group turnover. We are planning to increase our activity in this sector to 50% of total group turnover over the next 3 years. The government’s Decent Homes programme has been a significant driver of growth over the last five years, and the target completion date for this scheme is now anticipated to be 2012. Local Authorities spending is expected to continue beyond this point, together with new multi-service agreements for repairs and maintenance
contracts. As a consequence, the Board is confident of achieving long-term growth. In January 2010, the Group acquired Milnerbuild Limited, a company providing responsive maintenance to the Public Sector in the North of England. This acquisition strengthens our position as a service provider of integrated maintenance solutions. We look forward to working closely with the Milnerbuild management team in developing their business within the Keepmoat Group. We have and will continue to commit significant resources to Public-Private Partnerships (PPPs) and the government’s agenda for affordable housing through the HMRI Pathfinders, as well as integrating a sustainable development programme in new lines of products and services, such as offsite modular construction of new build homes and responsive maintenance solutions. CORPORATE CULTURE AND PEOPLE
Our mission is Delivering Community Regeneration Services. Our values embrace a corporate philosophy which is based on business integrity, total commitment to our partners, respect of people and delivery to the highest standards. We are genuinely passionate about raising living standards, increasing the capacity of affordable housing, providing social enterprise and contributing towards sustainability. We believe community regeneration is best delivered through the partnership between the public and private sectors. Our role is of a stakeholder, facilitator, innovator and partner. We have embraced partnering as the best way to deliver social housing solutions and we have pioneered successful and award-winning housing and regeneration public-private partnerships. We are committed to equality of opportunities and a policy that encourages job creation from all sectors of the community. This is demonstrated in the diversity of the people recruited across the Group. We continue to grow our reputation as an employer of choice due to our ability to attract, develop and retain high quality people. This is supported by human resource initiatives such as the Keepmoat Academy, our senior management development 07
Annual Report and Financial Statements — 2010
‘09
programme and clear succession plans. We have also brought new blood in to our industry by offering 350 traineeships and apprenticeships across the Group. Our human resource policies are continually reviewed and refined in line with changing regulations and legislation. The Group directly employs around 3,000 people and provides many more employment opportunities through our subcontractors. We have an enviable track record for employee retention. Committed to lifelong learning and continuous professional development, during the past year we have invested more than 12,000 training days for our employees. The Keepmoat Academy is continuing to inspire and provide for educational and career development opportunities to help our people reach their potential. CORPORATE GOVERNANCE AND REGULATORY INTERFACE
The Group takes corporate governance seriously. Through our detailed knowledge of industry regulatory regimes, we are able to provide a workable and fully compliant approach to health and safety, employment, competition, environment, data protection and freedom of information. We have adopted and implemented detailed policies and compliance regimes in all the above areas.
imposed by the best value regime. We assist our customers and partners to comply with this regime by recording and monitoring key performance indicators and demonstrating best practice. We provide benchmarks for regulatory impact assessment for future best value inspections. We have a dedicated and well established research and development team that monitors government and industry regulatory trends and develops our responses for compliance and best practice. HEALTH AND SAFETY
Compliance with health and safety is a top priority on our corporate agenda. We strive to create a safe working environment for all. This year, we refurbished over 49,500 homes (2009: 43,500) and our work has been carried out around the daily lives of some 160,000 residents. As a testament to the careful, safe and caring approach of our people, we are pleased to report that the Group shows a 50% better than average site safety performance when compared to the industry. (NHBC H&S fourth quarter March 2010). We have also registered over 1,000 sites on the Considerate Constructors Scheme, leading the industry with 245 awards - 30 gold, 59 silver and 156 bronze.
We have instigated risk management as a theme in our business. Every group company closely monitors risk and assesses its probability and consequences in a wide spectrum of corporate patterns, ranging from regulatory compliance, to commercial risk and business continuity. We also have a unique approach to the requirements 08 Annual Report and Financial Statements — 2010
SUSTAINABILITY
Sustainable communities require the successful integration of environmental, social and economic considerations. We place great emphasis on implementing sustainability best practice into our products and services. Environmental protection and sustainable development is an increasingly significant part of our operations. The Group consistently applies ISO 14001 standards and has introduced innovative production methods that are beneficial to the environment, such as modern construction methods, heating and insulation, water harvesting and recycling features. Over 98% of our affordable homes are built on brownfield sites. Our other sustainability achievements include: — We are currently constructing homes in accordance with Level 3 of the Code for Sustainable Homes and were the first provider of a Level 4 dwelling in England — We have constructed over 100 Homes at Level 6 (Zero Carbon) — With 27% of all carbon emissions coming from existing homes we are also one the first companies to have completed several successful pilot ‘eco refurbishment’ projects to save energy, water and waste. DELIVERING COMMUNITY REGENERATION THROUGH SYNERGY WORKING
We work together with the public sector, communities, strategic allies and key stakeholders to deliver holistic and sustainable community regeneration. We deploy our own resources as well as mobilise resources available to strategic alliances. Our aim is to achieve seamless, ‘one-stop shop’ successful and sustainable regeneration through the delivery
of commercial and retail schemes, medical centres and educational or government buildings. Our resident satisfaction score has increased to 95% (2009: 93%). We invest considerably in local communities, utilising local labour and sub-contractors, and providing much needed training and meaningful employment to local people. We also provide strategic investment in the regeneration area through: — The integration of local supply chain and effective selection of local sub contractors and suppliers — Identification of skills and priority recruitment for local labour — The promotion of “micro” enterprise culture by assisting the start-up of small businesses. PUBLIC PRIVATE PARTNERSHIPS
One of the Group’s major strengths is our ability to establish and deliver successful public-private sector social housing and community regeneration partnerships that have set national standards and received government praise and recognition. The Group is in the forefront of the HMRI programme. We have developed legal and financial models which support our clients’ requirements. Our models offer local authorities and government regeneration agencies the opportunity to stretch public funding and achieve much more than traditional procurement and contractual methods. A distinctive feature of our partnerships is the profit-sharing arrangements we provide for our public sector partners. We have established joint venture companies such as the Durham Villages Regeneration, that reduce potential risks for the public 09
Annual Report and Financial Statements — 2010
Over
49,500
refurbished homes per year that’s 1 home every 2 minutes sector, yet deliver the regeneration and financial results required by the public sector.
their community and neighbourhood matters, raise environmental awareness and contribute towards social inclusion.
SUPPLY CHAIN MANAGEMENT
Our effective supply chain management strategy is founded upon the principles of collaboration, trust and transparency resulting in the operation of long term partnering frameworks with many of our key suppliers and sub contractors. Such arrangements generate economies through leveraging our expenditure and benchmarking deliverables, which ultimately provide more efficient better value solutions to the public sector. We continually innovate to deliver efficiency and value for money benefits to our clients. Over the past 12 months we have continued to develop the use of e-procurement having successfully launched Keepmoat E-Sourcing Solutions in 2009. This cutting edge procurement tool has transformed our supply chain interface resulting in significant efficiencies, process improvements and cost savings
We continue to invest in the communities where we work. One such investment is our SOAR Build social enterprise, an excellent example of partnership working with the public sector. Through SOAR Build we are helping to change communities for the long-term by improving skills and providing training and employment opportunities for local people. This approach goes well beyond the traditional private sector investment in corporate social responsibility. As a private sector Group, we are particularly proud that our work with, and investment in local communities, has been praised by the Government. We have undertaken an audit of industry-wide best practice with the committed support of senior management throughout the Group. We benchmark our performance year on year against best practice in the following six key areas: community; environment; health & safety; people; vision and values and marketplace.
SOCIAL ENTERPRISE AND CORPORATE SOCIAL RESPONSIBILITY
Keepmoat has pioneered the delivery of social enterprise in regeneration areas. We create a platform for the launch of socio-economic initiatives, such as training and employment schemes, which provide opportunities for local people to train and obtain a vocational qualification in construction and construction-related activities, and to find meaningful employment with long term prospects. We also establish an enterprise culture, whereby small sub contractors and suppliers can flourish and benefit from the regeneration investment. We raise the aspiration of young people to engage in
The Keepmoat Foundation is an institution that supports projects which develop skills, strengthen communities and improve the employment prospects of young people. This year the Keepmoat Foundation has invested over £200,000 (2009: £200,000) in community and youth projects and directly and positively affected many peoples’ lives. The Keepmoat Foundation also supports Outward Bound Trust, by offering an opportunity to over 60 young persons from the areas the Group regenerates to acquire transferable skills and employment aptitude. Our association with Outward Bound Trust has been awarded the Big Tick Business in the Community accreditation for two consecutive years.
10 Annual Report and Financial Statements — 2010
WALKER REPORT
On 20th November 2007 David Walker published his ‘Guidelines for Disclosure and Transparency in Private Equity’ (the Walker Report) which recommends that portfolio companies of private equity firms, amongst other things, can make certain enhanced disclosures in their financial statements. The Keepmoat Group, lead by Lakeside 1 Ltd, has chosen to comply with these guidelines. Full disclosure meeting the requirements of the Walker Report is contained in the annual report of our ultimate parent company, Lakeside 1 Ltd. MBO SHAREHOLDERS AND DIRECTORS
The Group was the subject of a management buy-out in August 2007. This was financially backed by Bank of Scotland Integrated Finance (BOSIF). A combination of Debt and Equity was raised to fund this transaction. Subesquent to the year end, BOSIF have transferred their 18% equity stake to Cavendish Square Partners LP, a special purpose vehicle owned approximately 70% by Coller Capital and approximately 30% by Lloyds Banking Group. All of the other shareholders are Directors and Senior Managers within the Group. David Cowie, a Non-Executive Director of Lakeside 1 Ltd, is a Partner in Caird Capital LLP, the advisor to Cavendish Square Partners LP’s General Partner.
The amount of working capital required to service the Group’s operations is closely monitored and controlled on a regular basis, and forms a key part of the information presented to the Board each month. The current assets mainly comprise trade receivables, work in progress and land held for development of private housing and of affordable housing through partnering schemes. The Groups’ strategic focus is on public sector customers and as a result there is no history of bad or doubtful debts. We invested £19.8m of our free cash flow in growing working capital during the year, and cash balances increased by £72.1m after paying £42m in dividends and receiving an inter-company debt repayment of £63.9m from our non-operating holding company. In the course of its ordinary activities, the Group is exposed to some financial risks which include liquidity and credit risks. Liquidity risk relates to the Group generating sufficient cash flow to meet our operational requirements, while meeting dividend payments to enable our parent companies’ to service their debt interest requirements. The Group does not hold any of the debt in relation to the MBO. This debt is held by the parent companies of Keepmoat Ltd. A cross guarantee in relation to this debt is disclosed in note 23 of our Annual Report and Financial Statements 2010. Management projections indicate significant headroom on banking covenants for the forseeable future.
FINANCIAL POSITION AND RISKS
The key measures of our financial performance are EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) and cash flow. For the Group as a whole, the operating cash in flow for 2010 was £59.6m (2009: £61.7m) and EBITDA was £70.2m (2009: £65.7m).
Credit risk is in relation to trade receivables from customers. As a result of the Group’s strategy to generate the majority of our revenue from services to the public sector and regulated organisations, the exposure to potential bad debts is extremely limited.
11 Annual Report and Financial Statements — 2010
The Keepmoat Board
Tom Allison Non-Executive Chairman
David Blunt Chief Executive
Tom’s appointment as Non-Executive Chairman of the Keepmoat Group has brought invaluable experience from his illustrious career as a business leader. Tom is currently Chairman of Peel Ports, which consists of Clydeport Ltd, Mersey Docks & Harbour Company, The Manchester Ship Canal Company and Medway Ports, as well as main Board Director of Peel Holdings.
David joined Bramall Construction in 1984 as Group Accountant and Company Secretary. He was promoted to Finance Director of Keepmoat in 1987. He has played a key role in the development of the Group and was appointed Chief Executive in September 2005.
Chris Bovis Director of Corporate Governance
Allen Hickling Director of Regeneration
Chris joined the Board in 1996. An internationally renowned specialist in public procurement law and policy, he advises the Board in this area. He is responsible for setting up PPPs and for advising the Board on legal and regulatory matters.
Allen joined Frank Haslam Milan Yorkshire in 1999 as Managing Director. He was promoted to the position of Director of Regeneration in April 2008. Allen’s key role is to deliver growth in profits from the regeneration businesses.
12 Annual Report and Financial Statements — 2010
Peter Hindley Director of Homes
John Thirlwall Finance Director
Peter joined the Keepmoat Group in 1986, as a Contracts Manager for Frank Haslam Milan. Promoted to the position of Group Managing Director of Keepmoat Homes, having previously been Managing Director of Haslam Homes (now Keepmoat Homes) Yorkshire, a position he had held since 1998.
John joined the Group in 1988 as Finance Director of Frank Haslam Milan. He was appointed as Group Finance Director in 2005. John’s key role is to deliver the planned Group profit, manage risk and drive the commercial focus of the Group.
Richard Brandon Company Secretary (Non-Executive) Richard joined the Group in 1993 as a subsidiary Company accountant, he was appointed Group Company Secretary in 1996. Richard is responsible for legal matters, joint venture accounting and administration.
13 Annual Report and Financial Statements — 2010
Directors’ report
The Directors present their report and the audited consolidated financial statements of the Group for the year ended 31 March 2010.
CHARITABLE CONTRIBUTIONS
The charitable contributions made by the Group during the year to community Groups, local community projects and schools amounted to £201,000 (2009: £200,000).
PRINCIPAL ACTIVITIES
Keepmoat Limited (Keepmoat) is an intermediate holding Company of a Group which is principally engaged in the refurbishment and construction of residential dwellings. The Group’s operating subsidiaries are listed in note 11 to the financial statements. BUSINESS REVIEW
The Group's profit for the financial year is £67, 710,000 (2009: £50,654,000). The Company paid ordinary dividends of £42,000,000 (2009: £44,400,000). A summary of the results and performance is presented in the Financial Summary, Chief Executive’s Review and Business Review on pages 3 to 11. DIRECTORS
The Directors of the Company during the year and at the date of signing the financial statements, were: T Allison D Blunt C Bovis A Hickling P Hindley J Thirlwall In accordance with the Articles of Association, none of the Directors are required to retire by rotation.
EMPLOYEES
The Group believes that its success depends upon its employees and their development. Employees are kept as fully informed as is practicable about the performance and prospects of the Group. The methods of communication and consultation include regular informal contact as well as periodic formal meetings. It is the Group’s policy to provide equal opportunities to people regardless of their age, race, religion or sexual orientation. The Group actively encourages the employment of disabled people and they share the same opportunities as all other employees. The Group places special emphasis on occupational health and safety matters with both policies and practices kept under constant review. It is the Group’s policy to actively plan, encourage and assist in the training, retraining and career development of all its employees. Annual training programmes have been implemented by each Company in the Group to develop the necessary managerial, technical and craft skills needed to achieve success in the Group’s business. BUSINESS RISKS
The Directors, in the execution of their duties, are responsible for identifying the key business risks faced by the Group and for determining the appropriate courses of action to manage these.
14 Annual Report and Financial Statements — 2010
The Directors set out the principal risks facing the business: (a) Procurement The Group’s supply chain strategy is an integral part of our overall business performance. The Directors have developed long-term strategic partnering agreements with customers and major suppliers, and the associated risk is managed through effective risk management processes and the use of key performance indicators. (b) People The Directors recognise that achieving Keepmoat’s growth strategy is heavily dependent on the performance of its people.
(d) Financial Management In the course of its ordinary activities, the Group is exposed to some financial risks which include liquidity, credit, and interest rate risks. The Group monitors and manages these risks through robust policies and procedures. DIRECTORS' INDEMNITIES
The Company maintains liability insurance for its Directors and officers. Following shareholder approval in July 2005, the Company has also provided an indemnity for its Directors and the Company Secretary, which is a qualifying third party indemnity provision for the purposes of the Companies Act. KEY PERFORMANCE INDICATORS
A continuing drive to become an employer of choice is underpinned by an effective human resource strategy, which enables the recruitment and retention of people of sufficient calibre at all levels in the organisation.
The Group uses a number of Key Performance Indicators to measure the performance of its operations. Details of these are provided on page 2. By order of the Board
(c) Housing Market The Directors recognise that the medium term growth plans could be affected by the Group’s ability to generate additional turnover which is partly dependant on the market for new homes in the private and social housing sectors. The Group monitors this risk through a regular and thorough market analysis which results in robust forecasting.
R H J Brandon Company Secretary 13 September 2010
15 Annual Report and Financial Statements — 2010
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’
DISCLOSURE OF INFORMATION TO AUDITORS
Report and the financial statements in accordance with
All Directors, at the date this report is approved, confirm
applicable law and regulations.
that, as far as they are aware, there is no relevant audit information (information needed by the Company’s auditors
Company law requires the Directors to prepare financial
in connection with preparing their report) of which the
statements for each financial year. Under that law the
Company’s auditors are unaware, and that they have taken
Directors have prepared the financial statements in
all the steps that they ought to have taken as Directors in
accordance with United Kingdom Generally Accepted
order to make themselves aware of any relevant audit
Accounting Practice (United Kingdom Accounting Standards
information and to establish that the Company’s auditors are
and applicable law). Under company law the Directors must
aware of that information.
not approve the financial statements unless they are satisfied that they give a true and fair view of the state of
By order of the Board
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.
R H J Brandon Company Secretary 13 September 2010
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.
16 Annual Report and Financial Statements — 2010
17 Annual Report and Financial Statements — 2010
Independent auditors’ report to the members of Keepmoat Limited
We have audited the Group and parent Company financial
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
statements (the ‘‘financial statements’’) of Keempoat Limited
An audit involves obtaining evidence about the amounts
for the year ended 31 March 2010 which comprise the
and disclosures in the financial statements sufficient to give
Group Profit and Loss Account, the Group and Parent
reasonable assurance that the financial statements are free
Company Balance Sheets, the Group Cash Flow Statement,
from material misstatement, whether caused by fraud or
the Group Statement of Total Recognised Gains and Losses,
error. This includes an assessment of: whether the
the Accounting Policies and the related notes. The financial
accounting policies are appropriate to the Group’s and
reporting framework that has been applied in their
parent Company’s circumstances and have been consistently
preparation is applicable law and United Kingdom
applied and adequately disclosed; the reasonableness of
Accounting Standards (United Kingdom Generally Accepted
significant accounting estimates made by the Directors; and
Accounting Practice).
the overall presentation of the financial statements.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS
OPINION ON FINANCIAL STATEMENTS
AND AUDITORS
In our opinion the financial statements: — give a true and fair view of the state of the Group’s and the parent Company’s affairs as at 31 March 2010 and of the Group’s profit and cash flows 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.
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. Our responsibility is to audit 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. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
18 Annual Report and Financial Statements — 2010
OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
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 by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or — the parent Company 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.
Derek Coe (Senior Statutory Auditor) For and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Sheffield 13 September 2010
19 Annual Report and Financial Statements — 2010
Constructing over 100 homes to the higher level of the Code for Sustainable Homes – Level 6, Zero Carbon 20 Annual Report and Financial Statements — 2010
21 Results
Items
items (Note 6)
2010
2009
2009
2009
£'000
£'000
£'000
£'000
604,417
570,470
-
570,470
Cost of sales
(499,760)
(472,397)
(18,881)
(491,278)
Gross profit
104,657
98,073
(18,881)
79,192
Administration expenses
(35,747)
(34,324)
(1,179)
(35,503)
68,910
63,749
Note
1
Turnover
4
Operating profit
5
Net interest (payable) / receivable Profit on ordinary activities before taxation
7
Tax on profit on ordinary activities
19
Profit for the financial year
(61) 68,849
125 63,874
(20,060) (20,060)
43,689 125 43,814
(19,924)
1,223
5,617
6,840
48,925
65,097
(14,443)
50,654
All items dealt with in arriving at operating profit above related to continuing operations. There is no difference between the profit on ordinary activities and the retained profit for the year stated above and their historical cost equivalents.
Annual Report and Financial Statements — 2010
Consolidated profit and loss account
Exceptional
for the year ended 31 March 2010
Before Exceptional
22
Consolidated statement of total recognised gains and losses
for the year ended 31 March 2010
Profit for the financial year Actuarial (losses) / gains on pension scheme (Note 24) Movement on deferred tax relating to pension scheme (Note 24) Total recognised gains for the year
2010
2009
ÂŁ'000
ÂŁ'000
48,925
50,654
366 (102) 49,189
(382) 107 50,379
Annual Report and Financial Statements — 2010
23 Group
Intangible assets
11
Tangible assets
12
Investments
2009
2010
2009
£'000
£'000
£'000
£'000
4,904
-
-
-
14,895
13,825
-
-
-
-
10,490
4,696
19,799
13,825
10,490
4,696
Current assets 13
Land held for and under development
36,815
41,781
-
-
14
Stocks and work in progress
27,081
31,199
-
-
15
Debtors - amount falling due after one year
12,501
7,980
2
68
15
Debtors - amount falling due within one year
101,221
146,251
14,568
73,983
Cash at bank and in hand
102,584
28,641
-
-
280,202
255,852
14,570
74,061
(20,897)
(73,571)
16
17
24
Creditors: amounts falling due within one year
(179,273)
(155,125)
Net current assets / (liabilities)
100,929
100,727
(6,327)
Total assets less current liabilities
120,728
114,552
4,163
Provisions for liabilities and charges
-
Net assets excluding pension asset
120,728
113,927
4,163
4,953
893
505
-
-
121,621
114,432
4,163
4,953
Pension asset Net assets including pension asset
(625)
-
490 5,186 (233)
Capital and reserves 18
Called up share capital
313
313
313
313
19
Share premium account
690
690
690
690
19
Profit and loss reserve
118,551
111,362
2,757
3,547
19
Merger reserve
186
186
186
186
19
Other reserve
19
Capital redemption reserve
19
Investment revaluation reserve Total shareholders' funds
51
51
-
-
217
217
217
217
1,613
1,613
-
-
121,621
114,432
4,163
4,953
The financial statements on pages 21 to 48 were approved by the Board of Directors on 31 August 2010 and were signed on its behalf by:
D Blunt
J Thirlwall
Chief Executive
Financial Director
Annual Report and Financial Statements — 2010
Balance sheets
Fixed assets
10
2010
as at 31 March 2010
Note
Company
24
Consolidated cash flow statement
for the year ended 31 March 2010
2010
2009
£'000
£'000
59,517
52,547
Note 20
Net cash inflow from operating activities Returns on investment and servicing of finance Interest (paid)/received
(91)
46
Net cash inflow from returns on investment and servicing of finance
(91)
46
(90)
(42)
(2,899)
(371)
Taxation UK corporation tax paid Capital expenditure and financial investment Purchase of tangible fixed assets Sale of tangible fixed assets Net cash outflow from capital expenditure and financial investment
197 (2,702)
204 (167)
Acquisitions Purchase of subsidiary undertakings Cash acquired with subsidiary undertakings Net Cash out flow from acquisitions
(5,436) 674 (4,762)
-
Financing Equity dividends paid
21
(42,000)
Decrease in inter company debtor funding
64,071
Net cash inflow / (outflow) from financing
22,071
Increase / (decrease) in cash
73,943
(44,400) (44,400) 7,984
Annual Report and Financial Statements — 2010
25 Basis of preparation with the Companies Act 2006 and applicable accounting standards in the United Kingdom. The principal accounting policies, which have been applied consistently throughout the year, are set out below. Basis of consolidation The Group profit and loss account and balance sheet include the audited financial statements of the Company and all of its subsidiaries made up to the end of the financial year. The results of subsidiaries acquired are included in the consolidated profit and loss account from the date control passes. Intra-Group sales and profits are fully eliminated on consolidation. On acquisition of a subsidiary, all of the subsidiary's assets and liabilities are recorded at their fair values reflecting their condition at that date. Joint ventures Joint ventures comprise investments in undertakings where the Group holds an interest on a long-term basis and jointly controls the commercial and financial policy of the venture with one or more other ventures under a contractual arrangement. The Group share of the result of its investment in joint ventures is included in the consolidated profit and loss account if material to the Group. In the consolidated balance sheet the investment in joint ventures is included as the Group share of net assets of the year end. Joint ventures are shown in the Parent Company balance sheet at cost less any amounts written off for permanent diminution in value. Turnover and profit recognition: Private house building, property development and land sales Turnover and profits on these activities are included in the financial statements on legal completion. Where house sales include an interest free loan provided by the Company to the customer in respect of an element of the sale value (shared equity house sales), this is recognised in turnover net of discounting using an estimated financing cost. Contracts Turnover and profit on short term contracts are recognised when the contracts have been completed. Turnover on long-term contracts represents the value of work done, and excludes value added tax and trade discounts. For long-term contracts, attributable profits are calculated based on the Directors' estimate of total forecast value less total forecast costs and are recognised based on the proportion of cost incurred to date compared to total costs expected to be incurred. Attributable profits are not recognised until the point at which the outcome of the contract can be assessed with reasonable certainty. Provision is made for losses on all long-term contracts as soon as such losses become apparent. Claims on customers or third parties for variations to the original contract are recognised in the profit and loss account once entitlement to the claim has been established. Claims by customers or third parties in respect of work carried out are recognised in the profit and loss account once the obligation to transfer economic benefit has become probable.
Annual Report and Financial Statements — 2010
Statement of accounting policies
These financial statements are prepared on the going concern basis, under the historical cost convention and in accordance
26 Rental income
Statement of accounting policies
Rental income is accounted for as it falls due in accordance with the lease. Any lease incentives are spread across the initial period of the lease so as to recognise income evenly up to the first rent review. Goodwill Goodwill arising on consolidation is recorded at cost, which includes associated costs of acquisition, less the fair value of assets acquired. Goodwill is being amortised over its useful economic life, which is estimated to be 20 years. Tangible fixed assets Tangible fixed assets are stated at their historic purchase cost less accumulated depreciation. The cost of fixed assets is their historic purchase cost, together with any incidental costs of acquisition. Depreciation is calculated so as to write off the cost of tangible fixed assets on a straight line basis over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are: % Freehold properties Long leasehold properties
2 Over the terms of the leases
Plant and equipment
10 - 25
Trade fixtures, office furniture and equipment
10 - 33
Motor vehicles
25
No depreciation is provided on freehold land. Operating leases Costs in respect of operating leases are charged to the profit and loss account on a straight line basis over the lease term. Exceptional items Exceptional items are material items which fall within the ordinary activities of the Group and which need to be disclosed by virtue of their size or incidence. Such items are included within operating profit unless they represent profits or losses on the sale or termination of an operation; costs of a fundamental reorganisation or restructuring having a material effect on the nature and focus of the Group's operations; profits or losses on the disposal of fixed assets; or provisions in respect of such items. In these cases separate disclosure is provided on the face of the profit and loss account after operating profit. Stocks, work in progress and land held for development Short term contract work in progress is valued at cost less any provision for foreseeable losses. Cost comprises direct expenditure together with an appropriate proportion of production overheads. Progress payments certified and receivable by the year end are deducted from work in progress balances; where progress payments exceed work in progress balances the net amount is included in current liabilities as payments on account. Long-term contracts are included in the balance sheet at the value of turnover less the value of progress payments certified and receivable. Where turnover exceeds progress payments the net balance is included in debtors as amounts recoverable on contracts; where progress payments exceed turnover the net balance is included in current liabilities as payments on account. The costs on long-term contracts not yet taken to the profit and loss account less related foreseeable losses and payments on account are shown in stocks as long-term contract work in progress. Property developments, private house building, land held for development and under development and other stocks are valued at the lower of cost (as defined for short term contracts above) and net realisable value. Net realisable value represents the estimated amount at which stock could be realised after allowing for the cost of completion and realisation.
Annual Report and Financial Statements — 2010
27 Shared Equity debtors the finance of a house sale, are included as debtors due after one year. These receivables are held at discounted present value less any impairment. The amount is then increased to settlement value over the settlement period via finance income. Deferred taxation Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Deferred tax is not provided on timing differences arising from revaluation of fixed assets where there is no commitment to sell the asset. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Provision for long-term performance plan Provisions for the cost of benefits arising under a long-term performance plan are calculated on the basis of performance to date and an assessment of the likelihood of the target out-turn, over the term of the plan, being met. Pension scheme arrangements The Group contributes to a defined benefit pension scheme, for the benefit of its employees, the assets of which are held in independently administered funds. Pension scheme assets are measured using market values. Pension scheme liabilities are measured using the projected unit actuarial method and are discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The Company is unable to identify its share of the underlying assets and liabilities of the Group scheme, and the Group has applied the multi-employer exemption provisions of Financial Reporting Standard Number 17, and therefore the scheme is accounted for by the Company as a defined contribution scheme under Financial reporting Standard Number 17. The Company charges contributions to the scheme when they become payable. The increase in the present value of the liabilities of the Group's defined benefit pension schemes expected to arise from employee service in the period is charged to operating profit. The expected return on the scheme's assets and the increase during the period in the present value of the scheme's liabilities, arising from the passage of time, are included in net interest. Actuarial gains and losses are recognised in the consolidated statement of total recognised gains and losses. Pension scheme surpluses, to the extent that they are considered recoverable, or deficits are recognised in full and presented on the face of the balance sheet net of related deferred tax. Costs under the Company's defined contribution scheme represent the amounts payable in the year.
Annual Report and Financial Statements — 2010
Statement of accounting policies
Loans and receivables due from customers on 'Shared Equity' scheme sales, whereby the Group has provided a portion of
28
Notes to the financial statements
for the year ended 31 March 2010
1
Turnover
Turnover, as defined in the statement of accounting policies, excludes value added tax and relates wholly to operations in the United Kingdom. The Directors regard the Group as operating in one segment, the refurbishment and construction of residential dwellings.
2
Employee information Group
Wages and salaries
Company
2010
2009
2010
2009
£'000
£'000
£'000
£'000
95,373
96,528
5,104
4,685
Social security costs
9,541
9,551
620
609
Pension costs
1,501
1,586
173
169
106,415
107,665
5,897
5,463
Staff costs
The average monthly number of persons employed by the Group (including executive Directors) during the year, all of whom are engaged in the Group’s principal activities, was as follows: Group
Company
2010
2009
2010
2009
By activity
Number
Number
Number
Number
Production
2,231
2,274
-
-
Selling and distribution Administration
27
38
-
-
705
769
38
40
2,963
3,081
38
40
Annual Report and Financial Statements — 2010
29
Aggregate emoluments
2010
2009
£'000
£'000
2,373
2,529
71
81
2,444
2,610
Company pension contributions to money purchase scheme
Retirement benefits are accruing to five Directors (2009: five) under a money purchase pension scheme. Aggregate emoluments include Directors severance costs of £nil (2009: £519,000). Highest paid Director
Aggregate emoluments Company pension contributions to money purchase scheme
4
2010
2009
£'000
£'000
688
551
25
25
2010
2009
£'000
£'000
1,809
1,965
Operating profit
Operating profit is stated after charging / (crediting): Depreciation of tangible fixed assets - owned assets Profit on disposal of fixed assets
(177)
(41)
Hire of machinery and equipment
7,283
Other operating lease rentals
1,561
1,384
-
20,060
33
42
159
161
159
73
62
45
Exceptional items (Note 6)
8,059
Auditors' remuneration for: - Audit of parent Company and consolidated accounts - The auditing of the financial statements of subsidiaries of the Company pursuant to legislation - Services relating to taxation Other services to the Company and its subsidiary
Annual Report and Financial Statements — 2010
Notes to the financial statements
Directors' emoluments
for the year ended 31 March 2010
3
30
Notes to the financial statements
for the year ended 31 March 2010
5
Net interest (payable) / receivable
Bank interest receivable Net return on pension scheme assets
2010
2009
£'000
£'000
-
46
30
79
Bank interest payable
(70)
Other finance charges
(21)
-
(61)
125
6
-
Exceptional items 2010
2009
£'000
£'000
Impairment of land held for and under development
-
18,88
Restructuring costs
-
1,179
-
20,060
Impairment of land held for and under development As a result of the difficult market conditions in the house-building sector in 2009, the market value of land has significantly reduced. The land write down represented an impairment based upon the latest available cash flow information at that time. Restructuring costs Restructuring costs relate to redundancy and restructuring costs incurred during the prior year. No exceptional items have been incurred in the current year.
Annual Report and Financial Statements — 2010
31
2010
2009
£'000
£'000
Current tax UK corporation tax on profit of the year at 28% (2009: 28%) Adjustments in respect of previous years Total current tax charge / (credit)
18,787
(1,322)
627
(387)
19,414
(1,709)
766
(4,890)
Deferred tax Origination and reversal of timing differences Adjustment to tax charge in respect of previous period Change in tax rate - impact on deferred tax asset Pension cost charge in excess of pension cost relief Total deferred tax charge / (credit) Tax charge / (credit) on profit on ordinary activities
(304) 48
(272) 31
510
(5,131)
19,924
(6,840)
The tax assessed for the year is higher (2009: lower) than the standard rate of corporation tax in the UK 28% (2009: 28%). The differences are explained below. 2010
2009
£'000
£'000
Profit on ordinary activities before tax
68,849
43,814
Profit on ordinary activities multiplied by the standard rate in the UK 28% (2009: 28%)
19,278
12,268
313
208
Effects of: Expenses not deductible for tax purposes Adjustment to tax charge in respect of previous period Accelerated capital allowances and other timing differences Group relief claimed for no consideration Current tax charge for the year
627 (804)
(387) 4,890
-
(18,688)
19,414
(1,709)
No provision has been made for deferred tax on gains recognised on revaluing property to its market value. Such tax would become payable only if the property was sold without it being possible to claim rollover relief. The total amount unprovided for is £452,000 (2009: £452,000).
Annual Report and Financial Statements — 2010
Notes to the financial statements
Tax on profit on ordinary activities
for the year ended 31 March 2010
7
32 Deferred taxation
Notes to the financial statements
for the year ended 31 March 2010
Group
Company
2010
2009
2010
2009
£'000
£'000
£'000
£'000
-
-
-
-
Deferred taxation comprises: Accelerated capital allowances
(1,031)
Other timing differences
(4,170)
(5,016)
Deferred tax asset
(5,201)
(5,663)
Pension deferred tax liability (see below)
346
Deferred tax asset including pension
(4,855)
At 1 April
(5,467)
Deferred tax credit to profit and loss account
(647)
-
-
(5,467)
-
-
196 (229)
-
-
510
(5,131)
-
-
102
(107)
-
-
(5,467)
-
-
Deferred tax charge /(credit) to statement of total recognised gains and losses At 31 March - asset
(4,855)
Deferred tax liability relating to pension deficit Group
At 1 April 2009 Deferred tax charge
Company
2010
2009
2010
2009
£'000
£'000
£'000
£'000
196
272
-
-
48
31
-
-
Deferred tax charge / (credit) to the statement of total recognised gains and losses
102
(107)
-
-
At 31 March 2010
346
196
-
-
The deferred tax liability of £346,000 (2009: £196,000) has been deducted in arriving at the net pension asset on the balance sheet.
Annual Report and Financial Statements — 2010
33
As permitted by Section 408 of the Companies Act 2006, the parent Company's profit and loss account has not been included in these financial statements. The parent Company's profit for the financial year was £40,916,000 (2009: £46,260,000).
9
Dividends 2010
2009
£'000
£'000
42,000
44,400
Dividends on ordinary shares: Ordinary paid of £134.19 per share (2009: £141.85)
10
Intangible assets
Group
£,000
Additions (Note 26)
4,904
Net book amount at 31 March 2010
4,904
The Company had no goodwill at 31 March 2010. Goodwill arising on acquisitions is being amortised over the Directors' estimate of its useful economic life of 20 years.
Annual Report and Financial Statements — 2010
Notes to the financial statements
Profit for the financial year
for the year ended 31 March 2010
8
34
Notes to the financial statements
for the year ended 31 March 2010
11
Tangible assets Plant and equipment, Long leasehold
Freehold
fixtures
land and and motor
properties
properties
vehicles
Total
£'000
£'000
£'000
£'000
798
9,407
12,596
22,801
Additions
-
1,957
941
2,898
Disposals
-
The Group Cost At 1 April 2009
At 31 March 2010
(12)
(232)
(244)
798
11,352
13,305
25,455
202
739
8,035
8,976
10
338
1,461
1,809
Accumulated depreciation At 1 April 2009 Charge for the year Disposals At 31 March 2010
-
(6)
(219)
(225)
212
1,071
9,277
10,560
At 31 March 2010
586
10,281
4,028
14,895
At 31 March 2009
596
8,668
4,561
13,825
Net book value
The Company has no tangible assets.
Annual Report and Financial Statements — 2010
35
Company
ÂŁ'000
Interests in subsidiary and associated undertakings 4,696
Cost at 1 April 2009
5,794
Additions (note 25) Net book value at 31 March 2010
10,490
The Directors consider that the book value of investments is supported by their underlying net assets. The following information relates to those subsidiary undertakings all of which are 100% owned by the Lakeside Group and registered in Great Britain whose results or financial position, in the opinion of the Directors, principally affect the figures of the Group: Name of Company
Principal activities
Bramall Construction Limited
Housing regeneration
Frank Haslam, Milan & Company Limited
Housing regeneration
Keepmoat Homes Limited
House building
Keepmoat Site Services Limited
Hire of site accommodation for Group use
Keepmoat Property Limited
Property development and the holding of properties for investment purposes
Keepmoat Regeneration Limited
Housing regeneration intermediate holding Company
Milnerbuild Limited
Maintenance, improvement, refurbishment and management of homes.
Annual Report and Financial Statements — 2010
Notes to the financial statements
Investments
for the year ended 31 March 2010
12
36 Details of operating joint venture undertakings, all of which are incorporated in Great Britain, are as follows:
Notes to the financial statements
for the year ended 31 March 2010
Description of shares
Name of undertaking
and proportion of
Proportion
nominal value of
value of voting
Accounting
that class held
rights held
year end
Ordinary shares
50%
31 March
50%
31 March
50%
31 March
50%
31 March
Trading SOAR Build Limited
of £1each (50% held) Durham Villages
A class ordinary shares
Regeneration Limited
of £1 each (51% held)
Dormant Hull & Gipsyville Housing
B class ordinary shares
Venture Limited
of £1 each (81% held)
Doncaster 2000 Limited
B class ordinary shares of £1 each (81% held)
Durham Villages Regeneration Limited is a joint venture between Keepmoat and Durham County Council. Its principal activity is house building. The Company’s registered office is: The Waterfront, Lakeside Boulevard, Doncaster DN4 5PL. SOAR Build Limited is a joint venture with SOAR Enterprises Limited. Its principal activity is delivery of construction services. The Company’s registered office is: 11 Southey Hill, Sheffield, S5 8BB. Hull & Gipsyville Housing Venture Limited is a venture with Hull City Council. Its principal activities are house building and property development. The Company’s registered office is: The Waterfront, Lakeside Boulevard, Doncaster DN4 5PL. Doncaster 2000 Limited is a venture with Doncaster Metropolitan Borough Council. Its principal activity is house building and property development. The Company’s registered office is: The Waterfront, Lakeside Boulevard, Doncaster DN4 5PL. Details of transactions with these companies are set out in Note 26.
Annual Report and Financial Statements — 2010
37
Group Land held for and under development
2010
2009
£'000
£'000
36,815
41,781
36,815
41,781
The Company has undertaken a detailed review of the net realisable value of land held for and under development both relating to plots currently in development, and land and phases of sites not yet in development. This review recognises the impact of lower selling prices and reduced activity levels being experienced across the business in recent years. Net realisable value for land where construction of homes had commenced at the year end or is anticipated to commence within the next 12 months was assessed by estimating selling prices and costs (including sales and marketing expenses) taking into account current market conditions. Land where house build had not commenced at the year end and was more likely to be sold undeveloped is assessed by re-appraising the land using current selling prices and costs for the proposed development and assuming an appropriate financial return to reflect the current housing market conditions and the prevailing financing environment. At the year end the net realisable value provision amounts to £15.8m (2009: £18.9m) with the movement of £3.1m in the year reflecting utilisation of provision. This provision will be closely monitored for adequacy and appropriateness as regards under and over provision to reflect circumstances at future balance sheet dates. Any material change to the underlying provision will be reflected through cost of sales as an exceptional item.
14
Stocks and work in progress
Group House building developments in progress The Company had no stocks or work in progress at 31 March 2010 (2009: £nil)
Annual Report and Financial Statements — 2010
2010
2009
£'000
£'000
27,081
31,199
Notes to the financial statements
Land held for and under development
for the year ended 31 March 2010
13
38
Notes to the financial statements
for the year ended 31 March 2010
15
Debtors Group
Company
2010
2009
2010
2009
£'000
£'000
£'000
£'000
7,300
2,317
-
-
Amounts falling due after more than one year: Shared equity debtors
5,201
5,663
2
68
12,501
7,980
2
68
Trade debtors
76,776
60,778
14
7
Amounts recoverable on contracts
10,033
6,966
-
-
-
-
4,504
260
811
64,592
811
64,592
7,071
8,750
7,071
8,458
Deferred tax (Note 8) Amounts falling due within one year:
Amounts owed by group undertakings Amounts owed by parent undertakings Amounts owed by associated undertakings (Note 27) Corporation tax recoverable Other debtors Prepayments and accrued income
39
579
27
-
3,994
2,258
2,009
676
2,497
2,328
132
-
101,221
146,251
14,568
73,983
Amounts owed by Group, parent and associated undertakings are unsecured, interest free and repayable greater than one year. Long-term debtors due under the 'Shared Equity' scheme are due for repayment at the earlier of 10 years, or the date on which there is a future sale of the related property. Interest is not charged on these amounts, which are discounted to present value at a discount rate which reflects the estimated cost of finance for the loan.
16
Creditors - amounts falling due within one year Group
Bank overdraft (secured)
Company
2010
2009
£'000
£'000
£'000
£'000
-
-
17,595
70,352
2010
2009
Trade creditors
95,987
91,743
622
266
Payments on account
31,518
30,111
-
-
Amounts owed to Group undertakings
18,785
-
171
179
73
-
-
-
Amounts owed to associated undertakings Corporation tax Taxation and social security Other creditors Accruals and deferred income
-
-
-
69
13,382
8,465
1,249
113
1,361
933
358
-
18,167
23,873
902
2,592
179,273
155,125
20,897
73,571
The overdraft in the Company has been offset against cash balances held in the Company and on consolidation against other Group Companies. The Company and its subsidiaries have given floating charges over all their assets and undertakings, and fixed charges over book debts, in favour of the Group's bankers as security for Group debt and overdraft facilities.
Annual Report and Financial Statements — 2010
39
Long-term performance plan Group
£'000
At 1 April 2009
625
Utilised during the year
(625)
At 31 March 2010
-
Company At 1 April 2009
233
Utilised during the year
(233)
At 31 March 2010
-
The Group and Company have provided for the cost of benefits arising under a long-term performance plan. The 3 year plan finished on 31 March 2010.
18
Called up share capital 2010
2009
£'000
£'000
686
686
313
313
Authorised 686,000 ordinary shares of £1 each Issued and fully paid 313,000 ordinary shares of £1 each
Annual Report and Financial Statements — 2010
Notes to the financial statements
Provisions
for the year ended 31 March 2010
17
40
Notes to the financial statements
for the year ended 31 March 2010
19
Reserves Share
Profit
premium
and loss
Merger
account
reserve
reserve
reserves
reserve
reserve
£'000
£'000
£'000
£'000
£'000
£'000
Group At 1 April 2009
Capital Investment Other redemption revaluation
690
111,362
186
51
217
1,613
Retained profit for the year
-
48,925
-
-
-
-
Dividends
-
(42,000)
-
-
-
-
Actuarial gain on pension asset
-
366
-
-
-
-
-
(102)
-
-
-
-
186
51
217
1,613
Movement on deferred tax relating to pension asset At 31 March 2010
690
118,551
Pension asset
(893)
Profit and loss reserve excluding pension asset
117,658
Company At 1 April 2009 Profit for the year Dividends At 31 March 2010
20
690
3,547
186
-
217
-
-
41,120
-
-
-
-
-
(42,000)
690
2,757
-
-
-
-
186
-
217
-
Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
2010
2009
£'000
£'000
68,910
43,689
Depreciation on tangible fixed assets (net of profit on disposals)
1,633
1,924
Decrease in land held for development
4,966
19,266
Decrease in stocks Decrease / (increase) in debtors Increase in creditors Increase / (decrease) in provision for long-term performance plan Difference between pension charge and cash contributions Net cash inflow from operating activities
4,571 (23,776) 3,355 (142) 59,517
8,694 (26,299) 5,942 (571) (98) 52,547
Annual Report and Financial Statements — 2010
41
2010
2009
£'000
£'000
Increase in cash in year
73,943
7,984
Net funds at 1 April
28,641
20,657
102,584
28,641
Net funds at 31 March
22
Other financial commitments
At 31 March 2010 the Group had annual commitments under non-cancellable operating leases expiring as follows: 2010
2010
2009
2009
Land and
Other
Land and
Other
buildings £'000
buildings £'000
£'000
£'000
Expiring within one year
287
427
187
398
Expiring between two to five years inclusive
935
1,748
762
2,105
Expiring over five years
23
318
-
618
1
1,540
2,175
1,567
2,504
Contingent liabilities
The Group has entered into performance guarantees in the normal course of business which, at 31 March 2010, amounted to £9,616,000 (2009: £8,609,000). In the opinion of the Directors, no loss will arise in respect of these guarantees. The Company has given guarantees in respect of its own bank borrowings and the bank borrowings of Castle 1 Limited, its subsidiary company. At 31 March 2010 borrowings covered by both these guarantees amounted to £863,126,000 (2009: £809,033,000). The guarantees are in the form of a fixed charge over freehold land and building and floating charges over the assets of the certain group companies. On 17 April 2008 the Office of Fair Trading (“OFT”) issued a Statement of Objections following an investigation into tender activity in the construction industry. Included in this document were details of alleged potential breaches of competition law in respect of three tenders submitted by Bramall Construction Limited and Frank Haslam Milan Limited (both wholly owned subsidiaries) between 2001 and 2004. The investigation has been concluded in the year with no fine being levied on Frank Haslam Milan, and Bramall Construction Limited, being fined £455,000. This amount has been fully recovered from the vendors of Keepmoat Limited under the terms of an indemnity provided as part of the purchase of Keepmoat Limited by the Company in 2007.
Annual Report and Financial Statements — 2010
Notes to the financial statements
Reconciliation of net cash flow to movement of net funds
for the year ended 31 March 2010
21
42
Notes to the financial statements
for the year ended 31 March 2010
24
Pension commitments
The Group operates a defined benefit pension scheme, the Keepmoat Pension Plan, with assets held in independently administered funds. In addition, the Company runs a money purchase scheme. A full actuarial valuation of the defined benefit scheme was carried out at 5 April 2007 and this has been updated to 16 August 2007 and 31 March 2010 by a qualified independent actuary. The scheme assets are stated at their market value at 31 March 2010. The major assumptions used by the actuary to calculate the liabilities of the Keepmoat Group Pension Plan are: 2010
2009
%
%
Discount rate
5.6
6.8
Rate of inflation
3.7
2.6
Rate of increase in salaries
2.0
2.0
Rate of increases in pension in payment
0.0
0.0
31 March
31 March
2010
2009
£'000
£'000
- Men
22.1
22.0
- Women
25.0
24.9
- Men
23.2
23.1
- Women
26.0
25.9
The mortality assumptions used were as follows:
Longevity at age 65 for current pensioners:
Longevity at age 65 for future pensioners:
Annual Report and Financial Statements — 2010
43 The assets in the Keepmoat Group Pension Plan and the expected rates of return were: Long-term expected
rate of
rate of
return
return
Value
31 March
31 March
31 March
31 March
2010
2010
2009
2009
%
£'000
%
£'000
Equities
7.0
4,993
7.5
3,351
Bonds and cash Total market value of assets
4.5
1,087 6,080
3.0
1,165 4,516
Present value of scheme liabilities Pension scheme surplus Related deferred tax liability Net pension asset
(4,841) 1,239
(3,851) 701
(346)
(196)
893
505
Reconciliation of present value of scheme liabilities
1 April Current service cost Interest cost Actuarial losses / (gains) recognised in the year Benefits paid 31 March
Annual Report and Financial Statements — 2010
31 March 2010
31 March 2009
£'000
£'000
3,815 81 259 1,030
4,895 81 337 (1,067)
(344) 4,841
(431) 3,815
Notes to the financial statements
Value
expected
for the year ended 31 March 2010
Long-term
44 Reconciliation of fair value of scheme assets
Notes to the financial statements
for the year ended 31 March 2010
1 April Expected return on scheme assets
31 March
31 March
2010
2009
£'000
£'000
4,516
5,801
289
416
1,396
Actuarial gains / (losses) recognised in the year
170
Employers contributions
53
Employee contributions
(344)
Benefits paid
6,080
31 March
(1,449) 107 72 (431) 4,516
Scheme assets do not include any of Keepmoat Limited own financial instruments, or any property occupied by Keepmoat Limited. The expected return on scheme assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed asset interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity investments reflect long-term real rate experienced in respective markets. Analysis of amounts charged to operating profit: Operating profit
Current service cost
2010
2009
£'000
£'000
81
81
Other finance income
Expected return on pension scheme assets Interest on pension scheme liabilities Net return
2010
2009
£'000
£'000
289
416
(259)
(337)
30
79
2010
2009
2008
2007
2006
Defined benefit obligation
(4,841)
(3,815)
(5,516)
(17,922)
(15,434)
Plan assets
6,080
4,516
6,422
18,323
15,345
Surplus / (Deficit)
1,239
701
906
401
(89)
(442)
150
689
History of experience gains and losses
Experience adjustments on plan assets: Amount (£'000)
1,396
(1,449)
Experience adjustment on plan liabilities: Amount (£'000)
(380)
615
418
331
(309)
366
(382)
341
388
142
Total actuarial gains and losses recognised in the statement of recognised gains and losses: Amount (£'000)
The pension cost charged to the profit and loss account in respect of the defined contribution scheme was £1,562,000 (2009: £1,505,000) representing contributions payable in the period. Annual Report and Financial Statements — 2010
45
Keepmoat Limited purchased Force Solutions Limited and its trading subsidiary Milnerbuild Limited on 6 January 2010 and the results are included in the consolidated balance sheet from this date. The aggregated results of the subsidiaries acquired in the period prior to acquisition were as follows: £'000 Period from 1 February 2009 to 8 January 2010 6,468
Turnover
612
Operating profit
(161)
Taxation
451
Total recognised loss for the period
Total
Intangible assets
Fair value
Total fair
adjustments
value
£'000
£'000
£'000
4
-
4
71
-
71
Stock
453
-
453
Debtors
786
-
786
Cash
674
-
674
Fixed assets
(1,024)
-
(1,024)
Provisions
(74)
-
(74)
Net assets acquired
890
-
Creditors
890
Goodwill (note 10)
4,904
Consideration
5,794
Consideration satisfied by: Cash Deferred cash consideration
5,436 358 5,794
The book values of the assets and liabilities have been taken from the consolidated management accounts of Force Solution Limited at 6 January 2010.
Annual Report and Financial Statements — 2010
Notes to the financial statements
Acquisition
for the year ended 31 March 2010
25
46
Notes to the financial statements
for the year ended 31 March 2010
26
Related party disclosures
The Company has 50% of the voting rights in the following companies, except where indicated. Details of its significant transactions with these companies together with those of its subsidiaries, are summarised as follows: (a)
Durham Villages Regeneration Limited
Under agreements between Keepmoat Homes Limited, Durham Villages Regeneration Limited and Durham City Council (on 1 April 2009 Durham City Council merged into the Unitary Authority of Durham County Council), Keepmoat Homes Limited has a license to build on land owned by Durham Villages Regeneration Limited. Keepmoat Homes is a wholly owned subsidiary of Keepmoat Limited. Durham Villages Regeneration Limited is a company in which Keepmoat Limited holds a 50% interest. During year the value of services provided under this arrangement amounted to £1,035,000 (2009: £268,000). At 31 March 2010, the amounts due to Durham Villages Regeneration Limited amounted to £73,000 (2009: due from £237,000) and are included in amounts owed to related parties in note 15. Keepmoat Property Limited did not provide services to Durham Villages Regeneration Limited during the year (2009: £288,857). The net amount due to Keepmoat Property Limited at 31 March 2010 was £nil (2009: £45,666). Keepmoat Limited did not provide services to the Company, during the year (2009: £18,908). Keepmoat Limited also provided a medium term loan to Durham Villages Regeneration Limited for a principal sum of £7,887,088 (2009: £7,887,088). At 31 March 2010 the amount due from Durham Villages Regeneration Limited, which includes accrued interest was £7,030,743 (2009: £8,434,796) and are included in amounts owed by associated undertakings in Note 14. Interest is accruing at 1% above base rate.
Annual Report and Financial Statements — 2010
47 (b)
SOAR Build Limited
Frank Haslam Milan & Company also charged SOAR Build Limited for services during the year amounting to £539,653 (2009: £354,202). At the balance sheet date SOAR Build Limited owed the Group £12,000 (2009: £14,593). (c)
Doncaster 2000 Limited
At 31 March 2010, Keepmoat Limited was owed by Doncaster 2000 Limited amounts of £Nil (2009: £10,812). (d)
Other related party transactions
Show home sales During the year the Company sold nine (2009: ten) show homes to James Blunt (the son of David Blunt, who is a Director of Lakeside 1 Limited, the ultimate parent Company) for £900,000 (2009: £916,000 and five of these show homes were sold to James on behalf of his brother Philip). Under the terms of the sale, the show homes will be leased back to the Company for an unspecified period of time at a cost of £54,000 (2009: £73,000) per annum. On the sale of each show home, the sales price achieved over and above the original purchase price will be shared equally between the Company and either James or Philip Blunt, provided that the Company sell the property within 4 weeks of the termination of the lease agreement. Any losses are borne in full by the purchaser. In the current year one show home was sold under the above arrangement which resulted in the Company receiving additional consideration of £22,000, representing its share of the profit. Director house sale During the year the Company sold a property to John Thirlwall, a Director of the Company, for £65,000. The purchase was made under the Company's shared equity scheme with 15% of the purchase price being financed by the Company. The gross balance owing to the Company at the year end amounts to £9,750, which is included within shared equity debtors at its discounted net present value of £7,550.
27
Ultimate parent undertaking and controlling party
The immediate parent undertaking is Castle 1 Limited. The ultimate parent undertaking is Lakeside 1 Limited, a Company incorporated in the United Kingdom. Lakeside 1 Limited is the parent undertaking of the smallest and the largest group of undertakings to consolidate these financial statements at 31 March 2010. The consolidated financial statements of Lakeside 1 Limited are available from: The Company Secretary Keepmoat Limited The Waterfront Lakeside Boulevard Doncaster DN4 5PL The Directors do not consider that there is one overall controlling party following the acquisition of the Group by management in August 2007.
Annual Report and Financial Statements — 2010
Notes to the financial statements
Limited. Amounts charged by SOAR Build Limited to the Group during the year were £2,083,335 (2009: £1,180,590).
for the year ended 31 March 2010
During the year, SOAR Build Limited provided services to Frank Haslam Milan & Company Limited and Bramall Construction
48
Directors and advisers
for the year ended 31 March 2010
Directors
Independent auditors
T Allison
PricewaterhouseCoopers LLP
D Blunt
1 East Parade
C Bovis
Sheffield
A Hickling
S1 2ET
P Hindley J Thirlwall
Solicitors DLA Piper UK LLP
Secretary
1 St Paul’s Place
R Brandon
Sheffield South Yorkshire
Registered Office
S1 2JX
The Waterfront Lakeside Boulevard
Bankers
Doncaster
Bank of Scotland
South Yorkshire
Level Three
DN4 5PL
New Uberior House 11 Grey Street
Registered number
Edinburgh
1998780
EH3 9BN
Annual Report and Financial Statements — 2010
DESIGNED BY
The Ideas Facility www.theideasfacility.com
The Waterfront Lakeside Boulevard Doncaster South Yorkshire DN4 5PL Telephone 01302 346620 Facsimile 01302 346621 Email info@keepmoat.com Web www.keepmoat.com