Princes Parade situated in Hythe, Kent, is a site of 7.4 hectares (18 acres) on this land, Folkestone & Hythe District Council wish to build a Leisure Centre and 150 homes a boutique hotel shops and cafes.
… the successful bid was agreed in early January 2022 for both the Princes Parade site and the South Road site. In total this equates to a receipt of £26.6 million for both sites…
Having spoken to a number of companies in the land valuing industry (which is an art not a science), each of them state the land has been overvalued.
Given SHDL have stated they’ve “acquired the land” we thought we’d take a look at the companies accounts to see if they have the financial clout to pay £26.6m for both sites.
Observations and analysis
The company’s choice to go from abbreviated accounts to filleted financial statements (2016-2018) to group financial statements (2019,2020) means that in none of the seven years of published accounts can the reader see a statement of income and expenditure (profit & loss account) for Sunningdale House Developments Ltd itself (SHDL). For the last two years (2019 & 2020) one can see the P&L account for the consolidated group, which includes SHDL.
In the two most recent sets of accounts, which are consolidated, one can compare the debtors of SHDL itself with the debtors of the group as a whole (see below). In both years the first three items of debtor are identical for SHDL and the group, which shows that all of those debtors for the group belong to SHDL.
But the “Other debtors” item is very much higher for SHDL, representing 98% and 88% of SHDL’s total debtors by value in 2019 and 2020 respectively. The notes do not explain what these debtors represent. SHDL’s Other debtors are 933 the size of its trade debtors in 2019, and 764 times the size of its trade debtors in 2020.
Since that scale of other debtors is not seen in the group as a whole, it would appear that they represent debts owed by other group companies to SHDL since intercompany debtors and creditors need to be removed from the group accounts. An important question is what is the nature of that debt, and why do other group companies owe SHDL so much money in 2019 and 2020, without which SHDL would clearly be insolvent?
Or placed into a graph one can see this perhaps a little better.
The scale of SHDC’s trade debtors in 2019 and 2020 (the first years they are named as trade debtors) are indicative of a relatively modest scale of economic activity. For example, if the trade debtors in 2020 represented just one month’s worth of invoicing, and invoicing was regular throughout the year, then turnover for that year would be less than £1 million.
One further item of interest in debtors is prepayments and accrued income. This represents advance payment for goods or services receivable in a future year, or income earned in the current year but has yet to be received. This item rose dramatically in 2020 from £777,000 to £6.9 million. That is a material sum when compared with the scale of the company’s possible turnover, as estimated from the scale of its trade debtors. It would be useful to know the nature of those prepayments and accrued income in 2020. But alas the accounts do give us this information.
SHDL’s creditors have grown by an average of £11 million/year since 2015. The lion’s share of total creditors is “Other creditors”. In all years, more than 99% of “Other creditors” comprised a loan or loans from Sunningdale Investments Ltd, a Jersey based company which owns 50% of the shares in SHDL.
In 2019 SHDL’s trade creditors (£2.46m) were 45 times larger than its trade debtors. In 2020 trade creditors rose to £15.48m and were 223 times the size of trade debtors. Is it possible that SHDL’s trade creditors alone could be higher than its turnover (see debtors above)? Was the material rise in trade creditors in 2020 the result of cashflow difficulties and SHDL’s inability to pay all its debts when they became due?
This would be supported by the fact that so many companies who have undertaken work for SHDL and it’s associates companies state publicly they either do not get paid, or payment is months after work and contract ended – see our earlier post on SHDL
Or placed into a graph one can see this perhaps a little better.
2019 and 2020 also saw director loan accounts showing £423,000 and £1.407m respectively. These represent moneys loaned by directors to the company. Could they be indicative of cashflow issues? This appears what occured in the Lilybrook companies run by the same director, which were all dissolved owing £34.3m to 124 creditors.
The scale of trade debtors, trade creditors and “Other” debtors and creditors do not appear in the proportions one would expect of a typical company buying and selling real estate. The company’s going concern seems to be wholly reliant on the goodwill of other group companies to whom SHDL owes £47 million, and to Sunningdale Investments Ltd, which appears in the accounts as an “other debtor” apparently owing the company £53 million for goods or services unknown, reduced to £45m in 2020.
Although none of the seven published accounts to 2020 shows a profit and loss account for SHDL itself, the last two years do include summary statements of income and retained earnings for the company. After restating the 2017 profit figure, those figures for the three years to 2020 are shown below.
The company’s £1.76m loss in 2019 far outweighed its modest profit in 2018 and wiped out its historical retained earnings.
As mentioned above, the company’s ability to stay afloat with any semblance of liquidity seems unrelated to its economic activity and wholly dependent on the substantial assistance and continuing goodwill of other group companies and Sunningdale Investments Ltd. But even as a group, the consolidated accounts do not show a particularly healthy position. Its modest consolidated profit in 2020 still left it with negative retained earnings of £3.13 million at 31st December 2020.
In the 2020 accounts the going concern basis hangs on management’s confidence that the company will continue to be supported by its subsidiaries and associate company, and that refinancing will be found.
In its report to members, the auditor also draws attention to the “material uncertainty in respect of going concern”, but does not modify its audit opinion that going concern is the correct basis on which to evaluate the accounts.
It is clear from the consolidated accounts that profit margins are wafer thin at best. According to the accounts, completed housing units in 2018, 2019 and 2020 were 34, 51 and 119 respectively. For 2020 therefore 119 units sold represents close to break-even point, since each unit contributed on average £1,733 to the bottom line. It may be that with higher sale volumes future profits may rise substantially because additional sales will be over and above the level where the company’s overheads have been met. However, future pressures such as rising interest rates and the cost of living crisis possibly having a downward effect on demand or the saleable value of new homes might make the break-even point in units sold per year even higher.
Now given SHDL has stated publicly it “has acquired the land” at Princes Parade and South Rd in Hythe Kent and is prepared to pay £26.6m for on the basis of planning consent, one has to ask where the money will come from?
More draw down on the loan from the Jersey company, Sunningdale Investments Ltd? And given the trade debtors is growing, the acquisition of the site, puts further strain of the companies liquidity and we suspect that cash flow is not enough, given what is stated in the accounts, to cover all the demand on the mother company SDHL and its subsidiaries.
All the information set out herein is ALL in the public domain and as such nothing defamatory is being stated.
The above analysis is superficial, based on the limited data available in the published accounts. Information on the true break-even point where the company becomes profitable is unknown. The accounts for the year ending December 2022, which should be available in the next few months, should provide a much more reliable indication of the company’s future prospects and/or going concern.
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