Final Results

RNS Number : 9484T

Clarke(T.) PLC

26 March 2019

 

TClarke plc - Results for the year ended 31^st December 2018

TCLARKE UNDERLYING PROFIT INCREASES BY 21% AS ORDER BOOK HITS RECORD HIGH

TClarke plc ("the Group" or "TClarke"), the Building Services Group, announces its preliminary results for the year ended 31^st December 2018.

Financial highlights:	Change	2018		2017
Revenue	+5%	£326.8m		£311.2m
Operating profit - underlying1	+21%	£8.8m		£7.3m
Operating profit - reported	+9%	£8.6m		£7.9m
Operating margin- underlying1	+17%	2.7%		2.3%
Profit before tax - underlying1	+23%	£8.0m		£6.5m
Profit before tax - reported	+10%	£7.8m		£7.1m
Net cash	+6%	£12.4m		£11.7m
Earnings per share - underlying2	+24%	15.38p		12.37p
Earnings per share - underlying (diluted)2	+23%	14.98p		12.13p
Earnings per share - basic	+12%	14.99p		13.44p
Final dividend per share	+15%	3.34p		2.90p
Total dividend per share	+14%	4.0p		3.50p
Forward order book	+22%	£411m		£337m

¹ Underlying operating profit, profit before tax and operating margin are stated before amortisation of intangible assets and non-underlying items - see note 4.

² Underlying earnings per share is calculated by dividing underlying profit after tax by the weighted average number of shares in issue

A selection of current projects include:

·      1 Triton Square, London, commercial office block redevelopment

·      100 Bishopsgate, London, commercial office block

·      22 Bishopsgate Project, London, commercial office block

·      Bank Station Capacity Upgrade, London Underground station

·      Bath Spa University Locksbrook Road, new art and design campus

·      Battersea Power Station Phase 2, London, commercial office redevelopment

·      Dyson, New R&D Campus, Wiltshire

·      Fulham Reach, London, residential development

·      Hanover Square, London, commercial office block

·      Hounslow Civic Centre, London, new civic amenities

·      KGX1 Project, London, new HQ for global client

·      Middlemoor South Side Development, Exeter

·      One Bishopsgate Plaza, five star luxury hotel and residential development

·      One Crown Place, London, commercial office block

·      One Nine Elms, London, residential development

·      S9 at The International Quarter, Stratford, London, commercial office block

·      St Sidwells Point Leisure Centre, Exeter

·      The Minories Hotel, London

·      The Peninsula Hotel, Hyde Park Corner, London, five star luxury hotel development

·      Virtus London, Data Centre 3

Mark Lawrence, Chief Executive commented:

"I am pleased to report that TClarke's results for 2018 have exceeded market expectations, delivering on our promise to focus on a quality order book spread across our five key strategic markets. Of particular note, revenue from technologies has jumped to £42.9 million (2017: £14.0 million).

We continue to focus on cash collection and remain debt free. Our clients recognise this as a strength of our business, reflected by the fact 88% of our revenue comes from repeat clients. Our shareholders also benefit, as our strong cash performance has allowed us to recommend a total dividend for the year of 4.0p per share, exceeding market expectations.

Our teams across the UK have delivered an exceptional performance and, looking ahead to 2019, with a record forward order book as at the end of February of £430 million, the foundations are in place for another strong performance across the Group. TClarke remains firmly on target to achieve our medium-term goal of a sustainable underlying operating margin of 3%."

-ends-

Date: 26^th March 2019

For further information contact:

TClarke plc
Mark Lawrence	Trevor Mitchell
Chief Executive Officer	Finance Director
Tel: [phone]
www.tclarke.co.uk
N+1 Singer (Financial Adviser and Broker)	RMS Partners
Sandy Fraser	Simon Courtenay
Rachel Hayes	Tel: [phone]
Tel: [phone]
www.nplus1singer.com

Chairman's introduction

2018 was a very successful year for TClarke showing improvement across all key financial measures and we ended the year debt free.

I am pleased to welcome Louise Dier to the Board. Louise brings extensive business experience and perspective and is a significant addition to our organisation.

The Group is well placed to meet its financial objective of a sustainable 3% operating margin in 2019. Our order book stands at record levels and profit and earnings per share continue to grow. As a result, the Board is recommending a total dividend of 4.0p for the full year, an increase of 14% over 2017. The Group remains committed to a progressive dividend policy.

TClarke is 130 years old in 2019 and our continued success is something to celebrate. This alignment of a long heritage with solid optimism for future performance is due both to the qualities and engineering capabilities of our people and to the continued support of our customers and supply chain.

I would like to take this opportunity to thank each one of them for helping to make the TClarke brand so strong in the marketplace. As was true in 1889, TClarke people and relationships are our defining advantage.

Iain McCusker

Chairman

26th March 2019

Chief Executive's report

I am very pleased that we reach our 130th anniversary in a position of strength and optimism. We have had a fantastic year, beating market expectations on revenue, profit and dividend, with all our businesses profitable and we ended the year debt free.

The 2018 results vindicate our strategy, which is for 'Growth, based on a complete and integrated services offering, that targets margin improvement'. This integrated offer is attracting demand because, in plain terms, it de-risks increasingly complex construction programmes and helps clients meet their targets.

The trend for major projects to become more complex is permanent. This is not just a question of increased application and integration of digital and data technologies to make a building 'smart'. It is equally a matter of ever-increasing environmental standards being targeted. Overall, end users want their buildings to achieve more and they also want the fastest possible programmes to be delivered safely. All of this increases market demand for specialist contractors such as TClarke.

Indeed, it is the strength of market demand for our offer that has led us to open new TClarke offices in Manchester and Liverpool, taking our total number of locations across the UK to 19. These were not speculative exercises. Looking at the markets in both of those cities, we see substantial growth opportunities. We have also received the direct encouragement of long-term partners and customers who want to access our services there.

It is market demand which has driven such substantial growth across our Technologies businesses and allowed us to introduce new specialisms like Climate Controls with immediate success. In 2018 we have seen that demand feeding through to orders, completed projects and improved margins.

For example, towards the end of the year, a key element of our integrated Technologies offer - our new offsite manufacturing facility at Stansted - was instrumental in helping us win our largest ever mechanical project at Kings Cross, London.

Our focus on sustained margin growth provides clarity across our operations and guides our decision-making and appetite for risk. We target the work that is right for us, we focus our resources for the benefit of our clients and our people deliver high quality work, safely. 2018 has been the first full year in which we've had the whole business working on common operating systems and procedures, following the successful Group reorganisation. The work undertaken in recent years to achieve this common Group operating system has helped underpin all the progress made in 2018 - whether that be in allowing us to open new offices or in supporting so many successful tenders.

TClarke's well known commitment to full-time jobs, our roots in our local communities across the UK and our commitment to apprenticeships, decade by decade, means we have a significant, highly skilled and loyal UK based workforce. In 2018 we successfully introduced our Future Leaders programme to further secure our talent pool going forward.

In 2018, the UK Government confirmed that the 'Social Value' created from public sector procurement would become a 'required' element from summer 2019. This is a trend with growing impact in the private sector too. For organisations like TClarke, which deliver substantial, measurable social value, this is a positive trend which will further enhance our market appeal.

It has been very pleasing to see TClarke's name associated with excellent projects that are really helping to build a better Britain: major infrastructure projects like Stanmore Hospital, Bank Underground Station and the £8bn ESFA school building programmes; Dyson's campus expansion in Wiltshire, Virtus Data Centre in Slough and the new John Lewis stores in Cheltenham and Westfield London. Our residential business goes from strength to strength and in Scotland we delivered 2,545 new homes in 2018. In so many cases these are customers coming back to TClarke, time and again. TClarke works hard to retain customers through quality work and service and our 2018 numbers reflect that.

In London, where, according to Deloitte's latest 'London Office Crane Survey' there are currently around 11.8m sq. ft. of prime commercial space under construction, 2018 saw us involved in many of those landmark schemes. We were delighted to see one of our landmark projects, Bloomberg London, winning the RIBA Stirling Prize in 2018. We were equally delighted at the continued growth of our Mechanical and Engineering business to the point where we are delivering and winning major projects like Southbank Place and at the International Quarter London (IQL) on a regular basis.

It is important to note that, despite concerns around the impact of Brexit, our core London M&E market's confidence remains solid. At the end of 2018, The City of London released details of a further round of major developments in the City's eastern cluster and a vision for the skyline in 2026. Although short term uncertainties may persist, the underlying confidence is evident in our developer and principal contractor client base.

Our acquisition and successful integration of Eton Associates is important to note for two reasons. Firstly, Eton expanded our Technologies capability and deepened market confidence in our integrated services proposition. Secondly, Eton's effective embedding within the business is another demonstration that the Group systems are effective. Eton has rapidly become a highly valuable part of TClarke.

130 years ago, Tommy Clarke set up shop in Knightsbridge, London. It was a venture into the great new technology of the age - electricity. I think he would be proud to see the company that bears his name as an industry leader in the new technologies of our age - and still retaining the same focus on committed people, with deep expertise doing the best job possible, which he established.

I conclude by restating our continued commitment to health, safety and wellbeing, above and beyond everything else. I am very proud to see our Mindfulness classes so well attended and look forward to the programme being rolled out nationwide. I am also very proud of the work our people and our health and safety teams do to make safety our number one priority and front of mind wherever we work on a daily basis. That will always be the case at TClarke; just like the commitment to high quality work, it is central to who we are.

Mark Lawrence

Group Chief Executive Officer

26th March 2019

 

Group Financial review

Summary of financial performance	2018	2017
	£m	£m
Revenue	326.8	311.2
Operating profit  - Underlying1  - Reported	8.8 8.6	7.3 7.9
Profit before tax  - Underlying1  - Reported	8.0 7.8	6.5 7.1
Profit after tax  - Underlying1  - Reported	6.4 6.2	5.2 5.6
Profit for the year	6.2	5.6
Earnings per share  - Underlying2  - Reported	15.38p 14.99p	12.37p 13.44p
Dividend per share	4.0p	3.5p
1 Underlying operating profit, profit before tax and operating margin are stated before amortisation of intangible assets and non-underlying items - see note 4. 2 Underlying earnings per share is calculated by dividing underlying profit after tax by the weighted average number of shares in issue

Highlights

·      Underlying operating profit up 21% to £8.8million

·      All regions profitable

·      Underlying operating margin up to 2.7%, on way to achieving the strategic target of 3%

·      Underlying earnings per share up 24% to 15.38p per share

·      Dividend increased by 14%

·      Debt free, strong cash balance at year end

2018 underlying Group performance

The Group's underlying performance for the year ended 31st December 2018 was strong, with both revenue and profit being slightly ahead of the Group's upgraded trading update on 27th November 2018. Revenue rose by 5% to £326.8 million for the year (2017: £311.2 million). Group underlying operating profit increased by £1.5 million to £8.8 million. All businesses were profitable with the Central and South West region recording an operating profit of £1.8 million compared to a loss in 2017 £1.8 million. London and South East remains the core of the business delivering an underlying profit of £7.2 million; a 3.7% margin.

The Group has a medium-term target of 3% underlying operating margin. Good progress has been made towards this with 2018 margin rising to 2.7% (2017: 2.3%).

We move into 2019 with a forward order book at a record £411 million (2017: £337 million) providing excellent revenue visibility. Year end cash was £12.4 million (2017 net cash £11.7 million) with the Group being free of any debt.

Technology revenue in 2018 more than doubled when compared to 2017.  Improving our technology market share is a core strategic objective.

London and South East

Revenue from our London and South East operations increased by 11% to £196.5 million (2017: £177.6 million), generating an underlying profit of £7.2 million (2017: £8.5 million). Underlying operating margin was 3.7% (2017: 4.8%). 2017 saw a large number of projects completing in the year releasing significant profits.

For 2019 the region is engaged on a number of high-profile shell and core commercial developments, all of which offer future fit out opportunities. A number of areas continue to be regenerated and offer large-scale mixed commercial and residential opportunities such as the International Quarter London, Battersea Power Station, Kings Cross and the area of Bishopsgate, London.

Central and South West

Revenue from our Central and South West operations increased by 17% to £73.0 million (2017: £62.6 million). Underlying profit was £1.8 million (2017: loss £1.8 million). South West returned to profitability after more than doubling turnover and delivering high quality projects.

In the Central area we continue to target opportunities in the residential, retail and FM markets. In particular, we have established an FM operation in Birmingham.

North

Revenue reduced by 25% to £36.1 million (2017: £48 million), and underlying operating profit reduced to £2.0 million (2017: £2.4 million). Underlying operating margin remained strong at 5.5% (2017: 5.0%) as a result of an excellent performance from the Leeds office due to the successful delivery of a number of educational projects and a growing small works offering.  

Looking forward, we have very recently opened new offices in Manchester and Liverpool and already have a number of exciting opportunities. Leeds continues to see opportunities from its relationships, notably in education and other public sectors such as prisons.

Scotland

Scotland's revenue was £21.2 million (2017: £23.0 million), and underlying operating profit was £0.8 million (2017: £0.8 million), representing an underlying operating margin of 3.8% (2017: 3.5%). Scotland's continued strong performance was due in part to its collaboration on Intelligent Buildings with the London Operation. As well as its continuing strength in the residential market, Scotland has generated significant IT, mechanical and electrical workstreams in the commercial sector.

There remains a good level of opportunity in and around the Scottish central belt and further afield in key Scottish towns where we have a presence, such as Aberdeen and Dumfries.

Non-underlying items

Non-underlying items comprise a net recovery of misappropriation of funds that occurred in 2016 of £0.9 million, offset by settlement costs of the former Group Finance Director (£0.3 million) and Group Reorganisation costs (£0.6 million). In addition, amortisation of intangible assets totalling £0.2 million.

Finance costs

Net finance costs were £0.8 million (2017: £0.8 million), including a £0.6 million (2017: £0.6 million) non-cash finance charge in respect of the Group's defined benefit pension scheme. Net interest on bank facilities remained at £0.2 million (2017: £0.2 million), reflecting good cash performance throughout the year.

Earnings per share

Reported earnings per share increased to 14.99p (2017: 13.44p). Basic underlying earnings per share after adjusting for amortisation of intangible assets and non-underlying costs and the tax effect of these items, was 15.38p (2017: 12.37p).

Dividends

The Board is proposing a final dividend of 3.34p (2017: 2.90p), with the total dividend for the year increasing by 14% to 4p (2017: 3.5p). The dividend is covered 3.8 times by underlying earnings.

The final dividend will be paid, subject to shareholder approval, on 24th May 2019 to those shareholders on the register at 26th April 2019. The shares will go ex-dividend on 25th April 2019. A dividend reinvestment plan ('DRIP') is available to shareholders.

Pension obligations

The triennial valuation of the pension scheme at 31st December 2015 showed a deficit of £14.9 million, representing a funding level of 67% (2012 valuation: deficit £11.5 million, funding level 68%).

The Group has been pursuing an agreed deficit reduction plan over a number of years; however, market factors have meant that the deficit has not been reduced as intended and the cost of funding current pension commitments has increased. Following agreement of the 2015 valuation, the Group proposed a revised deficit reduction plan which includes making additional contributions and continuing to provide security to the pension scheme in the form of a charge over property assets up to a combined market value of £3.1 million.

From 1st January 2017 the future service contribution increased to 21.4% of pensionable payroll (including employee contributions) and the deficit reduction contribution was set at £1.0 million for the year ending 31st December 2017, rising to £1.25 million for the year ending 31st December 2018 and £1.5 million per annum thereafter. Employee contributions have increased from 8% to 10%.

The scheme is closed to new members and the Group continues to meet its ongoing obligations to the scheme.

In accordance with IAS 19 'Employee benefits', an actuarial income of £0.6 million, net of tax, has been recognised in reserves, with the pension scheme deficit falling by £0.4 million to £23.0 million (2017: £23.4 million). This liability includes a £0.2 million charge that has been expensed through the consolidated income statement being the estimate for the impact of GMP equalisation for the above scheme.

Cash flow and funding

Net cash balances improved to £12.4 million at 31st December 2018 (2017: £11.7 million) after deducting the £nil (2017: £3.0 million) outstanding under the Group's revolving credit facility.

The Group has a £15.0 million revolving credit facility, which is committed until 31st August 2022, and a £5.0 million overdraft facility, renewable annually. Interest on overdrawn balances is charged at 2.0% above base rate, and interest on balances drawn down under the revolving credit facility is charged at 1.7% above LIBOR, fixed for the duration of each drawdown (typically three to six months). The Group was compliant with the terms of the facilities throughout the year ended 31st December 2018 and the Board's detailed projections demonstrate that the Group will continue to meet its obligations in the future.

The Board's detailed cash flow projections include an allowance for the impact of a change in VAT regime from 1st October 2019. From this date the Government is planning to introduce a VAT domestic reverse charge for building and construction services. Under this scheme TClarke will continue to charge VAT to end customers but will no longer be able to charge VAT to contractors and will not pay VAT on costs incurred with subcontractors. The Board's projections show a healthy cash position after taking account of this change of regime.

The Group also has in place £40.1 million of bonding facilities, of which £20.2 million were unutilised at 31st December 2018.

Net assets and capital structure

The Group is funded by equity capital, retained reserves and bank facilities, and there are no plans to change this structure. The strong underlying performance of the Group has resulted in shareholders' equity rising by £5.7 million during the year to £22.1 million (2017: £16.4 million).

Goodwill and intangible assets were £25.7 million (2017: £25.9 million). The Board has undertaken a rigorous impairment review in respect of the intangible assets at 31st December 2018 and concluded that no impairment is necessary.

Accounting policies

The Group's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. The Group has adopted IFRS 15 'Revenue from contracts with customers' and IFRS 9 'Financial instruments'. Under IFRS 15 revenue can only be recognised when it is 'highly probable' and so, for example, claims cannot be recognised until agreed. A variation cannot be recognised unless it is highly probable that no significant reversal of the cumulative revenue will occur. Revenue on FM jobs is recognised when the job is complete. IFRS 15 is closely aligned to the Group's previous revenue recognition policy and therefore adopting IFRS 15 has had no material impact on the Financial Statements.

The impact of IFRS 9 on the Group relates to the recoverability of receivables after taking account of lifetime expected credit losses. The Group has historically experienced very low levels of 'bad debts', with £0.2 million being charged to the income statement in both 2018 and 2017. Therefore, the adoption of IFRS 9 has had no material impact on the Group.

In addition, the Group has completed its assessment of the impact of IFRS 16. This standard will be adopted for the first time in the accounts for the year ended 31st December 2019.

Financial risk management

The Group's main financial assets are contract and other trade receivables, cash and bank balances. These assets represent the Group's main exposure to credit risk, which is the risk that a counterparty will fail to discharge its obligations, resulting in financial loss to the Group. The Group may also be exposed to financial and reputational risk through the failure of a subcontractor or supplier.

The financial strength of counterparties is considered prior to signing contracts and reviewed as contracts progress where there are indications that a counterparty may be experiencing financial difficulty. Procedures include the use of credit agencies to check the creditworthiness of existing and new clients and the use of approved suppliers' lists and Group-wide framework agreements with key suppliers.

Trevor Mitchell

Finance Director

26th March 2019

 

Consolidated income statement

for the year ended 31st December 2018

		2018			2017
			Non-			Non-
		Underlying	underlying		Underlying	underlying
		items	items	Total	items	items	Total
	Note	£m	£m	£m	£m	£m	£m
Revenue	3	326.8	-	326.8	311.2	-	311.2
Cost of sales		(287.6)	-	(287.6)	(273.0)	-	(273.0)
Gross profit		39.2	-	39.2	38.2	-	38.2
Other operating income		-	-	-	0.1	-	0.1
Administrative expenses
Amortisation of intangible assets		-	(0.2)	(0.2)	-	(0.2)	(0.2)
Non-underlying costs	4	-	-	-	-	0.8	0.8
Other administrative expenses		(30.4)	-	(30.4)	(31.0)	-	(31.0)
Total administrative expenses		(30.4)	(0.2)	(30.6)	(31.0)	0.6	(30.4)
Operating Profit		8.8	(0.2)	8.6	7.3	0.6	7.9
Finance costs		(0.8)	-	(0.8)	(0.8)	-	(0.8)
Profit before taxation		8.0	(0.2)	7.8	6.5	0.6	7.1
Taxation	5	(1.6)	-	(1.6)	(1.3)	(0.2)	(1.5)
Profit for the financial year		6.4	(0.2)	6.2	5.2	0.4	5.6
Earnings per share
Attributable to owners of TClarke plc		15.38	(0.39)	14.99
Basic	6				12.37p	1.07p	13.44p
Diluted	6	14.98	(0.37)	14.61	12.13p	1.04p	13.17p

 

Consolidated statement of comprehensive income

for the year ended 31st December 2018

	2018	2017
	£m	£m
Profit for the year	6.2	5.6
Other comprehensive income
Items that will not be reclassified to profit or loss	0.7
Actuarial gain/(loss) on defined benefit pension scheme, net of tax		(2.3)
Total other comprehensive income/(expense) for the year, net of tax	0.7	(2.3)
Total comprehensive income for the year	6.9	3.3

 

Consolidated statement of financial position

as at 31st December 2018		2018	2017
	Note	£m	£m
Non-current assets		25.7
Intangible assets			25.9
Property, plant and equipment		4.9	4.9
Deferred tax assets		3.9	3.8
Total non-current assets		34.5	34.6
Current assets		0.3
Inventories			0.5
Amounts due from customers under construction contracts		26.4	26.4
Trade and other receivables		68.7	67.3
Cash and cash equivalents	9	12.4	16.7
Total current assets		107.8	110.9
Total assets		142.3	145.5
Current liabilities		(8.4)
Amounts due to customers under construction contracts			(5.5)
Trade and other payables		(87.8)	(93.6)
Current tax liabilities		(1.0)	(1.5)
Obligations under finance leases		-	(0.1)
Total current liabilities		(97.2)	(100.7)
Net current assets		10.6	10.2
Non-current liabilities		-
Bank loans			(5.0)
Retirement benefit obligations	8	(23.0)	(23.4)
Total non-current liabilities		(23.0)	(28.4)
Total liabilities		(120.2)	(129.1)
Total net assets		22.1	16.4
Equity attributable to owners of the parent
Share capital		4.3	4.2
Share premium		3.7	3.1
ESOT reserve		(1.4)	(0.8)
Revaluation reserve		0.5	0.5
Retained earnings		15.0	9.4
Total equity		22.1	16.4

Consolidated statement of cash flows

for the year ended 31st December 2018		2018	2017
	Note	£m	£m
Net cash generated from operating activities	9	3.5	6.8
Investing activities		(0.5)
Acquisition of subsidiary, net of cash acquired1			(1.5)
Purchase of property, plant and equipment		(0.5)	(1.9)
Receipts on disposal of property, plant and equipment		-	0.3
Net cash used in investing activities		(1.0)	(3.1)
Financing activities		0.7 (0.2) (5.0)
New shares issuance Facility fee (Repayment) / Drawdown of bank borrowing			- - 2.0
Equity dividends paid		(1.5)	(1.4)
Acquisition of shares by ESOT		(0.7)	-
Repayment of HP and finance lease obligations		(0.1)	0.1
Net cash (used in) / generated from financing activities		(6.8)	0.7
Net (decrease)/increase in cash and cash equivalents		(4.3)	4.4
Cash and cash equivalents at the beginning of the year	9	16.7	12.3
Cash and cash equivalents at the end of the year	9	12.4	16.7

¹ During 2018 a £0.5 million deferred consideration was paid to the previous owners of Eton Associates Limited.  This amount was included as a liability in the financial statements at 31 December 2017.

 

Consolidated statement of changes in equity

for the year ended 31st December 2018	Attributable to owners of the parent
		Share	ESOT share	Revaluation	Retained
	Share capital	premium	reserve	reserve	earnings	Total
	£m	£m	£m	£m	£m	£m
At 1st January 2017	4.2	3.1	(0.8)	0.5	7.1	14.1
Comprehensive income
Profit for the year	-	-	-	-	5.6	5.6
Other comprehensive expense
Actuarial loss on retirement benefit obligation	-	-	-	-	(2.7)	(2.7)
Deferred income tax on actuarial loss on retirement benefit obligation	-	-	-	-	0.5	0.5
Total other comprehensive expense	-	-	-	-	(2.2)	(2.2)
Total comprehensive income	-	-	-	-	3.4	3.4
Transactions with owners
Share-based payment credit	-	-	-	-	0.3	0.3
Shares acquired by ESOT	-	-	(0.2)	-	-	(0.2)
Shares distributed by ESOT	-	-	0.2	-	-	0.2
Dividends paid	-	-	-	-	(1.4)	(1.4)
Total transactions with owners	-	-	-	-	(1.1)	(1.1)
At 31st December 2017	4.2	3.1	(0.8)	0.5	9.4	16.4
Comprehensive income Profit for the year	-	-	-	-	6.2	6.2
Other comprehensive income
Actuarial loss on retirement benefit obligation	-	-	-	-	0.8	0.8
Deferred income tax on actuarial loss on retirement benefit obligation	-	-	-	-	(0.1)	(0.1)
Total other comprehensive income	-	-	-	-	0.7	0.7
Total comprehensive income	-	-	-	-	6.9	6.9
Transactions with owners	0.1 -	0.6 -	- -	- -	- 0.2	0.7 0.2
New shares Share-based payment credit
Shares acquired by ESOT	-	-	(0.7)	-	-	(0.7)
Shares distributed by ESOT	-	-	0.1	-	-	0.1
Dividends paid	-	-	-	-	(1.5)	(1.5)
Total transactions with owners	0.1	0.6	(0.6)	-	(1.3)	(1.2)
At 31st December 2018	4.3	3.7	(1.4)	0.5	15.0	22.1

Notes to the preliminary financial statements

 

Note 1 - Basis of preparation

TClarke plc is a public limited company listed on the London Stock Exchange, incorporated and domiciled in the United Kingdom.  The nature of the Group's operations and its principal activities is providing electrical and mechanical contracting and related services to the construction industry and end users.  The Company is limited by shares.

These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU'), IFRS IC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS and have been prepared on a going concern basis under the historic cost convention as modified by the revaluation of land and buildings. They comprise the parent company financial statements of TClarke plc and the consolidated financial statements of TClarke plc and all its subsidiaries made up to 31st December 2018 and have been presented in £million.

The accounting policies adopted are in line with those in previous financial years, with the exception of IFRS 15 ("Revenue from Contracts with Customers") and IFRS 9 ("Financial Instruments"). These two standards have been applied for the first time by the Group, with effect from 1st January 2018

 

IFRS 15: Revenue from Contracts with Customers

The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. IFRS 15 replaces all existing revenue requirements in IFRS and applies to all revenue arising from contracts with customers unless the contracts are within the scope of other standards such as IAS 17 Leases.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under IFRS 15 an entity recognises revenue when, or as, a performance obligation is satisfied, that is when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer so that the customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or services.

During 2017 and 2018, the Group conducted a comprehensive review of existing contractual arrangements and processes for recognising revenue to determine the impact of IFRS 15. A key consideration in this review was the treatment of contract modifications (variations, claims, etc). Under previous accounting standards, these could be included in revenue when it is probable that these will be approved by the customer and the amount of revenue can be reliably measured. Under IFRS 15, a higher threshold is in operation as now these can only be included in revenue to the extent that, it is highly probable that a significant reversal in the cumulative revenue recognised from these contract modifications will not occur in the future. 

The conclusion of the review was that the impact of IFRS 15 was deemed to be immaterial. Amongst other factors, the Group's existing policies for recognising variable consideration were in compliance with the thresholds entailed by IFRS 15. As a result, these financial statements are neither restated for the retrospective impact of IFRS 15 nor is there an adjustment through opening retained earnings.

IFRS 9: Financial Instruments

The standard introduced new requirements for the classification and measurement of financial instruments, including impairment requirements for financial assets. The key requirements of IFRS 9 are:

• All financial assets are required to be classified and measured, on initial recognition and subsequently, at either fair value or amortised cost. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.

• In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.

• For financial liabilities, IFRS 9 retains most of IAS 39's requirements. The main change is that where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

The classification and measurement basis for financial assets and liabilities have been unchanged with the adoption of IFRS 9. The carrying amounts of assets and liabilities that were recognised in the prior year are materially unchanged from the application of IFRS 9. For this reason, there has been neither an adjustment to retained earnings at 31st December 2017 nor a restatement of prior year balances.

Loss allowances have been measured at an amount equal to lifetime expected credit losses, in accordance with the "simplified approach" in 5.5.15 of IFRS 9.

New standards, interpretations and amended standards in issue but not yet adopted by the Group

IFRS 16: Leases IFRS 16 was issued on 13th January 2016 and will become mandatory for accounting periods beginning on or after 1st January 2019. The Group will adopt the standard from the accounting period beginning 1st January 2019.

The main feature of IFRS 16 is that lessees will have to recognise a lease liability reflecting future lease payments and a 'right of use asset' for almost all lease contracts, whereas at present a distinction is drawn between finance leases and operating leases depending on whether substantially all the risk and reward of ownership have been transferred to the lessee. In future periods, the operating lease charge would be replaced by a depreciation charge.

During 2018, the Group undertook a review to estimate the impact that IFRS 16 will have on initial application in the forthcoming year. This review found:

• gross assets and gross liabilities will increase by c£4.3m with the creation of the 'right of use assets' and corresponding finance lease liabilities;

• depreciation and interest will increase by c£1.2m and c£0.1m respectively;

• rental charges will decrease by c£1.3m.

The financial information does not constitute the Company's statutory accounts for the year ended 31^st December 2018 or 2017 but is derived from the audited financial statements for the year ended 31^st December 2018.  Statutory accounts for the year ended 31^st December 2017 have been delivered to the Registrar of Companies.  Statutory accounts for the year ended 31^st December 2018 will be delivered to the Registrar of Companies in due course and will be available on the Company's website at www.tclarke.co.uk. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for the year ended 31^st December 2017 or for the year ended 31^st December 2018.

Non-underlying items

Non-underlying items are items of financial performance which the Group believes should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. This includes items that are irregular in nature, and also the amortisation of acquired intangibles, which principally relates to acquired customer relationships. The Group incurs costs, which are recognised as an expense in the income statement, in maintaining these customer relationships. The Group considers that the exclusion of the amortisation charge on acquired intangible from underlying performance avoids the potential double counting of such costs.

 

Note 2 - Significant judgements and sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS as adopted by the EU requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements.  Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The estimates and assumptions that have the most significant impact are set out below.

Revenue and margin

The recognition of revenue and profit on construction contracts is a key source of estimation uncertainty due to the difficulty of forecasting the final costs to be incurred on a contract in progress and the process whereby applications are made during the course of the contract with variations, which can be significant, often being agreed as part of the final account negotiation.

Commercial reviews of all live contracts are undertaken on a regular basis, with all significant contracts being reviewed on a monthly basis. The Directors also take into account the recoverability of contract balances and trade receivables, and allowances are made for those balances which are considered to be impaired.

Non-underlying items

Non-underlying items are items of financial performance which the Group believes should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. The quantification, disclosure and presentation in the financial statements of non-underlying items requires judgement.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit giving rise to the goodwill, including the estimation of the timing and amount of future cash flows generated by the cash generating unit and a suitable discount rate. The estimation of the value in use is also used to assess the carrying value of investments in the relevant subsidiaries in the Company's financial statements.

Retirement benefit obligations

The costs, assets and liabilities of the defined benefit scheme operated by the Group are determined using methods relying on actuarial estimates and assumptions, which are largely dependent on factors outside the control of the Group. Details of the key assumptions are set out in note 8, and include the discount rate, expected return on assets, rate of inflation and mortality rates. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in the assumptions used may have a significant effect on the income statement, statement of comprehensive income and the statement of financial position.

Note 3 - Segmental information

The Group provides electrical and mechanical contracting and related services to the construction industry and end users.

For management and internal reporting purposes, the Group is organised geographically into four regional divisions: London and South East, Central and South West, the North and Scotland, reporting to the Chief Executive Officer, who is the chief operating decision-maker. The measurement basis used to assess the performance of the divisions is underlying profit from operations, stated before amortisation of intangible assets and other non-underlying items.  All assets and liabilities of the Group have been allocated to segments apart from the retirement benefit obligation and tax assets and liabilities.

All transactions between segments are undertaken on normal commercial terms. All the Group's operations are carried out within the United Kingdom, and there is no significant difference between revenue based on the location of assets and revenue based on location of customers. The accounting policies for the reportable segments are the same as the Group's accounting policies disclosed in note 1. Segmental information is based on internal management reporting.

Segment information about the Group's operations is presented below:

Year ended 31 December 2018

	London & South East	Central  & South West	North	Scotland	Group costs and Unallocated	Total
	£m	£m	£m	£m	£m	£m
Revenue from contracts with customers	196.5	73.0	36.1	21.2	-	326.8
Underlying operating profit	7.2	1.8	2.0	0.8	(3.0)	8.8
Amortisation of intangible assets	-	-	(0.2)	-	-	(0.2)
Operating Profit	7.2	1.8	1.8	0.8	(3.0)	8.6
Finance costs	-	-	-	-	(0.8)	(0.8)
Profit before tax	7.2	1.8	1.8	0.8	(3.8)	7.8
Taxation expense					(1.6)	(1.6)
Profit for the year						6.2

Year ended 31 December 2017

	London & South East	Central & South West	North	Scotland	Group costs and Unallocated	Total
	£m	£m	£m	£m	£m	£m
Revenue from contracts with customers	177.6	62.6	48.0	23.0	-	311.2
Underlying operating profit	8.5	(1.8)	2.4	0.8	(2.6)	7.3
Amortisation of intangible assets	-	-	(0.2)	-	-	(0.2)
Non-underlying items (see note 4)	0.8	-	-	-	-	0.8
Operating Profit	9.3	(1.8)	2.2	0.8	(2.6)	7.9
Finance costs	-	-	-	-	(0.8)	(0.8)
Profit before tax	9.3	(1.8)	2.2	0.8	(3.4)	7.1
Taxation expense					(1.5)	(1.5)
Profit for the year						5.6

Note 4 - Non-underlying items

	2018 £m	2017 £m
Settlement expenses for former Finance Director	0.3	-
Recovery of misappropriated funds, net of legal costs	(0.9)	(1.0)
Restructuring expenses	0.6	0.2
Amortisation of intangible assets	0.2	0.2
Total non-underlying items	0.2	(0.6)

No further monies will be recovered following the misappropriation of funds which occurred in 2016.  Restructuring costs relate to the streamlining and relocation of certain functions.

The impact of Group cashflows from non-underlying items was £nil in 2018 (2017: £0.8 million cash inflow).

Note 5 - Taxation

	2018 £m	2017 £m
Current tax expense
UK corporation tax payable on profits for the year	1.7	1.6
Deferred tax expense/(credit)
Arising on: Origination and reversal of timing differences	(0.1)	(0.1)
Total income tax expense	1.6	1.5
Reconciliation of tax charge
Profit before tax for the year	7.8	7.1
Tax at standard UK tax rate of 19% (2017: 19.25%) Tax effect of:	1.5	1.4
Permanently disallowable items	0.1	0.1
Total income tax expense	1.6	1.5
Income tax debited/(credited) to other comprehensive income	0.1	(0.5)

A reduction in the main rate of corporation tax to 17% from 1st April 2020 had been substantively enacted at 31 December 2018 for the purposes of IAS12 'Income Taxes'. Deferred tax balances have been assessed using an income tax rate of 17%, taking into account the period over which temporary differences are expected to reverse.

Note 6 - Earnings per share

A. Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of Ordinary shares in issue during the year.

Earnings	2018 £m	2017 £m
Profit attributable to owners of the Company	6.2	5.6
Weighted average number of Ordinary shares in issue (000s)	41,531	41,625
Basic earnings per share	14.99p	13.44p

B. Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential Ordinary shares. The Company has three categories of dilutive potential Ordinary shares: share options granted under the Savings Related Share Option Scheme and conditional share awards and options granted under the Equity Incentive Plan.

For the share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

Earnings	2018 £m	2017 £m
Profit attributable to owners of the Company:	6.2	5.6
Weighted average number of Ordinary shares in issue (000s)	41,531	41,625
Adjustments:
Savings Related Share Option Schemes (000s)	218	201
Equity Incentive Plan:
Conditional share awards (000s)	873	649
Weighted average number of Ordinary shares for diluted earnings per share (000s)	42,622	42,475
Diluted earnings per share	14.61p	13.17p

C. Underlying earnings per share

Underlying earnings per share represents profit for the year adjusted for amortisation of intangible assets and other non-underlying items and the tax effect of these items, divided by the weighted average number of shares in issue. Underlying earnings is the basis on which the performance of the operating divisions of the business is measured.

	2018 £m	2017 £m
Profit attributable to owners of the Company	6.2	5.6
Adjustments:
Amortisation of intangible assets	0.2	0.2
Non-underlying costs (see note 4)	-	(0.8)
Tax effect of adjustments	-	(0.2)
Underlying earnings	6.4	5.2
Weighted average number of Ordinary shares in issue (000s)	41,531	41,625
Adjustments:
Savings Related Share Option Schemes (000s)	218	201
Equity Incentive Plan:
Conditional share awards (000s)	873	649
Weighted average number of Ordinary shares for diluted earnings per share (000s)	42,622	42,475
Diluted underlying earnings per share	14.98p	12.13p
Basic underlying earnings per share	15.38p	12.37p

Note 7 - Dividends

	2018 £m	2017 £m
Final dividend of 2.90p (2017: 2.70p) per ordinary share proposed and paid during the year relating to the previous year's results	1.2	1.2
Interim dividend of 0.66p (2017: 0.60p) per ordinary share paid during the year	0.3	0.2
Total	1.5	1.4

The Directors are proposing a final dividend of 3.34p (2017: 2.90p) per ordinary share totalling £1.4 million (2017: £1.2 million). Subject to approval at the Annual General Meeting, the final dividend will be paid on 24^th May 2019 to shareholders on the register as at 26^th April 2019. The shares will go ex-dividend on 25^th April 2019.  This dividend has not been accrued at the balance sheet date.  A dividend reinvestment plan is available to shareholders.  Those shareholders who have not elected to participate in the plan, and who would like to do so in respect of the 2018 final payment, may do so by contacting Link Asset Services on 0871 664 0300 (Lines are open between 9.00am and 5:30pm Monday to Friday. Calls cost 12p a minute plus network charges). The last day for election for the final dividend reinvestment is 30^th April 2019 and any requests should be made in good time ahead of that date.

Note 8 - Pension commitments

The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit credit method. The amount included in the consolidated statement of financial position arising from the Group's obligations in respect of its defined benefit retirement scheme is as follows:

	2018 £m		2017 £m
Present value of defined benefit obligations	58.8		60.0
Fair values of plan funded assets	(35.8)		(36.6)
Deficit of funded plans	23.0		23.4
Key assumptions used:
Rate of increase in salaries	2.65%		2.65%
Rate of increase of pensions in payment	3.10%		3.10%
Discount rate	3.00%		2.60%
Inflation assumption	3.35%		3.35%
Mortality assumptions (years):	2018		2017
Life expectancy at age 65 for current pensioners:
Men	21.7		22.0
Women	23.9		24.4
Life expectancy at age 65 for future pensioners (current age 45)
Men	22.7		23.3
Women	25.2		25.8

Note 9 - Notes to the statement of cash flows

a.  Reconciliation of operating profit to net cash inflow from operating activities	2018 £m	2017 £m
Profit from operations	8.6	7.9
Depreciation charges	0.7	0.6
Profit on sale of property, plant and equipment	-	-
Equity settled share-based payment expense / (credit)	0.3	0.3
Amortisation of intangible assets	0.2	0.2
Defined benefit pension scheme credit	(0.2)	(0.5)
Operating cash flows before movement in working capital	9.6	8.5
Decrease in inventories	0.2	0.1
Decrease in contract balances	2.9	12.6
Increase in operating trade and other receivables	(1.3)	(23.1)
(Decrease) / increase in trade and other payables	(5.2)	9.1
Cash generated by operations	6.2	7.2
Corporation tax paid	(2.4)	(0.2)
Interest paid	(0.3)	(0.2)
Net cash generated by operating activities	3.5	6.8

b. Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments that are readily convertible into cash, less bank overdrafts, and are analysed as follows:

	2018 £m	2017 £m
Cash and cash equivalents	12.4	16.7

Note 10 - Related party transactions

The remuneration of the Directors of the Company was £2.8 million (2017: £2.0 million), including post-employment benefits of £0.2 million (2017: £0.2 million) and termination benefits of £0.3 million (2017: £nil). 

The remuneration of key management was £1.3 million (2017: £1.3 million), including termination benefits of £nil (2017: £nil).  Post-employment benefits in respect of key management were £0.1 million (2017: £0.1 million).

Transactions between the Company and its subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note.  There were no other related party transactions requiring disclosure in the financial statements.

Note 11 - Annual General Meeting

The 107^th Annual General Meeting will be held at 200 Aldersgate, St Pauls, London EC1A 4HD on Friday 10^th May 2019 at 10.00 am.

 

END

 

 

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