Tclarke Regulatory News (CTO)

TClarke plc - Results for the year ended 31st December 2017

TCLARKE INCREASES DIVIDEND AS ORDER BOOK QUALITY STRENGTHENS

TClarke plc ("the Group" or "TClarke"), the Building Services Group, announces its preliminary results for the year ended 31st December 2017.

1 Underlying profit is profit from continuing operations adjusted for amortisation of intangible assets and non-underlying costs (see note 4)

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

New project wins since our last announcement include;

ONE Bishopsgate Plaza; 43 storey residential and five star hotel

Beaufort Park, Hendon; three further residential blocks for St George

John Lewis Department Store, Cheltenham

Ark Pioneer Academy; new secondary school in Barnet, London

Sedbergh Sports and Leisure Centre, Bradford

Bath Spa University; School of Art and Design

Aerohub Business Park, Newquay Airport

Argo Global - 1 Fen Court, London; office fit out

University of East Anglia, Norwich; building 60 teaching and laboratory areas

Edison Primary School, Hounslow, London; science specialist free school

Rothesay Pavilion, Bute; restoration of the 1930's Pavilion Building

Hadrian's Tower, Rutherford Street, Newcastle (residential scheme)

Ferry Village, Braehead (residential scheme)

Rolls-Royce, Derby; M&E Services to North Block, B, C, and D Buildings

South Gilmerton, Edinburgh (residential scheme)

HMP Featherstone

Mark Lawrence, Chief Executive commented:

"I am pleased to report that TClarke is in an excellent position. We are focused on the future and have a clear strategy to deliver on our five key strategic markets. We are confident that this will enable us to continue to drive improving returns for our shareholders, as is demonstrated by our setting ourselves the medium term target to increase underlying operating margin to 3%.

Underlying this, TClarke shows strong and improving cash generation, rigorous risk control, excellent revenue visibility, a balanced quality order book and improving profitability. This financial and strategic strength is allowing us to invest for future growth in our markets, driven by investments in infrastructure and the digital world."

-ends-

Date: 27th March 2018

For further information contact:

Chairman's statement

Whilst 2017 has been challenging for our sector, I am pleased to report that it has been another year of improved profitability and operating performance for TClarke. The cash position continues to strengthen (26% increase year on year after major strategic investment) and the Group is debt free on a net basis.

Our current and forward order book - in terms of both value and project quality - is evidence of the continuing confidence of our clients, and the market in general, in our performance, strength, strategic positioning, quality of service and ability to deliver.

The Group continues to focus on its strategic development to ensure that it retains its market-leading position and continues to meet, and enjoy the benefits of meeting, the growing and changing demands and expectations of our clients. At the same time, TClarke retains its focus on operational performance and profitable growth.

Our 'You See, You Say' safety programme is recognised as an industry leader. This is a matter of pride, since it stems directly from the safety mindset shown by our people and the hard work of our dedicated safety team, day by day across the UK, with significant ongoing improvement in our outstanding safety record. We will never be complacent as far as health and safety is concerned and will always look to drive forward the boundaries in health and safety achievement.

Strong headline performance

I am pleased to report another year of strong performance by the Group, meeting market expectations.

We continue to be seen as the supplier of choice to major, business critical projects for multi-national companies. During the year, our forward order book hit record levels and at the end of the year stood at £337million.

Turnover in the year increased by 12% to £311 million and underlying profit before tax grew by 5% to £6.5 million. Underlying EPS increased to 12.37p (2016: 11.6p).

Continued focus on cost discipline and cash management

Our performance and results have benefited from our ongoing focus on cost discipline and cash management. This reflects our ever strengthening disciplines in the internal management and delivery of projects, together with our focused client and partner management approach, and is a result of our project management and delivery skills across the Group in all regions.

Average cash balances throughout the year continued to improve. The net cash balance at the end of 2017 was £11.7 million This has been achieved after the initial cash consideration of £1.5 million in the acquisition of Eton Associates and £1.0 million in our enhanced manufacturing capabilities, based in our new facility at Stansted.

Dividend

The Board is committed to a progressive dividend policy, improving returns to shareholders and delivering a sustainable increase in dividend over the longer term.

The Board is therefore pleased to recommend a final dividend for the year ended 31st December 2017 of 2.9 pence per share, making a total of 3.5 pence per share for the year, reflecting the Group's performance and our confidence in the business going forward, whilst balancing the rewards to shareholders with the interests of other stakeholders.

Strategic focus and direction

The programme of strategic initiatives we have implemented to reshape and refocus the business to align with value creation, delivery and growth are bringing financial returns. We recognise, however, that we cannot stand still. Our world and markets are constantly changing. Technology, client demands and the requirements of the digital world are constantly evolving and this presents significant opportunity for us.

As we continue to grow and develop our core markets and offerings, we are at the same time looking to further develop our specialisms and integrated offerings to ensure we can deliver value-creating solutions to our clients and partners. Our acquisition of Eton Associates during the year was an important and visible step in this strategic programme.

Board Changes

I was pleased to welcome Peter Maskell to the Board in January 2018 as a Non-Executive Director. Peter's experience in the digital transformation of Phillips will be particularly helpful to us as we continue our strategic development.

In February 2018, Martin Walton, Finance Director left the business and Trevor Mitchell was appointed Finance Director, effective 1st February 2018, for an interim term of one year. The Board would like to thank Martin for his substantial contribution to the Group since he joined the business in 2007 and wish him well for the future.

Outlook

2017 was another very good year for TClarke. Our current and forward order book is fully replenished with high-quality projects, many of which are business critical for our clients.

The strength of our order book is evidence of our significant market share and we are maintaining our discipline and focus to deliver sustained margin improvement across all our regions. The Board is confident that the Group is well placed to meet profit expectations for the year ahead and our commitment to sustained performance growth is such that the Board has set a medium term target to increase the underlying operating margin to 3%.

I would like to conclude by expressing my thanks to all of our stakeholders for their continued support and to all TClarke staff across the UK for their work and commitment, which has allowed us to deliver for our clients and further build our business and brand.

Iain McCusker

Chairman

27th March 2018

Chief Executive's report

A focus on the future is the recurring theme evident across our business in 2017; investments in people, in new skills and expertise, in new operations and geographic locations and in enhancing our core skills and specialisms.

These are all aspects of our clearly stated business strategy in action. In 2017, we have continued to build our Company to ensure that we are 100% fit to retain our market-leading position as we move into a future which is full of opportunity.

Enhancing our core business

In 2017, the construction industry reaffirmed the value it places on our core proposition of M&E contracting services, by awarding us contracts to fill a record order book. In 2017, we also made major steps forward with our partners by working on and winning landmark projects which drive innovation, sharpen the skills of our people and build expertise and commercial advantage.

When I was appointed Chief Executive Officer in 2010, TClarke's core business centred on electrical contracting for major projects in London. In the following years we have expanded our core skillset to include mechanical contracting, and in 2017 the order book evidenced this successful progression. In 2017, our core skillset has expanded further still. Our highly successful TClarke Intelligent Buildings team has been complemented by the additional scale and capability of Eton Associates. This allows us to provide a comprehensive digital, data and controls operation, alongside mechanical and electrical services.

This core expansion has been market driven and the market itself is driven by macro-economic trends, including 'big data' and digital, which are transforming end user demand in many ways. We are acknowledged across our peer group as a leader in the engineering skills that enable the vision, design, the planning and the theoretical engineering to develop strong, safe, resilient, environmentally positive cities, buildings and infrastructure. By contributing in this way, TClarke will continue to have a significant role to play in building Britain's future.

A recent example was in December when our South West team was awarded the first M&E package for Dyson's prestigious new global technology campus in Wiltshire.

Building our specialisms and sectors

In 2017, we have had considerable success across our markets. Our Transport team's selection by Manchester Airport Group brings us a major airport contract, our Design and Build team continues its excellent performance and growth trajectory, our Mission Critical team's work on data centres and the complex Selfridges project has been highly valued and our TClarke Intelligent Buildings team has won major data, fire and alarm projects. Manufacturing has had its most successful year ever with the opening of our multi-skilled, purpose-designed operation at Stansted and Healthcare continues with its world class partnerships, winning projects under the NHS's new P22 framework agreements. Our Residential business again won a series of awards and expanded its footprint and our successful in-house specialist FM business has also won new partnerships.

It is also important to note that we have been extremely successful in winning and delivering research and laboratory projects across every region of our business. Once again, this shows how our business can adapt as demand and opportunity shifts in the marketplace.

Going forward, we are reorganising our go-to market strategy with five new market offerings: Infrastructure, M&E Contracting, Residential & Accommodation, Technologies and FM & Frameworks. This will give us an improved focus on growth and a better prospect of valuable metrics going forward - both for the business and our shareholders to see and measure progress.

Deepening our partnerships

TClarke is not unusual in talking about partnership as being key to success, but 2017 shone a light on the range and variety of those relationships and their value to us. Michael Bloomberg in London followed the actions of the local teams at David Wilson Homes in Glasgow, Rolls-Royce's team in the North East and the engineering team at the Royal Cornwall Hospital - they all took the time to commend our people and their work.

These testimonials and commendations are of direct value to our shareholders because they signal the continued and growing preference for our brand. Brand reputation and the expressed demand and encouragement from our clients in 2017 has led us to open new offices in Portishead, Birmingham and Dumfries, and immediately won major new projects in geographic areas that were new to us.

Regional highlights

Scotland

2017 was TClarke Scotland's most successful year to date, with revenue, profit and operating margins all at a record high. Our Residential team achieved further growth, delivering 2,325 units and winning six Seal of Excellence and 12 Pride in the Job commendations at the NHBC Awards. This growth was driven by the nationwide commitment to address the ongoing housing shortage.

Our Engineering team delivered numerous projects, including the fabrication of bespoke alignment and fixing templates for 20km of electricity pylons for Morgan Sindall. Our Intelligent Buildings Team was active on landmark installations, including 22 Bishopsgate and it also began collaboration with the Group's new Eton Associates team, at Canary Wharf Estates' One Bank Street development. Scotland's M&E team had a strong year, delivering projects for Mitsubishi and Heart of Midlothian FC. The M&E Team also had success with major projects in the education and renewable energy sectors.

The Scotland team recruited 16 new apprentices in 2017, and as well as marking the continued progress of previous and current Apprentice of the Year finalists within the business, we also saw the introduction of an Apprentices' Steering Committee in Scotland to strengthen the voice of the next generation within our operation.

North

The 2017 results for the Northern region were in line with expectations and previous forecasts. Revenue was slightly reduced, but the operating profit was maintained.

During 2017 a number of prestigious projects were completed across the Northern region. Newcastle delivered their third project for the University of Sunderland, a new teaching facility for nursing, and also delivered a new facility for Rolls-Royce in Washington. Leeds continued the relationships with Bowmer & Kirkland on the ETA framework for schools and also with ISG on various projects including prisons and schools. A new three-year framework agreement with BAE was secured by the North West office, a significant success for the team alongside being appointed to the MAG framework as part of the Group submission.

FM remains an integral part of the business in the North, with Leeds at the forefront. The model has been proven and is currently being rolled out at the Newcastle office, with the expectation that the North West will follow once Newcastle is fully established.

Central and South West

We identified challenges in the South West region early in 2017 and steps were taken to target better quality projects and

in particular, projects that will run to completion beyond feasibility stages. By December 2017 the effect of this work was that the South West had secured all of its targeted revenue for 2018, with it's strongest ever order book. We now expect the South West to perform in line with the rest of the Group. 

Elsewhere in the region our Derby team showed continued strength, particularly in residential and accommodation projects while our Peterborough office showed strength in Medical, Retail and the Lab and Research market of Cambridge.

We also opened our new office in Birmingham, initially to support our growing FM client portfolio, but subsequently with the strategy to target further opportunities across our chosen sectors.

London and South East

2017 was another strong year for London and the South East, with revenue showing continued strength both in the current year and looking ahead. 2017 saw continued high levels of good quality tender opportunities, and we were able to expand our core client base and entered into direct negotiation on a number of key projects, rather than being exposed to a competitive tender.

Revenues were driven by the ongoing success of our core M&E operation. Successful delivery of major M&E projects, such as Bloomberg Place and Rathbone Square, were matched by the smooth transition of project teams onto new landmark projects such as 22 Bishopsgate and Building S9 at IQL Stratford.

The ongoing establishment of our mechanical offer on a par with our electrical offer, continued successfully and was marked by the award of projects, including our largest ever mechanical package at Southbank Place.

During 2017, the London and South East business welcomed Eton Associates into the Group and also successfully opened the new Stansted manufacturing facility, capping a highly successful year of significant investment in our future.

The ongoing success of targeted tendering

2017's order book was a record one for scale - but more importantly for quality. We can define quality broadly as meaning the kind of projects where clients value our services appropriately and where our people want to be engaged upon because they are professionally rewarding. Targeted tendering continued to prove successful for TClarke in 2017 as we have consciously matched our skills and resource to quality opportunities, with the purpose of delivering value.

Sustaining our key advantage - our people

As I have travelled around our business and projects this year, my strongest single impression has been of a pride in our people - many of whom have built their whole careers with us and some of whom are just starting out. The relative scale and quality of our new apprentice intake massively exceeds the best industry targets.

In 2017, our Training Academy was launched. It is focused on developing the best career paths for our people and has senior level commitment within TClarke and will be a key feature of our business going forward. In 2017, we saw TClarke people achieving degrees and professional qualifications, winning awards and moving into new disciplines within our business. We saw previous winners and finalists of our Apprentice of the Year award growing into leadership roles. All of these achievements have given me a considerable sense of pride and satisfaction in what we are building at TClarke.

A record year for safety

In concluding, I want to spotlight our safety record in 2017. We have an absolute accident reporting regime, in which every accident however small, was recorded, we also achieved an 17% reduction in the annual accident rate, against the backdrop of a record order book. This didn't happen by accident! It has been the result of constant vigilance and focus across our business and the work of our dedicated nationwide safety operation. This work sits at the heart of the TClarke Way.

Mark Lawrence

Group Chief Executive Officer

27th March 2018

Group Financial review

Highlights

Underlying profit in line with market expectations.

Excellent progress made on strategic financial targets of:

1. Strengthening cash position (26% increase year on year after investments); and

2. Utilising cash to invest in technology through purchase of Eton Associates (Building management system specialist) and building prefabrication facility at Stansted. (Cash cost approximately £2.5 million in 2017).

Completion of the Group reorganisation resulting in the Groups operating entities being within a single statutory entity.

2017 underlying Group performance

Group revenue rose by 12% to £311.2 million for the year (2016: £278.6 million). Group underlying operating profit increased by £0.4 million to £7.3 million. London and South East delivered particularly strong revenue and margin growth. Scotland and the North also delivered a growth in profits but Central and South West had a poor first half trading, resulting in an underlying loss for the year. Overall operating margins 2.3% (2016: 2.5%). Net underlying overheads as a percentage of revenue were 10% (2016: 9.2%). We move into 2018 with a replenished high-quality order book of £337 million (2016: £330 million).

London and South East

Revenue from our London and South East operations increased by 24% to £177.6 million (2016: £142.9 million), generating an underlying profit of £8.5 million (2016: £3 million). Underlying operating margin increased to 4.8% (2016: 2.4%). The operating margin increase is in part due to a number of large jobs completing in the period thereby releasing significant profits.

For 2018 the region is engaged on a number of high profile shell & 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 in Stratford and Battersea Power Station and Croydon. The development of our manufacturing facility at Stansted and the acquisition of Eton Associates will assist in us offering our clients a broader range of capability from within the TClarke Group.

Central and South West

Revenue from our Central and South West operations reduced by 7.8% to £62.6 million (2016: £67.9 million). Underlying loss was £1.8 million (2016: profit £0.9 million). The underlying loss reflects a number of delayed starts in the South West coupled with settlement of a number of legacy jobs. Looking forward, South West has its budgeted turnover secured for 2018 with good quality jobs. As a result, the region is expected to be profitable in the current period.

In the Central area we continue to target opportunities in the residential, retail and FM markets. We aim to build our presence in the Birmingham and Cambridge markets, building upon recent successful completions and activity in these areas.

North

In the North, revenue reduced by 11.7% to £48 million (2016: £53.6 million), and underlying operating profit increased to £2.4 million (2016: £1.8 million). The underlying operating margin was 5% (2016: 3.4%); this increase was the result of a particularly strong performance from the Leeds office due to a number of educational projects and a growing small works offering.

Looking forward, Newcastle aims to maintain its revenues with particular focus on regional opportunities within the education sector and a number of social housing opportunities. Leeds continues to see opportunities from its recently developed relationships, notably in education and other public sectors such as prisons. In the North West we aim to build our presence in the key Manchester area, building upon local relationships supported by secured works at BAE, Springfield Nuclear Fuels and for Manchester Airport Group.

Scotland

Scotland's revenue was £23.0 million (2016: £21.0 million), and underlying operating profit was £0.8 million (2016: £0.6 million), representing an underlying operating margin of 3.5% (2016: 2.9%). Scotland's strong performance was due to it's 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 work streams in the commercial sector.

TClarke Scotland continues to expand, focusing on its key sectors Residential and Technologies under the TClarke Intelligent Buildings banner. There remains a good level of opportunity in these sectors around the Scottish central belt and further afield in key Scottish towns where we have a presence such as Aberdeen and Dumfries. Whilst M&E Contacting remains a key part of the business, we remain alert to the more competitive nature of this sector.

Non-underlying items

Exceptional and non-underlying items comprise amortisation of intangible assets of £0.2 million (2016: £0.2 million), Eton acquisition costs of £0.2 million and a recovery of the misappropriation of funds that occurred in 2016 of £1.0 million (2016: charge of £2.3 million).

Finance costs

Net finance costs were £0.8 million (2016: £0.7 million), including a £0.6 million (2016: £0.5 million) non-cash finance charge in respect of the Group's defined benefit pension scheme. Net interest on bank loans and overdrafts remained at £0.2 million (2016: £0.2 million), reflecting good cash performance throughout the year. 

Earnings per share

Basic earnings per share after discontinued operations increased to 13.44p (2016: 5.45p), with basic earnings per share from continuing operations increasing to 13.44p (2016: 6.74p).

Basic underlying earnings per share after adjusting for amortisation of intangible assets and non-underlying costs and the tax effect of these items, was 12.37p (2016: 11.60p).

Dividends

The Board is proposing a final dividend of 2.9p (2016: 2.7p), with the total dividend for the year increasing by 5% to 3.5p (2016: 3.20p). The dividend is covered 3.5 times by underlying earnings.

The final dividend will be paid, subject to shareholder approval, on 25th May 2018 to those shareholders on the register at 27th April 2018. The shares will go ex-dividend on 26th April 2018. 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 has 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 has been set at £1.0 million for the year ending 31st December 2017, £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 expense of £2.3 million, net of tax, has been recognised in reserves, with the pension scheme deficit increasing by £2.8 million to £23.4 million (2016: £20.6million).

Cash flow and funding

Net cash balances improved to £11.7 million at 31st December 2017 (2016: £9.3 million) after deducting the £5.0 million (2016: £3.0 million) outstanding under the Group's revolving credit facility. The balance is after the purchase of Eton Associates (£1.5 million cash in 2017) and the investment in the Stansted prefabrication facility (£1.0 million).

The Group retains a £10.0million revolving credit facility, which is committed until 31st March 2020, and a £5.0 million overdraft facility, renewable annually. Interest on overdrawn balances is charged at 2.25% above base rate, and interest on balances drawn down under the revolving credit facility is charged at 2.25% 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 2017 and the Board's detailed projections demonstrate that the Group will continue to meet its obligations in the future.

The Group also has in place £32.5 million of bonding facilities, of which £21.9 million were unutilised at 31st December 2017. 

Net assets and capital structure

The Group is funded by equity capital, retained reserves and bank loans, and there are no plans to change this structure. The strong underlying performance of the Group was partly offset by the increase in the pension deficit resulting in shareholders' equity rising by £2.3 million during the year to £16.4 million (2016: £14.1 million).

Goodwill and intangible assets increased to £25.3 million (2016: £22.8 million). This was due to the acquisition of Eton Associates. Goodwill and intangible assets arising on previous acquisitions represent a significant proportion of the Group's total assets of £144.9 million (2016: £121.5 million). The Board has undertaken a rigorous impairment review in respect of the intangible assets at 31st December 2017 and concluded that no impairment is necessary.

Group reorganisation

During the year we completed the implementation of the Group reorganisation, bringing all the Group's operations together into a single statutory entity, TClarke Contracting Limited, with a separate statutory entity, TClarke Services Limited providing engineering and support services to the enlarged operating company. This reorganisation represents the culmination of a process of rationalisation and increased consistency of organisation and enabled the implementation of a new internal control framework and procedures.

Accounting policies

The Group's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. There have been no significant changes to accounting policies during the year ended 31st December 2017.

Financial risk management

The Group's main financial assets are contract and other trade receivables and 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

27th March 2018

Consolidated income statement

for the year ended 31st December 2017

Consolidated statement of comprehensive income

for the year ended 31st December 2017

Consolidated statement of financial position

Consolidated statement of cash flows

Consolidated statement of changes in equity

Notes to the preliminary financial statements

Note 1 - Basis of preparation

TClarke plc (the 'Company') is a company listed on the London Stock Exchange and domiciled in the United Kingdom. The consolidated preliminary financial statements (the 'financial information') comprise the financial statements of the Company and its subsidiaries (together the 'Group') and are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union, 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.

During the year management reassessed the presentational treatment of certain balance sheet items in respect of the Group's construction contract portfolio in order to provide additional clarity to the respective balances.

The financial information does not constitute the Company's statutory accounts for the year ended 31st December 2017 or 2016 but is derived from the audited financial statements for the year ended 31st December 2017. Statutory accounts for the year ended 31st December 2016 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31st December 2017 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 31st December 2016 or for the year ended 31st December 2017.

Note 2 - Significant judgements and sources of estimation uncertainty

In the application of the Group's accounting policies the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses incurred during the period that may not be readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised 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. 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.

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 9, 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, 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 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.

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

Year ended 31 December 2017

Year ended 31 December 2016

Note 4 - Non-underlying items

In the second half of the year ended 31st December 2016, the Group uncovered financial irregularities within the accounting function of a wholly owned subsidiary, DG Robson Mechanical Services Limited ('DGR'). £2.9 million of cash was misappropriated over a number of years, of which £1.9 million had been expensed in 2016 and £1.0 million had been charged to the income statement in previous years within cost of sales and administrative expenses. The 2016 expense was separately disclosed as a non-recurring item in the financial statements for the year ended 31st December 2016. Results prior to and including 2015 have not been restated as the impact cumulatively and in each year was not considered to be material.

The Group engaged expert professional advisers to assist in the investigation and recovery of the stolen funds. The cost of the investigation have also been included disclosed as non-recurring costs.

The Group reached an out-of-court settlement with a former employee of DGR and related parties in respect of the misappropriated funds. Under the terms of the settlement agreement, the Company was due to receive aggregate cash payments of £1.4 million on or before 31st December 2017 (unless the Company agreed to an extension of the final settlement date) in full and final settlement of all claims by the Company and its subsidiaries against the individual concerned and related parties. As at 31st December 2017, the Group had received £1 million of the settlement amount and was pursuing recovery of the outstanding balance. No account has been taken of outstanding settlement amounts in these financial statements.

The Group continues to pursue other third parties in order to recover the balance of the misappropriated funds. It is too early at this stage to estimate the quantum of any further recovery.

Expenses incurred in respect of the acquisition of Eton Associates Limited during the year have been included as a non-underlying item as acquisitions are an irregular event.

Note 5 - Taxation

Note 6 - Earnings / (loss) per share

A. Basic earnings / (loss) per share

Basic (loss) / 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.

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.

C. Underlying earnings per share

Underlying earnings per share represents profit for the year from continuing operations adjusted for amortisation of intangible assets and 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.

Note 7 - Dividends

The Directors are proposing a final dividend of 2.90p (2016: 2.70p) per ordinary share totalling £1.2 million (2016: £1.1 million). Subject to approval at the Annual General Meeting, the final dividend will be paid on 25th May 2018 to shareholders on the register as at 27th April 2018. The shares will go ex-dividend on 26th April 2018. 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 2017 final payment, may do so by contacting Link Asset Services on 0871 664 0300 (Lines are open 9.00am - 5:30pm Mon-Fri. Calls cost 12p a minute plus network charges). The last day for election for the final dividend reinvestment is 3rd May 2018 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:

Note 9 - Notes to the statement of cash flows

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:

Note 10 - Related party transactions

The remuneration of the Directors of the Company was £2.0 million (2016: £1.8 million), including post- employment benefits of £0.2 million (2016: £0.1 million) and termination benefits of £nil (2016: £0.1million).

The remuneration of key management was £1.3 million (2016: £3.6 million), including termination benefits of £nil (2016: £0.1 million). Post-employment benefits in respect of key management were £0.1 million (2016: £0.4 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 106th Annual General Meeting will be held at 200 Aldersgate, St Pauls, London EC1A 4HD on Friday 18th May 2018 at 10.00 am.