Tclarke Regulatory News (CTO)

TClarke plc - Results for the year ended 31st December 2014 in line with expectations

1 Underlying profit is profit from continuing operations adjusted for amortisation of intangible assets and non-recurring costs

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

· Record revenues of £227.5m.

· Total dividends for the year restored to 3.1p.

· Net cash £5.3m with £8m of unused banking facilities.

· Underlying profits in line with expectations after one off contract issues.

· Record forward order book exceeding £300m.

· Excellent opportunities for forward growth and future profitability.

New contracts secured include:

Mark Lawrence, Chief Executive commented:

"We are pleased to report record revenues for the Group with a clear indication of our future market share that is defined by a record forward order book of over £300m. Two issues impacted profitability last year; they are fully resolved and so, with improving markets, we are free to focus on rebuilding the profitability of the Group.

We have well-founded confidence in the business and in our markets and this means the Board is pleased to restore the dividend cut that was made in August whilst the above issues were being dealt with. We are therefore maintaining the total dividend for the year at 3.1p.

With a record order book and early signs of margins beginning to improve the Board looks forward to 2015 and beyond with renewed confidence."

-ends-

Date: 24th March 2015

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Chairman's statement

Reflecting on 2014

The business has done much more than withstand challenges; in 2014 TClarke emerged in good shape to take advantage of slowly improving conditions. Over the last year, as in the previous five years of the recession, resilience and financial discipline have been matched by an ability, at senior level, to plan and execute change and efficiency programmes, and at the frontline level to deliver for our clients. In this my first year, I have been involved straight away and seen what makes TClarke tick, close up.

2014 saw the beginning of a long-overdue recovery in our markets, with revenue increasing by 4.8% to £227.5m (2013: £217.1m) and net cash improving to £5.3m (2013: £1.0m), with £5m cash generated by operations (2013: £2.6m cash outflow from operations).

The emergence and resolution of two challenging issues, one a damages claim relating to a pre-acquisition contract at a subsidiary, and the other a protracted final account settlement in our Mission Critical division, coincided with my arrival as Chairman, and it is right to record that these did cause us all - me included - some sleepless nights. The nature of construction is such that these kinds of issues do emerge from time to time - in TClarke's case they are rare. But they did have the effect of stress-testing the company's systems and procedures with a new Chairman on board.

Both issues were resolved during 2014, resulting in an underlying operating profit of £1.4m (2013: £3.2m) and a statutory loss before tax of £0.7m (2013 profit: £1.7m). However, if you set their costs aside and look at the overall performance of the group, then it was a successful year. In the second half of the year, you could say 'the decks were cleared for action' - and we saw action in the shape of a series of significant contract wins in London and also, though less widely reported at the time, across the rest of the UK.

2014 showed that the company is highly effective in winning contracts, negotiating them prudently and delivering them to high standards - in the face of markets showing very little sign of major improvement. But if recovery of UK construction was slow, then it is worth noting three things: Firstly, this was precisely in line with TClarke's forecast, secondly that in 2014 TClarke again won more than its fair share of the work open to it, and thirdly that at the close of the year we are able to look back at key progress, made against a clear strategic plan, that has steadily built a strong platform to take the business forward in 2015 and beyond.

Joining the firm - early impressions

During 2014 I have been fortunate to make a number of visits, across the regional operations and also across London, meeting apprentices and staff and also visiting a number of TClarke projects. It has been extremely valuable in helping to understand what the TClarke name stands for, inside the firm and in the marketplace. From these first experiences, a few things are worth noting in this report.

Culture of leadership

Firstly, there is a very clear culture of leadership - not just at board but at every single level on every scale of project - and this is something my predecessor Russell Race remarked upon too. Quality in construction and the wider engineering sector depends upon the skills, culture and motivation of leaders at every level in the organisation - on individuals being switched on and taking a pride in details, day in day out. This culture was on show everywhere; in details of safety procedure, in the quiet clarity of plans and briefing, and in the attitude to serving clients and the plain pride in doing a good job that frontline people so clearly took. This is a company where people take responsibility and take pride in the quality of their contribution - and this happens quietly, without show or fuss.

The commitment to apprenticeships has strategic business value

Secondly, in 2014, as in every year since the recession bit, TClarke kept on training and taking on apprentices. These are impressive young men and women. A TClarke apprenticeship is not just another apprenticeship - it is something that young people really want and really work for. There is competition for each one and the apprentices that the company selects are high calibre, motivated and with evident quality. This is enormously encouraging and not just for TClarke; it is a genuine pleasure to see that the British engineering and construction sectors can attract these young people and offer them worthwhile opportunities. Of course this is not mere altruism. The hard commercial result of this long-term policy was also evident toward the end of 2014 as TClarke's resource of high quality people became something that contractors and clients were keen to lock into their projects for the future. This desire is key to the generation of strong value for shareholders going forward in the cycle. It is not a complicated plan - but it does not happen by chance. TClarke has the culture of training and offering apprenticeships and it also has the structure and expertise in-house to make this work. In many ways this is a model of excellence for British engineering.

Efficiencies are paying off

Thirdly, the practical actions led by the executive board to enhance efficiency across the group, to leverage opportunities to share resource, to cross sell and upsell services, to unify and simplify back offices and so make it economically viable to enter new markets quickly and cheaply - these actions in 2014 began to get results. While some in the construction sector were just hanging on and others were, sadly, failing to do even that, TClarke was extremely busy preparing itself. This is not a standstill company - this is a company that drives change through the industry - changes in best practice and ways of working that will keep it at the forefront of the sector.

Thanks to our people, our business partners and our customers

I should like to extend my thanks to the TClarke people who make this business what it is - our staff, our business partners and our customers. In an era of increasingly sophisticated and carefully presented marketing, when 'brands' are manicured and manipulated to increase their appeal, TClarke stands for something straightforward, tangible and valuable. The TClarke culture is built by decent and highly professional people, forging open and collaborative relationships with their suppliers and customers. The TClarke brand is about always delivering and 'never letting down' - and that is not a motto in the boardroom - it is an attitude and a pride that people have in their work. In my first year here, I have been able to see that this is a real brand - a real promise that is delivered by our people and owned by them.

There is a sense of privilege in being involved on the inside of such an organisation - and pride in what is a longstanding and unsung but nonetheless extremely compelling British engineering success story. In thanking our shareholders for their continued support and interest throughout another year of challenging market conditions, I do hope that as well as looking for long-term value, they will also share my pride in being part of TClarke.

Outlook

Looking ahead to 2015, knowing that the industry, media and trade bodies are already predicting major skills shortages in the short and medium term, the power and direct business value of the TClarke resource of skilled and motivated people is evidently a key strategic advantage.

And there is another strategic advantage which is likely to gain prominence and create value during 2015 and that is the balancing of powerful electrical contracting capability in the London market with a similarly high quality, large-scale mechanical engineering offering. DGR was bought in 2010 and this excellent mechanical business has forged ahead. During 2014 the TClarke Group announced that the time was right for DGR to rebrand to TClarke, to play an increasingly central and integrated role in the group, bidding for and winning combined M&E packages. This strategic shift was matched by a structural one with Danny Robson, DGR's founder and MD, taking up an executive post on the main group board of TClarke.

During 2015, the company will initiate further strategic changes in structure, all of which will be designed to help the business to maximise the value - both long and short term - which we can generate from the upcycle.

With a record order book and early signs of margins beginning to improve we look forward to 2015 and beyond with renewed confidence.

David Henderson

Chairman

24th March 2015

Chief Executive Officer's review

Reflections on 2014

The UK economy as a whole saw many signs of substantial recovery in 2014 but in the construction sector, any such signs remained sparse until late in the year. Even though there was widespread confidence and belief in the certainty of recovery in the short term, this was not translated into any significant surge in demand. So margins remained under pressure and our pleasure at setting and beating records for the size of our forward order book throughout the year would be tempered by the fact that margin pressures had not eased. It was only in the final quarter of 2014 that the market shifted from ultra-cost competitive to resource-focused (with resultant better margins).

In previous years we have reported on the projects we have undertaken internally to improve our efficiency, market proposition, exposure to growth opportunities and ability to leverage all of our resources. In any sector the ability to change what you do, ahead of opportunities, is critical to growth and value creation. Now after five years of reporting on how the company has ridden the storm and invested its energies in change for value creation, it is worth considering what we have achieved in that time.

How we performed in 2014

Our strategy throughout the recession has been to scrutinise our current and potential market places and decide how we can organise our resources and propositions in order to maximise opportunities when they appear, without over-exposing ourselves to any single market. This strategy has the clear objective of making our progress less dependent on the cyclical behaviour of any specific sub-sector or local market within construction.

So in 2014 it is very good to reflect on a year in which we really did breakthrough in UK construction's dominant London market, as a full mechanical and electrical contractor with a series of major M&E projects won and delivered. This is strategically significant for TClarke; it substantially increases our potential market place and the introduction of Danny Robson onto the company's main board is a reflection of the way we view this opportunity.

Equally, through the downturn, our challenge has been to improve our ability to move rapidly and at minimal cost, into new market sectors where opportunities appear, while at the same time being a substantial and genuine 'top 5' company in each of those sectors, with real resource and quality appropriate to the TClarke brand

Our Transport, Residential, Design & Build, Facilities Management and Mission Critical businesses were all winning and delivering substantial new projects, and we re-established a presence in the West Midlands commercial market and strengthened our positions in regional markets right across the country.

In 2014 we broke our forward order book record more than once - and it ended at a very healthy £300 million.

We delivered what we had promised - organic growth, structural efficiencies and an ongoing commitment to delivering quality in our work.

We were innovators too in many areas. Our new 'You See You Say' smartphone safety reporting app is a genuine innovation and industry first, giving our operatives much enhanced ability to report safety risks and incidents. We have introduced it across our business and for our supply chain and we're delighted that others in the industry are following our approach.

Our Transport Division was engaged in the ground-breaking Innovative Contractor Engagement ("ICE") procurement approach at Bank underground station, where the main contractor and its partners were actively involved from the earliest stages in working with the client to increase the end value achieved for users of the station. This is a great example of real innovation, transforming the way we collaborate with all parties.

What may not grab headlines, but is arguably more important to emphasise, is that TClarke teams in London and across the UK were delivering and collaborating on some of the most challenging construction projects anywhere - and this work, in 2014 as in every year - is what keeps our people at the top of their game and cements our reputation in an industry where you are only ever as good as your last job.

Our vision is clear, purposeful and unchanged

Our vision is to 'achieve world class performance in the quality of our work, the strength of our relationships and the value we can create through innovation, for all our stakeholders.' During these years of challenging market conditions, that vision has remained clear and central in our thinking. At its core, this vision expresses our belief in engineering excellence as the key to delivering real and lasting value.

It is this clear focus that commits us to training young people and in 2014 TClarke apprentices did more than thrive, they won a series of local and national awards, doing great credit to themselves and the company.

Our strategy positions us for growth

As has been reported over the last years and again this year, TClarke has weathered the storm well. Although remaining cautious and prudent in our planning, we can see clearly now that the market is increasingly less price-driven and increasingly more resource-focused. In plain terms, developers and principal contractors are looking to secure and lock in high quality teams for their projects in order to deliver them on time and on budget.

From a strategic perspective, TClarke now has the opportunity to grow in all of its markets and to become, during the years of upturn, a more significant player in a range of specialist sectors and markets.

Whereas in 2008, our opportunities for growth were largely confined to the London electrical contracts market and to regional M&E work, we now have credible, established and well-resourced teams in London M&E, Mission Critical, FM, residential, transport and design and build sectors.

Whereas in 2008 we owned a regional network of independently branded, highly reputable local M&E or electrical contractors, in 2014 we have a fully integrated, uniformly branded nationwide network of building services operations, whose resources are capable of collaboration to meet market opportunities.

To provide a clear example of how this works in just one of the areas mentioned above: in 2014 we won a range of major M&E projects in London such as Bank Station, Romford Rail Operating Centre, Selfridges, Ark Academy, Putney and Riverwalk House - these substantial contracts simply would not have been open to TClarke in the past since we lacked the integrated M&E offering and reputation in the market.

In a steady and intelligent way our purpose, as the cycle finally presents us with more buoyant markets, is to grow the business - both in the areas where we have foreseen opportunities and in new areas that continue to present themselves.

Our priorities for 2015

In 2015 our key priorities will - as in 2014 - be on safety, on quality and on delivery of our strategy for growth.

Safety

It will remain our main priority - not just for our excellent safety teams nationwide, but for every single individual.

We will continue to invest and innovate and we will play our role fully in leading the industry and moving safety standards forward. Above all we will work hard to avoid complacency in any area. Safety will come first above any other consideration.

Quality

The record order book is not simply composed of 'bread and butter' work - it is in the main part comprised of large scale, complex, fast track construction projects. It also includes projects where highly innovative collaborative approaches are being used and projects where technical challenges are at the cutting edge - such that very few firms in the market are seen to have the capability or experience. In 2015 we will be focused on the quality of our project delivery, our collaboration with partners and the excellence of work delivered by teams and individuals.

Delivering our strategy for growth

In this statement I have already set out our growth focus; in 2015 we will also be introducing a further set of carefully planned strategic changes in our structure and organisation and these will have the clear purpose of further enhancing our ability to grow in the ways which we believe will deliver best value.

Mark Lawrence

Group Chief Executive

24th March 2015

Financial review

Underlying group performance

Overview

Underlying operating profit fell to £1.4m (2013: £3.2m) due to a substantial loss on the Mission Critical contract highlighted in last year's annual report. No major loss is to be taken lightly; however, in this instance it was in the group's best interest to reach a negotiated settlement. This contract has been fully settled and there is no further cash out flow. This contract aside, TClarke continued to perform well in tough market conditions, with revenue increasing by 4.8% to £227.5m (2013: £217.1m).

TClarke South

Revenue from our South operations was down 2.7% year on year at £167.6m (2013: £172.2m). Competition has remained fierce throughout the region, particularly in the first half of the year with clients delaying procurement to secure ever keener prices. This trend began to reverse towards the end of the year, with many of the region's offices benefiting from repeat work through strong relationships and clients beginning to realise that they needed to lock in resource going forward. The last few months of the year also saw significant wins for our combined M&E business in London, securing significant revenue into 2015 and beyond.

The region reported an operating loss of £2.2m (2013: profit £0.5m). After adding back £1.1m (2013: £0.5m) exceptional claim settlement costs (which are discussed below), the underlying operating loss was £1.1m (2013: profit: £1.0m). The fall in underlying operating profit masks an encouraging performance from many of our offices - if you strip out the impact of the loss on the Mission Critical project referred to above, the regions as a whole would have delivered a significantly higher profit than in 2013.

TClarke North

Revenue from our North operations increased by 38% to £43.4m (2013: £31.4m), with the region benefitting from strong client relationships and repeat business.

Operating profit was £1.4m (2013: £1.5m), representing a profit margin of 3.2% (2013: 4.8%). Operating margins were higher in 2013 due to positive final account settlements on a number of contracts undertaken in previous years. The underlying operating profit, before £0.2m (2013: £0.3m) amortisation of other intangible assets, was £1.6m (2013: £1.8m).

TClarke Scotland

Scotland's revenue increased by 22% to £16.5m (2013: £13.5m), with improving commercial and IT revenues adding to its continuing strong performance in the residential sector. Underlying profit improved to £0.6m (2013: £0.2m), before deducting a further £0.1m (2013: £0.1m) exceptional costs for successfully defending a multitude of adjudication claims brought by a single sub-contractor.

Exceptional and non-underlying items

Exceptional and non-underlying items comprise £0.2m (2013: £0.3m) amortisation of intangible assets and £1.2m (2013: £0.6m) exceptional claim settlement costs.

The exceptional claim settlement costs represent a continuation of the claims giving rise to costs incurred in the previous year and are not expected to recur. These include a £0.7m charge in full and final settlement of a damages claim against one of the subsidiary companies in relation to an incident that arose pre-acquisition, of which £0.3m was paid in the year and £0.4m will be settled in instalments over a period of three years, £0.4m (2013: £0.5m) costs and interest in respect of a sub-contractor claim against the group for work carried out in a previous year, and £0.1m (2013: £0.1m) for costs incurred in successfully defending a succession of adjudication claims brought by a single sub-contractor in Scotland.

Finance costs

Net finance costs were £0.7m (2013: £0.6m), including a £0.5m (2013: £0.5m) non-cash finance charge in respect of the pension scheme. Net interest on bank loans and overdrafts increased to £0.2m (2013: £0.1m), reflecting increased use of our banking facilities during the year prior to the settlement of the Mission Critical contract referred to above.

Taxation

As a wholly UK based group, our tax charge is dependent on UK corporation tax rates. Our cost base includes a hard core of expenditure that is not deductible for tax purposes, which has the effect of pushing up our effective tax rate during periods of low profits (or reducing the effective rate on losses). For 2014, the effective tax rate on the reported loss was 11.3% (2013: 36.9% on reported profit), with the effective tax rate in 2013 having been impacted by the effect of falling corporation tax rates on deferred tax assets brought forward.

Earnings per share

Basic loss per share was 1.58p (2013 - earnings: 2.51p), and diluted loss per share was 1.58p (2013 - earnings: 2.43p).

Basic underlying earnings per share after adjusting for amortisation of intangible assets and non-recurring exceptional claim settlement costs and the tax effect of these items, were 1.06p (2013: 4.14p), and diluted underlying earnings per share were 1.01p (2013: 4.00p).

Dividends

The Board is proposing a final dividend of 2.60p (2013: 2.10p), leaving the total dividend for the year unchanged at 3.10p (2013: 3.10p). The dividend is uncovered by underlying earnings due to the impact of the Mission Critical contract settlement referred to above - were it not for the loss recognised on this contract, the dividend would have been covered 2.2 times by underlying earnings.

The final dividend will be paid, subject to shareholder approval, on 15th May 2015 to those shareholders on the register at 17th April 2015. The dividend will go ex-dividend on 15th April 2015. A dividend reinvestment plan (DRIP) is available to shareholders.

Cash flow and funding

The group has in place a committed £5.0m revolving credit facility until 31st March 2017 and an £8.0m overdraft facility, renewable annually. Interest on overdrawn balances is charged at 2.75% above base rate, and interest on balances drawn down under the revolving credit facility is charged at 3% above LIBOR, fixed for the duration of each drawdown (typically three to six months). The group was compliant with the terms of the facilities at 31st December 2014 and the board's detailed projections demonstrate that the group will continue to meet its obligations in the future.

The group's net cash balances improved to £5.3m at 31st December 2014 (2013: £1.0m) after deducting the £5.0m (2013: £nil) outstanding under the revolving credit facility.

Cash inflow generated by operating activities was £5.0m (2013 - outflow: £2.6m), reflecting a strong emphasis on working capital management and the resolution of the Mission Critical contract referred to above.

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.

At £23.2m (2013: £23.4m), goodwill and intangible assets arising on previous acquisitions represent a significant proportion of the group's total assets of £103.2m (2013: £88.5m). The board has undertaken a rigorous impairment review in respect of the intangible assets at 31st December 2014 and concluded that no impairment is necessary.

Pension obligations

The last triennial valuation of the pension scheme as at 31st December 2012 showed a deficit of £11.5m, which represents a funding level of 68%. The group has put in place a deficit reduction plan to eliminate the deficit over a number of years, with total employer contributions rising from 18% of pensionable salary for the year ended 31st December 2014 to 20.7% for 2015 and 2016, 21.7% for 2017 through 2019, and 22.7% thereafter. Employer contributions amount to approximately £1.1m per annum. The group has provided security to the pension scheme in the form of a charge over property assets up to a combined market value of £3.1m.

In accordance with IAS 19 'Employee Benefits', an actuarial loss of £5.3m has been recognised in the financial statements, with the pension scheme deficit increasing by £5.4m to £16.3m (2013: £10.9m). The significant increase in the deficit reflects the exceptionally low discount rates (based on bond yields) which have arisen due to macroeconomic factors beyond the company's control. The group continues to meet its ongoing obligations to the pension scheme, but has now taken action to close the scheme to new members and is introducing a new defined contribution group personal pension plan for staff not already in the defined benefit pension scheme.

Accounting policies

The group's accounting policies are consistent with the accounting policies applied in previous years.

Group structure

Since recession hit the sector in 2009 we have undertaken a number of initiatives to strengthen the effectiveness and efficiency of the group's operations. Further changes planned for 2015 will see the rationalisation of the group's subsidiary companies into a single operating entity, a natural progression from the changes we have already made. We are also implementing changes to the group's internal management structure, which will see the dominant South region split into two regions, comprising London and the South East, and a Central and West region.

Martin Walton

Finance Director and Company Secretary

24th March 2015

Principal risks and uncertainties

The principal risks and uncertainties faced by the group and the controls and mitigating factors on place are as follows:

Market conditions

The group is dependent on the planned level of construction and maintenance expenditure by both the public and private sectors. There were some encouraging signs during 2014 that the construction sector is beginning to recover, but regional expenditure is still constrained by public finances and there are concerns over resourcing levels.

The group continues to operate throughout the UK and in a diverse range of sectors, all linked to our core M&E offering, so that we are not over reliant on anyone sector or region. We continue to develop our relationships with key clients, contractors and suppliers, building on our financial strength and reputation to ensure we are the M&E contractor of choice. A number of framework contracts and contract renewals have been secured in recent years to mitigate against short term fluctuations in demand.

We have aligned our cost base to reflect anticipated workloads; further realignments could be undertaken if considered appropriate to reflect changes in the prevailing market conditions.

Reputational risks

The group's ability to tender for new business and to maintain strong relationships with customers, suppliers, employees and other stakeholders is dependent on how it is perceived by others.

The group works hard to maintain its reputation in all areas. The group supports high standards of business ethics, sustainability and compliance policies, and has a strong commitment to improving health and safety at work for all. Feedback is sought from key stakeholders on a regular basis, and actions arising from this feedback discussed and agreed at an appropriate level.

Winning new work

Our ability to secure profitable new work is dependent on our ability to adequately resource tenders, to understand the technical and commercial challenges incumbent in each tender and to price the associated risks accordingly. If risks are under-priced, contract losses and reputational damage may result; if risks are overpriced, the group will not secure sufficient tenders to replenish the order book and grow the business.

We have experienced teams of estimators, and all bids are reviewed by a director and checks carried out to avoid incorrect or non-competitive pricing. The Board remains committed to the principle that we will not bid for work below commercially acceptable rates. A detailed business case is prepared for any proposed expansion into new geographic areas or business sectors, and is subject to prior board approval.

Contractual delivery

At any time there may be several hundred contracts in progress across the country. Inadequate supervision would result in poor quality and low productivity, both of which would result in loss of reputation and profit.

Failure to deliver projects to time, quality or budget, and contractual disputes that can arise over the scope and valuation of contracts, may make the ultimate outcome of contracts uncertain.

We are continually assessing and managing operational risk through the bidding stage to the final commissioning of an installation and handover to the client.

Our contract engineers, supervisors, surveyors and skilled tradespeople receive regular training to meet our demanding standards. All key suppliers and subcontractors are subject to regular performance reviews. Our insurance requirements are reassessed annually to mitigate against any claims.

Our business information systems monitor profit and cash flow throughout the life of a contract, and regular review meetings are held at the contract and business unit level to monitor progress and identify and address issues as they arise. Contracts of a significant size or risk are regularly reviewed by executive management and discussed at Board level. The group continues to make conservative assessments of final accounts from project completions and the likely outcome for a number of ongoing projects.

Resources - components and materials

The group is dependent on the availability of components and materials of sufficient quality and at the right price to deliver projects to the correct specification and to budget. Commodity prices of copper and steel are major component parts within our industry. In addition, UK prices of materials that we procure could be adversely affected by any weakness of sterling.

The majority of projects we secure do not allow for the recovery of increased material costs. We have in place formal supplier framework agreements across the UK to manage and, where possible, mitigate this risk, with prices locked in through procurement at the beginning of a contract wherever possible.

Resources - people

Providing a consistently high quality service to our clients is only possible with the right people: attracting and retaining high calibre staff and skilled tradespeople is key to our success. This is achieved through a remuneration system linked to performance, strongly embedded training schemes throughout the group and by providing opportunity and encouragement to help our people reach their full potential.

As the construction sector moves into a growth phase, the availability of sufficient skilled human resources following the lengthy economic downturn is a challenge for the whole sector, with many people having left the industry and not being replaced.

The group remains committed to providing the best training for all members of staff and draws on the expertise of its people from all group companies across the UK. However as a result of the current market conditions we have and will continue to align our business at all levels to match our current expectations. Labour rates are monitored regularly to ensure tender rates are realistic and increases are managed. We have continuous dialogue with the trade unions and continue to review our policies and procedures in managing this risk.

Health and safety

Failure to manage health, safety and environmental risks could cause serious injury or loss to employees or third parties and expose the group to significant financial and reputational loss and litigation.

The Group Managing Director has overall responsibility for health and safety across the Group and the Board receives regular reports on health and safety initiatives and incidents. Detailed policies and procedures are in place and all employees, subsidiaries, suppliers and subcontractors are required to comply with all applicable laws, regulations and standards. The Group Health and Safety Director and Group Environmental Manager monitor and respond to legal and regulatory developments. Regular training courses and updates are provided to ensure all employees are aware of their responsibilities.

Pensions

The group is exposed to funding risks arising from changes in longevity, inflation and investment assumptions in relation to its defined benefit pension scheme.

The defined benefit pension scheme is available to qualifying senior management and staff within the group. Following consultation with members, the group altered the structure of the scheme in 2010 from a final salary scheme with an accrual rate of 1/60th to a Career Average Revalued Earnings scheme with an accrual rate of 1/80th. The scheme closed to new members from January 2015. Ongoing regulatory and funding requirements are monitored in conjunction with external actuarial advisers and regular meetings are held with the pension scheme trustees.

Credit and counterparty risk

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.

Applications for payment are made as work progresses and, as far as commercially practicable, contractual terms are negotiated to minimise the gap between work being performed and receipt of payment.

Liquidity risk

The group's business is dependent on the availability of cash resources, banking facilities and the ability to provide performance and other bonds as necessary.

The group manages liquidity risk by maintaining adequate reserves and banking facilities, monitoring cash flows and matching maturity profiles of financial assets and liabilities within the bounds of its contractual obligations. The group arranges banking facilities and places surplus cash on deposit only with large UK financial institutions.

The group has in place a £5m Revolving Credit Facility, committed to 31st March 2017, and an £8 million overdraft facility to help manage short-term fluctuations in working capital. The group also has in place £20m committed bonding facilities.

Legal and regulatory

The group is subject to complex and evolving tax, legal and regulatory requirements. A breach of laws and regulations could lead to litigation, investigations or disputes, resulting in additional costs being incurred, civil and/or criminal proceedings and reputational damage.

The group monitors legal and regulatory developments in the areas in which it operates, and seeks legal or other specialist advice as appropriate. It is group policy to require that all subsidiaries, employees, suppliers and subcontractors comply with applicable laws and regulations. Training is provided on legal and regulatory changes as required.

Consolidated income statement

for the year ended 31st December 2014

Consolidated statement of financial position

as at 31st December 2014

Consolidated statement of cash flows

for the year ended 31st December 2014

Consolidated statement of changes in equity

for the year ended 31st December 2014

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.

The financial information does not constitute the company's statutory accounts for the year ended 31st December 2014 or 2013 but is derived from the audited financial statements for the year ended 31st December 2014. Statutory accounts for the year ended 31st December 2013 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31st December 2014 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 2013 or for the year ended 31st December 2014.

The following standards, interpretations and amended standards have been applied for the first time for the financial year beginning 1st January 2014.

· IFRS 10 'Consolidated financial statements'. IFRS 10 'Consolidated financial statements' built on existing guidance concerning the concept of 'control' and clarified that 'control' was the deciding factor in determining whether an entity should be included in the consolidated financial statements or not. The application of this standard has not had a significant impact on the group's consolidated financial statements.

· IAS 36 - 'Recoverable Amount Disclosures - Amendments to IAS 36'. The group has applied the amendments to IAS36 - 'Recoverable Amount Disclosures for Non-Financial Assets' for the first time in the current financial year. The amendments to IAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit ('CGU') to which goodwill or other indefinite life intangible assets had been allocated where there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by IFRS 13 'Fair Value Measurements'. The application of these amendments has had no material impact on the disclosures in the group's consolidated financial statements.

· Amendments to IAS 32 'Offsetting Financial Assets and Liabilities'. The group has applied the amendments to IAS 32' Offsetting Financial Assets and Liabilities' for the first time in the current financial year. The amendments to IAS 32 clarify the requirements relating to the offsetting of financial assets and financial liabilities. Specifically the amendments clarify the meaning of 'currently has a legally enforceable right of set-off' and 'simultaneous realisation and settlement'. The amendments have been applied retrospectively. The group has assessed whether certain of its financial assets and financial liabilities qualify for offset based on the criteria set out in the amendments and have concluded that the application of the amendments has had no impact on the amounts recognised in the group's consolidated financial statements.

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 the 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 7 below, 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 three regional divisions; the South, the North and Scotland, and an internal property division reporting to the Chief Executive, 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-recurring costs. Non-recurring items for each segment are disclosed below.

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:

Non-recurring costs

A subsidiary company was one of a number of parties that were subject to a substantial damages claim in respect of work carried out in 2007 before it was acquired by the group. Damages were awarded against the company, which were settled by the company's insurers. However, following an unsuccessful appeal the apportionment of costs exceeded the insurance cover in place. The company entered into constructive dialogue with the other parties to the claim, which resulted in a negotiated settlement. The total cost to the group, including costs, was £0.7m.

In 2013 the company settled a sub-contractor claim against the group for work carried out in previous years, resulting in a cost to the group of £0.5m. Further costs amounting to £0.4 m have been incurred during 2014 in seeking to reach a settlement of costs and interest in respect of this claim, and a potential counter claim by the company against the subcontractor. Proceedings are ongoing in this matter, however the directors do not believe there will be any significant additional costs to the group.

A subcontractor has over a period of time brought a number of adjudication claims against a subsidiary in respect of a single contract. The company has been successful so far in defending these claims, but has incurred costs of £0.1m (2013: £0.1m) in doing so.

Note 4 - Taxation

Note 5 - (Loss) / earnings per share

A. Basic (loss) / earnings 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 done 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.

The potential ordinary shares are considered to be non-dilutive for the year ended 31st December 2014 as the group incurred a loss.

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-recurring 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 6 - Dividends

The directors are proposing a final dividend of 2.60 p (2013: 2.10 p) per ordinary share totalling £1.1m (2013: £0.9m). Subject to approval at the annual general meeting, the final dividend will be paid on 15th May 2015 to shareholders on the register as at 17th April 2015. The shares will go ex-dividend on 15th April 2015. 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 2013 final payment, may do so by contacting Capita Registrars on 0871 664 0300 (Lines are open 8:30am - 5:30pm Mon-Fri. Calls cost 10p a minute plus network charges). The last day for election for the final dividend reinvestment is 20th April 2015 and any requests should be made in good time ahead of that date.

Note 7 - 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 8 - 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 9 - Related party transactions

The remuneration of the directors of the company was £1.0m (2013:£0.9m), including pension contributions of £0.1 (2013: £0.1m).

The remuneration of key management (including directors of subsidiary companies) was £3.6m (2013: £3.6m), including termination payments of £0.1m (2013: £0.1m). Pension contributions in respect of key management (including subsidiary directors) were £0.4m (2013: £0.4m).

In January 2013 the group paid £0.4m to the vendors of DG Robson Mechanical Services Limited as deferred consideration for the acquisition of the company in August 2010. The vendors of DG Robson Mechanical Services Limited are members of key management. The amount of the deferred consideration was contingent on post-acquisition results. £0.2m was accrued at the time of acquisition and a further £0.2m charged to the income statement in the year ended 31st December 2012.

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 10 - Subsequent events

Since 31st December 2014, 427,897 ordinary shares of 10p each have been issued in connection with the exercise of options under the TClarke plc Savings Related Share Option Scheme.

Note 11 - Annual General Meeting

The 103rd Annual General Meeting will be held at 200 Aldersgate, St Paul's, London EC1A 4HD on Friday 8th May 2015 at 10.00 am.

Statement of directors' responsibilities in respect of the financial information

We confirm that to the best of our knowledge:

(a) the financial information, prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union, gives a true and fair view of the assets, liabilities and financial position and profit of the group; and

(b) the business and financial review includes a fair review of the development and performance of the business and the position of the group, together with a description of its principal risks and uncertainties.

On behalf of the board

David Henderson Chairman

Mark Lawrence Chief Executive Officer

Martin Walton Finance Director

24th March 2015