MOGP.L Regulatory News (MOGP)

Mountfield Group Plc

("Mountfield", the "Group" or the "Company")

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013

Mountfield, the AIM listed construction company specializing in building and refurbishing data centres, is pleased to announce its final results for the year ended 31 December 2013.

Contacts:

CHAIRMAN'S REPORT

Group Highlights

I am delighted to be able to report that, having returned to profit in 2012, the Group's turnaround gathered real momentum in 2013 and the Board is optimistic that the improvement is sustainable.

The Group's strong performance was reflected in the substantial improvement in net profitability of £765,339 against £218,505 in 2012, an increase of 350%. That this was coupled with a reduction in revenue from £13.6m in 2012 to £12.3m (9.6%) reflected the ability of the Group to be more selective in the contracts that it took on and also delayed starts on a few contracts. As a result the Group achieved an operating margin of 6.9%, an improvement from the 1.4% achieved in 2012. Earnings per share increased from 0.04p in 2012 to 0.22p in 2013.

Trade receivables rose by £1.02m, trade and other payables increased by £1.11m. Cash generated from operations was £979k and cash flow improved by £972k.

Although the Board has indicated that, as a medium term objective, it wishes to begin paying dividends to shareholders, it will not be recommending the payment of a dividend this year as it is mindful of the demands on cash flow that will be made by an increase in the Group's trading at this stage.

The Group's recovery is the result of the hard work and expertise of the Group's Directors, senior management and staff. On behalf of the Board I would like to record our thanks to all of them.

The Board's confidence as to the Group's prospects is based upon the extent to which demand for construction services has recovered so strongly after the period during which the work that was available was usually offered at low or even negative margins. It is difficult to pinpoint the time when the change in demand became noticeable but with the benefit of hindsight we can see that the boost in business sentiment that accompanied the London Olympics in 2012 was transformed into a sense of confidence that has re-invigorated the construction sector as well as many other areas of business.

These increased levels of activity enabled the Group to produce a trading profit in 2012 after three years of losses and those profits were further increased in 2013 as investors and developers decided that the recovery had a secure base. This has been further evidenced during the first part of 2014 by a level of new business enquiries and invitations to tender in both of our divisions that has not been seen by the Board since the middle of 2008. The Board regards this as being a longer lasting improvement in sentiment and confidence.

CEO's REPORT

Summary of results for 2013

§ Turnover: £12.312m. (2012: £13.557m)

§ Operating profit: £844,512. (2012: 189,217)

§ Operating margin: 6.9% (2012: 1.4%)

§ PBT: £765,339. (2012: £218,505)

§ EBITDA: £862,554. (2012: £207,133)

§ Earnings per share: 0.22p (2012: 0.04p)

§ Net cashflow: £972,224. (2013 (£459,012))

In October 2008 the Directors of Mountfield arranged for the Company's shares to be listed on AIM, at a time when demand for construction services was high and prospects for future growth and profitability were extremely good. Although the Group's revenue exceeded £20m for that year with a net profit of £2m, the recession began within weeks of the listing and the Board's strategy for growth had to be abandoned.

Over the last 18 months and as a result of the substantial recovery both in the Group's performance and in the wider economy the Directors have revisited that strategy, have modified it to take account of changes that have occurred in the construction market and, as I describe below, have now begun to implement it for the Group.

The Group Board is currently comprised of:

Peter Jay - Executive Chairman - in addition to being Group Chairman Peter also manages Mountfield's relationships with its nomad, brokers and professional advisers. Peter was formerly a corporate lawyer and a partner in DAC Beachcroft.

Graham Read - Group Chief Executive - Graham founded the business of Mountfield Building Group in 1986 and has had over 20 years experience in the design, project management and construction of data centres.

Andrew Collins - Executive Operations Director - Andrew is responsible for Connaught, a specialist supplier and installer of raised access flooring for data centres and offices. Before joining the Group, Andrew was a divisional finance director at ISG Plc.

Adrian Sainsbury - Non-Executive Director - Adrian (who joined the Board on 17 April 2014) is CEO of the Commercial Division of Close Brothers and prior to that worked for a number of leading banks in various capacities.

The Board is supported by the Chief Financial Officer, Conor O'Mahony, who has had extensive experience in the construction industry. Conor is responsible for overseeing the accounting and financial functions of the Group and attends all meetings of the Board.

 Mountfield Group Companies

The Group is comprised of three separate trading companies, Mountfield Building Group Limited ("Mountfield"), MBG Construction Limited ("Mountfield Construction") and Connaught Access Flooring Limited ("Connaught")

Mountfield carries out work as a main contractor with end user clients and has since 1996, specialised in the installation of data centres on a nationwide basis. Over the past 18 years Mountfield has successfully completed

more than forty data centres throughout the UK for clients including Vodafone, Cable and Wireless, Energis, Planet Online, ARK Continuity, DataCity Exchange, Level 3 Communications, Kingston Telecom and Colt Communications.

In addition to performing data centre works Mountfield is also active in both building fabric repair and maintenance works on a nationwide basis for a large proportion of the property portfolio of a leading telecoms operator.

Using the benefit of its experience, the Company has also offered a specialist service in fitting out and refurbishment projects for selected clients and also partner architects and building consultants; this new emphasis has resulted in a substantial increase in opportunities and contracts for Mountfield in this area, and this has been a noticeable factor in the first half of 2014.

Mountfield Construction undertakes trade contracting contracts for the UK's leading fitting out and refurbishment contractors, such as ISG, Balfour Beatty, Mansell and Bouygues. It also provides its own management and labour resources and offers trade packages, usually on a design and build basis, to meet demanding programmes on complex buildings projects, such as those relating to the alteration and refurbishment of office blocks, pharmaceutical/industrial premises and the fast track installation of schools during restricted close down periods.

Mountfield Construction also provides the labour and management for data centre projects carried out by Mountfield and supplements and supports it in its main contracting role.

Particular features of the year for the Mountfield companies were the successful completion of two large data centre projects in Birmingham and Farnborough and the winning of a large construction contract on a high profile building in Central London.

The business of Connaught, a provider of access flooring solutions to main contractors and corporate end users has, since it was acquired by the Group in 2004, supplied and installed in excess of 8 million square feet of flooring to commercial offices and data centre installations. It specializes in and has developed a strong reputation for providing and installing raised access flooring solutions designed to accommodate varying depths of floor void and finish specifications.

The increased confidence in the construction sector since 2012 has not only seen the rebirth of the fit out market, but also the return of the two-stage tender process which plays to Connaught's strengths as it enables the Company to present its professionalism and credentials and compete on quality of service, expertise and experience, rather than simply on price.

Efforts made to source work from new areas are proving successful and new relationships, particularly in the transport and leisure sectors are providing a regular stream of business, with work being gained at both Heathrow and Gatwick Airports.

A particular feature of 2013 for Connaught, was the contract won for the provision of raised access flooring at a substantial new data centre that was being constructed in Scandinavia. As a result of the success of this project for Connaught it is seeking similar overseas based data centre flooring contracts.

In 2013 Connaught also successfully completed flooring installations for two significant data centre installations for Mace and ISG Plc, respectively. 

In addition, Connaught has established itself as one of the few recognised specialists for the flooring elements of fitting out contracts in commercial office space for new build and refurbishment projects for corporate end users such as BP, HP, Linklaters, Merrill Lynch, Reed Smith, BBC, Standard Chartered Bank, UBS, Henderson Global, Lockton, Multiplex and Unilever. Currently Connaught in engaged on the installation of 40,000m2 of Flooring in a major new headquarters that is being built in the City of London.

Finance

The Group is financed from the cash it generates from its operations, with the support of a bank overdraft facility of £600,000. To help finance the rapid expansion of business activity as the recession came to an end the Group raised £450,000 in July 2013 through a share placing to EIS funds and professional investors.

The construction market

The recession that began at the end of 2008 had an immediate and dramatic impact on the Group's turnover and profitability and it was not until late 2012 that the Group noticed the first signs of recovery and an increase in construction demand.

The Group is now experiencing levels of activity in terms of work in hand, enquiries and tenders last seen in the middle of 2008, and it is from this that the Directors have concluded that the activity levels will be sustained and that their optimism for the Group's future is well based. The Board believes that the time spent marketing and developing new business during the recession will result in the award of contracts in addition to those that are currently being negotiated.

The data centre market

The data centre construction market in the UK has experienced rapid growth in demand over the last 15 years. Although the requirement for additional major data centres has lessened, that has not reduced the overall demand for construction services for the data center market as continued expansion has created and will continue to create demand for enhancements and additions to existing structures and for smaller centres.

However, an important recent development in the data centre construction market has been the demand for new centres (often of a substantial size) in the Scandinavian countries where climatic conditions help reduce the otherwise significant costs of cooling the centres. Following the construction of a large centre in Finland (for which Connaught supplied and installed the raised access flooring), further centres are now being planned in other Scandinavian countries.

The increased emphasis that will be placed on expanding the capacity of, and upgrading, existing centres means that the prospects for the data centre sector in terms of demand for specialist construction services (including raised access flooring) remains extremely good for the medium to long term.

Group's strategy

The Board has worked over the last eighteen months to ensure that the Group's profitability is not predominantly dependent on the demand from the data centre sector, notwithstanding its long established presence and reputation in it. It is for this reason that it has sought to widen the scope of the Group's activities so that, whilst working to increase the amount of income that it obtains from the data centre market, the Board has been aiming to ensure that the Group has a strong presence in other areas where the services of a company that offers high quality construction services and project management skills are likely to be in demand. The Directors are pleased to report that the success of this aspect of the strategy is demonstrated by the fact that around half of the Group's revenue is now earned from non-data centre related activities.

The Board intends to continue to grow the Group into a highly profitable, mid-sized operation that provides specialised construction services in a number of diverse but related areas. The Group's reputation has been built on its ability to undertake and to manage specialist construction services to a high level of quality and to deliver the completed project to the client on time. This will remain at the core of its strategy.

Although the Group was hit hard by the recession, it survived it without lasting damage. It did however have to put the strategy that it had developed at the time of its listing in October 2008 on hold for four years. The Directors are now keen to see the Group's revenue and profits increase through organic growth and through carefully selected acquisitions.

Organic growth will come not only from the upturn in the marketplace and from repeat business opportunities from existing clients, but also from the strong relationships being made with developers and construction professionals that will in turn create further and new opportunities.

Growth by acquisition will come from incorporating into the Group, companies that either can be integrated into it to help provide a commercially attractive, broader contract solution or which increase the Group's offering in areas which it currently has a strong track record.

Future prospects

The Board is extremely optimistic about the Group's future. Its excellent reputation in both data centre construction and in the provision of specialist construction services (such as office fitting out and refurbishment) has resulted in it being a favoured choice on projects as a main contractor or as a trade contractor on larger contracts. It is therefore well placed to benefit from the evident upturn in the construction market.

The Directors believe that the demand that the Group is experiencing in terms of enquiries, invitations to tender and, most importantly, secured orders is not of a short term nature and they are hopeful that the rates of growth of its business will, for the reasons mentioned in this Report, increase substantially over the next few years.

DIRECTORS' REPORT

The directors present their annual report and audited financial statements for the year ended 31 December 2013.

Principal activities

The principal activities of the Group are the construction and fit-out of Data Centres for the IT industry together with office fit-out and refurbishment.

Review of business

A detailed review of the development of the business is contained in the Chairman's and Chief Executive's Statement.

Results

The Group made a pre-tax operating profit from continuing operations of £844,512 (2012: £189,217) for the year ended 31 December 2013 on turnover of £12,312,140 (2012: £13,556,918).

At 31 December 2012 the Group had net assets of £5,853,656 (2012: £4,920,311).

Dividends

The Directors do not propose payment of any dividends for the year ended 31 December 2013.

Principal risks

The principal risks and uncertainties facing the Group relate to:

Attraction and retention of key employees

The Group's future success is substantially dependent on the continued services and performance of its directors, senior management and other key personnel and its ability to continue to attract and retain highly skilled and qualified personnel.

The senior executive directors of the business all have significant shareholdings in the parent company and are all permanent employees. The other senior management and key personnel, most of whom have been with the Company for a long time, are participating in the Company's share option scheme which was introduced in 2012.

Economic downturn and other macroeconomic factors

The Group's success is substantially dependent on the general level of economic activity and economic conditions in the United Kingdom.

Many of the Group's contracts, including renewals or extensions of previous contracts, are awarded through competitive bidding processes. Any downturn in the economy, or any other macroeconomic factor, either in the UK or globally, may reduce the number of contracts coming up for bidding.

The competitive bidding processes present a number of additional risks, including the incurring of substantial cost and managerial time to prepare bids and proposals for contracts that the Group may not ultimately win. The Group may face additional competition in the bidding process either from existing competitors or new market entrants.

The Company is seeking to mitigate its exposure to the sectors in which it currently operates by diversifying its client base and in particular expanding into closely aligned areas of activity. It is also seeking to diversify by modest investment in new businesses in the same sector.

Reliance on key customers and clients

The business of the Group is dependent upon the continuing contracts that it has, and relationships that it has developed, with certain customers.

Whilst signed contracts are in place with key customers, the successful completion and timing of contracted projects are not guaranteed and are susceptible to external factors outside of the control of the Group. Similarly, contracted projects may in some circumstances be susceptible to delays or variation by customers or be affected by unforeseen changes in circumstances relating to the market, technology, legislation, economic or other business factors. This may affect the cashflow and subsequent performance of the Group.

Whilst continuing to work with a well established client base, the Group is seeking to diversify through identifying other potential clients for its core Data Centre work. It is also attempting to exploit its core competencies by building links with developers which require contractors with similar skills to work on non Data Centre related projects.

Reliance on Subcontractors

The Group utilises subcontractors on a project-by-project basis to meet contractual obligations. Such projects will rely on the subcontractors performing their duties and obligations, not only in terms of timely delivery but also in terms of their performance obligations. Any such non-performance may result in time and cost over-runs on the Group's projects and reduce the value of its returns.

Subcontractors are vetted by senior management and normally engaged to work on closely defined and managed aspects of contracts. Most subcontractors have a long standing trading history with the Group.

Health and safety

The Group undertakes Construction activities, often working within difficult conditions and with heavy machinery which if improperly used could result in personal injury or in extreme cases, fatalities.

The Group takes the health and safety of its employees and clients very seriously and employs Health and Safety advisors on all significant contracts. It also has a firm of Health and Safety Advisors with whom it consults on a regular basis.

Key performance indicators

The Directors use a number of performance indicators which are used to manage the business but, as with most businesses the focus in the Statement of Comprehensive Income at the top level is on sales, margins, staff numbers and overheads compared to budget and the prior year. In the Statement of Financial Position the focus is on managing working capital.

Financial instruments

Details of the Group's financial risk management objectives and policies are included in note 19 to the financial statements.

Directors

The Directors who served during the year were:

P H Jay

G J Read

A J Collins

T Spanner (resigned 1 August 2013)

Charitable Donations

During the year the Group made charitable donations totalling £2,643 (2012: £1,642)

Substantial Shareholdings

So far as the Directors are aware the parties who are directly or indirectly interested in 3% or more of the nominal value of the company's share capital at 13 June 2014 are as follows:

Creditor payment policy

The Group's current policy concerning the payment of trade creditors is to:

a) settle the terms of payment with suppliers when agreeing the terms of each transaction;

b) ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and

c) pay in accordance with the Group's contractual and other legal obligations.

At the year end trade creditors represented 108 days' expenses.

Going Concern

The Directors have prepared and reviewed financial forecasts and the cash flow requirements to meet the Group and the Company's financial objectives. The Directors are satisfied that, taking into account the current cash resources and facilities available to the business and its future cash requirements, it is appropriate to prepare accounts on a going concern basis.

Disclosure of information to auditors

Each of the Directors who are in office at the date when this report is approved has confirmed that, as far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the Directors have confirmed that they have taken all the steps that they ought to have taken as directors to make themselves aware of any relevant audit information and to establish that the auditors are aware of such information.

Auditors

During the year Adler Shine LLP were appointed as auditors to the company. A resolution proposing the reappointment of Adler Shine LLP as auditors will be put to the members at the next Annual General Meeting.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

There are no recognised gains and losses other than those passing through the Statement of Comprehensive Income.

As permitted by Section 408 of the Companies Act 2006, no separate Statement of Comprehensive Income is presented in respect of Mountfield Group Plc. Its profit for the year ended 31 December 2013 was £313,577 (2012: loss - £ 23,301).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

The financial statements were approved by the board on 16 June 2014

Graham Read

Director

COMPANY REGISTRATION NO. 06374598

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

Merger Reserve

The merger reserve exists as a result of the acquisitions of Mountfield Building Group Limited, MBG Construction Limited, Connaught Access Flooring Holdings Limited and Mountfield Land Limited where the consideration included the issue of new shares by the Company, thereby attracting merger relief under the Companies Act 2006. The merger reserve represents the difference between the nominal value of the share capital issued by the Company and the fair value of those shares at the date of acquisition.

Reverse Acquisition Reserve

The reverse acquisition reserve exists as a result of the method of accounting for the acquisition of Mountfield Building Group Limited and MBG Construction Ltd (note 1.4).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1 Accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.

1.1 General information

Mountfield Group plc is a company incorporated in England and Wales. The registered number of the Company is 06374598. The address of its registered office is 3C Sopwith Crescent, Wickford Business Park, Wickford, Essex SS11 8YU.

1.2 IFRS compliance and adoption

Statement of compliance with IFRS

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs), IFRIC Interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The adoption of these standards has not resulted in any changes to the Group's accounting policies and has not affected amounts reported in prior years.

The financial statements have been prepared under the historical cost.

Sources of estimation uncertainty

The preparation of financial statements under IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and assumptions are reviewed on an ongoing basis and any revision to estimates or assumptions are recognised in the period in which they are revised and in future periods affected.

Significant judgements

The material areas in which estimates and judgements are applied are as follows:

Goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which the goodwill has been allocated. The value in use calculation requires the Company to estimate future cashflows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet date was £10.8 million. Details regarding the goodwill carrying value and assumptions used in carrying out the impairment reviews are provided in note 8.

Receivables

The Group reviews the net recoverable value of its accounts receivables on a periodic basis to provide assurance that recorded accounts receivables are stated net of any required provision for impairment. Factors that could impact recoverability include the financial propriety of customers and related economic trends. Changes in these factors that differ from managements estimates can result in an adjustment to the carrying value and amounts charged to income in specific periods. More details on gross balances and provisions made are included in note 11.

Accounting for construction contracts

In accordance with IAS 11 "Construction Contracts", management is required to estimate total expected contract costs and the percentage of contract completion in determining the appropriate revenue and profit to recognise in the period. The Group uses the work of expert professional Chartered Surveyors to determine accurately the level of work that has been completed by the year-end. The Group also has appropriate control procedures to ensure that all estimates are determined on a consistent basis and are subject to appropriate review and authorisation.

Share-based payments

The estimates of share-based payments costs require that management selects an appropriate valuation model and makes decisions on various inputs into the model, including the volatility of its own share price, the probable life of the options before exercise and behavioural consideration of employees.

Deferred taxation

The Group provides for deferred taxation using the liability method. Deferred tax assets are recognised in respect of tax losses where the Directors believe that it is probable that future profits will be relieved by the benefit of tax losses brought forward. The Board considers the likely utilisation of such losses by reviewing budgets and medium term plans for each taxable entity within the Group. If the actual profits earned by the Group's taxable entities differ from the budgets and forecasts used then the value of such deferred tax assets may differ from that shown in these financial statements.

Presentation and functional currency

The financial statements are presented in pounds sterling, which is the Group's functional currency.

1.3 Standards and interpretations

At the date of authorisation of these financial statements the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the Group's financial statements.

1.4 Basis of consolidation

Subsidiaries

The Group financial statements consolidate the financial statements of the Company and all its subsidiaries. Subsidiaries include all entities over which the Group has the power to govern financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control commences until the date that control ceases. Intra-group transactions are eliminated in preparing the Consolidated Financial Statements.

A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 2 to the Company's separate financial statements.

Business combinations and goodwill

On 16 October 2008, Mountfield Group plc ("the Company") acquired the entire issued share capital of Mountfield Building Group Limited, which has one wholly owned subsidiary, MBG Construction Limited (the "MBG Group") acquired in August 2008. The consideration of £7,622,000 was satisfied by the issue of 51,220,000 Ordinary Shares of 0.1p each at a price of 10p per share and by the issue of £2,500,000 unsecured non-convertible loan notes.

As a result of these transactions, the former shareholders of MBG Group became the majority shareholders in the Company. Accordingly, the substance of the transaction was that MBG Group acquired the Company in a reverse acquisition.

Under IFRS 3 'Business Combinations', the acquisition of MBG Group has been accounted for as a reverse acquisition.

The acquisitions of Connaught Access Flooring Limited, MBG Construction Limited and Mountfield Land Limited are accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree plus any costs directly attributable to the business combination.

Goodwill

Goodwill on acquisition of subsidiaries represents the excess of the cost of acquisition over the fair value of the Group's share of the net identifiable assets and contingent liabilities acquired. Identifiable assets are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but tested annually for impairment or when trigger events occur, and is carried at cost less accumulated impairment losses.

1.5 Revenue recognition

Revenue is stated exclusive of VAT and consists of sales of services to third parties.

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Retentions are recognised throughout the life of a contract and are deducted from the sales invoice.

Revenue relating to contracts includes the amount initially agreed in the contract plus any variations in contract work to the extent that it is probable they will result in revenue and can be reliably measured. As soon as the outcome of the contract can be measured reliably, revenue and expense is recognised in the statement of comprehensive income on a stage of completion basis. The stage of completion is determined by reference to a survey of work performed. Any losses are recognised immediately in the statement of comprehensive income as soon as they are foreseen.

1.6 Contract work in progress

Revenue from fixed price construction contracts is recognised on the percentage of completion method, measured by reference to the percentage of contract costs incurred for work performed to date to the estimated total contract costs or the proportion of the value of work done to the total value of work under the contract, except where these would not be representative of the stage of completion. Full provision is made for all known or expected losses on individual contracts immediately once such losses are foreseen.

1.7 Amounts recoverable on long term contracts

Profit on long term contracts is taken as the work is carried out if the final outcome can be assessed with reasonable certainty. The profit included is calculated on a prudent basis to reflect the proportion of the work carried out at the year end, by recording turnover and related costs as contract activity progresses. Turnover is calculated as that proportion of total contract value which costs incurred to date bear to total expected costs for that contract. Revenues derived from variations on contracts are recognised only when they have been accepted by the customer. Full provision is made for losses on all contracts in the year in which they are first foreseen. Amounts which are recoverable on long-term contracts are shown within debtors under the heading 'Amounts Recoverable on Contracts' which have not yet been invoiced and are stated net of discounts allowed.

1.8 Share-based payments

The Group makes equity-settled share-based payments to its employees and directors. The fair value of options and warrants granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options and warrants granted is measured based on the Black-Scholes framework, taking into account the terms and conditions upon which the instruments were granted. At each balance sheet date, the Company revises its estimate of the number of options and warrants that are expected to become exercisable.

1.9 Retirement benefits: Defined contribution schemes

Contributions to defined contribution pension schemes are charged to the statement of comprehensive income in the year to which they relate.

1.10 Impairment

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

1.11 Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation.

Property, plant and equipment is depreciated over the estimated useful life of the asset, as follows:

Freehold land Not depreciated

Freehold buildings 2% per annum straight line

Leasehold improvements Over the period of the lease

Fixtures, fittings and equipment 10% per annum reducing balance

Plant and equipment 20% - 25% per annum straight line

Motor vehicles 20% - 25% per annum straight line

1.12 Leasing

A lease is classified as a finance lease if it transfers substantially all the risks and rewards of ownership. All other leases are classified as operating leases. Classification is made at the inception of the lease.

Assets obtained under finance leases are capitalised as property, plant and equipment and depreciated over the shorter of the lease term and their useful lives. Obligations under such arrangements are included in payables net of the finance charge allocated to future periods. The finance element of the rental payment is charged to the statement of comprehensive income so as to produce constant periodic rates of charge on the net obligations outstanding in each period.

Rentals paid under operating leases are charged to the statement of comprehensive income as incurred on a straight line basis over the lease term.

1.13 Inventories

Inventories are valued at the lower of cost and net realisable value after making due allowance for obsolete and slow-moving items. Cost includes direct materials, direct labour and those overheads that have been incurred in bringing the inventory to its present location and condition.

1.14 Financial instruments

Financial assets and financial liabilities are recognised on the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

The financial instruments, which excludes current receivables and payables, comprise cash or overdraft and unsecured non-convertible loan notes. The Directors consider the fair value not to be materially different to the carrying value for the financial instruments. During the years under review, the Group did not enter into derivative transactions and did not undertake trading in any financial instruments.

1.15 Trade and other receivables

Trade receivables are recognised at fair value less any provision for impairment. A provision for impairment is made when collection of the full amount is no longer probable. Bad debts are written off when identified. The fair value of trade and other receivables are equivalent to their book values as set out in the financial information.

1.16 Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand, demand deposits and other short-term highly liquid investments that is readily convertible to a known amount of cash and is subject to an insignificant risk of change in value.

For the purpose of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents net of outstanding bank overdrafts.

1.17 Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

1.18 Share capital

The Company has one class of ordinary share, which carries no rights to fixed income. All ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.

Ordinary shares issued by the Company are classified as equity and recorded at fair value on initial recognition received, net of direct issue costs.

1.19 Trade and other payables

Trade payables are initially recognised at fair value and subsequently at amortised cost. The fair value of the trade and other payables are equivalent to their book values as set out in the financial information.

1.20 Taxation

The taxation charge represents the sum of current tax and deferred tax.

The current tax charge is based on the taxable profit/loss for the period using the tax rates that have been enacted or substantially enacted by the balance sheet date. Taxable profit differs from the net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Deferred tax is provided using the liability method, in respect of temporary differences between the carrying amount of the assets and liabilities and their tax base. Deferred tax is recognised in the statement of comprehensive income, except when the tax relates to items charged or credited directly in equity, in which case the tax is also recognised in equity.

Deferred tax assets are recognised only when it can be regarded as probable that there will be suitable taxable profits in the foreseeable future against which the deductible temporary difference can be utilised. Deferred tax is determined using tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date.

2 Segmental reporting

Segment information is presented in respect of the Group's business segments, which are based on the Group's management and internal reporting structure as at 31 December 2013.

The chief operating decision-maker has been identified as the Board of Directors (the Board). The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports and on the internal report's structure.

Segment performance is evaluated by the Board based on revenue and profit before tax (PBT). Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis, such as centrally managed costs relating to individual segments and costs relating to land used in more than one individual segment.

Given that income taxes and certain corporate costs are managed on a centralized basis, these items are not allocated between operating segments for the purposes of the information presented to the Board and are accordingly omitted from the analysis below.

The Group comprises the following segments:

Construction

Direct contracting and trade contracting services to both main contractors and corporate end users.

Fit-out

Providing raised flooring systems to both main contractors and corporate end users.

Segmental operating performance

Business segments assets and liabilities

Unallocated assets consist of deferred tax, trade and other receivables and cash held by the Parent Company. Unallocated liabilities consist of trade and other payables and interest bearing loans owed by the Parent Company.

Other segment information

Revenue by geographical destination

Revenue is attributable to the United Kingdom and other EU markets.

Total assets including property, plant and equipment and intangible assets are all held in the United Kingdom.

3 Construction contracts

Major customers

Total group revenue to four customers all relating to construction and fit-out, totalled £8,358,158, split as follows:

5 Other income and expenses

Administrative expenses include:

Average number of employees

The average number of employees (including executive Directors) was:

Wages and salaries

Key management personnel compensation

Directors' remuneration

The remuneration as disclosed for G Read includes £17,400 (2012: £17,400) of pension contributions paid for his wife, J Read. The number of Directors for whom retirement benefits are accruing under money purchase pension schemes was 1 (2012:1)

6 Income tax expense