Styles & Wood Group Regulatory News (STY)

27 April 2017

STYLES & WOOD GROUP PLC

("Styles&Wood" or the "Group")

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

Styles & Wood Group plc, the integrated property services and project delivery specialist, is pleased to announce its Results for the year ended 31 December 2016.

Financial Highlights

· Revenue down 8.9% to £104.7m (2015: £115.0m)

· Underlying EBITDA1 up 33.6% to £5.85m (2015: £4.38m)

· Underlying2 profit before tax up 26.5% to £4.10m (2015: £3.24m)

· Profit before tax up 49.4% to £3.54m (2015: £2.37m)

· Underlying basic earnings per share3 up 11.3% to 41.4p (2015: 37.2p)

· Basic Earnings per share up 34.6% at 34.2p (2015: 25.4p)

· Net Cash and cash equivalents4 increased to £6.09m (2015: £5.60m)

· Net debt reduced by 71.3% to £0.41m (2015: £1.43m)

· 2017 Order book5 week 15 up 29% to £130.2m (2015: Week 15 £100.8m)

1 Underlying EBITDA is underlying operating profit plus depreciation, amortisation and share option charge.

2 Underlying profit before tax is before charging non-recurring items and preference share accounting

3 Underlying EPS is calculated based on underlying profit before tax after charge for taxation

4 Cash balances less short-term facilities

5 Represents secured and anticipated workload at 80% success rate

Operational Highlights

· Appointed as one of four strategic partners by one of the world's largest banking and financial services organisations for the delivery of its UK Capital Plan

· Appointment confirmed as automation partner for one of the UK's major high street banks providing a turnkey solution for ATM/Rebrand services

· Specialist design build fit out works commenced for Addleshaw Goddard's corporate offices in One St Peter's Square, Manchester

· Contract successfully negotiated for the Programme Management, Design and Delivery of Projects for a national, format enhancement initiative for a UK major grocery retailer, c£15m value

· Second major project commenced for Aviva in London following on from the ongoing works to Westminster House in Manchester

· Demonstrated cross-sector expertise with Healthcare projects success, a fertility clinic for Care UK and a refurbishment scheme for BUPA, and the development of a new multiple projects relationship with easyHotels

· Launch of new Enterprise Risk and Incident Management software solution, Arctick, in partnership with Nationwide

Corporate Highlights

· Acquisition of Keysource Limited, expanding Group's services to include data centre and critical facilities work

· Post-period acquisition of The GDM Group Limited, further diversifying Group's service offering across key sectors

· New banking facilities arranged with Santander UK PLC, comprising a £5.0m Revolving Credit Facility to support the growth of the Group

Tony Lenehan, CEO of Styles & Wood Group plc, said:

"I am pleased that the Group was able to carry forward the momentum generated in 2015 to deliver further improvement in underlying profit for the year, as our selective approach to new business opportunities and cross-sector diversification continues to benefit the Group. Additionally, we have made significant progress with our diversification strategy. The acquisitions of Keysource and, post-period The GDM Group, further broaden our service line capabilities and reinforce our differentiated position within our core markets.

"The Group goes into 2017 in good shape, with a healthy forward order book, strong balance sheet and an unrelenting focus on delivering a truly integrated property services solution to our customers. We have a solid platform to deliver sustainable growth and look to the year ahead with confidence."

Enquiries:

CHAIRMAN'S STATEMENT

The Group's broadening of its service line capabilities and a selective approach to new business opportunities has resulted in a strong performance in 2016. I am pleased again to report an increase in profit before tax of 49%, relative to 2015. This is a clear testament to the improving underlying efficiency of the business. Our diversification strategy and recent acquisitions, together with a strengthening order book, provide a sound platform for future profitable growth.

Performance

Full-year revenue is 9% below last year. This is primarily due to a deferral of framework allocations into 2017. In parallel, a more selective approach to the conversion of opportunities has seen underlying profit increase by 26.5% at £4.1m (2015: £3.2m). The workload for the year continued to be characterised by repeat order business, with 76% of revenue derived from existing customer relationships. Cash of £6.1m and net debt £0.4m were particularly encouraging in the light of the funding requirements for recent acquisition activities.

Selectivity

Three strategic partnering arrangements for major blue-chip corporates have been successfully converted during the year, with initial three year terms and options for further two year extensions. This provides a sound basis for more predictable earnings and, against the backdrop of a growing pipeline of significant framework opportunities in the coming year, creates growing confidence regarding the Group's outlook.

Diversification

The Group's service line capabilities have been further strengthened. The launch of our Governance, Risk and Compliance platform in February 2017 in collaboration with Nationwide, means our professional services offer is now reflected by this clear point of difference. Similarly, the acquisition of both Keysource and, post the period end, GDM creates core business synergies and reinforces our technical credentials and relevance in the critical facilities arena.

Corporate Development

The past two years have seen significant change at Styles&Wood, in the form of a strengthened balance sheet and latterly, successful, earnings-enhancing acquisitions. A new working capital facility has been negotiated with Santander Bank to provide the necessary support for future growth. The strength of the Board, in relation to mergers and acquisitions expertise, has proved invaluable during this new and exciting phase for the Group.

Prospects

Property estate owners, operators and end users continue to seek efficiency gains through better asset utilisation. This creates a robust landscape of new business opportunities. The bandwidth of our service line is becoming increasingly relevant to our customers and, as a consequence, we are able to better leverage our existing relationships and create a broader proposition for new targets. The Board is confident that this strategic approach, reinforced by selective sector and services diversification, provides clear organic and acquisitive growth potential.

CHIEF EXECUTIVE OFFICER'S REVIEW

Our selective approach to new business opportunities has seen the Group's profit contribution increase significantly over the course of the year. A broadening of our service line capability through acquisitions supports the differentiation of our position within our core markets. This, aligned with a strengthening order book, provides growing confidence regarding the Group's outlook and opportunities for future growth.

OVERVIEW

Business Result

The Group has improved its profitability during the course of the year, both organically and through acquisition. An increase in underlying profit before tax to £4.10m [FY15: £3.24m] is underpinned by strong margin performance of 12.3% [FY15: 9.3%]. Revenues are lower than the prior year by (9%), primarily due to deferral of project and programme work into 2017. However, the forward order book has been significantly strengthened by securing three strategic customer relationships, each with a three year framework arrangement and strong performance in relation to recent acquisitions. We ended the year with cash of £6.1m [2015: £5.6m], notwithstanding the contribution required for funding the acquisitions of Keysource and, post the period end, GDM.

Group Strategy

The Group now provides a broad based range of specialist end to end property support services to our customers. Our intention remains to create a differentiated offering through the provision of an integrated property services solution. Positive cash generation in projects' work streams supports investment in professional services which in turn generates opportunities in programme management and implementation. The Group has enhanced its core skills in the period in engineering and technologies through acquisition. These specialist capabilities are reinforcing our differentiated offer and providing a better solution for both existing and new customers.

CORPORATE RESPONSIBILITY

Safety and Environment

Health and Safety continues to be the number one priority for the business. The effective implementation of safety management systems is driven from the highest level throughout the business. Our visible commitment to achieving the highest standards is endorsed by our ongoing accreditation to ISO 9001, ISO14001 and OHSAS18001. We are delighted to be recognised by the Royal Society for the Prevention of Accidents, RoSPA, with the President's Award for outstanding performance in Health and Safety at work over a period of 13 years, which demonstrates that the policies, procedures and measures implemented within the business achieve consistently high standards.

During 2016 we committed to a programme of continual improvement, and reinforced our existing processes with a "Behavioural Safety" programme which has been aimed at greater connectivity at all levels, particularly with the supply chain workforce. The programme is of key strategic importance to Styles&Wood and will provide the foundation for our safety agenda as we move into 2017.

Over the course of 2016 Styles&Wood were live on over 1500 sites and, notwithstanding the diversity in the scope and size of projects and work streams, our Accident Frequency Rate, (AFR), and Accident Incident Rate, (AIR), have both shown improvement over the prior year.

Vision Values & Responsibility

We remain committed to working together to make a difference with our customers, through the positive enhancement of their core business interests and the communities in which we jointly operate. The values we adopt in pursuit of this vision are a constant characteristic of our approach to service provision. Corporate Responsibility is embedded within our business decision-making process. As such, we are able to contribute to a better society by creating socioeconomic value and promoting environmentally responsible solutions.

SEGMENTAL REVIEW

Professional Services

2016 has seen progress on both the strategic and the operational front. The introduction of Novus, our internally developed operating platform for both internal and external customers, will provide a clear point of differentiation. A range of specialist systems, including strategic asset management, governance, risk management and compliance, backed by a multi-disciplined design and programme services capability, creates an intelligent edge to our broader service line offer. Programme management and implementation, through framework arrangements, has also been strengthened during the period through the addition of new customer relationships and an extension of existing contractual agreements. Cross selling opportunities have additionally been created through successful acquisitions. Further improvement in underlying operating profit before central costs to £8.3m over a strong prior year (FY2015: £7.4m) underscores the relevance of this approach. Around 89% of revenue in professional services has been derived from repeat customer relationships.

Contracting Services

Our success ratio in converting new business opportunities has remained better than 1 in 3, in line with prior year, and continues to support the more selective approach to new business opportunities pursued by the Group. Operating margin has improved by 56.1% with operating profit, before central costs, increasing to £4.0m [FY2015: £2.6m]. The Group now has a core expertise in the design and build of specialist refurbishment and fit-out projects. This continues to remain a diverse segment with significant, high value city centre office projects and large volume, multiple project concessions. Around 70% of business in contracting services is secured through repeat customer and adviser relationships.

Facilities Services

This is a new reporting segment for the Group and is centred on our complementary business interest, secured through the acquisition of Keysource. The associated client relationships provide opportunities to secure predictable income streams in the critical facilities and property life-cycle areas. Enhanced skills and capabilities in the building technologies space creates potential synergies through the provision of access to additional opportunities with both existing and new customers. A revenue performance of £3.2m in the last quarter of 2016 provides confidence regarding the future outlook for this segment.

DIVERSIFICATION

Business Resilience

The consolidation of our portfolio services, and programme management and implementation offer under professional services establishes a consultancy-led focus for service provision. This approach provides an intelligent suite of support services for property estate owners and operators who continue to look for smart ways to make the best use of assets. The successful implementation of the Group's acquisition plan has significantly increased our in-house technologies skills base, and provides a robust platform for the expansion of interest in facilities services.

New Sectors

Project successes in the Healthcare and Leisure sectors have helped establish reference points for future expansion. New business opportunities have been sourced in Education and Commercial, through leveraging the Group's developing service line range. These initiatives provide a positive endorsement of the Group's strategy and demonstrate the increasing market relevance of our core skills and capabilities.

Post-Balance Sheet Event

GDM was acquired for an initial consideration of £4.0m, satisfied in cash and shares, with further potential deferred and contingent cash consideration, up to £3.1m, linked to performance and commercial objectives over the next three years. The associated addition of building services and environmental design consultancy services has considerably enhanced the Group's expertise and credibility in building technologies. Additionally, the potential also exists to realise synergies with historic GDM customers, through the promotion of a broader service line offer incorporating more Group capabilities.

INTERNATIONAL

DS&W Dubai

We have restructured our interests in the Middle East through the transfer of all of our operational teams to our partner Dutco. A new model is now under consideration, where the potential for Styles&Wood to offer our partner a direct support service for specific project undertakings is currently under evaluation.

MARKETS AND OUTLOOK:

General

The Group has maintained its focus on four discrete sectors together with a number of associated, specific subsets. The continued realisation of cash generative profits within all key markets, together with a positive outlook, provides confidence for the future.

Commercial

The previously forecast high concentration of lease events and increasing drive for operational efficiency by property owners and end user occupiers, coupled with progressive changes in working practices, continues to drive demand in the requirement for office refurbishment and fit-out. The Group has received an appointment for professional services support to a leading distributor of building materials and products. This has the potential to extend to programme implementation and is a positive endorsement for the broader Group service line range.

Public and Community

Significant new opportunities are now presenting themselves in the public sector. The associated framework pipeline includes the grouping of refurbishment and fit-out for commercial offices, through the Government Hub initiative, and the aggregation of large scale capital expenditure in the Education Funding Agency framework retender which is planned for later in the year. With successful reference projects and a clear understanding of routes to market, the Group is well positioned to address these and other specific targets.

Retail and Leisure

Major grocery retailers continue to pursue strategies focused on improved utilisation of existing assets and enhanced store format. Having successfully completed a discrete national rollout programme for entrance improvement for over 300 stores in the year, the Group has a proven capability for the successful delivery of broad-based initiatives of this type.

Banking and Finance

Changes in Banking and Finance, in relation to consolidation and regional concentration for commercial and investment activities, smart technologies and the adoption of new retail models, continue to provide increased opportunities. A varied service line interest characterises a strong predictable work flow in real estate solutions. With three live client centric frameworks each with a potential five year period of exclusivity, the Group is now one of a small number of market leaders in this sector.

ORDER BOOK AND SIGHTLINE

The order book for 2017 is tracking at Week 15 around 29% ahead of prior year, strengthened by recent successful acquisitions. Additionally, the level and concentration of relevant framework opportunities being pursued by the Group is also significantly ahead of prior year.

FINANCIAL REPORT

Financial Performance

Revenue for the year ended 31 December 2016 reduced by £10.3m to £104.7m (2015: £115.0m).

Whilst revenue was lower in 2016, there was a much wider distribution by customer. The largest customer accounted for 16.6% (2015: 46.0%) of revenue and 4 (2015: 2) customers each delivered more than 10% of revenues. Revenues from these customers in 2016 were £57.3m (2015: £69.9m), reflecting a greater diversity and resilience of revenue.

Gross margin improved to 12.3% (2016: 9.3%) due to the increasingly specialist and technical nature of project work undertaken by the Group, the move into facility services through the Keysource acquisition and continuing operational efficiencies. Underlying administrative expenses1 increased to £8.0m (2015: £6.8m), following the acquisition of Keysource in September and with additional expenditure on overhead infrastructure (personnel, premises, systems) to support the Group to provide a platform for future growth [through acquisition].

1 Underlying administrative expenses exclude non-recurring administrative expenses

Underlying profit before tax2 increased by 26.5% to £4.1m (2015: £3.2m). Non-recurring expenditure on professional fees associated with acquisition of companies was £0.3m (2015: £nil); restructuring and integration costs post-acquisition of £0.1m (2015: £Nil); corporate finance fees associated with 2016 transaction £nil (2015: £0.4m); and accounting for notional interest on preference shares of £0.2m (2015: £0.5m) reduced the result to a profit before taxation of £3.5m (2015: £2.4m), an increase of 49.4%.

2 Underlying profit before tax is before charging non-recurring items and preference share accounting

Financial Cost

Net financing costs have reduced from the prior year due to the lower debt levels following the balance sheet strengthening in June 2015, and the improved trading performance of the business.

Net financing costs for the year reduced by £0.4m to £0.6m (2015: £1.0m) and included £0.2m (2015: £0.5m) of notional interest on preference shares.

Net interest and fees on bank borrowings were £0.1m (2015: £0.3m). Interest of £0.2m (2015: £0.1m) was payable on the loan notes issued during the year. Finance costs include the payment of interest on the preference shares of £0.15m (2015: £0.17m).

ACCOUNTING FOR PREFERENCE SHARE CAPITAL

The convertible redeemable preference shares of £1 each carry a cash coupon of 3% and are redeemable in tranches from December 2013 through to December 2019 or convertible into ordinary shares at a price of £9.375 at any time between August 2012 and July 2019, following the 1 for 10 share consolidation in 2014.

As the preference shares have a conversion option, the Group has to account for them in accordance with IAS 39, with the result that a proportion of the preference share capital is classed as debt with the remainder treated as equity. At 31 December 2016, £871,000 (2015: £670,000) of the preference share capital was classified as a current liability, being repayable on 31 December 2016 and £2,680,000 (2015: £3,364,000) of the preference share capital was classified as non-current liabilities, with the balance of £806,000 (2015: £993,000) shown as shareholders' equity.

In addition, IAS 32 requires that notional interest payable on the debt component is calculated based on a notional interest rate, which is significantly higher than the actual coupon rate, on the preference shares. The notional interest is charged through the Income Statement. The notional interest charge on the preference shares in 2016 was £187,000 (2015: £495,000). The cash dividend paid on the preference shares was £151,000 (2015: £174,000).

An amount corresponding to the notional interest charge, to the extent it exceeds the cash coupon, is credited to reserves, ensuring that the distributable reserves and net assets of the Group are unaffected by the accounting treatment.

TAXATION

The tax charge for the year amounted to £1.0m (2015 £0.7m).

The preference share interest charge of £0.3m (2015: £0.7m), being part notional charge and part preference share coupon, the share based payment accounting charge of £0.3m (2015: £0.0m), non-deductible expenses (including acquisition related fees), and the losses incurred by the joint venture do not qualify for corporation tax deductions or reliefs. The impact of these non-tax deductible charges against profit results in an effective tax charge on the profit before tax of 27.7% (2015: 28.6%) compared to the UK corporation tax rate of 20.0% (2015: 20.25%).

DIVIDEND

No dividends on ordinary shares are proposed in respect of the year ended 31 December 2016 (2015: £nil) and it is not currently envisaged that a dividend will be proposed on ordinary shares in the new financial year.

EARNINGS PER SHARE

Earnings per share were 34.2p (2015: 25.4p), an increase of 34.6%. Underlying earnings per share were 41.4p (2015: 37.2p).

ACQUISITION OF KEYSOURCE

On 20 September 2016, the Group acquired the whole of the issued share capital of Keysource Limited for an initial consideration of £4.5m, with contingent consideration of up to £5.0m payable dependent on financial performance for the three years ending 31 December 2018. In the period following acquisition, Keysource contributed £0.4m of underlying profit before tax to Group performance on revenues of £3.2m.

STRENGTHENED BALANCE SHEET

For the first time since flotation in 2007, the Group has reported a consolidated balance sheet with positive net assets of £3.4m at 31 December 2016 (2015: net liabilities £1.0m). The improvement in financial strength is attributable to profitable trading, the issue of equity to the vendors of Keysource as part of the consideration and the exercise of the outstanding warrants.

NET CASH AND CASH FLOW

The Group closed the year, with net cash balances less short-term facilities at 31 December 2016, of £6.1m (2015: £5.6m), a net inflow of £0.5m. The net cash inflow from operations was £6.2m (2015: £7.5m) with an inflow before working capital movements of £5.5m (2015: £4.0m) reflecting the improvement in underlying profitability.

Capital expenditure on property, plant and equipment, and software development was materially higher than prior year at £1.8m (2015: £0.3m) with the investment in the new Head Office Cavendish House, and the investment in product development in the iSite business of the Governance Risk and Controls product, "Arctick" and "Novus", iSite's new Property Management Information system.

Investing activities include £3.5m of cash consideration on the acquisition of Keysource Limited.

There was a small net outflow from financing activities of £0.03m (2015: £2.1m) as the proceeds from exercise of the outstanding warrants and reduction in cash collateral deposits offset financing costs and redemption of preference shares.

Overall, the Group's net debt1 reduced to £0.4m (2015: £1.4m). In February 2017, the Group entered into new banking arrangements with Santander PLC. The arrangement is for a committed £5.0m Revolving Credit Facility with a term of two and a half years.

1Net debt comprises cash and cash equivalents less loans, preference shares and commitments under hire purchase agreements

INTERNATIONAL

A strategic review of our interests in Dubai was undertaken in conjunction with our partner in-region. The management effort to service a broad customer base and fund the working capital dynamics required in-region were viewed to be disproportionate to the returns. Following the review, the venture was repositioned in 2016 to focus on select, major fit-out opportunities to be undertaken with our in-country partner, rather than attempt to service a broad customer portfolio. The share of losses included within the consolidated results are £0.38m (2015: £0.14m).

There is no difference between the profit/(loss) for the year and the total comprehensive income for the year. Accordingly no separate statement of comprehensive income has been presented.

All activities are derived from continuing operations. The Income Statement includes the results of Keysource Limited, following its acquisition on 20 September 2016 (see note 30). The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent company income statement or statement of comprehensive income.

The profit of the parent company for the year ended 31 December 2016 was £550,000 including a dividend received of £2,000,000 and after charging a notional charge for effective interest on preference shares of £187,000 (2015: profit of £1,473,000 including a dividend received of £3,000,000 and notional charge on preference shares of £495,000).

Consolidated Statement of Changes in Equity for the year ended 31 December 2016

Notes to the preliminary results

1. Basis of Preparation

The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, IFRS IC interpretations and the Companies Act 2006.

The Group Financial Statements have been prepared under the historical cost convention.

While the financial information included in this announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies used in preparation of the announcement have remained unchanged from those set out in the Group's 2015 statutory Financial Statements, except for segmental reporting (see below). They are also consistent with those in the Group's statutory Financial Statements for the year ended 31 December 2016 which have yet to be published. The results for the year ended 31 December 2016 were approved by the Board of Directors on 26 April 2017.

The financial information set out in this announcement does not constitute the Group's statutory Financial Statements which were approved by the Board of Directors on 26 April 2017. The auditors have reported on the Group's statutory Financial Statements and the report was unqualified and did not contain a statement under section 498 (2) or 498 (3) Companies Act 2006. The statutory Financial Statements for the year ended 31 December 2016 have not yet been delivered to the Registrar of Companies and will be delivered following the Company's Annual General meeting.

The comparative figures are derived from the Group's statutory Financial Statements for the year ended 31 December 2015, which carried an unqualified audit report, did not contain a statement under section 498 (2) of 498 (3) Companies Act 2006 and have been filed with the Registrar of Companies.

Going Concern

The Group has a strong cash position at the year-end of £6.1m. In addition, in February 2017, the Group entered into a £5.0m revolving credit facility with Santander. The directors have reviewed the Group's forecasts and projections, including assumptions concerning capital expenditure and the impact on cash flows, and have a reasonable expectation that the Group has sufficient financial resources to continue its operations for the foreseeable future. For this reason they have continued to adopt the going concern basis in preparing the Financial Statements.

Critical accounting estimates and judgements

Use of Estimates

The preparation of Financial Statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period.

Although based on management's best judgements, actual results may ultimately differ from estimates made. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

These estimates and assumptions are rigorously reviewed by the Board on an ongoing basis. The revenue recognition policy is discussed further below.

Revenue recognition

The Group uses the percentage-of-completion method in accounting for its fixed price contracts to deliver property services. Use of the percentage-of-completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed, which requires management judgement. Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense when incurred, and revenue is only recognised to the extent of the contract costs incurred that it is probable will be recoverable.

Income taxes

Judgement is also required in determining the provision for corporation tax. The Group recognises liabilities for corporation tax based on management's assessment of the tax treatment of transactions and makes provision for tax enquiry issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which agreement is reached.

Acquisition accounting

The valuation of customer relationship intangible assets arising on acquisition of subsidiaries are based upon management's assessments of projected cash flows. These calculations require the use of estimates. Other acquisition related fair value adjustments are also calculated (note 30). The fair values of customer relationships and assets and liabilities acquired are calculated based upon historical and prospective information, and financial data specific to the business combination, with an appropriate discount factor applied based upon the weighted average cost of capital for the Group.

Share-based payments

Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. The fair value of services received in return for share options is calculated with reference to the fair value of the award on the date of grant. A Black-Scholes model has been used to calculate the fair value and the Directors have therefore made estimates with regards to the inputs to that model, including risk-free rate and the period over which the share award is expected to vest (note 22).

Carrying value of investments

The Company regularly reviews the carrying value of its investments in subsidiaries and, if necessary, makes an impairment charge if the carrying value of the investments is considered to be greater than their recoverable value based upon the anticipated profits and cash flows. Should assumptions regarding anticipated profits and cash flows change, then the carrying value and amount of impairment may require adjustment.

In determining the fair value of the debt and equity components of convertible redeemable preference shares, an assumption regarding the fair value of each component is made on issue.

This assumption is not revisited subsequent to issue.

Segmental reporting

Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. Segmental reporting disclosures have been amended to fall in line with the Group's new management reporting, and results are now disclosed for the following operating segments. Comparative disclosures have been restated accordingly.

Contracting Services

Projects: Styles & Wood fulfils the role of Principal Contractor for projects with typical project values ranging from less than £100,000 to over £20m. Projects range from minor refresh to comprehensive refurbishment, shell fit-out, acquisition conversion, or complex structural re-configuration and renewable solutions.

Professional Services

Frameworks: Formal framework agreements with contractors and suppliers create the ideal forum for sharing best practice in planning, procurement and delivery. Styles &Wood delivers major roll-out programmes for its framework customers and has been actively providing collaborative services to many of these customers through systems developed and refined in over a decade of Partnering and formal Framework Agreements.

Design:

Design provides outsourced design and development services including architectural services, space planning, retail initiative design and models and standards work.

iSite:

iSite provides clients with technology-based property information solutions that store, manage and communicate critical data relating to their property portfolio and associated property activities. This data can include design models, supplier allocations as well as project specific data.

Facilities Services

Facilities management and the provision of service to assist in managing clients' properties including critical facilities.

The Group's trade is generated primarily in the United Kingdom and, as such, the Group has only one geographical segment. The Group has a joint venture in Dubai and its results are currently immaterial to those of the Group. Its business segments are therefore its reportable segments.

Segment revenues, results, assets and liabilities include amounts directly attributable to a segment and amounts that can be reasonably allocated to a segment. Amounts that cannot be allocated to segments are included as unallocated.

2. Segmental reporting

All revenues arise from external customers for the provision of property related services in the UK. All assets are domiciled in the UK. Operating segments are reported in a manner consistent with the internal reporting to the Board of Directors (the chief operating decision maker), which is used to assess performance and make strategic decisions. Segmental reporting disclosures have been amended in line with the Group's new management reporting. Comparative disclosures have been restated accordingly in the table above.

Unallocated assets and liabilities include property, plant and equipment, software, cash and cash equivalents, interest payable, current and deferred tax liabilities and borrowings.

Unallocated segment result reflects expenses relating to overall operation of the Group rather than a particular segment, and includes central people costs, professional fees and share option expenses. Transactions between segments are eliminated on consolidation.

In 2016 revenue of £57,251,000 was generated from four external customers, each of which contributed more than 10% of Group revenue. The most significant contributed revenue of £17,348,000. In 2015 two external customers each contributed more than 10% of Group revenue; the total revenue from these two customers was £69,878,000.

3. Non-recurring items and preference share accounting

The Group's results include the following items:

(a) In 2016, restructuring costs relate to costs associated with the restructure and integration of Keysource Limited following its acquisition.

(b) Professional fees incurred on the acquisition of Keysource Limited and The GDM Group Limited. The acquisition of Keysource Limited created £1,050,000 of share premium in the Group, against which fees incurred on the transaction of £75,000 have been allocated and offset.

(c) Corporate finance fees are for work on transactions in 2015.

(d) Tax on non-recurring items reflects the non-deductibility of the notional interest on preference shares, and costs relating directly to acquisition activity.

4. Finance costs

5. Taxation

The standard rate of tax applied for the year ended 31st December 2016 is 20.0% (2015: 20.25%). The effective tax rate for the year ended 31st December 2016 is 27.7% (2015: 28.6%). The differences are explained in the table below.

Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and the Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 17% from 1 April 2020. Deferred taxes at the balance sheet have been measured using these enacted rates and reflected in these Financial Statements.

6. Earnings per share

Reconciliations of the earnings and the number of shares used in the calculation are set out below:

On 19 June 2015, the Group issued 364,600 nil cost warrants for a consideration of £182,300 and a five year warrant over 740,000 new ordinary shares exercisable at a price of 75p per share. These warrants were redeemed on 20 September 2016 resulting in the issuance of 1,104,600 ordinary shares. The warrants were dilutive up to the point of redemption, which has been accounted for in the diluted earnings per share calculations.

The hurdle shares, and options awarded under the Performance Share Plan, are dilutive. The impact of the dilution of earnings per share has been calculated, based on average share price in 2016 from the date of award.

On 1 January 2015, the Company had outstanding 13,000,000 convertible preference shares which were convertible into 1,386,667 ordinary shares. On 19 June 2015 2,000,000 convertible preference shares which were redeemed and 5,200,000 convertible preference shares which were converted into 554,666 ordinary shares, and on 31 December 2015 1,000,000 of the shares were redeemed leaving 5,026,860 shares in issue which were convertible into 536,198 ordinary shares.

7. Dividends

No interim dividend on ordinary shares was paid during the year (2015: nil) and no final ordinary dividend is proposed (2015: nil). A dividend on the preference shares accrued from 1st September 2012 at a rate of 3%. The charge for the year ended 31st December 2016 was £151,000 (2015: £174,000).

8. Cash flow from operating activities

9. Net cash

Net cash represents cash at bank and in hand and excludes preference shares classified as debt .

10 Related party transactions

In the year ended 31 December 2016, the Company paid fees of £Nil (2015: £85,000) to Rickitt Mitchell & Partners Limited in respect of Paul Mitchell's services as a Non-Executive Director.

In the year ended 31 December 2016, the fees of £35,000 (2015: £18,555) to Business Growth Fund and accrued interest payable of £100,000 (2015: £53,699) on loan notes issued to the Business Growth Fund.

The following transactions have taken place between the Group and entities over which Paul Bell, who has a 25% (2015: 31%) shareholding in the Company. All transactions were undertaken in the ordinary course of business with normal commercial terms and with no security given.

The Company received a dividend from its subsidiary company, Styles & Wood Investments Limited, during the year of £2.0m (2015: £3.0m).

There were no sales and purchases between Group companies during the year (2015: nil). Movements in inter-company balances occur in relation to the loan of cash, the transfer of group relief for taxation purposes and where certain expenses of the Company are paid for by a subsidiary company (£899,000 expenses for Styles&Wood Group plc and £75,000 for Maraq Limited paid for by Styles&Wood Limited).

11 Availability of Financial Information

Copies of the Group's audited statutory accounts are available on the company's website and a printed version will be dispatched to shareholders in due course.