Henry Boot plc
Annual Report 2015

Plain-text annual report

Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock code: BHY H e n r y B o o t P L C A n n u a l R e p o r t a n d F i n a n c i a l S t a t e m e n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 5 Cohesive Consistent Confident Henry Boot Annual Report 2015 Strategic.indd 3 12/04/2016 13:33:08 Welcome to our 2015 Annual Report “ I am delighted to report a 14% increase in profit before tax to £32.4m for the year ended 31 December 2015. Once again, all our business segments performed well within a solid UK economy. “ The results achieved in this year, and the quality of the opportunities we have, are a testament to our teams of talented individuals.” Year of transition and strong progress In a year of many changes, our belief in our founder’s values, our purpose and our strategy, as well as careful succession planning, gave us the confidence that we could continue to deliver consistently to our stakeholders. Our cohesive approach has allowed us to make strong progress. I am delighted to report a 14% increase in profit before tax to £32.4m for the year ended 31 December 2015. Once again, all our business segments performed well within a solid UK economy. Profit growth and a reduced pension deficit saw our net asset value per share rise by 16p to 168p per share. Our strategic land business is operating in stable market conditions. There is good demand for high quality residential sites from the strongly performing UK house builders, which is matched by a good supply of planning permissions. Within commercial property development, 2015 has seen several larger scale developments move to the delivery stage with the result that 2016 will see us begin to deliver approximately a dozen projects with a gross development value (GDV) of around £500m over a period of four years. In excess of 90% of this GDV is pre-sold and almost all is pre-let. In addition, we delivered over 40 houses from our jointly-owned house builder and expect to add to this in 2016. Our Construction segment, including a strong performance from plant hire, once again performed well, underpinned by the stable income stream from our PFI project, delivering expected levels of return. Board changes John Brown and Mike Gunston retired as Non-executive Chairman and Non- executive Director respectively at the end of 2015. On behalf of the Company, I would like to thank them for their valuable contribution over the last nine years. At that time, I became Non- executive Chairman, whilst John Sutcliffe, previously Group Finance Director, took over from me as Chief Executive Officer and Darren Littlewood, previously Group Financial Controller, moved into the role of Group Finance Director. As announced in August 2015, Joanne Lake, Peter Mawson and Gerald Jennings joined the Board as Non-executive Directors. The newly constituted Board has many years of experience within Henry Boot or the broader real estate industry, as well as in corporate finance, and is committed to the delivery of our strategy into the future. Henry Boot Annual Report 2015 Strategic.indd 4 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:33:11 headingLevelOne headingLevelTwo headingLevelThree headingLevelFour Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY strapline Intro Quote Body • Bullets a. AlphaListw 2. NumbersList iii. RomanList Financial-strapline Financial-body • Financial-bullets a. Financial-alphaList 2. Financial-numbersList iii. Financial-romanList Notes-strapline Notes-body • Notes-bullets • Notes-bulletsBespoke ❱ Notes-bulletsChevron a. Notes-bulletsDash b. Notes-alphaList 3. Notes-numbersList iv. Notes-romanList Financial-headingLevelOne Financial-headingLevelTwo Financial-headingLevelThree Financial-headingLevelFour Notes-headingLevelOne Notes-headingLevelTwo Notes-headingLevelTwoCont Notes-headingLevelThree Notes-headingLevelFour Dividend I am pleased to report that following on from another very good result, the Board will recommend an increased final dividend of 3.80p, giving a total for the year of 6.10p (2014: 5.60p), an increase of 9%. Payment of the final dividend is subject to shareholder approval at the AGM and will be paid on 31 May 2016 to shareholders on the register as at 29 April 2016. Our talented team The results achieved in this year, and the quality of the opportunities we have, are a testament to our teams of talented individuals. Their skill, hard work and dedication continue to deliver great projects and bring in new opportunities for the future. On behalf of the Board and our shareholders, we thank them for their continuing efforts once again. I look forward to reporting on our combined teams’ further successes through 2016 and beyond. Outlook The coming year should see us deliver more commercial development schemes than at any time in the Company’s history. Our portfolio covering strategic land, commercial development and construction projects has never been larger or as far advanced in planning terms. The degree to which we have already achieved pre-lets, pre-sales and planning permissions gives us great confidence in our ability to deliver these schemes profitably and we are fully focused on this. Our strategy remains to deliver long-term growth in shareholder value and we continue to successfully acquire early stage strategic land and commercial development opportunities for our business to enable us to continue to create future value. I have taken over as Chairman with the business in excellent shape and with our people energised to deliver significant growth in activity. I look forward to reporting on progress through 2016 and beyond. Jamie Boot Chairman 22 April 2016 Highlights of the year • Circa £500m of commercial activity expected to commence in 2016 concluding over the next four years. Mostly pre-sold and almost all pre-let. • Almost 150 strategic land schemes throughout the country with over 12,000 permissioned units to sell over the next 3-5 years. • Sales of 1,763 plots in the year compared to 1,107 in 2014. • Within Construction, major contract at Stocksbridge concluding in 2016, a new similar sized three-year contract to follow on, underpinning activity up to 2019. • Succession planning Board changes implemented seamlessly during 2015. New team takes business on in great shape. • Record dividend of 6.10p, a 9% increase. • Gearing levels stable despite significant growth in activity. Read more information in our Financial Review on pages 32 to 37 Quick links to further reading Strategic Report Governance Pages 6 to 47 Pages 48 to 79 Financial Statements Shareholder Information Pages 80 to 133 Pages 134 to 144 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Visit us online For more information on Henry Boot PLC please visit our website at www.henryboot.co.uk n o i t a m r o n f I l r e d o h e r a h S 1 12/04/2016 13:33:19 Henry Boot Annual Report 2015 Strategic.indd 1 24415.04 12 April 2016 1:31 PM Proof 6 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Overview Consistent Performance Our year in numbers Group The strength of our business and our consistent growth is achieved through our diverse business segments. This business model allows us to invest prudently in appropriate market opportunities throughout the business cycle, delivering long-term shareholder value growth. Read more about how our segments support our Business Model on pages 10 and 11 Profit before tax (£m) +14% £32.4m Net debt (£m) +7% £38.9m £32.4 £28.3 £36.1 £36.4 £38.9 £16.1 £13.4 £18.4 £21.9 £2.3 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Net asset value per ordinary share (p) +10% 168p 142p 139p 148p 152p 168p Dividends per ordinary share (p) +9% 6.10p 4.70p 5.10p 4.25p 6.10p 5.60p 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Earnings per ordinary share (p) Operating profit (£m) +8% 17.5p +13% £31.7m 17.5p 16.2p £31.7 £28.0m 6.9p 7.0p 8.6p £19.0m £16.9m £14.2m 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Pictured Burdiehouse near Edinburgh, a development of over 300 houses. Pictured Euro Garages based at Markham Vale Derbyshire. Pictured Yeadon extra care housing scheme awarded by Leeds City Council. 2 Henry Boot Annual Report 2015 Strategic.indd 2 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:33:23 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Segmental performance Land Development Hallam Land Management Limited The strategic land and planning promotion arm of the Henry Boot Group. Our experienced land and planning teams promote opportunities through the complexities of the UK planning system and sell schemes to the UK house builders. The company has been acquiring, promoting, developing and trading in land since 1990. Property Investment and Development Construction Henry Boot Developments Limited A major established leading force in the UK property development market. The company has also built up an investment portfolio of over £100m in recent years. Stonebridge Projects Limited A jointly owned company in the north of England which develops family homes that combine care, consideration and attention to detail. The company also provides high specification fully serviced office space to small business occupiers. Henry Boot Construction Limited Specialising in serving both public and private clients in all construction and civil engineering sectors. Banner Plant Limited Offering a wide range of construction equipment and services for sale and hire. Road Link (A69) Limited Road Link has a 30-year contract (ten years remaining) with Highways England to operate and maintain the A69 trunk road between Carlisle and Newcastle upon Tyne. Total revenue (£m) +20% £46.7m Total revenue (£m) +93% £50.3m Total revenue (£m) +3% £90.6m £46.7 £37.6 £39.0 £30.1 £8.8 £37.9 £26.1 £12.8 £15.7 £50.3 £80.0 £82.2 £72.3 £88.3 £90.6 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Profit before tax (£m) +46% £19.1m Profit/(loss) before tax (£m) Profit before tax (£m) -24% £3.5m -2% £9.9m £19.1 £13.1 £1.9 £4.6 £3.5 £10.1 £9.9 £8.6 £9.0 £11.1 £11.1 £5.9 (£2.3) £1.9 2012 2011 2013 2014 2015 (£4.7) 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 Strategic.indd 3 24415.04 12 April 2016 1:31 PM Proof 6 3 12/04/2016 13:33:24 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY OUR VALUES Our reputation is a key asset which is fundamental to the success of Henry Boot PLC; our values are what ensure that employees, suppliers, investors and other stakeholders have the confidence to trust that we will carry out business ethically. By embedding these values in our actions we strengthen the ability to deliver long-term shareholder value and competitive advantage. These values are fundamental in creating an environment of trust where all can thrive and in doing so securing the future of our business by creating long-term, sustainable relationships. All stakeholders should believe in and uphold our core values: Respect, Integrity, Excellence and Innovation. Read more about Corporate Responsibility on pages 24 to 31 OUR BOARD OF DIRECTORS AND SENIOR MANAGEMENT In October we welcomed Joanne Lake, Peter Mawson and Gerald Jennings as new Non-executive Directors to the Board. They bring extensive corporate finance, planning, strategic land and commercial development experience to the Company and are, therefore, ideally suited to support our Group Executive team. We are in no doubt that they will make a strong contribution to the delivery of our strategic goals into the future. In December John Brown and Michael Gunston retired from their positions of Chairman and Senior Independent Non-executive Director respectively. We would like to thank them both for their wise counsel and dedicated service over the last nine years and wish them well for the future. Jamie Boot also relinquished his role as Group Managing Director in December and was appointed Chairman to succeed John Brown. At the same time John Sutcliffe was appointed Chief Executive Officer and Darren Littlewood as Group Finance Director. Also in December we saw the retirement of Keran Power as Managing Director of Hallam Land Management Limited. Keran had been Managing Director for six years and previously a Director of the business for 12 years. We thank him for all his endeavours and wish him well in his retirement. He has been succeeded by Nick Duckworth who has worked for Hallam for over 23 years, 14 of which have been as a Director. Pictured (from left to right): Russell Deards, John Brown, Peter Mawson, James Sykes, John Sutcliffe, Michael Gunston, Gerald Jennings, Joanne Lake, Jamie Boot, Simon Carr, Trevor Walker, Darren Littlewood, David Anderson, Giles Boot, Darren Stubbs. Read more about our Board of Directors and Senior Management on pages 50 and 51 Inset: Keran Power and Nick Duckworth. 4 Henry Boot Annual Report 2015 Strategic.indd 4 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:33:28 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l Strong agile leadership team . . . now and for the future i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 5 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 5 12/04/2016 13:33:31 “ As we progress and evolve our key objective remains consistent . . . to maximise shareholder value” John Sutcliffe Chief Executive Officer Q A How do you see the business progressing and developing over the next five years? Our business segments are all operating in relatively stable markets. Pricing and activity are at reasonably good levels and I see little evidence of the excessive pricing or leverage that typified the end of the last property cycle. Therefore, with land and commercial development portfolios that are larger and more advanced than at any stage in my ten-year experience at Henry Boot, the marketing, sale and completion of those opportunities is our key focus, whilst economic conditions remain supportive. Over the last five years our teams have created a very valuable portfolio of schemes. We aim to realise this potential for shareholders over the next five years. Read more information on Risk on pages 42 to 47 Henry Boot Annual Report 2015 Strategic.indd 6 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:33:34 Strategic report The Directors present the Group Strategic Report for the year ended 31 December 2015. This report sets out how Henry Boot continues to create consistent value through the promotion of new land opportunities, the development of and investment in high quality property assets and construction activities. The Strategic Report on pages 6 to 47 has been approved by the Board and signed on its behalf by John Sutcliffe Chief Executive Officer Darren Littlewood Group Finance Director 22 April 2016 Contents 08 Our Strategy 09 Our Initiatives to Support our Key Objective . . . To Maximise Shareholder Value 10 Supported by the Diversity of our Business Model 12 Land Development 16 Property Investment and Development 20 Construction 24 Corporate Responsibility 32 Financial Review 38 Key Performance Indicators – Financial 40 Key Performance Indicators – Non-Financial 42 Managing Risk Henry Boot Annual Report 2015 Strategic.indd 7 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:33:36 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Our Strategy We define our key objective as follows: to maximise long-term shareholder value through the promotion of land development, the development of and investment in high quality property assets and construction activities. The Group Structure Land Development Property Investment and Development Construction Hallam Land Management Limited Henry Boot Developments Limited Henry Boot Construction Limited Stonebridge Projects Limited Banner Plant Limited Road Link (A69) Limited Benefits of our structure The Group is structured so all three business segments contribute financially in different ways to meet our key objective and business initiatives. Our construction and property investment elements produce relatively stable profits and cash flows every year. This income allows Henry Boot PLC to maintain long- term bank funding relationships which provides capital for us to invest in our strategic land and property development portfolios. This in turn produces cyclical, longer-term profits and potentially strong, though cyclical, cash flows. So in essence construction and property investment income and investment properties allow us to borrow money from banks, at more attractive rates than would otherwise be available, which we then invest prudently in strategic land and property development. These activities are riskier and give us varying amounts of profit through each economic cycle. These profits, in good years, contribute significantly to the stable profits from construction and property investment, allowing reinvestment into the business and the payment of rising dividends to shareholders. Each part of the Group supports the other, giving us an overall business efficiency from each segment of the business. This can be seen from our business model on page 10. Delivering our key objective This key objective is central to all decisions to allocate capital to the projects we undertake. Further considerations which help achieve the key objective are dividends to our equity shareholders, funding our defined benefit pension scheme, investing in existing and new opportunities in our asset portfolio and managing the utilisation of our bank facilities and debt levels. A consideration that goes to the heart of our strategic discussions is a rather under-utilised concept today – prudently investing for the long term. Henry Boot has been in operation since 1886, has seen many economic cycles come and go but has continued to provide an increased income return to shareholders over many years. Our strategic decision making has to be flexible enough to deal with the vagaries of the economic cycle, maximising opportunities arising throughout the cycle and successfully achieving our main business initiatives noted on page 9. These goals have to be achieved whilst at all times maintaining prudent borrowing levels to ensure that the long-term security of our asset base and our ability to pay dividends is not compromised. It is through this balance of risk- weighted rewards that we aim to create shareholder value into the long term. 8 Henry Boot Annual Report 2015 Strategic.indd 8 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:33:36 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Our Initiatives to Support our Key Objective . . . To Maximise Shareholder Value Business Initiative How we’ll measure progress How our model supports this How we are responding Provide growing long-term shareholder returns • Shareholder value • Long-term financial strength • Shareholders’ funds • Resources Create regular revenue streams through retained property assets, rental income and construction activities • Revenue • Construction • Return on capital employed • Property investment • Investment property Achieve long-term funding relationships with financial partners and maintain prudent levels of gearing at less than 50% of net assets Create long-term cyclical revenue potential and realisation through land development and property development • Gearing levels • Long-term financial strength • Revenue • Net assets • Long-term revenue • Land development • Asset value creation • Property development Provide a long-term commitment to high levels of dividend cover • Earnings per share • Long-term financial strength • Dividend cover • Resources Achieve a return on capital in excess of 10% • Profit • Net assets • Construction • Property investment • Return on capital employed • Property development • Land development Recruit and retain the highest calibre of people to meet our key objective • Long-term success of • Talented people businesses • Individual performance targets met • Successful and motivated Pages 6 to 47 Pages 16 to 23 Pages 32 to 37 Pages 12 to 19 Pages 6 to 47 Pages 32 to 37 Pages 24 to 28 Henry Boot Annual Report 2015 Strategic.indd 9 24415.04 12 April 2016 1:31 PM Proof 6 i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S 9 12/04/2016 13:34:03 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Supported by the Diversity of our Business Model The creation of value and achieving our key objective of maximising long-term shareholder value is underpinned by our business model. Our property investments and construction activities generate recurring revenue streams which allow us to maintain and benefit from long-term funding relationships at prudent gearing levels, which in turn enable land development and property development activities to create cyclical long-term revenue potential and realisation. Our model is supported by our talented people, who through their enthusiasm continue to drive business success, retaining the values that have been fundamental to the longevity of our business. Being responsible in our work ensures we treat all our stakeholders with integrity and respect. L o n g - t e r m Financial Strength R e c u r r i ng Revenues Construction Property Investment Land Development Property Development Cyclical Reven u e s Long-term Financia l S t r e n g t h S U P P O R T E D B Y Y B D E T R O P P U S 10 Henry Boot Annual Report 2015 Strategic.indd 10 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:03 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Long-term Financial Strength Talented People Responsible Practices We have long-established relationships with our key funding partners, Barclays Bank PLC, The Royal Bank of Scotland plc and Santander UK plc. We maintain headroom within our three-year banking facilities, renewed from February 2015, and consider our property investment portfolio as a ‘store of value’ to be realised to augment these facilities if required. The land bank and development opportunities, together with the investment portfolio, have been acquired largely from retained resources ensuring our gearing levels are prudent. In the longer term we aim to achieve a healthy return on capital employed and dividend cover for reinvestment in our core activities which, in turn, creates improving longer-term shareholder returns. The Group’s employees are at the heart of all that we achieve. Our people are highly talented, successful and motivated individuals and are essential to the success of the Group. We are committed to ensuring that we have the right people working for us and we manage this process through a robust people strategy. Their skill, commitment, drive and enthusiasm are vitally important to the long-term success of our business. We succeed in the delivery of shareholder value because our people, individually, achieve the targets set for them. They source and acquire land, promote planning consents, acquire, develop, manage or sell investment properties and service constructors with plant, run our PFI project and refurbish and construct buildings. Continuous improvement lies at the heart of our business and our corporate responsibility programme supports our business approach to acting responsibly whilst we continue to grow and evolve our business operations. Core to our continuing progress are four key aims: 1. To ensure that all our employees have a safe and healthy work environment. 2. To support our people in realising their full potential. 3. To support the development of the local communities in which we operate. 4. To take responsibility and reduce our impact on the environment. Our revenues have remained consistently strong and allowed us to weather the cyclical economic landscape, through the diversification of our activities. This is how our individual business segments have contributed to the Group over the last five years. Profit before tax (£m) Group revenue (£m) 35 30 25 20 15 10 5 0 CAGR 19.1% £19.1 £13.1 £11.1 £5.9 (£4.7) 2011 £1.9 £1.9 £8.6 2012 £11.1 £9.0 (£2.3) 2013 £4.6 £10.1 £3.5 £9.9 2014 2015 200 150 100 50 0 CAGR 11.4% £37.6 £37.9 £82.2 £39.0 £26.1 £88.3 £46.7 £50.3 £90.6 £30.1 £12.8 £72.3 £8.8 £15.7 £80.0 2011 2012 2013 2014 2015 Land Development Property Investment and Development Construction Delivering long-term shareholder value i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Prudent Gearing Strong Governance Consistent Dividend Policy n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 Strategic.indd 11 24415.04 12 April 2016 1:31 PM Proof 6 11 12/04/2016 13:34:03 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Land Development Hallam Land Management The company has been acquiring, promoting, developing and trading in land since 1990. We have established an outstanding record in resolving planning and associated technical problems in order to secure planning permission for a whole range of different land uses. Key Sectors: • Housing • Sustainable communities • Business parks CASE STUDY LUBBESTHORPE, LEICESTERSHIRE Hallam is in partnership with two other developers on this 970 acre site. A minded to grant resolution was secured for 4,250 homes, our share being 1,593 properties, in 2013. The scheme also consists of a 50 acre business park, a district centre, two local centres, a secondary school and two primary schools. In late 2013 we negotiated a highly complex Section 106 agreement which has recently been signed, confirming our largest single permission. Preparatory infrastructure works are now under way on the M1 near Leicester Forest East to install the new M1 Bridge which will create one access point to the site. Works have also commenced for the southern access point to the development. The new bridge is expected to open by late 2016 and the housing development will commence thereafter. 12 Henry Boot Annual Report 2015 Strategic.indd 12 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:07 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Creating long-term cyclical revenue potential and realisation through strategic land development i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 13 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 13 12/04/2016 13:34:10 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Land Development Review “ We will continue to invest in our land portfolio, having careful regard to ensuring our investments are focussed where house builders wish to build.” Keren Power and Nick Duckworth Hallam Land Management Limited During the year we sold sites at Cranbrook (Exeter), Nuneaton, Chellaston (Derby), Haddington, Biddenham (Bedford), Frome, Repton, Pontefract and Edinburgh. In total, our interests in 1,763 plots were sold, a 59% increase on 2014’s 1,107 plots. The new Government confirmed its commitment to housebuilding, most notably by enforcing National Planning Policy Framework guidance on a five year land supply. We won a number of appeals during the year, including one at Warton, Fylde, where we secured permission for 360 dwellings in advance of an emerging Neighbourhood Plan. During the course of the year we achieved planning consent (or consent subject to a Section106 legal agreement) on our sites in Aldingbourne, Aslockton, Chesterfield, Coxhoe, Haddington, Langho, Launceston, Lutterworth, Market Harborough, Marston Moretaine, Prestonpans, Woodville, Selby and Handcross. At the end of 2015 we had increased our total land interests to over 11,000 acres, 1,982 acres of which has planning consent for over 12,000 plots, and 1,160 acres is allocated in a plan for residential development. Highlights of the year • Disposals of 1,763 plots in 2015 (1,107 plots in 2014) • 12,000 units with planning permission • Nine site disposals during the year and 15 new sites added to the portfolio Progress in 2015 2015 started with a period of pre-election uncertainty but, once concluded, our house builder customers once again made land purchases enabling us to deliver a pre-tax profit from our strategic land business of £19.1m (2014: £13.1m). As the year progressed, we found house builders becoming more selective as they replenished their land banks towards the required level. However, high quality consented sites in good locations continue to be highly sought after and to command good price levels. Profit before tax (£m) +46% £19.1m Land (acres) +11% 11,061 £19.1 9,011 7,246 8,051 6,619 9,723 7,932 9,985 8,166 11,061 9,257 £11.1 £13.1 £11.1 202530 0102030 152020 101510 201420152016 2011 £1.9 2012 2013 2014 2015 2011 2012 2013 2014 2015 1,432 1,765 1,791 1,819 1,804 Owned Option and Planning Promotion Agreements 14 Henry Boot Annual Report 2015 Strategic.indd 14 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:12 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Significant new investments were made during the year at Grazeley, south of the M4 at Reading, and Coventry. Other key strategic sites within our portfolio progressed well during the year; Market Harborough (450 plots) secured a minded to grant planning consent; the first phase of Kettering East (438 plots) was conditionally exchanged to a national house builder; and Phase 2 of Marston Moretaine (365 plots) was granted planning consent in December 2015, the first phase having been sold successfully in 2013 to Bovis Homes, and we expect to market part of this scheme in 2016. Outlook for 2016 and beyond 2016 has started well with two site sales already concluded and a number of others progressing well for completion later in the year; 180 plots were sold in Alton, Hampshire, and seven acres of employment land were unconditionally exchanged in Lutterworth. We expect the house builders to remain selective when purchasing land in 2016 but we have a strong land portfolio with a supportive planning regime, a substantial number of sites available to the market and, at this stage, we anticipate that 2016 will be yet another year of good progress. We see the current balanced marketplace continuing through 2016. We will continue to invest in our land portfolio, having careful regard to ensuring our investments are focussed where house builders wish to build, whilst carefully managing our overall investment in the sector. Selectively, the business will seek to secure agreements which benefit our commercial development activity companies, in particular, Stonebridge Projects and Henry Boot Developments. Cranbrook, the new 3,500 unit community at Exeter; Kingsdown, our urban extension at Bridgwater, and New Lubbesthorpe, a 4,500 unit urban extension west of Leicester, all had a very good year. Cranbrook saw residential occupancies exceed 1,150 (in the two and a half years since residential sales commenced), the opening of a railway station (on the London Waterloo line) and both a secondary school and a second primary school were completed and opened. Development at Kingsdown, Bridgwater, continued with further residential sales anticipated in 2016. Henry Boot Developments are also close to securing a commercial development on the main A38 road frontage. New Lubbesthorpe, a scheme of 4,500 dwellings (where we have an interest in 1,593) commenced development and our investment in this major urban extension will create returns over the longer term. We successfully sold part of our long-term investment at Biddenham, Bedford, during the year and we forecast further parts will also be sold in 2016 and 2017. CASE STUDY BARTON SEAGRAVE, KETTERING, NORTHAMPTONSHIRE Hallam has a solely owned site of 50 acres at Barton Seagrave, Kettering just off the A14 trunk road equidistant between the M1 and A1(M) motorways. The land forms part of the East Kettering Sustainable Urban Extension area. Outline planning permission was achieved for a total of up to 5,500 dwellings, including 20% affordable housing, on 1 April 2010, varied on 8 January 2015. Hallam has had an interest in the area since 1997. The outline consent includes up to 875 dwellings on Hallam’s land interest. A reserved matters planning approval for 325 dwellings was received in January 2016 and a further planning permission for an additional 22 dwellings was received in February 2016. We are anticipating a sale on this parcel of land later in the year. Our retained 27 acres of land will be the subject of further land sales within the next five years. i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Pictured A 450 dwelling site in Frome, Somerset sold to a national developer. 15 12/04/2016 13:34:17 Henry Boot Annual Report 2015 Strategic.indd 15 24415.04 12 April 2016 1:31 PM Proof 6 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Property Investment and Development Henry Boot Developments and Stonebridge Projects Specialist property development company with an investment portfolio aligned with a residential developer and industrial office space provider for small businesses. Key Sectors: • Retail, industrial and commercial development • Development partnerships • Residential development CASE STUDY THE CHOCOLATE WORKS, YORK The 27 acre Grade 2 listed former Terry’s Chocolate Factory, with its iconic clock tower, was purchased by Henry Boot Developments in 2013 after having been empty for many years due to difficult planning and viability issues. We immediately sold 13 acres to Barratt Developments PLC with permission for 270 residential properties. In 2015, after extensive planning negotiations, an unconditional development agreement was exchanged with listed building conversion specialist P J Livesey to undertake the conversion of the main 170,000 sq ft multistorey factory building to provide 150 luxury apartments, the first phase of which will be completed before the middle of 2016. The first new purchasers of apartments within this historic property are expected to take up occupancy during 2016. A sale of the listed HQ office building was also completed in 2015 following receipt of planning permission to convert it to a care home. 16 Henry Boot Annual Report 2015 Strategic.indd 16 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:23 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Assets giving year on year recurring revenue, with property development creating long-term cyclical revenue i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 17 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 17 12/04/2016 13:34:26 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Property Investment and Development Review “ At Markham Vale, our 200 acre business park, we exchanged unconditional contracts with Great Bear Distribution Limited on a 480,000 sq ft distribution centre.” Darren Stubbs, Stonebridge Projects Limited, and David Anderson, Henry Boot Developments Limited sq ft of pre-let industrial space and also exchanged unconditional contracts with Great Bear Distribution Limited on a 480,000 sq ft distribution centre, which was also forward sold in the year. Elsewhere, we undertook two speculative industrial developments, a 44,000 sq ft high spec small unit scheme in Salford, Manchester, and a 130,000 sq ft industrial development at Thorne, Doncaster. Since these were completed, agreements for sale have been concluded on both for over 70% of the space. The 22,000 sq ft office development in Whitehaven, Cumbria, pre-let to Atkins Limited, was completed and sold at mid-year. We also completed the sale of a 20,000 sq ft office building in Nottingham at above valuation, to an owner occupier. Following the successful delivery of the Cumbria office development, we have now exchanged unconditional pre-let agreements with Atkins Limited for a much larger 110,000 sq ft headquarters office development in Epsom, Surrey, and work is expected to commence on site in mid-2016. Within the leisure sector we completed two budget hotel developments in Malvern and Richmond upon Thames, for Premier Inn and Travelodge respectively. The Travelodge development was forward sold with the sale concluding at the end of 2015. The Malvern development has been retained in our investment portfolio. In contrast, the retail sector was more subdued with little demand for new retail space, particularly from the large Highlights of the year • Approval of detailed planning permission at Aberdeen for Exhibition Arena and Conference Centre • 2015 RICS Winner for Building Conservation at Acre Mill, Huddersfield • £35m Atkins Limited HQ office development in Epsom, Surrey Profit/(loss) before tax (£m) -24% £3.5m £4.6 £3.5 £1.9 (£2.3) (£4.7) 2011 2012 2013 2014 2015 18 Progress in 2015 2015 saw the continued recovery in property values and consolidated occupier demand, with activity and values in most sectors nearing pre-recession levels. The strongest occupier and investor demand was seen for industrial warehousing, offices and leisure property. This was reflected in the Company’s focus on these sectors for both existing development projects and new opportunities. In Aberdeen, the Company’s largest individual project, the £300m development of an exhibition arena and conference centre and hotel complex pre-let to Aberdeen City Council, has made good progress with the exchange of development agreements and approval of the detailed planning permission at the end of 2015. Negotiations are progressing well with funders and our construction partner and we remain on target for the development to commence in mid-2016. A number of new office and industrial development schemes were contracted in the year. In Luton, we exchanged a ten year development agreement with local landowners to complete the 50 acre Butterfields Business Park. In Southend, we exchanged development agreements with Southend Borough Council to develop a 50 acre office and employment park adjacent to Southend Airport and negotiations are already underway with a number of potential occupiers. At Markham Vale, our 200 acre business park, we completed and sold 190,000 Henry Boot Annual Report 2015 Strategic.indd 18 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:28 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY foodstore operators, giving rise to property revaluation losses on a number of sites. We found that it took longer than expected to contract with retailers on two retail warehouse developments in Belper, Derbyshire, and Livingston, Scotland, even after agreement of terms. However, contracts were finally exchanged on both, and planning consents quickly secured thereafter. These developments are expected to commence before the middle of 2016 and the forward sale of one has already been exchanged. We have secured detailed planning permission for the residential conversion of listed buildings at the former Terry’s chocolate factory in York, where we have entered into a development agreement with our specialist delivery partner, P J Livesey. 150 luxury apartments are now in progress, with the first units expected to be completed mid-2016. We have also sold the listed former headquarters office building to a specialist care home operator following the grant of planning permission for its conversion. The Company retains a commercial property portfolio of £125m and places great emphasis on the proactive management of these assets to maximise value and income. Initiatives undertaken in the year include: the extensive refurbishment of the town centre retail scheme in Beeston, Nottingham, enabling a number of new lettings to national retailers; and the pre-letting of a 56 bed Travelodge development within our retail and office investment in Bromley, Kent. Stonebridge Projects Limited, our jointly- owned housebuilding company, increased activity in the year and has commenced some larger developments. It has continued to strengthen its position as a high quality regional house builder and secured options to purchase a further 300 plots for development. The development of 101 units in Headingley, North Leeds, commenced on site in August 2015 after a number of planning delays. Work is also due to commence at Fox Valley, Stocksbridge, for 118 units in 2016, with both sites expected to be major contributors to output over the next two years. Stonebridge serviced offices completed the purchase and redevelopment of Bartle House in Manchester. Our three office centres are steadily growing their occupancy levels and we were delighted that Park House, Leeds, won UK Business Centre of the Year in 2015. Outlook for 2016 and beyond We move into 2016 with our largest ever pipeline of pre-funded and pre-sold schemes, having over £500m of gross development value to deliver over the next four years with over 90% pre-funded or pre-sold and a similar proportion pre- let. By de-risking our positions in these development schemes, we feel confident in our ability to manage the impacts on activity such as the EU vote in 2016 and the top of the property cycle, when that arises at some time in the future. CASE STUDY STONEBRIDGE PROJECTS LIMITED – VICTORIA GARDENS, HEADINGLEY, LEEDS The summer of 2015 saw the commencement of Victoria Gardens in Leeds, to date the most high-profile development for Stonebridge Projects Limited. On the site of the former Leeds Girls High School, Stonebridge secured initially outline planning permission for 82 units; however, after 18 months of negotiation, we managed to secure planning for a further 19 plots therefore a total of 101 units. Victoria Gardens will be built over three phases during the next three years. Phase one launched in July 2015 with an initial release of 20 four-bedroom townhouses. Groundworks for the site have been subcontracted to our sister company Henry Boot Construction. Phase two will commence in 2016, where a mix of one and two-bedroom apartments, four-bedroom townhouses and two gate houses will be developed. The third phase in 2017 will provide the conversion of the two original school buildings to 45 apartments. The first occupations are due to take place in late April/early May 2016. Pictured Illustrative view from the stage at the Aberdeen Exhibition and Conference Centre. i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 Strategic.indd 19 24415.04 12 April 2016 1:31 PM Proof 6 19 12/04/2016 13:34:34 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Construction Henry Boot Construction, Banner Plant and Road Link (A69) Three companies providing a blend of differing services in the construction industry. Key Sectors: • Construction – private sector • Construction – public sector • Civil engineering • Plant hire • Road maintenance CASE STUDY SAINT HELENA’S SCHOOL, CHESTERFIELD Henry Boot Construction has commenced on site at St Helena’s School in Chesterfield to refurbish a Grade 2 listed building dating back to 1892 for the University of Derby. The works include the complete renovation of the existing building together with a new feature entrance and external soft and hard landscaping. The purpose of this project is to create a primary site for delivering a step change in higher-level vocational skills (including apprenticeships) to support the economic growth and resilience of businesses and workforce in Chesterfield and North East Derbyshire, achieved by providing new, local routes to vocational higher-level skills. The 48 week project will be completed in September 2016. 20 Pictured The new helipad we built for Northern General Hospital in Sheffield, opening in Spring this year. Henry Boot Annual Report 2015 Strategic.indd 20 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:39 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Creating regular revenue to enable long-term funding relationships with financial partners i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 21 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 21 12/04/2016 13:34:42 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Construction Review “ The major contract to redevelop Stocksbridge town centre is now moving into the final phase and is due for completion later in 2016.” Giles Boot, Banner Plant Limited, Simon Carr, Henry Boot Construction Limited and Trevor Walker, Road Link (A69) Limited Within the education sector we were awarded the refurbishment and fit- out of the Management School for the University of Sheffield and a refurbishment of the Grade II listed St Helena’s campus for the University of Derby. We completed the Materials and Engineering Research Institute for Sheffield Hallam University earlier in the year and Chesterfield College’s new Construction Centre was opened for students in September 2015. We have completed a number of court and prison refurbishment schemes through the Ministry of Justice framework during the year and are currently progressing two further schemes. In the health and social care sectors we were awarded the Yeadon Extra Care Housing scheme by Leeds City Council and the helipad and associated medical facilities by Sheffield Teaching Hospitals NHS Trust. We also commenced the construction of a residential block containing 20 self-contained flats and communal space for Sheffield homeless charity St Wilfrid’s, and completed a refurbishment scheme for Autism Plus at Park House Farm on the Ampleforth Estate in North Yorkshire. We have seen an increase in private sector opportunities, particularly in the industrial, commercial and retail sectors. Pictured Right Works continue at Fox Valley, Stocksbridge town centre redevelopment. Completion is due in late 2016. Progress in 2015 Henry Boot Construction started 2015 with a healthy order book and continued to build on this, exceeding both budgeted turnover and profit for the year. We have seen a growing confidence in the general economy which has led to increased opportunities in the construction sector, sustained growth in activity and some positive trends in tender prices; although we still remain cautious regarding labour and supply chain price pressures. Our wide ranging capabilities, depth of experience and understanding of our clients’ requirements have helped the division produce an excellent result. It is also pleasing that many of our existing clients are returning to us with follow on projects due to the high level of service, delivery and client satisfaction achieved. We are carrying a strong order book into 2016 and expect that our solid trading performance will continue. Our reputation for delivering high quality projects, safely, on time and within budget, has enabled us to maintain workload in the housing, commercial, retail, health, education, leisure, industrial, civil engineering and custodial sectors. Long-term framework and partnership arrangements; with St Leger Homes, North Lincolnshire Homes, and ASRA Housing together with individual schemes through EN Procure, YORbuild and for Chesterfield Borough Council, continue to give us a strong presence in the social housing sector. Highlights of the year • Exceeded both profit and turnover targets in 2015 • Streets Ahead in Sheffield and Henry Boot Construction celebrate 100 joint projects • 15% increase in profit before tax for plant hire company Profit before tax (£m) -2% £9.9m £10.1 £9.9 £8.6 £9.0 £5.9 2011 2012 2013 2014 2015 22 Henry Boot Annual Report 2015 Strategic.indd 22 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:44 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY The major contract to redevelop Stocksbridge town centre is now moving into the final phase and is due for completion later in 2016. We also successfully completed a multi- unit eco-office scheme at Doncaster International Business Park for Workpods Limited. We delivered further industrial facilities with new and refurbished units at Thorne, Doncaster; a 100,000 sq ft unit for lnspirepac at Markham Vale; a visitor’s centre for Games Workshop in Nottingham; and a research facility for Bifrangi in Lincoln. Our presence in the sports and leisure sector has also been strengthened with our appointment to deliver a new spa facility at Rudding Park Hotel, Harrogate, which commenced in January 2016. Civil engineering work continues to grow steadily as a major supply chain partner on the 25 year, Amey PFI Sheffield Highways scheme, where we deliver a significant number of projects and notably, completed our 100th project in October 2015. We also completed the Don Valley remediation scheme for Sheffield City Council and have recently commenced a car parking scheme in Barnsley; both projects being delivered through the YORcivils framework. We have also worked with Stonebridge Projects Limited to deliver infrastructure works to new residential housing developments in Leeds and Sheffield. Plant Hire Banner Plant once again performed well in 2015. Activity was around 8% ahead of 2014, contributing to a rise in profit before tax to £1.5m (2014: £1.3m) from the unit. During the year we invested £4.3m in new equipment having introduced a range of access equipment to the Derby depot and power tools to the Wakefield depot. We expect capex for 2016 to be at a similar level. As previously reported, our major challenge continues to be the hire rate recovery of the much higher capital costs of new plant, associated with clean air compliance. Early indications are that 2016’s utilisation levels are in line with 2015 and we remain cautiously optimistic for the year as a whole. Road Link A69 Our PFI contract to run the A69 trunk road between Newcastle and Carlisle once again performed well, in line with expectations. There are now ten years left to run on the contract and traffic volumes and therefore revenues were broadly in line with previous years. Whilst the A69 was affected by the serious flooding around Carlisle in late 2015 there was no long- term impact, and the trunk road was soon operating normally again. Outlook for 2016 and beyond The three businesses making up our Construction segment have provided very stable returns over many years and we do not expect that to change over 2016 and beyond. Construction and plant hire are developing a stronger presence within their chosen markets and 2016 has started well with good levels of work already secured for 2016 and 2017. Against this backdrop, we expect another year of solid progress. PLANT HIRE BANNER PLANT LIMITED Plant, temporary accommodation, power tools, powered access, big air compressors and serviced toilets The range of products has constantly evolved to meet customer needs and to fulfil the requirements of modern health and safety legislation. The primary supply area stretches from Yorkshire in the north to the East Midlands and Birmingham in the south whilst more specialist divisions have national coverage. ROAD MAINTENANCE ROAD LINK (A69) LIMITED i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Road operation and maintenance – 52 miles of trunk road from Carlisle to Newcastle A 30-year contract with Highways England to operate and maintain the A69, which is the major east – west all-weather route in the north of England. Works include road resurfacing, bridge repairs, winter preparation and routine maintenance. n o i t a m r o n f I l r e d o h e r a h S 23 12/04/2016 13:34:48 Henry Boot Annual Report 2015 Strategic.indd 23 24415.04 12 April 2016 1:31 PM Proof 6 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Responsible Practices Our reputation gives our customers, employees, stakeholders, suppliers, investors and the communities in which we operate the confidence and trust to do business with us. Q A What does Corporate Responsibility mean to Henry Boot? Corporate responsibility (CR) means addressing the key social, ethical and environmental impacts on our operations in a way that aims to bring value to all our stakeholders, including our shareholders. The measures we employ to manage our operations ensure everything we do is aligned to our Values to develop our businesses effectively, successfully and responsibly. Our CR programme and our Values coalesce to provide a strategic framework to develop a sustainable and responsible business by acting ethically; developing positive relationships with suppliers; taking care of our employees; taking responsibility for our impact on the environment; delivering support to our local communities; and delivering value to our customers, shareholders and other stakeholders. We continue to face a number of challenges in all our business operations; we must continue to act fairly and responsibly as it is not only the right thing to do but it also makes good business sense. We are working within increasingly complex regulations that impact on our businesses, our customers, the suppliers we trade with, the environment and the communities in which we operate. However, we believe we are making positive progress by trading responsibly and being a great employer. Rachel White Head of HR 24 Henry Boot Annual Report 2015 Strategic.indd 24 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:52 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Recruiting and retaining the highest calibre of people to meet our key objective i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 25 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 25 12/04/2016 13:34:56 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Corporate Responsibility People As our businesses continue to develop, we understand that by retaining and inspiring effective and committed employees we can continue to deliver excellence to all. Visit us online For more information please visit our website at www.henryboot.co.uk Our approach To encourage continued improvement and success across all of our businesses, it is important we are able to create an environment that enables us to attract and retain the right people to work at every level who are committed to working together and who support our business approach of respect, excellence, innovation and integrity. Working at Henry Boot means working in an inspiring environment where our people are a valuable asset; we are committed to providing a working environment in which our employees can achieve their full potential and have opportunities for both professional and personal development. We have established policies for recruitment, training and the development of our employees; we remain committed to investing the time and resource to support, engage and motivate our employees to feel valued, to achieve rewarding careers and to want to stay with us, and we recruit and promote from within wherever possible. As our businesses continue to grow, we understand that by retaining and inspiring effective and committed employees we can continue to deliver excellence to all. Human rights Henry Boot PLC is committed to upholding all basic human rights, as outlined in the United Nations’ Guiding Principles of Business and Human Rights. Respecting human rights is vital to us as an employer; whilst we do not have a specific policy, we have other policies in place which cover key areas of governance around bribery and corruption, equal pay and ethics. We also operate an externally managed whistleblowing line for employees and stakeholders to report concerns. Modern slavery The aim of the Modern Slavery Act 2015 is in line with our own Values and we applaud any measures which seek to bring greater transparency and scrutiny into our various supply chains in order to combat slavery and trafficking activities. For more information please view www.henryboot.co.uk/corporate- responsibility/modern-slavery 26 Henry Boot Annual Report 2015 Strategic.indd 26 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:34:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Equal opportunities and diversity Henry Boot PLC is an equal opportunities employer and will continue to ensure it offers career opportunities without discrimination. Full consideration is given to applications for employment from disabled persons, having regard to their particular abilities. Henry Boot has continued the employment wherever possible of any person who becomes disabled during their employment with us, and opportunities for training, career development and promotion do not operate to the detriment of disabled employees. The following tables show the number of employees and the gender mix of Henry Boot PLC employees at December 2015: Diversity Male Female Employees who are members of The Henry Boot Staff Pension & Life Assurance Scheme have the opportunity to join the Henry Boot PLC Group Stakeholder Pension Plan, investing their residual salary i.e. the difference between their actual salary and their capped pensionable salary in The Henry Boot Staff Pension & Life Assurance Scheme. Henry Boot PLC has implemented the UK’s auto-enrolment pension requirements for all wholly owned subsidiary businesses; this is provided by AVIVA. Employees are informed of auto- enrolment and other pension choices through letters and online via the Group Intranet. As at 31 December 2015 the active membership of the pension arrangements stood at (employees): All Employees 328 Directors 19 106 2 Senior Managers 5 27 Our pension arrangements In 2015, we rationalised the number of pension providers and closed the stakeholder pension plan with The People’s Pension (formerly B&CE); all current members of this scheme were transferred to the Henry Boot PLC Group Stakeholder Pension Plan (managed by AVIVA). Employees are members of either The Henry Boot Staff Pension & Life Assurance Scheme (defined benefit scheme closed to new members in 2004 and subject to a salary cap from 2012) or the Henry Boot PLC Group Stakeholder Pension Plan (defined contribution scheme). The Henry Boot Staff Pension & Life Assurance Scheme 99 Henry Boot PLC Group Stakeholder Pension Plan 315* Road Link (A69) Limited Pension Scheme Stonebridge Projects Limited Pension Scheme 5 13 *45 employees within this total have invested their residual salary from the defined benefit scheme into the defined contribution plan Our performance As part of our push for excellence amongst our employees, we have robust recruitment procedures in place; during 2015 we noted a distinct upturn in the level of recruitment to new positions across all our businesses, and are cautiously optimistic about the future. Our staff turnover remains relatively low at 17%, split into 11% (voluntary leavers) and 6% (involuntary leavers). Henry Boot Annual Report 2015 Strategic.indd 27 24415.04 12 April 2016 1:31 PM Proof 6 We offer a wide range of training and learning opportunities for our employees across our businesses; we believe that offering the right development opportunities will help to ensure our employees feel supported and equipped to carry out their role to the best of their ability. Our employees are able to access a range of development tools and job-specific training appropriate to their needs; our Learning & Development Advisor ensures that relevant and appropriate training is provided as job- specific training covering the technical and operational skills; individual learning to support an employee’s personal needs; and mandatory training in health and safety, first aid and manual handling to ensure the welfare of our employees is maintained. In 2015 we delivered 1,203 (2014: 1,164) training days. We are committed to life-long learning and acknowledge that there is a wealth of ad-hoc learning and development which takes place on a daily basis on our sites, in our offices and depots. We have also produced a suite of e-learning modules to deliver training in the workplace; this allows our employees to refresh specific technical skills from their desks. In 2015 we recruited 12 trainees and apprentices across our businesses; all trainees and apprentices are enrolled on formal courses of education and have development plans in place to gain operational and technical knowledge from mentors. The purpose of the programme is to provide the opportunity to gain experience of the role whilst working alongside an experienced mentor to understand the role and the business. This programme ensures that we have a pipeline of talent within our businesses for the future. i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Pictured Above Left First attendees of our Leadership Development Programme at the University of Bradford Management School. n o i t a m r o n f I l r e d o h e r a h S 27 12/04/2016 13:34:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Corporate Responsibility People Trainees and Apprentices Inspiring and investing in the next generation ensures we balance short-term objectives with our long-term strategic commitments; our future will be in their hands. In 2015 we launched our Leadership Programme which we developed with the support of the University of Bradford. The specific focus of the Programme was on the continued success of the businesses by working in a more cohesive and collaborative way, with a specific focus on the development of inter-subsidiary relationships and alignment of the business needs for future growth. At the end of 2015 40 employees, the majority of whom are Directors/Senior Managers, had participated in the Programme. In 2016 we will be cascading this programme to managers/supervisors to ensure a consistent message across all businesses. We welcomed Megan Collins back to our Group Finance team. Megan worked for the Group on placement in 2013/2014 from Sheffield Hallam University where she studied BA (Hons) Accounting & Financial Management; Megan is now employed as a Trainee Accountant and is studying for her CIMA professional qualification. The Group regularly works with local universities to enhance our engagement in the community and to offer career opportunities locally. Congratulations to Danielle Kirk-Mitchell of Henry Boot Construction Limited in achieving the Trainee of the Year award at the G4C Awards and the Young Achiever of the Year award at Constructing Excellence in Yorkshire & Humber. Danielle (27) joined the Company in 2007 as an administrative assistant on our Doncaster Decent Homes contract; the Company soon recognised the potential in Danielle and she was offered a Trainee Planner role and enrolled on a course at Leeds College of Building, where she successfully passed her course and was promoted to Assistant Planner and subsequently to Planner. Currently on maternity leave following the birth of her first child, we look forward to Danielle returning to work and continuing to build on her successes. Pictured Above Investing in the future; A quarterly trainee ‘get together’ at Dronfield; Pictured Bottom Left Danielle Kirk-Mitchell, Trainee of the Year at the G4C Awards; and Pictured Bottom Right Megan Collins receiving her degree in Accounting & Financial Management. 28 Henry Boot Annual Report 2015 Strategic.indd 28 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:15 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Corporate Responsibility Health and Safety Our approach Henry Boot PLC continues to focus on health and safety as our primary business priority; we remain committed to providing a safe and healthy working environment for our employees, stakeholders and contractors. We operate all our business activities on the principle that good management of health and safety is fundamental in creating a safe and healthy environment, and contributes to improving our business performance. We expect our managers to manage all aspects of our business in a safe manner, and employ practical measures to ensure our business activities do not harm or pose unacceptable risks. We have developed practical and safe systems of work which is borne out by the Company’s exemplary safety statistics; continuous improvement is a key driver and we cannot stand still on this vital area of risk management. All employees receive health and safety training relevant for the job role they perform; by developing communications and knowledge in this key area we are enabling our employees to improve the way we recognise hazards and reduce risk. Our performance We continue to benchmark our health and safety performance against Constructing Excellence Health and Safety Key Performance Indicators. In 2015 we have seen a reduction in our accident frequency rate (AFR) to 0.08 per 100,000 hours worked including our subcontractors (2014: 0.12); we are delighted to report that for another year our AFR for our directly employed employees is again zero. As a further check to ensure the company processes and procedures are robust and to test our procedures to the limit, ‘Mock Emergency Incidents’ are staged to test the robustness of the current management systems in an emergency situation, together with legal advice, facilitated by law firm Nabarro LLP. The outcome of these has been positive, demonstrating good awareness and robustness of Company procedures. The most recent exercise was carried out in September 2015 at Fox Valley, Stocksbridge, our town centre redevelopment project. A full ‘debrief’ was held with employees involved to communicate and discuss the outcome and learning points from the mock incident. We continue to receive recognition for our efforts in managing health and safety, and were again recipients of the RoSPA Gold Medal, and the CIOB Celebrating Construction in South Yorkshire Health & Safety Award. During 2015 we pledged our commitment to IOSH’s No Time to Lose campaign, which aims to increase awareness of significant health issues specifically in relation to carcinogenic exposure and workplace cancers, which account for over 600,000 deaths per year worldwide. In addition to this, we have developed a wellbeing area on our Group Intranet to focus on health issues on a monthly basis; this will coincide with national campaigns and be supplemented by more generic wellbeing information. Pictured Below Celebrating at the CIOB Construction Awards 2015 – Winners of the Health and Safety Award for South Yorkshire. i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 29 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 29 12/04/2016 13:35:16 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Corporate Responsibility Communities Our approach With a nationwide presence and a regionalised focus in Yorkshire, we offer support to a wide range of charities and organisations of all sizes, by working to provide them with donations that are of most benefit to them and their particular cause, whether it be a financial donation or our wide and varied expertise. We do not support a single Charity of the Year as we want to have a broader impact by working with a much wider group of charities and organisations. Our areas of focus are to: • charities and organisations local to our business operations; • charities and organisations that support educational improvements for children/ adults; and • charities and organisations that support social improvement through sport. Where a request for support falls outside of this criteria, we signpost the applicants (if eligible) to South Yorkshire Community Foundation where the Company has a number of endowment funds which offer grants. Further details are on our website. Our performance We are committed to contributing long-lasting social and economic benefits for the communities in which we work. We continue to support and promote a wide range of charitable giving and community volunteering initiatives by employees, focusing on activities that best reflect the needs of their local community and issues of direct significance for them. This year, the Group contributed £32,600 to charitable causes, £13,078 of which was through our Give As You Earn payroll giving mechanism. In 2015 our employees participated in The Master Cutler’s Challenge, one of the largest charity fundraising events in our home city of Sheffield. Local businesses are invited to participate and are given the opportunity to transform a £50 investment into as much fundraising as possible for charities nominated by the incumbent Master Cutler; in 2015 the charities were The Brathay Trust and Help for Heroes. Colleagues from across all of our businesses dug deep and transformed our £50 into £10,120 through a wide variety of events including a BBQ, football tournament, a night of greyhound racing, cake sales and other more traditional activities. Our employees enjoyed the various events and it is our intention to participate in the Challenge in 2016 when the beneficiaries will be St Luke’s Hospice and Rotherham Hospice. We continue to support The Prince’s Trust as a member of the leadership team in Yorkshire and the Humber; we hope to develop this relationship further and utilise some of the more innovative offerings to supplement our trainee development programme. In 2015 we became sponsors of Steel City Wanderers, a local women’s football team; following on from the success of This Girl Can and the England women’s football team, we offered our assistance through financial and technical support. Through this partnership we hope to develop opportunities to encourage women to consider our industry as a viable career option. Our employees continue to push themselves out of their comfort zones with their own charitable fundraising; in 2015 our employees raised in excess of £10,000 for various charities by climbing mountains and participating in other endurance events. Our construction business continued its involvement with the Considerate Constructor Scheme, and achieved a Silver award for the ASRA Bilsthorpe site; the average score in 2015 was 37.37. In December 2015 we were delighted to accept the Yorkshire Business Award for Corporate Responsibility on behalf of Henry Boot PLC, voted for by our peers in the region. It was gratifying to receive an acknowledgment of what we are attempting to achieve with our CR programme; we are not seeking to gain anything from the participation we have within our communities - we are simply doing what is right, using our resources to assist and create impact. Pictured Top Left Proud sponsors of Steel City Wanderers, working in partnership with the local community; and Pictured Top Right Rachel White accepting the Yorkshire Business Award for Corporate Responsibility. 30 Henry Boot Annual Report 2015 Strategic.indd 30 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:17 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Corporate Responsibility Environment Our approach Our overarching aim is to minimise the impact on the environment of our operations and those of our supply chain by using resources efficiently and reducing our waste and carbon outputs. We recognise that we have a responsibility and an obligation to reduce the direct impact of all our business operations on the natural environment both now and in the future. Reducing our emissions is one way in which we hope to achieve this; our aim is to create more sustainable ways of undertaking our business operations to conserve energy, save money and deliver efficiency. Our performance Our priorities are to: • minimise waste produced; • increase recycling; and • improve energy efficiency and reduce energy use. In 2015 Henry Boot Construction Limited in partnership with Banner Plant Limited introduced the use of ECO cabins on site; these new cabins include enhanced insulation, PIR lighting, double glazing, non-concussive taps, waterless urinals and thermostatically controlled heaters. The new cabins not only ensure the site carbon footprint is minimised but also provide increased comfort to employees and visitors. Our focus is on the segregation of waste on our sites and we have achieved a recycling rate of 95% (2014: 94%). We were proud recipients once again of Gold status on the Business in the Community National Environmental Index. Our greenhouse gas (GHG) emissions for the year ended 31 December 2015 were calculated in accordance with the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and emission factors from UK Government GHG Conversion Factors for Company Reporting 2015. Our direct and indirect operational greenhouse gas emissions are shown in the tables below. These sources fall within our consolidated Financial Statements; we do not have responsibility for any emission sources that are not included in our Financial Statements. Overall the Group’s greenhouse gas emissions have reduced by 12% when compared to those of the previous year. This equates to a decrease of 0.71 tonnes per employee. For further information on our greenhouse gas emissions please see our website: www.henryboot.co.uk/corporate- responsibility/our-environment Henry Boot Group CO2 footprint by source Henry Boot Group CO2e emissions Scope 1: Combustion of fuel and operation of facilities Scope 2: Electricity, heat, steam and cooling purchased for own use Total direct emissions 2015 Tonnes 2,048 1,122 3,170 2014 Tonnes Trend 2,288 1,337 3,625 Total direct emissions per employee1 7.3 tonnes CO2e 7.90 tonnes CO2e Scope 3: Upstream and downstream indirect emissions Total emissions Total emissions per employee1 1 Employee numbers are based on the monthly average for the year Carbon emissions by segment 908 4,078 1,017 4,642 9.4 tonnes CO2e 10.11 tonnes CO2e Henry Boot Group CO2e emissions 2015 Tonnes of CO2e Property investment and development 1,021 Land development Construction Group overheads Total gross controlled emissions 114 2,776 167 4,078 2015 Intensity Ratio Tonnes of CO2e 2.11 3.44 34.9 3.21 2014 Tonnes of CO2e 2014 Intensity Ratio Tonnes of CO2e 1,234 2.58 Intensity Basis Trend per 1,000 sq ft of investment property with communal areas 123 3,108 177 4,642 3.96 37.73 3.41 per employee per £1m of turnover per employee i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 Strategic.indd 31 24415.04 12 April 2016 1:31 PM Proof 6 31 12/04/2016 13:35:17 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Performance Q You have a published aim to achieve and maintain a return on capital employed of between 10-13% as a benchmark of a successful business in the property sector. How have you progressed this year and do you see any factors that could affect this ongoing target? A A strong overall operating profit increase of 13.3%, helped in particular by our strategic land division, has generated a return on capital employed of 12.2% (2014: 11.4%). This higher return was achieved on a 5.6% higher level of capital employed as we build our business strength. Our return on capital employed is impacted by our profit margin and the rate at which we generate sales from our assets. We are continually looking at ways to reduce our cost base across all of our businesses and actively look to improve efficiencies through the use of new technologies and working practices. Margins remain highly competitive within the construction segment and the future price of both materials and labour has a large impact here. Within the land segment the speed at which assets can be disposed of is highly dependent upon the planning system and the appetite of the major house builders for new land, whilst the property segment is subject to the market demand for new property, the residential sales arena and the speed with which large and often complex development schemes can be brought to fruition. Darren Littlewood Group Finance Director 32 Henry Boot Annual Report 2015 Strategic.indd 32 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:20 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l Achieving a return on capital in excess of 10% per annum i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 33 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 33 12/04/2016 13:35:23 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Financial Review Maintaining stable gearing levels despite significant growth activity Our consistent strategic approach to the markets in which we operate has again allowed us to achieve a result ahead of management expectations and is testimony to the cohesive way in which all of our operating segments work together to achieve our Group-wide financial objectives. Highlights of the year • Profit before tax increased by 14% to £32.4m • Basic earnings per share increased by 8% to 17.5p • Dividends per ordinary share for the year increased by 9% to a record 6.10p Consolidated Statement of Comprehensive Income Revenue increased 20% to £176.2m (2014: £147.2m) resulting from increased activity within the property development market. Gross profit increased 22% to £53.3m (2014: £43.7m) having benefitted from higher land sale profits on land we owned. Administrative expenses saw an increase of £2.1m resulting from further investment across all operating segments to support the increased activity in 2015 and the forecast levels of activity we envisage. Pension related costs increased £0.5m (2014: decrease £0.4m) as we introduced auto-enrolment and incurred increasing levies imposed by the Pension Protection Fund relating to our defined benefit pension scheme. Property revaluation losses were £2.0m (2014: gain £1.9m) and were derived from positive movements in the market values of certain existing and newly completed investment properties of £7.5m, offset by the recognition of valuation deficits on certain other properties amounting to £9.5m. The deficits arose from a town centre redevelopment site which is now expected to be a much smaller scheme than originally envisaged, an investment property marketed for sale where difficulties with occupiers have led to offers being received significantly below initial expected values and a development property site where we have not yet obtained any significant interest. Overall, operating profits increased 13% to £31.7m (2014: £28.0m) and, after adjusting for net finance costs and our share of profits from joint ventures, we achieved a profit before tax of £32.4m (2014: £28.3m), an increase of 14%. The segmental result analysis shows that Land Development produced a significantly improved operating profit of £20.0m (2014: £14.1m). Property Investment and Development operating profit decreased to £7.3m (2014: £8.7m) as a result of higher trading profits being offset by the site revaluation deficit noted above. Construction segment operating profits decreased slightly to £8.9m (2014: £9.2m) after improved results within the construction and plant hire businesses were offset by a reduction in toll income from our Road Link PFI investment due to significant falls in crude oil prices affecting the toll revenue inflation factor. These results continue to demonstrate how the benefits of a broad-based operating model work to the benefit of our Group. We recognise that our strategic land and commercial development businesses operate within deal-driven markets which can vary significantly from year to year but these potential fluctuations are mitigated by the relatively stable returns from the Construction segment. Tax The tax charge for the year was £7.5m (effective rate of tax: 23%) (2014: £4.8m and effective rate: 17%), increasing largely due to a net investment property revaluation deficit which, as in previous years, is not tax deductible until realised. Current taxation on profit for the year was £5.6m (2014: £4.4m), with the charge for the year benefitting from joint venture profits which are included net of tax and adjustments in respect of earlier years. 34 Henry Boot Annual Report 2015 Strategic.indd 34 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:23 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY The deferred tax charge increased to £1.9m (2014: £0.4m), resulting from a more prudent approach to the recognition of deferred tax assets expected to be obtained from capital allowances and a reduction in the future reversal rate applied to the deferred tax asset brought forward from 20% to 18%. Our unrecognised deferred tax asset has increased to approximately £2.3m (2014: £0.8m). Earnings per share and dividends Basic earnings per share was 8% higher at 17.5p (2014: 16.2p). The total dividend payable for the year has been increased by 9% to 6.10p (2014: 5.60p), with the proposed final dividend also increasing by 9% to 3.80p (2014: 3.50p), payable on 31 May 2016 to shareholders on the register as at 29 April 2016. The ex-dividend date is 30 April 2016. Return on capital employed (ROCE) Higher pre-tax profitability in the year resulted in improved return on capital employed of 12% in 2015 (2014: 11%). We continue to target a rate of return of between 10% and 13% as we believe over the business cycle, in the longer term, this is the level of return achievable by a cautiously successful business in the property sector. Finance and gearing Net finance costs have reduced to £0.2m (2014: £0.8m) as a result of improved returns on our investments. Average borrowing costs were similar to those of the previous year and it is anticipated that interest costs will remain similar in 2016 as increased activity maintains our current annualised borrowing levels. It appears unlikely that any upward change in interest rates will be seen in the short-term, however, should any increase occur, we do not believe it will result in a material adjustment to our borrowing costs. We expect to continue our investment in both our land and development assets at a similar level to 2015 as we recycle capital into future opportunities and anticipated development activity. i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i certain land development sites. All bank borrowings continue to be from facilities linked to floating rates or short-term fixed commitments. In February 2015, we agreed a new three year £60m facility with covenants on a similar basis but on more competitive margin terms. The agreed terms also allow for the possible extension of the facilities for a further two more years on the same terms, subject to agreement between the banks and the Company and we have agreed the first one year extension in February 2016. Throughout the year we operated comfortably within the facility covenants and continue to do so. Interest cover, expressed as the ratio of operating profit (excluding the valuation movement on investment properties and disposal profits) to net interest (excluding interest received on other loans and receivables), was 23 times (2014: 19 times). No interest incurred in either year has been capitalised into the cost of assets. We have seen continued investment in our strategic land holdings and in the property development portfolio. This was again achieved by using internally generated cash flows so that total year end net debt only rose marginally to £38.9m (2014: £36.4m). Gearing on net assets of £221.5m remains conservative at 18% (2014: net assets £200.5m; gearing 18%). Total year end net debt includes £8.6m (2014: £7.7m) of funding which is repayable from the future sale of residential units on Pictured Markham Vale, Derbyshire: we exchanged unconditional contracts with Great Bear Distribution Limited on a 480,000 sq ft distribution centre. n o i t a m r o n f I l r e d o h e r a h S 35 12/04/2016 13:35:24 Henry Boot Annual Report 2015 Strategic.indd 35 24415.04 12 April 2016 1:31 PM Proof 6 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Financial Review continued Statement of cash flows Property development transactions and land deals do not lend themselves easily to bank funding. We, therefore, look to maintain an investment property portfolio of around £100m against which we can secure bank funding to allow us the flexibility to undertake these transactions without reference to specific funding from banks. Our investment property portfolio assets have again provided the covenant support for the new £60m banking facilities. Forecast bank debt levels at the end of 2016 are anticipated to be similar to those at the end of 2015 as we continue to reinvest cash generated into new opportunities. During 2015, we increased operating cash flows before movements in working capital by £6.5m to £31.4m (2014: £24.9m) and, after a further year of investment in working capital of £26.2m (2014: £10.0m), we achieved cash generated from operations of £5.2m (2014: £14.9m). Cash inflows from investing activities of £6.9m (2014: outflow £0.3m) resulted from disposals of £23.4m (2014: £16.8m) of investment property and property, plant and equipment sales offset by new investment of £17.2m (2014: £17.4m) in new property development, plant purchases and investment in associates. Dividends paid, including those to non-controlling interests, totalled £9.7m (2014: £8.6m), with dividends paid to equity shareholders increasing by 11%. Statement of financial position Investment property and assets classified as held for sale were valued at £125.3m (2014: £141.8m). The fair value of completed investment property including assets held for sale was £103.7m (2014: £99.4m) and the value of investment property under construction within investment property is £21.6m (2014: £42.4m) as we develop these assets into investment properties. Intangible assets reflect the Group’s investment in Road Link (A69) of £5.8m (2014: £6.7m). The treatment of this asset as an intangible asset is a requirement of IFRIC 12 and arises because the underlying road asset reverts to the Highways Agency at the end of the concession period. Property, plant and equipment comprises Group occupied buildings valued at £6.9m (2014: £6.8m) and plant, equipment and vehicles with a net book value of £14.1m (2014: £12.3m); this increase arose from continued investment in new plant and plant delivery vehicles. Non-current trade and other receivables have increased to £10.5m (2014: £4.8m) resulting from a net increase in long-term payment plans associated with land sales completed during the year. The non-current deferred tax asset decreased as a result of the lower IAS 19 pension deficit. In total, non-current assets reduced to £170.7m (2014: £180.7m). Within current assets, inventories of £138.9m (2014: £117.5m) increased due to further investment in the land portfolio to £106.8m (2014: £99.6m) and assets in the course of construction increased to £32.1m (2014: £17.9m). Trade and other receivables also increased to £54.4m (2014: £50.1m) as a result of a number of land sales which concluded in December 2015. This also led to an increase in cash and cash equivalents where cash received could not be offset against short-term loan drawdowns at that time. In total, current assets increased to £205.4m (2014: £172.1m). 36 Henry Boot Annual Report 2015 Strategic.indd 36 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:28 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Current liabilities increased to £116.6m (2014: £107.1m) as the portion of debt classed as current increased to £42.8m (2014: £32.0m). However, if we were to offset the cash current asset, current debt would be £30.8m (2014: £27.6m). Trade and other payables decreased to £64.4m (2014: £68.8m) resulting mainly from lower levels of payments on account relating to construction contracts. Provisions increased to £5.7m (2014: £4.3m) as previously non-current provisions moved into the current period and continue, in the main, to relate to infrastructure planning obligations at Bridgwater and Cranbrook, Exeter. Net current assets increased to £88.8m (2014: £65.0m). This increase is predominantly due to further investment in land inventories, increased debtors and reduced creditors as we operate at a higher general level of activity throughout the Group. Non-current liabilities reduced to £37.9m (2014: £45.3m) after IAS 19 pension liabilities reduced to £19.6m (2014: £28.2m). Net assets increased by 10% to £221.5m (2014: £200.5m) as retained profits and the reduction in the pension deficit were offset by dividends paid and treasury share purchases. Net asset value per share increased 10% to 168p (2014: 152p). Pension scheme The IAS 19 deficit at 31 December 2015 was £19.6m compared to £28.2m at 31 December 2014. Despite the very turbulent market conditions which prevailed during the period, the pension scheme’s assets performed satisfactorily. The IAS 19 deficit was helped by marginal changes in the discount rate, 2015: 3.8% (2014: 3.6%), and the Company’s contributions. As we have noted in previous years, a discount rate of 4.75% would result in a negligible deficit. The pension scheme’s assets continue to be invested globally with high quality asset managers, using a broad range of assets and diversification. The pension scheme trustees regularly consider the merits of both the managers and asset allocations and, along with the Company, review the returns achieved by the asset portfolio against the manager benchmarks; making changes, as the trustees consider appropriate, in conjunction with investment advice from KPMG. Darren Littlewood Group Finance Director 22 April 2016 £176.2m Revenue up by £29m, an increase of 20% over the year of 2014 10% increase in net asset value to £221.5m (2014: £200.5m), with net asset value per share also increased by 10% to 168p 3.80p Proposed final dividend, an increase of 9% over 2014 payment i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Pictured Left Cranbrook, Exeter saw residential occupancies exceed 1,150 in the 21/2 years since sales launch; and Pictured Right Environmentally sustainable office units built at Fountain Court, Doncaster for Workpods Limited. n o i t a m r o n f I l r e d o h e r a h S 37 12/04/2016 13:35:30 Henry Boot Annual Report 2015 Strategic.indd 37 24415.04 12 April 2016 1:31 PM Proof 6 Key Performance IndicatorsFinancialEach business unit within the Group is required to establish targets at the beginning of each financial year against a broad range of financial and non-financial indicators.The Managing Director of each subsidiary reports on progress at Board meetings every two months. The two main Board Executive Directors attend these meetings and are able to assess whether each unit is performing in accordance with its plan throughout the year.Profit before tax (£m)Cash generation (£m)Dividends per ordinary share (p)2015201420132012(£0.3)(£14.2)(£19.6)2011£9.1(£2.5)201520142013201220116.10p5.60p5.10p4.70p4.25p20152014201320122011£32.4£28.3£18.4£13.4£16.1Objective To increase profit levels over timePerformance 14% increaseComments Increased land sales generating higher profits in 2015. 2016 looks positive in terms of all aspects of the business but especially land and property developmentObjective To monitor cash generated over timePerformance Cash outflow £2.5mComments We continue to reinvest retained earnings in the portfolio of land and property development assetsObjective To generate growing shareholder returns over timePerformance 9% increaseComments 9% increase to 6.10p as we move dividends to new record level2015201420132012201117.5p16.2p8.6p7.0p6.9p20152014201320122011168p152p148p139p142p2015201420132012£221.5£200.5£193.5£181.92011£184.8Objective To grow the asset base over timePerformance 10% increaseComments Increased due to higher profits and retained earnings assisted by a decrease in the pension deficit which was affected by the increase in bond yieldsObjective To increase returns over time Performance 8% increaseComments Increased due to higher retained profits helped by improved returns from land disposalsObjective To increase shareholder value over timePerformance 10% increaseComments Little change to share capital; therefore, benefits from the increase in retained earningsNet assets (£m)Earnings per ordinary share (p)NAV per share (p)On TargetOn Target On Target On TargetOn Target On Target Overview24415.04 12 April 2016 1:31 PM Proof 638Henry Boot PLCAnnual Report and Financial Statements for the year ended 31 December 2015www.henryboot.co.ukStock Code: BHYStrategic ReportHenry Boot Annual Report 2015 Strategic.indd 3812/04/2016 13:35:30Land Development The size of the strategic land bank, the split between owned and optioned land, the number of allocated sites and changes to those allocations, the extent to which we have full or outline planning consent and the number of residential units or commercial space contained in those consentsProperty Investment and DevelopmentThe expected investment in developments, expected completed values and anticipated yields, rents and rental growth, levels of tenant demand and unlet space, new commercial property investment and development opportunities and potential asset salesConstruction Workload forecasts and capacity utilisation in relation to plan, general activity levels, tender opportunities, contract costing workload and wins, health and safety and environmental matters and contract completion, sign off and financial closure. Activity levels by depot and class of asset, health and safety matters, levels of cash generated and returns on plant asset capital employed, which in turn drive asset investment decisions. Group At Group level the business units’ financial performance against expectations forms an integral part of the reporting criteria. In addition, Group performance indicators of cash and facilities, pension scheme performance, shareholder return and return on capital employed along with health and safety matters are reported on at each meeting.Linking Performance to RewardShareholder return (%)Gearing levels (%)201520142013201218%18%19%12%20111%201520142013201218%0%52%13%201136%Objective To generate growing shareholder returns over timePerformance 18 ppt increase in yearComments Share price 14.7% over the year which, coupled with the increase in dividends, gave rise to a return over the last 3 years of 77.7%, comfortably above the median of the All Share and Small Cap indices On TargetObjective To monitor levels of cash required over timePerformance No change during the yearComments This still prudent gearing level gives us flexibility to reinvest in land sites and property development. 2016 should see these levels maintainedOn TargetReturn on capital employed (%)Pension scheme deficit (£m)2015201420132012£19.6£28.2£20.1£30.52011£22.6201520142013201212.2%11.4%8.3%6.2%20117.3%Objective To increase returns on capital employed over timePerformance 7% increaseComments Healthy improvement in returns over the last three years. Continued to generate the kind of returns to meet our aspirationsOn TargetObjective To reduce the pension scheme deficit over timePerformance 30% decreaseComments Discount rate used by IAS 19 has increased to 3.8% from 3.6%. The pension scheme assets achieved a satisfactory return. A discount rate of 4.75% would result in a negligible deficit On TargetThe KPIs differ in each subsidiary with the exception of financial targets, which focus on profitability growth, cash generation and levels of debt, forecast cash requirements, return on capital employed, shareholder return and asset value created.We also review health and safety matters and how economic conditions and changes in legislation may affect individual business units. The Board has decided that the following KPIs, which are included within the papers for each Board meeting, are indicators measuring our success towards achieving long-term, sustainable growth for all stakeholders in our business.Read more on pages 12 to 15Read more on pages 16 to 19Read more on pages 32 to 37Read more in our Directors’ Remuneration Report on pages 64 to 73Read more on pages 20 to 2324415.04 12 April 2016 1:31 PM Proof 6Henry Boot PLCAnnual Report and Financial Statements for the year ended 31 December 2015www.henryboot.co.ukStock Code: BHY39GovernanceFinancial StatementsShareholder InformationOverviewStrategic ReportHenry Boot Annual Report 2015 Strategic.indd 3912/04/2016 13:35:31Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Key Performance Indicators Non-Financial We have identified a number of key performance indicators (KPIs) against which we measure our corporate responsibility. These are monitored during the year and action taken if necessary. Accident frequency rate (AFR) Accident frequency rate (AFR) Personal development (days) (per 100,000 hours worked – employees) (per 100,000 hours worked inclusive of subcontractors) 0.31 0.20 1,306 1,203 1,164 1,085 927 0 0 0 0 0 2011 2012 2013 2014 2015 0.12 0.08 0.06 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Objective Our health and safety Objective Our health and safety Objective Our people Performance To ensure a reducing number of reportable health and safety incidents when measured against the Constructing Excellence Health and Safety KPIs. Performance To ensure a reducing number of reportable health and safety incidents when measured against the Constructing Excellence Health and Safety KPIs. Performance To ensure that our employees are trained to the appropriate level and are given adequate opportunity to develop their careers. Comments Another successful year of zero incidents affecting our directly employed staff. Comments Our ongoing education of our sub- contractors and the closer monitoring of their working practices continues. Comments A slight increase in development days, reflective of an increase in trainee and apprentice recruitment. Reportable accidents Employee profile BITC Environmental Index (%) 5 3 2 1 1 439 92 347 438 100 338 450 103 459 111 347 348 434 106 328 91 95 97 94 94 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Objective Our health and safety Objective Our people Objective Our environment Performance To ensure a reducing number of reportable health and safety incidents when measured against the Constructing Excellence Health and Safety KPIs. Comments It is an ongoing priority and focus of the Group to commit to ensuring health and safety is paramount. 2015 saw a decrease in reportable incidents. Performance To ensure a diverse spread of genders within all job roles in the Group. Comments We currently have a gender split of 76% male to 24% female. In order to address this we are working closely with external partners to encourage under-represented groups into the industry. Females Males Performance To be acknowledged by a recognised body as being a leader in environmental management in our region. Comments A decrease in our scoring due to realignment of the process means that we are now classed as Gold status; the Company will endeavour to regain Platinum status in the future. 40 Henry Boot Annual Report 2015 Strategic.indd 40 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:32 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Considerate Constructor Scheme 34.3 34.7 36.1 37.1 37.4 2011 2012 2013 2014 2015 Objective Our community Performance To be classified as a ‘good neighbour’ when scored against the Considerate Constructor Scheme score of 50. Comments Another solid year of performance which saw achievement of several high scores in the five categories across our sites. Recycling – diverted from landfill (%) 93 93 94 94 95 2011 2012 2013 2014 2015 Objective Our environment Performance To reduce the amount of spoil going to landfill by recycling, reusing or upcycling. Comments We continue to improve our methods of work to try to reduce this number further. Our accreditations and awards Henry Boot PLC is one of the UK’s leading and long-standing land development, property investment and development, and construction companies; renowned for quality and a diverse portfolio, we pride ourselves on maximising long-term shareholder value. We have a reputation for providing a quality product, delivered in a safe way, which will continue to provide revenue growth in our chosen markets. Our success can be measured in many ways; and this is apparent by the number of accreditations and awards we continue to receive. i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S 41 12/04/2016 13:35:35 Henry Boot Annual Report 2015 Strategic.indd 41 24415.04 12 April 2016 1:31 PM Proof 6 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Managing Risk In common with all organisations, the Group faces risks that may affect its performance. The Group operates a system of internal control and risk management in order to provide assurance that it is managing risk whilst achieving its business objectives. No system can fully eliminate risk and therefore the understanding of operational risk is central to the management process within Henry Boot. The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces. To enable shareholders to appreciate what the business considers are the main operational risks, they are briefly outlined on pages 43 to 46. Centralised operations Specific risks and compliance issues associated with health and safety, treasury and banking operations, company secretarial, pensions, legal, human resources and training, public and investor relations, information communication technology and insurance TOP DOWN Group Board Reporting framework The Board monitors the risk and associated controls over financial reporting processes, including the consolidation process Audit Committee Internal framework The financial reporting controls are monitored and maintained through the use of internal control frameworks which address key financial reporting risks, including risks arising from changes in the business or accounting standards Managing Directors Business procurement Development appraisals, land purchases, options, planning promotion agreements and construction contracts above a certain value require the authority of the Executive Directors to proceed Business units Day-to-day operations Policy and procedure manuals cover major areas of their operations, including safety, purchasing, estimating, marketing, production and quality BOTTOM UP Independent review Review risk assessment and reporting Risk assessment Read more about Our Strategy on page 8 Read more about Our KPIs on pages 38 to 41 Read more about Our Governance on pages 48 to 79 Read more about Our Activities and Resources on page 11 42 Henry Boot Annual Report 2015 Strategic.indd 42 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:35 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Risk and description Health & Safety Inherent risk within construction activity Construction Increased cost and lower availability of skilled labour, subcontractors and building materials Environmental The Group is inextricably linked to the property sector and environmental considerations are paramount to our success Stricter environmental legislation will increase development and house building costs and therefore could impact on profitability if capital and land values do not increase to reflect more efficient energy performance Development Not developing marketable assets for both tenants and the investment market on time and cost effectively Mitigation Change in risk environment during 2015 • Priority consideration of all Group and subsidiary board meetings • Robust training, policies, procedures and monitoring • Internal independent Health & Safety Manager who conducts regular random inspections • Routine Director and Senior Manager safety inspections • Regular externally reviewed mock incidents • Quality training given to grow personnel internally • Pool of approved and checked subcontractors subject to regular review • Group purchasing arrangements and preferred supplier agreements • Forward planning to increase ordering times and availability of materials • Our interaction with the environment and the agencies that have an overarching responsibility has to be positive at all times in order to achieve best value • Through the National Federation of Builders the Group attempts to reduce the impact on our business • Internal design helps mitigate environmental planning issues • Record of awards given in respect of good safety and environmental performance • Environmental impacts addressed at main Board and each subsidiary company board meeting • Monthly performance meetings • Defined appraisal process • Monitoring of property market trends • Highly experienced development team • Flexible to market trends in development requirements • Diverse range of sites within the portfolio i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Rising market yields on completion making development uneconomic • Active asset management • Monitoring property market trends • Only develop when yields are stable • Development subject to a ‘hurdle’ profit rate Construction and tenant risk which is not matched by commensurate returns on development projects • Construction projects, including returns and cash flows, are monitored monthly by subsidiary company management teams • Seek high level of pre-lets prior to authorising development • Development subject to a ‘hurdle’ profit rate • Shared risk with landowners where applicable Key: Increased Decreased No Change Henry Boot Annual Report 2015 Strategic.indd 43 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 43 12/04/2016 13:35:35 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Managing Risk continued Risk and description Land Mitigation Change in risk environment during 2015 The inability to source, acquire and promote land would have a detrimental effect on the Group’s strategic land bank and income stream • Monthly operational meetings detail land owned or under control, new opportunities and status of planning • Each land acquisition is subject to a formal appraisal process which must exceed the Group defined rate of return and is subject to approval by the Group’s Executive Directors • Land bank of over 11,000 acres with aspiration to grow further. Over time the land bank acreage has shown steady growth • Finance available to support speculative land purchases • Well respected name within the industry that demonstrates success • Long-established contact base • Large land bank can help smooth short-term fluctuations A dramatic change in house builder funding sentiment and demand for housing can have a marked change on the demand and pricing profile for land • The Group’s policy is to only progress land which is deemed to be of high quality and in prime locations • The business is long term and is not seriously affected by short- term events, or economic cycles • We recognise cyclicality in our long-term plans and operate with a relatively low level of debt • Greenfield land is probably the most sought after land to build upon • Long-term demographics show growing trend; therefore demand for land will follow • House builders do have very good land banks and can be choosy regarding what they buy • The Group’s highly skilled in-house technical and planning teams monitor changes in the market and in the planning process and react accordingly to ensure that planning consents are achieved in the most cost-effective and timely manner, whilst ensuring a broad spread of developments remain in the planning system at any one time • Good local knowledge assists in bringing forward land and contractual agreements ensure land can be brought to market at an appropriate time • Long-established successful operator • Inventory of approximately 150 sites in progress throughout the UK • Sites are typically greenfield and of a high quality • Large land bank can help smooth short-term fluctuations • A high profit margin can be achieved when successful • No revaluations are taken on land through the planning process; therefore though profits may be smaller if site values fall the Group should still achieve a good profit margin on sale Planning Increased complexity, cost and delay in the planning process may slow down the project pipeline Changes in Government or Government policy towards planning policies could impact on the speed of the planning consent process or the value of sites Key: Increased Decreased No Change 44 Henry Boot Annual Report 2015 Strategic.indd 44 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:35 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Risk and description Economic Mitigation Change in risk environment during 2015 The Group operates solely in the UK and is closely allied to the real estate, house building and construction sectors. A strong economy with strong tenant demand is vital to create long-term growth in rental and asset values, whilst at the same time creating a healthy market for the construction and plant hire divisions. • Strong Statement of Financial Position with low gearing and long- term shareholder base means that we can ride out short-term economic fluctuations • Different business streams increase the probability that not all of them are in recession at the same time • The City recognises the Group is a cyclical business and understands performance will be affected by economic cycles • Directors and shareholders share a common goal of less aggressive leveraging than some competitors • Current market conditions are supportive Personnel Attraction and retention of the highest calibre people with the appropriate experience is crucial to our long-term growth in the highly competitive labour markets in which the Group works Treasury The lack of readily available funding to either the Group or third parties to undertake property transactions can have a significant impact on the marketplace in which the Group operates Investments Identifying and retaining assets which have the best opportunity for long-term rental and capital growth, or conversely selling those assets where capital values have been maximised • This risk is reduced as unemployment rises and recessionary conditions prevail • Good long-term employment record indicates that good people stay within the Group. The Group encourages equity ownership • Proven record of sharing profits with staff • Succession planning is an inherent part of management process • The Group has agreed three-year facilities with its banking partners which were renewed in February 2015 and are backed by investment property assets • Detailed cash requirements are forecast up to 15 months in advance and reviewed and revised monthly • Short-term positive cash balances are placed on deposit • Group funding levels are prudent in relation to the Statement of Financial Position • As a PLC access to equity funding is available should this be required • This is an ongoing process with regular reviews of the assets and market conditions to achieve best value • Broad range of development opportunities to choose from • Investment assets are seen as tradable if required • We have a record of recycling assets into funding for new developments i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 45 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 45 12/04/2016 13:35:36 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Strategic Report Overview Managing Risk continued Risk and description Mitigation Change in risk environment during 2015 Interest Rates Significant upward changes in interest rates affect interest costs, yields and asset prices and reduce demand for commercial and residential property Counterparty Depends on the stability of customers, suppliers, funders and development partners to achieve success Pension The Group operates a defined benefit pension scheme which has been closed to new members for 12 years. Whilst the Trustees have a prudent approach to the mix of both return-seeking and fixed- interest assets, times of economic instability can have an impact on those asset values with the result that the reported pension deficit increases. Furthermore, the relationship between implied inflation and long-term gilt yields has a major impact on the pension deficit and the business has little control over those variables • Statement of Financial Position strength allows the Group to warehouse sites in tough markets • Long-term nature of land business helps smooth short-term interest rate impacts • Interest cover over 20 times; gearing relatively low and therefore significant scope to deal with interest rate rises • In recessionary periods the Group pays particular attention to the financial strength of counterparties before contracting with them in order to mitigate financial exposure • Operation of Trustee approved Recovery Plan • Whilst pension schemes are a long-term commitment, regulations require the Group to respond to deficits in the short term • Move out of gilts will provide a cushion should rates rise • Risk mitigated by move to diversified growth funds on around 30% of assets • Treat pension scheme as any other business segment to be managed (Discount rate increased by 20bps) • Strong working relationship maintained between Company sponsor and pension Trustees • Use good quality external firms for actuarial and investment advice Key: Increased Decreased No Change 46 Henry Boot Annual Report 2015 Strategic.indd 46 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:35:36 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Going concern The Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Financial Statements. Viability Statement Introduction The business model and strategy of Henry Boot PLC can be found on pages 8 to 11. These documents are central to the understanding of the long-term business model. We have operated the current business model successfully over the past 15 years, and have a 130-year unbroken history. By their nature the Group’s activities tend to be very long term, especially in the land development business, and the Group’s strategy and experience in this sector has been built up over many years. Over the last ten years the Group has reported an average profit before tax of £22m per annum, added almost £100m to net assets and paid £58m in dividends, all from the trading segments it now operates, and at no stage in the downturn, between 2008 and 2010, did the Company make a trading loss. Forecasts for the viability assessment period indicate a positive continuation of these financial results, underpinned by the commercial development and land opportunities we already control. The assessment process The Group’s prospects are assessed through an annual budgeting process led by the main Board Executive Directors and the boards of the individual subsidiaries. A detailed annual budget is agreed prior to the commencement of the current financial year and reforecasting takes place each month throughout the financial year within each business and consolidated at Group level. The two succeeding years are also forecast, using predominantly known and controlled opportunities, to assess the longer-term viability of the Group. As a largely deal-driven business, it is considered inappropriate to attempt to forecast further out via an extrapolation of years one to three, albeit asset trading and development is central to the Group’s long-term strategy. Stress testing these forecasts highlights that if economic conditions worsen and developments and land sales do not happen as envisaged, we invest and borrow less and, whilst profitability is lower, the stable construction segment income covers most of our overhead costs. Whilst we do not foresee it, only a very long-term, unprecedented lack of liquidity in the UK residential and commercial property markets would cause any threat to the viability of the Group. Assessment of viability The long-term strategy, the annual budget and the two-year forecasts reflect the Directors’ best estimates of the future prospects for the business. We have also reviewed a number of potential viability risks to the Group and consider that the following represent scenarios which if not carefully managed could impact on the Group’s viability: Firstly, overtrading developments in progress with the attendant increase in leverage, at the same time as the property cycle turns down, asset values are falling and schemes have to be completed to create best value. This creates a potentially damaging scenario where debt is rising and asset values are falling. Mindful of this scenario, we have prudent debt levels (even at maximum facility utilisation of £65m) and we have pre-sold more than 90% of the current development work in progress. Secondly, a health and safety related breach that causes a fatality (or similar serious outcome). We manage this risk through a very robust health and safety policy, zero tolerance towards policy breaches and treat health and safety as the first matter for discussion on our Company Board meeting agendas. Our safety scores continue to be well into the top quartile of the UK construction industry and we have achieved a very safe working environment over the last 20 years. Viability Statement Based on their assessment of prospects and viability above, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities over the three-year period ending 31 March 2019. i w e v r e v O t r o p e R c g e t a r t S i e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 Strategic.indd 47 24415.04 12 April 2016 1:31 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 47 12/04/2016 13:35:36 Providing a long-term commitment to high levels of dividend cover Q With the Board changes this year, how does the new structure offer the best opportunity for long-term creation of value for shareholders? A Our new Non-executive Directors, Joanne Lake, Peter Mawson and Gerald Jennings, bring extensive corporate finance, planning, strategic land and commercial development experience to the Board. Jamie Boot, as Chairman, will continue to apply his wealth of knowledge and skills to looking after shareholders’ interests which he has done successfully for over 30 years. The appointees to the Board, who joined Jamie and James Sykes, are ideally suited to support our new Group Executive team of John Sutcliffe as Chief Executive Officer and Darren Littlewood as Group Finance Director. The Board as a cohesive unit will make a strong contribution to the delivery of our strategic goals in the future. 48 Henry Boot Annual Report 2015 - Back.indd 48 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:23 Governance Strong governance within Henry Boot keeps the Company true to its historic identity, safeguards and promotes the values of today, and identifies our vision for the future. By exhibiting leadership the Board motivates employees to achieve personal as well as team and Company goals. The Board also reassures stakeholders about how the Company is being managed in an effective and organised manner. Our Board of Directors demonstrates the right blend of skills, experiences and perspectives to lead the Company forward in a cohesive, consistent and confident manner. Strong governance is about people and how those people work together towards a shared vision. Jamie Boot Chairman Contents 50 Board of Directors 51 Senior Management 52 Chairman’s Introduction 53 Corporate Governance Statement 60 Nomination Committee Report 61 Audit Committee Report 64 Directors’ Remuneration Report 74 Directors’ Report 79 Statement of Directors’ Responsibilities Henry Boot Annual Report 2015 - Back.indd 49 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:25 4949 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Board of Directors Jamie Boot Chairman John Sutcliffe Chief Executive Officer Darren Littlewood Group Finance Director Joanne Lake Deputy Chairman Current Role Chairman since January 2016. Appointed an Executive Director in June 1985 and a Non-executive Director in January 2016. Committees Nomination, Audit and Remuneration. Past Roles Group Managing Director from July 1986 to December 2015. Managing Director at Henry Boot Developments Limited and Director at Henry Boot Homes Limited. Brings to the Board Jamie has over 30 years’ experience as a director of Henry Boot PLC and has been a director of the Company’s four principal operating subsidiaries. Jamie’s role now sees him responsible for the leadership of the Henry Boot PLC Board and having overall responsibility for the management of the Audit, Remuneration and Nomination Committees. Current Role Chief Executive Officer since January 2016. Appointed an Executive Director in October 2006. Additional Roles Held Chairman of the Company’s four principal operating subsidiaries. Member of the CBI Yorkshire and the Humber Regional Council and a lay member of the Sheffield University Finance Committee. Past Roles Group Finance Director and Company Secretary at Town Centre Securities PLC and Finance Director of Abbeycrest plc. Brings to the Board John has responsibility for Group profitability and guides in the achievement of the highest level of return for a given level of risk. He is also responsible for communicating strategy and results to both private and institutional investors. Current Role Group Finance Director and Executive Director since January 2016. Additional roles held Director of the Company’s four principal operating subsidiaries. Past Roles Group Financial Controller from January 2008 to December 2015. Brings to the Board Darren qualified as a member of the Chartered Institute of Management Accountants in 2007 and is responsible to the Board for all financial and risk matters relating to the Henry Boot Group of Companies. He is heavily involved in investor communications and, along with John Sutcliffe, is also responsible for communicating strategy and results to both private and institutional investors. Current Role Deputy Chairman since January 2016. Appointed a Non-executive Director in October 2015. Committees Nomination, Audit and Remuneration (Chairman). Additional Roles Held Deputy Chairman and Non- executive Director of Mattioli Woods plc, Non-executive Director of Gateley (Holdings) Plc, Trustee of The Hepworth Wakefield. Brings to the Board Joanne has over 30 years’ experience in accountancy and investment banking, including with Panmure Gordon, Evolution Securities, Williams de Broe and Price Waterhouse. She is a Chartered Accountant and a Fellow of the Chartered Institute for Securities & Investment and of the ICAEW, and is a member of the ICAEW’s Corporate Finance Faculty. James Sykes Non-Executive Director Peter Mawson Non-Executive Director Gerald Jennings Non-Executive Director Russell Deards Company Secretary Current Role Group General Counsel since 2014 and Company Secretary since September 2013. Additional Roles Held Responsible for Legal, Insurance, IT and secretariat matters. Past Roles Head of Legal Services for Barratt Developments in 2007 and Partner at Flint Bishop Barnett Solicitors in 2011. Current Role Non-executive non-independent Director since March 2011. Committees Nomination, Audit (Chairman) and Remuneration. Additional Roles Held Partner in the London office of Saffery Champness, Chartered Accountants which he joined in 1987. He is a Non-executive Director of Saffery Champness’ businesses in both Guernsey and Switzerland. Brings to the Board James’ experience as an audit partner is very important in his role as Chairman of the Audit Committee. As a partner in the Private Wealth and Estates Group at Saffery Champness he has many years’ experience in the UK strategic land market and brings that experience to board decision making generally but more especially to Hallam Land Management Limited. Current Role Senior Independent Non- executive Director since January 2016. Appointed a Non-executive Director in October 2015. Committees Nomination (Chairman), Audit and Remuneration. Additional Roles Held Chairman of Nexus Planning Limited, Non-executive Director of Infinite Spada Limited. Past Roles Chief Executive of Donaldsons LLP and Chief Executive of Urban Development Corporation. Brings to the Board Peter has a wealth of experience in the management and leadership of professional service firms, together with senior practitioner expertise across the built environment, from both public and private sector perspectives. Current Role Non-executive Director since October 2015. Committees Nomination, Audit and Remuneration. Additional Roles Held Non-executive Director of the Ahead Partnership, Non-executive Director of West and North Yorkshire Chamber of Commerce, Trustee Director and Chair of PSL and Governor at Leeds City College, President of the Leeds Chamber of Commerce and Director of G R Jennings Properties Ltd. Past Roles Retail Portfolio Director at Land Securities PLC. Brings to the Board Gerald has over 25 years’ experience in the retail and property industry. Most recently Gerald was responsible for the delivery of the one million sq ft Trinity Leeds retail scheme. 50 Henry Boot Annual Report 2015 - Back.indd 50 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:26 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Senior Management David Anderson Henry Boot Developments Limited Giles Boot Banner Plant Limited Simon Carr Henry Boot Construction Limited Nick Duckworth Hallam Land Management Limited Appointment date Managing Director in 2005. Brings to the role David Anderson, BSc (Hons), MRICS, started his career in town planning consultancy and then joined Henry Boot Developments Limited in 1990 as an Assistant Development Surveyor, rapidly rising to the position of Senior Development Surveyor. He was appointed a Director in 1996. Appointment date Managing Director in 2000. Brings to the role Giles Boot, BA (Hons), joined the Henry Boot Group in 1982 and had a variety of management roles in Rothervale Trading Limited, the retail side of the then Group’s door manufacturing business. Moving to Banner Plant Limited in 1988, he held a number of positions, including Depot Manager and Business Development Manager, before being appointed to its Board in 1995. Appointment date Managing Director in 2009. Brings to the role Simon Carr, BSc (Hons), FRICS, has been with Henry Boot for over 28 years. He has held a number of positions on the construction side of the business, including Partnering Manager and Operations Director. Simon is a private sector board member of the Sheffield City Region Local Enterprise Partnership and the Sheffield City Region Housing Executive Board. He is the current chair of the National Federation of Builders and also sits on the CBI Construction Council. Appointment date Managing Director in 2016. Brings to the role Nick Duckworth, MRTPI, began his career in a private sector planning consultancy, Phillips Planning Services, in 1990. He left there in late 1992 and joined Hallam’s then newly established Northampton office. In 1997 Nick set up the South West office of Hallam in Bristol and became the Regional Manager. He was appointed a Director in 2002. Darren Stubbs Stonebridge Projects Limited Trevor Walker Road Link (A69) Limited Appointment date Managing Director (start of joint venture) in 2010. Brings to the role Darren Stubbs started work at Tay Homes plc at the age of 16 and by the age of 25 he was Managing Director of his own small housebuilding company based in Leeds. Over the next 15 years he grew the business to achieve an annual turnover of £25 million. In 2010 he formed a new house builder and property company, Stonebridge Projects Limited, in a joint venture partnership with Henry Boot PLC. Appointment date General Manager in 2005. Brings to the role Trevor Walker, IEng AMICE, joined Road Link (A69) Limited in 1996 at the start of the 30-year Private Finance Project to operate and maintain the A69 trunk road. He was previously involved in trunk road maintenance in the south of Scotland. He undertook various road and bridge maintenance roles within Road Link (A69) Limited in the early years, helping to establish the company before his appointment as General Manager in 2005. Pictured (from left to right): Russell Deards, John Brown, Peter Mawson, James Sykes, John Sutcliffe, Michael Gunston, Gerald Jennings, Joanne Lake, Jamie Boot, Simon Carr, Trevor Walker, Darren Littlewood, David Anderson, Giles Boot, Darren Stubbs. Inset: Keran Power and Nick Duckworth. For more information about our Directors and Senior Management please visit our website www.henryboot.co.uk/about-us/board-senior- management 51 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 51 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:29 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Chairman’s Introduction “ I am very pleased to introduce the reporting of our corporate governance arrangements for this year and to be able to explain their importance and how these arrangements work for the benefit of the Company and its shareholders.” Henry Boot PLC, a premium listed company on the London Stock Exchange, is subject to the UK Corporate Governance Code (the Code). The Code encourages me, as Chairman, to report personally on how its principles relating to the role and to the effectiveness of the Board have been applied. The Board remains committed to ensuring that it provides effective leadership and demonstrates high ethical standards. This is one demonstration of my, and our, determination to add value to the Company. One of the ways in which we achieve this is by maintaining high standards of corporate governance principles and practices in order to facilitate the future success of the Company and sustain this over time. I stepped down as Group Managing Director after 29 years in December 2015, and was appointed Chairman on 1 January 2016, at which date John Sutcliffe was appointed Chief Executive Officer. As Chairman, I am responsible for the leadership of the Board and ensuring that it operates effectively. The Board has clearly defined roles for each member, as described in the table on page 57. The Non-executive Directors challenge management and contribute to strategy. Board composition is extremely important and there are three main requirements: the balance of skills and experience, maintaining a strong level of independence and objectivity, and ensuring that all members have sufficient knowledge of the Company and the context in which we operate. When John Brown and Michael Gunston announced their decision to retire as Non- executive Directors and I announced my decision to step down as Group Managing Director, the Board thought it right that I became Chairman due to my longevity of service and extensive knowledge and experience within Henry Boot thus enabling the Group to continue to be cohesive, consistent and confident. Clearly if I was to become Chairman, the Board also felt it right to appoint three new independent Non-executive Directors, Joanne Lake, Peter Mawson and Gerald Jennings, and to appoint one of these as Deputy Chairman, Joanne, to ensure independence and a clear separation from my old role to my new role. Appointments to the Board will always be made on merit against objective criteria and the Board strongly supports the principle of boardroom diversity. The Board, its Committees and individual Directors are subject to annual performance evaluation and, as we act in shareholders’ interests, all Directors are now subject to re-election by shareholders annually. The remainder of this report contains the narrative reporting variously required by the Code, the Listing Rules and the Disclosure Rules and Transparency Rules which I hope you will find of interest. Yours faithfully Jamie Boot Chairman 22 April 2016 52 Henry Boot Annual Report 2015 - Back.indd 52 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:31 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Corporate Governance Statement The Board reaffirms its commitment to achieving and maintaining a high standard of corporate governance. To be effective, it is felt that such governance must reflect the unique standing of the Company and the composition of both its institutional and individual shareholders, many of whom have strong family ties to the Company, as well as other stakeholders’ interests and, above all, that governance must assist in the attainment of corporate objectives. During the accounting period under review, the Company, as a premium listed company, was subject to the September 2014 edition of the UK Corporate Governance Code issued by the Financial Reporting Council (FRC). The UK Corporate Governance Code is available free of charge on the FRC website at www.frc.org.uk/publications. The Code recognises that not all of its provisions are necessarily relevant to smaller listed companies and the Code states that departures from its provisions should not be automatically treated as breaches of the Code. The Directors believe that the Code is correctly applied as and where relevant to the Company and are satisfied that in areas of departure from the Code the departure is for good reason. In applying the principles of good governance, including both the main principles and the supporting principles, the policies adopted by the Board therefore follow the Code’s guidelines insofar that they assist the overall well-being of the Company and its shareholders’ interests. The Board adopts a pragmatic approach where adoption of all the supporting principles of the Code is not an objective as such. Compliance with good reason and departure with good reason are discussed and agreed. Further explanations of how the main principles and the supporting principles have been applied are set out on pages 52 to 59. Retirements and appointments to the Board As announced in August 2015, John Brown, Non-executive Chairman, and Michael Gunston, Senior Independent Non- executive Director, retired from the Board on 31 December 2015. A succession plan had been considered for some time and, therefore, also on 31 December 2015, Jamie Boot retired as Group Managing Director and replaced John Brown as Non- executive Chairman on 1 January 2016 and also from 1 January 2016, became a member of the Nomination, Audit and Remuneration Committees. John Sutcliffe, who had been Group Finance Director for the previous nine years, took over as Chief Executive Officer and Darren Littlewood, previously Group Financial Controller, took over as Group Finance Director, both from 1 January 2016. On 1 October 2015, to work with this team, and to allow for a sensible handover period, the Company appointed three new independent Non-executive Directors, Joanne Lake, Peter Mawson and Gerald Jennings, who also became members of the Nomination, Audit and Remuneration Committees, and their biographical summaries can be found on page 50. Following these appointments, on 1 January 2016, Joanne Lake commenced her roles as Deputy Chairman of the Company and Chairman of the Remuneration Committee, and Peter Mawson became the Senior Independent Non-executive Director of the Company and Chairman of the Nomination Committee. The additional independent Non-executive Directors were considered necessary to ensure independence and good governance. The Board believes these changes ensure that the Board and the Company can continue to act in a cohesive, consistent and confident manner, in accordance with the Company’s values. The Board The Company is led and controlled by a Board of Directors which is collectively responsible for the continued success of the Company and our key objective is to maximise long-term shareholder value. In December 2015, the Board consisted of eight Directors, two of whom were Executive Directors and the remaining six, including the Chairman, were Non-executive Directors. From 1 January 2016, the Board comprises seven Directors; two are Executive Directors and five are Non-executive Directors. Director biographical summaries appear on page 50. The Board’s role is to provide entrepreneurial leadership of the Company within a framework of prudent and effective controls that enables risk to be assessed and appropriately managed. It sets the Company’s strategic aims, reviews management performance and ensures that the necessary financial and human resources are in place, and will continue to be in place for the Company to meet its objectives, recognising the importance of safety, environmental and social factors. The Board also sets the Company’s aims and values and ensures that its obligations to its shareholders and others are understood and met. Day-to-day management of the Company’s subsidiaries sits with each respective board of directors, led by a Managing Director. The Executive Directors of the Company are also directors of each subsidiary. The Board retains a Schedule of Reserved Matters which is reviewed annually to ensure that strategy and key elements that might affect the implementation of corporate goals are adhered to. The Board is responsible for: • strategy and objective setting; • capital structure and ensuring funding adequacy; and • effective internal controls. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S 53 Henry Boot Annual Report 2015 - Back.indd 53 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:31 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Corporate Governance Statement continued Board balance and independence For the purposes of the accounting period under review, John Brown, Michael Gunston, Joanne Lake, Peter Mawson and Gerald Jennings are the independent Non-executive Directors. Although John Brown had served for more than nine years, he continued to demonstrate his independence from the Company and objective approach in the way he challenged the Executive Directors and accordingly, notwithstanding the length of his service, John Brown remained independent as determined by the Board. Michael Gunston was the Senior Independent Director of the Company. James Sykes was appointed to represent the substantial shareholdings of the Reis family interests (see page 75) and is not regarded as an independent Non-executive Director. A key principle of the Group’s Equality and Diversity Policy is that the Nomination Committee of the Board will always appoint on merit. The Board recognises the benefits of diversity and we consider that diversity includes (but is not limited to) personal attributes, gender, ethnicity, age, disability and religious beliefs. Our aim is to promote equality, respect and understanding, and to avoid discrimination. Whilst we value the recommendations of the Davies Report, we do not have a specific objective for the number of female directors. However, on 1 October 2015, Joanne Lake became our first appointed female main Board independent Non- executive Director and from 1 January 2016 was appointed Deputy Chairman of the Company. We are committed to ensuring that appointments made to the Board, and at senior management level, are made on merit. The Nomination Committee will ensure that it only uses executive search firms which have signed up to the voluntary Code of Conduct addressing gender diversity and best practice, that females are given the same consideration and opportunity as male applicants, and that gender diversity is considered, specifically when drawing up a list of potential candidates. At its regular Board meetings there is a series of matters that are dealt with, including a health and safety review, a finance review, including pensions, operational reviews on all the main trading subsidiaries and a secretarial review encompassing corporate governance, risk, shareholder matters, legal, insurance and IT. HR reports are also provided to the Board for review and comment. The Board also reviews strategy, budgets and matters relating to internal controls as appropriate. The subsidiary board meetings are attended by the two main Board Executives, as directors of those subsidiaries, accompanied by the Group General Counsel & Company Secretary. Operational decisions affecting each subsidiary are taken by the individual subsidiary boards at their meetings. All Directors have access to the Group General Counsel & Company Secretary and there is in place a written procedure for all Directors to take independent professional advice. The Group General Counsel & Company Secretary is responsible for information flows between the Board, its Committees and the boards of subsidiary companies. Formal inductions for new Directors have been developed, along with continued professional development training. The Group General Counsel & Company Secretary also ensures procedures, regulations and law are followed and advises the Board on governance issues. The question of conflicts of interest is raised at every Board meeting of the Company and its subsidiaries. Board effectiveness The roles of John Brown until 31 December 2015 and Jamie Boot from 1 January 2016, and the Group Managing Director Jamie Boot until 31 December 2015 and the Chief Executive Officer John Sutcliffe from 1 January 2016, are clearly defined and they act in accordance with the main and supporting principles of the Code. The division of responsibilities of the Board of Directors is summarised on page 57. The Chairman is responsible for leadership of the Board and ensuring it operates in an effective manner. It is considered that the Directors possess an appropriate balance of skills, experience, independence and knowledge of the Company to enable them to discharge their respective duties and responsibilities so as to be effective. The Chairman is in regular contact with the Chief Executive Officer to discuss current matters and has visited Group operations outside the scheduled Board meeting calendar, to meet subsidiary company directors, managers and stakeholders. 54 Henry Boot Annual Report 2015 - Back.indd 54 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:31 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Conflicts of interest Under the Companies Act 2006 a director must avoid a situation where they have, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company’s interests. The Act allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the articles of association contain a provision to this effect. The Company’s Articles of Association enable the Board to authorise Directors’ conflicts of interest. In order to address this issue, conflicts of interest are reported by Directors to the Group General Counsel & Company Secretary and in turn through the Board meeting processes. The Board considers a register of interests and potential conflicts of Directors and gives, when appropriate, any necessary approvals. There have been no conflicts of interest reported to the Board during the year. How we assess and refresh the Board and its Committees There are three ways in which we ensure that Directors continue to provide suitable leadership and direction to the Company: performance evaluation, succession planning, and annual re-election by shareholders. Performance evaluation The Executive Directors’ performance is reviewed annually by the Remuneration Committee to ensure that they continue to contribute effectively to the Group’s overall objectives. The Non-executive Directors’ performance and commitment is kept under review throughout the year by the Executive Directors. The Non-executive Directors meet without the Chairman to discuss the performance of the Chairman at least twice a year. A performance evaluation of individual Directors was carried out and there was a formal evaluation of the Board and its Committees in 2015. Succession planning The Nomination Committee is responsible for reviewing the structure, size and composition of the Board and ensuring that the balance of knowledge, skills and experience are right for the Group. The Committee is also responsible for long-term succession planning at both Board and key senior management level. The Board also recognises the importance of diversity and is comprised of members with a wide range of experience from a variety of business backgrounds. Leadership training for the leaders of today and tomorrow has been developed and was launched in 2015 as part of the process of succession planning. Further leadership training is now being developed and rolled out. Annual re-election by shareholders The Company’s Articles of Association (Articles) require Directors to be re-elected at intervals of no more than three years and newly appointed Directors are subject to election at the Annual General Meeting (AGM) following their appointment. In addition, the UK Corporate Governance Code includes a proposal that all directors of FTSE 350 companies should be subject to annual re-election. The Board has decided that all of the Directors will retire from the Board and offer themselves for re-election at the forthcoming AGM. The Nomination Committee has conducted formal performance evaluations of all the Directors seeking re-election and has concluded that their performance continues to be effective and that they demonstrate commitment to the role. The Committee is also satisfied that the backgrounds, skills, experience and knowledge of the Company of the Directors collectively enables the Board and its Committees to discharge their respective duties and responsibilities effectively. The Directors’ biographies are shown on page 50. Training and development The Board receives appropriate training and updates on various matters as part of the regular Board meetings. All Directors are offered the opportunity and are encouraged to continue their professional development and update their commercial and Company knowledge as required. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 55 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:31 n o i t a m r o n f I l r e d o h e r a h S 55 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Corporate Governance Statement continued Board and committee meetings Throughout the year, there were seven Board meetings. In addition, the Board also delegates some of its duties and powers to committees to deal with specific business needs and also holds a meeting at least once a year dedicated almost entirely to strategy. The Board has formally constituted Nomination, Audit and Remuneration Committees. Each Committee and its members are provided with accurate, timely and clear information and sufficient resources to enable them to undertake their duties. Two Audit Committee meetings, two Nomination Committee meetings, four Remuneration Committee meetings and the AGM were held in 2015. Attendance at the Board meetings and Committee meetings held during 2015 is set out in the table below. The Non- executive Directors meet without the Executive Directors being present, usually just prior to Board meetings. The Board considers that the Non-executive Directors constructively challenge both the Executive Directors and subsidiary company management at Board meetings and through ad hoc discussions including the Strategy Day. Subsidiary company Managing Directors attend Board meetings on a rotational basis to present their operational business plans and strategy to the Board. Further details of each of the above Committees can be found on pages 60 to 73. An additional meeting of the Board of Directors was held in August 2015 to approve the appointments of Joanne Lake, Peter Mawson and Gerald Jennings, the appointment of Jamie Boot as Chairman, the promotion of John Sutcliffe to Chief Executive Officer and the promotion of Darren Littlewood to Group Finance Director, following the recommendation of the Nomination Committee. Full details can be found on page 60. Director John Brown1 Jamie Boot2 John Sutcliffe3 Joanne Lake4 Michael Gunston5 Gerald Jennings6 Peter Mawson7 James Sykes Board 7/7 7/7 7/7 2/7 6/7 2/7 2/7 7/7 Audit 2/2 — — — 2/2 — — 2/2 Remuneration 4/4 — — — 4/4 — — 4/4 Nomination 2/2 — — — 2/2 — — 2/2 1 John Brown retired from his position as Non-executive Chairman of the Company on 31 December 2015. 2 Jamie Boot retired from his position as Group Managing Director of the Company on 31 December 2015 and replaced John Brown as Non-executive Chairman of the Company on 1 January 2016. 3 John Sutcliffe relinquished his position as Group Finance Director of the Company on 31 December 2015 and commenced his position as Chief Executive Officer of the Company on 1 January 2016. 4 Joanne Lake commenced her appointment as Non-executive Director of the Company and member of the Nomination, Audit and Remuneration Committees on 1 October 2015. Joanne then became Deputy Chairman of the Company and Chairman of the Remuneration Committee on 1 January 2016. 5 Michael Gunston was unable to attend a meeting due to illness, but reviewed the papers and provided his comments to the Chairman prior to the meeting. Michael resigned from his position as Senior Independent Non-executive Director of the Company on 31 December 2015. 6 Gerald Jennings commenced his appointment as Non-executive Director of the Company and member of the Audit, Nomination and Remuneration Committees on 1 October 2015. 7 Peter Mawson commenced his appointment as Non-executive Director of the Company and member of the Nomination, Audit and Remuneration Committees on 1 October 2015. Peter then became Senior Independent Non-executive Director of the Company and Chairman of the Nomination Committee on 1 January 2016. Board composition Non-Executive Chairman 14% Executive 29% Non-Executive 57% 56 Non-Executive Chairman Executive Non-Executive 14% 29% 57% Henry Boot Annual Report 2015 - Back.indd 56 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:32 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY How the responsibilities of the Board are divided The Chairman Chief Executive • Leads the Board in determining strategy and in the • Has overall responsibility for the implementation of achievement of its objectives; • Facilitates the effective contribution of the Non-executive Directors and constructive relations between Executive and Non-executive Directors; • Ensures that the continued development needs of the Directors are identified and addressed; • Has an oversight role and is available to all shareholders; and • Has overall responsibility for the Committees. Group Finance Director • Responsible for devising and implementing the Group’s financial strategy, policies and risk; and • Acts as Director of the subsidiaries and attends the subsidiary board meetings. strategy, annual budgets, interaction with the City and market forecasts; • Recommends Group strategy to the Board; • Responsible for the day-to-day leadership and management of the operational activities of the Group in accordance with overall strategy and policy as determined by the Board; • Runs the Company and its subsidiaries; • Acts as Chairman of the subsidiaries and attends the subsidiary board meetings; • Director responsible for Group health and safety matters; • Allocates responsibilities for the running of subsidiary companies, finance, company secretarial, legal, insurance, communications, HR and IT to the department heads or subsidiary Managing Directors as applicable; and • Day-to-day operational management is devolved to management within each subsidiary business. Deputy Chairman & Independent Non-Executive Director Senior Independent Non-Executive Director • Deputises for the Chairman; • Constructively challenges the Executive Directors; • Considers proposals on strategy; • Ensures Board independence; and • Monitors the implementation of the Group’s strategy within its risk and control framework. Independent Non-Executive Director • Constructively challenges the Executive Directors; • Considers proposals on strategy; • Ensures Board independence; and • Monitors the implementation of the Group’s strategy within its risk and control framework. Non-independent Non-Executive Director • Represents the interests of major shareholders; • Constructively challenges the Executive Directors; and • Considers proposals on strategy. • Constructively challenges the Executive Directors; • Considers proposals on strategy; • Ensures Board independence; • Monitors the implementation of the Group’s strategy within its risk and control framework; • Acts as a sounding board for the Chairman and an intermediary for other directors; and • Available to shareholders if they have concerns where contact through the normal channels (the Chairman or the Chief Executive Officer) has failed to resolve or for which contact is inappropriate. Group General Counsel & Company Secretary • Supports the Chairman and Chief Executive Officer in fulfilling their duties; • Available to all directors for advice and support; • Keeps the Board regularly updated on governance matters; • Ensures Group policies and procedures are maintained and updated on a regular basis; • Attends and maintains a record of the matters discussed and approved at Board and Committee meetings; and • Company Secretary of the subsidiaries and attends at the subsidiary board meetings. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 57 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:32 57 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Corporate Governance Statement continued Risk management and internal controls The Board is responsible for the Company’s internal controls and operates and maintains a system of internal controls which is reviewed regularly for its effectiveness and which broadly accords with the Turnbull Committee guidance thereon. Whilst the system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve the Company’s business objectives, it can only provide reasonable, not absolute, assurance against material misstatement or loss. The Board is satisfied with the system in place but will keep it under review. The system is, and has been, an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. It has been in place for the period under review and up to the date of the approval of the Annual Report and Financial Statements. No material weaknesses have been identified by the system in the year. The following key processes are considered by the Board to provide effective management of significant risks to the business: • the business organisation and structured reporting framework — each of the Company’s activities is monitored through bi-monthly management meetings and formal bi- monthly subsidiary company board meetings. The latter are attended by the Board’s Executive Directors and chaired by John Sutcliffe. Formal lines of responsibility and levels of authority are in place within each subsidiary company. Annual plans, budgets (with two out-post years) and performance criteria for each business are set by the Executive Directors and performance against these targets is reviewed monthly by the Board. Annual profit forecasts and 15-month cash flow forecasts are produced on a monthly basis. The Board monitors the risks and associated controls over financial reporting processes, including the consolidation process. The financial reporting controls are monitored and maintained through the use of internal control frameworks which address key financial reporting risks, including risks arising from changes in the business or accounting standards. Operations on the ground are also monitored frequently by way of visits to sites, depots, properties and regional offices by the Executive Directors; and • centralised operations — specific risks and compliance issues associated with health and safety, treasury and banking operations, company secretarial, pensions, legal, human resources and training, public and investor relations, information communication technology and insurance are managed centrally and report functionally to the appropriate Company officer (either an Executive Director or the Group General Counsel & Company Secretary) responsible for that particular operation. Each operation reviews its own system of internal controls and reports twice a year to the Audit Committee: • business procurement — development appraisals, land purchases, options and construction contracts above a set value require the authority of the Executive Directors to proceed. A strict routine covering the authorisation of capital expenditure is in place and Board approval is required for any corporate acquisition or disposal; and • day-to-day operations — responsibility for running the day- to-day operations and for reviewing the associated systems of control is devolved to each subsidiary company Managing Director. Policy and procedure manuals cover major areas of their operations, including safety, purchasing, estimating, marketing, production and quality. The subsidiary company Managing Directors review and report to the Audit Committee on the effectiveness of the systems of internal controls in place and any matters of concern are raised at Board meetings; the Board is satisfied with current arrangements, which will, however, be kept under review. Every review comprises a balanced, comprehensive and understandable analysis of: • the development and performance of the Company’s business during the financial year; and • the position of the Company’s business at the end of the financial year, consistent with the size and complexity of the business. The reviews include: • analysis using financial key performance indicators; and • where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters. Whistleblowing arrangements The Company has operated a ‘whistleblowing’ arrangement throughout the year whereby all employees of the Group are able, via an independent external third party, to confidentially report any malpractice or matters of concern they have regarding the actions of employees, management and Directors and any breaches of the Company’s Anti-Bribery and Corruption Policy. 58 Henry Boot Annual Report 2015 - Back.indd 58 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:32 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Anti-Bribery and Corruption Policy The Company values its long-standing reputation for ethical behaviour and integrity. Conducting its business with a zero tolerance approach to all forms of corruption is central to these values, the Group’s image and reputation. The Company policy sets out the standards expected of all Group employees in relation to anti-bribery and corruption and the Board has overall responsibility for ensuring this policy complies with the Group’s legal and ethical obligations and that everyone in our organisation complies with it. This policy is also relevant for third parties who perform services for or on behalf of the Group. The Group expects those persons to adhere to this policy or have in place equivalent policies and procedures to combat bribery and corruption. The Company’s policy was updated and reissued in 2014. On-site and internet-based training for all staff is arranged. In addition, new or updated policies have been issued covering competition law, gifts and hospitality and staff purchases and an overarching Ethics Policy put in place. All policies reflect and refer to the Group’s Values and further training is being delivered on all relevant topics. Accountability and audit Details of the Directors’ responsibilities and the Statement of Directors’ Responsibilities are contained on page 79. The Independent Auditors’ Report is given on pages 82 to 87. The Directors’ statement in respect of the business as a ‘going concern’ is provided in the Directors’ Report on page 74. Shareholder accountability The Company actively communicates with its institutional and private shareholders and likewise receives feedback from them. It is this close relationship with shareholders that is seen as one of the particular strengths and characteristics of the Company. During the year a number of formal presentations were made by members of the Board to institutional shareholders; feedback from visits to institutional shareholders is provided to the Board by our stockbrokers. The Company uses the Investor Relations section of its website, www.henryboot.co.uk, to publish statutory documents and communications to shareholders, such as the Annual Report and Financial Statements, as its default method of publication. The website is designed to be a two-way communication process with both present and potential investors and includes all London Stock Exchange announcements, presentations to analysts and press releases over the last 12 months and also links to the websites of our four principal operating subsidiaries. Shareholders may choose to receive the Annual Report and Financial Statements in paper form but the Board believes that by utilising electronic communication, it delivers savings to the Company and has environmental benefits through reduced consumption of paper and inks, as well as speeding up the provision of information to shareholders in the future. The attendance and participation of all shareholders at the AGM is much encouraged. At the AGM held in May 2015, proxies were received representing 70.54% of the number of shares in issue, and is a demonstration of shareholders’ active involvement in the affairs of the Company. Further information for shareholders can be found in the Director’s Report on page 76. Compliance Statement The Company has complied with the vast majority of the provisions of the September 2014 edition of the UK Corporate Governance Code that are applicable to it for the year ended 31 December 2015. The following provisions are those where the Company is not strictly in compliance with the Code. For the reasons stated, the Directors believe that the Company’s stance is justified in this respect. A.4.2, B.6.3 The performance of the Chairman is appraised by the Executive Directors, as is the performance of the other Non-executive Directors. As Henry Boot PLC is a smaller listed company, it is felt that this is the most appropriate approach. D.2.2, D.2.3 In 2015, the then Chairman and two other Non-executive Directors, and from 1 October 2015, the three other Non- executive Directors, were members of the Remuneration Committee. The remuneration of the Non-executive Directors, including the Chairman, is set by the Executive Directors. As Henry Boot PLC is a smaller listed company, it is felt that this is the most appropriate approach. Approved by the Board and signed on its behalf by Russell Deards Group General Counsel & Company Secretary 22 April 2016 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 59 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:32 n o i t a m r o n f I l r e d o h e r a h S 59 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Nomination Committee Report Statement from the Chairman of the Nomination Committee Those serving as members of the Nomination Committee (the Committee) for the whole of 2015 were John Brown (Committee Chairman), Michael Gunston and James Sykes. From 1 October 2015, additional serving members were Gerald Jennings, Joanne Lake and Peter Mawson. Jamie Boot was appointed a member of the Committee on 1 January 2016. Biographies of the current members of the Committee are shown on page 50. Meetings during the year The Committee met twice during the year. Attendance at these meetings by the Committee members is shown in the table on page 56. Nomination Committee matters are also discussed at each Board Meeting. Committee activities during the year • Selection process and appointment of three independent Non-executive Directors, Gerald Jennings, Joanne Lake and Peter Mawson, from 1 October 2015, to replace John Brown and Michael Gunston; • Appointment of Jamie Boot as Chairman, Joanne Lake as Deputy Chairman and Peter Mawson as Senior Independent Non-executive Director from 1 January 2016; and • Consideration and approval of the appointments and promotions of John Sutcliffe to Chief Executive Officer and Darren Littlewood to Group Finance Director from 1 January 2016. Letters of appointment The letters of appointment for all Non-executive Directors clearly set out the time commitment expected from each Non- executive Director to ensure they satisfactorily perform their duties. Each Non-executive Director confirms that they are able to allocate the time commitment required at the time of their appointment and thereafter as part of their individual annual effectiveness review undertaken by the Chairman. Approved by the Board and signed on its behalf by Peter Mawson Chairman of the Nomination Committee 22 April 2016 I was appointed Chairman of the Nomination Committee with effect from 1 January 2016. Terms of reference The terms of reference for this Committee fully incorporate the UK Corporate Governance Code’s provisions in relation to its roles and responsibilities and are available for inspection at the Company’s registered office. Role of the Committee The principal responsibility of the Committee is to consider succession planning and appropriate appointments to the Board and to senior management, so as to maintain an appropriate balance of skills, knowledge, experience, independence and diversity within the Company, and its duties include: • overseeing the identification, selection and appointment of Directors; • reviewing the structure, size, composition and leadership needs of the Board; • considering other commitments of Directors relative to the time required for them to fulfil their duties; and • periodically evaluating the effectiveness of the Board. The Committee has access to external professional advisers and consultants where required to fulfil its responsibilities. 60 Henry Boot Annual Report 2015 - Back.indd 60 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:34 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Audit Committee Report Statement from the Chairman of the Audit Committee Those serving as members of the Audit Committee (the Committee) for the whole of 2015 were James Sykes (Committee Chairman), John Brown and Michael Gunston. From 1 October 2015, additional serving members were Gerald Jennings, Joanne Lake and Peter Mawson. Jamie Boot was appointed a member of the Committee on 1 January 2016. Biographies of the current members of the Committee are shown on page 50. • to review and make recommendations to the Board in relation to the half-yearly and annual financial reports; • to oversee the selection process with regard to external auditors, to consider the appointment/reappointment of external auditors and make appropriate recommendations through the Board to the shareholders to consider at the Annual General Meeting (AGM); • to review the Company’s procedures for handling reports by ‘whistleblowers’; • to consider annually whether there is a need for an internal audit function and make recommendations to the Board. However, from past experience, the use of this function has not resulted in added value to the business and this continues to be the view of the Committee in its deliberations this year; • to monitor the integrity of the Financial Statements of the Company and any formal announcements relating to the Company’s financial performance; and • to review annually the Company’s Anti-Bribery and Corruption Policy. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S 61 We all have many years of financial and business experience and both Joanne Lake and I have relevant accounting qualifications and experience. Terms of reference The terms of reference for this Committee fully incorporate the UK Corporate Governance Code’s provisions in relation to its roles and responsibilities and are available for inspection at the Company’s registered office. Role of the Committee The Committee’s responsibilities include, amongst other matters, the following: • to review and consider the scope and effectiveness of the Company’s financial controls, Company internal control and risk management systems; • to review the annual report of the auditors, the level of fees charged by the auditors for non-audit services, the independence and objectivity of the auditors and the proposed nature and scope of their work before the audit commences. Details of fees paid for non-audit services are set out in note 3 to the Financial Statements. The level of these fees and the services provided are reviewed by the Committee to ensure that they do not threaten auditor objectivity and independence. During the year, the Committee reviewed the independence and objectivity of the external auditors, which was confirmed in an independence letter containing information on procedures providing safeguards established by the external auditors. Regulation, professional requirements and ethical standards are taken into account, together with consideration of all relationships between the Company and the external auditors and their staff. Relations with the external auditors are managed through a series of meetings and regular discussions and we ensure a high quality audit by challenging the key areas of the external auditors’ work; Henry Boot Annual Report 2015 - Back.indd 61 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:36 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Audit Committee Report continued Valuation of investment property Investment property is valued at fair value and, other than houses, is valued externally by independent valuers twice each year. Investment property in the course of construction is also valued at fair value. The Committee critically reviewed the valuations for the assets described above and was content with the values adopted. Valuation of inventory Our inventory, the vast majority of which is held within our strategic land business, is stated at the lower of cost or net realisable value. The disposal of this inventory is inherently difficult to quantify due to the uncertainty of timing of transactions and the vagaries of the UK planning system. Therefore the portfolio of inventory is subject to regular review by senior management, the Board and the Committee by reference to development appraisals, planning agreements and market demand. Valuation of pension scheme liability The Group sponsors a funded defined benefit pension scheme in the UK which is valued under the provisions of IAS 19. The pension scheme is valued by a qualified independent actuary, using the projected unit method, at each accounting period end. The Committee critically reviewed the assumptions used by the actuary in performing these valuations and was satisfied with the appropriateness of the assumptions within the requirements of the IAS 19 standard. Independence of the external auditors In order to ensure the independence of the external auditors, the Committee monitors the non-audit services provided by them to the Group and has adopted a policy on the provision of non-audit services by the external auditors with the objective that such services do not impair the independence or objectivity of the external auditors. The Committee is required to approve services provided by the external auditors in excess of £25,000 and reviews generally all services provided by them to assess their independence and objectivity in the light of that work. These reviews are undertaken to ensure that the performance of regulatory requirements is not impaired by the provision of permissible non-audit services. Meetings during the year The Committee met twice during the year, with the Company’s auditors in attendance for part of each meeting. Attendance at these meetings by the Committee members is shown in the table on page 56. Audit Committee matters are also discussed at each Board meeting. Committee activities during the year In 2015 the principal activities of the Committee and the way in which it discharged its responsibilities were as follows: Financial Statements The Committee reviewed the Group’s draft Financial Statements, interim Financial Statements, Preliminary Statements and reports from the external auditors on the outcome of its reviews and audits in 2015. Significant accounting matters The Committee considered the following key accounting issues and matters of judgement in relation to the Group’s Financial Statements and disclosures relating to: Going concern and viability statement The Committee reviewed and considered in depth papers relating to the going concern and viability statement disclosures in the Annual Report and Financial Statements. The Strategic Report discloses the conclusion of these reviews on page 47. Construction accounting judgements As more fully explained in our accounting policy on construction contracts, a significant element of turnover is undertaken via construction contracts accounted for in accordance with those accounting policies. Contract costs and revenues may be affected by a number of uncertainties that are dependent on the outcome of future events and therefore estimates may need to be revised as events unfold and uncertainties are resolved. During the year, the Committee examined the judgements and methodologies applied to uncertainties and were in agreement with the position adopted. Provision accounting judgements As more fully detailed in our accounting policy for provisions, the Group retains significant liabilities for the infrastructure and services which remain with the Group following the disposal of land and which are accounted for in accordance with those accounting policies. Provisions are subject to quarterly reconciliation carried out by external cost consultants and are reviewed by senior management, the Board and the Committee in order to reassess the adequacy of the remaining provisions and the effectiveness of costs incurred to date against the original forecast. 62 Henry Boot Annual Report 2015 - Back.indd 62 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:36 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Risk management and controls Details of the key risks which the Group face, the key controls in place to control those risks and the system of risk management adopted by Henry Boot PLC are set out on pages 42 to 47. The Committee has evaluated the effectiveness of the internal controls and the risk management system operated. The evaluation covered all controls including financial, operation, risk management and compliance. Internal audit Henry Boot PLC does not have a specific internal audit department. The need for an internal audit department is considered from time to time and currently it is not felt that the benefits would outweigh the costs. If required, external specialists are brought in to perform specific reviews of areas considered a risk. Approved by the Board and signed on its behalf by James Sykes Chairman of the Audit Committee 22 April 2016 The external auditors also perform taxation services for the Group. It is the Committee’s opinion that having the same firm perform both services is the most efficient method. In accordance with best practice, the Company also requires its external auditor partner to rotate every five years. The statutory auditor signing the Audit Report is Mr Andy Ward, who was appointed as the lead partner in 2013. The external auditors are also required to assess whether, in their professional opinion, they are independent on an annual basis, and those views are shared with the Committee. The Committee is satisfied that the independence of the external audit partners is not impaired and that the amount of non-audit fees are at a level which does not impact on the statutory auditors’ independence and objectivity. Audit quality and approach to audit tender The Henry Boot PLC audit was put out to tender six years ago and PricewaterhouseCoopers LLP was awarded the work from a shortlist of four firms who tendered. Discussions took place between the Audit Committee, the Henry Boot PLC finance function and the subsidiary company management teams in order to gauge the efficiency of the audit approach undertaken. Furthermore, the Committee Chairman and Committee conduct their own ongoing assessment through the quality of the external auditors’ reports and the statutory auditors’ interaction with the Committee. The Committee remains satisfied with the efficiency and effectiveness of the audit and therefore does not consider it necessary for the audit to be re-tendered at this stage. The Committee continues to be satisfied with the work of the external auditors and its objectivity and independence. Details of all amounts paid to the auditors for audit services are set out in note 3 to the Financial Statements. The Committee recommends to the Board that PricewaterhouseCoopers LLP be reappointed at the AGM and that the Directors are authorised to fix their remuneration. The Committee is aware of the recently introduced disclosure requirements on certain larger companies where the external audit contract is not put out to tender every five years. These requirements do not apply to Henry Boot PLC. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 63 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:36 n o i t a m r o n f I l r e d o h e r a h S 63 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Remuneration Report Statement from the Chairman of the Remuneration Committee Executive remuneration outcomes for 2015 In the current market conditions the 2015 results, with a 14% increase in pre-tax profits, were very strong. In 2015 the combined overall remuneration of the Executive Directors, on a like for like basis rose, by 0.5%, and 2.1% including the costs of our new Non-executive Directors in the handover period with those retiring at the end of the year. Basic salaries were increased by 3% both at 1 January 2015 and 1 January 2016 compared to an increase across the Company in total of 4.38%. Bonuses were paid in line with the Remuneration Policy approved at the Annual General Meeting (AGM) in May 2015. Target profit was set at £25m. The profit before tax of £32.4m exceeds the target by 29.6% and this gives rise to a bonus of 96.4% of salary for the year ended 31 December 2015. In addition, the Remuneration Committee set 18 individual targets, which were the same for Jamie Boot and John Sutcliffe. These covered financial measures such as the achievement of individual subsidiary budgets, cash flow generation and health and safety, environmental and Investors in People measures, a measure related to positive investor feedback, and litigation risk. The Remuneration Committee consider that the Directors achieved 90% of these targets resulting in a bonus of 9% of salary. Therefore, the total bonus for both Executive Directors is 105.4%. LTIPS vesting, based on performance for the three years to 31 December 2015, were granted prior to the Remuneration Policy adoption at the AGM in 2014. The performance criteria for these awards are: i. up to 50% of the award is dependent on profit before tax ahead of inflation; ii. up to 50% of the award is dependent on the adjusted net asset value growth compared to an industry standard investment property annual index; iii. any amounts derived from the above are then subject to an underpin based on Total Shareholder Return compared to a comparator group of companies. If Henry Boot is above the median, any awards derived in (i) and (ii) are confirmed; below the median these derived awards are reduced by 50%. For these awards the actual performance against the targets to 31 December 2015 was: i. profit before tax increased by 143% against the inflation measure, including the 4% excess applied each year of 18% and therefore, this part of the award vests in full; ii. the increase in the property index was 30%. The balance sheet adjusted NAV growth was 32% and therefore 43% of the award vests; iii. Total Shareholder Return of 83% was below the median when set against the comparator group and therefore the awards in (i) and (ii) are reduced to 50%. Therefore, the award of LTIP shares to Jamie Boot is 64,740 shares, and John Sutcliffe 48,974 shares. On behalf of the Board and the Remuneration Committee (the Committee), as Chairman of the Committee, I am pleased to present my first Henry Boot PLC (the Company) Directors’ Remuneration Report for the year ended 31 December 2015. The cohesive and consistent strategy aimed at creating long-term shareholder value produced another very strong result in 2015. The markets in which our various businesses trade were all continuing on an improving trend; however, these markets can still catch out the imprudent or unwary operator and have to be managed with skill, care and confidence. 2015 proved to be an even better result for the Group than 2014, which in itself was the best since 2007 with: • profit before tax increasing 14% to £32.4m; • basic earnings per share increasing 8% to 17.5p; • Return on Capital Employed increasing 80 bps to 12.2%; • dividends for the year increasing 9% to 6.10p; • dividend cover is approaching our long-term goal of three times; • our strategic land portfolio increased in size again to over 11,000 acres with planning permission on over 12,000 units; • we have more active commercial developments in progress than at any stage since 2007; • our construction business has a strong order book for 2016 and the plant hire business is operating at its highest level of utilisation than for many years. 64 Henry Boot Annual Report 2015 - Back.indd 64 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:38 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Consultation with shareholders Whilst there has been no formal contact with shareholders regarding the Remuneration Policy, it is broadly in line with that which operated up to the end of 2015. The Committee has made some changes to give more clarity to the performance criteria for both LTIPS and annual bonus and reduced the LTIP vesting at threshold to 25% from 30%. The annual bonus scheme has specific performance criteria applied to future awards rather than the discretionary criteria used up to 31 December 2013. The introduction of a new revised LTIP scheme at the 2015 AGM incorporates, for the first time, a holding period and malus and clawback conditions. These malus and clawback conditions will also apply to the operation of the annual bonus scheme for the financial year commencing on 1 January 2015. These changes are intended to ensure our policy operates in line with best practice. The application of Directors’ Remuneration Policy for 2016 • The Executives and Non-executive Directors were awarded a 3% uplift in basic salary for the year ending 31 December 2016. The average across the workforce as a whole was 4.38%. • The bonus opportunity for the Executives is detailed in the Remuneration Policy and will apply as laid out in the policy. • The profit before tax target is considered commercially sensitive and will therefore be disclosed retrospectively, as we have done in respect of prior years. • LTIPS will be awarded under the 2015 scheme rules which include clauses in respect of clawback and malus in line with generally accepted guidelines and the updated UK Corporate Governance Code. The performance targets will be in accordance with the Remuneration Policy. It is expected that the award will be at a level equal to 100% of salary. Clawback and malus conditions will be applied to both the bonus and Long Term Incentive Plan (LTIP) elements of remuneration in 2016. Specifically, this will arise if the Remuneration Committee considers that there has been a material misstatement within the subsidiary or Group Financial Statements; or a material error in the calculation of any performance condition; or materially inaccurate or misleading information, or in the case of action or conduct of the participant which amounts to fraud or gross misconduct or has a material detrimental effect on the reputation of the Group. Any future awards will also be subject to clawback of all or part of the award during a two-year period in the above circumstances. It is not expected that there will be any material amendments to the value of other benefits, including pensions, during 2016. The report has been prepared in accordance with the requirements of the Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The report sets out payments and awards made to the Directors and details the link between performance and remuneration for 2015. The report, and this Chairman’s letter, is subject to an advisory shareholder vote at this year’s AGM (please see Resolution 3) with the exception of: a. the Total Shareholder Return graph; b. the Executive Directors’ remuneration history and remuneration change tables; c. the relative importance of spend on pay tables; and d. the consideration by the Directors of matters relating to remuneration and the statement of shareholder voting. The information set out on pages 66 to 73 of the Directors’ Remuneration Report is subject to audit. Summary of the Committee’s activity during 2015 During 2015 the Committee: 1. considered Directors’ base pay and benefits for 2015 and 2016. Salary rises for the Executive Directors at 1 January 2015 were 3% and from 1 January 2016 have been set at 3%; 2. conducted a review of the LTIP performance metrics and level of reward for the year under review; 3. conducted a review of the performance of the Executive Directors for 2015 and against that background, set performance targets for 2016; 4. sought the approval of a new LTIP scheme at the AGM in May 2015 which was approved overwhelmingly by shareholders; 5. considered the drive by investors to include clawback and malus clauses in the areas of bonus and LTIPS and introduced these measures in 2015 and future years for both bonus and LTIP sections of Executives’ remuneration. 6. considered and approved the remuneration packages for John Sutcliffe and Darren Littlewood with effect from 1 January 2016. For John Sutcliffe this was set at £376,236 and for Darren Littlewood set at £150,000. The Committee anticipate reviewing the remuneration package of Darren Littlewood each year for the next four years at a rate of £25,000 per annum. Should you have any queries or comments, then please do not hesitate to contact me or the Company Secretary as we most certainly value dialogue with our shareholders. Our Directors’ Remuneration Policy, which was approved at the AGM on 21 May 2015, remains unchanged and is available to view, and download, on the website: www.henryboot.co.uk/about-us/governance We strongly believe that our Directors’ Remuneration Policy is closely aligned to the achievement of the Company’s business objectives and therefore to our shareholders’ interests. I therefore hope that you will be able to support the Directors’ Remuneration Report at this year’s AGM. Joanne Lake Chairman of the Remuneration Committee 22 April 2016 65 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 65 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:38 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Remuneration Report continued Annual Report on Remuneration The following parts of the Directors’ Remuneration Report are subject to audit. Single total figure of remuneration The table below reports the total remuneration receivable by Directors in respect of qualifying services during the period. Year ended 31 December 2015 Jamie Boot John Sutcliffe John Brown Michael Gunston James Sykes Joanne Lake Gerald Jennings Peter Mawson Year ended 31 December 2014 Jamie Boot John Sutcliffe John Brown Michael Gunston James Sykes Total salary and fees £’000 365 Taxable benefits £’000 30 Annual bonus £’000 385 Long-term incentives £’000 146 249 57 41 41 10 10 10 783 Total salary and fees £’000 355 242 60 40 40 737 24 — — — — — — 54 Taxable benefits £’000 30 24 — — — 54 263 — — — — — — 648 Annual bonus £’000 402 275 — — — 677 111 — — — — — — 257 Long-term incentives1 £’000 142 97 — — — 239 Pension related benefits £’000 73 50 — — — — — — 123 Pension related benefits £’000 71 48 — — — 119 Total £’000 999 697 57 41 41 10 10 10 1,865 Total £’000 1,000 686 60 40 40 1,826 1 The value of long-term incentives has been adjusted from the average share price for the period 1 October 2014 to 31 December 2014 of £1.88 to the price on the day the shares were issued of £2.31. Taxable benefits include the provision of a company car or a cash allowance alternative, permanent health insurance and private medical insurance. The value of benefits is not pensionable. In both years the benefit related to company cars is cash allowances. The information in the single total figure of remuneration table is derived from the following: Total salary and fees The amount of salary or fees received in the period. Benefits Annual bonus Long-term incentives The taxable benefits received in the period by Executive Directors. The value of bonus payable and the calculations underlying this are disclosed on pages 67 and 68. The value of LTIPS are those related to shares that vested as a result of the performance over the three-year period ended 31 December 2015 valued at the average share price over the last three months of 2015. The LTIPS which vested in the period and the statement explaining the performance criteria which were satisfied for the LTIPS to vest are disclosed on page 69. Pension related benefits The pension figure represents the cash value of contributions received by Directors including contributions to the defined contribution scheme and any salary in lieu of pension contribution at a rate of 20% of salary. 66 Henry Boot Annual Report 2015 - Back.indd 66 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:38 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Individual elements of remuneration Base salary and fees Non-executive Directors Executive Directors Salary effective from Jamie Boot John Sutcliffe Darren Littlewood 1 January 2016 £ — 376,236 150,000 1 January 2015 £ 365,277 249,311 — Over the years 2010 – 2013 basic salary increases for the Executive Directors were 2%; for 2014 and 2015 the increase was 3%. At 1 January 2016 John Sutcliffe was appointed CEO and received a remuneration package equivalent to that received by Jamie Boot in 2015 plus 3%. Darren Littlewood received a remuneration package which will be reviewed by the Committee over the next four years. Average salary increases for the wider employee population were 3.65% from 1 January 2014, 3.82% from 1 January 2015 and 4.38% on 1 January 2016. The Company’s policy on base salary continues to be to provide a fixed remuneration component which is comparable with similar companies, taking into account the need to attract, motivate and retain Directors of an appropriate calibre to achieve the Company’s objectives without making excessive payments. When setting the pay of Directors, the pay and employment conditions of employees across the Group are taken into account by the Committee. As with employees, Directors’ rewards are based on their role, their performance and the market rate for the job. Directors’ basic salaries and benefits, where applicable, are reviewed annually, taking into account individual performance and published remuneration information. Benefits include the provision of a company car or a cash allowance alternative, permanent health insurance and private medical insurance. The value of benefits is not pensionable and is set out for each Director in the table of Directors’ remuneration. Salary effective from John Brown Michael Gunston Jamie Boot James Sykes Joanne Lake Gerald Jennings Peter Mawson 1 January 2016 £ — — 80,000 42,436 42,436 42,436 42,436 1 January 2015 £ 61,800 41,200 — 41,200 — — — Non-executive Directors are remunerated on the basis of their anticipated time commitment and the responsibilities entailed in their role. There are no service agreements in place for the Non-executive Directors and they do not participate in any of the Company’s incentive arrangements or the Company pension scheme. The salaries above are inclusive of the responsibilities for Nomination, Audit and Remuneration Committees and the Senior Non-executive Director. Any newly appointed Non-executive Independent Director is expected to serve for an initial period of at least three years. Terms and conditions of appointment relating to Non-executive Directors are available for inspection at the registered office of the Company. Bonus The Executive Directors participate in an annual bonus scheme. This is calculated by reference to pre-tax profits achieved in the year compared to a target profit which takes into consideration the year’s financial budget, City expectations and previous years’ profits. Any bonus amounts are paid in cash and are subject to malus and deferral provisions within the scheme. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 67 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:38 n o i t a m r o n f I l r e d o h e r a h S 67 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Remuneration Report continued Summary of bonuses earned for 2015 Measure Maximum award as % of salary Targets and bonus potential for 2015 Actual performance Actual bonus value achieved (% of salary) Profit before tax 110% % of target 90% 100% 120% 150% 2015 target range £22.5m £25.0m £30.0m £37.5m Bonus payable as % salary 10% 50% 90% 110% Jamie Boot John Sutcliffe £32.4m 96.4% 96.4% Personal objectives Bonus amount achieved as % salary Bonus amount earned Maximum bonus as % salary Bonus amount achieved as % maximum 10% See commentary below 9% 9% 105.4% £385,002 105.4% £262,774 120% 120% 87.8% 87.8% Bonuses were paid in line with the Directors’ Remuneration Policy approved at the AGM in May 2014. Target profit was set at £25m, 25% ahead of the target set in 2014. The Remuneration Committee also set 18 individual targets, which were the same for Jamie Boot and John Sutcliffe. These covered financial measures such as the achievement of individual subsidiary budgets, cash flow generation and health and safety, environmental and Investors in People measures, a measure related to positive investor feedback, and litigation risk. The Remuneration Committee considers that the Directors achieved 90% of these targets resulting in a bonus of 9% of salary. The profit before tax of £32.4m exceeds the target by 29.6% and this, combined with the personal targets, gives rise to a bonus of 105.4% of salary for the year ended 31 December 2015. Details of the policy for future annual bonus awards can be found in the Directors’ Remuneration Policy which can be viewed, and downloaded, on the website: www.henryboot.co.uk/about-us/governance 31 December 2016 bonus targets Profit before tax performance: 10% of salary payable on 90% of Group profit target, rising to 90% of salary payable upon the achievement of 120% of Group profit target. If, in exceptional circumstances, profit targets are exceeded by more than 20%, a further bonus of 20% of salary may become payable up to 150% of target. The profit before tax target is deemed to be commercially sensitive and therefore will be disclosed retrospectively in the 2016 Directors’ Remuneration Report. Personal objectives: up to an additional 10% of salary may become payable to Executive Directors upon the achievement of personal objectives. The objectives measured will be based on key elements of the delivery of Group strategy. 68 Henry Boot Annual Report 2015 - Back.indd 68 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:39 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Long Term Incentive Plan (LTIP) The Committee has reviewed the performance criteria for the LTIP shares awarded in 2013, based on performance for years 2013, 2014 and 2015, which are expected to vest in May 2016. The LTIP shares in this award are subject to the following performance criteria: 1. profit growth was 143%, which exceeded RPI growth by more than 137%. This was greater than the requirement to exceed RPI growth by 12% and therefore this 50% of the award became eligible; 2. adjusted NAV growth was 32%, which exceeded the industry standard investment property annual index growth by just over 2%. As a result of this 43% of this 50% of the award became eligible; 3. Total Shareholder Return (TSR) compared to the comparator group showed that Henry Boot PLC TSR for the three-year period was 83%, putting it below the median within the comparator group. Therefore, the awards above are reduced by 50% which gave rise to the award values in the single total figure of remuneration at 31 December 2015 on page 66. This gave rise to LTIP awards of: Jamie Boot 64,740 shares; and John Sutcliffe 48,974 shares. LTIP awards granted in the year Jamie Boot John Sutcliffe Type of award LTIP – nil cost option % of salary 100% LTIP – nil cost option 100% Number of shares 159,789 109,060 Face value to grant at £2.286 per share 365,277 249,311 % of award vesting at threshold 25% 25% The performance conditions which must be satisfied to enable the receipt of these grant awards are disclosed below. Awards expected to be granted for the financial years 2016–2018 in 2016 John Sutcliffe Darren Littlewood Type of award LTIP – nil cost option LTIP – nil cost option % of salary 100% 100% % of award at threshold 25% 25% The performance criteria for these awards are laid out in the Remuneration Policy which can be viewed, and downloaded, on the website: www.henryboot.co.uk/about-us/governance These are different from the performance criteria for previous awards made in 2013, referred to above, as follows: EPS growth Return of Capital Employed We strive to grow earnings per share faster than inflation. This should give rise to an ability to grow dividends faster than inflation, a key driver to long-term growth in shareholder value. We strive to achieve a 10% profit before tax return on balance sheet net assets. This should give rise to at least two times dividend cover, thereby generating growth in the Group’s retained capital to reinvest and grow. This is a further driver to long-term shareholder value growth. Total Shareholder Return (TSR) relative to our comparator group We strive to achieve high shareholder returns. TSR reflects the extent to which shareholders and the market consider that the Company strategy is appropriate and is being implemented and articulated well by the Executives. The detailed performance metrics for LTIPS awarded from 2014 onwards to be granted in 2017 onwards are: EPS growth Return on Capital Employed TSR % linked to award 33.3 33.3 33.4 Threshold vesting of 25% of maximum award RPIJ + 3% per annum Average three-year ROCE of 10% TSR at median or above our comparator group Threshold for 100% of maximum award RPIJ + 7% per annum Average three-year ROCE of 13% or more TSR at or within the upper quartile i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 69 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:39 69 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Remuneration Report continued Vesting between the 25% threshold and the maximum award will be on a pro rata basis. The weightings for each measure have been chosen because the Committee believes that they each have equal importance in aligning the interests of shareholders and the Executive Directors. In addition to the amended performance criteria calculation, the Committee reduced the amount of the award vesting at threshold from 30% to 25% from awards in 2014 onwards. For Jamie Boot any grant of awards in 2017 and 2018 will be on a pro rata basis to his retirement date of 31 December 2015 under the provisions for good leavers. Pension entitlement Jamie Boot began drawing his pension benefits from 19 November 2012 and therefore no pension contributions are made on his behalf. Instead, a salary in lieu of pension contributions at a rate of 20% of salary is paid; in 2015 this payment amounted to £73,055. John Sutcliffe is a member of the Henry Boot PLC Group Stakeholder Pension Plan. Contributions are made at 20% of basic salary and contributions to the Scheme in the year were £40,821 (2014: £40,000). The annual allowance for tax relief on pension savings applicable to John Sutcliffe in 2015 was £40,821 and he elected to receive a salary supplement in lieu of the employer contributions over and above this level which amounted to £9,041 (2014: £8,411). The Henry Boot PLC Group Stakeholder Pension Plan provides a lump sum death in service benefit, a refund of contributions on death in service and, on death after retirement, a pension for dependants subject to what the policyholder decides. The notional leaving work age is currently 65. Payments to past Directors There were no payments made to past Directors during the period in respect of services provided to the Company as a Director. Payments made for loss of office There were no payments made during the period in respect of loss of office to a Director. Statement of Directors’ shareholdings and share interests At 31 December 2014 Legally owned 5,672,964 511,445 35,000 23,000 20,000 n/a n/a n/a Legally owned 5,734,562 510,445 35,000 23,000 20,000 10,710 — — At 31 December 2015 SAYE (not subject to performance) — — LTIPS subject to performance measures 305,611 361,204 — — — — — — — — — — — — Shareholding as a % of salary at 31 December 20151 16,912 519 n/a n/a 106 57 — — Total 6,040,173 871,649 35,000 23,000 20,000 10,710 — — Jamie Boot John Sutcliffe John Brown Michael Gunston James Sykes Joanne Lake Gerald Jennings Peter Mawson The share price at 31 December 2015 was 224.00p. The salary used for this calculation is that which commences on 1 January 2016. 1 As laid out in the Remuneration Policy, which can be viewed on the website: www.henryboot.co.uk/about-us/governance Executive Directors are required to acquire shares outright to the value of 100% of basic salary. We note the NAPF recommends that a holding of 200% is more appropriate. Both Executive Directors comfortably exceed this level; however, the Remuneration Committee believes that setting this level as a policy for a new director is too onerous over a period of three years. The shareholding requirement for Non-executive Directors that has been proposed in the Remuneration Policy table is that over three years they should build up to a holding which is 50% of basic remuneration. 70 Henry Boot Annual Report 2015 - Back.indd 70 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:39 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Directors’ shareholdings The beneficial interest of the Directors in the share capital of the Company at 31 December 2015 was as follows: Jamie Boot John Sutcliffe John Brown Michael Gunston James Sykes Joanne Lake Gerald Jennings Peter Mawson 2015 Number of shares Ordinary 5,734,562 510,445 35,000 Preference 14,753 — — 2014 Number of shares Ordinary 5,672,964 511,445 35,000 Preference 14,753 — — 23,000 20,000 10,710 — — — — — — — 23,000 20,000 n/a n/a n/a — — n/a n/a n/a Between 31 December 2015 and 24 March 2016, being a date not more than one month prior to the date of the Notice of the AGM, John Sutcliffe disposed of 5,000 ordinary shares. There have been no other changes in the beneficial and non-beneficial interests of any Director. Long term incentive plan awards Performance shares Plan Date of award Market price at date of award At 1 January 2015 Awarded during the year Vested during the year Lapsed during the year At 31 December 2015 Earliest/ actual vesting date Market valuation on vesting £ Jamie Boot 2006 01/05/2012 2006 18/04/2013 2006 07/05/2014 2015 01/06/2015 137.0p 171.0p 211.0p 228.6p John Sutcliffe 2006 01/05/2012 2006 18/04/2013 2006 07/05/2014 2015 01/06/2015 137.0p 171.0p 211.0p 228.6p 246,392 201,350 168,074 — — — — 159,789 159,789 615,816 61,598 184,794 — 19,676 — 75,365 — 128,561 408,396 61,598 168,172 137,429 114,715 — — — — 109,060 109,060 420,316 42,043 — — — 42,043 126,129 — — — 126,129 — 01/06/2015 18/05/2016 07/06/2017 01/06/2018 181,674 92,709 31,228 305,611 — 01/06/2015 18/05/2016 07/06/2017 01/06/2018 137,429 114,715 109,060 361,204 142,291 — — — 142,291 97,119 — — — 97,119 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 71 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:39 n o i t a m r o n f I l r e d o h e r a h S 71 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Remuneration Report continued Statement of voting at the last Annual General Meeting (AGM) The Company remains committed to shareholder dialogue and takes an active interest in voting outcomes. At the AGM on 21 May 2015 the advisory vote by shareholders to receive and approve the 2014 Directors’ Remuneration Report was approved. The number of votes in favour of that resolution was 92,468,054 (99.31% of votes cast), against 634,688 (0.68% of votes cast) and abstentions 6,910 (0.01% of votes cast). The total number of votes cast in respect of this resolution represented 70.52% of the issued share capital. At the same AGM the Directors’ Remuneration Policy was approved. The number of votes in favour of that resolution was 89,838,765 (96.49% of votes cast) against 2,905,772 (3.12% of votes cast) and abstentions 365,115 (0.39% of votes cast). Share price The middle market price for the Company’s shares at 31 December 2015 was 224.00p and the range of prices during the year was 182.25p to 245.00p. Seven-year TSR performance graph 450 FTSE Small Cap Index Henry Boot PLC 400 350 300 250 200 150 100 50 - (50) Percentage change in Group Managing Director’s remuneration The table below sets out in relation to salary, taxable benefits and annual bonus the percentage increase in remuneration for Jamie Boot compared to the wider workforce. For these purposes: Percentage change Salary Taxable benefits Annual bonus 2014 Annual bonus 2015 Group Managing Director 3.0% — 16.8% (4.3%) Workforce sample 4.38% — 19.8% Not yet available Note 1 2 2 Note 1 The car allowance remained the same in both years and private medical insurance costs were also broadly the same in both years (£350) for all members of the private medical scheme. Therefore, the average percentage change in taxable benefits does not provide a meaningful comparison. Note 2 The workforce bonuses are calculated and agreed in May 2016 for the year ended 31 December 2015 and the figure is therefore not available. Therefore, the information produced is for the bonus comparisons paid in May 2015 for the year ended 31 December 2014. The workforce comparison is every member of staff who received a bonus excluding the Group Managing Director. Relative importance of spend on pay The following table sets out the percentage change in dividends, profit attributable to owners of the business and the overall spend on pay across our whole organisation: Group Managing Director’s remuneration for the previous seven years Total remuneration £’000 Annual bonus as a % of maximum LTIP vesting as a % of maximum Ordinary dividends Profit attributable to owners of the business Overall expenditure on pay 2015 £’000 8,044 2014 £’000 7,367 % change 9.2 23,041 21,169 24,857 24,627 8.8 0.9 999 1,000 1,054 962 842 764 575 87.8 94.5 83.3 58.3 66.7 58.3 33.3 25 25 50 40 50 64 50 2015 2014 2013 2012 2011 2010 2009 72 Henry Boot Annual Report 2015 - Back.indd 72 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:39 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Terms of reference The terms of reference for this Committee fully incorporate the UK Corporate Governance Code’s provisions in relation to its roles and responsibilities and are available for inspection at the Company’s registered office. Role of the Committee The primary role of the Committee is to: 1. review, recommend and monitor the level and structure of the remuneration packages of the Executive Directors and senior management; 2. set and approve the remuneration package for the Executive Directors; and 3. determine a balance between base pay and performance related elements of the remuneration package in an effort to align the interests of shareholders with those of the Executive Directors. Meetings during the year The Committee met four times during the year. Attendance at these meetings by the Committee members is shown in the table on page 56 and further details can be found below. Membership of the Committee Those serving as members of the Remuneration Committee (the Committee) for the whole of 2015 were Michael Gunston (Committee Chairman), John Brown and James Sykes. From 1 October 2015, additional serving members were myself, Gerald Jennings and Peter Mawson. I was appointed Chairman of the Committee with effect from 1 January 2016 and Jamie Boot also became a member of the Committee on 1st January 2016. Biographies of the current members of the Committee are shown on page 50. Michael Gunston (Committee Chairman) and John Brown were independent Non-executive Directors of the Board until their respective retirements on 31 December 2015. Gerald Jennings, Peter Mawson and I are independent Non-executive Directors of the Board, while Jamie Boot and James Sykes are Non-independent Non-executive Directors. The Committee consisted of the three Non-executive Directors of the Board until 30 September 2015, and six Non-executive Directors from 1 October 2015, so during the financial year was comprised as follows: Michael Gunston* James Sykes John Brown Joanne Lake** Gerald Jennings Peter Mawson Independent Yes No Yes Yes Yes Yes * Committee Chairman (until 31 December 2015) ** Committee Chairman (from 1 January 2016) During 2015 Jamie Boot, Group Managing Director, attended meetings with the Committee, as requested, in order to assist on matters concerning other senior Executives within the Group. Jamie Boot was not present during any part of the meetings where his own remuneration was discussed. Consideration by the Directors of matters relating to Directors’ remuneration The Committee has its own terms of reference which have been approved by the Board. These are reviewed annually to ensure they adhere to best practice. Copies can be obtained from the Company Secretary and the Committee Chairman is available to shareholders to discuss the Remuneration Policy if required. In accordance with the terms of reference, the Committee is responsible for: • determining and agreeing the Remuneration Policy for the Executive Directors and their contractual conditions of employment; • having regard for remuneration trends across all employees in the Group and other companies when setting Remuneration Policy; • selecting, appointing and agreeing the remuneration for any remuneration consultants who advise the Committee; • determining targets for any annual bonus and long-term incentive schemes operated by the Company and approving any payments made under such schemes; • reviewing the design of all share incentive schemes for approval by the Board; • determining the policy for and scope of any pension arrangements for Executive Directors; and • ensuring that contractual terms on appointment and on termination and any payments made are fair to the individual and the Group, that failure is not rewarded and the duty to mitigate loss is fully recognised. Advisers The Committee’s main advisers are set out below: Adviser Area of advice Chief Executive Officer and Head of HR DLA Piper UK LLP Share scheme matters, the rules for Remuneration of staff, senior Executives and management the 2015 LTIP Scheme. The Remuneration Committee considers that the advice DLA has given throughout the year is legal advice in compliance with relevant legislation. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Approved by the Board and signed on its behalf by Joanne Lake Chairman of the Remuneration Committee 22 April 2016 n o i t a m r o n f I l r e d o h e r a h S 73 Henry Boot Annual Report 2015 - Back.indd 73 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:40 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Report The Directors’ Report for the financial year ended 31 December 2015 is detailed below. Activities of the Group The principal activities of the Group are land development, property investment and development, and construction. Strategic Report In accordance with the Companies Act 2006, we are required to present a fair review of the Group business along with a description of the principal risks and uncertainties faced. The Strategic Report for the year ended 31 December 2015 is set out on pages 6 to 47. Corporate Governance Statement The Disclosure and Transparency Rules require certain information to be included in a corporate governance statement in the Directors’ Report. Information that fulfils the requirements of the Corporate Governance Statement can be found in Governance on pages 53 to 59 and is incorporated into this Directors’ Report by reference. Results for the year and dividends The results are set out in the Consolidated Statement of Comprehensive Income on page 88. The companies affecting the profit or net assets of the Group in the year are listed in note 35 to the Financial Statements. The Directors recommend that a final dividend of 3.80p per ordinary share be paid, subject to shareholder approval at the 2016 AGM on 31 May 2016, to ordinary shareholders on the register at the close of business on 29 April 2016. If approved, this, together with the interim dividend of 2.30p per ordinary share paid on 23 October 2015, will make a total dividend of 6.10p per ordinary share for the year ended 31 December 2015. Further details are disclosed in note 10 to the Financial Statements on page 105. Financial instruments The Group’s policy in respect of financial instruments is set out within the Accounting Policies on page 96 and details of credit risk, capital risk management, liquidity risk and interest rate risk are given respectively in notes 16, 23, 24 and 27 to the Financial Statements. Going concern and Viability Statement The Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Further detail is contained in the Strategic Report on page 47. Political donations The Company made no political donations in the year or in the previous year. Directors and their interests John Brown, Jamie Boot, John Sutcliffe, Michael Gunston, James Sykes, Joanne Lake, Peter Mawson and Gerald Jennings held office as Directors of the Company in 2015. From 1 January 2016, and up to the date of signing the Financial Statements, Jamie Boot, John Sutcliffe, James Sykes, Joanne Lake, Peter Mawson, Gerald Jennings and Darren Littlewood held office as Directors of the Company. Their biographical details are shown on page 50. At no time during the year has any Director had any interest in any significant contract with the Company. The interests of Directors in the share capital of the Company, other than with respect to options to acquire ordinary shares, are disclosed in the Directors’ Remuneration Report on pages 70 and 71. Between 31 December 2015 and 24 March 2016, being a date not more than one month prior to the date of the Notice of the AGM, there has been a change in the beneficial interest of one Director, John Sutcliffe, who sold 5,000 ordinary shares of 10 pence each in the share capital of the Company on 14 January 2016. Details of Directors’ long-term incentive awards and share options are provided in the Directors’ Remuneration Report on page 69. Pension Scheme Trustees Legislation can lead to pension scheme Trustees being held personally liable. Pension Trustee liability insurance protects pension schemes and their Trustees against claims for matters including breach of trust, maladministration and wrongful acts. When Trustees act for pension funds they become liable for any action undertaken or, possibly, actions not undertaken. In keeping with normal market practice, the Company believes that it is in its best interests to protect the Group’s pension scheme and its Trustees concerned from the consequences of innocent error or omission. It is therefore considered prudent to take out an annual insurance policy to protect the pension scheme and its Trustees from potential liabilities. Employment policy and involvement Employees Employees are at the heart of all that we do. We are committed to ensuring that all employees, potential recruits and other stakeholders are treated fairly and equitably. The principles of equality and diversity are important; advancement is based upon individual skills and aptitude irrespective of gender, sexual orientation, race, ethnic origin, religion, age, disability or marital/civil partnership status. Every possible effort is made by the Group to retain and support employees who become less able whilst in the employment of the Group. Full consideration is given to the diverse needs of our employees and potential recruits and we are fully compliant with all current 74 Henry Boot Annual Report 2015 - Back.indd 74 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:40 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY legislation. Our culture is aimed at ensuring that employees can grow, thrive and succeed to their full potential. Succession planning is important and our offering to employees to seek to further improve employee retention includes the Group stakeholder pension (including life assurance arrangements), private medical insurance, childcare vouchers and income replacement (PHI) arrangements. Employee share ownership continues to be encouraged through participation in various share option plans. We are fully committed to developing our employees to maximise their career potential and to achieve their aspirations and our aim is to provide rewarding career opportunities in an environment where equality of opportunity is paramount. Our policy for selection and promotion is based on an assessment of an individual’s ability and experiences; we take full consideration of all applicants on their merits and have processes and procedures in place to ensure that individuals with disabilities are given fair consideration. Employee engagement The involvement of our employees in our business is key to our ongoing success; the common goals and objectives are shared from the Executive Board downwards and all employees are aware of the crucial role each individually plays in our ongoing financial and operational success. The Group regularly provides its employees with information on matters of concern to them; we consult with our employees and/or their representatives in order to ensure that their views can be taken into account when making decisions. We utilise manager briefings and surveys to engage with our employees. Employee communications We utilise our ever evolving Group intranet to disseminate information to all Directors and employees. Regular news items and internal updates are issued on a frequent basis; collaboration and inclusion are encouraged. Employee share schemes The Group encourages participation in employee share schemes of the Company to share in the potential growth and any future success of the Group. Details of employee share schemes are set out in note 30 to the Financial Statements. We were proud for the Company and our employees that our Investors in People accreditation was reconfirmed in January 2015. Directors’ indemnity provisions Directors risk personal liability under civil and criminal law for many aspects of the Company’s main business decisions. As a consequence the Directors could face a range of penalties including fines and/or imprisonment. In keeping with normal market practice, the Company believes that it is prudent and in the best interests of the Company and their best interests to protect the individuals concerned from the consequences of innocent error or omission. As a result, the Company operates a Directors’ and officers’ liability insurance policy in order to indemnify Directors and other senior officers of the Company and its subsidiaries, as recommended by the Corporate Governance Code. This insurance policy does not provide cover where the Director or officer has acted fraudulently or dishonestly. In addition, subject to the provisions of and to the extent permitted by relevant statutes, under the Articles of Association of the Company, the Directors and other officers throughout the year, and at the date of approval of these Financial Statements, were indemnified out of the assets of the Company against liabilities incurred by them in the course of carrying out their duties or the exercise of their powers. Health and safety The health and safety of our employees and others is paramount. Further information on our approach to health and safety is provided in the Corporate Responsibility Report on page 29. Greenhouse gas emissions The greenhouse gas emissions disclosures required by Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 are included within the Strategic Report on page 31. This information is incorporated by reference into (and shall be deemed to form part of) this report. Substantial interests in voting rights Excluding Directors, at the end of the financial year and a date not more than one month prior to the date of the Notice of the AGM, the information in the table below had been disclosed to the Company in accordance with the requirements in the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial Conduct Authority. Voting rights over ordinary shares Number % of issued 21,307,155 16.14 5,739,580 4.35 Rysaffe Nominees and J J Sykes (joint holding)* The Fulmer Charitable Trust** Standard Life Investments Limited*** 8,074,925 6.11 *Rysaffe Nominees and James Sykes are joint registered holders on behalf of various Reis family trusts and are therefore not included under the beneficial interests of James Sykes set out in the Directors’ Remuneration Report. **The shares of the Fulmer Charitable Trust, a recognised charity, are registered in the names of Mr John Spencer Reis, Mrs Sally Anne Reis and Mrs Caroline Mary Mytum as Trustees. ***Last notified as 4,630,364 (3.507% of issued) direct voting rights and 3,444,561 (2.609% of issued) indirect voting rights. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 75 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:40 75 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Report continued Shares held by the Henry Boot PLC Employee Trust The Company has an established Employee Trust (the Trust) for the benefit of Group employees to satisfy existing grants by the Company under various share-based payment arrangements. Details of the Company’s share-based payment arrangements are provided in note 30 to the Financial Statements. The Trustee of the Trust, a subsidiary of the Company of which the Directors throughout the whole of 2015 were John Brown, John Sutcliffe and Russell Deards, and from 1 January 2016 are Jamie Boot, John Sutcliffe, Russell Deards and Darren Littlewood, exercises the voting rights in relation to shares held as it, in its absolute discretion, thinks fit, but having regard to the interests of the beneficiaries. In respect of the financial year of the Company ended on 31 December 2015, the Trust has waived the right to receive from the Company all dividends (if any) in respect of the shares held within the Trust. Further details are provided in note 32 to the Financial Statements. Future developments Important events since the financial year end and future developments are described in the Strategic Report on pages 6 to 47. Statement of disclosure of information to auditors The Directors of the Company who held office at the date of approval of this Annual Report each confirm that: • so far as they are aware, there is no relevant audit information (information needed by the Company’s auditors in connection with preparing their report) of which the Company’s auditors are unaware; and • they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Independent auditors The auditors, PricewaterhouseCoopers LLP, have signified their willingness to remain in office and resolutions reappointing them as auditors (Resolution 11) and authorising the Directors to fix their remuneration (Resolution 12) will be proposed at the AGM. Accountability and audit Details of the Directors’ responsibilities and the Statement of Directors’ Responsibilities are contained on page 79. The Independent Auditors’ Report is given on pages 82 to 87. Annual General Meeting (AGM) The AGM of the Company will be held at Baldwins Omega, Brincliffe Hill, Off Psalter Lane, Sheffield S11 9DF on Thursday 26 May 2016 at 12.30pm. The notice convening the meeting can be found on pages 137 to 141. It is also available at www.henryboot.co.uk, where a copy can be viewed and downloaded. Additional shareholder information This section sets out details of other matters on which the Directors are required to report annually, but which do not appear elsewhere in this document. The information below summarises certain provisions of the current Articles of Association of the Company (as adopted by special resolution on 27 May 2011) (the Articles) and applicable English law concerning companies (the Companies Act 2006). This is a summary only and the relevant provisions of the Companies Act 2006 or the Articles should be consulted if further information is required. Share capital The Company’s issued share capital comprises two classes of shares being, respectively, ordinary shares of 10p each (ordinary shares) and cumulative preference shares of £1 each (preference shares). Further details of the share capital of the Company are set out in note 30 to the Financial Statements. As at 24 March 2016, the ordinary shares represent 97.06% of the total issued share capital of the Company by nominal value and the preference shares represent 2.94% of such total issued share capital. The ordinary shares and the preference shares are in registered form. Both classes of share are admitted to the Official List of the UK Financial Conduct Authority. The Company’s ordinary shares are categorised as ‘Premium Listed’ and its preference shares as ‘Standard Listed’. A Standard Listing is based on EU minimum standards for floating a company on a public market whereas a Premium Listing requires compliance with additional requirements set out in the Listing Rules of the UK Financial Conduct Authority. The Notice of the AGM on pages 137 to 141 includes the following resolutions: • an ordinary resolution (Resolution 13) to renew the authority of the Directors to allot shares up to a maximum nominal amount of £4,401,378 representing approximately one-third (33.33%) of the Company’s issued ordinary share capital at 24 March 2016. The authority will expire on 25 August 2017 or at the conclusion of the next AGM, whichever is the earlier, but it is the present intention of the Directors to seek annual renewal of this authority. The Directors do not have any present intention of exercising the authority; • a special resolution (Resolution 14) to enable the Directors to continue to allot equity securities for cash in connection with a rights or other issue pro rata to the rights of the existing shareholders, but subject to certain exceptions, and for any other purpose provided that the aggregate nominal value of such allotments does not exceed £660,000 (approximately 5% of the Company’s issued ordinary share capital at 24 March 2016). The authority will expire on 25 August 2017 or at the conclusion of the next AGM, whichever is the earlier, but it is the present intention of the Directors to seek annual renewal of this authority; and 76 Henry Boot Annual Report 2015 - Back.indd 76 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:40 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY • a special resolution (Resolution 15) to renew the authority of the Company to make market purchases of up to 11,055,000 of its own issued ordinary shares (8.37% of the Company’s issued ordinary share capital at 24 March 2016). The minimum price that may be paid under the authority for an ordinary share is 10p and the maximum price is limited to not more than 5% above the average of the middle market quotations for an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days before the purchase is made. The Directors will exercise the authority only if they are satisfied that it would be likely to result in an increase in expected earnings per share of the ordinary share capital in issue and that any purchase will be in the best interests of shareholders generally. If the Directors do decide to exercise the authority, ordinary shares so acquired will either be cancelled or held as treasury shares, depending upon the circumstances prevailing at the time. Rights and obligations attaching to shares Subject to the Companies Act 2006 and other shareholders’ rights, any share may be issued with such rights and restrictions as the Company may by ordinary resolution decide or, if no such resolution has been passed or so far as the resolution does not make specific provision, as the Board of Directors for the time being of the Company (the Board) may decide. Subject to the Companies Act 2006, the Articles and any resolution of the Company, the Board may deal with any unissued shares as it may decide. Rights of preference shares The preference shares carry the following rights in priority to the ordinary shares but carry no further right to participate in profits or assets: • the right to receive out of the profits of the Company a fixed cumulative preferential dividend at the rate of 5.25% per annum on the capital paid up thereon; • the right on a return of assets on a winding up to payment of the capital paid up thereon together with a sum calculated at the rate of 6.00% per annum in respect of any period up to the commencement of the winding up for which such preferential dividend as referred to above has not been paid; and • the right on a return of assets in a reduction of capital to repayment of the capital paid up thereon together with a sum equal to all arrears (if any) of such preferential dividend as referred to above. The preference shares shall not confer on the holders of them any right to receive notice of or to be present or to vote at any general meeting unless either: • a resolution is proposed directly affecting the rights or privileges of the holders of the preference shares as a separate class; or • at the date of the notice convening the general meeting, the fixed cumulative preferential dividend provided in the Articles shall be in arrears for more than six months. Voting Under and subject to the provisions of the Articles and subject to any special rights or restrictions as to voting attached to any shares, on a show of hands every shareholder present in person shall have one vote, and on a poll every shareholder who was present in person or by proxy shall have one vote for every share of which he is the holder. Under the Companies Act 2006, shareholders are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at a general meeting or class meeting. Restrictions on voting A shareholder shall not be entitled to vote at any general meeting or class meeting in respect of any shares held by him unless all calls and other sums presently payable by him in respect of that share have been paid. In addition, holders of default shares (as defined in the Articles) shall not be entitled to vote during the continuance of a default in providing the Company with information concerning interests in those shares required to be provided (following relevant notification) under the Companies Act 2006. Deadlines for voting rights Full details of the deadlines for exercising voting rights in respect of the resolutions to be considered at the AGM to be held on 26 May 2016 are set out in the Notice of AGM on pages 137 to 141. Dividends and distributions The Company may, by ordinary resolution, declare a dividend to be paid to the shareholders but no dividend shall exceed the amount recommended by the Board. The Board may pay interim dividends and also any fixed rate dividend whenever the financial position of the Company justifies its payment in the opinion of the Board. If the Board acts in good faith, none of the Directors shall incur any liability to the holders of shares with preferred rights for any loss they may suffer in consequence of the payment of an interim dividend on other shares. Variation of rights The Articles specify that the special rights attached to any class of shares may, either with the consent in writing of holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of such holders (but not otherwise), be modified or abrogated. Transfer of shares Under and subject to the restrictions in the Articles, any shareholder may transfer some or all of their shares in certificated form by transfer in writing in any usual form or in any other form which the Board may approve. Uncertificated shares must be transferred by means of a relevant system, such as CREST. The Board may, save in certain circumstances, refuse to register any transfer of a certificated share not fully paid up. The Board may also refuse to register any transfer of certificated shares unless it is: i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 77 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:40 77 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Governance Directors’ Report continued • in respect of only one class of shares; • duly stamped or exempt from stamp duty; • delivered to the office or at such other place as the Board may decide for registration; and between him and the Company. A Director may also be removed from office by the service on him of a notice to that effect signed by or on behalf of all the other Directors, being not less than three in number. The office of a Director shall be vacated if: • accompanied by the certificate for the shares to be transferred and such other evidence (if any) as the Board may reasonably require to show the right of the intending transferor to transfer the shares. i. ii. he is prohibited by law from being a Director; he becomes bankrupt or makes any arrangement or composition with his creditors generally; In addition, the Board may refuse to register any transfer of shares which is in favour of (i) a child, bankrupt or person of unsound mind or (ii) more than four transferees. Repurchase of shares Subject to the provisions of the Companies Acts and to any rights conferred on the holders of any class of shares, the Company may purchase all or any of its shares of any class, including any redeemable shares. Amendment to the Articles of Association Any amendments to the Articles may be made in accordance with the provisions of the Companies Act 2006 by way of special resolution. Appointment and replacement of Directors The Directors shall not, unless otherwise determined by an ordinary resolution of the Company, be less than three nor more than 15 in number. Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed by the Board shall retire from office at the next AGM of the Company but shall then be eligible for reappointment. The Board may appoint one or more Directors to hold any office or employment under the Company for such period (subject to the Companies Acts) and on such terms as it may decide and may revoke or terminate any such appointment. At each AGM any Director who has been appointed by the Board since the previous AGM and any Director selected to retire by rotation shall retire from office. At each AGM, one-third of the Directors who are subject to retirement by rotation or, if the number is not an integral multiple of three, the number nearest to one-third but not exceeding one-third shall retire from office. In addition, there shall also be required to retire by rotation any Director who at any AGM of the Company shall have been a Director at each of the preceding two AGMs of the Company, provided that he was not appointed or reappointed at either such AGM and he has not otherwise ceased to be a Director and been reappointed by general meeting of the Company at or since either such AGM. The Company’s policy is that all of the Directors should be, and are, subject to annual re-election. The Company may, by ordinary resolution of which special notice has been given in accordance with the Companies Acts, remove any Director before his period of office has expired notwithstanding anything in the Articles or in any agreement iii. he is or may be suffering from a mental disorder as referred to in the Articles; iv. for more than six months he is absent, without special leave of absence from the Board, from meetings of the Board held during that period and the Board resolves that his office be vacated; or v. he serves on the Company notice of his wish to resign. Powers of the Directors The business of the Company shall be managed by the Board which may exercise all the powers of the Company, subject to the provisions of the Articles and any ordinary resolution of the Company. The Articles specify that the Board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of its undertaking, property and assets and uncalled capital and to issue debentures and other securities, subject to the provisions of the Articles. Takeovers and significant agreements The Company is a party to the following significant agreements that take effect, alter or terminate on a change of control of the Company following a takeover bid: • the Company’s share schemes and plans; and • bank facilities whereby upon a ‘change of control’ the lenders shall consult with Henry Boot PLC for a period not greater than 30 days (commencing on the date of the change of control) to determine whether and on what basis the lenders are prepared to continue the facility. Information rights Beneficial owners of shares who have been nominated by the registered holder of those shares to enjoy information rights under Section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares, rather than to the Company’s registrars, Computershare Investor Services PLC or to the Company directly. Approved by the Board and signed on its behalf by Russell Deards Group General Counsel & Company Secretary 22 April 2016 78 Henry Boot Annual Report 2015 - Back.indd 78 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:40 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Statement of Directors’ Responsibilities Directors’ statement pursuant to the Disclosure and Transparency Rules The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. Each of the Directors, whose names and functions are listed on page 50 confirm that, to the best of their knowledge: • the Group Financial Statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and • the Strategic Report and Directors’ Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. Approved by the Board and signed on its behalf by John Sutcliffe Director 22 April 2016 Darren Littlewood Director 22 April 2016 The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law re quires the Directors to prepare Financial Statements for each financial year. Under that law, they are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and applicable law and have elected to prepare the Parent Company Financial Statements on the same basis. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that financial year. In preparing these Financial Statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the Financial Statements; and • prepare the Financial Statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 79 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:40 n o i t a m r o n f I l r e d o h e r a h S 79 www.henryboot.co.uk Stock Code: BHY A cohesive, consistent and confident approach to financial management Henry Boot Annual Report 2015 - Back.indd 80 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:42 Financial StatementS Contents 82 Independent Auditors’ Report 88 Consolidated Statement of Comprehensive Income 89 Statements of Financial Position 90 Statements of Changes in Equity 91 Statements of Cash Flows 92 Principal Accounting Policies 100 Notes to the Financial Statements Henry Boot Annual Report 2015 - Back.indd 81 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:43 81 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Independent Auditors’ Report to the members of Henry Boot PLC Report on the Financial Statements Our opinion In our opinion: • Henry Boot PLC’s Group Financial Statements and Parent Company Financial Statements (the Financial Statements) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2015 and of the Group’s profit and the Group’s and the Parent Company’s cash flows for the year then ended; • the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the Parent Company Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. What we have audited The Financial Statements, included within the Annual Report and Financial Statements (the Annual Report), comprise: • the Statements of Financial Position as at 31 December 2015; • the Consolidated Statement of Comprehensive Income for the year then ended; • the Statements of Cash Flows for the year then ended; • the Statements of Changes in Equity for the year then ended; • the accounting policies; and • the notes to the Financial Statements, which include other explanatory information. Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the Financial Statements. These are cross-referenced from the Financial Statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the Financial Statements is IFRSs as adopted by the European Union, and applicable law and, as regards the Parent Company Financial Statements, as applied in accordance with the provisions of the Companies Act 2006. Our audit approach Overview • Overall Group materiality: £2.5million which represents 0.7% of total assets. Materiality • We performed full scope audits at the six largest reporting units. • A further four reporting units were subject to targeted procedures with work over investment property portfolios at three, and procedures over property, plant and equipment at the remaining unit. Audit scope • These reporting units accounted for 92% of total assets. • Valuation of investment properties. Areas of focus • Accuracy and valuation of construction contract balances. • Completeness and accuracy of land development provision. • Valuation of pension scheme liability. 82 Henry Boot Annual Report 2015 - Back.indd 82 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:43 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY The scope of our audit and our areas of focus We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)). We designed our audit by determining materiality and assessing the risks of material misstatement in the Financial Statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the Financial Statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit. Area of focus How our audit addressed the area of focus Valuation of investment properties (£125.3m) (Refer to note 13 of the Financial Statements) We focussed on this area because the Group’s investment property assets represent a significant proportion of the assets in the Group Statement of Financial Position. The Group’s portfolio includes properties at varying stages of completion across various sectors, including mixed-use, industrial and retail. Property valuations are subject to a high degree of judgement as they are calculated from a number of different assumptions specific to each individual property or development site. These include actual and estimated rental values, yields, costs to complete and land values per acre. The Group engages Jones Lang LaSalle to value its completed investment properties in all but the residential sector. The properties valued by Jones Lang LaSalle are valued by applying market-derived capitalisation yields to actual or market-derived rental income specific to each property. Investment properties in the course of construction are valued by management using the residual method of valuation. This involves estimating the gross development value of the property and deducting from this the gross development costs to be incurred and an allowance for anticipated development profits yet to be earned. For all classes of investment property, a relatively small percentage change in valuations of individual properties, in aggregate, could result in a material impact to the Financial Statements. Regarding the completed investment properties valued by the external valuer: We tested the underlying data used by the external valuer by agreeing a sample of lettings to our work on rental revenue. This included agreeing rents and other significant contract terms to legal agreements. For each property, we compared the changes in the yields and capital values since the prior year to an expectation based upon industry- specific indices. We also considered the movements in the assumptions in the light of our existing understanding of the Group’s portfolio and activities in the year. As a result we identified certain properties where we felt the movements in the yields or capital values warranted further discussion. We held a meeting with management and their external valuers at which we challenged the assumptions used in these valuations by reference to externally published benchmarks. We corroborated the explanations received by reference to the results of our audit procedures in other areas such as rental revenue testing, and by further review of legal documentation and correspondence where necessary. Whilst we identified that for certain properties an alternative yield assumption may be taken, no material adjustments were identified. Regarding the remaining properties valued by management: We selected a sample of valuations of investment property in the course of construction for testing based on value. We reperformed the calculations provided by management, for which the significant assumptions were expected rental values, forecast yields and costs to complete. We corroborated these assumptions by reference to legal agreements, published indices, subcontractor quotes and completion statements. No material adjustments were identified as a result of our testing. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 83 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:44 n o i t a m r o n f I l r e d o h e r a h S 83 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Independent Auditors’ Report continued to the members of Henry Boot PLC Area of focus How our audit addressed the area of focus Accuracy and valuation of construction contract balances (Refer to note 19 of the Financial Statements) We focussed on this area because of the judgements involved in estimating the stage of completion of construction contract activity and assessing costs to complete. This in turn means the assessment of anticipated profits or losses on individual contracts is judgemental. The Group undertakes a number of significant construction contracts and a relatively small change in the judgements applied, such as whether a provision for remedial works is required based on an assessment of risk and magnitude relating to the identified issue, could result in a material misstatement to the Financial Statements. Completeness and accuracy of land development provision (£8.2m) (Refer to note 26 of the Financial Statements) In certain limited circumstances, the Group retains obligations to provide infrastructure and service works in relation to land that it has previously sold. The estimation of the cost of meeting these obligations and of the likely timing of the works is subject to some uncertainty as the sites affected are very large and the associated works take place over a number of years. We evaluated management’s revenue and profit recognition on a sample of contracts that we selected based on factors such as risk and magnitude and found that it was consistent with the supporting evidence obtained. Our work over a sample of contracts included the following: • Meeting with in-house quantity surveyors to understand the status of contract work and to understand how the cost to complete had been calculated; • Agreeing key contract details to legal documentation; • Using computer assisted audit techniques to verify the occurrence of all revenue billed during the year through agreeing amounts certified by third parties to accounts receivable and cash; • We also checked customer acceptance of the work undertaken, considering the implications of any ongoing disputes which included discussions with the Group legal department; • Assessing cost to complete schedules for reasonableness, primarily by looking at historical budgeting accuracy; and • We tested a sample of accruals for contract work undertaken by agreeing them to supporting documentation, including subcontractor applications for payment and invoices. We tested a sample of provisions for contract work not yet undertaken to reports prepared by in-house quantity surveyors, correspondence with any claimants and testing the outturn on similar amounts previously provided for, and found no material issues. We also assessed management’s overall profit recognition methodology, including a sample assessment of the accuracy of revenue and profit forecasts from prior years. This highlighted that management’s forecasting ability was materially consistent with the actual outcomes. We tested the costs to complete included in the provision by agreeing to projections from management’s external cost consultants. This also included agreeing the estimated timing of cash flows to these same projections. We considered the historic accuracy of the Group’s forecast costs to complete by comparing these forecasts with actual costs incurred to date. We reconciled the movement in the provision between December 2014 and December 2015 and discussed the largest movements, by value, with management to ensure we understood the rationale for them. We corroborated the explanations received by reference to external correspondence. We also selected a sample of actual infrastructure costs incurred in the year and agreed them to supplier invoice or completion certificate. We considered the narrative on the supporting documentation reviewed in each case to establish whether the cost had been allocated against the correct element of the brought forward provision (and therefore whether it was correct that the provision had reduced). No material adjustments were identified as a result of the procedures we performed in this area. 84 Henry Boot Annual Report 2015 - Back.indd 84 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:44 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Area of focus How our audit addressed the area of focus Valuation of pension scheme liability (£19.6m) (Refer to note 27 of the Financial Statements) The Group has a defined benefit pension scheme net liability which is significant in the context of both the overall balance sheet and the results of the Group. The Group uses an independent actuary to value the pension scheme under IAS 19. We obtained the actuary’s report and with the assistance of our pension specialists agreed the discount and inflation rates used in the valuation of the pension liability to our internally developed benchmarks, which are based on externally available data. We confirmed that these assumptions were within our expected range. We compared the demographic assumptions to national and industry averages and were satisfied that these were reasonable. The valuation of the pension liability requires significant levels of judgement and technical expertise in choosing appropriate assumptions. Unfavourable changes in a number of the key assumptions (including salaries increase, inflation, discount rates and mortality) can have a material impact on the calculation of the liability. The values of the pension scheme’s investments at 31 December 2015 are provided by the scheme’s investment managers. We also compared the assumptions with those used in previous years, and found that the methodology used in arriving at the assumptions year on year was consistent. We obtained direct confirmation of the year end asset valuations from the scheme’s investment managers, and verified that the correct valuation had been used by management. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial Statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The Group is structured along three business lines being Property Investment and Development, Land Development and Construction. The Group Financial Statements are a consolidation of the 37 reporting units within these three business lines and the Group’s centralised functions. Of the Group’s 37 reporting units, we identified six which, in our view, required an audit of their complete financial information, either due to their size or their risk characteristics.  Specific audit procedures were performed at a further three reporting units in respect of their investment property portfolios, and at one reporting unit in respect of its property, plant and equipment. This, together with additional procedures performed on the Group’s centralised functions, gave us the evidence we needed for our opinion on the Group Financial Statements as a whole. All work was performed by the Group audit team. The reporting units where we performed audit work accounted for 92% of total assets. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the Financial Statements as a whole. Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows: Overall Group materiality How we determined it Rationale for benchmark applied £2.5m (2014: £2.0m). 0.7% of total assets. The key objective of the Group is to increase long-term shareholder value by maximising the value of assets such as inventory and investment properties. In determining the benchmark we also had regard to the profitability of the Group to ensure that sufficient consideration was given to trading activities. This methodology is consistent with that applied in the prior year. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £125,000 (2014: £100,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Going concern Under the Listing Rules we are required to review the Directors’ statement, set out on page 47, in relation to going concern. We have nothing to report having performed our review. 85 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 85 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:44 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Independent Auditors’ Report continued to the members of Henry Boot PLC Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the Directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to. As noted in the Directors’ statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the Financial Statements. The going concern basis presumes that the Group and Parent Company have adequate resources to remain in operation, and that the Directors intend them to do so, for at least one year from the date the Financial Statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and Parent Company’s ability to continue as a going concern. Other required reporting Consistency of other information Companies Act 2006 opinion In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements. ISAs (UK & Ireland) reporting Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: • Information in the Annual Report is: — materially inconsistent with the information in the audited Financial Statements; or — apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Parent Company acquired in the course of performing our audit; or — otherwise misleading. We have no exceptions to report • the statement given by the Directors on page 79, in accordance with provision C.1.1 of the UK Corporate Governance Code (the Code), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s and Parent Company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Parent Company acquired in the course of performing our audit. We have no exceptions to report • the section of the Annual Report on page 62, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: • the Directors’ confirmation on page 47 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. • the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. • the Directors’ explanation on page 47 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing material to add or to draw attention to We have nothing material to add or to draw attention to We have nothing material to add or to draw attention to Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review. 86 Henry Boot Annual Report 2015 - Back.indd 86 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:44 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Directors’ remuneration Directors’ Remuneration Report — Companies Act 2006 opinion In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Corporate Governance Statement Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review. Responsibilities for the Financial Statements and the audit Our responsibilities and those of the Directors As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Parent Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of Financial Statements involves An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the Directors; and • the overall presentation of the Financial Statements . We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the Financial Statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Andy Ward (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Sheffield 22 April 2016 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 87 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:44 87 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Consolidated Statement of Comprehensive Income for the year ended 31 December 2015 Revenue Cost of sales Gross profit Other income Administrative expenses Pension expenses (Decrease)/increase in fair value of investment properties Profit on sale of investment properties Profit on sale of assets held for sale Operating profit Finance income Finance costs Share of profit of joint ventures Profit before tax Tax Profit for the year from continuing operations Other comprehensive income/(expense) not being reclassified to profit or loss in subsequent years: Revaluation of Group occupied property Deferred tax on property revaluations Actuarial gain/(loss) on defined benefit pension scheme Deferred tax on actuarial (gain)/loss Movement in fair value of cash flow hedge Deferred tax on cash flow hedge Total other comprehensive income/(expense) not being reclassified to profit or loss in subsequent years Total comprehensive income for the year Profit for the year attributable to: Owners of the Parent Company Non-controlling interests Total comprehensive income attributable to: Owners of the Parent Company Non-controlling interests Basic earnings per ordinary share for the profit attributable to owners of the Parent Company during the year Diluted earnings per ordinary share for the profit attributable to owners of the Parent Company during the year Note 1 1 4 13 3 5 6 15 7 12 17 27 17 25 17 9 9 2015 £’000 176,186 (122,855) 53,331 36 (17,235) (3,689) 32,443 (2,009) 747 485 31,666 1,438 (1,617) 923 32,410 (7,460) 24,950 100 509 6,002 (1,439) 16 (4) 5,184 30,134 23,041 1,909 24,950 28,219 1,915 30,134 17.5p 17.3p 2014 £’000 147,200 (103,512) 43,688 283 (15,153) (3,213) 25,605 1,950 284 122 27,961 714 (1,550) 1,187 28,312 (4,810) 23,502 — — (10,458) 2,092 85 (17) (8,298) 15,204 21,169 2,333 23,502 12,845 2,359 15,204 16.2p 15.9p 88 Henry Boot Annual Report 2015 - Back.indd 88 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:44 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Statements of Financial Position as at 31 December 2015 Assets Non-current assets Intangible assets Property, plant and equipment Investment properties Investments Investment in joint ventures and associates Trade and other receivables Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents Assets classified as held for sale Liabilities Current liabilities Trade and other payables Current tax liabilities Borrowings Provisions Net current assets Non-current liabilities Trade and other payables Borrowings Retirement benefit obligations Provisions Net assets Equity Share capital Property revaluation reserve Retained earnings Other reserves Cost of shares held by ESOP trust Equity attributable to owners of the Parent Company Non-controlling interests Total equity Group 2015 £’000 2014 £’000 Note 11 12 13 14 15 16 17 18 16 20 21 24 26 21 24 27 26 30 31 31 31 32 5,757 20,984 125,311 — 3,790 10,507 4,323 170,672 138,941 54,448 12,041 205,430 — 205,430 64,384 3,636 42,836 5,749 116,605 88,825 6,639 8,137 19,577 3,595 37,948 221,549 13,604 3,964 197,895 4,548 (345) 219,666 1,883 221,549 6,733 19,086 141,560 — 1,367 4,837 7,123 180,706 117,457 50,065 4,347 171,869 260 172,129 68,833 1,976 31,969 4,322 107,100 65,029 3,139 8,779 28,158 5,185 45,261 200,474 13,592 3,355 177,664 4,425 (550) 198,486 1,988 200,474 Parent Company 2015 £’000 — 168 — 3,021 — — 3,772 6,961 — 197,711 10,135 207,846 — 207,846 82,600 3,600 40,478 — 126,678 81,168 — — 19,577 — 19,577 68,552 13,604 — 49,608 5,685 (345) 68,552 — 68,552 2014 £’000 — 137 — 3,809 — — 5,919 9,865 — 194,202 1,917 196,119 — 196,119 82,218 1,100 30,642 — 113,960 82,159 — — 28,158 — 28,158 63,866 13,592 — 45,256 5,568 (550) 63,866 — 63,866 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i The Financial Statements on pages 88 to 133 of Henry Boot PLC, registered number 160996, were approved by the Board of Directors and authorised for issue on 22 April 2016. On behalf of the Board J T Sutcliffe Director D L Littlewood Director n o i t a m r o n f I l r e d o h e r a h S 89 Henry Boot Annual Report 2015 - Back.indd 89 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:45 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Statements of Changes in Equity for the year ended 31 December 2015 Group At 1 January 2014 Profit for the year Other comprehensive income Total comprehensive income Equity dividends Proceeds from shares issued Proceeds on disposal of treasury shares Purchase of treasury shares Note 31 10 32 32 Share-based payments 31, 32 At 31 December 201 4 Profit for the year Other comprehensive income Total comprehensive income Equity dividends Proceeds from shares issued Proceeds on disposal of treasury shares Share-based payments 31 10 32 31, 32 Share capital £’000 13,510 — — — — 82 — — — 82 13,592 — — — — 12 — — 12 Attributable to owners of the Parent Company Cost of shares held by ESOP trust £’000 (188) — — — — — Property revaluation reserve £’000 3,355 — — — — — Retained earnings £’000 171,938 21,169 (8,366) 12,803 (6,886) — Other reserves £’000 3,566 — 42 42 — 817 — — — — 3,355 — 609 609 — — — — (191) (7,077) 177,664 23,041 4,563 27,604 (7,664) — — — — — 291 (7,373) — — — 817 4,425 — 6 6 — 117 — — 117 34 (1,010) 614 (362) (550) — — — — — 4 201 205 Non- controlling interests £’000 1,303 2,333 26 2,359 (1,674) — — — — (1,674) 1,988 1,909 6 1,915 (2,020) — — — (2,020) Total £’000 192,181 21,169 (8,324) 12,845 (6,886) 899 34 (1,010) 423 (6,540) 198,486 23,041 5,178 28,219 (7,664) 129 4 492 (7,039) Total equity £’000 193,484 23,502 (8,298) 15,204 (8,560) 899 34 (1,010) 423 (8,214) 200,474 24,950 5,184 30,134 (9,684) 129 4 492 (9,059) At 31 December 2015 13,604 3,964 197,895 4,548 (345) 219,666 1,883 221,549 Share capital £’000 13,510 — — — — 82 — — — 82 13,592 — — — — 12 — — 12 13,604 Retained earnings £’000 52,299 8,541 (8,366) 175 (6,886) — — — (332) (7,218) 45,256 7,357 4,563 11,920 (7,664) — — 96 (7,568) 49,608 Cost of shares held by ESOP trust £’000 (188) — — — — — 34 (1,010) 614 (362) (550) — — — — — 4 201 205 (345) Other reserves £’000 4,751 — — — — 817 — — — 817 5,568 — — — — 117 — — 117 5,685 Total equity £’000 70,372 8,541 (8,366) 175 (6,886) 899 34 (1,010) 282 (6,681) 63,866 7,357 4,563 11,920 (7,664) 129 4 297 (7,234) 68,552 Note 8 10 32 32 31 8 10 32 31 Parent Company At 1 January 2014 Profit for the year Other comprehensive income Total comprehensive income Equity dividends Proceeds from shares issued Proceeds on disposal of treasury shares Purchase of treasury shares Share-based payments At 31 December 2014 Profit for the year Other comprehensive income Total comprehensive income Equity dividends Proceeds from shares issued Proceeds on disposal of treasury shares Share-based payments At 31 December 2015 90 Henry Boot Annual Report 2015 - Back.indd 90 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:45 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Statements of Cash Flows for the year ended 31 December 2015 Cash flows from operating activities Cash generated from/(used by) operations Interest paid Tax paid Net cash flows from operating activities Cash flows from investing activities Purchase of intangible assets Purchase of property, plant and equipment Purchase of investment property Purchase of investments in associates Proceeds on disposal of property, plant and equipment Proceeds on disposal of investment properties Proceeds on disposal of assets held for sale Interest received Dividends received from subsidiaries Net cash flows from investing activities Cash flows from financing activities Proceeds from shares issued Purchase of treasury shares Proceeds on disposal of treasury shares Decrease in borrowings Increase in borrowings Dividends paid – ordinary shares – non-controlling interests – preference shares Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Net cash and cash equivalents at beginning of year Net cash and cash equivalents at end of year Analysis of net debt: Cash and cash equivalents Bank overdrafts Net cash and cash equivalents Bank loans Government loans Net debt Note 33 11 12 13 15 32 10 10 24 24 24 Group 2015 £’000 5,208 (1,074) (3,934) 200 (420) (1,731) (13,561) (1,500) 325 7,791 15,275 701 — 6,880 129 — 4 (65,408) 75,571 (7,643) (2,020) (21) 612 7,692 4,347 12,039 12,041 (2) 12,039 (42,389) (8,582) (38,932) 2014 £’000 14,857 (1,172) (4,975) 8,710 (97) (1,704) (15,649) — 222 4,362 12,233 336 — (297) 899 (1,010) 34 (40,564) 29,548 (6,865) (1,674) (21) (19,653) (11,240) 15,587 4,347 4,347 — 4,347 (33,096) (7,652) (36,401) Parent Company 2015 £’000 (6,321) (3,366) (2,501) (12,188) — (107) — — — — — 8,109 10,099 18,101 129 — 4 (64,226) 74,226 (7,643) — (21) 2,469 8,382 1,275 9,657 10,135 (478) 9,657 (40,000) — (30,343) 2014 £’000 2,527 (3,437) (3,502) (4,412) — (96) — — 11 — — 8,055 7,800 15,770 899 (1,010) 34 (39,000) 24,000 (6,865) — (21) (21,963) (10,605) 11,880 1,275 1,917 (642) 1,275 (30,000) — (28,725) i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 91 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 n o i t a m r o n f I l r e d o h e r a h S 91 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Principal Accounting Policies for the year ended 31 December 2015 The principal Accounting Policies adopted in the preparation of the Group’s IFRS Financial Statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. The Company is a public limited company, listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. The address of its registered office is Banner Cross Hall, Ecclesall Road South, Sheffield, United Kingdom S11 9PD. Basis of preparation and statement of compliance The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the EU, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS and therefore complies with Article 4 of the EU IAS regulations. They have been prepared on the historical cost basis, except for financial instruments, investment properties and Group occupied land and buildings, which are measured at fair value. The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and not presented a statement of comprehensive income for the Parent Company alone. See note 8. Consolidation The Consolidated Financial Statements are a consolidation of the Financial Statements of the Parent Company and all entities controlled by the Company (its subsidiaries) made up to 31 December each year. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the Accounting Policies used in line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or disposal. Non-controlling interests in the fair value of the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests’ share of changes in equity since the date of the combination. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. Going concern The Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Financial Statements. Further detail is contained in the Strategic Report on page 47. Joint ventures and associates Joint ventures are all entities in which the Group has shared control with another entity, established by contractual agreement. Associates are all entities over which the Group has significant influence but not control, generally accompanied by a share of between 20% and 50% of the voting rights. Jointly controlled entities and associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s share of profits or losses is recognised in the Consolidated Statement of Comprehensive Income. If the share of losses equals its investment, the Group does not recognise further losses, except to the extent that there are amounts receivable that may not be recoverable or there are further commitments to provide funding. Unrealised gains on transactions between the Group and its joint ventures and associates are eliminated to the extent of the Group’s interest in them. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of the joint ventures and associates are consistent with those of the Group. Business combinations and goodwill Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured as 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. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration agreement. Subsequent changes in fair value of contingent consideration classified as an asset or liability are accounted for in accordance with IAS 39. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. 92 Henry Boot Annual Report 2015 - Back.indd 92 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Acquisition related costs are recognised in the Consolidated Statement of Comprehensive Income as incurred. Goodwill arising on consolidation of subsidiary undertakings is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is subsequently measured at cost less any accumulated impairment losses. Goodwill is subjected to an impairment test at the reporting date or when there has been an indication that the goodwill should be impaired, any loss is recognised immediately through the Statement of Comprehensive Income and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to cash-generating units. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which goodwill arose. Assets classified as held for sale Non-current assets are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes. Revenue from construction contracts is recognised in accordance with the Group’s accounting policy on construction contracts (see below). Revenue from the sale of land and properties is recognised at the point of legal completion and where title has passed. Revenue from the Group’s PFI concession is recognised by the calculation of ‘shadow tolls’ which are based on vehicle usage of the A69 for the period of account. Revenue from operating leases is recognised on a straight line basis over the lease term, except for contingent rental income which is recognised when it arises. When the Group provides incentives to its tenants, the cost of incentives is recognised over the lease term, on a straight line basis, as a reduction to revenue. Revenue from the hire of plant and equipment is measured as the fair value of sales proceeds from such which relate to the period of account. Construction contracts Where the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by reference to the stage of completion of the contract activity at the reporting date and profit is that estimated to fairly reflect the profit arising up to that date. Contract revenue is recognised in accordance with the stage of completion of the contract where the contract’s outcome can be estimated reliably. The principal method used to recognise the stage of completion of a contract is an in-house survey of the work performed. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Contract revenue includes an assessment of the amounts agreed in the contract, plus or less any variations in contract work and claims to the extent that they are approved and can be measured reliably. The Group therefore assesses the revenue recognised on a contract by contract basis. Variations and claims are changes to the original contractual obligations, which may be valued by contractual rates or agreed rates, or changes to contract conditions, loss and expense, prolongation, disruption or additional prelims. They are included to the extent that it is probable that they will result in revenue and they are capable of being reliably measured. Our judgement on these matters is based on past experience, external valuers, external influences (weather, for example), trends, risk profile and nature of the contract, competency of consultants and legal constraints. Operating segments The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined that its chief operating decision maker is the Board of Henry Boot PLC (the Board). Management has determined the operating segments based on the reports reviewed by the Board in making strategic decisions. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 93 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 93 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Principal Accounting Policies for the year ended 31 December 2015 The Board considers the business based on the following operating segments: • Property Investment and Development, inclusive of property investment and development and trading activities; • Land Development, inclusive of land management, development and trading activities; and • Construction, inclusive of its PFI company, plant hire and regeneration activities. Whilst the following is not a reportable segment, information about it is considered by the Board in conjunction with the reportable segments: • Group overheads, comprising central services, pensions, head office administration, in-house leasing and other mainly ‘not for profit’ activities. Investment property Investment properties are those properties which are not occupied by the Group and which are held for long-term rental yields, capital appreciation or both. Investment property also includes property that is being constructed or developed for future use as investment property. Investment properties are initially measured at cost, including related transaction costs. At each subsequent reporting date, investment properties are remeasured to their fair value; further information regarding the valuation methodologies applied can be found in note 13 to the Financial Statements. Movements in fair value are included in the Statement of Comprehensive Income. Where the Group employs professional valuers the valuations provided are subject to a comprehensive review to ensure they are based on accurate and up-to-date tenancy information. Discussions are also held with the valuers to test the valuation assumptions applied and comparable evidence utilised to ensure they are appropriate in the circumstances. Subsequent expenditure is capitalised to the asset’s carrying value only where it is probable that the future economic benefits associated with the expenditure will flow to the Group. All other expenditure is expensed to the Statement of Comprehensive Income in the period in which it arises. Investment property is derecognised when they are disposed of at their carrying value. Where specific investment properties have been identified as being for sale within the next twelve months, a sale is considered highly probable and the property is immediately available for sale, their fair value is shown under assets classified as held-for-sale within current assets, measured in accordance with the provisions of IAS 40 ‘Investment Property’. Property, plant and equipment Group occupied properties are stated in the Statement of Financial Position at their revalued amounts, being the fair value, based on market values, less any subsequent accumulated depreciation or subsequent accumulated impairment loss. Fair value is determined annually by independent valuers. Surpluses on revaluations are transferred to the revaluation reserve. Deficits on revaluations are charged against the revaluation reserve to the extent that there are available surpluses relating to the same asset and are otherwise charged to the Statement of Comprehensive Income. In respect of land and buildings, depreciation is provided where it is considered significant having regard to the estimated remaining useful lives and residual values of individual properties. Equipment held for hire, vehicles and office equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Cost includes the original purchase price of the asset plus any costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight line method, mainly at the following annual rates: • equipment held for hire • vehicles • office equipment – between 12.5% and 50% – between 10% and 25% – between 25% and 33% Intangible assets excluding goodwill Intangible assets are stated at cost less accumulated amortisation and impairment. The PFI asset represents the capitalised cost of the initial project, together with the capitalised cost of any additional major works to the road and structures, which are then amortised, on a straight line basis, over 20 years or the remaining life of the concession. The concession lasts a period of 30 years and has a further ten years to run. 94 Henry Boot Annual Report 2015 - Back.indd 94 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Leasing Where the Group acts as a lessee in the case of operating leases, rentals payable are recognised on a straight line basis over the term of the relevant lease. Inventories Inventories are stated at the lower of cost and estimated net realisable value and are subject to regular impairment reviews. Inventories comprise developments in progress, land held for development or sale, options to purchase land and planning promotion agreements. • Developments in progress includes properties being developed for onward sale. • Land held for development or sale is land owned by the Group that is promoted through the planning process in order to gain planning permission, adding value to the land. • Options to purchase land are agreements that the Group has entered into with the landowners whereby the Group has the option to purchase the land within a limited time frame. The land owners are not generally permitted to sell to any other party during this period, unless agreed to by the Group. Within the time frame the Group promotes the land through the planning process at its expense in order to gain planning permission. Should the Group be successful in obtaining planning permission it would trigger the option to purchase and subsequently sell on the land. • Planning promotion agreements are agreements that the Group has entered into with the landowners whereby the Group acts as an agent to the land owners in exchange for a fee of a set percentage of the proceeds or profit of the eventual sale. The Group promotes the land through the planning process at its own expense. If the land is sold the Group will receive a fee for its services. • The Group incurs various costs in promoting land held under planning promotion agreements, in some instances the agreements allow for the Group to be reimbursed certain expenditure following the conclusion of a successful sale. These costs are held in inventory at the lower of cost and estimated net realisable value. Upon reimbursement, inventory is reduced by the value of the reimbursed cost. Inventories comprise all the direct costs incurred in bringing the individual inventories to their present state at the reporting date, including any reimbursable promotion costs, less the value of any impairment losses. Impairment reviews are considered on a site-by-site or individual development basis by management at each reporting date; write- downs or reversals are made to ensure that inventory is then stated at the lower of cost or net realisable value. Net realisable value is considered in the light of progress made in the planning process, feedback from local planning officers, development appraisals and other external factors that might be considered likely to influence the eventual outcome. Where it is considered that no future economic benefit will arise, costs are written off to the Statement of Comprehensive Income. Where individual parcels of land held for development are disposed of out of a larger overall development site, costs are apportioned based on an acreage allocation after taking into account the cost or net realisable value of any remaining residual land which may not form part of the overall development site or which may not be available for development. Where the Group retains obligations attached to the development site as a whole, provisions are made relating to these disposals on the same acreage allocation basis. Retirement benefit costs Payments to the defined contribution retirement benefit scheme are charged as an expense as they fall due. The cost of providing benefits under the defined benefit retirement scheme is determined using the Projected Unit Credit Method, with actuarial calculations being carried out at each reporting date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised within ‘Other comprehensive income’ within the Consolidated Statement of Comprehensive Income. The net periodic benefit cost, comprising the employer’s share of the service cost and the net interest cost, is charged to the Consolidated Statement of Comprehensive Income. The Group’s net obligations in respect of the scheme are calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. This is then discounted to present value and the fair value of the scheme’s assets is then deducted. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Share-based payments Equity-settled share-based payments to employees of the Company and its subsidiary undertakings are measured at fair value of the equity instruments at the date of grant and are expensed on a straight line basis over the vesting period. Fair value is measured by a Monte Carlo pricing model taking into account any market performance conditions and excludes the effect of non-market- based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 30. At each reporting period date, the Group estimates the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision, if any, is recognised in the Consolidated Statement of Comprehensive Income with a corresponding adjustment to equity reserves. n o i t a m r o n f I l r e d o h e r a h S 95 Henry Boot Annual Report 2015 - Back.indd 95 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Principal Accounting Policies for the year ended 31 December 2015 SAYE share options are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated recognition of the expenses that would have arisen over the remainder of the original vesting period. Details regarding the determination of the fair value of share-based transactions are set out in note 30. Tax The tax charge on the profit or loss for the year comprises the sum of tax currently payable and any deferred tax movements in the year. Tax currently payable is based on taxable profit for the year adjusted for any tax payable or repayable in respect of earlier years. Taxable profit differs from 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 items that may never be taxable or deductible. The Group’s liability for current taxation is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Corporation tax liabilities of wholly owned subsidiary companies are transferred to and paid by the Parent Company and credit is given by the Parent Company for loss relief surrendered. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in computing taxable profits. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits or gains will be available to allow all or part of the assets to be recovered. The carrying value of the Group’s investment property is assumed to be realised by sale and the deferred tax is then calculated based on the respective temporary differences and tax consequences arising from this assumption. Deferred tax is calculated at tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and deferred tax liabilities are offset where the Group has a legally enforceable right to do so and when the deferred tax assets and liabilities relate to tax levied by the same tax authority where there is an intention to settle the balances on a net basis. Share capital Ordinary share capital is classified as equity. Preference share capital is classified as equity as it is non-redeemable or is redeemable only at the Company’s option and any dividends are discretionary. Dividends on preference share capital classified as equity are recognised as distributions within equity. Financial instruments The Group retains such financial instruments as are required, together with retained earnings, in order to finance the Group’s operations. Financial assets or financial liabilities are recognised by the Group in the Statement of Financial Position only when the Group becomes a party to the contractual provisions of the instrument. The principal financial instruments are: • trade and other receivables which are recognised and carried at the lower of their original invoiced value and recoverable amount - where the time value of money is material, receivables are carried at amortised cost using the effective interest rate method (see Interest income and expense on page 98). Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote. Should an amount previously written off prove recoverable the amount written off is reversed through the Statement of Comprehensive Income to the extent that the amount written back does not exceed the amortised cost had the write-off not been recognised; • cash and cash equivalents, which comprise cash in hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value with an original maturity of three months or less; • trade and other payables which are on normal credit terms, are not interest bearing and are stated at their nominal values - where the time value of money is material, payables are carried at amortised cost using the effective interest rate method (see Interest income and expense on page 98); • borrowings - see on next page; and • derivatives - see on next page. 96 Henry Boot Annual Report 2015 - Back.indd 96 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of Comprehensive Income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Derivatives and hedging Derivative financial instruments such as interest rate swaps are occasionally entered into in order to manage interest rate risks arising from long-term debt. Such derivative instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. For the purpose of cash flow hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where such derivative transactions are executed, gains and losses on the fair value of such arrangements are taken either to reserves or to the Statement of Comprehensive Income dependent upon the nature of the instrument. If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs. When a derivative is held as an economic hedge for a period beyond twelve months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if: 1) a reliable allocation can be made; and 2) it is applied to all designated and effective hedging instruments. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation with an outflow of economic benefits and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The land development provision represents management’s best estimate of the Group’s liability to provide infrastructure and services as a result of obligations which remain with the Group following the disposal of land. Where the infrastructure and services obligations relate to developments on which land is being disposed of over a number of phases, provisions are calculated based on an acreage allocation methodology taking into account the expected timing of cash outflows to settle the obligations. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 97 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 97 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Principal Accounting Policies for the year ended 31 December 2015 The Group regularly reviews its contract obligations and whether they are considered to be onerous. In the event that the costs of meeting the obligations exceed the economic benefits expected to be received through the life of the development, a provision would be recognised based on discounted cash flows to the end of the contract, to the extent of the costs exceeding the economic benefits. The road maintenance provision represents management’s best estimate of the Group’s liability under a five-year rolling programme for the maintenance of the Group’s PFI asset. Other provisions include any liabilities where the Directors anticipate that a present obligation would result in a future outflow of resources, including legal and regulatory penalties or claims, being taken into account in the Financial Statements. Specific details of the Group’s provisions relating to land development and road maintenance can be found in note 26 on page 122. Interest income and expense Interest income and expense are recognised within ‘Finance income’ and ‘Finance costs’ in the Statement of Comprehensive Income using the effective interest rate method, except for borrowing costs relating to qualifying assets, which are capitalised as part of the cost of that asset. The Group has chosen not to capitalise borrowing costs on all qualifying assets which are measured at fair value. The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or financial liability. Dividends Dividends are only recognised as a liability in the actual period in which they are declared. Government grants Government grants are recognised at their fair value in the Statement of Financial Position, within deferred income, where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Government grants relating to revenue items are released to the Statement of Comprehensive Income and recognised within cost of sales over the period necessary to match the grant on a systematic basis to the costs that they are intended to compensate. Government grants relating to capital items are released against the carrying value of the grant supported assets when the completion conditions of those assets are met. Judgements and key assumptions The critical judgements in applying the Group’s Accounting Policies and that have the most significant effect on the amounts recognised in the Financial Statements, apart from those involving estimations (see below), relate to revenue recognition, construction contracts and inventories. All of these are referred to on pages 93 and 95 and each is interpreted by management in the light of IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and IAS 2 ‘Inventories’. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, and that could have a material adjustment to the carrying amounts of assets and liabilities over the ensuing year, are: • retirement benefit costs – the estimates used in retirement benefit costs are arrived at in conjunction with the scheme’s actuary and advisers, those having the most significant impact being the liabilities discount rate, RPI and mortality rates. Note 27 to the Financial Statements gives details of the sensitivity surrounding these estimates; • fair value of investment properties and of Group occupied properties – the fair value of completed investment property and of Group occupied property is determined by independent valuation experts using the yield method valuation technique. The fair value of investment property under construction has been determined using the residual method by the Directors of the Company. The most significant estimates used in these valuations are rental values, yields and costs to complete. Notes 12 and 13 to the Financial Statements give details of the valuation methods used and the sensitivity surrounding these estimates; and • provisions – amounts recognised in relation to provisions are based on assumptions in respect of cost estimates, the timing of cash flows and discount rates used. Note 26 to the Financial Statements gives details of the sensitivity surrounding these estimates. 98 Henry Boot Annual Report 2015 - Back.indd 98 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Impact of accounting standards and interpretations At the date of authorisation of these Financial Statements, the following standards, amendments and interpretations to existing standards are effective or mandatory for the first time for the accounting year ended 31 December 2015: Annual improvements (issued 2013) Annual improvements (issued 2013) IAS 19 (amended 2013) ‘Annual Improvements to IFRSs 2010–2012 Cycle’ ‘Annual Improvements to IFRSs 2011–2013 Cycle’ ‘Defined Benefit Plans: Employee Contributions’ # Mandatory for annual periods beginning on or after 1 February 2015. The adoption of these standards and interpretations has not had a significant impact on the Group. The Group did not early adopt any standard or interpretation not yet mandatory. Effective from 1 July 2014# 1 July 2014 1 July 2014# At the date of the authorisation of these Financial Statements, the following standards, amendments and interpretations were in issue but not yet effective: Annual improvements (issued 2014) IAS 1 (amended 2014) IAS 16 and IAS 38 (amended 2014) IAS 16 and IAS 41 (amended 2014) IAS 27 (amended 2014) IFRS 9 (issued 2014) IFRS 10, IFRS 12 and IAS 28 (amended 2014) IFRS 10 and IAS 28 (amended 2014) IFRS 11 (amended 2014) IFRS 14 (issued 2014) IFRS 15 (issued 2014) IFRS 16 (issued 2016) * Not yet endorsed by the EU. ‘Annual Improvements to IFRSs 2012–2014 Cycle’ ‘Disclosure Initiative’ ‘Clarification of Acceptable Methods of Depreciation and Amortisation’ ‘Bearer Plants’ ‘Equity Method in Separate Financial Statements’ ‘Financial Instruments’ ‘Investment Entities: Applying the Consolidation Exception’ ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’ ‘Accounting for Acquisitions of Interests in Joint Operations’ ‘Regulatory Deferral Accounts’ ‘Revenue from Contracts with Customers’ ‘Leases’ Effective from 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2018* 1 January 2016* Postponed 1 January 2016 1 January 2016* 1 January 2018* 1 January 2019* A review of the impact of these standards, amendments and interpretations been conducted and the Directors do not believe that they will give rise to any significant financial impact. In 2015, the Group did not early adopt any new or amended standards and does not plan to early adopt any of the standards issued but not yet effective. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 99 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:46 n o i t a m r o n f I l r e d o h e r a h S 99 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements for the year ended 31 December 2015 1. Revenue Analysis of the Group’s revenue is as follows: Activity in the United Kingdom Revenue from construction contracts Property development Land development PFI concession income Plant and equipment hire Investment property rental income Other rental income Other income 2015 £’000 60,763 37,079 46,572 11,126 12,292 8,216 138 176,186 36 176,222 2014 £’000 65,819 11,736 38,894 11,306 11,281 8,026 138 147,200 283 147,483 Contingent rents recognised as income during the year amount to £449,000 (2014: £498,000). Other income relates to payments received under a debt agreement with the Export Credit Guarantee Department arising from a long-completed contract that was not paid for at the time. 2. Segment information For the purpose of the Board making strategic decisions, the Group is currently organised into three operating segments: Property Investment and Development; Land Development; and Construction. Group overheads are not a reportable segment; however, information about them is considered by the Board in conjunction with the reportable segments. Operations are carried out entirely within the United Kingdom. Inter-segment sales are charged at prevailing market prices. Revenue for the year, and the prior year, was derived from a large number of customers and no single customer or group under common control contributed more than 10% of the Group’s revenues. The accounting policies of the reportable segments are the same as the Group’s Accounting Policies. The Group’s Principal Accounting Policies are described on pages 92 to 99. Segment profit represents the profit earned by each segment before tax and is consistent with the measure reported to the Group’s Board for the purpose of resource allocation and assessment of segment performance. Revenues from external sales are detailed in note 1. 100 Henry Boot Annual Report 2015 - Back.indd 100 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:47 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 2. Segment information continued 2015 Revenue External sales Inter-segment sales Total revenue Operating profit/(loss) Finance income Finance costs Share of profit of joint ventures Profit/(loss) before tax Tax Profit/(loss) for the year Other information Capital additions Depreciation Impairment Amortisation Decrease in fair value of investment properties Provisions Pension scheme credit Revenue External sales Inter-segment sales Total revenue Operating profit/(loss) Finance income Finance costs Share of profit of joint ventures Profit/(loss) before tax Tax Profit/(loss) for the year Other information Capital additions Depreciation Impairment Amortisation Increase in fair value of investment properties Provisions Pension scheme credit Property investment and development £’000 49,939 320 50,259 7,346 2,135 (6,916) 923 3,488 (1,583) 1,905 13,625 183 (10) 52 2,009 — — Property investment and development £’000 25,807 306 26,113 8,740 1,487 (6,800) 1,187 4,614 254 4,868 16,083 129 — 94 (1,950) — — Land development £’000 46,706 — 46,706 20,039 666 (1,637) — 19,068 (3,864) 15,204 Construction £’000 79,541 11,076 90,617 8,930 1,394 (422) — 9,902 (2,108) 7,794 Group overheads £’000 — 643 643 (4,649) 18,168 (3,391) — 10,128 98 10,226 Eliminations £’000 — (12,039) (12,039) — (20,925) 10,749 — (10,176) (3) (10,179) 13 13 — — — 1,785 — 4,871 2,842 203 1,193 — 1,033 — 2014 1,032 599 — — — — (2,579) — — — — — — — Land development £’000 39,032 — 39,032 14,100 511 (1,518) — 13,093 (2,784) 10,309 Construction £’000 82,361 5,966 88,327 9,232 1,419 (536) — 10,115 (2,122) 7,993 18 16 — — — 729 — 4,274 2,583 203 1,155 — 882 — Group overheads £’000 — 681 681 (4,111) 15,808 (3,382) — 8,315 (158) 8,157 745 571 — — — — (2,375) Eliminations £’000 — (6,953) (6,953) — (18,511) 10,686 — (7,825) — (7,825) — — — — — — — Total £’000 176,186 — 176,186 31,666 1,438 (1,617) 923 32,410 (7,460) 24,950 19,541 3,637 193 1,245 2,009 2,818 (2,579) Total £’000 147,200 — 147,200 27,961 714 (1,550) 1,187 28,312 (4,810) 23,502 21,120 3,299 203 1,249 (1,950) 1,611 (2,375) i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 101 24415.02 12 April 2016 1:38 PM Proof 6 101 12/04/2016 13:39:47 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 2. Segment information continued Segment assets Property Investment and Development Land Development Construction Group overheads Unallocated assets Deferred tax assets Cash and cash equivalents Total assets Segment liabilities Property Investment and Development Land Development Construction Group overheads Unallocated liabilities Current tax liabilities Current borrowings Non-current borrowings Retirement benefit obligations Total liabilities Total net assets 3. Operating profit Operating profit has been arrived at after charging/(crediting): Depreciation of property, plant and equipment Impairment of goodwill included in administrative expenses Impairment of land and buildings included in administrative expenses Amortisation of PFI asset included in cost of sales Amortisation of capitalised letting fees Gain on sale of assets held for sale Impairment losses recognised on trade receivables included in cost of sales Impairment losses recognised on trade receivables included in administrative expenses Property rentals under operating leases Decrease/(increase) in fair value of investment property Cost of inventories recognised as expense Employee costs Amounts payable to Mazars LLP by Road Link (A69) Limited in respect of audit services Amounts payable to Deloitte LLP by Road Link (A69) Limited in respect of audit services Profit on sale of property, plant and equipment 2015 £’000 193,445 136,491 27,013 2,789 359,738 4,323 12,041 376,102 19,334 20,865 37,217 2,951 80,367 3,636 42,836 8,137 19,577 154,553 221,549 2015 £’000 3,637 203 (10) 1,193 52 (485) 112 6 276 2,009 50,332 25,208 5 — (296) 2014 £’000 190,921 117,599 30,918 1,926 341,364 7,123 4,347 352,834 14,526 18,955 45,487 2,510 81,478 1,976 31,969 8,779 28,158 152,360 200,474 2014 £’000 3,299 203 — 1,155 94 (122) 33 30 239 (1,950) 27,366 24,959 — 9 (459) 102 Henry Boot Annual Report 2015 - Back.indd 102 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:47 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 3. Operating profit continued The remuneration paid to PricewaterhouseCoopers LLP, the Company’s external auditors, was as follows: Fees payable for the audit of the Company’s annual Financial Statements and Consolidated Financial Statements Fees payable to the auditors and their associates for other services: – audit of the Company’s subsidiaries pursuant to legislation Total audit fees Tax compliance services Tax advisory services Other services Total non-audit fees Total fees 2015 £’000 2014 £’000 90 101 191 49 20 10 79 270 86 88 174 43 21 37 101 275 In addition, fees of £8,800 (2014: £8,800) were paid to BDO LLP in their capacity as auditors of The Henry Boot Staff Pension and Life Assurance Scheme. 4. Employee costs Wages and salaries Share-based payment expense Social security costs Defined benefit pension costs (see note 27) Defined contribution pension costs (see note 27) Other pension costs The average monthly number of employees during the year, including Executive Directors, was: Property Investment and Development Land Development Construction Plant hire Group overheads 5. Finance income Interest on bank deposits Interest on other loans and receivables Fair value adjustments on trade receivables 2015 £’000 18,554 492 2,122 2,697 919 73 24,857 2015 Number 59 33 175 115 52 434 2015 £’000 78 1,215 145 1,438 2014 £’000 18,855 423 2,136 2,433 694 86 24,627 2014 Number 49 31 214 113 52 459 2014 £’000 21 499 194 714 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 103 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 103 12/04/2016 13:39:47 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 6. Finance costs Interest on bank loans and overdrafts Interest on other loans and payables Fair value adjustments on trade payables Fair value adjustments on borrowings Provisions: unwinding of discount (note 26) 7. Tax Current tax: UK corporation tax on profits for the year Adjustments in respect of earlier years Total current tax Deferred tax (note 17): Origination and reversal of temporary differences Adjustments in respect of earlier years Adjustments in respect of change in UK corporation tax rate Total deferred tax Total tax 2015 £’000 1,087 155 310 59 6 1,617 2015 £’000 5,721 (127) 5,594 1,512 — 354 1,866 7,460 2014 £’000 1,127 65 288 64 6 1,550 2014 £’000 4,607 (160) 4,447 623 (260) — 363 4,810 Corporation tax is calculated at 20.25% (2014: 21.49%) of the estimated assessable profit for the year. As a result of the change in the UK corporation tax rate from 20% to 19% effective from 1 April 2017 and from 19% to 18% effective from 1 April 2020, both of which were substantively enacted on 26 October 2015, deferred tax balances at the year end have been measured at 20% and 18% (2014: 20%) being the rate at which timing differences are expected to reverse. Subsequently, a further reduction to the UK corporation tax rate has been announced reducing the rate to 17% from 1 April 2020. The change had not been substantively enacted at the Statement of Financial Position date and, therefore, is not recognised in these Financial Statements. The impact of this change on the deferred tax position of the Group is not expected to be material. The charge for the year can be reconciled to the profit per the Statement of Comprehensive Income as follows: Profit before tax Tax at the UK corporation tax rate Effects of: Permanent differences Short-term timing differences Tax losses for which no deferred tax asset is recognised Adjustment in respect of earlier years Adjustment in respect of change in UK corporation tax rate Joint venture results reported net of tax Effective tax rate 2015 £’000 32,410 2015 % 20.25 (0.22) — 2.86 (0.39) 1.09 (0.58) 23.01 In addition to the amount charged to profit for the year, the following amounts relating to tax have been recognised in other comprehensive income: Deferred tax: – property revaluations – actuarial (gain)/loss – cash flow hedge Total tax recognised in other comprehensive income 104 2015 £’000 509 (1,439) (4) (934) 2014 £’000 28,312 2014 % 21.49 (2.42) (0.61) — (0.57) — (0.90) 16.99 2014 £’000 — 2,092 (17) 2,075 Henry Boot Annual Report 2015 - Back.indd 104 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:47 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 8. Results of Parent Company As permitted by Section 408 of the Companies Act 2006, the Statement of Comprehensive Income of the Parent Company is not presented as part of these Financial Statements. The profit dealt with in the Financial Statements of the Parent Company and approved by the Board on 22 April 2016 is £7,357,000 (2014: £8,541,000) and includes dividends received from subsidiaries of £10,099,000 (2014: £7,800,000). 9. Earnings per ordinary share The calculation of the basic and diluted earnings per share is based on the following information: Profit for the year Non-controlling interests Preference dividend Number of shares Weighted average number of shares in issue Less shares held by the ESOP on which dividends have been waived Weighted average number for basic earnings per share Adjustment for the effects of dilutive potential ordinary shares Weighted average number for diluted earnings per share 10. Dividends Amounts recognised as distributions to equity holders in year: Preference dividend on cumulative preference shares Final dividend for the year ended 31 December 2014 of 3.50p per share (2013: 3.15p) Interim dividend for the year ended 31 December 2015 of 2.30p per share (2014: 2.10p) 2015 £’000 24,950 (1,909) (21) 23,020 2014 £’000 23,502 (2,333) (21) 21,148 2015 132,009,797 (177,320) 131,832,477 1,231,952 133,064,429 2014 131,225,343 (283,175) 130,942,168 1,723,493 132,665,661 2015 £’000 21 4,610 3,033 7,664 2014 £’000 21 4,115 2,750 6,886 The proposed final dividend for the year ended 31 December 2015 of 3.80p per share (2014: 3.50p) makes a total dividend for the year of 6.10p (2014: 5.60p). The proposed final dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these Financial Statements. The total estimated dividend to be paid is £5,011,000. Notice has been received from Moore Street Securities Limited waiving its right as corporate trustee for the Employee Share Ownership Plan (ESOP) to receive all dividends in respect of this and the previous financial year. Dividends paid to non-controlling interests during the year amounted to £2,020,000 (2014: £1,674,000). i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 105 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 105 12/04/2016 13:39:48 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 11. Intangible assets Cost At 1 January 2014 Additions at cost Disposals At 31 December 2014 Additions at cost At 31 December 2015 Accumulated impairment losses and amortisation At 1 January 2014 Amortisation Impairment losses for the year Eliminated on disposals At 31 December 2014 Amortisation Impairment losses for the year At 31 December 2015 Carrying amount At 31 December 2015 At 31 December 2014 At 1 January 2014 Goodwill £’000 4,070 — — 4,070 — 4,070 1,900 — 203 — 2,103 — 203 2,306 1,764 1,967 2,170 PFI asset £’000 16,047 97 (10) 16,134 420 16,554 10,223 1,155 — (10) 11,368 1,193 — 12,561 3,993 4,766 5,824 Total £’000 20,117 97 (10) 20,204 420 20,624 12,123 1,155 203 (10) 13,471 1,193 203 14,867 5,757 6,733 7,994 The Group’s investment in Road Link (A69) Holdings Limited is 61.2%. The goodwill arising on the acquisition represents the excess of consideration over net assets acquired and is subject to an impairment test at the reporting date. This company’s subsidiary, Road Link (A69) Limited, operates a PFI concession which comprises managing and maintaining the A69 Carlisle to Newcastle trunk road. The company receives payment from the Highways Agency based on the number and type of vehicles using the road. The concession lasts for a period of 30 years and has a further ten years to run, at the end of which the road reverts to the Highways Agency. Whilst the impairment test demonstrates significant headroom, an impairment charge of £203,000 (2014: £203,000) has been recognised during the year to reflect the fact that the PFI concession will revert to the Highways Agency at the end of the 30-year period, at which point no goodwill should remain. There were no significant changes to these arrangements during the year. Amortisation of the PFI asset is recognised within cost of sales in the Statement of Comprehensive Income. Although the Companies Act 2006 Section 390(5) requires a coterminous year end, the subsidiary company’s accounting reference date is 31 March in order to align with the Highways Agency’s financial year end and hence interim Financial Statements are prepared for incorporation into these Consolidated Financial Statements. Bank borrowings are secured on the PFI asset for the value of £nil (2014: £581,000); see note 24. 106 Henry Boot Annual Report 2015 - Back.indd 106 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:48 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 12. Property, plant and equipment Group Cost or fair value At 1 January 2014 Additions at cost Disposals At 31 December 2014 Additions at cost Disposals Increase in fair value in year At 31 December 2015 Being: Cost Fair value at 31 December 2015 Accumulated depreciation and impairment At 1 January 2014 Charge for year Eliminated on disposals At 31 December 2014 Charge for year Eliminated on disposals Eliminated on revaluation At 31 December 2015 Carrying amount At 31 December 2015 At 31 December 2014 At 1 January 2014 Land and buildings £’000 Equipment held for hire £’000 Vehicles £’000 Office equipment £’000 7,187 — — 7,187 — — 100 7,287 — 7,287 7,287 412 — — 412 — — (10) 402 6,885 6,775 6,775 25,918 3,670 (2,098) 27,490 4,057 (1,011) — 30,536 30,536 — 30,536 17,945 2,360 (1,882) 18,423 2,562 (875) — 20,110 10,426 9,067 7,973 4,601 1,018 (725) 4,894 1,203 (1,141) — 4,956 4,956 — 4,956 2,495 691 (607) 2,579 712 (914) — 2,377 2,579 2,315 2,106 2,192 686 (328) 2,550 528 (1) — 3,077 3,077 — 3,077 1,692 248 (319) 1,621 363 (1) — 1,983 1,094 929 500 Total £’000 39,898 5,374 (3,151) 42,121 5,788 (2,153) 100 45,856 38,569 7,287 45,856 22,544 3,299 (2,808) 23,035 3,637 (1,790) (10) 24,872 20,984 19,086 17,354 At 31 December 2015, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £3,521,000 (2014: £2,713,000). Fair value measurements of the Group’s land and buildings Land and buildings have been revalued at 31 December 2015 by Jones Lang LaSalle Limited in accordance with the Practice Statements contained in the RICS Appraisal and Valuation Standards on the basis of market value at £6,885,000 (2014: £6,775,000). Jones Lang LaSalle Limited is a professional valuer who holds recognised and professional qualifications and has recent experience in the location and category of the land and buildings being valued. The valuation conforms to International Valuation Standards and was based on recent market transactions with similar characteristics and location using the yield method valuation technique. The yield method of valuation involves applying market- derived capitalisation yields, and the actual or market-derived future income streams where appropriate, with adjustments for letting voids or rent-free periods as applicable to each item of land and buildings. On the historical cost basis, the land and buildings would have been included at a carrying amount of £2,869,000 (2014: £2,859,000). i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 107 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 107 12/04/2016 13:39:48 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 12. Property, plant and equipment continued The following table provides an analysis of the fair values of land and buildings by the degree to which the fair value is observable: Freehold land Buildings Total fair value Level 1 £’000 — — — Level 2 £’000 — — — Level 3 £’000 60 6,825 6,885 2015 £’000 60 6,825 6,885 2014 £’000 60 6,715 6,775 Increase/ (decrease) in fair value in year — 110 110 The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that causes the transfer. The Directors determine the applicable hierarchy that land and buildings fall into by assessing the level of comparable evidence in the market which that asset falls into and the inherent level of activity. As at the reporting date and throughout the year, all land and buildings were determined to fall into Level 3 and so there were no transfers between hierarchies. Explanation of the fair value hierarchy: • Level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 – fair value measurements are those derived from the use of a model with inputs (other than quoted prices included in Level 1) that are observable from directly or indirectly observable market data; and • Level 3 – fair value measurements are those derived from use of a model with inputs that are not based on observable market data. Information about fair value measurements using significant unobservable inputs (Level 3): Class Valuation technique Rental value per sq ft (£) Yield % – weighted average – low – high – weighted average – low – high Buildings Yield 5.72 2.34 12.51 8.43 7.02 10.31 The sensitivity analysis to significant changes in unobservable inputs relating to fair value measurements (Level 3) are set out below: Yield – improvement by 0.5% Rental value per sq ft – increase by £1 average The sensitivities have been selected by management on the basis that they consider these measures to be a reasonable expectation of likely changes to the significant unobservable inputs in the next twelve months. Impact on valuation £’000 Buildings 398 1,115 108 Henry Boot Annual Report 2015 - Back.indd 108 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:48 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 12. Property, plant and equipment continued Parent Company Cost At 1 January 2014 Additions Disposals At 31 December 2014 Additions Disposals At 31 December 2015 Depreciation At 1 January 2014 Charge for year Disposals At 31 December 2014 Charge for year Disposals At 31 December 2015 Carrying amount At 31 December 2015 At 31 December 2014 At 1 January 2014 Vehicles £’000 Office equipment £’000 Total £’000 24 — (24) — — — — 24 — (24) — — — — — — — 725 96 (139) 682 107 — 789 631 50 (136) 545 76 — 621 168 137 94 749 96 (163) 682 107 — 789 655 50 (160) 545 76 — 621 168 137 94 13. Investment properties Fair value measurements recognised in the Statement of Financial Position The following table provides an analysis of the fair values of investment properties recognised in the Statement of Financial Position by the degree to which the fair value is observable: Completed investment property Industrial Leisure Mixed-use Residential Retail Investment property under construction Industrial Land Leisure Office Retail Total fair value Level 1 £’000 Level 2 £’000 Level 3 £’000 — — — — — — — — — — — — — — — — — — — — — — — — — — 12,770 7,704 58,993 4,313 19,914 103,694 518 2,112 — 4,500 14,487 21,617 125,311 Increase/ (decrease) in fair value in year (1,243) 428 2,116 422 2,854 4,577 (8,826) (4,136) (1,833) 217 (6,248) (20,826) (16,249) 2014 £’000 14,013 7,276 56,877 3,891 17,060 99,117 9,344 6,248 1,833 4,283 20,735 42,443 141,560 2015 £’000 12,770 7,704 58,993 4,313 19,914 103,694 518 2,112 — 4,500 14,487 21,617 125,311 The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that causes the transfer. The Directors determine the applicable hierarchy that a property falls into by assessing the level of comparable evidence in the market which that asset falls into and the inherent level of activity. As at the reporting date and throughout the year, all property was determined to fall into Level 3 and so there were no transfers between hierarchies. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 109 24415.02 12 April 2016 1:38 PM Proof 6 109 12/04/2016 13:39:48 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 13. Investment properties continued Explanation of the fair value hierarchy: • Level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 – fair value measurements are those derived from the use of a model with inputs (other than quoted prices included in Level 1) that are observable from directly or indirectly observable market data; and • Level 3 – fair value measurements are those derived from use of a model with inputs that are not based on observable market data. Investment properties have been split into different classes to show the composition of the investment property portfolio of the Group as at the reporting date. Management has determined that aggregation of the results would be most appropriate based on the type of use that each property falls into, which is described below: Class Industrial Leisure Mixed-use Residential Retail Land Office Includes manufacturing and warehousing, which are usually similar in dimensions and construction method. Includes restaurants and gymnasiums or properties in which the main activity is the provision of entertainment and leisure facilities to the public. Includes schemes where there are different types of uses contained within one physical asset, the most usual combination being office and leisure. Includes dwellings under assured tenancies. Includes any property involved in the sale of goods. Includes land held for future capital appreciation as an investment. Includes buildings occupied for business activities not involving storage or processing of physical goods. Investment properties under construction are categorised based on the future anticipated highest and best use of the property. Completed investment property Class Fair value hierarchy Fair value At 1 January Subsequent expenditure on investment property Capitalised letting fees Amortisation of capitalised letting fees Disposals Transfers to assets held for sale Transfer to inventories Transfers from investment property under construction Increase/(decrease) in fair value in year At 31 December Adjustment in respect of tenant incentives Adjustment in respect of tax benefits Market value at 31 December Industrial Level 3 £’000 Leisure Level 3 £’000 Mixed-use Level 3 £’000 Residential Level 3 £’000 14,013 113 8 (1) — (1,351) — — (12) 12,770 — — 12,770 7,276 43 2 (7) — — — — 390 7,704 276 — 7,980 56,877 670 55 (26) (1,871) — — 5,515 (2,227) 58,993 1,762 — 60,755 3,891 — — — (8) — (504) — 934 4,313 — — 4,313 Retail Level 3 £’000 17,060 776 26 (11) — — — 1,777 286 19,914 533 — 20,447 2015 £’000 2014 £’000 99,117 1,602 91 (45) (1,879) (1,351) (504) 7,292 (629) 103,694 2,571 — 106,265 90,527 5,107 118 (76) (1,507) (260) (998) 1,404 4,802 99,117 2,496 (642) 100,971 110 Henry Boot Annual Report 2015 - Back.indd 110 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:49 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 13. Investment properties continued There is no actively traded market for the Group’s commercial property and as such the adopted valuation is completed using the professional judgement of the Group’s professional valuers, who use the yield method to determine fair value. The calculation of the capital value of a property under this method uses a yield to multiple against the rental income stream with due allowance for a fixed assumed purchasers cost. The primary variables of the yield method are thus: the yield, which is based on historic yields for properties that are similar but to which there may be adjustment to take into account factors such as geographical location and lease terms; and the contracted rent, which is based on contracted rents that exist at the balance sheet date, but may also include a provision for rents that may be achieved in the future after account for a period of vacancy, such rents being based on rental income terms that exist in similar properties, adjusted for geographic location and lease terms. With the exception of the residential class, completed investment property has been revalued at 31 December 2015 by Jones Lang LaSalle Limited in accordance with the Practice Statements contained in the RICS Appraisal and Valuation Standards on the basis of market value at £101,952,000 (2014: £97,080,000). Jones Lang LaSalle Limited is a professional valuer who holds recognised and professional qualifications and has recent experience in the location and category of the investment property being valued. The valuation conforms to International Valuation Standards and was based on recent market transactions with similar characteristics and location using the yield method valuation technique. The yield method of valuation involves applying market- derived capitalisation yields, and the actual or market-derived future income streams where appropriate, with adjustments for letting voids or rent-free periods as applicable to each property. For all investment properties, their current use equates to the highest and best use. Residential properties are valued using recent comparable sales transactions with a significant unobservable input being the discount used, to reflect the lower value achieved where properties are held under an assured tenancy, that typically earn a low market level of rent. The discount applied recognises that the value is higher where the house is offered with the benefit of vacant possession at the end of the assured tenancy. The fair value of the residential class at 31 December 2015 has been determined by the Directors of the Company at £4,313,000 (2014: £3,891,000). The fair value takes into account market evidence based on recent comparable sale transactions adjusted to take into account the tenanted nature of the properties. Information about fair value measurements using significant unobservable inputs (Level 3): Class Industrial Leisure Mixed-use Residential Retail 2015 Valuation technique Rental value per sq ft (£) Yield % – weighted average – low – high – weighted average – low – high % discount applied to houses held under assured tenancies Yield 4.53 4.53 4.53 6.60 6.60 6.60 — Yield 16.17 2.50 40.86 5.89 5.22 9.82 — Yield 13.07 1.83 58.39 7.93 6.00 18.71 — 2014 Sales comparison — — — — — — 25.00 Class Industrial Leisure Mixed-use Residential Valuation technique Rental value per sq ft (£) Yield % – weighted average – low – high – weighted average – low – high % discount applied to houses held under assured tenancies Yield 4.58 4.24 5.25 6.73 6.60 9.00 — Yield 21.42 4.04 40.86 6.81 5.67 15.70 — Yield 13.49 1.50 53.05 8.23 5.04 15.00 — Sales comparison — — — — — — 25.00 There is considered to be no inter-relationship between observable and unobservable inputs. Yield 7.70 2.47 28.50 5.44 4.36 11.51 — Retail Yield 11.13 2.47 26.78 8.21 4.40 24.25 — i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 111 24415.02 12 April 2016 1:38 PM Proof 6 111 12/04/2016 13:39:49 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 13. Investment properties continued The sensitivity analysis to significant changes in unobservable inputs relating to fair value measurements (Level 3) are set out below: Yield – improvement by 0.5% Rental value per sq ft – increase by £1 average Tenancy discount – increase by 1% Yield – improvement by 0.5% Rental value per sq ft – increase by £1 average Tenancy discount – increase by 1% Industrial 898 2,820 — Industrial 1,125 3,059 — Impact on valuation 2015 £’000 Leisure Mixed-use Residential 979 768 — 3,556 4,475 — — — 50 Impact on valuation 2014 £’000 Leisure Mixed-use Residential 608 309 — 3,483 3,982 — — — 44 Retail 1,855 2,520 — Retail 1,520 1,476 — The sensitivities have been selected by management on the basis that it considers these measures to be a reasonable expectation of likely changes to the significant unobservable inputs in the next twelve months. The property rental income earned by the Group from its occupied investment property, all of which is leased out under operating leases, amounted to £8,216,000 (2014: £8,026,000). Direct operating expenses arising on investment property generating rental income in the year amounted to £540,000 (2014: £327,000). Direct operating expenses arising on the investment property which did not generate rental income during the year amounted to £1,023,000 (2014: £1,101,000). At 31 December 2015, the Group had entered into contractual commitments for the acquisition and repair of investment property amounting to £776,000 (2014: £11,167,000). Investment property under construction Class Fair value hierarchy Industrial Level 3 £’000 Land Level 3 £’000 6,248 184 — — (1,944) — (2,376) Leisure Level 3 £’000 1,833 1,711 — — — — — Office Level 3 £’000 Retail Level 3 £’000 2015 £’000 2014 £’000 4,283 20,735 42,443 41,867 1,245 — — — — — 2,441 81 (2) (408) — (544) 11,731 137 (7) (4,929) (11,812) (7,274) 10,351 73 (18) (2,493) — (3,081) — (3,940) (1,575) (1,777) (7,292) (1,405) — 2,112 — — 518 2,112 396 — — — — 547 4,500 — — (6,039) 14,487 (1,380) 21,617 (2,851) 42,443 — — — — — — 4,500 14,487 21,617 42,443 9,344 6,150 56 (5) (2,577) (11,812) (4,354) — 3,716 518 — — Fair value At 1 January Subsequent expenditure on investment property Capitalised letting fees Amortisation of capitalised letting fees Disposals Transfer to assets held for sale Transfer to inventories Transfers to completed investment property (Decrease)/increase in fair value in year At 31 December Adjustment in respect of tenant incentives Adjustment in respect of tax benefits Market value at 31 December 112 Henry Boot Annual Report 2015 - Back.indd 112 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:49 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 13. Investment properties continued Information about fair value measurements using significant unobservable inputs (Level 3): Class Valuation technique Rental value per sq ft (£) Yield % Costs to complete per sq ft (£) Land value per acre (£’000) Class Valuation technique Rental value per sq ft (£) Yield % Costs to complete per sq ft (£) Land value per acre (£’000) – weighted average – low – high – weighted average – low – high – weighted average – low – high – weighted average – low – high – weighted average – low – high – weighted average – low – high – weighted average – low – high – weighted average – low – high Industrial Residual — — — — — — Land Sales comparison — — — — — — — — — 120 120 120 Industrial Residual 4.54 4.25 6.30 7.17 6.60 7.50 41.76 34.24 70.99 — — — 0.79 0.79 0.79 201 102 396 Land Sales comparison — — — — — — 3.17 0.78 5.23 117 24 971 2015 Leisure Office Retail Residual — — — — — — — — — — — — 2014 Residual 26.00 26.00 26.00 6.25 6.25 6.25 216.65 216.65 216.65 — — — Residual 14.55 10.00 33.65 5.90 4.65 7.49 154.82 64.69 225.76 — — — Leisure Office Retail Residual 8.47 8.47 8.47 5.50 5.25 5.75 70.57 70.57 70.57 — — — Residual 25.00 25.00 25.00 6.25 6.00 6.50 216.15 216.15 216.15 — — — Residual 15.79 9.09 33.65 5.99 4.65 7.00 161.98 83.97 225.76 — — — i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 113 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 113 12/04/2016 13:39:49 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 13. Investment properties continued The sensitivity analysis to significant changes in unobservable inputs relating to fair value measurements (Level 3) are set out below: Yield – improvement by 0.5% Rental value per sq ft – increase by £1 average Costs to complete – increase by 1% Land value per acre – increase by 5% Yield – improvement by 0.5% Rental value per sq ft – increase by £1 average Costs to complete – increase by 1% Land value per acre – increase by 5% Impact on valuation 2015 £’000 Industrial Land Leisure — — — 26 Industrial 2,385 9,959 872 — — — 1 105 — — — — Impact on valuation 2014 £’000 Land — — 10 424 Leisure 265 339 28 — Office 1,026 454 30 — Office 1,041 479 32 — Retail 5,932 4,041 313 — Retail 5,573 2,912 371 — Investment properties under construction are developments which have been valued at 31 December 2015 at fair value by the Directors of the Company using the residual method at £21,617,000 (2014: £42,443,000). The residual method of valuation involves estimating the gross development value of the property using market-derived capitalisation yields and market-derived future income streams. From this gross development value the remaining gross development costs to be incurred are deducted, using market-derived data cost estimates or the actual known costs and including cost contingencies for construction risk as appropriate. In addition a deduction for the anticipated development profits yet to be earned is made, taking into account the progress of the development to date in line with key milestones. 14. Investments Parent Company – shares in Group undertakings Cost At 1 January 2014 Additions At 31 December 2014 and 2015 Fair value adjustments At 1 January 2014 Reversal of provisions for losses At 31 December 2014 Provisions for losses At 31 December 2015 Carrying amount At 31 December 2015 At 1 January 2015 At 1 January 2014 Total £’000 35,772 — 35,772 (32,403) 440 (31,963) (788) (32,751) 3,021 3,809 3,369 The original cost of shares has been reduced by provisions for losses where necessary and enhanced where the Directors have considered it appropriate to reflect in the valuation increases of a permanent nature in the underlying net asset values of subsidiary companies. Such enhancements were £1,115,000 in 1975 and £1,135,000 in 1989. Amounts due from and to subsidiary companies are listed in notes 16 and 21 and details of all subsidiary companies are listed in note 35. All trading subsidiaries operate in the United Kingdom and are wholly owned, with the exception of: • Road Link (A69) Holdings Limited which is 61.2% owned by Henry Boot Construction Limited; • Capitol Park Property Services Limited which is 5% owned by, and under board control of, Henry Boot Developments Limited; • Waterloo Court Management Company Limited which is 17% owned by, and under board control of, Henry Boot Developments Limited; • Stonebridge Projects Limited which is 50% owned by, and under board control of, Henry Boot Land Holdings Limited; and • Stonebridge Offices Limited which is indirectly 50% owned by, and under board control of, Henry Boot Land Holdings Limited. They are all incorporated in the United Kingdom. All subsidiary companies have only one class of ordinary issued share capital. 114 Henry Boot Annual Report 2015 - Back.indd 114 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:50 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 15. Investment in joint ventures and associates Group Cost At 1 January Share of profit for the year Additions At 31 December 2015 Joint ventures £’000 Associates £’000 1,367 923 — 2,290 — — 1,500 1,500 Joint ventures £’000 180 1,187 — 1,367 2014 Associates £’000 — — — — Total £’000 1,367 923 1,500 3,790 The Group’s share of its joint ventures’ and associates aggregated assets, liabilities and results are as follows: Investment property Current assets Total assets Current liabilities Non-current liabilities Net investment Revenue Administration and other expenses Increase in fair value of investment properties Operating profit Finance (costs)/income Profit before tax Tax Share of profits after tax Joint ventures £’000 5,884 654 6,538 (948) (3,300) 2,290 Joint ventures £’000 458 (175) 690 973 (50) 923 — 923 2015 Associates £’000 — 1,500 1,500 — — 1,500 2015 Associates £’000 — — — — — — — — Joint ventures £’000 5,348 348 5,696 (249) (4,080) 1,367 Joint ventures £’000 485 (320) 1,002 1,167 35 1,202 (15) 1,187 2014 Associates £’000 — — — — — — 2014 Associates £’000 — — — — — — — — Total £’000 5,884 2,154 8,038 (948) (3,300) 3,790 Total £’000 458 (175) 690 973 (50) 923 — 923 Details of the Group’s investments in joint ventures and associates are listed in note 35. Total £’000 180 1,187 — 1,367 Total £’000 5,348 348 5,696 (249) (4,080) 1,367 Total £’000 485 (320) 1,002 1,167 35 1,202 (15) 1,187 16. Trade and other receivables Trade receivables Prepayments Amounts owed by related companies Amounts owed by Group undertakings Due within one year Due after more than one year Group Parent Company 2015 £’000 50,270 12,326 2,359 — 64,955 54,448 10,507 64,955 2014 £’000 42,135 4,606 8,161 — 54,902 50,065 4,837 54,902 2015 £’000 73 672 — 196,966 197,711 197,711 — 197,711 2014 £’000 177 159 — 193,866 194,202 194,202 — 194,202 Included in the Group’s trade receivable balance are receivables with a carrying amount of £4.3m (2014: £4.0m) which are past due at the reporting date and for which the Group has not provided, as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 115 24415.02 12 April 2016 1:38 PM Proof 6 115 12/04/2016 13:39:50 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 16. Trade and other receivables continued Ageing of past due but not impaired trade receivables 30–60 days 60–90 days 90–120 days 120+ days Movement in the allowance for doubtful receivables At 1 January Impairment losses recognised Amounts written off as uncollectable Amounts recovered during the year At 31 December 2015 £’000 3,337 693 130 164 4,324 2015 £’000 235 118 (17) (33) 303 2014 £’000 2,889 576 257 253 3,975 2014 £’000 299 63 (94) (33) 235 In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. Ageing of impaired trade receivables 0–30 days 30–60 days 60–90 days 90–120 days 120+ days 2015 £’000 40 2 2 28 231 303 2014 £’000 4 8 23 6 194 235 The Directors consider that the carrying amount of trade and other receivables of the Group and Parent Company approximates to their fair value. Parent Company Amounts owed by Group undertakings are unsecured and are stated net of provisions for irrecoverable amounts of £4,248,000 (2014: £2,560,000), of which £1,688,000 (2014: £nil) has been provided in the year and £nil (2014: £nil) has been recovered in the year. The Parent Company has no impaired trade receivables. Credit risk The Group’s principal financial assets are bank balances and cash, and trade and other receivables, which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the Statement of Financial Position are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and its assessment of the current economic environment. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. 116 Henry Boot Annual Report 2015 - Back.indd 116 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:50 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 17. Deferred tax Deferred tax assets and deferred tax liabilities are offset where the Group has a legally enforceable right to do so and when the deferred tax assets and liabilities relate to tax levied by the same tax authority where there is an intention to settle the balances on a net basis. The amounts after offsetting are as follows: Deferred tax asset Group At 1 January 2014 Recognised in income Recognised in other comprehensive income At 31 December 2014 Recognised in income Recognised in other comprehensive income At 31 December 2015 Parent Company At 1 January 2014 Recognised in income Recognised in other comprehensive income At 31 December 2014 Recognised in income Recognised in other comprehensive income At 31 December 2015 Accelerated capital allowances £’000 142 161 — 303 53 — 356 Property revaluations £’000 840 99 — 939 (1,209) 509 239 29 1 — 30 (2) — 28 — — — — — — — Retirement benefit obligations £’000 4,015 (475) 2,092 5,632 (670) (1,439) 3,523 4,015 (475) 2,092 5,632 (670) (1,439) 3,523 Other timing differences £’000 414 (148) (17) 249 (40) (4) 205 401 (144) — 257 (36) — 221 Total £’000 5,411 (363) 2,075 7,123 (1,866) (934) 4,323 4,445 (618) 2,092 5,919 (708) (1,439) 3,772 Deferred tax assets relating to unused tax losses carried forward and deductible temporary differences are recognised if it is probable that they can be offset against future taxable profits or existing temporary differences. Unrecognised deferred tax assets relating to property revaluations amounted to £2,254,000 (2014: £837,000). These assets have not been recognised as it is probable that in future periods there will be no suitable profits or gains available to the Group against which they may be relieved. There are no other significant unrecognised deferred tax assets and liabilities. As a result of the change in the UK corporation tax rate from 20% to 19% effective from 1 April 2017 and from 19% to 18% effective from 1 April 2020, both of which were substantively enacted on 26 October 2015, deferred tax balances at the year end have been measured at 20% and 18% (2014: 20%) being the rates at which timing differences are expected to reverse. Subsequently, a further reduction to the UK corporation tax rate has been announced reducing the rate to 17% from 1 April 2020. The change had not been substantively enacted at the Statement of Financial Position date and, therefore, is not recognised in these Financial Statements. The impact of this change on the deferred tax position of the Group is not expected to be material. 18. Inventories Developments in progress Land held for development or sale Options to purchase land Planning promotion agreements 2015 £’000 32,122 73,916 9,274 23,629 138,941 2014 £’000 17,830 72,920 8,127 18,580 117,457 Within developments in progress £67,000 (2014: £101,000) has been written down and recognised as an expense in the year. These costs relate to development projects no longer likely to proceed. Within land held for development, options to purchase land and planning promotion agreements £2,340,000 (2014: £1,991,000) has been written down and recognised as an expense in the year. These costs relate to land, options and planning promotion agreements where planning permission for development has been refused or is deemed to be doubtful. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 117 24415.02 12 April 2016 1:38 PM Proof 6 117 12/04/2016 13:39:50 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 19. Construction contracts Contracts in progress at 31 December: Amounts due from contract customers included in trade receivables Amounts due to contract customers included in trade payables Contract costs incurred plus recognised profits less recognised losses to date Less: progress billings 2015 £’000 2014 £’000 2,322 (6,529) (4,207) 357,110 (361,317) (4,207) 573 (10,096) (9,523) 305,843 (315,366) (9,523) At 31 December 2015, retentions held by customers for contract work amounted to £1,947,000 (2014: £1,547,000). Advances received from customers for contract work amounted to £6,529,000 (2014: £10,096,000). 20. Assets classified as held for sale Assets classified as held for sale are investment properties, within the Property Investment and Development segment, which are individually being actively marketed for sale with expected completion dates within one year. At the reporting date the Group had no assets classified as held for sale. Assets classified as held for sale comprise the following: Fair value At 1 January Transfer from investment property Disposals At 31 December Adjustment in respect of tenant incentives Adjustment in respect of tax benefits Market value at 31 December Investment property 2015 £’000 260 13,163 (13,423) — — — — 2014 £’000 10,511 260 (10,511) 260 — — 260 Assets classified as held for sale have been valued at 31 December 2015 at fair value by the Directors of the Company at £nil (2014: £260,000). 21. Trade and other payables Trade payables Social security and other taxes Accrued expenses Deferred income Interest rate swap liability Amounts owed to related parties Amounts owed to Group undertakings Due within one year Due after more than one year Group Parent Company 2015 £’000 58,804 4,250 1,887 6,027 — 55 — 71,023 64,384 6,639 71,023 2014 £’000 55,675 4,842 2,305 9,083 17 50 — 71,972 68,833 3,139 71,972 2015 £’000 1,690 367 887 — — — 79,656 82,600 82,600 — 82,600 2014 £’000 1,662 472 347 — — — 79,737 82,218 82,218 — 82,218 The Directors consider that the carrying amount of trade payables approximates to their fair value. 118 Henry Boot Annual Report 2015 - Back.indd 118 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 22. Government grants Government grants have been received in relation to the infrastructure of one of the Company’s land developments and three of the Group’s property developments. Grant income received relating to revenue grants are included within deferred income and released to the Statement of Comprehensive Income on a systematic basis to match the costs it is intended to compensate. There are no unfulfilled conditions or contingencies attached to the grants that have been recognised. Amounts credited to the Statement of Comprehensive Income during the year were £ 917,000 (2014: £nil). Grant income relating to capital grants is included within deferred income until the completion conditions are met; at this point the grant is transferred to offset the cost of the asset. 23. Capital risk management The Company’s objectives when managing capital are: • to safeguard the Group’s ability to continue as a going concern and have the resources to provide returns for shareholders and benefits for other stakeholders; and • to maximise returns to shareholders by allocating capital across our businesses based on the level of expected return and risk. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of net debt to equity. Net debt is total debt less cash and cash equivalents and at 31 December 2015 this was £38.9m (2014: £36.4m). Equity comprises all components of equity and at 31 December 2015 this was £221.5m (2014: £200.5m). During 2015 the Group’s strategy, which was unchanged from previous years, was to maintain the debt to equity ratio below 50%. This level was chosen to ensure that we can access debt relatively easily and inexpensively if required. In February 2015, the Group concluded negotiations with its three banking partners to put in place a £60m facility to replace the £50m facility we had in place at 31 December 2014. The renewed facilities commenced on 17 February 2015, with a renewal date of 17 February 2018 and an option to extend the facility by one year, each year, for the next two years occurring on the anniversary of the facility. On 17 February 2016 we exercised our option to extend the facilities by one year to 17 February 2019. The renewed facilities, on improved terms, maintain covenants on the same basis as the previous facilities. The Group’s secured bank facilities are subject to covenants over loan to market value of investment properties, interest cover, gearings and minimum consolidated tangible assets value. The Group has other bank debt on which there are also covenant requirements. The Group operated comfortably within all of its requirements throughout the year. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 119 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 119 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 24. Borrowings Bank overdrafts Bank loans Government loans The borrowings are repayable, including future interest, as follows: On demand or within one year In the second year In the third to fifth years inclusive After five years Due within one year Due after one year The weighted average interest rates paid were as follows: Bank overdrafts Bank loans – floating rate Bank loans – floating rate (relating to Road Link (A69) Limited) Bank loans – floating rate (relating to Stonebridge Offices Limited) Government loans Bank overdrafts are repayable on demand. Group Parent Company 2015 £’000 2 42,389 8,582 50,973 43,327 2,871 5,697 — 51,895 43,327 8,568 51,895 2014 £’000 — 33,096 7,652 40,748 32,322 2,297 6,909 — 41,528 32,322 9,206 41,528 2015 £’000 478 40,000 — 40,478 40,760 — — — 40,760 40,760 — 40,760 2015 £’000 2.52 2.25 1.51 3.08 2.65 2014 £’000 642 30,000 — 30,642 30,834 — — — 30,834 30,834 — 30,834 2014 £’000 3.25 2.55 1.42 3.03 3.03 Borrowings are recognised at fair value, where the fair values are based on cash flows discounted using variable market rates. Liquidity risk The Company’s objectives when managing liquidity are: • to safeguard the Group’s ability to meet expected and unexpected payment obligations at all times; and • to maximise the Group’s profitability. Interest on floating rate borrowings is arranged for periods from one to six months. These borrowings are secured by a fixed and floating charge over the assets of the Group excluding those of Road Link (A69) Limited and Stonebridge Offices Limited. Full and final settlement of the Road Link (A69) Limited bank loan was made on 31 March 2015. The Stonebridge Offices Limited bank loan is secured by a specific charge over the freehold property of that company and is without recourse to the rest of the Group. The loan was renewed on 29 October 2014 and is repayable in quarterly instalments of £31,250 that commenced on 11 December 2014, with full and final settlement becoming due on 11 December 2018. 120 Henry Boot Annual Report 2015 - Back.indd 120 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 24. Borrowings continued Government loans from the South West of England Regional Development Agency (SWE) and Sedgemoor District Council (SDC) were issued at a borrowing rate of nil%; their fair values are £2,626,000 (2014: £2,718,000) and £319,000 (2014: £319,000) respectively. Government loans from the Homes and Communities Agency (HCA) were issued with a fixed level of interest of £407,000 (2014: £301,000); their fair values are £4,163,000 (2014: £2,815,000) (Education Campus) and £1,474,000 (2014: £1,800,000) (Phase II Road Infrastructure). As a result the Company has no exposure to interest rate changes in relation to these borrowings. The Company’s exposure to indexation risk may result in an increase in the value of repayments, causing the loans to be settled at an earlier date. The Government loans were received to fund specific residential construction expenditure. Repayment of the SWE loan commenced during 2013, being three years after the quarter date of the construction completion of the first residential unit. Repayments of £150,000 (2014: £300,000) were made during the year. The repayments are calculated at £8,000 per residential unit, are linked to the Land Registry House Price Index and are subject to certain minimum repayment amounts. Repayment of the SDC loan is to be made in full upon the occupation of the 550th dwelling. Repayment of the Education Campus HCA loan is to commence upon the occupation of the first dwelling and will follow for each occupation thereafter until the total contribution sum is repaid in full. The repayments are calculated at £8,587 per residential unit, based on 1,750 units, and are increased in relation to the Land Registry House Price Index (Devon). The base figure of £8,587 is reviewed following the occupation of the first 300 dwellings and every 300 dwellings thereafter in addition to every second anniversary of the loan agreement date and any date after 2022 following notice served from the HCA. If the HCA is not satisfied that the base rate will guarantee repayment of the total contribution sum before the completion of the last residential unit, it has the right to increase the base figure accordingly. If the number of residential units with detailed planning permission or reserved matters increases, the base figure is revised to reflect the increased number of plots. Repayment of the Phase II Road Infrastructure HCA loan commenced during the year upon the occupation of the 1,151st dwelling. Repayments of £325,530 were made during the year. The repayments are calculated at £3,675 per residential unit, based on 1,750 units, and are increased in relation to the Land Registry House Price Index (Devon). If the relevant number of dwellings is not met by 31 December 2015 and each year thereafter until 2019, advance payments will be required. If the number of residential units with detailed planning permission or reserved matters increases, the base figure is revised to reflect the increased number of plots. Other borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. Based on approximate average borrowings during 2015, a 1.0% (2014: 1.0%) change in interest rates, which the Directors consider to be a reasonable possible change, would affect profitability before tax by £504,000 (2014: £306,000). The fair value of the Group’s borrowings is not considered to be materially different from the carrying amounts, other than as disclosed in note 25. At 31 December 2015, the Group had available £35,129,000 (2014: £21,800,000) undrawn committed borrowing facilities. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 121 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 121 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 25. Derivative financial instruments Interest rate swap – cash flow hedge At 31 December 2015, an interest rate swap transaction was in place covering a bank loan of £nil (2014: £581,000) whereby the Group’s subsidiary, Road Link (A69) Limited, pays a fixed rate of interest of 6.57% and receives a variable rate based on LIBOR. Interest is payable or receivable, as appropriate, semi-annually. The swap is used to hedge the exposure to the variable interest rate payments on the variable rate secured loan of the subsidiary (note 24). The loan and interest rate swap have the same critical terms, are fully effective and have a termination date of 31 March 2015. The fair value of the interest rate swap arrangement at 31 December 2015 was a liability of £nil (2014: £17,000), included in ‘Trade and other payables’, giving rise to a hedge reserve deducted from other reserves. Fair value measurements recognised in the Statement of Financial Position The following table provides an analysis of the fair values of financial instruments recognised in the Statement of Financial Position by the degree to which the fair value is observable: Derivative financial liabilities: Level 1 Level 2 Level 3 Total fair value Explanation of the fair value hierarchy: 2015 £’000 2014 £’000 — — — — — 17 — 17 • Level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 – fair value measurements are those derived from the use of a model with inputs (other than quoted prices included in Level 1) that are observable from directly or indirectly observable market data; and • Level 3 – fair value measurements are those derived from use of a model with inputs that are not based on observable market data. 26. Provisions At 1 January 2015 Included in current liabilities Included in non-current liabilities Additional provisions in year Unwinding of discount Utilisation of provisions Non-utilisation of provisions At 31 December 2015 Included in current liabilities Included in non-current liabilities Land development £’000 Road maintenance £’000 Other £’000 3,092 5,185 8,277 1,785 6 (1,867) — 8,201 4,606 3,595 8,201 1,205 — 1,205 1,033 — (1,095) — 1,143 1,143 — 1,143 25 — 25 — — — (25) — — — — Total £’000 4,322 5,185 9,507 2,818 6 (2,962) (25) 9,344 5,749 3,595 9,344 The land development provision represents management’s best estimate of the Group’s liability to provide infrastructure and service obligations, which remain with the Group following the disposal of land. The provision is calculated using the present value of the estimated cash flows required to settle the present obligations, pro rata on an acreage allocation basis where disposals occur over a number of phases, such that provisions are only made in relation to the land which has been disposed. Based on a 1.0% change in the discount rate and a 5.0% change in the estimated cash outflows, both of which the Directors consider to be a reasonable possible change, land development provisions would change and affect profitability before tax by £111,000 and £390,000 respectively (2014: £161,000 and £420,000). 122 Henry Boot Annual Report 2015 - Back.indd 122 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 26. Provisions continued The Group maintains rigorous forecasting and budgeting for the infrastructure and services contracts to which our provisions relate. The Group’s outstanding obligations are not considered to be ‘onerous’ contracts, as the costs of meeting the obligations are not anticipated to exceed the economic benefits expected to be received throughout the life of the developments. The road maintenance provision represents management’s best estimate of the Group’s liability under a five-year rolling programme for the maintenance of the Group’s PFI asset. Based on a 5.0% change in the estimated cash outflows, which the Directors consider to be a reasonable possible change, the road maintenance provision would change and affect profitability before tax by £146,000 (2014: £60,000). Other provisions include any liabilities where the Directors anticipate that a present obligation would result in a future outflow of resources, including legal and regulatory penalties or claims, being taken into account in the Financial Statements. Off Balance Sheet Arrangements The Group is currently undertaking the infrastructure of land developments at Bridgwater and Cranbrook, spanning 122 and 53 acres respectively (2014: 122 and 53). The Group is liable for various planning and infrastructure obligations required to be met under section agreements imposed by the local Councils. The Group shares its planning and infrastructure obligations relating to the Cranbrook site with two other parties, the Group’s share being 30%. These shared obligations are secured by performance bonds and legal charges. The Group deems the possibility of default by the other parties as highly remote. The infrastructure of these developments is anticipated to continue until 2020 and 2025 respectively with cost being incurred throughout these periods. The Group has historically disposed of 86 and 23 acres respectively (2014: 86 and 16) and has subsequently recognised provisions to the value of £8,201,000 (2014: £8,277,000), being the Group’s best estimate of the consideration required to settle the present obligations at the reporting date. Subsequent disposals are expected to occur over a number of phases, provisions are made in relation to the land which has been disposed. The present value of the estimated cash flows relating to future disposals, amounting to £7,071,000 (2014: £11,454,000), has therefore not been recognised in these Financial Statements. 27. Retirement benefit obligations Defined contribution pension scheme The Group operates a defined contribution pension scheme for all qualifying employees. The scheme is administered and managed by Aviva and the Group matches member contributions, providing a minimum of 3% of salary is paid by the employee, on a pound for pound basis up to a maximum of 8%. The total cost charged to income of £919,000 (2014: £694,000) represents contributions payable to the scheme by the Group. Defined benefit pension scheme The Group sponsors a funded defined benefit pension scheme in the UK. The scheme is administered within a trust which is legally separate from the Group. Trustees are appointed by both the Group and the scheme’s membership and act in the interest of the scheme and all relevant stakeholders, including the members and the Group employers. The Trustees are also responsible for the investment policy for the scheme’s assets. Existing scheme members continue to accrue benefits, but the scheme is closed to new entrants. Members accrue an annual pension of either 1/45th or 1/60th of final pensionable salary for each year of pensionable service. Increases in pensionable salary are limited to 1% per annum. Once in payment, pensions increase in line with inflation. The scheme also provides a two-thirds spouse’s pension on the death of a member. Active members of the scheme pay contributions at the rate of either 5% or 7% of pensionable salary and the Group employers pay the balance of the cost as determined by regular actuarial valuations. The Trustees are required to use prudent assumptions to value the liabilities and costs of the scheme whereas the accounting assumptions must be best estimates. The Group has not recognised any obligation under a minimum funding requirement as it is entitled to a refund of any residual assets once all members have left the Scheme. The scheme poses a number of risks to the Group. These include: Investment risk The present value of obligations is calculated using a discount rate determined by reference to high quality corporate bond yields. If the return on the scheme’s assets is below this rate the scheme deficit will increase. Interest rate risk A decrease in the yield on high quality corporate bonds will reduce the discount rate and thus increase the value placed on the scheme’s liabilities. However, this would be partially offset by an increase in the value of the scheme’s bond investments. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 123 24415.02 12 April 2016 1:38 PM Proof 6 123 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 27. Retirement benefit obligations continued Inflation risk The present value of the liabilities is calculated by reference to a best estimate of future inflation. If inflation turns out to be higher than this estimate then the deficit will increase. Longevity risk The present value of the liabilities is calculated using a best estimate of the life expectancy of scheme members. An increase in life expectancies will increase the scheme’s liabilities. A formal actuarial valuation was carried out as at 31 December 2012. The results of that valuation have been projected to 31 December 2015 by a qualified independent actuary. The figures in the following disclosure were measured using the projected unit method. The main financial assumptions used in the valuation of the liabilities of the scheme under IAS 19 are: Retail Prices Index ‘Jevons’ (RPIJ) Consumer Prices Index (CPI) Pensionable salary increases Rate in increase to pensions in payment liable for Limited Price Indexation (LPI) Revaluation of deferred pensions Liabilities discount rate Mortality assumptions Retiring today (aged 65) Male Female Retiring in 20 years (currently aged 45) Male Female 2015 % 2.30 2.00 1.00 2.30 2.00 3.80 2015 Years 21.9 24.2 23.2 25.8 2014 % 2.30 2.00 1.00 2.30 2.00 3.60 2014 Years 22.1 24.4 23.3 26.0 The mortality assumptions adopted are the Self Administered Pension Schemes (SAPS) tables with allowance for future improvements in line with Continuous Mortality Investigation (CMI) 2014 with an annual improvement of 1% per annum. The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below: Rate of inflation Rate of general increases in salaries Liabilities discount rate Rate of mortality Impact on scheme liabilities Change in assumption 0.25% 0.25% 0.25% 1 year Increase in assumption Increase by 3.6% Nil* Decrease by 3.7% Increase by 3.3% Decrease in assumption Decrease by 3.5% Nil* Increase by 4.0% Decrease by 3.3% * Increases in salaries above the 1% assumed would not affect the scheme liabilities as future increases in pensionable salaries are to be capped at a maximum of 1% per annum. 124 Henry Boot Annual Report 2015 - Back.indd 124 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 27. Retirement benefit obligations continued Amounts recognised in the Consolidated Statement of Comprehensive Income in respect of the scheme are as follows: Service cost: Current service cost Ongoing scheme expenses Settlement Net interest expense Pension Protection Fund Pension expenses recognised in profit or loss Remeasurement on the net defined benefit liability: Return on plan assets (excluding amounts included in net interest expense) Actuarial gains arising from changes in demographic assumptions Actuarial (gains)/losses arising from changes in financial assumptions Actuarial (gains)/losses recognised in other comprehensive income Total 2015 £’000 1,308 328 (8) 951 118 2,697 723 (1,338) (5,387) (6,002) (3,305) 2014 £’000 1,129 425 — 832 47 2,433 (8,029) (2,862) 21,349 10,458 12,891 The amount included in the Statement of Financial Position arising from the Group’s obligations in respect of the scheme is as follows: Present value of scheme obligations Fair value of scheme assets This amount is presented in the Statement of Financial Position as follows: Non-current liabilities Movements in the present value of scheme obligations in the year were as follows: At 1 January Current service cost Interest on obligation Contributions from scheme members Actuarial (gain)/loss Liabilities extinguished on settlements Benefits paid At 31 December 2015 £’000 170,214 (150,637) 19,577 2014 £’000 176,641 (148,483) 28,158 2015 £’000 19,577 2014 £’000 28,158 2015 £’000 176,641 1,308 6,253 5 (6,725) (562) (6,706) 170,214 2014 £’000 156,254 1,129 6,920 5 18,487 — (6,154) 176,641 i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 125 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 125 12/04/2016 13:39:51 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 27. Retirement benefit obligations continued Movements in the fair value of scheme assets in the year were as follows: At 1 January Interest income Actuarial gain on scheme assets Employer contributions Contributions from scheme members Assets distributed on settlements Benefits paid Ongoing scheme expenses At 31 December The categories of plan assets are as follows: Quoted investments, including pooled diversified growth funds: Equity Synthetic equity Diversified growth funds Government bonds Corporate bonds Diversified credit funds Cash and net current assets Unquoted investments: Direct lending Property At 31 December 2015 £’000 148,483 5,302 (723) 5,158 5 (554) (6,706) (328) 150,637 2015 £’000 47,407 11,997 44,768 — 19,110 10,071 7,706 2014 £’000 136,179 6,088 8,029 4,761 5 — (6,154) (425) 148,483 2014 £’000 45,774 11,612 32,313 10,256 23,468 5,645 2,766 9,578 — 150,637 4,758 11,891 148,483 Included in equities are 1,295,000 (2014: 2,000,000) ordinary 10p shares in Henry Boot PLC with a value at the year end of £2,900,800 (2014: £3,905,000). The weighted average duration of the defined benefit obligation is 15.9 years (2014: 16.5 years). The current estimated amount of total contributions expected to be paid to the scheme during the 2015 financial year is £4,909,000, being £4,907,000 payable by the Group and £2,000 payable by scheme members. The Company’s level of recovery plan funding to the scheme is £3,775,000 per annum, which will be reviewed at the next triennial valuation. In addition to this the Company contributes a further £250,000 per annum towards the administration expenses of the scheme. 28. Operating leases The Group as lessee Minimum lease payments under operating leases recognised in the Statement of Comprehensive Income for the year 2015 £’000 276 At 31 December 2015, the Group had outstanding commitments for future aggregate minimum lease payments under non- cancellable operating leases which fall due as follows: Within one year In the second to fifth years inclusive After five years 126 2015 £’000 255 586 440 1,281 2014 £’000 239 2014 £’000 150 508 550 1,208 Henry Boot Annual Report 2015 - Back.indd 126 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:52 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 28. Operating leases continued Operating lease payments represent rentals payable by the Group for certain of its office properties. The rents payable are subject to renegotiation at various intervals specified in the leases. The Group as lessor The Group has entered into commercial leases on its investment property portfolio which typically have lease terms between one and 25 years and include clauses to enable periodic upward revision of the rental charge according to prevailing market conditions. Ordinarily the lessee does not have an option to purchase the property at the expiry of the lease period and some leases contain options to break before the end of the lease term. Future aggregate minimum rentals receivable under non-cancellable operating leases at 31 December are as follows: Within one year In the second to fifth years inclusive After five years 2015 £’000 6,507 26,170 67,558 100,235 2014 £’000 7,095 28,712 79,907 115,714 29. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are disclosed below: Parent Company Management charges receivable Interest receivable Interest payable Rents payable Recharge of expenses Transactions between the Company and its remaining related parties are as follows: Purchases of goods and services Close family members of key management personnel (amounts paid for IT services) Related companies of key management personnel (amounts paid for Non-executive Director services) 2015 £’000 1,140 8,049 (2,333) (180) 127 2015 £’000 38 41 2014 £’000 1,420 8,042 (2,413) (151) 159 2014 £’000 36 40 Amounts owing by related parties (note 16) or to related parties (notes 21 and 24) are unsecured, repayable on demand and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Remuneration of key management personnel The remuneration of the Directors, who are key management personnel of the Group and are responsible for making all of the strategic decisions of the Group and its subsidiaries, is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration Report on pages 66 to 73. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l Short-term employee benefits Post-employment benefits Share-based payments 2015 £’000 1,567 41 239 1,847 2014 £’000 1,547 40 451 2,038 i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 127 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 127 12/04/2016 13:39:52 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 30. Share capital 400,000 5.25% cumulative preference shares of £1 each (2014: 400,000) 132,041,358 ordinary shares of 10p each (2014: 131,923,592) Allotted, issued and fully paid 2015 £’000 400 13,204 13,604 2014 £’000 400 13,192 13,592 The Company has one class of ordinary share which carries no rights to fixed income but which entitles the holder thereof to receive notice and attend and vote at general meetings or appoint a proxy to attend on their behalf. Subject to Board approval, the preference shares carry the right to a cumulative preferential dividend payable half yearly at the rate of 5.25% per annum. They also carry a right, in priority to the ordinary equity, on a return of assets on a winding-up or reduction of capital, to repayment of capital, together with the arrears of any preferential dividend. With the exception of any resolution proposed to directly affect the rights or privileges of the holders of the preference shares, the holders thereof are not entitled to receive notice of, be present or vote at any general meeting of the Company. Share-based payments The Company operates the following share-based payment arrangements: (a) The Henry Boot PLC 2010 Sharesave Plan This savings related share option plan was approved by shareholders in 2010 and is HMRC approved. Grants of options to participating employees were made on 26 October 2011 at a price of 106.0p at a discount of just over 10% of the prevailing market price and 23 October 2014 at a price of 172.0p at a discount of just over 9.5%. These become exercisable for a six month period from 1 December 2014 and 1 December 2017 respectively. There are no performance criteria attached to the exercise of these options which are normally capable of exercise up to six months after the third anniversary of the Sharesave contract commencement date. The right to exercise options terminates if a participating employee leaves the Group, subject to certain exceptions. October 2011 grant October 2014 grant Options outstanding at 31 December 2014 97,124 1,147,862 Options granted — — Options lapsed 1,358 77,945 Options exercised 95,766 2,214 Options outstanding at 31 December 2015 — 1,067,703 The weighted average share price at the date of exercise for share options exercised during the period was 213.00p (2014: 185.31p). (b) The Henry Boot 2006 Long Term Incentive Plan This plan was approved by shareholders at an EGM held on 20 July 2006. Details of the Plan and the vesting requirements are set out in the Directors’ Remuneration Policy which is available to view on the website: www.henryboot.co.uk/about-us/governance. (c) The Henry Boot 2015 Long Term Incentive Plan This plan was approved by shareholders at an AGM held on 21 May 2015. Details of the Plan and the vesting requirements are also set out in the Directors’ Remuneration Policy which is also available to view on the website. In respect of (b) and (c) above, the aggregate total of movements in share options granted and awards of shares is as follows: Share options granted at 1 January Lapses of share options in year Awards of shares in year Share options granted in year Share options granted at 31 December 128 2015 Number 1,293,278 (555,426) (103,641) 268,849 903,060 2014 Number 1,559,582 (419,389) (386,850) 539,935 1,293,278 Henry Boot Annual Report 2015 - Back.indd 128 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:52 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 30. Share capital continued The weighted average share price at the date of exercise for share options exercised during the period was 234.0p (2014: 196.5p). (d) The Henry Boot PLC 2010 Approved Company Share Option Plan This plan, more commonly known as a CSOP, was approved by shareholders in 2010 and is HMRC approved. Any full-time Director or employee (full-time or part-time) is eligible to participate at the discretion of the Remuneration Committee of the Board. Options are granted by deed with no consideration payable by the participant. The aggregate subscription price at the date of grant of all outstanding options granted to any one participant under the plan and any other HMRC approved plan operated by the Company (but excluding options granted under any savings related share option plan) must not exceed £30,000. The aggregate market value at the date of grant of ordinary share options which may be granted to any one participant in any one financial year of the Company shall not normally exceed two times the amount of a participant’s remuneration for that financial year. The Remuneration Committee may impose objective conditions as to the performance of the Group which must normally be satisfied before options can be exercised. Options are normally exercisable only within the period of three to ten years after the date of grant. The right to exercise options generally terminates if a participant leaves the Group, subject to certain exceptions. The first grant of options under the plan was made to certain senior employees (none of whom at the time were Directors of Group companies) on 17 May 2011 at an option price of 121.5p. The second grant of options under the plan was made to certain senior employees (none of whom at the time were Directors of Group companies) on 1 October 2014 at an option price of 191.0p. There were no performance conditions imposed on either of these grants. May 2011 grant October 2014 grant Options outstanding at 31 December 2014 64,000 165,000 Options granted — — Options lapsed — 10,000 Options exercised 22,000 — Options outstanding at 31 December 2015 42,000 155,000 The weighted average share price at the date of exercise for share options exercised during the period was 225.88p (2014: 200.57p). Fair value Fair value is measured by a Monte Carlo pricing model using the following assumptions: Weighted average exercise price Weighted average share price Expected volatility Expected life Risk-free rate Expected dividend yield LTIP Nil 206.4p 32.00% to 32.35% 3 years 0.31% to 1.26% 2.97% to 3.56% CSOP 2011 grant 121.5p 121.5p 41.47% 3 years 1.67% 5.02% CSOP 2014 grant 191.0p 191.0p 31.17% 3 years 1.23% 3.16% Sharesave 2011 106.0p 115.5p 37.14% 3 years 0.86% 5.02% Sharesave 2014 172.0p 181.0p 31.45% 3 years 0.82% 3.16% The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the last three years. The weighted average fair value of share options granted during the year was 106.75p (2014: 51.60p). Expense recognised in the Statement of Comprehensive Income The total expense recognised in the Statement of Comprehensive Income arising from share-based payment transactions 2015 £’000 2014 £’000 492 423 The total expense recognised in the Statement of Comprehensive Income arose solely from equity-settled share-based payment transactions. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 129 24415.02 12 April 2016 1:38 PM Proof 6 129 12/04/2016 13:39:52 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements Notes to the Financial Statements continued for the year ended 31 December 2015 Property revaluation £’000 3,355 — — — — Retained earnings £’000 171,938 21,169 (6,886) — — Capital redemption £’000 271 — — — — Share premium £’000 3,134 — — 817 — Other Capital £’000 209 — — — — Hedging £’000 (48) — — — 52 — — — — 3,355 — — — — — 100 509 — — — 3,964 — (191) (10,458) 2,092 177,664 23,041 (7,664) — — — — — 291 6,002 (1,439) 197,895 — — — — 271 — — — — — — — — — — 271 — — — — 3,951 — — 117 — — — — — — — 4,068 — — — — 209 — — — — — — — — — — 209 Other (10) — — — (6) — — — 9 (3) — — — — — — Retained earnings £’000 52,299 8,541 (6,886) — (10,458) 2,092 (332) 45,256 7,357 (7,664) — 6,002 (1,439) 96 49,608 Capital redemption £’000 271 — — — — — — 271 — — — — — — 271 Share premium £’000 3,134 — — 817 — — — 3,951 — — 117 — — — 4,068 Capital £’000 211 — — — — — — 211 — — — — — — 211 Investment revaluation £’000 1,135 — — — — — — 1,135 — — — — — — 1,135 Total other £’000 3,566 — — 817 52 (10) — — — 4,425 — — 117 9 (3) — — — — — 4,548 Total other £’000 4,751 — — 817 — — — 5,568 — — 117 — — — 5,685 31. Reserves Group At 1 January 2014 Profit for the year Dividends paid Premium arising from shares issued Movements in fair value of cash flow hedge Deferred tax on fair value movements of cash flow hedge Arising on employee share schemes Unrecognised actuarial loss Deferred tax on actuarial loss At 31 December 2014 Profit for the year Dividends paid Premium arising from shares issued Movements in fair value of cash flow hedge Deferred tax on fair value movements of cash flow hedge Increase in fair value in year Deferred tax on revaluation surplus Arising on employee share schemes Unrecognised actuarial gain Deferred tax on actuarial gain At 31 December 2015 Parent Company At 1 January 2014 Profit for the year Dividends paid Premium arising from shares issued Unrecognised actuarial loss Deferred tax on actuarial loss Arising on employee share schemes At 31 December 2014 Profit for the year Dividends paid Premium arising from shares issued Unrecognised actuarial gain Deferred tax on actuarial gain Arising on employee share schemes At 31 December 2015 130 Henry Boot Annual Report 2015 - Back.indd 130 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:53 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 31. Reserves continued Property revaluation reserve The property revaluation reserve represents the unrealised surpluses arising on revaluation of the Group occupied land and buildings and is not available for distribution until realised on disposal. Retained earnings Retained earnings represent the accumulated profits and losses of the Group. Capital redemption reserve The capital redemption reserve represents the purchase and cancellation by the Company of its own shares and comprises the aggregate nominal value of all the ordinary shares repurchased and cancelled. Share premium reserve The share premium reserve represents the difference between the sums received from the issue of shares and their nominal value net of share issue expenses. This reserve is not distributable. Capital reserve The capital reserve represents realised profits arising on the disposal of investments and is available for distribution. Hedging reserve The hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of the hedging instrument entered by the Group for the purposes of cash flow hedging. The hedge is 100% effective and as such cumulative gains or losses arising on changes in the fair value of the hedging instrument that are recognised and accumulated in the hedging reserve will not subsequently be reclassified to profit or loss. Investment revaluation reserve The investment revaluation reserve represents enhancements to the original cost of shares in subsidiary companies where the Directors have considered it appropriate to reflect in the valuation increases of a permanent nature in the underlying net asset values of subsidiary companies. Such enhancements were £1,135,000 in 1989 and are not distributable. 32. Cost of shares held by the ESOP trust Group At 1 January Additions Disposals At 31 December 2015 £’000 550 — (205) 345 2014 £’000 188 1,010 (648) 550 Quoted investments represent own shares held by the Henry Boot PLC Employee Trust as an ESOP to provide an incentive to greater ownership of shares in the Company by its employees. At 31 December 2015, the Trustee held 177,320 shares (2014: 283,175 shares) with a cost of £344,787 (2014: £549,831) and a market value of £397,197 (2014: £552,899). All of these shares were committed to satisfy existing grants by the Company under the Henry Boot PLC 2006 Long Term Incentive Plan, the Henry Boot PLC 2015 Long Term Incentive Plan, the Henry Boot PLC 2010 Sharesave Scheme and the Henry Boot PLC 2010 Company Share Option Plan. In accordance with IAS 32, these shares are deducted from shareholders’ funds. Under the terms of the Trust, the Trustee has waived all dividends on the shares it holds. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 131 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o n f I l r e d o h e r a h S 131 12/04/2016 13:39:53 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Financial Statements 33. Cash generated from operations Group Parent Company Profit before tax Adjustments for: Amortisation of PFI asset Goodwill impairment Depreciation of property, plant and equipment Impairment gain on land and buildings Revaluation decrease/(increase) in investment properties Amortisation of capitalised letting fees Share-based payment expense Pension scheme credit Movements on provision against investments in subsidiaries Movements on provision against loans to subsidiaries Profit on disposal of assets held for sale Gain on disposal of property, plant and equipment Gain on disposal of investment properties Finance income Finance costs Share of profit of joint ventures Operating cash flows before movements in equipment held for hire Purchase of equipment held for hire Proceeds on disposal of equipment held for hire Operating cash flows before movements in working capital Increase in inventories (Increase)/decrease in receivables (Decrease)/increase in payables Cash generated from/(used by) operations 11 11 12 12 13 3 4 14 3 3 5 6 15 12 2015 £’000 32,410 1,193 203 3,637 (10) 2,009 52 492 (2,579) — — (485) (296) (747) (1,438) 1,617 (923) 35,135 (4,057) 334 31,412 (13,706) (9,381) (3,117) 5,208 2014 £’000 28,312 1,155 203 3,299 — (1,950) 94 423 (2,375) — — (122) (459) (284) (714) 1,550 (1,187) 27,945 (3,670) 580 24,855 (22,366) (157) 12,525 14,857 2015 £’000 7,539 — — 76 — — — 297 (2,579) 788 1,688 — — — (18,208) 3,391 — (7,008) — — (7,008) — 488 199 (6,321) 2014 £’000 8,681 — — 50 — — — 282 (2,375) (440) — — (8) — (15,855) 3,383 — (6,282) — — (6,282) — (488) 9,297 2,527 34. Guarantees and contingencies The Parent Company has guaranteed the performance of certain contracts entered into by Group undertakings in the ordinary course of business. The Parent Company has given cross guarantees to certain of the Group’s bankers and bondsmen in respect of facilities available to Group undertakings in the normal course of business. Guarantees relating to bonds are impracticable to quantify. In the opinion of the Directors, no loss is expected to arise in connection with these matters. 132 Henry Boot Annual Report 2015 - Back.indd 132 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:53 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 35. Additional information – subsidiaries, joint ventures and associates Details of the Company’s subsidiaries, joint ventures and associates, all of which are incorporated in England and are consolidated in the Group Financial Statements at 31 December 2015, are as follows: Subsidiary name Banner Plant Limited Buffergone Limited Capitol Park Property Services Limited Chocolate Works York Management Company Limited Comstock (Kilmarnock) Limited First National Housing Trust Limited Hallam Land Management Limited Henry Boot Biddenham Limited Henry Boot Contracting Limited Henry Boot Construction Limited Henry Boot Developments Limited Henry Boot Developments (Ayr) Limited Henry Boot Estates Limited Henry Boot Inner City Limited Henry Boot ‘K’ Limited Henry Boot (Launceston) Limited Henry Boot Land Holdings Limited Henry Boot Leasing Limited Henry Boot Nottingham Limited Henry Boot Port Talbot Limited Henry Boot Projects Limited Henry Boot Swindon Limited Henry Boot Tamworth Limited Henry Boot Wentworth Limited Henry Boot Whittington Limited Investments (North West) Limited Kirklees Henry Boot Partnership Limited Marboot Centregate Ltd Moore Street Securities Limited Plot 7 East Markham Vale Management Company Limited Road Link (A69) Holdings Limited Road Link (A69) Limited Road Link Limited Saltwoodend Limited Stonebridge Projects Limited Stonebridge Offices Limited Waterloo Court Management Company Limited Winter Ground Limited Proportion of ownership Direct or indirect 100% 100% 5% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% 61.2% 100% 100% 100% 50% 100% 17% 100% Direct Direct Indirect Indirect Indirect Direct Direct Direct Direct Direct Direct Indirect Direct Direct Indirect Direct Direct Direct Indirect Direct Direct Direct Indirect Direct Direct Indirect Indirect Indirect Direct Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Activity Plant hire Construction Property development Management company Land development Property investment Land development Land development Inactive Construction Property investment and development Inactive Property investment Inactive Property investment and development Land development Land development Motor vehicle leasing to Group companies Inactive Property development Property investment and development Land development Property investment and development Property development Property investment Property development Inactive Property investment Employee benefit trust Management company Holding company PFI road maintenance Inactive Inactive Property development Property investment and development Management company Property investment and development i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i On 28 July 2015 Henry Boot Construction Limited disposed of 100% of the ordinary share capital of Henry Boot Construction (Harrogate) Limited for £1,615,162. Joint ventures and associates Aytoun Street Developments Limited I-Prop Developments Limited Kirklees Henry Boot Partnership Limited Markey Colston Limited Pennine Property Partnership LLP Proportion of ownership 50% 50% 50% 27.33% 50% Direct or indirect Indirect Indirect Indirect Indirect Indirect Activity Property development Property development Inactive Property development Property investment and development n o i t a m r o n f I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 133 24415.02 12 April 2016 1:38 PM Proof 6 133 12/04/2016 13:39:53  A close relationship with shareholders is a strength of the Company Henry Boot Annual Report 2015 - Back.indd 134 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:56 Shareholder inFormation Contents 136 Property Valuers’ Report 137 Notice of Annual General Meeting 142 Financial Calendar 142 Advisers 143 Group Contact Information 144 Our Group Locations IBC Glossary Henry Boot Annual Report 2015 - Back.indd 135 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:57 135 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Shareholder Information Property Valuers’ Report City Point 29 King Street Leeds LS1 2HL tel +44 (0) 113 244 6440 fax +44 (0) 113 245 4664 www.jll.co.uk THE DIRECTORS Henry Boot PLC Banner Cross Hall Ecclesall Road South Sheffield S11 9PD 31 December 2015 Dear Sirs HENRY BOOT PLC Group property portfolio valuation as at 31 December 2015 In accordance with your written instructions, we have valued the various freehold and leasehold properties held by Henry Boot PLC and its subsidiary companies, for accounts purposes, as at 31 December 2015. The valuations have been prepared in accordance with RICS Valuation – Professional Standards (January 2014) published by the Royal Institution of Chartered Surveyors, in our capacity as External Valuers, on the basis of Market Value. No allowances have been made for expenses of realisation or for taxation that might arise in the event of a disposal and our valuations are expressed as exclusive of any Value Added Tax that may become chargeable. Each property has been considered as if free and clear of all mortgages or other charges which may have been secured thereon. Where appropriate, the properties have been valued subject to and with the benefit of any lettings which have been disclosed. Having regard to the foregoing we are of the opinion that the aggregate Market Value of the freehold and leasehold interests owned by Henry Boot PLC and its subsidiaries, as at 31 December 2015, is: Freehold properties Leasehold properties Mixed tenure properties Total £101,722,375 £6,890,000 £225,000 £108,837,375 In accordance with our normal practice, we confirm that our valuations have been prepared for the Directors of Henry Boot PLC and for the purpose to which this certificate refers. No responsibility is accepted to any third party in respect of the information or advice contained herein, except in circumstances where our prior written approval has been granted. Yours faithfully SIMON CULLIMORE MRICS DIRECTOR FOR AND ON BEHALF OF JONES LANG LASALLE LIMITED Jones Lang LaSalle Limited Registered in England and Wales Number 1188567 Registered Office 30 Warwick Street, London W1B 5NH 136 Henry Boot Annual Report 2015 - Back.indd 136 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Notice of Annual General Meeting THIS DOCUMENT IS IMPORTANT and requires your immediate attention. If you are in any doubt about the action you should take, you should immediately consult your stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your shares in Henry Boot PLC, please forward this document and the accompanying Form of Proxy to the person through whom the sale or transfer was effected, for transmission to the purchaser or transferee. The Board of Henry Boot PLC considers all of the proposed resolutions to be in the best interests of shareholders as a whole and accordingly recommends that shareholders vote in favour of all the resolutions proposed. Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting (AGM) of Henry Boot PLC (Company) will be held at Baldwins Omega, Brincliffe Hill, Off Psalter Lane, Sheffield S11 9DF on Thursday 26 May 2016 at 12.30pm for the following purposes: To consider and if thought fit, pass the following resolutions, which will be proposed as ordinary resolutions of the Company. Resolution 1 To receive the Directors’ Report, Auditors’ Report, Strategic Report and the Financial Statements for the year ended 31 December 2015. Resolution 2 To declare a final dividend of 3.80p per ordinary share. Resolution 3 To approve the Directors’ Remuneration Report for the year ended 31 December 2015. Resolution 4 To reappoint E J Boot as a Director of the Company. Resolution 5 To reappoint J T Sutcliffe as a Director of the Company. Resolution 6 To reappoint D L Littlewood as a Director of the Company. Resolution 7 To reappoint Ms J C Lake as a Director of the Company. Resolution 8 To reappoint J J Sykes as a Director of the Company. Resolution 9 To reappoint P Mawson as a Director of the Company. Resolution 10 To reappoint G R Jennings as a Director of the Company. Resolution 11 To reappoint PricewaterhouseCoopers LLP as auditors of the Company. Resolution 12 To authorise the Directors to fix the auditors’ remuneration. Resolution 13 THAT pursuant to Section 551 of the Companies Act 2006, the Directors be and are generally and unconditionally authorised to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £4,401,378, provided that (unless previously revoked, varied or renewed) this authority shall expire on 25 August 2017 or at the conclusion of the next AGM of the Company after the passing of this resolution, whichever is the earlier, save that the Company may make an offer or agreement before this authority expires which would or might require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after this authority expires and the Directors may allot shares or grant such rights pursuant to any such offer or agreement as if this authority had not expired. This authority is in substitution for all existing authorities under Section 551 of the Companies Act 2006 (which, to the extent unused at the date of this resolution, are revoked with immediate effect). To consider and if thought fit, pass the following resolutions, which will be proposed as special resolutions of the Company. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o f n I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 137 24415.02 12 April 2016 1:38 PM Proof 6 137 12/04/2016 13:39:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Shareholder Information Notice of Annual General Meeting continued Resolution 14 THAT subject to the passing of Resolution 13 and pursuant to Section 570 of the Companies Act 2006, the Directors be and are generally empowered to allot equity securities (within the meaning of Section 560 of the Companies Act 2006) for cash pursuant to the authority granted by Resolution 13 as if Section 561(1) of the Companies Act 2006 did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: a. in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise): i. ii. to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and b. otherwise than pursuant to paragraph a. of this resolution, up to an aggregate nominal amount of £660,000, and (unless previously revoked, varied or renewed) this power shall expire on 25 August 2017 or at the conclusion of the next AGM of the Company after the passing of this resolution, whichever is the earlier, save that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted for cash after this power expires and the Directors may allot equity securities for cash pursuant to any such offer or agreement as if this power had not expired. This power is in substitution for all existing powers under Section 570 of the Companies Act 2006 (which, to the extent unused at the date of this resolution, are revoked with immediate effect). Resolution 15 THAT pursuant to Section 701 of the Companies Act 2006, the Company be and it is hereby generally and unconditionally authorised to make market purchases (within the meaning of Section 693(4) of the Companies Act 2006) of ordinary shares of 10p each in the capital of the Company (ordinary shares) provided that: a. the maximum aggregate number of ordinary shares hereby authorised to be purchased is 11,055,000; b. the minimum price (excluding expenses) which may be paid for an ordinary share is 10p; c. the maximum price (excluding expenses) which may be paid for an ordinary share is not more than the higher of: i. an amount equal to 105% of the average of the middle market quotations for an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the purchase is made; and ii. an amount equal to the higher of the price of the last independent trade of an ordinary share and the highest current independent bid for an ordinary share on the trading venue where the purchase is carried out; d. the authority hereby conferred shall expire at the conclusion of the next AGM of the Company after the passing of this resolution or, if earlier, on 25 August 2017; and e. the Company may make a contract to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be completed or executed wholly or partly after the expiry of such authority. By order of the Board R A Deards Company Secretary 22 April 2016 138 Henry Boot PLC Registered Office: Banner Cross Hall Ecclesall Road South Sheffield United Kingdom S11 9PD Registered in England and Wales No. 160996 Henry Boot Annual Report 2015 - Back.indd 138 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Notes 1. Only holders of ordinary shares in the Company are entitled to attend and vote at the AGM. 2. The holders of preference shares in the Company are not entitled to attend and vote at the AGM. 3. The right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register of members of the Company as at 6.00pm on 24 May 2016 (or, if the meeting is adjourned, 6.00pm on the date which is two working days before the date of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after that time shall be disregarded in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting. 4. A shareholder is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend and to speak and vote at the meeting. A proxy need not be a shareholder of the Company. A shareholder may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. Failure to specify the number of shares each proxy appointment relates to or specifying a number which when taken together with the numbers of shares set out in the other proxy appointments is in excess of the number of shares held by the shareholder may result in the proxy appointment being invalid. A proxy may only be appointed in accordance with the procedures set out in notes 5 to 7 below and the notes to the form of proxy. The appointment of a proxy will not preclude a shareholder from attending and voting in person at the meeting. 5. A form of proxy is enclosed with the notice issued to holders of ordinary shares. When appointing more than one proxy, complete a separate form of proxy in relation to each appointment. Additional forms of proxy may be obtained by photocopying the form of proxy. State clearly on each form of proxy the number of shares in relation to which the proxy is appointed. To be valid, a form of proxy must be received by post or (during normal business hours only) by hand at the offices of the Company’s registrars, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY, no later than 12.30pm on 24 May 2016 (or, if the meeting is adjourned, 48 hours (excluding any part of a day that is not a working day) before the time of any adjourned meeting). 6. As an alternative to completing the hard copy form of proxy, a shareholder may appoint a proxy or proxies electronically using the online service at www.investorcentre.co.uk/eproxy . For an electronic proxy appointment to be valid, the appointment must be received by Computershare Investor Services PLC no later than 12.30pm on 24 May 2016 (or, if the meeting is adjourned, no later than 48 hours (excluding any part of a day that is not a working day) before the time of any adjourned meeting). 7. CREST members who wish to appoint a proxy or proxies for the AGM (or any adjournment of it) through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual, which is available at www.euroclear.com. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by Computershare Investor Services PLC (ID: 3RA50) no later than 12.30pm on 24 May 2016 (or, if the meeting is adjourned, 48 hours (excluding any part of a day that is not a working day) before the time of any adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Computershare Investor Services PLC is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o f n I l r e d o h e r a h S Henry Boot Annual Report 2015 - Back.indd 139 24415.02 12 April 2016 1:38 PM Proof 6 139 12/04/2016 13:39:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Shareholder Information Notice of Annual General Meeting continued CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat a CREST Proxy Instruction as invalid in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 8. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares. 9. Where a copy of this notice is being received by a person who has been nominated to enjoy information rights under Section 146 of the Companies Act 2006 (Nominated Person): a. the Nominated Person may have a right under an agreement between him/her and the shareholder by whom he/she was nominated to be appointed, or to have someone else appointed, as a proxy for the meeting; or b. if the Nominated Person has no such right or does not wish to exercise such right, he/she may have a right under such an agreement to give instructions to the shareholder as to the exercise of voting rights. The statement of the rights of shareholders in relation to the appointment of proxies in notes 4 to 7 above does not apply to a Nominated Person. The rights described in such notes can only be exercised by shareholders of the Company. 10. A shareholder or shareholders having a right to vote at the meeting and holding at least 5% of the total voting rights of the Company (see note 15 below), or at least 100 shareholders having a right to vote at the meeting and holding, on average, at least £100 of paid up share capital, may require the Company to publish on its website a statement setting out any matter that such shareholders propose to raise at the meeting relating to either the audit of the Company’s Financial Statements (including the Auditors’ Report and the conduct of the audit) that are to be laid before the meeting or any circumstances connected with auditors of the Company ceasing to hold office since the last AGM of the Company in accordance with Section 527 of the Companies Act 2006. Any such request must: a. identify the statement to which it relates, by either setting out the statement in full or, if supporting a statement requested by another shareholder, clearly identifying the statement that is being supported; b. comply with the requirements set out in note 11 below; and c. be received by the Company at least one week before the meeting. Where the Company is required to publish such a statement on its website: i. ii. it may not require the shareholders making the request to pay any expenses incurred by the Company in complying with the request; it must forward the statement to the Company’s auditors no later than the time when it makes the statement available on the website; and iii. the statement may be dealt with as part of the business of the meeting. 140 Henry Boot Annual Report 2015 - Back.indd 140 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY 11. Any request by a shareholder or shareholders to require the Company to publish audit concerns as set out in note 10: a. may be made either: i. ii. in hard copy, by sending it to the Company Secretary, Henry Boot PLC, Banner Cross Hall, Ecclesall Road South, Sheffield S11 9PD; or in electronic form, by sending it by email to cosec-ir@henryboot.co.uk. Please state ‘Henry Boot PLC: AGM’ in the subject line of the email; b. must state the full name(s) and address(es) of the shareholder(s); and c. where the request is made in hard copy form, it must be signed by the shareholder(s). 12. Shareholders have the right to ask questions at the meeting relating to the business being dealt with at the meeting in accordance with Section 319A of the Companies Act 2006. The Company must answer any such question unless: a. to do so would interfere unduly with the preparation for the meeting or would involve the disclosure of confidential information; b. the answer has already been given on a website in the form of an answer to a question; or c. it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. 13. The information required by Section 311A of the Companies Act 2006 to be published in advance of the meeting, which includes the matters set out in this notice and information relating to the voting rights of shareholders, is available at: www.henryboot.co.uk 14. Except as expressly provided above, shareholders who wish to communicate with the Company in relation to the meeting should do so using the following means: a. telephone 0114 255 5444; or b. email to cosec-ir@henryboot.co.uk. No other methods of communication will be accepted. 15. As at 4 April 2016 (being the last practicable date before publication of this notice), the Company’s issued ordinary share capital was 132,041,358 ordinary shares, carrying one vote each and representing the total number of voting rights in the Company. i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i Henry Boot Annual Report 2015 - Back.indd 141 24415.02 12 April 2016 1:38 PM Proof 6 n o i t a m r o f n I l r e d o h e r a h S 141 12/04/2016 13:39:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Shareholder Information Financial Calendar London Stock Exchange Announcements Preliminary Statement of Results 2015: 24 March 2016 Half-yearly Results 2016: 25 August 2016 Pre-close Trading Statement 2016: end January 2017 Annual Report and Financial Statements Annual Report and Financial Statements 2015 (Available and online): by 22 April 2016 Advisers Chartered Accountants and Statutory Auditors PricewaterhouseCoopers LLP St Paul’s Place 121 Norfolk Street Sheffield S1 2LE Bankers Barclays Bank PLC 1 St Paul’s Place 121 Norfolk Street Sheffield S1 2JW Santander UK PLC 44 Merrion Street Leeds LS2 8JQ The Royal Bank of Scotland plc 2 Whitehall Quay Leeds LS1 4HR Corporate Finance KPMG Corporate Finance 1 Sovereign Square Sovereign Street Leeds LS1 4DA 142 Annual General Meeting 26 May 2016 Dividends Paid on Ordinary Shares 2015 Final dividend date (Subject to approval at AGM): 31 May 2016 2016 Interim dividend date (Subject to approval): 21 October 2016 Financial PR Tooleystreet Communications Limited Regency Court 68 Caroline Street Birmingham B3 1UG Registrars Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE Solicitors DLA Piper UK LLP 1 St Paul’s Place Sheffield S1 2JX Stockbrokers Investec Bank plc 2 Gresham Street London EC2V 7QP Henry Boot Annual Report 2015 - Back.indd 142 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:58 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Group Contact Information Land Development Hallam Land Management Limited Construction Henry Boot Construction Limited Head office Banner Cross Hall, Ecclesall Road South, Sheffield, S11 9PD Head office Callywhite Lane, Dronfield, Derbyshire, S18 2XN t: 0114 255 5444 e: info@hallamland.co.uk w: www.hallamland.co.uk t: 01246 410111 e: hbc@henryboot.co.uk w: www.henrybootconstruction.co.uk Regional offices Bristol, Glasgow, Leeds, London, Manchester and Northampton Regional office Manchester Property Investment and Development Henry Boot Developments Limited Head office Banner Cross Hall, Ecclesall Road South, Sheffield, S11 9PD t: 0114 255 5444 e: hbdl@henryboot.co.uk w: www.henrybootdevelopments.co.uk Regional offices Bristol, Glasgow, London and Manchester Stonebridge Projects Limited Head office 1 Featherbank Court, Horsforth, Leeds, LS18 4QF t: 0113 357 1100 e: sales@stonebridgehomes.co.uk or info@stonebridgeoffices.co.uk w: www.stonebridgehomes.co.uk or www.stonebridgeoffices.co.uk Banner Plant Limited Head office Callywhite Lane, Dronfield, Derbyshire, S18 2XS t: 01246 299400 e: dronfield@bannerplant.co.uk w: www.bannerplant.co.uk Hire centres Chesterfield, Derby, Dronfield, Leeds, Rotherham and Wakefield Road Link (A69) Limited Head office Stocksfield Hall, Stocksfield, Northumberland, NE43 7TN t: 01661 842842 e: enquiries@roadlinka69.co.uk i w e v r e v O t r o p e R c g e t a r t i S e c n a n r e v o G s t n e m e t a t S l i a c n a n F i n o i t a m r o f n I l r e d o h e r a h S Visit us online For more information on Henry Boot PLC please visit our website at www.henryboot.co.uk 143 12/04/2016 13:39:59 Henry Boot Annual Report 2015 - Back.indd 143 24415.02 12 April 2016 1:38 PM Proof 6 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2015 www.henryboot.co.uk Stock Code: BHY Shareholder Information Our Group locations National coverage The head office of the Henry Boot Group is located in Sheffield but we operate throughout the country and have eight regional offices and six plant hire centres. Head Office Sheffield Offices Bristol Dronfield Glasgow Leeds London Manchester Northampton Stocksfield Hire Centres Chesterfield Dronfield Derby Leeds Rotherham Wakefield This Annual Report is printed by an FSC® (Forest Stewardship Council), certified printer using vegetable based inks. This report has been printed on Claro silk, a white coated paper and board using 100% EFC pulp. 144 Henry Boot Annual Report 2015 - Back.indd 144 24415.02 12 April 2016 1:38 PM Proof 6 12/04/2016 13:39:59 Glossary We have used some terms in this report to explain how we run our business that might be unfamiliar to you. The following list gives a definition for some of the more frequently used terms: Localism Bill A bill to devolve greater powers to councils and neighbourhoods and give local communities more control over housing and planning decisions. Renewable energy Energy which comes from natural resources such as sunlight, wind, rain, tides, waves and geothermal heat, which are naturally replenished. Net asset value per share (NAV) Equity shareholders’ funds divided by the number of shares in issue at the balance sheet date. Operating profit Profit earned from a company’s core activities. Option Agreement A legal agreement between a landowner and another party for the right to buy land within a set time scale at the conclusion of a satisfactory planning permission. Ordinary share Any shares that are not preferred shares and do not have any predetermined dividend amounts.  An ordinary share represents equity ownership in a company and entitles the owner to a vote in matters put before shareholders in proportion to their percentage ownership in the company. Planning Promotion Agreement (PPA) A legal agreement between a landowner and another party for a set time scale and financial consideration to promote land through the UK planning system. Pre-let A lease signed with a tenant prior to completion of a development. PFI contract A Private Finance Initiative contract is a contract between a public body and a private company and involves the private sector making capital investment in the assets required to deliver improved services. They are typified by long contract lengths, often 30 years or more. Retail Price Index (RPI)/ Retail Price Index ‘Jevons’ (RPIJ)/Consumer Price Index (CPI) Monthly inflation indicators based on different ‘basket’ of products issued by the Office of National Statistics Return on capital employed (ROCE) A financial ratio that measures a company’s profitability and the efficiency with which its capital is employed. Subsidiary company A company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company or holding company. A subsidiary is a company that is partly or completely owned by another company that holds a controlling interest in the subsidiary company. Total shareholder return (TSR) Dividends and capital growth in the share price, expressed as a percentage of the share price at the beginning of the year. Trading profit The difference between an organisation’s sales revenue and the cost of goods sold. UK Planning System This system consists of the process of managing the development of land and buildings. The purposes of this process are to save what is best of our heritage and improve the infrastructure upon which we depend for a civilised existence. Commercial property This refers to buildings or land intended to generate a profit, either from capital gain or rental income, such as office building, industrial property, retail stores, etc. CAGR Compound Annual Growth Rate. Disclosure and Transparency Rules (DTR) Issued by the United Kingdom Listing Authority. Dividend A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Gearing Net debt expressed as a percentage of equity shareholders’ funds. Earnings per share (EPS) Profit for the period attributable to equity shareholders divided by the average number of shares in issue during the period. IAS International Accounting Standard IASB International Accounting Standards Board IFRS International Financial Reporting Standard Inventory value The determination of the cost of unsold inventory at the end of the accounting period. IOSH Institution of Occupational Safety and Health. LIBOR The London Interbank Offered Rate is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank market). Henry Boot Annual Report 2015 Strategic.indd 6 24415.04 12 April 2016 1:31 PM Proof 6 12/04/2016 13:33:11 Henry Boot PLC Registered office Banner Cross Hall Ecclesall Road South Sheffield S11 9PD United Kingdom Registered in England and Wales No. 160996 t: 0114 255 5444 e: cosec-ir@henryboot.co.uk www.henryboot.co.uk H e n r y B o o t P L C A n n u a l R e p o r t a n d F i n a n c i a l S t a t e m e n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 5 Henry Boot Annual Report 2015 Strategic.indd 1 24415.04 12 April 2016 1:31 PM Proof 2 12/04/2016 13:33:06 

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