Henry Boot plc Annual Report 2017

Plain-text annual report

25654 5 April 2018 5:41 PM Proof 1625654 5 April 2018 5:41 PM Proof 16Henry Boot PLCAnnual Report and Financial Statements for the year ended 31 December 2017Stock Code: BOOT.Lwww.henryboot.co.ukHenry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Welcome to the Henry Boot PLC Annual Report 2017 EXPERIENCE AND EXPERTISE Established in 1886, we are one of the UK’s leading land promotion, property investment and development, and construction companies. Our culture, ‘The Henry Boot Way’, means that we have a unique and cohesive approach to doing business. We started the ‘One Henry Boot’ Project so we could capture what ‘The Henry Boot Way’ is about. We have defined three core elements of ‘The Henry Boot Way’: Our Purpose, Our Vision and Our Values. Read about ‘The Henry Boot Way’ on pages 4 to 7 View the video explaining our culture and the ‘One Henry Boot’ Project on our corporate website We maintain a corporate website containing a wide range of information of interest to investors and stakeholders www.henryboot.co.uk View the Year in Review site at henryboot.annualreport2017.com 25654 5 April 2018 5:41 PM Proof 16 25654 5 April 2018 5:41 PM Proof 16 Inside this Report Group at a Glance The strength of the business and our consistent growth is achieved through our Group structure and diverse business segments. See pages 10 and 11 Segmental Reviews Land Promotion, Property Investment and Development, and Construction. See pages 30 to 35 The ‘One Henry Boot’ Project See pages 14 and 15 Business Model Our ability to deliver long-term value for stakeholders is underpinned by our business model. See pages 16 to 19 OVERVIEW Chairman’s Statement ‘The Henry Boot Way’ Investment Case 2017 Highlights Group at a Glance STRATEGIC REPORT The ‘One Henry Boot’ Project Business Model – Our Operations Business Model – Group Financial Strength Market Review Our Strategy Segmental Case Studies Key Performance Indicators Segmental Reviews: Land Promotion Property Investment and Development Construction Financial Review Risks and Uncertainties Corporate Responsibility GOVERNANCE Board of Directors Senior Management Chairman’s Introduction Corporate Governance Statement Nomination Committee Report Audit Committee Report Directors’ Remuneration Report Directors’ Remuneration Policy Directors’ Report Statement of Directors’ Responsibilities FINANCIAL STATEMENTS Independent Auditors’ Report Consolidated Statement of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Principal Accounting Policies Notes to the Financial Statements SHAREHOLDER INFORMATION Notice of Annual General Meeting Financial Calendar Advisers Group Contact Information Our Group Locations Glossary 2 4 8 9 10 14 16 19 20 22 24 28 30 30 32 34 36 40 44 56 60 61 62 69 71 74 84 92 97 100 106 107 108 109 110 118 156 161 161 162 163 164 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 1 Henry Boot AR2017.indd 1 4/4/2018 8:22:09 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 152Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Chairman’s StatementProfit before tax £55.4mDividend per ordinary share8.00p2013£18.4m2014£28.3m2015£32.4m2016£39.5m2017£55.4m20135.10p20145.60p20156.10p20167.00p20178.00pJAMIE BOOT ChairmanPURPOSE AND VISIONI am very pleased to report a 40% increase in profit before tax to £55m for the year ended 31 December 2017. These record results produced an earnings per share increase of 49% to 32.1p, and retained earnings, which benefited from a slightly lower pension deficit, resulted in our net asset value per share exceeding 200p for the first time. Total capital employed rose to £270m. As an indication of the volume of activity undertaken in 2017, revenue exceeded £400m in the year, which is more than double that achieved two years ago in 2015, as we deliver projects such as the new Aberdeen Exhibition and Conference Centre, the residential conversion of the former Terry’s Chocolate Factory and the extension of our Markham Vale industrial scheme. We also sold 15 strategic land sites, delivered over £60m of construction work, £17m of plant hire sales and almost £25m of new house sales through our joint venture house builder, Stonebridge Homes.We were also successful in adding future opportunities into the Group’s divisions, with the estimated value of the longer term, commercial development scheme pipeline now exceeding £1.0bn for the first time. Our strategic land acreage increased by over 10% to more than 13,000 acres, after taking account of the acreage sold during the year. We also added some 2,200 plots to our inventory of plots to sell, having obtained planning permission on some 4,500 plots during the year. The scale and number of these sites and schemes, held as inventory, are once again at record levels, giving us confidence that we can continue to deliver sustainable returns to our stakeholders well into the future.DividendIn view of the strong performance in the year, I am pleased to report that the Board is recommending a final dividend of 5.20p, giving a total for the year of 8.00p, an increase of 14% over the total paid for the 2016 year. Payment of the final dividend is subject to shareholder approval at the Annual General Meeting and will be paid on 30 May 2018 to shareholders on the register as at 27 April 2018.Henry Boot AR2017.indd 24/4/2018 8:22:17 PMOur People The very successful operational and financial results achieved in 2017 are a direct reflection of all the people within Henry Boot whose skill, talent and hard work have once again delivered positive results for all our stakeholders. In last year’s Annual Report, we highlighted that we had commenced a project called ‘One Henry Boot’. Its purpose was to understand ‘The Henry Boot Way’ and our culture; and to focus on our Purpose, Vision and Values. We recognise that our people play, and will continue to play, a crucial role in our business success. Initiating this project demonstrates our commitment to the ongoing empowerment and development of them, our most valuable resource. On behalf of the Board, shareholders and other stakeholders, we thank all our people for their contribution and look forward to reporting on their success in the future. Outlook Our key strategic aim is to empower and develop our people to create long-term value and sustainable growth for our stakeholders. In 2017, we achieved a great financial result, whilst strengthening our ability to replicate this in future years. Our Group is focused on UK real estate and we are therefore very mindful of the cyclical nature of our marketplace and also the current background level of uncertainty regarding negotiations to leave the EU. However, we take our lead from our customers who, in 2017, were very supportive and, whilst it is still early days, the new year indications are equally positive. In the wider marketplace, current expectations are that economic growth will be similar to 2017 for the next two years, supported by a generally strong global economy. We have made a good start to the 2018 financial year, having already concluded a number of land sales. In addition, we have a strong pipeline of construction work, commercial development projects and strategic land sites working through the marketing process, on which to capitalise through the year. Our focus consequently continues to be on the profitable delivery of these schemes and the value they will create for all our stakeholders. I look forward to reporting on our success in doing this through 2018 and beyond. JAMIE BOOT Chairman 20 April 2018 “ We recognise that our people play, and will continue to play, a crucial role in our business success.” JAMIE BOOT Chairman 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 A C N A N F I I Read about the Board of Directors on pages 58 to 59 Pictured: St George’s Hall, the Grade II listed building is being restored by Henry Boot Construction. I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 3 Henry Boot AR2017.indd 3 4/4/2018 8:22:21 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 154Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017A DIFFERENT PERSPECTIVEWe have been in business for over 130 years and our financial results and performance have always been, and will continue to be, dependent on our people. We often use the phrase ‘The Henry Boot Way’ to explain how we work and to describe what’s expected of us and others. We started the ‘One Henry Boot’ Project so we could capture what ‘The Henry Boot Way’ is about. We have defined three core elements of ‘The Henry Boot Way’: Our Purpose, Our Vision and Our Values.Our PurposeOur VisionTo empower and develop our people to create long-term value and sustainable growth for our stakeholders.* Read more about the ‘One Henry Boot’ Project on pages 14 and 15Watch the video explaining our culture and the ‘One Henry Boot’ Project on our corporate websiteOur people, partners and communities continue to trust our reputation, respect our expertise and value us for our forward-thinking approach.* Our stakeholders are our shareholders, employees, pensioners, customers and suppliers. More broadly, we recognise our duties to the environment and the communities in which we operate.4‘The Henry Boot Way’Henry Boot AR2017.indd 44/4/2018 8:22:33 PM25654 4 April 2018 8:20 PM Proof 155Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Henry Boot AR2017.indd 54/4/2018 8:22:35 PM‘The Henry Boot Way’ WHAT WE BELIEVE IN Our Values Respect Integrity Loyalty — We treat everyone in the way they wish — We do what we say we are going to — We celebrate our heritage, our history to be treated. do. and our achievements. — We think about what we do, how we — We keep our promises, stay true to — We are committed to giving back to do it and how it will impact others. — We recognise and value difference. — We recognise and value everyone’s individual contribution. — We foster two-way, clear and our word. our communities. — We do what is right, not what — We build our reputation on strong is easy. relationships. — We tackle problems head on. — We operate with the utmost — We build our reputation on repeat business. constructive communication. professionalism. — We value the longevity of our — We strive to always meet our commitments and obligations. — We champion ethical working. — We operate fairly and equitably in — We put sustainability and safety at the everything we do. heart of what we do. relationships with our business and our partners. — We are totally committed to our people’s learning and development. — We place great value on “growing our own”. Delivery Adaptability Collaboration — We are relentless in delivering for our customer. — We thrive on our customers’ success. — We deliver our best quality work for everyone, no matter what. — We get things done properly. — We are skilled and resourceful — We welcome change. — We are open to opportunities to do things differently. — We set clear mutual expectations and strive to achieve them. — We work in partnership to make — We share our knowledge and things happen. experience for the greater good. — We promote cross-team working — We seek to positively challenge what always. problem-solvers. — We always think about how we could we do and how we do it. — We are a friendly and open bunch. — We look out for each other and want — We are all self-motivated to deliver. — We set ambitious goals and meet them. do things better. to get to know people. — We stay ahead of the game. — We are resilient, have staying power. — We are straightforward to do business with. — We have time and patience for people. — We share our financial rewards with our people. Read about the ‘One Henry Boot’ Project on pages 14 and 15 6 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 6 4/4/2018 8:22:38 PM 25654 4 April 2018 8:20 PM Proof 15 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 7 Henry Boot AR2017.indd 7 4/4/2018 8:22:41 PM 25654 4 April 2018 8:20 PM Proof 15 Investment Case Five key drivers of growth 1 Good financial track record over the long term — Providing reliable earnings through cyclical markets with good visibility from the opportunities under control. — Prudent debt levels and a disciplined approach to risk management. — Trading profit produced within our three business segments: — Land Promotion — Property Investment and Development — Construction A long-established and efficient capital structure 2 — Reinvestment of cash generated in the construction segment into strategic land and commercial development assets to enhance returns to shareholders. — We aim to provide dividend growth while maintaining at least three times dividend cover to allow for investment in future opportunities, without diluting existing shareholders by raising new equity capital. Delivering residential communities 3 — 13,000 acres of strategic land on 167 sites throughout the UK. — Our strategic land business has the scope to deliver 50,000 to 60,000 housing units over the next 10 to 20 years, with over 18,000 secured planning permission plots. — Given the well-documented housing shortages and the government’s desire for more housing delivery our land portfolio is well positioned to help deliver these much needed houses. Shareholder returns 5 — Our long-term strategic aim is to create shareholder value through land promotion, property development and construction. — Strong organic growth drivers and capital allocation across our three business segments. — Dividend has increased by 160% over the last ten years. Delivering commercial opportunity 4 — A commercial development pipeline of £1bn plus of Gross Development Value in addition to the £450m to be delivered over the next three years. — A small but quickly growing jointly owned house builder with a land bank of over 750 units and a medium-term planned output of 250 unit sales. Five-year TSR performance 700 600 500 400 300 200 100 0 (100) D e c - 1 2 Henry Boot PLC FTSE Small Cap Index J u n - 1 3 D e c - 1 3 J u n - 1 4 D e c - 1 4 J u n - 1 5 D e c - 1 5 J u D e n - 1 6 c - 1 6 J u n - 1 7 D e c - 1 7 8 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 8 4/4/2018 8:22:41 PM 25654 4 April 2018 8:20 PM Proof 15 2017 Highlights Financial Highlights Operational Highlights Profit before tax £55.4m Net debt £29.0m £55.4m £38.9m £36.1m £36.4m £32.9m £29.0m £39.5m £32.4m £28.3m £18.4m 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Operating profit £56.2m Net asset value per ordinary share 203p £56.2m 203p £39.5m 148p 152p 177p 168p £31.7m £28.0m £19.0m 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Earnings per ordinary share 32.1p Dividends per ordinary share 8.00p 32.1p 8.00p 7.00p 21.5p 5.10p 6.10p 5.60p 17.5p 16.2p 8.6p 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 — Record financial performance in the Group’s entire 132-year history achieved for 2017. — Strategic land portfolio now 13,273 acres with 18,529 units permissioned and 7,892 units in planning process. — York Chocolate Factory scheme delivered in 18 months, ahead of our three-year estimation. — £333m Aberdeen scheme progressing well, estimated completion is mid-2019. — Delivery of the £35m Better Barnsley town centre regeneration scheme, now known as The Glass Works, continues to progress well. — Stonebridge Homes increased their house sale total to 79. — During 2017 Banner Plant acquired Premier Plant Tool Hire & Sales Limited in Leicester, which added a plant and a tool hire depot to its operations. — The ‘One Henry Boot’ Project delivered a refreshed Purpose, Vision and Values to the Group, with a clearer understanding of ‘The Henry Boot Way’, our culture. “ These record Group results are a commendable achievement by our talented people.” DARREN LITTLEWOOD Group Finance Director 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 A C N A N F I I Read the Financial Review on pages 36 to 39 Read the Segmental Reviews on pages 30 to 35 I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 9 Henry Boot AR2017.indd 9 4/4/2018 8:22:43 PM 25654 4 April 2018 8:20 PM Proof 15 Group at a Glance EXPERTISE AND EXPERIENCE The strength of the business and our consistent growth is achieved through our Group structure and diverse business segments. Group Structure The Group is split into three different business segments consisting of six primary businesses. The Parent Company, Henry Boot PLC, provides leadership, direction and support to each segment in a number of areas, including health, safety and environment, treasury and banking operations, accounts and payroll, company secretariat, pensions, legal, human resources and training, public and investor relations, corporate communications, information communication technology and insurance. Land Promotion Property Investment and Development Construction Hallam Land Management Limited Henry Boot Developments Limited Henry Boot Construction Limited Stonebridge Homes Limited Banner Plant Limited Road Link (A69) Limited Profit Before Tax £55.4m Group Revenue £408.5m Land Promotion 41.7% Property Investment and Development 47.3% Construction Group Overheads/Eliminations 18.0% (7.0)% Land Promotion 18.7% Property Investment and Development 61.4% Construction Group Overheads/Eliminations 21.9% (2.0)% 10 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 10 4/4/2018 8:22:44 PM 25654 4 April 2018 8:20 PM Proof 15 Our segments Land Promotion Hallam Land Management Property Investment and Development Stonebridge Homes Henry Boot Developments The strategic land and planning promotion arm of the Henry Boot Group. Since 1990 we have been acquiring, promoting and developing land with an outstanding record in achieving planning permission. Key sectors — Housing — Sustainable communities — Business parks Construction Henry Boot Construction A major established leading force in the UK with its considerable experience and impressive reputation in all sectors of property development. In recent years the company has built up an investment portfolio of over £120m. Key sectors 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. — Retail, industrial, leisure, office Key sectors space and commercial development — Residential development — Development partnerships — Serviced office space — Residential development Banner Plant Road Link (A69) 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 Specialising in serving both public and private clients in all construction and civil engineering sectors, in which we have strong partnering relationships. Key sectors — Housing, civil engineering, health, sports and leisure, commercial/ retail, industrial, custodial and education. Offering a wide range of construction equipment and services for sale and hire in plant, temporary accommodation, power tools, powered access, big air compressors and serviced toilets. The range of products continues to evolve to meet customer requirements of modern health and safety legislation. Primarily, supply areas stretch from Yorkshire in the north to the East Midlands and Birmingham in the south. Road Link has a 30-year contract (eight years remaining) with Highways England to operate and maintain the A69 trunk road between Carlisle and Newcastle upon Tyne. Works include road resurfacing, bridge repairs, winter preparation and routine maintenance. Highways England pays Road Link (A69) a shadow toll, which is a fee based upon the number of vehicles using the road and mileage travelled by those vehicles. S T N E M E T A T S L A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 11 Henry Boot AR2017.indd 11 4/4/2018 8:23:04 PM 25654 4 April 2018 8:20 PM Proof 15 Henry Boot AR2017.indd 12 4/4/2018 8:23:07 PM 25654 4 April 2018 8:20 PM Proof 15 STRATEGIC REPORT The Directors present the Group Strategic Report for the year ended 31 December 2017. 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 14 to 53 has been approved by the Board and signed on its behalf by JOHN SUTCLIFFE Chief Executive Officer DARREN LITTLEWOOD Group Finance Director 20 April 2018 20 April 2018 The ‘One Henry Boot’ Project Business Model – Our Operations Business Model – Group Financial Strength Market Review Our Strategy Segmental Case Studies Key Performance Indicators Segmental Reviews: Land Promotion Property Investment and Development Construction Financial Review Risks and Uncertainties Corporate Responsibility 14 16 19 20 22 24 28 30 30 32 34 36 40 44 13 Henry Boot AR2017.indd 13 4/4/2018 8:23:08 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 1514Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017The ‘One Henry Boot’ ProjectJOHN SUTCLIFFE Chief Executive OfficerPerception auditAUGUST 2016Launch of ‘One Henry Boot’ ProjectFEBRUARY 2017Defined ‘The Henry Boot Way’FEBRUARY – AUGUST 2017Watch the video explaining our culture and the ‘One Henry Boot’ Project on our corporate websiteBUILT FROM THE GROUND UPTimelineIn last year’s report we introduced the ‘One Henry Boot’ Project. It was initiated to capture our culture, which we refer to as ‘The Henry Boot Way’; and to focus on three of its core elements: Our Purpose, Our Vision and Our Values. To ensure this project was authentic to Henry Boot we asked for volunteers from across our Group of companies, who we then divided into three individual Working Groups. It was a truly collaborative effort from everyone involved and by the end of June 2017, the first phase of the project was completed.We are currently on phase 2, which we have split into three separate stages: launch, adoption and embedding. It is very important to us that we do justice to the work undertaken, and that we ensure that the outputs from phase 1 are adopted throughout our business. To enable this to happen, 12 ambassadors were nominated to help champion the ‘One Henry Boot’ Project and therefore embed ‘The Henry Boot Way’ into everything we do. Phase 1 also helped us appreciate the importance of bringing everyone together to share feedback and how powerful this can be in helping continuous improvement in the business. As a result we formed a further eight Working Groups in phase 2 who were each given a specific important subject to debate and then put forward recommendations for improvements.This is only the start of the journey for us. This whole process and experience has not been about reinvention, it has been about capturing what makes this business successful and recognising that our people remain vital to achieving this. ‘The Henry Boot Way’ will continue to be a crucial element of our business as I believe it will enable and empower our people and help us to be successful in the future. Henry Boot AR2017.indd 144/4/2018 8:23:17 PMWhy did we carry out the ‘One Henry Boot’ Project? — To address the feedback from the Perception Audit — To respond to the demands from institutional investors and potential customers for more clarity on the culture of the Group — To provide our stakeholders with a better understanding of how we work as a Group — To promote and protect the external image, marketability and ethos of the Group — To ensure longevity and sustainability of the Group — To identify and recognise what is already great about the Company, capture it, ensure everyone knows about it and celebrate it — To ensure that all employees understand their role, and how they contribute to the Group’s continued success — To improve collaboration and promote a one Group approach; where we all feel part of the bigger picture — To strengthen employee engagement and staff recruitment “ We are and always have been a people business and our restated Purpose, Vision and Values reflect and re-enforce this message.” JOHN SUTCLIFFE Chief Executive Officer Investors in People Another positive step to come out of the ‘One Henry Boot’ Project was the decision to apply for The Investors in People accreditation for the whole Group. Henry Boot Construction and Henry Boot PLC both had accreditation as individual companies. Henry Boot Construction continues to be accredited while we work towards a Group-wide award. Given the timing of the renewal window for Henry Boot PLC, we decided not to pursue an individual renewal so that we could focus on the Group effort. In 2018, we intend to apply for Group accreditation and hope to be in a position to confirm we have achieved this in next year’s report. What some of our Working Group Volunteers think: 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 “ We are and always have been a people business and our restated Purpose, Vision and Values reflect and re-enforce this message.” “ It’s a very supportive and cooperative place to work.” “ Henry Boot want to know our point of view.” “ The set of values now reflects the values that Henry Boot really adhere to.” “We look out for each other. We are family.” HAMER BOOT Regional Manager LYDIA McGUINNESS Trainee Technician TIM BURN Senior Project Manager DAVID HODSON Accounts Assistant SEPTEMBER – DECEMBER 2017 JANUARY – JUNE 2018 JULY 2018 – ONGOING Launch of ‘The Henry Boot Way’ Adoption of ‘The Henry Boot Way’ Embedding of ‘The Henry Boot Way’ S T N E M E T A T S L A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 15 Henry Boot AR2017.indd 15 4/4/2018 8:23:18 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 1516Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Business Model — Our OperationsInvestment into land acquisition and planning permission processConstruction SALE OF PROPERTYCyclical RevenueINVESTMENT PORTFOLIODEVELOPMENT OF SITESALE OF LAND Recurring RevenueIDENTIFY OPPORTUNITIES AND ACQUIRE LANDOBTAIN PLANNING PERMISSION Land PromotionProperty Investment and Development LandPromotionProperty Investmentand DevelopmentLandPromotionProperty Investmentand DevelopmentProperty Investmentand DevelopmentProperty Investmentand DevelopmentRecurring RevenueCyclical RevenueGaining planning permission on land adds immense value to its worth and is a crucial part of the operations of both the Land Promotion and Property Investment and Development segments. Our high level of expertise in resolving complex planning issues and our partnerships are key enablers to achieving successful outcomes in the promotion of sites through the planning process. Maintaining close relationships with key property advisers alerts us to potential opportunities. Throughout the process, we work closely with landowners, calling on the knowledge and guidance of planning consultants and legal advisers as required. Hallam Land Management promotes land for residential, commercial and retail consent.Henry Boot Developments promotes land for commercial development. Stonebridge Homes promotes land for residential development. Hallam Land Management acquires mainly agricultural land and then promotes it for its highest value use. The use of agency and option agreements, as opposed to buying all land outright, means less expenditure on each asset, allowing us to maximise the number of land opportunities that we are involved in at any one time. As investment is spread over many assets, this reduces the overall risk of involvement in the planning process and maximises the likelihood of making a return on the capital invested.Henry Boot Developments acquires mainly brownfield land.Our ability to deliver long-term value for stakeholders is underpinned by our business model. Henry Boot operates across the whole property value chain. We acquire land without planning permission, obtain planning permission, develop sites and maintain an investment portfolio. Our people are at the heart of all that we achieve; we develop skilled employees who deliver profitable schemes with confidence.Henry Boot PLC has six primary businesses, in three segments:Land Promotion: Hallam Land ManagementProperty Investment and Development: Henry Boot Developments and Stonebridge HomesConstruction: Henry Boot Construction, Banner Plant and Road Link (A69)Henry Boot AR2017.indd 164/4/2018 8:23:19 PM25654 4 April 2018 8:20 PM Proof 15Investment into land acquisition and planning permission processConstruction SALE OF PROPERTYCyclical RevenueINVESTMENT PORTFOLIODEVELOPMENT OF SITESALE OF LAND Recurring RevenueIDENTIFY OPPORTUNITIES AND ACQUIRE LANDOBTAIN PLANNING PERMISSION Land PromotionProperty Investment and Development LandPromotionProperty Investmentand DevelopmentLandPromotionProperty Investmentand DevelopmentProperty Investmentand DevelopmentProperty Investmentand DevelopmentRecurring RevenueCyclical RevenueThe six primary businesses within Henry Boot all operate relatively autonomously within their respective business segments, and it is rare that they will work on the same assets. However, the businesses will work on the same projects if the circumstances are right. For example, Henry Boot Construction may act as a construction contractor for the Property Investment and Development businesses, if it tenders the best bid. The businesses share ideas and best practice with each other.Unlike Hallam Land Management, when Henry Boot Developments and Stonebridge Homes gain planning permission for a site, they will develop it themselves.The ability that Henry Boot Developments has to self-fund or source prefunding opens up opportunities for the business. It means that they do not require bank funding before agreeing to development work and can commit to long-term projects, such as complex multi-site regeneration schemes.Once Hallam Land Management obtains planning permission on a site, it is sold to a developer, sometimes after infrastructure has been installed. The amount of capital required to achieve planning permission on a section of land is a very small proportion of the total capital required for the whole building process, from acquisition of land without planning permission through to completion of construction. This means that Hallam Land Management is focused on maximising the most profitable section of the housebuilding process for the lowest amount of working capital.The businesses share ideas and working best practice with each other.The diversification of the Group activities strengthens the business. Being involved in multiple sectors – residential, retail and industrial development, construction and civil engineering – means that we are not overly exposed to one particular market. This enables us to weather the economic landscape and deliver on our key objective of maximising stakeholder value.Investment into land acquisition and planning permission processConstruction SALE OF PROPERTYCyclical RevenueINVESTMENT PORTFOLIODEVELOPMENT OF SITESALE OF LAND Recurring RevenueIDENTIFY OPPORTUNITIES AND ACQUIRE LANDOBTAIN PLANNING PERMISSION Land PromotionProperty Investment and Development LandPromotionProperty Investmentand DevelopmentLandPromotionProperty Investmentand DevelopmentProperty Investmentand DevelopmentProperty Investmentand DevelopmentRecurring RevenueCyclical Revenue17Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Henry Boot AR2017.indd 174/4/2018 8:23:19 PM25654 4 April 2018 8:20 PM Proof 15Investment into land acquisition and planning permission processConstruction SALE OF PROPERTYCyclical RevenueINVESTMENT PORTFOLIODEVELOPMENT OF SITESALE OF LAND Recurring RevenueIDENTIFY OPPORTUNITIES AND ACQUIRE LANDOBTAIN PLANNING PERMISSION Land PromotionProperty Investment and Development LandPromotionProperty Investmentand DevelopmentLandPromotionProperty Investmentand DevelopmentProperty Investmentand DevelopmentProperty Investmentand DevelopmentRecurring RevenueCyclical RevenueOur Construction division is formed from three primary businesses: Henry Boot Construction, Banner Plant and Road Link (A69). Henry Boot Construction is a contractor specialising in serving both public and private clients in all construction and civil engineering sectors. Banner Plant offers a wide range of services, and a high quality inventory of equipment for hire and sale, such as temporary accommodation, powered access equipment, tools and non-man operated plant. Road Link (A69) has a contract with Highways England to operate and maintain the A69 trunk road between Carlisle and Newcastle upon Tyne. Highways England pays Road Link a fee based on the number of vehicles using the road and the mileage travelled.Once a property is developed, it may be immediately sold, generating significant revenue. Properties may be retained by the business to form part of the investment portfolio and may be sold at a later time.A number of the finished property developments are retained and managed by the Property Investment and Development segment. The property investment portfolio of Henry Boot Developments is worth over £120m and generates a sizeable amount of rental income each year. View the video explaining our Business Model on our corporate websiteInvestment into land acquisition and planning permission processConstruction SALE OF PROPERTYCyclical RevenueINVESTMENT PORTFOLIODEVELOPMENT OF SITESALE OF LAND Recurring RevenueIDENTIFY OPPORTUNITIES AND ACQUIRE LANDOBTAIN PLANNING PERMISSION Land PromotionProperty Investment and Development LandPromotionProperty Investmentand DevelopmentLandPromotionProperty Investmentand DevelopmentProperty Investmentand DevelopmentProperty Investmentand DevelopmentRecurring RevenueCyclical Revenue18Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONHenry Boot AR2017.indd 184/4/2018 8:23:20 PMBusiness Model — Group Financial Strength Bank funding relationships (only when required) GROUP CASH Investment into land acquisition and planning permission process P O TENTIAL RECURRING REVENUE L A I T N E T O P CYCLICAL REVENUE P O T E N T I A L RECURRING REVENUE The revenue from construction and the property investment portfolio is regular and stable. This income allows Henry Boot PLC to maintain long-term bank funding relationships. POTENTIAL CYCLICAL REVENUE Sale of land and property developments generates cyclical revenue. These activities are riskier and give varying amounts of profit through each economic cycle. These profits, in good years, contribute significantly to the stable profits from construction and property investment. Investment into land acquisition and planning permission process Investing in the planning process and achieving planning permission delivers significant value. However, the revenue generated from sale of land and properties is not regular, recurring income. Therefore, it would not be possible to directly fund the land and property development activity through bank loans. The only bank debts that the Group has are secured against the investment properties and the housebuilding inventory. A significant amount of equity has always been retained in the business, which reduces the need for borrowing. As a result of our financial structure, we can invest in the more profitable areas of the business (strategic land and property development) to maximise the value generated while maintaining prudent gearing levels. The property investment portfolio of Henry Boot Developments is worth over £120m and generates a sizeable amount of rental income each year. This recurring revenue allows us to borrow money against the investment portfolio at attractive rates, which may be invested into the land and property development process. The Construction segment is self-funded and cash generative. There is little capital employed so income is used to invest in land and development. 19 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 19 25654 4 April 2018 8:20 PM Proof 15 4/4/2018 8:23:20 PM Market Review Our marketplace “ Henry Boot remains well positioned to deal with the challenges it faces due to its strong opportunity portfolio.” JOHN SUTCLIFFE Chief Executive Officer The UK real estate market has proved to be very resilient over a number of years and 2017 continued in that vein. Several macroeconomic and political events have brought uncertainty to the UK generally and therefore to the UK real estate marketplace, in which we operate, specifically. However, Henry Boot PLC remains well positioned to deal with these challenges due to its strong opportunity portfolio, committed experienced people, good customer relationships and financial strength. Land Promotion Housing market – strategic land and housebuilding With land prices remaining consistent in recent years, there still exists a structural imbalance between the number of houses the Government aspires to produce on behalf of the UK population and the numbers being delivered by the UK housebuilding sector. The UK Government has brought forward many initiatives such as ‘Help to Buy’, support for social housing providers, the Starter Homes initiative and affordable housing requirements to help increase both the supply and demand for housing. However, planning consent for residential development and the subsequent negotiation with regard to the S106 costs associated with a consent add several years into the process of site delivery. The under-delivery of housing supply over many years means that demand for new housing, supported by the Government initiatives, remains strong. Therefore, in respect of our strategic land business, where we provide sites with planning permission to the major UK house builders, we expect these resilient trends to continue. While this remains the case, we have a large number of opportunities ready to benefit from these favourable market conditions. Residential development land prices index Greenfield land 130 120 110 100 0 1 1 c e D 2 1 n u J 2 1 c e D 3 1 n u J 3 1 c e D 4 1 n u J 4 1 c e D 5 1 n u J 5 1 c e D 6 1 n u J 6 1 c e D 7 1 n u J 7 1 c e D Source: Knight Frank Residential Development Land Index 20 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 20 4/4/2018 8:23:21 PM 25654 4 April 2018 8:20 PM Proof 15 Property Investment and Development Construction Commercial Investment and Development Henry Boot Developments operates from regional offices throughout the UK which means that those development teams are close to the opportunities arising in their locality. We believe this allows us to maximise the number of schemes we win throughout the country as opposed to working from one central location. We deliver a broad range of schemes and are therefore not committed to one subsector of the market and we have achieved revenue of over £250m in 2017 compared to £50m in 2015. During 2017, price inflation in construction markets across most of the UK moderated as demand and supply became more balanced. We continued to experience strong occupier demand in the industrial and logistics sectors which underpinned further investment yield compression in that sector. Elsewhere, occupier demand remained relatively stable although town and city centre retail and leisure markets weakened in the year, albeit edge and out of centre retail demand remained stable. The investment markets saw further demand for well-let property on long leases with index-linked rents with some investment yield compression evident towards the end of the year. The continued strength of the industrial and logistics sector saw us increasing investment in existing and new business park developments throughout the UK. Furthermore, pricing stability within construction markets has enabled these projects to progress to the development phase more quickly than we had anticipated. Stability within the property investment sector and the further, selective compression of investment yields continued to support this strategy. Net yields % All Property Types Retail Ofﬁce Industrial 8.0 7.0 6.0 5.0 4.0 0 3 1 c e D 4 1 n u J 4 1 c e D 5 1 n u J 5 1 c e D 6 1 n u J 6 1 c e D 7 1 n u J 7 1 c e D Construction and Plant Hire Henry Boot Construction operates, mostly, across the Midlands and North of England servicing a wide range of public bodies and private clients. Banner Plant supplies a wide range of non-man operated plant to the construction subcontract supply base, once again across a wide range of construction markets within, primarily, the North and Midlands. In common with all parts of the country, spending by universities, schools, hospitals, prisons, roads and other local infrastructure projects has been maintained and we anticipate this spending will continue given the anticipated growth in the UK population into the future, regardless of changes to Government policy. The recent turmoil within the construction industry has brought more scrutiny on the financial strength of the construction delivery partner chosen, particularly given the very low margins and risks associated with the delivery of construction projects. Therefore, our strong customer contacts, repeat business opportunities, ability to deliver work across a wide number of sectors and our financial strength means that we continue to win the work we want to win. Overall, construction workloads are being affected by the vote to leave the EU as businesses become increasingly uncertain about their operating position in the coming years. Whilst this lack of clarity by Government continues, in the short term, private sector work may reduce. This is likely to be offset by centrally funded projects across a wide range of sectors and we remain confident that quality contractors with demonstrable financial strength will continue to win work. Construction output & employment, seasonally adjusted, Great Britain Rolling three-month Index 2015=100 120 110 100 90 80 0 1 1 c e D 2 1 c e D 3 1 c e D 4 1 c e D 5 1 c e D 6 1 c e D 7 1 c e D Source: IPD Source: Construction Output and Employment - Office for National Statistics 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 21 Henry Boot AR2017.indd 21 4/4/2018 8:23:22 PM 25654 4 April 2018 8:20 PM Proof 15 Our Strategy Strategy for Land Promotion To source and promote land through the complexities of the UK Planning system for the highest use value. Through land ownership, or via agency and option agreements, the business conveys land, which has gained planning permission, primarily to the UK’s major house builders. The two key factors impacting this business segment are the demand for houses in the UK and the Planning system. To achieve its purpose the business must appreciate and consider how these factors affect their sites. Read about the Land Promotion Case Study on page 24 Strategy for Property Investment and Development To obtain, develop and invest in a diverse range of property sector opportunities, whilst flexibly adapting to customers’ needs within the market. With regional offices throughout the UK, the business is very close to the local market when seeking out new opportunities. Our joint venture housebuilding company aims to continue to increase housing delivery and its landbank to fuel longer term output. Read about the Property Investment and Development Case Studies on pages 25 and 26 Strategy for Construction To compete for and win construction contract work in our northern market and work closely with new and repeat customers to provide a quality service to both the public and private sectors. With very tight construction margins it is important to continue building our customer database and to secure repeat business opportunities. To provide a high quality service and seek out new depot locations to increase the network coverage of our plant hire business. Read about the Construction Case Study on page 27 Objectives — To replenish the site portfolio and increase our proportion of directly owned land to balance the style of ownership. — To dispose of an annually increasing number of residential plots whilst market conditions are supportive. — To increase the scale and investment in land acres and plots over time. Objectives — To pre-let, pre-fund and pre-sell our development opportunities to mitigate risk. — To actively seek out new opportunities for future development and grow that portfolio of opportunities. — To monitor the markets in which we operate and quickly adapt to changing market conditions. Objectives — To constantly monitor the customers and markets in which we operate, to compete effectively and appropriately balance our workflows within these markets. — To actively pursue contract values of between £5m-£25m to benefit from improving economies of scale. — To continue to provide high quality service and to seek out new opportunities to expand locations within our plant hire operation. — To continue to operate the A69 road PFI as efficiently as possible throughout the remaining eight years of the franchise. 22 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 22 4/4/2018 8:23:25 PM 25654 4 April 2018 8:20 PM Proof 15 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 2323 Henry Boot AR2017.indd 23 4/4/2018 8:23:29 PM 25654 4 April 2018 8:20 PM Proof 15 Land Promotion Case Study Great Wilsey Park, Haverhill In 2012 Hallam Land became involved in Great Wilsey Park, a 415-acre site that had been identified for strategic growth within St Edmundsbury’s Core Strategy. Before development proposals were considered, Local Plans such as Haverhill Vision 2031 were engaged with to ensure the area’s vision and framework were taken into consideration. A vital element of this plan was the creation of a sustainable community which would still provide the area with the necessary local infrastructure benefits alongside the new homes to be built. The site contains: A new care home, approximately 195 acres of green infrastructure providing informal areas of open space, play areas, public rights of way, allotments, wetland areas and a country park were designed into the scheme for the enjoyment of both new and existing residents. These elements integrate with the proposed 2,500 new homes to create what will be a thriving new community on the edge of Haverhill. We are now in final discussions on the S106 agreement prior to permission being issued and the site is currently being marketed for sale. — 2,500 homes — Two primary schools — Two local centres — Doctor’s surgery — 12 acres allocated for expansion of the secondary school — Care home — 195 acres of open space Read about the Land Promotion Segmental Review on pages 30 and 31 24 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 24 4/4/2018 8:23:30 PM 25654 4 April 2018 8:20 PM Proof 1 Property Investment and Development Case Study Thorne Park, Doncaster Henry Boot Developments was selected by landowner Royal Bank of Scotland as its preferred development partner for a 23-acre former vehicle storage site located off Junction 6 of the M18 motorway, near Doncaster. The site had been vacant for several years and suffered from viability issues relating to high servicing costs. Our approach was to secure a significant high value ‘enabling development’ which would overcome these viability issues and enable the majority of the site to be redeveloped for industrial use. This strategy was supported by the Local Authority who had long sought the site’s redevelopment for employment uses. Planning permission was secured quickly for a significant amount of retail floorspace which was immediately sold to a supermarket operator. This enabled the full servicing of the site on a viable basis and led onto the speculative development of over 150,000 sq ft of industrial space in units ranging in size from 10,000 to 45,000 sq ft. All the space was leased or sold to industrial occupiers with the last two units totalling 48,000 sq ft sold in late 2017, marking the completion of this highly successful project which has created over 100 new jobs on the site and brought over £20m of new investment to the area. Read about Property Investment and Development Segmental Review on pages 32 and 33 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 25 Henry Boot AR2017.indd 25 4/4/2018 8:23:33 PM 25654 4 April 2018 8:20 PM Proof 1 Property Investment and Development Case Study Kampus, Manchester Henry Boot Developments, in partnership with local developer Capital & Centric, was selected as preferred partner by Manchester Metropolitan University to acquire and redevelop their former 2.5-acre site located on Aytoun Street, close to Piccadilly Station in Manchester city centre. The site was considered particularly sensitive by both the University and City Council because of its size, prominence, location and the need to incorporate existing listed buildings on the site into any new redevelopment. We identified that the site had significant potential to create a new and innovative build-to-rent residential scheme of sufficient scale to create a new community, incorporating dedicated retail and leisure facilities offering unrivalled access to both the city centre and the city’s main transport hubs including the new HS2 station close by. We secured planning permission and a US-based funding partner, and construction work on the £230m project commenced mid-2017. This work includes the conversion of the historic Minto & Turner listed warehouse and the retention of the original 11-storey university campus tower and we anticipate the last of the 540 apartments will complete during 2020. The scheme has been designed to complement and support the continued regeneration of the wider area and includes two new public squares with complementary retail and leisure uses. Read about Property Investment and Development Segmental Review on pages 32 and 33 26 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 26 4/4/2018 8:23:36 PM 25654 4 April 2018 8:20 PM Proof 1 Construction Case Study Rudding Park Hotel, Harrogate During spring 2017, Henry Boot Construction completed a £9m luxury state-of-the-art spa facility to recapture Harrogate’s historic heritage, by using natural spring water from within the grounds of the hotel. The project included the construction of a multi-level extension to the Grade I listed Rudding Park Hotel, situated within the historic Humphry Repton landscape. A feature roof garden forms an integral part of the scheme and preserves the integrity of the historic landscape. The project was complex because of the hotel being a listed building, which meant close collaboration and coordination with key trades and partners. With a tight deadline, the project was delivered on time and to the exacting standard required. The new spa features a 17-metre swimming pool, an indoor and outdoor hydrotherapy pool, a thermal room and ten treatment rooms, plus a restaurant and shop. The rooftop area of the spa includes an indoor–outdoor infinity pool with an iconic glass wall allowing guests to enjoy the outstanding parkland views surrounding the hotel. Read about Construction Segmental Review on pages 34 and 35 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 27 Henry Boot AR2017.indd 27 4/4/2018 8:23:37 PM 25654 4 April 2018 8:20 PM Proof 15 Key Performance Indicators – Financial and Non-financial KPIs In 2017 the Group reviewed its financial and non-financial KPIs. Whilst all targets from previous years still remain important, it was felt the KPIs listed in this year’s report are more reflective indicators of the Group’s most significant Key Performace Indicators. Each business segment within the Group is required to establish targets at the beginning of each financial year. This allows us to establish a broad range of financial indicators. KPI Profit Before Tax Definition A profitability measure that looks at a company’s revenue less all interest and operating expenses except for income tax. Performance A 40% increase as higher levels of property development generated additional profits. Future Aims Objective To increase profit levels over time. £55.4m £39.5m £32.4m £28.3m £18.4m Earnings per Ordinary Share Definition The portion of a company profits allocated to each outstanding share of its common stock. A 49% increase due to higher retained profits helped by additional returns from property development. Objective To increase returns over time. 2013 2014 2015 2016 2017 32.1p Net Assets Definition The value of a company’s assets less its liabilities. A 16% increase to net assets achieved by retained earnings from higher profits offset by dividends paid and an increase in the pension scheme deficit. Objective To grow the asset base over time. Return on Capital Employed Definition The ratio of earnings before interest and tax to capital employed (total assets less current liabilities). We continue to achieve a healthy improvement in returns on utilised capital and will continue to monitor this area for improvement. Objective To increase returns on capital employed over time. 21.5p 17.5p 16.2p 8.6p 2013 2014 2015 2016 2017 £270.1m £233.6m £221.5m £193.5m £200.5m 2013 2014 2015 2016 2017 18.6% 14.4% 12.2% 11.4% 8.3% Shareholder Return Definition The share price appreciation combined with dividends paid shown as an annualised percentage. Share price increased 58.3% over the year, which coupled with the increase in dividends, gave rise to a return over the last three years of 73.3%. 2013 2014 2015 2016 2017 Objective To generate growing shareholder returns over time. 52% 62% 18% 0% 2013 2014 2015 (7%) 2016 2017 28 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 28 4/4/2018 8:23:39 PM 25654 4 April 2018 8:20 PM Proof 15 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 as necessary. KPI Performance Future Aims Accident Frequency Rate (AFR) - including subcontractors Definition Accidents reportable to the Health & Safety Executive. This year saw a decrease in RIDDOR reportable which was due to our high standards set across all our sites. Objective To ensure a reducing number of reportable health and safety incidents. 0.17 0.12 Target Zero incidents and to exceed industry standards. 0.08 0.06 0.05 Personal Development (days) Definition Development days provided by the Group. During 2017 there was a slight increase in the number of development days, reflective of new employees and training programmes available to the Group. Objective To ensure that our employees are trained to the appropriate level and are given adequate opportunity to develop their careers. 2013 2014 2015 2016 2017 1,306 1,164 1,203 1500 1,130 1200 1,057 Employee Profile Definition The gender balance percentage between all our employees. Employee figures as at 31 December 2017 We have a gender split of 77% male to 23% female. This altered during 2017 due to the increase of employees. However, we continue to work closely with partners to encourage under- represented groups into the industry. Considerate Constructors Scheme Definition Promote and achieve best practice under the Code of Considerate Practice. While there was a slight decrease in our score from 2017, we are still significantly higher than the industry average. We have continued to achieve a minimum recycling rate of 95%. Recycling — Diverted from Landfill (%) Definition To minimise the environmental impact from our business operations. Target To exceed 2017 figure. Objective To ensure a diverse spread of gender within all job roles in the Group. Target Both genders should be treated fairly and have access to equal opportunities. n Males n n Females Objective To be classified as a ‘good neighbour’ when scored against the Considerate Constructors Scheme score of 50. Target Top score of 50. Objective To reduce the amount of waste going to landfill by recycling, reusing or upcycling. Target To achieve a minimum recycling rate of 95%. 2013 2014 2015 2016 2017 450 103 459 111 347 348 434 106 328 453 111 342 514 119 395 2013 2014 2015 2016 2017 36.1 37.1 37.4 38.3 38.2 2013 2014 2015 2016 2017 94 94 95 95 95 2013 2014 2015 2016 2017 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 29 Henry Boot AR2017.indd 29 4/4/2018 8:23:40 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 1530Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Segmental Review Total revenue£76.2mProfit before tax£23.1m2013£37.6m2014£39.0m2015£46.7m2016£51.2m2017£76.2m2013£11.1m2014£13.1m2015£19.1m2016£17.7m2017£23.1mNICK DUCKWORTH Hallam Land Management LimitedProgress in 2017Hallam Land Management, our strategic land promotion business, had a strong 2017 as, in general, the UK house builders put the EU referendum and the General Election behind them. Whilst these events slowed transactions for eight weeks or so, they did not dent builders’ appetite for land in the right locations. During the year, Hallam Land secured a £23.1m profit (2016: £17.7m) from selling 15 residential sites comprising 2,169 plots and, at the same time, successfully secured 14 new planning consents (or consent subject to Section 106 agreement) and increased its consented portfolio by 13% to 18,529 plots (December 2016: 16,417). We also entered 2018 with 780 plots exchanged for sale later this year. Hallam Land also sold a three-acre commercial site at Bridgwater to its sister company, Henry Boot Developments.New consents obtained during 2017 included sites at Swindon (1,000 plots), Bridport (760 plots), Moulton (125 plots), Warton (115 plots), Sapcote (125 plots), Buckingham (400 plots), Haverhill (1,250 plots) and Milton Keynes (524 plots). With regard to land interests, at the year end Hallam Land benefited from 2,884 acres with planning consent (or consent subject to signing a Section 106 agreement) (2016: 2,405 acres) and a further 937 acres (2016: 1,078 acres) being allocated in local plans for residential development. In total, at the year end, the Company held 13,273 acres (2016: 11,888 acres) as freehold or under Option/Promotion Agreement.In terms of particularly significant projects, during the year, Hallam Land sold the final tranches of our residential land holdings at Bedford and Marston Moretaine, and pleasingly these have been replaced with other substantial projects coming forward, including Didcot (2,170 plots), Market Harborough (462 plots) and Haverhill (1,250 plots).Contracted only in 2013, our 51% stake in Valley Park, Didcot, has been allocated, planning consent has been obtained and we are now negotiating a sale with a preferred bidder. Similarly, at Haverhill, south east of Cambridge, our 50% stake in the 2,500-plot urban extension to the north of the town is being marketed for sale, and has generated significant interest. At Market Harborough, where we own the freehold of 462 plots with outline consent, the site will be marketed for sale once we have concluded a commercial negotiation with a previous owner. These are just three of a range of larger projects that we control and whilst securing outline planning consent is task enough, it is invariably insufficient to ensure a market sale. To secure a disposal, utility and service provision needs to be guaranteed, infrastructure contracts procured, Reserved Matters planning consent secured and planning conditions discharged. Satisfying these and other buyer requirements takes time and contributes to the Government’s concerns about ‘land banking’. There are a variety of stakeholders involved in the disposal of strategic urban extension sites to build new communities and satisfying all their requirements takes significant time, effort and diligence.“ The major UK house builders have reported that they are trading well and we are in advanced discussions with them in relation to a range of our projects.”Land PromotionHenry Boot AR2017.indd 304/4/2018 8:23:48 PMLand bank (acres) 13,273 9,723 9,985 11,061 11,888 13,273 11,665 10,139 9,257 7,932 8,166 Plots with planning permission 18,529 No. of plots sold 2,169 Plots in planning process 7,892 18,529 16,417 2,169 14,768 12,043 11,547 10,438 1,763 1,609 1,177 1,107 10,646 10,452 9,487 15000 12000 7,892 1,791 1,819 1,804 1,749 1,608 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 n Owned n n Option and Promotion Agreements As to our two long-standing projects: at Cranbrook (the 3,500- unit new community at Exeter) we have negotiated a disposal of 180 plots which exchanged early in 2018; and at Kingsdown, Bridgwater, we completed on a 130-plot sale, exchanged on a further 72 plots and sold three acres of industrial land to Henry Boot Developments. Both projects continue to deliver well, in line with our expectations. 2018 has started positively with 780 plots exchanged for sale. The major UK house builders have reported that they are trading well and we are in advanced discussions with them in relation to a range of our projects. At this stage, we anticipate that 2018 will be another year of steady progress. 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 A C N A N F I I Pictured top right: A new local public house at Cranbrook, a part of the development at Exeter. Pictured bottom right: Milton Keynes, an allocation within the Vale of Aylesbury Local Plan has been secured for 1,855 new homes, our share being 524 properties. I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 31 Henry Boot AR2017.indd 31 4/4/2018 8:23:54 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 1532Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Segmental ReviewDARREN STUBBS Stonebridge Homes LimitedDAVID ANDERSON Henry Boot Developments LimitedProgress in 2017Henry Boot Developments, our commercial development business, had one of its busiest years in 2017, continuing to progress a broad range of commercial and an increasing number of residential projects. Activity levels and turnover exceeded the previous year, which itself was a record for the Company. Our major, long-term projects continued to make satisfactory progress as expected. The largest of these is the 800,000 sq ft forward-funded development of the new £333m Aberdeen Exhibition and Conference Centre, which remains on track to be completed in mid-2019. In Manchester city centre, the development of the initial phase of the £220m forward-funded, build-to-rent residential project, providing 533 apartments, commenced mid-year 2017. Completion of the final phase is scheduled for 2020. Developments within the industrial and business park sector significantly increased during the year with the completion of 575,000 sq ft of logistics space at Markham Vale, off Junction 29A of the M1. A further 100,000 sq ft of industrial space on the park is now the subject of exchanged contracts. Elsewhere, the first phase of infrastructure was completed at the Airport Business Park in Southend, with the first development expected to commence in late 2018. We also expect to see the first phase of development on Butterfields Business Park in Luton in 2018 after securing a full employment use planning allocation in 2017. Completion of the mixed-use, retail and industrial scheme off Junction 6 of the M18 motorway (near Doncaster) was achieved late in 2017, with disposal of the last two, speculatively-built industrial units totalling 48,000 sq ft, together with a small development plot, all at values ahead of original forecasts. Further business park locations have now been placed under contract on the M5 Junction in Taunton and at the former Horizons tobacco factory in Nottingham. Notably, during the latter part of the year, we were also selected as preferred development partner on four other business parks at locations across the UK, which we will be progressing through 2018 and beyond.The Company maintains a broad sector spread of development projects and was active on retail, leisure and residential projects in 2017. In York, the award-winning conversion and redevelopment of the former Terry’s Chocolate Factory continued apace. All the remaining apartments were sold in the year, completing the 163-unit factory conversion well ahead of the original programme. Planning permission is expected shortly for the 22-apartment conversion of the adjoining iconic clock tower which is planned to be completed in 2018. Furthermore, on the balance of the site, pre-application planning negotiations have commenced for an apartment scheme. In Manchester, detailed planning permission was secured for a 140-bed hotel in the city centre on a site held under option. This site was subsequently sold, well ahead of schedule. We also completed the purchase of Equitable House, located on one of the city’s prime retail areas, St Ann’s Square, and agreements have been reached to re-gear the existing ground floor retail leases. In parallel, we are progressing the conversion of the upper floors to luxury apartments and this development is expected to commence in 2018 for completion in 2020. “ Activity levels and turnover exceeded the previous year, which itself was a record for the Company.”“ Stonebridge Homes had another year of growing momentum, achieving 79 house sales in total.”Pictured below: The iconic clock tower at the former Terry’s Chocolate Factory, York.Property Investment and DevelopmentHenry Boot AR2017.indd 324/4/2018 8:24:07 PMTotal revenue Profit before tax Rental income No. of plots sold (Stonebridge Homes Limited) £250.7m £26.2m £8.1m 79 £250.7m £26.2m £8.1m £24.7m £176.5m £11.2m £50.3m £37.9m £26.1m £4.6m £3.5m (£2.3m) £7.3m £7.2m £6.7m £6.2m £18.4m 79 70 £12.3m £10.0m 41 £6.5m 32 26 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 n Plots n n £m plot sales The retail warehouse market remained relatively stable over the year, and the 43,000 sq ft project in Livingston town centre, pre- let to Dunelm and B&M Retail, was successfully completed and sold in the year. Elsewhere, the development of a small pre-let neighbourhood centre in Monmouth, Wales, was completed and sold. In Daventry, detailed planning permission was granted for an 83,000 sq ft edge-of-centre retail scheme undertaken in partnership with the District Council. This is now the subject of pre-let negotiations with a range of retailers and is targeted to commence in the second half of 2018. Further investment within Henry Boot Developments’ existing investment portfolio included the extension and comprehensive refitting of office space in Uxbridge and the development of a pre-let Travelodge hotel in our mixed-use investment in Bromley, Kent. House Building Our joint venture house builder, Stonebridge Homes, had another year of growing momentum, achieving 79 house sales in total with almost half that number arising in the last two months of the year as, in particular, residential units in the former Leeds Girls’ High School became available to sell. We also carried over 20 reservations into 2018 and have added to this in the current year, which is very pleasing. Although early in the year, we anticipate house sales will be in the range of 110- 130 units for 2018, at an average selling price of circa £250,000, based on current levels of activity. Our land bank of secured planning permissions is now over 250 units and the longer term secured sites that are subject to planning decisions encompass some 750 additional units. Successfully achieving planning permission on these sites will allow annual activity levels to grow towards 200 units per annum over the next three years. Pictured top right: New town centre retail and leisure park, Livingston. Pictured bottom right: Fox Valley, Stockbridge, a site which will consist of over 100 newly built houses. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 33 Henry Boot AR2017.indd 33 4/4/2018 8:24:10 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 1534Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Segmental Review Progress in 20172017 was a busy and successful year for Henry Boot Construction, which specialises in serving both public and private clients in all construction sectors, including civil engineering, with the business exceeding our targeted profit levels. Repeat business continued to underpin our success, and is an excellent indicator of how we are performing, particularly by achieving and integrating sustainable value into projects. This, along with the high-quality people within our business, has resulted in existing clients returning to us with prestigious follow-on projects and remains crucial to achieving success.Henry Boot Construction has continued to deliver the first phase of the £35m Better Barnsley town centre regeneration scheme, now known as The Glass Works. Aligned with this project is the Barnsley skills village, with the Government taking interest in the excellent track record of this initiative, providing skills to new trainees from all backgrounds entering employment which, in turn, helps reduce the skills shortage within the construction sector.After a lengthy period of bidding, Henry Boot Construction was selected for the Education and Skills Funding Agency (‘ESFA’) regional framework. This £8bn Government-funded programme will provide improved education provision through refurbishment and replacement of schools. We expect this to be a prominent part of our business moving forward. Other notable projects in 2017 were the prestigious spa facility at Rudding Park Hotel, Harrogate, and the refurbishment of the Grade II listed St George’s Hall in Bradford.In the civil engineering sector, Henry Boot Construction has recently completed the regeneration and infrastructure work on the Olympic Legacy Park in Don Valley, Sheffield, and we are working on the Advanced Manufacturing Park for the University of Sheffield. We continue as a major supply chain partner on the 25-year, Amey PFI Sheffield Streets Ahead scheme and also continue to deliver work through the YORcivils framework, having been successful in securing a place on the new YORcivils2 framework, under which we are carrying out structural works to six tower blocks for Leeds City Council, together with the remodelling of Iverson Primary School in Horsforth.In the health and social care sectors, we completed a 60-bed extra care unit for Newark and Sherwood Homes, enhancing our offering in that market. We are also a delivery partner on the Sheffield Teaching Hospitals NHS Trust framework. Within the higher education sector, we were awarded the Aerothermal Research Building at Loughborough University, the Sports Sciences Building for the University of Hull, Concourse Public Realm works for the University of Sheffield and the SEE (School of Earth and Environment) expansion at the University of Leeds. We also continue to progress works to deliver a Public Realm scheme for Lancaster University. We have several schemes being delivered through the Ministry of Justice refurbishment framework, where we have three projects currently on site and another two that begin in the first quarter of 2018.SIMON CARR Henry Boot Construction Limited“ Repeat business continued to underpin our success, and is an excellent indicator of how we are performing.”GILES BOOT Banner Plant Limited“ The financial results and capital investment within our existing profit centres were in line with our forecasts, whilst cash generated was ahead of target.”TREVOR WALKER Road Link (A69) Limited“ The contract continued to perform to our financial expectations.”ConstructionHenry Boot AR2017.indd 344/4/2018 8:24:27 PMProfit before tax External revenue £10.0m £81.9m £11.0m £82.4m £78.5m £79.5m £79.4m £81.9m £10.1m £9.9m £10.0m £9.0m 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Henry Boot Construction started 2018 with the healthiest order book seen in recent years; although we remain cautious, particularly in the medium to long term, regarding the possible reduction in construction activity due to market uncertainty associated with exiting the EU, price pressures on imported materials associated with exchange rate volatility and other labour and supply chain price pressures. Health and Safety Health, Safety and Environmental management remains of paramount importance, and we continue to be committed to providing a safe and healthy working environment and actively finding ways to eliminate risk. We have continued to maintain approval of our Company Management System to meet the requirements of OHSAS 18001, ISO 14001 and ISO 9001. We are delighted that, for the sixth consecutive year, our construction-related Accident Frequency Rate (AFR) for our directly employed staff and operatives is zero. This strong health and safety management culture has resulted in us securing the CIOB Health and Safety Award and Contractor of the Year Award, in addition to receiving a further RoSPA Gold Medal Award to recognise eight continuous years of Gold Award achievements, coupled with a project-specific RoSPA Gold Award for the University of Derby St Helena project. Plant Hire In 2017, Banner Plant had a year dominated by the purchase and integration of Premier Plant Tool Hire & Sales Limited. The acquisition in the early part of the year added a plant and a tool hire depot, both in the Leicester area. Both locations made a positive contribution during the remainder of 2017, in line with our expectations. The financial results and capital investment within our existing profit centres were in line with our forecasts, whilst cash generated was ahead of target. Particularly positive performances came from our powered access and accommodation depots, closely followed by plant depots at Dronfield and Ossett. Overall, this resulted in a record trading performance for this customer-focused operation. Road Link Our PFI contract Road Link (A69), which maintains the A69 trunk road between Carlisle and Newcastle, has completed another strong year. 2017 saw an increase in traffic volume and with no major disruptions or impact from adverse weather conditions, the contract continued to perform to our financial expectations. The contract remains on course to operate to plan throughout the remaining eight years of the concession. 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 A C N A N F I I Pictured: 60-unit extra care scheme for Newark & Sherwood Homes. I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 35 Henry Boot AR2017.indd 35 4/4/2018 8:24:28 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 1536Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Financial ReviewKey highlights of our financial performance in 2017 —Profit before tax increased by 40% to £55.4m —Basic earnings per share increased by 49% to 32.1p —Dividends per ordinary share for the year increased by 14% to a record 8.00p —Return on capital employed increased by 29% to 18.6%The delivery of our residential conversion scheme at the former Terry’s Chocolate Factory and the progress made on the new Aberdeen Exhibition and Conference Centre delivered results in advance of management’s original expectations. These, coupled with a generally strong underlying performance in our operations, resulted in these impressive Group results. A commendable achievement by our talented people and a credit to all those businesses with whom we engage to achieve our goals. Our continued long-term strategic approach to land promotion and property development has generated increasing pipelines to deliver results for the years ahead. We remain cautious of where negotiations between the UK and the EU may end and believe continuing uncertainty within our markets could lead to commencement delays in projects and developments. However, as we enter 2018 we have a significant amount of property development work currently in delivery, a number of land sales already exchanged awaiting completion, residential properties in stock, carried over the year end, for which demand remains high and we have a strong order book within our construction business. Consolidated Statement of Comprehensive IncomeRevenue increased 33% to £408.5m (2016: £306.8m) resulting from increased activity within all segments of the Group. This was driven most notably from the continued delivery of the new conference and exhibition centre for Aberdeen City Council, sales of residential apartments at the former Terry’s Chocolate Factory in York and increased residential land sales within the land promotion segment. Gross profit increased 39% to £86.7m (2016: £62.3m) and reflects a gross profit margin of 21% (2016: 20%), broadly in line with that achieved in the previous year. Administrative expenses increased by £4.7m, resulting from the continued expansion of Stonebridge Homes, the acquisition of two plant depots in Leicester, the opening of a new regional office in Birmingham, and employee costs which rose as we recruited additional staff across the Group to support the increased activity achieved in recent years, and we made provision for higher levels of profit share and bonuses, given the Group’s performance over the year, and saw a modest level of wage price inflation linked to employee retention. Pension expenses increased by £0.6m (2016: £0.1m) as employee numbers increased and auto-enrolment contributions increased in accordance with statutory requirements. Property revaluation losses of £3.6m (2016: £1.8m) were the net effect of uplifts of £5.2m in the fair value of certain existing completed investment properties, largely in the industrial and mixed-use categories, offset by the recognition of valuation deficits of £8.8m on a number of other properties, most notably retail assets in secondary locations. Overall, operating profits increased by 42% to £56.2m (2016: £39.5m) and, after adjusting for net finance costs and our share of profits from joint ventures and associates, we delivered a profit before tax of £55.4m (2016: £39.5m), an increase of 40%.The segmental result analysis shows that property investment and development produced a significantly improved operating profit of £30.4m (2016: £15.1m) arising from a full year’s activity on the Aberdeen Exhibition and Conference Centre, final residential sales from the York Chocolate Factory conversion and continuing contributions from our Markham Vale industrial development. Land promotion operating profit also showed a strong performance, “ Our continued long-term strategic approach to land promotion and property development has generated increasing pipelines to deliver results for the years ahead.”DARREN LITTLEWOOD Group Finance DirectorHenry Boot AR2017.indd 364/4/2018 8:24:36 PMincreasing to £23.2m (2016: £18.6m) as we disposed of 2,169 residential plots during the year (2016: 1,609). Construction segment operating profits decreased slightly to £9.6m (2016: £10.3m) after improved results from Plant Hire, following the acquisition of the Leicester depots, and Road Link were offset by lower Construction returns which were marginally impacted by the reduced turnover on secured schemes which did not come forward as quickly as expected. The movements within our mix of business streams demonstrates the nature of deal-driven property and land promotion businesses, dependent upon demand from the major UK house builders but combined with the relatively stable returns from our Construction segment. This continues to demonstrate the benefits of our broadly based operating model, working together to the benefit of our Group. Whilst we have a greater pipeline of property development and a larger number of consented residential plots than ever before, 2017 saw returns achieved which we had expected to deliver through 2018 and into 2019, and further evidences the deal-driven nature of our land promotion and property development businesses giving rise to financial results which can vary significantly from year to year. Tax The tax charge for the year was £9.8m (effective rate of tax: 18%) (2016: £8.9m and effective rate: 23%), and arises from the net investment property revaluation deficit, which is not tax deductible until realised, offset by other permanent differences. We currently have a £3.2m unrecognised deferred tax asset (2016: £2.7m) which can be utilised to offset future capital gains if they arise. Current taxation on profit for the year was £9.7m (2016: £8.9m), with the 2017 charge being lower than the standard rate of corporation tax due to permanent tax differences. Deferred tax was £0.1m (2016: £0.04m), due to the elimination of any property revaluation deferred tax asset and no deferred tax asset arising on the increased pension scheme deficit as contributions have exceeded cumulative charges to the income statement. Earnings per share and dividends Basic earnings per share increased by 49% to 32.1p (2016: 21.5p). Total dividends payable for the year increased by 14% to 8.00p (2016: 7.00p), with the proposed final dividend increasing by 16% to 5.20p (2016: 4.50p), payable on 30 May 2018 to shareholders on the register as at 27 April 2018. The ex-dividend date is 26 April 2018. Return on capital employed (‘ROCE’) Increased pre-tax profits in the year helped ROCE(1) improve to 18.6% in 2017 (2016: 14.4%). This improvement was aided considerably by the impressive performance within property development mentioned above. Whilst we continue to review our strategic target rate of return, given that we are currently able to forward fund and sell property development, we believe that a target return of 12%-15% is appropriate to our current operating model. We will continue to monitor this important performance measure over the business cycle, given the potential for market conditions to change quickly. (1) ROCE is calculated as operating profit divided by total assets less current liabilities. Revenue £408.5m Profit before tax £55.4m £408.5m £55.4m £306.8m £39.5m £32.4m £28.3m £176.2m £153.8m £147.2m £18.4m 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Dividends per ordinary share 8.00p 8.00p 7.00p 6.10p 5.60p 5.10p 2013 2014 2015 2016 2017 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 37 Henry Boot AR2017.indd 37 4/4/2018 8:24:37 PM 25654 4 April 2018 8:20 PM Proof 15 Financial Review continued Finance and gearing Net finance costs were unchanged at £1.5m (2016: £1.5m). We saw a reduction in our net debt levels towards the end of 2017 as we collected a number of deferred land sale receipts and concluded a number of property disposals. Average borrowing rates were lower than the previous year although we expect interest costs to rise through 2018, as we increase borrowings to support higher levels of development activity. It is also possible that we will see rises in interest rates during 2018, although this will not result in a material change to our borrowing costs. We expect to continue to invest in both our land and property development assets, as we recycle capital into future opportunities and anticipated development activity. 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 38 times (2016: 28 times). No interest incurred in either year has been capitalised into the cost of assets. Our completed investment property portfolio has increased to £127m (2016: £101m) against which we secure bank funding to allow us to undertake property development and land promotion, neither of which are readily funded using bank debt. Our investment property assets continue to provide the key covenant support for our banking facilities. Our facilities were increased to £72m in August 2017 to support the increased property development work, taking the renewal date to February 2020. In addition, we have a £5m revolving loan facility within Stonebridge Homes, our joint venture house builder. This loan is secured against work in progress. 2017 year-end net debt fell by £3.9m to £29.0m (2016: £32.9m) resulting in gearing on net assets of £270.1m falling to a conservative 11% (2016: net assets £233.6m; gearing 14%). Total year-end net debt includes £6.1m (2016: £7.6m) of Homes and Communities Agency (‘HCA’) funding which is repayable from the future sale of residential units. All bank borrowings continue to be from facilities linked to floating rates or short-term fixed commitments. Throughout the year we operated comfortably within the facility covenants and continue to do so. Statement of cash flows During 2017, we increased operating cash flows before movements in working capital by £21.5m to £62.1m (2016: £40.6m) and, after a net investment in working capital of £15.8m (2016: £12.0m), cash generated from operations was £46.3m (2016: £28.5m). Our investment in working capital arises from the increase in levels of property development activity and continued investment in our land portfolio. Cash outflows from investing activities of £19.7m (2016: outflow of £2.4m) arising from disposals of £11.1m (2016: £9.9m) of investment property and property, plant and equipment sales, offset by new investment of £31.4m (2016: £13.4m) in new property development, plant purchases and the acquisition of Premier Plant Tool Hire & Sales Limited, adding two new depots to our plant hire business. Dividends paid, including those to non-controlling interests, totalled £12.0m (2016: £10.6m), with dividends paid to equity shareholders increasing by 16%. Statement of financial position Investment properties and assets classified as held for sale were valued at £134.8m (2016: £124.7m), increasing after the acquisition of a retail investment at St Anne’s Square in Manchester and a distribution unit investment let to Imperial Tobacco in Nottingham, both acquired with longer term development opportunities. The value of investment property under construction within investment properties was £6.2m (2016: £22.7m) as we develop these assets into investment properties and either keep or sell the completed product. Intangible assets reflect the Group’s investment in Road Link (A69) of £4.5m (2016: £4.9m) and goodwill of £0.9m (2016: £nil), on the acquisition in the year of two plant depots in Leicester. The treatment of the Road Link investment as an intangible asset is a requirement of IFRIC 12 and arises because the underlying road asset reverts to Highways England at the end of the concession period. Property, plant and equipment comprises Group occupied buildings valued at £8.1m (2016: £6.5m), increasing on the acquisition of office space in Leeds, from which our housebuilding operation is being managed, and plant, equipment and vehicles with a net book value of £18.4m (2016: £15.4m). This increase arose largely from the acquisition of the Leicester plant depots but also from continued investment in new plant and plant delivery vehicles. Non-current trade and other receivables have reduced to £2.9m (2016: £5.6m) due to a net decrease in long-term house builder land sale payment plans. We anticipate that the level of deferred payment receivables will start to increase as we market and dispose of some of our larger strategic land development schemes over the coming years. Investments in joint ventures and associates increased to £5.9m (2016: £5.1m) as we continued to invest in property development projects with other parties where we feel there is a mutual benefit. We anticipate that these opportunities will increase as we see a number of interested parties looking to harness our expertise in bringing schemes forward. The non-current deferred tax asset reduced because of the lower IAS 19 pension deficit. In total, non-current assets increased to £178.0m (2016: £166.5m). Within current assets, inventories were £144.6m (2016: £137.9m) and saw a reduction in the land portfolio to £101.7m (2016: £107.9m) as we sold, in part, our more capital-intensive owned land whilst investing further in land under option or agency agreements. Property development work in progress increased to £42.9m (2016: £30.0m) as we grow our house builder operation, and increased work in progress on active property development schemes. Trade and other receivables increased to £93.2m (2016: £66.9m) resulting from land sales made on short-term payment deferrals and an increase in construction contract receivables. Cash and cash equivalents increased to £10.3m (2016: £7.4m) and was a result of cash received in December not offset against short-term borrowing at that time. In total, current assets increased to £250.1m (2016: £213.3m). 38 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 38 4/4/2018 8:24:37 PM 25654 4 April 2018 8:20 PM Proof 15 Current liabilities increased to £125.2m (2016: £105.9m) as trade and other payables increased to £79.4m (2016: £61.1m), resulting from increased property development activity, accounted for as construction contracts. The portion of debt classed as current increased to £34.3m (2016: £33.3m) and provisions decreased to £5.6m (2016: £6.7m) as we continue to meet our infrastructure planning obligations on two land development schemes. Gearing Levels 11% 19% 18% 18% Cash Generation £3.9m £6.1m £3.9m Net current assets increased to £124.9m (2016: £107.4m). This increase is predominantly due to the increase in debtors, offset in part by the increase in creditors, resulting from higher levels of property development activity and house builder deferred income on land disposals. Non-current liabilities decreased to £32.8m (2016: £40.4m) after trade and other payables decreased to £2.7m (2016: £4.6m) and borrowings decreased to £4.9m (2016: £6.9m), both reductions being a transition to current liabilities and IAS 19 pension liabilities decreased to £22.8m (2016: £26.4m). Overall, net assets increased by 16% to £270.1m (2016: £233.6m) largely from the increase in retained profits. Net asset value per share increased 15% to 203p (2016: 177p) as we increase the scale of our operations via retained earnings. Pension scheme The IAS 19 deficit at 31 December 2017 was £22.8m compared with £26.4m at 31 December 2016 and was again adversely impacted by a further fall in the discount rate applied to future liabilities to 2.5% (2016: 2.8%). Despite this, the Company’s contributions and an excellent performance from the pension scheme’s assets saw the net deficit reduced by £3.6m (2016: increase £6.8m). As we have noted in previous years, the application of a 3.8% discount rate would result in a negligible deficit and the 2017 scheme asset return was comfortably ahead. The pension scheme’s assets continue to be invested globally, with high quality asset managers, in a broad range of assets. The pension scheme Trustee 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; they then make changes, as the Trustee considers appropriate, in conjunction with investment advice from KPMG. DARREN LITTLEWOOD Group Finance Director 20 April 2018 14% 11% (£0.3m) (£2.5m) 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 (£14.2m) NAV per Share 203p 177p 168p 148p 152p Pension Scheme Deficit £22.8m 203p £28.2m £26.4m £22.8m £20.1m £19.6m 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 39 Henry Boot AR2017.indd 39 4/4/2018 8:24:38 PM 25654 4 April 2018 8:20 PM Proof 15 Risks and Uncertainties MANAGING OUR RISK Effective risk management is essential to the achievement of our key objective and strategic initiatives. Risk management controls are integrated across all levels of our business and operations. Read about the Risk management framework on page 68 Risk and description Mitigation The Group operates a system of internal control of risk management and operates a risk management framework. The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces. To enable stakeholders to appreciate what the business considers are the main operational risks, they are listed below. Health & Safety Inherent risk within all of our businesses but most notably within construction activity — Priority consideration of all Group and subsidiary board meetings — Robust training, policies, procedures and monitoring — Construction operation is OHSAS 18001 approved Health & Safety management system Environmental The Group is inextricably linked to the property sector and environmental considerations are paramount to our success. The legal, financial and reputational damage which can occur from not being compliant all carry significant risk to the Group Construction Increased cost and lower availability of skilled labour, subcontractors and building materials leading to reduced activity — Internal independent Health & Safety department conducts regular random inspections — Routine Director, Senior Manager or independent health and safety inspections — Regular externally operated mock incidents — Our interaction with the environment and the agencies that have an overarching responsibility has to be positive at all times in order to meet our obligations — Construction environmental risk is managed through the operation of an ISO 14001 approved environmental management system — Internal design helps mitigate environmental planning issues — Record of awards given in respect of good safety and environmental performance — Environmental Impact Assessments are carried out for all construction activities. These detail the action required to eliminate or reduce environmental impacts — ISO 9001, ISO 14001 and OHSAS 18001 approved Integrated Management System which details our robust Risk Management processes — Quality training given to develop 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 Key:  Rise  Fall  Remain Change during the year    40 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 40 4/4/2018 8:24:38 PM 25654 4 April 2018 8:20 PM Proof 15 Risk and description Mitigation Development Not developing marketable assets for both tenants and the investment market on time and cost effectively Development Construction and tenant risk which is not matched by commensurate returns on development projects — 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 and over £1bn pipeline of future opportunities — 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 Change during the year   Land The inability to source, acquire and promote land would have a detrimental effect on the Group’s strategic land portfolio and income stream — Monthly operational meetings detail land owned or under control, new opportunities and status of planning — Acquisitions are 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 13,000 acres with aspiration to grow further — Finance available to support speculative land purchases — Well respected name within the industry that demonstrates success Land 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 and will target prime locations  Planning Changes in Government or Government policy towards planning policies could impact on the speed of the planning consent process or the value of sites — Large land portfolio 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  — 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 a cost-effective and timely manner 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 41 Henry Boot AR2017.indd 41 4/4/2018 8:24:38 PM 25654 4 April 2018 8:20 PM Proof 15 Risks and Uncertainties continued Risk and description Mitigation Change during the year    — 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 — This risk is increased when unemployment falls and labour markets contract — Long-term employment records indicate 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 run to February 2020 and are backed by investment property assets — Detailed cash requirements are forecast up to 15 months in advance and reviewed and revised monthly — As a PLC, access to equity funding is available should this be required — A large proportion of raw materials are sourced from within the UK — Strong history of performance and close working relationships with customers encourages confidence — Many subcontractors utilise locally sourced labour — Weakness in sterling encourages outside investment — Markets currently remain strong and the Group operates solely within the UK  — Employee awareness updates distributed routinely — Use of software and security products and regular updates thereof — Detailed disaster recovery plans — External vulnerability and threat management review — 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 quoted investments including pooled diversified growth funds — Treat pension scheme as any other business segment to be managed — Strong working relationship maintained between Company sponsor and pension Trustees — Use good quality external firms for acturial and investment advice   Economic The Group operates solely in the UK and is closely allied to the real estate, housebuilding 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 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 Funding 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 we operate UK exit from European Union As negotiations unfold we could see further price inflation, reduced market confidence, restrictions to the supply of labour and increased economic uncertainty Cybersecurity Unauthorised access to systems, hacking, malware and distributed denial of service could all lead to data loss, business disruption, reputational damage or financial loss Pension The Group operates a defined benefit pension scheme which is closed to new members. 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 Key:  Rise  Fall  Remain 42 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 42 4/4/2018 8:24:38 PM 25654 4 April 2018 8:20 PM Proof 15 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 16 to 19 and page 22 in the Strategic Report. These documents outline the long-term business model and are central to the understanding of how the Group operates. We have operated the current business model successfully for over 15 years, and have a 132-year unbroken trading history. By their nature, the Group’s activities tend to be very long- term, especially in the land promotion business and increasingly within property development. The Group’s strategy and experience in all of the markets in which we operate have been built up over many years. Over the last ten years, the Group has reported an average profit before tax of £27m per annum, added almost £88m to net assets (an increase of some 48%) and paid 51.75p per share 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. Analyst 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 predominately 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 reduce investment and borrow less and, whilst profitability is lower, the stable property investment rental income and construction segment returns cover 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 £72m) 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 2021. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 43 Henry Boot AR2017.indd 43 4/4/2018 8:24:39 PM 25654 4 April 2018 8:20 PM Proof 15 Corporate Responsibility 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. What does Corporate Social Responsibility mean to Henry Boot? Our commitment to being a sustainable business underpins everything that we do; this ethos is fully integrated into our day- to-day operations and it is of the utmost importance for us to demonstrate to our stakeholders our approach and its impacts. We consistently review and address the key social, ethical and environmental impacts of our operations in a way that aims to bring value to all our stakeholders; our programme supports our approach of acting responsibly whilst we continue to grow, with continuous improvement lying at the heart of our business. During 2017 we launched ‘The Henry Boot Way’, a partnership with our employees to shape our business for the future, realigning our Purpose, Vision and Values with a modern Henry Boot. Key to our ongoing success is the positive engagement of our employees working in collaboration with each other to ensure that our business operations are aligned to our overall aims of: — Acting in an ethical manner; — Taking care of our employees; — Being responsible for our impact on the environment; — Delivering best value to our stakeholders and — Delivering support through charitable donations. “ Henry Boot is a great place to work and we are all proud to work here. Our clients sing our praises too, commenting that we go the extra mile and that we can be depended on to do a great job.” JOHN SUTCLIFFE Chief Executive Officer We continue to face a number of challenges: we must continue to act fairly and responsibly, ensuring all our stakeholders are provided with a safe environment in which to work and making positive progress by trading responsibly and being a great employer. RACHEL WHITE Head of HR Pictured: Group Finance Director, Darren Littlewood presenting a cheque of £500 to Whirlow Hall Farm, which helped replace the farm’s ruined winter feed stocks. 44 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 44 4/4/2018 8:24:41 PM 25654 4 April 2018 8:20 PM Proof 15 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 45 Henry Boot AR2017.indd 45 4/4/2018 8:24:42 PM 25654 4 April 2018 8:20 PM Proof 15 25654 4 April 2018 8:20 PM Proof 1546Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Corporate Responsibility continued The Group’s employees are at the heart of all that we achieve. Our people are highly talented, successful and motivated individuals who are essential to the success of the Group. We are committed to ensuring that we have the right people working for us.Our approachEmployee engagement and employee satisfaction are crucial to the 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 core values.Working at Henry Boot means working in an inspiring and developing environment. We are committed to providing a working environment in which our employees are empowered and can develop to achieve their full potential and have opportunities for both professional and personal development.We have established policies for recruitment, learning 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 be able to develop rewarding careers and want to stay with us, and we recruit and promote from within wherever possible.As our businesses continue to develop and grow, we understand that by retaining and inspiring effective and committed employees, we can continue to deliver excellence to all.Human rightsHenry Boot PLC is committed to the UN’s Guiding Principles on Business and Human Rights. Protecting and preserving human rights is embedded in our culture and is fundamental to our core values. This is reflected in our policies relating to anti-corruption, diversity, and whistleblowing, coupled with our actions towards our people, suppliers, clients and the communities in which we operate.Modern slaveryThe Henry Boot Group has, following the introduction of the Modern Slavery Act 2015 (the ‘Act’) implemented a number of measures which seek to bring about greater transparency and scrutiny into our various supply chains, in order to combat slavery and trafficking activities. Further to this, over the past year we have been reviewing the measures put in place and seeking to identify additional actions to strengthen our due diligence and transparency. We have updated our Human Trafficking and Slavery Statement (the ‘Statement’), setting out the introductory activities undertaken to reduce the risk of slavery and trafficking activities being present within our business operations. These measures include the introduction of an Anti-Slavery Policy, due PEOPLEPictured below: Tom Brady, Trainee Planner, using a theodolite on site at Hull University.Henry Boot AR2017.indd 464/4/2018 8:24:48 PMGender diversity All employees Directors Male Female 77% 23% Male Female 90% 10% Senior managers Male Female 85% 15% As at 31 December 2017 the active membership of the pension arrangements stood at (employees): The Henry Boot Staff Pension & Life Assurance Scheme Henry Boot PLC Group Stakeholder Pension Plan Road Link (A69) Limited Pension Plan Stonebridge Projects Limited Pension Plan† 82 422* 5 42 * 65 employees within this total have invested their residual salary from The Henry Boot Staff Pension and Life Assurance Scheme into the Henry Boot PLC Group Stakeholder Pension Plan. † From 01 January 2018 this section is named Stonebridge Homes Limited Pension Plan diligence requirements, and mandatory contract clauses seeking compliance by our supply chain with appropriate anti-slavery measures. Our updated Statement and Policy for 2018 sets out the measures to be put in place during 2018 to increase knowledge and vigilance throughout our organisation and supply chain, and we will be regularly working with our partners, contractors, suppliers and other stakeholders to bring these measures into effect, to review their effectiveness and consider any changes or additional measures as appropriate. Diversity and inclusion The approach of Henry Boot PLC is underpinned by our belief that all individuals should be treated fairly and should have access to equal opportunities regardless of their status. Our Equality & Diversity Policy states that no prospective employee should receive less favourable treatment on the grounds of, among other characteristics, disability. We have continued the employment, wherever possible, of any person who becomes disabled during their employment with us, and opportunities for learning, career development and promotion do not operate to the detriment of disabled employees. Gender pay equality The Group opted to be an early adopter and reported in 2016 in relation to the Equality Act 2010 (Gender Pay Information) Regulations 2017. Further development of the Regulations in 2017 means that we are not obligated by statute to report our gender pay gap as we do not meet the required reporting thresholds. However, we will continue to report voluntarily. Our mean gender pay gap is currently 27.22% (2016: 27.02%) which for Henry Boot is reflective of the ratio of men and women employed at just over 3:1 rather than an issue relating to how we pay our people. We have a disproportionate number of women in all roles and therefore our data is skewed; we believe that without a representative increase in the number of women we employ, the gap will be difficult to reduce. We have a number of employment policies in place around flexible working which we hope will see our gender split decrease over time and have a positive impact on our gender pay gap. We have a number of our high profile female employees involved in initiatives to encourage women into construction and its associated industries and have worked with a local girls school to establish an attraction strategy to encourage construction and its associated industries as a positive career choice. Our pension arrangements During 2017 we continued to operate two pension schemes. Employees are members of either The Henry Boot Staff Pension and Life Assurance Scheme (defined benefit pension 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 pension). 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 47 Henry Boot AR2017.indd 47 4/4/2018 8:24:49 PM 25654 4 April 2018 8:20 PM Proof 15 Corporate Responsibility continued Employees who are members of The Henry Boot Staff Pension and 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 and Life Assurance Scheme. Henry Boot PLC has implemented the UK’s auto-enrolment pension requirements; this is provided by AVIVA. Employees are informed of auto-enrolment and other pension choices through letters and online via the Group Intranet. In 2017, we auto- escalated our pension contributions to a minimum of 4% matched by the Company, with a view to a final escalation to 5% matched by the Company in 2018. Our performance As part of our push for excellence among our employees, we have robust recruitment procedures in place. Continuing from 2016 we saw a further increase in levels of recruitment in 2017 across all our businesses including the opening of a new office in Birmingham and are cautiously optimistic about the future. Our turnover remains low at 14.2% (2016: 12.4%). In 2017 we delivered 1,532 training days (2016: 1,057); in addition to this and in recognition of the diverse range of skills within our workforce, there was also an unquantifiable amount of ad hoc learning and development which takes place on a daily basis on our sites, in our offices and depots. In response to employee requirements and the further development and enhancement of e-learning provision, we now deliver a range of courses by this medium which allows our employees to refresh specific technical skills from their desks. In 2017 we recruited 13 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. Our preferred succession planning method is one of in-house development and growth; consequently we also have a number of experienced employees enrolled on formalised education programmes to enhance their skills and knowledge in anticipation of career development and promotion within the business in which they operate. We anticipate an increase in the number of apprentice recruits in 2018, primarily as part of our succession plans but also in response to the introduction of the Apprenticeship Levy. In 2017, Trainee Technician Lydia McGuinness was awarded the Further Education Student of the Year at the Generation for Change (G4C) Awards. These awards provide an exclusive opportunity for companies based within the Yorkshire and Humber region to celebrate outstanding examples of excellence and best practice within the sector, and are passionate about focusing on young people and showcasing young talent in the industry. “ I am so honoured to have received the Further Education Student of the Year Award from the G4C. Credit is shared with my colleagues at Henry Boot Construction who have given me so much support and encouragement. The pride I have in working for this company comes from the commitment they have in developing their young employees.” LYDIA McGUINNESS Trainee Technician 48 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 48 4/4/2018 8:24:51 PM 25654 4 April 2018 8:20 PM Proof 15 HEALTH AND SAFETY A fundamental commitment of the Group is to ensure that the health, safety and welfare of our employees, stakeholders and the wider public is safeguarded. 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 working environment, and contributes to improving our business performance. We expect our leadership teams to manage all aspects of our business in a safe manner, and employ practical measures to eliminate or minimise risk. 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 to 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 Construction segment health and safety performance against Constructing Excellence Health and Safety Key Performance Indicators; we are delighted to report that for another year our Accident Frequency Rate (AFR) for our directly employed employees is again zero. We are also delighted to report a reduction in our AFR to 0.05 per 100,000 hours worked including our subcontractors (2016: 0.17). We believe that offering the right opportunities will help ensure our employees feel supported and equipped to carry out their role to the best of their ability and manage the needs and challenges of the business. Our employees are able to access a range of development tools or job specific training appropriate to their needs. In 2017, in response to requirements for more responsive and focused training, we introduced an e-learning platform which allows our employees to complete a selection of compliance training while at their desks. “ Every Henry Boot employee is empowered to never accept unsafe attitudes and to ensure Health and Safety is an integral aspect to how we operate as a Group.” BRENDON KEOWN Group Health, Safety and Environmental Manager During 2017, as part of the launch of ‘The Henry Boot Way’, and to encourage the drinking of more water in the workplace while removing single use plastics, all our employees were issued with a promotional water bottle which they can use to ensure they remain hydrated. As we look to 2018, we will focus on the health and well-being of our employees as a priority. We continue to receive recognition for our efforts in managing health and safety and we were again recipients of a Company- wide RoSPA Gold Medal Award for our project at St Helena, Chesterfield, CIOB Celebrating Construction in Humber & West Yorkshire Contractor of the Year and the Health & Safety Award. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 49 Henry Boot AR2017.indd 49 4/4/2018 8:24:53 PM 25654 4 April 2018 8:20 PM Proof 15 Corporate Responsibility continued OUR COMMUNITIES We are dedicated to supporting our communities, both where we are based and throughout our UK- wide operations. Our approach As a Group we contribute to the social and economic impacts on the communities in which we operate. 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. Our areas of focus are: — Charities and organisations local to our business operations; — Charities and organisations that support educational improvements for children/adults; — 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 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 £80,503 (2016: £65,130) to charitable causes, £18,956 of which was through our Give As You Earn payroll giving mechanism (2016: £15,580). 2017 saw the Group select a Charity of the Year for the first time; we were delighted to continue to support our friends at St Luke’s Hospice. After taking part in the Master Cutler’s Challenge 2016, Henry Boot Group of Companies formed a special relationship with St Luke’s, who were one of the benefactors that year. St Luke’s are a Sheffield charity caring for people aged 18 and above throughout the city who have terminal illnesses. Their aim is to control their symptoms, alleviate pain, and give them the best possible quality of life, which of course being a charity is all free of charge. We formed an internal committee, with members across the whole Group, to come up with ideas and events to ensure we achieved the same success as in previous years. While the list below contains some familiar fixtures, the committee managed to once again come up with some great events, including: “ We have developed a great relationship with the St Luke’s team and hope to continue to develop it in the forthcoming years. They really got involved in helping me and the committee to organise last year’s events, and were always keen to support us whenever possible. I was so proud to have been part of the team that raised such an incredible sum to support their work.” AMY OAKLEY Group Construction Solicitor — Dress Down Day — Sales from IT equipment — Employee “Give an hour” — St Luke’s Raffle — Bake Off — Wold Walk — Race Night at Owlerton Stadium, Hillsborough — Summer BBQ It was great to see so much support, not only from our employees but from St Luke’s as well, who throughout the year continually provided us with support with all our fundraising events and staff interaction. At the end of the year the Group managed to raise £22,539.88 for St Luke’s, a total everyone at Henry Boot should be very proud of. To have raised this amount for a truly fantastic cause is amazing but to have done it with St Luke’s as a partnership will always make 2017 a memorable year. 50 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 50 4/4/2018 8:24:53 PM 25654 4 April 2018 8:20 PM Proof 15 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 A C N A N F I I “ We are so grateful to everyone at Henry Boot for the amazing support they have given to St Luke’s. We have formed a fantastic working relationship with their team and have been consistently impressed by their dedication, commitment and passion for supporting our vital work caring for adults with a terminal illness and their loved ones and families in Sheffield. The Henry Boot team developed and delivered an exciting range of fundraising events and opportunities and everyone here at St Luke’s is very grateful for the impact they have had on our work.” JACK KIDDER Corporate Fundraising Manager - St Luke’s Hospice Pictured: Presentation of cheque to St Luke’s Hospice I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 51 Henry Boot AR2017.indd 51 4/4/2018 8:24:53 PM 25654 4 April 2018 8:20 PM Proof 15 Corporate Responsibility continued ENVIRONMENT We are committed to protecting and enhancing the environment in the course of all our areas of operations and are proud of our team’s expertise and enthusiasm in making this happen. Our approach 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. “ As a responsible business, we are committed to minimising the environmental impact of our business operations by applying robust environmental management controls and best practice. Construction activities operate to an Environmental Management System, approved to ISO 14001, which ensures that environmental impacts are minimised on every project and that we continually improve our environmental performance and credentials.” Pictured: Banner Plant’s eco cabins have a number of energy saving devices which help keep the carbon footprint to a minimum on site. RICHARD GRAFTON Head of Policy & Compliance 52 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 52 4/4/2018 8:24:54 PM 25654 4 April 2018 8:20 PM Proof 15 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 Total direct emissions per employee1 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 2017 Tonnes 2,222 1,075 3,297 6.8 tonnes CO2e 1,115 4,412 9.1 tonnes CO2e 2016 Tonnes 2,060 1,133 3,193 7.2 tonnes CO2e 952 4,145 9.4 tonnes CO2e Henry Boot Group CO2e emissions Property investment and development Land development Construction Group overheads Total gross controlled emissions 2017 Intensity Ratio Tonnes of CO2e 2.3 2.32 38.10 3.95 2017 Tonnes of CO2e 994 79 3,118 221 4,412 2016 Tonnes of CO2e 1,076 117 2,765 187 4,145 2016 Intensity Ratio Tonnes of CO2e 2.5 3.56 34.8 3.53 Intensity Basis per 1,000 sq ft of investment property with communal areas per employee per £1m of turnover per employee Trend Rise Fall Rise Fall Rise Rise Fall Trend Fall Fall Rise Rise 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 Our greenhouse gas emissions for the year ended 31 December 2017 were calculated in accordance with the GHG Protocol Corporate Accounting and Reporting Standard (2011 edition) and emission factors from UK Government GHG Conversion Factors for Company Reporting 2017. Our direct and indirect operational greenhouse gas emissions are shown in the tables above. 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 increased by 6% when compared with those of the previous year; this equates to a reduction of 0.3 tonnes per employee. For further information on our greenhouse gas emissions please see our website. S T N E M E T A T S L A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 53 Henry Boot AR2017.indd 53 4/4/2018 8:24:54 PM 25654 4 April 2018 8:20 PM Proof 15 54 Henry Boot AR2017.indd 54 4/4/2018 8:24:56 PM 25654 4 April 2018 8:20 PM Proof 15 GOVERNANCE “ There is a great culture at Henry Boot which promotes collaboration, integrity and trust between people, divisions and roles.” TOM DUNN Assistant Development Surveyor Board of Directors Senior Management Chairman’s Introduction Corporate Governance Statement Nomination Committee Report Audit Committee Report Directors’ Remuneration Report Directors’ Remuneration Policy Directors’ Report Statement of Directors’ Responsibilities 56 60 61 62 69 71 74 84 92 97 Henry Boot AR2017.indd 55 25654 4 April 2018 8:20 PM Proof 15 55 4/4/2018 8:24:57 PM 25654 4 April 2018 8:20 PM Proof 155656Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017BOARD OF DIRECTORSDarren Littlewood Group Finance DirectorGerald Jennings Non-executive DirectorJoanne Lake Deputy ChairmanPeter Mawson Non-executive DirectorRead the Directors’ biographies on pages 58 and 59Henry Boot AR2017.indd 564/4/2018 8:25:03 PM25654 4 April 2018 8:20 PM Proof 15Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 201757John Sutcliffe Chief Executive OfficerJamie Boot ChairmanRussell Deards Company SecretaryJames Sykes Non-executive DirectorHenry Boot AR2017.indd 574/4/2018 8:25:05 PM25654 4 April 2018 8:20 PM Proof 1558Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Board of DirectorsJAMIE BOOTChairmanCurrent RoleNon-executive Chairman since January 2016. Appointed an Executive Director in June 1985 and a Non-executive Director in January 2016.CommitteesNomination, Audit and Remuneration.Past RolesGroup 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 BoardJamie 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 Audit, Remuneration and Nomination Committees.JOHN SUTCLIFFEChief Executive OfficerCurrent RoleChief Executive Officer since January 2016. Appointed an Executive Director in October 2006.Additional Roles HeldChairman of the Company’s four principal operating subsidiaries. Member of the CBI Yorkshire and the Humber Regional Council and member of Council at Sheffield University. Trustee Director of Henry Boot Pension Trustees Limited acting as trustee for The Henry Boot Staff Pension and Life Assurance Scheme.Past RolesGroup Finance Director from October 2006 to December 2015. Group Finance Director and Company Secretary at Town Centre Securities PLC and Finance Director of Abbeycrest plc.Brings to the BoardJohn 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. John also relays subsidiary strategy back to the main Board. He is also the Director responsible for all health, safety and environmental matters.DARREN LITTLEWOODGroup Finance DirectorCurrent RoleGroup Finance Director and Executive Director since January 2016.Additional Roles HeldDirector of the Company’s four principal operating subsidiaries.Past RolesGroup Financial Controller from January 2008 to December 2015.Brings to the BoardDarren 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.JOANNE LAKEDeputy ChairmanCurrent RoleNon-executive Deputy Chairman since January 2016. Appointed a Non-executive Director in October 2015.CommitteesNomination, Audit and Remuneration (Chairman).Additional Roles HeldChairman of Mattioli Woods plc, Non-executive Director of Gateley (Holdings) Plc, Non-executive Director of Morses Club PLC and Non-executive Director of Accrol Group Holdings plc.Brings to the BoardJoanne 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.Henry Boot AR2017.indd 584/4/2018 8:25:34 PM25654 4 April 2018 8:20 PM Proof 15RUSSELL DEARDSCompany SecretaryCurrent RoleGroup General Counsel since 2014 and Company Secretary since September 2013.Additional Roles HeldCompany Secretary of the Company’s four principal operating subsidiaries. Responsible for Legal, Insurance, IT, HR, Health and Safety, Group Communications and secretariat matters at the PLC Board.Past RolesHead of Legal Services for Barratt Developments in 2007 and Partner at Flint Bishop Barnett Solicitors in 2011.Brings to the BoardRussell qualified as a solicitor in 1991 and now has over 25 years’ experience in law with 11 years in the property and construction industries.STRATEGIC REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONHenry Boot PLC Annual Report and Financial Statements for the year ended 31 December 201759OVERVIEWGOVERNANCEJAMES SYKESNon-executive DirectorCurrent RoleNon-executive non-independent Director since March 2011.CommitteesNomination, Audit (Chairman) and Remuneration.Additional Roles HeldChairman and Partner in the London office of Saffery Champness Chartered Accountants which he joined in 1987. He is a Non-executive Director of Saffery Champness business in Guernsey.Brings to the BoardJames’ 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. GERALD JENNINGSNon-executive DirectorCurrent RoleNon-executive Director since October 2015.CommitteesNomination, Audit and Remuneration.Additional Roles HeldNon-executive Chairman of Social Communications (Leeds) Limited, 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, Chairman of the West and North Yorkshire Chamber of Commerce and Director of G R Jennings Properties Ltd.Past RolesRetail Portfolio Director at Land Securities PLC.Brings to the BoardGerald 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.PETER MAWSONNon-executive DirectorCurrent RoleSenior Independent Non-executive Director since January 2016. Appointed a Non-executive Director in October 2015.CommitteesNomination (Chairman), Audit and Remuneration.Additional Roles HeldNon-executive Chairman of Nexus Planning Limited, Non-executive Chairman of Infinite Global Consulting Holdings Limited.Past RolesChief Executive of Donaldsons LLP and Chief Executive of West Northamptonshire Development Corporation.Brings to the BoardPeter 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.Henry Boot AR2017.indd 594/4/2018 8:26:02 PM25654 4 April 2018 8:20 PM Proof 1560Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Senior ManagementNICK DUCKWORTHHallam Land Management LimitedAppointment DateManaging Director in 2016.Brings to the RoleNick 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.DAVID ANDERSONHenry Boot Developments LimitedAppointment DateManaging Director in 2005.Brings to the RoleDavid 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.DARREN STUBBSStonebridge Homes LimitedAppointment DateManaging Director (start of joint venture) in 2010.Brings to the RoleDarren 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 £25m. In 2010 he formed a new house builder and property company, Stonebridge Homes Limited, which is a jointly owned company with Henry Boot PLC.GILES BOOTBanner Plant LimitedAppointment DateManaging Director in 2000.Brings to the RoleGiles 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.TREVOR WALKERRoad Link (A69) LimitedAppointment DateGeneral Manager in 2005.Brings to the RoleTrevor Walker, IEng MICE, 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.SIMON CARRHenry Boot Construction LimitedAppointment DateManaging Director in 2009.Brings to the RoleSimon Carr, BSc (Hons), FRICS, has been with Henry Boot for 30 years. Simon is a private sector board member of the Sheffield City Region Local Enterprise Partnership, the Sheffield City Region Housing Executive Board and Sheffield City Region Transport Executive Board. He is also a board member of the National Federation of Builders and a past national chair, a board member of the Yorkshire Builders Federation and a past president of YBF and sits on the CBI Construction Council. He is also a Non-executive Director of Wildgoose Construction Limited.Henry Boot AR2017.indd 604/4/2018 8:26:40 PM25654 4 April 2018 8:20 PM Proof 15Chairman’s IntroductionWelcome to our Corporate Governance ReportSTRATEGIC REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONHenry Boot PLC Annual Report and Financial Statements for the year ended 31 December 201761OVERVIEWGOVERNANCE“ The Board places a strong emphasis on the pursuit of good governance and promoting sound, ethical values.”JAMIE BOOT ChairmanDear Shareholders, As highlighted earlier in this report, 2017 has been another very successful year both financially and operationally for the Group. The Board places a strong emphasis on the pursuit of good governance and promoting sound, ethical values which are encapsulated in the ‘One Henry Boot’ Project which has defined the ‘Henry Boot Way’, including our refreshed Purpose, Vision and Values. I believe it is this approach, alongside the hard work and commitment of our employees, that has continued to keep the Company in operation for over 130 years and will continue to do so for years to come. There have been no Board changes over the last year following several changes in the preceding 18 months. As Chairman, I am responsible for the overall leadership of the Board and making sure that it functions effectively. We continue to work well together as a group and there is an open culture around the Board table with the Non-executives adding value to discussions and providing a robust and healthy level of challenge to decision-making.As you can see from the biographies on pages 58 and 59, we have a good balance of internal knowledge and external perspective, varying lengths of tenure, and recent and relevant experience across all the sectors in which we operate. When I became Chairman in January 2016, after 29 years as Group Managing Director, we felt it was in the best interests of our shareholders to appoint three independent Non-executives to provide the necessary impartiality and offer an increased diversity of thinking styles. We will continue to review the composition of the Board considering the needs of the Company, its future strategy and the evolving external landscape. Strategy DayIn addition to the seven official meetings throughout the year, the Board held an offsite Strategy Day in December which focused entirely on the strategy for the Group and each of the prime subsidiary companies. The session looked in detail at the external economic backdrop and assessed our internal strengths and weaknesses. We considered our newly defined Purpose, Vision and Values alongside our strategic business priorities. This was a productive and collaborative session which we will look to repeat on an annual basis.StakeholdersAs part of the refresh of our Purpose, Vision and Values, it was necessary for us to consider and then redefine our stakeholders. You can read more about this project and who our stakeholders are on page 4; further information on our engagement with shareholders follows on page 67. We have always been mindful of the benefits of communicating and collaborating with the stakeholders our business affects and this will remain a key area of Board focus for 2018. We look forward to updating you on our progress next year.CyberIn light of the growing regularity of corporate cyberattacks, a Group-wide cyber vulnerability assessment was undertaken. We will continue to monitor cyber risk and activity at Board level on an ongoing basis, particularly with the General Data Protection Regulation coming into force in May 2018.The following report sets out our governance structures, processes and the work undertaken by the Board and its Committees throughout 2017. I hope to see many of you at our upcoming AGM on 24 May 2018.JAMIE BOOT Chairman 20 April 2018Henry Boot AR2017.indd 614/4/2018 8:26:49 PMCorporate Governance Statement The Board believes in the importance of maintaining a high level of corporate governance which helps to promote high ethical standards and sustain the success of the Company over the long- term. The governance structures in place are designed to reflect the individuality of the Company and the composition of both its institutional shareholders and the individual shareholders, many of whom have family ties to the Company. For this financial year, as a premium listed company, the Company was subject to compliance with the 2016 UK Corporate Governance Code (Code). Further details of how the Code has been applied are set out below on pages 61 to 68. The Board The Board remains unchanged from last year and consists of two Executive Directors and five Non-executive Directors, including the Chairman. Biographies are shown on pages 58 and 59. The Board maintains a formal schedule of matters reserved for its decision which it reviews on an annual basis to check for relevance and to align with new regulatory and best practice developments. Key areas of Board responsibility include: — strategy and objective setting; — monitoring the effectiveness of internal controls; — approving the Company’s half-year and full-year financial results announcements; — capital structure and ensuring funding adequacy; and — the determination and monitoring of the Company’s principal risks. Throughout the year, and in addition to the areas previously mentioned in my introduction, the Board has focused specifically on topics such as; — setting the new Purpose and adoption of the Vision and Values; — risk management and the effect of Brexit and other political uncertainties on the Company; — facilitating enhanced health and safety board reporting; and — oversight of the acquisition of Premier Plant. Regular reports are also received from all PLC departments, including health and safety, HR, finance and pensions, IT, and legal. The day-to-day management of the Company’s subsidiaries and the responsibility for their operational decisions sits with each respective board of directors, led by a Managing Director. Subsidiary company Managing Directors attend Group Board meetings on a rotational basis to present their operational business plans and strategy. Each subsidiary board meeting is attended by the two main Board Executives and the Company Secretary. The Operations Board is an executive forum established in January 2016 which focuses on Group working, inter-company co-operation and risk. This board consists of the Chief Executive Officer, Group Finance Director, and Company Secretary together with the four main subsidiary company Managing Directors and the Managing Director of Stonebridge Homes Limited, our jointly-owned house builder. Regular updates are fed back to the PLC Board. Board composition Non-executive Board tenure Non-executive Chairman 14% Executive Non-executive 29% 57% 0-5 years service 5+ years service 60% 40% 62 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 62 4/4/2018 8:51:47 PM 25654 4 April 2018 8:51 PM Proof 15 How the responsibilities of the Board are divided Chairman — overall leadership of the Board and ensuring its effectiveness on all aspects; — leads the Board in determining strategy and in the achievement of its objectives; — facilitates the effective contribution of the Non-executive Directors and constructive relations between Executive and Non-executive Directors; — responsible for making sure that the Directors receive accurate, timely and clear information; Chief Executive Officer — has overall responsibility for the implementation of 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; — ensures that the continued development needs of the — acts as Chairman of the Operations Board; Directors are identified and addressed; and — has an oversight role and is available to all shareholders. Group Finance Director — responsible for devising and implementing the Group’s financial strategy, policies and risk; — operational responsibility for managing the Group’s financial affairs, including treasury and tax matters; — attends the Operations Board meetings; and — acts as a director of the subsidiaries and attends the subsidiary board meetings. Deputy Chairman and 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. 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; — attends Operations Board meetings; — Company Secretary of the subsidiaries and attends the subsidiary board meetings; and — in primary capacity as Head of PLC Operations, has Board responsibility for matters relating to legal, company secretariat, communications, insurance, IT and HR. — acts as Chairman of the subsidiary board meetings; — 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 devolves to management within each subsidiary business. Senior Independent Non-executive Director — 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. 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. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 63 Henry Boot AR2017.indd 63 4/4/2018 8:26:50 PM 25654 4 April 2018 8:20 PM Proof 15 Corporate Governance Statement continued Board and committee meetings Throughout the year, there were seven Board meetings and a separate offsite Strategy Day. In addition to this, and in order to effectively carry out its duties, the Board delegates authority to committees to look after specific areas of responsibilities. The Board has formally constituted Nomination, Audit and Remuneration Committees which operate within their agreed terms of reference. Each committee is provided with accurate, timely and clear information and has access to external consultants where necessary. Further details of each of the above committees can be found on pages 69 to 91 and such details form part of this Corporate Governance Statement. During 2017, there was 100% attendance at Board and committee meetings as shown in the table below. Member Jamie Boot Role Non-executive Chairman John Sutcliffe* Chief Executive Officer Darren Littlewood* Group Finance Director Joanne Lake Deputy Chairman and Non-executive Director Gerald Jennings Non-executive Director Peter Mawson James Sykes Senior Independent Non-executive Director Non-independent Non-executive Director * Attends the Audit Committee meetings by invitation. Board Audit Remuneration Nomination 7/7 7/7 7/7 7/7 7/7 7/7 7/7 2/2 2/2 2/2 2/2 2/2 2/2 2/2 1/1 — — 1/1 1/1 1/1 1/1 3/3 — — 3/3 3/3 3/3 3/3 Board composition The names, responsibilities and other details of each of the Directors of the Board are set out on pages 58 and 59. The Board believes it has an appropriate balance of Executive and Non-executive, and independent and non-independent Directors having regard to the size and nature of the business. In collaboration with the Nomination Committee, it is felt that the overall combination of experience, skills, knowledge and lengths of service of the current Board members provides an appropriate level of balance which contributes to effective decision-making and helps to mitigate risk. Board independence The Company recognises the importance of its independent Non-executive Directors remaining independent throughout their appointment. It enables them to provide objective advice and guidance to the Executive Directors through their wider business experience and diverse backgrounds. Jamie Boot was appointed Non-executive Chairman and is regarded as non-independent. As reported previously, the Board viewed this appointment as appropriate due to Jamie’s longevity of service, extensive knowledge and experience within the Henry Boot Group. James Sykes was appointed to represent the substantial shareholdings of the Reis family interests (see page ) and is also not regarded as independent. 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 during the Strategy Day. 64 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 64 4/4/2018 8:26:50 PM 25654 4 April 2018 8:20 PM Proof 15 Pictured: Board tour of the Kampus Development in Manchester Training and development Formal and tailored inductions are arranged for all new Directors and continued development is encouraged and monitored by the Chairman. Non-executive Directors are encouraged to familiarise themselves with the Company’s business, for example Gerald Jennings attended three subsidiary company board meetings throughout the year. This provided a further insight into the business and its culture and an opportunity to meet with the wider senior management team. The intention is that Non-executive Directors will continue to attend subsidiary company board meetings on a rotational basis. During the year, the Board has undertaken site visits and met with PLC department heads. After the Board meeting in October, the Board was given a presentation and a tour of the Kampus Development site in Manchester by Henry Boot Development employees. 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 where appropriate. Conflicts of interest are reported to the Company Secretary and the question is raised at every Board meeting. All potential and actual conflicts are recorded and any resulting approvals. There have been no conflicts of interest in respect of the Company reported to the Board during the year. Performance evaluation Performance of the Board and the individual Directors is monitored on a regular basis. Criteria identified for improvement as a result of last year’s internal evaluation were reviewed at the Strategy Day and regularly at Board meetings, and good progress has been made during 2017 against targets. It was agreed that all Directors continue to contribute effectively to the Board and its Committees and demonstrate commitment. All Directors will be subject to annual re-election by shareholders at the AGM. Risk management and internal controls The Board is responsible for determining the nature and extent of the Company’s principal risks. During the year, the Board agreed the principal risks facing the Company and carried out a robust assessment of these risks. See pages 40 to 43 for more details and the Company’s viability statement. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 65 Henry Boot AR2017.indd 65 05/04/2018 15:33:02 25654 5 April 2018 12:17 PM Proof 16 Corporate Governance Statement continued The Board is also responsible for the Company’s internal controls and operates a system which is reviewed regularly for effectiveness. The process is designed to manage, rather than eliminate, the risk of failure to achieve the Company’s business objectives as it can only provide reasonable, not absolute, assurance against material misstatement or loss. The Board requires formal risk registers to be produced in a structured format for every subsidiary and PLC department, to be reviewed at least every six months. The Board is satisfied with the current system in place and can confirm that no material weaknesses have been identified 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 the Chief Executive Officer. 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 regularly 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, finance, payroll, company secretarial, pensions, legal, human resources and training, public and investor relations, corporate communications, information communication technology, and insurance are managed centrally and report functionally to the appropriate Company officer (either the Group Finance Director (finance) or the Company Secretary) responsible for that particular operation. The CEO retains ultimate responsibility for health and safety. Internal controls Each operation reviews its own system of internal controls and reports twice a year to the Audit Committee: Business procurement All development appraisals, land purchases and 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 certain aspects of operations, such as health and safety, with the balance of the operations being governed by procedures set out in contracts and risk assessment and mitigation measures typically set out in project-specific documents such as Board reports and project updates. 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. Whistleblowing arrangements The Company has a whistleblowing policy in place for all employees of the Group, 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 Ethics, Anti-Bribery and Corruption, HR and Governance policies. Employees are also encouraged to “speak out” via a series of posters. 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, and 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. Operations Board The Operations Board is an executive forum which promotes group working, inter-company co-operation and sharing of best practice. 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. 66 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 66 05/04/2018 15:33:02 25654 5 April 2018 12:17 PM Proof 16 The policy is continually monitored and reviewed, with the latest refresh being carried out in December 2017 for issue to all Group employees, external suppliers and service providers. Mandatory online training on anti-bribery and corruption has also been carried out with all employees during 2017. In addition, as part of an overarching review of all corporate governance policies (including ethics, whistleblowing, competition law, gifts and hospitality, and staff purchases, and also now incorporating the Anti-Slavery Policy), these have all been updated and reissued. The suite of corporate governance policies will also be joined by updated data protection documentation during the course of 2018 due to the implementation of the General Data Protection Regulation. All policies reflect and refer to the Group’s values, and further training will be delivered on all relevant topics. Accountability and audit Details of the Directors’ responsibilities and the Statement of Directors’ Responsibilities are contained on page 97. The Independent Auditors’ Report is given on pages 100 to 105 The Directors’ statement in respect of the business as a going concern and the viability statement is provided on page 43. Fair, balanced and understandable The Board has assessed the tone, balance and language of the Annual Report and Financial Statements, being mindful of the requirements of the UK Corporate Governance Code and the need for consistency between the narrative section of the document and the Financial Statements. The Board’s formal statement on the Annual Report and Financial Statements being fair, balanced and understandable is contained within the Statement of Directors’ Responsibilities which can be found on page 97. Shareholder relations The Company actively communicates with its institutional and private shareholders and values a two-way conversation on key Company issues. It is this close relationship with shareholders that is viewed as one of the Company’s particular strengths. In June 2017, the Company hosted an investor and analyst day, touring a completed construction scheme and two key developments. The visits included the refurbishment of a Grade II listed building at the University of Derby, St Helena’s Campus in Chesterfield, a 200-acre employment park being developed in partnership with Derbyshire County Council and The Residence, part of the 27-acre former Terry’s Chocolate Factory at York which was converted into 165 residential properties. The visit provided the opportunity to meet the Group’s subsidiary Managing Directors as well as the Board’s Executive Directors. During the year a number of formal presentations were made by members of the Board to institutional shareholders and feedback from these meetings was provided to the Board by our stockbrokers. In addition, 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. The website is designed to communicate with both present and potential investors and includes all London Stock Exchange announcements, analyst presentations and press releases. The attendance and participation of all shareholders at the AGM is much encouraged. At the AGM held in May 2017, votes were received representing 67.93% 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 Directors’ Report on pages 92 to 96. Compliance Statement The Company has complied with all the principles of the Code for the year ended 31 December 2017 and the vast majority of the provisions. However, as in previous years, there are a number of instances where the Company has chosen to take advantage of the flexibility offered with the “comply or explain” rule when applying certain provisions. Due to the size of the Company and its unique shareholder base, the Company has adopted alternative solutions to some provisions, see below for further details. The Code recognises that good governance can be achieved by other means and the Board believes the approach we have taken is most appropriate for the Company and remains consistent with the spirit of the Code. A.3.1 As previously disclosed, the Chairman was not independent on appointment, having served as Group Managing Director for 29 years. We continue to support this appointment based on the extensive knowledge and experience of the Group and industry that Jamie Boot brings to the role and to Board discussions. In order to mitigate any independence concerns, three independent Non-executive Directors were appointed at the same time to provide balance, challenge and an external viewpoint. C.3.1 and D.2.1 As Company Chairman, Jamie Boot is a member of both the Audit and Remuneration Committees, despite not being independent on appointment. It is felt that he adds experience, value and considerable expertise to committee meetings. There remains an overall majority of independent members for each forum, both of which are chaired by Non-executive Directors with experience in their respective areas. Approved by the Board and signed on its behalf by RUSSELL DEARDS Company Secretary 20 April 2018 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 67 Henry Boot AR2017.indd 67 05/04/2018 15:33:02 25654 5 April 2018 12:17 PM Proof 16 25654 5 April 2018 12:17 PM Proof 1668Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Corporate Governance Statement continued The Board monitors the risk 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 Policy and procedure manuals cover major areas of their operations, including safety, purchasing, estimating, marketing, production and quality Development appraisals, land purchases, options, planning promotion agreements and construction contracts above a certain value require the authority of the Executive Directors to proceedIndependentreviewReview risk assessmentand reportingRiskassessmentTOP DOWNBOTTOM UPoperationsGroup centralisedReview collaborative working risk and associatedcontrols. Feedback to Group Board andsubsidiary company board levelSpeciﬁc risks and compliance issues associated with health and safety, treasury and banking operations: accounts and payroll, company secretarial, pensions, legal, human resources and training, public and investor relations, corporate communications, information communication technology and insuranceOperations BoardCo-operation frameworkSubsidiary boardsBusiness procurementBusiness unitsDay-to-day operationsAudit CommitteeInternal frameworkGroup Board Reporting frameworkThe Group operates a system of internal controls and risk management in order to provide assurance that it is managing risk whilst achieving its business objectives. The table below depicts our internal controls and risk management framework.Henry Boot AR2017.indd 6805/04/2018 15:33:0225654 5 April 2018 12:17 PM Proof 16Nomination Committee ReportStatement from the Chairman of the Nomination CommitteePETER MAWSON Chairman of the Nomination Committee“ The Committee understands the importance of playing an active role in preparing for the future.”STRATEGIC REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONHenry Boot PLC Annual Report and Financial Statements for the year ended 31 December 201769OVERVIEWGOVERNANCEThe Nomination Committee (the Committee) remains unchanged from last year, with Peter Mawson (Committee Chairman), Jamie Boot, Gerald Jennings, Joanne Lake and James Sykes as members. Biographies are shown on pages 58 and 59.Review of the yearThe role of the Committee is key to the Company’s continued success. It is our responsibility to ensure that we have the right people in place to lead the Company in line with its current and future strategy and make sure that there is an appropriate balance of knowledge, skills and experience to do so.Following numerous changes to the Board and Executive team at the beginning of 2016, there have been no further appointments or departures during the last financial year. However, the Committee understands the importance of playing an active role in preparing for the future. We met three times in 2017 with a focus on leadership development and succession planning across all senior management levels. Committee meeting attendance is shown on page 64.Succession planning We welcome the proposed changes to the UK Corporate Governance Code to formally extend the Committee’s remit more widely to cover senior executive succession. We recognise the need to continuously review the balance of knowledge, skills and expertise of the Board and our senior leadership teams in order to plan for the long-term requirements of the Group; both in terms of succession and broader leadership development.This year, after a formal tender process, we have commissioned the Quo Group to partner with us to design and deliver the first cohort of our Senior Leadership Development Programme. The Committee has played a lead role in identifying our partner as well as ensuring that the programme has been designed to meet our specific requirements and needs (including alignment with ‘The Henry Boot Way’ - see pages 14 and 15). We are confident that this will form the blueprint for future Development Programmes for the whole Group; and serve to demonstrate our ongoing commitment to promoting opportunities for growth and progression across the entire workforce.Diversity The Company and the Board are committed to creating a culture that respects and values each other’s differences, that promotes dignity, equality and diversity and that encourages individuals to develop and maximise their true potential.At 31 December 2017 we had 14% women on our Board. Figures for the number of women in senior management positions and across the Group are shown on page 47.The Committee’s primary goal remains to identify the most suitable candidates to join the Board and for other senior positions within the Group. However, it also seeks to ensure that in managing an appointment and in succession planning, it has regard to the benefits of diversity, including, but not restricted to, gender diversity and its impact on effective decision-making.Henry Boot AR2017.indd 6905/04/2018 15:33:0425654 5 April 2018 12:17 PM Proof 1670Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Nomination Committee Report continuedStatement from the Chairman of the Nomination CommitteeThe Committee and the Board recognise the need to ensure that the business reflects a diverse workforce, at all levels of seniority, whilst always seeking to ensure that each post is offered to the best available candidate.Accordingly, the Board has reflected and decided not to impose a quota regarding gender balance, preferring instead to appoint strictly on merit. This is a subject, however, which is kept under regular review.The Committee will ensure that it only works with executive search firms which have signed up to the Standard Voluntary Code of Conduct addressing gender diversity and best practice. Annual re-election by shareholdersThe Board has agreed that all Directors will retire from the Board on an annual basis and offer themselves for re-election at the next AGM. The Committee has conducted 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 composition of the Board and its committees allows them to discharge their respective duties and responsibilities effectively. The Directors’ biographies are shown on pages 58 and 59.The Committee operates under its terms of reference which have been approved by the Board and are reviewed on an annual basis. Approved by the Board and signed on its behalf byPETER MAWSON Chairman of the Nomination Committee 20 April 2018Henry Boot AR2017.indd 7005/04/2018 15:33:0425654 5 April 2018 12:17 PM Proof 16Audit Committee ReportStatement from the Chairman of the Audit CommitteeSTRATEGIC REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONHenry Boot PLC Annual Report and Financial Statements for the year ended 31 December 201771OVERVIEWGOVERNANCE“We all have many years of financial and business experience and both Joanne Lake and I have relevant accounting qualifications and experience.”JAMES SYKES Chairman of the Audit CommitteeThose serving as members of the Audit Committee (the Committee) for the whole of 2017 were James Sykes (Committee Chairman), Jamie Boot, Gerald Jennings, Joanne Lake and Peter Mawson. Biographies of the current members of the Committee are shown on pages 58 and 59.Terms of referenceThe terms of reference for this Committee incorporate the UK Corporate Governance Code’s provisions in relation to its roles and responsibilities and are reviewed by the Committee each year.Role of the CommitteeThe Committee’s responsibilities include, amongst other matters, the following: —to review and consider the scope and effectiveness of the Company’s financial controls, 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; —to review and make recommendations to the Board in relation to the half-yearly results 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; —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.In March 2018 the Committee opted to increase the frequency of its meetings with a greater focus on monitoring risk across the Group. As a result, the Committee changed its name to the “Audit and Risk Committee”. We will provide more details on this change and the work we have done in next year’s report.Henry Boot AR2017.indd 7105/04/2018 15:33:06Audit Committee Report continued Meetings during the year The Committee met twice during the year, with the Company’s auditors in attendance for each meeting. The Chief Executive Officer and Group Finance Director were also present at these meetings and attend by invitation. Attendance at these meetings by the Committee members is shown in the table on page 64. Audit Committee matters are also discussed at each Board meeting. Committee activities during the year In 2017 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 Statement and reports from the external auditors on the outcome of its audit in 2017. 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 43. 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. 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 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. Other advisory services received during the year and the amount paid for these services equated to 2% of the amount paid for audit fees. KPMG continued to provide the Group’s taxation services for the year ended 31 December 2017. In accordance with best practice, the Company also requires its external audit 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, and rotates off the role following signing off these financial statements. The external auditors are also required to assess on an annual basis whether, in their professional opinion, they are independent, 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 is at a level which does not impact on the statutory auditors’ independence and objectivity. 72 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 72 05/04/2018 15:33:06 25654 5 April 2018 12:17 PM Proof 16 Audit quality and approach to audit tender The Committee is considered to be effective, with members having a broad mix of skills and experience to provide an appropriate level of challenge when debating the reports, statements and findings presented to them. In reviewing the effectiveness of the external auditors, discussions took place between the Audit Committee, the Henry Boot PLC finance function and the subsidiary company management teams. The Audit Committee considers PricewaterhouseCoopers LLP to have conducted a high-quality audit, having established effective working relationships and having a good understanding of the Group’s business. 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 Henry Boot PLC audit was put out to tender eight years ago and PricewaterhouseCoopers LLP was awarded the work from a shortlist of four firms who tendered. 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 was satisfied with the scope of the external audit and with the work of the external auditors. Having reviewed all services provided to the Group by the external auditors the Committee is satisfied that the external auditors remain objective and independent. 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 Audit Committee are authorised to fix their remuneration. Risk management and controls Details of the key risks which the Group faces, 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 40 to 43. The Committee has evaluated the effectiveness of the internal controls and the risk management system operated. The evaluation covered all controls including financial, operational, risk management and compliance. Internal audit The Audit Committee has from time to time considered the requirement for an internal audit department. Having previously taken the view that the benefits would not outweigh the costs, the Committee recently determined that the scale and nature of its operations was now sufficiently large and complex that such a dedicated resource might be beneficial. Consideration was given to the engagement of an internal audit service and a third party provider was appointed in February 2018. Due to resourcing levels, the Committee decided to outsource this function to a specialist provider with expertise and knowledge across all of our different business segments. Approved by the Board and signed on its behalf by JAMES SYKES Chairman of the Audit Committee 20 April 2018 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 73 Henry Boot AR2017.indd 73 05/04/2018 15:33:06 25654 5 April 2018 12:17 PM Proof 16 25654 5 April 2018 5:41 PM Proof 1674Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017Directors’ Remuneration ReportStatement from the Chairman of the Remuneration Committee“ Our forward-looking strategy of investing in our people and long-term opportunities aimed at creating long-term stakeholder value produced our best ever financial result in 2017.”JOANNE LAKE Chairman of the Remuneration CommitteeOur forward-looking strategy of investing in our people and long-term opportunities aimed at creating long-term stakeholder value produced our best ever financial result in 2017. The markets in which our various businesses trade continued to be supportive with many areas continuing on an improving trend; however, these markets may still create issues for the imprudent or unwary operator and have to be managed with skill, care and confidence.2017 proved to be our best performance to date with: —profit before tax increasing 40% to £55.4m; —basic earnings per share increasing 49% to 32.1p; —Return on Capital Employed increasing 420 bps to 18.6%; —dividends for the year increasing 14% to 8.00p; —dividend cover remains above our long-term goal of three times; —our strategic land portfolio increased in size again to over 13,000 acres with planning permission on over 18,000 units; —we now have more active commercial developments in progress than at any stage before; —our construction business has a strong order book for 2018 and our plant hire business continues to operate at its highest level of utilisation for many years.Those serving as members of the Remuneration Committee (the Committee) for the whole of 2017 were Joanne Lake (Committee Chairman), Jamie Boot, Gerald Jennings, Peter Mawson and James Sykes. Biographies of the current members of the Committee are shown on pages 58 and 59.On behalf of the Board and the Remuneration Committee (the Committee), as Chairman of the Committee, I am pleased to present the Henry Boot PLC (the Company) Directors’ Remuneration Report for the year ended 31 December 2017.Henry Boot AR2017.indd 744/5/2018 5:41:41 PMConsultation with shareholders Whilst there has been no formal contact with shareholders regarding the Remuneration Policy during 2017, it is in line with that which was approved by shareholders at the AGM in 2015. The Remuneration Policy has been reviewed and updated where appropriate and is included on pages 84 to 91 and will be put to a shareholder vote at the AGM on 24 May 2018. The application of Directors’ Remuneration Policy for 2018 — Following a review by the Committee, John Sutcliffe was awarded a 0.64% pay rise and Darren Littlewood was awarded a 14.3% pay rise. The Non-executive Directors were awarded a 3.0% uplift in basic salary or fees for the year ending 31 December 2018. The average across the workforce as a whole was 4.8% at 1 January 2018. — The bonus opportunity for the Executive Directors is detailed in the Remuneration Policy and will apply as laid out in the policy on pages 84 to 91. — 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 2018. Specifically, this will arise if the 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 2018. 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. Executive remuneration outcomes for 2017 In the current market conditions, the 2017 results, with a 40% increase in pre-tax profits, were impressive. In 2017 the combined overall remuneration of the Executive Directors, on a like-for-like basis, increased by 17.2%, and 9.5% including the costs of our Non-executive Directors. Salaries of the Executive Directors were increased by 4.9% at 1 January 2018 and by 6.9% at 1 January 2017 compared to an increase across the Company in total of 8.2% during 2017 and of 4.7% at 1 January 2018. Bonuses were paid in line with the Remuneration Policy approved at the Annual General Meeting (AGM) in May 2015. Target profit was set at £36m. The profit before tax of £55.4m exceeds the target by 53.9% and gives rise to a bonus of 110.0% of salary for the year ended 31 December 2017. In addition, the Remuneration Committee set 17 targets, which were the same for John Sutcliffe and Darren Littlewood. These covered measures such as the achievement of individual subsidiary budgets, cash flow generation, health and safety performance, 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 9.0% of salary. Therefore, the total bonus for each Executive Director is 119.0% of salary. LTIPS vesting, based on performance for the three years to 31 December 2017, were granted in line with the Remuneration Policy adopted at the AGM in 2015. The performance criteria for these awards are: i. up to 33.3% of the award is dependent on growth in Earnings Per Share being ahead of inflation; ii. up to 33.3% of the award is dependent on the average Return On Capital Employed; iii. up to 33.4% of the award is dependent on Total Shareholder Return compared with a comparator group of companies. For these awards, the actual performance against the targets to 31 December 2017 was: i. Earnings Per Share growth was 98% against the target of 14% (being inflation plus 7%) and, therefore, this part of the award vests in full; ii. Return On Capital Employed was 17% on average against the maximum target of 13% and, therefore, this part of the award vests in full; iii. Total Shareholder Return of 80.7% was in the upper quartile when set against the comparator group and, therefore, this part of the award vests in full. Therefore, the award of LTIP shares to Jamie Boot is 31,228 shares, and to John Sutcliffe 109,060 shares. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 75 Henry Boot AR2017.indd 75 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 Directors’ Remuneration Report continued The report sets out payments and awards made to the Directors and details the link between performance and remuneration for 2017. 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: i. the Total Shareholder Return graph; ii. the Executive Directors’ remuneration history and remuneration change tables; iii. the relative importance of spend on pay tables; and iv. the consideration by the Directors of matters relating to remuneration and the statement of shareholder voting. The information set out on pages 74 to 83 of the Directors’ Remuneration Report and Policy is subject to audit. Summary of the Committee’s activity during 2017 During 2017 the Committee: — approved Executive Directors’ base pay and benefits for 2017. Salary increases for the Executive Directors at 1 January 2017 were 3% for John Sutcliffe and £25,000 (16.7%) for Darren Littlewood and from 1 January 2018 have been set at 0.64% for John Sutcliffe and £25,000 (14.3%) for Darren Littlewood; — conducted a review of the LTIP performance metrics and level of reward for the year under review; — conducted a review of the performance of the Executive Directors for 2017 and against that background set performance targets for 2018; — considered the remuneration packages for John Sutcliffe and Darren Littlewood with effect from 1 January 2018. For John Sutcliffe this was set at £390,000 and for Darren Littlewood, £200,000. The Committee anticipates reviewing and uplifting the salary of Darren Littlewood each year for the next two 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. 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 20 April 2018 76 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 76 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 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 year. Year ended 31 December 2017 John Sutcliffe Darren Littlewood Jamie Boot James Sykes Joanne Lake Gerald Jennings Peter Mawson Salary and fees £’000 388 175 82 44 44 44 44 821 Taxable benefits £’000 32 25 — — — — — 57 Annual bonus £’000 461 208 — — — — — 669 Long-term incentives1 £’000 340 — 97 — — — — 437 1 Jamie Boot LTIP award is pro rata basis to his retirement date of 31 December, under provisions for good leavers. Year ended 31 December 2016 John Sutcliffe Darren Littlewood Jamie Boot James Sykes Joanne Lake Gerald Jennings Peter Mawson Salary and fees £’000 376 150 80 42 42 42 42 774 Taxable benefits £’000 31 24 — — — — — 55 Annual bonus £’000 411 164 — — — — — 575 Long-term incentives1 £’000 225 — 182 — — — — 407 Pension- related benefits £’000 78 34 — — — — — 112 Pension- related benefits £’000 75 29 — — — — — 104 Total £’000 1,299 442 179 44 44 44 44 2,096 Total £’000 1,118 367 262 42 42 42 42 1,915 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 1 The value of long-term incentives has been adjusted from the average share price for the period 1 October 2016 to 31 December 2016 of £1.98 to the price on the day the shares were issued of £2.95. 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. The information in the single total figure of remuneration in the table above is derived from the following: Salary or fees The amount of salary or fees received in the year. Taxable benefits The taxable benefits received in the year by Executive Directors. Annual bonus The value of bonus payable and the calculations underlying this are disclosed on pages 78 and 79. Long-term incentives 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 2017 valued at the average share price over the last three months of 2017. Pension-related benefits Pension-related benefits represent the cash value of pension contributions or salary in lieu of contributions received by Executive Directors at a rate of 20% of salary. S T N E M E T A T S L A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 77 Henry Boot AR2017.indd 77 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 Directors’ Remuneration Report continued Individual elements of remuneration Base salary and fees Executive Directors Salary effective from John Sutcliffe Darren Littlewood 1 January 2018 £ 390,000 200,000 1 January 2017 £ 387,523 175,000 1 January 2016 £ 376,236 150,000 Over the years 2014–2017 basic salary increases for the Chief Executive Officer were 3.0%. On 1 January 2018 the basic salary increase was 0.64%. For the Group Finance Director increases in 2014 and 2015 were 3.0%. At 1 January 2016, Darren Littlewood was appointed Group Finance Director and received a remuneration package which the Committee anticipates reviewing and uplifting over the years 2017–2020 at a rate of £25,000 per annum. Average salary increases for the wider employee population were 4.4% from 1 January 2016, 5.0% from 1 January 2017 and 4.7% on 1 January 2018. 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. Summary of bonuses earned for 2017 Maximum award as 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. Non-executive Directors Salary effective from Jamie Boot James Sykes Joanne Lake Gerald Jennings Peter Mawson 1 January 2018 £ 85,000 45,000 45,000 45,000 45,000 1 January 2017 £ 82,400 43,709 43,709 43,709 43,709 1 January 2016 £ 80,000 42,436 42,436 42,436 42,436 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 Independent Non-executive Director. Any newly appointed Independent Non-executive 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. Measure % of salary Targets and bonus potential for 2017 Profit before tax 110% 2017 target range Bonus payable as % salary £32.4m £36.0m £43.2m £54.0m 10% 50% 90% 110% % of target 90% 100% 120% 150% Actual Performance Actual bonus value achieved (% of salary) John Sutcliffe Darren Littlewood £55.4m 110.0% 110.0% Personal objectives Bonus amount achieved as % salary Bonus amount earned Maximum bonus as % salary Bonus amount achieved as % maximum 10% See commentary on page 79 9.0% 9.0% 119.0% 119.0% £461,152 £208,250 120% 120% 99.2% 99.2% Any bonus amounts are paid in cash and are subject to malus and clawback provisions within the scheme. 78 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 78 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 Bonuses were paid in line with the Directors’ Remuneration Policy approved at the AGM in May 2015. Target profit was set at £36m, 24% ahead of the target set in 2016. The Remuneration Committee also set 17 individual targets, which were the same for John Sutcliffe and Darren Littlewood. These covered measures such as the achievement of individual subsidiary budgets, cash flow generation, health and safety performance, a measure related to positive investor feedback, and litigation risk. The Remuneration Committee considers that the Executive Directors achieved 90% of these targets, resulting in a bonus of 9.0% of salary. The profit before tax of £55.4m exceeds the target by 53.9% and this, combined with the personal targets, gives rise to a bonus of 119.0% of salary for the year ended 31 December 2017. Details of the policy for future annual bonus awards can be found in the policy table on page 86. 31 December 2018 bonus targets Profit before tax performance: 10% of salary payable on achieving 90% of Group profit target, rising to 80% 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 maximum of a further bonus of 20% of salary may become payable. The profit before tax target is deemed to be commercially sensitive and therefore will be disclosed retrospectively in the 2018 Directors’ Remuneration Report. Personal objectives: Up to an additional 20% of salary may become payable to Executive Directors upon the achievement of a number of personal objectives. The objectives measured will be based on actions and achievements which contribute to delivery of Group strategy. Long Term Incentive Plan (LTIP) The Committee has reviewed the performance criteria for the LTIP shares awarded in 2015, based on performance for the years 2015, 2016 and 2017, which are expected to vest in June 2018. The LTIP shares in this award are subject to the following performance criteria: i. EPS growth ahead of inflation: EPS growth was 98%, which exceeded RPI growth by more than 91% and therefore this 33.3% of the award became eligible; ii. Average annual return on capital employed above 13%: this was 17% and therefore this 33.3% of the award became eligible; iii. Total Shareholder Return (TSR) above the median for the comparator group: the Henry Boot PLC TSR for the three-year period was 80.7%, putting it in the upper quartile within the comparator group and therefore this 33.4% of the award became eligible. Together, these resulted in LTIP awards of: Jamie Boot 31,228 shares; and John Sutcliffe 109,060 shares; and gave rise to the award values in the single total figure of remuneration at 31 December 2017 on page 77. For Jamie Boot this award is on a pro rata basis to his retirement date of 31 December 2015, under the provisions for good leavers. LTIP awards granted in the year John Sutcliffe Darren Littlewood Type of award LTIP – nil cost option LTIP – nil cost option % of salary 100% 100% Number of shares 160,665 72,554 Face value to grant at £2.412 per share 387,523 175,000 Awards expected to be granted for the financial years 2018–2020 in 2018 John Sutcliffe Darren Littlewood Type of award LTIP – nil cost option LTIP – nil cost option % of salary 100% 100% % of award vesting at threshold 25% 25% % of award at threshold 25% 25% The performance criteria for these awards are laid out in the Remuneration Policy which can be found in the policy table on page 87. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 79 Henry Boot AR2017.indd 79 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 Directors’ Remuneration Report continued Pension entitlement John Sutcliffe is a deferred member of the Henry Boot PLC Group Stakeholder (Defined Contribution) Pension Plan (the Plan). Contributions are made at 20% of salary and contributions to the Plan in the year were £nil (2016: £18,812). The annual allowance for tax relief on pension savings applicable to John Sutcliffe in 2017 was £nil and he elected to receive a salary supplement in lieu of the employer contributions over and above this level, which amounted to £77,505 (2016: £56,435). Darren Littlewood is a member of The Henry Boot Staff Pension and Life Assurance Scheme (Defined Benefit) (the Scheme). His accrued pension entitlement at 31 December 2017 was £23,754 and the pensionable salary available for use within the Scheme at 31 December 2017 was £57,322. Basic salary above this level is available for use within the Henry Boot PLC Group Stakeholder (Defined Contribution) Pension Plan (the Plan). Contributions are made at 20% of available salary and contributions to the Plan in the year were £10,966. The annual allowance for tax relief on pension savings applicable to Darren Littlewood in 2017 was £10,966 and he elected to receive a salary supplement in lieu of the employer contributions over and above this level, which amounted to £12,570. 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 year in respect of services provided to the Company as a Director. Payments made for loss of office There were no payments made during the year in respect of loss of office to a Director. Statement of Directors’ shareholdings and share interests At 31 December 2017 At 31 December 2016 Legally owned 5,799,302 543,769 24,694 20,000 10,710 — 10,000 Legally owned 5,861,046 605,169 50,000 20,000 10,710 3,750 10,000 SAYE (not subject to performance) — — 6,666 — — — — LTIPs subject to performance measures 31,228 446,694 143,109 — — — — Total 5,892,274 1,051,863 199,775 20,000 10,710 3,750 10,000 Legally owned shareholding as a % of salary or fees1 21,996 495 80 142 76 27 71 Share interests as a % of salary or fees 22,113 860 319 142 76 27 71 Jamie Boot John Sutcliffe Darren Littlewood James Sykes Joanne Lake Gerald Jennings Peter Mawson The share price at 31 December 2017 was 319.00p. The salary used for this calculation is that which commences on 1 January 2018. 1 Details of Director shareholding requirements can be found in the Remuneration Policy which can be viewed on pages 84 to 91. 80 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 80 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 Directors’ shareholdings The beneficial interest of the Directors in the share capital of the Company at 31 December 2017 was as follows: Jamie Boot John Sutcliffe Darren Littlewood James Sykes Joanne Lake Gerald Jennings Peter Mawson 2017 Number of shares Ordinary 5,861,046 605,169 50,000 20,000 10,710 3,750 10,000 Preference 14,753 — — — — — — 2016 Number of shares Ordinary 5,799,302 543,769 24,694 20,000 10,710 — 10,000 Preference 14,753 — — — — — — Between 31 December 2017 and 23 March 2018, being a date not more than one month prior to the date of the Notice of the AGM, there have been no other changes in the beneficial and non-beneficial interests of any Director. Long Term Incentive Plan awards Performance shares Date of Plan award Jamie Boot 2006 07/05/2014 2015 01/06/2015 John Sutcliffe 2006 07/05/2014 2015 01/06/2015 2015 21/04/2016 2015 24/04/2017 Darren Littlewood 2015 21/04/2016 2015 24/04/2017 212.6p 241.2p Market price at date of award 211.0p 228.6p At 1 January 2017 92,709 31,228 123,937 211.0p 114,715 228.6p 109,060 212.6p 176,969 241.2p Awarded during the year — — — — — — — 160,665 361,204 160,665 — — 72,554 — 72,554 70,555 Vested during the year 61,744 — 61,744 76,400 — — — 76,400 — — — Lapsed during the year 30,965 — 30,965 38,315 — — — 38,315 — — — At 31 December 2017 Earliest/ actual vesting date — 07/06/2017 31,228 01/06/2018 31,228 — 07/06/2017 109,060 01/06/2018 176,969 21/05/2019 160,665 24/05/2020 446,694 70,555 21/05/2019 72,554 24/05/2020 143,109 Market valuation on vesting £ 182,064 — 182,064 225,280 — — — 225,280 — — — Sharesave Plan Darren Littlewood Plan 2014 2017 At 1 January 2017 10,465 — 10,465 Company Share Option Plan Granted during the year Exercised during the year — 10,465 — 10,465 6,666 6,666 Lapsed during the year — — — At 31 December 2017 — 6,666 6,666 Exercise price 172.0p 270.0p Date from which exercisable 01/12/2017 01/12/2020 Expiry date 31/05/2018 31/05/2021 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 A C N A N F I I At 1 January 2017 Granted during the year Exercised during the year Lapsed during the year At 31 December 2017 Exercise price Date from which exercisable Plan Expiry date Darren Littlewood 2014 10,000 — 10,000 — — 191.0p 06/10/2017 01/10/2024 I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 81 Henry Boot AR2017.indd 81 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 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 25 May 2017 the resolution put to shareholders on an advisory basis to receive and approve the 2016 Directors’ Remuneration Report was passed. The number of votes in favour of that resolution was 89,114,224 (99.34% of votes cast), against 595,354 (0.66% of votes cast) and withheld 30,995. The total number of votes cast in respect of this resolution represented 67.90% of the issued share capital. Share price The middle market price for the Company’s shares at 31 December 2017 was 319.00p and the range of prices during the year was 193.50p to 336.38p. Nine-year TSR performance graph 700 600 500 400 300 200 100 0 (100) FTSE Small Cap Index Henry Boot PLC D e J u D e J u D e J u D e J u D e J u D e J u D e J u D e J u D e J u D e c - n - c - n - 0 8 0 9 0 9 1 0 c - n - 1 0 1 1 c - n - c - n - 1 1 1 2 1 2 1 3 c - n - c - n - c - n - c - n - 1 3 1 4 1 4 1 5 1 5 1 6 1 6 1 7 1 7 c - Chief Executive Officer’s remuneration for the previous nine years Total remuneration £’000 1,299 1,118 981 1,000 1,054 962 842 764 575 Annual bonus as a % of maximum 99.2 91.1 87.8 94.5 83.3 58.3 66.7 58.3 33.3 LTIP vesting as a % of maximum 100 67 25 25 50 40 50 64 50 2017 2016 2015 2014 2013 2012 2011 2010 2009 Percentage change in Chief Executive Officer’s remuneration The table below sets out in relation to salary, taxable benefits and annual bonus the percentage increase in remuneration for John Sutcliffe compared to the wider workforce. For these purposes: Percentage change Salary Taxable benefits Annual bonus 2016 Annual bonus 2017 Chief Executive Officer 3.0% — 6.8% 12.1% Workforce sample 8.3% — 22.6% 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 2018 for the year ended 31 December 2017 and the figure is therefore not available. Therefore, the information produced is for the bonus comparisons paid in May 2017 for the year ended 31 December 2016. The workforce comparison is every member of staff who received a bonus excluding the Chief Executive Officer. 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: Ordinary dividends Profit attributable to owners of the business Overall expenditure on pay 2017 £’000 10,579 2016 £’000 9,208 % change 14.9 42,368 28,259 49.9 30,630 25,743 19.0 82 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 82 05/04/2018 15:33:08 25654 5 April 2018 12:17 PM Proof 16 Terms of reference The terms of reference for the Remuneration Committee (the Committee) 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. The terms of reference are reviewed by the Committee each year. Role of the Committee The primary role of the Committee is to: — review, recommend and monitor the level and structure of the remuneration packages of the Executive Directors and senior management; — set and approve the remuneration package for the Executive Directors; and — 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 once during the year. Attendance at this meeting by the Committee members is shown in the table on page 64 and further details can be found below. Membership of the Committee Those serving as members of the Committee for the whole of 2017 were myself (Committee Chairman), Jamie Boot, James Sykes, Gerald Jennings and Peter Mawson. Biographies of the current members of the Committee are shown on pages 58 and 59. 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 five Non-executive Directors during the financial year, comprised as follows: Joanne Lake Jamie Boot James Sykes Gerald Jennings Peter Mawson Independent Yes No No Yes Yes During 2017 John Sutcliffe, Chief Executive Officer, attended the meeting with the Committee, as requested, in order to assist on matters concerning other senior Executives within the Group. John Sutcliffe was not present during any part of the meeting 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 Chief Executive Officer and Head of HR DLA Piper UK LLP Area of advice Remuneration of staff, senior Executives and management. Share scheme matters, the rules for 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. Approved by the Board and signed on its behalf by JOANNE LAKE Chairman of the Remuneration Committee 20 April 2018 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 83 Henry Boot AR2017.indd 83 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Directors’ Remuneration Policy This section of the report sets out the Company’s policy on the remuneration of Directors which will be put to a binding shareholder vote at the 2018 AGM. Subject to shareholder approval, the policy will take effect from the date of the 2018 AGM. Consultation with shareholders Whilst there has been no formal contact with shareholders regarding the Remuneration Policy, it is line with that which operated up to the end of 2017. In order to further align the Remuneration Policy to Company performance and shareholder interests, several changes are proposed as follows. The Committee has agreed to cap the maximum basic salary for Executive Directors to be no greater than the median rate of the upper quartile of the FTSE SmallCap Index for the comparable position held. The Committee has also proposed one change to the annual bonus policy, which is to give increased weighting to personal performance objectives when assessing the performance criteria for annual bonuses. Instead of 10% of normal bonus opportunity being based on individual measures, this is increased to 20%. This change is intended to increase the focus on personal performance objectives. Historically, equal weighting has been given to the three performance conditions relating to the LTIP awards; EPS, ROCE and TSR. We propose to amend the policy to allow flexibility to vary the weightings if thought appropriate, provided that none of the criteria exceeds 50%. In reality we have no current intention to change the weighting from 33.3% for each measure. Lastly, in line with investor guidelines the Committee has also proposed to increase the Executive Directors minimum shareholding requirements from 100% to 200% for the Chief Executive Officer and 150% for the Group Finance Director. No other changes are proposed to the current Remuneration Policy. Linking remuneration with strategy To align the remuneration of our Executive Directors with the Group’s key strategic objective of maximising long-term shareholder value, we reflect the following priorities within our remuneration principles. Alignment with strategy — Stretching profit and therefore earnings per share performance targets are key drivers to long-term shareholder value growth. These are important performance elements of the annual bonus and long-term share incentive plans. Alignment with shareholders — A significant part of the potential remuneration package is delivered in shares, and the performance measures to achieve that element of remuneration incorporate growth in earnings, Company capital and shareholder returns, aligning shareholder interests to remuneration. — There are minimum shareholding criteria for Directors. Attracting and retaining the right people — Our Remuneration Policy is designed to attract, motivate and retain a high-quality group of talented individuals over the long-term who are incentivised to deliver the strategy through a clear link between reward and performance without taking excessive risks. — We seek to ensure that Director and senior management salaries are set in relation to their peers and other available opportunities and by reference to the wider workforce. At the same time, we ensure that we do not pay more than is necessary or reward failure. The Company policy on remuneration is designed to ensure that Executive Directors earn sufficient remuneration to be motivated to achieve our strategy with the addition of appropriate incentives, once again aligned to strategy, that encourage enhanced performance without excessive risk. The Committee annually reviews market practices and levels of remuneration for directors in similar roles within companies of comparable size and complexity. This review considers remuneration within our wider workforce, pay increases awarded and bonus levels generally in the Group, with the aim that we reward all employees fairly according to their role, performance, the economic environment and the Group’s financial performance. 84 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 84 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Policy table Element Salary Purpose and link to strategy Core element of the Executive Directors’ fixed remuneration reflecting the role, experience and comparable companies in the FTSE. The Committee also considers whether the basic salary is a competitive benchmark to recruit and retain executive talent. Performance measures and changes Maximum salary to be no greater than median rate of the upper quartile of the FTSE SmallCap Index for the comparable position held. Individual performance is one of the considerations in setting salary levels. Operation Opportunity Salary increases will normally be in line with the wider Group. The Committee will consider any increase out of line with this very carefully. Higher increases may be awarded in exceptional circumstances. These could include: i. relevant commercial factors; ii. increasing scope and responsibility; iii. promotional increases; and iv. falling below market positioning. The Committee reviews base salaries annually, taking into consideration: i. the value of the individual to the Group, their skills, experience and performance; ii. pay increase levels in the Group and more generally in the marketplace; and iii. the Group organisation profitability and prevailing market conditions. iv. that maximum salary is to be no greater than the median rate of the upper quartile of the FTSE SmallCap Index for the comparable position held. Benefits These are provided on a market competitive basis to assist in recruiting and retaining Executive Directors None. Executive Directors currently receive: i. a car allowance; ii. private health insurance; iii. permanent health insurance; The Committee considers that the level of benefits provided is market consistent. The cost of providing benefits is borne by the Company and varies from time to time. 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 iv. death in service cover; and v. the offer of participation in the SAYE Scheme. The Committee reviews the level of benefit provision from time to time and has the flexibility to add or remove benefits to reflect changes in market practice or the operational needs of the Group. S T N E M E T A T S L A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 85 Henry Boot AR2017.indd 85 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Directors’ Remuneration Policy continued Element Pensions Purpose and link to strategy To help retain and recruit Executive Directors, ensuring an adequate retirement income. Annual bonus To incentivise the delivery of financial performance, operational targets and individual objectives. Operation Opportunity Performance measures and changes Executive Directors are eligible for membership of the defined contribution scheme or a cash supplement in lieu of this. The Group’s defined benefit scheme is now closed to new members, however internal promotees to an Executive Director will retain their membership. Targets are reviewed annually and any payment is determined by the Committee after the year end based on targets set for the financial year. Bonus is paid in cash. There is no deferral of bonus; however, malus and clawback provisions exist in line with those which apply to the LTIP scheme. The Committee has the discretion in exceptional circumstances to change performance measures and targets part-way through a performance year if there is a significant event which causes the Committee to believe the original measures and targets are no longer a fair and accurate measure of business performance. An accrued pension based upon pensionable salary within the defined benefit scheme. None. Up to 20% of basic salary under the defined contribution scheme or in respect of salary above the cap within the defined benefit scheme may be paid. Normal bonus opportunity is 100% of salary. For exceptional performance, bonus opportunity increases to 120% of salary. Challenging but achievable operational and individual targets are determined at the beginning of the financial year. For normal bonus opportunity, 80% is based on financial performance, 20% on other individual measures. Financial measure: 90%–120% of target profit. Bonus at 90% of target equates to 10% of salary; at 120% of target bonus equates to 80%. For exceptional financial performance over 120% and up to 150% of target, a pro rata 20% of salary may be payable, capping total bonus at 120% of salary. 86 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 86 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Element Long Term Incentive Plan Purpose and link to strategy The intention of the Henry Boot Long Term Incentive Plan is to provide a clear and strong link between the remuneration of Executive Directors and the creation of value for shareholders by rewarding the Executive Directors for achieving longer-term objectives aligned closely to shareholders’ interests. Operation Opportunity The rules permit grants of up to a maximum of 200% of salary to be made on an annual basis. The Remuneration Committee has no current intention of increasing the annual grant of 100%. The Committee typically awards LTIP shares annually to Executive Directors equal to 100% of basic salary. Awards vest after the third anniversary of grant subject to performance conditions. The rules include a holding period of two years post vesting, and malus and clawback conditions. The Committee has the discretion in exceptional circumstances to change performance measures and targets part-way through a performance year if there is a significant event which causes the Committee to believe the original measures and targets are no longer a fair and accurate measure of business performance. Shareholding guidelines The Committee believes that Executive Directors’ share ownership aligns their interests to those of shareholders generally. Not applicable. The Chief Executive Officer is required to have acquired and retained a shareholding of Henry Boot PLC shares to the value of 200% of his base salary and the Group Finance Director to the value of 150% of his base salary. Executive Directors are expected to retain 50% of any LTIP awards until holdings reach the required level. Performance measures and changes Vesting of the awards will normally occur provided that the participant is still employed by the Group at the end of the vesting period (subject to good leaver provisions) and that the performance targets for the three-year performance period have been satisfied. 25% of the LTIP vests for the achievement of threshold performance. The LTIP will be subject to a range of performance conditions including EPS, ROCE and TSR with weightings for each condition of no more than 50%, which the Committee believes align the interests of Executives and shareholders. If these LTIP performance conditions are achieved, the Committee must be satisfied that, in its opinion, the underlying financial performance of the Group over the measurement period has been satisfactory. The shareholding requirements have been increased from 100% of base salary. John Sutcliffe satisfies the shareholding criteria of 200%. Darren Littlewood has been given the new requirement of 150% from the committee. The satisfaction date has been extended by 2 years, to 31 December 2020. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 87 Henry Boot AR2017.indd 87 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Directors’ Remuneration Policy continued Element Non- executive Director fees Purpose and link to strategy The Board aims to recruit and retain high calibre Non-executive Directors with the relevant experience required to achieve success for the Company and its shareholders. Performance measures and changes None. However, individual performance is considered on an annual basis by the Chairman and Chief Executive Officer. Operation Opportunity Non-executive Directors are paid a basic fee with additional fees for chairing committees. By the third anniversary of their appointment to the Board, Non-executive Directors are required to have acquired and retained a holding of Henry Boot shares equivalent to the value of 50% of their base fee. The fees of the Chairman are determined by the Committee and the fees of the Non-executive Directors are determined by the Board following a recommendation from both the Chief Executive Officer and the Chairman. Non-executive Directors are not eligible to participate in any of the Company’s share schemes, incentive arrangements or pension schemes. Notes to the policy table Explanation of the performance measures chosen The Committee selects performance measures that are aligned to the strategy of the Group. The Committee sets stretching performance targets each year for the annual bonus and long-term incentive awards. These stretching performance targets consider a number of financial and personal measures which may, from time to time, include business plans, strategy, past performance and market conditions. Where the measure used is relative shareholder return there will be no payment for performance that is below the median in comparison to the comparator group. The performance targets used to determine annual bonus reflect the key financial objectives of the Company and any award is for delivery against these measures in line with the policy on page 86. As noted, the Committee has changed the current annual bonus policy to increase the weighting for individual objectives to 20% from 10%. The LTIP performance targets reflect the long-term strategic objective to maximise shareholder value and therefore align the interests of the shareholders with the Executives. The LTIP measures are both financial and shareholder return based and are: — growth in earnings per share above inflation – a key driver in creating shareholder value is to provide a dividend which grows faster than the rate of inflation; — ROCE – a key driver to long-term growth in shareholder value is the ability to retain funds to invest in our business; — Relative Total Shareholder Return – this measures the Company’s Total Shareholder Return performance relative to a group of listed peers. This aligns the interests of management and shareholders and measures 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; and — the Committee retains the discretion to adjust the performance targets and measures where it considers that it is appropriate to do so: for example, in the case of a major change in the structure of the business and to assess performance on a fair and consistent basis from year to year. Malus and clawback The Committee has discretion to claw back awards made under the annual bonus plan and LTIP in the event of a material misstatement in the audited consolidated accounts of the Company, a material error in assessing any performance condition, or employee misconduct. In these circumstances the Committee has discretion to reduce or cancel awards, or require the participant to repay some or all of the value delivered from a bonus or LTIP awards, at any time up to the second anniversary of vesting of LTIP awards or payment of annual bonus. ‘Good leaver’ status ‘Good leaver’ status occurs upon the cessation of employment for a good reason, such reasons being defined as death; ill health; injury; disability; retirement; redundancy or for any other reason if the Committee so decides. 88 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 88 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Differences in policy from the wider employee group Henry Boot PLC aims to provide a remuneration package that is market competitive, complies with statutory requirements and is applied fairly and equitably across employees of the Group. In all cases, with the exception of remuneration determined by statutory regulation, the Group operates the same core remuneration principles for employees as it does for Executive Directors. These are: — We remunerate fairly for each role with regard to the marketplace, consistency across comparable roles and consistency across each company within the Group. — We remunerate people at a level that the Group has the ability to meet which is sufficient to retain and motivate our people to achieve our shared long-term goals. Bonus arrangements across the Group normally have a similar structure to the Executive Directors in that the main target measure is Group profitability. The level of bonus potential varies across all Group companies. Participation in the LTIP Scheme is extended to the senior management at the discretion of the Board. In line with Executive Directors, share ownership is encouraged but there is no formal requirement to hold shares. Furthermore, we also encourage long-term employee engagement through the offer of a SAYE Share Scheme to all employees and a CSOP Scheme to middle management. Recruitment remuneration policy This table sets out the Company’s policy on recruitment of new Executive Directors for each element of the remuneration package. Non-executive Directors are recruited on an initial three-year term and receive a salary but no other benefits. Remuneration element Base salary Benefits Pension Bonus LTIPS Buyouts Policy on recruitment The Committee will typically offer a salary in line with the policy on page 85 whilst also considering the experience, ability to implement Group strategy, and the wider economic climate and pay and conditions throughout the Group, in order to facilitate the hiring of candidates of the appropriate calibre required to implement the Group’s strategy. The Committee will offer benefits in line with the policy for existing Executive Directors; however, the Committee has the flexibility to consider other benefits from time to time, including relocation expenses. Contribution levels will be set in line with the Company policy for existing Executive Directors. The Committee will offer the ability to earn a bonus in line with the policy on page 86 in line with other Executive Directors of up to 120% of base salary. The Committee will offer LTIPS in line with the policy on page 87, and in line with other Executive Directors. The Committee’s policy on “buying out” existing incentives granted by the Executive’s previous employer will depend on the process of recruitment and be negotiated on a case-by-case basis. The Committee may make an award in order to “buy out” previous incentives but it will only be made if it is considered necessary to attract the right candidate and there will not be a presumption in favour of doing so. The award will in any event be no larger than the award forfeited. Internal appointees Any remuneration awards previously granted to an internal appointee to the Board will continue on their original terms. In the same way, if that appointee is accruing benefits in the Henry Boot Defined Benefit Pension Scheme, these will continue as before on membership to the Board and will be reported on in future Remuneration Policy documents. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 89 Henry Boot AR2017.indd 89 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Directors’ Remuneration Policy continued Payment for the loss of office policy The table below sets out the policy on exit payments. The Committee will ensure that a consistent approach to exit payments is adopted and there is no reward for poor performance and any liability to the Group is minimised/mitigated in all areas. Where a compromise agreement is required, the Committee would consider contributing to the reasonable costs of legal and other expenses relating to the termination of employment, and pay reasonable amounts to settle potential claims. Remuneration element Base salary/fees and benefits Base salary/fees and benefits will be paid over the notice period subject to mitigation. However, the Company has the discretion to make a lump sum payment of the base salary/fees and benefits on termination, payable during the notice period. Pension/salary in lieu of pension Pension contributions and any salary payments in lieu of pension will be provided over the notice period. The Company has the discretion to make a lump sum payment on termination equal to the value of the pension benefit. Bonus LTIPS Any bonus payment would be at the discretion of the Committee and would be prorated to the time employed in the year that employment ceases and would be subject to “good leaver” status. Any payment would be subject to the same performance criteria, including those related to malus and clawback, and paid at the same time as other Directors. It is normal for awards to lapse on cessation of employment unless the Company and Committee agree that the Executive is a good leaver. Good leaver status is defined in the LTIP rules and is usually conferred in the following situations: death, disability, redundancy, retirement or at the discretion of the Remuneration Committee. Good leavers will be treated in accordance with the rules of the LTIP scheme which has been approved by shareholders. Their awards are prorated for the proportion of the performance period that has elapsed. Any prorated shares vest at the normal vesting date and are subject to the same performance conditions as other LTIP holders. The Committee retains discretion to allow vesting at the time of cessation of employment on a prorated basis. Good leavers will be subject to the clauses in the LTIP Scheme related to holding periods, malus and clawback. In the event of a change of control, Directors affected will be treated in accordance with the rules of the LTIP Scheme. If the Committee is satisfied the performance targets have been achieved, subject to early vesting because of the change of control, the awards would vest with time prorating applied. There is also provision within the rules to exchange LTIP shares for awards in the acquiring company, if that is applicable. Service contracts John Sutcliffe and Darren Littlewood each have a one-year rolling service agreement in accordance with our policy on Directors’ contracts. Termination of these arrangements would therefore be subject to their contractual terms and conditions which require a notice period of one year to the Director. Contractual compensation in the event of early termination provides for compensation of basic salary, pension and benefits for the notice period. Non-executive Directors, including the Chairman, do not have service contracts. All Non-executive Directors have letters of appointment and their appointment and subsequent reappointment is subject to approval by shareholders. Non-executive Director appointments are typically for three years; however, they may be terminated without compensation at any time. 90 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 90 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Illustration of the application of the remuneration policy The graphs show the split of remuneration between fixed pay (base salary, pension and benefits) and variable pay (bonus and LTIPS), assuming the following bases: minimum remuneration (basic package); remuneration receivable in line with target, or threshold in the case of LTIPS; performance expectations; and the maximum remuneration possible (though not allowing for any share price appreciation). John Sutcliffe Total remuneration (£’000) Darren Littlewood Total remuneration (£’000) 0 0 0 3 0 0 6 0 0 9 0 0 2 , 1 0 0 5 , 1 0 0 0 1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 Minimum 100% 501 Minimum 100% 266 In line 60% 28% 12% 832 In line 61% 28% 11% 436 *Maximum 37% 34% 29% 1,359 *Maximum 38% 34% 28% 706 n Basic salary, benefits and pension n Bonus n LTIPs * Assumes personal targets and full bonus for exceptional performance at 150% of target, i.e. 120% bonus. Fixed pay Fixed pay consists of basic salary. Pension at 20% of basic salary either as a pension contribution or payment in lieu. Benefits as disclosed in the single figure calculation on page 77. Minimum remuneration Remuneration for performance in line with expectations Remuneration for maximum performance Bonus Nil LTIP Nil Assumes 50% of personal targets are achieved (10% of salary) and profit before tax is on target (50% of salary) giving total of 60% of salary. Assumes all personal targets are met and profit before tax is equal to or greater than 150% of target which will give rise to a bonus of 120% of salary. Achieving the base targets for the LTIP measures of EPS, ROCE and Total Shareholder Return equates to a 25% award under the LTIP Scheme (25% of salary). Achieving the most stretching measures under the three LTIP performance measures of EPS, ROCE and Total Shareholder Return equates to a 100% award under the LTIP Scheme (100% of salary). Policy on external appointments The Company recognises that Executive Directors may be invited to become Non-executive Directors of other companies and that this can help broaden the skills and experience of a Director. Executive Directors are only permitted to accept external appointments with the approval of the Board. Any remuneration earned from such appointments is retained by the Executive. Currently, no Executive Director holds a remunerated external appointment. Statement of consideration of employment conditions elsewhere in the Group In December each year, the Group Head of Human Resources presents a report to the Board summarising matters relating to the wider workforce, relative levels of pay between companies in the Group, changes to other working conditions and changes within the make- up of the workforce. The Committee takes this into consideration when setting policy for the Executive Directors. Although employees are not actively consulted on Executive remuneration, the Company, through the Human Resources department, is in continual two-way discussion on remuneration issues and this body of information informs the annual remuneration discussions for both Executives and staff. Approved by the Board and signed on its behalf by JOANNE LAKE Chairman of the Remuneration Committee 20 April 2018 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 91 Henry Boot AR2017.indd 91 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Directors’ Report The Directors’ Report for the financial year ended 31 December 2017 is detailed below. Activities of the Group The principal activities of the Group are land promotion, 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 2017 is set out on pages 12 to 53. Corporate Governance Statement The Disclosure Guidance and Transparency Rules of the Financial Conduct Authority 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 54 to 97. Results for the year and dividends The results are set out in the Consolidated Statement of Comprehensive Income on page 106. The companies affecting the profit or net assets of the Group in the year are listed in note 34 to the Financial Statements. The Directors recommend that a final dividend of 5.20p per ordinary share be paid on 30 May 2018, subject to shareholder approval at the 2018 AGM to be held on 24 May 2018, to ordinary shareholders on the register at the close of business on 27 April 2018. If approved, this, together with the interim dividend of 2.80p per ordinary share paid on 20 October 2017, will make a total dividend of 8.00p per ordinary share for the year ended 31 December 2017. Further details are disclosed in note 10 to the Financial Statements on page 123. Financial instruments The Group’s policy in respect of financial instruments is set out within the Accounting Policies on page 114 and details of credit risk, capital risk management, liquidity risk and interest rate risk are given respectively in notes 16, 23, 24 and 26 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 43. Political donations The Company made no political donations in the year or in the previous year. Directors and their interests Details of the Directors who held office during the financial year ending 31 December 2017 and as at the date of this Annual Report and Financial Statements can be found on pages 58 and 59. At no time during the year has any Director had any interest in any significant contract with the Company. The interests of Directors and persons closely associated with them in the share capital of the Company as at 31 December 2017, are disclosed in the Directors’ Remuneration Report on pages 74 to 83. Between 31 December 2017 and 23 March 2018, being a date not more than one month prior to the date of the Notice of the AGM, there has been no change in the beneficial interest of any Director. Details of Directors’ long-term incentive awards and share options are provided in the Directors’ Remuneration Report on pages 74 to 83. Directors’ service contracts and letters of appointment Details of unexpired terms of Directors’ service contracts and/ or letters of appointment of the Executive Directors proposed for reappointment at the AGM on 24 May 2018 are set out in the Directors’ Remuneration Policy. John Sutcliffe and Darren Littlewood each have a one-year rolling service agreement in accordance with our policy on Directors’ contracts. Termination of these arrangements would therefore be subject to their contractual terms and conditions which require a notice period of one year to the Director. Contractual compensation in the event of early termination provides for compensation at basic salary, pension and benefits for the notice period. Non-executive Directors, including the Chairman, do not have service contracts. All Non-executive Directors have letters of appointment and their appointment and subsequent reappointment is subject to approval by shareholders. Non-executive Director appointments are typically for three years; however, they may be terminated without compensation at any time. The Directors’ Remuneration Policy can be viewed on the website and can also be found on pages 84 to 91. Employment policy and involvement Employees Employees are at the heart of all that we do; our culture ensures that employees can grow, thrive and succeed. We are fully committed to empowering 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. 92 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 92 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 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 legislation. Succession planning is important to our ongoing success. It is our preference to promote through the line from our current workforce where possible. We have a competitive and engaging employment offering which ensures that we have a low turnover of employees but it is also attractive to external candidates wishing to join our Group, including flexible working arrangements, stakeholder pension plan, 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. 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 tries to ensure that, so far as possible, employee views are taken into account when decisions are made that are likely to affect their interests. We regularly provide our employees with information on matters of concern to them through a variety of communication channels, including manager briefings and news items on our Group intranet, to disseminate information to all Directors and employees. Employee engagement increased significantly with ‘The Henry Boot Way’ Working Groups. You can read more about this on pages 14 and 15. 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 29 to the Financial Statements. 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 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 UK 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 49. Greenhouse gas emissions The greenhouse gas emissions disclosures required by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 are included within the Strategic Report on page 53. This information is incorporated by reference into (and shall be deemed to form part of) this report. Substantial interests in voting rights Excluding Directors, as at 23 March 2018, being 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 Guidance and Transparency Rules of the Financial Conduct Authority. Voting rights over ordinary shares Number 20,947,155 5,739,580 8,290,725 % of issued 15.737 4.312 6.275 Rysaffe Nominees and J J Sykes (joint holding)1 The Fulmer Charitable Trust2 Canaccord Genuity Group Inc3 1. 2. 3. 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. Notified as indirect voting rights. This is as a result of the acquisition of Hargreave Hale Limited by Canaccord Genuity Group Inc. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 93 Henry Boot AR2017.indd 93 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 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 29 to the Financial Statements. The Trustee of the Trust, a subsidiary of the Company of which the Directors throughout the whole of 2017 were Jamie Boot, John Sutcliffe, Darren Littlewood and Russell Deards, 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 2017, 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 31 to the Financial Statements. Future developments Important events since the financial year end and likely future developments are described in the Strategic Report on pages 12 to 53. 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 12) and authorising the Audit Committee to fix their remuneration (Resolution 13) will be proposed at the AGM. Accountability and audit Details of the Directors’ responsibilities and the Statement of Directors’ Responsibilities are contained on page 97. The Independent Auditors’ Report is given on pages 100 to 105. 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 24 May 2018 at 12.30pm. The notice convening the meeting can be found on pages 156 to 160. 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 29 to the Financial Statements. As at 23 March 2018, the ordinary shares represent 97.08% of the total issued share capital of the Company by nominal value and the preference shares represent 2.92% 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 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 Financial Conduct Authority. The Notice of the AGM on pages 156 to 160 includes the following resolutions: — an ordinary resolution (Resolution 14) to renew the authority of the Directors to allot shares up to a maximum nominal amount of £4,436,786 representing approximately one-third (33.33%) of the Company’s issued ordinary share capital at 3 April 2018. The authority will expire on 23 August 2019 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 16) 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 £665,517 (approximately 5% of the Company’s issued ordinary share capital at 3 April 2018). The authority will expire on 23 August 2019 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 — a special resolution (Resolution 17) to renew the authority of the Company to make market purchases of up to 13,310,358 of its own issued ordinary shares (10% of the Company’s issued ordinary share capital at 3 April 2018). 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. 94 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 94 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 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 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 24 May 2018 are set out in the Notice of AGM on pages 156 to 160. 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- quarters 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: — 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. — in respect of only one class of shares; — duly stamped or exempt from stamp duty; 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. — delivered to the office or at such other place as the Board may decide for registration; and — 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. 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. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 95 Henry Boot AR2017.indd 95 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Directors’ Report continued Repurchase of shares Subject to the provisions of the Companies Act 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 Act 2006) 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 they were not appointed or reappointed at either such AGM and they have 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 Act 2006, remove any Director before their period of office has expired notwithstanding anything in the Articles or in any agreement between them and the Company. A Director may also be removed from office by the service on them 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: i. they are prohibited by law from being a Director; ii. they become bankrupt or makes any arrangement or composition with their creditors generally; iii. they are or may be suffering from a mental disorder as referred to in the Articles; iv. for more than six months they are absent, without special leave of absence from the Board, from meetings of the Board held during that period and the Board resolves that their office be vacated; or v. they serve on the Company notice of their 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. Directors’ fees The Articles provide for directors’ fees of up to an aggregate of £250,000 per annum (unless there is an ordinary resolution of the Company determining a larger sum). In order to ensure sufficient flexibility in setting the level of the directors’ fees, an ordinary resolution (Resolution 15) will be proposed at the AGM to increase this sum to the larger sum of £350,000 per annum. 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 and Company Secretary 20 April 2018 96 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017.indd 96 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Statement of Directors’ Responsibilities in respect of the financial statements Annual Report and Financial Statements The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulation. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and Parent Company Financial Statements in accordance with IFRSs as adopted by the EU. 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 Parent Company and of the profit or loss of the Group and Parent Company for that period. In preparing the Financial Statements, the Directors are required to: — select suitable accounting policies and then apply them consistently; — state whether applicable IFRSs as adopted by the EU have been followed for the Group Financial Statements and IFRSs as adopted by the EU have been followed for the Parent Company Financial statements, subject to any material departures disclosed and explained in the Financial Statements; — make judgements and accounting estimates that are reasonable and prudent; and — prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company 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. The Directors are also responsible for safeguarding the assets of the Group and Parent Company 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 Parent Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Fair, balanced and understandable 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 Group and Parent Company’s performance, business model and strategy. Directors’ responsibility statement Each of the Directors, whose names and functions are listed in Board of Directors, confirm that, to the best of their knowledge: — the Parent Company Financial Statements, which have been 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 Company; — the Group Financial Statements, which have been 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 includes a fair review of the development and performance of the business and the position of the Group and Parent Company, 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 20 April 2018 DARREN LITTLEWOOD Director 20 April 2018 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 97 Henry Boot AR2017.indd 97 05/04/2018 15:33:09 25654 5 April 2018 12:17 PM Proof 16 Henry Boot AR2017 - Financials.indd 98 05/04/2018 16:58:21 25654.04 5 April 2018 4:53 PM Proof 16 FINANCIAL STATEMENTS “ At every level a great company to work for. It truly values its people and recognises that we are vital to the continued success of the business” SIMON GRIFFITHS Group Property Solicitor Independent Auditors’ Report Consolidated Statement of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Principal Accounting Policies Notes to the Financial Statements 100 106 107 108 109 110 118 Henry Boot AR2017 - Financials.indd 99 25654.04 5 April 2018 4:53 PM Proof 16 99 05/04/2018 16:58:22 Independent Auditors’ Report to the members of Henry Boot PLC Report on the audit of the financial statements 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 2017 and of the Group’s profit and the Group’s and the Parent Company’s cash flows for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the Parent Company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and • 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. We have audited the financial statements, included within the Annual Report and Financial Statements (the ‘Annual Report’), which comprise: the Group and Parent Company Statements of financial position as at 31 December 2017; the Group and Parent Company statement of comprehensive income, the Group and Parent Company Statements of cash flows, and the Group and Parent Company Statements of changes in equity for the year then ended; the accounting policies; and the notes to the financial statements. Our audit approach Overview Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non- audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company. Other than those disclosed in note 3 to the financial statements, we have provided no non-audit services to the Group or the Parent Company in the period from 1 January 2017 to 31 December 2017. Materiality Audit scope Areas of focus − − Overall Group materiality: £3.5m (2016: £2.9m), based on 0.8% of total assets. Overall Parent Company materiality: £1.2m (2016: £1.3m), based on 0.6% of total assets. − 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 Promotion and Construction. The Group financial statements are a consolidation of the 50 reporting units within these three business lines and the Group’s centralised functions. Of the Group’s 50 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 over investment properties, inventories, borrowings, and property plant and equipment were performed for a further four reporting units, and specific audit procedures were also performed over one joint venture company due to its contribution to the Group’s investment in joint ventures and associates. 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 95% of total assets. Valuation of investment properties (Group). Accuracy and valuation of construction contract balances (Group). Completeness and accuracy of land development provision (Group). Actuarial assumptions used in accounting for defined benefit pension scheme liabilities (Group). 100 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 100 05/04/2018 16:58:22 25654.04 5 April 2018 4:53 PM Proof 16 The scope of our audit As part of designing our audit, we determined materiality and assessed 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. We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at Group and significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the Group and Parent Company financial statements, including, but not limited to, Companies Act 2006. Our tests included, but were not limited to, review of correspondence with legal advisors and enquiries of management. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Valuation of investment properties We focused 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. How our audit addressed the key audit matter 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 S I E C N A N R E V O G S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 101 Henry Boot AR2017 - Financials.indd 101 05/04/2018 16:58:22 25654.04 5 April 2018 4:53 PM Proof 16 Independent Auditors’ Report continued to the members of Henry Boot PLC How our audit addressed the key audit matter 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. 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. No material adjustments were identified as a result of our testing. We obtained the actuary’s report and we used our own actuarial experts to assess the judgemental assumptions such as discount rate, inflation, and mortality rates, by comparing the key assumptions to externally derived data, as well as our own independently formed assessments, in order to assess whether they were reasonable. We have no exceptions to report as a result of this testing. Key audit matter Accuracy and valuation of construction contract balances We focused 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. Actuarial assumptions used in accounting for defined benefit pension scheme liabilities 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 liabilities under IAS 19. 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. 102 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 102 05/04/2018 16:58:22 25654.04 5 April 2018 4:53 PM Proof 16 We determined that there were no key audit matters applicable to the Parent Company to communicate in our report. 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 structure of the Group and the Parent Company, the accounting processes and controls, and the industry in which they operate. 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 in aggregate 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 materiality Group financial statements £3.5m (2016: £2.9m). Parent Company financial statements £1.2m (2016: £1.3m). How we determined it 0.8% of total assets. 0.6% of total assets. Rationale for benchmark applied 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. The key objective of the Parent Company is to hold investments in the various Group companies. As a result, we believe total assets is the primary measure used by the shareholders in assessing the performance of the Parent Company and is therefore the appropriate benchmark to use in setting materiality. This methodology is consistent with that applied in the prior year. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £133,000 and £2,900,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £175,000 (Group audit) (2016: £145,000) and £60,000 (Parent Company audit) (2016: £65,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Going concern In accordance with ISAs (UK) we report as follows: Reporting obligation We are required to report if we have anything material to add or draw attention to in respect of the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Group’s and the Parent Company’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements. We are required to report if the directors’ statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. Outcome We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Parent Company’s ability to continue as a going concern. We have nothing to report. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 103 Henry Boot AR2017 - Financials.indd 103 05/04/2018 16:58:22 25654.04 5 April 2018 4:53 PM Proof 16 Independent Auditors’ Report continued to the members of Henry Boot PLC Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated). Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the Group and Parent Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06) The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group We have nothing material to add or draw attention to regarding: − − − The directors’ confirmation on pages 40 to 43 of the Annual Report 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 43 of the Annual Report 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 to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and 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 UK Corporate Governance Code (the ‘Code’); and considering whether the statements are consistent with the knowledge and understanding of the Group and Parent Company and their environment obtained in the course of the audit. (Listing Rules) Other Code Provisions We have nothing to report in respect of our responsibility to report when: − The statement given by the directors, on page 97, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the 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 obtained in the course of performing our audit. − − The section of the Annual Report on pages 71 to 73 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. The directors’ statement relating to the Parent Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06) 104 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 104 05/04/2018 16:58:22 25654.04 5 April 2018 4:53 PM Proof 16 Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities set out on page 97, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report 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. Other required reporting Companies Act 2006 exception reporting 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 − certain disclosures of directors’ remuneration specified by law are not made; 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. Appointment Following the recommendation of the audit committee, we were appointed by the members on 28 May 2010 to audit the financial statements for the year ended 31 December 2010 and subsequent financial periods. The period of total uninterrupted engagement is 8 years, covering the years ended 31 December 2010 to 31 December 2017. ANDY WARD (SENIOR STATUTORY AUDITOR) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Leeds 20 April 2018 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 105 Henry Boot AR2017 - Financials.indd 105 05/04/2018 16:58:22 25654.04 5 April 2018 4:53 PM Proof 16 Consolidated Statement of Comprehensive Income for the year ended 31 December 2017 Revenue Cost of sales Gross profit Other income Administrative expenses Pension expenses Decrease in fair value of investment properties Profit on sale of investment properties Loss on sale of assets held for sale Operating profit Finance income Finance costs Share of profit of joint ventures and associates 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 Current tax on actuarial (gain)/loss Deferred tax on actuarial (gain)/loss 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 Note 1 1 4 13 3 5 6 15 7 12 17 26 7 17 2017 £’000 408,486 (321,758) 86,728 — (22,636) (4,336) 59,756 (3,597) 137 (98) 56,198 189 (1,703) 708 55,392 (9,817) 45,575 (379) 50 2,306 — (391) 1,586 47,161 42,368 3,207 45,575 43,954 3,207 47,161 2016 £’000 306,806 (244,496) 62,310 40 (17,958) (3,774) 40,618 (1,783) 647 — 39,482 156 (1,670) 1,523 39,491 (8,945) 30,546 30 3 (8,959) 428 964 (7,534) 23,012 28,259 2,287 30,546 20,725 2,287 23,012 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 9 9 32.1p 21.5p 31.8p 21.3p 106 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 106 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 Statements of Financial Position as at 31 December 2017 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 2017 £’000 2016 £’000 Parent Company 2017 £’000 2016 £’000 Note 11 12 13 14 15 16 17 18 16 20 21 24 25 21 24 26 25 29 30 30 30 31 5,361 26,485 132,777 — 5,856 2,906 4,613 177,998 144,603 93,176 10,282 248,061 2,000 250,061 79,429 5,794 34,340 5,602 125,165 124,896 2,684 4,922 22,825 2,387 32,818 270,076 13,701 3,550 245,260 6,121 (1,240) 267,392 2,684 270,076 4,909 21,967 123,663 — 5,148 5,592 5,249 166,528 137,915 66,921 7,389 212,225 1,050 213,275 61,149 4,707 33,342 6,669 105,867 107,408 4,615 6,922 26,396 2,451 40,384 233,552 13,608 3,879 210,664 4,611 (1,071) 231,691 1,861 233,552 — 559 — 23,732 — — 4,192 28,483 — 182,307 6,170 188,477 — 188,477 72,167 4,884 25,123 — 102,174 86,303 — — 22,825 — 22,825 91,961 13,701 — 72,242 7,258 (1,240) 91,961 — 91,961 — 297 — 8,488 — — 4,694 13,479 — 191,751 2,507 194,258 — 194,258 73,689 3,524 31,008 — 108,221 86,037 — — 26,396 — 26,396 73,120 13,608 — 54,835 5,748 (1,071) 73,120 — 73,120 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I The Parent Company made a profit for the year of £25,425,000 (2016: £21,038,000). The Financial Statements on pages 106 to 153 of Henry Boot PLC, registered number 160996, were approved by the Board of Directors and authorised for issue on 20 April 2018. On behalf of the Board JOHN SUTCLIFFE Director DARREN LITTLEWOOD Director I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 107 Henry Boot AR2017 - Financials.indd 107 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 Statements of Changes in Equity for the year ended 31 December 2017 Group At 31 December 2015 Profit for the year Other comprehensive expense Total comprehensive income Equity dividends Realised revaluation surplus Proceeds from shares issued Purchase of treasury shares Share-based payments At 31 December 2016 Profit for the year Other comprehensive income Total comprehensive income Equity dividends Proceeds from shares issued Purchase of treasury shares Share-based payments At 31 December 2017 Note 30 10 31 30, 31 30 10 31 30, 31 Share capital £’000 13,604 — — — — — 4 — — 4 13,608 — — — — 93 — — 93 13,701 Attributable to owners of the Parent Company Cost of shares held by ESOP trust £’000 (345) Property revaluation reserve £’000 3,964 Retained earnings £’000 197,895 — 28,259 (7,567) 33 20,692 33 (8,318) — 118 (118) — — — — — 277 (7,923) (118) 210,664 3,879 — 42,368 1,915 44,283 (9,628) — — (59) (9,687) 245,260 (329) (329) — — — — — 3,550 Other reserves £’000 4,548 — — — — — 63 — — 63 4,611 — — — — 1,510 — — 1,510 6,121 Total £’000 219,666 — 28,259 — (7,534) — 20,725 (8,318) — — — 67 — (959) (959) 510 233 (8,700) (726) 231,691 (1,071) — 42,368 — 1,586 — 43,954 (9,628) — 1,603 — (782) (782) 554 613 (8,253) (169) (1,240) 267,392 Non- controlling interests £’000 1,883 2,287 — 2,287 (2,309) — — — — (2,309) 1,861 3,207 — 3,207 (2,384) — — — (2,384) 2,684 Parent Company At 31 December 2015 Profit for the year Other comprehensive expense Total comprehensive income Equity dividends Proceeds from shares issued Purchase of treasury shares Share-based payments At 31 December 2016 Profit for the year Other comprehensive income Total comprehensive income Equity dividends Proceeds from shares issued Purchase of treasury shares Share-based payments At 31 December 2017 Share capital £’000 13,604 — — — — 4 — — 4 13,608 — — — — 93 — — 93 13,701 Retained earnings £’000 49,608 21,038 (7,567) 13,471 (8,318) — — 74 (8,244) 54,835 25,425 1,915 27,340 (9,628) — — (305) (9,933) 72,242 Cost of shares held by ESOP trust £’000 (345) — — — — — (959) 233 (726) (1,071) — — — — — (782) 613 (169) (1,240) Other reserves £’000 5,685 — — — — 63 — — 63 5,748 — — — — 1,510 — — 1,510 7,258 Note 8 10 31 30 8 10 31 30 Total equity £’000 221,549 30,546 (7,534) 23,012 (10,627) — 67 (959) 510 (11,009) 233,552 45,575 1,586 47,161 (12,012) 1,603 (782) 554 (10,637) 270,076 Total equity £’000 68,552 21,038 (7,567) 13,471 (8,318) 67 (959) 307 (8,903) 73,120 25,425 1,915 27,340 (9,628) 1,603 (782) 308 (8,499) 91,961 108 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 108 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 Statements of Cash Flows for the year ended 31 December 2017 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 Acquisition of subsidiary, net of cash acquired Purchase of intangible assets Purchase of property, plant and equipment Purchase of investment property Purchase of investments in joint ventures and 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 Dividends received from joint ventures Net cash flows from investing activities Cash flows from financing activities Proceeds from shares issued Purchase 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 Finance leases Government loans Net debt Note 32 34 11 12 13 15 31 10 10 24 24 24 Group 2017 £’000 46,338 (1,463) (8,620) 36,255 (2,711) (622) (3,906) (24,081) — 137 2,778 8,141 544 — — (19,720) 1,603 (782) (49,965) 47,514 (9,607) (2,384) (21) (13,642) 2,893 7,389 10,282 10,282 — 10,282 (30,599) (2,544) (6,119) (28,980) 2016 £’000 28,545 (1,141) (7,405) 19,999 — (606) (1,836) (10,181) (800) 492 9,430 — 113 — 965 (2,423) 67 (959) (39,128) 28,421 (8,297) (2,309) (21) (22,226) (4,650) 12,039 7,389 7,389 — 7,389 (32,684) — (7,580) (32,875) Parent Company 2017 £’000 (4,446) (2,760) (7,251) (14,457) — — (426) — — — — — 17,994 15,244 — 32,812 1,603 (782) (35,000) 30,000 (9,607) — (21) (13,807) 4,548 1,499 6,047 6,170 (123) 6,047 (25,000) — — (18,953) 2016 £’000 (1,889) (3,154) (6,370) (11,413) — — (231) — — — — — 7,495 15,201 — 22,465 67 (959) (30,000) 20,000 (8,297) — (21) (19,210) (8,158) 9,657 1,499 2,507 (1,008) 1,499 (30,000) — — (28,501) 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 109 Henry Boot AR2017 - Financials.indd 109 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 Principal Accounting Policies for the year ended 31 December 2017 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 as adopted by the EU (‘IFRS’), 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 43. 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. 110 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 110 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 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 Consolidated 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. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 111 Henry Boot AR2017 - Financials.indd 111 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 Principal Accounting Policies continued for the year ended 31 December 2017 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. The Board considers the business based on the following operating segments: − Property Investment and Development, inclusive of property investment and development housebuilding and trading activities; − Land Promotion, 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 Consolidated 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 Consolidated 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 12 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 Consolidated 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 – between 12.5% and 50% − Vehicles – between 10% and 25% − Office equipment – between 25% and 33% 112 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 112 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 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 eight years to run. 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. − Property 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 entered into with the landowners whereby the Group has the option to purchase the land within a limited time frame. The landowners 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 landowners 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 Consolidated 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 S I E C N A N R E V O G S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 113 Henry Boot AR2017 - Financials.indd 113 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 Principal Accounting Policies continued for the year ended 31 December 2017 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 29. 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. 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 29. 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 Consolidated 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 Consolidated 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 116). 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 Consolidated 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; 114 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 114 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 − 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 116); − Borrowings — see below. 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 Consolidated 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 that 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. Leases The cost of assets held under finance leases and hire purchase agreements is capitalised with an equivalent liability categorised as appropriate under current liabilities or non-current liabilities. The asset is depreciated over the shorter of the lease term or its useful life. Rentals under finance leases and hire purchase agreements are apportioned between finance costs and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. The finance costs are charged in arriving at profit before tax. 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 promotion 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. 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 promotion and road maintenance can be found in note 25 on page 140. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 115 Henry Boot AR2017 - Financials.indd 115 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 Principal Accounting Policies continued for the year ended 31 December 2017 Interest income and expense Interest income and expense are recognised within ‘Finance income’ and ‘Finance costs’ in the Consolidated 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 Consolidated 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 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 111 to 113 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 26 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 25 to the Financial Statements gives details of the sensitivity surrounding these estimates. 116 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 116 05/04/2018 16:58:23 25654.04 5 April 2018 4:53 PM Proof 16 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 2017: Annual improvements (issued 2016) IAS 7 (amended 2016) IAS 12 (amended 2016) ‘Annual Improvements to IFRSs 2014–2016 Cycle’ ‘Disclosure Initiative’ ‘Recognition of Deferred Tax Assets for Unrealised Losses’ 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 January 2017 1 January 2017 1 January 2017 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 2017) IAS 19 (amended 2018) IAS 28 (amended 2017) IAS 40 (amended 2016) IFRIC 22 (amended 2016) IFRIC 23 (amended 2017) IFRS 2 (amended 2016) IFRS 4 (amended 2016) IFRS 9 (issued 2014) IFRS 9 (issued 2017) IFRS 15 (issued 2014) IFRS 15 (amended 2016) IFRS 16 (issued 2016) IFRS 17 (issued 2017) * Not yet endorsed by the EU. ‘Annual Improvements to IFRSs 2015–2017 Cycle’ ‘Plan Amendment, Curtailment or Settlement’ 'Long-term Interests in Associates and Joint Ventures’ ‘Transfers of Investment Property’ ‘Foreign Currency Transactions and Advance Consideration’ ‘Uncertainty over Income Tax Treatments’ ‘Classification and Measurement of Share-based Payment Transactions’ ‘Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’ ‘Financial Instruments’ ‘Payment Features with Negative Compensation’ ‘Revenue from Contracts with Customers’ ‘Revenue from Contracts with Customers’ ‘Leases’ ‘Insurance Contracts’ Effective from 1 January 2019* 1 January 2019* 1 January 2019* 1 January 2018* 1 January 2018* 1 January 2019* 1 January 2018* 1 January 2018 1 January 2018 1 January 2019* 1 January 2018 1 January 2018 1 January 2019 1 January 2021* A review of the impact of these standards, amendments and interpretations has been conducted and the Directors do not believe that they will give rise to any significant financial impact. IFRS15 ‘Revenue from Contracts with Customers’ was issued by the IASB in May 2014 and became effective for accounting periods beginning on or after 1 January 2018. The Group has completed an impact assessment of the new standard and identified the affected areas as being; the separation of performance obligations and contract modifications on construction contracts, the identification of repurchase agreements to be accounted for as financing arrangements and the advanced recognition of contingent consideration (including overage receipts on the Group’s land promotion activities). Having reviewed the Groups ongoing contracts the Directors are satisfied that no material adjustments will be required on the initial application of the new standard and that all new contracts will assessed against the new recognition criteria. The Directors have also assessed the impact of IFRS 9 ‘Financial Instruments’ and continue to assess the impact of IFRS 16 ‘Leases’ but do not expect either to have a material quantitative effect. In 2017, 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 S I E C N A N R E V O G S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 117 Henry Boot AR2017 - Financials.indd 117 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements for the year ended 31 December 2017 1. Revenue Analysis of the Group’s revenue is as follows: Activity in the United Kingdom Revenue from construction contracts Property development House builder unit sales Land promotion PFI concession income Plant and equipment hire Investment property rental income Other rental income Other income 2017 £’000 53,187 216,085 24,713 76,009 12,526 16,252 8,839 875 408,486 — 408,486 2016 £’000 55,347 147,496 20,109 51,058 11,265 12,772 8,250 509 306,806 40 306,846 Contingent rents recognised as income during the year amount to £525,000 (2016: £439,000). Other income recognised in the prior year 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 Promotion; 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. During the year the Property Investment and Development segment made sales to a single external customer amounting to 29.7% (2016: 14.7%) of the Group’s total revenue. This related to a single high value contract which commenced in the prior year and will continue through to 2019. The segment has a number of other contracts in progress and is not reliant on any major customer individually. 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 110 to 117. 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. 118 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 118 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 2. Segment information continued 2017 Revenue External sales Inter-segment sales Total revenue Operating profit/(loss) Finance income Finance costs Share of profit of joint ventures and associates 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 and associates 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 Property investment and development £’000 250,418 324 250,742 30,419 1,041 (5,950) 708 26,218 (5,512) 20,706 26,188 206 48 — (3,597) — — Property investment and development £’000 176,232 314 176,546 15,105 936 (6,390) 1,523 11,174 (1,969) 9,205 10,278 203 — 36 1,783 — — Land promotion £’000 76,192 — 76,192 23,169 1,472 (1,567) Construction £’000 81,876 7,417 89,293 9,613 900 (549) Group overheads £’000 — 646 646 (7,003) 17,953 (2,757) Eliminations £’000 — (8,387) (8,387) — (21,177) 9,120 — 23,074 (4,409) 18,665 3 17 — — — 59 — Land promotion £’000 51,190 — 51,190 18,608 1,079 (1,955) — 17,732 (3,532) 14,200 29 18 — — — 831 — — 9,964 (1,853) 8,111 8,615 3,984 203 870 — 1,120 — 2016 — 8,193 1,957 10,150 1,055 692 — — — — (1,249) — (12,057) — (12,057) — — — — — — — Construction £’000 79,384 5,044 84,428 10,288 1,172 (484) Group overheads £’000 — 639 639 (4,519) 22,649 (3,145) — 10,976 (2,244) 8,732 5,371 3,200 203 1,251 — 870 — — 14,985 (1,177) 13,808 993 601 — — — — (2,140) Eliminations £’000 — (5,997) (5,997) — (25,680) 10,304 — (15,376) (23) (15,399) — — — — — — — Total £’000 408,486 — 408,486 56,198 189 (1,703) 708 55,392 (9,817) 45,575 35,861 4,899 251 870 (3,597) 1,179 (1,249) Total £’000 306,806 — 306,806 39,482 156 (1,670) 1,523 39,491 (8,945) 30,546 16,671 4,022 203 1,287 1,783 1,701 (2,140) 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 119 Henry Boot AR2017 - Financials.indd 119 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 2. Segment information continued Segment assets Property Investment and Development Land Promotion Construction Group overheads Unallocated assets Deferred tax assets Cash and cash equivalents Total assets Segment liabilities Property Investment and Development Land Promotion 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 (note 12) Impairment of goodwill included in administrative expenses (note 11) Impairment of land and buildings included in administrative expenses (note 12) Amortisation of PFI asset included in cost of sales (note 11) Amortisation of capitalised letting fees (note 13) Loss 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 in fair value of investment property (note 13) Cost of inventories recognised as expense Employee costs Amounts payable to Mazars LLP by Road Link (A69) Limited in respect of audit services Profit on sale of property, plant and equipment 2017 £’000 233,253 140,379 36,385 3,147 413,164 4,613 10,282 428,059 28,847 28,146 29,750 3,359 90,102 5,794 34,340 4,922 22,825 157,983 270,076 2017 £’000 4,899 203 48 870 48 98 90 13 391 3,597 82,772 30,832 7 (53) 2016 £’000 195,830 136,378 32,104 2,853 367,165 5,249 7,389 379,803 17,646 20,893 33,888 2,457 74,884 4,707 33,342 6,922 26,396 146,251 233,552 2016 £’000 4,022 203 — 1,251 36 — 61 307 295 1,783 65,912 26,098 7 (506) 120 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 120 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 3. Operating profit continued The remuneration paid to PricewaterhouseCoopers LLP, the Company’s external auditors, was as follows: 2017 £’000 2016 £’000 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 associates pursuant to legislation Total audit fees Other services Total non-audit fees Total fees 4. Employee costs 95 126 221 4 4 225 Group Parent Company Wages and salaries Share-based payment expense Social security costs Defined benefit pension costs (see note 26) Defined contribution pension costs (see note 26) Other pension costs 2017 £’000 22,747 554 2,993 2,440 1,730 166 30,630 2016 £’000 19,137 510 2,322 2,464 1,220 90 25,743 The average monthly number of employees during the year, including Executive Directors, was: Property Investment and Development Land Promotion Construction Plant Hire Parent Company 5. Finance income Interest on bank deposits Interest on other loans and receivables Fair value adjustments on trade receivables 2017 £’000 3,796 308 659 503 207 10 5,483 2017 Number 78 34 176 142 56 486 2017 £’000 10 48 131 189 95 114 209 28 28 237 2016 £’000 2,690 306 346 (26) 197 8 3,521 2016 Number 66 33 172 117 53 441 2016 £’000 13 (88) 231 156 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 121 Henry Boot AR2017 - Financials.indd 121 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 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 25) 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 Total deferred tax Total tax 2017 £’000 1,053 138 393 119 — 1,703 2017 £’000 10,090 (372) 9,718 99 99 9,817 2016 £’000 1,097 128 387 56 2 1,670 2016 £’000 8,927 (23) 8,904 41 41 8,945 Corporation tax is calculated at 19.25% (2016: 20%) 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, substantively enacted on 26 October 2015, and from 19% to 17% effective from 1 April 2020, substantively enacted on 6 September 2016, deferred tax balances at the year end have been measured at 17% (2016: 17%) being the rate at which timing differences are expected to reverse. The charge for the year can be reconciled to the profit per the Consolidated Statement of Comprehensive Income as follows: Profit before tax Tax at the UK corporation tax rate Effects of: Permanent differences Capital gains Tax losses for which no deferred tax asset is recognised Adjustment in respect of earlier years Joint venture results reported net of tax Effective tax rate 2017 £’000 55,392 2017 % 19.25 (2.01) (0.06) 1.39 (0.60) (0.25) 17.72 In addition to the amount charged to profit for the year, the following amounts relating to tax have been recognised in other comprehensive income: Current tax: – actuarial gain Deferred tax: – property revaluations – actuarial (gain)/loss Total tax recognised in other comprehensive income 2017 £’000 — 50 (391) (341) 2016 £’000 39,491 2016 % 20.00 3.01 — 0.47 (0.06) (0.77) 22.65 2016 £’000 428 3 964 1,395 122 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 122 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 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 21 April 2017 is £25,425,000 (2016: £21,038,000) and includes dividends received from subsidiaries of £11,700,000 (2016: £15,201,000). 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 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 2017 £’000 45,575 (3,207) (21) 42,347 2016 £’000 30,546 (2,287) (21) 28,238 2017 £’000 2016 £’000 132,323,911 132,052,925 (523,606) 131,800,314 131,529,319 1,059,602 133,292,631 132,588,921 1,492,317 (523,597) Amounts recognised as distributions to equity holders in the year: Preference dividend on cumulative preference shares Final dividend for the year ended 31 December 2016 of 4.50p per share (2015: 3.80p) Interim dividend for the year ended 31 December 2017 of 2.80p per share (2016: 2.50p) 2017 £’000 21 5,917 3,690 9,628 2016 £’000 21 5,006 3,291 8,318 The proposed final dividend for the year ended 31 December 2017 of 5.20p per share (2016: 4.50p) makes a total dividend for the year of 8.00p (2016: 7.00p). 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 £6,889,000. 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 £2,384,000 (2016: £2,309,000). 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 123 Henry Boot AR2017 - Financials.indd 123 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 11. Intangible assets Cost At 31 December 2015 Additions at cost At 31 December 2016 Additions at cost Acquisition of subsidiary (note 34) At 31 December 2017 Accumulated impairment losses and amortisation At 31 December 2015 Amortisation Impairment losses for the year At 31 December 2016 Amortisation Impairment losses for the year At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 At 31 December 2015 Goodwill £’000 4,070 — 4,070 — 903 4,973 2,306 — 203 2,509 — 203 2,712 2,261 1,561 1,764 PFI asset £’000 16,554 606 17,160 622 — 17,782 12,561 1,251 — 13,812 870 — 14,682 3,100 3,348 3,993 Total £’000 20,624 606 21,230 622 903 22,755 14,867 1,251 203 16,321 870 203 17,394 5,361 4,909 5,757 During the year the Group acquired the entire share capital of Premier Plant Tool Hire & Sales Limited, further information on the acquisition can be found in note 34. The assets and liabilities acquired were immediately hived up into the immediate parent company Banner Plant Limited, which sits in the Construction segment. 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. The cash generating units assessed for impairment are the Leicester depots of Banner Plant Limited which were formerly Premier Plant Tool Hire & Sales Limited only operational sites. 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 Highways England based on the number and type of vehicles using the road. The concession lasts for a period of 30 years and has a further eight years to run, at the end of which the road reverts to Highways England. Whilst the impairment test demonstrates significant headroom, an impairment charge of £203,000 (2016: £203,000) has been recognised during the year to reflect the fact that the PFI concession will revert to Highways England 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 Consolidated 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 Highways England’s financial year end and hence interim Financial Statements are prepared for incorporation into these Consolidated Financial Statements. 124 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 124 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 12. Property, plant and equipment Group Cost or fair value At 31 December 2015 Additions at cost Disposals Transfers to assets held for sale Increase in fair value in year At 31 December 2016 Additions at cost Acquisition of subsidiary (note 34) Disposals Transfers to assets held for sale Decrease in fair value in year At 31 December 2017 Being: Cost Fair value at 31 December 2017 Accumulated depreciation and impairment At 31 December 2015 Charge for year Eliminated on disposals At 31 December 2016 Charge for year Impairment Eliminated on disposals At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 At 31 December 2015 Land and buildings £’000 Equipment held for hire £’000 Vehicles £’000 Office equipment £’000 7,287 — (208) (275) 30 6,834 1,987 — — — (379) 8,442 — 8,442 8,442 402 — (108) 294 — 48 — 342 8,100 6,540 6,885 30,536 4,048 (1,662) — — 32,922 3,444 2,905 (1,645) — — 37,626 37,626 — 37,626 20,110 2,860 (1,414) 21,556 3,549 — (1,348) 23,757 13,869 11,366 10,426 4,956 1,404 (1,310) — — 5,050 971 119 (456) — — 5,684 5,684 — 5,684 2,377 762 (1,034) 2,105 831 — (352) 2,584 3,100 2,945 2,579 3,077 432 (226) — — 3,283 788 41 (690) 408 — 3,830 3,830 — 3,830 1,983 400 (216) 2,167 519 — (272) 2,414 1,416 1,116 1,094 Total £’000 45,856 5,884 (3,406) (275) 30 48,089 7,190 3,065 (2,791) 408 (379) 55,582 47,140 8,442 55,582 24,872 4,022 (2,772) 26,122 4,899 48 (1,972) 29,097 26,485 21,967 20,984 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 At 31 December 2017, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £459,000 (2016: £73,000). Fair value measurements of the Group’s land and buildings Land and buildings have been revalued at 31 December 2017 by Jones Lang LaSalle Limited and Dove Haigh Phillips LLP in accordance with the Practice Statements contained in the RICS Appraisal and Valuation Standards on the basis of market value at £8,100,000 (2016: £6,540,000). Jones Lang LaSalle Limited and Dove Haigh Phillips LLP are professional valuers who hold recognised and professional qualifications and have 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 £4,550,000 (2016: £2,611,000). S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 125 Henry Boot AR2017 - Financials.indd 125 05/04/2018 16:58:24 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 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 8,040 8,100 2017 £’000 60 8,040 8,100 2016 £’000 60 6,480 6,540 Increase in fair value in year — 1,560 1,560 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 8.15 6.98 10.35 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 Impact on valuation £’000 Buildings 388 1,065 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 12 months. 126 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 126 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 12. Property, plant and equipment continued Parent Company Cost At 31 December 2015 Additions Disposals At 31 December 2016 Additions Disposals At 31 December 2017 Depreciation At 31 December 2015 Charge for year Disposals At 31 December 2016 Charge for year Disposals At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 At 31 December 2015 Office equipment £’000 789 231 (216) 804 426 (215) 1,015 621 92 (206) 507 162 (213) 456 559 297 168 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: Level 1 £’000 Level 2 £’000 Completed investment property Industrial Leisure Mixed-use Residential Office Retail Investment property under construction Industrial Land Office Retail Total fair value — — — — — — — — — — — — — — — — — — — — — — — — — — Level 3 £’000 23,075 11,460 52,355 3,600 12,900 23,214 126,604 299 1,214 — 4,660 6,173 132,777 2017 £’000 23,075 11,460 52,355 3,600 12,900 23,214 126,604 299 1,214 — 4,660 6,173 132,777 Increase/ (decrease) in fair value in year 8,375 (1,015) (1,209) (120) 10,070 9,595 25,696 (226) — (7,556) (8,800) (16,582) 9,114 2016 £’000 14,700 12,475 53,564 3,720 2,830 13,619 100,908 525 1,214 7,556 13,460 22,755 123,663 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 S I E C N A N R E V O G S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 127 Henry Boot AR2017 - Financials.indd 127 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 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 Market value at 31 December Industrial Level 3 £’000 Leisure Level 3 £’000 Mixed-use Level 3 £’000 Residential Level 3 £’000 Office Level 3 £’000 Retail Level 3 £’000 2017 £’000 2016 £’000 14,700 12,475 53,564 3,720 2,830 13,619 100,908 103,694 7,318 — (1) — — — — — (7) (1,584) — — 3,400 50 (36) — (2,000) — — — — (426) — (78) 185 — — — — — 10,107 1 (4) — — — 21,010 51 (48) (2,010) (2,000) (78) 4,197 46 (35) (8,170) (775) (452) — — — — 9,334 — 9,334 1,322 1,058 23,075 576 11,460 (2,623) 52,355 — 23,075 264 11,724 1,115 53,470 384 3,600 — 3,600 551 12,900 — 12,900 (509) 23,214 (563) 126,604 1,081 100,908 488 23,702 1,867 128,471 2,017 102,925 128 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 128 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 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 accounting 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 2017 by Jones Lang LaSalle Limited or Dove Haigh Phillips LLP in accordance with the Practice Statements contained in the RICS Appraisal and Valuation Standards on the basis of market value at £124,870,000 (2016: £99,205,000). Jones Lang LaSalle Limited and Dove Haigh Phillips LLP are professional valuers who hold recognised and professional qualifications and have 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 2017 has been determined by the Directors of the Company at £3,600,000 (2016: £3,720,000). 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): 2017 Class Industrial Leisure Mixed-use Valuation technique Rental value per sq ft (£) – weighted average Yield % – low – high – weighted average – low – high % discount applied to houses held under assured tenancies Yield 3.96 3.39 4.53 5.75 5.11 6.88 — Valuation technique Rental value per sq ft (£) – weighted average Yield % – low – high – weighted average – low – high % discount applied to houses held under assured tenancies Yield 4.53 4.53 4.53 5.68 5.68 5.68 — Yield 16.01 1.67 40.86 5.67 4.69 7.86 Yield 12.74 2.70 63.39 7.55 5.50 18.87 Residential Sales comparison — — — — — — Office Retail Yield 23.28 19.46 24.97 7.66 7.62 7.75 Yield 19.29 9.09 104.35 4.36 4.53 7.65 — — 25.00 — — 2016 Residential Sales comparison — — — — — — Office Yield 19.46 19.46 19.46 9.05 9.05 9.05 Retail Yield 13.89 9.09 21.41 4.84 4.53 7.65 Yield 16.38 1.67 40.86 5.79 5.07 7.86 Yield 12.60 1.50 53.50 7.87 6.00 18.94 — — 25.00 — — Class Industrial Leisure Mixed-use There is considered to be no inter-relationship between observable and unobservable inputs. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 129 Henry Boot AR2017 - Financials.indd 129 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 13. Investment properties continued The sensitivity analysis to significant changes in unobservable inputs relating to fair value measurements (Level 3) is 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 2,079 6,326 — Industrial 1,190 3,253 — Impact on valuation 2017 £’000 Leisure Mixed-use Residential — 3,720 — 3,474 46 — 1,027 680 — Impact on valuation 2016 £’000 Leisure Mixed-use 3,420 4,490 — 1,017 788 — Residential — — 50 Office 796 559 — Office 147 146 — Retail 2,462 1,043 — Retail 1,209 876 — 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 12 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 £8,839,000 (2016: £8,250,000). Direct operating expenses arising on investment property generating rental income in the year amounted to £459,000 (2016: £555,000). Direct operating expenses arising on the investment property which did not generate rental income during the year amounted to £2,110,000 (2016: £1,103,000). At 31 December 2017, the Group had entered into contractual commitments for the acquisition and repair of investment property amounting to £1,141,000 (2016: £2,047,000). Investment property under construction Class Fair value hierarchy 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 in fair value in year At 31 December Adjustment in respect of tenant incentives Market value at 31 December Industrial Level 3 £’000 Land Level 3 £’000 Office Level 3 £’000 Retail Level 3 £’000 2017 £’000 2016 £’000 525 3 — — (229) — — — — 299 — 299 1,214 7,556 13,460 22,755 21,617 — — — — — — — — 1,214 — 1,214 1,778 — — — — — (9,334) — — — — 1,239 — — (413) (6,592) — — (3,034) 4,660 — 4,660 3,020 — — (642) (6,592) — (9,334) (3,034) 6,173 — 6,173 5,854 84 (1) (613) — — (1,322) (2,864) 22,755 — 22,755 130 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 130 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 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 2017 Industrial Residual — — — — — — Land Sales comparison — — — — — — — — — 111 111 111 — — — 201 102 1,276 2016 Industrial Residual — — — — — — Land Sales comparison — — — — — — — — — 120 120 120 — — — 218 107 1,382 Office Retail Residual — — — — — — — — — — — — Residual 1.69 1.69 1.69 6.01 6.01 6.01 2.20 2.20 2.20 — — — Office Retail Residual 26.00 26.00 26.00 6.50 6.50 6.50 74.89 74.89 74.89 — — — Residual 12.39 9.00 24.00 6.65 6.50 6.94 105.60 31.46 138.86 — — — 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 131 Henry Boot AR2017 - Financials.indd 131 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 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 2017 £’000 Industrial — — — — Land — — 15 204 Office — — — — Impact on valuation 2016 £’000 Office 2,113 1,605 30 — Land — — — 156 Industrial — — — 26 Retail (135) 2,011 16 — Retail 1,382 1,367 195 — Investment properties under construction are developments which have been valued at 31 December 2017 at fair value by the Directors of the Company using the residual method at £6,173,000 (2016: £22,755,000 ). 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 2016, 31 December 2016 and 31 December 2017 Fair value adjustments At 1 January 2016 Provisions for losses At 31 December 2016 Reversal of provisions for losses At 31 December 2017 Carrying amount At 31 December 2017 At 1 January 2017 At 1 January 2016 Total £’000 35,772 (32,751) 5,467 (27,284) 15,244 (12,040) 23,732 8,488 3,021 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 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. The improved net assets position of Henry Boot Developments in the current year gives rise to the reversal of provisions for losses previously recognised. The impairment reversals are included in the parent company’s profit and loss. 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; − Stonebridge Homes 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. 132 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 132 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 15. Investment in joint ventures and associates Group Cost At 1 January Share of profit for the year Additions Dividends received At 31 December 2017 Joint ventures £’000 Associates £’000 3,627 686 — — 4,313 1,521 22 — — 1,543 Joint ventures £’000 2016 Associates £’000 2,290 1,502 800 (965) 3,627 1,500 21 — — 1,521 Total £’000 5,148 708 — — 5,856 The Group’s share of its joint ventures’ and associates’ aggregated assets, liabilities and results are as follows: Investment property Current assets Non-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 Profit before tax Tax Share of profits after tax Joint ventures £’000 6,536 1,515 — 8,051 (438) (3,300) 4,313 Joint ventures £’000 5,911 (5,599) 489 801 (119) 682 4 686 2017 Associates £’000 — 1,550 52 1,602 (59) — 1,543 2017 Associates £’000 25 (3) — 22 — 22 — 22 Joint ventures £’000 6,187 3,409 — 9,596 (2,639) (3,330) 3,627 Joint ventures £’000 8,097 (6,504) 262 1,855 (98) 1,757 (255) 1,502 2016 Associates £’000 — 1,530 66 1,596 (75) — 1,521 2016 Associates £’000 26 (1) — 25 — 25 (4) 21 Total £’000 6,536 3,065 52 9,653 (497) (3,300) 5,856 Total £’000 5,936 (5,602) 489 823 (119) 704 4 708 Details of the Group’s investments in joint ventures and associates are listed in note 35. 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 2017 £’000 90,057 5,160 865 — 96,082 93,176 2,906 96,082 2016 £’000 66,392 3,487 2,634 — 72,513 66,921 5,592 72,513 2017 £’000 228 698 — 181,381 182,307 182,307 — 182,307 2016 £’000 296 633 — 190,822 191,751 191,751 — 191,751 Included in the Group’s trade receivables balance are receivables with a carrying amount of £5.7m (2016: £5.1m) 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. Total £’000 3,790 1,523 800 (965) 5,148 Total £’000 6,187 4,939 66 11,192 (2,714) (3,330) 5,148 Total £’000 8,123 (6,505) 262 1,880 (98) 1,782 (259) 1,523 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 133 Henry Boot AR2017 - Financials.indd 133 05/04/2018 16:58:25 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 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 2017 £’000 4,670 518 163 347 5,698 2017 £’000 648 103 (217) (43) 491 2016 £’000 4,145 230 515 247 5,137 2016 £’000 303 368 (21) (2) 648 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 2017 £’000 24 6 7 22 432 491 2016 £’000 46 4 4 34 560 648 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 £2,313,000 (2016: £2,390,000), of which £3,000 (2016: £3,000) has been provided in the year and £80,000 (2016: £1,861,000) 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. 134 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 134 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 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: Group At 31 December 2015 Recognised in income Recognised in other comprehensive income At 31 December 2016 Recognised in income Recognised in other comprehensive income Acquisition of subsidiary (note 34) At 31 December 2017 Parent Company At 31 December 2015 Recognised in income Recognised in other comprehensive income At 31 December 2016 Recognised in income Recognised in other comprehensive income At 31 December 2017 Accelerated capital allowances £’000 356 266 — 622 66 — (196) 492 Property revaluations £’000 239 (242) 3 — (50) 50 — — Retirement benefit obligations £’000 3,523 — 964 4,487 (217) (391) — 3,879 Other timing differences £’000 205 (65) — 140 102 — — 242 28 — — 28 1 — 29 — — — — — — — 3,523 — 964 4,487 (217) (391) 3,879 221 (42) — 179 105 — 284 Total £’000 4,323 (41) 967 5,249 (99) (341) (196) 4,613 3,772 (42) 964 4,694 (111) (391) 4,192 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 £3,208,000 (2016: £2,670,000). 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, substantively enacted on 26 October 2015, and from 19% to 17% effective from 1 April 2020, substantively enacted on 6 September 2016, deferred tax balances at the year end have been measured at 17% (2016: 17%) being the rate at which timing differences are expected to reverse. 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 18. Inventories Property developments in progress House builder land and work in progress Land held for development or sale Options to purchase land Planning promotion agreements 2017 £’000 20,281 22,640 57,815 12,488 31,379 144,603 2016 £’000 16,963 13,065 70,087 10,664 27,136 137,915 Within property developments in progress £619,000 (2016: £294,000) 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 £1,350,000 (2016: £2,923,000) 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. S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 135 Henry Boot AR2017 - Financials.indd 135 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 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 2017 £’000 2016 £’000 30,932 (3,225) 27,707 630,207 (602,500) 27,707 17,638 (4,656) 12,982 490,693 (477,711) 12,982 At 31 December 2017, retentions held by customers for contract work amounted to £1,838,000 (2016: £1,614,000). Advances received from customers for contract work amounted to £3,225,000 (2016: £4,656,000). 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. Assets classified as held for sale comprise the following: Fair value At 1 January Transfer from investment property (note 13) Transfer from property, plant and equipment (note 12) Disposals At 31 December Adjustment in respect of tenant incentives Market value at 31 December Investment property 2017 £’000 1,050 2,000 — (1,050) 2,000 — 2,000 2016 £’000 — 775 275 — 1,050 — 1,050 Assets classified as held for sale have been valued at 31 December 2017 at fair value by the Directors of the Company at £2,000,000 (2016: £1,050,000). 21. Trade and other payables Trade payables Social security and other taxes Accrued expenses Deferred income Amounts owed to related parties Amounts owed to Group undertakings Due within one year Due after more than one year Group Parent Company 2017 £’000 71,858 3,075 1,713 5,308 159 — 82,113 79,429 2,684 82,113 2016 £’000 54,077 3,263 1,368 7,010 46 — 65,764 61,149 4,615 65,764 2017 £’000 1,998 526 796 — — 68,847 72,167 72,167 — 72,167 2016 £’000 1,340 333 773 — — 71,243 73,689 73,689 — 73,689 The Directors consider that the carrying amount of trade payables approximates to their fair value. 136 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 136 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 22. Government grants Government grants have been received in relation to the infrastructure of one of the Group’s Land Promotions and three of the Group’s property developments. Grant income received relating to revenue grants are included within deferred income and released to the Consolidated 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 Consolidated Statement of Comprehensive Income during the year were £nil (2016: £18,000). 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 Group’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 2017 this was £29.0m (2016: £32.9m). Equity comprises all components of equity and at 31 December 2017 this was £270.1m (2016: £233.6m). During 2017 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 2017 we exercised our option to extend the facilities by a further year to 17 February 2020 and on 22 August 2017 we agreed an amendment to increase the facility to £72m. 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 S I E C N A N R E V O G S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 137 Henry Boot AR2017 - Financials.indd 137 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 24. Borrowings Bank overdrafts Bank loans Finance leases 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 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 Stonebridge Offices Limited) Bank loans – floating rate (relating to Stonebridge Homes Limited) Finance leases Government loans Bank overdrafts are repayable on demand. Group Parent Company 2017 £’000 — 30,599 2,544 6,119 39,262 34,786 3,055 2,198 40,039 34,786 5,253 40,039 2016 £’000 — 32,684 — 7,580 40,264 33,648 4,323 2,967 40,938 33,648 7,290 40,938 2017 £’000 123 25,000 — — 25,123 25,123 — — 25,123 25,123 — 25,123 2017 % 2.10 1.94 2.83 2.29 3.00 1.48 2016 £’000 1,008 30,000 — — 31,008 31,008 — — 31,008 31,008 — 31,008 2016 % 2.42 2.12 2.97 2.38 — 2.37 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, Stonebridge Offices Limited and Stonebridge Homes Limited. 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. The Stonebridge Homes Limited revolving loan facility is secured by a specific charge over the freehold property of that company and is guaranteed by Henry Boot PLC. The loan can be drawn against on a monthly basis and was first drawn against on 22 April 2016. The loan is repayable from the proceeds of residential house sales with full and final settlement becoming due on 22 April 2019. 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 £1,755,000 (2016: £2,381,000) and £319,000 (2016: £319,000) respectively. 138 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 138 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 24. Borrowings continued Government loans from the Homes and Communities Agency (HCA) were issued with a fixed level of interest of £353,000 (2016: £398,000); their fair values are £3,285,000 (2016: £3,760,000) (Education Campus) and £760,000 (2016: £1,120,000) (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 £300,000 (2016: £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 commenced during the year upon the occupation of the first dwelling and follows for each occupation thereafter until the total contribution sum is repaid in full. Repayments of £474,279 (2016: £446,056) were made during the year. 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 2015 upon the occupation of the 1,151st dwelling. Repayments of £363,027 (2016: £354,808) 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 of each year 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 2017, a 1.0% (2016: 1.0%) change in interest rates, which the Directors consider to be a reasonably possible change, would affect profitability before tax by £347,000 (2016: £406,000). The fair value of the Group’s borrowings is not considered to be materially different from the carrying amounts. At 31 December 2017, the Group had available £47,000,000 (2016: £32,500,000) undrawn committed borrowing facilities. Finance lease liabilities Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. 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 Gross finance lease liabilities – minimum lease payments: No later than one year Later than one year and no later than five years Future finance charges on finance lease liabilities Present value of finance lease liabilities 2017 £’000 962 1,378 2,340 204 2,544 2016 £’000 — — — — — S S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 139 Henry Boot AR2017 - Financials.indd 139 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 24. Borrowings continued The present value of finance lease liabilities is as follows: No later than one year Later than one year and no later than five years The carrying amount of the Group’s lease obligations approximates to their fair value. 25. Provisions At 31 December 2016 Included in current liabilities Included in non-current liabilities Additional provisions in year Unwinding of discount Utilisation of provisions At 31 December 2017 Included in current liabilities Included in non-current liabilities 2017 £’000 1,066 1,478 2,544 Land promotion £’000 Road maintenance £’000 5,333 2,451 7,784 424 — (1,930) 6,278 3,891 2,387 6,278 1,336 — 1,336 1,120 — (745) 1,711 1,711 — 1,711 2016 £’000 — — — Total £’000 6,669 2,451 9,120 1,544 — (2,675) 7,989 5,602 2,387 7,989 The land promotion 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 of. 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 reasonably possible change, land promotion provisions would change and affect profitability before tax by £88,000 and £304,000 respectively (2016: £93,000 and £379,000). 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 reasonably possible change, the road maintenance provision would change and affect profitability before tax by £157,000 (2016: £129,000). 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. 140 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 140 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 25. Provisions continued Off balance sheet arrangements The Group is currently undertaking the infrastructure of land promotions at Bridgwater and Cranbrook, spanning 122 and 53 acres respectively (2016: 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 costs being incurred throughout these periods. The Group has historically disposed of 105 and 24 acres respectively (2016: 94 and 24), and has subsequently recognised provisions to the value of £6,278,000 (2016: £7,783,000), 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 of. The present value of the estimated cash flows relating to future disposals, amounting to £4,434,932 (2016: £5,885,000), has therefore not been recognised in these Financial Statements. 26. Retirement benefit obligations Defined contribution pension plan The Group operates a defined contribution pension plan for all qualifying employees. The plan is administered and managed by Aviva and the Group matches member contributions, providing a minimum of 4% (2016: 4%) 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 £1,730,000 (2016: £1,220,000) represents contributions payable to the plan 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. 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. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 141 Henry Boot AR2017 - Financials.indd 141 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 26. Retirement benefit obligations continued 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 2015. The results of that valuation have been projected to 31 December 2017 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 (RPI) 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 2017 % 3.00 2.00 1.00 2.00 2.00 2.50 2017 Years 22.1 24.1 23.2 25.3 2016 % 3.00 2.00 1.00 2.00 2.00 2.80 2016 Years 22.1 24.2 23.4 25.7 The mortality assumptions adopted are the Self Administered Pension Schemes (SAPS) tables with allowance for future improvements in line with Continuous Mortality Investigation (CMI) 2015 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 3.4% Nil* Decrease by 4.1% Increase by 4.1% Decrease in assumption Decrease by 3.3% Nil* Increase by 4.3% Decrease by 3.9% * 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. 142 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 142 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 26. 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 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)/losses arising from changes in demographic assumptions Actuarial losses arising from changes in financial assumptions Actuarial gains arising from experience adjustments Actuarial (gains)/losses recognised in other comprehensive income Total 2017 £’000 1,065 507 712 156 2,440 (9,831) (1,733) 9,258 — (2,306) 134 2016 £’000 1,112 493 691 168 2,464 (12,528) 1,590 22,972 (3,077) 8,959 11,422 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 losses Benefits paid At 31 December 2017 £’000 197,365 (174,540) 22,825 2016 £’000 190,974 (164,578) 26,396 2017 £’000 22,825 2016 £’000 26,396 2017 £’000 190,974 1,065 5,259 1 7,525 (7,459) 197,365 2016 £’000 170,214 1,112 6,336 2 21,486 (8,176) 190,974 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 143 Henry Boot AR2017 - Financials.indd 143 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 26. Retirement benefit obligations continued Movements in the fair value of scheme assets in the year were as follows: At 1 January Interest income Actuarial gains on scheme assets Employer contributions Contributions from scheme members 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 Corporate bonds Diversified credit funds Cash and net current assets Unquoted investments: Direct lending Collateralised loan obligations Special situations At 31 December 2017 £’000 164,578 4,547 9,831 3,549 1 (7,459) (507) 174,540 2017 £’000 44,675 13,297 34,475 — 37,377 903 19,833 22,301 1,679 174,540 2016 £’000 150,637 5,645 12,528 4,435 2 (8,176) (493) 164,578 2016 £’000 40,207 11,093 38,559 20,127 26,487 5,238 10,835 12,032 — 164,578 Included in equities are nil (2016: 670,000) ordinary 10p shares in Henry Boot PLC with a value at the year end of £nil (2016: £1,350,050). The weighted average duration of the defined benefit obligation is 16.3 years (2016: 16.6 years). The current estimated amount of total contributions expected to be paid to the scheme during the 2018 financial year is £3,565,000, being £3,563,000 payable by the Group and £2,000 payable by scheme members. The Company’s level of recovery plan funding to the scheme is £2,500,000 per annum, which will be reviewed at the next triennial valuation. In addition to this, the Company contributes a further £260,000 per annum towards the administration expenses of the scheme. 144 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 144 05/04/2018 16:58:26 25654.04 5 April 2018 4:53 PM Proof 16 27. Operating leases The Group as lessee Minimum lease payments under operating leases recognised in the Consolidated Statement of Comprehensive Income for the year 2017 £’000 391 2016 £’000 295 At 31 December 2017, 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 2017 £’000 350 1,157 635 2,142 2016 £’000 299 879 578 1,756 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 2017 £’000 8,140 28,758 84,349 121,247 2016 £’000 7,458 27,814 73,314 108,586 28. 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) 2017 £’000 1,140 6,282 (1,911) (155) 459 2017 £’000 39 44 2016 £’000 1,140 7,481 (2,215) (154) 116 2016 £’000 44 42 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. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 145 Henry Boot AR2017 - Financials.indd 145 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 28. Related party transactions continued Remuneration of key management personnel The key management personnel of the Group are the Board of Directors and members of the Senior Management team of wholly owned subsidiaries, as presented on page 58 to 60. They are responsible for making all of the strategic decisions of the Group and its subsidiaries, as detailed on page 2 and 11. The remuneration of the Board of Directors is set out in the Remuneration Report on pages 74 to 91. The remuneration of the relevant four (2016: four) members of the Senior Management team is set out below, in aggregate, for each of the categories specified in IAS 24 ‘Related Party Disclosures’. Short-term employee benefits Post-employment benefits 29. Share capital 400,000 5.25% cumulative preference shares of £1 each (2016: 400,000) 133,010,911 ordinary shares of 10p each (2016: 132,080,138) 2017 £’000 1,660 27 1,687 2016 £’000 1,228 32 1,260 Allotted, issued and fully paid 2017 £’000 400 13,301 13,701 2016 £’000 400 13,208 13,608 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: (i) The Henry Boot 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 23 October 2014 at a price of 172.0p at a discount of just over 9.5% and on 24 October 2017 at a price of 270.0p at a discount of 10%. These become exercisable for a six-month period from 1 December 2017 and 1 December 2020 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 2014 grant October 2017 grant Options outstanding at 31 December 2016 950,185 — Options granted — 968,013 Options lapsed (19,721) (6,665) Options exercised (824,773) — Options outstanding at 31 December 2017 105,691 961,348 The weighted average share price at the date of exercise for share options exercised during the year was 299.98p (2016: 196.82p). (ii) 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. 146 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 146 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 29. Share capital continued (iii) 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 (ii) and (iii) 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 2017 Number 881,481 (148,194) (295,475) 584,836 1,022,648 2016 Number 903,060 (205,389) (113,714) 297,524 881,481 The weighted average share price at the date of exercise for share options exercised during the year was 295.02p (2016: 197.50p). (iv) 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. The third grant of options under the plan was made to certain senior employees (none of whom at the time were Directors of Group companies) on 6 October 2017 at an option price of 298.9p. There were no performance conditions imposed on either of these grants. May 2011 grant October 2014 grant October 2017 grant Options outstanding at 31 December 2016 42,000 145,000 — Options granted — — 149,747 Options lapsed — — — Options exercised (26,000) (80,000) — Options outstanding at 31 December 2017 16,000 65,000 149,747 The weighted average share price at the date of exercise for share options exercised during the year was 291.08 (2016: nil). 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 225.6p 30.72% to 32.10% 3 years 0.14% to 1.26% 2.71% to 3.16% 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 2014 172.0p 181.0p 31.45% 3 years 0.82% 3.16% CSOP 2017 298.9 309.0 30.37 3 years 0.51% 3.02% Sharesave 2017 270.0 300.0 30.30 3 years 0.51% 3.02% 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 76.90p (2016: 97.69p). 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 147 Henry Boot AR2017 - Financials.indd 147 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 29. Share capital continued Expense recognised in the Consolidated Statement of Comprehensive Income The total expense recognised in the Consolidated Statement of Comprehensive Income arising from share-based payment transactions 2017 £’000 554 2016 £’000 510 The total expense recognised in the Consolidated Statement of Comprehensive Income arose solely from equity-settled share-based payment transactions. 30. Reserves Group At 31 December 2015 Profit for the year Dividends paid Premium arising from shares issued Increase in fair value in year Deferred tax on revaluation surplus Realised revaluation surplus Arising on employee share schemes Unrecognised actuarial loss Current tax on actuarial loss Deferred tax on actuarial loss At 31 December 2016 Profit for the year Dividends paid Premium arising from shares issued Decrease 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 2017 Property revaluation £’000 3,964 — — — 30 3 (118) — — — — 3,879 — — — (379) 50 — — — 3,550 Retained earnings £’000 197,895 28,259 (8,318) — — — 118 277 (8,959) 428 964 210,664 42,368 (9,628) — — — (59) 2,306 (391) 245,260 Capital redemption £’000 271 — — — — — — — — — — 271 — — — — — — — — 271 Other Share premium £’000 4,068 — — 63 — — — — — — — 4,131 — — 1,510 — — — — — 5,641 Capital £’000 209 — — — — — — — — — — 209 — — — — — — — — 209 Total other £’000 4,548 — — 63 — — — — — — — 4,611 — — 1,510 — — — — — 6,121 148 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 148 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 30. Reserves continued Parent Company At 31 December 2015 Profit for the year Dividends paid Premium arising from shares issued Arising on employee share schemes Unrecognised actuarial loss Current tax on actuarial loss Deferred tax on actuarial loss At 31 December 2016 Profit for the year Dividends paid Premium arising from shares issued Arising on employee share schemes Unrecognised actuarial gain Deferred tax on actuarial gain At 31 December 2017 Retained earnings £’000 49,608 21,038 (8,318) — 74 (8,959) 428 964 54,835 25,425 (9,628) — (305) 2,306 (391) 72,242 Capital redemption £’000 271 — — — — — — — 271 — — — — — — 271 Share premium £’000 4,068 — — 63 — — — — 4,131 — — 1,510 — — — 5,641 Other Capital £’000 211 — — — — — — — 211 — — — — — — 211 Investment revaluation £’000 1,135 — — — — — — — 1,135 — — — — — — 1,135 Total other £’000 5,685 — — 63 — — — — 5,748 — — 1,510 — — — 7,258 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. 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. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 149 Henry Boot AR2017 - Financials.indd 149 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 31. Cost of shares held by the ESOP trust At 1 January Additions Disposals At 31 December 2017 £’000 1,071 782 (613) 1,240 2016 £’000 345 959 (233) 1,071 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 2017, the Trustee held 523,597 shares (2016: 523,606 shares) with a cost of £1,240,416 (2016: £1,071,330) and a market value of £1,670,276 (2016: £1,055,066). 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. 32. 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 of land and buildings Revaluation decrease 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 Loss on disposal of assets held for sale (Gain)/loss on disposal of property, plant and equipment Gain on disposal of investment properties Finance income Finance costs Share of profit of joint ventures and associates 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)/decrease in inventories (Increase)/decrease in receivables Increase/(decrease) in payables Cash generated from/(used by) operations 11 11 12 12 13 3 4 14 3 3 5 6 15 12 2017 £’000 55,392 870 204 4,899 48 3,597 48 554 (1,265) — — 98 (380) (127) (189) 1,703 (708) 64,744 (3,283) 654 62,115 (6,500) (22,975) 13,698 46,338 2016 £’000 39,491 1,251 203 4,022 — 1,783 36 510 (2,140) — — — (506) (647) (156) 1,670 (1,523) 43,994 (4,048) 648 40,594 1,478 (7,515) (6,012) 28,545 2017 £’000 23,452 — — 162 — — — 307 (1,265) (15,244) (77) — 2 — (33,238) 2,757 — (23,144) — — (23,144) — 20,247 (1,549) (4,446) 2016 £’000 22,191 — — 92 — — — 307 (2,140) (5,467) (1,858) — 10 — (22,695) 3,145 — (6,415) — — (6,415) — 14,242 (9,716) (1,889) 150 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 150 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 33. 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. 34. Business combinations On 1 April 2017 the Group acquired 100% of the share capital of Premier Plant Tool Hire & Sales Limited for consideration of £2,800,000. Premier Plant Tool Hire & Sales Limited will trade under the Banner brand and will increase Banner’s presence in the East Midlands market. The goodwill arising on acquisition is attributable to the acquired customer base and economies of scale expected from the combined operations. None of the goodwill is expected to be deductible for corporation tax purposes. The following table summarises the consideration paid for Premier Plant Tool Hire & Sales Limited, the fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date. Business combinations Consideration paid 1 April 2017 Cash Deferred consideration paid 23 June 2017 Cash Recognised amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents Property, plant and equipment Inventories Trade and other receivables Trade and other payables Provisions for liabilities Total identifiable net assets Goodwill Total 2017 £’000 2,400 400 2,800 89 3,065 4 948 (2,013) (196) 1,897 903 2,800 Acquisition-related costs of £113,000 have been charged to administrative expenses in the consolidated statement of comprehensive income for the year ended 31 December 2017. The assets acquired as part of the business combination are all considered to be at fair value and all receivables deemed to be fully recoverable. The revenue included in the consolidated statement of comprehensive income for the year ended 31 December 2017 was £2,668,000. Premier Plant Tool Hire & Sales Limited also contributed profit before tax of £233,000 over the same period. Had Premier Plant Tool Hire & Sales Limited been consolidated from 1 January 2017, the consolidated statement of comprehensive income would show pro-forma revenue of £3,559,000 and profit before tax of £311,000. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 151 Henry Boot AR2017 - Financials.indd 151 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 Notes to the Financial Statements continued for the year ended 31 December 2017 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 (unless otherwise stated) and are consolidated in the Group Financial Statements at 31 December 2017, 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 Fox Valley Management Company Limited Hallam Land Management Limited Henry Boot Biddenham Limited Henry Boot Contracting Limited Henry Boot Construction Limited Henry Boot Developments Limited Henry Boot Estates Limited Henry Boot Investments 1 Limited Henry Boot Inner City Limited Henry Boot ‘K’ Limited Henry Boot Land Holdings Limited Henry Boot (Launceston) Limited Henry Boot Leasing Limited Henry Boot (Manchester) Limited Henry Boot Nottingham 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 Marboot Centregate Limited Marboot Centregate 2 Limited Moore Street Securities Limited Northfields Rotherham Management Company Limited Plot 7 East Markham Vale Management Company Limited Road Link (A69) Holdings Limited Road Link (A69) Limited Road Link Limited Saltwoodend Limited Stonebridge Offices Limited Stonebridge Homes Limited The Residence (York) Management Company Limited Victoria Gardens (Headingley) Management Company Limited Winter Ground Limited Woodside Park Newlay Estate Management Limited Proportion of ownership 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% 100% 100% 100% 100% 100% 100% 61.2% 100% 100% 100% 50% 50% 100% 100% 100% 100% Direct or indirect Direct Direct Indirect Indirect Indirect Direct Indirect Direct Direct Direct Direct Direct Direct Indirect Direct Indirect Direct Direct Direct Direct Indirect Direct Direct Indirect Direct Direct Indirect Indirect Indirect Direct Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Activity Plant hire Construction Property development Management company Land promotion Property investment Management company Land promotion Land promotion Inactive Construction Property investment and development Property investment Property development Inactive Property investment and development Land promotion Land promotion Motor vehicle leasing to Group companies Property development Inactive Property investment and development Land promotion Property investment and development Property development Property investment Property development Property investment Inactive Employee benefit trust Management company Management company Holding company PFI road maintenance Inactive Inactive Property investment and development Property development Management company Management company Property investment and development Management company 152 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 152 05/04/2018 16:58:27 25654.04 5 April 2018 4:53 PM Proof 16 35. Additional information – subsidiaries, joint ventures and associates continued Joint ventures and associates Aytoun Street Developments Limited Bigmouth Manchester Limited Henry Boot Barnfield Limited I-Prop Developments Limited Kampus Holdings Sarl Kirklees Henry Boot Partnership Limited Markey Colston Limited Pennine Property Partnership LLP Proportion of ownership 50% 50% 50% 50% 5% 50% 27.33% 50% Direct or indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Activity Property development Property development Property development Property development Property investment and development Inactive Property development Property investment and development The address of the registered office of all subsidiaries is the same as the parent company, with the exception of: Road Link Limited, Road Link (A69) Limited and Road Link (A69) Holdings Limited whose registered office is Stocksfield Hall, Stocksfield, Northumberland, NE43 7TN. Woodside Park Newlay Estate Management Company Limited, Fox Valley Management Company Limited and Victoria Gardens (Headingley) Management Company Limited whose registered office is 1 Featherbank Court, Horsforth, Leeds, LS18 4QF. Henry Boot Barnfield Limited whose registered office is 8 Kenyon Road, Lomeshaye Industrial Estate, Nelson, Lancashire, England, BB9 5SP. Kampus Holdings Sarl whose registered office is 2, rue Albert Borschette, L-1246 Luxembourg. Kirklees Henry Boot Partnership Limited whose registered office is Legal Services, 2nd Floor Civic Centre 3, Huddersfield, West Yorkshire, HD1 2WZ. Markey Colston Limited whose registered office is Q1 Quadrant Way, Hardwicke, Gloucester, GL2 2RN. 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 S S T T T N N N E E E M M M E E E T T T A A A T T T S S S L L L A A A C C C N N N A A A N N N F F F I I I I I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 153 Henry Boot AR2017 - Financials.indd 153 05/04/2018 16:58:28 25654.04 5 April 2018 4:53 PM Proof 16 154 Henry Boot AR2017 - Financials.indd 154 06/04/2018 12:53:04 25654.04 5 April 2018 5:38 PM Proof 16 SHAREHOLDER INFORMATION “ I am really enjoying my time at Banner Plant. They have given me the opportunity to develop and further my career” ADAM PASCALE Plant/Yard Maintenance Notice of Annual General Meeting Financial Calendar Advisers Group Contact Information Our Group Locations Glossary 156 161 161 162 163 164 Henry Boot AR2017 - Financials.indd 155 25654 5 April 2018 4:53 PM Shell 25654.04 5 April 2018 4:53 PM Proof 16 155 05/04/2018 16:58:31 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 24 May 2018 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 2017. Resolution 2 To declare a final dividend of 5.20p per ordinary share. Resolution 3 To approve the Directors’ Remuneration Report (other than the part containing the Directors’ Remuneration Policy) for the year ended 31 December 2017. Resolution 4 To approve the Directors’ Remuneration Policy contained in the Directors’ Remuneration Report for the year ended 31 December 2017. Resolution 5 To reappoint Jamie Boot as a Director of the Company. Resolution 6 To reappoint John Sutcliffe as a Director of the Company. Resolution 7 To reappoint Darren Littlewood as a Director of the Company. Resolution 8 To reappoint Joanne Lake as a Director of the Company. Resolution 9 To reappoint James Sykes as a Director of the Company. Resolution 10 To reappoint Peter Mawson as a Director of the Company. Resolution 11 To reappoint Gerald Jennings as a Director of the Company. Resolution 12 To reappoint PricewaterhouseCoopers LLP as auditors of the Company. Resolution 13 To authorise the Audit Committee to fix the auditors’ remuneration. 156 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 156 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 Resolution 14 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 £4,436,786, provided that (unless previously revoked, varied or renewed) this authority shall expire on 23 August 2019 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). Resolution 15 THAT the sum of not exceeding in aggregate £250,000 per annum (‘Original Sum’) set out in article 80 of the articles of association of the Company (‘Articles’) as payable to the Directors (other than any Director who for the time being holds an executive office or employment with the Company or a subsidiary of the Company) by way of remuneration for their services as Directors be and is increased to the sum of not exceeding in aggregate £350,000 per annum (and which such larger sum is treated as being in substitution in article 80 of the Articles for the Original Sum in all respects). To consider and if thought fit, pass the following resolutions, which will be proposed as special resolutions of the Company. Resolution 16 THAT subject to the passing of Resolution 14 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 14 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 £665,517, and (unless previously revoked, varied or renewed) this power shall expire on 23 August 2019 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). 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 157 Henry Boot AR2017 - Financials.indd 157 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 Notice of Annual General Meeting continued Resolution 17 THAT pursuant to Section 701 of the Companies Act 2006, the Company be and 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 13,310,358; 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 23 August 2019; 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 RUSSELL DEARDS Company Secretary 20 April 2018 HENRY BOOT PLC Registered Office: Banner Cross Hall Ecclesall Road South Sheffield United Kingdom S11 9PD Registered in England and Wales No. 160996 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 the close of business on 22 May 2018 (or, if the meeting is adjourned, at the close of business 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. 158 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 158 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 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 22 May 2018 (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.eproxyappointment.com. For an electronic proxy appointment to be valid, the appointment must be received by Computershare Investor Services PLC no later than 12.30pm on 22 May 2018 (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 22 May 2018 (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. 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. 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 159 Henry Boot AR2017 - Financials.indd 159 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 Notice of Annual General Meeting continued 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. 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 cosec-ir@henryboot.co.uk. No other methods of communication will be accepted. 15. As at 3 April 2018 (being the last practicable date before publication of this notice), the Company’s issued ordinary share capital was 133,103,587 ordinary shares, carrying one vote each and representing the total number of voting rights in the Company. 160 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 160 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 Financial Calendar London Stock Exchange Announcements Preliminary Statement of Results 2017: 23 March 2018 Interim Results 2018: 24 August 2018 Pre-close Trading Statement 2018: end January 2019 Annual Report and Financial Statements Annual Report and Financial Statements 2017 (Available and online): by 20 April 2018 Annual General Meeting 24 May 2018 Dividends Paid on Ordinary Shares 2017 Final dividend date (Subject to approval at AGM): 30 May 2018 2018 Interim dividend date (Subject to approval): 19 October 2018 Advisers Chartered Accountants and Statutory Auditors PricewaterhouseCoopers LLP Central Square 29 Wellington Street Leeds LS1 4DL 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 Financial PR Hudson Sandler LLP 29 Cloth Fair London EC1A 7NN Registrars Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE Solicitors – Corporate DLA Piper UK LLP 1 St Paul’s Place Sheffield S1 2JX Solicitors – Operational Irwin Mitchell LLP Riverside East House 2 Millsands Sheffield S3 8DT Stockbrokers Investec Bank plc 2 Gresham Street London EC2V 7QP 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 161 Henry Boot AR2017 - Financials.indd 161 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 Group Contact Information Land Promotion Hallam Land Management Limited Construction Henry Boot Construction Limited Registered office and Head office Banner Cross Hall, Ecclesall Road South, Sheffield S11 9PD Registered office Banner Cross Hall, Ecclesall Road South, Sheffield S11 9PD t: 0114 255 5444 e: info@hallamland.co.uk w: www.hallamland.co.uk Regional offices Bristol, Glasgow, Leeds, London, Manchester and Northampton Property Investment and Development Henry Boot Developments Limited Registered office and 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 Birmingham, Bristol, Glasgow, London and Manchester Stonebridge Homes Limited Registered office Banner Cross Hall, Ecclesall Road South, Sheffield S11 9PD 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 Head office Callywhite Lane, Dronfield, Derbyshire S18 2XN t: 01246 410111 e: hbc@henryboot.co.uk w: www.henrybootconstruction.co.uk Regional office Manchester Banner Plant Limited Registered office Banner Cross Hall, Ecclesall Road South, Sheffield S11 9PD 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, Leicester, Leeds, Rotherham and Wakefield Road Link (A69) Limited Registered office and Head office Stocksfield Hall, Stocksfield, Northumberland NE43 7TN t: 01661 842842 e: enquiries@roadlinka69.co.uk 162 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 162 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 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 nine regional offices and seven plant hire centres. Head Office Sheffield Offices Birmingham Bristol Dronfield Glasgow Leeds London Manchester Northampton Stocksfield Hire Centres Chesterfield Dronfield Derby Leeds Leicester Rotherham Wakefield 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 A C N A N F I I I N O T A M R O F N I R E D L O H E R A H S Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 163 Henry Boot AR2017 - Financials.indd 163 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 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. 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. 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 as adopted by the European Union. 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). 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. Renewable energy Energy which comes from natural resources, such as sunlight, wind, rain, tides, waves and geothermal heat, which are naturally replenished. 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. S106 Section 106 agreements (S106) are private agreements made between local authorities and developers. It can be attached to a planning permission to make acceptable development which would otherwise be unacceptable in planning terms. 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. 164 Henry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017 Henry Boot AR2017 - Financials.indd 164 05/04/2018 16:58:31 25654.04 5 April 2018 4:53 PM Proof 16 This Annual Report is printed by an FSC® (Forest Stewardship Council), certified printer using vegetable based inks. This report has been printed on Magno silk, a white coated paper and board using 100% EFC pulp. 25654 5 April 2018 5:41 PM Proof 16 25654 5 April 2018 5:41 PM Proof 16 25654 5 April 2018 5:41 PM Proof 1625654 5 April 2018 5:41 PM Proof 16www.henryboot.co.ukHenry Boot PLCRegistered office: Banner Cross Hall, Ecclesall Road South Sheffield, S11 9PD United KingdomRegistered in England and Wales no. 160996Tel: 0114 2555444Email: cosec-ir@henryboot.co.ukHenry Boot PLC Annual Report and Financial Statements for the year ended 31 December 2017

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