Spirit AeroSystems
Annual Report 2018

Plain-text annual report

Company Registration No. SC031286 (Scotland) Company £ SPRINGFIELD PROPERTIES PLC ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MAY 2018 SPRINGFIELD PROPERTIES PLC CONTENTS Page  Company Information ........................................................................................................................ 2  Financial Highlights ........................................................................................................................... 3  Chairman’s Statement ....................................................................................................................... 4  Chief Executive’s Statement .............................................................................................................. 7  Chief Financial Officer’s Review ...................................................................................................... 10  Strategic Report ............................................................................................................................... 11  Governance  Board of Directors ............................................................................................................................ 14  QCA Code Compliance ................................................................................................................... 15  Remuneration Committee Report .................................................................................................... 20  Audit Committee Report .................................................................................................................. 24  Directors’ Report .............................................................................................................................. 25  Statement of Directors’ Responsibilities .......................................................................................... 28  Independent Auditor’s Report .......................................................................................................... 29  Consolidated Profit and Loss Account ............................................................................................. 35  Consolidated Balance Sheet ........................................................................................................... 36  Company Balance Sheet ................................................................................................................. 36  Consolidated Statement of Changes in Equity ................................................................................ 37  Company Statement of Changes in Equity ...................................................................................... 38  Consolidated Statement of Cash Flows .......................................................................................... 40  Company Statement of Cash Flows ................................................................................................ 41  Notes to the Financial Statements ................................................................................................... 42 1 SPRINGFIELD PROPERTIES PLC COMPANY INFORMATION DIRECTORS: Mr Sandy Adam Mr Innes Smith Ms Michelle Motion Mr Roger Eddie (non-executive) Mr Matthew Benson (non-executive) Mr Nick Cooper (non-executive) (appointed 1 June 2018) SECRETARY: Mr Andrew Todd REGISTERED OFFICE: Alexander Fleming House 8 Southfield Drive ELGIN IV30 6GR COMPANY REGISTRATION NUMBER: SC031286 (Scotland) SOLICITORS: INDEPENDENT AUDITOR: NOMINATED ADVISER AND BROKER Kerr Stirling LLP 10 Albert Place STIRLING FK8 2QL Burness Paull LLP 50 Lothian Road Festival Square EDINBURGH EH3 9WJ Pinsent Masons LLP 141 Bothwell Street GLASGOW G2 7EQ Johnston Carmichael LLP Commerce House South Street ELGIN IV30 1JE Nplus1 Singer LLP 1 Bartholomew Lane London EC2N 2AX 2 SPRINGFIELD PROPERTIES PLC FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED 31 MAY 2018 Group Revenue Group Completions +27% 2018: £141m 2017: £111m +24% 2018: 770 homes 2017: 620 homes Group Adjusted PBT* +46% 2018: £9.8m 2017: £6.7m Private Homes Revenue +18% 2018: £102m 2017: £86m Affordable Homes Revenue +60% 2018: £37m 2017: £23m Group Revenue Gross profit Adjusted Operating profit* Adjusted profit before tax* Net debt 2017/18 £m 140.7 22.1 10.7 9.8 15.3 2016/17 £m 110.6 16.7 7.8 6.7 33.2 Change % +27.2 +32.3 +37.2 +46.3 -53.9 *Adjusted excludes exceptional items. Exceptional items are costs relating to acquisition of Dawn Homes and IPO costs relating to existing ordinary shares. STRATEGIC AND OPERATIONAL HIGHLIGHTS  Achieved growth across the business  Successful IPO    Total active sites increased by 64%  Sales start at Bertha Park Village, 3,000 homes £20m acquisition of Dawn Homes Increased land bank by 3,281 plots to 12,476 plots 3 SPRINGFIELD PROPERTIES PLC CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 31 MAY 2018 Overview In our first full year results since floating on AIM, I am pleased to report another year of strong growth across the business, significantly beating our initial market forecasts, with profit before tax up 46% to £9.8 million (before exceptional items) and revenue increasing 27% to £141 million driven by a 24% increase in completions. Springfield group of companies (the Group) has continued to invest significantly in its strong land bank to secure future growth. Our land bank now stands (including secured sites subject to planning) at 12,476 plots (2017- 9,195). As a result of the IPO, net debt has decreased from £33.2m to £15.3m, a reduction of £17.9m. Two significant events during the period underpin future growth. Firstly, we admitted to trading on AIM in October 2017, raising £25m from the placing of 23,584,906 shares priced at 106 pence, giving Springfield a market capitalisation of £87m. This was followed in May 2018 by the acquisition of Dawn Homes, for a consideration of up to £20m, supported by raising a further £15m from the placing of 12,500,000 shares at 120 pence on AIM from new and existing investors. Dawn Homes presented a good opportunity to acquire a well-run business with an excellent reputation and to accelerate growth with live sites in new areas and with a healthy land bank pipeline. Springfield operates through two market sectors, Private Housing and Affordable Housing. These two sectors deliver two distinct revenue streams spreading our market reach. Private Housing division is the largest division providing 72% of total revenue with the Affordable Housing division providing income and cash flow visibility from Government backed contracts. We believe the combination of these divisions is key to sustained long term growth. Private Housing Demand continues to outstrip supply for private housing with continuing upward pressure on prices across the Scottish regions in which we operate. Springfield’s private housing business has a strong reputation of delivering value for customers. Our “Choices” and “It’s Included” customer initiatives mean Springfield’s high-quality homes include more in the list price, and offer more opportunities for customers to style their new home. Customers receive a personalised after sales service from a dedicated in house team and developments are in good locations. Revenue in the Private Homes division rose 18% to £102m, (2017- £86m). Average sales price rose 12% to £221k, with 460 private house completions. Strategically we have focused on two areas. Firstly, we focus on seeking opportunities to immediately expand our sales presence and to strengthen our land bank. The £20m acquisition of Dawn Homes, in the final month of our financial year, extended our geographic reach bringing six live sites in new areas and adding 1,366 plots to our private land bank. With the live sites in full production we will see a strong positive impact on private house sales in 2018/19 demonstrating the merit of our strategy of geographic expansion. Looking to the future Dawn Homes has two new sites in the pipeline starting this year and with the support of the Group is positioned to grow. Dawn Homes is based in Glasgow, operates in the West of Scotland and sells approximately 100 private homes each year. The business is a ‘good fit’ for Springfield, employees are rightly proud of their product and the company shares Springfield’s core values of looking after customers and building high quality homes. The company is performing well and uniting Dawn with Springfield has been straightforward. 4 SPRINGFIELD PROPERTIES PLC CHAIRMAN’S STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 Of equal focus has been progressing Springfield Villages. These villages are standalone developments of 1,000 to 3,500 homes designed for greenfield sites by Springfield. Designs include all the infrastructure a community needs to thrive. We already build high quality, high specification homes. Now, with these extensive standalone zonings, we are designing high quality, high amenity new villages which are attractive to home buyers who want to be part of a community. We have a current pipeline of four villages secured in strong locations near fast-growing cities and towns. These four villages will deliver 10,000 homes and provide us with a firm base for the future. By designing an entire settlement we benefit from planning efficiencies as we control the full masterplan, from rising land values and from securing approximately 20 years of development with known land costs. To date two village developments are fully operational. One has full planning consent with construction due to start in late 2018 and one is awaiting planning consent, expected March 2019. Post year-end, land for a fifth village has been secured at Gavieside, Livingston. This 1,900 home site is near Glasgow and Edinburgh, and has very high demand for residential property. Affordable Housing Springfield has built a solid track record since we entered the affordable housing market building over 1,500 houses in the last five years. This part of the Group’s business has contracted revenues and requires low capital. The Scottish Government has allocated £3.2 billion to build 50,000 affordable homes over the course of this parliament. This is a large increase from the 30,000 target of the previous five-year period, 2011 - 2016. To meet the target another c25,000 homes must be built in Scotland by 2021. With Government policy underpinning the market it is our aim to increase the size of our affordable housing business. Revenue in the Affordable Homes division rose 60% to £37m, (2017- £23m). The average sales price is £120k, with affordable house completions of 310 homes. Over the years we have become a trusted partner of local authorities. We have sustained the trend for growth in the Affordable Housing division this year with 310 homes built, up from 183 in 2017/18, a 69% increase. Affordable Housing now forms 26% of our business (2017- 21%), in terms of total revenue. Dividend In line with the Group’s strong performance and our confidence in the outlook, I am pleased to inform shareholders that the Board is proposing a financial dividend of 2.7p per share subject to shareholder approval at the Annual General Meeting to be held on 25 October 2018. Taking into account the interim dividend of 1.00p per share already declared and paid, this equates to a total dividend of 3.70p per share. Outlook As we look to the future, I would like to thank those who have enabled us to reach this point. In particular, we would like to thank all of our 593 current staff for their hard work and dedication. We would like to welcome the Dawn Homes team, a strong addition who will ably develop our business in the West of Scotland. With further strengthening of Springfield’s foundations and the long-term growth drivers showing no sign of abating, we look forward to delivering further growth in 2018/19. In 2018/19 we will focus on: progressing the exciting work on our five villages; growing our affordable housing division; identifying the right opportunities to expand our sales presence and land bank; and maintaining customer satisfaction while maximising margins. We take very seriously the responsibility of developing new places for people to live and the opportunities this gives us as a business. We are motivated by the idea that we can contribute to making Scotland a better place to live. And the better job we make of designing and building these villages to be great places to live, the more demand there will be for the homes in them. 5 SPRINGFIELD PROPERTIES PLC CHAIRMAN’S STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 Growth brings challenge and change and we approach both with enthusiasm. The things that make Springfield successful - our focus on customers and quality - dominate our culture. They will go on making Springfield successful whatever the challenges. With all this in mind it’s an exciting future for Springfield and the Board is confident that Springfield is in a strong position to continue to grow revenue and profit. Sandy Adam Chairman 26 September 2018 6 SPRINGFIELD PROPERTIES PLC CHIEF EXECUTIVE’S STATEMENT FOR THE YEAR ENDED 31 MAY 2018 With another robust performance in 2017/18 Springfield continues to grow consistently at a rate which has seen the business double in size approximately every five years. KPIs We have achieved growth across our KPIs, revenue is up 27% to £141m driven by a strong sales performance, with completions up 24% to 770 homes, and a higher ASP in the year of £182.8k from £178.4k in 2016/17. Gross profit has increased by 32% (2017- 21%) and as a result of careful cash management, net debt has been reduced by 54% to £15.3m. The number of active sites has increased to 41 (31 May 2017 - 25 active sites) whilst 25 new sites were added to the pipeline during the period and 9 sites were completed. Overall, we have expanded, our land bank by 36% to 12,476 plots; the equivalent of 15 years at current sales rates. (31 May 2017 - 9,195 plots, 14 years). Private Housing The Group's Private Housing division offers homes, on sites of various size, across Central and Northern Scotland. Following the successful IPO, Springfield is increasingly focused on developing larger, standalone Village sites each with 1,000-3,500 plots and that include local amenities. Springfield homes are differentiated by their high quality specification and a wide variety of personalised finishes as part of Springfield’s "It's Included" and "Choices" initiatives. Private Housing has had a very strong year with higher than expected sales at a number of key sites, as a result revenue grew 18% to £102m (2017- £86m). Revenue growth has been underpinned by strong sales, completions have increased to 460 (2017- 437), and ASP of £221k, an increase of 12% (2016/17: £198k). Following the IPO Springfield has made good progress with the planning and development of the Villages. Dykes of Gray village near Dundee is becoming established with 108 homes occupied at 31 May 2018 including 52 completions during this year. With the potential for 1,500 homes, the village has become its own shop window with attractive village streetscapes and public areas. This type of development is attractive to other developers and post year-end we finalised a land swap of 62 plots at Dykes of Gray with another major housebuilder. The swap has delivered a development of 59 homes at Kinross, extending our geographic presence. Bertha Park, near Perth is, on a larger scale with around 3,000 homes and major community facilities planned. The infrastructure which makes Bertha Park a great place to buy a new home includes a high school opening in August 2019, primary schools, commercial and community buildings and extensive, attractive outdoor public and community spaces. With sales launched in late 2017 we expect the first homes to be occupied, and show homes to be operational, by 2018. During the year all the necessary approvals and legal agreements have been secured to allow construction to start in late 2018 on the first 870 of 2,500 homes at Linkwood Village, Elgin. During this year a planning application has been submitted for 3,002 homes at Durieshill near Stirling. We are working closely with Stirling Council and expect to receive consent by March 2019. Since the period end Springfield announced that land had been secured for a fifth village of 1,900 homes at Gavieside, near Livingston, where there is a very high demand for residential property and work has commenced on designing the masterplan. The Group commenced sales at The Wisp, a large development area in South East Edinburgh. During the year the group agreed to purchase a second tranche of land for 120 homes as part of its ongoing development at The Wisp, expanding its existing 80-home development to 200 homes. In the addition to progress at the villages, we have had strong sales completing a further 392 homes on 24 other private sites each at varying stages of completion. 7 SPRINGFIELD PROPERTIES PLC CHIEF EXECUTIVE’S STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 Springfield grew its active Private Housing sites to 23 (31 May 2017 - 17 active sites) and 10 new sites were added to the pipeline while four sites were completed. The total Private Housing land bank was expanded to 8,757 plots on 50 sites (31 May 2017 - 6,372 plots and 33 sites). During the year, Springfield secured planning consent for 812 private plots and submitted planning applications for 2,439 plots. As at 31 May 2018, 42% of the Group’s private plots had planning (31 May 2017 - 39%), with 28% of plots going through the planning process and 30% at the pre-planning stage. Affordable Housing Affordable home completions increased 69% to 310 from 183 in line with our aim to accelerate growth while there is strong government support for building affordable housing. Revenue from affordable homes increased by 60% from £23m in 2016/17 to £37m in 2017/18. During the period the affordable housing division completed sites, including a 202 homes development at Muirhouse Edinburgh and a 30 home specialist dementia unit in Elgin, with several other partial phased handovers through its 24 active sites in the year. Affordable Housing is a growing part of our business, 26% of revenue for 2017/18, up from 21% in 2016/17. With a growing reputation as a reliable partner for local authorities and housing associations across Scotland, a successful framework bid secured with the Local Authority for 10 developments over three years, 18 active sites and over 22 sites at the planning / pre-contract stage we expect this growth to continue. During 2017/18 we have secured land for 12 new affordable only developments, planning consent for 981 more affordable homes and contracts to build 257 affordable homes. We are focused on being prepared with land and planning consents as Scottish Government pushes to meet its targets and opportunities increase for local authorities to develop homes. Springfield completed the Linkwood View facility in Elgin that was specifically designed for the elderly. The development, created in partnership with Hanover Housing Association, is comprised of 30 wheelchair accessible apartments, with six of the self-contained flats being tailored to meet the needs of residents with dementia. Following the success of this development, Springfield is now in negotiations to build similar facilities in Central Scotland. At Springfield’s Affordable Housing development in Muirhouse, Edinburgh, located on the site of a former BT Training Centre, the Company handed over the final 28 homes of the 202- home development. This development has generated a total of £23.0m of revenue for Springfield over the 3 year duration of the project. Land and Planning One of our advantages lies in our dynamic management team always being on hand to make informed decisions quickly. This and the wealth of experience of our land and planning teams expedites the securing of good sites. The relationships our expert teams continue to develop with local authorities enable more effective navigation of the planning process and more efficient delivery of the valuable planning consents which enable us to extract maximum value from our land bank. Using these advantages, we have built a core competency in developing difficult sites; and we are becoming expert in securing large standalone land zonings which are steered capably through the planning system to bring homes to market as quickly as possible. During the year our land and planning teams secured 2,181 plots in 22 locations and received planning approval on 1,793 plots over 10 different developments Employees and Structure Our strong performance is made possible by the hard work of our 593 current dedicated employees and I extend my thanks and congratulations to each one of them. Future growth relies on a well skilled and growing workforce. We grow talent from within with formal and informal training and mentoring programmes, and we attract new talent with good working conditions and opportunities for career progression. As such 21% of our employees are apprentices or are undertaking formal training or further education. 8 SPRINGFIELD PROPERTIES PLC CHIEF EXECUTIVE’S STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 To enable employees to sustain growth we are implementing change within the management structure and post period have appointed two high calibre Managing Directors. One now heads up private housing in the North of Scotland and the other heads up private housing in Central Scotland. They have joined our newly formed Group Operating Board along with the Managing Director of our affordable homes business, the Managing Director of Dawn Homes and the Directors heading up corporate functions across the business. We believe this new structure will support sales growth and operational efficiencies as the business expands. Outlook We have started the new financial year with geographic expansion as our acquisition of Dawn Homes, which has provided Springfield with a significant foothold in Glasgow, begins contributing to our bottom line with 6 live sites and a healthy pipeline of land. As a group we expect to start work on 8 new sites across Scotland during the year. With our new management structure in place, demand continuing to outstrip supply, and ongoing support from Scottish Government for developing affordable housing, we are in a strong position to deliver our growth targets. Innes Smith CEO 26 September 2018 9 SPRINGFIELD PROPERTIES PLC CHIEF FINANCIAL OFFICER’S REVIEW FOR THE YEAR ENDED 31 MAY 2018 Group revenue for the year to 31 May 2018 was 27.2% higher than the previous year at £140.7m (2017 - £110.6m). This was based on increased revenue in both the Private Housing and Affordable Housing divisions, with an increase in completions as well as overall ASP to £182.8k (2017 - £178.4k) driven by improvements to sales mix and by market pressures. The Private Housing division continued to be the largest contributor to revenue, accounting for 72.4% of total revenue (2017 - 78.1%). Revenue Private Housing Affordable Other* TOTAL 2017/18 £’000 101,867 37,272 1,584 140,723 2016/17 £’000 86,367 23,250 972 110,589 Change +17.9% +60.3% +63.0% +27.2% *Principally construction-only projects, typically on land not owned or controlled by Springfield where the Company receives fees for its design and construction work. Gross profit for 2017/18 increased by 32.7% to £22.1m (2017- £16.7m), which reflects a consolidated gross margin improvement of 6 basis points to 15.7% (2017 - 15.1%). This was due to increased gross margin in the Affordable Housing division, which was 17.2% compared with 14.6% for 2016/17, while the gross margin in the Private Housing division was 15.2% (2017 - 15.4%). The strong improvement in the margin in the Affordable division was due to more efficient build processes and the start of new sites with higher margins. The slight softening in the margin in the Private Housing division was due to the accelerated completion of the sites that Springfield had acquired from Redrow in 2011 which had a lower margin than other sites. However, the Private Housing division continued to account for the majority of the gross profit at £15.5m with the Affordable Housing division generating £6.4m (2017 - £13.3m and £3.4m respectively). Total administrative expenses for 2017/18 were £12.2m compared with £8.9m for the prior year. This includes exceptional costs of £0.6m comprising £0.3m in IPO-related expenses and £0.3m in costs related to the acquisition of Dawn Homes. On an adjusted basis, to exclude these exceptional items, administrative expenses were £11.6m. The increase compared with the prior year reflects the Group’s investment in its future growth with the majority of the increase consisting of employee wages relating to the growth of the Group as well as reflecting the transition to becoming a public company. Profit before tax increased by 37.7% to £9.2m (2017 - £6.7m). On an adjusted basis, to exclude the £0.6m of exceptional items as described above, profit before tax increased by 46.1% to £9.8m. This increase in profit before tax was primarily due to the higher revenue and improvement in gross margin. There was also a slight reduction in finance costs relating to bank interest payments and a slight increase in interest receivable. The basic EPS for the year (excluding the exceptional items) increased by 17.4% to 10.78p compared with 9.18p for the prior year. The lower percentage increase compared with the increase in profit is due to the larger share capital of the Group in the later period as a result of the admission of shares pursuant to the Group’s IPO and subsequent fundraising conducted during the year. The return on capital employed (“ROCE”) for the year ended 31 May 2018 was 11.3% compared with 11.9% for the prior year. The reduction was due to the Dawn Homes acquisition in May 2018 reflecting only one month of earnings. Net debt at 31 May 2018 was £15.3m, which is a reduction of £17.9m compared with £33.2m at 31 May 2017. The reduction is primarily due to the reduction of bank loans through the receipt of the IPO proceeds of £25.0m and from the placing to raise £15.0m which was partly offset by the £15.5m cash payment for the acquisition of Dawn Homes. Michelle Motion CFO 26 September 2018 10 SPRINGFIELD PROPERTIES PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 MAY 2018 The Directors’ present their strategic report for the Group for the year ended 31 May 2018. REVIEW OF THE BUSINESS The principal business of the Group continued to be that of property development. The Chairman’s Statement on page 4 and the CEO’s Statement on page 7 detail activities and development of the business over the year. FINANCIAL AND BUSINESS HIGHLIGHTS Springfield achieved growth across all areas of the business. Financial and business highlights are detailed in the introduction to this report at page 3. KEY PERFORMANCE INDICATORS 2018 vs 2017 Financial Homes Revenue Gross profit margin Adjusted profit before tax* 2017/18 2016/17 Change 770 620 £140.7m £110.6m 15.7% £9.8m 15.1% £6.7m +24% +27% +6 bps +46% -54% Net debt £15.3m £33.2m +36% 12,476 plots Land Bank *Adjusted excludes exceptional items. Exceptional items are costs relating to acquisition of Dawn Homes and IPO costs relating to existing ordinary shares. 9,195 plots Personnel  Average number of employees up to 568 in May 2018 from 479 in May 2017  124 employees, 21% of the workforce in training / apprenticeships in May 2018, which is consistent with last year Environmental All homes are designed to perform above the latest environmental standards. Within the regulatory requirements when designing homes, we work to optimise the following: improving profitability, reducing environmental impact and minimising energy bills for customers. Affordable housing is also built to an environmental standard higher than the regulatory requirement reducing the environmental impact of our homes overall. 11 SPRINGFIELD PROPERTIES PLC STRATEGIC REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 Quality Management The Group is accredited to ISO 19011-2011 standard. During 2018 improvements actioned as a result of quality management was similar to 2017 at 266. KEY RISKS AND UNCERTAINTIES The principle risks and uncertainties identified and mitigated against include: market, credit, liquidity, price / sales, cash flow, resources, legal and regulatory, health and safety, land supply, planning and funding. Market, credit and liquidity risk are dealt with in Note 26 of the financial statements. Price / Sales Risk The risk of facing reduced demand in an area is mitigated by the following factors:  regular reviews of market conditions, product range, pricing and geographic spread to make sure the right homes are delivered in the right places at a profitable price;  customer service, quality of build and customer satisfaction are monitored to maintain reputation;  monitoring of changes in government housing policy, including by Innes Smith as an executive board member of homes for Scotland, allows forward planning to mitigate risks identified as result of changes in policy; and any reduction in mortgage availability or affordability in the private market is mitigated by growth of the affordable housing side of the business.  Cash Flow Risk Detailed budgeting and regular review of forecasts allows efficient management of future cash flows. Resources Risk The labour market is competitive and there is some upward pressure on building material prices. Strategies in place to maintain Springfield’s reputation as a good employer and ensure the appropriate supply of skills includes:    remuneration and reward review; annual training review for every employee; and a Board led culture of empowerment. Upward pressure on materials prices is being mitigated by:    actively seeking alternative suppliers and materials; standardising materials and products to add to buying power; and negotiating deals directly with manufacturers. Legal and Regulatory Risk The Group has an in house legal department which advises and supports the group with legal compliance. Health and Safety Risk There are health and safety risks inherent to construction. Health and safety is the first agenda item at every board meeting. The Group has an in house health and safety department which ensures overall compliance by:  monitoring health and safety standards across sites with regular visits;    taking action where required; initiating training; and introducing or updating applicable policies or procedures 12 SPRINGFIELD PROPERTIES PLC STRATEGIC REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 Land Supply Risk The risk of securing sufficient land is mitigated by a healthy and growing supply of land owned or secured by contract (15 years) in a spread of geographic locations which will appeal to our range of customers. Land is brought forward, through the planning system, in tranches considered by the Board to be sufficient to allow the Group to achieve its plans for growth. Planning Risk Delays in receiving planning consents could interrupt business. Planning is dealt with internally by expert planners who have good relationships with local authorities and who are supported by a full architectural and design team. The Board reviews the balance of land held at the various stages of planning to ensure the appropriate flow of consented land. Funding Risk The Group has bank facilities, securing funding until 2020 which have appropriate covenants and sufficient headroom in place. The Group and funders communicate regularly. FINANCIAL RISK MANAGEMENT OBJECTIVES Details of the Group’s financial risk management objectives are set out in Note 26 to these financial statements. FUTURE DEVELOPMENTS The future development of the Group is dealt with in the Chairman’s Statement. CHARITABLE DONATIONS AND COMMUNITY SUPPORT During the year the Group made payments of £17,793 (2017- £18,086) to local charities and £1,440 (2017- £2,572) to national charities. Springfield looks for opportunities to engage with the community in towns where we are building. We aim to help young people achieve more and to help those who are disadvantaged. Staff visit schools to support a variety of initiatives including careers information, mentoring, and charitable programmes. Mentoring programmes also see young people join us for work placements. We sponsor youth sports teams and some individual young athletes and we support the Duke of Edinburgh’s Award in Moray. On a wider scale, we support events that bring the community together. For the last six years, Springfield have been the headline sponsor of the European Pipe Band Championships which brings bands from across Europe to an event organised largely by the local community in Forres and attracts over 20,000 people. On behalf of the Board Sandy Adam Chairman 26 September 2018 13 SPRINGFIELD PROPERTIES PLC GOVERNANCE FOR THE YEAR ENDED 31 MAY 2018 BOARD OF DIRECTORS Sandy Adam, Chairman (Sits on Nomination Committee) Sandy is the grandson of the founder of Springfield and has worked for the Company since the 1980s. Sandy led the Company during its change from a market garden business into a housebuilder in 1988. Sandy has been Chairman of the Company since 2004 and has been the driver behind many of the Group’s key commercial decisions including the focus on affordable housing, the geographic expansion out of Elgin in 2010 and the acquisition of Redrow’s Scottish assets/operations in 2011. Sandy has over 25 years of experience in the Scottish housing and property markets, including his role as Chairman of Homes for Scotland between 2014 and 2015, and leads the Group’s land buying team. Innes Smith, Chief Executive Officer After graduating from Heriot Watt University in 1991, Innes qualified as a Chartered Accountant with KPMG before moving into industry as financial controller at SGL Technic, a subsidiary of RK Carbon Fibres (now called SGL Carbon Fibres Limited), a NASDAQ and Deutsche Börse listed company. Subsequently Innes was promoted to Finance Director at SGL Technic and after five years moved to Gael Force. Innes joined Springfield in 2005 as Finance Director and was appointed Chief Executive Officer at Springfield in October 2012 after seven years with the Company. In his role as Chief Executive Officer, Innes has grown the scale of the Group with annual revenue increasing from £53 million to £141 million and completions increasing from approximately 300 to over 700 per year. Innes was appointed to the Board of Homes for Scotland in 2016. Michelle Motion, Finance Director Michelle joined Springfield as a Finance Director in 2013. Michelle has over 20 years of experience within the property and construction industry, previously working for Morrison Developments Limited, a subsidiary of AWG plc, a FTSE 250 company, and the house building company Avant Group, previously known as Gladedale Group. Michelle graduated with a BA in Accounting and an MBA and is a qualified accountant from the Chartered Institute of Management Accountants. Roger Eddie, Non-executive Director (Chair of Remuneration and Nomination Committees, sits on Audit Committee,) Roger worked for the Bank of Scotland for 32 years, most recently as Director of the North of Scotland Real Estate Team. Roger sits on the Board of the Port of Cromarty Firth and of their Cruise Highland subsidiary. Roger joined Springfield as a non-executive Director on 13 November 2008. Matthew Benson, Non-executive Director (Chair of Audit Committee, sits on Remuneration and Nomination Committees) Matthew graduated from Oxford University and began his career with Morgan Stanley, working in international finance in London. Matthew then established his own consultancy business focused on the structuring and planning of high quality residential and leisure projects. Matthew joined Rettie & Co as a Director in 2002 with responsibility for land and development, new homes and rural projects. Matthew was appointed to the Board as a non-executive Director in 2011. Matthew has a number of other responsibilities including Member of the Advisory Board of Kleinwort Hambros private bank, Trustee of Project Scotland and Director of Edinburgh Arts Festival. Matthew was also the founding chair of bio-tech businesses EctoPharma Limited and Ryboquin Limited. Nick Cooper, Non-executive Director (Appointed 1 June 2018) Nick is a qualified solicitor with over 20 years’ board experience with UK-listed and private companies. From 2010 to 2015, he was Corporate Services Director at Cable & Wireless Communications plc, which he joined from Cable & Wireless plc, where from 2006 to 2010 he was General Counsel and Company Secretary. His previous in-house legal and corporate experience includes roles at Energis Communications Limited, JD Wetherspoon plc, The Sage Group plc and Asda Group plc. Nick is currently a Non-Executive Director of AIM-listed CPP Group plc and a number of private start-up companies. 14 SPRINGFIELD PROPERTIES PLC GOVERNANCE (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 QCA CODE COMPLIANCE 1. Strategy and Business Model Springfield Properties PLC is a housebuilder focused on developing a mix of private and affordable housing in Scotland. The Group operates through two divisions: private housing and affordable. The private housing division has historically developed small to medium-sized developments in Scotland, as well as a small number of larger sites – and is now focused on developing a higher proportion of larger village sites. The division’s model primarily focuses on sourcing land in areas with high growth potential and, subsequently, to progress developments through the planning process. The affordable division’s operations focus on the development of land into standalone sites that consist entirely of affordable homes. In addition to standalone developments, the affordable division develops affordable housing on the Group’s private developments under section 75 agreements, pursuant to which we typically agree with a local authority to contribute housing, money and/or infrastructure as a condition of planning permission. We have the in house skills to allow us to in develop difficult sites (often involving several land owners) that require considerable remediation works and/or significant investment in infrastructure prior to commencing development. Further details on our strategy and business model are discussed in the Chairman’s statement on pages 4- 6. 2. Understanding Shareholder Needs and Expectations The Board is committed to maintaining good relationships with shareholders. The Chairman is responsible for ensuring that appropriate channels of communication are established between the Executive Directors and Shareholders, ensuring shareholders’ views are shared with the board. Along with the opportunity to ask questions by email or telephone throughout the year, we conduct bi-annual investor presentations organised by our nominated advisor, N+1 Singer. The presentations provide us with a regular opportunity to understand the needs and expectations of Springfield’s shareholders. These roadshows are held in London and Edinburgh. Shareholder relations are also managed through regular regulatory announcements. We maintain a corporate website (https://www.springfield.co.uk/investor_relations). It contains a range of information required by AIM Rule 26 including our annual and half year reports, trading statements and all regulatory announcements. We also regularly distribute press releases to national and local press with news and updates on found at https://www.springfield.co.uk/news. the Group’s current projects. All press releases can be All shareholders are invited to attend Springfield’s annual general meeting (AGM). Details of the AGM are available to download from our corporate website. Voting at the AGM will be conducted by a poll and the results announced to the market and displayed on our website as soon as possible after the meeting. The Board recognises the AGM as an important opportunity to meet shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM. 3. Wider Stakeholder and Social responsibilities Everyone in Scotland deserves a good house. Through our private and affordable divisions, we aim to fulfil that promise. However, we cannot do that alone. We maintain strong relationships with all stakeholders including employees, customers, national & local government and local communities. 15 SPRINGFIELD PROPERTIES PLC GOVERNANCE (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 QCA CODE COMPLIANCE (CONTINUED) Employees (current): The Chairman and CEO meet bi-annually with all employees in departmental groups to hear employees’ needs, interests and expectations. During these discussions key achievements of the groups are discussed as well as future goals. Employees have the opportunity to ask questions and provide feedback. We are proud that many of our employees have chosen to remain with Springfield with the average length of service being 4.4 years. This loyalty is also reflected in the number of employees who have invested in our Save as You Earn Scheme (SAYE) to share in the success of our business. In November 2018 we wanted to offer employees the opportunity to invest in the future of Springfield and share in the success of our business through SAYE. Over 68% of employees joined the scheme. Employees (training & education): At April 2018 we supported 113 staff in further education, training and apprenticeships. This includes 96 apprenticeships. We have over 20% of our staff engaged with training or education. Employees (future): Springfield has a strong focus on education and training. We encourage student placement programmes and we have placed 11 university students in a variety of work experience roles over the past two years. As a direct result of these placements Springfield has offered full-time employment to 5 of the students who now work for us, or will do after completion of their degree. Customers: Customer views are sought via customer feedback forms mailed to them when they have been living in their new home for three months. Customers can provide feedback on the entire house purchase process with Springfield. National & local government: Our CEO is a Director of Homes for Scotland, the voice of the home building industry in Scotland, representing some 200 companies and organisations which together deliver 95% of new homes built for sale each year and a significant proportion of affordable housing. Through Homes for Scotland we engage with the Scottish Government, local government and utility companies. Any direct contact with the Scottish Government is also governed by the Lobbying (Scotland) Act 2016 and we comply with all requirements of that Act. Communities: For individual projects, we work with local communities as part of the planning process. Any new development that has more than 50 units or covers two hectares requires us to hold a community consultation. This event allows members of the local community to gather information on the proposed development, ask questions and provide their feedback on the proposals. We take these comments on board when taking the development forward. Alongside the planning process, we support the communities in which we build. This can involve sponsorships, running or sponsoring local events, fundraising for local charities and providing talks at local schools. More directly, our affordable division helps local authorities and housing associations provide much needed new affordable homes to meet the current national shortfall. We provide housing of all tenures and are particularly proud of the specialist care facilities we provide specifically for the elderly. For example, in partnership with Hanover Housing Association, we built a 30-apartment care facility in just over a year. Named Linkwood View by local nursery children, staff from Hanover welcomed the first residents in September 2017. The development has been awarded Social Housing Development of the Year by Premier Guarantee. 4. Embedding Risk Management Springfield operates processes to identify, measure, manage and monitor those risks which impact the Group’s business. The focus of our risk management framework is to ensure we are managed in a sustainable and controlled way within our risk tolerance. Material risks and control matters are reported to the Board via regular reports from the Group’s senior executive team who in turn meet on a regular basis with risk and control issues being discussed at those meetings. 16 SPRINGFIELD PROPERTIES PLC GOVERNANCE (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 QCA CODE COMPLIANCE (CONTINUED) Given the environment in which it operates the Board has focus and attention on Health and Safety issues. It receives a personal report from the CEO on health and safety matters at each meeting and meets regularly with the Group’s director for health & safety so that it can discuss any matters directly with him. The Board also maintains a system of internal controls to safeguard shareholders’ investment and assets and for reviewing its effectiveness. The Board reviews the effectiveness of the Group's system of internal controls on an ongoing basis. Annual budgets are prepared and detailed management reports are presented to the Board and used to monitor financial performance and compliance with the Group’s policies and procedures. All controls are covered including financial and operational controls to manage risk. The board meetings are also used to consider the Group’s major risks. All potential areas of financial risk are regularly monitored and reviewed by directors and management. Any preventative or corrective measures are taken as necessary. 5. Maintaining a Well-Functioning Board The skills and experience of the Board are set out in their biographical details on page 14. All directors receive regular and timely information the Group’s operational and financial performance. Relevant information is circulated to the directors in advance of meetings. As Springfield has developed, the composition of the board has been under constant review to ensure that it remains appropriate to the managerial requirements of the Group. As such the Board identified that an additional Non-Executive Director would be highly beneficial to the Board, accordingly Nick Cooper was appointed to the Board on 1 June 2018 following a thorough assessment of potential candidates’ skills and suitability for the role. The board consider Nick Copper and Matthew Benson to be independent directors for the purpose of the Corporate Governance Code. From 13 November 2018 Roger Eddie will have completed ten years' service as a Director. Having considered his independence in the context of the Corporate Governance Code, the Board is also satisfied that Mr Eddie will remain independent from 13 November 2018, notwithstanding his length of service. Andrew Todd, as Company Secretary, attends all board and committee meetings. Andrew is a solicitor qualified in Scotland and ensures board meetings and committee are conducted in accordance with all relevant legal and regulatory requirements. One third of the directors retire annually in rotation in accordance with Springfield's articles of association. This enables the shareholders to decide on the election of the Board. 6. Director Skills and Capabilities As mentioned under principle 5, all directors and their professional experiences, are set out on page 14. The skills, experience and knowledge of each director gives them the ability to constructively challenge strategy and decision making and scrutinise performance. All directors are offered appropriate coaching and training to develop their knowledge and ensure they remain up to date in relevant matters for which they have responsibility as a member of the Board. In 2017-18 the Board received training from Luther Pendragon, N+1 Singer and Pinsent Masons. It receives regular updates from its advisors. All six members of the board bring relevant sector experience through their extensive and varied careers throughout the housing, financial, consulting and legal sectors. The board believes that its members possess the required qualities and skills necessary to effectively oversee and execute the Group’s strategy. 7. Evaluation of Board Performance The Board intends to conduct an evaluation of its own performance and that of its principal committees during 2018-19. The effectiveness of the Board and its committees will be kept under review in accordance with corporate governance best practice. Springfield’s board currently does not have a formal review process, rather its effectiveness is assessed in an informal manner by the Chairman on an on-going basis. During the year 2018/19, the board will formalise a self-evaluation process, selecting criteria against which it will consider the quality of its performance, as well as specifying the frequency of such evaluations. Further information will be included on the next Annual Report, as well as published on the website. 17 SPRINGFIELD PROPERTIES PLC GOVERNANCE (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 QCA CODE COMPLIANCE (CONTINUED) 8. Corporate Culture The Board believes that everyone deserves to live in a good house. This mean that there is a need for housing for every member of every community in Scotland and Springfield aims to address this need by providing high quality homes for private sale to first time buyers and those already on the housing ladder and providing affordable homes through its partnership arm which works with housing associations and local authorities. Where possible we also address the requirements of the elderly and those with special needs. An example of this is a flatted development specifically for the elderly in Elgin in partnership with Hanover Housing Association. The facility consists of 30 wheelchair accessible apartments six of which are tailored for residents with dementia. Dedication to customers is at the heart of the Springfield culture. We offer our customers wide choice of options on design, fixtures and fittings through our online “Choices” initiative and we build trust through our “It’s Included” promise and our after sales service. Customer satisfaction statistics are an integral part of how we manage our business and incentivise our key people. Our CEO presents our customer satisfaction statistics at each board meeting. Springfield has received a number of awards for its customer services and for the sites it produces, including: 2017 PREMIER GUARANTEE AWARDS Social Housing Development of the Year - Linkwood View, Elgin 2016 PREMIER GUARANTEE AWARDS Large Development of the Year - Duncansfield, Elgin Site Manager of the Year - Victor Grant 2016 HOMES FOR SCOTLAND AWARDS Private Development of the Year - Medium - Middleton of Canmore, Braemar 2015 HOMES FOR SCOTLAND AWARDS HOME BUILDER OF THE YEAR 2015 Employee of the Year - Heather Henderson; Best Customer Service Initiative 2nd year in a row - It's Included; Best Small Development - Powderhall Gate The Board believes that high levels of customer service are only deliverable by talented and engaged employees. With strong local roots in the North of Scotland many of our employees joined the business in its early stages of development and have remained with us as we’ve grown and most recently become a public group listed on AIM. Ten of the original fourteen Springfield employees are still with the Group today - eight in promoted positions. As a result we benefit from the loyalty and commitment of employees who have played a major part in building the business and in many cases have taken the opportunity to share in its success via our SAYE Scheme. The Board works hard to promote the same levels of loyalty and engagement in its new recruits throughout Scotland. Now that Springfield is listed on AIM there is a need to recruit professionals in key areas across the business. To support our objectives and to maintain a high level of professionalism and customer service the Board’s policy is that ‘the best person for the job’ is recruited to support the existing professionals in its in house teams of planning, engineering, marketing, design, finance, legal and governance and health and safety. Taken together the Board are committed to the development of Springfield whilst at the same time preserving the culture and ethos which has resulted in the Group's growth to date. 18 SPRINGFIELD PROPERTIES PLC GOVERNANCE (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 QCA CODE COMPLIANCE (CONTINUED) 9. Maintaining Good Governance As an AIM listed group, the Board recognises the importance of applying sound governance principles in the successful running of the Group. We embrace the principles contained in the QCA Corporate Governance Code (QCA Code) for Small and Mid-Size Quoted Companies where appropriate. We are also mindful of the changes to the governance requirements for AIM listed companies. Given the size and nature of Springfield and composition of the Board we, in so far as is practical and appropriate, formally adopt and adhere to the QCA Code and will report accordingly in our next annual report from 28 September 2018. Springfield operates processes to identify, measure, manage and monitor risks within acceptable limits identified by the Board which impact the Group’s business. Further details on our approach to risk are set out in response to principle 4 above. Springfield reviews its governance structures regularly. In June 2018, Springfield appointed a third Non- Executive Director which provides a balance between executive and non-executive directors on the Corporate Board. We have also taken the decision to appoint two Managing Directors – one for the North of Scotland projects and one for the central belt of Scotland projects. The Board as a whole takes responsibility for ensuring the Company maintains appropriate corporate governance practices, in addition the Chairman and CEO take responsibility for obtaining feedback from key stakeholders. 10. Communicating Governance and Performance We have set out how communication with investors and key stakeholders is maintained in relation to principles 2 and 3 above and shared via our website (more details of which are set out under principle 2). Please see the reports produced by the remuneration committee and audit committee. Andrew Todd Company Secretary 26 September 2018 19 SPRINGFIELD PROPERTIES PLC REMUNERATION COMMITTEE REPORT Introduction This report outlines the Group’s remuneration policy for its directors and shows how that policy was applied during the financial year ending on 31 May 2018. Springfield is not required to comply with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. This report has been prepared on a voluntary basis and in order to fulfil the relevant requirements of AIM Rule 19. Committee Members and Meetings In the period following the Group’s admission to trading on AIM on 16 October 2017, the Remuneration Committee comprised:  Roger Eddie (Chairman); and  Matthew Benson. Both the above individuals are independent non-executive directors who have no personal financial interest (other than as shareholders) in the matters decided. its terms of Under the Group’s website at www.springfield.co.uk/investor_relations), the Remuneration Committee is required to meet at least three times a year. (a copy of which is available on reference Committee Responsibilities The main responsibilities of the Remuneration Committee are: -  set the overall remuneration policy for the Group’s executive directors (and certain other senior employees); and  within the terms of that policy, determine the terms and conditions of employment of those individuals and the level of their remuneration (including short-term and long-term incentives). The remuneration of the non-executive directors is determined by the Board as a whole within limits set out in Springfield’s articles of association. The non-executive directors do not participate in performance related bonus or share based incentive arrangements. Remuneration Policy for Executive Directors The overarching aim of the Group’s remuneration policy is to attract and retain the highest calibre individuals as executive directors and ensure they are appropriately and fairly rewarded for performance in a manner that is both as straightforward as possible and appropriate for Springfield’s size and stage of development. During the financial year to 31 May 2018, the overall remuneration package for executive directors consisted of the following elements: -  Basic Salary;  Annual Bonus;  Pension Contributions;   Opportunity to participate in an “all employee” SAYE share option scheme; and  Other standard benefits. Long Term Incentive Plan; Further disclosures in relation to each of the above elements are provided below. 20 SPRINGFIELD PROPERTIES PLC REMUNERATION COMMITTEE REPORT (CONTINUED) Basic Salaries Each executive director receives a base salary, the level of which reflects the particular individual’s experience and performance, the nature and complexity of their work and the market in which the Group operates. As at 31 May 2018, the annual rates of base salaries for the executive directors were:-  Sandy Adam - £75,000  Innes Smith - £167,000 and  Michelle Motion - £120,000 The Committee reviews the executive directors’ salaries annually, with any increases taking effect on 1 June each year. Whilst normally the Committee would expect any such salary rises to be broadly in line with those applied to the wider workforce, it is anticipated that, in the initial period following admission to AIM, the executive directors’ salaries will be increased at a slightly higher rate to ensure that they ultimately reach a level that is competitive when compared to other similarly sized organisations in the Group’s sector. It is expected that this process will be completed during the course of the next two financial years. Annual Bonus Under the Group’s annual bonus scheme for executive directors, individuals have the opportunity to receive a cash award that is linked to the achievement of specified targets that are aligned to the Group’s corporate plan for the period in question. For each year of the scheme’s operation, the Committee specifies a maximum opportunity (as a percentage of salary) for each participant. For the financial year to 31 May 2018, the maximum bonus opportunity for Innes Smith and Michelle Motion was 75% of salary and the measures used to determine the amount of their individual awards included a mixture of targets relating to profit before tax, return on capital employed and (in the case of Innes Smith) customer care and health and safety. Each measure was ascribed its own weighting, with a sliding scale of achievement (between threshold and maximum) then being used to determine the level of award actually paid. Where performance was below threshold for any particular measure, no bonus was payable in respect of that element. Sandy Adam did not participate in the annual bonus scheme for the financial year to 31 May 2018. Pensions During the year, the Group made contributions to pension plans for the executive directors. These contributions were at a rate of 5% of basic salary in respect of Sandy Adam, and at the rate of 10% of basic salary in respect of both Innes Smith and Michelle Motion. Long Term Incentive Plan Discretionary long term incentives are provided through the operation of the following arrangements that were first introduced in October 2017 as part of the process surrounding the Group’s admission to AIM:  The Springfield Properties PLC Company Share Option Plan (the “CSOP”), which allows tax advantaged options to be granted over the Company’s shares to selected employees of the Group (including executive directors); and  The Springfield Properties PLC Employee Share Option Plan (the “ESOP”) which enables non-tax advantaged options to be granted to the same category of individuals. Options granted under the CSOP and ESOP generally vest after three years. The price per share payable on their exercise will normally be equal to the market value of a share on the date they were originally granted. Details of the grants made to Innes Smith and Michelle Motion under the CSOP and ESOP during the financial year to 31 May 2018 are set out on page 23. Given the size of his existing shareholding in the Group, Sandy Adam does not currently participate in either of these arrangements. 21 SPRINGFIELD PROPERTIES PLC REMUNERATION COMMITTEE REPORT (CONTINUED) Save As You Earn (“SAYE”) At the same time as establishing the CSOP and ESOP, the Group also adopted the Springfield Properties PLC SAYE Option Scheme (the “SAYE Scheme”). Under this tax advantaged arrangement, all employees (including executive directors) can be invited to apply for the grant of options over the Group’s shares that are linked to a three-year savings contract. The price per share payable on the exercise of these options is set by the Board at the date invitations are issued, but cannot be less than 80% of the market value of a share on that date. Details of the grants made under the SAYE Scheme to Innes Smith and Michelle Motion during the financial year to 31 May 2018 are set out on page 23. For the same reason stated above in relation to the CSOP and ESOP, Sandy Adam does not currently participate in the SAYE Scheme. Remuneration in the Year During the year to 31 May 2018, the directors received the following remuneration: Basic salary/fees Annual Bonus Taxable benefits Pension contributions 2018 Total 2017 Total £000 £000 £000 £000 £000 £000 Executive Directors Sandy Adam Innes Smith Michelle Motion Non-Executive Directors Matthew Benson Roger Eddie 51 157 111 24 21 - 94 119 - - 364 213 8 8 8 - - 24 2 16 11 - - 61 275 249 24 21 19 146 125 15 6 29 630 311 The annual bonus for Michelle Motion includes £66,449 that relates to pre-float bonus. The taxable benefits figure in the above table for each of the executive directors relates to a range of benefits provided by the Group including a car allowance and life and health assurance. The bonus figure includes accrued bonus for the year to 31 May 2018 payable in September 2018 and March 2019. Nick Cooper was appointed 1 June 2018. The above table does not include the value of share options held by the Directors, details of which are set out below. 22 SPRINGFIELD PROPERTIES PLC REMUNERATION COMMITTEE REPORT (CONTINUED) Share Options Details of options over the Group’s shares granted to executive directors under the CSOP, ESOP and SAYE Scheme during the year to 31 May 2018 are as follows: Director Earliest exercise date and date of Scheme Date of grant vesting Exercise price Number of shares Innes Smith CSOP 16 October 2017 16 October 2020 106p 28,301 ESOP 16 October 2017 16 October 2020 106p 208,019 SAYE 8 November 2017 1 December 2020 84.8p 21,226 Michelle Motion CSOP 16 October 2017 16 October 2020 106p 28,301 ESOP 16 October 2017 16 October 2020 106p 84,906 SAYE 8 November 2017 1 December 2020 84.8p 21,226 None of the above options are subject to performance conditions. During the year to 31 May 2018, no share options held by executive directors lapsed or were exercised. Directors’ Interests in the Group’s Shares Directors’ interests in the Group’s shares are disclosed in the Directors’ Report (page 25). 23 SPRINGFIELD PROPERTIES PLC AUDIT COMMITTEE REPORT The Audit Committee comprises Matthew Benson (Chairman) and Roger Eddie. The Audit Committee meets at least twice a year. The Committee  monitors the integrity of the financial statements;   reviews the internal controls and risk management systems; and oversees the relationship with the external Auditor Since 1 June 2017, the Audit Committee has met twice to consider the planning of the statutory audit and to review the Group’s draft half year and full year results prior to Board approval and to consider the external auditor’s detailed reports. 24 SPRINGFIELD PROPERTIES PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MAY 2018 The directors present their annual report and the audited financial statements of the Group for the year ended 31 May 2018. PRINCIPAL ACTIVITY AND BUSINESS REVIEW The Group is no longer required to include the Principal Activity and Review of the Business within the Directors’ Report. This information is now included within the Strategic Report above, as part of the ‘Review of the Business’ under the Amendment to the Companies Act 2006 of s.414C(2a). DIRECTORS The Board comprised the following directors who served throughout the year and up to the date of this report: Name Position Mr Sandy Adam Mr Innes Smith Ms Michelle Motion Mr Roger Eddie Mr Matthew Benson Mr Nick Cooper Mrs Anne Adam Mr James Adam Mr Robert MacLeod Mr Ewan MacLeod Mr Thomas Leggeat Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Non-Executive Director Non-Executive Director – Appointed (1 June 2018) Director – Resigned (15 September 2017) Director – Resigned (15 September 2017) Civils Director – Resigned (15 September 2017) Commercial Director – Resigned (15 September 2017) Partnerships Director – Resigned (15 September 2017) RESULTS AND DIVIDENDS The results for the year are set out on page 35. Interim ordinary dividends were paid amounting to £821k (2017 - £2.3m) equating to 1.00p (2017 – 4.00p) per share. The Board is proposing a final dividend of 2.70p per share subject to shareholder approval at the next Annual General Meeting to be held on 26 October 2018. Taking into account the interim dividend of 1.00p (2017 – 4.00p) per share already declared and paid, this equates to a total dividend of 3.70p (2017 - 4.00p) per share. During the year, the nominal value of shares was split from 1p to 0.125p. The weighted average number of ordinary shares in issue for 2017 has been recalculated based on this split. This has resulted in the dividend per share decreasing from 32.00p to 4.00p. EMPLOYEE CONSULTATION The Group’s policy is to consult and discuss with employees’ representatives matters likely to affect their interests. On entering AIM, employees were given the opportunity to enter a Save as Your Earn share option scheme. The scheme allows employees to save up £500 per month over a period of 3 years at the end of which they can use their savings to purchase shares in the Group. The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on various factors affecting the performance of the Group. 25 SPRINGFIELD PROPERTIES PLC DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 DISABLED PERSONS The Group’s policy is to recruit disabled workers for those vacancies they are able to fill. All necessary assistance with initial training courses is given. Once employed, a career plan is developed so as to ensure suitable opportunities for each disabled person. Arrangements are made, wherever possible, for retraining employees who become disabled, to enable them to perform work identified as appropriate to their aptitude and abilities. EQUAL OPPORTUNITIES This is achieved through formal and informal meetings. Equal opportunities are given to all employees regardless of their gender, marital status, sexual orientation, disability, age, race, and religion or belief. POST YEAR END EVENTS There are no post year end events to report. GOING CONCERN The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and the Directors are satisfied that the Group will generate sufficient cash to meet its liabilities as and when they fall due for a period of 12 months from signing these financial statements. The Directors therefore consider it appropriate to adopt the going concern basis in preparing the financial statements. Further details regarding the adoption of the going concern basis can be found in Note 2.4 of the financial statements. DISCLOSURE OF INFORMATION TO THE AUDITOR In the case of each of the persons who are directors of the Group at the date when this report is approved: • • so far as each director is aware, there is no relevant audit information of which the Group’s auditor is unaware; and each of the directors has taken all steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. BOARD OF DIRECTORS The Group supports the concept of an effective Board of Directors leading and controlling the Group. The Board of directors is responsible for approving Group policy and strategy. It meets regularly and has a schedule of matters specifically reserved to it for decision. All directors have access to advice from independent professionals at the Group's expense. Training is available for new and existing directors as necessary. Biographical details are set out on page 14. INTERNAL CONTROL The Directors acknowledge that they are responsible for the Group's system of internal control and for reviewing the effectiveness of these systems. The risk management process and systems of internal control are designed to manage rather than eliminate the risk of the Group failing to achieve its strategic objectives. It should be recognised that such systems can only provide reasonable and not absolute assurance against material misstatement or loss. The Group has well established procedures which are considered adequate given the size of the business. 26 SPRINGFIELD PROPERTIES PLC DIRECTORS’ REPORT (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 AUDITOR The Board as a whole considers the appointment of the external auditor and their independence, specifically including the nature and scope of non-audit services provided. REMUNERATION The remuneration of the Directors has been fixed by the Board as a whole. The Board seeks to provide appropriate reward for the skill and time commitment required so as to retain the right calibre of director at a cost to the Group which reflects current market rates. Details of Directors’ fees and of payments made for professional services rendered are set out in the Remuneration Report on page 20. DIRECTORS’ INTERESTS IN SHARES Name of director Sandy Adam - Direct - Indirect Innes Smith - Direct - Indirect Roger Eddie Michelle Motion Matthew Benson Number of ordinary shares % of ordinary share capital and voting rights 24,900,000 18,880,872 1,158,009 33,019 47,170 43,849 28,302 45,091,221 25.8% 19.6% 1.2% 0.0% 0.1% 0.1% 0.0% 46.8% FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Details of the Group’s financial risk management objectives and policies are set out in Note 26 to these financial statements. STRATEGIC REPORT The Group has chosen in accordance with the Companies Act 2006, s.414C(11) to set out in the Group’s Strategic Report information required by Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the Directors’ Report. It has done so in respect of future developments. On behalf of the Board Sandy Adam Chairman 26 September 2018 27 SPRINGFIELD PROPERTIES PLC STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Strategic Report, Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law the directors have elected to prepare group financial statements in accordance with International Financial Reporting Standards (“IFRS” as adopted by the European Union (“EU”)) and have also elected to prepare the parent company financial statements in accordance with IFRS as adopted by the EU. Company law requires that the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the parent group and profit or loss of the group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • • state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s 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 comply with the Companies Act 2006. They 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 corporate and financial information included on the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Sandy Adam Chairman 26 September 2018 28 SPRINGFIELD PROPERTIES PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SPRINGFIELD PROPERTIES PLC Opinion We have audited the financial statements of Springfield Properties PLC (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 31 May 2018 which comprise the Consolidated Profit and Loss Account, the Consolidated Balance Sheet, the Company Balance Sheet, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows and the related notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion:    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 May 2018, and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of Companies Act 2006; and  have been prepared in accordance with the requirements of the Companies Act 2006. Basis of opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusion relating to Going Concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:   the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Directors’ have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. 29 SPRINGFIELD PROPERTIES PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SPRINGFIELD PROPERTIES PLC (CONTINUED) Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our 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) we identified, 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 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. Key audit matter How our audit addressed the key audit matter Risk of incorrect recognition of revenue The Group has recorded revenue in the year of £140.7m and is a key metric of business performance. to estimates of Recognition of revenue on affordable housebuilding construction contracts is linked contractual performance as activity progresses which is judgemental, albeit such estimates of performance are certified by or agreed with the housing association customer. inherently the Private housebuilding sales involve less inherent judgements as any recognition of any income is deferred until contract completion although timing of recognition of property sales around the require management year-end judgements the significant risks and rewards of ownership had the customer and therefore in which period revenue should be recognised. in determining when transferred can to For a sample of affordable housing contracts, we agreed that the sales value recognised to date was in line with surveyor reports as certified by or agreed with the housing association customer, and that these had been correctly recognised in the reported revenue figure. For private house sales we were able to agree, for a sample of plots that had incurred costs in the year that the house was either sold and included in reported revenue or was still under construction and included within work-in-progress. Where the house was included in reported revenue, we obtained copies of the sales pack and confirmed the date the missives were settled and the amount of consideration for the sale was accurately recognised in the sales ledger. Substantive testing regarding sales in the final week of the year and first week of the following accounting year was also undertaken to confirm that all private house sales were recognised in the appropriate accounting period. No issues were noted in the above testing. 30 SPRINGFIELD PROPERTIES PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SPRINGFIELD PROPERTIES PLC (CONTINUED) Key audit matter Construction housebuilding sites profit recognition contracts and private The Group has reported a gross profit of £22.1m. Gross profit is largely a function of margins recognised on both construction contracts and private housebuilding sites. The company prepares Cost Valuation Reports (“CVRs”) for each site which form estimated site margins and which provide the basis for margin recognition as activity progresses at each site. The inherent estimates involved in this process present a risk of incorrect profit recognition. Management override of controls in the construction Inherent industry, which requires some key judgements to be exercised, is the need for a level of management oversight over the systematic recording of transactions. Ensuring that this judgement is applied to improve the quality and accuracy of financial reporting is a key audit risk as there is potential for undue management bias to be exercised in this process. How our audit addressed the key audit matter We undertook a review of previous year estimates against current year actual (for completed sites) or latest current year estimates for ongoing sites based on the latest CVRs. In any cases where there was a significant change in estimated margin we obtained management’s supporting reasons and corroborated that changes in estimated margins in were as a circumstances, such as market selling prices, thus leading to a difference in margin recognition over the remainder of the site and were not indicative of previous estimation errors. result of specific changes We also reviewed CVRs prepared after the financial year-end for any significant differences in estimated margin relative to the year-end position. We reviewed latest CVR site forecasts to ensure that all loss making contracts had been provided for in full. Upon completion of this testing we are satisfied that margins have been recognised on a consistent and appropriate basis. Using data analytical tools, we undertook a review of all journal entry activity during the period to identify any activity that met certain risk-criteria pre- determined by us as auditor. Where such analysis highlighted activity outwith initial expectation, this was reviewed and followed up with management and supporting corroboration was obtained. In limited cases, journal activity review identified management estimates which were subject to separate audit verification and assessment based on supporting management explanations and subsequent corroboration. No issues were noted with this testing. 31 SPRINGFIELD PROPERTIES PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SPRINGFIELD PROPERTIES PLC (CONTINUED) Our application of materiality The scope of our audit was influenced by the application of materiality. We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. 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. Materiality was determined as follows: Group £315,000 Parent company £310,000 We determined that 5% of profit before tax of the Group was an appropriate measure trading for a profit-oriented business. However we restricted our materiality to a level commensurate with the comparative period profit, as agreed with that the Audit Committee, so expected improvements in current year profitability would not impact on the extent of testing undertaken. We determined that 5% of profit before tax of the company was an appropriate measure for a profit- oriented trading business. However we restricted our materiality to a level commensurate with the comparative period profit, as agreed with the Audit expected Committee, improvements year in profitability would not impact on the extent of testing undertaken. current that so 75% of financial statement materiality. 75% of financial statement materiality. Materiality Measure Financial statements as a whole (Overall materiality) Performance materiality used to drive the extent of testing Communication of to misstatements the Directors £6,300 (2% of overall materiality) and any misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £6,200 (2% of overall materiality) and that any misstatements threshold that, in our view, warrant reporting on qualitative grounds. below We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. An overview of 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. As in all audits, we also considered the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. 32 SPRINGFIELD PROPERTIES PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SPRINGFIELD PROPERTIES PLC (CONTINUED) Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion 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 such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in 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 in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit:   the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of our knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:   adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or   we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 28, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors 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. 33 SPRINGFIELD PROPERTIES PLC INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF SPRINGFIELD PROPERTIES PLC (CONTINUED) Auditor’s 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 auditor’s 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 Financial Reporting Council’s website at http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. David McBain (Senior Statutory Auditor) For and on behalf of Johnston Carmichael LLP Chartered Accountants Statutory Auditor 26 September 2018 Commerce House South Street Elgin IV30 1JE 34 SPRINGFIELD PROPERTIES PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MAY 2018 Notes 4 2018 Pre – Exceptional Items £000 Exceptional Items £000 2018 Post – Exceptional Items £000 2017 £000 140,723 (118,580) 22,143 - - - 140,723 110,589 (118,580) (93,905) 22,143 16,684 10 (11,625) (558) (12,183) (8,945) 5 8 9 21 126 10,665 147 (1,039) 9,773 (1,854) - - 21 126 - 93 (558) 10,107 7,832 - - (558) - 147 4 (1,039) (1,145) 9,215 6,691 (1,854) (1,278) 7,919 (558) 7,361 5,413 Revenue Cost of sales Gross profit Administrative expenses Share of post-tax profit of joint venture Other operating income Operating profit/(loss) Interest receivable and similar income Finance costs Profit before tax/(loss) Tax Profit for the year and total comprehensive income Profit for the year and total comprehensive income is attributable to: -Owners of the parent company -Non-controlling interests 7,911 8 7,919 (558) 7,353 5,359 - 8 54 (558) 7,361 5,413 10.78p (0.76)p 10.02p 9.18p 10.75p (0.76)p 9.99p 9.18p Earnings per share Basic earnings, on profit for the year (pence per share) Diluted earnings, on profit for the year (pence per share) 10 12 The Group has no items of other comprehensive income. 35 SPRINGFIELD PROPERTIES PLC The accompanying notes on pages 42 to 75 form an integral part of these financial statements. CONSOLIDATED BALANCE SHEET AS AT 31 MAY 2018 Non-current assets Property, plant and equipment Intangible assets Investments Accounts receivable Current assets Inventories and work in progress Accounts receivable Cash and cash equivalents Total assets Current liabilities Accounts payable Short-term obligations under finance lease Corporation tax Non-current liabilities Long-term borrowings Long-term obligations under finance lease Provisions Total liabilities Net assets Equity Share capital Share premium Retained earnings Equity attributable to owners of the parent company Non-controlling interests Note 13 14 15 17 16 17 24 18 21 20 21 22 23 23 2018 £000 4,492 600 1,018 870 6,980 105,630 19,104 12,015 136,749 2017 £000 2,803 - - 488 3,291 81,800 6,447 8,335 96,582 143,729 99,873 33,910 1,020 1,139 36,069 25,000 1,254 2,394 28,648 64,717 25,050 500 874 26,424 40,429 588 45 41,062 67,486 79,012 32,387 120 50,105 28,767 78,992 20 79,012 73 10,285 22,017 32,375 12 32,387 These financial statements were approved by the Board of Directors on 26 September 2018 Mr Sandy Adam Chairman Company number: SC031286 The accompanying notes on pages 42 to 75 form an integral part of these financial statements. 36 SPRINGFIELD PROPERTIES PLC COMPANY BALANCE SHEET AS AT 31 MAY 2018 Non-current assets Property, plant and equipment Intangible assets Investments Accounts receivable Current assets Inventories and work in progress Accounts receivable Cash and cash equivalents Total assets Current liabilities Accounts payable Short-term obligations under finance lease Corporation tax Non-current liabilities Long-term borrowings Long-term obligations under finance lease Provision Total liabilities Net assets Equity Share capital Share premium Retained earnings Total equity Note 13 14 15 17 16 17 24 18 21 20 21 22 23 23 2018 £000 2,892 600 19,627 135 23,254 76,212 17,835 8,505 102,552 125,806 28,360 555 866 29,781 15,000 676 2,054 17,730 47,511 2017 £000 1,717 - 42 488 2,247 81,800 6,585 8,324 96,709 98,956 25,040 222 767 26,029 40,429 336 38 40,803 66,832 78,295 32,124 120 50,105 28,070 73 10,285 21,766 78,295 32,124 As permitted s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £6,906,949 (2017 - £5,108,803). These financial statements were approved by the Board of Directors on 26 September 2018 Mr Sandy Adam Chairman Company number: SC031286 The accompanying notes on pages 42 to 75 form an integral part of these financial statements. 37 SPRINGFIELD PROPERTIES PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MAY 2018 Share capital Share premium Retained earnings Notes £000 £000 £000 Non- controlling interest £000 Total £000 29,245 108 5,413 18,995 - 5,359 - - 54 - (42) (42) (2,337) 22,017 - 7,353 218 (821) - 12 - 8 - - 20 (2,337) 32,387 39,867 7,361 218 (821) 79,012 73 - - - - 73 47 - - 10,177 108 - - - 10,285 39,820 - - - 120 50,105 28,767 1 June 2016 Share issue Total comprehensive income for the year Acquisition of minority interest Dividends 31 May 2017 Share issue Total comprehensive income for the year Share option reserves Dividends 31 May 2018 23 11 23 The share capital account records the nominal value of shares issued. The share premium account records the amount above the nominal value received for shares sold, less transaction costs. Retained earnings represents accumulated profits less losses, and distributions. Retained earnings also includes share option reserves. The accompanying notes on pages 42 to 75 form an integral part of these financial statements. 38 SPRINGFIELD PROPERTIES PLC COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MAY 2018 Share capital £000 Share premium £000 Retained earnings £000 Notes 1 June 2016 Issue of share capital Total comprehensive income for the year Dividends 31 May 2017 Issue of share capital Total comprehensive income for the year Share options reserves Dividends 31 May 2018 23 11 23 73 - - - 73 47 - - - 10,177 108 - - 10,285 39,820 - - - 18,995 - 5,108 (2,337) 21,766 - 6,907 218 (821) 120 50,105 28,070 78,295 Total £000 29,245 108 5,108 (2,337) 32,124 39,867 6,907 218 (821) The share capital account records the nominal value of shares issued. The share premium account records the amount above the nominal value received for shares sold, less transaction costs. Retained earnings represents accumulated profits less losses and distributions. Retained earnings also includes share option reserves. The accompanying notes on pages 42 to 75 form an integral part of these financial statements. 39 SPRINGFIELD PROPERTIES PLC CONSOLIDATED STATEMENT OF CASH FLOWS Note 10 14 15 YEAR TO 31 MAY 2018 Operating activities Profit for the year after taxation Adjusted for: Taxation charged Finance costs Interest receivable and similar income Exceptional items Gain on disposal of tangible fixed assets Share option employment costs Share of joint venture profit Depreciation and impairment of tangible fixed assets Operating cash flows before movements in working capital Decrease/(Increase) in inventory Increase in accounts and other receivables Increase in accounts and other payables Net cash generated from operations Income taxes paid Net cash inflow from operating activities Investing activities Payments to acquire intangible assets Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Net purchase of subsidiary company Interest received and similar income Net cash used in investing activities Financing activities Proceeds from issue of shares Cost from issue of shares Proceeds from bank loans Repayment of bank loans Proceeds paid to related parties Proceeds from other borrowings Repayment of other borrowings Payment of finance leases obligations Dividends paid Interest paid Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 24 2018 £000 7,919 1,854 1,039 (147) (558) (45) 218 (21) 1,088 11,347 6,230 (7,314) 4,166 14,430 (1,714) 12,716 (600) (752) 62 (14,719) 19 (15,990) 42,180 (2,312) - (22,500) (4,647) - (2,929) (849) (821) (1,168) 6,954 3,680 8,335 12,015 The accompanying notes on pages 42 to 75 form an integral part of these financial statements. 2017 £000 5,413 1,278 1,145 (4) - (146) - - 772 8,458 (7,963) (2,345) 5,000 3,150 (1,126) 2,024 - (843) 526 (42) 4 (355) 108 - 10,000 - - 1,375 (453) (460) (2,337) (1,145) 7,088 8,757 (422) 8,335 40 SPRINGFIELD PROPERTIES PLC COMPANY STATEMENT OF CASH FLOWS YEAR TO 31 MAY 2018 Operating activities Profit for the year after taxation Adjusted for: Taxation charged Finance costs Interest receivable and similar income Gain on disposal of tangible fixed assets Exceptional items 10 Depreciation and impairment of tangible fixed assets Share option employment costs Operating cash flows before movements in working capital Decrease /(increase) in inventory Increase in accounts and other receivables Increase in accounts and other payables Net cash generated from operations Income taxes paid Net cash inflow from operating activities Investing activities Payments to acquire intangible assets Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Purchase of subsidiary company Interest received and similar income Net cash used in investing activities 14 15 Financing activities Proceeds from issue of shares Cost from issue of shares Proceeds from bank loans Repayment of bank loans Proceeds from other borrowings Repayment of other borrowings Proceeds paid to related parties Payment of finance leases obligations Dividends paid Interest paid Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 24 2018 £000 2017 £000 7,465 5,108 1,727 973 (147) - (558) 544 218 10,222 5,999 (6,636) 3,516 13,101 (1,612) 11,489 (600) (659) 1 (17,585) 19 (18,824) 42,180 (2,312) - (22,500) - (2,929) (4,647) (388) (821) (1,067) 7,516 181 8,324 8,505 1,164 1,101 (4) (20) - 296 - 7,645 (7,963) (2,483) 5,546 2,745 (1,126) 1,619 - (625) 323 (42) 4 (340) 108 - 10,000 - 1,375 (453) (106) (2,337) (1,120) 7,467 8,746 (422) 8,324 41 The accompanying notes on pages 42 to 75 form an integral part of these financial statements. SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MAY 2018 1. Organisation and trading activities Springfield Properties PLC is incorporated and domiciled in Scotland as a public limited company and operates from its registered office in Alexander Fleming House, 8 Southfield Drive, Elgin, IV30 6GR. The Group consists of Springfield Properties PLC and its subsidiaries Glassgreen Hire Limited and DHomes 2014 Holdings Limited. The Group also includes Dawn Homes Limited, Dawn (Robroyston) Limited, DHPL Limited and Dawn Homes (Johnstone) Limited who are subsidiaries of DHomes 2014 Limited and its jointly owned entity DHHG 1 Limited. 2. Summary of significant accounting policies The principal accounting policies adopted and applied in the preparation of the financial statements are set out below. These have been consistently applied to all the years presented unless otherwise stated. 2.1. Basis of accounting The financial statements of Springfield Properties PLC have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union (“EU”) applied in accordance with the provisions of the Companies Act 2006. The Group has adopted all the standards and amendments to existing standards which are mandatory for accounting periods beginning on 1 June 2017. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. At 31 May 2018 the following new and revised IFRSs relevant to the Group are issued but are not yet effective: IFRS 9 Financial Instruments IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases Effective date 1 January 2018 1 January 2018 1 January 2019    IFRS 9 will impact both the measurement and disclosures of financial instruments. The Group have assessed the impact of the revisions on the group’s and company’s results and financial position and have concluded there will not be a material impact to the financial statements. IFRS 15 ‘Revenue from Contracts with Customers’. It is expected that this standard will result in some changes for construction companies, however, our preliminary assessment is that there will not be a material impact to the financial statements. IFRS 16 'Leases'. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a 'right of use asset' for virtually all lease contracts. This is effective for the period beginning on 1 June 2019, with earlier adoption permitted if IFRS 15 'Revenue from contracts with customers' is also applied. The group has not yet assessed the full effect of this standard. Of the other IFRSs and IFRICs, none are expected to have a material effect on the financial statements. The financial statements have been prepared under the historical cost convention. 42 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 2. Summary of significant accounting policies (continued) 2.2. Basis of consolidation The consolidated financial statements incorporate those of Springfield Properties PLC and its subsidiaries (ie entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits) and jointly controlled entities. Springfield Properties PLC and Glassgreen Hire Limited’s financial statements are made up to 31 May 2018. All other subsidiaries and jointly associated entity’s financial statements are made up to 31 January 2018. The consolidated accounts for the Group include the assets, liabilities and result of the Company and subsidiaries in which Springfield Properties PLC have controlling interest, using accounts drawn up to 31 May except where entities do not have coterminous year ends. In such cases, the information is based on the accounting period of these entities and is adjusted for material changes up to 31 May. Accordingly, the information consolidated is deemed to cover the same period for all entities throughout the Group. The jointly owned entity is accounted for using the equity method. All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. 2.3. Functional and presentation currencies The financial statements are presented in Pound Sterling (£), rounded to the nearest £000, which is also the currency of the primary economic environment in which the group operates (its functional currency). 2.4. Going concern Any consideration of the foreseeable future involves making a judgement, at a particular point in time, about future events which are inherently uncertain. At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements. 2.5. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable net of VAT and trade discounts. Private house sales Revenue on private house sales is recognised when the significant risks and rewards of ownership have been transferred to the purchaser which will normally occur at handover / legal completion. Revenue is recognised at the fair value of the consideration received or receivable on legal completion. 43 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 2. Summary of significant accounting policies (continued) 2.6. Revenue recognition (continued) Construction contracts Revenue from construction contracts is generated from affordable housing contracts and is recognised based on the measured value of work completed as construction progresses. The measured value of work is based on certified valuations which consider the stage of completion of contracts. Contract expenses are recognised as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognised immediately in the profit and loss account. Revenues derived from variations on contracts are recognised only when they have been accepted by the customer. Where the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as expenses in the period in which they are incurred and contract revenue is recognised to the extent of contract costs incurred where it is probable that they will be recoverable. 2.7. Employee benefits The costs of short-term employee benefits are recognised as a liability and an expense in the period in which the services are received, unless those costs are required to be recognised as part of the cost of stock. The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received. Termination benefits are recognised immediately as an expense when the group is demonstrably committed to terminate the employment of an employee or to provide termination benefits. 2.8. Retirement benefits Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. 2.9. Borrowing costs Borrowing costs relating to qualifying assets are capitalised. All other borrowing costs are recognised as an expense in the profit and loss account as they are incurred. 2.10. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date. 44 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 2. Summary of significant accounting policies (continued) 2.11. Taxation (continued) Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax is not recognised on temporary differences arising from the initial recognition of goodwill or other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax is measured on a non-discounted basis using the tax rates and laws that have then been enacted or substantively enacted by the balance sheet date. The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the 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 profit and loss account, 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 liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority. Deferred tax has been recognised on the fair value adjustment of the investment in Dawn Homes. 2.12. Exceptional Items Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the profit and loss account to enable a full understanding of the Company’s financial performance. Transactions that may give rise to exceptional items include transactions relating to acquisitions and costs relating to changes in share capital structure. 2.13. Property, plant and equipment Tangible fixed assets are initially measured at cost and subsequently measured at cost net of depreciation and any impairment losses. Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives on the following bases: Buildings - 2% and 5% straight line Plant and machinery - 20% and 25% straight line Fixtures, fittings & equipment - 20% and 25% straight line Motor vehicles - 20% and 25% straight line Land is not depreciated. The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to the profit and loss account. 2.14. Intangible Fixed Assets Intangible assets comprise of market related assets (e.g. trademarks, imprints & brands). Market-related assets are expected to have an infinite useful life, however, impairment reviews are performed annually. Any impairment losses or reversals of impairment losses are recognised immediately in the profit and loss account. 45 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 2. Summary of significant accounting policies (continued) 2.15. Fixed asset investments Interests in subsidiaries and jointly owned entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in the profit and loss account. Costs associated with the acquisition of subsidiaries and jointly owned entities are recognised in the profit and loss account as an exceptional item. Jointly owned entities are accounted using the equity method of accounting. The Group’s investment includes the share of profit/losses. A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. Entities in which the group has a long term interest and shared control under a contractual arrangement are classified as jointly controlled entities 2.16. Impairment of fixed assets At each reporting end date, the group reviews the carrying amounts of its tangible fixed assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value-in-use. Any impairment loss and reversal of losses are recognised in the profit and loss account. 2.17. Inventory Property, including land held under development, acquired or being constructed for sale in the ordinary course of business, rather than to be held for rental or capital appreciation, is held as stock and is measured at the lower of cost and net realisable value. Cost comprises of the invoiced value of the goods purchased and includes attributable direct costs, labour and production overheads. Net realisable value is the estimated selling price in the ordinary course of the business, based on market prices at the reporting date and discounted for the time value of money if material, less estimated costs of completion and the estimated costs necessary to make the sale. Any excess of the carrying amount of stocks over its net realisable value is recognised as an impairment loss in the profit and loss account. At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in the income profit and loss account. Where sites are ‘secured’ via option agreements, these sites are only included as stock when the agreement becomes unconditional. Options included as part of stock are stated at the lower of cost and net realisable value. 46 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 2. Summary of significant accounting policies (continued) 2.18. Construction contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the measured valuation of work of the contract activity at the reporting end date. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. When it is probable that total contract costs will exceed contract turnover, the expected loss is recognised as an expense immediately. Where the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as expenses in the period in which they are incurred and contract revenue is recognised to the extent of the contract costs incurred where it is probable that they will be recovered. The “percentage of completion method” is used to determine the appropriate amount to recognise in a given period. The stage of completion is measured by the proportion of contract costs incurred for work performed to date compared to the estimated total contract costs. 2.19. Financial instruments Financial instruments are recognised in the balance sheet when the group becomes party to the contractual provisions of the instrument. Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. Loans and receivables The group’s financial assets fall into loans and receivables category. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets included in loans and receivables are recognised initially at cost. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method, less any impairment losses. Loans outside the group are valued at amortised cost and discounted at 6%. The discount is being spread over the development the loan is financing. Impairment of financial assets Financial assets are assessed for indicators of impairment at each reporting date. A provision for impairment is made when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. Impaired debts are derecognised when they are assessed as uncollectible. Derecognition of financial assets Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party. 47 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 2. Summary of significant accounting policies (continued) 2.19. Financial instruments (continued) Financial liabilities All of the group’s financial liabilities other than trade payables which are measured at historic cost fall into the other financial liabilities category. Other financial liabilities Other non-derivative financial liabilities are initially measured at historical cost less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the net carrying amount on initial recognition. Derecognition of other financial liabilities Financial liabilities are derecognised when the group’s contractual obligations expire or are discharged or cancelled. 2.20. Provision Deferred consideration payment is valued based on the probability-weighted average of the economic outflow of payment. An annual review will be performed on the deferred consideration. 2.21. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities. 2.22. Dividends Dividends are recognised as liabilities in the period in which the dividends are approved and once they are no longer at the discretion of the company. 2.23. Leases A lease is classified at the inception date as a finance lease or an operating lease. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases. Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and the reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the profit and loss account. Operating lease payments, including any lease incentives received, are recognised in the profit and loss account on a straight-line basis over the term of the lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. 48 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 2. Summary of significant accounting policies (continued) 2.24. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of a group after deducting all of its liabilities. Equity instruments issued by the group are recorded at the proceeds received net of direct issue costs. Share capital represents the amount subscribed for shares at nominal value. The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Any bonus issues are also deducted from share premium. Retained earnings include all current and prior period results as disclosed in the profit and loss account. 2.25. Share-based payments Equity-settled share-based payments are measured at fair value at the date of grant and recognised as an expense over the vesting period. The amount recognised as an expense is adjusted for leavers to the scheme. Fair value is measured by use of a relevant pricing model. 3. Critical accounting estimates and judgements in applying accounting policies In the application of the group’s accounting policies the directors are required to make judgements, estimates and assumptions which affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. The estimates and associated assumptions are based on historical experience, expectations of future events and other factors that are believed to be reasonable under the circumstances. Actual results in the future could differ from such estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are: 3.1. Work in progress measurement on construction contracts The group undertakes construction contracts which takes place over a period of time and revenues and profits are recognised as the group performs under these contracts. The total work in progress value of £105,629,820 (2017 - £81,799,683) is impacted by the estimates involved in the construction contracts in relation to costs to complete and therefore expected profit margin. 3.2. Work in progress measurement on private house sales The recognition of costs expensed against properties sold at sites remaining under construction requires estimation of costs to complete at these sites. These estimates impact the total work in progress value recognised of £105,629,820 (2017 - £81,799,683). The group regularly reviews these estimates to ensure they reflect the latest known position. 49 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 4. Segmental Reporting A segment is a distinguishable component of the Group’s activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group’s chief operational decision makers to make decisions about the allocation of resources and assessment of performance and about which discrete financial information is available. In identifying its operating segments, management generally follows the Group’s service line which represent the main products and services provided by the Group. The Directors believe that the Group operates in 2 segments:  Private  Affordable As the Group operates solely in the United Kingdom segment reporting by geographical region is not required. Revenue Private residential properties Affordable housing Other Total Revenue Private residential properties Affordable housing Other Gross Profit Administrative expenses Operating Income Profit after tax from JV Finance income Finance expenses Exceptional items Profit before tax Taxation Profit for the period 2018 £000 101,867 37,272 1,584 140,723 15,508 6,403 232 22,143 (11,625) 126 21 147 (1,039) (558) 9,215 (1,854) 7,361 5. Operating profit Operating profit is stated after charging / (crediting): Depreciation of owned tangible fixed assets Depreciation of tangible fixed assets held under finance leases Gain on disposal of tangible fixed assets Cost of inventories recognised as an expense Exceptional items Operating lease charges Notes 10 2018 £000 470 618 (45) 118,580 558 284 2017 £000 86,367 23,250 972 110,589 13,301 3,385 (2) 16,684 (8,945) 93 - 4 (1,145) - 6,691 (1,278) 5,413 2017 £000 300 472 (146) 93,905 - 274 50 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 6. Auditor’s remuneration Fees payable to the group’s auditor for the audit of the group and company annual accounts Fees payable to the group’s auditor for the audit of the company’s subsidiaries Fees payable to the group auditor and their associates for other services to the group and company: - Other non-audit services 2018 £000 2017 £000 44 36 6 6 77 127 4 46 7. Staff costs The average monthly number of employees (including executive directors) for the continuing operations was: Building staff Administrative staff Wages and salaries Share based payments Social security costs Pension costs Directors’ remuneration 2018 368 200 2017 336 143 568 479 2018 £000 18,126 218 1,701 574 2017 £000 15,887 - 1,496 417 20,619 17,800 Full details of the directors’ remuneration, for current directors, is provided in the audited part of the Directors’ Remuneration Report on page 20. Directors’ remuneration for all directors who resigned during the year were: June to October 2017 Remuneration for qualifying services Company pension contributions to defined contribution schemes 2018 £000 87 14 2017 £000 368 19 101 387 51 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 7. Staff costs (continued) The group operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund. The charge to the profit and loss in respect of defined contribution schemes was £574k (2017 - £417k). Contributions totalling £109k (2017 - £74k) were payable to the fund at the year-end and are included in creditors. 8. Finance costs Interest on bank overdrafts and loans Interest on hire purchase contracts Other interest 9. Taxation Current tax UK corporation tax on profits for the current period Adjustments in respect of prior periods Deferred tax Origination and reversal of timing differences Adjustments in respect of prior periods Effect of changes in tax rates 2018 £000 908 95 36 1,039 2018 £000 1,872 (27) 1,845 23 (14) - 9 1,854 2017 £000 915 53 177 1,145 2017 £000 1,337 (46) 1,291 (4) - (9) (13) 1,278 52 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 9. Taxation (Continued) The charge for the year can be reconciled to the profit per the income statement as follows: Profit before tax Tax at the UK corporation tax rate of 19% (2017- 19.83%) Effects of: Tax effect of expenses that are not deductible in determining taxable profit Exceptional allowances – no deductions Adjustments in respect of prior years Depreciation on assets not qualifying for tax allowances Deferred tax adjustments in respect of prior years Land remediation relief Adjust deferred tax to closing average rate Tax charge for period 10. Exceptional Items Acquisition and other transaction related costs (1) Existing share capital conversion to AIM (2) 2018 £000 9,215 1,751 31 106 (27) 4 (14) (6) 9 2017 £000 6,691 1,327 19 - (46) (2) - (12) (8) 1,854 1,278 2018 £000 255 303 558 2017 £000 - - - (1) (2) Acquisition and other transactions related costs relate to the costs incurred relating to the work undertake for the acquisition of DHomes 2014 Holdings Limited and its subsidiaries and jointly owned companies. Existing share capital conversion to AIM relates to costs incurred relating to the work undertaken for the Initial Public Ordering (IPO) for existing ordinary shares. 11. Dividends Total dividend payment 2018 £000 821 As restated 2017 £000 2,337 Weighted average number of ordinary shares in issue 82,083,642 58,423,264 Dividend per share (pence per share) 1.00 4.00 During the year, the nominal value of shares was split from 1p to 0.125p. The weighted average number of ordinary shares in issue for 2017 has been recalculated based on this split. This has resulted in the dividend per share decreasing from 32.02p to 4.00p. 53 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 12. Earnings per share The basic earnings per share is based on the profit for the year divided by the weighted average number of shares in issue during the year. The weighted average number of ordinary shares for the year ended 31 May 2018 assumes that all shares have been included in the computation based on the weighted average number of days since issue. The weighted average is calculated by adjusting for all outstanding share options that are potentially dilutive (i.e. where the exercise price is less than the average market price of the shares during the year). Profit for the year attributable to owners of the Company Adjusted for the impact of exceptional costs in the year Normalised earnings 2018 £000 7,353 558 7,911 As restated 2017 £000 5,359 - 5,359 Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential shares: share option Weighted average number of ordinary shares for the purpose of diluted earnings per share 73,412,651 58,403,264 201,061 - 73,613,712 58,403,264 Earnings per ordinary shares Basic earnings per share (pence per share) Diluted earnings per share (pence per share) Underlying earnings per ordinary shares (1) Basic earnings per share (pence per share) Diluted earnings per share (pence per share) 10.02 9.99 10.78 10.75 9.18 9.18 9.18 9.18 (1) Underlying earnings is presented as an additional performance measure and is stated before exceptional items. During the year, the nominal value of shares was split from 1p to 0.125p. The weighted average number of ordinary shares in issue for 2017 has been recalculated based on this split. This has resulted in the basic and diluted earnings per share decreasing from 73.42p to 9.18p. 54 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 13. Property, plant and equipment Group Cost At 1 June 2016 Additions Disposals At 31 May 2017 Acquisition of Subsidiary Additions Disposals Land and buildings £000 Plant and machinery £000 Fixtures, fittings & equipment £000 Motor vehicle £000 658 342 (325) 675 - 6 - 3,243 1,350 (340) 4,253 1 2,507 (175) 602 10 (19) 593 - 211 (4) 792 39 (81) 750 7 61 (116) Total £000 5,295 1,741 (765) 6,271 8 2,785 (295) At 31 May 2018 681 6,586 800 702 8,769 Accumulated depreciation At 1 June 2017 Depreciation charge Disposal At 31 May 2017 Depreciation charge Disposals At 31 May 2018 Net book value At 31 May 2018 At 31 May 2017 At 31 May 2016 47 12 (26) 33 19 - 52 629 642 611 2,016 601 (290) 2,327 831 (166) 2,992 3,594 1,926 1,227 590 6 (19) 577 104 (3) 678 122 16 12 428 3,081 153 (50) 531 134 (110) 555 147 219 364 772 (385) 3,468 1,088 (279) 4,277 4,492 2,803 2,214 The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts: Net book value: Plant and machinery Motor vehicles 2018 £000 2,691 2017 £000 1,133 90 104 2,781 1,237 Total depreciation charge 618 472 Fixed assets with the carrying value of £2,781k (2017 - £1,237k) are pledged as security. 55 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 13. Property, plant and equipment (continued) Company Cost At 1 June 2016 Additions Disposals At 31 May 2017 Additions Disposals At 31 May 2018 Accumulated depreciation At 1 June 2016 Depreciation charge Disposals At 1 June 2017 Depreciation charge Disposals At 31 May 2018 Net book value At 31 May 2018 At 31 May 2017 At 31 May 2016 Land and buildings £000 Plant and machinery £000 Fixtures, fittings & equipment £000 Motor vehicles £000 Total £000 658 342 (325) 675 6 - 681 47 12 (26) 33 19 - 52 629 642 611 3,243 739 (2,030) 1,952 1,503 - 3,455 2,016 277 (1,400) 893 421 - 1,314 2,141 1,059 1,227 602 10 (19) 593 211 (4) 800 590 6 (19) 577 104 (3) 678 122 16 12 792 5,295 - 1,091 (792) - (3,166) 3,220 - - - 1,720 (4) 4,936 428 3,081 - 295 (428) - (1,873) 1,503 - - - - - 544 (3) 2,044 2,892 1,717 364 2,214 The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts: Net book value: Plant and machinery Total depreciation charge 2018 £000 1,500 1,500 324 2017 £000 639 639 85 56 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 14. Intangible fixed assets Group and Company Marketing-related assets Cost At 1 June 2017 Additions Disposals At 31 May 2018 Amortisation and impairment At 1 June 2017 Impairment Disposals At 31 May 2018 Net book value At 31 May 2018 At 31 May 2017 £000 - 600 - 600 - - - - 600 - Marketing-related assets comprises of brand name and licences which have been measured at cost. Market-related assets are expected to have an infinite useful life. 15. Fixed assets investment Cost Loans to joint ventures Investment in joint ventures (company: joint ventures and subsidiaries) Group 2018 Company 2017 £000 £000 £000 £000 764 254 1,018 - - - - 19,627 19,627 - 42 42 On 2 May 2018, the company acquired the entire share capital of DHomes 2014 Limited and its subsidiaries and joint ventures, Dawn Homes Limited, Dawn (Robroyston) Limited, DHPL Limited, Dawn Homes (Johnstone) Limited and DHHG 1 Limited for an initial consideration of £17,585,000. The consideration consisted of £15,485,000 in cash and £2,100,000 in the form of ordinary share capital. The purchase agreement also includes a deferred consideration payment of £2,500,000, of which £2,000,000 has been accounted for in the additions for the year. See note 22 Provisions contingent liabilities for further details. The costs relating to the acquisition is included within the profit and loss accounts as an exceptional item (note 10) which is in line with the accounting policy for fixed assets investments. 57 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 15. Fixed assets investment (continued) Dawn Homes was purchased as it was a good opportunity to acquire a well-run business with an excellent reputation and to accelerate growth with live sites in new areas and with a healthy land bank pipeline. Dawn Homes has contributed revenue of £2.6m and profit before tax of £0.3m from the acquisition date of 2 May 2018 to 31 May 2018. If the acquisition of Dawn Homes has taken place at 1 June 2017 then the Group would have produced a combined revenue of £161.0m and profit after exceptional items and before tax of £11.0m. Movement in fixed asset investment Group Cost At 1 June 2017 Additions Share of profit after tax At 31 May 2018 Company Cost At 1 June 2016 Additions At 1 June 2017 Additions At 31 May 2018 Investment in joint venture £000 Loans to joint venture Total £000 £000 - 236 18 254 - 761 3 764 Share in group undertakings £000 - 42 42 - 997 21 1,018 Total £000 - 42 42 19,585 19,585 19,627 19,627 58 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 15. Fixed assets investment (continued) Net assets at date of Acquisition £000 £000 £000 Book value Revaluation adjustment Fair Value to Group Fixed assets Investment in joint venture Stock and work in progress Accounts receivable Bank Accounts payable Corporation tax Deferred tax Bank loans At 31 May 2018 Discharged by: Consideration paid - Cash Consideration paid - Shares Deferred consideration 8 997 27,016 1,363 2,866 (4,824) (135) - (10,000) 17,291 - - 2,634 - - - - (340) 8 997 29,650 1,363 2,866 (4,824) (135) (340) - (10,000) 2,294 19,585 15,485 2,100 2,000 19,585 Details of the company’s subsidiaries and jointly owned entities at 31 May 2018 are as follows: Name of Undertaking Nature of Business Class of Shares Held % Held Glassgreen Hire Limited Hire of plant and machinery Ordinary 96% DHomes 2014 Holdings Limited Dawn Homes Limited Dawn (Robroyston) Limited DHPL Limited Dawn Homes (Johnstone) Limited DHHG 1 Limited Holding Company Ordinary 100% Housebuilder/ Construction Housebuilder/ Construction Buying and selling of own real estate Housebuilder/ Construction Housebuilder/ Construction Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 100% Ordinary 50% 59 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 16. Inventories and work in progress Group Work in progress Land under development is included in work in progress. Accounts receivable in relation to construction contracts Accounts payable in relation to construction contracts Retentions held by customers for contract work Advances received from customers for contract work 2018 £000 105,630 105,630 2017 £000 81,800 81,800 2018 £000 9,770 9,770 2018 £000 448 448 2018 £000 1,275 (448) 827 2017 £000 4,665 4,665 2017 £000 352 352 2017 £000 790 (352) 438 Included within inventories is £27,009k (2017 - £23,950k) pledged as security. Company Work in progress Land under development is included in work in progress. 2018 £000 76,212 76,212 2017 £000 81,800 81,800 60 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 16. Inventories and work in progress (continued) Accounts receivable in relation to construction contracts Accounts payable in relation to construction contracts Retentions held by customers for contract work Advances received from customers for contract work Included within inventories is £27,009k (2017 - £23,950k) pledged as security. 2018 £000 9,760 9,760 2018 £000 340 340 2018 £000 1,265 (340) 925 17. Accounts receivable Amounts falling due within one year Group Trade receivables Other receivables Prepayments and accrued income Company Trade receivables Other receivables Amounts due from group undertakings Prepayments and accrued income 2018 £000 9,916 8,484 704 19,104 2018 £000 8,809 8,474 104 448 17,835 The directors consider the carrying amount of the receivables approximates to their fair value. 2017 £000 4,665 4,665 2017 £000 352 352 2017 £000 790 (352) 438 2017 £000 4,104 2,108 235 6,447 2017 £000 4,103 2,108 144 230 6,585 61 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 17. Accounts receivable (continued) The group’s exposure to credit risk is limited by the fact that the group generally receives cash at the point of legal completion of its sales. There are certain categories of revenue where this is not the case; for instance, housing association revenues or land sales where management considers that the ratings of these various debtors are good and therefore credit risk is low. Loans to related parties have also been assessed as low credit risk based on the expected profitability of their future contracts. Any assets which expose the group to credit risk can be spread over a considerable number of properties. As such, the group has no significant concentration of credit risk, with exposure spread over a large number of customers. The maximum exposure to credit risk at 31 May 2018 is represented by the carrying amount of each financial asset. Amounts falling due after one year Group Trade receivables Other receivables Company Other receivables 18. Accounts payable Group Trade creditors Other taxation and social security Other creditors Accruals and deferred income Company Trade creditors Other taxation and social security Other creditors Amounts due to group undertakings Accruals and deferred income 2018 £000 735 135 870 2018 £000 135 2018 £000 21,152 546 977 11,235 33,910 2018 £000 15,528 547 421 760 11,104 28,360 2017 £000 - 488 488 2017 £000 488 2017 £000 12,879 446 111 11,614 25,050 2017 £000 12,276 443 110 651 11,560 25,040 The directors consider the carrying amount of the accounts payable approximates to their fair value. 62 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 19. Financial assets and liabilities Group Assets Loans and receivables Total Liabilities Measured at amortised cost Total Company Assets Loans and receivables Total Liabilities Measured at amortised cost Total 2018 £000 32,050 32,050 2018 £000 60,637 60,637 2018 £000 26,027 26,027 2018 £000 44,044 44,044 2017 £000 15,035 15,035 2017 £000 66,121 66,121 2017 £000 15,167 15,167 2017 £000 65,583 65,583 Included within loans and receivables is a loan to a related party which is valued at amortised cost. £127,373 (2017 - £nil) has been recognised as interest received in the profit and loss account. Market rate interest has been used. (Note 27). The above amortised costs figures are deemed to be approximate to their fair values. 20. Borrowings Group Secured borrowings: Bank loans Unsecured borrowings: Directors' loans Less: payable within one year Payable after one year 2018 £000 25,000 25,000 - - - 25,000 2017 £000 37,500 37,500 2,929 40,429 - 40,429 63 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 20. Borrowings (continued) Company Secured borrowings: Bank loans Unsecured borrowings: Directors' loans Less: payable within one year Payable after one year 2018 £000 15,000 15,000 - 15,000 - 15,000 2017 £000 37,500 37,500 2,929 40,429 - 40,429 The bank overdraft is secured by fixed securities over certain of the group's properties, and is repayable on demand. The bank loan comprises of a revolving credit facility which is repayable by August 2020 and is secured over certain of the group's properties. The facility attracts an interest rate of 2.5% per annum above the Bank of England Base Rate. 21. Obligations under hire purchase contracts Finance lease and hire purchase payments represent rentals payable by the group for certain items of plant and machinery and are secured by the assets under lease in question. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. Group Within 1 year Two to five years Less: unearned finance income Company Within 1 year Two to five years Less: unearned finance income Minimum lease payments 2018 £000 1,128 1,322 2,450 (176) 2,274 2017 £000 557 606 1,163 (75) 1,088 Present value of minimum lease payments 2017 £000 2018 £000 1,020 1,254 500 588 2,274 1,088 Minimum lease payments Present value of minimum lease payments 2018 £000 617 708 1,325 (94) 1,231 2017 £000 242 367 609 (51) 558 2018 £000 555 676 2017 £000 222 336 1,231 558 64 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 22. Provisions Group Company 2018 £000 394 2,000 2,394 2017 £000 45 - 45 2018 £000 54 2,000 2,054 2017 £000 38 - 38 Deferred taxation Deferred Consideration Deferred consideration As part of the purchase agreement of DHomes 2014 Limited there is a further £2,500,000 payable for an area of land if (i) we make a planning application when we reasonably believe the council will recommend approval; or (ii) it is zoned by the council. The directors have assessed the likelihood of the landed being zoned and have included a deferred consideration of £2,000,000 based on 80% probability. Deferred Taxation Group Fixed assets – temporary differences Other – temporary differences Company Fixed assets – temporary differences Other – temporary differences 2016 £000 58 Profit and Loss Account £000 (15) - 58 2 (13) 2017 £000 43 2 45 Profit and Loss Account £000 18 (9) 9 On Acquisition £000 - 340 340 2016 £000 58 Profit and Loss Account £000 (15) 2017 £000 43 Profit and Loss Account £000 18 - 58 (5) (20) (5) 38 (2) 16 2018 £000 61 333 394 2018 £000 61 (7) 54 65 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 23. Share capital The company has one class of ordinary share which carry full voting rights but no right to fixed income or repayment of capital. The share capital account records the nominal value of shares issued. The share premium account records the amount above the nominal value received for shares sold, less transaction costs. Group and Company Ordinary shares of £1 - allotted, called up and fully paid At 1 June 2017 Share reorganisation in the year Share issue – Pre IPO Share issue – IPO IPO Costs Number of shares 7,302,908 51,120,356 75,472 23,584,906 Share issue – Additional Placing 12,500,000 Additional placing costs Share issue – Post IPO At 31 May 2018 1,750,000 96,333,642 Share capital £000 73 Share premium £000 10,285 29 16 2 120 80 24,971 (1,849) 14,984 (464) 2,098 50,105 During the period, the nominal value of shares was split from 1.00p to 0.125p. Subsequently, 75,472 of 0.0125p ordinary shares were allotted and fully paid up for consideration of £80,000. On 16 October 2017, the Company completed an Initial Public Offering by way of a placing of 23,584,906 Ordinary Shares at 106p for a consideration of £25,000,000. On 2 May 2018, 1,750,000 0.0125p ordinary shares were allotted and fully paid for a consideration of £2,100,000. This was part of the DHomes 2014 Holdings acquisition agreement. On 22 May 2018, 12,500,000 0.0125p ordinary shares were allotted and fully paid for a consideration of £15,000,000. Share based payments During the year the Group operated three share based schemes. Share related share options scheme The Group operates a Savings related Share Option Scheme which is open to all employees. Grant options were made in December 2017 and become exercisable after 3 years, subject to employees remaining in continuous employment. Employees enter into a savings contract with the Yorkshire Building Society who administers the scheme. The options are granted at a 20% discount of the share price at the date of grant and lapse if not exercised within six months of maturity. Special provisions apply to employees who leave their employment for ill health, redundancy or retirement. Long-Term Incentive Plan (LTIP) The Company operates a LTIP for senior management to retain and align their interests with shareholders. The LTIP is split into a CSOP and ESOP scheme. 66 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 23. Share capital (continued) Fair Value of share options Options are valued using the Black-Scholes option-pricing model. No performance conditions are included in the fair value calculation. Savings Related Share Option Scheme 2018 CSOP 16-Oct-17 2018 ESOP 2018 SAYE 16-Oct-17 01-Dec-17 115p 115p 112p 106p-134p 106p-134p 84.80p 5 7 3 29.00% 29.00% 29.00% 0.49% 0.49% 0.49% - - - 34.00p 39.00p 37.00p 32.00p 37.00p 35.00p 2017 CSOP 2017 ESOP 2017 SAYE n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Date of grant Share price at date of grant Exercise price Estimated vesting period (years) Expected volatility Risk free rate Expected dividends Fair value of options Charge per option Volatility was calculated using historical share price information of the house-building sector. No shares have vested in the year and none can be exercised at the year-end. CSOP ESOP SAYE Number of shares - Weighted average exercise price (pence) - Number of shares - Weighted average exercise price (pence) - Number of shares - Weighted average exercise price (pence) - 1,061,683 110.46p 597,048 110.29p 3,129,975 84.80p (28,301) 106.00p (524) 106.00p (99,332) 84.80p 1,033,382 110.59p 596,524 110.29p 3,030,643 84.80p Options at the beginning of the year Granted during the year Lapsed during the year Options at the year end Charge for share based incentive schemes The total charge for the year relating to employee share-based plans were £217,742 (2017 - £nil), all of which related to equity-settled share-based payment transactions. 67 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 24. Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise the following as at 31 May: Group Cash at bank and in hand 2018 £000 12,015 12,015 2017 £000 8,335 8,335 At 31 May 2018, the group had available £37,000,000 (2017- £2,500,000) of undrawn committed borrowing facilities. Company Cash at bank and in hand 2018 £000 8,505 8,505 2017 £000 8,324 8,324 At 31 May 2018, the company had available £25,000,000 (2017- £2,500,000) of undrawn committed borrowing facilities. 25. Capital risk management The group manages its capital to ensure that the group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the group consists of equity attributable to equity holders of the parent company and its subsidiary, comprising issued capital, reserves and retained earnings, all as disclosed in the balance sheet. The group is not subject to externally imposed capital requirements other than those included, from time to time, in the financial covenants associated with bank borrowing. 26. Financial risk management The group is exposed to a variety of financial risks which result from both its operating and investing activities. The group’s risk management is coordinated by the Board of Directors, and focuses on actively securing the group’s short to medium term cash flows by minimising the exposure to financial markets. 26.1. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. Interest rate risk Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The group’s exposure to the interest rate risk relates primarily to its floating rate borrowings. Financial liabilities at fixed rate Financial liabilities at floating rate Non-interest bearing financial liabilities 2018 £000 2,274 25,000 33,363 60,637 2017 £000 2,157 39,360 24,604 66,121 68 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 26. Financial risk management (continued) 26.1. Market risk (continued) Interest rate sensitivity analysis The table below details the group’s sensitivity to increase or decrease of floating interest rates by 0.5%, which the directors consider to be a reasonable possible change. The analysis was applied to loans and borrowings (financial liabilities) based on the assumption that the amount of liability outstanding as at the balance sheet date was outstanding for the whole year. Bank of England base rate 31 May 2018 Interest rate –0.5% £000 Interest rate +0.5% £000 Bank of England base rate 31 May 2017 Interest rate –0.5% £000 Interest rate +0.5% £000 (Loss) / profit (125) 125 (202) 202 Limitations of sensitivity analysis The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear and larger or smaller impacts should not be interpolated or extrapolated from these results. The sensitivity analysis does not take into consideration that the group’s assets and liabilities are actively managed. Additionally, the financial position of the group may vary at the time that any actual market movement occurs. Other limitations in the above sensitivity analysis include the use of hypothetical market movements to demonstrate potential risk that only represent the group’s view of possible near-term market changes that cannot be predicted and the assumption that all interest rates move in an identical fashion. This analysis is for illustrative purposes only, as in practice market rates rarely change in isolation of other factors that also affect group’s financial position and results Management believe that fair value of the loans, borrowings and finance lease obligations approximates their carrying amounts as the majority of obligations bear interest rates approximating market rates at 31 May 2018. 26.2. Liquidity risk Liquidity risk is the risk that the group will be unable to meet its liabilities as they fall due. The group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, medium to long term borrowings and hire purchase contracts. The maturity profile of the group and parent company’s financial liabilities based on contractual undiscounted payments (including interest payments) is as follows: 69 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 26. Financial risk management (continued) 26.2. Liquidity risk (continued) Group 31 May 2018 Accounts payable Borrowings Hire purchase 31 May 2017 Accounts payable Borrowings Hire purchase Company 31 May 2018 Accounts payable Borrowings Hire purchase 31 May 2017 Accounts payable Borrowings Hire purchase Carrying amount £000 33,363 25,000 2,274 60,637 Carrying amount £000 24,604 40,429 1,088 66,121 Carrying amount £000 27,813 15,000 1,231 44,044 Carrying amount £000 24,596 40,429 558 65,583 33,363 25,000 2,274 60,637 Total minimum future 24,604 40,429 1,088 66,121 Total minimum future 27813 15,000 1,231 44,404 Total minimum future Total minimum future payment Within 1 year £000 £000 Within 1-2 years £000 Within 2-5 years £000 33,363 - 1,020 34,383 - 25,000 871 25,871 - - 383 383 payment Within 1 year £000 £000 Within 1-2 years £000 Within 2-5 years £000 24,604 - 500 - 37,500 - 2,929 406 182 25,104 37,906 3,111 payment Within 1 year £000 £000 Within 1-2 years £000 Within 2-5 years £000 27,813 - 555 28,368 - 15,000 493 15,493 - - 183 183 payment Within 1 year £000 £000 Within 1-2 years £000 Within 2-5 years £000 24,596 40,429 558 65,583 24,596 - 222 24,818 - 37,500 211 37,711 - 2,929 125 3,054 70 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 26.3. Credit risk Credit risk is the risk that a customer may default or not meet its obligations to the group on a timely basis, leading to financial losses to the group. The group’s maximum exposure to credit risk in relation to each class of recognised financial asset is the carrying amount of those assets as indicated in the balance sheet. At the balance sheet date, there was no significant concentration of credit risk to the group. The group manages credit risk actively monitoring their level of trade receivables and following up when they are overdue more than 3 months: The ageing profile of trade receivables was: Current Overdue 90 days Total book value £000 31 May 2018 Allowance for impairment £000 Total book value £000 31 May 2017 Allowance for impairment £000 8,554 1,362 9,916 - - - 3,908 196 4,104 - - - During the year, the group had no allowance for impairment for trade receivables. The ageing profile of other receivables was: Current Overdue 90 days Total book value £000 31 May 2018 Allowance for impairment £000 Total book value £000 31 May 2017 Allowance for impairment £000 8,484 - 8,484 - - - 2,108 - 2,108 - - - During the year, the group had no allowance for impairment for other receivables. 27. Transactions with related parties Other related parties include transactions with retirement scheme in which the directors are beneficiaries, and close family members of key management personnel. During the year dividends totalling £384k (2017 - £2,222k) were paid to key management personnel (Board of Directors and the members of the Operational Board). Dividends were paid to Board of Directors as follows: 71 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 27. Transactions with related parties (continued) Name of director Mr Sandy Adam Mr Innes Smith Ms Michelle Motion Mr Matthew Benson Mr Roger Eddie Mr Nick Cooper 2018 £000 374 10 - - - - 384 2017 £000 996 10 - - - - 1,006 The remuneration of Key Management Personnel was £1,538k (2017 - £744k). During the year the group entered into the following transactions with related parties: Purchase of goods Bertha Park Limited (1) AW & JG Adam Limited (2) DHHG 1 Limited (3) Other entities which key management personnel have control, significant influence or hold a material interest in Key management personnel Other related parties Sale of goods 2018 £000 5,471 2,741 577 266 44 35 2017 £000 565 5,129 - 454 352 37 2018 £000 - - - 363 650 200 2017 £000 - - - 312 447 - 759 9,134 6,537 1,213 Sales to related parties represent those undertaken in the ordinary course of business. Included within purchases from key management personnel is £600k (2017 - £nil) from Sandy Adam, director, to terminate annual licence fee in respect of the group’s use of a trademark. The licence was terminated, Sandy Adam waived any claims against the group and the trademark was transferred to the group. Interest paid 2018 £000 2017 £000 Rent paid 2018 £000 2017 £000 Entities which key management personnel have control, significant influence or hold a material interest in Key management personnel Other related parties - 12 15 27 - 163 - 163 162 - 134 296 162 - 161 323 72 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 27. Transactions with related parties (continued) Interest received: Entities which key management personnel have control, significant influence or hold a material interest in (short-term) The following amounts were outstanding at the reporting end date: Amounts receivable: Bertha Park Limited (1) AW & JG Adam Limited (2) DHHG 1 Limited (3) Other entities which key management personnel have control, significant influence or hold a material interest in (short-term) Key management personnel Other related parties Accounts payable: Entities which key management personnel have control, significant influence or hold a material interest in (short-term) Sandy Adam Anne Adam James Adam Other related parties 2018 £000 2017 £000 102 102 2018 £000 8,948 - 930 86 2 - - - 2017 £000 895 1,217 - 301 - - 9,966 2,413 2018 £000 2017 £000 57 - - 1,419 - 1,476 115 1,069 796 1,084 40 3,104 73 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 27. Transactions with related parties (continued) Amounts owed to/from related parties are included within creditors and debtors respectively at the year- end. No security has been provided on any balances. Transactions between the company and its subsidiary, which is a related party, have been eliminated on consolidation and are not disclosed in this note. (1) Bertha Park Limited, a company in which Sandy Adam and Innes Smith are directors. During the year the group made sales to Bertha Park Limited of £5,471k (2017 - £565k) in relation to a build contract. At the year-end £4,231k (2017 - £542k) was included in trade debtors. £4,647k (2017 - £4k) was advanced in the year, at the year-end £4,717k (2017 - £354k) was included in other debtors. (2) AW & JG Adam Limited, a company in which Sandy Adam is a director. During the year sales of £2,741k (2017 - £5,129k) were made to AW & JG Adam Limited in relation to a build contract. £nil (2017 - £1,217k) was included within debtors at the year end. (3) DHHG 1 Limited is a jointly owned entity and Michelle Motion is a director. The group acquired 50% of the share capital of DHHG 1 Limited on 2 May 2018 and during the period to 31 May 2018 made sales to DHHG 1 Limited totalling £577k in relation to a build contract. At the year-end £930k was due from DHHG 1 Limited. 28. Contingencies, commitments and guarantees In the ordinary course of the group's business the group is required to enter into performance bond arrangements. The group's bankers have provided such guarantees in the ordinary course of business totalling £206k (2017 - £206k). 28.1. Contingent liabilities On 2 May 2018, the company acquired the entire share capital of DHomes 2014 Holdings Limited and its subsidiaries and joint ventures, for a consideration of £20,085,000, which includes a deferred consideration of £2,500,000. The deferred consideration is for land and paid if (i) we make a planning application when we reasonably believe the council will recommend approval; or (ii) it is zoned by the council. The directors have reviewed the probability of the land being zoned for planning and included £2,000,000 as a provision (see note 24), the remaining £500,000 has been treated as a contingent liability due to the uncertainty over the future payment. 28.2. Capital commitments Acquisition of property, plant and equipment Call and put options for the purchase of plots for development 2018 £000 700 4,919 2017 £000 462 9,736 74 SPRINGFIELD PROPERTIES PLC NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MAY 2018 28. Contingencies, commitments and guarantees (continued) 28.3. Operating lease commitments Operating lease payments represent rentals payable by the group for certain of its assets. Leases are with an option to extend on completion. At 31 May the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year Two to five years Over five years 2018 £000 348 1,131 1,231 2,710 2017 £000 278 1,023 1,159 2,460 75 171558 

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