ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
WHO WE ARE
We are a nationwide building services contractor
delivering the full range of mechanical, electrical
and ICT services.
Our strong teams across the country cover the whole
lifecycle of the building from concept and design
through construction to lifetime maintenance.
Our focus is on being the partner of choice in each
of the specialist areas we work in - and equally on
the retention and enhancement of our traditional
reputation for delivering good value, total
trustworthiness and excellent work quality.
OUR FINANCIAL HIGHLIGHTS
15%
48%
6%
REVENUE*
£278.6m
(2015: £242.4m)
UNDERLYING
PROFIT
BEFORE TAX*
£6.2m
(2015: £4.2m**)
PROFIT
BEFORE TAX*
£3.7m
(2015: £3.5m)
39%
10%
NET CASH
£9.3m
(2015: £6.7m)
FORWARD
ORDER BOOK
£330m
(2015: £300m)
5.32p
BASIC
EARNINGS
PER SHARE
5.45p
(2015: 0.13p)
18%
UNDERLYING
OPERATING
MARGIN
2.5%
(2015: 2.1%)
3%
DIVIDEND
PER SHARE
3.2p
(2015: 3.1p)
* from continuing operations ** re-presented - see Note 7 to the financial statements
WHAT WE DO
Project Profile:
22 biShoPSgAte
through the full
building lifecycle
deSign
Design systems and value engineer them.
Procure
Add value and increase buildability through
expert procurement.
inStAll
In-house teams to install the building services
on projects of every scale across the UK.
MAintAin
In-house teams to provide maintenance
services across the UK.
new StAndArd of
building intelligence
AcceSS SerViceS And My dAtA
My computer, my data, my locker, my
services.
find My teAM locAtion
Identify my team’s location and my
place too.
Security AcceSS
Manage my security access.
fAciAl/retinA recognition
Recognise me.
bringing the building to life
Power
Distributed and controlled.
SerViceS
Heating, lighting, ventilation, water waste
and their networks and controls.
dAtA
Data network integrated with items that
sit on those networks.
AlArM And Security
Alarm, security and safety systems integrated
and controlled.
SySteMS And internet
Management systems, internet linked items
and their data and control.
A TClarke flagship building services
project, 60 floors in the City of
London, 1.3m Sq Ft., including
delivery of a range of packages;
electrical, shell & core, Cat A fit out,
ELV (systems integration) package,
BMS, ICT, security and fire alarm
installation. It showcases so many
aspects of what we do to deliver
world class, leading-edge building
services.
Cover image - 22 Bishopsgate
OUR SPECIALISMS
WHERE WE ARE
INTELLIGENT
BUILDINGS
HEALTHCARE
DESIGN &
BUILD
TRANSPORT
M&E
CONTRACTING
MISSION
CRITICAL
y
SCOTLAND
NORTH
FACILITIES
MANAGEMENT
RESIDENTIAL
& HOTELS
PRE-
FABRICATION
CENTRAL & SOUTH WEST
LONDON & SOUTH EAST
M&E contracting is our core business nationwide.
In addition we specialise in market sectors where
there are strong opportunities for us to create
sustainable value.
ScotlAnd £21.0m (2015: £16.2m)
north £53.6m (2015: £41.8m)
centrAl & South weSt £67.9m (2015: £56.9m)
london & South eASt £142.9m (2015: £129.1m)
OUR BUSINESS MODEL
1
2
3
4
our Agile
buSineSS
StrAtegy
Sustain world class
building services
capability and
execute against
five Strategic
Priorities to exploit
fast-changing
opportunities.
guideS
our
oPerAtionS
Deliver projects
that enhance
our reputation
for safety,
trustworthiness
and work quality.
deliVerS the
tclArKe brAnd
AdVAntAgeS our
clientS wAnt
Sustain our reputation
for delivering
‘The TClarke Way’
with focus on Safety,
Quality, Innovation,
Value, People and
Relationships.
creAteS
SuStAined VAlue
for our
StAKeholderS
Identify and exploit
high value market
opportunities and
directing resources
efficiently.
OUR MARKET-LEADING RESOURCE
CONTENTS
13%
12%
Senior Site oPerAtiVeS
consists of fully qualified,
time-served including
foremen, charge hands and
senior charge hands
Senior ProfeSSionAlS
consists of fully qualified and
highly experienced senior
professionals
12%
37%
SPeciAliSt
ProfeSSionAlS
consists of QS, QA, design,
safety and specialist engineering
Site oPerAtiVeS
consists of fully qualified
time-served site operatives
Directly
employed resource
1,376
Apprentices
189
13%
4%
9%
APPrenticeS & trAineeS
consists of apprentices in their
first, second and third years and
adult trainees
unquAlified StAff
have basic health & safety
qualifications and serve as
labourers or stores staff
SuPPort StAff
the remaining 9% of staff
are in a range of support roles
AN ETHICAL COMPANY
heAlth & SAfety
leAderShiP
cAreer
ProgreSSion
froM
APPrenticeShiP
to boArd
quAlity full
tiMe jobS
leAding
conStruction
innoVAtion
quAlity
APPrenticeShiPS
TClarke has a strong and longstanding culture of leadership in health,
safety and environmental responsibility. It also leads in apprenticeships,
training, career path progression and full time employment opportunities
in world class engineering.
StrAtegic rePort
02 Chairman’s statement
04 Chief Executive
Officer’s review
06 Looking forward
08 Strategic overview
30 Principal risks
33 Viability statement
34 Financial review
38 Corporate social responsibility
goVernAnce
42 Board of Directors
44 Corporate Governance report
45 Statement of compliance
50 Audit Committee report
53 Nomination Committee report
54 Directors’ remuneration report
56 Directors remuneration
policy report
64 Annual report on remuneration
71 Directors’ report
74 Statement of Directors’
responsibilities in resprct of
the financial statements
75 Independent Auditors report
finAnciAl StAteMentS
84 Consolidated income
statement
85 Consolidated statement
of comprehensive income
86 Consolidated statement
of financial position
87 Company statement
of financial position
88 Consolidated statement
of cash flows
89 Company statement
of cash flows
90 Consolidated statement
of changes in equity
91 Company statement
of changes in equity
92 Notes to the financial
statements
140 Shareholder information
CHAIRMAN’S STATEMENT
Iain McCusker - Chairman
2016 hAS been A yeAr of Strong
PerforMAnce AcroSS the grouP
the strategic initiatives and programmes
implemented over the recent years of
difficult market conditions are now
delivering value and encouragingly these
results are ahead of market expectation.
the business is emerging as an effective
and cohesive nationwide team, strongly
placed to focus on, and meet, client needs
and to address the growing opportunities
and continuing challenges of our market
place.
the growth of our current and forward
order book, combined with the quality of
the significant and high visibility current
and future projects, demonstrates the
justified confidence of our clients and the
market in general, in our performance,
strength, strategic positioning, quality
and ability to deliver.
headline numbers ahead of
market expectation
I am pleased to report that turnover increased by 15%
in 2016 to £278.6m, with growth in all geographic regions
and a significant number of large project wins for the
Group.
More importantly, underlying profit before tax increased
by 48% to £6.2m. Furthermore, the underlying operating
margin showed an 18% year on year increase to 2.5% in
2016 and underlying EPS increased by 42% to 11.60p
(2015: 8.16p). These are very pleasing and creditable
achievements given the current market conditions, and
are a testament to the leadership of our executive
and delivery teams across the Group – both on our
construction sites and in our offices.
Over previous years, we have steadily reported on
a programme of strategic changes and initiatives,
organically funded and internally designed and
implemented, to reshape and refocus the business
so that we are better aligned to focus on creating,
delivering and growing value. These changes, initiatives
and investments are now beginning to deliver financial
returns as demonstrated by our improved margins,
which other industry peers are aspiring to.
2
Annual Report & Financial Statements 2016
Strategic report - Chairman’s statement
one disappointment
I am very disappointed we had to report the
discovery during the year of a significant fraud at
one of our subsidiary companies. The management
response on discovery of the fraud was swift, decisive
and appropriate. An independent and comprehensive
review of our internal controls and procedures was
commissioned immediately. As a result of the review,
a number of recommendations were made which will
further strengthen our controls and are in the process
of being implemented. The Board is satisfied that
the fraud was limited to the subsidiary company in
question and that the full extent of the fraud has
been identified. Legal proceedings are ongoing.
outlook
2016 was an exceptionally good year, both in terms of
underlying trading performance and our cash position
at year end, driven by the timing of major project
completions and stage payments received in the second
half of the year. Our order book for the year has been
replenished, with the performance of London being
particularly strong. We have increased the focus on certain
regions in order to bring them in line with internal targets
yet, overall, our order book is at a record high.
Whilst we are focused on delivering sustained margin
improvement over the long term, at this early stage of
the current year we cannot ignore inflationary pressures
which may hold back further margin improvement in 2017.
Nevertheless, the Board is confident that the Group is well
placed to meet market expectations for the year ahead.
iain Mccusker
Chairman
28th March 2017
growth matched by cost discipline
and cash management
At the same time as winning and delivering the right
kind of projects and growing our turnover, forward order
book and activity levels, we have also concentrated on
cost discipline and cash management. Mindful of the
competitive nature of our markets, our 2016 results and
performance have benefited from our strong disciplines in
the internal management and delivery of projects, which
resulted in effective cost and cash management.
Net underlying overhead for 2016 decreased to 9.2%
of revenue, compared with 9.5% in 2015 and 10.1% in
2014. The net cash balance was up 39% at £9.3m at the
end of 2016 compared with £6.7m in 2015 and £5.3m in
2014. Encouragingly there has been considerable year
on year improvement in our average cash balances
throughout the year. During 2016 we were able to renew
and increase our long term banking facilities from £13m
to £15m, provided at reduced cost to the business.
My fellow Non-Executive Directors and I have undertaken
a programme of regular visits throughout the year to our
offices and project sites across all our regions, meeting
and listening to our people and teams. These visits play
an essential role for us to better understand the business
and appreciate the complex nature of the work our people
undertake and succeed at, and enable us to see, in
practice, the ideas and initiatives which are being designed
and delivered in the field. We have seen at first hand the
strength of our project management teams across the
country, which is something that we, as Non-Executive
and Executive Directors recognise and appreciate and
value highly.
dividend
The Board is pleased to propose a final dividend for the
year ended 31st December 2016 of 2.7p pence per share,
reflecting the Group’s performance and our confidence in
the business going forward, whilst balancing the rewards
to shareholders with the interests of other stakeholders.
The Board remains committed to improving returns to
shareholders and delivering a sustainable increase in
dividend over the longer term is an important objective.
3
Annual Report & Financial Statements 2016
CHIEF EXECUTIVE OFFICER’S REVIEW
Mark Lawrence - Chief Executive Officer
our PeoPle hAVe Put in
An excellent PerforMAnce
in 2016
the big story behind the record
turnover is the quality of the jobs
delivered and the order book that has
been replenished so strongly this year.
we have seen a series of major
projects be awarded to the group
across all our regions, signalling our
valuable reputation, our capabilities
and our ability to deliver.
tclarke is positioned for further
confident and controlled growth
with a clear and shared sense of
value and how to create it.
our business infrastructure is solid
The Group is shaped correctly and resourced nationwide
for an agile response to market opportunities. Our
people are clear about our strategies and their roles in
achieving them. We have set parameters for evaluating
opportunities and targeting those that suit our skills and
our growth journey. There is always more to do, but when
you add this to TClarke’s exceptional culture of delivery
and operational control, together with the strong sense
of values, tradition and pride that is ingrained within
’The TClarke Way’, we have a strong base to build on
going forward.
Major projects won and delivered in
our core london M&e business
It has been a particularly strong year for our London
business. Our vision to grow from a famous electrical
contractor into a true M&E contractor, known equally for
both, has been realised. Delivery of major mechanical and
M&E projects and the win of two towers at the enormous
Southbank Tower project showed that we are a major
player in the M&E market. This transforms the scale of our
potential markets going forward - effectively more than
doubling them. Our success in securing the even larger
22 Bishopsgate project will be equally transformative,
providing us with a platform to lead in integrated building
services, with major technology advances that have
potentially vast market applications.
4
Annual Report & Financial Statements 2016
Strategic report - Chief Executive Officer’s review
Safety remains our paramount concern
We take enormous pride in every site safety award
won by our people and, in 2016, we won more than ever
before. The total number of those awards is not significant
but the culture that earned them is. I am personally proud
of the work our safety establishment carries out to further
embed that culture and to keep driving standards forward.
We can never rest or become complacent regarding health
and safety - we need to keep investing in this area as
safety is paramount to our business.
Mark lawrence
Chief Executive Officer
28th March 2017
Major projects won and delivered
across our regions
Success in London has been matched across our regions.
Our vision for our nationwide offices has been to make
a decisive shift from siloed local teams, delivering high
quality small scale projects, to a series of regional
operations targeting large scale, higher value projects,
collaborating to maximise the value of their resources
and building the TClarke brand. In 2016, TClarke regional
teams won a very wide range of large scale projects;
more than at any time in our history. We have built new
strategic partnerships, expanded existing relationships,
entered new sectors, expanded into new areas and
combined our operations in new ways.
innovation and investment in the
career paths of our people
We launched the TClarke Academy in 2016, as a
comprehensive internal training operation aimed at
providing a clear route to the top of the organization,
giving everyone, whether they be in an engineering,
technical or support discipline, career advancement
opportunities. At TClarke it is expected for an apprentice
to aim for the top. I was an apprentice here and so
were most of my senior executive team, so our Training
Academy is something that we, as leaders, believe in
and are personally committed to driving - and indeed we
deliver modules ourselves. In a year when we again took
on a far larger number of apprentices than the industry
average, the Group retained a far higher percentage of
staff than the industry average and built our resource
of directly employed people with quality people - the
Academy is a further mark of our intent to keep offering
the best M&E resource in the UK.
5
Annual Report & Financial Statements 2016
LOOKING
FORWARD
PoSt-brexit Vote,
MArKetS Are Solid
for the MediuM terM
Despite ongoing media speculation,
there has been very little evidence to
knock confidence but we have seen
many positive signals. Major projects
that might have been paused or
cancelled are now underway.
While Brexit concerns are expected
to continue, significant market
opportunities have arisen as Sterling’s
realignment has prompted confidence
in further inward investments into
development, particularly in London
and the South East.
new 26,000 Sq ft
grouP PrefAbricAtion
fAcility At StAnSted
In Spring 2017, TClarke will open
a brand new prefabrication facility at
Stansted in Essex, consolidating the
previous operations at Harlow. In
scale, efficiency and commercial
potential, this is a major step
forward for the TClarke Group that
compliments the expansion and
growth of our Mechanical operations
and has strategic impact on the range
and scale of capabilities we can offer
when partnering our clients.
MAjor Project
And PArtnerShiP
oPPortunitieS
Our strategy of focusing on key
partnerships nationwide and our
culture of delivery has led to a range
of significant opportunities for further
work on large scale M&E projects in
every region. There are also major
transportation infrastructure projects
getting underway, including HS2,
for which we are well placed.
TClarke’s new 26,000 sq ft manufacturing facility at Stansted,
Essex offers substantially enhanced capability and commercial potential.
6
Annual Report & Financial Statements 2016
Strategic report - Chief Executive Officer’s review
next
generAtion
technologieS
22 Bishopsgate will bring a new
generation of building technology
integration into the mainstream
commercial office market. This will
set a new standard for commercial
office spaces and give us potential
leadership in that market.
new
regionAl
MArKetS
TClarke is building its foothold in
new markets and delivered high
quality M&E projects in Manchester
in 2016. It has also won projects
at Manchester Airport and with
Manchester City Council. The Group
has also been successful in winning
large scale M&E follow on work in
Birmingham. Both of these markets
offer substantial medium term
prospects for us.
oPPortunitieS
froM our increASed
Agility And longer
terM inVeStMentS
The investment over the past
decade to establish our credentials
in transportation has paid off. As we
move to secure Airport work, we see
major opportunities across the UK in
the medium term and also in Rail as
HS2 gets underway. Beyond this, our
highly complex work at the Derriford
Research Facility in Plymouth,
alongside projects at universities
nationwide, has given us a platform
for entry into the Pharmaceutical and
Research markets.
7
Annual Report & Financial Statements 2016
STRATEGIC
OVERVIEW
OUR STRATEGIC OPERATING MODEL
1
2
3
4
fiVe
StrAtegic
goAlS
guideS
our
oPerAtionS
deliVerS ProjectS
‘the tclArKe wAy’
(our brAnd
AdVAntAgeS)
1. Focus on enhancing
our core London M&E
business
2. Sustain our
resource advantage
3. Advance our
partnerships nationwide
4. Take opportunities
in specialist markets
and sectors
5. Mirror principal
contractors in regions
and focus on targeted
tendering
Full range of high
quality building services
Safety - Safety is our
number one daily priority
World class directly
employed resource of
highly skilled, highly
motivated people
Complete UK coverage
through four regions
to support our clients
quality - High quality
work that’s right first time
innovation - Expert
in buildability and integrated
thinking
Value - Delivering
against innovative end-user-
focused contracts
People - Directly-employed,
high quality building services
personnel
relationships - Taking
responsibility at every
level for collaboration
creAteS
SuStAined
VAlue for our
StAKeholderS
Stakeholder value -
ability to identify
and take valuable
opportunities
Market leadership -
building our reputation
for quality and delivery
The kind of progressive,
ethical, high technology,
people-focused business
Britain needs
operating environment
Skills shortages
With the market in an expansion phase, reliable, highly
skilled teams are at a premium, particularly for larger,
more complex projects which are our key target.
Market confidence despite brexit
Major projects have moved ahead and a stream of new
projects gives us confidence in markets for the medium
term.
technology driving change and
opportunities
A range of technology advances are significantly
increasing the complexity of projects, therefore the
building services content becomes more central to value
and delivery.
investments in infrastructure
The UK plans a wide range of major infrastructure
investments and major regional development projects over
the next decade.
8
Annual Report & Financial Statements 2016
Strategic report - Chief Executive Officer’s review
REVENUE BY REGION
we are a nationwide building
services contractor delivering
the full range of mechanical,
electrical and ict services.
our strong teams across
the country cover the whole
lifecycle of the building from
concept and design through
construction to lifetime
maintenance.
1
30%
ScotlAnd
£21.0m
(2015: £16.2m)
2
3
4
6
5
28%
north
£53.6m
(2015: £41.8m)
19%
centrAl &
South weSt
£67.9m
(2015: £56.9m)
9 10
7
8
12
13
11
14
11%
london &
South eASt
£142.9m
(2015: £129.1m)
our focus is on being the
partner of choice in each of
our specialist areas we work in
- and equally on the retention
and enhancement of our
traditional reputation for
delivering good value, total
trustworthiness and excellent
work quality.
ScotlAnd
1. Aberdeen
2. Falkirk
north
3. Newcastle
4. Leeds
5. Chorley
centrAl & South weSt
6. Derby
7. Peterborough
8. Huntingdon
9. St Austell
10. Plymouth
london & South eASt
11. London
12. Stansted
13. Colchester
14. Sittingbourne
Strategic opportunities for the medium term
Maximise value through best
deployment of resource
Analyse and exploit market opportunities so we can deploy
our people to our best advantage.
technology and complexity in market
Take the opportunities to develop our leadership in
delivery of complex installations and new technologies to
keep us at the forefront of industry excellence.
Maximise brand value nationwide
Further increase the penetration of our brand into new
regions and markets and recognition of our full range of
capabilities in existing ones.
develop presence and capability
in specialism
Ensure that we are planning ahead for the medium term
to make certain we have presence, accreditations and
skills in specialist markets we target.
9
Annual Report & Financial Statements 2016
FOCUS ON ENHANCING OUR CORE M&E BUSINESS
Strategic goal number one
London M&E remains our core business. We see potential
for managed growth both in scale and quality of the order
book. There is significant short and medium term potential
in London for us to grow our Mechanical and M&E work over
time to match our Electrical work. At the same time, our
strategy will be to sustain and enhance our market leadership
in electrical contracting by winning a substantial share of the
available projects in our markets and constantly renewing our
technical leadership.
Key risk Areas
• Resource retention during strong market conditions
• Maintenance of reputation for leadership in period of rapid technical
and technology advances
• Maintenance of reputation for quality delivery as we install
a series of landmark projects
• Potential for Brexit to slow the market
Achievement Summary
2016 was a successful year for our
London M&E business - with a record
order book and margin improvement.
This was the first year in which you
could see a truly integrated M&E team
at work in the London market place,
delivering and winning projects.
The team won big, complex and
technically innovative projects in
mechanical, electrical and combined
M&E packages. These included a
range of innovative ways of working.
The year’s achievements are ahead
of expectations as a result of high
professional standards onsite and
in the office, within a cohesive and
well-led team. Growth in the order
book has been managed and carefully
aligned to maximise value from our
resource but not to over commit it.
The continuing excellence of our staff
retention, training and apprenticeship
schemes in London have also been on
show during the year.
2015
2016
2013
2014
£49m
£57m
£92m
£115m
growth in our core (london M&e) business
The overall growth in our core London M&E business is significant.
The mechanical component of this has reached £30m (26%) by 2016.
ENHANCE
OUR CORE BUSINESS
10
Annual Report & Financial Statements 2016
Strategic report - Enhance Core Business
bloomberg Place
This is a classic TClarke project, working with Stanhope and the Principal Contractor, Sir Robert McAlpine,
in a collaborative way to deliver a top quality, landmark addition to the City of London.
Strategic report - Enhance Core Business
James Berry, Operations Manager:
ruskin Square, Croydon
Ruskin Square, which we completed in December 2016,
is a large scale urban development, with 2 million
square feet of offices, shops and homes over 9 acres
with a rail station attached.
We’ve delivered our first large scale mechanical project
here for Stanhope and there are 4 more major projects
within this development. It’s a big step forward again
for our Mechanical operation.
Chris Richards, Project Director:
rathbone Square
One day soon, all M&E projects will be like this, with
Building Information Modelling (BIM) integrating the
work of all trades and our site operatives using iPADs
loaded with the latest computer generated plans to
guide and speed their work. This is Facebook’s new
London HQ and so it’s great for TClarke to be delivering
the installation.
12
Annual Report & Financial Statements 2016
Strategic report - Enhance Core Business
Mike Enticott, Divisional Director:
london wall Place
Clive Carr, London Director:
iql, Stratford
We have two projects here - the shell and core
for Multiplex and the fit out for Schroders. Our
Intelligent Buildings team is also providing advanced
gas suppression systems within the fire alarm and
detection package. Overall, this is another good
example of a major commercial office project where
TClarke’s core business is supporting the growth of
our specialisms and delivering value for our partners.
IQL, Europe’s largest urban development on the
Olympic Park site in Stratford, showcases our
mechanical capabilities. This year we’re delivering
two vast projects - one mechanical only, one M&E;
we’re also providing cost and technical assistance for
two more. This project, alongside Ruskin Square and
others, confirms our breakthrough to become a
permanent major player on the mechanical side.
Steve Mayne & graham fisk
clive carr
13
Annual Report & Financial Statements 2016
SUSTAIN OUR RESOURCE ADVANTAGE
Strategic goal number two
TClarke’s critical business advantage is our skilled, expert,
motivated resource of people. Our strategy will aim to sustain
that advantage by continuing to attract and train the best
apprentices, by offering high quality career paths for our
people and to continue to offer the prospect of work on the
most prestigious projects.
Key risk areas
• Sustaining of our pipeline of high quality new staff
• Maintaining and improve high levels of employee retention
across all levels and disciplines
• The Group’s ability to deliver industry leading career prospects
TClarke
2016
13%
Industry
target
5%
Leaders
average
3.5%
Percentage of apprentices and adult trainees
The construction industry is facing a major skills shortage. This chart shows
the percentage of staff in apprenticeship and adult trainee schemes. The
industry target for best practice is widely recognised and well respected
‘5% Club’. The Average is the average percentage for the top 5 construction
companies in the construction index 2016. TClarke’s apprenticeship scheme
is recognised as leading the industry.
Achievement Summary
TClarke is recognised as the employer
of choice - offering people a
rewarding package, good prospects
and the chance to work on the best,
most challenging jobs in the industry.
In 2016 that fact has been reaffirmed.
The focus has been on bringing
motivated individuals, with the
attitude needed to deliver ‘The
TClarke Way’, into our family for the
long haul. 2016 was also the year in
which the TClarke Academy got off
the ground. The Academy is focused
on providing structured career paths
for all construction profession
specialisms and all of our key
professions ranging from ICT to
project administration. The objective
is to show our people a full
commitment to their personal and
professional growth. This also
includes energetic and practical
support for those who want to drive
ahead with education. The fact that
the Academy is led, and was
conceived, by a team of our Senior
Executives says a lot. This is not an
outsourced or superficial exercise -
making the Academy work is a
strategic priority.
SUSTAIN
OUR ADVANTAGE
14
Annual Report & Financial Statements 2016
Strategic report - Sustain our resource advantage
chrissie Knight, 2nd year Apprentice
I enjoy the practical side of the work, especially wiring and second fixing and I thrive on being part of the team out on site.
I am determined to finish my apprenticeship and look forward to being a qualified electrician.
Strategic report - Sustain our resource advantage
chris Marshall
1st year Apprentice
Andrew Stephenson
Junior Estimator
I was previously in the Royal Marines and when I
left, I didn’t want a dead end job - I wanted to find
an opportunity where there was the challenge of real
skills to master, valuable qualifications to attain and
real career prospects if you did well. With TClarke
I’ve got all of those three and here I am as an
apprentice, working on a landmark project in the
region. This is exactly what I was looking for.
I completed my apprenticeship in January 2013
whilst working at Duco/Technip cable facility.
Shortly afterwards I was nominated for the TClarke
apprentice of the year award, which I won. After
working on many different jobs, I completed my
SSSTS (site safety supervisors training scheme) in
2015 whilst working at Sunderland Royal Hospital.
I ran my first job, Walkergate, Berwick in July 2016
with up to 14 electricians and subcontractors on site
at any one time - and just before completing that
job I applied for the junior estimator’s role and was
offered the position after a successful interview.
junior haynes
Senior Commissioning Engineer
What attracted me
to TClarke was the
chance to work on
the large scale
projects - and here
I am commissioning
fire alarm systems at
one of London’s top
developments,
London Wall Place.
16
Annual Report & Financial Statements 2016
Strategic report - Sustain our resource advantage
barrie nightingale
Director TClarke London
elyse Mcbride
Trainee Quantity Surveyor
The Academy is something I’m personally passionate
about - I want everyone at TClarke to have the
chances that I have had. We want it to set a
standard for the industry, just like our Safety and
Apprenticeship programmes.
I started with TClarke in September 2013 after
studying a degree in Sports Science at Robert
Gordon University. I decided I wanted a career
change and chose to join the company as an
Apprentice Electrician until I fully qualified as an
Electrician late last year. After being nominated as an
entrant and achieving a top position for Apprentice of
the Year within TClarke, I have pushed myself to
become an integral part of the business and learn
all I can in the many departments that Scotland
currently has, whilst gaining knowledge of the Group
services. I recently started to further my career by
taking on the role of a Trainee Quantity Surveyor.
I am currently studying at Fife College, alongside
working in the office, and I am thoroughly enjoying
the change of direction in my career and aspire to
reach my goal of becoming a fully qualified Surveyor.
joseph wu, Project Engineer
and degree student
I’m currently in the final year of my BEng (Hons)
degree in building services engineering at London
South Bank University. I am also working as a
Mechanical Engineer/Project Manager on a 20 floor
office fit-out project called IQL, Building S5, based in
Stratford. I wish to undertake a part-time master’s
degree from September 2017. I’ve been recently
offered a few conditional offers from universities and
TClarke have confirmed company backing to support
me with this.
17
Annual Report & Financial Statements 2016
ADVANCE OUR PARTNERSHIPS NATIONWIDE
Strategic goal number three
TClarke will endeavour to deepen and extend our
partnerships with principal contractors and end clients with
the purpose of delivering greater value to projects and
strengthening our connections within the industry.
Key risk Areas
• Ability to offer a market leading value proposition and resource
• Ability to be consistently proactive and collaborative, whilst
commercially effective at the same time
• Ability to expand relationships into new regions and disciplines
Achievement Summary
The record turnover for 2016 reflects
a year of partnerships extended and
deepened. The forward order book
has also grown through our success in
doing that. For a partnership to grow,
the professional relationship has to be
strong at every level and delivery has
to be top quality. In 2016, partnership
has meant being there when our long
term partners need us for particularly
challenging tasks. It has meant being
selected for early negotiation without
the need to tender on major projects.
It means partners trusting our brand
and capability so much that they will
actively choose to work with us in
new disciplines or in new regions.
The idea of ‘never letting down’ in our
approach onsite and at senior level,
has been ingrained in our culture for
decades and we continue to think and
act that way.
94.6%
of the order book
consists of major
blue chip clients
and public sector
end users
97%
of the order book
is covered by
major relationships
with principal
contractors
DEEPEN
AND EXTEND OUR PARTNERSHIPS
18
Annual Report & Financial Statements 2016
Strategic report - Advance our partnerships nationwide
tclarke Project engineer, Phil howard
within the Virtual Reality training
environment at the BAE Training Academy
Phil howard, Project engineer working at bAe Systems new training Academy
We’ve had a very long and successful relationship with BAE, providing Facilities Management services, but this year
TClarke has successfully delivered full Design and Build M&E services for their major new Training Facility.
Success has led to further major M&E projects with BAE - it is a big step forward for our business.
Strategic report - Advance our partnerships nationwide
Andy Budge, Mechanical Supervisor, TClarke South West
Kier at beckley court
We are expanding our relationship with Kier, here at a
development that dominates the Plymouth skyline. For
TClarke in the South West, it is very good to be selected
to work on the major projects in the region. It is good
for us as Engineers and it is good for the reputation
of our business. We’ve worked hard to earn the
opportunity and we’re determined to take it by
delivering top quality work.
20
Annual Report & Financial Statements 2016
Strategic report - Advance our partnerships nationwide
Gary Jackson, MD TClarke Scotland
and barratt homes
We’ve got the kind of relationship with Barratt
Homes where they see our people onsite as real
representatives of their brand too - that’s fantastic.
Winning the Barratt Homes West contractor of the
year award, was recognition for both our people
onsite and our back office teams.
Martin Thomas, Divisional Director
TClarke Mission Critical
and Stanhope at Selfridges
Whilst one of the most famous retail spaces in the
world carries on its daily business, an enormously
challenging infrastructure upgrade programme has
been underway and TClarke teams have been at the
heart of it. Our Mission Critical team gives us the
capability to support our long-term partners like
Stanhope on a project that is as challenging as this
one. It is hard work, but we enjoy this kind of
challenge because it sharpens our skills.
Mike Enticott, Director
TClarke London M&E
and Multiplex
Our relationship with Multiplex
is a mature and longstanding
one and our team are working
on a series of landmark
projects with them. We are
extremely proud that our
teams are repeatedly selected
for major projects like London
Wall Place, Principal Place and
100 Bishopsgate.
21
Annual Report & Financial Statements 2016
TAKE OPPORTUNITIES IN
SPECIALIST MARKETS AND SECTORS
Strategic goal number four
TClarke will focus on immediate opportunities and show
agility in identifying those market areas where we can
win high value work. In some cases, such as transport,
healthcare, intelligent buildings and FM these will represent
opportunities to develop a long term market presence. In
other areas such as green technologies, these will be short
term opportunities. In yet others, such as London residential,
these will represent areas of flex, which we enter on a
tactical basis as and when they represent value for us.
Key risk Areas
• Over exposure to any individual markets
• Need to plan medium term and develop capability and credentials
ahead of market need and specialist sector cycles
• Ability to manage the pace of technology-driven change
Healthcare
Intelligent
Buildings
Transport
Design & Build
£8.7m
(2016: £6.1m)
£5.9m
(2016: £5.0m)
£19.5m
(2016: £11.2m)
£30.2m
(2016: £8.8m)
forward orders
The growth of our forward order book in specialist markets.
Achievements Summary
2016 saw delivery on a major scale
at a range of rail jobs in our highly
successful Transport division. The
very high profile projects at Bank
and Victoria Station Upgrades have
progressed well and we now have
a strong and capable team of leaders
in the business. We won our first
foothold project at Manchester
Airport. The Design and Build
operation went from strength to
strength, delivering Dagenham
University Technical College and
Summit House and moving on to the
next level with major wins on a larger
scale, including Hounslow Civic Offices
and the Royal Free Pears Building.
TClarke Intelligent Buildings also
had a highly successful year, winning
breakthrough projects on both the fire
alarm and detection side and also on
the data and cabling side. TCIB now
offers the group a potentially decisive
strategic and commercial advantage
over competitors where major M&E
and building services projects are
involved. The expansion of TClarke
Healthcare in 2016, came after the
rapid growth of our specialist medical
controls business and its integration
with existing healthcare expertise had
led to partnership agreements with
world class manufacturers and a
stream of project wins.
STRONGER
SPECIALISMS
22
Annual Report & Financial Statements 2016
Strategic report - Take opportunities in specialist markets and sectors
ross Mcdonald, right, construction Manager, tclarke transport at Victoria underground Station upgrade
“The opening of the North Ticket Hall has been one of the biggest achievements to date for our Division.
Our commitment to face all challenges head on, working collaboratively with our clients, Taylor Woodrow BAM Nuttall JV
and London Underground, has enabled us to reduce risks that could have had an impact to the programme and cost.”
Strategic report - Take opportunities in specialist markets and sectors
Iain Clenaghan, Divisional Director,
tclarke intelligent buildings
at London Wall Place
John Eagan, Project Manager,
tclarke design & build
at Summit House
At London Wall Place we are installing 23 gas
suppression systems in critical rooms and three
water mist systems on the generators.
When we started out, we offered fire alarm systems.
Today we have reached the point where we are
probably the biggest open protocol system provider
in London. The move now into gas suppression is a
major extension of our capability - and our work at
22 Bishopsgate will establish us as a real market
leader in Intelligent Buildings.
What you get from TClarke Design & Build is
concepts, solutions and ideas that add value.
We’ve hit and exceeded all of our targets and have
substantial secured order books looking ahead.
Summit House is a superb job for Stanhope where
there’s been great collaboration with the architect
and other partners to get all the exposed services
looking fantastic, as well as doing their job. Our work
here, and at Dagenham University Training College in
particular, has proved our capabilities and set us up
to take the business to the next level.
24
Annual Report & Financial Statements 2016
Strategic report - Take opportunities in specialist markets and sectors
Joe Peters, Contracts Manager,
tclarke healthcare
at BMI Bolton
We at TClarke are approved by GE, Siemens and
Phillips Healthcare for turnkey M&E installations for
a range of specialist installations including CT, MRI,
X-Ray, PET, Nuclear medicine and Operating
Theatres. We have the skills in-house to deliver to
world class standards and this year we became an
operating division in our own right. It has taken hard
work from the whole team, but we are now
recognised in the industry with many installations
under our belts and a complete range of services.
Rob Faro, left, Managing Director
tclarke South west at Derriford Research Facility
Derriford Research Facility is a world class laboratory
complex with the highest level Cat 3 laboratories
currently in the UK. TClarke are delivering an M&E
project here of exceptional complexity. Delivery is itself
a great achievement, but what this job has also done is
renew our credentials in the Research and
Pharmaceuticals world. Moreover, our South West team
has taken full responsibility from start to finish and that
also shows the true strength of our in-house
engineering resource nationwide.
25
Annual Report & Financial Statements 2016
MIRROR PRINCIPAL CONTRACTORS REGIONALLY
AND FOCUS ON TARGETED TENDERING
Strategic goal number five
In our regional operations, TClarke’s strategy
will be to focus on larger scale relationships
and projects, as regional, rather than local,
businesses and operating a selective
targeting and tendering approach to bid
for and win the work which best suits our
capabilities and delivers the value we require.
Key risk Areas
• Regional operations not aligned or focused on the
larger scale projects that maximise resource skills
and value opportunities
• Regional businesses locally focused and silo driven
• Regional businesses ineffective at collaboration and
cross-selling of services
Kevin Mullen, Managing Director – tclarke north
We are mindful within TClarke North that we want to be
here with clients for the next job, then the next job. It’s
all about being a non-confrontational contractor, doing a
good job and building a strong brand name. It is a
steady process and it has the right focus on quality.
2016 was a very good year with revenue up by
28.2% to £53.6m. It was also a busy one for us as
we embedded a regional approach across all our
operations. Our NW operation was a world class
industrial FM operation, but in 2016 it proved itself to be
a true TClarke M&E operation too, working first with ISG
and then with Interserve - an entirely new partner for
us there - on a series of major M&E projects for our
long term partner BAE.
That’s a great step ahead for us and it gave us the
impetus to enter the Manchester market, winning an
M&E installation taking a facility back to shell and core.
We also won our first small project for Manchester City
Council at the National Football Museum and so we’re
starting to get our name out into the market.
In Leeds our delivery of the M&E project for the new
John Lewis store was extremely significant as a
collaboration between TClarke offices. Our Leeds team
also won and delivered a series of M&E school projects
on the Bowmer and Kirkand framework - and we’re now
on the next phase of those.
In the North East, 2016 was the year when we changed
our brand name from Veale Nixon to TClarke. The
time was right and the transition has been smooth
and welcomed by our partners and clients. Again, our
approach has been marked by targeted tendering and
has been successful with progress on time and budget
at our installation for Rolls Royce, at a series of major
educational and enterprise facilities in Sunderland and
at the 1200 bed Park View Student Accommodation in
Newcastle. It has also been a year in which the next
generation of young leaders have emerged across our
business.
TClarke North was a set of strong local businesses with
quite separate focuses and skills. Now, whilst retaining
our strengths, we are a unified high-quality Building
Services operation that can deliver large scale M&E
projects across the key markets of the region. That is
a substantially more valuable proposition going forward
as we look to new opportunities.
TARGETED
TENDERING
26
Annual Report & Financial Statements 2016
Strategic report - Targeted tendering
28%
north
£53.6m
(2015: £41.8m)
Revenue
joe westworth, left, Project engineer, tclarke north
Our work with ISG and Interserve on major M&E projects for BAE shows what TClarke can do in
Manchester, the M6 corridor and the North West as a whole.
Strategic report - Targeted tendering
30%
ScotlAnd
£21.0m
(2015: £16.2m)
Revenue
Gary Jackson, Managing Director
tclarke Scotland
This was a strong year for all parts of our Scotland
business and that was well reflected in improved
underlying operating margin, improved profit, record
revenue and a very strong and balanced order book.
Those strong numbers are a reflection of a team
which is well organised, well-focused on cost
management, and motivated on site and in the office
to deliver the standards of safety, quality and client
service that mark TClarke Scotland out as a quality
operator.
The residential business here goes from strength to
strength, winning client and national NHBC awards,
and being selected for the most prestigious jobs in
the country. Our people’s motivation and quality of
work remains a major advantage. Over the last year
or two we have also further developed our FM
business across Scotland.
TClarke Intelligent Building’s data operation (which
serves the largest projects in London) is managed
here in Scotland. 2016 was another highly successful
year for that team which played a full role in securing
the 22 Bishopsgate project and delivering other
major projects like Rathbone Square.
Possibly the key strategic development in our
business this year has been the re-emergence of our
M&E operation as a real TClarke quality service. In
2016 our delivery of major projects like Irvine Leisure
Centre, our continued work on high end education
projects like the Easter Bush Innovation Centre and
our securing of projects like the Mitsubishi Test
Facility in Livingston, were evidence of our ability to
target major M&E projects, to win them and to
deliver them. Our M&E operation has the right focus
from tender identification through to delivery and
ongoing client relationships.
Across all measures - from turnover to succession
planning, from health and safety to staff retention,
TClarke Scotland is in a good place with a strong
forward order book and tender opportunities. What
we’re looking for now is managed growth and a
focus on all the aspects of quality delivery that will
keep building our name.
Irving Leisure Centre, North Ayrshire
28
Annual Report & Financial Statements 2016
Strategic report - Targeted tendering
Kevin Bones, Managing Director
tclarke central & South west
Targeted tendering has been the watchword across the
group in 2016 and for us, in the first instance this is
about deepening existing relationships. From that point
of view, the fact that we won and delivered the M&E
contract for the John Lewis store in Leeds and moved
forward to win the John Lewis in Westfield, London,
with our Leeds team doing the mechanical side and
Peterborough the electrical, was a significant result. Just
as the delivery and winning of phase after phase at the
vast Beaufort Park development in Hendon for
developer St George. These major contracts are
delivered by our Derby team.
We’ve also been very successful in the buoyant
Cambridge market, delivering major projects like Judge
Business School and securing the Illumina Genomics
Research Centre working for global high tech developer
Biomed Realty.
It is also important to mention that 2016 saw us
continue to develop our presence in Birmingham with
another project for Deutsche Bank at Brindley Place.
Our FM work in the city means that our vans are also
out and about in the city too.
The Derby team has also targeted and secured a major
healthcare M&E project at Stanmore Hospital. In 2016
the Group Healthcare team which has been based in
this region, became a division in its own right and
partnership between our central and south western
operations saw several turnkey high tech equipment
M&E installations across the UK.
M&E in the South West made major steps forward with
projects like Beckley Court in Plymouth, the Derriford
Research Facility and the Derriford Hospital Lightwell
Theatres project. The South West team made
outstanding progress during 2016 in building
relationships with main contractors and delivering
exceptional quality in complex projects, as well as
taking a proactive role in developing and delivering our
healthcare offer.
The overall impact of our strategic refocus towards
larger M&E projects has been hugely positive for our
whole team. For our engineers it has very practical
advantages. If you are delivering a single multi-million
pound job then you are onsite rather than moving
between lots of smaller projects, you are using your
skills and the latest technologies to the full and your
team enjoys the focus and stability too. It is a
completely different mindset and critically, it plays to
our strengths as a business and helps us to establish
our brand far better in the markets where the
opportunities are best suited to our skills and resource.
19%
centrAl &
South weSt
£67.9m
(2015: £56.9m)
Revenue
nathan fox and Andy richter
at Judge Business School in Cambridge, a major market for TClarke’s high quality services
29
Annual Report & Financial Statements 2016
PRINCIPAL RISKS
risk management
The ability of the group to identify and manage effectively
the risks to its business and operations is fundamental to
the successful delivery of the Group’s strategy and the
protection of its assets and reputation.
The Board is responsible for defining the Group’s appetite
for and approach to risk, including the Group’s system of
risk management and internal controls. The board has
delegated to the Audit Committee the responsibility for
reviewing the effectiveness of the Group’s internal
controls, including the systems established to identify,
assess, manage and monitor risk and provide assurance.
During the year ended 31st December 2016 the
Group identified a significant fraud within the finance
function of a subsidiary undertaking involving the
misappropriation of funds over a number of years.
Detailed investigations were initiated, under the
supervision of the Audit Committee and utilising
independent legal and forensic accounting assistance, to
establish the quantum and nature of the fraud and to seek
to recover the stolen funds. The Audit Committee also
instigated an in depth review of the Group’s internal
control processes to provide assurance that the Group
was not exposed to similar fraud risk elsewhere. Further
information concerning the fraud and subsequent actions
taken to mitigate the effect of the fraud and provide
assurance over the Group’s system of risk management
and internal controls is provided in the Audit Committee
report on pages 50 to 52.
our risk management process
The Group’s risk management framework requires all
business units to identify, assess and quantify the specific
risks facing them which could impact on their ability to
deliver their financial and operational objectives. The
business units maintain a register of the significant risks
facing the business, including an assessment of the
potential and likely impact pre- and post-mitigation, and
an assessment of the effectiveness of the controls in place
to identify and manage potential risks. Actions designed
to mitigate identified risks and implement control and
process improvements are discussed and agreed with
group management. Developments in key risks, including
an assessment of the effectiveness of mitigating actions
and controls, are reported to and discussed by the Board
each month.
Principal risks
The principal risks faced by the Group and the mitigating
actions and controls in place to address these risks were
reviewed in March 2017, and are presented below.
risk Strategy Mitigation change Main drivers
impact from 2015 of change
Construction activity in London
has increased despite the
uncertainty created by the EU
referendum result, with a
number of significant projects
commencing
Political, economic and market conditions
1. The construction sector is
1. The Group continues to operate throughout the UK
highly cyclical. The Group is
dependent on the planned
level of construction and
maintenance expenditure by
both the public and private
sectors.
2. The Group is subject to
complex and evolving
tax, legal and regulatory
requirements. A breach
of laws and regulations
could lead to litigation,
investigations or disputes,
resulting in additional costs
being incurred, civil and/or
criminal proceedings and
reputational damage.
Enhance
our core
business.
Advance
our
partnerships
nationwide.
Take
opportunities
in specialist
markets and
sectors.
using its core M&E skill base to enable agile movement
in and out of sectors to meet changing market
demands.
2. The Group monitors its order book to ensure an
appropriate balance of work between London and the
regions and across the various sectors in which it
operates.
3. The Group develops long-term client and contractor
relationships across its regional businesses and seeks to
secure framework agreements to mitigate against
demand fluctuations.
4. Cost and skills bases are aligned to reflect anticipated
work load.
5. The Group monitors legal and regulatory developments
in the areas in which it operates, and seeks legal or
other specialist advice as appropriate. All employees,
suppliers and subcontractors are required to comply
with all applicable laws and regulations. Training is
provided on legal and regulatory changes as required.
30
Annual Report & Financial Statements 2016
Strategic report - Principal risks
risk Strategy Mitigation change Main drivers
impact from 2015 of change
financial strength
The Group’s ability to secure
and deliver work depends on its
perceived financial strength and
the availability of cash resources,
banking facilities and the ability
to provide performance and
other bonds as necessary.
Enhance
our core
business.
Advance our
partnerships
nationwide.
1. Capital structure and dividend policy managed to ensure
adequate reserves maintained to fund growth strategy.
2. The Group monitors cash flow requirements and seeks
to match maturity profiles of financial assets and
liabilities at contract level.
3. Efficient utilisation of resources monitored via Group-
wide business management system.
4. The Group has in place a £10m Revolving Credit Facility,
committed to 31st March 2020, and a £5m overdraft
facility to help manage short-term fluctuations in
working capital.
5. The Group also has in place £20m committed bonding
facilities.
6. Creditworthiness of counterparties monitored on an
ongoing basis.
reputation
The Group’s ability to tender for
new business and to maintain
strong relationships with
customers is dependent on
maintaining its reputation for
leadership in technological
innovation and quality of delivery.
winning new work
Our ability to secure profitable
new work is dependent on our
ability to:
• adequately resource tenders;
• understand the technical
and commercial challenges
incumbent in each tender; and
• price the associated risks
accordingly.
If risks are underpriced,
contract losses and reputational
damage may result; if risks are
overpriced, the Group will not
secure sufficient tenders to
replenish the order book and
grow the business.
contract delivery
The Group concurrently runs
several hundred contracts across
the country, some of huge
complexity. These require high
quality, proactive management
to ensure delivery of value
objectives for all stakeholders.
Failure to deliver could result
in significant financial and
reputational damage.
Enhance
our core
business.
1. The Group supports high standards of business ethics,
sustainability and compliance, and is committed to
improving health and safety at work for all.
2. Feedback is sought from key stakeholders on a regular
basis, and actions arising from this feedback discussed
and agreed at an appropriate level.
1. Focus on strong relationships enables us to understand
client needs and focus our tendering activity accordingly.
2. We have experienced teams of estimators throughout
the country, with all bids reviewed by a Director and
checks carried out to avoid incorrect or non-competitive
pricing.
3. The Board remains committed to the principle that we
will not bid for work below commercially acceptable
rates.
4. A detailed business case is prepared for any proposed
expansion into new geographic areas or business
sectors, and is subject to prior board approval.
Mirror
principal
contractors
regionally
and focus
on targeted
tendering.
Take
opportunities
in specialist
markets and
sectors.
Enhance
our core
business
Sustain our
resource
advantage.
Mirror
principal
contractors
regionally and
focus on
targeted
tendering.
1. Ongoing assessment and management of operational
risk throughout project lifecycle.
2. Train and maintain industry leading teams of directly
employed Engineers, Surveyors, Supervisors and skilled
tradespeople
3. Regular performance reviews of all key suppliers and
subcontractors.
4. Insurance cover reassessed each year, to guard against
liability claims.
5. Profit and cash flow are monitored throughout the
project lifecycle, with regular reviews at contract and
business unit level.
6. Contracts of a significant size or risk are regularly
reviewed by Executive Management and discussed at
Board level.
31
Annual Report & Financial Statements 2016
The Group’s banking facilities
were renegotiated as planned
during 2016 and now comprise
a committed £10m revolving
credit facility to 31st March 2020
and a £5m overdraft facility.
Improved underlying
performance during 2016.
Tender prices and margins
are improving as clients and
contractors seek to lock in scarce
M&E resource.
The Group’s order book has
continued to grow.
The Group is benefiting from
its focus on relationships and
targeted tendering approach with
an improvement in the overall
quality of secured work.
The Group’s core resource of
skilled tradesmen and project
delivery teams gives it a key
advantage over competitors
dependent on external resources
for project delivery.
Strategic report - Principal risks
risk Strategy Mitigation change Main drivers
impact from 2015 of change
People and skills
Attracting, retaining and
developing high calibre staff and
skilled tradespeople is key to our
ability to deliver value for our
stakeholders.
Sustain our
resource
advantage.
1. The Group remains committed to providing
apprenticeships, career paths and ongoing training and
development for all employees.
2. Remuneration packages for all staff are linked to
performance and monitored to ensure they remain
competitive.
3. Labour rates are monitored regularly to ensure tender
rates are realistic and increases are managed. We have
continuous dialogue with the trade unions and continue
to review our policies and procedures in managing this
risk.
Vast numbers of skilled resource
left the industry during the
downturn and have not been
replaced.
As the construction sector grows,
increasing demand for scarce
engineering, commercial and
site-based resources is making
recruitment and retention of
employees more difficult.
health and safety
Failure to manage health, safety
and environmental risks could
cause serious injury or loss to
employees or third parties and
expose the group to significant
financial and reputational loss
and litigation.
Supply chain
To deliver projects to the correct
specification and to budget
requires the availability of
components and materials of
sufficient quality and at the right
price. The majority of projects
we secure do not allow for the
recovery of increased material
costs.
Pensions
The Group is exposed to funding
risks arising from changes in
longevity, inflation and
investment assumptions in
relation to its defined benefit
pension scheme.
it Systems
The efficient operation of the
Group is dependent on the
proper operation and security
of its IT systems.
Sustain our
resource
advantage.
1. The Group Managing Director has overall responsibility
for health and safety, ensuring safety is prioritised
throughout the Group.
2. The Group Health and Safety Director monitors and
responds to legal and regulatory developments.
3. Industry leading health and safety policies and
procedures are maintained.
4. All employees received regular training and updates to
ensure they are aware of their responsibilities.
5. All employees, suppliers and subcontractors are required
to comply with all applicable laws, regulations and
standards.
Advance our
partnerships
nationwide.
1. Formal supplier framework agreements are maintained
to mitigate this risk, with prices locked in through
procurement at the beginning of a contract wherever
possible.
2. Regular performance reviews of all key suppliers and
subcontractors.
Inflationary pressures are
increasing throughout the supply
chain.
Sustain our
resource
advantage.
1. The Group’s defined benefit scheme closed to new
members from January 2015.
2. Ongoing regulatory and funding requirements are
monitored in conjunction with external actuarial advisers
and regular meetings are held with the pension scheme
trustees.
3. The Group is consulting with employees on an increase
in employee contributions.
Actuarial assumptions, driven
by falling bond yields, have
significantly increased the
Group’s exposure to defined
benefits pension risk.
The triennial valuation of the
scheme as at 31st December
2015 showed that the scheme
deficit has increased and the
Group will need to make
additional contributions to clear
the deficit.
Sustain our
resource
advantage.
1. The Group has implemented a system-wide business
management system and undertakes a process of
continual improvement.
2. The Group maintains robust cyber security policies to
guard access third party access and malicious attacks.
Warnings of specific threats are circulated to all relevant
personnel.
32
Annual Report & Financial Statements 2016
VIABILITY STATEMENT
The Directors have assessed the Group’s prospects and
viability, taking into account its current position and the
principal risks outlined on pages 30 to 32.
The nature of the Group’s business is long-term and its
business model is open-ended. The UK construction
market in which the Group operates is subject to
considerable peaks and troughs. The Directors consider a
three year period as appropriate for assessing the ongoing
viability of the Group as most of the projects undertaken
by the Group are completed within a three year time
horizon from initial tender and the Group uses a three
year time frame for the preparation of its strategic
business plans and financial projection models.
The Group’s prospects are assessed primarily through
its strategic business planning process and the ongoing
monitoring of the principal risks and mitigating actions.
The process is led by the Chief Executive and involves
Senior Management throughout the Group.
All business units formally update their strategic plans on
an annual basis. This process, which takes place in the
fourth quarter each year, includes:
• an assessment of the business unit’s current position
taking into account its operating environment and the
threats and opportunities it faces;
• the business unit’s achievements over the previous
twelve months measured against its strategic objectives;
• a detailed review of the risks faced by the business units
and the strength of the controls and mitigating actions
in place;
• the agreement of financial and strategic targets
covering the following three years; and
• the preparation of detailed budgets and projections for
the next three years in support of the strategic business
plan.
The business unit strategic plans are formally reviewed
and challenged by the Executive Directors prior to
presentation to the full Board.
Based on the financial models submitted by the business
units, the Group’s financial projections are updated and
tested using a range of sensitivities to identify potential
threats to the financial viability of the Group over the
three year projection period. These sensitivities include
changing assumptions with regard to margins, workload
and liquidity of financial assets and liabilities. The key
assumptions underlying the financial model include the
renewal and continuing availability on similar terms of the
Group’s existing banking facilities, which comprise a £5
million overdraft facility repayable on demand and a
committed £10 million revolving credit facility expiring
on 31st March 2020, and the ability to flex the cost base
sufficiently to address any significant change in workload.
The three year projections demonstrate that, taking into
account any reasonable sensitivities, the Group will be
able to operate within its existing facilities over the three
year projection period, and the Directors are confident,
as demonstrated by our experience during the recent
recession, that the Group’s business model allows
sufficient flexibility to meet any significant change in
demand for its services.
The Group takes a conservative approach to strategic risk.
The business case for all significant investments and entry
into or exit from specific markets is reviewed and signed
off by the Board. Risk registers are maintained and
reviewed regularly throughout the year to identify
potential threats to the Group’s business, to assess the
financial, operational and strategic impact of these threats,
and to determine appropriate mitigating actions.
Based on their assessment of prospects and viability
above, the Directors confirm that they have a reasonable
expectation that the Group will be able to continue in
operation and meet is liabilities as they fall due over the
three year period ending 31st December 2019.
The Directors also considered it appropriate to prepare
the financial statements on the going concern basis, as
explained in Note 3a on page 94.
33
Annual Report & Financial Statements 2016
Strategic report - Financial review
FINANCIAL REVIEW
Martin walton
Finance Director
Summary of financial performance
2015
2016 (Re-presented)3
continuing operations £m £m
revenue 278.6 242.4
operating profit
- Underlying1
- Reported 4.4 4.4
6.9
5.1
Profit / (loss) before tax
- Underlying1
- Reported 3.7 3.5
6.2 4.2
Profit / (loss) after tax
- Underlying2
- Reported 2.9 2.8
4.9 3.4
Discontinued operations
(0.5) (2.7)
Profit / (loss) for the year 2.4 0.1
earnings per share:
- Underlying2
- Continuing operations 6.74p 6.66p
11.60p 8.16p
- Reported 5.45p 0.13p
dividend per share 3.2p 3.1p
1 Underlying operating profit and
profit before tax are stated
before amortisation of intangible
assets and non-recurring items -
see Note 7 to the financial
statements.
2 Underlying profit after tax and
earnings per share are stated
after adjusting for the tax
effect of amortisation and
non-recurring items.
3 Prior year re-presented to
reclassify certain immaterial
cost of sales and underlying
administrative expenses
totalling £0.5m as non-recurring
costs to aid comparison with
the current year.
34
Annual Report & Financial Statements 2016
revenue £m
300
250
200
150
100
50
0
2014 2015 2016
Scotland
north
central & South west
london & South east
underlying
operating margin %
5%
4%
3%
2%
1%
0
-1%
-2%
2014 2015 2016
overhead
revenue %
2014 2015 2016
earnings
per share (p)
12%
10%
8%
6%
4%
2%
0
12
10
8
6
4
2
0
-2
2014 2015 2016
underlying
continuing operations
reported
Strategic report - Financial review
Accounting policies and segmental reporting
The Group’s consolidated financial statements are
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European
Union. There have been no significant changes to
accounting policies during the year ended 31st December
2016.
underlying group performance
overview
Revenue from continuing operations increased by 14.9%
to £278.6m (2015: £242.4m), and underlying operating
profit increased by £1.8m to £6.9m (2015: £5.1m).
Underlying operating profit, which excludes amortisation
and non-recurring items, is the measure used to assess
performance against targets and determine performance
related remuneration. All regions delivered increased
revenue, whilst London & South East and Scotland showed
significant increases in margins. Net underlying overheads
as a percentage of revenue fell to 9.2%. Our order book
grew by 10% to £330m (2015: £300m).
london & South east
Revenue from our London & South East operations
increased by 10.7% to £142.9m (2015: £129.1m),
generating an underlying profit of £3.5m (2015: £2.0m).
Underlying operating margin increased to 2.4% (2015:
1.5%).
We have secured a number of significant new orders
across a wide spectrum of work for 2017 and beyond,
including mechanical and IT as well as electrical services,
with our clients continuing to value our teams of in-house
engineers and tradesmen.
central & South west
Revenue from our Central & South West operations
increased by 19.3% to £67.9m (2015: £56.9m) and
underlying operating profit improved to £1.0m (2015:
£0.9m), with underlying operating margins down slightly
at 1.5% (2015: 1.6%). The region continues to benefit
from strong client relationships and repeat business. The
expansion of our healthcare business and our burgeoning
reputation in the South West have presented a number
of growth opportunities which should lead to improved
profitability going forward.
north
In the North revenue increased by 28.2% to £53.6m
(2015: £41.8m), with the region continuing to benefit
from strong client relationships and repeat business.
Underlying operating profit was £1.8m (2015: £1.9m).
The underlying operating margin was 3.4% (2015: 4.5%),
as we invested in our core mechanical and electrical
contracting capabilities in the North West and the
improved coordination and consistency of our offering
across the region under a common managing director.
Scotland
Scotland’s revenue increased by 29.6% to £21.0m (2015:
£16.2m), and underlying operating profit was £0.6m
(2015: £0.3m), representing an underlying operating
margin of 2.9% (2015: 1.9%). Scotland’s strong
performance continued its recovery evident in the second
half of 2015. As well as its continuing strength in the
residential market, Scotland has generated significant IT,
mechanical and electrical work streams in the commercial
sector.
exceptional and non-underlying items
Exceptional and non-underlying items comprise £0.2m
(2015: £0.2m) amortisation of intangible assets, and
£2.3m (2015: £0.5m) non-recurring costs relating to the
misappropriation of funds uncovered towards the end of
2016. The total cost of the fraud, including investigation
costs, is £3.3m, £1.0m of which had already been
expensed in prior years. Results prior to and including
2015 have not been restated as the impact cumulatively
and in each year was not considered to be material,
however, the 2015 income statement has been re-
presented to include £0.5m costs relating to the fraud as a
non-recurring item. The cost in 2016 includes £0.4m fees
incurred in investigating the fraud and pursuing civil and
criminal remedies.
finance costs
Net finance costs were £0.7m (2015: £0.9m), including a
£0.6m (2015: £0.6m) non-cash finance charge in respect
of the pension scheme. Net interest on bank loans and
overdrafts fell to £0.2m (2015: £0.3m), reflecting
improved cash performance throughout the year.
taxation
As a wholly UK based group, our tax charge is dependent
on UK corporation tax rates. For 2016, the tax charge was
impacted by the fall in prospective tax rates on deferred
tax assets and non-deductible expenses, which saw the
effective tax rate increase to 23.5% (2015: 20.1%).
35
Annual Report & Financial Statements 2016
Strategic report - Financial review
Strategic report - Financial review
discontinued operations
Following the decision to discontinue our Bristol and
Cardiff operations in 2015, the Group has incurred further
losses of £0.5m after tax (2015: £2.7m) closing out its
contractual commitments in respect of these offices.
earnings per share
Basic earnings per share after discontinued operations
increased to 5.45p (2015: 0.13p), with basic earnings
per share from continuing operations increasing to 6.74p
(2015: 6.66p).
Basic underlying earnings per share after adjusting
for amortisation of intangible assets and non recurring
costs and the tax effect of these items, was 11.60p
(2015: 8.16p).
dividends
The Board is proposing a final dividend of 2.70p (2015:
2.60p), with the total dividend for the year increasing by
3.2% to 3.20p (2015: 3.10p). The dividend is covered 3.6
times by underlying earnings.
The final dividend will be paid, subject to shareholder
approval, on 12th May 2017 to those shareholders on
the register at 18th April 2017. The dividend will go
ex-dividend on 13th April 2017. A dividend reinvestment
plan (DRIP) is available to shareholders.
Pension obligations
The triennial valuation of the pension scheme at
31st December 2015 showed a deficit of £14.9m,
representing a funding level of 67% (2012 valuation:
deficit £11.5m, funding level 68%).
The Group has been pursuing an agreed deficit reduction
plan over a number of years, however market factors have
meant that the deficit has not been reduced as intended
and the cost of funding current pension commitments
has increased. Following provisional agreement of the
draft 2015 valuation, the Group has proposed a revised
deficit reduction plan which includes making additional
contributions and continuing to provide security to the
pension scheme in the form of a charge over property
assets up to a combined market value of £3.1m. From 1st
January 2017 the future service contribution will increase
to 21.4% of pensionable payroll (including employee
contributions) and the deficit reduction contribution has
been set at £1.0m for the year ending 31st December
2017, £1.25m for the year ending 31st December 2018
and £1.5m per annum thereafter. The Group has proposed
an increase in employee contributions from 8% to 10%
of pensionable salary and is consulting with employees on
this proposal.
The scheme is closed to new members and the Group
continues to meet its ongoing obligations to the scheme.
In accordance with IAS 19 ‘Employee Benefits’, an
actuarial expense of £6.3m, net of tax, has been
recognised in reserves, with the pension scheme deficit
increasing by £7.2m to £20.6m (2015: £13.4m). The
increase in the deficit is primarily due to a fall in the
discount rate applied to scheme liabilities, which arose
due to the significant fall in bond yields during 2016,
offset by changes in mortality assumptions.
cash flow and funding
Net cash £m
Cash generated
by operations £m
10
8
6
4
2
0
5
4
3
2
1
0
2014 2015 2016
2014 2015 2016
The Group’s net cash balances improved to £9.3m at 31st
December 2016 (2015: £6.7m) after deducting the £3.0m
(2015: £5.0m) outstanding under the revolving credit
facility. This reflects the improved underlying performance
of the Group and improved management of working
capital.
During the year the Group renegotiated its banking
facilities and now has in place a £10.0m revolving credit
facility, which is committed until 31st March 2020 and a
£5.0m overdraft facility, renewable annually. Interest on
overdrawn balances is charged at 2.25% above base rate,
and interest on balances drawn down under the revolving
credit facility is charged at 2.25% above LIBOR, fixed for
the duration of each drawdown (typically three to six
months). The Group was compliant with the terms of the
facilities throughout the year ended 31st December 2016
and the Board’s detailed projections demonstrate that the
Group will continue to meet its obligations in the future.
36
Annual Report & Financial Statements 2016
Strategic report - Financial review
Strategic report - Financial review
financial risk management
The Group’s main financial assets are contract and other
trade receivables and cash and bank balances. These
assets represent the Group’s main exposure to credit risk,
which is the risk that a counterparty will fail to discharge
its obligations, resulting in financial loss to the Group. The
Group may also be exposed to financial and reputational
risk through the failure of a subcontractor or supplier.
The financial strength of counterparties is considered prior
to signing contracts and reviewed as contracts progress
where there are indications that a counterparty may be
experiencing financial difficulty. Procedures include the use
of credit agencies to check the creditworthiness of existing
and new clients and the use of approved suppliers’ lists
and group-wide framework agreements with key suppliers.
Martin walton
Finance Director
28th March 2017
The Group also has in place £22.5m of bonding facilities,
of which £11.1m were unused at 31st December 2016.
net assets and capital structure
The Group is funded by equity capital, retained reserves
and bank loans, and there are no plans to change this
structure. In spite of the strong underlying performance,
shareholders’ equity decreased by £5.5m during the year
to £14.1m (2015: £19.6m) due to the increase in the
pension deficit (reported through other comprehensive
income) and the misappropriation of funds referred to
above.
At £22.8m (2015: £23.0m), goodwill and intangible assets
arising on previous acquisitions represent a significant
proportion of the Group’s total assets of £112.1m
(2015: £109.4m). The Board has undertaken a rigorous
impairment review in respect of the intangible assets at
31st December 2016 and concluded that no impairment
is necessary.
group reorganisation
During the year the Group implemented the first phase
of a group reorganisation, which saw all the Group’s
operating activities in London & the South East and
Central & South West divisions come together into a
single statutory entity, TClarke Contracting Limited,
with a separate statutory entity, TClarke Services Limited
providing engineering and support services to the
enlarged operating company. TClarke Services Limited
also became the principal employer of the Group’s
defined benefit pension scheme and in accordance with
the Group’s accountancy policies the defined benefit
pension obligation was transferred to that company.
Phase 2 of the Group reorganisation, which will see our
operations in the North and Scotland merged into TClarke
Contracting Limited, will be implemented during 2017. This
reorganisation represents the culmination of a process of
rationalisation and increased consistency of organisation
and delivery that has been ongoing for a number of years.
37
Annual Report & Financial Statements 2016
Strategic report - Corporate social responsibility
CORPORATE SOCIAL RESPONSIBILITY
The Company reinforces its ongoing commitment to
conducting business with honesty and integrity, in
a fair manner. Through high standards of corporate
governance and setting the ‘tone from the top’, the Board
is responsible for establishing and monitoring policies
which seek to embed high ethical standards of behaviour
throughout the Group. The Company has clear and
concise policies in place to support the business and
enable TClarke to operate in an open and transparent
manner including, but not limited to: anti-bribery and
corruption, health and safety, environmental, sustainable
development, quality assurance, equal opportunities,
equality and diversity, training and development and other
human resources policies.
The Company expects its employees to conduct
themselves in a manner which reflects the high calibre of
the business, with a personal commitment to compliance
with all applicable laws and regulations. The Company has
a zero tolerance policy towards any form of bribery or
corruption and has an appropriate procedure in place
whereby any concerns in relation to malpractice can be
raised in an appropriate forum.
It is our policy to ensure that the highest possible
standards are achieved and maintained operationally
throughout our full scope of operation. We are proud to
operate a business management system in accordance
with the requirements of ISO 9001:2015 (Quality
Management Systems).
Health & Safety at TClarke
Health & Safety is at the core of our business and is the
‘cornerstone’ of all our operations. As such, we have
continued our ongoing investment in this area.
The primary challenge in 2016, was, as ever, to keep
Health & Safety at the forefront of everybody’s mind
and improve upon the existing procedures and systems,
to continually evolve and improve our performance (see
below).
improved ‘you See, you Say’ figures
The ‘You See, You Say’, ‘Near Miss’ reporting initiative
has, again, seen a substantial improvement with
regards to the number of reports received. In fact, an
increase of over 20% from 3,215 in 2015 to 4,076 in
2016, demonstrating our strong ‘Culture’ for accident
reporting.
The iPad monthly Health & Safety Award is still given for
the best ‘You See, You Say’, regional entry, drawn from
a hat (a hard hat of course).
Absolute accident reporting
As described in 2016, the ‘Absolute’ Accident Reporting
Regime, which ensures each accident is reported
despite the level of severity, has been maintained.
Therefore, every accident which occurs within the
business, no matter how apparently small or
insignificant, is dutifully recorded. No accident is
accepted lightly but more importantly none are hidden
and so it follows that no statistic is buried.
The Accident Statistics across
the Group for 2016 compared
to 2015 were down from 140
to 123 (12%) and RIDDORs
(HSE Reportable) down from
16 to 11 (31%).
We continue to strive to
ensure all our operatives are
suitably trained to minimise
the risks of incidents and
accidents occurring.
Accident statistics
100
80
60
40
20
0
2014 2015 2016
Scotland
north
central & South west
london & South east
A full range of Safety
initiatives
During 2016, TClarke
continued to implement ‘our’
full range of Health & Safety initiatives under the
well-established ‘Switched on to Safety’ banner which
has run continuously since 2005. These initiatives
included ‘Have Your Say’ which focuses on drawing
out Health & Safety topics and issues for discussion,
which encourages engagement and consultation with
the employees, ‘Good to Go’ which is the TClarke
procedure for pre-task briefings, ‘Clear As You Go’
which is our system for collecting waste as it is created
and ‘Would You?’ which is the new poster and toolbox
talk campaign focusing on Health, Safety, and
Environmental risks.
38
Annual Report & Financial Statements 2016
Strategic report - Corporate social responsibility
Strategic report - Corporate social responsibility
Environment
TClarke recognises and accepts the known
environmental implications of its engineering works and
procedures.
Energy consumption was measured across the Group by
recording data on the combustion of fuel and the use of
electricity at its facilities.
As part of our commitment to sustainable development
we undertake regular appraisals as a means of
identifying significant impacts for our works including:
health and safety, climate change and air quality, travel
and transport, energy consumption, noise vibration,
water and drainage, geology and soils and wastage.
TClarke maintains an Environmental Management
System accredited to ISO 14001:2015 to provide its
clients and other stakeholders with verifiable evidence
that Environmental Performance is integral to business
management.
As a registered waste carrier we ensure that materials
are handled and disposed of in a manner that does
not damage the environment or cause pollution.
Furthermore, the Company aims to recycle so far as
practicable.
greenhouse gas emissions
As a responsible company we take our environmental
responsibilities seriously. This is the fourth year we have
been required to report on Greenhouse Gas (“GHG”)
emissions in accordance with the Companies Act 2006
(Strategic Report and Directors’ Reports) Regulations
2013.
Energy consumption was measured across the Group
by recording data on the combustion of fuel and the
use of electricity at its offices and facilities and we have
collated Scope 1 and Scope 2 emissions data for the
year ended 31st December 2016 across the Group
companies, which are reported in our consolidated
financial statements.
Our GHG emissions have been calculated using UK
Government guidelines for conversion of fuels and
electricity.
greenhouse gas emissions
2016
Scope 1 emissions
Scope 2 emissions
Total scope 1 & 2 emissions
Revenue
Emissions / £1m revenue
2015
Scope 1 emissions
Scope 2 emissions
Total scope 1 & 2 emissions
Revenue
Emissions / £1m revenue
Measure
tC02e
tC02e
tC02e
£m
Measure
tC02e
tC02e
tC02e
£m
london
& Se
central
& Sw
north
Scotland
129
113
242
142.9
1.7
London
& SE
102
147
249
129.1
1.9
1,005
51
1,056
67.9
15.6
Central
& SW
1,187
77
1,264
56.2
22.5
317
42
359
53.6
6.7
285
37
322
21.0
15.3
North
Scotland
348
57
405
41.8
9.7
333
43
376
15.3
24.6
total
1,736
243
1,979
285.4
6.9
Total
1,970
324
2,294
242.4
9.5
definitions
1. Scope 1 emissions Combustion of fuel and operation of facilities
2. Scope 2 emissions Electricity purchased from the national grid
3. tC02e Tonnes Carbon Dioxide equivalent
39
Annual Report & Financial Statements 2016
Strategic report - Corporate social responsibility
Supporting charities and local communities
Our regional offices organised various fundraising
events for national and local charities, and supported
their local communities, including the annual TClarke
London Christmas raffle, which raised money for
The Evelina London Children’s Hospital.
TClarke is pro-active in its corporate responsibility to
the local and wider community in which we work. We
engage in initiatives with our communities by liaising
with local schools, attending career open days, holding
skills workshops and offering work placements for
young and mature trainees.
In addition to the support we give to providing
employment to the local and wider community, TClarke
and its people value the contribution we can make
through supporting charitable organisations and
sponsored events.
In 2016 several successful charity events were
organised including a Group-wide ‘Wear It Pink’ day
to support breast cancer awareness for the registered
charity Breast Cancer Now.
40
Annual Report & Financial Statements 2016
Strategic report - Corporate social responsibility
Diversity and equality
Investing in our workforce
The Group maintains an equality and diversity policy,
selecting and promoting employees based on their
aptitudes and abilities. TClarke is committed to
providing equal opportunities to all current and
future employees and values the differences that a
diverse workforce can contribute to the organisation.
Data concerning gender diversification is given
below:
gender diversification
2016 Male female total
Directors 6 1 7
Senior management 37 1 38
Staff 288 97 385
Skilled operatives 753 4 757
Apprentices and trainees 187 2 189
Total 1,271 105 1,376
2015 Male Female Total
Directors 7 1 8
Senior management 24 1 25
Staff 308 87 395
Skilled operatives 718 5 723
Apprentices and trainees 136 1 137
Total 1,193 95 1,288
When recruiting, TClarke gives full and fair
consideration to suitable applicants, having regard
to individuals’ aptitudes and abilities and takes
responsibility for its obligations towards employment
of disabled people. The Company is committed to
ensuring that any individual who becomes disabled
during the course of their employment remains in
their own role where possible, or is employed in
another suitable position. Training, career
development and promotion of disabled employees
should, as far as possible, be identical to that of
other employees.
The Company is committed to ensuring that
everyone is treated equally regardless of disability or
any other condition which cannot be shown to be
relevant to performance.
Our people are our biggest asset, and we recognise
the need to attract and retain excellent staff which
give TClarke the great reputation we are renowned
for. Creating shareholder value is ultimately
dependent on the skill, dedication, reliability and
motivation of our workforce, and we prioritise
investment in our employees as a key success factor.
Since the launch of the TClarke Training Academy
and Career Pathway in January 2016 we have
successfully rolled out our plan of monthly training
modules to our new trainees and experienced staff to
ensure all staff are trained in TClarke’s procedures
and kept up to date with new systems and
technologies.
We have carried out appraisals with all staff
members, which has been invaluable to allow us to
understand our staffs training needs and helping
them meet their career aspirations. We have paired
junior team members with senior mentors to assist
them in their journey within TClarke. This ensures
that TClarke’s values and aspirations are understood
throughout the business.
We ensure employees are kept informed and take
appropriate steps to ensure that we communicate
with our employees in an effective manner to notify
everyone regarding matters that are of concern to
them and factors that affect the performance of the
Company. When the Company needs to make
decisions which affect our people’s interests, we
consult with employees, or their representatives, and
value their opinions when making decisions which
affect their interests.
The Strategic Report on pages 2 to 41 was approved by
the Board of Directors on 28th March 2017.
Mark lawrence
Chief Executive Officer
28th March 2017
41
Annual Report & Financial Statements 2016
governance - Board of Directors
governance - Board of Directors
executive directors
Mike Crowder, back left
Mark Lawrence, seated
Martin Walton, right
Mark lawrence
group chief executive officer
Appointed to Board 2nd May 2003. Age 49.
Mark has 31 years with the company and started his career
here by completing an electrical apprenticeship in 1987. He
progressed through the company, becoming Technical Director
in 1997, Executive Director in 2003 and Managing Director,
London Operations in 2007. As Group Chief Executive Officer
since January 2010, Mark has led strategic change across
the group and remains a hands-on leader, taking personal
accountability and pride in TClarke’s performance and,
ultimately our client’s satisfaction. He regularly walks project
sites and gets involved personally with many of our clients,
contractors and our supply chain.
Mike crowder
group Managing director
Appointed to Board 1st January 2007. Age 52.
Mike has over 25 years of significant experience in the
construction industry and started at TClarke as an apprentice.
His vast project based experience includes the delivery
of many flagship jobs and a detailed knowledge of large
infrastructure projects. Mike has overall responsibility for
Operations and ensuring that all projects are properly
managed. He also monitors our engineering departments
and projects on a regular basis as a Main Board Member.
Mike is responsible for Group health and safety and is actively
involved with health and safety risk management and with
raising awareness, influencing attitudes and changing
behaviours.
Martin walton
group finance director
Appointed to Board 26th October 2010. Age 52.
Martin is a Chartered Accountant with over 25 years
experience within the profession and across industry. He has
worked with numerous plcs across a range of market sectors,
both with KPMG and BDO. Martin holds a First Class Honours
Degree in Accountancy and Finance from the London School
of Economics. He joined TClarke as Group Financial Controller
in October 2007 and has led the implementation of the
Group’s management reporting system.
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governance - Board of Directors
governance - Board of Directors
non-executive directors
iain Mccusker
chairman
Appointed to Board 1st January 2009. Age 65.
Iain is a Chartered Accountant and former partner at Coopers
& Lybrand. He has significant international financial and
management experience, gained through senior executive roles
at Xerox, Unisys and ACCA. This includes in depth commercial,
operational and risk management experience. Iain is a former
member of the Qualifications Board of The Institute of
Chartered Accountants of Scotland. He is a Non Executive
Director of Cripps LLP, Visiting Fellow at Cass Business School
and Chairman, NPA Insurance.
tony giddings
Senior independent non-executive director
Appointed to Board 1st October 2014. Age 65.
Tony holds a BSc in Building Administration and is a Fellow
of the Chartered Institute of Building. Tony has had a long
and successful career in property development including the
delivery of over £1.8 billion in construction projects. He has
previously held Board positions at Argent LLP and The British
Council for Offices and was Chairman of The Design and Build
Foundation from 2001 to 2003. Tony is a Trustee of CRASH
and Director of London South Bank University.
beverley Stewart
independent non-executive director
Appointed to Board 1st January 2005. Age 56.
Beverley holds a degree in Building Economics and qualified
as a Chartered Surveyor in 1988. She has over 25 years
Board level experience in the construction industry, including
a successful career delivering Real Estate Integration
programmes and Occupier Real Estate reorganisation for
corporate clients. She gained over 15 years experience at
Axtell Yates Hallett where she became a partner, before
becoming owner of a partnership providing project
management, cost planning and asset management
consultancy.
Mike robson
independent non-executive director
Appointed to Board 18th November 2015. Age 56.
Mike is a Chartered Accountant with experience of audit,
financial management and reporting, gained at PwC and
in industry. In a career including 23 years of Board level
experience, Mike has worked in a range of business sectors
as Finance Director, Managing Director, owner or Advisor. He
has a strong focus on improving business performance and
developing management teams. Mike has also launched,
developed and successfully sold his own internationally based
business. Mike also serves as Director, Azure Partners Ltd.
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Annual Report & Financial Statements 2016
Iain McCusker, back left
Mike Robson, back right
Beverley Stewart, seated
Tony Giddings, right
governance - Corporate governance report
corporate governance report
iain Mccusker
Chairman
chairman’s introduction
The Board is committed to high standards of corporate
governance and continues to embrace the principles
contained in the UK Corporate Governance Code (‘the
Code’). The Code sets out principles to which the Listing
Rules require all listed companies to adhere, supported
by more detailed provisions. This governance section
describes the principal activities of the Board and its
committees, and how the Company complies with the
Code.
As a Board, we recognise that a high standard of
corporate governance is essential to support the Group’s
strategy. Our Directors constructively challenge matters in
an open and transparent manner for the best interests of
our shareholders.
The Company uncovered a significant misappropriation
of funds within a subsidiary company in the latter part
of 2016, which led to immediate action being taken by
the Board to commission an independent review of the
Company’s internal controls and procedures, as described
n
in my Chairman’s statement on pages 2 and 3. The
key objectives going forward are to implement the
recommendations which arose from the review to
strengthen our internal controls and ensure our
governance procedures effectively monitor and review
these improvements.
As Chairman, I will continue to evolve our governance
framework, being mindful of best practice and the latest
developments surrounding corporate governance.
iain Mccusker
Chairman
28th March 2017
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governance - Corporate governance report
Statement of compliance
Alexandra dent
Company Secretary
Throughout the year ended 31st December 2016 the
Board considers that it has complied with the provisions
of the Code. The Code is issued by the Financial Reporting
Council (FRC) and is available on the FRC’s website
https://www.frc.org.uk
Structure of the board
The Company is managed by the Board of Directors,
which currently consists of four non-executive directors
(including the Chairman) and three executive directors.
Danny Robson also served as an executive director from
the start of the year until his resignation on 21st March
2016.
The Articles of Association require that one-third of the
Directors shall retire by rotation each year and become
eligible for re-election. This excludes those Directors who
may be newly appointed during the year, who are eligible
for election at the next Annual General Meeting (“AGM”).
At the forthcoming AGM on 5th May 2017 Iain McCusker
and Mike Crowder will retire and offer themselves for re-
election. Beverley Stewart will not be offering herself for
re-election at the 2017 AGM. As such, Mrs Stewart will
retire at the conclusion of the next AGM.
not to be independent according to the Code. Despite
this, at least half of the directors were deemed to be
independent throughout the year.
board diversity
The Board recognises the benefits of board diversity
including, but not limited to, the appropriate mix of
skills, experience, gender, age, ethnicity, background and
personality. The Board endorses a balance of diversity and
experience to promote Board effectiveness, whilst taking
into account the appropriate financial, managerial and
industry skills which are relevant to the calibre of a
Director of TClarke.
The Board stipulates that new appointments to the Board
will be based on merit and suitability to the role, whilst
also giving due consideration to diversity. Non-Executive
Directors should have the ability to fulfil the requisite time
commitment.
board meetings
The composition of the Board is designed to ensure
effective management, control and direction of the Group.
Matters reserved for the board include:
All Executive Directors have signed service agreements
which take into account best practice and contain a notice
period of 12 months for all Executive Directors.
• Consideration and approval of the Group’s strategy, budgets,
structure and financing requirements
• Consideration and approval of the Group’s annual and interim
All Non-Executive Directors have letters of appointment
specifying their roles, responsibilities and required time
commitment to the Board.
Prior to his appointment as Chairman, Iain McCusker
disclosed his significant commitments to the Board. These
commitments, and all directors’ biographies are provided
on pages 42 and 43.
Beverley Stewart, by virtue of having served as a Director
of the Company for more than eleven years, is deemed
reports and financial statements
• Consideration and approval of interim and final dividends
• Consideration and approval of the Group’s interim management
statements
• Ensuring the maintenance of a sound system of internal controls
and risk management
• Conducting a robust assessment of the principal risks facing the
Company, and setting risk appetite
• Changes to the structure, size and composition of the Board
recommended by the Nomination Committee
• Establishing committees of the Board and determining their
terms of reference
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The Board is collectively responsible for the effective
oversight of the Company and its businesses. It also
determines the strategic direction and governance
structure of the Company to enable it to achieve
long-term success and deliver sustainable shareholder
value. The Board takes the lead in safeguarding the
reputation of the Company and ensuring that the
Company maintains a sound system of internal control.
The Board’s full responsibilities are set out in the schedule
of matters reserved for the Board.
The Chairman is responsible for the leadership and
management of the Board and its governance. By
promoting a culture of openness and debate, he facilitates
the effective contribution of all Directors and helps
maintain constructive relations between Executive and
Non-Executive Directors.
The Chief Executive Officer is responsible for the Executive
leadership and day to day management of the Company,
to ensure the delivery of the strategy agreed by the
Board. Through his leadership of the Group Management
Board he demonstrates his commitment to health and
safety, operational and financial performance.
The Senior Independent Director acts as a sounding board
for the Chairman and serves as an intermediary for the
other Directors, as well as shareholders as required.
Independent of management, the Non-Executive Directors
bring diverse skills and experience vital to constructive
challenge and debate. The Non-Executive Directors
provide the membership of the Audit, Remuneration and
Nomination Committees. The roles of Chairman, Chief
Executive Officer and Senior Independent Director are
clearly defined and disclosed on the Company’s website.
The Board holds formal, full Board meetings once a
month, with the exception of August, to consider and
decide on matters specifically reserved for its attention.
Board papers are circulated sufficiently in advance of
Board meetings to enable time for review. The attendance
of individual Directors at formal scheduled Board and
sub-committee meetings is set out below:
number of meetings attended
board
(Maximum 11)
Audit
(Maximum 4)
nomination
(Maximum 2)
remuneration
(Maximum 6)
Iain McCusker 11 – 2 6
Tony Giddings 10 3 2 6
Beverly Stewart 11 4 2 6
Mike Robson 11 4 2 6
Mark Lawrence 11 – – –
Martin Walton 11 – – –
Mike Crowder 11 – – –
Danny Robson1 2 – – –
1 Resigned 21st March 2016.
the group Management board
The Group Management Board comprises the Executive
Directors and other key members of the Group’s
management team, including representatives of the
regional businesses. The role of the Group Management
Board is to co-ordinate and direct the efforts of the
four regional businesses and the individual offices below
them to manage risk and deliver value for the Group as
a whole across our target sectors in line with the Group’s
strategy. The Group Management Board considers Group
initiatives on matters such as Health & Safety, employee
involvement, and the development of new services
and areas of expertise. The Group Management Board
also reviews the operational effectiveness of the business
units in matters such as tender submission and success
rates, cash generation and maintenance, and health and
safety performance.
The Non-Executive Directors meet with members of
the Group Management Board and other members of the
senior management team at least once a year. In addition,
the Non-Executive Directors make visits to the subsidiary
companies in order to acquaint themselves with the
regional businesses and their senior management.
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Performance evaluation
The effectiveness of the contribution and level of
commitment of each Director to fulfil the role of a Director
of the Company is the subject of continuing evaluation,
having regard to the regularity with which the Board
meets, the limited size of the Board and the reporting
structures which are in place within the Company to
monitor performance.
The Chairman primarily, but acting in conjunction with
the Chief Executive Officer, undertakes the task of annual
evaluation of performance and commitment of individual
members by conducting individual interviews. The
evaluation of the Board as a whole, and its committees,
is also undertaken on an annual basis. New Directors
receive a formal induction, overseen by the Chairman
in conjunction with the Company Secretary. Training is
available for all Directors as and when necessary. The
Senior Independent Director, in conjunction with the other
independent Non-Executive Directors, undertakes the
annual appraisal of the Chairman.
The Board conducted an internal appraisal of its own
performance, led by the Chairman in conjunction with
the Nomination Committee, covering the composition,
procedures and effectiveness of the Board and its
committees. The Board members are of the opinion that
the Board operates effectively. Performance is regularly
monitored to ensure ongoing obligations are adequately
met and the Board regularly considers methods for
continuous improvements.
company Secretary
All Directors have access to the advice and services of the
Company Secretary, who ensures that the Board receives
appropriate and timely information, that Board procedures
are followed and that statutory and regulatory
requirements are met.
board committees
The Board has established the following committees,
whose terms of reference are available on the Company’s
website.
Audit committee
the roles and responsibilities
of the Audit committee include:
• Monitoring the integrity of the financial statements of the
Company and any formal announcements relating to the
Company’s financial performance, reviewing significant financial
reporting issues and judgements contained therein
• Reviewing the Company’s internal controls and risk management
systems and review the need for an internal audit function on an
annual basis
• Making recommendations to the Board, to be put to shareholders,
in relation to the appointment of external auditors and their
remuneration and terms of engagement
• Reviewing and approve the audit plan and ensure it is consistent
with the scope of audit engagement
• Reviewing the independence of the external auditors and review
the effectiveness of the audit process
• Reviewing the extent of non-audit services provided by the
external auditors
• Reviewing the Company’s whistleblowing and anti-bribery
procedures
The Board is satisfied that Mike Robson (Chair) has
the requisite relevant financial experience to Chair the
Audit Committee.
nomination committee
the roles and responsibilities
of the nomination committee include:
• Regularly reviewing the structure, size and composition
(including the skills, knowledge, experience and diversity) of
the Board and making recommendations to the Board with regard
to any changes
• Evaluating the balance of skills experience, independence and
knowledge on the Board and preparing or approving a description
of the role and capabilities required for a particular appointment
• Responsibility for identifying and nominating, for the approval
of the Board, candidates to fill board vacancies as and when they
arise
• Satisfying itself with regard to succession planning for Directors
and other senior executives, taking into account the challenges
and opportunities facing the Company and the skills and expertise
needed on the Board in the future
• Making recommendations to the Board concerning membership
of Audit and Remuneration Committees
• Reviewing annually the time required from Non-Executive
Directors
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remuneration committee
the roles and responsibilities
of the remuneration committee include:
• Determining the service contracts and base salary levels for the
Executive Directors and other senior management
• Setting remuneration policy for all Executive Directors and the
Company’s Chairman, taking into account relevant legal and
regulatory requirements, the provision of the Code and
associated guidance
• Approving the design of, and determine targets for, any
performance-related pay schemes operated by the Company and
approve the total annual payments made under such schemes
• Determining the policy for, and scope of, pension arrangements
for each Executive Director and other designated Senior
Executives
• Reviewing the design of all share incentive plans for approval by
the Board and shareholders
• Agreeing the policy for authorising claims for expenses from the
Directors
Shareholder relations
The Company recognises the importance of dialogue with
both institutional and private shareholders.
Presentations are made to brokers, analysts and
institutional investors at the time of the announcement of
final and interim results and there are regular meetings
with analysts and investors throughout the year. The aim
of the meetings is to explain the strategy and performance
of the Group and to establish and maintain a dialogue so
that the investor community can communicate its views to
the executive management.
It is usual that Mark Lawrence and Martin Walton are
present at these meetings and that feedback reports
provided by the Company’s broker are communicated to
the Non-Executive Directors so that they can be informed
regarding shareholder opinion. In addition, the Chairman
is available to meet with major shareholders periodically
to discuss Board governance and strategy.
The Board has always invited communication from private
investors and encouraged their participation at the Annual
General Meeting. All Board members present at the
Annual General Meeting are available to answer questions
from shareholders, including the Chairs of the Audit,
Remuneration and Nomination Committees. Notice of the
Annual General Meeting is given in accordance with best
practice and the business of the meeting is conducted with
separate resolutions, each being voted on initially by a
show of hands, with the results of the proxy voting being
provided at the meeting. Further shareholder information
is available on our website at www.tclarke.co.uk under the
Investor Relations tab.
internal control
The Board is responsible for the Group’s system of internal
control and for reviewing its effectiveness. Such a system
is designed to manage rather than eliminate the risk of
failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss.
In accordance with the Code, the Board confirms that, for
the year ended 31st December 2016, it has carried out a
robust assessment of the principal risks facing the Group,
including those that would threaten its business model,
future performance, solvency or liquidity. The principal
risks identified and the controls and mitigating actions in
place are described on pages 30 to 32.
Risk management and internal control procedures are
delegated to Executive Directors and Senior Management
in the Group, operating within a clearly defined divisional
structure. Each division or subsidiary assesses the level
of authorisation appropriate to its decision-making
process after the evaluation of potential benefits and risks.
A three year strategic plan is prepared for each division
and updated annually, including the identification and
consideration of significant risks to the division’s strategic
objectives. Progress against the strategy and the
management of the risks identified is formally reviewed
on a quarterly basis.
On a quarterly basis the Board reviews management
accounts in order to provide effective monitoring of
financial performance. At the same time the Board
considers other significant strategic risk management,
operational and compliance issues to ensure that the
Group’s assets are safeguarded and financial information
and accounting records can be relied upon. The Board
monitors monthly progress on contracts formally.
Furthermore, the Company’s risk appetite is discussed
and considered when making key decisions.
The Board reviews the Company’s risk register and
monitors risk management procedures as a regular
agenda item and the Board receives reports thereon from
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resilience of the Group to changes in trading volumes,
margins, interest rates and payment terms. After making
appropriate enquiries the directors are satisfied that the
Company and Group have adequate resources to continue
their operations for at least the next twelve months
following the date of this report. Accordingly the Directors
continue to adopt the going concern basis in preparing the
financial statements.
Further information relating to the financial position
of the Group, its cash flows, liquidity position and
borrowing facilities is given in the financial review on
pages 34 to 37.
Approved by the Board and signed on its behalf
Alexandra dent
Company Secretary
28th March 2017
Group management. The emphasis is on obtaining the
relevant degree of assurance and not merely reporting
by exception. Given the importance of an effective risk
management and internal controls processes, the
Company has engaged external advisors to assist with
further developing the Company’s internal controls
procedures in 2017.
At its meeting on 22nd March 2017, the Board carried
out the annual internal controls and risk management
assessment of the year ended 31st December 2016 by
considering documentation from the Audit Committee and
reviewing the need for an internal audit function. Further
details concerning the Audit Committee’s review of internal
controls and risk management processes is included in the
Audit Committee report on pages 50 to 52. Currently there
is no formal internal audit function, this role being covered
through regular site visits conducted by quality control and
group finance personnel. As noted in the Audit Committee
report, further consideration will be given to the creation
of an internal audit function to augment existing
procedures during 2017.
going concern
The Group had positive net cash balances at the year end
and has in place a £5 million overdraft facility.
The Group draws on the overdraft facility as and when
required to meet working capital requirements. As with
all such facilities, the overdraft is subject to annual review
and is repayable on demand.
The Group has a three-year committed £10 million
Revolving Credit Facility (‘RCF’) in place until 31st March
2020, of which £3 million was drawn at 31st December
2016. The RCF imposes certain financial and other
covenants on the Group, which are tested on a quarterly
basis. The Group was compliant with its obligations under
the RCF throughout the year.
The Directors have received confirmation from the
Company’s lenders that they know of no reason why the
overdraft facility will not be renewed when it next falls due
for review. There is no other external debt apart from the
RCF and finance lease and hire purchase commitments.
The Group prepares detailed three year profit, cash flow
and covenant projections, taking into account secured
work, pipeline and other opportunities, and available
resources. The projections include sensitivities to test the
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Audit committee’s report
Mike robson
Chair of the Audit Committee
The Audit Committee supports the Board by providing
detailed scrutiny over the integrity and relevance
of the Group’s financial reporting, monitoring the
appropriateness of the Group’s internal control and
risk management systems and overseeing the external
audit process.
The Audit Committee has continued to follow a
programme of meetings which are timed to coincide
with key events in the financial calendar. As a Committee,
we are committed to discharging our responsibilities
effectively and constructively challenge the information
we receive. Over the past year the regular reports the
Audit Committee has received from management and the
external auditors have been timely and well presented,
which has enabled the Committee to discharge its
responsibilities effectively. Where necessary, we request
additional detailed information so that we may better
assess certain issues, and the risks and opportunities
presented.
During the year the Group discovered that it had been
the victim of a fraud involving the misappropriation of
significant funds by an employee of a subsidiary company
over a number of years. This has been a humbling and
regrettable circumstance for the entire Group. The
Company has acted quickly and appropriately to establish
the scale of the fraud, to understand how the Group’s
systems and controls were circumvented and to
strengthen internal controls, and to seek to recover the
misappropriated funds as far as is possible. These actions
are ongoing and are being vigorously pursued.
Further information concerning the activities of the Audit
Committee during the year are set out below.
Mike robson
Chair - Audit Committee
28th March 2017
Membership of the Audit committee
The Audit committee is comprised of the Non-Executive
Directors Mike Robson (Chair), Beverley Stewart and Tony
Giddings. Biographies of the members of the Audit
Committee are included on page 43.
Matters considered by the Audit committee
The Audit Committee met on four occasions during the
year ended 31st December 2016. The principal matters
discussed at the meetings are set out below.
Principal matter considered
March 2016
• Draft annual report and financial statements for the year ended
31st December 2015, including significant judgements and
disclosures therein
• Audit representation letter
• Annual assessment of internal controls and risk management
• Review of risk register and mitigating actions
• Finance Director’s report on internal control
• Finance Director’s report on going concern
• Consideration of the need for an internal audit function
• Independence of external auditors
july 2016
• Draft half-year report and financial statements for the six
months ended 30th June 2016, including significant judgements
and disclosures therein
october 2016
• Audit plan presented by the auditors
• Governance and independence of the external auditors
• Review of risk register and mitigating actions
december 2016
• Pre-year end audit work
• Fraud investigation update
• Review of goodwill carrying value
• Review of accounting policies
• Review of risk register and mitigating actions
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Significant judgements,
key assumptions and estimates
The Audit Committee pays particular attention to matters
it considers to be important by virtue of their impact on
the Group’s results and remuneration of Senior
Management, or the level of complexity, judgement or
estimation involved in their application on the consolidated
financial statements. The main areas of focus during the
year are set out below:
Matter considered & Action
Matter considered: Misappropriation of funds
Action: Towards the end of the year it was discovered that an employee
in the accounts function of a subsidiary undertaking had fraudulently
misappropriated significant sums of money. Investigations initiated by
management with the aid of external legal and forensic accounting
advisers established that the fraud had been taking place over several
years and that the total misappropriated amounted to £2.9m.
Matter considered: carrying value of intangible assets
and investments
Action: Intangible assets comprise a significant element of the Group’s
net assets. As required by IFRSs, the Company conducts an impairment
review of these assets every year.
The Committee considered the papers presented by the Finance Director
supporting management’s assertion that goodwill and other intangible
assets were not impaired. This assertion was supported by detailed cash
flow and profit projections covering a three year period, including
sensitivity analysis, and an analysis of secured workload. It also
considered the independent auditors’ comments on the key assumptions
and detailed forecasts made. The issue of impairment involves making
significant judgements about individual cash generating units and the
Matter considered: contract profit and revenue recognition
Action: The recognition of revenue and profit on construction contracts
involves significant judgement due to the inherent difficulty in forecasting
the final costs to be incurred on contracts in progress and the process
whereby applications are made during the course of the contract with
variations, which can be substantial, often being agreed as part of the
final account negotiation.
Matter considered: going concern
Action: The Committee reviewed papers presented by the Finance
Director on the Group’s viability as a going concern. Discussion focused on
the Group’s cash flow projections, which covered a period of three years
and included key sensitivities, facility headroom and projected covenant
Matter considered: Pension scheme accounting
Action: The Group’s defined benefit pension scheme is valued annually
by external advisers in accordance with IFRSs. The valuation is subject to
significant fluctuations based on actuarial assumptions, including:
• discount rates;
• mortality assumptions;
• inflation;
• salary increases; and
• expected return on plan assets.
A full review of the controls over procurement and payments was initiated
and completed in February. The Audit Committee considered the accounting
and presentation of the fraud within the financial statements, including
considering whether prior year financial statements should be restated to
provide against £0.2m misstated balances arising as a result of the fraud and
the reclassification of misappropriated funds and fraud investigation costs as
a non-recurring item.
risks they face. The Committee agreed with management’s recommendation
that no impairment charge should be made but that there remains a risk
of impairment of TClarke Midlands and East, TClarke Scotland and TClarke
South West in the future and relevant disclosures have therefore been
included in the financial statements. Further details concerning the makeup
of intangible assets, the assumptions used and the sensitivity of the
carrying value of intangible assets can be found in Note 12 to the financial
statements on page 111 to 113.
Aligned to the review of the carrying value of intangible assets, the
committee also considered the carrying value of the subsidiaries in the
parent company’s financial statements.
The Committee considered the consistency and appropriateness of the
Group’s policies in respect of profit and revenue recognition during the year,
and their specific application to a number of contracts.
The Committee concurred with management’s assessment of the contracts
and the revenue recognised at those times.
compliance. Where necessary, clarification of the bank’s position was sought
and appropriate disclosures made in the annual and interim reports.
The Committee reviewed the basis of the valuation, including the
assumptions used, and considered the sensitivity of the pension scheme
valuation to changes in those key assumptions. Further details of the
valuation, including the key assumptions used, are disclosed in Note 24
to the financial statements on pages 128 to 132. The Committee also
considered the accounting implication of the group reorganisation, further
details of which are disclosed in Note 29 on page 138.
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internal control assessment and internal audit
During the year the Group discovered that an employee
in the finance department of a subsidiary had
misappropriated £2.9m in cash over a number of years.
The Audit Committee reviewed the actions undertaken
by management including:
• The investigations to establish the quantum and timing
of the fraud
• Investigation of the potential for collusion both within
and outside the Group
• The initiation of civil and criminal proceedings to seek
to recover the stolen funds and bring the perpetrator
to justice.
The implications of the fraud for the wider Group control
environment were investigated with the assistance of
an external forensic accounting resource. We have
established that:
• there were specific circumstances relating to the
subsidiary and individual concerned (principally
segregation of duties and access issues) that had
allowed the fraud to go undetected for some years; and
• there is no evidence that a similar fraud has taken place
elsewhere within the Group.
Reporting directly to the Audit Committee, an independent
review of the group’s payment and procurement controls
has been completed. The review concluded that, taken
as a whole, the processes and controls in place across
the Group were appropriate to the business. This exercise
has given us the opportunity to adopt best practice from
across the industry. A number of recommendations,
including changes to the segregation of duties between
staff members, are now being implemented. These
improvements will be enhanced by the consolidation of
the Group’s operations into one operating company.
At its meeting on 22nd March 2017 the Audit Committee
carried out its formal review of the internal controls and
risk management processes in place during the year
and considered the need for an internal audit function.
Except for the instance of fraud discussed above, the
Audit Committee confirmed that the systems in place
were appropriate, and whilst recommendations for
improvements were being acted upon, no material
weaknesses in controls were identified. The Audit
Committee noted that currently there is no formal internal
audit function, this role having been covered previously
through regular site visits conducted by quality control
and group finance personnel. Further consideration will
be given to the creation of an internal audit function to
augment existing procedures during 2017.
external audit
The Audit Committee is responsible for overseeing
relations with the external auditors, including the approval
of fees, and makes recommendations to the Board on
their appointment and reappointment. Details of the
auditors’ remuneration can be found in Note 7 to the
financial statements on page 105. The auditors fees for
non-audit services during the year were £9,000 (2015:
£nil).
The independence of the external auditors is essential
to the provision of an objective opinion on the true and
fair view presented in the financial statements. Auditor
independence and objectivity is safeguarded by limiting
the nature and value of non-audit services performed
by the external auditors, ensuring that employees of the
external auditors who have worked on the audit in the
past two years are not appointed to senior financial
positions in the Company, and ensuring the rotation of
the lead engagement partner at least every five years.
The Audit Committee reviews the effectiveness of the
audit process through quality service reviews with the
external auditors post-audit. At the end of the review
process the Audit Committee decides whether, given the
results of the review, to recommend to shareholders that
the auditors be reappointed.
The last audit tender process was in 2011 when
PricewaterhouseCoopers LLP were initially appointed and
have been auditors since. In accordance with the Auditing
Practices Board (APB) Ethical Standard 3, a new audit
partner was put in place following completion of the audit
for the year ended 31st December 2015. The current lead
engagement partner has held the position for one year.
Mike robson
Chair - Audit Committee
28th March 2017
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Annual Report & Financial Statements 2016
governance - Nomination committee report
nomination committee report
iain Mccusker
Chairman
During the year, the Nomination Committee comprised Iain
McCusker (Chair), Beverley Stewart, Tony Giddings and
Mike Robson. Biographies of the members of the
Nomination Committee are included on page 43.
The Nomination Committee met twice during the year to
review the structure, size and composition of the Board
and to consider succession planning for Directors and
other Senior Executives.
The Committee gives due consideration to diversification
in the make up of the Board but, due to the size of the
Company, the most important consideration is to achieve
an appropriate mix of skills, knowledge and experience,
taking into account the Company’s Board Diversity Policy
on behalf of the Board.
Before any appointment is made by the Board, the
Nomination Committee evaluates the balance of skills,
experience, independence and knowledge on the
Board and, in the light of this evaluation, prepares a
description of the role and capabilities required for a
particular appointment.
In 2016, the Nomination Committee recommended that
Beverley Stewart be nominated for re-election at the
Company’s 2016 Annual General Meeting, even though
Beverley had served as a Non-Executive Director for more
than ten years. However, as the UK Corporate Governance
Code (“the Code”) suggests that Non-Executive Directors
should not serve more than 9 years on the Board to
remain independent in accordance with the Code, Mrs
Stewart has decided to step down from the Board and will
not offer herself for re-election at the forthcoming 2017
Annual General Meeting.
The Nomination Committee concluded that, post Mrs
Stewart’s departure from the Board, a further Non-
Executive Director will not be required at present as the
Non-Executive Directors will still maintain a majority vote
given that the Chairman has a casting vote in accordance
with the Company’s Articles of Association. The Board
composition will be further reviewed throughout the year.
iain Mccusker
Chair - Nomination Committee
28th March 2017
53
Annual Report & Financial Statements 2016
governance - Remuneration report
directors’ remuneration report
Annual statement by the chair of the remuneration committee
tony giddings
Chair of the Remuneration Committee
Dear Shareholders,
I am pleased to present, on behalf of the Board, the
report of the Remuneration Committee for the year ended
31st December 2016.
Our Directors' remuneration policy was last approved by
shareholders in 2014. The policy has served the Company
well over the last three years and having carried out a
comprehensive review of Directors' remuneration with
the assistance of external expertise in this area, the
Committee concluded that the overall structure should
continue to operate. However, we have identified some
areas for change which will bring the policy up to date
with good practice and to reinforce the Committee's desire
to drive long-term performance. Details of the proposed
amendments are set out below. Shareholders will be asked
to approve the revised Directors' remuneration policy at
the 2017 AGM in a binding vote. This annual statement,
together with the annual report on remuneration, will be
put to an advisory shareholder vote at the 2017 AGM.
There will also be a resolution to amend the terms of the
LTIP which assists with the Committee's desired shift in
emphasis from short-term to long-term performance
without any aggregate increase to quantum.
Proposed changes to the remuneration policy
The primary objective of the remuneration policy is to
promote the long-term success of the Company. In
working towards the fulfilment of this objective our current
remuneration structure is intended to be simple and
transparent, and to contribute to the building of a
sustainable performance culture. Our policy ensures that
performance related components will form a significant
proportion of the overall remuneration package, with
maximum rewards earned only through the achievement
of challenging performance targets based on measures
aligned with our long-term strategy.
The Committee has reviewed the current remuneration
policy and has concluded that the existing overarching
framework of base salary, pension, benefits, annual bonus
and a single long-term incentive plan (LTIP) is effective
and remains aligned with TClarke's strategy. We are not
therefore proposing fundamental changes to the policy,
but are recommending a number of amendments to
ensure, primarily, that: alignment between Executives
and shareholders is further strengthened; incentive plan
metrics and targets are aligned with the strategy and
promote the long-term success of the Group; and the
policy is sufficiently flexible to remain applicable over the
three-year policy period, 2017 to 2019. The key changes
are as follows:
• Additional flexibility on incentive plan metrics and
targets – to ensure that bonus and LTIP targets are fully
aligned with the strategic imperatives prevailing at the
time they are set.
• Rebalancing of short- and long-term incentive potential
– to enhance longer-term shareholder alignment
without increasing quantum – overall incentive potential
(in % of salary terms) will remain unchanged but annual
bonus potential will reduce by 50% of salary while long-
term incentive awards increase by 50%.
• Introduction of recovery and withholding provisions – in
line with best practice, the revised policy will enable the
Committee to recover and/or withhold remuneration in
certain exceptional negative circumstances such as a
material misstatement, error and gross misconduct.
• Share ownership guidelines – to enhance longer-term
shareholder alignment – the guideline level will be
increased to provide greater alignment between
executives and shareholders.
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implementation of the remuneration policy
for 2017
Subject to approval of the revised policy, the key
highlights of how we intend to apply it for 2017 are:
• Base salaries – the Executive Directors' salaries were
increased by 5% effective 1st January 2017. As part of
the review undertaken the Committee determined that
the Chief Executive's salary was not representative of
his overall responsibility and, as a secondary factor, was
significantly behind market for a company of this size
and complexity. The Chief Executive declined a higher
increase to his base salary and therefore his increase
is in line with his fellow Executive Directors. The
Committee believes that the increases applied to the
Finance Director and Managing Director result in salaries
that are appropriate for the roles being undertaken, are
more reflective of the complexity and market rate for
the roles and are commensurate with their significant
experience and expertise.
• Variable pay – Annual bonus maximum will be 150% of
salary (reduced from 200%) and an LTIP award will be
made in May 2017 at 150% of salary (increased from
the 100% allowed for in the previous policy).
• Performance measures – will continue to be focused on
simple and transparent measures. For the annual bonus,
underlying profit before tax will apply for 2/3 of the
opportunity and key strategic objectives aligned with the
Group's KPIs will apply for the remaining 1/3 of bonus.
For the LTIP, stretching earnings per share targets will
be set for financial year 2019.
• Share ownership guidelines – will be 30,000 shares
(increased from 2,000).
Performance and reward for 2016
Underlying profit before tax increased by 48% to £6.2m
(2015: £4.2m) and the performance of the Executive
Directors in executing against the strategic annual bonus
objectives set for them at the start of 2016 was robust.
The level of underlying performance achieved resulted
in 100% of the maximum cash bonus being payable.
However, taking into consideration the non-recurring costs
incurred during the year, the Committee determined to
restrict the element of the bonus based on financial
performance to 33%.
Earnings per share growth over the three year period to
31st December 2016 was negative. This was below the
threshold vesting condition for the LTIP award granted in
2014 and, as a result, the award lapsed in full.
Further information on the actual targets set, and
performance against them is provided on page 65.
Alignment with shareholders
We are mindful of our shareholders’ interests and are keen
to ensure a demonstrable link between reward and value
creation. We are proud of the support we have received
in the past from our shareholders, with 98.7% approval
of the remuneration policy at the 2014 AGM and 99.13%
approval of the remuneration report received last year. We
hope that we will continue to receive your support on the
remuneration-related resolutions at the forthcoming AGM.
tony giddings
Chair - Remuneration Committee
28th March 2017
55
Annual Report & Financial Statements 2016
governance - Remuneration report
director remuneration policy report
This part of the Directors’ Remuneration report sets out
the remuneration policy for the Group's Directors. The
2014 Remuneration Policy has a three year life and
therefore this revised Directors' remuneration policy will be
put to shareholders for approval in a binding vote at the
AGM on 5th May 2017. If approved, the effective date of
the revised policy will be 5th May 2017 and it will operate
as though it was in place for the whole of the 2017
financial year. The Committee's current intention is that
the revised policy will operate for the three year period,
2017 to 2019.
The main elements of the remuneration package for
Executive Directors are a base salary, benefits and
pension provision and, subject to stretching performance
conditions, an annual bonus plan and shares awarded
under a long-term incentive plan (LTIP). The Committee
has determined that this structure will provide an
appropriate balance between fixed and performance-
related pay elements. The Committee will continue to
review the remuneration policy to ensure it takes due
account of remuneration best practice and that it remains
aligned with shareholders’ interests.
Policy overview
The primary objective of the remuneration policy is
to promote the long-term success of the Company.
In working towards the fulfilment of this objective the
Committee takes into account a number of factors when
formulating the remuneration policy for the Executive
Directors including the following:
• the need to provide a remuneration structure that is
sufficiently competitive to attract, retain and motivate
Executive Directors of an appropriate calibre to deliver
long-term, sustainable growth of the business;
• the alignment of interests between executives and
shareholders through share ownership and appropriate
recovery and withholding provisions;
• internal levels of pay and employment conditions across
the Group as a whole;
• the principles and recommendations set out in the
UK Corporate Governance Code and the views of
institutional shareholders and their representative
bodies; and
• periodic external comparisons of market trends and
practices in similar companies taking into account their
size and complexity.
Our remuneration structure is intended to be simple
and transparent, and to contribute to the building of a
sustainable performance culture. Our policy ensures that
performance related components will form a significant
proportion of the overall remuneration package, with
maximum total potential rewards earned only through the
achievement of challenging performance targets based on
measures selected to promote the long-term success of
the Company.
how the executive directors’ remuneration policy
relates to the wider workforce
The Committee does not directly consult with employees
regarding the remuneration of Directors. However, the pay
and conditions elsewhere in the Company are considered
when designing the policy for Executive Directors and
continue to be considered in relation to implementation of
the policy. The Committee regularly monitors pay trends
across the workforce and salary increases will ordinarily
be (in percentage of salary terms) in line with those of
the wider workforce.
The remuneration policy described here provides an
overview of the structure that operates for the most
Senior Executives in the Company. Employees below
executive level have a lower proportion of their total
remuneration made up of incentive-based remuneration,
with pay driven by market comparators and the impact of
the role in question. Long-term incentives are reserved for
those judged as having the greatest potential to influence
the Group’s strategic direction, earnings growth and share
price performance.
how shareholders’ views are taken into account
The Committee seeks to engage with its major
shareholders when any significant changes to the
remuneration policy are proposed. The Committee also
considers shareholder feedback received in relation to the
Directors’ Remuneration Report and at the AGM each year
and this, plus any additional feedback received from time
to time, is considered as part of the Committee’s annual
review of remuneration policy. The Committee also closely
monitors developments in institutional investors’ best
practice expectations.
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governance - Remuneration report
changes to the remuneration policy approved by
shareholders at the 2014 AgM
The Committee has undertaken a thorough review of the
existing remuneration policy taking full account of the
Company's strategic objectives and developments in the
executive pay environment. The Committee believes that
the current overarching remuneration structure continues
to be effective and that no significant changes are
required. However, some amendments have been
proposed to ensure that the policy remains appropriately
aligned with the strategy and is sufficiently flexible to
operate effectively over the next three year period. The
key changes are as follows:
• flexibility on incentive plan metrics and targets
– the Committee has built in some additional flexibility
with regard to the specific measures which will be used
for the bonus and LTIP to ensure that any targets are
fully aligned with the strategic imperatives prevailing at
the time they are set.
• rebalancing of short- and long-term incentive
potential – The maximum annual bonus potential will
reduce by 50% of salary (to 150% of salary) and the
long-term incentive award will increase by 50% of
salary per annum (to 150% of salary). This approach is
intended to enhance longer-term shareholder alignment.
• introduction of recovery and withholding
provisions
– the proposed policy will now enable the Committee
to recover and/or withhold remuneration in certain
exceptional negative circumstances.
• Share ownership guidelines – to provide greater
alignment with shareholders, the guideline level for
Executive Directors has been increased from 2,000
shares to 30,000 shares.
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Summary director policy table
The table below summarises the remuneration policy for
Directors, as effective from the Company’s 2017 AGM:
Element of remuneration: Salary
Purpose and link to strategy
Maximum
• To provide competitive fixed remuneration to attract and retain Executive
Directors of superior calibre in order to deliver growth for the business
operation
• Normally reviewed annually with changes typically effective 1st January
• Paid in cash on a monthly basis; pensionable
• Comparison against companies with similar characteristics are taken into
account in review
• There is no prescribed maximum annual basic salary or salary increase.
Details of the current salary levels are set out in the Annual Report on
Remuneration on page 64.
• Any salary increase (in percentage of salary terms) will ordinarily be up
to the general increase for the broader employee population; however,
a higher increase may be awarded to recognise, for example, an
increase in the scale, scope or responsibility of the role and/or to take
account of relevant market movements
• Internal reference points, the responsibilities of the individual role,
• Where an Executive Director’s salary is set below market levels at
progression within the role and individual performance are also taken into
account
Element of remuneration: benefits
Purpose and link to strategy
• To promote recruitment and retention
• To provide a market consistent benefits package
operation
• Benefits may include a combination of car or car allowance, private
medical insurance and life assurance
• Executive Directors will be eligible for any other benefits which are
introduced for the wider workforce on broadly similar terms
• Relocation or travel allowances may be offered if considered appropriate
and reasonable by the Committee
• Any reasonable business related expenses (including tax thereon) can be
reimbursed if determined to be a taxable benefit
• Executive Directors are also eligible to participate in any all-employee
share plans operated by the Company, in line with prevailing HMRC
guidelines (where relevant), on the same basis as for other eligible
employees
Element of remuneration: Pension
Purpose and link to strategy
• Provide competitive retirement benefits
operation
• Defined benefit or defined contribution scheme (or cash alternative)
• Where the promised levels of benefits cannot be provided through an
appropriate pension scheme, the group may provide benefits through the
provision of salary supplements
appointment, a series of increases may be given (in addition to the
factors listed above) in order to achieve the desired salary positioning,
subject to satisfactory individual performance
Performance targets
• None, although the overall performance of the individual is considered
as part of the salary review process
Maximum
• There is no maximum limit but the Committee reviews the cost of the
benefits provision on a regular basis to ensure that it remains
appropriate.
• Participation in the all employee share plans is subject to the limits set
out by HRMC.
Performance targets
• Not applicable
Maximum
• Defined Contribution or cash allowance or combination of the two up to
10% of salary
• Current Employees who are existing members of the Company’s defined
benefit scheme may be entitled to continue to accrue benefits under
these arrangements rather than participating in the defined contribution
(or cash equivalent) arrangements. The maximum pension on retirement
at age 65 is 1/60th of final pensionable salary for service before March
2010, and 1/80th of revalued pensionable salary for service thereafter.
A salary supplement may be provided in order to compensate the
individual up to the value of benefits lost as a result of HMRC limits.
Performance targets
• Not applicable
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Element of remuneration: bonus
Purpose and link to strategy
Maximum
• Incentivise annual achievement of performance targets relating to the
• 150% of salary per annum.
Company's KPIs
• Maximum bonus only payable for achieving demanding targets
operation
• Normally payable in cash
• Non-pensionable
• Levels of award are determined by the Committee after the year end
based on performance against the targets set at the start of the year
• All bonus payments are at the ultimate discretion of the Committee
and the Committee retains an overriding discretion to ensure that overall
bonus payments reflect its view of corporate performance during the year
Performance targets
• Group financial measures (e.g. profit-related measures) will apply for
the majority of the bonus
• If used, personal or strategic objectives will be applied for the minority
of the bonus
• Measures and objectives will be determined over a one-year
performance period
Element of remuneration: long-term incentive Plan
Purpose and link to strategy
Maximum
• Aligned to delivery of strategy and long-term value creation
• Annual awards of no more than 150% of salary
• Align Executive Directors’ interests with those of shareholders
• To promote retention
operation
• LTIP awards take the form of conditional rights or nil, nominal cost or
market value options and are normally granted annually
• Awards vest after no less than three years subject to the achievement of
pre-set performance criteria and continued employment
• The Committee reviews the quantum of awards annually and monitors
the continuing suitability of the performance measures
• The Committee may determine at grant that an amount (in cash or
shares) equivalent to the dividends paid or payable on vested shares up
to the vesting date may become payable; any amount payable may
assume the reinvestment of dividends over the vesting period
Performance targets
• Performance normally measured over three years
• Awards currently vest based on performance against stretching Earnings
per Share (EPS) targets set and assessed by the Committee. However,
different financial, strategic or share-price based measures may be set
for future award cycles as appropriate to reflect the strategic priorities
of the business at that time
• Notwithstanding the performance outcome, the Remuneration
Committee retains the discretion to adjust the vesting outcome upwards
or downwards to reflect the underlying performance of the company
over the three year period
• A maximum of 25% vests at threshold increasing to 100% vesting at
maximum on a straight line basis
• Withholding and recovery provisions may apply in the event of a
material misstatement, error in calculation of award/ performance or
gross misconduct
Element of remuneration: Share ownership guidelines
Purpose and link to strategy
• To increase alignment between Executives and shareholders
Maximum
• Not applicable
operation
• Executive Directors are required to build and maintain a shareholding of
30,000 shares through the retention of vested share awards or through
open market purchases
• Only wholly owned shares will count towards the guideline
Performance targets
• Not applicable
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Element of remuneration: non-executive director
Purpose and link to strategy
Maximum
• To provide competitive fees to attract and retain high calibre Non-
• There is no prescribed maximum fee or fee increase
Executive Directors
• To reflect the time commitment and responsibilities of the role
operation
• Any increase will be guided by changes in market rates, time
commitments and responsibility levels as well as by increases for the
broader employee population
• The Chairman's fee is set by the Board on the recommendation of the
Performance targets
• Not applicable
Remuneration Committee. The Non-Executive Directors' fees are set by
the Board on the recommendation of the Executive Directors. No Director
takes part in discussions relating to their own remuneration
• Non-Executives may be paid additional fees for chairing one of the major
Board committees or for holding the Senior Independent Director position
• The fees are set taking into account the time commitment and
responsibilities of the role
• In exceptional circumstances, if there is a temporary yet material increase
in the time commitments for Non-Executive Directors, the Board may pay
extra fees to recognise the additional workload
• Fees are normally paid monthly in cash and are normally reviewed
annually
• Directors can be reimbursed for any reasonable business related
expenses (including the tax thereon if determined to be a taxable benefit)
notes
1 The choice of the performance metrics applicable to the 2017 annual
bonus scheme reflect the Committee’s belief that any incentive
compensation should be appropriately challenging and tied to both the
delivery of targets relating to a key financial measure, profit, and which
support the Company’s strategic objectives through individual and/or
strategic performance measures intended to ensure that Executive
Directors are incentivised to deliver across a range of objectives for which
they are accountable. The Committee has retained some flexibility on the
specific measures which will be used over the life of the policy to ensure
that any measures are fully aligned with the strategic imperatives
prevailing at the time they are set.
2 The performance condition applicable to the 2017 LTIP awards is earnings
per share growth. EPS was selected by the Remuneration Committee on
the basis that it is aligned with the delivery of long-term returns to
shareholders and it is one of the Group’s key financial metrics. The
Committee has retained flexibility on the measures which will be used for
future award cycles to ensure that the measures are fully aligned with the
strategy prevailing at the time the awards are granted. Notwithstanding
this, the Committee would seek to consult with major shareholders in
advance of any material change to the choice of the LTIP performance
measures.
3 The Committee operates the annual bonus, LTIP and all employee share
plans in accordance with the relevant plan rules and, where appropriate,
the Listing Rules and HMRC legislation. The Committee, consistent with
market practice, retains discretion over a number of areas relating to the
operation and administration of the plans. These include, for example,
the timing of awards and setting performance criteria each year, dealing
with leavers, discretion to retrospectively amend performance targets in
exceptional circumstances (providing the new targets are no less
challenging than originally envisaged) and in respect of share awards, to
adjust the number of shares subject to an award in the event of a
variation in the share capital of the Company.
4 For the avoidance of doubt, in approving this Directors’ Remuneration
Policy, authority is given to the company to honour any commitments
entered into with current or former directors (such as the payment of a
pension or the vesting/exercise of past share awards). Details of any
payments to former directors will be set out in the Annual Report on
Remuneration as they arise.
5 Consistent with HMRC legislation, the HMRC all-employee share plans do
not have performance conditions.
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governance - Remuneration report
remuneration scenarios for executive directors
The charts below show how the composition of the
Executive Directors’ remuneration packages vary under
the policy at three performance levels (minimum
(i.e. fixed pay only), target and maximum).
grouP chief executiVe
1,292
34%
34%
743
15%
30%
413
100%
56%
32%
£000s
1400
1200
1000
800
600
400
200
0
£000s
1400
1200
1000
800
600
400
200
0
grouP MAnAging director
1,122
33%
653
14%
29%
57%
33%
33%
372
100%
£000s
1400
1200
1000
800
600
400
200
0
grouP finAnce director
938
35%
35%
30%
529
15%
31%
54%
284
100%
Fixed pay
Target
Maximum
Fixed pay
Target
Maximum
Fixed pay
Target
Maximum
Fixed pay
Annual bonus
LTIP
the charts above are based on:
• Salary levels effective 1st January 2017;
• The value of benefits received in 2016 (as per the
Directors' remuneration table);
• The value of pension contribution received in 2016
(as per the Directors' remuneration table);
• A 150% of salary maximum annual bonus (with the
on-target level assuming 50% of maximum); and
• A 150% of salary LTIP award (with target assumed to
be 25% of the maximum). No share price appreciation
or dividend assumptions in respect of the LTIP awards
have been assumed.
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Approach to recruitment and promotion
The remuneration package for a new Executive Director
would be set in accordance with the terms of the
prevailing approved remuneration policy at the time
of appointment and take into account the skills and
experience of the individual, the market rate for a
candidate of that experience and the importance of
securing the relevant individual.
Salary would be provided at such a level as required to
attract the most appropriate candidate and may be set
initially at a below mid-market level on the basis that it
may progress towards the mid-market level once expertise
and performance has been proven and sustained.
The maximum level of variable pay which may be awarded
to new Executive Directors will be in line with the policy
set out above. In addition to this, the Committee may
make buyout awards in the form of additional cash and/or
share-based elements to replace remuneration forfeited
by an executive as a result of leaving his or her previous
employer. It will, where possible, ensure that these awards
are consistent with awards forfeited in terms of vesting
periods and expected value.
The Committee may apply different performance
measures, performance periods and/or vesting periods
for initial awards made following appointment under the
annual bonus and/or long-term incentive arrangements,
subject to the rules of the scheme, if it determines that
the circumstances of the recruitment merit such
alteration. LTIP awards can be made shortly following
an appointment (assuming the Company is not in a
close period).
For an internal Executive Director appointment, any
variable pay element awarded in respect of the prior role
may be allowed to pay out according to its original terms.
For external and internal appointments, the Committee
may agree that the Company will meet certain relocation
and/or incidental expenses as appropriate.
The fee structure for Non-Executive Director appointments
will be based on the Non-Executive Director fee policy as
set out in the policy table.
Service contracts and approach to leavers
The Company's policy is for Executive Directors to have
service contracts which may be terminated with no more
than 12 months’ notice from either party. The Executive
Directors’ service contracts are available for inspection by
shareholders at the Company’s registered office.
No Executive Director has the benefit of provisions in
their service contract for the payment of pre-determined
compensation in the event of termination of employment.
It is the Committee’s policy that the service contracts
of Executive Directors will provide for termination of
employment by giving notice or by making a payment
of an amount equal to basic salary in lieu of the notice
period. It is the Committee’s policy that no Executive
Director should be entitled to a notice period or payment
on termination of employment in excess of the levels set
out in his or her service contract. Incidental expenses
may also be payable if appropriate.
Annual bonus may be payable with respect to the period
of the financial year served although it will be pro-rated
for time and paid at the normal pay-out date. Any share-
based entitlements granted to an Executive Director
under the Company’s share plans will be determined
based on the relevant plan rules. In certain circumstances,
such as death, ill health, disability, retirement or other
circumstances at the discretion of the Committee, ‘good
leaver’ status may be applied. For good leavers, awards
will normally vest at the normal vesting date, subject to
the satisfaction of the relevant performance conditions at
that time and reduced pro-rata to reflect the proportion
of the vesting period actually served. However, under the
plan rules, the Remuneration Committee has discretion to
determine that awards vest at cessation of employment
and/or to disapply the time pro-rating requirement if it
considers it appropriate to do so.
In relation to a termination of employment, the Committee
may make payments in relation to any statutory
entitlements or payments to settle compromise claims as
necessary. The Committee also retains the discretion to
reimburse reasonable legal expenses incurred in relation
to a termination of employment and to meet any
transitional costs if deemed necessary. Payment may also
be made in respect of accrued benefits, including untaken
holiday entitlement.
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There is no provision for additional compensation on a
change of control. In the event of a change of control,
the LTIP awards will normally vest on (or shortly before)
the change of control subject to the satisfaction of the
relevant performance conditions at that time and, unless
the Committee determines otherwise, reduced pro-rata
to reflect the proportion of the vesting period served.
Outstanding awards under any all employee share plans
will vest in accordance with the relevant scheme rules.
Bonuses may become payable, subject to performance
and, unless the Committee determines otherwise, a pro-
rata reduction to reflect the curtailed performance period.
external appointments
The Board allows Executive Directors to accept external
Non-Executive Director positions provided the appointment
is compatible with their duties as Executive Directors.
The Executive Directors may retain fees paid for these
services. Any appointment will be subject to approval by
the Board.
non-executive directors
The Chairman and Non-Executive Directors’ terms
are set out in letters of appointment. The letters of
appointment of the Non-Executive Directors are available
for inspection at the Company’s registered office during
normal business hours.
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Annual Report & Financial Statements 2016
governance - Remuneration report
Annual report on remuneration
implementation of the remuneration policy for
the year ending 31st december 2017
A summary of how the Directors’ Remuneration Policy will
be applied during the year ending 31st December 2017 is
set out below.
basic salary
Increases for 2017 are shown below. The Executive
Directors' salaries were increased by 5% effective 1st
January 2017. As part of the review undertaken the
Committee determined that the Chief Executive's salary
was not representative of his overall responsibility and, as
a secondary factor, was significantly behind market for a
company of this size and complexity. The Chief Executive
declined a higher increase to his base salary and therefore
his increase is in line with his fellow Executive Directors.
The Committee believes that the increases applied to the
Finance Director and Managing Director result in salaries
that are appropriate for the roles being undertaken, are
more reflective of the complexity and market rate for the
roles and are commensurate with their significant
experience and expertise.
The Group’s employees are, in general, receiving pay rises
ranging from 2% to 5% depending on promotional
increases and individual performance. The average
increase across the business is 3%.
director 2017 2016 % increase
Mark lawrence
Mike crowder
Martin walton
£293,000
£250,000
£218,000
£279,000
£238,000
£207,500
5%
5%
5%
benefits
Benefits will comprise a car or car allowance and private
medical insurance.
Pension arrangements
The Company operates a defined benefit pension and
death benefits scheme of which all the current Executive
Directors are members. The defined benefits scheme is
closed to new members. The life assurance benefit is four
times pensionable salary.
Where the promised levels of benefits cannot be provided
through the appropriate scheme, the Group can continue
to provide benefits through the provision of salary
supplements.
Annual bonus
The maximum bonus potential for the year ending 31st
December 2017 is 150% of salary for all the Executive
Directors.
Awards are determined based on a combination of both
the Group’s financial results being growth in Group profit
before tax (2/3 of overall bonus), and strategic targets
(1/3 of overall bonus) being met.
Maximum bonus will only be payable when both the
financial results of the Group have significantly exceeded
expectations and all strategic targets have been met.
The measures have been selected to reflect a range of key
financial and operational goals which support the
Company’s strategic objectives. The respective targets
have not been disclosed as they are considered by the
Board to be commercially sensitive. However, retrospective
disclosure of the targets and performance against them
will be provided in the Remuneration Report for the year
ending 31st December 2017 provided that they do not
remain commercially sensitive at that time.
The Executive Directors’ performance will be assessed
individually by the Committee against the measures and
targets, relying on audited information where appropriate,
and having regard to the value which has been created for
shareholders.
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long-term incentives
Consistent with past awards, LTIP awards that will be
granted in 2017 will vest subject to continued employment
with the Group and satisfaction of the following
performance conditions over a three year period ending on
the 31st December preceding the earliest vesting date:
Annual growth in ePS above rPi* Proportion of award vesting
Less than 3% Nil
3% 25%
Between 3% and 10% Between 25% and 100% on a straight line basis
Above 10% 100%
*Base point from which performance is measured is based on average underlying EPS for the three years ended 31st December 2016
non-executive directors
The Company’s approach to Non-Executive Directors’
remuneration is set by the Board with account taken of
the time and responsibility involved in each role.
director 2017 2016 % increase
iain Mccusker £56,000 £51,000 10%
beverley Stewart £45,500 £45,500 nil
tony giddings £45,500 £45,500 nil
Mike robson £45,500 £45,500 nil
No additional fees are paid in respect of membership
of any Board committees. A summary of current fees is
shown in the table below. The Chairman’s fee was
reviewed during the year and the fee was found to be
significantly below market comparisons for similar roles in
companies of a similar size and complexity. The fee has
therefore been increased by 10% in order to move it
towards the mid-market level.
directors’ remuneration for the year ended 31st december 2016
The Directors’ remuneration for the year ended 31st December 2016 was as follows.
fees & termination
Salary benefits4 bonus5 payments ltiP6 Pension7 total
£000s 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
executive
Mark Lawrence 279 270 23 23 190 105 – – – – 97 38 589 436
Mike Crowder 238 231 28 26 162 90 – – – – 94 51 522 398
Martin Walton 207 201 23 19 141 78 – – – – 44 40 415 338
Danny Robson1 52 201 8 25 – 78 104 – – – – 29 164 333
non-executive
David Henderson2 – 37 – – – – – – – – – – – 37
Iain McCusker 51 45 – – – – – – – – – – 51 45
Beverley Stewart 45 44 – – – – – – – – – – 45 44
Tony Giddings 45 44 – – – – – – – – – – 45 44
Mike Robson3 45 5 – – – – – – – – – – 45 5
total 962 1,078 82 93 493 351 104 – – – 235 158 1,876 1,680
notes
1 Danny Robson stepped down
from the Board on 21st March
2016. Details of his termination
payments can be found on
page 68.
2 David Henderson stepped
down from the Board on 30th
September 2015.
3 Mike Robson joined the Board
on 18th November 2015.
4 Benefits comprise a car or car
allowance and private medical
insurance.
5 The level of performance
achieved resulted in a 100%
profit related cash bonus and
35% strategic target bonus.
However, the profit related cash
bonus was reduced by 67% to
33% due to the impact of non-
recurring items on the Group’s
overall financial performance.
6 No LTIP awards vested based on
performance ending in 2016 or
2015 as EPS growth performance
did not meet the RPI+3/p.a.
target in either year.
7 Pensions are calculated based on
HMRC's pension input method.
Details of accrued pensions can
be found on page 68.
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directors’ interests in the tclarke equity incentive Plan (audited)
The Directors’ interests over shares as a result of their participation in the TClarke Equity Incentive Plan are as follows:
Award 01/01/2016 31/12/2016 exercise earliest date date of
executive director date number granted lapsed number price of exercise expiry
Mark lawrence
Conditional shares 30/04/2013 115,000 – 115,000 – – – –
Conditional shares 29/04/2014 85,000 – – 85,000 – 29/04/2017 29/04/2024
Conditional shares 29/04/2015 90,000 – – 90,000 – 29/04/2018 29/04/2025
Conditional shares1 20/04/2016 – 60,000 – 60,000 – 20/04/2019 20/04/2026
Conditional Options 30/04/2013 59,000 – 59,000 – – – –
Conditional Options1 20/04/2016 – 30,000 – 30,000 88.5p 20/04/2019 20/04/2026
Mike crowder
Conditional shares 30/04/2013 115,000 – 115,000 – – – –
Conditional shares 29/04/2014 85,000 – – 85,000 – 29/04/2017 29/04/2024
Conditional shares 29/04/2015 90,000 – – 90,000 – 29/04/2018 29/04/2025
Conditional shares1 20/04/2016 – 60,000 – 60,000 – 20/04/2019 20/04/2026
Conditional Options 30/04/2013 59,000 – 59,000 – – – –
Conditional Options1 20/04/2016 – 30,000 – 30,000 88.5p 20/04/2019 20/04/2026
Martin walton
Conditional shares 30/04/2013 115,000 – 115,000 – – – –
Conditional shares 29/04/2014 85,000 – – 85,000 – 29/04/2017 29/04/2024
Conditional shares 29/04/2015 90,000 – – 90,000 – 29/04/2018 29/04/2025
Conditional shares1 20/04/2016 – 60,000 – 60,000 – 20/04/2019 20/04/2026
Conditional Options 30/04/2013 59,000 – 59,000 – – – –
Conditional Options1 20/04/2016 – 30,000 – 30,000 88.5p 20/04/2019 20/04/2026
danny robson
Conditional shares1 29/04/2015 90,000 – 90,0002 – – – –
1 The face value of conditional shares and conditional options made during
2016 was [£53,100] in conditional shares and [£26,550] in conditional
options to each of the Executive Directors.
2 Danny Robson’s conditional share awards lapsed when he stepped down
from the Board on 21st March 2016.
The conditional share awards and options will vest subject
to continued employment with the Group and satisfaction
of the following performance conditions over a three year
period ending 31st December preceding the earliest
vesting date
Annual growth in ePS above rPi* Proportion of award vesting
Less than 3% Nil
3% 25%
Between 3% and 10% Between 25% and 100% on a straight line basis
Above 10% 100%
* For the years from 2013 to 2014 the base point from which performance
is measured is based on basic EPS for the year preceeding the date of
grant. For awards from 2015 onwards the base point is based on
average underlying EPS for the three years ending with the year
predeeding date of grant.
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directors’ interests in the tclarke Savings related Share option Scheme (“SAye Scheme”) (audited)
The following options were outstanding during the year:
executive Award 01/01/2016 31/12/2016 exercise earliest date date of
director date number granted exercised number price of exercise expiry
Mark lawrence 12/10/2012 12,857 – 12,857* – 42.00p 01/01/2016 30/06/2016
11/10/2013 1,666 – – 1,666 54.00p 01/01/2017 30/06/2017
08/10/2015 10,322 – – 10,322 69.75p 01/12/2018 31/05/2019
Mike crowder 12/10/2012 12,857 – 12,857* – 42.00p 01/01/2016 30/06/2016
11/10/2013 1,666 – – 1,666 54.00p 01/01/2017 30/06/2017
08/10/2015 10,322 – – 10,322 69.75p 01/12/2018 31/05/2019
Martin walton 12/10/2012 12,857 – 12,857* – 42.00p 01/01/2016 30/06/2016
11/10/2013 1,666 – – 1,666 54.00p 01/01/2017 30/06/2017
08/10/2015 10,322 – – 10,322 69.75p 01/12/2018 31/05/2019
* Options exercised on 11th January 2016
The market price of a 10p ordinary share on 30th December 2016 (being
the last day of trading of 2016) was 59.25p and the range during the year
ended 31st December 2016 was 57.0p to 90.5p.
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Pension scheme (audited)
Details of the accrued pension benefits that the Executive Directors would be entitled to on leaving service are as follows:
Pension scheme (audited)
Total pension
accrued at
31/12/15
£ p.a.
61,263
63,016
18,321
9,085
Increase in
accrued
pension
(including
inflation)
£ p.a.
Increase in
accrued
pension
(excluding
inflation)
£ p.a.
6,550
6,240
3,172
2,307
5,937
5,610
2,988
2,226
total
pension
accrued at
31/12/16
£ p.a.
67,813
69,256
21,493
–
Transfer
value
of accrued
pension at
31/12/15
£
1,225,265
1,260,319
366,429
181,709
Increase in
transfer
value less
director’s
contributions
£
97,140
93,885
43,888
–
transfer
value
of accrued
pension at
31/12/16
£
1,356,253
1,385,125
429,858
–
Mark lawrence
Mike crowder
Martin walton
danny robson
Inflationary increases were assumed to be 1.0% per annum during 2016
in line with increases in the Consumer Price Index during the year.
directors’ interests
Directors’ interests in the issued share capital of TClarke
plc are set out below. The Directors’ interest in share
options and conditional shares under long-term incentive
schemes are set out on page 66 and 67. The executive
directors do not hold any external appointments.
Payments for loss of office (audited)
A payment of £104k was made to Danny Robson for
payment in lieu of notice for six months basic salary with
effect from 1st April 2016. No pension contributions were
paid for this period. Danny Robson’s conditional share
awards lapsed when he stepped down from the Board on
21st March 2016.
directors’ interests in the issued share capital of tclarke plc as at 31st december 2016 are:
Mark lawrence
Mike crowder
Martin walton
danny robson1
iain Mccusker
beverley Stewart
tony giddings
Mike robson
No. of
ordinary
shares2
No. of
conditional
share awards3
No. of
conditional
options3
No. of
options held
under SAYE4
39,607
31,607
29,607
–
2,000
21,000
2,000
2,000
235,000
235,000
235,000
–
–
–
–
–
30,000
30,000
30,000
–
–
–
–
–
11,988
11,988
11,988
–
–
–
–
–
Total as at
31/12/164
316,595
308,595
306,595
–
2,000
21,000
2,000
2,000
notes
1 Danny Robson stepped down
from the Board on 21st March
2016 and held 1,451,906 shares
as at that date
2 The minimum shareholding
guideline for Executive Directors
is 30,000 ordinary shares under
the revised Remuneration Policy
For Non-Executive Directors the
minimum shareholding
requirement is 2,000 shares as
defined in the Company’s Articles
of Association
3 Subject to performance
conditions
4 There have been no changes
to Directors’ interests since
31st December 2016
external appointments
The Executve Directors do not hold any external appointments.
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Performance graph
The graph shows the total shareholder return that would
have been obtained over the past eight years by investing
£100 in shares of TClarke plc on 31st December 2009 and
£100 in a notional investment in the FTSE All-Share Index
and the FTSE All-Small Construction and Building Materials
Index on the same date. In all cases it has been assumed
Shareholder return 2009-2016
that all income has been reinvested. The FTSE All-Share
Index and the FTSE All-Small Construction and Building
Materials Index are considered to be the most appropriate
broad equity indices to use as a comparison because the
Company is a constituent of both.
150
120
90
60
30
0
2009 2010 2011 2012 2013 2014 2015 2016
ftSe All-Share
ftSe All-Share, construction & Materials index
tclarke plc
total remuneration
The total remuneration figures for the Chief Executive
during each of the last five financial years are shown in
the table below. The total remuneration figure includes the
annual bonus based on that year’s performance
and LTIP awards based on three year performance periods
ending in the relevant year. The annual bonus payout and
LTIP vesting level as a percentage of the maximum
opportunity are also shown for each of these years.
2009 2010 2011 2012 2013 2014 2015 2016
Total remuneration (£000) 2311 234 245 266 308 300 436 567
Annual bonus % 0% 0% 0% 0% 9% 0% 24% 32%
LTIP vesting % 0% 0% 0% 0% 0% 0% 0% 0%
notes
1. Pat Stanborough held the position of CEO in 2009
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Percentage change in chief executive’s
remuneration
The table below shows the percentage change in the
Chief Executive’s salary, benefits and annual bonus
between the financial year ended 31st December 2015
and 31st December 2016, compared with that of the total
amounts for all UK employees of the Group for each of
these elements of pay.
2016 2015 % change
Salary
Chief Executive 279.0 270.5 3.1%
UK employee average 44.1 42.0 4.5%
benefits
Chief executive 23 23 2.2%
UK employee average 2 1 9.6%
Annual bonus
Chief executive 190 105 91.0%
UK employee average 1.66 1 228.5%
Average number of UK employees 1,331 1,247
relative importance of spend on pay
The following table shows the Group’s total spend on
pay relative to dividends and total operating expenses.
Total operating expenses comprise cost of sales and
administrative expenses before amortisation of intangible
assets and non-recurring costs.
2016 2015 % change
Staff costs 67.1 59.6 12.6%
Dividend 1.3 1.3 0%
Total operating expenses 271.7 219.2 24.0%
executive directors’ notice periods
All current Executive Directors have a 12 months notice
period in accordance with their Service Agreements.
consideration by the directors of matters relating
to directors’ remuneration
The Company’s approach to the Chairman’s and Executive
Directors’ remuneration is determined by the Board on the
advice of the Remuneration Committee.
The members of the Remuneration Committee (all of
whom were independent Non-Executive Directors) during
the year under review were as follows:
• Tony Giddings (Chair)
• Beverley Stewart
• Mike Robson
• Iain McCusker
Biographical information on the committee members and
details of attendance at the remuneration committee’s
meetings during the year are set out on pages 42 and 43
respectively.
The Remuneration Committee has access to independent
advice where appropriate. New Bridge Street (NBS) (a
trading name of Aon Hewitt Ltd, an Aon plc company)
was appointed by the Committee in 2016 to provide
independent advice on remuneration matters.
Representatives from NBS attend Committee meetings
and provide advice to the Committee Chairman outside
of meetings as necessary. In 2016 NBS provided specific
advice to the Committee in respect of its review of the
Company’s remuneration policy for directors. NBS also
provided advice in relation to Non-Executive Director
remuneration. Fees are charged on a cost incurred basis
and for advice to the Committee totalled £25,750 in the
year ended 31st December 2016. NBS is a member of the
Remuneration Consultants Group and operates voluntarily
under the Group’s code which sets out the scope and
conduct of the role of executive remuneration consultants
when advising UK listed companies. NBS does not
undertake any other work for the Company, and the
Committee is satisfied that the advice provided by NBS
remains objective and independent.
Statement of voting at Annual general Meeting
At last year’s AGM, 99.13% of shareholders voted in
favour to approve the Directors’ Remuneration Report.
2016 AgM number %
Votes cast in favour 15,014,721 99.13
Votes cast against 131,091 0.87
Total votes cast 15,145,812
Abstentions 35,022
By order of the Board
tony giddings
Chair - Remuneration Committee
28th March 2017
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directors’ report
The Directors present their Annual Report and the Group
audited financial statements for the year ended 31st
December 2016.
The Strategic Report on pages 2 to 41, the Corporate
Governance Report on pages 44 to 49 and certain Notes
to the financial statements are also incorporated into this
report by reference.
The Company’s registered office is at 45 Moorfields,
London EC2Y 9AE. The Company’s principal place of
business is the United Kingdom.
Strategic report
A description and review of the Group’s activities during
the financial year and likely future developments within
the business is described in the Strategic Report on pages
2 to 41, including the principal risks and uncertainties on
pages 30 to 32, disclosure concerning employees on page
41 and greenhouse gas emissions on page 39.
corporate governance
Details of how the Company has complied with the main
provisions of the UK Corporate Governance Code can be
found in the Corporate Governance report on pages 44 to
49.
results for the year
The results for the year are set out in the Consolidated
income statement on page 84.
dividends
The Directors recommend the payment of a final dividend
for the year of 2.7p per share, (2015: 2.60p) which,
together with the interim dividend of 0.50p paid on 7th
October 2016, makes a total distribution of 3.20p for the
year (2015: 3.10p).
Subject to approval at the Annual General Meeting,
the final dividend will be paid on 12th May 2017 to
shareholders on the register at 18th April 2017. The
shares will go ex-dividend on 13th April 2017.
A dividend reinvestment plan (‘DRIP’) is available
to shareholders. Those shareholders who have not elected
to participate in the plan, and who would like to do so in
respect of the 2016 final payment, may do so by
contacting Capita Registrars on 0871 664 0300 (lines are
open 9:00 am - 5:30 pm Monday to Friday. Calls cost 12p
per minute plus network charges). The last day for
election for the final dividend reinvestment is 18th April
2017 and any request should be made in good time ahead
of that date.
waiver of dividends
Under the trust deed establishing the TClarke Employee
Share Ownership Trust the trustee has waived any
dividends in respect of shares held by the trust.
directors
The Directors who held office throughout the year ended
31st December 2016 are as follows:
Iain McCusker, Tony Giddings, Beverley Stewart, Mike
Robson, Mark Lawrence, Mike Crowder, Martin Walton and
Danny Robson, who served on the Board during the period
until his resignation on 21st March 2016.
Brief biographies of current serving Directors can be found
on pages 42 and 43.
The Articles of Association state that a maximum of
12 Directors may sit on the Board of the Company.
The Company has rules regarding the appointment of
Directors with regard to their election at the first Annual
General Meeting following their appointment, which are
detailed in the Corporate Governance Report on pages 44
to 49. There are no specific rules relating to the
replacement of Directors
directors’ interests
The beneficial interests of the Directors in the share
capital of the Company are set out on page 68.
Powers of directors
The powers of the Directors are determined by the
Company’s Articles of Association, the Companies Act
2006 and the directions given by the Company by
resolutions passed in general meetings. The Directors are
authorised by the Articles to issue and allot ordinary
shares, to dis-apply statutory pre-emption rights and to
make market purchases of the Company’s shares. The
directors currently have shareholder approval for the issue
of ordinary share capital up to a maximum amount of
£1,394,318 and for the buyback of ordinary shares up to a
maximum aggregate of 10% of the issued ordinary share
capital. The Directors will be seeking to renew their
authorities at the forthcoming Annual General Meeting.
Share capital
The Company’s share capital consists of ordinary shares
with a nominal value of 10p each.
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The issued share capital as at 28th March 2017 was
£4,182,957.70, consisting of 41,829,577 ordinary shares
of 10p each. The Company’s issued ordinary shares are
fully paid and rank equally in all respects. There are no
restrictions on the transfer of ordinary shares in the
Company or on the exercise of voting rights attached to
them, save that:
• certain restrictions may from time to time be imposed
by laws and regulations (for example, insider trading
laws and market requirements relating to close periods);
and
• pursuant to the Listing Rules of the Financial Services
Authority, whereby certain employees of the Company
require the approval of the Company to deal in the
Company’s shares.
Further details on share capital are shown in Note 20 to
the financial statements.
Substantial shareholdings
At 27th March 2017 the Company had been notified of the
following substantial interests of 3% or more in its issued
ordinary share capital:
% of issued number of
ordinary share capital shares held
Miton Group Plc 17.66 7,385,611
Hargreaves Lansdown Stockbrokers 5.87 2,456,595
Barclays Stockbrokers 5.26 2,198,869
Walker Crips Wealth Management Ltd 5.23 2,189,190
TD Asset Management Inc. 4.16 1,740,829
Charles Stanley & Co. Ltd 3.26 1,364,585
Significant agreements - change of control
The Directors are not aware of any significant agreements
that take effect, alter or terminate upon a change of
control of the Company following a takeover bid.
The Company has an Equity Incentive Plan (“EIP”) in
place for Directors and senior management, and an
employee share save scheme in place which is available
to all employees. The rules of the EIP provide that awards
made under the EIP may vest on a change of control
of the Company, at the discretion of the Remuneration
Committee. The rules of the 2013 and 2015 Savings
Related Share Option Schemes provide that in the event
of a change of control, outstanding options may be
exchanged or replaced with similar options on the same
terms. Further details on employee share schemes are
disclosed in Note 20 to the financial statements.
There are no other known agreements between the
Company and its Directors or employees providing for
compensation for loss of office or employment that occurs
because of a takeover bid.
Significant interests
Save for interests in service agreements, none of which
extend beyond 12 calendar months, the Directors have no
material interest in any contract of significance that would
have required disclosure under the continuing obligations
of the Financial Conduct Authority Listing Rules, nor have
they any beneficial interest in the issued share capital of
the subsidiary companies.
qualifying third party indemnities
The articles of association of the Company entitle the
directors, to the extent permitted by the Companies Act
2006 and other applicable legislation, to be indemnified
out of the assets of the Company in the event that
they suffer any expenses in connection with certain
proceedings relating to the execution of their duties as
directors of the Company.
In addition the Company has in place insurance in favour
of its Directors and officers in respect of certain losses or
liabilities to which they may be exposed due to their office
up to a limit of £10 million.
research and development
The Group undertakes research and development activity
in creating innovative design and construction solutions
integral to the delivery of its projects. The direct
expenditure incurred is not separately identifiable as the
investment is usually contained within the relevant project.
donations
The Group made no political donations during the year
(2015: £nil).
Post balance sheet events
There were no post balance sheet events requiring
disclosure in the annual report and financial statements.
financial instruments
Details of the financial risk management objectives
and policies of the Group, together with its exposure
to material financial risk, are set out in Note 28 to the
financial statements.
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going concern
The statement regarding going concern forms part of the
Corporate Governance Report and is set out on page 49.
company status
So far as the Directors are aware, the Company is not a
close company.
Stock exchange transactions
Members are advised that trading in the Company’s
shares is conducted via the London Stock Exchange SETS
service. For further information we would refer you to our
corporate broker N+1 Singer (020 7496 3000). The daily
price of the Company’s shares continues to be listed in
the Financial Times under the construction and building
materials sector, and on our website www.tclarke.co.uk.
disclosure of information to auditors
As far as each Director who is in office at the time when
the directors’ report is approved is aware, there is no
relevant audit information of which the auditors are
unaware and each such Director has taken all reasonable
steps to make themselves aware of any relevant audit
information and to establish that the auditors are aware
of that information.
Special resolutions
Details of special resolutions to be considered at the
forthcoming Annual General Meeting are given in the
notice to the Annual General Meeting.
Annual general Meeting (“AgM”)
The AGM of the Company will be held at 200 Aldersgate,
St Pauls, London EC1A 4HD at 10.00am on 5th May 2017.
The Notice of AGM will be sent to shareholders with this
report.
Approved on behalf of the Board
Alexandra dent
Company Secretary
28th March 2017
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Annual Report & Financial Statements 2016
governance - Directors’ responsibilities
Statement of directors’ responsibilities
in respect of the financial statements
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have prepared the Group financial statements
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and
parent company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as
adopted by the European Union. Under company law the
Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the
state of affairs of the Group and parent company and of
the profit or loss of the Group and parent company for
that period. In preparing the financial statements, the
Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the
European Union have been followed for the group
financial statements and IFRSs as adopted by the
European Union have been followed for the Company
financial statements, subject to any material departures
disclosed and explained in the financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and parent company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group and parent company's transactions and disclose
with reasonable accuracy at any time the financial position
of the Group and parent company and enable them to
ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act
2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the
assets of the Group and parent company and hence for
taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the parent company’s website. Legislation
in the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors consider that the annual report and
accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Group and parent
company’s performance, business model and strategy.
Each of the Directors, whose names and functions are
listed in pages 42 and 43 confirm that, to the best of their
knowledge:
• the parent company financial statements, which have
been prepared in accordance with IFRSs as adopted
by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the
Company;
• the Group financial statements, which have been
prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
• the Annual Report includes a fair review of the
development and performance of the business and the
position of the Group and parent company, together
with a description of the principal risks and uncertainties
that it faces.
In the case of each Director in office at the date the
Directors’ Report is approved:
• so far as the Director is aware, there is no relevant audit
information of which the Group and parent company’s
auditors are unaware; and
• they have taken all the steps that they ought to have
taken as a Director in order to make themselves aware
of any relevant audit information and to establish that
the Group and parent company’s auditors are aware of
that information.
On behalf of the Board
Martin walton
Finance Director
iain Mccusker
Chairman
28th March 2017
TClarke plc
Registered number:
119351
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independent auditors’ report
to the members of tclarke plc
report on the financial statements
our opinion
In our opinion:
what we have audited
The financial statements, included within the Annual
Report, comprise:
• the group and parent company statements of financial
• TClarke plc’s group financial statements and parent
position as at 31st December 2016;
company financial statements (the “financial
statements”) give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31st
December 2016 and of the group’s profit and the
group’s and the parent company’s cash flows for the
year then ended;
• the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the
European Union;
• the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance
with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
• the group income statement and statement of
comprehensive income for the year then ended;
• the group and parent company statements of cash
flows for the year then ended;
• the group and parent company statements of changes
in equity for the year then ended; and
• the notes to the financial statements, which include
a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented
elsewhere in the Annual Report, rather than in the notes
to the financial statements. These are cross-referenced
from the financial statements and are identified as
audited.
The financial reporting framework that has been applied
in the preparation of the financial statements is IFRSs
as adopted by the European Union and, as regards the
parent company financial statements, as applied in
accordance with the provisions of the Companies Act
2006, and applicable law.
our audit approach
overview
Materiality
• Overall group materiality: £570,000 which represents 0.25% of average revenue
for the last five years.
• The majority of our audit work was conducted from the head office in London.
• We visited a number of the offices and sites across all four regions in the course
of the audit, including 7 local operating locations.
Audit scope
• Revenue recognition and long term contract accounting in respect of
construction contracts.
• Defined benefit pension plan net assets and liabilities and accounting treatment.
Area of
focus
• Goodwill and intangibles impairment assessment.
• Going concern – compliance with loan covenants.
• Management override of control and financial irregularities in the period.
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the scope of our audit and our areas of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK &
Ireland)”).
We designed our audit by determining materiality and
assessing the risks of material misstatement in the
financial statements. In particular, we looked at where
the Directors made subjective judgements, for example in
respect of significant accounting estimates that involved
making assumptions and considering future events that
are inherently uncertain.
The risks of material misstatement that had the greatest
effect on our audit, including the allocation of our
resources and effort, are identified as “areas of focus” in
the table below. We have also set out how we tailored our
audit to address these specific areas in order to provide an
opinion on the financial statements as a whole, and any
comments we make on the results of our procedures
should be read in this context. This is not a complete list
of all risks identified by our audit.
Area of focus
how our audit addressed the area of focus
revenue recognition and long term contract accounting in respect
of construction contracts
We selected a sample of contracts to test, based on both quantitative and
qualitative criteria including:
Refer to page 50 to 53 (Audit Committee Report) and Note 4 (Significant
judgements and sources of estimation uncertainty).
We focused on the revenue and profit recognised on long term contracts
because they result in material balances, involve judgements and can be
complex. IFRSs require revenue to be recognised over the course of the
contract, using a 'percentage completion’ method. If a project is, or is
forecast to be, loss making, they require the full loss to be recognised.
The Group generates revenue from long term contracts relating mainly
to mechanical and electrical services. The Group has a large number of
contracts; we focused on contracts which stood out individually as being
higher risk at the year end. Factors causing a contract to stand out
included, for example, material amounts receivable which were not agreed
by the client, disputes with clients or subcontractors, or a high level of
variations or changes to the contract scope relative to the original contract
total.
The percentage completion of contracts is calculated based on the amount
of costs incurred to date compared with the total expected costs to be
incurred on the project, except where this would not be representative of
the stage of completion and forecast end of life costs are inherently
subjective.
• high levels of revenue recognised in the year;
• high margins;
• significant loss-making contracts;
• contracts with significant balance sheet exposure; and
• contracts with a large variance to the profit margin applied year
on year.
We obtained an understanding of and evaluated management’s own
process and controls for reviewing long term contracts (including the
process for identifying loss-making and/or higher risk contracts and
assessing the supporting revenue recognition and cost estimates, including
contract variations) and gained an understanding of the key judgements
involved and background to the specific contracts selected in our sample.
As a result of the matter referred to below we did not seek to place any
reliance on the operating effectiveness of the controls and our work
comprised substantive testing.
For the sample of contracts we selected for testing, we focused on the
significant judgements adopted by management in relation to the revenue
and margin recognition, and, in particular, judgements with respect to the
percentage completion, by:
• agreeing forecast costs to completion to documentary evidence
(orders signed with subcontractors or supporting calculations)
and applying industry knowledge and experience to critique the
completeness of the forecast costs to completion;
• agreeing total projected income to signed contracts plus a listing of
variations;
• tracing a sample of variations to supporting certifications or
instructions from clients;
• reconciling revenue recognised with amounts applied for and amounts
certified by clients and confirming, using our industry knowledge and
experience, that the reconciling items were appropriate;
• re-performing the key calculations behind the margin applied, the
profit taken and the stage of completion, as well as balance sheet
exposure; and
• assessing the recoverability of balance sheet items by comparing to
external certification of the value of work performed.
We assessed the Directors’ estimates by comparing the budgeted total
profit on each selected contract with that budgeted at the prior year end
(where applicable) and tested significant variances to confirm they were
supported by documentary evidence.
We found these movements to be driven by contract specific issues, such
as unforeseen delays, as opposed to inaccurate or optimistic budgeting.
We considered the judgements made by the Directors concerning the
recoverability of contract variations reasonable in light of the evidence.
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Area of focus
how our audit addressed the area of focus
defined benefit pension plan net assets and liabilities and
accounting treatment
Refer to page 50 to 53 (Audit Committee Report), Note 4 (Significant
judgements and sources of estimation uncertainty) and Note 24 (Pension
commitments).
The Group operates a funded defined benefit pension scheme for
qualifying employees which was closed to new members after 31st
December 2014.
The scheme has assets of £37.7m and post-retirement liabilities of £53.3m,
which are significant in the context of the overall balance sheet of the
Group.
During the year the Group has restructured its operations to streamline the
management structure and reduce costs. As part of this a service company
has been created to employ all of the Group’s staff and this company is
now the sponsoring employer of the defined benefit pension scheme,
replacing TClarke plc.
The valuation of the pension liabilities requires significant levels of
judgement and technical expertise in choosing appropriate assumptions.
Unfavourable changes in a number of the key assumptions (including
salary increases, inflation, discount rates and mortality) can have a
material impact on the calculation of the liability.
As a result of the size of the pension scheme deficit, the judgements
inherent in the actuarial assumptions involved in the valuation of the
pension obligation and the complexity associated with the accounting for
the restructure in the year, we considered this to be an area of focus.
We obtained the actuarial report for the scheme as at 31st December 2016.
We agreed the material assets of the scheme to independently obtained
third party custodian confirmations. Where relevant we agreed asset
valuations to independently obtained investment manager valuations.
No material differences were identified.
We tested the valuation of the pension liabilities as follows:
• We agreed the discount and inflation rates used in the valuation of the
pension liability to our internally developed benchmarks, finding these
to be within an acceptable range.
• We compared the inflation rate and mortality rate assumptions set by
the Directors to national and industry averages, finding these to be
within an acceptable range.
The most recent triennial valuation was close to completion at 31st
December 2016 therefore the census data supporting the actuarial report
had been updated during the year. We agreed a sample of the data used
to supporting payroll information.
With respect to the restructure we performed the following:
• We examined the legal terms of the pension scheme to check that
the service company has become the sponsoring employer.
• We understood the terms upon which the new operating company
and the Group will transact with the service company to check that
the service company has commercial substance and bears the risk
of the pension scheme. Subject to finalisation of the necessary legal
agreements, these arrangements took effect from 23rd December
2016.
• We also examined the disclosures made in the financial statements to
check that they describe the changes made in the year, including the
guarantee provided by TClarke plc to the service company and we
have concluded that the disclosures are appropriate.
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Area of focus
how our audit addressed the area of focus
goodwill and intangibles impairment assessment
Refer to page 50 to 53 (Audit Committee Report), Note 4 Significant
judgements and sources of estimation uncertainty) and Note 12
(Intangible assets).
We focused on this area because the Directors’ assessment of the carrying
value of goodwill and intangible assets involves complex and subjective
judgements about the future results of the business.
No impairment was recognised during the year.
We focused on those Cash Generating Units (CGUs) we considered
to carry more judgement because of current year losses or historic
underperformance against budgets, or for which management’s
impairment assessment model gave lower headroom relative to other
CGUs.
The value in use calculations in relation to the Group’s TClarke South
West CGU (goodwill of £1.3m) was most sensitive to changes in key
assumptions. The key judgements involved were future revenue growth,
margin assumptions and the discount rate applied as set out in Note 12
to the Group financial statements.
We evaluated the Directors’ future cash flow forecasts, which were
prepared to a sufficiently detailed level, including comparing them to the
latest Board approved budgets, testing the integrity of the underlying
calculations and assessing how both internal and external drivers of
performance were incorporated into the projections. We also challenged
the discount rate used by independently recalculating the cost of capital.
TClarke South West CGU has been loss making historically, and the carrying
value of the goodwill is dependent on the CGUs ability to make profits
from 2017 onwards. We tested the level of secured work by tracing it to
supporting orders. 65% of the 2017 forecast revenue for TClarke South
West’s revenue has been secured. We tested the cost forecasts by
comparing a sample to tenders from subcontractors or calculations of man
hours required. We compared 2016 financial performance to budget and
understood the reasons for the differences from the forecasts prepared for
the 31 December 2015 financial statements and their impact on the future
drivers of improvement in profitability.
For the Group’s TClarke South West CGU, we also performed sensitivity
analysis around the key drivers of the cash flow forecasts, in particular the
revenue growth and margin assumptions. Having ascertained the extent
of change in those assumptions that either individually or collectively
would be required for the goodwill and intangible assets to be impaired,
we considered the likelihood of such movement arising in those key
assumptions. We noted that the value in use of this business is more
sensitive to changes in the assumptions concerning future revenue growth
and, in particular, gross margin than assumptions surrounding the discount
rate.
The Directors have built increased profitability into their forecasts for the
CGU and we challenged them on the realistic impact of the actions they
have taken, and intend to take, to improve the profitability. We particularly
challenged management on the changes they have made to the CGU this
year and in recent years in order to achieve the future forecast revenue
and profit, in light of the margins actually achieved in recent years.
Although we considered the Directors' expectations of the impact of their
actions to be reasonable in light of the evidence available, failure to meet
these forecasts and to generate a profit may result in impairment of the
goodwill and investment value associated with the TClarke South West
CGU.
Therefore we also examined the disclosures made in the financial
statements and concluded that they are appropriate.
Management have also presented sensitivity analysis in respect of the
Scotland and Central CGU’s. We examined the disclosures made in the
financial statements and compared these to the sensitivity analysis
performed by management. We concluded that the disclosures are
appropriate.
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Area of focus
how our audit addressed the area of focus
going concern – compliance with loan covenants
Refer to page 50 to 53 (Audit Committee Report), Note 3 (Accounting
Policies – Basis of Preparation) and Note 22 (Bank overdraft and loans).
We focused on the Directors’ conclusion that it is appropriate to adopt
the going concern basis in preparing the financial statements.
The Group operates in the construction industry, which has continued
to experience low margins and has been significantly impacted by the
economic downturn in recent years resulting in lower margins and cash
flow pressures.
In addition to a £5m overdraft facility renewable annually, the Group has
a new £10m Revolving Credit Facility (RCF) which was renegotiated during
December 2016 (2015: £8m overdraft facility and £5m RCF). The RCF
includes financial covenants around interest cover and net leverage ratios
which are required to be tested quarterly.
We obtained copies of the new overdraft and RCF agreements and read
the relevant parts of the agreements relating to available financing and
the applicable covenants.
We obtained the Directors’ forecast of the Group’s funding requirements
and covenant compliance for years 2017-2019 and details of the financing
facilities in place and we focused on the 12 months from the date of
signing of the Annual Report. The forecasts, which are consistent with
those used for the impairment assessment, showed sufficient funding and
compliance with covenants.
We performed sensitivity analysis around the covenant forecasts and the
cash flow forecasts including adjusting future revenue growth and margin
assumptions to industry average forecast levels.
We further evaluated assumptions relating to changes in working capital,
including debtors/creditors days by comparing to the actual changes over
the previous year and found them to be consistent with our expectation,
which was based on previous experience by the Group. We assessed the
Directors’ budgeting ability by comparing past budgets to actual results
achieved.
We discussed with the Directors the actions they consider they could take
to alter the timing and/or amount of cash flows, considered whether they
were consistent with previous actions taken by the Directors and used our
knowledge of the business to consider the feasibility and likely impact of
the Directors' intentions. We then assessed the sensitivity of the Directors’
calculations to changes in key inputs, in particular forecast underlying profit
before tax.
Our conclusion on Going Concern is outlined below.
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Area of focus
how our audit addressed the area of focus
Management override of control and financial irregularities in the
period
We tailored specific procedures to focus on the misappropriation in the
period, including the procedures set out below.
Refer to page 50 to 53 (Audit Committee Report), and Note 7 (Profit from
operations).
As in all of our audits we addressed the risk of management override of
internal controls, including evaluating whether there was evidence of bias
by the Directors that represented a risk of material misstatement due to
fraud.
On 31st October 2016, the Group announced that it had uncovered the
misappropriation of cash of £2.9m over a number of years in the DG
Robson Mechanical Services Limited (DGR) subsidiary. In the light of this
management carried out a detailed internal review of the factors which
gave rise to this misappropriation and the controls associated with
payments made by the group, as well as investigating the extent of the
misappropriation. Management employed external advisors to assist in this
investigation.
Our audit considered the scope and results of the investigation, including
the quantification by management of the amount of the misappropriation.
We also considered whether there was any material impact on prior period
financial statements of the issues identified during the current year.
The impact of the misappropriation has been separately identified in the
income statement as non-recurring. The impact on the 2015 income
statement is not material however the income statement has been re-
presented to provide comparative analysis of the non-underlying amounts.
• Through enquiry with management, we obtained an understanding of
how the misappropriation occurred, its implications for the Group and
management’s response including their assessment of whether it
involved any collusion among employees.
• We met with management’s external advisors to understand the scope
of their procedures and their findings. We also obtained confirmation
of their independence of the Group.
• On a sample basis, we tested the population of payments identified
by management as being misappropriated to the cash transfer in the
bank statements and to the associated posting in the accounting
records to confirm that these were appropriately reported in the 2016
financial statements.
• We selected a sample of journals posted in the year and corroborated
these to supporting documentation. In particular, we focused on those
journals posted by individuals with access to make payments as well
as testing journals with unusual descriptions and unexpected account
combinations.
• For a sample of supplier accounts, we obtained third party
confirmation, or performed alternative procedures over invoices
recorded on the year end subcontractor and purchase ledgers.
• We performed testing to establish whether further misappropriation
might have been concealed through recording invalid contract costs or
retention releases, and whether there was evidence of inappropriate
amendment of supplier bank details to facilitate misappropriation of
funds.
Our procedures did not identify any further evidence of material
misappropriation over and above that identified by management.
We also tested management’s analysis of the amounts relating to prior
periods, and the re-presentation of the income statement. The impact on
2015 profits was £0.2m, which was below the materiality of £0.6m that we
determined applicable for the 2015 audit. After considering the nature and
quantum of the amounts relating to prior periods we concurred with the
Directors that these were not material.
We concurred with this accounting treatment and the disclosures made in
the financial statements about the impact of the misappropriation.
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how we tailored the audit scope
The Group is structured into four regional trading
segments which are subdivided into twenty five legal
entities (nine of which are dormant) for the purposes of
financial reporting. We performed a full scope audit over
all 16 active entities.
In establishing the overall approach to the Group audit,
we determined the type of work that needed to be
performed at the reporting units by us, as the Group
engagement team, or component auditors from PwC
operating under our instruction. Where the work was
performed by component auditors, we determined the
level of involvement we needed to have in the audit work
at those components, in order to be able to conclude
whether sufficient appropriate audit evidence had been
obtained, as a basis for our opinion on the Group financial
statements as a whole.
The majority of our audit work, including the audit of the
consolidation, was conducted from the head office in
London as this is where the key accounting processes and
controls are undertaken. We also received reporting from
two component auditor teams from PwC in the UK and
attended the planning and clearance meetings with the
component auditors. Together the Group and component
teams visited a number of the offices and sites across all
four regions, including 7 local operations, to obtain a
comprehensive understanding from local management
of key matters that had arisen in the year.
Materiality
The scope of our audit was influenced by our
application of materiality. We set certain quantitative
thresholds for materiality. These, together with qualitative
considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line
items and disclosures and in evaluating the effect of
misstatements, both individually and on the financial
statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as
follows:
overall group materiality
£570,000 (2015: £605,000).
how we determined it
rationale for benchmark
applied
0.25% of average revenue for
the last 5 years (2015: 0.25%
of average revenue).
We used revenue as a basis for
materiality as the Group’s profit
margins have historically been
low, consistent with the industry
as a whole, and therefore
revenue is used by the Group
as a key performance indicator.
An average measure was applied
to avoid the volatility caused by
fluctuations in revenue over the
business cycle.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£28,500 (2015: £30,250) as well as misstatements below
that amount that, in our view, warranted reporting for
qualitative reasons.
going concern
Under the Listing Rules we are required to review the
Directors’ statement, set out on page 49, in relation
to going concern. We have nothing to report having
performed our review.
Under ISAs (UK & Ireland) we are required to report
to you if we have anything material to add or to draw
attention to in relation to the Directors’ statement about
whether they considered it appropriate to adopt the going
concern basis in preparing the financial statements. We
have nothing material to add or to draw attention to.
As noted in the Directors’ statement, the Directors have
concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going
concern basis presumes that the Group and parent
company have adequate resources to remain in operation,
and that the Directors intend them to do so, for at least
one year from the date the financial statements were
signed. As part of our audit we have concluded that the
Directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can
be predicted, these statements are not a guarantee as to
the Group’s and parent company’s ability to continue as
a going concern.
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other required reporting
consistency of other information and compliance
with applicable requirements
companies Act 2006 reporting
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.
In addition, in light of the knowledge and understanding
of the Group, the parent company and their environment
obtained in the course of the audit, we are required to
report if we have identified any material misstatements in
the Strategic Report and the Directors’ Report. We have
nothing to report in this respect.
iSAs (uK & ireland) reporting
• information in the Annual Report is:
− materially inconsistent with the information in the audited financial
statements; or
− apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group and parent company acquired in
the course of performing our audit; or
− otherwise misleading.
we have no exceptions to report.
• the statement given by the Directors on page 74, in accordance with
provision C.1.1 of the UK Corporate Governance Code (the “Code”),
that they consider the Annual Report taken as a whole to be fair,
balanced and understandable and provides the information
necessary for members to assess the Group’s and parent company’s
position and performance, business model and strategy is materially
inconsistent with our knowledge of the Group and parent company
acquired in the course of performing our audit.
we have no exceptions to report.
• the section of the Annual Report on page 51, as required by
provision C.3.8 of the Code, describing the work of the Audit
Committee does not appropriately address matters communicated
by us to the Audit Committee.
we have no exceptions to report.
the directors’ assessment of the prospects of the
group and of the principal risks that would
threaten the solvency or liquidity of the group
Under ISAs (UK & Ireland) we are required to report to you if we have
anything material to add or to draw attention to in relation to:
• the Directors’ confirmation on page 48 of the Annual Report, in
accordance with provision C.2.1 of the Code, that they have carried
out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity.
we have nothing material to add or to draw attention to.
• the disclosures in the Annual Report that describe those risks and
explain how they are being managed or mitigated.
we have nothing material to add or to draw attention to.
• the Directors’ explanation on page 33 of the Annual Report, in
accordance with provision C.2.2 of the Code, as to how they have
assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary
qualifications or assumptions.
we have nothing material to add or to draw attention to.
Under the Listing Rules we are required to review the Directors’
statement that they have carried out a robust assessment of the
principal risks facing the Group and the Directors’ statement in relation
to the longer-term viability of the Group. Our review was substantially
less in scope than an audit and only consisted of making inquiries and
considering the Directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the
Code; and considering whether the statements are consistent with the
knowledge acquired by us in the course of performing our audit. We
have nothing to report having performed our review.
Adequacy of accounting records and information
and explanations received
Under the Companies Act 2006 we are required to report
to you if, in our opinion:
• we have not received all the information and
explanations we require for our audit; or
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are
not in agreement with the accounting records and
returns.
We have no exceptions to report arising from this
responsibility.
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directors’ remuneration
directors’ remuneration report -
companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
other companies Act 2006 reporting
Under the Companies Act 2006 we are required to report
to you if, in our opinion, certain disclosures of Directors’
remuneration specified by law are not made. We have no
exceptions to report arising from this responsibility.
corporate governance statement
Under the Listing Rules we are required to review the part
of the Corporate Governance Statement relating to ten
further provisions of the Code. We have nothing to report
having performed our review.
responsibilities for the financial
statements and the audit
our responsibilities and those of the directors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 74, the Directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on
the financial statements in accordance with applicable law
and ISAs (UK & Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for
and only for the parent company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies
Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report
is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
what an audit of financial statements involves
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to
give reasonable assurance that the financial statements
are free from material misstatement, whether caused by
fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the
Group’s and the parent company’s circumstances and
have been consistently applied and adequately
disclosed;
• the reasonableness of significant accounting estimates
made by the Directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing
the Directors’ judgements against available evidence,
forming our own judgements, and evaluating the
disclosures in the financial statements.
We test and examine information, using sampling and
other auditing techniques, to the extent we consider
necessary to provide a reasonable basis for us to draw
conclusions. We obtain audit evidence through testing the
effectiveness of controls, substantive procedures or a
combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and
to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report. With respect to the Strategic
Report and Directors’ Report, we consider whether those
reports include the disclosures required by applicable legal
requirements.
richard Porter
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
28th March 2017
83
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
consolidated income statement
for the year ended 31st December 2016
continuing operations:
revenue
Cost of sales
gross profit
Other operating income
Administrative expenses:
Amortisation of intangible assets
Non-recurring costs
Other administrative expenses
Total administrative expenses
Profit / (loss) from operations:
Finance income
Finance costs
Profit / (loss) before taxation
Taxation
Profit / (loss)
from continuing operations
10
Loss for the year from discontinued operations
Profit / (loss) for the year
earnings / (loss) per share
from continuing operations
Attributable to owners of TClarke plc: Basic
Diluted
earnings / (loss) per share
Attributable to owners of TClarke plc: Basic
Diluted
11
11
11
11
Underlying
items
£m
Note
5
278.6
7
7
6
6
7
9
(246.2)
32.4
0.2
–
–
(25.7)
(25.7)
6.9
–
(0.7)
6.2
(1.3)
4.9
–
4.9
2016
Non-
underlying
items
£m
Total
£m
Underlying
items
£m
2015*
Non-
underlying
items
£m
–
–
–
–
278.6
242.4
(246.2)
(214.4)
32.4
0.2
28.0
0.1
(0.2)
(2.3)
(0.2)
(2.3)
–
(25.7)
(2.5)
(28.2)
–
–
(23.0)
(23.0)
(2.5)
–
–
(2.5)
0.5
(2.0)
(0.5)
(2.5)
4.4
–
(0.7)
3.7
(0.8)
2.9
(0.5)
2.4
5.1
0.1
(1.0)
4.2
(0.8)
3.4
–
3.4
–
–
–
–
(0.2)
(0.5)
–
(0.7)
(0.7)
–
–
(0.7)
0.1
(0.6)
(2.7)
(3.3)
11.60p
(4.86)p
6.74p
8.16p
(1.50)p
11.20p
(4.70)p
6.50p
7.88p
(1.44)p
11.60p
(6.15)p
5.45p
8.16p
(8.03)p
11.20p
(5.95)p
5.25p
7.88p
(7.76)p
Total
£m
242.4
(214.4)
28.0
0.1
(0.2)
(0.5)
(23.0)
(23.7)
4.4
0.1
(1.0)
3.5
(0.7)
2.8
(2.7)
0.1
6.66p
6.44p
0.13p
0.12p
* Re-presented to classify certain immaterial cost of sales and underlying administrative expenses
totalling £0.5m as non-recurring administrative expenses. Further details are given in Note 7.
84
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
consolidated statement of comprehensive income
for the year ended 31st December 2016
Profit for the year
other comprehensive (expense) / income:
items that will not be reclassified to profit or loss
Actuarial (loss) / gain on defined benefit pension scheme
other comprehensive (expense) / income for the year, net of tax
total comprehensive (expense) / income for the year
2016
£m
2.4
(6.3)
(6.3)
(3.9)
2015
£m
0.1
2.2
2.2
2.3
85
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
consolidated statement of financial position
for the year ended 31st December 2016
non current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
current assets
Inventories
Amounts due from customers under construction contracts
Trade and other receivables
Cash and cash equivalents
total assets
current liabilities
Amounts due to customers under construction contracts
Trade and other payables
Current tax liabilities
Obligations under finance leases
net current assets
non current liabilities
Bank loans
Other payables
Retirement benefit obligation
total liabilities
net assets
equity attributable to owners of the parent
Share capital
Share premium
ESOT share reserve
Revaluation reserve
Retained earnings
total equity
Note
12
13
19
15
16
17
21
16
18
25
22
18
24
20
20
2016
£m
22.8
3.9
3.3
30.0
0.6
27.8
41.8
12.3
82.5
2015
£m
23.0
4.6
2.3
29.9
0.4
31.1
36.3
11.7
79.5
112.5
109.4
(4.4)
(70.1)
(0.2)
(0.1)
(74.8)
7.7
(3.0)
–
(20.6)
(23.6)
(98.4)
14.1
4.2
3.1
(0.8)
0.5
7.1
14.1
(4.1)
(67.1)
–
(0.1)
(71.3)
8.2
(5.0)
(0.1)
(13.4)
(18.5)
(89.8)
19.6
4.2
3.1
(0.4)
0.6
12.1
19.6
The financial statements on pages 84 to 139 were approved by the
Board of Directors on 28th March 2017 and were signed on its behalf by:
i. Mccusker Director M. lawrence Director
86
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
company statement of financial position
as at 31st December 2016
non current assets
Property, plant and equipment
Investments
Deferred tax assets
current assets
Amounts due from customers under construction contracts
Trade and other receivables
Current income tax receivables
Cash and cash equivalents
total assets
current liabilities
Amounts due to customers under construction contracts
Trade and other payables
Current income tax payable
net current assets
non current liabilities
Bank loans
Intra-group loans
Retirement benefit obligation
total liabilities
net assets
equity attributable to owners of the parent
Share capital
Share premium
ESOT share reserve
Retained earnings
total equity
Note
13
14
19
16
17
21
16
18
22
24
20
20
2016
£m
–
39.7
–
39.7
–
0.2
–
13.1
13.3
53.0
–
(4.3)
(0.3)
(4.6)
8.7
(3.0)
(30.0)
–
(33.0)
(37.6)
15.4
4.2
3.1
(0.6)
8.7
15.4
2015
£m
0.3
32.1
2.6
35.0
13.6
13.7
–
14.1
41.4
76.4
(1.7)
(37.6)
(0.3)
(39.6)
1.8
(5.0)
–
(13.4)
(18.4)
(58.0)
18.4
4.2
3.1
(0.1)
11.2
18.4
The Company has taken advantage of the exemption conferred by section 408 of the Companies Act 2006 from
presenting it’s own income statement. The profit after tax for the year was £5.0m (2015: £2.5m)
The financial statements on pages 84 to 139 were approved by the
Board of Directors on 28th March 2017 and were signed on its behalf by:
i. Mccusker Director M. lawrence Director
Registered number: 119351
87
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
consolidated statement of cash flows
for the year ended 31st December 2016
net cash generated from operating activities
investing activities
Interest received
Purchase of property, plant and equipment
Receipts on disposal of property, plant and equipment
net cash generated from investing activities
financing activities
Repayment of bank borrowing
Equity dividends paid
Acquisition of shares by ESOT
Disposal of share by ESOT
net cash used in 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
Note
21
22
20
20
20
21
21
2016
£m
4.0
–
(0.2)
0.5
0.3
(2.0)
(1.3)
(1.5)
1.1
(3.7)
0.6
11.7
12.3
2015
£m
2.7
0.2
(0.5)
0.5
0.2
–
(1.3)
(0.7)
0.5
(1.5)
1.4
10.3
11.7
88
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
company statement of cash flows
for the year ended 31st December 2016
net cash generated from operating activities
investing activities
Interest received
Purchase of property, plant and equipment
Additional investment in subsidiaries
Dividends received from subsidiaries
net cash (used in) / generated from investing activities
financing activities
Repayment of bank borrowing
Equity dividends paid
Loan to ESOT
Repayment of loan by ESOT
net cash used in financing activities
net (decrease) / increase in cash and cash equivalents
cash and cash equivalents at beginning of year
cash and cash equivalents at end of year
Note
21
22
20
20
20
21
21
2016
£m
8.1
0.1
–
(7.9)
2.6
(5.2)
(2.0)
(1.3)
(0.6)
–
(3.9)
(1.0)
14.1
13.1
2015
£m
7.4
0.1
(0.2)
–
1.9
1.8
–
(1.3)
(0.5)
0.5
(1.3)
7.9
6.2
14.1
89
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
consolidated statement of changes in equity
for the year ended 31st December 2016
Attributable to owners of the parent
Share
capital
£m
4.1
Share
premium
£m
ESOT
share res.
£m
Revaluation
reserve
£m
Retained
earnings
£m
3.1
(0.1)
0.8
11.0
At 1st january 2015
comprehensive income:
Profit for the year
Other comprehensive income
Actuarial gain on retirement benefit obligation
Deferred income tax charge on actuarial gain
on retirement benefit obligation
Effect of change in tax rate
Total other comprehensive income
Total comprehensive income
transactions with owners
Share based payment debit
Shares acquired by ESOT
Shares distributed by ESOT
Shares issued to ESOT
Dividends paid
Total transactions with owners
Transfers
At 31st december 2015
comprehensive expense:
Profit for the year
Other comprehensive income
Actuarial loss on retirement benefit obligation
Deferred income tax credit on actuarial loss
on retirement benefit obligation
Effect of change in tax rate
Total other comprehensive expense
Total comprehensive expense
transactions with owners
Share based payment credit
Shares acquired by ESOT
Shares distributed by ESOT
Dividends paid
Total transactions with owners
Transfers
–
–
–
–
–
–
–
–
–
0.1
–
0.1
–
4.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.7)
0.5
(0.1)
–
(0.3)
–
(0.4)
–
–
–
–
–
–
–
(0.9)
0.5
–
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.2)
0.6
–
–
–
–
–
–
–
–
–
–
–
(0.1)
0.5
Total
£m
18.9
0.1
2.9
(0.6)
(0.1)
2.2
2.3
(0.1)
(0.7)
0.5
–
(1.3)
(1.6)
–
19.6
0.1
2.9
(0.6)
(0.1)
2.2
2.3
(0.1)
–
–
–
(1.3)
(1.4)
0.2
12.1
2.4
2.4
(7.3)
(7.3)
1.4
(0.4)
(6.3)
(3.9)
0.1
–
–
(1.3)
(1.2)
0.1
7.1
1.4
(0.4)
(6.3)
(3.9)
0.1
(0.9)
0.5
(1.3)
(1.6)
–
14.1
At 31st december 2016
4.2
3.1
(0.8)
90
Annual Report & Financial Statements 2016
Financial statements for the year ended 31st December 2016
company statement of changes in equity
for the year ended 31st December 2016
Attributable to owners of the parent
Share
capital
£m
4.1
Share
premium
£m
3.1
ESOT
share res.
£m
(0.1)
At 1st january 2015
comprehensive income:
Profit for the year
Other comprehensive income
Actuarial gain on retirement benefit obligation
Deferred income tax charge on actuarial loss
on retirement benefit obligation
Effect of change in tax rate
Total other comprehensive expense
Total comprehensive expense
transactions with owners
Share based payment debit
Loan repaid by ESOT
Loan to ESOT
Shares issued to ESOT
Dividends paid
Total transactions with owners
At 31st december 2015
comprehensive expense:
Profit for the year
Other comprehensive income
Actuarial loss on retirement benefit obligation
Deferred income tax credit on actuarial loss
on retirement benefit obligation
Effect of change in tax rate
Total other comprehensive expense
Total comprehensive expense
transactions with owners
Share based payment credit
Loan repaid by ESOT
Dividends paid
Total transactions with owners
At 31st december 2016
Retained
earnings
£m
7.9
2.5
2.9
(0.6)
(0.1)
2.2
4.7
(0.1)
–
–
–
(1.3)
(1.4)
11.2
Total
£m
15.0
2.5
2.9
(0.6)
(0.1)
2.2
4.7
(0.1)
(0.4)
0.5
–
(1.3)
(1.3)
18.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.4)
0.5
(0.1)
–
–
3.1
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.5)
–
(0.5)
(0.6)
5.0
5.0
(7.3)
(7.3)
1.4
(0.4)
(6.3)
(1.3)
0.1
–
(1.3)
(1.2)
8.7
1.4
(0.4)
(6.3)
(1.3)
0.1
(0.5)
(1.3)
(1.7)
15.4
–
–
–
–
–
–
–
–
–
0.1
–
0.1
4.2
–
–
–
–
–
–
–
–
–
–
4.2
3.1
91
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
notes to the financial statements
for the year ended 31st December 2016
note 1 – general information
TClarke plc is a public limited company listed on The London Stock Exchange, incorporated and domiciled in the United
Kingdom. The address of its registered office and principal place of business is disclosed in the Directors’ report on page
71. The nature of the Group’s operations and its principal activities are described in Note 5 and in the Strategic report on
pages 2 to 41.
note 2 – Application of new and revised ifrSs
A. new standards, interpretations and amended
standards adopted by the group
The following standards, interpretations and amended
standards have been applied for the first time for the
financial year beginning 1st January 2016.
Annual improvements 2012-2014 cycle
Amendments to various standards and interpretations
under the Annual Improvements 2012-2014 Cycle are
applicable for the first time for the year ending 31st
December 2016, but none of these amendments has
had a significant effect on the financial statements.
b. new standards, interpretations and amended
standards in issue but not yet adopted by the group
ifrS9 ‘financial instruments’
IFRS 9 introduced new requirements for the classification
and measurement of financial instruments, including
impairment requirements for financial assets. The key
requirements of IFRS 9 are:
• All financial assets are required to be classified and
measured, on initial recognition and subsequently, at
either fair value or amortised cost. The classification
depends on the entity’s business model for managing its
financial instruments and the contractual cash flow
characteristics of the instrument.
• In relation to the impairment of financial assets, IFRS 9
requires an expected credit loss model, as opposed to an
incurred credit loss model under IAS 39. The expected
credit loss model requires an entity to account for
expected credit losses at each reporting date to reflect
changes in credit risk since initial recognition.
• For financial liabilities, IFRS 9 retains most of IAS39’s
requirements. The main change is that where the fair
value option is taken for financial liabilities, the part of a
fair value change due to an entity’s own credit risk is
recorded in other comprehensive income rather than the
income statement, unless this creates an accounting
mismatch.
The Group is yet to assess the full impact of IFRS9 and
intends to adopt the standard no later than the accounting
period beginning 1st January 2018.
ifrS 15 revenue from contracts with customers
IFRS 15 was issued in May 2015 and will become
mandatory with effect from accounting periods beginning
on or after 1st January 2018, with early adoption
permitted. IFRS 15 establishes a single comprehensive
model for entities to use in accounting for revenue arising
from contracts with customers. IFRS 15 will supercede the
current revenue recognition guidance including IAS 18
‘Revenue’, IAS11 ‘Construction contracts’ and the related
interpretations when it becomes effective. The core
principle of IFRS15 is that an entity should recognise
revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. Under IFRS 15 an
entity recognises revenue when, or as, a performance
obligation is satisfied, that is when ‘control’ of the goods or
services underlying the particular performance obligation is
transferred to the customer.
The Group is still assessing the impact of IFRS 15, which
as a minimum is likely to have significant disclosure
92
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 2 – Application of new and revised ifrSs continued
implications, and intends to adopt the new standard no
later than the accounting period beginning 1st January
2018.
ifrS 16 leases
IFRS 16 was issued on 13th January 2016 and will become
mandatory for accounting periods beginning on or after 1st
January 2019, with early adoption permitted. IFRS 16 will
replace the current guidance under IAS 17. The main
feature of IFRS 16 is that lessees will have to recognise a
lease liability reflecting future lease payments and a 'right
of use asset' for almost all lease contracts, whereas at
present a distinction is drawn between finance leases and
operating leases depending on whether substantially all the
risk and reward of ownership have been transferred to the
lessee. The Group is yet to assess the full impact of IFRS
16, and intend to adopt the new standard no later than the
accounting period beginning 1st January 2019.
Amendments to iAS 19 ‘defined benefit Plans:
employee contributions’
The amendments to IAS 19 clarify how an entity should
account for contributions made by employees or third
parties to defined benefit plans, based on whether those
contributions are dependent on the number of years of
service provided by the employee. For contributions that
are independent of the number of years of service, the
entity may either recognise the contributions as a reduction
in the service cost in the period in which the related service
is rendered, or attribute them to the employee’s periods of
service using the projected unit credit method; whereas for
contributions that are dependent on the number of years
of service, the entity is required to attribute them to the
employee’s periods of service. The amendments are
mandatory for accounting periods beginning on or after 1st
February 2016. The directors do not anticipate the
application of these amendments will have a significant
impact on the Group’s consolidated financial statements.
disclosure initiative (amendments to iAS 7)
The amendments require disclosures that enable users of
financial statements to evaluate changes in liabilities arising
from financing activities, including those arising from both
cash flow and non-cash flow changes.
The amendments are effective for annual periods
beginning on or after 1st January 2017, with early adoption
permitted.
To satisfy the new disclosure requirements, the Group
intends to present a reconciliation between the opening
and closing balances for liabilities with changes arising
from financing activities.
recognition of deferred tax Assets for unrealised
losses (amendments to iAS 12)
The amendments clarify the accounting for deferred tax
assets for unrealised losses on debt instruments measured
at fair value. The amendments are effective for annual
periods beginning on or after 1st January 2017, with early
adoption permitted. The Group is assessing the potential
impact on its consolidated financial statements resulting
from the amendments. So far, the Group does not expect
any significant impact.
Annual improvements
The annual improvements programme undertaken by the
International Accounting Standards Board covers a number
of amendments to various IFRS’s, including:
• Amendments to various definitions in IFRS 2 ‘Share
based payments’;
• Amendments to IFRS 3 ‘Business combinations’
regarding the measurement of contingent consideration;
• Amendments to IFRS 8 ‘Operating segments’ regarding
the aggregation criteria for operating segments, none of
which are expected to have a significant impact on the
Group’s consolidated financial statements;
• Clarification that issuing IFRS 13 and amending IFRS 9
and IAS 39 did not remove the ability to measure certain
short-term receivables and payables on an undiscounted
basis;
• Clarification that under IAS 16 ‘Property, plant and
equipment’ and IAS 38 ‘Intangible assets’, the gross
amount of property, plant and equipment is adjusted in a
manner consistent with a revaluation of the carrying
amount.
there are no others ifrSs or ifrS ic
interpretations that are not yet effective that would
be expected to have a material impact on the
group’s consolidated financial statements.
93
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 3 – Accounting policies
The principal accounting policies applied in the preparation
of these consolidated and parent company financial
statements are set out below. These policies have been
consistently applied to all the years presented, unless
otherwise stated.
A. basis of preparation
These financial statements have been prepared in
accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU),
IFRS IC Interpretations and the Companies Act 2006
applicable to companies reporting under IFRS and have
been prepared on a going concern basis under the historic
cost convention as modified by the revaluation of land and
buildings. They comprise the parent company financial
statements of TClarke plc and the consolidated financial
statements of TClarke plc and all its subsidiaries made up
to 31st December 2016 and have been presented in £m.
The preparation of financial statements in conformity
with IFRS as adopted by the EU requires the use of certain
critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the
Group’s accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where
assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 4.
The consolidated income statement for the year ended
31st December 2015 has been re-presented to reclassify
funds misappropriated and expenses in that year from cost
of sales and underlying administrative expenses to non-
recurring items, to assist in the comparison of underlying
performance. The comparative figures have not been
restated as the overall impact is not considered to be
material.
going concern
The Group had positive net cash balances at the year
end and has in place a three year £10 million committed
Revolving Credit Facility, £3 million of which was drawn
down, and a £5 million overdraft facility. For details of
the covenants in place refer to Note 22 on page 126.
The Group draws on the overdraft facility as and when
required to meet working capital requirements. As with all
such facilities the overdraft is subject to annual review and
is repayable on demand. The overdraft facility was renewed
in January 2017. The directors have received confirmation
from the bank that they know of no reason why the
overdraft facility will not be renewed when it next falls
due for review. There is no other external debt apart
from finance lease and hire purchase contracts.
After making appropriate enquiries the directors are
satisfied that the Company and Group have adequate
resources to continue their operations for at least the
next twelve months following the date of this report.
Accordingly the Directors continue to adopt the going
concern basis in preparing the financial statements.
b. basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Company and entities controlled
by the Company (its subsidiaries) made up to 31st
December each year. Control is achieved when the
Company has power over the investee, is exposed, or has
rights, to variable returns from its involvement with the
investee, and has the ability to use its power to affect its
returns.
Income and expenses of subsidiaries acquired or disposed
of during the year are included in the consolidated income
statement from the effective date of acquisition or up
to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies
into line with those used by other members of the Group.
All intra-group transactions, balances, income and
expenses are eliminated on consolidation.
c. employee Share ownership trust (eSot)
As the Company is deemed to have control of its ESOT,
it is included in the consolidated financial statements. The
ESOT's assets (other than investments in the Company's
shares), liabilities, income and expenses are included on a
line-by-line basis in the consolidated financial statements.
The ESOT's investment in the Company's shares is
deducted from equity in the consolidated statement of
financial position as if they were treasury shares.
d. Segmental reporting
Operating divisions are reported in a manner consistent
with internal reporting provided to the Group Chief
Executive, who is the chief operating decision maker
responsible for allocating resources to and assessing the
performance of operating divisions.
94
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 3 – Accounting policies continued
e. revenue recognition
Sales revenue is measured at the fair value of work
performed and goods and services provided in the normal
course of business, net of discounts and VAT. Revenue
from construction contracts is recognised in accordance
with the Group’s policy on construction contracts (see Note
3F). Revenue from the rendering of services that do not fall
to be accounted for as construction contracts is accounted
for by reference to the stage of completion of the relevant
contract, determined by reference to the proportion
of costs incurred. Revenue from the sale of materials
and finished goods is recognised when the Group has
transferred the significant risks and rewards of ownership
to the buyer and it is probable that the Group will receive
payment. These criteria are considered to be met when the
materials or goods have been delivered to and accepted by
the buyer.
Rental income from operating leases is recognised as other
operating income on a straight-line basis over the term of
the relevant lease.
Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate
applicable.
Dividend income from investments is recognised
when the Company’s right to receive payment has been
established.
f. construction contracts
Where the outcome of a construction contract can be
estimated reliably, revenue and costs are recognised
by reference to the stage of completion of the contract
activity at the reporting date, measured based on the
proportion of contract costs (prime costs and overheads)
incurred for the work performed to date relative to the
estimated total contract costs, except where this would
not be representative of the stage of completion (instances
of which are rare).
The earliest point at which profit is taken is that at which
the outcome of the contract, based on an assessment
by officials of the Company, can be reliably foreseen, taking
into account the circumstances of each contract. Variations
are included to the extent that the amount can be
measured reliably and receipt is considered probable, but
no account is taken of claims receivable until agreed. Full
provision is made for any foreseeable losses to completion.
Where the outcome of a construction contract cannot be
estimated reliably, contract revenue is recognised to the
extent of contract costs incurred that it is probable will be
recoverable.
g. Acquisitions and goodwill
Acquisitions of subsidiaries and businesses are accounted
for using the acquisition method. The consideration
transferred in a business combination is measured at fair
value, which is calculated as the aggregate of the fair
values at the acquisition date of assets transferred,
liabilities incurred and equity instruments issued, to the
former owners by the Group in exchange for control of
the acquiree. Acquisition related expenses are recognised
directly in the income statement.
Purchased goodwill is measured as the excess of the sum
of the fair value of the consideration transferred over the
net of the acquisition date fair values of the identifiable
assets and liabilities acquired, and is capitalised and
classified as an intangible asset in the consolidated
statement of financial position.
The acquiree’s identifiable assets, liabilities and contingent
liabilities are recognised at their fair values at the
acquisition date, except for non-current assets (or disposal
groups) that are classified as held for sale in accordance
with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations.
When the consideration transferred by the Group in a
business combination includes a contingent consideration
arrangement, the contingent consideration is measured
at its acquisition-date fair value and included as part of
the consideration transferred in a business combination.
Changes in the fair value of the contingent consideration
that qualify as measurement period adjustments are
adjusted retrospectively, with corresponding adjustments
against goodwill.
Measurement period adjustments are adjustments that
arise from additional information obtained during the
‘measurement period’ (which cannot exceed one year from
the acquisition date) about facts and circumstances that
existed at the acquisition date. The subsequent accounting
for changes in the fair value of the contingent
consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration
is classified. Contingent consideration that is classified as
95
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 3 – Accounting policies continued
equity is not remeasured at subsequent reporting dates
and its subsequent settlement is accounted for within
equity. Contingent consideration that is classified as an
asset or a liability is remeasured at subsequent reporting
dates in accordance with IAS 39, or IAS 37 Provisions,
Contingent Liabilities and Contingent Assets, as
appropriate, with the corresponding gain or loss being
recognised in profit or loss.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts
for the items for which the accounting is incomplete.
Those provisional amounts are adjusted during the
measurement period, or additional assets or liabilities are
recognised, to reflect new information obtained about facts
and circumstances that existed at the acquisition date that,
if known, would have affected the amounts recognised at
that date.
Goodwill arising on acquisitions before the date of
transition to IFRS has been retained at the previous UK
GAAP amount subject to being tested for impairment.
Goodwill is reviewed for impairment on an annual basis.
When the directors consider the initial value of the
acquisition to be negligible the goodwill is written off
to the income statement immediately.
h. impairment of goodwill and other
non-financial assets
Goodwill arising on an acquisition of a business is carried
at cost as established at the date of acquisition of the
business less accumulated impairment losses, if any.
Impairment tests on goodwill are undertaken annually
at the financial year end. Other non-financial assets are
subject to impairment tests whenever events or changes
in circumstances indicate that their carrying amount may
not be recoverable. Where the carrying value of an asset
exceeds its recoverable amount (i.e. the higher of value in
use and fair value less costs to sell), the asset is written
down accordingly.
Where it is not possible to estimate the recoverable
amount of an individual asset, the impairment test is
carried out on the asset’s cash-generating unit (i.e. the
lowest group of assets in which the asset belongs for which
there are separately identifiable cash flows). For the
purposes of impairment testing, goodwill is allocated on
initial recognition to each of the Group’s cash-generating
units that are expected to benefit from the synergies of the
combination giving rise to the goodwill.
Impairment charges are included in non-recurring costs
in the consolidated income statement, except to the
extent they reverse gains previously recognised in the
consolidated statement of comprehensive income. An
impairment loss recognised for goodwill is not reversed.
i. intangible assets
Intangible assets acquired in a business combination and
recognised separately from goodwill are initially recognised
at cost, being their fair value at the acquisition date.
Subsequent to initial recognition intangible assets are
reported at cost less accumulated amortisation and
impairment losses. Amortisation is recognised on a straight
line basis over the estimated useful lives of the relevant
assets, determined on an individual basis and ranging from
1 to 10 years.
j. Property, plant and equipment
Land and buildings comprise mainly offices occupied
by the operating units of the Group. Land and buildings
are shown at fair value, based on valuations carried
out by external independent valuers, less subsequent
depreciation. Valuations are performed with sufficient
regularity to ensure that the fair value of a revalued asset
does not differ materially from its carrying amount. Any
accumulated depreciation at the date of revaluation is
eliminated against the gross carrying amount of the asset,
and the net amount is restated to the revalued amount
of the asset. On disposal of the asset the balance of the
revaluation reserve pertaining to the asset is transferred
from the revaluation reserve to retained earnings.
All other property, plant and equipment is stated at
historical cost less depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition
of the items.
Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying amount
of the replaced part is derecognised. All other repairs and
maintenance are charged to the income statement during
the financial period in which they are incurred.
96
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 3 – Accounting policies continued
Increases in the carrying amount arising on revaluation
of land and buildings are credited to other comprehensive
income and shown as revaluation reserves in shareholders’
equity. Decreases that offset previous increases of the
same asset are charged in other comprehensive income
and debited against revaluation reserves directly in equity;
all other decreases are charged to the income statement.
Each year the difference between depreciation based on
the revalued carrying amount of the asset charged to the
income statement, and depreciation based on the asset’s
original cost is transferred from the revaluation reserve to
retained earnings. On disposal of the asset the balance
of the revaluation reserve pertaining to the asset is
transferred from the revaluation reserve to retained
earnings.
Depreciation is calculated on a straight line basis so as
to write off the cost less residual values of the relevant
assets over their useful lives, using the following rates:
Freehold properties 2%
Leasehold improvements
10% or life of lease if shorter
Plant, machinery and motor vehicles 10%-25%
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets
or, where shorter, the term of the relevant lease.
K. investments
Investments in subsidiaries are recorded at cost, being the
fair value of consideration paid, and subsequently at cost
less provisions for impairment. Cost includes the fair value
of equity-settled share based payment arrangements
relating to options to acquire shares in TClarke plc granted
to subsidiary employees under savings related share option
schemes.
l. inventories
Inventories of raw materials and consumables are initially
recognised at cost, and subsequently at the lower of cost
and net realisable value. Cost is determined on a first-in
first-out basis and comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the asset to
its present location and condition.
M. leasing and hire purchase commitments
Leases (including similar hire purchase arrangements)
are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Assets held under finance leases are initially recognised as
assets of the Group at their fair value at the inception of
the lease or, if lower, at the present value of the minimum
lease payments. The corresponding liability to the lessor is
included in the statement of financial position as a finance
lease obligation. Lease payments are apportioned between
finance charges and reduction of the lease obligation so
as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly
to the income statement except where they relate to
qualifying assets in which case they are capitalised in
accordance with the Group’s borrowing costs policy (see
Note 3P).
Operating lease payments are recognised as an expense on
a straight-line basis over the lease term. In the event that
lease incentives are received to enter into operating leases,
such incentives are recognised as a liability. The aggregate
benefit of incentives is recognised as a reduction of rental
expense on a straight-line basis over the lease term.
n. financial instruments
The Group’s financial instruments comprise trade and other
receivables (excluding prepayments), trade and other
payables (excluding deferred income), finance leases and
similar hire purchase contracts, bank deposits, bank loans
and cash and cash equivalents net of overdrafts. The
Group does not trade in any financial derivatives. Financial
assets and liabilities are offset at the net amount reported
in the balance sheet when there is a legally enforceable
right to offset the recognised amounts and there is an
intention to settle on a net basis or realise the asset and
settle the liability simultaneously.
trade and other receivables
Trade and other receivables, which are non-interest
bearing, are measured on initial recognition at fair
value and subsequently at amortised cost. Appropriate
allowances for estimated irrecoverable amounts are
recognised in the income statement when there is objective
evidence that the asset is impaired, measured as the
difference between the asset’s carrying value and the
fair value of the estimated recoverable amount, if any.
Insolvency or significant financial difficulties of the debtor,
late payments and disputes are considered indicators that a
97
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 3 – Accounting policies continued
receivable may be impaired. The carrying amount of a
trade receivable is reduced to its estimated recoverable
amount through the use of an allowance account and
the expense recognised in the income statement in
administrative expenses. When a trade receivable is
uncollectible it is written off against the allowance account
for trade receivables.
bank deposits
Bank deposits comprise cash placed on deposit with
financial institutions with an initial maturity of six months
or more, and are measured at amortised cost. Finance
income is recognised using the effective interest method
and is added to the carrying value of the asset as it arises.
cash and cash equivalents
Cash and cash equivalents comprise cash at bank and
in hand, bank overdrafts, demand deposits and other
short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to
an insignificant risk of changes in value. Bank overdrafts
are included within current liabilities in the statement of
financial position. Finance income and expense are
recognised using the effective interest method and are
added to the carrying value of the asset or liability as they
arise.
bank loans
Interest bearing bank loans are recorded at the fair
value of the proceeds received, net of direct issue costs.
Finance charges are accounted for on an accruals basis in
the income statement using the effective interest method,
and are added to the carrying value of the instrument to
the effect that they are not settled in the period in which
they arise.
trade and other payables
Trade and other payables are initially measured at fair
value and subsequently at amortised cost. Trade and other
payables are non-interest bearing.
o. taxation
Income tax expense represents the sum of the tax
currently payable and deferred tax.
Tax is recognised in the income statement except to
the extent that it relates to items recognised in other
comprehensive income. The tax currently payable is based
on taxable profit for the period. Taxable profit differs from
net profit as reported in the income statement because it
excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that
are never taxable or deductible.
Deferred tax is the tax expected to be payable or
recoverable on differences between the carrying amounts
of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation
of taxable profit and is accounted for using the liability
method. Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary
differences can be utilised.
The amount of any deferred tax asset or liability recognised
is determined using tax rates that have been enacted
or substantively enacted by the reporting date and are
expected to apply when the deferred tax liabilities or assets
are settled or recovered.
Deferred tax assets and liabilities are offset as the Group
has a legally enforceable right to offset current tax assets
and liabilities and the deferred tax assets and liabilities
relate to taxes levied on either the same company, or on
different companies where there is an intention to settle
current tax assets and liabilities on a net basis.
P. borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently
carried at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption
value is recognised in the income statement over the
period of the borrowings using the effective interest
method.
q. borrowing costs
Fees paid on the establishment of loan facilities are
recognised as transaction costs of the loan to the extent
that it is probable that some or all of the facility will be
drawn down. In this case the fee is deferred until the loan
is drawn down. To the extent there is no evidence that it is
probable that some or all of the facility will be drawn down,
the fee is capitalised as a prepayment for liquidity services
and amortised over the period of the facility to which it
relates.
Borrowing costs that are directly attributable to qualifying
assets are added to the cost of the asset. All other
98
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
impact of the revision of the original estimates, if any,
is recognised in profit or loss such that the cumulative
expense reflects the revised estimate, with a corresponding
adjustment to equity.
V. non-recurring items
Non-recurring items are disclosed separately in the
financial statements where it is necessary to do so to
provide further understanding of the financial performance
of the Group. They are material items of income or
expense that have been shown separately due to the
significance of their nature or amount.
w. discontinued operations
A discontinued operation is a component of the Group's
business that represents a separate major line of business
or geographical area of operations or is a subsidiary
acquired exclusively with a view to resale, that has been
disposed of, has been abandoned or that meets the criteria
to be classified as held for sale.
Discontinued operations are presented in the consolidated
statement of comprehensive income as a single line which
comprises the post-tax profit or loss of the discontinued
operation along with the post-tax gain or loss recognised
on the re-measurement to fair value less costs to sell or on
disposal of the assets or disposal groups constituting
discontinued operations.
note 3 – Accounting policies continued
borrowing costs are recognised in the income statement in
the period in which they are incurred.
r. dividends
Dividends are recognised when they become legally
payable. In the case of interim dividends to equity
shareholders, this is when they are paid. In the case
of final dividends, this is when approved by the
shareholders at the AGM.
S. retirement benefit costs
Payments to defined contribution retirement benefit
schemes are charged as an expense as they fall due.
For defined benefit retirement benefit schemes, the cost
of providing benefits is determined using the Projected
Unit Credit Method, with actuarial valuations being carried
out at each reporting date. Actuarial gains and losses
are recognised in full in the period in which they occur.
They are recognised outside the income statement and
presented as a component of other comprehensive income.
Past service cost is recognised immediately in the
income statement.
The retirement benefit obligation represents the fair
value of the defined benefit obligation at each reporting
date as reduced by the fair value of scheme assets.
t. long-term employee benefits
Long-term employee benefits are accrued when the Group
has a legal or constructive obligation to make payments
under long-term employee benefit arrangements and the
amount of the obligation can be reliably measured. The
liability is discounted to present value where it is due after
more than one year.
u. Share-based payments
Equity-settled share-based payments to employees and
others providing similar services are measured at the fair
value of the equity instruments at the grant date. Details
regarding the determination of the fair value of equity-
settled share-based transactions are set out in Note 20.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a
straight-line basis over the period, based on the Group’s
estimate of equity instruments that will eventually vest,
with a corresponding increase in equity. At the end of
each reporting period, the Group revises its estimate of
the number of equity instruments expected to vest. The
99
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 4 - Significant judgements and sources of estimation uncertainty
discontinued operations
The judgement as to whether an activity that has
ceased constitutes a discontinued operation requires an
assessment of whether it forms a separate component of
the Group’s business and represents a separate major line
of business or geographical area of operations that has
been disposed of, has been abandoned or that meets the
criteria to be classified as held for sale.
impairment of goodwill and investments
Determining whether goodwill is impaired requires an
estimation of the value in use of the cash generating unit
giving rise to the goodwill, including the estimation of the
timing and amount of future cash flows generated by the
cash generating unit and a suitable discount rate. Further
details are provided in Note 12. The estimation of the value
in use is also used to assess the carrying value of
investments in the relevant subsidiaries in the Company’s
financial statements.
retirement benefit obligations
The costs, assets and liabilities of the defined benefit
scheme operated by the Group are determined using
methods relying on actuarial estimates and assumptions,
which are largely dependent on factors outside the control
of the Group. Details of the key assumptions are set out in
Note 24, and include the discount rate, expected return on
assets, rate of inflation and mortality rates. The Group
takes advice from independent actuaries relating to the
appropriateness of the assumptions. Changes in the
assumptions used may have a significant effect on the
income statement, statement of comprehensive income
and the statement of financial position. A sensitivity
analysis is included in Note 24 on page 128.
In the application of the Group’s accounting policies,
which are described above, the directors are required
to make judgements, estimates and assumptions about the
carrying amounts of assets and liabilities at the reporting
date and the amounts of revenue and expenses incurred
during the period that may not be readily apparent from
other sources. The estimates and associated assumptions
are based on historical experience and other factors that
are considered to be relevant. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if
the revision affects only that period, or in the period of the
revision and future periods if the revision affects both
current and future periods.
The estimates and assumptions that have the most
significant impact are set out below.
revenue and margin
The recognition of revenue and profit on construction
contracts is a key source of estimation uncertainty
due to the difficulty of forecasting the final costs to
be incurred on a contract in progress and the process
whereby applications are made during the course of
the contract with variations, which can be significant,
often being agreed as part of the final account negotiation.
The Group’s policies for the recognition of revenue and
profit on construction contracts are set out in Note 3F
on page 95. Commercial reviews of all live contracts are
undertaken on a regular basis, with all significant contracts
being reviewed on a monthly basis. The directors also take
into account the recoverability of contract balances and
trade receivables and allowances are made for those
balances which are considered to be impaired.
non-underlying items
Non-underlying items are items of financial performance
which the Group believes should be separately identified on
the face of the income statement to assist in understanding
the underlying financial performance achieved by the
Group. The quantification, disclosure and presentation in
the financial statements of non-underlying items requires
judgement.
100
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 5 - Segment information
A. reportable segments
The Group provides electrical and mechanical contracting
and related services to the construction industry and end
users.
For management and internal reporting purposes the
Group is organised geographically into four regional
divisions; London and South East, Central and South West,
the North and Scotland, reporting to the Chief Executive
Officer, who is the chief operating decision maker.
The measurement basis used to assess the performance of
the divisions is underlying profit from operations, stated
before amortisation of intangible assets and non-recurring
items. Non-recurring items for each segment are disclosed
on pages 102 to 103 and in Note 7. All assets and liabilities
of the Group have been allocated to segments apart from
the retirement benefit obligation and tax assets and
liabilities.
All transactions between segments are undertaken on
normal commercial terms. All the Group’s operations are
carried out within the United Kingdom, and there is no
significant difference between revenue based on the
location of assets and revenue based on location of
customers. The accounting policies for the reportable
segments are the same as the Group’s accounting policies
disclosed in Note 3.
101
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 5 - Segment information continued
b. Segment information - current year
31st december 2016
Total revenue
Inter segment revenue
revenue from external operations
underlying profit from operations
Amortisation of intangibles
Non-recurring items (see note 7)
Profit from operations
Finance income
Finance costs
Profit before tax
Taxation expense
London &
South East
£m
Central &
South West
£m
142.9
–
142.9
3.5
–
(2.3)
1.2
–
(0.8)
0.4
67.9
(1.1)
66.8
1.0
–
–
1.0
–
–
1.0
North
£m
53.6
(3.4)
50.2
1.8
(0.2)
–
1.6
0.1
–
1.7
Profit for the year from continuing operations
other segment information:
Depreciation
(Profit) on sale of property, plant and equipment
Bad debt expense
Additions to non-current assets:
0.3
(0.1)
0.1
0.1
–
0.1
0.1
–
–
Property, plant and equipment
–
0.1
0.1
Unallocated
&
elimination
£m
Scotland
£m
21.0
(2.3)
18.7
0.6
–
–
0.6
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
(0.1)
0.1
–
–
–
–
–
Total
£m
285.4
(6.8)
278.6
6.9
(0.2)
(2.3)
4.4
–
(0.7)
3.7
(0.8)
2.9
0.5
(0.1)
0.2
0.2
Assets
Liabilities
57.8
43.9
22.5
(53.4)
(31.5)
(13.1)
10.0
(4.7)
(21.7)
112.5
4.3
(98.4)
net assets / (liabilities)
4.4
12.4
9.4
5.3
(17.4)
14.1
102
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 5 - Segment information continued
c. Segment information - prior year
31st december 2015
Total revenue
Inter segment revenue
revenue from external operations
underlying profit from operations
Amortisation of intangibles
Non-recurring items (see Note 7)
Profit from operations
Finance income
Finance costs
Profit before tax
Taxation expense
Profit for the year from continuing operations
other segment information:
Depreciation
Bad debt expense
Additions to non-current assets:
Property, plant and equipment
Assets
Liabilities
net assets / (liabilities)
London &
South East
£m
Central &
South West
£m
129.1
–
129.1
2.0
–
(0.5)
1.5
0.1
(1.0)
0.6
0.3
–
0.2
56.9
(0.7)
56.2
0.9
–
–
0.9
–
–
0.9
0.1
–
0.2
North
£m
41.8
–
41.8
1.9
(0.2)
–
1.7
0.1
–
1.8
0.1
0.2
0.1
Unallocated
&
elimination
£m
Scotland
£m
16.2
(0.9)
15.3
0.3
–
–
0.3
–
(0.1)
0.2
–
–
–
–
–
–
–
–
–
–
(0.1)
0.1
–
–
–
–
Total
£m
244.0
(1.6)
242.4
5.1
(0.2)
(0.5)
4.4
0.1
(1.0)
3.5
(0.7)
2.8
0.5
0.2
0.5
55.2
28.6
24.2
(48.5)
(16.2)
(13.9)
6.7
12.4
10.3
9.2
(4.7)
4.5
(7.8)
(6.5)
109.4
(89.8)
(14.3)
19.6
103
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 5 - Segment information continued
d. revenue
total revenue comprises:
Sales revenue
Construction contracts
Other services
operating income:
Other operating income
2016
£m
2015
£m
253.1
25.5
278.6
0.2
0.2
219.0
23.4
242.4
0.1
0.1
e. information about major customers
Revenue includes £33.3m (2015: £20.8m) which arose from sales to a single customer. No other single customer
contributed 10% or more of the Group’s revenue for either 2016 or 2015.
note 6 – finance income and finance cost
Finance income
Interest on bank deposits
Finance cost
Interest on bank overdrafts and loans
Interest cost in respect of defined benefit pension scheme
Net total of finance income and finance cost
2016
£m
–
(0.1)
(0.6)
(0.7)
(0.7)
2015
£m
0.1
(0.4)
(0.6)
(1.0)
(0.9)
104
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 7 – Profit from operations
A. operating profit is stated after charging / (crediting):
Amortisation of intangible assets
Non-recurring costs (see Note B below)
Depreciation of property, plant and equipment
Profit on disposal of property, plant and equipment
Operating lease charges:
– Land and buildings
– Plant, machinery and vehicles
Project related raw materials and consumables
Rent receivable
Bad debt expense
Fees payable to the Company’s auditors for the audit of:
– The Company and consolidation
– Subsidiary companies
Employee benefit expense (see Note 8)
The auditors’ fees for non-audit services during the year were £9,000 (2015: £nil).
b. non-recurring costs:
Misappropriation of funds
Investigation costs
2016
£m
0.2
2.3
0.5
(0.1)
0.5
0.3
74.5
–
0.2
0.2
0.1
67.1
2016
£m
1.9
0.4
2.3
2015
£m
0.2
0.5
0.5
(0.1)
0.5
0.4
64.7
(0.1)
0.2
0.2
0.1
59.8
2015
£m
0.5
–
0.5
During the year ended 31st December 2016 the Group uncovered financial irregularities within the accounting function
of a wholly owned subsidiary, DG Robson Mechanical Services Limited (‘DGR’). £2.9m of cash was misappropriated
over a number of years, of which £1.9m has been expensed in 2016 and £1.0m had been charged to the income
statement in previous years within cost of sales and administrative expenses. The 2016 expense has been separately
disclosed as a non-recurring item. Results prior to and including 2015 have not been restated as the impact
cumulatively and in each year was not considered to be material, however, the 2015 results have been re-presented to
show funds misappropriated in that year as non-recurring, in order to aid the comparison of underlying performance.
The Group engaged expert professional advisers to assist in the investigation and recovery of the stolen funds.
The cost of the investigation to 31st December 2016 is £0.4m.
105
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 8 – employees
A. employee benefit expense
Staff costs during the year were as follows:
Wages and salaries
Share awards and options granted
to directors and employees (see Note 20)
Termination costs
Social security costs
Other pension costs
grouP
coMPAny
2016
£m
58.4
0.1
0.3
6.2
2.1
67.1
2015
£m
52.2
(0.1)
0.5
5.5
1.7
59.8
2016
£m
21.5
0.1
0.1
2.3
0.7
24.7
2015
£m
17.8
–
–
1.9
0.5
20.2
Of the above employee costs of the Group, £66.9m (2015: £58.1m) relates to continuing operations and £0.2m (2015:
£1.7m) to discontinued operations. All employee costs of the Company relate to continuing operations.
b. Average number of employees
Staff (including directors)
Operatives
grouP
coMPAny
2016
number
409
922
1,331
2015
Number
424
823
1,247
2016
number
2015
Number
144
239
383
126
210
336
Average number of employees of the Group comprises 1,331 (2015: 1,217) in continuing operations and nil (2015: 30)
in discontinued operations. All company employees were engaged in continuing operations.
106
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 9 – taxation
taxation expense
current tax expense
UK corporation tax payable on profits for the year
deferred tax expense / (credit)
Arising on:
Origination and reversal of temporary differences
total income tax expense
reconciliation of tax charge
Profit before taxation for the year from continuing operations
tax at standard uK tax rate of 20.00% (2015: 20.25%)
tax effect of:
Permanently disallowable items
total income tax expense
2016
£m
0.8
0.8
–
–
0.8
3.7
0.7
0.1
0.8
income tax (credited) / charged to other operating income
(1.0)
2015
£m
0.8
0.8
(0.1)
(0.1)
0.7
3.5
0.7
–
0.7
0.7
The main rate of corporation tax was reduced from 21% to 20% on 1st April 2015.
Further reductions in the main rate of corporation tax to 19% from 1st April 2017 and 17% from 1st April 2020 had
been substantially enacted at 31st December 2016 for the purposes of IAS12 ‘Income Taxes’. Deferred tax balances
have been reassessed using an income tax rate of 17%, taking into account the period over which temporary
differences are expected to reverse. The impact of the change in tax rate has been recognised in profit or loss, except
to the extent that it relates to items previously recognised outside profit or loss. The effect of these changes was to
reduce the UK deferred tax asset at the balance sheet date by £0.4m.
107
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 10 - discontinued operations
A. description
On 19th November 2015 the Group announced its intention to discontinue its operations in the Cardiff and Bristol
areas. The Group’s activities in these areas ceased and the closure of Cardiff and Bristol offices was successfully
completed by 31st December 2015, with the remaining employees and any outstanding contractual commitments
transferring to our expanded TClarke South West operation. The Group incurred further losses closing out these
contractual commitments during 2016, and as at 31st December 2016 these have been completed.
b. financial performance
revenue
Cost of sales
Gross loss
Administrative expenses1
Loss from operations and before taxation
Taxation
loss for the financial year
1 Administrative expenses incudes £nil (2015: £0.3m) directly related to the closure.
c. cash flow information
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
2016
£m
4.5
(5.1)
(0.6)
–
(0.6)
0.1
(0.5)
2016
£m
(0.6)
–
–
2015
£m
5.0
(6.8)
(1.8)
(1.6)
(3.4)
0.7
(2.7)
2015
£m
(3.5)
–
–
Net cash outflow from discontinued operations
(0.6)
(3.5)
108
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 11 – earnings / (loss) per share
A. basic earnings / (loss) per share
Basic earnings / (loss) per share is calculated by dividing the profit / (loss) attributable to owners of the Company by
the weighted average number of ordinary shares in issue during the year.
Earnings / (loss):
Profit / (loss) attributable to owners of the Company:
Continuing operations
Discontinued operations
2016
£m
2015
£m
2.9
(0.5)
2.4
2.8
(2.7)
0.1
Weighted average number of ordinary shares in issue (000s)
41,613
41,670
b. diluted earnings per share
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares. The Company has three categories of dilutive potential
ordinary shares: share options granted under the Savings Related Share Option Scheme and conditional share awards
and options granted under the Equity Incentive Plan. Further details of these schemes are given in Note 20.
For the share options, a calculation is made to determine the number of shares that could have been acquired at fair
value (determined as the average annual market share price of the Company’s shares) based on the monetary value of
the subscription rights attached to outstanding share options. The number of shares calculated as above is compared
with the number of shares that would have been issued assuming the exercise of the share options.
Earnings / (loss):
Profit / (loss) attributable to owners of the Company:
Continuing operations
Discontinued operations
2016
£m
2015
£m
2.9
(0.5)
2.4
2.8
(2.7)
0.1
Weighted average number of ordinary shares in issue (000s)
41,613
41,670
Adjustments:
- Savings Related Share Option Schemes (000s)
- Equity Incentive Plan
Conditional share awards (000s)
Options (000s)
170
854
447
465
957
72
Weighted average number of ordinary shares for diluted earnings per share (000s)
43,084
43,164
109
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 11 – earnings / (loss) per share continued
c. underlying earnings per share
Underlying earnings per share represents profit for the year from continuing operations adjusted for amortisation
of intangible assets and non-recurring items and the tax effect of these items, divided by the weighted average
number of shares in issue. Underlying earnings is the basis on which the performance of the operating divisions of
the business is measured.
Profit from continuing operations attributable to owners of the Company
Adjustments:
Amortisation of intangible assets
Non-recurring costs (see Note 7)
Tax effect of adjustments
Underlying earnings from continuing operations
2016
£m
2.9
0.2
2.3
(0.5)
4.9
2015
(re-presented)*
£m
2.8
0.2
0.5
(0.1)
3.4
Weighted average number of ordinary shares in issue (000s)
41,613
41,670
Adjustments:
– Savings Related Share Option Schemes (000s)
– Equity Incentive Plan:
Conditional share awards (000s)
Options (000s)
170
854
447
465
957
72
Weighted average number of ordinary shares for diluted earnings per share (000s)
43,084
43,164
* See Note 7
110
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 12 – intangible assets
Goodwill
£m
Other
intangible
assets
£m
cost:
At 1st January 2015, 31st December 2015 and 31st December 2016
24.2
impairment and amortisation:
At 1st January 2015
Amortisation
At 31st December 2015
Amortisation
At 31st December 2016
net book value:
1st January 2015
31st December 2015
31st December 2016
2.2
–
2.2
–
2.2
22.0
22.0
22.0
2.9
1.7
0.2
1.9
0.2
2.1
1.2
1.0
0.8
Total
£m
27.1
3.9
0.2
4.1
0.2
4.3
23.2
23.0
22.8
Goodwill relates to the purchase of subsidiary undertakings. Goodwill is not amortised but is tested for impairment
in accordance with IAS 36 ‘Impairment of assets’ at least annually or more frequently if events or changes in
circumstances indicate a potential impairment. Other intangible assets comprise customer relationships arising on
acquisitions. Amortisation of other intangible assets is included in administrative expenses in the income statement.
Goodwill is allocated to cash generating units as follows:
Cash generating unit
TClarke London
TClarke Midlands and East
TClarke Scotland
TClarke North West
TClarke South West
TClarke Leeds
TClarke Newcastle
Operating segment
London & South East
Central & South West
Scotland
North
Central & South West
North
North
£m
8.1
4.8
3.0
2.7
1.3
1.2
0.9
22.0
Following the Group reorganisation (see Note 29 on page 138) the Group will continue to manage the above divisions
as seperate CGUs.
111
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 12 – intangible assets continued
Value in use
The carrying value of goodwill has been compared to its recoverable amount based on the value in use of the cash
generating units (‘CGU’s) to which the goodwill has been allocated. Each operating division within the Group has been
assessed as a separate CGU, being the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other groups of assets.
Value in use has been calculated using budgets and forecasts approved by the Board covering the period 2017 to
2019, which take into account secured orders, business plans and management actions. The results of period
subsequent to 2019 have been projected using 2019 forecasts with no growth assumed. The extrapolated cash flow
projections have been discounted using a pre-tax discount rate derived from the Company’s cost of capital.
Assumptions
The key assumptions to which the assessment of the recoverable amounts of CGUs are sensitive are the projected
revenue and operating margin to 2019 and beyond, and the discount rate applied. The range of these assumptions
applied to the CGUs within each segment is as follows:
Pre-tax discount rate
Average annual revenue growth 2017-2019 (2015: 2016-2018)
London & South East
Central & South West
North
Scotland
Average operating margins 2017-2019 (2015: 2016-2018)
London & South East
Central & South West
North
Scotland
Average operating margins beyond 2019 (2015: beyond 2018)
London & South East
Central & South West
North
Scotland
2016
12.0%
6.7%
1.3%
4.2%
6.0%
2015
13.3%
11.0%
7.7%
13.6%
15.1%
2.2%-2.4%
3.1%-4.3%
1.5%-2.0%
2.1%-2.3%
3.4%-3.9%
3.1%-4.9%
2.8%-2.9%
2.8%-3.1%
2.2%-2.4%
4.0%-4.4%
1.8%-2.1%
2.5%-2.9%
3.3%-4.9%
3.2%-5.1%
2.9%
3.1%
112
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 12 – intangible assets continued
Sensitivities
TClarke Scotland, TClarke South West and TClarke Midlands and East are considered to be the CGUs most vulnerable
to impairment. The key assumptions used in respect of these CGUs are as follows:
Pre-tax discount rate
Annual revenue growth 2017-2019
Average operating margins 2017-2019
Operating margins beyond 2019
TClarke
Midlands
& East
12.0%
1.3%
2.0%
2.1%
TClarke
Scotland
12.0%
6.0%
2.9%
2.9%
TClarke
South West
12.0%
5.7%
1.1%
1.8%
Annual revenue growth and operating margin assumptions are supported by an analysis of the secured order book and
opportunities identified by the CGUs, with TClarke Scotland having secured 83% of its forecast revenue, TClarke South
West 65% of its forecast revenue and TClarke Midlands and East 50% of its forecast revenue for 2017.
Sensitivity analysis has been applied to the cash flow projections for TClarke Scotland, TClarke Midlands & East and
TClarke South West. The two assumptions to which the cash flow projections are most sensitive are the projected
profit (derived from the projected revenue and margins) and the discount rate. The amount by which these
assumptions would be required to change to trigger an impairment in respect of each of these CGUs is as follows:
Percentage point increase in pre-tax discount rate
Decrease in operating profit
TClarke
Midlands
& East
3.7%
24.3%
TClarke
Scotland
6.6%
36.1%
TClarke
South West
7.9%
44.5%
For other CGUs, management has considered the level of headroom resulting from the impairment tests, and
performed further sensitivity analysis by changing the base case assumptions applicable to each CGU. This analysis has
indicated that no reasonably possible changes in any individual key assumption would cause the carrying amount of
the CGU to exceed its recoverable amount.
At 31st December 2016, based on these valuations, no increase in the impairment provision was required against the
carrying value of goodwill (2015: £nil).
An assessment of the subsidiary investments using consistent methodology amended for post tax cash flows indicates
that there is no requirement for any additional impairment provision.
113
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 13 – Property, plant and equipment
grouP
cost or valuation
At 1st January 2015
Additions
Disposals
At 31st December 2015
Additions
Disposals
At 31st December 2016
Accumulated depreciation and impairment
At 1st January 2015
Charge for the year
Disposals
At 31st December 2015
Charge for the year
Disposals
At 31st December 2016
Net book value at 1st January 2015
Net book value at 31st December 2015
net book value at 31st december 2016
Freehold
properties
£m
Leasehold
improvements
£m
Plant,
machinery
and vehicles
£m
3.9
–
(0.4)
3.5
–
(0.3)
3.2
0.2
0.1
–
0.3
0.1
(0.1)
0.3
3.7
3.2
2.9
0.6
0.1
–
0.7
–
–
0.7
0.3
0.1
–
0.4
0.1
–
0.5
0.3
0.3
0.2
3.4
0.4
(0.6)
3.2
0.2
(0.8)
2.6
2.4
0.3
(0.6)
2.1
0.3
(0.6)
1.8
1.0
1.1
0.8
Total
£m
7.9
0.5
(1.0)
7.4
0.2
(1.1)
6.5
2.9
0.5
(0.6)
2.8
0.5
(0.7)
2.6
5.0
4.6
3.9
The Group’s freehold land and buildings were valued at 31st December 2011 based on an external valuation provided
by an independent valuer dated 14th October 2011. The external valuation was conducted on the basis of market
value as defined by the RICS Valuation Standards, and was determined by reference to recent market transactions on
arms length terms. The revaluation surplus, net of applicable deferred income taxes, was credited to other
comprehensive income and is shown in the revaluation reserve in shareholders’ equity. A further external valuation was
concluded as at 29th February 2016 which indicated that the market value of the Group’s property was not significantly
different to the book value, and as there have been no subsequent indicators of impairment the Directors continue to
consider this to be the case. The net book value of the freehold properties on a historic cost basis would have been
£2.3m (2015: £2.5m).
The net book value of Group plant, machinery and vehicles includes £0.1m (2015: £0.1m) in respect of assets held
under finance leases and hire purchase contracts. Depreciation of £nil (2015: £nil) was charged on these assets during
the year.
The Group has granted a charge in favour of the TClarke Group Retirement and Death Benefits Scheme over a number
of properties occupied by the Group up to a maximum value of £3.1m, to secure the future pension obligations of the
scheme. The book and fair value of the properties at 31st December 2016 was £2.6m (2015: £2.9m).
114
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 13 – Property, plant and equipment continued
coMPAny
cost
At 1st January 2015
Additions
Disposals
At 31st December 2015
Disposals
At 31st December 2016
Accumulated depreciation and impairment
At 1st January 2015
Charge for the year
Disposals
At 31st December 2015
Charge for the year
Disposals
At 31st December 2016
Net book value at 1st January 2015
Net book value at 31st December 2015
net book value at 31st december 2016
Leasehold
improvements
£m
Plant,
machinery
and vehicles
£m
0.4
–
–
0.4
–
0.4
0.2
0.1
–
0.3
0.1
–
0.4
0.2
0.1
–
0.7
0.2
(0.2)
0.7
(0.7)
–
0.6
0.1
(0.2)
0.5
–
(0.5)
–
0.1
0.2
–
Total
£m
1.1
0.2
(0.2)
1.1
(0.7)
0.4
0.8
0.2
(0.2)
0.8
0.1
(0.5)
0.4
0.3
0.3
–
115
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 14 – investments
coMPAny
Investments in subsidiaries comprise:
cost:
At 1st January
Additions
At 31st December
impairment:
At 1st January
Charge for the year
At 31st December
net book value:
At 1st January
At 31st December
2016
£m
41.4
7.9
49.3
9.3
0.3
9.6
32.1
39.7
2015
£m
41.4
–
41.4
9.0
0.3
9.3
32.4
32.1
As part of a planned group reorganisation (see Note 29 on page 138) the Company invested a further £7.9m in its
subsidiaries during the year.
A full list of the Company’s subsidiaries is included in Note 30 on page 139).
An annual impairment review is undertaken at 31st December each year in conjunction with the goodwill impairment
review (see Note 12), using the same underlying cash flow projections and other key assumptions.
The impairment provision comprises the entire cost of subsidiaries where operations have ceased, or a reduction to
recoverable amount where there has been a significant reduction in underlying trading and significant losses have been
incurred such that the Group is unable to recover the cost of the investment through its net asset value or future
trading. The provision also includes an amount equivalent to dividends paid out of pre-acquisition reserves in respect
of TClarke North West Limited.
116
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 15 – inventories
grouP
Raw materials and consumables
2016
£m
0.6
2015
£m
0.4
note 16 – construction contracts
contract work in progress comprises:
Contract costs incurred plus recognised profits
less recognised losses to date
Less: progress payments
Contracts in progress at the reporting date:
Gross amounts due from customers
Gross amounts due to customers
1 See Note 29 - Group reorganisation on page 138
grouP
coMPAny
2016
£m
2015
£m
20161
£m
2015
£m
250.3
(226.9)
23.4
27.8
(4.4)
23.4
181.6
(154.6)
27.0
31.1
(4.1)
27.0
–
–
–
–
–
–
102.1
(90.2)
11.9
13.6
(1.7)
11.9
At 31st December 2016 retentions held by customers of the Group for contract work amounted to £14.7m (2015:
£13.1m) and retentions held by customers of the Company for contract work amounted to £nil (2015: £5.4m).
These amounts are included in trade receivables (see Note 17).
Advances received from customers for contract work amounted to £nil (2015: £nil).
117
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 17 – trade and other receivables
grouP
coMPAny
Trade receivables - gross
Trade receivables - allowances for credit losses
Net trade receivables
Owed by group companies
Other receivables
Accrued income
Prepayments
Movements in allowances for
credit losses are as follows:
At 1st January
Charged in year
Recovered in year
Written off in year
At 31st December
trade receivables (including retentions)
are due as follows:
Due within 3 months
Due in 3 to 6 months
Due in 6 to 12 months
Due after more than one year
Overdue
the ageing of trade receivables past due
but not impaired is as follows:
Less than 30 days
31-60 days
61-120 days
Greater than 120 days
1 See Note 29 - Group reorganisation on page 138
2016
£m
30.0
(0.5)
29.5
–
0.1
10.1
2.1
41.8
(0.5)
(0.2)
–
0.2
(0.5)
13.9
2.2
2.9
6.9
4.1
30.0
1.6
0.9
0.4
0.7
3.6
2015
£m
25.1
(0.5)
24.6
–
–
8.8
2.9
36.3
(0.9)
(0.2)
0.1
0.5
(0.5)
12.5
1.4
1.4
5.1
4.7
25.1
1.6
0.7
0.3
1.6
4.2
20161
£m
–
–
–
0.2
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2015
£m
6.9
–
6.9
1.7
0.3
3.8
1.0
13.7
–
–
–
–
–
2.3
0.9
0.4
2.8
0.5
6.9
–
0.1
0.1
0.3
0.5
Allowances for credit losses have been assessed against individual debtor balances. Where overdue balances are still
considered to be recoverable in full no allowance has been made. The allowances mostly relates to small building
contractors who have become insolvent or are facing severe financial difficulties at present. Credit risk is spread across
a large number of customers and there are no significant concentrations of credit risk.
118
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 18 – trade and other payables
grouP
coMPAny
Current:
Trade payables
Owed to group companies
Other taxation and social security payable
Accruals
Deferred income
Other payables
Non-current:
Owed to group companies (see Note 29)
Other payables
Trade payables payments terms are as follows:
30 days or less
31-60 days
Greater than 60 days
1 See Note 29 - Group reorganisation on page 138
2016
£m
46.9
–
6.6
13.9
1.9
0.8
70.1
–
–
–
18.1
13.6
15.2
46.9
2015
£m
49.7
–
6.3
9.2
1.1
0.8
67.1
–
0.1
0.1
28.1
16.0
5.6
49.7
2016
£m
–
2.8
1.4
–
–
0.1
4.3
30.0
–
30.0
–
–
–
–
2015
£m
22.4
4.2
2.3
8.0
0.5
0.2
37.6
–
–
–
13.1
6.6
2.7
22.4
119
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 19 – deferred taxation
grouP
Asset at 1st January 2015
Charged to income
Credited to other comprehensive income
Asset at 31st December 2015
Charged to income
Charged to other comprehensive income
Asset at 31st December 2016
Revaluations
£m
Retirement
benefit
obligation
£m
Accelerated
capital
allowances
£m
(0.2)
0.1
–
(0.1)
–
–
(0.1)
3.3
–
(0.7)
2.6
(0.1)
1.0
3.5
–
(0.1)
–
(0.1)
0.1
–
–
Other
£m
(0.2)
0.1
–
(0.1)
–
–
(0.1)
Total
£m
2.9
0.1
(0.7)
2.3
–
1.0
3.3
The amount of deferred tax recoverable within one year is insignificant. Certain deferred tax assets and liabilities have
been offset. The deferred tax asset arises in respect of the deficit on the retirement benefit obligation. A deficit
reduction plan is in place to reduce this deficit over a number of years (see Note 24). The deferred tax asset will be
recovered over time as the deficit is reduced.
The following is the analysis of the deferred tax balances for financial reporting purposes.
Deferred tax liabilities
Deferred tax assets
coMPAny
Asset at 1st January 2015
Credited to other comprehensive income
Asset at 31st December 2015
Credited to income
Charged to other comprehensive income
Transferred to subsidiary
Asset at 31st December 2016
2016
£m
(0.2)
3.5
3.3
Retirement
benefit
obligation
£m
3.3
(0.7)
2.6
(0.1)
1.0
(3.5)
–
2015
£m
(0.3)
2.6
2.3
Total
£m
3.3
(0.7)
2.6
(0.1)
1.0
(3.5)
–
120
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 20 – capital and reserves
A. components of owners’ equity
The nature and purpose of the components of owners’ equity are as follows:
component of owners’ equity
description and purpose
Share capital
Share premium
ESOT share reserve
Revaluation reserve
Retained earnings
Amount subscribed for share capital at nominal value.
Amount subscribed for share capital in excess of nominal value, net
of allowable expenses.
Acquires and holds shares in the Company to be issued to employees
in settlement of options exercised and conditional share awards under
the Group’s employee share schemes.
Cumulative gains recognised on revaluation of land and buildings
above depreciated cost.
Cumulative net gains and losses recognised in the income statement
and the statement of comprehensive income.
b. Share capital and premium
Allotted, called up and fully paid:
At 1st January 2015
Shares issued to Employee Share Ownership Trust
At 31st December 2015 and 31st December 2016
All shares rank equally in respect of shareholder rights.
Number of
shares
Ordinary
shares
£m
Share
premium
£m
41,401,670
4.1
3.1
427,897
41,829,567
0.1
4.2
–
3.1
121
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 20 – capital and reserves continued
c. Save As you earn Scheme
The following options granted to employees and directors of the Group under the TClarke plc Savings Related Share
Option Scheme (‘the SAYE scheme’), an approved save as you earn (‘SAYE’) share option scheme, were outstanding at
the end of the year:
Scheme
2013 SAYE
2015 SAYE
Number
of options
Grant
date
Exercise
date
398,933
11/10/13
01/01/17 to
Exercise
price
54.00p
Fair value at
date of grant
18.55p
30/06/17
1,505,445
09/10/15
01/12/18 to
69.75p
1.57p
31/05/19
The SAYE scheme was approved by HM Revenue and Customs on 14th July 2011. In accordance with the scheme
rules all employees of the Group with at least six months continuous service were eligible to participate in the scheme,
the only vesting condition being that the individual remains an employee of the Group over the savings period. The
impact of recognising the fair value of employee share option plan grants as an expense under IFRS2 is £nil for the
year ended 31st December 2016 (2015: £nil). The scheme is open to all eligible employees including the executive
directors. Under the rules of the scheme all participating employees have entered into an approved Save As You Earn
contract (‘SAYE contract’) under which the employee agrees to make monthly contributions, between £5 and £150 in
respect of the 2013 scheme and of between £5 and £200 in respect of the 2015 scheme for a period of three years, at
the end of which the employee may use part or all of the proceeds to acquire the shares under option. Options will be
exercisable within a period of six months commencing on the date of maturity of the participants SAYE contract.
The number of options outstanding during the year were as follows:
At 1st January
Granted
Exercised
Lapsed
At 31st December
2016
weighted
average
exercise
price (p)
2016
number
2015
Number
2,891,484
60.53
2,482,074
–
–
1,744,284
(717,397)
(269,709)
1,904,378
42.00
67.97
66.45
(1,206,807)
(128,067)
2,891,484
2015
Weighted
average
exercise
price (p)
43.32
69.75
40.02
45.99
60.53
The weighted average remaining contractual life of the options at 31st December 2016 was 551 days (2015: 697
days).
On 1st January 2017, 398,933 options granted under the SAYE Scheme became exercisable at an exercise price of 54p
per 10p ordinary share. Options exercised to date have been satisfied by shares held in treasury by the Employee
Share Ownership Trust.
122
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 20 – capital and reserves continued
d. equity incentive Plan
All employees, including Executive Directors, are eligible to participate in the TClarke Equity Incentive Plan (‘the Plan’)
at the discretion of the Remuneration Committee. Awards may be made in the form of approved options, unapproved
options, conditional awards of shares and matching awards of shares. Awards may be made in the six-week periods
after adoption of the Plan and after the announcement of the Group’s interim or final results. No award may be made
more than ten years after the date on which the Plan was approved by shareholders (11th May 2011). Options and
awards of shares are subject to performance conditions as determined by the Remuneration Committee.
The total number of shares issued or made available pursuant to the Plan, when aggregated with the total number of
shares issued or made available pursuant to any other employee share scheme in the ten years immediately preceding
the date upon which an award is made, shall not exceed ten percent of the Company’s issued share capital at the date
of the grant.
At 31st December 2016 705,000 conditional share awards, 90,000 conditional options and 630,000 conditional
matching awards have been granted under the TClarke Equity Incentive Plan as follows:
Date of grant
Number of awards
Share price at grant
Exercise price
Option life
Conditional
shares
Conditional
shares
Conditional
shares
Conditional
options
Matching
awards
29/4/2014
29/4/2015
20/4/2016
20/4/2016
20/4/2016
255,000
82.00p
Nil
3 years
270,000
71.50p
Nil
3 years
180,000
71.50p
71.50p
3 years
90,000
88.50p
Nil
3 years
63,000
88.50p
88.50p
3 years
The conditional share awards and options will vest on the third anniversary of the date of grant, subject to continued
employment with the Company and satisfaction of the following performance conditions:
Awards granted 29th April 2014:
Annual growth in ePS above rPi* Proportion of award vesting
Less than 3% Nil
3% 25%
Between 5% and 10% Between 25% and 100% on a straight line basis
Above 10% 100%
Awards granted 29th April 2015 and 20th April 2016:
Annual growth in underlying ePS above rPi* Proportion of award vesting
Less than 3% Nil
3% 25%
Between 5% and 10% Between 25% and 100% on a straight line basis
Above 10% 100%
* Based on average underlying EPS for the three years preceding the date of grant
Matching awards will vest three years from date of grant conditional on the Group achieving profit targets set at the
beginning of each year.
123
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 20 – capital and reserves continued
e. Share based payment expense
The charge to the income statement takes into account the number of shares and options that are expected to vest.
The impact of recognising the fair value of Equity Incentive Plan grants as an expense under IFRS2 is £0.1m charge
for the year ended 31st December 2016 (2015: £0.1m credit).
f. dividends paid
Final dividend of 2.60p (2015: 2.60p) per ordinary share proposed and
paid during the year relating to the previous year’s results
Interim dividend of 0.50p (2015: 0.50p) ordinary share paid during the year
2016
£m
1.1
0.2
1.3
2015
£m
1.1
0.2
1.3
The Directors are proposing a final dividend of 2.70p (2015: 2.60p) per ordinary share totalling £1.1m (2015: £1.1m).
This dividend has not been accrued at the reporting date.
124
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 21 – notes to the statement of cash flows
A. reconciliation of operating profit to net cash (outflow) / inflow from operating activities
grouP
Profit / (loss) from operations:
Continuing operations
Discontinued operations
Depreciation charges
Profit on sale of property, plant and equipment
Equity settled share based payment (credit) / expense
Amortisation
Defined benefit pension scheme credit
Operating cash flows before movements in working capital
Increase in inventories
Decrease / (increase) in contract balances
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Corporation tax paid
Interest paid
Net cash generated from operating activities
coMPAny
Profit from operations:
Continuing operations
Equity settled share based payment expense
Depreciation charges
Investment impairment
Defined benefit pension scheme credit
Operating cash flows before movements in working capital
Decrease in contract balances
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables
Cash generated from / (used in) operations
Corporation tax received
Interest paid
Net cash generated from / (used in) operating activities
125
Annual Report & Financial Statements 2016
2016
£m
2015
£m
4.4
(0.6)
0.5
(0.1)
0.1
0.2
(0.7)
3.8
(0.2)
3.5
(5.5)
3.1
4.7
(0.5)
(0.2)
4.0
3.9
0.1
0.1
0.3
(0.7)
3.7
11.9
13.5
(20.2)
8.9
(0.6)
(0.2)
8.1
4.4
(3.4)
0.5
(0.1)
(0.1)
0.2
(0.5)
1.0
–
(3.1)
(1.6)
7.1
3.4
(0.3)
(0.4)
2.7
1.6
–
0.2
0.3
(0.5)
1.6
0.8
(1.0)
5.8
7.2
0.6
(0.4)
7.4
notes to the financial statements for the year ended 31st December 2016
note 21 – notes to the statement of cash flows continued
b. cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments that are readily
convertible into cash, less bank overdrafts, and are analysed as follows.
grouP
coMPAny
2016
£m
12.3
2015
£m
11.7
2016
£m
13.1
2015
£m
14.1
Cash and cash equivalents
c. group reorganisation
On 31st December 2016 the Company transferred its trade and operating assets and liabilities at book value to a
subsidiary as part of a planned group reorganisation. The consideration for the transfer was settled through the issue
of £30m 10 Year Variable Rate secured loan notes by the Company to its subsidiary companies. The loan rates incur
interest at 2.5% above base rate. Further details of the group reorganisation are given in Note 29 on page 138.
note 22 – bank overdrafts and loans
During the year the Group had in place an £8m overdraft facility and a £5m Revolving Credit Facility (‘RCF’), both with
National Westminster Bank plc. Interest was charged at 2.75% (2015: 2.75%) above base rate on overdraft balances
and 3.0% (2015: 3.0%) above LIBOR on drawn balances under the RCF.
In December 2016 the Group renegotiated its bank facilities and now has in place a £10m RCF committed until 31st
March 2020 and a £5m overdraft facility, renewable annually and repayable on demand. Interest is charged at 2.25%
above LIBOR on drawn balances under the RCF and 2.25% above base rate on overdrawn balances. A fee of 0.9% is
payable on undrawn balances under the RCF. The RCF includes financial covenants in respect of interest cover and net
leverage ratios which are tested quarterly.
All operating companies within the Group are included within the overdraft facility, and cross guarantees and charges
have been granted in favour of National Westminster Bank plc. No value has been attributed to the guarantee
contracts in the Company’s financial statements as the amount is considered to be negligible.
At 31st December 2016 the Group had unused overdraft facilities of £5m (2015: £11m, including an additional £3m
short term overdraft facility expiring in January 2015), and had £7m undrawn committed facilities (2015: £nil) under
the RCF.
The Group was compliant with its obligations under the RCF and the overdraft facility throughout the year.
126
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 23 – related party transactions
A. directors remuneration
Salaries, fees and other short-term employee benefits
Share-based payment charge
Termination benefits
Post-employment benefits
Total
2016
£m
1.5
0.1
0.1
0.1
1.8
2015
£m
1.5
–
–
0.2
1.7
Further disclosures, including details of the highest paid Director, are included in the Director’s remuneration report on
pages 54 to 70.
b. Key management remuneration
Compensation payable to key management for employee services is shown below. Key management includes members of
the Group Management Board and Directors of subsidiary companies.
Salaries, fees and other short term employee benefits
Termination benefits
Share-based payments charge
Post-employment benefits
Total
2016
£m
3.0
0.1
0.1
0.4
3.6
2015
£m
2.9
0.2
–
0.5
3.6
c. Sales and purchases of goods and services to / from subsidiaries
The amounts due from and to subsidiaries are disclosed in Notes 17 and 18 respectively. All balances are interest free and
repayable on demand.
TClarke plc charged subsidiary companies £0.7m (2015: £0.5m) during the year for insurance services and £0.2m
(2015: £0.2m) for IT services. Sales to other Group companies of £nil (2015: £0.2m) and cost of sales from other group
companies of £27.6m (2015: £19.9m) are included in the financial statements of the Company.
127
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 24 – Pension commitments
defined contribution schemes
The Group operates defined contribution pension schemes for all qualifying employees of all its operating companies.
The assets of these schemes are held separately from those of the Group in funds under the control of the trustees.
The Group also contributes to an industry-wide multi-employer defined benefit pension scheme on behalf of certain
employees. The assets of the scheme are held separately from those of Group in an independently administered fund.
The plan exposes participating employers to actuarial risks associated with the current and former employees of other
entities with the result that there is no consistent and reliable basis for allocating the obligation, plan assets and costs
to individual participating in the scheme, and the Group does not have access to sufficient information to enable it to
use defined benefit accounting. Therefore, the scheme has been accounted for as a defined contribution scheme.
The latest formal actuarial valuation as at 5th April 2015 showed that the scheme had a funding level of 101%.
The total cost charged to income of £1.3m (2015: £1.0m) represents contributions payable to these schemes by the
Group at rates specified in the rules of the separate plans.
defined benefit scheme
The group operates a funded defined benefit scheme for qualifying employees. The scheme is registered with HMRC
and is administered by the trustees.
With effect from 1st March 2010 the benefit structure was altered from a final salary scheme with an accrual rate of
1/60th to a Career Average Revalued Earnings scheme with an accrual rate of 1/80th. No other post-retirement
benefits are provided. The assets of the scheme are held separately from those of the participating companies.
Contribution rates during the year ended 31st December 2016, expressed as a percentage of pensionable payroll, were
as follows:
Deficit reduction contribution
Future service contribution
Total contribution
Less employee contribution
TClarke contribution
2016
%
13.0
15.7
28.7
(8.0)
20.7
2015
%
13.0
15.7
28.7
(8.0)
20.7
The most recent triennial actuarial valuation of the scheme, carried out at 31st December 2015 by Mr J Seed, Fellow
of the Institute of Actuaries, showed a deficit of £14.9m, which represented a funding level of 67%. The valuation
was impacted by the significant fall in bond yields over the period leading up to the date of the valuation and a change
in mortality assumptions, caused by macro-economic factors beyond the Group’s control. As a result, the ongoing cost
of funding the scheme has increased significantly. Following provisional agreement of the draft valuation, a revised
funding and deficit reduction plan has been proposed to the Pension Regulator, which includes making additional
contributions and continuing to provide security in the form of a contingent asset over the Group’s property portfolio
up to a combined value of £3.1m, with the aim of eliminating the deficit by 31st March 2029.
128
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 24 – Pension commitments continued
From 1st January 2017 the future service contribution will increase to 21.4% of pensionable payroll (including
employee contributions) and the deficit reduction contribution has been set at £1.0m for the year ending 31st
December 2017, rising to £1.25m for the year ending 31st December 2018 and £1.5m per annum thereafter. The
Group has proposed an increase in employee contributions from 8% to 10% of pensionable salary and is consulting
with employees on this proposal.
As part of a group reorganisation, a subsidiary company, TClarke Services Limited, became the principal employer of
the scheme with effect from 23rd December 2016, and the pension scheme liability and related deferred tax asset
were transferred to TClarke Services Limited at that date. The Company and its subsidiary TClarke Contracting Limited
have provided a guarantee to the Trustees of the scheme in respect of TClarke Services Limited’s obligations to the
pension scheme. Further details concerning the group reorganisation can be found in Note 29 on page 138.
The key assumptions used to value the pension scheme liability in the financial statements are set out below:
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumption
The mortality assumptions used in the IAS 19 valuation were:
Life expectancy at age 65 for current pensioners - Men
- Women
Life expectancy at age 65 for future pensioners (current age 45) - Men
- Women
The amounts recognised in the statement of financial position are as follows:
Present value of funded obligations
Fair value of plan assets
Deficit of funded plans
2016
%
2.60
3.05
2.80
3.30
2016
years
21.9
23.1
24.2
25.7
2016
£m
53.3
(32.7)
20.6
2015
%
2.85
3.05
4.05
3.35
2015
Years
23.7
25.0
25.0
26.5
2015
£m
43.2
(29.8)
13.4
129
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 24 – Pension commitments continued
The movement in the defined benefit obligation is as follows:
Present value
of obligation
£m
Fair value of
plan assets
£m
At 1st January 2015
Current service cost
Interest expense
Remeasurements:
Return on plan assets excluding amounts included in interest expense
Gain from change in financial assumptions
Contributions:
- Employers
- Employees
Payment from plans:
- Benefit payments
At 31st December 2015
Current service cost
Interest expense
Remeasurements:
Return on plan assets excluding amounts included in interest expense
Loss from change in financial assumptions
Experience gains
Contributions:
- Employers
- Employees
Payment from plans:
- Benefit payments
At 31st december 2016
44.5
0.7
1.7
2.4
–
(3.2)
(3.2)
–
0.5
(1.0)
43.2
0.9
1.8
2.7
–
9.8
(1.8)
8.0
–
0.4
(1.0)
53.3
(28.2)
–
(1.1)
(1.1)
0.3
–
0.3
(1.3)
(0.5)
1.0
(29.8)
–
(1.2)
(1.2)
(0.7)
–
–
(0.7)
(1.6)
(0.4)
1.0
(32.7)
Current service cost is included in administrative expenses.
Interest expense is included in finance costs.
Remeasurement gains and losses have been included in other comprehensive income/expense.
130
Annual Report & Financial Statements 2016
Total
£m
16.3
0.7
0.6
1.3
0.3
(3.2)
(2.9)
(1.3)
–
–
13.4
0.9
0.6
1.5
(0.7)
9.8
(1.8)
(7.3)
(1.6)
–
–
20.6
notes to the financial statements for the year ended 31st December 2016
note 24 – Pension commitments continued
Plan assets are held in professionally managed multi asset funds, cash and bank accounts managed by the trustees,
and an insurance annuity contract. Plan assets are comprised as follows:
2016
2015
Quoted
£m
Unquoted
£m
%
quoted
£m
unquoted
£m
Equities
19.7
UK quoted
3.0
Overseas quoted
7.1
Hedge funds
9.6
Debt instruments
Fixed interest corporate bonds
7.4
5.0
Inflation-linked bonds
0.8
Government bonds
1.6
Property
Cash
Insurance annuity contracts
–
–
–
Total
27.1
–
–
–
–
–
–
–
–
2.1
1.9
1.6
5.6
total
£m
19.7
3.0
7.1
9.6
7.4
5.0
0.8
1.6
2.1
1.9
1.6
60%
19.0
4.1
6.2
8.7
5.1
3.8
0.6
0.7
–
–
–
22%
7%
6%
5%
32.7
100%
24.1
Total
£m
19.0
4.1
6.2
8.7
5.1
3.8
0.6
0.7
2.3
1.9
1.5
%
64%
17%
8%
6%
5%
29.8
100%
–
–
–
–
–
–
–
–
2.3
1.9
1.5
5.7
Through the defined benefit pension scheme the Group is exposed to a number of risks, the most significant of which
are set out below.
Asset volatility
The objective of the investment strategy is to have sufficient assets to pay benefits to members as they fall due.
The scheme assets are invested in a diversified portfolio of growth assets (such as multi-asset funds and equities)
and matching assets (such as bonds held in multi-asset funds and cash). Multi-asset funds include property
investments. The scheme does not directly own any property assets. In addition the scheme holds a number
of annuity policies which are used to back a number of pensions in payment, reducing the volatility of the results.
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If plan assets
underperform this yield, this will create a deficit. A significant proportion of scheme assets are held in equities, which
are expected to outperform bond yields in the long term while providing volatility and risk in the short term.
The Group believes that due to the long term nature of scheme liabilities and the strength of the Group, it is
appropriate to continue to hold a significant proportion of the assets in equities. The proportion of equities held was
increased following a review of the investment strategy and taking into account expected improvements in equity
markets and the maturity profile of the scheme.
change in corporate bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase
in the value of the scheme’s bond holdings.
131
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 24 – Pension commitments continued
inflation risk
Some of the pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. Caps are in
place for inflationary increases which protect the scheme against the impact of extreme inflation. The majority of the
plan’s assets are largely unaffected by inflation, meaning that any increase in inflation will also increase the deficit.
life expectancy
Pension obligations are payable for the life of the member, and where elected by the member, the member’s spouse.
Increases in life expectancy will result in increases in scheme liabilities.
Age profile
The weighted average duration of the unsecured liabilities is approximately 22 years.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
Discount rate
Inflation rate
Life expectancy
Impact on defined benefit obligation
Impact on defined benefit obligation
Impact on defined benefit obligation
Change in
Change in
Change in
assumption
assumption
assumption
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
Increase in
Increase in
Increase in
assumption
assumption
assumption
Decrease in
Decrease in
Decrease in
assumption
assumption
assumption
Decreased by 10%
Decreased by 10%
Decreased by 10%
Increased by 12%
Increased by 12%
Increased by 12%
Increase by 6%
Increase by 6%
Increase by 6%
Decrease by 8%
Decrease by 8%
Decrease by 8%
Increase by 1 year
Increase by 1 year
Increase by 1 year
in assumption
in assumption
in assumption
Decrease by 1 year
Decrease by 1 year
Decrease by 1 year
in assumption
in assumption
in assumption
Increase by 3%
Increase by 3%
Increase by 3%
Decrease by 3%
Decrease by 3%
Decrease by 3%
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant.
In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the
sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the
defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been
applied as when calculating the pension liability recognised within the statement of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the
previous period.
132
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 25 – obligations under finance leases
Amounts payable under finance leases:
Within one year
Less: future finance charges
Present value of lease obligations
Minimum lease payment
Present value of
minimum lease payment
2016
£m
0.1
0.1
–
0.1
2015
£m
0.1
0.1
–
0.1
2016
£m
0.1
0.1
–
0.1
2015
£m
0.1
0.1
–
0.1
The average lease term is three to four years. For the year ended 31st December 2016 the average effective
borrowing rate was 6% (2015: 6%). Interest rates are fixed at the contract dates. All leases are on a fixed repayment
basis and no arrangements have been entered into for contingent rental payments.
Obligations under finance leases are secured by the lessor's charges over the leased assets.
note 26 – operating lease obligations
Total outstanding commitments for future minimum lease payments under non-cancellable operating leases
fall due as follows:
grouP
Within one year
In the second to fifth years inclusive
coMPAny
Within one year
In the second to fifth years inclusive
land and
buildings
2016
£m
0.4
0.2
0.6
land and
buildings
2016
£m
0.3
–
0.3
other
operating
leases
2016
£m
0.9
0.8
1.7
other
operating
leases
2016
£m
0.3
0.2
0.5
Land and
buildings
2015
£m
0.5
0.3
0.8
Land and
buildings
2015
£m
0.3
–
0.3
Other
operating
leases
2015
£m
1.0
0.9
1.9
Other
operating
leases
2015
£m
0.3
0.2
0.5
133
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 27 – contingent liabilities
Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and
participating companies in the Group. There are contingent liabilities in respect of surety bond facilities and guarantees
under contracting and other arrangements entered into in the normal course of business.
group’s defined benefit pension
As part of a group reorganisation, a subsidiary company, TClarke Services Limited, became the principal employer of the
scheme with effect from 23rd December 2016, and the pension scheme liability and related deferred tax asset were
transferred to TClarke Services Limited at that date. The Company and its subsidiary TClarke Contracting Limited have
provided a guarantee to the Trustees of the scheme in respect of TClarke Services Limited’s obligations to the pension
scheme. Further details concerning the group reorganisation can be found in Note 29 on page 138.
note 28 – financial instruments
A. capital risk management
The Group manages its capital to ensure that each entity within the Group will be able to continue as a going concern; to
maintain a strong financial position to support business development, tender qualification and procurement activities; and
to maximise the overall return to shareholders over time. Dividends form an important part of the overall return to
shareholders. The Group is mindful of the need to ensure that the dividend is covered by earnings over the business
cycle and paid out of cash reserves in order to secure the long-term interests of shareholders. The Board considers that it
has sufficient capital to undertake its activities for the foreseeable future. The Group’s overall capital strategy remains
unchanged from 2015.
The capital structure of the Group consists of net funds, including cash and cash equivalents, bank loans and overdrafts
and finance lease obligations, and equity attributable to equity holders of the parent company, comprising issued capital,
reserves and retained earnings. The Group does not use derivative financial instruments.
The capital structure of the Group at 31st December 2016 and 2015 was as follows:
Cash and cash equivalents
Less total borrowings
Net funds
Total equity
2016
£m
12.3
(3.1)
9.2
14.1
2015
£m
11.7
(5.1)
6.6
19.6
134
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 28 – financial instruments continued
b. financial assets and liabilities
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the bases of
measurement and the bases on which income and expenses are recognised in respect of each class of financial asset,
financial liability and equity instrument are disclosed in Note 3. The fair value of the Group’s and the Company’s financial
assets and financial liabilities is not materially different to the carrying value.
financial assets
The Group’s financial assets comprise loans and receivables at amortised cost, and cash and cash equivalents as
follows:
Cash and cash
equivalents
£m
Trade
and other
receivables1
£m
Amounts
due from
customers
under
construction
contracts
£m
12.3
39.7
27.8
12.3
–
–
–
12.3
11.7
11.7
–
11.7
32.8
5.5
1.2
0.2
39.7
33.4
28.3
5.1
33.4
27.8
–
–
–
27.8
31.1
31.1
–
31.1
Total
£m
79.8
72.9
5.5
1.2
0.2
79.8
76.2
71.1
5.1
76.2
31st december 2016
Carrying value
Contractual cash flows:
Less than one year
One to two years
Two to three years
Three to four years
Total
31st december 2015
Carrying value
Contractual cash flows:
Less than one year
One to two years
Total
1 Trade and other receivables exclude prepayments
135
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 28 – financial instruments continued
b. financial assets and liabilities continued
financial liabilities – analysis of maturity dates
At 31st December 2016 the carrying value of the Group’s financial liabilities and the maturity profile of the associated
contractual cash flows were as follows:
31st december 2016
Carrying value
Contractual cash flows:
Less than one year
One to two years
Two to three years
Three to four years
Total
31st december 2015
Carrying value
Contractual cash flows:
Less than one year
One to two years
Total
Amounts due
to customers
under
construction
contracts
£m
Trade
and other
payables1
£m
Bank loans2
£m
Obligations
under finance
leases
£m
61.6
59.8
1.3
0.4
0.1
61.6
59.7
59.6
0.1
59.7
4.4
4.4
–
–
–
4.4
4.1
4.1
–
4.1
3.0
0.3
0.2
0.2
3.0
3.7
5.0
0.2
5.2
5.4
0.1
0.1
–
–
–
0.1
0.1
0.1
–
0.1
Total
£m
69.1
64.6
1.5
0.6
3.1
69.8
68.9
64.0
5.3
69.3
1 Trade and other payables exclude deferred income and other taxation and social security payable.
2 Details of the Group’s bank facilities are given in Note 22 on page 126.
136
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 28 – financial instruments continued
c. financial risk management
Financial risk management is integral to the way in which
the Group is managed. The overall aim of the Group’s
financial risk management policies is to minimise any
potential adverse effects on financial performance and net
assets.
The Group does not enter into any derivative transactions
and has minimal exposure to exchange rate movement as
its trade is based in the United Kingdom.
The financial risks to which the Group is exposed comprise
credit risk, market risk and liquidity risk.
The Group seeks to manage these risks as follows:
credit risk
Credit risk is the risk that a counter party will fail to
discharge its obligations and create a financial loss. Credit
risk exists, amongst other factors, to the extent that at the
reporting date there were significant balances outstanding.
The Group’s policy is to mitigate this risk by assessing the
credit-worthiness of prospective clients prior to accepting a
contract, requesting progress payments on contract work in
progress and investing surplus cash only with large highly-
regarded UK financial institutions.
The carrying value of construction contracts, trade and
other receivables and cash on deposit represents the
Group’s maximum exposure to credit risk. There were no
significant concentrations of credit risk at 31st December
2016.
liquidity risk
Liquidity risk is the risk that the Group will not generate
sufficient cash and liquid funds to be able to settle its
financial liabilities as and when they fall due. The Group
manages liquidity risk by maintaining adequate reserves
and banking facilities, by monitoring cash flows and by
matching the maturity profiles of financial assets and
liabilities within the bounds of its contractual obligations.
The Group had in place throughout the year an £8 million
overdraft facility with National Westminster Bank plc and a
£5 million Revolving Credit Facility (‘RCF’) agreed with the
same bank in February 2014.
The Group’s facilities were successfully renegotiated in
December 2016 and now comprise a £10 million RCF and a
£5 million overdraft facility. The RCF is a committed facility
available until 31st March 2020 and is subject to quarterly
financial covenant tests. Management has prepared 3 year
cash flow projections that demonstrate that the Group will
be able to meet these financial covenants. There have
been no other significant changes to the nature of financial
risks or the Group’s objectives and policies for managing
these risks.
Based on an interest rate of 3.5%, the effect of a
delay / acceleration in the maturity of the Group’s trade
receivables at the balance sheet date would be to decrease
/ increase profit by approximately £0.1 million (2015: £0.1
million) for each month of delay / acceleration, and the
effect of a delay / acceleration in the maturity of the
Group’s trade payables at the reporting date would be to
increase / decrease profit by approximately £0.1 million
(2015: £0.1 million) for each month of delay / acceleration.
cash flow interest rate risk
The Group is exposed to changes in interest rates on
its bank deposits and borrowings. Surplus cash is placed
on short term deposit at fixed rates of interest. Bank
overdrafts are at floating rates, at a fixed margin of 2.25%
above base rates. The interest rate on amounts drawn
down under the RCF are fixed at LIBOR plus 2.25% at the
time of drawdown for periods of up to six months. The
Group’s finance lease obligations are at fixed rates of
interest determined at the inception of the lease.
The effect of each 1% increase in interest rates on the
Group’s floating and short-term fixed rate cash, cash
equivalents and bank overdrafts at the reporting date
would be to increase profits by approximately £0.1 million
(2015: £0.1 million) per annum. Details of the Group’s
and the Company’s bank facilities are disclosed in
Note 22.
Details of finance lease commitments are disclosed
in Note 25.
137
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 29 - group reorganisation
During the year the Group undertook the first phase of
a planned group reorganisation to rationalise its legal
structure and improve the efficiency of its operations.
The first phase comprised the amalgamation of the
Group’s operations in London & South East and Central
& South West regions into a single trading subsidiary,
TClarke Contracting Limited, with a separate subsidiary,
TClarke Services Limited, employing all of the staff in
these regions and providing internal support services to
support the operations of TClarke Contracting Limited.
The reorganisation was effected as follows:
• On 23rd December 2016 the employment contracts of all
of the Group’s staff in London & South East and Central
& South West regions were transferred to TClarke
Services Limited and TClarke Services Limited became
the principal employer of the Group’s defined benefit
pension scheme, the TClarke Group Retirement and
Death Benefits Scheme. The Group’s liability in respect
of the pension scheme deficit, including the related
deferred tax asset, was transferred to TClarke Services
Limited at book value in consideration for £17.1m 10
Year Variable Rate Unsecured Loan Notes.
• On 31st December 2016 the businesses and trading
assets and liabilities of all of the Group’s operations in
the Central & South West and London & South East
regions, including those of the Company, were
transferred to TClarke Contracting Limited at book value,
in consideration for £12.9m 10 Year Variable Rate Loan
Notes.
• 10 Year Variable Rate Unsecured Loan Notes receivable
from or payable to TClarke Contracting Limited by other
subsidiary undertakings were assigned to TClarke plc in
consideration for equivalent TClarke plc Loan Notes.
• All loan notes earn interest at 2.5% above base rate.
The impact of the reorganisation on the Company’s
statement of financial position is as follows:
tclarke plc
Summarised statement of financial position
Pre-
reorganisation
£m
Transfer to
TCSL1
£m
Transfer to
TCCL2
£m
Property, plant and equipment
Investments
Deferred tax assets
Amounts due from customers
under construction contracts
Trade and other receivables
Cash and cash equivalents
Amounts due to customers
under construction contracts
Trade and other payables
Current income tax payable
Bank loans
Retirement benefit obligation
Intra-Group Loan Notes Payable
net assets
1 TClarke Services Limited 2 TClarke Contracting Limited
0.2
39.7
3.5
12.5
18.0
13.1
(1.4)
(46.3)
(0.3)
(3.0)
(20.6)
–
15.4
–
–
(3.5)
–
–
–
–
–
–
–
20.6
(17.1)
–
(0.2)
–
–
(12.5)
(17.8)
–
1.4
42.0
–
–
–
(12.9)
–
at 31st
December
2016
£m
–
39.7
–
–
0.2
13.1
–
(4.3)
(0.3)
(3.0)
–
(30.0)
15.4
138
Annual Report & Financial Statements 2016
notes to the financial statements for the year ended 31st December 2016
note 30 – Subsidiary companies
The wholly owned trading subsidiaries are all directly held by TClarke plc. The trading subsidiaries are all incorporated
and operate within the United Kingdom.
electrical and mechanical contractors
type of shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
DG Robson Mechanical Services Limited*
TClarke Contracting Limited1
TClarke East Limited*2
TClarke Leeds Limited3
TClarke North West Limited4
TClarke (Scotland) Limited5
TClarke South-East Limited*1
TClarke South West Limited*6
TClarke Newcastle Limited7
* Trade transferred to TClarke Contracting Limited on 31st December 2016 (see Note 29).
Property holding company
Weylex Properties Limited1
group services company
TClarke Services Limited1
non-trading and dormant companies
AG Aylward EMS (Maintenance and Minor Works) Limited2
Anglia Electrical Services Limited1
D&S (Engineering Facilities) Limited1
GDI Electrical Company Limited1
JJ Cross Limited1
JJ Cross Services Limited1
Mitchell and Hewitt Limited8
SCS Building Services (Scotland) Limited5
Smith Contracting Services Limited1
TClarke (Northern) Limited9
Waldon Data Limited1
Waldon Electrical Contractors Limited1
Waldon Security Limited1
WE Manin Limited1
registered offices
1 45 Moorfields, London EC2Y 9AE
2 3 Kym Road, Bicton Industrial Park, Kimbolton, Cambridgeshire PE28 0LW
3 Low Hall Road, Horsforth, Leeds, West Yorkshire LS18 4EF
4 Wilton House, Ackhurst Park, Foxhole Road, Chorley PR7 1NY
5 6 Middlefield Road, Middlefield Industrial estate, Falkirk, Stirlingshire FK2 9AG
6 20 St Austell Business Park, Carclaze, St Austell, Cornwall PL25 4FD
7 Hunter House, 17-19 Byon Street, Newcastle Upon Tyne NE2 1XH
8 Windsor Court, Ascot Drive, Derby, Derbyshire DE24 8GZ
9 116-118 Walworth Road, London SE17 1JL
139
Annual Report & Financial Statements 2016
Shareholder information
Shareholder information
Alexandra dent
Company Secretary
registered office
45 Moorfields
London EC2Y 9AE
Registered in England
Company number: 119351
bankers
Royal Bank of Scotland
Corporate Banking
280 Bishopsgate
London EC2M 4RB
independent auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel: 0871 664 0300
corporate broker
N+1 Singer
1 Bartholomew Lane
London EC2N 2AX
Tel: 020 7496 3000
investor relations
RMS Partners Limited
160 Fleet Street
London EC4A 2DQ
Tel: 020 3735 6551
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Annual Report & Financial Statements 2016
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tclarke plc | 45 Moorfields, London EC2Y 9AE | 020 7997 7400 | www.tclarke.co.uk