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RNS

Interim Results

Released 07:00 09-Aug-2018

RNS Number : 2557X
North Midland Construction PLC
09 August 2018
 

9 August 2018

 

Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).

 

NORTH MIDLAND CONSTRUCTION PLC

UNAUDITED CONDENSED GROUP HALF YEARLY FINANCIAL STATEMENTS

 

North Midland Construction PLC (the "Company"), a leading engineering and construction company, delivering major built environment and critical national infrastructure projects across the UK, announces interim results for the six months ended 30 June 2018.

 

Highlights:-




Six Months Ended


Six Months Ended




30 June 2018


30 June 2017




£'000


£'000






Restated1

Revenue



160,859


 

135,148







Profit Before Tax



2,512


1,234







Total Comprehensive Income



2,035


993







Earnings per Share



20.05p


9.78p







Proposed Dividends



6.0p


3.0p

 

1 Comparative information has been restated following the adoption of IFRS 15 Revenue from Contracts with Customers on 1 January 2018. Further information concerning the impact of the transition to IFRS 15 is provided in Note 3.

 

Revenue increased by 19.0% compared with H1 2017.

 

Profit before tax increased by 103.6% to £2.51 million (H1 FY17 restated: £1.23 million).

 

Cash of £18.89 million, an increase of 138.4% (H1 FY17: £7.93 million)

 

Current order book for completion in 2018 of £320m (H1 FY17: £270 million)

 

Increased proposed dividend to 6.0p (H1 FY17: 3.0p)

 

John Homer - Chief Executive - Commented:

 

"These results demonstrate the continued progress made in the business against our strategic objectives. Our focus on margin enhancement (104% ahead of last year) and cash generation (138% ahead of last year) is beginning to show returns and is anticipated to continue going forward. 

 

We continue to invest significantly in the development of our people and the evolution of our employer brand. It is our firm belief that our people are the overarching differentiator in the service that we provide and the primary driver for our continued success.

 

The outlook for future trading remains positive and provides the opportunity to maximise earnings from our operations. The board is anticipating further revenue growth coupled with an enhanced margin percentage."

 

For further information:-



 

John Homer, Chief Executive

Daniel Taylor, Group Finance Director

01623 515008

North Midland Construction PLC

 


CHAIRMAN'S STATEMENT

 

It is pleasing to report that the progress outlined at the Annual General Meeting on 17 May 2018 has been maintained. Half year profitability before tax has improved to £2.51 million (H1 FY17 restated: £1.23 million) on revenues which increased by 19.0% to £160.86 million (H1 FY17 restated: £135.15 million).

 

The Built Environment segment, in spite of ongoing losses in Telecoms, produced an improved performance in the second quarter, although the half-year result shows a deterioration compared with the same period last year. Revenues declined by 3.4% to £48.79 million (H1 FY17 restated: £50.51 million) due to reduced infrastructure expenditure by the Telecommunications companies. An operating loss of £2k was delivered (H1 FY17 restated: £0.34 million).

 

Construction has maintained its excellent progress producing an operating profit of £1.22 million (H1 FY17 restated: £0.08 million) on revenues increased by 95.4% to £21.88 million (H1 FY17 restated: £11.20 million). The initial "NM Investments" project, which is a joint venture to develop 10 houses in Nottingham, is progressing well and on programme with a second development due to commence on site in the near future. Confidence is high that the predicted return for the full financial year will be achieved.

 

Highways has enhanced its margins with profitability increasing to £0.39 million (H1 FY17 restated: £0.23 million) on revenues reduced by 34.7% to £13.90 million (H1 FY17 restated: £21.27 million). The opportunities for orders emanating from the existing frameworks have been slow to materialise and there is a requirement to secure further workload this year.

 

Telecoms continues to be loss-making on the back of reduced levels of activity. A loss of £1.61 million (H1 FY17 restated: £0.03 million profit) was generated on revenues reduced by 27.8% to £13.02 million (H1 FY17 restated: £18.04 million). A restructure of the division to improve operating performance and align the business to the reduced levels of expenditure is still ongoing.

 

The Water segment continues to provide growth in both revenue and earnings on the back of peak levels of investment by the water companies in the middle of the AMP6 programme, coupled with the high levels of activity on the major joint venture projects currently under construction. Operating profit advanced to £2.57 million (H1 FY17 restated: £1.00 million) on revenues increased by 32.4% to £112.07 million (H1 FY17 restated: £84.64 million). A maintained performance is forecast for the full financial year.

 

In relation to the one remaining outstanding legacy contract with Cyden Homes Limited, upon the advice of Leading Counsel and the Company's retained legal advisors and having received permission to appeal to the Court of Appeal in what were regarded as positive terms, the Board pursued an appeal against the decision of The High Court in relation to the application of "the prevention principal". The Appeal was heard on the 12 July 2018 but unfortunately the outcome was unfavourable for the Company.  As a consequence, alternative strategies for making appropriate recovery under this contract which had already been designed in parallel are now being fully implemented. The financial impact of this decision had already been recognised in our 2017 accounts and will not affect current projections.

 

The improvement in both profitability and cash collection has resulted in a significant enhancement of the half-year bank position with current cash at 30 June 2018 being £18.89 million (H1 FY17 restated: £7.93 million).

 

The current order book for completion this year is £320m (2017: £270m) and the secured workload for the subsequent year leads the Board to be confident that this year's forecast will be achieved. This, coupled with the desire to pursue a progressive dividend policy, has encouraged the Board to double the interim dividend to 6.0p per share (H1 FY17: 3.0p per share). The dividend will be paid on 14 September 2018 to shareholders on the register at 17 August 2018.

 

 

 

 

 

Robert Moyle

Chairman

North Midland Construction PLC

9 August 2018



UNAUDITED CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

 

The unaudited condensed Group results for the half year ended 30 June 2018 are shown below together with the unaudited Group results for the half year ended 30 June 2017 and the audited (restated) Group results for the year ended 31 December 2017.


Six Months Ended 30 June

Year Ended


2018


2017


31 December 2017


£'000


£'000


£'000




Restated


Restated

Revenue

160,859


135,148


299,879

Other operating income

291


133


451


161,150


135,281


300,330

Raw material and consumables

(24,509)


(22,838)


(44,698)

Other external charges

(91,636)


(73,048)


(168,462)

Employee costs

(38,116)


(33,799)


(69,486)

Depreciation of property, plant and equipment

(1,778)


(1,489)


(3,057)

Other operating charges

(2,543)


(2,768)


(5,327)

Operating profit

2,568


1,339


9,300

Finance costs

(56)


(105)


(187)

Profit before tax

2,512


1,234


9,113

Tax (Note 7)

(477)


(241)


(1,884)

Profit for the period

2,035


993


7,229

Other comprehensive income

-


-


-

Total comprehensive income for the period

2,035


993


7,229

 

Attributed to:-






Equity holders of the parent

2,035


993


7,229


2,035


993


7,229

Earnings per share basic and diluted (Note 6)

20.05p


9.78p


71.22p

Dividend per share (Note 8)

6p


3p


3p







 

 

UNAUDITED CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

 






Capital






Share


Merger


Redemption


Retained




Capital


Reserve


Reserve


Earnings


Total


£'000


£'000


£'000


£'000


£'000

Balance at 1 January 2017 as previously reported

1,015


455


20


11,209


12,699

Adjustment on adoption of IFRS 15 (Note 3.3)

-


-


-


(6,487)


(6,487)

Balance at 1 January 2017 as restated

1,015


455


20


4,722


6,212

Profit and total comprehensive income for the period as restated (Note 3.3)

-


-


-


993


993

Dividends paid

-


-


-


(303)


(303)

Balance at 30 June 2017 as restated

1,015


455


20


5,412


6,902

Profit and total comprehensive income for the period as restated (Note 3.3)

-


-


-


6,236


6,236

Dividends paid

-


-


-


(305)


(305)

Balance at 31 December 2017

1,015


455


20


11,343


12,833

Profit and total comprehensive income for the period

-


-


-


2,035


2,035

Dividends paid

-


-


-


(305)


(305)

Balance at 30 June 2018

1,015


455


20


13,073


14,563

 



UNAUDITED CONDENSED GROUP BALANCE SHEET

 

The unaudited condensed Group Balance Sheets as at 30 June 2018 and 30 June 2017 are shown below together with the audited (restated) Group Balance Sheet as at 31 December 2017.

 




30 June

31 December




2018


2017


2017




£'000


£'000


£'000

Assets




Restated


Restated








Non-Current Assets








Property, plant and equipment


18,147


14,975


17,122


Investments in joint ventures


75


-


-


Deferred tax asset


883


2,820


1,223




19,105


17,795


18,345

Current Assets








Inventories


1,539


1,950


1,820


Trade and other receivables


63,014


50,896


49,934


Cash and cash equivalents


18,891


7,925


17,006




83,444


60,771


68,760








Total Assets


102,549


78,566


87,105









Equity and Liabilities














Capital and Reserves attributable to equity holders of the Parent








Share capital


1,015


1,015


1,015


Merger reserve


455


455


455


Capital redemption reserve


20


20


20


Retained earnings


13,073


5,412


11,343

Total Equity


14,563


6,902


12,833








Liabilities














Non-current Liabilities








Obligation under finance leases

- due after one year


2,122


2,703


2,514


Provisions


401


394


404



2,523


3,097


2,918

Current Liabilities








Trade and other payables


82,772


66,048


68,726


Current income tax payable


312


219


177


Obligations under finance leases

- due within one year


2,379


2,300


2,451




85,463


68,567


71,354








Total Liabilities


87,986


71,664


74,272








Total Equity and Liabilities


102,549


78,566


87,105

 



UNAUDITED CONDENSED GROUP STATEMENT OF CASH FLOWS

 

The unaudited condensed Group statement of cash flows for the periods ended 30 June 2018 and 30 June 2017 are shown below together with the audited (restated) Group statement of cash flows for the year ended 31 December 2017.

 



Six Months Ended 30 June


Year Ended



2018


2017


31 December

2017



£'000


£'000


£'000





Restated


Restated

Cash flows from operating activities







Operating profit


2,568


1,339


9,300

Adjustments for:







Depreciation of property, plant and equipment


1,778


1,489


3,057

Gain on disposal of property, plant and equipment


(293)


(130)


(448)

(Decrease)/increase in provisions


(3)


-


10








Operating cash flows before movements in







working capital


4,050


2,698


11,919








Decrease in inventories


284


115


245

Increase in receivables


(13,080)


(9,135)


(8,173)

Increase in payables


14,046


4,903


7,581








Cash generated from/(used in) operations


5,300


(1,419)


11,572








Income tax paid


-


-


(91)

Interest paid


(4)


(49)


(79)

Net cash generated from/(used in) operations


5,296


(1,468)


11,402








Cash flows from investing activities







Purchase of property, plant and equipment

(1,953)


(444)


(2,897)

Proceeds on disposal of property, plant and equipment

550


132


580

Investment in joint ventures

(75)


-


-

Net cash used in investing activities


(1,478)


(312)


(2,317)








Cash flows from financing activities







Equity dividends paid


(305)


(303)


(608)

Repayments of obligations under finance leases


(1,575)


(1,341)


(2,768)

Interest payable under finance leases


(53)


(56)


(108)

Net cash used in financing activities


(1,933)


(1,700)


(3,484)








Net (decrease)/increase in cash and cash equivalents

1,885


(3,480)


5,601

Cash and cash equivalents at 1 January 2018


17,006


11,405


11,405

Cash and cash equivalents at 30 June 2018


18,891


7,925


17,006

 


1.

Basis of preparation


The unaudited condensed Group half-yearly financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, and have been prepared on the basis of International Financial Reporting Standards (IFRSs) as adopted by the European Union. They do not include all of the information required for full annual financial statements. These condensed consolidated half-yearly financial statements have not been subject to audit or review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 by the Company's auditor, do not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006, and should be read in conjunction with the Annual Report 2017. The comparative figures for the year ended 31 December 2017 are not the Group's statutory accounts for that financial year. Those accounts have been reported upon by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain statements under Section 435 and 498 (2) or (3) respectively of the Companies Act 2006.

The Board regularly reviews financial statements, cash balances and forecasts and the Directors confirm that they consider the Group has adequate resources to continue to operate for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the unaudited condensed Group half yearly financial statements.

This is the first set of the Group's financial statements where IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments' have been applied. Changes to significant accounting policies are described in Note 3.



2.

Use of judgements and estimates


The preparation of unaudited condensed Group half-yearly financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these unaudited condensed Group half-yearly financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2017.

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2017.



3.1.

Changes in significant accounting policies


Except as described below, the accounting policies adopted in the preparation of the unaudited condensed Group half-yearly financial statements to 30 June 2018 are consistent with the policies applied by the Group in its consolidated financial statements as at, and for the year ended 31 December 2017. The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 December 2018. The Group has considered amendments to existing standards and interpretations that are effective for the year ending 31 December 2018 and is of the view that they have no impact on the unaudited condensed Group half-yearly accounts, except as noted below for IFRS 15 and IFRS 9.

 

 

3.2.

IFRS 15 Revenue from Contracts with Customers - overview

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018.

IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. It replaces the separate models for goods, services and construction contracts previously included in IAS 11 Construction Contracts and IAS 18 Revenue. The effect of initially applying IFRS 15 is mostly attributed to the recognition criteria for variable income, which arises principally from variations in contract work, claims and incentive payments. Variable income is subject to a revenue constraint such that revenue may only be recognised to the extent that it is highly probable that a significant reversal in the amount of revenue recognised will not occur in future. Under IAS 11 an amount was included in contract revenue to the extent that it was probable that it would result in revenue, which required a lower level of certainty than under IFRS 15. As a result, revenue may be recognised later under IFRS 15 than under IAS 11.

The Group has applied IFRS 15 retrospectively using the practical expedient in paragraph C5(c) of IFRS 15, under which the Group does not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when the Group expects to recognise that amount as revenue for all reporting periods presented before the date of initial application - i.e. 1 January 2018.

3.3.

IFRS 15 Revenue from Contracts with Customers - restatement

The following tables summarise the impacts of adopting IFRS 15 on the Group's condensed half-yearly financial statements, with references to the specific accounting policy changes to which those adjustments relate in Note 3.4.

Impact on the condensed Group statements of comprehensive income

 


Six Months Ended 30 June 2017

Year Ended 31 December 2017


As Reported

Adjustment

Restated

As Reported

Adjustment

Restated


£'000

£'000

£'000

£'000

£'000

£'000

Accounting policy change per Note 3.4


C



C









Revenue

135,134

14

135,148

291,770

8,109

299,879

Other operating income

133

-

133

451

-

451


135,267

14

135,281

292,221

8,109

300,330

Raw material and consumables

(22,838)

-

(22,838)

(44,698)

-

(44,698)

Other external charges

(73,048)

-

(73,048)

(168,462)

-

(168,462)

Employee costs

(33,799)

-

(33,799)

(69,486)

-

(69,486)

Depreciation of property, plant and equipment

(1,489)

-

(1,489)

(3,057)

-

(3,057)

Other operating charges

(2,768)

-

(2,768)

(5,327)

-

(5,327)

Operating profit

1,325

14

1,339

1,191

8,109

9,300

Finance costs

(105)

-

(105)

(187)

-

(187)

Profit before tax

1,220

14

1,234

1,004

8,109

9,113

Tax (Note 7)

(238)

(3)

(241)

(262)

(1,622)

(1,884)

Profit for the period

982

11

993

742

6,487

7,229

Other comprehensive income

-

-

-

-

-

-

Total comprehensive income for the period

982

11

993

742

6,487

7,229

 

 

 

 

 

 

 



 

3.3.

IFRS 15 Revenue from Contracts with Customers - restatement (continued)

Impact on the condensed Group balance sheets

 


1 January 2017

30 June 2017


As Reported

Adjustments

Restated

As Reported

Adjustments

Restated


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Accounting policy change per Note 3.4


C

F



C

F











Assets









Non-current assets









Property, plant and equipment

13,651

-

-

13,651

14,975

-

-

14,975

Investments in subsidiaries

-

-

-

-

-

-

-

-

Deferred tax asset

1,411

1,622

-

3,033

1,201

1,619

-

2,820


15,062

1,622

-

16,684

16,176

1,619

-

17,795

Current assets









Inventories

2,065

-

-

2,065

1,950

-

-

1,950

Construction contracts

19,165

(8,109)

(11,056)

-

18,048

(8,095)

(9,953)

-

Trade and other receivables

30,705

-

11,056

41,761

40,943

-

9,953

50,896

Current income tax receivable

-

-

-

-

-

-

-

-

Cash and cash equivalents

11,405

-

-

11,405

7,925

-

-

7,925


63,340

(8,109)

-

55,231

68,866

(8,095)

-

60,771

Total assets

78,402

(6,487)

-

71,915

85,042

(6,476)

-

78,566










Equity and liabilities









Capital and reserves attributable to equity holders of the Parent









Share capital

1,015

-

-

1,015

1,015

-

-

1,015

Merger reserve

455

-

-

455

455

-

-

455

Capital redemption reserve

20

-

-

20

20

-

-

20

Retained earnings

11,209

(6,487)

-

4,722

11,888

(6,476)

-

5,412

Total equity

12,699

(6,487)

-

6,212

13,378

(6,476)

-

6,902










Liabilities


















Non-current liabilities








-

Obligations under finance leases

1,785

-

-

1,785

2,703

-

-

2,703

Provisions

394

-

-

394

394

-

-

394


2,179

-

-

2,179

3,097

-

-

3,097

Current liabilities









Trade and other payables

61,145

-

-

61,145

66,048

-

-

66,048

Current income tax payable

194

-

-

194

219

-

-

219

Obligations under finance leases

2,185

-

-

2,185

2,300

-

-

2,300


63,524

-

-

63,524

68,567

-

-

68,567










Total liabilities

65,703

-

-

65,703

71,664

-

-

71,664










Total equity and liabilities

78,402

(6,487)

-

71,915

85,042

(6,476)

-

78,566

 

3.3.

IFRS 15 Revenue from Contracts with Customers - restatement (continued)

Impact on the condensed Group statements of cash flows

 


Six Months Ended 30 June 2017

Year Ended 31 December 2017


As Reported

Adjustments

Restated

As Reported

Adjustments

Restated


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Accounting policy change per Note 3.4


C

F



C

F











Cash flows from operating activities







Operating profit

1,325

14

-

1,339

1,191

8,109

-

9,300

Adjustments for:









Depreciation of PPE

1,489

-

-

1,489

3,057

-

-

3,057

Gain on disposal of PPE

(130)

-

-

(130)

(448)

-

-

(448)

Increase in provisions

-

-

-

-

10

-

-

10

Operating cash flows before movements in

2,684

14

-

2,698

3,810

8,109

-

11,919

working capital


















Decrease in inventories

115

-

-

115

245

-

-

245

Decrease/(increase) in construction contracts

1,117

-

(1,117)

-

(2,532)

-

2,532

-

(Increase)/decrease in receivables

(10,238)

(14)

1,117

(9,135)

2,468

(8,109)

(2,532)

(8,173)

Increase in payables

4,903

-

-

4,903

7,581

-

-

7,581

Cash (used in)/generated from operations

(1,419)

-

-

(1,419)

11,572

-

-

11,572










Income tax paid

-

-

-

-

(91)

-

-

(91)

Interest paid

(49)

-

-

(49)

(79)

-

-

(79)

Net cash (used in)/generated from operations

(1,468)

-

-

(1,468)

11,402

-

-

11,402










Cash flows from investing activities







Purchase of PPE

(444)

-

-

(444)

(2,897)

-

-

(2,897)

Proceeds on disposal of PPE

132

-

-

132

580

-

-

580

Net cash used in investing activities

(312)

-

-

(312)

(2,317)

-

-

(2,317)










Cash flows from financing activities







Equity dividends paid

(303)

-

-

(303)

(608)

-

-

(608)

Repayments of obligations under finance leases

(1,341)

-

-

(1,341)

(2,768)

-

-

(2,768)

Interest payable under finance leases

(56)

-

-

(56)

(108)

-

-

(108)

Net cash used in financing activities

(1,700)

-

-

(1,700)

(3,484)

-

-

(3,484)










Net (decrease)/increase in cash and cash equivalents

(3,480)

-

-

(3,480)

5,601

-

-

5,601

Cash and cash equivalents at 1 January 2018

11,405

-

-

11,405

11,405

-

-

11,405

Cash and cash equivalents at 30 June 2018

7,925

-

-

7,925

17,006

-

-

17,006

3.4.

IFRS 15 Revenue from Contracts with Customers - changes in accounting policy

The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's adoption of IFRS 15 Revenue from Contracts with Customers are set out below.

 

 


Amended accounting policy

Nature of change in accounting policy

 

 

A

A contract is considered to exist with a customer where there is an agreement in place that creates enforceable rights and obligations on both parties to the contract. For each distinct contract identified, the transaction price is determined by reference to the total amount of consideration to which the Group expects to be entitled in exchange for the provision of services under the contract. A performance obligation is considered to exist where there is an explicit or implicit promise within the contract to transfer distinct services to the customer, or there is a promise to transfer a series of services that are substantially the same and have the same pattern of transfer to the customer. The transaction price is allocated to performance obligations by reference to the stand-alone selling price of the service promised under that performance obligation or, where there is no observable stand-alone selling price, the transaction price is allocated on the basis of the expected cost plus margin to provide the service.

Where contracts that contain multiple performance obligations are performed on a concurrent or continuous basis and are so closely interrelated that in effect they are part of a single project that is negotiated as a single framework with a single profit margin, they are accounted for by applying the portfolio model to groups of performance obligations.

The Group's contracts with customers as defined under IFRS 15 correspond in almost all circumstances to construction contracts as previously defined under IAS 11. Groups of performance obligations negotiated as a single framework were previously accounted for as an aggregated single construction contract, which is analogous to the application of the portfolio model under the amended accounting policy.

 

The transaction price under the amended accounting policy corresponds to the value of contract revenue as measured under the previous accounting policy, less the value of items now classified as variable income under IFRS 15 such as variations in contract work, claims and incentive payments (see below).

 

 

 

 

B

Where the customer controls the asset as it is constructed or enhanced, services are considered to be transferred over time and the transaction price allocated to the associated performance obligation is recognised as revenue by reference to the stage of completion of activity at the balance sheet date. This is normally measured by the proportion that contract costs incurred for work performed to date bear to the estimated total costs of satisfying the performance obligation. Where a performance obligation is not considered to be satisfied over time, the transaction price allocated to the performance obligation is recognised as revenue when the promised service is delivered to the customer.

Where the outcome of a construction contract could be estimated reliably, revenue and costs were recognised by reference to the stage of completion of activity at the balance sheet date. This was normally measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs (the "cost to cost" method).

Where the outcome of a construction contract could not be estimated reliably, contract revenue was recognised to the extent of contract costs incurred that it is probable would be recoverable.

The Group's construction contracts typically involve the transfer of services over time, therefore there is no financial impact associated with adopting this aspect of the amended accounting policy as the recognition of revenue continues to take place under the cost to cost method.

 

3.4.

IFRS 15 Revenue from Contracts with Customers - changes in accounting policy (continued)

 


Amended accounting policy

Nature of change in accounting policy

C

Variations in contract work, claims, incentive payments and other categories of variable income are recognised in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur.

Variations in contract work, claims and incentive payments were previously recognised to the extent that it was probable that they would result in revenue and that they were capable of being reliably measured.

The amended accounting policy reflects the requirement under IFRS 15 to recognise revenue only when it is highly probable that a significant reversal will not occur, which is a higher level of certainty than was previously required under IAS 11. Consequently, this has led to an adjustment to Group retained earnings as at 1 January 2017 and profit and total comprehensive income for the six months ended 30 June 2017 and the year ended 31 December 2017.

D

Incremental costs to obtain a contract such as tender costs are capitalised and amortised consistently with the transfer of the services to which the asset relates. Other costs including the costs of satisfying the performance obligations under a contract are recognised as expenses in the period in which they are incurred.

Contract costs were previously recognised as expenses in the period in which they were incurred, including costs of obtaining a contract to the extent that recoverability under the contract was probable.

There is no material financial impact associated with adopting this aspect of the amended accounting policy due to the amount of pre-contract costs incurred historically. Costs to obtain contracts in future may however be capitalised and amortised in line with the amended accounting policy where the amounts involved are material.

E

Where it is anticipated that total contract costs will exceed total contract revenue, a provision is recognised in respect of the expected loss under the contract.

Where it was anticipated that total contract costs would exceed total contract revenue, the expected loss was recognised as an expense immediately.

The requirements of the previous and amended accounting policies are similar and hence there is no financial impact associated with adopting this aspect of the amended accounting policy.

 



 

3.4.

IFRS 15 Revenue from Contracts with Customers - changes in accounting policy (continued)

 


Amended accounting policy

Nature of change in accounting policy

F

Trade receivables includes applications to the extent that there is an unconditional right to payment and the amount has been certified by the customer. The recoverable amount of applications that have not been certified and other amounts that have not been applied for but represent the recoverable value of work carried out at the balance sheet date are recognised as contract assets within trade and other receivables on the balance sheet. Retentions are included in trade and other receivables and are stated at their original invoiced value, as the interest that would be recognised from discounting future cash receipts over the short credit period is not considered to be material.

The contract costs incurred in relation to work completed at the balance sheet date, net of progress buying on construction contracts, is recognised in trade payables. In addition, any payments received in advance of completing the work are also recognised in trade payables.

The recoverable sales value of work carried out at the balance sheet date, which had not been applied for, was previously recognised as construction contracts in the balance sheet.

Trade receivables included unpaid applications both certified and uncertified. Applications and certificates were reduced accordingly based on the stage of completion of a contract when compared to the cash received at the balance sheet date.

The amended accounting policy reflects the requirement under IFRS 15 to recognise all contract balances as contract assets or contract liabilities, other than any unconditional rights to consideration which are presented as receivables. Consequently, this has led to the creation of a new category of asset ("contract assets") within trade and other receivables, which now includes amounts previously held as trade receivables or construction contracts on the balance sheet.

 



 

3.5.

IFRS 9 Financial Instruments


The Group has initially adopted IFRS 9 Financial Instruments from 1 January 2018.

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement and specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items. The most significant area of change which could potentially have an effect on the Group's reported results is the "expected loss" model, under which an allowance for credit losses is calculated by considering the cash shortfalls that would be incurred in various default scenarios and multiplying the shortfalls by the probability of each scenario occurring.

Based on an assessment of historic credit losses on the Group's financial assets and the likelihood of the occurrence of future credit losses on existing financial assets, the Directors consider that there are no further material impairment losses to be recognised against the Group's financial assets.

The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's adoption of IFRS 9 Financial Instruments are set out below.

 

 

Amended accounting policy

Nature of change in accounting policy

 

 

On initial recognition, a financial asset is classified as measured at amortised cost, Fair Value through Other Comprehensive Income ("FVOCI") or Fair Value Through Profit or Loss ("FVTPL"). Financial liabilities are measured at amortised cost or FVTPL.

All financial instruments are initially measured at fair value.

The classification of financial instruments is based on the manner in which a financial instrument is managed and its contractual cash flow characteristics.

Financial assets and liabilities are measured at amortised cost if both of the following conditions are met and the financial asset or liability is not designated as at FVTPL:

-     the financial asset or liability is held with the objective of collecting or remitting contractual cash flows; and

-     its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

-     the financial asset is held with the objectives of collecting contractual cash flows and selling the financial asset; and

-     its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All financial assets and financial liabilities not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.

IFRS 9 removes the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale. These are replaced by the categories noted in the amended accounting policy for financial instruments.

IFRS 9 retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities.

 

3.5.

IFRS 9 Financial Instruments (continued)

 

Amended accounting policy

Nature of change in accounting policy

 

 

The Group's principal financial instruments comprise cash and cash equivalents, trade receivables, retentions held by customers for contract work, contract assets, trade payables and interest-bearing borrowings (obligations under finance leases and bank overdraft). Based on the manner in which these financial instruments are managed and their contractual cash flow characteristics, all of the Group's financial instruments are measured at amortised cost using the effective interest method.

The amortised cost of financial assets is reduced by impairment losses as described below. Interest income, foreign exchange gains and losses, impairments and gains or losses on derecognition are recognised through the Statement of Comprehensive Income.

Trade receivables, retentions held by customers for contract work and trade payables are held at their original invoiced value, as the interest that would be recognised from discounting future cash flows over the short credit period is not considered to be material.

Contract assets are measured at the recoverable amount of applications that have not been certified and other amounts that have not been applied for but represent the recoverable value of work carried out at the balance sheet date.

Cash equivalents comprise short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. An investment with a maturity of three months or less is normally classified as being short term. Cash and cash equivalents do not include other financial assets.

Cash and cash equivalents, trade receivables, retentions held by customers for contract work, trade payables and interest-bearing borrowings were previously classified as loans and receivables under IAS 39 and were measured at amortised cost. These financial instruments are now classified as financial assets and liabilities at amortised cost under IFRS 9.

Contract assets are a new category of asset that is recognised as a result of the adoption of IFRS 15. Amounts recognised as contract assets were previously recognised within trade receivables and construction contracts as described in the changes in significant accounting policies - IFRS 15 Revenue from Contracts with Customers section of note 3.

The adoption of IFRS 9 has therefore not had any impact on the measurement of the Group's financial assets and liabilities.

 

 

Impairment losses against financial assets at amortised cost are recognised by reference to any expected credit losses against those assets. Allowances for credit losses are calculated by considering on a discounted basis the cash shortfalls it would incur in various default scenarios over the remaining lives of the assets and multiplying the shortfalls by the probability of each scenario occurring. The allowance is the sum of these probability weighted outcomes.

IFRS 9 replaces the incurred loss model in IAS 39 with the expected credit loss model, which requires that future events are taken into account when calculating impairments to financial assets.

Based on an assessment of historic credit losses on the Group's financial assets and the likelihood of the occurrence of future credit losses on existing financial assets, the Directors consider that there are no further material impairment losses to be recognised against the Group's financial assets due to the adoption of the amended accounting policy.

 



 

4.

Segment reporting


From 1 January 2018 the Board now reviews the Group's operational performance via two segments: the Water segment and the Built Environment segment. Accordingly, the segmental information presented below is prepared on the same basis and the previous years restated for comparison purposes.

Segment revenue and profit

 

 



Six Months Ended 30 June 2018


Built Environment


Water


Total


£'000


£'000


£'000







Revenue

48,786


112,073


160,859







Result before corporate expenses

3,227


9,043


12,270







Corporate expenses

(3,229)


(6,473)


(9,702)







Operating (loss)/profit

(2)


2,570


2,568







Net finance costs





(56)

Profit before tax





2,512

Tax





(477)

Total comprehensive income for the period

2,035

 



Six Months Ended 30 June 2017


Built Environment


Water


Total


£'000


£'000


£'000


Restated


Restated


Restated







Revenue

50,506


84,642


135,148







Result before corporate expenses

2,845


6,265


9,110







Corporate expenses

(2,507)


(5,264)


(7,771)







Operating profit

338


1,001


1,339







Net finance costs





(105)

Profit before tax





1,234

Tax





(241)

Total comprehensive income for the period

993

 

 

Segment assets





        30 June


2018


2017


£'000


£'000




Restated

Built Environment

44,501


45,390

Water

58,048


39,652

Total segment assets and consolidated total assets

102,549


85,042





For the purpose of monitoring segment performance and allocating resources between segments, the Group's Chief Executive monitors the tangible and financial assets attributable to each segment. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments.


 


 

Other segment information


Depreciation and


Additions to


amortisation


non-current assets


30 June


30 June


2018


2017


2018


2017


£'000


£'000


£'000


£'000




Restated




Restated

Built Environment

674


695


1,161


1,309

Water

1,104


794


1,902


1,494


1,778


1,489


3,063


2,803









There were no impairment losses recognised in respect of property, plant and equipment.


 

All of the above relates to continuing operations and arose in the United Kingdom.

 

 

 

5.

Revenue from contracts with customers


The following table shows the Group's revenue from contracts with customers, disaggregated into major classes of revenue and reconciled to the amount of revenue reported for the Group's reportable segments (Note 4).

 



Six Months Ended 30 June 2018

 


Built Environment


Water


Total

 


£'000


£'000


£'000

 

Construction

21,880


-


21,880

 







 

Highways

13,885


-


13,885

 







 

Telecommunications

13,021


-


13,021

 







 

Nomenca

-


32,150


32,150

 







 

NMCNomenca

-


79,923


79,923

 







 


48,786


112,073


160,859

 



 

 




 



Six Months Ended 30 June 2017

 


Built Environment


Water


Total

 


£'000


£'000


£'000

 


Restated


Restated


Restated

 

Construction

11,201


-


11,201

 







 

Highways

21,266


-


21,266

 







 

Telecommunications

18,039


-


18,039

 







 

Nomenca

-


27,014


27,014

 







 

NMCNomenca

-


57,628


57,628

 







 


50,506


84,642


135,148

 

Revenues of approximately £79,044,000 (2017: £55,483,000) within the Water segment were derived from a single external customer.

 

 

 

 

6.

Earnings per share

 

 


The basic and diluted earnings per share are the same and have been calculated on profits of £2,035,000 (2017 restated: profits of £993,000) and a weighted average number of shares in issue of 10,150,000 (2017: 10,150,000).

 

 



 

 

7.

Taxation

 

 


In respect of the six months ended 30 June 2018, the corporation tax effective rate was 19% (2017: 19.5%). A corporation tax provision has been included in relation to the taxable profits of the Company.

 

 


 

 

 

 

8.

Dividends

 

 


Amounts recognised as distributions to equity holders in the half year:-

 

 



Six Months to 30 June

 

 



2018


2017

 

 



£'000


£'000

 

 


Final dividend for the year ended 31 December 2017 of 3.0p (2016: 3.0p) per share.

305


303

 

 






 

 


The Directors propose an interim dividend of 6.0p (2017: 3.0p) per share, total £609,000 (2017: £305,000), which will be paid on 14 September 2018 to the shareholders on the register at 17 August 2018.

 

 

9.

Related parties


The Group's related parties are key management personnel who are the executive directors, non-executive directors and divisional leaders.






10.

Contingent liabilities


Lloyds Bank PLC, Aviva Insurance Limited and HCC International Insurance Co. Ltd have given Performance Bonds to a value of £8,654,000 (2017: £9,360,000) on the Group's behalf.  These bonds have been made with recourse to the Group.



11.

Seasonality


The Group's activities are not subject to significant seasonal variations.



12.

Principal risks and uncertainties


The Board consider the principal risks and uncertainties relating to the Group for the next six months to be the same as detailed in the last Annual Report and Accounts to 31 December 2017.



13.

Responsibility Statement of the Directors in respect of the half-yearly financial report


We confirm that to the best of our knowledge:




·           

the condensed set of financial statements, which has been prepared in accordance with IAS 34 and the ASB's 2007 statement of Half Year Reports, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;





·           

the interim management report includes a fair review of the information required by:






(a)

DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and







(b)

DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

 

J Homer

Chief Executive

 


D A Taylor


Group Finance Director


9 August 2018

 




 

 

 


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