Group Finance Director’s Review
24/3/21 : The Group has shown its strength and resilience in the most difficult of years. Underlying operating profit was maintained at 3% in Q1 2020; broke even in the face of a 50% drop in revenue Q2 versus Q1; returning to 3% for H2. Underlying earnings per share were 10.29p. TClarke paid its 2019 final dividend in full in July 2020 and maintained its level of interim dividend.
TClarke remains financially secure; Average daily net cash remained positive throughout 2020 and in addition the Group has £25million of bank facilities at its disposal. The £15 million RCF facility has been extended to August 2024 on its normal terms. The Group has not needed to apply for any of the COVID-19 loan schemes.
The Group remained profitable for the year ended 31st December 2020 in spite of all the challenges resulting from the COVID-19 pandemic. Underlying operating profit was £6 million (2019 £10.2 million) at a time when turnover fell to £231.9 million (2019: £334.6 million). The reduction in turnover was the result of site closures or sites operating with much reduced numbers be-tween mid March and end of July.
The Group undertook a swift restructuring programme to protect the health of the business. The cost of the programme was £3.7m accounted for in non underlying items. The programme has reduced the Group’s cost base by in excess of £4 million per annum; 2020 results have benefited by £2.5m of these savings.
Overall TClarke reported a statutory operating profit of £2.1 million before interest and tax (2019: £10.0 million).
Finance costs fell to £0.9 million (2019: £1.0 million) Finance costs comprise: £0.3 million bank interest (2019: £0.2 million); a reduction in the Group’s defined benefit pension scheme interest charge of £0.2 million to £0.5 million (2019: £0.7 million) and an interest charge of £0.1 million arising from IFRS 16 (2019: £0.1million).
There is no tax charge for the year. (2019: £1.2 million). This was primarily due to prior year tax adjustments.
TClarke maintains an open and transparent working relationship with HMRC.
The Board is proposing a final dividend of 3.65p (2019: 3.65p), maintaining the 2019 dividend level. Total dividend for the year therefore remains at 4.4p (2019: 4.4p). The dividend is covered 2.2 times by underlying earnings. TClarke recognises that many of its shareholders invest for dividends.
We move into 2020 with a forward order book at £456 million (2019: £403 million) providing excellent revenue visibility.
Summary of financial performance
|Profit before tax||
|Profit after tax||
|Profit for the year||1.2||7.8|
|Earnings per share||
|Dividend per share||4.4p||4.4p|
1. Underlying operating profit, profit before tax and operating margin are stated before amortisation of intangible assets and restructuring costs.
2. Underlying earnings per share is calculated by dividing underlying profit after tax by the weighted average number of shares in issue.
3. Dividend per share represents the interim and final dividend proposed or paid for the year in question.
Forward Order Book
|Residential & Hotels||115.1||110.0||5%|
Forward Order Book comprises jobs which are secured through contracts or letters of intent.
Revenue from our London operations fell to £134.6 million (2019: £201 million). The fall in revenue was as a direct result of some large London sites remaining closed during the first national lockdown until a safe method of working could be established. These sites opened during the second half of 2020 and remain open. London generated an underlying operating profit of £4.9 million (2019: £8.2 million). Underlying operating margin was 3.6% (2019: 4.1%).
For 2021 the region is engaged on a number of high-profile shell and core commercial and hotel developments all of which offer future fit-out opportunities. A number of areas continue to be regenerated and offer large -scale mixed commercial and residential opportunities such as the International Quarter London, Battersea Power Station, Kings Cross and the area of Bishopsgate, London.
London is currently working on some key data centres and is also bidding a number of data centre opportunities both in the UK and Europe.
In addition, TClarke has an exclusive contract to sell, install and maintain the Gooee suite of products offering both initial and recurring revenue streams.
Revenue from UK South fell by 17% to £55.1 million (2019: £66.3 million) but the focus on higher-quality projects has resulted in an underlying operating profit of £2.7 million (2019: £3.6 million) giving rise to an underlying operating margin of £4.9% (2019: 5.4%). The region has developed a high-quality customer base providing a significant quantity of repeat business.
The region is particularly strong in Infrastructure with many projects being undertaken in defence, education and healthcare. Of particular note TClarke delivered the Exeter Nightingale Hospital in 6 weeks during May and June 2020.
Our established FM operation in Birmingham is performing well and has a pipeline of opportunities, many with repeat customers.
Revenue fell to £42.2 million (2019: £67.3 million), in part the result from Scotland being unable to work on any sites for a number of months. UK North generated an underlying operating profit of £0.7m million (2019: £1.4 million) in spite of the site closures. Underlying operating margin was 1.7% (2019: 2.1%). Within the region, Scotland’s residential work performed well in the latter part of the year; a number of educational projects were delivered by the Leeds office and our recently opened offices in Manchester is well on the way to completing its first major project.
The triennial valuation of the pension scheme at 31st December 2018 showed a deficit of £24.9 million, representing a funding level of 59% (2015 valuation: deficit £14.9 million, funding level 67%). The principal reason for the increase in deficit is the fall in long-term interest rates over the period.
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 agreement of the 2018 valuation, the Group has agreed to continue the deficit reduction contributions of £1.5 million per annum. The recovery plan period is 12 years. The Group continues to provide security to the pension scheme in the form of a charge over property assets up to a combined market value of £3.1 million.
From 1st April 2020 the future service contribution increased to 22.4% of pensionable payroll (including employee contributions). Employee contributions increased from 10% to 12% from 1 July 2020.
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 loss net of tax of £4.8 million (2019: loss of £5.7 million), has been recognised in reserves, with the pension scheme deficit rising by £3.8 million to £30.2 million (2019: £26.4 million).
Cash flow and funding
Cash balances totalled £25.2 million at 31st December 2020 (2019: £12.4 million). £15 million RCF was drawdown at 31 December 2020 (2019: Nil) resulting in net cash of £10.2 million (2019: £12.4 million).
The Group has a £15.0 million revolving credit facility, which is committed until 31st August 2024, and a £10.0 million overdraft facility, renewable annually and repayable on demand. Interest on overdrawn balances is charged at 2.0% above base rate, and interest on balances drawn down under the revolving credit facility is charged at 1.7% above LIBOR, fixed for the duration of each drawdown. The Group was compliant with the terms of the facilities throughout the year ended 31st December 2020 and the Board’s detailed projections demonstrate that the Group will continue to meet its obligations in the future.
The Board’s detailed cash flow projections include an allowance for the impact of a change in the VAT regime from 1st March 2021. From this date the Government has introduced a VAT domestic reverse charge for building and construction services. Under this scheme TClarke will continue to charge VAT to end customers but will no longer be able to charge VAT to contractors and will not pay VAT on costs incurred with subcontractors.
The Board’s projections show that TClarke is expected to maintain a healthy cash position throughout the next three year period.
The Group also has in place £40.1 million of bonding facilities (2019: £40.1 million), of which £27.0 million were unutilised at 31st December 2020 (2019: £21.7 million).
Net assets and capital structure
The Group is funded by equity capital, retained reserves and bank facilities, and there are no plans to change this structure. Shareholders’ equity is £15.7 million (2019: £22.9 million).
Goodwill and intangible assets were £25.3 million (2019: £25.5 million). The Board has undertaken a rigorous impairment review in respect of the intangible assets at 31st December 2020 and concluded that no impairment is necessary.
The Group’s consolidated financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. There have been no new Accounting policies adopted in the year.
Financial risk management
The Group’s main financial assets are contract and other trade receivables, 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.
24th March 2021