TClarke plc - Results for the year ended 31^st December 2020

TClarke Announces Ambitious Business Plan to Deliver £500m Annual Revenue

TClarke plc ("the Group" or "TClarke"), the Building Services Group, announces its preliminary results for the year ended 31^st December 2020.

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

Mark Lawrence, CEO commented

"We faced challenges last year like no other but throughout the team here at TClarke stayed focused and demonstrated that the business is strong, resilient, and capable of delivering whatever the circumstances.  The biggest asset we have at TClarke is our people. I want to thank them all for their professionalism and hard work during the period

As we look forward the opportunities for growth before us are of a considerable scale, we are extremely well positioned to take advantage of opportunities particularly in Data Centres, Healthcare and Smart Building Technologies.

We have set ourselves an ambitious three year plan of £500m revenues; 2021 marks an exciting new chapter in the evolution of TClarke."

-ends-

Date: 24^th March 2021

For further information contact:

Chairman's Statement

In common with many businesses throughout the UK, TClarke faced significant and unprecedented challenges in 2020. It is therefore particularly pleasing that TClarke has remained profitable and our average daily net cash balance was positive throughout 2020. It is also a year in which emerging opportunities for top line growth allows us to announce a three year plan to deliver £500m of revenue whilst maintaining our margins.

We delivered our underlying operating margin target of 3% in the first quarter and in the second half of the year. In the second quarter, at the height of the national lockdown, we achieved a breakeven performance at the operating level, which was an outstanding performance given the significant impact this had on our sector through site closures and major client driven project delays and reschedules.

Swift and effective management responses and actions in response to the pandemic have positioned us strongly for the future. Our forward order book stands at a record £456m, an increase of 13% on the year. This increase is not represented by work delayed from 2020. It results from new projects, many from existing clients who value our stability, our relationship with them, and our proven ability to deliver quality.

Our strategy of strengthening our core Engineering Services markets while building and developing our capabilities in key areas of technology and infrastructure is succeeding. This was a major factor in our 2020 performance. Importantly, however, it puts us in a very strong position as we move into 2021 and beyond.

TClarke is very aware of the importance of our dividend stream to shareholders and investors. We continue to be fully committed to a progressive dividend policy and continue to focus on our ability to ensure dividend streams are maintained, while at the same time balancing the needs and interests of all stakeholders. We fully maintained our final and interim dividend payments in 2020 and we are proposing a 2020 final dividend of 3.65p per share - maintaining our 2019 dividend level.

It is particularly important that we continue to grow and develop the skills of all our people. Our people are our future. It is heartening to note the leadership's continued support for 199 apprentices across the Group and the decision to welcome a new cohort of apprentices during summer 2020. These are not small investments - but they are made with long-term belief in our company.

As I look forward into 2021 and beyond, I am optimistic. TClarke is very strongly placed to continue to grow and deliver outstanding performance and results. This comes from the success of its strategies and deliveries, the quality of its products, services and methods, and from the strength and depth of its client relationships.

However, the biggest strength and asset we have as we move forward is our people. Their outstanding achievements this year have allowed us to take a positive stance and deliver as a business, and I want to thank them all for their professionalism and hard work during the period.

Iain McCusker

Chairman

24th March 2021

Chief Executive's Report

Demonstrating Ambition - Setting Attainable Growth Targets

It is my pleasure to reflect on 2020, a year like no other.  I feel a great sense of pride in what we have achieved.  We faced challenges as our business operations and supply chains were disrupted and normal work routines and social structures were interrupted.   However, we have stayed focused and demonstrated that the business is strong, resilient, and capable of delivering for all our stakeholders whatever the circumstances.  None of this would have been possible without the dedicated contributions of our employees all of which have played their part and without whom we would not have been able to navigate this challenging year, our people remain one of the unique factors that we have at TClarke.

2020 Apprentice Intake Underlines our Positive Outlook

Across the UK we welcomed 22 new apprentices to our business - making the decision to do so during the height of uncertainty in the first lockdown - when it would have been very easy indeed to do otherwise. This continued investment in new talent ensures we can repeat our successes in the years to come.

Ambitious Business Plan to Deliver £500m Annual Revenue

As we enter 2021 the Board has set itself an ambitious strategically backed three-year plan to deliver £500m annual revenues supported by a year end record forward order book of £456m: £288m for 2021 and £168m for 2022 and beyond. The growth in our order book is an important step in our plan to deliver growing revenue targets whilst maintaining margins and continuing to reward our shareholders.

As a UK wide, specialist engineering company with market leading capabilities we focus in five key sectors:
• Infrastructure

• Residential and Hotels

• Facilities Management

• Engineering Services

• Technologies

Our strategy for growth is very straightforward, a business led by people empowered to deliver. Building upon long term relationships, leading to continuous repeat business which is as close to achieving reoccurring revenues as is possible in our markets.

Being focused on excellence in delivery enables us with confidence to be ambitious in setting this revenue target for the Group. The five sectors we focus on are made up of our established business strengths to which we have supplemented with additional skill sets to ensure we can offer the complete engineered solution whatever the project, delivered in the most effective and advantageous way using the best technologies.

Expanded Potential Market Creates Headroom for Growth

Our growth potential is a result of previous investments in our offering and in the business as a whole, the broader opportunities available to TClarke are now permanently greater. The mechanical division of our Engineering Services has doubled its revenues in recent years with the flagship project KGX1 at Kings Cross well underway. At completion over 70% of the project will have been designed and prefabricated off site. Our technology business is already contributing 14% of turnover.

The range of potential packages available to TClarke within a major project has grown significantly and with the business less dependent on the traditional contracting sectors, by way of illustration providing 1.275 million sq ft of flexible workspace the recently completed 22 Bishopsgate project offers a clear picture of this effect and shows the sensible additional headroom we can grow into going forward.

Five Strong Sectors - Growth Opportunities

Our potential for growth to meet our ambitions is clear. The opportunities before us are of a considerable scale led by an effective Group which, fit our high-quality engineering skillset.  We illustrate some examples below.

Infrastructure

We are extremely well positioned in the key growth sector of healthcare. This sector requires complex, technical engineering solutions and in 2020 we secured further projects to underpin our capacities.

Our selection for £40m of healthcare packages in the South West is one of the very first to be announced from the Government's £3.7bn ten-year, Health Infrastructure Plan, is a major success for the business. We know that we are one of a handful of UK companies with the scale and skillset to deliver these projects.

As our healthcare teams engage with the NHS at national level, we also hold four strategic advantages:

1) 70% Offsite Manufacture Target - The NHS target of using modern construction methods in the HIP projects is heavily focused on offsite manufacture. Our in house DfMA (Design for Manufacturing and Assembly) capability is therefore of huge importance.

2) Smart and Digital Buildings - Our exclusive partnerships with leading smart buildings software providers, gives us the potential to be a clear industry leader in smart hospitals - once again this represents a major advantage for us.

3) Net Zero Carbon Target - The Government pledge to achieve this target by 2050 means that all these hospitals will need to achieve net zero or be a long way down the road in doing so. Our current work on the most technically advanced large scale Passivhaus (low energy) project in the country in Exeter is therefore another major advantage.

4) Adaptability for Future - Taken together, our longevity in healthcare construction, current leadership in smart and sustainable large buildings, and overall group demonstration of innovation in the sector provide a very strong and under this heading too.

As well as the vast potential of healthcare, we are also very strong in education. We have delivered 49 projects in this sector in 2020 (previously on the EFA, and now the ESFA Framework) and have secured a further 25 projects commencing in 2021.

Our confidence for future opportunities was bolstered with the government's announcement for a further £1bn funding for a further round of 50 schools for the medium term.

Residential and Hotels

Our Scotland team reported highly buoyant residential markets in 2020, with a record 2,500 new homes already secured for 2021. They went on to win their largest residential project ever - a first phase of 170 new homes - at the 1,000 home £250m Northbridge development. One of the direct benefits of increased agility is our confidence within the regional residential markets where the work of our regional teams has shown we can deliver large scale residential   successfully from every point of view. As a result, the group is actively evaluating large scale residential opportunities across the UK with our long-term house building partners in areas we currently under-serve.

The Group is immensely proud of the range and calibre of hotel projects we are involved with, current landmark schemes include The Peninsula Hotel at Hyde Park Corner and the Pan Pacific Hotel, in the City of London. For future opportunities in London, 19 hotel schemes with 2,891 rooms are under development for 2022 and another 37 are in the pipeline for 2023, bringing an extra 6,993 rooms.

Facilities Management

We provide market-leading in-house Facilities Management (FM) expertise in a complete range of mechanical and electrical specialisms from chilled water systems and BMS controls to fire safety systems and air handling plants. Our in-house teams provide preventative services to address legislation, manufacturer recommendations, best practice and specific client needs. We also provide 24/7 call-out services nationwide.

FM delivers sustainable reoccurring revenues and margins with minimal risks. FM also allows us to leverage the power of our Group-wide, directly employed expert resource to deliver a unique range of specialist M&E services for the FM industry.

Engineering Services

Our core Engineering Services has won major new London landmark office projects including:

•             8 Bishopsgate, City of London

•             Bankside Yards, Southwark

•             Facebook, Kings Cross

•             Gateway Central, White City

•             Ruskin Square, Croydon

A key part of our strong performance across all sectors has been our advanced offsite DfMA manufacturing facility at Stansted. This capability and expertise in prefabricating and modularising large Engineering Services of all kinds for precision installation within a building, is increasingly the key to our winning and delivering major projects - it has become exactly the strategic advantage we hoped it would be.

Outside of London the news has been just as encouraging. Having identified the North West as a strong market for our Engineering Services offering and setting up in Liverpool and Manchester, in 2020 we won our first major project - the £3.5m Royal College of Physicians, in Liverpool.

In the South West we are underway with Britain's most advanced and ambitious large scale Passivhaus development - St Sidwell's Leisure Centre, Exeter - whilst in parallel resource and engineering expertise helped design and deliver the Exeter NHS Nightingale hospital in just six weeks. Just a couple of examples highlighting our regional engineering expertise, quality work and resource scale.

Technologies

The opportunity is just as exciting in data centres. This is a worldwide growth sector.

Data consumption is ever increasing, and we forecast a decade long boom in the requirement of data centre capacity ahead of us to deliver the fully digital world we are moving into, driven by enterprise cloud and software utilities, office productivity and file storage as well as e-commerce, social networking, streaming video services, gaming, and mobile apps.

The engineering of data centre requires specialists' skills which we possess to not only deliver complex designs but to demanding timescales. Moreover, our strengthening relationships with some of the biggest hyperscalers in the global industry will ensure we have the ability to secure the most high-profile schemes.

This growth of opportunity within the UK data centre market means that there is more potential for us here than we reported last year, whilst continuing to actively evaluate options in Europe, alongside our global partners.

Market data shows 39 current large data centre projects in the UK with a construction value of £1.35bn. TClarke currently has live opportunities on four significant schemes in the South East.

Good Governance

The feedback from many of our customers is that the levels of corporate governance, risk management and transparency that come with our public listing and the 'TClarke Way' of working are also of considerable competitive value. This is a significant factor in the selection process - particularly for the major projects we target.

Outlook and Summary

In summary having secured such a strong order book at this early stage of the year gives the Board strong confidence for the year ahead. Following a slightly slower start we expect revenues and profit to build rapidly throughout the course of the second half of the year as our recently secured projects gain momentum.

We remain focused on delivering results for all our stakeholders and have the capacity and depth of expertise to expand to successfully meet our ambitious goal of £500m revenues, 2021 marks an exciting new chapter in the evolution of TClarke.

Mark Lawrence

Group Chief Executive Officer

24th March 2021

Group Financial review

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.

Performance

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

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

Forward Order Book comprises jobs which are secured through contracts or letters of intent.

London

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.

UK South

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.

UK North

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.

Pension obligations

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.

Accounting policies

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.

Trevor Mitchell

Finance Director

24th March 2021

Consolidated income statement

for the year ended 31st December 2020

Consolidated statement of comprehensive income

for the year ended 31st December 2020

Consolidated statement of financial position

as at 31st December 2020

Consolidated statement of cash flows

for the year ended 31st December 2020

Consolidated statement of changes in equity

for the year ended 31st December 2020

Notes to the preliminary financial information

Note 1 - Basis of preparation

TClarke plc is a public limited company listed on the London Stock Exchange, incorporated and domiciled in the United Kingdom. The nature of the Group's operations and its principal activities is providing electrical and mechanical contracting and related services to the construction industry and end users. The Company is limited by shares.

This preliminary financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority, and the principles of international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards ("IFRS") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and has been prepared on a going concern basis under the historic cost convention as modified by the revaluation of land and buildings.

This preliminary financial information does not constitute the statutory financial statements of the Group. The financial statements themselves were approved by the Board on 24^th March 2021. The report of the auditor on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. The Annual Report and Financial Statements will be filed with the Registrar in due course.

Note 2 - Significant judgements and sources of estimation uncertainty

The preparation of this financial information 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 financial information are set out below. 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.

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.

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.

Impairment of goodwill and investments

Determining whether goodwill is impaired requires an estimation of the value in use of the operating segments giving rise to the goodwill, including the estimation of the timing and amount of future cash flows generated by the operating segment and a suitable discount rate. 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 7, 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.

Note 3 - Segment information

(i) 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 three regional divisions: London, UK South and UK North, reporting to the Board who represent the "Chief Operating Decision-Maker" as per IFRS 8. The measurement basis used to assess the performance of the divisions is underlying operating profit, stated before amortisation of intangible assets and other non-underlying items.

This segmentation differs from that which was present in the most recent annual financial statements in which there were four geographical segments. Prior period information has been restated in accordance with the current reporting segment lines.

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 1. Segmental information is based on internal management reporting.

(ii) Segment information and revenue analysis - year ended 31st December 2020

(iii) Segment information and revenue analysis - year ended 31st December 2019

Note 4 - Taxation

The main rate of UK corporation tax will remain at 19% on 1 April 2021. The Government has recently announced that a main rate of corporation tax of 25% will be effective from 1 April 2023, and will be substantively enacted once the Finance Bill 2021 has received Royal Assent.

Note 5 - Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of Ordinary shares in issue during the year.

(ii) 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.

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.

(iii) Underlying earnings per share

Underlying earnings per share represents profit for the year adjusted for amortisation of intangible assets and other non-underlying 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.

Note 6 - Dividends

The Directors are proposing a final dividend of 3.65p (2019: 3.65p) per ordinary share totalling £1.6 million (2019: £1.6 million). The dividend has not been accrued at the reporting date.

Subject to approval at the Annual General Meeting, the final dividend will be paid on 21st May 2021 to shareholders on the register as at 23th April 2021. The shares will go ex-dividend on 22rd April 2021. This dividend has not been accrued at the balance sheet date. A dividend reinvestment plan 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 2020 final payment, may do so by contacting Link Asset Services on 0371 664 0381. The last day for election for the final dividend reinvestment is 30th April 2021.

Note 7 - Pension commitments

The present value of the defined benefit obligation, the related current service cost and the past service cost were measured using the projected unit credit method. The amounts recognised in the consolidated statement of financial position are as follows:

Key assumptions used:

Note 8 - Notes to the statement of cash flows

(i) Reconciliation of operating profit to net cash (outflow)/inflow from operating activities

(ii) 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.

Net cash after deducting total borrowings was as follows:

Note 9 - Related party transactions

(i) Directors' remuneration

Further disclosures, including details of the highest-paid Director, are included in the Directors' remuneration report on pages in the latest annual report.

(ii) Key management remuneration

Compensation payable to key management for employee services is shown below. Key management represents members of the Group Management Board (excluding Directors).

Transactions between the Company and its subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There were no other related party transactions requiring disclosure.

Note 10 - Annual General Meeting

The 109^th Annual General Meeting will be held at the Company's Head Office, 45 Moorfields London, EC2Y 9AE on Wednesday 5^th May 2021 at 10.00 am.