Interim Results

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

For further information:-

John Homer, Chief Executive

Daniel Taylor, Group Finance Director

01623 515008

North Midland Construction PLC

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

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

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

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