REGISTERED NUMBER: SC552369 (Scotland)

Group Strategic Report,

Report of the Directors and

Consolidated Financial Statements

for the Year Ended 31 December 2025

for

Burns Construction Holdings Ltd

Page

Company Information

1

Group Strategic Report

2

Report of the Directors

3

Report of the Independent Auditors

4

Consolidated Statement of Comprehensive Income

8

Consolidated Balance Sheet

9

Company Balance Sheet

10

Consolidated Statement of Changes in Equity

11

Company Statement of Changes in Equity

12

Consolidated Cash Flow Statement

13

Notes to the Consolidated Cash Flow Statement

14

Notes to the Consolidated Financial Statements

15

DIRECTORS:

Mr G Bruce

Mr K McPhee

REGISTERED OFFICE:

252 Union Street

Aberdeen

AB10 1TN

REGISTERED NUMBER:

SC552369 (Scotland)

AUDITORS:

SBP

Accountants and

Registered Auditors

42 Queens Road

Aberdeen

AB15 4YE

The directors present their strategic report of the company and the group for the year ended 31 December 2025.

PRINCIPAL ACTIVITIES

The group is still privately owned and operates principally in the Northeast of Scotland.

The principal activity continues to be the Maintenance, Renovation and Construction of Commercial and Domestic Property.

REVIEW OF BUSINESS

The group performed well throughout 2025 with final turnover topping off at just over £20 million (2024 - £18m). Positive results were also delivered on the margin front with a gross margin of approximately 14.0% (2024 - 14.7%) resulting in a net margin of 4.2% (2024 -2.9%). Overall, post-tax profit for the financial year of £0.9 million (2024 - £0.5 million) and net assets of £2.0 million (2024 - £1.8m) were recorded.

Our original budget / forecast for 2025 was £18 million with a gross margin of 8% as such we have exceeded our expectations making it another successful year in business.

Group trading for 2026

Following a sustained period of growth within the industry over recent years, we are now beginning to experience a slowdown in market activity. The local economy has softened considerably, with fewer projects being brought to market and a reduction in tender opportunities across our core sectors. In addition, the ongoing challenges within the oil and gas industry, which remains a significant contributor to the regional economy, have negatively impacted business confidence and consumer spending. This has resulted in a more cautious approach to investment and development by both commercial and private clients.

Based on our current order book and forecasted workload, we anticipate turnover for 2026 will reduce to approximately £16 million, with a forecast gross margin of around 6-7%. Whilst this represents a reduction from the record levels achieved in recent years, it remains a healthy level of trading and is reflective of current market conditions rather than any loss of market share or operational performance.

At present, we do not anticipate any significant impact on our core workforce, and we remain committed to retaining our experienced labour and staff resources to ensure we are well positioned when market conditions improve. Although trading conditions are expected to be more challenging during 2026, this does not give rise to significant concern. The substantial growth achieved by the group over recent years has strengthened our financial position and provides a solid platform from which to navigate a softer market.

Furthermore, the anticipated reduction in project workload may present opportunities to diversify our activities and pursue alternative revenue streams, including our own development projects. The group also remains in a strong financial position, with minimal external debt and only hire purchase obligations relating to certain group vehicles. This provides the business with the flexibility and resilience required to manage a period of reduced market activity whilst continuing to pursue strategic growth opportunities.

PRINCIPAL RISKS AND UNCERTAINTIES

The directors regularly review the risks and uncertainties affecting the business to ensure these are monitored and mitigated wherever possible. The key risks are considered to be changes in the economic environment, fluctuations in material pricing and availability of labour.

ON BEHALF OF THE BOARD:

Mr K McPhee - Director

24 June 2026

The directors present their report with the financial statements of the company and the group for the year ended 31 December 2025.

DIVIDENDS

Ordinary dividends were paid amounting to £304,004 (2024 - £235,212). The directors do not recommend payment of a final dividend.

DIRECTORS

The directors shown below have held office during the whole of the period from 1 January 2025 to the date of this report.

Mr G Bruce

Mr K McPhee

Other changes in directors holding office are as follows:

Mr D S Farmer - resigned 3 April 2025

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Group Strategic Report, the Report of the Directors and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

-	select suitable accounting policies and then apply them consistently;

-	make judgements and accounting estimates that are reasonable and prudent;

-	prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's and the group's transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the group's auditors are unaware, and each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the group's auditors are aware of that information.

AUDITORS

The auditors, SBP, will be proposed for re-appointment at the forthcoming Annual General Meeting.

ON BEHALF OF THE BOARD:

Mr K McPhee - Director

24 June 2026

Opinion

We have audited the financial statements of Burns Construction Holdings Ltd (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2025 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated Cash Flow Statement and Notes to the Consolidated Cash Flow Statement, Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

-	give a true and fair view of the state of the group's and of the parent company affairs as at 31 December 2025 and of the group's profit for the year then ended;

-	have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

-	have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and the parent company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Other information

The directors are responsible for the other information. The other information comprises the information in the Group Strategic Report and the Report of the Directors, but does not include the financial statements and our Report of the Auditors thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

-	the information given in the Group Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and

-	the Group Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Group Strategic Report or the Report of the Directors.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

-	adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

-	the parent company financial statements are not in agreement with the accounting records and returns; or

-	certain disclosures of directors' remuneration specified by law are not made; or

-	we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the Statement of Directors' Responsibilities set out on page three, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a Report of the Auditors that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. We exercised professional judgement and maintained professional scepticism throughout the audit.

The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

In identifying and assessing the risk of material misstatement due to non-compliance with laws and regulations we have:

- Ensured that the engagement team had the appropriate competence, capabilities and skills to identify or recognise non-compliance with laws and regulations;

- Identified the laws and regulations applicable to the entity through discussions with directors and management and

through our own knowledge of the sector;

- Focussed on the specific laws and regulations we consider may have a direct effect on the financial statements,

including FRS102, the Companies Act 2006 and tax compliance regulations;

- Reviewed the financial statement disclosures and tested to supporting documentation to assess compliance with

applicable laws and regulations;

- Made enquiries of management and inspected legal correspondence;

- Ensured the engagement team remained alert to instances of non-compliance throughout the audit; and

- Focussed on the specific laws and regulations we consider may have an indirect effect on the financial statements that are central to the entity's ability to trade including those relating to employees, and health and safety.

In identifying and assessing the risk of material misstatement due to irregularities, including fraud and how it may occur, and the potential for management bias and the override of controls we have:

- Obtained an understanding of the entity's operations, including the nature of its revenue sources, to understand the

classes of transactions, account balances, expected financial disclosures and business risks that may result in risk of material misstatement;

- Vouched balances and reconciling items in key control account reconciliations to supporting documentation;

- Carried out detailed testing, on a sample basis, to verify the completeness, validity, existence, occurrence and accuracy of income including cut-off testing and ensuring income recognition is in line with stated accounting policies;

- Made enquiries of management as to where they consider there was a susceptibility to fraud, and their knowledge of any actual, suspected or alleged fraud;

- Tested journal entries to identify any unusual transactions;

- Performed analytical procedures to identify any significant or unusual transactions;

-Investigated the business rationale behind any significant or unusual transactions; and

- Evaluated the appropriateness of accounting policies and the reasonableness of accounting estimates.

We did not identify any matters relating to non-compliance with laws and regulations, or relating to fraud.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our Report of the Auditors.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Ronnie Birnie, FCCA (Senior Statutory Auditor)

for and on behalf of SBP

Accountants and

Registered Auditors

42 Queens Road

Aberdeen

AB15 4YE

24 June 2026

Statutory Auditors

TURNOVER

4

20,371,074

17,640,641

Cost of sales

17,527,511

15,047,676

GROSS PROFIT

2,843,563

2,592,965

Administrative expenses

1,684,190

1,871,092

OPERATING PROFIT

7

1,159,373

721,873

Interest receivable and similar income

8

14,929

15,035

1,174,302

736,908

Interest payable and similar expenses

9

19,365

15,452

PROFIT BEFORE TAXATION

1,154,937

721,456

Tax on profit

10

290,245

216,532

PROFIT FOR THE FINANCIAL YEAR

864,692

504,924

OTHER COMPREHENSIVE INCOME

Share buyback

(402,000

)

-

Income tax relating to other comprehensive income

-

-

OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF INCOME TAX

(402,000

)

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

462,692

504,924

Profit attributable to:

Owners of the parent

864,692

504,924

Total comprehensive income attributable to:

Owners of the parent

462,692

504,924

FIXED ASSETS

Intangible assets

13

-

-

Tangible assets

14

311,281

325,259

Investments

15

-

-

311,281

325,259

CURRENT ASSETS

Stocks

16

67,436

232,449

Debtors

17

3,273,924

2,614,658

Cash at bank and in hand

3,171,731

3,367,993

6,513,091

6,215,100

CREDITORS

Amounts falling due within one year

18

4,690,731

4,530,912

NET CURRENT ASSETS

1,822,360

1,684,188

TOTAL ASSETS LESS CURRENT LIABILITIES

2,133,641

2,009,447

CREDITORS

Amounts falling due after more than one year

19

(68,621

)

(99,842

)

PROVISIONS FOR LIABILITIES

22

(77,820

)

(81,093

)

NET ASSETS

1,987,200

1,828,512

CAPITAL AND RESERVES

Called up share capital

23

40,001

47,044

Capital redemption reserve

24

16,339

9,296

Retained earnings

24

1,930,860

1,772,172

SHAREHOLDERS' FUNDS

1,987,200

1,828,512

The financial statements were approved by the Board of Directors and authorised for issue on 24 June 2026 and were signed on its behalf by:

Mr G Bruce - Director

FIXED ASSETS

Intangible assets

13

-

-

Tangible assets

14

-

-

Investments

15

1,260,000

1,260,000

1,260,000

1,260,000

CURRENT ASSETS

Cash at bank

1,008,574

784,183

CREDITORS

Amounts falling due within one year

18

1,483,320

856,756

NET CURRENT LIABILITIES

(474,746

)

(72,573

)

TOTAL ASSETS LESS CURRENT LIABILITIES

785,254

1,187,427

CAPITAL AND RESERVES

Called up share capital

23

40,001

47,044

Capital redemption reserve

16,339

9,296

Retained earnings

728,914

1,131,087

SHAREHOLDERS' FUNDS

785,254

1,187,427

Company's profit for the financial year

303,831

234,908

The financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies regime.

The financial statements were approved by the Board of Directors and authorised for issue on 24 June 2026 and were signed on its behalf by:

Mr G Bruce - Director

Called up

Capital

share

Retained

redemption

Total

capital

earnings

reserve

equity

£

£

£

£

Balance at 1 January 2024

47,044

1,502,460

9,296

1,558,800

Changes in equity

Dividends

-

(235,212

)

-

(235,212

)

Total comprehensive income

-

504,924

-

504,924

Balance at 31 December 2024

47,044

1,772,172

9,296

1,828,512

Changes in equity

Reduction in share capital

(7,043

)

-

7,043

-

Dividends

-

(304,004

)

-

(304,004

)

Total comprehensive income

-

462,692

-

462,692

Balance at 31 December 2025

40,001

1,930,860

16,339

1,987,200

Called up

Capital

share

Retained

redemption

Total

capital

earnings

reserve

equity

£

£

£

£

Balance at 1 January 2024

47,044

1,131,391

9,296

1,187,731

Changes in equity

Dividends

-

(235,212

)

-

(235,212

)

Total comprehensive income

-

234,908

-

234,908

Balance at 31 December 2024

47,044

1,131,087

9,296

1,187,427

Changes in equity

Reduction in share capital

(7,043

)

-

7,043

-

Dividends

-

(304,004

)

-

(304,004

)

Total comprehensive income

-

(98,169

)

-

(98,169

)

Balance at 31 December 2025

40,001

728,914

16,339

785,254

Cash flows from operating activities

Cash generated from operations

1

417,833

1,412,031

Interest paid

(428

)

(678

)

Interest element of hire purchase payments paid

(18,937

)

(14,774

)

Tax paid

(182,329

)

(196,053

)

Net cash from operating activities

216,139

1,200,526

Cash flows from investing activities

Purchase of tangible fixed assets

(153,112

)

(1,243

)

Sale of tangible fixed assets

67,249

17,750

Interest received

14,929

15,035

Net cash from investing activities

(70,934

)

31,542

Cash flows from financing activities

Loan repayments in year

-

(9,322

)

Capital repayments in year

(30,420

)

18,402

Share issue

(7,043

)

-

Equity dividends paid

(304,004

)

(235,212

)

Net cash from financing activities

(341,467

)

(226,132

)

(Decrease)/increase in cash and cash equivalents

(196,262

)

1,005,936

Cash and cash equivalents at beginning of year

2

3,367,993

2,362,057

Cash and cash equivalents at end of year

2

3,171,731

3,367,993

1.	RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS

31.12.25

31.12.24

£

£

Profit before taxation

1,154,937

721,456

Depreciation charges

134,790

120,518

Profit on disposal of fixed assets

(34,949

)

(17,750

)

Finance costs

19,365

15,452

Finance income

(14,929

)

(15,035

)

1,259,214

824,641

Decrease/(increase) in stocks

165,013

(124,962

)

(Increase)/decrease in trade and other debtors

(659,284

)

1,213,743

Decrease in trade and other creditors

(347,110

)

(501,391

)

Cash generated from operations

417,833

1,412,031

2.	CASH AND CASH EQUIVALENTS

The amounts disclosed on the Cash Flow Statement in respect of cash and cash equivalents are in respect of these Balance Sheet amounts:

Year ended 31 December 2025

31.12.25

1.1.25

£

£

Cash and cash equivalents

3,171,731

3,367,993

Year ended 31 December 2024

31.12.24

1.1.24

£

£

Cash and cash equivalents

3,367,993

2,362,057

3.	ANALYSIS OF CHANGES IN NET FUNDS

At 1.1.25

Cash flow

At 31.12.25

£

£

£

Net cash

Cash at bank and in hand

3,367,993

(196,262

)

3,171,731

3,367,993

(196,262

)

3,171,731

Debt

Finance leases

(150,851

)

30,420

(120,431

)

Debts falling due within 1 year

(9,996

)

-

(9,996

)

Debts falling due after 1 year

(11,671

)

10,000

(1,671

)

(172,518

)

40,420

(132,098

)

Total

3,195,475

(155,842

)

3,039,633

1.	STATUTORY INFORMATION

Burns Construction Holdings Ltd is a private company, limited by shares , registered in Scotland. The company's registered number and registered office address can be found on the General Information page.

2.	ACCOUNTING POLICIES

Basis of preparing the financial statements

These financial statements have been prepared in accordance with Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Companies Act 2006. The financial statements have been prepared under the historical cost convention.

The financial statements are prepared in sterling, which is the functional currency of the group. Monetary amounts in these financial statements are rounded to the nearest £.

Basis of consolidation

The consolidated group financial statements consist of the financial statements of the parent company Burns

Construction Holdings Ltd together with all entities controlled by the parent company (its subsidiaries) and the group's share of its interests in joint ventures and associates.

All financial statements are made up to 31 December 2024. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Subsidiaries are consolidated in the group's financial statements from the date that control commences until the date that control ceases.

The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements (to the extent these are applicable):

- Section 7 'Statement of Cash Flows': Presentation of a statement of cash flow and related notes and

disclosures;

- Section 33 'Related Party Disclosures': Compensation for key management personnel.

Going concern

At the time of approving the financial statements, the directors have a reasonable expectation that the group and company have adequate resources to continue in operational existence for at least twelve months from the date of signing the financial statements. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Related party exemption

The company has taken advantage of exemption, under the terms of Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', not to disclose related party transactions with wholly owned subsidiaries within the group.

Transactions between group entities which have been eliminated on consolidation are not disclosed within the financial statements.

Turnover

Turnover represents amounts receivable for goods and services net of VAT.

Revenue from contracts for the provision of services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.

Profit is recognised on construction contracts, if the final outcome can be assessed with reasonable certainty, by including in the statement of comprehensive income turnover and related costs as contract activity progresses. Turnover is calculated as the value of work certified to date. Where the expected outcome of construction contracts is expected to generate a loss, the full expected loss is recognised immediately in cost of sales.

Goodwill

Goodwill represents the excess of the cost of acquisition of a business over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life, which is 10 years.

Goodwill has been fully amortised and there was no amortisation charged in the current financial year.

Tangible fixed assets

Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life or, if held under a finance lease, over the lease term, whichever is the shorter.

Short leasehold

-

10% on cost

Plant and machinery

-

25% on cost

Motor vehicles

-

25% on cost

Impairment of fixed assets

At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Fixed asset investments

Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.

In the parent company financial statements, investments in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

Stocks and work in progress

Stocks and work in progress are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks to their present location and condition.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

Financial instruments

The group has elected to apply the provisions of Section 11 'Basic Financial Instruments' and Section 12 'Other Financial Instruments Issues' of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.

Basic financial assets

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Classification of financial liabilities

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Basic financial liabilities

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Equity instruments

Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.

Taxation

Taxation for the year comprises current and deferred tax. Tax is recognised in the Consolidated Statement of Comprehensive Income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

Current or deferred taxation assets and liabilities are not discounted.

Current tax is recognised at the amount of tax payable using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date.

Timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements. Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the yearyear end and that are expected to apply to the reversal of the timing difference.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Employee benefits

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received.

Termination benefits are recognised immediately as an expense when the group is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Hire purchase and leasing commitments

Assets obtained under hire purchase contracts or finance leases are capitalised in the balance sheet. Those held under hire purchase contracts are depreciated over their estimated useful lives. Those held under finance leases are depreciated over their estimated useful lives or the lease term, whichever is the shorter.

The interest element of these obligations is charged to profit or loss over the relevant period. The capital element of the future payments is treated as a liability.

Pension costs and other post-retirement benefits

The group operates a defined contribution pension scheme. Contributions payable to the group's pension scheme are charged to profit or loss in the period to which they relate.

Cash and cash equivalents

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.