THE YORKSHIRE REPORT 2012 HOW DID YORKSHIRE DO?

Aggregated accounts for the regions top 150 companies

The Yorkshire Report 2012

Highlights

NOT BAD AT ALL... BUT THERE ARE CHALLENGES AHEAD

CURRENT 83.8BN 79.7BN 2.25BN 1.25BN 0.94BN 469,000 460,000 PRIOR 4.5BN 3.5BN 2.4BN 3.1BN 1BN DIVIDEND

REVENUE

PROFIT AFTER TAX

OPERATING PROFIT

INVESTMENT IN PROPERTY PLANT AND EQUIPMENT

NO OF EMPLOYEES

The Yorkshire Report 2012 1

WELCOME

CONTENTS 02 Chairmans View 04 Finance Directors Review 06 Funding & Gearing 08 M&A

INTRODUCING THE YORKSHIRE REPORT 2012 PREPARED BY BDO TAKING THE REGIONS TEMPERATURE, EXAMINING ITS HEALTH AND DIAGNOSING THE BEST COURSE OF TREATMENT.
This is the sixth edition of our regional annual report, compiling the latest published accounts of Yorkshires top 150 companies and aggregating the figures to create a barometer of economic health for our region. We identified the top 150 companies by revenue (as outlined on page 22). Prior-year figures are based on the top 150 in our previous Yorkshire Reports. As the composition of the top 150 has changed, year-on-year comparisons may not be like-for-like. We refer collectively to the top 150 companies in either year as the Group throughout the report.

10 Business Restructuring 12 Fraud & Forensics 14 Tax 16 Outlook 18 2012 Hot Topic: Sustainability 20 Company Profile 22 Financial Information 38 Basis of Preparation 40 The Team 41 The 150 Group Companies

16m
THE CONSTRUCTION SECTOR LOST 16M IN THE PERIOD BUT THIS REPRESENTS A RECOVERY COMPARED TO 84M LOSS IN YR 2011 AND THE CARNAGE OF 533M LOSS OF THE PREVIOUS PERIOD

2 The Yorkshire Report 2012

Chairmans view

BOUNCING BACK
WITH PROFITS AND REVENUE UP, THE GROUP APPEARS TO BE FIRMLY BACK ON ITS FEET. NOW ITS TIME TO TAKE THE NEXT STEP.

YORKSHIRES ABILITY TO DELIVER A SECOND CONSECUTIVE YEAR OF STRONG PROFIT GROWTH IS CAUSE FOR CELEBRATION. INDEED, THE REGION ADDED ANOTHER TROPHY TO ITS CABINET THIS YEAR. IN WHAT HAS PROVED A TOUGH CLIMATE FOR GROWTH, YORKSHIRE PLC INCREASED REVENUES FOR THE FIRST TIME SINCE 2009.
PAUL FULLERTON Email: ptfullerton@sky.com Paul retired in early 2012 as the Bank of England Agent for Yorkshire and The Humber, although remains as a part time consultant. His role included interviewing companies and reporting business conditions directly to Sir Mervyn King and the Monetary Policy Committee. He has also held several senior management positions at Yorkshire Bank, including Head of Retail Banking and Head of Marketing. He has a first class honours degree in economics and is a Fellow of the Chartered Institute of Bankers.

The Yorkshire Report 2012 3

With profit after tax doubling to 2.25bn and revenue up 5% to 83.8bn, the Group has continued its post-recession revival, barely pausing to lick the wounds it suffered during previous years. Challenges, however, remain. A lack of exposure to, and investment in, growing markets and sectors could hinder future growth. Unless the Group seizes new opportunities there is a danger that, having got back on our feet, we could stand still. SECTORS Yorkshire stalwarts Morrisons and Asda/Walmart, who account for over 40% of Group revenue, put in another sterling shift, but they were not the major drivers of profit growth. In fact, although food retailers continued to eke out growth, food producers actually saw a fall in both revenues and profit. Instead there appear to be multiple factors at work. Firstly a bounce back in some of the sectors hit hardest during the recession and its immediate aftermath. One example is consumer financials, where a strong performance from Yorkshire Building Society saw it acquire Chelsea Building Society en route to posting strong revenue growth and an impressive return to profit. Other smaller sectors made a positive contribution and showed welcome evidence of Yorkshires technological edge. These included Software & Programming and Biotechnology & Drugs.

At the same time, a more traditional sector clearly demonstrated the truth of the Yorkshire expression Where theres muck, theres brass. Waste Management saw revenues up nearly 40% and profits rise by 50% as environmental concerns increased demand for clean solutions. Manufacturing, at one time somewhat written off amid the smoke and mirrors of virtual products and easy money, continued to progress this year. Recession-friendly businesses also thrived, from value-end retailers to metal dealers. MARKETS The good news needs, however, to be put in the context of the hard economic environment Yorkshire faced during the reporting period, and looks set to endure for some time. A whole host of setbacks for consumers from high inflation to unemployment, low wage rises and Government cutbacks meant retailers had to work harder to gain their custom. Businesses, with the recession still clear in their memories, struggled to build the confidence needed for further investment. While the domestic market struggled, troubles in the eurozone did little to accelerate overseas demand. Given these circumstances, the region appeared to perform well, with the value of goods exported to the EU rising by over a third to 4.4bn. America, too, proved a growing market for Yorkshire goods, although there was no evidence of increasing exports to Asia. We must not get carried away, however, as exports represent only 11% of total revenues. Although this is up slightly since the previous reporting period, there still appears to be little success in seeking out significant export growth.

DEBT As might be expected, Yorkshires business leaders took the opportunity to bank profits and pay down debt during the reporting period. As a result, Group gearing (excluding financial institutions) fell from 62% to 55%. This cautious approach, however, had a less welcome side effect. At the end of the reporting period, the Group had seen a reduction in business spending, with investment in property, plant and machinery falling by over 20% to 2.4bn. Although such parsimony may be no bad thing in the short term, to remain competitive it is likely that future spending on non-current assets will need to increase. DIVIDENDS The Board of Yorkshire Plc is pleased to announce notional earnings of 21.7p per share and a total dividend of over 1bn. This is not only more generous than last year but more strongly covered. OUTLOOK With UK GDP growth of just 0.9% in 2011, and many forecasters predicting little or no increase in 2012, we should be in no doubt that there are still tough times ahead. Yorkshires major exposure to domestic food retailers may prove good insulation from recession and any eurozone crises even in tough times people have to eat. But at the same time its vital that Yorkshire, having faced the dark depths of recession and emerged in reasonable shape, looks beyond its traditional base to find and invest in new opportunities and markets. Having got firmly back on our feet, the challenge now is to create a springboard for growth.

44m
THE MOST PROFITABLE SECTOR IS RETAIL, 44M PER COMPANY WHILST AVERAGE CHEMICAL & BIOTECHNOLOGY COMPANIES PROFITS HAVE ROCKETED FROM 5M TO 40M

4 The Yorkshire Report 2012

Finance Directors review

FACING THE HEADWIND

DESPITE TOUGH MARKET CONDITIONS, YORKSHIRE BUSINESSES GAINED GROUND.

ANOTHER YEAR, ANOTHER SOLID FINANCIAL PERFORMANCE FROM OUR REGION.

LIZ RICHARDS Group Finance Director, Callcredit Group Tel: +44 (0) 113 826 6204 Email: liz.richards@callcreditgroup.com Liz Richards is the Group Finance Director of Callcredit Information Group. A languages graduate, Liz began her career in banking with Lloyds TSB, then qualified as a Chartered Accountant with Ernst & Young. She worked across a variety of sectors including Financial Services and Manufacturing and in several senior financial roles before joining Skipton Building Society in 1998. Liz has been involved with Callcredit since its inception and was appointed Group Finance Director in 2002. She was part of the team which led the buy-out of the Group to private equity house Vitruvian in 2009.

The Yorkshire Report 2012 5

REVENUE Group revenue increased by 5% to 83.8bn. On a like-for-like basis, ignoring the effect of changes in composition of the Group, revenue increased by 6%. This is a substantial improvement on the two previous years, in which we reported declining revenues. Food retailers Morrisons and Asda/Walmart, which account for 44% of Group revenue, saw revenue rise by nearly 7% and 4% respectively but more significantly perhaps over 68% of companies saw an increase in revenue in the year, compared with just 44% in the prior year. Some companies in sectors hit hard over the last few years seem to be showing signs of bouncing back, in particular in Property and Construction related industries. However, most sectors still have their struggling companies and there is no immediate sign of a full return to pre-recession levels of revenue growth. PROFIT Gross margin improved slightly to 21.8% from 21%, but operating costs increased by 4.6%. Although a 4% rise in staff costs would appear to be a major contributor, it is worth noting that these were driven largely by an increase in staff numbers, up 2% to 468,750. Wage inflation, in fact, remained relatively low, with average pay per employee increasing by just 2% to 23,270, well below the rate of inflation. Operating profit rose by 27% to 4.5bn, which was a strong performance but not as dramatic as the prior year rise of 54%. Revenue growth is the main reason for the improvement. Pre-tax Group profit increased by 1.4bn to 3.3bn (75%) benefitting from the improved operating profit but also reduced finance costs as discussed below. Of that increase, 0.3bn is

attributable to net changes in the Group composition: like-for-like increase in pre-tax profit is 62%. Surprisingly, perhaps, it was not Morrisons and Asda/Walmart that accounted for this, as they saw little overall change in aggregate profits. The rest of the Group saw a substantial shift in fortunes from the prior year with 67% of companies improving profits compared to 50% in the prior year. Kelda (see below), Croda and Yorkshire Building Society saw some of the largest improvements. UK V OVERSEAS GROWTH Group revenue is still generated predominantly in the UK with overseas revenue generation slightly up at 11% of total revenue. Revenue has grown in both Europe (42%) and North America (67%) but these numbers remain small in the context of overall revenue. More worryingly, revenue in Asia has fallen and it seems that the Group is making little headway in this key emerging market. FINANCE AND TAX COSTS The Groups net finance cost decreased from 1.7bn to 1.3bn, a fall of 23%. This is a function of the fall in the Groups gearing, discussed below, but also a 400m (nearly 100%) reduction in the charge for fair value movements on substantial swap instruments held by Kelda. The Groups effective tax rate fell further this year from 40% to 32%, helped by a reduction in the corporate tax rate. The combination of the increase in pretax profit and the benefit of a lower tax charge resulted in profit after tax increasing by 100%, from 1.1bn to 2.2bn. CASH GENERATION AND FINANCING Despite the improvement in profits, cash generated from operating activities fell substantially, from 6.8bn to 3.0bn. This is due

mainly to working capital movements in financial institutions. Net cash flow on investing activities changed dramatically, from a 3.5bn outflow to a 0.7bn inflow. The main reasons were a net cash inflow on the Yorkshire Building Societys acquisition of the Chelsea Building Society and increased sales of debt securities by financial institutions.

Excluding these, cash paid for businesses and investments was static at 0.4bn. Investment in property, plant and equipment reduced to 2.4bn from the prior year level of 3.1bn. The Groups gearing (excluding financial institutions), has fallen to 55% from 62% in the prior year as cash generation reduced net debt. If we also exclude highly geared utility businesses, gearing stands at 33% (prior year 36%). Current debt exposure for financial institutions has increased from 32.2bn to 36.1bn but for other businesses, it is 1.8bn, down from 2.4bn in the prior year. DIVIDEND AND PENSIONS Dividends increased very slightly in the year to 1,067m from 949m and are now covered 2.10 times by profit compared with 1.19 in the prior year. The Groups net defined benefit pension scheme liabilities decreased from 1.7bn to 1.3bn, despite the impact of historically low bond yields. PROSPECTS A solid year of financial progress for the Group means that we can face 2012 with a stronger balance sheet. But there is no room for complacency. We expect the environment to remain tough, meaning that costs must continue to be tightly controlled and that future growth is likely to prove more challenging.

9.3%
THE NUMBER OF FEMALE DIRECTORS IN POSITION AT THE END OF THE PERIOD WAS ONLY 9.3% WITH NO SIGNIFICANT MOVEMENT FROM LAST YEAR

6 The Yorkshire Report 2012

Funding & Gearing

POSITIONED FOR GROWTH?

STATIC BUSINESSES CONTINUE TO RECEIVE BANK SUPPORT AND PAY DOWN DEBT, BUT FUNDING FOR NEW VENTURES REMAINS ELUSIVE.
IN MANY WAYS 2011 WAS A BENIGN YEAR FOR YORKSHIRE BUSINESSES WITH MOST, UNLESS IN SERIOUS DISTRESS, HAVING LITTLE PROBLEM REFINANCING EXISTING LOANS. AND AS PROFITS AND REVENUE ROSE FOR THE GROUP, MANY OF ITS CONSTITUENT BUSINESSES TOOK THE OPPORTUNITY TO PAY DOWN DEBT. AS A RESULT, GEARING (EXCLUDING FINANCIAL INSTITUTIONS AND UTILITIES) FELL FROM 36% TO 33% IN THE REPORTING PERIOD. BUT DOES THIS RELATIVELY ROSY PICTURE HIDE A GROWING PROBLEM: YORKSHIRES ZOMBIE COMPANIES?

The Yorkshire Report 2012 7

HOW TO SPOT A ZOMBIE Classic signs are static profits, flat markets and high levels of debt. Zombie companies have the ability to pay back interest but lack the earnings to clear their debts. Lenders were generally happy to keep them alive in 2011, rolling debt over rather than realising a loss. But as companies try to recover from their zombie state, they will probably find any cash they generate earmarked by the banks to pay down debt and any attempts to access new funds blocked.

NEW MONEY If you were looking for new money in 2011 you were likely to find conditions less benign. The eurozone debt crisis had a negative impact on liquidity and continued to make banks cautious. For those with business-to-consumer propositions, finding funding was particularly tough, as banks remained understandably wary of further exposure to the UKs fragile Retail sector. B2B propositions fared little better unless they provided strong UK platforms with access to overseas growth markets. Relatively few of the major banks had much appetite for funding mid-market proposals with the exception proving to be the rule. Given the continuing pressure on banks, both regulatory and macroeconomic, it is hard to see this situation reversing in 2012. Basel III looks set to make capital even scarcer and more tightly controlled, while the possibility of sovereign debt default in the eurozone will encourage banks to act even more cautiously. The only bright spot for borrowers may be the pressure, particularly on Government-controlled banks such as RBS and Lloyds, to increase lending to businesses. With the economy recovering, Group profits rising and businesses looking to grow, we might expect any funding gap to be filled by alternative financing sources. However, except for those large corporates able to launch bonds or find other ways to issue and sell on debt, we have seen little evidence of this. For mid-market companies we have seen some increased activity by asset-based lenders (ABLs). Interestingly, this was a year when nearly all the major ABLs operating in the area became American owned. Burdale was taken over by Wells Fargo & Company in early 2012, while PNC earlier entered the UK market following its acquisition of KBC Business Capital, and GE Capital is a major US global player. OUTLOOK Despite the low growth environment, and provided there is no disorderly eurozone default, we expect benign conditions to continue. As a result financing should be straightforward for existing borrowers, although sourcing new money is likely to remain a problem. The obvious danger, therefore, is that as we head into a vital period of post-recession rebuilding and reinvention, capital may not be allocated efficiently. If too much funding goes to keeping zombies on their feet and too little to helping fresh blood to thrive, then there will clearly be risks to the future health of the region.

AS A RESULT MANY COMPANIES SPENT 2011 LOCKED IN A STALEMATE WITH THEIR INCUMBENT LENDER. THIS LOOKS SET TO CONTINUE UNTIL THINGS GET SIGNIFICANTLY BETTER OR WORSE.
OLD MONEY This willingness of banks to refinance static companies rather than crystallise losses is one reason that the wall of debt we predicted last year proved relatively easy to scale. The disproportionately large quantity of debt due this year or next is simply being shunted into the long grass of 2014 and beyond, by which time the hope is that the recovery will have injected more life into flat markets. In the meantime banks can generate useful income from charges, while companies, as long as rates stay low, are finding interest payments manageable.

LLOYDS TSB IS THE LEADING BANK, NAMED IN 26 FINANCIAL STATEMENTS, AND EVERSHEDS ARE THE TOP LEGAL ADVISERS, NAMED IN 13

8 The Yorkshire Report 2012

M&A

BEATING A PATH TO OUR DOOR

OVERSEAS BUYERS WERE THE MAIN MOVERS IN M&A DURING 2011, WITH PRIVATE EQUITY TAKING A BACK SEAT.

NEARLY ONE-THIRD OF THE GROUPS 150 CONSTITUENT BUSINESSES ARE OWNED BY OVERSEAS COMPANIES. AND JUDGING BY CURRENT TRENDS IN THE M&A MARKET, THAT FIGURE IS ONLY GOING TO RISE.

The Yorkshire Report 2012 9

While four years ago three-quarters of M&A activity in our region was private equity driven, this has now reversed. The majority of sales are now trade deals driven by overseas buyers. For example, calendar year 2011 saw Indian tycoon Ranjiit Boparan take over Northern Foods in a 342m deal, US group Hain Celestial buy Covent Garden soup maker S Daniels for 165m, and Singapores Olam International acquire exGroup company Brittania Food Ingredients for 34m. Ireland also added to its stake in Yorkshire plc through DCC Groups purchase of Advent Data for 25m. Whats driving this? Firstly, many large overseas corporates, having cut costs during the recession, now have cash surpluses to invest. Also, as the macroeconomic climate remains tough, valuations are relatively low. And for non-EU buyers, the UK is a preferred hunting ground because it is seen as a safe staging post for Europe, without many of the dangers inherent in the eurozone. Finally, the relatively low pound makes prices more appetising for foreign buyers. This inward investment is likely to be good news for the Group as it can offer much-needed access to new funds and markets. PRIVATE EQUITY Faced with such strong competition from overseas buyers, UK Private Equity firms were forced to take a back seat on existing company sales in 2011, while new to market deals were relatively thin on the ground. Private equity players were also impeded by the lack of liquidity (discussed in our Funding and Gearing section). As a result, since Cinven completed its takeover of Spice in late 2010, major deals have been elusive. Key PE players like LDC, however, continued to support local activity such as Driver Hires secondary buy-out from Spirit Capital and learndirects 40m buy-out.

BOLT ONS In general the market has turned its attention to bolt on acquisitions. These are when a corporate buys a competitor or related company to add to their existing business. The benefits come from taking out a competitor, growing market share, increasing overall profits and gaining economies of scale.

Examples during the 2011 calendar year from the Groups 150 include: Morrisons acquisition of Kiddicare.com for 70m and Asda/Walmarts purchase of the former Netto stores for 28m; serial acquirer Fenner bought Australian-based Belle Banne and US-based MRI Manufacturing and Research; and Pace flexed its muscles with the acquisition of US business 2Wire Inc for 313m and Irish company Latens Systems for 27m. TURNAROUND FUNDS While some traditional PE groups struggled to raise funds during 2011, there seemed to be no such problem for turnaround firms. Leeds-based restructuring fund, Endless, had no trouble raising 220m for their new fund and were active in the market. Restructuring deals during 2011 included a 28m re-finance to support new factory capacity and international expansion for Allam Marine, and a 30m capital restructuring for global consultancy WYG. GROUP ACQUISITION SUMMARY The number of Group transactions in the period of this report fell from 30 to 19, but the total cost of these (including shares and loan write offs) rose from 500m to 801m. The largest transaction in the period was the 340m transfer of Chelsea Building Society to Yorkshire Building Society. Apart from financial institutions, the largest transaction was the 313m acquisition of 2Wire Inc by Pace. OUTLOOK With many corporates holding relatively high levels of cash on their balance sheets and Private Equity continuing to have an overhang of funds, we foresee good support for deal volumes in 2012. And we expect that the themes of overseas buyers and consolidation through bolt ons will continue to play out in the year ahead.

LOOKING UP BDO M&A SURVEY 2011

Despite economic turmoil, corporate UK maintains a strong desire for M&A. 80% ANTICIPATE MAKING ACQUISITIONS TO MEET GROWTH TARGETS 80% PLAN TO INCREASE MARKET SHARE THROUGH ACQUISITION 65% PLAN TO GROW INTO NEW GEOGRAPHIES THROUGH ACQUISITION 55% SEE VENDOR PRICE EXPECTATIONS AS THE BIGGEST CHALLENGE TO M&A ACTIVITY 38% SEE THE ABILITY TO RAISE BANK DEBT EXPECTATIONS AS THE BIGGEST CHALLENGE TO M&A ACTIVITY 80% HAVE SEEN ACQUISITIONS MEET OR EXCEED THEIR EXPECTATIONS.

RATHER THAN BEING TRANSFORMATIVE, BOLT ON DEALS ARE MORE ABOUT CONSOLIDATION, PROVIDING A VALUABLE ROUTE TO GROWTH IN FLAT MARKETS.

48
48 OF THE 150 COMPANIES ARE OWNED OVERSEAS AND 31 OF THE 150 ARE CONTROLLED BY DIRECTORS AND INDIVIDUALS

IS THE SKY THE LIMIT FOR M&A?

Corporate M&A Survey 2011

BDO Corporate M&A Survey 2011 The survey questioned acquisitive companies of all shapes and sizes including quoted plcs, private equitybacked companies and owner-managed businesses.

10 The Yorkshire Report 2012

Business restructuring

MIND THE GAP

A CLEAR DIVISION WILL EMERGE THIS YEAR BETWEEN UK BUSINESSES ABLE TO TAKE ADVANTAGE OF GROWTH OPPORTUNITIES AND THOSE LEFT BEHIND TO FIGHT IT OUT IN DIFFICULT MARKETS.
BUSINESS FAILURE PREDICTIONS REFLECT THIS TURBULENT TWO-SPEED OUTLOOK. FOLLOWING A 6% INCREASE IN THE TOTAL NUMBER OF INSOLVENCIES DURING 2011, WE ARE PREDICTING ANOTHER MARGINAL INCREASE IN 2012; HOWEVER, THESE ARE EXPECTED TO OCCUR LARGELY IN THE SME MARKET. GOOD QUALITY BUSINESSES CAN AND DO FIND MARKET OPPORTUNITIES IN DIFFICULT TRADING CONDITIONS. THE WINNERS WILL BE THOSE WHO ACCEPT THE ECONOMY IS NOT GOING TO BOUNCE BACK IN THE SHORT TERM AND TAKE APPROPRIATE ACTION TO MEET THE MARKET CHALLENGE.

The Yorkshire Report 2012 11

Businesses in Yorkshire showed a lot of tenacity. Faced on the one hand by a major squeeze on domestic consumer spending as inflation rose at roughly twice the rate of earnings growth, and on the other by reduced public spending and slowing eurozone demand, most Yorkshire businesses cut their cloth accordingly and navigated 2011 relatively successfully.

key to success in current markets appears to be around consumer value, client service, innovation and adaptability. THE TRADING ENVIRONMENT UK growth prospects look uncertain throughout 2012. It is expected that the OBR will revise down its GDP forecast, currently at 0.7% growth, bringing it closer to CEBRs prediction of a 0.4% contraction. The potential for rising unemployment, stagnant wage growth and reduced spending power may knock business confidence in particular those close to the consumer pound. Add this to some fairly major risks including uncertainty around the eurozone debt crisis and Middle East tension and the immediate future appears challenging. THE RISE AND FALL OF THE RESTRUCTURING ADVISER The traditional role of the insolvency practitioner has evolved in recent years with management and lenders demanding new skills from a restructuring professional. The restructuring adviser is now a multi-skilled, cross-discipline animal with the ability to deliver diverse solutions which integrate seamlessly with private equity, venture capital and other financial stakeholders. Exhausted management teams have increasingly turned to these advisers to assist them in both operational and financial restructuring improvements. This move has been welcomed by lenders who have long viewed the proactive engagement of specialists to augment managements core skill set as a progressive move.

PREDICTED CHANGE IN BUSINESS FAILURES BY SECTOR: 2012 COMPARED WITH 2011

NOW THAT COSTS HAVE BEEN REALIGNED AND EFFICIENCIES IMPLEMENTED, THERE ARE QUESTION MARKS OVER HOW MUCH MORE CAN BE SQUEEZED FROM THE CORE BUSINESS.
SECTORS Businesses that rely on discretionary spend remain the hardest hit with continuing pressure on Retail, Leisure and Housing-related sectors. Further, mounting pressure in the Professional Services sector points to a continuation of the consolidation, restructuring and failures experienced throughout 2011. On the positive side, high-tech growth could be good news for Telecoms, Media and Technology. Manufacturing should be comparatively well placed too, benefitting from lower commodity prices and new export opportunities driven by global growth. We do not predict the economy to bounce back in the short term, therefore business performance will not depend entirely on sector instead those businesses that decide to take action rather than wait it out have greater potential for growth. The

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

n Business Services n Property and Construction n Retail and Wholesale n Manufacturing n Personal Services n Telcoms, Media and Technology n Leisure n Transport

THE ROAD AHEAD Business failures have not hit expected levels due, in part, to the supportive approach taken by the banks and HMRC and the ongoing low interest rates. With the first signs that lenders may increase interest rates in 2012 and the noticeable hardening attitude of HMRC toward Time To Pay agreements, the environment may be about to change. Further, the co-operative attitude of suppliers that underpinned a number of businesses ability to manage scarce cash resource last year (as the supply chain avoided aggressive debt collection strategies to prevent crystallising losses), may unravel if banks begin to price cash availability more aggressively.

AS BASEL III IMPLEMENTATION GETS NEARER, OLD-FASHIONED MODELS AND MARKETS MAY FIND IT HARDER TO ACCESS CAPITAL BUT WELL THOUGHTOUT, INNOVATIVE PROPOSALS ARE MORE LIKELY TO FIND INVESTMENT PARTNERS.
Its not all doom and gloom though. As we discuss in the Outlook section, there are opportunities that have the ability to transform businesses, particularly around technology and export-led manufacturing. For other sectors, Yorkshires ability to cut costs and show great resilience will continue to carry many through the ongoing tough times.

12 The Yorkshire Report 2012

Fraud & Forensics

WORST FEARS COME TRUE

AS PREDICTED, REPORTED FRAUD ROSE SHARPLY IN 2011 AND OUR REGION BECAME ITS BIGGEST VICTIM OUTSIDE LONDON.

THE VALUE OF REPORTED FRAUD ROSE TO MORE THAN 2BN IN THE UK LAST YEAR, THE HIGHEST FIGURE EVER RECORDED BY OUR BDO FRAUDTRACK REPORT. THIS REPRESENTS A 50% INCREASE ON LAST YEARS FIGURE OF 1.4BN.

The Yorkshire Report 2012 13

OUR REGION FARED EVEN WORSE. REPORTED FRAUD ACROSS YORKSHIRE AND THE NORTH EAST ROCKETED SIX-FOLD TO 330M IN 2011, GIVING IT THE HIGHEST FIGURES OUTSIDE OF LONDON.
Yorkshire cases included a Ponzi investment scheme that targeted British expatriates living in Mallorca, worth 6m in losses, and a Doncasterbased car fraud valued at 2.5m. A Bradford plant hire scheme featured on the list with 2m associated losses, as did a 1.9m tax fraud by a regional financial adviser. SECTORS Finance and Insurance, which contributed over half of all UK reported fraud in 2010, was responsible for only a quarter in 2011. This is almost certainly due to their heavy investment in systems and technologies to prevent and track fraud. But with over 500m of fraud reported in 2011, the sector has plenty more work to do. It was a different story in the Retail sector, which accounted for 12% of all fraud in 2011, compared with just 2% in 2010. Given the tough economic climate and the fact that 30% of all fraud is committed by suppliers and customers this rise is perhaps not surprising. But tackling fraud more seriously could help retailers rebuild profit margins in tough times.

While Constructions 1% share of reported fraud in 2011 looks good on paper, it is likely to be the tip of the iceberg. Fraud and corruption have been a commercial reality in Construction for a long time, so the fact that so little is reported suggests the sector needs to bring its business practices up to date, especially in the wake of the Bribery Act. TYPES OF FRAUD Tax fraud accounted for the highest percentage (36%), closely followed by fraud committed by suppliers and customers (30%). Next came employee fraud and last, but not least, corruption. Although representing just 4% of reported fraud in 2011, corruption has been steadily rising since 2009.

WHAT TO DO IN 2012 Put simply, question everything and assume nothing. Dont just focus on your suppliers, customers or other external contacts: fraud, like charity, can begin at home. Reacting quickly when anomalies occur is good, but its not enough. You need to be preventative and that means having the right systems and procedures in place from the start. Even then, you will not be able to design all fraud risk out of your business but you will at least have the tripwires in place to catch fraudsters out in 2012.

RULES FOR FRAUD DETECTION Follow these rules to keep fraud down in 2012 n Know who you are doing business with n Invest in background checks during the recruitment stage n Ensure you have in place adequate procedures and process to detect fraud and prevent fraud n Make it easy for your staff to report fraud n Understand your responsibilities under the Bribery Act and set a no-tolerance programme for your organisation.

14 The Yorkshire Report 2012

Tax

STAYING AHEAD OF THE GAME

AS LEGISLATION CHANGES AND TOUGH ECONOMIC CONDITIONS CONTINUE, COMPANIES NEED TO ADAPT TO NEW REALITIES.
FIRST, THE GOOD NEWS. THE GOVERNMENT IS FOLLOWING THROUGH ON ITS COMMITMENT TO MAKE THE UK A MORE COMPETITIVE AND STRAIGHTFORWARD PLACE TO DO BUSINESS. THE CORPORATE TAX RATE REMAINS ON A DOWNWARD TRAJECTORY TOWARDS 22% BY 2014, WHICH HAS CONTRIBUTED TO A REDUCTION IN THE GROUPS EFFECTIVE TAX RATE FROM 40% TO 32% DURING THE REPORTING PERIOD. LOOKING AHEAD, THE REFORM OF THE CONTROLLED FOREIGN COMPANIES (CFC) REGIME LOOKS SET TO DELIVER A BUSINESS-FRIENDLY OUTCOME.

The Yorkshire Report 2012 15

IN THE TAX WORLD, HOWEVER, ITS RARELY THAT STRAIGHTFORWARD. The price businesses paid for the lower corporate tax rate was the loss of a number of tax allowances for example those relating to industrial buildings. While it would be wrong to blame these developments for Yorkshires fall in business investment (property, plant and equipment investment down 23% to 2.4bn), it is fair to assume they did not help. So, although simplification of the tax regime is welcome, it does provide rather a blunt instrument for encouraging growth. Reversing Yorkshires declining business investment may ultimately require the targeting of specific areas or sectors through the introduction of further meaningful investment incentives but at present these appear to be off the agenda. THE YEAR IN REVIEW HMRC appears to be seeking to engage with large business, and provided sufficient resources continue to be available in order to support this approach, it should help companies obtain clarity around their tax affairs. The progress made on the reform of the taxation of foreign profits is a clear example of a legislative response to calls to make the UK an attractive place to do business, and will be welcomed by many large groups. In particular, HMRC will hope these reforms are well received by those types of groups which have flexibility over where to locate their holding companies. A hurdle facing Yorkshire businesses in 2011 was the introduction of tax filing in the iXBRL format. Although this, to some extent, placed the responsibility for making HMRCs job easier onto companies, it was implemented in typical no nonsense Yorkshire manner, with the minimum of fuss.

HMRCs attitude to Time To Pay (TTP), having swung from lenient to harsh over the previous two years, settled to a more moderate and constant state. As advisers, we found it easier to get clarity on what HMRC would agree, allowing companies to gain more certainty. WHERE DO WE GO FROM HERE? One of our key themes for companies is the need to adapt their tax strategies, which may have been put in place a few years back, to current realities. When the recession first hit there were perhaps grounds for thinking strategy required temporary, rather than permanent adjustment. As it now seems clear that economic conditions are going to remain tough for the foreseeable future, it will be necessary for many businesses to take action in reassessing their approach to taxation.

CONSIDER HOW A LIMITED POOL OF DISTRIBUTABLE CASH CAN BE SHARED OUT IN A WAY THAT BEST INCENTIVISES KEY EMPLOYEES.
Similarly, larger companies may seek to reassess how they are structured. The most efficient and tax-friendly way to operate a number of years ago may not necessarily represent the best approach in 2012 and beyond.

ONE TO WATCH IN 2012 Changes to the Controlled Foreign Companies (CFC) regime These changes, due to be implemented in 2012, are seen as a key part of the Governments strategy to make the UK more tax competitive. In essence, they move the UK towards a more territorial system, such that only foreign profits artificially diverted from the UK should be subject to a CFC charge. What will the changes mean? n Foreign subsidiary profits will only be subject to the CFC regime if they derive from UK activities that relate to the assets or risk of the foreign subsidiary. n Without current CFC constraints companies have the potential to build more efficient financing arrangements, international supply chains of goods, services and licensing arrangements. n It may be possible to license and exploit non-UK connected IP more efficiently intra-group. For international companies, their UK subsidiaries and suppliers, the changes could have a major impact.

TO TAKE JUST ONE EXAMPLE: WHEN THE 50% INCOME TAX RATE WAS FIRST INTRODUCED IN APRIL 2010, MANAGEMENT TEAMS, THINKING IT WOULD BE TEMPORARY, REACTED BY ADVANCING OR DELAYING BONUSES. TWO YEARS LATER, THE HIGHEST TAX RATE IS STILL HERE (ALBEIT AT 45% FROM 2013) AND BUSINESSES NEED TO TAKE A MORE MEASURED LONG-TERM OUTLOOK AT HOW THEY REWARD STAFF. ASIDE FROM CONSIDERATIONS OF TAX EFFICIENCY, EMPLOYERS MUST

54%
54% OF THE GROUP ARE BASED IN WEST YORKSHIRE. LEEDS IS THE MOST REPRESENTED CITY WITH 32 AND DONCASTER THE TOP TOWN WITH 7

16 The Yorkshire Report 2012

Outlook

TIME TO MOVE ON
YORKSHIRE BUSINESSES HAVE DONE A GREAT JOB OF CUTTING COSTS AND PAYING DOWN DEBT. NOW ITS TIME TO LOOK UP OR GET LEFT BEHIND.

AS YORKSHIRE BUSINESSES FACE YET ANOTHER YEAR OF UNCERTAINTY ITS EASY TO FEEL A SENSE OF DJ VU. BUT SIMPLY RELIVING OUR VERY OWN GROUNDHOG DAY OF SQUEEZED DEMAND AND MACROECONOMIC BLUES IS UNLIKELY TO BE THE BEST ROUTE TO SUCCESS.

The Yorkshire Report 2012 17

Costs have been cut, balance sheets strengthened and profits increased. But its questionable how much further this process can usefully go. The next round of cost-cutting is likely to not only be harder and less profitable, but possibly relationship changing. It may require businesses to go beyond their usual practices to seek out newer, hungrier suppliers and to outsource more non-core functions.

2011, internet sales were up 22%. Finally, strong branding, outstanding service (again, often driven by new technology that recognises customer preferences) and the ability to generate and exploit intellectual property are all drivers for growth. But, as ever in todays environment, its not quite that simple. Turning new opportunities into solid results needs more than good ideas and hard work it requires finance. Traditionally, an entrepreneur seeks to share risk. But in todays climate, only the very best business cases will get the funding they need from their banks. Instead, Yorkshire companies may have to make connections across their industry and across regions to see how they can gain partners to help access new markets, develop new products and attract finance. As advisers who can bring an international network to Yorkshire businesses, this is a trend we are already seeing and facilitating.

2012 HOT TOPIC: GOVERNMENT AND INFRASTRUCTURE

TAKING THE POSITIVES

DESPITE MAJOR CHALLENGES FOR PUBLIC SECTOR ORGANISATIONS AND THEIR SUPPLIERS, OPPORTUNITIES REMAIN

NEGATIVES

SO PERHAPS THE REAL CHALLENGE FOR 2012 IS NOT COSTS, BUT GROWTH. FIRSTLY, FINDING IT, THEN HAVING THE CONFIDENCE TO GRAB IT.
Not least because there is evidence of a gap opening up, between those businesses who can adapt to new markets and opportunities and those that risk being stuck in a chase to the bottom as they fight over static revenues and falling margins. Being in the first group is likely to be increasingly important in 2012, as customers and banks become tougher nuts to crack. Growth might be found in a number of ways. Firstly overseas and preferably beyond the weakening eurozone. With Chinese GDP predicted to rise by 7.6% this year and Indias by 6%, these are vital markets, particularly for the Manufacturing sector, helped by the weak pound. Secondly, technology appears to have a strong role to play. Indeed, in a recent survey by the Federation of Small Businesses, Computer Services was the most optimistic sector. Its important to understand that this isnt just an opportunity for hi-tech companies: technology continues to transform all sectors. In Retail, for example, while overall UK sales value rose 4.9% in

Since the war there have never been more than two consecutive years of public spending cuts. Yorkshire is currently facing seven. Although press focus tends to be on cuts in services, reductions in capital expenditure will affect many more Yorkshire businesses, particularly those involved in Construction. A Government review of the Private Finance Initiative may further delay opportunities for capital investment. The National Infrastructure Plan will have only limited impact in the region.

SO, HAVING DONE A GREAT JOB OF PLOUGHING THE RECESSIONARY FURROW, 2012 MAY BE THE TIME FOR YORKSHIRE BUSINESSES TO LOOK UP AND THINK LATERALLY.

Yorkshire Forward has gone, and its replacement, LEPs*, are constrained by funding.

POSITIVES

Public sector organisations need to find new ways to deliver services and generate income giving the private sector an opportunity to sell outsourcing and innovation. New rules will give local authorities more incentive to invest in their region and generate growth (for example, being able to retain business rates). Local authorities will have fewer restrictions, allowing them to deliver in the most efficient way. The Priority School Building Programme is going ahead and will offer opportunities in 2012 and beyond.
*Local Enterprise Partnerships

18 The Yorkshire Report 2012

2012 HOT TOPIC: SUSTAINABILITY

IF YOU DONT GET SUSTAINABILITY, IT JUST MIGHT GET YOU FIRST.

IF, LIKE MANY YORKSHIRE BUSINESSES, YOU THINK SUSTAINABILITY IS A NICE TO HAVE RATHER THAN BUSINESS CRITICAL, THEN 2012 MAY BE THE TIME TO THINK AGAIN.

Last year saw a local supplier delisted, overnight, for failing to meet its customers sustainability charter stark evidence that large organisations are now using sustainability audits as a mechanism for rationalising their supply chains and proactively managing their brand. Large investor groups and banks are at the same time increasingly concerned with the medium-term effects of climate change and moving its importance into their core investment portfolio decision-making criteria. In the media consumers are bombarded on a daily basis, with issues from carbon footprints to air miles and from to waste to child labour creating uncertainty and confusion. Add to this the exciting possibility that the region may soon find itself at the heart of a new super cluster for the offshore wind industry and it becomes clear that sustainability and clean technologies will be a hot topic for Yorkshire businesses in 2012.

HITTING YOUR BOTTOM LINE The key to successfully unlocking the potential offered by sustainability lies in understanding which part of the broad agenda is relevant to your business, then addressing and implementing it efficiently and cost-effectively. Whether its creating the appropriate focus, auditing and robust measurement of KPIs, or even maximising tax advantages and applying sustainability to increase shareholder value the objective should be to deliver the right solution for each individual business. Sustainability invariably has no one size fits all solution. 2012 SEIZING THE GOLDEN OPPORTUNITY There is a glittering prize within the regions grasp and not just for Yorkshire athletes at London 2012. Even though Leeds narrowly missed out on being the chosen location for the Green Investment Bank, it remains at the centre of a vibrant green economy with the potential to become a hub for clean technology innovation. With the Humber Estuary already acknowledged as a super cluster for offshore wind technologies, our region is strongly positioned, with Leeds at its financial centre. However, the challenge will be to grasp these opportunities locally, making sure that Yorkshires strong manufacturing base can adapt and deliver to this rapidly evolving market.

YET, ACCORDING TO OUR SURVEY, RELATIVELY FEW GROUP COMPANIES ARE REPORTING ON SUSTAINABILITY, PERHAPS INDICATING THAT THEY ARE NOT GIVING IT SUFFICIENT FOCUS.
There are certainly plenty of reasons why it should figure higher on the corporate agenda. These vary from improving competitive positioning to ensuring compliance with new and existing legislation and reducing long-term energy and raw material costs. In addition, a well aligned strategy for sustainability can help drive innovation and be a route to open new markets.

The Yorkshire Report 2012 19

BEHAVING RESPONSIBLY?
WE STUDIED HOW SERIOUSLY YORKSHIRES TOP 150 COMPANIES ARE TAKING SUSTAINABILITY.

NON-LISTED COMPANIES WITH ENVIRONMENTAL POLICY PARAGRAPHS IN DIRECTORS REPORT Yes No 25% 75% 100% COMPANIES WITH SPECIFIC ENVIRONMENTAL KPIS OR TARGETS Yes No 8% 92% 100% COMPANIES WITH SUSTAINABILITY DATA Yes No 14% 86% 100% CATEGORIES OF ENVIRONMENTAL DATA PRESENTED (NUMBER) Carbon Emissions Waste Management Recycling/Packaging Energy Consumption/Water Own Business Practices and other 13 12 6 6 8 45

BDOS NATIONAL SUSTAINABILITY PRACTICE, BASED IN LEEDS, HAS THE EXPERIENCE AND SKILLS TO HELP BUSINESSES ACROSS THE REGION. OUR SPECIALIST PRACTICE WORKS ALONGSIDE BDOS ESTABLISHED SERVICE AREAS USING A STRONG NO-NONSENSE COMMERCIAL FOCUS TO UNDERSTAND YOUR ORGANISATION AND DELIVER THE RIGHT SOLUTION.
Our services help our clients to: n Build and protect brand value and reputation

189m
ENERGY AND UTILITY COMPANY PRE TAX PROFITS ROSE TO 189M FROM 52M LAST YEAR EVEN THOUGH REVENUE FELL BY 4.7%

n Be operationally efficient n Improve competitiveness and retain existing clients n Manage risks and comply with regulation n Drive innovation n Recruit and retain the best talent.

20 The Yorkshire Report 2012

COMPANY PROFILE

SECTOR SUMMARY 2012 OWNERSHIP

n Overseas Companies 48 n UK Companies 15 n Directors and Individuals 31 n Private Equity listed 26 n Investors 9 n Other 21 REVENUE M NUMBER PROFIT AFTER TAX M

Retail Construction Manufacturing Energy and Utilities Business Services

44,275 7,655 5,219 4,812 5,529 5,639 4,151 2,872 969 987 1,707 83,815

26 15 23 7 26 17 9 14 5 4 4 150

1,148 (16) 263 189 62 98 327 61 (5) (40) 159 2,246

REGION
n East Yorkshire 17 n North Yorkshire 21 n West Yorkshire 81 n South Yorkshire 31

Food and Drink Financial Services Transport and Motor Services Other Public Sector/Healthcare/Educational Chemicals and Biotechnology

CITY/TOWN
n Leeds 32 n Sheffield 18 n Bradford 16 n Hull 13 n Doncaster 7 n York 7 n Other 57

The Yorkshire Report 2012 21

45
ONLY 45 OF THE GROUPS COMPANIES PREPARED ACCOUNTS UNDER IFRS, WITH THE REMAINDER STILL USING UK GAAP

91
COMPANY DIRECTORS OF THE GROUP ARE A DIVERSE BUNCH WITH THE OLDEST BEING A 91 YEAR OLD SWISS RESIDENT AND THE YOUNGEST A 27 YEAR OLD FEMALE FINNISH LAWYER

22 The Yorkshire Report 2012

FINANCIAL INFORMATION
CONSOLIDATED INCOME STATEMENT Note Revenue Cost of sales Gross prot Other operating income Distribution costs Administrative expenses Operating prot Share of joint venture operating loss Non-operating items Prot before net nance costs Finance costs Finance income Prot before taxation Tax expense Prot for the year Attributable to: Equity holders of the parent Non-controlling interest 2 1 Current period m 83,815 (65,515) 18,300 762 (2,506) (12,071) 4,485 (1) 78 4,562 (1,426) 162 3,298 (1,052) 2,246 2,242 4 2,246 Earnings per share Basic (pence) Diluted (pence) 7 21.70 21.47 2.56 2.39 Prior period m 79,657 (62,923) 16,734 776 (1,817) (12,162) 3,531 (1) 5 3,535 (1,905) 250 1,880 (755) 1,125 1,121 4 1,125

5 5 6

The Yorkshire Report 2012 23

STATEMENT OF COMPREHENSIVE INCOME Current period m Prot for the year Other comprehensive income Foreign exchange gains / (losses) on retranslation of overseas operations Actuarial gains / (losses) on pension schemes Other items reected directly in equity Tax effect of items recognised directly in equity Total other comprehensive income / (expense) Total comprehensive income 2,246 17 165 41 19 242 2,488 Prior period m 1,125 (52) (1,258) 599 180 (531) 594

24 The Yorkshire Report 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION Note Assets Non-current assets Property plant and equipment Intangible assets Financial institution assets Investments Deferred tax assets Employee benets / pensions Other non-current assets Current period m Prior period m

9 10

31,068 9,547 38,263 773 646 92 982 81,371

31,144 9,935 38,950 755 538 30 710 82,062 6,914 5,266 8,503 1,142 7,004 28 28,857 110,919

Current assets Inventories Financial institution assets Trade and other receivables Other nancial assets Cash and cash equivalents Assets held for sale Total current assets Total assets

11

7,342 11,064 10,240 590 6,426 81 35,743 117,114

The Yorkshire Report 2012 25

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) Note Liabilities Current liabilities Financial institution liabilities Bank and other loans Trade and other payables Current tax liabilities Current element of provisions Total current liabilities Non-current liabilities Financial institution liabilities Bank and other loans Trade and other payables Employee benets / pensions Provisions Deferred tax liability Total non-current liabilities Total liabilities TOTAL NET ASSETS Capital and reserves attributable to equity shareholders Called up share capital Share premium Merger reserve Other reserves Retained earnings Shareholders funds Non-controlling interest TOTAL EQUITY 17 Current period m Prior period m

12 13 16

36,074 1,835 15,343 906 244 54,402 13,837 14,073 4,321 1,341 1,047 2,108 36,727 91,129 25,985 10,177 4,112 2,692 1,815 7,168 25,964 21 25,985

32,186 2,425 15,224 803 163 50,801 12,755 14,323 4,125 1,720 1,156 2,269 36,348 87,149 23,770 9,452 4,087 3,153 2,115 4,940 23,747 23 23,770

14 15 16

18

26 The Yorkshire Report 2012

ILLUSTRATIVE CONSOLIDATED STATEMENT OF CASH FLOWS Current period m Operating activities Prot for the year Adjustments for Depreciation, amortisation and impairment Interest paid Income tax expense Other adjustments Operating prot before changes in working capital and provisions Changes in working capital and provisions Cash generated from operations Tax paid Cash ows from operating activities Investing activities Purchase of subsidiaries and investments Disposal of subsidiaries and investments Net investment in debt securities by nancial institutions Purchases of property, plant and equipment Development costs capitalised Sale of property, plant and equipment Other 2,246 2,582 1,426 1,052 (245) 7,061 (3,133) 3,928 (965) 2,963 847 69 2,187 (2,398) (41) 247 (227) 684 Prior period m 1,125 2,578 1,905 755 19 6,382 1,107 7,489 (694) 6,795 (420) 119 (74) (3,115) (52) 184 (98) (3,456)

The Yorkshire Report 2012 27

ILLUSTRATIVE CONSOLIDATED STATEMENT OF CASH FLOWS (continued) Current period m Financing activities Issue of ordinary shares Purchase of own shares Net movement on debt and other nancing Interest paid Dividends paid 162 (11) (2,467) (1,019) (1,067) (4,402) (Decrease) / increase in cash and cash equivalents Cash and cash equivalents brought forward Opening adjustments Cash and cash equivalents carried forward Comprises: Cash in balance sheet Deductable overdrafts (755) 6,862 153 6,260 6,426 (166) 6,260 Prior period m 862 (9) 856 (1,175) (949) (415) 2,924 3,946 (8) 6,862 7,004 (142) 6,862

28 The Yorkshire Report 2012

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD 1 Revenue by destination United Kingdom Europe North America Asia Africa Unspecied Current period m 74,418 4,399 1,992 177 37 2,792 83,815 2 Operating prot This is arrived at after charging: Depreciation and impairment of property, plant and equipment Amortisation and impairment of intangible assets Operating lease expense: - Plant and machinery - Property Auditors remuneration - audit Auditors remuneration - other services Current period m 1,880 702 222 616 20 15 Prior period m 72,368 3,255 1,193 244 72 2,525 79,657 Prior period m 1,850 729 221 553 19 15

The Yorkshire Report 2012 29

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 3 Staff costs Wages and salaries Other staff costs Pension costs Share-based payment expense Employers NI and similar taxes Current period m 9,543 18 394 94 859 10,908 Average number of employees (incl directors) Average pay per employee (000) 4 Directors remuneration Salaries and fees Benets Bonuses Compensation for loss of ofce Pension contributions 468,750 23 Current period m 145 2 14 5 8 174 Number of executive directors Number of non-executive directors Average remuneration per director (000) Average remuneration per highest paid director (000) Total remuneration of highest paid directors (m) Average age of executive directors Age range of executive directors Average age of non-executive directors Age range of non-executive directors Male / female analysis executive Male / female analysis non-executive 742 196 185 480 70 52 27-91 59 36-75 683/59 177/19 Prior period m 9,312 14 284 58 829 10,497 460,284 23 Prior period m 127 2 14 3 8 154 748 183 166 404 57 50 31-79 55 33-74 684/64 168/15

30 The Yorkshire Report 2012

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 5 Net nance costs Finance costs: Interest payable Other nance expense Current period m 455 971 1,426 Finance income: Interest receivable Net nance costs 6 Tax expense Current tax expense: UK corporation tax and income tax of overseas operations on prot for the year Adjustment for over-provision in prior periods 162 1,264 Current period m 1,213 (63) 1,150 Deferred tax Current period Adjustment for under-provision in prior periods (101) 4 (97) Share of associates and joint ventures tax Total tax expense (1) 1,052 Prior period m 499 1,406 1,905 250 1,655 Prior period m 902 (44) 858 (128) 26 (102) (1) 755

The Yorkshire Report 2012 31

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 6 Tax expense continued Current period m Prior period m

The reasons for the difference between the actual tax expense for the period and the standard rate of corporation tax in the UK applied to prots for the period are as follows: Prot before tax Expected tax charge at the UK standard corporation tax rate of 28% Effects of: Expenses not deductible for tax Goodwill / non-qualifying depreciation Effect of change in tax rate on deferred tax Tax exempt income Losses not utilised Prior period adjustments Other Total tax expense 7 Earnings per share Basic Diluted 3,298 923 153 169 (87) (65) 5 (60) 14 1,052 Current period m 21.70 21.47 1,880 529 157 162 (1) (159) 28 (37) 76 755 Prior period m 2.56 2.39

The above illustrative earnings per share gures have been calculated by taking the average earnings per share of those companies publishing earnings per share gures on a like-for-like basis over both current and prior periods 8 Dividends Dividends paid in the period Current period m 1,067 Prior period m 949

32 The Yorkshire Report 2012

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 9 Property, plant and equipment Land and buildings m Cost or valuation At start of period Opening adjustments Additions Acquired through business combinations Disposals Transfers Revaluations Exchange differences At end of period Depreciation At start of period Opening adjustments Acquired through business combinations Disposals Transfers Charge for the period Revaluation Impairment charges Exchange difference At end of period Net book value At end of period At beginning of period 22,569 (88) 847 60 (289) 88 120 3 23,310 3,035 55 1 (70) (13) 430 (52) 15 (2) 3,399 19,911 19,534 Plant, machinery, and motor vehicles m 22,305 (528) 1,654 25 (1,192) (423) 5 21,846 11,020 (207) 2 (1,012) (72) 1,310 14 (2) 11,053 10,793 11,285

Fixtures and ttings m 1,031 166 103 2 (64) 2 1,240 706 118 (57) (2) 109 2 876 364 325

Total m 45,905 (450) 2,604 87 (1,545) (333) 120 8 46,396 14,761 (34) 3 (1,139) (87) 1,849 (52) 31 (4) 15,328 31,068 31,144

The Yorkshire Report 2012 33

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 10 Intangible assets Goodwill m Cost or valuation At start of period Opening adjustments Additions Acquired through business combinations Disposals Other adjustments At end of period Amortisation At start of period Opening adjustments Disposals Charge for period Impairment charges Other adjustments 13,097 (427) 191 34 (26) 3 12,872 3,949 (49) (17) 388 97 (2) 4,366 Net book value At end of period At beginning of period 8,506 9,148 Development costs m 109 76 137 (14) 308 61 4 (14) 44 1 96 212 48 Other m 1,296 5 111 199 (51) 5 1,565 557 55 (50) 140 33 1 736 829 739 Total m 14,502 (346) 439 233 (91) 8 14,745 4,567 10 (81) 572 131 (1) 5,198 9,547 9,935

34 The Yorkshire Report 2012

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 11 Trade and other receivables Trade debtors Other debtors Amounts owed by Group undertakings Accrued income Prepayments Current period m 6,505 754 2,085 215 681 10,240 12 Bank and other loans - current Bank loans and overdrafts Finance lease creditor Other loans Current period m 1,299 74 462 1,835 13 Trade and other payables - current Trade creditors Other taxes and social security Other creditors Amounts owed to group undertakings Accruals and deferred income Current period m 7,517 712 2,069 1,698 3,347 15,343 Prior period m 4,488 1,003 2,134 171 707 8,503 Prior period m 1,458 57 910 2,425 Prior period m 7,125 620 1,965 2,367 3,147 15,224

The Yorkshire Report 2012 35

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 14 Bank and other loans - non-current Bank loans Finance lease creditor Other loans Current period m 4,135 493 9,445 14,073 15 Trade and other payables - non-current Trade creditors Other creditors Amounts owed to Group undertakings Accruals and deferred income Current period m 8 306 3,556 451 4,321 16 Provisions m At start of period Opening adjustment Charged to income statement On acquisitions Utilised during the year Other movements At end of period Current Non-current 1,319 (62) 252 38 (247) (9) 1,291 244 1,047 Prior period m 5,923 464 7,936 14,323 Prior period m 12 325 3,430 358 4,125

36 The Yorkshire Report 2012

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE PERIOD (continued) 17 Share capital Equity share capital 18 Reconciliation of changes in total equity Total equity at start of period Opening adjustments Total comprehensive income for the year Prior year adjustments Issue of equity shares Redemption or cancellation of equity shares Equity dividends paid Other movements Total equity at end of period Current period m 10,177 Prior period m 9,452 m 23,770 (138) 2,488 (86) 649 (17) (1,067) 386 25,985

The Yorkshire Report 2012 37

Five year summary 2012 m Revenue Growth % Gross prot Gross prot % Prot before tax Tax charge Effective tax rate Prot for the year Gearing (excl nancial institutions) Gearing (excl nancial institutions and utility companies) Net assets Dividend Dividend cover People employed Average director pay (000) Revenue per employee (000) Gross margin per employee (000) 83,815 5.2% 18,300 21.8% 3,298 (1,052) 31.9% 2,246 55.4% 33.0% 25,985 1,067 2.10 468,750 185 179 39 2011 m 79,657 -0.9% 16,734 21.0% 1,880 (755) 40.2% 1,125 61.7% 35.9% 23,770 949 1.19 460,284 166 173 36 2010 m 80,352 -0.6% 15,696 19.5% 1,007 (685) 68.0% 322 66.5% 37.1% 22,282 928 468,617 175 171 33 2009 m 80,857 2.6% 16,876 20.9% 4,554 (1,122) 24.6% 3,432 46.3% 32.3% 25,370 1,468 2.33 467,829 198 173 36 2008 m 78,833 5.5% 15,875 20.1% 4,205 (1,336) 31.8% 2,869 49.7% 31.9% 24,066 1,416 2.03 449,752 182 175 35

38 The Yorkshire Report 2012

Basis of preparation

HOW WE COMPILED THIS REPORT

The Yorkshire Report 2012 39

SOURCES OF INFORMATION The companies included in the Yorkshire Report 2012 were selected by conducting an initial Companies House search using specialist software. First we selected companies: n located in North, South or West Yorkshire or North Humberside n with revenue of more than 70m. This produced over 300 companies. We then eliminated companies whose effective registered office recorded in the financial statements was outside the region. We also deleted subsidiaries of parent companies where both were included, to eliminate duplication. This produced the final population of 150 companies. YEAR ENDS AND COMPARATIVES For the current period financial information in the Yorkshire Report 2012 we used the most recent accounts filed at Companies House at the time. These had year ends ranging from 30 April 2010 to 31 March 2011. The prior-year comparative figures are those shown in the Yorkshire Report 2011. AGGREGATION To produce the financial information in this report we simply aggregated the 150 accounts identified above. We made no consolidation adjustments, and no adjustments to reflect the non-matching year ends or any trading between the 150 companies. As the population in this report differs from that in last years report, adjustments were required to cash flow, reserves and non-current assets to reconcile the opening positions in the current period to the closing positions in last years report.

Some of the analysis and commentary, particularly in relation to investment, funding and gearing, excludes utility companies and financial institutions. This is because their funding would distort the picture for the majority of the regions trading companies. IFRS AND UK GAAP As the Groups listed entities report under IFRS, we continue to present the financial information in a format more consistent with IFRS than with UK GAAP. We have not tried to adjust UK GAAP numbers to comply with IFRS: we have merely represented the UK GAAP numbers in a format similar to IFRS. This involved a number of allocation judgements that could affect the comparability of the financial information. DISCONTINUED OPERATIONS/ NON-OPERATING ITEMS We made no distinction between continuing and discontinued operations because companies had used a variety of judgements and presentational approaches. Where it has been possible to identify such items, we aggregated all exceptional or similar items reflected outside operating profit: we labelled them as non-operating items and did not analyse them further. CASH FLOW STATEMENT Most of the individual line items on the cash flow statement have been obtained by aggregating cash flows. The remaining cash flow statement has been largely derived from the simplistic approach of reconciling the movements between the balance sheets. This ensured that the changes in cash and cash equivalents in the cash flow statement reconciled with the balance sheets.

Aggregating cash flows did not achieve this because of the differences in starting points, definitions of cash and cash equivalents and the treatment of debt. FINANCIAL INSTITUTIONS A number of financial institutions (banks and building societies) are included in the aggregation. In combining their results with the wider population we made four main assumptions: n Interest income has been included in revenue, with interest expense in cost of sales to reflect the interest margin as gross profit. n Other fees and commissions are included in other operating income. n Cash and cash equivalents in the balance sheet for financial institutions have been made to equal cash and cash equivalents as defined in the cash flow statements, which will include certain short-term deposits. n Balances specific to financial institutions (eg customer accounts, share accounts and deposits, with either individuals or credit institutions) have where possible been analysed by maturity and presented in current/non-current categories separately identified as amounts relating to financial institutions. No attempt has been made to determine whether amounts owed to credit institutions should be classified as borrowings.

DISCLAIMER The financial information in this report has been compiled exclusively from publicly available information under the key assumptions and limitations outlined in this section. It has been designed solely to illustrate trends in the financial performance of a representative sample of companies in the region. BDO has not carried out any verification work on the financial information in this report and gives no opinion on the financial information. BDO makes no claims, promises or guarantees about the accuracy, completeness or adequacy of the contents of this report. No reliance should be placed on the information contained in this report and, to the fullest extent permitted by law, BDO does not accept or assume any responsibility to anyone for the information contained in this report. BDO has made a number of judgements in aggregating the information into a consistent format. BDO does not, and cannot, warrant the completeness or accuracy of the adjustments made during the aggregation.

40 The Yorkshire Report 2012

The team

THIS REPORT HAS BEEN PRODUCED BY THE BDO TEAM IN LEEDS

THEIR GRATEFUL THANKS GO TO THEIR COLLEAGUES EDWARD HURWITZ, GAYNOR APPLEYARD AND CARLY JONES.

IAN BEAUMONT Office Managing Partner 0113 204 1227 ian.beaumont@bdo.co.uk

PAUL BATES Partner, Business Restructuring 0113 204 1233 paul.bates@bdo.co.uk

SIMON P BEVAN Partner, Forensic Accounting and National Head of Fraud 0113 204 1286 simon.p.bevan@bdo.co.uk

TIM CLARKE Partner, Corporate Finance 0113 204 1211 tim.clarke@bdo.co.uk

MATT COPLEY Partner, Corporate Finance 0113 204 1217 matt.copley@bdo.co.uk

PAUL DAVIES Partner, Audit 0113 290 6144 paul.davies@bdo.co.uk

TERRY JONES Partner, Tax 0113 204 1284 terry.jones@bdo.co.uk

ANDY MAHON Partner, Government and Infrastructure 0113 290 6150 andy.mahon@bdo.co.uk

GRAHAM NEWTON Partner, Business Recovery 0113 204 1210 graham.newton@bdo.co.uk

MICHAEL PRATT Director, Accounting and Reporting Advisory 0113 204 1313 michael.pratt@bdo.co.uk

SIMON PRINGLE Head of Sustainability and Climate Change 0113 204 1273 simon.pringle@bdo.co.uk

TOM VALLANCE Partner, Tax 0113 204 1267 thomas.vallance@bdo.co.uk

GILES WHARTON Partner, Audit 0113 204 1234 giles.wharton@bdo.co.uk

JASON WHITWORTH Partner, Corporate Finance 0113 204 1237 jason.whitworth@bdo.co.uk

The Yorkshire Report 2012 41

THE 150 GROUP COMPANIES

AarhusKarlshamn UK Ltd ABS Industrial Resources Ltd ACICS Ltd Acorn Mobility Services Ltd Advent Data Ltd AES Engineering Ltd Allam Marine Ltd Allied Glass Containers Ltd Andrew Page Ltd Arco Ltd Ardagh Glass Ltd Arla Foods Ltd Arnold Laver Holdings Ltd Arran Isle Ltd Arrow Enterprise Computing Solutions Ltd ASD Ltd Asda Group Ltd (Broadstreet Great Wilson Europe Ltd) ATH Resources Plc Austin Reed Group Ltd (Gajan Holdings Ltd) Barrett Steel Ltd Bayford and Co Ltd Bentley Holdings Ltd Bettys & Taylors Group Ltd Birse Civils Ltd Borgwarner Holdings Ltd Brenntag UK Ltd Bupa Care Homes (CFG) Plc C F Booth Ltd Car Care Plan (Holdings) Ltd Carclo Plc Clipper Group Holdings Ltd Comet Group Plc Communisis Plc Co-operative Group Motors Ltd Costcutter Supermarkets Holdings Ltd Country Style Foods Ltd CPP Group Plc Cranswick Plc Croda International Plc Cummins Turbo Technologies Ltd Damartex UK Ltd Danoptra Ltd Dart Group Plc DePuy International Ltd DFS Furniture Company Ltd Dovecote Park Ltd Dr. Oetker (UK) Ltd Drax Group Plc Dunhills (Pontefract) Plc Ebuyer Holdings Ltd Eggborough Power Ltd ELG Haniel Metals Ltd F Smales & Son (Fish Merchants) Ltd Fenner Plc FMG Support Group Ltd Forza AW Ltd Fullers Foods International Plc GDF SUEZ Energy UK Ltd GHD Group Holdings Ltd Gilder Group Ltd Go Outdoors Ltd Grattan Plc GRI Group Ltd Group Auto Union UK and Ireland Ltd Hallmark Cards (Holdings) Ltd Henry Boot Plc Heron Food Group Ltd Hocomm Ltd Hoyer UK Ltd Ideal Standard (UK) Ltd Insight Direct (UK) Ltd Interface Europe Ltd International Personal Finance Plc Irwin Mitchell LLP J.R. Rix & Sons Ltd JCT600 Ltd Jeld-Wen UK Ltd KCOM Group Plc Kelda Holdco Ltd LA fitness (MOP Acquisitions (LAF) Ltd) Lakeside 1 Ltd Leeds Building Society London & Scandinavian Metallurgical Co Ltd London Security Plc Lorien Ltd LuK (UK) Ltd Manheim Europe Ltd Maple Leaf Bakery UK Ltd Maplin Electronics Group (Holdings) Ltd Marshalls Plc McCain Foods (GB) Ltd McLean & Appleton (Holdings) Ltd MKM Building Supplies (Holdings) Ltd Netto Foodstores Ltd NG Bailey Ltd Northern Foods Ltd Northern Gas Networks Holdings Ltd Nufarm UK Ltd Outokumpu Stainless Ltd Oval Ltd Pace Plc Pegler Yorkshire Group Ltd Persimmon Plc Polypipe Ltd (Hamsard 3054 Ltd) Poundworld Retail Ltd PPG Architectural Coatings UK Ltd Premier Farnell Plc Provident Financial Plc R&R Ice Cream Plc Redhall Group Plc Renew Holdings Plc S Daniels Plc Scaid Investments Ltd Serviced Dispense Equipment (Holdings) Ltd Severfield-Rowen Plc Sheffield Forgemasters International Ltd Shepherd Building Group Ltd Siddall Group Ltd Siemens VAI Metals Technologies Ltd SIG Plc Skipton Building Society Sportswift Ltd Style Group Holdings Ltd Sulzer Pumps (UK) Ltd Superbreak Mini-Holidays Ltd Swift Holdings (UK) Ltd Symphony Holdings Ltd Tenet Group Ltd Teva UK Ltd The Big Green Parcel Holding Company Ltd The Car People Ltd The Fuelcard Company UK Ltd The Harratts Group Ltd TMD Friction UK Ltd Trustmarque Group Ltd Tunstall Healthcare Group Ltd Turner & Townsend Plc UFI Charitable Trust UFP (UK) Ltd UK COAL Plc UPM Raflatac Ltd Vasanta Group Holdings Ltd VP Plc Wakefield and District Housing Ltd Wavin Ltd William Jackson and Son Ltd Wm Morrison Supermarkets Plc Wortlea Estates (Leeds) Ltd WYG Plc Yorkshire Building Society

HOW WE CAN HELP YOU

If you would like further information about this publication or our wide range of services, please contact Gaynor Appleyard. BDO LLP 1 Bridgewater Place,Water Lane, Leeds LS11 5RU Tel: 0113 290 6151 Email: gaynor.appleyard@bdo.co.uk BDO LLP is the UK Member Firm of BDO, the worlds fifth largest accountancy network, with more than 1,000 offices in over 100 countries*. In the UK we have offices in Birmingham, Bristol, Cambridge, Chelmsford, Epsom, Gatwick, Glasgow, Hatfield, Leeds, London, Manchester, Northern Ireland, Reading and Southampton.

www.bdo.co.uk
*Including exclusive alliances of BDO Member Firms. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Services Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. BDO LLP is the Data Controller for any personal data that it holds about you. We may disclose your information, under a confidentiality agreement, to a Data Processor (Tikit Ltd). To correct your personal details or if you do not wish us to provide you with information that we believe may be of interest to you, please contact Gaynor Appleyard on 0113 290 6151 or email gaynor.appleyard@bdo.co.uk Copyright April 2012. BDO. All rights reserved.

This document is printed on 9lives 80, a paper containing 80 per cent recycled fibre and 20 per cent virgin Totally Chlorine Free (TCF) fibre sourced from sustainable forests. 9lives 80 is produced by an ISO 14001 accredited supplier.