CEO's Review (2010 Preliminary Results)

Tom Haughey
Chief Executive Officer

Overview

In 2010 Severfield-Rowen traded through some of the most difficult conditions seen by the UK industry in the last few decades.

It faces the challenges of 2011 in a determined but pragmatic manner and is now more optimistic of a partial recovery in demand during 2012.

Business

The companies within the Group have displayed their individual strengths which have collectively enabled the Group to trade profitably and competitively in the last 12 months.
Features such as close commercial interaction, design capability, cost base, volume outputs, experience and co-ordinated steel erection, together with product range have been key in growing market share in such difficult circumstances.

Internationally, the Company is successfully establishing long-term positions in India and the Middle East.

Order Book

The order book for the UK based operations of the Company stands at a healthy £226m, as it continues to secure business from all of the sectors making up UK demand.

The pipeline of enquiries is more encouraging than six months ago, however a large proportion of the work will be for commencement in 2012.

Costs

The Company specifically targeted cost reductions across all businesses at the end of 2009.
These improvements have provided for our resultant competitiveness throughout 2010.
Further cost reduction initiatives remain under review and development, including a procurement related initiative.

Prices and Margins

Market prices bottomed in the first half of 2010 and, while remaining relatively low, have moved in line with the steel material developments of the international market.

Margins have remained subdued with little improvement in the supply/demand balance of the UK market.

India

In November 2010, the joint venture (JSSL) manufacturing facilities at Bellary were officially opened and attended by approximately 200 guests from the Indian construction industry.

The business is now designing, drawing, fabricating and erecting quality structural steelwork for the growing Indian market.

Four months after the opening, the order book currently stands at £33m, demonstrating the value of the new service on offer to clients in India.

These developments underpin the Company's confidence that it can realise its financial and growth ambitions in India.

Projects

• 2012 Olympic Stadium
• 2012 Olympic Media Centre
• 2012 Olympic Handball Arena
• 2012 Velodrome
• 2012 Olympic Media Centre
• ArcelorMittal Orbit
• Heathrow Terminal 3
• Sirius Academy, Hull
• Co-op, Glasgow
• Mann Island Development, Liverpool
• Baker Street Commercial Office, London
• Chivas Bros Warehouses, Mulben
• Thameslink Viaduct Borough Market, London
• Saica Paper Mill Development, Partington
• Winifred & Holtby School Development, Hull
• Melior College Development, Scunthorpe
• The Shard of Glass Commercial Office, London
• Vestas Manufacturing Facility, Isle of Wight
• National Indoor Sports Arena & Velodrome, Glasgow
• Blackfriars Bridge & Thameslink Station, London
• Heathrow Terminal 2A
• Portlaiose Retail Development, Ireland
• Titanic Quarter Development, Belfast
• Brighton FC Stadium
• Co-op, Andover
• Sackville Street Commercial Office, London
• Bombardier Aerospace Development, Belfast
• Gatwick North Terminal
• Cannon Place Commercial Office, London
• Medical Research Council, LMB, Cambridge
• Bankside Residential Building, London

Business Investment

UK investment was at reduced levels compared to recent years but included state-of-the-art milling capability at Watson's (for high tolerance steelwork) which is being used on the ArcelorMittal Orbit structure at the 2012 Olympic site.

Corporate Social Responsibility

The Company is proactively seeking to take a leadership position in the areas of health, safety and sustainability and is implementing a strategy of continuous improvement in these key areas of our business.

There are three branded strands to our "Steel Futures" strategy;

Sustainable Future

• Community and stakeholder engagement
• Leadership and people development
• Cost reconciliation and profitable growth
• Market leading innovation
• Performance management and development
• Supply chain partnering

Safe Future

• Safety leadership
• Behavioural Safety
• Safety 'Golden Rules'
• Health and wellbeing
• Safety in design
• Communications

• Carbon management and reduction
• Transport policy and strategy
• Waste and recycling
• Renewable energy
• Responsible sourcing of materials
• Water management

A challenging plan supporting this vision has been implemented and we look forward to reporting good progress in 2011.

Risk Management

The Company has a proactive and formal approach to Risk Management.
During the year, another comprehensive review of its risk profile and risk management process was undertaken in conjunction with Willis.
The emphasis changed from previous reviews to reflect the more challenging environment within which it is now operating and the greater international dimension to its business.
A more complete review of detailed risks and mitigating factors will be incorporated in the Annual Report and Accounts.

Summary

The Company remains pleased with its relative performance in the very challenging UK market place.
The UK based operations have shown their strengths and competitiveness to produce an overall successful performance in the last twelve months.
We commence this year with a good order book, but recognise that UK demand in 2011 remains weak.

In India, we now have a very strong order book and will continue our drive for growth in those markets.

We see a partial improvement in UK demand and mix emerging in 2012, which, while not a comprehensive recovery, will present the Company with good opportunities.

Tom Haughey
Chief Executive Officer