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| Chairman's Statement
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Introduction – Another Great Year On behalf of the Board I am delighted to report that the Group performed extremely well in 2007 with all of our core businesses yet again delivering record productivity and customer service, and producing record results.In spite of the challenging global financial market conditions towards the end of the year, the financial strength of Severfield-Rowen combined with increasing demand for the Group’s differentiated services, underline our confidence in the Group’s long-term growth prospects. Overview - Further Growth In 2007 underlying operating profit (before amortisation of acquired intangible assets of £2.2m and the valuation of derivative financial instruments of £2.39m) increased by 46.6% to a record £42.68m (2006:£29.12m) on increased revenue of £300.7m (2006: £295.1m).The underlying operating margin increased to 14.2% (2006: 9.9%). These impressive results were largely due to our quality service level, underpinned by a focus on prime projects. All of our core businesses performed strongly with a focus on high-margin, prime projects. Accordingly, underlying profit before tax was 41.8% higher at £42.9m (2006: £30.3m) producing a 39.4% increase in underlying basic earnings per share of 35.74p (2006: 25.64p). The underlying profit before tax margin increased to 14.3% (2006: 10.3%). Retained profit after tax was £26.4m (2006: £20.9m). The Group’s net assets increased to £116.8m (2006: £66.2m). Following the funding of the Fisher Engineering acquisition and the purchase of the Dalton Property, we ended the year with net borrowings of £48.1m (2006: net funds £38.2m). We increased our leading position in the structural steel industry and are involved in many significant projects and developments. We are particularly pleased that all of the Company’s core subsidiaries in 2007, namely Severfield-Reeve Structures, Watson Steel Structures, Atlas Ward Structures, Rowen Structures, Fisher Engineering and Steelcraft Erection Services, contributed to our record results. Heathrow Terminal 5 Notable among our recent completed projects was Heathrow Airport’s new Terminal 5, which has received worldwide acclaim not only for its impressive visual impact, but more fundamentally for the completion of its construction time and on budget.The Group should be extremely proud of this achievement. Fisher Engineering The acquisition of Fisher Engineering was completed in October 2007 at a total cost of £92.2m of which £36.6m was paid in shares and the balance in cash.Based in Enniskillen, Northern Ireland, the Company has an established track record as a very successful and profitable fabricator in both the province and Eire and its incorporation into the Group has been speedy and effective. We look forward to Fishers making a significant contribution to the Group in 2008 and beyond. At the time of purchase, Ian Cochrane, the Managing Director of Fishers, joined our main board. A planned upgrade investment of some £2.5m was completed in 2007, prior to the acquisition, and is now providing the strategic productivity improvements envisaged. Dalton Airfield Estate During the same period as the Fisher acquisition, the Group acquired the freehold reversion of Dalton, the Group’s headquarters from certain directors and management for the sum of £23.5m.The acquisition has a positive effect and means Severfield regains control of this valuable extensive headquarters and fabrication site thereby giving it both the flexibility in further development and an increased asset base. Board Changes ChairmanshipWith effect from the close of the Company’s AGM on 30 May 2008 I will step down both as Chairman and Main Board Director of Severfield-Rowen. Having been first Deputy Chairman for a numbers of years, then Chairman for the last ten years, it is time to pass on the baton. In all those years it has been an honour to be part of the team that has made Severfield the pre-eminent force in our industry. It has furthermore been a privilege to work alongside first the creator of the modern Severfield, John Severs, and latterly the team that I have no doubt will take it forward to further prosperity and success, namely Tom Haughey, Peter Emerson, and their management colleagues. Shareholders should have every confidence that the future of Severfield is in good hands and I express sincere thanks to all my colleagues and our employees for their friendship and support to me over many years. My replacement as Chairman is to be Toby Hayward. Toby provides both valuable accounting background, being a Chartered Accountant, qualifying with Deloitte and Touche, and has very extensive city experience. For the last 2½ years he has been with Jefferies International Limited. John Featherstone Also with effect from the close of the Company’s AGM, John Featherstone, one of our non-executive directors will be standing down. I have known John since he joined our board twenty years ago, as our then sole non-executive and he has provided invaluable support throughout that time. The Company owes him much gratitude and wishes him and his wife health, happiness and a lengthy and vibrant retirement. Board Re-organisation Taking into account my departure and that of John Featherstone, the decision has been taken to rationalise and streamline the Board structure. Accordingly, with effect from close of business of the forthcoming AGM, Peter Ellison, Brian Hick, Nigel Pickard and Ian Cochrane will step down as Main Board members but will of course continue as executive managing directors of their own companies being respectively Steelcraft, Severfield-Reeve, Atlas Ward and Fisher Engineering. I express mine and the Board’s appreciation of their important support to the Main Board and look forward to many years of continued contributions to the Group through a new Executive Management Committee. Proposed Board structure post AGM
Employees - Key to Success The consistent achievements of the Group continue to reflect directly on the excellent management and workforce.The Directors’ sincere gratitude is extended to them. Outlook - Still Positive The Group’s prospects are very good.Our position remains robust and demand for our services continues to be significant, particularly larger projects, as exemplified by our record order book and as observed by other leading construction contractors. We have begun this year well and are confident of further success in 2008 and beyond, including the Company’s expressed objective of exploring overseas ventures. Peter Levine |
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