Building a solid
platform for growth
Annual report and accounts for the year ended 31 March 2014 Stock code: SFR www.severfield.com
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plc
Annual report and accounts for the year ended 31 March 2014
Welcome to our 2014 annual report
Severfield plc is the largest specialist structural steelwork group in the
UK, with a growing presence in India and a reputation for performance
and value. Our vision is to be recognised as world-class leaders in
structural steel, known for our ability to deliver any project, to the
highest possible standards.
Five reasons to invest
Market leading UK position —
well positioned to benefit from
a future recovery in the wider
UK construction market.
Strong balance sheet —
rights issue provides greater
operational and financial
flexibility.
Unrivalled experience
and capability in design,
fabrication and construction
of steel structures.
Operational improvement
and cost savings programme
under way — operating
margin target remains
5 per cent to 6 per cent in
current market conditions.
Established foothold in the
developing Indian market —
good production capability
with further investment made
to support expansion.
Investor website
We maintain a corporate website at www.severfield.com containing a wide range of
information of interest to institutional and private investors including:
• Latest news and press releases
• Annual reports and investor presentations
Getting around the report
View more content within
this report
Find out more information on our
website: www.severfield.com
Our core values
/Safety
/Customer focus
/Integrity
/Commitment
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What’s inside
06
Strategic report
Overview
2013/14 highlights and milestones
Chairman’s introduction
Our business and strategy
25
03
Case study: Aldgate Tower
22
Our performance
Chairman’s introduction
Our financials
Our business and strategy
Group at a glance
Our business model
Marketplace
Market sectors
Our strategy
JSW Severfield Structures
Our performance
Operating review
Financial review
Corporate social responsibility
Key performance indicators
How the business manages risk
Our governance
Board of directors
Executive committee
Chairman’s review
Corporate governance report
Audit committee report
Directors’ report
Directors’ remuneration report
— Letter from the committee chairman
— Policy
— Implementation
Directors’ responsibilities statement
Our financials
Independent auditor’s report
Consolidated income statement
Consolidated statement of comprehensive
income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
Five year summary
Financial calendar
Company balance sheet
Notes to the Company financial statements
Shareholder information
Addresses and advisers
01
02
03
08
10
14
16
18
20
24
28
32
38
40
46
48
50
52
58
61
64
66
73
81
84
87
88
89
90
91
92
121
121
124
125
130
82
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www.severfield.comStrategic reportOverviewStock code: SFR 02
2013/14 highlights
and milestones
Revenue
£231.3m2013: £318.3m
Underlying* operating profit
(before results of JVs and associates)
Underlying* operating margin
(before results of JVs and associates)
£7.6m
2013: (£19.2m)
Operating loss
(before JVs and associates)
£0.1m
2013: £26.5m
Loss after tax
£2.6m
2013: £23.1m
3.3%
2013: (6.0%)
Underlying* profit
before tax
£4.0m
2013: (£21.5m)
Underlying* basic earnings
per share
0.88p
2013: (10.78p)
• UK underlying operating margin (before JVs and
• amortisation of acquired intangible assets – £2.7m
* Underlying profit measures are stated before:
associates) recovery to 3.3 per cent (2013: -6.0 per cent)
• Share of losses from Indian joint venture of £3.0m (2013:
£0.3m loss)
• Period end net funds position of £0.3m (31 March 2013:
£41.2m net debt)
• Further restructuring of largest business, Severfield (UK)
Limited, concluded successfully
• Operational improvement programme progressing well
and continuing
• UK order book solid at £168m at 1 May 2014
•
(1 November 2013: £172m)
India order book of £41m at 1 May 2014 (1 November
2013: £34m)
• Development of clear Group strategy in addition to
anticipated recovery in UK market means the Group is
well placed for future growth
(2013: £3.4m)
•
•
•
•
restructuring and redundancy costs – £2.6m (2013: £0.8m)
retirement of acquired intangible assets – £2.4m (2013: nil)
impairment of investment in associates – £0.4m (2013: nil)
refinancing related transaction costs – nil (2013: £2.1m)
• contract legal costs and provision movements – nil
(2013: £1.1m)
• movements in valuation of derivative financial
instruments — nil (2013: £0.1m favourable)
•
the associated tax impact of the above, together with the
impact of a reduction in future corporation tax rates on
deferred tax liabilities.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014
John Dodds Chairman
We expect 2014/15
to be another year
of progress.”
03
Chairman’s introduction
2013/14 was a year of transition for the Group. We have made
a number of changes to the board, including the appointment
of a new chief executive officer and three new non-
executive directors, and the Group executive team has been
strengthened. We now have a strategy in place for future
growth, a clear vision for the future and a new Group branding.
The Group reported underlying operating
profits for the year of £7.6m which
represents a recovery in the UK operating
margin to 3.3 per cent which is a good
step towards our previously stated
target of 5–6 per cent by 2015/16 in
current market conditions. Underlying
profit before tax of £4.0m represented a
significant turnaround from the underlying
loss of £21.5m in the 15 months to 31
March 2013. The UK order book of £168m
remains solid.
This year has seen stabilisation and
recovery in the UK business, but
disappointment in India. The recovery in
UK operating margins reflects the positive
effects of the reorganisation undertaken
in the first half of the year in the Group’s
largest trading entity, Severfield (UK)
Limited, together with the Group’s ongoing
operational improvement programme.
Performance from the Indian joint venture
was disappointing. The Group’s share of
losses for the year was £3.0m reflecting
contract delays and timing variations
which led to underutilisation of the
factory. This situation was exacerbated
by the effects on the Indian market of
uncertainties around the election process.
In response, significant changes have been
made to the senior management team in
India and a new business development
and operational improvement programme
has been implemented. We believe the
market in India continues to present
significant future growth opportunities,
particularly in light of the recent election
results.
Find out more in the operating
review on pages 24 to 27
The rights issue which launched in
February 2013 with the overwhelming
support of our principal shareholders,
was completed in April 2013, significantly
strengthening the Group’s balance sheet.
The Group ended the year with net funds
of £0.3m.
Find out more in the financial
review on pages 28 to 31
Board
The composition of our board has changed
substantially over the last 12 months and
has, I believe, a stronger balance of skills
and mix of experience.
Ian Lawson was appointed as chief
executive officer in November 2013,
allowing me to revert to my previous
role of non-executive chairman. Ian has
made an excellent start to his tenure and
has been instrumental in formulating
a fresh strategy and branding for the
business which I am confident will make
a significant contribution to our future
performance. In addition, the executive
team has been further strengthened
with the appointment of Ian Cochrane as
chief operating officer, Mark Sanderson
as Group legal director and Company
secretary, and Lee Mills as Group safety,
health and environment (SHE) director.
Alun Griffiths joined the board as a
non-executive director with effect from
1 May 2014 and Kevin Whiteman and Tony
Osbaldiston will join the board with effect
from 19 July 2014. In combination, they
bring to the board a wealth of experience
that will be of significant benefit to the
Group as we continue our strategic and
operational progression.
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Chairman’s introduction continued
Furthermore, a new vision was expressed
for the Group, and its core values. The vision
is ‘to be recognised as world-class leaders
in structural steel, known for our ability to
deliver any project, to the highest possible
standards’. The core values are safety,
integrity, customer focus and commitment.
Find out more about strategy on
pages 18 and 19
Outlook
Overall we expect 2014/15 to be another
year of progress. We believe we are well
placed, with the right leadership team, to
deliver stronger growth in the future. We
have excellent relationships with a number
of key clients, unrivalled capacity and
performance, a solid UK order book and
have implemented a series of wide-ranging
operational improvements both in the UK
and India.
We now look ahead to a more optimistic
industry outlook whilst not underestimating
the challenges that lie ahead.
John Dodds
Non-executive chairman
11 July 2014
Two non-executive directors will retire
from the board following the year-end:
Keith Elliott having served fifteen years,
including as senior independent non-
executive director, and Toby Hayward having
served six years, including as non-executive
chairman and chairman of the audit
committee. I would like to wish both all the
best for the future and thank them for all
their efforts within the business.
Find out more about corporate
governance on pages 52 to 57
Employees and safety
We remain committed to the health and
safety of all our people and with the
appointment of a new SHE director are
looking forward to continued improvements
in our performance in this area as we
strive constantly to adopt the best safety,
health and environmental practices. Our
key strength remains the dedication and
commitment of our people and on behalf of
the board I would like to thank them for their
hard work, loyalty and support especially in
the difficult times experienced recently by
the Group.
Find out more about employees
and safety on pages 32 to 37
Strategy and branding
Following Ian’s appointment as chief
executive officer, the Group undertook
a review of its brand and strategy. This
resulted in the change of the Group’s
name to Severfield plc, a simpler naming
structure for the main operating businesses,
and a new branding strategy to enable
improved and clearer communication
with all stakeholders in the future. A
significant amount of work was also
undertaken in developing a new long-term
strategy, the core of which revolves around
the continuation of the UK operational
improvement plan to ensure that we
have a sustainable, profitable base for
the business. The strategy will provide a
platform for continued growth and we will
be looking more actively for opportunities to
expand the business both in the UK and in
overseas markets.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 05
Project: BNP Paribas
Location: London
Tonnage: 3,000
Client: BNP Paribas Real Estate
Main contractor: Vinci
Completion: 2014
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Severfield plc Annual report and accounts for the year ended 31 March 2014
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www.severfield.com Stock code: SFR
Strategic report
Our business and strategy
07
Strategic report
Our business and strategy
Group at a glance
Our business model
Marketplace
Market sectors
Our strategy
JSW Severfield Structures
08
10
14
16
18
20
Project: Francis Crick Institute
Location: London
Tonnage: 2,300
Client: UKCMRI
Main contractor: Laing O’Rourke
Completion: 2014
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08
Group at a glance
The combined resources of our Group of companies have the design
skills, engineering skills and experience to handle complex projects
over a diverse range of market sectors. We can facilitate the production
of a wide range of steelwork packages, from projects requiring added
value engineering content to basic structural work.
Severfield (UK) Limited
Severfield (UK) Limited combines high volume structural steel
production with specialist design and engineering expertise
to deliver a complete service to clients from project concept to
completion. It has a combined capacity of around 100,000 tonnes
of fabricated steelwork per year, the most extensive product
range and capability in the industry and its own highly skilled site
construction teams.
Its Dalton site in North Yorkshire boasts ten state-of-the-art
production lines where modern manufacturing and painting
processes are undertaken in a controlled environment. The
streamlined, high volume and efficient nature of this facility is
geared for strong repeat business in the structures market. Its
Lostock site in Lancashire can also take on more difficult or complex
work with the capability of operating in ‘challenging’ environments
such as live railways, airports, public places and city centres.
Severfield (Design & Build) Limited
Severfield (Design & Build) Limited, located in Sherburn, near
Scarborough, is the principal design and build steelwork
contractor for distribution warehouses and low rise structures in
the UK.
The company designs, fabricates and constructs structural
steelwork and portal frames principally for the warehouse,
distribution and industrial sectors. The company also has a
specialist steel stair and metalwork division and expertise in the
commercial, residential, health and education sectors.
With an annual capacity of 25,000 tonnes, the company has a
business, skill base and client profile which is complementary to
the rest of the Group.
Severfield (NI) Limited
Severfield’s base in Northern Ireland, Severfield (NI) Limited
has a strong reputation for delivering quality constructional
steel products in the UK and Irish structural steel market. It
has contributed to such notable projects as Leadenhall Tower,
Dundrum Shopping Centre in Dublin and Belfast’s Odyssey Arena
and Titanic Signature Building.
The company has an annual capacity in excess of 25,000 tonnes
with full-service capabilities and is equipped with the latest
state-of-the-art manufacturing processes.
The site’s highly skilled workforce includes a directly employed site
construction team.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 09
Severfield (UK)
(Previously Severfield-
Watson Structures)
Dalton, North Yorks and
Lostock, Lancashire
Severfield
(Design & Build)
(Previously Atlas Ward
Structures)
Sherburn, North Yorkshire
JSW Severfield
Structures
(Indian-based
joint venture business)
Mumbai, India
Severfield (NI)
(Previously Fisher
Engineering)
Enniskillen, Co. Fermanagh
JSW Severfield Structures Limited
Located adjacent to JSW Steel’s plant at Vidyanagar, in the
District of Bellary, Karnataka, India, the site has an annual
capacity of 60,000 tonnes and consists of two fabrication lines
and a plate line.
Plant investment has been significant, with many of the Group’s
innovative features being incorporated into the joint venture.
The company is involved in the design, fabrication and
construction of structural steelwork to principally service the
Indian markets.
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www.severfield.comStock code: SFROur business and strategyStrategic report 10
Our business model
What we do
Severfield is the UK’s premier structural steel group, operating
across four sites providing unrivalled capacity and capability. We
also have an expanding operation in India, which forms part of
our international growth plans. The Group’s businesses perform
every part of the fabrication and construction process from initial
scheme design, through detailing, specification and manufacture to
the eventual handover to our clients of a quality product on-site.
The Group’s proven strengths are its unrivalled capacity and
performance, iconic and high quality products, engineering
excellence and customer service.
Our customers
Clients serviced by the Group cover a broad range of disciplines
from construction contractors and developers, to engineers and
architects. Contractors include Brookfield, BAM, Laing O’Rourke,
Sir Robert McAlpine, MACE, Morgan Sindall, Skanska and Balfour
Beatty, and developers include Stanhope, Hammerson, British
Land, Land Securities, Network Rail, Westfield and Grosvenor. We
have also developed structures for clients such as Arla Foods,
ASDA, Sainsbury’s, Jaguar Land Rover and developers such as
ProLogis and Gazeley.
Resources
The Group has the largest capacity and capability of any steel
fabrication company in the UK and can offer great choice, value
and flexibility thanks to our national network of factories and the
technical expertise of our people.
The Group is equipped with the latest state-of-the-art
manufacturing and painting processes and has a highly skilled
workforce of over 1,200 staff including an in-house construction
team.
We have the design, experience and engineering skills to serve a
diverse range of market sectors, from education and hospitals to
bridges and commercial offices.
Partners
A key ingredient for the long-term success of any business is the
ability to forge strong and lasting relationships with supply chain
partners, which provides clients with high value and consistent
reliability. The Group spends a high percentage of its cost of sales
on goods and subcontractor services. Careful management of
the supply chain is essential to drive efficiency and suppliers
are monitored to ensure that maximum benefits are delivered to
clients and the Group.
As the UK’s largest steelwork contractor, we engage with clients
and the supply chain wherever we operate and long-term
relationships are built with those who can meet the Group’s
standards in quality and sustainability. This helps to improve
the interfaces between disciplines as we strive to optimise
construction value and performance both now and in the future.
FABRICATE
FABRICATE
DESIGN
DESIGN
VALUE
GENERATION
VALUE
GENERATION
CONSTRUCT
CONSTRUCT
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 11
Value generation
All of the Group’s revenue and profits are generated from the
design, fabrication and construction of structural steelwork
and its related activities. Our state-of-the-art manufacturing
facilities have been established to generate profit and surplus
cash flow.
Close management of our contracts and cost base is critical to
our success particularly in winning new contracts, reinvesting
in our business and seeking further opportunities for growth.
The Group’s operational improvement programme, the objective
of which is improved risk assessment and operational and
contract management processes, is central to the generation
of value.
Good cash generation and balance sheet management provide
a solid foundation for the Group.
Our competitive advantage
The Group’s competitive advantages derive from its scale,
client focus, flexibility, experience, cost base, productivity,
supply chain strengths and integrated approach from design to
construction. We have unrivalled capabilities and our facilities
are the best in the UK and possibly in Europe.
We approach every project, from the highly technical to basic
structural work, with the same level of safety, professionalism,
commitment, care and customer service.
The dedication, expertise and experience of our workforce
ensures that we offer more skills and variety than any other UK
steel contractor. We are committed to matters of health and
safety, sustainability, ethics and client and staff engagement.
Where we fit in the value chain
DESIGN
The Group’s design department consists of highly skilled and motivated professional structural and civil
engineers with specialist knowledge of structural steelwork design.
The design process offers our clients innovative concepts and solutions. We are able to offer ‘value engineering’
through the close guidance of our consulting engineers at the concept of the project and with the assistance of the
latest state-of-the-art computer software for 2-D and 3-D building information modelling (BIM), analysis and design.
Our advice on material choices, fabrication, fire protection, surface treatment and construction techniques can
often lead to significant project savings and efficiencies.
Our engineers are also involved in temporary works to suit site construction and buildability issues. Working closely
with the Group’s in-house construction team, we ensure the most efficient and safest solutions for our clients’
needs. This expertise is essential for high-rise towers and other complex structures undertaken by the Group.
FABRICATE
The Group’s fabrication facilities include expansive stockyard areas and in-line cutting, fabrication, welding and
painting and some of the largest finished goods storage areas in the industry.
Operational investment has been significant and continuous over the years, with many innovative features
being developed and incorporated. Modern, state-of-the-art processing equipment has been employed with full
consideration for design, supporting layout, logistics, integration and construction.
Haulage for our steel products is managed by WS Transportation, which boasts a range of state-of-the-art
equipment such as new trailers, trailer safe systems, cycle aware cameras and audible warning features for city
centre deliveries.
CONSTRUCT
The Group has its own highly trained construction workforce which provides services for all of its construction
requirements. Working closely with the project management team, they are leaders in steel construction and
utilise the latest equipment on-site. The Group is an industry leader in construction methodology.
The Group also has a large and highly experienced contract management team. Each contract manager is the
single point of contact with each client and is supported by all resources within the Group. Our contract managers
engage with our clients and the supply chain to ensure optimum communication and performance in all aspects
of the project, including site construction and administration.
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DESIGN
DESIGN
FABRICATE
FABRICATE
VALUE
GENERATION
VALUE
GENERATION
CONSTRUCT
CONSTRUCT
www.severfield.comStock code: SFROur business and strategyStrategic report 12
Our business model continued
Health and safety
The well-being and safety of our employees,
clients, suppliers and subcontractors are
paramount and directly impact on the
commercial viability of our business.
The directors, through the implementation
of our safety, health and environmental
philosophy, encourage each employee and
subcontractor to strive constantly to adopt
the best safety, health and environmental
practices. Our dedicated SHE director has
overall responsibility for health and safety
operations, with the aim of minimising the
risk of incidents and generally promoting a
proactive health and safety culture.
A principal aim of the board is to ensure,
through example and encouragement,
that we behave ethically and responsibly,
particularly in the fields of health and safety
and environmental management.
Training standards are high within the Group
to ensure performance excellence and
health and safety standards and we work
closely with equipment manufacturers to
ensure that efficiency and safety are always
at the forefront of operations.
The Group’s health and safety team
monitors all sites on a regular basis to
make sure these essential standards are
maintained. We have developed our own
unique safety handrail solution (Sever Safe)
and a tool-tethering system.
The items below support our health and
safety policy and establish the areas that
are essential to achieving our main goal,
namely to ensure each and every employee
can enjoy a safe working environment, with
no exceptions.
Leadership — people at all levels have
responsibility for their own health and
safety and should set an example for others.
Our management is accountable for health
and safety and will demonstrate leadership
through personal example.
Hazard, risks and control measures —
we will identify the hazards and risks
associated with our business activities and
introduce appropriate control measures to
challenge them in the changing environment
and aim for continuous improvement.
Health and well-being — we will promote
and improve the health and well-being of all
Group employees.
Competence and behaviour — we will
ensure our employees are trained so they
are skilled and qualified for their occupation
and therefore can contribute to an improved
health and safety performance.
Incident analyses and prevention — we
will ensure work-related accidents and
near-misses are reported, investigated
and analysed to prevent reoccurrence.
The investigations will focus on root cause
and recommendations shared across the
business.
Safety in design — our designers and
construction management teams will focus
on the design aspect of the structure with
the objective to erect the structure more
safely and efficiently.
Monitoring, audit and review — we will
conduct regular internal audits on our
management systems in order to achieve
our objectives and targets to drive the
health and safety culture of our business
forward.
DESIGN
FABRICATE
VALUE
GENERATION
CONSTRUCT
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 13
Sustainability
Quality and accreditations
Innovation
Fabsec is the unrivalled market leader
in the design, fabrication and supply of
long span cellular and bespoke plated
beams. It is a joint venture of four major
UK companies at the forefront of the UK
construction industry including the Group.
FABSEC® beams and FBEAM® software
are used on a variety of prestigious
construction projects across the UK.
The FABSEC® production line at Dalton,
which has a capacity in excess of 30,000
tonnes per annum, is a fully self-contained
production facility. The process provides
the structural steelwork sector with a full
range of highly efficient plated sections,
optimal section profiles and shop-applied
intumescent coatings.
We are committed to minimising the
environmental impact of our business
through sustainable practices and
continuous improvement of our
environmental performance.
The following items support our
environment policy and establish the areas
that are essential to achieving the policy.
Management systems — to implement
effective management systems and to
encourage all our employees to act in an
environmentally responsible manner.
Continuous improvement — to improve
the environmental performance of
our business through research and
development of new technologies,
preventing and reducing our emissions and
minimising waste.
Sustainable development — to contribute
to sustainable resources by using energy
and raw materials more efficiently, thus
optimising our natural resources.
Monitoring and reporting — to monitor
and audit our environmental performance,
report progress on policy objectives and
strive for continuous improvement in our
targets to achieve a more environmentally
friendly business.
Find out more about health and
safety and sustainability
on pages 32 to 37
Find out more about strategy
on pages 18 and 19
Find out more about risk
management on pages 40 to 43
Quality assurance is a fundamental
feature across all of our operations. From
initial enquiry through design, materials
ordering, fabrication and construction, we
employ processes designed to ensure full
customer satisfaction.
Quality systems assumed through the
British Standards Institution (BSI),
together with welding control through The
Welding Institute (TWI), operate to ensure
customer requirements are recognised and
delivered. Registration under the Qualified
Steelwork Contractors Scheme provides
extra confidence to customers.
The CE mark is a claim that a particular
construction product can be used within
the European Union and is based on
the principal that the product is ‘fit for
purpose’. All of the Group’s manufacturing
facilities are CE marking compliant and
have been independently assessed to
meet the requirements of Execution Class
4. Accordingly, our clients can be assured
that their steelwork is in compliance with
the latest Europe-wide legislation and is
manufactured to a level of quality that is
second to none.
The Group has a strong policy of
continuous improvement and seeks to
enhance corporate management through
proactive development. New facilities and
procedures are integrated into the relevant
quality assurance system as they are
adopted.
The Group is committed to providing our
clients with the best possible service
and protecting our workforce wherever
we operate. By gaining the necessary
certification through recognised bodies,
we provide the reassurance that we are
properly trained and qualified to carry
out our contractual and partnership
obligations.
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www.severfield.comStock code: SFROur business and strategyStrategic report 14
Marketplace
The Group’s strategic focus is to increase its UK market
share from construction activities, to enter new market
sectors and to build market share from its existing
European opportunities.
Marketplace
Outlook
UK order book
The total value of structural steel output
in the UK, estimated by the British
Constructional Steel Association (BCSA),
was approximately £1.6bn in 2013. This
represents UK structural steel production
for calendar year 2013 of 848,000
tonnes. The value of this market, which is
considered addressable by the Group, is
approximately £1.1bn, which represents
production levels of 500,000 tonnes.
The Group’s potential production capability
is approximately 150,000 tonnes, which
represents 15 per cent of the current
estimated capacity of the UK market of
1,000,000 tonnes. Its current share of the
UK market is approximately 90,000 tonnes,
resulting in an addressable market share for
2013 of c.18 per cent and a total UK market
share for 2013 of c.11 per cent.
The Group’s key market sectors and
estimated market share are shown below.
Market conditions have remained
challenging over the past year, as a
continued squeeze on margins has put
pressure on contractors and, most notably,
the supply chain. Nevertheless there are
signs that the market will pick up towards
the end of 2014. The Group is well placed for
future growth given the anticipated recovery
in the core UK market driven primarily
by infrastructure and private sector
construction growth.
Forecasts prepared by the BCSA over the
next three years show an expected increase
in UK structural steel production, including
in the Group’s key markets of power and
energy, stadiums and leisure, commercial
offices, industrial and health.
The Group has a well-diversified order book
of £168m (May 2014) which represents
approximately eight months of forward
production capacity. It has reduced in overall
terms over the year from previous levels but
this reflects both the capacity reduction
arising from the reorganisation of Severfield
(UK) Limited, as well as a longer negotiating
period on major contracts arising from our
improving risk management processes.
The market has been stable during the
year but prices have remained competitive
and we continue to focus on ensuring that
there is a fair balance of risk and reward
within the contracts. The current order book
does not yet reflect the positive impact
of the improvement in market conditions
anticipated towards the end of 2014.
Our sectors
Sector
Industrial and distribution
Commercial offices
Education
Power and energy
Agriculture
Health
Leisure
Bridges
Retail
Other
Export
Total
Market tonnage in 2013
(000s)
350
88
88
37
35
31
31
25
20
53
90
848
(%)
42%
10%
10%
4%
4%
4%
4%
3%
2%
6%
11%
100%
Group market
share (estimated)
5-10%
30-40%
<5%
20-30%
0%
5-10%
20-30%
<5%
40-50%
5-10%
<5%
Find out more about strategy
on pages 18 and 19
Find out more about KPIs on pages
38 and 39
Find out more about risk
management on pages 40 to 43
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 15
UK order book
Sector
Commercial offices
Transport
Stadiums and leisure
Industrial and distribution
Power and energy
Data centres and other
Retail
Bridges
Health and education
November 2013
£172m
May 2014
£168m
Future trend
27%
22%
5%
16%
12%
5%
6%
3%
4%
31%
18%
18%
11%
7%
6%
4%
3%
2%
Pipeline/prospects
Market sectors
The Group continues to monitor the future
pipeline of work which is likely to convert
to orders in the near term. This provides
forward visibility of future orders and helps
to facilitate production planning. The Group’s
pipeline of future orders is encouraging and
includes prestigious developments in the
commercial offices, stadiums and leisure,
data centres, industrial (warehousing) and
transport sectors.
With our extensive experience in multiple
sectors, the Group’s state-of-the-art
facilities provide our clients with unrivalled
services and value in the execution of their
projects. Our structures serve people every
day, whether for work, play or travel, or to
provide essential services, from health to
education. The Group’s key market sectors
are discussed in detail on pages 16 and 17.
Current estimated
UK capacity
1,000,000
tonnes
Total UK production
of constructional
steelwork
848,000
tonnes
Group share of UK
market
90,000
tonnes
Group potential
capacity
150,000
tonnes
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Market sectors
Stadiums and leisure
Retail
Stadiums and leisure complexes are important sectors for the
steelwork industry. The Group has an unrivalled record in the
design, engineering and building of many of the UK’s best known
sports hubs, from the world-renowned Olympic Stadium to
Arsenal Football Club’s Emirates Stadium.
We have also provided timely and cost-effective solutions for
key leisure destinations, ranging from exhibition and conference
centres to state-of-the-art concert arenas. Other Group
successes include Wimbledon Centre Court, Leeds Arena,
Resorts World, Birmingham and Tate Modern Gallery.
Retail developments are becoming increasingly complex and
ambitious as towns and cities position themselves as attractive
shopping destinations in today’s competitive economy. Major
redevelopment in cities and out-of-town shopping facilities are
challenging projects in their own right, requiring different skills
and services. Project management and supply chain linkage are
vital to successful project execution. Group successes include
Westfield Shopping Centre, Hereford Old Livestock Market, John
Lewis, Birmingham and projects for ASDA, Sainsbury’s, Tesco
and Aldi.
Power and energy
Commercial offices
Power stations, sustainable energy facilities and waste
processing plants form an important part of our business. Our
professionalism, extensive sector experience and ability to meet
specific engineering requirements enable us to continue serving
these vital sectors in the UK and other parts of the world. Group
successes include Essex Waste Treatment Plant, Cardiff, Suffolk
and Cleveland Waste-to-Energy plants, Sellafield and Staythorpe
Power Station.
Through our work in the commercial office sector, we have made
a significant impact on the cityscapes of London and other major
commercial hubs around the country. We ensure our structural
steel methods, products and processes keep up with the needs
and challenges of this rapidly evolving sector. Our success is
underpinned by specialist products such as FABSEC® and
Firebeam®, together with other initiatives. Group successes
include 5 Broadgate, Aldgate Tower, Moorgate Exchange, Fitzroy
Place, BNP Paribas and Mark Lane.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 17
Industrial and distribution
Transport
The Group is a trusted partner to the industrial, warehousing
and distribution sectors, thanks to our strong reputation for
engineering excellence and versatility. Unrivalled capacity, the
ability to meet diverse and rigorous requirements and other
strengths such as design capability, supply chain co-ordination
and delivery speeds set us apart from our competitors. Our
clients cover a wide range of sectors from automotive to retail,
with major contracts including projects for ASDA, Sainsbury’s,
Tesco, Airbus and Jaguar Land Rover.
Transportation is a key market sector for the Group, which has
delivered many prestigious projects, from multiple contracts
with Heathrow Airport, to the pioneering Emirates Cable Car,
which carries approximately two million passengers each year.
Our extensive transportation expertise includes international
airports, rail facilities and multi-storey car parks. Services
range from design, planning and high-volume steel supply, to
fabrication and construction. Other Group successes include
Dublin International Airport, Birmingham New Street Station
and Manchester Victoria Station.
Health and education
Bridges
We have a long history in providing world class steel solutions
for hospitals, which are increasingly being specified with
structural steel frames. Key factors giving us an advantage
in this sector include span length, enhanced flexibility,
adaptability and speed of construction. We have also worked
with many education clients and contractors over the years,
each project bringing its own specific requirements and
challenges. Group successes include Francis Crick Institute,
Southmead Hospital and the University of Strathclyde.
As a key element of a country’s infrastructure, bridge building
requires skill, precision and quality on a large scale. Many
of the steel bridges we create become famed landmarks
in their own right. The Group has a strong reputation and
extensive experience in the successful delivery of all types of
bridgework, from major transport routes to footbridges. Group
successes include East Croydon station Footbridge, Gateshead
Millennium Bridge, Thameslink Borough Viaduct Footbridge,
Pulpit Rock Viaduct and Glasgow Smartbridge.
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Our strategy
In 2013/14 a new long-term strategy was developed for the
Group. The core of this strategy revolves around building a
solid platform for continued growth. To support this strategy,
we have articulated a vision for the Group, and its core values.
Identify growth
opportunities
Sustainability
of India
£
Investment in
technology
DESIGN
FABRICATE
Our strategy:
VALUE
GENERATION
Building a solid
platform for growth
Develop
our people
CONSTRUCT
Drive
operational
improvements
and efficiencies
Quality
of service
VISION AND MISSION
VISION
VALUES
Safety
Our vision is to be recognised as world-class leaders in structural
steel, known for our ability to deliver any project, to the highest
possible standards.
There’s a reason it is known as ‘safety first’. We make no apologies for
the fact that profit and loss, deadlines and headlines, all come second
to making sure everyone goes home safely. Every day.
MISSION
Customer focus
As ambitious, innovative leaders in a demanding and ever developing
industry, we will use our collective strengths and resources to build
the capacity required to deliver the structures of the future.
Our clients are paramount in all that we do. We are here to understand
their requirements and meet their aspirations. Together we will deliver
projects of which we can all be proud.
Integrity
We operate in a complex and challenging industry, one that often
requires innovative thinking and a flexible approach to deliver
successful outcomes. The one thing we’ll never compromise on
though is our integrity, which ensures we’re able to maintain the
exceptionally high standards we set for ourselves.
Commitment
We may move with the times, but our long and rich history means
that we have a few old-fashioned beliefs. One of those beliefs is that
you stand by your word. When the Group say we’ll deliver, whatever
challenges lie ahead, you can depend on us to deliver, and to the
highest possible standard.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 19
Identify growth opportunities
Quality of service
In the short to medium-term, our aim is to
capitalise on growth opportunities both in the UK
and in overseas markets as follows:
•
Increase UK market share — growing market
share in areas where the business already
operates.
• Enter new UK market sectors — looking for
new market areas where the business has not
operated in the past, taking advantage of our
existing capacity and capabilities.
• Building from existing European opportunities,
including through working with known
construction companies.
Drive operational improvements and
efficiencies
During the year, recognising the difficult
economic conditions, we launched a
comprehensive Group operational improvement
programme. The objective of this has been
to improve risk assessment, operational and
contract management processes within the
business, which should ultimately lead to an
improvement in operating margins. Our aim is
to restore underlying operating margins to 5–6
per cent in 2015/16 in current market conditions
which, in accordance with the Group’s business
model, should generate surplus cash flow.
Find out more in the operating review on
pages 24 to 27
Sustainability of India
We believe that the Indian market presents great
opportunities for steel fabrication. However, the
poor recent performance of the joint venture has
highlighted that the conversion of the market from
concrete to steel is taking longer than expected.
In response, we have taken actions to improve
the order book, strengthen management, reduce
overheads and improve business development,
which should lead to better future performance.
Our aim is to ensure that the business develops a
sustainable position whilst the market continues
its conversion to steel.
Find out more about India on pages 20 and 21
Our industry experience allows us to better
understand our customers’ own strategic
objectives and enables us to design, fabricate
and construct structural steelwork solutions
to support these objectives. By understanding,
anticipating and responding to customer needs
we aim to build secure, sustainable and mutually
valuable relationships and create lasting
customer satisfaction.
Find out more about our business model on
pages 10 to 13
Develop our people
Our people are at the heart of our business and
are vital to the success of our vision and the
achievement of our strategic goals. Our aim is to
attract and recruit the right person at every level
and to keep them engaged so that we can deliver
our goals and customer commitments whilst
maintaining a safe working environment.
Find out more about developing talent on pages
35 and 36
£ Investment in technology
We will invest in market-leading technology in
the short and medium-term in order to support
the ongoing requirements of the business and
for growth. Capital investment will be determined
by a structured and responsive approach to
meeting customer expectations and as part of a
more general capital replacement programme.
We expect the level of investment to increase to
a replenishment rate of £4–5m per annum in the
future.
Find out more about how these strategic objectives will be
measured through our KPIs on pages 38 and 39
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Mumbai Airport – air traffic control tower
Find out more about strategy
on pages 18 and 19
JSW Severfield Structures
The Group’s joint venture and operations in India are of
significant importance in achieving its strategic growth
ambitions.
Overview
Performance from the Indian joint venture
was disappointing during the year. In
response to this, the Indian management
team was strengthened including the
appointment of Derek Randall as managing
director. In addition, an overhead reduction
programme was initiated, and completed,
and a new business development and
operational improvement programme was
put in place which is expected to generate
a substantial improvement in the future
performance of the business.
Notwithstanding the challenges we faced in
the year, there were some encouraging signs
of operational progress across a wide range
of areas including:
• Continually high quality products and
short and consistent delivery times
which are best in class and appreciated
by clients.
• Full design, fabrication and site
construction services providing design
and build projects to a wide variety of
commercial and industrial sectors.
• Technical predesign services to assist
clients in choosing the best methods
of construction to achieve budget,
timescale, performance and aesthetic
requirements.
• An excellent safety performance across
the business which is recognised,
appreciated and expected by valued
clients.
• The successful completion of our phase
two expansion, improving scope of supply
and increasing capacity to approximately
60,000 tonnes per annum.
• An increasing order book in excess of
£40m.
Current and future projects
The demonstration of value through
design, quality, speed, consistency and
overall professional capability has led to
the successful award of many prestigious
projects from local and inward investors
including:
• A prestigious office project in Bangalore
for NetApp, an American data storage
company. This is designed to use
structural steel for both the core and
frame.
• Our first school building in Mumbai for
Ajmera.
•
Industrial projects including
assignments for L&T, JSW Steel Limited,
Reliance, OPG, Doosan and ITC.
• Commercial projects for Raheja and
Shakespeare.
The future
India remains primarily a concrete
construction market which presents great
opportunity for steel. The Indian market is
now more buoyant after the recent change
in government with market prospects
forecast to improve. The addressable
opportunity for steel fabrication in
construction remains large and the
prospects for conversion from concrete to
steel are expected to improve. The market
potential continues to be reaffirmed in all
the market research that we carry out, both
formal and informal.
Severfield and our joint venture partner
JSW Steel are optimistic that the joint
venture will improve performance and
will grow through market demand overall
improving and through market penetration
as the benefits of total delivered value are
appreciated by clients.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 21
Annual capacity
60,000 tonnes
Site area
65 acres
Order book
£40m+
Current operations
The plant is based in Bellary, Karnataka.
Depending on mix, the capacity is now
approximately 60,000 tonnes per annum
following the successful implementation
of our phase two expansion. The plant
consists of:
• A bit shop, two fabrication lines and
a new bay to provide bespoke off-line
heavy fabrication, tubular products,
specialised multi-coat painting
and further bogey line fabrication if
required.
• An Indisec line to produce sections from
plate and to make cellular beams for
steel design optimisation and improved
floor to ceiling space.
• Off-line facilities to make hand-railing,
stairs and other ancillary products.
• A second joint venture JSW Structural
Metal Decking Limited (between JSW
Severfield Structures and SMD Asia)
which has a metal decking floor line,
also in Bellary.
Locations within India
State-of-the-art plant
• The plant has been designed to
optimise product range, quality and
productivity, as befitting the demands
of the construction industry in India.
•
Incorporating state-of-the-art
technology and processing equipment,
the plant is managed and operated
by highly qualified, experienced and
dedicated people.
• Bespoke plated products and Indisec
are manufactured on-site at Bellary,
Karnataka offering clients a range of
benefits.
• The plant currently utilises around
35,000 square metres of covered area,
and 52,000 square metres of logistics
and storage area. The site is on 65
acres, allowing future expansion.
MUMBAI — Head office
BELLARY — Production plant
BANGALORE — Sales representation and
drawing/design office
DELHI — Sales representation
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Severfield plc Annual report and accounts for the year ended 31 March 2014
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Strategic report
Our performance
23
Strategic report
Our performance
Operating review
Financial review
Corporate social responsibility
Key performance indicators
How the business manages risk
24
28
32
38
40
Project: Glasgow Smartbridge
Location: Glasgow
Tonnage: 286
Client: Glasgow City Council
Main contractor: Farrans
Construction
Completion: 2014
23372.04 16 July 2014 10:30 AM PROOF 8
24
Operating review
Substantial operational
improvements have
been achieved during
the year.”
Ian Lawson Chief executive officer
The development of a clear Group strategy in addition to the
anticipated recovery in the core UK markets means that the
Group is well placed for future growth.
Group overview
UK review
This year has seen stabilisation and recovery
in the UK business, but disappointment in
India. Underlying profit before tax of £4.0m
represented a significant turnaround from
the underlying loss of £21.5m in the 15
months to 31 March 2013. This reflected
both a good recovery in UK operating margins
but also a share of losses from our Indian
joint venture of £3.0m. The rights issue
launched in February 2013 was completed
in April 2013, significantly strengthening the
Group’s balance sheet. Good working capital
management during the year has resulted in
a positive net funds position of £0.3m at the
year-end.
I was appointed in November 2013 which
enabled John Dodds to step back into his
role as non-executive chairman. I have
continued to drive the UK operational
improvement programme which started
under John’s leadership. In addition, I have
conducted an initial review of the Group’s
branding, communications and market
positioning, and have now put in place the
initial foundations of a more comprehensive
Group strategy.
UK turnover of £231.3m compared with
£318.3m in the prior 15 month period and
reflected a modest reduction in capacity
at our largest business. More importantly,
the underlying operating profit of £7.6m
represents a recovery in the UK operating
margin to 3.3 per cent which is a good step
towards our previously stated target of
5–6 per cent by 2015/16 in current market
conditions.
The largest business in the Group, Severfield
(UK) Limited (‘SUKL’) was reorganised in
the first half of the year. Ian Cochrane,
previously managing director of our
Severfield (NI) Limited (‘SNIL’) business in
Enniskillen and now chief operating officer,
was appointed acting managing director
of SUKL in April 2013 and implemented
this reorganisation. There were three key
elements to the reorganisation: firstly, a
reduction in capacity of ten per cent to
improve the overall supply and demand
dynamic in the market, secondly, a further
reduction in overheads following an initial
reduction in the previous period, taking the
total savings made to £4m per annum, and
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 25
been in line with the board’s expectations
coming into the year, and the board
believes that balance sheet risk relating to
these contracts has now been removed.
thirdly, a reorganisation and strengthening
of the management team. This business
reorganisation has been completed with
all the anticipated savings realised, with
a one-time restructuring charge of £2.6m
recorded in the first half of the year.
In parallel with this reorganisation, a
comprehensive operational improvement
programme was launched across the
Group. The objective of this has been to
improve risk assessment and operational
and contract management processes
within the business. This programme has
made good progress in the year, which
is reflected in the improved underlying
operating margin, and will continue into
the 2014/15 financial year. Management
believes the programme will lead to
underlying operating margins reaching
5–6 per cent in 2015/16 in current market
conditions.
During the year, good progress was made
in resolving the main legacy contract
issues which were at the core of the
operating losses in the previous period.
As expected, there were challenges in
resolving some of these issues but overall
the outcome of those legacy contracts has
Find out more information on our website:
www.severfield.com/our-projects
Case study:
Aldgate Tower
Client: Aldgate Tower Developments
Location: London
Main contractor: Brookfield Multiplex
Tonnage: 5,500
Project overview:
The project is a new state-of-the-art
office development, the first phase of a
wider regeneration of the Aldgate area by
Aldgate Tower Developments.
A steel solution has allowed the
construction of an 18 storey commercial
development on top of an existing raft
foundation originally designed to support
a smaller building. The building provides
16 floors of grade A office space, plus two
upper levels for plant equipment.
Below ground, the structure is founded
on an existing three level reinforced
concrete basement raft, a feature that
has had an overwhelming impact on the
design and construction of the tower. As
the raft was in use it had to be retained
and incorporated into the design, so a
framing material for the new building that
could be safely and quickly erected above
functioning office space was needed.
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Operating review continued
Order book and market conditions
India
Business investment
UK investment was kept at relatively low
levels during the year while the business
was reorganised and stabilised. Total
investment was £2.2m and represented
low level replacement of some older plant
and equipment. While the general stock
of capital equipment across the business
remains in good order, it is likely that the
level of investment will need to increase to
a more normal replenishment rate of £4-5m
per annum in the future.
New equity of £3.5m was invested in the
Indian joint venture during the year. This was
required both to fund the ongoing losses
of the business and the balance of the
investment initiated in 2012 to increase the
capability and capacity of the factory.
Safety
The Group’s accident frequency rate (AFR)
for the year was 0.57. Whilst this was only
marginally worse than the level of 0.55 for
the previous period, it fell short of the targets
that the board had set for improvement.
This performance reflected a disappointing
first half of the year, followed by a marked
improvement in the second half. The Group’s
approach towards health and safety was
reviewed during the year and a number of
new initiatives were implemented. It is hoped
that the improving trend we have seen in the
second half of the year is a result of some of
these initiatives but more time is needed to
confirm that this is the case and that we have
a sustainable trend heading in a positive
direction. The safety and welfare of all our
employees is of paramount importance to the
Group and in order to further strengthen and
improve on our safety culture and systems
a new SHE director was appointed in April
2014.
The UK order book, at £168m, remains solid
and within a range which management
is comfortable with, representing
approximately eight months of forward
production capacity. It has reduced in overall
terms over the year from previous levels but
this reflects both the capacity reduction
arising from the business reorganisation, as
well as a longer negotiating period on major
contracts arising from our improving risk
management processes. The market has
been stable during the year but prices have
remained competitive and we continue to
focus on ensuring that there is a fair balance
of risk and reward within the contracts.
There are signs that the market will pick
up towards the end of 2014 but the current
order book does not yet reflect this.
Projects
Throughout the significant reorganisation
over the past 18 months, we have
continued to deliver projects to our clients’
expectations. Projects undertaken in the
current year included:
• Finsbury Square
• Moorgate Exchange
• 5 Broadgate
• Fitzroy Place
• BNP Paribas
• Aldgate Tower
• Nova, Victoria
• Glasgow Smartbridge
• Microsoft Data Centre, Amsterdam
• Birmingham New Street Station
• Paris Philharmonic
• Manchester Victoria Station
• Jaguar Land Rover, Midlands
•
Intel Developments, Ireland
Performance from the Indian joint venture,
JSW Severfield Structures Limited (‘JSSL’),
was disappointing in the year, with the
Group’s share of losses totalling £3.0m,
particularly as in the previous period the
business had achieved close to a breakeven
position. While order book levels at the start
of the year were satisfactory, unexpected
delays and timing variations to some of the
contracts within that order book quickly led
to the factory being underutilised. Pressure
to fill this spare capacity led to deterioration
in the project mix within the business with
low and even negative margin industrial
projects being secured to utilise some of
the spare capacity and make a contribution
towards the overheads of the business.
This situation did not improve as the year
progressed.
Behind this poor performance it became
increasingly clear that the market for steel
fabrication and commercial development of
the business was not progressing as well as
expected. India remains primarily a concrete
construction market which presents
great opportunity for steel. This potential
continues to be reaffirmed in all the market
research that we carry out, both formal
and informal. However, converting concrete
projects to steel projects continues to take
longer than anticipated and efforts in this
area are being stepped up.
In response to these challenges, Derek
Randall, executive director, moved to India
full-time in August 2013. It was then agreed
with our joint venture partner, JSW Steel,
to reorganise the management of the
business in December, at which point Derek
became managing director. An overhead
reduction programme was initiated, and
now completed, and a new business
development and operational improvement
programme is in place which is expected to
generate a substantial improvement in the
performance of the business in the current
financial year. Ultimately the business is
developing a sustainable position whilst the
market continues the expected conversion
from concrete to steel. Greater economic
optimism following the recent election may
help this development.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 27
Our core values are
safety, integrity,
customer focus and
commitment.”
Strategy, branding and communication
Vision, values and people
Following my appointment, we undertook
a comprehensive review of the Group’s
branding and market positioning and
feedback was gathered from major
customers, management and staff. This
resulted in the change of the Group’s name
to Severfield plc in May 2014, a simpler
and less confusing naming structure for
the Group’s main operating businesses,
and a new branding strategy to support
this, elements of which are reflected in this
report. It is believed that this new approach
will better reflect the Group’s strong market
position and enable improved and clearer
communication with all stakeholders in
the future.
This review identified a number of areas for
improvement in the Group’s internal and
external communications strategy and this
will be a key area of activity in the coming
year.
A significant amount of work was also
undertaken in developing a new long-term
strategy for the Group. The core of this
strategy revolves around the continuation
of the UK operational improvement plan
to ensure that we have a sustainable,
profitable base for the business going
forward. Beyond this, it will involve a
continual drive to improve operational
efficiency, investment to ensure that the
Group continues to have market leading
technology, greater focus on developing our
people and, most importantly, providing an
unrivalled quality of service to customers.
The strategy will provide a platform for
continued growth and we will be looking
more actively for opportunities to expand
the business both in the UK and in overseas
markets. The UK in particular may involve
looking for new market areas where the
business has not operated in the past as
well as growing market share in areas where
the business already operates.
As part of the branding and strategy
development work, the executive and senior
management team articulated a vision for
the Group, and its core values. The vision
is ‘to be recognised as world-class leaders
in structural steel, known for our ability to
deliver any project, to the highest possible
standards’. The core values are safety,
integrity, customer focus and commitment.
The values represent much of what the
organisation lives by, even in recent
challenging times. To that end, I would like
to recognise the difficult times that our
staff and employees have experienced
recently and to thank them not only for their
continued efforts on behalf of the Group,
but also for the warm welcome which I have
received since I was appointed.
Summary and outlook
The Group is recovering well and has made
significant progress during the year in
strengthening operations and management.
With a developing strategy, focused
branding and better market positioning, the
Group is increasingly well placed to deliver
stronger growth in the future, particularly
if the core UK market starts to recover as
expected.
While the Indian joint venture remains
challenging, there is significant market
potential. The strengthened management
team, reduced cost base and greater
business development focus are expected
to lead to improved performance in the
current year.
Ian Lawson
Chief executive officer
11 July 2014
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Financial review
Alan Dunsmore Group finance director
The results for the year reflect the stability restored to the
UK business and the resolution of legacy contract issues.
Trading performance
Share of losses of JVs and associates
The Group’s share of losses from its Indian
joint venture was £3.0m for the year (2013:
loss of £0.3m). This reflected the impact
of unused capacity and therefore under-
recovered overheads in the factory, a poorer
mix of work going through the factory, and
losses booked on negative margin contracts
secured to provide some factory throughput.
The underlying issue was a high level of
delays and timing variability on existing
orders, coupled with a lack of good quality,
higher margin work in the pipeline to fill the
available capacity. Actions to improve the
order book, strengthen management and
reduce overheads have been taken which
should lead to an improved result in the
coming year.
Revenue for the year of £231.3m compared
with £318.3m for the 15 month period to
31 March 2013. This represented a more
stable underlying performance along with a
modest reduction in capacity in our largest
operating business during the year. The
underlying operating profit before results
of JVs and associates was £7.6m which
reflects a significant turnaround from the
loss of £19.2m in the prior 15 month period.
The underlying operating margin of 3.3
per cent (2013: -6.0 per cent) reflects the
stability restored to the UK business and
the resolution of legacy contracts which
marks a significant progression towards
the target of 5–6 per cent for the 2015/16
financial year. The share of results of JVs
and associates was a loss of £3.0m (2013:
loss of £0.3m) and net finance costs were
£0.6m (2013: £2.0m). Underlying profit
before tax was £4.0m (2013: loss of £21.5m).
The statutory loss before tax, reflecting both
underlying and non-underlying items, was
£4.1m (2013: loss of £28.9m).
Revenue
349.4
318.3
266.7
267.8
231.3
2009
2010
2011
2013
2014
Underlying operating margin
14.8%
6.1%
5.3%
3.3%
(6.0%)
2009
2010
2011
2013
2014
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 29
2014
231.3
7.6
4.0
0.88p
0.3
(0.1)
(2.6)
2013
318.3
(19.2)
(21.5)
(10.78p)
(41.2)
(26.5)
(23.1)
Significant progress has
been made towards the
target underlying margin
of 5–6 per cent for
2015/16.”
£m
Revenue
Underlying operating profit/(loss) (before results of JVs and associates)
Underlying profit/(loss) before tax
Underlying earnings per share
Net funds/(debt)
Operating loss (before results of JVs and associates)
Loss after tax
Non-underlying items
Non-underlying items for the year were
£8.1m (2013: £7.3m) and include the
following:
Amortisation of acquired intangible assets
— £2.7m (2013: £3.4m).
Retirement of acquired intangible asset
relating to brand value of Fisher Engineering
— £2.4m (2013: nil).
Restructuring and redundancy costs —
£2.6m (2013: £0.8m).
Impairment of investment in associates —
£0.4m (2013: nil).
During the past six months, a review has
been undertaken of the Group’s market
position and branding. As a result of this,
the Group’s name has been changed to
Severfield plc and the names of the Group’s
main operating businesses have also been
changed to incorporate the Severfield name.
Accordingly, the directors have concluded
that there is no ongoing value in the legacy
Fisher Engineering brand and the residual
net book value has been written off.
A further restructuring of the Group’s main
business, Severfield (UK) Limited was
undertaken during the year. This resulted in
a one-time restructuring charge of £2.6m
which included redundancy costs of £1.8m
and a provision of £0.8m for an onerous
lease on a property no longer used.
In the first half of the year, Kennedy Watts
Partnership Limited, an associate company
in which the Group had a 25.1 per cent
shareholding, went into administration. The
Group’s net investment in this business of
£0.4m was correspondingly impaired to nil.
Finance costs
Net finance costs in the year were £0.6m
(2013: £2.0m). The reduction over the prior
period reflects substantially reduced net
debt levels throughout the year following
the completion of the rights issue on 5 April
2013.
Taxation
The underlying tax charge of £1.4m
represents an effective tax rate of
20.2 per cent on the applicable profit (which
excludes results from JVs and associates).
This compares with an underlying credit of
14.4 per cent in the prior period relating to
the losses incurred in that period.
The total tax credit for the year of £1.4m
reflects the underlying tax charge, offset
by deferred tax benefits arising from the
amortisation and retirement of intangibles
in the year, and also the benefit of the
reduction in UK corporation tax to 20
per cent in the deferred tax calculation. This
item is categorised as non-underlying and is
included in other items.
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur performanceStrategic report 30
Financial review continued
Earnings per share
Underlying basic earnings per share was
0.88p (2013: -10.78p). This calculation is
based on the underlying profit after tax of
£2.6m and 295,791,922 shares, being the
weighted average number of shares in issue
during the year.
Basic earnings per share, based on the
statutory loss after tax, is -0.89p (2013:
-13.49p). There was no difference between
basic and diluted earnings per share in the
year (2013: no difference).
Dividend
No final dividend is being recommended.
The board is committed to reinstating
the payment of dividends. Depending,
among other things, on improved financial
performance, it intends to introduce a
progressive dividend policy, having regard
to the Group’s underlying earnings, cash
flows and capital investment plans, the
requirement to maintain an appropriate
level of dividend cover and the prevailing
market outlook.
Balance sheet
Shareholders’ funds increased from
£102.4m to £143.4m in the year, following
the completion of the rights issue on 5 April
2013, which raised £44.8m of new funds.
Goodwill on the balance sheet is valued at
£54.7m (2013: £54.7m) and is subject to an
annual impairment review under IFRS 3. No
impairment existed either at 31 March 2014
or 31 March 2013.
Other intangible assets on the balance
sheet are valued at £9.8m (2013: £15.1m).
This represents the net book value of
the intangible assets identified on the
acquisition of Fisher Engineering in
2007, along with some new software
assets installed during 2011 and 2012.
Amortisation of £2.9m was charged in the
year and the asset of £2.4m relating to the
Fisher Engineering brand was retired, as a
result of the rebranding of the Group and
renaming of its main operating businesses.
The Group has property, plant and
equipment and investment property
totalling £78.0m (2013: £80.1m).
Depreciation charged in the year amounted
to £3.6m (2013: £5.0m). Capital expenditure
in the year was £2.2m (2013: £2.7m). This
included new equipment for use on our
construction sites and general replacement
of capital equipment as required. During
the year the Group invested £3.5m (2013:
£3.0m) as equity into its Indian joint venture
company to finance its trading losses in the
year and also the balance of its investment
to expand capability and capacity.
The Group’s capital expenditure in the year
to 31 March 2015 is expected to return
towards long-term replenishment levels of
£4–5m per annum.
The Group has a defined benefit pension
scheme which, although closed to new
members, had an IAS 19 deficit of £12.5m at
31 March 2014 (2013: £11.8m). The increase
in the deficit is as a result of an increase
in the assumption made on mortality rates
and a lower investment return on scheme
assets, offset by contributions made by the
Group during the year to reduce the deficit.
Cash flow
The Group finished the year with net funds
on the balance sheet of £0.3m (2013:
£41.2m net debt). The debt was repaid
with the £44.8m net proceeds from the
rights issue which completed on 5 April
2013. Operating cash flows for the year
before working capital movements were
£8.4m. Net working capital increased by
£6.3m reflecting good progress in reducing
outstanding balances on legacy contracts
at 31 March 2013, offset by a normalisation
of the trade creditor position which was
somewhat stretched immediately preceding
the rights issue, and the unwind of advance
payments of £5.3m. The working capital
position at 31 March 2014 is believed to
represent a more normal position in relation
to the underlying contracts which the
business is now working on.
Net investment during the year was £5.0m,
with £3.5m going into the Indian joint
venture as additional equity and £1.5m
being the net capital expenditure outflow for
the year.
The Group has a £35m banking facility with
Yorkshire Bank, part of National Australia
Bank, and RBS in place until November
2016. Following a recovery period after
completion of the rights issue, normal
debt and interest cover covenants are now
operating on this facility.
Treasury
Group treasury activities are managed
and controlled centrally. Risks to assets
and potential liabilities to customers,
employees and the public continue to be
insured. The Group maintains its low risk
financial management policy by insuring all
significant trade debtors.
The treasury function seeks to reduce
the Group’s exposure to any interest rate,
foreign exchange and other financial
risks, to ensure that adequate, secure and
cost-effective funding arrangements are
maintained to finance current and planned
future activities and to invest cash assets
safely and profitably.
The Group continues to have some exposure
to exchange rate fluctuations, currently
between sterling and the euro. In order
to maintain the projected level of profit
budgeted on contracts, foreign exchange
contracts are taken out to convert into
sterling at the expected date of receipt.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 31
Going concern
In determining whether the Group’s annual
consolidated financial statements can
be prepared on the going concern basis,
the directors considered all factors
likely to affect its future development,
performance and its financial position,
including cash flows, liquidity position
and borrowing facilities and the risks
and uncertainties relating to its business
activities. The following factors were
considered as relevant:
• The UK order book, which remains
strong, and the pipeline of potential
future orders.
• The Group’s operational improvement
plan which is driving stronger financial
performance and is expected to
continue doing so in the current
competitive commercial environment.
• The committed finance facilities to the
Group, including both the level of the
facilities and the banking covenants
attached to them.
Based on the above, and having made
appropriate enquiries and reviewed
medium-term cash forecasts, the
directors consider it reasonable to assume
that the Group has adequate resources to
continue for the foreseeable future and
therefore that it is appropriate to continue
to adopt the going concern basis in
preparing the financial statements.
Alan Dunsmore
Group finance director
11 July 2014
Case study:
Suffolk Waste-to-Energy Plant
Client: SITA Waste Management
(for Suffolk Council)
Location: Ipswich
Main contractor: Lagan Construction
Tonnage: 1,550
Find out more information on our website:
www.severfield.com/our-projects
Project overview:
This Suffolk energy from waste facility will
use modern technology to provide enough
electricity to power 30,000 homes, saving
the equivalent of 75,000 tonnes of carbon
dioxide each year. The new plant will treat
260,000 tonnes of waste per annum. The
facility features a state-of-the-art glazed
visitor centre, landscaped wetland area
and an on-site ash processing facility.
The project involves the supply and
construction of structural and secondary
steelwork for a high free-standing
structure including 30 metre roof trusses,
span trusses and crane beams, elements
of which were erected adjacent to a live
railway line, the supply and installation
of pre cast walls, stairs and lift cores and
2,500 square metres of metal decking with
construction handrail.
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur performanceStrategic report 32
Corporate social responsibility
As the UK’s premier structural steel group, we know that
the decisions we make can have a significant effect on the
environment and people’s lives and communities.
Our commitment to corporate responsibility
forms part of the strategy of the Group
and is essential to ensure that we deliver
value to our stakeholders. We take this
responsibility very seriously and are
committed to good practice in all our CSR
activities. We work beyond compliance
to consider how we can have a positive
impact on communities, minimise risk in our
operations and ensure the best health and
safety performance standards.
Statement of ethics
Severfield is the UK’s leading structural
steel company. We also operate elsewhere
in the world and we pride ourselves on our
reputation for acting fairly and ethically
wherever we do business.
Our reputation is built on our Company
values, the values of our employees and
our collective commitment to acting with
integrity throughout our organisation.
This commitment can be seen in our core
values and mission statement which has
been communicated via roadshows to all of
our personnel.
SAFETY, HEALTH AND ENVIRONMENT
During the year we have continued to
progress our strategy of continuous
improvement to meet our vision of being
recognised as world-class leaders in
structural steel, known for our ability to
deliver any project to the highest possible
standards. Those standards include
corporate social responsibility.
We have a set of defined objectives and
targets for the factories which include
leading indicators such as director reviews,
number of leadership team and safety
meetings held, number of toolbox talks
delivered, safety, health and environment
(SHE) training delivered and safety
suggestions. Reactive indicators include
accident frequency rates, near misses,
health and safety audits plus safety
violations.
This year we have introduced a health and
safety improvement scheme whereby we
have incentivised a reduction in our accident
rate and an improvement in near miss
reporting on-site and in our factories.
Everything else comes
second to ensuring
everyone goes home
safely every day.”
STEEL FUTURES
The Group’s continuous improvement programme
SAFE FUTURE
• Safety leadership
• Behavioural safety
• Safety ‘Golden Rules’
• Health and well-being
SUSTAINABLE FUTURE
• Community and stakeholder
ZERO CARBON FUTURE
• Carbon management and reduction
engagement
• Leadership and people
development
• Market leading innovation
• Supply chain partnering
• Transport policy and strategy
• Renewable energy
• Responsible sourcing of materials
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 33
During the coming year we will be defining
a full set of objectives and targets to meet
our vision and conform to our core values.
Our five key focus areas are:
We have been trialling better personal
protective equipment (PPE) with our
site-based personnel and will very shortly
issue a new standard to enhance the
equipment we provide to our workforce.
We had an AFR for the
year of 0.57
We carried out 1,159
man days of SHE
training in 2013/14
• Work environment
• Commitment
• Leadership
• Engagement
• Behaviour
Progress during the year in each of these
areas is discussed below.
Work environment
This year we have focused on improving
the lighting levels in the factories to make
them a better, safer place to work; this
work will be ongoing in 2014/15. Not only
does this improve the work environment
for our personnel and increase lux levels
but it also has a positive impact on
our energy costs and greenhouse gas
emissions.
We have improved the conditions of the
yards in all of our factories and have
undertaken a comprehensive review of
welfare facilities in Lostock and Dalton
with these recommendations being
implemented in the next year. We are also
improving our pedestrian management at
Dalton over the coming year.
Commitment
The Group continues to maintain a healthy
SHE budget together with a professional,
well qualified SHE team, headed by the
Group SHE director.
Our commitment to ‘getting it right’ is
demonstrated by our Group, factory and
site safety leadership team (SLT) meetings
which are now held monthly and minuted,
and we have representatives from the
workforce at these meetings.
We are committed to achieving SHE
excellence and moving into the next
year, we have set goals on better
communication, working towards zero
harm and on a coaching ethos to enable the
Group to achieve its ambitions in this arena.
Leadership
Everyone in our business is a leader as
the success of any organisation is based
on how well it is able to capture the
talents of every individual. Our directors
and senior managers also demonstrate
their leadership by being seen doing the
right thing. This can be through factory
Severfield UK employee (Bhogi Patel) receiving his monetary voucher after his name was pulled
from a draw of hazard cards submitted in the month.
23372.04 16 July 2014 10:30 AM PROOF 8
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Corporate social responsibility continued
and site tours wearing the correct PPE
and demonstrating adherence to our safe
systems of work; it can be chairing safety
and energy reduction meetings; and it can
be one-minute corridor conversations
with employees and others affected by
our business to demonstrate awareness
and action.
Engagement
We engage with our stakeholders on a
daily basis. Key engagement behaviours
are communication, involvement, visibility
and support. We are always striving to
communicate better. This year we have
been actively involving the directors in SHE
committees and we use the audit process as
a communication tool.
We have commenced safety, health and
environmental auditing of our supply chain
which provides assurance that our supply
chain meet legal requirements and our
own standards plus, where applicable, any
standards stipulated by our clients. We find
these audits are a good method of initiating
community involvement since a number of
our supply chains are geographically close
to our factory locations.
We have placed all of our SHE
documentation on the Group’s intranet in
2013/14 and are training our workforce
to make this the port of call for all SHE
systems across the Group. This makes
us more efficient, enables assurance
that our workforce are using the correct
documentation at all times and reduces the
amount of paper in our business.
Behaviour
We define behaviour as everything we
say and do. This means that any culture
change model needs to include an element
of understanding of what drives these
behaviours and how we elicit positive, safe
behaviours in the workplace. We are keen
to understand this and during the next year
we will embark on the next phase of our
behavioural safety programme, starting
with training the SHE team in cognitive
behaviours.
Health and safety performance
In 2013/14 we had 22 RIDDORs compared
to 24 in 2012/13. The Group’s accident
frequency rate (AFR) for the year was 0.57.
Whilst this was only marginally worse than
the level of 0.55 for the previous period, it
fell short of the targets that the board had
set for improvement. We believe that our
strategy of the five key focus areas above
will deliver the performance we desire. In
addition to our systems and engineering
controls, we believe our behavioural safety
programme will deliver a quantum change in
our performance over the next year.
Our health and safety management system
is fully compliant with OHSAS 18001 and
has been externally audited to demonstrate
compliance.
We attended a number of client meetings
during the year and our SHE director liaises
directly with the SHE teams within our
client organisations to ensure that we are
meeting their expectations as well as our
own, together with legal requirements.
With respect to our employees and supply
chain; they are represented at our SLTs
and committees and our visible leadership
means that we frequently have workplace-
based conversations with our employees
and supply chain alike.
It is our intention to involve our supply chain
in our behavioural safety strategy since they
frequently represent the Group on the sites
upon which we work and hence they are as
much at risk of an incident as a member of
our own workforce.
We reflected upon our Golden Rules in our
last annual report: suffice to say these are
now embedded in our corporate psychology
and these are having an impact on the
behaviour of anyone we ‘touch’ in our
working environment (see below).
We are in the process of undertaking a
third-party driver audit and following on
from this we are introducing mandatory
documentation checks and our higher risk
drivers will be undertaking additional driver
training.
GOLDEN RULES
SAFETY FIRST
TURN UP FIT FOR WORK
ENSURE YOU ARE TRAINED/TASK BRIEFED
EVERY UNSAFE EVENT MUST BE REPORTED
LOOK AROUND — STOP IF ANYTHING CHANGES
THINKSAFE ACTSAFE HOMESAFE
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 We have undertaken 1,159 man-days of
training in the year. This includes more
than 40 different courses; examples are:
site manager safety training scheme,
overhead crane use, portable magnet use,
lifejacket use and reversing vehicles.
In terms of health, we have undertaken
occupational health assessments of 845
personnel in the year. These personnel
undertook tests and checks on their
audiometric performance, visual and
acuity field, lung function, blood pressure,
hand arm vibration syndrome, urinalysis
and musculoskeletal disorders. These
checks enable us to quickly spot any
work-related issues which may have a
deleterious effect on our employees and
address this to ensure we are not harming
our employees in the course of their work.
By way of example on communication
of health issues, skin cancer kills seven
construction workers a year and we have
distributed awareness documentation
on this issue across our factories and
construction sites:
35
During 2013/14, we have invested in
building our leadership teams and
individual leadership capability, ensuring
that our leaders understand our strategy,
the associated business challenges and
their roles in leading and engaging their
teams. We undertook the first two stages
of a leadership development programme
with our directors and associates and will
continue this programme in 2014/15.
Talent and succession
In order to protect the long-term success
of our business we want to ensure that
we understand our talent pipeline and
support their development so that our
people can be the best that they can be.
Our aim is to be an employer of choice
for current and future talent within the
structural steel industry and the wider
business community.
In 2014/15 we will conduct a Group-
wide review of emerging talent to
ensure consistency and visibility of
talent, succession planning and career
opportunity. Our agility in deploying talent
and experience to maximise opportunities
through sharing knowledge across the
Group is a key differentiator and one which
we will continue to develop.
We are passionate about helping young
people take their first step onto the
construction career ladder, from school
leavers experiencing the world of work
for the first time, to graduates qualified
in disciplines relevant to the construction
sector. We believe that the recruitment
and training of apprentices is fundamental
to business development; another means
of ensuring that we have all the desired
skill bases available in the future.
In addition, we also deliver toolbox talks
on men’s health and an example is shown
below:
PEOPLE
We’re very proud of our 1,200-strong
workforce and recognise that to be the
best, we need the best people and we work
with every single employee to develop,
grow and nurture their individual talents.
Change
In 2013/14, our people were called
upon to embrace change and in
particular Severfield (UK) completed
its reorganisation, resulting in a strong,
talented and aligned team. By continuing
to invest in the capabilities and leadership
of our people, we continue to enhance the
quality of services we deliver to our clients
and communities and attract and retain
the best people within our sector.
Leadership, management and
development
Our success is driven by our people so
we want to ensure that we have capable
leaders and managers to deliver our
strategy and build teams with the right
skills and capability to deliver now and in
the future.
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur performanceStrategic report 36
Corporate social responsibility continued
We have 48 apprentices within the
Group, having taken on at least ten
apprentices each year since our dedicated
apprenticeship programme launched in
2010. Among the opportunities available,
we have provided placements for welders,
platers, maintenance engineers and
steel erectors. We are also committed
to providing opportunities for graduates
across a number of functions, including
business support, quantity surveying,
design engineering and site and project
management.
Diversity
We believe that equal opportunity means
hiring and retaining the best people,
developing them to their full potential and
using their talents and resources to the
full. Diversity of people, skills and abilities
is a strength which will help us to achieve
our best. This is not only about treating
our people with dignity and respect; it also
makes sound business sense.
At 31 March 2014, the Group workforce
consisted of 1,203 employees of whom 80
(seven per cent) were female. The Group’s
executive committee (see page 48)
consisted of ten directors, of whom one
was female (ten per cent). The Group board
of directors (see page 46) did not have any
female representation.
Communications
Maintaining a strong dialogue with our
people can be challenging in such a
geographically diverse Group, with a mix of
factory, office and site-based employees.
Our internal communications draw on
a wide variety of media, including our
workspace document sharing system,
Company newsletters, consultative groups,
factory committees, suggestion schemes
and employee roadshows. In 2014/15, the
Group has appointed a communications
manager to develop more effective internal
and external communication strategies.
High performance culture
We set ourselves stretching goals and we
want our people to understand the key
part that they play in our strategy and our
success. We want them to feel accountable
for their delivery and rewarded for their
success. In light of this, during 2014/15 we
will redefine our performance management
tools and processes.
In 2014, we also plan to focus on employee
engagement as there are proven links
between an engaged workforce and
excellence in customer service and business
delivery. We are in the process of defining
our approach to an employee survey that will
enable us to prioritise actions that mean the
most to our people. Subsequently, we plan
to implement a number of initiatives across
our business to help strengthen employee
connection to our goals and ambitions.
Reward
We recognise that our approach to reward
is critical to our ability to both attract
and retain the best people and drive a
performance culture. Each of our divisions
offers a competitive reward package
appropriate to the labour market in
which they operate and reviews salaries
annually in line with market rates. Our
focus is on cash and variable pay rather
than fixed benefits and each division’s
reward package includes an annual Group
profit performance related bonus which
encourages the achievement of our strategic
objectives.
Over 65 per cent of our employees are
shareholders in the Company via our share
incentive plan and in 2014/15, we intend
to set up a save as you earn share scheme
to provide our employees with an improved
choice in the way that they participate.
Our people are also eligible to participate
in a Group defined contribution pension
scheme towards which we contribute as
well as having the option to make their own
contributions through salary sacrifice. We
have also been able to facilitate a number
of flexible benefits that enable our people to
access programmes and savings that would
not be available to them on an individual
basis without additional cost to the Group.
These include cycle to work and childcare
voucher schemes. During 2014/15, we will
look to widen the range of flexible benefits
that we offer to our people.
COMMUNITIES
We recognise the importance of our local
communities in building strong links and
relationships that will enable us to attract
and employ local people and improve the
world in which we all live and work.
In terms of engagement with the wider
community in which we work, we typically
work for a main contractor who consults the
local community affected by each project
we work on. Main contractor initiatives
include maximising opportunities to employ
local people from disadvantaged groups,
for example the long-term unemployed. The
Group seeks to share in these opportunities
and further develop the support it can offer
to disadvantaged groups.
Our companies take a leadership role
within the industry by providing employees,
customers, suppliers and potential
employees with opportunities for seminars,
field trips and site visits.
Staff throughout the Group maintain close
contact with local schools, colleges and
universities to share best practice and
provide examples of leading-edge structural
engineering. For example, our Severfield
(Design & Build) business sponsored and
presented at the Scarborough Engineering
week where over 2,000 students attended
to get an understanding of career
opportunities within the engineering sector.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 37
In 2013/14, the Group’s factory committees
have considered how best each facility can
support local communities and charitable
organisations. During the year, our people
have donated their time to raise funds for
a wide variety of charities which the Group
has supported, including the Yorkshire Air
Ambulance and local hospices. In 2014/15,
the Group will set up the Severfield
foundation to champion charitable work
and organise donations.
Despite the difficult economic conditions
that have existed for everyone over recent
years, we are enormously proud of the way
our employees have continued to engage
with their local communities and with our
charitable activities.
ENIRONMENTAL PERFORMANCE
The Group maintains its environmental
management system which is certified to
ISO 14001 and has been since 2007.
Information on our environmental impact
is collated monthly and is reported to
the board. This includes impacts such as
waste, factory energy, VOC emissions and
fuels. With respect to waste, 98 per cent is
recovered or recycled.
All our works and project sites operate
in accordance with our sustainability
policies. We track our sustainability
performance on a project by project basis
and, where required, report information to
our clients.
All direct (scope 1) and indirect (scope
2) emissions are reported in absolute
tonnes equivalent CO2 (CO2e). Greenhouse
gases (‘GHG’) included are carbon dioxide,
methane and nitrous oxide emissions from
the combustion of fuels disclosed below,
and carbon dioxide emissions from the
consumption of purchased electricity.
• Scope 1 GHG emissions are from:
natural gas, gas oil, propane, kerosene,
welding gases, diesel and petrol.
• Scope 2 GHG emissions are from:
Greenhouse gas emissions reporting
electricity purchased and consumed.
In accordance with the Companies Act
2006 (Strategic Report and Directors’
Reports) Regulations 2013, we report our
emissions as described below.
Reporting boundaries
To the best of our knowledge, we have
included all material emission sources
which fall within the boundaries of our
consolidated accounts.
Methodology
The Group’s GHG emissions have been
calculated using an operational control
approach in accordance with WRI/WBCSD
GHG reporting protocols (revised edition)
and emission factors from UK Government
GHG conversion factors for company
reporting 2013. This is the first year that
our GHG emissions have been reported.
Results
For the year ended 31 March 2014, the Group’s global GHG emissions were as follows:
Emissions from:
Scope 1 – combustion of fuel and operation of facilities
Scope 2 – electricity, heat, steam and cooling purchased for own use
Total
Intensity measurement:
Absolute tonnes equivalent CO2 per £m of revenue
Tonnes of C02e
6,340
6,179
12,519
Tonnes of C02e
54
We also met our monthly average VOC concentration limit targets for every factory during the year ended 31 March 2014.
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Key performance indicators
The Group measures success through key performance
indicators (KPIs) which should be reviewed in the context
of market conditions and the industry sector in which the
Group operates.
The Group uses a range of financial and non-financial indictors across our businesses to monitor the Group’s aggregated performance
against key Group executive committee and board objectives as follows:
KPI
Underlying operating profit/margin
Underlying basic earnings per share
Description / method of calculation
Underlying operating profit is a key measure
of the operating profitability of the Group’s
revenue-generating businesses. This is the
principal measure used by the Group to
assess the success of its UK strategy.
Performance in 2014
The underlying operating profit before
results of JVs and associates was £7.6m
which reflects a significant turnaround from
the loss of £19.2m in the prior 15 month
period.
Underlying operating profit is defined
as operating profit before other (non-
underlying) items and before the results
of JVs and associates (which principally
includes the results of the Indian joint
venture).
The underlying operating margin of 3.3
per cent (2013: -6.0 per cent) reflects the
stability restored to the UK business and the
resolution of legacy contracts which marks a
significant progression towards the target of
5-6 per cent for the 2015/16 financial year.
Underlying operating margin is calculated as
underlying operating profit expressed as a
percentage of revenue.
Underlying basic earnings per share
represents an overall indicator of
performance and is an important internal
measure which is also used for setting
performance share plan targets.
This calculation is based on the underlying
profit after tax and the weighted average
number of shares in issue during the period.
Underlying basic earnings per share was
0.88p (2013: -10.78p) and reflects a good
recovery in UK operating margins offset by a
share of losses from our Indian joint venture.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 39
KPI
Operating cash flow
Order book
Accident frequency ratio (AFR)
Description / method of calculation
Cash is critical for providing the financial
resources to develop the Group’s business
and to provide adequate working capital
to operate smoothly. The Group is also
required to comply with operating cash flow
covenants.
The Group has a robust and detailed cash
forecasting procedure that considers the
Group’s position on a contract by contract
basis.
Operating cash flow is defined as cash flow
before interest, tax and capital investment.
Performance in 2014
The operating cash inflow for the year was
£2.1m. This represents operating cash
inflows before working capital movements
of £8.4m offset by an outflow from working
capital of £6.3m. The outflow from working
capital reflects good progress in reducing
outstanding balances on legacy contracts
at 31 March 2013, offset by a normalisation
of the trade creditor position which was
somewhat stretched immediately preceding
the rights issue, and the unwind of advance
payments of £5.3m.
The order book represents the amount of
outstanding work on secured contracts. It is
a key measure of our success in winning new
work and also provides visibility of future
earnings.
It only includes future revenue from legally
committed contracts comprising both
ongoing and newly secured work.
The UK order book of £168m represents
approximately eight months of forward
production capacity. It has reduced in overall
terms over the year from previous levels but
this reflects the capacity reduction arising
from the business reorganisation, as well
as a longer negotiating period on major
contracts arising from our improving risk
management processes.
Whilst only the revenue within the order
book is reported externally, a key forward
indicator of future profitability that is
tracked internally is the margin inherent
within the forward order book.
The AFR is a key measure of the safe
operation of our business and is one of a
number of health and safety measures the
Group uses to monitor its activities.
AFR is an industry-standard measurement
equivalent to one reportable lost-time
incident resulting in more than three
working days’ absence per 100,000 hours
worked, which equates to approximately one
working lifetime.
The Group’s AFR for the year was 0.57
(2013: 0.55). This performance reflected a
disappointing first half of the year, followed
by a marked improvement in the second half.
The Group’s approach towards health and
safety was reviewed during the year and a
number of new initiatives were implemented.
The Group recognises that all injuries are
unacceptable and is committed to reducing
injuries in our workforce.
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How the business manages risk
The board has established an ongoing process for
identifying, evaluating and managing the significant
risks faced by the Group.
The Group’s ongoing operations and growth
plans are subject to a number of different
risks and uncertainties. Although we cannot
eliminate such risks and uncertainties
completely, we have established risk and
internal control systems and procedures to
mitigate their impact and the likelihood of
them occurring.
We have continued to develop and improve
our approach to business risk management
during the course of the year in response
to changes in the business and operating
environment. We maintain close working
relationships between Group management
and the businesses to understand and
address risks.
We strive to ensure that risk management
is embedded into day-to-day business
processes and operations such that it is
effective at all levels of the organisation; this
ensures that potential risks are identified
at an early stage and mitigations are put in
place to manage such risks. Through the risk
management process and communication,
there is a robust, periodic risk review
involving Group management and all
businesses.
The board formally reviews risks and
mitigations for the Group and each of the
businesses on a biannual basis. The review
focuses on identifying potential risks that
could significantly impact the business and
considers in detail the various impacts of
the risks and the mitigations in place.
The board has identified the following
principal risks and uncertainties which
have the potential to impact the Group’s
profitability and ability to achieve its
strategic objectives.
Find out more about strategy
on pages 18 and 19
Find out more about risks
on pages 56 and 57
RISK MANAGEMENT
POLICY
Further detail of
the Group’s risk
management policies
and processes are set
out on page 56 of the
corporate governance
report
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Severfield plcAnnual report and accounts for the year ended 31 March 2014
41
RISK / EXPLANATION
Commercial and
market environment
The UK construction
market, although
showing some signs
of recovery, remains
impacted by the
continued and residual
effects of the global
economic downturn,
placing significant
pressure on all parts of
the supply chain, from
end customers through
to material suppliers and
subcontractors.
Through our different
businesses we seek
to win profitable work
through successful
tender processes. This
success depends on our
ability to identify, price
and execute appropriate
contracts to maintain a
profitable order book.
TREND
DESCRIPTION / IMPACT
Challenging trading conditions and
lack of growth
Decreased
risk
Uncertain demand resulting in increased
competition, tighter margins and the transfer
of commercial, technical and financial
risk down the supply chain, through more
demanding contract terms and longer payment
cycles.
A significant fall in construction activity could
impact revenues, profits and the ability to
recover overheads resulting in the need for
further restructuring. Cash generation could
also be impacted resulting in breaches of
banking facilities.
Inadequate contract pricing and cost
management
Decreased
risk
Failure to accurately estimate and evaluate
the contract risks, costs to complete, contract
duration and the impact of price increases
could result in a contract being mispriced.
Failure to achieve targeted profitability of
contracts resulting in a reduction in Group
margins.
Decreased
risk
Failure to mitigate onerous contract
terms
Failure to appropriately assess the
contractual terms or the acceptance of a
contract with unfavourable terms could result
in poor contract delivery, poor understanding
of contract risks and legal disputes.
Loss of profitability on contracts as costs
incurred may not be recovered and potential
reputational damage.
Reliance on key suppliers
Risk
unchanged
Failure of a key supplier would result in
disruption to the Group’s operations and
the increased cost of finding a suitable
replacement.
Loss of profitability through increased costs
and potential reputational damage as a result
of project delays.
MITIGATION
Reorganisation of business and strengthening
of senior management to improve process and
discipline around contract risk assessment,
engagement and execution.
Close engagement with both customers and
suppliers and monitoring of payment cycles.
Ongoing assessment of financial solvency and
strength of counterparties throughout the life
of contracts.
Continuing use of credit insurance to minimise
impact of customer failure.
Business planning identifies the markets and
clients that the Group will target.
Estimating processes are in place with
approvals by appropriate levels of management.
Tender settlement processes are in place to
give senior management regular visibility of
major tenders.
Established system of monthly reviews to
measure and report contract progress and
estimated out-turns, including contract
variations.
Use of delegated authorities to ensure
appropriate contract tendering and acceptance.
Contract acceptance procedures are in place
including legal and commercial review of terms
by the new Group legal director.
Work performed under standard terms and
conditions as appropriate.
Plans for specific types of work are agreed in
advance by individual businesses allowing
management to decline work where the
contract terms or pricing are not considered
economic.
Use of delegated authorities to ensure
appropriate contract tendering and acceptance.
Strong relationships maintained with key
suppliers including a programme of regular
meetings and reviews.
The Group has no single sourcing agreements
in place.
Contingency plans developed to address
supplier and subcontractor failure.
Contracts only entered into with suppliers and
subcontractors after review at the appropriate
level of delegated authority.
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42
How the business manages risk continued
RISK / EXPLANATION
People
The Group has
established a market
leading position over
many years due in large
part to the experience
and skills of its key
people.
TREND
DESCRIPTION / IMPACT
Recruitment and retention of talented
people
MITIGATION
An improved talent review process is planned
for 2014/15.
Increased
risk
As the market starts to recover, it can become
increasingly difficult to recruit capable people
and retain key employees, especially those
targeted by competitors.
Progression and succession planning schemes
will be rolled out at each business to ensure
immediate and future replacements are
identified and developed.
Interruption to
fabrication facilities
The Group’s production
facilities are at the core
of its business and the
Group relies on their
smooth continued
operation.
Risk
unchanged
Loss of key people could adversely impact
the Group’s existing market position
and reputation. Insufficient growth and
development of its people and skillsets could
restrict its growth ambitions both in the UK
and overseas.
Inadequate business continuity planning
Every business faces the potential risk of its
operations being impacted by disruption due
to loss of supply, industrial disputes, failure
with technology, unplanned outages and
physical damage as a result of fire or other
such event.
Interruption could impact both the Group’s
performance on existing contracts and its
ability to bid for future contracts, thereby
impacting its financial performance.
Remuneration policy is regularly reviewed to
ensure that it is competitive and strikes the
appropriate balance between short and long-
term rewards and incentives.
Skills gaps are continually identified and
actions put in place to bridge these by training,
development or external recruitment.
The Group has four main production facilities so
interruption at one facility could to some extent
be absorbed by increasing capacity at a sister
facility.
Detailed maintenance programmes are in place
at each of the Group’s facilities.
A wide network of subcontract fabricators is
used on a recurring basis, both for short-term
peak capacity requirements and for more
specialised fabrication. This network could also
be used to mitigate disruption to the Group’s
own fabrication facilities.
Appropriate levels of business interruption
insurance cover are maintained and reviewed
regularly with the assistance of independent
advisers and brokers.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 43
RISK / EXPLANATION
Indian joint venture
TREND
DESCRIPTION / IMPACT
Performance of the joint venture
MITIGATION
Robust joint venture agreement.
The Group has invested
in a joint venture in
India, where the growth
prospects are believed to
be substantial.
Increased
risk
The growth, management and performance of
the business is a key element of the Group’s
overall performance. Effective management of
the joint venture is therefore important to the
Group’s continuing success.
Failure to identify, understand and evaluate
the risks of operating in India could lead to
financial loss, reputational damage and a drain
on cash resources to fund the operations.
Health and safety
The construction
industry sets very high
standards of health
and safety which the
Group aims to exceed
to maintain the health
and well-being of its
employees.
Risk
unchanged
Serious health and safety incident
Construction activities can result in injury or
death to employees, leading to the potential
for legal proceedings, regulatory intervention,
project delays and, where at fault, potential
loss of reputation.
Loss of profitability and ultimately exclusion
from future business.
Information
technology (IT)
The Group’s complex
and interdependent IT
systems support the
effective and efficient
running of the business.
Ensuring our systems
are reliable strengthen
the day-to-day
operations of the Group.
IT failure or disruption
Risk
unchanged
With insufficient IT disaster recovery planning,
cyber-attack or property damage could lead
to IT disruption with resultant loss of data,
loss of system functionality and business
interruption.
Prolonged or major failure of IT systems could
pose significant risk to the ability of the Group
to operate and trade, thereby impacting its
financial performance.
Two members of the Group’s board of directors
are members of the joint venture board.
Strong governance in place at the joint venture.
Regular formal and informal meetings held
with both joint venture management and joint
venture partners.
Joint venture was refinanced in late 2013 and
the management structure was strengthened
during the year.
Contract risk assessment, engagement and
execution process now embedded.
Established safety systems, site visits,
monitoring and reporting, and detailed health
and safety policies and procedures, are in place
across the Group.
Thorough and regular employee training
programmes under the leadership of the new
Group SHE director.
Director-led safety leadership teams
established to bring innovative solutions and
to engage with all stakeholders to deliver
continuous improvement in standards across
the business and wider industry.
Priority board review of ongoing performance.
Regular reporting of, and investigation and root
cause analysis of, accidents and near misses.
Achievement of challenging health and safety
performance targets is a key element of
management remuneration.
IT is the responsibility of a central function
which manages the majority of the systems
across the Group. Other IT systems are
managed locally by experienced IT personnel.
Significant investments in IT systems are
subject to board approval.
Data protection and information security
policies are in place across the Group, including
anti-virus software, off-site and on-site
backups, storage area networks, software
maintenance agreements and virtualisation of
the IT environment.
Cyber-crimes and associated IT risks are
assessed on a continual basis.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 45
Our governance
Board of directors
Executive committee
Chairman’s review
Corporate governance report
Audit committee report
Directors’ report
Directors’ remuneration report
— Letter from the
committee chairman
— Policy
— Implementation
Directors’ responsibilities
statement
46
48
50
52
58
61
64
66
73
81
Project: 5 Broadgate
Location: London
Tonnage: 13,000
Client: British Land
Construction manager: Mace
Completion: 2014
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Board of directors
John Dodds
Non-executive chairman
Ian Lawson
Chief executive officer
John Dodds joined the Company as a non-executive
director in October 2010, becoming chairman in
September 2011.
He retired in March 2010 from Kier Group plc, the
construction and property services group, after
serving for seven years as group chief executive
officer. He worked for Kier, both in the UK and
overseas, for nearly 40 years and held a main board
position through the employee buy-out process in
1992 and the subsequent flotation of the group on
the London Stock Exchange in 1996.
John is a non-executive director of Newbury
Racecourse plc and Lagan Construction Holdings
Limited.
Ian Lawson joined the Company on 1 November
2013 as chief executive officer and was previously
a main board director of Kier Group plc, where he
enjoyed a 13-year career.
He was appointed to the board of Kier Group plc
as executive director in 2005 with responsibility
initially for its services division and later he also
assumed responsibility for the property division.
Prior to this, he was a director of Kier Regional,
the group’s regional construction business. Before
joining Kier Regional, Ian was managing director of
Kier Investments which he joined in 2000 following
a successful career at Bickerton Group plc where he
was managing director.
Ian, who is a fellow of both The Royal Institution
of Chartered Surveyors (FRICS) and the Chartered
Institute of Building (FCIOB), has a wide range
of skills and experience from working within the
construction industry for more than 35 years.
Derek Randall
Executive director and managing director at JSW Severfield
Structures Limited
Derek Randall was appointed as executive director
in May 2008 and as managing director in December
2013 of JSW Severfield Structures Limited (JSSL), our
joint venture in India.
He is a master of business administration
(Warwick Business School), a doctor of business
administration (Nottingham Business School) and is
the visiting professor of international management
and development at Birmingham City University’s
business school.
Before joining the Group, most of Derek’s career
was with Corus Group (now Tata Steel) where his
last position was as commercial director of the long
products division.
Derek has held a number of international board
positions with Corus and served on the executive
council of the Steel Construction Institute.
Alan Dunsmore
Group finance director
Alun Griffiths
Non-executive director
Ian Cochrane
Chief operating officer
Alan Dunsmore joined the Company in March 2010
from Smiths Group plc. He joined Smiths Group
medical division in 1995, holding various positions
throughout the business and from 2004 was director
of finance for Smiths Detection.
Prior to joining Smiths, he was with Coopers
and Lybrand in Glasgow, where he qualified as a
chartered accountant in 1992.
Alun Griffiths was appointed to the board as a non-
executive director on 1 May 2014.
Having held a number of business management
and corporate positions, Alun is currently group
human resources director and board member at
WS Atkins plc, Europe’s largest engineering and
design consultancy and is a fellow of the Chartered
Institute of Personnel and Development.
Alun brings a wealth of experience that will be of
significant benefit to the Group as we continue our
strategic and operational progression.
Ian Cochrane joined the Group in 2007, following
the acquisition of Fisher Engineering. Ian worked
at Fisher Engineering for 26 years, starting in the
drawing office and progressing to managing director
in October 2007.
In March 2013, Ian was appointed as Group
operations director and subsequently, in June 2013,
as chief operating officer.
Ian has a comprehensive understanding of all
aspects of the business and has been involved
in many major projects in the UK and Ireland,
representing a range of market sectors.
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Chris Holt
Non-executive director
Tony Osbaldiston
Non-executive director
Kevin Whiteman
Non-executive director
Chris Holt was appointed as a non-executive
director in November 2011.
He retired in September 2010 from MJ Gleeson
Group plc after serving two years as chief executive
officer, and prior to that three years as group finance
director. Chris’s experience also includes 17 years
with Foster Wheeler Limited as finance director and
deputy chairman of the UK subsidiary company and
12 years with Bechtel Corporation.
Chris is a graduate of Leeds University, a qualified
accountant and has an MBA from Golden Gate
University, San Francisco.
Following the year-end, Tony Osbaldiston was
appointed as a non-executive director with effect
from 19 July 2014.
Following the year-end, Kevin Whiteman was
appointed as a non-executive director with effect
from 19 July 2014.
He is a chartered accountant having qualified
with PwC. He was previously finance director of
Max Factor UK, Volvo Cars UK, Raymarine plc and
FirstGroup plc, where he was also deputy group
chief executive officer and chief executive officer of
FirstGroup America.
He has been a non-executive director and chairman
of the audit committee of BSS Group plc, and
chairman of the remuneration committee of Synstar
International plc. He is currently chairman of Encon,
the insulation and building products distributor, and
also non-executive director and chairman of the
audit and risk committee of the Serious Fraud Office.
He will take over as chairman of the audit committee
following the retirement of Toby Hayward.
He is a chartered engineer and currently non-
executive chairman of Kelda Group and Yorkshire
Water, to which he was appointed in 2010 after eight
years as chief executive officer of both companies.
In 2013 he was appointed chairman of the privately
owned NG Bailey. Prior to his current role at Kelda
Group, he held positions including chief executive
officer of the National Rivers Authority, regional
director of the Environment Agency, as well as a
number of senior positions within British Coal. He
was previously chairman for Wales and West Gas
Networks (UK) Limited, and has been a trustee for
WaterAid UK.
He will take over as the senior independent
non-executive director following the retirement of
Keith Elliott as previously announced, effective from
19 July 2014.
Keith Elliott
Non-executive director
Toby Hayward
Non-executive director
Following the year-end, Keith resigned as a
non-executive director with effect from 18 July
2014. He served as a non-executive director
for 15 years, including as senior independent
non-executive director and chairman of the
remuneration committee.
Following the year-end, Toby resigned as a non-
executive director with effect from
18 July 2014. He served as a non-executive
director for six years, including three years as non-
executive chairman and three years as chairman
of the audit committee.
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Executive committee
7
9
4
8
5
3
2
6
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 49
Ian Lawson
Chief executive officer
For details see board of directors on page 46.
Derek Randall
Executive director and managing director at
JSW Severfield Structures Limited
For details see board of directors on page 46.
2
Ian Cochrane
Chief operating officer
For details see board of directors on page 46.
3
Alan Dunsmore
Group finance director
For details see board of directors on page 46.
4
Jim Martindale
Managing director at Severfield (Design & Build) Limited
Jim Martindale joined Severfield (Design & Build)
Limited, formerly Atlas Ward Structures, in 1994
as a design engineer, which saw him heavily
involved with the commercial department. He
became engineering manager in 2002, design
director in 2007 and deputy managing director
in 2010, a role that he performed until his
appointment as managing director in January
2014.
Jim has been involved in the successful delivery
of many major projects throughout the UK
during his 20-year career with Atlas Ward (which
was acquired in 2005). He is also an associate
member of the Institution of Structural Engineers.
5
Brian Keys
Managing director at Severfield (NI) Limited
8
Sian Evans
Group HR director
Sian Evans joined the Group in January 2013 in
the role of HR director.
Sian’s career in human resources started at
William Morrison Supermarkets in 1990 and
covers a wide range of industry sectors including
HR roles at Ciba Specialty Chemicals, Redcats UK
and Callcredit Information Group where Sian was
group HR director from 2008 to 2011.
She is a fellow of the Chartered Institute of
Personnel and Development.
9
Lee Mills
Group SHE director
Lee Mills was appointed as the Group’s safety,
health and environment director in April 2014.
Having previously worked in nuclear, offshore and
petrochemical safety, Lee joined Alfred McAlpine
in 1999 as head of its policy and compliance unit.
Between this and taking up his most recent role
at Stewart Milne prior to joining the Group, Lee
held responsible positions within several major
construction companies.
At Stewart Milne he was health, safety,
environmental and quality director, which also
involved providing consultancy services to the
National House Building Council.
Brian Keys joined Severfield (NI) Limited, formerly
Fisher Engineering, in 1986 as production
manager, moving to project management in
2001 for a period of six years. Just prior to the
acquisition of Fisher Engineering in 2007, Brian
became production director, a role which he
performed until his appointment as managing
director in March 2013.
Brian has been involved in the successful delivery
of many major projects throughout Ireland and
the UK during his 27-year career at Severfield (NI)
Limited.
6
Steven Day
Deputy managing director at Severfield (UK) Limited
Steven Day joined Severfield in 2002 following
the acquisition of Tubemasters, a business
which he built and ran for 18 years previously.
With more than 35 years of experience in the UK
structural steelwork market at all levels, he has
considerable knowledge of the industry.
7
Mark Sanderson
Group legal director and Company secretary
Mark Sanderson was appointed as the Group’s
legal director and Company secretary in
September 2013.
His previous role was as group legal director
for utility specialist, Enterprise plc, until its
acquisition by Ferrovial in April 2013. He also
worked in private practice as a projects partner,
most recently at Walker Morris from 2006 to
2009, and prior to that Pinsent Masons, where he
fulfilled this role for over a decade.
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Chairman’s review
John Dodds Non-executive chairman
The Group is committed to applying the highest standards of
corporate governance.
Dear shareholder
I am pleased to introduce the Group’s
corporate governance report on behalf
of our board of directors (‘the board’).
We are committed to maintaining high
standards of corporate governance to
enhance performance and for the protection
of our shareholders. At Severfield,
good governance involves establishing
appropriate policies, procedures and
guidelines to ensure that the Group’s
businesses are managed effectively
resulting in the delivery of long-term
shareholder value.
The corporate governance report which
follows is intended to give shareholders
an understanding of the Group’s corporate
governance arrangements and how they
operated during the year ended 31 March
2014, including how the Group managed
its affairs in compliance with the principles
and provisions of the 2012 UK Corporate
Governance Code (‘the Code’).
I am pleased to report that, with one
exception which is explained in the
corporate governance report (an enforced
period of seven months where I acted as
executive chairman), we have complied in
full with the Code.
Leadership and effectiveness
Ian Lawson was appointed as chief
executive officer during the year following
a rigorous selection process which involved
Korn/Ferry International, an external
executive search agency. During the period
from 1 April 2013 to 31 October 2013
I continued to act as executive chairman
pending Ian’s appointment on 1 November
2013. As explained in the 2013 annual
report this was a temporary arrangement,
designed to facilitate clear leadership until
a chief executive officer was appointed. The
board deemed such measures necessary
for the successful stewardship of the
Group during that period and that these
extraordinary measures were justified
in order to provide the Group with clear
leadership in challenging circumstances.
Following the successful transition of
executive responsibilities to Ian, I have
reverted to my previous role of non-
executive chairman. This has resulted in a
I am committed to
ensuring that we have
a strong board with the
correct balance of skills
and mix of experience.”
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 51
Find out more about strategy
on pages 18 and 19
Find out more about risk
management on pages 40 and 43
every ten years. This is not a mandatory
requirement under the Code given the
Group’s current status outside the FTSE
350. However, for the reasons highlighted
above, we consider a tender process to be
appropriate.
Remuneration
During the year the changes indicated
in last year’s remuneration report to the
Group’s performance share plan and the
introduction of the deferred share bonus
plan were implemented.
Diversity
We recognise the importance of diversity in
board effectiveness and remain committed
to ensuring that appointments are
ultimately made on merit and against the
agreed selection criteria. Further details of
our diversity considerations are set out in
the board committees section on page 56.
Relationships with shareholders
We remain committed to sharing
information with our shareholders. The
Group actively solicits feedback from
investors and feedback from shareholder
meetings is reported to the board, including
the non-executive directors. Further
details regarding this engagement with
our shareholders are set out in the board
effectiveness section on page 54.
As ever, I very much look forward to meeting
shareholders at the annual general meeting
(‘AGM’) on 2 September 2014 and as always,
along with all of your directors, remain
available to answer or respond to your
questions, concerns and suggestions at
any time.
Overall I think your board is effective and
working well and, whilst there remains
work to do, we have effective governance
throughout the Group.
John Dodds
Non-executive chairman
11 July 2014
return to the more traditional structure of a
non-executive chairman and chief executive
officer to better align with the requirements
of the Code.
In addition to the appointment of a new chief
executive officer, two of the key areas of
focus for the directors during the year have
been further developing the Group’s strategy
and strengthening the management
team to ensure that the Group is ideally
positioned for the return of growth to the
UK construction market. In particular, the
executive committee has been strengthened
with the appointment of Ian Cochrane as
chief operating officer in June 2013, Mark
Sanderson as Group legal director and
Company secretary in September 2013, and
following the year-end, Lee Mills as Group
SHE director.
Following the year-end, Toby Hayward and
Keith Elliott resigned as non-executive
directors with effect from 18 July 2014. Alun
Griffiths joined the board as a non-executive
director with effect from 1 May 2014 and
Kevin Whiteman and Tony Osbaldiston will
join the board on 19 July 2014 with Kevin
assuming the responsibilities of senior
independent non-executive director, Alun
becoming the chairman of the remuneration
committee and Tony becoming the chairman
of the audit committee. In combination, they
bring to the board a wealth of experience
and their appointments provide a firm
foundation for continued oversight and
scrutiny of the Group’s activities.
Keith served as a director for 15 years,
including as chairman of the remuneration
committee and senior independent non-
executive director and Toby served as a
director for six years including periods as
chairman and as chairman of the audit
committee. We thank them for their valued
contribution to the Group.
Audit tender
We intend to conduct a tender of the
external audit contract during the course
of the coming year, with the successful
firm being appointed for the year ending
31 March 2016. We consider this good
governance given the length of Deloitte’s
existing audit tenure and taking into account
recent EU guidance that requires listed
companies to rotate their auditors at least
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur governance 52
Corporate governance report
Statement of compliance
LEADERSHIP
The September 2012 edition of the UK
Corporate Governance Code (‘the Code’), a
copy of which is available from the Financial
Reporting Council’s website (www.frc.org.
uk), applied to the Company throughout the
year ended 31 March 2014.
The board has carried out a detailed review
of the provisions of the Code, having regard
to the need to comply not just with the
principles but also with the spirit of the
Code and also keeping in mind guidance
issued by the FRC, such as the FRC guidance
to audit committees. A summary of how the
Company has applied the main principles of
the Code is set out below.
Save as referred to below, the board has
complied with the provisions of the Code
throughout the year ended 31 March 2014
and up to the date of this report.
The board did not comply in full with
provision A.2.1 of the Code which requires
the board to operate with a separate
chairman and chief executive officer.
From 1 April 2013 until 31 October 2013,
John Dodds, who previously operated as
non-executive chairman until 23 January
2013, was acting in the role of executive
chairman. As explained in the previous
year, this was a temporary arrangement
designed to facilitate clear leadership until
the appointment of a new chief executive
officer. Ian Lawson was appointed as chief
executive officer on 1 November 2013,
restoring compliance with this provision.
Structure of the board
The Company is controlled through the
board of directors which comprises four
executive and four non-executive directors,
all of whom are considered as independent.
From 19 July 2014, the board will comprise
four executive and five independent non-
executive directors. The membership of the
board is stated on page 46.
Ian Cochrane and Ian Lawson were
appointed as executive directors on 5 June
2013 and 1 November 2013, respectively.
As described above, John Dodds reverted to
his previous role as non-executive chairman
from 1 November 2013, having served as
executive chairman from 23 January 2013
to 31 October 2013.
Peter Emerson retired as an executive
director on 5 June 2013.
Alun Griffiths was appointed as a non-
executive director on 1 May 2014. Kevin
Whiteman and Tony Osbaldiston have been
appointed as non-executive directors from
19 July 2014. Keith Elliott and Toby Hayward
will retire as non-executive directors with
effect from 18 July 2014.
Ian Lawson has board level responsibility
for corporate and social responsibility and
employment matters; Ian Cochrane has
board level responsibility for health and
safety matters.
Role of the chairman, chief executive
officer and senior independent
director
Since 1 November 2013 the board has had
a separate chairman and chief executive
officer in line with the Code. The posts of
chairman and chief executive officer are
separate and their roles and responsibilities
are clearly established, set out in writing
and agreed by the board.
The chairman, John Dodds, is mainly
responsible for managing the business of
the board, evaluating its performance and
setting the agenda for board meetings to
ensure that adequate time is allocated
to the discussion of all agenda items,
facilitating the effective contribution of
all directors. The chairman acts as an
ambassador for the Company and provides
effective communication between the board
and its shareholders.
As the senior executive of the Company,
Ian Lawson is responsible to the chairman
and the board for directing and prioritising
the profitable operation and development
of the Group. The chief executive officer is
responsible for the day-to-day management
of the operational activities of the Group,
assessing and implementing strategy and
implementing the board’s decisions.
The chief executive officer chairs an
executive committee consisting of the
members indicated on pages 48 and 49.
This committee assists the main board
by focusing on strategic and operational
performance matters relating to the
business and meets formally on a monthly
basis. He also, together with the Group
finance director and chief operating officer,
holds quarterly meetings with each of
the three divisional boards to review all
operational issues and meets with an
executive risk committee comprising
himself, the Group finance director, chief
operating officer and the Group legal
director on a weekly basis on any key issues
affecting the business.
In addition, he chairs a safety leadership
team (‘SLT’) consisting of members across
the organisation, which meets formally on a
monthly basis.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 53
Keith Elliott has acted as senior
independent non-executive director
and will continue to do so until the
appointment of Kevin Whiteman on 19 July
2014. The role of the senior independent
director is to provide a sounding board
for the chairman and to serve as an
alternative source of advice to the
chairman for the other non-executive
directors.
The senior independent director is
available to shareholders if they request
a meeting or have concerns, which
contact through the normal channels
has failed to resolve, or where such
contact is inappropriate. He also leads
the performance review of the chairman,
taking into account the views of the
executive directors.
Independence
All of the non-executive directors are
considered by the board to be independent
in character and judgement and no cross-
directorships exist between any of the
directors.
No director has any material interest
in any contract of significance with the
Group during the period under review. The
directors have put in place procedures
to ensure the board collectively, and the
directors individually, comply with the
disclosure requirements on conflicts of
interest set out in the Companies Act
2006. The interests of the directors in
the share capital of the Company and
its subsidiary undertakings and their
interests under the performance share
plan and other share schemes are set out
in the remuneration report on page 77.
Keith Elliott has continued in his role
as senior independent non-executive
director to date and until the appointment
of Kevin Whiteman on 19 July 2014,
notwithstanding that he had served
as a director for 15 years. He has also
continued with his chairmanship of the
remuneration committee and will continue
to do so until his retirement on 18 July
2014.
The board recognises that whilst Keith and
Toby were technically non-independent
due in Keith’s case to his length of tenure
and in Toby’s case his having previously
served as chairman, their concurrent
tenure, representing the average period
for which they served on the board
contemporaneously with the executive
directors, was significantly reduced
following the resignation of Tom Haughey
and the retirement of Peter Emerson in
2013. Furthermore, the board believes that
they have continued to act independently
and recognises their high levels of
commitment and effective contribution to
the board’s decision making process.
Directors to stand for election
The Company’s articles of association
require the directors to offer themselves
for re-election at least once every three
years. Notwithstanding this, and in
accordance with the recommendations of
the Code, the Company has decided that
all of the directors will now retire at each
AGM and may offer themselves for re-
election by shareholders. Accordingly, all
of the existing directors whose biographies
are set out on pages 46 and 47 will be
standing for re-election at the 2014 AGM.
The board is satisfied that the
performance of all of the remaining
non-executive directors continues to be
effective and that they continue to show
commitment to their respective roles.
Non-executive directors are not appointed
for a fixed term. The terms and conditions
of appointment of non-executive directors
will be available for inspection at the AGM.
BOARD EFFECTIVENESS
Operation of the board
The role of the board is to set the
strategic direction of the Group, to review
all significant aspects of the Group’s
activities, to oversee the executive
management and to review the overall
system of internal control and risk
management. The board has a formal
schedule of matters reserved for it. It is
responsible for overall Group strategy,
acquisition and divestment policy,
approval of major capital expenditure
projects and consideration of significant
financing matters. It monitors the
exposure to key business risks including
environmental and health and safety
issues. It reviews the strategic direction
of individual trading subsidiaries,
codes of conduct, annual budgets,
progress towards achievement of those
budgets, significant capital expenditure
programmes and the annual and half year
results.
The board also considers employee issues
and key appointments. It also ensures that
all directors receive appropriate training
on appointment and then subsequently as
appropriate. Other specific responsibilities
are delegated to the board’s committees
described below.
The chairman, together with the
Company secretary, ensures that the
directors receive clear information on
all relevant matters in a timely manner.
Board papers are circulated sufficiently
in advance of meetings for them to be
thoroughly digested to ensure clarity
of informed debate. The board papers
contain the chief executive officer’s
written report, the Group finance
director’s and chief operating officer’s
written reports, high level papers on
each business area, key metrics and
specific papers relating to agenda items.
The board papers are accompanied by a
management information pack containing
detailed financial and other supporting
information. The board receives occasional
ad hoc papers on matters of particular
relevance or importance. The board also
receives presentations from various
business units.
Board meetings
The directors’ attendance record at the
scheduled board meetings and board
committee meetings for the year ended
31 March 2014 is shown in the table below.
For board and board committee meetings,
attendance is expressed as the number
of meetings that each director attended
out of the number that they were eligible
to attend. In addition to those scheduled
meetings, ad hoc meetings were also
arranged to deal with matters between
scheduled meetings as appropriate.
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Corporate governance report continued
Non-attendance by directors at meetings was due to either conflicting commitments previously agreed or illness. Board meetings are held at
various locations in London, the Group’s head office in Dalton, North Yorkshire and at the offices of the Group’s other operating subsidiaries to
provide non-executive directors the opportunity to increase their knowledge and understanding of the Group’s operations.
Director
John Dodds
Keith Elliott
Toby Hayward
Chris Holt
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Main
board
Audit
committee
Remuneration
committee
Nomination
committee
9/9
8/9
9/9
9/9
4/4
7/7
9/9
7/9
2/2
3/3
3/3
2/3
n/a
n/a
n/a
n/a
n/a
4/4
4/4
4/4
n/a
n/a
n/a
n/a
1/1
4/4
4/4
4/4
n/a
n/a
n/a
n/a
Note: Ian Lawson, Ian Cochrane and John Dodds attended all required meetings during their tenure as executive directors.
Board evaluation
The board considers that the balance of
relevant experience amongst the various
board members enables the board to
exercise effective leadership and control of
the Group. It also ensures that the decision
making process cannot be dominated by any
individual or small group of individuals.
The Code attaches importance to boards
having processes for individual and
collective performance evaluation. The
performance of individual directors is
evaluated annually in conjunction with the
remuneration review.
The chairman meets with the non-executive
directors at least annually to review their
performance and the senior independent
director leads an evaluation process of the
performance of the chairman taking into
account the views of the executives.
A formal evaluation of board effectiveness
was conducted during the year. Details of
significant changes to the composition of
the board are set out on page 52.
Professional development
Appropriate training and briefing is provided
to all directors on appointment to the
board, taking into account their individual
qualifications and experience. This is
supplemented with visits to the Group’s
operations and meetings with senior
divisional management to develop the
directors’ understanding of the business.
Training and updating in relation to the
business of the Group and the legal and
regulatory responsibilities of directors was
provided throughout the year by a variety
of means to board members including
presentations by executives, visits to
business operations and circulation of
briefing materials. Individual directors
are also expected to take responsibility
for identifying their training needs and to
ensure they are adequately informed about
the Group and their responsibilities as a
director.
Non-executive directors are continually
updated on the Group’s business, its
markets, social responsibility matters,
changes to the legal and governance
environment and other changes impacting
the Group. During the year, the directors
received updates on various best practice,
regulatory and legislative developments,
including changes to the UK Corporate
Governance Code and directors’
remuneration reporting requirements.
All directors have access to the advice and
services of the Group legal director and
Company secretary who ensures that board
processes are followed and good corporate
governance standards are maintained.
Any director who considers it necessary
or appropriate may take independent,
professional advice in furtherance of
their duties at the Company’s expense. No
directors sought such advice in the year.
The board is confident that all its members
have the knowledge, ability and experience
to perform the functions required of a
director of a listed company.
Relations with shareholders
The Company encourages two-way
communication with both its institutional
and private investors and attempts to
respond quickly to all queries received
verbally or in writing.
The executive directors undertake a
programme of regular communication
with institutional shareholders and with
analysts covering the Group’s activities,
its performance and strategy. John Dodds,
Ian Lawson and Alan Dunsmore attended
several meetings with institutional
shareholders, private investors and
analysts during the year, at the time of the
announcements of the Group’s annual and
half year results, during visits to the Group’s
head office in North Yorkshire and on an
ad hoc basis as required. In addition, a
capital markets event took place on 25 April
attended by approximately 30 analysts and
investors. Feedback from those meetings
is reported to the board, including the non-
executive directors.
Direct discussions took place during the
year between shareholders’ representatives
and Keith Elliott with particular reference to
the directors’ remuneration report.
The board has sought to use the AGM to
communicate with private investors and
encourages their participation. The notice of
the AGM, detailing all proposed resolutions,
is posted to shareholders at least 20
workings days before the meeting.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 55
BOARD COMMITTEES
Remuneration committee
The board has established three standing
committees, all of which operate within
defined terms of reference, which are
available from the Company secretary by
request and will be available for inspection
at the AGM.
The remuneration committee comprises
the non-executive directors and is chaired
by Keith Elliott. Subsequent to the
year-end, Alun Griffiths was appointed
chairman of the committee following Keith
Elliott’s resignation.
The committees established are the audit
committee, the remuneration committee
and the nominations committee. Trading
companies are managed by separate
boards of directors. Any matters of a
material nature concerning the trading
companies are reported to the board on a
monthly basis.
Audit committee
The audit committee comprises the non-
executive directors. At 31 March 2014, the
committee members were Toby Hayward,
John Dodds, Chris Holt and Keith Elliott.
Toby Hayward has served as chairman
of the committee throughout the year.
Effective subsequent to the year-end,
Alun Griffiths and Kevin Whiteman were
appointed as members of the committee
and Tony Osbaldiston was appointed
chairman of the committee; Keith Elliott
and Toby Hayward resigned as committee
members. The committee members have
been selected to provide the wide range
of financial and commercial expertise
necessary to fulfil the committee’s
duties; Toby Hayward, Chris Holt and Tony
Osbaldiston are chartered accountants.
On invitation, the chief executive officer,
Group finance director, other executive
directors, executive committee members,
senior management and the internal
and external auditors attend meetings to
assist the committee fulfil its duties.
Meetings are held at least three times
per annum and additional meetings
may be requested by the auditor. The
committee met on three occasions
during the year with full attendance by all
members except for Chris Holt who was
unable to attend one meeting.
The audit committee report is set out on
pages 58 to 60.
This committee, which meets at least
twice per year, is responsible for making
recommendations to the board concerning
the compensation of senior executives. It
also determines, within the agreed terms
of reference, the specific remuneration
packages for each of the executive
directors and the chairman, as well as the
level and structure of remuneration for
senior management. New Bridge Street
(NBS) (an AON Hewitt Company) are
appointed as the Group’s remuneration
consultants. NBS are a member of the
Remuneration Consultants Group and
comply with its code of conduct. NBS has
no other connection with the Company.
The committee met on four occasions
during the year with full attendance.
Shareholders are required to approve
all new long-term incentive plans and
significant changes to existing plans.
Further details of these plans, as well
as the activities undertaken by the
committee during the year, can be found in
the directors’ remuneration report as set
out on pages 66 to 80.
Nominations committee
The nominations committee comprises
the non-executive directors and is chaired
by John Dodds. Whilst John was acting as
executive chairman it was chaired by Chris
Holt.
The principal task of the committee is to
deal with key appointments to the board,
and related employment matters. The
committee is responsible for proposing
candidates for appointment to the board,
having regard to the balance and structure
of the board, and meets as and when
required.
The committee met on four occasions
during the year with full attendance.
In 2013/14, the committee’s work
programme entailed recommending to
the board the appointment of a new chief
executive officer, in place of Tom Haughey
who resigned in January 2013, and three
new non-executive directors, two of whom
will replace Toby Hayward and Keith
Elliott.
In seeking suitable candidates for these
vacancies, Korn/Ferry International,
an external executive search agency,
was engaged. Korn/Ferry has no other
connection with the Company. The
nominations committee considered a list
of potential candidates and the balance of
skills, knowledge, independence, diversity
(including gender) and experience on the
board to ensure that a suitable balance
was maintained.
Ian Lawson was appointed as chief
executive officer in November 2013.
Ian’s wealth of plc board experience and
understanding of the construction market
were factors in the board’s decision.
The committee also recommended to
the board the appointments as non-
executive directors of Alun Griffiths on
1 May 2014 and Kevin Whiteman and
Tony Osbaldiston with effect from 19 July
2014. Their other significant commitments
were disclosed to the board before
their appointments. The board was and
continues to be satisfied that they would
allocate sufficient time to the Company to
discharge their responsibilities effectively.
The committee was also unanimous
in appointing Ian Cochrane, formerly
managing director of Severfield (NI)
Limited, to the board as chief operating
officer in June 2013.
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Corporate governance report continued
Diversity
We recognise the importance of diversity
in board effectiveness and remain
committed to ensuring that appointments
are ultimately made on merit and against
agreed selection criteria.
We support the Davies report’s aspiration to
promote greater female representation on
listed company boards. The Group, however,
does not believe in the concept of gender
quotas, our preferred approach being much
more directed at merit, experience and skill.
In the sectors in which the Group operates
female representation at a senior level is
rare and as at 31 March 2014, the board
had no female directors. As and when board
appointments arise, and where practicable,
we will look to follow the procedures
recommended by the Davies report and by
the Code to maintain a balanced board. No
suitable female candidates were identified,
for example, as part of the recent recruitment
exercise for new non-executive directors.
The board also recognises that gender
diversity below board level remains an issue,
particularly in management and technical
roles within the construction industry.
Succession planning
The nominations committee ensures the
continued effectiveness of the board
through appropriate succession planning.
The board from 19 July 2014 onwards will
consist of nine directors, only four of whom
have been directors of the Company for
more than 13 months. More work will be
done in the next 12 months to formalise the
process of ongoing succession planning.
ACCOUNTABILITY
Risk management
The board is responsible for determining the
nature and extent of the significant risks it
is willing to take in achieving its strategic
objectives. An ongoing process has been
established for identifying, evaluating and
managing the significant risks faced by the
Group. A Group assurance map is used to
co-ordinate the various assurance providers
within the Group.
During the year, there was significant
investment in, and assessment of,
the Group’s risk management process
resulting in improved risk management
understanding, assessment and reporting.
The process was underpinned by risk
identification workshops, facilitated
by an independent risk management
consultant, which were attended by senior
management, the executive committee and
the board.
Senior management from all key disciplines
and businesses within the Group are
involved in the process of risk assessment
in order to identify and assess Group
objectives, key issues and controls. Further
reviews are performed to identify those
risks relevant to the Group as a whole. This
assessment encompassed all aspects of
risk, including operational, compliance,
financial and strategic.
Identified risk events, their causes and
possible consequences are recorded in
risk registers. Their likelihood and potential
business impact and the control systems
that are in place to manage them are
analysed and, if required, additional actions
are developed and put in place to mitigate or
eliminate unwanted exposures. Individuals
are allocated responsibility for evaluating
and managing these risks within an agreed
timetable.
The Group establishes its risk appetite
through use of delegated authorities so that
matters considered higher risk require the
approval of senior management or the board.
These include, but are not limited to, tender
pricing, bid submissions, approval of contract
variations and final account settlements,
capital requirements, procurement, and
certain legal and strategic matters.
Ongoing risk management and assurance is
provided through various monitoring reviews
and reporting mechanisms, including
the executive risk committee (chaired by
Ian Lawson) which convenes on a weekly
basis and has the primary responsibility
to identify, monitor and control significant
risks to an acceptable level throughout the
Group. The committee receives information
on relevant risk matters from a variety of
sources on a regular basis.
Subsidiary company meetings consider and
report on risk on a monthly basis as part of
the monthly business review process. This
process is followed to ensure that, as far
as possible, the controls and safeguards
are being operated in line with established
procedures and standards.
On a quarterly basis, the significant risks
identified by the Group’s businesses are
discussed in detail with each management
team. The outcome of these discussions
is collated and reported to the executive
committee. The risk registers of each
business are updated and, together with a
consolidated Group risk register compiled
by the executive committee, are reported to
the audit committee twice yearly, to ensure
that adequate information in relation to
risk management matters is available to
the board and to allow board members the
opportunity to challenge and review the
risks identified.
The audit committee undertakes an annual
review of the appropriateness of the risk
management processes to ensure that they
are sufficiently robust to meet the needs of
the Group.
Details of the Group’s principal risks,
together with the controls and procedures in
place to mitigate the risks, can be found on
pages 40 to 43.
Annual report
The board is responsible for the preparation
of the annual report and the financial
statements to ensure that the annual
report taken as a whole is fair, balanced and
understandable.
The annual report is drafted by executive
management with reviews undertaken by
third-party advisers as required. Additional
steps have been built into the reporting
timetable to ensure that directors are given
sufficient time to review, consider and
comment on the annual report. Our external
auditor reviews the narrative sections of
the annual report to identify any material
inconsistencies between their knowledge
acquired during the audit and the directors’
‘fair, balanced and understandable’
statement and whether the annual report
appropriately discloses those matters
that they have communicated to the audit
committee. A substantially final draft is
reviewed by the audit committee prior to
consideration by the board.
Internal control
The board formally acknowledges its overall
responsibility for reviewing the effectiveness
of internal control. It believes that senior
management within the Group’s operating
businesses should also contribute in a
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 57
substantial way and this has been built
into the process.
There are inherent limitations in any
system of internal control and, accordingly,
even the most effective system can
provide only reasonable, and not absolute,
assurance against material misstatement
or loss. The system is designed to manage
rather than eliminate the risk of failure to
achieve the Group’s objectives.
The system of internal control, which
includes financial, operational and
compliance controls, is based on a process
of identifying, evaluating and managing
risks. This process has been in place for
the full financial year and up to the date of
the approval of these financial statements
and is regularly reviewed by the board.
The process is subject to continuous
improvement and has been enhanced
as the Group has implemented greater
formality and standardisation, which allows
for better oversight by the board. This
process is in accordance with the guidance
provided by the Turnbull report.
The key features of the Group’s system of
internal control are as follows:
Financial reporting system
The Group operates a comprehensive
budgeting and forecasting system.
Budgets and forecasts include income
statements (including detailed contract-
by-contract information), cash flow
statements and balance sheets. Risks are
identified and appraised throughout the
annual process of preparing budgets. The
annual budget and quarterly forecasts are
approved by the board.
A formal quarterly review of each
business’s year-end forecast, business
performance, risk and internal control
matters is carried out by the directors
of each division with the chief executive
officer, Group finance director and chief
operating officer in attendance.
Detailed management accounts are
prepared for each business and the
Group on a monthly basis which, as a
matter of routine, compare actual results
with budget and the latest forecast.
Material variances from budget and
forecast are thoroughly investigated. A
detailed monthly Group management
information pack is prepared which covers
the performance of each business and
contains detailed consolidated results
and other financial information for the
Group as a whole. This information pack is
subsequently presented to the executive
committee and the board.
Standard financial control procedures
operate throughout the Group to ensure
the integrity of the Group’s financial
statements.
Project management procedures
Project risk is managed throughout the
life of a contract from the tender stage to
completion. The Group has taken steps to
implement stronger contracting processes
and disciplines during the year.
Individual tenders for projects are subject
to detailed review with approvals required
at relevant levels and at various stages
from commencement of the tender process
through to contract award. Tenders above
a certain value and those involving an
unusually high degree of technical or
commercial risk must be approved at a
senior level within the Group.
Robust procedures exist to manage
the ongoing risks associated with
contracts. Regular monthly contract
reviews to assess contract performance,
covering both financial and operational
issues, form an integral part of contract
forecasting procedures.
Authorisation procedures
The Group operates an established
management structure, with clearly
defined levels of responsibility and a clear
system of delegated authorities. These
procedures are relevant across Group
operations and provide for successive
assurances to be given at increasingly
higher levels of management and, finally,
to the board.
All significant investment decisions,
including capital expenditure, are referred
to the board, the executive directors or
senior management, depending on the
value and/or nature of the proposed
investment. Capital expenditure requests
are supported by detailed investment
appraisals.
Cash and working capital
management
Cash flow forecasts are regularly prepared
to ensure that the Group has adequate
funds and resources for the foreseeable
future and is in compliance with banking
covenants. Each business reports its cash
position daily. Actual cash performance is
compared to forecast on a weekly basis.
Internal audit
During the course of the year, KPMG was
engaged as an outsourced internal audit
and assurance provider to deliver specific
expertise, experience and resource. The
scope of the internal audit work focuses
on critical business financial processes
and other areas of perceived high business
risk. KPMG’s findings are reported to the
executive and audit committees on a
regular basis.
Health and safety
Safety, health and environmental issues
and risks are continually monitored at all
sites and are reviewed on a monthly basis
by senior management and the board.
The Group has a well-developed health
and safety management system for the
internal and external control of health and
safety risks which is managed by the Group
SHE director. This includes the use of risk
management systems for the identification,
mitigation and reporting of health and
safety management information.
Whistleblowing procedures
The Group operates a comprehensive
‘whistleblowing’ policy. Accordingly, staff
may, in confidence, raise concerns about
possible improprieties in matters of
financial reporting or other matters. The
audit committee reviews adherence with
this policy on an ongoing basis.
Information included in the
directors’ report
Certain information that fulfils the
requirements of the corporate governance
statement can be found in the directors’
report in the sections headed ‘significant
shareholdings’, ‘share capital’, ‘amendment
of articles of association’, ‘appointment
and replacement of directors’ and ‘powers
of the directors’ and is incorporated into
this corporate governance section by
reference.
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Audit committee report
Toby Hayward Chairman of the audit committee
“During the year, we have scrutinised the appropriateness
of the Group’s system of internal controls and risk
management processes, along with the internal and
external audit processes.”
Role
• To make recommendations to the board
Activities of the committee
The primary function of the committee is
to assist the board in fulfilling its oversight
responsibilities. This includes reviewing
the financial reports and other financial
information before publication. The
committee assists the board in achieving its
obligations under the Code in areas of risk
management and internal control, focusing
particularly on areas of compliance with
legal requirements, accounting standards
and the Listing Rules, and ensuring that an
effective system of internal financial and
non-financial controls is maintained.
The committee also reviews the accounting
and financial reporting processes, along
with reviewing the roles of and effectiveness
of the external auditor. The ultimate
responsibility for reviewing and approving
the annual report remains with the board.
The responsibility of the committee
principally falls into the following areas:
• To monitor the integrity of the financial
statements and formal announcements
and to review significant financial
reporting judgements.
• To review the Group’s internal financial
controls.
in relation to the appointment and
removal of the external auditor and to
approve its remuneration and its terms
of engagement.
• To review the nature of non-audit
services supplied and non-audit fees
relative to the audit fee.
• To provide independent oversight over
the external audit process through
agreeing the suitability of the scope and
approach of the external auditor’s work,
assessing its objectivity in undertaking
its work and monitoring its independence
taking into account relevant UK
professional regulatory requirements
and the auditor’s period in office and
compensation.
• To oversee the effectiveness of the
internal audit process.
• To oversee the effectiveness of the
external audit process particularly
with regard to the quality and cost-
effectiveness of the auditor’s work.
• To report to the board how it has
discharged its responsibilities.
• Reviewed and discussed with the
external auditor the key accounting
considerations and judgements reflected
in the Group’s interim results for the
period ended 30 September 2013.
• Reviewed and agreed significant
accounting risks and principal business
risks for the year ended 31 March 2014.
• Reviewed and agreed the external
auditor’s audit planning report in
advance of the audit for the year ended
31 March 2014.
• Discussed the report received from the
external auditor regarding the audit of
the results for the year ended
31 March 2014. This report included
the key accounting considerations and
judgements reflected in the Group’s
year-end results, comments on findings
on internal control and a statement on
independence and objectivity.
• Reviewed the need for an internal
audit function and approved KPMG’s
appointment as the Group’s internal
auditor.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 59
• Reviewed the internal audit plan and
internal audit reports prepared by
KPMG covering various aspects of
the Group’s operations, controls and
processes.
• Reviewed the Group’s risk register.
• Reviewed progress in the development
of a Group finance manual including
the formalisation of Group accounting
policies.
• Reviewed and approved external audit
fees for the year ended 31 March 2014.
• Reviewed the effectiveness of the
external audit process.
• Reviewed the need for an audit tender
process.
The committee has considered the
annual report in the context of the new
‘fair, balanced and understandable’
statement and is in a position to report
to the board that the 2014 annual report
taken as a whole is fair, balanced and
understandable on the basis that the
description of the business agrees with
their own understanding, the discussion of
performance properly reflects the events
of the year and that there is a clear and
well-articulated link between all areas of
disclosure.
Risk management and internal
control
The committee is responsible for reviewing
the design and effectiveness of the Group’s
system of internal control. The committee
is also responsible for reviewing the
adequacy and effectiveness of the Group’s
ongoing risk management systems and
processes.
Taking into account the processes that
have been designed and implemented
during the year ended 31 March 2014, the
board, with the advice of the committee,
has reviewed the internal control systems
and risk management processes. Further
steps are being undertaken to embed
internal control and risk management
further into the operations of the Group
and to deal with areas of improvement
which are brought to the attention of
management and the board.
Further details of the Group’s internal
control process are set out in the
corporate governance report on pages 56
and 57.
Further details of the Group’s principal
risks and uncertainties are set out on
pages 40 to 43.
Internal audit
In conjunction with management, the
committee reviewed the need for an
internal audit function. A number of
options were considered including
the establishment of an in-house
internal audit department, outsourced
arrangements and co-sourced
arrangements. After considering several
providers, KPMG was engaged.
Financial reporting and significant
financial issues
The committee assesses whether suitable
accounting policies have been adopted
and whether management has made
appropriate estimates and judgements.
The committee reviews accounting papers
prepared by management which provide
details on the main financial reporting
judgements. For example, during the year
the committee reviewed the significant
contract judgements made by management
and the judgemental areas of the carrying
values of goodwill and the Indian joint
venture.
The committee also reviews reports by the
external auditor on the full year and half
year results which highlight any issues
associated with the work undertaken on
the audit.
The two significant issues considered
during the year are detailed below:
• Contract valuation, revenue and
profit recognition: The committee
reviewed the report of the Group
finance director that set out the main
contract judgements associated with
the Group’s significant contracts.
The significant areas of judgement
include the timing of revenue and
profit recognition, the estimation of the
recoverability of contract variations
and claims and the estimation of future
costs to complete. The external auditor
performed detailed audit procedures
on revenue and profit recognition and
reported the findings to the committee.
• Review of carrying value of goodwill
and the investment in the Indian joint
venture: The committee considered
the carrying value of goodwill and the
investment in the Indian joint venture
and the assumptions underlying the
impairment review. The judgements in
relation to impairment largely relate
to the assumptions underlying the
identification of the Group’s cash-
generating units (CGUs) (for goodwill
only) together with the calculation of
the value in use of the business being
tested for impairment, primarily the
achievability of long-term business
plans and macroeconomic assumptions
underlying the valuation process. The
impairment reviews were identified
as significant risks by the external
auditor, who reported the findings to the
committee.
The committee was satisfied that each
of the matters set out above had been
fully and adequately addressed by
management, appropriately tested and
reviewed by the external auditor and that
the disclosures made in the annual report
were appropriate.
In addition, the committee has considered
a number of other judgements which have
been made by management, none of which
had a material impact on the Group’s
results. These include the recoverability of
deferred tax assets and the valuation of
pension scheme liabilities.
External auditor
The committee has responsibility for
making a recommendation on the
appointment, reappointment and removal
of the external auditor. The committee also
advises the board on the external auditor’s
remuneration for audit and non-audit
work, independence and objectivity and
discusses the nature, scope and results
of the audit with them. Deloitte LLP was
reappointed auditor of the Group at the
AGM held in September 2013.
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur governance There are no specific types of non-audit
work from which the auditor is specifically
excluded but the committee may reserve the
right to insist that the auditor be excluded
from tendering for work that may present
a potential conflict of interest. The auditor
complies with the Accounting Practices
Board (APB) Ethical Standards applying to
non-audit services.
In other circumstances, proposed
assignments are put out to tender and
decisions to award work taken on the basis
of demonstrable competence and cost-
effectiveness.
Details of the auditor’s fees, including
non-audit fees, of £307,000 paid to Deloitte
LLP, are shown in note 4 to the consolidated
financial statements.
Toby Hayward
Chairman of the audit committee
11 July 2014
60
Audit committee report continued
The effectiveness of the external audit
process is dependent on appropriate risk
identification at the start of the audit cycle.
These significant risks are identified in the
external auditor’s planning report to the
committee and comprise contract valuation,
revenue and profit recognition and the
review of the carrying value of goodwill
and the investment in the Indian joint
venture. Throughout the year, the committee
monitored these risks and the associated
work undertaken by Deloitte has been
evaluated.
The effectiveness of the external audit
process is currently assessed by the
committee based on discussions with those
involved in the process. The chairman of
the audit committee also meets with the
external audit partner outside the formal
committee process throughout the year.
In assessing the effectiveness of the
external audit process during the year, the
committee reviewed the following:
• The experience, qualifications and
expertise of the external auditor;
• The achievement of the agreed audit plan
and the communication of any changes
to the plan;
• The competence with which significant
accounting and audit issues were
handled and how these were
communicated to the committee; and
• The external auditor’s compliance
with relevant regulatory, ethical and
professional guidance on the rotation of
audit partners.
The committee is satisfied that the audit
continues to be effective and provides an
appropriate independent challenge to the
Group’s management.
Audit tendering
Deloitte LLP and its predecessor firms
have been the external auditor of the
Group since their appointment in 1983. The
external auditor is required to rotate the
audit partner responsible for the Group and
subsidiary audits at least every five years
and a new lead audit partner was appointed
for the year ended 31 March 2014.
The committee has noted the recent
changes to the UK corporate governance
code including the provision for FTSE 350
companies to rotate the external audit
contract at least every ten years. Despite
this provision not being applicable to the
Group given its current status outside of
the FTSE 350, the committee recognises
that the length of tenure of auditors is
under increasing scrutiny. In view of this,
and taking into account recent EU guidance
that also requires listed companies to
tender their audit at least every ten years,
the committee intends to conduct a tender
process during the course of the coming
year. The successful firm will be appointed
for the year ending 31 March 2016. There are
no contractual obligations that restrict the
choice of the external auditor.
Non-audit services
The committee recognises that, given
its knowledge of the business, there are
often advantages in using the auditor
to provide certain non-audit services.
The committee is satisfied that the
independence of the auditor has not been
impaired by providing these services. Non-
audit services provided by the auditor during
the year ended 31 March 2014 represented
corporation tax compliance advice only.
The committee has a policy of limiting fees
to the auditor for non-audit services to
100 per cent of the audit fee and requiring
competitive tender for all work with a fee
over £30,000, other than for routine tax
compliance work.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 61
The other significant commitments of the
chairman were unchanged during the year
and consist of acting as non-executive
director of Lagan Construction Holdings
Limited and Newbury Racecourse plc.
Significant shareholdings
As at 1 July 2014, the Group had been
notified of the following voting rights to the
Company’s shares in accordance with the
Disclosure Rules and Transparency Rules
of the UK Listing Authority:
Ordinary
2.5p share
1 M&G Investments 46,889,416
2 JO Hambro Capital
%
15.76
Management
3 Standard Life
Investments
4 Threadneedle
Investments
44,332,047
14.90
25,941,128
8.72
23,382,337
7.86
5 River & Mercantile
Asset Management 15,802,632
5.31
6 Legal & General
Investment
Management
7 Henderson Global
14,119,905
4.75
Investors
10,568,906
3.55
Share capital
The Company has a single class of share
capital which is divided into ordinary shares
of 2.5p each.
Rights attaching to shares
The rights attaching to the ordinary shares
are defined in the Company’s articles of
association. The articles of association
may be changed with the agreement of
shareholders. A shareholder whose name
appears on the Company’s register of
members can choose whether his shares
are evidenced by share certificates (i.e.
in certificated form) or held in electronic
(i.e. uncertificated) form in CREST (the
electronic settlement system in the UK).
Subject to any restrictions below,
shareholders may attend any general
meeting of the Company and, on a show
of hands, every shareholder (or his
representative) who is present at a general
meeting has one vote on each resolution
and, on a poll, every shareholder (or his
representative) who is present has one
vote on each resolution for every ordinary
share of which they are the registered
shareholder. A resolution put to the vote of
a general meeting is decided on a show of
hands unless before, or on the declaration
of the result of, a vote on a show of hands,
a poll is demanded by the chairman of the
meeting, or by at least five shareholders
present in person or by proxy and having
the right to vote, or by any shareholders
present in person or by proxy having at
least ten per cent of the total voting rights
of all shareholders, or by any shareholders
present in person or by proxy holding
ordinary shares in which an aggregate sum
has been paid up of at least one-tenth
of the total sum paid up on all ordinary
shares.
Shareholders can declare final dividends
by passing an ordinary resolution but the
amount of the dividends cannot exceed the
amount recommended by the board. The
board can pay interim dividends on any
class of shares of the amounts and on the
dates and for the periods they decide the
distributable profits of the Company justify
such payment.
Any dividend which has not been claimed
for 12 years after it became due for
payment will be forfeited and will then
belong to the Company, unless the
directors decide otherwise.
Directors’ report
Introduction
The directors present their report together
with the audited consolidated financial
statements for the year ended 31 March
2014.
The Companies Act 2006 requires the
directors to present a fair review of the
business during the year to 31 March
2014 and of the position of the Group
at the end of the financial year along
with a description of the principal risks
and uncertainties. The Disclosure and
Transparency Rules require certain
information to be included in a corporate
governance statement.
The strategic report on pages 2 to 43 and
the corporate governance report on pages
46 to 81, including the audit committee
report, form part of this directors’ report.
Disclosures elsewhere in the annual report
are cross-referenced where appropriate.
Taken together, they fulfil the combined
requirements of company law, the
Disclosure and Transparency Rules and
Listing Rules.
Details of significant events since the
balance sheet date are contained in
note 32 to the financial statements. An
indication of likely future developments
in the business of the Group and details
of research and development activities
are included in the strategic report.
Information about the use of financial
instruments by the Company and its
subsidiaries is given in note 21 to the
financial statements.
Dividends
The directors did not declare an
interim dividend for the six months ended
30 September 2013 (2013: £1.3m, 1.5p per
share). The directors do not recommend
the payment of a final dividend.
Directors
The present membership of the board is
set out on pages 46 and 47.
Details of directors’ interests, including
interests in the Company’s shares, are
disclosed in the directors’ remuneration
report on page 77.
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Directors’ report continued
If the Company is wound up, the liquidator
can, with the sanction of a special resolution
passed by the shareholders, divide among
the shareholders all or any part of the
assets of the Company and he can value any
assets and determine how the division shall
be carried out as between the members
or different classes of members. The
liquidator can also transfer the whole or
any part of the assets to trustees upon any
trusts for the benefit of the members. No
shareholders can be compelled to accept
any asset which would give them a liability.
Voting at general meetings
Any form of proxy sent by the Company
to shareholders in relation to any general
meeting must be delivered (subject to the
provisions of the articles of association) to
the Company, whether in written form or
in electronic form, not less than 48 hours
before the time appointed for holding the
meeting or adjourned meeting at which the
person named in the appointment proposes
to vote.
No shareholder is, unless the board decides
otherwise, entitled to attend or vote either
personally or by proxy at a general meeting
or to exercise any other right conferred by
being a shareholder if he or any person with
an interest in shares has been sent a notice
under section 793 of the Companies Act
2006 (which confers upon public companies
the power to require information with
respect to interests in their voting shares)
and he or any interested person failed to
supply the Company with the information
requested within 14 days after delivery of
that notice.
The board may also decide (where the
shares represent at least 0.25 per cent in
nominal value of the issued shares of the
same class) that no dividend is payable in
respect of those default shares and that
no transfer of any default shares shall be
registered.
These restrictions end seven days after
receipt by the Company of a notice of an
approved transfer of the shares or all the
information required by the relevant section
793 notice, whichever is the earlier.
Transfer of shares
General meetings
The board may refuse to register a transfer
of a share which is not fully paid, provided
that the refusal does not prevent dealings
in shares in the Company from taking place
on an open and proper basis. The board
may also refuse to register a transfer of a
certificated share unless: (i) the instrument
of transfer is lodged, duly stamped (if
stampable), at the registered office of the
Company or any other place decided by
the board, accompanied by a certificate
for the share to which it relates and such
other evidence as the board may reasonably
require to show the right of the transferor
to make the transfer; (ii) is in respect of only
one class of shares; and (iii) is in favour of
not more than four transferees.
Transfer of uncertificated shares must be
carried out using CREST and the board
can refuse to register a transfer of an
uncertificated share in accordance with
the regulations governing the operation of
CREST. There are no other limitations on the
holding of ordinary shares in the Company.
Variation of rights
If at any time the capital of the Company is
divided into different classes of shares, the
special rights attaching to any class may be
varied or revoked either:
i. with the written consent of the holders
of at least 75 per cent in nominal value of
the issued shares of the class; or
ii. with the sanction of a special resolution
passed at a separate general meeting of
the holders of the shares of the class.
The Company can issue new shares and
attach any rights to them. If there is no
restriction by special rights attaching to
existing shares, rights attaching to new
shares can take priority over the rights of
existing shares.
A resolution is to be proposed at the
forthcoming AGM that a general meeting
of the Company, other than an AGM, can be
called on not less than 14 clear days’ notice.
Change of control
There are no agreements between the
Group and its directors or employees
providing for compensation for loss of office
or employment that occurs because of a
takeover bid.
The Group’s banking arrangements which
expire in November 2016 can be terminated
upon a change of control of the Group.
Appointment and replacement
of directors
In accordance with the Company’s articles,
directors shall be no less than two and
no more than 12 in number. Subject to
applicable law, a director may be appointed
by an ordinary resolution of shareholders in
general meeting following nomination by the
board or a member (or members) entitled
to vote at such a meeting, or following
retirement by rotation if the director chooses
to seek re-election at a general meeting.
In addition, the directors may appoint a
director to fill a vacancy or as an additional
director, provided that the individual
retires at the next AGM. A director may be
removed by the Company as provided for by
applicable law, in certain circumstances set
out in the Company’s articles of association
(for example bankruptcy, or resignation), or
by a special resolution of the Company. We
have decided this year to adopt voluntarily
the practice that all directors stand for re-
election on an annual basis, in line with the
recommendations of the Code.
Powers of the directors
The business of the Company is managed by
the board who may exercise all the powers
of the Company subject to the provisions
of the Company’s articles of association,
the Companies Act 2006 (‘the Act’) and any
ordinary resolution of the Company.
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Directors’ indemnities
Employee involvement
External auditor
Deloitte LLP has expressed its willingness
to continue in office as external auditor
and a resolution to reappoint it will be
proposed at the forthcoming AGM.
Annual general meeting
The notice concerning the AGM to be held
at Aldwark Manor Hotel, York at noon on
Tuesday 2 September 2014, together with
explanatory notes on the resolutions to be
proposed and full details of the deadlines
for exercising voting rights, is contained in
a circular to be sent to shareholders with
this report.
The directors’ report from pages 61 to 63
inclusive was approved by the board and
signed on its behalf by:
Mark Sanderson
Company secretary
11 July 2014
The articles entitle the directors of the
Company to be indemnified, to the extent
permitted by the Act and any other
applicable legislation, out of the assets of
the Company in the event that they suffer
any loss or incur any liability in connection
with the execution of their duties as
directors.
In addition, and in common with many
other companies, the Company had during
the year and continues to have in place
directors’ and officers’ insurance in favour
of its directors and other officers in respect
of certain losses or liabilities to which they
may be exposed due to their office.
Amendment of articles of association
Any amendments to the articles may be
made in accordance with the provisions of
the Act by way of special resolution.
Political contributions
No contributions were made to any
political parties during the current or
preceding period.
Greenhouse gas emissions
All disclosures on the Group’s greenhouse
gas emissions, as required to be disclosed
under the Companies Act 2006 (Strategic
Report and Directors’ Report Regulations
2013), are contained in the corporate social
responsibility report on page 32.
Employment of disabled persons
The Company gives full and fair
consideration to applications for
employment made by disabled persons,
having regard to their particular aptitudes
and abilities. In the event of an employee
becoming disabled every effort is made to
ensure that their employment within the
Company continues and that appropriate
training is arranged where necessary.
It is the policy of the Company that
the training, career development and
promotion of disabled persons should, as
far as possible, be identical to that of other
employees.
The Group places considerable value on
the involvement of its employees and has
continued its practice of keeping them
informed on matters affecting them as
employees, for example, eligibility to join
Company share schemes, and on the
various factors affecting the performance
of the Group. Communication is made
using the Group’s internal communications
newsletter and through regular meetings
with, and presentations by, senior
management.
Details of employee share-based payment
schemes are set out in note 22.
Going concern
After making enquiries, the directors
have formed a judgement at the time of
approving the financial statements that
there is a reasonable expectation that the
Group has adequate resources to continue
in operational existence for the foreseeable
future. For this reason the directors
continue to adopt the going concern basis
in preparing the financial statements.
The key factors considered by the directors
in making the statement are set out in the
financial review on pages 28 to 31.
Disclosure of information to the
external auditor
The directors who held office at the date of
approval of this directors’ report confirm
that, so far as they are each aware, there
is no relevant audit information of which
the Company’s auditor is unaware and
each director has taken all the steps that
he or she ought to have taken as a director
in order to make himself or herself aware
of any relevant audit information and to
establish that the Company’s auditor is
aware of that information.
This confirmation is given and should
be interpreted in accordance with the
provisions of section 418 of the Act.
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Directors’ remuneration report
Keith Elliott Chairman of the remuneration committee
On behalf of the board I am pleased to present the directors’
remuneration report for the year ended 31 March 2014, our
first under the Accounts and Reports Regulations. The report
is set out in two sections: the directors’ remuneration policy
at pages 66 to 73 and the annual report on remuneration at
pages 73 to 80.
Dear shareholder
Performance and remuneration in
2013/14
2013/14 was a difficult and transitional year.
Performance problems on several major
projects had seen the incumbent chief
executive officer step down at the end of the
previous year. Our chairman took control of
the business as executive chairman until
November 2013 when a new chief executive
officer was appointed. Mid-year a new
chief operating officer was also appointed
following the retirement of the previous
incumbent. A successful rights issue at the
start of the year rebuilt the balance sheet
and the performance problems and value at
risk on projects were brought under control
by year-end. We have returned to underlying
profitability and the expectation of future
growth and stability for next year and beyond.
Executive salaries are set at the same levels
as set out in last year’s annual report and we
were able to secure the services of our new
chief executive officer, Ian Lawson and new
chief operating officer, Ian Cochrane during
the year on comparable salaries to their
respective predecessors.
The Group-wide performance targets set
under the bonus plan for the whole year
were not met and amongst the current
executive directors bonuses will be only
paid for this year to Ian Cochrane whose
performance target for UK profitability was
met and to Ian Lawson whose personal
objectives were met. In addition, no PSP
awards vested in relation to performance for
the year ended 31 March 2014. As predicted
in last year’s annual report no awards
under that scheme have vested now for four
consecutive years. A one-off discretionary
bonus payment to John Dodds for the
period during which he acted as executive
chairman was made.
Key remuneration issues for 2013/14
Unconnected with performance problems
the committee undertook during 2013/14
an overhaul of directors’ remuneration
policy resulting in significant changes. Our
guidelines were best practice compliance,
consistency (with shareholder interests),
market alignment and simplification. The
resultant changes included:
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 65
Ensuring that the
current remuneration
policy and incentive
arrangements properly
meet the requirements
of the Group remains
high on the committee’s
agenda.”
Shareholders’ views
I wrote to our ten largest shareholders in
July/August 2013 to seek their views on
the proposed changes identified in our
remuneration policy and the feedback
I received was broadly supportive. The
committee will continue to maintain an open
and constructive dialogue with shareholders
on an ongoing basis.
Handing over
This report will be my last as chairman
of the remuneration committee and the
Company is fortunate to have found such
a suitable replacement in Alun Griffiths.
I have consulted with Alun since his
appointment on 1 May 2014 and I know that
this policy and the contents of this report
have his approval.
Keith Elliott
Chairman of the remuneration committee
11 July 2014
• Deferment: 50 per cent of annual bonus
to be paid in shares deferred for three
years.
•
Introduction of clawback provisions for
incentive based remuneration.
• Standardisation of pensions and benefits
in line with market norms.
• New service agreements for all directors
incorporating current best practice.
Changes in remuneration policy for
2014/15 and beyond
The committee continuously reviews
directors’ remuneration policy to test
its fitness for purpose in the context of
attraction, retention and motivation of the
high quality executives who can deliver
our strategies and provide returns to our
shareholders.
Our remuneration policy is linked to our key
objectives as set out in the strategic report.
The performance targets for our incentive
based remuneration are linked to profit and
health and safety, reflecting the primacy
of those criteria in meeting our business
objectives.
Based on the changes implemented in
2013/14 we are satisfied that current policy
is fit for purpose for the coming year. Looking
ahead three years we foresee no major
changes to the structure but will refine the
operation of the policy within the approved
parameters to align with performance,
market conditions and shareholder returns.
Any significant changes to the policy would
only be made after consultation with our
major shareholders and approval at the
annual general meeting.
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Directors’ remuneration report continued
What is in this report
This report sets out details of the
remuneration policy for executive and
non-executive directors, describes the
implementation of that policy and discloses
the amounts paid relating to the year ended
31 March 2014. The report complies with
the provisions of the Companies Act 2006
and Schedule 8 of The Large and Medium-
sized Companies and Groups (Accounts and
reports) (Amendment) Regulations 2008
as amended in 2013. The report has been
prepared in line with the recommendations
of the UK Corporate Governance Code and
the requirements of the UKLA Listing Rules.
The remuneration committee has also taken
into consideration guidelines published by
institutional investor advisory bodies such
as the ABI and the NAPF.
The directors’ remuneration policy (set
out on pages 66 to 73) will be put to
shareholders for approval in a binding
vote at the AGM. The effective date of the
policy is 2 September 2014 which is the
date shareholder approval is being sought
for the policy for the first time under the
new reporting rules. The policy remains
consistent with that operated during the
2013/14 financial year and approved at the
2013 AGM under the previous reporting
framework, following extensive consultation
with shareholders. In practice the policy will
be applied from 1 April 2014. It is intended
this policy will remain in place for three
years until the 2017 AGM.
The annual statement by the chairman of
the remuneration committee (set out on
pages 64 and 65) and the annual report on
remuneration (set out on pages 73 to 80) will
be subject to an advisory vote at
the AGM.
The regulations require the auditor to report
to the Group’s shareholders on the auditable
part of the directors’ remuneration report
and to state whether, in its opinion, that part
of the report has been properly prepared in
accordance with the Companies Act 2006.
The relevant sections subject to audit have
been highlighted in the annual report on
remuneration.
OUR REMUNERATION POLICY
What we are trying to achieve
The remuneration committee has
responsibility for determining remuneration
for the executive directors and the chairman
and for oversight of reward strategy and
policy for the Group. The committee aims
to recruit and retain executives and ensure
they are properly motivated to perform
in the interests of the Company and its
shareholders whilst paying no more than
is necessary and operating within an
appropriate risk profile.
How executive director remuneration
policy relates to the wider Group
In setting remuneration for the executive
directors, the committee takes account of
market practice for companies of a similar
size and complexity, the responsibilities of
each individual role, individual performance
and an individual’s experience. Salary
reviews (in percentage terms) will be set in
the context of those of the wider workforce.
The overall remuneration of executive
directors is more heavily weighted towards
Group performance than the wider
workforce whose pay is less variable and
long-term incentives are restricted to those
most able to directly influence overall
Group performance. Wider employee share
ownership is encouraged through the use of
an all-employee share scheme.
How we take into account views of
employees and shareholders
The committee does not formally consult
with employees on executive pay but is
periodically updated by the Group HR
director on any developments in pay and
employee relations and takes employees’
views into account.
The committee considers developments
in institutional investors’ best practice
expectations and the views expressed by
shareholders with whom we have regular
dialogue. In particular, we consulted
extensively with our major shareholders
before last year’s AGM on our proposed
changes to the remuneration policy and they
were supportive of these changes which
are now reflected in this policy. If any of our
major shareholders were opposed to our
remuneration policy we would endeavour
to meet with them, as appropriate, to
understand and respond to any issues they
might have.
How remuneration is structured
The following table should be read in
conjunction with the recruitment policy on
page 72 and the implementation of policy
for 2014/15 section of the annual report on
remuneration on pages 79 and 80.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 67
Executive directors
Base salaries
Purpose and link to strategy
To provide the core reward for the role.
Sufficient to recruit and retain directors of the calibre necessary to execute the Group’s strategy.
Operation
Base salaries are normally reviewed annually by the committee, with changes effective from 1 July.
Our review takes into account levels of increase across the broader workforce, changes in responsibility, and a periodic remuneration
review for comparable companies.
Performance conditions
The committee considers individual salaries each year having due
regard to the factors noted in operation of the policy.
No recovery provisions apply to salary.
Maximum opportunity
There is no prescribed maximum.
Current salaries are disclosed in the annual report on
remuneration.
Increases (as a percentage of salary) are generally limited to the
range set for the wider workforce.
However, further increases may be awarded where there have been
significant changes in the scope and/or responsibilities of the role
or a material change in the size and scale of the Group.
Benefits
Purpose and link to strategy
Cost-effective benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group’s strategy.
Operation
The Company currently provides the following employee benefits:
• Life assurance at four times salary
• Medical insurance for self with option to purchase for family
• Company car and fuel allowance
Relocation expenses would be paid as appropriate for new recruits or a change in role.
In circumstances where an executive is deployed on an international assignment, their arrangements will be managed in a way that is
consistent with good practice for international organisations. Additional allowances may also be paid e.g. to cover any increase in cost
of living, tax equalisation and/or additional accommodation costs.
The committee may wish to offer executive directors other employee benefits on broadly similar terms as those offered to other
employees from time to time, provided within the maximum opportunity limit.
Maximum opportunity
The value of insured benefits can vary from year to year based on
the costs from third party providers.
Performance conditions
No performance conditions or recovery provisions apply to
benefits.
The total value of benefits (excluding relocation and international
assignment allowances) will not exceed more than 15 per cent of
salary in any year.
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Directors’ remuneration report continued
Pension
Purpose and link to strategy
Cost-effective long-term retirement benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group’s
strategy.
Operation
Company contribution to defined contribution scheme (own or the Company’s), a cash supplement or a combination of both up to the
maximum value.
Performance conditions
No recovery provisions apply to pension benefits.
Director has no obligation to match Company contributions.
Maximum opportunity
20 per cent of base salary contribution/cash supplement for
chief executive officer and 18 per cent of salary for others up
to a maximum of £50,000 (with the exception that for executive
directors commencing service before 1 November 2013 the
Company pays a fixed contribution/cash supplement of
£50,000 p.a.).
For international assignments the Company may be required
to make additional payments to comply with local statutory
requirements.
Annual bonus
Purpose and link to strategy
To focus attention on achieving short-term corporate objectives, incentivise outperformance of targets and provide a deferred element to
reinforce the impact of long-term performance.
Operation
Any annual bonus award is made 50 per cent in cash and 50 per cent in shares deferred for three years under the rules of the Company’s
deferred share bonus plan (‘DSBP’) which incorporates a clawback mechanism for instances of financial misstatement, error or gross
misconduct.
Dividends may accrue on deferred bonus shares.
Maximum opportunity
Maximum 100 per cent of base salary per annum.
Performance conditions
The committee will review the appropriateness of performance
measures on an annual basis and consider whether there is a need
to re-balance or amend the performance measures and weightings
to reflect the business objectives at the time. However, the majority
of the annual bonus will be subject to financial targets.
Currently the business uses a combination of underlying profit
before tax (‘PBT’) targets and accident frequency ratio (‘AFR’)
targets.
A minority of bonus will be payable for threshold levels of
performance.
The actual measures and weightings are set out in the annual
report on remuneration on page 79.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 69
Performance share plan (‘PSP’) (approved by shareholders in 2007)
Purpose and link to strategy
Incentivise and reward for long-term, sustainable performance linked to corporate strategy and provide alignment with shareholders’
interests.
Operation
Annual grant of performance shares which will, in normal circumstances, vest subject to continued service and the achievement of
performance conditions over a three year period.
There is a clawback mechanism for instances of financial misstatement, error or gross misconduct.
Dividends may accrue on vested awards.
Maximum opportunity
Maximum annual award level is 150 per cent of salary.
The current award policy is, in normal circumstances, for awards of
100 per cent of salary for the chief executive officer and 75 per cent
of salary for other executive directors.
Performance conditions
The committee will determine each year the appropriate award
levels and performance conditions based on the corporate strategy
at the time. However, a financial measure such as underlying
earnings per share (‘EPS’) will be used for at least half of any award.
Currently the awards are subject to an EPS growth target, the
details of which are set out in the annual report on remuneration.
No more than 25 per cent of an award will vest for performance at
the lower threshold of EPS targets.
All-employee share plan
Purpose and link to strategy
To foster wider employee share ownership.
Operation
The Group currently operates a share incentive plan and may introduce a sharesave scheme subject to shareholder approval.
Participation in any all-employee share plans operated by the Group is in line with HMRC guidelines. Executive directors are entitled to
participate on the same basis as for other eligible employees.
Maximum opportunity
The Group has discretion under the all-employee share plans
to issue awards up to the HMRC approved limits as set from time
to time.
Performance conditions
No recovery provisions apply to all-employee share awards.
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Directors’ remuneration report continued
Choice of performance conditions
and metrics
Our role as the remuneration committee
includes the establishment of performance
goals through long-term incentive plans
which are challenging but achievable
through superior performance, thereby
incentivising and rewarding success.
The discretions retained by the
committee in operating the annual
bonus and the PSP
The committee will operate the annual
bonus (including the deferred share
element) and the PSP according to their
respective rules and in accordance with the
Listing Rules where relevant.
The performance metrics that are currently
used for our annual bonus and PSP
are selected to reflect the Group’s key
performance indicators which include safety
and profitability.
Financial targets (such as profitability)
are set based on a sliding scale that takes
account of relevant commercial factors,
internal budgeting and external forecasts
as necessary. Only modest rewards
are available for delivering threshold
performance levels with maximum rewards
requiring substantial outperformance of our
challenging plans.
Other measures (such as safety) are
incorporated into the annual bonus plan
to reflect their operational importance and
the key short-term priorities of the Group at
that time. The targets are based on internal
plans/budgets and in line with a wider
commercial perspective.
The long-term incentive plan currently
incorporates an EPS performance measure,
which is a key financial metric which is
aligned with shareholder interests. The
committee has considered and taken
advice on alternative performance
measures, such as total shareholder return
(‘TSR’), to substitute for (all or part of) the
use of the EPS range used in the past.
Lack of a suitable peer group of similar
listed companies made this approach
impracticable and to date we have found no
better benchmark.
No performance targets are set for
any share incentive plan or sharesave
plan awards since these form part of
all-employee arrangements that are
purposefully designed to encourage
employees across the Group to purchase
shares in the Company.
Details of all the outstanding share awards
granted to existing executive directors
are set out in the annual report on
remuneration.
Any use of the above discretions would,
where relevant, be explained in the annual
report on remuneration and may, as
appropriate, be the subject of consultation
with the Company’s major shareholders.
The use of any discretion in relation to the
Company’s share incentive plan and any
sharesave plan will be as permitted under
HMRC rules and the Listing Rules.
The PSP, under which the share awards are
granted, was approved by shareholders in
2007. Further details on how the awards are
structured and operated are set out in the
plan rules which are available on request
from the Company.
Details of share awards granted to existing
executive directors which have not vested or
lapsed are set out on page 76 of the annual
report on remuneration. These remain
eligible to vest based on their original award
terms.
The committee retains discretion, consistent
with market practice, in a number of regards
to the operation and administration of these
plans.
These include, but are not limited to, the
following in relation to the annual bonus
and PSP:
•
•
•
the participants;
the timing of grant/payment of an award;
the size of an award (subject to the limits
set out in the policy table);
•
the determination of vesting/payment;
Illustration of application of the policy
• discretion required when dealing with a
change of control or restructuring of the
Group;
• determination of the treatment of leavers
based on the rules of the plan and the
relevant circumstances;
A significant proportion of remuneration
is linked to performance, particularly at
maximum performance levels. The charts
on page 71 show how much each executive
director could earn under Severfield’s
remuneration policy (as detailed above)
under different performance scenarios.
• adjustments required in certain
circumstances (e.g. rights issues,
corporate restructuring events and
special dividends); and
•
the annual review of performance
measures and weighting, and targets for
the annual bonus and to apply to future
PSP awards.
In relation to both the Group’s PSP and
annual bonus plan, the committee retains
the ability to adjust the targets and/or set
different measures if events occur (e.g.
material acquisition and/or divestment
of a Group business) which cause it to
determine that the conditions are no longer
appropriate and the amendment is required
so that the conditions achieve their original
purpose and are not materially less difficult
to satisfy.
The following assumptions have been made:
• Minimum (performance below threshold)
— Fixed pay only with no vesting under
the annual bonus or PSP.
• Target (performance in line with
expectations) — Fixed pay plus a bonus
at the mid-point of the range (i.e. 50
per cent of the maximum opportunity)
and a PSP award of 100 per cent of salary
for the chief executive officer and 75
per cent of salary for other executives
vesting at 50 per cent of the maximum.
• Maximum (performance meets or
exceeds maximum) — Fixed pay plus
maximum bonus and maximum PSP
award vesting.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 71
Fixed pay comprises:
• Salaries — salary effective as at 1 July 2014;
• Benefits — amounts expected to be received by each executive director in the 2014/15
financial year;
• Pension — amount that will be received by each executive director in the 2014/15
financial year based on the policy set out in the table above.
The scenarios do not include any share price growth or dividend assumptions. All-
employee share incentives have been excluded.
Chief executive officer
Maximum
performance
On-target
performance
Minimum
performance
39%
56%
100%
31%
30%
22%
22%
0
£250
£500
£750
£1,000
£1,250
Chief operating officer
Maximum
performance
On-target
performance
Minimum
performance
43%
33%
24%
60%
23%
17%
100%
0
£250
£500
£750
£1,000
£1,250
Group finance director
Maximum
performance
On-target
performance
Minimum
performance
43%
33%
24%
60%
23%
17%
100%
0
£250
£500
£750
£1,000
£1,250
Executive director
Maximum
performance
On-target
performance
Minimum
performance
43%
33%
24%
60%
23%
17%
100%
0
£250
£500
£750
£1,000
£1,250
Total fixed pay
Annual bonus
Long-term incentive plan
Executive directors’ service
agreements
All executive directors signed new
contracts during the year which
incorporate current best practice,
supersede all existing agreements and
will be used consistently for future
agreements.
The new service contracts of executive
directors run on a rolling basis. Notice
periods of 12 months are required to be
given by all parties. Payment to be made
in lieu of notice on termination is equal to
12 months’ salary.
For details of the contracts of each
director including the date, unexpired
term and any payment obligations on
early termination are available from the
Company secretary at the annual general
meeting.
Provision on payment for loss
of office
If an executive director’s employment is
to be terminated, the committee’s policy
in respect of the contract of employment,
in the absence of a breach of the service
agreement by the director, is to agree a
termination payment based on the value
of base salary that would have accrued
to the director during the contractual
notice period. The policy is that, as is
considered appropriate at the time, the
departing director may work, or be placed
on gardening leave, for all or part of his
notice period, or receive a payment in lieu
of notice in accordance with the service
agreement. The committee will consider
mitigation to reduce the termination
payment to a leaving director when
appropriate to do so, having regard to the
circumstances.
In addition, where the director may pursue
a claim against the Company in respect of
his/her statutory employment rights or any
other claim arising from the employment
or its termination, the Company will be
entitled to negotiate settlement terms
(financial or otherwise) with the director
that the committee considers to be
reasonable in all the circumstances and in
the best interests of the Company.
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Directors’ remuneration report continued
The payment of any annual bonus will be at
the committee’s discretion and will be based
on the circumstances of the termination.
Any bonus payment will be calculated based
after assessing the relevant performance
conditions and will only be in relation to the
service period worked.
The rules of the PSP and DSBP set out what
happens to share awards if a participant
ceases to be an employee or director of
the Company before the end of the vesting
period. Generally, any outstanding share
awards will lapse on such cessation, except
in certain circumstances.
If the executive director ceases to be an
employee or director of the Company as
a result of death, disability, retirement,
the sale of the business or company that
employs the individual or any other reason
at the discretion of the committee, then they
will be treated as a ‘good leaver’ under the
plan rules. Under the DSBP, the shares for
a good leaver will normally vest in full on
the normal vesting date (or on cessation of
employment in the case of death).
Under the PSP, a good leaver’s unvested
awards will vest (either on the normal
vesting date or the relevant date of
cessation, as determined by the committee)
subject to achievement of any relevant
performance condition, with a pro rata
reduction to reflect the proportion of
the vesting period served (although the
committee has the discretion to disapply
time prorating if it considers it appropriate
to do so).
Benefits will be provided in line with those
offered to other employees, with relocation
expenses/arrangements provided for if
necessary.
Should it be appropriate to recruit a director
from overseas, flexibility is retained to
provide benefits that take account of
those typically provided in their country
of residence (e.g. it may be appropriate
to provide benefits that are tailored to
the unique circumstances of such an
appointment).
Pension contributions or a cash supplement
up to the maximum level indicated in the
policy table will be provided, although
the committee retains the discretion to
structure any arrangements as necessary
to comply with the relevant legislation and
market practice if an overseas director is
appointed.
The aggregate ongoing (i.e. after the year of
appointment) incentive opportunity offered
to new recruits will be no higher than that
offered under the annual bonus plan and
the PSP policy to the existing executive
directors. In the year of appointment the
annual bonus opportunity will be no higher
than that offered to existing executive
directors, prorated for the period of service
(i.e. 100 per cent of salary on an annualised
basis). The committee may award up to 150
per cent of salary under the PSP although
in exceptional circumstances in order to
facilitate the buy-out of existing awards
the committee may go above this limit (see
below).
In determining whether an executive director
should be treated as a good leaver and
the extent to which their award may vest,
the committee will take into account the
circumstances of an individual’s departure.
Different performance measures may be
set initially for the annual bonus, taking
into account the responsibilities of the
individual, and the point in the financial
year that they joined.
In the case of an external hire, if it is
necessary to buyout incentive pay or benefit
arrangements (which would be forfeited on
leaving the previous employer), this would
be provided for taking into account the form
(cash or shares) and timing and expected
value (i.e. likelihood of meeting any existing
performance criteria) of the remuneration
being forfeited. Replacement share awards,
if used, will be granted using the Company’s
existing share plans to the extent possible
(including the use of the exceptional limit
under the PSP), although awards may
also be granted outside of these schemes
if necessary and as permitted under the
Listing Rules.
In the case of an internal hire, any
outstanding variable pay awarded in relation
to the previous role will be allowed to pay
out according to its terms of grant (adjusted
as relevant to take into account the board
appointment).
On the appointment of a new chairman or
non-executive director, the fees will be set
taking into account the experience and
calibre of the individual and the expected
time commitments of the role. Where
specific cash or share arrangements are
delivered to non-executive directors, these
will not include share options or other
performance-related elements.
How are the non-executive
directors paid?
The chairman and non-executive directors
receive an annual fee (paid in monthly
instalments by payroll). The fee for the
chairman is set by the remuneration
committee and the fees for the non-
executive directors are approved by the
board, on the recommendation of the
chairman and chief executive officer.
The above policy applies to both an internal
promotion to the board or an external hire.
Our recruitment remuneration policy
Base salary levels will be set in accordance
with our remuneration policy, taking into
account the experience and calibre of the
individual and the relevant market rates at
the time. Where it is appropriate to offer a
lower salary initially, progressive increases
(possibly above those of the wider workforce
as a percentage of salary) to achieve the
desired salary positioning may be given over
the following few years subject to individual
performance and continued development in
the role.
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Element
Fees
Purpose and link to strategy
Operation (including maximum levels)
To attract and retain a high-calibre
chairman and non-executive
directors by offering market
competitive fee levels.
Current fee levels are disclosed in the annual report on remuneration.
The chairman is paid an all-inclusive fee for all board responsibilities. The other
non-executive directors receive a basic board fee, with supplementary fees
payable for additional board responsibilities.
Non-executive directors will be reimbursed for any normal business related
expenses and any taxable benefit implications that may result.
The non-executive directors do not participate in any of the Company’s incentive
arrangements or Group’s pension scheme.
The fee levels are reviewed on a periodic basis, and may be increased, taking
into account factors such as the time commitment of the role and market levels
in companies of comparable size and complexity. Fee increases may be greater
than those of the wider workforce in a particular year, reflecting the periodic
nature of increases and that they take into account changes in responsibility
and/or time commitments.
No benefits or other remuneration are provided to non-executive directors.
Advisers to the committee
The committee retained New Bridge Street
(an Aon plc company) as an independent
adviser to the remuneration committee
throughout the period. New Bridge Street
are a member of the Remuneration
Consultants Group and are a signatory to
its code of conduct. Neither New Bridge
Street nor any other part of Aon plc
provided other services to the Group during
the year. The fees paid to New Bridge
Street in respect of work carried out in
the 12 months to 31 March 2014 totalled
£40,000.
What are the terms of appointment of
the non-executive directors?
IMPLEMENTATION OF POLICY FOR
2013/14
The chairman and non-executive directors’
terms of appointment are recorded in
letters of appointment. The required notice
from the Company is one month in all
cases. The non-executive directors are not
entitled to any compensation on loss of
office.
Shareholding guideline
Executive directors are required to retain
shares acquired under equity incentive
schemes until such time they have built
up a holding equivalent in market value (at
the date of vesting) to the executive’s base
salary. Thereafter, the executive directors
will be under a continuing obligation to
maintain at least such a holding. The
requirement underscores the committee’s
policy to align executive director
remuneration and shareholder interests.
ANNUAL REPORT ON
REMUNERATION
In this section, we report on the
implementation of our policies in the year
ended 31 March 2014 as well as how the
policy will be implemented for 2014/15.
Remuneration committee
Membership, meetings and
attendance
The Group has an established
remuneration committee which is
constituted in accordance with the
recommendations of the UK Corporate
Governance Code.
The members of the remuneration
committee who served during the year
are shown below together with their
attendance at remuneration committee
meetings:
Number of meetings attended
Keith Elliott (chairman)
Toby Hayward
Chris Holt
4/4
4/4
4/4
The Group considers all members of the
committee to be independent. Executive
directors may attend remuneration
committee meetings at the invitation of
the committee chairman, but do not take
part in any discussion about their own
remuneration.
The terms of reference for the
remuneration committee are available
from the Company secretary.
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Directors’ remuneration report continued
Directors’ earnings for the 2013/14 financial year (audited)
Remuneration received by the directors
£000
Salary
Bonus
Fees
Benefits
Pension
LTIPs
TOTAL
Year ended 31 March 2014
Executives
Ian Lawson (from 1/11/13)2
John Dodds (until 1/11/13)1
Ian Cochrane (from 5/6/13)
Peter Emerson (until 5/6/13)
Alan Dunsmore
Derek Randall
Non-executives
John Dodds (from 1/11/13)1
Toby Hayward4
Keith Elliott4
Chris Holt3
Total
146
204
227
81
226
226
—
—
—
—
1,110
50
85
169
—
—
—
—
—
—
—
304
—
—
—
—
—
—
42
60
60
45
207
8
—
1
4
25
8
—
—
—
—
46
29
—
41
—
50
50
—
—
—
—
170
—
—
—
—
—
—
—
—
—
—
—
233
289
438
85
301
284
42
60
60
45
1,837
Taxable benefits include the provision of company cars, fuel for company cars, car allowances and private medical insurance. PSP awards
reflect those vesting based on performance to 31 March 2014.
1. John Dodds operated as executive chairman until 1 November 2013 when he reverted to his previous role of non-executive chairman. The salary he received as
an executive director and the fees he received as a non-executive director have been disclosed separately.
Ian Lawson has reached his lifetime pension limit and receives a cash alternative of 20 per cent of basic salary in lieu of pension contributions.
2.
3. Chris Holt served as chairman of the nomination committee for part of the year for which he was paid an additional fee of £5,000.
4. Retired from the board on 18 July 2014.
£000
Salary
Bonus
Fees
Benefits
Pension
LTIPs
TOTAL
15 month period ended 31 March 2013
Executives
Tom Haughey (until 23/1/13)1
John Dodds (from 23/1/13)2
Peter Emerson (until 5/6/13)
Alan Dunsmore
Derek Randall
Non-executives
John Dodds (until 23/1/13)2
Toby Hayward
Keith Elliott
Chris Holt
Geoff Wright (until 31/12/12)
Total
367
61
341
281
281
—
—
—
—
—
1,331
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
99
75
75
51
45
345
29
1
32
32
34
—
—
—
—
—
128
54
—
—
63
63
—
—
—
—
—
180
—
—
—
—
—
—
—
—
—
—
—
450
62
373
376
378
99
75
75
51
45
1,984
Taxable benefits include the provision of company cars, fuel for company cars, car allowances and private medical insurance. PSP awards
reflect those vesting based on performance to 31 March 2013.
1. Tom Haughey received compensation for loss of office of £423,000 (which includes pension contributions and other taxable benefits of £82,000) on his
resignation as chief executive officer on 23 January 2013. These payments represent amounts to which the Group was contractually obliged.
2. John Dodds operated as non-executive chairman from 1 January 2012 until 23 January 2013 when he was appointed executive chairman. The fees he received
as a non-executive director and the salary he received as an executive director have been disclosed separately.
Past directors/loss of office payments (audited)
There have been no payments made to past directors (including Peter Emerson) or any payment for loss of office.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 75
In the case of John Dodds and as reported
last year his agreement included for a
performance related bonus of £50,000
payable on transition to a permanent
chief executive officer, which occurred on
1 November 2013. Given that he performed
the executive duties for longer than
anticipated (i.e. a period of over nine
months) and to reflect his exceptional
performance during that time he was paid
a cash bonus of £85,000. When making this
determination the committee considered
his leadership and performance during
a difficult time for the Company, in
particular in driving the Company through
a successful rights issue and rebuilding
the balance sheet.
PSP
No PSP awards vested in 2013/14. The
2011 PSP award was subject to an EPS
performance condition measured over
the three financial years ended 31 March
2014. The minimum EPS figure required
for vesting of 25 per cent of the award was
6.51p (as adjusted after the rights issue in
March 2013) which equates to a PBT of
c.£24m. This target was not achieved and
the awards have lapsed.
Given that Ian Lawson was only in post for
the final five months of the financial year,
it was not felt appropriate to measure the
financial element of the bonus against
a budget PBT set at the beginning of the
year. Therefore, the financial element of
Ian Lawson’s bonus (80 per cent of the
maximum)was set against a combination
of personal and business objectives which
related to completing the restructuring of
the business for growth and establishment
of a new management team. The element
subject to the AFR target was not met and
therefore is not payable. The committee
took a broad assessment of performance
against the personal and business
objectives and determined that a prorated
bonus of £50,000 (or 42.9 per cent of the
maximum for this element of the bonus)
was payable, of which 50 per cent would be
paid in shares deferred for three years.
In the case of Ian Cochrane, his role and
responsibilities as Group chief operating
officer from appointment on 5 June 2013,
were defined as excluding India. Therefore,
the committee set his PBT performance
target based on the PBT budget for the
Group excluding India. As actual UK PBT
exceeded the target by over 17 per cent
the remuneration committee determined
that he should be paid 93.5 per cent of
this element of his bonus pro rata for the
period that he served in that capacity (i.e.
300 out of 365 days in the financial year).
The element subject to the AFR target
was not met and therefore would not be
payable. The calculation of his bonus was
accordingly that £169,068 was payable of
which 50 per cent of the bonus would be
paid in shares deferred for three years.
How pay linked to performance in
2013/2014
Bonus
The past year has been one of transition for
the Group as the balance sheet was rebuilt,
the executive team strengthened and the
business restructured. This is reflected in
the decisions reached by the committee
with respect to the bonuses paid to the
executive directors.
No bonus was awarded to Derek Randall
or Alan Dunsmore. Ian Lawson and Ian
Cochrane received a bonus of £50,000 and
£169,068 respectively, of which 50 per cent
has been paid in shares deferred for three
years. John Dodds was paid a bonus of
£85,000 in relation to his interim executive
position.
As reported last year the bonus plan
applicable to the executive directors at the
time (Alan Dunsmore and Derek Randall)
had two separate performance conditions.
Eighty per cent was payable based on
achieving Group-wide budget PBT with the
entry point being 95 per cent of Group-
wide budget PBT, rising to 50 per cent of
this element being payable for achieving
budget and full payout for achieving 120
per cent of budget. Actual Group-wide
PBT of £4m was not sufficient to meet the
budget set at the beginning of the year so
this element of the bonus was not earned.
Twenty per cent was payable based on
achieving a target AFR. The actual AFR at
the year-end was higher than the target so
this element was not earned either.
The budget PBT and the AFR target
and actual result are considered to be
commercially sensitive as they could
be used by non-listed peers to gain a
competitive advantage and therefore have
not been disclosed. If commercial concerns
are alleviated in the future, the committee
will disclose the targets and actual
performance.
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Directors’ remuneration report continued
PSP awards granted to directors in 2013/14 (audited)
Share awards were made in the year under the PSP scheme for the three year period expiring on 31 March 2016. Details of the awards made to
the executive directors are summarised below.
Type
No. of shares
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Nil-cost option
Nil-cost option
Nil-cost option
Nil-cost option
549,020
429,688
353,359
353,359
Face value1
(Percentage of salary)
Performance
condition2
Performance
period
£350,000
£206,250
£169,613
£169,613
(100%)
(75%)
(75%)
(75%)
EPS
3 financial years
ending 31 March
2016
% receivable
for minimum
performance
25%
1. Face value calculated based on the pre-grant date share price of 48p on 5 June 2013 for all except Ian Lawson which was based on the pre-grant date share
price of 63.75p on 31 October 2013.
2. Performance conditions for all these awards are aligned, with an EPS range from 2.15p (minimum performance — 25 per cent of award vests) to 4.87p
(maximum performance — 100 per cent of award vests) with linear interpolation in between. This equates to a likely PBT range of c.£8m to £17m.
Outstanding share awards at the year-end (audited)
Details of share awards under the PSP to anyone who was an executive director during 2013/14 and which were outstanding at the year-end
are shown in the following tables:
Performance
condition*
No. of shares at
31 March 20132
Shares granted
in year
Shares lapsed
in year
Shares vested
in year
No. of shares at
31 March 2014
Outstanding share awards
Year of award
Ian Lawson
Ian Cochrane
Ian Cochrane
Ian Cochrane
Ian Cochrane
Ian Cochrane total
Alan Dunsmore
Alan Dunsmore
Alan Dunsmore
Alan Dunsmore
Alan Dunsmore total
Derek Randall
Derek Randall
Derek Randall
Derek Randall
Derek Randall total
Peter Emerson
Peter Emerson
Peter Emerson
Peter Emerson total3
2013
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
Vesting date1
(June)
2016
2013
2014
2015
2016
2013
2014
2015
2016
2013
2014
2015
2016
2013
2014
2015
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
—
70,686
120,058
153,181
—
343,925
125,613
213,350
272,209
—
611,172
70,686
213,350
272,209
—
556,245
151,471
298,427
328,248
778,146
549,020
—
—
—
429,688
429,688
—
—
—
353,359
353,359
—
—
—
353,359
353,359
—
—
—
—
—
70,686
—
—
—
70,686
125,613
—
—
—
125,613
70,686
—
—
—
70,686
151,471
—
—
151,471
* Performance conditions are all based on a range of EPS targets as follows:
2011
2012
2013
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
549,020
—
120,058
153,181
429,688
702,927
—
213,350
272,209
353,359
838,918
—
213,350
272,209
353,359
838,918
—
298,427
328,248
626,675
Threshold
(25% vests)
Maximum
(100% vests)
6.51p
6.51p
2.15p
13.01p
11.71p
4.87p
1. 2010 awards lapsed in June 2013 and 2011 awards lapsed in June 2014.
2. 2011 and 2012 awards were adjusted in August 2013 to take account of the dilutive impact of the rights issue.
3. Peter Emerson retired on 5 June 2013 and was treated as a good leaver under the PSP rules whereby his awards will be allowed to vest subject to performance
being tested at the end of the performance period and prorated to reflect his period of employment.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 77
The directors’ current shareholdings (audited):
The following table provides details on the directors’ beneficial interests in the Company’s share capital as at 31 March 2014:
John Dodds
Ian Lawson (from 1/11/13)
Ian Cochrane (from 5/6/13)
Alan Dunsmore
Derek Randall
Keith Elliott
Toby Hayward
Chris Holt
Number1
228,833
82,431
2,708,979
50,000
50,000
383,088
100,000
35,240
SIP2
—
—
7,154
7,154
4,667
—
—
—
PSP3
—
549,020
702,927
838,918
838,918
—
—
—
Total4
228,833
631,451
3,419,060
896,072
893,585
383,088
100,000
35,240
Includes shares owned by connected persons.
1.
2. SIP shares are unvested and held in trust.
3. PSP shares are in the form of conditional awards which will only vest if at all on the achievement of the performance conditions prescribed at date of grant.
4. As at 31 March 2014, in respect of the Company’s shareholding guideline referred to on page 73 Ian Cochrane satisfies the guideline. The other executive
directors will be required to retain a proportion of any net of tax shares which may vest from equity based plans until the guideline is achieved.
Position against dilution limits
Severfield plc complies with the ABI Principles of executive remuneration. These principles require that commitments under all of the
Company’s share ownership schemes (including the SIP and the PSP) must not exceed ten per cent of the issued share capital in any
rolling ten year period. The Company’s position against its dilution limit as at 31 March 2014 was well under the maximum ten per cent
limit at 2.17 per cent.
Performance graph
The following graph shows the Group’s performance, measured by total shareholder return, compared with the performance of the FTSE
Small Cap Index. It is based on the change in the value of a £100 investment made on 31 March 2009 over the five-year period ended
31 March 2014.
This index was selected as it represents a broad equity market index and an appropriate comparator group of companies over the period.
200
150
100
50
0
Mar 2009
Mar 2010
Mar 2011
Mar 2012
Mar 2013
Mar 2014
FTSE Small Cap Index
Severfield plc
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Directors’ remuneration report continued
Chief executive officer remuneration change
The table below shows the total remuneration figure for the chief executive officer role over the same five year period. Performance pay
includes bonus and the value of PSP awards vesting in relation to performance that ended that year (at the share price at which they vested).
The figures for 2013 and 2014 reflect the fact that from 23 January 2013 to 31 October 2013 John Dodds acted as executive chairman and that
financial year 2013 was a 15 month period.
2009
Tom Haughey
2010
Tom Haughey
2011
Tom Haughey
2013‡
2013
2014
2014
Tom Haughey
John Dodds*
John Dodds*
Ian Lawson†
Total remuneration (£000)
Annual bonus (%)
LTIP vesting (%)
1,265
94.8%
100.0%
640
50.1%
0.0%
701
60.5%
0.0%
450
0.0%
0.0%
62
N/A
N/A
289
N/A
N/A
233
34.0%
N/A
* John Dodds was appointed executive chairman in an interim capacity following Tom Haughey’s resignation as chief executive officer on 23 January 2013 and
prior to the appointment of Ian Lawson as chief executive officer on 1 November 2013. During this time he was awarded a discretionary bonus (no maximum
was set) but not entitled to any PSP award. These figures do not include his fees as non-executive chairman.
† Appointed on 1 November 2013.
‡ Tom Haughey also received compensation for loss of office in accordance with his contract of £423,000.
How the change in chief executive officer pay for the years compare to that for the Company’s employees
The table below shows the percentage change in salary, benefits and annual bonus earned between the year ended 31 March 2014 and the
15 month period ended 31 March 2013 for the chief executive officer compared to the percentage change of each of those components of pay
for a group of employees. The committee has selected salaried employees in mainland UK as this geography provides the most appropriate
comparator.
Chief executive officer
Salary
Benefits
Bonus
Average employees
Salary
Benefits
Bonus
2014
£000
350
8
135
13,301
1,206
665
2013
£000
428
30
—
15,691
1,707
107
% change
-18.2%
-73.3%
N/A
-15.2%
-29.3%
519.6%
Relative importance of spend on pay
The following table shows the actual spend on pay for all employees relative to revenue and underlying operating profit before the results of
JVs and associates:
Staff costs
Revenue
Underlying operating profit/(loss)
Distribution to shareholders
2014
£000
50,551
231,312
7,621
—
2013*
£000
66,967
318,256
(19,218)
4,462
% change
-24.5%
-27.3%
139.6%
-100.0%
* The comparative period represents the 15 month period ended 31 March 2013.
Shareholder voting
The results below show the response to the 2013 AGM shareholder voting for the directors’ 2013 remuneration report:
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
Total number of
votes1
% of
votes cast
238,538,261
234,977
238,773,238
1,699,902
240,473,140
99.9%
0.1%
100%
N/A
N/A
1. A vote abstention is not a vote in law and is not counted in the calculation of the proportion of votes cast ‘for’ and ‘against’ a resolution.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 79
IMPLEMENTATION OF POLICY FOR 2014/15
The executive directors’ current salaries
Following a review in April 2014 the committee determined that salary increases of 2.25 per cent would be made to executive directors,
effective 1 July 2014. These increases are aligned with the overall salary increase budget for the wider workforce.
The executive directors’ salaries for the 2014/15 financial year are as follows:
£
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
1. Or on appointment.
Benefits and pension
1 July 2014
salary
1 July 2013
salary1
357,900
281,200
231,250
231,250
350,000
275,000
226,150
226,150
Change
+2.25%
+2.25%
+2.25%
+2.25%
All executive directors will be entitled to a car allowance of £15,000 (chief executive officer: £18,000), a fuel allowance, life insurance cover
and medical insurance.
A pension contribution of £50,000 will be offered to each executive director, with the exception of Ian Lawson who will be offered
20 per cent of basic salary.
Rewards for performance in 2014/2015
Bonus
The annual bonus for 2014/2015 will operate on the same basis as for 2013/2014 (although all directors will be subject to Group-wide
targets)* and will be consistent with the policy detailed in the remuneration policy section of this report in terms of the maximum bonus
opportunity, deferral and clawback provisions. The measures have been selected to reflect a range of financial and operational goals that
support the key strategic objectives of the Group.
The performance measures and weightings will be as follows:
Profit performance-based component — 80 per cent
The sliding scale range for bonus targets in 2014/15 is as follows:
Maximum bonus based on actual PBT versus budget
PBT % of budget
95 or below
100
120 or better
% of award
—
50
100
The committee believes that the budget PBT figures are commercially sensitive metrics and therefore are not disclosed at this time. Actual
target figures will be disclosed on a retrospective basis when these sensitivities have been removed.
* Whilst Derek Randall remains in India the profit performance-based component of his bonus will be split 50/50 between PBT (UK) and PBT (India).
Other performance-based component — 20 per cent
AFR (accident frequency ratio) will again be used throughout the Group.†
AFR is an industry recognised and measurable target. The pre-set targets have not been disclosed due to commercial sensitivities. Actual
target figures will be disclosed on a retrospective basis when these sensitivities have been removed.
† Whilst Derek Randall remains in India the AFR component of his bonus will be based on AFR (India).
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Directors’ remuneration report continued
PSP
It is the committee’s intention to grant PSP awards of 100 per cent of salary for the chief executive officer and 75 per cent of salary for other
executive directors.
This year we will set a performance condition for a three year period commencing on 1 April 2014 and ending on 31 March 2017. While we have
a good order book, an extensive prospects list and a strong balance sheet helped by the successful rights issue in April 2013, the risks and
uncertainties in a three year forecast are clearly substantial.
At the lower threshold, below which no awards will vest, we have set a target EPS equivalent to PBT of £12m. If this level is achieved 25 per cent
of the shares granted will vest. At the higher end the target EPS is set at EPS equivalent to PBT of £24m. If this is achieved, 100 per cent of the
shares granted will vest. Vesting at EPS levels between the lower and upper thresholds will be calculated by linear interpolation.
These targets will require management to deliver strong, sustainable performance over the period.
How will the non-executive directors be paid in the 2014/15 financial year?
The fees for the chairman and non-executive directors will be as follows:
£
Chairman1
Basic fee for other non-executive directors
Fees for SID role2
Chairman of the audit, nomination and remuneration committees3
2015
85,000
40,000
5,000
5,000
2014
85,000
40,000
15,000
5,000
1. The figure for chairman reflects the basic agreed fee for the chairman and does not account for the actual payments made to John Dodds during 2013/14 due
to his continued performance of the role of executive chairman from 1 April 2013 to 31 October 2013.
2. The lower figure represents the fee agreed with Kevin Whiteman for performance of the role from 19 July 2014 onwards. Keith Elliott’s fee is payable until his
retirement on 18 July 2014.
In 2014 Toby Hayward received a discretionary additional payment of £15,000 per annum as chairman of the audit committee.
3.
Approval
This report was approved by the board of directors and signed on behalf of the board.
Keith Elliott
Chairman of remuneration committee
11 July 2014
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 81
The directors consider that the annual
report and financial statements,
taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the Company’s and the Group’s
performance, business model and
strategy.
Each of the directors listed on pages 46
and 47 confirms that, to the best of their
knowledge:
•
•
the consolidated and parent company
financial statements, prepared in
accordance with the relevant financial
reporting framework, give a true and
fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken as
a whole; and
the directors’ report on pages 61
to 63 includes a fair review of the
development and performance of
the business and the position of
the Company and the undertakings
included in the consolidation taken as
a whole, together with a description of
the principal risks and uncertainties
that they face.
By order of the board
Ian Lawson
Chief executive officer
11 July 2014
Alan Dunsmore
Group finance director
Directors’ responsibilities statement
The directors are responsible for preparing
the annual report 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
are required to prepare the consolidated
financial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union and Article 4 of the IAS
Regulation and have elected to prepare
the parent company 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
accounts unless they are satisfied that
they give a true and fair view of the state of
affairs of the Group and the Company and
of the profit or loss of the Group for that
period.
In preparing the parent company 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;
• state whether applicable UK
Accounting Standards have been
followed, subject to any material
departures disclosed and explained in
the financial statements; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
In preparing the consolidated financial
statements, International Accounting
Standard 1 requires that directors:
• properly select and apply accounting
policies;
• present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures
when compliance with the specific
requirements in IFRSs are insufficient
to enable users to understand the
impact of particular transactions,
other events and conditions on the
entity’s financial position and financial
performance; and
• make an assessment of the Group’s
ability to continue as a going concern.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
and the Company’s transactions and
disclose with reasonable accuracy at any
time the financial position of the Group
and Company to enable them to ensure
that the financial statements comply
with the Companies Act 2006. They are
also responsible for safeguarding the
assets of the Group and the Company and
hence for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Group’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements
may differ from legislation in other
jurisdictions.
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur governance 82
Severfield plc
Annual report and accounts for the year ended 31 March 2014
®
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.com
Stock code: SFR
Our financials
83
83
®
Our financials
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes
in equity
Consolidated cash flow statement
Notes to the consolidated financial
statements
Five year summary
Financial calendar
84
87
88
89
90
91
92
121
121
Project: London Bridge Station
Location: London
Tonnage: 4,000
Client: Network Rail
Main contractor: Costain
Completion: 2018
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur financials 84
Independent auditor’s report
to the members of Severfield plc
Opinion on financial statements of
Severfield plc
In our opinion:
•
•
•
•
the financial statements give a true and
fair view of the state of the Group’s and
of the parent company’s affairs as at
31 March 2014 and of the Group’s loss for
the year then ended;
the Group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union;
the parent company financial statements
have been properly prepared in
accordance with United Kingdom
Generally Accepted Accounting Practice;
and
the financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The Group financial statements comprise
the consolidated income statement, the
consolidated statement of changes in
equity, the consolidated balance sheet, the
consolidated statement of comprehensive
income, the consolidated cash flow
statement and the related notes 1 to 32.
The financial reporting framework that has
been applied in the preparation of the Group
financial statements is applicable law and
IFRSs as adopted by the European Union.
The parent company financial statements
comprise the parent company balance sheet
and the related notes 1 to 15. The financial
reporting framework that has been applied
in the preparation of the parent company
financial statements is applicable law and
United Kingdom Accounting Standards
(United Kingdom Generally Accepted
Accounting Practice).
Going concern
As required by the Listing Rules we have
reviewed the directors’ statement contained
within the strategic report on page 31 that
the Group is a going concern.
We confirm that:
• we have concluded that the directors’ use
of the going concern basis of accounting
in the preparation of the financial
statements is appropriate; and
• we have not identified any material
uncertainties that may cast significant
doubt on the Group’s ability to continue as
a going concern.
However, because not all future events or
conditions can be predicted, this statement
is not a guarantee as to the Group’s ability to
continue as a going concern.
Our assessment of risks of material
misstatement
The assessed risks of material misstatement
described below are those that had the
greatest effect on our audit strategy, the
allocation of resources in the audit and
directing the efforts of the engagement
team:
Risk
How the scope of our audit responded to the risk
Contract valuation, revenue and profit recognition in relation to
the final outcome of material construction contracts
We have focused our audit procedures on material contracts based
on the following principal criteria:
The judgements made in relation to the stage of completion of
contracts including:
the recoverability of unagreed variations and claims;
the estimates of future costs to complete; and
•
•
•
a) the balance sheet carrying value;
b) the contribution to profit in the year;
c) the stage of completion;
d) the value at risk identified by management; and
e) our assessment of the degree of judgement involved in the
the outcome of other uncertain future events can have a material
impact on the financial statements.
contract accounting.
We have:
•
reviewed the design and implementation of management’s
internal controls over contract accounting; and
• performed the following substantive audit procedures:
agreed revenue recognised on contracts to evidence of third
party certifications and cash receipts;
challenged management on any revenues recognised which
exceed the certified revenue, particularly in relation to unagreed
variations and claims, and on their estimates of future costs to
complete. This included the inspection of variation instructions,
enquiries of quantity surveyors and contract managers, liaison
with internal and external legal advisers, review of the detailed
forecast cost to complete schedules, including agreeing
estimates of future costs and critical assumptions to supporting
evidence, such as agreed third party quotes for site work and
materials price lists;
performed a retrospective review of previous judgements on
contracts to understand the historical forecasting accuracy; and
performed a review of subsequent events on contracts that may
have a material impact on the financial statements up to the date
of signing this auditor’s report.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 85
Risk
How the scope of our audit responded to the risk
Impairment of goodwill and other non-current assets
We have:
The consolidated balance sheet includes:
• goodwill and intangible assets of £63.9m;
•
•
the investment in the Indian joint venture of £3.3m; and
the fair value of a financial guarantee associated with the Indian
joint venture of £2.2m.
Management has made its annual assessment of the impairment
risk in relation to these carrying values, which includes a number of
important judgements on uncertain future events. The most
subjective judgements relate to the forecast financial performance
of the cash-generating units (‘CGU’), including the growth rates,
operating margins and the appropriate discount rates for future
cash flows.
• assessed management’s assumptions (described in notes 11 and
15 to the financial statements) included in its impairment model
for goodwill and intangible assets, and the joint venture. These
include the trading and cash flow projections, the growth and
perpetuity rates and the discount factors applied;
• compared these to external medium term growth rate projections
for the UK and India, the historical trading and cash flow
performance of the business units, and the discount rates of
relevant comparator companies;
•
taken into account the Group’s historical budgeting accuracy,
including comparing the operating profit margin assumed in
the order book with historical performance and reviewing the
prospects list and conversion assumptions with the historical
performance of the business units.
The audit committee’s consideration of these
risks is set out on page 59.
Our audit procedures relating to these
matters were designed in the context of our
audit of the financial statements as a whole,
and not to express an opinion on individual
accounts or disclosures. Our opinion on the
financial statements is not modified with
respect to any of the risks described above,
and we do not express an opinion on these
individual matters.
Our application of materiality
We define materiality as the magnitude of
misstatement in the financial statements
that makes it probable that the economic
decisions of a reasonably knowledgeable
person would be changed or influenced. We
use materiality both in planning the scope of
our audit work and in evaluating the results
of our work.
In recent years the Group has reported
both profits and losses, and has made
adjustments to highlight non-underlying
items included in its statutory results. In
the absence of a stable profit base, we have
used Group revenue to determine materiality
of £1m by applying 0.5 per cent to turnover
for the year. We also sense-checked this
materiality threshold by reference to the
scale of underlying profits and losses in
recent years and the directors’ expectation of
future profits.
We agreed with the audit committee that
we would report to the committee all
audit differences in excess of £20,000, as
well as differences below that threshold
that, in our view, warranted reporting on
qualitative grounds. We also report to the
audit committee on disclosure matters that
we identified when assessing the overall
presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining
an understanding of the Group and its
environment, including Group-wide
controls, and assessing the risks of material
misstatement at the Group level. The Group
and parent company audits are performed
at the Group’s head office at Dalton, North
Yorkshire. All of the subsidiaries are based
in three locations in the UK, together with a
joint venture based in India and an associate
based in South Yorkshire.
Full scope audits are completed on all the
businesses located in the UK. The joint
venture is audited by Deloitte Mumbai and is
a full scope audit to a component materiality.
The associate business is scoped out of our
Group audit procedures on the grounds of
materiality. The audits of the UK subsidiaries
were executed to a component materiality
which is less than Group materiality.
The Group audit team continued to follow a
programme of planned visits that has been
designed so that the senior statutory auditor
attends the principal financial reporting
locations in the UK and the Indian joint
venture each year including attendance at
the audit close meetings.
Opinion on other matters prescribed by
the Companies Act 2006
In our opinion:
•
•
the part of the directors’ remuneration
report to be audited has been properly
prepared in accordance with the
Companies Act 2006; and
the information given in the strategic
report and the directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements.
Matters on which we are required to
report by exception
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• we have not received all the information
and explanations we require for our audit;
or
• 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.
We have nothing to report in respect of these
matters.
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur financials 86
Independent auditor’s report continued
Respective responsibilities of
directors and auditor
Scope of the audit of the financial
statements
As explained more fully in the directors’
responsibilities statement, the directors
are responsible for the preparation of
the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express
an opinion on the financial statements
in accordance with applicable law and
International Standards on Auditing (UK
and Ireland). Those standards require us to
comply with the Auditing Practices Board’s
Ethical Standards for Auditors. We also
comply with International Standard on
Quality Control 1 (UK and Ireland). Our audit
methodology and tools aim to ensure that
our quality control procedures are effective,
understood and applied. Our quality
controls and systems include our dedicated
professional standards review team and
independent partner reviews.
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 an auditor’s report 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.
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting
policies are appropriate to the Group’s
and the parent company’s circumstances
and have been consistently applied and
adequately disclosed; the reasonableness
of significant accounting estimates
made by the directors; and the overall
presentation of the financial statements.
In addition, we read all the financial and
non-financial information in the annual
report to identify material inconsistencies
with the audited financial statements and to
identify any information that is apparently
materially incorrect based on, or materially
inconsistent with, the knowledge acquired
by us in the course of performing the audit. If
we become aware of any apparent material
misstatements or inconsistencies we
consider the implications for our report.
Paul Feechan
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered accountants and statutory auditor
Newcastle, United Kingdom
11 July 2014
Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of directors’ remuneration have
not been made or the part of the directors’
remuneration report to be audited is not in
agreement with the accounting records and
returns. We have nothing to report arising
from these matters.
Corporate governance statement
Under the Listing Rules we are also
required to review the part of the corporate
governance statement relating to the
Company’s compliance with nine provisions
of the UK corporate governance code. We
have nothing to report arising from our
review.
Our duty to read other information in
the annual report
Under International Standards on Auditing
(UK and Ireland), we are required to report
to you if, in our opinion, information in the
annual report is:
• materially inconsistent with the
information in the audited financial
statements; or
• apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the Group acquired in the
course of performing our audit; or
• otherwise misleading.
In particular, we are required to
consider whether we have identified any
inconsistencies between our knowledge
acquired during the audit and the directors’
statement that they consider the annual
report is fair, balanced and understandable
and whether the annual report appropriately
discloses those matters that we
communicated to the audit committee
which we consider should have been
disclosed. We confirm that we have not
identified any such inconsistencies or
misleading statements.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 87
Consolidated income statement
Year ended 31 March 2014
Before
other
items
2014
£000
Note
Other
items
2014
£000
Total
2014
£000
Before
other
items
2013
£000
Other
items
2013
£000
Total
2013
£000
3
231,312
—
231,312
318,256
—
318,256
(217,830)
(2,017)
(219,847)
(330,945)
13,482
541
(2,432)
(3,970)
(2,017)
11,465
(12,689)
—
(79)
(5,633)
541
(2,511)
(9,603)
993
(2,912)
(4,610)
(1,766)
(1,766)
—
—
(332,711)
(14,455)
993
(2,912)
(5,664)
(10,274)
Continuing operations
Revenue
Cost of sales
Gross profit/(loss)
Other operating income
Distribution costs
Administrative expenses
Movements in the valuation of
derivative financial instruments
Operating profit/(loss) before share of
results of JVs and associates
Share of results of JVs and associates
Operating profit/(loss)
Finance income
Finance expense
Profit/(loss) before tax
Taxation
Profit/(loss) for the period
attributable to the equity holders
of the parent
4
7
7
8
—
—
—
—
104
104
(108)
(19,218)
(7,326)
(26,544)
(310)
—
(310)
(19,528)
(7,326)
(26,854)
7,621
(3,038)
4,583
7
(565)
4,025
(1,427)
(7,729)
(353)
(8,082)
—
—
(8,082)
2,844
(3,391)
(3,499)
7
(565)
10
(2,014)
(4,057)
(21,532)
1,417
3,057
—
—
(7,326)
2,674
10
(2,014)
(28,858)
5,731
2,598
(5,238)
(2,640)
(18,475)
(4,652)
(23,127)
Earnings per share:*
Basic
Diluted
10
10
0.88p
0.88p
(1.77p)
(1.77p)
(0.89p)
(0.89p)
(10.78p)
(10.78p)
(2.71p)
(2.71p)
(13.49p)
(13.49p)
* Earnings per share for the period ended 31 March 2013 has been restated to take account of the impact of the discount element of the rights issue which
completed in April 2013 (see note 10). The comparative period represents the 15 month period ended 31 March 2013.
Further details of other items are disclosed in note 5 to the consolidated financial statements.
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur financials 88
Consolidated statement of comprehensive income
Year ended 31 March 2014
Actuarial loss on defined benefit pension scheme*
Tax relating to components of other comprehensive income*
Other comprehensive income for the period
Loss for the period from continuing operations
Total comprehensive income for the period attributable to
equity holders of the parent
* These items will not be subsequently reclassified to the consolidated income statement.
Note
30
20
Year ended
31 March
2014
£000
Period ended
31 March
2013
£000
(1,261)
(101)
(1,362)
(2,640)
(2,824)
458
(2,366)
(23,127)
(4,002)
(25,493)
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 Consolidated balance sheet
At 31 March 2014
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment property
Interests in JVs and associates
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Financial liabilities — borrowings
Financial liabilities — finance leases
Current tax liabilities
Non-current liabilities
Retirement benefit obligations
Financial liabilities — finance leases
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity
89
At
31 March
2014
£000
At
31 March
2013
£000
Note
11
12
13
13
15
20
16
18
19
21
21
30
21
20
23
24
54,712
9,845
74,128
3,870
3,315
1,780
54,712
15,100
76,141
3,910
3,168
1,840
147,650
154,871
5,842
60,801
5,525
72,168
219,818
8,214
71,599
671
80,484
235,355
(51,322)
(5,000)
(181)
(1,422)
(70,894)
(41,461)
(194)
5
(57,925)
(112,544)
(12,533)
(11,811)
(25)
(5,937)
(18,495)
(76,420)
(206)
(8,393)
(20,410)
(132,954)
143,398
102,401
7,437
85,702
770
49,489
143,398
2,231
46,152
527
53,491
102,401
The consolidated financial statements were approved by the board of directors on 11 July 2014 and signed on its behalf by:
Ian Lawson
Chief executive officer
Alan Dunsmore
Group finance director
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www.severfield.comStock code: SFROur financials
90
Consolidated statement of changes in equity
Year ended 31 March 2014
At 1 April 2013
Loss for the year (attributable
to equity holders of the parent)
Proceeds from shares issued
Equity settled share-based payments
Actuarial loss on defined benefit pension
scheme
Deferred income taxes on defined benefit
pension scheme
At 31 March 2014
Note
22
30
20
Share
capital
£000
2,231
—
5,206
—
—
—
Share
premium
£000
46,152
—
39,550
—
—
—
7,437
85,702
Other
reserves
£000
527
—
—
243
—
—
770
Retained
earnings
£000
53,491
(2,640)
—
—
Total
equity
£000
102,401
(2,640)
44,756
243
(1,261)
(1,261)
(101)
(101)
49,489
143,398
The increase in share capital and share premium reflect the 7:3 rights issue of 208,252,511 new ordinary shares at 23p per share which
was approved by shareholders on 18 March 2013. The rights issue completed on 5 April 2013, with the Group receiving net proceeds of
£44,756,000 consisting of gross proceeds of £47,898,000 offset by transaction costs of £3,142,000.
At 1 January 2012
Loss for the period (attributable
to equity holders of the parent)
Dividends paid
Equity settled share-based payments
Actuarial loss on defined benefit pension
scheme
Deferred income taxes on defined benefit
pension scheme
At 31 March 2013
Note
9
22
30
20
Share
capital
£000
2,231
Share
premium
£000
46,152
Other
reserves
£000
469
—
—
—
—
—
—
—
—
—
—
2,231
46,152
—
—
58
—
—
527
Retained
earnings
£000
83,446
(23,127)
(4,462)
—
Total
equity
£000
132,298
(23,127)
(4,462)
58
(2,824)
(2,824)
458
53,491
458
102,401
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 Consolidated cash flow statement
Year ended 31 March 2014
Net cash flow from operating activities
Cash flows from investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible fixed assets
Investment in JVs and associates
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Dividends paid
New finance leases
Repayment of obligations under finance leases
New borrowings
Repayment of borrowings
Proceeds from shares issued
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
91
Year ended
31 March
2014
£000
2,522
Period ended
31 March
2013
£000
804
Note
25
7
746
(2,218)
—
(3,538)
(5,003)
(766)
—
—
(194)
5,000
(41,461)
44,756
7,335
4,854
671
5,525
10
1,343
(2,311)
(402)
(3,031)
(4,391)
(1,687)
(4,462)
275
(230)
8,098
—
—
1,994
(1,593)
2,264
671
23372.04 16 July 2014 10:30 AM PROOF 8
www.severfield.comStock code: SFROur financials 92
Notes to the consolidated financial statements
Year ended 31 March 2014
1. Significant accounting policies
General information
Severfield plc (‘the Company’) is a Company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered
office is provided on page 130. The registered number of the Company is 1721262. The nature of the Group’s operations and its principal
activities are set out on pages 8 to 17. These financial statements are presented in sterling which is the currency of the primary economic
environment in which the Group operates.
Basis of accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The
consolidated financial statements have also been prepared in accordance with IFRS adopted for use in the European Union and therefore
comply with Article 4 of the EU IAS Regulation.
The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments.
The principal accounting policies adopted are set out below.
During the year certain new standards and a number of amendments to IFRS became effective. These are IFRS 13, ‘Fair value measurement’,
IAS 36 (amended), ‘Recoverable amount disclosures for non-financial assets’, amendments to IAS 19, ‘Employee benefits’, amendments to
IAS 1, ‘Presentation of financial statements’ and amendments to IFRS 7, ‘Financial instruments: disclosures’. The Group has considered the
above new standards and amendments and has concluded that they are either not relevant to the Group or that they do not have a significant
impact on the Group’s financial statements.
The Group has not applied the amended IAS 19 retrospectively since the impact on the prior accounting period is not significant but has
instead disclosed the financial impact in the paragraphs below.
The changes to the standard require the Group to calculate its annual pension charge as the current service cost plus or minus the discount
rate applied to the net pension liability. This replaces the previous calculation which was the current service cost, plus the unwinding of the
discount rate on liabilities, less the expected return on plan assets. In effect, this requires the Group to replace its long-term rate of return on
assets assumption with its discount rate.
The retrospective application would result in an increase in operating profit of £87,000 in the 15 month period ended 31 March 2013
with a corresponding adjustment to the actuarial movement on the retirement benefit liability recorded in the consolidated statement of
comprehensive income. There is, therefore, no balance sheet impact.
A number of other new and amended IFRS were issued during the year which do not become effective until after 31 March 2014. These
include IFRS 9, ‘Financial instruments’, IFRS 10, ‘Consolidated financial statements’, IFRS 11, ‘Joint arrangements’ and IFRS 12, ‘Disclosures of
interests in other entities’. None of the new and amended standards have been adopted early by the Group and none of the new and amended
standards are likely to have a significant impact on the Group’s future results.
Going concern
After making enquiries, the directors have formed a judgement at the time of approving the consolidated financial statements that there is a
reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason
the directors continue to adopt the going concern basis in preparing the consolidated financial statements.
The key factors considered by the directors in making the statement are set out within the financial review on pages 28 to 31.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company made
up to the reporting date each year. Control is achieved where the Company has the power over the investee, is exposed or has rights to variable
return from its involvement with the investee and has the ability to use its power to affect its returns.
Where relevant, the results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from
the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those
used by the Group.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 93
1. Significant accounting policies continued
Other items
Other items have been separately identified to provide a better indication of the Group’s underlying business performance. They are not
considered to be ‘business as usual’ items and have a varying impact on different businesses and reporting periods. They have been
separately identified as a result of their magnitude, incidence or unpredictable nature.
These non-underlying items are presented as a separate column within their related consolidated income statement category. Their separate
identification results in the calculation of an underlying profit measure in the same way as it is presented and reviewed by management.
Items that may give rise to classification as non-underlying include, but are not limited to, restructuring items, the amortisation of acquired
intangible assets, movements in the valuation of derivative financial instruments, the costs of refinancing the Group’s credit facilities and
certain non-recurring legal and consultancy costs. Restructuring items include income and expenses arising from Group restructuring
activities including redundancy costs, onerous contract and lease provisions and asset gains and impairments.
Further details of other items are disclosed in note 5 to the consolidated financial statements.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the
fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange
for control of the acquiree. Acquisition related costs are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.
Investments in joint ventures and associates
An associated company is an entity over which the Group is in a position to exercise significant influence, but not control, through
participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial
and operating policy decisions of the investee but is not control over those policies.
A joint venture is an entity over which the Group is in a position to exercise joint control. The Group has adopted the equity method of
accounting (as discussed below) for joint ventures and associated companies (together ‘JVs and associates’), in accordance with IAS 31.
The results and assets and liabilities of JVs and associates are incorporated in these financial statements using the equity method of
accounting unless it meets the exceptions described in IAS 28. Investments in JVs and associates are carried in the balance sheet at cost
as adjusted by post-acquisition changes in the Group’s share of their net assets, less any impairment in the value of individual investments.
Losses in excess of the Group’s interest in those JVs and associates are not recognised unless, and only to the extent that, the Group has
incurred legal or constructive obligations on their behalf.
Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the JVs and associates at
the date of acquisition is recognised as goodwill. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the
identifiable net assets of the JVs and associates at the date of acquisition (i.e. discount on acquisition) is credited in the consolidated income
statement in the period of acquisition.
The consolidated income statement includes the Group’s share of the JVs and associates profit less losses while the Group’s share of the net
assets of the JVs and associates is shown in the consolidated balance sheet.
Goodwill
The Group recognises goodwill at cost less accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for
impairment at least annually. Any impairment is recognised immediately as a loss and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the
synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
Negative goodwill arising on acquisition is recognised immediately in the consolidated income statement.
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Notes to the consolidated financial statements continued
1. Significant accounting policies continued
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable for goods and services provided, net of sales taxes, rebates
and discounts, after eliminating revenue within the Group.
Revenue from construction contracts is recognised in accordance with the Group’s accounting policy on construction contracts (see below).
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
Construction contracts
Revenue represents the gross value of work performed (including retentions) during the reporting period and is normally determined by
qualified management assessment, taking into account customer certifications to date.
The general principles for profit recognition are as follows:
• Revenues on contracts are recognised on a percentage of completion basis when the contract’s outcome can be estimated reliably.
• Provision is made for total losses incurred or foreseen in bringing the contract to completion as soon as they become apparent.
• Variations are included in forecast contract revenues when it is considered probable that the customer will approve the variation and the
amount of revenue arising from the variation, and the amount of revenue can be reliably measured.
•
Incentive payments are included in forecast contract revenues when the contract is sufficiently advanced that it is probable that the
specified performance standards will be met or exceeded and the amount of the incentive payment can be reliably measured.
• Claims receivable are recognised as income when negotiations have reached an advanced stage such that it is probable that the customer
will accept the claim, and the amount that it is probable will be accepted by the customer can be measured reliably.
• Rectification work which is reasonably foreseeable is provided for as a cost of the contract and taken into account when assessing its
overall profitability. Claims for rectification arising after the end of a contract and which have not been provided for, are recognised as
losses as they arise.
When determining whether a contract’s outcome can be estimated reliably, management considers a number of indicators including the
stage of completion of the contract to provide assurance over the reliability of costs to complete, cumulative cash received and agreed
certifications, the inherent risk in certain industry sectors and whether certain contract milestones have been satisfied.
All costs relating to contracts are recognised as expenses in the period in which they are incurred, except where they relate to future activity
on a contract, in which case they are recognised as an asset provided it is probable that they will be recovered. Where the outcome of a
contract cannot be reliably estimated, contract revenue is recognised only to the extent that contract costs incurred are expected to be
recovered.
Percentage of completion is determined by reference to the contract costs incurred to date (the proportion that estimated total contract costs
are accounted for by contract costs incurred for work performed to date). Only those contract costs that reflect work performed are included
in costs incurred to date.
Total expected contract costs are initially determined by the estimating function during the contract tender process. At launch, responsibility
for the contract is handed over to the commercial function (consisting of qualified quantity surveyors) which, on an ongoing basis, reassesses
the expected contract costs as the contract progresses, taking into account the risks identified in contract risk registers.
The assessment of the final outcome of each contract is determined by regular review of the revenues and costs to complete that contract.
Regular monthly contract reviews form an integral part of the contract forecasting procedures.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 95
1. Significant accounting policies continued
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Amounts payable under operating leases are charged to the income statement on a straight-line basis over the lease term.
Property, plant and equipment acquired under finance leases are capitalised in the balance sheet at fair value and depreciated in accordance
with the Group’s accounting policy. The capital element of the leasing commitment is included as obligations under finance leases. The rentals
payable are apportioned between interest, which is charged to the income statement, and capital, which reduces the outstanding obligation.
Retirement benefit obligations
The Group operates two defined contribution pension schemes and costs of these schemes are charged to the income statement in the period
in which they are incurred.
The Group has a defined benefit scheme which is now closed. The liability in respect of this scheme is the present value of the defined benefit
obligation at the balance sheet date, less the fair value of the plan assets.
The finance cost of liabilities and interest income of assets are included within cost of sales in the consolidated income statement.
The actuarial gain or loss is charged through the consolidated statement of comprehensive income and is made up of the difference between
the expected return on assets and those actually achieved, the difference between the actuarial assumptions for liabilities and actual
experience in the period and any changes in the assumptions used in the valuations.
The pension scheme deficit is recognised in full and presented on the face of the consolidated balance sheet. The associated deferred tax asset
is recognised within the net deferred tax liability within non-current liabilities in the consolidated balance sheet.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the
balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. These
are determined based on future changes in tax rates that have been enacted rather than simply future changes that have been proposed but
not enacted. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity,
in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities
on a net basis.
Dividends
Dividends are recorded in the consolidated financial statements in the period in which they are declared, appropriately authorised and no
longer at the discretion of the Company.
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Notes to the consolidated financial statements continued
1. Significant accounting policies continued
Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, and plant and machinery are
currently stated at cost in the balance sheet. Depreciation on buildings is charged to income.
Depreciation is provided on other property, plant and equipment to write off the cost of each asset over its estimated useful life at the
following rates:
Freehold buildings/investment properties
Plant and machinery
Fixtures, fittings and office equipment
Computer equipment
Motor vehicles
Site safety equipment
1 per cent straight-line
10 per cent straight-line
10 per cent written down value
20 per cent straight-line
25 per cent written down value
20 per cent straight-line
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over
the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in income.
Investment property
Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at cost less provision for impairment.
Depreciation will be charged annually based on the Group’s stated depreciation policy together with an annual impairment review. Where
properties have been impaired below cost and are being held at directors’ valuation the directors have taken appropriate external guidance on
the likely current value of properties. No investment properties have been subject to formal external valuation.
Intangibles
The Group recognises intangible assets at cost less accumulated amortisation and impairment losses. Intangible assets acquired through
acquisitions arise as a result of applying IFRS 3 which requires the separate recognition of intangible assets from goodwill.
Other acquired intangible assets include software costs.
Intangible assets are amortised on a straight-line basis over their useful economic lives as follows:
Customer relationships
Brands
Know-how
Software costs
Amortisation
period
10 years
25 years
10 years
7 years
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group 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 the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an
indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the
asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the
relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss
is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment
loss is treated as a revaluation increase.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 97
1. Significant accounting policies continued
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value
represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Trade receivables
Trade receivables are classified as loans and receivables, and therefore measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for in the income statement using the effective interest
method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. The
effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest over the relevant
period.
Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Share-based payment transactions
The Group issues equity settled share-based payments. These share-based payments are measured at fair value at the date of grant based
on the Group’s estimate of shares that will eventually vest. The fair value determined is then expensed in the consolidated income statement
on a straight-line basis over the vesting period, with a corresponding increase in equity. Further details regarding the determination of the fair
value of equity settled share-based transactions are set out in note 22.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation
at the balance sheet date, and, as appropriate, are discounted to present value where the effect is material.
Derivative financial instruments
The Group enters into certain foreign exchange forward contracts to manage its exposure to currency movements. Further details of derivative
financial instruments are disclosed in note 21.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair
value at each balance sheet date. The resulting gain or loss is recognised in profit or loss.
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Notes to the consolidated financial statements continued
2. Critical accounting judgements and estimates
The preparation of financial statements under IFRS requires management to make judgements, assumptions and estimates that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these
estimates. Assumptions and estimates are reviewed on an ongoing basis and any revisions to them are recognised in the period in which they
are revised.
The following items are those that management consider to be critical due to the level of judgement and estimation required:
Revenue and profit recognition
Recognition of revenue and profit is based on judgements made in respect of the ultimate profitability of a contract. Such judgements are
arrived at through the use of estimates in relation to the costs and value of work performed to date and to be performed in bringing contracts
to completion. These estimates are made by reference to recovery of pre-contract costs, surveys of progress against the construction
programme, changes in work scope, the contractual terms under which the work is being performed, including the recoverability of any
unagreed income from variations and the likely outcome of discussions on claims, costs incurred and external certification of the work
performed.
The Group has appropriate internal control procedures over the determination of each of the above variables to ensure that profit take as
at the balance sheet date and the extent of future costs to contract completion are reasonably and consistently determined and subject to
appropriate review and authorisation.
Impairment of goodwill and other non-current assets
Goodwill is tested at least annually for impairment, along with the finite life intangible assets and other assets of the Group’s cash-generating
units. As a result of the significant loss recorded during the year, the Group’s investment in its Indian joint venture has also been reviewed for
impairment.
Determining whether goodwill or other non-current assets are impaired requires an estimation of the value in use of the business being
tested for impairment and of the cash-generating units to which these assets have been allocated. The value in use calculation requires
the entity to estimate the future cash flows expected to arise from the cash-generating unit, taking into account the achievability of long-
term business plans and macroeconomic assumptions underlying the valuation process, and a suitable discount rate in order to calculate
present value. The discount rates used are based on the Group’s weighted average cost of capital adjusted to reflect the specific economic
environment of the relevant cash-generating unit.
The carrying amount of goodwill at the balance sheet date was £54,712,000 and of intangible assets arising from acquisitions was
£9,193,000. The carrying value of the Group’s investment in the Indian joint venture was £3,315,000 at the balance sheet date.
Recognition of deferred tax assets
The carrying values of deferred tax assets on the balance sheet are dependent on the estimates of future taxable profits arising from the
Group’s operations. The realisation of deferred tax assets is dependent on the generation of sufficient future taxable profits. The Group
recognises deferred tax assets where it is more likely than not that the benefit will be realised.
The carrying amount of deferred tax assets at the balance sheet date was £1,780,000.
Retirement benefit obligations
The Group’s defined benefit pension scheme has been valued in accordance with IAS 19 ‘Employee benefits’. The benefit obligation is
calculated using a number of assumptions including increases in pension benefits, mortality rates and inflation and the future investment
returns from the scheme’s assets. The present value of the benefit obligations is calculated by discounting the benefit obligation using market
rates on relevant AA corporate bonds at the balance sheet date.
The scheme’s assets are valued at market rates at the balance sheet date. Effects of changes in the actuarial assumptions underlying the
benefit obligation, discount rates and the difference between expected and actual returns on the scheme’s assets are classified as actuarial
gains and losses.
The defined benefit obligation recognised at the balance sheet date was £12,533,000.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 3. Revenue and segmental analysis
Revenue
An analysis of the Group’s revenue is as follows:
Revenue from construction contracts
Total revenue
Other operating income
Interest received
Total income
Segmental results
99
2014
£000
231,312
231,312
541
7
2013
£000
318,256
318,256
993
10
231,860
319,259
Following adoption of IFRS 8, the Group has identified its operating segments as those upon which the executive committee (the chief
operating decision maker) regularly assesses performance.
The Group has deemed it appropriate to aggregate its operating segments into one reported segment. The constituent operating segments
have been aggregated as they have businesses with similar products and services, production processes, types of customer, methods of
distribution, regulatory environments and economic characteristics.
Revenues by product group
All revenue is derived from construction contracts is related assets.
Geographical information
The Group’s revenue from external customers is detailed below:
Revenue by destination:
United Kingdom
Republic of Ireland and mainland Europe
Other countries
2014
£000
2013
£000
218,916
307,631
9,867
2,529
7,734
2,891
231,312
318,256
All revenue originated from the United Kingdom and all non-current assets of the Group are located in the United Kingdom.
Information about major customers
In the year ended 31 March 2014, no single customer individually contributed to more than ten per cent of Group revenue. Included in prior
period revenue is £104,300,000 in relation to sales from two major customers (customer one; £68,800,000, customer two: £35,500,000) which
individually contributed to more than ten per cent of Group revenue.
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www.severfield.comStock code: SFROur financials 100
Notes to the consolidated financial statements continued
4. Operating profit/(loss)
Operating profit/(loss) for the year has been arrived at after crediting:
Rent receivable
Unrealised gains on derivative financial instruments
Gain on sale of property, plant and equipment
and after charging:
Amortisation of intangible assets (note 12)
Retirement of acquired intangible asset (note 12)
Depreciation of owned assets
Depreciation on assets held under finance lease
Depreciation of investment property (note 13)
Auditor’s remuneration
— audit
— other services
Rentals under operating leases
— hire of plant and machinery
— other operating leases
Staff costs (note 6)
The analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the Company’s
annual accounts
Fees payable to the Company’s auditor and their associates for other
services to the Group
— The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Audit-related assurance services
Taxation compliance services
Other taxation advisory services
Corporate finance services
Total non-audit fees
2014
£000
422
—
96
2,885
2,370
3,496
85
40
165
142
2013
£000
691
104
507
3,529
—
4,826
105
50
174
447
1,744
1,857
50,551
2,837
1,634
66,967
2014
£000
17
148
165
30
45
67
—
142
2013
£000
17
157
174
50
45
20
332
447
Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be disclosed because the
consolidated financial statements are required to disclose such fees on a consolidated basis.
Corporate finance services provided during the prior period were incurred in the preparation of working capital and other reports in support of
the rights issue which completed in April 2013.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 5. Other items
Amortisation of acquired intangible assets (note 12)
Restructuring and redundancy costs
Retirement of acquired intangible asset (note 12)
Impairment of investment in associates (note 15)
Refinancing related transaction costs
Contract legal costs and provision movements
Movements in the valuation of derivative financial instruments
Other items before tax
Tax on other items
Other items after tax
101
2013
£000
(3,435)
(767)
—
—
(2,139)
(1,089)
104
(7,326)
2,674
(4,652)
2014
£000
(2,748)
(2,611)
(2,370)
(353)
—
—
—
(8,082)
2,844
(5,238)
Restructuring and redundancy costs have arisen on the reorganisation of the Group’s largest businesses (Severfield–Rowen Structures and
Watson Steel Structures) which commenced trading as a single entity, Severfield–Watson Structures, from January 2013. A comprehensive
review since then resulted in changes to the senior operating management structure. In May 2013, a further reorganisation of Severfield–
Watson Structures was announced, resulting in the reduction in factory capacity by approximately ten per cent and a reduction in headcount
of 84 people. On 30 May 2014, Severfield–Watson Structures changed its name to Severfield (UK) Limited.
The retirement of the acquired intangible asset for the Fisher Engineering brand has arisen following the recent rebranding exercise
undertaken by the Group.
Refinancing related transaction costs in the prior period consist of all costs associated with the amendment of the Group’s banking facilities,
including the write-off of all costs relating to the November 2011 refinancing.
Tax on other items includes the impact of a reduction in future corporation tax rates that have been substantively enacted on the Group’s
deferred tax liability.
6. Staff costs
Details of directors’ remuneration for the period are provided in the audited part of the directors’ remuneration report on page 74.
The average number of persons employed by the Group (including executive directors) during the period was:
Production and site
Sales and administration
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
Employee remuneration costs under share-based payment schemes are set out in note 22.
2014
Number
1,105
98
1,203
2014
£000
43,929
4,938
1,684
50,551
2013
Number
1,173
92
1,265
2013
£000
58,181
6,637
2,149
66,967
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www.severfield.comStock code: SFROur financials 102
Notes to the consolidated financial statements continued
7. Finance income and expense
Finance income — interest receivable
2014
£000
7
2013
£000
10
Finance expense — interest and other costs in relation to bank borrowings
(565)
(2,014)
Net finance expense
8. Taxation
a) The taxation credit comprises:
Current tax
UK corporation tax
Adjustments to prior years’ tax provisions
Deferred tax
Current period credit (note 20)
Impact of reduction in future years’ tax rates
Adjustments to prior years’ provisions
Total tax credit
b) Tax reconciliation
The credit for the year can be reconciled to the loss per the income statement as follows:
Loss before tax
Tax on ordinary activities at standard UK corporation tax rate
Expenses not deductible for tax purposes
Tax effect of share of results of JVs and associates
Unprovided deferred tax movement
Adjustments to prior years’ provisions
Rate differences
Income tax credit for the year
(558)
(2,004)
2014
£000
1,025
(7)
1,018
(1,319)
(1,066)
(50)
(2,435)
(1,417)
2014
£000
(4,057)
(933)
374
657
(392)
(57)
(1,066)
(1,417)
2013
£000
(1,429)
(135)
(1,564)
(3,299)
(886)
18
(4,167)
(5,731)
2013
£000
(28,858)
(7,041)
162
76
2,075
(117)
(886)
(5,731)
Corporation tax was calculated at 23 per cent (2013: 24.4 per cent) of the estimated taxable loss for the year.
Rate differences arise through the enacted reduction in corporation tax rates from 23 per cent to 20 per cent effective from April 2015
reducing the level of the Group’s deferred tax liabilities. This item is treated as non-underlying.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 9. Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the period ended 31 March 2013 of nil (31 December 2011: 3.5p) per share
Interim dividend for the year ended 31 March 2014 of nil (31 March 2013: 1.5p) per share
Proposed final dividend for the year ended 31 March 2014 of nil (31 March 2013: nil) per share
10. Earnings per share
Earnings per share is calculated as follows:
Earnings for the purposes of basic earnings per share being net loss
attributable to equity holders of the parent company
Earnings for the purposes of underlying basic earnings per share being underlying
net profit/(loss) attributable to equity holders of the parent company
103
2013
£000
3,123
1,339
4,462
—
2013*
£000
2014
£000
—
—
—
—
2014
£000
(2,640)
(23,127)
2,598
(18,475)
Number
Number
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share
Weighted average number of ordinary shares for the purposes of diluted earnings per share
295,791,922
171,455,780
295,791,922
171,455,780
Basic earnings per share
Underlying basic earnings per share
Diluted earnings per share
Underlying diluted earnings per share
Reconciliation of earnings
Net loss attributable to equity holders of the parent company
Other items
Underlying net profit/(loss) attributable to equity holders of the parent company
Further details of other items are provided in note 5.
(0.89p)
0.88p
(0.89p)
0.88p
(13.49p)
(10.78p)
(13.49p)
(10.78p)
2014
£000
2013
£000
(2,640)
(23,127)
5,238
2,598
4,652
(18,475)
* Earnings per share for the period ended 31 March 2013 has been restated to take account of the impact of the discount element of the rights issue which
completed in April 2013.
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Notes to the consolidated financial statements continued
11. Goodwill
The carrying value of goodwill is allocated to cash-generating units (‘CGUs’) as follows:
On the Fisher Engineering acquisition in 2007
On the Atlas Ward acquisition in 2005
On the Watson Steel Structures acquisition in 2001
£000
47,980
6,571
161
54,712
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
During the year, the Group determined that the cash flows of the legacy Fisher Engineering and Severfield–Watson Structures operations
were now so closely related that they should be treated as a group of CGUs for the purposes of goodwill impairment testing.
The recoverable amounts of goodwill are determined from value in use calculations. The key assumptions for the value in use calculations
are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the year. The directors
estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to
the CGUs. Changes in selling prices and direct costs are based on past practices and expectations on future changes in the market. It is
anticipated that sales volumes in the UK will not increase materially over the next three years.
The Group prepares forecast cash flows based on the following year’s budget, approved by the directors, together with cash flows based on
budgets for the following two years which are derived from the directors’ views on revenue prospects until March 2017. After this period, cash
flows have been extrapolated using a growth rate of 1.5 per cent (2013: 1.5 per cent) which does not exceed the long-term growth rate for the
relevant markets. The cash flow forecasts have been discounted using a pre-tax discount rate of ten per cent (2013: nine per cent).
Following the impairment reviews performed by the Group, no impairment charge was recorded in the year ended 31 March 2014.
Management considers that no reasonably possible change in the key assumptions would cause the goodwill attached to the above CGUs to
fall below their carrying value at 31 March 2014.
12. Other intangible assets
Cost
At 1 January 2012
Additions
At 1 April 2013
Additions
At 31 March 2014
Amortisation
At 1 January 2012
Charge for the period
At 1 April 2013
Charge for the year
Retirements
At 31 March 2014
Carrying amount
At 31 March 2014
At 31 March 2013
Intangible assets
acquired on
acquisition
£000
Other
intangible
assets
£000
39,000
—
39,000
—
39,000
21,254
3,435
24,689
2,748
2,370
29,807
9,193
14,311
481
402
883
—
883
—
94
94
137
—
231
652
789
Total
£000
39,481
402
39,883
—
39,883
21,254
3,529
24,783
2,885
2,370
30,038
9,845
15,100
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 105
12. Other intangible assets continued
The intangible assets acquired on acquisition arise as a result of applying IFRS 3 which requires the separate recognition of acquired
intangibles from goodwill. The Group’s acquired intangible assets are as follows:
Cost
At 1 April 2013 and 31 March 2014
Amortisation
At 1 January 2012
Charge for the period
At 1 April 2013
Charge for the year
Retirements
At 31 March 2014
Net book value
At 31 March 2014
At 31 March 2013
Customer
relationships
£000
Brands
£000
Order book
£000
Know-how
£000
Total
£000
25,800
3,200
9,600
400
39,000
10,942
3,225
14,167
2,580
—
16,747
9,053
11,633
542
160
702
128
2,370
3,200
—
2,498
9,600
—
9,600
—
—
9,600
—
—
170
50
220
40
—
260
140
180
21,254
3,435
24,689
2,748
2,370
29,807
9,193
14,311
During the year, the intangible asset of £2,370,000 relating to the Fisher Engineering brand was retired as a result of the rebranding of the
Group and the renaming of its main operating businesses.
Amortisation and retirement of acquired intangibles is included in the consolidated income statement as part of administrative expenses and
is classified within the middle column entitled ‘other items’.
The amortisation period for each category of intangible asset is disclosed in the statement of significant accounting policies on page 96.
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Notes to the consolidated financial statements continued
13. Property, plant and equipment (including investment property)
Cost
At 1 January 2012
Additions
Disposals
At 1 April 2013
Additions
Disposals
At 31 March 2014
Accumulated depreciation
Depreciation
At 1 January 2012
Charge for the period
Disposals
At 1 April 2013
Charge for the year
Disposals
At 31 March 2014
Carrying amount
At 31 March 2014
At 31 March 2013
Investment
property
£000
6,197
—
—
6,197
—
—
6,197
2,237
50
—
2,287
40
—
2,327
3,870
3,910
Freehold
and long
leasehold
land and
buildings
£000
65,383
806
—
66,189
164
(169)
66,184
2,351
590
—
2,941
503
—
3,444
Plant and
machinery
£000
Fixtures,
fittings
and office
equipment
£000
31,633
952
(2,238)
30,347
1,895
(776)
31,466
16,903
3,708
(1,525)
19,086
2,680
(459)
21,307
1,580
280
—
1,860
75
—
1,935
879
205
—
1,084
154
—
1,238
697
776
62,740
63,248
10,159
11,261
Motor
vehicles
£000
2,190
276
(514)
1,952
84
(556)
1,480
1,059
428
(391)
1,096
244
(392)
948
Total
£000
106,983
2,314
(2,752)
106,545
2,218
(1,501)
107,262
23,429
4,981
(1,916)
26,494
3,621
(851)
29,264
532
856
77,998
80,051
The net book value of the Group’s plant and machinery includes £589,000 (2013: £675,000) in respect of assets held under finance leases.
The investment property represents land and buildings held in Leeds. In the prior year, the Group entered into a five-year lease agreement
for the property which included an initial one-year rent free period, followed by four annual rental receipts of £320,000. On 23 June 2014, the
Group sold this investment property for a gross consideration of £3,830,000 (see note 32).
The property is subject to an annual depreciation charge of one per cent on a straight-line basis in accordance with Group policy. The directors
consider that the carrying value of the investment property approximates to its fair value. No independent valuation by an appropriately
qualified surveyor was obtained during the current or prior periods.
14. Subsidiaries
The Company has investments in the following significant subsidiary undertakings. All of the companies listed are registered in England
and Wales.
Severfield (UK) Limited (formerly Severfield–Watson Structures Limited)
Severfield (Design & Build) Limited (formerly Atlas Ward Structures Limited) — steel fabrication
Severfield (NI) Limited (formerly Fisher Engineering Limited)
— steel fabrication and construction
— steel fabrication and construction
The Company owns the whole of the issued share capital of the subsidiaries noted above.
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 107
15. Interests in JVs and associates
The Group has an interest in an associated company and a joint venture as follows:
Associated companies:
Fabsec Limited — development of fire beam
Joint venture:
JSW Severfield Structures Limited — structural steelwork serving the Indian market
Holding %
25.0
50.0
Class of capital
Ordinary
Ordinary
On 17 November 2008 a formal agreement was signed in India with JSW Building Systems Limited (a subsidiary of JSW Steel Limited of India)
to form a 50/50 joint venture, JSW Severfield Structures Limited, to create a structural steelwork business in Bellary and Mumbai, India,
serving primarily the Indian market.
During the year, Kennedy Watts Partnership Limited, a company which specialised in steelwork design and in which the Group had a holding
of 25.1 per cent, went into administration. Accordingly, an impairment charge of £353,000 was recognised as a one-off item representing the
Group’s historical investment in the associate.
JSW Severfield Structures Limited is registered in India, and during the year the Group invested a further £3,538,000 (2013: £3,031,000) in the
joint venture. As a result of the significant loss recorded during the year, the Group’s investment in the Indian joint venture of £3,315,000 has
been reviewed for impairment. The recoverable amount of the investment is determined from value in use calculations which are based on
the following year’s budget, together with financial projections for 2016 to 2018. The calculations assume a long-term growth rate of
1.5 per cent from 2019 onwards and a pre-tax discount rate of ten per cent. Following this review, no impairment charge was recorded in the
year ended 31 March 2014. Management considers that no reasonably possible change in the key assumptions would result in an impairment;
however, the achievement of the forecasts is dependent on the move to a sustainable profit position following the actions taken in the current
year to improve the order book, to reduce overheads and to implement a new business development plan and operational improvement
programme.
Share of net
assets/
(liabilities)
£000
Loans to
associate
undertaking
£000
Goodwill
£000
At 1 January 2012
Net assets acquired
Losses retained
At 1 April 2013
Net assets acquired
Losses retained
Impairment of investment in associates
At 31 March 2014
251
—
—
251
—
—
(251)
—
The Group’s share of the retained loss for the year of JVs and associates is made up as follows:
Share of results
Summarised financial information in respect of the Group’s JVs and associates is as follows:
125
3,031
(310)
2,846
3,538
(3,038)
(31)
3,315
Fabsec
Limited
£000
—
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Group’s share of JVs and associates net assets
Revenue
Loss after tax
Group’s share of JVs and associates loss after tax for the period
71
—
—
71
—
—
(71)
—
JSW
Severfield
Structures
Limited
£000
Total
£000
447
3,031
(310)
3,168
3,538
(3,038)
(353)
3,315
Total
£000
(3,038)
(3,038)
2014
£000
22,002
23,984
(26,672)
(16,848)
2,466
1,575
27,911
(5,871)
(3,038)
2013
£000
21,453
25,032
(25,937)
(14,103)
6,445
3,369
40,444
(515)
(310)
There were no contingent liabilities or capital commitments (2013: none) associated with the Group’s JVs and associates.
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Notes to the consolidated financial statements continued
16. Inventories
Raw materials and consumables
Work-in-progress
17. Construction contracts
Contracts-in-progress at balance sheet date:
Amounts due from construction contract customers included in trade and other receivables
Amounts due to construction contract customers included in trade and other payables
Contract costs incurred plus recognised profits less recognised losses to date
Less: progress billings received
18. Trade and other receivables
Amounts due from construction contract customers (note 17):
— Current amounts receivable in respect of progress billings
— Retentions due within one year
— Retentions due after one year
Total
Other receivables
Prepayments and accrued income
Amounts due from JVs and associates
2014
£000
3,832
2,010
5,842
2014
£000
2013
£000
5,986
2,228
8,214
2013
£000
55,154
(386)
54,768
63,228
(5,702)
57,526
412,310
(357,542)
54,768
556,377
(498,851)
57,526
2014
£000
50,361
2,822
1,971
55,154
2,531
2,841
275
2013
£000
58,511
2,901
1,816
63,228
294
6,849
1,228
60,801
71,599
Other receivables include the fair value of a financial guarantee of £2,200,000, representing the likely equity payments during the year ending
31 March 2015 to the Indian joint venture (JSW Severfield Structures Limited). A corresponding liability of £2,200,000 is included within other
creditors (see note 19).
In the prior period, prepayments and accrued income included the transaction costs of £3,142,000 associated with the rights issue which
completed in April 2013. These costs were transferred to equity in the year ended 31 March 2014.
The average credit period taken on revenue, calculated on a count-back basis to make appropriate allowance for monthly revenue phasing, is
70 days (2013: 84 days). No interest is charged on receivables.
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Before accepting any new customer, the Group uses an external credit rating agency to assess the potential customer’s credit quality and
defines credit limits by customer. It is Group policy that adequate credit insurance is taken out on all customers to manage the exposure
that may arise as the contractual work proceeds. Accordingly, no bad debt provisions are held or expenses incurred. The Group’s executive
risk committee reviews situations where adequate credit insurance on the Group’s customers cannot be purchased in the present economic
climate as required.
Due to the nature of the business involving applications for payment, contractually overdue amounts within trade and other receivables are
limited to retentions. The Group has rigorous procedures in place for monitoring and obtaining settlement of retentions in a prompt manner.
Amounts overdue at 31 March 2014 in respect of retentions were £0.1m (31 March 2013: £nil).
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 19. Trade and other payables
Trade creditors
Other taxation and social security
Other creditors and accruals
Payments in advance (note 17)
109
2014
£000
34,554
3,136
13,246
386
51,322
2013
£000
47,994
4,341
12,857
5,702
70,894
During the year, the Group provided an undertaking, not exceeding £3,500,000, to secure a loan facility of the Indian joint venture (JSW
Severfield Structures Limited) until 31 March 2016. Other creditors include the fair value of this financial guarantee of £2,200,000 which
represents the likely equity payments to the joint venture during the year ending 31 March 2015 (see note 18).
The directors consider that the carrying amount of trade payables approximates to their fair value.
The average credit period taken for trade purchases, calculated on a count-back basis to make appropriate allowance for monthly revenue
phasing, is 59 days (2013: 66 days).
20. Deferred tax liabilities
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting period.
Deferred tax liabilities
Deferred tax assets
Deferred tax is disclosed in the balance sheet as follows:
Deferred tax liabilities
Deferred tax asset — trading losses
The net deferred tax liability is made up as follows:
Excess capital allowances
Other timing differences
Trading losses
Acquired intangible assets
Retirement benefit obligations
2014
£000
(8,443)
4,286
(4,157)
2014
£000
(5,937)
1,780
(4,157)
2014
£000
(6,387)
(218)
1,780
(1,838)
2,506
(4,157)
2013
£000
(11,228)
4,675
(6,553)
2013
£000
(8,393)
1,840
(6,553)
2013
£000
(7,937)
120
1,840
(3,292)
2,716
(6,553)
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Notes to the consolidated financial statements continued
20. Deferred tax liabilities continued
At 1 January 2012
Credit to income statement
Credit to equity
Effect of change in tax rate
At 1 April 2013
Reclassification
Credit to income statement
Charge to equity
Effect of change in tax rate
At 31 March 2014
Asset
amortisation
and
depreciation
£000
Short-term
timing
differences and
tax losses
£000
Retirement
benefit
obligations
£000
(13,730)
1,411
—
1,090
(11,229)
—
1,327
—
1,677
(8,225)
64
1,819
—
(5)
1,878
—
(174)
—
(245)
1,459
2,388
61
458
(191)
2,716
—
245
(101)
(354)
2,506
Other
£000
101
(11)
—
(8)
82
62
(29)
—
(12)
103
Total
£000
(11,177)
3,280
458
886
(6,553)
62
1,369
(101)
1,066
(4,157)
The deferred tax assets reducing the deferred tax liability relate to 20 per cent (2013: 23 per cent) of the Group’s deficit on its defined benefit
retirement scheme, trading losses carried forward and other timing differences. The tax losses on which a deferred tax asset has been
recognised do not expire. Deferred tax assets are recognised for tax loss carry-forwards to the extent that the utilisation of the related tax
benefit through future taxable profits is probable. In determining the amounts of deferred tax assets to be recognised, management uses
historical profitability information and, if relevant, forecasted operating results, based on approved budgets and forecasts, including a review
of the eligible carry forward periods, tax planning opportunities and other relevant considerations.
Unrecognised deferred tax assets in respect of trading losses amounted to £1,474,000 (2013: £2,131,000). These have not been recognised as
a result of the unpredictability of future profit streams against which these losses may be utilised.
The Government announced in March 2013 that it intended to reduce the rate of corporation tax from 23 per cent to 20 per cent and the
Finance Act 2013, which was substantively enacted on 2 July 2013, included provisions to reduce the rate of corporation tax to 21 per cent
with effect from 1 April 2014 and 20 per cent with effect from 1 April 2015. Accordingly, deferred tax balances have been revalued to the lower
rate of 20 per cent in these accounts, which has resulted in a credit to the consolidated income statement of £1,066,000 and the consolidated
statement of comprehensive income of £354,000.
21. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while optimising the return
to stakeholders. The capital structure of the Group consists of debt, which includes borrowings, cash and cash equivalents and equity
attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.
Gearing ratio
The board reviews the capital structure of the Group on a semi-annual basis. As part of this review, it considers the cost of capital and the
risks associated with each class of capital.
The gearing ratio at the year-end is as follows:
Borrowings
Cash and cash equivalents
Finance leases
Net funds/(debt)
Equity
Net debt to equity ratio
2014
£000
(5,000)
5,525
(206)
319
143,398
N/A
2013
£000
(41,461)
671
(400)
(41,190)
102,401
40.2%
Equity includes all capital and reserves of the Group attributable to equity holders of the parent. There are no externally imposed capital
requirements.
The gearing ratio has improved significantly in the current year on completion of the rights issue in April 2013.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 21. Financial instruments continued
Categories of financial instruments
Financial assets
Cash and cash equivalents
Amounts due from construction contract customers (note 17)
Financial liabilities
Trade creditors (note 19)
Other creditors and accruals (note 19)
Borrowings
Finance leases
111
Carrying value
2014
£000
5,525
55,154
(34,554)
(13,246)
(5,000)
(206)
2013
£000
671
63,228
(47,994)
(12,857)
(41,461)
(400)
The Group’s financial instruments consist of borrowings, cash, items that arise directly from its operations and derivative financial
instruments. Cash and cash equivalents, trade and other receivables and trade and other payables generally have short terms to maturity.
For this reason their carrying values approximate to fair value. The Group’s borrowings relate principally to amounts drawn down against its
revolving credit facility, the carrying amounts of which approximate to their fair values by virtue of being floating rate instruments.
The Group is required to analyse financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1
to 3 based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
Derivative financial instruments are the only instruments valued at fair value through profit or loss, and are valued as such on initial
recognition. These relate to foreign currency forward contracts measured using quoted forward exchange rates and yield curves matching
the maturities of the contracts. These derivative financial instruments are categorised as level 2 financial instruments. Except for derivative
financial instruments, the carrying amounts of financial assets and financial liabilities are recorded at amortised cost in the consolidated
financial statements.
General risk management principles
The board has overall responsibility for the establishment and oversight of the Group’s risk management framework. A formal risk assessment
and management framework for assessing, monitoring and managing the strategic operational and financial risks of the Group is in place to
ensure appropriate risk management of its operations. Internal control and risk management systems are embedded in the operations of the
divisions.
Financial risks and management
The Group has exposure to a variety of financial risks through the conduct of its operations. Risk management is governed by the Group’s
operational policies, which are subject to periodic review by the board of directors.
Credit risk
The Group’s primary exposure to credit risk arises from the potential for non-payment or default from construction contract debtors. The
degree to which the Group is exposed to this credit risk depends on the individual characteristics of the contract counterparty and the
nature of the project. The Group’s credit risk is also influenced by the general macroeconomic conditions. The Group does not have significant
concentration of risk in respect of amounts due from construction contract customers at the reporting date with them being spread across
a wide range of customers. Due to the nature of the Group’s operations, it is normal practice for customers to hold retentions in respect of
contracts completed. Retentions held by customers at 31 March 2014 were £4,793,000 (31 March 2013: £4,717,000).
The Group manages its exposure to credit risk through the application of its credit risk management policies which specify the minimum
requirements in respect of the creditworthiness of potential customers, assessed through reports from credit agencies, and the timing and
extent of progress payments in respect of contracts. In addition, before accepting any new customer adequate credit insurance is taken out as
reported in note 18. Where credit insurance is difficult to acquire, the executive risk committee determines the appropriate exposure for the
Group to take with a customer.
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Notes to the consolidated financial statements continued
21. Financial instruments continued
The Group manages the collection of retentions through its post-completion project monitoring procedures and ongoing contact with
customers so as to ensure that potential issues that could lead to the non-payment of retentions are addressed as soon as they are identified.
Amounts outstanding from construction contract customers are due with reference to the payment terms for each particular contract but
the majority would be receivable within four months from the end of the reporting period. Amounts due for settlement after 12 months are
disclosed in note 17.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. The ultimate responsibility
for liquidity risk rests with the board.
The Group generates cash through its operations and aims to manage liquidity by ensuring that it will always have sufficient financing
facilities to meet its liabilities when due, under both normal and stress conditions, without incurring unacceptable losses or risking damage to
the Group’s reputation. Forecast and actual cash flow is continuously monitored.
Borrowings represent the Group’s revolving credit facility from the Royal Bank of Scotland and Yorkshire Bank, a member of National Australia
Bank Group, jointly which provides credit support of up to £35,000,000 at an interest rate of between 2.5 per cent and 4.0 per cent above
LIBOR subject to the ratio of Group net debt to EBITDA. This facility was refinanced in April 2013, on completion of the rights issue and expires
in November 2016.
As at 31 March 2014, £5,000,000 was drawn down on this facility with £30,000,000 of further facility not drawn but available. Up to
£10,000,000 of this facility is available by way of an overdraft.
Borrowings outstanding, net of associated issue costs, at 31 March 2014 amounted to £5,000,000 (2013: £41,461,000).
In accordance with IFRS 7, the following tables detail the Group’s remaining contractual maturity for its financial liabilities.
Liabilities – 2014
Trade and other payables
Financial liabilities — borrowings1
Financial liabilities — finance leases
Liabilities – 2013
Trade and other payables
Financial liabilities — borrowings1
Financial liabilities — finance leases
Maturity analysis
Carrying
value
£000
47,800
5,000
206
53,006
60,851
41,461
400
Less than
3 months
£000
43,250
—
49
43,299
55,375
—
48
102,712
55,423
3 months
to 1 year
£000
3,166
—
132
3,298
5,414
—
146
5,560
1–2
years
£000
1,035
—
25
1,060
60
—
181
241
2–5
years
£000
349
5,000
—
5,349
2
41,461
25
Total
£000
47,800
5,000
206
53,006
60,851
41,461
400
41,488
102,712
1. Details of the conditions applying to these borrowings are provided above. The Group’s revolving credit facility, which is disclosed as a current liability in the
balance sheet, is presented as maturing in two to five years since the facility expires in November 2016.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in credit risks described above, in foreign currency exchange rates
and interest rates. The Group has entered into certain derivative financial instruments to manage its exposure to foreign currency risk.
Market risk exposures are monitored and are supplemented by sensitivity analysis. There has been no change to the Group’s exposure to
market risks or the manner in which it manages and measures the risk.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 113
21. Financial instruments continued
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
The Group seeks to minimise the effects of currency risks by using derivative financial instruments when appropriate to hedge these risk
exposures against contracted sales. The use of financial derivatives is governed by the Group’s policies approved by the board of directors. The
Group does not enter into or trade financial instruments, including derivative financial instruments for speculative purposes.
The carrying value of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
Euro
US dollar
Foreign currency sensitivity analysis
The Group is only significantly exposed to the euro.
Liabilities
Assets
2014
£000
(132)
—
(132)
2013
£000
(73)
—
(73)
2014
£000
4,148
5
4,153
2013
£000
4,901
948
5,849
The following table details the Group’s sensitivity to a ten per cent increase and decrease in sterling against the relevant foreign currencies.
Ten per cent is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents
management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding
foreign currency denominated monetary items and derivative financial instruments, and adjusts their translation at the year-end for a ten
per cent change in foreign currency rates. A positive number below indicates an increase in profit and other equity where sterling strengthens
ten per cent against the relevant currency. For a ten per cent weakening of sterling against the relevant currency, there would be an equal and
opposite impact on the profit and other equity, and the balances below would be negative.
Profit or loss and equity
Euro currency
impact
2014
£000
324
2013
£000
434
At present the Group’s translation exposure to the Indian rupee via its Indian joint venture is not significant. As the business grows, this
exposure is expected to become more significant.
Forward foreign exchange contracts
It is the policy of the Group to enter into forward foreign exchange contracts to cover future euro and US dollar currency receipts on relevant
contracts.
At 31 March 2014, the Group had forward exchange contracts held for the sale of 8.8m euros (2013: 10.8m euros) and nil US dollars (2013:
1.5m US dollars) at an average exchange rate of 1.206 euros/£ (2013: 1.176 euros/£) and nil US dollars/£ (2013: 1.514 US dollars/£) to the
pound and maturing within 12 months of the year-end.
Interest rate risk management
The Group is exposed to interest rate risk as described under the borrowings paragraph earlier in this note. The Group does not currently
hedge any of its interest rate exposure.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates at the balance sheet date. For floating rate
liabilities, the analysis is prepared assuming the gross amount of liability outstanding at balance sheet date was outstanding for the whole
period. A 0.5 per cent increase or decrease is used when reporting interest rate risk internally to key management personnel and represents
management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 0.5 per cent higher and all other variables were held constant, the Group’s profit for the year ended 31 March 2014
and the Group’s equity at that date would decrease by £25,000 (2013: £259,000). This is attributable to the Group’s exposure to interest rates
on its variable rate borrowings. If the £35,000,000 facility is fully utilised the exposure increases to £175,000.
23372.04 16 July 2014 10:30 AM PROOF 8
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Notes to the consolidated financial statements continued
22. Share-based payments
The Group operates a share-based incentive scheme open to all employees of the Group although the current intention is that only the
Company’s executive directors (being both board directors and certain members of the executive committee) and selected senior employees
will participate in the scheme. Further details are given in the directors’ remuneration report on pages 64 to 80.
Performance share plan
The vesting of awards is subject to performance conditions set by the remuneration committee. The Group recognised a total charge of
£162,000 for the year (2013: credit of £145,000) with a corresponding entry to reserves. The weighted average fair value of share options
granted during the year was £0.45 per share. Three outstanding awards had been granted to 31 March 2014:
• During the year ended 31 December 2011 the remuneration committee granted 804,416 ordinary shares of 2.5p each at nil value to the
executive directors. The vesting of these awards was dependent on the Group’s underlying earnings per share performance over the three
year period from 1 January 2011 to 31 December 2013. As a result of the Group’s change of year-end to 31 March, these awards were
deferred until 31 March 2014. The following vesting schedule applies:
Underlying EPS performance‡ for year ended 31 December 2013†
Equal to less than 6.5p
Equal to 13.0p or better
Between 6.5p and 13.0p
% of award vesting
0%
100%
Pro rata between 25% and 100%
The assumptions used to measure the fair value of the shares granted are as follows:
Share price on date of grant
Exercise price
Expected volatility (using historic performance)
Risk-free rate
Dividend
Actual life
£2.45*
nil
50%
2.0%
10.0p
three years
* Granted on 14 April 2011.
† Now deferred to 31 March 2014.
‡ The original EPS targets have been adjusted by a factor of 1.92105. This adjustment is based on the relationship between the last day cum rights issue share
price (73p) and the theoretical ex rights price (38p).
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £nil (2013: credit of £145,000).
• During the period ended 31 March 2013 the remuneration committee granted 1,113,508 ordinary shares of 2.5p each at nil value to the
executive directors. The vesting of these awards will be dependent on the Group’s underlying earnings per share performance over the
three year period from 1 January 2012 to 31 December 2014. As a result of the Group’s change of year-end to 31 March, these awards were
deferred until 31 March 2015. The following vesting schedule applies:
Underlying EPS performance‡ for year ending 31 December 2014†
Equal to less than 6.5p
Equal to 11.7p or better
Between 6.5p and 11.7p
% of award vesting
0%
100%
Pro rata between 25% and 100%
The assumptions used to measure the fair value of the shares granted are as follows:
Share price on date of grant
Exercise price
Expected volatility (using historic performance)
Risk-free rate
Dividend
Actual life
£2.00*
nil
50%
1.7%
5.0p
three years
* Granted on 7 March 2012.
† Now deferred to 31 March 2015.
‡ The original EPS targets have been adjusted by a factor of 1.92105. This adjustment is based on the relationship between the last day cum rights issue share
price (73p) and the theoretical ex rights price (38p).
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Severfield plcAnnual report and accounts for the year ended 31 March 2014 115
22. Share-based payments continued
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £nil (2013: £nil).
• During the year ended 31 March 2014 the remuneration committee granted 1,602,495 ordinary shares of 2.5p each at nil value to the
executive directors. The vesting of these awards will be dependent on the Group’s underlying earnings per share performance over the
three year period from 1 April 2013 to 31 March 2016, with the following vesting schedule to apply:
Underlying EPS performance for year ending 31 March 2016
Equal to less than 2.2p
Equal to 4.9p or better
Between 2.2p and 4.9p
The assumptions used to measure the fair value of the shares granted are as follows:
Share price on date of grant
Exercise price
Expected volatility (using historic performance)
Risk-free rate
Dividend
Actual life
* Granted on 5 June 2013.
% of award vesting
0%
100%
Pro rata between 25% and 100%
£0.48*
nil
98%
2.7%
1.0p
three years
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £162,000.
Share incentive plan
During 2010 the Group implemented a share incentive plan for Group employees. As part of the scheme 202,384 new ordinary shares of 2.5p
were issued which are being held in trust for a three year period on behalf of 973 Group employees. The vesting of these awards will be subject
to continued employment for each of the relevant employees. Options are forfeited if the employee leaves the Group before the options vest.
The share price on the date of issue of the shares (29 October 2010) was £2.41 and the fair value was measured based on the market price of
the shares at the date of grant. The aggregate of the estimated values of the awards granted in 2010 is £488,000. A charge of £81,000 (2013:
£203,000) was recognised in the current year.
23. Share capital
Issued and fully paid:
2014
£000
2013
£000
297,503,587 ordinary shares of 2.5p each (2013: 89,251,076 ordinary shares of 2.5p each)
7,437
2,231
There are no share options outstanding as at 31 March 2014 (31 March 2013: nil).
The increase in share capital reflects the 7:3 rights issue of 208,252,511 new ordinary shares at 23p per share which completed on
5 April 2013.
24. Other reserves
At 1 January 2012
Share-based payments charge
At 1 April 2013
Share-based payments charge
At 31 March 2014
Share-based
payment
reserve
£000
330
58
388
243
631
Other
reserves
£000
139
—
139
—
139
Total
£000
469
58
527
243
770
The movement in the share-based payment reserve represents the share-based payment charge of £243,000 (2013: £58,000) (see note 22).
23372.04 16 July 2014 10:30 AM PROOF 8
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Notes to the consolidated financial statements continued
25. Net cash flow from operating activities
Operating loss from continuing operations
Adjustments:
Depreciation of property, plant and equipment
Depreciation of investment property (note 13)
Gain on disposal of property, plant and equipment (note 4)
Amortisation of intangible assets (note 12)
Retirement of acquired intangible asset (note 12)
Movements in pension scheme
Share of results of JVs and associates (note 15)
Share-based payments (note 22)
Movement in valuation of derivatives
Operating cash flows before movements in working capital
Decrease in inventories
Decrease in receivables
(Decrease)/increase in payables
Decrease in provisions
Cash generated from operations
Tax received/(paid)
Net cash flow from operating activities
26. Analysis of net funds/(debt)
Cash and cash equivalents
Financial liabilities — borrowings
Financial liabilities — finance leases
27. Capital commitments
Contracted for but not provided in the financial statements
28. Contingent liabilities
2014
£000
2013
£000
(3,499)
(26,854)
3,581
40
(96)
2,885
2,370
(539)
3,391
243
—
8,376
2,372
10,798
(19,433)
—
2,113
409
2,522
2014
£000
5,525
(5,000)
(206)
319
2014
£000
750
4,930
50
(507)
3,528
—
(565)
310
58
(104)
(19,154)
871
17,562
4,448
(600)
3,127
(2,323)
804
2013
£000
671
(41,461)
(400)
(41,190)
2013
£000
—
The Company and its subsidiaries have provided unlimited multilateral guarantees to secure any bank overdrafts and loans of all other Group
companies. At 31 March 2014 these amounted to £25,000,000 (2013: £40,000,000). The Group has also given performance bonds in the
normal course of trade.
During the year, the Group provided an undertaking, not exceeding £3,500,000, to secure a loan facility of the Indian joint venture (JSW
Severfield Structures Limited) until 31 March 2016 (see note 19).
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014
29. Operating lease arrangements
The Group as lessee
The Group leases a number of its premises under operating leases which expire between 2014 and 2032.
The total future minimum lease rentals are as follows:
Minimum lease rentals due:
— Within one year
— After one year and within five years
— After five years
2014
£000
1,076
3,779
12,231
17,086
The Group also leases certain items of plant and machinery and vehicles whose total future minimum lease rentals are as follows:
Minimum lease rentals due:
— Within one year
— After one year and within five years
— After five years
The Group as lessor
2014
£000
1,172
1,450
105
2,727
117
2013
£000
1,381
4,754
12,897
19,032
2013
£000
1,572
1,672
—
3,244
Property rental income earned on owned properties during the year was £422,000 (2013: £691,000). The properties held have committed
tenants for the next one to five years. All operating lease contracts contain market review clauses in the event that the lessees exercise the
options to renew. The lessees do not have an option to purchase the property at the expiry of the lease period.
As at the balance sheet date the Group had contracted with tenants for the following future minimum lease payments:
— Within one year
— After one year and within five years
2014
£000
397
919
1,316
2013
£000
409
1,324
1,733
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Notes to the consolidated financial statements continued
30. Retirement benefit obligations
Defined contribution schemes
The Group operates two defined contribution retirement benefit schemes. The assets of the schemes are held separately from those of the
Group in funds under the control of trustees.
The total cost charged to income of £1,357,000 (2013: £1,691,000) represents contributions payable to these schemes by the Group at rates
specified in the rules of the plans. As at 31 March 2014, contributions of £183,000 (2013: £200,000) due in respect of the current reporting
period had not been paid over to the schemes.
Defined benefit schemes
The Group has a defined benefit scheme which is now closed to new members and no defined benefit membership rights will accrue under
the scheme.
The scheme exposes the Group to actuarial and other risks, the most significant of which are considered to be:
Investment risk
Interest risk
Longevity risk
Salary risk
The present values of the scheme liabilities are calculated using a discount rate determined by reference to corporate
bond yields; if the return on scheme assets is below this rate, it will create a plan deficit. The Group holds a significant
proportion of growth assets (bonds, gilts and equities) to leverage the return generated by the scheme.
A decrease in the corporate bond interest rate will increase the scheme liabilities, although this will be partially offset
by an increase in the return on the scheme’s assets.
The present values of the scheme liabilities are calculated by reference to the best estimate of the mortality of scheme
participants which reflect continuing improvements in life expectancy. An increase in the life expectancy of the scheme
participants will increase the scheme’s liabilities.
The present values of the defined benefit scheme liabilities are calculated by reference to the future salaries of scheme
participants. As such, an increase in the salary of the scheme participants will increase the scheme’s liabilities.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at 5 April 2011 by
Mr Christopher Hunter, Fellow of the Institute of Actuaries. The present value of the defined benefit obligation, the related current service cost
and past service cost were measured using the projected unit credit method.
Key assumptions used:
Discount rate
Inflation (RPI)
Expected rate of salary increases
Future pension increases
2014
%
4.4
3.2
—
3.1
2013
%
4.2
3.0
—
2.9
When considering mortality assumptions a male life expectancy to 85 at age 65 has been used for the year ended 31 March 2014 (2013: 85).
Impact on scheme liabilities of changes to key assumptions:
Assumption
Discount rate
Rate of mortality
Change in assumption
Increase/decrease by 0.25%
Increase by 1 year
Impact on scheme liabilities
Decrease/increase by 4.3%
Increase by 3.0%
Amounts recognised in income in respect of these defined benefit schemes are as follows:
Interest cost
Expected return on scheme assets
2014
£000
1,290
(815)
475
2013
£000
1,607
(972)
635
The charge for the year has been included in cost of sales. Actuarial gains and losses have been reported in the statement of comprehensive
income. The cumulative actuarial gains and losses recognised amount to a loss of £9,509,000 (2013: £8,248,000).
The actual return on scheme assets was a gain of £300,000 (2013: £1,933,000).
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 119
30. Retirement benefit obligations continued
The amount included in the balance sheet arising from the Group’s obligations in respect of the defined benefit retirement scheme is as
follows:
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in scheme liability recognised in the balance sheet
The major categories of scheme assets as a percentage of the total scheme assets are as follows:
Equities
Bonds and gilts
Cash
Property
Other
2014
£000
(32,395)
19,862
(12,533)
2013
£000
(31,061)
19,250
(11,811)
2014
%
21.5
62.3
5.5
8.8
1.9
100.0
2013
%
22.6
62.0
5.3
8.2
1.9
100.0
Bonds and gilts include a mixture of corporate and government bonds and fixed and index-linked gilts. Approximately nine per cent of bonds have
a sub-investment grade credit rating (BB+ or lower) and approximately 64 per cent of gilts are index-linked with 36 per cent being fixed.
Movements in the present value of defined benefit obligations were as follows:
At start of period
Interest cost
Actuarial losses
Benefits paid
At end of period
2014
£000
(31,061)
(1,290)
(746)
702
2013
£000
(26,800)
(1,607)
(3,785)
1,131
(32,395)
(31,061)
Actuarial losses arising from changes in demographic assumptions, changes in financial assumptions and gains or losses arising from
experience were losses of £768,000 (2013: £nil), gains of £127,000 (2013: losses of £4,209,000) and losses of £105,000 (2013: gains of
£424,000) respectively.
Movements in the fair value of scheme assets were as follows:
At start of period
Expected return on scheme assets
Actuarial (losses)/gains
Employer contributions
Benefits paid
At end of period
2014
£000
2013
£000
19,250
17,248
815
(515)
1,014
(702)
19,862
972
961
1,200
(1,131)
19,250
The Group expects to contribute £83,000 per month to its defined benefit pension scheme in the year to 31 March 2015.
23372.04 16 July 2014 10:30 AM PROOF 8
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Notes to the consolidated financial statements continued
30. Retirement benefit obligations continued
History of experience of gains and losses:
Experience gains/(losses) on scheme assets (£000)
Percentage of scheme assets
Experience (gains)/losses on scheme liabilities (£000)
Percentage of the present value of scheme liabilities
Total amount recognised in the consolidated
statement of comprehensive income (£000)
Percentage of the present value of scheme liabilities
2014
(515)
(2.6%)
(105)
(0.3%)
2013
961
5.0%
424
1.4%
2011
243
1.4%
(512)
(1.9%)
2010
(34)
(0.2%)
1,013
4.1%
2009
377
2.5%
(223)
(1.0%)
(1,261)
(3.9%)
(2,824)
(9.1%)
(1,369)
(5.1%)
(440)
(1.8%)
(2,091)
(8.9%)
The weighted average period over which benefits are expected to be paid, or the duration of the liabilities is currently 18 years.
31. Related party transactions
The remuneration of the directors is provided in the audited part of the directors’ remuneration report on page 74.
In addition to the board of directors, members of the executive committee are also considered as key management personnel of the Group.
Information about the remuneration of the additional directors who belong to the executive committee is as follows:
Short-term employee benefits
Contributions into pension schemes
2014
£000
852
112
964
2013
£000
1,311
150
1,461
Short-term employee benefits include salary, bonus, social security contributions, the provision of company cars, fuel for company cars and
private medical insurance.
The charge in relation to share-based payments is provided in note 22 and relates to executive directors and members of the executive
committee.
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its associated undertakings are disclosed below.
During the year the Group purchased services in the ordinary course of business from Kennedy Watts Partnership Limited at a cost of
£324,000 (2013: £823,000). The amount outstanding at 31 March 2014 was £nil (2013: £172,000). Kennedy Watts Partnership Limited went
into administration during the year.
During the year the Group purchased services in the ordinary course of business from Fabsec Limited at a cost of £105,000 (2013: £199,000).
The amount outstanding at 31 March 2014 was £16,000 (2013: £32,000).
During the year the Group incurred additional operating costs in relation to the day-to-day running of the joint venture in India of £595,000
(2013: £1,357,000). Those costs were recharged to the joint venture company during the year and the amount outstanding at 31 March 2014
was £275,000 (2013: £1,228,000).
32. Post-balance sheet events
On 23 June 2014, the Group sold its sole investment property in Leeds for a gross consideration of £3,830,000. This resulted in a small loss on
disposal after taking into account transaction costs.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 Five year summary
Results
Revenue
Underlying* operating (loss)/profit
Underlying* (loss)/profit before tax
Non-underlying items
(Loss)/profit attributable to equity holders
of Severfield plc
Assets employed
Non-current assets
Net current assets/(liabilities)
Non-current liabilities
Net assets
Key statistics
Earnings per share:
Basic — underlying*
Basic
Diluted — underlying*
Diluted
Dividends per share
Dividend cover (times) — underlying* basis
Share price — high
— low
121
2014
£000
2013†
£000
2011
£000
2010
£000
2009
£000
231,312
318,256
267,778
266,692
349,417
7,621
4,025
(8,082)
(19,218)
(21,532)
(7,326)
14,193
10,117
(3,335)
16,204
15,283
(4,176)
51,828
50,814
(6,723)
(2,640)
(23,127)
5,822
7,633
31,313
147,650
14,243
(18,495)
143,398
154,871
156,940
165,013
170,731
(32,060)
(20,410)
(3,059)
(21,583)
(11,739)
(22,331)
(12,732)
(25,524)
102,401
132,298
130,943
132,475
0.88p
(0.89p)
0.88p
(0.89p)
—
—
65.50p
38.00p
(10.78p)
(13.49p)
(10.78p)
(13.49p)
1.50p
(13.8)
114.26p
35.40p
4.19p
3.39p
4.19p
3.39p
5.00p
1.6
6.51p
4.46p
6.51p
4.46p
7.50p
1.3
333.50p
150.00p
313.20p
177.20p
21.40p
18.40p
21.30p
18.30p
15.00p
2.7
243.00p
119.50p
Key statistics for prior years have been restated to reflect the 7:3 rights issue in April 2013.
* The basis of stating results on an underlying basis is set out on page 93.
† Represents the 15 month period ended 31 March 2013.
Financial calendar
Preliminary announcement of full year results
Publication of annual report
Annual general meeting
Announcement of interim results (provisional)
3 June 2014
28 July 2014
2 September 2014
25 November 2014
23372.04 16 July 2014 10:30 AM PROOF 8
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122 Severfield plc Annual report and accounts for the year ended 31 March 2014
23372.04 16 July 2014 10:30 AM PROOF 8
Annual report and accounts for the year ended 31 March 2014 www.severfield.com
Stock code: SFR
Our financials
123
Our financials
Company balance sheet
Notes to the Company financial
statements
Shareholder information
Addresses and advisers
124
125
130
Project: Cardiff Energy From
Waste Plant
Location: Cardiff
Tonnage: 2,475
Client: Viridor Waste
Management
Main contractor: Lagan
Construction
Completion: 2014
23372.04 16 July 2014 10:30 AM PROOF 8
Stock code: SFR 124
Company balance sheet
At 31 March 2014
Fixed assets
Tangible assets
Intangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors — amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Capital and reserves
Share capital
Share premium
Other reserves
Profit and loss account
Equity and total shareholders’ funds
Note
2014
£000
2013
£000
4
5
6
7
9
10
11
12
60,760
652
98,959
160,371
63,021
—
63,021
(115,879)
(52,858)
107,513
7,437
85,702
620
13,754
107,513
61,376
789
96,360
158,525
67,121
—
67,121
(173,874)
(106,753)
51,772
2,231
46,152
377
3,012
51,772
The financial statements were approved by the board of directors on 11 July 2014 and signed on its behalf by:
Ian Lawson
Chief executive officer
Alan Dunsmore
Group finance director
Severfield plc
Registered in England No: 1721262
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 125
Notes to the Company financial statements
Year ended 31 March 2014
1. Significant accounting policies
Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been prepared under the
historical cost convention and in accordance with applicable UK accounting standards (‘UK GAAP’).
Going concern
After making enquiries, the directors have formed a judgement at the time of approving the financial statements that there is a reasonable
expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the
directors continue to adopt a going concern basis in preparing the financial statements. The key factors considered by the directors in making
the statement are set out within the financial review on pages 28 to 31.
Cash flow
The Company is exempt from the requirements of Financial Reporting Standard No. 1 (Revised) ‘Cash flow statements’.
Tangible fixed assets
Freehold and long leasehold land is held at cost and not depreciated.
Depreciation is provided on other fixed assets to write off the cost of each asset over its estimated useful life at the following rates:
Freehold buildings
1 per cent straight-line
Intangible fixed assets
Intangible fixed assets relate to capitalised software costs.
Intangible assets are amortised on a straight-line basis over their useful economic lives as follows:
Software costs
7 years
Investments
Fixed asset investments are shown at cost less provision for impairment.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and
laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay
less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the
inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial
statements.
Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the
asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets
are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not
discounted.
Share-based payments
Share-based payments are accounted for as described in the Group accounting policies on page 97.
Related party transactions
The Company has taken advantage of the exemption granted by paragraph 3(b) of FRS 8 ‘Related party disclosures’ not to disclose
transactions with other wholly-owned Group companies.
2. Operating profit
The auditor’s remuneration for audit services to the Company was £17,000 (2013: £17,000).
The Company has no employees other than the directors whose remuneration was borne by subsidiary undertakings.
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www.severfield.comStock code: SFROur financials 126
Notes to the Company financial statements continued
3. Profit of the Company
The Company has taken advantage of Section 408 of the Companies Act 2006 and consequently its profit and loss account is not presented
as part of these accounts. The profit of the Company for the financial year amounted to £10,742,000 (2013: £2,828,000). Dividends paid and
proposed are disclosed in note 9 to the consolidated financial statements.
4. Tangible fixed assets
Cost
At 1 April 2013
Additions
Disposals
At 31 March 2014
Depreciation
At 1 April 2013
Charge for the year
Disposals
At 31 March 2014
Net book value
At 31 March 2014
At 31 March 2013
Freehold
and long
leasehold
land and
buildings
£000
64,304
120
(168)
64,256
3,030
483
—
3,513
Motor
vehicles
235
—
(170)
65
133
17
(102)
48
Total
64,539
120
(338)
64,321
3,163
500
(102)
3,561
60,743
61,274
17
102
60,760
61,376
The Company’s freehold and long leasehold land and buildings includes those which are occupied and used by some of the Company’s
subsidiary undertakings.
5. Investments
Investment in subsidiaries
Investment in associated companies
Investment in joint ventures
Investment in subsidiaries
2014
£000
86,950
—
12,009
98,959
2013
£000
87,354
535
8,471
96,360
The Company has investments in the following significant subsidiary undertakings. All of the companies listed are registered in England
and Wales.
Severfield (UK) Limited (formerly Severfield–Watson Structures Limited)
Severfield (Design & Build) Limited (formerly Atlas Ward Structures Limited) — steel fabrication
Severfield (NI) Limited (formerly Fisher Engineering Limited)
— steel fabrication and construction
— steel fabrication and construction
The Company owns the whole of the issued share capital of the subsidiaries noted above.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 5. Investments continued
Cost
At 1 April 2013
Liquidation of dormant companies
At 31 March 2014
Provision for impairment
At 31 March 2013 and 2014
Net book value
At 31 March 2014
At 31 March 2013
127
£000
107,554
(404)
107,150
20,200
86,950
87,354
During the year, the Company liquidated four dormant companies resulting in a loss of £404,000, representing the historical investment in
those companies.
Investment in associates
The Company has an interest in associated companies as follows:
Fabsec Limited
— development of fire beam
Holding %
Class of capital
25.0
Ordinary
During the year, Kennedy Watts Partnership Limited, a company which specialised in steelwork design and in which the Company had a
holding of 25.1 per cent, went into administration. Accordingly, an impairment charge of £535,000 was recognised which represents the
Company’s historical investment in the associate.
Cost
At 1 April 2013 and 31 March 2014
Provision for impairment
At 1 April 2013
Charge for the year
At 31 March 2014
Net book value
At 31 March 2014
At 31 March 2013
Investment in joint ventures
£000
535
—
535
535
—
535
On 17 November 2008 a formal agreement was signed in India with JSW Building Systems Limited (a subsidiary of JSW Steel Limited of India)
to form a 50/50 joint venture, JSW Severfield Structures Limited, to create a structural steelwork business in Bellary and Mumbai, India,
serving primarily the Indian market.
JSW Severfield Structures Limited is registered in India and, during the year, the Company invested indirectly £3,538,000 (2013: £3,031,000) in
the joint venture. The investment is carried in Severfield–Rowen Mauritius Limited, a wholly-owned subsidiary of the Company.
Cost
At 1 April 2013
Additions
At 31 March 2014
£000
8,471
3,538
12,009
As a result of the significant loss recorded during the year, the Company’s investment in the Indian joint venture of £12,009,000 has been
reviewed for impairment. The recoverable amount of the investment is determined from value in use calculations which are based on the
following year’s budget, together with financial projections for 2016 to 2018. The calculations assume a long-term growth rate of 1.5 per cent
from 2019 onwards and a pre-tax discount rate of ten per cent. Following this review, no impairment charge was recorded in the year ended
31 March 2014. Management considers that no reasonably possible change in the key assumptions would result in an impairment; however, the
achievement of the forecasts is dependent on the move to a sustainable profit position following the actions taken in the current year to improve
the order book, to reduce overheads and to implement a new business development plan and operational improvement programme.
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www.severfield.comStock code: SFROur financials 128
Notes to the Company financial statements continued
6. Debtors
Other debtors
Amounts owed by subsidiary undertakings
Deferred tax asset (note 8)
Corporation tax recoverable
7. Creditors — amounts falling due within one year
Bank borrowings
Other creditors and accruals
Amounts owed to subsidiary undertakings
Deferred tax liability (note 8)
2014
£000
493
61,699
—
829
2013
£000
3,433
62,531
287
870
63,021
67,121
2014
£000
8,873
2,797
2013
£000
42,347
6,759
103,931
124,768
278
—
115,879
173,874
Borrowings represent the Group’s revolving credit facility from the Royal Bank of Scotland and National Australia Bank jointly as disclosed in
note 21 to the consolidated financial statements. The facility is available until November 2016.
8. Deferred tax
Excess capital allowances
Short-term timing differences
Deferred tax — movement for the year
At 1 April 2013
Current year charge
At 31 March 2014
9. Share capital
Issued and fully paid:
Amount provided
Amount unprovided
2014
£000
385
(107)
278
2013
£000
(182)
(105)
(287)
2014
£000
—
—
—
2014
£000
2013
£000
—
—
—
£000
(287)
565
278
2013
£000
297,503,587 ordinary shares of 2.5p each (2013: 89,251,076 ordinary shares of 2.5p each)
7,437
2,231
There are no share options outstanding as at 31 March 2014 (2013: nil).
The increase in share capital and share premium reflect the 7:3 rights issue of 208,252,511 new ordinary shares at 23p per share which
completed on 5 April 2013.
10. Share premium
At start of year
Proceeds from shares issued
At end of year
2014
£000
46,152
39,550
85,702
2013
£000
46,152
—
46,152
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 11. Other reserves
At start of year
Share-based payment charge
At end of year
2014
£000
377
243
620
The movement in the share-based payment reserve represents the share-based payment charge of £243,000 (2013: £58,000).
12. Profit and loss account
At start of year
Dividends paid
Net profit for the year
At end of year
13. Movement in shareholders’ funds
At start of year
Proceeds from shares issued
Dividends paid
Net profit for the year
Movement in share-based payment reserve
At end of year
14. Capital commitments
Contracted for but not provided in the financial statements
15. Contingent liabilities
2014
£000
3,012
—
10,742
13,754
2014
£000
51,772
44,756
—
10,742
243
107,513
2014
£000
—
129
2013
£000
319
58
377
2013
£000
4,646
(4,462)
2,828
3,012
2013
£000
53,348
—
(4,462)
2,828
58
51,772
2013
£000
—
The Company has provided an unlimited guarantee to secure any bank overdrafts and loans of all other Group companies. At 31 March 2014
these amounted to £nil (2013: £nil).
During the year, the Company provided an undertaking, not exceeding £3,500,000, to secure a loan facility of the Indian joing venture (JSW
Severfield Structures Limited) until 31 March 2016.
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www.severfield.comStock code: SFROur financials 130
Addresses and advisers
Registered office and headquarters
Severfield plc
Severs House
Dalton Airfield Industrial Estate
Dalton, Thirsk
North Yorkshire
YO7 3JN
Operational businesses
Severfield (UK) Limited
Severs House
Dalton Airfield Industrial Estate
Dalton, Thirsk
North Yorkshire
YO7 3JN
JSW Severfield Structures Limited
Office No. 302, Naman Centre
3rd Floor, Plot No. C-31
Bandra Kurla Complex
Bharat Nagar, Bandra East
Mumbai 400 051
India
Advisers
Auditor
Deloitte LLP
Chartered Accountants
and Statutory Auditor
1 City Square
Leeds, LS1 2AL
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London, EC2A 2HA
Irwin Mitchell LLP
21 Queen Street
Leeds, LS1 2TW
Stockbrokers
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London, EC4V 3BJ
Severfield (Design & Build) Limited
Severfield (NI) Limited
Ward House
Sherburn
Malton
North Yorkshire
YO17 8PZ
Fisher House
Ballinamallard
Enniskillen
Co Fermanagh
BT94 2FY
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions, Bridgwater Road
Bristol, BS99 7NP
Public Relations
Bell Pottinger
6th Floor, Holborn Gate
330 High Holborn
London, WC1V 7QD
Bankers
The Royal Bank of Scotland plc
3rd Floor
2 Whitehall Quay
Leeds, LS1 4HR
National Australia Bank Limited
(Yorkshire Bank)
94 Albion Street
Leeds, LS1 6AG
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plcAnnual report and accounts for the year ended 31 March 2014 This Annual Report has been printed on recycled coated Board and Paper by an FSC® (Forest Stewardship Council)
certified printer using vegetable based inks.
23372.04 16 July 2014 10:30 AM PROOF 8
Severfield plc
Severs House
Dalton Airfield Industrial Estate
Dalton, Thirsk
North Yorkshire
YO7 3JN
Tel: (01845) 577896
Fax: (01845) 577411
www.severfield.com
23372.04 16 July 2014 10:30 AM PROOF 8