Severfield Annual Report 2016

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FY2016 Annual Report · Severfield

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ANNUAL REPORT AND ACCOUNTS
FOR THE YEAR ENDED 31 MARCH 2016
STOCK CODE: SFR
WWW.SEVERFIELD.COM

H
T
W
O
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BUILDING A SOLID
PLATFORM FOR

STRENGTH

E
H
T

WITHIN ICONIC STRUCTURES

STRENGTH

E
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WITHIN ICONIC STRUCTURES

SEVERFIELD IS THE UK’S
MARKET-LEADING STRUCTURAL
STEEL COMPANY, THE HOME OF
WORLD-CLASS ENGINEERING AND DESIGN
EXCELLENCE. FOR DECADES
WE HAVE BEEN SHAPING SKYLINES
AND DELIVERING THE MODERN
BUILT ENVIRONMENT.

THE LARGEST STRUCTURAL
STEEL BUSINESS IN THE UK
AND ONE OF THE BIGGEST IN
EUROPE, SEVERFIELD OPERATES
ACROSS FOUR SITES PROVIDING
UNRIVALLED CAPACITY AND
CAPABILITY.

WE ARE FOUNDED ON STRONG
CORE VALUES, COMMITTED
TO OUTSTANDING CUSTOMER
SERVICE AND FOCUSED ON
GROWTH AT HOME AND ABROAD.

TRANSPORT

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LOCATION

LONDON BRIDGE, LONDON

CLIENT

NETWORK RAIL

MAIN CONTRACTOR

COSTAIN

ENGINEER

HYDER WSP

ARCHITECT

GRIMSHAW

TONNAGE

4,900

COMPLETION DATE

DECEMBER 2017

The redevelopment of London Bridge Station is
part of Network Rail’s £6bn Thameslink upgrade
programme and is a four year programme. Fifteen
platforms are being demolished progressively and
rebuilt whilst keeping a significant number of lines
open around the works.

The new canopies are highly architectural creating
a flowing form along the platform. Due to the tight
programme, complex geometry and site constraints,
we have developed and manufactured a prefabricated
station roof canopy system that includes steel

framed cassette structure, roof cladding and electrical
services. We partnered a cladding specialist (Prater) in the
development and delivery of the construction methodology.
The cassette system enabled the canopy structure to be
erected quickly and gave immediate access to following
trades.

The series of platform handovers have been
successfully completed, the latest being April 2016,
and the works will continue through 2017.

STADIA AND
LEISURE

LIVERPOOL FOOTBALL CLUB

MAIN CONTRACTOR

ANFIELD, LIVERPOOL

CARILLION

CLIENT

M LOCATION
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TONNAGE

ENGINEER

JULY 2016

JACOBS

4,800

KSS

ARCHITECT

COMPLETION DATE

The project involves the extension of the main
stand at Anfield stadium making it one of the
largest all seater single stands in European
football and taking the overall stadium capacity
to around 54,000.

Already visible from several points in the city,
the expanded main stand extension has been
constructed by Severfield behind and above
the existing stand, which has remained open
throughout the season. The main roof truss,
weighing over 650 tonnes and spanning 150 metres,
was lifted into position using two huge mobile

cranes. On completion of the terrace, the secondary
roof was erected using two crawler cranes in
pre-assembled pairs. The new terrace structure
provides 26,000 square metres of additional space
over seven levels at the ground which will be used
for corporate hospitality, retail, and club facilities.

COMMERCIAL
OFFICES

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LOCATION

BANK, LONDON

CLIENT

STANHOPE

MAIN CONTRACTOR

MACE

ENGINEER

WATERMAN

ARCHITECT

FLETCHER PRIEST

TONNAGE

4,400

COMPLETION DATE

SEPTEMBER 2016

Angel Court is a new 300,000 square foot office
building and 16,000 square foot restaurant
accommodation space located in the centre of
London. The project involves replacing all but the
core of a 25-storey 1970s tower in the Bank of
England conservation area.

The project required approximately 4,400 tonnes of
structural steelwork, constructed around existing
buildings in central London, to form the new tower
structure with north and south podium structures.
The steel was unloaded on-site using the Group’s
‘Seversafe’ offload system. Project works included
off-site concrete encasement of the steelwork

perimeter elevations to the north and south podium
and the production of a modular fabrication and
erection scheme for the tower roof steelwork to
reduce on-site construction time and facilitate
access for following trades at an early date.

The Group also supplied metal decking, ‘Seversafe’
edge protection and ‘Seversafe’ moveable perimeter
fans for the project.

DHL

CLIENT

CASTLE DONNINGTON,
EAST MIDLANDS

INDUSTRIAL &
DISTRIBUTION
N LOCATION
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MAIN CONTRACTOR

COMPLETION DATE

ARCHITECT

ENGINEER

TONNAGE

BARTON WILMORE/RPS

SEVERFIELD (UK)/RPS

GSE GROUP

JUNE 2016

3,000

Located at East Midlands Airport, the project
has been separated into two main areas, a new
warehouse building and the refurbishment of an
existing depot.

The new warehouse building consists of 24 bays
of portal frames, including mezzanine floor steel
with open-type flooring.

In addition, Severfield built a 3-storey office facility
that runs the full length of the warehouse, together
with a customer service building that incorporated
significant architectural features. For the
refurbishment, the Group supplied a new mezzanine
steel floor and adapted the existing structure to
create a new parcel handling facility.

Altogether, the project required the fabrication and
delivery of 3,000 tonnes of steelwork. Severfield
also provided the design for this project, including
connection design.

COMMERCIAL
OFFICES

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LOCATION

VICTORIA, LONDON

CLIENT

LAND SECURITIES

MAIN CONTRACTOR

MACE

ENGINEER

ROBERT BIRD GROUP

ARCHITECT

PLP ARCHITECTS

TONNAGE

7,100

COMPLETION DATE

DECEMBER 2015

This mixed use development is providing around
900,000 square feet of office space, modern
apartments, restaurants, bars and retail facilities.

For the project, Severfield provided the
connection design, fabrication and construction
of just over 7,000 tonnes of structural steel
which was unloaded on-site using the Group’s
‘Seversafe’ offload system.

Other services and fixtures included the metal
decking, ‘Seversafe’ edge protection, stairs and
open mesh flooring. We also supplied and installed
plunge columns for the sub-structure and
basement areas.

COMMERCIAL
OFFICES

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LOCATION

FARRINGDON, LONDON

CLIENT

LAND SECURITIES

MAIN CONTRACTOR

SKANSKA

ENGINEER

WATERMAN

ARCHITECT

ROBERT PARTINGTON AND
PARTNERS

TONNAGE

3,600

COMPLETION DATE

FEBRUARY 2016

Located near Farringdon station in London,
One New Street Square is a new commercial
development which provides 275,000 square feet
of office and ancillary space over ground, upper
ground and 14 office floors.

For the project Severfield provided connection
design, fabrication and construction of 3,600 tonnes
of structural steel. Other services and fixtures
included metal decking, shear studs and ‘off-site’
fire protection. ‘Seversafe’ edge and fan protection
systems were deployed around the whole perimeter
of the building. The Group also provided a complex
ground floor temporary works support system.

Annual report and accounts for the year ended 31 March 2016

Overview

WELCOME TO OUR
2015/16 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.

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:

(cid:228)(cid:3) Latest news and press releases

(cid:228)(cid:3) Annual reports and investor presentations

Getting around the report

This icon signposts the reader to
other sections in this report

Find out more information on our
website www.severfield.com

MARKET LEADING
UK POSITION
— well positioned
to grow across
a wide range of
construction sectors.

STRONG BALANCE
SHEET

— provides
operational and
financial flexibility.

OPERATIONAL
IMPROVEMENT
PROGRAMME

— generating steady
margin improvement.

FIVE
REASONS
TO INVEST

UNRIVALLED
EXPERIENCE

and capability in
design, fabrication
and construction of
steel structures.

ESTABLISHED
FOOTHOLD IN
THE DEVELOPING
INDIAN MARKET

— building value
through the joint
venture business.

View this annual report online:
severfield.annualreport2016.com

Severfield plc

www.severfield.com

Stock code: SFR

CONTENTS

Strategic report

Our governance

Our financials

138

Shareholder
information

Our business and strategy
Our business model

How sustainability supports our business model

Marketplace

Market sectors

Our strategy

Key performance indicators

Operating review

Financial review

Building a sustainable business

Risk management

Our governance
Board of directors

Executive committee

Chairman’s letter

Corporate governance report

Audit committee report

Nominations committee report

Directors’ report

Directors’ remuneration report

— Letter from the committee chairman

— Policy

— Implementation

Directors’ responsibilities statement

Our financials — Group
Independent auditor’s report

Consolidated income statement

Consolidated statement of comprehensive income 96

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the consolidated financial statements

Five year summary

Financial calendar

Our financials — Company
Company balance sheet

Company statement of changes in equity

Notes to the Company financial statements

Shareholder information
Addresses and advisers

100

130

131

132

133

138

Annual report and accounts for the year ended 31 March 2016

Strategic report / Overview

CONTENTS

O
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Overview
Severfield snapshot

Highlights

Chairman’s introduction

Our locations

Severfield plc

www.severfield.com

Stock code: SFR

SEVERFIELD SNAPSHOT

E OUR VISION

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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.

OUR VALUES
Safety
There’s a reason it’s 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.

Customer focus
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.

OUR BUSINESS MODEL
We manage every aspect 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.

See more in our business
model on page 14

Design

Fabricate

Construct

RESOURCES AND RELATIONSHIPS
There are four main areas where our business model impacts on society and
where we have responsibilities that extend beyond financial performance:

Read more on building a
sustainable business
on page 42

SAFETY, HEALTH AND
ENVIRONMENT

SUSTAINABILITY

PEOPLE

COMMUNITIES

ITIT
WHERE WE DO IT
DDOO
WE WE
RE WRE W
WWHHERER
OUR GROUP
UPUP
RROO
R GR G
OOUU

See more in our locations
on page 10

EE
WHO WE SERVE
RVERVE
SSEE
WEWE
WWHHOO
MARKETS
SS
ETET
RKRK
MAMA

SEVERFIELD (UK)
Dalton, North Yorkshire and
Lostock, Lancashire

SEVERFIELD
(DESIGN & BUILD)
Sherburn, North Yorkshire

SEVERFIELD (NI)
Enniskillen,
Co. Fermanagh

JSW SEVERFIELD
STRUCTURES
Mumbai, India

Our state-of-the-art facilities provide steel structures which
serve people every day, whether for work, leisure or travel, or to
provide essential services, including power and energy, health
and education. We have extensive experience in multiple market
sectors, which supports the business through changes in spending
patterns and fluctuations in macroeconomic conditions.

Read more about our strategy on
page 22

Governance
The board remains committed to
the highest standards of corporate
governance. During the year, the board
and audit committee were involved in
continuing consideration of, and work
related to, risk appetite, the monitoring
and disclosure of risk and the new viability
statement following the revisions in 2014
to the UK Corporate Governance Code.

Read our corporate governance
report on page 63

Outlook
We have continued to make excellent
progress on the delivery of our strategic
objectives during the year. The Group’s
order book is currently at its highest
level for over six years, our operating
cash flow is strong and we are achieving
continued success from our operational
improvement programme. All of this
positions us well to make further progress
in 2016/17.

John Dodds
Non-executive chairman
15 June 2016

Severfield plc

www.severfield.com

Stock code: SFR

OUR LOCATIONS

THE GROUP OPERATES ACROSS FOUR SITES PROVIDING UNRIVALLED CAPACITY
AND CAPABILITY. WE ALSO HAVE AN OPERATION IN INDIA, WHICH FORMS PART
OF OUR INTERNATIONAL GROWTH PLANS. WE CAN FACILITATE THE PRODUCTION
OF A WIDE RANGE OF STEELWORK PACKAGES, FROM PROJECTS REQUIRING
ADDED VALUE ENGINEERING CONTENT TO BASIC STRUCTURAL WORK.

Severfield (NI) Limited
Severfield’s base in Northern Ireland has a strong
reputation for delivering quality constructional steel
products in the UK and Irish structural steel market. It has
a 60 year association with the steelwork industry through
its background as Fisher Engineering and has contributed
to such notable projects as South Bank Tower in London,
Dundrum Shopping Centre in Dublin and Belfast’s Odyssey
Arena and Titanic Signature Building.

The facility provides full-service capabilities and is
equipped with the latest state-of-the-art manufacturing
processes. The company’s highly skilled workforce includes
a directly employed site construction team.

Capacity:25,000
,

tonnes per year
Number of employees:

c.300

Severfield (UK) Limited
The company 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 the most extensive product range and capability in the industry and its own highly skilled
site construction teams. The company’s clients include contractors (Brookfield, BAM, Laing O’Rourke, Sir Robert McAlpine, MACE, Morgan
Sindall, Skanska and Balfour Beatty), and developers (Stanhope, Hammerson, British Land, Land Securities and Grosvenor). The company has
also developed structures for project owners such as Network Rail, BAA and Sellafield.

Capacity:75,000
,

tonnes per year
Number of employees:

c.450
Capacity:25,000
,

tonnes per year
Number of employees:

c.300

Dalton, North Yorkshire
This facility boasts 10 state-of-the-art production lines (including the use of
FABSEC® and FIREBEAM® technology) 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.

Lostock, Lancashire
This is one of the UK’s largest structural steelwork sites, with a history dating back to
1933. The facility is internationally respected for its advanced design and engineering
skills, having had a hand in many iconic and unique constructions. It 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.

Annual report and accounts for the year ended 31 March 2016

Overview / Our locations

See more on our performance
in the operating review on
page 30

Severfield (Design & Build) Limited
The company, 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. It also operates a
specialist steel stair and metalwork division and applies
its expertise in the commercial, residential, health and
education sectors.

Capacity:25,000
,

tonnes per year
Number of employees:

c.250

JSW Severfield Structures Limited

MUMBAI — Head office

BELLARY — Production plant

BANGALORE — Sales representation

DELHI — Sales representation

Capacity:60,000
,

tonnes per year

Number of employees:

c.600

The company, a joint venture with JSW Steel (India’s largest
steel producer), which is situated in the district of Bellary,
Karnataka, India, is involved in the design, fabrication and
construction of structural steelwork to principally service the
growing Indian market. Successes to date include prestigious
projects for companies such as Reliance Industries, ITC,
NetApp, Siemens, Doosan, L&T, Indiabulls, Prestige, P&G,
Michelin and OPG Power.

Its state-of-the-art facility consists of two fabrication lines,
a plate (INDISEC®) line, a smaller welded beam line, a bit
shop and a bay to provide bespoke off-line heavy fabrication,
tubular products, specialised multi-coat painting and further
bogey line fabrication. Off-line facilities are available to
manufacture hand-railing, stairs and other ancillary products.

The facility has been designed to optimise product range,
quality and productivity, and incorporates cutting-edge
technology and processing equipment.

Severfield plc

www.severfield.com

Stock code: SFR

Annual report and accounts for the year ended 31 March 2016

Strategic report

CONTENTS

Strategic report

Our business and strategy
Our business model

How sustainability supports our business model

Marketplace

Market sectors

Our strategy

Key performance indicators

Operating review

Financial review

Building a sustainable business

Risk management

S
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Severfield plc

www.severfield.com

Stock code: SFR

OUR BUSINESS MODEL

OUR CUSTOMERS

Clients serviced by the Group cover
a broad range of disciplines from
contractors and developers, to engineers
and architects.

WHY THEY WORK WITH US

The Group’s competitive advantage derives from our scale,
client focus, flexibility, experience, cost base, productivity,
supply chain strengths and integrated approach from design
to construction.

OUR SERVICES

We manage every aspect 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.

Design

Fabricate

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.

The Group’s fabrication facilities include expansive stockyard
areas and in-line cutting, fabrication, welding and painting
and some of the largest finished goods and subassembly
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. Our equipment is fed with numerical control data
which optimises output and minimises waste and errors.

The FABSEC® production line at Dalton 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.

RESOURCES

PARTNERS

The Group 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 1,300 staff including an in-house construction team.
We have the design, experience and engineering skills to
serve a diverse range of market sectors. The dedication,
expertise and experience of our workforce ensure that
we offer more skills and variety than any other UK steel
contractor.

The Group spends a high percentage of its operating
costs 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.
We engage with clients and the supply chain wherever
we operate and long-term relationships are forged with
partners who meet our commitment to quality and
sustainability.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Our business model

SEVERFIELD PLC IS THE UK’S MARKET-LEADING STRUCTURAL STEEL GROUP,
SERVING THE CONSTRUCTION AND INFRASTRUCTURE MARKETS.

SUSTAINABLE INVESTMENT

We are continually investing in our business
in order to preserve our ability to generate
value in the short, medium and long term.

Read more on how sustainability supports
our business model on page 16

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.

HEALTH AND SAFETY FOCUS

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.

See more on how sustainability supports our
business model on page 16

VALUE GENERATION

The Group’s operational improvement programme,
the objective of which is to improve risk assessment
and operational and contract management
processes, is central to the generation of value.

Our activities generate the following types
of value:

Financial
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. Steel purchases are only
made for secured contracts in order to maximise
working capital positions. Good cash generation
and balance sheet management provide a solid
foundation for the Group.

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.

Customer
We approach every project, from the highly
technical to basic structural work, with the same
level of safety, professionalism, commitment,
care and customer service.

Employee
We are committed to matters of health and safety,
sustainability, ethics and staff engagement. We
ensure our employees are trained so they are skilled
and qualified for their occupation and therefore can
contribute to performance.

Society
We are committed to minimising our impact on the
national environment and local communities, as
well as maintaining sustainable practices in all our
disciplines.

Severfield plc

www.severfield.com

Stock code: SFR

HOW SUSTAINABILITY SUPPORTS
OUR BUSINESS MODEL

SUSTAINABILITY UNDERPINS OUR MODEL, FROM ENSURING THE HEALTH
AND SAFETY OF OUR EMPLOYEES, CLIENTS, SUPPLIERS AND
SUBCONTRACTORS, TO MINIMISING OUR ENVIRONMENTAL IMPACT.

Design

Fabricate

Construct

Sustainability
We are committed to minimising the environmental impact of
our business through sustainable practices and continuous
improvement of our environmental performance. Significant
progress has already been made in areas such as carbon
management, transport policy and strategy, renewable energy
and the responsible sourcing of materials.

We have achieved the Carbon Trust Standard for reducing CO2
emissions year-on-year and were the first steel fabrication
contractor to gain the BREEAM BES 6001 best practice
standard for the responsible sourcing of materials. We have
also successfully gained the Gold Membership Standard
of the Steel Construction Sustainability Charter. This is a
milestone achievement recognising our sustainability policies,
community engagement, energy and environmental policies,
and wider corporate social responsibility (‘CSR’) practices.

Our continued investment in technology will ensure the future
growth of the business. Our increasing cash resources will
enable us to invest wherever required in order to continue
driving efficiency and improvements in service, adding value
for our customers.

See more on sustainability in building a sustainable
business on page 42

Health and safety
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, safety and environmental
management.

The values below support our health and safety policy and
establish the areas that are essential to achieving our main
goal, namely to ensure that all employees 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.

Hazards, 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.

Incident analysis 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 in order to construct the structure safely and more
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.

See more on health and safety in building a
sustainable business on page 42

Annual report and accounts for the year ended 31 March 2016

Strategic report / How sustainability supports our business model

Quality and accreditations
Quality assurance is a fundamental feature across all of our
operations. 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.

Quality systems (including welding quality systems) approved
by the British Constructional Steelwork Association (‘BCSA’),
Steel Construction Certification Scheme (‘SCCS’) and
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
principle 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.

Innovation
Innovation plays an important role in winning work, building
long-term relationships and creating additional value for our
stakeholders. The Group’s continued expertise in creating
innovative solutions at a project level enables our clients to
realise their architectural visions.

FABSEC®, which is utilised in our Dalton facility, 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 Group has also developed a unique safety handrail
solution (Seversafe®) and a tool-tethering system to help
us maintain our high standards of health and safety and to
minimise the risk of incidents on our sites.

See more on our strategy
on page 22

Severfield plc

www.severfield.com

Stock code: SFR

MARKETPLACE

THE GROUP’S STRATEGIC FOCUS IS TO INCREASE ITS UK MARKET SHARE
FROM CONSTRUCTION ACTIVITIES, TO ENTER NEW MARKET SECTORS AND
TO WIDEN OUR GEOGRAPHICAL SPREAD INTO EUROPE AND BEYOND.

Group production:

85,000

tonnes

Group potential capacity:

150,000

tonnes

Total UK production of structural
steelwork:

937,000

tonnes

Marketplace
The current available capacity for the
structural steel industry in the UK,
estimated by the British Constructional
Steel Association (‘BCSA’), is between
1.1 million and 1.3 million tonnes.
This compares to UK structural steel
production for calendar year 2015 of
937,000 tonnes, which equates to a total
value of approximately £1.7 billion.

The Group’s potential production
capability is approximately 150,000
tonnes, which represents 12 per cent to
14 per cent of the current estimated

capacity of the UK market. Its current
share of the market is approximately
85,000 tonnes (2014: 75,000 tonnes),
resulting in a total UK market share for
2015 of c.9 per cent (2014: c.8 per cent).

The increase in the Group’s market share
during the year mainly reflects a growing
order book and an improved UK market
position. The increase in market share
has been achieved notwithstanding
our continued ability to decline work
where the pricing is not considered
economic, where terms and conditions
are unacceptable to us or where there is
insufficient allowance for risk.

Our sectors
The market sectors targeted by the Group, and their estimated size in tonnes during
2015, are shown below:

21,000
2%

42,000
4%

90,000
10%

34,000
4%

50,000
5%

Industrial and distribution

Infrastructure (including bridges)

Stadia and leisure

Health and education

Commercial offices

Power and energy

Retail

Other

Exports

98,000
11%

TOTAL MARKET
TONNAGE (2015)
937,000
TONNES

410,000
44%

125,000
13%

67,000
7%

Source: BCSA

Annual report and accounts for the year ended 31 March 2016

Strategic report / Marketplace

Outlook
Market conditions continued to improve during the
year but pricing generally remains competitive. This
notwithstanding, there are continuing signs that
clients are now looking beyond price and focusing
on quality of service and project delivery, which are
areas of strength for the Group.

In 2016, the overall construction market, which
consists of three sectors (housing, non-residential,
and repairs and maintenance), is estimated to
grow by 2.0 per cent on the previous year. The
Group principally operates across the industrial,
commercial and infrastructure markets (within the
non-residential sector) which are estimated to have
a growth of 3.6 per cent, outpacing the wider market.

Furthermore, forecasts for the next four years,
prepared by the BCSA, show an expected increase
in UK structural steel demand, particularly in the
Group’s key markets.

UK order book
The Group has a very healthy, well-diversified order
book of £270m (June 2016) which represents
approximately nine months of forward production
capacity. The order book has increased significantly
during the year and is now at its highest position
for over six years, reflecting the improved market
conditions and our position as market leader. The
contract mix within the order book continues to
reflect our focus to diversify our project portfolio
across different sectors and geographies.

Pipeline/prospects
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 contract opportunities is
encouraging and includes prestigious developments
in the commercial offices, industrial and distribution
(warehousing), transport and retail sectors.

39%

27%

UK ORDER BOOK
JUNE 2016
£270m

11%

33%

UK ORDER BOOK
NOVEMBER 2015
£185m

17%

27%

Commercial offices

Power and energy

Transport (including
bridges)
Industrial and
distribution
Stadia and leisure

Data centres and other

Retail

Health and education

Severfield plc

www.severfield.com

Stock code: SFR

MARKET SECTORS

WE HAVE THE DESIGN SKILLS, ENGINEERING SKILLS AND EXPERIENCE
TO HANDLE COMPLEX PROJECTS OVER A DIVERSE RANGE OF MARKET
SECTORS, WHETHER FOR WORK, PLAY, TRAVEL OR TO PROVIDE ESSENTIAL
INFRASTRUCTURE.

Key:

General market future trends

upward trend

downward trend

Core infrastructure sectors

Our expertise includes international airports, road and rail facilities and bridges. Many of the structures we
create become famed landmarks in their own right. Services range from design, planning and high-volume steel
supply, to fabrication and construction. As a key element of the UK’s infrastructure, bridge building requires
skill, precision and quality on a large scale. Our growing bridge business has a strong reputation and extensive
experience in the successful delivery of all types of bridgework, including major transport routes.

Successes
Multiple contracts with Heathrow Airport, London Bridge,
Manchester Victoria and Birmingham New Street Stations, Ordsall
Chord (link bridge between Manchester’s Victoria and Piccadilly
stations).

Group market share
(for infrastructure including bridges)

5–10%

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.

Successes
Essex and Milton Keynes waste treatment plants, Peterborough and
Covanta (Dublin) Waste to Energy plants, Carrington Power Station,
Port of Liverpool Biomass Terminal.

Group market share

5–10%

T
R
O
P
S
N
A
R
T

D
N
A
R
E
W
O
P

Y
G
R
E
N
E

We have a long history of 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.

Successes
Francis Crick Institute, Nigeria Syringe Factory, University of
Strathclyde, Victoria and Albert Museum (Dundee), Kings College
Hospital.

Group market share

<5%

D
N
A
H
T
L
A
E
H

N
O

I
T
A
C
U
D
E

Annual report and accounts for the year ended 31 March 2016

Strategic report / Market sectors

Core construction sectors

L
A
I

C
R
E
M
M
O
C

S
E
C

I
F
F
O

D
N
A
L
A
I
R
T
S
U
D
N

N
O
I
T
U
B
R
T
S
D

D
N
A

A
I

D
A
T
S

E
R
U
S

I
E
L

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 world. We ensure our structural steel methods,
products and processes keep up with the needs and challenges of this rapidly evolving sector.

Successes
The Shard, Leadenhall Tower, 5 Broadgate, Moorgate Exchange, Aldgate Tower,
Nova Victoria, New Street Square, South Bank Tower, Principal Place, One Angel
Court.

Group market share

20–30%

The Group is a trusted partner to the industrial, warehousing and distribution industries, 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.

Successes
Major contracts for BMW, Unilever, Sports Direct, Ocado, ASDA, Sainsbury’s,
Prologis, Gazeley, Jaguar Land Rover and DHL.

Group market share

10–20%

Stadia 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 sporting hubs. 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.

Successes
Paris Philharmonic Hall, First Direct (Leeds) Arena, Olympic Stadium, Arsenal FC
(Emirates Stadium), Wimbledon Centre Court (roof), Liverpool FC (redevelopment of
Anfield Stadium) and Manchester City FC (south stand redevelopment).

Group market share

40–50%

L
I
A
T
E
R

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.

Successes
Bradford’s Westfield Shopping Centre, Hereford Old Livestock Market, Birmingham John
Lewis, Bracknell’s The Lexicon and projects for ASDA, Sainsbury’s, Tesco, Morrisons and
Costco.

Group market share

10–20%

S
E
R
T
N
E
C

A
T
A
D

R
E
H
T
O
D
N
A

Data centres are an ever growing part of the business world. In recent years, they have become increasingly
important to businesses of all sizes as they look for cost-effective alternatives to high in-house IT and other costs.
With a large proportion of data centres being specified in steel, the Group is well placed to meet the needs of this
rapidly expanding sector, and our cost, speed and flexibility have resulted in several key contract awards.

Successes
London Data Centre (Slough), Microsoft (Amsterdam), Telehouse (London) and
Amazon (Dublin).

Group market share

<5%

Severfield plc

www.severfield.com

Stock code: SFR

OUR STRATEGY

OUR VISION IS TO BE RECOGNISED AS WORLD-CLASS LEADERS IN STRUCTURAL
STEEL. WE WILL DELIVER THIS VISION THROUGH THE GROUP’S STRATEGY WHICH
IS SUPPORTED BY A FOCUS ON FIVE KEY ELEMENTS.

Growth

Clients

Our strategy:
Building a solid
platform for growth

Operational
excellence

People

India

See how we performed against our
strategy on page 24

Growth

In the short to medium term, our aim is to capitalise on growth opportunities both
in the UK and in overseas markets.

Operational excellence

Our emphasis is on delivering high quality products and reducing costs by driving
excellence through our core business processes.

Clients

People

India

By understanding, anticipating and responding to client needs we aim to build secure,
sustainable and mutually valuable relationships and create lasting client satisfaction.

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.

We continue to believe that the Indian market presents great opportunities for
steel fabrication.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Our strategy

WE ARE WELL PLACED TO CONTINUE
DELIVERING AGAINST OUR NEAR-TERM
FINANCIAL TARGETS WHILST CONTINUING TO
BUILD FOR THE LONGER TERM.

Ian Lawson
Chief executive officer

What were the highlights of

2015/16 for you?

It has been a year of strong
progress on a number of fronts.
Underlying profit before tax has
increased by 59 per cent, our cash
flow has been excellent resulting
in net funds of nearly £19m and
our order book has grown to
£270m. We have also achieved the
5 to 6 per cent margin target that
we set ourselves three years ago.

What are your strategic priorities

over the next few years?

Our target is to double our
underlying profit before tax
over the next four years. We
believe that this is achievable
through continuing to implement
our strategy in areas such
as continued operational
improvement and further
developing new markets, moving
into both new sectors and
geographies, where we can bring
our skills and can add real value.

What is your plan for the Indian

joint venture?

The Indian business has come a
long way over the last two years.
Our plan is to maintain stability
in the business together with
continuing the conversion of the
market from concrete to steel. We
believe that these, in combination,
will continue to build long-term
value.

What’s next for Severfield?

With our current order book and
pipeline, and continued stable
market environment, we are well
placed to continue delivering
against our near-term financial
targets whilst continuing to
build for the longer term. We will
continue to do what we do best,
by seeking to add value for our
clients across a variety of sectors
and markets and by continuing to
improve on our good progress to
date.

Looking at your pipeline, what’s
coming up in terms of sectors?

Infrastructure is presenting good
opportunities as we expect to
see growth in this market over
the coming years. We are very
pleased with the inroads that
we have already made into this
market, taking advantage of our
enhanced bridge capability. We are
also seeing a continuing demand
for industrial warehousing and
commercial offices in the regions
rather than purely in London.

See more from our chief executive
officer in the operating review on
page 30

Severfield plc

www.severfield.com

Stock code: SFR

OUR STRATEGY

In 2015/16, the progress that we have made in delivering our strategy, together with how this strategy has been further developed,
is set out below:

Growth

Links to KPI: 1

In the short to medium term, our aim is to capitalise on growth opportunities both in the UK and in overseas
markets.

Strategic priorities

Achievements in 2015/16

Objectives for 2016/17

Increase UK market
share — growing
profitable market share in
areas where the business
already operates.

We have grown Group revenues by 19 per cent and
the order book (which currently stands at £270m)
by 46 per cent in 2015/16, taking advantage of
the Group’s position in the improving UK market
environment.

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
— driving more
opportunities from
European contractors
with whom we have strong
relationships in the UK.

We have continued to focus on larger projects
within our target markets, playing to our strengths
of capability and capacity (including new orders for
Goldman Sachs, Tottenham Hotspur FC, BAE Systems
and Wimbledon (new roof for number one court)).

We have grown our bridge operations in 2015/16
facilitated, in part, by the recruitment of the legacy
Mabey Bridge infrastructure team in 2014/15.

Our acquisition of a 50 per cent stake in CMF has
provided us with a direct interest in the manufacture
of metal decking and cold-formed steel products.
Following this investment all of the Group’s
metal decking requirements will come from CMF,
strengthening the supply chain.

We have undertaken significant research work to gain
greater knowledge of target markets, particularly in
Europe and the UK.

To further grow Group revenues and
maintain the quality of the order book.

Continue to focus on enhancing our position
in existing UK markets where the Group
already has specialist expertise (at good
margins and with acceptable levels of risk).

Increase focus on new UK markets including
exploring regional and mid-market
prospects and the development of further
cold-formed steel opportunities in CMF.

Together with the continued expansion of
our bridge capability, we also have a targeted
approach with key UK infrastructure
project owners to exploit identified growth
opportunities (infrastructure and bridge
markets).

Evaluate opportunities within European
markets which are showing ‘green shoots’ of
improvement including assessment of the
most appropriate European delivery model.

Review growth opportunities in the rest of
the world.

Key performance indicator reference number:

1 Underlying operating profit and margin

2 Underlying basic earnings per share (‘EPS’)

3 Revenue growth

4 Operating cash conversion

5 Return on capital employed (‘ROCE’)

6 Order book

7 Accident frequency rate (‘AFR’)

Annual report and accounts for the year ended 31 March 2016

Strategic report / Our strategy

Operational excellence

Links to KPI: 1

Our emphasis is on delivering high quality products and reducing costs by driving excellence through our core
business processes.

Strategic priorities

Achievements in 2015/16

Objectives for 2016/17

Drive operational
improvements and
efficiencies — the
objective of our
comprehensive
operational improvement
programme is to
improve the Group’s
risk assessment,
operational and contract
management processes.

Invest in market-leading
technology — we will
make this investment in
the short and medium
term in order to support
the Group’s ongoing
requirements and for
growth.

We have recorded an underlying operating margin
of 5.7 per cent, which is towards the top end of our
strategic target of a range of 5 to 6 per cent by the
end of 2015/16. This reflects our ongoing focus on
all aspects of internal operations and the underlying
margins on individual orders which have continued to
improve over the past financial year.

2015/16 operating margins have also benefited
from lower levels of volatility in the Group’s contract
portfolio, particularly as a result of the improvements
made to operational processes and effective site
execution.

These operational improvements were also
evidenced in the Group’s operating cash flow of
£24.8m, which has increased by 118 per cent in
2015/16. Operating cash conversion in 2015/16 was
145 per cent.

The Group’s improvement programme has included
further capital investment in 2015/16 of £5.0m in our
factories and construction site plant and equipment,
coupled with IT systems improvements. This will
benefit the Group both now and in the future.

Given the strength of the platform from
which the Group now operates, our target
is to double our underlying profit before tax
over the next four years.

To continue embedding operational
efficiencies through improved contract
and commercial management processes
and improved flow of steelwork processes
through our factories.

This improved profitability will continue to
generate surplus cash flows and support
future dividends, in accordance with the
Group’s business model.

As part of the Group’s capital investment
programme, we will continue to invest
at levels in excess of depreciation. This
will include focused capital expenditure
to target market opportunities and to
maximise the benefits of our information
technology (IT) programme.

We will continue to invest in new state-of-
the-art manufacturing technology to help
drive production efficiencies and to expand
the capital equipment base where there is a
strong return on investment case.

We will continue to upgrade and replace
existing equipment where appropriate.

Severfield plc

www.severfield.com

Stock code: SFR

OUR STRATEGY

Clients

Links to KPI: 1

By understanding, anticipating and responding to client needs we aim to build secure, sustainable and mutually
valuable relationships and create lasting client satisfaction.

Strategic priorities

Achievements in 2015/16

Objectives for 2016/17

Quality of service — 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.

We have continued to develop our relationships
with key clients during the year, the benefit of which
is evidenced in the improved order book position.
Our increased emphasis on client engagement has
led to regular contact with key clients on market
developments and future business opportunities.

We have also focused on strengthening relationships
with our wider client base to develop our pipeline of
opportunities in both existing and adjacent markets.

Client retention is vital to our organic growth
plans and we will continue to ensure that
the customer is at the centre of everything
we do.

We will focus on opportunities to improve
client satisfaction, build on existing client
relationships and develop new relationships.

We will continue to seek to engage with our
clients at an early stage to enhance our
understanding of their requirements and to
add value throughout the project life cycle.

India

Links to KPI: 2

We continue to believe that the Indian market presents great opportunities for steel fabrication.

Strategic priorities

Achievements in 2015/16

Objectives for 2016/17

Sustainability of India –
our aim is to ensure that
the business develops
a sustainable position
whilst the market
continues its conversion
to steel.

The performance of the joint venture has remained
steady during the year, despite the challenging Indian
market conditions.

Our aim for India remains to continue to grow the
business and to build value for our shareholders.

We will continue to embed our operational
improvement programme and focus on
business development opportunities,
particularly with key clients in targeted
market sectors.

We aim to strike the appropriate balance
between commercial and industrial projects
to ensure that production continues to
remain at satisfactory levels whilst we focus
on improving the operating margin.

We will also continue to evaluate
geographically proximate export
opportunities to support the existing order
book and pipeline.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Our strategy

People

Links to KPI: 1

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.

Strategic priorities

Achievements in 2015/16

Objectives for 2016/17

Develop our people –
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.

We will continue to prioritise investment in
our people to ensure a healthy pipeline of
talent to achieve our strategic goals.

We will build sustainable leadership
capability within our next generation of
leaders through the Severfield Leadership
Programme.

We will implement an integrated Group-wide
HR information system that will enable us
to make better people-related decisions
across the business.

We will continue our behavioural safety
training and awareness programme, the
objective of which is to have a significant
and lasting benefit on the Group’s safety
culture.

We are committed to a target of zero injuries
and we will continue to apply the highest
standards in health and safety across all
operations in order to further improve the
Group’s AFR.

We recruited 178 people across the Group and in
particular strengthened our bridge engineering
capability and increased the number of directly
employed steel erectors.

We also made the following key appointments:

(cid:228)(cid:3) Group business improvement director

(cid:228)(cid:3)

Technical director (Severfield UK)

(cid:228)(cid:3) Group learning and development manager

(cid:228)(cid:3) 27 apprentices/trainees

We also made a number of promotions during the
year (including at director grade) demonstrating our
commitment to developing our own talent.

We conducted a Group-wide review of emerging
talent to ensure consistency and visibility of talent,
succession planning and career opportunity.

We extended our performance share plan to our
wider director population in order to support buy in to
the long-term success of the business and assist in
management retention.

We commenced roll-out of an extensive behavioural
safety training and awareness programme.

We enhanced our Group-wide performance
development review (‘PDR’) processes and
implemented new leadership, management and
professional development programmes (see building
a sustainable business on page 45 for further details).

See our KPIs on
page 28

Read more about risk management
on page 48

Read the operating review on
page 30

Severfield plc

www.severfield.com

Stock code: SFR

KEY PERFORMANCE INDICATORS

Reference
number

KPI

Our performance

Why this is important

Underlying
operating profit
and margin

2016

2015

£9.0m
at 4.5%

£13.7m
at 5.7%

This is the principal measure used to assess
the success of the Group’s strategy.

Operating profit has increased by 52%, reflecting
increased revenues and an increase in the margin
of 1.2%

Underlying basic
earnings per
share (‘EPS’)

2016

2015

3.67p

2.31p

EPS growth was 59%

Revenue growth

2016

2015

£239.4m

£201.5m

This KPI is new for 2015/16.

Revenue has increased by 19% reflecting market
growth and better pricing.

Operating cash
conversion

2016

2015

145%

107%

Cash conversion has improved by 38%. Cash
conversion exceeds the Group’s targets in both
2014/15 and 2015/16.

Return on capital
employed
(‘ROCE’)

2016

2015

9.7%

6.1%

ROCE has improved by 3.6%.

Order book

2016

2015

£270m

£185m

The order book has increased by 46% since
November 2015.

Accident
frequency rate
(‘AFR’)

2016

2015

0.25

0.21

The AFR remains within the Group’s target for
2015/16 of 0.28.

We are focused on driving growth in operating
profit in order to drive higher and sustainable
returns for our investors.

EPS is one of the key metrics in measuring
shareholder value and a performance condition
of the Group’s performance share plan (‘PSP’).

The measure reflects all aspects of the income
statement including the performance of India
and the management of the Group’s tax rate.

This is a key measure for the business to
track our overall success in specific contract
activity, our progress in increasing our market
share and our ability to maintain appropriate
pricing levels.

Cash is critical for providing the financial
resources to develop the Group’s business
and to provide adequate working capital to
operate smoothly.

This measures how successful we are in
converting profit to cash through management
of working capital and capital expenditure.

ROCE measures the return generated on the
capital we have invested in the business and
reflects our ability to add shareholder value
over the long term.

We have an asset-intensive business model
and ROCE reflects how productively we
deploy those capital resources.

The order book is a key part of our focus on
building long-term recurring revenue. It is an
important measure of our success in winning
new work.

Whilst the revenue within the order book
is reported externally, the margin inherent
within the order book is monitored internally
to provide visibility of future earnings.

This is an industry-standard 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.

Our KPIs for profitability, AFR and cash flow generation are linked to our performance share plan and annual incentive arrangements to ensure that the
remuneration of our directors is aligned with our strategic priorities.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Key performance indicators

OUR GOAL TO DELIVER LONG-TERM SHAREHOLDER VALUE DRIVES OUR STRATEGIC PRIORITIES. WE MEASURE OUR PERFORMANCE
THROUGH A BALANCED SET OF KEY PERFORMANCE INDICATORS THAT ARE BOTH FINANCIAL AND NON-FINANCIAL. THEY REFLECT OUR
STRATEGIC PRIORITIES OF GROWING AND INVESTING IN THE BUSINESS AND DRIVING ONGOING EFFICIENCIES THAT WILL LEAD TO
SUSTAINABLE SHAREHOLDER RETURNS, SUPPORTED BY SAFE AND RESPONSIBLE WORKING PRACTICES.

How we calculate

What we target

Underlying operating profit is defined as operating profit
before other items and before the results of JVs and associates
(principally the Indian joint venture).

Underlying operating margin is calculated as underlying operating
profit expressed as a percentage of revenue.

Our target is to double underlying profit before tax over the
next four years.

Our ongoing aim is to generate steady margin improvement
in 2016/17 and beyond.

EPS is calculated as underlying profit after tax divided by the
weighted average number of shares in issue during the period.

Our aim is to maximise sustainable EPS growth.

This represents the year-on-year percentage change in revenue
from Group operations as reported in the accounts. The effects of
acquisitions and disposals will be removed from this measure.

To grow revenue year-on-year in line with our strategic
objectives.

Operating cash conversion is defined as cash flow generated from
continuing operations after capital expenditure (before interest
and tax) expressed as a percentage of underlying operating profit.

We target a conversion rate of 85% as a base level of
achievement, subject to future capital investment made to
position the Group for further growth.

ROCE is calculated as underlying operating profit plus share of
post-tax results from JVs and associates divided by the average of
opening and closing capital employed.

Capital employed is defined as shareholders’ equity excluding
retirement benefit obligations (net of tax), acquired intangible
assets and net funds.

We aim to deliver ROCE which is in excess of 10 per cent
over the whole economic cycle.

Our order book shows the total value of future revenue secured by
contractual agreements.

We aim to build a growing order book in line with our
strategy.

AFR is 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.

We are committed to a target of zero injuries in the medium
term. The Group’s AFR target for 2016/17 is 0.28.

Severfield plc

www.severfield.com

Stock code: SFR

OPERATING REVIEW

OUR INCREASED PROFITABILITY IS AS A RESULT OF OUR FOCUS
ON OPERATIONAL IMPROVEMENTS AND EFFICIENCIES OVER
THE LAST THREE YEARS.

Group overview
This has been a year of strong progress
for the Group on a number of fronts.
Underlying profit before tax has increased
by 59 per cent to £13.2m (2015: £8.3m)
on revenue which has increased by 19
per cent to £239.4m (2015: £201.5m). The
performance of the Indian joint venture
has remained relatively stable with the
Group’s share of losses similar to the prior
year at £0.3m (2015: £0.2m). Our cash flow
has been excellent with operating cash
conversion of 145 per cent (2015: 107 per
cent) and year-end net funds increasing
to £18.7m (2015: £6.4m) whilst funding a
further increase in the Group’s investment
programme.

The underlying operating margin has
increased from 4.5 per cent to 5.7 per
cent thereby achieving the 5 to 6 per
cent target set three years ago at the
time of the rights issue, when the Group
had just announced a significant loss.
During the past three years, the Group
has implemented a simpler, more
integrated organisational structure, has
strengthened management across the
whole organisation and has improved
its performance demonstrably across
a number of areas, including risk
management, tendering discipline,
operational efficiency and contract
execution. All of the actions taken to
implement these improvements leave the

Group well placed for the next phase of its
growth and development.

Based on the continued progress made
by the Group during the year, I am pleased
that the board is recommending an
increase in the final dividend to 1.0p per
share, making a total for the year of 1.5p
per share.

UK review
At the time of the rights issue in 2013,
an underlying operating margin target
of 5 to 6 per cent was set for the current
financial year. It is pleasing that this has
been achieved with a margin of 5.7 per cent
delivered in the year (2015: 4.5 per cent).
In conjunction with this improvement, the

THE ORDSALL CHORD, MANCHESTER

The Ordsall Chord project is a major investment
by Network Rail to provide a rail link directly from
Manchester Victoria to Manchester Piccadilly
stations. The Group is providing 3,400 of structural
steelwork for the project.

In order to connect the station there are a series of
obstacles that require seven rail bridges. The project
also includes an architectural footbridge over the river
Irwell.

The main structure is the rail bridge over the river
Irwell and this is a complex arch bridge which
has been blended into the adjacent structure via
architectural S shape.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Operating review

Group has returned to revenue growth,
with £239.4m being achieved in the year,
an increase of 19 per cent on the prior year
level of £201.5m. As a result of this revenue
and margin improvement, underlying
operating profit (before the share of results
of JVs and associates) has improved by 52
per cent to £13.7m (2015: £9.0m).

This performance provides further
evidence of the improvements made to
the business over the past three years.
This includes a simpler organisational
structure focused around three main
business units, greater strength and
depth in the management structure, and
an operational improvement programme
which has focused on three broad areas
– risk assessment, operational processes
and contract management processes.

This programme has resulted in improved
tender disciplines and risk assessment,
and better management throughout a
project’s life by improving operational
efficiency and our execution of contracts.
Whilst the initial target of a 5 to 6 per cent
underlying operating margin has now
been achieved, the opportunity for further
progress in the business can also be seen
with greater clarity.

Underpinning this continuing
improvement is an increasing focus
on the training and development of
our people. Our senior management
team has now been stable for over
18 months and we are continuing to
strengthen the individual functions
across the organisation. More effort,
time and cash is also being invested

in staff training and development, and
leadership development for both existing
and future leaders. We have established
a relationship with Nottingham Trent
University which encompasses work
placements, graduate opportunities
and collaboration on research and
development projects. We believe that
all this is an essential part of building
the strength and depth required across
the organisation to deliver both on our
existing improvement initiatives and to
support the future strategic development
of the business.

There have been some notable changes to
our steel supply chain in recent months,
impacting two of the main types of steel
which we use in the fabrication process.
Tata closed their UK steel plate production

THIS HAS BEEN A YEAR OF
STRONG PROGRESS ON A
NUMBER OF FRONTS.”

Ian Lawson
Chief executive officer

Severfield plc

www.severfield.com

Stock code: SFR

OPERATING REVIEW

facility in December 2015 and there was
also some concern over the future of their
UK steel sections business. The sections
business has now been bought by Greybull
Capital, and re-named British Steel, which
removes the short-term uncertainty we
were facing in respect of sections supply,
and we have also managed to secure
alternative sources of supply for all our plate
requirements. While some of the issues
around the UK steel industry have been
highly publicised and a source of concern
for many, it is important to recognise that
only around 40 per cent of steel used in
UK construction is produced in the UK, the
majority being imported. Nevertheless, I am
pleased to report that we have managed the
changes which affect us with no disruptive
impact on the business.

During the year, work has continued on the
replacement of bolts on the Leadenhall
building. This work is almost complete
with the costs of the remedial works
being in line with the £6.0m estimated
last year. Whilst a non-underlying charge
was recognised for this amount last
year, discussions continue with the other
parties involved to determine where the
liability for the total remedial works costs
should rest.

In November, we invested in a 50 per
cent share of Composite Metal Flooring

Limited (‘CMF’). CMF is a manufacturer of
metal decking which is used extensively in
construction projects. CMF is an existing
supplier to the Group and, following
this investment, all of the Group’s metal
decking requirements will come from CMF.
This investment is another step in the
implementation of the Group’s strategy
and will strengthen the Group’s supply
chain as well as enabling it to extract
greater value from its existing activities.
CMF also provides the Group with a direct
interest in cold rolled steel production
which has an additional range of uses in
the construction sector which we will be
looking to develop.

Order book and market
conditions
The order book at 1 June 2016 of £270m
is consistent with the level it has been at
for the past six months. This is a step up
from previous reported levels and is the
highest it has been for over six years. Of
this total, £211m is for delivery over the
next 12 months and £59m for delivery
beyond 12 months. With the consensus for
modest economic growth over the next few
years being mirrored in expected growth
in construction markets (particularly
in the areas of infrastructure and the
private industrial and commercial sectors

where the Group is strong), the Group is
well placed to continue its growth and
development for the foreseeable future.

The breadth of the Group’s capability is
evident within the order book with around
80 live contracts spread across the key
market sectors of commercial offices,
stadia and leisure, transport, industrial
and distribution and power and energy.
There are a number of themes within the
order book development which illustrate
the strength and depth of the Group’s
capability. These include:

(cid:228)(cid:3) the growth in larger projects, with three

over £20m in value

(cid:228)(cid:3) the development of the commercial

office sector outside London, which is
encouraging

(cid:228)(cid:3) the Group’s strength in stadia

development including the new roof for
Wimbledon number one court and the
new stadium for Tottenham Hotspur FC

(cid:228)(cid:3) the continuing strength of the retail

and distribution sectors

(cid:228)(cid:3) the re-emergence of the Republic of
Ireland as an active and attractive
market

(cid:228)(cid:3) the development of the transport

infrastructure sector

DUBLIN WASTE TO ENERGY FACILITY

This waste to energy plant will be the largest in the
Republic of Ireland. Once operational it will incinerate
up to 600,000 tonnes of waste per year, generating
enough electricity for up to 80,000 homes.

All corners on the building are rounded, while the
building also curves and slopes upwards. This created
many technical design and construction challenges,
including complex steelwork geometry, which required
the use of Building Information Modelling (‘BIM’). The
technology used by both PM Group and Severfield,
allowed for a detailed, coordinated fabrication model
that did not clash with the extensive process and
services models.

Detailed planning went into the erection sequence
and logistics due to the confines of the site. Working
at height to lift large steel elements into place was
another challenge that was overcome as a result of
the levels of design and construction coordination
between PM Group and Severfield.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Operating review

Projects
The Group worked on over 120 projects during the year which included:

Commercial offices:

Nova Victoria, London

One Angel Court, London

Principal Place, London

Various developments at Kings Cross

Stadia and leisure:

Anfield Stadium

Etihad Stadium

Transport:

London Bridge Station

The Ordsall Chord, Manchester

Crossrail Depot, Old Oak Common

Industrial and distribution:

BAE Systems facility, Barrow-in-Furness

Nissan paintshop, Sunderland

Industrial warehousing for clients such as Amazon,
Primark, DHL

Power and energy:

Dublin waste to energy facility

The reference to transport infrastructure
reflects the encouraging progress we
have seen since we took on staff last
year from the infrastructure division of
Mabey Bridge. Progress here so far is in
line with expectations and the pipeline
development is very encouraging. The
Group’s positioning in the transport-
related bridge infrastructure market
will help smooth the fluctuations in
revenue from other market sectors which
are more dependent on private sector
investment. Overall, the Group’s breadth
of experience, expertise and capability
leaves it well placed to win the right mix of
work in a growing economy with a growing
construction sector.

Market pricing generally remains
competitive and there have been
some significant contracts during
the year which have been awarded
to our competition because we were
not prepared to accept the terms and
conditions which the clients involved were
trying to push down the supply chain.
Notwithstanding this, there are continuing
signs of clients looking beyond price and
focusing on quality of service and delivery
as well, which are areas where the Group
performs consistently well.

Severfield plc

www.severfield.com

Stock code: SFR

OPERATING REVIEW

WE AIM TO DOUBLE
UNDERLYING PROFIT
BEFORE TAX OVER
THE NEXT FOUR
YEARS.”

India
The Indian joint venture has delivered
another period of relative stability during
the year with the Group’s share of losses
of £0.3m being a fraction higher than the
£0.2m in the prior year. This share of loss
continues to be the result of a positive
operating margin on the one hand, and the
financing costs of the business’s heavy
debt structure on the other.

The underlying business performed
relatively well in what was a more difficult
trading environment. There were a number
of contract timing delays which resulted
in production volume reducing to 36,000
tonnes compared with 48,000 tonnes
the previous year. The impact of this was
mitigated however by the mix of work,
which included some more profitable
commercial work than in the previous
year. Whilst the overall operating margin
of 7 per cent was slightly lower than the
9 per cent achieved in the prior year with
much higher volumes, it gives further

assurance that the underlying business is
sustainable in a range of different trading
environments.

Whilst trading was a little sluggish during
the year, the mix of work improved and
the pipeline of potential opportunities
continued to develop well. This has resulted
in an order book at 1 June 2016 of £33m
which includes a large commercial order for
a hospital complex in the state of Kerala,
along with some significant potential
commercial projects in the pipeline. This
will help drive improved performance in
the 2016/17 financial year and also keeps
momentum building with the conversion
of the wider construction market from
concrete to steel. It is the progression of
this conversion which will really drive long-
term value in the business, value which will
become more apparent as the debt levels
start to reduce over the next two to three
years.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Operating review

Business investment
Capital investment in the business was
£5.0m in the year. This was slightly lower
than the £6.6m invested in the prior year but
in line with our medium-term investment
plan. The investment was spread across all
our factories and included further upgrading
of production equipment which will help
drive efficiencies, expanding our fleet of
elevated work platforms for construction
sites, general replacement of some older
equipment, and a range of health and
safety and environmental efficiency related
improvements.

Our investment programme will continue
in the current year and our increasing
cash resources will enable us to invest
wherever required in order to continue
driving efficiencies and improvements in
service, adding value for our customers.

As mentioned above, during the year we
invested in a 50 per cent share of CMF.
The initial consideration was £4.0m
(plus transaction costs of £0.1m), with
an additional £0.4m working capital
adjustment, and a further £2.5m payable
over the next five years subject to certain
conditions.

Safety
The Group’s AFR for the year, which
includes our Indian joint venture, was
0.25. This includes an AFR for our UK
operations of 0.44. Whilst this was not as
good as the 0.33 achieved in the previous
year, it remains ahead of the 0.57 achieved
two years ago, which illustrates that many
of the improvements made during that
period are showing signs of becoming
embedded. However, there is more to
do and during the year, in addition to
continuing with the initiatives started in
the previous year (near miss reporting,
improved communications, directors’
visits), we have introduced a Group-wide
behavioural safety programme. This
has involved everyone in the business
undertaking an intensive training
programme on all aspects of workplace
behaviour which can impact the safety
of the working environment. In addition,
further investment has been made across
all our facilities where opportunities to
improve safety have been identified. We
remain committed to achieving a zero
accident culture as the safety of all our
employees remains the most important

priority for both the executive committee
and the board.

Strategy and
profit target
We have made good progress towards
our strategic objectives in the year with
the return to revenue growth, improved
profitability, continued margin improvement
and strong cash generation, further
investment in our facilities and our people,
the investment in CMF and another year
of stability in the Indian joint venture. We
continue to enjoy a large element of repeat
business from customers such as Mace,
Brookfield, Sir Robert McAlpine and Laing
O’Rourke. We have also refocused on a
number of existing customers such as
BAM, Morgan Sindall, Winvic and McLaren,
who provide access to more regional
opportunities and this has resulted in
a number of high quality orders outside
of London. Particularly pleasing are
the inroads that we have made into the
infrastructure market, with our enhanced
bridge capability we have secured work
with the infrastructure teams of Costain,
Skanska, BAM and Hochtief, working on
contracts for Network Rail and Highways
England. These relationships will serve us
well in the future as we expect to see growth
in the infrastructure market over the coming
years.

The actions we have taken since setting
out the targets in 2013 have allowed
us to achieve our three-year underlying
operating margin target with a margin of
5.7 per cent.

With the strength of the platform from
which the Group now operates and
the opportunity for further margin
improvement, our target is now to double
our underlying profit before tax over
the next four years. The business has
a much stronger base than three years
ago; it has strengthened its capability
in infrastructure and bridges, it has new
capability in cold rolled steel through
its investment in CMF, and the market
is expected to continue to grow. These
factors, coupled with the continued
implementation of the strategy in areas
such as further developing new markets
(both sectoral and geographic), and
continued operational improvement, give
us confidence that this profit target is
achievable. As the business continues to

develop its strength and depth across a
number of market sectors, it will become
increasingly less dependent on any one
sector and give us a broader platform for
growing revenue and earnings. Alongside
this, maintaining stability in India whilst
continuing the conversion of the market
from concrete to steel will continue to build
long-term value in our Indian joint venture.

The Group’s business model supports
strong cash generation, as has been
demonstrated by the rebuilding of a good
net funds position over the past three years.
This cash generation will support future
investment in the growth and expansion of
the business, whilst maintaining a strong
return on capital discipline, along with the
progression of the core dividend. It may also
support supplementary dividends without
diminishing the good net funds position
which is being built up, a position which we
plan to maintain to help manage the financial
risks inherent in a contracting business.

Summary and outlook
The business has performed well this
year having increased revenue, profitability
and cash generation. It has also achieved
the margin target set three years ago. With
the current order book and pipeline, and
continued stable market environment, the
Group is well placed to continue delivering
against its near-term financial targets whilst
continuing to build for the longer term.

India remains stable and as the market
continues to convert from concrete to
steel, and as debt is repaid, value will
continue to build in that business.

Overall the outlook remains encouragingly
positive.

Finally, I would like to thank all of our
people once again for their hard work and
commitment over the past 12 months and
look forward to their continued support
as we build a better and even more
successful business.

Ian Lawson
Chief executive officer
15 June 2016

Read our strategy on
page 22

Read our financial review on
page 36

Severfield plc

www.severfield.com

Stock code: SFR

FINANCIAL REVIEW

EXCELLENT CASH GENERATION
RESULTED IN NET FUNDS OF
£18.7M.”

Alan Dunsmore
Group finance director

Revenue
Underlying* operating profit (before results of JVs and associates)
Underlying* operating margin
Underlying* profit before tax
Underlying* basic earnings per share
Operating profit (before results of JVs and associates)
Profit after tax

2016
£239.4m
£13.7m
5.7%
£13.2m
3.67p
£10.1m
£8.6m

2015
£201.5m
£9.0m
4.5%
£8.3m
2.31p
£0.5m
£0.1m

our tendering, execution and contract
management processes.

The share of results of JVs and associates
was a loss of £0.2m (2015: £0.2m) and net
finance costs were £0.2m (2015: £0.4m).

Underlying profit before tax, which is
management’s primary measure of Group
profit, was £13.2m (2015: £8.3m). The
statutory profit after tax, reflecting both
underlying and non-underlying items, was
£8.6m (2015: £0.1m).

Read our Group financials on
pages 95 to 129

Read our Company financials on
pages 130 to 137

Share of results of JVs and
associates
The Group’s share of losses from its Indian
joint venture was £0.3m (2015: £0.2m)
reflecting another year of relative stability
in the business. The share of loss is the
result of a positive operating margin (7 per
cent) less the finance expense associated
with the current debt structure.

Following the investment in a 50 per cent
share of Composite Metal Flooring Limited
(‘CMF’) in November 2015, the Group
has recorded a profit of £0.1m, which
represents its share of CMF’s results since
the date of the Group’s investment.

Trading performance
Revenue for the year of £239.4m represents
an increase of £37.9m (19 per cent)
compared with the prior year. This is the
result of an increase in production volumes
reflecting the improving UK market position
and the higher order book coming into the
financial year. The order book has continued
to grow throughout 2015/16, resulting in
an order book of £270m at 1 June 2016, its
highest position for over six years.

Underlying operating profit (before results
of JVs and associates) of £13.7m (2015:
£9.0m) represents an increase of £4.7m
since the prior year, reflecting an increased
underlying operating margin of 5.7 per cent
(2015: 4.5 per cent). This margin is in line
with our previously stated 5 to 6 per cent
target for the 2015/16 financial year and
reflects the ongoing benefits of the Group’s
operational improvement programme
which has improved all aspects of

Annual report and accounts for the year ended 31 March 2016

Strategic report / Financial review

IN 2015/16, THE GROUP RETURNED TO
REVENUE GROWTH AND DELIVERED
OPERATING MARGINS IN LINE WITH OUR
STRATEGIC TARGETS.

Non-underlying items
Non-underlying items for the year of
£3.5m (2015: £8.5m) consist of the
following:

(cid:228)(cid:3) Amortisation of acquired intangible

assets – £2.6m (2015: £2.6m)

(cid:228)(cid:3) Fair value of derivative financial

instruments – loss of £0.9m (2015:
profit of £0.1m)

(cid:228)(cid:3) Contract remedial costs – £nil (2015:

£6.0m)

Amortisation of acquired intangible assets
represents the amortisation of customer
relationships which were identified on the
acquisition of Fisher Engineering in 2007.
These relationships will be fully amortised
within the next two years.

A non-cash loss on derivative financial
instruments of £0.9m was recognised in
relation to the movement in fair values
of foreign exchange contracts, which will
reverse when the underlying contract
matures in the following year. The fair
value of these derivatives is primarily a
function of exchange rate fluctuations
between sterling and the euro. The loss
for the year of £0.9m is partly due to the
increased number of foreign exchange
contracts taken out by the Group as a
result of increased contract activity with
the Republic of Ireland, reflecting an
improving market position.

The contract remedial costs in the prior
year related to the programme of bolt
replacement works at the Leadenhall
building, a contract that was completed
in 2013. They were treated as non-
underlying costs in accordance with the
Group’s stated policy. This work is now
substantially complete and the actual
costs of the programme are consistent
with the non-underlying charge of
£6.0m which was recorded in 2014/15.
Notwithstanding this, discussions remain
ongoing between the Group and the other
parties involved to determine where the
ultimate liability for the programme costs
should reside. Similar to 2014/15, no
account has been taken of possible future
cost recoveries from third parties, as
these cannot be recognised under IFRS.

Finance costs
Net finance costs in the year were £0.2m
(2015: £0.4m). The reduction since 2014/15
is primarily due to the Group being in a net
funds position for almost all of the year.
The 2015/16 charge of £0.2m primarily
represents non-utilisation fees for the
Group’s revolving credit facility and the
amortisation of capitalised transaction
costs associated with the refinancing
in 2013/14.

Revenue

£231.3m

£239.4m

£201.5m

2014

2015

2016

Underlying profit before tax*

£13.2m

£8.3m

£4.0m

2014

2015

2016

Net funds

£18.7m

£6.4m

£0.3m

2014

2015

2016

* The basis for stating results on an underlying

basis is set out on page 7.

Severfield plc

www.severfield.com

Stock code: SFR

FINANCIAL REVIEW

Taxation
The underlying tax charge of £2.3m (2015:
£1.4m) represents an effective tax rate of
17 per cent on the applicable profit (which
excludes results from JVs and associates).
This is consistent with an effective tax
rate of 17 per cent in the prior year,
reflecting an unchanged UK statutory
corporation tax rate of 20 per cent over
the same period. The Group’s effective tax
rate is lower than the UK statutory rate
primarily due to the continued recognition
of deferred tax assets on losses which
arose in prior periods.

The total tax charge for the year of £1.0m
(2015: credit of £0.3m) reflects the
underlying tax charge, offset by deferred
tax benefits arising from the amortisation
of intangible assets in the year, and also
the benefit of the future reduction in UK
corporation tax to 19 per cent in 2017/18
and 18 per cent in 2020/21 in the deferred
tax calculation. These rate changes are
categorised as non-underlying and are
included in other items.

Earnings per share
Underlying basic earnings per share
increased by 59 per cent to 3.67p (2015:
2.31p) based on the underlying profit after
tax of £10.9m and the weighted average
number of shares in issue of 297.5m
(2015: 297.5m). Basic earnings per share,
which is based on the statutory profit
after tax, was 2.89p (2015: 0.05p), this
growth largely reflecting a reduction in
charges relating to other items compared
to 2014/15, in particular the contract
remedial costs for Leadenhall.

Diluted earnings per share, including the
effect of the Group’s performance share
plan, was 2.87p. In 2014/15, there was
no difference between basic and diluted
earnings per share.

Dividend and capital
structure
The Group has a progressive dividend policy
which has been further refined by the board
during 2015/16. Funding flexibility will
continue to be maintained to ensure there
are sufficient cash resources to fund the
Group’s requirements. In this context, the
board has established the following clear
priorities for the use of cash:

(cid:228)(cid:3) To support the Group’s ongoing

operational requirements, and to fund
profitable organic growth opportunities
where these meet the Group’s
investment criteria;

(cid:228)(cid:3) To support steady growth in the

core dividend as the Group’s profits
increase;

(cid:228)(cid:3) To finance other possible strategic

opportunities that meet the Group’s
investment criteria;

(cid:228)(cid:3) To return excess cash to shareholders
in the most appropriate way, whilst
maintaining a good underlying net
funds position on the balance sheet.

Applying this policy in 2015/16, the board
is recommending a final dividend of 1.0p
per share payable on 16 September 2016 to
shareholders on the register at the close of
business on 19 August 2016. This dividend
is not reflected on the balance sheet at
31 March 2016 as it remains subject to
shareholder approval. This, together with
the Group’s interim dividend of 0.5p per
share, will result in a total dividend per
share for 2015/16 of 1.5p (2015: 0.5p).

Shareholders’ funds
Shareholders’ funds at 31 March 2016 were
£148.2m (2015: £140.6m). This equates to
a total equity value per share at 31 March
2016 of 50p, compared to 47p at the end of
2014/15. The increase is primarily due to the
increase in profit after tax for the year and a
decrease in the IAS 19 deficit on the Group’s
defined benefit pension scheme.

Goodwill and
intangible assets
Goodwill on the balance sheet is valued at
£54.7m (2015: £54.7m) and is subject to
an annual impairment review under IFRS.
No impairment was required either during
the year ended 31 March 2016 or the year
ended 31 March 2015.

Other intangible assets on the balance
sheet are recorded at £4.5m (2015: £7.1m).
This represents the net book value of the
remaining intangible assets (customer
relationships) identified on the acquisition
of Fisher Engineering in 2007, along with
certain software assets. Amortisation of
£2.8m was charged in the year.

Capital investment
The Group has property, plant and
equipment of £77.4m (2015: £76.6m).

Capital expenditure of £5.0m (2015:
£6.6m) represents the continuation of the
Group’s capital investment programme.
This included further new equipment for
our fabrication lines in Dalton, Lostock and
Enniskillen, additional mobile equipment
for use on our construction sites and
continued investment in a range of health
and safety and environmental efficiency
related improvements. Depreciation in the
year was £3.7m (2015: £3.6m).

As previously stated, the Group’s ongoing
replenishment levels of capital expenditure
are expected to be around £5m per annum.

Joint ventures
No further equity was invested in the
Indian joint venture during the year. With
the joint venture continuing to operate at
close to break-even levels, the need for
further equity injections to finance trading
losses is likely to be much reduced.

The joint venture business has started to
repay its term debt with £2.0m repaid during
the year. A further £3.5m is scheduled to be
repaid in the 2016/17 financial year and the
overall debt/equity structure of the business
is being kept under close review.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Financial review

On 16 November 2015, the Group completed
its investment in a 50 per cent share of CMF.

The total consideration for the investment
is £7.0m, which consists of an initial
payment of £4.0m (plus transaction
costs of £0.1m), an additional payment of
£0.4m (made in early 2016/17) following
agreement of the final working capital
position and a further £2.5m which is
payable over the next five years subject to
certain conditions.

Pensions
The Group has a defined benefit pension
scheme which, although closed to new
members, had an IAS 19 deficit of £14.6m
(2015: £16.5m). The decrease in the deficit

is mainly as a result of the increase in the
assumption for corporate bond yields (used
to set the discount rate) and ongoing deficit
contributions of £1m made by the Group
during the year. This has been partially
offset by lower than expected performance
by the scheme’s assets.

All other pension arrangements in the
Group are of a defined contribution
nature.

Return on capital employed
The Group adopts return on capital
employed (‘ROCE’) as a KPI to help ensure
that its strategy and associated investment
decisions recognise the underlying cost
of capital of the business. The Group’s

ROCE is defined as underlying operating
profit divided by the average of opening
and closing capital employed. Capital
employed is shareholders’ equity excluding
retirement benefit obligations (net of
tax), acquired intangible assets and net
funds. For 2015/16, ROCE was 9.7 per cent
(2015: 6.1 per cent) demonstrating good
progression towards the Group’s target of
10 per cent over the whole economic cycle.

THE BOARD RECOMMENDS
A FINAL DIVIDEND OF
1.0P PER SHARE.”

Severfield plc

www.severfield.com

Stock code: SFR

FINANCIAL REVIEW

Cash flow

Operating cash flow (before working capital movements)
Operating cash flow
Operating cash conversion
Net funds

2016
£17.9m
£24.8m
145%
£18.7m

2015
£6.6m
£11.4m
107%
£6.4m

The Group has always placed a high
priority on cash generation and the active
management of working capital. The
Group finished the year with net funds of
£18.7m (2015: £6.4m).

Operating cash flow for the year before
working capital movements was £17.9m
(2015: £6.6m). Net working capital,
excluding the utilisation in the year of the
2014/15 provision for Leadenhall remedial
costs, decreased by £11.1m during the
year and represented approximately 2 per
cent of revenue at the year-end.

This is significantly lower than the 5 to
7 per cent range which we have been
targeting. Whilst some of this difference
can be attributed to a better than normal
contract payment profile around the
year-end, there has been some underlying
improvement in working capital
management and we are now targeting a
slightly lower range of 4 to 6 per cent of
revenue.

In 2015/16, our cash generation KPI shows
a conversion of 145 per cent (2015: 107

Artist impression of new stadium for Tottenham
Hotspur FC, a new contract win for the Group.

per cent) of underlying operating profit into
operating cash. This continues the Group’s
excellent recent record of converting profits
into cash.

employees and the public continue to be
insured. The Group maintains its low risk
financial management policy by insuring
all significant trade debtors.

Net investment during the year was £8.4m
reflecting the Group’s investment in CMF of
£4.1m and net capital expenditure of £4.3m
(net of disposals of £0.7m).

Bank facilities committed
until 2019
The Group has a £25m borrowing facility
with HSBC and Yorkshire Bank, with
an accordion facility of a further £20m
available at the Group’s request. These
facilities are available until July 2019.
There are two key financial covenants,
with net debt: EBITDA of <2.5x, and
interest cover of >4x. The Group operated
well within these covenant limits
throughout the year ended 31 March 2016.

Treasury
Group treasury activities are managed
and controlled centrally. Risks to assets
and potential liabilities to customers,

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.

Alan Dunsmore
Group finance director
15 June 2016

Annual report and accounts for the year ended 31 March 2016

Strategic report / Financial review

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:

(cid:228)(cid:3) The UK order book, which is strengthening, and the

pipeline of potential future orders.

(cid:228)(cid:3) The Group’s operational improvement plan which

has delivered stronger financial performance and is
expected to continue doing so in the 2016/17 financial
year and beyond.

(cid:228)(cid:3) The Group’s net funds position and its bank finance
facilities which are committed until 2019, including
both the level of those facilities and the 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 at least 12
months from the approval of the financial statements and
therefore that it is appropriate to continue to adopt the
going concern basis in preparing the financial statements.

Viability statement
In accordance with provision C.2.2 of the 2014 revision
of the UK Corporate Governance Code (the ‘Code’), the
directors have assessed the Group’s viability over a
three-year period ending on 31 March 2019. The starting
point in making this assessment was the annual strategic
planning process. While this process and associated
financial projections cover a period of five years, the first
three years of the plan are considered to contain all of the
key underlying assumptions that will provide the most
appropriate information on which to assess the Group’s
viability.

This assessment also considered:

(cid:228)(cid:3) The programmes associated with the majority of the
Group’s most significant construction contracts, the
execution period of which is normally less than three
years.

(cid:228)(cid:3) The good visibility of the Group’s future revenues for
the next three years which is provided by external
forecasts for the construction market, market surveys
and our own order book and pipeline of opportunities
(prospects).

In making their assessment, the directors took account
of the Group’s strategy, current strong financial position,
recent and planned investments, together with the
Group’s main committed bank facilities which mature in
July 2019. They also assessed the potential financial and
operational impact of possible scenarios resulting from
the crystallisation of one or more of the principal risks
described on pages 52 to 55. In particular, the impact of a
reduction in revenue, a reduction in margin, a deterioration
in working capital, a period of business interruption and
a significant one-off event. The range of scenarios tested
was considered in detail by the directors, taking account
of the probability of occurrence and the effectiveness of
likely mitigation actions.

Based on this assessment, the directors have a
reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall
due over the three-year period of their assessment.

Severfield plc

www.severfield.com

Stock code: SFR

BUILDING A SUSTAINABLE BUSINESS

AS THE UK’S MARKET-LEADING STRUCTURAL STEEL COMPANY,
WE KNOW THAT ANY DECISIONS WE MAKE CAN HAVE A SIGNIFICANT
EFFECT ON THE ENVIRONMENT, PEOPLE’S LIVES AND COMMUNITIES.

OUR AIM IS TO
EMBED SAFETY,
HEALTH AND
ENVIRONMENT AS
AN UNWAVERING
PRINCIPLE."

Our board takes regular account of the
significance of social, environmental,
ethical and health and safety matters
to the Group. A comprehensive risk
management and internal control process
is in place, including a corporate social
responsibility (‘CSR’) committee.

With our focus on people, we are
passionate about providing excellent
training and skills development
opportunities that benefit individual
members of staff and preserve our high
working standards. We also support
employment in local areas by taking
on apprentices across the Group each
year, hiring our people locally wherever

possible and providing opportunities for
graduates across a number of functions
including business support, quantity
surveying, design engineering, site
management and project management.

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. This
commitment can be seen in our core
values and mission statement.

See how sustainability supports
our business model on page 16

S.L.A.M.

Stop for a moment.
L ook at your work area.
A nticipate what could go wrong.
Manage your work safely.

Do the safe thing.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Building a sustainable 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 generate
positive, safe behaviours and therefore
habits in the workplace.

measurable components: the person, their
environment, and their behaviour. Only
when these three elements are combined
can workplace accidents be eliminated.

We have also undertaken a safety culture
and attitude survey with more than 800
responses and used this to help formulate
the behavioural safety programme.

Our behavioural safety programme, which
was launched this year, has involved
everyone in the Group, including the
leadership team, undertaking an intensive
training programme on all aspects of
workplace behaviour which can impact
the safety of the working environment. The
programme was conducted in association
with our partner, Setters. Safety in the
workplace is a combination of three

Once our employees have undertaken a
launch day, they can volunteer for further
training (front line coaching) on how to
apply cognitive behaviours within their
work and home environment. To date we
have trained over 100 employees as ‘front
line’ coaches.

SAFETY, HEALTH AND
ENVIRONMENT
Many of the activities carried out by the
Group can be, by their nature, potentially
dangerous. It is therefore essential to
safeguard the health and safety of our
employees and of those who come into
contact with Severfield.

The current year accident frequency rate
(‘AFR’) of 0.25, includes an AFR of 0.44 for
our UK operations. Whilst this compares
unfavourably to the previous year’s AFR of
0.33, it remains significantly better than
the 0.57 achieved in 2014. This illustrates
that many of the improvements made over
this two-year period are showing signs of
becoming embedded in our operations. In
2015/16, we had 17 RIDDORs compared to
12 RIDDORs in 2014/15, which is reflected
in the AFR results. We have analysed
underlying trends and are focusing our
efforts on addressing the issues to make
further real and significant improvements.

In the current year, we continued to
build on a number of initiatives started
in the previous year including near miss
reporting, improved communications
and directors’ site visits. A number of new
initiatives have also been introduced
aimed at improving the Group’s AFR,
the core of which is our Group-wide
behavioural safety programme, the
objective of which is to have a significant
and lasting benefit on the Group’s safety
culture (see later for further details).

We will continue to concentrate on
improving our AFR performance in
2016/17 and we believe that our focus on
the following five key areas will deliver the
performance we desire.

Severfield plc

www.severfield.com

Stock code: SFR

BUILDING A SUSTAINABLE BUSINESS

Work environment
This year we have continued our focus
on improving the lighting levels in the
factories to make them a better place to
work. This has had a positive impact on
efficiency, greenhouse gas emissions and
on the working environment in general.

We have improved the conditions of the
yards in all of our factories and have
undertaken a comprehensive review of
welfare facilities for Severfield (UK). We
have established a new welfare facility at
Dalton which will substantially improve
the environment for our employees and are
undertaking a similar exercise at Lostock.

We have further embedded our tool tethering
policy in 2015/16 to ensure that all tools and
materials are tethered on our sites.

During the year, we have continued to
develop and implement our Seversafe®
edge protection product, our lorry edge
protection system and our bespoke fan
protection systems. These systems comply
with the Work at Height Regulations in
terms of meeting the requirements for
collective protection measures and our
edge protection solution is endorsed by
the Edge Protection Federation.

Commitment
The Group continues to maintain an
appropriate safety, health and environment
(‘SHE’) budget. Our SHE communication has
improved during the year with a number of
SHE news bulletins and monthly targeted
posters. We also introduced Group-wide
construction toolbox talks to ensure all our
site-based workforce was kept abreast of
relevant issues.

We hold regular Group, factory and site
safety leadership team (‘SLT’) meetings
and the Group meeting is attended by
the CEO and COO. We use this meeting
structure to develop and challenge our
policies and to ensure we react in an
appropriate manner to incidents and near
misses. Our near miss and hazard card
reporting has been fully embedded this
year with in excess of 500 reported.

Our director site tours were fully
implemented in 2015/16, with 179 being
undertaken. These gave our people
opportunities to discuss local issues and
make suggestions for improvement and
were very effective in bringing issues to
the boardroom.

We have undertaken more than 40
different courses during the year.
These include: IOSH Managing Safely,
site manager safety training scheme,
overhead crane supervision and use, first
aid, portable magnet use, confined space
and reversing vehicles.

Leadership
We demonstrate leadership by undertaking
director tours, chairing committees,
involving our senior management in
incident investigations, being involved in
and attending formal and informal training,
and communications around SHE and
sustainability with our workforce, clients
and supply chain.

Engagement
We engage with our stakeholders on a
daily basis. Key engagement behaviours
are communication, involvement, visibility
and support. We are continually striving to
communicate better (as discussed above),
we have continued to actively involve
the directors in SHE and sustainability
committees and we use the audit process
as a communication tool.

To improve engagement with our
employees, clients and supply chain,
we regularly attend client meetings and
our Group SHE director liaises directly
with the SHE teams within our client
organisations and with the UK Contractors
Group. 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.

We vet and audit our supply chain which
provides assurance that our supply chain
meets legal requirements and our own
standards plus, where applicable, any
standards stipulated by our clients.

We have embedded our site audit and
inspection system. We undertake all on
a web-based format which allows much
better analysis of where our key issues
lie. This allows us to focus our resources
in the correct areas and engage with our
workforce, supply chain and clients in a
targeted manner.

SUSTAINABILITY
Steel is arguably the most sustainable
of the major structural materials. It has
numerous sustainability benefits, such as
low waste, flexibility, off-site manufacture,
speed, resource efficiency, adaptability,
demountability, long lasting appeal,
safety, reusability and recyclability. These
inherent characteristics result in many
social, environmental and economic
benefits to satisfy sustainability’s ‘triple
bottom line’.

Sustainability committee
During the year, we continued to
develop the terms of reference for our
sustainability committee. We agreed a set
of targets and objectives:

(cid:228)(cid:3) Carbon reduction policy and strategy

(cid:228)(cid:3) Reduction in carbon intensity by

2020/21

(cid:228)(cid:3) Waste reduction and diversion of waste

from landfill

(cid:228)(cid:3) Compliance with Energy Savings
Opportunity Scheme (‘ESOS’)

(cid:228)(cid:3) Quarterly greenhouse gases reporting
using shared database and validation
of emissions

(cid:228)(cid:3) Measurement of construction site fuels

(cid:228)(cid:3) Review of ISO 14001 EMS —

operational control, training and audits

(cid:228)(cid:3) Customer and supply chain

engagement

(cid:228)(cid:3) Staff engagement and internal

performance reporting

(cid:228)(cid:3) Sustainable procurement

We complied with ESOS this year and have
an excellent report complete with a set of
improvements to be made which will help
reduce our carbon footprint.

Environmental performance
The Group maintains its environmental
management system which is certified
to ISO 14001. 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. We met our
monthly average VOC concentration limit
targets for every factory in 2015/16. 89 per
cent of our waste is recovered or recycled.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Building a sustainable business

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.

Greenhouse gas (‘GHG’)
emissions reporting
The Group’s GHG emissions are reported
in accordance with UK Government
regulations. We follow the GHG Protocol
Corporate Accounting and Reporting
Standard methodology, use an operational
control approach and utilise the UK
Government GHG conversion factors for
company reporting. Our reporting boundary
includes all material Scope 1 and 2
emission sources within the boundaries of
our consolidated financial statements.

We report both our absolute carbon
emissions in tonnes carbon dioxide
equivalent (tonnes CO2e), covering all
six Kyoto gases, and carbon emissions
intensity using a revenue measure (tonnes
CO2e/£million revenue).

We have reported our Scope 2 emissions
using the location method only this year
(although we do purchase renewable
electricity for our factories). We continue
to improve the accuracy of our carbon
reporting through monthly reporting and
also estimate our indirect Scope 3 emissions
associated with raw materials and product
transportation, waste, water and business
travel.

We have again reduced our absolute total
Scope 1 and Scope 2 carbon emissions.
Since last year they have fallen by 10 per
cent, mainly as a result of energy efficiency
improvements at our Dalton site, resulting
in reduced gas oil and electricity usage.
Absolute carbon emissions are now 14 per
cent lower than in 2013/14, our baseline
reporting year (when we reported total
CO2e emissions of 12,519). Furthermore,
our intensity ratio per £m of revenue has
decreased by 24% since 2014/15.

For the year ended 31 March 2016, the
Group’s global GHG emissions were as
follows:

(cid:228)(cid:3) Leadership development – we

continued to develop our leadership
capability and implemented a 360
degree feedback process across our
executive committee. We will continue
to implement this valuable process at
other leadership levels in 2016/17.

During the year, we held a forum for the
senior leadership team to re-enforce
our SHE leadership priorities and focus
on developing our coaching skills. This
process will be repeated in 2016/17.

Succession and talent
management
The training and development
programmes (above) now operate within
the context of a Group-wide talent review
process, which ensures consistent
methodology and visibility of talent. In
2015/16, we conducted a comprehensive
review of senior roles within the business
and have identified possible medium-
term successors in the majority of cases.
We also took the opportunity to further
assess emerging talent in the Group to
identify potential leaders with a view to
fast tracking their development.

We are passionate about helping
young people take their first step
onto the construction career ladder,
from school leavers 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. At 31 March 2016, the Group
employed 60 apprentices.

PEOPLE
The quality of our people, their commitment
and engagement is what defines us. It is our
people who continue to deliver the strategy
for the business and will drive future
success. That’s why our focus in 2015/16
has been on attracting, retaining and
developing the best talent in the industry.

In the period, we recruited 178 people,
including 27 new apprentices and
trainees, across the Group and in
particular strengthened our bridge
engineering capability and increased
the number of directly employed steel
erectors. We have provided placements
for trainee fabricators, steel erectors and
other technical trainees and will continue
to invest in apprenticeships during
2016/17 and beyond.

We will continue to prioritise investment
in our people to recruit the right people
based on ability, potential to learn and
alignment with our corporate values.

Learning and development
In 2015/16 we launched a new Group-wide
performance development review (‘PDR’)
process. This provides a focus on behaviours
in line with our values as well as assessment
of performance and identification of
development needs. In addition, we invested
in learning and development activities and
put in place clear priorities and action plans
for the Group as a whole.

The main areas of focus for 2015/16 were:

(cid:228)(cid:3) Graduate programme – this was

formalised during the year and we
obtained accreditation from the
Institution of Civil Engineers (‘ICE’). The
programme will launch fully in 2016/17.

(cid:228)(cid:3) Management development – this
included the establishment of a
modular training programme covering
areas such as behavioural and
communication preferences, effective
communication and assertiveness. This
programme will continue in 2016/17.

Emissions from:
Scope 1 – combustion of fuel and operation of facilities
Scope 2 – electricity, heat, steam and cooling purchased
for own use
Total CO2e emissions
Intensity measurement:
Absolute tonnes equivalent CO2e per £m of revenue

Tonnes of CO2e

2016
4,880

5,853
10,733

2016
45

2015
5,529

6,345
11,874

2015
59

Severfield plc

www.severfield.com

Stock code: SFR

BUILDING A SUSTAINABLE BUSINESS

In 2015/16 we supported a number
of universities, colleges and schools
including Nottingham Trent University
with the provision of guest lecturers and
attendance at careers fairs. In the next
year, we will continue to derive additional
value from our strategic partnerships and
explore opportunities for action learning,
joint projects and secondments and at
the same time publicise the benefits of a
career within our industry sector.

Employee engagement and
well-being
We recognise that happy and healthy
employees are crucial to the achievement
of our strategic plans.

In 2015/16, we reviewed our occupational
health provision and highlighted priority
areas for promoting the benefits of
health to our employees. We provided
all employees with the opportunity to
access health check appointments. We
also reviewed and refreshed our drug and
alcohol policy.

The Group regards employee
communication as a vital business
function. During the year, we continued
to focus on improving our internal
communications. Our processes now
include communication and consultation
in a variety of formats across the Group’s
locations including tool box talks, daily
meetings on shop floors, trade union
consultation meetings, team briefings,
location committees, internally published
newsletters and noticeboards.

Group communications include
presentations from the chief executive
officer at staff roadshows. Results
presentations are made to all employees
across the Group which improves our
employees’ understanding of the financial
and economic factors affecting its
performance.

In 2015/16, we launched a sharesave
scheme (‘SAYE’), in addition to our existing
share incentive plans (‘SIPs’), which was
taken up by a third of our employees at an
average saving of £175 per month. We were
delighted at this level of participation and
recognise this as a clear sign of our people
being engaged with our business.

We plan to conduct an externally
facilitated staff engagement survey in
2016/17 to assess our improvement since
our first survey in October 2014 and we
will compare the results against external
benchmarks.

Diversity
At 31 March 2016, the Group workforce
consisted of 1,329 employees of whom
97 (7 per cent) were female. Of our senior
management team of 93 employees, 7
(8 per cent) were female. The Group’s
executive committee (see page 60) had
one female member and the board of
directors (see page 58) had no female
representation. We do not currently
monitor ethnicity.

In 2015/16, we conducted a significant
review of our equal opportunities and
family friendly policies. As a result, we

relaunched our policies and enhanced our
maternity provisions to support diversity
and encourage women to return to us
following leave.

During the year we worked closely
with Women in Construction to provide
opportunities for women to work on our
construction sites and with a number
of schools and colleges to encourage
under-represented groups to study STEM
subjects.

In the coming year, we will monitor the
success of our policies and procedures in
encouraging greater diversity across the
Group as a whole and in achieving greater
diversity at all senior levels.

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
businesses offers a competitive reward
package appropriate to the labour market
in which they operate and review 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.

Our people are also eligible to participate
in a Group defined contribution pension
scheme from the first day of their
employment with us. Employees also
have the option to make their own
contributions through salary sacrifice. We
continue 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, childcare
voucher and discount schemes.

Severfield is committed to being a living
wage employer. All direct employees in the
UK are paid above the UK living wage and
all our London-based employees are paid
in excess of the London living wage.

We recognise and reward the loyalty of our
people and in 2015/16 we celebrated 25
years’ service with five people.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Building a sustainable business

COMMUNITIES
We continue to engage with our
communities by supporting charitable
concerns and local initiatives. During
2015/16 the Group carried out a diverse
range of activities and programmes
including; attending careers events and
school fairs and mentoring young people
who have chosen to study STEM subjects.
Several employees within the Group
are STEM ambassadors. They support
teachers in the classroom by inspiring and
encouraging young people to enjoy STEM
subjects.

We assisted the National Careers Service
in Yorkshire and Humber by enabling
videography at our Dalton site to produce
a film for the LEP York, North Yorkshire and
East Riding area. This film, to be shown
in schools and colleges, brings the local
economy to life and seeks to match young
people’s employment aspirations and the
opportunities available within the area.

In 2015/16, Group employees have worked
hard to raise funds for many different
charitable organisations, including
Oxfam, Macmillan Cancer Support, the
Yorkshire Air Ambulance, the British Heart
Foundation, Cancer Research UK, St
Catherine’s Hospice (Scarborough), Bolton
Hospice and the Northern Ireland Chest,
Heart and Stroke Baby Hearts Appeal.

The Group companies also continue to
spread thought leadership to employees,
customers, suppliers and potential
employees via various initiatives including
internal company newsletters, seminars,
industry-specific exhibitions, site visits
to view projects and events. Our internal
company newsletter shares good news

stories regarding charity initiatives on a
quarterly basis.

Severfield Foundation
We have recently set up the Severfield
Foundation as a registered charitable
incorporated organisation. The Foundation
will raise funding for, and offer practical
assistance to, charitable bodies throughout
the UK, mainly through the activities of
Severfield employees and companies.

We are encouraging employees to raise
money for charity with the incentive of
matched funding from the Foundation.
We have set fundraising challenges to our
Group companies for 2016/17.

Our employees will be at the forefront of
the Foundation’s activities, contributing
to and taking part in events and with
their help our vision is to develop the
Foundation into a leading and effective
charitable trust, which will help and
support disadvantaged people and local
communities.

Each year we will support a major ‘partner’
charity and the local charities chosen by
each Group company (as decided by the
staff in each location). All moneys raised
will be split between one of the local
charities and the Group’s ‘partner’ charity.

For 2016/17 we have chosen Prostate UK
as our ‘partner’ charity. We intend to help
raise much needed funds and awareness
of prostate cancer because our workforce
is predominantly male and 1 in 8 men in
the UK will get prostate cancer at some
point in their lives.

The Foundation will be run by its trustees
(who are all employees of the Group).

Human rights
Human rights are basic rights for
individuals. They form the foundations for
freedom, justice and peace. They apply
equally and universally in all countries,
irrespective of the legal framework.
Respecting human rights in our business
operations and business relationships is
the foundation of our social responsibility.

We aim to operate in accordance with
the Universal Declaration of Human
Rights. In addition to this, we respect
and promote human rights through our
employment policies and practices,
through our supply chain and through the
responsible provision of our products and
services. We also seek to ensure that the
supply chains we utilise act with social
and environmental responsibility in mind.
The promotion of human rights through
our business activities forms part of our
broader objective to be a values-driven
organisation.

We have set human rights principles as
follows:

(cid:228)(cid:3) We will create employment

environments that promote and
respect the rights of individuals;

(cid:228)(cid:3) We will not participate in the condoning

of human rights violations;

(cid:228)(cid:3) Were we to discover, or be made aware,

that we had been associated with
human rights violations including any
acts of modern day slavery and human
trafficking in the supply chain we would
take steps to rectify the situation,
taking account of the interests of those
whose rights are being violated.

We are looking pragmatically at our
supply chain processes to give us added
confidence that they help us address the
requirements of the Modern Slavery Act.
We are adopting a risk based approach to
this exercise.

Severfield plc

www.severfield.com

Stock code: SFR

RISK MANAGEMENT

STRONG AND EFFECTIVE RISK MANAGEMENT IS AT THE HEART OF HOW
THE DIRECTORS RUN THE BUSINESS AND SUPPORTS THE ACHIEVEMENT
OF THE GROUP’S STRATEGIC OBJECTIVES. THE BOARD BELIEVES THAT
ONGOING CONSIDERATION OF, AND REGULAR UPDATES TO, THE GROUP’S
RISK MANAGEMENT FRAMEWORK ENABLE THE EFFECTIVE BALANCING OF
RISK AND REWARD.

Risk management process
The board has overall responsibility for
the Group’s risk management and systems
of internal control and 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 and this year, in response to
changes to FRC guidance, the Group has
further enhanced its risk management
and internal control processes. A Group
assurance map is used to co-ordinate the
various assurance providers within the
Group and a new compliance framework
provides the board with a ready reference
tool for monitoring compliance across the
Group.

The board formally reviews risks and
mitigations for the Group and each of
the businesses on a biannual basis. The
key elements of this risk management
process are:

(cid:228)(cid:3) Senior management from all key

disciplines and businesses within
the Group continue to be involved in
the process of risk assessment and
monitoring in order to identify and
assess Group objectives, key issues
and controls. Further reviews are
performed to identify and monitor
those risks relevant to the Group as a
whole. This process encompasses all
aspects of risk, including operational,
compliance, financial and strategic.

(cid:228)(cid:3)

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.

(cid:228)(cid:3) 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.

(cid:228)(cid:3) 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.

(cid:228)(cid:3) Subsidiary company boards 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.

(cid:228)(cid:3) On a quarterly basis, the significant

risks identified by the Group’s
businesses are discussed in detail
with each management team. In
addition, the Group finance director,
legal director and IT manager meet
on a quarterly basis to review IT risks
facing the Group. The outcome of these
discussions is collated and reported to
the executive committee.

(cid:228)(cid:3) The risk registers of each business,

together with the Group IT risk register,
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 and to consider in
detail the various impacts of the risks
and the mitigations in place.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Risk management

First line of defence — management activity

Second line of defence — Group oversight

Third line of defence — independent review

OTHE

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G R O UP POLICIES
D I V I S I O NAL BOA

GROUP BOARD

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RISK APPETITE

GEMEN T A C

SAFETY
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TEAM (‘SLT’)

T IVITY

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EXTERNAL A U D I T

Three lines of defence
The Group manages risk by operating a
‘three lines of defence’ assurance model
(management activity, Group oversight
and independent review), which is mapped
against the Company’s principal risks.
This process is summarised in the Group
assurance map.

A. First line of defence:
management activity
The first line of defence involves senior
management implementing and
maintaining effective internal controls
and risk management procedures. These
internal controls cover all areas of the
Group’s operations. 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 key features of the Group’s framework
of internal controls are as follows:

Project management procedures —
project risk is managed throughout the
life of a contract from the tender stage to
completion. 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.

Health and safety — SHE 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.

Financial control — the Group
maintains a strong system of accounting
and financial management controls.
Standard financial control procedures
operate throughout the Group to ensure
the integrity of the Group’s financial
statements.

Severfield plc

www.severfield.com

Stock code: SFR

RISK MANAGEMENT

The Group operates a comprehensive
budgeting and forecasting system. 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 business unit with the chief
executive officer, Group finance director
and chief operating officer in attendance.

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.

B. Second line of defence:
Group oversight
The first line of defence is supported by
certain Group policies, functions and
committees which, in combination, form
the second line of defence.

Group policies — internal controls across
financial, operational and compliance
systems are provided principally through
the requirement to adhere to the Group
finance manual, divisional procedures and
a number of Group-wide policies (such
as the Group authorisation policy, the
contract sign-off process the purchase
contract guidelines, the anti-bribery
policy, the Competition Law compliance
policy, the quality manual, the health
and safety policy and the environmental
policy). During the year, we also updated
our data protection and CCTV policies
and established a comprehensive new
information security management system,
for which we are seeking accreditation
under ISO 27001. This will give further
assurance as to the Group’s resilience to
cyber risk.

These policies are supported by
statements of compliance from all
directors and letters of assurance
(‘LoA’) from the Group’s three managing
directors. LoAs are now required twice
yearly, one at 30 September and one at
31 March (only one LoA was required at
the year-end stage in the previous year).
In the current year, we have introduced
more formality into the process
through the use of an internal control
questionnaire (ICQ) which is completed by
each business unit and which provides a
detailed basis for management to satisfy
themselves that they are complying
with all key control requirements. The
responses in these ICQs are subject to
ongoing independent review by PwC, the
Group’s internal auditor.

The following main committees provide
oversight of management activities:

The executive committee, risk
committee and safety leadership team
— these committees are responsible
for the identification, reporting and
ongoing management of risks and for
the stewardship of the Group’s risk
management approach.

The audit committee — the board has
delegated responsibility to this committee
for overseeing the effectiveness of the
Group’s internal control function and risk
management systems.

The nominations committee — this
committee ensures that the board
has the appropriate balance of skills
and knowledge required to assess
and address risk and that appropriate
succession plans are in place.

C. Third line of defence:
independent review
The third line of defence represents
independent assurance which is provided
mainly by the internal auditor, external
auditor and various external consultants
and advisers. External consultants and
advisers support management and the
board through ad hoc consulting activities,
as required.

Internal auditor — the audit committee
annually reviews and approves the PwC
internal audit programme for the year.
The committee reviews progress
against the plan at each of its meetings

considering the adequacy of audit
resource, the results of audit findings and
any changes in business circumstances
which may require additional audits.

The results of internal audits are
reported to the executive team and
senior management and where required
corrective actions are agreed. The results
of all audits are summarised for the audit
committee along with progress against
agreed actions.

Annual review of
effectiveness
The risk management and internal
control systems have been in place for
the year under review and up to the date
of approval of the annual report, and are
regularly reviewed by the board. The board
monitors executive management’s action
plans to implement improvements in
internal controls that have been identified
following the processes described above.

The board confirms that it has not
identified any significant failings or
weaknesses in the Group’s systems of
risk management or internal control as a
result of information provided to the board
and resulting discussions.

Risk appetite
The level of risk it is considered
appropriate to accept in achieving
the Group’s strategic objectives is
reviewed and validated by the board.
The appropriateness of the mitigating
actions is determined in accordance with
the board-approved risk appetite for the
relevant area.

The organisation’s approach is to minimise
exposure to reputational, financial and
operational risk, whilst accepting and
recognising a risk/reward trade-off in the
pursuit of its strategic and commercial
objectives. Operating in the construction
industry, the reputation of the Group
is imperative to its continued success
and cannot be risked. Consequently, it
has a zero tolerance for risks relating to
health and safety. However, management
recognises that certain strategic,
commercial and investment risks will be
required to seize opportunities and deliver
growth in line with the Group’s strategic
objectives.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Risk management

Changes to principal risks
since last year
The following items, which were
highlighted as principal risks in the
previous year, are not classified as such in
the current year annual report:

(cid:228)(cid:3)

Inadequate supply chain management
(the poor performance of a supply
chain partner exposing the Group to
liability for defective workmanship,
materials or design). This has been
downgraded to reflect improvements
to standard Group procurement
policies and conditions, accreditation
procedures and management teams.

Inadequate business continuity
planning (interruptions to the Group’s
fabrication facilities having greater
consequences than should be the
case). This has been downgraded
following the implementation of a
number of improvements following a
targeted strategic review performed by
internal audit (then KPMG).

The principal risk described in the
previous year’s annual report as ‘IT
failure or disruption’ has been renamed
as ‘IT resilience’ to reflect both the
improvements made to disaster recovery
planning and the greater perceived risk
of cyber-attack in the current operating
environment.

Severfield plc

www.severfield.com

Stock code: SFR

RISK MANAGEMENT

2015/16 principal risks
The board has carried out a robust assessment of the principal risks and uncertainties which have the potential to impact the Group’s
profitability and ability to achieve its strategic objectives. This list is not intended to be exhaustive. Additional risks and uncertainties
not presently known to management or deemed to be less significant at the date of this report may also have the potential to have an
adverse effect on the Group.

Our principal risks are set out below. The scoring of each risk as high, medium or low is determined by taking into account the
potential impact and likelihood associated with the crystallisation of each risk. Assessment of impact takes into account both
potential and reputational issues.

Tendering and
project execution

Link to strategy:

Link to KPIs:

High

Stable

Description
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.

As contracts progress, there are likely to be changes to the work packages being undertaken which could result in the Group not
being appropriately reimbursed for the cost of these variations as a result of poor commercial controls, disagreements or disputes.

Execution failure on a high-profile contract could result in reputational damage.

Impact
Poor contract tendering and execution could result in adverse business performance, price and margin pressure and missed growth
targets. The Group may need to resort to legal action to resolve disputes, which can be costly and may damage client relationships.

Mitigation
(cid:228)(cid:3) Continued strengthening of senior management team to improve process and discipline around contract risk assessment,

engagement and execution.

(cid:228)(cid:3) Estimating processes are in place with approvals by appropriate levels of management.
(cid:228)(cid:3) Tender settlement processes are in place to give senior management regular visibility of major tenders.
(cid:228)(cid:3) Work performed under minimum standard terms (to mitigate onerous contract terms) where possible.
(cid:228)(cid:3) Established system of monthly reviews to measure and report contract progress and estimated outturns, including contract variations.
(cid:228)(cid:3) Use of Group authorisation policy to ensure appropriate contract tendering and acceptance.

Commercial and
market environment

Link to strategy:

Link to KPIs:

Medium

Stable

Description
Changes in government and client spending or other external factors could lead to programme and contract delays or
cancellations, or changes in market growth.

Lower than anticipated demand could result 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.
Impact
A significant fall in construction activity could adversely impact revenues, profits, ability to recover overheads and cash generation.

Mitigation
(cid:228)(cid:3) Regular reviews of market trends performed (as part of the Group’s annual strategic planning process) to ensure actual and

anticipated impacts from macroeconomic risks are minimised and managed effectively.

(cid:228)(cid:3) Regular monitoring and reporting of financial performance, orders secured, hot prospects and pipeline of opportunities.
(cid:228)(cid:3) Close management of capital investment and focus on maximising asset utilisation to ensure alignment of our capacity and

volume demand from clients.

(cid:228)(cid:3) Close engagement with both customers and suppliers and monitoring of payment cycles.
(cid:228)(cid:3) Ongoing assessment of financial solvency and strength of counterparties throughout the life of contracts.
(cid:228)(cid:3) Continuing use of credit insurance to minimise impact of customer failure.
(cid:228)(cid:3) Strong balance sheet (the Group is cash-positive) supports the business through fluctuations in the economic conditions for the sector.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Risk management

Key to strategic icons:

Growth

Operational
excellence

Clients

People

India

Key performance indicator reference number:

1 Underlying operating profit and margin

2 Underlying basic earnings per share (‘EPS’)

3 Revenue growth

4 Operating cash conversion

5 Return on capital employed (‘ROCE’)

6 Order book

7 Accident frequency rate (‘AFR’)

Health and
safety

Link to strategy:

Link to KPIs:

Medium

Stable

Description
The Group works on significant, complex and potentially hazardous projects which require continuous monitoring and
management of health and safety risks. Ineffective management of health and safety issues could lead to a serious injury or death
or damage to property or equipment.

Impact
A serious health and safety incident could lead to the potential for legal proceedings, regulatory intervention, project delays,
potential loss of reputation and ultimately exclusion from future business.

Mitigation
(cid:228)(cid:3) Established safety systems, site visits, monitoring and reporting, and detailed health and safety policies and procedures, are in

place across the Group.

(cid:228)(cid:3) Thorough and regular employee training programmes, including new behavioural safety training initiatives, under the leadership

of the Group SHE director.

(cid:228)(cid:3) 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.

(cid:228)(cid:3) Priority board review of ongoing performance.
(cid:228)(cid:3) Regular reporting of and investigation and root cause analysis of accidents and near misses.
(cid:228)(cid:3) Achievement of challenging health and safety performance targets is a key element of management remuneration.

Supply chain

Link to strategy:

Link to KPIs:

Medium

Increased

Description
The Group is reliant on certain key supply chain partners for the successful operational delivery of contracts to meet client
expectations. The failure of a key supplier or a breakdown in relationships with a key supplier could result in some short-term
disruption to the Group’s operations.

Impact
Interruption of supply or poor performance by a supply chain partner could impact the Group’s execution of existing contracts, its
ability to bid for future contracts and its reputation, thereby adversely impacting financial performance.

Mitigation
(cid:228)(cid:3)

Initiatives are in place to select supply chain partners that match our expectations in terms of quality, sustainability and
commitment to client service.

(cid:228)(cid:3) Strong relationships maintained with key suppliers including a programme of regular meetings and reviews.
(cid:228)(cid:3) No single sourcing arrangements in place.
(cid:228)(cid:3) Contingency plans developed to address supplier and subcontractor failure.
(cid:228)(cid:3) Ongoing reassessment of the strategic value of supply relationships and the potential to utilise alternative arrangements.
(cid:228)(cid:3) Monthly review process to facilitate early warning of issues and subsequent mitigation strategies.
(cid:228)(cid:3)

Implementation of new purchase contract guidelines.

Severfield plc

www.severfield.com

Stock code: SFR

RISK MANAGEMENT

Indian joint venture

Link to strategy:

Link to KPIs:

Medium

Stable

Description
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.

Crucial to the long-term success of the joint venture is the development of the market for steel (rather than concrete) construction.

Impact
Failure to effectively manage operations in India could lead to financial loss, reputational damage and a drain on cash resources to
fund the operations.

Mitigation
(cid:228)(cid:3) Robust joint venture agreement.
(cid:228)(cid:3) Two members of the Group’s board of directors are members of the joint venture board.
(cid:228)(cid:3) Strong governance in place at the joint venture.
(cid:228)(cid:3) Regular formal and informal meetings held with both joint venture management and joint venture partners.
(cid:228)(cid:3) Contract risk assessment, engagement and execution process now embedded in the joint venture.
(cid:228)(cid:3) Overhead reduction and operational improvement programmes are ongoing.

Link to strategy:

Information
technology
resilience
Description
Technology failure, cyber-attack or property damage could lead to IT disruption with resultant loss of data, loss of system
functionality and business interruption.

Link to KPIs:

Medium

Increased

The Group’s core IT systems must be managed effectively, to avoid interruptions, keep pace with new technologies and respond to
threats to data and security.

Impact
Prolonged or major failure of IT systems could result in business interruption, financial losses, loss of confidential data, negative
reputational impact and breaches of regulations. If the Group fails to invest in its IT systems, it will ultimately be unable to meet the
future needs of the business and fulfil its strategy.

Mitigation
(cid:228)(cid:3)

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.

(cid:228)(cid:3) Significant investments in IT systems are subject to board approval.
(cid:228)(cid:3) Group IT committee ensures focused strategic development and resolution of issues impacting the Group’s technology

environment.

(cid:228)(cid:3) Robust business continuity plans are in place.
(cid:228)(cid:3) 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.

(cid:228)(cid:3) Cyber-crimes and associated IT risks are assessed on a continual basis.
(cid:228)(cid:3)

ISO 27001 certification project is ongoing to further improve the Group’s information security environment.

Annual report and accounts for the year ended 31 March 2016

Strategic report / Risk management

People

Link to strategy:

Link to KPIs:

Medium

Reduced

Description
In the current improving economic environment, it can become increasingly difficult to recruit capable people and retain key
employees, especially those targeted by competitors. The ability to identify, attract, develop and retain talent is crucial to satisfy
the current and future needs of the business.

Impact
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 adversely affect its ability to deliver its strategic objectives.

Mitigation
(cid:228)(cid:3) Remuneration policy is regularly reviewed (and benchmarked where possible) to ensure that it is competitive and strikes the

appropriate balance between short and long-term rewards and incentives.

(cid:228)(cid:3) Skills gaps are continually identified and actions put in place to bridge these by training, development or external recruitment.

(cid:228)(cid:3)

In 2015/16 we conducted a Group-wide review of emerging talent to ensure consistency and visibility of talent, succession
planning and career opportunity.

(cid:228)(cid:3) Annual appraisal process is now in place (providing 360 degree feedback on performance for certain employees).

(cid:228)(cid:3) Leadership and management development plans are in place.

(cid:228)(cid:3) Graduate, trainee and apprenticeship schemes are in place to safeguard an inflow of new talent.

Industrial relations

Link to strategy:

Link to KPIs:

Medium

Stable

Description
The Group (and the industry in general) has a significant number of members who are members of trade unions. Industrial action
taken by employees could impact on the ability of the Group to maintain effective levels of production.

Impact
Interruption to production by industrial action could impact both the Group’s performance on existing contracts, its ability to bid
for future contracts and its reputation, thereby adversely impacting its financial performance.

Mitigation
(cid:228)(cid:3) Employee and union engagement takes place on a regular basis.

(cid:228)(cid:3) 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.

(cid:228)(cid:3) Processes are in place to mitigate disruptions as a result of industrial action.

Severfield plc

www.severfield.com

Stock code: SFR

Annual report and accounts for the year ended 31 March 2016

Our governance

Our governance
Board of directors

Executive committee

Chairman’s letter

Corporate governance report

Audit committee report

Nominations committee report

Directors’ report

Directors’ remuneration report

— Letter from the committee chairman

— Policy

— Implementation

Directors’ responsibilities statement

G
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Severfield plc

www.severfield.com

Stock code: SFR

BOARD OF DIRECTORS

John Dodds

Appointed: 2010 (non-executive director) and 2011 (chairman)

Ian Lawson

Appointed: 2013

Non-executive chairman

Chief executive officer

Ian Cochrane

Appointed: 2013

Chief operating officer

John retired in March 2010 from Kier Group plc,
the construction and property services group, after
serving for seven years as group chief executive.
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 non-executive chairman of Lagan Construction
Holdings Limited and Sweett Group plc and a non-
executive director of Newbury Racecourse plc.

Ian was previously a main board director of Kier Group
plc. He was first appointed to the board of Kier as
executive director in 2005 with responsibility initially
for its services division and later he also assumed
responsibility for the property division. Before joining
Kier in 2000, Ian had 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.

Ian 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. He previously held the
position of Group operations director.

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.

Alan Dunsmore

Appointed: 2010

Group finance director

Alan joined the Group 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.

Derek Randall

Appointed: 2008

Executive director and managing director
at JSW Severfield Structures Limited

Derek previously held the position of executive
director for business development until his
appointment in December 2013 as managing
director of JSW Severfield Structures Limited
(JSSL), our joint venture in India.

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.

Kevin Whiteman

Appointed: 2014

Senior independent director

A chartered engineer, Kevin was chief executive of
Kelda Group and Yorkshire Water for a period of
eight years. Kevin was non-executive chairman of
both companies from 2010 to March 2015.

In 2013 he became chairman of the privately owned
NG Bailey. Kevin was previously chief executive
officer for the National Rivers Authority, regional
director of the Environment Agency, and has held
a number of senior positions within British Coal.
He was also chairman for Wales and West Gas
Networks (UK) Limited, and has been a trustee for
WaterAid UK.

Annual report and accounts for the year ended 31 March 2016

Our governance / Board of directors

Tony Osbaldiston

Appointed: 2014
Non-executive director

Alun Griffiths

Appointed: 2014

Chris Holt

Appointed: 2011

Non-executive director

A chartered accountant having qualified with PwC,
Tony was previously finance director of Max Factor
UK, Volvo Cars UK, Raymarine plc and FirstGroup
plc. He was also deputy group chief executive
officer and chief executive officer of FirstGroup
America.

Alun was previously Group HR director and board
member at WS Atkins plc, where he enjoyed a
28-year career, having held a number of business
management and corporate positions. He is a
fellow of the Chartered Institute of Personnel and
Development.

Tony 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.

Alun is also a non-executive director of the Port of
London Authority, Anchor Trust, Ramboll Group and
the McLean Partnership Limited.

Chris retired in September 2010 from MJ Gleeson
Group plc after serving two years as chief executive
officer, prior to which he held the position of 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.

Severfield plc

www.severfield.com

Stock code: SFR

EXECUTIVE COMMITTEE

Annual report and accounts for the year ended 31 March 2016

Our governance / Executive committee

Sian Evans

Group HR director
Sian joined the Group in January
2013.

Her career in human resources
started at William Morrison
Supermarkets in 1990 and
covered a wide range of industry
sectors including Ciba Specialty
Chemicals, Redcats UK and
Callcredit Information Group
where she held the position of
group HR director.

She is a fellow of the Chartered
Institute of Personnel and
Development.

Brian Keys

Managing director, Severfield (NI)
Brian joined Severfield (NI),
formerly Fisher Engineering, as
production manager in 1986. In
2007, prior to the acquisition of
Fisher Engineering by the Group,
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 career with the
Group and Severfield (NI).

Mark Sanderson

Group legal director and Company
secretary
Mark joined the Group in
September 2013.

His previous role was as group
legal director for the 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
and prior to that Pinsent Masons.

Mark has over 20 years of
experience in the construction and
engineering sector.

Martin Kelly

Group strategic business
development director
Martin, who is a chartered
accountant, joined the Group in
October 2014 from KPMG where
he was a director. He enjoyed a
16-year career with KPMG, more
recently working as a sector
specialist in the firms’ advisory
department.

Martin also spent two years
working with Arup and 10
years as a quantity surveyor
which, together with his work
at KPMG, provides him with a
comprehensive perspective of the
construction industry.

Ian Lawson

Chief executive officer
For details see board of directors
on page 58

Ian Cochrane

Chief operating officer
For details see board of directors
on page 58

Alan Dunsmore

Group finance director
For details see board of directors
on page 58

Not
pictured

Derek Randall

Executive director and managing
director at JSW Severfield
Structures
For details see board of directors
on page 58

Gary Wintersgill

Managing director, Severfield
(UK)
Gary joined the Group in November
2014, after 10 years with Kier Group
plc, the last three as managing
director of Kier northern operations.

As a fellow of the Institution of Civil
Engineers (‘ICE’), Gary has over 20
years of broad experience within
the construction industry. He acts
as a supervising civil engineer
for the ICE and is also deputy
chairman of the Construction
Council for Manchester, whose
focus is on recruitment of
apprentices into the industry.

Jim Martindale

Managing director, Severfield
(Design & Build)
Jim joined Severfield (Design
& Build), formerly Atlas Ward
Structures, in 1994 as a design
engineer. He previously held the
positions of engineering manager,
design director and deputy
managing director, a role that
he performed until his current
appointment in January 2014.

Jim has been involved in the
successful delivery of many
major projects throughout the UK
during his career with Atlas Ward
(which was acquired by the Group
in 2005). He is also an associate
member of the Institution of
Structural Engineers.

Severfield plc

www.severfield.com

Stock code: SFR

CHAIRMAN’S LETTER

In 2015/16, the audit committee
discussed and agreed the process we
are required to undertake to enable the
board to make the new viability statement
as required under the Code. The viability
statement is set out on page 41 within the
strategic report. Also within the strategic
report, our risk management section
includes the annual confirmations on risk
management and internal control that
were previously included in the corporate
governance report (see page 63). The
Group’s risk management processes
have been further enhanced in 2015/16.
The process continues to evolve through
improvements to the Group risk register
and risk assurance map, together with
the development of a new compliance
framework. The audit committee oversees
the risk management process on behalf of
the board.

In line with the requirements of the Code,
we continue to focus on ensuring that
the views presented in the annual report
are fair, balanced and understandable
and provide the information necessary
for shareholders to assess the Group’s
performance, business model and
strategy. Further details can be found in
the audit committee report on page 67.

Board effectiveness
I believe that the Group continues to
be led by a capable, experienced and
well-balanced board, strengthened by
the appointment of the three new non-
executive directors in the previous financial
year. During 2015/16, the board visited
the Group’s fabrication facilities at Dalton,
Sherburn and Enniskillen and toured the
CMF factory in Pontypool, all of which
were accompanied by local management
presentations. Such visits enabled the
non-executive directors to deepen their
knowledge and understanding of the day-
to-day functioning of the Group’s operations.

Board evaluation
During the year, an internal board
evaluation was undertaken by Kevin
Whiteman, the senior independent
director. This evaluation tested key
areas of the board’s work including
strategy, business performance, risk and
governance processes and included an
evaluation of my own performance as well
as that of individual directors. Following
this review, and recommendations from
the nominations committee, I am satisfied
that the board and its committees are
performing effectively and that there
is the appropriate balance of skills,
experience, independence and knowledge
of the Group to enable the directors to
discharge their respective duties and
responsibilities effectively. I am also
satisfied that the members of the board,
in particular the non-executive directors,
have sufficient time to undertake their
roles, so as to be able to discharge their
responsibilities effectively. Accordingly, all
directors will seek re-election at the AGM.

AGM
Our AGM this year will be held at
Aldwark Manor Hotel, York, YO61 1UF on
6 September 2016 at 12.00pm and I look
forward to seeing you then.

John Dodds
Non-executive Chairman
15 June 2016

Compliance with the UK
Compliance with the UK
Compliance with the UK
Corporate Governance
Corporate Governance
Corporate Governance
Code
CodeCode
The board considers that it and the
The board considers that it and the
Company have, throughout the year,
Company have, throughout the year,
complied without exception with
complied without exception with
the provisions of the UK Corporate
the provisions of the UK Corporate
Governance Code (September 2014),
Governance Code (September 2014),
which is the version of the Code which
which is the version of the Code which
applies to the Company for its 2015/16
applies to the Company for its 2015/16
financial year. The Code is issued by the
financial year. The Code is issued by the
FRC and is available for review on the
FRC and is available for review on the
FRC’s website (www.frc.org.uk).
FRC’s website (www.frc.org.uk).

John Dodds
Chairman

Dear shareholder
I am pleased to introduce the Group’s
corporate governance report on behalf
of our board of directors (‘the board’). We
remain committed to maintaining the high
standards of corporate governance which
we believe help to facilitate the success of
the Group and provide protection for our
shareholders.

Our corporate governance report is
set out on pages 63 to 66 and explains
how we manage the Group and comply
with the provisions of the UK Corporate
Governance Code (‘the Code’). Whilst
currently subject to the provisions of the
Code applicable to smaller companies, we
seek, where appropriate, to follow those
applicable to FTSE 350 companies.

Accountability
In September 2014, the Financial
Reporting Council (‘FRC’) published the
latest edition of the Code, which included
a number of changes around directors’
remuneration, risk management and
internal control, all of which we have
adopted.

Annual report and accounts for the year ended 31 March 2016

Our governance / Corporate governance report

CORPORATE GOVERNANCE REPORT

LEADERSHIP

SEVERFIELD PLC BOARD

EXECUTIVE DIRECTORS

PRINCIPAL COMMITTEES

EXECUTIVE COMMITTEES

AUDIT
COMMITTEE

REMUNERATION
COMMITTEE

NOMINATIONS
COMMITTEE

EXECUTIVE
COMMITTEE

RISK
COMMITTEE

SAFETY
LEADERSHIP
TEAM ('SLT')

GROUP HUMAN
RESOURCES ('GHR')
COMMITTEE

Structure of the board

The Company is controlled through the
board of directors, which consists of
the chairman, four other non-executive
directors and four executive directors.
Four of these directors have been
directors of the Company for less than
three years. The membership of the board
is stated on pages 58 and 59.

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
The board has agreed a clear division of
responsibility between the chairman and
chief executive officer and their roles and
responsibilities are clearly established
and set out in writing.

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 60 and 61.
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 business unit 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 to discuss any
key issues affecting the business.

In addition, he chairs a safety leadership
team (‘SLT’) and a Group human resources
(‘GHR’) meeting once a month, both of
which consist of certain other members
of the executive management team and
business unit managing directors.

Kevin Whiteman is the senior independent
non-executive director whose role 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.

Severfield plc

www.severfield.com

Stock code: SFR

CORPORATE GOVERNANCE REPORT

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.

At no time during the year ended 31 March
2016 did any director hold a material
interest, directly or indirectly, in any
contract of significance with the Company
or any subsidiary undertaking other than
the executive directors in relation to their
service agreements. 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
85. Save as disclosed in the directors’
remuneration report, none of the directors,
or any person connected with them, has
any interest in the share or loan capital of
the Company or any of its subsidiaries.

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’s policy is that

all of the directors 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 58 and 59 will be
standing for re-election at the 2016 AGM.

The board is satisfied that the
performance of all of the 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.

EFFECTIVENESS
Operation of the board
The board is responsible for providing
effective leadership to the Group to create
and deliver long-term shareholder value.
This includes setting the strategic direction
of the Group, reviewing all significant
aspects of the Group’s activities, overseeing
the executive management and reviewing
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 Group’s strategic direction, 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 2016 is shown in the table below.

Total number of meetings
Executive directors
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Non-executive directors
John Dodds
Kevin Whiteman
Tony Osbaldiston
Alun Griffiths
Chris Holt

Board

11/11

9/11*
10/11†
11/11

11/11
11/11
11/11
11/11
11/11

Audit
committee

Remuneration
committee

Nominations
committee

–
–
–
–

4/4
4/4
4/4
4/4
4/4

–
–
–
–

6/6
6/6
6/6
6/6
6/6

–
–
–
–

2/2
2/2
2/2
2/2
2/2

* Ian Cochrane was unable to attend two board meetings: one due to illness and one due to a family bereavement.
† Alan Dunsmore was unable to attend one board meeting due to illness.

Board meetings are held primarily at the Group’s head office in Dalton, North Yorkshire but also at various locations in London, 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.

Annual report and accounts for the year ended 31 March 2016

Our governance / Corporate governance report

Board calendar
During the financial year the board discussed and implemented the
following key actions:

April 2015
(cid:228)(cid:3) Site tour of Sherburn factory with Severfield (Design & Build)

management presentations

(cid:228)(cid:3) Discussed feedback from Capital Markets Day

(cid:228)(cid:3) Strategic review undertaken

May 2015
(cid:228)(cid:3) Site tour of Dalton factory with Severfield (UK) management

presentations

June 2015
(cid:228)(cid:3) Reviewed and approved annual report and accounts

(cid:228)(cid:3) Approved final dividend

July 2015
(cid:228)(cid:3) Reviewed feedback from investor roadshows

(cid:228)(cid:3) Approved appointment of PwC as new internal auditor

September 2015 (two meetings)
(cid:228)(cid:3) Site tour of Enniskillen factory with Severfield (NI) management

presentations

(cid:228)(cid:3) Update to strategic review undertaken

(cid:228)(cid:3) Reviewed annual statements of compliance from directors and

approved conflicts of interest

(cid:228)(cid:3) Approved enhanced risk management and internal control processes

November 2015 (two meetings)
(cid:228)(cid:3) Board site safety visit (Angel Court) and presentation by Group SHE

director

(cid:228)(cid:3) Approved investment in Composite Metal Flooring (‘CMF’) Limited

(cid:228)(cid:3) Reviewed and approved half year results

(cid:228)(cid:3) Approved interim dividend

January 2016
(cid:228)(cid:3) Reviewed feedback from investor roadshows

February 2016
(cid:228)(cid:3) Agreed scope and content of board and chairman evaluation

March 2016
(cid:228)(cid:3) Site tour of CMF factory in Pontypool with CMF management

presentations

(cid:228)(cid:3) Visit to Severfield (UK) offices in Chepstow with management

presentations from Severfield (UK) bridges division

(cid:228)(cid:3) Reviewed board and chairman evaluation results

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.

During the year, the board asked Kevin
Whiteman, the senior independent
director, to undertake a formal evaluation
of board effectiveness. This process was
undertaken using a questionnaire which
was completed by all members of the
board and focused on the performance of
the chairman and overall cohesiveness
of the board. The key points arising from
the evaluation were documented and
discussed with the chairman.

A further evaluation of the board will
be undertaken during the year ending
31 March 2017.

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 business unit management to
develop each director’s 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.

Severfield plc

www.severfield.com

Stock code: SFR

CORPORATE GOVERNANCE REPORT

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.

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.

Board committees
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 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.

Details of the work of the audit,
nominations and remuneration
committees are set out on pages 67 to 88.

ACCOUNTABILITY
Financial and business
reporting
The financial statements contain
an explanation of the directors’
responsibilities in preparing the annual
report and the financial statements
(pages 95 to 137) and a statement by the
auditor concerning their responsibilities
(page 92). The directors also report that
the business is a going concern (page 72)
and detail how the Group generates and
preserves value over the longer term (the
business model) and the Group’s strategy
for delivering its objectives in the strategic
report (pages 14 to 27). The directors have
also made a statement about the long-
term viability of the Group, as required
under the Code (page 41).

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 approval by the
board.

REMUNERATION
The directors’ remuneration report is on
pages 74 to 88. It sets out the activities of
the committee, the levels and components
of remuneration and refers to the
development of the remuneration policy.

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. 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 21 April
2016, attended by analysts and investors.
Feedback from those meetings was
reported to the board, including the non-
executive directors.

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 working days before the meeting.

Annual report and accounts for the year ended 31 March 2016

Our governance / Audit committee report

AUDIT COMMITTEE REPORT

Tony Osbaldiston
Chairman of the audit committee

THE MEMBERS HAVE
BEEN SELECTED
TO PROVIDE THE
WIDE RANGE OF
FINANCIAL AND
COMMERCIAL
EXPERTISE
NECESSARY
TO FULFIL THE
COMMITTEE’S
DUTIES.”

Members
Tony Osbaldiston (chairman)
Kevin Whiteman
Alun Griffiths
Chris Holt
John Dodds

All committee members during the
year were independent non-executive
directors in accordance with the Code.
The members have been selected to
provide the wide range of financial and
commercial expertise necessary to fulfil
the committee’s duties; Tony Osbaldiston
and Chris Holt are chartered accountants.

By invitation, there were a number of other
regular attendees including the Group
finance director, Group financial controller
and the internal and external auditors.
The chief executive officer and the Group
legal director and Company secretary
also attended each meeting by invitation.

Meetings are held at least three times
per annum and additional meetings may
be requested by the external auditor. The
committee met on four occasions
during the year.

Role
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 (Listing Authority Rules for
companies listed on the London Stock
Exchange), 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:

(cid:228)(cid:3) To monitor the integrity of the

financial statements and formal
announcements and to review
significant financial reporting
judgements.

(cid:228)(cid:3) To review the Group’s internal financial

controls.

(cid:228)(cid:3) To make recommendations to the

board in relation to the appointment
and removal of the external auditor
and to approve its remuneration and
its terms of engagement.

(cid:228)(cid:3) To review the nature of non-audit

services supplied and non-audit fees
relative to the audit fee.

(cid:228)(cid:3) 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.

(cid:228)(cid:3) To oversee the effectiveness of the

internal audit process.

(cid:228)(cid:3) To oversee the effectiveness of the
external audit process particularly
with regard to the quality and cost-
effectiveness of the auditor’s work.

(cid:228)(cid:3) To report to the board how it has
discharged its responsibilities.

Activities of the committee
(cid:228)(cid:3) Reviewed the interim results for the

period ended 30 September 2015 and
the year-end results for the period
ended 31 March 2016.

(cid:228)(cid:3) Reviewed the significant management
judgements reflected in the Group’s
results including significant contract
judgements and the carrying value of
goodwill and investments.

(cid:228)(cid:3) Reviewed and agreed significant
accounting risks and principal
business risks for the year ended
31 March 2016.

Severfield plc

www.severfield.com

Stock code: SFR

AUDIT COMMITTEE REPORT

In carrying out the above processes,
key considerations included ensuring
that there was consistency between the
financial statements and the narrative
provided in the front half of the annual
report, that there is a clear and well-
articulated link between all areas of
disclosure and that the strategic report
focused on the balance between the
reporting of weaknesses, difficulties and
challenges, as well as successes, in an
open and honest manner.

Risk management and
internal control
The board as a whole, including the audit
committee members, considers the nature
and extent of the Group’s risk management
framework and the risk profile that is
acceptable in order to achieve the Group’s
strategic objectives. As a result, it is
considered that the board has fulfilled its
obligations under the Code.

Details of the Group risk management
and internal control processes are set
out in the risk management section of the
strategic report on pages 48 to 55.

Whistleblowing
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
committee reviews adherence with this
policy on an ongoing basis.

Viability statement
Prior to the publication of the full-year
results for 2015/16, the committee
undertook a detailed assessment of the
viability statement and recommended to
the board that the directors can believe
that they have a reasonable expectation
that the Company will be able to continue
in operation and meet its liabilities as they
fall due over the three-year period of their
assessment. The viability statement can be
found on page 41 of the strategic report.

(cid:228)(cid:3) Provided oversight of the process used
by executive management to enable
the board to make the new viability
statement, including review of the
appropriateness of the three-year
viability period.

(cid:228)(cid:3) Reviewed the additional measures
taken by management to monitor
and review the effectiveness of the
Group’s risk management processes in
response to changes to the Code.

(cid:228)(cid:3) Reviewed and agreed the external
auditor’s audit planning report in
advance of the audit for the year ended
31 March 2016.

(cid:228)(cid:3) Discussed the report received from
the external auditor regarding the
audit of the results for the year ended
31 March 2016. 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.

(cid:228)(cid:3) Proposed the appointment of PwC LLP
(‘PwC’) as internal auditor, reviewed
their internal audit plan and internal
audit reports covering various aspects
of the Group’s operations, controls and
processes.

(cid:228)(cid:3) Reviewed the Group’s risk register.

(cid:228)(cid:3) Considered the effectiveness of the

external auditor, KPMG LLP (‘KPMG’),
their independence and reappointment
for the year ending 31 March 2017.

Fair, balanced and
understandable
The committee was provided with, and
commented on, a draft copy of the annual
report. At the request of the board, the
committee also considered whether
the annual report was fair, balanced
and understandable and whether it
provided the necessary information
for shareholders to assess the Group’s
performance, business model and
strategy. The committee is satisfied
that, taken as a whole, the annual report
and accounts is fair, balanced and
understandable.

Internal audit
The Group’s internal audit function is
currently outsourced to PwC, who were
appointed in September 2015. This
followed the decision to appoint KPMG,
who had previously acted as internal
auditor, as the Group’s external auditor,
their formal appointment being confirmed
at the AGM on 2 September 2015. During
the year ended 31 March 2016, as
previously agreed with the committee,
KPMG delivered a further three non-
financial reviews but conducted no further
reviews of key financial controls.

The committee is responsible for
reviewing the role and effectiveness of
the internal audit function by monitoring
the results of its work and the responses
of management to its recommendations.
The committee reviewed and approved
PwC’s three-year internal audit plan at
its meeting in February 2016. The scope
of PwC’s work focused on key financial
controls and non-financial reviews
covering areas of perceived higher
business risk. Results and management
actions arising from reviews undertaken
by both KPMG and PwC in the current year
were also discussed in detail at each of
the committee’s meetings.

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.

Annual report and accounts for the year ended 31 March 2016

Our governance / Audit committee report

The two significant issues considered
during the year are detailed below:

(cid:228)(cid:3) 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 their findings to the
committee.

(cid:228)(cid:3) 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 assets being
tested for impairment, primarily the
achievability of long-term business
plans and macroeconomic assumptions
underlying the valuation process.

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 2015/16 results. These include
the valuation of pension scheme liabilities
and the remedial costs associated with
the Leadenhall bolts issue, which resulted
in a non-underlying charge of £6m being
recorded in the 2014/15 results.

Audit tendering
The committee considers the
reappointment of the external auditor,
including the rotation of the audit
partner, annually. This also includes an
assessment of the external auditor’s
independence and an assessment of the
performance in the previous year, taking
into account detailed feedback from
directors and senior management across
the Group.

The statutory audit services order (‘the
Order’) requires rotation of audit firms
every 10 years unless there is a tender, in
which case the audit firm can remain as
auditor for up to 20 years.

The Group conducted a rigorous audit
tender process beginning in September
2014. As a result of the tender, KPMG
replaced Deloitte as the Group’s external
auditor. KPMG carried out the review of
the Group’s 2015/16 interim results and
have just completed their first full audit of
the 2015/16 financial statements.

The external auditor is required to
rotate the audit partner responsible for
the Group audit every five years. The
audit partner is Adrian Stone, whose
appointment in this role commenced with
the audit for the financial year ended
31 March 2016. Adrian and members
of his team attended each of the audit
committee meetings during the current
year. As chairman of the committee, I also
maintain regular contact with the audit
partner. The committee routinely meets
KPMG without executive management
present and no concerns have been
raised. It was confirmed that the external
auditor had been able to offer rigorous
and constructive challenge to executive
management during the year.

The committee will continue to assess the
performance of the external auditor on
an ongoing basis to ensure that they are
satisfied with the quality of the services
provided.

Non-audit services
The Group’s policy on the engagement of
the external auditor for non-audit related
services is designed to ensure that the
provision of such services does not impair
the external auditor’s independence or
objectivity. Under no circumstances will
any assignment be given to the external
auditor, when the result would be that:

(cid:228)(cid:3) as part of the statutory audit, it is

required to report directly on its own
non-audit work;

(cid:228)(cid:3)

it makes management decisions on
behalf of the Group; or

(cid:228)(cid:3)

it acts as advocate for the Group.

There is no inconsistency between the
Financial Reporting Council’s ethical
standards and the Group’s policy.

Other categories, such as audit-related
services or work which, because of the
auditor’s existing knowledge of the Group’s
business, could be more effectively
carried out by it, may, if not on the list of
prohibited services, be carried out by the
external auditor subject to the advance
approval of the Group finance director
or, if the fees for such services exceed an
absolute limit or a specified proportion of
the audit fee, the advance approval of the
audit committee. Details of the auditor’s
fees, including non-audit fees, are shown
in note 4 to the consolidated financial
statements.

The committee notes that the FRC
published its final draft revised ethical
standard for auditors on 28 April 2016.
This becomes effective on 17 June 2016.
The standard applies further restictions
to the non audit services which might
be undertaken by the Group’s auditor.
The committee will review these new
restrictions during the course of the
year with a view to ensuring that the
Group’s practices align fully with the new
standard.

Tony Osbaldiston
Chairman of the audit committee
15 June 2016

Severfield plc

www.severfield.com

Stock code: SFR

NOMINATIONS COMMITTEE REPORT

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 unusual and as at 31 March 2016, 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.

The Group’s policy on diversity applies
across all levels of the organisation, not
just the board, further details of which
can be found on page 46. The board
recognises that gender diversity below
board level remains an issue, particularly
in management and technical roles within
the construction industry.

Succession planning
The committee ensures the continued
effectiveness of the board through
appropriate succession planning. This
worked effectively in 2014 when three new
non-executive directors were recruited to
the board. More work has been done this
year to formalise the process of ongoing
succession planning across the Group.

Evaluation
The committee (led by Kevin Whiteman)
performed an internal evaluation using
the process described on page 65. The
results of the evaluation were positive,
following the significant changes made
to the board in the previous year. The key
points arising from the evaluation were
documented and discussed with the
chairman.

John Dodds
Chairman of the nominations committee
15 June 2016

Members
John Dodds (chairman)
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt

The committee met on two occasions
during the year.

Role
The primary function of the committee
is to deal with key appointments to the
board, and related employment matters.
The responsibility of the committee
principally falls into the following areas:

(cid:228)(cid:3) To review the structure, size and

composition of the board.

(cid:228)(cid:3) To make recommendations to the
board for any changes considered
necessary.

(cid:228)(cid:3) To approve the description of the

role and capabilities required for a
particular appointment.

(cid:228)(cid:3) To ensure suitable candidates are
identified, having due regard for
the benefits of diversity on the
board, including gender, and are
recommended for appointment to the
board.

The committee’s terms of reference are
available on the Group’s website (www.
severfield.com) and on request from the
Company secretary.

Board effectiveness
The committee has had a relatively quiet
2015/16. There have been no new board
appointments as the board is currently
at full strength, and considered to be
operating effectively. The board now
consists of nine directors, four of whom
have been directors of the Company for
less than three years.

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

John Dodds
Chairman of the nominations committee

THE PRIMARY
FUNCTION OF THE
COMMITTEE IS TO
DEAL WITH KEY
APPOINTMENTS TO
THE BOARD.”

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ report

DIRECTORS’ REPORT

Introduction
The directors present their report together
with the audited consolidated financial
statements for the year ended 31 March
2016.

As permitted by legislation, some of
the matters normally included in this
report have instead been included in the
strategic report on pages 14 to 55 as the
board considers them to be of strategic
importance. Specifically, these relate
to the Company’s business model and
strategy, future business developments,
research and development activities and
risk management.

The corporate governance report on pages
63 to 66 is incorporated in this report by
reference.

There have been no significant events
since the balance sheet date.

Directors
The present membership of the board is
set out on pages 58 and 59.

The other significant commitments of
the chairman consist of acting as non-
executive chairman of Lagan Construction
Holdings Limited and Sweett Group plc
and non-executive director of Newbury
Racecourse plc.

The service agreements of the executive
directors and the letters of appointment of
the non-executive directors are available
for inspection at the Company’s registered
office. Brief details are also included in
the directors’ remuneration report on
page 79.

Appointment and
replacement of directors
In accordance with the Company’s
articles, directors shall be no fewer 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.

Directors’ indemnities
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.

Significant shareholdings
As at 6 June 2016, 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:

Name

1. JO Hambro Capital Management
2. M&G Investments
3. Threadneedle Investments
4. Artemis Investment Management
5. Legal & General Investment Management
6. River & Mercantile Asset Management
7. Invesco (including Perpetual & Trimark)

Ordinary
2.5p share

49,653,703
44,349,496
27,882,392
23,936,898
20,415,981
17,132,841
15,710,935

16.69
14.91
9.37
8.05
6.86
5.76
5.28

Severfield plc

www.severfield.com

Stock code: SFR

Additional disclosures
Additional information that is relevant
to this report, and which is incorporated
by reference into this report, including
information required in accordance with
the UK Companies Act 2006 and Listing
Rule 9.8.4R, can be located as follows:

(cid:228)(cid:3) Employee involvement and

engagement – pages 45 and 46

(cid:228)(cid:3) Equal opportunities (including for the

disabled) – page 46

(cid:228)(cid:3) Greenhouse gas emissions – page 45

(cid:228)(cid:3) Long-term incentive plans – pages 78
and 79 of the directors’ remuneration
report

(cid:228)(cid:3) Statement of directors’ interests – page
85 of the directors’ remuneration report

(cid:228)(cid:3) Financial instruments – note 20 to the

Group financial statements

(cid:228)(cid:3) Credit, market, foreign currency and
liquidity risks – note 20 to the Group
financial statements

(cid:228)(cid:3) Related party disclosures – note 30 to

the Group financial statements

DIRECTORS’ REPORT

Share capital
The Company has a single class of share
capital which is divided into ordinary
shares of 2.5p each. No other securities
have been issued by the Company. At
31 March 2016, there were 297,503,587
ordinary shares in issue and fully paid.
Further details relating to share capital,
including movements during the year,
are set out in note 22 to the financial
statements. At the Company’s Annual
General Meeting (‘AGM’) held on
2 September 2015, shareholders
authorised the Company to make
market purchases of ordinary shares
representing up to 10 per cent of its
issued share capital at that time and to
allot shares within certain limits approved
by shareholders. These authorities will
expire at the 2016 AGM (see below) and a
renewal will be sought. The Company did
not purchase any of its ordinary shares
during the year. Further details regarding
employee share-based payment schemes
are set out in note 21.

Voting rights and restrictions
on transfer of shares
All of the issued and outstanding ordinary
shares of the Company have equal voting
rights, with one vote per share. There are
no special control rights attaching to
them save that the control rights of any
ordinary shares held in the EBT can be
directed by the Company to satisfy the
vesting of outstanding awards under its
various employee share plans. In relation
to the EBT and any unallocated Company
shares held in it, the power to vote or not
vote is at the absolute discretion of the
trustee. The Company is not aware of any
agreements or control rights between
existing shareholders that may result in
restrictions on the transfer of securities or
on voting rights. The rights, including full
details relating to voting of shareholders
and any restrictions on transfer relating
to the Company’s ordinary shares, are set
out in the articles and in the explanatory
notes that accompany the Notice of the
2015 AGM. These documents are available
on the Company’s website at www.
severfield.com.

Dividends
The directors declared an interim dividend
for the six months ended 30 September
2015 of 0.5p per ordinary share (2015: no
dividend was declared). The directors
have recommended a final dividend of
1.0p per ordinary share to be paid on
16 September 2016 to shareholders on
the register at the close of business on
19 August 2016.

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 expire
in July 2019 and can be terminated upon a
change of control of the Group.

The Company’s share plans contain
provisions that take effect in such an
event but do not entitle participants to
a greater interest in the shares of the
Company than created by the initial grant
or award under the relevant plan.

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 year.

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 at least 12
months from the approval of the financial
statements. 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 36
to 41.

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ report

Annual general meeting
The notice concerning the AGM to be held
at Aldwark Manor Hotel, York at noon on
Tuesday 6 September 2016, 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 71 to 73
inclusive was approved by the board and
signed on its behalf by:

Mark Sanderson
Company secretary
15 June 2016

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 they ought
to have taken as a director in order to
make themselves 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.

External auditor
KPMG LLP acted as the auditor for the
Company for the year ended 31 March
2016. KPMG has expressed its willingness
to continue in office as external auditor
and a resolution to appoint it will be
proposed at the forthcoming AGM.

Mark Sanderson
Company secretary

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

REMUNERATION POLICY IS ALIGNED WITH
THE PRIORITIES OF SHAREHOLDERS IN
INCENTIVISING MANAGEMENT TO MEET
DEMANDING SHORT-TERM TARGETS AND TO
DELIVER SUSTAINABLE GROWTH OVER THE
LONGER TERM, WHILST ENSURING THAT
HIGH SAFETY STANDARDS ARE ACHIEVED.

Dear shareholder
Performance and
remuneration in 2015/16
The Group performed strongly during the
year making further progress against its
strategic objectives of growth, margin
improvement and stabilising India. This
progress was underlined by the Group’s
excellent year-end cash position.

Remuneration policy is aligned with the
priorities of shareholders in incentivising
management to meet demanding short-
term targets and to deliver sustainable
growth over the longer term, whilst
ensuring that high safety standards are
achieved. Fifty per cent of any bonus is
paid in shares, deferred for three years,
and specific provisions are included
for clawback in the event of material
misstatement, error or gross misconduct.

Remuneration policy
Shareholders approved the remuneration
policy of the Group in 2014 with a vote in
favour of 99.8 per cent. The policy report,
which remains unchanged, is included for
information purposes.

Annual remuneration report
The annual remuneration report describes
the implementation of this policy, in
particular in relation to reward for
performance in 2015/16.

I am pleased to report that both the base
financial and safety targets set by the
board were met, resulting in a bonus pay
out of 63 per cent of the maximum
(42 per cent of the maximum for India).
In 2014/15, the non-underlying remedial
costs of £6m for the Leadenhall building
were excluded when determining the
bonus pay out on the basis that any future
recovery of these costs would not be
included in underlying profit before tax
(‘PBT’). In 2015/16, no Leadenhall costs
were recovered.

The targets for the 2013 PSP award (PBT
of between £8m and £18m) were met
resulting in the expected vesting of these
awards at 64 per cent of maximum.

During the year, the salary of the Group
finance director, Alan Dunsmore was
increased by 6 per cent. This reflected
both his strong performance during the
year and the fact that his salary had
fallen materially behind the market, as
confirmed by external benchmarking
information. The other directors received
a 3 per cent increase which was broadly
in line with that received by the UK
workforce. In all cases the increases were
effective from 1 July 2015.

Alun Griffiths
Chairman of the remuneration committee

I AM PLEASED TO
REPORT THAT BOTH
THE BASE FINANCIAL
AND SAFETY
TARGETS SET BY THE
BOARD WERE MET.”

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ remuneration report

Implementation of policy for
2016/17
Whilst overall policy currently remains
unchanged, the board has decided to
increase the PSP award to be granted in
2016/17 for the Group finance director
from 75 per cent to 100 per cent of
salary (policy maximum of 150 per cent
of salary). This brings the level of award
for this executive into line with the
market and strengthens the value of his
performance and retention incentive.

Ahead of the 2017 AGM, when our
remuneration policy will be subject to
shareholder approval, we will review the
structure of future PSP awards to ensure
that the award levels and targets continue
to provide an appropriate incentive in line
with market practice.

Salaries for the directors will be reviewed
in October of this year after the conclusion
of the pay review across the Group and
will be backdated to 1 July 2016. No
increases are planned for the chairman or
non-executive directors.

Targets for 2016/17
The financial and safety performance
targets for the 2016/17 bonus reflect the
continued strong forward momentum of
the Group. The committee considered the
balance of financial and non-financial
measures, as well as the appropriateness
of each measure, and considers that these
remain appropriate for the year ahead.

The share plan targets are intended to
incentivise management to maintain this
momentum and will require the Group
to deliver earnings per share (‘EPS’) in
the range of 5.06p to 6.53p in 2018/19.
This equates to a PBT range of £18.6m
to £24.0m. This represents an increase
in the lower vesting threshold of £2.6m
per annum (16 per cent) and holds the
threshold at which maximum vesting
takes place at £24.0m. This represents a
narrower vesting range which the board
feels is more realistic, whilst remaining
appropriately stretching, particularly
in the context of current expectations
of the external market over the next
performance cycle.

Conclusion
The committee is committed to
maintaining high levels of disclosure and
transparency by explaining in more detail
how it has reached decisions regarding
the achievement of performance targets.
Linking pay to performance is critical and
as such, the committee has endeavoured
to set future bonus and share plan targets
at a level which incentivises and rewards
management but only for performance
at a level which also ensures appropriate
returns for shareholders. The committee
will continue to engage with shareholders
to ensure that the policy of the Group
remains appropriate.

Alun Griffiths
Chairman of the remuneration committee
15 June 2016

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

This report complies with the provisions of the Companies Act 2006, the Large and Medium-sized Companies and Groups Regulations
2008 as amended in 2013, the UK Corporate Governance Code 2014 and the UKLA Listing Rules and the Disclosure and Transparency
Rules. The remuneration committee has also taken into consideration guidelines published by institutional investor advisory bodies
such as the Investment Association and the NAPF.

The report is in two sections:

(cid:228)(cid:3) a summary of the directors’ remuneration policy (pages 76 to 81). This section contains details of the remuneration policy approved

at the 2014 AGM and is for information only; and

(cid:228)(cid:3) the directors’ annual remuneration report (pages 81 to 88). This section sets out the details of how our remuneration policy was

implemented for the year ended 31 March 2016 and how we intend to apply it for the year ending 31 March 2017, and it is subject
to an advisory vote at this year’s AGM.

Summary of directors’ remuneration policy
The remuneration policy was approved at 2014’s AGM. Provided for information only are the details of the policy that were referenced
in the committee’s activities over the past reporting year which includes the remuneration policy table, the recruitment remuneration
arrangements, executive director service contracts and terms and conditions for non-executive directors.

The full policy report, as approved by shareholders, can be found on page 66 in the 2014 annual report.

Find out more information on our
website www.severfield.com

It is intended this policy will remain in place until the 2017 AGM.

Remuneration policy

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.

Our review takes into account levels of increase across the broader workforce, changes in responsibility, and a periodic remuneration
review for comparable companies.

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.

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.

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ remuneration report

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 Group currently provides the following employee benefits:

(cid:228)(cid:3) Life assurance at four times salary

(cid:228)(cid:3) Medical insurance for self with option to purchase for family

(cid:228)(cid:3) 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.

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
Group contribution to defined contribution scheme (own or the Group’s), a cash supplement or a combination of both up to the
maximum value.

Director has no obligation to match Group contributions.

Maximum opportunity
Twenty 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 where
the Group pays a fixed contribution/cash supplement of £50,000
p.a.).

For international assignments the Group may be required
to make additional payments to comply with local statutory
requirements.

Performance conditions
No recovery provisions apply to pension benefits.

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

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 Group’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 rebalance 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 rate (‘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 83.

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 remuneration report.

No more than 25 per cent of an award will vest for performance
at the lower threshold of EPS targets.

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ remuneration report

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 introduced a sharesave scheme in February 2015.

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.

Notes to the policy table
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 long-term incentive plan currently
incorporates an EPS performance
measure, which is a key financial metric
that 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
remuneration report.

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 committee retains discretion,
consistent with market practice, in a
number of regards to the operation and
administration of these plans.

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.

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 Group’s major shareholders.

Executive directors’ service
agreements
All executive directors’ service agreements
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 or to any proportion of
unexpired notice period.

Full 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 committee will consider
mitigation to reduce the termination
payment to a leaving director when
appropriate to do so, having regard to the
circumstances.

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.

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

In the case of an external hire, if it is
necessary to buy out 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 Group’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.

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).

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.

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.

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).

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.

The above policy applies to both an
internal promotion to the board or an
external hire.

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ remuneration report

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.

Element

Purpose and link to strategy

Operation (including maximum levels)

Fees

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 and 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 Group’s incentive
arrangements or 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.

The terms of reference for the
remuneration committee are available on
the Company’s website.

Advisers to the committee
The committee retained New Bridge
Street (an Aon plc company) as an
independent adviser to the remuneration
committee throughout the year. New
Bridge Street is a member of the
Remuneration Consultants Group and is
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 for work carried out
during the year ended 31 March 2016
totalled £9,000 (2015: £46,000).

What are the terms of
appointment of the non-
executive directors?
The chairman’s 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 REMUNERATION
REPORT
In this section, we report on the
implementation of our policies in the year
ended 31 March 2016 as well as how the
policy will be implemented for 2016/17. 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.

IMPLEMENTATION OF
POLICY FOR 2015/16
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:

Alun Griffiths (chairman)
John Dodds
Chris Holt
Kevin Whiteman
Tony Osbaldiston

6/6
6/6
6/6
6/6
6/6

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.

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

Directors’ earnings for the 2015/16 financial year (audited)
Remuneration received by the directors

£000

Executives
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt

Salary

Bonus

Fees

Benefits

Pension

LTIPs*

Total

Year ended 31 March 2016

366
288
242
236

—
—
—
—
—
1,132

231
181
152
102

—
—
—
—
—
666

—
—
—
—

100
45
45
45
40
275

28
25
16
—

—
—
—
—
—
69

73
50
50
50

—
—
—
—
—
223

204
159
131
131

—
—
—
—
—
625

902
703
591
519

100
45
45
45
40
2,990

Taxable benefits include the provision of company cars, fuel for company cars, car and accomodation allowances and private medical
insurance. LTIPs reflect those PSP awards vesting based on performance to 31 March 2016.

* Calculated at 64 per cent of maximum award x the average share price over the period 1/1/16 to 31/3/16 of 57.97p.

Year ended 31 March 2015

£000

Salary

Bonus

Fees

Benefits

Pension

LTIPs

Total

Executives
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Non-executives
John Dodds
Tony Osbaldiston (from 19/7/14)
Kevin Whiteman (from 19/7/14)
Alun Griffiths (from 1/5/14)
Chris Holt
Toby Hayward (to 19/7/14)
Keith Elliott (to 19/7/14)

356
280
230
230

—
—
—
—
—
—
—
1,096

231
182
149
189

—
—
—
—
—
—
—
751

—
—
—
—

100
32
32
41
40
18
18
281

23
16
22
—

—
—
—
—
—
—
—
61

71
50
50
50

—
—
—
—
—
—
—
221

—
—
—
—

—
—
—
—
—
—
—
—

681
528
451
469

100
32
32
41
40
18
18
2,410

Taxable benefits include the provision of company cars, fuel for company cars, car allowances and private medical insurance. LTIPs
reflect those PSP awards vesting based on performance to 31 March 2015.

Remuneration received by the directors
During the year the salary for the Group finance director, Alan Dunsmore was increased by 6 per cent following a review which
reflected both his strong performance and the fact that his salary had fallen materially behind the market, as confirmed by external
benchmarking information provided by New Bridge Street. The other directors received a 3 per cent increase, which was broadly in
line with that received by the UK workforce. In all cases the increases were effective from 1 July 2015.

Past directors/loss of office payments (audited)
There have been no payments made to past directors or any payment for loss of office.

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ remuneration report

How pay linked to performance in 2015/16
Bonus
The executive directors will receive the bonuses set out in the table below, of which 50 per cent will be paid in shares deferred for
three years.

Under the rules of the Group’s deferred share bonus plan the participants will have beneficial ownership of the shares, the share
certificates are retained by the Company secretary for a period of three years and, unless otherwise determined by the remuneration
committee, are subject to forfeiture provisions in the event of termination of employment prior to the expiry of this period.

Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall

£231,000
£181,000
£152,000
£102,000

As reported last year, the bonus plan applicable to the executive directors for 2015/16 had two separate performance conditions:

(cid:228)(cid:3) Eighty per cent was payable on achieving budgeted Group PBT (with exception of Derek Randall who, whilst he remains in India,
has the profit performance-based component of his bonus split 50/50 between Group PBT and PBT for India). The financial
element begins to pay out at 95 per cent of budgeted Group PBT, rising to 50 per cent of this element being payable for achieving
budget and full payout for achieving 120 per cent of budget.

(cid:228)(cid:3) Twenty per cent was payable based on achieving a target Group AFR (with the exception of Derek Randall who, whilst he remains

in India, has the AFR-based component of his bonus based on AFR (India)).

Our policy is to disclose annual PBT and AFR targets retrospectively following the end of the performance period, unless, in the view
of the remuneration committee, this would compromise the commercial position of the Group.

The targets for 2015/16 and the payout against these targets are set out below:

All directors (excluding Derek Randall):

Measure

Group PBT*
Group AFR

% of maximum
bonus
opportunity

Performance required

Threshold

On-target

Maximum

80%
20%

£12.4m
0.28

£13.0m
0.28

£15.6m
0.28

Actual

£13.2m
0.25

% of
bonus paid

54%
100%

Pay out
as %
of salary

43%
20%
63%

* For Group PBT, ‘threshold’ represents 95 per cent of budget, ‘on-target’ represents 100 per cent of budget and ‘maximum’ represents 120 per cent of budget.

The total bonus pay out of 63 per cent of salary above applies to all executive directors with the exception of Derek Randall who has
the profit performance-based component of his bonus split 50:50 between Group PBT and JSSL (India) PBT and whose AFR-based
component is dependent on the performance of India alone. Based on the year-end results Derek achieved a total bonus pay out of 43
per cent as follows:

Derek Randall (JSSL managing director):

Measure

Group PBT*
JSSL (India) PBT*
JSSL (India) AFR

% of maximum
bonus
opportunity

Performance required

Threshold

On-target

Maximum

Actual

40%
£12.4m
40% Loss of 12.4 CR
0.12
20%

£13.0m

£13.2m
Break-even Profit of 12.4 CR Loss of 11.4 CR
0.00

£15.6m

0.12

% of
bonus paid

54%
4%
100%

Pay out
as %
of salary

22%
2%
20%
43%

* For Group and JSSL PBT, ‘threshold’ represents 95 per cent of budget, ‘on-target’ represents 100 per cent of budget and ‘maximum’ represents 120 per cent of

budget.

In determining the achievement of bonus targets for 2015/16, the committee took into account that no Leadenhall costs were
recovered and hence no recoveries were treated as underlying PBT in the current year.

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

PSP
The 2013 PSP awards are due to vest in June 2016, subject to the achievement of an EPS performance condition measured over the
three financial years ended 31 March 2016. The minimum EPS figure required for vesting of 25 per cent of the award was c.2.15p
which equates to a PBT of £8.0m. The EPS figure required for vesting at maximum of 100 per cent of the award was c.4.87p which
equates to a PBT of £18.0m. The actual PBT achieved was £13.2m which equates to EPS of 3.67p and therefore it is estimated that 64
per cent (taking into account linear interpolation) of these awards will vest subject to continued service. A summary is set out below:

PSP awards granted to directors in 2015/16 (audited)
Share awards were made in the year under the PSP scheme for the three-year period expiring on 31 March 2018. Details of the
awards made to the executive directors are summarised below.

Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall

Type

Nil-cost option
Nil-cost option
Nil-cost option
Nil-cost option

Number of
shares

513,262
302,366
248,656
248,656

% of salary

Face value (£)1

Performance
condition2

Performance
period

% vesting at
threshold

100%
75%
75%
75%

358,000
210,900
173,438
173,438

EPS

3 financial
years ending
31 March
2018

25%

1. Face value calculated based on the pre-grant date share price of 69.75p on 17 June 2015.
2. Performance conditions are based on EPS targets of 4.30p (minimum performance — 25% vests) to 6.45p (maximum performance – 100% vests) with linear

interpolation in between. This represents a PBT range of £16m–£24m.

The PSP and the annual bonus plan contain recovery and withholding (i.e. clawback) provisions which can be applied within a year of
a PSP award vesting (i.e. within four years of grant) or within a year of a bonus being paid. Clawback can be applied where it becomes
apparent that a PSP award or bonus was larger than ought to have been the case due to the Company having materially misstated
its financial results or made an error in assessing any performance condition or bonus. Clawback can also be applied in the case of
subsequently discovered misconduct of a relevant individual. The amount of the relevant clawback would be the net of tax amount
(or the full amount to the extent that the individual can recover any tax paid) that had effectively been overpaid in the case of
misstatement or error or would be at the committee’s discretion in the case of misconduct. Clawback can be imposed by a reduction
in the amount of any unvested PSP award, a reduction in the amount of any future bonus or by a requirement to pay back the amount
in question (with a right to deduct from salary).

Outstanding share awards at the year-end (audited)
Details of share awards under the PSP to the executive directors which were outstanding at the year-end are shown in the following table:

Year of
award

Vesting date
(June)

Performance
condition

Awards held at
1 April 2015

Awards granted
in year

Awards lapsed
in year

Awards vested
in year

Awards held at
31 March 2016

2013
2014
2015

2012
2013
2014
2015

2016
2017
2018

2015
2016
2017
2018

EPS
EPS
EPS

EPS
EPS
EPS
EPS

549,020
632,054
—
1,181,074
153,181
429,688
372,460
—
955,329
272,209
353,359
306,298
—
931,866
272,209
353,359
306,298
—
931,866

—
—
513,262
513,262

—
—
302,366
302,366
—
—
—
248,656
248,656
—
—
—
248,656
248,656

—
—
—
—
(153,181)
—
—
—
(153,181)
(272,209)
—
—
—
(272,209)
(272,209)
—
—
—
(272,209)

549,020
—
632,054
—
—
513,262
— 1,694,336
–
—
429,688
—
—
372,460
302,366
—
— 1,104,514
—
—
353,359
—
306,298
—
248,656
—
908,313
—
—
—
353,359
—
306,298
—
248,656
—
908,313
—

Director

Ian Lawson

Total
Ian Cochrane

Total
Alan Dunsmore

Total
Derek Randall

Total

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ remuneration report

Performance conditions are based on a range of EPS targets as follows:

2013 award1
2014 award2
2015 award3

1. Represents a PBT range of £8m–£18m.
2. Represents a PBT range of £12m–£24m.
3. Represents a PBT range of £16m–£24m.

Threshold
(25% vests)

Maximum
(100% vests)

2.15p
3.23p
4.30p

4.87p
6.45p
6.45p

Directors’ current shareholdings (audited):
The following table provides details on the directors’ beneficial interests in the Company’s share capital as at 31 March 2016:

Executives
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt

Owned
shares1

Share
incentive
plan (SIP)2

Sharesave
scheme

DSBP3

PSP4

Total5

82,431
2,708,979
50,000
50,000

319,833
—
—
30,000
53,097

4,562
11,924
11,924
4,667

33,003
33,003
33,003
—

111,139
148,409
56,591
88,903

1,694,336
1,104,514
908,313
908,313

1,925,471
4,006,829
1,059,831
1,051,883

—
—
—
—
—

319,833
—
—
30,000
53,097

Includes shares owned by connected persons.

1.
2. SIP shares are unvested and held in trust.
3. The principal terms of the deferred share bonus plan are described on page 78.
4. PSP shares are in the form of conditional awards which will only vest on the achievement of certain performance conditions. The total includes 2013 awards

which had not actually vested as at 31 March 2016.

5. As at 31 March 2016, only Ian Cochrane satisfies the Company’s shareholding guideline (see page 81). 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 Investment Association’s principles of executive remuneration. These principles require that
commitments under all of the Group’s share ownership schemes (including the share incentive plan (SIP), sharesave scheme and the
PSP) must not exceed 10 per cent of the issued share capital in any rolling 10-year period. The Group’s position against its dilution
limit as at 31 March 2016 was well under the maximum 10 per cent limit at 3.7 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 seven-year period
ended 31 March 2016.

This index was selected as it represents a broad equity market index and an appropriate comparator group of companies over the
period.

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

Total shareholder return
Source: Datastream (Thomson Reuters)

£
250

200

150

100

n
r
u
t
e
r

r
e
d
l
o
h
e
r
a
h
s
l

a
t
o
T

Mar 2009

Mar 2010

Mar 2011

Mar 2012

Mar 2013

Mar 2014

Mar 2015

Mar 2016

Severfield plc

FTSE Small Cap Index

Chief executive officer remuneration change
The table below shows the total remuneration figure for the chief executive officer role over the same seven-year period. Total
remuneration includes bonus and the value of PSP awards which vested (or in the case of 2016 are expected to vest) based on
performance in those years (at the share price at which they vested or, in the case of the 2016 figures, at the average share price for
the quarter immediately prior to the year-end).

2009
Haughey

2010
Haughey

2011
Haughey

2013
Haughey1

2013
Dodds2,3

2014
Dodds2

Total remuneration (£000)
Annual bonus (%)
LTIP vesting (%)

1,265
94.8%

640
50.1%
100.0% 100.0%

701
60.5%
—

450
—
—

62
N/A
N/A

289
N/A
N/A

2014
Lawson4

233
34.0%
—

2015
Lawson

2016
Lawson

681
65.0%

902
63.0%
— 64.0%

1. Tom Haughey received compensation of £423,000 for loss of office in accordance with his contract.
2. 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.

3. Financial year 2013 represented the 15-month period to 31 March 2013.
4. Appointed on 1 November 2014.

How the change in chief executive officer pay for the year compares to that of the Group’s
employees
The table below shows the percentage change in salary, benefits and annual bonus earned 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

2016
£000

366
28
231

2015
£000

356
23
231

15,532
1,135
1,138

13,505
980
998

% change

2.8%
21.7%
–

15.0%
15.8%
14.0%

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ remuneration report

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
Dividends

2016
£000

60,596
239,360
13,686
2,975

2015
£000

53,975
201,535
8,974
—

% change

12.3%
18.8%
52.5%
100.0%

Shareholder voting
The results below show the response to the 2015 AGM shareholder voting for the directors’ 2015 remuneration report (excluding
remuneration policy):

For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)

Total number
of votes

% of
votes cast

245,426,662
394,439
245,821,101
203,456
246,024,557

99.8%
0.2%
100%
N/A
N/A

The results below show the response to the 2014 AGM shareholder voting for the directors’ 2014 remuneration policy:

For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)

Total number
of votes

% of
votes cast

237,577,309
459,386
238,036,695
1,710,960
239,747,655

99.8%
0.2%
100%
N/A
N/A

Implementation of policy for 2016/17
The executive directors’ current salaries
The salaries of the executive directors will be reviewed in October 2016. Increases will be set in the context of overall salary increases
for the wider workforce. The previous salary increase was on 1 October 2015 backdated to 1 July 2015.

The executive directors’ salaries at the start of the 2016/17 financial year are as follows:

Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall

368,740
289,636
245,125
238,188

Benefits and pension
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 2016/17
Bonus
The annual bonus for 2016/17 will operate on the same basis as for 2015/16 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.

Severfield plc

www.severfield.com

Stock code: SFR

DIRECTORS’ REMUNERATION REPORT

The performance measures and weightings will be as follows:

Profit performance-based component — 80 per cent
The sliding scale range for bonus targets in 2016/17 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.

Other performance-based component — 20 per cent
AFR (accident frequency rate) 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).

Rewards for performance in 2016/17
PSP
It is the committee’s current intention to grant PSP awards of 100 per cent of salary to the chief executive officer and the Group
finance director and 75 per cent of salary to the chief operating officer and the JSSL managing director. This represents an increase
from 75 per cent to 100 per cent of salary for the Group finance director, reflecting the clear gap to market for this executive. This
increases both the incentive and retention value of this award. This change will be made on an exceptional basis for the 2016 awards.

This year we will set a performance condition for a three-year period commencing on 1 April 2016 and ending on 31 March 2019.
These targets reflect the continuing expected recovery of profitability, recognising that market conditions remain challenging in
many areas. At the lower threshold, below which no awards will vest, we have set a target EPS equivalent to PBT of £18.6m. If this
level is achieved 25 per cent of the shares granted will vest. At the higher end, we have set a target EPS equivalent to PBT of £24.0m.
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.

This represents an increase of £2.6m (16 per cent) in the lower threshold whilst maintaining the threshold at which maximum vesting
takes place at £24.0m. When setting this target range the committee considered a number of reference points including internal
financial forecasts, external analyst consensus, the base EPS and a broad view of the wider construction industry. This reflects, in the
view of the committee, a narrower, more realistic, performance range whilst maintaining the targets at an appropriately stretching
level. They will require management to deliver strong, sustainable performance over the period without encouraging undue risk-
taking and in the context of the market environment are considered equally, if not more, challenging than targets set for prior awards.

How will the non-executive directors be paid in the 2016/17 financial year?
The fees for the chairman and non-executive directors will be as follows:

Chairman
Basic fee for other non-executive directors
Additional fee for SID role
Additional fee for chairman of audit and remuneration committees

Approval
This report was approved by the board of directors and signed on behalf of the board.

Alun Griffiths
Chairman of the remuneration committee
16 June 2016

2016

100,000
40,000
5,000
5,000

2015

100,000
40,000
5,000
5,000

Annual report and accounts for the year ended 31 March 2016

Our governance / Directors’ responsibilities statement

DIRECTORS’ RESPONSIBILITIES STATEMENT

The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the parent
company and enable them to ensure that
its financial statements comply with the
Companies Act 2006. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the Group and to prevent and
detect fraud and other irregularities.

Under applicable law and regulations,
the directors are also responsible for
preparing a strategic report, directors’
report, directors’ remuneration report and
corporate governance report that comply
with that law and those regulations.

The directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.

Responsibility statement of
the directors in respect of
the annual financial report
We confirm that to the best of our
knowledge:

(cid:228)(cid:3) the financial statements, prepared in
accordance with the applicable set
of accounting standards, 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

(cid:228)(cid:3) the strategic report includes a
fair review of the development
and performance of the business
and the position of the issuer and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face.

We consider the annual report and
accounts, taken as a whole, is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the Group’s
position and performance, business
model and strategy.

By order of the board

Ian Lawson
Chief executive officer
15 June 2016

Alan Dunsmore
Group finance director
15 June 2016

The directors are responsible for
preparing the annual report and the Group
and parent company financial statements
in accordance with applicable law and
regulations.

Company law requires the directors to
prepare Group and parent company
financial statements for each financial
year. Under that law they are required to
prepare the Group financial statements in
accordance with IFRSs as adopted by the
EU and applicable law and have elected
to prepare the parent company financial
statements in accordance with UK
Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’.

Under company law the directors must
not approve the financial statements
unless they are satisfied that they give a
true and fair view of the state of affairs
of the Group and parent company and of
their profit or loss for that period.

In preparing each of the Group and parent
company financial statements, the
directors are required to:

(cid:228)(cid:3) select suitable accounting policies and

then apply them consistently;

(cid:228)(cid:3) make judgements and estimates that

are reasonable and prudent;

(cid:228)(cid:3) for the Group financial statements,

state whether they have been prepared
in accordance with IFRSs as adopted
by the EU;

(cid:228)(cid:3) for the parent company financial

statements, state whether applicable
UK Accounting Standards have been
followed, subject to any material
departures disclosed and explained
in the parent company financial
statements; and

(cid:228)(cid:3) prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the parent company will
continue in business.

Severfield plc

www.severfield.com

Stock code: SFR

Annual report and accounts for the year ended 31 March 2016

Our financials

Our financials — Group
Independent auditor’s report

Consolidated income statement

Consolidated statement of comprehensive income 96

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the consolidated financial statements

Five year summary

Financial calendar

Our financials — Company
Company balance sheet

Company statement of changes in equity

Notes to the Company financial statements

100

130

131

132

133

F
I
N
A
N
C
I
A
L
S

91
91

Severfield plc

www.severfield.com

Stock code: SFR

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF SEVERFIELD PLC

Opinions and conclusions arising from our audit

1 Our opinion on the financial statements is unmodified

We have audited the financial statements of Severfield plc for the year ended 31 March 2016 set out on pages 95 to 129 and 131 to
137. In our opinion:

(cid:228)(cid:3) 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

2016 and of the Group’s profit for the year then ended;

(cid:228)(cid:3) the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as

adopted by the European Union;

(cid:228)(cid:3) the parent company financial statements have been properly prepared in accordance with UK Accounting Standards, including

FRS 101 ‘Reduced Disclosure Framework’; and

(cid:228)(cid:3) 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.

2 Our assessment of risks of material misstatement

In arriving at our audit opinion above on the financial statements, the risks of material misstatement that had the greatest effect on
our audit, in decreasing order of audit significance, were as follows:

Carrying value of construction contracts balance (£44.5m) and revenue (£239.4m) and profit recognition in relation to
construction contracts

Refer to page 69 (audit committee report), pages 102 and 106 (accounting policies) and note 16 (financial disclosure).

The risk:

The Group’s activities are undertaken via long-term construction contracts. The carrying value of the construction contract balance
as well as the revenue and profit recognised are based on estimates of costs to complete and level of unagreed variations and
judgement as to the recoverability of those variations. Estimated contract costs, and as a result revenues, can be affected by a variety
of uncertainties that depend on the outcome of future events resulting in revisions throughout the contract period.

Our response:

Our audit procedures included:

(cid:228)(cid:3) Testing the Group’s controls over the contract outcome evaluations (contract valuation) through inspection of a sample of available
meeting minutes throughout the year and subsequent to the year end. At these meetings the Group reviews performance on a
contract by contract basis with a key focus on costs to date, costs to complete, forecasted margin, certified work to date and
agreed and unagreed variations. We assessed if the appropriate individuals attended the meetings and that the estimated final
contract price and costs to complete forecasts for all contracts were discussed, challenged and the contract outcome evaluations
updated as appropriate.

(cid:228)(cid:3)

Identifying contracts with risk indicators including: low margin or loss making contracts, high values of unagreed variations
and large carrying value of amounts receivable on contracts. For these contracts we agreed the year-end construction contract
balance to the cash recovered post period end and considered the variations agreed and work certified post year-end.

(cid:228)(cid:3) Challenging the Group in respect of construction contract balances in the sample identified, where cash has not been received,
variations have not been agreed or work has not been certified post year-end, by obtaining correspondence with the clients to
corroborate the position.

(cid:228)(cid:3) Assessing the forecasted cost to complete in the sample identified by considering contract performance and costs incurred post

year-end along with discussions and challenge of contract managers who are responsible for the contract.

(cid:228)(cid:3) Assessing the forecasting accuracy of contract margins by evaluating initial forecasted margins for a sample of contracts across

the portfolio against actual margins achieved.

Annual report and accounts for the year ended 31 March 2016

Our financials

Carrying value of goodwill (£54.7m) and investment in Indian joint venture (£4.5m)

Refer to page 69 (audit committee report), pages 101 to 106 (accounting policies) and notes 11 and 14 (financial disclosure)

The risk:

The carrying value of goodwill depends on assumptions of future financial performance which inherently contain an element of
judgement and uncertainty. In addition, the investment in the joint venture is at risk of impairment due to its recent performance.
Significant areas of judgement include sales growth rates, operating margins and the discount rate applied to future cash flows.

Our response:

Our audit procedures included:

(cid:228)(cid:3) Considering the Group’s impairment model for integrity and internal consistency with board approved budgets and forecast. We
compared the Group’s assumptions to externally derived data as well as our own assessments in relation to key inputs such as
projected growth and discount rates.

(cid:228)(cid:3) Performing sensitivity analysis on key assumptions to understand their impact on headroom.

(cid:228)(cid:3) Considering the Group’s historical budgeting accuracy, by assessing actual performance against budget.

We also assessed whether the Group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in
key assumptions reflected the risks inherent in the valuation of goodwill and investment in the joint venture.

3 Our application of materiality and an overview of the scope of our audit

The materiality for the Group financial statements as a whole was set at £650,000, determined with reference to a benchmark of
profit before tax, normalised to exclude this year’s other items as disclosed in note 5 of the accounts, of which it represents 4.9 per
cent. The Group team performed procedures on the items excluded from normalised Group profit before tax. If other items disclosed
in note 5 are not adjusted materiality represents 6.7 per cent of Group profit before tax.

We reported to the audit committee any corrected or uncorrected audit differences exceeding £32,500 in addition to other identified
misstatements that warranted reporting on qualitative grounds.

Of the Group’s six reporting components, we subjected five to audits for Group reporting purposes. The components within the scope
of our work accounted for the following percentages of the Group’s results: 100 per cent of Group revenue, 94 per cent of Group net
assets and 100 per cent of Group profit before tax.

For the remaining component, we performed analysis at an aggregated Group level to re-examine our assessment that there were no
significant risks of material misstatement within these.

The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above
and the information to be reported back. The Group team approved the component materialities, which ranged from £320,000 to
£400,000, having regard to the mix of size and risk profile of the Group across the components. The work on one of the six components
was performed by overseas component auditors and the rest by the Group team.

The Group team visited one component location in India. Video and telephone conference meetings were also held with these
component auditors. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any
further work required by the Group team was then performed by the component auditor.

4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified

In our opinion:

(cid:228)(cid:3) the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act

2006; and

(cid:228)(cid:3) the information given in the strategic report and the directors’ report for the financial year is consistent with the financial

statements.

Severfield plc

www.severfield.com

Stock code: SFR

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF SEVERFIELD PLC

5 We have nothing to report on the disclosures of principal risks

Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:

(cid:228)(cid:3) the directors’ viability statement on page 41, concerning the principal risks, their management, and, based on that, the directors’

assessment and expectations of the Group’s continuing in operation over the three years to 31 March 2019; or

(cid:228)(cid:3) the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting.

6 We have nothing to report in respect of the matters on which we are required
to report by exception

Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

(cid:228)(cid:3) we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that
they 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 Group’s position and performance, business model and strategy; or

(cid:228)(cid:3) the audit committee report does not appropriately address matters communicated by us to the audit committee.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

(cid:228)(cid:3) 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

(cid:228)(cid:3) the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement

with the accounting records and returns; or

(cid:228)(cid:3) certain disclosures of directors’ remuneration specified by law are not made; or

(cid:228)(cid:3) we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

(cid:228)(cid:3) the directors’ statements, set out on pages 41 and 72, in relation to going concern and longer-term viability; and

(cid:228)(cid:3) the part of the corporate governance statement on page 62 relating to the Company’s compliance with the 11 provisions of the

2014 UK Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

Scope and responsibilities

As explained more fully in the directors’ responsibilities statement set out on page 89, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an
audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This
report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our
responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as
if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the
basis of our opinions.

Adrian Stone
(Senior statutory auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered accountants
One Sovereign Square
Sovereign Street
Leeds
LS1 4DA
15 June 2016

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 MARCH 2016

Continuing operations

Revenue

Operating costs
Operating profit before share of
results of JVs and associates
Share of results of JVs and
associates

Operating profit

Net finance expense

Profit/(loss) before tax

Taxation
Profit for the year attributable to
the equity holders of the parent

Earnings per share:

Basic

Diluted

Note

Before
other
items
2016
£000

Other
items
2016
£000

Total
2016
£000

Before
other
items
2015
£000

Other
items
2015
£000

Total
2015
£000

239,360

(225,674)

—

239,360

201,535

—

201,535

(3,568)

(229,242)

(192,561)

(8,502)

(201,063)

13,686

(3,568)

10,118

8,974

(8,502)

(230)

13,456

(245)

13,211

(2,280)

—

(3,568)

—

(3,568)

1,237

(230)

9,888

(245)

9,643

(1,043)

(213)

8,761

(450)

8,311

(1,449)

—

(8,502)

—

(8,502)

1,784

10,931

(2,331)

8,600

6,862

(6,718)

472

(213)

259

(450)

(191)

335

144

3.67p

3.65p

(0.78p)

2.89p

2.87p

2.31p

(2.26p)

0.05p

Further details of other items are disclosed in note 5 to the consolidated financial statements.

Severfield plc

www.severfield.com

Stock code: SFR

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2016

Actuarial gain/(loss) on defined benefit pension scheme*

Tax relating to components of other comprehensive income*

Other comprehensive income for the year

Profit for the year from continuing operations
Total comprehensive income for the year attributable to
equity holders of the parent

* These items will not be subsequently reclassified to the consolidated income statement.

Note

Year ended
31 March
2016
£000

Year ended
31 March
2015
£000

1,300

(353)

947

8,600

(4,471)

1,033

(3,438)

144

9,547

(3,294)

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

CONSOLIDATED BALANCE SHEET

AT 31 MARCH 2016

Assets

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment

Interests in JVs and associates

Deferred tax asset

Current assets

Inventories

Trade and other receivables – due after one year £1,099 (2015: £1,711)

Derivative financial instruments

Cash and cash equivalents

Total assets

Liabilities

Current liabilities

Trade and other payables

Financial liabilities — derivatives

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

At
31 March
2016
£000

At
31 March
2015
£000

Note

54,712

4,480

77,362

11,611

1,100

54,712

7,088

76,606

4,802

1,870

149,265

145,078

5,294

50,742

—

19,033

75,069

224,334

4,767

64,530

118

6,884

76,299

221,377

(55,311)

(58,406)

(830)

(180)

(1,911)

(58,232)

—

(205)

(1,123)

(59,734)

(14,602)

(16,477)

(409)

(2,885)

(17,896)

(76,128)

(589)

(3,993)

(21,059)

(80,793)

148,206

140,584

7,437

85,702

2,300

52,767

7,437

85,702

1,250

46,195

148,206

140,584

The consolidated financial statements were approved by the board of directors on 15 June 2016 and signed on its behalf by:

Ian Lawson
Chief executive officer

Alan Dunsmore
Group finance director

Severfield plc

www.severfield.com

Stock code: SFR

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2016

At 1 April 2015

Total comprehensive income for the year

Equity settled share-based payments

Dividends paid

At 31 March 2016

At 1 April 2014

Total comprehensive income for the year

Equity settled share-based payments

At 31 March 2015

Note

Share
capital
£000

7,437

—

7,437

Share
capital
£000

7,437

—

Share
premium
£000

85,702

—

85,702

Share
premium
£000

85,702

—

Other
reserves
£000

1,250

—

1,050

—

2,300

Other
reserves
£000

770

—

480

Retained
earnings
£000

46,195

9,547

—

(2,975)

52,767

Retained
earnings
£000

49,489

(3,294)

—

Total
equity
£000

140,584

9,547

1,050

(2,975)

148,206

Total
equity
£000

143,398

(3,294)

480

7,437

85,702

1,250

46,195

140,584

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

CONSOLIDATED CASH FLOW STATEMENT

YEAR ENDED 31 MARCH 2016

Net cash flow from operating activities

Cash flows from investing activities

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

Repayment of obligations under finance leases

Repayment of borrowings

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Year ended
31 March
2016
£000

Year ended
31 March
2015
£000

23,888

10,446

Note

668

(4,798)

(150)

(4,113)

(8,393)

(166)

(2,975)

(205)

—

(3,346)

12,149

6,884

19,033

4,434

(5,727)

—

(1,700)

(2,993)

(782)

—

(312)

(5,000)

(6,094)

1,359

5,525

6,884

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

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 138. The registered number of the Company is 1721262. The nature of the Group’s operations and
its principal activities are set out on pages 14 to 21. 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.

The following accounting standards, interpretations and amendments have been adopted by the Group in the current year:

(cid:228)(cid:3) Amendments to the following standards:

— IAS 19 ‘Employee benefits’

— Improvements to IFRSs (2010-2012)

— Improvements to IFRSs (2011-2013)

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 following accounting standards, interpretations and amendments have been issued by the IASB but had either not yet been
adopted by the European Union or were not yet effective in the European Union at 31 March 2016:

(cid:228)(cid:3)

IAS 1 (amended) ‘Presentation of financial statements’

IAS 16 (amended) ‘Property, plant and equipment’

IAS 27 (amended) ‘Separate financial statements’

IAS 28 (amended) ‘Investments in associates and joint ventures’

IAS 38 (amended) ‘Intangible assets’

IAS 41 (amended) ‘Agriculture’

IFRS 9 ‘Financial Instruments’

IFRS 10 (amended) ‘Consolidated financial statements’

IFRS 11 (amended) ‘Joint arrangements: accounting for acquisitions of interests in joint operations’

IFRS 12 (amended) ‘Disclosure of interest in other entities’

IFRS 14 ‘Regulatory deferral accounts’

IFRS 15 ‘Revenue from contracts with customers’

IFRS 16 ‘Leases’

Improvements to IFRSs (2012-2014)

None of these 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. The Group has made initial assessments of the impact of IFRS 15 and
no material quantitative impact is expected. The Group will perform a detailed review of its significant contracts to ensure that the
impact and effect of the new standard is fully understood and implemented in advance of the effective date.

100

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

1. Significant accounting policies continued
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 at least 12 months
from the approval of the financal statements. 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 36 to 41.

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.

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, significant rectification and remediation costs on completed contracts, movements in the valuation of
derivative financial instruments and certain non-recurring legal and consultancy costs. Restructuring items include income and
expenses arising from major 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 IFRS 11.

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.

101

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

1. Significant accounting policies continued
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.

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:

(cid:228)(cid:3) Revenues on contracts are recognised on a percentage of completion basis when the contract’s outcome can be estimated reliably.

(cid:228)(cid:3) Provision is made for total losses incurred or foreseen in bringing the contract to completion as soon as they become apparent.

(cid:228)(cid:3) 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.

(cid:228)(cid:3)

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.

(cid:228)(cid:3) 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.

(cid:228)(cid:3) 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.

102

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

1. Significant accounting policies continued
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.

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 pension scheme which is now closed. The liability recognised in the balance sheet comprises the
present value of the defined benefit pension obligation, determined by discounting the estimated future cash flows using the market
yield on a high quality corporate bond, less the fair value of the scheme assets.

The cost of providing benefits recognised within operating costs in the income statement and the defined benefit obligations is
determined at the reporting date by independent actuaries, using the projected unit credit method.

Actuarial gains and losses are recognised in the period in which they occur in the statement of comprehensive income.

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.

103

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

1. Significant accounting policies continued
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.

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 included within operating costs.

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
Long leasehold buildings
Plant and machinery
Fixtures, fittings and office equipment
Computer equipment
Motor vehicles
Site safety equipment

1 per cent straight-line
Shorter of 1 per cent straight-line or lease term
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 included within operating costs.

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.

104

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

1. Significant accounting policies continued
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.

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 21.

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 20.

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.

105

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

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 considers 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 intangible assets and other assets of the Group’s cash-generating
units. 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 £3,953,000 (2015: £6,573,000). The carrying value of the Group’s investment in the Indian joint venture was £4,468,000 (2015:
£4,802,000) at the balance sheet date.

Disclosure of other (non-underlying) items
The Group has presented certain items of a one-off and material nature as non-underlying items in the income statement and notes
to the consolidated financial statements. These items have been disclosed because the directors view their presentation as relevant
to the understanding of the Group’s underlying financial performance. Judgement is required to determine which items are disclosed
as one-off. Inclusion within this category is restrictive and is applied consistently.

One-off items before tax recognised in the year ended 31 March 2016 were £3,568,000 (2015: £8,502,000).

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 £14,602,000 (2015: £16,477,000).

Of the items discussed above, revenue and profit recognition (including the assessment of the remedial costs for the Leadenhall
building in the prior year) represents the key source of estimation uncertainty.

106

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

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 (note 7)

Total income

2016
£000

239,360

666

2015
£000

201,535

403

240,042

201,945

Segmental results
Following the adoption of IFRS 8, the Group has identified its operating segments with reference to the information regularly reviewed
by the executive committee (the chief operating decision maker (‘CODM’)) to assess performance and allocate resources. On this basis
the CODM has identified one operating segment (construction contracts) which in turn is the only reportable segment of the Group.

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. Given that only one
operating and reporting segment exists, the remaining disclosure requirements of IFRS 8 are provided within the consolidated income
statement and balance sheet.

Revenues by product group
All revenue is derived from construction contracts and 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

2016
£000

2015
£000

230,614

194,974

8,746

–

5,459

1,102

239,360

201,535

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
Included in Group revenue is £37,388,000 and £24,433,000 relating to two major customers, which individually contributed to more
than 10 per cent of Group revenue in the year ended 31 March 2016. In the prior year, Group revenue included £43,075,000 relating to
one major customer, which individually contributed to more than 10 per cent of Group revenue.

107

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

4. Operating costs

Raw materials and consumables (including subcontractor costs)

Staff costs (note 6)

Other operating charges

Amortisation of other intangible assets (note 12)

Operating lease expense:

— plant and machinery

— other

Depreciation (note 13):

— owned property, plant and equipment

— property, plant and equipment held under finance leases

— investment property

Other operating income

Operating costs before other items

Other items (note 5)

Other operating charges include:

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts

Fees payable to the Company’s auditor for other services:

— the audit of the Company’s subsidiaries pursuant to legislation

— audit-related assurance services

— other assurance services

— taxation compliance services

— other taxation advisory services

2016
£000

2015
£000

127,027

109,717

60,596

31,863

138

1,354

1,669

3,593

100

—

(666)

53,975

22,499

137

1,354

1,650

3,442

180

(403)

225,674

192,561

3,568

8,502

229,242

201,063

143

—

148

—

Fees payable to KPMG LLP (2015: 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.

In addition to the non-audit fees above, the Group incurred non-audit fees of £52,000 in respect of other assurance services provided
to its Indian joint venture.

108

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

5. Other items

Amortisation of acquired intangible assets (note 12)

Fair value of derivative financial instruments (note 20)

Contract remedial costs

Other items before tax

Tax on other items

Other items after tax

2016
£000

2,620

948

—

3,568

(1,237)

2,331

2015
£000

2,620

(118)

6,000

8,502

(1,784)

6,718

Amortisation of acquired intangible assets represents the amortisation of customer relationships which were identified on the
acquisition of Fisher Engineering in 2007. These relationships will be fully amortised within the next two years.

A non-cash loss on derivative financial instruments of £948,000 was recognised in relation to the movement in fair values of foreign
exchange contracts which will reverse when the underlying contract matures in the following year. The fair value of these derivatives
is primarily a function of exchange rate fluctuations between sterling and the euro. The loss for the year of £948,000 is partly due
to the increased number of foreign exchange contracts taken out by the Group as a result of increased contract activity with the
Republic of Ireland, reflecting an improving market position.

The contract remedial costs in the prior year related to the programme of bolt replacement works at the Leadenhall building, a
contract that was completed in 2013. They were treated as non-underlying costs in accordance with the Group’s stated policy.
This work is now substantially complete and the actual costs of the programme are consistent with the non-underlying charge of
£6,000,000 which was recorded in 2014/15. Notwithstanding this, discussions remain ongoing between the Group and the other
parties involved to determine where the ultimate liability for the programme costs should reside. Similar to 2014/15, no account has
been taken of possible future cost recoveries from third parties, as these cannot be recognised under IFRS.

6. Staff costs
Details of directors’ remuneration for the year are provided in the audited part of the directors’ remuneration report on page 82.

The average number of persons employed by the Group (including executive directors) during the year 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 21.

2016
Number

1,204

1,302

2016
£000

52,825

5,724

2,047

60,596

2015
Number

1,119

1,212

2015
£000

46,824

5,227

1,924

53,975

109

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

7. Net finance expense

Finance income

Finance expense

8. Taxation
a) The taxation (charge)/credit comprises:

Current tax

UK corporation tax

Adjustments to prior years’ tax provisions

Deferred tax (note 19)

Current year (charge)/credit

Impact of reduction in future years’ tax rates

Adjustments to prior years’ provisions

b) Tax reconciliation
The (charge)/credit for the year can be reconciled to the profit per the income statement as follows:

Profit/(loss) before tax

Tax on (profit)/loss 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

Corporation tax was calculated at 20 per cent (2015: 21 per cent) of the estimated taxable result for the year.

2016
£000

(16)

261

245

2016
£000

(1,607)

(127)

(1,734)

(159)

523

327

691

(1,043)

2016
£000

9,643

(1,929)

(63)

(53)

279

200

523

(1,043)

2015
£000

(7)

457

450

2015
£000

(512)

(154)

(666)

573

—

428

1,001

335

2015
£000

(191)

(136)

128

274

—

335

110

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

9. Dividends

Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 March 2015 of 0.5p per share (2014: nil)

Interim dividend for the year ended 31 March 2016 of 0.5p per share (2015: nil)

2016
£000

1,487

2,975

2015
£000

—

The directors are recommending a final dividend in respect of the financial year ended 31 March 2016 of 1.0p per share, which
will amount to an estimated dividend payment of £2,974,000. If approved by the shareholders at the annual general meeting on
6 September 2016, this dividend will be paid on 16 September 2016 to shareholders who are on the register of members at 19 August
2016. This dividend is not reflected in the balance sheet as at 31 March 2016 as it is subject to shareholder approval.

10. Earnings per share
Earnings per share is calculated as follows:

Earnings for the purposes of basic earnings per share being net profit
attributable to equity holders of the parent company
Earnings for the purposes of underlying basic earnings per share being underlying
net profit attributable to equity holders of the parent company

2016
£000

8,600

2015
£000

144

10,931

6,862

Number

Number of shares

Weighted average number of ordinary shares for the purposes of basic earnings per share

297,503,587 297,503,587

Effect of dilutive potential ordinary shares

1,715,818

—

Weighted average number of ordinary shares for the purposes of diluted earnings per share

299,219,405 297,503,587

Basic earnings per share

Underlying basic earnings per share

Diluted earnings per share

Underlying diluted earnings per share

Reconciliation of earnings

Net profit attributable to equity holders of the parent company

Other items

Underlying net profit attributable to equity holders of the parent company

Further details of other items are provided in note 5.

2.89p

3.67p

2.87p

3.65p

2016
£000

8,600

2,331

10,931

0.05p

2.31p

0.05p

2.31p

2015
£000

144

6,718

6,862

111

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

11. Goodwill
The goodwill balance was created on the following acquisitions:

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

All of the acquisitions above are included in one reported segment (construction contracts) and the cash flows of the businesses are
closely related. Testing for impairment is performed at the operating segment level, which is the level at which management monitors
goodwill for internal purposes.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill may be impaired.

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.

The Group prepares forecast cash flows based on the following year’s budget, approved by the directors, together with cash flows
based on projections for the following two years which are derived from the Group’s strategic plan. After this period, cash flows have
been extrapolated using a growth rate of 1.5 per cent (2015: 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 10 per cent (2015: 10 per cent).

Following the impairment reviews performed by the Group, no impairment charge was recorded in the year ended 31 March 2016.

Management considers that no reasonably possible change in the key assumptions would cause the goodwill to fall below its carrying
value at 31 March 2016.

112

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

12. Other intangible assets

Cost

At 1 April 2014 and 1 April 2015

Additions

At 31 March 2016

Amortisation

At 1 April 2014

Charge for the year

At 1 April 2015

Charge for the year

At 31 March 2016

Carrying amount

At 31 March 2016

At 31 March 2015

Intangible
assets
acquired on
acquisition
£000

39,000

—

39,000

29,807

2,620

32,427

2,620

35,047

3,953

6,573

Other
intangible
assets
£000

883

150

1,033

231

137

368

138

506

527

515

Total
£000

39,883

150

40,033

30,038

2,757

32,795

2,758

35,553

4,480

7,088

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 2014 and 31 March 2016

25,800

3,200

9,600

400

39,000

Customer
relationships
£000

Brands
£000

Order
book
£000

Know-how
£000

Total
£000

Amortisation

At 1 April 2014

Charge for the year

At 1 April 2015

Charge for the year

At 31 March 2016

Net book value

At 31 March 2016

At 31 March 2015

16,747

2,580

19,327

2,580

21,907

3,893

6,473

3,200

—

3,200

—

3,200

—

9,600

—

9,600

—

9,600

—

260

300

340

100

29,807

2,620

32,427

2,620

35,047

3,953

6,573

Amortisation of acquired intangible assets is included in the consolidated income statement as part of operating costs and is
classified as other items (see note 5).

113

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

13. Property, plant and equipment (including investment property)

Cost

At 1 April 2014

Additions

Disposals

At 1 April 2015

Additions

Disposals

At 31 March 2016

Accumulated depreciation

At 1 April 2014

Charge for the year

Disposals

At 1 April 2015

Charge for the year

Disposals

At 31 March 2016

Carrying amount

At 31 March 2016

At 31 March 2015

Investment
property
£000

6,197

—

(6,197)

—

2,327

(2,337)

—

Plant
and machinery
£000

Fixtures,
fittings
and office
equipment
£000

Freehold
and long
leasehold
land and
buildings
£000

66,184

(215)

66,031

122

(275)

65,878

3,444

527

—

3,971

525

(12)

4,484

31,466

5,211

(887)

35,790

3,989

(1,810)

37,969

21,307

2,762

(716)

23,353

2,755

(1,658)

24,450

61,394

62,060

13,519

12,437

Motor
vehicles
£000

Total
£000

1,480

107,262

(587)

955

(589)

457

948

148

(446)

650

(468)

273

6,627

(7,886)

106,003

4,985

(2,674)

108,314

29,264

3,632

(3,499)

29,397

3,693

(2,138)

30,952

184

305

77,362

76,606

1,935

1,292

—

3,227

783

—

4,010

1,238

185

—

1,423

322

—

1,745

2,265

1,804

The net book value of the Group’s plant and machinery includes £802,000 (2015: £1,174,000) of assets held under finance leases.

In the prior year, 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.

14. Interests in JVs and associates
The Group has an interest in an associated company and two joint ventures as follows:

Associated companies:

Fabsec Limited — development of fire beam

Joint ventures:

JSW Severfield Structures Limited — structural steelwork serving the Indian market

Composite Metal Flooring Limited — manufacturer of metal decking

Holding
%

25.0

Class of
capital

Ordinary

50.0

Ordinary

In 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.

114

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

14. Interests in JVs and associates continued
JSW Severfield Structures Limited is registered in India. During the year, the Group did not make any further investments in the
joint venture (2015: £1,700,000). As a result of the loss of £319,000 recorded during the year, the Group’s investment in the Indian
joint venture of £4,468,000 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 2017/18 to 2019/20. The
calculations assume a long-term growth rate of 1.5 per cent (2015: 1.5 per cent) from 2020/21 onwards and a pre-tax discount rate
of 10 per cent (2015: 10 per cent). Following this review, no impairment charge was recorded in the year ended 31 March 2016 (2015:
£nil). Management considers that no reasonably possible change in the key assumptions would result in an impairment.

On 16 November 2015, the Group completed its investment in a 50% share of Composite Metal Flooring Limited (‘CMF’) which has
been accounted for as a joint venture. The total consideration for the investment is £7,039,000, which consists of an initial payment
of £4,126,000 (including transaction costs of £126,000), an additional payment of £413,000 (made in early 2016/17) following
agreement of the final working capital position and a further £2,500,000 which is payable over the next five years subject to certain
conditions.

At 1 April 2014

Net assets acquired

Losses retained

At 1 April 2015

Net assets acquired

Losses retained

At 31 March 2016

Goodwill
£000

—

5,326

—

5,326

The Group’s share of the retained loss for the year of JVs and associates is made up as follows:

Share of results

Fabsec
Limited
£000

—

Summarised financial information in respect of the Group’s JVs and associates is as follows:

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Net assets

Group’s share of net assets

Revenue

(Loss)/profit after tax

Group’s share of loss after tax

JSW
Severfield
Structures
Limited
£000

26,753

24,671

(34,939)

(9,922)

6,563

3,282

39,667

(638)

(319)

Fabsec
Limited
£000

1,137

334

(165)

(2,159)

(853)

(213)

543

—

JSW
Severfield
Structures
Limited
£000

(319)

Composite
Metal
Flooring
Limited
£000

4,446

2,225

(2,299)

(779)

3,593

1,797

3,855

178

Share of
net assets/
(liabilities)
£000

3,315

1,700

(213)

4,802

1,713

(230)

6,285

Composite
Metal
Flooring
Limited
£000

2016
£000

32,336

27,230

(37,403)

(12,860)

9,303

4,866

44,065

(460)

(230)

There were no contingent liabilities or capital commitments (2015: none) associated with the Group’s JVs and associates.

15. Inventories

Raw materials and consumables

Work-in-progress

2016
£000

3,233

2,061

5,294

Total
£000

3,315

1,700

(213)

4,802

7,039

(230)

11,611

Total
£000

(230)

2015
£000

28,868

26,081

(32,111)

(15,993)

6,845

3,688

42,365

181

(213)

2015
£000

4,075

692

4,767

115

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

16. 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

17. Trade and other receivables

Amounts due from construction contract customers (note 16):

— 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

2016
£000

2015
£000

45,013

(500)

44,513

60,440

(5,074)

55,366

288,444

356,840

(243,931)

(301,474)

44,513

55,366

2016
£000

40,697

3,217

1,099

45,013

517

4,611

601

2015
£000

55,130

3,599

1,711

60,440

626

3,219

245

50,742

64,530

The average credit period taken on revenue, calculated on a count-back basis to make appropriate allowance for monthly revenue
phasing, is 52 days (2015: 79 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.

Overdue retentions at 31 March 2016 were £490,000 (2015: £230,000).

116

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

18. Trade and other payables

Trade creditors

Other taxation and social security

Other creditors and accruals

Payments in advance (note 16)

2016
£000

25,835

6,694

22,282

500

55,311

2015
£000

32,255

3,562

17,515

5,074

58,406

Other creditors and accruals includes the outstanding purchase consideration for CMF and the remaining contract remedial costs
associated with the programme of bolt replacement works at the Leadenhall building (see note 5). Other creditors and accruals in the
prior year included the Leadenhall contract remedial costs.

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 43 days (2015: 58 days).

19. Deferred tax assets and 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

2016
£000

(6,301)

4,516

(1,785)

2016
£000

(2,885)

1,100

(1,785)

At 1 April 2014

Credit/(charge) to income statement

Credit to equity

At 1 April 2015

Credit/(charge) to income statement

Effect of change in tax rate

(Charge)/credit to equity

At 31 March 2016

Excess
capital
allowances
£000

Acquired
intangible
assets
£000

Retirement
benefit
obligations
£000

(6,387)

(1,838)

—

524

—

(6,301)

(1,314)

179

572

—

(5,550)

524

—

(751)

2,506

(106)

894

3,294

(116)

(21)

(384)

2,773

Trading
losses
£000

1,780

—

1,870

(727)

(43)

—

1,100

Other timing
differences
£000

(218)

407

139

328

308

(24)

643

2015
£000

(7,615)

5,492

(2,123)

2015
£000

(3,993)

1,870

(2,123)

Total
£000

(4,157)

1,001

1,033

(2,123)

168

523

(353)

(1,785)

117

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

19. Deferred tax liabilities continued
The UK corporation tax rate is set to reduce from 20 per cent to 19 per cent with effect from 1 April 2017 and to 18 per cent with
effect from 1 April 2020. As these changes were substantively enacted on 26 October 2015, they have been used to calculate closing
deferred tax balances as appropriate. 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.

At the reporting date the Group had unrecognised tax losses from operations of £3,947,000 (2015: £5,437,000).

20. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern 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.

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 Group monitors capital using the following indicators:

i) Gearing ratio

Cash and cash equivalents

Unamortised debt arrangement fees

Finance leases

Net funds

Equity

Net debt to equity ratio

2016
£000

19,033

210

(589)

18,654

148,206

N/A

2015
£000

6,884

273

(794)

6,363

140,584

N/A

Equity includes all capital and reserves of the Group attributable to equity holders of the parent. There are no externally imposed
capital requirements.

ii) Return on capital employed
Underlying operating profit plus share of post-tax results from JVs and associates divided by the average of opening and closing
capital employed. Capital employed is defined as shareholders’ equity after adding back retirement benefit obligations (net of tax),
acquired intangible assets and net funds.

Underlying operating profit

Share of results of JVs and associates

Capital employed:

Shareholders’ equity

Cash and cash equivalents

Borrowings

Net funds (for ROCE purposes)

Retirement benefit obligations (net of deferred tax) (note 29)

Acquired intangible assets (note 12)

Average capital employed

Return on capital employed

118

2016
£000

13,686

(230)

13,456

148,206

(19,033)

589

(18,444)

11,829

(3,953)

137,638

139,372

9.7%

2015
£000

8,974

(213)

8,761

140,584

(6,884)

794

(6,090)

13,183

(6,573)

141,104

142,509

6.1%

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

20. Financial instruments continued
Categories of financial instruments

Financial assets

Cash and cash equivalents

Amounts due from construction contract customers (note 16)

Derivative financial instruments

Unamortised debt arrangement fees

Financial liabilities

Trade creditors (note 18)

Other creditors and accruals (note 18)

Derivative financial instruments

Finance leases

Carrying value

2016
£000

19,033

45,013

—

210

(25,835)

(22,282)

(830)

(589)

2015
£000

6,884

60,440

118

273

(32,255)

(17,515)

—

(794)

The Group’s financial instruments consist of borrowings, cash, unamortised debt arrangement fees 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:

(cid:228)(cid:3) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or

liabilities;

(cid:228)(cid:3) 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

(cid:228)(cid:3) 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.

119

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

20. Financial instruments continued
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 2016 were £4,316,000 (2015:
£5,310,000).

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 17. Where credit insurance is difficult to acquire, the executive risk committee
determines the appropriate exposure for the Group to take with a customer.

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.

The Group has a £25,000,000 revolving credit facility (‘RCF’) with HSBC Bank plc and Yorkshire Bank which matures in July 2019.

This facility includes an accordion facility of £20,000,000, which allows the Group to increase the aggregate available borrowings to
£45,000,000 at the Group’s request. The facility is subject to certain covenants including the cover of interest costs and the ratio of
net debt to EBITDA.

As at 31 March 2016, £25,000,000 (2015: £25,000,000) of this facility was not drawn but available. Up to £10,000,000 of this facility is
available by way of an overdraft.

In accordance with IFRS 7, the following tables detail the Group’s remaining contractual maturity for its financial liabilities.

Liabilities – 2016

Trade and other payables

Financial liabilities — finance leases

Financial liabilities — derivatives

Liabilities – 2015

Trade and other payables

Financial liabilities — finance leases

Maturity analysis

Carrying
value
£000

48,117

589

830

Less than
3 months
£000

45,201

830

49,536

46,076

49,770

794

50,564

43,408

43,478

3 months
to 1 year
£000

2,006

135

—

2,141

5,799

135

5,934

1–2
years
£000

730

180

—

910

272

180

452

2–5
years
£000

180

229

—

409

291

409

700

Total
£000

48,117

589

830

49,536

49,770

794

50,564

120

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

20. Financial instruments continued
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.

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

Liabilities

Assets

2016
£000

(427)

(3)

(430)

2015
£000

(149)

—

(149)

2016
£000

1,132

117

1,249

2015
£000

942

605

1,547

Foreign currency sensitivity analysis
The Group is only significantly exposed to the euro and US dollar.

The following table details the Group’s sensitivity to a 10 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 10 per cent change in foreign currency rates. A positive number below indicates an increase in profit
and other equity where sterling strengthens 10 per cent against the relevant currency. For a 10 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

US dollar currency
impact

Euro currency
impact

2016
£000

(11)

2015
£000

(61)

2016
£000

1,136

2015
£000

501

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 2016, the Group had forward exchange contracts held for the sale of 16.2m euros (2015: 7.7m euros) at an average
exchange rate of 1.343 euros/£ (2015: 1.326 euros/£) which mature within 12 months of the year-end.

121

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

20. Financial instruments continued
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 2016 and the Group’s equity at that date would decrease by £nil (2015: £nil). If the £25,000,000 facility is fully utilised the
exposure increases to £125,000. This is attributable to the Group’s exposure to interest rates on its variable rate borrowings.

21. 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. These awards will, in normal circumstances, vest subject to continued service and the
achievement of performance conditions over a three-year period. Further details are given in the directors’ remuneration report on
pages 76 to 88.

Performance share plan
The vesting of awards is subject to performance conditions set by the remuneration committee. The Group recognised a total charge
of £727,000 for the year (2015: £480,000) with a corresponding entry to reserves. The weighted average fair value of share options
granted during the year was £0.67 per share. Three outstanding awards had been granted to 31 March 2016:

(cid:228)(cid:3) During the period ended 31 March 2014 the remuneration committee granted 2,183,779 ordinary shares of 2.5p each at £nil value.
The vesting of these awards was dependent on the Group’s underlying earnings per share performance over the three-year period
from 1 April 2013 to 31 March 2016. The following vesting schedule applies:

Underlying EPS performance for year ended 31 March 2016

Equal to less than 2.15p

Equal to 4.87p or better

Between 2.15p and 4.87p

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

100%

between 25% and 100%

£0.48*

nil

98%

2.7%

1.0p

three years

122

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

21. Share-based payments continued
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £207,000 (2015: £229,000).

(cid:228)(cid:3) During the year ended 31 March 2015 the remuneration committee granted 2,198,382 ordinary shares of 2.5p each at £nil value.
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 2014 to 31 March 2017. The following vesting schedule applies:

Underlying EPS performance for year ending 31 March 2017

Equal to less than 3.23p

Equal to 6.45p or better

Between 3.23p and 6.45p

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 4 June 2014.

% of award vesting

100%

between 25% and 100%

£0.55*

nil

76%

2.7%

1.0p

three years

The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £167,000 (2015: £251,000).

(cid:228)(cid:3) During the year ended 31 March 2016 the remuneration committee granted 2,328,798 ordinary shares of 2.5p each at £nil value.
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 2015 to 31 March 2018. The following vesting schedule applies:

Underlying EPS performance for year ending 31 March 2018

Equal to less than 4.30p

Equal to 6.45p or better

Between 4.30p and 6.45p

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 17 June 2015.

% of award vesting

100%

between 25% and 100%

£0.70*

nil

74%

1.0%

1.0p
three years

The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £353,000 (2015: £nil).

Reconciliation of share awards outstanding under the performance share plan are as follows:

Outstanding at the beginning of the year

Granted during the year

Lapsed during the year

Vested during the year

Outstanding at the end of the year

2016
Number

2015
Number

6,170,645

5,420,362

2,328,798

2,198,382

(1,900,893)

(1,448,099)

–

—

6,598,550

6,170,645

123

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

21. Share-based payments continued
Save As You Earn share option plan (‘Sharesave’)
The plan, which was established in 2014/15 and expires in 2024/25, is open to all employees on the UK payroll. Participants may elect
to save up to £500 per month over the life of the plan under three yearly savings schemes, each with a separate savings contract.
Under the 2015 Sharesave scheme, options were granted by the Company to participating employees to buy shares at a discount of
20% from the then market price. At the end of the 2014/15 Sharesave scheme in 2017/18 those options will become exercisable for
a period of six months. A charge of £323,000 (2015: £nil) was recognised in the current period in relation to the 2014/15 Sharesave
scheme.

Reconciliation of share awards outstanding under the Shareshave plan are as follows:

Outstanding at the beginning of the year

Granted during the year

Lapsed during the year

Vested during the year

Outstanding at the end of the year

22. Share capital

Issued and fully paid:

2016
Number

–

3,929,593

(215,537)

(4,583)

3,709,473

2015
Number

–

—

–

2016
£000

2015
£000

297,503,587 ordinary shares of 2.5p each (2015: 297,503,587 ordinary shares of 2.5p each)

7,437

There are no share options outstanding as at 31 March 2016 (2015: nil).

23. Other reserves

At 1 April 2014

Share-based payments charge

At 1 April 2015

Share-based payments charge

At 31 March 2016

Share-based
payment
reserve
£000

631

480

1,111

1,050

2,161

Other
reserves
£000

139

—

139

—

139

Total
£000

770

480

1,250

1,050

2,300

The movement in the share-based payment reserve represents the share-based payment charge of £1,050,000 (2015: £480,000)
(see note 21).

124

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

24. Net cash flow from operating activities

Operating profit from continuing operations

Adjustments:

Depreciation of property, plant and equipment (note 13)

Depreciation of investment property (note 13)

Gain on disposal of property, plant and equipment

Amortisation of intangible assets (note 12)

Movements in pension scheme (note 29)

Share of results of JVs and associates (note 14)

Share-based payments (note 21)

Movement in valuation of derivatives

Operating cash flows before movements in working capital

(Increase)/decrease in inventories

Decrease/(increase) in receivables

(Decrease)/increase in payables

Cash generated from operations

Tax paid

Net cash flow from operating activities

25. Analysis of net funds

Cash and cash equivalents

Unamortised debt arrangement fees

Financial liabilities — finance leases

26. Capital commitments

Contracted for but not provided in the financial statements

2016
£000

9,888

3,693

—

(137)

2,758

(573)

230

1,050

948

17,857

(527)

13,725

(6,221)

24,834

(946)

23,888

2016
£000

19,033

210

(589)

18,654

2016
£000

728

2015
£000

259

3,622

(46)

2,757

(528)

213

480

(118)

6,649

1,075

(4,206)

7,893

11,411

(965)

10,446

2015
£000

6,884

273

(794)

6,363

2015
£000

—

27. Contingent liabilities
Liabilities have been recorded for the directors’ best estimate of uncertain contract positions, known legal claims, investigations and
legal actions in progress. The Group takes legal advice as to the likelihood of success of claims and actions and no liability is recorded
where the directors consider, based on that advice, that the action is unlikely to succeed, or that the Group cannot make a sufficiently
reliable estimate of the potential obligation. The Group also has contingent liabilities in respect of other issues that may have
occurred, but where no claim has been made and it is not possible to reliably estimate the potential obligation.

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 2016 these amounted to £15,000,000 (2015: £15,000,000). The Group has also given
performance bonds in the normal course of trade.

125

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

28. Operating lease arrangements
The Group as lessee
The Group leases a number of its premises under operating leases which expire between 2016 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

2016
£000

1,113

3,192

11,016

15,321

2015
£000

1,140

3,656

11,553

16,349

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

2016
£000

1,216

2,237

3,494

2015
£000

1,272

2,128

3,439

The Group as lessor
Property rental income earned on owned properties during the year was £152,000 (2015: £211,000). 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

— After five years

2016
£000

142

158

379

2015
£000

172

313

212

697

126

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

29. 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 £1,796,000 (2015: £1,644,000) represents contributions payable to these schemes by the Group
at rates specified in the rules of the plans. As at 31 March 2016, contributions of £307,000 (2015: £266,000) 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 The present values of the scheme liabilities are calculated using a discount rate determined by reference to

Interest risk

Longevity risk

Salary risk

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
2014 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)

Future pension increases

2016
%

3.5

3.0

2.9

2015
%

3.2

2.9

2.8

When considering mortality assumptions a male life expectancy to 85 at age 65 has been used for the year ended 31 March 2016
(2015: 85).

Impact on scheme liabilities of changes to key assumptions:

Assumption

Discount rate

Rate of mortality

Change in assumption

Impact on scheme liabilities

Increase/decrease by 0.25%

Decrease/increase by 4.3%

Increase by one year

Increase by 3.3%

Amounts recognised in income in respect of these defined benefit schemes are as follows:

Interest cost

Interest income

2016
£000

1,233

(723)

510

2015
£000

1,407

(898)

509

The charge for the year has been included in operating costs. 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 £12,678,000 (2015: £13,980,000).

The actual return on scheme assets was a gain of £298,000 (2015: £2,414,000).

127

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

29. 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

The major categories of scheme assets as a percentage of the total scheme assets are as follows:

Equities

Bonds and gilts

Cash

Property

Other

2016
£000

(37,601)

22,999

(14,602)

2015
£000

(38,958)

22,481

(16,477)

2016
%

25.8

56.8

4.9

10.5

2.0

2015
%

21.3

61.3

6.2

9.2

2.0

100.0

Bonds and gilts include a mixture of corporate and government bonds and fixed and index-linked gilts. Approximately 6 per cent of
bonds have a sub-investment grade credit rating (BB+ or lower) and approximately 93 per cent of gilts are index-linked, with 7 per
cent being fixed.

Movements in the present value of defined benefit obligations were as follows:

At start of year

Interest cost

Actuarial gains/(losses)

Benefits paid

At end of year

2016
£000

(38,958)

(1,233)

1,727

863

2015
£000

(32,395)

(1,407)

(5,988)

832

(37,601)

(38,958)

Actuarial losses arising from changes in demographic assumptions, changes in financial assumptions and gains or losses arising
from experience were losses of £nil (2015: £nil), gains of £1,330,000 (2015: losses of £5,624,000) and gains of £397,000 (2015: losses
of £364,000) respectively.

Movements in the fair value of scheme assets were as follows:

At start of year

Interest income

Actuarial (losses)/gains

Employer contributions

Benefits paid

At end of year

2016
£000

2015
£000

22,481

19,862

723

(427)

1,083

(861)

22,999

898

1,517

1,037

(833)

22,481

The Group expects to contribute £91,000 (2015: £88,000) per month to its defined benefit pension scheme in the year to 31 March 2017.

128

Annual report and accounts for the year ended 31 March 2016

Our financials – Group

29. Retirement benefit obligations continued
History of experience of gains and losses:

Experience (losses)/gains on scheme assets (£000)

Percentage of scheme assets

Experience losses/(gains) 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

* Represents the 15-month period ended 31 March 2013.

2016

(427)

(1.8%)

397

1.1%

2015

1,517

6.7%

(364)

(0.9%)

2014

(515)

(2.6%)

(105)

(0.3%)

2013*

961

5.0%

424

1.4%

2011

243

1.4%

(512)

(1.9%)

1,300

3.5%

(4,471)

(11.5%)

(1,261)

(3.9%)

(2,824)

(9.1%)

(1,369)

(5.1%)

The weighted average period over which benefits are expected to be paid, or the duration of the liabilities, is currently 17 years.

30. Related party transactions
The remuneration of the directors is provided in the audited part of the directors’ remuneration report on page 82.

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

2016
£000

1,358

116

1,474

2015
£000

1,190

1,283

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 21 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 Fabsec Limited (‘Fabsec’) at a cost of £120,000
(2015: £162,000). The amount due to Fabsec at 31 March 2016 was £116,000 (2015: £69,000).

During the year the Group has contracted with and purchased services from Composite Metal Flooring Limited (‘CMF’) amounting
to £382,000 (2015: £nil). The amount due from and to CMF at 31 March 2016 was £101,000 (2015: £nil) and £266,000 (2015: £nil)
respectively.

During the year the Group incurred additional operating costs in relation to the day-to-day running of its Indian joint venture (‘JSSL’) of
£557,000 (2015: £596,000). Those costs were recharged to JSSL during the year and the amount due from JSSL at 31 March 2016 was
£500,000 (2015: £245,000).

129

Severfield plc

www.severfield.com

Stock code: SFR

FIVE YEAR SUMMARY

Results

Revenue

Underlying* operating profit/(loss)

Underlying* profit/(loss) before tax

Non-underlying items before tax
Profit/(loss) 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

2016
£000

2015
£000

2014
£000

2013†
£000

2011
£000

239,360

201,535

231,312

318,256

267,778

13,686

13,211

(3,568)

8,974

8,311

(8,502)

7,621

4,025

(8,082)

(19,218)

(21,532)

(7,326)

14,193

10,117

(3,335)

8,600

144

(2,640)

(23,127)

5,822

149,265

16,837

(17,896)

148,206

145,078

16,565

(21,059)

140,584

147,650

14,243

(18,495)

143,398

3.67p

2.89p

3.65p

2.87p

1.50p

2.4

73.25p

52.75p

2.31p

0.05p

2.31p

0.05p

—

72.00p

53.50p

0.88p

(0.89p)

0.88p

(0.89p)

—

65.50p

38.00p

154,871

(32,060)

(20,410)

102,401

(10.78p)

(13.49p)

(10.78p)

(13.49p)

1.50p

(13.8)

114.26p

35.40p

156,940

(3,059)

(21,583)

132,298

4.19p

3.39p

4.19p

3.39p

5.00p

1.6

173.60p

78.08p

Key statistics for 2013 and 2011 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 101.
† 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)

15 June 2016
July 2016
6 September 2016
22 November 2016

130

Annual report and accounts for the year ended 31 March 2016

Our financials – Company

COMPANY BALANCE SHEET

AT 31 MARCH 2016

Fixed assets

Tangible assets

Intangible assets

Investments

Current assets

Debtors — amounts falling due within one year

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

2016
£000

2015
£000

59,607

528

94,494

154,629

42,810

3,300

46,110

(89,189)

(43,079)

111,550

7,437

85,702

2,150

16,261

60,022

515

100,659

161,196

48,094

—

48,094

(100,907)

(52,813)

108,383

7,437

85,702

1,100

14,144

111,550

108,383

The financial statements were approved by the board of directors on 15 June 2016 and signed on its behalf by:

Ian Lawson
Chief executive officer

Alan Dunsmore
Group finance director

Severfield plc
Registered in England No: 1721262

131

Severfield plc

www.severfield.com

Stock code: SFR

COMPANY STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2016

At 1 April 2015

Total comprehensive income for the year

Equity settled share-based payments

Dividends paid

At 31 March 2016

At 1 April 2014

Total comprehensive income for the year

Equity settled share-based payments

At 31 March 2015

Share
capital
£000

7,437

—

7,437

Share
capital
£000

7,437

—

Share
premium
£000

85,702

—

85,702

Share
premium
£000

85,702

—

Other
reserves
£000

1,100

—

1,050

—

2,150

Other
reserves
£000

620

—

480

Retained
earnings
£000

14,144

5,092

—

(2,975)

16,261

Retained
earnings
£000

8,323

5,821

–

Total
equity
£000

108,383

5,092

1,050

(2,975)

111,550

Total
equity
£000

102,082

5,821

480

7,437

85,702

1,100

14,144

108,383

132

Annual report and accounts for the year ended 31 March 2016

Our financials – Company

NOTES TO THE COMPANY FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

1. Significant accounting policies
Basis of accounting
The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced
Disclosure Framework’ (‘FRS 101’). The Company transitioned from previous UK GAAP to FRS 101 for all periods presented. Details of
adjustments arising on transition can be found in note 8.

The financial statements have been prepared on the going concern basis, under the historical cost convention and in accordance with
the Companies Act 2006.

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
to share-based payments, financial instruments, capital management, presentation of a cash flow statement and related notes,
related party transactions and comparative period reconciliations. In addition, disclosures in relation to share capital (note 22),
share premium and dividends (note 9) have not been repeated here as there are no differences to those provided in the consolidated
financial statements.

Except as noted below, the Company’s accounting policies are consistent with those described in the consolidated financial
statements of Severfield plc.

Profit of the parent company
The Company has taken advantage of section 408 of the Act and consequently the statement of comprehensive income (including the
profit and loss account) of the parent company is not presented as part of these accounts. The profit of the parent company for the
financial year amounted to £5,061,000 (2015: £5,683,000).

Audit fees
The Company has taken the exemption granted under SI 2008/489 not to disclose non-audit fees paid to its auditor.

Employees
Directors’ remuneration and details of their share-based payments are disclosed in the audited part of the directors’ remuneration
report on page 85 and in notes 6 and 21 to the consolidated financial statements.

Investment properties
Investment properties are stated at cost less provision for impairment. Depreciation is charged annually at 1 per cent on a
straight-line basis.

Investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

Amounts owed by subsidiary undertakings
The Company holds intercompany loans with subsidiary undertakings which are repayable on demand. None of these loans are past
due nor impaired. The carrying value of these loans approximates their fair value.

Intercompany guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other Group companies, the Company
considers these to be insurance arrangements and accounts for them as such. In this respect the Company treats the guarantee
contract as a contingent liability until such time it becomes probable that the Company will be required to make a payment under the
guarantee.

133

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE COMPANY FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

2. Tangible fixed assets

Cost

At 1 April 2015

Additions

Disposals

At 31 March 2016

Depreciation

At 1 April 2015

Charge for the year

Disposals

At 31 March 2016

Net book value

At 31 March 2016

At 31 March 2015

Freehold
and long
leasehold
land and
buildings
£000

64,040

—

(275)

63,765

4,018

500

(12)

4,506

59,259

60,022

Fixtures,
fittings
and office
equipment
£000

Motor
vehicles
£000

—

339

—

339

—

334

—

Total
£000

64,059

353

(275)

64,137

4,037

505

(12)

4,530

59,607

60,022

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 (investment properties). The rental income from these assets in the current year was £504,000 (2015:
£504,000), which is set at a rate only to cover certain of the costs of maintaining the properties.

3. Investments
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries, joint ventures and associated undertakings,
including their country of incorporation, as at 31 March 2016 is disclosed below. All of these had a reporting period ended
31 March 2016, except where indicated.

Name of undertaking
100% owned by Severfield plc
Severfield (UK) Limited
Severfield (NI) Limited
Atlas Ward Holdings Limited
Watson Steel Structures Limited
Rowen Structures Limited
Steelcraft Erection Services Limited
Engineering Construction Training Limited
Severfield Reeve Properties Limited
Severfield Reeve Projects Limited
Severfield Reeve International Limited
Severfield Mauritius Limited
100% owned by Atlas Ward Holdings Limited
Severfield (Design & Build) Limited
Atlas Ward EBT Limited
100% owned by Severfield Reeve Projects Limited
Leeds 27 Limited
50% owned by Severfield plc
Composite Metal Flooring Limited*
50% owned by Severfield Mauritius Limited
JSW Severfield Structures Limited
25% owned by Severfield plc
Fabsec Limited*

*companies with a reporting period ended 31 December 2015.

134

Incorporated in

England and Wales
Northern Ireland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Mauritius

England and Wales
England and Wales

England and Wales

India

England and Wales

Annual report and accounts for the year ended 31 March 2016

Our financials – Company

3. Investments continued

Investment in subsidiaries

Investment in joint ventures

Investment in subsidiaries

Cost

At 1 April 2015

Liquidation of dormant companies

At 31 March 2016

Provision for impairment

At 1 April 2015 and 31 March 2016

Net book value

At 31 March 2016

At 31 March 2015

2016
£000

73,746

20,748

94,494

2015
£000

86,950

13,709

100,659

£000

107,150

(13,204)

93,946

20,200

73,746

86,950

During the year, the Company liquidated a dormant company resulting in a loss on disposal of £587,000, representing the historical
investment in the company of £13,204,000 offset by the waiver of the associated intercompany creditor of £12,617,000.

Investment in joint ventures
In 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. During the year, the Company did not make any further indirect investments
in the joint venture (2015: £1,700,000). The investment is carried in Severfield Mauritius Limited, a wholly owned subsidiary of the
Company.

As a result of the loss of £319,000 recorded during the year, the Company’s investment in the Indian joint venture of £13,709,000 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 2017/18 to 2019/20. The calculations assume a long-term
growth rate of 1.5 per cent (2015: 1.5 per cent) from 2020/21 onwards and a pre-tax discount rate of 10 per cent (2015: 10 per cent).
Following this review, no impairment charge was recorded in the year ended 31 March 2016 (2015: £nil). 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.

On 16 November 2015, the Company completed its investment in a 50% share of CMF Limited which has been accounted for as a
joint venture. The total consideration for the investment is £7,039,000, which consists of an initial payment of £4,126,000 (including
transaction costs of £126,000), an additional payment of £413,000 (made in early 2016/17) following agreement of the final working
capital position and a further £2,500,000 which is payable over the next five years subject to certain conditions.

Cost

At 1 April 2015

Additions

At 31 March 2016

£000

13,709

7,039

20,748

135

Severfield plc

www.severfield.com

Stock code: SFR

NOTES TO THE COMPANY FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2016

4. Debtors — amounts falling due within one year

Other debtors

Amounts owed by subsidiary undertakings

Amounts due from JVs and associates

Corporation tax recoverable

5. Creditors — amounts falling due within one year

Bank borrowings

Other creditors and accruals

Amounts owed to subsidiary undertakings

Deferred tax liability (note 6)

2016
£000

1,191

40,835

101

683

42,810

2016
£000

—

9,687

74,981

4,521

89,189

2015
£000

1,202

45,321

—

1,571

48,094

2015
£000

3,864

4,266

87,352

5,425

100,907

In the prior year, borrowings represented an element of the Group’s revolving credit facility from HSBC Bank plc and Yorkshire Bank
jointly as disclosed in note 20 to the consolidated financial statements. The facility is available until July 2019.

6. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Company and movements thereon during the current
and prior reporting period.

Deferred tax liabilities

Deferred tax assets

Deferred tax — movement for the year

At 1 April 2014

Current year credit

Credit to equity

At 1 April 2015

Current year credit

Credit to equity

Effect of change in tax rate

At 31 March 2016

2016
£000

(5,151)

630

(4,521)

Excess capital
allowances
£000

Other timing
differences
£000

(5,816)

—

(5,764)

—

551

(5,151)

107

139

339

284

(24)

630

2015
£000

(5,764)

339

(5,425)

Total
£000

(5,709)

145

139

(5,425)

346

527

(4,521)

The UK corporation tax rate is set to reduce from 20 per cent to 19 per cent with effect from 1 April 2017 and to 18 per cent with
effect from 1 April 2020. As these changes were substantively enacted on 26 October 2015, they have been used to calculate closing
deferred tax balances as appropriate.

136

Annual report and accounts for the year ended 31 March 2016

Our financials – Company

7. Contingent liabilities
The Company has provided an unlimited multilateral guarantee to secure any bank overdrafts and loans of all other Group companies.
At 31 March 2016 these amounted to £nil (2015: £nil).

8. Transition to FRS 101 from UK GAAP
As stated in note 1, these are the Company’s first financial statements prepared in accordance with FRS 101.

The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended 31 March 2016,
the comparative information presented in these financial statements for the year ended 31 March 2015 and in the preparation of an
opening FRS 101 balance sheet at 1 April 2014 (the Company’s date of transition).

In preparing its FRS 101 balance sheet, the Company has adjusted amounts reported previously in financial statements prepared in
accordance with its old basis of accounting (‘UK GAAP’). An explanation of how the transition from UK GAAP to FRS 101 has affected
the Company’s financial position and performance is set out in the following table and the accompanying notes.

Reconciliation of equity

Total equity under UK GAAP

Deferred tax on industrial buildings

Deferred tax on share-based payments

Total adjustment to equity

Total equity under FRS 101

1 April
2014
£000

31 March
2015
£000

107,513

113,616

(5,431)

—

(5,431)

(5,371)

138

(5,233)

102,082

108,383

The adjustments in the table above arise on the recalculation of deferred tax based on the approach required by IAS 12. The
restatement of £5,233,000 of the 31 March 2015 balance represents a debit of £5,431,000 to retain earnings at 1 April 2014, a credit
of £60,000 to the income statement for the year ended 31 March 2015 and a credit of £138,000 to other comprehensive income for
the year ended 31 March 2015.

Reconciliation of profit for the year ended 31 March 2015

Amount under UK GAAP

Deferred tax adjustments

Amount under FRS 101

31 March
2015
£000

5,623

5,683

Adjustment arises as a result of changes in the income tax expense from the recognition of deferred tax liabilities (see reconciliation of
equity above).

137

Severfield plc

www.severfield.com

Stock code: SFR

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

Severfield (Design & Build)
Limited
Ward House
Sherburn
Malton
North Yorkshire
YO17 8PZ

Severfield (NI) Limited
Fisher House
Ballinamallard
Enniskillen
Co Fermanagh
BT94 2FY

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

Composite Metal Flooring
Limited
Unit 3
Mamhilad Technology Park
Old Abergavenny Road
Mamhilad
Monmouthshire, NP4 0JJ

Stockbrokers
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London, EC4V 3BJ

Bankers
HSBC Bank plc
Maingate
Kingsway North
Team Valley Trading Estate
Gateshead, NE11 0BE

Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions, Bridgwater Road
Bristol, BS99 7NP

Yorkshire Bank
(part of CYBG plc)
94 Albion Street
Leeds, LS1 6AG

Advisers
Auditor
KMPG LLP
Chartered Accountants
1 Sovereign Square
Leeds, LS1 4DA

Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London, EC2A 2HA

Public Relations
Bell Pottinger
6th Floor, Holborn Gate
330 High Holborn
London, WC1V 7QD

138

Annual report and accounts for the year ended 31 March 2016

Shareholder notes

SHAREHOLDER NOTES

139

Severfield plc

www.severfield.com

Stock code: SFR

SHAREHOLDER NOTES

140

SEVERFIELD PLC
SEVERS HOUSE
DALTON AIRFIELD INDUSTRIAL ESTATE
DALTON, THIRSK
NORTH YORKSHIRE
YO7 3JN

TEL: (01845) 577896
FAX: (01845) 577411