25357.02 7 July 2017 12:37 PM Proof 725357.02 7 July 2017 12:37 PM Proof 7Severfield plc Annual report and accounts for the year ended 31 March 2017 Severfield plc Annual report and accounts for the year ended 31 March 2017 BUILDING FROM A STRONG FOUNDATIONAnnual report and accounts for the year ended 31 March 2017 Stock code: SFR www.severfield.comStock code: SFR www.severfield.comSeverfield Annual Report 2017 - Strategic.indd 307/07/2017 12:39:24 25357.02 7 July 2017 12:37 PM Proof 7.comANNUAL REPORT 2017severfield.annualreport2017Severfield Annual Report 2017 - Strategic.indd 407/07/2017 12:39:26 25357.02 7 July 2017 12:37 PM Proof 7Severfield is the largest specialist structural steelwork group in the UK, with a growing presence in India and a reputation for performance and value.WELCOME TO OUR ANNUAL REPORT 2017BUILDING FROM A STRONG FOUNDATION“ It has been another year of good progress, both operationally and strategically.”John DoddsExecutive chairman“We are well on track to double our 2016 profits by 2020.”Alan DunsmoreActing chief executive officerRead more on our chairman’s view on page 06Read more about our strategy on page 22Severfield Annual Report 2017 - Strategic.indd 507/07/2017 12:39:28 25357.02 29 June 2017 8:22 AM Proof 8THE STRENGTH WITHIN ICONIC STRUCTURESSeverfield Brag Book Proof 8.indd 129/06/2017 08:23:16 Location
King’s Cross, London
Client
Argent Group
Main contractor
BAM Construction
Engineer
ARUP
Architect
Heatherwick Studio (concept)/
BAM Design (delivery)
Tonnage
1,300
Completion date
August 2017
The project involves the redevelopment
of the historic Coal Drops building and
Victorian brick arches at King’s Cross,
London to provide approximately
100,000 square feet of retail, restaurant
and events space.
The Coal Drops, which are brick and cast iron structures
previously used for sorting and storing coal, were built in
the middle of the 19th century. They are currently being
restored as part of the project which will become a unique
new retail quarter.
For the project, Severfield is providing connection design,
fabrication and construction of the steelwork and the
temporary works required to support the new roof during
construction.
The most complex feature, the new ribbon truss roof, is
made up of twenty bespoke tubular parts, which were sub-
assembled into eight modules on the ground before being
lifted into place by a 500-tonne capacity mobile crane. This
new roof provides a continuation of the existing slate roof,
and will connect the two existing buildings at upper level via
a suspended floor. To further minimise the amount of work
performed at height, Severfield also performed paint touch-
up and purlin installation on the ground.
Severfield also erected new beam and column steelwork
inside both of the existing masonry buildings, which was
challenging due to the restricted working space.
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Location
Ordsall, Greater Manchester
Client
Northern Hub Alliance
Main contractor
Skanska BAM JV
Engineer
AECOM Mott MacDonald JV
Architect
BDP
Tonnage
3,800
Completion date
September 2017
Part of Network Rail’s multi-billion
pound North of England programme,
the Ordsall Chord is the development
of a new section of railway which will
provide a link for the first time between
Manchester Piccadilly, Oxford Road and
Manchester Victoria stations.
As part of the Northern Hub Alliance delivery team, which
also includes Network Rail, Siemens, Amey Sersa JV, BDP,
Skanska BAM JV, and AECOM Mott MacDonald JV, Severfield
is responsible for fabricating, supplying and constructing
nine new steel bridges.
The main bridge structures are:
Irwell Crossing (pictured) – is the project’s centrepiece
bridge and also the UK’s first network arch bridge. The
development of this 90 metre long bridge, which consists of
c.1,200 tonnes of structural steel, has been undertaken in a
manner which is sympathetic to the adjacent historic George
Stephenson railway bridge. Its steel arches were assembled
by Severfield close to the River Irwell and then tandem lifted
into position using two large crawler cranes onto the steel
composite deck which was supported by temporary trestles.
The arches were then welded to the deck on site.
Trinity Way Viaduct – is a three-span structure which is 112
metres long and weighs c.1,300 tonnes. The project contains
an architectural steel element known as the ‘Swoosh’ to
ensure that the steelwork from the arch bridge seamlessly
blends into the viaduct giving the impression of one long
continuous steel structure between the two bridges. The
viaduct was installed in pieces up to 20 metres long and
weighing up to 60 tonnes each. It was constructed in two
phases and lifted into place using various large crawler
cranes, the heaviest lift being 130 tonnes.
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Location
Dundee
Client
Dundee City Council
Main contractor
BAM Construction
Engineer
ARUP
Architect
Kengo Kuma & Associates
Tonnage
780
Completion date
January 2017
The Victoria & Albert Museum is
Scotland’s first museum dedicated
to design and the only other V&A
museum outside of London.
The museum comprises two separate three storey
buildings with sloping external walls which merge together
to form one building at roof level. The building changes
shape and orientation at each level and is clad with
decorative precast concrete units which were inspired by
Scotland’s cliffs.
The building structure is made up of in-situ concrete
sloping walls around the perimeter, with further concrete
walls and cores internally to provide stability. The elevated
structural steel and metal decking floors span between
the external walls and internal cores at three levels to
tie the whole structure together. Long span beams and
trusses have been utilised to achieve large clear span
areas, suitable for the museum galleries. The nature of
the design required large numbers of heavy connections
between the floor beams and the concrete walls. Heavily
engineered cast-in plates and site welded connections
were developed by Severfield specifically for this project.
Due to the interdependency of the steel and concrete
elements, the construction sequence for this building
was developed collaboratively by BAM and all the main
sub-contractors. The working area around the site was
also very limited, which further promoted the need for
coordination and cooperation between all parties.
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Location
Wimbledon, London
Client
The All England Lawn Tennis Club (AELTC)
Main contractor
Sir Robert McAlpine
Engineer
Thornton Tomasetti
Architect
KSS
Tonnage
4,900
Completion date
January 2019
The redevelopment of No.1 Court at
Wimbledon is part of a multi-million
pound project by The All England Lawn
Tennis Club.
The project will add a new roof with fixed and moveable
components, increase seating capacity by 900 seats on two
new tiers, create a new two-level public plaza, and upgrade
the court’s seats, concessions, catering areas and hospitality
facilities. This will transform the stadium into a grass court
arena capable of guaranteed play in all weather conditions.
The main feature of the project is the addition of the retractable
roof, which is similar to the one installed on Centre Court
by Severfield in 2009. The project includes the installation
of a new fixed roof, to support the moving elements of the
new retractable roof, and a structural steel mainframe with
pre-cast concrete terracing to increase the seating capacity
to approximately 12,400. The structure has been designed
to allow the maximum amount of sunlight to the grass court
whilst also optimising the spectator viewing.
The housing of the mechanisms within the roof that control the
air temperature and humidity for optimum playing conditions
have led to a complex structural arrangement that has tested
our design, fabrication and construction capabilities. The
project has been planned over a three-year period with two
breaks in the site activities to accommodate the dates of
the tournament. The new retractable roof is expected to be
complete in time for the 2019 Championships.
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Location
City of London
Client
AXA Real Estate
Main contractor
Multiplex Europe
Engineer
WSP UK
Architect
PLP Architecture
Tonnage
16,000
Completion date
December 2018
Located in the heart of the City of
London, 22 Bishopsgate is a new
62-storey office tower situated within
the City’s cluster of tall buildings.
The completed project will provide approximately
1.3 million square feet of office space, 43,000 square feet
for restaurants and retail facilities and a public viewing
gallery at the top.
The project is built on the existing foundations, three-storey
basement and seven-storey core that were previously
constructed as part of ‘The Pinnacle’ project, which was
suspended in 2012. The building has a concrete central
core and a steel frame superstructure consisting of steel
beams which act compositely with concrete slabs, cast
onto permanent metal decking. Outriggers are located
on certain higher floors to limit the wind induced drift. A
series of transfer structures below ground floor carry the
superstructure loads into the existing Pinnacle foundations.
The footprint of the building is larger than the existing
basement and, accordingly, the superstructure columns
on the perimeter of the structure have been designed and
sloped to meet the existing foundations.
For the project, Severfield is providing the connection design,
fabrication and construction of c.16,000 tonnes of structural
steel, which includes the use of Fabsec plated composite
beams from level 10 upwards. Other services and fixtures
include the installation of c.1.6 million square feet of metal
decking and 500,000 shear studs. Severfield is also providing
full edge protection to the floors using the ‘Seversafe’ edge
protection system and ‘Seversafe’ perimeter fan system.
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25357.02 7 July 2017 12:37 PM Proof 725357.02 7 July 2017 12:37 PM Proof 7Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Strategic.indd 607/07/2017 12:39:28 25357.02 7 July 2017 12:37 PM Proof 7Investor websiteWe maintain a corporate website at www.severfield.com containing a wide range of information of interest to institutional and private investors including: —Latest news and press releases —Annual reports and investor presentationsView this annual report online: severfield.annualreport2017.comOverviewSeverfield – a snapshot02Our year04Our chairman’s view06Our unique offering08The scale of our operations10Strategic reportHow we create value14How sustainability supports our business model16The markets we serve18Our market sectors20Our strategy22Key performance indicators28Our operating performance30Our financial performance36Building a sustainable business42How we manage risk50Our governanceBoard of directors62Our executive committee64Our chairman’s view on governance66Corporate governance report67Audit committee report73Nominations committee report77Directors’ report 78Directors’ remuneration report — Letter from the committee chairman81 — Policy83 — Implementation91Directors’ responsibilities statement101Our financials — GroupIndependent auditor’s report104Consolidated income statement109Consolidated statement of comprehensive income110Consolidated balance sheet111Consolidated statement of changes in equity112Consolidated cash flow statement113Notes to the consolidated financial statements114Five year summary146Financial calendar146Our financials — CompanyCompany balance sheet147Company statement of changes in equity148Notes to the Company financial statements149Shareholder informationAddresses and advisers15401Annual report and accounts for the year ended 31 March 2017Overview / ContentsSeverfield Annual Report 2017 - Strategic.indd 107/07/2017 12:39:29 Severfield plc
www.severfield.com
Stock code: SFR
SEVERFIELD – A SNAPSHOT
What we want to be
What we set out to achieve
Our vision
Our mission
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.
As ambitious, innovative leaders in a demanding and
ever developing industry, we will use our collective
strengths and resources to build the capacity
required to deliver the structures of the future.
What defines us
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.
Integrity
We operate in a complex and challenging industry, one that often requires innovative thinking and a flexible approach to
deliver successful outcomes. The one thing we’ll never compromise on is our integrity, which ensures we’re able to maintain the
exceptionally high standards we set for ourselves.
Commitment
We may move with the times, but our long and rich history means that we have a few old-fashioned beliefs. One of
those beliefs is that you stand by your word. When Severfield say we’ll deliver, whatever challenges lie ahead, you can
depend on us to deliver, and to the highest possible standards.
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25357.02 7 July 2017 12:37 PM Proof 7What we doOur business modelWe 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.DesignFabricateConstructSee how we create value on page 14How we will achieve our visionOur strategyOur strategy revolves around five main elements. This is aided by our business improvement programme, ‘Smarter, Safer, more Sustainable’. See our strategy on page 22How we measure successOur KPIsWe use a combination of financial and non-financial key performance indicators (‘KPIs’) to measure our progress in delivering our strategic priorities.How we impact on societyResources and relationshipsThere are four main areas where our business model impacts on society and where we have responsibilities that extend beyond financial performance:Safety, Health and EnvironmentSustainabilityPeopleCommunitiesWhere we do itOur GroupSeverfield (UK), Dalton, North Yorkshire and Lostock, LancashireSeverfield (Design & Build), Sherburn, North YorkshireHow we manage threatsOur risksRisk management is at the heart of how the business is run and supports the Group’s strategic objectives. We have identified eight principal risks and uncertainties which have the potential to impact the Group’s business model and strategy.Who we serveMarketsOur 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.How we govern ourselvesOur governanceWe are committed to maintaining the highest standards of corporate governance and ensuring that values and behaviours are consistent across our businesses. We encourage open and honest discussion and constructive challenge across the Group to ensure that best practice is maintained. This culture is integral to our business model and strategy and for the benefit of our shareholders. Our KPIs for profitability, accident frequency rate (‘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.See the scale of our operations on page 10See the markets we serve on page 18See how we create value on page 14See key performance indicators on page 28See how we manage risk on page 50See more on governance on page 67GrowthOperational ExcellenceClientsPeopleIndiaSeverfield (NI), Ballinamallard, Co. Fermanagh JSW Severfield Structures Mumbai, IndiaComposite Metal Flooring Monmouthshire, Wales03Annual report and accounts for the year ended 31 March 2017OverviewOverview / Severfield — a snapshotSeverfield Annual Report 2017 - Strategic.indd 307/07/2017 12:39:30 Severfield plc
www.severfield.com
Stock code: SFR
OUR YEAR
FINANCIAL HIGHLIGHTS
Revenue
£262.2m
2016: £239.4m
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Profit before tax
£18.1m
2016: £9.6m
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Underlying* profit
before tax
£19.8m
2016: £13.2m
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Underlying* basic
earnings per share
5.53p
2016: 3.67p
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Underlying*
operating margin
7.5%
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Net funds
£32.6m
2016: £18.7m
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25357.02 7 July 2017 12:37 PM Proof 7OPERATIONAL HIGHLIGHTS* Underlying results are stated before non-underlying items of £1.8m (2016: £3.5m): —Amortisation of acquired intangible assets – £2.6m (2016: £2.6m) —Movement in fair value of derivative financial instruments – gain of £0.8m (2016: loss of £0.9m) —The associated tax impact of the above, together with the impact of a reduction in future corporation tax rates on deferred tax liabilities – £0.6m (2016: £1.2m) —Revenue up 10 per cent to £262.2m (2016: £239.4m) —Underlying* profit before tax up 50 per cent to £19.8m (2016: £13.2m) —Continued strong cash performance with operating cash conversion of 112 per cent (2016:150 per cent), resulting in year-end net funds of £32.6m (2016: £18.7m) —Profit before tax up 89 per cent to £18.1m (2016: £9.6m) —Total dividend increased by 53% to 2.3p per share (2016: 1.5p per share), includes proposed final dividend of 1.6p per share —Return on capital employed (‘ROCE’) of 14.6 per cent (2016: 9.7 per cent) —Over 110 projects undertaken during the year in key market sectors including Wimbledon No.1 Court, a major new commercial head office building in London, the new stadium for Tottenham Hotspur F.C. and a new commercial office tower at 22 Bishopsgate —Share of profit from Indian joint venture of £0.2m (2016: loss of £0.3m) reflecting stability of the business and move to profit for the first time —Equity investment of £5.3m in India being made post year-end to repay term loan —UK order book of £229m at 1 June 2017 (1 June 2016: £270m), reflecting a return to more ‘normal’ order book levels —India order book of £73m at 1 June 2017 (1 June 2016: £33m) —Good progress made towards strategic objective of doubling underlying profit before tax by 2020Read more about our operating performance on page 30Commercial offices 54% Transport (including bridges) 7%Industrial and distribution 9%Stadia and leisure 23%Power and energy 4%Data centres and other 1%Retail 1%Health and education 1%UK order book June 2016£270mUK order book June 2017£229mCommercial offices 39% Transport (including bridges) 9%Industrial and distribution 11%Stadia and leisure 27%Power and energy 5%Data centres and other 2%Retail 4%Health and education 3%05Annual report and accounts for the year ended 31 March 2017OverviewOverview / Our yearSeverfield Annual Report 2017 - Strategic.indd 507/07/2017 12:39:30 25357.02 7 July 2017 12:37 PM Proof 7OUR CHAIRMAN’S VIEW2017 has been another year of good progress, both operationally and strategically. We have increased our underlying pre-tax profits by 50 per cent and continued to invest in the business, thereby setting the foundations upon which we will continue to implement our strategy.2017 has been another year of good progress for the Group, both operationally and strategically. The Group has delivered a second successive year of strong revenue growth, with revenue of £262.2m representing a 10 per cent increase from the previous year. This growth is reflected in the significant improvement in underlying* operating profit (before JVs and associates), which has increased by 43 per cent to £19.6m, along with continued good cash generation. The higher underlying operating profit (before JVs and associates) reflects an improvement in operating margin (before JVs and associates) (from 5.7 per cent in the prior year to 7.5 per cent), which has continued to benefit from the embedding of operational efficiencies across the Group through better contract execution and improved flow of fabrication processes in our factories. In addition, our new joint venture, CMF Limited, is performing well and its integration into the supply chain has had a beneficial impact on operating margins as well as the share of results from JVs and associates.Underlying* profit before tax has increased by 50 per cent to £19.8m from £13.2m in the previous year. This mainly reflects both the good performance in the UK and a stable year-on-year performance from our Indian joint venture resulting from a consistent order book and good levels of production through the factory. Overall, we are very pleased with the profit progress we have made during the year which positions us well to achieve our previously stated strategic target of doubling our 2016 underlying profit before tax over the following four years.Read more about our operating performance on page 30Our Group balance sheet continues to be very strong. Year-end net funds were £32.6m, an increase of £13.9m over 2016, a result of our excellent cash generation during the year (operating cash conversion was 112 per cent). This underlying cash performance has enabled further capital investment in 2017, demonstrating our commitment to developing and improving the business.DividendsWe have a progressive dividend policy which has established clear priorities for the use of capital. The total dividend for the year has been increased by 53 per cent to 2.3p per John Dodds Executive chairman06Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Strategic.indd 607/07/2017 12:39:30 25357.02 7 July 2017 12:37 PM Proof 7share (2016: 1.5p per share) which includes a proposed final dividend of 1.6p per share (2016: 1.0p per share). This reflects the improved result for the year and the board’s confidence in the future prospects of the Group. Read more about our financial performance on page 36Interim board changeOn 28 March 2017, following the temporary leave of absence of Ian Lawson due to physical ill health, I agreed to act as executive chairman on an interim basis and am working with Alan Dunsmore, who has assumed the role of chief executive on a similar basis. Adam Semple, the Group financial controller, has temporarily taken on the responsibilities of Group finance director. Read more about our governance on page 67Strategy and marketsReviewing the strategic objectives of the Group, continuing to assess their appropriateness, and evaluating progress against these objectives has continued to be a key focus for the board. During the year, the board held strategy sessions at which we challenged and shaped the strategic priorities presented by management.We have again made good progress against our strategic priorities during the year. We have seen further growth in revenue and underlying pre-tax profits, continued operating margin improvement and ongoing investment in our clients, people and facilities. We are also seeking to develop opportunities in continental Europe and have recruited a new European business development director, the first time that we have had a full-time employee to focus on this market.We will continue to build on our breadth of capability and service levels to clients to take advantage of opportunities in both our core construction and infrastructure sectors. In particular, the UK Government has stated its commitment to significant improvements to infrastructure including HS2, Hinkley Point (nuclear power station) and a new runway at Heathrow Airport in addition to the ongoing Network Rail and Highways England investment programmes, all of which represent opportunities for the Group in the medium term.Read more about our strategy on page 22BrexitThe decision of the UK to leave the European Union has so far not had any significant impact on the Group. Although Brexit has the potential to change the competitive and commercial landscape for the Group and the construction industry as a whole, the extent of this is likely to remain unclear for some time. We remain vigilant to respond to any such changes in market conditions.Read more about how we manage risk on page 50PeopleOn behalf of the board I would like to thank all of our employees for the hard work and commitment they have again shown this year. The safety of our people remains central to all of the Group’s operations and our extensive programme of activities and improvements continued during the year under the direction of Phillipa Recchia, our new Group SHE director. We have continued to build on the initial success of our behavioural safety programme and are now in the process of further developing the safety culture of the Group.The Group’s AFR for the year, which includes our Indian joint venture, was 0.24 (2016: 0.25). This includes an AFR of 0.42 for our UK operations, a slight improvement from the 0.44 achieved in 2016.Read more about building a sustainable business on page 42OutlookOur performance in 2017 demonstrates the considerable strategic and operational progress that we have made over the last few years and the underlying strength of the Group. We now have a strong basis from which to continue to implement our strategy and to create value for our shareholders.John DoddsExecutive chairman 14 June 2017* The basis for stating results on an underlying basis is set out on page 5.Corporate governanceYou can read more about how we comply with the UK Corporate Governance Code in the sections below:Board of directors 62 Our executive committee 64Our chairman’s view on governance 66Corporate governance report 67Audit committee report 73Nominations committee report 77Directors’ report 78Directors’ remuneration report 8107Annual report and accounts for the year ended 31 March 2017OverviewOverview / Our chairman’s viewSeverfield Annual Report 2017 - Strategic.indd 707/07/2017 12:39:31 Severfield plc
www.severfield.com
Stock code: SFR
OUR UNIQUE OFFERING
Severfield is the UK’s market-leading structural steel company,
the home of world-class engineering and design excellence.
Client focus
Experience
We are committed to outstanding
customer service. An essential part of
project delivery is understanding our
clients’ requirements and aspirations.
This builds secure, sustainable and
mutually valuable relationships and
creates lasting client satisfaction.
We have unrivalled experience and
capability in the design, fabrication
and construction of steel structures.
The breadth of expertise in our workforce
ensures that we can serve a diverse range
of market sectors, positioning us well for
future growth.
Integrated approach from
design to construction
Scale
By engaging with our clients in the
design stage, our understanding of their
requirements is enhanced and adds value
throughout the project life cycle. Our
in-house design and construction teams
work closely together to create the most
efficient and safest solutions that match
our clients’ needs.
Severfield is the largest structural
steel business in the UK and one of
the largest in Europe, with a growing
presence in India, providing unrivalled
capacity and capability.
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Annual report and accounts for the year ended 31 March 2017
Overview / Our unique offering
Innovation
Cost base
Innovative thinking is integral to our
approach, giving us flexibility in how
we deliver projects for our clients.
This means that our business can
easily adapt to the trends across all
the sectors that we serve.
Our operational improvement programme
involves close management of our
cost base. This has generated steady
margin improvement, keeps our offering
competitive and allows us to reinvest in
the business.
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Supply chain strengths
Our continued investment in market-
leading technology, plant and equipment
leads to higher quality products with
a shorter turnaround, increasing the
productivity of our operations.
Careful management of the supply
chain is an essential part of improving
efficiency. We are well positioned to
manage any change in UK steel supply.
We choose supply chain partners who
match our expectations in terms of
quality, sustainability and commitment
to client service.
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25357.02 7 July 2017 12:37 PM Proof 7THE SCALE OF OUR OPERATIONSUnrivalled capacity and capabilityThe Group operates across four main locations in the UK which provide unrivalled capacity and capability. We also have joint venture operations in India, which forms part of our international growth plans, and in Wales, which further strengthens our supply chain.JSW Severfield Structures Limited60,000tonnes per year capacityc.600employeesThe 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, Indiabulls, Prestige, Procter & Gamble, 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.Composite Metal Flooring LimitedThe company, of which we have a 50 per cent share, provides a state-of-the-art manufacturing facility in South Wales. This facility houses three dedicated roll forming production lines, developed solely for the manufacture of MetFloor® metal decking.CMF is a specialist designer, manufacturer, innovator and installer of profiled MetFloor® metal decking, the first choice material for any composite decking construction – from car parks to football stadia.CMF has invested further allowing for the production of purlins and additional cold-formed products.MumbaiDelhiBellaryBangaloreMonmouthshire10Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Strategic.indd 1007/07/2017 12:39:31 employees
Annual report and accounts for the year ended 31 March 2017
Overview / The scale of our operations
Severfield (Design & Build) Limited
25,000
c.250
tonnes per year capacity
employees
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.
w
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Ballinamallard
Sherburn
Dalton
Lostock
Severfield (NI) Limited
25,000
c.300
tonnes per year capacity
employees
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, Odyssey Arena in
Belfast 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.
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 conception 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 (Multiplex, 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.
Dalton, North Yorkshire
Lostock, Lancashire
This facility boasts 10 state-of-the-art production lines where
modern manufacturing and painting processes are undertaken in a
controlled environment. The streamlined, high-volume and efficient
nature of this facility is geared for strong repeat business in the
structures market.
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.
75,000
c.450
25,000
c.300
tonnes per year capacity
employees
tonnes per year capacity
employees
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25357.02 7 July 2017 12:37 PM Proof 7STRATEGIC REPORTStrategic reportHow we create value14How sustainability supports our business model16The markets we serve18Our market sectors20Our strategy22Key performance indicators28Our operating performance30Our financial performance36Building a sustainable business42How we manage risk50Severfield Annual Report 2017 - Strategic.indd 1207/07/2017 12:39:32 25357.02 7 July 2017 12:37 PM Proof 7Severfield Annual Report 2017 - Strategic.indd 1307/07/2017 12:39:34 Severfield plc
www.severfield.com
Stock code: SFR
HOW WE CREATE VALUE
Severfield plc is the UK’s market-leading structural
steel group, serving the construction and
infrastructure markets.
Our customers
Why they work with us
Clients serviced by the Group cover a broad range of disciplines from
contractors and developers, to engineers and architects.
The Group’s competitive advantage derives from our client focus, experience,
scale, integrated approach from design to construction, innovation, cost base,
productivity and supply chain strengths.
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 sub-assembly 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.
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Severfield plc is the UK’s market-leading structural
steel group, serving the construction and
infrastructure markets.
Annual report and accounts for the year ended 31 March 2017
Strategic report / How we create value
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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 consolidated 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.
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.
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.
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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.
We have a rich heritage and a strong history with decades of
experience and a wealth of expertise, however, we operate
in a dynamic market and change is a constant. With a solid
foundation now in place, we want to focus on maintaining
and growing our reputation to build on our market-leading
strengths and performance over the longer term.
processes, use of technology, operating efficiencies and new
product development, all set within a framework of strong risk
management and control. We believe that by investing in our
projects, training and technology to empower our people to
work Smarter, Safer and more Sustainably, this will assist us
in securing our future as the market leader in structural steel.
Smarter, Safer, more Sustainable, our business improvement
programme (which was launched during 2017), represents
the consolidation of all of the Group’s ongoing improvement
projects, established to help us in achieving the Group’s
overall strategy. These include improvements in business
We’ll develop smarter ways of working that enable us to be
more effective and focus on the things that matter. We’ll
continue to put safety at the forefront of everything we do,
making it the core of every decision and process.
SMARTER
SAFER
SUSTAINABLE
Improve how we deliver our projects
with speed, efficiency and accuracy.
Continue our relentless focus on safety
and always think ‘safety first’.
Focus on working sustainably and
reducing our energy consumption.
WHAT WE’LL DO
Maximise our skill sets – operational
excellence, quality and dealing with
complexity.
Introduce new technology and
equipment that enables safer ways of
working.
Invest in technology that reduces our
emissions.
WHAT THIS WILL MEAN FOR US
Continued development of our expertise
and improve our offering to clients.
Safeguard employees, clients and
shareholders.
Care for our environment whilst building
our external reputation.
Smarter, Safer, more Sustainable will assist us in unlocking the value in our people and will help to keep our order book
strong and secure the future for our clients, our shareholders and our employees.
Health and safety
A principal aim of the board is to continue to ensure, through
example and encouragement, that we behave ethically and
responsibly, particularly in the fields of health, safety and
environmental management.
The strategic overview (as below) underpins our health and
safety policy and establishes the areas that are essential to
achieving our main goal, namely to ensure that all employees
enjoy a safe working environment, with no exceptions.
Sustainability
We remain committed to minimising the environmental
impact of our business through sustainable practices and
continuous improvement of our environmental performance.
Significant progress continues to be made in areas such as
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Annual report and accounts for the year ended 31 March 2017
Strategic report / How sustainability supports
our business model
carbon reduction, strategy (as below), renewable energy and
the responsible sourcing of materials.
We have maintained the Carbon Trust Standard for
reducing CO2 emissions year-on-year and continue to be
accredited with the Gold Membership Standard of the Steel
Construction Stability Charter.
Our continued investment in technology and research will
ensure the future growth of the business whilst continuing to
drive efficiency and improvements in service, adding value for
our customers.
SAFETY, HEALTH AND ENVIRONMENTAL
STRATEGIC GOALS
A fair and safe
way of working
No incidents
that harm
people
Industry-
leading
occupational
health
Carbon
footprint
reduction
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Senior managers
Staff and contractor engagement
Supervisors/team leaders
Zero deviation plan
Key stakeholders
Consequence strategies
THE FOUNDATIONS
Leadership
Communication
Engagement
Accreditation
Training
Leadership
Training
Preventative actions
Life-saving rules
Behavioural
Leadership
Support
Health promotion
Mental health
Leadership
Training
Communication
Reduce, reuse,
recycle
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. Our unique capability to
deliver complex design solutions, our capacity and speed of
fabrication and our management of the integrated construction
process is what counts to our customers. Joint value engineering,
programme certainty, innovative engineering solutions and
advanced construction management have long been part of what
we do.
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Severfield plc
www.severfield.com
Stock code: SFR
THE MARKETS WE SERVE
The Group’s strategic focus is to build on our
UK market share from construction activities,
to enter new market sectors and to widen our
geographical spread into Europe and beyond.
Outlook
Market conditions have remained stable during the year.
Although pricing remains competitive, customers are also
placing a high premium on quality of service, project delivery
and financial (balance sheet) resilience, all areas of strength
for the Group. We continue to seek opportunities with clients
who recognise the additional value that we bring to the
outcome of a project.
After a period of recent strong growth, the market forecast,
prepared by the BCSA, is estimated to level out over the
next two years before returning to growth again as major
infrastructure projects start to move into their delivery phase.
These include Hinkley Point Nuclear Power Station, HS2 and
the expansion of Heathrow Airport. Our dedicated bridge
team and our historical record in transport infrastructure,
both railway and airports, should enable us to feel confident
about our involvement in these projects. The mix of projects
within market sectors will be a key determinant of the
Group’s outlook. Larger, more complex projects will continue
to offer strong opportunities and the Group continues to
focus on operating efficiencies to address smaller projects
competitively.
Industrial and distribution
Infrastructure (including bridges)
Health and education
Commercial offices
Power and energy
Stadia and leisure
Retail
Other
Percentage
48%
7%
12%
13%
7%
3%
2%
8%
Tonnes
431,000
64,000
111,000
116,000
59,000
28,000
18,000
75,000
UK
Marketplace
In 2016 (calendar year), the UK constructional steelwork
market, as measured by the British Constructional Steelwork
Association (‘BCSA’), is estimated to have increased 4 per cent
to 902,000 tonnes (this equates to a market of approximately
£1.7 billion). This increase in demand followed an 8 per cent
rise in structural steelwork consumption in 2015.
The Group’s potential production capability is approximately
150,000 tonnes, which represents c.17 per cent of 2016 UK
structural steel production. Its current share of the market is
approximately 90,000 tonnes (2015: 85,000 tonnes), resulting
in a total UK market share for 2016 of c.10 per cent (2015:
c. 9 per cent).
The Group’s market share has increased during the year which
reflects the projects in an order book which reached a six-year
high during 2017 and an improved UK market position. The
increase in market share has been achieved in accordance
with our strict risk mitigation criteria, which includes the 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 2016, are shown below:
Total market
tonnage
2016:
902,000
tonnes
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Annual report and accounts for the year ended 31 March 2017
Strategic report / The markets we serve
UK order book
The Group has a very healthy, well-diversified order book of
£229m (June 2017) which represents approximately eight
months of forward production capacity.
The order book has decreased since November 2016, which
represented the Group’s highest position for over six years.
This decrease, which was expected, represents the return to
more ‘normal’ order book levels following the awards earlier in
the year of certain large contracts, including 22 Bishopsgate.
The contract mix within the order book incorporates a diverse
range of projects in commercial offices, industrial, leisure
and infrastructure projects. Many of these projects play to
our key competencies – large complex projects that require
high quality, rapid throughput, on-time performance and full
co-ordination between stakeholders.
Pipeline/prospects
The Group continues to monitor the future pipeline of
projects currently being tendered. This provides forward
visibility of future orders and helps to facilitate production
planning. The Group’s current pipeline of contract
opportunities is encouraging and includes a range of
projects in the commercial office, industrial and distribution,
transport and power and energy sectors.
Group production
90,000
tonnes
Group potential capacity
150,000
tonnes
Total UK production of structural steelwork
902,000
tonnes
UK order book
£229m
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Severfield plc
www.severfield.com
Stock code: SFR
OUR 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.
Core infrastructure sectors
Transport
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),
Ely Southern Bypass.
Group market share (for
infrastructure including
bridges)
5-10%
Power and energy
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, Port of Liverpool Biomass Terminal, Ferrybridge Power Station.
Group market share
5-10%
Health and education
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 & Albert
Museum (Dundee), Kings College Hospital, Graphene Innovation Centre.
Group market share
<5%
Key: Global market future trends Upward trend
Downward trend
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Annual report and accounts for the year ended 31 March 2017
Strategic report / Our market sectors
Core construction sectors
Commercial offices
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, Nova Victoria, New Street Square, South Bank Tower,
Principal Place, One Angel Court, Southbank Place, London Development Project, 22 Bishopsgate.
Group market share
20-30%
Industrial and distribution
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, Rolls-Royce, Amazon and DHL.
Stadia and leisure
Group market share
10-20%
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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 F.C. (Emirates Stadium),
Wimbledon Centre Court (roof) and No.1 Court roof, Liverpool F.C. (redevelopment of Anfield
Stadium), Manchester City F.C. (south stand redevelopment), Tottenham Hotspur F.C. (new stadium). 40-50%
Group market share
Retail
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, Coal Drops Yard and projects for ASDA, Sainsbury’s, Tesco, Morrisons and Costco.
Group market share
20-30%
Data centres and other
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.
Group market share
Successes
London Data Centre (Slough), Microsoft (Amsterdam), Telehouse (London) and Amazon (Dublin).
5-10%
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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.
Medium-term target: to double 2016 underlying profit before tax by 2020
Growth
Clients
People
Operational
excellence
India
Strategic pillars
Growth
Clients
People
Operational
excellence
India
Description
Our aim is to capitalise on growth
opportunities both in the UK and in
overseas markets and to maximise
our market share.
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.
Our emphasis is on delivering high
quality projects and reducing costs
by driving excellence through our
core business processes.
We continue to believe that the
Indian market presents great
opportunities for steel fabrication.
Link to KPIs
Link to risks
1
2
3
4
5
6
7
a
b
c
d
e
1
2
3
4
5
6
7
a
b
c
d
e
1
2
3
4
5
6
7
a
b
c
d
e
1
2
3
4
5
6
7
a
b
c
d
e
1
2
3
4
5
6
7
a
b
c
d
e
f
f
f
f
f
g
h
g
h
g
h
g
h
g
h
Key performance indicator reference:
Principal risks reference:
1
2
Underlying operating
profit and margin (before
JVs and associates)
Underlying basic
earnings per share (‘EPS’)
5
Return on capital
employed (‘ROCE’)
6 Order book
7
Accident frequency rate
(‘AFR’)
3 Revenue growth
4
Operating cash
conversion
22
a Mispricing a contract
(at tender)
b Commercial and market
environment
c Health and safety
d Supply chain
e
f
Indian joint venture
Information technology
(‘IT’) resilience
g People
h
Industrial relations
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Annual report and accounts for the year ended 31 March 2017
Strategic report / Our strategy
In 2017, the progress that we have made in delivering our strategy, together with how this strategy has been further developed,
is set out below:
Growth
Our aim is to capitalise on growth opportunities both in the UK and in overseas markets
and to maximise our market share.
Strategic priorities
Achievements in 2017
Objectives for 2018
Increase UK market share —
growing profitable market share
in areas where the business
already operates.
Enter new UK market sectors
— looking for new market areas
where the business has not
operated in the past, taking
advantage of our existing
capacity and capabilities.
Building from existing
European opportunities —
driving more opportunities
from European contractors
with whom we have strong
relationships in the UK.
To further grow Group revenue 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).
Deliver a full range of projects in UK
markets including regional and mid-
market opportunities. To continue the
development of further cold-formed steel
opportunities in CMF.
Maintain the targeted approach with
key UK infrastructure project owners, to
exploit identified growth opportunities
(infrastructure and bridge markets).
Large infrastructure opportunities for the
Group in the medium term include Hinkley
Point nuclear power station and the new
runway at Heathrow Airport together with
the ongoing Network Rail and Highways
England investment programmes.
Win opportunities in European markets
and establish a full service delivery model.
Review growth opportunities in the rest of
the world.
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We have grown Group revenue by 10
per cent (following on from 19 per cent
revenue growth in the previous year),
taking advantage of the Group’s market-
leading position.
We have continued to focus on larger
projects within our target markets, playing
to our strengths of capability and capacity
(delivering projects for 22 Bishopsgate,
London Development Project, Tottenham
Hotspur F.C. and Wimbledon (No. 1 Court
roof)). We have also recognised the
opportunity for smaller mid-tier projects
where our economies of scale allow us to
increase market share profitably.
We have fully integrated our bridge team
within the Group’s operations. We have
secured a number of infrastructure
opportunities during the year and we
are also well advanced in bidding for
infrastructure projects such as HS2.
Our investment in CMF has provided us
with an excellent platform for cold-formed
steel products. Having successfully
integrated the metal decking supply into
our operations, CMF has invested further
allowing for the production of purlins and
additional cold-formed products.
We have employed a European
business development director, based
in the Netherlands, who will help drive
opportunities to extend our capabilities to
continental Europe.
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Severfield plc
www.severfield.com
Stock code: SFR
OUR STRATEGY
Clients
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 2017
Objectives for 2018
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. Our increased emphasis on client
engagement has led to regular contact
with key clients on market developments
and future business opportunities.
Our extensive investment in the Group
in recent years has allowed us to deliver
real benefits to our clients in terms of the
reliability and speed of project delivery,
coupled with the quality of service we can
offer.
We have also focused on developing new
and strengthening existing relationships
with our wider client base to develop our
pipeline of opportunities in both existing
and adjacent markets.
Client retention is vital to the achievement
of our strategic plans and we will continue
to ensure that the customer is at the
centre of everything we do.
We will further focus on opportunities
to improve client satisfaction, build on
existing client relationships and develop
new relationships.
Following the appointment of a new
European business development director,
we plan to develop new European
relationships, many of which will extend
our UK relationships across international
boundaries.
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.
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Annual report and accounts for the year ended 31 March 2017
Strategic report / Our strategy
People
Our people are at the heart of our business and are vital to the success of our vision and
the achievement of our strategic goals.
Strategic priorities
Achievements in 2017
Objectives for 2018
Develop our people – our aim
is to retain and develop 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.
In 2017 we designed the Severfield
Development Programme and have
launched this in April 2017. This
programme will help us build sustainable
leadership capability within our next
generation of leaders.
We will implement an integrated Group-
wide HR information system that will
enable us to make better people-related
decisions across the business.
Following the successful scheme in 2015,
we will launch a further ‘save as you earn’
(‘SAYE’) scheme to provide our employees
with an improved choice in the way in
which they participate. This will support
buy-in to the long-term success of the
business and assist in employee retention.
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.
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We recruited 183 people across the
Group, in particular strengthening across
a range of disciplines to further improve
our commercial and project management
procedures.
We also made the following key
appointments:
• Group SHE director
• Group head of procurement
• Group IT director
• Group research and development
engineer
• Group communications manager
• 39 apprentices/trainees
We conducted a further Group-wide
employee engagement survey. This has
enabled us to identify areas in need of
improvement and create benchmarks
against which to measure our progress
since our first survey in 2015.
We have strengthened our dedicated
health and safety team and our training
team during the year to further drive
safety improvements and reduce our AFR.
We have undertaken a thorough review
of internal communications across the
Group. This has included further feedback
opportunities for our employees, together
with more informative communication
channels and messages suitable to all
audience groups.
We developed a training programme on
lean production techniques which will lead
to many employees developing new skills
and achieving new qualifications.
We have continued 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.
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Severfield plc
www.severfield.com
Stock code: SFR
OUR STRATEGY
Operational excellence
Our emphasis is on delivering high quality, value added projects and reducing costs by
driving excellence through our core business processes.
Strategic priorities
Achievements in 2017
Objectives for 2018
Drive operational
improvements and efficiencies
— the objective of our
comprehensive operational
improvement programme is
to improve the Group’s risk
assessment, and operational
and contract management
processes.
We have further improved our underlying*
operating margin (before JVs and
associates) to 7.5 per cent in 2017. Our
profit performance in 2017 (underlying*
PBT was £19.8m) keeps us firmly on track
to deliver our strategic target of doubling
our 2016 underlying PBT by 2020.
The 2017 operating profit has benefited
from three main aspects of the Group’s
ongoing business improvement
programme:
Our target remains to double our
underlying PBT from the previous year
(2016) by 2020.
We will continue to develop our ‘smarter,
safer, more sustainable’ business
improvement programme (which was
launched in 2017 and covers all of the
Group’s ongoing improvement initiatives)
to enable us to focus further on many
aspects of our internal operations to the
benefit of Group profitability.
We will also continue the roll-out of the
MRP system across the Group which
will assist in embedding operational
efficiencies and improved factory
processes. This will also support further
improvements to contract and commercial
management processes.
This improved profitability will continue to
generate surplus cash flows and support
future dividends, in accordance with the
Group’s business model.
• contract and risk management –
ongoing improvements to contract
management processes focusing on
contract execution, the documentation
of project progress and changes, and
communication with clients throughout
projects;
• production process improvement
– changes have been made to the
production flows of steel through our
factories, making better use of new
and more efficient equipment and
increasing throughput;
• CMF – the integration of CMF into
our supply chain has had a beneficial
impact on operating margins as well as
the share of results from joint ventures
and associates.
Other operational improvements include
the roll-out of a new MRP system,
reconfiguration of our Lostock facility
and increased fabrication throughput at
Dalton.
These operational improvements were
also evidenced in the Group’s operating
cash flow of £27.4m, which, after net
capital expenditure of £5.3m, represents
an operating cash conversion of 112 per
cent (see note 24 of the consolidated
financial statements).
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25357.02 7 July 2017 12:37 PM Proof 7 IndiaWe continue to believe that the Indian market presents great opportunities for steel fabrication.Strategic prioritiesAchievements in 2017Objectives for 2018Sustainability of India – our aim is to further develop and grow the business whilst the market continues its conversion to steel.The joint venture has delivered another year of stability, producing a Group share of profit for the first time. The business also generated strong operating margins of 9.7 per cent reflecting an improved mix of higher margin commercial work compared to lower margin industrial work.Our aim for India remains to continue to grow the business and to build value for our shareholders.We will continue to 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.The rebalancing of its capital structure will position the business well for the next phase of its development.* The basis for stating results on an underlying basis is set out on page 5. Operational excellenceOur emphasis is on delivering high quality, value added projects and reducing costs by driving excellence through our core business processes.Strategic prioritiesAchievements in 2017Objectives for 2018Invest 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.The Group’s improvement programme has included further capital investment in 2017 of £7.0m. This represents further production-related equipment for our fabrication lines in Dalton, new bridge capacity and improved painting and shot blasting capability in Lostock, an extension to the paint shop in Ballinamallard, additional mobile equipment for use on our construction sites and continued investment in a range of health, safety and environmental efficiency-related improvements. This will benefit the Group both now and in the future.In addition, our CMF joint venture has invested in new machinery to enable the production of purlins and additional cold-formed products.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 programme.We will continue to invest in new state-of-the-art manufacturing technology to help drive production efficiencies, improve our capabilities and product range 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.See our KPIs on page 28Read more about how we manage risk on page 50Read the operating performance on page 3027Annual report and accounts for the year ended 31 March 2017Strategic reportStrategic report / Our strategy Severfield Annual Report 2017 - Strategic.indd 2707/07/2017 12:39:37 25357.02 7 July 2017 12:37 PM Proof 7KEY PERFORMANCE INDICATORSOur 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.Reference numberKPIOur performanceWhy this is importantHow we calculateWhat we target1Underlying* operating profit and margin (before JVs and associates)£19.6mat 7.5%20172016£13.7mat 5.7%Underlying operating profit (before JVs and associates) has increased by 43%, reflecting increased revenues and an increase in the margin of 1.8%This is the principal measure used to assess the success of the Group’s strategy.We are focused on driving growth in operating profit in order to drive higher and sustainable returns for our investors.Underlying operating profit is defined as operating profit before non-underlying items and the results of JVs and associates.Underlying operating margin is calculated as underlying operating profit expressed as a percentage of revenue.See the consolidated income statement on page 109Our target is to double 2016 underlying profit before tax over the next four years (by 2020).Our ongoing aim is to generate steady margin improvement in 2018 and beyond. 2Underlying* basic earnings per share (‘EPS’)5.53p201720163.67pEPS growth was 51%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.EPS is calculated as underlying profit after tax divided by the weighted average number of shares in issue during the period.See note 10 of the consolidated financial statements on page 126Our aim is to maximise sustainable EPS growth.3Revenue growth£262.2m20172016£239.4mRevenue has increased by 10% reflecting an increase in order flow, activity and steel pricesThis 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.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. No such adjustments were made to the current or prior year revenues.To grow revenue year-on-year in line with our strategic objectives.4Operating cash conversion112%20172016150%Cash conversion remains comfortably above the 85% targetCash 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.Operating cash conversion is defined as cash generated from operations after net capital expenditure (before interest and tax) expressed as a percentage of underlying operating profit (before JVs and associates).See note 24 of the consolidated financial statements on page 140We target a conversion rate of 85 per cent as a base level of achievement, subject to future capital investment made to position the Group for further growth.5Return on capital employed (‘ROCE’)14.6%201720169.7%ROCE has improved by 4.9% and now exceeds the 10% targetROCE 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.ROCE is calculated as underlying operating profit 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.See note 20 of the consolidated financial statements on page 133We aim to deliver ROCE which is in excess of 10 per cent over the whole economic cycle.6Order book£229m20172016£270mThe order book has reduced by 15% since June 2016The 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.Our order book shows the total value of future revenue secured by contractual agreements.We aim to build a good quality order book which supports the achievement of our strategic targets.7Accident frequency rate (‘AFR’)0.24201720160.25The AFR remains within the Group’s target for 2017 of 0.28This 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.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. 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.* The basis for stating results on an underlying basis is set out on page 5.28Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Strategic.indd 2807/07/2017 12:39:38 25357.02 7 July 2017 12:37 PM Proof 7Reference numberKPIOur performanceWhy this is importantHow we calculateWhat we target1Underlying* operating profit and margin (before JVs and associates)£19.6mat 7.5%20172016£13.7mat 5.7%Underlying operating profit (before JVs and associates) has increased by 43%, reflecting increased revenues and an increase in the margin of 1.8%This is the principal measure used to assess the success of the Group’s strategy.We are focused on driving growth in operating profit in order to drive higher and sustainable returns for our investors.Underlying operating profit is defined as operating profit before non-underlying items and the results of JVs and associates.Underlying operating margin is calculated as underlying operating profit expressed as a percentage of revenue.See the consolidated income statement on page 109Our target is to double 2016 underlying profit before tax over the next four years (by 2020).Our ongoing aim is to generate steady margin improvement in 2018 and beyond. 2Underlying* basic earnings per share (‘EPS’)5.53p201720163.67pEPS growth was 51%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.EPS is calculated as underlying profit after tax divided by the weighted average number of shares in issue during the period.See note 10 of the consolidated financial statements on page 126Our aim is to maximise sustainable EPS growth.3Revenue growth£262.2m20172016£239.4mRevenue has increased by 10% reflecting an increase in order flow, activity and steel pricesThis 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.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. No such adjustments were made to the current or prior year revenues.To grow revenue year-on-year in line with our strategic objectives.4Operating cash conversion112%20172016150%Cash conversion remains comfortably above the 85% targetCash 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.Operating cash conversion is defined as cash generated from operations after net capital expenditure (before interest and tax) expressed as a percentage of underlying operating profit (before JVs and associates).See note 24 of the consolidated financial statements on page 140We target a conversion rate of 85 per cent as a base level of achievement, subject to future capital investment made to position the Group for further growth.5Return on capital employed (‘ROCE’)14.6%201720169.7%ROCE has improved by 4.9% and now exceeds the 10% targetROCE 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.ROCE is calculated as underlying operating profit 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.See note 20 of the consolidated financial statements on page 133We aim to deliver ROCE which is in excess of 10 per cent over the whole economic cycle.6Order book£229m20172016£270mThe order book has reduced by 15% since June 2016The 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.Our order book shows the total value of future revenue secured by contractual agreements.We aim to build a good quality order book which supports the achievement of our strategic targets.7Accident frequency rate (‘AFR’)0.24201720160.25The AFR remains within the Group’s target for 2017 of 0.28This 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.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. 29Annual report and accounts for the year ended 31 March 2017Strategic reportStrategic report / Key performance indicatorsSeverfield Annual Report 2017 - Strategic.indd 2907/07/2017 12:39:38 Severfield plc
www.severfield.com
Stock code: SFR
OUR OPERATING PERFORMANCE
We are well on track with our target to double
2016 underlying profit before tax by 2020.
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Alan Dunsmore
Acting chief executive officer
Group overview
The year ended 31 March 2017 has been an excellent year
for the Group with benefits coming from strong and good
quality order inflow as well as continued improvements in
operational performance.
Underlying* profit before tax is up 50 per cent to £19.8m
(2016: £13.2m) and revenue has increased by 10 per cent to
£262.2m (2016: £239.4m). This performance has converted
into cash, with operating cash conversion of 112 per cent
(2016: 150 per cent), resulting in net funds at the year-end of
£32.6m (2016: £18.7m).
The Indian joint venture delivered another year of stability
producing, for the first time, a small profit after tax of £0.2m
(2016: loss of £0.3m).
The first full year of Composite Metal Flooring Limited (‘CMF’)
has contributed a Group share of £0.3m profit after tax,
which is in addition to the commercial rebates we receive
on products used by the Group and that have benefited our
operating margin. CMF has integrated well into the Group and
is continuing to invest in and develop its product range.
The Group has also exceeded its target ROCE of 10 per
cent achieving a good return of 14.6 per cent in the period,
bringing the Group more into line with its construction and
engineering clients and peers.
The Group has continued to build on the strong commercial
and risk management disciplines put in place over the past
four years and we maintain our target to double 2016 profit
before tax by 2020. Based on the Group’s continued progress
I am delighted that the board is recommending an increase
in the final dividend to 1.6p per share, making a total for the
year of 2.3p per share (2016: 1.5p per share) a 53 per cent
increase on the prior year.
UK review
Revenue is up 10 per cent over the prior year predominantly
reflecting an increase in order flow and activity during the
year, together with an increase in steel prices. This year
we have worked on four large projects in London that have
contributed to this increased activity level. The new roof for
Wimbledon No. 1 Court, a major new commercial head office
building in London, the new stadium for Tottenham Hotspur
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Strategic report / Our operating performance
F.C. and a new commercial office tower at 22 Bishopsgate are
all projects with revenues in excess of £20m.
Our operating margins have improved again to 7.5 per cent
(2016: 5.7 per cent) resulting in an underlying operating profit
(before JVs and associates) of £19.6m (2016: £13.7m). We
continue to drive improvements to our operational execution,
which includes better risk and contract management
and developments to our production processes. These
improvements have helped the Group deliver a better
return on capital following the extensive investment in the
business and we are also delivering real benefits for our
clients in terms of the reliability and speed of project delivery,
coupled with the quality of service we can offer. Operational
improvements this year have included the roll-out of a new
material requirements planning system across the Group to
allow seamless sharing of production and improved project
data, reconfiguration of our Lostock facility and increased
fabrication throughput at the Dalton facility.
Following on from the success of our operational
improvement programme from 2014 to 2017, this year
we launched a further programme of projects under the
banner ‘Smarter, Safer, more Sustainable’, which includes
improvements to our business processes, use of technology
and operating efficiencies. This continuous improvement
enhances the robustness of our processes and controls,
drives operational efficiency and maximises productivity
across the business.
Continued stability in our organisational structure and
management team remains a key strength of the business.
We continue to drive improvements in our people and
processes and, importantly, embed these improvements in
our organisational culture. During the year we introduced
another two training programmes: one on ‘lean’ production
techniques, which will lead to many of our employees
developing new skills and achieving relevant qualifications;
the other, an emerging leaders programme to develop
and deepen our management talent. In addition to the
direct benefits, these programmes strengthen our ability
to retain and attract high quality employees. This is also
being reinforced through our apprenticeship and graduate
recruitment programmes which have accepted 39 and five
recruits this year, respectively.
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Severfield plc
www.severfield.com
Stock code: SFR
OUR OPERATING PERFORMANCE
Our unique capability to deliver complex design solutions,
our capacity and speed of fabrication and our management
of the integrated construction process is important for our
customers. This year we have delivered very challenging
programmes for customers, reduced costs through both
our pre-tender value engineering and also post-award
engineering solutions, and developed innovative building
solutions for temporary works and pre-assembled sections
to work in live operating environments.
We have continued to work closely with customers across
a broad range of sectors and regions. Our customers have
included Multiplex, Sir Robert McAlpine, BAM, Skanska,
MACE, Laing O’Rourke, Canary Wharf Contractors, McLaren,
Winvic, Costain, Morgan Sindall, Carillion, Stanhope,
Buckingham, GSE, Vinci, ISG, Interserve, Bowmer and
Kirkland, Hochtief and Westfield. The Group worked on over
110 projects with our clients during the year including:
Major projects –
over £20m
Wimbledon (No. 1 Court roof), London
Tottenham Hotspur F.C., London
London Development Project, London
22 Bishopsgate, London
Commercial
offices
Southbank Place, London
Principal Place, London
BBC, Cardiff
King’s Cross S2, London
Stadia and leisure Liverpool F.C. (Anfield stadium),
Liverpool
Industrial and
distribution
Transport
infrastructure
Health and
education
BAE Barrow, Cumbria
DHL, East Midlands
Nissan, Sunderland
Large distribution centre, Tilbury
Ordsall Chord, Manchester
London Bridge Station Canopies, London
Ardleigh Green Bridge, London
Kings College Hospital, London
Power and energy Covanta, Dublin
Gladstone Biomass, Liverpool
Dunbar, Scotland
Ferrybridge, Yorkshire
Case study
Tottenham Hotspur F.C.
Tottenham Hotspur F.C.’s new stadium at White Hart Lane
has been designed with an overall capacity of 61,000 and
the south stand, which will be the UK’s largest single tier
stand, will be able to hold up to 17,000 supporters. The
completed stadium will also feature a retractable pitch
to enable the staging of NFL games and other events.
Severfield is providing connection design, fabrication and
construction of 14,000 tonnes of structural steelwork
for this complex project which includes the construction
of the main stands, the supply of steelwork for the
retractable pitch and its storage enclosure and the
steelwork for the Tottenham Experience.
32
The project also involves the construction and erection
of two large steel ‘trees’, each consisting of 160 tonnes
of structural steel, in order to support the back of the
south stadium and the supply and installation of the
complex cable roof structure. Currently, the majority
of construction work has been focused on the new
north, east and west stands as these are outside of
the footprint of the existing stadium.
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Strategic report / Our operating performance
This year also saw the first full year of trading from our
specialist cold-rolled steel joint venture business, CMF.
We are the only hot rolled steel fabricator in the UK to have
this cold rolled manufacturing capability, which enables us
to internalise a greater share of supply chain margin and
develop new products to drive Group revenue and margin.
The remedial bolt replacement works at Leadenhall were
completed during the year with the total expenditure being
in line with the non-underlying charge made back in 2015.
Discussions continue with all stakeholders to determine where
the financial liability for the remedial costs should rest.
Our steel supply chain has remained stable during the year.
The change of ownership at British Steel, previously TATA, has
had no impact on service or capability for our steel sections.
Our principal plate sourcing remains in continental Europe
but we endeavour to source UK plate from re-rollers including
the reopened Liberty facility in Dalzell, Scotland.
Order book and market conditions
Whilst the most recent order book has reduced to £229m, the
strong and good quality order inflow during 2017 will continue
to support improving performance in the current financial
year. Our normal order book levels typically equate to eight to
ten months of annualised revenue so whilst, as expected, the
order book has come off its peak, it remains at a level which
supports good progress towards our strategic targets.
We remain pleased with the order book mix, which
incorporates a diverse range of projects in the commercial
office, industrial and distribution, and infrastructure sectors.
Notwithstanding a reduction in new construction orders over
the past few months and the impact of the general election,
the UK market generally appears to be remaining stable. We
have identified a number of significant projects across the
commercial office, retail, industrial and distribution, and
infrastructure sectors for the upcoming months. Many of
these projects play to the Group’s core competencies – large
complex projects that require high quality, rapid throughput,
on-time performance and full co-ordination between
stakeholders.
Although pricing will always be an important factor, and
remains competitive, we continue to work with customers
who recognise the additional value the Group brings to
the outcome of projects. Our operational improvement
programme is focused on establishing a cost platform that
enables us to deliver high quality, value added services
to our customers at market prices whilst maintaining our
performance target commitments.
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Severfield plc
www.severfield.com
Stock code: SFR
OUR OPERATING PERFORMANCE
Looking further ahead we continue to see a significant
increase in infrastructure projects including Hinkley Point
nuclear power station, HS2 and the expansion of Heathrow
Airport. Our bridge team places us in a strong position for
the HS2 bridge work and our historical record in transport
infrastructure both in railway stations and airports, and
Heathrow in particular, enables us to feel confident about the
potential for our involvement in these major projects.
India
Our Indian joint venture, JSSL, has delivered another year
of stability and its first profit after tax, of which the Group’s
share is £0.2m (2016: loss of £0.3m). JSSL generated strong
operating margins which this year were 9.7 per cent (2016:
7.0 per cent). This excellent operating performance has been
overshadowed by the high cost of financing the joint venture’s
local debt. Historically, debt servicing costs have offset most
of this operating margin, however a post year-end decision,
with our partner JSW, to invest additional equity to repay
the joint venture’s remaining term debt of £10.6m, means
that more of this underlying operating profit will contribute
to Group earnings in future years. The immediate impact is
expected to increase the Group’s share of JSSL’s profit by
£0.5m per annum.
The JSSL order book has increased significantly over recent
months and was £73m at 1 June 2017. During the year, the
business has continued to generate a good balance between
lower margin, more readily available industrial work and
higher margin commercial work, which is generally secured
from the conversion of projects from concrete to steel. This
conversion remains key to the long term growth and value
of the business and good progress continues to be made in
persuading more clients of the benefits of steel. As in the UK,
the business retains a strong focus on securing appropriate
terms and conditions for its projects and some initially
attractive projects have been declined on this basis.
Overall, we remain confident in the long term development of the
market and of the business and this has led to the agreement
with our joint venture partner, JSW, to each invest additional
equity of £5.3m to help repay the business’s outstanding term
debt. The Indian government continues to reshape the economy
to stimulate investment and these structural changes will
support the long term growth of the business.
Business investment
The Group has invested £7.0m in capital expenditure during
the year (2016: £5.0m) and received £1.2m from the sale of a
non-core property.
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Annual report and accounts for the year ended 31 March 2017
Strategic report / Our operating performance
The capital expenditure has been invested in a range of
projects to improve our in-house painting capability in both
Lostock and Ballinamallard, develop our bridge fabrication
capability, further enhance our in-house fleet of construction
site equipment and improve our staff welfare facilities. We
also purchased a plot of land at our Dalton facility, which had
previously been leased.
Painting has become an increasingly important part of our
business in recent years and the investment in our painting
capability will reduce our reliance on external suppliers and
importantly, reduce product movement and processing times.
We have also been developing our commercial capability
in the bridge infrastructure market over the past couple of
years, a market we see as increasingly important over the
coming years. This investment will greatly enhance the speed
and efficiency of our bridge fabrication.
The cash generation of the Group remains strong and we
will continue to invest £6m to £7m per annum to support the
continued development of our client service offering and our
operational improvements and efficiencies.
Safety
The Group’s AFR for the year, which includes our Indian
joint venture, was 0.24, a slight improvement on the 0.25
recorded last year. This improvement was driven by our UK
operations which reduced from 0.44 to 0.42 in the year. Whilst
this performance is industry-leading, we are committed
to making further improvements and continue to invest
significant amounts of time and money in employee safety.
All members of our board participated in site safety visits
during the year and we continue to develop the monitoring
and analysis of all safety-related incidents, including near
misses. We have started implementing the next phase of our
behavioural safety programme and increasing our level of
focus on mental and physical health-related issues. In light
of this, we are supporting the newly established Mates in
Mind charitable programme to improve and promote positive
mental health in construction.
Strategy
Last year we introduced a target to double 2016 profit before
tax to £26m over four years and are making good progress
towards achieving this target. The core driver of this is the
continuation of the operational improvement programme
implemented over the previous three years and we are now
capturing these ongoing initiatives under the banner of
‘Smarter, Safer, more Sustainable’. There is a wide range of
activities aimed at improving business processes, operational
efficiency, use of technology and new product development
all set within a framework of robust risk management and
control. Having established a strong foundation over the
past few years from which we and our customers have
seen the benefits, we are continuing to work with our
customer base to improve our ability to meet their evolving
requirements. Joint value engineering, programme certainty,
innovative engineering solutions and advanced construction
management have long been part of what we do, but we are
confident that we will deliver further improvements in these
areas as we implement our strategy.
We continue to deliver on our additional strategic objectives.
CMF has performed very well for the Group providing in-
house supply of cold formed products. There are plans in
place to develop the product range of CMF and the business
is investing accordingly.
After undertaking a significant amount of research into
the potential market opportunity in continental Europe we
have employed a European business development director
based in the Netherlands, who will focus on tailoring our
established UK offering for expansion into this market.
Summary and outlook
The business has had an excellent year with revenue and
strong profit growth supported by strong cash generation.
Overall, this performance represents a significant step
towards our 2020 target of doubling profits. The current order
book and pipeline, coupled with a continued stable market
environment, will support further progress towards this
target in the current financial year.
In India, the strong operational performance, the record order
book and the repayment of the high cost local debt makes us
confident in the joint venture’s future financial contribution to
the Group and in its profitable growth potential in this large
addressable market.
Finally, I would like to thank all of our people for their
continued hard work, innovation and commitment over the
last year and we look forward together to another successful
year in 2018.
Alan Dunsmore
Acting chief executive officer
14 June 2017
* The basis for stating results on an underlying basis is set out on page 5.
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25357.02 7 July 2017 12:37 PM Proof 7OUR FINANCIAL PERFORMANCEExcellent profit growth has been supported by strong cash generation.Trading performanceRevenue for the year of £262.2m represents an increase of £22.8m (10 per cent) compared with the previous year. This is predominantly the result of an increase in production volumes, particularly in the second half of the year, mainly reflecting an order book which continued to grow until November 2016 when it reached a peak of £315m, its highest position for over six years. The Group’s order book at 1 June 2017 of £229m represents the expected return to more normal order book levels following the mid-year peak. Historically, our June order book has represented approximately 8 to 10 months of future revenue.20172016Revenue£262.2m£239.4mUnderlying* operating profit (before JVs and associates)£19.6m£13.7mUnderlying* operating margin (before JVs and associates)7.5%5.7%Underlying* profit before tax£19.8m£13.2mUnderlying* basic earnings per share5.53p3.67pOperating profit (before JVs and associates)£17.8m£10.1mProfit before tax£18.1m£9.6mBasic earnings per share5.13p2.89pReturn on capital employed (‘ROCE’)14.6%9.7%* The basis for stating results on an underlying basis is set out on page 5. The board believes that non-underlying items should be separately identified on the face of the income statement to assist in understanding the underlying performance of the Group. Accordingly, adjusted performance measures have been used throughout the annual report to describe the Group’s underlying performance.Read our Group financials on pages 109 to 145Read our Company financials on pages 147 to 153Adam Semple Acting Group finance director36Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Strategic.indd 3607/07/2017 12:39:42 Annual report and accounts for the year ended 31 March 2017
Strategic report / Our financial performance
Underlying operating profit (before JVs and associates) of
£19.6m (2016: £13.7m) represents an increase of £5.9m since
the prior year, reflecting an increased underlying operating
margin (before JVs and associates) of 7.5 per cent (2016: 5.7 per
cent). The operating margin has continued to benefit from the
Group’s operational improvement programme including ongoing
improvements made to our contract management processes,
improved flow of fabrication processes in our factories and the
integration of our new joint venture, CMF, into our supply chain.
CMF has benefited operating margins as well as the share of
results from JVs and associates. The statutory operating profit
(before JVs and associates), which includes the Group’s non-
underlying items, was £17.8m (2016: £10.1m).
The share of results of JVs and associates was a profit of
£0.5m (2016: loss of £0.2m) and net finance costs
were £0.2m (2016: £0.2m).
Underlying profit before tax, which is management’s primary
measure of Group profitability, was £19.8m (2016: £13.2m). The
statutory profit before tax, reflecting both underlying and non-
underlying items, was £18.1m (2016: £9.6m).
Share of results of JVs and associates
The Group’s share of results from its Indian joint venture was
a profit of £0.2m (2016: loss of £0.3m) reflecting another year
of relative stability in the business. This is the first time that
the Group has recorded a share of profits from the Indian joint
venture which represents an operating margin of 9.7 per cent
(2016: 7.0 per cent) less the finance expense associated with the
debt structure at 31 March 2017.
Our new joint venture, CMF, contributed a Group share of
profit of £0.3m (2016: £0.1m). Having successfully integrated
the metal decking supply into our operations, CMF has
invested further during the year allowing for the production
of purlins and additional cold-formed products which will
further expand the value offering and profit contribution from
the business.
Non-underlying items
Non-underlying items for the year of £1.8m (2016: £3.5m)
comprised:
• Amortisation of acquired intangible assets – £2.6m
(2016: £2.6m)
• Movement in fair value of derivative financial instruments
– gain of £0.8m (2016: loss of £0.9m)
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 during the 2018
financial year.
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Revenue
£262.2m
2016: £239.4m
m
2
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2
6
2
£
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4
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9
3
2
£
m
5
.
1
0
2
£
5
1
0
2
6
1
0
2
7
1
0
2
Underlying* profit
before tax
£19.8m
2016: £13.2m
m
8
.
9
1
£
m
2
.
3
1
£
m
3
.
8
£
5
1
0
2
6
1
0
2
7
1
0
2
Net funds
£32.6m
2016: £18.7m
m
6
.
2
3
£
m
7
.
8
1
£
6
1
0
2
7
1
0
2
m
4
.
6
£
5
1
0
2
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Severfield plc
www.severfield.com
Stock code: SFR
OUR FINANCIAL PERFORMANCE
A non-cash profit on derivative financial instruments of
£0.8m was recognised in relation to the movement in fair
values of foreign exchange contracts, which represents the
reversal of derivative liabilities held on the prior year balance
sheet on maturity of the underlying contract in the year. The
Group has adopted hedge accounting during the year for
all material foreign currency hedging positions (cash flow
hedges), thereby mitigating the impact of fair value changes
in the income statement since, to the extent that the hedge is
effective, changes in the fair value of the hedging instrument
will be recognised directly in other comprehensive income.
In 2015, the Group recorded a non-underlying cost of £6.0m
associated with the programme of bolt replacement works
at the Leadenhall building, a contract that was completed in
2013. This work is now complete and the actual costs of the
programme were consistent with the non-underlying charge.
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 previous years, 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 (2016: £0.2m). The
Group has been in a net funds position for all of the financial
year, consequently the finance costs of £0.2m primarily
represent non-utilisation fees for the revolving credit facility
and the amortisation of capitalised transaction costs
associated with the refinancing in 2014.
Taxation
The underlying tax charge of £3.3m (2016: £2.3m) represents
an effective tax rate of 17.1 per cent on the applicable profit
(which excludes results from JVs and associates). This is
consistent with an effective tax rate of 17.0 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. Almost all of the Group’s
operations and profits are in the UK, and we maintain an open
and constructive working relationship with HMRC.
The total tax charge for the year of £2.7m (2016: £1.0m)
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 17 per cent in 2021 in the deferred tax
calculation. These rate changes are categorised as non-
underlying and are included in non-underlying items.
Earnings per share
Underlying basic earnings per share increased by 51 per cent
to 5.53p (2016: 3.67p) based on the underlying profit after tax
of £16.5m (2016: £10.9m) and the weighted average number
of shares in issue of 298.9m (2016: 297.5m). Basic earnings
per share, which is based on the statutory profit after tax,
was 5.13p (2016: 2.89p), this growth reflects the increased
profit after tax and non-underlying fair value movements on
derivative financial instruments which have moved from a
loss in 2016 to a profit in 2017. Diluted earnings per share,
including the effect of the Group’s performance share plan,
was 5.09p (2016: 2.87p).
Dividend and capital structure
The Group has a progressive dividend policy. Funding
flexibility is 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:
• To support the Group’s ongoing operational requirements,
and to fund profitable organic growth opportunities where
these meet the Group’s investment criteria;
• To support steady growth in the core dividend as the
Group’s profits increase;
• To finance other possible strategic opportunities that meet
the Group’s investment criteria;
• To return excess cash to shareholders in the most
appropriate way, whilst maintaining a good underlying net
funds position on the balance sheet.
The board is recommending a final dividend of 1.6p
(2016: 1.0p) per share payable on 15 September 2017 to
shareholders on the register at the close of business on
18 August 2017. This dividend is not reflected on the balance
sheet at 31 March 2017 as it remains subject to shareholder
approval. This, together with the Group’s interim dividend of
0.7p (2016: 0.5p) per share, will result in a total dividend per
share for 2017 of 2.3p (2016: 1.5p).
Shareholders’ funds
Shareholders’ funds at 31 March 2017 were £154.2m (2016:
£148.2m). This equates to a total equity value per share at
31 March 2017 of 52p, compared to 50p at the end of 2016.
The increase is primarily due to the increase in profit after tax
for the year offset by an increase in the IAS 19 deficit on the
Group’s defined benefit pension scheme.
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Annual report and accounts for the year ended 31 March 2017
Strategic report / Our financial performance
Goodwill and intangible assets
Joint ventures
Goodwill on the balance sheet is valued at £54.7m (2016:
£54.7m) and is subject to an annual impairment review under
IFRS. No impairment was required either during the year
ended 31 March 2017 or the year ended 31 March 2016.
The carrying value of our investment in joint ventures and
associates was £12.1m (2016: £11.6m) which consists of
the investment in India of £4.6m (2016: £4.5m) and in CMF
Limited of £7.5m (2016: £7.1m).
Other intangible assets on the balance sheet are recorded
at £1.6m (2016: £4.5m). 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 £2.9m
(2016: £2.8m) was charged in the year.
Capital investment
The Group has property, plant and equipment of £78.9m
(2016: £77.4m).
Capital expenditure of £7.0m (2016: £5.0m) represents the
continuation of the Group’s capital investment programme.
This included investment in the painting facilities at Lostock
and Ballinamallard, development of our bridge fabrication
capability, new equipment for our fabrication lines, additional
investment in construction site equipment and improvements
to our staff welfare facilities. We also purchased a plot of land
at Dalton, which had previously been leased. Depreciation in
the year was £3.6m (2016: £3.7m).
The Indian joint venture business has continued to repay
its term debt with £4.1m repaid during the year, leaving
a balance of £10.6m at the year-end. The Group has now
agreed with its joint venture partner, JSW, to repay this
outstanding term debt which will leave the business with
an existing working capital debt of £14.0m, a letter of credit
facility and a more balanced capital structure as it enters
the next phase of its development. For the Group, this
also represents an attractive use of funds considering the
differential between interest rates in the UK and India.
Pensions
The Group has a defined benefit pension scheme which, although
closed to new members, had an IAS 19 deficit of £21.4m (2016:
£14.6m). The increase in the liability is primarily the result of a
reduction in the AA bond yield following the referendum vote to
leave the European Union, as this is used as the discount rate
in the calculation of scheme liabilities. The triennial funding
valuation of the scheme will be carried out in 2018, with a
valuation date of 31 March 2017. All other pension arrangements
in the Group are of a defined contribution nature.
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Severfield plc
www.severfield.com
Stock code: SFR
OUR FINANCIAL PERFORMANCE
Return on capital employed
The Group adopts 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 2017, ROCE was 14.6 per cent (2016: 9.7 per cent)
which exceeds the Group’s target of 10 per cent through the
economic cycle.
Cash flow
Operating cash flow (before working capital movements)
Cash generated from operations
Operating cash conversion
Net funds
2017
£25.1m
£27.4m
112%
£32.6m
2016
£17.9m
£24.8m
150%
£18.7m
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 £32.6m (2016: £18.7m).
Operating cash flow for the year before working capital
movements was £25.1m (2016: £17.9m). Net working capital
improved by £2.3m during the year mainly as a result of an
increase in advance payments from customers. Excluding
advance payments, year-end net working capital represented
approximately two per cent of revenue. This is lower than the four
to six 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 also been some
underlying improvement in working capital management.
In 2017, our cash generation KPI shows a conversion of 112 per
cent (2016: 150 per cent) of underlying operating profit (before
JVs and associates) into operating cash (cash generated
from operations less net capital expenditure). This is the third
successive year in which cash generation has exceeded
100 per cent and continues the Group’s excellent recent record
of converting profits into cash.
Net investment during the year was £5.3m reflecting capital
expenditure of £7.0m less proceeds from disposals of £1.7m
(mainly arising on the sale of a non-core property).
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 2017.
Treasury
Group treasury activities are managed and controlled
centrally. Risks to assets and potential liabilities to
customers, employees and the public continue to be insured.
The Group maintains its low risk financial management policy
by insuring all significant trade debtors.
The treasury function seeks to reduce the Group’s exposure
to any interest rate, foreign exchange and other financial
risks, to ensure that adequate, secure and cost-effective
funding arrangements are maintained to finance current and
planned future activities and to invest cash assets safely
and profitably.
The Group continues to have some exposure to exchange
rate fluctuations, currently between sterling and the euro.
In order to maintain the projected level of profit budgeted
on contracts, foreign exchange contracts are taken out to
convert into sterling at the expected date of receipt. The
Group has now adopted hedge accounting for the majority of
transaction hedging positions, thereby mitigating the impact
of market value changes in the income statement.
IFRS 15
The Group is currently undertaking a detailed exercise
comparing the current revenue recognition policies against
the requirements of IFRS 15, the new revenue accounting
standard which becomes effective for the Group’s 2019
year-end. This assessment involves identifying the significant
areas of difference and quantifying their effect on a sample
of different types of contract to ensure that the impact of the
new standard is fully understood and acted upon in advance
of the effective date. The results of this assessment will drive
the Group’s choice of transition option.
Adam Semple
Acting Group finance director
14 June 2017
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Annual report and accounts for the year ended 31 March 2017
Strategic report / Our financial performance
Going concern
Viability statement
In determining whether the Group’s annual consolidated
financial statements can be prepared on the going
concern basis, the directors considered all factors
likely to affect its future development, performance
and its financial position, including cash flows, liquidity
position and borrowing facilities and the risks and
uncertainties relating to its business activities. The
following factors were considered as relevant:
• The UK order book, and the pipeline of potential
future orders;
• The Group’s operational improvement programme
which has delivered stronger financial performance
and is expected to continue doing so in the 2018
financial year and beyond;
• 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.
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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 2020.
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:
• 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;
• 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. These committed bank
facilities mature in July 2019. Notwithstanding the Group’s
current net funds position of £32.6m, the directors draw
attention to the key assumption that there is a reasonable
expectation that the facilities will be renewed at the
appropriate time and that there will not be a significant
reduction in the level of facilities made available to the
Group or a significant change in the pricing.
The directors 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 55 to 59. In particular, the
impact of a reduction in margin, a reduction in revenue,
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.
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Severfield plc
www.severfield.com
Stock code: SFR
BUILDING A SUSTAINABLE BUSINESS
The well-being and safety of our employees,
clients, suppliers, subcontractors and the general
public is paramount and directly impacts on the
commercial viability of our business.
People are our most important asset and we believe
that everyone has a fundamental right to a safe working
environment. It is our duty to respect and foster that right.
This is why we take measurable steps to continuously
improve our safety practices and processes.
Our board continues to ensure the importance and
significance of social, environmental, ethical and health
and safety matters for the Group. Our health and safety
performance can determine our strength as a business, not
in isolation but one that defines our success in all areas of
the business.
Thus a comprehensive risk management and internal
control process is in place, supported by a corporate social
responsibility (‘CSR’) and sustainability committee.
Stop for a moment
Look at your work area
Anticipate what could go wrong
Manage your work safely
Do the safe thing
Safety, health and environment
As many of our activities remain potentially dangerous we
have continued, and will continue, to embed our ‘safety first’
value within all areas of the business. Thus ensuring safety,
health and environment remains a fundamental aspect of the
business and everyone’s role.
We have not only achieved recurring accreditations to ISO
14001 and 18001 but have also become first in our industry
to become accredited to the newly revised ISO 14001
standard.
The current year accident frequency rate (‘AFR’) of 0.24
includes an AFR of 0.42 for our UK operations. This shows a
small improvement compared to the previous year’s AFR of
0.44. In 2017, we had 16 RIDDORS compared to 17 RIDDORS
in 2016 which is reflected in the lower AFR results. We
have analysed underlying trends and will be focusing our
efforts on addressing the issues to make further significant
improvements in conjunction with a clear strategic approach.
In the current year we have introduced a SHE strategy that
both underpins and supports the cultural change within
the business and gives clear direction and focus with four
strategic goals (pillars):
• A fair and safe way of working
• No incidents that harm people
•
Industry-leading occupational health
• Carbon footprint reduction
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These strategic goals (see later for further details) will
be enablers to continuously improve the culture going
forward year-on-year with respect to health, safety and the
environment with clear communication and links across all
levels of the business (see below).
Group strategy
Executive board
Business board
Safety leadership team
Factory Safety Committee
We have continued to develop and refresh a number of
initiatives started in the previous years including near miss
reporting, improved communications, directors’ site visits
and the behavioural safety programme, which has resulted
in a clear step change in the SHE culture within the business.
This has been visibly communicated during newly introduced
safety stand-downs and feedback sessions across the
business.
Strategic goals
We will continue to concentrate on improving our AFR
performance in 2018 and we believe that our focus on the
strategic goals will deliver the performance we desire.
A fair and safe way of working
Leadership, communication and engagement, alongside
a robust training programme, will ensure that the safety
culture within the business continues to evolve and improve,
positively impacting the working environment and reducing
the harm to our people.
The format for the directors’ tours has been revised from
an audit style to an engagement style visit. This ensures
interaction and communication across the business at all
levels and shows clear commitment and leadership.
The process of recording incidents, tracking actions,
reviewing and focusing of topics is being further developed to
underpin and support the strategy and thus improve working
practices. This will also assist in deeper analysis of where our
key issues are within the business.
No incidents that harm people
We have continued to improve the conditions of the yards
in all of our factories alongside engaging with our clients
to improve site conditions and working areas. Ongoing
improvement to material stability is also a continuing project.
We are establishing a new welfare facility at Lostock which
will substantially improve the environment for our employees.
Accident and investigation training has been a focus across
the disciplines within the year to ensure root causes are clearly
identified and actioned to prevent further occurrences. We have
extended investigation from accidents to near misses with a high
potential for harm to further highlight preventative measures.
Our directors’ site tours continued to be fully supported and
actioned with 118 being undertaken during the year. These
gave our people the opportunity to discuss local issues and
make suggestions for improvement.
We have undertaken over 3,000 man-days of SHE training in
the year. This includes over 30 different courses. Examples are:
NEBOSH certificate; slinger/signaller; first aid; portable magnet
use; one-to-one coaching; and reversing vehicles. A mandatory
training matrix has also been implemented as part of a KPI target
in addition to the development of our apprenticeship programmes
with the learning and development team. In 2017, the average
number of training days per employee was 2.3 (2016: 1.1).
Industry-leading occupational health
We have continued to proactively assess our occupational
health provision and management to mitigate risk to our
people and our business. Both a support and prevention model
has been in place to support the business going forward.
We will continue to develop our health risk management
to ensure it is robust and effectively designed to reduce
healthcare costs, increase productivity, reduce absenteeism,
enhance employee morale, attract and retain high-quality
employees and create a positive return on investment.
The Severfield Foundation (see page 49) has linked with
the charity, Prostate Cancer UK, in addition to becoming a
member of the Health in Construction Leadership Group and
also Mates in Mind which is a charitable programme that
aims to raise awareness and understanding of poor mental
health in the construction sector.
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25357.02 7 July 2017 12:37 PM Proof 7BUILDING A SUSTAINABLE BUSINESSSustainabilitySteel is increasingly seen as the most sustainable of the major structural materials. It has various 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’ and circular economy.Sustainability committeeIn the year we have continued to develop the terms of reference for our sustainability committee. The agreed set of targets and objectives being:• Carbon reduction policy and strategy embedded in the SHE strategy• Reduction in carbon intensity by 2021• Waste reduction and diversion of waste from landfill• Quarterly GHG reporting using shared database and validation of emissions• Customer and supply chain engagement• Staff engagement and internal performance reporting• Sustainable procurement with accreditation to ISO 6001We achieved a CDP Sustainability Scoring of B which is above average for the sector.The recommendations from the previous ESOS report have been implemented which has resulted in a noticeable reduction of our carbon footprint. This has also reduced our climate change levy for the year which is aligned to the Dalton facility. Further improvements and initiatives are planned to further reduce our environmental impact whilst also reducing costs to the business.Environmental performanceThe Group maintains its environmental management system which is now certified to the revised ISO 14001. Information on our environmental impact is collated monthly and is reported to the board.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 emissions reportingWe have continued to report the Group’s GHG emissions in accordance with UK regulations and the GHG Protocol Corporate Accounting and Reporting Standard methodology. Our reporting boundary remains all material Scope 1 and 2 emission sources within the boundaries of our consolidated financial statements. We have also monitored Scope 3 emissions associated with raw materials, waste, water, business travel and product transportation to which we will review the full reporting of Scope 3 for the 2018 financial year.In 2017, we have again reduced our absolute total Scope 1 and 2 carbon emissions by 1 per cent from the previous year by continuing to focus on energy efficiency across the Group. Our intensity ratio per £m of revenue has also decreased from 45 to 41 which is a further 9 per cent reduction from the previous year. We will continue to review our carbon emissions going forward and assess any reduction programmes which will further reduce our carbon footprint where possible.For the year ended 31 March 2017, the Group’s global GHG emissions were as follows:Tonnes of CO2eEmissions from:20172016Scope 1 – combustion of fuel and operation of facilities5,2314,880Scope 2 – electricity, heat, steam and cooling purchased for own use5,3905,853Total CO2e emissions10,62110,733Intensity measurement:20172016Absolute tonnes equivalent CO2e per £m of revenue4145PeoplePeople are at the heart of our business and are vital to the success of our vision and the achievement of our strategic goals. Our aim is to create a great place to work in order that we can attract, recruit, retain and develop talented people who live and breathe our values at every level of our business to deliver our goals and customer commitments.Our people strategy comprises five interconnected themes:• Attract• Engage and perform• Develop, grow and lead• Reward and recognise• Well-being44Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Strategic.indd 4407/07/2017 12:39:45 Annual report and accounts for the year ended 31 March 2017
Strategic report / Building a sustainable business
Attract
We will attract, recruit and retain the
best and brightest talent
Our focus in 2017 has been on attracting, recruiting and
retaining the best and brightest talent. During the year, we
recruited 183 people across the Group, strengthening across
a range of disciplines to further improve our commercial and
project management procedures.
We are passionate about helping young people take their first
step onto the construction career ladder, from school leavers
experiencing the world of work for the first time, to graduates
qualified in disciplines relevant to the construction sector.
We believe that the recruitment and training of apprentices
is fundamental to business development; another means of
ensuring that we have all the desired skill bases available in
the future.
During 2017, we recruited 39 apprentices/trainees (2016: 27)
across the Group, having taken on at least ten apprentices
each year since our dedicated apprenticeship programme
launched in 2010. We have provided placements for trainee
fabricators, steel erectors and other technical trainees and
will continue to invest in apprenticeships during 2018 and
beyond.
Case study
UPS Warehouse,
Tilbury
This project is a new 400,000 square foot distribution
facility for UPS at London Gateway Logistics Park
and constitutes one of UPS’s largest infrastructure
investments outside of America. It is formed with
four individual HUB buildings situated in a unique
arrangement to suit the client’s operational requirements.
Severfield undertook the detailed design and co-
ordination of the scheme as well as the fabrication and
construction.
The complex roof structure and interfaces between the
various HUB buildings provided the main challenge in
the design together with the numerous strategically
positioned columns to accommodate the vast number
of entrances around the building elevations.
During the year, we recruited five graduates, reiterating our
commitment to providing opportunities for undergraduates
via work placements across a number of functions including
business support, quantity surveying, design engineering,
site management and project management.
In 2017 we supported a number of universities, colleges and
schools with the provision of guest lectures 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.
As well as ensuring that we attract and recruit the best and
brightest talent, we must also retain that talent. In 2017,
voluntary labour turnover was 7.9 per cent. For 2018, we have
targeted a 5.0 per cent reduction in voluntary labour turnover.
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Severfield also provided other services and fixtures for
the project, including metal decking to the offices and
mezzanine and a number of steel stairways.
Full co-ordination with all stakeholders and the careful
sequencing of the works were the key to the successful
completion of this project.
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Severfield plc
www.severfield.com
Stock code: SFR
BUILDING A SUSTAINABLE BUSINESS
During the year we worked 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
underrepresented groups to study STEM subjects.
Diversity will continue to be an area of focus in the year
ahead, reflecting its importance to our business and to our
clients.
Engage and perform
We will engage, coach and manage our people
to give their best every day
In 2017, our employees took part in our employee
engagement survey. The survey was undertaken on a
divisional basis and we have compared the results to those of
our first survey in 2015, providing us with valuable feedback
to help us become a better employer.
We plan to undertake a further survey during 2018 and have
set a target participation rate of 65 per cent. We will continue
to use an external consultant to facilitate the survey and will
compare our Group and individual business units against
external benchmarks.
As part of our ongoing commitment to increasing employee
engagement and following on from our survey, our marketing
and communications team have carried out a complete
review of internal communications across the Group. This has
included further feedback opportunities for our employees,
as well as creating and implementing new, more informative
internal communications channels and messages suitable to
all of our internal audience groups.
In 2016, we launched our first sharesave scheme (‘SAYE’), to
complement our existing Share Incentive Plans (‘SIPs’) and a
third of our employees took up this opportunity at an average
saving of £175 per month. Over 58 per cent of our employees
are shareholders via these schemes. We were delighted at
this level of participation and recognise this as a clear sign of
our people being engaged with our business. We will continue
to encourage our people to become shareholders and plan to
launch our second SAYE in June 2017.
Equal opportunities and diversity
We believe that equal opportunity means hiring and retaining
the best people, developing them to their full potential and
using their talents and resources to the full.
We are an equal opportunities employer and are committed
to encouraging diversity and eliminating discrimination in
both its role as an employer and as a provider of services. We
aim to create a culture that respects and values each other’s
differences, that promotes dignity, equality and diversity and
that encourages individuals to develop and maximise their
true potential. We are committed, wherever practicable, to
achieving and maintaining a workforce that broadly reflects
the communities in which we operate.
Our policy is that recruitment, training, career development
and promotion of disabled people should, as far as possible,
be identical to that of other applicants and employees. In
the event of an employee becoming disabled, every effort is
made to ensure that their employment within the Company
continues and that appropriate training is arranged where
necessary.
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Develop, grow and lead
We will support our people to achieve excellent
performance and continually develop their skills. We
will continue to develop strong leaders and managers
In 2017 we continued to use our personal development review
(‘PDR’) process. This process provides a focus on behaviours
in line with our values as well as assessment of performance
and identification of development needs. In the coming year,
we plan to work with our leaders and managers to further
develop the PDR process.
We have invested c.1.5 per cent of our payroll costs in learning
and development activities. The main areas of focus were:
Management development
Succession and talent management
In order to protect the long-term success of our business
we want to ensure that we understand our talent pipeline
and support their development so that our people reach
their full potential. In 2017 we conducted a full review of
key roles within the business and have identified possible
medium-term successors for these roles in the vast majority
of cases. Action plans have been put in place for these people
to ensure that any gaps in knowledge and experience are
addressed on a priority basis to meet business needs.
We also took the opportunity to highlight emerging talent
across business units to ensure consistency and visibility of
talent and career opportunity. Our agility in deploying talent
and experience to maximise opportunities through sharing
knowledge across the Group is a key differentiator and one
which we will continue to develop.
We identified the need to improve our management
capability, particularly within our production teams, and put
in place a modular training programme. Additional modules
will be developed in 2018 including HR-focused sessions
including how to recruit and select to meet our values.
In 2017 we designed the Severfield Development Programme
and have launched this in April 2017. This programme is
sponsored by Ian Lawson and will provide opportunities for
our emerging leaders to further develop their business skills,
work across business units and fast track their development.
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Graduate programme
We launched our ICE-accredited graduate programme which
provides graduates from engineering and technical disciplines
with the opportunity to work across all areas of our business
and gain a broad understanding of the various disciplines. In
addition to experiencing a wide range of projects, it enables
them to acquire the skill sets required for chartered membership
of the ICE. Wherever possible, we also provide our engineering
graduates with external secondments to enable them to gain
additional skills and experience.
Leadership development
We continued to develop our leadership capability and as part
of this programme, we continued to roll out the 360 degree
feedback process throughout our director population.
Participants in the process were assessed against our defined
leadership characteristics and behaviours aligned with our
values by their superiors, team members, customers and
peers. This feedback has enabled directors to put together
individually tailored development plans against which they
are taking action. We will measure the impact of changes in
leadership style by repeating the process at an appropriate
point and through the 2017 staff engagement survey.
During the year, we held a forum with 25 of our senior leaders
within the Group at which we re-enforced our leadership
development priorities and focused on what is required to
support our future leaders. We will continue to hold these
leadership forums in 2018.
Reward and recognise
We will reward and recognise people who demonstrate our
values and contribute to the achievement of our goals
Each of our businesses offers a competitive reward package
and reviews salaries annually in line with market rates. Our
focus is on cash and variable pay rather than fixed benefits
and each division’s reward package includes an annual Group
profit performance-related bonus which encourages the
achievement of our strategic objectives.
Our people are also eligible to participate in the Severfield
plc pension scheme (defined contribution). Employees also
have the option to make their own contributions through
salary sacrifice. In 2017, we invited employee members of
the pension scheme to apply to become employee nominated
pension trustees, resulting in the appointment of three new
employee trustees. We are working with our trustees to
encourage greater engagement of our people in planning for
retirement and general financial awareness.
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 and discount schemes.
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Severfield plc
www.severfield.com
Stock code: SFR
BUILDING A SUSTAINABLE BUSINESS
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
2017 three staff celebrated 25 years’ service.
Well-being
We will promote health and
well-being to our people
We recognise that happy and healthy employees are crucial
to the achievement of our strategic plans.
In 2017, 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; not just
those employees that require health surveillance to ensure
fitness for safety-critical roles. We also reviewed and refreshed
our drug and alcohol policy, including the introduction of
random drug and alcohol tests across the Group.
We continue to work with our national charity partner,
Prostate Cancer UK, to drive awareness of men’s health
issues and the benefits of exercise. In the coming year we
will put in place a well-being strategy with a focus on raising
awareness through a calendar of events throughout the year.
Human rights
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. The promotion of human rights
through our business activities forms part of our broader
objective to be a values-driven organisation.
We are committed to protecting and respecting the human
rights of our employees and those who work in our supply
chain. As a company operating within the UK, the key human
rights issue we face is equality, which we address with training
for employees and by promoting a culture of inclusion.
The Modern Slavery Act places a duty on companies to make
a public statement on the steps they have taken to minimise
the possibility of slavery or human trafficking happening in
their own business or in their supply chain.
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The Severfield Foundation (the ‘Foundation’)
One year ago, the Foundation was set up as a registered
charitable incorporated organisation, with the aim of raising
funds and awareness for charitable bodies throughout the UK.
The Foundation is run by its trustees, who are all employees of
the Group. Within our first year, we raised over £52,000 through
the activities of Severfield and our employees.
Each year, the Foundation supports a ‘partner’ charity as
well as a number of local charities chosen by each Group
company (decided by our employees at each location). For
2017 our ‘partner’ is Prostate Cancer UK, and through this
partnership has enabled our employees to secure places
at major sporting events such as the London Marathon, the
Great North Run and Ride London.
Prostate Cancer UK is hugely relevant as our workforce is
predominantly male, and with one in eight men in the UK
being diagnosed with prostate cancer at some point in their
lives, raising funds and awareness is important for our
employees.
Employees are also encouraged to take part in their own
fundraising events for charities close to their hearts, and the
Foundation supports such activities where possible.
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We believe that this risk can be effectively managed and are
making a number of phased improvements to our supply
chain pre-qualification and audit processes to make them
as robust as possible.
Communities
We are committed to engaging with our communities
by supporting local charitable concerns and initiatives.
Throughout 2017 the Group has taken part in many activities
across the country, including attending careers events,
apprenticeship fairs and mentoring of young people. Our site
in Dalton hosted an ‘Open Doors’ event in March where we
welcomed over 60 students and young people interested in
learning more about our apprenticeship scheme.
Furthermore, we have a number of employees from across
the Group that are STEM ambassadors. Their aim is to
encourage students to take on, and enjoy, STEM subjects
during their time at school and college.
Throughout 2017 Severfield employees have been committed
to raising funds for a number of local and national charities,
including Children in Need, Sparks, Bolton Hospice, St.
Catherine’s Hospice (Scarborough), the Yorkshire Air
Ambulance, Air Ambulance Northern Ireland, Willowbridge
School (NI), Chickenshed, the PPR Foundation (Harrogate)
and the Movember Foundation.
The Group also provides sponsorship to local clubs and
groups, supporting communities local to each of our sites,
as well as spreading thought leadership to our employees,
customers, suppliers and potential employees via various
initiatives such as industry exhibitions, seminars, project site
visits and other events. Our internal communications team
shares good news stories and updates on charity events
amongst all our employees, as well as encouraging them to
get involved themselves.
We are in the process of subscribing to the Prompt Payment
Code as we recognise that prompt payment can make a
significant difference to our suppliers and subcontractors,
boosting their cash flow and allowing them to invest in growth
for the future. We believe that we are currently complying
with the requirements of the Code.
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49
Severfield plc
www.severfield.com
Stock code: SFR
HOW WE MANAGE RISK
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.
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.
The audit committee, on behalf of 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:
• 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 feeds into our assessment of
long-term viability and encompasses all aspects of risk,
including operational, compliance, financial, strategic,
environmental, social and governance (‘ESG’) issues.
•
Identified risk events, their causes and possible
consequences are recorded in risk registers. Their
likelihood and potential business impact and the control
systems that are in place to manage them are analysed
and, if required, additional actions are developed and put
in place to mitigate or eliminate unwanted exposures.
Individuals are allocated responsibility for evaluating and
managing these risks within an agreed timetable.
• The Group establishes its risk appetite through use of
delegated authorities so that matters considered higher
risk require the approval of senior management or the
board. These include, but are not limited to, tender pricing,
bid submissions, approval of contract variations and final
account settlements, capital requirements, procurement,
and certain legal and strategic matters.
• Ongoing risk management and assurance is provided
through various monitoring reviews and reporting
mechanisms, including the executive risk committee
(chaired by the chief executive officer) which convenes
on a weekly basis and has the primary responsibility
to identify, monitor and control significant risks to an
acceptable level throughout the Group. The committee
receives information on relevant risk matters from a
variety of sources on a regular basis.
• Subsidiary company 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.
• 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,
Group legal director and Group IT director 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.
• 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.
• A Group assurance map is used to co-ordinate the various
assurance providers within the Group and a compliance
framework provides the board with a ready reference tool
for monitoring compliance across the Group.
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Group board
Risk appetite
First line of defence
Management activity
Second line of defence
Group oversight
Third line of defence
Independent review
Divisional boards
Internal controls:
• Project management
procedures
• Health and safety
• Financial control
• Cash and working capital
management
Group policies
Committees
• External audit
• Group
• Executive
authorisation
policy
• Contract sign-
off process
• Purchase
guidelines
committee,
risk committee
and safety
leadership
team
• Audit
committee
• Quality manual
• SHE policies
• Nominations
committee
•
Internal audit
• Other third party
assurance
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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.
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.
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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 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 obtained ISO 27001
accreditation for our information security management
system. 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 required
twice yearly, one at 30 September and one at 31 March
supported by 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.
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Changes to principal risks
Although there have been no significant changes since last
year’s annual report to the list of those risks classified as
principal risks, the following amendments are noteworthy:
• Health and safety risk (a serious incident causing death
or serious injury which could also lead to regulatory
intervention, financial loss and reputational loss) has
been upgraded from medium to high, notwithstanding
the improvement in the Group’s AFR over the past year,
reflecting the new sentencing guidelines which could
impose significant fines for health and safety breaches
even in cases not involving fatalities.
• Tendering and project execution risk (the failure to
achieve targeted profit on major projects) has been
renamed as mispricing a contract (at tender) (the
incorrect pricing of a contract, particularly on complex
contracts) and downgraded from high to medium to
reflect the improvements made to the Group’s contract
management processes during the year.
Changes have also been made to the detailed descriptions
of mitigation to reflect ongoing activity in the year. In its
risk reviews the Group has not identified any significant
environmental, social or governance risks to the Group’s short
and long-term value.
Strategic report approval
The Group’s strategic report is set out on pages 14 to 59.
The strategic report is approved by the board and signed
on its behalf by
Mark Sanderson
Company secretary
14 June 2017
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25357.02 7 July 2017 12:37 PM Proof 7Principal riskStrategic pillarsLink to KPIsMovementScoringHealth and safety1234567HighCommercial and market environment1234567MediumMispricing a contract (at tender)1234567MediumSupply chain1234567MediumIndian joint venture1234567MediumInformation technology resilience1234567MediumPeople1234567MediumIndustrial relations1234567MediumKey1Underlying operating profit and margin (before JVs and associates)2Underlying basic earnings3Revenue growth4Operating cash conversion5Return on capital employed (‘ROCE’)6Order book7Accident frequency rate (‘AFR’)KeyGrowthOperational excellenceClientsPeopleIndian joint ventureScoringThe scoring of each risk as high or medium is determined based on the scoring of the risk within the Group’s risk register. This scoring takes into account the potential impact and likelihood associated with the crystallisation of each risk (the assessment of impact takes into account both potential and reputational issues). Only high and medium risks are considered sufficiently significant for disclosure in the annual report.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. These are set out in the table below. 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.55Annual report and accounts for the year ended 31 March 2017Strategic reportStrategic report / How we manage riskSeverfield Annual Report 2017 - Strategic.indd 5507/07/2017 12:39:51 Severfield plc
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HOW WE MANAGE RISK
2017 PRINCIPAL RISKS
Health and safety
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. New sentencing guidelines have come into force which
have the potential to impose significant fines even where no
actual harm has occurred.
Mitigation
• Established safety systems, site visits, safety audits,
monitoring and reporting, and detailed health and safety
policies and procedures, are in place across the Group.
• Thorough and regular employee training programmes
(including behavioural safety training) under the leadership of
the new Group SHE director (appointed in July 2016).
• 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.
• Close monitoring of subcontractor safety performance.
• Priority board review of ongoing performance.
• Regular reporting of and investigation and root cause analysis
of accidents and near misses.
• Achievement of challenging health and safety performance
targets is a key element of management remuneration (and
staff remuneration from March 2017 onwards).
Commercial and market environment
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. Whilst Brexit has to
date not had a significant impact on the UK construction market,
outcomes following the triggering of Article 50 remain difficult to
predict and could affect investor confidence.
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
• 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.
• Regular monitoring and reporting of financial performance,
orders secured, prospects and the conversion rate of the
pipeline of opportunities.
• Selection of opportunities that will provide sustainable
margins and repeat business.
• Strategic planning is undertaken to identify and focus on the
addressable market (including new overseas and domestic
opportunities).
• Recruitment of a new European business development
director to focus on markets and opportunities in mainland
Europe which fit the Group’s risk appetite.
• Close management of capital investment and focus on
maximising asset utilisation to ensure alignment of our
capacity and volume demand from clients.
• Close engagement with both customers and suppliers and
monitoring of payment cycles.
• Ongoing assessment of financial solvency and strength of
counterparties throughout the life of contracts.
• Continuing use of credit insurance to minimise impact of
customer failure.
• Strong balance sheet (the Group has net funds in excess of
£30m) supports the business through fluctuations in the
economic conditions for the sector.
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Mispricing a contract (at tender)
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. Execution failure on a
high-profile contract could result in reputational damage.
Impact
If a contract is incorrectly priced, particularly on complex
contracts, this could lead to loss of profitability, adverse business
performance and missed performance targets.
This could also damage relationships with clients and the supply
chain.
Mitigation
•
Improved contract selectivity (those that are right for the
business and which match our risk appetite) has de-risked
the order book and reduced the probability of poor contract
execution.
• Estimating processes are in place with approvals by
appropriate levels of management.
• Tender settlement processes are in place to give senior
management regular visibility of major tenders.
• Use of the tender review process to mitigate the impact of
rising supply chain costs.
• Work performed under minimum standard terms (to mitigate
onerous contract terms) where possible.
• Use of Group authorisation policy to ensure appropriate
contract tendering and acceptance.
• Professional indemnity cover is in place to provide further
safeguards.
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Supply chain
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
delay and disruption to the Group’s operations. There is also a risk
that credit checks undertaken in the past may no longer be valid.
Impact
Interruption of supply or poor performance by a supply chain
partner could impact the Group’s execution of existing contracts
(including the costs of finding a replacement), its ability to bid for
future contracts and its reputation, thereby adversely impacting
financial performance.
Mitigation
•
Initiatives are in place to select supply chain partners that
match our expectations in terms of quality, sustainability
and commitment to client service. New sources of supply are
quality controlled.
• New Group head of procurement appointed to bring in best
practice improvement initiatives.
• Strong relationships maintained with key suppliers including a
programme of regular meetings and reviews.
• Contingency plans developed to address supplier and
subcontractor failure.
• Ongoing reassessment of the strategic value of supply
relationships and the potential to utilise alternative
arrangements in particular for steel supply.
• Key supplier audits are performed within projects to
ensure they are in a position to deliver consistently against
requirements.
• Monthly review process to facilitate early warning of issues
and subsequent mitigation strategies.
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Indian joint venture
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.
Mitigation
• Robust joint venture agreement and strong governance
structure is in place.
• Two members of the Group’s board of directors are members of
the joint venture board.
• Regular formal and informal meetings held with both joint
venture management and joint venture partners.
• Contract risk assessment, engagement and execution process
now embedded in the joint venture.
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.
• Market and operational plan now implemented; overhead
reduction and operational improvement programmes remain
ongoing.
• Close monitoring of cash flow and debt repayments.
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.
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
•
IT is the responsibility of a central function which manages the
majority of the systems across the Group. Other IT systems are
managed locally by experienced IT personnel.
• Significant investments in IT systems are subject to board
approval.
• Group IT committee ensures focused strategic development
and resolution of issues impacting the Group’s technology
environment.
• Robust business continuity plans are in place and disaster
recovery and penetration testing are undertaken on a
systematic basis.
• Data protection and information security policies are in
place across the Group, including anti-virus software, off-
site and on-site backups, storage area networks, software
maintenance agreements and virtualisation of the IT
environment.
• Cyber-crimes and associated IT risks are assessed on a
continual basis and additional technological safeguards
introduced. Cyber-threats and how they manifest themselves
are communicated regularly to all employees (including
practical guidance on how to respond to perceived risks).
ISO 27001 accreditation achieved for the Group’s information
security environment and regular employee engagement
undertaken to reinforce key messages.
•
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People
Description
The ability to identify, attract, develop and retain talent is crucial
to satisfy the current and future needs of the business. Skills
shortages in the construction industry are likely to remain an
issue for the foreseeable future and it can become increasingly
difficult to recruit capable people and retain key employees,
especially those targeted by competitors.
Impact
Loss of key people could adversely impact the Group’s existing
market position and reputation. Insufficient growth and
development of its people and skill sets could adversely affect its
ability to deliver its strategic objectives.
A high level of staff turnover or low employee engagement could
result in a drop in confidence in the business within the market,
customer relationships being lost and an inability to focus on
business improvements.
Mitigation
• Remuneration arrangements are regularly reviewed (and
benchmarked where possible) to ensure that they are
competitive and strike the appropriate balance between short
and long-term rewards and incentives.
• Skills gaps are continually identified and actions put in
•
place to bridge these by training, development or external
recruitment.
In 2017 we continued to focus on emerging talent, succession
planning and career opportunity and launched our new
Severfield Development Programme which will help us build
sustainable leadership capability within our next generation
of leaders. Other ongoing leadership and management
development plans are also in place.
• We undertook a Group-wide employee engagement survey to
measure engagement, with the results being analysed and
improvements identified and implemented.
• Annual appraisal process provides 360 degree feedback on
performance for certain employees.
• Graduate, trainee and apprenticeship schemes are in place to
safeguard an inflow of new talent.
• We undertook a thorough review of internal communications
across the Group and improvements in this area are planned
for 2018.
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Industrial relations
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
• Employee and union engagement takes place on a regular
basis.
• 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.
• Processes are in place to mitigate disruptions as a result of
industrial action.
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25357.04 7 July 2017 12:28 PM Proof 7OUR GOVERNANCEOur governanceBoard of directors62Our executive committee64Our chairman’s view on governance66Corporate governance report67Audit committee report73Nominations committee report77Directors’ report 78Directors’ remuneration report — Letter from the committee chairman81 — Policy83 — Implementation91Directors’ responsibilities statement101Severfield Annual Report 2017 - Governance.indd 6007/07/2017 12:30:19 25357.04 7 July 2017 12:28 PM Proof 7Our governance / Chairman’s introductionOur governanceOUR GOVERNANCESeverfield Annual Report 2017 - Governance.indd 6107/07/2017 12:30:20 25357.04 7 July 2017 12:28 PM Proof 7BOARD OF DIRECTORSJohn DoddsNon-executive chairman (currently executive chairman)Appointed: 2010 (non-executive director) and 2011 (chairman)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 a non-executive director of Newbury Racecourse plc.John has been acting as executive chairman since 28 March 2017 on a temporary basis due to the temporary leave of absence of Ian Lawson as chief executive officer on grounds of physical ill health.Ian LawsonChief executive officer (currently on temporary leave of absence)Appointed: 2013Ian was previously a main board director of Kier Group plc, where he enjoyed a 13-year career. 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 Institute 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 has been, since 28 March 2017, on a temporary leave of absence due to physical ill health.Alan DunsmoreGroup finance director (currently acting chief executive officer)Appointed: 2010Alan joined the Group from Smiths Group plc. He joined Smiths Group’s 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.Alan has been acting as chief executive officer since 28 March 2017 on a temporary basis due to the temporary leave of absence of Ian Lawson as chief executive officer on grounds of physical ill health. Adam Semple, Group financial controller, has been acting as Group finance director on a temporary basis since 28 March 2017. Adam joined the Group in 2013 from Firth Rixson Group, prior to which he was with PwC in both Leeds and London, where he qualified as a chartered accountant in 2002.62Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Governance.indd 6207/07/2017 12:30:22 25357.04 7 July 2017 12:28 PM Proof 7Ian CochraneChief operating officerAppointed: 2013Ian 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.Derek RandallExecutive director and managing director at JSW Severfield StructuresAppointed: 2008Derek 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 WhitemanSenior independent directorAppointed: 2014A 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.Tony OsbaldistonNon-executive director (chairman of the audit committee)Appointed: 2014A 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.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 GriffithsNon-executive director (chairman of the remuneration committee)Appointed: 2014Alun 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.Alun is also a non-executive director of the Port of London Authority, Anchor Trust, Ramboll Group and the McLean Group.Chris HoltNon-executive directorAppointed: 2011Chris 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.63Annual report and accounts for the year ended 31 March 2017Our governanceOur governance / Board of directorsSeverfield Annual Report 2017 - Governance.indd 6307/07/2017 12:30:27 Severfield plc
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Stock code: SFR
OUR EXECUTIVE COMMITTEE
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Our governance / Our executive committee
1 Ian Lawson
Chief executive officer
(currently on temporary leave of absence)
For details see board of directors on page 62
2 Ian Cochrane
Chief operating officer
For details see board of directors on page 63
3 Alan Dunsmore
Group finance director (currently acting chief executive officer)
For details see board of directors on page 62
Derek Randall (not pictured)
Executive director and managing director at JSW Severfield
Structures
For details see board of directors on page 63
Adam Semple (not pictured)
Group financial controller
(currently acting Group finance director)
For details see board of directors on page 62
4 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.
5 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.
6 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).
7 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.
8 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
firm’s 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.
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9 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.
10 Phillipa Recchia
Group SHE director
Phillipa joined Severfield in July 2016 from housing and regeneration
specialist Keepmoat and she has previously worked as corporate
head of health and safety at global industries services company
KAEFER Group.
Phillipa has over 20 years’ experience within the construction
industry and a strong background in behavioural safety.
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25357.04 7 July 2017 12:28 PM Proof 7OUR CHAIRMAN’S VIEW ON GOVERNANCEDear shareholderI 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 67 to 72 and explains how we manage the Group and comply with the provisions of the UK Corporate Governance Code (‘the Code’). Whilst we are currently subject to the provisions of the Code applicable to smaller companies, we seek, where appropriate, to follow those applicable to FTSE 350 companies.LeadershipOn 28 March 2017, following the temporary leave of absence of Ian Lawson due to physical ill health, I agreed to act as executive chairman on an interim basis and am working with Alan Dunsmore, who has assumed the role of chief executive officer on a similar basis. Adam Semple, the Group financial controller, has temporarily taken on the responsibilities of Group finance director. AccountabilityThe audit committee discussed the viability statement process performed in the previous year and confirmed that it was appropriate to retain the same process for the 2017 viability statement as required under the Code. A description of the process is set out on page 50 within the risk management section, which also includes our annual confirmations on risk management and internal control (see page 52). The viability statement itself is set out on page 41 within the strategic report.The committee has reviewed the FRC’s Guidance on Audit Committees and the Group’s policy for the provision of non-audit services by the external auditor.The board has confirmed that this annual report is fair, balanced and understandable. The audit committee, supported by management, has adopted a process to enable the board to take this view. You can find an explanation of the process we have used to make this determination in the audit committee report on page 74.The board delegates certain of its responsibilities to the board committees to enable it to carry out its functions effectively. A diagram of the board governance structure is set out on page 67.EffectivenessDuring the year, an internal board evaluation was undertaken by Kevin Whiteman, the senior independent director. This included an evaluation of my own performance as well as that of individual directors. Overall the evaluation was positive; further details can be found in the corporate governance report on page 70.RemunerationOur executive director remuneration arrangements are intended to support the achievement of the Group’s objectives and strategy. With the support of the remuneration committee oversight, we continue to believe that the current remuneration packages help to appropriately incentivise management to sustain long-term value for shareholders.We are due to present our remuneration policy for approval at the AGM in September 2017, as it has been three years since our policy was approved in 2014. The current Performance Share Plan (‘PSP’) expires in October 2017, accordingly we will also be seeking shareholder approval for a new PSP. Details of the revised remuneration policy and how we intend to operate that policy in 2018, together with a review of the remuneration committee’s activities, and bonus and share scheme performance in 2017, can be found in the remuneration report on pages 83 to 100.AGMOur AGM this year will be held at Aldwark Manor Hotel, York, YO61 1UF on 6 September 2017 at 12:00 pm and I look forward to seeing you then.John Dodds Executive chairman 14 June 2017John Dodds Executive chairman66Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Governance.indd 6607/07/2017 12:30:29 Annual report and accounts for the year ended 31 March 2017
Our governance / Our chairman’s view on governance
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
Compliance with the UK Corporate Governance Code
The board considers that it and the Company have, throughout the year, complied without exception with the
provisions of the UK Corporate Governance Code (September 2014), which is the version of the Code which applies to
the Company for its 2017 financial year. The Code is issued by the FRC and is available for review on the FRC’s website
(www.frc.org.uk).
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Severfield plc
www.severfield.com
Stock code: SFR
CORPORATE GOVERNANCE REPORT
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 four years.
The membership of the board is stated on pages 62 and 63.
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 64 and 65. 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 and the board, taking into account the
views of the executive directors.
Since 28 March 2017, as a result of the temporary leave of
absence of Ian Lawson on grounds of physical ill health, John
Dodds has been acting as executive chairman on a temporary
basis, Alan Dunsmore (the Group finance director) as chief
executive officer and Adam Semple (the Group financial
controller) as Group finance director.
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 2017 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 96. 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
62 and 63 will be standing for re-election at the 2017 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.
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Annual report and accounts for the year ended 31 March 2017
Our governance / Corporate governance report
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 2017 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
10/11*
10/11†
11/11
11/11
11/11
10/11‡
10/11¶
11/11
11/11
Audit
committee
4
Remuneration
committee
4
Nominations
committee
2
—
—
—
—
4/4
4/4
4/4
4/4
4/4
—
—
—
—
4/4
4/4
4/4
4/4
4/4
—
—
—
—
2/2
2/2
2/2
2/2
2/2
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*
†
‡
¶
Ian Lawson was unable to attend the board meeting on 28 March 2017 due to physical ill health.
Ian Cochrane was unable to attend the board meeting on 21 November 2016 due to a bereavement.
Kevin Whiteman was unable to attend the board meeting on 20 July 2016 due to a conflicting commitment.
Tony Osbaldiston was unable to attend the board meeting on 14 June 2016 due to illness.
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Severfield plc
www.severfield.com
Stock code: SFR
CORPORATE GOVERNANCE REPORT
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.
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.
Consideration was given to undertaking an externally
facilitated review but it was decided that such an approach
would not be beneficial in the current year. A further
evaluation of the board will be undertaken during the year
ending 31 March 2018.
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. Particular attention was paid to
the new Market Abuse Regulation and ensuring all directors
were aware of its implications and their duties.
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 73 to 100.
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Annual report and accounts for the year ended 31 March 2017
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Board meetings for the current year
During the financial year the board discussed and implemented the following key actions:
April 2016
• Presentation by Group HR director on learning and
development initiatives, succession planning and the
results of the staff engagement survey
• Strategic review undertaken and three-year strategic plan
approved
• Reviewed the statement of compliance in accordance with
the Modern Slavery Act
June 2016
• Reviewed and approved annual report and accounts
• Approved final dividend
• Assessed going concern and longer-term viability of the
Group
• Presentation on the new Tottenham Hotspur F.C. project
September 2016 (two meetings)
• Presentation by new Group SHE director on future SHE
initiatives
• Update on staff engagement survey from Group HR director
• Reviewed annual statements of compliance from directors
and approved conflicts of interest
January 2017
• Presentation by, and board visit to the Lostock factory with
Severfield UK’s production director
• Presentation by the Company’s stockbrokers, Jefferies
International
• Reviewed interim results roadshow investor feedback
• Agreed scope and content of board and chairman evaluation
March 2017
• Agreed temporary arrangements necessary as a result of
Ian Lawson’s absence
May 2016
• Presentation by the Company’s stockbrokers, Jefferies
International
July 2016
• Reviewed feedback pack from investor roadshow
• Approved new processes for compliance with the Market
Abuse Regulation
November 2016 (two meetings)
• Board site safety visit to the Dalton factory to witness
recent SHE improvements
• Reviewed and approved half year results
• Approved interim dividend
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February 2017
• Presentations on latest market developments and on the
22 Bishopsgate project
• Reviewed board and chairman evaluation results
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Severfield plc
www.severfield.com
Stock code: SFR
CORPORATE GOVERNANCE REPORT
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 109 to 153) and a statement
by the auditor concerning their responsibilities (pages 104
to 108). The directors also report that the business is a going
concern (page 80) 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 81 to 100.
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. 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.
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25357.04 7 July 2017 12:28 PM Proof 7AUDIT COMMITTEE REPORT“ The audit committee reviews and reports to the board on the Group’s financial reporting, internal control and risk management systems and the independence and effectiveness of the auditors.”MembersTony Osbaldiston (chairman)Kevin WhitemanAlun GriffithsChris HoltJohn DoddsAll 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.RoleThe 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:• To monitor the integrity of the financial statements and formal announcements and to review significant financial reporting judgements.• To review the Group’s internal financial and non-financial controls and risk management.• 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.• To review the nature of non-audit services supplied and non-audit fees relative to the audit fee.• To provide independent oversight over the external audit process through agreeing the suitability of the scope and approach of the external auditor’s work, assessing its objectivity in undertaking its work and monitoring its independence taking into account relevant UK professional regulatory requirements and the auditor’s period in office and compensation.• To oversee the effectiveness of the internal audit process.• To oversee the effectiveness of the external audit process particularly with regard to the quality and cost-effectiveness of the auditor’s work.• To report to the board how it has discharged its responsibilities.Tony Osbaldiston Chairman of the audit committee73Annual report and accounts for the year ended 31 March 2017Our governanceOur governance / Audit committee reportSeverfield Annual Report 2017 - Governance.indd 7307/07/2017 12:30:30 Severfield plc
www.severfield.com
Stock code: SFR
AUDIT COMMITTEE REPORT
Activities of the committee
Fair, balanced and understandable
• Reviewed the interim results for the period ended
30 September 2016 and the year-end results for the
period ended 31 March 2017.
• Reviewed the significant management judgements
reflected in the Group’s results including significant
contract judgements, the carrying value of goodwill and
the investment in the Indian joint venture.
• Discussed the report received from the external auditor
regarding the audit of the results for the year ended
31 March 2017. This report included the key accounting
considerations and judgements reflected in the Group’s
year-end results, comments on findings on internal control
and a statement on independence and objectivity.
• Reviewed and agreed significant accounting risks and
principal business risks for the year ended 31 March 2017.
• Reviewed the Group’s risk register.
• Reviewed and agreed the external auditor’s audit planning
report in advance of the audit for the year ended 31 March
2017.
• Reviewed the measures taken by management to monitor
and review the effectiveness of the Group’s internal control
and risk management processes, to enable the board to
make its annual review of effectiveness.
• Reviewed the long-term viability statement and the
process undertaken by executive management to enable
the board to make the viability statement.
• Reviewed management’s paper on the impact of IFRS
15, the new revenue accounting standard that becomes
effective for the Group in 2019.
• Considered the effectiveness of the external auditor, KPMG
LLP (‘KPMG’), their independence and reappointment for
the year ending 31 March 2018.
• Reviewed PwC LLP’s (‘PwC’) internal audit reports covering
various aspects of the Group’s operations, controls and
processes and approved the internal audit plan.
• Reviewed the Group’s policy for the provision of non-audit
services by the external auditor.
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. To enable
the board to make this declaration, the committee received
a paper from management detailing the approach taken in
preparing the annual report. The committee is satisfied that,
taken as a whole, the annual report and accounts is fair,
balanced and understandable.
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 (and that the use of alternative
performance measures was appropriate and clearly
articulated), that there is a clear and well-communicated
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. In addition, the
external auditor reviewed the consistency between the
narrative reporting in the annual report and the financial
statements.
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 and internal control 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 50 to 59.
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.
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Our governance / Audit committee report
Viability statement
The committee has undertaken 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.
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.
The two significant issues considered during the year are
detailed below:
• Contract valuation, revenue and profit recognition:
The committee reviewed the report of the Group finance
director that set out the main contract judgements
associated with the Group’s significant contracts. The
significant areas of judgement include the timing of
revenue and profit recognition, the estimation of the
recoverability of contract variations and claims and the
estimation of future costs to complete. The external
auditor performed detailed audit procedures on revenue
and profit recognition and reported their findings to the
committee.
• Review of carrying value of goodwill and the investment
in the Indian joint venture: The committee considered
the carrying value of goodwill and the investment in the
Indian joint venture and the assumptions underlying
the impairment review. The judgements in relation to
impairment largely relate to the assumptions underlying
the identification of the Group’s cash-generating units
(‘CGUs’) (for goodwill only) together with the calculation of
the value in use of the 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 2017 results.
These include the valuation of pension scheme liabilities and
the disclosure of certain contingent liabilities.
Internal audit
The Group’s internal audit function is currently outsourced to
PwC. 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 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 PwC in the
current year were also discussed in detail at each of the
committee’s meetings.
External auditor independence and effectiveness
The year ended 31 March 2017 marks the second year during
which KPMG has acted as the Group’s external auditor. The
committee considers the reappointment of the external
auditor, including the rotation of the senior statutory
auditor, 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 committee also assesses the effectiveness,
independence and objectivity of the external auditor by,
amongst other things:
• considering all key external auditor plans and reports;
• having regular engagement with the external auditor
during committee meetings and ad hoc meetings (when
required), including meetings without any member of
management being present;
• the chairman of the committee having discussions with
Adrian Stone, the senior statutory auditor, ahead of each
committee meeting; and
• considering the external audit scope, the materiality
threshold and the level of audit and non-audit fees.
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Severfield plc
www.severfield.com
Stock code: SFR
AUDIT COMMITTEE REPORT
For work that is permitted under the policy, authority has
been delegated to the Group finance director to approve up
to a limit of £50,000 (which is considered as ‘clearly trifling’)
for each assignment and there is a cumulative annual total
of less than 50 per cent of that year’s audit fee. Prior approval
is required by the committee for any non-audit assignments
over £50,000 or where the 50 per cent audit fee threshold is
exceeded. No non-audit services provided by KPMG during
the year ended 31 March 2017 required the approval of the
committee.
Details of the auditor’s fees, including non-audit fees (which
complied with the Group’s previous policy on the provision of
non-audit services), are shown in note 4 to the consolidated
financial statements. The total non-audit fees for 2017
represent 4 per cent of the total KPMG audit fee. Those non-
audit services undertaken by the auditor were purchased
from the auditor because of its existing knowledge of the
Group’s business which meant it could undertake them more
effectively.
Tony Osbaldiston
Chairman of the audit committee
14 June 2017
Following this assessment of the external audit process, the
committee agreed that the audit process, independence and
quality of the external audit were satisfactory. The committee
will continue to assess the performance of the external
auditor to ensure that they are satisfied with the quality of
services provided.
Reappointment of external auditor
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.
As previously reported, KPMG were selected as the Group’s
auditor for the year ended 31 March 2016, following a
competitive tender process, and were appointed at the AGM
on 2 September 2015. The external auditor is required to
rotate the senior statutory auditor every five years. The senior
statutory auditor responsible for the Group audit is Adrian
Stone, whose appointment in this role commenced with the
audit for the financial year ended 31 March 2016.
The committee has recommended to the board that a
resolution proposing the appointment of KPMG as external
auditor be put to the shareholders at the forthcoming AGM.
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:
• as part of the statutory audit, it is required to report
directly on its own non-audit work;
•
•
it makes management decisions on behalf of the Group; or
it acts as advocate for the Group.
This policy has been recently reviewed and amended to
ensure that our approach remains in compliance with the
Financial Reporting Council’s revised Ethical Standard for
Auditors, which is designed to implement the new EU Audit
regulation restrictions on provision of non-audit services
to public interest entities. The changes include further
restrictions on the scope of permissible non-audit work and
a cap on fees for permissible non-audit work (which may not
exceed 70 per cent of the average audit fees paid in the last
three consecutive years). The committee’s policy of requiring
a competitive tender for all work with a fee over £30,000 has
remained unchanged.
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25357.04 7 July 2017 12:28 PM Proof 7NOMINATIONS COMMITTEE REPORT“The committee ensures the continued effectiveness of the board through appropriate succession planning.”MembersJohn Dodds (chairman)Tony OsbaldistonKevin WhitemanAlun GriffithsChris HoltThe committee met on two occasions during the year.RoleThe 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:• To review the structure, size and composition of the board.• To make recommendations to the board for any changes considered necessary.• To approve the description of the role and capabilities required for a particular appointment.• 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 effectivenessThe committee has had another relatively quiet year. 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 four years.DiversityWe have a formally adopted equal opportunities and diversity policy to encourage diversity at all levels within the Group. This policy sets out certain actions that will be taken to contribute to a more diverse workforce throughout the Group and demonstrates our commitment, wherever practicable, to achieving and maintaining a workforce that broadly reflects the communities in which we operate.We support the findings of the Hampton Alexander Review, which builds on the Davies Review, to increase the number of women on FTSE boards, and to improve women’s representation in leadership positions. The Group, however, does not believe in the concept of gender quotas, our preferred approach being much more directed at the selection of the right talent, experience and skill.In the sectors in which the Group operates female representation at a board level is unusual and as at 31 March 2017, the board had no female directors. Notwithstanding this, the recruitment of Philippa Recchia as Group SHE director in 2016 has increased the female representation on our executive committee to two (14 per cent). The board recognises that gender diversity below board level continues to remain an issue, particularly in management and technical roles within the construction industry.Succession planningThe committee ensures the continued effectiveness of the board through appropriate succession planning. More work has been done this year to formalise the process of ongoing succession planning across the Group and this was the specific topic of one of our meetings this year.EvaluationThe committee (led by Kevin Whiteman) performed an internal evaluation using the process described on page 70. The results of the evaluation were positive, following the significant changes made to the board three years ago. The key points arising from the evaluation were documented and discussed with the chairman.John DoddsChairman of the nominations committee14 June 2017John Dodds Chairman of the nominations committee77Annual report and accounts for the year ended 31 March 2017Our governanceOur governance / Nominations committee reportSeverfield Annual Report 2017 - Governance.indd 7707/07/2017 12:30:31 Severfield plc
www.severfield.com
Stock code: SFR
DIRECTORS’ REPORT
Introduction
The directors present their report together with the audited
consolidated financial statements for the year ended
31 March 2017.
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 59, 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 (including financial risk) management.
The corporate governance report on pages 67 to 72 is
incorporated in this report by reference.
Details of significant events since the balance sheet date are
contained in note 31 to the financial statements.
Directors
The present membership of the board is set out on pages 62
and 63.
The other significant commitments of the chairman consist
of acting as non-executive chairman of Lagan Construction
Holdings Limited 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 89.
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 1 June 2017, 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. Legal & General Investment Management
5. Artemis Investment Management
6. Invesco (including Perpetual & Trimark)
7. Hargreave Hale
78
Ordinary
2.5p share
50,010,206
41,230,604
27,598,242
18,278,735
16,444,222
16,307,364
15,345,266
%
16.73
13.80
9.23
6.12
5.50
5.46
5.13
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Annual report and accounts for the year ended 31 March 2017
Our governance / 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 2017,
there were 298,855,911 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. During the period, shares in the
Company were issued to satisfy awards under the Company’s
share incentive schemes. Further details regarding employee
share-based payment schemes are set out in note 21. No
shareholder holds shares in the Company which carry special
rights with regard to control of the Company. There are no
shares relating to an employee share scheme which have
rights with regard to control of the Company that are not
exercisable directly and solely by the employees.
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 2017 AGM. These documents are available on
the Company’s website at www.severfield.com.
Powers for the Company to buy back its shares and to issue
its shares
At the Company’s Annual General Meeting (‘AGM’) held on
6 September 2016, 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 2017 AGM (see below) and
a renewal will be sought. The Company did not purchase any
of its ordinary shares during the year.
The Directors were granted authority at the previous annual
general meeting on 6 September 2016, to allot shares in
the Company: (i) up to one-third of the Company’s issued
share capital; and (ii) up to two-thirds of the Company’s
issued share capital in connection with a rights issue. These
authorities apply until the end of the 2017 AGM (or, if earlier,
until the close of business on 30 September 2017). During the
period, the directors did not use their power to issue shares
under the authorities, but did satisfy options and awards
under the Company’s share incentive schemes.
The directors were also granted authority at the previous
annual general meeting on 6 September 2016, under two
separate resolutions, to disapply pre-emption rights.
These resolutions, which followed the Pre-emption Group’s
Statement of Principles (March 2015) on disapplying pre-
emption rights applicable at that time, sought the authority
to disapply pre-emption rights over 10 per cent of the
Company’s issued ordinary share capital. These authorities
apply until the end of the 2017 AGM (or, if earlier, until the
close of business on 30 September 2017). During the period,
the directors did not use these powers.
Dividends
The directors declared an interim dividend for the six months
ended 30 September 2016 of 0.7p per ordinary share (2016:
0.5p). The directors have recommended a final dividend of
1.6p per ordinary share to be paid on 15 September 2017 to
shareholders on the register at the close of business on
18 August 2017.
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.
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25357.04 7 July 2017 12:28 PM Proof 7DIRECTORS’ REPORTGoing concernAfter 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.Additional disclosuresAdditional 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:• Employee involvement and engagement – pages 44 and 48.• Equal opportunities (including for the disabled) – page 46.• Greenhouse gas emissions – page 44• Long-term incentive plans – page 87 of the directors’ remuneration report• Statement of directors’ interests – page 96 of the directors’ remuneration report• Financial instruments – note 20 to the Group financial statements• Credit, market, foreign currency and liquidity risks – note 20 to the Group financial statements• Related party disclosures – note 30 to the Group financial statementsDisclosure of information to the external auditorThe 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 auditorKPMG LLP acted as the auditor for the Company for the year ended 31 March 2017. 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.Annual general meetingThe notice concerning the AGM to be held at Aldwark Manor Hotel, York at noon on Wednesday 6 September 2017, 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 78 to 80 inclusive was approved by the board and signed on its behalf by:Mark SandersonCompany secretary14 June 2017Mark Sanderson Company secretary80Severfield plcwww.severfield.comStock code: SFRSeverfield Annual Report 2017 - Governance.indd 8007/07/2017 12:30:31 25357.04 7 July 2017 12:28 PM Proof 7DIRECTORS’ REMUNERATION REPORTI am pleased to present our remuneration report incorporating our annual report on remuneration and remuneration policy which are both being tabled for shareholder approval at the 2017 AGM.“ Remuneration policy is aligned with the priorities of shareholders in incentivising management to meet demanding short-term targets and to deliver targeted profit growth over the longer term, whilst ensuring that high safety standards are achieved.”Dear shareholderThe Group has performed very well during the year with good top and bottom line growth supported by strong cash flow. This was achieved through continuing focus on operational improvement, bid and contract management, supported by continued investment in people, processes and technology.Remuneration policyThis year we have reviewed the remuneration policy of the Group which will be put to shareholders for approval in a binding vote at the AGM. The review confirmed that our policy remains fit for purpose in aligning the interests of management with shareholders and in linking reward to performance. Nevertheless, we have taken the opportunity to make changes where appropriate to strengthen alignment and to ensure that executives are rewarded for delivering sustainable profit growth in the medium to long term.To that end, we have increased materially the shareholding requirement for senior executives and have strengthened the malus and clawback provisions that apply both to the Performance Share Plan and Deferred Share Bonus Plan. This underscores the committee’s policy of aligning director and shareholder interests and reflects the views of investor associations and good governance.As part of the review of the annual bonus plan and its operation, coincident with strengthening the malus and clawback provisions and increased shareholding requirement, we have clarified our approach to the treatment of leavers for future awards. The rules of the plan will be modified to define the scenarios when forfeiture would apply to deferred bonus shares rather than the scenarios in which good leaver status would be granted. For instance, forfeiture would apply in the event of dismissal for misconduct, fraud and performance issues and where an executive leaves for alternative employment at a competitor. The three-year vesting period would still apply.Alun Griffiths Chairman of the remuneration committeeKey changes to remuneration policy• Strengthening of malus and clawback provisions for PSP and bonus share awards.• Increase in shareholding requirement from 100 per cent of salary to 200 per cent for CEO and Group finance director and 150 per cent for others.• Increase in ‘normal’ PSP award for Group finance director from 75 per cent to 100 per cent of salary.• Clarify approach to the treatment of leavers for future bonus share awards.81Annual report and accounts for the year ended 31 March 2017Our governanceOur governance / Directors’ remuneration reportSeverfield Annual Report 2017 - Governance.indd 8107/07/2017 12:30:32 Severfield plc
www.severfield.com
Stock code: SFR
DIRECTORS’ REMUNERATION REPORT
We will also be changing the mechanism for delivering
deferred shares which for future awards will be via an
Employee Benefit Trust rather than through the purchase of
shares in the executives’ name (at the time of deferral) and
the execution of a bonus deferral agreement.
We have reviewed the structure of the Performance Share
Plan and will be seeking shareholder approval for a new plan
on broadly the same basis as the current plan. As part of this
review, we looked in detail at award levels and targets and
other than increasing the normal annual maximum award
levels for the Group finance director to 100 per cent of salary,
propose to make only minor changes to improve flexibility.
We have noted the increased investor focus on the
further alignment with shareholder interests through the
introduction of post-vesting holding periods. We are not
proposing to introduce a post-vesting holding requirement for
the PSP at this time, however we recognise the importance
of long-term share ownership and believe for Severfield that
the most appropriate way to achieve this at the current time
is by increasing the shareholding requirements as set out
above. We will continue to take into account any feedback
from shareholders and proxies and will consider this further
in the future.
Annual remuneration report
The annual remuneration report describes the
implementation of this policy, in particular in relation to
reward for performance in 2017.
I am pleased to report that the base financial targets set by
the board were exceeded and the base safety targets met,
resulting in a bonus pay-out of 95 per cent of the maximum
for all of the executive directors except Derek Randall who
achieved a bonus pay-out of 80 per cent.
The targets for the 2014 PSP award (EPS targets which
equated to PBT of between £12m and £24m) were met
resulting in the expected vesting of these awards at 74 per
cent of maximum.
During the year, the directors received a 2.5 per cent salary
increase which was broadly in line with that received by the
UK workforce. In all cases the increases were effective from
1 July 2016.
Implementation of policy for 2018
Salaries for the directors will be reviewed later this year after
the conclusion of the pay review across the Group and will be
effective from 1 July 2017. A review of fees for the Chairman
has concluded that the current fee level of £100,000 per
annum is materially below market and we have determined
that this should rise to £125,000. Furthermore, given the
recent management changes implemented for the duration of
Ian Lawson’s absence through ill-health, we have determined
that this should be increased to £175,000 for the duration of
John Dodds’ temporary appointment as executive chairman.
This increase will be effective from 1 April 2017. There will be
no change to the fees paid to non-executive directors.
The financial and safety performance targets for the 2018
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 6.76p to 7.98p in 2020. This equates to a PBT range of
£25.0m to £29.5m. This represents an increase in the lower
vesting threshold of £6.4m (34 per cent) and in the threshold
at which maximum vesting takes place of £5.5m (23 per
cent). This represents a vesting range which the committee
feels is realistic, whilst remaining appropriately stretching,
particularly in the context of current expectations of the
external market over the next performance cycle.
Conclusion
Through the changes set out above, the committee has
sought to strengthen alignment and ensure that pay remains
firmly linked to performance whilst ensuring that the bonus
and performance share plans provide a strong incentive for
management to deliver superior performance over the short
and longer term. We believe that our remuneration policy
achieves these objectives.
I wrote to our top ten shareholders in early June with details
of our proposed changes and will continue to engage with all
shareholders before and at the AGM to answer any questions
shareholders might have.
Alun Griffiths
Chairman of the remuneration committee
14 June 2017
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25357.04 7 July 2017 12:28 PM Proof 7This 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:• the directors’ remuneration policy (pages 83 to 90). Shareholders will be asked to approve the new directors’ remuneration policy at the AGM on 6 September 2017 and it will, if approved, apply to payments made from this date. Until then the 2014 policy will continue to apply. The new 2017 policy is intended to apply for a period of three years from the AGM. A copy of the 2014 policy can be found on page 66 in the 2014 annual report. The proposed Performance Share Plan will be formally effective following shareholder approval at the 2017 AGM. If approved, the PSP will supersede that approved by shareholders in 2007.• the directors’ annual remuneration report (pages 91 to 100). This section sets out the details of how our remuneration policy was implemented for the year ended 31 March 2017 and how we intend to apply it for the year ending 31 March 2018, and it is subject to an advisory vote at this year’s AGM.PART 1 – REMUNERATION POLICYExecutive directorsBase salariesPurpose and link to strategyTo provide the core reward for the role.Sufficient to recruit and retain directors of the calibre necessary to execute the Group’s strategy.OperationBase 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 opportunityPerformance conditionsThere 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.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.Change from 2014 policy and rationaleNo substantive changes from the 2014 policy.83Annual report and accounts for the year ended 31 March 2017Our governanceOur governance / Directors’ remuneration reportSeverfield Annual Report 2017 - Governance.indd 8307/07/2017 12:30:32 Severfield plc
www.severfield.com
Stock code: SFR
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:
• Life assurance at four times salary
• Medical insurance for self with option to purchase for family
• Company car and fuel allowance
Relocation expenses would be paid as appropriate for new recruits or a change in role.
In circumstances where an executive is deployed on an international assignment, their arrangements will be managed in a
way that is consistent with good practice for international organisations. Additional allowances may also be paid, e.g. to cover
any increase in cost of living, tax equalisation and/or additional accommodation costs.
The committee may wish to offer executive directors other employee benefits on broadly similar terms as those offered to
other employees from time to time, provided within the maximum opportunity limit.
Maximum opportunity
The value of insured benefits can vary from year to year based
on the costs from third party providers.
Performance conditions
No performance conditions or recovery provisions apply to
benefits.
The total value of benefits (excluding relocation and
international assignment allowances) will not exceed more
than 15 per cent of salary in any year.
Change from 2014 policy and rationale
No substantive changes from the 2014 policy.
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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.
Performance conditions
No recovery provisions apply to pension benefits.
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 per annum).
For international assignments the Group may be required
to make additional payments to comply with local statutory
requirements.
Change from 2014 policy and rationale
No substantive changes from the 2014 policy.
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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’). The plan incorporates a malus and clawback mechanism for instances of
financial misstatement, error, substantial failures in risk control, serious misconduct or any other exceptional circumstances
determined by the remuneration committee. The malus and clawback provisions will extend to the cash element of the
annual bonus.
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 94.
Change from 2014 policy and rationale
Strengthening of malus and clawback provisions to include: (i) introduction of malus provisions; (ii) extension of policy
flexibility in which malus and clawback could apply; and (iii) extension of a time frame for which malus and clawback could
apply.
Definition of the scenarios when forfeiture would apply to deferred bonus shares rather than the scenarios in which good
leaver status would be granted. Forfeiture would apply in the event of dismissal for misconduct, fraud and performance
issues and where an executive leaves for alternative employment at a competitor.
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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 prescribed period of three years or more.
There is a malus and clawback mechanism for instances of financial misstatement, error, substantial failures in risk control,
serious misconduct or any other exceptional circumstances determined by the remuneration committee.
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 up to 100 per cent of salary for the chief executive
officer and the Group finance director 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.
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Change from 2014 policy and rationale
Strengthening of malus and clawback provisions to include: (i) introduction of malus provisions; (ii) extension of policy
flexibility in which malus and clawback could apply;and (iii) introduction of a time frame for which malus and clawback
could apply.
Increased normal award levels for the Group finance director.
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.
Change from 2014 policy and rationale
No substantive changes from the 2014 policy.
Performance conditions
No recovery provisions apply to all-employee share awards.
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Severfield plc
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Stock code: SFR
DIRECTORS’ REMUNERATION REPORT
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.
Illustration of application of the policy
A significant proportion of remuneration is linked to
performance, particularly at maximum performance levels.
The charts below show how much each executive director
could earn under Severfield’s remuneration policy (as
detailed above) under different performance scenarios.
The following assumptions have been made:
• Minimum (performance below threshold) — Fixed pay only
with no vesting under the annual bonus or PSP.
• Target (performance in line with expectations) — Fixed
pay plus a bonus at the mid-point of the range (i.e. 50 per
cent of the maximum opportunity) and a PSP award of
100 per cent of salary for the chief executive officer and
Group finance director and 75 per cent of salary for other
executives vesting at 50 per cent of the maximum.
• Maximum (performance meets or exceeds maximum) —
Fixed pay plus maximum bonus and maximum PSP award
vesting.
Fixed pay comprises:
• Salaries — salary effective as at 1 July 2017;
• Benefits — amounts expected to be received by each
executive director in the 2018 financial year;
• Pension — amount that will be received by each executive
director in the 2018 financial year based on the policy set
out in the table above.
The scenarios do not include any share price growth.
Chief executive officer
Chief operating officer
Group finance director
Executive director
£1,500
£1,250
£1,000
31%
22%
22%
31%
0
0
0
£
£750
100%
56%
39%
£500
£250
£0
£1,500
£1,250
£1,000
0
0
0
£
£750
£500
£250
£0
25%
34%
18%
24%
100%
58%
41%
31%
31%
22%
22%
100%
56%
39%
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x
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r
a
T
x
a
M
d
e
x
i
F
t
e
g
r
a
T
x
a
M
d
e
x
i
F
t
e
g
r
a
T
x
a
M
£1,500
£1,250
£1,000
0
0
0
£
£750
£500
£250
£0
Fixed
Bonus
LTIP
25%
34%
18%
24%
100%
58%
41%
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x
i
F
t
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r
a
T
x
a
M
£1,500
£1,250
£1,000
0
0
0
£
£750
£500
£250
£0
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Annual report and accounts for the year ended 31 March 2017
Our governance / Directors’ remuneration report
Executive directors’ service agreements
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 and an external hire.
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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 after
assessing the relevant performance conditions and will only
be in relation to the service period worked.
The rules of the PSP 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 awards will lapse on such cessation, except in
certain circumstances. If the executive director ceases to be
an employee or director of the Company that employs the
individual as a result of death, disability, retirement, the sale
of the business or company that employs the individual or for
any reason at the discretion of the committee, then they will
be treated as a ‘good leaver’ under the plan rules.
Other than in the case of death, a good leaver’s unvested
awards will vest on the normal vesting date subject to the
achievement of any relevant performance condition, with a
pro-rata reduction to reflect the proportion of the vesting
period served. In determining whether an executive director
should be treated as a good leaver and the extent to which
their award may vest, the committee may take into account
the circumstances of an individual’s departure.
Under the rules of the DSBP, as modified, the basis on which
awards will generally be forfeited will include dismissal for
misconduct, fraud and performance issues and where an
executive leaves for alternative employment at a competitor.
The three-year vesting period would still apply.
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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.
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
recommendations of the chairman and the chief executive officer.
Element
Fees
Purpose and link to
strategy
To attract and retain a
high-calibre chairman and
non-executive directors
by offering market
competitive fee levels.
Operation (including maximum 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 normally 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. Additional fees may be payable to reflect
exceptional time commitments.
No benefits or other remuneration are provided to non-executive directors.
Change from 2014 policy and rationale
There are no substantive changes from the 2014 policy.
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 a proportion of the executive’s base salary (namely 200 per cent
in the case of the CEO and the Group finance director and 150 per cent in the case of the other executive directors). Thereafter,
the executive directors will be under a continuing obligation to maintain at least such a holding.
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Annual report and accounts for the year ended 31 March 2017
Our governance / Directors’ remuneration report
PART 2 – ANNUAL REMUNERATION REPORT
In this section, we report on the implementation of our policies in the year ended 31 March 2017 as well as how the policy will
be implemented for 2018. 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.
In determining the remuneration of executive directors and remuneration policy for the Group, the committee took account of
general market conditions and pay levels for the workforce as a whole. In so doing, the committee reviewed wage growth generally
and the proportion of earnings paid as bonus to groups of staff at each level – executive directors, senior staff and all other
employees (who receive a profit share bonus and are eligible to participate in an SAYE scheme). The Group recognises a number of
trade unions who are consulted regarding wage settlements on a site-by-site basis and seeks employee participation on a range of
matters including safety.
Implementation of policy for 2017
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:
Alun Griffiths (chairman)
John Dodds
Chris Holt
Kevin Whiteman
Tony Osbaldiston
Number of meetings attended:
4/4
4/4
4/4
4/4
4/4
The Group considers all members of the committee to be independent. Executive directors may attend remuneration
committee meetings at the invitation of the committee chairman, but do not take part in any discussion about their own
remuneration.
The terms of reference for the remuneration committee are available 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 2017 totalled £34,000 (2016: £9,000).
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Severfield plc
www.severfield.com
Stock code: SFR
DIRECTORS’ REMUNERATION REPORT
Directors’ earnings for the 2017 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
Year ended 31 March 2017
Fees
Benefits
Pension
LTIPs*
Total
373
293
248
243
—
—
—
—
—
1,157
359
282
239
195
—
—
—
—
—
1,075
—
—
—
—
100
45
45
45
40
275
28
31
16
—
—
—
—
—
—
75
75
50
50
50
—
—
—
—
—
225
370
218
179
179
—
—
—
—
—
946
1,205
874
732
667
100
45
45
45
40
3,753
Taxable benefits include the provision of company cars, fuel for company cars, car and accommodation allowances and
private medical insurance. LTIPs reflect those PSP awards expected to vest based on performance to 31 March 2017.
*Calculated at 74 per cent of maximum award x the average share price over the period 1/1/17 to 31/3/17 of 79.05p.
£000
Executives
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt
Salary
Bonus
Year ended 31 March 2016
Fees
Benefits
Pension
LTIPs*
Total
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
248
123
101
101
—
—
—
—
—
573
946
667
561
489
100
45
45
45
40
2,938
Taxable benefits include the provision of company cars, fuel for company cars, car and accommodation allowances and
private medical insurance.
* LTIPs reflect those PSP awards vesting based on performance to 31 March 2016 and are calculated as actual value of benefit at the actual vesting date based on
the vesting share price of 68.50p for Ian Lawson, 43.75p for Derek Randall and 43.69p for the other executive directors.
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Annual report and accounts for the year ended 31 March 2017
Our governance / Directors’ remuneration report
Remuneration received by the directors
During the year the directors received a 2.5 per cent salary increase, which was broadly in line with that received by the UK
workforce. In all cases the increases were effective from 1 July 2016.
Past directors/loss of office payments (audited)
There have been no payments made to past directors or any payment for loss of office.
How pay linked to performance in 2017
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
£359,000
£282,000
£239,000
£195,000
As reported last year, the bonus plan applicable to the executive directors for 2017 had two separate performance conditions:
• Eighty per cent was payable on achieving budgeted Group PBT (with the 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 pay-out for achieving 120 per cent of budget.
• 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.
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Stock code: SFR
DIRECTORS’ REMUNERATION REPORT
The targets for 2017 and the pay-out against these targets are set out below:
All directors (excluding Derek Randall):
Measure
Group PBT*
Group AFR
% of maximum
bonus
opportunity
80%
20%
Performance required
Threshold
£16.0m
0.28
On-target
£16.9m
0.28
Maximum
£20.2m
0.28
Actual
£19.8m
0.24
% of
bonus paid
94%
100%
Pay-out
as %
of salary
75%
20%
95%
* 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.
Derek Randall (JSSL managing director):
Measure
Group PBT*
JSSL (India) PBT*
JSSL (India) AFR
Performance required
% of maximum
bonus
opportunity
Actual
£19.8m
40%
40% Loss of 10.9 Cr Break-even Profit of 15.0 Cr Profit of 1.37 Cr
0.00
20%
Threshold
£16.0m
Maximum
£20.2m
On-target
£16.9m
0.12
0.12
0.12
% of
bonus paid
94%
55%
100%
Pay-out
as %
of salary
38%
22%
20%
80%
* 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.
PSP
The 2014 PSP awards are due to vest in June 2017, subject to the achievement of an EPS performance condition measured
over the three financial years ended 31 March 2017. The minimum EPS figure required for vesting of 25 per cent of the
award was c.3.23p which equates to a PBT of £12.0m. The EPS figure required for vesting at maximum of 100 per cent of the
award was c.6.45p which equates to a PBT of £24.0m. The actual PBT achieved was £19.8m which equates to EPS of 5.53p
and therefore it is estimated that 74 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 2017 (audited)
Share awards were made in the year under the PSP scheme for the three-year period expiring on 31 March 2019. 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
741,186
436,637
492,714
359,071
% of salary Face value (£)1
Performance
condition2
Performance
period
% vesting at
threshold
100%
75%
100%
75%
368,740
217,227
245,125
178,638
EPS
3 financial
years ending
31 March
2019
25%
1. Face value calculated based on the pre-grant date share price of 49.75p on 28 June 2016.
2. Performance conditions are based on EPS targets of 5.06p (minimum performance — 25 per cent vests) to 6.53p (maximum performance – 100 per cent vests)
with linear interpolation in between. This represents a PBT range of £18.6m–£24m.
The PSP and the annual bonus plan contain recovery and withholding (i.e. clawback) provisions which can be applied before an
award vests or for a period of three years post vesting or within three years of the bonus being paid. Clawback can be applied
when 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 having 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 or where there has been a
substantial failure of risk control. 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).
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Annual report and accounts for the year ended 31 March 2017
Our governance / Directors’ remuneration report
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:
Director
Ian Lawson
Total
Ian Cochrane
Total
Alan Dunsmore
Total
Derek Randall
Total
Year of
award
Vesting date
(June)
Performance
condition
Awards held at
1 April 2016
Awards
granted in
year
Awards lapsed
in year
2013
2014
2015
2016
2013
2014
2015
2016
2013
2014
2015
2016
2013
2014
2015
2016
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
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
4,615,476
—
—
—
741,186
741,186
—
—
—
436,637
436,637
—
—
—
492,714
492,714
—
—
—
359,071
359,071
2,029,608
(186,514)
—
—
—
(186,514)
(149,160)
—
—
—
(149,160)
(122,664)
—
—
—
(122,664)
(122,664)
—
—
—
(122,664)
(581,002)
Performance conditions are based on a range of EPS targets as follows:
2014 award1
2015 award2
2016 award3
1. Represents a PBT range of £12.0m – £24.0m.
2. Represents a PBT range of £16.0m – £24.0m.
3. Represents a PBT range of £18.6m – £24.0m.
Awards vested
in year
(362,506)
—
—
—
Awards held
at 31 March
2017
—
632,054
513,262
741,186
(362,506) 1,886,502
—
(280,528)
372,460
—
302,366
—
436,637
—
(280,528) 1,111,463
—
(230,695)
306,298
—
248,656
—
492,714
—
(230,695) 1,047,668
—
(230,695)
306,298
—
248,656
—
359,071
—
914,025
(230,695)
(1,104,424) 4,959,658
Threshold
(25% vests)
3.23p
4.30p
5.06p
Maximum
(100% vests)
6.45p
6.45p
6.53p
95
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Severfield plc
www.severfield.com
Stock code: SFR
DIRECTORS’ REMUNERATION REPORT
Directors’ current shareholdings (audited):
The following table provides details on the directors’ beneficial interests in the Company’s share capital as at 31 March 2017:
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
Total5,6
274,216
2,857,394
172,051
207,005
7,039
14,400
14,400
4,667
33,003
33,003
33,003
33,003
230,968
242,533
135,669
154,693
1,886,502
1,111,463
1,047,668
914,025
2,431,728
4,258,793
1,402,791
1,313,393
419,833
—
—
30,000
53,097
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
419,833
—
—
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 86.
4.
5.
6.
PSP shares are in the form of conditional awards which will only vest on the achievement of certain performance conditions. The total includes 2014 awards
which had not actually vested as at 31 March 2017.
As at 31 March 2017, only Ian Cochrane satisfied the Company’s shareholding guideline (see page 90). 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.
There have been no changes in the directors’ interests in the shares issued or options granted by the Company between the end of the period and the date of
this annual report, except shares held pursuant to the SIP. There have been no changes in the directors’ beneficial interests in trusts holding ordinary shares of
the Company. The executive directors continued their membership in the SIP after the end of the period and were therefore awarded further shares pursuant
to the SIP rules. Between the end of the period and 21 May 2017, being the last practicable date prior to the publication of this annual report, the executive
directors acquired further shares under the SIP as set out in the table below.
Executives
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Position against dilution limits
New SIP
shares since
31 March
2017
298
299
299
—
Total SIP
shares at
14 June
2017
7,337
14,699
14,699
4,667
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 2017 was well under the maximum 10 per cent limit at 4.6 per cent.
96
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25357.04 7 July 2017 12:28 PM Proof 7Performance graphThe 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 eight-year period ended 31 March 2017.This index was selected as it represents a broad equity market index and an appropriate comparator group of companies over the period.Total shareholder returnMar 2009Mar 2010Mar 2012Mar 2013Mar 2014Mar 2015Mar 2016 FTSE Small Cap Index Severfield plcTotal shareholder return250200150100500£Mar 2017Mar 2011Source: Datastream (Thomson Reuters)Chief executive officer remuneration changeThe table below shows the total remuneration figure for the chief executive officer role over the same eight-year period. Total remuneration includes bonuses and the value of PSP awards which vested (or in the case of 2017 are expected to vest) based on performance in those years (at the share price at which they vested or, in the case of the 2017 figures, at the average share price for the quarter immediately prior to the year-end).2009Haughey2010Haughey2011Haughey2013Haughey12013Dodds2, 32014Dodds22014Lawson42015Lawson2016Lawson2017LawsonTotal remuneration (£000)1,265640701450622892336819461,205Annual bonus (%)94.8%50.1%60.5%—N/AN/A34.0%65.0%63.0%95.0%LTIP vesting (%)100.0%100.0%——N/AN/A——64.0%74.0%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 2014.97Annual report and accounts for the year ended 31 March 2017Our governanceOur governance / Directors’ remuneration reportSeverfield Annual Report 2017 - Governance.indd 9707/07/2017 12:30:33 Severfield plc
www.severfield.com
Stock code: SFR
DIRECTORS’ REMUNERATION REPORT
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 of the average of 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
2017
£000
2016
£000
% change
373
28
359
46
3
5
366
28
231
45
3
3
1.9%
—
55.4%
2.2%
—
66.6%
Relative importance of spend on pay
The following table shows the actual spend on pay for all employees relative to revenue and underlying operating profit (before
JVs and associates):
Staff costs
Revenue
Underlying operating profit (before JVs and associates)
Dividends
Shareholder voting
2017
£000
67,675
262,224
19,614
5,078
2016
£000
60,596
239,360
13,686
2,975
% change
11.7%
9.6%
43.3%
70.7%
The results below show the response to the 2016 AGM shareholder voting for the directors’ 2016 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
223,453,327
7,605,335
231,058,662
1,614,513
232,673,175
96.7%
3.3%
100%
N/A
N/A
The results below show the response to the 2014 AGM shareholder voting for the directors’ 2014 remuneration policy:
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
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
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Annual report and accounts for the year ended 31 March 2017
Our governance / Directors’ remuneration report
Implementation of policy for 2018
The executive directors’ current salaries
The salaries of the executive directors will be reviewed in October 2017 and backdated to July 2017. Increases will be set in the
context of overall salary increases for the wider workforce.
The executive directors’ salaries at the start of the 2018 financial year are as follows:
Ian Lawson
Ian Cochrane
Alan Dunsmore*
Derek Randall
Benefits and pension
£
377,959
296,877
325,000
244,143
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.
*Alan Dunsmore’s current salary is for the role of acting chief executive officer since 28 March 2017 and was £251,253 immediately before that date.
Rewards for performance in 2018
Bonus
The annual bonus for 2018 will operate on the same basis as for 2017 and will be consistent with the policy detailed in the
remuneration policy section of this report in terms of the maximum bonus opportunity, deferral and clawback provisions. The
measures have been selected to reflect a range of financial and operational goals that support the key strategic objectives of
the Group.
The performance measures and weightings will be as follows:
Profit performance-based component — 80 per cent
The sliding scale range for bonus targets in 2018 is as follows:
Maximum bonus based on actual PBT versus budget
PBT % of budget
95 or below
100
120 or better
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% 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.
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Severfield plc
www.severfield.com
Stock code: SFR
DIRECTORS’ REMUNERATION REPORT
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 2018
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 is
consistent with last year and with the proposed new policy.
This year we will set a performance condition for a three-year period commencing on 1 April 2017 and ending on 31 March
2020. 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 £25.0m. 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 £29.5m. 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 in the lower vesting threshold of £6.4m (34 per cent) and in the threshold at which maximum
vesting takes place of £5.5m (23 per cent). 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 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 more challenging than
targets set for prior awards.
How will the non-executive directors be paid in the 2018 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
2018
175,000*
40,000
5,000
5,000
2017
100,000
40,000
5,000
5,000
* A review of fees for the chairman concluded that the previous fee level of £100,000 per annum was materially below market and we concluded that this should
rise to £125,000. Furthermore, given the recent management changes implemented for the duration of Ian Lawson’s absence through ill-health, we increased
John Dodds’ remuneration to £175,000 for the duration of his temporary appointment as executive chairman. Both increases were effective from 1 April 2017.
Approval
This report was approved by the board of directors and signed on behalf of the board.
Alun Griffiths
Chairman of the remuneration committee
14 June 2017
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Annual report and accounts for the year ended 31 March 2017
Our governance / Directors’ responsibilities statement
DIRECTORS’ RESPONSIBILITIES
STATEMENT
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:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
by the EU;
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:
• 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
• 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
• 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
John Dodds
Executive chairman
14 June 2017
• 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.
Alan Dunsmore
Acting chief executive officer
14 June 2017
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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.
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101
25357.02 7 July 2017 12:28 PM Proof 7OUR FINANCIALSOur financials — GroupIndependent auditor’s report104Consolidated income statement109Consolidated statement of comprehensive income110Consolidated balance sheet111Consolidated statement of changes in equity112Consolidated cash flow statement113Notes to the consolidated financial statements114Five year summary146Financial calendar146Our financials — CompanyCompany balance sheet147Company statement of changes in equity148Notes to the Company financial statements149Severfield Annual Report 2017 - Financials.indd 10207/07/2017 12:30:06 25357.02 7 July 2017 12:28 PM Proof 7Our financials / Chairman’s introductionOur financialsSeverfield Annual Report 2017 - Financials.indd 10307/07/2017 12:30:06 Severfield plc
www.severfield.com
Stock code: SFR
INDEPENDENT AUDITOR’S REPORT
to the members of Severfield plc only
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 2017 set out on pages 109 to 145 and
147 to 153. In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at
31 March 2017 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with UK Accounting Standards,
including FRS 101 ‘Reduced Disclosure Framework’; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as
regards the Group financial statements, Article 4 of the IAS Regulation.
Overview
Materiality: Group financial statements as a whole
£900,000 (2016: £650,000)
5.0% (2016: 4.9%) of Group profit before tax (2016: profit
before tax, normalised to exclude non-underlying items)
Coverage
98% (2016: 99%) of Group profit before tax
Risks of material misstatement
Recurring risks
Carrying value of construction contracts
balance, and revenue and profit recognition
in relation to construction contracts
vs 2016
Carrying value of goodwill and investment in
Indian joint venture
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Annual report and accounts for the year ended 31 March 2017
Our financials / Independent auditor’s report
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 (unchanged from 2016):
Carrying value of
construction contracts
balance, revenue and
profit recognition in
relation to construction
contracts
Revenue: £262.2m
(2016: 239.4m)
Construction contacts:
£59.1m (2016: £44.5m)
Refer to page 75 (audit
committee report), pages
116 and 121 (accounting
policies) and note 16
(financial disclosure).
The risk
Our response
Subjective estimate
Our procedures included:
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 control assessment: 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.
• Accounting analysis: 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 work certified to date.
• Accounting analysis: Challenging the Group in respect of
construction contract balances in the sample identified, where
cash has not been received or work has not been certified
post year-end, by obtaining correspondence with the clients to
corroborate the position.
• Accounting analysis: 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.
• Retrospective review: Assessing the forecasting accuracy of
contract margins by evaluating initial forecasted margins for a
sample of contracts across the portfolio against actual margins
achieved.
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Severfield plc
www.severfield.com
Stock code: SFR
INDEPENDENT AUDITOR’S REPORT
to the members of Severfield plc only
2. Our assessment of risks of material misstatement continued
Carrying value of goodwill
and investment in Indian
joint venture
Goodwill: £54.7m
(2016: £54.7m)
Investment in Indian joint
venture: £4.6m
(2016: £4.5m)
Refer to page 75 (audit
committee report), pages
114 to 122 (accounting
policies) and notes 11 and
14 (financial disclosure)
The risk
Our response
Subjective valuation
Our procedures included:
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.
• Data testing: Considering the Group’s impairment model for
integrity and internal consistency with board approved budgets
and forecast.
• Benchmarking assumptions: 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.
• Accounting analysis: Performing sensitivity analysis on key
assumptions to understand their impact on headroom.
• Retrospective review: Considering the Group’s historical
budgeting accuracy, by assessing actual performance against
budget.
• Assessing transparency: 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.
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Annual report and accounts for the year ended 31 March 2017
Our financials / Independent auditor’s report
3. Our application of materiality and an overview of the
scope of our audit
Materiality for the Group financial statements as a whole
was set at £900,000 (2016: £650,000), determined with
reference to a benchmark of Group profit before tax, of which
it represents 5.0 per cent (2016: 4.9 per cent of Group profit
before tax, normalised to exclude non-underlying items).
We reported to the audit committee any corrected or
uncorrected identified misstatements exceeding £45,000
(2016: £32,500), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s six (2016: six) reporting components, we
subjected five (2016: five) to full scope audits for Group
purposes and one (2016: one) was subject to procedures at a
Group level.
The work on one of the six components (2016: one of six) was
performed by component auditors and the rest by the Group
team.
The Group audit 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 audit team also approved the component
materialities ranging from £320,000–£675,000
(2016: £320,000–£400,000) having regard to the mix of size
and risk profile of the Group across the components.
The Group team visited one component location in India
and held meetings with the component audit team. At these
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
auditors.
Profit before tax
£18,055,000
(2016: £9,643,000)
Materiality
£900,000 (2016: £650,000)
£900,000
Whole financial statements
materiality (2016: £650,000)
£675,000
Range of materiality at
six components
(£675,000 – £320,000)
(2016: £400,000 – £320,000)
£45,000
Misstatements reported to
the audit committee
(2016: £32,500)
n Profit before tax
n Group materiality
Group revenue
Group profit before tax
98%
(2016: 99%)
99
98
n Full scope for Group audit
purposes 2017
n Full scope for Group audit
purposes 2016
n Residual components
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100%
(2016: 100%)
100
100
Group total assets
97%
(2016: 97%)
97
97
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Severfield plc
www.severfield.com
Stock code: SFR
INDEPENDENT AUDITOR’S REPORT
to the members of Severfield plc only
4. Our opinion on other matters prescribed by the Companies
Act 2006 is unmodified
• the audit committee report does not appropriately address
matters communicated by us to the audit committee.
In our opinion:
• the part of the directors’ remuneration report to be audited
has been properly prepared in accordance with the
Companies Act 2006; and
• the information given in the strategic report and the
directors’ report for the financial year is consistent with the
financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from
reading the strategic report and the directors’ report:
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent company financial statements and the part of
the directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not identified material misstatements in those
• we have not received all the information and explanations
reports; and
we require for our audit.
•
in our opinion, those reports have been prepared in
accordance with the Companies Act 2006.
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:
• 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
2020; or
• 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:
• 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
Under the Listing Rules we are required to review:
• the directors’ statements, set out on pages 41 and 80, in
relation to going concern and longer-term viability; and
• the part of the corporate governance statement on
page 67 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 101, 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
14 June 2017
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
CONSOLIDATED INCOME STATEMENT
Year ended 31 March 2017
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 before tax
Taxation
Profit for the year attributable to
the equity holders of the parent
Earnings per share:
Basic
Diluted
Underlying
2017
£000
Note
Non-
underlying
2017
£000
Total
2017
£000
Underlying
2016
£000
Non-
underlying
2016
£000
Total
2016
£000
3
4
262,224
(242,610)
—
(1,790)
262,224
(244,400)
239,360
(225,674)
—
(3,568)
239,360
(229,242)
19,614
(1,790)
17,824
13,686
(3,568)
10,118
457
20,071
(226)
19,845
(3,306)
—
(1,790)
—
(1,790)
580
457
18,281
(226)
18,055
(2,726)
(230)
13,456
(245)
13,211
(2,280)
—
(3,568)
—
(3,568)
1,237
(230)
9,888
(245)
9,643
(1,043)
16,539
(1,210)
15,329
10,931
(2,331)
8,600
5.53p
5.49p
(0.40p)
(0.40p)
5.13p
5.09p
3.67p
3.65p
(0.78p)
(0.78p)
2.89p
2.87p
14
7
8
10
10
Further details of non-underlying items are disclosed in note 5 to the consolidated financial statements.
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Severfield plc
www.severfield.com
Stock code: SFR
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Year ended 31 March 2017
Actuarial (loss)/gain on defined benefit pension scheme*
Losses taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
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
29
23
23
19
Year ended
31 March
2017
£000
(7,412)
(93)
110
1,071
(6,324)
15,329
Year ended
31 March
2016
£000
1,300
—
—
(353)
947
8,600
9,005
9,547
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
CONSOLIDATED BALANCE SHEET
At 31 March 2017
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 £1,775 (2016: £1,099)
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
2017
£000
At
31 March
2016
£000
Note
11
12
13
14
19
15
17
20
20
18
20
20
29
20
19
22
23
54,712
1,574
78,909
12,068
1,029
148,292
7,750
66,398
109
32,849
107,106
255,398
(75,673)
—
(180)
(2,862)
(78,715)
(21,414)
(229)
(883)
(22,526)
(101,241)
54,712
4,480
77,362
11,611
1,100
149,265
5,294
50,742
—
19,033
75,069
224,334
(55,311)
(830)
(180)
(1,911)
(58,232)
(14,602)
(409)
(2,885)
(17,896)
(76,128)
154,157
148,206
7,471
85,702
3,710
57,274
154,157
7,437
85,702
2,300
52,767
148,206
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The consolidated financial statements were approved by the board of directors on 14 June 2017 and signed on its behalf by:
John Dodds
Executive chairman
Alan Dunsmore
Acting chief executive officer
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www.severfield.com
Stock code: SFR
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2017
At 1 April 2016
Total comprehensive income for the year
Ordinary shares issued*
Equity settled share-based payments
Dividends paid
At 31 March 2017
Note
21
Share
capital
£000
7,437
—
34
—
—
7,471
Share
premium
£000
85,702
—
—
—
—
85,702
Other
reserves
£000
2,300
17
—
1,393
—
3,710
Retained
earnings
£000
52,767
8,988
—
597
(5,078)
57,274
Total
equity
£000
148,206
9,005
34
1,990
(5,078)
154,157
* The issue of shares represents shares allotted to satisfy the 2013 Performance Share Plan award which vested in June, September and November 2016.
At 1 April 2015
Total comprehensive income for the year
Equity settled share-based payments
Dividends paid
At 31 March 2016
Note
21
Share
capital
£000
7,437
—
—
—
7,437
Share
premium
£000
85,702
—
—
—
85,702
Other
reserves
£000
1,250
—
1,050
—
2,300
Retained
earnings
£000
46,195
9,547
—
(2,975)
52,767
Total
equity
£000
140,584
9,547
1,050
(2,975)
148,206
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 March 2017
Net cash flow from operating activities
Cash flows from investing activities
Proceeds on disposal of land and buildings
Proceeds on disposal of other property, plant and equipment
Purchases of land and buildings
Purchases of other 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
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
2017
£000
24,977
Year ended
31 March
2016
£000
23,888
Note
24
1,195
436
(1,517)
(5,442)
—
(413)
(5,741)
(162)
(5,078)
(180)
(5,420)
13,816
19,033
32,849
273
395
(122)
(4,676)
(150)
(4,113)
(8,393)
(166)
(2,975)
(205)
(3,346)
12,149
6,884
19,033
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
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 154. 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.
There were no new standards, interpretations or amendments to standards applied during the year ended 31 March 2017.
The following new or revised standards and interpretations issued by the International Accounting Standards Board (IASB) have
not been applied in preparing these accounts as their effective dates fall in periods beginning on or after 1 April 2017.
Effective for the year ending 31 March 2018
•
•
•
•
IAS 1 ‘Presentation of financial statements’ – amendments relating to the disclosure initiative.
IAS 7 ‘Statement of cash flows’ – amendments relating to the IASB’s disclosure initiative intended to provide information to
help investors better understand changes in a company’s debt.
IAS 12 ‘Income taxes’ – amendments relating to the accounting for deferred tax assets for unrealised losses on debt
instruments measured at fair value.
IAS 16 ‘Property, plant and equipment’ and IAS 38 ‘Intangible assets’ – amendments relating to clarification of acceptable
methods of depreciation and amortisation.
• 27 ‘Separate financial statements’ – amendments relating to equity method in separate financial statements.
•
IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates and joint ventures’ – amendments
relating to sale or contribution of assets between an investor and its associate or joint venture (not yet EU endorsed).
•
IFRS 11 ‘Joint Arrangements’ – amendments relating to acquisitions of interests in joint operations.
• Annual improvements to IFRS 2012–2014 cycle.
Effective for the year ending 31 March 2019
•
•
•
IFRS 2 ‘Share-based payment’ – amendments clarifying how to account for certain types of share-based payment
transactions.
IFRS 9 ‘Financial instruments’ – introduces new requirements for classification and measurement of financial assets and
financial liabilities, impairment methodology and hedge accounting.
IFRS 15 ‘Revenue from contracts with customers’ – provides a single model for measuring and recognising revenue arising
from contracts with customers, unless the contracts are in the scope of other standards, such as IAS 17. It supersedes all
existing revenue requirements in IFRS.
Effective for the year ending 31 March 2020
•
IFRS 16 ‘Leases’ – provides a single lessee accounting model, specifying how leases are recognised, measured, presented
and disclosed.
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
1. Significant accounting policies continued
IFRS 15
IFRS 15, the new revenue standard, will be effective for the Group’s 2019 year-end. The Group is in the process of performing a
detailed assessment of the impact of IFRS 15 to examine its potential impact on the timing of revenue recognition in relation to
construction contracts. This assessment is expected to be completed in the first half of 2018.
IFRS 16
IFRS 16, the new leasing standard, will be effective for the Group’s 2020 year-end and will require certain operating leases to be
recognised on the balance sheet. The directors are in the process of assessing the potential impact of IFRS 16 on the Group’s
accounting for leases.
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 financial 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.
Non-underlying items
Non-underlying 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.
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. The Group has adopted hedge accounting
during the year and, to the extent the hedge is effective, movements in the valuation of derivative financial instruments are
recognised directly in other comprehensive income rather than as a non-underlying item.
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Further details of non-underlying 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.
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Severfield plc
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Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
1. Significant accounting policies continued
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.
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.
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
1. Significant accounting policies continued
The general principles for profit recognition are as follows:
• Revenues on contracts are recognised on a percentage of completion basis when the contract’s outcome can be estimated
reliably.
• Provision is made for total losses incurred or foreseen in bringing the contract to completion as soon as they become
apparent.
• Variations are included in forecast contract revenues when it is considered probable that the customer will approve the
variation and the amount of revenue arising from the variation, and the amount of revenue can be reliably measured.
•
Incentive payments are included in forecast contract revenues when the contract is sufficiently advanced that it is
probable that the specified performance standards will be met or exceeded and the amount of the incentive payment can
be reliably measured.
• Claims receivable are recognised as income when negotiations have reached an advanced stage such that it is probable
that the customer will accept the claim, and the amount that it is probable will be accepted by the customer can be
measured reliably.
• Rectification work which is reasonably foreseeable is provided for as a cost of the contract and taken into account when
assessing its overall profitability. Claims for rectification arising after the end of a contract and which have not been
provided for are recognised as losses as they arise.
When determining whether a contract’s outcome can be estimated reliably, management considers a number of indicators
including the stage of completion of the contract to provide assurance over the reliability of costs to complete, cumulative
cash received and agreed certifications, the inherent risk in certain industry sectors and whether certain contract milestones
have been satisfied.
All costs relating to contracts are recognised as expenses in the period in which they are incurred, except where they relate to
future activity on a contract, in which case they are recognised as an asset provided it is probable that they will be recovered.
Where the outcome of a contract cannot be reliably estimated, contract revenue is recognised only to the extent that contract
costs incurred are expected to be recovered.
Percentage of completion is determined by reference to the contract costs incurred to date (the proportion that estimated
total contract costs are accounted for by contract costs incurred for work performed to date). Only those contract costs that
reflect work performed are included in costs incurred to date.
Total expected contract costs are initially determined by the estimating function during the contract tender process. At launch,
responsibility for the contract is handed over to the commercial function (consisting of qualified quantity surveyors) which, on
an ongoing basis, reassesses the expected contract costs as the contract progresses, taking into account the risks identified
in contract risk registers.
The assessment of the final outcome of each contract is determined by regular review of the revenues and costs to complete
that contract. Regular monthly contract reviews form an integral part of the contract forecasting procedures.
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.
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Severfield plc
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Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
1. Significant accounting policies continued
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.
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
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
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment losses.
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.
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
1. Significant accounting policies continued
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased
to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit)
in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a
revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
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, less any impairment losses.
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.
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1. Significant accounting policies continued
Derivative financial instruments and hedge accounting
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, except
where hedge accounting is used, provided the conditions specified by IAS 39 are met. Hedge accounting is applied in respect
of hedge relationships where it is both permissible under IAS 39 and practical to do so. When hedge accounting is used, the
relevant hedging relationships are classified as cash flow hedges.
Where the hedging relationship is classified as a cash flow hedge, to the extent that the hedge is effective, changes in the
fair value of the hedging instrument will be recognised directly in other comprehensive income rather than in the income
statement. When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in
other comprehensive income will be recycled to the income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer
qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in other
comprehensive income is kept in other comprehensive income until the forecasted transaction occurs. If a hedged transaction
is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is transferred to net
profit or loss for the period.
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.
Management continually reviews the estimated final out-turn on contracts and makes adjustments where necessary. Based
on the above, management believes it is reasonably possible, on the basis of existing knowledge, that outcomes within the
next financial year that are different from these assumptions could require a material adjustment.
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.
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
2. Critical accounting judgements and estimates continued
The carrying amount of goodwill at the balance sheet date was £54,712,000 (2016: £54,712,000) and of intangible assets
arising from acquisitions was £1,333,000 (2016: £3,953,000). The carrying value of the Group’s investment in the Indian joint
venture was £4,619,000 (2016: £4,468,000) at the balance sheet date.
Contingent liabilities
On an ongoing basis the Group is a party to various legal disputes, the outcomes of which cannot be assessed with a high
degree of certainty. A liability is recognised only where, based on the Group’s legal views and advice, it is considered probable
that an outflow of resources will be required to settle a present obligation that can be measured reliably. Disclosure of
contingent liabilities is made in note 27 unless the possibility of a loss arising is considered remote. These potential liabilities
are subject to uncertain future events, may extend over several years and their timing may differ from current assumptions.
Management applies its judgement in determining whether or not a liability on the balance sheet should be recognised or a
contingent liability should be disclosed.
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.
Significant judgement is required in setting the criteria for the valuation of the liability. 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 £21,414,000 (2016: £14,602,000).
Of the items discussed above, revenue and profit recognition represents the key source of estimation uncertainty.
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 (note 4)
Interest received (note 7)
Total income
Segmental results
2017
£000
262,224
262,224
671
15
262,910
2016
£000
239,360
239,360
666
16
240,042
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.
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Our financials / Group
3. Revenue and segmental analysis continued
Geographical information
The Group’s revenue from external customers is detailed below:
Revenue by destination:
United Kingdom
Republic of Ireland and mainland Europe
2017
£000
2016
£000
249,034
13,190
262,224
230,614
8,746
239,360
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 £49,301,000 relating to one major customer, which individually contributed more than 10
per cent of Group revenue in the year ended 31 March 2017. In the prior year, Group revenue included £37,388,000 and
£24,433,000 relating to two major customers, which individually contributed more than 10 per cent of Group revenue.
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
Other operating income
Operating costs before non-underlying items
Non-underlying 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
2017
£000
138,764
67,675
29,986
286
2016
£000
127,027
60,596
31,863
138
1,316
1,671
1,354
1,669
3,483
100
(671)
242,610
1,790
244,400
3,593
100
(666)
225,674
3,568
229,242
17
147
15
8
17
143
15
25
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Fees payable to KPMG LLP (2016: KPMG 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 £47,000 (2016: £52,000) in respect of other
assurance services provided to its Indian joint venture.
Details of the Group’s policy on the use of the auditor for non-audit services, the reason why the auditor was used and how the
auditor’s independence and objectivity were safeguarded, are set out in the audit committee report on page 76. No services
were performed pursuant to contingent fee arrangements.
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
5. Non-underlying items
Amortisation of acquired intangible assets (note 12)
Movement in fair value of derivative financial instruments
Non-underlying items before tax
Tax on non-underlying items
Non-underlying items after tax
2017
£000
2,620
(830)
1,790
(580)
1,210
2016
£000
2,620
948
3,568
(1,237)
2,331
The basis for stating results on an underlying basis is set out on page 5. The board believes that non-underlying items should
be separately identified on the face of the income statement to assist in understanding the underlying performance of the
Group. Their separate identification results in the calculation of an underlying profit measure, which is the same as that
presented and reviewed by management. Accordingly, adjusted performance measures have been used throughout the annual
report to describe the Group’s underlying performance.
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 during the next financial year.
A non-cash profit on derivative financial instruments of £830,000 was recognised in relation to the movement in fair values of
foreign exchange contracts, as a result of the underlying contracts maturing during the year, since these were treated as non-
underlying in the prior year.
The Group has adopted hedge accounting during the year for all material foreign currency hedging positions (cash flow
hedges), thereby mitigating the impact of fair value changes in the income statement since, to the extent that the hedge is
effective, changes in the fair value of the hedging instrument will be recognised directly in other comprehensive income.
When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in other
comprehensive income will be recycled to the income statement. In accordance with the Group’s revised accounting policy,
these recycled gains or losses together with any movement in fair values associated with ineffective hedging positions will be
treated as a component of underlying profit rather than separately disclosed as ‘non-underlying items’.
6. Staff costs
Details of directors’ remuneration for the year are provided in the audited part of the directors’ remuneration report on page 92.
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.
2017
Number
1,215
112
1,327
2017
£000
59,209
6,500
1,966
67,675
2016
Number
1,204
98
1,302
2016
£000
52,825
5,724
2,047
60,596
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
7. Net finance expense
Finance income
Finance expense
8. Taxation
a) The taxation charge comprises:
Current tax
UK corporation tax
Adjustments to prior years’ tax provisions
Deferred tax (note 19)
Current year credit/(charge)
Impact of reduction in future years’ tax rates
Adjustments to prior years’ provisions
b) Tax reconciliation
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Tax on profit 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
2017
£000
(15)
241
226
2017
£000
(3,465)
(121)
(3,586)
577
222
61
860
(2,726)
2017
£000
18,055
(3,611)
(124)
91
756
(60)
222
(2,726)
Corporation tax was calculated at 20 per cent (2016: 20 per cent) of the estimated taxable result for the year.
The unprovided deferred tax movement represents the recognition of previously unrecognised tax losses (see note 19).
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)
125
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
9. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2016 of 1.0p per share (2015: 0.5p)
Interim dividend for the year ended 31 March 2017 of 0.7p per share (2016: 0.5p)
2017
£000
2,985
2,093
5,078
2016
£000
1,487
1,487
2,975
The directors are recommending a final dividend in respect of the financial year ended 31 March 2017 of 1.6p per share, which
will amount to an estimated dividend payment of £4,782,000. If approved by the shareholders at the annual general meeting
on 6 September 2017, this dividend will be paid on 15 September 2017 to shareholders who are on the register of members
at 18 August 2017. This dividend is not reflected in the balance sheet as at 31 March 2017 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
2017
£000
2016
£000
15,329
8,600
16,539
10,931
Number
Number
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares
Weighted average number of ordinary shares for the purposes of diluted earnings per share
298,855,911 297,503,587
1,715,818
301,074,825 299,219,405
2,218,914
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
Non-underlying items
Underlying net profit attributable to equity holders of the parent company
Further details of non-underlying items are provided in note 5.
5.13p
5.53p
5.09p
5.49p
2017
£000
15,329
1,210
16,539
2.89p
3.67p
2.87p
3.65p
2016
£000
8,600
2,331
10,931
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Our financials / Group
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 (2016: 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 (2016: 10 per cent).
Following the impairment reviews performed by the Group, no impairment charge was recorded in the year ended 31 March
2017.
Management has run a number of sensitivities when performing the impairment reviews, including a reduction in operating
margin and an increased discount rate. None of those scenarios resulted in an impairment to goodwill. Management
considers that no reasonably possible change in the key assumptions would cause the goodwill to fall below its carrying value
at 31 March 2017.
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
12. Other intangible assets
Cost
At 1 April 2015
Additions
At 1 April 2016 and 31 March 2017
Amortisation
At 1 April 2015
Charge for the year
At 1 April 2016
Charge for the year
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
Intangible
assets
acquired on
acquisition
£000
39,000
—
39,000
32,427
2,620
35,047
2,620
37,667
1,333
3,953
Other
intangible
assets
£000
883
150
1,033
368
138
506
286
792
241
527
Total
£000
39,883
150
40,033
32,795
2,758
35,553
2,906
38,459
1,574
4,480
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 2015 and 31 March 2017
Customer
relationships
£000
Brands
£000
Order
book
£000
Know-how
£000
Total
£000
25,800
3,200
9,600
400
39,000
Amortisation
At 1 April 2015
Charge for the year
At 1 April 2016
Charge for the year
At 31 March 2017
Net book value
At 31 March 2017
At 31 March 2016
19,327
2,580
21,907
2,580
24,487
1,313
3,893
3,200
—
3,200
—
3,200
—
—
9,600
—
9,600
—
9,600
—
—
300
40
340
40
380
20
60
32,427
2,620
35,047
2,620
37,667
1,333
3,953
Amortisation of acquired intangible assets is included in the consolidated income statement as part of operating costs and is
classified as non-underlying items (see note 5).
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13. Property, plant and equipment (including investment property)
Freehold
and long
leasehold
land and
buildings
£000
Plant
and
machinery
£000
Fixtures,
fittings
and office
equipment
£000
Motor
vehicles
£000
Cost
At 1 April 2015
Additions
Disposals
At 1 April 2016
Additions
Disposals
At 31 March 2017
Accumulated depreciation
At 1 April 2015
Charge for the year
Disposals
At 1 April 2016
Charge for the year
Disposals
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
66,031
122
(275)
65,878
1,517
(1,526)
65,869
3,971
525
(12)
4,484
530
(60)
4,954
35,790
3,989
(1,810)
37,969
4,702
(1,676)
40,995
23,353
2,755
(1,658)
24,450
2,747
(1,367)
25,830
3,227
783
—
4,010
641
(40)
4,611
1,423
322
—
1,745
235
(40)
1,940
955
91
(589)
457
98
(264)
291
650
91
(468)
273
71
(211)
133
Total
£000
106,003
4,985
(2,674)
108,314
6,958
(3,506)
111,766
29,397
3,693
(2,138)
30,952
3,583
(1,678)
32,857
60,915
61,394
15,165
13,519
2,671
2,265
158
184
78,909
77,362
The net book value of the Group’s plant and machinery includes £702,000 (2016: £802,000) of assets held under finance
leases.
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 cold rolled metal products
Holding
%
Class of
capital
25.0
Ordinary
50.0
50.0
Ordinary
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.
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129
Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
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 (2016: £nil). As a result of the continued close to break-even profit position of the Indian joint venture, the
Group’s investment in the Indian joint venture of £4,619,000 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 2019 to 2021. The calculations assume a long-term growth rate of 1.5 per cent (2016: 1.5 per cent)
from 2022 onwards and a pre-tax discount rate of 10 per cent (2016: 10 per cent). Following this review, no impairment charge
was recorded in the year ended 31 March 2017 (2016: £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 per cent 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
2017) 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.
Goodwill
£000
Share of
net assets
£000
At 1 April 2015
Net assets acquired
Losses retained
At 1 April 2016
Profits retained
At 31 March 2017
—
5,326
—
5,326
—
5,326
The Group’s share of the retained profit for the year of JVs and associates is made up as follows:
Share of results
2017
2016
JSW
Severfield
Structures
Limited
£000
151
(319)
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
Profit/(loss) after tax
Group’s share of profit/(loss) after tax
JSW
Severfield
Structures
Limited
£000
43,422
27,026
(56,240)
(6,094)
8,114
4,057
41,532
302
151
Fabsec
Limited
£000
1,053
227
(19)
(2,239)
(978)
(245)
195
—
—
CMF
Limited
£000
6,188
4,125
(5,392)
(717)
4,204
2,102
15,280
611
306
4,802
1,713
(230)
6,285
457
6,742
CMF
Limited
£000
306
89
2017
£000
50,663
31,378
(61,651)
(9,050)
11,340
5,914
57,007
913
457
Total
£000
4,802
7,039
(230)
11,611
457
12,068
Total
£000
457
(230)
2016
£000
32,202
27,550
(37,415)
(12,677)
9,660
5,043
44,065
(460)
(230)
There were no contingent liabilities or capital commitments (2016: none) associated with the Group’s JVs and associates.
130
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
15. Inventories
Raw materials and consumables
Work-in-progress
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
2017
£000
4,461
3,289
7,750
2017
£000
2016
£000
3,233
2,061
5,294
2016
£000
59,084
(5,737)
53,347
45,013
(500)
44,513
360,241
(306,894)
53,347
288,444
(243,931)
44,513
2017
£000
53,861
3,448
1,775
59,084
260
4,696
2,358
66,398
2016
£000
40,697
3,217
1,099
45,013
517
4,611
601
50,742
The average credit period taken on revenue, calculated on a count-back basis to make appropriate allowance for monthly
revenue phasing, is 60 days (2016: 52 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.
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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 2017 were £580,000 (2016: £490,000).
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131
Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
18. Trade and other payables
Trade creditors
Other taxation and social security
Other creditors and accruals
Payments in advance (note 16)
2017
£000
42,532
7,215
20,189
5,737
75,673
2016
£000
30,650
6,694
17,467
500
55,311
Other creditors and accruals in the current and prior years include the outstanding purchase consideration for CMF of
£2,500,000 (2016: £2,500,000).
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 37 days (2016: 43 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
2017
£000
(5,547)
5,693
146
2017
£000
(883)
1,029
146
At 1 April 2015
Credit/(charge) to income statement
Effect of change in tax rate
(Charge)/credit to equity
At 1 April 2016
Credit/(charge) to income statement
Effect of change in tax rate
Credit to equity
At 31 March 2017
Excess
capital
allowances
£000
Acquired
intangible
assets
£000
Retirement
benefit
obligations
£000
Trading
losses
£000
Other timing
differences
£000
(6,301)
179
572
—
(5,550)
(9)
265
—
(5,294)
(1,314)
524
39
—
(751)
498
—
—
(253)
3,294
(116)
(21)
(384)
2,773
(102)
(43)
1,011
3,639
1,870
(727)
(43)
—
1,100
(71)
—
—
1,029
328
308
(24)
31
643
322
—
60
1,025
2016
£000
(6,301)
4,516
(1,785)
2016
£000
(2,885)
1,100
(1,785)
Total
£000
(2,123)
168
523
(353)
(1,785)
638
222
1,071
146
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
19. Deferred tax liabilities continued
The Finance Act 2016 included provisions to reduce the rate of corporation tax from 20 per cent to 19 per cent with effect from
1 April 2017 and to 17 per cent with effect from 1 April 2020. As these changes were substantively enacted on 6 September 2016,
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 £nil (2016: £3,947,000).
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
2017
£000
32,849
146
(409)
32,586
154,157
N/A
2016
£000
19,033
210
(589)
18,654
148,206
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 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 (before JVs and associates)
Share of results of JVs and associates
Underlying operating profit
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
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2017
£000
19,614
457
20,071
154,157
(32,849)
409
(32,440)
17,775
(1,333)
138,159
137,899
14.6%
2016
£000
13,686
(230)
13,456
148,206
(19,033)
589
(18,444)
11,829
(3,953)
137,638
139,372
9.7%
133
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
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
2017
£000
2016
£000
32,849
59,084
109
146
(42,532)
(20,189)
—
(409)
19,033
45,013
—
210
(30,650)
(17,467)
(830)
(589)
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:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or
liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
Derivative financial instruments are the only instruments valued at fair value through profit or loss, and are valued as such
on initial recognition. These relate to foreign currency forward contracts measured using quoted forward exchange rates
and yield curves matching the maturities of the contracts. These derivative financial instruments are categorised as level
2 financial instruments. Except for derivative financial instruments, the carrying amounts of financial assets and financial
liabilities are recorded at amortised cost in the consolidated financial statements.
General risk management principles
The board has overall responsibility for the establishment and oversight of the Group’s risk management framework. A formal
risk assessment and management framework for assessing, monitoring and managing the strategic, operational and financial
risks of the Group is in place to ensure appropriate risk management of its operations. Internal control and risk management
systems are embedded in the operations of the divisions.
Financial risks and management
The Group has exposure to a variety of financial risks through the conduct of its operations. Risk management is governed by
the Group’s operational policies, which are subject to periodic review by the board of directors.
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Our financials / Group
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 2017 were £5,223,000 (2016: £4,316,000).
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 2017, £25,000,000 (2016: £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 – 2017
Trade and other payables
Financial liabilities — finance leases
Liabilities – 2016
Trade and other payables
Financial liabilities — finance leases
Financial liabilities — derivatives
Maturity analysis
Carrying
value
£000
Less than
3 months
£000
3 months
to 1 year
£000
1–2
years
£000
2–5
years
£000
62,721
409
63,130
48,117
589
830
49,536
58,092
45
58,137
45,201
45
830
46,076
3,892
135
4,027
2,006
135
—
2,141
549
180
729
730
180
—
910
188
49
237
180
229
—
409
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Total
£000
62,721
409
63,130
48,117
589
830
49,536
135
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
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
2017
£000
(2,077)
—
(2,077)
2016
£000
(427)
(3)
(430)
2017
£000
5,189
19
5,208
2016
£000
1,132
117
1,249
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
2017
£000
(2)
2016
£000
(11)
2017
£000
(336)
2016
£000
1,136
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.
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
20. Financial instruments continued
The Group uses forward foreign currency contracts to hedge currency risk associated with expected future sales or purchases
for which the Group has firm commitments. The terms of the forward foreign currency contracts are negotiated to match the
terms of the commitments. During the year, the Group has applied cash flow hedge accounting to these forward foreign currency
transactions. As at 31 March 2017, derivatives designated as cash flow hedges had a net carrying amount of £109,000 (2016:
£nil) and recognised total gains of £17,000 (2016: £nil) in equity and gains of £92,000 (2016: £nil) in profit and loss in the period.
At 31 March 2017, the Group had forward exchange contracts of 0.3m euros (2016: -16.2m euros) at an average exchange rate
of €1.171/£ (2016: €1.343/£) which mature within 12 months of the year-end.
Interest rate risk management
The Group is exposed to interest rate risk as described under the borrowings paragraph earlier in this note. The Group does not
currently hedge any of its interest rate exposure.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates at the balance sheet date. For
floating rate liabilities, the analysis is prepared assuming the gross amount of liability outstanding at balance sheet date was
outstanding for the whole period. A 0.5 per cent increase or decrease is used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 0.5 per cent higher and all other variables were held constant, the Group’s profit for the year ended
31 March 2017 and the Group’s equity at that date would decrease by £nil (2016: £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 83 to 100.
Performance share plan
The vesting of awards is subject to performance conditions set by the remuneration committee. The Group recognised a total
charge of £1,667,000 for the year (2016: £727,000) with a corresponding entry to reserves. The weighted average fair value of
share options granted during the year was £0.45 per share. Three outstanding awards had been granted to 31 March 2017:
• During the period ended 31 March 2015 the remuneration committee granted 2,152,086 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 2014 to 31 March 2017. The following vesting schedule applies:
Underlying EPS performance for year ended 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
% of award vesting
0%
100%
between 25% and 100%
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£0.55*
nil
76%
2.7%
1.0p
three years
* Granted on 4 June 2014.
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £401,000 (2016: £167,000).
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137
Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
21. Share-based payments continued
• During the year ended 31 March 2016 the remuneration committee granted 2,292,956 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
0%
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 £727,000 (2016: £353,000).
• During the year ended 31 March 2017 the remuneration committee granted 3,559,416 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 2016 to 31 March 2019. The following vesting schedule applies:
Underlying EPS performance for year ending 31 March 2019
Equal to less than 5.06p
Equal to 6.53p or better
Between 5.06p and 6.53p
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 29 June 2016.
% of award vesting
0%
100%
between 25% and 100%
£0.50*
nil
69%
0.2%
1.5p
three years
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £539,000 (2016: £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
138
2017
Number
6,598,550
3,559,416
(796,805)
(1,356,703)
8,004,458
2016
Number
6,170,645
2,328,798
(1,900,893)
—
6,598,550
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Our financials / Group
21. Share-based payments continued
Save As You Earn share option plan (‘Sharesave’)
The plan, which was established in 2015 and expires in 2025, 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 per cent from the then market price. At the end of the 2015 Sharesave scheme in 2018 those options will
become exercisable for a period of six months. A charge of £323,000 (2016: £323,000) was recognised in the current period in
relation to the 2015 Sharesave scheme.
Reconciliation of share awards outstanding under the Shareshave plan are as follows:
Save As You Earn option plan (‘Sharesave’)
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
2016
Number
2017
Number
3,709,473
—
— 3,929,593
(215,537)
(4,583)
3,709,473
(356,699)
(21,965)
3,330,809
Issued and fully paid:
298,855,911 ordinary shares of 2.5p each (2016: 297,503,587 ordinary shares of 2.5p each)
2017
£000
2016
£000
7,471
7,437
During the year, 1,352,324 ordinary shares, with a nominal value of 2.5p each, were allotted and issued in satisfaction of the
Group’s share-based payment schemes. The ordinary shares carry no right to fixed income.
There are no share options outstanding as at 31 March 2017 (2016: nil).
23. Other reserves
At 1 April 2015
Share-based payments charge
At 1 April 2016
Share-based payments charge
Reclassification adjustments on cash flow hedges
Losses taken to equity on cash flow hedges
At 31 March 2017
Share-based
payment
reserve
£000
Other
reserves
£000
1,111
1,050
2,161
1,393
—
—
3,554
139
—
139
—
110
(93)
156
Total
£000
1,250
1,050
2,300
1,393
110
(93)
3,710
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The movement in the share-based payment reserve represents the share-based payment charge of £1,990,000 (2016:
£1,050,000) offset by the recycle to retained earnings of £597,000 for share awards vesting in 2016.
Other reserves consist of the capital redemption reserve of £139,000 (2016: £139,000) and the hedge accounting reserve of
£17,000 (2016: £nil).
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139
Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
24. Net cash flow from operating activities
Operating profit from continuing operations
Adjustments:
Depreciation of property, plant and equipment (note 13)
Loss/(gain) on disposal of land and buildings
Gain on disposal of other 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 in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Cash generated from operations
Tax paid
Net cash flow from operating activities
Cash generated from operations
Proceeds on disposal of land and buildings
Proceeds on disposal of other property, plant and equipment
Purchases of land and buildings
Purchases of other property, plant and equipment
Purchases of intangible fixed assets
Underlying operating profit (before JVs and associates)
Operating cash conversion
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
2017
£000
18,281
3,583
271
(73)
2,906
(600)
(457)
1,990
(830)
25,071
(2,456)
(11,648)
16,386
27,353
(2,376)
24,977
2017
£000
27,353
1,195
436
(1,517)
(5,442)
—
22,025
19,614
112%
2017
£000
32,849
146
(409)
32,586
2017
£000
—
2016
£000
9,888
3,693
(10)
(127)
2,758
(573)
230
1,050
948
17,857
(527)
13,725
(6,221)
24,834
(946)
23,888
2016
£000
24,834
273
395
(122)
(4,676)
(150)
20,554
13,686
150%
2016
£000
19,033
210
(589)
18,654
2016
£000
728
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
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 (see note 2).
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 2017 these amounted to £15,000,000 (2016: £15,000,000). The Group has also given
performance bonds in the normal course of trade.
28. Operating lease arrangements
The Group as lessee
The Group leases a number of its premises under operating leases which expire between 2017 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
2017
£000
1,081
2,770
10,325
14,176
2016
£000
1,113
3,192
11,016
15,321
The Group also leases certain items of plant and machinery and vehicles whose total future minimum lease rentals are as
follows:
Minimum lease rentals due:
— Within one year
— After one year and within five years
— After five years
The Group as lessor
2017
£000
1,257
1,466
15
2,738
2016
£000
1,216
2,237
41
3,494
Property rental income earned on owned properties during the year was £160,000 (2016: £152,000). 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:
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— Within one year
— After one year and within five years
— After five years
2017
£000
74
100
54
228
2016
£000
142
158
79
379
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
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 £1,803,000 (2016: £1,796,000) represents contributions payable to these schemes by
the Group at rates specified in the rules of the plans. As at 31 March 2017, contributions of £350,000 (2016: £307,000) 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:
Interest risk
Investment risk The present values of the scheme liabilities are calculated using a discount rate determined by reference
to corporate bond yields; if the return on scheme assets is below this rate, it will create a plan deficit. The
Group holds a significant proportion of growth assets (bonds, gilts and equities) to leverage the return
generated by the scheme.
A decrease in the corporate bond interest rate will increase the scheme liabilities, although this will be
partially offset by an increase in the return on the scheme’s assets.
The present values of the scheme liabilities are calculated by reference to the best estimate of the mortality
of scheme participants which reflect continuing improvements in life expectancy. An increase in the life
expectancy of the scheme participants will increase the scheme’s liabilities.
The present values of the defined benefit scheme liabilities are calculated by reference to the future
salaries of scheme participants. As such, an increase in the salary of the scheme participants will increase
the scheme’s liabilities.
Longevity risk
Salary risk
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 next triennial funding valuation of the scheme
will be performed in 2018 with a valuation date of 31 March 2017. 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
2017
%
2.7
3.4
3.3
2016
%
3.5
3.0
2.9
When considering mortality assumptions a life expectancy to 85 at age 65 has been used for the year ended 31 March 2017
(2016: 85).
Impact on scheme liabilities of changes to key assumptions:
Assumption
Discount rate
Rate of mortality
Change in assumption
Increase/decrease by 0.25%
Increase by one year
Impact on scheme liabilities
Decrease/increase by 5.1%
Increase by 3.7%
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
29. Retirement benefit obligations continued
Amounts recognised in income in respect of these defined benefit schemes are as follows:
Interest cost
Interest income
2017
£000
1,300
(808)
492
2016
£000
1,233
(723)
510
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 £20,090,000 (2016:
£12,678,000).
The actual return on scheme assets was a gain of £1,228,000 (2016: £298,000).
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
2017
£000
(45,816)
24,402
(21,414)
2016
£000
(37,601)
22,999
(14,602)
2017
%
24.2
53.8
5.1
8.8
8.1
100.0
2016
%
25.8
56.8
4.9
10.5
2.0
100.0
Bonds and gilts include a mixture of corporate and government bonds and fixed and index-linked gilts. Approximately six
per cent of bonds have a sub-investment grade credit rating (BB+ or lower) and approximately 89 per cent of gilts are index-
linked, with 11 per cent being fixed.
Movements in the present value of defined benefit obligations were as follows:
At start of year
Interest cost
Actuarial (losses)/gains
Benefits paid
At end of year
2017
£000
(37,601)
(1,300)
(7,832)
917
(45,816)
2016
£000
(38,958)
(1,233)
1,727
863
(37,601)
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Actuarial losses arising from changes in demographic assumptions, changes in financial assumptions and gains or losses
arising from experience were losses of £nil (2016: £nil), losses of £8,179,000 (2016: gains of £1,330,000) and gains of £347,000
(2016: gains of £397,000) respectively.
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 March 2017
29. Retirement benefit obligations continued
Movements in the fair value of scheme assets were as follows:
At start of year
Interest income
Actuarial gains/(losses)
Employer contributions
Benefits paid
At end of year
2017
£000
22,999
808
420
1,092
(917)
24,402
2016
£000
22,481
723
(427)
1,083
(861)
22,999
The Group expects to contribute £94,000 (2016: £91,000) per month to its defined benefit pension scheme in the year to
31 March 2018.
History of experience of gains and losses:
Experience gains/(losses) 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.
2017
420
1.7%
347
0.8%
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%
(7,412)
(16.2%)
1,300
3.5%
(4,471)
(11.5%)
(1,261)
(3.9%)
(2,824)
(9.1%)
The weighted average period over which benefits are expected to be paid, or the duration of the liabilities, is currently 17 years.
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Annual report and accounts for the year ended 31 March 2017
Our financials / Group
30. Related party transactions
The remuneration of the directors is provided in the audited part of the directors’ remuneration report on page 92.
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
2017
£000
1,534
117
1,651
2016
£000
1,358
116
1,474
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, members of the
executive committee and selected other members of the senior management team.
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
£40,000 (2016: £120,000). The amount due to Fabsec at 31 March 2017 was £116,000 (2016: £116,000).
During the year the Group has contracted with and purchased services from Composite Metal Flooring Limited (‘CMF’)
amounting to £2,003,000 (2016: £382,000). The amount due from and to CMF at 31 March 2017 was £1,882,000
(2016: £101,000) and £649,000 (2016: £266,000) 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 £437,000 (2016: £557,000). Those costs were recharged to JSSL during the year and the amount due from JSSL at
31 March 2017 was £476,000 (2016: £500,000).
31. Post balance sheet events
In May 2017, the board approved an additional equity investment of £5.3m in JSSL, our Indian joint venture, to support
repayment of the joint venture’s remaining term debt of £10.6m. This decision was made with the agreement of our joint
venture partner, JSW, who will also contribute an investment of £5.3m.
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Severfield plc
www.severfield.com
Stock code: SFR
FIVE YEAR SUMMARY
Results
Revenue
Underlying* operating profit/(loss) (before JVs and
associates)
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
2017
£000
2016
£000
2015
£000
2014
£000
2013†
£000
262,224
239,360
201,535
231,312
318,256
19,614
19,845
(1,790)
13,686
13,211
(3,568)
8,974
8,311
(8,502)
7,621
4,025
(8,082)
(19,218)
(21,532)
(7,326)
15,329
8,600
144
(2,640)
(23,127)
148,292
28,391
(22,526)
154,157
149,265
16,837
(17,896)
148,206
145,078
16,565
(21,059)
140,584
147,650
14,243
(18,495)
143,398
154,871
(32,060)
(20,410)
102,401
5.53p
5.13p
5.49p
5.09p
2.30p
2.4
83.50p
43.75p
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
(10.78p)
(13.49p)
(10.78p)
(13.49p)
1.50p
(13.8)
114.26p
35.40p
Key statistics for 2013 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 5.
† 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)
14 June 2017
July 2017
6 September 2017
21 November 2017
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Annual report and accounts for the year ended 31 March 2017
Our financials / Company
COMPANY BALANCE SHEET
Year ended 31 March 2017
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
2017
£000
2016
£000
2
3
4
5
58,758
240
94,494
153,492
45,538
13,593
59,131
(99,325)
(40,194)
113,298
7,471
85,702
3,543
16,582
113,298
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
111,550
The Company reported a profit for the financial year ended 31 March 2017 of £4,742,00 (2016: £5,061,000).
The financial statements were approved by the board of directors on 14 June 2017 and signed on its behalf by:
John Dodds
Executive chairman
Alan Dunsmore
Acting chief executive officer
Severfield plc
Registered in England No.1721262
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Severfield plc
www.severfield.com
Stock code: SFR
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2017
At 1 April 2016
Total comprehensive income for the year
Ordinary shares issued*
Equity settled share-based payments
Dividends paid
At 31 March 2017
Share
capital
£000
7,437
—
34
—
—
7,471
Share
premium
£000
85,702
—
—
—
—
85,702
Other
reserves
£000
2,150
—
—
1,393
—
3,543
Retained
earnings
£000
16,261
4,802
—
597
(5,078)
16,582
Total
equity
£000
111,550
4,802
34
1,990
(5,078)
113,298
* The issue of shares represents shares allotted to satisfy the 2013 Performance Share Plan award which vested in June, September and November 2016.
At 1 April 2015
Total comprehensive income for the year
Equity settled share-based payments
Dividends paid
At 31 March 2016
Share
capital
£000
7,437
—
—
—
7,437
Share
premium
£000
85,702
—
—
—
85,702
Other
reserves
£000
1,100
—
1,050
—
2,150
Retained
earnings
£000
14,144
5,092
—
(2,975)
16,261
Total
equity
£000
108,383
5,092
1,050
(2,975)
111,550
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Annual report and accounts for the year ended 31 March 2017
Our financials / Company
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Year ended 31 March 2017
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 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.
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 92 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 one 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.
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Year ended 31 March 2017
2. Tangible fixed assets
Cost
At 1 April 2016
Additions
Disposals
At 31 March 2017
Depreciation
At 1 April 2016
Charge for the year
Disposals
At 31 March 2017
Net book value
At 31 March 2017
At 31 March 2016
Freehold
and long
leasehold
land and
buildings
£000
63,765
1,059
(1,526)
63,298
4,506
499
(60)
4,945
58,353
59,259
Fixtures,
fittings
and office
equipment
£000
Motor
vehicles
£000
339
104
—
443
5
43
—
48
395
334
33
—
—
33
19
4
—
23
10
14
Total
£000
64,137
1,163
(1,526)
63,774
4,530
546
(60)
5,016
58,758
59,607
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 (2016: £504,000), which is set at a rate only to cover certain of the costs of maintaining the properties.
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Annual report and accounts for the year ended 31 March 2017
Our financials / Company
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 2017 is disclosed below. All of these had a reporting
period ended 31 March 2017, except where indicated.
Name of undertaking
100% owned by Severfield plc
Severfield (UK) Limited
Severfield (NI) Limited(i)
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(ii)
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*(iii)
50% owned by Severfield Mauritius Limited
JSW Severfield Structures Limited(iv)
25% owned by Severfield plc
Fabsec Limited*(v)
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
England and Wales
India
England and Wales
* Companies with a reporting period ended 31 December 2016.
‡ Unless otherwise stated the registered office address for each of the above is Severs House, Dalton Airfield Industrial Estate, Dalton, Thirsk, North Yorkshire,
YO7 3JN.
Registered office classification key:
(i) Fisher House, Main Street, Ballinamallard, Enniskillen, Co Fermanagh, BT94 2FY
(ii) Felix House, 24 Dr. Joseph Rivière Street, Port Louis, Mauritius
(iii) Millennium House, Severn Link Distribution Centre, Newhouse Farm Industrial Estate, Mathern, Chepstow, NP16 6UN
(iv) 401 Grande Palladium, 4th Floor, 175 CST Road, Kalina, Santacrus East, Mumbai, India, 400098
(v) Unit 561 Avenue E East, Thorp Arch Estate, Wetherby, LS23 7DB
Investment in subsidiaries
Investment in joint ventures
2017
£000
73,746
20,748
94,494
2016
£000
73,746
20,748
94,494
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Severfield plc
www.severfield.com
Stock code: SFR
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Year ended 31 March 2017
3. Investments continued
Investment in subsidiaries
Cost
At 1 April 2016 and 31 March 2017
Provision for impairment
At 1 April 2016 and 31 March 2017
Net book value
At 31 March 2017
At 31 March 2016
Investment in joint ventures
£000
93,946
(20,200)
73,746
73,746
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 (2016: £nil). The investment is carried in Severfield Mauritius Limited, a wholly owned
subsidiary of the Company.
As a result of the continued close to break-even profit position of the Indian joint venture, the Company’s investment in the
joint venture of £13,344,000 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 2019 to
2021. The calculations assume a long-term growth rate of 1.5 per cent (2016: 1.5 per cent) from 2022 onwards and a pre-tax
discount rate of 10 per cent (2016: 10 per cent). Following this review, no impairment charge was recorded in the year ended
31 March 2017 (2016: £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 per cent 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 2017) 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 2016 and 31 March 2017
£000
20,748
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Annual report and accounts for the year ended 31 March 2017
Our financials / Company
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
Other creditors and accruals
Amounts owed to subsidiary undertakings
Deferred tax liability (note 6)
6. Deferred tax
2017
£000
527
43,586
101
1,324
45,538
2017
£000
10,902
84,574
3,849
99,325
2016
£000
1,191
40,835
101
683
42,810
2016
£000
9,687
74,981
4,521
89,189
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 2015
Current year credit
Credit to equity
Effect of change in tax rate
At 1 April 2016
Current year credit
Credit to equity
Effect of change in tax rate
At 31 March 2017
2017
£000
(4,849)
1,000
(3,849)
Excess
capital
allowances
£000
Other timing
differences
£000
(5,764)
62
—
551
(5,151)
37
—
265
(4,849)
339
284
31
(24)
630
310
60
—
1,000
2016
£000
(5,151)
630
(4,521)
Total
£000
(5,425)
346
31
527
(4,521)
347
60
265
(3,849)
The Finance Act 2016 included provisions to reduce the rate of corporation tax from 20 per cent to 19 per cent with effect from
1 April 2017 and to 17 per cent with effect from 1 April 2020. As these changes were substantively enacted on 6 September
2016, they have been used to calculate closing deferred tax balances as appropriate.
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 2017 these amounted to £nil (2016: £nil).
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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
Severfield (NI) Limited
Ward House
Sherburn
Malton
North Yorkshire
YO17 8PZ
Fisher House
Ballinamallard
Enniskillen
Co Fermanagh
BT94 2FY
JSW Severfield Structures Limited
Composite Metal Flooring Limited
Office No. 302, Naman Centre
3rd Floor, Plot No. C-31
Bandra Kurla Complex
Bharat Nagar, Bandra East
Mumbai 400 051
India
Unit 3
Mamhilad Technology Park
Old Abergavenny Road
Mamhilad
Monmouthshire, NP4 0JJ
Advisers
Auditor
KPMG LLP
Stockbrokers
Bankers
Jefferies International Limited
HSBC Bank plc
Chartered Accountants
1 Sovereign Square
Leeds, LS1 4DA
Vintners Place
68 Upper Thames Street
London, EC4V 3BJ
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
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
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25357.02 7 July 2017 12:37 PM Proof 725357.02 7 July 2017 12:37 PM Proof 7Severfield Annual Report 2017 - Strategic.indd 807/07/2017 12:39:28 SEVERFIELD PLC
Severs House
Dalton Airfield Industrial Estate
Dalton, Thirsk
North Yorkshire
YO7 3JN
Tel: (01845) 577896
Fax: (01845) 577411
www.severfield.com
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