Annual report and accounts
for the year ended 31 March 2018
Stock code: SFR
www.severfield.com
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BUILDING FROM A
STRONG FOUNDATION
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ANNUAL
REPORT 2018
View this annual report online:
severfield.annualreport2018.com
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WELCOME TO OUR
ANNUAL REPORT 2018
Severfield is the largest specialist
structural steelwork group in the UK, with
a growing presence in India and reputation
for performance and value.
“Our 2018 results demonstrate our continued
progress in executing our strategy”
John Dodds
Non-executive chairman
Read more on our chairman’s view
on page 06
“The Group has delivered another year of
strong profit growth in 2018”
Alan Dunsmore
Chief executive officer
Read more about our strategy
on page 22
Investor website
We maintain a corporate website at www.severfield.com
containing a wide range of information of interest to
institutional and private investors including:
• Latest news and press releases
• Annual reports and investor presentations
Getting around the report
This icon signposts the reader to
other sections in this report
Find out more information on our
website www.severfield.com
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THE STRENGTH
WITHIN ICONIC
STRUCTURES
O
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Tottenham Hotspur
Location
Tottenham, London
Client
Tottenham Hotspur
Contract manager
Mace
Engineer
BuroHappold Engineering
Architect
Populous
Tonnage
16,700
Completion date
July 2018
The project involves the construction of a new football
stadium at White Hart Lane in London – the home
ground of Tottenham Hotspur.
The new stadium will provide Tottenham
Hotspur with a state-of-the-art
sporting and entertainment facility
with seating capacity of over 62,000.
It will be the first stadium in the UK to
feature a retractable dividing pitch - a
retractable grass pitch for football and
a synthetic surface underneath for
National Football League (‘NFL’) games
and other sporting and entertainment
events.
Construction of the first phase of the
project, comprising the north, east
and west stands, took place during the
2016/17 football season whilst the old
White Hart Lane stadium was still in
operation. Following the last game of
the 2016/17 season, the old stadium
was demolished and work on the south
stand commenced. The main features
of this phase are the two architecturally
unique steel ‘trees’ within the south
stand, each weighing 275 tonnes.
These will support the back of the new
17,500-seater single-tier home stand,
which has been designed to generate
a ‘wall of sound’ with the seating bowl
arranged to place fans closer to the
pitch than in any other stadium in
the UK.
This project involved many complex
elements from the retractable pitch,
where Severfield worked alongside
engineering specialist SCX to provide
three 3,000-tonne pitch-long steel
beds, to the highly-technical roof
structure. The new roof is formed from
structural tension cables, fixed to a
compression ring, which creates the
elliptical outside profile of the stadium.
The compression ring comprises 54
box girders each measuring around 15
metres long and weighing between 25 to
30 tonnes. The structure was fabricated
and trial assembled at our Lostock
facility in order to achieve accuracy
in length of less than 1 millimetre. On
site, the lifting of the 600-tonne roof
involved a highly complex sychronised
strand jacking operation, involving
over 200 strand jacks, making it one
of the biggest of these operations ever
undertaken in the UK.
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22 Bishopsgate
Location
City of London
Client
AXA Real Estate
Main contractor
Multiplex Europe
Engineer
WSP UK
Architect
PLP Architecture
Tonnage
17,000
Completion date
April 2019
Located in the heart of the City of London, 22 Bishopsgate
is a new 62-storey office tower situated within the City’s
financial district.
The completed project will become
the City’s tallest tower standing at
278 metres high. This will provide
approximately 1.3 million square feet of
office space and 110,000 square feet for
amenities, including restaurants, retail
facilities, a food market, innovation hub,
well-being retreat and spa, curated ‘art
walk’ as well as London’s highest free
public viewing gallery.
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 which
were built by others, below ground floor,
carry the superstructure loads into the
existing Pinnacle foundations.
Construction started in 2017 and is
forecast for completion in early-2019.
Severfield is providing the connection
design, fabrication and construction
of c.17,000 tonnes of structural steel,
which includes the use of Fabsec plated
composite beams from level 10 upwards.
Other services and fixtures include the
manufacture and installation of c.1.6
million square feet of metal decking
and the installation of 500,000 shear
studs. Severfield are also providing full
edge protection to the floors using the
‘Seversafe’ edge protection system and
‘Seversafe’ perimeter fan system.
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Wimbledon
No. 1 Court roof
Location
Wimbledon, London
Client
The All England Lawn Tennis
Club (AELTC)
Main contractor
Sir Robert McAlpine
Engineer
Thornton Tomasetti
Architect
KSS
Tonnage
6,000
Completion date
April 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 deliver a new bespoke
roof system comprising both fixed
and retractable components, similar
to the one installed on Centre Court
by Severfield in 2009, increase the
seating capacity to c.12,400 as well as
redeveloping the hospitality facilities
and public plaza. This will transform the
stadium into a grass court arena capable
of guaranteed play in all weather
conditions. Planned over a three-year
period with two breaks in the site
activities to accommodate the dates of
the tournament, the project is expected
to be complete in time for the 2019
Championships.
The main feature of the project is the
unique retractable roof which envelops
the distinctive structure of No.1 Court,
just below the slopes of Henman Hill.
The project includes the installation
of a new fixed roof, to support the
moving elements of the retractable
roof, and a structural steel mainframe
with pre-cast concrete terracing to
house the seating areas.
For the fixed roof, Severfield has
installed five large truss units to support
the complex inner roof structure. These
trusses were installed in manageable-
sized sections using our own temporary
works system to support the new roof
during construction. These large trusses
are then connected by the inner roof,
comprising a braced lattice structure
cantilevering off the large trusses and
fixed by a tension ring at the innermost
portion of the roof.
The retractable roof has tested our
design, fabrication and construction
capabilities. Its moving components
include 11 trusses, measuring c.75
metres in length and weighing over 90
tonnes each. These highly-technical
components were pre-assembled on two
practice courts before being gradually
lowered onto the inner roof structure.
The project has utilised the Group’s other
services including the ‘Seversafe’ edge
protection system and Severfield has
also provided over 81,000 square feet of
metal decking and 21,500 shear studs.
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Three Snowhill
Location
Snowhill Queensway, Birmingham
Architect
Weedon Architects
Client
Ballymore
Main contractor
BAM Construction
Engineer
WSP UK
Tonnage
4,500
Completion date
July 2018
Three Snowhill is a landmark office building at the
gateway to the Birmingham business district and
will complete the final phase of the Snowhill Estate
redevelopment project, the largest city centre office
development outside London.
Being located in the centre of England’s
second busiest city and running parallel
to Birmingham’s new tram line and
Snow Hill train station, this project has
required close collaboration with other
trades and our subcontracted haulage
teams to ensure its smooth operation.
As a result of the restricted site access
and limited offloading times the project
was assisted by the ‘Seversafe’ off-
loading system, which enabled the team
to unload the materials delivered to site
quickly and efficiently.
The new 19-storey office block will
provide approximately 420,000 square
feet of grade A office space together with
retail and leisure units at the podium
and ground floor levels to meet the
growing demands for commercial office
space in the city.
For the project, Severfield provided
the connection design, fabrication
and construction for 4,500 tonnes of
steelwork, including the supply of 2,500
cast-in plates which were individually
surveyed and welded on site by our
in-house construction team. We also
provided and installed over 480,000
square feet of metal decking. This
challenging project featured variations
in floorplate layouts and depths
which were achieved by a complex
arrangement of cantilevered and
suspended steel frames, supported
from sloping and vertical columns. The
building will also be crowned with an
elegant curved steel and glass atrium
roof structure.
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Ely Southern
Bypass
Location
Ely, Cambridgeshire
Client
East Cambridgeshire District
Council
Main contractor
VolkerFitzpatrick
Engineer
Tony Gee & Partners
Architect
Knight Architects
Tonnage
2,100
Completion date
October 2018
The Ely southern bypass is a new 1.7-kilometre road
arcing around the southern edge of the town.
A team of up to 14 welders worked to a
sequence to allow the bridge to expand
and contract while the welding took
place. Structural tie bars were installed
within the viaduct’s concrete piers, built
with a ‘hook and eye’ design to maintain
tension at the top. Heavy steel bars,
installed at tension, will keep the
viaduct flying over the floodplain when
it is crossed by numerous HGVs on a
daily basis.
The walkway consists of two ramps,
which link and transform into a feature
walkway over the river, including the
viewing platform. This has been a
logistically complex project delivered by
our experienced project, construction
and in-house design teams.
The project consists of two main
structures, a 100-metre rail bridge
over two railway lines and a 300-metre
viaduct over the River Great Ouse and
its floodplains. Across the viaduct is a
cantilevered walkway, built of weathering
steel, for pedestrians to enjoy views to
the spire of Ely Cathedral.
The rail bridge was manufactured in
sections at our Lostock facility, delivered
to the site by specialist hauliers and pre-
built on-site into larger sections of 150
metres in length. The installation of the
rail bridge involved lifting these sections
into place in three separate lifts of 75
tonnes each. The lifts were undertaken
during two weekend railway possessions
using a 750-tonne crawler crane.
The installation of the viaduct was
completed using a 450-tonne crawler
crane, on a floating platform within the
river floodplain. The viaduct’s structure
consists of six spans of twin trapezoidal
boxes, which were installed and welded
together over a period of six weeks.
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Contents
Overview
Severfield – a snapshot
Our year
Our chairman’s view
Our unique offering
The scale of our operations
Strategic report
How we create value
The markets we serve
Our market sectors
Our strategy
Key performance indicators
Our operating performance
Our financial performance
Building a sustainable business
How we manage risk
Our governance
Our board of directors
Our executive committee
Our chairman’s view on governance
Corporate governance report
Audit committee report
Nominations committee report
Directors’ report
Directors’ remuneration report
– Letter from the committee chairman
– Policy
– Implementation
Directors’ responsibilities statement
02
04
06
08
10
16
18
20
22
30
32
40
46
58
72
74
76
78
86
90
92
96
98
106
117
120
126
Our financials — Group
Independent auditor’s report
Consolidated income statement
Consolidated statement of comprehensive
income
127
Consolidated balance sheet
128
Consolidated statement of changes in equity 129
Consolidated cash flow statement
130
Notes to the consolidated financial
statements
Five year summary
Financial calendar
131
163
163
Our financials — Company
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Shareholder information
Addresses and advisers
Shareholder notes
164
165
166
171
172
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01
Severfield – a snapshot
What we want to be
Our vision
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.
What we set out to achieve
Our mission
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.
What we do
Our business model
Design
Fabricate
Construct
We manage every aspect of the fabrication and construction
process, from initial scheme design, through detailing,
specification and manufacture to the eventual handover to
our clients of a quality product on-site.
See how we create value on page 16
Who we serve
Markets
Our state-of-the-art facilities provide steel structures
which serve people every day, whether for work, leisure or
travel, or to provide essential services, including power and
energy, health and education. We have extensive experience
in multiple market sectors, which supports the business
through changes in spending patterns and fluctuations in
macroeconomic conditions.
See the markets we serve on page 18
How we will achieve our vision
Our strategy
Our strategy revolves around five main elements. This is aided by our business improvement programme,
‘Smarter, Safer, more Sustainable’.
See our strategy on pages 22 to 29
Growth
Clients
India
Operational
excellence
People
02
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Where we do it
Our Group
Severfield (UK),
Dalton, North Yorkshire and Lostock, Lancashire
Severfield (Design & Build),
Sherburn and Dalton, North Yorkshire
Severfield (NI),
Ballinamallard, Co. Fermanagh
Severfield (Products & Processing),
Sherburn and Dalton, North Yorkshire
JSW Severfield Structures
Mumbai, India
Composite Metal Flooring
Monmouthshire, Wales
See the scale of our operations on pages 10 to 13
How we measure success
Our KPIs
We use a combination of financial and non-financial key
performance indicators (‘KPIs’) to measure our progress in
delivering our strategic priorities.
How we manage threats
Our risks
Risk management is at the heart of how the business is
run and supports the Group’s strategic objectives. We have
identified nine principal risks and uncertainties which
have the potential to impact the Group’s business model
and strategy.
See how we manage risk on pages 58 to 68
How we govern ourselves
Our governance
We 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 key performance indicators on page 30
See more on governance on pages 78 to 84
How we impact on society
Resources and relationships
There are four main areas where our business model impacts on
society and where we have responsibilities that extend beyond financial
performance.
Safety
Sustainability People
Communities
Read more about building a sustainable
business on pages 46 to 57
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03
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOverview Our year
Financial highlights
Revenue
Underlying* profit before tax
Underlying* operating margin
£274.2m
(2017: £262.2m)
£23.5m
(2017: £19.8m)
8.3%
(2017: 7.5%)
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Profit before tax
Underlying* basic earnings per share
Net funds
£22.2m
(2017: £18.1m)
6.4p
(2017: 5.5p)
£33.0m
(2017: £32.6m)
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Operational highlights
• Revenue up five per cent to £274.2m (2017: £262.2m)
UK order book June 2018
• Underlying* profit before tax up 19 per cent to
£23.5m (2017: £19.8m)
• Underlying basic earnings per share up 15 per cent at
6.4p per share (2017: 5.5p per share)
• Continued strong cash performance resulting in year-
end net funds of £33.0m (2017: £32.6m) after equity
investment of £5.5m in Indian joint venture to repay
term debt
• Total dividend increased by 13 per cent to 2.6p per
share (2017: 2.3p per share), includes proposed final
dividend of 1.7p per share (2017: 1.6p per share)
• Proposed special dividend of 1.7p per share to deliver
a total cash return to shareholders of 4.3p per share
• Return on capital employed (‘ROCE’) of 16.5 per cent
(2017: 14.6 per cent)
• Over 100 projects undertaken during the year in
key market sectors including the new stadium
for Tottenham Hotspur, the retractable roof for
Wimbledon No.1 Court and a new commercial tower
at 22 Bishopsgate
• UK order book of £237m at 1 June 2018 (1 June 2017:
£229m), including landmark contract for the new
Google Headquarters at Kings Cross for 2019
• Reorganisation of our factory operations in North
Yorkshire now completed
• Continued profitability from Indian joint venture of
£0.5m (2017: £0.2m), improving market position now
reflected in India order book of £106m at 1 June 2018
(1 June 2017: £73m)
£237m
UK order book June 2017
£229m
Commercial offices
Transport (including bridges)
Industrial and distribution
Stadia and leisure
Power and energy
Data centres and other
Retail
Health and education
56%
2%
22%
2%
1%
8%
4%
5%
Commercial offices
Transport (including bridges)
Industrial and distribution
Stadia and leisure
Power and energy
Data centres and other
Retail
Health and education
54%
7%
9%
23%
4%
1%
1%
1%
*Underlying results are stated before non-underlying items of £1.3m (2017: £1.8m):
•
Amortisation of acquired intangible assets – £1.3m (2017: £2.6m)
• Movement in fair value of derivative financial instruments – £nil (2017: gain of £0.8m)
•
The associated tax impact of the above, together with the impact of a reduction in future corporation tax rates on deferred tax liabilities – £0.4m (2017: £0.6m)
Read more about our operating performance on pages 32 to 38
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05
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOverview
Our chairman’s view
I am delighted to report another year of strong
performance in 2018. We remain focused on delivering
our strategy and continue to invest for the future in order
to deliver sustainable long-term value for shareholders.
The Group has delivered a third successive year of revenue
growth, with revenue of £274.2m, up five per cent from the
previous year. We are also extremely pleased with our profit
performance in 2018 with underlying* profit before tax
increasing by 19 per cent to £23.5m from £19.8m in 2017.
This mainly reflects good operating performance in the UK,
where operating margins have increased to 8.3 per cent,
and another year of profitable performance from our Indian
joint venture.
Read more about our operating performance
on pages 32 to 38
We have a strong and flexible balance sheet which underpins
our plans for the future. Year-end net funds were £33.0m and
our continued cash generation has enabled further capital
and strategic investment in 2018, in our factories, on our sites
and in India, where the term debt has now been repaid.
Board changes
Following Ian Lawson’s departure from the Group on
1 February 2018, Alan Dunsmore and Adam Semple were
appointed as chief executive officer and Group finance
director. Alan and Adam had held these roles on an acting
basis since 28 March 2017, following Ian’s continued absence
due to physical ill health. During this period, I assumed the
role of executive chairman on an acting basis and resumed
my role as non-executive chairman from 1 February 2018.
I would like to pay tribute to Ian Lawson’s tremendous
contribution to the Severfield business since his arrival in
November 2013 and he leaves with our thanks and best
wishes. I would also like to acknowledge the important roles
that Alan, Adam and Ian Cochrane have played over the
last year and look forward to working with all of them as we
continue to deliver on our growth strategy.
Read more about our board of directors on page 72
John Dodds
Non-executive chairman
06
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Dividends
People
We are confident in our ability to deliver sustainable returns
to shareholders and in our dividend policy. The total dividend
for the year has been increased by 13 per cent to 2.6p per
share (2017: 2.3p per share) which includes a proposed
final dividend of 1.7p per share (2017: 1.6p per share). The
board is also recommending a special dividend of 1.7p per
share, resulting in a total cash return to shareholders of 4.3p
per share for 2018. These dividends reflect 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
pages 40 to 44
Strategy and markets
As well as making good progress towards our 2020 strategic
profit target, we continue to deliver on our strategic
objectives. 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. The Group continues to be shaped by the
programme of projects launched in 2017 under the banner
of ‘Smarter, Safer, more Sustainable’ which include ongoing
improvements to our business processes, use of technology
and operating efficiencies. As part of this initiative, we have
reorganised our factory operations in North Yorkshire, to
make better use of our operational footprint and to launch
a new business, Severfield (Products & Processing), which
will allow us to address smaller scale projects, a new area of
growth potential for the Group.
We have also continued to explore other new areas of organic
growth for the business and have commenced bidding for
work in continental Europe, where we have now established
a small team based in the Netherlands, and in the medium
to high-rise residential construction market, where we have
developed a steel solution.
UK government policy continues to support investing in
upgrading the UK’s infrastructure and is helping to drive a
strong pipeline of major projects, particularly in the transport
sector, work which Severfield is well placed to benefit from.
Despite the uncertainties of Brexit, we have a strong position
in a number of sectors and our breadth of capabilities
positions us well to address our clients’ needs.
Read more about our strategy on pages 22 to 29
I was pleased to be able to visit a number of our sites in 2018
and I continue to be impressed by the skills and commitment
our employees demonstrate. This, combined with our
specialist capabilities and leading positions in our core
markets, is at the centre of everything we do. I would like to
thank all of our employees for their hard work this year.
The safety and, very importantly, the well-being of our people
remain a priority of the board and I am pleased to report
that during this year we, once again, reduced our accident
frequency rate (‘AFR’) and have sought to raise employee
awareness of good health and well-being, including mental
health.
Read more about building a sustainable business
on pages 46 to 57
Outlook
Our 2018 results demonstrate our continued progress in
executing our strategy. Our strong performance in 2018,
together with our UK order book of £237m and stable
pipeline of potential future orders, leaves us well positioned
to achieve our 2020 strategic profit target of £26m. We will
continue to invest in the business to improve our operational
efficiency and to ensure that we have the best people in place
to deliver our strategic objectives and growth over the long
term.
John Dodds
Non-executive chairman
20 June 2018
* The basis for stating results on an underlying basis is set out on page 5.
Corporate governance
You can read more about how we comply with the UK
Corporate Governance Code in the sections below:
Our board of directors
Our executive committee
Our chairman’s view on governance
Corporate governance report
Audit committee report
Nominations committee report
Directors’ report
Directors’ remuneration report
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOverview
Our unique offering
We continue to invest in what differentiates us,
strengthening our long-term proposition.
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Client focus
We are committed to providing 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.
Market leader
Severfield is the UK’s market-leading structural steel company, respected for delivering world-class
engineering and design excellence. We have unrivalled experience and capability in the design,
fabrication and construction of steel structures. The breadth of technical 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
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.
Scale
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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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Cost base
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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.
Productivity and growth
Our disciplined use of capital for investment in market-leading technology, plant and equipment leads
to higher quality products with a shorter turnaround, increasing the productivity of our operations.
Alongside our targeted strategies for growth and operational excellence, we have a clear plan to develop
and increase our market share and maximise shareholder returns.
Supply chain strengths
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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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOverview The scale of our operations
United Kingdom
V&A Museum, Dundee
Health and education
Dunbar, Scotland
Power and energy
Emirates Arena &
Velodrome, Glasgow
Stadia and leisure
This site near Bolton in Lancashire
comprises offices and factory facilities and
is part of our Severfield (UK) operations.
Dalton
Our site near Thirsk in North Yorkshire
fabricates products for Severfield (UK) and
Severfield (Design & Build). Our Severfield
plc head office team are also based here.
Located in Sherburn, near Scarborough,
are our sales and commercial teams
for Severfield (Design & Build) and
the production facilities for Severfield
(Products & Processing).
Our main offices and fabrication
facilities for Severfield (NI) are based in
Ballinamallard, near Enniskillen.
Ballinamallard
Titanic, Belfast
Commercial offices
Westfield Shopping Cente
Bradford
Retail
Lostock
Sherburn
Covanta, Dublin
Power and energy
Anfield Stadium
Liverpool
Stadia and leisure
Ordsall Chord
Manchester
Transport
Peterborough Waste to Energy plant
Power and energy
Monmouthshire
BBC, Cardiff
Commercial offices
London
Based in South Wales, our specialist cold
rolled steel joint venture, Composite Metal
Flooring Limited, provides a state-of-
the-art manufacturing facility for the
manufacture of metal decking and purlins.
Princesshay, Exeter
Retail
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR India
Delhi
Bellary
Bangalore
JSW Severfield Structures Limited, a 50:50
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.
Mumbai
London
Read more about the scale
of our operations on page 12
Tottenham Hotspur
Stadia and leisure
Coal Drops Yard
Retail
The Shard
Commercial offices
South Bank Tower
Commercial offices
Wimbledon No1
Court Roof
Stadia and leisure
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOverview The scale of our operations
Operating across the Group’s four main UK locations, we provide
unrivalled capacity, capability and technical expertise to the industry.
Our joint venture operations in India and Wales are fundamental in
helping the Group achieve our strategic growth objective.
Group potential tonnage: 150,000 tonnes per year
Severfield (UK) Limited Dalton, North Yorkshire
c.550 employees
Severfield (UK) Limited Lostock, Lancashire
c.250 employees
This facility boasts 10 state-of-the-art production lines
where modern manufacturing and painting processes
are undertaken in a controlled environment for both our
Severfield (UK) and Severfield (Design & Build) operations.
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.
Severfield (Design & Build) Limited
c.100 employees
Severfield (NI) Limited
c.300 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. In 2018,
following the reorganisation of our factory operations
in North Yorkshire, steel fabrication at Sherburn was
consolidated into our Dalton factory.
Severfield’s base in Northern Ireland has a strong
reputation for delivering quality constructional steel
products in the UK and Irish structural steel market. 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. This offers significant
benefits to clients with experienced, dedicated and capable
personnel administering every part of the fabrication and
construction process from initial scheme design, through
detailing, specification and manufacture to the eventual
handover of a quality product on site.
Severfield (Products & Processing) Limited
In 2018, following the reorganisation of our factory operations in North Yorkshire, a new business venture, Severfield
(Products & Processing) was launched at Sherburn. The company offers a one-stop shop steel products and processing
service using our extensive range of equipment and allows us to address smaller scale projects, a new area of growth
potential.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
JSW Severfield Structures Limited
60,000 tonnes per year capacity
c.750 employees
Composite Metal Flooring Limited
c.750 employees
The company, a 50:50 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.
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.
The Group has a 50 per cent share of Composite
Metal Flooring Limited (‘CMF’), a specialist designer,
manufacturer, innovator and installer of profiled
MetFloor® metal decking. The state-of-the-art
manufacturing facility in South Wales houses three
dedicated roll forming production lines, for the
manufacture of MetFloor® metal decking. Recent
investment by CMF has further expanded the company’s
product range to include cold formed products and the
design and manufacture of steel purlins.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOverview 25943
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Strategic report
How we create value
The markets we serve
Our market sectors
Our strategy
Key performance indicators
Our operating performance
Our financial performance
Building a sustainable business
How we manage risk
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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 growth 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 Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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.
Read more about building a sustainable
business on pages 46 to 57
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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report 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.
UK
Marketplace
In 2017 (calendar year), the UK constructional steelwork
market, as measured by the British Constructional Steelwork
Association (‘BCSA’), remains stable at c.900,000 tonnes
(this equates to a market of approximately £1.7 billion). This
follows three strong years of growth; four per cent growth in
2016, eight per cent growth in 2015 and four per cent growth
in 2014.
During the year, we reorganised our factory operations in
North Yorkshire, resulting in steel fabrication at Dalton
and Sherburn being consolidated in our Dalton facility, and
the establishment of a new business venture, Severfield
(Products & Processing) Limited (‘SPP’), to allow us
to specialise in smaller scale projects. Following this
reorganistion, the Group’s potential production capability
remains at approximately 150,000 tonnes, which represents
c.17 per cent of 2017 UK structural steel production.
In 2018, Group revenue rose to an eight-year high of £274
million. This represents a third successive year of revenue
growth, reinforcing our market-leading position and the
continued evolution of our strategy.
Outlook
Market conditions have remained relatively stable during
2017. The market forecast prepared by the BCSA, suggests a
return to growth in the short to medium-term, with total UK
steelwork consumption of 950,000 tonnes forecast by 2020.
This is assisted by UK government policy which is continuing
to help drive a strong pipeline of major infrastructure
projects, particularly in the transport sector. Over the next
few years, we see significant opportunities to participate
in these projects including HS2 (bridges and stations), UK
airport expansion as well as the ongoing Network Rail and
Highways England investment programmes, all of which have
a significant steelwork content.
The mix of work within the market sectors that we target 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
and has launched SPP to address smaller projects more
competitively.
The market for data centres and industrial and distribution
appears strong at present and although pricing remains
competitive, the projects in these sectors play to our
strengths requiring high-quality, rapid throughput, on time
performance and full co-ordination between stakeholders.
Our sectors
The market sectors targeted by the Group, and their estimated size in tonnes during 2017, are shown below:
Total market
tonnage 2017:
894,000 tonnes
18
Percentage
Percentage
Tonnes
419,000
47%
66,000
7%
101,000
11%
115,000
65,000
13%
37,000
7%
17,000
4%
74,000
2%
9%
Tonnes
419,000
66,000
101,000
115,000
65,000
37,000
17,000
74,000
Industrial and distribution
Industrial and distribution
Infrastructure (including bridges)
Infrastructure (including bridges)
Health and education
Health and education
Commerical offices
Power and energy
Commerical offices
Stadia and leisure
Power and energy
Retail
Other
Stadia and leisure
47%
7%
11%
13%
7%
4%
2%
9%
Retail
Other
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
Group production
75,000 tonnes
Group potential capacity
150,000 tonnes
Total UK production of structural steelwork
894,000 tonnes
UK order book
£237m
The market for commercial offices, predominantly in
London, is forecast by the BCSA to decline slightly over
2018 and 2019, although this will be offset by growth in the
construction of commercial offices in regional cities, together
with projects in the infrastructure, industrial and distribution,
and data centre markets as previously described.
UK order book
The Group has a very healthy, well-diversified order book
of £237m (1 June 2018) which represents approximately
eight to ten months of annualised revenue. This reflects the
anticipated increase in the order book from the June 2017
position of £229m.
The contract mix within the order book incorporates a diverse
range of projects, including significant new orders secured
in the year for a number of commercial office developments
in London and in the regions, including the landmark
contract for the new Google Headquarters at Kings Cross, the
Engineering Campus Development at Manchester University,
the Westfield Stratford City expansion, industrial and
distribution projects for a variety of clients, together with two
large data centres in the Republic of Ireland and Belgium.
Pipeline/prospects
The Group continues to monitor the future pipeline of projects
currently being tendered. This provides forward visibility of
future orders and allows us to make strategic decisions that
impact on our production planning and facilities. The Group’s
current pipeline of contract opportunities is encouraging
and includes a range of projects in the commercial office,
industrial and distribution, data centre, transport and retail
sectors in the UK and Europe.
Europe
During the year, the Group has successfully secured work in
the Republic of Ireland and Belgium and is actively pursuing
a number of other European opportunities following the
development of our European business venture. Based
in the Netherlands, our team is dedicated to tailoring our
established UK offering for expansion into this market.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report 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
5-10%
Group market share
(for infrastructure
including bridges)
Power and
energy
5-10%
Group market share
Health and
education
<5%
Group market share
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.
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, Cardiff and Covanta
(Dublin) Waste to Energy plants, Port of Liverpool Biomass Terminal, Ferrybridge Power
Station.
We have a long history of providing world-class steel solutions for hospitals and other
medical facilities, 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, Manchester
University Engineering Campus.
Key
Global market future trends:
Upward trend
Downward trend
No change
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
Core construction sectors
Commercial
offices
20-30%
Group market share
Industrial and
distribution
5-10%
Group market share
Stadia and
leisure
40-50%
Group market share
Retail
10-20%
Group market share
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
22 Bishopsgate, Google UK Headquarters, The Shard, Leadenhall Tower, 5 Broadgate, Nova
Victoria, New Street Square, South Bank Tower, Principal Place, One Angel Court, Southbank
Place, London Development Project, 60 London Wall, One Crown Place.
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 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
Wimbledon Centre Court (roof) and No.1 Court roof, Paris Philharmonic Hall, First
Direct (Leeds) Arena, Olympic Stadium, Arsenal FC (Emirates Stadium), Liverpool FC
(redevelopment of Anfield Stadium), Manchester City FC (south stand redevelopment),
Tottenham Hotspur (new stadium).
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.
Data centres
and other
5-10%
Group market share
Data centres are an ever-growing part of the business world. In recent years, they have
become increasingly important to businesses of all sizes as they look for cost-effective
alternatives to high in-house IT and other costs. With a large proportion of data centres being
specified in steel, the Group is well placed to meet the needs of this rapidly expanding sector,
and our cost, speed and flexibility have resulted in several key contract awards.
Successes
London Data Centre (Slough), Microsoft (Amsterdam), Telehouse (London), Amazon (Dublin).
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our strategy
Q&A with chief executive officer
Alan Dunsmore
What do you view as the highlights of the year?
What are your strategic priorities over the next few years?
Alan: 2018 has been another strong year for the business.
We have delivered a third successive year of revenue growth,
underlying profit before tax has increased by 19 per cent and
another year of positive cash generation has resulted in net
funds of £33.0m at the year-end.
Based on these results, the board is recommending a final
dividend of 1.7p per share and a special dividend of 1.7p per
share. This reflects our current balance sheet strength and
our confidence in the future prospects of the business.
Alan: We have continued to deliver on our strategic objectives
in 2018, and we remain focused on our 2020 strategic profit
target of £26m. This profit target is expected to be achieved
with operating margins of between 8 and 10 per cent and it is
pleasing to us that the 2018 operating margin of 8.3 per cent
is now within this range for the first time.
We have continued to explore new areas for organic growth.
During the year we launched our new business venture,
Severfield (Products & Processing), to address smaller scale
projects, we have commenced bidding for work in continental
Europe and we are also targeting the medium to high-rise
residential market where we have developed a steel solution.
What is your plan for JSSL, the Indian joint venture?
Alan: JSSL has continued to grow in 2018 and its profitability
has improved. The market for structural steel in India has
improved significantly over recent months and we are
now seeing clear signs of the conversion from concrete
to steel. Our Indian order book stands at £106m, a record
high for the business, and we are seeing a growing pipeline
of opportunities for higher margin commercial work. This
positions JSSL well to deliver long-term profitable growth
and to generate future value.
What is the outlook for 2019?
Alan: We continue to see a stable UK market, with modest
economic growth forecast, and a good UK pipeline of
opportunities. The market for data centres and industrial
and distribution appears strong at present and our pipeline
also includes a number of significant projects across
the commercial office (both in London and outside) and
infrastructure sectors. This, together with our high-quality
and stable order book of £237m, means that we expect 2019
to be another year of progress for the Group.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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 and
assisted by our business improvement programme, Smarter, Safer, more Sustainable.
Group strategy
Growth
Clients
India
Operational
excellence
People
Smarter, Safer, more Sustainable
Smarter, Safer, more Sustainable, our business improvement programme, 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 processes, use of technology, operating efficiencies and new product development, all set within the framework of
strong risk management and control.
Smarter
Improve how we deliver our projects
with speed, efficiency and accuracy
Safer
Continue our relentless focus on
safety and always think ‘safety first’
More Sustainable
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, shareholders and people.
Safety, health and environment strategy
Our people strategy
Read more on our SHE strategy
on pages 46 to 51
Read more on our people strategy
on pages 52 to 57
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23
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our strategy
Group strategy
Medium-term target: to double 2016 underlying profit before tax by 2020.
Strategic pillars
Description
Link to KPIs
Link to principal risks
Growth
Clients
India
Our aim is to capitalise on growth opportunities,
both in the UK and in overseas markets, and to
maximise our market share.
1
5
2
6
3
7
4
1
6
2
3
7 8
4
9
5
By understanding, anticipating and responding
to client needs we aim to build secure,
sustainable and mutually valuable relationships
and create lasting client satisfaction.
1
5
2
6
3
7
4
1
6
2
3
7 8
4
9
5
We continue to believe that the Indian
market presents great opportunities for steel
fabrication.
1
5
2
6
3
7
4
1
6
2
3
7 8
4
9
5
Operational excellence Our emphasis is on delivering high-quality
projects and reducing costs by driving
excellence through our core business
processes.
1
5
2
6
3
7
4
1
6
2
3
7 8
4
9
5
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.
1
5
2
6
3
7
4
1
6
2
3
7 8
4
9
5
Key performance indicator reference number
Key to principal risks
1 Underlying operating profit and margin (before JVs
1 Health and safety
and associates)
2 Underlying basic earnings per share (‘EPS’)
3 Revenue growth
4 Operating cash conversion
5 Return on capital employed (‘ROCE’)
6
Order book
7 Accident frequency rate (‘AFR’)
24
2 Information technology resilience
3 Commercial and market environment
4 Mispricing a contract (at tender)
5 Failure to mitigate onerous contract terms
6 Supply chain
7 Indian joint venture
8
9
People
Industrial relations
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR The progress that we have made in delivering our strategy, together with
how this strategy has been further developed in 2018 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 2018
Objectives for 2019
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.
Getting traction in
Europe:
driving more
opportunities
from European
contractors with
whom we have
strong relationships
in the UK and
through our new
European business
venture.
We have grown Group revenues by five per cent (and by 36 per
cent since 2015 when we first launched our strategic growth
target), 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 with revenues in excess of £20m
for 22 Bishopsgate, Tottenham Hotspur, Wimbledon (new roof
for number one court) and a major new commercial head
office building in London). We also secured the landmark
contract for the new Google Headquarters at Kings Cross.
We have continued our targeted approach with key UK
infrastructure project owners, to exploit identified future
growth opportunities (infrastructure and bridge markets).
Our investment in CMF positions us as the only hot rolled
steel fabricator in the UK to have a cold rolled manufacturing
capability. We have expanded CMF’s product range during the
year to include purlins and other cold formed products.
In order to further develop our product offering we have
launched a new business venture at Sherburn, Severfield
(Products & Processing). This will provide processed steel
and ancillary products to other fabricators who specialise in
smaller projects.
We have continued to develop our European business venture
and have established a small team based in the Netherlands
to support our new business development director. This has
enabled us to focus on the tailoring of our established UK
offering for expansion into this market.
We are also targeting the market for medium to high-rise
residential construction. During the year, we have continued
to develop our residential solution and are close to securing
our first orders.
To further grow Group revenues and
maintain the quality of the order
book.
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).
Maintain our focus on
infrastructure, taking account of
our in-house bridge capability
and historical record in transport
infrastructure. This will leave us
well positioned to take advantage
of the strong future pipeline of
major infrastructure projects in the
transport and power and energy
sectors (including HS2), all of which
have a significant steel content.
Develop our new organic growth
areas including our residential
offering, Europe and Severfield
(Products & Processing). This will
also include the ongoing delivery
of projects in new UK markets
including regional and smaller mid-
market opportunities.
To continue the development
of further cold formed steel
opportunities and expanding the
product range in CMF.
The Group also continues to look
for complementary acquisition and
investment opportunities which
support our plans for growth.
25
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our strategy
Clients
Our aim is to capitalise on growth opportunities both in the UK and in overseas markets
By understanding, anticipating and responding to client needs we aim to build secure,
and to maximise our market share.
sustainable and mutually valuable relationships and create lasting client satisfaction.
Strategic priorities
Achievements in 2018
Objectives for 2019
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. We take a long-term approach to
relationships with our clients, aiming to
deliver exceptional quality and service that
encourages them to choose us on their next
project.
We have continued to work closely with
our clients to ensure that projects run as
smoothly as possible, site programmes are
met and changes are well managed.
We have also focused on developing new
client relationships to target an increased
pipeline of opportunities in both existing and
adjacent markets.
Continue to deliver a quality, safe and efficient
service to our clients.
We will further focus on opportunities to
improve client satisfaction and retention, and
develop strategically important relationships
with existing and new clients in our target
markets in support of our growth plans.
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.
We will explore innovative and collaborative
ways of working that are mutually beneficial
to us and our clients whilst ensuring that risk
and reward are appropriately balanced.
India
Our aim is to capitalise on growth opportunities both in the UK and in overseas markets
We continue to believe that the Indian market presents great opportunities for steel fabrication.
and to maximise our market share.
Strategic priorities
Achievements in 2018
Objectives for 2019
Sustainability of India:
our aim is to ensure that
the business develops
a sustainable position
whilst the market
continues its conversion
to steel.
The Indian business has continued to grow
in 2018, performing steadily and profitably.
This reflects good operational performance
coupled with lower financing costs following
the repayment of the term debt in June 2017.
The market for structural steel in India has
improved significantly over recent months
and this position is reflected in the Indian
order book of £106m and a growing pipeline
of opportunities (particularly higher margin
commercial work).
We remain confident in the long-term
development of the market. We believe
that the business continues to have a solid
foundation from which to deliver future
profitable growth and value will continue to
build in the business as it enters the next
phase of its development.
In an improving market, we will target a
better mix of work between commercial and
industrial projects as we seek to grow the
business and increase operating margins. The
step up in market demand is likely to fill and
exceed current factory and capacity levels
which will need to be managed.
We will continue to concentrate on business
development opportunities, particularly with
key commercial clients in targeted market
sectors (including residential).
We will continue to invest in and develop the
local management team and workforce in
support of a growing business.
26
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Operational excellence
Our emphasis is on delivering high-quality projects and reducing costs by driving
excellence through our core business processes.
Strategic priorities
Achievements in 2018
Objectives for 2019
Drive operational
improvements and
efficiencies:
the objective of our
comprehensive
operational improvement
programme is to
improve the Group’s risk
assessment, operational
and contract management
processes.
Our target remains the achievement of
underlying PBT of £26m by 2020.
We will develop our ‘Smarter, Safer, more
Sustainable’ business improvement
programme and have recently established
a dedicated ‘SSS’ team whose sole focus is
on improving many aspects of our internal
operations.
We will continue to drive operational
efficiencies following the establishment of
the new manufacturing arrangements at
Dalton.
The roll out of the second phase of our
production management system across the
Group will support further improvements
to estimating, production and contract and
commercial management processes. This will
help optimise processes between factories,
production lines and projects.
This improved profitability will continue to
generate surplus cash flows and support
future dividends, in accordance with the
Group’s business model.
Our profit performance in 2018 (underlying
PBT was £23.5m) keeps us firmly on track
to deliver our 2020 strategic profit target of
£26m. We have also continued to improve
our operating margin to 8.3 per cent in 2018
(2017: 7.5 per cent).
2018 operating profit has continued to
benefit from the embedding of operational
efficiencies across the Group through better
risk and contract management processes and
production process improvements, together
with higher profits from certain project
completions in the first half of the year.
Our ‘Smarter, Safer, more Sustainable’
business improvement programme, which
was launched in 2017, continues to drive
improvements to our business processes, use
of technology and operating efficiencies. In
2018, as part of this initiative, we reorganised
our factory operations in North Yorkshire.
This resulted in the consolidation of steel
fabrication at Dalton and Sherburn into
the Dalton facility and a new business
venture, Severfield (Products & Processing)
(‘SPP’), being launched at Sherburn. The
reorganisation will allow us to make more
efficient use of our operational footprint in
Yorkshire and also, through SPP, to address
new smaller scale projects.
We have completed the implementation
of our new production management
system which will assist in embedding
operational efficiencies and improved factory
processes and have also rolled out a Lean
manufacturing programme.
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27
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our strategy
Operational excellence
Our emphasis is on delivering high-quality projects and reducing costs by driving
excellence through our core business processes.
Strategic priorities
Achievements in 2018
Objectives for 2019
Invest in market-leading
technology:
we will make this
investment in the short
and medium term in order
to support the Group’s
ongoing requirements and
for growth.
The Group’s improvement programme has
included further capital investment in 2018
of £6.4m, taking our capital investment
in the business to £24m over a four-year
period. The investment in 2018 represents
further factory machinery, completion of the
in-house painting projects at Lostock and
Ballinamallard, office and yard improvements,
a new trailer park and additional site
construction machinery.
We have continued to invest in research and
development into advanced technologies. We
have also established an engineering forum to
identify new and innovative ways of working
which are then embedded across the Group to
become business as usual.
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 IT programme.
We will continue to invest in new state-of-
the-art manufacturing technology and in our
research and development programme to
help drive production efficiencies. We have
project teams focusing on various areas of
development including introducing Lean into
the design process, refining our production
planning system, developing collaborative
tools to provide real-time support to our
project and commercial teams and reducing
waste in our coatings application.
We will continue to upgrade and replace
existing equipment where appropriate and
to expand the capital equipment base where
there is a strong return on investment case.
28
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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 2018
Objectives for 2019
Develop our people:
our aim is to attract and
recruit the right person
at every level and to keep
them engaged so that we
can deliver our goals and
customer commitments
whilst maintaining a safe
working environment.
We will continue to prioritise investment in
our people (including in apprenticeships) to
ensure a healthy pipeline of talent to achieve
our strategic goals.
We will implement a strategy to improve
diversity and reduce our gender pay gap.
We will implement a project management
development programme to improve our
management of risk and create a pipeline of
talent to support growth.
We will launch a further save as you earn
(‘SAYE’) scheme to provide our employees with
continued 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 to further improve the Group’s AFR.
We will continue to seek and exploit
opportunities for increasing employee
engagement. This will include the launch
of a Group-wide intranet and an employee
recognition scheme that underpins our
values.
We recruited 221 people across the Group,
strengthening a range of disciplines. This
included the appointment of 21 apprentices
in IT, maintenance, drawing office and
fabrication/welding and 45 construction and
production trainees.
We rolled out our first Severfield development
programme to 16 people. This programme
will help us build sustainable leadership
capability within our next generation of
leaders.
We implemented a training programme on
Lean production techniques that has led
to increased employee engagement and
many employees developing new skills and
achieving recognised qualifications.
We have continued to review all internal
communications across the Group. This
included introducing further feedback
opportunities for our employees, as well
as creating and implementing new, more
informative internal communication channels
and messages suitable for all our internal
audience groups, including a new newsletter
and employee magazine.
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.
We implemented an integrated Group-wide
HR information system that has provided
greater visibility of talent across the business
and enabled us to make better people-related
decisions.
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29
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Key performance indicators
Reference
number
KPI
Our performance
Why this is important
How we calculate
What we target
1
2
3
4
5
6
7
30
Underlying*
operating profit
and margin
(before JVs and
associates)
2018
2017
£22.9m
at 8.3%
£19.6m
at 7.5%
Underlying operating profit (before JVs and
associates) has increased by 17%, reflecting
increased revenues and an increase in the
margin of 0.8%
Underlying*
basic earnings
per share (‘EPS’)
2018
2017
6.4p
5.5p
EPS growth was 15%
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
Our target is to double 2016 underlying profit before tax by 2020.
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.
profit target of £26m.
Our aim is to generate operating margins of between 8 per cent
and 10 per cent in line with those required to achieve our 2020
See the consolidated income statement on page 126
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
Our aim is to maximise sustainable EPS growth.
weighted average number of shares in issue during the period.
See note 10 of the consolidated financial statements
on page 144
Revenue growth
2018
2017
£274.2m
£262.2m
This is a key measure for the business to track our overall
success in specific contract activity, our progress in
increasing our market share and our ability to maintain
appropriate pricing levels.
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.
This represents the year-on-year percentage change in revenue
To grow revenue year-on-year in line with our strategic objectives.
Operating cash
conversion
Revenue has increased by 5%, reflecting an
increase in order flow, activity and steel prices
2018
2017
77%
112%
Cash conversion is slightly below the 85%
target following the unwind of advance
payments in the year
Return on capital
employed
(‘ROCE’)
2018
2017
16.5%
14.6%
ROCE has improved by 1.9% and continues to
exceed the 10% target
Order book
2018
2017
£237m
£229m
The UK order book has increased by 3% since
June 2017
Accident
frequency rate
(‘AFR’)
2018
2017
0.22
0.24
The AFR remains within the Group’s target for
2018 of 0.26
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.
Cash is critical for providing the financial resources to
develop the Group’s business and to provide adequate
working capital to operate smoothly.
This measures how successful we are in converting profit
to cash through management of working capital and
capital expenditure.
ROCE measures the return generated on the capital we
have invested in the business and reflects our ability to
add shareholder value over the long term.
We have an asset-intensive business model and ROCE
reflects how productively we deploy those capital
resources.
The order book is a key part of our focus on building long-
term recurring revenue. It is an important measure of our
success in winning new work.
Whilst the revenue within the order book is reported
externally, the margin inherent within the order book is
monitored internally to provide visibility of future earnings.
This is an industry-standard measure of the safe operation
of our business and is one of a number of health and
safety measures the Group uses to monitor its activities.
* The basis for stating results on an underlying basis is set out on page 5.
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Operating cash conversion is defined as cash generated from
We target a conversion rate of 85 per cent as a base level of
operations after net capital expenditure (before interest and tax)
achievement, subject to future capital investment made to
expressed as a percentage of underlying operating profit (before
position the Group for further growth.
ROCE is calculated as underlying operating profit divided by the
We aim to deliver ROCE which is in excess of 10 per cent over the
average of opening and closing capital employed.
whole economic cycle.
JVs and associates).
on page 157
See note 24 of the consolidated financial statements
Capital employed is defined as shareholders’ equity excluding
retirement benefit obligations (net of tax), acquired intangible
assets and net funds.
on page 150
See note 20 of the consolidated financial statements
Our UK order book shows the total value of future revenue secured
We aim to build a good quality order book which supports the
by contractual agreements.
achievement of our strategic targets.
AFR is equivalent to one reportable lost-time incident resulting in
We are committed to a target of zero injuries in the medium term.
more than three working days’ absence per 100,000 hours worked,
which equates to approximately one working lifetime.
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 1
2
3
4
5
6
7
Underlying*
operating profit
and margin
(before JVs and
associates)
Underlying*
basic earnings
per share (‘EPS’)
Revenue growth
Operating cash
conversion
2018
2017
2018
2017
2018
2017
2018
2017
Underlying operating profit (before JVs and
associates) has increased by 17%, reflecting
increased revenues and an increase in the
margin of 0.8%
investors.
EPS growth was 15%
6.4p
5.5p
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.
£274.2m
£262.2m
This is a key measure for the business to track our overall
success in specific contract activity, our progress in
increasing our market share and our ability to maintain
appropriate pricing levels.
Return on capital
employed
(‘ROCE’)
2018
2017
16.5%
14.6%
ROCE measures the return generated on the capital we
have invested in the business and reflects our ability to
add shareholder value over the long term.
We have an asset-intensive business model and ROCE
ROCE has improved by 1.9% and continues to
reflects how productively we deploy those capital
exceed the 10% target
resources.
Order book
Accident
frequency rate
(‘AFR’)
2018
2017
2018
2017
June 2017
£237m
£229m
0.22
0.24
The order book is a key part of our focus on building long-
term recurring revenue. It is an important measure of our
success in winning new work.
Whilst the revenue within the order book is reported
monitored internally to provide visibility of future earnings.
This is an industry-standard measure of the safe operation
of our business and is one of a number of health and
safety measures the Group uses to monitor its activities.
The UK order book has increased by 3% since
externally, the margin inherent within the order book is
The AFR remains within the Group’s target for
2018 of 0.26
Reference
number
KPI
Our performance
Why this is important
How we calculate
What we target
£22.9m
at 8.3%
£19.6m
at 7.5%
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
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.
Our target is to double 2016 underlying profit before tax by 2020.
Our aim is to generate operating margins of between 8 per cent
and 10 per cent in line with those required to achieve our 2020
profit target of £26m.
See the consolidated income statement on page 126
EPS is calculated as underlying profit after tax divided by the
weighted average number of shares in issue during the period.
Our aim is to maximise sustainable EPS growth.
See note 10 of the consolidated financial statements
on page 144
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.
Revenue has increased by 5%, reflecting an
increase in order flow, activity and steel prices
77%
112%
Cash conversion is slightly below the 85%
target following the unwind of advance
payments in the year
Cash is critical for providing the financial resources to
develop the Group’s business and to provide adequate
working capital to operate smoothly.
This measures how successful we are in converting profit
to cash through management of working capital and
capital expenditure.
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 157
We 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.
ROCE is calculated as underlying operating profit divided by the
average of opening and closing capital employed.
We aim to deliver ROCE which is in excess of 10 per cent over the
whole economic cycle.
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 150
Our UK 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.
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.
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31
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our operating performance
The Group has delivered another
year of strong profit growth.
Group overview
The Group has delivered another year of strong profit growth
in 2018, driven by a combination of revenue growth and
continued improvements in UK operational performance,
together with another profitable year from our Indian joint
venture.
In 2018, we have continued to grow our revenue which has
increased by five per cent to £274.2m (2017: £262.2m) and
are very pleased with our profit performance with underlying
profit before tax up 19 per cent to £23.5m (2017: £19.8m).
Year-end net funds were £33.0m (2017: £32.6m) and another
year of positive cash generation has further strengthened our
balance sheet whilst providing us with the flexibility to invest
in our UK businesses and in India, where the term debt was
repaid in June 2017.
The market position for our Indian joint venture, JSSL,
has improved significantly over recent months and this is
reflected in its record order book of £106m and a growing
pipeline of commercial opportunities, all of which will benefit
the business in 2019 and beyond. In 2018, JSSL continued to
perform profitably. Good operational performance and lower
financing costs, following the repayment of the term debt,
have resulted in the Group’s share of profit after tax of £0.5m
(2017: £0.2m).
We continue to exceed our ROCE target of 10 per cent and
have achieved an improved return of 16.5 per cent in the year
(2017: 14.6 per cent), maintaining the Group’s alignment with
its construction and engineering clients and peers.
We have continued to make good progress during the year
towards our strategic targets, including the doubling of 2016
underlying profit before tax to £26m by 2020. Based on this
progress, I am delighted that the board is recommending an
increase in the final dividend to 1.7p per share, making a total
for the year of 2.6p per share (2017: 2.3p per share), a 13 per
cent increase on the prior year. Furthermore, the board is also
recommending a special dividend of 1.7p per share, which
reflects our current balance sheet strength and confidence in
the future prospects of the business and delivers a total cash
return for shareholders of 4.3p per share.
Alan Dunsmore
Chief executive officer
32
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR UK review
Revenue is up five per cent over the prior year, predominantly
reflecting an increase in order flow and production activity,
together with an increase in steel prices. During the year,
we have continued to work on four large projects in London,
each of which has project revenues in excess of £20m. These
include three projects where work is ongoing and will continue
into the next financial year, namely the new stadium for
Tottenham Hotspur, the retractable roof for Wimbledon No. 1
Court and a new commercial office tower at 22 Bishopsgate.
The fourth large project worked on during the year, which is
now substantially complete, is for a major new commercial
head office building in London.
Our operating margins have improved again to 8.3 per cent
(2017: 7.5 per cent), resulting in an underlying operating
profit (before JVs and associates) of £22.9m (2017: £19.6m).
When we set our strategic 2020 profit target back in 2016,
we anticipated that this would be achieved with revenues in
the range of £270m to £300m and operating margins in the
range of 8 to 10 per cent, depending on the mix of projects in
the order book at the time. It is pleasing to us that the 2018
operating margin of 8.3 per cent is now within this strategic
margin range for the first time, demonstrating that we remain
firmly on course to achieve our strategic profit target.
The operating margin has continued to benefit from
improvements to our operational execution, including further
developments to our factory processes to drive efficiencies
and reduce costs, as well as better risk and contract
management processes. In many cases, this execution
improvement only becomes apparent towards the end of a
contract and this is reflected in the improved 2018 results,
together with higher profits from certain project completions
which mainly benefitted the first half of the year.
Operational improvements implemented during the period
include the continued roll-out of a new Group-wide production
management system, the opening of our new paint facilities
at Lostock and Ballinamallard which will shorten lead times,
improve quality and reduce reliance on external suppliers,
further investment in our factories and bridge capability to
improve speed and efficiency and the upgrade of our haulage
facilities at Dalton.
‘Smarter, Safer, more Sustainable’
The Group continues to be shaped by the programme of
projects launched in the previous year under the banner of
‘Smarter, Safer, more Sustainable’ which provides a framework
for the ongoing improvements to our business processes,
use of technology and operating efficiencies. Developments
in 2018 include the launch of our Lean manufacturing
programme and the establishment of a dedicated ‘SSS’ team
to focus on improving many aspects of our internal operations.
Building from a strong foundation
On track to achieve
£26m underlying profit
before tax in 2020
£26m
£23.5m
2018
2020
£19.8m
2017
£13.2m
2016
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our operating performance
In January 2018, to drive further operational improvements
in line with the Group’s strategy, we reorganised our
factory operations in North Yorkshire. This resulted in steel
fabrication at Dalton and Sherburn being consolidated into
the Dalton facility, making better use of our operational
footprint in Yorkshire, and the establishment of a new
business venture in Sherburn, Severfield (Products &
Processing ) (‘SPP’). SPP, which commenced trading in April
2018, has allowed us to address smaller scale projects, a
segment of the market which we have not historically focused
on. The business provides a one-stop shop to fabricators who
specialise in smaller projects to source processed steel and
ancillary products, all delivered to the Group’s high standards
of quality and service.
Underpinning our culture of continuous improvement is the
ongoing focus on the training and development of our people
and our priority is to recruit, train and retain the highest
calibre of workforce. Notwithstanding Ian Lawson’s departure
which required us to implement our succession plans, the
continued stability in our organisational structure and
management team has been a key strength of the business
for a number of years. During the year, we recruited over 200
people across the Group, strengthening a range of disciplines
including our commercial and project management teams.
We believe that the recruitment and training of graduates
and apprentices is fundamental to business development,
another means of ensuring that we have all the desired skill
bases available in the future. During 2018, we recruited 66
apprentices and continue to invest in graduate trainees
through our apprenticeship and graduate recruitment
programmes.
In 2017, demonstrating our ongoing commitment to people
development, we launched our Lean manufacturing
programme and the Severfield development programme, which
focuses on emerging leaders. In 2018, we have continued to
develop and support our people to apply Lean manufacturing
techniques to develop new skills, achieve new qualifications
and, as part of the ‘Smarter, Safer, more Sustainable’ initiative,
continually improve our businesses and client offering. The
first cohort of employees have now completed the Severfield
development programme, aimed at developing and deepening
our management talent, which has delivered clear benefits
both for the business and the people involved.
During 2018, to further improve efficiencies and client
service, we have continued to invest in research and
development into advanced technologies. We have also
established an engineering forum to identify new and
innovative ways of working which can then be embedded
across the Group to become business as usual.
34
Clients
Working closely with our clients and project stakeholders, we
continue to demonstrate our capability to deliver complex
design solutions and, in 2018, we have designed and delivered
some of the most complex engineering solutions in the
industry. Our management and integration of the construction
process, our capacity and speed of fabrication and our use
of technology has allowed us to improve project delivery
times as well as meeting and often exceeding client service
expectations. We have worked with a number of clients using
innovative and collaborative ways of contracting which have
enabled cost effective solutions to be developed to meet
project challenges.
Our client base, which represents a broad range of sectors
and regions, includes Multiplex, Sir Robert McAlpine,
LeadLease, Balfour Beatty, BAM, Skanska, Mace, Laing
O’Rourke, Canary Wharf Contractors, McLaren, Winvic, Morgan
Sindall, Stanhope, Buckingham, Vinci, Readie, Galliford Try,
Hitachi, ISG, Interserve, Bowmer and Kirkland, John Sisk, John
Graham, Hochtief and Westfield. The Group worked on over
100 projects with our clients during the year including:
Major projects –
over £20 million
• Wimbledon (No. 1 Court roof), London
• Tottenham Hotspur, London
• London Development Project, London
• 22 Bishopsgate, London
Commercial
offices
Industrial and
distribution
Transport
infrastructure
• Southbank Place, London
• Snowhill, Birmingham
• JLR Gaydon Triangle, Midlands
• North Wharf Road, London
• Shard Place, London
• Amazon, East Midlands
• Amazon, Bolton
• Large warehouse, Milton Keynes
• Large distribution centre, Tilbury
• Ordsall Chord, Manchester
• London Bridge Station Canopies, London
• Chiswick Bridge, London
• Ely Southern Bridge, Cambridgeshire
Health and
education
• Graphene Innovation Centre,
Manchester
• Manchester Engineering Campus
Development
• Kings College Hospital, London
Data centres
• Large data centres, Dublin and Belgium
Power and
energy
• Dunbar, Scotland
• Ferrybridge, Yorkshire
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Case study
Severfield development programme
In 2017, we launched the Severfield development programme, which is aimed at
developing and deepening our management talent across the Group. This programme
focuses on leadership skills and providing participants the opportunity to work across
different business units on business improvement projects identified by the board.
The first group of employees has now completed the 2018 programme, including Martin
Clyne, a senior project manager at Severfield (UK) Limited:
“The programme, which was delivered by three tailored week-long workshops over a
period of ten months, encouraged professional growth and included 16 participants
selected from across each of the Group’s businesses. Whilst the training and
development of employees has always been an important part of the Group’s culture,
this programme took a more structured approach and focused on building new
relationships, learning from our colleagues from other parts of the Group, personal
impact, leadership skills, strategic and commercial awareness (particularly of new
and emerging markets), leading and influencing change and improving our presentational
skills. Each workshop was tailored to push us beyond our comfort zone, through challenging and ‘out of the box’ practical
activities and assignments.
The programme also provided us with a fantastic opportunity to get to know each other as individuals outside of the busy
work environment and gain an understanding of each other’s daily challenges and aspirations. This has helped to build
strong relationships and has created a close network of managers with an enhanced understanding and appreciation of
good leadership.”
The programme has delivered clear benefits both for the business and the people involved and, in 2019, we intend to identify
the second group of employees to participate in it.
Case study
Strategic capital investment – T&I machine
The Group continues to drive efficiency improvements by investing in world-class
technology. During the year, the Group completed the installation of a brand new £2m
state-of-the-art ‘T & I’ plate girder line at its production facility in Lostock. In combination
with our highly-skilled team specialising in structural bridgework, this will improve our
bridge capability and positions us well to take advantage of a strong pipeline of major
infrastructure projects which is being driven by UK government policy.
The new plate girder line assembles flat plates into the distinctive top ‘T’ sections and
the vertical ‘I’ sections and is the biggest of its kind in the UK, capable of fabricating steel
beams of up to 3.5 metres in depth and 1.5 metres in width. This investment supplements
our existing plate girder lines at Severfield (UK)’s other production site at Dalton, North
Yorkshire and following further investment in our on-site paint shops at Lostock and
Ballinamallard, will enable Severfield to deliver up to 95 per cent of the current bridge
market steelwork requirements.
Commenting on the new investment, Severfield (UK) managing director, Gary Wintersgill, said: “The investment at our facility in
Lostock will enable us to build on our capability as the UK’s largest bridge provider and deliver not only the volumes required
by the market, but also the productivity benefits from modern state-of-the-art equipment.”
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our operating performance
Our specialist cold rolled steel joint venture business, CMF,
performed well during the year, having a beneficial impact
both on operating margins and the share of results from JVs
and associates. We continue to be the only hot rolled steel
fabricator in the UK to have this cold rolled manufacturing
capability, which has now been expanded to include purlins
and additional cold formed products, allowing the Group to
further integrate elements of its supply chain.
The remedial bolt replacement works at Leadenhall were
completed in 2017 with the total expenditure being in
line with the non-underlying charge made in 2015.
Discussions continue with all stakeholders to determine
where the financial liability for the remedial costs should
ultimately rest.
Order book and market conditions
The UK order book at 1 June 2018 of £237m is consistent
with the level that it has been for the past six months and
reflects the anticipated increase from the position of £229m
at the time of announcing the 2017 full year results. The order
book, of which £200m is for delivery over the next 12 months,
remains in line with our ‘normal’ order book levels, which
typically equate to eight to ten months of annualised revenue.
This provides us with good visibility of earnings into the next
financial year and supports continued progress towards our
strategic targets.
The order book contains a healthy mix of projects across
a diverse range of sectors including commercial offices,
industrial and distribution, data centres and retail.
Significant new orders secured during the year include
a number of commercial office developments in London
and in the regions, including the landmark contract for the
new Google Headquarters at Kings Cross, the Engineering
Campus Development at Manchester University, the
Westfield Stratford City expansion, industrial and distribution
projects for a variety of clients, together with two large data
centres in the Republic of Ireland and Belgium.
The Google project, which was awarded in December 2017,
represents an order in excess of £50m and will require us
to provide over 15,000 tonnes of structural steelwork for a
new eleven storey head office building. Work is scheduled to
commence on-site in the second half of the 2019 financial
year.
Despite the uncertainties of Brexit, we continue to see a
stable UK market, with modest economic growth forecast,
and a pipeline of potential future orders that remains good.
This pipeline includes a number of significant projects in
the coming months across the commercial offices (both
in London and outside), retail, industrial and distribution,
data centres and infrastructure sectors. The market for
data centres and industrial and distribution appears strong
at present and although pricing remains competitive, the
projects in these sectors play to our strengths, requiring
high-quality, rapid throughput, on-time performance and
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR full co-ordination between stakeholders. Furthermore, we
are seeing the continued re-emergence of the market in the
Republic of Ireland, where we have historically had a strong
presence, as well as a number of opportunities in mainland
Europe.
In February 2018, in response to recent changes in the mix of
work being experienced by the Group, which is substantially
changing the requirement for steel fabrication at our Lostock
and Dalton facilities, we transitioned a number of job roles
from Lostock to Dalton. These changes will allow us to
enhance our market-leading position, whilst continuing to
provide our clients and stakeholders with a high-quality
cost-effective product and service.
Looking further ahead, UK government policy is helping
to drive a strong pipeline of major infrastructure projects,
particularly in the transport sector including HS2 stations
and bridges, the expansion of Heathrow airport as well as
the ongoing Network Rail and Highways England investment
programmes. The combination of our in-house bridge
capability, which has seen significant investment over recent
years, and our historical record in transport infrastructure,
leaves us well positioned to win work from such projects, all
of which have a significant steel content.
India
In 2018, our Indian joint venture, JSSL, continued to grow,
performing steadily and profitably. The business, once again,
generated strong operating margins of 9.2 per cent (2017:
9.7 per cent) and a profit after tax, of which the Group’s
share is £0.5m (2017: £0.2m). The improved profitability in
2018 reflects both the good operational performance of the
business coupled with lower financing costs following the
repayment of the joint venture’s term debt of £11.0m in
June 2017.
The market for structural steel in India has improved
significantly over recent months and we are now seeing clear
signs of the conversion from concrete to steel which is vital
to the long-term growth and value of JSSL. These market
developments are evident in JSSL’s record order book of
£106m at 1 June 2018, which has increased significantly
recently and compares favourably to the order book of
£73m at 1 June 2017. There is also a growing pipeline
of opportunities which mainly comprises higher margin
commercial projects, where we now have visibility of a large
number of potentially interesting developments, as well as
industrial work, including for our joint venture partner, JSW
Steel, which is seeking to substantially increase its domestic
steel output in the short to medium term. The step up in the
pipeline of opportunities is expected to benefit the business
in the 2019 financial year and beyond, with demand at these
levels likely to fill and exceed our current factory capacity
levels. Accordingly, in tandem with our joint venture partner,
we are currently reviewing certain incremental investment
options for the business.
Overall, we remain confident in the long-term development
of the market and of the business, especially considering
the recent market upturn and step up in the order book.
We believe that the business continues to have a solid
foundation from which to deliver future profitable growth,
and value will continue to build in the business as it enters
the next phase of its development.
Business investment
The Group has invested £6.4m in capital expenditure during
the year (2017: £7.0m) representing the continuation of
the Group’s capital investment programme. The capital
expenditure includes further investment in the new in-
house painting facilities at Lostock and Ballinamallard, new
equipment for our fabrication lines, further enhancement
of our in-house fleet of on-site construction equipment and
improvements to our site infrastructure and staff welfare
facilities.
The cash generation of the Group remains strong and we
will continue to invest £6m to £7m per annum to support the
development of our client service offering and our operational
improvements and efficiencies.
Safety
We are committed to the safety of all who come into contact
with our business and over the past three years we have
seen an improvement in our overall safety performance. The
Group’s accident frequency rate (‘AFR’) for the year, which
includes our Indian joint venture, was 0.22, compared to 0.24
recorded last year, which represents another year-on-year
improvement. This improvement was again driven by our UK
operations which reduced from 0.42 to 0.40 in the year. Whilst
year-on-year improvements continue, health and safety
continues to be central to all of the Group’s activities and
our strategic programme of activities and improvements has
supported progress in the year.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our operating performance
All members of our board, once again, participated in site
safety visits during the year and we continue to further
develop the monitoring and analysis of all safety-related
incidents, including near misses, high potential incidents
and also minor injuries for prevention programmes and
campaigns. We have commenced the next stage of our
behavioural safety programme and are now seeing further
enhancements around behaviour and cultural change.
Our occupational health programme continues to evolve
with focus on prevention measures. We have further
developed awareness and support protocols on mental and
physical health-related issues. In light of this, in addition to
supporting the Mates in Mind charitable programme we will
also be signing up to the Build UK charter to improve and
promote positive mental health in construction.
Sustainability remains a key part of the Group’s strategy,
aiming to create visible leadership and objectives at all levels
and to all stakeholders. A number of projects have been
identified and progressed through an established working
group, for example emergency lighting upgrades.
Strategy
We have continued to deliver on our strategic objectives.
During the year, as part of the ‘Smarter, Safer, more
Sustainable’ programme, we have implemented a number
of improvement initiatives aimed at business processes
and operating efficiencies (including the reorganisation of
our North Yorkshire factory operations), use of technology
and new product development all set within our framework
of robust risk management and control. We also continue
to work closely with our existing client base, as well as
developing new client relationships to target an increased
pipeline of opportunities, to ensure that we are meeting their
ever-changing requirements.
We continue to adopt an integrated solutions mindset,
listening to clients’ operational challenges and then designing
a package of solutions to help them achieve their goals. Our
engineers and designers remain focused on key areas such
as value engineering, health and safety through design and
the use of more cost-effective and innovative steel solutions,
all for the benefit of our clients.
We are now actively pursuing three new areas of organic
growth. During the year, we launched our new business
venture at Sherburn, Severfield (Products & Processing),
which commenced trading in April 2018. We continued
to develop our European business venture and have
commenced bidding for work in continental Europe, assisted
by the new business development director who has now
established a small team based in the Netherlands.
Finally, we are also targeting the market for medium to
high-rise residential construction where we have developed a
steel solution. In 2018, we have performed extensive market
testing, have had positive discussions with interested parties
and believe that we are now close to securing our first order.
Summary and outlook
The strong performance of the Group has continued into
2018, with good revenue and profit growth supported by
strong cash generation. The strategic and operational
progress that we have made over recent years gives
us confidence that the Group is well placed to deliver
sustainable future profitable growth. With a high-quality
and stable order book of £237m and a strong UK pipeline of
opportunities, we expect 2019 to be another year of progress
in the UK.
In India, a significantly improving market position, a record
order book of £106m and a growing pipeline of commercial
opportunities, positions the business well to deliver future
profitable growth. It is this improvement in the market
which will really drive long-term value in the business and,
in tandem with our joint venture partner, we are currently
reviewing certain incremental investment options for the
business as it enters the next phase of its development.
Overall, both the performance of the UK business and the
Indian joint venture are consistent with the continued
progress towards our strategic targets, including the doubling
of 2016 underlying profit before tax to £26m by 2020.
Finally, I would like to thank all of our employees for their
high level of commitment and professionalism during
2018, particularly during a period of change for some of our
businesses, which has contributed to another successful
year for the Group.
Alan Dunsmore
Chief executive officer
20 June 2018
38
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 25943
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Our financial performance
Our financial performance
We have a strong and flexible balance sheet
which underpins our plans for the future.
Revenue
Underlying* operating profit
(before JVs and associates)
Underlying* operating margin
(before JVs and associates)
Underlying* profit before tax
Underlying* basic earnings per
share
Operating profit (before JVs
and associates)
Profit before tax
Basic earnings per share
Return on capital employed
(‘ROCE’)
2018
£274.2m
2017
£262.2m
£22.9m
£19.6m
8.3%
£23.5m
7.5%
£19.8m
6.4p
5.5p
£21.5m
£22.2m
6.1p
£17.8m
£18.1m
5.1p
16.5%
14.6%
* 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.
Trading performance
In 2018, we delivered a strong financial performance.
Revenue for the year ended 31 March 2018 of £274.2m
represents an increase of £12.0m (five per cent) compared
with the previous year. This is a result of increase in
production activity during the year (we continue to work on
four large projects with revenues in excess of £20m), together
with an increase in steel prices. The Group’s order book at
1 June 2018 of £237m (1 June 2017: £229m) remains in line
with our normal order book levels, which typically equate to
eight to ten months of annualised revenue.
Read our Group financials on pages 126 to 162
Read our Company financials on pages 164 to 170
Adam Semple
Group finance director
40
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Revenue
Underlying* profit before tax
Net funds
£274.2m
(2017: £262.2m)
£23.5m
(2017: £19.8m)
£33.0m
(2017: £32.6m)
m
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Underlying operating profit (before JVs and associates) of
£22.9m (2017: £19.6m) reflects an increased underlying
operating margin (before JVs and associates) of 8.3 per cent
(2017: 7.5 per cent). The operating margin has continued to
benefit from the embedding of operational efficiencies across
the Group through better risk and contract management
processes and production process improvements combined
with higher profits from certain project completions which
mainly benefitted in the first half of the year. The statutory
operating profit (before JVs and associates), which includes
the Group’s non-underlying items, was £21.5m (2017: £17.8m).
The share of results of JVs and associates was a profit of
£0.9m (2017: £0.5m) and net finance costs were £0.2m (2017:
£0.2m).
Underlying profit before tax, which is management’s primary
measure of Group profitability, was £23.5m (2017: £19.8m).
The statutory profit before tax, reflecting both underlying and
non-underlying items, was £22.2m (2017: £18.1m).
Share of results of JVs and associates
The Group’s share of results from its Indian joint venture
was a profit of £0.5m (2017: £0.2m), reflecting another year
of profitability for the business. The profit is the result of a
stable operating margin of 9.2 per cent (2017: 9.7 per cent),
reflecting continued good operating performance, coupled
with lower financing costs following the repayment of the
joint venture’s term debt in June 2017.
Our specialist cold rolled steel joint venture business, CMF,
contributed a Group share of profit of £0.4m (2017: £0.3m).
Having successfully integrated the metal decking supply into
our operations in the prior year, CMF has invested further
during the year. We continue to be the only hot rolled steel
fabricator in the UK to have this cold rolled manufacturing
capability, which has now been expanded to allow the
production of purlins and additional cold formed products.
This has further increased the value offering and profit
contribution from the business.
Non-underlying items
Non-underlying items for the year of £1.3m (2017: £1.8m)
comprised:
• Amortisation of acquired intangible assets – £1.3m
(2017: £2.6m)
• Movement in fair value of derivative financial instruments
– £nil (2017: gain of £0.8m)
Non-underlying items are classified as such as they do not
form part of the profit monitored in the ongoing management
of the Group.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our financial performance
Amortisation of acquired intangible assets represented the
amortisation of customer relationships which were identified
on the acquisition of Fisher Engineering in 2007. These
customer relationships were fully amortised during the 2018
financial year.
In the prior year, 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. No
similar items have been recorded in the income statement for
the current year following the adoption of hedge accounting
at the 2017 financial year-end.
The associated tax impact of the above, together with the
impact of a reduction in future corporation tax rates on
deferred tax liabilities, was £0.4m (2017: £0.6m).
Finance costs
Net finance costs in the year were £0.2m (2017: £0.2m).
The Group has been in a net funds position for the whole 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 Group’s underlying taxable profits (which excludes
results from the JVs and associates) of £22.6m (2017:
£19.4m) resulted in an underlying tax charge of £4.4m (2017:
£3.3m). This represented an effective tax rate of 19.4 per cent
(2017: 17.1 per cent). The lower prior year effective tax rate
reflected the recognition of deferred tax assets on historical
trading losses. These losses are now fully utilised.
The total tax charge for the year of £4.0m (2017: £2.7m)
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 for certain deferred tax
items. 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 15 per cent
to 6.4p (2017: 5.5p) based on the underlying profit after tax
of £19.1m (2017: £16.5m) and the weighted average number
of shares in issue of 299.7m (2017: 298.9m). Basic earnings
per share, which is based on the statutory profit after tax,
was 6.1p (2017: 5.1p), this growth reflects the increased
profit after tax and a reduction in non-underlying items.
Diluted earnings per share, including the effect of the Group’s
performance share plan, was 6.0p (2017: 5.1p).
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 1.7p
(2017: 1.6p) per share payable on 14 September 2018 to
shareholders on the register at the close of business on
17 August 2018. This, together with the Group’s interim
dividend of 0.9p (2017: 0.7p) per share, will result in a total
dividend per share for 2018 of 2.6p (2017: 2.3p), an increase
on the prior year of 13 per cent. In addition, the board is
also recommending a special dividend of 1.7p per share
(2017: nil). The final and special dividends are not reflected
on the balance sheet at 31 March 2018 as they remain
subject to shareholder approval.
Goodwill and intangible assets
Goodwill on the balance sheet is valued at £54.7m (2017:
£54.7m). In accordance with IFRS, an annual impairment
review has been performed. No impairment was required
either during the year ended 31 March 2018 or the year ended
31 March 2017.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Other intangible assets on the balance sheet are recorded
at £0.1m (2017: £1.6m). The reduction in the year primarily
represents the remaining intangible assets (customer
relationships) identified on the acquisition of Fisher
Engineering in 2007 being fully amortised. Amortisation of
£1.5m (2017: £2.9m) was charged in the year.
Capital investment
The Group has property, plant and equipment of £81.2m
(2017: £78.9m).
Capital expenditure of £6.4m (2017: £7.0m) represents the
continuation of the Group’s capital investment programme.
This included continued investment in the painting facilities
at Lostock and Ballinamallard, new equipment for our
fabrication lines, further enhancement of our in-house
fleet of construction site equipment, a new trailer park
and improvements to our sites and staff welfare facilities.
Depreciation in the year was £3.7m (2017: £3.6m).
Joint ventures
The carrying value of our investment in joint ventures and
associates was £18.5m (2017: £12.1m) which consists of
the investment in India of £10.7m (2017: £4.6m) and in CMF
Limited of £7.9m (2017: £7.5m). During the year, we invested
additional equity investment of £5.5m in the Indian joint
venture business to support the full repayment of the joint
venture’s term debt of £11.0m in June 2017.
Pensions
The Group has a defined benefit pension scheme which,
although closed to new members, had an IAS 19 deficit of
£17.2m at 31 March 2018 (2017: £21.4m). The decrease in
the liability is primarily the result of changes to the scheme’s
demographic assumptions (mainly updated mortality
assumptions) and ongoing deficit contributions by the Group
during the year. The triennial funding valuation of the scheme
is currently ongoing, with a valuation date of 5 April 2017. All
other pension arrangements in the Group are of a defined
contribution nature.
Shareholders’ funds
Shareholders’ funds at 31 March 2018 were £169.0m (2017:
£154.2m). This equates to a total equity value per share at 31
March 2018 of 56p, compared to 52p at the end of 2017. The
increase is primarily due to the increase in profit after tax for
the year and a decrease in the IAS 19 deficit on the Group’s
defined benefit pension scheme.
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 defined as shareholders’ equity excluding
retirement benefit obligations (net of tax), acquired intangible
assets and net funds. For 2018, ROCE was 16.5 per cent
(2017: 14.6 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
2018
2017
£26.7m
£25.1m
£23.0m
77%
£33.0m
£27.4m
112%
£32.6m
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 £33.0m (2017:
£32.6m), following dividend payments of £7.5m, capital
expenditure of £6.4m and the investment of additional equity
into the Indian joint venture of £5.5m.
Operating cash flow for the year before working capital
movements was £26.7m (2017: £25.1m). Net working capital
increased by £3.7m during the year, mainly as a result of the
unwinding of advance payments from customers. Excluding
advance payments, year-end net working capital represented
approximately two per cent of revenue (2017: two per cent).
This is lower than the four to six per cent range which we have
been targeting, mainly as a result of good payment terms on
certain ongoing contracts and a continued focus on working
capital management.
In 2018, our cash generation KPI shows a conversion of
77 per cent (2017: 112 per cent) of underlying operating
profit (before JVs and associates) into operating cash (cash
generated from operations less net capital expenditure).
This is below our target conversion of 85 per cent largely as
a result of the unwinding of advance payments as described
above.
Net investment during the year was £5.4m, reflecting capital
expenditure of £6.4m less proceeds from disposals of £1.0m.
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43
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Our financial performance
Net funds bridge – year ended 31 March 2018
m
7
.
6
2
£
m
6
.
2
3
£
)
m
7
.
3
£
(
)
m
4
.
5
£
(
)
m
5
.
7
£
(
)
m
5
.
5
£
(
)
m
9
.
3
£
(
)
m
3
.
0
£
(
m
0
.
3
3
£
Net funds
March 2017
Operating
cash flow
Working capital
movement
Net
capex
Dividends
paid
Investment
in India
Tax
Other
Net funds
March 2018
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. 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 2018.
Due to the continued strong cash performance of the Group,
the facilities were not utilised during the year and continue to
provide ongoing funding headroom and financial security for
the Group. At the time of this report, the Group has commenced
discussions with its lenders to secure new facilities replacing
the above facilities which are committed until July 2019.
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 has undertaken 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 involved 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 conclusion of this assessment is that the directors
are satisfied that no material adjustments will be required
on the initial application of the new standard. It is intended
that the standard will be implemented with full retrospective
application in the Group’s 2019 financial statements.
Impact of Brexit
Following the decision to leave the European Union (‘EU’), the
UK government continues to review and negotiate the terms of
the UK’s future relationship with the EU. Although this 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. To date,
the decision to leave the EU has not had a significant impact
on the Group but we remain vigilant to respond to any such
changes in market conditions.
Adam Semple
Group finance director
20 June 2018
44
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Going concern
In determining whether the Group’s annual consolidated
financial statements can be prepared on the going concern
basis, the directors considered all factors likely to affect its
future development, performance and its financial position,
including cash flows, liquidity position and borrowing
facilities and the risks and uncertainties relating to its
business activities. The following factors were considered as
relevant:
• The UK order book, 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 2019 financial year
and beyond;
Viability statement
In accordance with provision C.2.2 of the 2014 revision of
the UK Corporate Governance Code (the ‘Code’), the directors
have assessed the Group’s viability over a three-year period
ending on 31 March 2021. 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 £33.0m, the directors draw attention to
• The Group’s net funds position and its bank finance
facilities which are committed until July 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.
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 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 62 to 68 as well as taking into consideration recent
issues (such as recent corporate failures) that are relevant to
the industry sector in which the Group operates. In particular,
the impact of a reduction in margin of 25 per cent, a reduction
in revenue of 25 per cent, a deterioration in working capital
(the extension of customer payment terms by one month), a
period of business interruption (two months with no factory
production) and a significant one-off event resulting in a
cost to the Group of £15m. 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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45
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Building a sustainable business
Sustainability underpins our business model. It
benefits our operational effectiveness and protects
our reputation.
Smarter, Safer, more Sustainable
Smarter, Safer, more Sustainable, our business improvement
programme, represents the consolidation of all of the
Group’s ongoing improvement projects, established to help
us in achieving the Group’s overall strategy. This programme
illustrates how our commitment to sustainability underpins
our business model and strategy. 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.
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.
Read more about how Smarter, Safer, more Sustainable
supports our strategy on page 23
Our sustainability priorities include health and safety,
reductions in environmental impacts, people development
and engagement, innovation, supply chain governance
including human rights and modern slavery, and supporting
communities and charities.
Safety, health and environment
A principal aim of the board is to continue to ensure that,
through example and encouragement, we behave ethically
and responsibly, particularly in the fields of health, safety and
environmental management. Our ‘safety first’ value remains
at the core of all areas of the business as many of our
activities continue to be potentially dangerous. All aspects
of safety, health and environment remain a fundamental and
integral aspect of the business.
It is encouraging to see that our health and safety
performance has, for a second consecutive year, continued
to improve with an accident frequency rate (‘AFR’) of 0.22,
which includes an AFR of 0.40 for our UK operations. In
order to further support our reduction and prevention of
incidents programme, we have introduced further monitoring
mechanisms of total incident frequency rate (‘IFR’) and high
potential incident rate (‘HiPo’).
During the year, we have introduced new initiatives and
schemes which include the introduction of bump caps into
our factories following consultation and support from our
employees, the establishment of a group of mental health
first aiders and a safety calendar where the pictures were
designed by children of our employees.
46
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR The next phase of the behavioural safety programme has been completed with sessions to be undertaken with all involved to
establish a way forward to ensure continued progression and development into the future.
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.
Strategic goals
SAFETY, HEALTH AND ENVIRONMENTAL
STRATEGIC GOALS
A fair and safe way of working
Leadership; communication; engagement;
accreditation; training
No incidents that harm people
Leadership; training; preventative actions;
life-saving rules; behavioural
Industry-leading occupational health
Leadership; support; health promotion;
mental health
Carbon footprint reduction
Leadership; training; communication; reduce,
reuse, recycle
THE FOUNDATIONS
Senior managers
Staff and contractor
engagement
Supervisors/team leaders
Zero deviation plan
Key stakeholders
Consequence strategies
Group AFR
0.22
(2017: 0.24)
UK operations AFR
0.40
(2017: 0.42)
5
2
.
0
4
2
.
0
2
2
.
0
4
4
.
0
2
4
.
0
0
4
.
0
6
1
0
2
7
1
0
2
8
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
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47
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Building a sustainable business
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.
We have continually recognised good safety, health and
environmental (‘SHE’) practices across the Group by
acknowledgements and rewards alongside promotion of such
within our internal newsletters.
The introduction of our six ‘life saving rules’ clearly
communicates our expectations around particular high-risk
areas of our day-to-day work to further prevent incidents.
These rules will also underpin our ‘just and fair’ culture within
the behavioural safety programme:
1
Fundamentals
Always wear appropriate personal
protective equipment and do not
carry out a task unless you are
trained and authorised to do so.
Make sure you assess the risks
involved and guard against them.
2
3
4
5
Working at height When working at height, protect
yourself and others against a fall
and always use fall protection
safety equipment.
Control of lifting
operations
Ensure all lifting operations are
planned and executed safely.
Make sure the lifting device is
capable of lifting the load. Never
allow anyone to be in the drop
zone of the load.
Machine safety
Always make sure the machine is
fit for purpose.
Vehicle
movement
6
Material stability
48
Always follow the traffic rules,
wear your seatbelt, keep within
speed limits, and do not use
handheld phones whilst driving.
Pedestrians must always use
designated walkways.
Ensure all material is stable and
adhere to the appropriate Red Tag
risk assessment system in our
factories.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR No incidents that harm people
Industry-leading occupational health
We continue to improve the facilities and working
environment in all our factories in addition to engaging with
our clients to improve site conditions and working areas.
Accident and investigation training remained a focus across
the disciplines to ensure root causes are clearly identified
and actioned to prevent further occurrences. The extension
of investigations from accidents to near misses with a high
potential for harm, which further highlight preventative
measures, has been a success with clearer actions and
prevention measures being put in place.
We have continued to proactively assess our occupational
health provision and management to mitigate risk to our
people and our business. A support and prevention model
has been put in place to support the business going forward.
We will continue to develop our occupational 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.
A health and well-being strategy will be developed and
implemented in the next year to further enhance the
occupational health provision, including positive mental
health awareness and development aspects.
During the year, 188 directors’ site tours were undertaken.
This was considerably more than our target and 70 more than
was achieved in the previous year. These have shown a clear
commitment and drive for SHE policies across all areas of
the business.
We have delivered over 2,800 SHE training courses during
the year, with additional focus to ensure our internal courses
are both bespoke and industry-leading. In 2018, the average
number of SHE training days per employee was 2.0 (2017: 2.3).
A large number of employees across the Group have
undertaken behavioural safety coaching training, which has
empowered them to be an integral part of the culture change
within the business. The success of the programme has been
underlined by the fact that many employees have requested
continued involvement in the programme in the future.
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49
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Building a sustainable business
Carbon footprint reduction
Sustainability’s triple bottom line
Steel 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’.
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
renewable energy and the responsible sourcing of materials.
We continue to be accredited with the Gold Membership
Standard of the Steel Construction Sustainability Charter.
Sustainability committee
In the year we have fully established the terms of reference
for our sustainability committee with 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 greenhouse gas (‘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 6001.
For 2019, further improvements and initiatives will be
implemented to further reduce our environmental impact
whilst also reducing costs to the business.
Climate disclosure project
The Group is committed to addressing climate risk and
reducing the lifetime emissions of the assets it builds.
In 2018, we achieved a C rating for the global evaluation
standard, the Climate Disclosure Project (‘CDP’), in line with
the industry average rating of C.
The annual rating is based on CDP’s evaluation of the Group’s
strategy, goals and actual emission reductions, as well as
transparency and verification of reported data. It assesses
the completeness and quality of the Group’s measurement
and management of carbon footprint, climate change
strategy, risk management processes and outcomes. We
have an action plan in place, which includes the external
verification of certain reports, to enable us to achieve a B
rating in 2019.
Environmental performance
The Group maintains its environmental management
system accreditation to ISO 14001:2015. Information on our
environmental impact is collated monthly and is reported
to the board. All our work 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 reporting
We 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.
In 2018, our combined Scope 1 and 2 emissions have
increased by three per cent from the previous year. This
is largely due to a higher usage of heating oil across our
Yorkshire factories, in what was a harsh winter for the region,
leading to an overall increase in Scope 1 emissions by 19
per cent. We have again successfully reduced our absolute
Scope 2 carbon emissions by 13 per cent from the previous
year by continuing to focus on energy efficiency across the
Group. Our intensity ratio per £m of revenue has decreased by
two per cent from 40.5 to 39.8. We will continue to review our
carbon emissions going forward and assess any reduction
programmes which will further reduce our carbon footprint
where possible.
50
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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 our 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
European-wide legislation and is manufactured to a level of
quality that is second to none.
For the year ended 31 March 2018, the Group’s global GHG
emissions were as follows:
Emissions from:
Scope 1 – combustion of fuel
and operation of facilities
Scope 2 – electricity, heat,
steam and cooling purchased
for own use
Total CO2e emissions
Intensity measurement:
Absolute tonnes equivalent
CO2e per £m of revenue
Innovation
Tonnes of CO2e
2018
2017
6,244
5,231
4,667
10,911
2018
39.8
5,390
10,621
2017
40.5
Innovation plays an important role in winning work, building
long-term relationships and creating additional value
for our stakeholders. The challenge is to remove complex
and repetitive activities from our projects by rethinking
design, fabrication and construction. 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.
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. We have also established an engineering forum
to identify new and innovative ways of working which can then
be embedded across the Group to become business as usual.
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51
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Building a sustainable business
The attraction of the best and brightest talent, their
engagement, development, reward and recognition are
critical to building a sustainable and profitable business.
Our goals
Attract
We will attract the best
and brightest talent.
Engage and perform
We will engage and manage our
people to give their best every day.
Our vision
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
people
Reward and recognise
We will reward and recognise
people who demonstrate our
values and contribute to the
achievement of our goals.
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.
Well-being
We will promote health and
well-being to our people.
Our purpose
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.
52
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR People
Attract
We will attract the best and brightest talent
Our focus continues to be on attracting, recruiting and retaining
the best and brightest talent. During the year, we recruited 221
people, strengthening a range of disciplines across the Group.
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. This has been underpinned by the recruitment of 66
apprentices and trainees in 2018 across the Group (2017: 39),
continuing our trend of recruiting at least ten apprentices each
year since our dedicated apprenticeship programme launched
in 2010. We will continue to invest in apprenticeships during
2019 and beyond.
We provided opportunities for 42 existing employees to gain
recognised qualifications whilst they worked through their
apprenticeships, in disciplines such as project management
and business improvement techniques, through our Lean
programme for continuous improvement.
In 2018, we continued to recruit graduates and reiterated our
commitment to providing opportunities for undergraduates
via work placements across several functions including
business support, quantity surveying, design engineering,
site management and project management. We also provide
support to individuals who are undertaking further and higher-
level qualifications and working towards membership of
professional bodies including the Institution of Civil Engineers
(‘ICE’), the Institution of Structural Engineers and The Royal
Institution of Chartered Surveyors.
As well as ensuring that we attract and recruit the best and
brightest talent, we must also retain that talent. In 2018,
voluntary labour turnover was 8.6 per cent (2017: 7.9 per cent).
Equal opportunities and diversity
We are an equal opportunities employer and are committed
to encouraging diversity and eliminating discrimination in
both our 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 people with a protected characteristic, should as
far as possible, be identical to that of other applicants without
the characteristic. In the event of an employee becoming
disabled, every effort is made to ensure that their employment
within the Group continues and that appropriate training is
arranged where necessary.
In March 2018, we published our first Gender Pay Gap Report
for two of our business units that are in scope of the Equality
Act 2010.
This is available on the Group’s website:
www.severfield.com
Our median gender pay gap of 29 per cent provides a
benchmark that enables us to drive improvement in inclusivity
and diversity across the Group over the next couple of years.
We are confident that our gender pay gap does not stem from
paying men and women differently for the same or equivalent
work. Rather our gender pay gap is a result of the fact that the
structural steel and construction sectors (and in particular
senior leadership roles within these sectors, which attract the
higher levels of pay) are male-dominated.
Our gender pay gap also reflects wider issues. In the UK, only
25 per cent of graduates in science, technology, engineering
and mathematics (‘STEM’) are women and only 14 per cent are
graduates of engineering and technology. We are committed
to addressing this by promoting STEM subjects to all young
people, aiming to increase the number of women in trainee
STEM roles and by changing the perception of STEM careers. By
doing this, we aim to encourage more young women to follow a
career in our industry to create a diverse talent pipeline.
Diversity will continue to be an area of focus in the year ahead,
reflecting its importance to our business and to our clients.
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53
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Building a sustainable business
Engage and perform
Reward and recognise
We will engage and manage our people to give their best
every day
We will reward and recognise people who demonstrate our
values and contribute to the achievement of our goals
We have continued to review all internal communications
across the Group. This included introducing further feedback
opportunities for our employees, as well as creating and
implementing new, more informative internal communication
channels suitable for all our internal audience groups.
During the year, we have successfully launched our internal
newsletter, Steel Reel, and quarterly employee magazine,
Skyline, both of which have provided the Group with an
important platform in which to recognise and reward our
employees’ achievements.
Internal communication and employee engagement will
continue to be a focus for the next year, with the development
of a company intranet currently underway. We will continue to
encourage our employees to use our newly developed internal
communication channels to share their stories and celebrate
Group successes.
We continued to encourage our people to become
shareholders and launched our second save as you earn
scheme (‘SAYE’) in June 2017. Over 64 per cent of our
employees are now shareholders via our Share Incentive
Plans (‘SIP’) and SAYE 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 plan to launch
our third SAYE scheme following the maturity of our first
scheme in June 2018.
In 2019, we will continue to look for ways to improve employee
engagement and participation.
Each of our businesses offer a competitive reward package
and review salaries annually in line with market rates. Our
focus is on cash and variable pay rather than fixed benefits
and each division’s reward package includes an annual
Group profit and safety-related bonus which encourages the
achievement of our strategic objectives.
All our employees are eligible to participate in the Severfield
plc pension scheme (defined contribution). Employees also
have the option to make their own contributions through
salary sacrifice. We continue to facilitate 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. This includes cycle to work, childcare
vouchers and discount schemes.
Severfield is committed to be 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 more than the
London living wage.
We recognise and reward the loyalty of our people and in
2018, nine staff celebrated 25 years’ service, bringing our
25-year club to 115 members.
Pictured: The Ordsall Chord project team awarded the ‘large community and heritage project’ winner at the 2018 annual ICE
North West civil engineering awards
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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 2018, we encouraged our employees to take an active
role in identifying their own learning needs and to take
responsibility for their own development through 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 continue developing the
PDR process.
We have invested over 1.3 per cent of our payroll costs in
learning and development activities. The main areas of
focus were:
Management development
We have published an internal brochure to communicate
the availability of learning and development opportunities
amongst all our employees. Additional training modules now
include coaching skills, team-building, giving and receiving
feedback and tackling difficult conversations.
Graduate programme
We continued 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 on external secondments (where
appropriate), enabling them to gain a broad understanding of
the various disciplines and acquiring the skill sets required
for chartered membership of the ICE.
Leadership development
Leadership development is vital for our business and as
part of this programme, we have 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 for action.
We will continue to measure the impact of changes in
leadership style by repeating the process at an appropriate
point.
We have also introduced executive coaching as a trial for
a small number of executives within the business and
will evaluate this on an individual, team and business
performance level.
Succession and talent management
To protect the long-term success of our business we want to
ensure that we understand our talent pipeline and support
development so that our people reach their full potential. We
have conducted a full review of key roles within the business
and identified possible medium-term successors for the
majority of roles. Action plans are in place to address gaps
in knowledge and experience to meet our priority business
needs and ensure there is a pipeline of talent for internal
progression.
In April 2017, we launched the first Severfield development
programme to fast track the development of 16 talented
managers. This programme focused on the development
of personal impact and leadership skills, strategic and
commercial awareness and provided the opportunity to work
across different business units by working on Group-wide
business improvement projects identified by the board.
The programme has delivered clear business benefits,
achieved its objective of fast tracking the development of
its participants and been well received by participants. In
2019, the business intends to identify the next group of
participants for a second cohort.
We also took the opportunity to highlight emerging talent
across the business 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.
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55
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report Building a sustainable business
Well-being
We will promote health and well-being to our people
In 2018, 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.
Building on our involvement with Mates in Mind, we have
commenced the first stages of a mental health awareness
programme with the training and development of nine
personnel as mental health first aiders. In the coming year,
we will continue to develop our well-being strategy with a
focus on raising awareness through a calendar of events
throughout the year.
We recognise that employees’ financial worries can be a
major cause of mental ill health and that failing to save
for retirement can result in employees working beyond
their desired retirement date which can lead to reduced
performance. Consequently, in 2018, in conjunction with
our pension scheme administrators, we ran a programme
of saving for retirement awareness sessions to educate our
employees and encourage them to contribute more into their
pension. In the coming year, we will widen our focus to include
general financial awareness and living within a budget.
Business integrity
Human rights
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. We believe
that this risk can be effectively managed, and we continue
to make a number of phased improvements to our supply
chain pre-qualification and audit processes to make them
as robust as possible. Further details of the Company’s
approach to modern slavery and its updated Modern Slavery
Act transparency statement for 2018 can be accessed at
www.severfield.com.
General Data Protection Regulation (‘GDPR’)
GDPR replaces the Data Protection Act 1998 in the UK and
has been designed to harmonise data privacy laws across
Europe, to protect all EU citizens’ data privacy and to reshape
the way organisations across the region approach data
privacy. We take GDPR seriously and are working with the
business and its supply chain to ensure individuals’ personal
information is handled in compliance with the legislation.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR The Severfield Foundation
The Severfield Foundation (‘the Foundation’), our registered
charitable incorporated organisation, continues to be
successful in raising funds and awareness for charitable
bodies throughout the UK. The Foundation is run by its
trustees, who are all employees of the Group, and since
its incorporation in 2016, the Foundation has raised over
£100,000 for both national and regional charities.
The Foundation supports one main ‘partner’ charity as well
as several local charities chosen by each Group company
(decided by our employees at each location). In 2018, our
partnership with Prostate Cancer UK carried on for a second
year and has continued to provide our employees with the
opportunity to take part in major sporting events such as
the London and Berlin marathons, the Great North Run and
RideLondon Surrey 100. With the Severfield workforce being
predominantly male, Prostate Cancer UK is very relevant to
our Company.
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.
The Foundation publishes its own annual report which
can be found at:
www.severfield.com/about-us/the-severfield-foundation
Communities
At Severfield we pride ourselves on our commitment to
supporting local charitable initiatives as well as engaging
with the communities close to our sites. Throughout 2018,
the Group has continued to take part in many activities
across the country, promoting career and apprenticeship
opportunities for young people within the business.
We also 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 the last 12 months
the Group has supported a number of STEM events, including
hosting a visit from a number of engineering apprentices
from Stadt Regensburg in Germany, as part of the Erasmus
Programme. Furthermore, we welcomed students from
Manchester University into our Lostock production facility to
see first-hand the type of engineering work carried out in our
factories. Severfield has also supported ‘STEM days’ at local
schools, encouraging young people to consider careers in
engineering.
The Group also provides sponsorship to local clubs and
groups, supporting local communities near to each of our
sites, as well as encouraging thought leadership amongst
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.
Severfield employees have also been committed to raising
funds for a number of local and national charities, including
Prostate Cancer UK, Bolton Hospice, St. Catherine’s
(Scarborough), Breast Cancer Now, the Yorkshire Air
Ambulance, Cancer Connect NI, Fermanagh Stroke
Associations, Jengana, and SANDS.
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57
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report 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 appetite
Risk management process
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 and 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.
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.
•
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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR • 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
• 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.
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.
• 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.
• On a quarterly basis, the significant risks identified by
the Group’s businesses are discussed in detail with each
management team. In addition, the chief executive officer,
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.
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
• Group
• Executive
authorisation
policy
• Contract
sign-off
process
• Purchase
guidelines
• Quality
manual
• SHE policies
committee,
risk
committee
and safety
leadership
team
• Audit
committee
• Nominations
committee
• External audit
•
Internal audit
• Other third party
assurance
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report How we manage risk
The Group operates a comprehensive budgeting and
forecasting system. Risks are identified and appraised
throughout the annual process of preparing budgets. The
annual budget and quarterly forecasts are approved by the
board.
A formal quarterly review of each business’s year-end
forecast, business performance, risk and internal control
matters is carried out by the directors of each business unit
with the chief executive officer, Group finance director and
chief operating officer in attendance.
Cash and working capital management — cash flow
forecasts are regularly prepared to ensure that the Group
has adequate funds and resources for the foreseeable future
and is in compliance with banking covenants. Each business
reports its cash position daily. Actual cash performance is
compared to forecast on a weekly basis.
B. Second line of defence: Group oversight
The first line of defence is supported by certain Group
policies, functions and committees which, in combination,
form the second line of defence.
Group policies — internal controls across financial,
operational and compliance systems are provided principally
through the requirement to adhere to the Group finance
manual, divisional procedures and a number of Group-wide
policies (such as the Group authorisation policy, the contract
sign-off process, the purchase 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 were audited successfully on
our ISO 27001 accreditation for our information security
management system. This continues to give further
assurance as to the Group’s resilience to cyber risk, which is a
subject that has also been discussed at main board level.
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.
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 Group’s policies and procedures are continuously under
review and improved to ensure they are adequate for our
current circumstances.
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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Changes to principal risks
The following changes have been made to the Group’s
principal risks in 2018:
•
Information technology resilience risk (cyber attack or
property damage leads to IT disruption with resultant
loss of data, loss of systems functionality and business
disruption) has been upgraded from medium to high,
reflecting the increasing global information security
threats including cybersecurity attacks, malicious code
intended to gain access to confidential information and
viruses.
• Failure to mitigate onerous contract terms risk (the
failure to adequately manage contract risk and adhere
to Group policies and, as a result, commit to obligations
which the Group is unable to meet without incurring
significant unexpected costs). This was previously
identified as a risk in 2014 and is a risk which we
constantly monitor. It can vary between low and medium
risk depending on the mix of contract work in our
order book.
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.
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.
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61
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report How we manage risk
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.
Principal risk
Strategic pillars
Link to KPIs
Movement
Scoring
1 Health and safety
1 2 3 4 5 6 7
2 Information
technology
resilience
3 Commercial
and market
environment
4 Mispricing
a contract
(at tender)
5 Failure to mitigate
onerous contract
terms
6 Supply chain
7 Indian joint
venture
8 People
9 Industrial
relations
1 2 3 4 5 6 7
1 2 3 4 5 6 7
1 2 3 4 5 6 7
1 2 3 4 5 6 7
1 2 3 4 5 6 7
1 2 3 4 5 6 7
1 2 3 4 5 6 7
1 2 3 4 5 6 7
Strategic pillar key
KPI key
Movement
Growth
Clients
India
Scoring
Operational
excellence
1 Underlying operating profit and margin
Upward trend
(before JVs and associates)
2 Underlying basic earnings per share
Downward trend
No change
People
(‘EPS’)
3 Revenue growth
4 Operating cash conversion
5 Return on capital employed (‘ROCE’)
6 Order book
7 Accident frequency rate (‘AFR’)
Scoring
High
Medium
The 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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
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How we manage risk
2018 principal risks
Scoring
Medium
High
1 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, 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, all of
which focus on prevention and risk reduction/elimination.
• Thorough and regular employee training programmes
(including behavioural safety training).
• 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 and
staff remuneration.
2 Information technology resilience
Description
• Specific software has been acquired to combat the risk of
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 which are subject
to board approval, including anti-virus software, off-site
and on-site backups, storage area networks, software
maintenance agreements and virtualisation of the IT
environment.
•
•
64
ransomware attacks.
• 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 and have been updated for GDPR.
• 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.
Insurance covers certain losses and is reviewed annually
to establish further opportunities for affordable risk
transfer.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
3 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 still not had a significant impact on the UK construction
market, outcomes following the decision to leave the EU
remain difficult to predict and could affect investor confidence.
• 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).
• Development of new organic revenue streams including
in Europe, residential and Severfield (Products &
Processing) which fit the Group’s risk appetite.
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 and market
review 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 and
marshalling of market opportunities is undertaken on a
co-ordinated Group-wide basis.
• 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 of the sector.
4 Mispricing a contract (at tender)
Description
Mitigation
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.
•
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
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.
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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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report How we manage risk
5 Failure to mitigate onerous contract terms
Description
Mitigation
The Group’s revenue is derived from construction contracts
and related assets. Given the highly competitive environment
in which we operate, contract terms need to reflect the
risks arising from the nature or the work to be performed.
Failure to appropriately assess those contractual terms or
the acceptance of a contract with unfavourable terms could,
unless properly mitigated, result in poor contract delivery,
poor understanding of contract risks and legal disputes.
Impact
Loss of profitability on contracts as costs incurred may not be
recovered and potential reputational damage for the Group.
• The Group has identified minimum standard terms which
mitigate contract risk.
• Robust tendering process with detailed legal and
commercial review and approval of proposed contractual
terms at a senior level (including the risk committee)
are required before contract acceptance so that
onerous terms are challenged, removed or mitigated as
appropriate.
• Regular contract audits are performed to ensure contract
acceptance and approval procedures have been adhered
to.
• We have worked with the British Constructional Steelwork
Association to raise awareness of onerous terms across
the industry.
6 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.
Implementation of best practice improvement initiatives
including automated supplier accreditation processes.
• 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.
66
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 7 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.
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.
8 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
• 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.
• Market and operational plan now implemented; overhead
reduction and operational improvement programmes
remain ongoing.
• Close monitoring of cash flow and debt repayments.
• Repayment of term debt has eased cash flow.
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 2018 we continued to focus on emerging talent,
succession planning and career opportunity and
concluded the first phase of our Severfield development
programme which is helping 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 have made a series of improvements in internal
communications across the Group.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comStrategic report How we manage risk
9 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.
Strategic report approval
The Group’s strategic report is set out on pages 16 to 68.
The strategic report is approved by the board and signed on its behalf by
Mark Sanderson
Company secretary
20 June 2018
68
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 25943
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Our governance
Our board of directors
Our executive committee
Our chairman’s view on governance
Corporate governance report
Audit committee report
Nominations committee report
Directors’ report
Directors’ remuneration report
– Letter from the committee chairman
– Policy
– Implementation
Directors’ responsibilities statement
72
74
76
78
86
90
92
96
98
106
117
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Our board of directors
John Dodds
Non-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 a non-executive director of Newbury
Racecourse plc.
Alan Dunsmore
Chief executive officer
Appointed: 2010
Adam Semple
Group finance director
Appointed: 2018
Alan was appointed chief executive officer in
February 2018. Prior to this he held the position
of Group finance director from March 2010 to
March 2017 and acting chief executive officer
from April 2017 to January 2018.
He 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.
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.
He was appointed as Group finance director in
February 2018, having held the role on an acting
basis since April 2017. He was previously the
Group's financial controller.
72
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Ian Cochrane
Chief operating officer
Appointed: 2013
Derek Randall
Executive director and managing director at JSW
Severfield Structures
Kevin Whiteman
Senior independent director
Appointed: 2014
Ian joined the Group in 2007, following the
acquisition of Fisher Engineering. Ian worked
at Fisher Engineering for 26 years, starting in
the drawing office and progressing to managing
director in October 2007. He previously held the
position of Group operations director.
Appointed: 2008
Derek previously held the position of executive
director for business development until his
appointment in December 2013 as managing
director of JSW Severfield Structures Limited
(JSSL), our joint venture in India.
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.
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.
A chartered engineer, Kevin was chief executive
of Kelda Group and Yorkshire Water for a period
of eight years. Kevin was non-executive chairman
of both companies from 2010 to March 2015.
In 2013 he became chairman of the privately
owned NG Bailey. Kevin was previously chief
executive officer for the National Rivers Authority,
regional director of the Environment Agency, and
has held a number of senior positions within
British Coal. He was also chairman for Wales and
West Gas Networks (UK) Limited, and has been a
trustee for WaterAid UK.
Tony Osbaldiston
Non-executive director (chairman of the audit
committee)
Alun Griffiths
Non-executive director (chairman of the
remuneration committee)
Appointed: 2014
Appointed: 2014
A chartered accountant having qualified with PwC,
Tony was previously finance director of Max Factor
UK, Volvo Cars UK, Raymarine plc and FirstGroup plc.
He was also deputy group chief executive officer and
chief executive officer of FirstGroup America.
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 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 Holt
Non-executive director
Appointed: 2011
Chris retired in September 2010 from MJ
Gleeson Group plc after serving two years as
chief executive officer, prior to which he held the
position of group finance director.
Chris’s experience also includes 17 years with
Foster Wheeler Limited as finance director and
deputy chairman of the UK subsidiary company
and 12 years with Bechtel Corporation.
Chris is a graduate of Leeds University, a qualified
accountant and has an MBA from Golden Gate
University, San Francisco.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Our executive committee
1 Alan Dunsmore
Chief executive officer
For details see board of directors
on page 72
2 Ian Cochrane
Chief operating officer
For details see board of directors
on page 73
3 Derek Randall
(Not pictured)
Executive director and managing
director at JSW Severfield
Structures
For details see board of directors
on page 73
4 Adam Semple
Group finance director
For details see board of directors
on page 72
5 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.
6 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.
7 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).
6
10
5
4
1
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 8 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.
9 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.
10 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.
11 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.
7
8
11
9
2
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7575
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Our chairman’s view on governance
Dear shareholder
I am pleased to introduce the Group’s corporate governance
report on behalf of our board of directors (‘the board’). We
remain committed to maintaining the high standards of
corporate governance which we believe help to facilitate
the success of the Group and provide protection for our
shareholders. The Group is committed to business integrity,
high ethical values and professionalism in all of the activities
it undertakes. I can confirm that the stewardship and good
governance of our Company remains a high priority for the
board.
Our corporate governance report is set out on pages 78 to 84
and explains how we manage the Group and comply with the
provisions of the UK Corporate Governance Code (‘the Code’)
and outlines how the board ensures that high standards of
corporate governance are maintained.
Leadership and succession
Between 1 April 2017 and 31 January 2018, during Ian
Lawson’s absence due to physical ill health, I assumed the
role as executive chairman, with Alan Dunsmore acting as
chief executive officer and Adam Semple acting as Group
finance director. Following Ian Lawson’s departure from the
business on 1 February 2018, Alan Dunsmore and Adam
Semple were appointed to those roles on a permanent basis
and since 1 February 2018 I have resumed my role as non-
executive chairman. Ian left with our thanks and best wishes
and our ability to operate effectively in Ian’s absence was
testament to the effectiveness of the succession planning
that we have undertaken in recent years.
Board evaluation
During 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 the other directors and the board's committees.
Overall, the evaluation was positive, further details of which
can be found in the corporate governance report on page 82.
76
John Dodds
Non-executive chairman
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Accountability
In light of recent corporate failures, the FRC has focused
on the accounting and reporting framework in our sector
and issued further guidance on principal risk and viability
statement reporting. We have considered this in our principal
risk reporting which is set out on pages 58 to 61 within the
risk management section, which also includes our annual
confirmations on risk management and internal control (see
page 60). The viability statement itself is set out on page 45
within the strategic report.
We continue to assess the impact of new International
Financial Reporting Standards on our annual report. We
have completed our assessment of IFRS 15, the new revenue
recognition standard, further details of which can be found in
the notes to the financial statements on page 132.
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 87.
Our remuneration policy was approved at the AGM in
September 2017, as was our revised Performance Share
Plan (‘PSP’). A summary of our remuneration policy, how
we intend to operate that policy in 2019, and a review of the
remuneration committee’s activities, together with bonus and
PSP performance in 2018, can be found in the remuneration
report on pages 98 to 116.
Talent and diversity
The board is mindful of diversity and we believe that a diverse
company (in all regards, not just gender) provides a balanced
and effective organisation. During the year, we published our
gender pay gap report. We are confident that our gender pay
gap does not stem from paying men and women differently
for the same or equivalent work. We are mindful though that
the sector in which we operate is male dominated and we
have set up initiatives to attract more women to the business.
AGM
Our AGM this year will be held again at Aldwark Manor Hotel,
York, YO61 1UF on 4 September 2018 at 12:00 pm and I look
forward to seeing you then.
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 78.
John Dodds
Non-executive chairman
20 June 2018
Remuneration
Our executive director remuneration arrangements are
intended to support the achievement of the Group’s
objectives and strategy. With the support of the remuneration
committee's oversight, we continue to believe that the
current remuneration packages help to appropriately
incentivise management to sustain long-term value for
shareholders.
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 (April 2016), which is the version of the Code which applies to the Company for its 2018
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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77
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur 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
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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 five years. The
membership of the board is stated on pages 72 and 73.
Alan Dunsmore 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.
Non-executive chairman
John Dodds
Chief executive officer
Alan Dunsmore
Senior independent director
Kevin Whiteman
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, Alan Dunsmore 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 74 and 75. 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.
Between the start of the financial year and 31 January 2018, as a result of the temporary leave of absence of the former chief
executive officer Ian Lawson on grounds of physical ill health, John Dodds acted as executive chairman on a temporary basis,
and the chief executive officer and Group finance director performed those roles on an acting basis.
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79
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Corporate governance report
Independence
All 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 2018 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 112. 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 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 72 and 73
will be standing for re-election at the 2018 AGM.
The board is satisfied that the performance of all of the
non-executive directors continues to be effective and that
they continue to show commitment to their respective roles.
Non-executive directors are not appointed for a fixed term.
The terms and conditions of appointment of non-executive
directors will be available for inspection at the AGM.
Effectiveness
Operation of the board
The board is responsible for providing effective leadership to
the Group to create and deliver long-term shareholder value.
This includes setting the strategic direction of the Group,
reviewing all significant aspects of the Group’s activities,
overseeing the executive management and reviewing the
overall system of internal control and risk management.
The board has a formal schedule of matters reserved for it.
It is responsible for overall Group strategy, acquisition and
divestment policy, approval of major capital expenditure
projects and consideration of significant financing matters.
It monitors the exposure to key business risks including
environmental and health and safety issues. It reviews the
Group’s strategic direction, codes of conduct, annual budgets,
progress towards achievement of those budgets, significant
capital expenditure programmes and the annual and half
year results.
The board also considers employee issues and key
appointments. It also ensures that all directors receive
appropriate training on appointment and then subsequently
as appropriate. Other specific responsibilities are delegated
to the board’s committees described below.
The chairman, together with the Company secretary, ensures
that the directors receive clear information on all relevant
matters in a timely manner. Board papers are circulated
sufficiently in advance of meetings for them to be thoroughly
digested to ensure clarity of informed debate. The board
papers contain the chief executive officer’s, 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 and members of
the executive committee.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Board meetings
The directors’ attendance record at the scheduled board meetings and board committee meetings for the year ended
31 March 2018 is shown in the table below.
Total number of meetings
Executive directors
Ian Lawson*
Ian Cochrane
Alan Dunsmore
Derek Randall
Adam Semple†
Non-executive directors
John Dodds**
Kevin Whiteman
Tony Osbaldiston
Alun Griffiths
Chris Holt
Board
11
Audit
committee
3
Remuneration
committee
5
Nominations
committee
4
0/9
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
—
—
—
—
—
1/1
3/3
3/3
3/3
3/3
—
—
—
—
—
1/1
4/5
5/5
5/5
5/5
—
—
—
—
—
1/1
4/4
4/4
4/4
4/4
*Ian Lawson was unable to attend any board meeting due to his continued ill health and he resigned as a director on 31 January 2018.
† Adam Semple attended all board meetings during the period but was not appointed as a director of the Company until 1 February 2018.
** During his tenure as executive chairman (1 April 2017 to 31 January 2018), John Dodds attended nine board meetings (the remaining two meetings he attended
as non-executive chairman). In addition, he attended all board committee meetings during the year but those which took place during his tenure as executive
chairman were by invitation only.
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 and, from time to time, at clients' sites to provide non-executive
directors the opportunity to increase their knowledge and understanding of the Group’s operations.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Corporate governance report
All members of the Board complete a questionnaire
Senior independent director documents key points
Discussion between senior independent director and chairman
Report given to the board and actions determined
Board evaluation process
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 2019.
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 corporate criminal offence of failing to prevent
the facilitation of tax evasion and to the new General Data
Protection Regulation ('GDPR'), and ensuring all directors
were aware of their 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, published
on the website 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 86 to 116.
Board site visit
In May 2018, the board visited the Indian joint venture, JSSL.
The board members visited the company’s offices in Mumbai
where they had the opportunity to meet key members of the
India management team. Whilst in Mumbai, Derek Randall,
JSSL managing director, presented an overview of the business
and its strategic plans. The board also visited the main
production facility in Bellary, where they enjoyed a factory
tour and also received a wide range of presentations covering
subjects such as operational improvements, safety, HR and
finance. Whilst in India, the board also took the opportunity
to visit a large construction site in Dolvi, where work is being
undertaken for our joint venture partner, JSW Steel.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Board strategy review
In addition to regular scheduled board and board committee meetings, the board undertakes an annual strategy away day
each year. This is structured to follow a scheduled board meeting. The agenda for the strategy away day is agreed in advance,
including specific strategic issues which have been raised at previous board meetings or requested by the board.
Board meetings for the current year
During the financial year, the board discussed and implemented the following key actions:
April 2017
• Review of the HSE sentencing guidelines and
business continuity and crisis management
arrangements
• Strategic review undertaken and strategic plan
updated
• Reviewed the statement of compliance in accordance
with the Modern Slavery Act
June 2017
• Reviewed and approved annual report and accounts
• Approved final dividend
• Assessed going concern and longer term viability of
the Group
• Board site tour at 22 Bishopsgate
September 2017 (two meetings)
• Board visit to the Ballinamallard factory and business
update presentation by Severfield (NI)’s senior
management team
• Approved the corporate criminal offence risk
mitigation plan
• Reviewed annual statements of compliance from
directors and approved conflicts of interest
• Adopted new PSP rules after AGM shareholder approval
• Approved appointment of new financial PR advisers
(Camarco)
January 2018
• Presentation by the Group SHE director on current
health and safety performance
• Board visit to Dalton factory and business update
presentation by Severfield (UK)'s senior management
team
• Presentation on implementation of strategy in Europe
by European Business Development Director
• Reviewed investor feedback on interim results
• Agreed scope and content of board and chairman
evaluation
• Approved board changes for appointment of new chief
executive officer and Group finance director
May 2017
• Presentation by the Group SHE director on current
health and safety performance and strategy
• Board visit to Sherburn factory and business update
presentation by Severfield (Design & Build)'s senior
management team
• Approved proposal to make a further India equity
investment to repay joint venture term debt
July 2017
• Presentation by Group HR director on HR strategy
• Reviewed feedback on year-end results
• Reviewed IT director’s paper on current and planned
cybersecurity risk mitigation plans
November 2017 (two meetings)
• Board site tour at Tottenham Hotspur
• Reviewed and approved half year results
• Approved interim dividend
February 2018
• Approved the proposed GDPR compliance plan
March 2018
• Presentations on latest market developments
• Reviewed board and chairman evaluation results
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83
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance 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 126 to 170) and a statement
by the auditor concerning their responsibilities (pages 120
to 125). The directors also report that the business is a going
concern (page 95) 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 16 to 68). The directors have also
made a statement about the long-term viability of the Group,
as required under the Code (page 45).
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 96 to 116.
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 board recognises the importance of communicating
with its shareholders to ensure that its strategy and
performance is understood. 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 and issues regular trading updates to the market.
Alan Dunsmore and Adam Semple 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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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 25943
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Audit committee report
Role and key responsibilities
The primary function of the committee is to assist the
board in fulfilling its oversight responsibilities. This
includes reviewing the financial reports and other financial
information before publication. The committee assists the
board in achieving its obligations under the Code in areas of
risk management and internal control, focusing particularly
on areas of compliance with legal requirements, accounting
standards and the Listing Rules (Listing Authority Rules
for companies listed on the London Stock Exchange), and
ensuring that an effective system of internal financial and
non-financial controls is maintained.
The committee also reviews the accounting and financial
reporting processes, along with reviewing the roles of
and effectiveness of the external auditor. The ultimate
responsibility for reviewing and approving the annual report
remains with the board.
The responsibility of the committee principally falls into the
following areas:
• 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 committee
“ 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.”
Members
Tony Osbaldiston (chairman)
Kevin Whiteman
Alun Griffiths
Chris Holt
John Dodds
The composition of the Audit Committee meets with the
requirements of the UK Corporate Governance Code
(April 2016) and is reviewed regularly. All committee members
during the year were independent non-executive directors in
accordance with the Code. The members have been selected
to provide the wide range of financial and commercial
expertise necessary to fulfil the committee’s duties.
Tony Osbaldiston and Chris Holt are chartered accountants.
By invitation, there were a number of other regular attendees
including internal and external auditors. Alan Dunsmore,
Adam Semple and Mark Sanderson 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 three occasions during the year.
86
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Activities of the committee
Fair, balanced and understandable
The committee addressed the following key agenda items in
relation to the 2018 financial year:
• Reviewed the interim results for the period ended 30
September 2017 and the year-end results for the period
ended 31 March 2018.
• Reviewed the significant management judgements
reflected in the Group’s results including significant
contract judgements and the carrying value of 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 2018. 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
2018.
• 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 2018.
• 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.
• Considered the effectiveness of the external auditor,
KPMG LLP (‘KPMG’), their independence and
reappointment for the year ending 31 March 2019.
• 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.
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 58 to 61.
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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87
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur 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 could 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 45
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.
In the 2017 annual report, the carrying value of goodwill
and other non-current assets was classified as a significant
accounting risk which covered the impairment risks
associated with both goodwill and the investment in the
Indian joint venture. Given the strong profitability of the
underlying business to which goodwill relates, the goodwill
component of this item is no longer classified as a risk in the
2018 annual report.
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, the estimation of future
costs to complete and the estimation of claims received by
the Group. The external auditor performed detailed audit
procedures on revenue and profit recognition and reported
their findings to the committee.
Review of carrying value of investment in the Indian
joint venture:
The committee considered the carrying value of investments
in the Indian joint venture and the assumptions underlying
the impairment review. The judgements in relation to
impairment largely relate to 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 2018 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 2018 marks the third 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 Annual report and accounts for the year ended 31 March 2018Stock code: SFR For work that is permitted under the policy, authority is
delegated to the Group finance director to approve up
to a limit of £50,000 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 2018
required the approval of the committee.
Details of the auditor’s fees, including non-audit fees (which
comply with the Group’s policy on the provision of non-audit
services), are shown in note 4 to the consolidated financial
statements. The total non-audit fees for 2018 represent
16 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
20 June 2018
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 for 2018 is
Adrian Stone, whose appointment in this role commenced
with the audit for the financial year ended 31 March 2016.
Following Adrian's decision to retire from KPMG in late 2018,
the new statutory auditor responsible for the Group audit for
2019 will be David Morritt, subject to the reappointment of
KPMG at the AGM.
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 is compliant with the Code and with the
FRC’s revised Guidance on Audit Committees. It includes
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 policy requires a competitive
tender for all work with a fee over £30,000.
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89
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Nominations committee report
John Dodds
Chairman of the nominations committee
“ The committee ensures the
continued effectiveness of
the board through appropriate
succession planning.”
Members
John Dodds (chairman)
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt
The committee met on four occasions during the year,
primarily to consider the interim arrangements necessary
to ensure continuity in Ian Lawson’s continued absence
and the further changes needed when Ian left the business
in February 2018. For the majority of the year, whilst I was
acting as executive chairman, Kevin Whiteman acted as
chairman of the nominations committee, but I resumed my
role as chairman on 1 February 2018.
Role
The primary function of the committee is to deal with key
appointments to the board, and related employment matters.
The responsibility of the committee principally falls into the
following areas:
• 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 effectiveness
The committee had to consider interim arrangements to
ensure business continuity following Ian Lawson's illness in
March 2017 and, drawing on the succession planning work
undertaken over the previous three years recommended to
the board that Alan Dunsmore should be appointed as acting
chief executive officer and Adam Semple as acting Group
finance director. After Ian's departure from the business,
the committee reviewed their performance during the year
and recommended to the board that they be offered the
positions on a permanent basis. As a result, one new board
appointment was made in Adam Semple and the board
has consequently been at full strength, and considered to
be operating effectively all year. The board consists of nine
directors, four of whom have been directors of the Company
for less than five years.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Diversity
We truly value diversity and a culture of inclusion at all levels
within the Group. Our formally adopted equal opportunities
and diversity policy sets out the key actions that will be taken
to ensure we have a more diverse workforce throughout
the Group. We consider diversity to include diversity of
background, race, disability, gender, sexual orientation,
beliefs and age and encompasses culture, personality and
work-style.
We support the principle of seeking 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
2018, the board had no female directors. Notwithstanding
this, female representation on our executive committee is
two (18 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 planning
The committee ensures the continued effectiveness of
the board through appropriate succession planning. The
value of this work was borne out this year when the new
chief executive officer and the new Group finance director
were both selected from candidates who were part of our
succession plan. We shall continue to undertake succession
planning across the Group.
Evaluation
The committee (led by Kevin Whiteman) performed an
internal evaluation using the process described on page 82.
The results of the evaluation were positive, following the
significant changes made to the board four years ago. The
key points arising from the evaluation were documented and
discussed with the chairman.
John Dodds
Chairman of the nominations committee
20 June 2018
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91
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ report
Introduction
The directors present their report together with the audited
consolidated financial statements for the year ended 31
March 2018.
As permitted by legislation, some of the matters normally
included in this report have instead been included in the
strategic report on pages 16 to 68, 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 78 to 84 is
incorporated in this report by reference.
There have been no significant events since the balance
sheet date.
Directors
The present membership of the board is set out on pages 72
and 73.
The other significant commitments of the chairman consist
of acting as 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 103.
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 continue to adopt voluntarily the practice that all directors
stand for re-election on an annual basis, in line with the
recommendations of the Code.
92
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Powers of the directors
Directors’ indemnities
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.
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 2018, 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)
Share capital
Ordinary
2.5p share
44,514,541
41,374,845
24,063,792
17,004,251
16,756,297
16,529,583
%
14.77
13.73
7.99
5.64
5.56
5.49
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 2018, there were 299,682,810 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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ report
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 2018 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 2017, 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 2018 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 2017, 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 2018 AGM (or, if earlier,
until the close of business on 30 September 2018). During the
period, the directors did not use their power to issue shares
under the authorities but did issue shares to 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 2017, 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 2018 AGM (or, if earlier, until the
close of business on 30 September 2018). During the period,
the directors did not use these powers.
Dividends
The directors declared an interim dividend for the six months
ended 30 September 2017 of 0.9p per ordinary share (2017:
0.7p). The directors have recommended a final dividend
of 1.7p per ordinary share and a special dividend of 1.7p
per ordinary share to be paid on 14 September 2018 to
shareholders on the register at the close of business on
17 August 2018.
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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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Going concern
Disclosure of information to the external auditor
After making enquiries, the directors have formed a
judgement at the time of approving the financial statements
that there is a reasonable expectation that the Group has
adequate resources to continue in operational existence
for at least 12 months from the approval of the financial
statements. For this reason, the directors continue to
adopt the going concern basis in preparing the financial
statements.
The 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.
The key factors considered by the directors in making the
statement are set out in the financial review on page 45.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the Act.
Anti-corruption and bribery matters
External auditor
KPMG LLP acted as the auditor for the Company for the year
ended 31 March 2018. 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 meeting
The notice concerning the AGM to be held at Aldwark Manor
Hotel, York at noon on Tuesday 4 September 2018, 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 92 to 95 inclusive was
approved by the board and signed on its behalf by:
Mark Sanderson
Company secretary
20 June 2018
The Group updated its anti-bribery policy during the year
and prohibits all forms of bribery, both in giving and receiving,
wherever it operates. This includes its own employees and
any agent or business partner acting on its behalf. No
concerns have arisen in relation to such matters during the
year and the Group does not regard corruption or bribery as a
principal risk. Part of our policy is to undertake due diligence
on the risks associated with operating in any high-risk
locations.
Additional disclosures
Additional information that is relevant to this report, and
which is incorporated by reference into this report, including
information required in accordance with the UK Companies
Act 2006 and Listing Rule 9.8.4R, can be located as follows:
• Employees, employee involvement and engagement –
pages 52 to 56
• Respect for human rights – page 56
• Social matters – pages 56 and 57
• Equal opportunities (including for the disabled) – page 53
• Environmental matters – pages 46 to 50
• Greenhouse gas emissions – pages 50 and 51
• Long-term incentive plans – page 101 of the directors’
remuneration report
• Statement of directors’ interests – page 112 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 29 to the Group financial
statements
Mark Sanderson
Company secretary
95
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
Directors’ remuneration report
The management team performed well during the year
despite the prolonged absence through ill health of
Ian Lawson. The team was restructured on 1 February
2018, following Ian's departure from the business, which
was agreed in accordance with the terms of his service
agreement. The remuneration committee, within the terms
of the approved remuneration policy and with due regard to
the policy on payment for departure from office, considered
Ian's long and successful tenure as chief executive officer
and agreed the treatment of his deferred bonus shares
under the deferred share bonus plan ('DSBP') and awards
under the Severfield performance share plan ('PSP') on
31 January 2018. Ian was not paid any bonus for the year
ended 31 March 2018. He was classified as a 'good leaver'
for the share schemes in which he participated. Awards
under the DSBP were allowed to vest in full on the date of
retirement. In respect of Ian's outstanding awards under the
PSP, these continue to be capable of vesting on their normal
vesting date. The extent of the performance vesting of the
awards remains dependent on the applicable performance
conditions being met. In addition, a time pro-rata reduction
shall be applied. The details of the departure terms are
shown on page 111.
Ian Lawson's successor as chief executive officer is Alan
Dunsmore, an internal appointment. Alan was promoted
from Group finance director to chief executive officer on a
permanent basis, having undertaken the role on an acting
basis since April 2017 and his remuneration adjusted
accordingly. The remuneration package is substantively the
same as that provided to the retiring chief executive officer,
but with a reduced salary. Adam Semple was promoted from
Group financial controller to Group finance director on the
same date, having also undertaken the role on an acting
basis, and his remuneration was also adjusted accordingly.
Further details are set out below.
Outline of the remuneration report
The report is split into the following two sections:
• Part 1, the remuneration policy report, which sets out the
remuneration policy for the executive and non-executive
directors; and
• Part 2, the annual report on remuneration, which
discloses how the remuneration policy was implemented
for the year ended 31 March 2018 and how it will be
implemented for the year ending 31 March 2019.
Alun Griffiths
Chairman of the remuneration committee
“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 shareholder
I am pleased to present our directors' remuneration report
(the 'report') for the year ended 31 March 2018 incorporating
our annual report on remuneration which is being tabled
for shareholder approval at the 2018 AGM and which
incorporates the remuneration policy approved at the AGM in
2017.
The Group has continued to perform 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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
The annual report on remuneration will be subject to an
advisory shareholder vote at the forthcoming AGM on
4 September 2018. This provides details of the remuneration
earned by directors for performance in the year ended
31 March 2018. The directors’ remuneration policy report was
strongly supported by shareholders in a binding vote at the
2017 AGM, with 99.66 per cent of votes cast in favour and is
not being submitted to a shareholder vote at the 2018 AGM.
The policy is intended to remain in place for three years from
the date of approval and will next be subject to a binding vote
at the 2020 AGM (or sooner if changes are made to the policy).
Performance and reward 2018
Base salaries
The remuneration packages of Alan Dunsmore and Adam
Semple were adjusted following their promotion on
1 February 2018, respectively, to positions of chief executive
officer and Group finance director. The base salary for Alan
Dunsmore was increased to £350,000 from £325,000 (his
base whilst undertaking the role on an acting basis). The base
salary for Adam Semple was increased to £220,000. This
provides scope for further growth as he develops in his role.
Other terms and conditions were adjusted in line with policy.
In both cases, the revised base salaries are below those of
the previous incumbents.
During the year, other directors received a 2.5 per cent salary
increase which was broadly in line with that received by the
UK workforce.
Annual bonus
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 63 per cent of the maximum
for all of the executive directors except 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) who achieved a bonus pay-out of 69 per cent.
PSP awards
The normal maximum award level for the chief operating
officer is up to 75 per cent of salary. An award of 100 per
cent of salary was made to Ian Cochrane in 2018, above this
level but within the approved policy maximum annual award
limit of 150 per cent of salary. This is to reflect the increased
responsibilities and contribution to the Group during Ian
Lawson’s absence and during the management team’s
restructuring. The targets for the 2018 award are set out
below.
PSP vesting
The levels of profit achieved last year resulted in targets for
the 2015 PSP award (EPS targets which equated to PBT of
between £16m and £24m) being exceeded, resulting in the
expected vesting of these awards at close to their maximum
level (95.4 per cent).
Implementation of policy for 2019
Base salaries
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 2018. There will be no change to the fees
paid to non-executive directors.
Annual bonus
The financial and safety performance targets for the 2019
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.
PSP
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 7.88p to 9.75p in 2021. This equates to a PBT range of
£29.5m to £36.5m. This represents an increase in the lower
vesting threshold of £4.5m (18 per cent) and in the threshold
at which maximum vesting takes place of £7.0m (24 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
The committee continues to seek to strengthen shareholder
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 consider our remuneration policy
achieves these objectives.
I look forward to engaging with shareholders before and at
the AGM to answer any questions they might have.
Alun Griffiths
Chairman of the remuneration committee
20 June 2018
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97
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
This report complies with the provisions of the Companies Act
2006, the Large and Medium-sized Companies and Groups
Regulations 2008 as amended in 2013, the UK Corporate
Governance Code 2016 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 parts:
• a summary of the directors’ remuneration policy
Part 1- Summary of directors’ remuneration policy
The remuneration policy was approved at last year’s AGM.
Provided for information only are the details of the policy
that were referenced in the committee’s activities over the
past reporting year which includes the remuneration policy
table, the recruitment remuneration arrangements, executive
director service contracts and terms and conditions for non-
executive directors. Minor updates have been made to the
table to reflect the adoption of the new PSP scheme approved
at last year’s AGM.
(pages 98 to 105). This section contains details of the
remuneration policy approved at the 2017 AGM and is for
information only.
The full policy report, as approved by shareholders, can be
found on page 83 in the 2017 annual report. It is intended this
policy will remain in place until the 2020 AGM.
•
the directors’ annual remuneration report (pages 106
to 116). This section sets out the details of how our
remuneration policy was implemented for the year ended
31 March 2018 and how we intend to apply it for the year
ending 31 March 2019, and it is subject to an advisory
vote at this year’s AGM.
This is available on the Group’s website:
www.severfield.com
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Remuneration policy table
Executive directors
Base salaries
Purpose and link to strategy
To provide the core reward for the role.
Sufficient to recruit and retain directors of the calibre necessary to execute the Group’s strategy.
Operation
Base salaries are normally reviewed annually by the committee.
Our review takes into account levels of increase across the broader workforce, changes in responsibility, and a periodic
remuneration review for comparable companies.
Performance conditions
The committee considers individual salaries each year
having due regard to the factors noted in operation of the
policy.
No recovery provisions apply to salary.
Maximum opportunity
There is no prescribed maximum.
Current salaries are disclosed in the annual report on
remuneration.
Increases (as a percentage of salary) are generally limited to
the range set for the wider workforce.
However, further increases may be awarded where
there have been significant changes in the scope and/or
responsibilities of the role or a material change in the size
and scale of the Group.
Benefits
Purpose and link to strategy
Cost-effective benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group’s strategy.
Operation
The 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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
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.
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 109.
100
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Performance Share Plan (‘PSP’) (approved by shareholders in 2017)
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.
All-employee share plan
Purpose and link to strategy
To foster wider employee share ownership.
Operation
The Group currently operates a share incentive plan and introduced a sharesave scheme in February 2015.
Participation in any all-employee share plans operated by the Group is in line with HMRC guidelines. Executive directors are
entitled to participate on the same basis as for other eligible employees.
Maximum opportunity
The Group has discretion under the all-employee share
plans to issue awards up to the HMRC approved limits as set
from time to time.
Performance conditions
No recovery provisions apply to all-employee share awards.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance 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.
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
chief operating officer and 75 per cent of salary for other
executives vesting at 50 per cent of the maximum.
• Maximum (performance meets or exceeds maximum) —
Fixed pay plus maximum bonus and maximum PSP award
vesting.
Fixed pay comprises:
• Salaries — salary effective as at 1 July 2018;
• Benefits — amounts expected to be received by each
executive director in the 2019 financial year;
• Pension — amount that will be received by each executive
director in the 2019 financial year based on the policy set
out in the table above.
The scenarios do not include any share price growth.
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.
102
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Chief executive officer
Chief operating officer
■ Fixed ■ Bonus ■ LTIP
31%
22%
31%
22%
100%
56%
38%
1,250
1,000
0
0
0
£
750
500
250
0
1,250
1,000
0
0
0
£
750
500
250
0
31%
31%
23%
23%
100%
54%
38%
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
Group finance director
Executive director
1,250
1,000
0
0
0
£
750
500
250
0
25%
33%
42%
18%
23%
59%
100%
1,250
1,000
0
0
0
£
750
500
250
0
25%
34%
41%
18%
24%
58%
100%
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
Executive directors’ service agreements
All executive directors’ service agreements run on a rolling basis. Notice periods of 12 months are required to be given by all
parties. Payment to be made in lieu of notice on termination is equal to 12 months’ salary or to any proportion of unexpired
notice period.
Full details of the contracts of each director, including the date, unexpired term and any payment obligations on early
termination, are available from the Company secretary at the annual general meeting.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
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.
Under the rules of the DSBP, 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 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.
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.
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).
104
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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.
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 chief executive officer 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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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur 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 2018 as well as how the policy will
be implemented for 2019. 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 2018
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:
5/5
1/1
5/5
4/5
5/5
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. For the period from 1 April 2017 until 31 January 2018, during which period, he was executive chairman, John
Dodds attended all meetings by invitation only.
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 2018 totalled £33,000 (2017: £34,000).
106
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Directors' earnings for the 2018 financial year (audited)
Remuneration received by the directors
£000
Executives
Ian Lawson1
(until 31 January 2018)
Alan Dunsmore2
Ian Cochrane
Derek Randall
Adam Semple3
John Dodds4
Non-executives
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt
Salary
Bonus
272
330
302
249
167
146
—
—
—
—
1,466
—
206
190
173
66
—
—
—
—
—
635
Year ended 31 March 2018
Fees
Benefits
Pension
—
—
—
—
—
21
45
45
45
40
196
16
16
16
—
11
—
—
—
—
—
59
64
53
50
50
16
—
—
—
—
—
233
LTIPs*
Total
385
197
240
197
21
—
—
—
—
—
1,040
737
802
798
669
281
167
45
45
45
40
3,629
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 2018.
* Calculated at 95.4 per cent of maximum award × the average share price over the period 1 January 2018 to 31 March 2018 of 78.01p.
1 Ian Lawson was an executive director for the period 1 April 2017 to 31 January 2018 and received compensation for loss of office of £408,000 on his departure
on 31 January 2018. These payments represent amounts to which the Group was contractually obliged. He was not paid any bonus for the year ended 31 March
2018.
2 Alan Dunsmore’s remuneration comprises his remuneration as acting chief executive officer and as chief executive officer. He was paid a supplement of
£63,000 to his salary as Group finance director to reflect the additional responsibilities of the acting chief executive officer role for the period 1 April 2017 to
31 January 2018.
3 Adam Semple operated as acting Group finance director from 1 April 2017 to 31 January 2018 when he was appointed to this role on a permanent basis. The
remuneration stated above comprises his remuneration as acting Group finance director and as Group finance director. He was paid a supplement of £43,000 to his
salary as Group financial controller to reflect the additional responsibilities of the acting Group finance director role for the period 1 April 2017 to 31 January 2018.
4 John Dodds operated as executive chairman from 1 April 2017 to 31 January 2018 when he resumed his role as non-executive chairman. The salary he received
as an executive director and the fees he received as a non-executive director have been disclosed separately.
£000
Executives
Ian Lawson
Ian Cochrane
Alan Dunsmore
Derek Randall
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt
Salary
Bonus
373
293
248
243
—
—
—
—
—
1,157
359
282
239
195
—
—
—
—
—
1,075
Year ended 31 March 2017
Fees
Benefits
Pension
—
—
—
—
100
45
45
45
40
275
28
31
16
—
—
—
—
—
—
75
75
50
50
50
—
—
—
—
—
225
LTIPs*
Total
393
231
190
190
—
—
—
—
—
1,004
1,228
887
743
678
100
45
45
45
40
3,811
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 2017 and are calculated as actual value of benefit at the actual vesting date based on
the vesting share price of 81.25p.
107
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
Remuneration received by the directors
The remuneration packages of Alan Dunsmore and Adam Semple were adjusted following their promotion on 1 February
2018, to positions of chief executive officer and Group finance director respectively. The base salary for Alan Dunsmore
was increased to £350,000 from £325,000 (his base whilst undertaking the role on an acting basis). The base salary for
Adam Semple was increased to £220,000. This provides scope for further growth as he develops in his role. Other terms
and conditions were adjusted in line with policy. In both cases, the revised base salaries are below those of the previous
incumbents.
During the year, other directors received a 2.5 per cent salary increase which was broadly in line with that received by the UK
workforce.
Past directors/loss of office payments (audited)
During the year, a payment for loss of office was made to Ian Lawson, chief executive officer until 31 January 2018. In
accordance with our policy on compensation for loss of office, Ian was paid 12 months’ salary but was not paid any bonus for
performance in 2018. Given the circumstances of his decision to leave the business, coming as it did at the end of absence
due to physical ill health, the committee decided to treat him as a good leaver so that he retained his unvested PSP awards.
These are therefore expected to vest at their normal vesting date with a pro-rata reduction being made to each for the
unexpired element of the performance period as at 31 January 2018. In addition, in relation to his forfeitable DSBP share
awards made in the last three years, the committee decided to treat him as a good leaver and allow his awards to vest on 31
January 2018. Finally, reflecting his personal circumstances, the committee decided to allow Ian to retain his private health
benefit until 31 December 2018. There have been no other payments made to past directors during the year.
How pay linked to performance in 2018
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 receive nil cost options exercisable after three
years over a seven-year period which are forfeitable only in certain scenarios in accordance with the remuneration policy as
disclosed on page 100.
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
£206,000
£190,000
£66,000
£173,000
As reported last year, the bonus plan applicable to the executive directors for 2018 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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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR The targets for 2018 and the pay-out against these targets are set out below:
For all directors (excluding Derek Randall)†
% of
maximum
bonus
opportunity
80%
20%
Measure
Group PBT*
Group AFR
Threshold
£22.0m
0.26
On-target
£23.2m
0.26
Maximum
£27.8m
0.26
Actual
£23.5m
0.22
% of
bonus paid
53%
100%
Pay-out
as %
of salary
43%
20%
63%
* For Group PBT, ‘threshold’ represents 95 per cent of budget, ‘on-target’ represents 100 per cent of budget and ‘maximum’ represents 120 per cent of budget.
† During the financial year, Adam Semple achieved 67 per cent bonus pay-out as a percentage of salary reflecting the additional Group cash flow measure included
in his agreed bonus target as acting Group finance director.
Derek Randall (JSSL managing director):
% of
maximum
bonus
Threshold
opportunity
40%
£22.0m
40% Break-even
0.12
20%
Measure
Group PBT*
JSSL (India) PBT*
JSSL (India) AFR
On-target
£23.2m
4.2 Cr
0.12
Maximum
£27.8m
20.0 Cr
0.12
Actual
£23.5m
10.5 Cr
–
% of
bonus paid
53%
70%
100%
Pay-out
as %
of salary
21%
28%
20%
69%
* 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.
The 2015 PSP awards are due to vest in June 2018, subject to the achievement of an EPS performance condition measured
over the three financial years ended 31 March 2018. The minimum EPS figure required for vesting of 25 per cent of the award
was c.4.30p which equates to a PBT of £16.0m. 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 £23.5m which equates to EPS of 6.38p and
therefore it is estimated that 95.4 per cent of these awards will vest subject to continued service.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
A summary is set out below:
PSP awards granted to directors in 2018 (audited)
Share awards were made in the year under the PSP scheme for the three-year period expiring on 31 March 2020. Details of the
awards made to the executive directors are summarised below.
Ian Lawson³
Alan Dunsmore
Ian Cochrane
Derek Randall
Adam Semple
Type
Nil-cost option
Nil-cost option
Nil-cost option
Nil-cost option
Nil-cost option
Number of
shares % of salary
100%
100%
75%
75%
25%
458,132
304,549
269,888
221,948
31,655
Face value
(£)1
377,959
251,253
222,658
183,107
26,115
Performance
condition2
Performance
period
EPS
3 financial
years ending
31 March
2020
% vesting
at
threshold
25%
1 Face value calculated based on the pre-grant date share price of 82.50p on 14 June 2017.
2 Performance conditions are based on EPS targets of 6.76p (minimum performance – 25% vests) to 7.98p (maximum performance – 100% vests) with linear
interpolation in between. This represents a PBT range of £25m–£29.5m.
3 Ian Lawson will be entitled to receive a pro-rated award reflecting the period up to his departure on 31 January 2018.
The PSP and the annual bonus plan contain malus and clawback provisions (together 'clawback') 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).
110
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
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
Adam Semple
Total
Year of
award
2014
2015
2016
2017
Vesting
date (June)
2017
2018
2019
2020
2014
2015
2016
2017
2014
2015
2016
2017
2014
2015
2016
2017
2014
2015
2016
2017
2017
2018
2019
2020
2017
2018
2019
2020
2017
2018
2019
2020
2017
2018
2019
2020
Performance
condition
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
Awards
held at
1 April
2017
632,054
513,262
741,186
—
1,886,502
372,460
302,366
436,637
—
1,111,463
306,298
248,656
492,714
—
1,047,668
306,298
248,656
359,071
—
914,025
—
26,388
48,241
—
74,629
5,034,287
Awards
granted in
year
—
—
—
458,132
458,132
—
—
—
269,888
269,888
—
—
—
304,549
304,549
—
—
—
221,948
221,948
—
—
—
31,655
31,655
1,286,172
Awards
lapsed in
year4
(148,791)
(27,655)
(286,998)
(330,106)
(793,550)
(87,681)
—
—
—
(87,681)
(72,105)
—
—
—
(72,105)
(72,105)
—
—
—
(72,105)
—
—
—
—
—
(1,025,441)
Awards
vested
in year
(483,263)
—
—
—
Awards
held at
31 March
2018
—
485,607
454,188
128,026
(483,263) 1,067,821
—
(284,779)
302,366
—
436,637
—
269,888
—
(284,779) 1,008,891
—
(234,193)
248,656
—
492,714
—
304,549
—
(234,193) 1,045,919
—
(234,193)
248,656
—
359,071
—
221,948
—
829,675
(234,193)
—
—
26,388
—
48,241
—
31,655
—
— 106,284
(1,236,428) 4,058,590
Performance conditions are based on a range of EPS targets as follows:
2015 award1
2016 award2
2017 award3
Threshold
(25% vests)
4.30p
5.06p
6.76p
Maximum
(100% vests)
6.45p
6.53p
7.98p
1 Represents a PBT range of £16.0m – £24.0m.
2 Represents a PBT range of £18.6m – £24.0m.
3 Represents a PBT range of £25.0m – £29.5m.
4 The figures for awards lapsed in the year against Ian Lawson’s PSP awards for 2015, 2016 and 2017 reflect that he was a good leaver when he left the Company in
January 2018 and is entitled to retain his existing PSP awards calculated on a time pro-rata reduction. The amounts lapsed are those elements of those awards
which, after applying that calculation, have effectively lapsed now in any event.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
Statement of directors' shareholding
As at 31 March 20181, all executive directors and their connected persons have a shareholding as follows:
Alan Dunsmore
Ian Cochrane2
Adam Semple3
Derek Randall
Actual share ownership as a percentage of salary
62%
745%
-
105%
1 Actual share ownership was calculated with reference to the closing mid-market share price at 31 March 2018. The shareholding requirement increased to
200% for the chief executive officer and the Group finance director under the new remuneration policy, approved at the 2017 AGM, 150% for all other executive
directors. Executive directors are required to retain shares acquired under equity incentive schemes until such time as they have met the share ownership
requirement. Ian Lawson left the Group on 31 January 2018 and has not been included in this table. Details of his interests as at 31 January 2018 are included in
the table below.
2 As at 31 March 2018, only Ian Cochrane satisfied the Company’s shareholding guideline.
3 In his previous role, Adam Semple was not required to meet a shareholding requirement.
Directors’ current shareholdings (audited):
The following table provides details on the directors’ beneficial interests in the Company’s share capital as at 31 March 2018,
other than Ian Lawson who left the Company on 31 January 2018 and whose holdings are stated as at that date.
Executives
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Ian Lawson
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt
Owned
shares1
Share
incentive
plan (SIP)2
Sharesave
scheme
DSBP3
PSP4
Total5
296,173
3,087,920
—
358,411
553,883
419,833
—
—
30,000
53,097
16,416
16,416
—
4,667
8,726
—
—
—
—
—
33,003
33,003
6,200
—
33,003
216,467
258,375
—
233,307
328,930
1,045,919
1,008,891
106,284
829,676
1,067,821
1,607,978
4,404,605
112,484
1,426,061
1,992,363
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
419,833
—
—
30,000
53,097
1 Includes shares owned by connected persons.
2 SIP shares are unvested and held in trust.
3 The principal terms of the deferred share bonus plan are described on page 100.
4 PSP shares are in the form of conditional awards which will only vest on the achievement of certain performance conditions. The total includes 2015 awards
which had not actually vested as at 31 March 2018.
5 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. Some of 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 2018, 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.
New SIP
shares since
31 March
2018
323
323
Total SIP
shares at
21 May
2018
16,739
16,739
Executives
Ian Cochrane
Alan Dunsmore
112
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Position against dilution limits
Severfield plc complies with the Investment Association’s principles of executive remuneration. These principles require that
commitments under all of the Group’s share ownership schemes (including the share incentive plan (SIP), sharesave scheme
and the PSP) must not exceed 10 per cent of the issued share capital in any rolling 10-year period. The Group’s position
against its dilution limit as at 31 March 2018 was well under the maximum 10 per cent limit at 5.6 per cent.
Performance graph
The following graph shows the Group’s performance, measured by total shareholder return, compared with the performance of
the FTSE Small Cap Index. It is based on the change in the value of a £100 investment made on 31 March 2009 over the nine-
year period ended 31 March 2018.
This index was selected as it represents a broad equity market index and an appropriate comparator group of companies over
the period.
Total shareholder return
£
250
200
150
100
50
0
n
r
u
t
e
r
r
e
d
l
o
h
e
r
a
h
s
l
a
t
o
T
Mar 2009
Mar 2010
Mar 2011
Mar 2012
Mar 2013
Mar 2014
Mar 2015
Mar 2016
Mar 2017
Mar 2018
Severfield plc
FTSE Small Cap Index
Source: Factset
Chief executive officer remuneration change
The table below shows the total remuneration figure for the chief executive officer role over the same nine-year period. Total
remuneration includes bonuses and the value of PSP awards which vested (or in the case of 2018 are expected to vest) based
on performance in those years (at the share price at which they vested or, in the case of the 2018 figures, at the average share
price for the quarter immediately prior to the year-end).
2009
Haughey
2010
Haughey
2011
Haughey
2013
Haughey1
2013
Dodds2, 3
2014
Dodds2
2014
Lawson4
2015
Lawson
2016
Lawson
2017
Lawson
2018
Lawson5
2018
Dunsmore6
Total remuneration
(£000)
701
Annual bonus (%) 94.8% 50.1% 60.5%
—
LTIP vesting (%)
100.0% 100.0%
1,265
640
450
62
— N/A
— N/A
233
289
1,228
681
N/A 34.0% 65.0% 63.0% 95.0%
N/A
802
— 62.6%
— 64.0% 74.0% 95.4% 95.4%
737
946
—
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.
5 Ian Lawson received compensation of £408,000 for loss of office in accordance with his contract.
6 Alan Dunsmore operated as acting chief executive officer from 1 April 2017 to 31 January 2018, during Ian Lawson's absence due to physical ill health. Alan's
appointment to this role was made permanent from 1 February 2018. The figures in the table above represent Ian Lawson's remuneration for this period and
Alan Dunsmore's remuneration for the period in which he was both acting and permanent chief executive officer.
113
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance
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
2018
£000
2017
£000
% change
330
16
206
47
3
3
373
28
359
46
3
5
-11.5%
-42.9%
-42.6%
2.2%
0.0%
-40.0%
Relative importance of spend on pay
The following table shows the actual spend on pay for all employees relative to revenue and underlying operating profit before
the results of JVs and associates:
Staff costs
Revenue
Underlying operating profit (before JVs and associates)
Dividends
Shareholder voting
2018
£000
70,237
274,203
22,866
7,490
2017
£000
67,675
262,224
19,614
5,078
% change
3.8%
4.6%
16.6%
47.5%
The results below show the response to the 2017 AGM shareholder voting for the directors’ 2017 remuneration report
(excluding remuneration policy):
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
Total
number of
votes
232,317,280
91,930
232,409,210
137,668
232,546,878
% of votes
cast
99.96%
0.04%
100%
N/A
N/A
114
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR The results below show the response to the 2017 AGM shareholder voting for the directors’ 2017 remuneration policy:
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
Total
number of
votes
231,684,761
801,189
232,485,950
60,928
232,546,878
% of votes
cast
99.66%
0.34%
100%
N/A
N/A
Implementation of policy for 2019
The executive directors’ current salaries
The salaries of the executive directors will be reviewed in October 2018 and backdated to July 2018. Increases will be set in the
context of overall salary increases for the wider workforce.
The executive directors’ salaries at the start of the 2019 financial year are as follows:
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Benefits and pension
£
350,000
304,309
220,000
250,247
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. Alan Dunsmore will receive a salary payment in lieu of pension contribution of 20
per cent of basic salary up to a maximum of £75,000 and Adam Semple will be offered a pension contribution of 18 percent
of salary up to a maximum of £50,000. Ian Cochrane and Derek Randall will each receive a salary payment in lieu of pension
contribution of £50,000.
Rewards for performance in 2019
Bonus
The annual bonus for 2019 will operate on the same basis as for 2018 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 2019 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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Proof 13
% of award
—
50
100
115
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance Directors’ remuneration report
The committee believes that the budget PBT figures are commercially sensitive metrics and therefore are not disclosed at this
time. Actual target figures will be disclosed on a retrospective basis when these sensitivities have been removed.
Other performance-based component — 20 per cent
AFR (accident frequency rate) will again be used throughout the Group†.
AFR is an industry-recognised and measurable target. The pre-set targets have not been disclosed due to commercial
sensitivities. Actual target figures will be disclosed on a retrospective basis when these sensitivities have been removed.
† Whilst Derek Randall remains in India the AFR component of his bonus will be based on AFR (India).
Rewards for performance in 2019
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 chief
operating officer and 75 per cent of salary to the Group finance director and the JSSL managing director.
This year, we will set a performance condition for a three-year period commencing on 1 April 2018 and ending on 31 March
2021. 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 £29.5m. 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 £36.5m. 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 £4.5m (18 per cent) and in the threshold at which maximum
vesting takes place of £7.0m (24 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 2019 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
* This was the agreed figure for John Dodds’ temporary appointment as executive chairman.
Approval
This report was approved by the board of directors and signed on behalf of the board.
Alun Griffiths
Chairman of the remuneration committee
20 June 2018
2019
125,000
40,000
5,000
5,000
2018
175,000*
40,000
5,000
5,000
116
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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,
relevant, reliable and prudent;
•
•
for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
by the EU;
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;
• assess the Group and parent Company's ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern; and
• use the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
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 are
responsible for such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a strategic report, directors’ report,
directors’ remuneration report and corporate governance
report that comply with that law and those regulations.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the directors in respect
of the annual financial report
We confirm that to the best of our knowledge:
•
•
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
Alan Dunsmore
Chief executive officer
20 June 2018
Adam Semple
Group finance director
20 June 2018
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur governance 25943
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Proof 13
Our financials
Our financials — Group
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes
in equity
Consolidated cash flow statement
Notes to the consolidated financial
statements
Five year summary
Financial calendar
Our financials — Company
Company balance sheet
Company statement of changes
in equity
Notes to the Company financial
statements
120
126
127
128
129
130
131
163
163
164
165
166
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Proof 13
Independent auditor’s report
to the members of Severfield plc only
1. Our opinion is unmodified
We have audited the financial statements of Severfield plc (“the Company”) for the year ended 31 March 2018 which comprise
the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated balance sheet,
Consolidated statement of changes in equity, Consolidated cash flow statement, Company balance sheet, Company statement
of changes in equity and the related notes, including the accounting policies in note 1.
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 2018 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate
basis for our opinion. Our audit opinion is consistent with our report to the audit committee.
We were appointed as auditor by the shareholders on 2 September 2015. The period of total uninterrupted engagement
is for the three financial years ended 31 March 2018. We have fulfilled our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed
public interest entities. No non-audit services prohibited by that standard were provided.
Overview
Materiality: Group financial statements as a whole
Coverage
Risks of material misstatement
Recurring risks
£1,100,000 (2017: £900,000)
5.0% (2017: 5.0%) of total Group profit before tax
98% (2017: 98%) of total Group profit before tax
Carrying value of construction contracts
balance, and revenue and profit recognition
in relation to construction contracts
Carrying value of Indian joint venture
investment (Group and parent)
Carrying value of parent Company’s
investments in subsidiaries
vs 2017
120
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit
significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as
required for public interest entities, our results from those procedures. These matters were addressed, and our results are
based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a
whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate
opinion on these matters.
Carrying value of
construction contracts
balance and revenue
and profit recognition in
relation to construction
contracts
Revenue: £274.2m
(2017: £262.2m)
Construction contracts:
£45.6m (2017: £59.1m)
Refer to page 88 (audit
committee report), pages
134 and 139 (accounting
policies) and note 16
(financial disclosure).
The risk
Subjective estimate
Our response
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 a 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,
including associated
customer claims, that
depend on the outcome
of future events resulting
in revisions throughout
the contract period.
• Test of details: 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 or the work certified to date;
• Test of details: 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;
• Historical comparisons: Assessing the forecasted cost to
complete in the sample identified by understanding contract
performance and costs incurred post year-end along with
discussions and challenge of management;
• Test of details: Verifying the existence of customer claims
to external correspondence and challenging management’s
assessment of these;
• Historical comparisons: Assessing the forecasting accuracy of
contract margins by evaluating initial forecasted margins for a
sample of contracts across the portfolio against actual margins
achieved;
• Assessing transparency: Assessing the adequacy of the Group’s
disclosures on revenue recognition and the degree of estimation
involved in arriving at the construction contract balance and
associated revenue and profit recognition.
Our results
• We found the carrying value of construction contracts, and the
level of revenue and profit recognition in relation to construction
contracts to be acceptable (2017: acceptable).
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121
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Independent auditor’s report
to the members of Severfield plc only
2. Key audit matters: our assessment of risks of material misstatement continued
Carrying value of Indian
joint venture investment
(Group and parent)
Investment in Indian joint
venture (Group): £10.7m
(2017: £4.6m)
Investment in Indian joint
venture (parent): £18.9m
(2017: £13.3m)
Refer to page 88 (audit
committee report), pages
133 and 139 (accounting
policies) and note 14
(financial disclosure)
Carrying value of parent
Company’s investments
in subsidiaries
£73.6m; (2017: £73.7m)
Refer to page 166
(accounting policy) and
page 168 (financial
disclosures).
The risk
Forecast-based
valuation
The carrying value of
the investment in the
joint venture is at risk
of impairment due to its
recent performance. The
estimated recoverable
amount is subjective
due to the inherent
uncertainty involved
in forecasting and
discounting future cash
flows.
Significant areas of
judgement include sales
growth rates, operating
margins and the discount
rate applied to future
cash flows.
Low risk, high value:
The carrying amount of
the parent Company’s
investments in
subsidiaries represents
34% (2017: 35%) of the
Company’s total assets.
Their recoverability
is not at a high risk of
significant misstatement
or subject to significant
judgement. However,
due to their materiality
in the context of the
parent Company financial
statements, this is
considered to be the area
that had the greatest
effect on our overall
parent Company audit.
Our response
Our procedures included:
• 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;
• Sensitivity analysis: Performing sensitivity analysis on key
assumptions to understand their impact on headroom;
• Historical comparisons: Assessed actual performed against
budget to understand historical budgeting accuracy;
• 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 the investment in
the joint venture.
Our results
• We found the Group’s assessment of the carrying value of
the investment in the Indian joint venture to be acceptable
(2017: acceptable).
Our procedures included:
• Tests of detail: Comparing the carrying amount of 100% of
investments balance with the relevant subsidiaries’ draft
balance sheet to identify whether their net assets, being an
approximation of their minimum recoverable amount, were in
excess of their carrying amount and assessing whether those
subsidiaries have historically been profit-making;
• Assessing subsidiary audits: Assessing the work performed
by the subsidiary audit team on all of those subsidiaries and
considering the results of that work, on those subsidiaries’
profits and net assets;
• Our sector experience: For the investments where the carrying
amount exceeded the net asset value, comparing the carrying
amount of the investment with the expected value of the
business based on a suitable multiple of the subsidiaries’ profit.
Our results
• We found the Group’s assessment of the recoverability of the
investment in subsidiaries to be acceptable.
We continue to perform procedures over the carrying value of goodwill. However, following a continued improvement in the
profitability of the entities to which the goodwill relates, we have not assessed this as one of the most significant risks in our
current year audit and, therefore, it is not separately identified in our report this year.
122
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 3. Our application of materiality and an overview of
Total profit before tax
Group materiality
the scope of our audit
Materiality for the Group financial statements as a whole
was set at £1,100,000 (2017: £900,000), determined with
reference to a benchmark of total Group profit before tax, of
which it represents 5.0% (2017: 5.0% of total Group profit
before tax).
Materiality for the parent Company financial statements as
a whole was set at £900,000 (2017: £675,000), determined
with reference to a benchmark of Company total assets, of
which it represents 0.4% (2017: 0.3%).
We reported to the audit committee any corrected
or uncorrected identified misstatements exceeding
£55,000 (2017: £45,000), in addition to other identified
misstatements that warranted reporting on qualitative
grounds.
Of the Group’s seven (2017: seven) reporting components,
we subjected six (2017: six) to full scope audits for Group
purposes. For the residual component, we performed
analysis at a Group level to re-examine our assessment
that there were no significant risks of material
misstatement within that component.
The components within the scope of our work accounted
for the percentages illustrated opposite.
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 £250,000 to £900,000 (2017:
£320,000 to £675,000) having regard to the mix of size and
risk profile of the Group across the components. The work
on one of the seven components (2017: one of the seven
components) was performed by component auditors and
the rest, including the audit of the parent Company, was
performed by the Group team.
The Group team visited one (2017: one) component location
in India (2017: India) to assess audit risk and strategy.
Telephone conference meetings were also held 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 auditor.
£22,179,000
(2017: £18,055,000)
£1,100,000 (2017: £900,000)
£1,100,000
Whole financial
statements materiality
(2017: £900,000)
£900,000
Range of materiality
at seven components
(£250,000-£900,000)
(2017: £320,000 -
£675,000)
£55,000
Misstatements reported
to the audit committee
(2017: £45,000)
■ Total profit before tax
■ Group materiality
Group revenue
Total Group profit
before tax
100%
(2017: 100%)
100
100
Group total assets
97%
(2017: 97%)
97
97
98%
(2017: 98%)
98
98
■ Full scope for Group audit
purposes 2018
■ Full scope for Group audit
purposes 2017
■ Residual components
123
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Independent auditor’s report
to the members of Severfield plc only
4. We have nothing to report on going concern
We are required to report to you if:
• we have anything material to add or draw attention to
in relation to the directors’ statement in note 1 to the
financial statements on the use of the going concern
basis of accounting with no material uncertainties that
may cast significant doubt over the Group and Company’s
use of that basis for a period of at least twelve months
from the date of approval of the financial statements; or
•
if the related statement under the Listing Rules set out on
pages 45 and 95 is materially inconsistent with our audit
knowledge.
We have nothing to report in these respects.
5. We have nothing to report on the other information
in the annual report
The directors are responsible for the other information
presented in the annual report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the
strategic report and the directors’ report;
•
•
in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the directors’ remuneration report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
•
•
•
the directors’ confirmation within page 45 that they have
carried out a robust assessment of the principal risks
facing the Group, including those that would threaten
its business model, future performance, solvency and
liquidity;
the principal risks disclosures describing these risks and
explaining how they are being managed and mitigated;
and
the directors’ explanation in the viability statement of
how they have assessed the prospects of the Group, over
what period they have done so and why they considered
that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet
its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our financial statements
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
•
the section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
11 provisions of the UK Corporate Governance Code specified
by the Listing Rules for our review.
We have nothing to report in these respects.
124
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 6. We have nothing to report on the other matters on
which we are required to report by exception
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 received all the information and explanations
we require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
117, the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend
to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue our opinion in
an auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise
from fraud, other irregularities or error and are considered
material if, individually or in aggregate, they could reasonably
be expected to influence the economic decisions of users
taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our sector experience and through
discussion with the other management (as required by
auditing standards).
We had regard to laws and regulations in areas that directly
affect the financial statements including financial reporting
(including related company legislation) and taxation
legislation. We considered the extent of compliance with
those laws and regulations as part of our procedures on the
related financial statement items.
In addition, we considered the impact of laws and regulations
in the specific area of health and safety recognising the
nature of the Group’s activities. With the exception of any
known or possible non-compliance, and as required by
auditing standards, our work in respect of these was limited
to enquiry of the directors and inspection of regulatory and
legal correspondence.
We communicated identified laws and regulations
throughout our team and remained alert to any indications
of non-compliance throughout the audit. This included
communication from the Group to component audit teams of
relevant laws and regulations identified at Group level, with
a request to report on any indications of potential existence
of non-compliance with relevant laws and regulations
(irregularities) in these areas, or other areas directly
identified by the component team.
As with any audit, there remained a higher risk of non-
detection of irregularities, as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls.
8. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for
the opinions we have formed.
Adrian Stone (Senior statutory auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Sovereign Square, Sovereign Street
Leeds, LS1 4DA
20 June 2018
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Consolidated income statement
Year ended 31 March 2018
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
2018
£000
Note
Non-
underlying
2018
£000
Total
2018
£000
Underlying
2017
£000
Non-
underlying
2017
£000
Total
2017
£000
3
4
274,203
(251,337)
—
(1,333)
274,203
(252,670)
262,224
(242,610)
—
(1,790)
262,224
(244,400)
22,866
(1,333)
21,533
19,614
(1,790)
17,824
882
23,748
(236)
23,512
(4,385)
—
(1,333)
—
(1,333)
352
882
22,415
(236)
22,179
(4,033)
457
20,071
(226)
19,845
(3,306)
—
(1,790)
—
(1,790)
580
457
18,281
(226)
18,055
(2,726)
19,127
(981)
18,146
16,539
(1,210)
15,329
6.38p
6.29p
(0.33p)
(0.32p)
6.05p
5.97p
5.53p
5.49p
(0.40p)
(0.40p)
5.13p
5.09p
14
7
8
10
10
Further details of non-underlying items are disclosed in note 5 to the consolidated financial statements.
126
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Consolidated statement of
comprehensive income
Year ended 31 March 2018
Actuarial gain/(loss) on defined benefit pension scheme*
Gains/(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
28
23
23
19
Year ended
31 March
2018
£000
3,606
435
(346)
(700)
2,995
18,146
Year ended
31 March
2017
£000
(7,412)
(93)
110
1,071
(6,324)
15,329
21,141
9,005
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127
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Consolidated balance sheet
At 31 March 2018
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 £1,768 (2017: £1,775)
Derivative financial instruments
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
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
2018
£000
At
31 March
2017
£000
Note
11
12
13
14
19
15
17
20
20
18
20
28
20
19
22
23
54,712
103
81,239
18,456
—
154,510
9,646
56,270
167
33,114
99,197
253,707
54,712
1,574
78,909
12,068
1,029
148,292
7,750
66,398
109
32,849
107,106
255,398
(64,225)
(180)
(1,645)
(66,050)
(17,248)
(49)
(1,363)
(18,660)
(84,710)
(75,673)
(180)
(2,862)
(78,715)
(21,414)
(229)
(883)
(22,526)
(101,241)
168,997
154,157
7,492
85,702
4,749
71,054
168,997
7,471
85,702
3,710
57,274
154,157
The consolidated financial statements were approved by the board of directors on 20 June 2018 and signed on its behalf by:
Alan Dunsmore
Chief executive officer
Adam Semple
Group finance director
128
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR
Consolidated statement of
changes in equity
Year ended 31 March 2018
At 1 April 2017
Total comprehensive income for the year
Ordinary shares issued*
Equity settled share-based payments
Dividends paid
At 31 March 2018
Note
21
Share
capital
£000
7,471
—
21
—
—
7,492
Share
premium
£000
85,702
—
—
—
—
85,702
Other
reserves
£000
3,710
89
—
950
—
4,749
Retained
earnings
£000
57,274
21,052
—
218
(7,490)
71,054
* The issue of shares represents shares allotted to satisfy the 2014 Performance Share Plan award which vested in June and November 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
154,157
21,141
21
1,168
(7,490)
168,997
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.
25943
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129
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Consolidated cash flow statement
Year ended 31 March 2018
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
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
2018
£000
19,039
Year ended
31 March
2017
£000
24,977
Note
24
—
1,012
(412)
(5,996)
(5,506)
(10,902)
(202)
(7,490)
(180)
(7,872)
265
32,849
33,114
1,195
436
(1,517)
(5,442)
(413)
(5,741)
(162)
(5,078)
(180)
(5,420)
13,816
19,033
32,849
130
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Notes to the consolidated
financial statements
Year ended 31 March 2018
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 171. The registered number of the Company is 1721262. The nature of the Group’s
operations and its principal activities are set out on pages 16 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.
EU Endorsed International Financial Reporting Standards effective in the year
The following new and amended standards, adopted in the current financial year, had no significant impact on the financial
statements.
•
•
IAS 7 ‘Statement of cash flows’ – amendments relating to the International Accounting Standards Board’s (IASB) disclosure
initiative intended to provide information to help investors better understand the 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.
EU International Financial Reporting Standards not yet effective
The following new or revised standards and interpretations issued by the International Accounting Standards Board have not
been applied in preparing these financial statements as their effective dates fall in periods beginning on or after 1 April 2018.
Effective for the year ending 31 March 2019
•
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.
•
•
•
•
•
IFRS 9 ‘Financial instruments’ – introduces new requirements for classification and measurement of financial assets and
financial liabilities, impairment methodology and hedge accounting.
IFRS 2 ‘Share-Based Payment’ – amendments clarifying how to account for certain types of share-based payment
transactions.
IAS 40 ‘Investment Property’ – amendments relating to the transfers of investment property.
IFRS 4 ‘Insurance Contracts’ – amendments clarifying how to apply IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance
Contracts’.
IFRIC 22 ‘Foreign Currency Transactions and Advance Considerations’ - clarifies the accounting for transactions that
include the receipt or payment of advance consideration in a foreign currency.
• Annual improvements to IFRS Standards 2014-2016 cycle.
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131
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
1. Significant accounting policies continued
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.
•
•
•
•
IFRS 9 ‘Financial Instruments’ – amendments relating to prepayment features with negative compensation to address the
concerns about how IFRS 9 classifies particular prepaid financial assets.
IAS 28 ‘Investments in Associated and Joint Ventures’ – amendments to long-term interests in Associated and Joint
Ventures (not yet EU endorsed).
IAS 19 ‘Employee Benefits’ – amendments to accounting for curtailments and settlements (not yet EU endorsed).
IFRIC 23 ‘Uncertainty over Income Tax Treatments - the Interpretation clarifies application of recognition and measurement
requirements in IAS 12 ‘Income Taxes’ when there is uncertainty over income tax treatments (not yet EU endorsed).
• Annual improvements to IFRS Standards 2015-2017 cycle (not yet EU endorsed).
Effective for the year ending 31 March 2021
•
IFRS 17 ‘Insurance Contracts’ – replaces IFRS 4 ‘Insurance Contracts’ as the Standard for setting out requirements that a
company should apply in reporting information about insurance contracts it issues and reinsurance contracts it holds (not
yet EU endorsed).
• Amendments to References to the Conceptual Framework in IFRS Standards (not yet EU endorsed).
IFRS 15
IFRS 15 ‘Revenue from contracts with customers’ was issued by the IASB in May 2014 and became effective for accounting
periods beginning on or after 1 January 2018. The new standard modifies the determination of how much revenue to recognise,
and when, and introduces a single, principles-based five-step model to be applied to all contracts with customers. IFRS
15 replaces the separate models for goods, services and construction contracts currently included in IAS 11 ‘Construction
Contracts’ and IAS 18 ‘Revenue’. This new standard will be effective for the Group’s 2019 year-end.
The directors have performed a detailed assessment of the impact of IFRS 15 on a sample of the Group’s current contracts.
The conclusion of this assessment is that the directors are satisfied that no material adjustments will be required on the
initial application of the new standard. This is because, under IFRS 15, the services provided under a typical contract for the
Group represent one performance obligation, providing the customer with an integrated solution and where the services (and
consequently any variations and claims) are highly interrelated. Furthermore, revenue on construction contracts meets the
criteria for over time recognition under IFRS 15 and revenue will be recognised with reference to measurement of contract
progress (costs to complete). This is similar to that under IAS 11 ‘Construction Contracts’.
It is intended that the standard will be implemented with full retrospective application in the Group’s 2019 financial
statements (including IFRS 15 comparatives for 2018). The choice of transitional practical expedients is being finalised and
will be determined before the Group issues the 2019 annual report.
Additional disclosures required as a result of adopting IFRS 15 will be presented in the 2019 annual report.
IFRS 16
IFRS 16 ‘Leases’ was issued by the IASB in January 2016 and will become effective for accounting periods beginning on or
after 1 January 2019. The new standard will replace IAS 17 ‘Leases’ and will eliminate the classification of leases as either
operating leases or finance leases and, instead, introduce a single lessee accounting model. The new standard requires
lessees to recognise right of use assets and liabilities in the balance sheet for all applicable leases. Operating lease costs
currently recognised within operating profit in the income statement will be replaced by depreciation and finance costs. This
new standard will be effective for the Group’s 2020 year-end. The directors are still in the process of assessing the potential
impact of IFRS 16 on the Group’s accounting for leases.
Notwithstanding IFRS 15 and IFRS 16, the directors do not expect the other standards above to have a material quantitative
effect. The Group has not chosen to adopt any of the above standards and interpretations earlier than required.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 1. Significant accounting policies continued
Going concern
After making enquiries, the directors have formed a judgement at the time of approving the consolidated financial statements
that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for at least
12 months from the approval of the 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 page 45.
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, the amortisation of acquired
intangible assets, movements in the valuation of derivative financial instruments and certain non-recurring legal and
consultancy costs. During the prior year, the Group adopted hedge accounting 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. Further details on hedge accounting are included in the derivative financial instruments and
hedge accounting policy.
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.
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.
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133
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
1. Significant accounting policies continued
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.
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.
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 1. Significant accounting policies continued
•
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.
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.
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135
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
1. Significant accounting policies continued
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit,
and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from
the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither
the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realised. These are determined based on future changes in tax rates that have been enacted rather than simply future
changes that have been proposed but not enacted. Deferred tax is charged or credited in the income statement, except when it
relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Dividends
Dividends are recorded in the consolidated financial statements in the period in which they are declared, appropriately
authorised and no longer at the discretion of the Company.
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.
136
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 1. Significant accounting policies continued
Intangibles
The Group recognises intangible assets at cost less accumulated amortisation and impairment losses. Intangible assets
acquired through acquisitions arise as a result of applying IFRS 3, which requires the separate recognition of intangible assets
from goodwill.
Other acquired intangible assets include software costs.
Intangible assets are amortised on a straight-line basis over their useful economic lives as follows:
Customer relationships
Brands
Know-how
Software costs
Amortisation
period
10 years
25 years
10 years
7 years
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have
not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an
expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated
as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased
to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit)
in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a
revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
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.
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137
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
1. Significant accounting policies continued
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for in the income statement
using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not
settled in the period in which they arise. The effective interest method is a method of calculating the amortised cost of a
financial liability and of allocating interest over the relevant period.
Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Share-based payment transactions
The Group issues equity settled share-based payments. These share-based payments are measured at fair value at the
date of grant based on the Group’s estimate of shares that will eventually vest. The fair value determined is then expensed in
the consolidated income statement on a straight-line basis over the vesting period, with a corresponding increase in equity.
Further details regarding the determination of the fair value of equity settled share-based transactions are set out in note 21.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the
Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure
required to settle the obligation at the balance sheet date, and, as appropriate, are discounted to present value where the
effect is material.
Derivative financial instruments 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 (operating costs).
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.
138
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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 design and work scope, the contractual terms
and site conditions under which the work is being performed, delays, costs incurred, claims received by the Group, external
certification of the work performed and the recoverability of any unagreed income from claims and variations.
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.
At the balance sheet date, amounts due from construction contract customers, included in trade and other receivables was
£45,565,000 (2017: £59,084,000).
Impairment of investments in joint ventures and associates
The carrying value of the Group’s investment in its Indian joint venture has been tested for impairment.
Determining whether the investment in joint ventures and associates are impaired requires an estimation of the value in use
of the business being tested for impairment and of the cash-generating units to which these assets have been allocated. The
value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit,
taking into account the achievability of long-term business plans and macroeconomic assumptions underlying the valuation
process, and a suitable discount rate in order to calculate present value. The discount rates used are based on the Group’s
weighted average cost of capital adjusted to reflect the specific economic environment of the relevant cash-generating unit.
The carrying value of the Group’s investment in the Indian joint venture was £10,657,000 (2017: £4,619,000) 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 26 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 changes in the discount and mortality rates (as disclosed in
note 28). 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.
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139
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
2. Critical accounting judgements and estimates continued
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 £17,248,000 (2017: £21,414,000).
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
2018
£000
274,203
274,203
700
10
274,913
2017
£000
262,224
262,224
671
15
262,910
Segmental results
Following the adoption of IFRS 8, the Group has identified its operating segments with reference to the information regularly
reviewed by the executive committee (the chief operating decision maker (‘CODM’)) to assess performance and allocate
resources. On this basis the CODM has identified one operating segment (construction contracts) which in turn is the only
reportable segment of the Group.
The constituent operating businesses have been aggregated as they have 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 below.
Revenues by product group
All revenue is derived from construction contracts and related assets.
Geographical information
The Group’s revenue from external customers is detailed below:
Revenue by destination:
United Kingdom
Republic of Ireland and mainland Europe
2018
£000
2017
£000
252,080
22,123
274,203
249,034
13,190
262,224
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 £55,739,000 and £39,047,000 relating to two major customers, who individually contributed
more than 10 per cent of Group revenue in the year ended 31 March 2018. In the prior year, Group revenue included
£49,301,000 relating to one major customer, who individually contributed more than 10 per cent of Group revenue.
140
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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
2018
£000
142,617
70,237
32,851
138
2017
£000
138,764
67,675
29,986
286
1,277
1,261
1,316
1,671
3,556
100
(700)
251,337
1,333
252,670
3,483
100
(671)
242,610
1,790
244,400
18
150
16
34
17
147
15
8
Fees payable to 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 £38,000 (2017: £47,000) 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 pages 88 and 89.
No services were performed pursuant to contingent fee arrangements.
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
2018
£000
1,333
—
1,333
(352)
981
2017
£000
2,620
(830)
1,790
(580)
1,210
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 customer relationships were fully amortised during the financial year.
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141
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
5. Non-underlying items continued
In the prior 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. No similar items have been recorded in the income statement for the current
period following the adoption of hedge accounting at the 2017 financial year-end.
6. Staff costs
Details of directors’ remuneration for the year are provided in the audited part of the directors’ remuneration report on page 107.
The average number of persons employed by the Group (including executive directors) during the year was:
2018
Number
1,221
133
1,354
2017
Number
1,215
112
1,327
2018
£000
61,290
6,707
2,240
70,237
2017
£000
59,209
6,500
1,966
67,675
2018
£000
(10)
246
236
2018
£000
(3,047)
(176)
(3,223)
(963)
99
54
(810)
(4,033)
2017
£000
(15)
241
226
2017
£000
(3,465)
(121)
(3,586)
577
222
61
860
(2,726)
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.
7. Net finance expense
Finance income
Finance expense
8. Taxation
a) The taxation charge comprises:
Current tax
UK corporation tax
Adjustments to prior years’ provisions
Deferred tax (note 19)
Current year (charge)/credit
Impact of reduction in future years’ tax rates
Adjustments to prior years’ provisions
142
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 8. Taxation continued
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
2018
£000
22,179
(4,214)
165
39
—
(122)
99
(4,033)
2017
£000
18,055
(3,611)
(124)
91
756
(60)
222
(2,726)
Corporation tax was calculated at 19 per cent (2017: 20 per cent) of the estimated taxable result for the year.
The unprovided deferred tax movement in the prior year represents the recognition of previously unrecognised tax losses (see
note 19).
9. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2017 of 1.6p per share (2016: 1.0p)
Interim dividend for the year ended 31 March 2018 of 0.9p per share (2017: 0.7p)
2018
£000
4,793
2,697
7,490
2017
£000
2,985
2,093
5,078
The directors are recommending a final dividend in respect of the financial year ended 31 March 2018 of 1.7p per share, which
will amount to an estimated dividend payment of £5,155,000. If approved by the shareholders at the annual general meeting
on 4 September 2018, this dividend will be paid on 14 September 2018 to shareholders who are on the register of members at
17 August 2018. In addition, the directors are also recommending a special dividend of 1.7p per share. The final and special
dividends are not restated on the balance sheet at 31 March 2018 as they remain subject to shareholder approval.
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143
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
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
2018
£000
2017
£000
18,146
15,329
19,127
16,539
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
299,682,810 298,855,911
2,218,914
301,074,825
4,520,463
304,203,273
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.
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
6.05p
6.38p
5.97p
6.29p
2018
£000
18,146
981
19,127
5.13p
5.53p
5.09p
5.49p
2017
£000
15,329
1,210
16,539
£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 (2017: 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 (2017: 10 per cent).
144
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 11. Goodwill continued
Following the impairment reviews performed by the Group, no impairment charge was recorded in the year ended 31 March 2018.
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 2018.
12. Other intangible assets
At 1 April 2016 and 31 March 2018
Amortisation
At 1 April 2016
Charge for the year
At 1 April 2017
Charge for the year
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
Intangible
assets
acquired on
acquisition
£000
39,000
Other
intangible
assets
£000
1,033
35,047
2,620
37,667
1,333
39,000
—
1,333
506
286
792
138
930
103
241
Total
£000
40,033
35,553
2,906
38,459
1,471
39,930
103
1,574
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 2016 and 31 March 2018
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 2016
Charge for the year
At 1 April 2017
Charge for the year
At 31 March 2018
Net book value
At 31 March 2018
At 31 March 2017
21,907
2,580
24,487
1,313
25,800
—
1,313
3,200
—
3,200
—
3,200
—
—
9,600
—
9,600
—
9,600
—
—
340
40
380
20
400
—
20
35,047
2,620
37,667
1,333
39,000
—
1,333
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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145
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
13. Property, plant and equipment
Cost
At 1 April 2016
Additions
Disposals
At 1 April 2017
Additions
Disposals
At 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the year
Disposals
At 1 April 2017
Charge for the year
Disposals
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
Freehold
and long
leasehold
land and
buildings
£000
Plant
and
machinery
£000
Fixtures,
fittings
and office
equipment
£000
Motor
vehicles
£000
65,878
1,517
(1,526)
65,869
412
—
66,281
4,484
530
(60)
4,954
536
—
5,490
37,969
4,702
(1,676)
40,995
3,719
(4,934)
39,780
24,450
2,747
(1,367)
25,830
2,628
(4,573)
23,885
4,010
641
(40)
4,611
2,277
(964)
5,924
1,745
235
(40)
1,940
428
(918)
1,450
457
98
(264)
291
—
(53)
238
273
71
(211)
133
64
(38)
159
Total
£000
108,314
6,958
(3,506)
111,766
6,408
(5,951)
112,223
30,952
3,583
(1,678)
32,857
3,656
(5,529)
30,984
60,791
60,915
15,895
15,165
4,474
2,671
79
158
81,239
78,909
The net book value of the Group’s plant and machinery includes £602,000 (2017: £702,000) 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
%
25.0
Class of
capital
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.
146
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 14. Interests in JVs and associates continued
JSW Severfield Structures Limited is registered in India. During the year, the Group invested a further £5,506,000 (2017:
£nil) in the joint venture to support the full repayment of the joint venture’s term debt of c.£11.0m in June 2017 (which was
matched by our joint venture partner, JSW Steel). 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 £10,657,000 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 2020 to 2022. The calculations assume a long-term growth rate of 1.5 per cent
(2017: 1.5 per cent) from 2023 onwards and a pre-tax discount rate of 10 per cent (2017: 10 per cent). Following this review,
no impairment charge was recorded in the year ended 31 March 2018 (2017: £nil). Management considers that no reasonably
possible change in the key assumptions would result in an impairment.
The Group did not make any further investments in either CMF Limited, or Fabsec Limited during the year (2017: £nil).
At 1 April 2016
Profit retained
At 1 April 2017
Profit retained
Investments made during the year
At 31 March 2018
Share of
net assets/
(liabilities)
£000
6,285
457
6,742
882
5,506
13,130
Goodwill
£000
5,326
—
5,326
—
—
5,326
Total
£000
11,611
457
12,068
882
5,506
18,456
The Group’s share of the retained profit for the year of JVs and associates is made up as follows:
Share of results
2018
2017
JSW
Severfield
Structures
Limited
£000
532
151
Fabsec
Limited
£000
—
—
CMF
Limited
£000
350
306
Total
£000
882
457
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 after tax
Group’s share of profit after tax
JSW
Severfield
Structures
Limited
£000
44,610
22,889
(48,822)
(454)
18,223
9,112
48,590
1,064
532
Fabsec
Limited
£000
1,042
134
(17)
(2,239)
(1,080)
(271)
178
—
—
CMF
Limited
£000
10,953
4,762
(8,830)
(1,980)
4,905
2,453
18,764
700
350
2018
£000
56,605
27,785
(57,669)
(4,673)
22,048
11,294
67,532
1,764
882
2017
£000
50,663
31,378
(61,651)
(9,050)
11,340
5,914
57,007
913
457
There were no contingent liabilities or capital commitments (2017: none) associated with the Group’s JVs and associates.
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147
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
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
2018
£000
4,971
4,675
9,646
2017
£000
4,461
3,289
7,750
2018
£000
2017
£000
45,565
(1,273)
44,292
59,084
(5,737)
53,347
368,571
(324,279)
44,292
360,241
(306,894)
53,347
2018
£000
40,738
3,059
1,768
45,565
1,941
5,758
3,006
56,270
2017
£000
53,861
3,448
1,775
59,084
260
4,696
2,358
66,398
The average credit period taken on revenue, calculated on a count-back basis to make appropriate allowance for monthly
revenue phasing, is 52 days (2017: 60 days). No interest is charged on receivables.
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Before accepting any new customer, the Group uses an external credit rating agency to assess the potential customer’s credit
quality and defines credit limits by customer. It is Group policy that adequate credit insurance is taken out on all customers
to manage the exposure that may arise as the contractual work proceeds. Accordingly, no bad debt provisions are held or
expenses incurred. The Group’s executive risk committee reviews situations where adequate credit insurance on the Group’s
customers cannot be purchased in the present economic climate as required.
Due to the nature of the business involving applications for payment, contractually overdue amounts within trade and other
receivables are limited to retentions. The Group has rigorous procedures in place for monitoring and obtaining settlement of
retentions in a prompt manner.
Overdue retentions at 31 March 2018 were £278,000 (2017: £580,000).
148
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 18. Trade and other payables
Trade creditors
Other taxation and social security
Other creditors and accruals
Payments in advance (note 16)
2018
£000
38,030
5,291
19,631
1,273
64,225
2017
£000
42,532
7,215
20,189
5,737
75,673
Other creditors and accruals in the current and prior years include the outstanding purchase consideration for CMF of
£2,500,000 (2017: £2,500,000), which is payable over the next four years, subject to certain conditions.
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 42 days (2017: 37 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
2018
£000
(5,364)
4,001
(1,363)
2018
£000
(1,363)
—
(1,363)
At 1 April 2016
Credit/(charge) to income statement
Effect of change in tax rate
Credit to other comprehensive income
At 1 April 2017
Credit/(charge) to income statement
Effect of change in tax rate
Charge to other comprehensive income
At 31 March 2018
Excess
capital
allowances
£000
(5,550)
(9)
265
—
(5,294)
(169)
99
—
(5,364)
Acquired
intangible
assets
£000
(751)
498
—
—
(253)
253
—
—
—
Retirement
benefit
obligations
£000
2,773
(102)
(43)
1,011
3,639
(95)
—
(613)
2,931
Trading
losses
£000
1,100
(71)
—
—
1,029
(1,029)
—
—
—
Other
timing
differences
£000
643
322
—
60
1,025
132
—
(87)
1,070
2017
£000
(5,547)
5,693
146
2017
£000
(883)
1,029
146
Total
£000
(1,785)
638
222
1,071
146
(908)
99
(700)
(1,363)
149
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
19. Deferred tax liabilities continued
The rate of corporation tax reduced from 20 per cent to 19 per cent with effect from 1 April 2017. A reduction in the corporation
tax rate to 17 per cent from 1 April 2020 was substantively enacted on 6 September 2016. 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.
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
2018
£000
33,114
83
(229)
32,968
168,997
N/A
2017
£000
32,849
146
(409)
32,586
154,157
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 28)
Acquired intangible assets (note 12)
Average capital employed
Return on capital employed
2018
£000
22,866
882
23,748
168,997
(33,114)
229
(32,885)
14,317
—
150,429
144,294
16.5%
2017
£000
19,614
457
20,071
154,157
(32,849)
409
(32,440)
17,775
(1,333)
138,159
137,899
14.6%
150
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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)
Finance leases
Carrying value
2018
£000
2017
£000
33,114
45,565
167
83
(38,030)
(19,631)
(229)
32,849
59,084
109
146
(42,532)
(20,189)
(409)
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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151
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials
Notes to the consolidated
financial statements
Year ended 31 March 2018
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
2018 were £4,827,000 (2017: £5,223,000).
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 2018, £25,000,000 (2017: £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.
Maturity analysis
Carrying
value
£000
Less than
3 months
£000
3 months
to 1 year
£000
1–2
years
£000
2–5
years
£000
57,661
229
57,890
62,721
409
63,130
52,376
45
52,421
58,092
45
58,137
5,032
135
5,167
3,892
135
4,027
49
49
98
549
180
729
204
—
204
188
49
237
Total
£000
57,661
229
57,890
62,721
409
63,130
Liabilities – 2018
Trade and other payables
Financial liabilities — finance leases
Liabilities – 2017
Trade and other payables
Financial liabilities — finance leases
152
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 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
2018
£000
(1,830)
(10)
(1,840)
2017
£000
(2,077)
—
(2,077)
2018
£000
13,004
25
13,029
2017
£000
5,189
19
5,208
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
2018
£000
(1)
2017
£000
(2)
2018
£000
1,817
2017
£000
(336)
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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153
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
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 2018, derivatives designated as cash flow hedges had a net carrying amount of
£167,000 (2017: £109,000) and recognised total gains of £89,000 (2017: £17,000) in equity and losses of £31,000 (2017: gains
of £92,000) in profit and loss in the period.
At 31 March 2018, the Group had forward exchange contracts of 33.1m euros (2017: 0.3m euros) at an average exchange rate
of €1.129/£ (2017: €1.171/£) 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 2018 and the Group’s equity at that date would decrease by £nil (2017: £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 98 to 116.
Performance share plan
The vesting of awards is subject to performance conditions set by the remuneration committee. The Group recognised a total
charge of £1,270,000 for the year (2017: £1,667,000) with a corresponding entry to reserves. The weighted average fair value of
share options granted during the year was £0.75 per share. Three outstanding awards had been granted to 31 March 2018:
• During the year ended 31 March 2016 the remuneration committee granted 2,147,051 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 £488,000 (2017: £593,000).
154
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 21. Share-based payments continued
• During the year ended 31 March 2017 the remuneration committee granted 3,244,980 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 £301,000 (2017: £681,000).
• During the period ended 31 March 2018 the remuneration committee granted 2,261,100 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 2017 to 31 March 2020. The following vesting schedule applies:
Underlying EPS performance for year ending 31 March 2020
Equal to less than 6.76p
Equal to 7.98p or better
Between 6.76p and 7.98p
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 14 June 2017.
% of award vesting
0%
100%
between 25% and 100%
£0.83*
nil
26%
0.5%
2.7p
three years
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £522,000 (2017: £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
25943
12 July 2018 8:23 AM
Proof 13
2018
Number
8,004,458
2,261,100
(1,190,564)
(1,649,031)
7,425,963
2017
Number
6,598,550
3,559,416
(796,805)
(1,356,703)
8,004,458
155
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
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 £324,000 (2017: £323,000) was recognised in the current period in
relation to the 2015 Sharesave scheme.
Under the 2017 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 2017 Sharesave scheme in 2020, these options will
become exercisable for a period of six months. A charge of £135,000 (2017: £nil) was recognised in the current period in
relation to the 2017 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
Issued and fully paid:
299,682,810 ordinary shares of 2.5p each (2017: 298,855,911 ordinary shares of 2.5p each)
2018
Number
3,330,809
2,880,236
(383,319)
(55,992)
5,771,734
2017
Number
3,709,473
—
(356,699)
(21,965)
3,330,809
2018
£000
2017
£000
7,492
7,471
The ordinary shares carry no right to fixed income. There are no share options outstanding as at 31 March 2018 (2017: nil).
23. Other reserves
At 1 April 2016
Share-based payments
Losses taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
At 31 March 2017
Share-based payments
Gains taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
At 31 March 2018
Share-
based
payment
reserve
£000
2,161
1,393
—
—
3,554
950
—
—
4,504
Other
reserves
£000
139
—
(93)
110
156
—
435
(346)
245
Total
£000
2,300
1,393
(93)
110
3,710
950
435
(346)
4,749
The movement in the share-based payment reserve represents the share-based payment charge of £1,770,000 (2017:
£1,990,000) offset by the recycle to retained earnings of £218,000 for share awards vested in 2017 and £602,000 for tax paid
on these awards.
Other reserves consist of the capital redemption reserve of £139,000 (2017: £139,000) and the hedge accounting reserve of
£106,000 (2017: £17,000).
156
25943
12 July 2018 8:23 AM
Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 24. Net cash flow from operating activities
Operating profit from continuing operations
Adjustments:
Depreciation of property, plant and equipment (note 13)
Loss 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 28)
Share of results of JVs and associates (note 14)
Share-based payments
Movement in valuation of derivatives
Operating cash flows before movements in working capital
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase 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
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
25943
12 July 2018 8:23 AM
Proof 13
2018
£000
22,415
3,656
—
(590)
1,471
(560)
(882)
1,168
—
26,678
(1,896)
10,064
(11,897)
22,949
(3,910)
19,039
2018
£000
22,949
—
1,012
(412)
(5,996)
17,553
22,866
77%
2018
£000
33,114
83
(229)
32,968
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
157
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials
Notes to the consolidated
financial statements
Year ended 31 March 2018
26. 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 the 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 2018 this amounted to £nil (2017: £nil). The Group has also given performance bonds
in the normal course of trade.
27. Operating lease arrangements
The Group as lessee
The Group leases a number of its premises under operating leases which expire between 2018 and 2087.
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
2018
£000
996
4,024
10,839
15,859
2017
£000
1,081
2,770
10,325
14,176
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
2018
£000
1,168
1,146
1
2,315
2017
£000
1,257
1,466
15
2,738
The Group as lessor
Property rental income earned on owned properties during the year was £69,000 (2017: £160,000). The majority of the Group’s
operating leases expired at the end of the 2018 financial year.
As at the balance sheet date the Group had contracted with tenants for the following future minimum lease payments:
2018
£000
—
—
—
—
2017
£000
74
100
54
228
— Within one year
— After one year and within five years
— After five years
158
25943
12 July 2018 8:23 AM
Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 28. 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 £1,896,000 (2017: £1,803,000) represents contributions payable to these schemes by
the Group at rates specified in the rules of the plans. As at 31 March 2018, contributions of £367,000 (2017: £350,000) due in
respect of the current reporting period had not been paid over to the schemes.
Defined benefit schemes
The Group has a defined benefit scheme which is now closed to new members and no defined benefit membership rights will
accrue under the scheme.
The scheme exposes the Group to actuarial and other risks, the most significant of which are considered to be:
Investment
risk
Interest risk
Longevity risk
Salary risk
The present values of the scheme liabilities are calculated using a discount rate determined by reference
to corporate bond yields; if the return on scheme assets is below this rate, it will create a plan deficit. The
Group holds a significant proportion of growth assets (bonds, gilts and equities) to leverage the return
generated by the scheme.
A decrease in the corporate bond interest rate will increase the scheme liabilities, although this will be
partially offset by an increase in the return on the scheme’s assets.
The present values of the scheme liabilities are calculated by reference to the best estimate of the
mortality of scheme participants which reflect continuing improvements in life expectancy. An increase in
the life expectancy of the scheme participants will increase the scheme’s liabilities.
The present values of the defined benefit scheme liabilities are calculated by reference to the future
salaries of scheme participants. As such, an increase in the salary of the scheme participants will increase
the scheme’s liabilities.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at
5 April 2014 by Mr Christopher Hunter, Fellow of the Institute of Actuaries. The next triennial funding valuation of the scheme
is currently ongoing, with a valuation date of 5 April 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
2018
%
2.6
3.3
3.2
2017
%
2.7
3.4
3.3
When considering mortality assumptions a life expectancy to 84 at age 65 has been used for the year ended 31 March 2018
(2017: 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 4.2%
Increase by 4.0%
25943
12 July 2018 8:23 AM
Proof 13
159
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
28. Retirement benefit obligations continued
Amounts recognised in income in respect of these defined benefit schemes are as follows:
Interest cost
Interest income
2018
£000
1,222
(659)
563
2017
£000
1,300
(808)
492
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 £16,484,000 (2017:
£20,090,000).
The actual return on scheme assets was a gain of £171,000 (2017: £1,228,000).
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
2018
£000
(41,818)
24,570
(17,248)
2017
£000
(45,816)
24,402
(21,414)
2018
%
23.4
48.4
14.4
9.6
4.2
100.0
2017
%
24.2
53.8
5.1
8.8
8.1
100.0
Bonds and gilts include a mixture of corporate and government bonds and fixed and index-linked gilts. Approximately three
per cent of bonds have a sub-investment grade credit rating (BB+ or lower) and approximately 92 per cent of gilts are index-
linked, with eight per cent being fixed.
Movements in the present value of defined benefit obligations were as follows:
At start of year
Interest cost
Actuarial gains/(losses)
Benefits paid
At end of year
2018
£000
(45,816)
(1,222)
4,094
1,126
(41,818)
2017
£000
(37,601)
(1,300)
(7,832)
917
(45,816)
Actuarial losses arising from changes in demographic assumptions, changes in financial assumptions and gains or losses
arising from experience were gains of £3,730,000 (2017: £nil), gains of £164,000 (2017: losses of £8,179,000) and gains of
£200,000 (2017: gains of £347,000) respectively.
160
25943
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Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 28. Retirement benefit obligations continued
Movements in the fair value of scheme assets were as follows:
At start of year
Interest income
Actuarial (losses)/gains
Employer contributions
Benefits paid
At end of year
2018
£000
24,402
659
(488)
1,123
(1,126)
24,570
2017
£000
22,999
808
420
1,092
(917)
24,402
The Group expects to contribute £97,000 (2017: £94,000) per month to its defined benefit pension scheme in the year to
31 March 2019.
History of experience of gains and losses:
Experience (losses)/gains on scheme assets (£000)
Percentage of scheme assets
Experience losses/(gains) on scheme liabilities (£000)
Percentage of the present value of scheme liabilities
Total amount recognised in the consolidated
statement of comprehensive income (£000)
Percentage of the present value of scheme liabilities
2018
(488)
(2.0%)
200
0.5%
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%)
3,606
8.6%
(7,412)
(16.2%)
1,300
3.5%
(4,471)
(11.5%)
(1,261)
(3.9%)
The weighted average period over which benefits are expected to be paid, or the duration of the liabilities, is currently 17 years.
25943
12 July 2018 8:23 AM
Proof 13
161
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the consolidated
financial statements
Year ended 31 March 2018
29. Related party transactions
The remuneration of the directors is provided in the audited part of the directors’ remuneration report on page 107.
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
2018
£000
1,485
123
1,608
2017
£000
1,534
117
1,651
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
£42,000 (2017: £40,000). The amount due to Fabsec at 31 March 2018 was £117,000 (2017: £116,000).
During the year the Group has contracted with and purchased services from Composite Metal Flooring Limited (‘CMF’)
amounting to £3,650,000 (2017: £2,003,000). The amount due from and to CMF at 31 March 2018 was £2,544,000 (2017:
£1,882,000) and £595,000 (2017: £649,000) 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 £478,000 (2017: £437,000). Those costs were recharged to JSSL during the year and the amount due from JSSL at
31 March 2018 was £746,000 (2017: £476,000).
162
25943
12 July 2018 8:23 AM
Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Five year summary
Results
Revenue
Underlying* operating profit (before JVs and
associates)
Underlying* profit before tax
Non-underlying items before tax
Profit/(loss) attributable to equity holders
of Severfield plc
Assets employed
Non-current assets
Net current assets
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
2018
£000
2017
£000
2016
£000
2015
£000
2014
£000
274,203
262,224
239,360
201,535
231,312
22,866
23,512
(1,333)
19,614
19,845
(1,790)
13,686
13,211
(3,568)
8,974
8,311
(8,502)
7,621
4,025
(8,082)
18,146
15,329
8,600
144
(2,640)
154,510
33,147
(18,660)
168,997
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
6.38p
6.05p
6.29p
5.97p
2.60p
2.6
88.00p
59.50p
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
* The basis of stating results on an underlying basis is set out on page 5.
Financial calendar
Preliminary announcement of full-year results
Publication of annual report
Annual general meeting
Announcement of interim results (provisional)
20 June 2018
August 2018
4 September 2018
27 November 2018
25943
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163
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials
Company balance sheet
Year ended 31 March 2018
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
2018
£000
2017
£000
2
3
4
5
58,241
103
99,864
158,208
53,398
2,095
55,493
(94,546)
(39,053)
119,155
7,492
85,702
4,604
21,357
119,155
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
The Company reported a profit for the financial year ended 31 March 2018 of £12,134,000 (2017: £4,742,000).
The financial statements were approved by the board of directors on 20 June 2018 and signed on its behalf by:
Alan Dunsmore
Chief executive officer
Adam Semple
Group finance director
Severfield plc
Registered in England No.1721262
164
25943
12 July 2018 8:23 AM
Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR Company statement of
changes in equity
Year ended 31 March 2018
At 1 April 2017
Total comprehensive income for the year
Ordinary shares issued*
Liquidation of subsidiary undertakings
Equity settled share-based payments
Dividends paid
At 31 March 2018
Share
capital
£000
7,471
—
21
—
—
—
7,492
Share
premium
£000
85,702
—
—
—
—
—
85,702
Other
reserves
£000
3,543
—
—
111
950
—
4,604
Retained
earnings
£000
16,582
12,047
—
—
218
(7,490)
21,357
* The issue of shares represents the shares allotted to satisfy the 2014 Performance Share Plan award, which vested in June and November 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
113,298
12,047
21
111
1,168
(7,490)
119,155
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.
25943
12 July 2018 8:23 AM
Proof 13
165
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the Company
financial statements
Year ended 31 March 2018
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 107 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.
166
25943
12 July 2018 8:23 AM
Proof 13
Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 2. Tangible fixed assets
Cost
At 1 April 2017
Additions
At 31 March 2018
Depreciation
At 1 April 2017
Charge for the year
At 31 March 2018
Net book value
At 31 March 2018
At 31 March 2017
Freehold
and long
leasehold
land and
buildings
£000
Fixtures,
fittings
and office
equipment
£000
Motor
vehicles
£000
63,298
—
63,298
4,945
484
5,429
57,869
58,353
443
21
464
48
52
100
364
395
33
—
33
23
2
25
8
10
Total
£000
63,774
21
63,795
5,016
538
5,554
58,241
58,758
The Company’s freehold and long leasehold land and buildings include 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
£600,000 (2017: £504,000), which is set at a rate only to cover certain of the costs of maintaining the properties.
25943
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167
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the Company
financial statements
Year ended 31 March 2018
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 2018 is disclosed below. All of these had a reporting
period ended 31 March 2018, 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
Severfield (Products & Processing) Limited
Severfield Europe B.V.(ii)
Severfield Reeve Properties Limited
Severfield Reeve Projects Limited
Severfield Reeve International Limited
Severfield Mauritius Limited(iii)
100% owned by Atlas Ward Holdings Limited
Severfield (Design & Build) Limited
100% owned by Severfield Reeve Projects Limited
Leeds 27 Limited
50% owned by Severfield plc
Composite Metal Flooring Limited*(iv)
50% owned by Severfield Mauritius Limited
JSW Severfield Structures Limited(v)
25% owned by Severfield plc
Fabsec Limited*(vi)
Incorporated in
England and Wales
Northern Ireland
England and Wales
England and Wales
England and Wales
Netherlands
England and Wales
England and Wales
England and Wales
Mauritius
England and Wales
England and Wales
England and Wales
India
England and Wales
* Companies with a reporting period ended 31 December 2017.
‡ 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) Gildelaan 11 2e Verdiepin, 4761 BA Zevenbergen
(iii) Felix House, 24 Dr. Joseph Rivière Street, Port Louis, Mauritius
(iv) Millennium House, Severn Link Distribution Centre, Newhouse Farm Industrial Estate, Mathern, Chepstow, NP16 6UN
(v) 401 Grande Palladium, 4th Floor, 175 CST Road, Kalina, Santacrus East, Mumbai, India, 400098
(vi) Unit 561 Avenue E East, Thorp Arch Estate, Wetherby, LS23 7DB
2018
£000
73,610
26,254
99,864
2017
£000
73,746
20,748
94,494
Investment in subsidiaries
Investment in joint ventures
168
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR 3. Investments continued
Investment in subsidiaries
Cost
At 1 April 2017
Liquidation of subsidiary undertakings
At 31 March 2018
Provision for impairment
At 1 April 2017 and 31 March 2018
Net book value
At 31 March 2018
At 31 March 2017
£000
93,946
(136)
93,810
(20,200)
73,610
73,746
During the year, three of the Company’s subsidiary undertakings were liquidated resulting in the write-off of the historical
investments in these companies of £136,000.
Investment in joint ventures
In 2008 a formal agreement was signed in India with JSW Building Systems Limited (a subsidiary of JSW Steel Limited of India)
to form a 50/50 joint venture, JSW Severfield Structures Limited, to create a structural steelwork business in Bellary and
Mumbai, India, serving primarily the Indian market.
JSW Severfield Structures Limited is registered in India. During the year, the Company invested a further £5,506,000
(2017: nil) in the joint venture to support the full repayment of the joint venture’s term debt of c. £11,000,000 in June 2017.
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 £18,850,000 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 2020
to 2022. The calculations assume a long-term growth rate of 1.5 per cent (2017: 1.5 per cent) from 2023 onwards and a
pre-tax discount rate of 10 per cent (2017: 10 per cent). Following this review, no impairment charge was recorded in the year
ended 31 March 2018 (2017: £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.
The Company did not make any further investments in CMF Limited during the year (2017: £nil).
Cost
At 1 April 2017
Additions
At 31 March 2018
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£000
20,748
5,506
26,254
169
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comOur financials Notes to the Company
financial statements
Year ended 31 March 2018
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)
2018
£000
1,534
49,919
—
1,945
53,398
2018
£000
7,304
83,468
3,774
94,546
2017
£000
527
43,586
101
1,324
45,538
2017
£000
10,902
84,574
3,849
99,325
During the year, amounts of £656,000 (2017: £nil) were waived by subsidiary undertakings prior to those companies being
liquidated.
6. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Company and movements thereon during the
current and prior reporting period.
Deferred tax liabilities
Deferred tax assets
Deferred tax — movement for the year
At 1 April 2016
Current year credit
Credit to equity
Effect of change in tax rate
At 1 April 2017
Current year credit
Charge to equity
Effect of change in tax rate
At 31 March 2018
2018
£000
(4,760)
986
(3,774)
Excess
capital
allowances
£000
(5,151)
37
—
265
(4,849)
49
—
40
(4,760)
Other
timing
differences
£000
630
310
60
—
1,000
73
(87)
—
986
2017
£000
(4,849)
1,000
(3,849)
Total
£000
(4,521)
347
60
265
(3,849)
122
(87)
40
(3,774)
The rate of corporation tax reduced from 20 per cent to 19 per cent with effect from 1 April 2017. A reduction in the corporation
tax rate to 17 per cent from 1 April 2020 was substantially enacted on 6 September 2016.
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 2018 these amounted to £nil (2017: £nil).
170
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock 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 (Products & Processing)
Limited
Severs House
Dalton Airfield Industrial Estate
Dalton, Thirsk
North Yorkshire
YO7 3JN
JSW Severfield Structures Limited
Office No. 302, Naman Centre
3rd Floor, Plot No. C-31
Bandra Kurla Complex
Bharat Nagar, Bandra East
Mumbai 400 051
India
Advisers
Auditor
KPMG LLP
Chartered Accountants
1 Sovereign Square
Leeds, LS1 4DA
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London, EC2A 2HA
Public Relations
Camarco
107 Cheapside
London
EC2V 6DN
Severfield (Design & Build) Limited
Ward House
Sherburn
Malton
North Yorkshire
YO17 8PZ
Severfield (NI) Limited
Fisher House
Ballinamallard
Enniskillen
Co Fermanagh
BT94 2FY
Severfield Europe B.V.
Gildelaan 11 2e Verdiepin
4761 BA Zevenbergen
The Netherlands
Composite Metal Flooring Limited
Unit 3
Mamhilad Technology Park
Old Abergavenny Road
Mamhilad
Monmouthshire, NP4 0JJ
Stockbrokers
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London, EC4V 3BJ
Bankers
HSBC Bank plc
Maingate
Kingsway North
Team Valley Trading Estate
Gateshead, NE11 0BE
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions, Bridgwater Road
Bristol, BS99 7NP
Yorkshire Bank
(part of CYBG plc)
94 Albion Street
Leeds, LS1 6AG
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171
Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.comShareholder information Shareholder notes
172
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Severfield plc Annual report and accounts for the year ended 31 March 2018Stock code: SFR This document is printed on Cocoon Silk 100 which is made from 100% FSC® Recycled
pulp and post-consumer waste paper. This reduces waste sent to landfill, greenhouse
gas emissions, as well as the amount of water and energy consumed.
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Severfield plc Annual report and accounts for the year ended 31 March 2018www.severfield.com 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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