Annual report and accounts
for the year ended 31 March 2019
Stock code: SFR
www.severfield.com
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Annual report and accounts
for the year ended 31 March 2019
Stock code: SFR
www.severfield.com
ANNUAL
REPORT
Review this annual report online at:
severfield.annualreport2019.com
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WELCOME TO OUR
2019 ANNUAL REPORT
Severfield is the largest specialist
structural steelwork group in the UK,
with a growing presence in India
and Europe and a reputation for
performance and value.
I am pleased to report that
2019 has been another
successful year, with further
progress made towards our
strategic objectives in the
UK, Europe and India.
Our ‘Smarter, Safer, more
Sustainable’ initiatives have
contributed to increased
operational efficiencies, which
are benefitting the Group’s
profitability.
John Dodds
Non-executive chairman
Alan Dunsmore
Chief executive officer
Read more on our chairman’s view
on page 8
Read more about our strategy
on pages 26 to 32
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
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Contents
Overview
Severfield: a snapshot
Our year in review
Building our strong foundations
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
JSW Severfield Structures
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
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
Shareholder information
Addresses and advisers
Shareholder notes
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TOTTENHAM
HOTSPUR
This project involved the
construction of a new
football stadium at White
Hart Lane in London
– the home ground of
Tottenham Hotspur.
Location
Tottenham, London
Client
Tottenham Hotspur Football
Club
Contract manager
Mace
Engineer
BuroHappold Engineering
Architect
Populous
Tonnage
16,700
Completion date
July 2019
The new stadium provides
Tottenham Hotspur with a
state-of-the-art sporting and
entertainment facility, which seats
over 62,000 spectators. It is the
first stadium in the UK to feature a
retractable pitch which divides into
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 season, in May 2017,
the old stadium was demolished and
work on the south stand commenced
during our 2018 financial year. The
main features of this first phase were
two architecturally unique steel ‘trees’
within the south stand, each weighing
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Severfield plcThe project 275 tonnes, which support the new
17,500-seater single-tier home
stand designed to provide excellent
sightlines and generate a ‘wall of
sound’ within the seating bowl.
During the Group’s 2019 financial
year, the second phase of the
project mainly focused on the
construction of the highly technical
roof structure. The new roof is
formed from structural tension
cables fixed to the compression
ring which creates the 693-metre
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
trial assembled and fabricated
at our Lostock facility in order to
achieve accuracy in length within
tolerances of less than 1 millimetre.
On site, due to the fast-paced
nature of the programme, the
lifting of the 600-tonne roof into
place was performed before
the stadium’s seating bowl was
completed, building an additional
layer of complexity into an already
challenging project. Lifting the cable
net roof structure involved a highly
complex hydraulic strand jacking
operation, requiring the most jacks
used in such a lift in the UK.
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60 LONDON
WALL
The 60 London Wall
redevelopment project will
transform a 1980s office
block located in the City
of London into a modern
12-storey mixed-use
retail and commercial
destination. Occupying a
prominent 1.3-acre corner
site in a prime location, it’s
a great example of how
new structural elements
can be incorporated
into old.
Location
City of London
Client
LaSalle Investment
Management
Main Contractor
Skanska
Engineer
Heyne Tillett Steel
Architect
EPR Architects
Tonnage
2,000
Completion date
August 2019
The property comprises a basement
level, containing service and support
facilities, a ground floor with office
reception, office and retail floor
space with the majority of the office
space arranged over large flexible
upper floorplates arranged around
a central atrium. The project aims
to extensively refurbish, reconfigure
and reinvent the existing seven-
storey 1980s building by stripping
it back to the frame and adding an
extra five floors, increasing the total
office space to 320,000 square feet.
Replacing the original concrete
core with two new slimmer cores
to create an atrium, Severfield
extended the existing building
by a further five storeys with the
installation of a new structural
steel frame. We also fabricated
and installed steelwork for the
full-height scenic lifts around the
edge of the atrium, which consisted
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Severfield plcThe project of ladder-frame type assemblies
connected back to the mainframe
steelwork. Planning, timing and
logistics were key in making sure
the various elements of the project
were installed smoothly as, due to
the site’s location in the heart of
the City, early morning deliveries
and temporary road closures
were required in order to minimise
disruption.
As well as the logistical challenges
associated with working on a busy
city centre site in London, this
project also presented additional
design and installation complexities
that are generally not found on
typical new-build projects. Once the
existing building had been stripped
back to the original concrete core,
close collaborative working with
numerous trades and extensive site
surveying of the existing frame were
required to ensure the engineers,
architects and the Severfield
drawing office had as much
real-time information as possible so
that connections could be designed
to adapt to the pre-existing steel
frame. Tying into the existing frame
meant a substantial amount of
new connections were required to
be made on site (either drilled or
welded) to support the new steel
framework.
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22
BISHOPSGATE
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.
Location
City of London
Client
AXA Real Estate
Main Contractor
Multiplex Europe
Engineer
WSP UK
Architect
PLP Architecture
Tonnage
17,000
Completion date
Mid-2019
The completed project will become
the City’s tallest tower standing at
278 metres high and will provide
approximately 1.3 million square
feet of office space and 43,000
square feet for restaurants and retail
facilities. The tower will also be the
first of its kind to house a fresh 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
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Severfield plcThe project 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 also provided full
edge protection to the floors using
the ‘Seversafe’ edge protection
system and ‘Seversafe’ perimeter
fan system.
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 expected to be completed in
mid-2019. Severfield provided the
connection design, fabrication and
construction of c.17,000 tonnes of
structural steel, which included the
use of Fabsec plated composite
beams from level 10 upwards. Other
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DISTRIBUTION CENTRE
DARLINGTON
This new distribution
centre, is strategically
located in an increasingly
important logistics
location with a good
labour supply. Once
complete, it will be the
largest single-let logistics
facility outside the South
East, as well as one of
the most technologically
advanced centres in
the UK.
Location
Darlington
Client
DB Symmetry
Main Contractor
ISG
Engineer
JPG Consulting Group
Architect
The Harris Partnership
Tonnage
8,000
Completion date
May 2019
Located within the 90-acre
Symmetry Park in Darlington, the
project encompasses an 18-span
portal frame with two mezzanine
floors providing 1.5 million square
feet of state-of-the-art warehouse
space. Surrounding the main
warehouse are seven connected
buildings which include a single
storey welfare and office block, a
drivers’ hub building with office and
welfare facilities, two stair towers
and three circulation towers.
Severfield provided the main
member and connection design
(including temporary works),
detailing, fabrication, treatment and
construction of the steel frame. The
project also included the supply and
installation of 470-tonnes of cold
rolled rails and purlins, c.1 million
square feet of metal decking and
over 185,000 shear studs as well as
steel stairs, open grid flooring and
vertical access ladders.
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Severfield plcThe project protection, which enabled the team
to unload the site materials quickly
and efficiently and remain safe which
working at height.
This project tested the skill and
flexibility of the Severfield team as
the numerous elements of the build
specifications were continuously
tailored to the customer’s needs
throughout the project, with
significant changes made to the
perimeter buildings and elevation.
The layout of the single storey
welfare and office block, drivers’ hub
building, and circulation towers were
reconfigured resulting in complete
redesigns of those structural frames.
In addition, ribbon windows and
further access doors were added
to the elevations together with the
reconfiguration of the mezzanine
floor voids and roof platforms. To
ensure the continuous smooth
operation of the project, close
collaboration with other trades was
required.
This project was assisted by the
‘Seversafe’ offloading system and
over 6,500 feet of ‘Seversafe’ edge
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MANCHESTER ENGINEERING
CAMPUS DEVELOPMENT
Manchester Engineering
Campus Development
(‘MECD’) is one of the
single largest construction
projects undertaken by
any higher education
institution in the UK and
will create an environment
for the brightest engineers
to innovate.
Location
Manchester
Client
University of Manchester
Main Contractor
Balfour Beatty
Engineer
ARUP
Architect
BDP
Tonnage
4,100
Completion date
August 2019
The University of Manchester is
investing over £300 million in the
MECD project, which consists of
four individual buildings with facilities
that will accommodate over 6,700
students and almost 1,300 staff.
Once complete, it will create a new
state-of-the-art engineering campus
over eight floors and a floorspace of
c.820,000 square feet (the size of
approximately 11 football pitches),
that is already being dubbed as ‘the
northern engineering powerhouse’.
Severfield’s scope of works on
the project consists of connection
design, detailing, fabrication,
supply, and on-site construction
of the permanent and temporary
steelwork associated with the four
new buildings. We also supplied and
installed c.115,000 square feet of
metal decking, pre-cast concrete
planks, and pre-cast concrete
stairs for the project. Early in the
project lifecycle, we were involved
in the tender and pre-construction
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Severfield plcThe project stages, which created a platform
for influencing key aspects of the
design. This early involvement also
enabled the development of a close,
collaborative working relationship
with Balfour Beatty. This relationship
has contributed to the successful
delivery of the project.
Due to the location of the site, the
project team have encountered
various complexities. An old
Victorian sewer runs through the
site and underneath the largest
of the four buildings. In order to
minimise the number of supports
and foundations required, large
truss steelwork spanning 75 feet
across the width of the sewer was
incorporated into the steel frame.
Using a mix of fabricated steelwork,
which saw the work shared between
our Severfield (UK) Dalton and
Lostock facilities, allowed us to
span this distance. The weight of
the truss components used, which
can weigh up to 25 tonnes each,
exceeded the capacity of the tower
cranes, therefore large crawler
and mobile cranes, with up to 400
tonne capacity, were used to install
parts of the project without risking
damage to the underground sewer.
Other Severfield services utilised on
this project include our ‘Seversafe’
edge protection on all floors and the
‘Seversafe’ off-loading system.
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02
SEVERFIELD:
A SNAPSHOT
Overview
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
Severfield Europe
Zevenbergen, Netherlands
JSW Severfield Structures
Mumbai, India
Construction Metal Forming
(previously Composite
Metal Flooring)
Monmouthshire, Wales
Read more about the scale of our operations
on pages 12 to 15
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.
Read more about the markets we serve
on page 20
What we do
Our business model
We manage every aspect of the fabrication and construction
process, from initial scheme design, through detailing,
specification and manufacture to the eventual handover
to our clients of a quality product on-site.
Read more about our business model
on page 18
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
eight principal risks and uncertainties
which have the potential to impact the
Group’s business model and strategy.
Read about how we manage
risk on pages 62 to 74
What
we want
to be
Our vision
What we set
out to achieve
Our mission
How we will
achieve our vision
Our strategy
Read more about our strategy on pages 26 to 32
What defines us
Our values
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 03
Our vision is to
be recognised as
world-class leaders in
structural steel, known
for our ability to deliver
any project to the highest
possible standards.
As ambitious, innovative leaders in
a demanding and ever-developing
industry, we will use our collective
strengths and resources to build
the capacity required to deliver the
structures of the future.
We use a combination of financial and non-financial key performance indicators (‘KPIs’) to measure
our progress in delivering our strategic priorities.
How we measure success
Our KPIs
Read about key performance indicators on pages 34 to 37
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.
G
o
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Read more about governance on pages 86 to 91
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
• People
• Sustainability
• Community
Read more about building
a sustainable business
on pages 52 to 61
Our strategy revolves around five main
elements, supported by our business
improvement programme,‘Smarter, Safer,
more Sustainable’.
£
Growth
Clients
India
Operational
excellence
People
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.
i
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www.severfield.comStock Code: SFR OverviewStrategic reportGovernanceFinancialsInformation 04
OUR YEAR
IN REVIEW
Overview
Financial highlights
2019 has been another
successful year for the
Group.
Revenue
£274.9m
Underlying* profit
before tax
£24.7m
Underlying*
operating margin
8.5%
Adam Semple
Group finance director
m
2
.
2
6
2
£
m
2
.
4
7
2
£
m
9
.
4
7
2
£
m
8
.
9
1
£
m
5
.
3
2
£
m
7
.
4
2
£
%
5
.
7
%
3
.
8
%
5
.
8
Read more about our financial
performance on pages 46 to 50
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Profit before tax
Underlying* basic
earnings per share
Net funds
£24.7m
6.7p
£25.1m
m
1
.
8
1
£
m
2
.
2
2
£
m
7
.
4
2
£
p
5
.
5
p
4
.
6
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7
.
6
m
6
.
2
3
£
m
0
.
3
3
£
m
1
.
5
2
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7
1
0
2
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2
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1
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8
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2
8
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Severfield plc Annual report and accountsfor the year ended 31 March 2019
05
Operational highlights
UK order book 2019
• Revenue of £274.9m (2018: £274.2m)
• Underlying* profit before tax up 5% to
£24.7m (2018: £23.5m)
• Underlying* basic earnings per share up
5% at 6.7p (2018: 6.4p)
• Year-end net funds of £25.1m (2018:
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.
Our UK and Europe order book at June 2019
%
4
1
£33.0m) after payment of 2018 special
%
dividend (£5.2m) and equity investment
1
(£4.2m) in India to finance expansion of
the Bellary factory
%
3
%
2
%
5
• Total dividend increased by 8% to
2.8p per share (2018: 2.6p per share),
includes proposed final dividend of 1.8p
per share (2018: 1.7p per share)
£230m
• Over 100 projects undertaken during the
year in diverse market sectors including
the new stadium for Tottenham Hotspur
FC, the retractable roof for Wimbledon
No.1 Court and a new commercial tower
at 22 Bishopsgate
%
5
1
• UK and Europe order book of £295m
at 1 June 2019 (1 November 2018:
£230m), including the first orders
secured by our new European business
%
0
6
• Share of profit from Indian joint venture
(‘JSSL’) up 140% at £1.2m (2018:
£0.5m)
• Step change in Indian market position
reflected in order book of £134m at
1 June 2019 (1 November 2018:
£124m), expansion of the Bellary factory
in progress
%
2
2
%
2
%
2
£295m
%
6
2
%
2
1
%
6
3
Commercial offices
Transport (including bridges)
Industrial and distribution
Stadia and leisure
Power and energy (0%)
Data centres and other
Retail (0%)
Health and education
G
o
v
e
r
n
a
n
c
e
Our UK and Europe order book at November 2018
%
4
1
%
3
%
1
%
2
%
5
%
2
2
%
2
%
2
Commercial offices
Transport (including bridges)
Industrial and distribution
i
F
n
a
n
c
a
s
l
i
£230m
Stadia and leisure
£295m
Power and energy (0%)
Data centres and other
Retail
Health and education
%
5
1
%
0
6
%
6
2
%
2
1
%
6
3
* There are no non-underlying items in the current
year. In the prior year, underlying results are stated
before non-underlying items of £1.3m, relating to
amortisation of acquired intangible assets.
Read more about our operating
performance on pages 38 to 45
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06
BUILDING OUR
STRONG FOUNDATIONS
Timeline
September 2013
Restructured the Group’s three operating
businesses into a single trading entity,
Severfield-Watson Structures Ltd (now
Severfield (UK) Ltd) and completion of a
comprehensive management review and
restructuring programme.
During 2014
Development of a long-term Group
strategy based on building a solid
platform for continued growth in the
UK and overseas and launched a
comprehensive Group operational
improvement programme.
November 2015
Successfully completed our
50% investment in Construction
Metal Forming Limited (previously
Composite Metal Flooring Limited).
March 2016
Awarded the contract to
fabricate and construct the
retractable roof for Wimbledon
No.1 Court.
2014
2016
2015
October 2014
Established a new £25 million
revolving credit facility until
July 2019.
December 2015
Awarded the contract for the
construction of the new stadium for
Tottenham Hotspur FC.
2013
April 2013
Completed a rights issue which
raised £45m and recapitalised the
business with a stabilised financial
structure to secure the long-term
future of the Group.
December 2014
January 2016
The Group secured six new contracts,
worth £43 million in total, including being
appointed as the steelwork contractors
for the expansion of Anfield stadium for
Liverpool FC.
Set up Severfield Foundation, a
registered charitable organisation
raising funds for, and offering
assistance to, charitable bodies
throughout the UK, mainly
through the activities of Severfield
employees.
November 2013
Appointed Ian Lawson as chief
executive officer.
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Awarded the contract for Google
Headquarters in King’s Cross.
Severfield to supply 15,900 tonnes of
structural steelwork services for the
11-storey building.
December 2018
Expansion of the Bellary
facility in India commences
and is expected to be
completed towards the end
of the 2020 financial year.
January 2018
Appointed Alan Dunsmore as
chief executive officer.
Reorganised our factory
operations in North Yorkshire,
consolidating the steel fabrication
at Sherburn and Dalton into the
Dalton facility, making better
use of our operational footprint
in Yorkshire and drive further
operational improvements.
2018
April 2017
Incorporated Severfield Europe
B.V. in the Netherlands, focusing
on tailoring our established UK
offering for expansion into the
European market.
June 2016
Outlined the Group’s new strategic
target to double 2016 underlying
profit before tax to £26 million
by 2020.
2017
During 2017
Launched our business
improvement programme,
‘Smarter, Safer, more Sustainable’
consolidating the Group’s
operational improvement projects,
including improvements to
our business processes, use
of technology and operating
efficiencies.
November 2016
2019
March 2019
Severfield Europe B.V. wins
its first two contracts.
April 2018
Trading commenced at Severfield
(Products & Processing), the
Group’s new business venture in
Sherburn to address smaller scale
projects and provides a one-stop
shop to fabricators to source
processed steel and ancillary
products.
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Secured six new contracts worth
£72 million including being awarded
the contract to design, fabricate
and construct c.17,000 tonnes of
structural steel for 22 Bishopsgate,
London.
July 2017
Completed the installation of a brand
new £2 million state-of-the-art
‘T & I’ plate girder line at Severfield
(UK)’s Lostock facility to significantly
improve our capability within the
bridge market.
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OUR CHAIRMAN’S
VIEW
Overview
We continue to make
progress in executing
our strategy.
John Dodds
Non-executive chairman
I am pleased to report that 2019 has
been another successful year, with further
progress made towards our strategic
objectives in the UK, Europe and India.
We have delivered another year of profit
growth, with underlying* profit before tax
increasing by five per cent to £24.7m,
from £23.5m in 2018. This reflects a good
operating performance from our core
UK businesses, along with an improving
profitable performance from the Indian joint
venture (‘JSSL’).
Turning to the balance sheet, year-end
net funds were £25.1m (2018: £33.0m)
following the payment of the 2018 special
dividend and the further equity investment
in JSSL to finance the expansion of
factory capacity at Bellary. Our continued
strong cash position provides us with a
competitive benefit with both clients and
suppliers, and has also allowed us to
invest in further capital initiatives in the year
to support future growth and operational
efficiencies at our sites.
I am also pleased to report that
following extensive negotiations with
all stakeholders, we have now agreed
a final settlement for the remedial bolt
replacement works at Leadenhall, resulting
in no further costs for the Group.
Read more about our operating
performance on pages 38 to 45
Board changes
In June 2018, we announced that Chris
Holt had tendered his resignation as a
non-executive director of the Company
and he subsequently retired from the
board at the conclusion of the 2018 AGM
on 4 September 2018. On behalf of the
board, I would like to reiterate my thanks
to Chris for his significant contribution
during seven years with the Company.
We have commenced a search for his
successor and an announcement will be
made in due course.
Read more about our board
of directors on page 78
Corporate governance
You can read more about
how we comply with the UK
Corporate Governance Code
in the sections below:
78
Our board of directors
80
Our executive committee
Our chairman’s view on governance 84
86
Corporate governance report
92
Audit committee report
96
Nominations committee report
98
Directors’ report
102
Directors’ remuneration report
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We continue to pursue our three areas
of organic growth – Europe, Severfield
(Products & Processing) (‘SPP’) and a
medium to high-rise residential solution.
Our European business has now
successfully secured its first two orders
and these contracts will be delivered in
2020. At SPP, notwithstanding some
market headwinds, we have secured and
delivered a number of orders to a variety
of new customers and continue to gain
more intelligence on both our competitors
and market dynamics as a whole. The
market for medium to high-rise residential
construction remains attractive to us and
we are pushing hard to secure our first
order.
India
JSSL has continued to expand and we
are now seeing clear evidence of the step
change in the market for structural steel in
India. The business delivered an improved
profitable result in 2019, reflecting both
a good operating performance together
with lower financing costs. The expansion
of the Bellary facility is now underway and
is expected to be completed towards the
end of the 2020 financial year.
The JSSL order book (£134m) has
continued to grow significantly as
the market for structural steel in India
continues to expand. This market position
is also reflected in a growing pipeline which
includes a number of potential commercial
projects, together with various industrial
opportunities, including those for our joint
venture partner, JSW Steel.
Read more about our strategy
on pages 26 to 32
People
On behalf of the board, I would like to
thank our employees for their hard work
and dedication in contributing to the
Group’s improved performance in 2019.
Their commitment to the business, focus
on customer service and drive to improve
operational efficiency has enabled us
to build on the progress made in recent
years.
We have continued to strengthen the
organisation’s leadership team during the
year both at the executive committee level
and in the local business leadership teams.
The Group strategy continues to support
health and safety as being at the forefront
of everything we do, and the well-being of
our people is a key priority of the board.
We have made good progress in reducing
our accident frequency rate (‘AFR’) over
recent years and I am pleased to report
that the AFR has again improved in the
current year. As part of our commitment
to a ‘safety first’ culture, we continue to
work to raise awareness of all aspects
of employee health, including an internal
campaign focused on the mental health of
our people.
Read more about building a
sustainable business on pages
52 to 61
Outlook
We continue to make progress in executing
our strategy. Our strong market-leading
position, our quality order book of £295m,
our good pipeline of future opportunities
and the quality of our workforce, senior
leadership team and board leave us
well-placed to deliver on our strategic
expectations and for long-term growth.
John Dodds
Non-executive chairman
19 June 2019
* The basis for stating results on an underlying
basis is set out on page 5.
Dividends
In line with our dividend policy and
continued confidence in our ability to
deliver sustainable returns to shareholders,
the board is recommending an eight
per cent increase in the 2019 full year
dividend to 2.8p (2018: 2.6p per share).
This recommendation results in a
proposed 2019 final dividend of 1.8p
(2018: 1.7p per share). These dividends
reflect the improved result for the year and
the board’s confidence in the long-term
prospects of the Group.
Read more about our financial
performance on pages 46 to 50
Strategy and markets
The current year performance has been
achieved despite more uncertain times.
The collapse of Carillion and the challenges
faced by other companies in the
construction supply chain have impacted
the sector as a whole. Furthermore,
we have seen some evidence of UK
investment decisions being delayed in
some of our market sectors against a
backdrop of greater political uncertainty in
the UK, the impact of which is being offset
by more buoyant market conditions in the
Republic of Ireland and in Europe. All in
all, we are very encouraged by our order
book of £295m and are seeing a pipeline
of potential future orders which remains
stable with a good balance of work across
our key market sectors, particularly for
industrial and distribution and data centres.
Turning to strategy, as well as making
continued good progress towards our
2020 strategic profit target, we continue
to deliver on our strategic objectives. We
have seen further growth in our profits and
ongoing investment in our clients, people
and facilities. The Group’s ‘Smarter, Safer,
more Sustainable’ programme of projects
has continued to drive improvements
to operational efficiencies and business
processes. We are focused on applying
Lean principles across all manufacturing
activities and we will continue to invest
in technology and the automation of
processes where efficiency improvements
can be realised.
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OUR UNIQUE
OFFERING
Focused on leading customer
service, supported by our scale
and innovative thinking.
1
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.
3
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.
2
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.
4
Benefits of scale
Severfield is the largest structural steel business in
the UK and one of the largest in Europe, with an
expanding presence in India, providing unrivalled
capacity and capability allowing us to share our
expertise across a wide range of market sectors
to deliver cost-effective and innovative steel
structure solutions.
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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, our business
model illustrates the Group’s 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 choose supply chain partners who match our
expectations in terms of quality, sustainability and
commitment to client service.
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Innovation
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 business model is based
on a virtuous cycle of growth, investment and
innovation.
7
6
Operational excellence
Our board of directors and employees have a
wealth of experience in the construction industry.
We have a track record of successful operational
performance on many of the UK’s most iconic
structures. Our ‘Smarter, Safer, more Sustainable’
team are focused on delivering internal efficiency
improvements to support the Group’s operational
efficiency and effectiveness.
8
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THE SCALE OF OUR
OPERATIONS
United Kingdom
Read more information on
our projects in the attached
booklet at the front of this
annual report
Our main offices and fabrication
facilities for Severfield (NI) are based in
Ballinamallard, near Enniskillen.
3
This site near Bolton in Lancashire
comprises offices and factory facilities
and is part of our Severfield (UK)
operations.
Read more about the
scale of our operations
on pages •• to ••
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.
1
2
Located in Sherburn, near Scarborough,
are our sales and commercial teams
for Severfield (Design & Build) and
the production facilities for Severfield
(Products & Processing).
4
5
6
7
8
9
London
10
11
12
13
Based in South Wales, our specialist cold
rolled steel joint venture, Construction
Metal Forming Limited, provides a state-
of-the-art manufacturing facility for the
manufacture of metal decking and purlins.
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Greater
London
17
14
15
16
18
20
19
Europe
22
21
23
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Key to our projects
1
2
3
V&A Museum, Dundee
Health and education
Dunbar, Scotland
Power and energy
Emirates Arena & Velodrome,
Glasgow
Stadia and leisure
4 Westfield Shopping Centre,
Bradford
Retail
Anfield Stadium, Liverpool
Stadia and leisure
Ordsall Chord, Manchester
Transport
Manchester Engineering
Campus Development,
Manchester
Health and education
Peterborough Waste to
Energy plant
Power and energy
BBC, Cardiff
Commercial offices
Princesshay, Exeter
Retail
Titanic, Belfast
Commercial offices
Large data centre, Dublin
Data centres and other
Covanta, Dublin
Power and energy
Coal Drops Yard
Retail
St Giles Circus
Commercial offices
22 Bishopsgate
Commercial offices
Tottenham Hotspur
Stadia and leisure
South Bank Tower
Commercial offices
The Shard
Commercial offices
20 Wimbledon No1 Court Roof
Stadia and leisure
ESS Target, Lund, Sweden
Data centres and other
Large data centre, Finland
Data centres and other
Large data centre, Belgium
Data centres and other
5
6
7
8
9
10
11
12
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14
15
16
17
18
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21
22
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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.
Our subsidiaries
Severfield
(UK) Limited
Dalton,
North Yorkshire
c.550 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.
Severfield
(UK) Limited
Lostock,
Lancashire
c.250 employees
Severfield
(Design &
Build) Limited
c.100 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, steel fabrication at
Sherburn was consolidated into our
Dalton factory.
Severfield
(NI) Limited
c.300 employees
Severfield
(Products &
Processing)
Limited
Severfield (Products & Processing)
was launched at Sherburn in 2018.
The company offers a one-stop shop
for 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.
Severfield
Europe B.V.
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’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 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.
We have continued to develop our
European business, based in the
Netherlands, to extend the Group’s
capabilities into continental Europe.
The company’s highly skilled team
are winning work and developing
a pipeline of future orders across a
wide range of high-quality projects in
Northern Europe and Scandinavia.
Supported by our UK fabrication
capability, this enables the company to
tailor our established UK offering to the
wider European market.
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Our joint ventures
JSW
Severfield
Structures
Limited
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 expanding 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.
In 2018, work commenced on the expansion of the Bellary facility which will increase capacity from 60,000
tonnes to 90,000 tonnes by the end of the 2020 financial year.
The Group has a 50 per cent share of Construction Metal Forming Limited (‘CMF’), a specialist designer,
manufacturer, innovator and installer of profiled MetFloor® metal decking. The modern 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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Construction
Metal Forming
Limited
(previously
Composite
Metal Flooring
Limited)
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STRATEGIC
REPORT
How we create value
The markets we serve
Our market sectors
JSW Severfield Structures
Our strategy
Key performance indicators
Our operating performance
Our financial performance
Building a sustainable business
How we manage risk
18
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24
26
34
38
46
52
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HOW WE
CREATE VALUE
Our company
Our customers
Severfield plc is the UK’s market-leading structural steel group,
serving the construction and infrastructure markets. 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.
Clients serviced by the Group cover a broad range of disciplines
from contractors and developers, to engineers and architects.
We are focused on and are committed to delivering excellent
customer service at every stage of the project to our broad range
of clients and draw upon our industry experience to allow us to
tailor our offering and service to customers’ needs.
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 2D and 3D 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 1,200 staff including an in-house
construction team. We have the design 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
through contracting processes. Our framework of robust risk
management and control ensures that challenges are mitigated,
allowing us to deliver all projects to the highest possible standard.
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, sustainability and excellent client service.
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19
Why they work with us
Severfield has a strong history of delivering iconic and unique structures. Our competitive advantage derives from our client focus,
operational excellence, benefits of scale, integrated approach from design to construction, innovation and our strong focus on driving
growth and productivity.
We aim to leverage our skills and experience in these areas to allow us to better understand our customers’ own needs and work with
them to provide world-class steel solutions. We approach every project, from the highly technical to basic structural work, with the
same level of safety, professionalism, commitment, care and customer service.
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.
Sustainable investment
We are continually investing in our business in order to preserve
our ability to generate value in the short, medium and long term.
Read more about our unique offering on pages 10 and 11
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.
Health and safety focus
Society
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.
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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THE MARKETS
WE SERVE
Key facts
Group production
80,000
tonnes
Group potential capacity
150,000
tonnes
Market output for structural
steelwork in the UK
c.900,000
tonnes
UK and Europe order book
£295m
The Group’s strategic focus is to continue to build on our UK
market share from construction activities, to enter new market
sectors and to widen our geographical spread into Europe.
Marketplace
The UK constructional steelwork market,
as measured by the British Constructional
Steelwork Association (‘BCSA’), remained
stable in 2018 (calendar year) at c.900,000
tonnes. Consistent with the previous
year, this equates to a total market of
approximately £1.7 billion. The market
has shown no significant change in the
past two calendar years, but this follows a
strong return to growth between 2014 and
2016 following the global financial crisis.
In the previous year, we reorganised our
factory operations in North Yorkshire,
resulting in steel fabrication at Dalton and
Sherburn being consolidated in our Dalton
facility, and established a new business
venture, Severfield (Products & Processing)
Limited (‘SPP’), to allow us to specialise
in smaller scale projects. The combined
Dalton facility is now operating at scale
and SPP is gaining traction in new market
sectors. The Group’s potential production
capability remains at approximately
150,000 tonnes. In 2019, Group revenue
of £275m represented a modest increase,
to a nine-year high, reinforcing our market-
leading position and the continued delivery
of our strategic objectives.
Outlook
UK
Looking further ahead, overall the UK
market continues to appear largely stable,
with modest economic growth forecast.
Notwithstanding this, we are seeing
evidence of some UK investment decisions
being delayed against a backdrop of
a generally more cautious investment
climate, particularly in the commercial
sector, potentially owing to Brexit-related
uncertainty. Forecasts prepared by the
BCSA suggest some return to growth in
the short to medium term, with total UK
steelwork consumption of 920,000 tonnes
forecast by 2021. 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. We anticipate that there
will be several significant opportunities
over the next few years in projects which
include HS2 (bridges and stations), UK
airport expansions and the ongoing
Network Rail and Highways England
investment programmes. In addition, we
are starting to see more activity in the
London commercial market, a trend that
we expect to increase over the next few
years.
Our sectors
The market sectors targeted by the Group, and their estimated size in tonnes during
2018 are shown below:
Commercial offices
Transport (including bridges)
Industrial and distribution
Stadia and leisure
Power and energy
Data centres and other
Retail
Health and education
Percentage
Tonnes
11%
8%
97,000
75,000
49%
432,000
4%
8%
8%
2%
10%
36,000
75,000
74,000
16,000
90,000
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Pipeline and 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.
The data centre and industrial and
distribution markets have remained
strong and are forecast to grow in 2019
and 2020, although pricing remains
competitive. The Group has good
experience in these sectors and is able to
meet customer requirements, including
a high-quality product, rapid throughput,
on-time performance and full coordination
between stakeholders.
The mix of work within the market sectors
that we target will be a key determinant
of the Group’s future performance. Over
the last year, we have widened the target
segments of the market that we focus
on. Larger, more complex projects will
continue to offer good opportunities, but
we are now effectively competing and
winning a higher volume of smaller, lower
risk projects including those in the regions
(outside London). The Group continues
to focus on improving efficiencies through
our ‘Smarter, Safer, more Sustainable’
programme, which supports our ability
to compete in a wider range of market
segments.
Europe
The impact of softer UK market conditions
is being offset by the continued re-
emergence of the Republic of Ireland
market and significant opportunities
in continental Europe, where we have
demonstrated our ability to win work,
supported by our European business
based in the Netherlands.
During the year, the Group has successfully
secured work in the Republic of Ireland,
Sweden, the Netherlands and Finland,
which includes the first two contracts
secured by our European business. Our
European team is dedicated to tailoring
our established UK offering for expansion
into the European market, with a particular
focus on north-west Europe. We have
identified the stakeholders in the market
and are building a network with clients,
designers and developers. The European
team’s market knowledge and experience
has also been of significant benefit to
our UK businesses when tendering for
and delivering an increased pipeline of
European work.
Order book
The Group’s order book has increased
to £295m (at 1 June 2019) and includes
a diverse range of projects and a good
proportion of smaller, lower risk projects.
Significant new orders secured in the year
include a number of commercial office
developments both in London and the
regions, two large data centres (in the
Republic of Ireland and Finland), a large
project at Heathrow airport and a car park
development at Manchester airport. The
order book also includes the landmark
contract for the new Google Headquarters
at Kings Cross.
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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, industry, leisure, transport or
to provide essential infrastructure.
Core infrastructure sectors
Transport
5-10%
Group market share
(for infrastructure
including bridges)
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.
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.
Power and energy
<5%
Group market share
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.
Health and education
5-10%
Group market share
Successes
Francis Crick Institute, Nigeria Syringe
Factory, University of Strathclyde, Victoria
& Albert Museum (Dundee), Kings College
Hospital, Graphene Innovation Centre,
Manchester University Engineering
Campus.
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.
KEY:
Up
Down
No change
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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, St Giles Circus Development,
Hanover Square Masterplan.
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 coordination 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, DHL and B&M.
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).
Successes
Bradford’s Westfield Shopping Centre,
Stratford’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.
Successes
Data centres for Microsoft (Amsterdam)
and Telehouse (London).
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.
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.
Core construction sectors
Commercial offices
30-40%
Group market share
Industrial and distribution
5-10%
Group market share
Stadia and leisure
30-40%
Group market share
Retail
20-30%
Group market share
Data centres and other
10-20%
Group market share
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JSW SEVERFIELD
STRUCTURES
India
The Group’s joint venture in India, JSW
Severfield Structures Limited (‘JSSL’) is an
important part of its overall strategy. The
Group holds a 50 per cent shareholding
in JSSL alongside its partner JSW Steel
Limited (‘JSW’), India’s largest steel
producer.
JSSL also has an interest of 67% in a
metal decking business, JSWSMD Limited.
2019 performance
In 2019, JSSL performed strongly and its
results are now beginning to reflect the
step change in the market for structural
steel in India which will drive the success
and long-term value of the business.
JSSL’s order book reflects an expanding
overall construction market, greater
demand from JSW for its own industrial
construction projects, as it increases its
steel output, and more significantly, a more
successful conversion from concrete to
steel in some higher margin healthcare and
commercial projects.
Revenue for 2019 was £84m compared
with £46m in the previous year and
profit before tax was c.£3m (of which
the Group’s after tax share was £1.2m)
which reflects both increased volumes,
good operational performance and lower
financing costs following the repayment
of JSSL’s term debt in June 2017. JSSL’s
operating margin was 6.4 per cent
compared to 9.2 per cent in the previous
year reflecting a larger proportion of
(lower margin) industrial work in the order
book coming into the 2019 financial year.
Notwithstanding this, we expect to see
an improvement in the operating margin
in the 2020 financial year as a result of
increased demand for (higher margin)
commercial projects reflecting the market
developments described above.
Act (‘Real Estate Regulatory Authority’),
a focus on the ‘Ease of Doing Business’,
and improving construction standards
such as National Disaster Management
Authority guidelines for healthcare
construction projects are all helping
stimulate construction growth, and more
importantly, the use of steel.
• Healthcare and healthcare tourism,
accommodation (public and
private), smart cities, IT and logistics
infrastructure are all expected to grow,
and steel is well positioned when
benchmarked on speed, space, return
on investment, health and safety and
green credentials.
Market developments
• The steel industry overall continues to
The Indian economy continues to grow
rapidly and the market for construction,
and, more importantly for JSSL, for
structural steel continues to strengthen
and expand. In India:
• GDP growth is strong at c.6 per cent
and is moving closer to £3 trillion per
annum. It is predicted that GDP will
increase to £10 trillion by 2030.
• Various government initiatives such as
GST (‘Goods and Services Tax’), RERA
invest and to grow as it aims to support
economic development through the
increase in overall indigenous steel
output from 115 million tonnes per
annum to over 300 million tonnes
per annum by 2030. The availability
and quality of local steel products will
support the JSSL’s growth strategy and
growth in the wider construction sectors.
India
1
2
3
1
2
3
MUMBAI – Head office
BELLARY – Production plant
BANGALORE – Sales representation and drawing/design office
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Depending on mix, the capacity of the
current Bellary facility is c.60,000 tonnes
per annum, which is currently being
expanded to c.90,000 tonnes per annum.
The key characteristics of the plant are as
follows:
• The current configuration is two
fabrication lines. Four narrower
fabrication lines will be added in new
factory space, following completion
of the expansion. These will service
JSSL’s target commercial and industrial
sectors of multi-mix commercial, offices,
healthcare, data centres, retail and the
industrial and manufacturing sectors.
• A further INDISEC® plated beam line
will be added to our existing two plated
beam lines.
• A further bit shop and additional painting
facilities will be developed.
Outlook
We are excited by the long-term
development of the market and of the
business, especially considering the order
book growth and expanding market
position. We expect value to continue to
build in JSSL as it expands and develops.
JSSL’s health and safety record is excellent
with 2019 another year free of lost time
incidents (‘LTI’). This is a very pleasing
statistic which means that approximately
14 million fabrication and construction
hours have been undertaken since the last
LTI in 2014, resulting in many certificates
and awards from clients and health and
safety organisations in India.
During 2019, JSSL continued to deliver
complex projects on time and within
budget. JSSL’s significant projects include:
• Two prestigious hospitals for The
National Cancer Institute and for Tata
Trusts.
• Large commercial projects for Phoenix
Group, Sattva Salarpuria and the Andhra
Pradesh State Secretariat.
• Many large industrial projects for JSW.
Current and future operations
JSSL’s operations are based on a 65-acre
site in Bellary, Karnataka. The plant has
been designed to optimise JSSL’s product
range, quality and productivity, as befitting
the demands of the construction industry
in India. Incorporating state-of-the-art
technology and processing equipment,
the plant is managed and operated by
a growing workforce containing highly
qualified, experienced people. Bespoke
plated products and INDISEC® are
manufactured on-site offering clients a
range of benefits.
JSSL
JSSL is well-positioned for future market
expansion. Since its inception ten years
ago it has built up a reputation as the
number one design and build structural
steel company in India, providing a full
design, fabrication and site construction
service. This fully integrated and expert
offering gives clients, developers,
architects, consultants and contractors
confidence that complicated and changing
project requirements can be delivered on
time and within budget.
Through its performance and know-how,
JSSL has established excellent strategic
relationships with major construction
players, positioning it well for the future.
This has led to a substantially increased
order book of £134m which contains a
much stronger mix of commercial work.
The expanding market position is also
reflected in a pipeline of opportunities
which also contains a growing large
number of potentially interesting
commercial projects, together with
numerous industrial projects, including
those for JSW. This growing business
confidence was evident in 2019 with the
approval by the joint venture partners
of a further expansion of 30,000 tonnes
per annum to JSSL’s operational site in
Bellary, Karnataka. This expansion project
is now underway and is expected to be
commissioned and operational towards
the end of the 2020 financial year, taking
total capacity at Bellary to around 90,000
tonnes per annum.
JSSL has also established a network of
strategic suppliers and sub-contractors
which it continually audits for health, safety,
quality and assurance purposes to support
the further supply of certain fabricated
steel products, all of which contribute to
overall revenues.
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OUR
STRATEGY
Our vision is to be recognised as world-class leaders in structural steel.
We will deliver this vision through the Group’s strategy which is supported by a focus on five key elements and assisted by our
business improvement programme, ‘Smarter, Safer, more Sustainable’.
Group strategy
£
Growth
Clients
India
Operational
excellence
People
Smarter, Safer, more Sustainable
Our business improvement programme represents the consolidation of all of the Group’s ongoing improvement projects, established
to help us deliver 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
Safer
More Sustainable
Improve how we deliver our projects with
speed, efficiency and accuracy.
Continue our relentless focus on safety and
always think ‘safety first’.
Focus on working sustainably and reducing
our energy consumption.
WHAT WE WILL DO
Invest in activities to drive operational
excellence, improved efficiency, and quality.
Introduce new technology and equipment
that enables safer ways of working.
Invest in technology that reduces our
emissions.
WHAT THIS WILL MEAN FOR US
Further development of our expertise, quality
and an improved offering to clients.
Safeguard employees, clients and
shareholders.
Care for our environment while building our
external reputation.
Read more about our safety, health and
environment strategy on pages 52 to 56
Read more about our people strategy
on pages 58 to 61
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OUR
STRATEGY
Group strategy
Strategic pillar
Link to KPIs
Link to principal risk
Key KPIs and principal risk
4
3
5
4
5
Key performance indicator
reference number
2
3
2
7 8
1
6
7 8
£
Growth
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
1
6
5
3
2
4
3
4
7
6
7
Clients
By understanding, anticipating and
responding to client needs we aim to
build secure, sustainable and mutually
valuable relationships and create
lasting client satisfaction.
1
1
5
5
2
2
3
3
4
4
6
6
7
7
1
6
1
6
9
4
5
5
9
1
2
6
4
3
2
3
7 8
7 8
1 Underlying operating profit
and margin (before JVs 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’)
Key to principal risks
1 Health and safety
2 Commercial and market
environment
3
Information technology resilience
4 Mispricing a contract (at tender)
5 Failure to mitigate onerous
contract terms
6 Supply chain
7
Indian joint venture
8 People
India
The Indian business is expanding and
its growing order book reflects the
step change in the market position.
1
2
3
4
1
2
3
4
5
1
5
2
6
3
7
4
1
6
2
3
7 8
4
9
5
5
6
7
6
7 8
Operational excellence
Our emphasis is on delivering high-
quality projects and reducing costs by
driving excellence through our core
business processes.
1
2
3
4
1
2
3
4
5
1
5
5
2
6
3
7
4
6
7
1
6
6
2
7 8
3
4
9
5
7 8
1
5
2
6
3
7
4
1
6
2
3
7 8
4
9
5
1
5
2
6
3
7
4
1
6
2
7
3
8
4
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.
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The progress that we have made in delivering our strategy in 2019, together with how this strategy is to be developed further
during 2020, 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 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.
Growth in Europe:
continue to build
on recent contract
wins, to drive growth
through our European
business and our core
business in the UK.
We have grown Group revenue by 36 per cent since 2015 when we first launched our strategic growth
target. Our order book currently stands at £295m reflecting our success in winning work from new and
existing clients.
We have delivered large, complex projects in the year, including 22 Bishopsgate and the Tottenham
Hotspur stadium, and projects of this type remain an area of strength for the Group. We experienced
fewer large-contract opportunities (particularly in London) and the current order book now has a higher
proportion of smaller, lower risk contracts (including more regional work). Our operational efficiency
programme has enabled us to compete successfully for these projects.
During the year, our UK operations and our European business, based in the Netherlands, have successfully
secured work in the Republic of Ireland, Sweden, the Netherlands and Finland. The two orders secured by
our European business represent its first contract successes and this work will be delivered in 2020.
Severfield (Products & Processing) was launched in the year to provide processed steel and ancillary
products to other fabricators who specialise in smaller projects. This new business has gained traction
and has established a core customer base. Our fabrication capability has developed and is servicing both
internal and external customer requirements.
CMF continued to develop its product offering and grow organically, partially as a result of the additional
purlin line which was added in the previous year.
We have continued to tender for opportunities in the market for medium to high-rise residential
construction and have developed our knowledge in this new sector. We believe that our offering remains
an area of potential growth for the Group.
Objectives for 2020
To further grow Group revenue 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 key sectors in the UK and Europe including commercial offices, industrial, data
centres, stadia and transport infrastructure to strengthen and widen our market focus.
We aim to build on the two recent contract wins at Severfield Europe to further develop the opportunity
in the European market. We will focus on the current project pipeline to drive incremental growth.
We will build on the first year’s performance at Severfield (Products & Processing) by targeting volume
growth and improving the operating performance and efficiency of the business.
We will continue to expand the product range and customer base at CMF to drive further organic
growth opportunities.
The Group also continues to look for complementary acquisition and investment opportunities which
support our plans for growth.
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OUR
STRATEGY
Clients: By understanding, anticipating and responding to client needs we aim to build secure,
sustainable and mutually valuable relationships and create lasting client satisfaction.
Strategic priorities
Achievements in 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 by working collaboratively 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 worked closely with a number of clients to explore and develop cost-effective solutions to overcome
project challenges.
We also focused on developing new client relationships which has resulted in a solid pipeline of opportunities
in both existing and adjacent markets.
Objectives for 2020
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 new collaborative ways of working that are mutually beneficial to us and our clients
while ensuring that risk and reward are appropriately balanced.
India: The Indian business is expanding and its growing order book reflects the step
change in the market position.
Strategic priorities
Achievements in 2019
Expansion in India:
our aim is to continue
to grow, develop
and build value in
the business as the
market is showing
clear signs of the
conversion from
concrete to steel.
The Indian business has grown its revenue by 80 per cent and reported an improved profitable result in 2019.
The market for structural steel in India continues to expand significantly and this is reflected in an order
book which was £134m at 1 June 2019. During the year, the order book has developed to include a higher
proportion of projects in the commercial sector, which is typically at a higher margin than contracts in the
industrial sector.
The expansion of the Bellary facility has commenced and is expected to be completed towards the end of the
2020 financial year, positioning us well to continue to take advantage of a growing pipeline of both commercial
and industrial work.
Objectives for 2020
With an increasing order book and factory capacity, and in an expanding market, we will continue to target a
better mix of commercial work to increase operating margins. We will also service industrial projects, including
those for JSW Steel which is significantly increasing its domestic steel output.
We will focus on executing the expansion programme effectively without disruption to the core business.
We will continue to invest in and grow the capability of the local team. This includes the development and
implementation of a people strategy. We will also grow the in-house design and drawing office capability.
We are confident of the long-term opportunity in the Indian market and we aim to continue to grow profits and
build value in the business in 2020 and beyond.
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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 2019
Drive operational
improvements and
efficiencies:
the objective of our
comprehensive
operational
improvement
programme is to
further develop
the Group’s risk
assessment,
operational and
contract management
processes.
Our profit performance in 2019 (underlying PBT was £24.7m) demonstrates further progress towards our
2020 strategic profit target of £26m.
The programme of projects categorised under the banner of ‘Smarter, Safer, more Sustainable’ continues to
provide a framework for the ongoing improvements to our business and factory processes, use of technology
and operating efficiencies.
During the year, various initiatives have been progressed, including the application of Lean techniques, further
automation of factory processes and waste elimination initiatives.
We have concluded the reorganisation of our factory operations in North Yorkshire and the combined facility is
now operating at scale.
We have fully rolled out our new Group-wide production management system (StruMis) to drive value through
increased productivity.
Objectives for 2020
Our target remains the achievement of underlying PBT of £26m by 2020.
We will continue with our ‘Smarter, Safer, more Sustainable’ initiatives to maintain the Group’s focus on
business improvement and efficiencies. We will continue to optimise processes between factories, production
lines and processes.
We will leverage the benefits of the manufacturing arrangements at Dalton to achieve further efficiency
improvements and improve volumes.
This improved profitability will continue to generate surplus cash flows and support future dividends, in
accordance with the Group’s business model.
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.
Achievements in 2019
The Group’s improvement programme has included further capital investment in 2019 of £7.0m
(2018: £6.4m). The investment in 2019 represents investment in production machinery, site lifting equipment,
yard improvements, and factory and site enhancements.
In 2019, we have continued to invest in research and development into advanced technologies (including
virtual reality and digital) to further improve efficiencies and client service.
Our engineering forum has continued to look at innovative ways of working, including the use of technology
across a number of existing manual processes and enhanced BIM (3D) modelling.
Objectives for 2020
As part of the Group’s capital investment programme, we will continue to invest at levels in excess of
depreciation.
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 improving design and drawing office processes, refining our production
planning processes, better capturing and utilising real time data, developing collaborative tools to provide
real-time support to our project and commercial teams and reducing waste and defects in all our factory
processes.
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.
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OUR
STRATEGY
People: Our people are at the heart of our business and are vital to the success of our
vision and the achievement of our strategic goals.
Strategic priorities
Achievements in 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 while
maintaining a safe
working environment.
In 2019, we focused our graduate programmes on the areas of design, projects and drawing office and
we have recruited a number of apprentices and trainees to specialise in welding, fabrication, mechanical
engineering, design, information technology and business improvement.
We have a well-established internal communication strategy with information being shared on a regular basis
through various channels. This includes timely business updates, an employee newsletter and magazine,
important health and safety information and advertised job vacancies.
We treat the safety of our people as our highest priority and have continued to deliver health and safety training
and awareness programmes, including further training and awareness in relation to employees’ mental health.
Our continued focus on health and safety has resulted in an improvement to the Group’s accident frequency
rate (‘AFR’) which reduced to 0.11 in 2019 (2018: 0.22).
We have continued to strengthen the organisation’s leadership team during the year both at the executive
committee level and in the local business leadership teams.
We launched the second wave of the Severfield Development Programme, which focuses on emerging leaders
who have the potential to move into senior positions.
We have continued to strengthen our HR team and have commenced a Group-wide programme to develop
our people strategy.
Objectives for 2020
We have recently strengthened our HR team, and this will allow us to refresh our people strategy. The HR team
will be highly focused on culture, organisational structure, performance assessment and succession planning
to ensure that we maximise the benefits of our skilled workforce.
We will implement a strategy to improve diversity and reduce our gender pay gap.
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, IFR and reduce ‘near miss’ and high potential
incidents. We will engage with our clients’ senior safety teams to ensure that we take all steps to reduce
injuries.
We will continue to seek and exploit opportunities for increasing employee engagement including the launch of
a Group-wide intranet.
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KEY PERFORMANCE
INDICATORS
1
Underlying* operating profit and margin
(before JVs and associates)
2
Underlying* basic earnings per share
(‘EPS’)
m
6
.
9
1
£
)
%
5
.
7
(
m
9
.
2
2
£
)
%
3
.
8
(
m
3
.
3
2
£
)
%
5
.
8
(
Strategic pillar
£
Strategic pillar
p
5
.
5
p
4
.
6
p
7
.
6
£
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Why this is important
Why this is important
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.
How we calculate
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.
Underlying operating profit is defined as operating profit before
non-underlying items and the results of JVs and associates.
How we calculate
Underlying operating margin is calculated as underlying operating
profit expressed as a percentage of revenue.
Our performance
Underlying operating profit (before JVs and associates) has
increased by two per cent, driven by the Group’s ongoing focus
on operational efficiency and commitment to production process
improvements.
What we target
Our target is to double 2016 underlying profit before tax by 2020
and continue to grow our profits thereafter.
EPS is calculated as underlying profit after tax divided by the
weighted average number of shares in issue during the period.
Our performance
EPS growth was five per cent, positively impacted by the increase
in the Group’s profit before tax.
What we target
Our aim is to maximise sustainable EPS growth.
Strategic pillar key
£
Growth
Clients
India
Operational
excellence
People
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35
3
Revenue growth
4
Operating cash conversion
m
2
.
2
6
2
£
m
2
.
4
7
2
£
m
9
.
4
7
2
£
Strategic pillar
£
%
2
1
1
%
7
7
%
0
5
Strategic pillar
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Why this is important
Why this is important
This is a key measure for the business to track our overall success
in specific contract activity, our progress in increasing our market
share and our ability to maintain appropriate pricing levels.
Cash is critical for providing the financial resources to develop
the Group’s business and to provide adequate working capital to
operate smoothly.
How we calculate
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.
Our performance
The Group’s revenue is at a nine-year high, reflecting a solid
performance in 2019 given the current softer market conditions
experienced across the industry.
What we target
To grow revenue year-on-year in line with our strategic objectives.
This measures how successful we are in converting profit to cash
through management of working capital and capital expenditure.
How we calculate
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).
Our performance
Operating cash conversion was 50 per cent. Despite our
continued focus on working capital management, operating cash
conversion has been impacted by movements in the phasing
of contract cash flows and a normalisation of working capital
following the unusually low working capital position coming into
the financial year (two per cent of revenue).
What we target
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.
* The basis for stating results on an underlying basis is set out on page 5.
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36
KEY PERFORMANCE
INDICATORS
5
Return on capital employed
(‘ROCE’)
6
Order book
%
6
.
4
1
%
5
.
6
1
%
7
.
5
1
Strategic pillar
£
m
9
2
2
£
m
7
3
2
£
m
5
9
2
£
Strategic pillar
£
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Why this is important
Why this is important
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.
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.
We have an asset-intensive business model and ROCE reflects
how productively we deploy those capital resources.
How we calculate
ROCE is calculated as underlying operating profit divided by the
average of opening and closing capital employed (note 20).
Capital employed is defined as shareholders’ equity excluding
retirement benefit obligations (net of tax), acquired intangible
assets and net funds (note 25).
Our performance
In 2019, our ROCE is 15.7 per cent, which continues to exceed
the Group’s target of 10 per cent.
What we target
We aim to deliver ROCE which is in excess of 10 per cent over
the whole economic cycle.
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.
How we calculate
Our UK order book shows the total value of future revenue
secured by contractual agreements.
Our performance
The UK order book has increased by 24 per cent since June
2018. This solid order book position will help the Group deliver its
strategic objectives.
What we target
We aim to maintain a good quality order book which supports the
achievement of our strategic targets.
Strategic pillar key
£
Growth
Clients
India
Operational
excellence
People
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37
7
Accident frequency rate
(‘AFR’)
Strategic pillar
4
2
.
0
2
2
.
0
1
1
.
0
7
1
0
2
8
1
0
2
9
1
0
2
Why this is important
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.
How we calculate
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.
Our performance
The AFR has improved by 50 per cent since 2018 and was well
within the 2019 target of 0.21. This reflects the improvements
made in the year through our reduction and prevention of
incidents programme, which focused on increasing employee
involvement and management accountability.
What we target
We are committed to a target of zero injuries.
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38
OUR OPERATING
PERFORMANCE
Operating Review
We are pleased to have
delivered another year
of good performance and
we remain on track to
deliver on our strategic
targets.
Alan Dunsmore
Chief executive officer
Group overview
The Group has delivered a good set of
results in 2019, with further profit growth in
the UK assisted by strong project delivery
and ongoing improvements in operational
performance, together with improved
profitable performance from our Indian joint
venture.
In 2019, we have continued to grow our
overall profitability with underlying profit
before tax up five per cent to £24.7m
(2018: £23.5m) against a particularly
strong profit performance in the prior
year, which included higher than normal
profits from certain project completions in
the first half of 2018. This improved profit
performance has been achieved despite
slightly softer market conditions in the UK.
Cash remains one of the main measures of
our underlying financial performance and
our year-end net funds of £25.1m (2018:
£33.0m) reinforces our solid balance sheet
and provides us with a competitive benefit
with both clients and our supply chain.
Our strong cash position has allowed
us the flexibility to fund the 2018 special
dividend and to continue to invest in our
UK businesses and in India, where the
expansion of the Bellary factory is now
underway.
The Indian joint venture (‘JSSL’) has
performed well in 2019. The market
for structural steel in India continues to
expand as evidenced in JSSL’s order book
of £134m (1 November 2018: £124m)
and a growing pipeline of commercial and
industrial opportunities, which will benefit
the business in 2020 and beyond. JSSL’s
good operational performance, revenue
growth and lower financing costs, following
the repayment of the term debt, have
resulted in a Group share of profit after
tax of £1.2m (2018: £0.5m) which is now
beginning to reflect the step change in the
Indian market position.
We continue to exceed our return on capital
employed (‘ROCE’) target of 10 per cent and
have achieved a return of 15.7 per cent in
the year (2018: 16.5 per cent), maintaining
the Group’s alignment with its construction
and engineering clients and peers.
We have made 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, the board has
recommended a final dividend of 1.8p per
share, making a total for the year of 2.8p
per share (2018: 2.6p per share), an eight
per cent increase on the prior year.
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UK and Europe
Revenue was broadly flat year-on-year,
mainly as a result of the softer UK market
conditions and some project delays, to
both contracts within the order book
and in the conversion of our pipeline
of opportunities, which predominantly
impacted volumes in the second half of
2019. During the year, we continued to
work on three large projects in London,
each of which had project revenues in
excess of £20m. These comprised a new
commercial tower at 22 Bishopsgate, the
new stadium for Tottenham Hotspur FC
and the retractable roof for Wimbledon
No. 1 Court, all of which are either now
complete or substantially complete.
The underlying operating margin (before
JVs and associates) was 8.5 per cent
(2018: 8.3 per cent) resulting in an
underlying operating profit (before JVs and
associates) of £23.3m (2018: £22.9m).
Although underlying operating profit shows
a moderate increase year-on-year, it was
against a strong comparator in the prior
year, which included higher than normal
profits in the first half from certain project
completions.
The UK margin performance continues
to reflect better risk and contract
management processes, which are now
deeply embedded within the Group’s
methodologies, and improvements in our
operational execution. This includes the
benefits from our programme of projects
categorised under the banner of ‘Smarter,
Safer, more Sustainable’ which provides a
framework for the ongoing improvements
to our business and factory processes, use
of technology and operating efficiencies.
‘Smarter, Safer, more Sustainable’
Our ‘SSS’ initiatives continue to focus on
improving many aspects of our internal
operations. These include the application
of Lean manufacturing techniques, further
automation of factory processes and waste
elimination initiatives, together with our
engineering forum which is looking at new
and innovative ways of working including
the use of technology across a number of
existing manual processes and enhanced
BIM (3D) modelling.
During the year, we have continued to
invest in research and development
into advanced technologies (including
virtual reality and digital technologies)
to further improve efficiencies and client
service. We have also now fully rolled
out our new Group-wide production
management system (StruMIS) which
will help drive ongoing value through
increased productivity coupled with greater
transparency and assurance.
Following the improvements to our
IT infrastructure and manufacturing
processes over recent years, we are
also continuing to take steps to better
capture and utilise real-time data, to better
inform decision-making and improve
efficiencies both in our factories and on our
construction sites. This will minimise time
spent manually collating and processing
data, freeing up resource to focus on
project delivery and facilitating more
streamlined ways of working.
In January 2018, we reorganised our
factory operations in North Yorkshire to
drive further operational improvements,
resulting in the consolidation of steel
fabrication at Dalton and Sherburn into the
Dalton facility. This combined facility is now
operating at scale and the reorganisation
of our footprint has contributed to
increased operational efficiencies which are
benefitting the Group’s profitability.
Building from a strong foundation
On track to achieve
£26m underlying profit
before tax in 2020
£26m
2020
£24.7m
2019
£23.5m
2018
£19.8m
2017
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OUR OPERATING
PERFORMANCE
Underpinning our culture of continuous
improvement is the ongoing focus on
human resources and the training and
development of our people and our priority
is to recruit, train and retain the highest
calibre of workforce. Throughout the year
we have continued to strengthen our
leadership at both executive committee
and at business unit levels and we are
in the process of refreshing our Group
people strategy. We continue to work
with industry bodies and have developed
initiatives to encourage people into a
career in construction. During 2019, the
Group recruited a number of apprentices,
graduates and trainees, another means of
ensuring that we have all the desired skill
bases available in the future.
In 2019, demonstrating our ongoing
commitment to people development,
we launched the second wave of the
Severfield development programme,
which focuses on emerging leaders who
have the potential to move into senior
positions. We have also 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.
Order book and market conditions
The order book of £295m at 1 June 2019,
represents an increase of £65m from the
position of £230m at the time of announcing
the half-year results and will generate
higher production and therefore revenue in
the second half of the 2020 financial year.
Pleasingly, this increase in the order book
has been achieved whilst maintaining our
focus on contract selectivity to ensure that
the Group wins work only at acceptable
terms and conditions and with acceptable
levels of risk.
The order book, of which £256m is
for delivery over the next 12 months,
continues to contain a high proportion of
lower risk, regional projects with shorter
lead times. In addition, our order book
continues to include the new Google
Headquarters, for which an order of
£50m was secured in December 2017,
and which will require us to provide over
15,000 tonnes of structural steelwork for
an 11-storey head office building at Kings
Cross. Work on this project commenced
late in the 2019 financial year and is
scheduled to be substantially completed in
the 2020 financial year.
The order book contains a healthy mix of
projects across a diverse range of sectors
including commercial offices, industrial and
distribution, data centres and transport
infrastructure. In 2019, our teams have
been successful in securing a number of
projects in the regions including mid-
sized commercial office developments in
Manchester and Nottingham, together
with several other office developments in
London. Other significant orders secured
in the year include a large project at
Heathrow airport, a car park development
at Manchester airport and two large data
centres in Finland and the Republic of
Ireland. We have also had success in
continental Europe with our new European
business and, accordingly, the order book
now includes the first orders secured
by the European team based in the
Netherlands.
Overall, the UK market continues to appear
largely stable, with modest economic
growth forecast, however we have seen
evidence of some UK investment decisions
being delayed in some of our market
sectors, particularly in the second half of
the year against a backdrop of a generally
more cautious commercial investment
climate. Pricing remains an important
factor and we continue to see some tender
margins tightening on projects that we
are bidding, particularly in the UK where
some spare fabrication capacity now exists
in the market. The impact of these UK
market conditions is being mitigated by the
continued re-emergence of the market in
the Republic of Ireland and certain other
significant opportunities in continental
Europe where we have demonstrated our
ability to win more work, supported by our
new European business.
In general, our pipeline of potential future
orders remains stable with a good balance
of work across all key market sectors. The
market for data centres and the industrial
and distribution sector continues to be
strong, both in the UK and in Europe,
and these projects play to our strengths,
requiring high-quality, rapid throughput,
on-time performance and full coordination
between stakeholders.
Looking further ahead, we are now starting
to see more bidding activity in the London
commercial market, a trend which we
expect to increase over the next few
years. In addition, we continue to pursue
a number of significant infrastructure
opportunities, particularly in the transport
sector, which are being driven by the UK
Government’s investment in infrastructure
commitment, which is targeted to increase
over the next few years. This will include
projects such as HS2 (both stations and
bridges) and the expansion of Heathrow
airport. In addition, we also see good
opportunities from the Government’s
ongoing Network Rail and Highways
England investment programmes. The
combination of the Group’s historical track
record in transport infrastructure, together
with our in-house bridge operations,
leaves us well-positioned to win work from
such projects, all of which have significant
steelwork content.
The Group is working with industry bodies
to identify and manage any challenges and
opportunities which may result from the
UK’s exit from the European Union. Being
a largely UK-centric business, no changes
have been required to our operating
model, however we continue to monitor
the pace of conversion of our pipeline of
opportunities and, among other things, the
availability of materials from our suppliers.
While there remains a great deal of
uncertainty as to what Brexit will mean for
the construction industry, we are scenario-
planning and working with our clients and
others in the industry to ensure we are able
to respond to any future changes in market
conditions.
Clients – increasingly broad spread
and diverse
We are known for our strong relationships
with clients, working collaboratively with
them, anticipating issues they face,
providing problem-solving solutions
and demonstrating our capability to
deliver complex engineering solutions.
Our management and integration of the
construction process, our capacity and
speed of fabrication, our engineering
excellence and the expert capabilities of
the Group and its employees has allowed
us to improve project delivery times to
meet and exceed the requirements of our
clients.
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OUR OPERATING
PERFORMANCE
Major projects
– over £20m
• Wimbledon (No. 1 Court
roof), London
• Tottenham Hotspur FC,
London
• 22 Bishopsgate, London
• Google Kings Cross,
London
Commercial
offices
• St Giles Circus, London
• 80 Fenchurch Street,
Industrial and
distribution
Transport
infrastructure
London
• Snowhill, Birmingham
• Central Square, Cardiff
• One Braham, London
• 60 London Wall, London
• Large distribution
centres, East Midlands
and Darlington
• Large warehouses,
Wixam and Lutterworth
• Chiswick Bridge, London
• Ely Southern Bridge,
Cambridgeshire
• M20 Road Bridge, Kent
• Luton Viaduct,
Bedfordshire
• Multi-storey Car Park,
Manchester Airport
Data centres
• Data centres in Dublin,
Belgium and Finland
Health and
education
• Manchester Engineering
Campus Development
Our specialist cold rolled steel joint venture
business, CMF, has continued to grow and
has performed well during the year. We
are the only fabricator in the UK to have
both a hot and cold rolled manufacturing
capability. We continue to look at ways
to improve factory efficiencies at CMF
and to expand the product range, which
now includes a growing purlin business,
allowing the Group to continue integrating
elements of its supply chain.
Following extensive negotiations with
all stakeholders, we have now agreed
a final settlement for the remedial bolt
replacement works at Leadenhall, resulting
in no further costs for the Group.
Our client base, which represents a
broad range of sectors and regions,
includes Balfour Beatty, BAM, Bowmer
and Kirkland, Buckingham, Canary Wharf
Contractors, Ferrovial Agroman, Fluor,
Galliford Try, H.B. Reavis, Hitachi, ISG,
John Graham, John Sisk, Kier, Laing
O’Rourke, LendLease, Mace, Morgan
Sindall, McLaren, McLaughlin & Harvey,
Multiplex, Readie, Sir Robert McAlpine,
Skanska, Stanhope, TSL, Vinci, Volker
Fitzpatrick, Winvic and Westfield. The
Group worked on over 100 projects with
our clients during the year including:
We believe that working more closely with
our clients provides the best outcomes
and is critical to securing new work. We
continue to work with a number of clients
to use innovative and collaborative ways
of contracting which have enabled risk
and reward to be appropriately shared
and to explore and develop cost-effective
solutions to overcome project challenges.
These arrangements require early contract
engagement with clients to ensure greater
clarity around scope, programme and cost
which, in combination, reduces delivery
risk for all parties.
During the year we have focused on
developing new client relationships both
in the UK and also in Europe, where we
are gaining good traction with our new
European business. We believe that a
stronger and wider client base and market
focus will allow us to target an increased
pipeline of opportunities, providing us with
extra resilience and the ability to increase
our market share.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 43
Behavioural safety continues to be an
integral part of improving our safety culture
and our behavioural safety coaches are
empowered to encourage ownership of
safety across all levels of the business.
Escalating the programme to the senior
management team has promoted better
ownership and accountability and has
allowed us to further embed our ‘safety
first’ values and to see positive tangible
changes in our culture.
Board members are engaging with
employees on our ‘six life-saving rules’
and promoting our safety campaigns with
positive results. The number of visits to site
by board members has increased year-
on-year and the content of these visits has
been enhanced, encouraging suggestions
for improvement and the sharing of best
practice across the Group. Building on
senior management’s responsibility for
safety, our management teams now deliver
quarterly presentations which include
‘lessons learned’ from recent incidents and
the reinforcement of our safety values.
In raising awareness of mental health,
our internal ‘heads up’ campaign has
now become embedded in our culture.
Our commitment to mental health and
well-being stems from a strong recognition
of our responsibility to provide a safe
working environment, which transcends
physical health and actively promotes
the importance of mental health and
well-being. As an organisation, we
have a responsibility to take care of
each other and ourselves. Promotion
of positive mental health is continual,
and help is accessible to all with our
24-hour employee assistance line. All
our employees have now attended an
awareness session to assist them in
understanding the signs and symptoms of
poor mental health.
India
JSSL performed strongly in 2019 and its
results are now beginning to reflect the
step change in the market for structural
steel in India. The Indian market has
continued to expand, and we are seeing
clear signs of the conversion of the market
from concrete to steel which will drive
the success and long-term value of the
business. This position is evident in an
order book at 1 June 2019 of £134m
(1 November 2018: £124m) which now
contains a stronger mix of higher margin
commercial work. Significant new orders
secured in the year include two large
commercial projects – Sattva, in the
state of Hyderabad, and Amaravati, in
the state of Andhra Pradesh, together
with numerous industrial projects, many
of which are for our joint venture partner,
JSW Steel (‘JSW’). The expanding market
position is also reflected in a pipeline
which includes a growing large number
of potentially interesting commercial
projects for key developers and clients
with whom we are now developing
strong relationships. In addition, we also
have visibility of an increased pipeline of
industrial work, including those for JSW,
which is currently expanding its domestic
steel output, a process which we expect to
continue for the foreseeable future.
In 2019, JSSL continued to grow and
has increased its profit during the year,
of which the Group’s after tax share
was £1.2m (2018: £0.5m). The higher
profitability in the year reflects both
increased revenue and good operational
performance, together with lower financing
costs following the repayment of the term
debt in June 2017. JSSL’s revenue has
increased significantly to £84m compared
with £48m in the previous year, driven by
higher volumes of industrial work in 2019,
a position which was also manifest in the
higher order book coming into the financial
year. This greater mix of industrial work
has resulted in a reduction in the operating
margin to 6.4 per cent compared to 9.2
per cent in 2018, however, given the
greater proportion of commercial work in
the current order book, we expect to see
an improvement in the operating margin in
the 2020 financial year and beyond.
The expansion of the Bellary facility,
which will increase factory capacity from
c.60,000 tonnes to c.90,000 tonnes, is
now well underway and is expected to
be completed towards the end of the
2020 financial year. During the year, JSSL
has strengthened its senior management
team, enhanced and expanded its
subcontracting supply chain partnerships
and is upskilling its workforce, bringing
people with new skills into the business to
support the expansion and to provide the
business with the springboard to deliver
future profitable growth.
Overall, we remain excited about the
long-term development of the market and
of the business, especially considering the
encouraging market developments and
step up in the order book and we expect
that value will continue to build in JSSL as
it continues to expand and develop.
Safety
Health and safety continue to be at the
forefront of everything we do and, for
the third year running, 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
0.11, compared to 0.22 in 2018, mainly
driven by our UK operations which
reduced its AFR from 0.40 to 0.21 during
the year. As a recognised measure of
safety performance, our AFR not only
reflects how we do business but is a key
differentiator in the market. Indeed, safety
is becoming increasingly important for our
clients at the selection stage.
Our executive committee is focused on
continually promoting and improving
our safety culture. Reviews of safety
performance are conducted monthly, with
emphasis on not only RIDDORs but also
high potential near miss incidents and
minor injuries. All high potential incidents
are investigated and resolved by our
businesses, in conjunction with the Group
SHE director, chief operating officer and
the relevant managing director.
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OUR OPERATING
PERFORMANCE
Sustainability as a topic continues to
be more prevalent within the Group.
Employees are becoming more and
more aware of what impact they can
have on shaping our future, and making
our business ‘Smarter, Safer and
more Sustainable’. Suggestions for
sustainable improvements across the
business are collected from colleagues
and implemented where appropriate.
Employees are given opportunities to
support local and national charities
through our social and charitable
committees, creating better community
relationships. The Group encourages
employees to continue developing their
skill sets through both our internal learning
and development programmes, and
through the achievement of appropriate
professional qualifications. Apprenticeships
are encouraged throughout the business,
and we work closely with local college and
university communities to attract the best
and most diverse talent.
Strategy
We are continuing to deliver on our
strategic objectives including making
good progress towards our 2020 strategic
profit target. In 2019, as part of the
ongoing ‘Smarter, Safer, more Sustainable’
programme, we have continued to
implement a number of operational,
factory and technological improvements
and supply chain enhancements as well
as continuing to invest in our leadership
teams and people to ensure we are
well placed to capture the opportunities
presented by our markets. The
improvement in our safety performance
during the year will also benefit future
performance and productivity.
During the year, the continuation of the
Group’s capital investment programme,
which includes new state-of-the-art,
high-speed and high-performance
equipment for our UK factories, is helping
our operating businesses to be highly
competitive and operationally efficient.
We will continue to invest £6m to £7m
per annum to support the development
of our client service offering and to drive
operational improvements and efficiencies.
Over the last two years, we have been
targeting three new areas of organic
growth – Europe, Severfield (Products &
Processing) (‘SPP’) and medium to high-
rise residential construction – and we are
pleased to report good progress with the
first two of these potential areas of growth.
Firstly, we have continued to develop our
European business, which is based in the
Netherlands, aided by a small but growing
locally-based team which includes our
business development director. During the
year, the business has been successful in
securing its first orders which will generate
incremental revenue for the Group in the
2020 financial year. The business also
has a number of live tenders for work in
continental Europe and there is now a
growing pipeline of opportunities which
includes many potentially interesting and
high-quality projects, certain of which
are with clients with whom we are used
to working with in the UK. The European
team’s market knowledge and experience
has also been invaluable to our UK
business when tendering for and delivering
an increased pipeline of European work,
providing us with a competitive advantage
and the ability to deliver excellent client
service as we look to expand into new
market sectors.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 45
Secondly, SPP, our new business venture
at the Sherburn facility, commenced
trading in April 2018. This business is
allowing us to address smaller scale
projects and provides a one-stop shop for
smaller fabricators to source high-quality
processed steel and ancillary products.
Notwithstanding the slightly softer UK
market conditions, which have resulted
in a lower than expected number of
enquiries in the second half of the year,
the business has secured and successfully
delivered a number of orders to a variety
of new customers. During this time, we
have also gained more intelligence on
both our competitors and customers in
what is clearly a competitive and lower
margin marketplace. Notwithstanding
this, we remain focused on improving our
factory efficiency, client service and range
of products and continue to develop our
customer relationships and pipeline of
potential future orders to enable us to
increase our market share.
In addition, we have also maintained our
focus on the market for medium to high-
rise residential construction where we have
developed a steel solution. We continue
to see potential opportunities in what is an
attractive market for us and discussions
with a number of interested parties remain
ongoing. We continue to push hard to
secure our first order, which we believe will
be an important step in establishing a track
record in what is currently a concrete-
dominated market sector.
Summary and outlook
The Group has performed well in 2019,
with good profit and margin growth
in the UK, where we continue to see
tangible benefits from our ‘SSS’ business
improvement initiatives, coupled with
a strong performance from our Indian
joint venture. While market conditions
in the UK have been more challenging
recently, the impact of this is being offset
by an improved picture in the Republic of
Ireland and in Europe and with an order
book of £295m and a stable pipeline
of opportunities, we expect 2020 to be
another year of progress for our core
businesses in the UK.
In India, with the expansion of the
operations in Bellary now underway, a
record order book of £134m and a growing
level of new opportunities which includes a
number of interesting commercial projects,
our joint venture business remains well-
positioned to take advantage of a market
for structural steel which continues to
expand.
There is now considerable positive
momentum within the Group which, in
combination with our cash generative
nature and strong positions in our core
markets, provides us with the platform for
further operational and strategic progress.
We remain on track to deliver on our
strategic targets, including the doubling of
2016 underlying profit before tax to £26m
by 2020 and we look forward to another
positive year ahead.
Finally, I would like to thank all of our
employees for their hard work and
commitment during the year. The
success of our business is without doubt
dependent on their continued support.
Alan Dunsmore
Chief executive officer
19 June 2019
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OUR FINANCIAL
PERFORMANCE
The 2019 result
demonstrates further
profit progression and
improvements to our
operational execution.
Adam Semple
Group finance director
Read more about Group
financials on pages 132 to 168
Revenue
Read more about Company
financials on pages 170 to 176
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’)
2019
2018
£274.9m
£274.2m
£23.3m
8.5%
£24.7m
6.7p
£23.3m
£24.7m
6.7p
15.7%
£22.9m
8.3%
£23.5m
6.4p
£21.5m
£22.2m
6.1p
16.5%
* The basis for stating results on an underlying basis is set out on the highlights page. 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 this report to describe the Group’s underlying performance.
Trading performance
2019 has been another successful year
for the Group. Revenue for the year ended
31 March 2019 of £274.9m represents
a slight increase of £0.7m compared
with the previous year reflecting a solid
performance in the UK in light of softer
market conditions, which particularly
impacted the second half of the year. The
Group’s order book at 1 June 2019 of
£295m represents an increase of £65m
from the position at the time of announcing
the half-year results (1 November
2018: £230m) and will generate higher
production and therefore revenue in the
second half of the 2020 financial year.
Underlying operating profit (before
JVs and associates) of £23.3m (2018:
£22.9m) reflects an increase of £0.4m
over the year. This mainly reflects a higher
underlying operating margin (before JVs
and associates) of 8.5 per cent (2018:
8.3 per cent) against a particularly
strong margin comparator in 2018,
which benefited from higher than normal
profits from certain project completions.
The 2019 margin demonstrates further
margin progression and improvements
to our operational execution. The Group
continues to maintain a high level of focus
on operational efficiency through better
risk and contract management processes
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 47
Revenue
Underlying* profit before tax
Net funds
£274.9m
£24.7m
£25.1m
m
2
.
2
6
2
£
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2
.
4
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9
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Finance costs
Net finance costs in the year were £0.2m
(2018: £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.
Taxation
The Group’s underlying taxable profits
(which excludes results from the JVs and
associates) of £23.1m (2018: £22.6m)
resulted in an underlying tax charge of
£4.5m (2018: £4.4m), which represents
an effective tax rate of 19.7 per cent
(2018: 19.4 per cent).
as well as driving process improvements
in the Group’s production facilities. There
were no non-underlying items in the year
and accordingly no difference between
underlying operating profit (before JVs and
associates) and its statutory equivalent of
£23.3m (2018: £21.5m).
The share of results of JVs and associates
was a profit of £1.7m (2018: £0.9m)
and net finance costs were £0.2m
(2018: £0.2m).
Underlying profit before tax, which is
management’s primary measure of Group
profitability, was £24.7m (2018: £23.5m).
The statutory profit before tax, reflecting
both underlying and non-underlying items,
was £24.7m (2018: £22.2m).
Share of results of JVs and associates
The Group’s share of results from its
Indian joint venture was a profit of £1.2m
(2018: £0.5m) with the improved result
due to both good contract performance
together with lower financing costs.
The operating margin has decreased to
6.4 per cent (2018: 9.2 per cent) reflecting
a significantly higher mix of (lower margin)
industrial work in the order book coming
into the 2019 financial year. The current
order book now shows a higher proportion
of commercial work, reflecting the award
of several large commercial orders in 2019,
which will benefit the operating margin in
the 2020 financial year.
Our specialist cold rolled steel joint venture
business, CMF, contributed a Group share
of profit of £0.4m (2018: £0.4m). The
business has continued to develop its
product range, having expanded its metal
decking supply to allow the production
of purlins and additional cold formed
products in 2018 to drive organic revenue
growth. We continue to be the only hot
rolled steel fabricator in the UK to have this
cold rolled manufacturing capability.
Non-underlying items
Non-underlying items are classified as
such as they do not form part of the profit
monitored in the ongoing management of
the Group. There were no non-underlying
items in the current financial year (2018:
£1.3m). The charge in the prior year
represented the amortisation of customer
relationships which were identified on the
acquisition of Fisher Engineering in 2007
and are now fully amortised.
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48
OUR FINANCIAL
PERFORMANCE
Earnings per share
Goodwill and intangible assets
Underlying basic earnings per share
increased by five per cent to 6.7p (2018:
6.4p) based on the underlying profit after
tax of £20.2m (2018: £19.1m) and the
weighted average number of shares in
issue of 303.1m (2018: 299.7m). Basic
earnings per share, which is based on the
statutory profit after tax, was 6.7p (2018:
6.1p), 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 6.6p (2018:
6.0p).
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, while
maintaining a good underlying net funds
position on the balance sheet.
The board is recommending a final
dividend of 1.8p per share (2018: 1.7p),
payable on 13 September 2019 to
shareholders on the register at the
close of business on 16 August 2019.
This, together with the Group’s interim
dividend of 1.0p per share (2018: 0.9p),
will result in a total dividend per share for
2019 of 2.8p (2018: 2.6p), an increase on
the prior year of eight per cent.
The final dividend is not reflected on the
balance sheet at 31 March 2019 as it
remains subject to shareholder approval.
A special dividend of 1.7p per share was
recommended for the previous financial
year, which was approved by shareholders
and paid during the current financial year.
Goodwill on the balance sheet is valued at
£54.7m (2018: £54.7m). In accordance with
IFRS, an annual impairment review has been
performed. No impairment was required
either during the year ended 31 March 2019
or the year ended 31 March 2018.
Other intangible assets on the balance
sheet are recorded at £nil (2018: £0.1m).
Amortisation of £0.1m (2018: £1.5m) was
charged in the year.
Capital investment
The Group has property, plant and
equipment of £84.0m (2018: £81.2m).
Capital expenditure of £7.0m (2018:
£6.4m) represents the continuation of the
Group’s capital investment programme.
This included investment in production
machinery, site lifting equipment, yard
improvements, and factory and site
enhancements. Depreciation in the year
was £3.6m (2018: £3.7m).
Joint ventures
The carrying value of our investment in
joint ventures and associates was £24.3m
(2018: £18.5m) which consists of the
investment in India of £16.1m (2018:
£10.7m) and in CMF of £8.2m (2018:
£7.8m). During the year, we invested
additional equity of £4.2m in the Indian
joint venture business (matched by
an equivalent investment by our joint
venture partner JSW Steel) to support the
expansion of the Bellary facility.
Pensions
The Group has a defined benefit pension
scheme which, although closed to new
members, had an IAS 19 deficit of £20.0m
at 31 March 2019 (2018: £17.2m). The
increase in the liability is mainly due to:
• changes to the scheme’s demographic
assumptions (updated mortality
assumptions and a lower proportion of
members assumed to take tax-free cash
at retirement, based on broader trends
in the pensions market); and
• changes to the scheme’s financial
assumptions (lower discount rate and
higher RPI price inflation assumption,
both of which increased liabilities).
The impact has been partly offset by the
ongoing deficit contributions by the Group
during the year. The last formal triennial
funding valuation of the scheme was
completed, with a valuation date of 5 April
2017. All other pension arrangements in the
Group are of a defined contribution nature.
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 2019,
ROCE was 15.7 per cent (2018: 16.5 per
cent), which exceeds the Group’s target of
10 per cent through the economic cycle.
Cash flow
The Group has always placed a high
priority on cash generation and the active
management of working capital. The
Group ended the financial year with net
funds of £25.1m (2018: £33.0m), following
capital expenditure of £7.0m, the payment
of the 2018 special dividend of £5.2m and
the investment of additional equity into the
Indian joint venture of £4.2m.
Operating cash flow
(before working
capital movements)
Cash generated
from operations
Operating cash
conversion
2019
2018
£25.8m
£26.7m
£18.0m
£23.0m
50%
77%
Net funds
£25.1m
£33.0m
Operating cash flow for the year before
working capital movements was £25.8m
(2018: £26.7m). Net working capital
increased by £7.9m mainly due to
movements in the phasing of contract
cash flows and a normalisation of working
capital following the atypically low working
capital position (two per cent of sales)
coming into the year. Excluding advance
payments, year-end net working capital
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represented approximately five per cent
of revenue (2018: two per cent). This
is within the four to six per cent range
which we have been targeting, reflecting
our continued focus on working capital
management.
In 2019, our cash generation KPI shows
a conversion of 50 per cent (2018: 77 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 increase in working capital
as described above.
Net investment during the year was
£6.3m (2018: £5.4m), reflecting capital
expenditure of £7.0m (2018: £6.4m) less
proceeds from disposals of £0.7m
(2018: £1.0m).
Bank facilities committed until 2023
On 31 October 2018, the Group refinanced
its existing borrowing facilities of £25m
with HSBC Bank plc and Yorkshire Bank.
This new facility, also a £25m revolving
credit facility (‘RCF’), matures in October
2023. The facility continues to include an
accordion facility of £20m, which allows
the Group to increase the aggregate
available borrowings to £45m at the
Group’s request.
The facility is subject to two key financial
covenants, namely net debt: EBITDA of
<2.55, and interest cover of >45. The Group
operated well within these covenant limits
throughout the year ended 31 March 2019.
Due to the continued net funds position of
the Group, the facilities were not utilised
during the year and continue to provide
ongoing funding headroom and financial
security for the Group.
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 forward contracts are taken out
to convert into sterling at the expected
date of receipt. The Group adopts hedge
accounting for the majority of transaction
hedging positions, thereby mitigating the
impact of market value changes in the
income statement.
New accounting standards
IFRS 15 – in the prior year, the Group
undertook a detailed exercise comparing
the existing revenue recognition policies
against the requirements of IFRS 15, the
new revenue accounting standard which
is effective for the current financial year.
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
the assessment was that the directors
are satisfied that no material adjustments
were required on the initial application
of the new standard. The standard has
been implemented with full retrospective
application in the financial statements.
Additional disclosures, as required by
IFRS 15, are incorporated into the financial
statements.
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OUR FINANCIAL
PERFORMANCE
IFRS 16 – during the current financial
year, the Group assessed the impact
of adopting IFRS 16, the new leasing
standard which becomes effective for the
2020 financial year. The adoption of IFRS
16 will result in a right-of-use asset of
approximately £11m and a lease liability of
approximately £12m being brought onto
the Group’s balance sheet (based on the
Group’s leases as at 1 April 2019). The
profit impact of the adoption of this new
accounting standard is not expected to be
material.
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.
Impact of Brexit
Following the UK referendum vote to
leave the European Union (‘EU’), the
UK Government continues to negotiate
the terms of the UK’s future relationship
with the EU, which has led to a period
of economic uncertainty. The Group has
taken steps to prepare for the potential
outcomes of Brexit and has plans
in place to ensure it can continue to
deliver on current and future contractual
commitments.
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 2020 financial
year and beyond;
• The Group’s net funds position and
its bank finance facilities which are
committed until October 2023, including
both the level of those facilities and the
covenants attached to them.
Based on the above, 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 date of
approval of the financial statements and
therefore that it is appropriate to continue
to adopt the going concern basis in
preparing the financial statements.
Viability statement
In accordance with provision C.2.2 of
the 2016 revision of the UK Corporate
Governance Code (the ‘Code’), the
directors have carried out a robust
assessment of the principal risks and
uncertainties and assessed the Group’s
viability over a three-year period ending
on 31 March 2022. The starting point
in making this assessment was the
annual strategic planning process. While
this process and associated financial
projections cover a period of four
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
October 2023.
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 in the annual
report as well as taking into consideration
recent issues (such as recent corporate
failures and the uncertainties caused
by the UK’s pending exit from the EU)
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.
Adam Semple
Group finance director
19 June 2019
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BUILDING A
SUSTAINABLE BUSINESS
Our sustainable business strategy is driven by our values and our strategic objectives to ensure
that we operate responsibly and ethically. Our ‘Smarter, Safer, more Sustainable’ business
improvement programme was developed to help us in achieving the Group’s overall strategy.
Smarter, Safer, more Sustainable
Our Smarter, Safer, more Sustainable
programme illustrates how our
commitment to sustainability underpins our
business model and strategy. We believe
that investing in our improvement projects,
training and technology to empower our
people to work in a Smarter, Safer, more
Sustainable way will assist us in securing
our future as market leader in structural steel.
We will develop smarter ways of working
that enable us to be more effective and
focus on the things that matter. We will
continue to put safety at the forefront of
everything we do, making it the core of
every decision and process.
At the heart of our sustainable business
strategy is our intention to focus on the
following priorities, namely our safety,
health and environmental strategic goals,
the development and engagement of our
people and our impact on our community.
Safety, health and environment
We remain committed to our people
and the well-being and safety of
our employees, clients, suppliers,
subcontractors and the public is vital to the
continued success of the Group and is a
key differentiator in the market.
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 third
consecutive year, continued to improve with
an accident frequency rate (‘AFR’) of 0.11,
which includes an AFR of 0.21 for our UK
operations. In the previous year, in order to
further support our reduction and prevention
of incidents programme, we introduced
the additional monitoring mechanisms of
total incident frequency rate (‘IFR’) and
high potential incident rate (‘HiPo’). All high
potential incidents are reported across the
Group to learn lessons from each individual
case and to identify measures to prevent
reoccurrence. All such incidents are also
investigated and resolved in conjunction
with the Group SHE director, chief operating
officer and relevant managing director.
Severfield’s health and safety management
system conforms to BSEN ISO 45001,
being one of the first in the industry to
successfully make the migration from
OHSAS 18001 in December 2018.
Our health and safety policies are
underpinned by four main aims, namely a
fair and safe way of working, no incidents
that harm people, industry-leading
occupational health and carbon footprint
reduction. These establish the areas that
are essential to achieving our main goal,
namely, to ensure that all employees
enjoy a safe working environment, with no
exceptions.
Group AFR
0.11
(2018: 0.22)
UK operations AFR
0.21
(2018: 0.40)
4
2
.
0
2
2
.
0
1
1
.
0
2
4
.
0
0
4
.
0
1
2
.
0
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
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53
Industry-leading
occupational health
The Group firmly believes that employees
and their families should be supported
in all aspects of their lives, not just within
working hours.
We signed the Building Mental Health
Charter in the summer of 2018, pledging
to raise awareness and promote mental
health. Internally we have recruited and
trained almost 60 mental health first aiders
who are now equipped to spot the signs
of poor mental health and signpost for
assistance where required. The success
of this campaign has been demonstrated
by the fact that many employees have
requested to undertake the training since
being made more aware of mental well-
being.
During the year, a 24-hour confidential
employee assistance helpline was
established providing support for a range
of common concerns including financial
worries, family issues and much more.
Throughout 2020, we will continue to
proactively assess our occupational health
provision and management to ensure it
is robust and effectively designed. This
will reduce healthcare costs, increase
productivity, reduce absenteeism, enhance
employee morale, attract and retain high-
quality employees and create a positive
return on investment.
Strategic aims
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
(which include rules for working at height,
lifting operations, machine safety, vehicle
movements and material stability) in 2018
clearly communicated our expectations
around high-risk areas of our day-to-day
operations to further prevent incidents.
These rules further underpin our ‘just and
fair’ culture within the behavioural safety
programme.
No incidents that harm people
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.
The focus for our factories within 2019 was
raising awareness of Hand Arm Vibration
(‘HAV’) issues and implementing a change
in both the tools that we use, and the way
in which we use them, to combat the signs
and symptoms and reduce the overall risk
to our employees.
The Group is committed to instilling cultural
change within the business. One of the
ways we are championing this is through
our unique behavioural safety programme.
The programme has been particularly
successful within the factories where
coaches are given an hour a week to ‘step
outside’ their usual working areas to visibly
engage with colleagues where they highlight
best practice and resolve any issues which
have arisen. Employees are more confident
and passionate than ever in proactively
reporting and resolving issues with coaches
and their management teams.
After the initial success of the programme
we have seen volunteer uptake increase
over the last year. Continuing into
2020, an ownership and accountability
session is to be delivered to all senior
managers to facilitate the ownership of
key safety messages, sustain the focus
on behavioural safety and to emphasise
the crucial role of safety coaching that is
deeply embedded within the Severfield
culture.
During the year, 126 directors’ site tours
were undertaken. These have shown
a clear commitment and drive for SHE
policies across all areas of the business,
led by our executive management team.
Building on senior management’s
responsibility for safety, our management
teams now deliver quarterly presentations
which include ‘lessons learned’ from recent
incidents and the reinforcement of our
safety values.
The Group prides itself on being industry-
leading in all aspects of its business and
training is no exception to this. We have
delivered over 2,800 SHE training courses
during the year with an average number
of SHE training days per employee at 1.8
(2018: 2.0). Training focus in 2019 was to
streamline our internal provision, creating
targeted courses specific to employees’
requirements. Following the introduction
of a mandatory training matrix within 2018
we surpassed our internal target of 95%
compliance, ensuring that our workforce
have the correct, relevant skills to complete
their jobs. Research into our training
provision is underway, with a refreshed
training strategy expected to be in place
during the 2020 financial year.
We offer National Vocational Qualifications
to a vast majority of our workforce, the
administration and coordination of which
is dealt with by an in-house team of
vocational experts. This team allows us
to efficiently deal with amendments within
the industry awarding bodies including the
Engineering Construction Industry Training
Board (‘ECITB’) and the UK Metal Decking
Association (‘UKMDA’), through the year
without relying on external sources. Our
focus for 2020 will be on changes to our
site team’s qualification requirements in line
with revised industry standards.
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BUILDING A
SUSTAINABLE BUSINESS
Carbon footprint reduction
Sustainability as a topic continues to
be more prevalent within the Group. In
2019, we have reviewed and refocused
our sustainability policy to better reflect
our values, the impact they can have
on shaping our future and making our
business ‘Smarter, Safer and more
Sustainable’. Suggestions for sustainable
improvements across the business
are collected from employees and
implemented where appropriate.
We remain dedicated to minimising
the environmental impact of our
business through sustainable practices
and continuous improvement of our
environmental performance. Work has
begun on our phase 2 ESOS submission,
focusing our attention on air compression
and lighting within our factories.
We continue to be accredited with the
Gold Membership Standard of the Steel
Construction Sustainability Charter.
Sustainability committee
Our sustainability committee targets
continue to include the following:
• Carbon reduction policy and strategy
embedded in the SHE strategy.
Climate disclosure project
The Group is committed to addressing
climate risk and reducing the lifetime
emissions of the assets it builds. In 2019,
we achieved a B rating for the global
evaluation standard, the Climate Disclosure
Project (‘CDP’), above the industry average
rating (both in the UK and Europe) of B-.
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. Focus for the
future includes assessing our Scope 3
impact and working with our suppliers to
reduce this figure.
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
factories and 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.
• Reduction in carbon intensity by 2021.
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.
• 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.
During 2020, sustainability targets will be
further refined and a five-year roadmap
will be created enabling us to lower our
environmental impact year-on-year by
following a strategic plan, focusing not
only on carbon footprint reduction but
how sustainability affects the business as
a whole.
In 2019, our combined Scope 1 and 2
emissions have decreased by 15 per
cent from the previous year. Streamlining
our business over the last 12 months
has allowed us to run our factories
more efficiently. As a result, our gas
and electricity usage has significantly
decreased in the year at all our locations,
despite Group production increasing.
This has allowed us to decrease Scope 1
emissions by 11 per cent and our Scope 2
emissions by 22 per cent from the previous
year. Our intensity measurement per £m
of revenue has decreased by 16 per cent
from 39.8 CO2e to 33.5 CO2e.
We will continue to review our carbon
emissions going forward and assess
any reduction programmes which will
further reduce our carbon footprint where
possible.
For the year ended 31 March 2019, 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
Tonnes of CO2e
2019
2018
5,582
6,244
3,641
4,667
9,223
10,911
2019
2018
33.5
39.8
In 2020, the Group will continue its
relentless focus on safety, health and
environmental issues, ensuring that
through example and encouragement,
we operate ethically and responsibly in
everything we do.
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BUILDING A
SUSTAINABLE BUSINESS
Quality (including welding quality systems),
environmental, and health and safety
management systems are approved
by the BCSA, Steel Construction
Certification Scheme (‘SCCS’) and The
Welding Institute (‘TWI’). Additionally, our
information management systems are
certified by The British Standards Institute
(‘BSI’) and registration under the Qualified
Steelwork Contractors Scheme provides
extra confidence to our customers.
All of the Group’s manufacturing facilities
are CE marking compliant (certified to BS
EN 1090:2) to meet the requirements up
to Execution Class 4. Accordingly, our
clients can be assured that their steelwork
is supplied in compliance with the latest
legislation and is manufactured to a level of
quality that is second to none.
Innovation
The Group is committed to collaboration,
working towards the achievement of our
customers’ objectives as well as our own.
We are focused on continually improving
our offering to our customers, through
developing innovative products and
services, which will deliver ‘Smarter, Safer,
more Sustainable’ outcomes and create
additional value for our stakeholders.
This requires agile and dynamic employees
who are skilled in new and emerging digital
technologies and are prepared to challenge
conventional processes. We are committed
to upskilling our people or recruiting new
talent to meet this challenge.
During 2019, our focus has been
on removing complex and repetitive
activities from our projects by rethinking
design, fabrication and construction. By
introducing Lean principles across the
business, this has led to improvements in
our design, fabrication and construction
processes from end to end. Our
engineering forum has continued to
research and develop innovative ways of
working, including the use of technology
across a range of existing manual
processes and enhanced BIM (3D)
modelling. We are driving forward new
technology, working closely with software
suppliers and collaborating with them to
develop new innovative offerings where
gaps in the market have been identified.
Following improvements to our IT
infrastructure over recent years, we are
also continuing to take steps to better
capture and utilise real time data, to better
inform decision-making and improve
efficiencies both in our factories and on our
construction sites. This will reduce time
spent manually collating and processing
data, freeing up resources to focus
on project delivery and better ways of
working.
Quality and accreditations
The Group is committed to providing
our clients with the best possible service
and protecting our workforce and to
support this we have developed a range of
appropriate management systems. Each
system is managed in-house and regulated
through external third-party assessment
certification using recognised bodies. This
gives us the confidence that customer
requirements are recognised and delivered
as well as providing the reassurance that
we are properly trained and qualified to
carry out our contractual and partnership
obligations.
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BUILDING A
SUSTAINABLE BUSINESS
The Group recognises the importance of a clear people strategy to the delivery of its overall
Group strategy and the need to identify, retain and motivate people with the right skills,
experience and behaviours.
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.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 59
The structural steel and construction industries continue to be
male-dominated, particularly in senior leadership roles that attract
higher levels of pay. This is reflected in our second gender pay
gap report, which we recently published for our two business
units that are in scope of the legislation. Our report, which shows
a median gender pay gap of 32.2% (Severfield (UK)) and 26.9%
(Severfield (NI)), demonstrates why the encouragement of females
into the Science, Technology, Engineering & Mathematics (‘STEM’)
subjects throughout school and university, and as an ongoing
career choice, remains so important for us as a business and our
industry as a whole. During the year, we have collaborated with
schools and colleges in the vicinity of our business locations and
have participated in a number of events to promote the industry
further. We are confident that our gender pay gap is not due to
paying men and women differently for the same or equivalent
work.
Engage and perform:
we will engage and manage our people to give their
best everyday
Over the past 12 months we have continued our focus on internal
communications and have worked to increase engagement
levels throughout our workforce. We have continued to publish
our Steel Reel newsletter and our quarterly employee magazine,
Skyline and, as a result, we have seen more colleagues sharing
their stories and achievements with us. We have also developed
a Group-wide intranet, which is expected to go live across the
Group in early summer.
In 2020, internal communications and employee engagement will
continue to be areas of focus for the Group and we will encourage
our employees to use our internal communication channels to
celebrate Group successes.
June 2018 marked the launch of our third Save As You Earn
(‘SAYE’) scheme, allowing colleagues to become shareholders in
our business. Currently, 59 per cent of our colleagues participate
in our Share Incentive Plan (‘SIP’) and SAYE scheme, which we
see as a positive indication of their engagement in the business.
Our people
The development and engagement of our people is a key focus
of the Group, as they are the heart of our business and vital to the
success of our vision and the achievement of our strategic goals.
The attraction of the best and brightest talent, their engagement,
development, reward and recognition are critical to building a
sustainable and profitable business for the future.
In 2019, we have continued to focus on HR and are in the
process of refreshing our people strategy.
Attract:
we will attract the best and brightest talent
Throughout the year we have maintained our focus on attracting,
recruiting and retaining talent within our industry and we have
recruited 183 new colleagues across a range of Group functions.
We have a passion for assisting people to make the move into
the construction sector, especially school leavers and university
graduates with degrees in sector-relevant disciplines. In 2019,
we recruited a number of graduates focused on the areas of
design, projects and the drawing office. A core part of our future
development plans involve the recruitment and education of
apprentices and trainees, and we have recruited over 30 such
employees to specialise in fabrication, welding, mechanical
engineering, design, information technology and business
improvement.
Other programmes we have invested in during the year have
included project management, Lean, continuous improvement
and the development of future leaders, as well as supporting
individuals who are undertaking qualifications and membership
of professional bodies such as the Institution of Civil Engineers
(‘ICE’), the Institution of Structural Engineers and The Royal
Institution of Chartered Surveyors.
Equal opportunities and diversity
We are an equal opportunities employer and are committed to
encouraging diversity and eliminating discrimination in both our
roles 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 potential. We are
committed, wherever practicable, to achieving and maintaining
a workforce that broadly reflects the communities in which we
operate. We continue to monitor our recruitment and promotion
policies and practices to ensure that they are free of bias and
discrimination.
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BUILDING A
SUSTAINABLE BUSINESS
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
Across the Group we offer remuneration packages at rates that
are competitive within our marketplace. These focus on cash and
variable pay, which includes an annual Group profit and safety-
related bonus that encourages the achievement of our strategic
objectives.
We monitor and ensure that all direct colleagues in the UK are
paid above the UK living wage, with London-based colleagues
paid more than the living wage for this area.
All of our colleagues are eligible to participate in the Severfield plc
defined contribution pension scheme. Colleagues also have the
option to make their own contributions through salary sacrifice.
We continue to offer the collective benefits that become available
through the Group’s participation in schemes such as cycle to
work, childcare vouchers and a discount scheme.
We are proud that, during the year, 13 people marked their
25-year anniversary of service to the Group. We currently have
over 100 colleagues in service who have been employed by the
Group for 25 years or longer.
As well as our apprentice and trainee programmes, we have
focused our development budget on a number of key areas,
including the development of leadership skills and graduate
programmes.
The development of leadership skills continues to be important to
us, and as such, a range of courses remain available to those who
are keen to develop their capability either within their current role
or in preparation for a future opportunity. Topics covered include
effective communication, coaching, assertiveness, presentation
and influencing skills, as well as an introduction to management.
In 2019, we have also focused on our ICE-accredited graduate
programme. This provides graduates from technical and
engineering disciplines with opportunities to gain experience
across all areas of our business, which is supported with third-
party secondments where appropriate. Through this scheme
our graduates gain a broad skill set that is beneficial to them as
individuals and us as an organisation, as well as working towards
chartered membership of the ICE.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 61
The Severfield Foundation
The Severfield Foundation (‘the Foundation’), our registered
charitable incorporated organisation, has continued to be a great
success during the year, from raising funds and awareness for
several local and national charities to encouraging engagement
among our employees.
In September 2018 we concluded our partnership with our first
national partner charity, Prostate Cancer UK. Throughout the
two-year partnership, the Foundation raised over £100,000 with
the final amount of £70,000 being presented to the charity in
November 2018.
Along with supporting our national charity partner, the Foundation
also worked with several nominated local charities for each of our
company subsidiaries including Bolton Hospice, St Catherine’s,
Thirsk Community Care, Yorkshire Air Ambulance, RNLI, Action
Mental Health and Start 360.
From 1 October 2018, the Foundation began a new two-year
partnership with Alzheimer’s Society. Dementia is the UK’s biggest
killer, recently overtaking heart disease. Last year, the disease
claimed the lives of over 70,000 people and as yet there is no
known cure. Around 850,000 people in Britain are living with
dementia, which is expected to rise to over one million by 2025,
with the majority having Alzheimer’s disease – the most common
type.
The Foundation has committed to work with, and support,
the charity over the next two years by raising funds, spreading
awareness and by taking part in volunteering opportunities. This
includes events such as the Great North Run, London to Paris
Cycle, the Great North Swim and skydiving.
In addition to the charitable activities offered through the Group,
we also encourage our employees to take part in their own
fundraising events, supporting charities close to their hearts, and
The Severfield Foundation aims to support such activities where
possible.
In 2019, we launched the second wave of the Severfield
Development Programme, which focuses on emerging leaders
who have the potential to move into senior positions. This is an
externally-facilitated development course designed to fast-track
our internal talent and prepare them for future opportunities. It
has an emphasis on leadership skills and personal impact, as
well as developing the participants’ strategic and commercial
acumen. The programme encourages cross-functional working
and exposure to numerous aspects of the wider business in
order to expand the horizons and opportunities of participants.
The programme also involves the completion of a business
improvement project that is sponsored and reviewed by the
executive committee.
On an individual-needs basis we have also continued to offer
360-degree feedback and access to external coaching support.
We are currently reviewing our learning and development offering
as part of the process to refresh our overall people strategy.
Well-being:
we will promote health and well-being to our people
Ensuring colleague well-being and fitness for all safety-critical roles
is vital for our business, as is the general health of everyone in the
Group.
All colleagues have the opportunity of a health check through
access to occupational health services and we have continued
our successful programme of promoting the importance of mental
health. Our support structure of an employee helpline, mental
health first-aiders and the utilisation of trained counsellors has
been enhanced by awareness-raising sessions that have been
made available to all colleagues.
Business integrity
Human rights
We remain committed to protecting and respecting the human
rights of our colleagues and those who work throughout our
supply chain. As a company operating within the UK, the key
human rights issue we face is equality, which we address with
training and promoting inclusivity.
The duties placed on us by the Modern Slavery Act are such that
we make a public statement regarding the steps we have taken to
minimise the possibility of slavery or human trafficking happening
within our businesses or supply chain. Details of our approach
to managing these risks can be found in our Modern Slavery Act
transparency statement on the Company’s website.
General Data Protection Regulations (‘GDPR’)
The harmonisation of data protection legislation across Europe
through GDPR is designed to protect all EU citizens’ data privacy.
We take our obligations under this legislation seriously, and as
such, have a number of practices in place to ensure the careful
handling of individuals’ personal information.
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HOW WE
MANAGE RISK
Our key focus areas for 2019
Brexit
We continue to monitor potential
risks and uncertainties posed by the
UK’s pending exit from the EU. We
identified Brexit as an emerging risk
last year and this year we continue
to classify the specific risks of an
unfavourable Brexit outcome, within
our principal risks (see ‘commercial
and market environment’ below). We
continue to monitor developments
closely and specific risks and related
mitigations are kept under review by
the executive committee.
Cybersecurity
Another area of focus has been
cybersecurity risk and we have
continued to invest in additional
security to seek to mitigate the risk
and impact of a significant security
breach (see information technology
resilience below).
Our priorities for 2020
Some of our priorities this year will be:
• continued development and
implementation of plans to ensure
the best possible outcomes to the
uncertainty as to what Brexit will
mean for our sector;
• the continued roll-out of our new
project risk management framework
(‘PRMF’) to ensure consistency and
good practice across the Group in
managing project risk;
• continued focus on staff
engagement and culture in order to
maintain good industrial relations;
and
• embedding our new supply chain
accreditation process across the
Group.
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
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, while 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.
Risk management process
The board has overall responsibility for the
Group’s risk management and systems
of internal control and for determining the
nature and extent of the significant risks it
is willing to take in achieving its strategic
objectives. An ongoing process has been
established for identifying, evaluating and
managing the significant risks faced by
the Group. This includes emerging risks
such as the ever-changing nature of the
risks that we characterise as ‘information
technology resilience’ and Brexit risk,
classified within ‘commercial and market
environment’.
The audit committee, on behalf of the
board, formally reviews principal and
emerging 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,
emerging 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, and environmental,
social and governance (‘ESG’) issues.
• Identified risk and emerging 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.
• 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.
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• A Group assurance map is used to
coordinate 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.
• 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.
• Subsidiary company boards consider
and report on risk on a monthly basis
as part of the monthly business review
process. In doing so they identify
emerging risks. This process is followed
to ensure that, as far as possible, the
controls and safeguards are being
operated in line with established
procedures and standards.
• On a quarterly basis, the significant risks
identified by the Group’s businesses
are discussed in detail with each
management team. In addition, the
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
Second line of defence
Third line of defence
Management activity
Divisional boards
Internal controls:
• Project management procedures
• Health and safety
• Financial control
• Cash and working capital
management
Group oversight
Group policies
• Group authorisation policy
• Contract sign-off process
• Purchase guidelines
• Quality manual
• SHE policies
Committees
• Executive committee, risk
committee and safety leadership
team
• Audit committee
• Nominations committee
Independent review
Divisional boards
Internal controls:
• External audit
• Internal audit
• Other third-party assurance
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Three lines of defence
The Group manages risk by operating a ‘three lines of defence’ assurance model (management activity, Group oversight and
independent review), which is mapped against the Company’s principal risks. This process is summarised in the Group assurance map.
The board/audit committee
Senior management/risk committee
A. First line of defence:
Management activity
B. Second line of defence:
Group oversight
C. Third line of defence:
Independent review
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.
In 2019 we developed a project risk
management framework (‘PRMF’) to
ensure consistency and good practice
across the Group in managing project risk.
This will continue to be rolled out in 2020.
Health and safety — SHE issues and
risks are continually monitored at all sites
and are reviewed on a monthly basis by
senior management and the board. The
Group has a well-developed health and
safety management system for the internal
and external control of health and safety
risks which is managed by the Group
SHE director. This includes the use of risk
management systems for the identification,
mitigation and reporting of health and
safety management information.
Financial control — the Group maintains
a strong system of accounting and financial
management controls. Standard financial
control procedures operate throughout
the Group to ensure the integrity of the
Group’s financial statements.
The Group operates a comprehensive
budgeting and forecasting system. Risks
are identified and appraised throughout the
annual process of preparing budgets. The
annual budget and quarterly forecasts are
approved by the board.
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.
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These policies are supported by
statements of compliance from all directors
and letters of assurance (‘LoA’) from the
Group’s four managing directors. LoAs are
required twice yearly, one at 30 September
and one at 31 March supported by an
internal control questionnaire (‘ICQ’)
which is completed by each business unit
and which provides a detailed basis for
management to satisfy themselves that
they are complying with all key control
requirements. The responses in these ICQs
are subject to ongoing independent review
by PwC, the Group’s internal auditor.
The following main committees provide
oversight of management activities:
The executive committee, risk
committee and safety leadership team
— these committees are responsible
for the identification, reporting and
ongoing management of risks and for
the stewardship of the Group’s risk
management approach.
The audit committee — the board has
delegated responsibility to this committee
for overseeing the effectiveness of the
Group’s internal control function and risk
management systems.
The nominations committee — this
committee ensures that the board has
the appropriate balance of skills and
knowledge required to assess and address
risk and that appropriate succession plans
are in place.
C. Third line of defence:
Independent review
The third line of defence represents
independent assurance which is provided
mainly by the internal auditor, external
auditor and various external consultants
and advisers. External consultants and
advisers support management and the
board through ad hoc consulting activities,
as required.
Internal auditor — the audit committee
annually reviews and approves the PwC
internal audit programme for the year. The
committee reviews progress against the
plan at each of its meetings, considering
the adequacy of audit resource, the results
of audit findings and any changes in
business circumstances which may require
additional audits.
The results of internal audits are reported
to the executive team and senior
management and, where required,
corrective actions are agreed. The results
of all audits are summarised for the audit
committee along with progress against
agreed actions.
Annual review of effectiveness
The risk management and internal
control systems have been in place for
the year under review and up to the date
of approval of the annual report and are
regularly reviewed by the board. The board
monitors executive management’s action
plans to implement improvements in
internal controls that have been identified
following the processes described above.
The board confirms that it has not
identified any significant failings or
weaknesses in the Group’s systems of risk
management or internal control as a result
of information provided to the board and
resulting discussions.
Changes to principal risks
The following changes have been made to
the Group’s principal risks in 2019:
• Brexit risk (the risk that an unfavourable
Brexit outcome has a negative impact
on our commercial and market positions)
was added as a new risk to our Group
risk register in 2019 and has been
included in the risk category ‘commercial
and market environment’ and classified
as a high risk.
• Industrial relations risk (industrial
action taken by employees could
interrupt production and impact Group
and contract performance) has been
downgraded from medium to low risk
and is no longer regarded as a principal
risk due to our improved workforce and
union engagement and new HR policies
and procedures to address this risk.
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.
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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
2 Commercial
and market environment
3 Information technology
resilience
4 Mispricing a contract
(at tender)
5 Failure to mitigate onerous
contract terms
6 Supply chain
7 Indian joint venture
8 People
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
Operational
excellence
People
£
Growth
Clients
India
Scoring
Movement
Upward trend
Downward trend
1 Underlying operating profit and
margin (before JVs and associates)
2 Underlying basic earnings per share
No change
(‘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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2019 principal risks
Scoring
High
Medium
Health and safety
1
Description
The Group works on significant, complex and
potentially hazardous projects, which require
continuous monitoring and management of health
and safety risks. Ineffective governance over and
management of these risks could result in serious
injury, death and 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. Continued changes in legislation can
result in increased risks to both individuals and the
Group.
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 and elimination.
• Thorough and regular employee training
programmes.
• 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
and in-depth review of both high potential and
reportable incidents.
• Regular reporting of, and investigation and root
cause analysis of accidents and near misses.
• Behavioural safety cultural change programme.
• Occupational health programme including mental
health.
• Achievement of challenging health and safety
performance targets is a key element of
management and staff remuneration.
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Commercial and market environment
2
• 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 a pipeline of opportunities in
continental Europe and in the Republic of Ireland,
supported by our European business venture.
• Maintenance and establishment of supply chain in
mainland Europe.
• 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 cash position supports the business
through fluctuations in the economic conditions of
the sector.
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. External factors include national
or market trends, political or regulatory change
(including the UK’s exit from the EU).
Although the wider implications of Brexit are difficult
to predict, an unfavourable Brexit outcome could
adversely impact investor and customer confidence.
Lower than anticipated demand could result in
increased competition, tighter margins and the
transfer of commercial, technical and financial risk
down the supply chain, through more demanding
contract terms and longer payment cycles.
Impact
A significant fall in construction activity and higher
costs could adversely impact revenues, profits,
ability to recover overheads and cash generation.
Mitigation
• The Group closely monitors Brexit developments
and specific risks and related mitigations are
kept under review by the executive committee.
We have taken steps to prepare for the various
potential outcomes of Brexit and have plans in
place to ensure we can continue to deliver on
current and future contractual commitments.
• 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 coordinated Group-wide basis.
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2019 principal risks (continued)
Scoring
High
Medium
Information technology resilience
3
Description
Technology failure, cyberattack 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.
• Specific software has been acquired to combat
the risk of 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.
• Cybercrimes and associated IT risks are assessed
on a continual basis and additional technological
safeguards introduced. Cyberthreats 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 with revised cover being
purchased in 2019 to reduce the financial impact
of this risk.
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Mispricing a contract (at tender)
4
• 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.
• Adoption of new Group-wide project risk
management framework (‘PRMF’) brings greater
consistency and embeds good practice in
identifying and managing contract risk.
• Professional indemnity cover is in place to provide
further safeguards.
Description
Failure to accurately estimate and evaluate the
contract risks, costs to complete, contract duration
and the impact of price increases could result in
a contract being mispriced. Execution failure on
a high-profile contract could result in reputational
damage.
Impact
If a contract is incorrectly priced, particularly on
complex contracts, this could lead to loss of
profitability, adverse business performance and
missed performance targets.
This could also damage relationships with clients
and the supply chain.
Mitigation
• Improved contract selectivity (those that are
right for the business and which match our
risk appetite) has de-risked the order book
and reduced the probability of poor contract
execution.
• Estimating processes are in place with approvals
by appropriate levels of management.
Failure to mitigate onerous contract terms
5
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
• 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.
Loss of profitability on contracts as costs incurred
may not be recovered, and potential reputational
damage for the Group.
• We have worked with the British Constructional
Steelwork Association to raise awareness of
onerous terms across the industry.
• Through regular project reviews we capture early
those occasions where onerous terms could have
an adverse impact and are able to implement
appropriate mitigating action at the earliest stage.
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2019 principal risks (continued)
Scoring
High
Medium
Supply chain
6
Description
Mitigation
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, including British Steel, 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.
• 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 (while our current steel
supply from British Steel remains uninterrupted
we have contingency plans in place to deal with
the wide range of potential outcomes associated
with the ongoing liquidation process being
conducted by the Official Receiver).
• Ongoing reassessment of the strategic value of
supply relationships and the potential to utilise
alternative arrangements, in particular for steel
supply.
• Key supplier audits are performed within projects
to ensure they are in a position to deliver
consistently against requirements.
• Monthly review process to facilitate early warning
of issues and subsequent mitigation strategies.
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73
Indian joint venture
7
• Two members of the Group’s board of directors
are members of the joint venture board and
succession planning was undertaken effectively
in 2019.
• 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
and overhead reduction and operational
improvement programmes remain ongoing.
• Close monitoring of cash flow and debt
repayments.
• Ongoing review of controls environment and risk
management processes undertaken by Group
senior management.
Description
The growth, effective management and performance
of our Indian joint venture (‘JSSL’) is a key element
of the Group’s overall strategy. The factory in Bellary
is currently being expanded to meet these market
developments.
The Indian market has continued to expand rapidly
and we are now seeing clear signs of the conversion
of the market from concrete to steel, which is
required to drive long-term value in business.
Impact
Failure to effectively manage our expanding
operations in India could lead to financial loss,
reputational damage and a drain on cash resources
to fund the operations.
Mitigation
• Robust joint venture agreement and strong
governance structure is in place.
• In 2019, senior management team strengthened,
subcontracting capability expanded and
workforce upskilled to support expanded
operations.
• Regular schedule of annual visits to India by UK
executive and senior management to review
operations and ensure appropriate oversight.
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74
HOW WE
MANAGE RISK
2019 principal risks (continued)
Scoring
High
Medium
People
8
Description
Mitigation
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 decrease of
confidence in the business within the market,
customer relationships being lost and an inability to
focus on business improvements.
• HR team strengthened in 2019 and the Group’s
people strategy is currently being refreshed.
• Recruitment of specialist recruitment resource
within the team to review, revise and improve our
HR practices.
• Second wave of our Severfield Development
Programme launched in 2019.
• Annual appraisal process providing two-way
feedback on performance.
• Attractive remuneration packages benchmarked,
where possible.
• Graduate, trainee and apprenticeship schemes in
place to safeguard an inflow of new talent.
• Internal communications improved in 2019.
Strategic report approval
The Group’s strategic report is set out on pages 18 to 74.
The strategic report is approved by the board and signed on behalf by
Mark Sanderson
Company secretary
19 June 2019
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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
Directors’ responsibilities statement
78
80
84
86
92
96
98
102
121
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78
OUR BOARD
OF DIRECTORS
Executives and non-executives
1
2
3
4
The quality of our
workforce, senior
leadership team and board
leave us well-placed to
deliver on our strategic
expectations and for
long-term growth.
John Dodds
Non-executive chairman
Board composition
1
3
4
Executive directors
Non-executive directors
Senior independent director
1
R N
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.
2
Alan Dunsmore
Chief executive officer
Appointed: 2010
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.
3
4
Adam Semple
Group finance director
Ian Cochrane
Chief operating officer
Appointed: 2018
Appointed: 2013
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.
Ian joined the Group in 2007, following
the acquisition of Fisher Engineering.
Ian worked at Fisher Engineering for
26 years, starting in the drawing office
and progressing to managing director
in October 2007. He previously held the
position of Group operations director. Ian
has a comprehensive understanding of
all aspects of the business and has been
involved in many major projects in the UK
and Ireland, representing a range of
market sectors.
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5
5
6
7
8
6
A
N
R
7
A
N
R
Tony Osbaldiston
Non-executive director (chairman of
the audit committee)
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.
Derek Randall
Executive director and managing
director at JSW Severfield Structures
Kevin Whiteman
Senior independent director
Appointed: 2014
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 and in
January 2018 a non-executive director
of Cadent Gas Limited and chair of their
remuneration committee. 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.
Appointed: 2011
Derek previously held the position
of executive director for business
development until his appointment in
December 2013 as managing director
of JSW Severfield Structures Limited
(JSSL), our joint venture in India. Before
joining the Group, most of Derek’s
career was with Corus Group (now Tata
Steel) where his last position was as
commercial director of the long products
division. Derek has held a number of
international board positions with Corus
and served on the executive council of
the Steel Construction Institute.
8
A
N
R
Alun Griffiths
Non-executive director (chairman of
the remuneration committee)
Appointed: 2014
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 and
Ramboll Group.
Committee membership
N Nominations A Audit R Remuneration
Committee chairman
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OUR EXECUTIVE
COMMITTEE
Read the biographies
on pages 82 and 83
12
2
5
1
4
10
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8
6
9
11
7
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OUR EXECUTIVE
COMMITTEE
1
Alan Dunsmore
Chief executive officer
For details see board of directors
on page 78
2
Ian Cochrane
Chief operating officer
For details see board of directors on
page 78
3
Derek Randall
(Not pictured)
Executive director and managing
director at JSW Severfield Structures
For details see board of directors on
page 79
4
Adam Semple
Group finance director
For details see board of directors on
page 78
5
Gary Wintersgill
Managing director,
Severfield (UK)
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).
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.
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.
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9
Martin Kelly
Group strategic business
development director
11
Phillipa Recchia
Group SHE 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
Carolyn Hobdey
Group HR director
Carolyn joined the Group in November
2018. Her career has been spent
predominantly in manufacturing
environments with notable international
organisations such as Unilever, Kerry
Ingredients, Danaher Corporation, and
most recently as a board director of a
subsidiary of the Asda-Walmart family.
Carolyn is a fellow of the Chartered
Institute of Personnel and Development,
holds a post-graduate diploma in
personnel management and a masters
degree from the Lean Enterprise Research
Centre at Cardiff University.
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.
12
Kevin Campbell
Business unit director, Severfield
(Products & Processing)
Kevin joined the Severfield Group in 2011
as head of operations at the Group’s joint
venture, JSW Severfield Structures in India
where he held several senior positions
and had an instrumental role in the
development of the business over a period
of three and a half years. Since returning to
the UK, Kevin held the position of business
improvement associate director of
Severfield plc until his current appointment
in January 2018.
Kevin has over 20 years’ experience in
the structural steelwork industry, with his
career centred on senior manufacturing
roles. He is a chartered engineer with the
Institution of Engineering and Technology
and holds an MBA gained at the University
of Bradford.
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OUR CHAIRMAN’S
VIEW ON GOVERNANCE
Overview
This year has seen
continued external focus
on companies’ corporate
governance arrangements,
ensuring they have strong
and robust corporate
governance at the heart of
everything they do.
John Dodds
Non-executive chairman
Dear shareholder
Leadership and board composition
The only change to the composition of
the Board this year was the resignation
of Chris Holt at the AGM in September
2018. Chris left with our thanks and
best wishes and we have appointed an
external consultant, Korn Ferry, to recruit
a replacement to ensure that the board
retains an appropriate combination of skills,
experience, diversity and knowledge. The
appointment of Carolyn Hobdey as Group
HR director has given us the opportunity
to refresh our succession planning and
she is also undertaking a review of our
approach to workforce engagement and
culture as well as our formal approach
to engagement with employees. We will
report on this further in our annual report
for the 2020 financial year.
I am pleased to introduce the Group’s
corporate governance report on behalf of
our board of directors (‘the board’). This
year has seen continued external focus
on companies’ corporate governance
arrangements, ensuring that they have
strong and robust corporate governance at
the heart of everything they do. This report
will outline how the board has ensured that
we have effective corporate governance
in place to help support the creation of
long-term value for our shareholders and
stakeholders.
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 86 to 91 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.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 85
Board evaluation
Talent and diversity
UK Corporate Governance Code
During the year the board received
a presentation on the new 2018
Code. Some changes have been
made already to comply with the
2018 Code such as the amendment
to the terms of reference of our
Remuneration Committee and all
processes and procedures are being
reviewed in the light of the changes
brought in by the 2018 Code. We will
report against the 2018 Code in our
annual report for the 2020 financial
year.
For the current reporting period,
we have applied the 2016 UK
Corporate Governance Code, which
is the version of the Code which
applies to the Company for its 2019
financial year. The Company has
complied fully with the requirements
of the 2016 Code throughout the
accounting period and to the date of
this report.
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 89.
Accountability
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 93.
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 86.
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.
Our remuneration policy was approved at
the AGM in September 2017. A summary
of our remuneration policy, how we intend
to operate that policy in 2020, and a review
of the remuneration committee’s activities,
together with bonus and PSP performance
in 2019, can be found in the remuneration
report on pages 104.
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 second 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.
Relations with shareholders
The board and I recognise the
responsibility we have to a range of
stakeholders including customers,
employees, subcontractors and suppliers
and the environment and communities in
which we operate.
We have an open and effective dialogue
with shareholders, with regular meetings
being held with institutional shareholders,
and we held a Capital Markets Day in
January 2019 at the 22 Bishopsgate
project which was well attended
with positive feedback. The AGM is
an important opportunity for private
investors to engage with the board
and all shareholders are encouraged to
attend. It is being held again this year at
Aldwark Manor Hotel, York, YO61 1UF on
3 September 2019 at 12:00 pm.
Further information on shareholder
and stakeholder engagement is on
page 91
John Dodds
Non-executive chairman
19 June 2019
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86
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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REPORT
87
Structure of the board
The Company is controlled through the board of directors, which consists of the chairman, three other non-executive directors and four
executive directors. Four of these directors have been directors of the Company for less than six years. The membership of the board is
stated on pages 78 and 79.
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 82 and 83. 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.
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
2019 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
116. 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.
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CORPORATE GOVERNANCE
REPORT
Accordingly, all of the existing directors
whose biographies are set out on pages
78 and 79 will be standing for re-election
at the 2019 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
Board meetings
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.
The directors’ attendance record at the scheduled board meetings and board committee meetings for the year ended 31 March 2019 is shown
in the table below.
Total number of meetings
Executive directors
Alan Dunsmore
Ian Cochrane
Derek Randall
Adam Semple
Non-executive directors
John Dodds
Kevin Whiteman
Tony Osbaldiston
Alun Griffiths
Chris Holt1
Board
11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
5/5
Audit
committee
Remuneration
committee
Nominations
committee
3
—
—
—
—
3/3
3/3
3/3
3/3
1/1
4
—
—
—
—
4/4
4/4
4/4
4/4
3/3
2
—
—
—
—
2/2
2/2
2/2
2/2
—
1Chris Holt resigned from the board with effect from 4th September 2018 but attended all meetings whilst he was a director
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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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.
Particular attention was paid this year to
the changes to the Code and to the new
reporting regulations that took effect for
Severfield on 1st April 2019.
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 92 to 120.
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.
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.
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Strategic reportGovernancewww.severfield.comStock Code: SFR OverviewFinancialsInformation 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’)
2019
2018
£•••.•m
£274.2m
£••.•m
•.•%
£••.•m
•.•p
£••.•m
£••.•m
•.•p
••.•%
£22.9m
8.3%
£23.5m
6.4p
£21.5m
£22.2m
6.1p
16.5%
90
CORPORATE GOVERNANCE
REPORT
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 take place on the day before 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. The
strategy review is supplemented by an annual market update following a similar format although shorter in length.
Board meetings for the current year
During the financial year, the board discussed and implemented the following key actions:
May 2018
• Strategic review undertaken and strategic plan updated
• Reviewed the statement of compliance in accordance with the Modern Slavery Act
• Board visit to India (five day visit to meet JSSL management, receive a site tour and visit the Bellary factory)
June 2018 (two meetings)
• Reviewed and approved annual report and accounts
• Approved final and special dividends
• Assessed going concern and longer term viability of the Group
July 2018
• Presentation from Group SHE director
• Reviewed feedback on year-end results
• Approved further investment in India to part fund expansion
September 2018
• Considered key issues arising from recent changes in governance and reporting rules
• Reviewed annual statements of compliance from directors and approved conflicts of interest
• Approved refinancing of debt facilities
• Approved appointment of new KPMG lead audit partner
November 2018 (two meetings)
• Board meeting in Lostock with factory visit and business update presentation
• Reviewed and approved half year results
• Approved interim and special dividends
January 2019
• Reviewed investor feedback on interim results
• Agreed scope and content of board and chairman evaluation
• Hollow lens technology demonstration
March 2019 (two meetings)
• Presentation on latest market developments
• Reviewed board and chairman evaluation results
• Board meeting held at CMF with presentation from senior management and factory visit
• Reviewed feedback on capital markets day
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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 132 to 176)
and a statement by the auditor concerning
their responsibilities (pages 124 to 131).
The directors also report that the business
is a going concern (page 100) 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 18 to 74). The directors have
also made a statement about the long-
term viability of the Group, as required
under the Code (page 50).
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 102 to 120. 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. A capital markets day was held
in January 2019 at the 22 Bishopsgate
project, which was well attended with
positive feedback.
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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AUDIT COMMITTEE
REPORT
Overview
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.
Tony Osbaldiston
Chairman of the audit committee
Audit committee
meetings held
Members
Tony Osbaldiston (chairman)
Kevin Whiteman
Alun Griffiths
John Dodds was a
member until 1 April 2019
2019 key achievements
• Reviewed proposals for the
replacement of the KPMG lead
audit partner following Adrian
Stone’s retirement and approved
appointment of David Morritt.
Membership
Role and key responsibilities
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 is a
chartered accountant.
By invitation, there were a number of other
regular attendees including internal and
external auditors. Alan Dunsmore, Adam
Semple, Graeme Campbell (Group financial
controller) and Mark Sanderson also
attended each meeting by invitation.
John Dodds is no longer a member of the
audit committee but is invited to attend
meetings as the committee finds his
experience and insight offers considerable
value.
Meetings are held at least three times per
annum and additional meetings may be
requested by the external auditor.
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.
• Considered and reviewed the internal
control environment at JSSL.
There were 3 meetings in the year
attended by all members.
• Considered and reviewed
management’s papers on the
accounting impact of IFRS 15 and
IFRS 16.
• Oversaw the continued development
of the Group’s systems of risk
management and internal control.
• Reviewed and recommended to the
main board the report and accounts
for the year ended 31 March 2018
and the 2019 interim accounts.
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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.
• Reviewed proposals for the replacement
of the KPMG lead audit partner following
Adrian Stone’s retirement and approved
appointment of David Morritt.
• Discussed the report received from
the external auditor regarding the
audit of the results for the year ended
31 March 2019. 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 2019.
• Reviewed the Group’s risk register.
• Considered and reviewed management’s
papers on the accounting impact of
IFRS15.
• Considered and reviewed management’s
papers on the accounting impact of
IFRS16.
• Reviewed and agreed the external
auditor’s audit planning report in
advance of the audit for the year ended
31 March 2019.
• To oversee the effectiveness of the
• Reviewed the measures taken by
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.
Activities of the committee
The committee addressed the following
key agenda items in relation to the 2019
financial year:
• Reviewed the interim results for the
period ended 30 September 2018 and
the year-end results for the period ended
31 March 2019.
• Reviewed the significant management
judgements reflected in the Group’s
results including significant contract
judgements.
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 2020.
• 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.
• Considered and reviewed the internal
control environment at JSSL.
Fair, balanced and understandable
The committee was provided with, and
commented on, a draft copy of the annual
report. At the request of the board, the
committee also considered whether the
annual report was fair, balanced and
understandable and whether it provided
the necessary information for shareholders
to assess the Group’s performance,
business model and strategy. 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 62 to 65.
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AUDIT COMMITTEE
REPORT
Whistleblowing
The Group operates a comprehensive
whistleblowing policy. Accordingly, staff
may, in confidence, raise concerns about
possible improprieties in matters of
financial reporting or other matters. The
committee reviews adherence with this
policy on an ongoing basis.
Viability statement
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 50 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 2018 annual report, the carrying
value the investment in the Indian joint
venture was classified as a significant
accounting risk. Given the improved
current and future forecast performance of
the Indian joint venture and its strong order
book this item is no longer classified as a
risk in the 2019 annual report.
The one significant issue considered during
the year is:
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.
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 David Morritt, 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.
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.
The committee was satisfied that this
matter 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 considered a
number of other judgements which have
been made by management, none of
which had a material impact on the Group’s
2019 results. These include the review of
the carrying value of the investment in the
Indian joint venture, 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 2019 marks
the fourth 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.
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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 2019
is David Morritt, whose appointment in
this role commenced with the audit for the
financial year ended 31 March 2019.
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.
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 2019 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 2019 represent
10 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
19 June 2019
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NOMINATIONS COMMITTEE
REPORT
Overview
The committee ensures
the continued effectiveness
of the board through
appropriate succession
planning and supports the
development of a diverse
pipeline.
John Dodds
Chairman of the nominations
committee
2
Nominations
committee
meetings held
Members
John Dodds (chairman)
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
2019 key achievements
• Establishing a process for the
replacement of Chris Holt as non-
executive director.
• Establising a process for refreshing
the Group’s succession planning.
• Undertaking and considering the
results of the Board evaluation.
2020 areas of focus
• Recommending the appointment
of Korn Ferry to undertake the
search for a new non-executive
director, taking into account
succession planning and diversity.
• Reviewing and re-establishing the
Group’s succession plan.
• Undertaking an effective board
evaluation.
Role
Board effectiveness
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.
During the year, Chris Holt stepped down
from the Board and, as a result, Korn Ferry
were instructed to undertake a search for a
new non-executive director. Nevertheless,
the board is considered to have been
operating effectively all year. The board
consists of eight directors, four of whom
have been directors of the Company
for less than six years. Korn Ferry has
supported the board in previous selection
processes for new board members but has
no other connection with the Company.
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.
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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 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
2019, 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. In
November 2018, on her appointment as
Group HR director, Carolyn Hobdey was
tasked with refreshing and enhancing our
approach to succession planning.
Evaluation
The committee (led by Kevin Whiteman)
performed an internal evaluation using the
process described on page 89. The results
of the evaluation were positive. The key
points arising from the evaluation were
documented and discussed with the
chairman
John Dodds
Chairman of the nominations committee
19 June 2019
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98
DIRECTORS’
REPORT
Introduction
The directors present their report together
with the audited consolidated financial
statements for the year ended 31 March
2019.
As permitted by legislation, some of
the matters normally included in this
report have instead been included in the
strategic report on pages 18 to 74, 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
86 to 91 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 78 and 79.
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
109.
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.
Mark Sanderson
Company secretary
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.
Powers of the directors
The business of the Company is managed
by the board, who may exercise all the
powers of the Company subject to the
provisions of the Company’s articles of
association, the Companies Act 2006 (‘the
Act’) and any ordinary resolution of the
Company.
Directors’ indemnities
The articles entitle the directors of the
Company to be indemnified, to the extent
permitted by the Act and any other
applicable legislation, out of the assets of
the Company in the event that they suffer
any loss or incur any liability in connection
with the execution of their duties as
directors.
In addition, and in common with many
other companies, the Company had during
the year, and continues to have in place,
directors’ and officers’ insurance in favour
of its directors and other officers in respect
of certain losses or liabilities to which they
may be exposed due to their office.
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Significant shareholdings
As at 1 June 2019, the Group had been notified of the following voting rights to the Company’s shares in accordance with the
Disclosure Rules and Transparency Rules of the UK Listing Authority:
Ordinary
2.5p share
41,560,541
40,488,861
20,306,666
16,981,080
16,759,531
16,651,524
%
13.67
13.32
6.68
5.59
5.51
5.48
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
4 September 2018, 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 2019 AGM (or,
if earlier, until the close of business on
30 September 2019). During the period,
the directors did not use these powers.
Name
1. JO Hambro Capital Management
2. M&G Investment Management
3. Threadneedle Asset Management
4. Legal & General Investment Management
5. Invesco (including Perpetual & Trimark)
6. Artemis Investment Management
Share capital
The Company has a single class of share
capital which is divided into ordinary shares
of 2.5p each. No other securities have
been issued by the Company. At 31 March
2019, there were 303,984,746 ordinary
shares in issue and fully paid. Further
details relating to share capital, including
movements during the year, are set out
in note 22 to the financial statements.
During the period, shares in the Company
were issued to satisfy awards under the
Company’s share incentive schemes.
Further details regarding employee share-
based payment schemes are set out in
note 21. No shareholder holds shares in
the Company which carry special rights
with regard to control of the Company.
There are no shares relating to an
employee share scheme which have rights
with regard to control of the Company that
are not exercisable directly and solely by
the employees.
Voting rights and restrictions on
transfer of shares
All of the issued and outstanding ordinary
shares of the Company have equal voting
rights, with one vote per share. There
are no special control rights attaching to
them save that the control rights of any
ordinary shares held in the EBT can be
directed by the Company to satisfy the
vesting of outstanding awards under its
various employee share plans. In relation
to the EBT and any unallocated Company
shares held in it, the power to vote or not
vote is at the absolute discretion of the
trustee. The Company is not aware of
any agreements or control rights between
existing shareholders that may result in
restrictions on the transfer of securities or
on voting rights. The rights, including full
details relating to voting of shareholders
and any restrictions on transfer relating to
the Company’s ordinary shares, are set
out in the articles and in the explanatory
notes that accompany the Notice of the
2019 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 4 September 2018,
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 2019 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
4 September 2018, 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 2019 AGM (or, if earlier, until the
close of business on 30 September 2019).
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DIRECTORS’
REPORT
Anti-corruption and bribery matters
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 58 to 61
• Respect for human rights – page 61
Disclosure of information to the
external auditor
The directors who held office at the date
of approval of this directors’ report confirm
that, so far as they are each aware, there
is no relevant audit information of which
the Company’s auditor is unaware and
each director has taken all the steps that
they ought to have taken as a director in
order to make themselves aware of any
relevant audit information and to establish
that the Company’s auditor is aware of that
information.
This confirmation is given and should
be interpreted in accordance with the
provisions of section 418 of the Act.
External auditor
KPMG LLP acted as the auditor for the
Company for the year ended 31 March
2019. 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.
• Social matters – page 61
Annual general meeting
• Equal opportunities (including for the
disabled) – page 59
• Environmental matters – pages 52 to 54
• Greenhouse gas emissions – page 54
• Long-term incentive plans – page 107 of
the directors’ remuneration report
• Statement of directors’ interests – page
116 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
The notice concerning the AGM to be held
at Aldwark Manor Hotel, York at noon on
Tuesday 3 September 2019, 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 98 to 100
inclusive was approved by the board and
signed on its behalf by:
Mark Sanderson
Company secretary
19 June 2019
Dividends
The directors declared an interim dividend
for the six months ended 30 September
2018 of 1.0p per ordinary share
(2018: 0.9p). The directors have
recommended a final dividend of 1.8p per
ordinary share to be paid on 13 September
2019 to shareholders on the register at the
close of business on 16 August 2019.
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 November 2023 and can be terminated
upon a change of control of the Group.
The Company’s share plans contain
provisions that take effect in such an event
but do not entitle participants to a greater
interest in the shares of the Company than
created by the initial grant or award under
the relevant plan.
Amendment of articles of association
Any amendments to the articles may be
made in accordance with the provisions of
the Act by way of special resolution.
Political contributions
No contributions were made to any political
parties during the current or preceding
year.
Going concern
After making enquiries, the directors
have formed a judgement at the time of
approving the financial statements that
there is a reasonable expectation that
the Group has adequate resources to
continue in operational existence for at
least 12 months from the approval of the
financial statements. For this reason, the
directors continue to adopt the going
concern basis in preparing the financial
statements.
The key factors considered by the directors
in making the statement are set out in the
financial review on page 50.
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DIRECTORS’ REMUNERATION
REPORT
Overview
Remuneration policy
continues to provide strong
alignment with the interests
of our shareholders and
other stakeholders in
incentivising management
to meet demanding short-
term targets and to deliver
sustainable long-term value
creation, whilst ensuring
that high safety standards
are achieved.
Alun Griffiths
Chairman of the remuneration
committee
4
Remuneration
committee
meetings held
Members and committee attendance
Alun Griffiths (chairman)
Kevin Whiteman
Tony Osbaldiston
John Dodds
Chris Holt
4/4
4/4
4/4
4/4
3/3*
*Chris Holt resigned on 4 September 2018.
2019 key achievements
• Setting and reviewing directors’
remuneration and benefits including
the basic salary increases across the
Group.
• Assessed performance against the
2018 bonus targets and set the 2019
bonus targets.
• Reviewed and approved targets and
performance measures for long-term
incentive awards for our executive
directors and senior management.
• Reviewed and updated terms of
reference for the remuneration
committee.
• Reviewed the remuneration policy in
the context of the change to the Code
and recent guidance issued by the
main institutional investor bodies, for
the implement of the policy in 2020.
Dear shareholder
As chairman of the remuneration
committee, I am pleased to present our
directors’ remuneration report (the ‘report’)
for the year ended 31 March 2019.
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 2019 and
how it will be implemented for the year
ending 31 March 2020. The annual
report on remuneration will be subject
to an advisory shareholder vote at the
forthcoming AGM on 3 September 2019
Our policy was last approved at our 2017
AGM, with 99.66 per cent of votes cast
in favour, and is not being submitted to
a shareholder vote at the 2019 AGM. As
part of our regular three-year cycle, we
will be asking shareholders to approve an
updated policy at the 2020 AGM.
Overall, the Committee considers that the
policy continues to support our business
strategy and provides an appropriate link
between performance and reward.
The Group has consolidated its position
this year, delivered bottom line growth
and made real progress in meeting its
strategic objectives. This was achieved
through continuing focus on operational
improvement, bid and contract
management, supported by continued
investment in people, processes and
technology.
The management team performed well
during challenging UK market conditions
and met demanding Group strategy
targets. Whilst the Group profit bonus
target was not met, the India profit target
was achieved.
Summary of proposed changes
for 2019
During the next 12 months we will
undertake a thorough review of our
policy and take account of the 2018
update to the Code, the FRC’s revised
Guidance on Board Effectiveness and the
Companies (Miscellaneous Reporting)
Regulations 2018. However, a number of
improvements to how the current policy
is implemented in 2019 are being made
immediately:
• Introduction of a new two-year post
vesting holding period for PSP share
awards made in 2019 and beyond;
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 103
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 8.41p to 10.39p in 2022.
This equates to a PBT range of £31.0m
to £38.3m. This represents an increase
in the lower vesting threshold of £1.5m
(five per cent) and in the threshold at
which maximum vesting takes place of
£1.8m (five 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.
PSP awards will now be subject to a
two-year post vesting holding period.
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. At the 2020 AGM we will
be putting our remuneration policy to a
shareholder vote. In advance of this, we
will be reviewing our policy and taking
account of the recent changes to the Code
and institutional shareholder guidelines.
I hope you find this report to be clear and
helpful in understanding our remuneration
policy and practices.
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
19 June 2019
• Expansion of provisions dealing with
malus and clawback so that they
include not only financial misstatement,
error, substantial failures in risk control,
serious misconduct and any other
exceptional circumstances determined
by the remuneration committee but also,
corporate failure and serious reputational
risk; and
• Introduction of Remuneration Committee
discretion to override formulaic
outcomes where these exceed
expectations, such as in cases of
excessive share price growth.
We shall also:
• consider the appropriate benchmark for
future pension provision for new director
appointments (given the range of current
practice within the Company) and
capping absolute pension contributions
for current directors;
• consider our policy on the expected
time period for directors to meet our
shareholding requirement; and
• consider any further changes to ensure
that executive remuneration remains
appropriate and effective.
Finally, following her recent recruitment,
our new Group HR Director, Carolyn
Hobdey, will be focusing on a number of
strategic HR matters such as ‘employee
voice’, cultural change and workforce
engagement.
Performance and reward 2019
Base salaries
During the year, the salaries of Alan
Dunsmore and Adam Semple were held at
2018 levels since they were appointed to
their current roles on 1 February 2018, but
the other directors received a 2.5 per cent
salary increase which was broadly in line
with that received by the UK workforce.
Annual bonus
The profit targets for our Indian joint
venture were met, reflecting the strong
performance of our Indian business, but
Group financial targets were not achieved
and there was no bonus pay-out against
these financial metrics. Safety targets
were successfully met. As a result, an
annual bonus pay-out of 20 per cent of the
maximum opportunity (or in the case of
Derek Randall 60 per cent) will be made.
PSP awards
The remuneration policy allows a maximum
grant of 150 per cent of salary, with awards
of up to 100 per cent of salary typically
made for the chief executive officer and
Group finance director and 75 per cent
for other executive directors. The Group
continues to take a conservative approach
to the making of awards and the Group
finance director received an award of 75
per cent of salary to reflect his being new
in role. An award of 100 per cent of salary
was made to Ian Cochrane, our chief
operating officer, to reflect his contribution
to the Group. All awards are below the
maximum permitted by the policy. The
targets for the 2019 awards are set out
below. Our shareholding requirement was
adjusted so that each executive director is
now subject to a shareholding requirement
of two times the value of their PSP award.
PSP vesting
The committee assessed the performance
for the PSP awards vesting in 2019 and
the levels of profit achieved last year
resulted in targets for the 2016 PSP
award (EPS targets which equated to
PBT of between £18.6m and £24m) being
exceeded, resulting in the expected vesting
of these awards at their maximum level.
Having reviewed the performance of the
annual bonus and the PSP, the committee
considered that the application of
discretion, to override or modify bonus or
PSP outcomes, was not needed, as the
outturn reflected both achievement against
the respective performance targets and the
performance of the Group.
Implementation of policy for 2020
Base salaries
Salaries for the directors will be reviewed
and effective from 1 July 2019 with
increases, as a percentage of salary, being
limited to those of the wider workforce.
There will be no change to the fees paid to
non-executive directors.
Annual bonus
For the 2020 financial year, the maximum
annual bonus opportunity is 100 per cent
of salary. The on-target bonus is 50 per
cent of the maximum The financial and
safety performance targets for the 2020
bonus reflect the continued strong forward
momentum of the Group. The majority of
performance is assessed against financial
targets (80 per cent). The committee
considered the balance of financial and
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104
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 (pages 105 to 110).
This section contains details of the
remuneration policy approved at the
2017 AGM and is for information only.
• The directors’ annual remuneration
report (pages 111 to 120). This section
sets out the details of remuneration
earned by directors for performance in
the year ended 31 March 2019, and
how the policy was implemented. It sets
out how we intend to apply the policy
for the year ending 31 March 2020. The
directors’ remuneration report is subject
to an advisory vote at this year’s AGM.
Part 1- Summary of directors’
remuneration policy
The remuneration policy was approved at
the AGM in 2017. Provided for information
only are the details of the policy that were
referenced in the committee’s activities
over the past reporting year which
includes the remuneration policy table, the
recruitment remuneration arrangements,
executive director service contracts and
terms and conditions for non-executive
directors.
The full policy report, as approved by
shareholders, can be found on page 83 in
the 2017 annual report. It is intended this
policy will remain in place until the 2020
AGM. The Company’s remuneration policy
continues to support the business strategy
by ensuring that the overall remuneration
package is set at a competitive level while
ensuring that additional reward is only paid
for high performance over a sustained
period.
This is available on the Group’s website:
www.severfield.com
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Severfield plc Annual report and accountsfor the year ended 31 March 2019
105
Remuneration policy table for executive directors
Executive directors
The following table summarises each element of the remuneration policy for the executive directors, explaining how each element
operates and links to the business strategy.
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 against 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, for example,
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
Performance conditions
The value of insured benefits can vary from year to year based
on the costs from third party providers.
The total value of benefits (excluding relocation and
international assignment allowances) will not exceed more
than 15 per cent of salary in any year.
No performance conditions or recovery provisions apply to benefits.
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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.
Director has no obligation to match Group contributions.
Maximum opportunity
Performance conditions
No recovery provisions apply to pension benefits.
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 and equivalent adjustments are paid in shares.
For 2019, and beyond, the specific circumstances in which malus and clawback may apply have been expanded to include not only
financial misstatement, error, substantial failures in risk control and other exceptional circumstances determined by the remuneration
committee but also, corporate failure and serious reputational risk.
Maximum opportunity
Performance conditions
Maximum 100 per cent of base salary per annum.
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.
No more than 50 per cent of the maximum 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 113.
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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.
Dividends may accrue on vested awards, payable in shares.
For 2019, and beyond, the specific circumstances in which malus and clawback may apply have been expanded to include not only
financial misstatement, error, substantial failures in risk control and other exceptional circumstances determined by the remuneration
committee but also, corporate failure and serious reputational risk.
Maximum opportunity
Performance conditions
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.
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.
A 2-year post-vesting holding period will apply for awards made from
2019 onwards.
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
Performance conditions
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.
No recovery provisions apply to all-employee share awards.
Shareholding requirement
Purpose and link to strategy
To strengthen the alignment between the interests of the executive directors and those of shareholders.
Operation
Executive directors are required to retain shares acquired under equity incentive schemes until such time as they have built up the
required holding. Thereafter they will be under a continuing obligation to maintain at least such a holding.†
Maximum opportunity
The required holding is two times the value of an executive director’s
PSP award which, based on the current PSP award policy, would
equate to two times salary for the chief executive officer and the Group
finance director and 150% for other executive directors.
Performance conditions
Not applicable.
†We will review and develop a post cessation holding period during the 2020 financial year and report to shareholders in due course.
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DIRECTORS’ REMUNERATION
REPORT
Policy of payment for departure from office
Provision
Policy
Salary, pension
and benefits
If no breach of service agreement – termination payment based on the value of base salary that would have accrued
during the contractual notice period* taking into account mitigation when appropriate as circumstances dictate.
Annual bonus
Discretionary payment based on the circumstances of the termination and after assessing performance conditions and
only for the service period worked. DSBP will be forfeited for dismissal for misconduct, fraud and performance issues and
where executive director leaves for alternative employment at a competitor.
PSP
Outstanding awards will lapse unless good leaver (death, disability, retirement, the sale of the business or company
that employs the individual or for any reason at the discretion of the committee (which may take into account the
circumstances of an individual’s departure)). A good leaver’s unvested awards will vest on the normal vesting date subject
to the achievement of any relevant performance condition (other than in the case of death when vesting will be immediate),
with a pro-rata reduction to reflect the proportion of the vesting period served.
*The committee will have the authority to settle any legal claims made against the Company, for example for unfair dismissal, that may arise on termination.
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.
• In addition, a further column reflects
the impact of a 50 per cent share price
appreciation.
Fixed pay comprises:
• Salaries – salary effective as at 1 July
2019;
• Benefits – amounts expected to be
received by each executive director in
the 2020 financial year;
• Pension – amount that will be received
by each executive director in the 2020
financial year based on the policy set out
in the table above.
The scenarios for minimum, target and
maximum performance do not include any
share price growth.
Notes to the policy table
Choice of performance conditions
and metrics
Our role as the remuneration committee
includes the establishment of performance
goals through long-term incentive plans
which are challenging but achievable
through superior performance, thereby
incentivising and rewarding success.
The long-term incentive plan currently
incorporates an EPS performance
measure, which is a key financial metric
that is aligned with shareholder interests.
The committee has considered and
taken advice on alternative performance
measures, such as total shareholder return
(‘TSR’), to substitute for (all or part of) the
use of the EPS range used in the past.
Lack of a suitable peer group of similar
listed companies made this approach
impracticable and, to date, we have found
no better benchmark.
No performance targets are set for
any share incentive plan or sharesave
plan awards since these form part of
all-employee arrangements that are
purposefully designed to encourage
employees across the Group to purchase
shares in the Company.
Details of all the outstanding share awards
granted to existing executive directors are
set out in the annual remuneration report.
The discretions retained by the
committee in operating the annual
bonus and the PSP
The committee will operate the annual
bonus (including the deferred share
element) and the PSP according to their
respective rules and in accordance with
the Listing Rules where relevant.
The committee retains discretion,
consistent with market practice, in a
number of regards to the operation and
administration of these plans.
In relation to both the Group’s PSP and
annual bonus plan, the committee retains
the ability to adjust the targets and/or set
different measures if events occur (e.g.
material acquisition and/or divestment
of a Group business) which cause it to
determine that the conditions are no
longer appropriate and the amendment
is required so that the conditions achieve
their original purpose and are not materially
less difficult to satisfy.
Any use of the above discretions would,
where relevant, be explained in the annual
report on remuneration and may, as
appropriate, be the subject of consultation
with the Group’s major shareholders.
Illustration of application of the policy
A significant proportion of remuneration
is linked to performance, particularly at
maximum performance levels. The charts
below show how much each executive
director could earn under Severfield’s
remuneration policy (as detailed above)
under different performance scenarios.
The following assumptions have been
made:
• Minimum (performance below threshold)
— Fixed pay only with no vesting under
the annual bonus or PSP.
• Target (performance in line with
expectations) — Fixed pay plus a bonus
at the mid-point of the range (i.e. 50 per
cent of the maximum opportunity) and
a PSP award of 100 per cent of salary
for the chief executive officer and chief
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 109
Fixed
LTIP
Bonus
Share price appreciation
Chief executive officer
Chief operating officer
1,500
1,250
1,000
0
0
0
£
750
500
250
0
1,500
19%
1,250
31%
25%
1,000
22%
22%
56%
100%
31%
25%
38%
31%
0
0
0
£
750
500
250
0
19%
31%
25%
22%
31%
25%
22%
56%
100%
38%
31%
d
e
x
F
i
t
e
g
r
a
T
x
a
M
f
o
t
c
a
p
m
I
e
s
a
e
r
c
n
i
%
0
5
e
c
i
r
p
e
r
a
h
s
n
i
d
e
x
F
i
t
e
g
r
a
T
x
a
M
f
o
t
c
a
p
m
I
e
s
a
e
r
c
n
i
%
0
5
e
c
i
r
p
e
r
a
h
s
n
i
Group finance director
Executive director
1,500
1,250
1,000
1,500
1,250
1,000
0
0
0
£
750
500
250
0
25%
17%
21%
0
0
0
£
18%
23%
59%
100%
33%
28%
42%
34%
d
e
x
F
i
t
e
g
r
a
T
x
a
M
f
o
t
c
a
p
m
I
e
s
a
e
r
c
n
i
%
0
5
e
c
i
r
p
e
r
a
h
s
n
i
Executive directors’ service agreements
750
500
250
0
18%
24%
58%
100%
d
e
x
F
i
t
e
g
r
a
T
x
a
M
18%
25%
21%
34%
28%
41%
33%
f
o
t
c
a
p
m
I
e
s
a
e
r
c
n
i
%
0
5
e
c
i
r
p
e
r
a
h
s
n
i
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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110
DIRECTORS’ REMUNERATION
REPORT
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).
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.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 111
Part 2 – annual remuneration report
In this section, we report on the implementation of our policies in the year ended 31 March 2019 as well as how the policy will be
implemented for 2020. 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 2019
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 Holt1
Kevin Whiteman
Tony Osbaldiston
Number of meetings attended:
4/4
4/4
3/3
4/4
4/4
1Chris Holt attended all meetings whilst he was a director.
The Group considers all members of the committee to be independent. Executive directors may attend remuneration committee
meetings at the invitation of the committee chairman, but do not take part in any discussion about their own remuneration.
The terms of reference for the remuneration committee were reviewed and updated to reflect the requirements of the new Code.
The updated terms of reference are available on the Company’s website.
Advisers to the committee
Wholly independent advice on executive remuneration is received from the Executive Compensation practice of Aon plc. Aon is a
member of the Remuneration Consultants Group and is a signatory to its Code of Conduct. Fees charged by Aon for advice provided to
the committee for the year ended 31 March 2019 amounted to £24,000 (excluding VAT) (2018: £33,000).
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DIRECTORS’ REMUNERATION
REPORT
Directors’ earnings for the 2019 financial year (audited)
Remuneration received by the directors
Year ended 31 March 2019
Fees
Benefits
Pension
£000
Executives
Alan Dunsmore
Ian Cochrane
Derek Randall
Adam Semple
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt¹
Salary
Bonus
350
310
255
220
–
–
–
–
–
70
62
154
44
–
–
–
–
–
1,135
330
–
–
–
–
125
45
45
45
17
277
19
16
–
16
–
–
–
–
–
70
50
50
40
–
–
–
–
–
LTIPs*
Total
381
338
278
37
–
–
–
–
–
890
776
737
357
125
45
45
45
17
51
210
1,034
3,037
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 2019.
* Calculated at 100 per cent of maximum award x the average share price over the period 1 January 2019 to 31 March 2019 of 68.75p and adjusted for extra
dividend equivalent shares.
1 Chris Holt resigned with effect from 4 September 2018.
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
Year ended 31 March 2018
Fees
Benefits
Pension
LTIPs*
Total
272
330
302
249
167
146
–
–
–
–
–
206
190
173
66
–
–
–
–
–
–
–
–
–
–
21
45
45
45
40
16
16
16
–
11
–
–
–
–
–
64
53
50
50
16
–
–
–
–
–
386
214
260
214
23
–
–
–
–
–
738
819
818
686
283
167
45
45
45
40
1,466
635
196
59
233
1,097
3,686
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 2018 and are calculated as actual value of benefit at the actual vesting date (including
extra dividend equivalent shares) based on the vesting share price of 84.44p.
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 resignation as
chief executive on 31 January 2018. These payments represent amounts to which the Group was contractually obliged but are not included in this table.
² Alan Dunsmore’s remuneration comprises his remuneration as interim 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 interim chief executive officer role for the period 1/4/17 to 31/1/18.
³ Adam Semple operated as interim Group finance director from 1 April 2017 to 31 January 2018 when he was appointed to this role on a permanent basis. His
remuneration comprises his remuneration as interim 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 interim 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
a executive director and the fees he received as non-executive director have been disclosed separately.
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113
Remuneration received by the directors
The remuneration packages of Alan Dunsmore and Adam Semple were adjusted following their promotion on 1 February 2018. No
further increases were made during the year. The 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)
There have been no payments made to past directors during the year.
How pay linked to performance in 2019
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 106.
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
£70,000
£62,380
£44,000
£153,900
As reported last year, the bonus plan applicable to the executive directors for 2019 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.
For all directors (excluding Derek Randall)
Measure
Group PBT*
Group AFR
% of
maximum
bonus
opportunity
80%
20%
Threshold
On-target
Maximum
£24.8m
£26.1m
£31.3m
0.21
0.21
0.21
Actual
£24.7m
0.11
% of bonus
paid
Pay-out as %
of salary
* For Group PBT, ‘threshold’ represents 95 per cent of budget, ‘on-target’ represents 100 per cent of budget and ‘maximum’
represents 120 per cent of budget.
Derek Randall (JSSL managing director)
Measure
Group PBT*
JSSL (India) PBT*
JSSL (India) AFR
% of
maximum
bonus
opportunity
Threshold
On-target
Maximum
40%
40%
20%
£24.8m
10.0 Cr
0.11
£26.1m
15.0 Cr
0.11
£31.3m
25.0 Cr
0.11
Actual
£24.7m
27.1 Cr
–
* 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.
0%
100%
0%
100%
100%
0%
20%
20%
0%
40%
20%
60%
% of bonus
paid
Pay-out as %
of salary
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114
DIRECTORS’ REMUNERATION
REPORT
The 2016 PSP awards are due to vest in June 2019, subject to the achievement of an EPS performance condition measured over the
three financial years ended 31 March 2019. The minimum EPS figure required for vesting of 25 per cent of the award was c.5.06p which
equates to a PBT of £18.6m. The EPS figure required for vesting at maximum of 100 per cent of the award was c.6.53p which equates
to a PBT of £24.0m. The actual PBT achieved was £24.7m which equates to EPS of 6.65p and therefore it is estimated that 100 per
cent of these awards will vest subject to continued service.
A summary is set out below:
PSP awards granted to directors in 2019 (audited)
Share awards were made in the year under the PSP scheme for the three year period expiring on 31 March 2021. Details of the awards
made to the executive directors are summarised below.
Type
shares % of salary
Number of
Face value
(£)1
Performance
condition2
Performance
period
% vesting at
threshold
Alan Dunsmore
Nil-cost option
Ian Cochrane
Derek Randall
Adam Semple
Nil-cost option
Nil-cost option
Nil-cost option
414,692
360,556
222,372
195,498
100%
100%
75%
75%
350,000
304,309
187,682
165,000
EPS
3 financial
years ending
31 March 2021
25%
1 Face value calculated based on the pre-grant date share price of 84.40p on 20 June 2018.
2 Performance conditions are based on EPS targets of 7.88 (minimum performance – 25% vests) to 9.75p (maximum performance – 100% vests) with linear
interpolation in between. This represents a PBT range of £29.5m-£36.5m.
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 triggers for which clawback can apply have been extended to cases of corporate failure, severe downturn of financial or operational
performance and serious reputational damage, in addition to misconduct The amount of the relevant clawback would be the net of tax
amount (or the full amount to the extent that the individual can recover any tax paid) that had effectively been overpaid in the case of
misstatement or error or would be at the committee’s discretion in the case of misconduct. Clawback can be imposed by a reduction in
the amount of any unvested PSP award, a reduction in the amount of any future bonus or by a requirement to pay back the amount in
question (with a right to deduct from salary).
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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
Alan Dunsmore
Total
Ian Cochrane
Total
Derek Randall
Total
Adam Semple
Total
Year of
award
Vesting date
(June)
Performance
condition
Awards held
at 1 April
2018
Awards
granted in
year
Awards
lapsed in
year
Awards
vested in
year4
Awards held
at 31 March
2019
2015
2016
2017
2018
2015
2016
2017
2018
2015
2016
2017
2018
2015
2016
2017
2018
2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2021
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
248,656
492,714
304,549
–
1,045,919
302,366
436,637
269,888
–
1,008,891
248,656
359,071
221,948
–
829,675
26,388
48,241
31,655
–
106,284
–
–
–
414,692
414,692
–
–
–
360,556
360,556
–
–
–
222,372
222,372
–
–
–
195,498
195,498
(11,364)
(253,110)
–
–
–
–
–
–
–
492,714
304,549
414,692
(11,364)
(253,110)
1,211,955
(13,818)
(307,782)
–
–
–
–
–
–
–
436,637
269,888
360,556
(13,818)
(307,782)
1,067,081
(11,364)
(253,110)
–
–
–
–
–
–
–
359,071
221,948
222,372
(11,364)
(253,110)
803,391
(1,206)
(26,861)
–
–
–
–
–
–
(1,206)
(26,861)
–
48,241
31,655
195,498
275,394
2,990,769
1,193,118
(37,752)
(840,863)
3,357,821
Performance conditions are based on a range of EPS targets as follows:
2016 award1
2017 award2
2018 award3
Threshold
(25% vests)
Maximum
(100% vests)
5.06p
6.76p
7.88p
6.53p
7.98p
9.75p
1 Represents a PBT range of £18.6m - £24.0m.
2 Represents a PBT range of £25.0m - £29.5m.
3 Represents a PBT range of £29.5m-£36.5m.
4 Total of shares vested was higher than total of shares granted since, in accordance with the rules of the plan, additional shares were awarded at vesting
representing dividend entitlement accrued during the three year performance period.
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DIRECTORS’ REMUNERATION
REPORT
Statement of directors’ shareholding
As at 31 March 2019, all executive directors and their connected persons have a shareholding as follows:
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Actual share ownership
as a percentage of
shareholding requirement
as at 31 March 20191
51%
283%
5%
84%
1 Value of actual share ownership was calculated with reference to the closing mid-market share price at 31 March 2019 of 68.80p. The shareholding requirement
increased to 200 per cent for the chief executive officer and the Group finance director under the new remuneration policy, approved at the 2017 AGM, 150 per cent
for all other executive directors. In the light of the increased PSP award made to Ian Cochrane (100 per cent of salary) in June 2018 (which will be repeated in June
2019) his shareholding requirement was increased to 200 per cent and in the light of the reduced PSP award made to Adam Semple (75 per cent of salary) in June
2018 (which will be repeated in June 2019) his shareholding requirement was reduced to 150 per cent. Adam Semple was appointed to the board on a permanent
basis on 1 February 2018 and has had only a short period of time in which to build up a shareholding.
Directors’ current shareholdings (audited):
The following table provides details on the directors’ beneficial interests in the Company’s share capital as at 31 March 2019, other than
Chris Holt who left the Company on 4th September 2018 and whose holdings are stated as at that date.
Executives
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt
Owned
shares1
Share
incentive
plan (SIP)2
Sharesave
scheme
519,915
2,352,863
20,436
469,214
419,833
–
–
30,000
53,097
18,447
18,447
–
4,667
–
–
–
–
–
26,470
26,470
11,250
–
–
–
–
–
–
DSBP3
PSP4
Total5
277,489
1,211,955
2,054,276
298,291
1,067,081
3,763,152
13,098
243,388
275,394
320,178
803,391
1,520,660
–
–
–
–
–
–
–
–
–
–
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 106.
4 PSP shares are in the form of conditional awards which will only vest on the achievement of certain performance conditions. The total includes 2016 awards which
had not actually vested as at 31 March 2019.
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 24 May 2019, 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 on the next page.
Executives
Ian Cochrane
Alan Dunsmore
New SIP
shares since
31 March
2019
333
333
Total SIP
shares at
24 May
2019
18,780
18,780
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 117
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. Within this 10 per cent limit, the Group can
only issue 5 per cent of its issued share capital to satisfy awards under executive discretionary schemes. The Group’s position against
its dilution limit as at 31 March 2019 was under the maximum 10 per cent limit at 7.2 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 ten-year period
ended 31 March 2019.
This index was selected as it represents a broad equity market index and is considered to be the most appropriate comparator group of
companies over a 10 year period commencing March 2009.
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
Mar 2019
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 ten-year period. Total remuneration
includes bonuses and the value of PSP awards which vested (or in the case of 2019 are expected to vest) based on performance
in those years (at the share price at which they vested or, in the case of the 2019 figures, at the average share price for the quarter
immediately prior to the year-end).
Chief executive officer remuneration change:
2009
Haughey
2010
Haughey
2011
Haughey
2013
Haughey1
2013
Dodds2,3
2014
Dodds2
2014
Lawson4
2015
Lawson
2016
Lawson
2017
Lawson
2018
Lawson5
2018
Dunsmore5
2019
Dunsmore
Total remuneration
£’000
1,265
640
701
450
Annual bonus (%)
94.8% 50.1% 60.5%
LTIP vesting (%)
100.0% 100.0%
–
–
–
62
N/A
N/A
289
233
681
946
1,228
738
819
890
N/A 34.0% 65.0% 63.0% 95.0%
–
62.6% 20.0%
N/A
–
– 64.0% 74.0% 95.4% 95.4% 100.0%
1 Tom Haughey received compensation of £423,000 for loss of office in accordance with his contract.
2 John Dodds was appointed executive chairman in an interim capacity following Tom Haughey’s resignation as chief executive officer on 23 January 2013 and prior
to the appointment of Ian Lawson as chief executive officer on 1 November 2013. During this time he was awarded a discretionary bonus (no maximum was set)
but not entitled to any PSP award. These figures do not include his fees as non-executive chairman.
3 Financial year 2013 represented the 15 month period to 31 March 2013.
4 Appointed on 1 November 2014.
5 Ian Lawson received compensation of £408,000 for loss of office in accordance with his contract.
6 Alan Dunsmore operated as interim 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 interim and permanent chief executive officer.
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118
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
2019
£000
350.0
18.6
70.0
48.7
3.8
2.2
2018
£000
330.3
16.1
206.0
46.5
3.4
3.4
% change
6.0%*
15.5%
-66.0%
4.7%
11.8%
-35.3%
*This increase represents the increase awarded to Alan Dunsmore on his permanent appointment as chief executive officer in February 2018.
Relative importance of spend on pay
The following table shows the actual spend on pay for all employees relative to revenue and underlying operating profit before the results
of JVs and associates:
Staff costs
Revenue
Underlying operating profit
Dividends
Shareholder voting
2019
£000
64,614
274,917
23,256
13,353
2018
£000
70,237
274,203
22,866
7,490
% change
-8.0%
0.3%
1.7%
78.3%
The results below show the response to the 2018 AGM shareholder voting for the directors’ 2018 remuneration report (excluding
remuneration policy):
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
Total number
of votes
% of votes
cast
239,005,356
99.95%
114,588
239,119,944
94,000
239,213,944
0.05%
100%
N/A
N/A
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
% of votes
cast
231,684,761
99.66%
801,189
232,485,950
60,928
232,546,878
0.34%
100%
N/A
N/A
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 119
Implementation of policy for 2020
The executive directors’ current salaries
The salaries of the executive directors will be reviewed in July 2019. Increases will be set in the context of overall salary increases for the
wider workforce, unless special circumstances apply.
The executive directors’ salaries at the start of the 2020 financial year are as follows:
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Benefits and pension
£
350,000
311,900
220,000
256,500
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 per cent 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 2020
Bonus
The annual bonus for 2020 will operate on the same basis as for 2019 and will be consistent with the policy detailed in the remuneration
policy section of this report in terms of the maximum bonus opportunity, deferral, clawback provisions and performance measures. The
performance measures have been selected to reflect a range of financial and operational goals that support the key strategic objectives
of the Group. The majority of the bonus is subject to financial targets.
The performance measures and weightings will be as follows:
Profit performance-based component — 80 per cent
The sliding scale range for bonus targets in 2020 is as follows:
Maximum bonus based on actual PBT versus budget
PBT % of budget
95 or below
100
120 or better
% of award
—
50
100
The committee believes that the budget PBT figures are commercially sensitive metrics and therefore are not disclosed at this time.
Actual target figures will be disclosed on a retrospective basis when these sensitivities have been removed.
Other performance-based component — 20 per cent
A new safety metric is being used this year called incident frequency rate (‘IFR’). This will be used throughout the Group†. IFR is an
industry recognised and measurable target and is calculated based on the number of all reported injuries in a year (rather than just those
that are reportable to the HSE).
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 safety component of his bonus will continue to be based on AFR (India).
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 2019 and ending on 31 March 2022.
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 £31.0m. If this level is
achieved, 25 per cent of the shares granted will vest. At the higher end, we have set a target EPS equivalent to PBT of £38.3m. 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.
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DIRECTORS’ REMUNERATION
REPORT
This represents an increase in the lower vesting threshold of £1.5m (five per cent) and in the threshold at which maximum vesting takes
place of £1.8m (five 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 2020 financial year?
The fees for the chairman and non-executive directors will be as follows:
£
Chairman
Basic fee for other non-executive directors
Additional fee for SID role
Additional fee for chairman of audit and remuneration committees
Approval
This report was approved by the board of directors and signed on behalf of the board.
Alun Griffiths
Chairman of the remuneration committee
19 June 2019
2020
125,000
40,000
5,000
5,000
2019
125,000
40,000
5,000
5,000
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 DIRECTORS’ RESPONSIBILITIES
STATEMENT
121
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 statement
that complies 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
19 June 2019
Adam Semple
Group finance director
19 June 2019
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 International Financial
Reporting Standards as adopted by the
European Union (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.
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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
124
132
133
134
135
136
137
169
169
170
171
172
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124
INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
1. Our opinion is unmodified
We have audited the financial statements of Severfield plc (“the Company”) for the year ended 31 March 2019 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
2019 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 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 four
financial years ended 31 March 2019. 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
Key Audit Matters
Event Driven
Recurring risks
£1,200,000 (2018: £1,100,000)
4.9% (2018: 5.0%) of total Group profit before tax
97% (2018: 98%) of total Group profit before tax
The impact of uncertainties due to the UK exiting the
European Union on our audit
vs 2018
Carrying value of construction contract assets, and revenue
and profit recognition in relation to construction contracts
Carrying value of parent Company’s investments in
subsidiaries, joint ventures and associates
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
125
2. Key audit matters: including 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 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.
The impact of
uncertainties due to the
UK exiting the European
Union on our audit
Refer to pages 38 to 45
(operating performance),
pages 46 to 50 (financial
performance), page 50
(viability statement), pages
66 to 74 (principal risks)
and pages 92 to 95 (audit
committee report).
The risk
Our response
All audits assess and challenge the
reasonableness of estimates, in
particular as described in the carrying
value of construction contract assets
and revenue and profit recognised
on construction contracts below,
and related disclosures and the
appropriateness of the going concern
basis of preparation of the financial
statements. All of these depend on
assessments of the future economic
environment and the Group’s future
prospects and performance.
In addition, we are required to consider
the other information presented
in the annual report including the
principal risks disclosure and the
viability statement and to consider
the directors’ statement 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.
Brexit is one of the most significant
economic events for the UK and at the
date of this report its effects are subject
to unprecedented levels of uncertainty
of outcomes, with the full range of
possible effects unknown.
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in planning
and performing our audits. Our procedures included:
− Our Brexit knowledge: We considered the directors’
assessment of Brexit-related sources of risk for the
Group’s business and financial resources compared with
our own understanding of the risks. We considered the
directors’ plans to take action to mitigate the risks.
− Sensitivity analysis: When addressing the carrying
value of construction contract assets and revenue and
profit recognised on construction contracts and other
audit areas that depend on forecasts, we compared the
directors’ analysis to our assessment of the full range
of reasonably possible scenarios resulting from Brexit
uncertainty and, where forecast cash flows are required to
be discounted, considered adjustments to discount rates
for the level of remaining uncertainty.
− Assessing transparency: As well as assessing individual
disclosures as part of our procedures on the carrying
value of construction contract assets and revenue
and profit recognised on construction contracts, we
considered all of the Brexit related disclosures together,
including those in the strategic report, comparing the
overall picture against our understanding of the risks.
Our results:
As reported under the carrying value of construction contract
assets and revenue and profit recognised on construction
contracts, we found resulting estimates and related disclosures
of construction contacts and disclosures in relation to going
concern to be acceptable. However, no audit should be
expected to predict the unknowable factors or all possible
future implications for a company and this is particularly the
case in relation to Brexit.
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Our response
Subjective estimate
Our procedures included:
126
INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
Carrying value of
construction contract
assets, and revenue
and profit recognition in
relation to construction
contracts
Revenue: £274.9m (2018:
£274.2m)
Construction contract
assets: £28.4m (2018:
£32.0m)
The Group’s activities are undertaken
via long-term construction contracts.
The carrying value of the construction
contract assets as well as the revenue
and profit recognised are based
on estimates of costs to complete
and estimates of variable total
consideration, such as instances where
the value of variations is currently
unagreed.
Refer to pages 92 to 95
(audit committee report),
pages 140, 142 and 145
(accounting policies,
judgements and estimates)
and note 16 (construction
contracts).
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.
The effect of these matters is that, as
part of our risk assessment for audit
planning purposes, we determined
that the carrying value of contract
assets, revenue and profit recognised
on construction contracts has a high
degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our materiality
for the financial statements as a whole.
− Our sector experience: Identifying high risk contracts
with risk indicators including: low margin or loss making
contracts with significant costs to complete estimates,
uncertainty over variable consideration, significant
disputes with customers, and large carrying value of
contract assets.
− Tests of details: For the high risk contracts identified,
agreeing uncertain variable consideration to post-year-
end cash, post-year-end customer certification, or
customer agreed variation schedules, and challenging
management where such evidence was not available.
− Our sector experience: Assessing the forecasted cost to
complete in the sample of high risk contracts identified by
understanding contract performance and costs incurred
post year-end along with discussions and challenge
of management’s costs to complete estimates against
original budgets and current run rates;
− Tests of details: Assessing the accuracy of costs
incurred to date through sample testing, including an
assessment of whether the cost sampled was allocated
to the appropriate contract;
− Test of details: Verifying the existence of customer
claims to external correspondence and challenging
management’s assessment of these involving our own
specialists to challenge the position taken;
− 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 assets and associated revenue and
profit recognition.
Our results
We found the carrying value of construction contract assets,
and the level of revenue and profit recognition in relation to
construction contracts to be acceptable (2018: acceptable).
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
127
Carrying value of parent
Company’s investments
in subsidiaries, joint
ventures and associates
£104.1m (2018: £99.9m)
Refer to page 172
(accounting policy)
and page 174 note 3
(investments).
The risk
Our response
Low risk, high value
Our procedures included:
The carrying amount of the parent
Company’s investments in subsidiaries,
joint ventures and associates
represents 47% (2018: 47%) 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.
− Tests of detail: Comparing the carrying amount of 100%
of the investments balance with the relevant subsidiaries’,
joint ventures’ and associates’ draft balance sheets 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, joint ventures and associates have
historically been profit-making.
− Assessing subsidiary audits: Assessing the work
performed by the subsidiary and joint venture audit
teams on all of those subsidiaries and joint ventures and
considering the results of that work on those subsidiaries’
and joint ventures’ 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’ and joint ventures’ profit.
Our results:
We found the Group’s assessment of the recoverability of the
investment in subsidiaries, joint ventures and associates to be
acceptable (2018: acceptable).
We continue to perform procedures over the carrying value of the investment in the JSSL joint venture. However, following a continued
improvement in the profitability of the joint venture, 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.
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www.severfield.comStock Code: SFR OverviewGovernanceInformationFinancialsStrategic report 128
INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
3. Our application of materiality and an overview of
the scope of our audit
Materiality for the Group financial statements as a whole was set
at £1,200,000 (2018: £1,100,000), determined with reference to a
benchmark of total Group profit before tax, of which it represents
4.9% (2018: 5.0% of total Group profit before tax).
Materiality for the parent Company financial statements as a whole
was set at £900,000 (2018: £900,000), determined with reference
to a benchmark of Company total assets, of which it represents
0.4% (2018: 0.4%).
We reported to the audit committee any corrected or uncorrected
identified misstatements exceeding £60,000 (2018: £55,000), in
addition to other identified misstatements that warranted reporting
on qualitative grounds.
Of the Group’s nine (2018: seven) reporting components, we
subjected six (2018: six) to full scope audits for Group purposes.
For the residual components, we performed analysis at a Group
level to re-examine our assessment that there were no significant
risks of material misstatement within those components.
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 £400,000 - £900,000 (2018: £250,000 - £900,000) having
regard to the mix of size and risk profile of the Group across the
components. The work on one of the nine components (2018: 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 (2018: one) component location in
India (2018: 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.
Total profit before tax
£24,711,000
(2018: £22,179,000)
Group materiality
£1,200,000
(2018: £1,100,000)
£1,200,000
Whole financial
statements materiality
(2018: £1,100,000)
£900,000
Range of materiality
at six components
(£400,000-£900,000)
(2018: £250,000 -
£900,000)
£60,000
Misstatements reported
to the audit committee
(2018: £55,000)
■ Total profit before tax
■ Group materiality
Total Group revenue
Total Group profit
before tax
99%
(2018: 100%)
100
99
Group total assets
97%
(2018: 98%)
98
97
■ Full scope for Group audit
purposes 2019
■ Full scope for Group audit
purposes 2018
■ Residual components
99%
(2018: 97%)
97
99
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
129
4. We have nothing to report on going concern
The directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company or
the Group or to cease their operations, and as they have concluded
that the Company’s and the Group’s financial position means that
this is realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability
to continue as a going concern for at least a year from the date of
approval of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit
report. However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the absence of reference to a material uncertainty in this
auditor's report is not a guarantee that the Group and the Company
will continue in operation.
In our evaluation of the directors’ conclusions, we considered the
inherent risks to the Group’s and Company’s business model and
analysed how those risks might affect the Group’s and Company’s
financial resources or ability to continue operations over the
going concern period. The risks that we considered most likely
to adversely affect the Group’s and Company’s available financial
resources over this period were:
• Potential economic downturn and associated contraction of
the construction industry.
• Potential future changes to key suppliers and the associated
impact on margins.
As these were risks that could potentially cast significant doubt
on the Group’s and the Company's ability to continue as a going
concern, we considered sensitivities over the level of available
financial resources indicated by the Group’s financial forecasts
taking account of reasonably possible (but not unrealistic) adverse
effects that could arise from these risks individually and collectively
and evaluated the achievability of the actions the Directors consider
they would take to improve the position should the risks materialise.
We also considered less predictable but realistic second order
impacts, such as the impact of Brexit and the erosion of customer
or supplier confidence, which could result in a rapid reduction of
available financial resources.
Based on this work, 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
• the related statement under the Listing Rules as set out on
pages 50 and 100 is materially inconsistent with our audit
knowledge.
We have nothing to report in these respects, and we did not identify
going concern as a key audit matter.
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.
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www.severfield.comStock Code: SFR OverviewGovernanceInformationFinancialsStrategic report 130
INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
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:
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:
• the directors’ confirmation within the viability statement (page
50) 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.
Our work is limited to assessing these matters in the context of only
the knowledge acquired during our financial statements audit. As
we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee as to the
Group’s and Company’s longer-term viability.
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 eleven
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
• 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 121,
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.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 INDEPENDENT AUDITOR’S
REPORT
to the members of Severfield plc
131
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.
David Morritt (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Sovereign Square
Sovereign Street
Leeds
LS1 4DA
19 June 2019
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 general commercial and sector experience and through
discussion with the directors and other management (as required
by auditing standards), and discussed with the directors and other
management the policies and procedures regarding compliance
with laws and regulations. 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.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting legislation
(including related companies legislation), distributable profits and
taxation legislation and we assessed the extent of compliance with
these laws and regulations as part of our procedures on the related
financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation. We identified
the following areas as those most likely to have such an effect:
health and safety, employment law.
Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the
directors and other management and inspection of regulatory and
legal correspondence, if any. These limited procedures did not
identify actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an unavoidable
risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned
and performed our audit in accordance with auditing standards.
For example, the further removed non-compliance with laws and
regulations (irregularities) is from the events and transactions
reflected in the financial statements, the less likely the inherently
limited procedures required by auditing standards would identify it.
In addition, 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. We are not responsible for preventing non-compliance and
cannot be expected to detect non-compliance with all laws and
regulations.
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www.severfield.comStock Code: SFR OverviewGovernanceInformationFinancialsStrategic report 132
CONSOLIDATED INCOME
STATEMENT
Year ended 31 March 2019
Underlying
2019
£000
Note
Non-
underlying
2019
£000
Total
2019
£000
Underlying
2018
£000
Non-
underlying
2018
£000
Total
2018
£000
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
3
4
274,917
(251,661)
23,256
1,650
24,906
(195)
24,711
(4,549)
20,162
6.65p
6.58p
14
7
8
10
10
—
—
—
—
—
—
—
—
—
—
—
274,917
(251,661)
274,203
(251,337)
—
(1,333)
274,203
(252,670)
23,256
22,866
(1,333)
21,533
1,650
24,906
(195)
24,711
(4,549)
882
23,748
(236)
23,512
(4,385)
—
(1,333)
—
(1,333)
352
882
22,415
(236)
22,179
(4,033)
20,162
19,127
(981)
18,146
6.65p
6.58p
6.38p
6.29p
(0.33p)
(0.32p)
6.05p
5.97p
Further details of 2018 non-underlying items are disclosed in note 5 to the consolidated financial statements.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Year ended 31 March 2019
Actuarial (loss)/gain on defined benefit pension scheme*
Gains taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
Exchange difference on foreign operations
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.
133
Note
28
23
23
23
19
2019
£000
(3,702)
540
129
16
624
(2,393)
20,162
2018
£000
3,606
435
(346)
—
(700)
2,995
18,146
17,769
21,141
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www.severfield.comStock Code: SFR OverviewGovernanceInformationFinancialsStrategic report 134
CONSOLIDATED
BALANCE SHEET
At 31 March 2019
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in JVs and associates
Current assets
Inventories
Contract assets, trade and other receivables — due after one year £1,535 (2018: £1,768)
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
Note
2019
£000
2018
£000
11
12
13
14
15
17
20
20
18
20
28
20
19
22
23
54,712
—
83,986
24,335
163,033
8,915
57,117
762
24,979
91,773
254,806
(57,661)
(49)
(928)
(58,638)
(19,972)
—
(1,189)
(21,161)
(79,799)
54,712
103
81,239
18,456
154,510
9,646
56,270
167
33,114
99,197
253,707
(64,225)
(180)
(1,645)
(66,050)
(17,248)
(49)
(1,363)
(18,660)
(84,710)
175,007
168,997
7,600
87,254
3,819
76,334
175,007
7,492
85,702
4,749
71,054
168,997
The consolidated financial statements were approved by the board of directors on 19 June 2019 and signed on its behalf by:
Alan Dunsmore
Chief executive officer
Adam Semple
Group finance director
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Severfield plc Annual report and accountsfor the year ended 31 March 2019
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Year ended 31 March 2019
135
At 1 April 2018
Total comprehensive income for the year
Ordinary shares issued*
Equity settled share-based payments
Dividends paid
At 31 March 2019
Note
21
Share
capital
£000
7,492
—
108
—
—
7,600
Share
premium
£000
85,702
—
1,552
—
—
87,254
Other
reserves
£000
4,749
685
—
(1,615)
—
3,819
Retained
earnings
£000
71,054
17,084
—
1,549
(13,353)
76,334
Total
equity
£000
168,997
17,769
1,660
(66)
(13,353)
175,007
* The issue of shares represents shares allotted to satisfy the 2015 Performance Share Plan award which vested in June 2018 and the 2015 Sharesave scheme.
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
Total
equity
£000
154,157
21,141
21
1,168
(7,490)
168,997
* The issue of shares represents shares allotted to satisfy the 2014 Performance Share Plan award which vested in June and November 2017.
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www.severfield.comStock Code: SFR OverviewGovernanceInformationFinancialsStrategic report 136
CONSOLIDATED CASH FLOW
STATEMENT
Year ended 31 March 2019
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
Proceeds from shares issued
Repayment of obligations under finance leases
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
25
Note
24
2019
£000
14,616
2018
£000
19,039
10
724
(485)
(6,516)
(4,229)
(10,496)
(382)
(13,353)
1,660
(180)
(12,255)
(8,135)
33,114
24,979
—
1,012
(412)
(5,996)
(5,506)
(10,902)
(202)
(7,490)
—
(180)
(7,872)
265
32,849
33,114
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
137
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 177. The registered number of the Company is 1721262. The nature of the Group’s operations and its
principal activities are set out on pages 18 to 23. 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.
• IFRS 9 ‘Financial instruments’ – introduces new requirements for classification and measurement of financial assets and financial
liabilities, impairment methodology and hedge accounting.
• IFRS 15 ‘Revenue from contracts with customers' – provides a single model for measuring and recognising revenue arising from
contracts with customers, unless the contracts are in the scope of other standards, such as IAS 17. It supersedes all existing
revenue requirements in IFRS.
• 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.
• IFRS 2 ‘Share-based payment transactions’ – 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.
• Annual improvements to IFRS Standards 2014-2016 cycle.
IFRS 15 ‘Revenue from contracts with customers’
IFRS 15 ‘Revenue from contracts with customers’ replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’. The directors have
completed a comprehensive assessment, on a sample of the Group’s contracts, of the impact of the new standard and concluded that
no material adjustments were required on initial application. 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 inter-related. 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’.
The new standard has been applied retrospectively without restatement, using the cumulative effect approach. As a result, the Group has
reviewed its opening retained earnings position as at 1 April 2018 and concluded that there are no material adjustments in respect of the
transition to IFRS 15 as the Group’s previous methodology for accounting for contracted revenue is in line with the requirements of IFRS 15,
therefore there has been no quantitative alterations as a result of the new standard.
Further details of the Group’s revenue can be found in note 3.
IFRS 9 ‘Financial instruments’
IFRS 9 replaces IAS 39 ‘Financial instruments: recognition and measurement’ sets out the requirements for recognising and measuring
financial assets and financial liabilities. IFRS 9 introduces new models for the classification of financial assets and accounting for credit
losses for the impairment of financial assets. The Group has adopted IFRS 9 from 1 April 2018 and in accordance with the transitional
provisions of the standard, IFRS 9 was adopted without restating comparative information. The impact of adopting IFRS 9 on the Group’s
retained earnings as at 1 April 2018 was determined to be immaterial and as such no adjustments to the opening balance sheet have been
recorded.
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FINANCIAL STATEMENTS
Year ended 31 March 2019
1. Significant accounting policies continued
The considerations relevant to this assessment are outlined below.
Classification and measurement
No changes were necessary to the classification or remeasurement of the Group’s financial instruments, with derivative instruments
remaining as measured at fair value through the profit and loss (‘FVTPL’), or subject to the accounting provisions for hedge relationships
under IFRS 9 where designated in effective hedge accounting relationships, and all other financial instruments remaining classified as
measured at amortised cost under IFRS 9.
Derivatives and hedging activities
Certain of the Group’s forward foreign currency contracts in place as at 1 April 2018 qualified as cash flow hedges under IFRS 9. The
Group’s risk management strategies and hedge documentation are aligned with the requirements of IFRS 9 and these relationships continue
to be treated as hedges.
Impairment of financial assets
The impairment of financial assets applying the expected credit loss model affects trade receivables and contract assets relating to
construction contracts held by the Group. The Group applies the IFRS 9 simplified approach to measuring expected credit losses, as these
items do not have a significant financing component. There has been no material impact of the application of this new standard as the
Group continues to manage credit risk with the use of insurance.
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 2019.
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.
• IFRIC 23 ‘Uncertainty over income tax treatments’ – addresses the determination of taxable profit, tax bases, tax rates and
unused tax losses and credits, where there is uncertainty over income tax treatments under IAS 12.
• 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 associates and joint ventures’ – amendments to long-term interests in associates and joint ventures.
• IAS 19’ Employee benefits’ – amendments to accounting for curtailments and settlements.
• Annual improvements to IFRS Standards 2015-2017 cycle.
IFRS 16 ‘Leases’
The Group is required to adopt IFRS 16 ‘Leases’ from 1 April 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. There are
recognition exemptions for short-term leases and leases of low-value items.
Leases in which the Group is a lessee
The Group is planning to adopt IFRS 16 using the standard’s modified retrospective approach. Under this approach, the Group will
recognise new assets and liabilities for its operating leases of premises, plant and machinery and vehicles (see note 27). The nature of
expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and
interest expense on lease liabilities.
Based on the information currently available, the Group estimates that it will recognise additional right-of-use assets of £11,200,000 and
lease liabilities of £12,300,000 as at 1 April 2019 with the impact on the opening reserves at 1 April 2019 being £1,100,000. The key
judgement made in calculating these estimates was the discount rate applied.
Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and
liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
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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 50.
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 returns 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 in previous years 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. There are no non-underlying
items in the current financial year.
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.
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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Year ended 31 March 2019
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 arises mainly from contracts for the design, fabrication and construction of structural steelwork. To determine whether to recognise
revenue, the Group applies this five-step process:
1. Identify the contract(s) with the customer;
2. Identify the performance obligations in the contract(s);
3. Determine the transaction price of the contract(s);
4. Allocate the transaction price to each of the separate performance obligations; and
5. Recognise the revenue as each performance obligation is satisfied.
The Group enters into contracts for the design, fabrication and construction of structural steel projects in exchange for the agreed
consideration and recognises the related revenue over time. Due to the high degree of interdependence between the various elements of
these projects, they are accounted for as a single performance obligation. The transaction price is measured based on the consideration
specified in a contract with a customer and, where applicable, the best estimate of any consideration related to modifications to the
contract, which have yet to be agreed. Revenue recognised includes retentions and is net of rebates, discounts and value added tax. To
depict the progress by which the Group transfers control of the construction to the customer, and to
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1. Significant accounting policies continued
establish when and to what extent revenue can be recognised, the Group measures its progress towards complete satisfaction of the
performance obligation by use of the input method (costs to complete). Where a modification to an existing contract occurs, the Group
assesses the nature of the modification and whether it represents a separate performance obligation required to be satisfied or whether it is
a modification to the existing performance obligation. This method is considered to most faithfully depict the transfer of goods and services
to the customer over the life of the performance obligation.
The timing of payment from customers is generally aligned to revenue recognition, subject to agreed invoice terms. The majority of
construction contracts have payment terms based on contractual milestones, which are not necessarily aligned to when revenue is
recognised, particularly for those contracts where revenue is recognised over time using the input method to determine the percentage of
completion. This generally leads to recognition of revenue in advance of customer billings, for which a contract asset is recognised. Where
cash is received from the customer in advance of recognising revenue under a contract, a contract liability is recorded (advance payments
from customers). The practical expedient available under IFRS 15 has been taken, thus the Group does not adjust the promised amount of
consideration for the effects of financing if the timing difference between the satisfaction of the performance obligations under the contract
and the receipt of payment due under the contract are expected to be one year or less.
The general principles for revenue recognition are as follows:
• Revenues on contracts are recognised over time, using the input method, 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 highly probable that the customer will approve the
variation and the amount of revenue arising from the variation, and the amount of revenue can be reliably measured.
• Incentive payments are included in forecast contract revenues when the contract is sufficiently advanced that it is highly 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 highly 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. 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.
The input method is used to determine the percentage of completion 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.
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1. Significant accounting policies continued
Contract assets
Contract assets primarily relate to the Group’s rights to consideration for work completed but not billed at the reporting date on construction
contracts. Contract assets are transferred to receivables when the rights become unconditional. This usually occurs when the Group issues
an invoice to the customer.
Contract liabilities
Contract liabilities primarily relate to the advance payments from customers for construction contracts, for which revenue is recognised over
time.
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 to new members. The liability recognised in the balance sheet
comprises the present value of the defined benefit pension obligation, determined by discounting the estimated future cash flows using the
market yield on a high quality corporate bond, less the fair value of the scheme assets.
The cost of providing benefits recognised within operating costs in the income statement and the defined benefit obligations is determined
at the reporting date by independent actuaries, using the projected unit credit method.
Actuarial gains and losses are recognised in the period in which they occur in the statement of comprehensive income.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
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.
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1. Significant accounting policies continued
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 stated at cost in the balance sheet. Depreciation on buildings is included within operating costs.
Depreciation is provided on other property, plant and equipment to write off the cost of each asset over its estimated useful life at the
following rates:
Freehold buildings
Long leasehold buildings
Plant and machinery
Fixtures, fittings and office equipment
Computer equipment
Motor vehicles
Site safety equipment
1 per cent straight-line
Shorter of 1 per cent straight-line or lease term
10 per cent straight-line
10 per cent written down value
20 per cent straight-line
25 per cent written down value
20 per cent straight-line
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over
the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is included within operating costs.
Intangibles
The Group recognises intangible assets at cost less accumulated amortisation and impairment losses. Intangible assets acquired through
acquisitions arise as a result of applying IFRS 3, which requires the separate recognition of intangible assets from goodwill.
Other acquired intangible assets include software costs.
Intangible assets are amortised on a straight-line basis over their useful economic lives as follows:
Customer relationships
Brands
Know-how
Software costs
Amortisation
period
10 years
25 years
10 years
7 years
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with
an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.
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1. Significant accounting policies continued
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, with
an appropriate allowance for estimated irrecoverable amounts recognised in the income statement in line with the requirements of IFRS 9.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for in the income statement using the effective
interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they
arise. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest over the
relevant period.
Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Share-based payment transactions
The Group issues equity settled share-based payments. These share-based payments are measured at fair value at the date of grant based
on the Group’s estimate of shares that will eventually vest. The fair value determined is then expensed in the consolidated income statement
on a straight-line basis over the vesting period, with a corresponding increase in equity. Further details regarding the determination of the fair
value of equity settled share-based transactions are set out in note 21.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation
at the balance sheet date and, as appropriate, are discounted to present value where the effect is material.
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1. Significant accounting policies continued
Derivative financial instruments and hedge accounting
The Group enters into certain foreign exchange forward contracts to manage its exposure to currency movements. Further details of
derivative financial instruments are disclosed in note 20.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair
value at each balance sheet date. The resulting gain or loss is recognised in profit or loss, except where hedge accounting is used, provided
the conditions specified by IFRS 9 are met. Hedge accounting is applied in respect of hedge relationships where it is both permissible under
IFRS 9 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.
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
recognised 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 contract assets, trade and other receivables
was £47,983,000 (2018: £45,565,000).
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
2. Critical accounting judgements and estimates continued
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 forecast 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.
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 £19,972,000 (2018: £17,248,000).
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
Other operating income (note 4)
Interest received (note 7)
Total income
2019
£000
274,917
982
34
275,933
2018
£000
274,203
700
10
274,913
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
Following the implementation of IFRS 15, the Group presents a disaggregation of its revenue according to the primary geographical markets
in which the Group operates. This disaggregation of revenue is presented for the Group’s one operating segment as noted above.
Revenue by destination:
United Kingdom
Republic of Ireland and mainland Europe
2019
£000
2018
£000
240,875
34,042
274,917
252,080
22,123
274,203
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 147
3. Revenue and segmental analysis continued
Contract balances
The following table provides information about the receivables, contract assets and contract liabilities from contracts with customers:
Receivables which are included in 'contract assets, trade and other receivables'
Contract assets
Contract liabilities (note 16)
2019
£000
47,983
28,419
(1,349)
2018
£000
45,565
32,021
(1,273)
Contract assets primarily relate to the Group’s right to consideration for work completed but not billed at the reporting date on construction
contracts. Contract assets are transferred to receivables when the rights become unconditional. This usually occurs when the Group issues
an invoice to the customer.
The contract liabilities primarily relate to the advance payments from customers for construction contracts, for which revenue is recognised
over time. Included in contract liabilities at the beginning of the financial year was £1,273,000, which has been recognised as revenue for
the year ended 31 March 2019.
There was no revenue recognised in the current financial year from performance obligations satisfied or partially satisfied in previous years.
The table below represents the aggregate amount of the transaction price allocated to be the performance obligations that are unsatisfied
(or partially satisfied) as at 31 March 2019 and have an original expected contract duration of more than one year:
Construction contracts
2020
£000
158,016
2021
£000
25,825
The total transaction price allocated to the remaining performance obligations represents the contracted revenue to be earnt by the Group
for goods and services which the Group has promised to deliver to its customers, where the original contract duration is more than one
year. This includes performance obligations which are partially satisfied at the year end or those which are unsatisfied but which the Group
has committed to providing. In deriving this transaction price, any element of variable revenue is estimated at a value that is highly probable
not to reverse in the future. The practical expedient available under IFRS 15 has been taken and therefore no information is provided for the
transaction price allocated to the remaining performance obligations where the original expected contract duration is one year or less.
Information about major customers
No customers contributed more than 10 per cent of Group revenue in the year ended 31 March 2019. In the prior year, Group revenue
included £55,739,000 and £39,047,000 relating to two major customers, who individually contributed more than 10 per cent of Group
revenue.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
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
Other operating income mainly represents research and development tax credits.
2019
£000
152,986
64,614
28,654
103
2018
£000
142,617
70,237
32,851
138
1,219
1,418
1,277
1,261
3,556
93
(982)
251,661
—
251,661
3,556
100
(700)
251,337
1,333
252,670
21
164
25
23
18
150
16
34
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 £37,000 (2018: £38,000) 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 94 and 95. No services were performed
pursuant to contingent fee arrangements.
5. Non-underlying items
Amortisation of acquired intangible assets (note 12)
Non-underlying items before tax
Tax on non-underlying items
Non-underlying items after tax
2019
£000
—
—
—
—
2018
£000
1,333
1,333
(352)
981
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 previous financial year.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 6. Staff costs
Details of directors’ remuneration for the year are provided in the audited part of the directors’ remuneration report on page 112.
The average number of persons employed by the Group (including executive directors) during the year was:
Production and site
Sales and administration
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
Employee remuneration costs under share-based payment schemes are set out in note 21.
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
Impact of reduction in future years’ tax rates
Adjustments to prior years’ provisions
2019
Number
1,132
142
1,274
2019
£000
55,988
6,096
2,530
64,614
2019
£000
(34)
229
195
2019
£000
(3,721)
(378)
(4,099)
(625)
—
175
(450)
(4,549)
149
2018
Number
1,221
133
1,354
2018
£000
61,290
6,707
2,240
70,237
2018
£000
(10)
246
236
2018
£000
(3,047)
(176)
(3,223)
(963)
99
54
(810)
(4,033)
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
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 at standard UK corporation tax rate
Expenses not deductible for tax purposes
Tax effect of share of results of JVs and associates
Adjustments to prior years’ provisions
Rate differences
Corporation tax was calculated at 19 per cent (2018: 19 per cent) of the estimated taxable result for the year.
9. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2018 of 1.7p per share (2017: 1.6p)
Special dividend for the year ended 31 March 2018 of 1.7p per share (2017: nil)
Interim dividend for the year ended 31 March 2019 of 1.0p per share (2018: 0.9p)
2019
£000
24,711
(4,695)
36
313
(203)
—
(4,549)
2019
£000
5,158
5,158
3,036
13,353
2018
£000
22,179
(4,214)
165
39
(122)
99
(4,033)
2018
£000
4,793
—
2,697
7,490
The directors are recommending a final dividend in respect of the financial year ended 31 March 2019 of 1.8p per share, which will amount
to an estimated dividend payment of £5,475,000. If approved by the shareholders at the annual general meeting on 3 September 2019, this
dividend will be paid on 13 September 2019 to shareholders who are on the register of members at 16 August 2019. The final dividend is
not reflected in the balance sheet as at 31 March 2019 as it is subject to shareholder approval.
10. Earnings per share
Earnings per share is calculated as follows:
Earnings for the purposes of basic earnings per share being net profit
attributable to equity holders of the parent Company
Earnings for the purposes of underlying basic earnings per share being underlying
net profit attributable to equity holders of the parent Company
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
Basic earnings per share
Underlying basic earnings per share
Diluted earnings per share
Underlying diluted earnings per share
2019
£000
2018
£000
20,162
18,146
20,162
19,127
Number
Number
303,092,067
3,170,237
306,262,304
299,682,810
4,520,463
304,203,273
6.65p
6.65p
6.58p
6.58p
6.05p
6.38p
5.97p
6.29p
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 10. Earnings per share continued
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
151
2018
£000
18,146
981
19,127
£000
47,980
6,571
161
54,712
2019
£000
20,162
—
20,162
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 (2018: 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 (2018: 10 per cent).
Following the impairment reviews performed by the Group, no impairment charge was recorded in the year ended 31 March 2019.
Management has analysed a number of sensitivity scenarios 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 2019.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
12. Other intangible assets
At 1 April 2017, 1 April 2018 and 31 March 2019
Amortisation
At 1 April 2017
Charge for the year
At 1 April 2018
Charge for the year
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
Intangible
assets
acquired on
acquisition
£000
39,000
Other
intangible
assets
£000
1,033
37,667
1,333
39,000
—
39,000
792
138
930
103
1,033
Total
£000
40,033
38,459
1,471
39,930
103
40,033
—
—
—
103
—
103
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 2017, 1 April 2018 and 31 March 2019
25,800
3,200
9,600
400
39,000
Customer
relationships
£000
Brands
£000
Order
book
£000
Know-how
£000
Total
£000
Amortisation
At 1 April 2017
Charge for the year
At 1 April 2018
Charge for the year
At 31 March 2019
24,487
1,313
25,800
—
25,800
3,200
—
3,200
—
3,200
9,600
—
9,600
—
9,600
380
20
400
—
400
37,667
1,333
39,000
—
39,000
Net book value
At 31 March 2018 and 31 March 2019
—
—
—
—
—
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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Severfield plc Annual report and accountsfor the year ended 31 March 2019 153
13. Property, plant and equipment
Cost
At 1 April 2017
Additions
Disposals
At 1 April 2018
Additions
Disposals
At 31 March 2019
Accumulated depreciation
At 1 April 2017
Charge for the year
Disposals
At 1 April 2018
Charge for the year
Disposals
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
Freehold
and long
leasehold
land and
buildings
£000
65,869
412
—
66,281
485
(10)
66,756
4,954
536
—
5,490
551
—
6,041
Plant
and
machinery
£000
Fixtures,
fittings
and office
equipment
£000
Motor
vehicles
£000
40,995
3,719
(4,934)
39,780
3,191
(1,076)
41,895
25,830
2,628
(4,573)
23,885
2,461
(508)
25,838
4,611
2,277
(964)
5,924
3,158
—
9,082
1,940
428
(918)
1,450
578
—
2,028
291
—
(53)
238
167
(178)
227
133
64
(38)
159
59
(151)
67
Total
£000
111,766
6,408
(5,951)
112,223
7,001
(1,264)
117,960
32,857
3,656
(5,529)
30,984
3,649
(659)
33,974
60,715
60,791
16,057
15,895
7,054
4,474
160
79
83,986
81,239
The net book value of the Group’s plant and machinery includes £184,000 (2018: £602,000) 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
Construction Metal Forming Limited — Manufacturer of cold rolled metal products
Holding
%
Class of
capital
25.0
Ordinary
50.0
50.0
Ordinary
Ordinary
In 2008 a formal agreement was signed in India with JSW Building Systems Limited (a subsidiary of JSW Steel Limited of India) to form
a 50/50 joint venture, JSW Severfield Structures Limited, to create a structural steelwork business in Bellary and Mumbai, India, serving
primarily the Indian market.
JSW Severfield Structures Limited is registered in India. During the year, the Group invested a further £4,229,000 in the joint venture to
support the expansion of the Bellary facility (which was matched by our joint venture partner, JSW Steel). During the prior year, the Group
invested £5,506,000 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 JSW Steel.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
14. Interests in JVs and associates continued
The Group did not make any further investments in either CMF Limited, or Fabsec Limited during the year (2018: £nil).
At 1 April 2017
Profit retained
Investments made during the year
At 1 April 2018
Profit retained
Investments made during the year
At 31 March 2019
Share of
net assets/
(liabilities)
£000
6,742
882
5,506
13,130
1,650
4,229
19,009
Goodwill
£000
5,326
—
—
5,326
—
—
5,326
The Group’s share of the retained profit for the year of JVs and associates is made up as follows:
Share of results
2019
2018
Fabsec
Limited
£000
—
—
JSW Severfield
Structures Limited
£000
1,225
532
CMF
Limited
£000
425
350
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
Groups share of net (liabilities)/assets
Goodwill
Accounting policy alignment
Carrying amount of interest in JVs and associates
Revenue
Depreciation and amortisation
Net finance expense
Taxation
Profit after tax
Group's share of profit after tax
* Includes cash and cash equivalents of £12,853,000 (2018: £2,477,000).
Fabsec
Limited
£000
1,098
66
(5)
(2,239)
(1,080)
(270)
–
270
–
188
(64)
–
7
–
–
JSW Severfield
Structures Limited
£000
80,710*
24,651
(75,046)
(541)
29,774
14,887
–
1,224
16,111
84,130
(1,645)
(2,230)
(1,030)
2,450
1,225
CMF
Limited
£000
10,063
4,581
(7,186)
(1,703)
5,755
2,878
5,326
20
8,224
26,603
(32)
(118)
(213)
850
425
2019
£000
91,871
29,298
(82,237)
(4,483)
34,449
17,495
5,326
1,514
24,335
110,921
(1,741)
(2,348)
(1,236)
3,300
1,650
There were no contingent liabilities or capital commitments (2018: none) associated with the Group’s JVs and associates.
Total
£000
12,068
882
5,506
18,456
1,650
4,229
24,335
Total
£000
1,650
882
2018
£000
59,111
27,785
(60,175)
(4,673)
22,048
11,294
5,326
1,836
18,456
67,532
(1,782)
(3,286)
(605)
1,764
882
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 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 contract assets, 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. Contract assets, trade and other receivables
Amounts due from construction contract customers (note 16):
Trade receivables and other*
Contract assets
Total
Other receivables
Prepayments and accrued income
Amounts due from JVs and associates
155
2019
£000
6,315
2,600
8,915
2019
£000
2018
£000
4,971
4,675
9,646
2018
£000
47,983
(1,349)
46,634
45,565
(1,273)
44,292
279,423
(232,789)
46,634
368,571
(324,279)
44,292
2019
£000
2018
£000
19,564
28,419
47,983
1,479
5,498
2,157
57,117
13,544
32,021
45,565
1,941
5,758
3,006
56,270
* Included in trade receivables and other is £1,535,000 (2018: £1,768,000) relating to retentions due after one year.
The average credit period taken on revenue, calculated on a count-back basis to make appropriate allowance for monthly revenue phasing,
is 66 days (2018: 52 days). No interest is charged on receivables.
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Before accepting any new customer, the Group uses an external credit rating agency to assess the potential customer’s credit quality and
defines credit limits by customer. It is Group policy that adequate credit insurance is taken out on all customers to manage the exposure
that may arise as the contractual work proceeds. 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. The Group has rigorous procedures in place
for monitoring and obtaining settlement of retentions in a prompt manner. Overdue retentions at 31 March 2019 were £57,000 (2018:
£278,000).
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
18. Trade and other payables
Trade creditors
Other taxation and social security
Other creditors and accruals
Payments in advance (note 16)
Amounts owed to JVs and associates
2019
£000
36,687
5,540
12,889
1,349
1,196
57,661
2018
£000
37,318
5,291
19,631
1,273
712
64,225
Other creditors and accruals in the current and prior years include the outstanding purchase consideration for CMF Limited of £2,000,000
(2018: £2,500,000), which is payable over the next four years, subject to certain conditions beyond the Group's control.
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 52 days (2018: 42 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
2019
£000
(5,458)
4,269
(1,189)
2018
£000
(5,364)
4,001
(1,363)
Deferred tax is disclosed in the balance sheet as a deferred tax liability in the current and prior years.
At 1 April 2017
(Charge)/credit to income statement
Effect of change in tax rate
Charge to other comprehensive income
At 1 April 2018
(Charge)/credit to income statement
Credit/(charge) to other comprehensive
income
At 31 March 2019
Excess
capital
allowances
£000
(5,294)
(169)
99
—
(5,364)
(94)
Acquired
intangible
assets
£000
(253)
253
—
—
—
—
Retirement
benefit
obligations
£000
3,639
(95)
—
(613)
2,931
(166)
—
(5,458)
—
—
629
3,394
Trading
losses
£000
1,029
(1,029)
—
—
—
153
—
153
Other
temporary
differences
£000
1,025
132
—
(87)
1,070
(343)
(5)
722
Total
£000
146
(908)
99
(700)
(1,363)
(450)
624
(1,189)
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.
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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 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
2019
£000
24,979
226
(49)
25,156
175,007
N/A
2018
£000
33,114
83
(229)
32,968
168,997
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
Underlying operating profit (before JVs and associates)
Share of results of JVs and associates
Capital employed:
Shareholders’ equity
Cash and cash equivalents
Borrowings
Net funds (for ROCE purposes)
Retirement benefit obligations (net of deferred tax) (note 28)
Average capital employed
Return on capital employed
Categories of financial instruments
Financial assets
Cash and cash equivalents
Trade receivables and other (note 17)
Derivative financial instruments
Financial liabilities
Trade creditors (note 18)
Other creditors and accruals (note 18)
Finance leases
2019
£000
23,256
1,650
24,906
175,007
(24,979)
49
(24,930)
16,577
166,654
158,541
15.7%
2018
£000
22,866
882
23,748
168,997
(33,114)
229
(32,885)
14,317
150,429
144,294
16.5%
Carrying value
2019
£000
2018
£000
24,979
19,564
762
(36,687)
(12,889)
(49)
33,114
13,544
167
(37,318)
(19,631)
(229)
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158
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
20. Financial instruments continued
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.
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 2019 were £4,559,000 (2018: £4,827,000).
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.
Consideration of potential future events is taken into account when deciding when, and how much, to impair the Group’s contract assets
and trade receivables. The Group does not expect to report credit losses which would materially impact the income statement. In recent
reporting periods credit losses in the income statement have been immaterial. In addition, the Group takes out credit insurance for the
majority of the Group’s debt profile.
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.
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20. Financial instruments continued
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.
On 31 October 2018, the Group refinanced its existing borrowing facilities of £25,000,000 with HSBC Bank plc and Yorkshire Bank.
The new facility, also a £25,000,000 revolving credit facility (‘RCF’), matures in October 2023. The facility continues to include 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 new facility
is subject to certain covenants including the cover of interest costs and the ratio of net debt to EBITDA.
As at 31 March 2019, £25,000,000 (2018: £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 trade creditors and other creditors
and accruals.
Maturity analysis
Carrying
value
£000
Less than
3 months
£000
3 months
to 1 year
£000
1–2
years
£000
49,576
49
49,625
56,949
229
57,178
47,142
49
47,191
51,664
45
51,709
2,081
—
2,081
5,032
135
5,167
49
—
49
49
49
98
2–5
years
£000
304
—
304
204
—
204
Total
£000
49,576
49
49,625
56,949
229
57,178
Liabilities – 2019
Trade and other payables
Financial liabilities — finance leases
Liabilities – 2018
Trade and other payables
Financial liabilities — finance leases
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
20. Financial instruments continued
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
2019
£000
(4,636)
(10)
(4,646)
2018
£000
(1,830)
(10)
(1,840)
2019
£000
4,380
16
4,396
2018
£000
13,004
25
13,029
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
2019
£000
(1)
2018
£000
(1)
2019
£000
1,838
2018
£000
1,817
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.
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 2019,
derivatives designated as cash flow hedges had a net carrying amount of £762,000 (2018: £167,000) and recognised total gains of
£669,000 (2018: £89,000) in equity and losses of £74,000 (2018: £31,000) in profit and loss in the period.
At 31 March 2019, the Group had forward exchange contracts of 20.4m euros (2018: 33.1m euros) at an average exchange rate of
€1.126/£ (2018: €1.129/£) 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 market risk 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.
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20. Financial instruments continued
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 2019
and the Group’s equity at that date would decrease by £nil (2018: £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, under 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
111 to 120.
Performance share plan
The vesting of awards is subject to performance conditions set by the remuneration committee. The Group recognised a total charge of
£472,000 for the year (2018: £1,270,000) with a corresponding entry to reserves. The weighted average fair value of share options granted
during the year was £0.76 per share. Three outstanding awards had been granted to 31 March 2019:
• During the year ended 31 March 2017 the remuneration committee granted 3,573,293 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 ended 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 £422,000 (2018: £301,000).
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
21. Share-based payments continued
• During the year ended 31 March 2018 the remuneration committee granted 2,261,000 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 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 £50,000 (2018: £522,000).
• During the period ended 31 March 2019 the remuneration committee granted 2,224,808 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 2018 to 31 March 2021. The following vesting schedule applies:
Underlying EPS performance for year ending 31 March 2021
Equal to less than 7.88p
Equal to 9.75p or better
Between 7.88p and 9.75p
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 20 June 2018.
% of award vesting
0%
100%
between 25% and 100%
£0.84*
nil
37%
0.8%
3.0p
three years
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £nil (2018: £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
2019
Number
7,297,044
2,224,808
(244,921)
(2,192,691)
7,084,240
2018
Number
8,004,458
2,261,100
(1,319,483)
(1,649,031)
7,297,044
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 163
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. During the financial year, the options granted under the 2015 Sharesave scheme became exercisable.
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 (2018: £135,000) was recognised in the current period in relation to the 2017 Sharesave scheme.
Under the 2018 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 2018 Sharesave scheme in 2021, these options will become exercisable for a period of six
months. A charge of £183,000 (2018: £nil) was recognised in the current period in relation to the 2018 Sharesave scheme.
Reconciliation of share awards outstanding under the Sharesave 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:
303,984,746 ordinary shares of 2.5p each (2018: 299,682,810 ordinary shares of 2.5p each)
2019
Number
5,771,734
2,622,874
(1,090,436)
(3,079,972)
4,224,200
2018
Number
3,330,809
2,880,236
(383,319)
(55,992)
5,771,734
2019
£000
2018
£000
7,600
7,492
The ordinary shares carry no right to fixed income. There are no share options outstanding as at 31 March 2019 (2018: nil).
23. Other reserves
At 1 April 2017
Share-based payments
Gains taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
At 31 March 2018
Share-based payments
Gains taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
Exchange difference on foreign operations
At 31 March 2019
Share-based
payment reserve
£000
3,554
950
–
–
4,504
(1,615)
–
–
–
2,889
Capital
redemption
reserve
£000
139
–
–
–
139
–
–
–
–
139
Hedge
accounting
reserve
£000
17
–
435
(346)
106
–
540
129
–
775
Currency
translation
reserve
£000
–
–
–
–
–
–
–
–
16
16
Total
£000
3,710
950
435
(346)
4,749
(1,615)
540
129
16
3,819
The movement in the share-based payment reserve represents the share-based payment charge of £790,000 (2018: £1,770,000) offset by
the recycle to retained earnings of £576,000 for share awards vested in 2018 and £857,000 for tax paid on these awards and £972,000 for
the 2015 Sharesave Scheme which became exercisable during the financial year.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
24. Net cash flow from operating activities
Operating profit from continuing operations
Adjustments:
Depreciation of property, plant and equipment (note 13)
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
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
(Increase)/decrease in receivables
Decrease in payables
Cash generated from operations
Tax paid
Net cash flow from operating activities
Cash generated from operations
Proceeds on disposal of land and buildings
Proceeds on disposal of other property, plant and equipment
Purchases of land and buildings
Purchases of other property, plant and equipment
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
2019
£000
24,906
3,649
(129)
103
(978)
(1,650)
(66)
25,835
731
(1,969)
(6,625)
17,972
(3,356)
14,616
2019
£000
17,972
10
724
(485)
(6,516)
11,705
23,256
50%
2019
£000
24,979
226
(49)
25,156
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
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
legal or contractual 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 2019 this amounted to £nil (2018: £nil). The Group has also given performance bonds in the normal course
of trade.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019
27. Operating lease arrangements
The Group as lessee
The Group leases a number of its premises under operating leases which expire between 2019 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
2019
£000
1,153
4,316
10,297
15,766
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
2019
£000
968
1,197
—
2,165
165
2018
£000
996
4,024
10,839
15,859
2018
£000
1,168
1,146
1
2,315
The Group as lessor
The Group's property rental operating leases expired at the end of the 2018 financial year, as a result no property rental income was earned
on owned properties in the current year (2018: £69,000).
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 £2,304,000 (2018: £1,896,000) represents contributions payable to these schemes by the Group at
rates specified in the rules of the plans. As at 31 March 2019, contributions of £370,000 (2018: £367,000) due in respect of the current
reporting period had not been paid over to the schemes.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
28. Retirement benefit obligations continued
Defined benefit schemes
The Group has a defined benefit scheme which is now closed to new members and no defined benefit membership rights will accrue under
the scheme.
The scheme exposes the Group to actuarial and other risks, the most significant of which are considered to be:
Investment risk The present values of the scheme liabilities are calculated using a discount rate determined by reference to
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.
Interest risk
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.
Longevity risk
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.
Salary risk
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 was carried out at 5 April 2017
by Mr Christopher Hunter, Fellow of the Institute of Actuaries. The present value of the defined benefit obligation, the related current service
cost and past service cost were measured using the projected unit credit method.
Key assumptions used:
Discount rate
Inflation (RPI)
Future pension increases
2019
%
2.4
3.4
3.2
2018
%
2.6
3.3
3.2
When considering mortality assumptions a life expectancy to 85 at age 65 has been used for the year ended 31 March 2019
(2018: 84).
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 4.1%
Increase by 3.9%
Amounts recognised in income in respect of these defined benefit schemes are as follows:
Interest cost
Interest income
2019
£000
1,065
(635)
430
2018
£000
1,222
(659)
563
The charge for the year has been included in operating costs. Actuarial gains and losses have been reported in the statement of
comprehensive income. The cumulative actuarial gains and losses recognised amount to a loss of £20,186,000 (2018: £16,484,000).
The actual return on scheme assets was a gain of £1,286,000 (2018: £171,000).
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 167
28. Retirement benefit obligations continued
The amount included in the balance sheet arising from the Group’s obligations in respect of the defined benefit retirement scheme is as
follows:
Present value of defined benefit obligations
Fair value of scheme assets
The major categories of scheme assets as a percentage of the total scheme assets are as follows:
Equities
Bonds and gilts
Cash
Property
Other
2019
£000
(45,561)
25,589
(19,972)
2018
£000
(41,818)
24,570
(17,248)
2019
%
16.6
59.8
2.3
9.8
11.5
100.0
2018
%
23.4
48.4
14.4
9.6
4.2
100.0
Bonds and gilts include a mixture of corporate and government bonds and fixed and index-linked gilts. Approximately one per cent of
bonds have a sub-investment grade credit rating (BB+ or lower) and approximately 93 per cent of gilts are index-linked, with seven per cent
being fixed.
Movements in the present value of defined benefit obligations were as follows:
At start of year
Interest cost
Actuarial (losses)/gains
Benefits paid
At end of year
2019
£000
(41,818)
(1,065)
(4,353)
1,675
(45,561)
2018
£000
(45,816)
(1,222)
4,094
1,126
(41,818)
Actuarial losses arising from changes in demographic assumptions, changes in financial assumptions and gains or losses arising from
experience were losses of £2,917,000 (2018: gains of £3,730,000), losses of £1,452,000 (2018: gains of £164,000) and gains of £16,000
(2018: gains of £200,000) respectively.
Movements in the fair value of scheme assets were as follows:
At start of year
Interest income
Actuarial gains/(losses)
Employer contributions
Benefits paid
At end of year
2019
£000
24,570
635
651
1,408
(1,675)
25,589
2018
£000
24,402
659
(488)
1,123
(1,126)
24,570
The Group expects to contribute £128,000 (2018: £97,000) per month to its defined benefit pension scheme in the year to
31 March 2020.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Year ended 31 March 2019
28. Retirement benefit obligations continued
History of experience of gains and losses:
Experience gains/(losses) on scheme assets (£000)
Percentage of scheme assets
Experience losses/(gains) on scheme liabilities (£000)
Percentage of the present value of scheme liabilities
Total amount recognised in the consolidated
statement of comprehensive income (£000)
Percentage of the present value of scheme liabilities
2019
651
2.5%
16
0.0%
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%)
(3,702)
(8.1%)
3,606
8.6%
(7,412)
(16.2%)
1,300
3.5%
(4,471)
(11.5%)
The weighted average period over which benefits are expected to be paid, or the duration of the liabilities, is currently 17 years.
29. Related party transactions
The remuneration of the directors is provided in the audited part of the directors’ remuneration report on page 112.
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
2019
£000
2,095
143
2,238
2018
£000
1,863
123
1,986
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 £48,000 (2018:
£42,000). The amount due to Fabsec at 31 March 2019 was £117,000 (2018: £117,000).
During the year the Group has contracted with and purchased services from Construction Metal Forming Limited (‘CMF’) amounting
to £11,691,000 (2018: £3,650,000). The amount due from and to CMF at 31 March 2019 was £1,300,000 (2018: £2,544,000) and
£1,060,000 (2018: £595,000) 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
£418,000 (2018: £478,000). Those costs were recharged to JSSL during the year and the amount due from JSSL at
31 March 2019 was £857,000 (2018: £746,000). During the year the Group contracted with and purchased services from JSSL amounting
to £35,000 (2018: £nil). The amount due to JSSL at 31 March 2019 was £18,000 (2018: £nil).
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 FIVE YEAR
SUMMARY
169
Results
Revenue
Underlying* operating profit (before JVs and associates)
Underlying* profit before tax
Non-underlying items before tax
Profit 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
2019
£000
2018
£000
2017
£000
2016
£000
2015
£000
274,917
23,256
24,711
—
274,203
22,866
23,512
(1,333)
262,224
19,614
19,845
(1,790)
239,360
13,686
13,211
(3,568)
201,535
8,974
8,311
(8,502)
20,162
18,146
15,329
8,600
144
163,033
33,135
(21,161)
175,007
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
6.65p
6.65p
6.58p
6.58p
2.80p
2.5
88.20p
64.60p
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
* The basis of stating results on an underlying basis is set out on page 5. Dividend cover for the current year excludes the special dividend for the year ended 31 March
2018.
FINANCIAL
CALENDAR
Preliminary announcement of full-year results
Publication of annual report
Annual general meeting
Announcement of interim results (provisional)
19 June 2019
August 2019
3 September 2019
26 November 2019
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170
COMPANY
BALANCE SHEET
Year ended 31 March 2019
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
2019
£000
2018
£000
2
3
4
5
57,696
—
104,093
161,789
61,049
905
61,954
(95,705)
(33,751)
128,038
7,600
87,254
2,989
30,195
128,038
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
The Company reported a profit for the financial year ended 31 March 2019 of £20,642,000 (2018: £12,047,000).
The financial statements were approved by the board of directors on 19 June 2019 and signed on its behalf by:
Alan Dunsmore
Chief executive officer
Adam Semple
Group finance director
Severfield plc
Registered in England No.1721262
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 COMPANY STATEMENT OF
CHANGES IN EQUITY
Year ended 31 March 2019
171
At 1 April 2018
Total comprehensive income for the year
Ordinary shares issued*
Equity settled share-based payments
Dividends paid
At 31 March 2019
Share
capital
£000
7,492
—
108
—
—
7,600
Share
premium
£000
85,702
—
1,552
—
—
87,254
Other
reserves
£000
4,604
—
—
(1,615)
—
2,989
Retained
earnings
£000
21,357
20,642
—
1,549
(13,353)
30,195
Total
equity
£000
119,155
20,642
1,660
(66)
(13,353)
128,038
* The issue of shares represents the shares allotted to satisfy the 2015 Performance Share Plan award, which vested in June 2018 and the 2015 Sharesave scheme.
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
Total
equity
£000
113,298
12,047
21
111
1,168
(7,490)
119,155
* The issue of shares represents shares allotted to satisfy the 2014 Performance Share Plan award which vested in June and November 2017.
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
For the year ended 31 March 2019
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 112 and in notes 6 and 21 to the consolidated financial statements.
Investments
Investments in subsidiaries, joint ventures and associates are stated at cost less, where appropriate, provisions for impairment.
Amounts owed by subsidiary undertakings
The Company holds intercompany loans with subsidiary undertakings which are repayable on demand. None of these loans are past due
nor impaired. The carrying value of these loans approximates their fair value.
Intercompany guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other Group companies, the Company
considers these to be insurance arrangements and accounts for them as such. In this respect the Company treats the guarantee contract
as a contingent liability until such time it becomes probable that the Company will be required to make a payment under the guarantee.
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 173
Total
£000
63,795
3
(10)
63,788
5,554
538
6,092
57,696
58,241
Freehold
and long
leasehold
land and
buildings
£000
Fixtures,
fittings
and office
equipment
£000
Motor
vehicles
£000
63,298
—
(10)
63,288
5,429
485
5,914
57,374
57,869
464
3
—
467
100
51
151
316
364
33
—
—
33
25
2
27
6
8
2. Tangible fixed assets
Cost
At 1 April 2018
Additions
Disposals
At 31 March 2019
Depreciation
At 1 April 2018
Charge for the year
At 31 March 2019
Net book value
At 31 March 2019
At 31 March 2018
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. The rental income from these assets in the current year was £600,000 (2018: £600,000), which is set at a rate only
to cover certain of the costs of maintaining the properties.
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
For the year ended 31 March 2019
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 2019 is disclosed below. All of these had a reporting period ended 31 March 2019, except
where indicated.
Incorporated in
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
Construction Metal Forming Limited (formerly Composite Metal Flooring Limited) *(iv) England and Wales
50% owned by Severfield Mauritius Limited
JSW Severfield Structures Limited(v)
25% owned by Severfield plc
Fabsec Limited*(vi)
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
Class of capital
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
* Companies with a reporting period ended 31 December 2018.
‡ 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
Investment in subsidiaries
Investment in joint ventures
2019
£000
73,610
30,483
104,093
2018
£000
73,610
26,254
99,864
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 3. Investments continued
Investment in subsidiaries
Cost
At 1 April 2018 and 31 March 2019
Provision for impairment
At 1 April 2018 and 31 March 2019
Net book value
At 31 March 2019
At 31 March 2018
175
£000
93,810
(20,200)
73,610
73,610
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 £4,229,000 in the joint venture
to fund the expansion of the production facility in Bellary. During the prior year, the Company invested £5,506,000 in JSSL 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.
The Company did not make any further investments in CMF Limited during the year (2018: £nil).
Cost
At 1 April 2018
Additions
At 31 March 2019
£000
26,254
4,229
30,483
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
For the year ended 31 March 2019
4. Debtors — amounts falling due within one year
Other debtors
Amounts owed by subsidiary undertakings
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)
2019
£000
1,333
56,536
3,180
61,049
2019
£000
7,020
84,541
4,144
95,705
2018
£000
1,534
49,919
1,945
53,398
2018
£000
7,304
83,468
3,774
94,546
During the previous year, amounts of £656,000 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 2017
Current year credit
Credit to equity
Effect of change in tax rate
At 1 April 2018
Current year credit
Charge to equity
At 31 March 2019
2019
£000
(4,716)
572
(4,144)
Excess
capital
allowances
£000
(4,849)
49
—
40
(4,760)
44
—
(4,716)
Other
temporary
differences
£000
1,000
73
(87)
—
986
(409)
(5)
572
2018
£000
(4,760)
986
(3,774)
Total
£000
(3,849)
122
(87)
40
(3,774)
(365)
(5)
(4,144)
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 2019 these amounted to £nil (2018: £nil).
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 177
177
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
Construction Metal Forming Limited
(formerly 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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178
SHAREHOLDER
NOTES
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Severfield plc Annual report and accountsfor the year ended 31 March 2019 26620
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www.severfield.comStock Code: SFR Severfield plc
Severs House
Dalton Airfield Industrial Estate
Dalton, Thirsk
North Yorkshire
YO7 3JN
Tel: (01845) 577896
Fax: (01845) 577411
www.severfield.com
Severfield AR2019 Strategic and Governance.indd 1
26620
18 July 2019 3:24 pm
Proof 12
l
S
e
v
e
r
f
i
e
d
p
c
A
n
n
u
a
l
l
r
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
M
a
r
c
h
2
0
1
9
25/07/2019 10:13:04
26620
18 July 2019 3:24 pm
Proof 12