Severfield plc
Annual report and accounts
for the year ended 31 March 2020
DELIVERING
SUSTAINABLE
GROWTH FROM A
STRONG FOUNDATION
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2
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SUSTAINABLE
GROWTH IN
NUMBERS
Delivering on our promises
2020 strategic profit target
of £26m exceeded
2019
2018
£23.5
MILLION
£24.7
MILLION
2017
£19.8
MILLION
£28.6
MILLION
Read more about
our operating
performance on
pages 50 to 57
Strong UK and Europe order book
2019
2020
2018
£237
MILLION
2017
£229
MILLION
£271
MILLION
£295
MILLION
WELCOME TO
OUR ANNUAL
REPORT 2020
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.
WE CONTINUE TO MAKE PROGRESS IN
EXECUTING OUR STRATEGY WHICH IS
UNDERPINNED BY OUR MARKET-LEADING
POSITIONS, OUR STRONG BALANCE SHEET
AND THE QUALITY OF OUR WORKFORCE
AND SENIOR LEADERSHIP TEAMS.
WE ARE CONTINUING TO DELIVER ON OUR
STRATEGIC OBJECTIVES AND, IN ACHIEVING
AN UNDERLYING PROFIT BEFORE TAX OF
£28.6M, WE HAVE SURPASSED OUR 2020
STRATEGIC PROFIT TARGET.
John Dodds
Non-executive chairman
Alan Dunsmore
Chief executive officer
Read more about our chairman’s view
on pages 12 and 13
Read more about our strategy
on pages 36 to 44
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
Contents
Overview
A snapshot of what we do and how we do it
Our structural framework
Our year in review
Our response to COVID-19
Building on our strong foundations
Chairman’s view
Our unique offering
The scale of our operations
Strategic report
How we create value
The markets we serve
Our market sectors
The markets we serve: India
Engaging with stakeholders
Our strategy
Key performance indicators
Our operating performance
Our financial performance
Building a sustainable business
How we manage risk
Section 172 statement
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
02
04
06
08
10
12
14
16
22
26
30
32
34
36
46
50
58
64
74
87
90
92
96
98
110
114
116
120
123
133
143
146
154
155
156
157
158
159
195
195
196
197
198
203
www.severfield.com
Stock Code: SFR
01
LORD’S CRICKET GROUND -
COMPTON AND EDRICH STANDS
REDEVELOPMENT
This redevelopment sees
the traditional ‘home
of cricket’ modernised,
with the existing stands,
originally supplied and
erected by the Severfield
Group in 1991, replaced
by two larger, more
accessible stands either
side of the iconic J.P
Morgan Media Centre.
Location
St John’s Wood, London
Client
Marylebone Cricket Club
Main contractor
ISG Construction
Engineer
Buro Happold
Architect
Wilkinson-Eyre Architects
Tonnage
2,300
Completion date
November 2020
The project
The development is part of
Marylebone Cricket Club’s (‘MCC’)
ongoing masterplan to redevelop
the world-famous and historic
Lord’s Cricket Ground. The new
Compton and Edrich stands
are both three-tiered structures
complete with feature canopies
above the upper tiers. Together
they will accommodate c.11,500
spectators and be linked at the
second-tier level by a connecting
walkway overlooking the Nursey
Ground. The walkway will be 40m
long by 3.5m-wide and supported on
a single row of 7.5m-high columns.
The newly developed stands will
increase the ground’s overall capacity
by c.2,500 seats, with three per
cent of all seating being accessible
for wheelchairs and those with
restricted mobility. In addition to vastly
improving spectators’ sightlines and
reducing the amount of restricted
view seats, the upgraded stands
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Severfield plc will also feature modern corporate
and hospitality areas. The Group
is responsible for the project’s
steelwork connection design,
detailing and supply and erection of
2,300 tonnes of structural steel and
steel stairs together with the erection
of precast components including
the terrace units and vomitory walls.
Construction on this phase of the
MCC masterplan began in August
2019, after the final international
cricket match of the season and
the Group began steel erection in
December 2019 and continued
during the off-season to March
2020. The erection of the canopy
is planned for late 2020, after the
completion of the 2020 cricket
season in October.
Among the largest elements
within each of the stands are the
main supporting columns, which
are typically large box sections
fixed with Macalloy bar anchor
assemblies. Positioned in the middle
of each stand, the columns sit
towards the back of the lower-tier
and provide support for the 7m-wide
cantilevering seating area of the
second-tier as well as the underside
of the uppermost seating level. The
project involved highly complex
fabrication in order to resolve steel
with precast geometry, as sections
of the precast concrete terrace units
are set to a parabolic curve.
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GOOGLE HEADQUARTERS,
KING’S CROSS
This project involved the
design and construction
of the purpose built
11-storey structure as
a new headquarters for
Google, the first wholly
owned and designed
Google building outside
the US.
Location
King’s Cross, London
Client
Google UK
Contract manager
Lendlease Construction
(Europe)
Engineer
AKT II
Architect
Bjarke Ingels Group/
Heatherwick Studio
Tonnage
16,441
Completion date
June 2021
The project
The new steel-framed, structurally
glazed building is being developed
from the ground up and will
contribute to the Knowledge
Quarter and King’s Cross’s growing
knowledge-based economy. The
completed building’s width will
vary from 60m-wide to the north
to just 20m-wide to the south over
its 330m length and will provide
c.650,000 square feet of office
space, including the roof structure
which will accommodate a garden
area, amenity space, a multi-use
games area and a 25m pool. The
structure is being developed around
five concrete cores containing lift
shafts, from which the floors of the
frame attach and carry a proportion
of the overall weight. The frame also
incorporates over-arching roof trusses
which, via a series of hangers, carry
the weight of the extremities of each
level of the structure.
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Severfield plc The Group is responsible for the
member frame connection design,
fabrication and erection of c.16,000
tonnes of fire-protection treated
structural steel. The on-site erection
programme includes a temporary
works scheme and sequential
installation of precast concrete floor
planks and cross-laminated floor
planks. Furthermore, the scope of
the project includes leading-edge
protection including specialist units
in the riser shafts. Construction
began in the 2019 financial year
and is expected to be completed in
mid-2021.
The project also included
deployment of Severfield’s well-
known safety product, ‘Seversafe’
edge protection. This consists of
the handrail system in place, vertical
debris netting and safety fans
installed near to the perimeter of the
structure.
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DATA CENTRE,
REPUBLIC OF IRELAND
This project involved
the construction of a
new large data centre
located in Clonee, Dublin
for a global technology
company.
Location
Clonee, Dublin
Contract manager
Mace
Engineer
Arup
Architect
SNH Architects
Tonnage
9,300
Completion date
November 2020
The project
This project is a state-of-the-art
data centre facility and is the
latest building in a development
of cloud storage centres for one
of the world’s largest technology
companies. The scale of the overall
development in the Republic of
Ireland is substantial, with the
entire site occupying 480 acres
and will be one of the fastest and
most cutting-edge cloud-based
data centres in the world, storing
and retrieving information for
millions of social media users. This
project occupies c.90,000 square
metres within this development –
the equivalent of almost 18 football
pitches.
The Group is very familiar with the
development of data centres in
Ireland, having recently completed the
design, fabrication and construction
of a similar, smaller facility, providing
5,600 tonnes of structural steel,
in April 2018. This current project
is exactly double the size of the
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Severfield plc previous project with a total of eight
data halls and an accompanying
administration block. The building
is a single storey beam and column
braced steel-frame structure with
a roof that supports a plant gantry
platform with 17,500 square metres
of galvanised open-grid grating with
associated construction handrails.
Also installed on the roof is 68,000
square metres of metal decking
incorporating 78 plenum pods
weighing up to 20 tonnes, which
were pre-assembled at ground level
and lifted into location on the roof
of the building with large 750-tonne
mobile cranes.
The design elements for this
project included connection
design, temporary works design
and detailed BIM coordination with
more than 300 items of electrical
and mechanical equipment. Early
in the project lifecycle, the Group’s
project teams were involved in pre-
construction stages, which created
a platform for influencing key
aspects of the design.
This project consists of an extremely
challenging design, fabrication and
erection programme. Design and
detailing began on the project in
spring 2019 with a drawing office
team of over 30 skilled colleagues
working on the project at its peak.
The on-site erection programme
was based on 12 steel crews
erecting up to 1,000 tonnes of steel
per week.
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EUROPEAN SPALLATION
SOURCE, LUND
The latest addition
to Europe’s scientific
research capability, this
cutting-edge facility will
host the most powerful
linear proton accelerator
ever built.
Location
Lund, Sweden
Client
European Spallation Source
Main contractor
Skanska ESS Construction HB
Architect
Henning Larsen
Tonnage
3,000
Completion date
September 2020
The project
Situated near the university town
of Lund, Sweden, the Group are
building a cross-discipline research
facility based on the world’s
most powerful neutron source.
European Spallation Source (‘ESS’)
is a collaboration of 13 European
countries, intended to yield
discoveries that could benefit the
fields of energy, technology and the
environment. Designed to house
world-leading scientific equipment
as well as up to 3,000 researchers,
ESS Lund is a testament to the
power of collaboration in which the
Group is proud to be a part.
The first major project for the Group’s
Netherlands-based European
business, Severfield Europe B.V,
this project showcases the Group’s
expertise in the continent. The scope
of the project is to supply, fabricate
and erect c.3,000 tonnes of structural
steel, roof plates, cladding, filigree
floors as well as the erection of
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Severfield plc precast concrete elements including
concrete stairs, wide slab floors
and precast hollow walls. The steel
fabrication for this large contract
is mainly being provided from our
Dalton facility, together with certain
approved subcontractors, both
in the UK and in Europe. This has
required close organisation of an
international supply chain and
workforce to ensure that the project
runs smoothly.
Given the extreme sensitivity of the
instrumentation to be contained
within the facility, the building must
be extraordinarily sturdy and resistant
to movement. The project design had
to take account of the effects of high
winds and seismic activity, resulting
in specific requirements during the
construction phase for extremely
heavy welding. Plate steel up to
80mm thick was required for some
aspects including a crane beam in
the high bay building.
Not only will ESS become one of
the world’s most modern research
facilities, it will also be one of the
most sustainable and energy smart
research facilities. The facility will
use as little energy as possible and
all energy will be from renewable
energy sources and the waste heat
will be recycled.
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ONE
BRAHAM
Construction of a high
specification commercial
office building in central
London, adjacent to
Aldgate Tower.
Location
Aldgate, London
Client
FT Squared
Main contractor
McLaughlin & Harvey
Engineer
Arup
Tonnage
3,600
Completion date
February 2020
The project
Located on the edge of the City of
London, this 18-storey commercial
office building, adjacent to Aldgate
Tower, represents phase two of a
prestigious Aldgate redevelopment
scheme and provides c.325,000
square feet of open-plan office
space. The building was developed
as an open plan architectural space
for commercial letting with two of
the lower levels being designed as
public areas. Overall, the building
adopts a contemporary office feel
with exposed soffits throughout.
Much of the completed steel frame
will also be left exposed and so
significant care has been taken with
the connection details.
The Group’s scope included the
supply and erection of beam and
column steelwork together with
metal decking, fire protection, stairs
and open type flooring. The Group
provided decorative fire protected
columns and beams with an
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Severfield plc open architectural soffit, with the
underside of the metal decking
on display along with two steel
staircases spanning the entire
height of the building. The ground
floor is a double-height space,
accommodating the entrance lobby,
while the first floor, which is set
back to create this large space,
accommodates a cantilevering
walkway overlooking the entrance.
Large portions of the floor are
suspended from the underside
of the second floor via a series of
Macalloy hangers and steel plate
hangars to form recessed low level
façades.
A key feature of this complex
project is the architectural finish to
the building, with all steelwork and
metal decking being on display upon
completion. This necessitated that
the finish on all parts of the structure
was to an exceptional standard.
The project encountered operational
challenges such as parts of the
lower floor steelwork being outside
of the cladding line. This required
thermal breaks to be incorporated
where the steel penetrates the
cladding line in order to meet safety
standards. The Group also supplied
‘Seversafe’ edge protection, safety
fans and the ‘Seversafe’ offload
system.
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S T R AT E G I C R E P O R T
A SNAPSHOT
OF WHAT WE
DO AND HOW
WE DO IT
OUR STRUCTURAL
FRAMEWORK
Why we exist, what we want to be, what we set out to
achieve, how we will achieve our vision and what values
define us.
Read about our structural
framework on pages 4 and 5
WHERE WE
DO IT
Severfield (UK) – Dalton and Lostock
Severfield (Design & Build) – Sherburn and Dalton
Severfield (NI) – Ballinamallard
Severfield (Products & Processing) – Sherburn
Severfield Europe – Zevenbergen, Netherlands
Harry Peers – Bolton
JSW Severfield Structures – Mumbai, India
Construction Metal Forming – Monmouthshire
Read about the scale of our
operations on pages 16 to 19
HOW WE
MANAGE THREATS
Our risks
Risk management is at the heart of how the business is
run and supports the Group’s strategic objectives. We have
identified nine principal risks and uncertainties which have the
potential to impact the Group’s business model and strategy.
See how we manage risk
on pages 74 to 86
HOW WE IMPACT
ON SOCIETY
Resources and relationships
There are four main areas where our business model
impacts on society and where we have responsibilities that
extend beyond financial performance.
Safety, Sustainability, People and Community
See building a sustainable business
on pages 64 to 73
02
02
Severfield plc Annual report and accounts
for the year ended 31 March 2020
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW O V E R V I E W
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 pages 26 to 33
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.
See how we create value
on page 22
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
are linked to our remuneration policy to ensure that there
is a strong alignment to our strategic priorities.
Read more about corporate governance
on pages 98 to 108
HOW WE
MEASURE SUCCESS
Our KPIs
We use a combination of financial and non-financial key
performance indicators (‘KPIs’) to measure our progress in
delivering our strategic priorities.
Read more about our key performance indicators
on pages 46 to 49
www.severfield.com
Stock Code: SFR
03
03
www.severfield.comStock Code: SFR OVERVIEW Our structural
framework
HOW WE DELIVER
GROWTH FROM A
STRONG FOUNDATION
01
OUR
VISION
is what we
want to be
02
OUR
MISSION
is what we set
out to achieve
We are founded on our
strong core values and
committed to achieving
our vision.
OUR
VALUES
are what
define us
04
OUR
STRATEGY
is how we achieve
our vision
03
Read more about our
strategy on pages 36
to 44
04
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW 01 Our vision
Our vision is to be recognised as world-class leaders in structural steel, known for our ability to deliver any project to the
highest possible standards.
02 Our mission
As ambitious, innovative leaders in a demanding and ever-developing industry, we will use our collective strengths and
resources to build the capacity required to deliver the structures of the future.
03 Our strategy
Our strategy revolves around five main elements. This is aided by our business improvement programme, ‘Smarter, Safer,
more Sustainable’.
Growth
Clients
India
Operational
excellence
People
04 Our values
Safety
Customer focus
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.
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
Commitment
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.
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.
05
www.severfield.comStock Code: SFR OVERVIEW
Our year
in review
Financial highlights
Revenue
Underlying*
profit before tax
Underlying*
operating margin
£327.4m £28.6m 8.2%
Profit before tax Underlying*
Net funds**
basic earnings
per share
£25.8m 7.7p
£16.4m
.
m
4
7
2
3
£
.
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9
4
7
2
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2
.
4
7
2
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6
.
8
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£
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7
.
4
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5
.
3
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p
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.
7
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0
.
3
3
£
%
5
.
8
%
3
.
8
%
2
.
8
m
8
.
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£
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7
.
4
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.
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.
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8
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0
2
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2
Order book 2020
The order book contains a healthy mix of projects across a diverse range of sectors including industrial and
distribution, data centres, commercial offices and stadia and leisure.
Our UK and Europe order
book at June 2019
Our UK and Europe order
book at June 2020
%
6
2
%
2
1
%
2
%
6
3
1% 5%
1%
%
1%4
4%
%
4
2
£295m
£271m
%
2
%
2
2
%
5
4
%
5
1
Commercial offices
(outside London)
Data centres & other
Health & education
Industrial & distribution
Nuclear
Power & energy
Processing
Retail
Stadia & leisure
Transport
Read more about our
Group financials on
pages 146 to 195
06
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW Read more about our
Company financials
on pages 196 to 202
Read more about our
net funds on page
190
Operational highlights
STRATEGIC 2020 PROFIT TARGET ACHIEVED, GOOD
CASH GENERATION AND A STRONG BALANCE SHEET
• Revenue up 19% to £327.4m
(2019: £274.9m)
• Underlying* profit before tax up
16% to £28.6m (2019: £24.7m),
ahead of strategic 2020 profit
target of £26m
• Underlying* basic earnings per
share up 15% at 7.7p (2019:
6.7p)
• Acquisition of Harry Peers for
net initial cash consideration
of £18.9m, contingent
consideration of up to £7m
payable in 2021
• Good cash generation resulting
in year-end net funds (excluding
IFRS 16 lease liabilities**)
of £16.4m (2019: £25.1m),
including the outstanding
acquisition loan of £13.1m for
Harry Peers
• Over 100 projects undertaken
during the year in the UK, Ireland
and continental Europe in
diverse market sectors including
industrial and distribution,
data centres, commercial
offices (both in London and
the UK regions) and transport
infrastructure
• UK and Europe order book of
£271m at 1 June 2020
(1 November 2019: £323m),
including £17.0m for Harry
Peers – the expected reduction
reflects revenue recognised in
H2 on several large ongoing
contracts
• Share of profit from Indian
joint venture (‘JSSL’) up 80%
at £2.2m (2019: £1.2m),
reflecting both revenue growth
and margin improvement
• India order book of £110m
at 1 June 2020 (1 November
2019: £134m), expansion
of the Bellary facility is now
complete
THE GROUP’S BUSINESS MODEL HAS BEEN ESTABLISHED
TO GENERATE SURPLUS CASH FLOWS AND WE HAVE ALWAYS
PLACED A HIGH PRIORITY ON CASH GENERATION AND THE
ACTIVE MANAGEMENT OF WORKING CAPITAL.
Adam Semple
Group finance director
* Underlying results are
stated before non-
underlying items of £2.8m
(2019: £nil) consisting
of the amortisation of
acquired intangible
assets of £1.4m and
acquisition-related
expenses of £1.4m.
** The Group excludes IFRS
16 lease liabilities from
its measure of net funds/
debt as they are excluded
from the definition of
net debt as set out in
the Group’s borrowing
facilities.
07
www.severfield.comStock Code: SFR OVERVIEW Our response
to COVID-19
Setting up the business to
deal with the pandemic
In managing our response to
COVID-19, the primary focus has
been on the health, safety and
wellbeing of all employees, clients
and the wider public, together
with protecting the financial
strength of the Group. In March,
we implemented our business
continuity plans to minimise the
impact of the pandemic on our
operations. We established a crisis
management team and facilitated
home working where possible.
We undertook a detailed analysis
to establish what aspects of our
operations would be affected and
what we could and could not
continue to do. During this early
period, we scaled back operations
for several days in order to allow
us to undertake this assessment
more effectively. We implemented
strict COVID-19 measures in
our factories and sites including
enhanced levels of cleaning,
additional hygiene facilities and
social distancing. Daily video calls
between our executive and senior
leadership teams, communications
team, health and safety, human
resources and legal advisers
ensured that our decision-making
was well-informed and timed
appropriately. A weekly call with
the plc board ensured that board
members were kept fully updated
throughout.
During the outbreak we have
seen the value to the business of
our culture, and our people really
came to the fore to enable us to
continue to carry on trading as
normally as possible. A key aspect
of our business continuity plan is
to communicate effectively with
our colleagues. We issued regular
communications with updates
on the latest government advice
including how this impacted our
employees, our COVID-19 HR and
safety policies, how to cope with
certain mental health issues arising
from the crisis itself and general
advice on working from home.
Precautionary financial
measures
We have a strong balance sheet
position, however, in order to
mitigate the financial impact
of COVID-19 and protect our
cash position during the current
period of uncertainty in a manner
that does not compromise our
future plans for the Group, a
number of precautionary actions
have been implemented. These
include the deferral of all non-
essential and uncommitted
capital expenditure, together
with restrictions on discretionary
operating expenditure, tight
management of working capital
and the deferral of tax payments
(PAYE, NIC and VAT) and quarterly
term loan repayments (due in
March and June) until September
2020. Furthermore, prior to the
year-end, we fully drew down
all available amounts under our
Revolving Credit Facility (£15m) to
provide control over our own cash
resources.
Outlook
When the immediate impact
of COVID-19 has passed, the
economy and our industry will
enter a ‘new normal’ phase, but
the timescale and duration for this
is uncertain. At this early point in
our financial year it is impossible
to predict the full extent of the
financial impact of COVID-19 on
the 2021 outturn.
Notwithstanding this, to date
we have coped well with
the challenges presented by
COVID-19. Our factories are
operational and, after some
temporary interruptions, all of
the Group’s construction sites in
the UK and Europe remain open.
We have a UK and Europe order
book of £271m, we are seeing
an encouraging level of tendering
and pipeline activity across the
Group and we remain well placed
to win work in the diverse range
of market sectors in which we
operate and across a wide client
base. This provides us with
extra resilience and the ability to
increase our market share. We
have a strong balance sheet, a
cash-generative business model
and with bank facilities agreed until
October 2023, we are confident
that we have sufficient cash and
committed funding in place during
this unprecedented period of
uncertainty.
08
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW 09
www.severfield.comStock Code: SFR OVERVIEW Building on our
strong foundations
Our Strategic Pillars
Our strategic pillars
Our progress since 2013 has helped us work towards our vision to
be recognised as world-class leaders in structural steel. Each step
is linked to a specific strategic pillar and collectively strengthens our
foundations.
Growth
Clients
India
Operational
excellence
People
April 2013
During 2014
November 2015
Successfully completed our
50% investment in Construction
Metal Forming Limited
(previously Composite Metal
Flooring Limited).
December 2015
Awarded the contract for the
construction of the new stadium
for Tottenham Hotspur FC.
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.
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.
November 2013
Appointed Ian Lawson as chief
executive officer.
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.
October 2014
Established a new £25 million
revolving credit facility until July
2019.
December 2014
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.
2015
2014
2013
10
January 2016
Set up the 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.
March 2016
Awarded the contract to
fabricate and construct the
retractable roof for Wimbledon
No.1 Court.
June 2016
Outlined the Group’s new
strategic target to double 2016
underlying profit before tax to
£26 million by 2020.
November 2016
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.
2016
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW
During 2017
January 2018
March 2019
March 2020
Appointed Alan Dunsmore
as chief executive officer.
Reorganised 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 driving further operational
improvements.
April 2018
Trading commenced at
Severfield (Products &
Processing), the Group’s new
business venture in Sherburn to
address smaller scale projects
providing a one-stop shop to
fabricators to source processed
steel and ancillary products.
December 2018
Expansion of Bellary facility in
India commences – expected to
be completed towards the end
of the 2020 financial year.
Severfield Europe B.V. wins its
first two contracts.
August 2019
Appointed Louise Hardy as non-
executive director.
October 2019
Completed the acquisition of
Harry Peers & Co Limited, a
leading full service steelwork
business focussing on the
nuclear, process industries
and power generation sectors.
November 2019
Held our inaugural ‘safety
first’ awards to celebrate
positive safety behaviours and
initiatives and environmental
management by apprentices,
other employees and teams
within all of our businesses.
Launched our new product
ranges ‘Severstor’ and ‘Seversilo’.
2019
2018
Launched our business
improvement programme,
‘Smarter, Safer, more
Sustainable’ consolidating
the Group’s operational
improvement projects, including
improvements to business
processes, use of technology
and operating efficiencies.
April 2017
Incorporated Severfield Europe
B.V. in the Netherlands, focussing
on tailoring established UK
offering for expansion into the
European market.
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 capability
within the bridge market.
December 2017
Awarded the contract for
Google Headquarters in King’s
Cross. Severfield to supply
c.16,000 tonnes of structural
steelwork services for the
11-storey building.
2017
£19.8
MILLION
£23.5
MILLION
£24.7
MILLION
The Group exceeded the
2020 strategic profit target,
announced back in June 2016,
of doubling underlying profit
before tax to £26m.
2020
£28.6
MILLION
Strategic target
exceeded
11
www.severfield.comStock Code: SFR OVERVIEW Chairman’s view
John Dodds
Non-executive chairman
WE CONTINUE TO MAKE
PROGRESS IN EXECUTING
OUR STRATEGY AND
HAVE EXCEEDED OUR
2020 STRATEGIC PROFIT
TARGET OF £26M.
John Dodds
Non-executive chairman
12
2020 was another year of strong
progress for the Group. We have
grown the business, exceeded
our 2020 strategic profit target
of £26m, have entered new
markets through the acquisition
of Harry Peers and have made
further progress with our ‘Smarter,
Safer, more Sustainable’ business
improvement programme.
Group revenue for the year was
£327.4m, an increase of 19 per
cent on 2019, which has been
achieved despite some challenging
market conditions in 2020. We
have also delivered another year
of profit growth, with underlying*
profit before tax increasing by
16 per cent to £28.6m, from
£24.7m in 2019. This reflects a
good operating performance from
our core UK businesses, where
margins have remained above
8 per cent, a contribution from
the acquisition of Harry Peers,
and strong profit growth from our
Indian joint venture (‘JSSL’).
The strength of our balance sheet
and cash generation have remained
high priorities for us and our
positive operating cash flow has
enabled further capital investment in
2020, demonstrating our continued
commitment to developing and
improving the business. Year-end
net funds were £16.4m which
includes the outstanding acquisition
loan for Harry Peers of £13.1m.
Unfortunately, after such an
encouraging financial year in
2020, we are now faced with
the continued uncertainty of the
COVID-19 pandemic. Although
we have seen some disruption to
our operations as a result of the
outbreak, all of our construction
sites in the UK and Europe remain
open and all of our factories are
operational. Our primary focus is
on the health, safety and wellbeing
of all employees, clients and
the wider public, together with
protecting the financial strength
of the Group. We have taken a
number of precautionary actions
to protect our cash position and,
with our strong balance sheet,
we are confident that we have
sufficient resources in place for
the foreseeable future. The diverse
range of market sectors in which
the Group operates also provides
us with extra resilience during
this unprecedented period of
uncertainty.
Board changes
Louise Hardy joined the board
as a non-executive director in
September 2019. Louise has a
wealth of relevant experience in the
delivery of complex infrastructure
projects and experience as a non-
executive director of other publicly
listed companies. We welcome
Louise to the board, to which she
has been a valuable addition.
Markets and strategy
The strong current year
performance has been achieved in
spite of challenging times. Whilst
the conclusive outcome of the
December 2019 General Election
and the UK’s departure from the
European Union in January 2020
has provided some much-needed
certainty to the political landscape,
our future trading relationship
with the EU remains unresolved.
Unfortunately, we are also seeing
the emerging headwinds from
COVID-19. Despite this, our UK
and Europe order book of £271m
provides the Group with a strong
future workload and we are
encouraged by the current level
of tendering and pipeline activity
across the Group.
From a strategic perspective, we
have exceeded our 2020 profit
target of £26m which was set
back in 2016, and we continue
to deliver on our other strategic
objectives. We have seen further
growth in our revenue and profits,
both in the UK and India, and
continued investment in our people
and facilities and in the expansion
of our client base. The acquisition
of Harry Peers, which is integrating
well into the existing Group, gives
us the opportunity to expand and
extend our current capabilities into
attractive complementary market
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW sectors, broaden our market
exposure and enhance our areas
of expertise.
Our ‘Smarter, Safer, more
Sustainable’ programme has
continued to drive improvements
to operational efficiencies and
business processes, now with an
increased focus on manufacturing
efficiency. As part of our digital
transformation initiative, we have
overseen further technology
enhancements in both our
manufacturing and contracting
operations. We have also
implemented improvements to
our supply chain, with our new
supplier accreditation process, and
have continued to invest in and
streamline our factories, particularly
at Dalton, which is increasingly
operating as a fulfilment centre for
the Group as a whole.
Dividends
The board is not currently
recommending a final dividend
(2019: 1.8p per share). Following
a successful year, we would
ordinarily expect to propose a
final dividend in line with our
progressive policy. However, given
the wide range of potential profit
and cash flow outcomes for the
2021 financial year, the board
believes it is prudent to defer any
dividend payment decisions until
there is greater visibility on the
impact of COVID-19.
India
JSSL has continued to grow in the
year and has increased its profit
by more than 80 per cent over
the previous year. This reflects
both revenue growth and higher
operating margins driven by an
improved mix of commercial work.
The expansion of the Bellary facility
is now complete.
COVID-19 is also impacting JSSL
in the new financial year. Given
the rapidly changing dynamics in
the Indian economy, it is difficult
to predict with any accuracy what
the extent of this disruption will
be on JSSL’s profitability in 2021.
Despite the ongoing uncertainty,
JSSL has maintained an order
book of £110m and their pipeline
continues to include a number
of commercial projects for key
developers and clients with
whom it has established strong
relationships. We remain positive
about the long-term development
of the Indian market and the value
creation potential of JSSL.
Safety and sustainability
The Group strategy continues
to support health and safety as
being at the forefront of everything
we do, and the wellbeing of our
people is a key priority of the
board. This has been particularly
important during the COVID-19
outbreak where we have continued
to run our operations safely and in
line with the appropriate guidelines.
Pleasingly, we have achieved our
Group safety targets for the year.
The Group’s accident frequency
rate (‘AFR’), including our Indian
joint venture, of 0.15, continues to
outperform the industry average.
We have also widened our safety
measures to focus on the Group’s
injury frequency rate (‘IFR’), to
highlight minor injuries and to
identify prevention measures. The
Group’s IFR has reduced year-on-
year with targeted reductions in
almost all areas of the business.
Recognising the importance
of Environmental, Social,
and Governance (‘ESG’) and
sustainability, a new sustainability
policy was published by our
sustainability committee. We have
made progress during the year in
this area including switching to 100
per cent green electricity at our
two largest production facilities,
reducing our greenhouse gas
(‘GHG’) emissions and maintaining
our ‘B’ rating in the CDP (formerly
the Carbon Disclosure Project)
index. We continue to review
ways to reduce our carbon
footprint, working collaboratively
with customers, industry and the
supply chain.
People
The success of the Group depends
on our people. On behalf of the
board, I would like to thank our
employees for their hard work and
dedication during the past year and
in the current challenging times for
both them and their families.
Outlook
We continue to make progress in
executing our strategy which is
underpinned by our market-leading
positions, our strong balance sheet
and the quality of our workforce
and senior leadership teams.
The acquisition of Harry Peers is
another step in the implementation
of this strategy and will enhance
our position as the UK's broadest
structural steel services group.
Whilst the economic agenda is
currently being dominated by
COVID-19, we have a resilient
business model, a strong order
book and have now taken
sensible, decisive actions to
protect our employees, cash flows
and liquidity, all of which give me
confidence in the Group’s ability
to emerge successfully from the
current crisis.
I am, today, announcing my
retirement as chairman of the
Group, with effect from
3 September 2020, when I
will be handing over to Kevin
Whiteman. It has been a privilege
to serve as chairman since 2011
and I am immensely proud of
the development of the Group
over this period, which has been
transformed into the diverse and
very successful business it is
today. I look forward to seeing
Severfield go from strength to
strength under the guidance of
Kevin as chairman.
John Dodds
Non-executive chairman
17 June 2020
* The basis for stating results on an
underlying basis is set out on page 7.
Read more about
our operating
performance on
pages 50 to 57
Read more about our
board of directors on
pages 90 to 91
Read more about
our financial
performance on
pages 58 to 62
Read more about our
strategy on pages 36
to 44
Read more
about building a
sustainable business
on pages 64 to 73
13
www.severfield.comStock Code: SFR OVERVIEW O V E R V I E W
OUR UNIQUE
OFFERING
Our investment case
Focussed on leading customer service, supported by our scale and innovative thinking.
01
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.
02
03
Market leader
Severfield is the UK’s market-leading structural steel
company, respected for delivering world-class engineering
and design excellence. We have unrivalled experience and
capability in the design, fabrication and construction of
steel structures. The breadth of technical expertise in our
workforce ensures that we can serve a diverse range of
market sectors, positioning us well for future growth.
Integrated approach from design
to construction
By engaging with our clients in the design stage, our
understanding of their requirements is enhanced and adds
value throughout the project life cycle. Our in-house design
and construction teams work closely together to create
the most efficient and safest solutions that match our
clients’ needs.
04
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.
14
14
Severfield plc Annual report and accounts
for the year ended 31 March 2020
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW O V E R V I E W
05
06
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.
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 focussed on delivering internal
efficiency improvements to support the Group’s operational
efficiency and effectiveness.
07
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.
08
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.
www.severfield.com
Stock Code: SFR
15
15
www.severfield.comStock Code: SFR OVERVIEW Our
projects
UNITED
KINGDOM
1
3
Edinburgh
2
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.
Our main offices and fabrication
facilities for Severfield (NI) are based
in Ballinamallard, near Enniskillen.
This site in Lostock near Bolton in
Lancashire comprises offices and
factory facilities and is part of our
Severfield (UK) operations.
12
Belfast
Our offices and fabrication facilities
for Harry Peers are based in Bolton.
Located in Sherburn, near
Scarborough, are our sales and
commercial teams for Severfield
(Design & Build) and the production
facilities for Severfield (Products &
Processing).
13
Dublin
14
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.
4
5
6
7
8
London
11
9
10
I
S
N
O
T
A
R
E
P
O
R
U
O
F
O
E
L
A
C
S
E
H
T
16
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW
O V E R V I E W
EUROPE
23
22
24
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
5
Anfield Stadium, Liverpool
Stadia and leisure
6 Ordsall Chord, Manchester
Transport
7 Manchester Engineering
Campus Development,
Manchester
Health and education
8
Peterborough Waste to Energy
plant
Power and energy
9
BBC, Cardiff
Commercial offices
10 Princesshay, Exeter
Retail
GREATER
LONDON
18
15
16
17
19
20
21
11 Gulfstream Farnborough,
Hampshire
Transport
12
13
Titanic, Belfast
Commercial offices
Large data centre, Dublin
Data centres and other
14 Covanta, Dublin
Power and energy
15 Coal Drops Yard
Retail
16
17
18
19
20
St Giles Circus
Commercial offices
22 Bishopsgate
Commercial offices
Tottenham Hotspur
Stadia and leisure
South Bank Tower
Commercial offices
The Shard
Commercial offices
21 Wimbledon No.1 Court Roof
Stadia and leisure
22 ESS Target, Lund, Sweden
Data centres and other
23
24
Large data centre, Finland
Data centres and other
Large data centre, Belgium
Data centres and other
Read more about our
operations in India
on pages 32 and 33
17
www.severfield.comStock Code: SFR The scale of
our operations
Operating across the Group’s five 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,
Greater Manchester
c.250 employees
Severfield
(Design &
Build) Limited
c.100 employees
Severfield (NI)
Limited
c.300 employees
Severfield
Europe B.V.
Severfield
(Products &
Processing)
Limited
c.40 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’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.
18
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.
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.
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. During 2020, the company
continued to expand its product range,
including our new ‘Severstor’ and
‘Seversilo’ products.
Severfield plc Annual report and accountsfor the year ended 31 March 2020OVERVIEW
Harry Peers &
Co Limited
c.60 employees
The Group’s recent acquisition, Harry Peers, is based in Bolton near the Group’s existing Lostock facility.
The company is a leading structural steelwork business and is experienced in the specialist, highly regulated
nuclear, process industries and power generation sectors. The acquisition will extend our reach into attractive,
complementary market sectors, broaden our exposure and enhance our expertise. The Bolton facility includes the
Peers award-winning design team, utilising state-of-the-art design software and Tekla detailing facilities to offer
customers value engineering and options for modular construction.
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 Indian market.
Its state-of-the-art facility consists of six fabrication lines, a plate (INDISEC®) line, five smaller welded beam
lines, bit shops and a bay to provide bespoke off-line heavy fabrication, tubular products, specialised multi-coat
painting and further bogey line fabrication. Off-line facilities are available to manufacture hand railing, stairs and
other ancillary products.
The facility has been designed to optimise product range, quality and productivity, and incorporates cutting-
edge technology and processing equipment.
The expansion of the Bellary facility, which has increased capacity from c.60,000 tonnes to c.90,000 tonnes,
was completed during the year.
Construction
Metal Forming
Limited
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.
19
www.severfield.comStock Code: SFR OVERVIEW 20
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT I
C
G
E
T
A
R
T
S
T
R
O
P
E
R
How we create value
The markets we serve: The UK and Europe
Our market sectors
The markets we serve: India
Engaging with stakeholders
Our strategy
Key performance indicators
Our operating performance
Our financial performance
Building a sustainable business
How we manage risk
Section 172 statement
22
26
30
32
34
36
46
50
58
64
74
87
21
www.severfield.comStock Code: SFR STRATEGIC REPORT
HOW WE
create value
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.
Our inputs
Our value proposition
Commitment to
health and safety
The wellbeing 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.
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.
Our customers
Clients serviced by the Group cover
a broad range of disciplines from
contractors and developers, to engineers
and architects. We are focussed 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.
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.
Resources
The Group can offer great choice,
value and flexibility thanks to our
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 around 1,400 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.
Partners
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.
22
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT 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.
Our services
01
Design
02
Fabricate
03
Construct
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.
The Group has its own highly trained
construction workforce which provides
services for all of its construction
requirements. Working closely with the
project management team, they are
leaders in steel construction and utilise
the latest equipment on-site. The Group
is an industry leader in construction
methodology.
The Group also has a large and highly
experienced contract management
team. Each contract manager is the
single point of contact with each client
and is supported by all resources
within the Group. Our contract
managers engage with our clients and
the supply chain to ensure optimum
communication and performance in all
aspects of the project, including site
construction and administration.
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www.severfield.comStock Code: SFR S T R AT E G I C R E P O R T
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 value generation
Key statistics
Our activities generate the following types of long-term value:
For our employees
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.
We offer our engaged and talented
employees stable and secure
employment in a growing business
and with opportunities to develop and
progress.
For our society
We are committed to minimising our
impact on the national environment and
local communities, as well as maintaining
sustainable practices in all our disciplines.
We have a new sustainability strategy
in development for 2021, as we aim
to further reduce our environmental
impact and carbon emissions, working
collaboratively with customers, industry
and the supply chain.
A commitment to our own Group charity,
the Severfield Foundation, which partners
with a nominated national charity, as well
as supporting several local charities, to
help us give back to society.
Underlying
basic earnings
per share
7.7p
£327.4m
Revenue from
orders in 2020
£70.7m
paid in employee
benefits in 2020
Reduction in
greenhouse gas
emissions to
29.8 tonnes
of CO2e/£m
revenue
For our shareholders
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.
The Group has a progressive dividend
policy. We invest in capital projects
and market-leading technology to drive
sustainable growth.
For our customers
We approach every project, from the
highly technical to basic structural
work, with the same level of safety,
professionalism, commitment, care and
customer service.
Alongside our industry leading customer
service is our continued focus on product
range development, to ensure our
products meets the ever-changing needs
of our customers.
www.severfield.com
Stock Code: SFR
24
S T R AT E G I C R E P O R T
www.severfield.com
Stock Code: SFR
25
S T R AT E G I C R E P O R T
The markets we serve:
The UK and Europe
Group strategic focus in the UK:
BUILDING ON
OUR MARKET
SHARE FROM
CONSTRUCTION
ACTIVITIES
The Group’s strategic focus in the UK and Europe is to continue to build on our market share from
construction activities.
Marketplace
Market output for structural steelwork in the UK
856,000 tonnes
During the 2019 calendar year, the UK constructional steelwork market, as measured by the British Constructional Steelwork
Association (‘BCSA’), remained relatively stable at 856,000 tonnes, broadly in line with the previous year.
This is the third consecutive year in which
the market has shown no significant
change. 856,000 tonnes represents a UK
constructional steelwork market totalling
approximately £1.7 billion.
The Group’s potential production capability
is approximately 150,000 tonnes. In 2020,
Group revenue of £327.4m represented a
19 per cent increase, to a ten-year high,
reinforcing our market-leading position
and the continued delivery of our strategic
objectives. This strong performance has
been achieved despite a softer market
backdrop in the UK, particularly in the
run-up to the General Election in December
Key statistics
2019. In 2020, we increased our market
share in certain sectors, including industrial
and distribution, data centres and stadia
and leisure, illustrating our ability to generate
growth even against a relatively flat UK
market backdrop.
Europe order book of £271m provides the
Group with a strong future workload during
this unprecedented period of uncertainty
and we are encouraged by the current level
of tendering and pipeline activity across
the Group.
Whilst the conclusive outcome of the
December 2019 General Election and the
UK’s departure from the European Union in
January 2020 has provided some much-
needed certainty to the political landscape,
our future trading relationship with the EU
remains unresolved. Unfortunately, we are
also now seeing the emerging headwinds
from COVID-19. Despite this, our UK and
The Group welcomed the news of the sale
of British Steel to Jingye Group (‘Jingye’)
on 9 March 2020. Jingye have pledged to
invest £1.2 billion to place the business on
a more competitive and sustainable footing,
helping to provide stability and certainty to
the steel supply market in the UK.
Group production
Group potential capacity
UK and Europe order book
95,000 tonnes
150,000 tonnes
£271m
26
Severfield plc Annual report and accounts
for the year ended 31 March 2020
S T R AT E G I C R E P O R T
Outlook and our response – UK
Group potential capacity in the UK
150,000 tonnes
The Group remains well positioned to win work in the diverse range of market sectors in which we operate.
However, the construction industry now
faces an unprecedented period of uncertainty
over the extent and longevity of the
COVID-19 pandemic and these forecasts
are likely to be subject to significant revision
as the impact of COVID-19 becomes clearer
over the coming months.
Notwithstanding the current market
uncertainty, the Group remains well
positioned to win work in the diverse range
of market sectors in which we operate and
across a wide client base, providing us with
extra resilience and the ability to increase
our market share.
The Group’s successful record in the
transport infrastructure sector, means
we are well positioned to capitalise on
the UK government’s strong pipeline
of major infrastructure projects. The
government’s commitment to HS2 and its
April announcement to proceed quickly
with phase one construction work, which
is worth an estimated £12 billion, has
provided some much-needed certainty to
the construction industry.
We also continue to see a good number
of opportunities in the industrial and
distribution and data centre sectors,
which remain strong. These projects play to
our strengths, requiring high-quality, rapid
throughput, on-time performance and full
co-ordination between stakeholders.
In accordance with our strategic objectives,
the Group has diversified into new sectors
and continues to enhance its product
ranges. During the year, the acquisition of
Harry Peers will significantly expand and
extend Severfield’s current capabilities into
attractive complementary market sectors,
including nuclear, process industries and
power generation. In particular, the nuclear
sector is forecasted to grow through the UK
government’s decommissioning investment
programme which is based on an expected
decommissioning budget of £164 billion
over the next 120 years. In addition, our
Severfield (Products & Processing)
business has developed its product range
to include new ‘Severstor’ and ‘Seversilo’
ranges, which we are developing organically.
‘Severstor’, for which we have already
secured our first orders, is the manufacture
of secure, steel storage units that house
critical systems technology for a range of
main contractors and end-users.
The mix of work within the market sectors
that we target will be a key determinant of
the Group’s future performance during the
current uncertain times as the UK economy
recovers from the COVID-19 crisis. With a
strong market position, entry into new UK
markets through acquisition and organic
growth and a continued focus on driving our
‘Smarter, Safer, more Sustainable’ initiatives,
the outlook for the Group remains positive.
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Stock Code: SFR
27
The markets we serve:
The UK and Europe
TAILORING
OUR OFFERING
FOR THE
EUROPEAN
MARKET
Europe
Order book
Pipeline and prospects
UK and Europe order book
£271m
The Group continues to monitor
the future pipeline of projects
currently being tendered.
The Group’s order book at
1 June 2020 of £271m reflects a
decrease from the record order
book of £323m announced at the
time of the half year results (at
1 November 2019) as a result of
increased Group activity levels in
the second half of 2020. Significant
orders reflected in our order book
include a large industrial facility
and a large data centre, both in
the Republic of Ireland, a large
data centre in Finland, a large
distribution facility in the UK, the
new stadium works at Fulham F.C.
and the redevelopment of Lord’s
Cricket Ground (Compton and
Edrich stands).
This provides forward visibility
of future orders and allows us
to make strategic decisions that
impact on our production planning
and facilities. Whilst the impact of
COVID-19 on the global economy,
the industry and the Group remains
uncertain, we are encouraged by
the current level of tendering and
pipeline activity. This includes a
range of projects in the industrial
and distribution, data centre,
commercial office, transport
infrastructure and nuclear sectors
in the UK and Europe.
During the year, the Group successfully delivered a
number of projects in the Republic of Ireland, Sweden
and Finland, supported by our Netherlands-based
European business, which is now fully integrated into
the main operations of the Group.
Our European team is
dedicated to tailoring our
established UK offering for
the European market, with a
particular focus on Northern
Europe and Scandinavia.
Attractive opportunities have
been identified in the Group’s
key markets, including in the
data centre and industrial and
distribution markets, although
the timing of some of these
remains uncertain as a result
of COVID-19. We continue to
engage with our stakeholders
in the European market
and develop our 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 executing
projects in Europe, providing
us with a commercial
advantage and the ability
to enhance our reputation
through the delivery of
excellent client service.
Whilst the UK’s eventual exit
from the European Union
in early 2020 has reduced
some of the earlier political
uncertainty, elements remain
as the nature of the UK’s
future trading relationship
with the EU remains
unresolved. We continue
to monitor developments
in this area and we have
plans in place to mitigate,
where possible, the impact
of leaving the EU on the
fulfilment of orders in the
Republic of Ireland and
continental Europe and on
our supply chain.
28
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT Strategy in action: Growth
HARRY PEERS ACQUISITION
During the year, the Group acquired Harry Peers, a leading
structural steelwork business within the nuclear, process industries
and power generation sectors.
The initial consideration for the business was £18.9 million
payable in cash on completion. A performance based deferred
consideration is in place, which could increase the purchase price
by up to £7.0m, payable in late 2020.
The acquisition will significantly expand and extend Severfield’s
current capabilities into attractive complementary market sectors
including nuclear, process industries and power generation.
Combining these businesses has enhanced the Group’s position as
the UK’s broadest structural steel services group.
Strategic rationale for the acquisition
The board believes that the long-term investment profile of Harry
Peers’ key market positions in the highly regulated markets as
above, enhances its areas of expertise and broadens its market
exposure. With the scale and capabilities already existing in the
Group, there are substantial opportunities to grow Harry Peers
through a number of combined operational initiatives such as new
business development function, European contract opportunities
and investment in technology-driven enhancements. Harry Peers
has also demonstrated capability in modular structural steel
offerings, which the Group will look to develop across its offerings.
Pictured above:
Dis secepelecti temporepella
de mollicipsam hictotat volo
imustotate quam inullau.
Harry Peers commercial markets
The nuclear sector, including both the defence and
commercial sectors, in which Harry Peers commands
a niche, well-established and trusted position with
blue chip customers, is forecasted to grow through
the UK Government’s decommissioning investment
programme. The UK Government is forecasted to require a
decommissioning budget of £164 billion over the next 120
years.
The process industries sector is wide ranging and includes
pharmaceutical and petrochemical sectors. The installed
base in the UK is extensive. Upgrades and development to
operational sites provide ongoing opportunities for offsite
modular solutions.
The power generation market, including energy-from-
waste plants, which contribute 5.57TWh of electricity
per annum, is forecast to grow on the back of the world
economy seeking alternatives to carbon fuels. The UK
government has set a target of 15 per cent of final energy
consumption from renewable sources by 2020, meaning
that 30 per cent of electricity production will have to come
from renewable sources.
29
www.severfield.comStock Code: SFR STRATEGIC REPORT Our market sectors
We have the design skills, engineering skills and experience to handle complex projects over a diverse range
of market sectors, whether for work, industry, leisure, transport or to provide essential infrastructure.
Our sectors
The market sectors targeted by the Group, and their estimated size in tonnes during the 2019 calendar year are shown below:
Commercial offices
Transport (including bridges)
Industrial and distribution
Stadia and leisure
Power and energy
Data centres and other
(inc. nuclear and process industries)
Retail
Health and education
Percentage
12%
7%
50%
3%
10%
7%
1%
10%
Tonnes
99,500
63,000
424,000
29,000
89,000
52,000
11,500
88,000
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 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. The acquisition
of Harry Peers also provides greater access to
this market sector.
We have a long history of providing world-class
steel solutions for hospitals and other medical
facilities, which are increasingly being specified
with structural steel frames. Key factors giving
us an advantage in this sector include span
length, enhanced flexibility, adaptability and
speed of construction. We have also worked
with many education clients and contractors
over the years, each project bringing its own
specific requirements and challenges.
Successes
Multiple contracts with Heathrow Airport,
Manchester Airport, London Bridge,
Manchester Victoria and Birmingham New
Street stations, Ordsall Chord (link bridge
between Manchester’s Victoria and Piccadilly
stations), Ely Southern Bypass.
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.
Successes
Francis Crick Institute, Nigeria Syringe Factory,
University of Strathclyde, Victoria & Albert
Museum (Dundee), Kings College Hospital,
Graphene Innovation Centre, Manchester
University Engineering Campus.
Core infrastructure sectors
Transport
10-20%
Group market share
(for infrastructure
including bridges)
Power and energy
<5%
Group market share
Health and education
<5%
Group market share
30
Severfield plc Annual report and accounts
for the year ended 31 March 2020
STRATEGIC REPORT Core construction sectors
Commercial
offices
20-30%
Group market share
Through our work in the commercial office
sector, we have made a significant impact
on the cityscapes of London and other major
commercial hubs around the UK and Europe.
We ensure our structural steel methods,
products and processes keep up with the needs
and challenges of this rapidly evolving sector.
Industrial and distribution
10-20%
Group market share
The Group is a trusted partner to the industrial,
warehousing and distribution industries,
thanks to our strong reputation for engineering
excellence and versatility. Unrivalled capacity,
the ability to meet diverse and rigorous
requirements and other strengths such as
design capability, supply chain co-ordination
and delivery speeds set us apart from our
competitors.
Successes
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,
St Giles Circus Development, Hanover Square
Masterplan, One Braham and numerous smaller
developments both in London and the UK regions.
Successes
Major contracts for BMW, Unilever, Sports
Direct, Ocado, ASDA, Sainsbury’s, Prologis,
Gazeley, Jaguar Land Rover, Rolls-Royce, DHL
and B&M and a large industrial facility in the
Republic of Ireland.
Stadia
and leisure
20-30%
Group market share
Retail
5-10%
Group market share
Data centres
and other
30-40%
Group market share
Acquisition of
Harry Peers
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 F.C. (new
stadium), Lord’s Cricket ground (Compton and
Edrich stands), Fulham FC.
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.
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),
Telehouse (London), large data centres in
the Republic of Ireland, Belgium and Finland.
Other projects include a research facility for the
European Spallation Source (Sweden).
The acquisition of Harry Peers has extended
the Group’s current capabilities into attractive
complementary market sectors particularly nuclear
and process industries. We are continuing to refine
our market intelligence of these new sectors,
which will broaden our market exposure and
enhance our areas of expertise.
Successes
Multiple contracts with Sellafield and the
Atomic Weapons Establishment (‘AWE’),
and processing projects with Centrica and
water distillation specialist, SNF.
31
www.severfield.comStock Code: SFR STRATEGIC REPORT The markets we serve:
India
Group strategic focus in the UK:
POSITIVE
LONG-TERM
GROWTH
PREDICTIONS
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 per cent in a metal decking business, JSWSMD Limited.
2020 performance
JSSL has performed very strongly in the
current year. The business continued to
expand and almost doubled its profit from
2019, of which the Group’s after tax share
was £2.2m (2019: £1.2m). This higher
profitability reflects an increase in revenue of
30 per cent to £109.3m (2019: £84.1m) and
an increase in the operating margin to 8.5
per cent (2019: 6.4 per cent), resulting in a
profit before tax for JSSL of £5.6m (2019:
£3.2m). The improvement in the margin
was anticipated and reflects an increased
mix of commercial work compared to the
higher levels of industrial work which were
delivered in 2019.
Total output for 2020 was an impressive
96,000 tonnes split between the Bellary
plant and subcontracting, reflecting the
growth of JSSL’s own business and the
greater acceptance and use of steel
in construction. This volume was split
across various sectors including projects
in healthcare, the multi-use commercial
market, retail and industrial applications
(particularly for JSW), all delivered and
constructed with a high standard of health
and safety.
JSSL’s health and safety record is excellent
with 2020 another year free of lost time
incidents (‘LTI’). This is a very pleasing
statistic which means that approximately 20
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.
The expansion of the Bellary facility, which
has expanded factory capacity from
c.60,000 tonnes to c.90,000 tonnes, is now
complete. The expansion was successfully
completed on time and ahead of budget.
COVID-19 and market developments
The COVID-19 pandemic is impacting
JSSL in 2021. On 24 March 2020, the
government of India, under Prime Minister
Narendra Modi, ordered a nationwide
lockdown for 21 days, limiting movement of
the entire 1.3 billion population of India. At
the same time all international travel to and
from India was cancelled. The lockdown
has been subsequently extended at various
times, although with some slight easing for
various sectors and regions under a risk-
based traffic light scheme.
As a result of this, JSSL’s factory and site
operations have been disrupted in the first
quarter of 2021, a situation which is likely to
continue over a period of several months.
Given the rapidly changing dynamics in the
external environment, it is difficult to predict
with any accuracy what the extent of this
disruption will be on JSSL’s profitability in
2021. JSSL’s order book was £110m at
1 June 2020 (1 November 2019: £134m),
and this contains a good mix of higher
margin commercial work. Despite the
ongoing market uncertainty, JSSL’s pipeline
of potential orders continues to include
a number of commercial projects for key
developers and clients with whom it has
established strong relationships.
JSSL
Despite the recent challenges of COVID-19,
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
32
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT S T R AT E G I C R E P O R T
Depending on mix, the expanded capacity
of the Bellary facility is c.90,000 tonnes per
annum. The key characteristics of the plant
are as follows:
• The original configuration was two
fabrication lines. Four narrower fabrication
lines have been added in new factory
space, following completion of the
expansion. These service JSSL’s target
commercial and industrial sectors of
multi-mix commercial, healthcare, data
centres, retail and the industrial and
manufacturing sectors.
• A further INDISEC® plated beam line has
been added to the existing two plated
beam lines, together with a bit shop and
additional painting facilities.
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.
JSSL has also established a network of
strategic suppliers and subcontractors
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.
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.
Outlook
Whilst the short to medium-term
situation remains challenging as a result
of COVID-19, the longer-term growth
predictions for India remain very positive.
With JSSL’s holistic design and build
capability, the successful implementation
of new operational capability and capacity
and its established network of suppliers
and contractors, it is well set to take further
advantage of both economic and sector
growth and also further growth through the
continued conversion of the market from
concrete to steel.
Despite the current period of uncertainty,
we remain optimistic about the long-term
development of the Indian market and of the
value creation potential of JSSL, especially
considering the political, commercial,
social and technological changes made in
India over recent years, the government’s
ongoing focus on simplifying regulations
and the ‘ease of doing business’, and the
significant expansion of the business already
evidenced to date.
33
www.severfield.comStock Code: SFR Engaging with
stakeholders
We maintain regular dialogue with our key
stakeholders so that we can take account
of their views and act with regard to their
interests. Detailed below are the ways in
which the Group as a whole engages with
our stakeholders and more information can
be found in the governance report which
describes how the board engages with its
direct stakeholders: the Group’s
shareholders, employees and funders.
Our key stakeholders
Our culture
We believe that a healthy corporate culture
is vital to the creation and protection of
long-term value and the success of our
business model is driven by our culture,
which is founded on our core values: safety,
customer focus, integrity and commitment.
Our culture is characterised by a respect for
our talented people, a desire to deliver the
best possible outcomes for our colleagues,
clients and partners, the encouragement of
openness and transparency, a collaborative
approach towards working with our
customers and our supply chain, and a
regard for the value we can bring to local
communities and the environment. All new
employees receive a formal induction and
are made aware of our core values and
culture.
We believe that in our recruitment,
performance management and reward,
we support and encourage behaviours
consistent with the Group’s purpose,
values, strategy and culture. These
principles are driven by the board and
embedded in the culture and operations of
all Group companies.
Information on our performance against
our safety, health, environmental and
people objectives can be found in our 2020
‘building a sustainable business’ report.
34
During the COVID-19 outbreak we have
seen the value to the business of our
culture, and our people really came to the
fore to enable us to continue to carry on
trading as normally as possible. We are
holding regular video conference calls with
the executive team and the board and we
are regularly communicating with those
working from home. During this period,
we issued regular communications with
advice on working from home including
how to cope with certain mental health
issues arising from the crisis itself, as well as
information on the practicalities of working
from home.
Our shareholders
Our executive directors communicate
regularly with institutional investors and
analysts and all shareholders are invited to
the Group’s annual general meeting. Our
non-executive directors are also available
to meet with shareholders. The Group’s
website provides an important resource for
communications to all stakeholders, with a
specific section dedicated to investors. The
Group provides regular updates on financial
performance and significant events using a
regulatory information service and responds
to queries received from shareholders.
Our people
We keep our employees informed of our
financial performance through newsletters,
emails, an intranet and briefing sessions,
and let them know of any external factors
and significant events that might have an
impact on them. During the COVID-19
outbreak in particular, we communicated
regularly with our staff and specifically
launched a dedicated online information
hub relating to the crisis through our intranet
platform. We offer share plans to employees
(including the opportunity to save for
three years under our SAYE scheme) to
encourage them to engage with business
performance and progress.
Each Group company updates its
employees on business goals, market
conditions and company performance.
Business-specific employee roadshows are
held throughout the year and employees
are invited to give their views and provide
feedback on a range of topics.
During the year, non-executive directors met
with employees through our director site
safety programme. We held our inaugural
Severfield Safety First Awards in November
2019 where we were able to celebrate with
colleagues key safety-related achievements
and initiatives throughout the year. This
event gave colleagues the opportunity
to share ideas and experiences with
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT
colleagues from different roles and regions
across the Group. We regularly analyse
employee feedback and communicate
the results to employees together with the
actions to be undertaken in response.
Our suppliers and subcontractors
We develop long-term relationships with
our supply chain and work with them to
achieve the best results for our clients. Most
of our suppliers are signed up to Group-
wide agreements. We have a structured
timetable of senior contact with suppliers
of strategic importance and hold regular
meetings with suppliers, covering a broad
range of topics including identifying and
managing any incidents of modern slavery.
We have a comprehensive Group-wide
supplier accreditation process which
involves reviewing and scoring supplier
performance on criteria such as quality and
safety and providing them with constructive
feedback. Subcontractors who achieve
preferred status benefit from long-term
relationships and repeat work. Our policy is
to treat, and pay our supply chain fairly and
we are a member of the Prompt Payment
Code which means over 95 per cent of
our suppliers and subcontractors are paid
within 60 days.
Our clients and partners
Local communities
Our proven ability to work collaboratively
and innovatively with clients is fundamental
to our success and is critical to securing
new work. This involves early contract
engagement with clients, anticipating the
issues they face, providing problem-solving
solutions and delivering the best results to
balance time, cost and quality objectives,
whilst ensuring that risk and reward are
appropriately shared.
Engagement with the wide range of
communities in which the Group operates
is recognised as an important part of the
delivery of our projects and is referenced
where appropriate in reports to the board
throughout the year. Our directors have
taken up opportunities to learn more about
engagement with community stakeholders
on specific projects through our programme
of site visits.
Our aim is to secure work where possible
through partnerships, framework
arrangements or repeat business. We
nurture long-term relationships with our
clients and partners, which can be achieved
by taking the time to understand their
priorities and then delivering on their project
goals.
Through social and charitable committees
within each business and through the
Severfield Foundation we get involved with
and raise money for local events, such as
school or college talks or careers fairs, or
supporting local charities. More details of
the work of the Severfield Foundation can
be found on page 73.
On completion, clients are asked for
feedback on their experience in face-to-face
interviews using detailed questionnaires.
The results are shared and analysed, in
order to drive further improvements. We are
recognised for our collaborative approach
and positive engagement and are regularly
involved in early contract engagement with
clients to ensure greater clarity around
scope, programme and cost which, in
combination, reduces delivery risk for all
parties.
35
www.severfield.comStock Code: SFR STRATEGIC REPORT
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
Improve how we deliver our projects with
speed, efficiency and accuracy.
Continue our relentless focus on safety
and always think ‘safety first’.
What we’ll do
What we’ll do
Invest in activities to drive operational
excellence, improved efficiency, and quality.
Introduce new technology and equipment
that enables safer ways of working.
What this will mean for us
What this will mean for us
Further development of our expertise,
quality and an improved offering to clients.
Safeguard employees, clients and
shareholders.
More Sustainable
Focus on working sustainably and
reducing our environmental impact and
carbon emissions.
What we’ll do
Invest in technology that reduces our
energy consumption and emissions.
What this will mean for us
Care for our environment while building our
external reputation.
36
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT Link to KPIs
Link to principal risk
Strategic pillar
Growth
Our aim is to capitalise on growth opportunities,
both in the UK and in Europe, and to maximise
our market share.
Read more on page 38
Clients
By understanding, anticipating and responding
to client needs we aim to build secure,
sustainable and mutually valuable relationships
and create lasting client satisfaction.
Read more on page 40
1
5
2
6
3
7
4
1
5
2
6
3
7
4
India
The Indian business has significant value
creation potential, especially give the recent
expansion of the business and the political and
social changes made in India over recent years.
1
5
2
6
3
7
4
1
5
2
6
3
7
4
Read more on page 41
Operational excellence
Our emphasis is on delivering high-quality
projects and reducing costs by driving
excellence through our core business
processes.
Read more on page 42
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.
Read more on page 44
1
6
1
6
1
6
1
6
2
3
4
5
7 8 9
2
3
4
5
7 8 9
2
3
4
5
7 8 9
2
3
4
5
7 8 9
1
5
2
6
3
7
4
1
6
2
3
4
5
7 8 9
Key performance indicator reference number
Key to principal risks
1
2
3
4
5
6
7
Underlying operating profit and margin
(before JVs and associates)
Underlying basic earnings per share (‘EPS’)
Revenue growth
Operating cash conversion
Return on capital employed (‘ROCE’)
Order book
Accident frequency rate (‘AFR’) /
Injury frequency rate (‘IFR’)
1
2
3
4
5
6
7
8
9
Health and safety
Commercial and market environment
COVID-19
Information technology resilience
Mispricing a contract (at tender)
Failure to mitigate onerous contract terms
Supply chain
Indian joint venture
People
Read more about our
safety, health and
environment strategy
on pages 66 to 69
Read more about our
people strategy on
pages 70 to 72
37
www.severfield.comStock Code: SFR STRATEGIC REPORT Our strategy
In 2020, we continued to make good operational and strategic progress, helping to generate sustainable
long-term value for our stakeholders.
Growth
Our aim is to capitalise on growth opportunities, both in the UK and Europe,
and to maximise our market share.
Strategic priorities
Achievements in 2020
Objectives for 2021
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.
• Achieving an underlying profit before tax of
• Further grow Group revenue whilst responding
£28.6m meant we have surpassed our 2020
strategic profit target.
to the challenges of COVID-19 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) to deliver sustainable
shareholder value.
• Maintain our focus on key sectors in the UK and
Europe including industrial and distribution, data
centres, commercial offices, stadia and transport
infrastructure to strengthen and widen our
market focus.
• Exploit further opportunities for growth,
both organically and through acquisition.
• Grown Group revenue by 62 per cent since we
launched our strategic growth target in 2015.
• The UK and Europe order book at 1 June 2020
stands at £271m, providing the Group with a
strong future workload.
• Entered new UK markets through the recent
acquisition of Harry Peers.
• Invested in organic growth with the launch of our
new ‘Severstor’ and ‘Seversilo’ product ranges.
• Continued to develop our industrial and
distribution and data centre offering, adopting a
more sector-focussed approach.
• Invested £6.5m in capital expenditure as our
capital investment programme continues to drive
operational efficiencies and organic growth across
the Group. This has enhanced our market position
and ensures we remain competitive across a wide
range of sectors.
• CMF continued to develop its product offering and
grow organically.
38
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT Strategy in action
GULFSTREAM AIRCRAFT
HANGAR, FARNBOROUGH
Providing space for up to 13 private jets and
accompanying office facilities, this modern aircraft
hangar will help keep Gulfstream’s fleet in the sky.
The Project
Located at Farnborough Airport, London’s gateway for business
aviation, this 236m long ‘maintenance, repair and overhaul’ (‘MRO’)
facility for Gulfstream private jets consists of a large aircraft hangar
with a three-storey feature office, with further office space along
its full length. Designed to house up to 13 jets with clear spans
between them, three large hangar doors open into c.230,000
square feet of space topped by a sweeping roof complete with
gantry crane beams.
The nature and location of the project presented additional
challenges. Working so close to an active airport meant that
site operations were conducted at unusual hours in order to
prevent the landing air traffic from being disrupted by the cranes
needed to position the trusses. These trusses also needed to
have tight tolerances over large distances in order to properly
install the crane gantry beams, with the use of temporary support
towers necessitating a very specific order for their installation.
The project also called for the use of four different paint systems,
requiring close coordination and tracking from the drawing
office through to production. Despite the challenges, the site
programme was completed to the original schedule.
To complete the project, Severfield supplied, fabricated and erected
a mix of hot-rolled structural steel and cold-rolled purlins, as well
as utilising our expertise in connection design in conjunction with
consultant engineers. The building consists of twenty-seven 40m
roof trusses, which were required to be fabricated and delivered in
three sections for transport, as well as the three 70m door trusses
required to head the large hangar doors. These were also delivered
in sections and bolted together on the ground, then lifted onto
temporary support towers before being jacked into position to a
sub-9mm tolerance over the 70m length.
Pictured above:
Dis secepelecti temporepella
de mollicipsam hictotat volo
imustotate quam inullau.
Location
Farnborough Airport,
Hampshire
Client
Gulfstream
Engineer
Hydrock
Architect
Gebler Tooth
Tonnage
1,320
Completion date
February 2020
39
www.severfield.comStock Code: SFR STRATEGIC REPORT 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 2020
Objectives for 2021
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.
• 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.
• Engaged with a number of clients in the early stages
of the contract process to explore and develop cost-
effective, safe and practical solutions from project
conception to meet our clients’ requirements.
• Continued to integrate our skilled and experienced
employees into our clients’ project teams,
working collaboratively to efficiently overcome
project challenges.
• Launched our Group-wide supply chain
accreditation process to ensure that our supply
chain partners continue to match our expectations
of quality, sustainability and commitment to
client service.
• Developed new client relationships resulting in
further opportunities, including in Europe and in
smaller projects in the UK.
• Continue to deliver a quality, safe and efficient
service to our clients.
• 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.
• 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.
• Explore and develop 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.
40
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT India
The Indian business has significant value creation potential, especially given the recent
expansion of the business and the political, commercial, social and technological
changes made in India over recent years.
Strategic priorities
Achievements in 2020
Objectives for 2021
Value creation
in India:
Our aim is to develop
and build value in
the business whilst
the market continues
its conversion from
concrete to steel.
• Strong performance by JSSL in the year resulting
in the Group’s share of profit after tax of £2.2m
(2019: £1.2m).
• Improved JSSL operating margin of 8.5 per cent
(2019: 6.4 per cent) reflects an increased mix of
commercial work compared to the higher levels of
industrial work which were delivered in 2019.
• Completion of the Bellary factory expansion,
which has increased factory capacity from
c.60,000 tonnes to c.90,000 tonnes, positioning
us well to continue to take advantage of future
growth opportunities.
• Further investment in the management team,
technical and operational staff to further drive
efficiency improvements.
• Respond to the challenges of COVID-19.
• Continued order book development and
leveraging the increased factory capacity to build
on the improved mix of higher margin commercial
work to benefit operating margins.
• Continue to service industrial projects, including
those for JSW Steel and improve our design and
build and value engineering proposition.
• Invest in and grow the capability of the local
team, and continue to develop succession and
management developed initiatives.
41
www.severfield.comStock Code: SFR STRATEGIC REPORT Our strategy
Operational excellence
Our emphasis is on delivering high-quality projects and reducing costs by driving
excellence through our core business processes.
Strategic priorities
Achievements in 2020
Objectives for 2021
Drive operational
improvements and
efficiencies:
The objective of
our comprehensive
‘SSS’ improvement
programme is to
further develop
the Group’s risk
assessment,
operational and
contract management
processes.
Invest in market-
leading technology:
We will make this
investment in the
short and medium
term in order to
support the Group’s
ongoing requirements
and for growth.
Continued focus on our ‘SSS’ initiatives have driven
improvements in our operational execution. During
the year, these initiatives included:
• Further developments to our Group-wide
production management system (StruMis) and our
contract management system (Workspace).
• Optimisation of factory processes, particularly at
• Continue with our ‘SSS’ initiatives to maintain
the Group’s focus on business improvement and
efficiencies, further optimising processes within
our factories and production lines.
• Further investment in capital expenditure
across the Group to make our businesses more
competitive and operationally efficient.
Dalton, the Group’s main fabrication facility.
• Maintain our focus on developing state-of-the-
art manufacturing technologies and key systems
integration to drive operating efficiencies.
• Develop and roll out our Group-wide sustainability
strategy to further reduce our environmental
impact and carbon emissions, working
collaboratively with customers, industry and the
supply chain.
• Further development of design and drawing office
processes, reducing our reliance on paper-based
information.
• Launching our Group-wide supply chain
accreditation process to ensure that our supply
chain partners continue to match our expectations
of quality, sustainability and commitment to client
service.
• Continued investment in IT, including the roll-out
of data analytics and workflow management
software and project specific commercial and
operational tools.
• Implementation of quality control and cost
reduction programmes and application of Lean
manufacturing techniques.
• Improved our approach to design, looking at new
and innovative ways of working, including the use
of enhanced BIM (3D) modelling.
• Successfully switched to 100 per cent green
electricity at our two largest production facilities,
reduced our greenhouse gas (‘GHG’) emissions
and achieved an ‘A-’ rating in the CDP index new
supplier engagement rating.
42
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT Strategy in Action
MULTI-STOREY CAR PARK,
MANCHESTER AIRPORT
Full design and build contract for the
supply, treatment and erection of structural
steelwork and metal decking for the steel
frame including office building and link
bridge.
The Project
The proposed development is a multi-
storey car park with five levels of parking for
approximately 8,500 valet parked cars. It
will be used as a drop and go facility and will
include an office building, reception, and a
footbridge linking into terminal three.
The multi-storey car park off-site and
on-site programmes are being completed
to a tight schedule, necessitating high
production outputs from the Group’s Dalton
manufacturing facility and a high erection
piece count on site. Overall, 4,100 tonnes
of structural steelwork were supplied for the
main multi-storey car park, 70 tonnes for the
reception building and 110 tonnes for the link
bridge into the main terminal building. The
car park floors also include metal decking
supplied by Severfield with in-situ cast
concrete. Approximately 126,000 square
metres of metal decking and 165,000 shear
studs were provided as part of the erection
programme.
A key design challenge faced by the Group’s
project team was to overcome the difficulties
encountered by the inclusion of a bespoke
fire protection system within the scope.
This precluded the use of a conventional
intumescent paint system and galvanised
metal decking. After extensive research, the
Group selected metal decking coated with
Magnelis, a new metallic steel coating system
comprising zinc, aluminium and magnesium
which provides superior corrosion protection
to galvanising. Due to the harsh environmental
conditions, working closely with specialists
Sherwin Williams, we opted to use a type of
intumescent paint originally developed for
the off-shore industry, which satisfied MAG‘s
requirements.
Location
Manchester Airport,
Manchester
Client
Manchester Airport
Group (‘MAG’)
Main contractor
Galliford Try
Engineer
AECOM
Tonnage
4,280
Completion date
June 2020
43
www.severfield.comStock Code: SFR STRATEGIC REPORT Our strategy
People
Our people are at the heart of our business and are vital to the success of our
vision and the achievement of our strategic goals.
Strategic priorities
Achievements in 2020
Objectives for 2021
• Develop and implement our people
strategy in tandem with our Group-wide
sustainability strategy.
• Undertake a comprehensive workforce
engagement programme to gain a deeper
understanding of colleagues’ perspectives and to
refresh our purpose and vision.
• Continue to share best practice across the Group
in operational processes, technical knowledge,
governance and compliance.
• Continue to invest in the development, mental
health and wellbeing of our people, including
leadership and talent development initiatives.
• Launch a further employee Save As You
Earn scheme.
• Further refine and develop our accident and injury
reporting metrics to ensure we are continuing to
drive the appropriate safety behaviours.
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.
• Recognition of the skill and expertise of our project
teams through a number of national awards for
our projects including the 2019 Structural Steel
Design Awards and the 2019 Institute of Structural
Engineers’ Structural Awards.
• Increased employment across the Group to
around 1,400 employees, which includes 61
employees who joined us with the Harry Peers
acquisition.
• Continued to invest in our Severfield development
programme for emerging leaders and launched
our ‘early careers’ initiative.
• Continued to promote our graduate and
apprenticeship schemes and have successfully
on-boarded our first wave of apprentices following
our work with the Institute for Apprenticeships
through which we collaboratively developed a
metal fabricator apprenticeship programme.
• Welcomed the appointment of Louise Hardy, our
first female board member.
• In 2020, our accident frequency rate, including
our Indian joint venture, was 0.15, which
continues to outperform the industry average.
We have widened our KPIs to include injury
frequency rate (‘IFR’), rather than only reporting
on serious accidents.
• Further developed our internal communication
channels, including the launch of a new Group-
wide intranet, to enable us to keep in touch with
all our employees. This was even more important
following the outbreak of COVID-19 to update a
large number of colleagues who were working
from home.
• Continued to invest in the development of our
human resources and payroll management
system, to improve efficiency across our people
processes.
44
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT Strategy in Action
KING’S CROSS
P2
A mixed-use development in central
London, currently intended to incorporate
a 600-seat theatre, c.194,000 square feet
of office space and c.18,000 square feet of
retail space.
The Project
The 12-storey scheme, the latest project
being delivered as part of the 67-acre
redevelopment of Lewis Cubitt Square,
King’s Cross, will primarily consist of office
accommodation over nine floors. It will
also include a 600-seat theatre and bar.
The ground floor on the south side will be
dedicated to retail space, further expanding
the shopping experience outward from the
nearby Coal Drops Yard development, also
delivered by the Group during our 2017
financial year.
The Group’s scope includes the design,
fabrication and erection of a 3,600 tonne
structural steel frame with precast package
of internally exposed structural steelwork
to an architectural standard finish. This will
incorporate 20,000 square meters of hollow
core flooring with exposed soffit including
supporting steelwork, steel bracketry and
Macalloy hangers to the mezzanine floors.
Given much of the completed steel frame
will also be left exposed, this requires the
paint finish on all parts of the structure to be
to a high decorative standard. The Group
elected to utilise intumescent paint with an
on-site top-coat applied. Additional Severfield
products and services incorporated into the
programme include deployment of ‘Seversafe’
edge protection, safety fans at two levels and
the ‘Seversafe’ offload system.
Location
King’s Cross, London
Engineer
ATK II
Architect
AHMM
Tonnage
3,600
Main contractor
Kier
Completion date
September 2020
45
www.severfield.comStock Code: SFR STRATEGIC REPORT Key performance
indicators
1
Underlying* operating profit and margin
(before JVs and associates)
2
Underlying* basic earnings per share
(‘EPS’)
Strategic pillar
m
0
.
7
2
£
m
9
.
2
2
£
m
3
.
3
2
£
Strategic pillar
p
7
.
7
p
7
.
6
p
4
.
6
8
1
9
1
0
2
8
1
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 focussed 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
EPS is calculated as underlying profit after tax divided by the
weighted average number of shares in issue during the period.
Our performance
EPS has increased by 15 per cent, reflecting the increased
underlying profit before tax in the year.
Stakeholder linkage
• Shareholders
• Employees
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 16 per cent, exceeding our 2020 strategic profit target
of doubling underlying profit before tax to £26m.
Stakeholder linkage
• Shareholders
• Employees
Strategic pillar key
£
Growth
Clients
India
46
Operational
excellence
People
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT
3
Revenue growth
(on a like-for-like basis)
4
Operating cash conversion
m
0
.
3
1
3
£
m
2
.
4
7
2
£
m
9
.
4
7
2
£
Strategic pillar
Strategic pillar
%
1
8
%
7
7
%
0
5
8
1
9
1
0
2
8
1
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.
This measures how successful we are in converting profit to cash
through management of working capital and capital expenditure.
How we calculate
In the current year, the acquisition of Harry Peers contributed
revenue of £14.4m for the six months since its date of acquisition.
Accordingly, this KPI is adjusted to reflect the Group’s like-for-like
revenue growth. There were no such adjustments in the prior year.
Operating cash conversion is defined as cash generated from
operations after net capital expenditure (before interest and tax)
expressed as a percentage of underlying operating profit (before
JVs and associates) (see note 26).
Our performance
Our performance
Like-for-like revenue has increased by 14 per cent, reflecting an
increase in order flow and higher production activity, particularly in
the second half of the year.
Stakeholder linkage
• Shareholders
• Employees
• Clients
• Suppliers
• Communities
Operating cash conversion was 81 per cent, in line with our target
conversion rate of 85 per cent.
Stakeholder linkage
• Shareholders
• Employees
• Suppliers
47
www.severfield.comStock Code: SFR STRATEGIC REPORT
Key performance
indicators
5
Return on capital employed
(‘ROCE’)
6
Order book
Strategic pillar
%
2
.
7
1
%
5
.
6
1
%
7
.
5
1
Strategic pillar
m
5
9
2
£
m
1
7
2
£
m
7
3
2
£
8
1
9
1
0
2
8
1
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.
Capital employed is defined as shareholders’ equity excluding
retirement benefit obligations (net of tax), acquired intangible assets
and net funds (see note 22).
Our performance
ROCE has increased by 1.5 per cent, continuing to exceed the
Group’s target of 10 per cent.
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 and Europe order book shows the total value of future
revenue secured by contractual agreements.
Our performance
The UK and Europe order book stands at £271m at 1 June 2020,
representing an 8 per cent decrease since 1 June 2019. This
reduction mainly reflects the higher revenue recorded in the second
half of the 2020 financial year.
Stakeholder linkage
• Shareholders
• Employees
• Suppliers
• Communities
Stakeholder linkage
• Shareholders
• Employees
Strategic pillar key
£
Growth
Clients
India
48
Operational
excellence
People
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT
7
Accident frequency rate (‘AFR’)
Injury frequency rate (‘IFR’)
2
2
.
0
Strategic pillar
5
1
.
0
1
1
.
0
8
1
9
1
0
2
Why this is important
AFR and IFR are industry-standard measures of the safe operation
of our business and are among a number of health and safety
measures the Group uses to monitor its activities.
During the last year, we have shifted our focus to the Group’s injury
frequency rate. IFR focusses on a variety of incidents, ranging from
minor to potentially more serious. The Group’s IFR has reduced
over the course of the year, with targeted reductions in almost all
areas of the business.
How we calculate
AFR is equivalent to one reportable lost-time incident per 100,000
hours worked, which equates to approximately one working lifetime.
IFR is the number of reportable injuries per 100,000 hours worked.
Our performance
Once again, we have achieved our safety targets for the year,
reporting an AFR, which includes our Indian joint venture, of 0.15,
and continuing to outperform the industry average. The slight
increase from the prior year was not wholly unexpected given both
the significant improvement in the AFR in 2019 and the increased
Group activity levels in 2020.
Stakeholder linkage
• Employees
S T R AT E G I C R E P O R T
49
www.severfield.comStock Code: SFR Our operating
performance
THE GROUP HAS
DELIVERED AN
EXCELLENT SET OF
RESULTS IN 2020.
Alan Dunsmore
Chief executive officer
50
Group overview
The Group has delivered an
excellent set of results in 2020.
This reflects a combination of
revenue and profit growth in the
UK and Europe, good operational
and strategic progress, good
cash generation and a significantly
improved performance from our
Indian joint venture.
In 2020, we have increased
our revenue by 19 per cent
to £327.4m (2019: £274.9m)
and are pleased with our profit
performance with underlying
profit before tax up 16 per cent
to £28.6m (2019: £24.7m),
exceeding our 2016 strategic profit
target of doubling underlying profit
before tax to £26m. This improved
profit performance has been
achieved despite a softer market
backdrop in the UK, particularly in
the run-up to the General Election
in December 2019.
The 2020 results include the
acquisition of Harry Peers, a
leading structural steelwork
business within the highly
regulated nuclear, process
industries and power generation
sectors, which is broadening the
Group’s market exposure and
enhancing its areas of expertise.
Harry Peers is integrating well into
the Group’s operations and has
contributed revenue of £14.4m
and underlying operating profit of
£1.3m for the six months since its
date of acquisition.
Balance sheet strength and
cash generation have remained
a high priority for the Group in
2020. Another year of positive
cash generation has provided
us with the flexibility to invest
in our UK businesses whilst
further strengthening our balance
sheet which provides us with
a competitive benefit with both
clients and our supply chain.
Year-end net funds (excluding IFRS
16 lease liabilities) were £16.4m
(2019: £25.1m) – this includes the
outstanding term loan of £13.1m
for the Harry Peers acquisition.
The Indian joint venture (‘JSSL’)
has also performed very well in
2020. JSSL’s strong performance
was reflective of the step change in
the Indian market position in 2020,
and its results have benefitted
from significant revenue growth,
margin improvements and good
operational performance.
We continue to exceed our return
on capital employed (‘ROCE’)
target of 10 per cent and have
achieved a return of 17.2 per
cent in the year (2019: 15.7 per
cent), maintaining the Group’s
alignment with its construction and
engineering clients and peers.
COVID-19
Unfortunately, after such an
encouraging year in 2020, since
the year-end we have been
focussing on the challenges which
have resulted from the spread
of COVID-19. In managing our
response to the pandemic, the
primary focus has been on the
health, safety and wellbeing of all
employees, clients and the wider
public, together with protecting
the financial strength of the Group.
To date we have coped well with
the challenges presented by
COVID-19. The Group's factories
are operational and, after some
temporary interruptions, all of
our construction sites in the UK
and Europe remain open. Strict
precautions are in place for both
the factories and the sites including
enhanced levels of cleaning,
additional hygiene facilities and
social distancing.
At this early point in our financial
year it is impossible to predict the
full extent of the financial impact
of COVID-19 on the 2021 outturn.
Despite this, we have a strong
balance sheet and are confident
that we have sufficient cash and
committed funding in place during
this unprecedented period of
uncertainty.
Notwithstanding our current
strong balance sheet position,
in order to mitigate the financial
impact of COVID-19, and protect
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT our cash position during the current
period of uncertainty in a manner that
does not compromise our future plans
for the Group, a number of precautionary
actions have been implemented. These
include the deferral of all non-essential and
uncommitted capital expenditure, together
with restrictions on discretionary operating
expenditure, tight management of working
capital and the deferral of tax payments
(PAYE, NIC and VAT) and quarterly term
loan repayments (due in March and June).
Furthermore, prior to the year-end, we fully
drew down all available amounts under our
Revolving Credit Facility (£15m) to provide
control over our own cash resources.
Following a successful 2020, the board
would ordinarily expect to propose a
final dividend in line with our progressive
dividend policy. However, the board believes
it is prudent to defer any dividend payment
decisions until there is greater visibility on
the impact of COVID-19.
UK and Europe
Revenue was up 19 per cent over the prior
year predominantly reflecting an increase
in order flow and higher production activity,
particularly in the second half of the year,
together with the second half impact on
revenue of the Harry Peers acquisition.
During the year, we continued to work on
the new Google Headquarters at King’s
Cross, together with other commercial office
developments in London and the regions.
Other significant revenue contributing
projects include large industrial and
distribution projects in the UK and Republic
of Ireland, large data centres in Finland and
the Republic of Ireland, ongoing projects at
Heathrow and Manchester airports, and a
scientific research facility in Sweden, which
was the first significant order won by our
European business.
The underlying operating margin (before
JVs and associates) was 8.2 per cent
(2019: 8.5 per cent), resulting in an
underlying operating profit (before JVs and
associates) of £27.0m (2019: £23.3m).
The 2020 margin remains within our
strategic margin range of 8 to 10 per cent
and the slight reduction in the margin
compared to the prior year reflects the mix
of work undertaken during the year and
the slightly softer market conditions in the
UK, particularly toward the end of the 2019
calendar year.
The UK margin performance continues to
reflect improvements to our operational
execution. This includes the benefits from
our programme of projects categorised
under the banner of ‘Smarter, Safer, more
Sustainable’ (‘SSS’). These initiatives
continue to focus on improving many
aspects of our internal operations, including
the application of Lean manufacturing
techniques, optimisation of factory
processes, quality control and cost
reduction programmes.
Building from a strong foundation
Delivering on our promises
Exceeded our 2020 strategic profit target
2018
£23.5
MILLION
2017
£19.8
MILLION
2019
£24.7
MILLION
£28.6
MILLION
51
www.severfield.comStock Code: SFR STRATEGIC REPORT Our operating
performance
‘Smarter, Safer, more Sustainable’
‘SSS’ is an enduring process for the Group
and forms part of a continuous cycle of
improvement, with an increased focus
on manufacturing efficiency, rather than a
one-off programme. We also believe that
the successful development and adoption
of new technologies across the whole of the
Group will be fundamental to our long-term
strategic objectives.
During the year, we have overseen
further enhancements to our Group-
wide production management system
(StruMIS), which will help drive productivity
improvements, and our contract
management system (Workspace), including
the use of the system on mobile devices.
We have also rolled out a new Group-
wide supply chain accreditation process
to ensure that our supply chain partners
continue to match our expectations of
quality, sustainability and commitment to
client service.
We continue to devote skilled resource to
reviewing and responding to developing
technologies (including virtual reality
and digital technologies). We have
a centralised IT team dedicated to
ensuring our IT environment is secure,
giving us the confidence to invest in new
technology and respond to IT risks. In
2020, we have continued the roll-out of
new software including data analytics,
workflow management and project-specific
commercial and operational tools to better
inform decision-making and improve
efficiencies both in our factories and on our
construction sites. We are also continuing
to take steps to improve the integration of
key systems, better automate workflows
and, as part of our digital transformation
initiative, reduce our reliance on paper-
based information to facilitate more efficient
ways of working. In addition, through our
engineering forum, we have improved our
approach to design, looking at new and
innovative ways of working, including the
use of enhanced BIM (3D) modelling.
We continue to invest in and streamline our
factories, particularly at Dalton, which is
increasingly operating as a fulfilment centre
for the benefit of the Group as a whole.
Actions taken to improve manufacturing
cost efficiency include waste elimination
initiatives and the upgrade, reconfiguration
and ongoing expansion of certain of our
fabrication lines to improve the speed and
52
the Institute for Apprenticeships through
which we collaboratively developed a metal
fabricator apprenticeship programme.
Our leadership and talent programmes
are now well established at various levels
within the business, including the Severfield
Development Programme, which brings
together talent with the potential for
future senior roles. Below this level we
have launched an ‘early careers’ initiative
which builds readiness for more senior
positions. We have also continued to
develop and support our people to apply
Lean manufacturing techniques, achieve
new qualifications, increase their skills and
knowledge, and develop their careers with
the Group.
efficiency of these operations, together with
further investment in our in-house painting
facilities at Ballinamallard. The majority
of these improvements form part of the
Group’s capital investment programme,
which has seen an investment in 2020 of
£6.5m, taking our capital investment in
the Group to nearly £40m over a six-year
period. We will continue to invest in our
businesses in the future to make them more
competitive and operationally efficient and
to support the development of our client
service offering.
Underpinning our culture of continuous
improvement is the ongoing focus on
human resources and attracting and
retaining the highest calibre of workforce
remains fundamental to the Group’s
strategy. During the year, we have
continued to invest in our workforce and
have increased our headcount to around
1,400 employees, which includes 61
employees who joined us with the Harry
Peers acquisition. Throughout the year we
have strengthened a range of disciplines
across the Group, including within our
manufacturing operations team at Dalton.
We continue promote our graduate
and apprenticeship schemes, and have
successfully on-boarded our first wave
of apprentices following our work with
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT We continue to pursue a number of
significant infrastructure opportunities,
particularly in the transport sector. The UK
government’s commitment to HS2 and its
April announcement to proceed quickly
with phase one construction work, which is
worth an estimated £12 billion, has provided
some much needed certainty to the
construction industry. HS2, in combination
with the ongoing Network Rail and
Highways England investment programmes,
the latter having a record budget of
£25 billion for the 2020–2025 period,
are expected to contribute significantly
to the UK government’s investment in
infrastructure commitment over the coming
years. We remain well positioned to win
work from these projects, all of which
have substantial steelwork content, given
the Group’s historical track record in
transport infrastructure and our in-house
bridge capability.
The sale of British Steel to Jingye Group
(‘Jingye’), China’s third largest privately
owned steel producer, was completed in
March 2020, helping to provide stability
to the steel supply market in the UK.
Encouragingly, Jingye has announced its
intention to invest over £1 billion in British
Steel over the next decade. This investment
is expected to include a number of furnace
upgrades (including the development of an
electric arc furnace in Teesside), steelworks
improvements and some product range
enhancements. Notwithstanding this,
we continue to regularly review our steel
supply arrangements and already have
strong ongoing relationships with other
supply chain partners, including those in
continental Europe and local stockholders
in the UK.
book also contains the remaining works for
the Google Headquarters at King’s Cross,
together with a number of mid-sized office
developments, both in London and the
UK regions, successfully secured by our
commercial teams during the year. In terms
of geographical spread, of the order book
of £271m, 54 per cent represents projects
in the UK, with the remaining 46 per cent
representing projects for delivery in Europe
and the Republic of Ireland (1 November: 53
per cent in the UK, 47 per cent in Europe
and the Republic of Ireland).
Whilst the conclusive outcome of the 2019
General Election and the UK’s eventual
exit from the European Union in early 2020
has reduced some of the earlier political
uncertainty, elements remain as the nature
of the UK’s future trading relationship with
the EU continues to be unresolved. We
continue to monitor developments in this
area and we have plans in place to mitigate,
where possible, the impact of leaving
the EU on the fulfilment of orders in the
Republic of Ireland and continental Europe
and on our supply chain.
Unfortunately, there is now also significant
uncertainty over the extent of the impact
and longevity of the COVID-19 pandemic
and we are now seeing evidence of
investment decisions being delayed in some
of our sectors as clients and developers
appear to be adopting a more cautious
approach until greater market clarity returns.
Pricing generally remains competitive.
Despite this, we remain well placed to win
work in the diverse range of market sectors
and geographies in which we operate and
across a wide client base, providing us with
extra resilience and the ability to increase
our market share.
Notwithstanding the current period of
uncertainty, we are encouraged by the
current level of tendering and pipeline
activity across the Group. We continue to
see a good number of opportunities in key
market sectors, in particular the industrial
and distribution and data centre sectors,
which remain strong and these projects
play to our strengths, requiring high-quality,
rapid throughput, on-time performance and
full co-ordination between stakeholders.
Opportunities exist in these sectors in both
in the UK and in Europe, where we have
demonstrated our ability to win more work,
supported by our European business.
53
Order book, pipeline and
market conditions
The UK and Europe order book at 1 June
2020 stands at £271m (1 November 2019:
£323m), of which £243m is for delivery
over the next 12 months, providing the
Group with a strong future workload during
the current period of uncertainty caused
by COVID-19. The reduction in the June
order book represents the anticipated
decrease from the record position of £323m
at the time of announcing the half year
results, mainly reflecting the higher revenue
recorded in the second half of the 2020
financial year.
The order book contains a healthy mix of
projects across a diverse range of sectors
including industrial and distribution, data
centres, commercial offices, and stadia
and leisure. Significant orders include a
large industrial facility, which includes a
bespoke paint package, and a large data
centre, both in the Republic of Ireland,
a large data centre in Finland, a large
distribution facility in the UK, the new
stadium works at Fulham F.C. and the
redevelopment of Lord's Cricket Ground
(Compton and Edrich stands). From a
commercial office perspective, the order
www.severfield.comStock Code: SFR STRATEGIC REPORT Our operating
performance
Harry Peers
Clients
On 1 October 2019, the Group completed
the acquisition of Harry Peers, a leading
full service structural steelwork business
focussing on the nuclear, process
industries and power generation sectors.
The net initial cash consideration for the
acquisition of £18.9m was funded by a
combination of a term loan and Group cash
reserves. A performance-based contingent
consideration of up to £7m is also payable if
certain financial and operational targets are
achieved for the period to 31 August 2020.
Harry Peers is integrating well into the
Group’s operations and we are seeing
good opportunities to expand and
extend the Group’s current capabilities
into attractive complementary market
sectors, broaden our market exposure and
enhance our areas of expertise. Looking
further ahead, we believe that there are
good opportunities to grow Harry Peers
through a number of operational initiatives
including business development, European
contract opportunities, and investment
in technology-driven enhancements. In
particular, the nuclear sector, including both
the defence and commercial sectors, in
which Harry Peers commands a niche, well-
established and trusted position with blue
chip customers, is forecast to grow through
the UK government's decommissioning
investment programme. Harry Peers has
also demonstrated capability in modular
structural steel offerings, which the Group
will look to develop across its wider product
range. This acquisition is another step in
the implementation of the Group’s strategy
and will enhance our position as the UK's
broadest structural steel services group.
Our proven ability to work collaboratively and innovatively with clients is fundamental to our
success and is critical to securing new work. This involves early contract engagement with
clients, anticipating the issues they face, providing problem-solving solutions and delivering
the best results to balance time, cost and quality objectives, whilst ensuring that risk and
reward are appropriately shared.
Our unique capability to deliver complex design solutions, our capacity and speed of
fabrication, the expert capabilities of the Group and its employees and our management
and integration of the construction process is important to our clients and a key
differentiator for the Group. In particular, engineering solutions are vital to our success, and
our ability to deliver for our clients is dependent on us driving excellence throughout our
engineering teams. This expertise has been recognised during the year through a number
of national awards for our projects including at the 2019 Structural Steel Design Awards
(for the new Tottenham Hotspur F.C. stadium, Coal Drops Yard at King's Cross, Wimbledon
No.1 Court and Chiswick Park Footbridge) and also at the 2019 Institute of Structural
Engineers' Structural Awards (for the new Tottenham Hotspur F.C. stadium and Coal
Drops Yard).
The Group worked on over 100 projects with our clients during the year including:
Major projects – over
£20 million
Google King’s Cross, London
Large industrial facility, Republic of Ireland
Large data centres, Republic of Ireland and Finland
Commercial offices –
London and regional
One Braham, London
80 Fenchurch Street, London
Knightsbridge K1, London
King's Cross P2, London
Unity Square, Nottingham
Assembly Building, Bristol
Industrial and
distribution
Transport
infrastructure
Data centres and
other projects
Stadia and leisure
103 Colmore Row, Birmingham
Large distribution centre, East Midlands
Jaguar Land Rover, Logistics Operations Centre (‘LOC’) and
car park
M8 Footbridge, Glasgow
Barking Riverside Bridge, London
T2B Apron, Heathrow Airport (baggage handling facility)
Multi-storey car park, Manchester Airport
Data centres, Republic of Ireland
European Spallation Source, Lund, Sweden (scientific research
facility)
Lord’s Cricket Ground redevelopment (Compton and Edrich
stands)
Britannia Leisure Centre and Academy, London
54
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT During the year, we extended our successful
behavioural change programme to our
subcontractors to ensure that everyone
who works for and with us is committed
to our safety culture. We are also planning
to extend this programme into other areas
of our supply chain. In November 2019,
we held our inaugural safety awards to
celebrate positive safety behaviours and
initiatives by apprentices, other employees
and teams within all of our businesses.
Owing to the success of the event it will
now become an annual occasion.
In 2020, a sustainability policy was
published by our sustainability committee
in line with our commitments to health and
safety, environment, the economy and our
people. Meeting quarterly, the committee
discusses new initiatives and innovations
that can minimise the impact of our activities
on the environment. The Group has made
progress during the year in managing its
energy, fuel consumption and emissions,
including the switch to 100 per cent green
electricity at our two largest production
facilities and a reduction in our scope 1
and scope 2 greenhouse gas (‘GHG’)
emissions to 29.8 tonnes of CO2e/£m
revenue compared to 33.5 in 2019. In 2020,
we maintained our ‘B’ rating in the CDP
index, also receiving an ‘A-’ in their new
supplier engagement rating, considerably
outperforming the industry average of ‘D’.
We have a new sustainability strategy in
development for 2021, as we aim to further
reduce our environmental impact and
carbon emissions, working collaboratively
with customers, industry and the supply
chain.
India
JSSL has again performed strongly in the
current year. The business has continued
to expand and has almost doubled its
profit from the previous year, of which the
Group’s after tax share was £2.2m (2019:
£1.2m). This higher profitability reflects
an increase in revenue of 30 per cent
to £109.3m, compared with £84.1m in
the previous year, and an increase in the
operating margin to 8.5 per cent, compared
with 6.4 per cent in the previous year. The
improvement in the margin was anticipated
and reflects an increased mix of commercial
work compared to the higher levels of
industrial work, which was delivered in
2019. The expansion of the Bellary facility,
which has expanded factory capacity from
c.60,000 tonnes to c.90,000 tonnes, is now
complete.
The COVID-19 pandemic is impacting
JSSL in 2021. In light of the slow easing
of the nationwide lockdown announced
by the Indian government in March 2020,
and the developing impact of COVID-19
on the Indian economy, JSSL’s operations
have been disrupted in the first quarter of
2021, a situation which is likely to continue
over a period of several months. Given the
rapidly changing dynamics in the external
environment, it is difficult to predict with any
accuracy what the extent of this disruption
will be on JSSL’s profitability in 2021. JSSL’s
order book was £110m at 1 June 2020
(1 November 2019: £134m), and this
contains a good mix of higher margin
commercial work. JSSL’s pipeline of
potential orders continues to include a
number of commercial projects for key
developers and clients with whom it has
established strong relationships.
Despite the current period of uncertainty,
we remain positive about the long-term
development of the Indian market and of the
value creation potential of JSSL, especially
considering the political, commercial,
social and technological changes made in
India over recent years, the government’s
ongoing focus on simplifying regulations
and the ‘ease of doing business’, and
the significant expansion of the business
already evidenced to date.
Safety, health and the environment
‘Safety first’ remains a core value for the
Group, being vital to our continued success
and a key differentiator in the market, both
to our clients and to our employees. This
has been particularly important during
the COVID-19 pandemic where we have
continued to run our operations safely and
in line with the guidelines issued by the
Construction Leadership Council, Public
Health England and by the UK and local
governments.
Our executive committee continue to review
safety performance monthly. Investigations
are completed on all RIDDORs (a reportable
accident that results in an employee's
absence from work for more than seven
consecutive days) and high potential near
miss incidents, with input from the Group
SHE director, chief operating officer and the
relevant business unit managing director.
Findings from investigations and ‘lessons
learned’ are shared Group-wide in order
to promote a collaborative approach to
preventing accidents and incidents. Board
members continue to attend safety-
focussed site visits, encouraging employees
to suggest improvements and share best
practice.
We have, once again, achieved our Group
safety targets for the year. The Group’s
accident frequency rate (‘AFR’), including
our Indian joint venture, was 0.15, which
continues to outperform the industry
average. This represents a slight increase
from the prior year AFR of 0.11, but this
was not wholly unexpected given both
the significant improvement in the AFR in
2019 (the 2018 AFR was 0.22) and the
increased Group activity levels in 2020.
During the year, we have shifted our focus
to the Group’s injury frequency rate (‘IFR’),
rather than only on the AFR, which is a
fairly narrow metric based on the level of
RIDDORs only. Instead, IFR focusses on a
variety of incidents, ranging from minor to
potentially more serious, which allows us
to learn lessons from each individual case
and to identify process improvements and
prevention measures. The Group’s IFR has
reduced over the course of the year, with
targeted reductions in almost all areas of
the business.
55
www.severfield.comStock Code: SFR STRATEGIC REPORT Our operating
performance
Strategic progress
We are continuing to deliver on our strategic
objectives and, in achieving an underlying
profit before tax of £28.6m, we have
surpassed our 2020 strategic profit target.
As part of the ongoing ‘SSS’ initiatives,
we have implemented a number of factory
and technological improvements and have
improved our supply chain processes, as
well as entering new UK markets through
our acquisition of Harry Peers.
Our Netherlands-based European
business, which is now fully integrated
into the main operations of the Group,
has continued to deliver its first significant
contract, a research facility for the European
Spallation Source (‘ESS’) situated in Lund,
Sweden. The steel fabrication for this large
contract is mainly being provided from
our Dalton facility, together with certain
approved subcontractors. The business
continues to build on its first two contract
wins and is tendering for a number of
projects, predominantly in Northern
Europe and Scandinavia. It is developing
a growing pipeline in a range of sectors,
which includes many potentially interesting
and high-profile opportunities, although the
timing of some of these remains uncertain
as a result of COVID-19. The European
team’s market knowledge and experience
continues to be of benefit to our UK
business when tendering for and executing
projects in Europe, providing us with a
commercial advantage and the ability to
enhance our reputation through the delivery
of excellent client service.
Severfield (Products & Processing)
(‘SPP’), which is based at our Sherburn
facility, allows us to address smaller scale
projects and provides a one-stop shop for
smaller fabricators to source high quality
processed steel and ancillary products,
albeit at lower margins. Notwithstanding the
softer UK market conditions experienced
during 2020, the business has secured and
successfully delivered a number of orders
to its expanding customer base, together
with providing subcontract fabrication
packages (including general fabrication,
trusses, bracing and stairs) to other Group
companies to assist them in the delivery of
larger projects. During the year, we have
continued to gain better competitor and
customer intelligence and have improved
56
factory efficiencies, quality assurance and
health and safety processes. We have also
maintained our focus on opportunities to
grow the business and increase our market
share, with a particular emphasis on new
customer and product range development.
This includes our new ‘Severstor’ and
‘Seversilo’ product ranges, which we
are developing organically following the
closure of the similar operations within the
Portakabin group. ‘Severstor’, for which
we have already secured our first orders,
is the manufacture of secure, steel storage
units and ‘Seversilo’ is the manufacture and
installation of storage and handling systems
for dry bulk materials. The development of
both of these product ranges plays to our
strengths in general fabrication and our
previous record in modular construction.
In recent periods, we have also been
targeting potential organic opportunities
in medium to high-rise residential
construction, where we have developed a
steel solution in what has traditionally been
a concrete-dominated sector. Despite this
being more of a ‘slow burn’ than originally
anticipated due to longer than expected
client gestation periods, discussions with
a number of interested parties remain
ongoing and this opportunity continues to
be progressed in the background.
Summary and outlook
In 2020, we have increased our profitability,
both in the UK and in India, and have
exceeded our 2020 strategic profit target of
£26m. Our cash position remains strong, we
have continued to drive our ‘SSS’ initiatives
with an increased focus on manufacturing
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT Finally, I would like to thank all of our
employees for their hard work, support
and determination in these exceptionally
difficult times. From our construction
teams to those working in our factories
and from home, they have all played a key
role in ensuring we can keep our business
operating as smoothly as possible at this
unprecedented time. As always, their health
and wellbeing remains our number one
priority.
Alan Dunsmore
Chief executive officer
17 June 2020
efficiency, and we have entered new UK
markets through the acquisition of Harry
Peers.
The overall impact of COVID-19 remains
uncertain. Whilst all of our factories are
operational and all of our construction
sites in the UK and Europe remain open,
it is inevitable that the virus will have an
impact on profitability in 2021. However,
at this early point in our financial year it is
impossible to predict the full extent of this
financial impact. Despite the uncertainty
caused by COVID-19, we remain well
placed to win work in the diverse range of
market sectors and geographies in which
we operate and across a wide client base,
allowing us to target a good pipeline of
opportunities and providing us with extra
resilience and the ability to increase our
market share.
57
www.severfield.comStock Code: SFR STRATEGIC REPORT S T R AT E G I C R E P O R T
Our financial
performance
REVENUE FOR THE YEAR
IS UP 19 PER CENT,
REFLECTING ORGANIC
GROWTH AND THE
SECOND HALF
ACQUISITION OF
HARRY PEERS.
Adam Semple
Group finance director
58
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’)
2020
£327.4m
£27.0m
2019
£274.9m
£23.3m
8.2%
8.5%
£28.6m
7.7p
£24.7m
£25.8m
6.7p
17.2%
£24.7m
6.7p
£23.3m
£24.7m
6.7p
15.7%
* 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, certain Alternative Performance Measures (‘APMs’) have been
used throughout this report to supplement, rather than replace the measures provided
under IFRS.
Trading performance
2020 has been another successful year for the Group. Revenue for
the year of £327.4m represents an increase of £52.5m (19 per cent)
compared with the previous year, predominantly reflecting an increase
of £38.1m in order flow and higher production activity, particularly in
the second half of the year, together with H2 revenue of £14.4m from
the Harry Peers acquisition. The Group’s order book at 1 June 2020
of £271m represents a decrease of £52m from the record position
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT of strong performance from our
Indian joint venture (‘JSSL’). Net
finance costs were £0.7m (2019:
£0.2m), the increase over the prior
year representing interest on the
Harry Peers acquisition loan in H2
and finance expenses on the new
IFRS 16 lease liabilities.
margin to 8.5 per cent (2019: 6.4
per cent), reflecting an increased
level of commercial work in 2020.
JSSL’s order book was £110m
at 1 June 2020 (1 November
2019: £134m), and this continues
to include a good mix of higher
margin commercial work.
Our specialist cold rolled steel
joint venture business, CMF,
contributed a Group share of
profit of £0.2m (2019: £0.4m), the
business being adversely impacted
by the softer UK market conditions
during the year. The business has
continued to develop its product
range 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. Non-
underlying items for the year of
£2.8m (2019: £nil) consisted of the
amortisation of acquired intangible
assets of £1.4m (2019: £nil) and
acquisition-related expenses of
£1.4m (2019: £nil).
Amortisation of acquired intangible
assets represents the amortisation
of customer relationships, order
books and brand name, which
were identified on the acquisition
of Harry Peers. These assets are
being amortised over a period of
18 months to five years.
The acquisition-related expenses
include non-recurring legal and
consultancy costs associated
with the Harry Peers acquisition
and have been expensed in
accordance with IFRS 3 (revised).
Underlying profit before tax,
which is management’s primary
measure of Group profitability,
was £28.6m (2019: £24.7m).
The statutory profit before tax,
reflecting both underlying and
non-underlying items, was £25.8m
(2019: £24.7m).
Acquisition of Harry Peers
On 1 October 2019, the Group
completed the acquisition of 100
per cent of the share capital of
Harry Peers & Co Limited for a
net initial cash consideration of
£18.9m, after working capital
adjustments of £0.9m, on a cash
free, debt free basis. This was
funded by a combination of a
term loan of £14.0m and cash
reserves of £4.9m. The gross initial
cash consideration was £30.8m,
which included the cash and cash
equivalents (excluding payments
in advance) of Harry Peers of
£11.9m. A performance-based
contingent consideration of up
to £7m is also payable if certain
financial and operational targets
are achieved for the period to
31 August 2020. The acquired
assets included intangible assets
of £8.8m, which were attributed
to customer relationships, order
books and brand name, and
residual goodwill of £16.0m.
The business contributed revenue
of £14.4m and an operating profit
of £1.3m in the year. Interest of
£0.1m was payable during the year
on the acquisition loan.
Share of results of JVs and
associates
The Group’s share of results from
JSSL was a profit of £2.2m (2019:
£1.2m). The improved result
is mainly due to an increase in
revenue of 30 per cent, together
with an increase in the operating
S T R AT E G I C R E P O R T
Read more about our
Group financials on
pages 146 to 195
Read more about
Company financials
on pages 196 to 202
59
at the time of announcing the
half year results (1 November
2019: £323m), mainly reflecting
the higher than normal revenue
recorded in the second half of the
2020 financial year.
Underlying operating profit (before
JVs and associates) of £27.0m
(2019: £23.3m) was £3.7m
higher than in the previous year.
The underlying operating margin
(before JVs and associates) of
8.2 per cent (2019: 8.5 per cent)
remains within our strategic margin
range of 8 to 10 per cent. The
slight reduction in the margin
reflects the mix of work undertaken
during the year and the slightly
softer market conditions in the UK,
particularly toward the end of the
2019 calendar year. The statutory
operating profit (before JVs and
associates), which includes the
Group’s non-underlying items, was
£24.7m (2019: £23.3m).
The share of results of JVs and
associates was a profit of £2.4m
(2019: £1.6m), reflecting a year
www.severfield.comStock Code: SFR STRATEGIC REPORT The board is not currently recommending a
final dividend (2019: 1.8p per share). Given
the wide range of potential profit and cash
flow outcomes for 2021, the board believes
it is prudent to defer any dividend payment
decisions until there is greater visibility on
the impact of COVID-19.
Goodwill and intangible assets
Goodwill was £70.7m at 31 March 2020
(2019: £54.7m), the increase reflecting
the goodwill arising on the Harry Peers
acquisition. In accordance with IFRS,
an annual impairment review has been
performed. No impairment was required
during either the year ended 31 March 2020
or the year ended 31 March 2019.
Other intangible assets are recorded at
£7.4m (2019: £nil). This represents the
net book value of the intangible assets
(customer relationships, order books and
brand name) identified on the acquisition of
Harry Peers.
Property, plant and equipment
The Group has property, plant and
equipment of £88.9m (2019: £84.0m).
Capital expenditure of £6.5m (2019:
£7.2m) represents the continuation of the
Group’s capital investment programme.
This predominantly comprised continued
investment in the painting facilities at
Ballinamallard, an expansion of our
operations at Ballinamallard and Dalton,
including new equipment for our fabrication
lines, and the purchase of construction
site equiment. Depreciation in the year
was £5.5m (2019: £3.6m) of which £1.5m
relates to new right-of-use assets under
IFRS 16.
Cash flow
Joint ventures
The carrying value of our investment in joint
ventures and associates was £26.7m (2019:
£24.3m), which consists of the investment
in India of £18.3m (2019: £16.1m) and in
CMF of £8.4m (2019: £8.2m).
Pensions
The Group’s defined benefit pension
scheme, which is closed to new members,
had an IAS 19 deficit of £18.7m at
31 March 2020 (2019: £20.0m). The
decrease in the liability is mainly due to
lower inflation (RPI) assumptions and the
ongoing deficit contributions of £1.5m made
by the Group during the year offset by an
increase in the scheme’s cash commutation
factors. The triennial funding valuation of the
scheme will be carried out in 2021, with a
valuation date of 31 March 2020. 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 2020,
ROCE was 17.2 per cent (2019: 15.7 per
cent), which exceeds the Group’s target of
10 per cent through the economic cycle.
Operating cash flow (before working capital movements)
Cash generated from operations
Operating cash conversion
Net funds**
2020
£30.2m
£28.0m
81%
£16.4m
2019
£25.8m
£18.0m
50%
£25.1m
** The Group excludes IFRS 16 lease liabilities from its measure of net funds/debt as they are excluded from the
definition of net debt as set out in the Group’s borrowing facilities.
Our financial
performance
Taxation
The Group’s underlying taxable profits of
£26.3m (2019: £23.1m) resulted in an
underlying tax charge of £5.0m (2019:
£4.5m), which represents an effective tax
rate of 19.0 per cent (2019: 19.7 per cent).
The total tax charge of £5.4m (2019: £4.5m)
also includes adjustments relating to prior
years and the deferred tax impact of the
future increase in UK corporation tax from
17 per cent to 19 per cent, both of which
are categorised as non-underlying and are
included in non-underlying items.
Earnings per share
Underlying basic earnings per share
increased by 15 per cent to 7.7p (2019:
6.7p) based on the underlying profit after tax
of £23.7m (2019: £20.2m) and the weighted
average number of shares in issue of
305.4m (2019: 303.1m). Basic earnings per
share, which is based on the statutory profit
after tax, was 6.7p (2019: 6.7p), this growth
reflects the increased profit after tax offset
by an increase in non-underlying items.
Diluted earnings per share, which includes
the effect of the Group’s performance share
plan, was 6.6p (2019: 6.6p).
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; and
• To return excess cash to shareholders
in the most appropriate way, whilst
maintaining a good underlying net
funds position.
60
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT The Group’s business model has been
established to generate surplus cash
flows and we have 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
£16.4m (2019: £25.1m). Net funds at
31 March 2020 comprised cash of £44.3m
offset by borrowings under the Group’s
revolving credit facility (‘RCF’) of £15.0m
and the outstanding term loan of £13.1m
for the Harry Peers acquisition.
Operating cash flow for the year before
working capital movements was £30.2m
(2019: £25.8m). Net working capital
increased by £2.2m mainly due to the
impact of increased levels of activity (and
step up in revenues) in the second half of
the year, offset by the partial unwinding
of the large working capital outflow from
the previous year. Excluding advance
payments, year-end net working capital
represented approximately three per cent of
revenue (2019: four per cent). This is below
our well-established target range of four to
six per cent, reflecting our continued focus
on working capital management.
Our cash generation KPI shows the
conversion of 81 per cent (2019: 50 per
cent) of underlying operating profit (before
JVs and associates) into operating cash
(cash generated from operations less net
capital expenditure).
Prompt Payment Code
We believe in treating our suppliers and
subcontractors fairly and with respect. Our
three main businesses are all signatories
of the Prompt Payment Code. Our
relationships with our supply chain partners
are of strategic importance and key to the
Group’s success, and payment practices
will continue to be an area of focus.
Bank facilities committed until 2023
The Group has a £25m revolving
credit facility (‘RCF’) with HSBC Bank
and Yorkshire Bank, which matures in
October 2023. The RCF, of which £10m is
available as an overdraft facility, continues
to include an additional accordion facility of
£20m, which allows the Group to increase
the aggregate available borrowings to
£45m.
As part of the Harry Peers acquisition, a
new amortising term loan of £14m was
established as an amendment to the
existing RCF. This loan also matures in
October 2023. The RCF remains subject
to two financial covenants, interest cover
(>4×) and net debt to EBITDA (<2.5×),
and an additional financial covenant,
cash flow cover, which has been included
following the drawdown of the new term
loan. The Group operated well within these
covenant limits throughout the year ended
31 March 2020. Overall cash headroom
exceeded £50m at 31 March 2020.
61
www.severfield.comStock Code: SFR STRATEGIC REPORT Our financial
performance
IFRS 16
IFRS 16 ‘Leases’ became effective for the
Group from 1 April 2019. The profit before tax
impact of IFRS 16 during the year was not
material and represented a credit of £0.4m
to underlying operating profit and a finance
expense of £0.4m on lease liabilities. As at
31 March 2020, the Group has recognised
right-of-use assets of £10.1m, lease liabilities
of £11.2m, and associated deferred tax
assets of £0.2m. The adoption of IFRS 16 will
not impact the Group’s banking covenants as
the calculations are prepared based on the
accounting treatment required under IAS 17,
the previous lease accounting standard.
COVID-19 – focus on cash
preservation
To mitigate the financial impact of COVID-19
and to protect the Group’s cash position,
the following precautionary actions have
been implemented:
• The deferral of all non-essential and
uncommitted capital expenditure,
together with restrictions on discretionary
operating expenditure;
• Tight management of working capital
whilst continuing to support supply chain
partners;
• Taking advantage of the opportunity to
defer tax payments including PAYE, NIC
and VAT;
• The agreement with the Group’s lenders
to defer quarterly term loan repayments
(due in March and June) until September
2020; and
• The drawdown of all available amounts
under the RCF facility (£15m) to provide
the Group with control over its own cash
resources.
At this early point in our financial year it
is impossible to predict the full extent of
the financial impact of COVID-19 over the
course of the year and a wide range of
profit and cash outcomes are possible. We
have modelled a broad range of scenarios
including a ‘base case’ scenario (which
captures the Group’s most up-to-date
‘realistic’ forecast position), a ‘severe but
plausible’ scenario (the impact on the
‘base case’ of a three month delay in our
expected (unsecured) orders) and a ‘worst
case’ scenario (the combined impact of
62
securing no further orders for the next
twelve months and a second lockdown
in the second half of the 2021 financial
year). There are many assumptions that
sit behind these scenarios, above and
beyond the duration of the different stages
of lockdown, and there is not necessarily a
linear relationship between the duration of
COVID-19 and the impact on revenue and
costs. However, even in our ‘worse case’
scenario, with our strong balance sheet, we
are confident that we have sufficient cash
and committed funding in place to meet our
obligations for the foreseeable future.
Based on the above, the financial
statements have been prepared on a
going concern basis. In reaching this
conclusion, the directors have reviewed
liquidity forecasts for the Group, which have
been updated for the expected impact of
COVID-19 trading activities. The directors
also considered sensitivities in respect
of potential downside scenarios and the
mitigating actions available in concluding
that the Group is able to continue in
operation for a period of at least 12 months
from the date of approving the financial
statements.
Adam Semple
Group finance director
17 June 2020
Impact of Brexit
Following the UK’s departure from the
European Union (‘EU’) in January 2020,
there is continuing uncertainty concerning
the UK government’s negotiations on a
trade deal and future co-operation with the
EU. The Group has taken steps to prepare
for the potential outcomes in December
2020 of these trade negotiations and has
plans in place to ensure it can continue to
deliver on current and future contractual
commitments.
Going concern
In determining whether the Group’s annual
consolidated financial statements can be
prepared on the going concern basis, the
directors considered all factors likely to
affect its future development, performance
and its financial position, including cash
flows, liquidity position and borrowing
facilities and the risks and uncertainties
relating to its business activities.
The following factors were considered as
relevant:
• The potential impact of COVID-19 on the
Group’s profits and cash flows;
• The UK and Europe order book and the
pipeline of potential future orders;
• The Group’s ‘SSS’ business improvement
programme, which has delivered tangible
benefits in 2020 and is expected to
continue doing so in the 2021 financial
year and beyond; and
• 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.
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT Viability statement
In accordance with 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 2023. The directors have
determined that this three-year
timescale, which is unchanged
from 2019, is appropriate for the
following reasons:
• This period is consistent with
that used for the Group’s annual
strategic planning process,
and reflects the directors’ best
estimate of the future prospects
of the business;
• 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 directors considered
whether the assessment
period of three years should be
revisited in light of COVID-19.
However, given the outcomes
of the modelling below, our
current strong balance sheet,
and the lesser extent to which
our operations have been
adversely impacted compared
to other businesses and sectors,
it was concluded that the
three-year time frame remained
appropriate.
In making their assessment, the
directors took account of the
Group’s strategy, current strong
financial position, forward order
book of £271m, recent and
planned investments, the Group’s
main committed bank facilities
(which mature in October 2023)
and potential sources of additional
government funding for which the
Group is eligible.
The COVID-19 outbreak has
developed rapidly in 2020, with
lockdown restrictions implemented
in the UK and Europe in an effort to
curtail the spread of the virus. For
our assessment of going concern
(which covers a 12-month period),
we have modelled a broad range
of COVID-19 related scenarios
including a ‘base case’ scenario
(which captures the Group’s most
up-to-date ‘realistic’ forecast
position), ‘a severe but plausible’
scenario (the impact on the ‘base
case’ of a three-month delay in
our expected (unsecured) orders),
and a ‘worst case’ scenario (the
combined impact of securing
no further orders for the next 12
months and a second lockdown
in the second half of the 2021
financial year).
The directors have also assessed
the potential financial and
operational impact of other ‘severe
but plausible’ scenarios resulting
from the crystallisation of one
or more of the principal risks
described in the annual report
which include recent issues (such
as COVID-19, the uncertainties
caused by the UK government’s
ongoing negotiations on a trade
deal and future co-operation with
the EU and recent corporate
failures) that are relevant to the
industry sector in which the Group
operates. In particular, the impact
of a reduction in margin of 25 per
cent, a reduction in revenue of 25
per cent, a deterioration in working
capital (the extension of customer
payment terms by one month), a
period of business interruption (two
months with no factory production
caused by e.g. a further period
of COVID-19 related lockdown)
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 including the
reduction of any non-essential
capital expenditure and operating
expenditure, bonuses and dividend
payments.
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.
63
www.severfield.comStock Code: SFR STRATEGIC REPORT Building a
sustainable business
Group strategic focus in the UK:
As a market leader in structural steel, we recognise that operating in a ‘Smarter, Safer, more Sustainable’
manner is crucial to both the current and future success of the Group.
Smarter, Safer, more Sustainable
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 underpins the
Group’s business model and strategy, and
enables us to operate as a responsible,
sustainable business for the benefit of all
our stakeholders. 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 be fundamental to achieving our long-
term strategic objectives.
We continue to develop smarter ways of
working that enable us to be more effective
and focus on the things that matter and
in 2020, our sustainability policy was
published by the Group’s sustainability
committee in line with our commitments
to health and safety, environment, the
economy and our people. Meeting quarterly,
the committee discusses new initiatives and
innovations that can minimise the impact
of our activities on the environment. The
committee’s principal role is to review the
Group’s sustainability strategy, ensuring it
is aligned with the Group’s vision, mission,
strategy and values.
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.
Our safety, health and environment
strategy
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. Operating within the
construction industry means many of our
activities could be potentially dangerous
to our employees and wider stakeholders.
‘Safety first’ remains a core value for the
Group being vital to our continued success
and a key differentiator in the market, both
to our clients and to our employees. This
has been particularly important during
the COVID-19 pandemic where we have
continued to run our operations safely and
in line with the guidelines issued by the
Construction Leadership Council, Public
Health England and by the UK and local
governments.
During the year, our continued focus on
the Group’s values ensures all aspects
of safety, health and environment remain
a fundamental and integral aspect of
the business. Our executive committee
continues to review safety performance
monthly. Investigations are completed on
all RIDDORs (a reportable accident that
results in an employee’s absence from
work for more than seven consecutive
days) and high potential near miss incidents
64
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT diverse workforce, treat all employees
fairly, uphold their rights and reward them
competitively.
In the year, we have continued to invest in
our employees’ development and training,
and we have increased our focus on
stakeholder engagement including with our
employees. We are committed to refreshing
our people strategy next year in tandem
with launching our Group-wide renewed
sustainability strategy.
(‘HiPo’), with input from the Group SHE
director, chief operating officer and the
relevant business unit managing director.
Findings from investigations and ‘lessons
learned’ are shared Group-wide to promote
a collaborative approach to preventing
accidents and incidents.
We have, once again, achieved our Group
safety targets for the year. The Group’s
accident frequency rate (‘AFR’), including
our Indian joint venture, was 0.15, which
continues to outperform the industry
average. This represents a slight increase
from the prior year AFR of 0.11, but this
was not wholly unexpected given both
the significant improvement in the AFR in
2019 (the 2018 AFR was 0.22) and the
increased Group activity levels in 2020.
During the last year, we have shifted our
focus to the Group’s injury frequency rate
(‘IFR’), rather than only on the AFR, which
is a fairly narrow metric based on the level
of RIDDORs only. Instead, IFR focusses on
a variety of incidents, ranging from minor to
potentially more serious, which allows us
to learn lessons from each individual case
and to identify process improvements and
prevention measures. The Group’s IFR has
reduced over the course of the year, with
targeted reductions in almost all areas of the
business.
Our people strategy
Our people are at the heart of our business
and are vital to the success of our vision and
the achievement of our strategic goals. We
are committed to creating a great place to
work, to attract, recruit, retain and develop
an inclusive, talented workforce who live
and breathe our values at every level of our
business.
The development, engagement and
satisfaction of our people is a key focus
of the Group and is fundamental to our
success. We seek to develop an inclusive,
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SAFETY,
HEALTH AND
ENVIRONMENT
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.
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01
Strategic aim
A fair and safe way of working
Relevant stakeholders
Our people, our suppliers and subcontractors, and our clients and
partners.
The challenge
To 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.
Our response
Leadership, communication, and engagement with our
stakeholders, alongside a robust training programme, underpins
the Group’s safety culture.
We continue to recognise positive safety, health and environmental
(‘SHE’) practices across the Group through articles, case studies
and awards in our internal newsletters and employee magazines.
Our behavioural safety coaches are encouraged to give positive
recognition to those who are improving the safety culture in
their departments.
In November 2019, we held our inaugural safety awards to
celebrate positive safety behaviours and initiatives by our
employees, apprentices, and teams within all our businesses.
Owing to the success of the event it will now become an
annual occasion.
Our ’just and fair’ culture within the behavioural safety programme
continues to be underpinned by our six life-saving rules (which
include rules for working at height, lifting operations, machine
safety, vehicle movements and material stability). The rules
clearly communicate to all relevant stakeholders our expectations
around high-risk areas of our day-to-day operations to further
prevent incidents.
Our health and safety management system is also continually
reviewed and improved. The Group’s SHE management system
conforms to BSEN ISO 45001, and is one of the first in the industry
to successfully make the migration from OHSAS 18001.2018.
We are also working with specialists to develop web-hosted
reporting systems. These will improve efficiency in reporting,
notification, investigation and corrective action for health, safety,
and environmental events.
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT 02
Strategic aim
No incidents that harm people
Relevant stakeholders
Our people, our suppliers and subcontractors, our clients and
partners and shareholders.
The challenge
Operating within the construction industry means many of our
activities could be potentially dangerous to our employees and wider
stakeholders. If risks are not appropriately identified, monitored and
mitigated, these could result in harm to the Group’s key stakeholders.
Our response
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. In response to the new guidance and
regulations on weld fume management, during the year we set up
a focus group, to ensure that we were challenging long-established
working practices and that we had a robust process and plan in
place to make any necessary changes to support the health and
safety of our people. As a result of this review, we have approved
further investment in our factories to ensure that weld fumes are
being appropriately managed.
Our bespoke behavioural safety programme continues to be
integral to our culture change. We offer expert one-to-one coaching
on how best to deal with both positive and negative situations.
During 2020, our programme focussed on aspects of ownership
and accountability for our senior managers. These sessions
were run with the aim of encouraging our senior managers to
take responsibility of key safety messages and sustain focus on
behavioural safety. In the second half of the year, Severfield also
initiated the first subcontractor safety day. All our subcontractors
were invited to join us and learn about our safety culture and how
integral they are to the continued success of the Group’s safety
programme. Working together with our subcontractors led us to
further understand each other’s expectations and how we could
take a joint approach in promoting our ‘safety first’ core value. We
are also planning to extend this programme into other areas of our
supply chain.
Health and safety risks identified are mitigated though the continual
review of the Group’s procedures and processes. Our executive
committee continues to review safety performance monthly.
Board members continue to attend safety-focussed site visits,
encouraging employees to suggest improvements and share best
practice. These visits have shown a clear commitment and drive for
SHE policies across all areas of the business, led by our executive
management team.
Our focus for 2021 is to continue to develop our workforce and
subcontractors, driving positive change to the health and wellbeing
of our stakeholders. We will launch our Group training and
development brochure, advertising the wide range of courses we
offer to promote each individuals’ career development.
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03
04
Strategic aim
Industry-leading occupational health
Strategic aim
Carbon footprint reduction
Relevant stakeholders
Our people
The challenge
To continually support all our employees, and their families, in all
aspects of their lives, not just within working hours.
Our response
Our employees’ health and wellbeing is of utmost importance to
us and we have implemented a range of initiatives to assist in the
promotion of positive general and mental health. We signed the
Building Mental Health Charter in 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 wellbeing.
Our 24-hour confidential employee assistance helpline provides
support for a range of common concerns including financial worries,
family issues and much more. Initiatives such as this one have
become even more important following the outbreak of COVID-19
to help provide assistance to those employees and their families
during these uncertain times.
We 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 and help to attract and
retain high-quality employees.
Relevant stakeholders
Our communities, our people, our suppliers and subcontractors,
and our clients and partners.
The challenge
Climate change issues have become more prevalent in recent years
for all our stakeholders and working within the construction industry,
we recognise that our activities can impact the wider environment.
Our response
The Group is committed to addressing climate risk and reducing
the lifetime emissions of the assets it builds. Carbon reduction is an
important objective of our health and safety strategy, and it forms
part of our wider Group sustainability policy. We are committed to
reducing our greenhouse gas emissions and energy usage and we
are proud of our achievements during the year in managing these.
The improvements initiated in the year include the switch to 100
per cent green electricity at our two largest production facilities and
a reduction in our scope 1 and scope 2 greenhouse gas (‘GHG’)
emissions to 29.8 tonnes of CO2e/£m revenue compared to 33.5 in
2019 (see section on greenhouse gas reporting below).
In 2020, we maintained our ‘B’ rating in the global evaluation
standard, the Climate Disclosure Project (‘CDP’), and also received
an ‘A-’ in their new supplier engagement rating, considerably
outperforming the industry average of ‘D’. 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 our carbon footprint,
climate change strategy, risk management processes and
outcomes.
The Group continues to be accredited with the Gold Membership
Standard of the Steel Construction Sustainability Charter.
We have a new sustainability strategy in development for 2021,
as we aim to further reduce our environmental impact and carbon
emissions, working collaboratively with customers, industry and the
supply chain.
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Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT 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 scope 2 emission sources within the boundaries of our consolidated financial statements, verification
of which is undertaken against ISO 14064-3 by Carbon Trust. We have also monitored scope 3 emissions
associated with raw materials, waste, water, business travel and product transportation.
In 2020 we came to the end of our five-year reduction target period, in which we committed to reducing our
scope 1 and scope 2 emissions by 20 per cent. We exceeded this target by reducing our emissions by 21.4 per
cent during this period.
In the year, our combined scope 1 and scope 2 GHG emissions, excluding the newly acquired Harry Peers
subsidiary, have increased by 1.4 per cent and our energy usage increased by 8.9 per cent, reflecting the
Group’s higher production activity.
For the year ended 31 March 2020, the Group’s global GHG emissions, using a location-based approach, and
energy usage were as follows:
GHG 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
Energy usage from:
Scope 1
Scope 2
Total MWH
Tonnes of CO2e
2020
5,635
3,696
9,331
2020
29.8
2020
22,372
14,460
36,832
2019
5,561
3,641
9,202
2019
33.5
2019
20,959
12,861
33,820
We will continue our relentless focus on safety, health and environmental issues, ensuring that through example
and encouragement, we operate ethically and responsibly in everything we do.
Sustainability committee
The committee’s principal role is to review the Group’s sustainability strategy, ensuring it is aligned with
the Group’s vision, mission, strategy and values. During the year, the committee published the Severfield
sustainability policy, which includes the followings targets:
• Carbon reduction policy and strategy embedded in the SHE strategy;
• Reduction in carbon intensity by 2021;
• Waste reduction and diversion of waste from landfill;
• Quarterly greenhouse gas reporting using shared database and validation of emissions;
• Customer and supply chain engagement;
• Staff engagement and internal performance reporting; and
• Sustainable procurement with accreditation to ISO 6001.
We have a new sustainability strategy in development for 2021, as we aim to further reduce our carbon
emissions, working collaboratively with customers, industry, and the supply chain. The strategy will reflect
our sustainability policy established within the year, focussing on all four pillars within the targeted areas of
development and reduction.
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OUR
PEOPLE
Our focus during the year has been on delivering
against four strategic aims as follows:
70
01
Strategic aim
Attract the best and brightest talent
Relevant stakeholders
Our people, our clients and partners and our shareholders.
The challenge
We want to attract, retain and develop the right people at all levels
as they are fundamental to our Group’s success. We strive to be a
Group where bright, talented people with purpose can grow both
themselves and our business.
Our response
Underpinning our culture of continuous improvement is the ongoing
focus on human resources and the training and development of our
people and attracting and retaining the highest calibre of workforce
remains fundamental to the Group’s strategy. During the year, we
have continued to invest in our workforce and have increased
our headcount to around 1,400 employees, which includes
61 employees who joined us with the Harry Peers acquisition.
Throughout the year, we have strengthened a range of disciplines
across the Group, including within our manufacturing operations
team at Dalton.
During the year, we welcomed the appointment of Louise Hardy, our
first female board member. Louise brings to the Group a wealth of
relevant experience in the delivery of complex infrastructure projects
and experience as a non-executive director of other publicly listed
companies.
Our focus has been on promoting our graduate and apprenticeship
schemes. Given the nature of the technical skills required in our
business, it is essential that we invest in the development of our
apprentices so that they are ultimately recognised as our talent for
the future. In 2020 we had 33 colleagues successfully complete
their apprenticeship, with a further 30 starting throughout the year,
demonstrating our continued commitment to developing our people.
We have successfully on-boarded our first four apprentices following
our work with the Institute for Apprenticeships, through which
we collaboratively developed a metal fabricator apprenticeship
programme under the government’s Trailblazer apprenticeships.
We identified the need for a level three metal fabricator
apprenticeship, equivalent to A level, and a Trailblazer group
was formed, working with training partners and leading industry
representatives to develop a new apprenticeship standard that
would meet the needs of industry employers.
A full review of our apprenticeships will be carried out in 2021 to look
at how we further maximise the apprenticeship levy and ensure we
have the skills our business needs for the future.
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT 02
03
04
Strategic aim
Engage and manage
our people to
perform their best
every day
Strategic aim
Reward and
recognise those who
demonstrate our
values
Strategic aim
Develop, grow and lead our
people to continually improve
their skills and become strong
leaders
Relevant stakeholders
Relevant stakeholders
Relevant stakeholders
Our people, our clients and partners.
Our people and our communities.
Our people and our clients and partners.
Our response
The challenge
The challenge
To ensure that working for Severfield
is an attractive option for local people,
which offers good, secure employment
opportunities to all members of the
community.
Our response
Our people are the heart of our business
and to ensure individuals develop and
maximise their full potential, we are
committed to creating a culture that
respects equality, fairness and diversity
across all levels and locations. We are
confident that we have developed a
culture of equal pay. We offer attractive
working environments and remuneration
packages which include annual
bonus schemes (linked to the Group’s
profit and safety performance) and
participation in long-term incentive plans
to ensure alignment with the Group’s
strategic objectives.
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 maintain regular communications
with all our employees and actively
encourage them to share their thoughts
and feedback.
In 2020, we have continued to
develop of our employee engagement
processes, predominantly through our
internal communication channels. Our
monthly Steel Reel newsletter and our
quarterly employee magazine, Skyline,
are available to all employees across
all our locations. We use this medium
to promote and celebrate the skills and
achievements of our people, including
the numerous accreditations awarded to
our project teams during the year at the
2019 Structural Steel Design Awards and
the 2019 Institute of Structural Engineers’
Structural Awards.
During the latter stages of the financial
year, we launched our new Group-wide
intranet, to enable us to keep in touch
with all our employees. This was even
more important following the outbreak
of COVID-19 to update a large number
of colleagues who were working from
home.
The Group currently operates a share
incentive plan and a Save As You
Earn (‘sharesave’) scheme to enable
our people to share in the future and
continued success of the Group and we
intend to launch a further employee Save
As You Earn scheme in 2021.
Our focus for 2021 will be to
undertake a comprehensive workforce
engagement programme to gain a
deeper understanding of our colleagues’
perspectives and to refresh our purpose
and vision.
To support our people to achieve excellent performance
and continually develop their skills and become strong
leaders and managers.
Our response
We are committed to investing in the training and
development of our people.
We recognise the importance of training and developing
our people further, especially considering the skills shortage
within the construction industry. We offer National Vocational
Qualifications to a vast majority of our workforce, the
administration and co-ordination 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.
We have also continued to develop and support our
people to apply Lean manufacturing techniques, achieve
new qualifications, increase their skills and knowledge and
develop their careers with the Group.
Our leadership and talent programmes are now well
established at various levels within the business, including
the Severfield development programme, which brings
together talent with potential for future senior roles. In the
second cycle of the Severfield development programme,
13 future leaders from across the business were invited
to attend the course, delivered by an external consultant
who specialises in running learning and development
programmes worldwide. A total of 15 days of development
is offered across three modules which focus on a wide range
of areas including building self-awareness, how to lead
and engage others, understanding markets and strategy
and how to influence change and innovation. Following
the success of our Severfield development programme,
during the year, we launched our ‘early careers’ initiative to
stimulate and promote the growth of those who are in the
early stages of their career.
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BUSINESS
INTEGRITY
Equal opportunities and diversity
Good employee relations, welfare,
engagement, and diversity & inclusion
are recognised as important issues for
the Group. We are an equal opportunities
employer and are committed to
encouraging diversity & inclusion 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.
The construction industry continues to
be male-dominated, particularly in senior
leadership roles that attract higher levels
of pay, and this is reflected in our latest
gender pay gap report, which we published
in April 2019 for our two business units that
are in scope of the legislation. Our report
shows a median gender pay gap of 20.6%
(Severfield (UK)) and 16.1% (Severfield (NI))
and we are pleased that the median for
both Severfield (UK) and Severfield (NI) has
seen significant improvement in the year
due to an increase in the number of females
recruited in more senior roles. Overall,
Severfield employs 9 per cent of women
across the Group in a wide variety of roles.
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.
Severfield considers its responsibilities
regarding modern slavery with the utmost
importance. 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.
Innovation
The Group is committed to collaboration,
working towards the achievement of our
customers’ objectives as well as our own.
We are focussed 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 2020, our focus has been on
researching and developing new initiatives
and innovations that can minimise the impact
of activities on the environment, increase
our application of Lean manufacturing
techniques and further optimise our factory
processes to enhance our operational
efficiency and drive future margin growth.
We continue to devote skilled resource to
reviewing and responding to developing
technologies (including virtual reality
and digital technologies). We have
a centralised IT team dedicated to
ensuring our IT environment is secure,
giving us the confidence to invest in new
technology and respond to IT risks. In
2020, we have continued the roll-out of
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Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT new software including data analytics,
workflow management and project-specific
commercial and operational tools to better
inform decision-making and improve
efficiencies both in our factories and on our
construction sites. We are also continuing
to take steps to improve the integration of
key systems, better automate workflows
and, as part of our digital transformation
initiative, reduce our reliance on paper-
based information to facilitate more efficient
ways of working. In addition, through our
engineering forum, we have improved our
approach to design, looking at new and
innovative ways of working, including the
use of enhanced BIM (3D) modelling.
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.
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.
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
and York Mind.
The Foundation remains committed
to work with, and support, its chosen
national charity 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.
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.
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.
The Foundation’s national partner charity
is the 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. This two-year
partner-relationship is due to end in 2021,
when we will engage with our colleagues
to take suggestions on which charity the
Foundation will partner with next.
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www.severfield.comStock Code: SFR STRATEGIC REPORT How we
manage risk
Strong and effective risk management is at the heart of how the directors run the business and supports
the achievement of the Group’s strategic objectives.
Our key focus areas in 2020
Our future priorities for 2021
COVID-19
The impact of the COVID-19 pandemic
on the Group became an emerging risk in
Q4 of FY20 and is now a principal risk (see
specific ‘COVID-19’ risk below). We have
implemented our business continuity plans
and our primary focus has been on the
health, safety and wellbeing of all employees,
clients and the wider public, together with
protecting the financial strength of the
Group. To date we have coped well with
the challenges presented by COVID-19.
Our factories are operational and, after
some temporary interruptions, all of the
Group’s construction sites are open. Strict
precautions are in place in both factories and
sites including enhanced levels of cleaning,
additional hygiene facilities and social
distancing. During the crisis we are holding
regular update calls with our executive team
and board focussing on the impact of the
crisis on the Group.
Brexit
The risks associated with Brexit remain due
to there being no clarity on the long-term
trading relationship with the EU. Although
the UK entered the standstill transition
period on 31 January 2020, uncertainty over
the longer-term trade issues could remain
until 31 December 2020 and potentially
beyond. We have amended our principal risk
descriptions accordingly (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.
Some of our main priorities (and emerging
risks) this year will be:
• Continued development and
implementation of plans to ensure the
best possible outcomes to the uncertainty
created by the COVID-19 crisis;
• Continued identification and mitigation
of environmental, social and governance
(‘ESG’) risks; and
• Continued focus on staff engagement
and culture in order to maintain good
industrial relations.
Changes to principal risks
The following changes have been made to
the Group’s principal risks in 2020:
• COVID-19 risk (the effect of the
disease itself on the health and safety
of our people, the financial impact of
implementing social distancing measures
across our business and the economic
slowdown that has resulted from the
measures taken in the UK and abroad to
combat the virus) was added as a new risk
to our Group risk register in 2020 and has
been classified as a high risk.
Other principal risks remain largely
unchanged from last year. Changes have
also been made to the detailed descriptions
of mitigation to reflect ongoing activity in
the year. In its risk reviews, the Group has
not identified any significant environmental,
social or governance risks to the Group’s
short and long-term value.
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 ‘COVID-19’, ‘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:
74
Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT • 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 ESG
issues. Regular updates are being made
to our risk management of the COVID-19
crisis.
• 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.
• 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.
• The risk registers of each business,
together with the Group IT risk register,
are updated and, together with a
consolidated Group risk register compiled
by the executive committee, are reported
to the audit committee twice yearly, to
ensure that adequate information in
relation to risk management matters is
available to the board and to allow board
members the opportunity to challenge
and review the risks identified and to
consider in detail the various impacts of
the risks and the mitigations in place.
• A Group assurance map is used to
co-ordinate the various assurance
providers within the Group and a
compliance framework provides the
board with a ready reference tool for
monitoring compliance across the Group.
First line of defence
Management activity
Divisional boards
Internal controls:
Group board
Risk appetite
Second line of defence
Group oversight
Group policies
• Group authorisation policy
• Project management procedures
• Group finance manual
• Health and safety
• Financial control
• Cash and working capital
management
• Contract sign-off process
• Purchase guidelines
• Quality manual
• SHE policies
Committees
• Executive committee, risk
committee and safety leadership
team
• Audit committee
• Nominations committee
Third line of defence
Independent review
Divisional boards
Internal controls:
• External audit
• Internal audit
• Other third-party assurance
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manage risk
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.
Senior management/risk committee
The board/audit 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 2020 we continued the roll-out of our
project risk management framework
(‘PRMF’) to ensure consistency and good
practice across the Group in managing
project risk.
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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Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT 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.
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.
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.
Annual review of effectiveness
The risk management and internal control
systems have been in place for the year
under review and up to the date of approval
of the annual report and are regularly
reviewed by the board. The board monitors
executive management’s action plans to
implement improvements in internal controls
that have been identified following the
processes described above.
The board confirms that it has not identified
any significant failings or weaknesses in
the Group’s systems of risk management
or internal control as a result of information
provided to the board and resulting
discussions.
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manage risk
Principal risks
The board has carried out a robust assessment of the principal risks and uncertainties which have the potential to impact the Group’s
profitability and ability to achieve its strategic objectives. 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 COVID-19
4 Information technology
resilience
5 Mispricing a contract
(at tender)
6 Failure to mitigate onerous
contract terms
7 Supply chain
8 Indian joint venture
9 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
1 2 3 4 5 6 7
Strategic pillar key
£
KPI key
Growth
Clients
India
Operational
excellence
People
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’) /
Injury frequency rate (‘IFR’)
Movement
Upward trend
Downward trend
No change
New
Scoring
High
Medium
Scoring
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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www.severfield.com
Stock Code: SFR
79
STRATEGIC REPORT How we
manage risk
2020 principal risks
Scoring
High
Medium
Health and safety
1
Movement and
scoring
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.
• 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
Mitigation
health.
• 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.
• 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
Movement and
scoring
• Regular monitoring and reporting of financial
performance, orders secured, prospects and the
conversion rate of the pipeline of opportunities and
marshalling of market opportunities is undertaken
on a co-ordinated Group-wide basis.
• 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) and the impact of pandemics
(including the ongoing COVID-19 outbreak).
The impact of the COVID-19 pandemic was
unforeseen and has affected the whole of the
manufacturing, engineering and construction sector
(see separate COVID-19 risk on page 8). The risks
associated with Brexit remain due to there being no
clarity on the long-term trading relationship with the
EU. An unfavourable outcome from the ongoing trade
negotiations could adversely impact investor and
customer confidence.
Lower than anticipated demand (including as a result
of COVID-19) 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 mitigating actions undertaken by the Group in
response to COVID-19 are set out in the specific
‘COVID-19’ risk on page 82.
• 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 the ongoing trade negotiations with
the EU 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.
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How we
manage risk
2020 principal risks (continued)
Scoring
High
Medium
COVID-19
3
Movement and
scoring
Description
Mitigation
The recent outbreak and global spread of COVID-19
may have a significant and prolonged impact on
global economic conditions, disrupt our clients
and suppliers, supply chain, increase employee
absenteeism and adversely impact our operations.
Governments and public bodies in affected countries
have introduced temporary emergency public
measures such as travel bans, quarantines and public
lockdowns. Should these continue for an extended
period of time, they would increase pressure on the
operations of the Group.
Impact
The effect of the disease itself is on the health
and safety of our people, the financial impact of
implementing social distancing measures across
our business and the economic slowdown that
has resulted from the measures taken in the UK
and abroad to combat the virus. A significant fall in
demand and higher costs could adversely impact
revenues, profits, ability to recover overheads and
cash generation.
• The safety and wellbeing of our clients and
employees continues to be our overriding priority.
Our executive committee are monitoring events
closely with regular board oversight evaluating
the impact and designing appropriate response
strategies.
• The availability of cash resources and committed
facilities together with strong cash flow to support
the Group’s longer-term viability.
• We have implemented a number of precautionary
actions including the deferral of all non-essential
and uncommitted capital expenditure, together with
restrictions on discretionary operating expenditure,
tight management of working capital and the
deferral of certain tax and quarterly term loan
repayments.
• Our management teams have implemented specific
actions to minimise the disruption on our operations
during these challenging times. Our business
continuity plans have been mobilised and additional
measures have been implemented including
changes to procedures at factories and sites (hours
worked, additional security, hygiene and social
distancing measures), undertaking revised risk
assessments in all operating locations to ensure we
could continue to operate safely, changed methods
of travel to and accommodation at sites and
extending support to employees at increased risk.
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Information technology resilience
4
Description
Movement and
scoring
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 focussed 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.
• Cybercrimes and associated IT risks are assessed
on a continual basis and additional technological
safeguards introduced. Cyber threats and how they
manifest themselves are communicated regularly to
all employees (including practical guidance on how
to respond to perceived risks).
• ISO 27001 accreditation achieved for the Group’s
information security environment and regular
employee engagement undertaken to reinforce key
messages.
• Insurance covers certain losses and is reviewed
annually to establish further opportunities for
affordable risk transfer with revised cover being
purchased in 2019 and 2020 to reduce the financial
impact of this risk.
Mispricing a contract (at tender)
5
Movement and
scoring
Description
Failure to accurately estimate and evaluate the
contract risks, costs to complete, contract duration
and the impact of price increases could result in a
contract being mispriced. Execution failure on a high-
profile contract could result in reputational damage.
Impact
If a contract is incorrectly priced, particularly on
complex contracts, this could lead to loss of
profitability, adverse business performance and
missed performance targets.
This could also damage relationships with clients and
the supply chain.
Mitigation
• Improved contract selectivity (those that are right
for the business and which match our risk appetite)
has de-risked the order book and reduced the
probability of poor contract execution.
• Estimating processes are in place with approvals by
appropriate levels of management.
• Tender settlement processes are in place to give
senior management regular visibility of major
tenders.
• Use of the tender review process to mitigate the
impact of rising supply chain costs.
• Work performed under minimum standard terms (to
mitigate onerous contract terms) where possible.
• Use of Group authorisation policy to ensure
appropriate contract tendering and acceptance.
• 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.
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How we
manage risk
2020 principal risks (continued)
Scoring
High
Medium
Failure to mitigate onerous contract terms
Description
The Group’s revenue is derived from construction
contracts and related assets. Given the highly
competitive environment in which we operate,
contract terms need to reflect the risks arising from
the nature or the work to be performed. Failure to
appropriately assess those contractual terms or the
acceptance of a contract with unfavourable terms
could, unless properly mitigated, result in poor
contract delivery, poor understanding of contract risks
and legal disputes.
Impact
Loss of profitability on contracts as costs incurred
may not be recovered, and potential reputational
damage for the Group.
Mitigation
• The Group has identified minimum standard terms
which mitigate contract risk.
• Robust tendering process with detailed legal and
commercial review and approval of proposed
contractual terms at a senior level (including the
risk committee) are required before contract
acceptance so that onerous terms are challenged,
removed or mitigated as appropriate.
• Regular contract audits are performed to ensure
contract acceptance and approval procedures have
been adhered to.
• We have worked with the British Constructional
Steelwork Association to raise awareness of
onerous terms across the industry.
• 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.
Description
The Group is reliant on certain key supply chain
partners for the successful operational delivery of
contracts to meet client expectations. The failure of
a key supplier or a breakdown in relationships with a
key supplier could result in some short-term delay and
disruption to the Group’s operations. There is also a
risk that credit checks undertaken in the past may no
longer be valid.
The sale of British Steel to Jingye Group, China’s
third largest privately owned steel producer, was
completed in March 2020, helping to provide stability
to the steel supply market in the UK.
Impact
Interruption of supply or poor performance by a
supply chain partner could impact the Group’s
execution of existing contracts (including the costs
of finding a replacement), its ability to bid for future
contracts and its reputation, thereby adversely
impacting financial performance.
Mitigation
• Initiatives are in place to select supply chain
partners that match our expectations in terms
of quality, sustainability and commitment to
client service. New sources of supply are quality
controlled.
• Implementation of best practice improvement
initiatives including automated supplier accreditation
processes.
• Strong relationships maintained with key suppliers
including a programme of regular meetings and
reviews.
• Contingency plans developed to address supplier
and subcontractor failure.
• Ongoing reassessment of the strategic value of
supply relationships and the potential to utilise
alternative arrangements, in particular for steel
supply.
• Key supplier audits are performed within projects to
ensure they are in a position to deliver consistently
against requirements.
• Monthly review process to facilitate early warning of
issues and subsequent mitigation strategies.
6
Movement and
scoring
Supply chain
7
Movement and
scoring
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Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT
Indian joint venture
8
Movement and
scoring
Description
The growth, effective management and performance
of our Indian joint venture (‘JSSL’) is a key element of
the Group’s overall strategy. The Indian market has
continued to expand rapidly in recent years and the
factory in Bellary has been expanded to meet current
and anticipated future market growth.
The COVID-19 pandemic is impacting JSSL in 2021.
In light of the slow easing of the nationwide lockdown
announced by the Indian government in March 2020
and the developing impact of COVID-19 on the Indian
economy, JSSL’s operations have been disrupted in
the first quarter of 2021, a situation which is likely to
continue over a period of several months.
Impact
Failure to effectively manage our operations in India
could lead to financial loss, reputational damage and
a drain on cash resources to fund the operations.
Mitigation
• In line with the response of the Group, local
management in India have implemented a number
of precautionary cash conservation actions and are
closely monitoring cash flows and debt repayments,
together with adopting specific actions to minimise
the disruption on the joint venture operations during
these challenging times.
• Robust joint venture agreement and strong
governance structure is in place.
• In 2020, senior management team strengthened
further, 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
(suspended during the COVID-19 outbreak and
conducted by video conference)
• Two members of the Group’s board of directors are
members of the joint venture board.
• Regular formal and informal meetings held with
both joint venture management and joint venture
partners.
• Contract risk assessment, engagement and
execution process now embedded in the joint
venture.
• Operational improvement programmes remain
ongoing.
• Ongoing review of controls environment and risk
management processes undertaken by Group
senior management.
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How we
manage risk
2020 principal risks (continued)
Scoring
High
Medium
People
9
Movement and
scoring
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.
• Training and development schemes to build skills
and experience, such as our successful graduate,
trainee and apprenticeship programmes.
• Second wave of our Severfield Development
Programme delivered in 2020 and the launch of
an ‘early careers’ initiative which builds readiness
for more senior positions.
• Attractive working environments, remuneration
packages, technology tools and wellbeing
initiatives to help improve employees’ working
lives.
• Annual appraisal process providing two-way
feedback on performance.
• Internal communications continually improved.
• Interviews with leavers and joiners to understand
the reasons for their decision.
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Section 172
statement
Section 172 of the Companies Act 2006
requires each director to act in the way they
consider, in good faith, would most likely
promote the success of the Group for the
benefit of its shareholders. In doing this, the
director must have regard, amongst other
matters, to:
• the likely consequences of any decision in
the long term;
• the interests of the Group's employees;
• the need to foster the Group's business
relationships with suppliers, customers
and others;
• the impact of the Group's operations on
the community and the environment;
• the Group's reputation for high standards
of business conduct; and
• the need to act fairly as between
members of the Group.
The board has complied with these
requirements. Details of the board’s
decisions in 2020 to promote long-
term success, and how it engaged with
stakeholders and considered their interests
when making those decisions, can be found
throughout this strategic report and in the
governance report.
A key board decision is ensuring that
we continue to have the right strategy
in place for sustainable growth. Details
of our strategy, how it is resourced and
the value generated for stakeholders are
set out in the strategic report. The board
monitors the Group’s culture to ensure that
high standards of business conduct are
maintained.
Open, constructive dialogue with our
employees and other key stakeholders
is critical to inform the board’s decisions.
While the board has overall responsibility
for managing relationships with all our
stakeholders, some stakeholder groups
are most practicably engaged with
directly by Group companies. The board
supervises this engagement with their
stakeholders, principally through quarterly
management meetings between the
boards of each Group company and the
executive directors.
The board has identified its and the Group's
key stakeholders as our shareholders,
employees and funders. With facilitation
through Group departmental activity our
Group companies manage relationships
with their employees, clients, supply chain
partners and local communities. Details
of how we have engaged as a Group with
our stakeholders can be found on page 34
of the strategic report. The board’s direct
engagement with stakeholders is described
on page 105 in the governance report, the
board’s key decisions and the stakeholder
groups considered during the decision-
making process are set out on page 104,
and the board’s monitoring of the Group’s
culture is described on pages 106 to 107.
The board monitors the Group’s
performance in relation to safety and the
reduction of greenhouse gas emissions and
waste on a monthly basis.
Approval of strategic report
The strategic report is approved by the
board and signed on its behalf by
Mark Sanderson
Company secretary
17 June 2020
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Severfield plc Annual report and accountsfor the year ended 31 March 2020STRATEGIC REPORT E
C
N
A
N
R
E
V
O
G
T
R
O
P
E
R
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
90
92
96
98
110
114
116
120
143
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Our board
of directors
R N
Alan Dunsmore
John Dodds
Non-executive chairman
Independent: Yes
Appointed: 2010 (non-executive director) and 2011
(chairman) – not seeking re-appointment at the 2020
AGM
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.
Chief executive officer
Independent: No
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.
Derek Randall
Executive director and managing director at
JSW Severfield Structures
Independent: No
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.
Kevin Whiteman
Senior independent director
Independent: Yes
Appointed: 2014
A N
R
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.
Executives and
non-executives
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.
Board composition
1
4
4
Executive directors
Non-executive directors
Senior independent director
Committee
membership
N Nominations
A Audit
R Remuneration
Committee
chairman
90
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Adam Semple
Group finance director
Independent: No
Appointed: 2018
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 Cochrane
Chief operating officer
Independent: No
Appointed: 2013
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.
A N R
Louise Hardy
Non-executive director
Independent: Yes
Appointed: September 2019
As an executive director, Louise was the
European project excellence director at
AECOM, and between 2006 and 2013, was a
director at Laing O’Rourke, the largest privately
owned construction company in the UK. At
Laing O’Rourke she worked within the CLM
consortium, the private sector delivery partner
for the London 2012 Olympics. Prior to this
Louise worked at Bechtel as a project director
and worked for London Underground on the
Jubilee Line extension project.
Louise is a non-executive director at Polypipe
Group plc and Crest Nicholson Holdings
plc. She is also a non-executive director at
Ebbsfleet Development Corporation.
Tony Osbaldiston
A N R
Alun Griffiths
A N R
Non-executive director (chairman of the
audit committee)
Non-executive director (chairman of the
remuneration committee)
Independent: Yes
Appointed: 2014
Independent: Yes
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
non-executive director and chairman of the
audit committee of BSS Group plc, chairman
of the remuneration committee of Synstor
International plc and non-executive director
and chairman of the audit and risk committee
of the Serious Fraud Office. He is currently
chairman of Encon, the insulation and building
products distributor.
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.
91
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committee
Alan Dunsmore
Chief executive officer
For details see board of directors
on page 90
Ian Cochrane
Chief operating officer
For details see board of directors on
page 91
Derek Randall
Executive director and managing
director at JSW Severfield Structures
For details see board of directors on
page 90
Adam Semple
Group finance director
For details see board of directors on
page 91
92
Mike Mannion
Operations director (manufacturing),
Severfield (UK)
Mike Mannion joined Severfield in 2019
as operations director (manufacturing)
for Severfield (UK). Mike oversees the
production across both our Dalton and
Lostock factories.
Previously managing director of Weir
Valves & Controls, Mike has over 25 years
of business management experience and
an extensive knowledge of manufacturing
and supply chains, obtained within sector-
relevant, international settings.
Rob Evans
Managing director, Severfield (UK)
Rob became managing director of
Severfield (UK) on 3 February 2020 taking
over from Gary Wintersgill, who had been
managing director since 2014, and left
the Group in September 2019. Within this
role, Rob is responsible for all aspects of
contracting business for both Severfield
(UK) and Severfield Europe.
Rob Evans joined the Group over 23
years ago and during that time his career
has taken him to various corners of the
business, including Severfield (Design &
Build) and Severfield (NI).
Rob has taken on a range of positions
throughout the Severfield business,
including numerous roles across quantity
surveying and commercial areas of the
Group and has worked on many iconic
projects, including the Tottenham Hotspur
stadium.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Jim Martindale
Managing director, Severfield (Design
& Build) and Severfield (Products &
Processing)
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.
Adrian McCoy
Managing director, Severfield (NI)
Adrian became managing director of
Severfield (NI) on 1 April 2020 taking over
from Brian Keys, who had been managing
director since 2013, and who has retired
from full-time work. Brian has been engaged
on a consultative basis so that his extensive
experience and skills in production are not
entirely lost to the Group.
Adrian McCoy joined Severfield (NI), formerly
Fisher Engineering, in 2000 as a project
manager. His background was engineering
design and project management and
he attained chartered Membership of
the Institution of Civil Engineers in 1994.
During this role, Adrian was involved with
the delivery of all aspects of our projects,
with particular focus on construction and
commercials.
He was elevated to the role of projects
director in 2008, where he had overall
responsibility for the successful delivery of
numerous projects, before his promotion to
manging director in 2020.
During his 20 year career with Severfield he
has delivery projects throughout the UK,
Ireland and Europe.
93
www.severfield.comStock Code: SFR GOVERNANCE 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.
Phillipa Recchia
Group SHE director
Phillipa joined Severfield in July 2016
from housing and regeneration specialist
Keepmoat and she has previously worked
as corporate head of health and safety at
global industries services company KAEFER
Group.
Phillipa has over 20 years’ experience within
the construction industry and a strong
background in behavioural safety.
Our executive
committee
94
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Samantha Brook
Group HR director
Sam joined Severfield in March 2020
having been group people director at Drax
Group and group head of HR at Croda
International (both listed companies). She is
a Chartered Fellow of the Chartered Institute
of Personnel and Development (‘CIPD’),
is passionate about helping people realise
their full potential and is ideally suited to lead
our people strategy, talent development and
workforce engagement initiatives.
Kevin Campbell
Managing director, Construction Metal
Forming Limited
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 has held the position of business
improvement associate director of Severfield
plc, business unit director of Severfield
(Products & Processing) Limited and was
appointed to his current role from 1 April
2020.
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.
95
www.severfield.comStock Code: SFR GOVERNANCE Our chairman’s
view on governance
THIS YEAR WE HAVE IMPLEMENTED THE
SIGNIFICANT CHANGES INTRODUCED WITH
THE 2018 CODE TO ENSURE THAT STRONG
AND ROBUST CORPORATE GOVERNANCE
IS AT THE HEART OF EVERYTHING WE DO.
THE EFFECTIVE STEWARDSHIP AND GOOD
GOVERNANCE OF OUR GROUP REMAINS
A HIGH PRIORITY FOR THE BOARD.
I AM DELIGHTED THAT THIS YEAR WE
APPOINTED LOUISE HARDY TO THE BOARD.
John Dodds
Non-executive chairman
96
currently reviewing our approach
to workforce engagement and
culture. As a result, we have not
chosen any of the designated
workforce engagement models but
are defining our own model based
on consultation and an analysis of
its results.
Board evaluation
During the year, an internal board
evaluation was undertaken by
Kevin Whiteman, the senior
independent director. This
included an evaluation of my own
performance as well as that of the
other directors and the board’s
committees. Overall, the evaluation
was positive and further details
can be found in the corporate
governance report on page 107.
Audit, risk and internal control
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 111.
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 98.
Dear shareholder
I am pleased to introduce, for the
last time, the Group’s corporate
governance report on behalf
of our board of directors (‘the
board’). As indicated in last year’s
annual report I will not be seeking
reappointment at this year’s
AGM but am delighted that Kevin
Whiteman, our senior independent
director, has been appointed
to take my place. I know that
Kevin will continue to ensure that
effective stewardship and good
governance of our Group remains
a high priority for the board.
This year we have implemented
the significant changes introduced
with the 2018 Code to ensure
that strong and robust corporate
governance is at the heart of
everything we do, and we have
appointed Louise Hardy to the
board. 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.
Our corporate governance report
is set out on pages 98 to 108
and explains how we manage
the Group and comply with the
provisions of the UK Corporate
Governance Code (‘the Code’) and
outlines how the board ensures
that high standards of corporate
governance are maintained.
Leadership and board
composition
I am delighted that this year we
appointed Louise Hardy to the
board after the AGM in September
2019. This year we have refreshed
our succession planning and are
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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. The
AGM cannot be held this year in
the usual way due to COVID-19
but will be held remotely on
3 September 2020 and I
encourage all shareholders to vote
via proxy for the resolutions.
John Dodds
Non-executive chairman
17 June 2020
UK Corporate Governance
Code
This year the Company
has complied fully with the
requirements of the 2018 Code
throughout the accounting period
and to the date of this report.
Code principles
Board leadership and company
purpose
Read more on
page 98
Division of responsibilities
Read more on
pages 100 and 101
Composition, succession and
evaluation
Read more on
pages 114 and 115
Audit, risk and internal control
Read more on
page 108
Directors’ remuneration report
Read more on
pages 120 to 142
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
last approved at the AGM
in September 2017 and has
been updated this year and will
be tabled for approval at our
AGM in September 2020. Our
remuneration policy, a summary
of how we intend to operate that
policy in 2021, and a review of
the remuneration committee’s
activities, together with bonus and
PSP performance in 2020, can be
found in the remuneration report
on pages 120 to 130.
Talent and diversity
The board is mindful of diversity
and we believe that a diverse
company (in all regards, not just
gender) provides a balanced and
effective organisation. During
the year, we published our third
gender pay gap report, which
showed that the gap is getting
smaller and we have widened our
disclosure this year on gender
balance to include the tier below
our executive committee. We are
confident that our gender pay gap
does not stem from paying men
and women differently for the same
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report
Board leadership and company purpose
The Group is controlled through the board of directors of Severfield plc. We believe that, consistent with Principle A of the Code,
the board is effective and entrepreneurial. We have described in the strategic report how opportunities and risks to the future
success of the business have been considered and addressed, together with the sustainability of the Group’s business model. In
this section we describe how our governance contributes to the delivery of our strategy and how the board monitors and drives
culture and purpose.
Structure of the board
The membership of the board is stated on pages 90 and 91. The board consists of the chairman, four other non-executive
directors and four executive directors. Five of these directors have been directors for six years or fewer and have been heavily
involved in setting and overseeing the delivery of the Group’s strategy.
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.
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
98
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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
2020 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 138. 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
Group’s policy is that all the directors retire
at each AGM and may offer themselves for
re-election by shareholders. Accordingly, all
of the existing directors whose biographies
are set out on pages 90 and 91, other than
John Dodds who is retiring, will be standing
for re-election at the 2020 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 are available for
inspection on request.
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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.
Severfield board
The board is responsible for providing effective
leadership to the Group to create and deliver
long-term shareholder value. This includes setting
the strategic direction of the Group, reviewing
all significant aspects of the Group’s activities,
overseeing the executive management and reviewing
the overall system of internal control and risk
management. The board has a formal schedule of
matters reserved for it. It is responsible for overall
Group strategy, acquisition and divestment policy,
approval of major capital expenditure projects and
consideration of significant financing matters. It
monitors the exposure to key business risks including
environmental and health and safety issues. It reviews
the Group’s strategic direction, codes of conduct,
annual budgets, progress towards achievement
of those budgets, significant capital expenditure
programmes and the annual and half year results.
The board also considers employee issues and
key appointments. It also ensures that all directors
receive appropriate training on appointment and
then subsequently as appropriate. Other specific
responsibilities are delegated to the board’s
committees described below as follows.
Non-executive chairman
John Dodds
Chief executive officer
Alan Dunsmore
100
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.
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.
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 92 to 95. This committee assists the main
board by focussing 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.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Senior independent director
Kevin Whiteman
Board committees
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.
The board has established three standing
committees, all of which operate within defined terms
of reference, which are available from the Company
secretary by request and published on the website.
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
110 to 142.
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report
Board meetings
The directors’ attendance record at the scheduled board meetings and board committee meetings for the year ended 31 March 2020 is
shown in the table below.
Total number of meetings
Executive directors
Alan Dunsmore
Ian Cochrane
Derek Randall1
Adam Semple²
Non-executive directors
John Dodds3
Kevin Whiteman
Tony Osbaldiston
Alun Griffiths
Louise Hardy4
Board
11
Audit
committee
Remuneration
committee
Nominations
committee
3
6
5
11 11
11 11
9 11
10 11
11 11
11 11
11 11
11 11
6
6
3
3
3
2
3
3
3
2
6
6
6
6
3
6
6
6
6
3
3
5
5
5
2
5
5
5
5
2
Meetings attended
Possible meetings
1 Derek Randall missed two board meetings when on bereavement leave.
2 Adam Semple missed one board meeting due to illness.
3 John Dodds did not attend the two nomination committee meetings which were held to discuss his replacement as chairman.
4 Louise Hardy was appointed to the board with effect from 3 September 2019 and has attended all meetings whilst she has been 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. Board meetings are also now being held by video conference as
a result of the COVID-19 pandemic.
Board strategy review
In addition to regular scheduled board and board committee meetings, the board undertakes an annual strategy away day each year.
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.
COVID-19 pandemic update
Since the board meeting on 26 March 2020 which focussed entirely on the impact of the COVID-19 pandemic on the Group, the board
has held a weekly video call to discuss the continuing impact of the pandemic and the actions being taken to minimise disruption on the
Group’s operations, people and clients.
Read more about our operations during the COVID-19 pandemic on page 8.
102
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE
Board meetings for the current year
During the financial year, the board discussed and implemented the following key actions:
Number of meetings
• Strategic review undertaken and strategic
plan updated
• Reviewed the statement of compliance in
accordance with the Modern Slavery Act
• Reviewed feedback from board
evaluation
• Approved further investment for
expansion at Construction Metal Forming
(‘CMF’)
• Presentation from managing directors of
Severfield (Products & Processing) and
Severfield (Design & Build)
• Meeting with the directors of Severfield
(Design & Build) and a tour of the
Sherburn factory
• Reviewed feedback on year-end results
May 2019
2
June 2019
1
July 2019
September 2019
• Presentations from managing director of
Severfield Europe BV and from Group
SHE director on sustainability
October 2019
2
November 2019
• Off-site strategy day
December 2019
• Reviewed and approved annual report
and accounts
• Approved proposed final dividend
• Assessed going concern and longer-term
viability of the Group
• Reviewed annual statements of
compliance from directors and approved
conflicts of interest
• Approved appointment of new non-
executive director Louise Hardy
• Presentation from JSSL’s HR director
• Approved the acquisition of Harry Peers
• Board meeting in Lostock and meeting
with directors of Severfield (UK)
• Strategic review of the Indian joint venture
• Presentation on operational
improvements from JSSL’s chief
operating officer
• Site visit to Google, King’s Cross project
• Reviewed and approved half year results
• Approved interim dividend
• Dalton factory visit
• Discussed impact on the Group of the
COVID-19 pandemic
• Reviewed Group budget for 2021
financial year
• Board meeting in Dublin with
presentation from senior management
of Severfield (NI) (postponed due to
COVID-19)
• Site visit to projects in Dublin (postponed
due to COVID-19)
• Agreed scope and content of board and
chairman evaluation (postponed due to
COVID-19)
February 2020
• Reviewed investor feedback on interim
results
2
March 2020
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Key matters considered by the Board
Board and committee activities are organised throughout the year to address the matters reserved for the board.
An overview of the board’s principal decisions during the year, including how the board has taken into account the factors set out in section
172 of the Companies Act 2006 (‘the Act’), is set out below. From the board’s engagement with its stakeholders, see page 34 and 35, there
were no specific issues raised during the year that influenced these decisions.
Principal
Decision
Dealing with
the COVID-19
pandemic
Action taken
Outcome
Regularly reviewed the challenges presented by
the COVID-19 pandemic in the UK, Europe and in
India and government announcements on social
distancing and safety. These included detailed
considerations as to how we could continue to
operate safely in factories and on sites, and travel
and accommodation issues for our workers.
Decision to carry on factory
and site operations where,
after analysis, we could
continue to do so safely,
particularly in March, April and
May (before some easing of
the lockdown commenced).
Key stakeholder groups
considered
The safety of our colleagues was
our primary driver during this
period, together with their and the
Group’s financial security. We also
took into account the financial
needs of our clients, supply
chain, our shareholders and other
stakeholders.
Implemented a series of precautionary cash
management measures to ensure the Group could
continue to trade as normally as possible and to
protect its financial strength.
Reviewed proposal to acquire entire share capital
of Harry Peers.
Proposed
acquisition of Harry
Peers
Approved the acquisition
which includes an earn-out
arrangement with the principal
shareholder and managing
director.
The long-term impact of the
acquisition is, we believe, beneficial
to all of our stakeholders.
Strategy review
Comprehensively reviewed progress against
strategy.
Approved the four-year
strategic plan.
Monitored market trends, including the
macroeconomic environment, supported by
comparative data and customer insight.
Considered the impact of the strategic plan on the
retention and development of employees.
Reviewed the Group’s long-term financial outlook
and assessed and prioritised growth opportunities.
Reviewed the Group’s four-year strategic plan and
divisional strategic plans and priorities to ensure
they remained fit for purpose.
Reviewed Group budgets for FY21 and, following
the COVID-19 outbreak, high-level profit and
cash forecasts for the next 12 months.
Approved the viability
statement and going concern
assumption.
Reviewed general market conditions and key
trends that support the Group’s strategy.
Setting the annual
Group budget
and subsequent
forecast modelling
following the
COVID-19 outbreak
for going concern
purposes
Determining the
Group’s approach
to risk
Reviewed and made changes to the Group’s
principal risks and emerging risks that could
impact the Group’s strategic objectives.
Considered the impact of risks arising from
uncertainties in the market and the wider
economy, including COVID-19.
Maintained as ‘high’ risk our
assessment of the risk of
a serious health and safety
incident and our assessment
of the risk of the impact of
adverse market conditions
(including COVID-19 and an
unfavourable conclusion to the
Brexit trade negotiations).
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In approving the strategy and
business plans, the views of all our
stakeholders were considered. Our
success depends on good relations
with members of our workforce,
customers and supply chain.
In reviewing the budget and
subsequent forecasts, the board
considered the impact on all
stakeholders.
Prior to approving and
recommending dividend payments,
the board considers the future
cash requirements of the business,
shareholder expectations and the
need to provide our shareholders with
sustainable returns over the longer
term. This has been particularly
important given COVID-19.
The board considered the impact
on all stakeholders, in particular
those identified in the principal risks
section on pages 74 to 86.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Engagement with stakeholders
The board considers the needs and priorities of each of the Group’s stakeholders during its discussions and as part of its decision-making
process. This, together with considering the long-term consequences of decisions and maintaining our reputation, is integral to the way the
board operates.
During the year we prepared a stakeholder map to identify key stakeholder relationships and the impact that the business has on each of
those groups and our engagement with those groups. The table below summarises the board’s understanding of the key interests of our
stakeholders:
Clients
Workforce
Supply chain
Communities
Shareholders
Funders
A safe environment
to work in,
investment
in personal
development and
career progression,
and a fair, open and
honest culture.
Fair treatment
and respect, with
prompt payment for
work undertaken
in a safe working
environment, with
opportunities for
repeat business.
Excellent customer
service, with delivery
of projects on time
and to budget.
Early contract
engagement,
providing problem
solving solutions
and balancing time,
cost and quality
objectives.
Robust operational
and financial risk
management,
strong returns
on investment
decisions, effective
communication
of strategy and
a progressive
dividend policy.
Strong cash
management,
robust working
capital
management and
risk management
and good
communication
through regular
financial updates.
Operating ethically,
causing minimal
impact from our
activities.
Creating social
value through
employment
opportunities,
helping people
back to work and
investing in the local
community by using
local suppliers and
services.
With regard to our clients, supply chain and
communities, these groups are recognised
by the board as integral to our business
model and as such are considered regularly
by the board. In practice, however, our
clients, supply chain and communities
vary with each Group company and
therefore the Group companies manage
day-to-day engagement with these
important stakeholder groups. Our
Group SHE director and our Group
head of procurement assist in managing
relationships with those subcontractors
and suppliers who are common to more
than one Group company. Further details of
our engagement with communities can be
found on page 35.
The board engages directly with the
Group’s shareholders, workforce and
funders, and has undertaken the following
activities in 2020:
Shareholders
Providing sustainable returns to our
shareholders is a key factor in the board’s
decision-making. The chairman and the
non-executive directors are available to
meet with shareholders to listen to their
views.
The board recognises the importance of
communicating with its shareholders to
ensure that its strategy and performance
is understood. The Group encourages
two-way communication with both its
institutional and private investors and
attempts to respond quickly to all queries
received verbally or in writing.
The executive directors undertake a
programme of regular communication
with institutional shareholders and with
analysts covering the Group’s activities,
its performance and strategy, and issues
regular trading updates to the market.
Alan Dunsmore and Adam Semple
attended several meetings with institutional
shareholders, private investors and
analysts during the year, at the time of the
announcements of the Group’s annual and
half year results, during visits to the Group’s
head office in North Yorkshire and on an
ad hoc basis as required. Feedback from
those meetings was reported to the board,
including the non-executive directors.
The board generally uses 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.
Funders
The Group’s finance director meets with
the Group’s banks and performance bond
issuers to discuss the full-year and half-year
results, to update them on the Group’s
performance and discuss any issues that
they wish to raise. These meetings are
important in ensuring that the Group has
sufficient facilities available. The Group
finance director advised the board that no
issues or concerns had arisen during the
course of these meetings that the board
needed to consider in its discussions and
decision-making.
Following the COVID-19 outbreak the
Group finance director held regular
discussions with the Group’s banks to
discuss management’s response to the
crisis. Despite the challenges presented
by the COVID-19 pandemic, the Group
has a strong balance sheet and sufficient
cash and committed funding in place
during the current unprecedented period of
uncertainty.
Board’s monitoring of culture
The Group’s purpose and culture are
closely aligned with our core values
which are focussed on driving the right
behaviours for the Group to succeed. Our
culture provides an environment in which
our workforce can operate safely, act
instinctively with integrity, develop strong
and long-term relationships with clients
and suppliers, and are treated fairly and
with respect. This way we can innovate,
evolve and successfully deliver our strategic
objectives.
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Our executive directors promote our core values throughout the Group. The board as whole is responsible for ensuring that our culture
is maintained. It does this by meeting with employees and senior managers, undertaking regular site visits and reading regular reports
and presentations from Group companies on how they are operating their businesses and taking into account internal audit reports on
matters which are heavily influenced by culture and behaviour. The non-executive directors also draw on their own experiences in other
organisations in order to challenge and verify that the Group’s values and behaviours remain effective.
The table below sets out how the board monitors our culture to ensure that behaviours remain aligned with our core values.
What we monitor and measure
Board action in 2020
Core value – customer focus
The executive directors keep the board
updated on key projects and customer
relationships. The board reviews material issues
arising on contracts which may impact a Group
company or the Group as a whole.
Reviewed Group company board summaries which included information on key clients
and suppliers and the performance of contracts.
Reviewed market information and tender feedback information, together with business
development plans which focus on key client relationships and new clients with whom
we wish to have future business.
Approved Group company strategic plans which include information on key clients and
client feedback. A client feedback exercise was undertaken as part of the Harry Peers
due diligence process.
Core value – safety first
The executive reports include information
on health and safety performance including
accident frequency rate, incident frequency
rate, near misses and high potential incidents
and absence days due to sickness/injury.
The board regularly reviews information on
the safety strategy, update on personal injury
claims, training records and performance,
interaction with the HSE, occupational health
initiatives and key developments in the market
which could impact of safety performance.
Core value – integrity
The executive directors keep the board
updated on the Group’s ethical dealings with
clients, suppliers and the workforce.
We report on e-learning on ethical matters;
supplier payment terms, gender pay and any
issues of concern raised by employees whether
by way of formal whistleblowing or otherwise.
We have policies in place including the Group’s
authorisation policy, competition law policy,
anti-bribery policy and expenses policy.
Core value – commitment
The executive directors keep the board
updated on how the Group is meeting its
contractual and commercial commitments
to our customers, our suppliers and our
workforce.
Regular monitoring of health and safety performance is a priority for the board and is
the first agenda item for all board meetings.
Board members attended site and factory safety visits during the year, encouraging
employees to suggest improvements and share best practice.
Reviewed ongoing behavioural safety programme and certain board members attended
our inaugural safety awards event in York.
For more information please read our building a sustainable
business report on page 66
Reviewed output from Cognito (our e-learning tool)
Reviewed payment practices reporting submissions and prompt payment code disclosures
Reviewed and approved our modern slavery statement (see page 108)
Reviewed statements of compliance from all directors and letters of assurance (‘LoA’) from
the Group’s four managing directors.
Asking colleagues, customers and suppliers on factory and site visits for feedback on our
performance
For more information please read our building a sustainable
business report on page 72
Challenging the executive directors on any relationship issues arising with any of our
customers, suppliers or workforce.
Asking colleagues, customers and suppliers on factory and site visits for feedback on
our performance
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Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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 focussed
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.
Listening to our employees’ voice
We recognise the importance of listening
to employees to understand their concerns
and to act on them. During the year, the
board visited various sites across the
Group and met with groups of employees,
discussing with them their experiences and
views. In determining the most appropriate
engagement method to adopt going
forward, the board has agreed to undertake
a comprehensive workforce engagement
programme. The aim of this programme
is to gather a deeper understanding of
colleagues’ perspectives on which to
build a sustainable Group-wide approach
for ongoing dialogue. Unfortunately, the
COVID-19 pandemic has resulted in this
work being delayed and it will be started as
soon as practicably possible in the 2021
financial year.
Due to the COVID-19 pandemic we
chose to accelerate the launch of a new
company intranet. This has enabled us
to communicate with colleagues who are
away from work, to share updates and
information with them and to engage
in dialogue through the comments
feature. Colleagues across the Group
have raised issues and questions about
COVID-19 with management and these
have been discussed openly with our
executive directors and have informed our
approach in many areas (for example, our
approach to going above and beyond our
contractual requirements on payment for
periods of self-isolation). Throughout the
year our executive directors have kept
our employees informed of our financial
performance through newsletters, email
notifications and briefing sessions, and
made colleagues aware of any external
factors and significant events that might
have an impact on our business.
See pages 70 and 71 for further detail on
how we engage with our employees.
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
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Professional development
Audit, risk and internal control
Remuneration
The directors’ remuneration report is
on pages 120 to 142. It sets out the
activities of the committee, the levels and
components of remuneration and refers to
the development of the remuneration policy.
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.
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 and regulatory and legislative
developments. Particular attention was
paid this year to the changes to the Code
relating to stakeholder engagement, culture
and to executive remuneration that took
effect for the Group on 1 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.
Financial and business reporting
The financial statements contain an
explanation of the directors’ responsibilities
in preparing the annual report and the
financial statements (page 143) and a
statement by the auditor concerning their
responsibilities (pages 146 to 153). The
directors also report that the business is a
going concern (page 118) 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
36 to 44). The directors have also made
a statement about the long-term viability
of the Group, as required under the Code
(page 63).
Modern slavery
The board annually reviews and approves
the Group’s modern slavery statement.
The 2020 statement is available on our
website at severfield.com and explains the
actions taken to ensure that we do not
undertake activities or engage suppliers or
subcontractors who undertake activities
that may be in breach of the Modern
Slavery Act 2015.
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.
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Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 109
www.severfield.comStock Code: SFR GOVERNANCE Audit committee
report
THE COMMITTEE HAS CONTINUED TO
PROVIDE SUPPORT BY MONITORING THE
INTEGRITY OF FINANCIAL REPORTING,
THE EFFECTIVENESS OF RISK
MANAGEMENT AND INTERNAL CONTROLS
PROCESSES, AND IN GOVERNANCE AND
COMPLIANCE MATTERS.
Tony Osbaldiston
Chairman of the audit committee
Number of meetings
3
Members
Tony Osbaldiston (chairman)
Kevin Whiteman
Alun Griffiths
Louise Hardy*
* Louise Hardy was appointed on 3 September 2019.
2020 key achievements
• Oversaw the continued development of the Group’s
systems of risk management and internal control.
• Considered and reviewed the internal control
environment at JSSL and the Group legal director’s
report on his review of JSSL risk management
procedures.
• Reviewed and recommended to the main board the
report and accounts for the year ended 31 March
2019 and the 2020 interim accounts.
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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.
Membership
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. John
Dodds, Alan Dunsmore, Adam
Semple and Mark Sanderson
also attended each meeting by
invitation.
Meetings are held at least three
times per annum and additional
meetings may be requested by the
external auditor.
There were three meetings in the
year attended by all members.
Role and key responsibilities
The primary function of the
committee is to assist the
board in fulfilling its oversight
responsibilities. This includes
reviewing the financial reports
and other financial information
before publication. The committee
assists the board in achieving
its obligations under the Code
in areas of risk management
and internal control, focussing
particularly on areas of compliance
with legal requirements,
accounting standards and the
Listing Rules (Listing Authority
Rules for companies listed on the
London Stock Exchange), and
ensuring that an effective system
of internal financial and non-
financial controls is maintained.
The committee also reviews the
accounting and financial reporting
processes, along with reviewing
the roles of and effectiveness of
the external auditor. The ultimate
responsibility for reviewing and
approving the annual report
remains with the board.
The responsibility of the committee
principally falls into the following
areas:
• To monitor the integrity of the
financial statements and formal
announcements and to review
significant financial reporting
judgements.
• To review the Group’s internal
financial and non-financial
controls and risk management.
• To make recommendations
to the board in relation to the
appointment and removal of the
external auditor and to approve
its remuneration and its terms of
engagement.
• To review the nature of non-audit
services supplied and non-audit
fees relative to the audit fee.
• To provide independent
oversight over the external
audit process through agreeing
the suitability of the scope
and approach of the external
auditor’s work, assessing
its objectivity in undertaking
its work and monitoring its
independence, taking into
account relevant UK professional
regulatory requirements and the
auditor’s period in office and
compensation.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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.
Details of the Group risk management
and internal control processes and its
principal and emerging risks are set out
in the risk management section of the
strategic report on pages 74 to 77. As a
result, it is considered that the board has
fulfilled its obligations under the Code
to carry out a robust assessment of the
Company’s emerging and principal risks.
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
63 of the strategic report.
• 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 2020
financial year:
• Reviewed the interim results for the
period ended 30 September 2019 and
the year-end results for the year ended
31 March 2020.
• Reviewed the significant management
judgements reflected in the Group’s
results including significant contract
judgements.
• Discussed the report received from the
external auditor regarding the audit of
the results for the year ended
31 March 2020. 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
2020.
• Reviewed the Group’s risk register.
• Considered and reviewed the internal
control environment at JSSL and
the Group legal director’s report on
his review of JSSL risk management
procedures.
• Considered and reviewed JSSL’s
internal audit reports.
• Considered and reviewed
management’s papers on the
accounting impact of IFRS 16 and the
acquisition of Harry Peers.
• Reviewed and agreed the external
auditor’s audit planning report in
advance of the audit for the year ended
31 March 2020.
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 and
going concern statements (in light
of the COVID-19 pandemic) and the
process undertaken by executive
management to enable the board to
make these statements.
• Considered the effectiveness of the
external auditor, KPMG LLP (‘KPMG’),
their independence and reappointment
for the year ending 31 March 2021.
• 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.
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 focussed on
the balance between the reporting of
weaknesses, difficulties and challenges,
as well as successes, in an open and
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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.
‘Contract valuation, revenue and profit
recognition’, like last year, is classified as
a significant accounting risk. As a result of
the COVID-19 pandemic and the potential
future impact on Group profits and cash
flows, ‘going concern’ has been elevated
to a significant accounting risk this year.
Finally, following the acquisition of Harry
Peers in October 2019, the other significant
accounting risk considered this year was
the ‘identification and valuation of intangible
assets arising on acquisition of Harry Peers’.
A. Contract valuation, revenue and profit
recognition
The committee reviewed and challenged
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.
B. Going concern
The committee reviewed and challenged
management’s assessment of forecast
cash flows including sensitivity to trading
and expenditure plans, and for the potential
impact of uncertainties associated with the
COVID-19 pandemic. The committee also
considered the Group’s financing facilities
and future funding plans. Based on this, the
committee confirmed that the application of
the going concern basis for the preparation
of the financial statements continued to
be appropriate, and recommended the
approval of the viability statement.
C. Identification and valuation of
intangible assets arising on the
acquisition of Harry Peers
The committee reviewed the report of the
Group finance director that set out the
acquisition accounting positions for Harry
Peers and the valuation of the relevant
acquired intangible assets (customer
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relationships, order books and brand),
together with their associated amortisation
periods.
The external auditor performed detailed
audit procedures on the accounting risks
above and reported their findings to the
committee. The committee was satisfied
that these matters 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 2020
results. These include the profit recognition
of 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 due to lack of
available internal resource. 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 focussed 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
KPMG has acted as the Group’s external
auditor for a period of five years. The
committee considers the reappointment of
the external auditor, including the rotation
of the senior statutory auditor, annually. This
also includes an assessment of the external
auditor’s independence and an assessment
of the performance in the previous year,
taking into account detailed feedback from
directors and senior management across
the Group.
The committee also assesses the
effectiveness, independence and objectivity
of the external auditor by, amongst
other things:
• considering all key external auditor plans
and reports;
• having regular engagement with the
external auditor during committee
meetings and ad hoc meetings (when
required), including meetings without any
member of management being present;
• the chairman of the committee having
discussions with 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.
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 2020
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.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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 2020
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 2020 represent 15 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
17 June 2020
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report
John Dodds
Chairman of the
nominations committee
INCREASING THE DIVERSITY OF THE BOARD AND
EFFECTIVE SUCCESSION PLANNING REMAIN
KEY AREAS OF FOCUS FOR THE NOMINATIONS
COMMITTEE.
John Dodds
Chairman of the nominations committee*
Number of meetings
5
Members
John Dodds (chairman)*
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Louise Hardy**
2020 key achievements
• Recommending the appointment of Louise Hardy as a
new non-executive director.
• Reviewing and refreshing the Group’s succession
planning.
• Undertaking and considering the results of the board
evaluation.
• Establishing the process for and recommending the
appointment of a new Chairman.
2021 areas of focus
• Establishing a process for the search for a new non-
executive director, taking into account succession
planning and diversity.
• Appoint a new senior independent director to replace
Kevin Whiteman.
• Reviewing and re-establishing the Group’s succession
plan.
• Undertaking an effective board evaluation.
114
Overview
The committee ensures the
continued effectiveness
of the board through
appropriate succession
planning and supports the
development of a diverse
pipeline.
Role
The primary function of the
committee is to deal with key
appointments to the board, and
related employment matters. The
responsibility and the objectives of
the committee principally fall into
the following areas:
• To review the structure, size and
composition of the board.
• To make recommendations
to the board for any changes
considered necessary.
• To approve the description of
the role and capabilities required
for a particular appointment.
• To ensure suitable candidates
are identified, having due regard
for the benefits of diversity on
the board, including gender,
and are recommended for
appointment to the board.
The committee’s terms of
reference are available on the
Group’s website (www.severfield.
com) and on request from the
Company secretary.
Board effectiveness
During the year, Louise Hardy
was appointed as a new non-
executive director following a
recruitment process involving Korn
Ferry. The committee outlined its
recruitment criteria to Korn Ferry,
taking into account the board’s
existing skills set and seeking to
improve where appropriate its
diversity and a suitable shortlist
was identified. After meeting the
existing executive directors Louise
Hardy was then recommended
and duly appointed by the board
after the AGM.
The committee, chaired by Alun
Griffiths for these purposes,
undertook a process for identifying
my replacement as chairman.
An internal candidate, Kevin
Whiteman, was chosen only
after careful consideration of
other alternatives (including
external candidates identified last
year) and after the committee
had undertaken a series of
interviews with Kevin and other
members of the board, to satisfy
themselves that Kevin was
the right choice. Kevin is an
outstanding candidate with a
strong balance of senior executive,
non-executive, chairmanship and
strategic experience necessary
to enable him to lead the board
during the next phase of the
Group’s development.
The board now consists of nine
directors, five of whom have been
directors of the Company for six
years or less. I am not seeking
reappointment at the forthcoming
AGM so the board will consist of
eight directors in the short term.
Chairmanship of the committee will
now revert to the chairman of the
board. A search will be undertaken
in due course to appoint a new
non-executive director, taking
into account the board’s existing
skills set and seeking to improve,
where appropriate, its diversity.
An appointment will also be
made to fill the position of senior
independent director, which
will become vacant once Kevin
Whiteman takes over as chairman
following the AGM in September.
Korn Ferry has supported the
board in previous selection
processes for new board members
but has no other connection with
the Company.
* Alun Griffiths was chairman of two meetings which were held to establish a process
for the appointment of a new Chairman and which John Dodds as the incumbent
chairman did not attend due to a conflict of interest.
** Louise Hardy was appointed on 3 September 2019.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Diversity
We truly value diversity and a culture of
inclusion at all levels within the Group. Our
formally adopted equal opportunities and
diversity policy sets out the key actions that
will be taken to ensure we have a more
diverse workforce throughout the Group.
We consider diversity to include diversity
of background, race, disability, gender,
sexual orientation, beliefs and age and
encompasses culture, personality and
work-style.
We support the principle of seeking
to increase the number of women on
FTSE boards, and to improve women’s
representation in leadership positions. The
Group, however, does not believe in the
concept of gender quotas, our preferred
approach being directed at the selection of
the right talent, experience and skill.
As at 31 March 2020, the board had
one female director (11 per cent).
Notwithstanding this, female representation
on our executive committee is two (15
per cent) and of those reporting directly
to members of the executive committee,
female representation is much higher at 48
per cent with nearly all senior finance and
HR roles being held by women.
Succession planning
The committee ensures the continued
effectiveness of the board through
appropriate succession planning and
undertook a refreshment of its approach to
succession planning during the year.
Evaluation
The committee (led by Kevin Whiteman)
performed an internal evaluation using
the process described on page 107. 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
17 June 2020
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report
Mark Sanderson
Company secretary
116
Introduction
The directors present
their report together with
the audited consolidated
financial statements for the
year ended 31 March 2020.
As permitted by legislation, some
of the matters normally included
in this report have instead been
included in the strategic report
on pages 22 to 87, 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 98 to 106 is
incorporated in this report by
reference.
Since the balance sheet date, the
following significant events have
occurred:
1. The Group has been impacted
by the COVID-19 pandemic (for
further details please refer to the
operating review on page 50).
2. The board has appointed
Kevin Whiteman as chairman
to replace John Dodds, who is
retiring at the AGM on
3 September 2020.
Directors
The present membership of the
board is set out on pages 90
and 91.
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 131.
Appointment and replacement
of directors
In accordance with the Company’s
articles, directors shall be no fewer
than two and no more than 12
in number. Subject to applicable
law, a director may be appointed
by an ordinary resolution of
shareholders in general meeting
following nomination by the board
or a member (or members) entitled
to vote at such a meeting, or
following retirement by rotation
if the director chooses to seek
re-election at a general meeting.
In addition, the directors may
appoint a director to fill a vacancy
or as an additional director,
provided that the individual retires
at the next AGM. A director may
be removed by the Company
as provided for by applicable
law, in certain circumstances set
out in the Company’s articles
of association (for example
bankruptcy or resignation), or by a
special resolution of the Company.
We have decided this year to
continue to adopt voluntarily the
practice that all directors stand for
re-election on an annual basis, in
line with the recommendations of
the Code.
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.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Significant shareholdings
As at 1 June 2020, 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
37,786,654
26,413,678
22,643,204
21,058,894
18,900,000
17,136,071
16,972,580
%
12.35
8.63
7.40
6.88
6.18
5.60
5.55
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
3 September 2019, 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 2020 AGM (or, if
earlier, until the close of business on
30 September 2020). During the period, the
directors did not use these powers.
Dividends
The directors declared an interim dividend
for the six months ended 30 September
2019 of 1.1p per ordinary share (2019:1.0p).
Name
1. M&G Investment Management
2. JO Hambro Capital Management
3. Threadneedle Asset Management
4. Unicorn Asset Management
5. Chelverton Asset Management
6. Invesco (including Perpetual & Trimark)
7. Legal & General 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 2020,
there were 305,928,087 ordinary shares in
issue and fully paid. Further details relating
to share capital, including movements
during the year, are set out in note 24 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 23. 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 2020 AGM.
These documents are available on the
Group’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 3 September 2019,
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 2020 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
3 September 2019, 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
2020 AGM (or, if earlier, until the close of
business on 30 September 2020).
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report
Change of control
Additional disclosures
External auditor
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:
KPMG LLP acted as the auditor for the
Company for the year ended 31 March
2020. KPMG LLP has expressed its
willingness to continue in office as external
auditor and a resolution to appoint it will be
proposed at the forthcoming AGM.
• Employees, employee involvement and
Annual general meeting
The notice concerning the AGM to be held
remotely on Thursday 3 September 2020,
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 116 to 118
inclusive was approved by the board and
signed on its behalf by:
Mark Sanderson
Company secretary
17 June 2020
engagement – pages 70 to 71
• Respect for human rights – page 72
• Social matters – page 72
• Equal opportunities (including for the
disabled) – page 72
• Environmental matters – pages 64 to 66
• Greenhouse gas emissions – page 69
• Long-term incentive plans – page 134 of
the directors’ remuneration report
• Statement of directors’ interests – page
138 of the directors’ remuneration report
• Financial instruments – note 22 to the
Group financial statements
• Credit, market, foreign currency and
liquidity risks – note 22 to the Group
financial statements
• Related party disclosures – note 31 to the
Group financial statements
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.
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
October 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 62.
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.
118
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 119
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report
Alun Griffiths
Chairman of the
remuneration committee
Number of meetings
6
Members and committee attendance
Alun Griffiths (chairman)
Kevin Whiteman
Tony Osbaldiston
John Dodds
Louise Hardy*
6/6
6/6
6/6
6/6
3/3
2020 key acheivements
• Reviewed and updated the remuneration policy in the
context of changes to the Code and guidance issued
by the main institutional investor bodies for approval at
this year’s AGM and application of the policy.
• Setting and reviewing directors’ remuneration and
benefits including the basic salary increases across
the Group.
• Assessed performance against the bonus targets and
the PSP targets for the year ended 31 March 2020.
• Reviewed and adapted remuneration policy in the light
of the economic impact of the COVID-19 pandemic on
the Group and on shareholder value in particular:
− deferred consideration of the 2020 bonus until at
the earliest October 2020 after the half year;
− deferred consideration of pay review for the majority
of the executive directors until at the earliest
October 2020 after the half year; and
− deferred consideration of the 2021 bonus scheme
and the 2021 PSP scheme.
120
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.
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 2020.
The report is split into the following
two sections:
• Part 1, the remuneration policy
report, which is being submitted
to a shareholder vote at the
forthcoming AGM on
3 September 2020 as part of
our regular three-year cycle, and
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 2020 and
how it will be implemented
for the year ending 31 March
2021. The annual report on
remuneration will be subject to
an advisory shareholder vote at
the forthcoming AGM on
3 September 2020.
Our policy was last approved at
our 2017 AGM, with 99.66 per
cent of votes cast in favour.
Overall, the committee considers
that the policy continues to
support our business strategy
and provides an appropriate link
between performance and reward.
In determining the policy we have
taken careful note of the guidance
issued by shareholders and by the
investment community as a whole.
Where appropriate, remuneration
policy for directors is in line with
remuneration of the Group as
a whole.
The management team performed
well during challenging UK market
conditions, influenced in part
by Brexit uncertainty, and met
demanding Group strategy targets.
The impact of the COVID-19
pandemic was not felt by the
Group until the last two weeks
of the 2020 financial year and
whilst the Group’s bonus targets
were partially met, as were the
India bonus targets, consideration
of bonus entitlement has been
deferred until the half year.
Summary of proposed
amendments to our directors’
remuneration policy for 2021
Last year we undertook a thorough
review of our policy, taking into
account the 2018 update to the
Code, the FRC’s revised Guidance
on Board Effectiveness and
the Companies (Miscellaneous
Reporting) Regulations 2018.
We implemented a number of
improvements last year and this
year some further modifications to
the policy are being proposed to
ensure that the policy remains fit
for purpose to deliver appropriate
rewards and drive performance
for the next three-year cycle and
to take account of emerging best
practice. Our conclusion is that
the current remuneration structure
continues to drive the right
behaviours and no fundamental
changes to the overarching policy
are being proposed.
* Louise Hardy was appointed on 3 September 2019.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE We have taken note of the investor guidance
for alignment of pension contribution rates
for executive directors with those available
to the wider workforce and are proposing
a number of changes in order to achieve
compliance:
• Immediately on approval of the policy,
pension allowances for new executive
director appointments will be reduced to
the level of the majority of the UK monthly
paid workforce in the United Kingdom;
currently 7 per cent of base salary.
• Pension allowances for existing executive
directors will be reduced to 15 per cent
of salary on a phased basis over the next
three years as the first stage towards full
alignment, with full alignment by the end of
the next policy period. There are currently
a number of legacy pension provisions in
place across the Group. We are reviewing
the different provisions and will be
engaging with our employees and trade
unions to implement the required changes.
Further details will be included in next
year’s directors’ remuneration report.
• A formal post-cessation shareholding
policy has been introduced requiring
executive directors to retain a
shareholding equal to the full in-
employment shareholding for a period
of two years post-employment. This
requirement will apply to shares acquired
(net-of-tax) under awards granted after
this policy has come into effect. Shares
purchased from the executives’ own
funds would not be included to avoid
discouraging the purchase of shares in
the future. We have clarified our policy
such that directors are required to retain
all deferred bonus and vested PSP shares
until the shareholding requirement has
been met.
Performance and reward 2020
The Group has consolidated its position this
year, delivered top and bottom-line growth
and made real progress in meeting its
strategic objectives, including exceeding the
2020 strategic profit target of £26m. This
was achieved through continuing focus
on operational improvements, supported
by continued investment in people,
processes and technology. In addition, the
acquisition of Harry Peers has given us
additional market share in a strategically
significant market.
Annual bonus
The Group financial targets and the profit
targets for our Indian joint venture were
partially met, and safety targets were also
partially met. As a result, an annual bonus
pay-out of 61 per cent of the maximum
opportunity (or in the case of Derek
Randall 70 per cent) would have been
earned. Any decision on the affordability
of that bonus has been deferred until
October 2020 at the earliest due to the
impact of the COVID-19 pandemic.
121
www.severfield.comStock Code: SFR GOVERNANCE I hope you find this report to be clear and
simple, providing the rationale for our
decisions that is helpful in understanding our
remuneration policy and practices.
I look forward to answering any questions
shareholders might have, and your
continued support.
Alun Griffiths
Chairman of the remuneration committee
17 June 2020
Directors’ remuneration
report
PSP awards
The remuneration policy allows a maximum
grant of 150 per cent of salary, and awards
of 100 per cent of salary were made in June
2019 for the chief executive officer and the
chief operating officer and 75 per cent for
other executive directors. All awards are
below the maximum permitted by the policy.
PSP vesting
The committee assessed the performance
for the 2017 PSP awards vesting in June
2020 and the levels of profit achieved last
year resulted in targets for the 2017 PSP
award (EPS targets which equated to PBT
of between £25m and £29.5m) being met,
resulting in the expected vesting of these
awards at 85% of their maximum level.
Having reviewed the performance of the
PSP, the committee was satisfied that the
short and long-term variable pay outturns
accurately reflect the wider performance of
the Group and has not exercised discretion
to override or modify the calculation of the
pay-out on the vesting outcomes.
Implementation of policy for 2021
In the light of the uncertainty as to the
overall impact of the COVID-19 pandemic
on performance and on demand for 2021
we have deferred the implementation of
the 2021 bonus and PSP schemes and the
salary review as detailed below.
Base salaries
Salaries for the directors would ordinarily
have been reviewed and be effective from
1 July 2020 with increases, as a percentage
of salary, being limited to those of the wider
workforce at 2%. However, due to the
COVID-19 pandemic, salary reviews for
all executive directors have been deferred
until October 2020 at the earliest with the
exception of Adam Semple whose salary
will be increased to £250,000 this year
(an increase of 6%). In the case of Adam
Semple, on appointment to his current
role on 1 February 2018, on a salary of
£220,000, it was agreed that his salary
would be reviewed again in July 2019 after
which it was agreed that his salary would be
increased to £250,000 in two stages, in July
2019 and again in July 2020, based on the
achievement of an appropriate performance
management programme over the period.
As a result, Adam Semple’s salary was
increased to £235,000 in July 2019 and it is
proposed to increase it to £250,000 in July
2020.
There will be no change to the fees paid to
non-executive directors.
Annual bonus
For the 2021 financial year, consideration
of annual bonus has been deferred until
October 2020 at the earliest. However,
any bonus scheme adopted will continue
to maintain the same balance of financial
and non-financial measures, and the
remuneration committee will assess the
appropriateness of each measure, to ensure
that these remain appropriate for the year
ahead. To the extent the bonus plan is
operated, threshold, target and stretch
targets will be disclosed in the relevant
year’s remuneration report.
PSP
For the 2021 financial year, consideration
of PSP awards has been deferred until
October 2020 at the earliest. However, any
awards made will contain targets which
are intended to incentivise management
to maintain forward momentum and
will represent 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. If we propose to use significantly
different metrics to EPS, we would first
consult with shareholders.
For any awards made for 2021, the grant
levels will not exceed 100%.
Any vested PSP awards will 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. At the same time, we are
mindful that our remuneration policy should
be reviewed in the context of the impact of
the COVID-19 pandemic on the Group’s
operations. We consider our remuneration
policy achieves these objectives and takes
account of the changes to the Code in
2018 and recent institutional shareholder
guidelines.
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Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Remuneration philosophy
The key principles of our approach to executive remuneration are:
To provide strong alignment with the interests of our shareholders and other stakeholders in incentivising management to achieve
sustainable long-term value creation, whilst ensuring that high safety standards are achieved.
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 2018 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 123 to 133). This section
contains details of the remuneration policy
and is subject to approval at the 2020
AGM.
• The directors’ annual remuneration report
(pages 134 to 142). This section sets
out the details of remuneration earned
by directors for performance in the year
ended 31 March 2020 and how the policy
was implemented. It sets out how we
intend to apply the policy for the year
ending 31 March 2021. The directors’
remuneration report is subject to an
advisory vote at this year’s AGM.
Part 1 – Remuneration Policy
The table below sets out each element of
the Remuneration Policy for the executive
directors, explaining how each element
operates and the links to the corporate
strategy. If approved, the policy will be
effective from the date of the Company’s
2020 AGM. The proposed policy has been
determined after reviewing the impact of the
previous policy, considering the Company’s
strategy, remuneration philosophy and
business model and taking into account
the new Corporate Governance Code and
updated shareholder and proxy guidelines
and wider best practice.
It is intended this policy will remain in
place until the 2023 AGM. The Company’s
remuneration policy supports 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.
The remuneration report details how the
existing approved remuneration policy
has been implemented over the previous
year and how the proposed policy will be
implemented in the following year, subject to
approval by our shareholders.
The Policy differs from the previous Policy in
the following areas:
• pension allowances for new executive
director appointments, and for executive
directors changing role, will be set at the
level of the majority of the UK monthly
paid workforce in the United Kingdom;
currently 7 per cent of base salary.
• pension allowances for existing executive
directors will be reduced to 15 per cent of
salary on a phased basis over the life of
the policy;
• a formal post-cessation shareholding
policy has been introduced requiring
executive directors to retain a
shareholding equal to the full in-
employment shareholding for a period of
two years post-employment;
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• rather than specifying a fixed time period
to reach the required shareholding level,
we now require directors to retain all
deferred bonus and vested PSP shares
until the shareholding requirement has
been met.
The key principles of the policy are:
• Clarity: maintain transparency of our
competitive total remuneration structure
that is driven by our business strategy
and model, focuses on sustained long-
term value creation and is aligned with the
interests of shareholders;
• Predictability: to ensure that targets set
each year result in stretching ambitions
and that the scale of the reward is
proportionate; support the Group’s
business strategy: a reward package
that balances short and long-term
performance, rewarding Group and
personal performance;
• Proportionality: the link between individual
awards, the delivery of strategy and the
long-term performance of the Group
is clear.
• Simplicity: ensure the remuneration
structure avoids unnecessary complexity;
• Risk is appropriately managed. The
remuneration of executive directors
provides an appropriate balance
between fixed and performance-related
pay elements: restraint on fixed pay,
with a substantial proportion of total
remuneration based on variable pay linked
to performance;
• Alignment to culture: the remuneration
principles encourage behaviour that the
committee expects; and
The remuneration committee has
determined that the remuneration of
executive directors will provide an
appropriate balance between fixed and
performance-related pay elements. The
remuneration committee will continue to
review the remuneration policy to ensure
it takes due account of remuneration best
practice and that it remains aligned with
shareholders’ interests.
Remuneration policy table for executive directors
The following table sets out 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 recognising knowledge, skills and experience, in
addition to the size and scope of the role.
Sufficient to recruit and retain directors of the calibre necessary to execute the
Group’s strategy.
Operation
Base salaries are normally reviewed annually by the committee, with changes typically
effective from 1 July.
Base salaries are pensionable.
Our review takes into account levels of increase across the broader workforce, changes in
responsibility, and a periodic remuneration review of comparable companies.
Maximum opportunity
There is no prescribed maximum base salary or salary increase.
Current salaries are disclosed in the annual report on remuneration.
Salary increases are awarded at the discretion of the committee. Salary increases (in
percentage of salary terms) will ordinarily be considered in relation to those applied to the
broader employee population.
The committee retains discretion to award a lower or a higher increase to recognise, for
example, significant changes in the scope and/or responsibilities of the role, a material
change in the size and scale of the Group and/or to take account of relevant market
movements.
Where an executive director’s salary is set below market levels at appointment, a series
of increases may be given (in addition to the factors listed above) in order to achieve the
desired salary positioning, subject to satisfactory individual performance.
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Performance conditions
None, although 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.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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 may be offered if considered appropriate and reasonable by
the committee.
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.
Any reasonable business-related expenses can be reimbursed (including the tax thereon
if determined to be a taxable benefit). 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, including participation in any
all-employee share plans operated by the Group, in line with the prevailing HMRC guidelines
(where relevant).
Maximum opportunity
The value of insured benefits can vary from year to year based on the costs from third party
providers. The committee reviews the cost of the benefits provision on a regular basis to
ensure that it remains appropriate.
The total value of benefits (excluding relocation and international assignment allowances) will
not exceed more than 15 per cent of salary in any year.
The maximum level of participation for all-employee share plans, if relevant, is subject to the
limits imposed by HMRC from time to time (or a lower cap set by the Group).
Performance conditions
No performance conditions or recovery
provisions apply to benefits.
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Pension
Purpose and link to strategy
Cost-effective long-term retirement benefits, sufficient to recruit and retain directors of the
calibre necessary to execute the Group’s strategy.
Operation
Group contribution to defined contribution scheme (own or the Group’s), a cash supplement
or a combination of both up to the maximum value.
Director has no obligation to match Group contributions.
Maximum opportunity
For new executive director appointments after the 2020 AGM, the Group pension contribution/
allowance will be aligned to that available to the majority of the UK monthly paid workforce,
from time to time. The current pension contribution being 7 per cent of base salary.
For incumbent directors, the pension contribution levels will be reduced to 15 per cent by
July 2023 as follows:
Performance conditions
No recovery provisions apply to pension
benefits.
CEO
Others
Current From 1/4/21 From 1/4/22 From 1/4/23
15%
15%
19%
17%
17%
16%
20%
18%
For international assignments, the Group may be required to make additional payments to
comply with local statutory requirements.
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Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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
Annual awards based on targets set by the committee at the beginning of each
financial year.
The extent to which the performance measures have been achieved is determined by the
committee after the end of the performance period. The level of bonus for each measure is
determined by reference to the actual performance relative to that measure’s performance
targets, on a pro-rata basis.
All bonus payments are at the ultimate discretion of the committee and the committee
retains an overriding ability to ensure that overall bonus payments reflect its view of corporate
performance during the year when determining the final bonus amount to be awarded.
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, for a period of three years from
the bonus payment date. The malus and clawback provisions extend to the cash element of
the annual bonus.
Dividends may accrue on deferred bonus shares, to the extent they have vested. Any
dividend equivalents would normally be delivered in shares.
Maximum opportunity
Maximum 100 per cent of base salary per annum.
Performance conditions
The committee will review the
appropriateness of performance measures
on an annual basis and consider whether
there is a need to rebalance or amend
the performance measures, targets
and weightings to reflect the business
objectives at the time. The committee
retains the discretion to set alternate
measures, as appropriate. 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.
Performance is measured over one
financial year.
No more than 50 per cent of the maximum
bonus opportunity will be payable for on-
target performance.
The actual measures and weightings
are set out in the annual report on
remuneration on page 135.
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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
Discretionary awards of performance shares are normally granted annually. The committee
reviews the quantum of awards annually and monitors the continuing suitability of the
performance measures.
The awards will, in normal circumstances, vest subject to continued service and the
achievement of performance conditions over a prescribed period, normally measured over
three financial years.
A two-year post-vesting holding period requirement, which continues to apply post-
employment applies for shares that vest, net of sales to settle tax or other withholding due
on the vesting or exercise of awards.
Malus and clawback provisions apply to allow recoupment for a period of three years
following the vesting of an award, in the event that the value of a vested award is
subsequently found to have been overstated as a result of financial misstatement,
error, substantial failures in risk control, serious misconduct or any other exceptional
circumstances determined by the remuneration committee.
Dividends may accrue on vested awards. Any dividend equivalents accrued will normally be
delivered in shares.
All awards are subject to the discretions contained in the relevant plan rules.
Maximum opportunity
Maximum annual award level is 150 per cent of salary.
128
Performance conditions
The committee will determine each
year the appropriate award levels and
performance conditions based on the
corporate strategy at the time. However,
a financial measure such as underlying
earnings per share (‘EPS’) will be used for
at least half of any award.
Currently, the awards are subject to an
EPS growth target, the details of which are
set out in the annual remuneration report.
No more than 25 per cent of an award
will vest for performance at the lower
threshold of EPS targets increasing to
100 per cent vesting at maximum on a
straight-line basis.
The committee retains discretion to
override formulaic outcomes in deciding
the level of vesting to reflect wider Group
performance. Any exercise of discretion
will be fully disclosed to shareholders.
A two-year post-vesting holding period
applies.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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 a sharesave scheme. 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 requirements
Purpose and link to strategy
To strengthen the alignment between the interests of the executive directors and those of
shareholders.
Operation
In accordance with best practice, shareholding requirements apply during and
post-employment.
In-employment shareholding requirement
Executive directors will normally be required to retain a shareholding of at least 200 per cent
of their PSP award opportunity. Executive directors are required to retain shares acquired
under equity incentive schemes, net-of-tax, until such time as they have built up the
required holding.
Deferred bonus shares, vested but unexercised PSP awards, shares subject to a holding
period and open market purchase shares, including shares held by a spouse or children
under 18 count towards this limit, on a net-of-tax basis.
Post-employment shareholding requirement
Executive directors will normally be required to retain a shareholding, at the level of the in-
employment shareholding or the actual shareholding on cessation, if lower, until the second
anniversary of the date they ceased to be an executive director.
The post-cessation shareholding requirement will apply to shares acquired (net-of-tax)
under awards granted under this policy. Shares acquired under all-employee share plans or
purchased from the executives’ own funds would not be included.
Maximum opportunity
Performance conditions
Executive directors are required to build up and maintain an in-employment shareholding of
at least 200 per cent of their PSP award opportunity.
No performance conditions or recovery
provisions apply.
Executive directors will normally be required to retain a post-employment shareholding at
the level of the in-employment shareholding requirement, or the actual shareholding on
cessation, if lower, for a period of two years post-employment.
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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
PSP
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.
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.
Notes to the policy table
shares in the Company.
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.
The remuneration committee has retained
flexibility on the measures which will be
used for future award cycles to ensure
that the measures are fully aligned with the
strategy prevailing at the time the awards
are granted. Notwithstanding this, the
remuneration committee would seek to
consult with major shareholders in advance
of any material change to the choice
or weighting of the PSP performance
measures.
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
130
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 remuneration
committee, consistent with market practice,
retains discretion over a number of areas
relating to the operation and administration
of the plans. These include, for example,
selecting the participants, the timing
and quantum of awards and setting
performance criteria each year, determining
“good leaver” status, determining the extent
of vesting based on the assessment of
performance, form of payment, discretion
to retrospectively amend performance
targets in exceptional circumstances
(providing the new targets are no less
challenging than originally envisaged) and
in respect of share awards, to adjust the
number of shares subject to an award in
the event of a variation in the share capital
of the Company.
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
The remuneration package comprises
core fixed pay (base salary, pension and
benefits) and performance based variable
pay (annual bonus and the PSP). The chart
below illustrates the composition of the
executive directors’ remuneration packages
under the proposed policy for threshold,
on-target and stretch performance.
A significant proportion of remuneration
is linked to performance, particularly at
maximum performance levels. The charts
below show how much each executive
director could earn under Severfield’s
remuneration policy (as detailed above)
under different performance scenarios.
The following assumptions have been
made:
• Minimum (performance below threshold)
— Fixed pay only with no vesting under
the annual bonus or PSP.
• Target (performance in line with
expectations) — Fixed pay plus a bonus
at the mid-point of the range (i.e. 50
per cent of the maximum opportunity)
and a PSP award of 100 per cent of
salary for the chief executive officer and
chief operating officer and 75 per cent
of salary for other executives and an
assumption of vesting at 50 per cent of
the maximum.
• Maximum (performance meets or
exceeds maximum) – Fixed pay plus
maximum bonus and maximum PSP
award vesting.
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE • Maximum plus 50 per cent share price
• Benefits – amounts expected to be
appreciation: illustrating the effect of a 50
per cent growth in the Company’s share
price on the value of the PSP awards.
Fixed pay comprises:
• Salaries – salary effective as at 1 July
2020;
received by each executive director in the
2021 financial year;
• Pension – amount that will be received
by each executive director in the 2021
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.
Chief executive officer
Chief operating officer
Group finance director
Executive director
1,500
1,250
1,000
0
0
0
£
750
500
250
0
1,500
19%
1,250
31%
25%
1,000
1,500
1,250
1,000
19%
31%
25%
1,500
1,250
1,000
22%
22%
56%
100%
31%
25%
38%
31%
0
0
0
£
750
500
250
0
22%
31%
25%
0
0
0
£
22%
56%
100%
38%
31%
750
500
250
0
25%
17%
21%
0
0
0
£
18%
23%
59%
100%
33%
28%
42%
34%
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Fixed
Bonus
LTIP
Share price appreciation
Executive directors’ service
agreements
All executive directors’ service agreements
run on a rolling basis. Notice periods of
12 months are required to be given by
all parties. Payment to be made in lieu of
notice on termination is equal to 12 months’
salary or to any proportion of unexpired
notice period.
Full details of the contracts of each director,
including the date, unexpired term and any
payment obligations on early termination,
are available from the Company secretary at
the annual general meeting.
Our recruitment remuneration policy
Base salary levels will be set in accordance
with our approved remuneration policy
prevailing at the time of appointment, 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. Salary
will be considered in the context of the total
remuneration package.
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.
Different performance measures may be
set initially for the annual bonus, taking into
account the responsibilities of the individual,
and the point in the financial year that they
joined.
The above policy applies to both an internal
promotion to the board and an external
hire.
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Directors’ remuneration
report
The maximum level of variable pay which may be awarded to new executive directors, excluding the value of any buy-out arrangements,
will be in line with the policy set above. In addition, the remuneration committee may offer additional cash and/or share-based elements to
replace deferred or incentive pay forfeited by an executive leaving a previous employer when it considers these to be in the best interests
of the Company and its shareholders. It will, where possible, ensure that these awards are consistent with awards forfeited in terms of the
form of award, vesting periods and expected value. Such elements may be made under section 9.4.2 of the Listing Rules where necessary.
Shareholders will be informed of any such arrangements at the time of appointment.
The remuneration committee may apply different performance measures, performance periods and/or vesting periods for initial awards
made following appointment under the annual bonus and/or long-term incentive arrangements, subject to the rules of the plan, if it
determines that the circumstances of the recruitment merit such alteration. A PSP award can be made shortly following an appointment
(assuming the Company is not in a closed period).
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.
External appointments
The Board allows executive directors to accept appropriate outside commercial non-executive director appointments provided the
aggregate commitment is compatible with their duties as executive directors. The executive directors concerned may retain fees paid
for these services, which will be subject to approval by the board. No non-executive directorships in a listed company were held by the
executive directors during the year.
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. Appointments are
subject to annual re-election by shareholders at the AGM.
Part 2 – Annual remuneration report
In this section, we report on the implementation of our policies in the year ended 31 March 2020 as well as how the policy will be
implemented for 2021. 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.
132
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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 2020
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
Louise Hardy1
Kevin Whiteman
Tony Osbaldiston
Number of
meetings
attended
6/6
6/6
3/3
6/6
6/6
1 Louise Hardy attended all meetings whilst she 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 Company secretary
acts as the secretary to the remuneration committee.
The terms of reference for the remuneration committee 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 2020 amounted to £38,000 (excluding VAT) (2019: £24,000).
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report
Directors’ earnings for the 2020 financial year (audited)
Remuneration received by the directors
£000
Executives
Alan Dunsmore
Ian Cochrane
Derek Randall
Adam Semple
Non-executives
John Dodds
Louise Hardy (appointed
3 September 2019)
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Salary
Bonus
356
318
261
231
–
–
–
–
–
1,166
219
195
185
143
–
–
–
–
–
742
Year ended 31 March 2020
Fees
Benefits
Pension
–
–
–
–
125
26
45
45
45
286
19
16
–
16
–
–
–
–
–
51
71
50
50
42
–
–
–
–
–
213
LTIPs*
Total
202
179
148
21
–
–
–
–
–
550
867
758
644
453
125
26
45
45
45
3,008
Taxable benefits include the provision of company cars, fuel for company cars, car allowance and private medical insurance. LTIPs reflect
those PSP awards expected to vest based on performance to 31 March 2020.
* Calculated at 85 per cent of maximum award × the average share price over the period 1 March 2020 to 30 April 2020 of 68.41p and adjusted for extra dividend
equivalent shares. This is different to the approach taken in recent years due to the impact of the COVID-19 pandemic on the share price since the year-end. The
average share price for 1 January to 31 March 2020 inclusive was 80.72p.
Directors’ earnings for the 2019 financial year (audited)
Remuneration received by the directors
£000
Executives
Alan Dunsmore
Ian Cochrane
Derek Randall
Adam Semple
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Chris Holt (until 4 September
2018)¹
Salary
Bonus
350
310
255
220
–
–
–
–
–
70
62
154
44
–
–
–
–
–
1,135
330
Year ended 31 March 2019
Fees
Benefits
Pension
LTIPs*
Total
–
–
–
–
125
45
45
45
17
277
19
16
-
16
–
–
–
–
–
70
50
50
40
–
–
–
–
–
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 allowance and private medical insurance. LTIPs reflect
those PSP awards expected to vest based on performance to 31 March 2019.
* LTIPs reflect those PSP awards vesting based on performance to 31 March 2019 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 68.80p.
¹ Chris Holt resigned with effect from 4 September 2018.
Remuneration received by the directors
The directors received a 2.4 per cent salary increase, which was broadly in line with that received by the UK workforce, with the exception
of Adam Semple who received an increase of 6.8 per cent for the reasons explained earlier.
Past directors/loss of office payments (audited)
There have been no payments made to past directors during the year.
134
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE How pay linked to performance in 2020
Bonus
Performance was such that the executive directors would have received the bonuses set out in the table below, of which 50 per cent would
have been paid in shares deferred for three years. However, consideration of entitlement to receive these bonuses has been deferred until
October 2020 at the earliest.
Under the rules of the Group’s deferred share bonus plan, the participants would receive nil cost options exercisable after three years over a
seven-year period which would be forfeitable only in certain scenarios in accordance with the remuneration policy as disclosed on page 127.
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
£218,798
£194,980
£143,464
£185,198
As reported last year, the bonus plan applicable to the executive directors for 2020 had two separate performance conditions:
• Eighty per cent was payable on achieving budgeted Group PBT (with the exception of Derek Randall who, whilst he is managing director
of JSSL, 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 safety target based on Group IFR with a Group AFR underpin (with the exception of
Derek Randall who, whilst he is managing director of JSSL, has the safety component of his bonus based on AFR (India)).
Our policy is to disclose annual PBT, AFR and IFR targets retrospectively following the end of the performance period, unless, in the view of
the remuneration committee, this would compromise the commercial position of the Group.
The targets for 2020 and the performance against these targets are set out below:
For all directors (excluding Derek Randall)
% of
maximum
bonus
opportunity
80%
20%
Measure
Group PBT*
Group AFR
Group IFR**
Threshold
£25.9m
0.15
above 2.10
On-target
£27.3m
0.15
below 2.00
Maximum
£32.7m
0.15
below 1.90
Actual % of bonus
51%
100%
100%
£27.4m
0.15
1.81
Bonus
performance
as % of
salary
41%
20%
61%
* 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.
** For Group IFR, ‘threshold’ represents nil per cent pay-out, ‘on-target’ represents 50 per cent pay-out and ‘maximum’ represents 100 per cent pay-out.
Derek Randall (JSSL managing director)
Measure
Group PBT*
JSSL (India) PBT
JSSL (India) AFR**
% of
maximum
bonus
Threshold
opportunity
£25.9m
40%
40%
30.0 Cr
20% above 0.121
On-target
£27.3m
40.0 Cr
below 0.12
Maximum
£32.7m
60.0 Cr
below 0.10
Actual % of bonus
51%
75%
100%
£27.4m
50.0 Cr
-
Bonus
performance
as % of
salary
20%
30%
20%
70%
* 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.
** For JSSL AFR, ‘threshold’ represents nil per cent pay-out, ‘on-target’ represents 50 per cent pay-out and ‘maximum’ represents 100 per cent pay-out.
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PSP awards vesting in 2020
The 2017 PSP awards are due to vest in June 2020, subject to the achievement of an EPS performance condition measured over the three
financial years ended 31 March 2020. The minimum EPS figure required for vesting of 25 per cent of the award was c.6.76p which equates
to a PBT of £25m. The EPS figure required for vesting at maximum of 100 per cent of the award was c.7.98p which equates to a PBT
of £29.5m. The actual PBT achieved was £28.6m which equates to EPS of 7.75p and therefore it is estimated that 85 per cent of these
awards will vest subject to continued service.
A summary is set out below:
PSP awards granted to directors in 2020 (audited)
Share awards were made in the year under the PSP scheme for the three year period expiring on 31 March 2022. Details of the awards
made to the executive directors are summarised below.
Measure
Alan Dunsmore
Ian Cochrane
Derek Randall
Adam Semple
Number of
Type
Nil-cost option
Nil-cost option
Nil-cost option
Nil-cost option
shares % of salary
100%
100%
75%
75%
490,196
436,835
269,433
231,092
Face value
(£)¹
350,000
311,900
192,375
165,000
Performance
condition²
EPS
Performance
period
3 financial
years ending
31 March
2022
% vesting at
threshold
25%
1 Face value calculated based on the pre-grant date share price of 71.40p on 20 June 2019.
2 Performance conditions are based on EPS targets of 8.41p (minimum performance – 25% vests) to 10.39p (maximum performance – 100 per cent vests) with linear
interpolation in between. This represents a PBT range of £31.0m–£38.3m.
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).
136
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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:
Vesting
date
(June)
2019
2020
2021
2022
Performance
condition
EPS
EPS
EPS
EPS
Awards
held at
1 April 2019
492,714
304,549
414,692
–
1,211,955
Awards
granted in
year
–
–
–
490,196
490,196
Awards
lapsed in
year
–
–
–
–
–
Awards
vested in
year4
(554,348)
–
–
–
(554,348)
Awards held
at 31 March
2020
–
304,549
414,692
490,196
1,209,437
Director
Alan Dunsmore
Total
Ian Cochrane
Total
Derek Randall
Total
Adam Semple
Total
Year of
award
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2019
2020
2021
2022
2019
2020
2021
2022
2019
2020
2021
2022
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
EPS
436,637
269,888
360,556
–
1,067,081
359,071
221,948
222,372
–
803,391
48,241
31,655
195,498
–
275,394
3,357,821
–
–
–
436,835
436,835
–
–
–
269,433
269,433
–
–
–
231,092
231,092
1,427,556
Performance conditions are based on a range of EPS targets as follows:
2017 award1
2018 award2
2019 award3
1 Represents a PBT range of £25.0m–£29.5m.
2 Represents a PBT range of £29.5m–£36.5m.
3 Represents a PBT range of £31.0m–£38.3m.
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.
Statement of directors’ shareholding
As at 31 March 2020, all executive directors and their connected persons had a shareholding as follows:
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Shareholding requirement
200%
200%
150%
150%
Actual share ownership as a percentage of shareholding
requirement as at 31 March 20201
157%
337%
13%
183%
1 Value of actual share ownership was calculated with reference to the closing mid-market share price at 31 March 2020 of 63.00p. The calculation exludes bonus shares
earned and awarded in 2017, 2018 and 2019 for which the relevant three-year deferral period has not yet expired. If these are taken into account, then Alan Dunsmore’s
shareholding is 201 per cent and meets the requirement.
137
–
–
–
–
–
–
–
–
–
–
(491,257)
–
–
–
(491,257)
(403,988)
–
–
–
(403,988)
(54,276)
–
–
–
–
–
–
–
–
(54,276)
– (1,503,869)
–
269,888
360,556
436,835
1,067,279
–
221,948
222,372
269,433
713,753
–
31,655
195,498
231,092
458,245
3,448,714
Threshold
(25% vests)
6.76p
7.88p
8.41p
Maximum
(100%
vests)
7.98p
9.75p
10.39p
www.severfield.comStock Code: SFR GOVERNANCE Directors’ remuneration
report
Directors’ current shareholdings (audited):
The following table provides details on the directors’ beneficial interests in the Company’s share capital as at 31 March 2020.
Executives
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Non-executives
John Dodds
Tony Osbaldiston
Kevin Whiteman
Alun Griffiths
Louise Hardy
Owned
shares¹
Share
incentive
plan (SIP)²
Sharesave
scheme
DSBP3
PSP4
Total5
892,827
1,707,353
49,202
764,435
419,833
–
–
30,000
–
20,479
20,479
–
4,667
26,470
26,470
11,250
–
249,105
249,369
44,982
289,119
1,209,437
1,067,279
458,245
713,753
2,398,318
3,070,950
563,679
1,771,974
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
419,833
–
–
30,000
–
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 127.
4 PSP shares are in the form of conditional awards which will only vest on the achievement of certain performance conditions. The total includes 2017 awards which had
not actually vested as at 31 March 2020.
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 25 May 2020 being the last practicable date prior to the publication of this annual report, the executive directors acquired
further shares under the SIP as set out in the table below.
Executives
Ian Cochrane
Alan Dunsmore
Position against dilution limits
New SIP
shares
since
31 March
2020
363
363
Total SIP
shares at
25 May
2020
20,842
20,842
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 ten-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 2020 was under the maximum 10 per cent limit at 8.0 per cent.
138
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE 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 2010 over the ten-year period ended
31 March 2020.
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 ten-year period commencing March 2010.
£
250
200
150
100
50
0
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
Mar 2010
Mar 2011
Mar 2012
Mar 2013
Mar 2014
Mar 2015
Mar 2016
Mar 2017
Mar 2018
Mar 2019
Mar 2020
Severfield plc
FTSE Small Cap Index
Chief executive officer remuneration change
The table below shows the total remuneration figure for the chief executive officer role over the same ten-year period. Total remuneration
includes bonuses and the value of PSP awards which vested (or in the case of 2020 are expected to vest) based on performance in those
years (at the share price at which they vested or, in the case of the 2020 figures, at the average share price over the period 1 March 2020 to
1 April 2020).
2010
Haughey
2011
Haughey
2013
Haughey1
2013
Dodds2, 3
2014
Dodds2
2014
Lawson4
2015
Lawson
2016
Lawson
2017
Lawson
2018
Lawson5
2018
Dunsmore6
2019
Dunsmore
2020
Dunsmore
Total
remuneration
(£000)
Annual bonus
(%)
LTIP vesting
(%)
640
701
450
62
289
233
681
946
1,228
738
819
890
867
50.1% 60.5%
100.0%
–
–
–
N/A
N/A
34.0% 65.0% 63.0% 95.0%
–
62.6%
20.0%
61.0%
N/A
N/A
–
–
64.0% 74.0% 95.4%
95.4% 100.0%
85.0%
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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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 UK-based
salaried employees as this geography provides the most appropriate comparator.
Chief executive officer
Salary
Benefits
Bonus
Average employees
Salary
Benefits
Bonus
Chief executive officer pay ratio disclosure
2020
£000
356
19
219
46
5
2
2019
£000
350
19
70
44
5
2
% change
1.7%
0.0%
212.8%
5.6%
0.7%
19.7%
25th percentile pay ratio
(CEO: UK employees)
Median pay ratio
(CEO: UK employees)
75th percentile pay ratio
(CEO: UK employees)
Year
2020
Method of calculation adopted
Option A
30:1
22:1
17:1
Pay details for the chief executive officer and individual whose 2020 remuneration is at the median, 25th percentile and 75th percentile
amongst UK-based employees are as follows:
Year
Salary
Total pay and benefits
Chief executive officer
£000
356
867
25th percentile
£000
26
29
Median
£000
38
40
75th percentile
£000
48
51
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
2020
£000
70,714
327,364
26,978
8,851
2019
£000
64,614
274,917
23,256
13,353
% change
9.4%
19.1%
16.0%
-33.7%
140
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Shareholder voting
The results below show the response to the 2019 AGM shareholder voting for the directors’ 2019 remuneration report (excluding
remuneration policy):
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
Total number
of votes
241,737,371
254,417
241,991,788
1,632,127
243,623,915
% of votes
cast
99.89%
0.11%
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)
Implementation of policy for 2021
Total number
of votes
231,684,761
801,189
232,485,950
60,928
232,546,878
% of votes
cast
99.66%
0.34%
100%
N/A
N/A
The executive directors’ current salaries
The salaries of the executive directors will be reviewed at the earliest in October 2020, with the exception of Adam Semple whose salary will
be increased to £250,000 on 1 July 2020 for the reasons previously explained. Increases will be set in the context of overall salary increases
for the wider workforce, unless special circumstances apply, as in the case of Adam Semple.
The executive directors’ salaries at the start of the 2021 financial year are as follows:
Alan Dunsmore
Ian Cochrane
Adam Semple
Derek Randall
Benefits and pension
£
358,400
319,385
235,000
262,660
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. The company pension allowance level for new executive director appointments will be aligned to those available to
the majority of the UK monthly paid workforce, from time to time. The current pension contribution being 7 per cent of base salary.
The maximum pension allowance in policy for incumbent directors will be reduced as from 1 April 2021. The pension contribution levels for
incumbent directors will further reduce over the course of the policy to 15 per cent by the end of the policy as follows:
Chief executive officer
Others
Current
20%
18%
From
1 April 2021
19%
17%
From
1 April 2022
17%
16%
From
1 April 2023
15%
15%
Full alignment to the level of the majority of the UK workforce will be achieved by the end of the next policy at the latest.
141
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report
Rewards for performance in 2021
Bonus
The decision on whether to operate the annual bonus plan for executive directors for 2021 will be deferred until there is some greater clarity
on the current COVID-19 pandemic and the wider implications for the Group. In any event, the maximum bonus opportunity for 2021 will
be held at the level for the previous financial year, being 100 per cent of salary. Performance measures and targets will be disclosed in the
relevant year.
PSP
Consideration of the grant of PSP awards for 2021 has been deferred until October 2020 at the earliest but if made will be no higher than
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.
Any PSP grants will set a performance condition for a three-year period which will reflect the continuing expected recovery of profitability,
recognising that market conditions remain challenging in many areas.
When setting a target range, the committee will consider 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 will reflect, 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 will be at a
level which are considered more challenging than targets set for prior awards.
How will the non-executive directors be paid in the 2021 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
17 June 2020
2021
125,000
40,000
5,000
5,000
2020
125,000
40,000
5,000
5,000
142
Severfield plc Annual report and accountsfor the year ended 31 March 2020GOVERNANCE Statement of directors’ responsibilities in respect
of the annual report and financial statements
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.
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
17 June 2020
Adam Semple
Group finance director
17 June 2020
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Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 I
S
L
A
C
N
A
N
F
I
R
U
O
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
146
154
155
156
157
158
159
195
195
196
197
198
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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 2020 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
2020 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
• the parent Company financial statements have been properly
prepared in accordance with UK accounting standards, including
FRS 101 Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion. Our audit opinion is consistent with our report to the
audit committee.
We were appointed as auditor by the shareholders on 2 September
2015. The period of total uninterrupted engagement is for the five
financial years ended 31 March 2020. 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
£1.3m (2019: £1.2m)
4.9% (2019: 4.9%) of profit before tax
Coverage
96% (2019: 97%) of Group profit before tax
Key audit matters
vs 2019
Event driven
Going concern
Recurring risk
Event driven
Recurring risks
Carrying value of construction
contract assets, and revenue
and profit recognition in relation
to construction contracts
Valuation of intangible assets
and contingent consideration
for Harry Peers
The impact of uncertainties due
to the UK exiting the European
Union on our audit
Carrying value of parent
Company’s investments in
subsidiaries, joint ventures and
associates
146
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS 2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, 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.
Going concern
Refer to page
50 (operating
performance),
page 58 (financial
performance),
page 63 (viability
statement), page
78 (principal
risks), page 110
(audit committee
report) and page
159 (significant
accounting
policies).
The risk
Our response
Disclosure quality
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the Group and
parent Company.
That judgement is based on an
evaluation of the inherent risks to the
Group’s business model and how those
risks might affect the Group’s financial
resources or ability to continue operations
over a period of at least a year from
the date of approval of the financial
statements.
The risks most likely to adversely affect
the Group’s available financial resources
over this period were:
• Economic downturn resulting in
significant market deterioration
reducing forward orders and
profitability.
Our procedures included:
− Funding assessment: Inspected confirmation of the Group’s
committed level of financing and related covenant requirements.
− Historical comparisons: We considered the Group’s historical
budgeting accuracy, by assessing actual performance against
budget.
− Sensitivity analysis: 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.
− Sensitivity analysis: We assessed management’s base-case
forecast to ensure consideration had been given to the impact of
COVID-19, and that this impact was included in projections of the
Group’s financial resources.
− Benchmarking assumptions: We benchmarked the assumptions
behind the cash flow forecasts to third party evidence, such as
sector-specific, as well as UK-wide economic forecasts, to assess
downside assumptions.
− Evaluating directors’ intent: We evaluated the achievability of
There are also less predictable but
realistic second order impacts, such as :
the actions the directors consider they would take to improve the
position should the risks materialise.
• A second incidence of construction
− Assessing transparency: We assessed the completeness and
accuracy of the matters covered in the going concern disclosure by
comparing disclosures to risks identified, and sensitivities applied.
Our results:
− We found the going concern disclosure without any material
uncertainty to be acceptable.
site closures resulting from COVID-19,
causing delays in project completion,
and associated revenue and cash flow.
• The risk of COVID-19 to the supply
chain, which could have a significant
impact on operations.
The risk for our audit was whether or not
those risks were such that they amounted
to a material uncertainty that may have
cast significant doubt about the ability to
continue as a going concern. Had they
been such, then that fact would have
been required to have been disclosed.
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to the members of Severfield plc
2. Key audit matters: including our assessment of risks of material misstatement (continued)
The risk
Our response
Carrying value
of construction
contract assets,
and revenue and
profit recognition
in relation to
construction
contracts
Revenue:
£327.4m (2019:
£274.9m)
Construction
contract assets:
£29.1m (2019:
£28.4m)
Refer to page 110
(audit committee
report), pages
162, 164 and
168 (accounting
policies,
judgements
and estimates)
and note 17
(construction
contracts).
Subjective estimate
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 an
input measure (being costs incurred
to date as a proportion of estimated
total contract costs) and estimates of
total contract consideration (being agreed
contract consideration plus elements of
variable consideration such as instances
where the value of variations is currently
unagreed).
Estimated total 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. These uncertainties have
increased as a result of COVID-19.
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, and possibly many times that
amount.
Our procedures included:
− 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, engaging our own major projects
advisory specialists.
− Tests of detail: For the high risk contracts identified, agreeing
uncertain variable consideration to post-year-end cash, post-year-
end certification, or customer agreed variation schedules. Involving
our own specialists to assess the position taken and assist in
challenging management on the appropriateness of including such
items in the value of contract revenue where such evidence was
not available.
− Our sector experience: Assessing forecasted costs 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, including
consideration of COVID-19 related impacts.
− Tests of detail: 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.
− Tests of detail: Verifying the existence of contract claims
against the Group 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 revenue and costs 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 (2019: acceptable).
148
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS The risk
Our response
Subjective estimate
On 01 October 2019 the Group acquired
Harry Peers & Co Limited (‘Harry Peers’)
for a total net cash consideration of
£24.7m, of which £18.9m was net cash
consideration, and £5.8m was the fair
value of contingent consideration, which
has a maximum potential payment of
£7m depending on performance. In
accounting for the acquisition, the Group
needs to ensure all identifiable assets are
recognised at their acquisition-date fair
values.
The valuation of intangible assets and
contingent consideration requires
a significant degree of judgement
with estimates including the trading
performance of Harry Peers, the timing of
future cash flows and the discount rate
applied.
The effect of these matters is that, as part
of our risk assessment, we determined
that valuation of intangible assets
identified and contingent consideration
in relation to Harry Peers acquisition 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 procedures included:
− Our sector experience: Evaluating assumptions used, in particular
those relating to forecast revenue and EBITDA performance, and
customer attrition rates, engaging our own valuation specialists to
evaluate assumptions such as the discount rate used.
− Methodology choice: Using our own valuation specialists to
assess the methodology used in valuing the intangible assets
recognised, such as the brand and customer list intangible assets.
− Tests of detail: Corroborating management’s calculations to
supporting documentation such as Sale Purchase Agreement,
and supporting documentation relating to the balance sheet on
acquisition.
− Sensitivity analysis: We performed our own analysis to assess the
sensitivity of the valuation of intangible assets to changes in the key
assumptions, noted above.
− Historical comparisons: Evaluating how management’s
assumptions for future performance at acquisition date compared
to actual performance, both prior to acquisition and since.
− Assessing transparency: Assessing the adequacy of the
Group’s disclosures in respect of the identification and valuation of
acquisition related intangible assets.
Our results:
− We found the valuation of the intangible assets and contingent
consideration recognised on acquisition of Harry Peers, and the
related recognition of goodwill on acquisition to be acceptable.
Valuation of
intangible assets
identified and
contingent
consideration in
relation to Harry
Peers acquisition
Goodwill: £16.0m
Intangible Assets:
£7.4m (net of in
year amortisation
of £1.4m).
Contingent
Consideration:
£6.3m (including
unwind of
discount of
£0.5m)
Refer to page
50 (operating
performance),
page 58 (financial
performance),
page 110 (audit
committee
report), page
168 (accounting
policies,
judgements and
estimates and
note 21 (business
combinations).
149
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Report
to the members of Severfield plc
2. Key audit matters: including our assessment of risks of material misstatement (continued)
The risk
Our response
Unprecedented levels of uncertainty
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 (see below).
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 its
effects are subject to unprecedented
levels of uncertainty of consequences,
with the full range of possible effects
unknown.
Low risk, high value:
The carrying amount of the parent
Company’s investments in subsidiaries
and joint ventures represents 51% (2019:
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.
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 (including going concern, see below), 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 (2019: 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.
Our procedures included:
− Tests of detail: Comparing the carrying amount of 100% of
the investments balance with the relevant subsidiaries’ and joint
ventures’ 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 and joint ventures have historically been profit-making.
− Assessing subsidiary and joint venture 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 and joint ventures to be acceptable
(2019: acceptable)
The impact of
uncertainties
due to the UK
exiting the
European Union
on our audit
Refer to page
62 (financial
performance),
page 63 (viability
statement), page
78 (principal
risks) and page
104 (corporate
governance
report).
Carrying value
of parent
Company’s
investments in
subsidiaries and
joint ventures
£128.8m (2019:
£104.1m)
Refer to page
198 (accounting
policy) and page
200 (financial
disclosures).
150
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS 3. Our application of materiality and an overview of
the scope of our audit
Normalised profit before tax
£27,200,000 (2019: £24,711,000)
Group Materiality
£1,335,000 (2019: £1,200,000)
Materiality for the Group financial statements as a whole was set
at £1,335,000 (2019: £1,200,000), determined with reference to a
benchmark of Group profit before tax (normalised to exclude this
year’s costs relating to the acquisition of Harry Peers as disclosed in
note 5, of £1,387,000), of which it represents 4.9 per cent (2019: 4.9
per cent).
Materiality for the parent Company financial statements as a whole
was set at £900,000 (2019: £900,000), determined with reference to
a benchmark of Company total assets, of which it represents 0.4 per
cent (2019: 0.4 per cent).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £66,750, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Of the Group’s ten (2019: nine) reporting components, we subjected
seven (2019: six) to full scope audits for Group purposes.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining six per cent of total Group revenue, four per cent
of Group profit before tax and two per cent of total Group assets
is represented by three reporting components, none of which
individually represented more than three per cent of any of total
Group revenue, Group profit before tax or total Group assets. For
these residual components, we performed analysis at an aggregated
group level to re-examine our assessment that there were no
significant risks of material misstatement within these.
The Group team instructed component auditors as to the significant
areas to be covered, including the relevant risks detailed above and
the information to be reported back. The Group team approved the
component materialities, which ranged from £400,000 to £950,000
(2019: £400,000-£900,000), having regard to the mix of size and risk
profile of the Group across the components. The work on one of the
ten components (2019: one of the nine 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 held video and telephone conference meetings with
one (2019: one) component location in India (2019: India). 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. The Group team also
reviewed the audit file of the component auditor. The group team
performed procedures on the items excluded from normalised group
profit before tax.
£1,335,000
Whole financial
statements materiality
(2019: £1,200,000)
£950,000
Range of materiality at seven
components (£400,000-£950,000)
(2019: £400,000-£900,000)
Normalised profit before tax
Group materiality
£66,750
Misstatements reported to the
audit committee (2019: £60,000)
Group revenue
Group profit before tax
4
3
96%
(2019: 97%)
97
96
6
1
94%
(2019: 99%)
99
94
Group total assets
2
1
98%
(2019: 99%)
99
98
Full scope for Group audit purposes 2020
Full scope for Group audit purposes 2019
Residual components
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to the members of Severfield plc
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.
We identified going concern as a key audit matter (see section 2 of
this report). Based on the work described in our response to that
key audit matter, 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 is materially
inconsistent with our audit knowledge.
We have nothing to report in these respects.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
− the directors’ confirmation within the viability statement (page 63)
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.
5. We have nothing to report on the other
information in the Annual Report
Corporate governance disclosures
We are required to report to you if:
− we have identified material inconsistencies between the
knowledge we acquired during our financial statements audit
and the directors’ statement that they consider that the annual
report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy; or
− the section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the 11
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
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.
152
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS 6. We have nothing to report on the other
matters on which we are required to report by
exception
Under the Companies Act 2006, we are required to report to you if,
in our opinion:
− adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
− the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
− certain disclosures of directors’ remuneration specified by law are
not made; or
− we have not received all the information and explanations we
require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 143,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group
and parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or other irregularities (see
below), or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does
not guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud, other irregularities or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience, 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.
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
17 June 2020
153
www.severfield.comStock Code: SFR FINANCIALS Consolidated income
statement
Year ended 31 March 2020
Underlying
2020
£000
Note
Non-
underlying
2020
£000
Total
2020
£000
Underlying
2019
£000
Non-
underlying
2019
£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
327,364
(300,386)
–
(2,294)
327,364
(302,680)
274,917
(251,661)
26,978
(2,294)
24,684
23,256
2,355
29,333
(712)
28,621
(4,959)
–
(2,294)
(514)
(2,808)
(439)
2,355
27,039
(1,226)
25,813
(5,398)
1,650
24,906
(195)
24,711
(4,549)
23,662
(3,247)
20,415
20,162
7.74p
7.70p
(1.06)p
(1.06)p
6.68p
6.64p
6.65p
6.58p
15
7
8
10
10
Further details of non-underlying items are disclosed in note 5 to the consolidated financial statements.
–
–
–
–
–
–
–
–
–
–
–
Total
2019
£000
274,917
(251,661)
23,256
1,650
24,906
(195)
24,711
(4,549)
20,162
6.65p
6.58p
154
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS Consolidated statement of
comprehensive income
Year ended 31 March 2020
Actuarial gain/(loss) on defined benefit pension scheme*
(Losses)/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.
Note
30
25
25
25
20
2020
£000
255
(1,403)
(410)
(34)
(184)
(1,776)
20,415
2019
£000
(3,702)
540
129
16
624
(2,393)
20,162
18,639
17,769
155
www.severfield.comStock Code: SFR FINANCIALS Consolidated
balance sheet
At 31 March 2020
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use asset
Interests in JVs and associates
Current assets
Inventories
Contract assets, trade and other receivables — due after one year £3,550 (2019: £1,535)
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Financial liabilities — borrowings
Financial liabilities — leases
Derivative financial instruments
Current tax liabilities
Non-current liabilities
Retirement benefit obligations
Financial liabilities — borrowings
Financial liabilities — leases
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Note
2020
£000
2019
£000
11
12
13
14
15
16
18
22
22
19
22
22
22
30
22
22
20
24
25
70,714
7,375
88,864
10,140
26,690
203,783
6,856
74,612
–
1,640
44,338
127,446
331,229
(84,366)
(19,375)
(1,502)
(1,135)
–
(106,378)
(18,688)
(8,750)
(9,729)
(4,009)
(41,176)
(147,554)
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)
183,675
175,007
7,648
87,292
1,402
87,333
183,675
7,600
87,254
3,819
76,334
175,007
The consolidated financial statements were approved by the board of directors on 17 June 2020 and signed on its behalf by:
Alan Dunsmore
Chief executive officer
Adam Semple
Group finance director
156
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS
Consolidated statement of
changes in equity
Year ended 31 March 2020
At 1 April 2019
Changes in accounting policy
Restated total equity at 1 April 2019
Total comprehensive income for the year
Ordinary shares issued*
Equity settled share-based payments
Dividends paid
At 31 March 2020
Note
23
Share
capital
£000
7,600
–
7,600
–
48
–
–
7,648
Share
premium
£000
87,254
–
87,254
–
38
–
–
87,292
Other
reserves
£000
3,819
–
3,819
(1,847)
–
(570)
–
1,402
Retained
earnings
£000
76,334
(895)
75,439
20,486
–
259
(8,851)
87,333
Total
equity
£000
175,007
(895)
174,112
18,639
86
(311)
(8,851)
183,675
* The issue of shares represents shares allotted to satisfy the 2016 Performance Share Plan award which vested in June 2019 and the 2017 and 2018 Sharesave
schemes.
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
23
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.
157
www.severfield.comStock Code: SFR FINANCIALS Note
26
2020
£000
21,980
2019
£000
14,616
–
267
(1,519)
(4,945)
–
(13,390)
(19,587)
(598)
(8,851)
86
29,000
(875)
(1,796)
16,966
19,359
24,979
44,338
10
724
(485)
(6,516)
(4,229)
–
(10,496)
(382)
(13,353)
1,660
–
–
(180)
(12,255)
(8,135)
33,114
24,979
Consolidated cash flow
statement
Year ended 31 March 2020
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
Investment in subsidiary entity, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Dividends paid
Proceeds from shares issued
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liabilities
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
27
158
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS Notes to the consolidated
financial statements
Year ended 31 March 2020
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 203. The registered number of the Company is 1721262. The nature of the Group’s operations and its
principal activities are set out on pages 22 to 31. 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
With the exception of IFRS 16, the following new and amended standards, adopted in the current financial year, had no significant impact
on the financial statements.
• 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 associated and joint ventures’ – amendments to long-term interests in associated 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 adopted IFRS 16 ‘Leases’ on 1 April 2019 using the modified retrospective approach and therefore the comparative information
has not been restated and continues to be reported under IAS 17 ‘Leases’. The standard has resulted in many operating leases being
recognised as right-of-use assets and lease liabilities on the consolidated balance sheet, as the classification as either operating leases or
finance leases has been eliminated.
Within opening balances as at 1 April 2019, the Group has recognised right-of-use assets of £11,195,000 and a corresponding lease
liability of £12,305,000, with a consequential deferred tax asset of £215,000, the impact on the opening reserves at 1 April 2019 being
£895,000.
The Group has elected to use the following practical expedients permitted by the standard:
• On initial application:
− leases where the lease term ends within 12 months of the date of initial application of IFRS 16 are classified as short-term and continue
to be expensed in the income statement;
− leases of low value assets, considering the basis for conclusions specified in IFRS 16 as assets less than £5,000, continue to be
expensed in the income statement;
− IFRS 16 has only been applied to contracts that were previously classified as leases; and
− reliance on previous assessments on whether leases are onerous instead of performing an impairment review.
On transition, for leases previously classified as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group's incremental borrowing rate as at 1 April 2019, where the interest rate implicit in the
lease cannot be identified. The incremental borrowing rates applied to the lease liabilities on 1 April 2019 were between 2.2 per cent and
3.5 per cent based on the lease term. Right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount
of any prepaid or accrued lease payments. Operating lease expenses have been replaced by a depreciation charge for right-of-use assets
and a finance expense on lease liabilities. This resulted in an increase in depreciation of £1,585,000 and in increase in finance expenses of
£388,000.
159
www.severfield.comStock Code: SFR FINANCIALS 1. Significant accounting policies continued
Reconciliation from IAS 17 to IFRS 16 disclosures as at 1 April 2019
The following table summarises the difference between the operating lease commitments disclosed under IAS 17 as at 31 March 2019 in
the Group’s financial statements and the lease liabilities recognised at 1 April 2019:
Operating lease commitments at 31 March 2019 as disclosed under IAS 17
Impact of discounting using the incremental borrowing rate at 1 April 2019
Finance lease liabilities recognised as at 31 March 2019
Recognition exemption for leases of low-value assets
Recognition exemption for short-term assets
Lease liabilities recognised as at 1 April 2019
1 April 2019
£000
(17,931)
5,410
(49)
31
234
(12,305)
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 2020.
Effective for the year ending 31 March 2021
• IFRS 3 ‘Business combinations’ – amendments to clarify the minimum requirements for a business and to assist entities to determine
whether a transaction should be accounted for as an asset acquisition or a business combination.
• IAS 1 ‘Presentation of financial statements’ and IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ – amendment to
the definition of ‘material’ in the context of applying IFRS.
• IFRS 9 ‘Financial instruments’, IFRS 7 ‘Financial instruments: disclosures’ and IAS39 'Financial instruments: presentation' – amendment
requiring additional disclosures around uncertainty arising from the interest rate benchmark reform.
• Amendments to references to conceptual framework in IFRS standards.
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.
In determining whether the going concern basis is appropriate, the directors have prepared detailed forecasts that extend for a period
of at least 12 months from the date of approving the financial statements. These forecasts considered the Group’s future development,
performance and its financial position, including cash flows, liquidity position and borrowing facilities, as well as the risks and uncertainties
relating to its business activities. The following factors were considered as relevant:
• The potential impact of COVID-19 on the Group’s profit and cash flows.
• The current UK and Europe order book and the pipeline of potential future orders.
• The Group’s ‘SSS’ business improvement programme which has delivered tangible benefits in 2020 and is expected to continue doing
so in the 2021 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.
The directors have reviewed these forecasts in light of the potential impacts of the COVID-19 pandemic. At this early point in the financial
year it is impossible to predict the full extent of the financial impact of COVID-19 over the course of the year and a wide range of profit
and cash outcomes are possible. The directors have modelled a broad range of scenarios including a ‘base case’, ‘a severe but plausible’
scenario and a ‘worst case’ scenario. There are many assumptions that sit behind these scenarios, above and beyond the duration
of different stages of lockdown, and there is not necessarily a linear relationship between the duration of COVID-19 and the impact on
revenue and costs. However, even in the ‘worse case’ scenario, with a strong balance sheet, the directors are confident that the Group has
sufficient cash and committed funding in place to meet its obligations for the foreseeable future.
At 31 March 2020, the Group’s net funds were £16.4m, comprising cash of £44.3m, unamortised debt arrangement fees of £0.2m offset
by the outstanding term loan of £13.1m for the Harry Peers acquisition and borrowings under the Group's revolving credit facility ('RCF') of
£15.0m. The Group has a £25m revolving credit facility with HSBC and Yorkshire Bank that matures in October 2023. The RCF, of which
£10m is available as an overdraft facility, includes an additional accordion facility of £20m, which allows the Group to increase the aggregate
available borrowings to £45m.
160
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 1. Significant accounting policies continued
The directors also considered the impact of uncertainties concerning the UK government’s ongoing negotiations on a trade deal and future
co-operation with the EU. Whilst the Group is currently forecasting no significant impact on short-term cash flows, the directors continue
to monitor developments in this area and potential risks arising to the Group’s businesses. The Group has taken steps to prepare for the
potential outcomes in December 2020 of these trade negotiations and has plans in place to ensure it can continue to deliver on current and
future commitments.
Based on these indications, the directors believe that it remains appropriate to prepare the financial statements on a going concern basis.
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.
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.
161
www.severfield.comStock Code: SFR FINANCIALS 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.
Any contingent consideration is recognised at the date of acquisition. For acquisitions, subsequent changes to the fair value of the
contingent consideration are adjusted against the cost of acquisition where they qualify as measurement period adjustments. The
measurement period is the period from the date of acquisition to the date that the Group obtains complete information about facts and
circumstances that existed as at the date of acquisition and is subject to a maximum of one year. If the change does not qualify as a
measurement period adjustment, it is reflected in the consolidated income statement.
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:
• Identify the contract(s) with the customer;
• Identify the performance obligations in the contract(s);
• Determine the transaction price of the contract(s);
• Allocate the transaction price to each of the separate performance obligations; and
• Recognise the revenue as each performance obligation is satisfied.
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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 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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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.
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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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
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.
Right-of-use assets and lease liabilities
Policy applicable from 1 April 2019
The Group adopted IFRS 16 ‘Leases’ on 1 April 2019 using the modified retrospective approach and therefore the comparative information
has not been restated and continues to be reported under IAS 17 ‘Leases’. The standard has resulted in many operating leases being
recognised as right-of-use assets and lease liabilities on the consolidated balance sheet, as the classification as either operating leases or
finance leases has been eliminated.
At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a
contract conveys the right to control the use of an identified asset, the Group assesses whether it has both the right to obtain substantially
all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset throughout the period
of use.
Leases in which the Group is a lessee
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is measured
as equal to the lease liability and adjusted for the amount of any prepaid or accrued lease payments relating to that lease before the
commencement date, any lease incentives received, initial direct costs associated with the lease and an initial estimate of restoration costs.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the
lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
− fixed payments, including in-substance fixed payments;
− variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
− amounts expected to be payable under a residual value guarantee;
− the exercise price under a purchase option that the Group is reasonably certain to exercise; and
− penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
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Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, in
accordance with the exemption available under IFRS 16. The Group recognises the lease payments associated with these leases as an
expense on a straight-line basis over the lease term.
Policy applicable before 1 April 2019
In the comparative period, as a lessee the Group classified leases that transferred substantially all of the risks and rewards of ownership of
the leased asset as finance leases. All other assets were classified as operating leases. Assets classified as finance leases were 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 was included as obligations under finance leases. The rentals payable were apportioned between interest, which is charged to
the income statement, and capital, which reduced the outstanding obligation.
Operating lease rentals and any incentives receivable were recognised in the income statement on a straight-line basis over the term of the
lease.
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
Order book
Amortisation
period
4-5 years
5 years
18 months
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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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 23.
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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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 22.
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 outturn 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 £29,048,000 (2019: £28,419,000).
Identification and valuation of intangible assets arising on the acquisition of Harry Peers
Measurement of contingent consideration, material intangible assets and property, plant and equipment in an acquisition includes the use of
external advisers to make a fair valuation of these items and assists in determining the assets remaining useful lives. Management believes
that the assigned values and useful lives, as well as the underlying assumptions, are reasonable and are recognised in accordance with
IFRS 3 ‘Business combinations’, though different assumptions and assigned lives could have a significant impact on the reported amounts.
Further details of the assumptions used, including the discount rate applied and the acquired intangible assets’ useful lives are disclosed in
note 21 and note 1 respectively.
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
28 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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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 30). 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 £18,688,000 (2019: £19,972,000).
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
2020
£000
327,364
1,244
53
328,661
2019
£000
274,917
982
34
275,933
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
2020
£000
2019
£000
215,898
111,466
327,364
240,875
34,042
274,917
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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' (note 18)
Contract assets (note 18)
Contract liabilities (note 17)
2020
£000
62,254
29,048
(1,179)
2019
£000
47,983
28,419
(1,349)
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 £1,349,000, of which £1,236,000 has been recognised as
revenue for the year ended 31 March 2020.
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 2020 and have an original expected contract duration of more than one year:
Construction contracts
2021
£000
184,396
2022
£000
11,068
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
Included in Group revenue is £47,655,000 relating to one major customer, who individually contributed more than 10 per cent of Group
revenue in the year ended 31 March 2020. In the prior year no customers contributed more than 10 per cent of Group revenue.
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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 (notes 13 and 14):
— owned property, plant and equipment
— right-of-use assets
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.
2020
£000
189,650
70,714
35,465
–
2019
£000
152,986
64,614
28,654
103
160
128
1,219
1,418
3,928
1,585
(1,244)
300,386
2,294
302,680
3,556
93
(982)
251,661
–
251,661
23
217
25
40
21
164
25
23
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 £59,000 (2019: £37,000) 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 112 and 113. No services were
performed pursuant to contingent fee arrangements.
5. Non-underlying items
Operating costs
Finance expense
Non-underlying items before tax
Tax on non-underlying items
Non-underlying items after tax
2020
£000
2,294
514
2,808
439
3,247
2019
£000
–
–
–
–
–
Non-underlying items consisted of the amortisation of acquired intangible assets of £1,421,000 (2019: £nil) and acquisition-related
expenses of £1,387,000 (2019: £nil). Amortisation of acquired intangible assets represents the amortisation of customer relationships, order
books and brand name, which were identified on the acquisition of Harry Peers. Acquisition-related expenses include non-recurring legal
and consultancy costs associated with the Harry Peers acquisition of £873,000 (2019: £nil) and the finance expense associated with the
unwinding of the contingent consideration discount rate of £514,000 (2109: £nil).
The basis for stating results on an underlying basis is set out on page 7. 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, certain alternative performance measures (‘APMs’) have been used throughout this annual report to supplement rather than
replace the measures provided under IFRS.
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Details of directors’ remuneration for the year are provided in the audited part of the directors’ remuneration report on page 134.
The average number of persons employed by the Group (including executive directors) during the year was:
2020
Number
1,149
171
1,320
2020
£000
61,239
6,346
3,129
70,714
2020
£000
(53)
1,279
1,226
2020
£000
(3,945)
(578)
(4,523)
(706)
(242)
73
(875)
(5,398)
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)
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 23.
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 20)
Current year charge
Impact of change in future years’ tax rates
Adjustments to prior years’ provisions
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Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 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
2020
£000
25,813
(4,904)
(194)
447
(505)
(242)
(5,398)
2019
£000
24,711
(4,695)
36
313
(203)
–
(4,549)
Corporation tax was calculated at 19 per cent (2019: 19 per cent) of the estimated taxable result for the year.
The change to the UK corporation tax rate, to remain at 19 per cent, was announced in the 2020 Budget in March 2020 and substantively
enacted on 17 March 2020.
9. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2019 of 1.8p per share (2018: 1.7p)
Special dividend for the year ended 31 March 2019 of nil per share (2018: 1.7p)
Interim dividend for the year ended 31 March 2020 of 1.1p per share (2019: 1.0p)
The directors are not recommending a final dividend in respect of the financial year ended 31 March 2020.
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
2020
£000
5,493
–
3,358
8,851
2019
£000
5,158
5,158
3,036
13,353
2020
£000
2019
£000
20,415
20,162
23,662
20,162
Number
Number
305,428,749 303,092,067
3,170,237
307,130,215 306,262,304
1,701,466
6.68p
7.74p
6.64p
7.70p
6.65p
6.65p
6.58p
6.58p
173
www.severfield.comStock Code: SFR FINANCIALS 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 Harry Peers acquisition in 2019
On the Fisher Engineering acquisition in 2007
On the Atlas Ward acquisition in 2005
On the Watson Steel Structures acquisition in 2001
2020
£000
20,415
3,247
23,662
2019
£000
20,162
–
20,162
£000
16,002
47,980
6,571
161
70,714
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 cash-generating unit (‘CGU’) 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 has prepared cash flows for the following year, which the directors believe capture the Group's most up-to-date ‘realistic’
forecast position following the outbreak of COVID-19, 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 (2019: 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 (2019: 10 per cent).
Following the impairment reviews performed by the Group, no impairment charge was recorded in the year ended 31 March 2020.
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 2020.
174
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 12. Other intangible assets
Cost
At 1 April 2018 and 1 April 2019
Additions
At 31 March 2020
Amortisation
At 1 April 2018
Charge for the year
At 1 April 2019
Charge for the year
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
Intangible
assets
acquired on
acquisition
£000
Other
intangible
assets
£000
Total
£000
1,033
8,796
9,829
930
103
1,033
1,421
2,454
1,033
–
1,033
930
103
1,033
–
1,033
–
–
7,375
–
–
8,796
8,796
–
–
–
1,421
1,421
7,375
–
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 2018 and 1 April 2019
Additions
At 31 March 2020
Amortisation
At 1 April 2018 and 1 April 2019
Charge for the year
At 31 March 2020
Net book value
At 31 March 2020
At 31 March 2019
Customer
relationships
£000
Brands
£000
–
6,070
6,070
–
709
709
–
813
813
–
74
74
Order
book
£000
–
1,913
1,913
–
638
638
Total
£000
–
8,796
8,796
–
1,421
1,421
5,361
–
739
–
1,275
–
7,375
–
Amortisation of acquired intangible assets is included in the consolidated income statement as part of operating costs and is classified as a
non-underlying item (see note 5).
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www.severfield.comStock Code: SFR FINANCIALS 13. Property, plant and equipment
Cost
At 1 April 2018
Additions
Disposals
At 1 April 2019
Additions
Acquisition of subsidiary
Disposals
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
Disposals
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
Freehold
and long
leasehold
land and
buildings
£000
66,281
485
(10)
66,756
1,519
2,172
–
70,447
5,490
551
–
6,041
617
–
6,658
Plant
and
machinery
£000
Fixtures,
fittings
and office
equipment
£000
Motor
vehicles
£000
39,780
3,191
(1,076)
41,895
3,266
284
(639)
44,806
23,885
2,461
(508)
25,838
2,445
(457)
27,826
5,924
3,158
–
9,082
1,447
79
–
10,608
1,450
578
–
2,028
768
–
2,796
238
167
(178)
227
229
10
(66)
400
159
59
(151)
67
98
(48)
117
Total
£000
112,223
7,001
(1,264)
117,960
6,461
2,545
(705)
126,261
30,984
3,649
(659)
33,974
3,928
(505)
37,397
63,789
60,715
16,980
16,057
7,812
7,054
283
160
88,864
83,986
Finance leases are now are recorded as 'right-of-use assets' in accordance with IFRS 16 'Leases'. In the prior year, the net book value of
the Group's plant and machinery included £184,000 of assets held under finance lease. This was transferred to right-of-use assets upon
transition to IFRS 16.
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Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 14. Right-of-use assets
The Group leases many assets including land and buildings, plant and equipment and motor vehicles and these are presented as non-
current assets. Information about leases for which the Group is a lessee is presented below:
Land and
buildings
£000
Plant and
equipment
£000
Motor
Vehicles
£000
Cost
At 1 April 2019
Transitional adjustment
Additions
At 31 March 2020
Accumulated depreciation
At 1 April 2019
Charge for the year
At 31 March 2020
Balance at 31 March 2020
—
9,420
—
9,420
—
830
830
8,590
—
252
48
300
—
137
137
163
15. 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
Total
£000
—
11,195
530
11,725
—
1,585
1,585
—
1,523
482
2,005
—
618
618
1,387
10,140
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 prior 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). This expansion was complete at
31 March 2020.
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www.severfield.comStock Code: SFR FINANCIALS 15. Interests in JVs and associates continued
The Group did not make any further investments in either CMF Limited, or Fabsec Limited during the year (2019: £nil).
At 1 April 2018
Profit retained
Investments made during the year
At 1 April 2019
Profit retained
At 31 March 2020
Share of
net assets/
(liabilities)
£000
13,130
1,650
4,229
19,009
2,355
21,364
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
2020
2019
Fabsec
Limited
£000
–
–
JSW Severfield
Structures Limited
£000
2,190
1,225
CMF
Limited
£000
165
425
Summarised financial information in respect of the Group’s JVs and associates is as follows:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Group’s share of net (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
Fabsec
Limited
£000
1,176
16
(24)
(2,239)
(1,071)
(268)
–
268
–
192
(50)
–
(4)
–
–
JSW Severfield
Structures Limited
£000
73,767
34,322
(71,684)
(2,333)
34,072
17,036
–
1,265
18,301
105,942
(1,896)
(2,808)
(1,460)
4,380
2,190
CMF
Limited
£000
10,279
4,518
(7,324)
(1,389)
6,084
3,042
5,326
21
8,389
26,658
(69)
(100)
(82)
330
165
2020
£000
85,222
38,856
(79,032)
(5,961)
39,085
19,810
5,326
1,554
26,690
129,792
(2,015)
(2,908)
(1,546)
4,710
2,355
There were no contingent liabilities or capital commitments (2019: none) associated with the Group’s JVs and associates.
Total
£000
18,456
1,650
4,229
24,335
2,355
26,690
Total
£000
2,355
1,650
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
178
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 16. Inventories
Raw materials and consumables
Work-in-progress
17. Construction contracts
Contracts-in-progress at balance sheet date:
Amounts due from construction contract customers included in 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
18. Contract assets, trade and other receivables
Amounts due from construction contract customers (note 17):
Trade receivables and other*
Contract assets
Total
Other receivables
Prepayments and accrued income
Amounts due from JVs and associates
2020
£000
4,993
1,863
6,856
2020
£000
2019
£000
6,315
2,600
8,915
2019
£000
62,254
(1,179)
61,075
47,983
(1,349)
46,634
340,125
(279,050)
61,075
279,423
(232,789)
46,634
2020
£000
33,206
29,048
62,254
5,360
5,344
1,654
74,612
2019
£000
19,564
28,419
47,983
1,479
5,498
2,157
57,117
* Included in trade receivables and other is £3,550,000 (2019: £1,535,000) 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 46 days (2019: 66 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 2020 were £150,000
(2019: £57,000).
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www.severfield.comStock Code: SFR FINANCIALS 19. Trade and other payables
Trade creditors
Other taxation and social security
Other creditors and accruals
Payments in advance (note 17)
Amounts owed to JVs and associates
2020
£000
46,886
5,495
29,507
1,179
1,299
84,366
2019
£000
36,687
5,540
12,889
1,349
1,196
57,661
Other creditors and accruals in the current and prior years include the outstanding purchase consideration for CMF Limited of £1,000,000
(2019: £2,000,000), which is payable over the next two years, subject to certain conditions beyond the Group’s control.
Other creditors and accruals in the current year includes the outstanding purchase consideration for Harry Peers of £5,793,000 together
with the associated unwind of the contingent consideration discount rate, which is payable in the year to 31 March 2021, 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 54 days (2019: 52 days).
20. 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
2020
£000
(8,166)
4,157
(4,009)
2019
£000
(5,458)
4,269
(1,189)
Deferred tax is disclosed in the balance sheet as a deferred tax liability in the current and prior years.
Excess
capital
allowances
£000
(5,364)
(94)
Acquired
intangible
assets
£000
–
–
Retirement
benefit
obligations
£000
2,931
(166)
–
(5,458)
–
(996)
(311)
–
(6,765)
–
–
–
270
(1,671)
–
(1,401)
629
3,394
–
205
–
(48)
3,551
Other
temporary
timing
differences
£000
1,070
(343)
Trading
losses
£000
–
153
–
153
–
60
–
–
213
(5)
722
215
(408)
–
(136)
393
Total
£000
(1,363)
(450)
624
(1,189)
215
(869)
(1,982)
(184)
(4,009)
At 1 April 2018
(Charge)/credit to income statement
Credit/(charge) to other comprehensive
income
At 1 April 2019
Changes in accounting policy
(Charge)/credit to income statement
On acquisition of subsidiary
Charge to other comprehensive income
At 31 March 2020
180
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 21. Business combinations
Summary of acquisition
On 1 October 2019, Severfield plc acquired 100 per cent of the share capital of Harry Peers Group, comprising the parent company, Harry
Peers & Co Limited, and the trading company, Harry Peers Steelwork Limited (together ‘Harry Peers’). Harry Peers is a leading full-service
structural steelwork business operating in the UK and is registered in England and Wales. The Severfield board believes that the long-term
investment profile of Harry Peers’ key market positions in the highly regulated markets of nuclear, process industries and power generation,
enhances its areas of expertise and broadens its market exposure.
The net consideration of £24.7m comprises:
Gross initial cash consideration
Contingent consideration
Gross consideration
Net cash acquired (excluding payments in advance)
Net consideration
The fair value of the assets and liabilities recognised as a result of the acquisition are as follows:
Non-current assets
Property, plant and equipment
Current assets
Contract assets, trade and other receivables
Cash and cash equivalents (excluding payments in advance)
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Non-current liabilities
Deferred tax liabilities
Total liabilities
Net assets
Net cash acquired (excluding payments in advance)
Net identifiable assets acquired
Identified intangible assets
Goodwill
Net assets acquired
£000
30,792
5,793
36,585
(11,870)
24,715
£000
2,545
5,227
11,870
17,097
19,642
(5,694)
(179)
(5,873)
(1,982)
(7,855)
11,787
(11,870)
(83)
8,796
16,002
24,715
Goodwill of £16,002,000 represents both existing and new end user customers, which were not recognised separately in accordance with
IFRS 3 (Revised) ‘Business combinations’, the ability and skill of Harry Peers’ employees and management, know-how, and the quality of
the services provided. The goodwill arising from the acquisition is not expected to be deductible for income tax purposes.
Analysis of amounts disclosed in the cash flow statement in connection with the acquisition:
Gross initial cash consideration
Net cash acquired (including payments in advance)
Total cash outflow – investing activities
Payments in advance
Net initial cash consideration
£000
30,792
(17,402)
13,390
5,532
18,922
Additional consideration of up to £7,000,000 is also payable if certain conditions are achieved during the eleven month earn-out period
from 1 October 2019 to 31 August 2020. These conditions include the profitability of the business, the level of order book trading profit at
the end of the earn-out period and other qualitative factors. The contingent consideration will be settled in cash on their payment date upon
achieving the relevant targets. The range of the additional consideration payments is estimated to be between £nil and £7,000,000.
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The Group has included £5,793,000 as the fair value of the contingent consideration after calculating the present value of the future
expected cash flows based on the Group expectation of what it will pay in relation to the post-acquisition performance of the acquired
business, using a risk-adjusted discount rate of 18 per cent (which is based on Harry Peers' internal rate of return).
Acquisition-related costs of £1,387,000 were fully expensed in the period to 31 March 2020 as non-underlying operating costs of £873,000
and a non-underlying finance expense of £514,000 (see note 5).
The acquired business contributed revenues of £14,424,000 and profit after tax of £1,176,000 (after taking into account finance expenses
on the acquisition loan of £14.0m) to the Group for the period from 1 October 2019 to 31 March 2020.
22. 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
Borrowing
Cash and cash equivalents
Unamortised debt arrangement fees
Finance leases
Net funds
Equity
Net debt to equity ratio
2020
£000
(28,125)
44,338
177
–
16,390
183,675
N/A
2019
£000
–
24,979
226
(49)
25,156
175,007
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.
The Group excludes IFRS 16 lease liabilities from its measure of net funds/debt as they are excluded from the definition of net funds/debt
as set out in the Group's borrowing facilities.
182
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 22. Financial instruments continued
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)
Acquired intangible assets
Retirement benefit obligations (net of deferred tax) (note 30)
Average capital employed
Return on capital employed
Categories of financial instruments
Financial assets
Cash and cash equivalents
Trade receivables and other (note 18)
Derivative financial instruments
Financial liabilities
Trade creditors (note 19)
Other creditors and accruals (note 19)
Lease liabilities (note 22)
Derivative financial instruments
2020
£000
26,978
2,355
29,333
183,675
(44,338)
28,125
(16,213)
(7,375)
15,137
175,224
170,939
17.2%
2019
£000
23,256
1,650
24,906
175,007
(24,979)
49
(24,930)
–
16,577
166,654
158,541
15.7%
Carrying value
2020
£000
2019
£000
44,338
33,206
–
(46,886)
(29,507)
(11,231)
(1,135)
24,979
19,564
762
(36,687)
(12,889)
(49)
–
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.
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22. Financial instruments continued
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 2020 were £7,717,000 (2019: £4,559,000).
The Group manages its exposure to credit risk through the application of its credit risk management policies which specify the minimum
requirements in respect of the creditworthiness of potential customers, assessed through reports from credit agencies, and the timing and
extent of progress payments in respect of contracts. In addition, before accepting any new customer, adequate credit insurance is taken
out as reported in note 18. Where credit insurance is difficult to acquire, the executive risk committee determines the appropriate exposure
for the Group to take with a customer.
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.
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 18.
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 1 October 2019, the Group amended the existing borrowing facilities of £25,000,000 with HSBC Bank plc and Yorkshire Bank. The new
agreement maintains a £25,000,000 revolving credit facility (‘RCF’) that matures in October 2023 and in addition includes a £14,000,000 term
loan which will be fully repaid on the same date as the RCF matures. 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 facility is subject to certain
covenants including the cover of interest costs, the ratio of net debt to EBITDA and the ratio of cash flow to debt service.
As at 31 March 2020, £10,000,000 (2019: £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.
184
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 22. Financial instruments continued
In accordance with IFRS 7, the following tables detail the Group’s remaining contractual maturity for its trade creditors and other creditors
and accruals and provide a reconciliation of liabilities arising from financing activities.
Liabilities – 2020
Trade and other payables
Financial liabilities — leases
Borrowings
Liabilities – 2019
Trade and other payables
Financial liabilities — leases
Maturity analysis
Carrying
value
£000
Less than
3 months
£000
3 months
to 1 year
£000
76,393
11,231
28,125
115,749
49,576
49
49,625
66,416
375
15,000
81,791
47,142
49
47,191
9,781
1,127
4,375
15,283
2,081
–
2,081
1–2
years
£000
196
1,317
3,500
5,013
49
–
49
2–5
years
£000
–
2,341
5,250
7,591
304
–
304
As at 1 April 2019
Adoption of IFRS 16
Changes from financing activities:
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liabilities
Increase in lease liabilities in the year
Net interest paid
As at 31 March 2020
Market risk
5+
years
£000
–
6,071
–
6,071
–
–
–
Total
£000
76,393
11,231
28,125
115,749
49,576
49
49,625
Financial liabilities
Leases
£000
49
12,305
–
–
(1,796)
285
388
11,231
Borrowings
£000
–
–
29,000
(875)
–
–
–
28,125
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.
185
www.severfield.comStock Code: SFR FINANCIALS 22. 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
2020
£000
(4,879)
(9)
(4,888)
2019
£000
(4,636)
(10)
(4,646)
2020
£000
24,123
15
24,138
2019
£000
4,380
16
4,396
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
2020
£000
(1)
2019
£000
(1)
2020
£000
641
2019
£000
1,838
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 2020, derivatives designated as cash flow hedges were a liability of £1,135,000 (2019: asset of £762,000) and recognised total
losses of £1,813,000 (2019: £669,000) in equity and losses of £84,000 (2019: £74,000) in profit and loss in the year.
At 31 March 2020, the Group had forward exchange contracts of 29.4m euros (2019: 20.4m euros) at an average exchange rate of
€1.146/£ (2019: €1.126/£) 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.
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 2020
and the Group’s equity at that date would decrease by £66,000 (2019: £nil). If the £25,000,000 facility is fully utilised the exposure increases by
£125,000. This is attributable to the Group’s exposure to interest rates on its variable rate borrowings.
186
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 23. 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
132 to 142.
Performance share plan
The vesting of awards is subject to performance conditions set by the remuneration committee. The Group recognised a total charge of
£834,000 for the year (2019: £472,000) 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 2020:
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 ended 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 £516,000 (2019: £50,000).
During the year 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 will be 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.
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £nil (2019: £nil).
% of award vesting
0%
100%
between 25% and 100%
£0.84*
nil
37%
0.8%
3.0p
three years
187
www.severfield.comStock Code: SFR FINANCIALS 23. Share-based payments continued
During the period ended 31 March 2020 the remuneration committee granted 2,861,509 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
2019 to 31 March 2022. The following vesting schedule applies:
Underlying EPS performance for year ending 31 March 2022
Equal to less than 8.41p
Equal to 10.39p or better
Between 8.41p and 10.39p
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 2019.
% of award vesting
0%
100%
between 25% and 100%
£0.71*
nil
54%
0.5%
3.0p
three years
The Black–Scholes pricing model produced, using the above assumptions, an annual charge of £nil (2019: £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
2020
Number
7,084,240
2,861,509
(41,605)
(3,611,776)
6,292,368
2019
Number
7,297,044
2,224,808
(244,921)
(2,192,691)
7,084,240
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 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 become exercisable for a period of
six months. A charge of £135,000 (2019: £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 (2019: £183,000) 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’)
2020
Number
4,224,200
–
(259,491)
(413,309)
3,551,400
2019
Number
5,771,734
2,622,874
(1,090,436)
(3,079,972)
4,224,200
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
188
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 24. Share capital
Issued and fully paid:
305,928,087 ordinary shares of 2.5p each (2019: 303,984,746 ordinary shares of 2.5p each)
2020
£000
2019
£000
7,648
7,600
The ordinary shares carry no right to fixed income. There are no share options outstanding as at 31 March 2020 (2019: nil).
25. Other reserves
At 1 April 2018
Share-based payments
Gains taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
Exchange difference on foreign operations
At 1 April 2019
Share-based payments
Losses taken to equity on cash flow hedges
Reclassification adjustments on cash flow hedges
Exchange difference on foreign operations
At 31 March 2020
Share-based
payment reserve
£000
4,504
(1,615)
–
–
–
2,889
(570)
–
–
–
2,319
Capital
redemption
reserve
£000
139
–
–
–
–
139
–
–
–
–
139
Hedge
accounting
reserve
£000
106
–
540
129
–
775
–
(1,403)
(410)
–
(1,038)
Currency
translation
reserve
£000
–
–
–
–
16
16
–
–
–
(34)
(18)
Total
£000
4,749
(1,615)
540
129
16
3,819
(570)
(1,403)
(410)
(34)
1,402
The movement in the share-based payment reserve represents the share-based payment charge of £834,000 (2019: £790,000) offset by
amounts recycled to retained earnings of £307,000 (2019: £576,000) for share awards vested in the year and £1,097,000 (2019: £857,000)
for tax paid on these awards. There was no reserves movement in the year for sharesave schemes. In the prior year, reserves were debited
£972,000 for the 2015 Sharesave scheme, which became exercisable during that year.
189
www.severfield.comStock Code: SFR FINANCIALS 26. 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 30)
Share of results of JVs and associates (note 15)
Share-based payments
Right-of-use asset depreciation (note 14)
Operating cash flows before movements in working capital
Decrease in inventories
Increase in receivables
Increase/(decrease) in payables
Cash generated from operations
Tax paid
Net cash flow from operating activities
Cash generated from operations
Proceeds on disposal of land and buildings
Proceeds on disposal of other property, plant and equipment
Purchases of land and buildings
Purchases of other property, plant and equipment
Underlying operating profit (before JVs and associates)
Operating cash conversion
27. Analysis of net funds
Borrowings
Cash and cash equivalents
Unamortised debt arrangement fees
Financial liabilities — finance leases
2020
£000
27,039
3,928
(68)
1,421
(1,029)
(2,355)
(311)
1,585
30,210
2,059
(12,174)
7,898
27,993
(6,013)
21,980
2020
£000
27,993
–
267
(1,519)
(4,945)
21,796
26,978
81%
2020
£000
(28,125)
44,338
177
–
16,390
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
The Group excludes IFRS 16 lease liabilities from its measure of net funds/debt as they are excluded from the definition of net debt as set
out in the Group's borrowing facilities.
28. 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 2020 this amounted to £nil (2019: £nil). The Group has also given performance bonds in the normal course
of trade.
190
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020
29. Operating lease arrangements
The Group as lessee
The Group leases a number of its premises under operating leases which expire between 2020 and 2021.
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
2020
£000
–
–
–
–
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
2020
£000
22
28
–
50
2019
£000
1,153
4,316
10,297
15,766
2019
£000
968
1,197
–
2,165
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 (2019: £nil).
191
www.severfield.comStock Code: SFR FINANCIALS 30. Retirement benefit obligations
Defined contribution schemes
The Group operates two defined contribution retirement benefit schemes. The assets of the schemes are held separately from those of the
Group in funds under the control of trustees.
The total cost charged to income of £2,866,000 (2019: £2,304,000) represents contributions payable to these schemes by the Group at
rates specified in the rules of the plans. As at 31 March 2020, contributions of £476,000 (2019: £370,000) due in respect of the current
reporting period had not been paid over to the schemes.
Defined benefit schemes
The Group has a defined benefit scheme which is now closed to new members and no defined benefit membership rights will accrue under
the scheme.
The scheme exposes the Group to actuarial and other risks, the most significant of which are considered to be:
Investment risk The present values of the scheme liabilities are calculated using a discount rate determined by reference to
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
2020
%
2019
%
2.3
2.8
2.7
2.4
3.4
3.2
When considering mortality assumptions a life expectancy to 85 at age 65 has been used for the year ended 31 March 2020 (2019: 85).
Impact on scheme liabilities of changes to key assumptions:
Assumption
Discount rate
Rate of mortality
Price inflation
Change in assumption
Increase/decrease by 0.25%
Increase by one year
Increase/decrease by 0.25%
Impact on scheme liabilities
Decrease/increase by 4.1%
Increase by 3.9%
Increase/decrease by 3.7%
Amounts recognised in income in respect of these defined benefit schemes are as follows:
Interest cost
Interest income
192
2020
£000
1,076
(615)
461
2019
£000
1,065
(635)
430
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 30. Retirement benefit obligations continued
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 £19,931,000 (2019: £20,186,000).
The actual return on scheme assets was a loss of £478,000 (2019: £1,286,000).
The amount included in the balance sheet arising from the Group’s obligations in respect of the defined benefit retirement scheme is as
follows:
Present value of defined benefit obligations
Fair value of scheme assets
The major categories of scheme assets as a percentage of the total scheme assets are as follows:
Equities
Bonds and gilts
Cash
Property
LDI funds
Other
2020
£000
(43,843)
25,155
(18,688)
2019
£000
(45,561)
25,589
(19,972)
2020
%
12.9
32.4
5.8
8.7
28.9
11.3
100.0
2019
%
16.6
59.8
2.3
9.8
–
11.5
100.0
Bonds and gilts include a mixture of corporate and government bonds and fixed and index-linked gilts. Approximately nine per cent of
bonds have a sub-investment grade credit rating (BB+ or lower) and approximately 72 per cent of gilts are index-linked, with 28 per cent
being fixed.
Movements in the present value of defined benefit obligations were as follows:
At start of year
Interest cost
Actuarial gains/(losses)
Benefits paid
At end of year
2020
£000
(45,561)
(1,076)
1,348
1,446
(43,843)
2019
£000
(41,818)
(1,065)
(4,353)
1,675
(45,561)
Actuarial losses arising from changes in demographic assumptions, changes in financial assumptions and gains or losses arising from
experience were losses of £312,000 (2019: losses of £2,917,000), gains of £2,667,000 (2019: losses of £1,452,000) and losses of
£1,007,000 (2019: gains of £16,000) respectively.
Movements in the fair value of scheme assets were as follows:
At start of year
Interest income
Actuarial (losses)/gains
Employer contributions
Benefits paid
At end of year
2020
£000
25,589
615
(1,093)
1,490
(1,446)
25,155
2019
£000
24,570
635
651
1,408
(1,675)
25,589
The Group expects to contribute £128,000 (2019: £128,000) per month to its defined benefit pension scheme in the year to
31 March 2020.
193
www.severfield.comStock Code: SFR FINANCIALS 30. 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
2020
(1,093)
(4.3%)
(1,007)
(2.2%)
2019
651
2.5%
16
0.0%
2018
(488)
(2.0%)
200
0.5%
2017
420
1.7%
347
0.8%
2015
(427)
(1.8%)
397
1.1%
255
0.6%
(3,702)
(8.1%)
3,606
8.6%
(7,412)
(16.2%)
1,300
3.5%
The weighted average period over which benefits are expected to be paid, or the duration of the liabilities, is currently 17 years.
31. Related party transactions
The remuneration of the directors is provided in the audited part of the directors’ remuneration report on page 134.
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
2020
£000
2,089
186
2,275
2019
£000
2,095
143
2,238
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 23 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
(2019: £48,000). The amount due to Fabsec at 31 March 2020 was £117,000 (2019: £117,000).
During the year the Group has contracted with and purchased services from Construction Metal Forming Limited (‘CMF’) amounting
to £11,003,000 (2019: £11,691,000). The amount due from and to CMF at 31 March 2020 was £1,275,000 (2019: £1,300,000) and
£1,170,000 (2019: £1,060,000) respectively.
During the year the Group contracted with and purchased services from MET Structures Limited, amounting to sales of £1,894,000 (2019:
£nil) and purchases of £484,000 (2019: £nil). MET Structures shares common directors with the Group. The amount due from and to MET
Structures at 31 March 2020 was £363,000 (2019: £nil) and £281,000 (2019: £nil) respectively.
During the year the Group incurred additional operating costs in relation to the day-to-day running of its Indian joint venture (‘JSSL’) of
£416,000 (2019: £418,000). Those costs were recharged to JSSL during the year and the amount due from JSSL at 31 March 2020 was
£379,000 (2019: £857,000). During the year the Group contracted with and purchased services from JSSL amounting to £198,000 (2019:
£35,000). The amount due to JSSL at 31 March 2020 was £12,000 (2019: £18,000).
194
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALSNotes to the consolidatedfinancial statementsYear ended 31 March 2020 Five year
summary
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
2020
£000
2019
£000
2018
£000
2017
£000
2016
£000
327,364
26,978
28,621
(2,808)
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)
20,415
20,162
18,146
15,329
8,600
203,783
21,068
(41,176)
183,675
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
7.74p
6.68p
7.70p
6.64p
2.90p
2.7
96.00p
57.20p
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
* The basis of stating results on an underlying basis is set out on page 7. Dividend cover for the current year excludes the special dividend for the year ended 31 March 2020.
Financial
calendar
Preliminary announcement of full-year results
Publication of annual report
Annual general meeting
Announcement of interim results (provisional)
17 June 2020
July 2020
3 September 2020
24 November 2020
195
www.severfield.comStock Code: SFR FINANCIALS
Company
balance sheet
Year ended 31 March 2020
Fixed assets
Tangible assets
Right-of-use asset
Investments
Current assets
Debtors — amounts falling due within one year
Cash at bank and in hand
Current liabilities
Trade and other payables
Financial liabilities – borrowings
Financial liabilities – leases
Non-current liabilities
Financial liabilities – borrowings
Total assets less liabilities
Capital and reserves
Share capital
Share premium
Other reserves
Profit and loss account
Equity and total shareholders’ funds
Note
2020
£000
2019
£000
2
3
4
5
57,162
63
128,808
186,033
73,358
15,608
88,966
(115,454)
(19,375)
(55)
(134,884)
(8,750)
(8,750)
131,365
7,648
87,292
2,418
34,007
131,365
57,696
–
104,093
161,789
61,049
905
61,954
(95,705)
–
–
(95,705)
–
–
128,038
7,600
87,254
2,989
30,195
128,038
The Company reported a profit for the financial year ended 31 March 2020 of £12,400,000 (2019: £20,642,000).
The financial statements were approved by the board of directors on 17 June 2020 and signed on its behalf by:
Alan Dunsmore
Chief executive officer
Adam Semple
Group finance director
Severfield plc
Registered in England No.1721262
196
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS Company statement of
changes in equity
Year ended 31 March 2020
At 1 April 2019
Changes in accounting policy
Restated total equity at 1 April 2019
Total comprehensive income for the year
Ordinary shares issued*
Equity settled share-based payments
Dividends paid
At 31 March 2020
Share
capital
£000
7,600
–
7,600
–
48
–
–
7,648
Share
premium
£000
87,254
–
87,254
–
38
–
–
87,292
Other
reserves
£000
2,989
–
2,989
–
–
(571)
–
2,418
Retained
earnings
£000
30,195
4
30,199
12,400
–
259
(8,851)
34,007
Total
equity
£000
128,038
4
128,042
12,400
86
(312)
(8,851)
131,365
* The issue of shares represents the shares allotted to satisfy the 2016 Performance Share Plan award which vested in June 2019 and the 2017 and 2018 Sharesave
schemes.
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.
197
www.severfield.comStock Code: SFR FINANCIALS Notes to the company
financial statements
Year ended 31 March 2020
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 24), 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 134 and in notes 6 and 23 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.
198
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS 2. Tangible fixed assets
Cost
At 1 April 2019 and 31 March 2020
Accumulated depreciation
At 1 April 2019
Charge for the year
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
Freehold
and long
leasehold
land and
buildings
£000
Fixtures,
fittings
and office
equipment
£000
Plant and
machinery
£000
Motor
vehicles
£000
Total
£000
63,288
–
467
33
63,788
5,914
486
6,400
56,888
57,374
–
–
–
–
–
151
47
198
269
316
27
1
28
6,092
534
6,626
5
6
57,162
57,696
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 (2019: £600,000), which is set at a rate
only to cover certain of the costs of maintaining the properties.
199
www.severfield.comStock Code: SFR FINANCIALS Notes to the company
financial statements
Year ended 31 March 2020
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 2020 is disclosed below. All of these had a reporting period ended 31 March 2020, except
where indicated.
Name of undertaking
100% owned by Severfield plc
Severfield (UK) Limited
Severfield (NI) Limited(i)
Atlas Ward Holdings Limited
Watson Steel Structures Limited
Severfield (Products & Processing) Limited
Severfield Europe B.V.(ii)
Severfield Reeve Properties Limited
Harry Peers & Co Limited
Severfield Reeve Projects Limited
Severfield Reeve International Limited
Severfield Mauritius Limited(iii)
100% owned by Harry Peers & Co Limited
Harry Peers Steelwork Limited
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)
50% owned by Severfield Mauritius Limited
JSW Severfield Structures Limited(v)
25% owned by Severfield plc
Fabsec Limited*(vi)
Incorporated in
Class of capital
England and Wales
Northern Ireland
England and Wales
England and Wales
England and Wales
Netherlands
England and Wales
England and Wales
England and Wales
England and Wales
Mauritius
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
England and Wales
Ordinary
England and Wales
Ordinary
England and Wales
Ordinary
England and Wales
Ordinary
India
Ordinary
England and Wales
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
2020
£000
98,325
30,483
128,808
2019
£000
73,610
30,483
104,093
Investment in subsidiaries
Investment in joint ventures
200
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS 3. Investments continued
Investment in subsidiaries
Cost
At 1 April 2019
Additions
At 31 March 2020
Provision for impairment
At 1 April 2019 and 31 March 2020
Net book value
At 31 March 2020
At 31 March 2019
£000
93,810
24,715
118,525
(20,200)
98,325
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 prior year, the Company invested a further £4,229,000 in the joint
venture to fund the expansion of the production facility in Bellary. During a 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 (2019: £nil).
Cost
At 1 April 2019
Additions
At 31 March 2020
£000
30,483
–
30,483
201
www.severfield.comStock Code: SFR FINANCIALS Notes to the company
financial statements
Year ended 31 March 2020
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)
2020
£000
1,362
62,987
9,009
73,358
2020
£000
11,490
98,853
5,111
115,454
2019
£000
1,333
56,536
3,180
61,049
2019
£000
7,020
84,541
4,144
95,705
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 2018
Current year credit
Charge to equity
At 1 April 2019
Current year credit
Charge to equity
At 31 March 2020
2020
£000
(5,285)
174
(5,111)
Excess
capital
allowances
£000
(4,760)
44
–
(4,716)
(569)
–
(5,285)
Other
temporary
differences
£000
986
(409)
(5)
572
(261)
(137)
174
2019
£000
(4,716)
572
(4,144)
Total
£000
(3,774)
(365)
(5)
(4,144)
(830)
(137)
(5,111)
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 2020 these amounted to £nil (2019: £nil).
202
Severfield plc Annual report and accountsfor the year ended 31 March 2020FINANCIALS 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
Harry Peers & Co Limited
Elton Street
Bolton
Lancashire
BL2 2BS
Construction Metal Forming 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
203
www.severfield.comStock Code: SFR FINANCIALS
Severfield plc
Severs House
Dalton Airfield Industrial Estate
Dalton, Thirsk
North Yorkshire, YO7 3JN
Tel: (01845) 577896
Fax: (01845) 577411
www.severfield.com