Final Results

Severfield-Rowen PLC 02 April 2008 2007 Full Year Results Severfield-Rowen Plc, the market leading structural steel group, announces its full year results to 31 December 2007 including record levels of output, revenue and profitability. Financial Highlights £m 2007 2006 Change Revenue 300.7 295.1 1.9% Underlying* operating profit 42.7 29.1 46.6% Underlying profit before tax 42.9 30.3 41.8% Retained profit after tax 26.4 20.9 26.3% Underlying basic earnings per share 35.74p 25.64p 39.4% Dividend per share 20.00p 14.25p 40.4% • Record margins due to focus on quality projects for major clients • Record underlying operating margin increased to 14.2% (2006: 9.9%) • Underlying profit before tax margin increased to 14.3% (2006: 10.3%) • Underlying profit before tax increased to £42.9m (2006: £30.3m) • Following acquisition and capital expenditure, year end net borrowings of £48.1m (2006: net funds £38.2m) Operational Highlights • All core businesses performed strongly with a focus on prime projects • Continued high quality projects undertaken, including: • Completion on time and budget of Terminal 5, Heathrow • Completion of the Westfield Centre shopping centre, London • First ever inner city Ikea store on Queen Victoria Road, Coventry • New Museum of Transport, Glasgow • The Darwin Centre, Natural History Museum, London • Premium office development at Holborn Viaduct for Balfour Beatty Construction Ltd • 12 storey offices, Piccadilly, Manchester • The Point Shopping Centre, Dublin • A supply chain partner to blue chip active clients: • Westfield • BAA • Landsecurities / British Land / Stanhope • Tesco, ASDA and Sainsbury • Quinn Group • Successful acquisition and integration of Fisher Engineering providing major position in Ireland Outlook • Despite global financial and economic outlook, the Board remains optimistic of future growth with a record order book of £455m providing a solid platform for the next 12 to 18 months • 2008 has commenced well and our outlook is positive • Diverse range of projects and geography, including Power Stations, Hospitals and Retail Malls * Underlying is before the amortisation of acquired intangible assets of £2.2m and the valuation of derivative financial instruments of £2.39m. Peter Levine, Chairman, commented: '2007 was a record year for Severfield-Rowen. We continued to deliver growth in all core areas and as we move into a different economic environment we remain confident that our focus on client service as well as prime quality projects will enable us to continue our growth. Our record order book is a reflection of the hard work undertaken by the team in 2007 and is the basis for a strong 2008. Despite current market conditions Severfield-Rowen is very well placed to continue its development. Retiring as Chairman at the forthcoming AGM, I am confident that Tom Haughey, Peter Emerson and their team will take the Group forward to further prosperity and success in the future.' Chairman's Statement Introduction - Another Great Year On behalf of the Board I am delighted to report that the Group performed extremely well in 2007 with all of our core businesses yet again delivering record productivity and customer service, and producing record results. In spite of the challenging global financial market conditions towards the end of the year, the financial strength of Severfield-Rowen combined with increasing demand for the Group's differentiated services, underline our confidence in the Group's long-term growth prospects. Overview - Further Growth In 2007 underlying operating profit (before amortisation of acquired intangible assets of £2.2m and the valuation of derivative financial instruments of £2.39m) increased by 46.6% to a record £42.68m (2006:£29.12m) on increased revenue of £300.7m (2006: £295.1m). The underlying operating margin increased to 14.2% (2006: 9.9%). These impressive results were largely due to our quality service level, underpinned by a focus on prime projects. All of our core businesses performed strongly with a focus on high-margin, prime projects. Accordingly, underlying profit before tax was 41.8% higher at £42.9m (2006: £30.3m) producing a 39.4% increase in underlying basic earnings per share of 35.74p (2006: 25.64p). The underlying profit before tax margin increased to 14.3% (2006: 10.3%). Retained profit after tax was £26.4m (2006: £20.9m). The Group's net assets increased to £116.8m (2006: £66.2m). Following the funding of the Fisher Engineering acquisition and the purchase of the Dalton Property, we ended the year with net borrowings of £48.1m (2006: net funds £38.2m). We increased our leading position in the structural steel industry and are involved in many significant projects and developments. We are particularly pleased that all of the Company's core subsidiaries in 2007, namely Severfield-Reeve Structures, Watson Steel Structures, Atlas Ward Structures, Rowen Structures, Fisher Engineering and Steelcraft Erection Services, contributed to our record results. Heathrow Terminal 5 Notable among our recent completed projects was Heathrow Airport's new Terminal 5, which has received worldwide acclaim not only for its impressive visual impact, but more fundamentally for the completion of its construction time and on budget. The Group should be extremely proud of this achievement. Dividend - Improved Returns With the record results announced today and in view of the strength of our financial position, the Directors are pleased to announce a 40.4% increase in the full dividend for the year to 20.0p per share which is covered 1.8 times by underlying earnings. The final dividend is 13.25p per share (2006: 9.25p) payable on 16 June 2008 to shareholders on register on 16 May 2008. Fisher Engineering The acquisition of Fisher Engineering was completed in October 2007 at a total cost of £92.2m of which £36.6m was paid in shares and the balance in cash. Based in Enniskillen, Northern Ireland, the Company has an established track record as a very successful and profitable fabricator in both the province and Eire and its incorporation into the Group has been speedy and effective. We look forward to Fishers making a significant contribution to the Group in 2008 and beyond At the time of purchase, Ian Cochrane, the Managing Director of Fishers, joined our main board. A planned upgrade investment of some £2.5m was completed in 2007, prior to the acquisition, and is now providing the strategic productivity improvements envisaged. Dalton Airfield Estate During the same period as the Fisher acquisition, the Group acquired the freehold reversion of Dalton, the Group's headquarters from certain directors and management for the sum of £23.5m. The acquisition has a positive effect and means Severfield regains control of this valuable extensive headquarters and fabrication site thereby giving it both the flexibility in further development and an increased asset base. Board Changes Chairmanship With effect from the close of the Company's AGM on 30 May 2008 I will step down both as Chairman and Main Board Director of Severfield-Rowen. Having been first Deputy Chairman for a numbers of years, then Chairman for the last ten years, it is time to pass on the baton. In all those years it has been an honour to be part of the team that has made Severfield the pre-eminent force in our industry. It has furthermore been a privilege to work alongside first the creator of the modern Severfield, John Severs, and latterly the team that I have no doubt will take it forward to further prosperity and success, namely Tom Haughey, Peter Emerson, and their management colleagues. Shareholders should have every confidence that the future of Severfield is in good hands and I express sincere thanks to all my colleagues and our employees for their friendship and support to me over many years. My replacement as Chairman is to be Toby Hayward. Toby provides both valuable accounting background, being a Chartered Accountant, qualifying with Deloitte and Touche, and has very extensive city experience. For the last 21/2 years he has been with Jefferies International Limited. John Featherstone Also with effect from the close of the Company's AGM, John Featherstone, one of our non-executive directors will be standing down. I have known John since he joined our board twenty years ago, as our then sole non-executive and he has provided invaluable support throughout that time. The Company owes him much gratitude and wishes him and his wife health, happiness and a lengthy and vibrant retirement. Board Re-organisation Taking into account my departure and that of John Featherstone, the decision has been taken to rationalise and streamline the Board structure. Accordingly, with effect from close of business of the forthcoming AGM, Peter Ellison, Brian Hick, Nigel Pickard and Ian Cochrane will step down as Main Board members but will of course continue as executive managing directors of their own companies being respectively Steelcraft, Severfield-Reeve, Atlas Ward and Fisher Engineering. I express mine and the Board's appreciation of their important support to the Main Board and look forward to many years of continued contributions to the Group through a new Executive Management Committee. Proposed Board structure post AGM Main Board Toby Hayward Non-Executive Chairman Tom Haughey Chief Executive Officer Peter Emerson Chief Operating Officer Peter Davison Finance Director Keith Elliott Senior Non-Executive Director David Ridley Non-Executive Director Geoff Wright Non-Executive Director Divisional Executive Managing Directors Peter Ellison Steelcraft Erection Services Brian Hick Severfield-Reeve Structures Nigel Pickard Atlas Ward Structures Ian Cochrane Fisher Engineering Employees - Key to Success The consistent achievements of the Group continue to reflect directly on the excellent management and workforce. The Directors' sincere gratitude is extended to them. Outlook - Still Positive The Group's prospects are very good. Our position remains robust and demand for our services continues to be significant, particularly larger projects, as exemplified by our record order book and as observed by other leading construction contractors. We have begun this year well and are confident of further success in 2008 and beyond, including the Company's expressed objective of exploring overseas ventures. Peter Levine Chairman 1998-2008 2 April 2008 Operational Review The Company continued to make very good progress through 2007, producing records in output, turnover and profitability, and established the strongest forward order book in its history. Client satisfaction is very high as the focus continues to be on delivery of value and on-time project execution for all contracts, large and small. In the closing quarter of 2007 the Group achieved a significant strategic objective with the acquisition of Fisher Engineering Limited. The Company has settled in to the Group exceedingly well. Benefits to the Group include enhanced flexibility, better service offerings and the greater collective optimisation of our new scale and breadth. This acquisition consolidates the Group's leading position, in terms of service and client preference throughout the UK and Ireland. The companies within the Group, while autonomous, are solidly co-operating to provide 'best in industry' programmes, service and value to clients and their projects. Severfield-Reeve Structures Many notable projects were undertaken by the Company, including: • Completion of the Westfield Centre shopping centre, London • Continuing specialist development of oil pipeline carrying racks on Sakhalin Island, Russian Federation • First ever inner city Ikea store on Queen Victoria Road, Coventry • Extension to the Shires shopping centre in Leicester • Retail, leisure and residential centre Eagles Meadow, Wrexham • Concert hall, arts venue and office development with unique rippling glass facade at King's Place, London • Retail development at the Broadmead shopping complex in Bristol • Office development using the innovative Bi-Steel Core at One Basinghall Avenue, London • New 1200 bed hospital development at Queen Elizabeth Medical Centre, Edgbaston, Birmingham • Mixed use retail and residential development at Livingston, near Edinburgh • Ropemaker multi-storey office block, London During the course of 2007, the Company prepared for and obtained a Gold Award via the British Construction Steel Association Sustainability Charter. This is a milestone achievement and is just the initial step in the Group's ambition to generate an efficient sustainable business model. In the same timeframe BS EN ISO 14001 Environmental and OHSAS 18001 Safety accreditations were achieved. Further site development for improved logistics and enhanced product output were implemented through 2007, ensuring that the Company strengthens its position as the leading production facility in Europe. Watson Steel Structures The Company again continues to express its versatility and engineering expertise through its participation in many high profile projects, including: • The on-time/in budget completion of Terminal 5, Heathrow • Terminal extension at Stansted for BAA • Hackney Academy, London • The Darwin Centre at the Natural History Museum, London • Waste to Energy plant, Colnebrook New projects awarded in 2008 include: • New Museum of Transport, Glasgow • Terminal 2 Dublin Airport • Extensions to Terminals 3 and 4 at Heathrow Airport • The exclusive residential development at Number 1 Hyde Park, London • Cannon Place development, London In 2007, the operations at Watson Steel were enhanced with the commission of processing equipment and the improvement of site infrastructure. The Company was also successfully accredited with BS EN ISO 14001 Environment and OHSAS 18001 Safety awards, demonstrating its ongoing commitment to quality, safety and sustainability. Atlas Ward Structures In 2007 Atlas Ward derived productivity benefits from the significant investments made in 2006. Investment during 2007 is further strengthening the Company's position in the market place and makes it more flexible to compete across a range of construction sectors. Projects engaged during the year, include: • New distribution centre for Tesco in Livingston, Scotland • Project Storm, a new distribution centre for major supermarket chain ASDA at Redhouse Interchange, Doncaster • New distribution centre for Tesco in Goole • New distribution hub for Sainsbury's in Pineham • New Sainsbury's store and adjacent non-food retail units on Westfield Road, Edinburgh • Two new teaching blocks at Anniesland College in Glasgow • ProLogis Park, Wellingbrough the third phase of a distribution development totalling in excess of 4,000 tonnes of structural steelwork • Lymedale Cross, a new speculative development for Helioslough in Newcastle-under-Lyme • New distribution centre for Tesco in Donabate, Dublin • New factory and offices for JCB at Uttoxeter • Cabot Park Plots 9 and 10, a new cross docking distribution facility based in Bristol • A new manufacturing facility for Goodman's in Avonmouth Atlas Ward is heavily involved in the development of new Sustainability strategies and initiatives for itself and other Group companies. Atlas Ward attained OHSAS 18001 Safety and BS EN 14001:2004 Environment accreditations in 2007. Fisher Engineering Fisher Engineering joined the Group in October 2007. The integration into Severfield-Rowen has gone exceedingly well. An upgrade investment of some £2.5m was completed in 2007, prior to its acquisition, and is now providing the strategic productivity improvements envisaged. The projects completed or started by Fisher Engineering in 2007, include: • Victoria Shopping Centre in Belfast • Ireland's very first Ikea Store in Belfast • Centrecor Pharmaceutical at Cashall, Ireland • Dundrum Town Centre in Dublin • Quinn Group Radiator Factory at Newport • National Conference Centre in Dublin • The Point Shopping Centre in Dublin • MET University in Leeds (Feature Building) • Commercial office block in Threadneedle Street, London • BBC Now in Cardiff During 2007, Fisher Engineering achieved Health and Safety Management accreditation to ISO 18001. Rowen Structures Rowen Structures ceased the physical production of steelwork in the summer of 2007. It is now carried out at the other Company sites. Rowen Structures continues to contract business on behalf of the Group with its longstanding clients, providing its wholly retained project management skills and Group services to many projects, including: • Westfield Shopping Centre in Derby • 12 storey office and retail unit at No 3 Piccadilly, Manchester for Carillion Construction Ltd • Premium office development at 40 Holborn Viaduct for Balfour Beatty Construction Ltd New projects commenced in the period, include: • Prestigious new headquarters for Audi UK Ltd in London • Premium office development (the 'LEX' Building) in Queen Street, London • 19 storey office development at 30 Crown Place, London • Regents Place office development in London • Large West End office development adjacent to Great Portland Street tube station • Premium office and retail development situated adjacent to St Paul's Cathedral in central London Rowen's management and staff will relocate to new, bespoke offices in the same vicinity in June 2008, from where they will continue to provide a full service to clients. Steelcraft Erection Services The Group's performance in relation to project execution and customer satisfaction was again greatly influenced by the high level of professionalism and dedication provided by Steelcraft Erection Services. Steelcraft continues to lead the field in terms of innovation and is presently first user of a new bespoke steel erector platform, developed as the optimum current solution for the safer erection of steelwork. Severfield-Reeve Projects The Company continues to provide first class services to its clients and other Group companies in the full development of small to medium scale projects. Conclusion 2007 was a further milestone in the Company's development, both financially and strategically. The acquisition of Fisher Engineering has consolidated the Group's leading position in the UK and Ireland and our continued focus on client service has assisted in obtaining a record order book of some £455m and establishing us as preferred supplier on a significant pipeline of future work. The Group is now positioned to derive growing synergy benefits from the flexibility and scale of its existing operations, while beginning to explore new growth opportunities overseas. Tom Haughey Chief Executive Officer 2 April 2008 Financial Review I am delighted to announce that the Group has had another record year with underlying profit before tax (before amortisation of acquired intangible assets of £2.2m and the valuation of derivative financial instruments of £2.39m) of £42.95m and importantly a record order book of £455m. This underlines the financial strength of the Group and its long term prospects. In a year of significant activity, including the acquisition of Fisher Engineering, this presents an excellent base for growth in the current year. Revenue of £300.66 m and underlying profit before tax of £42.95m have increased 1.9% and 41.8% respectively over the figures achieved in 2006. Basic earnings per share, based on the underlying profit after tax, increased by 39.39% to 35.74p. Consequently, it is recommended that the total dividend for the year is increased by 40.35% to 20.0p per share, giving a dividend cover of 1.8 times. Retained profit after tax of £26.4m (2006: £20.9m) has been transferred to reserves. Following the acquisition of Fisher Engineering and the significant capital expenditure in the period, we ended the year with net borrowings of £48.1 m. Share Split In October 2007 the Company's share capital was subject to a 4:1 share split which increased the number of shares in issue to 88,607,876 shares of 2.5p each. Consequently, where previous years comparative figures are shown in this review they have been amended, where appropriate, to reflect the share split. Revenue Group revenue increased by 1.9% to a record level of £300.66 m. The relatively small increase in revenue, despite the Fisher Engineering acquisition in October 2007, reflects the following during the year: • In 2006 revenue increased to £295.08m from £236.72m in 2005, reflecting the Group's approach towards its optimum output levels. In 2007 revenue increased only marginally despite continuing high capacity utilisation, due to a change in work mix which in turn generated significantly higher margins. • During 2007 there was a lower level of externally sourced products and services which generate incremental revenue in addition to the revenue generated by steel. Examples include decking, cladding and staircases, etc. • Production at the Group's facility at Rowen Structures Limited in Nottinghamshire ceased in July 2007 with the fabrication being carried out at other more efficient Group companies, thus generating higher margins. • The Group continues to follow its strategic objective of increasing its own in-house capabilities to provide client services, eg Fabsec beams, intumescent paint and staircases. • At 31 December 2007 stock/work in progress was £14.60m higher than at the end of 2006 reflecting the timing of project valuations and thus producing a lower level of revenue. Operating Profit The Group's underlying operating profit increased by 46.6% to £42.68m. We are particularly pleased that underlying operating margins, expressed as a percentage of revenue, have continued to increase significantly to 14.20% from the 9.87% achieved in 2006. These figures continue to incorporate the Group's two associated companies, Kennedy Watts Partnership Limited and Fabsec Limited, of which the Group owns 25.1% and 25% respectively. The Group's operating profit for the year includes its share of these two companies' results which amounted to a net profit of £58,000 (2006: £10,000). Finance Costs Net interest receivable for the Group amounted to £266,000 (2006: £1,168,000). The reduction reflects the interest payable on the borrowings taken out to help fund the acquisition of Fisher Engineering in October. Profit before Tax The table below provides a summary of the profit before tax: 2007 2006 £000 £000 Underlying profit before tax - 42,950 30,286 Excludes non-underlying continuing operations items (see below) Non-underlying items (4,590) - See section below for explanation Profit before tax - continuing 38,360 30,286 operations The underlying profit before tax has increased to £42.95m, an increase of 41.8% over the previous year. Margins, at this level, expressed as a percentage of revenue, increased to 14.29% (2006: 10.26%). Non-Underlying Items Non-underlying items are included within the 'other items' column of the Consolidated Income Statement and amount to £4.59m (2006: Nil) which relate to: • Amortisation of acquired intangibles - £2.2m (2006: Nil). • Forward contract valuations - £2.39m (2006: Nil). The Group, particularly through Fisher Engineering, is increasingly selling in to the Euro zone (principally Eire) and locks in the contract profit at the time of accepting this work. Due to the weakening of Sterling against the Euro between the date when the forward exchange contracts were put in place during the year and the year end a negative fair value has arisen on these contracts. IAS 39 requires the movement in the fair value to be included as a charge in the Consolidated Income Statement with an associated liability in the balance sheet. Taxation The tax charge of £11.93m represents an effective tax rate of 31.09% compared with 30.92% in the previous year. The rate is slightly higher than the prevailing rate due to the adjustments made in respect of disallowable expenditure incurred during the year. During 2007 proposed amendments to the Industrial Buildings Allowance regime were announced. Due to the fact that these amendments were not substantively enacted as at 31 December 2007, their effects have not been reflected within the Group's results. The Directors have estimated that should these amendments be substantively enacted during the year ending 31 December 2008, the deferred tax liability held in the consolidated balance sheet would increase by £6.5 m with a corresponding charge to the consolidated income statement. Earnings per Share Underlying basic earnings per share was at a record level of 35.74p, an increase of 39.39% over the previous year. This calculation is based on the underlying profit after tax of £29.74m and 83,218,835 shares, being the weighted average number of shares in issue during the year. Basic earnings per share, based on profit after tax after non-recurring items is 31.77p. Underlying diluted earnings per share is 35.70p. This calculation is based on the underlying profit after tax of £29.74m and 83,297,638 shares, being the weighted average number of shares in issue, allowing for contingent shares under a share based payments scheme. Diluted earnings per share, based on profit after tax after non-recurring items is 31.73p. Dividend The Board will be recommending a final dividend of 13.25p per share (2006: 9.25p) at the Company's Annual General Meeting on 30 May 2008, bringing the total dividend for the year to 20.0p per share. This total dividend represents a 40.35% increase over the total dividend of 14.25p per share paid for 2006. This is in line with the underlying basic earnings per share increase and maintains the total dividend cover at 1.8 times these earnings, a level at which the Board remains comfortable and at which it remains confident of maintaining in the future. The final dividend will be paid on 16 June 2008 to shareholders on the register on 16 May 2008. The ex-dividend date will be 14 May 2008. Acquisitions The Company made two acquisitions in the year for a total consideration of almost £116 m as follows: • Action Merchants Limited Action Merchants Limited is the non-trading holding company of Fisher Engineering Ltd, a leading steel fabrication company based in Enniskillen in Northern Ireland. The total consideration amounted to £92.2m (including £2.2m costs) of which £36.6 m was satisfied by the issue of 1,750,000 ordinary shares of 10p each at £20.89 per share, with the balance paid in cash. The Income Statement incorporates the result from 8 October 2007, the date of the acquisition of the Action Merchants Limited Group. Goodwill arising on the acquisition amounted, before allocation of intangibles, initially to £76m. A valuation of any identifiable intangible assets of Action Merchants Limited included in this figure has been carried out to identify and estimate the fair value and estimated useful lives of these intangible assets as required under IFRS 3. These intangible assets have been valued at approximately £39m gross of the associated deferred tax liability of £10.92 m and are included in the Balance Sheet under 'Other Intangible Assets'. Goodwill will be subject to an annual impairment review as required under IFRS 3. Fisher Engineering has been integrated into the Group very satisfactorily and the results for the three month period of ownership are both very good and encouraging for the future. • Dalton Airfield Estate Limited (DAEL) DAEL owned the long leasehold title to the Group's headquarters and the freehold title to over half of Severfield-Reeve Structures Limited's fabrication facility, both at Dalton Airfield Industrial Estate in North Yorkshire, for which it was paid a rent of approximately £1.6m per annum. The Group acquired the freehold reversion of this facility from certain directors and management to regain Severfield-Rowen's control of this valuable and extensive headquarters and fabrication site. The total consideration amounted to £23.5m and was concluded on 9 October 2007. The transaction has been included in the accounts as the acquisition of land and buildings. Balance Sheet The Group's Balance Sheet continues to strengthen with shareholders' funds increasing by £50.60m to £116.83m. This equates to a total equity value per share at 31 December 2007 of 131.8p, compared with 67.6p at the end of 2006. The Group's Balance Sheet now has property, plant and equipment totalling £79.42 m. Depreciation charged in the year amounted to £3.93 m. We continue to invest heavily in our business with capital expenditure in the year of £33.68 m made up as follows: • Land and buildings at Dalton, North Yorkshire, as part of DAEL acquisition £23.5 m • Land and extension of production facilities at Dalton £4.0 m • Land and improvements to production facilities at Watson Steel Structures' facility at £2.0 m Bolton • Improvements to production facilities at Atlas Ward Structures' facility in North £0.7 m Yorkshire • Mobile cranes for use on sites £1.4 m • Motor vehicles/vans £1.2 m Expenditure in 2008 is budgeted to be approximately £4 m. The value of goodwill on the Balance Sheet of £54.71 m is made up primarily as follows: • Acquisition of Action Merchants Limited (Fisher Engineering) in 2007 - £47.98 m. The goodwill is subject to an annual impairment review under IFRS 3. Given the excellent performance of the company since acquisition no impairment existed at 31 December 2007. • Acquisition of the Atlas Ward Group of Companies in 2005 - £6.6 m. Subject to an annual impairment review under IFRS 3. Given the excellent performance of Atlas Ward in the year no impairment existed at 31 December 2007. Other intangible assets on the Balance Sheet, amounting to £39.04 m, represents the capitalisation of the Group's costs in the development of a pedestal mounted powered work platform for use on sites in the erection of steel, which is now being used on sites in London of £2.24 m and the gross value of the intangible assets arising on the Fisher acquisition, after amortisation in the year of £2.2 m, of £36.80 m. Unlike the rest of the Group, Atlas Ward has a defined benefit pension scheme which, although closed to new members, had an IAS 19 deficit of £7.29m as at 31 December 2006. At 31 December 2007, largely as a result of the contributions paid over during the year, the deficit decreased slightly to £6.75m and is shown as a liability in the Group Balance Sheet, with the remaining movement going through the Statement of Recognised Income and Expense as required under IFRS. The provision made in the accounts to 31 December 2006 of £2.6m in respect of an alleged leak to a roof of a contract carried out by Atlas Ward Structures Limited has been under regular review during the year by the Directors. Although the case went to adjudication no real progress was made with no further indication of the likely outcome. Consequently, it was decided that the provision should remain in place. Cash Flow Management of the Group's cash has always been of prime importance to the Board and this remains the case with cash being tightly controlled. During the year a significant amount of borrowings were taken out to fund the acquisitions in October of Action Merchants Ltd and DAEL. Consequently the Group ended the year with net borrowings of £48.06m (2006: positive cash £38.30m). The Group has a revolving credit facility of £70m with RBS and National Australia Bank as joint lenders until August 2010. The current level of borrowings leaves the Group comfortably within the limits of its facility. During the year £22.99m was generated from operations. Outflows of cash during the year included dividends of £13.06m, corporation tax paid of £9.13m and the purchase of property, plant and equipment, net of sale proceeds, of £32.12m. The cash outflow required for the Fisher acquisition, after cash and cash equivalents acquired, amounted to £54.96m, including costs. Due to the acquisitions the Group ended the year with borrowings for the first time in many years and gearing of 41.14% (2006: Nil). Treasury Group treasury activities are managed and controlled centrally. Risks to assets and potential liabilities to customers, employees and the public continue to be insured. The Group maintains its low risk financial management policy by insuring all significant trade debtors. The treasury function seeks to reduce the Group's exposure to any interest rate, foreign exchange and other financial risks, to ensure that adequate, secure and cost effective funding arrangements are maintained to finance current and planned future activities and to invest cash assets safely and profitably. Following the acquisition of Fisher Engineering Ltd and the award to the Group of a large contract at Dublin Airport, the Group now has more exposure to the exchange rate fluctuations between Sterling and the Euro. In order to maintain the projected level of profit budgeted on contracts foreign exchange contracts are taken out to convert into Sterling at the expected date of receipt. As the exchange rate between Sterling/Euro moved against us between the time the foreign exchange contracts were taken out in 2007 and the year end, IAS 39 requires the company to provide for an accounting and non-cash flow loss to the Income Statement of £2.39 m which is shown as a non-underlying item under 'other items' on the Statement. The Group remains committed to strong financial controls, cash management and appropriate accounting and treasury policies. Summary The Group has had a very successful year with revenue, underlying profit before tax, earnings per share and dividends per share once again reaching record levels. The acquisition of Fisher Engineering Ltd has proven to be very successful with the company fitting into the Group very well. The Group has continued to improve its already healthy financial position which, together with its record order book of £455 m, means it is well placed for future growth and cash generation. Peter Davison Finance Director Consolidated Income Statement For the year ended 31 December 2007 Before Other Other Total Total Items Items *1 2007 2007 2007 2006 Continuing Operations £000 £000 £000 £000 Revenue 300,656 - 300,656 295,084 Cost of sales (250,936) - (250,936) (261,148) Gross profit 49,720 - 49,720 33,936 Other operating income 479 - 479 79 Distribution costs (1,295) - (1,295) (877) Administrative expenses (6,278) (2,200) (8,478) (4,030) Share of results of associates 58 - 58 10 Unrealised losses on derivative - (2,390) (2,390) - financial contracts Operating Profit 42,684 (4,590) 38,094 29,118 Investment revenue - interest 1,405 - 1,405 1,250 Finance costs - interest (1,139) - (1,139) (82) Profit before tax 42,950 (4,590) 38,360 30,286 Tax (13,211) 1,285 (11,926) (9,365) Profit for the period attributable 29,739 (3,305) 26,434 20,921 to the equity holders of the parent Earnings per share:*2 Basic 35.74p (3.97p) 31.77p 25.64p Diluted 35.70p (3.97p) 31.73p 25.64p *1 Other items relate to the amortisation of acquired intangibles and unrealised losses on derivative contracts. Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group. There were no such items in 2006 or previous periods. *2 The calculation of earnings per share for previous periods has been adjusted to reflect the 4:1 share split in October 2007. Consolidated Statement of Recognised Income and Expense For the year ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 £000 £000 Actuarial profit/(loss) on defined benefit 285 (1,169) pension scheme Tax on items taken directly to equity (85) 351 Impact of reduction in tax rate on deferred tax on (134) - defined benefit pension scheme Net gain/(expense) recognised directly 66 (818) in equity Profit for the year from 26,434 20,921 continuing operations Total recognised income and 26,500 20,103 expense for the year attributable to equity shareholders Consolidated Balance Sheet 31 December 2007 At At 31 December 2007 31 December 2006 £000 £000 ASSETS Non-current assets Goodwill 54,712 6,732 Other intangible assets 39,040 1,608 Property, plant and equipment 79,423 43,602 Interests in associates 104 46 173,279 51,988 Current assets Inventories 17,931 3,333 Trade and other receivables 65,614 46,786 Cash and cash equivalents 5,445 38,304 88,990 88,423 Total assets 262,269 140,411 LIABILITIES Current liabilities Trade and other payables 57,857 56,966 Financial liabilities - borrowings 53,504 - Financial liabilities - derivative 2,850 - financial instruments Tax liabilities 10,394 6,125 Obligations under finance leases - 66 124,605 63,157 Non-current liabilities Retirement benefit obligations 6,745 7,287 Deferred tax liabilities 11,490 742 Provisions 2,600 3,000 20,835 11,029 Total liabilities 145,440 74,186 NET ASSETS 116,829 66,225 EQUITY Share capital 2,215 2,040 Share premium 46,152 9,770 Other reserves 743 139 Retained earnings 67,719 54,276 TOTAL EQUITY 116,829 66,225 Consolidated Cash Flow For the year ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 £000 £000 Cash flows from operating activities Cash generated from operations 22,987 35,488 Interest paid (768) (82) Tax paid (9,131) (6,341) Net cash from operating activities 13,088 29,065 Cash flows from investing activities Proceeds from sale of property, plant and equipment 1,555 920 Interest received 1,384 1,239 Acquisition of subsidiary (net), including costs (55,641) - Cash acquired with subsidiary 685 - Purchases of property, plant and equipment (33,679) (13,010) Purchases of intangible fixed assets (632) (600) Net cash used in investing activities (86,328) (11,451) Cash flows from financing activities Payment of finance lease liabilities (66) (363) Borrowings taken out 53,504 - Dividends paid (13,057) (9,079) Net cash generated from financing activities 40,381 (9,442) Net (decrease)/increase in cash and cash equivalents (32,859) 8,172 Cash and cash equivalents at beginning of period 38,304 30,132 Cash and cash equivalents at end of period 5,445 38,304 1) Basis of preparation The Group's financial statements have been computed in accordance with the prior year accounting policies and IFRSs. The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the consolidated financial statements comply with Article 4 of the EU IAS Regulations. The financial statements have been prepared under the historical cost basis, except for the revaluation of financial assets and liabilities under IAS 39 'Financial instruments: recognition and measurement'. This preliminary announcement does not constitute the full financial statements prepared in accordance with International Financial Reporting Standards ('IFRSs') or within the meaning of section 240 of the Companies Act 1985. Full accounts for the year ended 31 December 2007 have not yet been audited or delivered to the Registrar of Companies. The Annual Report is due to be posted to shareholders on or around 7 May 2008. A copy of the statutory accounts for the year ended 31 December 2006 has been delivered to the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 2) Revenue and segmental analysis Revenue in both years originated from the United Kingdom. Revenue, profit before tax and net assets, in both years, related to the design, fabrication and erection of structural steelwork and related activities. 3) Taxation The taxation charge comprises: 2007 2006 £000 £000 Current tax UK corporation tax 12,940 9,304 Adjustments to prior years' tax provision (16) (89) 12,924 9,215 Deferred tax Current year charge (1,009) 86 Adjustments to prior years' provision 11 64 (998) 150 Total tax charge 11,926 9,365 During 2007 proposed amendments to the Industrial Buildings Allowance regime were announced. Due to the fact that these amendments were not substantively enacted as at 31 December 2007, their effects have not been reflected within the Group's results. The Directors have estimated that should these amendments be substantively enacted during the year ending 31 December 2008, the deferred tax liability held in the consolidated balance sheet would increase by £6.5 m with a corresponding charge to the consolidated income statement. 4) Dividends 2007 2006 £000 £000 Final dividend for the year ended 7,549 4,998 31 December 2006 of 9.25p (2005: 6.125p) per share Interim dividend for the year ended 5,508 4,081 31 December 2007 of 6.75p (2006: 5.00p) per share 13,057 9,079 Proposed final dividend for the year 11,741 7,549 ended 31 December 2007 of 13.25p (2006: 9.25p) per share The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The proposed dividend will be paid on 16 June 2008 to shareholders on the register on 16 May 2008. The ex-dividend date is 14 May 2008. 5) Earnings per share There are no discontinued operations in either the current or prior year. The calculation of the basic and diluted earnings per share is based on the following data, reflecting the 4:1 share split in October 2007: 2007 2006 £000 £000 Earnings Profit for the year 26,434 20,921 Underlying profit for the year 29,739 20,921 2007 2006 Weighted average of number of shares 83,218,835 81,607,876 in issue Weighted average of number of shares 83,297,638 81,607,876 in issue, allowing for dilutive effect of contingent shares Basic earnings per share 31.77p 25.64p Underlying basic earnings per share 35.74p 25.64p Diluted earnings per share 31.73p 25.64p Underlying diluted earnings per share 35.70p 25.64p 6) Reconciliation of Group operating profit to cash generated from operations 2007 2006 £000 £000 Operating profit 38,094 29,118 Adjustments for: Depreciation of property, plant and equipment 3,925 4,238 (Profit)/loss on disposal of property, plant and equipment (114) 212 Movement in pension (257) (266) Share of results of associated company (58) (10) Movement in provisions (400) 3,000 Share based payments 604 - Amortisation of acquired intangibles 2,200 - Unrealised losses on derivative financial contracts 2,390 - Operating cash flows before changes 46,384 36,292 in working capital (Increase)/decrease in inventories (9,476) 4,807 Increase in receivables (4,364) (14,356) (Decrease)/increase in payables (9,557) 8,745 Cash generated from operations 22,987 35,488 7) Statement of changes in equity At At 31 December 31 December 2007 2006 £000 £000 Opening total equity 66,225 55,201 Total recognised income and expense 26,500 20,103 Dividends paid in period (13,057) (9,079) Issue of share capital 36,557 - Movement in equity associated with share 604 - based payments Closing total equity 116,829 66,225 8) Analysis of net (borrowings)/funds At At 31 December 31 December 2007 2006 £000 £000 Cash in hand 5,445 38,304 Borrowings (53,504) - Finance leases - (66) Closing net (borrowings)/funds (48,059) 38,238 9) Acquisition of Subsidiary On 8 October 2007 the Company acquired 100% of the issued share capital of Action Merchants Limited for a total consideration (including expenses) of £92.20 m. Action Merchants Limited is the parent company of Fisher Engineering Limited, a company based in Enniskillen in Northern Ireland involved in the design, fabrication and erection of structural steelwork. This transaction has been accounted for by the acquisition method of accounting. The provisional details of the acquisition are as follows: Book Value Fair Value Fair Value £000 Adjustments £000 £000 Net assets acquired: Intangible assets - 39,000 39,000 Property, plant and equipment 7,508 - 7,508 Inventories 5,122 - 5,122 Trade and other receivables 14,443 - 14,443 Cash and cash equivalents 685 - 685 Trade and other payables (10,171) (460) (10,631) Tax liabilities (382) - (382) Deferred tax liability (736) (10,791) (11,527) 16,469 27,749 44,218 Goodwill 47,980 Total consideration 92,198 Satisfied by: Issue of shares 36,557 Cash 55,641 92,198 Being: Consideration 90,000 Costs 2,198 92,198 Acquisition cash flow: Cash consideration 55,641 Cash and cash equivalents acquired (685) Net cash outflow arising on acquisition 54,956 This information is provided by RNS The company news service from the London Stock Exchange

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