Severfield Regulatory News (SFR)

2 Apr 2008 07:00

Severfield-Rowen PLC02 April 2008 2007 Full Year Results Severfield-Rowen Plc, the market leading structural steel group, announces itsfull year results to 31 December 2007 including record levels of output, revenueand profitability. Financial Highlights £m 2007 2006 ChangeRevenue 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 inall core areas and as we move into a different economic environment we remainconfident that our focus on client service as well as prime quality projectswill enable us to continue our growth. Our record order book is a reflection of the hard work undertaken by the team in2007 and is the basis for a strong 2008. Despite current market conditionsSeverfield-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 prosperityand success in the future." Chairman's Statement Introduction - Another Great Year On behalf of the Board I am delighted to report that the Group performedextremely well in 2007 with all of our core businesses yet again deliveringrecord productivity and customer service, and producing record results. In spite of the challenging global financial market conditions towards the endof the year, the financial strength of Severfield-Rowen combined with increasingdemand for the Group's differentiated services, underline our confidence in theGroup's long-term growth prospects. Overview - Further Growth In 2007 underlying operating profit (before amortisation of acquired intangibleassets 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 servicelevel, underpinned by a focus on prime projects. All of our core businesses performed strongly with a focus on high-margin, primeprojects. 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 shareof 35.74p (2006: 25.64p). The underlying profit before tax margin increased to14.3% (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 thefunding of the Fisher Engineering acquisition and the purchase of the DaltonProperty, 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 areinvolved in many significant projects and developments. We are particularlypleased that all of the Company's core subsidiaries in 2007, namelySeverfield-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 Terminal5, which has received worldwide acclaim not only for its impressive visualimpact, but more fundamentally for the completion of its construction time andon 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 ourfinancial position, the Directors are pleased to announce a 40.4% increase inthe full dividend for the year to 20.0p per share which is covered 1.8 times byunderlying 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 totalcost 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 trackrecord as a very successful and profitable fabricator in both the province andEire and its incorporation into the Group has been speedy and effective. We lookforward to Fishers making a significant contribution to the Group in 2008 andbeyond At the time of purchase, Ian Cochrane, the Managing Director of Fishers, joinedour main board. A planned upgrade investment of some £2.5m was completed in2007, prior to the acquisition, and is now providing the strategic productivityimprovements envisaged. Dalton Airfield Estate During the same period as the Fisher acquisition, the Group acquired thefreehold reversion of Dalton, the Group's headquarters from certain directorsand management for the sum of £23.5m. The acquisition has a positive effect andmeans Severfield regains control of this valuable extensive headquarters andfabrication site thereby giving it both the flexibility in further developmentand an increased asset base. Board Changes Chairmanship With effect from the close of the Company's AGM on 30 May 2008 I will step downboth as Chairman and Main Board Director of Severfield-Rowen. Having been first Deputy Chairman for a numbers of years, then Chairman for thelast ten years, it is time to pass on the baton. In all those years it has beenan honour to be part of the team that has made Severfield the pre-eminent forcein our industry. It has furthermore been a privilege to work alongside first thecreator of the modern Severfield, John Severs, and latterly the team that I haveno doubt will take it forward to further prosperity and success, namely TomHaughey, Peter Emerson, and their management colleagues. Shareholders shouldhave every confidence that the future of Severfield is in good hands and Iexpress sincere thanks to all my colleagues and our employees for theirfriendship and support to me over many years. My replacement as Chairman is to be Toby Hayward. Toby provides both valuableaccounting background, being a Chartered Accountant, qualifying with Deloitteand Touche, and has very extensive city experience. For the last 21/2 years hehas been with Jefferies International Limited. John Featherstone Also with effect from the close of the Company's AGM, John Featherstone, one ofour non-executive directors will be standing down. I have known John since hejoined our board twenty years ago, as our then sole non-executive and he hasprovided invaluable support throughout that time. The Company owes him muchgratitude and wishes him and his wife health, happiness and a lengthy andvibrant retirement. Board Re-organisation Taking into account my departure and that of John Featherstone, the decision hasbeen taken to rationalise and streamline the Board structure. Accordingly, with effect from close of business of the forthcoming AGM, PeterEllison, Brian Hick, Nigel Pickard and Ian Cochrane will step down as Main Boardmembers but will of course continue as executive managing directors of their owncompanies being respectively Steelcraft, Severfield-Reeve, Atlas Ward and FisherEngineering. I express mine and the Board's appreciation of their importantsupport to the Main Board and look forward to many years of continuedcontributions to the Group through a new Executive Management Committee. Proposed Board structure post AGM Main Board Toby Hayward Non-Executive ChairmanTom Haughey Chief Executive OfficerPeter Emerson Chief Operating OfficerPeter Davison Finance DirectorKeith Elliott Senior Non-Executive DirectorDavid Ridley Non-Executive DirectorGeoff Wright Non-Executive Director Divisional Executive Managing Directors Peter Ellison Steelcraft Erection ServicesBrian Hick Severfield-Reeve StructuresNigel Pickard Atlas Ward StructuresIan Cochrane Fisher Engineering Employees - Key to Success The consistent achievements of the Group continue to reflect directly on theexcellent management and workforce. The Directors' sincere gratitude is extendedto them. Outlook - Still Positive The Group's prospects are very good. Our position remains robust and demand forour services continues to be significant, particularly larger projects, asexemplified by our record order book and as observed by other leadingconstruction contractors. We have begun this year well and are confident of further success in 2008 andbeyond, including the Company's expressed objective of exploring overseasventures. Peter LevineChairman1998-2008 2 April 2008 Operational Review The Company continued to make very good progress through 2007, producing recordsin output, turnover and profitability, and established the strongest forwardorder book in its history. Client satisfaction is very high as the focus continues to be on delivery ofvalue and on-time project execution for all contracts, large and small. In the closing quarter of 2007 the Group achieved a significant strategicobjective with the acquisition of Fisher Engineering Limited. The Company hassettled in to the Group exceedingly well. Benefits to the Group include enhancedflexibility, better service offerings and the greater collective optimisation ofour new scale and breadth. This acquisition consolidates the Group's leadingposition, in terms of service and client preference throughout the UK andIreland. The companies within the Group, while autonomous, are solidly co-operating toprovide "best in industry" programmes, service and value to clients and theirprojects. 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 Awardvia the British Construction Steel Association Sustainability Charter. This isa milestone achievement and is just the initial step in the Group's ambition togenerate an efficient sustainable business model. In the same timeframe BS ENISO 14001 Environmental and OHSAS 18001 Safety accreditations were achieved. Further site development for improved logistics and enhanced product output wereimplemented through 2007, ensuring that the Company strengthens its position asthe leading production facility in Europe. Watson Steel Structures The Company again continues to express its versatility and engineering expertisethrough 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 ofprocessing equipment and the improvement of site infrastructure. The Company was also successfully accredited with BS EN ISO 14001 Environmentand 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 significantinvestments made in 2006. Investment during 2007 is further strengthening the Company's position in themarket place and makes it more flexible to compete across a range ofconstruction 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 Sustainabilitystrategies and initiatives for itself and other Group companies. Atlas Ward attained OHSAS 18001 Safety and BS EN 14001:2004 Environmentaccreditations in 2007. Fisher Engineering Fisher Engineering joined the Group in October 2007. The integration intoSeverfield-Rowen has gone exceedingly well. An upgrade investment of some £2.5m was completed in 2007, prior to itsacquisition, and is now providing the strategic productivity improvementsenvisaged. 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 Managementaccreditation to ISO 18001. Rowen Structures Rowen Structures ceased the physical production of steelwork in the summer of2007. It is now carried out at the other Company sites. Rowen Structures continues to contract business on behalf of the Group with itslongstanding clients, providing its wholly retained project management skillsand 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 samevicinity in June 2008, from where they will continue to provide a full serviceto clients. Steelcraft Erection Services The Group's performance in relation to project execution and customersatisfaction was again greatly influenced by the high level of professionalismand dedication provided by Steelcraft Erection Services. Steelcraft continues to lead the field in terms of innovation and is presentlyfirst user of a new bespoke steel erector platform, developed as the optimumcurrent solution for the safer erection of steelwork. Severfield-Reeve Projects The Company continues to provide first class services to its clients and otherGroup companies in the full development of small to medium scale projects. Conclusion 2007 was a further milestone in the Company's development, both financially andstrategically. The acquisition of Fisher Engineering has consolidated theGroup's leading position in the UK and Ireland and our continued focus on clientservice has assisted in obtaining a record order book of some £455m andestablishing us as preferred supplier on a significant pipeline of future work. The Group is now positioned to derive growing synergy benefits from theflexibility and scale of its existing operations, while beginning to explore newgrowth opportunities overseas. Tom HaugheyChief Executive Officer 2 April 2008 Financial Review I am delighted to announce that the Group has had another record year withunderlying profit before tax (before amortisation of acquired intangible assetsof £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 thefinancial strength of the Group and its long term prospects. In a year ofsignificant activity, including the acquisition of Fisher Engineering, thispresents an excellent base for growth in the current year. Revenue of £300.66 m and underlying profit before tax of £42.95m have increased1.9% and 41.8% respectively over the figures achieved in 2006. Basic earnings per share, based on the underlying profit after tax, increased by39.39% to 35.74p. Consequently, it is recommended that the total dividend forthe year is increased by 40.35% to 20.0p per share, giving a dividend cover of1.8 times. Retained profit after tax of £26.4m (2006: £20.9m) has been transferred toreserves. Following the acquisition of Fisher Engineering and the significant capitalexpenditure 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 splitwhich 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 thisreview 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 relativelysmall increase in revenue, despite the Fisher Engineering acquisition in October2007, 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 areparticularly pleased that underlying operating margins, expressed as apercentage of revenue, have continued to increase significantly to 14.20% fromthe 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 owns25.1% and 25% respectively. The Group's operating profit for the year includesits 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 helpfund 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-underlyingcontinuing operations items (see below) Non-underlying items (4,590) - See section below for explanation Profit before tax - continuing 38,360 30,286operations 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 ofrevenue, increased to 14.29% (2006: 10.26%). Non-Underlying Items Non-underlying items are included within the "other items" column of theConsolidated 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% comparedwith 30.92% in the previous year. The rate is slightly higher than theprevailing rate due to the adjustments made in respect of disallowableexpenditure incurred during the year. During 2007 proposed amendments to the Industrial Buildings Allowance regimewere announced. Due to the fact that these amendments were not substantivelyenacted as at 31 December 2007, their effects have not been reflected within theGroup's results. The Directors have estimated that should these amendments be substantivelyenacted during the year ending 31 December 2008, the deferred tax liability heldin the consolidated balance sheet would increase by £6.5 m with a correspondingcharge to the consolidated income statement. Earnings per Share Underlying basic earnings per share was at a record level of 35.74p, an increaseof 39.39% over the previous year. This calculation is based on the underlyingprofit after tax of £29.74m and 83,218,835 shares, being the weighted averagenumber of shares in issue during the year. Basic earnings per share, based on profit after tax after non-recurring items is31.77p. Underlying diluted earnings per share is 35.70p. This calculation is based onthe underlying profit after tax of £29.74m and 83,297,638 shares, being theweighted average number of shares in issue, allowing for contingent shares undera share based payments scheme. Diluted earnings per share, based on profit after tax after non-recurring itemsis 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 thetotal dividend for the year to 20.0p per share. This total dividend representsa 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 andmaintains the total dividend cover at 1.8 times these earnings, a level at whichthe Board remains comfortable and at which it remains confident of maintainingin the future. The final dividend will be paid on 16 June 2008 to shareholders on the registeron 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 ofalmost £116 m as follows: • Action Merchants Limited Action Merchants Limited is the non-trading holding company of FisherEngineering Ltd, a leading steel fabrication company based in Enniskillen inNorthern Ireland. The total consideration amounted to £92.2m (including £2.2mcosts) of which £36.6 m was satisfied by the issue of 1,750,000 ordinary sharesof 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 ofthe 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 ActionMerchants Limited included in this figure has been carried out to identify andestimate the fair value and estimated useful lives of these intangible assets asrequired under IFRS 3. These intangible assets have been valued atapproximately £39m gross of the associated deferred tax liability of £10.92 mand are included in the Balance Sheet under "Other Intangible Assets".Goodwill will be subject to an annual impairment review as required under IFRS3. Fisher Engineering has been integrated into the Group very satisfactorily andthe results for the three month period of ownership are both very good andencouraging for the future. • Dalton Airfield Estate Limited (DAEL) DAEL owned the long leasehold title to the Group's headquarters and the freeholdtitle to over half of Severfield-Reeve Structures Limited's fabricationfacility, both at Dalton Airfield Industrial Estate in North Yorkshire, forwhich it was paid a rent of approximately £1.6m per annum. The Group acquiredthe freehold reversion of this facility from certain directors and management toregain Severfield-Rowen's control of this valuable and extensive headquartersand fabrication site. The total consideration amounted to £23.5m and wasconcluded on 9 October 2007. The transaction has been included in the accounts as the acquisition of land andbuildings. Balance Sheet The Group's Balance Sheet continues to strengthen with shareholders' fundsincreasing by £50.60m to £116.83m. This equates to a total equity value pershare 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 £79.42m. Depreciation charged in the year amounted to £3.93 m. We continue to investheavily in our business with capital expenditure in the year of £33.68 m made upas 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 asfollows: • 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, representsthe capitalisation of the Group's costs in the development of a pedestal mountedpowered work platform for use on sites in the erection of steel, which is nowbeing used on sites in London of £2.24 m and the gross value of the intangibleassets arising on the Fisher acquisition, after amortisation in the year of £2.2m, of £36.80 m. Unlike the rest of the Group, Atlas Ward has a defined benefit pension schemewhich, although closed to new members, had an IAS 19 deficit of £7.29m as at 31December 2006. At 31 December 2007, largely as a result of the contributionspaid over during the year, the deficit decreased slightly to £6.75m and is shownas a liability in the Group Balance Sheet, with the remaining movement goingthrough 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 analleged leak to a roof of a contract carried out by Atlas Ward StructuresLimited has been under regular review during the year by the Directors.Although the case went to adjudication no real progress was made with no furtherindication of the likely outcome. Consequently, it was decided that theprovision should remain in place. Cash Flow Management of the Group's cash has always been of prime importance to the Boardand this remains the case with cash being tightly controlled. During the year asignificant amount of borrowings were taken out to fund the acquisitions inOctober of Action Merchants Ltd and DAEL. Consequently the Group ended the yearwith net borrowings of £48.06m (2006: positive cash £38.30m). The Group has arevolving credit facility of £70m with RBS and National Australia Bank as jointlenders until August 2010. The current level of borrowings leaves the Groupcomfortably 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 taxpaid of £9.13m and the purchase of property, plant and equipment, net of saleproceeds, of £32.12m. The cash outflow required for the Fisher acquisition, after cash and cashequivalents acquired, amounted to £54.96m, including costs. Due to the acquisitions the Group ended the year with borrowings for the firsttime in many years and gearing of 41.14% (2006: Nil). Treasury Group treasury activities are managed and controlled centrally. Risks to assetsand potential liabilities to customers, employees and the public continue to beinsured. The Group maintains its low risk financial management policy byinsuring 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 andcost effective funding arrangements are maintained to finance current andplanned future activities and to invest cash assets safely and profitably. Following the acquisition of Fisher Engineering Ltd and the award to the Groupof a large contract at Dublin Airport, the Group now has more exposure to theexchange rate fluctuations between Sterling and the Euro. In order to maintainthe projected level of profit budgeted on contracts foreign exchange contractsare taken out to convert into Sterling at the expected date of receipt. As theexchange rate between Sterling/Euro moved against us between the time theforeign exchange contracts were taken out in 2007 and the year end, IAS 39requires the company to provide for an accounting and non-cash flow loss to theIncome Statement of £2.39 m which is shown as a non-underlying item under "otheritems" on the Statement. The Group remains committed to strong financial controls, cash management andappropriate accounting and treasury policies. Summary The Group has had a very successful year with revenue, underlying profit beforetax, earnings per share and dividends per share once again reaching recordlevels. The acquisition of Fisher Engineering Ltd has proven to be very successful withthe 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 forfuture growth and cash generation. Peter DavisonFinance Director Consolidated Income StatementFor the year ended 31 December 2007 Before Other Other Total Total Items Items *1 2007 2007 2007 2006Continuing Operations £000 £000 £000 £000 Revenue 300,656 - 300,656 295,084Cost of sales (250,936) - (250,936) (261,148)Gross profit 49,720 - 49,720 33,936 Other operating income 479 - 479 79Distribution costs (1,295) - (1,295) (877)Administrative expenses (6,278) (2,200) (8,478) (4,030)Share of results of associates 58 - 58 10Unrealised losses on derivative - (2,390) (2,390) -financial contractsOperating Profit 42,684 (4,590) 38,094 29,118 Investment revenue - interest 1,405 - 1,405 1,250Finance 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 20,921to the equity holders of the parent Earnings per share:*2Basic 35.74p (3.97p) 31.77p 25.64pDiluted 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 ExpenseFor 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 20,921continuing operations Total recognised income and 26,500 20,103expense for the year attributableto equity shareholders Consolidated Balance Sheet31 December 2007 At At 31 December 2007 31 December 2006 £000 £000ASSETS 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 51,988Current 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 63,157Non-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 2,040Share premium 46,152 9,770Other reserves 743 139Retained earnings 67,719 54,276TOTAL EQUITY 116,829 66,225 Consolidated Cash FlowFor the year ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 £000 £000 Cash flows from operating activitiesCash generated from operations 22,987 35,488Interest paid (768) (82)Tax paid (9,131) (6,341)Net cash from operating activities 13,088 29,065 Cash flows from investing activitiesProceeds from sale of property, plant and equipment 1,555 920Interest received 1,384 1,239Acquisition 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 activitiesPayment 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) 8,172Cash and cash equivalents at beginning of period 38,304 30,132Cash 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 prioryear accounting policies and IFRSs. The financial statements have also beenprepared in accordance with IFRSs adopted by the European Union and thereforethe consolidated financial statements comply with Article 4 of the EU IASRegulations. The financial statements have been prepared under the historicalcost basis, except for the revaluation of financial assets and liabilities underIAS 39 "Financial instruments: recognition and measurement". This preliminaryannouncement does not constitute the full financial statements prepared inaccordance with International Financial Reporting Standards ("IFRSs") or withinthe meaning of section 240 of the Companies Act 1985. Full accounts for the year ended 31 December 2007 have not yet been audited ordelivered to the Registrar of Companies. The Annual Report is due to be postedto shareholders on or around 7 May 2008. A copy of the statutory accounts forthe year ended 31 December 2006 has been delivered to the Registrar ofCompanies. The Auditor's Report on those accounts was not qualified and did notcontain 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, profitbefore tax and net assets, in both years, related to the design, fabrication anderection of structural steelwork and related activities. 3) Taxation The taxation charge comprises: 2007 2006 £000 £000Current tax UK corporation tax 12,940 9,304Adjustments to prior years' tax provision (16) (89) 12,924 9,215 Deferred tax Current year charge (1,009) 86Adjustments to prior years' provision 11 64 (998) 150 Total tax charge 11,926 9,365 During 2007 proposed amendments to the Industrial Buildings Allowance regimewere announced. Due to the fact that these amendments were not substantivelyenacted as at 31 December 2007, their effects have not been reflected within theGroup's results. The Directors have estimated that should these amendments be substantivelyenacted during the year ending 31 December 2008, the deferred tax liability heldin the consolidated balance sheet would increase by £6.5 m with a correspondingcharge to the consolidated income statement. 4) Dividends 2007 2006 £000 £000 Final dividend for the year ended 7,549 4,99831 December 2006 of 9.25p(2005: 6.125p) per share Interim dividend for the year ended 5,508 4,08131 December 2007 of 6.75p(2006: 5.00p) per share 13,057 9,079 Proposed final dividend for the year 11,741 7,549ended 31 December 2007 of 13.25p(2006: 9.25p) per share The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. The proposed dividend will be paid on 16 June 2008 to shareholderson 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 thefollowing data, reflecting the 4:1 share split in October 2007: 2007 2006 £000 £000Earnings Profit for the year 26,434 20,921Underlying profit for the year 29,739 20,921 2007 2006 Weighted average of number of shares 83,218,835 81,607,876in issue Weighted average of number of shares 83,297,638 81,607,876in issue, allowing for dilutive effectof 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 25.64pUnderlying 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 29,118Adjustments for:Depreciation of property, plant and equipment 3,925 4,238(Profit)/loss on disposal of property, plant and equipment (114) 212Movement in pension (257) (266)Share of results of associated company (58) (10)Movement in provisions (400) 3,000Share based payments 604 -Amortisation of acquired intangibles 2,200 -Unrealised losses on derivative financial contracts 2,390 - Operating cash flows before changes 46,384 36,292in working capital(Increase)/decrease in inventories (9,476) 4,807Increase 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 55,201Total recognised income and expense 26,500 20,103Dividends 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 38,304Borrowings (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 ofAction Merchants Limited for a total consideration (including expenses) of£92.20 m. Action Merchants Limited is the parent company of Fisher EngineeringLimited, a company based in Enniskillen in Northern Ireland involved in thedesign, fabrication and erection of structural steelwork. This transaction hasbeen 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 £000Net assets acquired:Intangible assets - 39,000 39,000Property, plant and equipment 7,508 - 7,508Inventories 5,122 - 5,122Trade and other receivables 14,443 - 14,443Cash and cash equivalents 685 - 685Trade 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 36,557Cash 55,641 92,198 Being: Consideration 90,000Costs 2,198 92,198 Acquisition cash flow: Cash consideration 55,641Cash 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