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Kevin Whiteman

2022 HAS BEEN ANOTHER YEAR OF STRONG PROGRESS FOR THE GROUP AGAINST ITS STRATEGIC AND FINANCIAL OBJECTIVES

Kevin Whiteman
Non-executive chairman

Our chairman's view

2022 was another successful year for Severfield, attributable to the hard work of our employees, the consistent execution of our well-established strategy, the resilience and flexibility of the Group's business model and our ongoing business improvement programmes.

Despite unprecedented inflationary and supply chain pressures which have been evident throughout most of the year, we have increased our revenue by 11 per cent to £403.6m and our underlying profit before tax by 11 per cent to £27.1m1. The increase in profit reflects our ability to offset inflationary cost increases through a combination of operating efficiencies, higher selling prices, contractual protection and by forward purchasing, leveraging our scale and supply chain strengths.

The strength of our business model is evidenced by our healthy balance sheet and the continuation of our progressive dividend policy, with the board recommending a final dividend of 1.9p per share (which represents a total dividend of 3.1p per share), recognising the importance of dividends to our shareholders.

New divisional structure

The Group has grown significantly over recent years, both organically and through acquisition. In response to this, and with effect from 1 April 2022, we have created a simpler divisional structure for our UK and Europe operations designed to align our existing businesses more closely with our customers and the ten market sectors that we serve. This has led to the creation of three market-focused divisions namely, the Commercial and Industrial division, the Nuclear and Infrastructure division and the Products and Processing division. This new structure will also allow us to adopt a more co-ordinated approach to manufacturing across the Group, as we continue to invest in and optimise our factories.

The market dynamics of these three new divisions are different, in terms of the solutions that customers seek, project characteristics, the competitive landscape and their economic cycles. By creating a Group structure with three divisions focused on our chosen markets, we will not only optimise the operations of each division to the market dynamics they face but provide ourselves with a better platform to fulfil our strategic growth aspirations.

Board composition

At the start of the year, Rosie Toogood joined our board as a non-executive director. Rosie's wealth of manufacturing and engineering experience within the modular homes, aerospace and nuclear sectors has proved a real asset to our board discussions as we continue our operational and strategic evolution. As designated non-executive director responsible for workforce engagement, Louise Hardy has been at the heart of our new 'My Voice' forums, which were launched in 2022, providing a formal way for colleagues and management to connect, gain feedback and exchange information and views on any business-related topic. These meetings have provided valuable, ongoing insights and feedback for the board during a challenging year for everyone, and we look forward to continuing this work with our colleagues in the year ahead.

Markets and strategy

Our business model and strategy remain unchanged. Despite some challenging market conditions, our clients have continued to regularly place orders and we have secured a significant value of new work over the past 12 months. This has resulted in a UK and Europe order book at 1 June 2022 of £486m, leaving us well-positioned with a strong future workload for the 2023 financial year and beyond. Although we remain mindful of the ongoing effects of Russia's invasion of Ukraine, with the most significant effects of COVID-19 now behind us, we remain encouraged by the current level of tendering and pipeline activity across the Group, both in the UK and in continental Europe.

As a key component of economic growth, the construction industry will be central to a sustainable economic recovery. With the release of the UK government's five-year plan in November 2020, infrastructure investment will play a significant role in this recovery, given its multiplier effect on jobs and spending. This plan announced funding of £650 billion for developments in roads, railways (including HS2), nuclear power and other UK infrastructure projects. Many of these projects contain a significant steelwork content, which the Group is well-positioned to benefit from given our historical track record in the transport infrastructure sector and in-house bridge and nuclear capabilities, together with the in-depth rail expertise acquired with DAM Structures.

India

The Indian joint venture ('JSSL') has returned to profitability in 2022, following a difficult start to the year when output was disrupted by the second wave of COVID-19. Despite ongoing inflationary pressures, JSSL has continued to win new work, resulting in a strong order book of £158m at 1 June 2022. This order book, together with JSSL's improving pipeline of potential orders, reflects a continuing strong underlying demand for structural steel in India, leaving the business very well-positioned to take advantage of an improving economy. We remain very positive about the long-term development of the Indian market and the value creation potential of JSSL.

Health and safety

The health, safety and wellbeing of our employees is of utmost importance, and the rigour that is deployed in this area is reflected in our continued overall improving performance. Despite wider industry trends moving in the opposite direction as working practices return to normal post-pandemic, our injury frequency rate ('IFR') and accident frequency rate ('AFR') both reduced by over 10 per cent compared with 2021. Both IFR and AFR continue to outperform the industry averages. We are very proud of this industry-leading performance and improving track record.

Sustainability

Although the macroeconomic environment is somewhat uncertain, there is one enduring long term certainty and that is the need to take action against climate change. Over the last year, we have continued to make good progress in this area, better understanding the carbon emissions relating to our activities and positioning the business for success in a net zero future.

In the 2022 financial year, the Group continued to make good progress in reducing energy and fuel consumption and emissions and we remain well on course to achieve our target of reducing our scope 1 and 2 greenhouse gas ('GHG') emissions by 25 per cent by 2025 against a 2018 baseline. During the year, we have improved our rating in the Carbon Disclosure Project ('CDP') index to 'A-' from our prior year score of 'B', and have maintained our 'A' rating in the CDP Supplier Engagement Rating. We have also achieved our target to be accredited as carbon neutral for our manufacturing and construction operations by the Carbon Trust, which is an important milestone in our journey towards net zero. We are delighted that our ESG progress has also been recognised by the Group's inclusion, for the second year running, in the Financial Times listing of Europe's climate leaders which showcases corporate progress in fighting climate change.

Summary and outlook

Despite considerable external challenges, 2022 was another year of strong progress by Severfield against its strategic and financial objectives and goals. As we look to the future, I am excited by the opportunities that lie ahead for the Group. There is a strong pipeline of significant, profitable projects in all our geographies, in addition to those already in our high-quality order books.

Whilst we remain mindful of the macro-economic backdrop, particularly regarding the current inflationary pressures, we continue to expect to deliver further progress in 2023 and I look forward to the year ahead with optimism.

Kevin Whiteman
Non-executive chairman

15 June 2022

1 See note 32 for APM definitions.