Our emphasis is on delivering high quality, value added projects and reducing costs by driving excellence through our core business processes.
Drive operational improvements and efficiencies — the objective of our comprehensive operational improvement programme is to improve the Group's risk assessment, and operational and contract management processes.
Invest in market-leading technology — we will make this investment in the short and medium term in order to support the Group's ongoing requirements and for growth.
Achievements in 2017
We have further improved our underlying* operating margin (before JVs and associates) to 7.5 per cent in 2017. Our profit performance in 2017 (underlying* PBT was £19.8m) keeps us firmly on track to deliver our strategic target of doubling our 2016 underlying PBT by 2020.
The 2017 operating profit has benefited from three main aspects of the Group's ongoing business improvement programme:
- contract and risk management –ongoing improvements to contract management processes focusing on contract execution, the documentation of project progress and changes, and communication with clients throughout projects;
- production process improvement – changes have been made to the production flows of steel through our factories, making better use of new and more efficient equipment and increasing throughput;
- CMF – the integration of CMF into our supply chain has had a beneficial impact on operating margins as well as the share of results from joint ventures and associates.
Other operational improvements include the roll-out of a new MRP system, reconfiguration of our Lostock facility and increased fabrication throughput at Dalton.
These operational improvements were also evidenced in the Group's operating cash flow of £27.4m, which, after net capital expenditure of £5.3m, represents an operating cash conversion of 112 per cent (see note 24 of the consolidated financial statements).
The Group's improvement programme has included further capital investment in 2017 of £7.0m. This represents further production-related equipment for our fabrication lines in Dalton, new bridge capacity and improved painting and shot blasting capability in Lostock, an extension to the paint shop in Ballinamallard, additional mobile equipment for use on our construction sites and continued investment in a range of health, safety and environmental efficiency-related improvements. This will benefit the Group both now and in the future.
In addition, our CMF joint venture has invested in new machinery to enable the production of purlins and additional cold-formed products.
Objectives for 2018
Our target remains to double our underlying PBT from the previous year (2016) by 2020.
We will continue to develop our 'smarter, safer, more sustainable' business improvement programme (which was launched in 2017 and covers all of the Group's ongoing improvement initiatives) to enable us to focus further on many aspects of our internal operations to the benefit of Group profitability.
We will also continue the roll-out of the MRP system across the Group which will assist in embedding operational efficiencies and improved factory processes. This will also support further improvements to contract and commercial management processes.
This improved profitability will continue to generate surplus cash flows and support future dividends, in accordance with the Group's business model.
As part of the Group's capital investment programme, we will continue to invest at levels in excess of depreciation. This will include focused capital expenditure to target market opportunities and to maximise the benefits of our information technology programme.
We will continue to invest in new state-of-the-art manufacturing technology to help drive production efficiencies, improve our capabilities and product range and to expand the capital equipment base where there is a strong return on investment case.
We will continue to upgrade and replace existing equipment where appropriate.