Chairmans Statement

Overview and financial highlights

The group achieved an adjusted operating profit* of £14.2 million for 2007 which compares with £15.3 million in 2006, our record year.

Therefore although these profits are lower than 2006 I still consider that this is an extremely good performance, particularly considering we did not experience the very hot and favourable conditions of the summer of 2006 which contributed to a £2 million decrease in revenue to £57.8 million.

More importantly, this result highlights the fact that the group is now less weather dependent than ever before. It has been our strategy for some time to move away from this dependency and our group now has a diverse range of income streams thereby providing a solid base of revenue underpinning the business. This, combined with our ongoing strict cost control policy, ensures that we are able to deliver satisfactory results even in the face of less than favourable climatic conditions.

Our main trading subsidiary, Andrews Sykes Hire, continues to perform well. It continues to expand its business in nonseasonal hire markets, particularly through its specialist hire division. It has continued to expand its presence in niche markets and these non-traditional businesses operate without undue influence from seasonal weather patterns.

We have, of course, continued to support our traditional business roots. The pumping division performed extremely well in 2007, taking advantage of the opportunities presented. We will invest more in this business, as well as in our profitable air conditioning and heating divisions, in order that we are well placed to satisfy our customers’ demands whenever they arise. A more detailed review of this year’s performance is given in the Operations Review and Financial Review within the Directors’ Report.

Pension curtailment offer

As I reported at the half year, an offer was made to all deferred members of our defined benefit pension scheme giving them the opportunity to transfer their accrued rights to an alternative pension provider.

The offer, which was substantially completed in 2007, has resulted in a reduction of the pension scheme deficit of £3.5 million, a charge to the income statement of £0.9 million and a cash outflow of £4.3 million. This was mainly financed by an agreed reduction in the July 2007 loan repayment from £5 million to £1 million.

Net debt

Net debt has been reduced by £3.9 million from £16.2 million to £12.3 million this year despite the following significant cash outflows:

Capital expenditure net of disposal proceeds	4.6
Pension curtailment offer	4.3
Corporation tax payments	3.0
Regular defined benefit pension scheme payments	1.5
	13.4

This reflects the strong cash generating ability of the group.

Share buyback programme

The board continues to believe that shareholder value will be optimised by the purchase, where appropriate, of our own shares. Consequently at the forthcoming AGM, the board will request that shareholders vote in favour of a resolution to renew the authority to purchase up to 12.5% of the ordinary shares in issue.

Subsequent events

Recognising the fact that no interim or final dividends were declared or paid during either the current or previous financial period, I am pleased to report that the board has announced two interim dividends for the 2008 financial year amounting to approximately £15.0 million since the year-end. This continues the board’s policy of returning value to shareholders wherever possible.

Prior to the payment of the above dividends the company consulted with the Andrews Sykes Defined Benefit Pension Scheme trustees and the pension regulator and agreed to pay an additional one-off contribution of £1.7million into the scheme as well as maintaining the regular monthly payment of £125,000.

The above payments will be mainly financed by additional borrowings of £10 million.

Outlook

The group’s continuing strategy of investing in its traditional core products and services, the increase in non-seasonal business and investment in new technically advanced and environmentally friendly products proved to be successful in 2007 and will therefore be continued into 2008. Overall trading in the first quarter of 2008 was in line with expectations.

JG Murray
Chairman
30 April 2008