Chairmans Statement

Overview and financial highlights

The group achieved a normalised operating profit* of £17.9 million for 2008 which compares with £14.6 million last year, an increase of over 22%.

This is another record for our group, beating the previous best of £15.7 million in 2006 by £2.2 million. This is an extremely creditable performance and management must be congratulated on this achievement.

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 had a very successful year producing a record operating profit result despite a difficult summer period. It continues to expand its business in non-seasonal 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 continue to support and develop our traditional business roots. The pumping division once again provided strong growth throughout the year with new contracts being signed with major national contractors and non-construction related end users. We will continue to invest more in this business, as well as in our profitable air conditioning and heating hire divisions, in order that we are well placed to satisfy our customers’ demands whenever they arise.

Our operation based in the UAE, Khansaheb Sykes LLC, produced an operating profit in excess of 20 million UAE Dirhams, more than four times the level achieved in 2007. Applying the 2008 exchange rates, this equates to approximately £2.9 million and is therefore a significant contribution to the group’s overall performance. This performance is largely due to new local management that took charge during 2007 and the subsequent development of the business that took place under their charge.

Our operations in Northern Europe also performed well with our subsidiary in The Netherlands achieving an operating profit of €2.9 million, an increase of 11.3% compared with 2007. This was also a new record for this company. The only disappointment was our air conditioning installation business in the UK, Andrews Air Conditioning and Refrigeration, that reported a small operating loss for the year. However, management are taking the opportunity to reduce costs and streamline the business making it ready to take advantage of any upturns in the market when they arise.

A more detailed review of this year’s performance is given in the Operations Review and Financial Review within the Directors’ Report. In summary 2008 was a very good year for our group and we are in

Dividend and pension scheme payments

During the first half of the year two interim dividends were paid that in total amounted to £15 million. Clearance was obtained from both the pensions regulator and the pension scheme trustees and as part of this process a special one-off payment of £1.7 million was made to the pension scheme. These payments were in part funded by an increase in borrowings of £10 million.

Net debt

Mainly due to the above dividend and pension scheme payments, net debt has increased by £4.6 million from £12.3 million to £16.9 million this year. This is after the following significant cash outflows:

Equity dividends	15.0
Capital expenditure net of disposal proceeds	4.1
Regular and non-recurring pension scheme payments	3.2
Corporation tax payments	2.5
Interest payments	2.5
	27.3

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. During the year under review the company purchased 284,500 of its own one pence ordinary shares for cancellation at a cost of £258,620. This purchase enhanced earnings per share. 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.

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 2008 and will therefore be continued into 2009. The board believes that 2009 will be a difficult year as the worldwide economic downturn continues to depress the markets within which the group operates. However, the group is financially strong, it is continuing to generate both good levels of profits and positive cash flows and therefore it will be well placed to take advantage of any upturns in the market, whenever that might be.

JG Murray
Chairman
17 June 2009