To the stakeholders of Lorne Stewart plc:

“Only when the tide goes out do you discover who’s been swimming naked” – Warren Buffett is often quoted as saying. Well, brace yourself because it finally feels like we are going through one of those periods in the UK construction sector. While the sector is no stranger to strong competition, the last several years have been severe, to say the least. Reduced public and private sector demand, coupled with an eager and plentiful set of industry suppliers, has translated into near-illusory margins and little latitude for execution error. So missteps can cost dearly as evidenced by the recent casualty of MJN Colston.

Against this backdrop and while it may certainly be premature (read: wishful thinking), we are hopeful that the industry will gradually see a return to sanity – stabilized, and perhaps even increasing demand; fewer, but likely larger and healthier, competitors; and a rational pricing/ bidding mechanism that affords a more adequate return on capital (and effort!).

Our strategy at Lorne Stewart remains to focus on long-term viability. Towards this end, we contracted even further in size last year but far less than previously. I am pleased to report that Lorne Stewart performed well in Fiscal Year 2011 remaining consistently profitable. Revenues for the year were £162 million, down 6% on the previous year’s figure of £173 million. Indeed, pre-tax profits rose to £7.8 million, up 28% against the £6.1 million in Fiscal Year 2010. We ended the year with approximately 1,200 employees, 20 branches, £35 million in cash and no financial debt.

Our Contracting business has remained steadfast in executing efficiently and that focus continues to yield significant dividends. We successfully completed One Hyde Park and Northwood projects and continue to work on Lancaster Gate, Design for Life and SLAM projects. Noteworthy new projects include Musgrove Hospital, Royal Gwent Hospital, Southfields Community College, Birmingham BSF, North Birmingham Academy, Fire Station Framework, Prison Alarm Framework and Building J1 King’s Cross London. Concurrently, our Services business has also won important new assignments such as the new Barclays project, Glasgow Housing Maintenance contract and Hinkley Point (Nuclear Power Station) as it actively promotes our invigorated controls business, Fibutex.

An irrefutable dynamic already underway in the industry is a bias towards scale. Clients are increasingly keen on shorter supplier lists based on larger and better capitalized companies. While organic growth may be at its most difficult point because of competition, corporate combinations may, in fact, be at their most propitious and opportunistic. Therefore, we have been actively pursuing a number of dialogues and keep a vigilant eye.

Once again, we enter the new year with passion and determination and are proactively pursuing our strategy to be the leading mechanical and electrical engineering player in the UK. On behalf of our company, board and shareholders, we thank our customers and suppliers for placing their confidence in us to perform for them. Moreover, we express our deepest gratitude to our people. We strive to warrant their continued trust.