Final Results - Year Ended 31 December 1999

Severfield-Rowen PLC 29 March 2000 Severfield-Rowen Plc 1999 Preliminary Results Strong result in challenging conditions Severfield-Rowen Plc, the structural steel group, today announces its preliminary results for the year ended 31 December 1999. Overview * Turnover £112.0m (1998: £129.8m) * Pre-tax profit of core business £9.8m (1998: £11.6m), significantly exceeding expectations, despite challenging conditions * Group pre-tax profit, before exceptional losses, £8.8m (1998: £10.2m) * Increase in group trading operating margin to 8.1% (1998: 7.9%), * Exceptional loss before tax of £2.9m on sale of principal Manabo business * Total dividend maintained at 12.0p * Nil gearing with strong year end cash balance of £4.9m * Record order book in excess of £70m at year end * Building of fifth production line commenced at Dalton * Market leadership position to be maintained Commenting on the results, Peter Levine, Chairman, said: 'In what was a difficult year for the structural steel sector, the 1999 results of Severfield-Rowen reflect a most creditable performance and demonstrate the sound progress of the Group's core business. During the year Severfield-Rowen consolidated its leading position in the UK structural steel market and ended the year on a high note with a record order book of £70 million, a strong cash balance and an expansion of its production capabilities.' 'We expect the strength of the Group to grow in its respective markets and 2000 to be a year of solid progress in the context of challenging market conditions.' For further information: Severfield-Rowen Plc 020 7831 3113 - 29 March 2000 Peter Levine, Chairman Thereafter 01132 469 993 Peter Davison, Finance Director Thereafter 01845 577 896 Financial Dynamics Sarah Marsland/Richard Mountain 020 7831 3113 PRELIMINARY STATEMENT The Group's results for the year ended 31 December 1999 were most creditable against a background of challenging market conditions in the structural steel industry. Returns in the core business of design, fabrication and erection of structural steelwork significantly exceeded expectations. In March 2000 the principal business and assets of the loss making subsidiary Manabo were sold, with the resulting loss on sale being provided for in full in 1999. Financial Results Group turnover fell by 13.7% to £112.0m (1998: £129.8m) and operating profit, before exceptional losses, was £9.1m (1998: £10.2m). The loss on sale of Manabo was £2.9m. The Group's operating profit reduced by 11.2%, prior to any write-off due to the sale of the assets of Manabo. However, the overall Group operating margin increased from 7.9% in 1998 to 8.1% in 1999 with the operating margins in structural steelwork increasing from 8.7% to 9.0% respectively. The effective tax charge for the year was 30.8% compared with 26.7% in the previous year. The low rate in 1998 was the result of the rollover of goodwill on the sale of the business and assets of Structural Metal Decks Ltd. Basic earnings per share were 20.5p (1998: 43.9p). This calculation is based on the profit after taxation of £4,103,000 and 20,013,133 ordinary shares, which is the weighted average number of shares in issue during the year. This calculation however reflects the effect of the write-off of £2.85m of fixed assets and stock as a result of the sale of the business of Manabo, which accounts for 10.3p per share. Adjusted earnings per share for the year ended 31 December 1999 were 30.8p (1998: 35.9p). This is based on the profit after taxation, excluding the exceptional loss, of £6,169,000 (1998: £7,116,000) and 20,013,133 (1998: 19,842,464) ordinary shares. The year ended with nil gearing and a cash balance of £4.9m. Net assets, representing shareholders funds, increased by 7.8% to £30.2m. This equates to a value per share at 31 December 1999 of 150.6p, compared with 140.7p at the end of 1998. Dividend Despite a reduction in operating profit the Board has maintained the total dividend at 12.0p. This move reflects the Directors' continued confidence in the Group's core business. Dividend cover remains at a most satisfactory level of 2.57 times adjusted earnings. The final dividend is payable on 1 June 2000 to shareholders on the register on 8 May 2000. Share Buy Back At the Annual General Meeting on 26 May 2000 the Company will ask shareholders to renew the authorisation of the Board to purchase for cancellation up to 10% of the issued share capital of the Company. This authority will be exercised only when market conditions are appropriate. To date no purchases have been made. Acquisition In January 1999, Severfield-Rowen Plc purchased a 25.1% strategic stake in Kennedy Watts Partnership Ltd, a CAD/CAM steelwork design company. The total consideration, including costs, was £464,000 of which £408,000 was paid by the issue of £136,912 10p ordinary shares of Severfield-Rowen Plc and the balance in cash. Disposals The comparative figures for 1998 reflect the sale of the business and assets of Structural Metal Decks Ltd in July of that year. The consideration was £1.80m and resulted in a profit on sale of £1.68m which was included in the accounts as an exceptional item. Review of Operations Core Business Overview In the face of challenging conditions the returns in the core business of our Group, comprising primarily Severfield-Reeve Structures and Rowen Structures, significantly exceeded expectations. Key features of the core business in 1999 were: * operating margin increased to 9.0% (1998: 8.7%); * pre-tax profit of £9.8m (1998: £11.6m); * a record £70m order book at the close of the year; and * commencement of the building of a fifth production line at our Dalton site. Pressure on margins was evident throughout the year and a calculated decision was taken not to buy turnover. This together with efficiencies and a greater emphasis towards negotiated contracts helped mitigate external market effects. As a result operating margins increased in 1999. The year ended well and in January 2000 the Group had a record order book of £70m. Reflecting the increase in demand, building of the fifth production line at Dalton commenced in December 1999. When operative this line will increase average weekly production from 1,100 tonnes to 1,400 tonnes. This underpins our view of Dalton as the single largest and most efficient site for structural steel production in Europe. Severfield-Reeve Structures Production efficiency continued at an outstanding level during 1999. The operating efficiencies achieved by the Company are already unsurpassed within the industry and the addition of line 5 is expected to consolidate this position. Contracts were undertaken in a wide variety of sectors during the year including the first stage of the Paternoster Square redevelopment at Christ Church Court in London, hospitals in Glasgow, Edinburgh and Durham, a number of new power generation projects and the new exhibition centre, Excel, in Docklands, London. International work continued with contracts including a hotel in St Lucia, a power station in Egypt and further oil and gas work in Kazakhstan, the latter both for Bechtel. The year 2000 has started very satisfactorily for Severfield-Reeve Structures. While general market conditions are still challenging, the order book remains at a record level. New contracts include: * A major retail development at Ocean Terminal, Leith Docks, Edinburgh; * The Lowry Galleria entertainment centre project Manchester; * Extension to town centre shopping complex in Basingstoke ; Caterpillar Production Facility in Leicester; and * Office blocks at Bishopsgate and Northcliffe House in the City. Relative to the prevailing market conditions in our industry Severfield-Reeve Structures produced a strong performance in 1999. Although there is some evidence of renewed pressure on margins, taking into account the strength of our order book and the operating efficiencies of our Dalton Site, Severfield- Reeve Structures is well positioned for 2000. Rowen Structures Rowen Structures performed satisfactorily in 1999. Some of the fabrication work previously sub-contracted by Rowen is now being brought in-house to be fabricated at either Nottingham or Dalton. The beneficial effect of this continues to be felt in 2000. A range of major contracts were performed by Rowen in 1999. These included a prestigious office development at Woolgate Exchange in London, the Terminal 3 expansion at Heathrow, a pharmaceutical facility for Pfizer in Sandwich, the ongoing Brindley Place office development in Birmingham and the South Terminal extension at Gatwick. Contracts for 2000 include: * Stansted Terminal Extension for BAA; * North Terminal Extension at Gatwick for BAA; * A large leisure and residential development in Birmingham; * A large distribution depot for Sainsbury in Haydock; and * A theatre complex in Durham. The current year is expected to show that Rowen will continue to make a positive contribution to the success of the Group. Steelcraft Erection Services During 1999 the continuing importance and value of Steelcraft as the in-house erection service for the Group was demonstrated. Despite only erecting structures for the Group it is now believed to be the largest and most efficient erection company in the UK, judged in terms of number of employees and tonnage erected. An example of the performance of Steelcraft in 1999 was in the erection of 9,000 tonnes of steelwork at Excel, the Exhibition Centre for London, in what is believed to be a record erection programme for the capital of 16 weeks. Severfield-Reeve Projects Severfield-Reeve Projects continued to perform satisfactorily in 1999 with turnover and profit before tax ahead of budget. 1999 also saw the conclusion of lengthy negotiations with a major client which in itself will provide a significant contribution to the Company's performance in 2000. The Company also gained valuable contracts from a number of new clients which have helped to establish a solid foundation for the future. Manabo On 3 March 2000 the sale of the principal business and assets of Manabo was completed. The initial sale proceeds received were £2.1 million with a further £600,000 payable in two equal instalments over the next 2 years. In addition there is a variable royalty payment over a five year period, up to a maximum of £475,000. The effect of the sale on the Group results for 1999 was a £2.9 million write down of assets. The remaining parts of the Manabo business relate to the manufacture and sale of cleaning and knife sharpening machines which are non-trading. The Manabo losses incorporated in the 1999 accounts include a write-down to net realisable value of all its assets. As such no material adverse consequences will affect the current year. At the time of writing this statement discussions are continuing with a number of parties to dispose of the remainder of Manabo. Outlook The Group is rightly proud of its achievements. It is the unsurpassed leader in its UK market place, at the leading edge of technology and efficiency, achieving unmatched margins through genuine innovation and good business practice, and making credible profits, with cash generation and with solid and valuable assets. The year 2000 will see Severfield-Rowen returning to concentrating on its core business. The Board is looking forward to facing the challenges which are still being confronted in the structural steel industry and is confident that the Group will continue to maintain its market leadership. It is also intending to develop the business through either organic or acquisitive growth, as and where circumstances permit. We expect the strength of the Group to grow and 2000 to be a year of solid progress in the context of a challenging market. Severfield-Rowen Plc Consolidated Profit and Loss Account for the year ended 31 December 1999 Continuing Discontinued Operations 1999 Operations Normal Exceptional TOTAL TOTAL Items £000 £000 £000 £000 £000 Turnover 111,155 839 - 839 111,994 Cost of Sales (99,018) (1,002) (1,872) (2,874) (101,892) ------- ------ ------ ------ ------ Gross profit 12,137 (163) (1,872) (2,035) 10,102 Distribution costs (361) (457) - (457) (818) Administration expenses (1,868) (315) - (315) (2,183) ------- ------ ------ ------ ------ 9,908 (935) (1,872) (2,807) 7,101 Other operating income 59 32 - 32 91 ------ ------ ------ ------ ------ Operating profit 9,967 (903) (1,872) (2,775) 7,192 Loss on disposal of assets in discontinued business - - (980) (980) (980) ------ ------ ------ ------ ------ 9,967 (903) (2,852) (3,755) 6,212 Interest payable and similar charges (192) (95) - (95) (287) ------- ------ ------ ------ ------ Profit on ordinary activities before tax 9,775 (998) (2,852) (3,850) 5,925 Tax on profit on ordinary activities (2,908) 300 786 1,086 (1,822) ------ ------ ------ ------ ------ Profit on ordinary activities after tax for the financial year 6,867 (698) (2,066) (2,764) 4,103 Dividends payable to equity shareholders (2,414) - - - (2,414) ------ ------ ------ ------ ------ Profit retained, transferred to reserves 4,453 (698) (2,066) (2,764) 1,689 Basic earnings per share 20.50p Adjustment for exceptional items 10.32p ------ Adjusted earnings per share excluding 30.82p exceptional item ====== Diluted earnings per 20.32p share ------- Dividends per share Interim dividend paid 5.00p Final dividend 7.00p proposed ------ Total 12.00p ------ Consolidated Profit and Loss Account for the year ended 31 December 1998 1998 Continuing Operations TOTAL £000 Turnover 129,805 Cost of Sales (116,258) ------ Gross profit 13,547 Distribution costs (952) Administration expenses (2,452) ------ 10,143 Other operating income 67 ------ Operating profit 10,210 Loss on disposal of assets in discontinued business 1,676 ------ 11,886 Interest payable and similar charges (4) ------ Profit on ordinary activities before tax 11,882 Tax on profit on ordinary activities (3,175) ------ Profit on ordinary activities after tax for the financial year 8,707 Dividends payable to equity shareholders (2,384) ------ Profit retained, transferred to reserves 6,323 Basic earnings per share 43.88p Adjustment for exceptional items (8.02p) ------ Adjusted earnings per share excluding exceptional item 35.86p ======= Diluted earnings per share 43.28p ------- Dividends per share Interim dividend paid 5.00p Final dividend proposed 7.00p ------ Total 12.00p ------ Severfield Rowen Plc Consolidated Balance Sheet As at 31 December 1999 1999 1998 £000 £000 Fixed Assets: Intangible assets - 396 Tangible assets 24,558 24,620 Investment properties 330 233 Investments 464 - ------ ------ 25,352 25,249 ------ ------ Current Assets: Stocks 5,236 4,491 Debtors 25,312 23,881 Cash at bank and in hand 4,938 7,492 ------ ------ 35,486 35,864 ------ ------ Current Liabilities: Creditors due within one year (27,404) (28,354) ------ ------ Net current assets 8,082 7,510 ------ ------ Total assets less current liabilities 33,434 32,759 Creditors due after more than one year (1,885) (3,370) Provision for liabilities and charges (1,399) (1,433) ------ ------ 30,150 27,956 ------ ------ Capital and Reserves: Called up share capital 2,002 1,987 Share premium account 8,526 8,121 Revaluation reserve 1,609 1,536 Merger reserve 114 114 Profit and loss account 17,899 16,198 ------ ------ Equity and total shareholders' funds 30,150 27,956 ------ ------ Severfield Rowen Plc Consolidated Cash Flow Statement For the year ended 31 December 1999 1999 1998 £000 £000 Net cash inflow from operating activities 6,387 8,362 Return on investments and servicing of finance (197) 7 Taxation (2,944) (2,802) Capital expenditure and financial investment (2,269) (5,137) Acquisitions and disposals 344 784 Equity dividends paid (2,403) (2,230) ------ ------ Cash outflow before use of liquid resources and financing (1,082) (1,016) Financing (1,472) (1,310) ------ ------ Decrease in cash in the year (2,554) (2,326) ------ ------ Reconciliation of net cash flow to movement in net funds Decrease in cash in the year (2,554) (2,326) Cash flow from movement in loans 1,484 1,362 and hire purchase contracts ------ ------ Change in net funds from cash (1,070) (964) flows Loan acquired with subsidiary - (188) New hire-purchase contracts - (1,310) ------ ------ Movements in net funds in the (1,070) (2,462) year Net funds at 1 January 1999 2,651 5,113 ------ ------ Net funds at 31 December 1999 1,581 2,651 ------ ------ Severfield Rowen Plc Statement of Total Recognised Gains and Losses 1999 1998 £000 £000 Profit attributable to members 4,103 8,707 of the Group Unrealised surplus on 73 109 revaluation of properties Foreign currency translation 12 (10) gain/(loss) ------ ------- Total recognised gains and 4,188 8,806 losses for the year ------ ------ Reconciliation of Movements in Shareholders' Funds Profit for the financial year 4,103 8,707 Dividends (2,414) (2,384) Issue of shares - net 420 52 Revaluation adjustment 73 109 Foreign currency translation 12 (10) gain/(loss) ------ ------ Net addition to shareholders' 2,194 6,474 funds Opening shareholders' funds 27,956 21,482 ------ ------ Closing shareholders' funds 30,150 27,956 ------ ------ Notes: 1. The above financial information does not amount to full accounts within the meaning of section 240 of the Companies Act 1985. Full accounts for the year ended 31 December 1999 have not yet been audited or delivered to the Registrar of Companies. The Annual Report is due to be posted to shareholders on or around 26 April 2000. A copy of the statutory accounts for the year ended 31 December 1998 has been delivered to the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 2. The basic earnings per share figure for the year ended 31 December 1999 is based on the profit after taxation of £4,103,000 (1998: £8,707,000) and 20,013,133 (1998: 19,842,464) ordinary shares, being the weighted average of the number of shares in issue during the period. The adjusted earnings per share figure for the year ended 31 December 1999 is based on the profit after taxation, excluding the exceptional item, of £6,169,000 (1998: £7,116,000) and 20,013,133 (1998: 19,842,464) ordinary shares, being weighted average of the number of shares in issue during the period.

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