Final Results

Severfield PLC

14 June 2023

Results for the year ended 25 March 2023

Profits ahead of expectations, high-quality order books, post period-end acquisition of Voortman to accelerate European growth strategy

Severfield plc, the market leading structural steel group, announces its results for the year ended 25 March 2023.

£m	Year ended³ 25 March 2023	Year ended³ 26 March 2022	Change
Revenue	491.8	403.6	+22%
Underlying¹ operating profit (before JVs and associates)	33.1	26.9	+23%
Underlying¹ operating margin (before JVs and associates)	6.7%	6.7%	-
Operating profit	30.2	22.8	+32%
Operating margin	6.1%	5.7%	+40 bps
Underlying¹ profit before tax	32.5	27.1	+20%
Profit before tax	27.1	21.0	+29%
Underlying¹ basic earnings per share	8.5p	7.2p	+18%
Basic earnings per share	7.0p	5.1p	+37%
Return on capital employed ('ROCE')	15.8%	13.5%	+230 bps

Headlines

§ Revenue up 22% to £491.8m (2022: £403.6m)

§ Underlying¹ profit before tax up 20% to £32.5m (2022: £27.1m), ahead of expectations due to strong operational delivery

§ Underlying¹ basic earnings per share up 18% at 8.5p (2022: 7.2p)

§ Total dividend increased by 10% to 3.4p per share (2022: 3.1p per share), includes proposed final dividend of 2.1p per share (2022: 1.9p per share)

§ Year-end net funds (on a pre-IFRS-16 basis²) of £2.7m (2022: net debt of £18.4m), reflects improvement in working capital

§ High-quality, diversified UK and Europe order book of £510m at 1 June 2023 (1 November 2022: £464m), includes new industrial and distribution, film studio, commercial offices and nuclear orders

§ Value is building in JSSL - share of profit of £1.3m (2022: £0.8m), reflects record EBITDA of £11m and output of 108,000 tonnes

§ India order book of £139m at 1 June 2023 (1 November 2022: £143m)

§ Post period-end €24m acquisition of Voortman, an innovative, market-leading Dutch steel fabrication company, to accelerate our growth strategy and strengthen our market position in Europe

Outlook

§ UK and Europe - significant pipeline opportunities in the UK and continental Europe - many of our chosen markets continue to have a favourable outlook

§ Voortman acquisition is on track to be earnings enhancing in 2024

§ India - well-positioned to take advantage of significant post-pandemic growth opportunities, very encouraging outlook for Indian economy and strong underlying demand for structural steel

§ Inflation falling in certain areas but we remain mindful of the macro-economic backdrop

§ Well-positioned to deliver a result for 2024 which is in line with our expectations

Alan Dunsmore, Chief Executive Officer commented:

"2023 was a very successful year for the Group. We reported record revenue, delivered underlying profits ahead of expectations and secured a significant value of new, high-quality work across all our geographies. This demonstrates the success of our strategy to diversify the sectors and geographies we serve, reflects the high-quality of our operations and is testament to the talent and commitment of our people. We were also pleased to complete the acquisition of Voortman, which brings in new clients, sectors and opportunities, enhancing our position as one of Europe's strongest structural steel groups, and positioning us for further growth in the region.

Whilst there are signs of inflation easing, we remain mindful of the macro-economic backdrop. However, given the Group's performance to date and the strength of our orders books, we are confident of delivering further progress and a result for 2024 which is in line with our expectations."

For further information, please contact:

Severfield	Alan Dunsmore Chief Executive Officer	01845 577 896
	Adam Semple Chief Financial Officer	01845 577 896
Jefferies International	Simon Hardy	020 7029 8000
	Will Soutar	020 7029 8000
Liberum Capital	Nicholas How	020 3100 2000
	Ben Cryer	020 3100 2000
Camarco	Ginny Pulbrook	020 3757 4980
	Tom Huddart	020 3757 4980

Notes to financials:

¹ stated before non-underlying items of £5.4m (2022: £6.1m) including the amortisation of acquired intangible assets of £3.3m (2022: £5.2m) and net acquisition-related expenses of £2.0m (2022: £0.7m). Non-underlying items have been separately identified by virtue of their magnitude or nature to enable a full understanding of the Group's financial performance and to make year-on-year comparisons. They are excluded by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group and are normally excluded by investors, analysts and brokers when making investment and other decisions (see note 3).

² the Group excludes IFRS 16 lease liabilities from its measure of net funds / debt as they are excluded from the definition of net debt as set out in the Group's borrowing facilities (see note 7).

³ except as otherwise stated '2022' and '2023' refer to the 52-week periods ended 26 March 2022 and 25 March 2023 and '2024' refers to the 53-week period ending 30 March 2024. The Group's accounts are made up to an appropriate weekend date around 31 March each year.

⁴ a reconciliation of the Group's underlying results to its statutory results is provided in the Alternative Performance Measures ('APMs') section (see note 9).

Notes to editors:

Severfield is the UK's market leader in the design, fabrication and construction of structural steel, with a total capacity of c.150,000 tonnes of steel per annum. The Group has seven sites, c.1,800 employees and expertise in large, complex projects across a broad range of sectors. The Group also has an established presence in the expanding Indian market through its joint venture partnership with JSW Steel (India's largest steel producer).

OPERATING REVIEW

Introduction

2023 was a very successful year, with the Group achieving record revenue, delivering underlying profits of more than £32m and securing a significant value of new, high-quality work. This strong performance reflects the high quality of our operations and highlights the successful evolution of our strategy and the benefits of our significant market sector, geographical and client diversification. This has resulted in a well-balanced Group which has provided us with the resilience to maintain and improve our market positions and expert capabilities and has enabled us to keep growing the business despite the ongoing market headwinds. The Group's strong overall performance is reflected in our high-quality order books of £510m in the UK and Europe and £139m in India.

In 2023, we increased our revenue by 22 per cent to £491.8m (2022: £403.6m) and our underlying¹ profit before tax by 20 per cent to £32.5m (2022: £27.1m). This performance has converted into cash, with operating cash conversion⁴ of 145 per cent (2022: (25) per cent), resulting in net funds (on a pre-IFRS-16 basis²) at the year-end of £2.7m (2022: net debt of £18.4m). Statutory profit before tax, which includes non-underlying items, was £27.1m (2022: £21.0m), an increase of 29 per cent over the prior year.

In 2023, the Indian joint venture ('JSSL') recorded output of more than 100,000 tonnes, including sub-contracted work, an output equivalent to that of the Group's operations in the UK and Europe and a record for the business. This increased activity is evident in the Group's higher after-tax share of profit of £1.3m (2022: £0.8m), which reflects an increase in revenue and a record EBITDA of £11m. We remain very positive about the long-term trajectory of the market and of the value creation potential of JSSL. Together with our joint venture partner, our plans to secure a plot of land in India to facilitate the future expansion of the business remain well advanced.

Based on the Group's continued progress, our strong balance sheet and confidence in the future prospects of the business, the board is recommending an increase in the final dividend to 2.1p per share, resulting in a total dividend for the year of 3.4p per share (2022: 3.1p per share), an increase of 10 per cent on the prior year.

Strategic update

The Group's well-established strategy is unchanged, focused on growth and diversification, both organic and through selective acquisitions, operational improvements and building further value in JSSL, all of which, in combination, will deliver strong EPS growth. Our clear focus on balance sheet strength and cash generation enables us to continue making the right decisions for the long-term, to maximise our competitive advantage and to best position us in our chosen markets for continued sustainable, long-term growth.

Acquisitions

In April 2023, after the year-end, we completed the acquisition of Voortman Steel Construction Holding B.V. ('VSCH'), an innovative steel construction group based in the Netherlands, for a net consideration of €24m. This provides us with a manufacturing base in Europe to complement our existing European business and will help accelerate our European growth strategy. The acquisition is expected to be earnings enhancing in 2024.

In addition to VSCH's core steel fabrication markets in the Netherlands, we are seeing opportunities for growth through its access to the high growth Dutch electricity distribution sector and capabilities in design and build (turnkey) solutions for simpler structures, a business which is currently in its infancy, serving SMEs and smaller projects. The acquisition also provides us with growth opportunities through access to new European clients, particularly in the industrial, commercial and residential sectors, a platform to broaden our service offering and an ability to grow in different sectors and geographies, enhancing our position as one of Europe's strongest structural steel services groups.

VSCH is renowned in the Netherlands for its in-house knowledge, innovation and expertise. The business is well invested with modern and highly efficient production facilities, co-located with Voortman Steel Machinery Holding B.V. ('VSMH'), a manufacturer of steel fabrication machinery. The acquisition will allow for areas of future collaboration with VSMH including the development of robotic production technology, proprietary fabrication software and bespoke equipment.

Clients

We continue to invest to meet the needs of our clients, building our capabilities and driving efficiency across new and existing facilities, to ensure our growth ambitions are fully supported. We remain focused on providing value added results for our clients whilst balancing time, cost and quality objectives, with an emphasis on building strong and long-standing client partnerships.

Our unique capability to deliver complex design and engineering solutions, our capacity and speed of fabrication and our management of the integrated construction process is vital for our clients and a key differentiator for the Group. This is fundamental to our success and has been critical to securing new work and growing our revenues over recent years. This year we have delivered challenging programmes for clients, reduced costs through both our pre-tender value engineering and also post-award engineering solutions and developed innovative building solutions for temporary works and pre-assembled sections to work in live operating environments. In addition, when market pressures stretched existing budgets or delayed certain construction programmes, our operational delivery capabilities allowed us to help clients deliver changes to these programmes quickly and efficiently, to provide them with problem-solving solutions and to ensure that programme milestones were achieved.

Business and operational improvement

In 2023, the Group launched Project Horizon, our new digitisation project. The objective is to maximise the automation of our estimating, design, production and contract delivery processes to improve client service and deliver efficiency and capacity benefits. Workflows comprise over 100 short, medium and long-term individual projects and initiatives designed to modernise and further standardise processes and systems across the Group. We currently have 14 dedicated colleagues working on the project, which will initially be self-funded through annual savings, with further benefits expected to be realised as more of the identified projects and initiatives are implemented. The project is a long-term initiative that we believe will shape our future as we enhance our systems and leverage digital solutions, to ensure we remain at the forefront of technology and innovation as market leaders in the industry.

As part of Project Horizon, we continued to make good progress with our innovative approach to drawing and design, including the automation of repetitive tasks and the optimisation of engineering software (including the use of engineering apps), which is now being used on an increasing number of construction projects across the Group. Other ongoing initiatives include the digitisation of construction resource tracking and the automation of the quality assurance certification process.

From an operational improvement perspective, initiatives worked on during the year included the continued expansion and automation of our fabrication capability and the ongoing improvements to real-time factory information at our main production facility in Dalton. This included improvements in our paint shops, 'right first time' initiatives to improve overall quality including the targeted reduction of factory and site NCRs (rework items) and drawing office errors, together with ongoing roll out of mobile devices to capture information at the point of use and to provide live information to both operatives and management.

UK and Europe review

The future success of the Group is determined, amongst other things, by the quality of the secured workload and our discipline to maintain risk-based contract selectivity irrespective of economic conditions. The UK and Europe order book at 1 June includes a significant amount of new, high-quality work and stands at £510m (1 November 2022: £464m), including £25m for VSCH, of which £375m is planned for delivery over the next 12 months. This provides us with good earnings visibility for 2024 and beyond. The order book remains well-diversified and contains a good mix of projects across the Group's key market sectors. In terms of geographical spread, 90 per cent of the order book represents projects in the UK, with the remaining 10 per cent representing projects for delivery in Europe and the Republic of Ireland (1 November 2022: 95 per cent in the UK, 5 per cent in Europe and the Republic of Ireland).

As well as our secured workload, we are encouraged by the current level of tendering and pipeline activity across the Group. We are seeing some significant opportunities in the UK and in continental Europe as, despite some current softer market conditions in the distribution sector and delays in client decision-making, many of our chosen markets continue to have a favourable outlook - the Group has a prominent position in market sectors with strong growth potential and is well-positioned to help accelerate the journey to Net Zero. Many of these potential projects play to the Group's core competencies - large complex projects that require high quality, rapid throughput, on-time performance and full co-ordination between stakeholders.

As previously announced, with effect from 1 April 2022, to align our existing businesses more closely with the ten market sectors that we serve and our growing client base, the previous structure of six mainly location-based business units has been streamlined into three new divisions. Under this new divisional structure, we have separated our core construction operations (delivering steel superstructures) into a Commercial and Industrial division and a Nuclear and Infrastructure division, and created a new Modular Solutions division. The Modular Solutions division consists of the growing modular product ranges of Severfield (Products & Processing) ('SPP') and of Construction Metal Forming ('CMF'), our cold rolled steel joint venture business.

Commercial and Industrial

The Commercial and Industrial ('C&I') division brings together the Group's strong capabilities in the industrial and distribution, commercial offices, stadia and leisure, data centres, retail, and health and education market sectors. During the year, we continued to work on the new stadium for Everton F.C., the Co-op Live Arena in Manchester, Pinewood Studios in Shepperton and the Google Headquarters at King's Cross, which is now largely complete. We also started work on the Envision Battery Plant in Sunderland, creating an electric vehicle hub supporting next generation EV production, to help accelerate the transition to Net Zero carbon mobility. Other significant revenue contributing projects include several large distribution facilities in the UK, the ExCel Arena in London and a number of mid-sized office developments, both in the UK and Republic of Ireland (including Wilton Park in Dublin and new developments at King's Cross and Canada Water in London).

The C&I order book at 1 June of £372m (1 November 2022: £308m) includes a significant amount of new work which we have secured over recent months. This includes Sunset Studios in Hertfordshire, a large data centre in London, two large commercial office developments in London, together with various industrial and distribution facilities in the UK. Most of our work is derived through either negotiated, framework or two-stage bidding procurement processes, in line with the risk profile of the work being undertaken.

Despite some ongoing softness in the distribution sector and delays in client decision-making, we continue to be encouraged by the current level of tendering and pipeline activity across the Group, seeing some significant opportunities both in the UK and in continental Europe, supported by the acquisition of VSCH. These include data centres, stadia and leisure projects, commercial offices, film studios and projects in support of a low-carbon economy such as battery plants, energy efficient buildings and manufacturing facilities for renewable energy.

In the UK and EU, we are seeing a new wave of opportunities for battery gigafactories to support domestic zero carbon vehicle production, with a number of facilities currently being planned or considered. Furthermore, the UK's emergence as a major hub for film, television, advertising and gaming production is also leading to an increase in demand for film and TV studios. Demand for data centres in the UK and EU is also expected to continue, fuelled by cloud computing, smartphones and artificial intelligence, together with the continued post-pandemic trend for remote working. The Group's manufacturing scale, speed of construction and on-time delivery capabilities, leaves us well-positioned to win work from such projects, all of which are likely to be designed in steel.

For the C&I division, we are targeting future revenue growth in line with GDP, assisted by the acquisition of VSCH.

Nuclear and Infrastructure

The Nuclear and Infrastructure ('N&I') division encompasses the Group's market-leading positions in the nuclear (new build, decommissioning and defence), power and energy, transport (road and rail) and process industries sectors. During the year, we continued to work on several HS2 bridge packages for the Balfour Beatty and EKFB (Effage Kier) consortia, together with road and rail bridges including the A1 Birtley to Coalhouse and A46 Binley bridges and the M42 junction 6 and M25 junction 28 road improvement schemes. From a nuclear perspective, ongoing contracts include work at Hinkley Point and some large projects at Sellafield and in Berkshire for AWE.

The N&I order book at 1 June was £133m (1 November 2022: £151m) of which 47 per cent represents transport infrastructure (1 November 2022: 52 per cent) and 47 per cent represents nuclear projects (1 November 2022: 46 per cent). Notable recent awards include some new bridge projects reflecting investment in infrastructure by Highways England and Network Rail, and a large secondary steelwork package for General Electric at Hinkley Point. This involves a unique flat pack delivery system for the steelwork (access platforms and mechanical handling steel for the two turbines at Hinkley), greatly reducing site storage space while providing greater cost and programme certainty. Our nuclear business has also recently been selected as one of two 'key delivery partners' to deliver structural steelwork with an estimated value of c.£250m at Sellafield as part of the long-term Programme and Project Partners ('PPP') framework.

As part of the Autumn Statement in November 2022, the UK Government reconfirmed its commitment to deliver major infrastructure projects, highlighting investment in infrastructure and sustainability, as central to boosting growth and productivity. Despite the expected delays to some aspects of the Road Investment Strategy and HS2, which the government confirmed in March 2023, the Autumn Statement reaffirmed its commitment to deliver Sizewell C, HS2 to Manchester and core Northern Powerhouse rail links as set out in the £650 billion National Infrastructure Strategy ('NIS') from 2020.

The Group is well-placed to meet this demand for ongoing state-backed investment, including a growing focus on infrastructure which can mitigate the impacts of climate change and deliver energy security. These requirements dictate a significant transition in national energy infrastructure including renewable electricity generation and storage, nuclear power (including small modular reactors ('SMRs')) and several other new energy supply initiatives. We have already secured some significant road and rail bridge awards, new nuclear and rail electrification work and we continue to make good progress with several other similar opportunities in the pipeline. In general, we remain well-positioned to win work in the transport, nuclear and power and energy sectors sector given our in-house expertise and unmatched scale and capability to deliver major infrastructure projects, together with the high entry barriers for competitors.

For the N&I division, our medium-term target is to grow revenues to over £125m, which would represent a doubling of FY22 revenues.

Modular Solutions

The Modular Solutions ('SMS') division consists of the growing modular product ranges of SPP based in Sherburn and of CMF, our cold rolled steel joint venture business based in Wales. We continue to be the only hot rolled steel fabricator in the UK to have a cold rolled manufacturing capability. The division has been awarded 'Fit for Nuclear' and certain Network Rail accreditations which, together with an expanding client base and our previous record in modular construction, we believe will help us to achieve our future growth aspirations. The SMS division consists of three main business areas:

§ Severstor - specialist equipment housings for critical electrical equipment and switchgear,

§ Supply chain (steel components for modular homes and buildings) - raw material fabrication and modular systems including steel cassettes and framing, and

§ Rotoflo - a high performance silo discharge system for the bulk handling of materials such as paints and other dispersible solids.

In 2023, we have maintained our focus on growing our Severstor product ranges, which attract higher margins. We continue to make significant progress in growing our revenues and client base. We have secured repeat orders from several blue-chip clients in the power, rail and oil and gas sectors as well as continuing to develop our growing pipeline of opportunities, including in growth areas such as renewable energy and data storage.

For supply chain, we see opportunities to supply the modular sector with steel sub-assemblies and systems for temporary accommodation and other buildings, and factory-built houses. These opportunities are being driven by the market growth in the supply of modular buildings for education and healthcare and for modular homes. To this end, to complement our hot-rolled capability, we have continued to develop CMF's cold-rolled product range which now includes load bearing frame and deck profiles, purlins and side rail systems, supported by the business's new manufacturing facility in South Wales which is now operational. As the modular market matures, clients are seeking greater scale, reliability and quality in the supply chain, all of which Severfield can offer, to ensure that its market share is maintained and increased in line with market growth.

For our higher margin Rotoflo products, we have an established foothold in the UK water treatment sector and have continued to develop the overseas footprint of the business, aided by our sales manager in India. We have quickly established a presence in the Indian paint manufacturing sector, where we see some potentially interesting opportunities. Future growth markets also include chemical processing, food processing and waste-water treatment in the UK, US, India and Australia.

For the Modular Solutions division, our medium-term target is to grow revenues to between £75m and £100m and we are targeting margins of greater than 10 per cent.

General market conditions

Inflationary pressures and supply issues for both us and our clients have continued to present challenges throughout the year. Rising steel prices, supply constraints on certain materials and increased energy and labour costs have continued to drive upward pressure on total build costs, which in turn has placed increased strain on the supply chain. Towards the end of the financial year there were signs that some of these headwinds were starting to ease, with inflation falling in certain areas.

We are continuing to manage these pressures well and the Group's scale, financial and operational strengths and disciplined processes have helped to ensure that we have not experienced any significant disruption or material impact to profitability. For existing projects, any additional costs have generally been offset by a combination of operating efficiencies, higher selling prices, forward purchasing and contractual protection as steel remains largely a pass-through cost for the Group. For steel, we also benefit from relationships with supply chain partners in the UK and continental Europe, reducing the risk of interruptions to the Group's steel supply.

India review

£m	2023	2022	Change
Revenue	137.7	100.3	+37%
EBITDA	11.0	6.8	+62%
Operating profit	8.7	5.2	+67%
Operating margin	6.3%	5.2%	+110 bps
Finance expense	(5.1)	(3.3)	- £1.8m
Profit before tax	3.6	1.9	+89%
Tax	(1.0)	(0.4)	-£0.6m
Profit after tax	2.6	1.5	+73%
Group share of profit after tax (50%)	1.3	0.8	+73%

In 2023, JSSL recorded a record output of more than 100,000 tonnes, including sub-contracted work, which is an output equivalent to that of the Group's operations in the UK and Europe. This increased activity is evident in the Group's higher after-tax share of profit of £1.3m (2022: £0.8m). The improved performance reflects an increase in revenue of 37 per cent to £137.7m (2022: £100.3m) and an improved operating margin of 6.3 per cent (2022: 5.2 per cent). Financing expenses of £5.1m (2022: £3.3m) are higher than the previous year, as a result of an increase in borrowings, partly driven by the impact of inflation on working capital, and in the cost of letters of credit which are linked to higher steel prices. These higher financing costs result in JSSL's operating profit of £8.7m (2022: £5.2m), which has increased by 67 per cent year-on-year, reducing to a profit before tax of £3.6m (2022: £1.9m).

Notwithstanding some current market pressures in India, JSSL has continued to win new work, resulting in a strong order book of £139m at 1 June 2023 (1 November 2022: £143m). In terms of mix, 55 per cent of the order book represents higher margin commercial work, with the remaining 45 per cent representing industrial projects (1 November 2022: commercial work of 36 per cent, industrial work of 64 per cent).

Following JSSL's continued successful recovery from the effects of COVID-19, which is reflected in its record EBITDA for 2023 of £11m, we have revalidated our Indian business plan. This process has reaffirmed the numerous growth opportunities that were identified pre-pandemic, including those in new and existing market sectors, and the significant value creation potential of JSSL. In conjunction with JSW, our joint venture partner, our plans to secure a plot of land in India to facilitate the future expansion of the business remain well advanced. This additional land will allow the business to expand its geographical footprint whilst providing it with the platform to expand quickly and add the necessary volume to support the expected future market growth.

In summary, JSSL's strong order book, improving pipeline of potential orders and identified growth opportunities, leave the business well-positioned to take advantage of a very encouraging outlook for the Indian economy and a strong underlying demand for structural steel in construction.

ESG

Safety

The health, safety and wellbeing of our staff, subcontractors, suppliers, clients and the public remains the Group's top priority. In 2023, following significant improvements in safety performance in previous years, whilst our accident frequency rate ('AFR') reduced to 0.14 from 0.16, we saw our injury frequency rate ('IFR') increase to 1.61 from 1.49. Although the overall IFR has increased, the result for 2023 reflects improved IFR performance in many areas of the business, including in our manufacturing operations and for our recently acquired infrastructure business (DAM Structures) which, disappointingly, has been offset by higher IFRs in some areas of our construction operations. Whilst our safety statistics continue to be industry-leading, we remain committed to continually improving and focusing on leading indicators in our pursuit of 'no harm'. We have updated our behavioural safety programme, which is based on awareness, training, coaching and visible leadership, and have launched our Safer@Severfield initiative, which will further ingrain our culture of employee engagement, commitment and our life saving rules.

Sustainability

ESG remains at the forefront of our strategic decision making. As a result of decisions made in recent years, the Group remains in a prominent market position in the high-growth markets of the future and is well-positioned to assist in accelerating the journey to Net Zero in its core sectors. We align our ESG approach with the UN Sustainable Development Goals ('SDGs'), through a variety of central and local initiatives.

In 2023, we maintained our carbon neutral accreditation from the Carbon Trust for scope 1, 2 and operational scope 3 emissions for our manufacturing, office and construction operations. As part of our sustainability strategy towards Net Zero, the Group monitors greenhouse gas ('GHG') emissions in line with the Streamlined Energy and Carbon reporting ('SECR'). An interim target on this transition to Net Zero, is our commitment to reducing our scope 1 and 2 GHG emissions by 25 per cent by 2025 against a 2018 baseline, aligned with the Paris Agreement to limit global warming to below 1.5 degrees Celsius. By the end of the financial year, we had achieved this target ahead of schedule with the successful transition to sustainability initiatives, including the use of hydrogenated vegetable oil ('HVO') at our factory and construction sites and switching to renewable energy contracts ('REGO').

In 2024, we will be submitting near and long-term carbon emissions targets for approval by the Science-Based Target Initiative ('SBTi'). These targets are aligned with the objectives of the Paris Agreement and a commitment to reach Net Zero emissions by 2050 across scope 1, 2 and 3. We will disclose progress against these targets on an annual basis through our annual report and our Carbon Disclosure Project ('CDP') reporting.

In 2023, for the third year running, the Group was included in the Financial Times ('FT') listing of Europe's climate leaders which showcases corporate progress in fighting climate change. For 2023, this list includes the c.500 European companies that have achieved the greatest reduction in their GHG intensity. In the FT listing, for businesses with a rating from the CDP, only those with a score of at least 'B-' were considered. In 2023, we were awarded a 'B' rating in the CDP index and a supply chain score of 'A-' as well as maintaining our 'very good' BES 6001 responsible sourcing accreditation, highlighting our continued engagement with our supply chain to promote sustainability.

As a SteelZero signatory, we previously made the commitment to procure 100 per cent low carbon steel by 2050, demonstrating the importance of transitioning to low embodied carbon steel production in the construction sector. In 2023, we joined the SteelZero policy taskforce collaborating with the Climate Group and other members on the most effective approach to capturing and reporting data for the SteelZero framework. In 2024, we plan to start disclosing our progress against low carbon steel procurement to the Climate Group.

Recognising the importance of social value, we have adopted the National TOMs - Themes, Outcomes and Measures - methodology framework to focus our future commitments on all areas of social value both internally and in partnership with our clients. This has included monitoring and measuring our social value contribution as a Group including areas such as apprentices, local spend and volunteering.

Social

The Group actively engages with its colleagues to hear their perspectives, including through our Group-wide 'MyVoice' forums, which provide valuable, ongoing insights and feedback for the board. In 2023, these forums, which form a significant part of our listening and engagement strategy, have facilitated improvements to health and wellbeing provisions, facilities and leadership communication.

2023 was a particularly challenging time with the cost-of-living crisis and the Group has provided support to its colleagues, including one‐off cost‐of‐living payments and enhanced employee benefit packages. In addition, our annual pay awards have taken into account ongoing inflationary pressures, and we have implemented higher pay increases for our more junior and lower paid colleagues. All of our colleagues are paid at or above the real living wage.

During the year, the Group further bolstered its commitment to young people, recruiting a record number of UK apprentices, across a range of disciplines and becoming a gold member of The 5% Club, demonstrating our commitment to 'earning and learning'. This will help improve the innovative thinking and fresh ideas required to sustain the industry and the Group into the future.

In 2023, the board also reviewed the performance and potential of an expanded population of colleagues from Executive Committee downwards enabling us to make better informed decisions on talent development and succession planning. This has facilitated the roll out of new development programmes, including through partnering with external bodies to deliver events such as a Team Leader Development Programme and Senior Leadership Development Centres.

Board changes

In October 2022, the Group announced the appointment of Mark Pegler as a non-executive director, to serve on the remuneration, nomination and audit committees. This appointment forms part of the board succession process and it is intended that Mark will become audit committee chairman following the retirement of Tony Osbaldiston in July 2023. Mark spent over a decade as Chief Financial Officer at Hill & Smith PLC, overseeing the significant international growth of the business, both organically and through acquisition. This knowledge will be highly beneficial to the Group as it continues to build on the considerable positive momentum within the business.

Summary and outlook

In 2023, the Group has delivered a strong financial performance whilst managing inflationary pressures well. We have significantly increased revenues and profits in the UK and India, our order books are substantial and of high quality, and our balance sheet and cash position remain healthy. The Group's businesses are well-positioned in markets with excellent opportunities, underpinned by our new, simplified divisional structure and the acquisition of VSCH. All this provides us with an excellent platform to fulfil our strategic growth aspirations.

Whilst there are signs of inflation easing, we remain mindful of the macro-economic backdrop. However, given the Group's performance to date and the strength of our order books, we are confident of delivering further progress and a result for 2024 which is in line with our expectations.

Alan Dunsmore

Chief Executive Officer

14 June 2023

FINANCIAL REVIEW

£m	2023	2022	Change
Revenue	491.8	403.6	+22%
Underlying* operating profit (before JVs and associates)	33.1	26.9	+23%
Underlying* operating margin (before JVs and associates)	6.7%	6.7%	-
Underlying* profit before tax	32.5	27.1	+20%
Underlying* basic earnings per share	8.5p	7.2p	+18%
Operating profit	30.2	22.8	+32%
Operating margin	6.1%	5.7%	+40 bps
Profit before tax	27.1	21.0	+29%
Basic earnings per share	7.0p	5.1p	+37%
Return on capital employed ('ROCE')	15.8%	13.5%	+230 bps

* The basis for stating results on an underlying basis is set out on page 2. A reconciliation of the Group's underlying results to its statutory results is provided in the Alternative Performance Measures ('APMs') section (see note 9).

Trading performance

Revenue for the year of £491.8m represents an increase of £88.2m (22 per cent) compared with the previous year, predominantly reflecting an increase in order flow and production activity, together with an increase in steel prices.

Underlying operating profit (before JVs and associates) of £33.1m (2022: £26.9m), represents an increase of £6.2m (23 per cent) over the prior year. The increase in profit reflects the increase in production activity and highlights our ability to offset inflationary cost increases through a combination of operating efficiencies, higher selling prices and contractual protection as steel remains largely a pass-through cost for the Group. The 2023 operating margin of 6.7 per cent remains below our previously stated strategic margin range of 8 to 10 per cent, reflecting the dilutive impact of the increases in steel prices over recent years which we continue to successfully pass through to clients at zero margin (the revised margin range is 6 to 8 per cent with current high steel prices). This dilutive effect on margins would reverse if steel costs reduced to pre-2020 levels in the future. The statutory operating profit, which includes the results of JVs and associates and the Group's non-underlying items, was £30.2m (2022: £22.8m).

Underlying profit before tax, which is management's primary measure of Group profitability, was £32.5m (2022: £27.1m), an increase of 20 per cent over the prior year. The statutory profit before tax, which includes the Group's non-underlying items, was £27.1m (2022: £21.0m), an increase of 29 per cent over the prior year.

Share of results of JVs and associates

The share of results from JSSL was a profit of £1.3m (2022: £0.8m), reflecting revenue growth and margin improvement. Within Modular Solutions, our specialist cold rolled steel business, CMF, contributed a share of profit of £0.6m (2022: £0.5m). The CMF business has expanded its production operations in Wales and has continued to develop its product range to drive organic revenue growth.

Acquisition of VSCH

On 3 April 2023, after the year-end date, the Group completed the acquisition of VSCH for a net cash consideration of €24m (£21.2m), on a cash free, debt free basis assuming a normalised level of working capital on completion. The total cash consideration was €29.5m (£26.1m) including VSCH's cash and cash equivalents of €5.5m (£4.9m), which was funded by a combination of Group cash reserves of £2.2m and a new term loan of £19.0m, repayable over a five-year period.

Non-underlying items

Non-underlying items have been separately identified by virtue of their magnitude or nature to enable a full understanding of the Group's financial performance and to make year-on-year comparisons. They are excluded by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group and are normally excluded by investors, analysts and brokers when making investment and other decisions.

Non-underlying items for the year of £5.4m (2022: £6.1m) includes the amortisation of acquired intangible assets of £3.3m (2022: £5.2m) and net acquisition-related expenses of £2.0m (2022: £0.7m). The amortisation of acquired intangible assets represents the amortisation of customer relationships, order books and brand name, which were identified on the acquisitions of Harry Peers and DAM Structures. These assets are being amortised over a period of 12 months to five years. Acquisition-related expenses include acquisition and similar transaction costs associated with the VSCH acquisition and movements in the valuation of the contingent consideration for the DAM Structures acquisition which is payable over a five-year period.

Taxation

The Group's underlying taxable profits of £30.6m (2022: £25.8m) resulted in an underlying tax charge of £6.2m (2022: £4.8m), which represents an effective tax rate of 20.4 per cent (2022: 18.6 per cent). The total tax charge of £5.5m (2022: £5.4m) also includes a non-underlying tax credit of £0.7m (2022: charge of £0.6m). This comprises a tax credit on non-underlying items of £0.6m (2022: £1.0m) and tax adjustments relating to prior years of £0.1m (2022: £0.2m). In the prior year, a non-underlying tax charge of £1.5m was recognised, relating to the increase in future tax rates from 19 per cent to 25 per cent which, in line with the Group's policy, was included in non-underlying items.

Earnings per share

Underlying basic earnings per share increased by 18 per cent to 8.5p (2022: 7.2p) based on the underlying profit after tax of £26.2m (2022: £22.3m) and the weighted average number of shares in issue of 309.5m (2022: 308.8m). Basic earnings per share, which is based on the statutory profit after tax, was 7.0p (2022: 5.1p), reflecting the increased underlying profit after tax offset by a slight decrease in non-underlying costs. Diluted earnings per share, which includes the effect of the Group's performance share plan, was 6.9p (2022: 5.0p).

Dividend and capital structure

The Group has a progressive dividend policy. Funding flexibility is maintained to ensure there are sufficient cash resources to fund the Group's requirements. In this context, the board has established the following clear priorities for the use of cash:

§ To support the Group's ongoing operational requirements, and to fund profitable organic growth opportunities where these meet the Group's investment criteria,

§ To support steady growth in the core dividend as the Group's profits increase,

§ To finance strategic opportunities that meet the Group's investment criteria, and

§ To return excess cash to shareholders in the most appropriate way, whilst maintaining a good underlying cash position.

The board considers the dividend to be an important component of shareholder returns and we have either increased or maintained dividends every year, since the dividend was reintroduced in 2015, reflecting the strong cash generative nature of the Group. Accordingly, based on the outlook for the year ahead and our strong financial position, the board is recommending a final dividend of 2.1p per share (2022: 1.9p), payable on 13 October to shareholders on the register at the close of business on 8 September. This together with the interim dividend of 1.3p per share (2022: 1.2p), will result in a total dividend of 3.4p per share (2022: 3.1p). Looking ahead, as in previous years, the board expects the interim dividend to be approximately one third of the prior year's full dividend.

Goodwill and intangible assets

Goodwill was £82.2m at 25 March 2023 (2022: £82.2m). In accordance with IFRS, an annual impairment review has been performed. No impairment was required either during the year ended 25 March 2023 or the year ended 26 March 2022. Other intangible assets of £7.1m (2022: £10.3m), largely represents the net book value of the intangible assets (customer relationships, order books and brand name) identified on the acquisitions of Harry Peers and DAM Structures.

Property, plant and equipment

The Group had property, plant and equipment of £92.1m (2022: £91.4m) at 25 March 2023. Capital expenditure of £6.3m (2022: £7.4m) represents the continuation of the Group's capital investment programme. This predominantly consisted of new and upgraded equipment for our fabrication lines, the purchase of construction site equipment and general improvements to the Group's offices and facilities. Depreciation in the year was £7.2m (2022: £6.9m), of which £1.8m (2022: £1.7m) relates to right-of-use assets under IFRS 16.

Joint ventures

The carrying value of our investment in joint ventures and associates was £31.8m (2022: £30.1m), which consists of investments in India of £19.5m (2022: £18.4m) and in CMF of £12.3m (2022: £11.7m).

Pensions

The Group's defined benefit pension liability at 25 March 2023 was £12.9m (scheme liabilities of £33.9m offset by scheme assets of £21.0m), a decrease of £1.5m from the 2022 position of £14.4m. The deficit has reduced due to a higher discount rate, reflecting the significant increase in bond yields, and employer deficit contributions over the year. This has been offset to a lesser extent by lower-than-expected returns on the scheme's assets and the recent short-term increase in inflation, which has increased the scheme liabilities. All other pension arrangements in the Group are of a defined contribution nature.

Return on capital employed

The Group adopts ROCE as a KPI to help ensure that its strategy and associated investment decisions recognise the underlying cost of capital of the business. The Group's ROCE is defined in the APMs section (see note 9). For 2023, ROCE was 15.8 per cent (2022: 13.5 per cent), which exceeds the Group's minimum threshold of 10 per cent through the economic cycle.

Cash flow

£m	2023	2022
Operating cash flow (before working capital movements)	40.1	32.6
Cash generated from / (used in) operations	53.8	(1.9)
Operating cash conversion	145%	(25%)
Cash balances	11.3	(4.0)
Net funds / (debt) (pre-IFRS-16 basis)**	2.7	(18.4)
Net funds / (debt)	(10.7)	(30.1)

** The Group excludes IFRS 16 lease liabilities from its measure of net funds / debt as they are excluded from the definition of net debt as set out in the Group's borrowing facilities. A reconciliation of the Group's underlying results to its statutory results is provided in the APMs section (see note 9).

The Group's business model has been established to generate surplus cash flows and we have always placed a high priority on cash generation and the active management of working capital. The Group ended the year with net funds (on a pre-IFRS 16 basis) of £2.7m (2022: net debt £18.4m). Net funds at 25 March 2023 included cash balances of £11.3m (2022: overdraft of £4.0m) offset by the outstanding term loans of £8.9m for acquisitions (2022: £14.9m).

Operating cash flow before working capital movements was £40.1m (2022: £32.6m). Net working capital has decreased by £13.8m during the year mainly reflecting the start of the unwind of the unusually high working capital position (10 per cent of revenue) at the beginning of the year (£3.8m) and new advance payments in H2 (£10.0m). The high 2022 working capital position reflected the impact of steel and other input price rises in the prior year, and higher contract-specific steel purchases at the previous year-end.

Year-end working capital represented approximately 5 per cent of revenue (2022: 10 per cent), back within our well-established target range of 4 to 6 per cent. Operating cash conversion (defined in the APMs section - note 9) for 2023 was 145 percent (2022: minus 25 per cent), significantly above our KPI target of 85 per cent.

Payment Practices Reporting

The Group's relationships with its supply chain partners are of major strategic importance and the prompt payment of its suppliers remains a key component of this. Strong supply chain relationships can provide a competitive advantage and support superior operational delivery. However, the business operates in a sector where supply chains and contractual terms are complex, and prompt payment is often materially impacted by resolution of disputes and alignment to agreed contractual terms. For the formal Payment Practices Reporting period of 1 October 2022 to 25 March 2023, all the Group's businesses that are signatories of the Prompt Payment Code, reported that between 86 and 92 per cent of invoices were paid within 60 days.

Bank facilities committed until 2026

In March 2023, the Group increased its existing £50m revolving credit facility ('RCF'), which matures in December 2026, to £60m. The increased facility provides the Group with enhanced liquidity, following the acquisition of VSCH, and additional long-term financing to help support its growth strategy. The RCF remains subject to three financial covenants, namely interest cover, net debt to EBITDA and debt service (cash flow) cover. The Group operated well within these covenant limits throughout the year ended 25 March 2023.

In April 2023, as part of the VSCH acquisition, a new term loan of £19m, repayable over a five-year period, was established as an amendment to the existing facility agreement. This is also subject to refinancing in December 2026.

Going concern

In determining whether the Group's annual consolidated financial statements can be prepared on the going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities.

The following factors were considered as relevant:

§ The current market conditions and the impact of these (including the potential future impact of the current inflationary market conditions and similar other significant downside risks linked to our principal risks) on the Group's profits and cash flows,

§ The UK and Europe order book and the pipeline of potential future orders, and

§ The Group's cash position and its bank finance facilities, which are committed until December 2026, including both the level of those facilities and the three financial covenants (see above) attached to them.

The directors have reviewed the Group's forecasts and projections for 2024 and for at least 12 months from the date of approval of the financial statements, including sensitivity analysis to assess the Group's resilience to potential adverse outcomes including a highly pessimistic 'severe but plausible' scenario. This 'severe but plausible' scenario is based on the combined impact of securing only 25 per cent of budgeted uncontracted orders for the next 12 months, one-off contract losses, a deterioration of market conditions and other downside factors. Given the strong previous performance of the Group, this scenario is only being modelled to stress test our strong financial position and demonstrates the existence of considerable headroom in the Group's covenants and borrowing facilities in this 'severe but plausible' scenario.

Having also made appropriate enquiries, the directors consider it reasonable to assume that the Group has adequate resources to be able to operate within the terms and conditions of its financing facilities for at least 12 months from the approval of the financial statements. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.

Adam Semple

Chief Financial Officer

14 June 2023

Consolidated income statement

For the year ended 25 March 2023

	2023	00	3	2022
	Year ended 25 March 2023			Year ended 26 March 2022
	Underlying 2023 £000	Non-underlying 2023 £000	Total 2023 £000	Underlying 2022 £000	Non-underlying 2022 £000	Total 2022 £000
Revenue	491,753	-	491,753	403,563	-	403,563
Operating costs	(458,686)	(4,811)	(463,497)	(376,682)	(5,424)	(382,106)
Operating profit before share of results of JVs and associates	33,067	(4,811)	28,256	26,881	(5,424)	21,457
Share of results of JVs and associates	1,898	-	1,898	1,346	-	1,346
Operating profit	34,965	(4,811)	30,154	28,227	(5,424)	22,803

Net finance expense	(2,489)	(558)	(3,047)	(1,129)	(674)	(1,803)
Profit before tax	32,476	(5,369)	27,107	27,098	(6,098)	21,000

Tax	(6,238)	697	(5,541)	(4,795)	(604)	(5,399)
Profit for the year attributable to the equity holders of the parent	26,238	(4,672)	21,566	22,303	(6,702)	15,601


Earnings per share:
Basic	8.48p	(1.51)p	6.97p	7.22p	(2.17)p	5.05p
Diluted	8.39p	(1.49)p	6.90p	7.19p	(2.16)p	5.03p

Further details of 2023 non-underlying items are disclosed in note 3. A reconciliation of the Group's underlying results to its statutory results is disclosed in note 9.

Consolidated statement of comprehensive income

For the year ended 25 March 2023

	Year ended 25 March 2023 £000	Year ended 26 March 2022 £000
Items that will not be reclassified to profit and loss:
Actuarial (loss)/gain on defined benefit pension scheme	(701)	5,938
Tax relating to components that will not be reclassified	175	(1,205)
	(526)	4,733
Items that may be reclassified to profit and loss:
Losses taken to equity on cash flow hedges	(1,147)	(22)
Reclassification adjustments on cash flow hedges	243	13
Exchange difference on foreign operations	(86)	40
Tax relating to components that may be reclassified	153	21
	(837)	52
Other comprehensive income for the year	(1,363)	4,785
Profit for the year from continuing operations	21,566	15,601
Total comprehensive income for the year attributable to equity holders of the parent	20,203	20,386

Consolidated balance sheet

As at 25 March 2023


	As at 25 March 2023 £000	As at 26 March 2022 £000
ASSETS
Non-current assets
Goodwill	82,188	82,188
Other intangible assets	7,095	10,343
Property, plant and equipment	92,067	91,436
Right-of-use asset	13,018	11,070
Interests in JVs and associates	31,784	30,136
Contract assets, trade and other receivables	2,245	4,881
	228,397	230,054
Current assets
Inventories	13,231	18,005
Contract assets, trade and other receivables	109,721	117,859
Derivative financial instruments	25	670
Current tax assets	2,278	4,171
Cash and cash equivalents	11,338	-
	136,593	140,705
Total assets	364,990	370,759

LIABILITIES
Current liabilities
Bank overdraft	-	(3,974)
Trade and other payables	(102,699)	(111,692)
Financial liabilities - borrowings	(4,150)	(5,900)
Financial liabilities - leases	(2,172)	(1,756)
	(109,021)	(123,322)
Non-current liabilities
Trade and other payables	(2,377)	(3,081)
Retirement benefit obligations	(12,871)	(14,396)
Financial liabilities - borrowings	(4,800)	(8,950)
Financial liabilities - leases	(11,224)	(9,884)
Deferred tax liabilities	(6,979)	(7,166)
	(38,251)	(43,477)
Total liabilities	(147,272)	(166,799)

NET ASSETS	217,718	203,960

EQUITY
Share capital	7,739	7,738
Share premium	88,522	88,511
Other reserves	5,959	4,485
Retained earnings	115,498	103,226
TOTAL EQUITY	217,718	203,960

Consolidated statement of changes in equity

For the year ended 25 March 2023

	Share capital £000	Share premium £000	Other reserves £000	Retained earnings £000	Total equity £000

At 27 March 2022	7,738	88,511	4,485	103,226	203,960
Total comprehensive income for the year	-	-	(991)	21,194	20,203
Ordinary shares issued *	1	11	-	-	12
Equity settled share-based payments	-	-	2,465	955	3,420
Dividend paid	-	-	-	(9,877)	(9,877)
At 25 March 2023	7,739	88,522	5,959	115,498	217,718

* The issue of shares represents shares allotted to satisfy the 2018, 2020 and 2021 Sharesave schemes.


	Share capital £000	Share premium £000	Other reserves £000	Retained earnings £000	Total equity £000

At 28 March 2021	7,706	87,658	3,464	92,101	190,929
Total comprehensive income for the year	-	-	32	20,354	20,386
Ordinary shares issued *	32	853	-	-	885
Equity settled share-based payments	-	-	989	-	989
Dividend paid	-	-	-	(9,229)	(9,229)
At 26 March 2022	7,738	88,511	4,485	103,226	203,960

* The issue of shares represents shares allotted to satisfy the 2018 and 2020 and Sharesave scheme.

Consolidated cash flow statement

For the year ended 25 March 2023

	Year ended 25 March 2023 £000	Year ended 26 March 2022 £000
Net cash flow from operating activities	50,292	(5,685)

Cash flows from investing activities
Proceeds on disposal of other property, plant and equipment	317	376
Purchases of land and buildings	(635)	(2,759)
Purchase of intangible assets	(168)	(124)
Purchases of other property, plant and equipment	(5,668)	(2,507)
Payment of deferred and contingent consideration	(8,534)	(526)
Net cash used in investing activities	(14,688)	(5,540)

Cash flows from financing activities
Interest paid	(2,495)	(1,056)
Dividends paid	(9,877)	(9,229)
Proceeds from shares issued	12	885
Repayment of borrowings	(5,900)	(5,900)
Repayment of obligations under finance leases	(2,032)	(2,432)
Net cash used in financing activities	(20,292)	(17,732)

Net increase/(decrease) in cash and cash equivalents	15,312	(28,957)
Cash and cash equivalents at beginning of year	(3,974)	24,983
Cash and cash equivalents at end of year	11,338	(3,974)

1) Basis of preparation

The preliminary announcement has been prepared on the basis of accounting policies as set out in the statutory accounts for the year ended 25 March 2023. The consolidated financial statements have been prepared on the historical cost convention, except for the revaluation of financial instruments. The financial statements are prepared in accordance with UK-adopted International Accounting Standards and in conformity with the Companies Act 2006.

The preliminary announcement is made up to an appropriate Saturday around 31 March each year. For 2023, trading is shown for the 52-week period ended on 25 March 2023 (2022: 52-week period ended on 26 March 2022).

The financial statements of the Group's joint venture, JSSL, are made up to the year ended 31 March 2023 (2022: year ended 31 March 2022).

The preliminary announcement does not constitute the statutory financial statements of the Group within the meaning of Section 434 of the Companies Act 2006. The statutory financial statements for the year ended 26 March 2022 have been filed with the Registrar of Companies. The auditor has reported on those financial statements and on the statutory financial statements for the year ended 25 March 2023, which will be filed with the Registrar of Companies following the annual general meeting. Both the audit reports were unqualified, did not draw attention to any emphasis of matter, without qualifying their report, and did not contain any statements under Section 498(2) or (3) of the Companies Act 2006.

The preliminary announcement has been agreed with the Company's auditor for release.

2) Segment reporting

Following the adoption of IFRS 8, the Group has identified its operating segments with reference to the information regularly reviewed by the executive committee (the chief operating decision maker ('CODM')) to assess performance and allocate resources. Management has identified multiple operating segments which are reported to the CODM on a regular basis, however for the purpose of presentation under IFRS 8, the individual operating segments meet the aggregation criteria that allows them to be presented as one reportable segment ('construction contracts') for the Group.

The constituent operating segments have been aggregated because the nature of the products across the business, whilst serving different market sectors, are consistent in that they relate to the design, purchase and fabrication of steel products. They have similar production processes and facilities, types of clients, methods of distribution, regulatory environments and economic characteristics. This is reinforced through the shared production facilities across the Group.

The divisions presented in the strategic report were created from April 2022 to provide better client service and increased organisational clarity, both internally and externally. These still meet the aggregation criteria to be presented as one reportable segment under IFRS 8.

All revenue is derived from construction contracts and related assets. Group revenue includes revenue of £135,318,000 (2022: £57,619,000), spread over several contracts, relating to two (2022: one) major clients, who individually contributed more than 10 per cent of Group revenue in the year ended 25 March 2023.

3) Non-underlying items

	2023 £000	2022 £000
Operating costs	4,811	5,424
Finance expense	558	674
Non-underlying items before tax	5,369	6,098
Tax on non-underlying items	(697)	604
Non-underlying items after tax	4,672	6,702

Non-underlying items include the amortisation of acquired intangible assets of £3,338,000 (2022: £5,191,000) and net acquisition-related expenses of £2,031,000 (2022: £674,000). Net acquisition-related expenses include £1,816,000 (2022: £nil) associated with the acquisition of VSCG and the unwinding of discount on contingent consideration of £558,000 (2022: £674,000) offset by a fair value adjustment to contingent consideration which resulted in a credit of £343,000 (2022: £nil).

Amortisation of acquired intangible assets represents the amortisation of customer relationships, order books and brand name, which were identified on the acquisition of Harry Peers and DAM Structures in 2020 and 2021, respectively.

For tax on non-underlying items in the year a credit of £697,000 has been recognised, comprising a tax credit on non-underlying items of £634,000 and a credit of £77,000 relating to prior year adjustments offset by a charge of £14,000 relating to the increase in future corporation tax rates.

§ A significant item, which may span more than one accounting period.

§ An item directly incurred as a result of either a business combination, disposal, or related to a major business change or restructuring programme, and

§ An item which is unusual in nature (outside the normal course of business).

4) Taxation

The taxation charge comprises:

	2023 £000	2022 £000
Current tax
UK corporation tax charge	(5,460)	(4,178)
Foreign tax relief / other relief	51	124
Foreign tax suffered	(51)	(125)
Adjustments to prior years' provisions	60	(251)
	(5,400)	(4,430)

Deferred tax
Current year credit	(144)	415
Impact of change in future years' tax rates	(14)	(1,457)
Adjustments to prior years' provisions	17	73
	(141)	(969)
Total tax charge	(5,541)	(5,399)

5) Dividends

	2023 £000	2022 £000
Amounts recognised as distributions to equity holders in the year:
2022 final - 1.9p per share (2022: 1.8p per share)	5,864	5,529
2023 interim - 1.3p per share (2022: 1.2p per share)	4,013	3,700
	9,877	9,229

The directors are recommending a final dividend of 2.1p per share (2022: 1.9p), payable on 13 October 2023 to shareholders on the register at the close of business on 8 September 2023. This together with the interim dividend of 1.3p per share (2022: 1.2p), will result in a total dividend of 3.4p per share (2022: 3.1p).

6) Earnings per share

Earnings per share is calculated as follows:

	2023 £000	2022 £000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company	21,566	15,601

Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company	26,238	22,303

Number of shares	Number	Number

Weighted average number of ordinary shares for the purposes of basic earnings per share	309,533,696	308,834,123
Effect of dilutive potential ordinary shares	3,239,813	1,335,323

Weighted average number of ordinary shares for the purposes of diluted earnings per share	312,773,509	310,169,446

Basic earnings per share	6.97p	5.05p	5.63p
Underlying basic earnings per share	8.48p	7.22p	6.43p
Diluted earnings per share	6.90p	5.03p	5.63p
Underlying diluted earnings per share	8.39p	7.19p	6.43p

7) Net cash flow from operating activities

	2023 £000	2022 £000
Operating profit from continuing operations	30,154	22,803
Adjustments:
Depreciation - property, plant and equipment	5,407	5,163
Depreciation - right-of-use assets	1,840	1,702
Gain on disposal of other property, plant and equipment	(52)	(11)
Movements in contingent consideration	-	-
Amortisation of intangible assets	3,416	5,369
Movements in pension scheme	(2,226)	(2,045)
Share of results of JVs and associates	(1,898)	(1,346)
Share-based payments	3,420	989
Operating cash flows before movements in working capital	40,061	32,624
Decrease/(increase) in inventories	4,774	(7,774)
Decrease/(increase) in receivables	10,701	(50,533)
(Decrease)/increase in payables	(1,724)	23,781

Cash generated/(used in) from operations	53,812	(1,902)
Tax paid	(3,520)	(3,783)
Net cash flow from operating activities	50,292	(5,685)

Net funds/(debt)
The Group's net funds/(debt) are as follows:


	2023 £000	2022 £000
Borrowings	(8,950)	(14,850)
Cash and cash equivalents	11,338	(3,974)
Unamortised debt arrangement fees	321	402
Net funds/(debt) (pre-IFRS 16)	2,709	(18,422)
IFRS 16 lease liabilities	(13,396)	(11,640)
Net debt (post-IFRS 16)	(10,687)	(30,062)

The Group excludes IFRS 16 lease liabilities from its measure of net funds / debt as they are excluded from the definition of net debt as set out in the Group's borrowing facilities. A reconciliation of the Group's underlying results to its statutory results is disclosed in note 9.

8) Subsequent events

On 3 April 2023 the Group acquired 100 per cent of the share capital of Voortman Steel Construction Holding B.V. ('VSCH') and its subsidiaries, an innovative European steel construction group located in the Netherlands. The businesses were acquired for a net cash consideration of €24,000,000 (£21,200,000), payable on completion. This has been financed through a term loan of £19,000,000 and the remainder through cash reserves of £2,200,000. The acquisition provides the group with a manufacturing base in Europe, to complement its existing business, and access to new and high-growth market sectors.

£1,816,000 of costs relating to the acquisition have been included in non-underlying expenses. Further details are included in note 3. The net assets acquired of €6.6m (£5.9m), include cash of €5.5m (£4.9m). Due to the proximity of the acquisition to the authorisation of the annual report and accounts for issue, a purchase price allocation has not been completed. For this reason, it is considered impracticable to present a split of net assets acquired, an allocation of the purchase price in excess of net assets and other related fair value disclosures. This exercise will be completed in the year ending 30 March 2024.

9) Alternative Performance Measures

Our Alternative Performance Measures ('APMs') present useful information which supplements the preliminary announcement. These measures are not defined under IFRS and may not be directly comparable with APMs for other companies. The APMs represent important measures for how management monitors the Group and its underlying business performance. In addition, APMs enhance the comparability of information between reporting periods by adjusting for non-underlying items. The APMs are not intended to be a substitute for, or superior to, any IFRS measures of performance.

In order to facilitate understanding of the APMs used by the Group, and their relationship to reported IFRS measures, definitions and numerical reconciliations are set out below.


Alternative performance measure ('APM')	Definition	Rationale
Underlying operating profit (before JVs and associates)	Operating profit before non-underlying items and the results of JVs and associates.	Profit measure reflecting underlying trading performance of wholly owned subsidiaries.
Underlying profit before tax	Profit before tax before non-underlying items.	Profit measure widely used by investors and analysts.
Underlying basic earnings per share ('EPS')	Underlying profit after tax divided by the weighted average number of shares in issue during the year.	Underlying EPS reflects the Group's operational performance per ordinary share outstanding.
Net funds / (debt) (pre-IFRS 16)	Balance drawn down on the Group's revolving credit facility, with unamortised debt arrangement costs added back, less cash and cash equivalents (including bank overdrafts) before IFRS-16 lease liabilities.	Measure of the Group's cash indebtedness before IFRS-16 lease liabilities, which are excluded from the definition of net funds / (debt) in the Group's borrowing facilities. This measure supports the assessment of available liquidity and cash flow generation in the reporting period.
Operating cash conversion	Cash generated from operations after net capital expenditure (before interest and tax) expressed as a percentage of underlying operating profit (before JVs and associates).	Measure of how successful we are in converting profit to cash through management of working capital and capital expenditure. Widely used by investors and analysts.
Return on capital employed	Underlying operating profit divided by the average of opening and closing capital employed. Capital employed is defined as shareholders' equity excluding retirement benefit obligations (net of tax), acquired intangible assets and net funds.	Measures the return generated on the capital we have invested in the business and reflects our ability to add shareholder value over the long term. We have an asset-intensive business model and ROCE reflects how productively we deploy those capital resources.


Reconciliations to IFRS measures
		2023	2022
A. Underlying operating profit (before JVs and associates)	Note	£000	£000

Underlying operating profit (before JVs and associates)		33,067	26,881
Non-underlying operating items	3	(4,811)	(5,424)
Share of results of JVs and associates		1,898	1,346
Operating profit		30,154	22,803

		2023	2022
B. Underlying profit before tax	Note	£000	£000

Underlying profit before tax		32,476	27,098
Non-underlying items	3	(5,369)	(6,098)
Profit before tax		27,107	21,000

		2023	2022
C. Underlying basic EPS	Note	£000	£000


Underlying net profit attributable to equity holders of the parent Company		26,238	22,303
Non-underlying items after tax	3	(4,672)	(6,702)
Net profit attributable to equity holders of the parent Company		21,566	15,601
Weighted average number of ordinary shares	6	309,533,696	308,834,123

Underlying basic earnings per share		8.48p	7.22p
Basic earnings per share		6.97p	5.05p

		2023	2022
D. Net funds / (debt) (pre-IFRS 16)	Note	£000	£000

Borrowings		(8,950)	(14,850)
Cash and cash equivalents		11,338	(3,974)
Unamortised debt arrangement costs		321	402
Net funds / (debt) (pre-IFRS 16)	7	2,709	(18,422)
IFRS 16 lease liabilities		(13,396)	(11,640)
Net debt (post-IFRS 16)	7	(10,687)	(30,062)

		2023	2022
E. Operating cash conversion	Note	£000	£000


Cash generated from/(used in) operations		53,812	(1,902)
Proceeds on disposal of other property, plant and equipment		317	376
Purchases of land and buildings		(635)	(2,759)
Purchases of other property, plant and equipment		(5,668)	(2,507)
		47,826	(6,792)
Underlying operating profit (before JVs and associates)		33,067	26,881
Operating cash conversion		145%	(25%)

Reconciliations to IFRS measures		2023	2022
F. Return on capital employed	Note	£000	£000

Underlying operating profit
Underlying operating profit (before JVs and associates)		33,067	26,881
Share of results from JVs and associates		1,898	1,346
Underlying operating profit		34,965	28,227

Capital employed
Shareholders' equity		217,718	203,960

Cash and cash equivalents		(11,338)	3,974
Borrowings		8,950	14,850
Net (funds)/debt (for ROCE purposes)		(2,388)	18,824
Acquired intangible assets		(6,712)	(10,050)
Retirement benefit obligation (net of deferred tax)		9,654	10,797
		218,272	223,531
Average capital employed		220,902	209,536
Return on capital employed		15.8%	13.5%

Principal risks and uncertainties

The board has conducted a robust assessment of the principal risks and uncertainties which have the potential to impact the Group's profitability and ability to achieve its strategic objectives. This list is not intended to be exhaustive. Additional risks and uncertainties not presently known to management or deemed to be less significant at the date of this report may also have the potential to have an adverse effect on the Group. Risk management processes are put in place to assess, manage and control these on an ongoing basis. Our principal risks are set out below:

1 Health and safety

Movement:

No change

Scoring: High

Description

The Group works on significant, complex and potentially hazardous projects, which require continuous monitoring and management of health and safety risks. Ineffective governance over and management of these risks could result in serious injury, death and damage to property or equipment.

Impact

A serious health and safety incident could lead to the potential for legal proceedings, regulatory intervention, project delays, potential loss of reputation and ultimately exclusion from future business. Continued changes in legislation can result in increased risks to both individuals and the Group.

Mitigation

• Established safety systems, site visits, safety audits, monitoring and reporting, and detailed health and safety policies and procedures are in place across the Group, all of which focus on prevention and risk reduction and elimination.

• Thorough and regular employee training programmes.

• Director-led safety leadership teams established to bring innovative solutions and to engage with all stakeholders to deliver continuous improvement in standards across the business and wider industry.

• Close monitoring of subcontractor safety performance.

• Priority board review of ongoing performance and in-depth review of both high potential and reportable incidents.

• Regular reporting of, and investigation and root cause analysis of, accidents, incidents and high potential near misses.

• Behavioural safety cultural change programme.

• Occupational health programme, including mental health.

• Achievement of challenging health and safety performance targets is a key element of management and staff remuneration.

• Detailed due diligence on new acquisitions and effective integration of SHE processes and systems.

• Our new safety initiative, 'Safer@Severfield' was launched in 2023.

2 Supply chain
Movement: Downward Scoring: Medium	Description The Group is reliant on certain key supply chain partners for the successful operational delivery of contracts to meet client expectations. The failure of a key supplier, a breakdown in relationships with a key supplier or the failure of a key supplier to meet its contractual obligations could potentially result in some short to medium-term price increases and other short-term delay and disruption to the Group's projects and operations. There is also a risk that credit checks undertaken in the past may no longer be valid. Impact Interruption of supply or poor performance by a supply chain partner could impact the Group's execution of existing contracts (including the costs of finding replacement supply), its ability to bid for future contracts and its reputation, thereby adversely impacting financial performance. Mitigation • Process in place to select supply chain partners that match our expectations in terms of quality, sustainability and commitment to client service - new sources of supply are quality controlled. • Ongoing reassessment of the strategic value of supply relationships and the potential to use alternative arrangements, including for steel supply. • Contingency plans developed to address supplier and subcontractor issues (including the failure of a supplier or subcontractor). • Monthly review process to facilitate early warning of issues and subsequent mitigation strategies. • Strong relationships maintained with key suppliers, including a programme of regular meetings and reviews. • Implementation of best practice improvement initiatives, including automated supplier accreditation processes. • Key supplier audits are performed within projects to ensure they can deliver consistently against requirements.
3 People
Movement: Downward Scoring: Medium	Description The ability to identify, attract, develop and retain talent is crucial to satisfy the current and future needs of the business. Skills shortages in the construction industry are likely to remain an issue for the foreseeable future and it can become increasingly difficult to recruit capable people and retain key employees, especially those targeted by competitors. This has been exacerbated in the last 12 months due to macro-economic factors such as the impact of inflation and shortages of labour. Impact Loss of key people could adversely impact the Group's existing market position and reputation. Insufficient growth and development of its people and skill sets could adversely affect its ability to deliver its strategic objectives. A high level of staff turnover or low employee engagement could result in a decrease of confidence in the business within the market, client relationships being lost and an inability to focus on business improvements. Mitigation • Training and development schemes to build skills and experience, such as our successful graduate, trainee and apprenticeship programmes. • Detailed succession planning exercise completed in 2023 identifying for development future senior leaders within the business. • Attractive working environments, remuneration packages, technology tools and wellbeing initiatives to help improve employees' working lives and above average inflation pay review in 2022 and 2023. • Annual appraisal process providing two-way feedback on performance. • Internal communications continually improved. • Interviews with leavers and joiners to understand the reasons for their decision. • Three-year goals have been defined around HR operational efficiency, evolving our approach to performance, development and careers and creating an environment where Severfield employees feel listened to and are fairly recognised and rewarded for their contribution to the Group. • One-off cost-of-living payment agreed for the start of 2024. • Maintained our approach to flexible working practices and remote working.

4 Commercial and market environment

Movement:

No change

Scoring: Medium

Description

Changes in government and client spending or other external factors could lead to programme and contract delays or cancellations, or changes in market growth. External factors include national or market trends, political or regulatory change (including the UK's trading relationship with the EU), the impact of worldwide events such as war (including the impact of the Ukraine crisis) and the impact of pandemics.

Lower than anticipated demand could result in increased competition, tighter margins and the transfer of commercial, technical and financial risk down the supply chain, through more demanding contract terms and longer payment cycles.

Impact

A significant fall in construction activity and higher costs could adversely impact revenues, profits, ability to recover overheads and cash generation.

Mitigation

• Regular reviews of market trends performed (as part of the Group's annual strategic planning and market review process) to ensure actual and anticipated impacts from macroeconomic risks are minimised and managed effectively.

• Regular monitoring and reporting of financial performance, orders secured, prospects and the conversion rate of the pipeline of opportunities and marshalling of market opportunities is undertaken on a co-ordinated Group-wide basis.

• Selection of opportunities that will provide sustainable margins and repeat business.

• Strategic planning is undertaken to identify and focus on the addressable market (including new overseas and domestic opportunities).

• Monitoring our pipeline of opportunities in continental Europe and in the Republic of Ireland, supported by our European business venture.

• The Group closely monitors the flows of goods and people across borders for ongoing work with the EU and specific risks and related mitigations are kept under review by the executive committee. We have taken steps to ensure we can continue to deliver on current and future contractual commitments.

• Maintenance and establishment of supply chain in mainland Europe.

• Close management of capital investment and focus on maximising asset utilisation to ensure alignment of our capacity and volume demand from clients.

• Close engagement with both clients and suppliers and monitoring of payment cycles.

• Ongoing assessment of financial solvency and strength of counterparties throughout the life of contracts.

• Continuing use of credit insurance to minimise impact of client failure.

• Strong cash position supports the business through fluctuations in the economic conditions of the sector.

• Acquisition of Harry Peers, DAM Structures and VSCH has broadened our reach and cross-selling opportunities, resulting in improved market resilience.

5 Mispricing a contract (at tender)

Movement:

No change

Scoring: Medium

Description

Failure to accurately estimate and evaluate the contract risks, costs to complete, contract duration and the impact of price increases could result in a contract being mispriced. Execution failure on a high-profile contract could result in reputational damage.

Impact

If a contract is incorrectly priced, particularly on complex contracts, this could lead to loss of profitability, adverse business performance and missed performance targets.

This could also damage relationships with clients and the supply chain.

Mitigation

• Improved contract selectivity (those that are right for the business and which match our risk appetite) has de-risked the order book and reduced the probability of poor contract execution.

• Estimating processes are in place with approvals by appropriate levels of management.

• Tender settlement processes are in place to give senior management regular visibility of major tenders.

• Use of the tender review process to mitigate the impact of rising supply chain costs.

• Work performed under minimum standard terms (to mitigate onerous contract terms) where possible.

• Use of Group authorisation policy to ensure appropriate contract tendering and acceptance.

• Adoption of Group-wide project risk management framework ('PRMF') brings greater consistency and embeds good practice in identifying and managing contract risk.

• Professional indemnity cover is in place to provide further safeguards.

• Use of price indexation clauses in certain contracts.

6 Cyber security

Movement:

No change

Scoring: Medium

Description

Cyber-attack could lead to IT disruption with resultant loss of data, loss of system functionality and business interruption.

The Group's core IT systems must be managed effectively, to keep pace with new technologies and respond to threats to data and security.

Impact

Prolonged or major failure of IT systems could result in business interruption, financial losses, loss of confidential data, negative reputational impact and breaches of regulations.

Mitigation

• IT is the responsibility of a central function which manages the majority of the systems across the Group. Other IT systems are managed locally by experienced IT personnel.

• Significant investments in IT systems which are subject to board approval, including anti-virus software, off-site and on-site backups, storage area networks, software maintenance agreements and virtualisation of the IT environment.

• Specific software has been acquired to combat the risk of ransomware attacks.

• Group IT committee ensures focused strategic development and resolution of issues impacting the Group's technology environment.

• Robust business continuity plans are in place and disaster recovery and penetration testing are undertaken on a systematic basis.

• Data protection and information security policies are in place across the Group.

• Cyber-crimes and associated IT risks are assessed on a continual basis and additional technological safeguards introduced. Cyber threats and how they manifest themselves are communicated regularly to all employees (including practical guidance on how to respond to perceived risks).

• ISO 27001 accreditation achieved for the Group's information security environment and regular employee engagement undertaken to reinforce key messages.

• Insurance covers certain losses and is reviewed annually to establish further opportunities for affordable risk transfer to reduce the financial impact of this risk.

7 Failure to mitigate onerous contract terms

Movement:

No change

Scoring: Medium

Description

The Group's revenue is derived from construction contracts and related assets. Given the highly competitive environment in which we operate, contract terms need to reflect the risks arising from the nature or the work to be performed. Failure to appropriately assess those contractual terms or the acceptance of a contract with unfavourable terms could, unless properly mitigated, result in poor contract delivery, poor understanding of contract risks and legal disputes.

Impact

Loss of profitability on contracts as costs incurred may not be recovered, and potential reputational damage for the Group.

Mitigation

• The group has identified minimum standard terms which mitigate contract risk.

• Robust tendering process with detailed legal and commercial review and approval of proposed contractual terms at a senior level (including the risk committee) are required before contract acceptance so that onerous terms are challenged, removed or mitigated as appropriate.

• Regular contract audits are performed to ensure contract acceptance and approval procedures have been adhered to.

• We continue to work with the British Constructional Steelwork Association to raise awareness of onerous terms across the industry.

• Through regular project reviews we capture early those occasions where onerous terms could have an adverse impact and are able to implement appropriate mitigating action at the earliest stage.

8. Sustainable and responsible business

Movement:

No change

Scoring: Medium

Description

Risk of not being able to meet stakeholder expectations in the light of uncertainty as to the direction in which stakeholder expectations will develop.

Impact

Loss of position as market leader and wider losses of future opportunities in the short term.

Mitigation

• We have demonstrated a commitment to reduce our carbon footprint by becoming carbon neutral and established other stakeholder influenced sustainability related targets such as Net Zero by 2050.

• We are rated B by CDP in the leadership band.

• We have a dedicated sustainability manager who monitors current legislation and expectations and develops Group strategy to facilitate and implement plans for compliance.

• We are raising internal awareness of the steps we are taking and developing closer working relationships with clients and suppliers.

• We monitor shareholder comments on the annual report and accounts and in one-to-one meetings.

9. Industrial relations

Movement:

New

Scoring: Medium

Description

The Group (and the industry in general) has a significant number of members who are members of trade unions. Industrial action taken by employees could impact on the ability of the Group to maintain effective levels of production.

Impact

Interruption to production by industrial action could impact both the Group's performance on existing contracts, its ability to bid for future contracts and its reputation, thereby adversely impacting its financial performance.

Mitigation

• Employee and union engagement takes place on a regular basis.

• The Group has seven (including the recently acquired VSCH facilities in Rijssen) main production facilities so interruption at one facility could to some extent be absorbed by increasing capacity at a sister facility.

• Processes are in place to mitigate disruptions as a result of industrial action.

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