Interim Results
Severfield-Rowen PLC
26 September 2005
26 September 2005
SEVERFIELD-ROWEN DELIVERS RECORD RESULTS
2005 Half Year Results
Severfield-Rowen Plc, the market leading structural steel group, announces its
half-year results to 30 June 2005.
2005 2004 Change
Half year Half year
Revenue £112.03m £95.66m +17%
Profit from operations £7.20m £5.21m +38%
Profit before tax £7.34m £5.25m +40%
Basic earnings per share 24.9p 17.8p +40%
Dividend per share 12.5p 8.75p +43%
Highlights
• Operating margin increased to 6.4% (2004: 5.5%)
• All core businesses performing ahead of expectations
• Strong order book totalling £158m
• Atlas Ward already demonstrating profit growth substantially ahead of
initial projections
• Cash balance of £15.28m (2004: £12.66m) with nil gearing
Commenting, Peter Levine, Chairman, said:
'Severfield-Rowen has delivered record half year results with profits, earnings
per share and dividends all increasing significantly. We are also particularly
pleased with the strength of our cash performance.
'The Group continues to make significant progress and as stated in our AGM
statement in June trading is in advance of its original expectations for the
full year. Demand for our products is encouraging, margins are improving and
the growth prospects for the Group give the Directors every confidence in its
future prospects.'
Enquiries
Severfield-Rowen Plc
Peter Levine, Chairman 0113 246 9993
Peter Davison, Finance Director 01845 577 896
Financial Dynamics
Richard Mountain 020 7269 7291
INTERIM STATEMENT 2005
INTRODUCTION
The Group produced a record performance in the first half of 2005 resulting in
an increase over the same period in 2004 of 40% in pre tax profits, to over
£7.3m, on revenue up 17% at £112m. Earnings per share increased by 40% to 24.9p
and the Group's cash balance increased to over £15m, with nil gearing. The
Group's operating margins also increased to 6.4%.
The purchase of Atlas Ward is proving very successful and this business is
contributing to the Group ahead of our projections.
The results for the Group as a whole are in advance of our expectations at the
beginning of the year and reflect the strengthening position of our core
businesses in a growing market place.
The Group's current order book of £158m, of which now only £10m represents
Heathrow Terminal 5, provides a sound foundation for the rest of the year and
into 2006.
FINANCIALS
Revenue in the period was £112.03m (2004: £95.66m) and operating profit was
£7.20m (2004: £5.21m) which produced an increased operating margin of 6.42%
(2004: 5.45%).
Profit before tax increased 39.9% to £7.34m (2004: £5.25m) and profit after tax
was £5.06m (2004: £3.60m), after a tax charge of £2.27m (2004: 1.65m).
Basic earnings per share were 24.92p (2004: 17.76p).
During the first six months of the year capital expenditure amounted to
approximately £2.1m (2004: £1.4m).
The period ended with the Group having a positive cash balance of £15.28m (2004:
£12.66m). Cash inflow from operating activities improved to £13.03m (2004:
outflow £0.71m). Significant cash outflows in the period included dividends
paid of £2.91m, corporation tax paid of £3.32m and the purchase of fixed assets,
net of sale proceeds received, of £2.04m. Also during the period short-term
borrowings of £2.45m were repaid.
The acquisition of Atlas Ward cost the Group, including expenses, £1.40m in cash
as well as the overdraft taken on of £3.59m. Consequently the overall effect on
the Group's cash movement due to the acquisition amounted to £4.99m.
Borrowings, representing amounts due on hire purchase contracts, amounted to
£0.68m, leaving the Group with a net funds surplus of £14.60m and therefore no
gearing.
As now required, these results are reported under International Financial
Reporting Standards (IFRS) and the 2004 comparatives have been restated
accordingly. This restatement had no impact on profits and increased the
reported net assets of the Group as at 31 December 2004 by £2.89m as dividends
are not recognised until declared or paid under IAS 10. Further details are set
out in our announcement on IFRS restatement dated 23 September 2005, a copy of
which is posted on the Group's web-site: www.sfrplc.com.
Share Buy Back
Whilst the Group has the power to buy back its own shares, none were purchased
in the reporting period.
The Directors continue to monitor this issue closely and will exercise such
power as and when it is appropriate, taking into account the cash position of
the Group and the Directors' view of its medium to long-term prospects.
Atlas Ward
As reported in the 2004 Annual Report, on 31 March 2005 the Group completed the
purchase of Atlas Ward for £1.21m cash, excluding expenses.
Atlas Ward is already proving to be a valuable addition to the Group and is
contributing ahead of our projections made at the time of acquisition.
Board Changes
Peter Emerson has been appointed as the Deputy Managing Director of the Group
succeeding Peter Ellison who, as Managing Director of our in-house steel
erection company, Steelcraft Erection Services, has taken on additional workload
since the acquisition in March of Atlas Ward. Peter Ellison will also
continue his role as Deputy Managing Director of Severfield-Reeve Structures.
As well as taking on the responsibility of Group Deputy Managing Director, Peter
Emerson will continue in his key role as Managing Director of Watson Steel
Structures.
Dividend
As a result of the Group's performance in the first half, its strong financial
position and the Directors' confidence over the future prospects for the Group,
the Board is pleased to significantly increase the interim dividend by 42.9% to
12.5p per share (2004: 8.75p), which is covered 1.99 times by earnings (2004:
2.03 times). The interim dividend will be paid on 28 October 2005 to
shareholders on the register on 7 October 2005.
OPERATIONS
Group overview
The principal business of the Group is carried out by its four main operating
companies: Severfield-Reeve Structures, Watson Steel Structures, Rowen
Structures and Atlas Ward Structures.
The Group is the acknowledged market leader in its sector and its production
facilities, technology and broad range of structural steel services are
unrivalled in the industry. Carefully planned investment preserves the Group's
advantage in the sector. Margins remain a particular focus of attention and
have shown further improvement in the first six months of 2005.
The core businesses of the Group, each trading profitably and ahead of
expectations, reflect a balanced and comprehensive approach to the varied
demands of the structural steel market:
• Severfield-Reeve Structures, the single largest production unit in the UK
in terms of capacity and an industry leader in efficiency and use of
technology;
• Watson Steel Structures, a world leader in specialist steel work such
as stadia and bridges;
• Rowen Structures, an expert in complex projects such as airports and
office blocks and
• Atlas Ward Structures, reinvigorated through membership of the Group since
its acquisition and assuming once again its leadership of the shed and
portal frame market.
The broad range of capabilities reflected in this portfolio, together with the
Group's financial strength and excellence of its workforce, enable
Severfield-Rowen to benefit from, and be resilient to, the ever changing and
evolving market place.
Contracts
Projects carried out by the Group in the first six months of the year include:
• Emirates Stadium the new home for Arsenal Football Club
• Steelwork to New Grandstand, Ascot Racecourse
• Phase 2 of St Pancras Station Redevelopment
• O2 (formerly Millennium Dome) Arena
• Ongoing works at Heathrow Airport Terminal 5 for BAA plc
• Multi-Storey Car Park - Heathrow Airport
• Warehouse and distribution centre on the Pioneer Business Park,
Ellesmere Port near Chester
• Retail and leisure development on the old Flowers Brewery site in
Cheltenham
• New Tesco distribution centre in Peterborough
• Additional manufacturing facilities for the new Mini made by BMW at
Cowley near Oxford
• Development of schools for North Lanarkshire PFI projects
• Development of offices for Scottish Television in Glasgow
• Development of 'Knowledge Dock' and 'Learning Resource Centre'
buildings for the University of East London
• New Car Park at Queen Elizabeth Hospital, Edgbaston, Birmingham
• New warehouse facility on the outskirts of Hemel Hempstead for Astral
Developments
• Three storey office development for the new Aylesbury College campus
• New storage and distribution facility for Kimberley Clark
• Second phase food distribution warehouse near Bridgwater, Somerset
The Group is very well positioned moving into the second half of 2005 and into
2006 with the strength of its order book pointing to further success. The Board
continues to monitor overheads and expenses and is dedicated to increasing
margins further in the future.
Outlook
The Group continues to make significant progress and as stated in our AGM
statement in June trading is in advance of its original expectations for the
full year. Demand for our products is encouraging, margins are improving and
the growth prospects for the Group give the Directors every confidence that 2005
should be a most successful year.
The Group is the industry standard by which others are judged. The credibility
and status of Severfield-Rowen remain unrivalled and is a credit to our
workforce.
PETER LEVINE
CHAIRMAN
26 September 2005
Consolidated Income Statement
Six months ended Six months ended Year ended
30 June 2005 30 June 2004 31 December 2004
(unaudited) (restated) (restated)
£000 £000 £000
Revenue 112,029 95,659 204,277
Cost of sales (102,502) (88,530) (188,145)
Gross profit 9,527 7,129 16,132
Other operating income 45 27 59
Distribution costs (551) (380) (662)
Administrative expenses (1,827) (1,497) (3,242)
Share of results of associates 3 (65) (179)
Profit from operations 7,197 5,214 12,108
Investment income 197 72 256
Finance costs (56) (41) (146)
Profit before tax 7,338 5,245 12,218
Tax (2,274) (1,646) (3,818)
Profit for the period 5,064 3,599 8,400
Earnings per share:
Basic 24.92p 17.76p 41.44p
Diluted 24.92p 17.73p 41.36p
Consolidated Statement of Recognised Income and Expense
There are no recognised items of Income and Expense in either period other than
that disclosed on the Income Statement.
Consolidated Balance Sheet
At At At
30 June 2005 30 June 2004 31 December 2004
(unaudited) (restated) (restated)
£000 £000 £000
ASSETS
Non-current assets
Goodwill 6,661 170 161
Property, plant and equipment 36,882 31,205 34,131
Interests in associates 583 626 580
44,126 32,001 34,872
Current assets
Inventories 5,916 2,884 6,678
Trade and other receivables 34,927 51,788 36,833
Cash and cash equivalents 15,278 12,660 17,845
56,121 67,332 61,356
Total assets 100,247 99,333 96,228
LIABILITIES
Current liabilities
Bank loan - 1,435 2,153
Trade and other payables 41,121 47,410 39,339
Tax liabilities 2,726 2,507 3,776
Obligations under finance leases 455 747 616
44,302 52,099 45,884
Non-current liabilities
Bank loan - 19 -
Retirement benefit obligations 4,721 - -
Deferred tax liabilities 1,204 2,279 2,620
Obligations under finance leases 227 683 429
6,152 2,981 3,049
Total liabilities 50,454 55,080 48,933
NET ASSETS 49,793 44,253 47,295
EQUITY
Share capital 2,039 2,027 2,027
Share premium 9,743 9,412 9,415
Other reserves 139 139 139
Retained earnings 37,872 32,675 35,714
TOTAL EQUITY 49,793 44,253 47,295
Consolidated Cash Flow
Six months ended Six months ended Year ended
30 June 2005 30 June 2004 31 December 2004
(unaudited) (restated) (restated)
£000 £000 £000
Cash flows from operating activities
Cash generated from operations 13,032 (712) 10,664
Interest paid (56) (41) (146)
Tax paid (3,324) (2,025) (2,587)
Net cash from operating activities 9,652 (2,778) 7,931
Cash flows from investing activities
Proceeds from sale of property, plant and 93 333 1,153
equipment
Interest received 192 95 255
Acquisition of subsidiary, including costs (1,396) - -
Overdraft acquired with subsidiary (3,592) - -
Purchases of property, plant and equipment (2,134) (863) (5,854)
Investment in associated company - (55) (123)
Net cash used in investing activities (6,837) (490) (4,569)
Cash flows from financing activities
Proceeds from the issue of share capital 340 1 4
Repayment of borrowings (2,453) - (35)
Loan notes repaid - (164) (164)
Payment of finance lease liabilities (363) (325) (710)
Dividends paid (2,906) (2,168) (3,930)
New borrowings - 1,400 2,134
Net cash used in financing activities (5,382) (1,256) (2,701)
Net (decrease)/increase in cash and cash (2,567) (4,524) 661
equivalents
Cash and cash equivalents at beginning of period 17,845 17,184 17,184
Cash and cash equivalents at end of period 15,278 12,660 17,845
Notes to Interim Report
1) Basis of preparation
EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the company, for the year ending 31 December 2005, be
prepared in accordance with International Financial Reporting Standards (IFRS)
adopted for use in the EU ('adopted IFRS').
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRS in issue that either are
endorsed by the EU and effective (or available for early adoption) at 31
December 2005 or are expected to be endorsed and effective (or available for
early adoption) at 31 December 2005, the Group's first annual reporting date at
which it is required to use adopted IFRS. Based on these adopted and unadopted
IFRS, the directors have made assumptions about the accounting policies expected
to be applied when the first annual IFRS financial statements are prepared for
the year ending 31 December 2005. These accounting policies are set out in the
announcement 'Restatement of financial information for 2004 under International
Financial Reporting Standards' dated 23 September 2005, available on the Group's
web site www.sfrplc.com.
In particular, the directors have assumed that the amendment to IAS 19 Employee
Benefits will be adopted by the EU in sufficient time that it will be available
for use in the annual IFRS financial statements for the year ending 31 December
2005.
In addition, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 December
2005 may still be subject to change or to additional interpretations and
therefore cannot be determined with certainty. Accordingly, the accounting
policies for that annual period will only be determined finally when the annual
financial statements are prepared for the year ending 31 December 2005.
The comparative figures for the financial year ended 31 December 2004, and the
six months ended 30 June 2004, have been restated to comply with adopted IFRS.
The latest published accounts for the year ended 31 December 2004, which were
prepared under UK Generally Accepted Accounting Practices, have been delivered
to the Registrar of Companies. The report of the auditors on those accounts was
unqualified.
The figures for the six months ended 30 June 2005 and 30 June 2004 are
unaudited.
2) Taxation
Taxation for the six months to 30 June 2005 has been shown at the rate estimated
to be applicable for the full year.
3) Dividends payable to equity shareholders
Six months ended Six months ended Year ended
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Ordinary dividend paid 2,906 2,168 3,930
______ ______ ______
In addition to the above, an interim dividend of 12.50p per ordinary share
(2004: 8.75p) will be paid on 28 October 2005 to shareholders on the register on
7 October 2005. The ex-dividend date will be 5 October 2005.
4) Earnings per share
Earnings per share is calculated as follows:
Six months ended Six months ended Year ended
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Profit for the period 5,064 3,599 8,400
______ ______ ______
Weighted average of number of shares 20,317,908 20,266,911 20,269,235
in issue
Weighted average of number of shares 20,322,872 20,302,801 20,309,730
in issue, allowing for dilutive
effect of share options
Basic earnings per share 24.92p 17.76p 41.44p
Diluted earnings per share 24.92p 17.73p 41.36p
5) Reconciliation of movement in total equity
At At At
30 June 2005 30 June 2004 31 December 2004
£000 (restated) (restated)
£000 £000
Opening total equity 47,295 42,821 42,821
Profit for the period 5,064 3,599 8,400
Dividends paid in period (2,906) (2,168) (3,930)
Issue of share capital 340 1 4
Closing total equity 49,793 44,253 47,295
6) Analysis of net funds
At At At
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Cash in hand 15,278 12,660 17,845
Finance leases (682) (1,430) (1,045)
Bank loan - (1,454) (2,153)
Closing net funds 14,596 9,776 14,647
7) Reconciliations of group profit from operations to cash generated from
operations
Six months ended Six months ended Year ended
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Profit from operations 7,197 5,214 12,108
Adjustments for:
Amortisation of intangible assets - - 9
Depreciation of property, plant and 1,113 1,011 2,063
equipment
Loss on disposal of property, plant 37 19 212
and equipment
Share of results of associated (3) 65 179
companies
Operating cash flows before changes 8,344 6,309 14,571
in working capital
Decrease/(increase) in inventories 7,893 432 (3,362)
Decrease/(increase) in receivables 2,849 (16,588) (1,609)
(Decrease)/increase in payables (6,054) 9,135 1,064
Cash generated from/(used by) 13,032 (712) 10,664
operations
8) Acquisition of subsidiary
On 31 March 2005 the Company acquired 100% of the issued share capital of Atlas
Ward Holdings Limited for a cash consideration of £1.21 million. Atlas Ward
Holdings Limited is the parent company of a group of companies involved in the
design, fabrication and erection of structural steelwork. This transaction has
been accounted for by the acquisition method of accounting.
The provisional details of the acquisition are as follows:
Book and fair value
£000
Net assets acquired:
Property, plant and equipment 1,860
Inventories 7,131
Trade and other receivables 938
Deferred tax asset 1,416
Trade and other payables (7,836)
Retirement benefit obligations (4,721)
Bank overdraft (3,592)
Other loan (300)
______
(5,104)
Goodwill 6,500
_____
Total consideration 1,396
_____
Satisfied by:
Cash 1,210
Directly attributable costs 186
_____
1,396
_____
Net cash outflow arising on acquisition
Cash consideration 1,396
Bank overdraft acquired 3,592
_____
4,988
_____
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