Interim Results

RNS Number : 0669C

Severfield-Rowen PLC

27 August 2008

 



27 August 2008

SEVERFIELD-ROWEN PLC

2008 Half Year Results

RECORD HALF YEAR RESULTS

Severfield-Rowen Plc, the UK's market leading structural steel group, announces its half year results to 30 June 2008.

	2008 (£m)	2007 (£m)	Change
Revenue	173.324	137.564	+ 26.0%
Underlying* Group Operating Profit	26.948	15.159	+ 77.8%
Underlying Profit before Tax	25.342	15.883	+ 59.6%
Retained Profit after Tax	13.891	10.965	+ 26.7%
Underlying Basic EPS	20.04p	13.44p	+ 49.1%
Dividend per Share	10.00p	6.75p	+ 48.1%

Highlights

• Underlying operating margin increased to 15.5% 
  
  

• Cash generated from operations of £35.64m contributing to the reduction in  net debt to £35.86m
  

• Very strong order book of £431m
  
  

• Successful integration of Fisher Engineering
  
  

• Confident of meeting management expectations for 2008
  
  

• A more evenly balanced split between first and second half year revenues
  
  

• Dividend increased 48.1% to 10.00p
  

• Projects undertaken in the period include:
  
  More London
  Dublin International Airport
  Staythorpe Power Station
  Stratford City Retail Development
  Wimbledon Centre Court
  Glasgow Museum
  

*      Underlying is before the amortisation of acquired intangible assets of £4.57m and the valuation of derivative financial instruments of £0.79m in 2008 (2007: Nil).

Commenting, Tom Haughey, Chief Executive Officer, said:

'Severfield-Rowen Plc has delivered substantial growth in the first half of 2008 and is very pleased with the improvement in its financial performance, the strength and longevity of the order book and the very strong cash generation.

The general UK economic background and its impact on the construction sector cannot be ignored, however, we are not exposed to the residential sector and our significant share of Olympic related work illustrates our competences and value, as well as our high supplier preference rating. Our order book continues to replenish and the Company's strengths enable it to increase UK domestic market share and engage large prime international contracts where significant opportunities prevail. 

The Group's robust financial position and continued strong cash generation provides a platform for our growth ambitions, including overseas investment.  Accordingly, we are confident of meeting the board's expectations for 2008 and have a clear strategy to deliver continued shareholder value over the medium and long term.'

Enquiries

Severfield-Rowen Plc    

Tom Haughey, CEO        [phone]

Peter Davison, FD           [phone]

Pelham PR

Alex Walters                    [phone]

INTERIM STATEMENT 2008

INTRODUCTION

The Company has delivered substantial growth in the first half of 2008 and is very pleased with the improvement in its financial performance, the strength and longevity of the order book and its strong cash generation.

The general UK economic background cannot be ignored and may ultimately influence margins, but the Company's strengths will enable it to increase domestic market share and engage large prime international contracts in a range of market sectors.

We have a clear strategy to deliver continued shareholder value over the medium and long term and look forward to exciting developments in coming periods.

FINANCIALS

The Group has had a record first six months with underlying profit before tax (before amortisation of acquired intangible assets of £4.57 million and the movement in the valuation of derivative financial instruments of £0.79 million) of £25.34 million (2007: £15.88 million), an increase of 59.6% over the corresponding period of 2007.

This was achieved on revenue in the period of £173.32 million, a 26.0% increase over the £137.56 million achieved in the first half of 2007.  This is partially due to our order book strength lessening traditional seasonality variations, to provide a more evenly balanced split between first and second half year revenues.

The Group's underlying operating profit increased by 77.8% to £26.95 million (2007: £15.16 million).

These results have produced an increase in the Group's margins to 15.55% at the underlying operating profit level and 14.62% at the underlying profit before tax level.

Non-underlying items are included in the 'other items' column of the Income Statement and amount to £5.36 million (2007: £Nil) which relates to:

a)    Amortisation of acquired intangible assets - £4.57 million

b)    Movement in forward contract valuations - £0.79 million

The tax charge of £6.09 million represents an effective tax rate of 30.47% compared with 31.09% the previous year, the fall helped by the change in corporation tax rate from 30% to 28% announced in the Finance Act 2007.  

Various changes were also proposed to the industrial buildings allowance regime in the 2007 budget announcement. Provision in respect of the withdrawal of industrial buildings allowances forms part of the Finance Bill 2008 which was not substantively enacted at 30 June 2008. The directors believe that the result of these changes when substantively enacted will be a deferred tax charge of approximately £6.9 million, based on the estimated loss of tax base in April 2011.

Underlying basic earnings per share increase 49.1% to 20.04p (2007: 13.44p). This calculation is based on the underlying profit after tax of £17.75 million and 88,607,876 shares, being the weighted average number of shares in issue during the period. Basic earnings per share, based on profit after tax after non-underlying items is 15.68p (2007: 13.44p).

Underlying diluted earnings per share is 19.96p. This calculation is based on the underlying profit after tax of £17.75 million and 88,938,488 shares, being the weighted average number of shares in issue during the period, allowing for contingent shares under a share based payment scheme.

Retained profit after tax of £13.89m (2007: £10.97m) has been transferred to reserves.

During the first six months of the year capital expenditure amounted to approximately £2.36 million (2007: £3.30 million).

The Group ended the period with net borrowings of £35.86 million, a considerable reduction in the net borrowings of £48.06 million as at 31 December 2007 (30 June 2007: net cash of £28.80 million). The Group has a revolving credit facility of £70 million with RBS and National Australia Bank as joint lenders until August 2010.

During the period £35.64 million was generated from operations (2007: £4.78 million). Significant cash outflows in the period included dividends paid of £11.74 million, corporation tax of £8.84 million and net expenditure on assets of £1.49 million.

DIVIDEND

Reflecting the Group performance in the first half and its strong financial position, the Board is pleased to recommend a significant increase in the interim dividend of 48.1% to a record 10.00p per share (2007: 6.75p). This maintains the Board's policy of having the dividend covered approximately 2.0 times by underlying earnings at the interim stage (2007: 2.0 times).  

The interim dividend will be paid on 24 October 2008 to shareholders on the register on 3 October 2008.

BOARD CHANGES & EMPLOYEES

Peter Levine left his role in May 2008, ending a highly successful tenure as Company Chairman. The Company owes Peter immense gratitude for his guidance and his contribution to the growth of the Group since 1993.

Toby Hayward joined the Company as Non-Executive Chairman on 30 May 2008. His experience in the financial sector and his international exposure will be of immense value to the Company in the future.

Mr John Featherstone, our longest serving Non-Executive Director, retired from his role on 30 May 2008 and takes with him the board and management's sincere appreciation for his valued contributions over many years.

Messrs Peter Ellison, Brian Hick, Nigel Pickard and Ian Cochrane have moved from the Plc Board to take positions on the Company's Executive Management Committee, which is now effectively focused on strategic and operational performance matters relating to the business.

The management and workforce in all of the Group Companies continue to be the key asset in delivering our strong performances and shaping our future success.

OPERATIONS

Group Overview

The principal business of the Group is carried out by its five main operating companies: Severfield-Reeve Structures, Watson Steel Structures, Atlas Ward Structures, Fisher Engineering and Rowen Structures.

The Group is the clear market leader in its sector and its production facilities, technology and broad range of structural steel services are unparalleled in the industry. Sustained investment preserves the Group's advantage in the industry. Margins remain in the forefront of our attention and have shown further improvement in the first six months of 2008. Whilst we are confident that margins can be maintained in the short to medium term, they may come under some pressure in the longer term as export sales develop.

The core businesses of the Group have performed profitably and in line with management's expectations. They continue to be well placed to supply a balanced and comprehensive range of services and products to meet the needs of the structural steel markets:  

• Severfield-Reeve Structures, the single largest production unit in the UK in terms of capacity and an industry leader in productivity and use of technology;
  
• Watson Steel Structures, a world leader in specialist steel work used in stadiums, airports, bridges and high-rise towers;
  
• Atlas Ward Structures, a market leader in design and build and, following a capital investment programme, has extended to multi-sector engagements;
  
• Fisher Engineering Ltd is the largest fabricator in Ireland, and has now integrated into the operations of the Group while maintaining its own strong identity and customer focused service provision; 
  
• Rowen Structures provides management, technical and project management support to the Group while retaining its own strong brand and customer relationships.

Each of the companies above is supported by Steelcraft Erection Services, a wholly owned subsidiary of Severfield-Rowen, which is responsible for the on-site erection of the fabricated steel.

The broad range of capabilities outlined above, 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 market place.

Contracts

Projects being worked upon by the Group in the first 6 months, include:

• Stratford City Retail Development, London

• Wimbledon Centre Court's new closing roof 

• National Conference Centre in Dublin

• Thameside Hospital, London

• Commercial office no7 of the More London development 

• New production facility for Laing O'Rourke at Steetley

• Dublin International Airport

• Distribution centre for Tesco at Teesport

• Staythorpe Power Station

• Glasgow Museum

• One Hyde Park, London

• Erneside Shopping Centre, Enniskillen, Northern Ireland

• Data Centres in Hertfordshire and Yorkshire

• Distribution centre for Morrisons in Sittingbourne

• Project Altitude, an indoor ski-slope at Hemel Hempstead

• New rehearsal studio for the BBC at Cardiff

• Commercial offices at Central Park, Dublin

• Heathrow Airport, Terminal 2B, Phase 1 for BAA

• St Andrews University, Scotland

OUTLOOK

The Group's robust financial position and continued strong cash generation provides both a platform for our growth ambitions, including overseas investment, and a comfort against any wider industry downturn.

The order book remains very strong and incorporates Olympic related work together with an excellent spread of business across all of our key sectors, including Power, Health and Education. The Company's prospects list extends to export markets and remains extensive.

We are, therefore, confident of meeting the board's expectations for 2008 and have a clear strategy to deliver continued shareholder value over the medium and long term.

TOM HAUGHEY

CHIEF EXECUTIVE OFFICER

27 August 2008

Condensed Consolidated Income Statement

	Six months ended 30 June 2008 (unaudited)			Six months ended 30 June 2007 (unaudited)			Year ended 31 December 2007 (audited)
	Before Other Items £000	Other Items1 £000	Total £000		£000		Before Other Items £000	Other Items1 £000	Total £000
Revenue	173,324	-	173,324		137,564		300,656	-	300,656
Cost of sales	(143,055)	-	(143,055)		(120,028)		(250,936)	-	(250,936)
Gross profit	30,269	-	30,269		17,536		49,720	-	49,720
Other operating income	46	-	46		30		479	-	479
Distribution costs	(682)	-	(682)		(587)		(1,295)	-	(1,295)
Administrative expenses	(2,731)	(4,574)	(7,305)		(1,836)		(6,278)	(2,200)	(8,478)
Share of results of associates	46	-	46		16		58	-	58
Unrealised losses on derivative financial contracts	-	(789)	(789)		-		-	(2,390)	(2,390)
Operating profit	26,948	(5,363)	21,585		15,159		42,684	(4,590)	38,094
Investment revenue - interest	662	-	662		724		1,405	-	1,405
Finance costs - interest	(2,268)	-	(2,268)		-		(1,139)	-	(1,139)
Profit before tax	25,342	(5,363)	19,979		15,883		42,950	(4,590)	38,360
Tax	(7,589)	1,501	(6,088)		(4,918)		(13,211)	1,285	(11,926)
Profit for the period	17,753	(3,862)	13,891		10,965		29,739	(3,305)	26,434
Earnings per share:
Basic	20.04p	(4.36p)	15.68p		13.44p		35.74p	(3.97p)	31.77p
Diluted	19.96p	(4.34p)	15.62p		13.44p		35.70p	(3.97p)	31.73p

1    Other items relate to the amortisation of acquired intangibles and unrealised losses on derivative contracts. Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group. There were no such items in the first half of 2007.

Condensed Consolidated Statement of Recognised Income and Expense

	Six months ended 30 June 2008 (unaudited) £000	Six months ended 30 June 2007 (unaudited) £000	Year ended 31 December 2007 (audited) £000
Actuarial loss on defined benefit pension scheme	-	-	285
Tax on items taken directly to equity	-	-	(85)
Impact of reduction in tax rate on deferred tax on defined benefit pension scheme	-	-	(134)
Net expense recognised directly in equity	-	-	66
Profit for the period from continuing operations	13,891	10,965	26,434
Total recognised income and expense for the period attributable to equity shareholders	13,891	10,965	26,500

  Condensed Consolidated Balance Sheet

	At 30 June 2008 (unaudited) £000	At 30 June 2007 (unaudited) £000	At 31 December 2007 (audited) £000
ASSETS
Non-current assets
Goodwill	54,712	6,732	54,712
Other intangible assets	34,556	1,840	39,040
Property, plant and equipment	78,393	44,567	79,423
Interests in associates	150	62	104
	167,811	53,201	173,279
Current assets
Inventories	24,427	11,481	17,931
Trade and other receivables	78,749	52,070	65,614
Cash and cash equivalents	16,651	28,795	5,445
	119,827	92,346	88,990
Total assets	287,638	145,547	262,269
LIABILITIES
Current liabilities
Trade and other payables	84,027	58,460	57,857
Financial liabilities - borrowings	52,511	-	53,504
Financial liabilities - derivative financial instruments	3,639	-	2,850
Tax liabilities	9,147	6,417	10,394
	149,324	64,877	124,605
Non-current liabilities
Retirement benefit obligations	6,745	7,287	6,745
Deferred tax liabilities	9,989	742	11,490
Provisions	2,600	3,000	2,600
	19,334	11,029	20,835
Total liabilities	168,658	75,906	145,440
NET ASSETS	118,980	69,641	116,829
EQUITY
Share capital	2,215	2,040	2,215
Share premium	46,152	9,770	46,152
Other reserves	743	139	743
Retained earnings	69,870	57,692	67,719
TOTAL EQUITY	118,980	69,641	116,829

  Condensed Consolidated Cash Flow 

	Six months ended 30 June 2008 (unaudited) £000	Six months ended 30 June 2007 (unaudited) £000	Year ended 31 December 2007 (audited) £000
Cash flows from operating activities
Cash generated from operations	35,642	4,782	22,987
Interest paid	(1,991)	-	(768)
Tax paid	(8,836)	(4,626)	(9,131)
Net cash from operating activities	24,815	156	13,088
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	868	748	1,555
Interest received	617	738	1,384
Acquisition of subsidiary, including costs	-	-	(55,641)
Cash acquired with subsidiary	-	-	685
Purchases of property, plant and equipment	(2,271)	(3,304)	(33,679)
Purchases of intangible fixed assets	(90)	(232)	(632)
Net cash used in investing activities	(876)	(2,050)	(86,328)
Cash flows from financing activities
Payment of finance lease liabilities	-	(66)	(66)
Borrowings taken out	-	-	53,504
Repayment of borrowings	(993)	-	-
Dividends paid	(11,740)	(7,549)	(13,057)
Net cash used in financing activities	(12,733)	(7,615)	40,381
Net increase/(decrease) in cash and cash equivalents	11,206	(9,509)	(32,859)
Cash and cash equivalents at beginning of period	5,445	38,304	38,304
Cash and cash equivalents at end of period	16,651	28,795	5,445

  Notes to the Condensed Consolidated Financial Statements

1)     Basis of preparation

The interim financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS') and in accordance with IAS34 'Interim Financial Reporting' as adopted for use in the European Union and in accordance with the accounting policies included in the Company's Annual Report for the year ended 31 December 2007 which have been applied consistently throughout the current and preceding periods.

The interim financial information does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The interim results to 30 June 2008 and 2007 are neither audited nor reviewed by the auditors. The financial information of the full preceding year is based on the statutory accounts for the financial year ended 31 December 2007. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.

2)     Risks and uncertainties

The principal risks and uncertainties which could have a material impact upon the Group's performance over the remaining six months of the 2008 financial year have been summarised in the Chief Executive Officer's Statement and have not changed significantly from those noted or referenced on page 34 of the Directors' Report included in the Annual Report 2007. These risks and uncertainties include, but are not limited to:

(i)     Credit, interest rate, and foreign exchange risks; 
(ii)    Competitive risk in the face of ongoing innovation and price pressure; 
(iii)   Commercial relationships with customers and suppliers; and 
(iv)    Health and Safety.

3)     Segmental analysis

Revenue, profit before tax, and net assets related to the design, fabrication, and erection of structural steelwork and related activities and represents the Group's primary reported information.   Revenue, which relates wholly to construction contracts, and related assets in both years originated from the United Kingdom.

4)     Taxation

The income tax expense reflects the estimated effective rate on profit before taxation for the Group for the year ending 31 December 2008.

In June 2007, the Finance Bill was presented to Parliament for approval and proposed a reduction in the rate of UK corporation tax from 30% to 28% with effect from 1 April 2008. At 30 June 2007 the rate reduction was substantively enacted, and accordingly the tax charge for the six months ended 30 June 2007 included the insignificant impact of this rate reduction on deferred tax. This rate reduction will also reduce the amount of tax payable on future profits.

Various changes were also proposed to the industrial buildings allowance regime in the 2007 budget announcement. Provision in respect of the withdrawal of industrial buildings allowances forms part of the Finance Bill 2008 which was not substantively enacted at 30 June 2008. The directors believe that the result of these changes when substantively enacted will be a deferred tax charge of approximately £6.9 million, based on the estimated loss of tax base in April 2011.

5)     Dividends payable to equity shareholders

	Six months ended 30 June 2008 £000	Six months ended 30 June 2007 £000	Year ended 31 December 2007 £000
Ordinary dividend paid	11,740 ______	7,549 ______	13,057 ______

In addition to the above, an interim dividend of 10.00p per ordinary share (2007: 6.75p) will be paid on 24 October 2008 to shareholders on the register on 3 October 2008. The ex-dividend date will be 1 October 2008.

6)     Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data, reflecting the 4:1 share split in October 2007.

Earnings per share is calculated as follows:

	Six months ended 30 June 2008 £000	Six months ended 30 June 2007 £000	Year ended 31 December 2007 £000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company	13,891 ______	10,965 ______	26,434 ______
Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company	17,753 ______	10,965 ______	29,739 ______
Number of shares	Number	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	88,607,876	81,607,876	83,218,835
Effect of dilutive potential ordinary shares:
Share-based payments scheme	330,612	-	78,803
	_________	_________	_________
Weighted average number of ordinary shares for the purposes of diluted earnings per share	88,938,488	81,607,876	83,297,638
	_________	_________	_________
Basic earnings per share	15.68p	13.44p	31.77p
Underlying basic earnings per share	20.04p	13.44p	35.74p
Diluted earnings per share	15.62p	13.44p	31.73p
Underlying diluted earnings per share	19.96p	13.44p	35.70p

7)     Reconciliation of movement in total equity

	At 30 June 2008 £000	At 30 June 2007 £000	At 31 December 2007 £000
Opening total equity	116,829	66,225	66,225
Issue of new shares	-	-	36,557
Share based payments	-	-	604
Profit for the period	13,891	10,965	26,434
Dividends paid in period	(11,740)	(7,549)	(13,057)
Actuarial loss on defined benefit pension scheme	-	-	285
Deferred income taxes on defined pension benefit	-	-	(85)
Reduction in tax rate on deferred tax on defined benefit pension scheme	-	-	(134)
Closing total equity	118,980	69,641	116,829

8)     Analysis of net (debt)/funds

	At 30 June 2008 £000	At 30 June 2007 £000	At 31 December 2007 £000
Cash in hand	16,651	28,795	5,445
Borrowings	(52,511)	-	(53,504)
Closing net (debt)/funds	(35,860)	28,795	(48,059)

  9)     Reconciliations of group profit from operations to cash generated from operations

	Six months ended 30 June 2008 £000	Six months ended 30 June 2007 £000	Year ended 31 December 2007 £000
Operating profit from continuing operations	21,585	15,159	38,094
Adjustments for:
Share of results of associated companies	(46)	(16)	(58)
Depreciation of property, plant and equipment	2,593	1,687	3,925
Pension movements	-	-	(257)
Profit on disposal of property,  plant and equipment	(160)	(96)	(114)
Movement in provisions	-	-	(400)
Share-based payments	-	-	604
Amortisation of acquired intangibles	4,574	-	2,200
Unrealised losses on derivative financial contracts	789	-	2,390
Operating cash flows before movements in working capital	29,335	16,734	46,384
Increase in inventories	(6,496)	(8,148)	(9,476)
Increase in receivables	(13,090)	(5,298)	(4,364)
Increase/(decrease) in payables	25,893	1,494	(9,557)
Cash generated from operations	35,642	4,782	22,987

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

10)     Seasonality

The Group's operations, and in particular the strength of its current order book, has now lessened any traditional seasonality variations to provide a more evenly balanced split between first and second half year revenues.

11)     Related Party Transactions

Certain Related Party Transactions, as described in Note 36 on page 83 of the 2007 Annual Report, continued in the current period. None of these transactions materially affected the financial position or performance of the Group during the period.

  12)     Responsibility Statement

We confirm to the best of our knowledge:

(a)    the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b)    the interim report includes a fair review of the information required by DTR4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)    the interim report includes a fair review of the information required by DTR 4.2.8R (disclosure of the related party transactions and changes therein).

By order of the Board

Tom Haughey            Peter Davison

Director                     Director

26 August 2008         26 August 2008

 

END

 

 

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