Interim Results

RNS Number : 8511Y

Severfield-Rowen PLC

28 February 2013

 



Interim Results

for 12 Months ended 31 December 2012

Stabilisation of UK Business

£47.9m Rights Issue

First Profit Contribution from Indian Joint Venture

Severfield-Rowen Plc, the market leading structural steel group, announces its interim results for the 12 months to 31 December 2012.

Financial Summary	2012	2011
Revenue	£256.6m	£267.8m
Underlying* Group Operating (Loss)/Profit (before results of Associates)	(£18.2m)	£14.2m
Underlying Operating Margin (before results of Associates)	-7.1%	5.3%
Operating (Loss)/Profit (before results of Associates)	(£21.9m)	£10.9m
Underlying (Loss)/Profit before Tax	(£19.6m)	£10.1m
(Loss)/Profit after Tax (including non-underlying items)	(£19.4m)	£5.8m
Underlying Basic EPS	-18.67p	8.05p
Dividend per Share	1.50p	5.00p

Highlights

·      Rights Issue to raise £44.8m of new funds (net of expenses), primarily to strengthen Balance Sheet

·      Revised revolving credit facility of £35m agreed with existing lenders

·      Rights Issue subject to Shareholder approval, and revised facilities conditional on completion of Rights Issue

·      UK business re-organisation continuing under new Group leadership

·      Underlying Loss before Tax of £19.6m (2011: £10.1m profit)

·      Net borrowings at period end of £29.7m (December 2011: £31.3m)

·      Stable UK order book at 31 December 2012 of £209m (October 2012: £211m)

·      Share of profit from Indian joint venture of £0.2m (2011: £2.5m loss)

·      Indian joint venture ("JSSL") order book £29m at 31 December 2012 (October 2012: £31m)

·      Expansion of new JSSL capacity continues - commissioning expected  to commence end of summer 2013

·      Basic earnings per share of -18.67p (2011: 8.05p)

·      No second interim dividend declared (first interim dividend: 1.50p)

* Underlying is before the amortisation of acquired intangible assets of £2.7m (2011: £2.7m), incremental contract legal costs of £1.1m (2011: £0.6m) and favourable movements in the valuation of derivatives of £0.1m (2011: nil) and the associated tax effect of these items.

John Dodds, Executive Chairman of Severfield-Rowen, commented:

"These results are clearly disappointing and are primarily a consequence of an unacceptable level of performance on a small number of contracts.  The issues leading to this performance have been identified and positive action is in hand to effect improvement.  It is extremely encouraging that our shareholders, our lenders and our clients have shown strong support for the business, endorsing the Group's market leadership, longevity and underlying potential.  With the balance sheet strengthened, we are confident that the Group will move forward positively from here to achieve its long term growth objectives, both in the UK and India."

A copy of the Statement is available on the Company's website:  www.sfrplc.com

For further information, please contact:

Severfield-Rowen Plc	John Dodds Chairman	01845 577896
	Alan Dunsmore Finance Director	01845 577896
Jefferies International Limited	Simon Hardy	020 7029 8000
	Harry Nicholas	020 7029 8000
Pelham Bell Pottinger	Archie Berens	020 7861 3112
	Guy Scarborough	020 7861 3870

Introduction

The 12 months ended 31 December 2012 have proved to be a very difficult period for the Group. Contract execution issues in the first 6 months led to the announcement of a reorganisation of our two largest businesses in August, but further execution issues emerged in the second 6 month period, during the early stages of the reorganisation process, culminating in the very significant impact of the cost overruns on the 122 Leadenhall Street contract on the results for the year. This in turn led to the decision of the Chief Executive, Tom Haughey, to step down from his position. I have taken on the role of Executive Chairman on an interim basis until a new Chief Executive is found.

Contract Review

On assuming this Executive role, I initiated a review by the Board (the "Review") which addressed 70 of the Group's contracts representing c. 90 per cent of the Group's contracts by value, with a particular focus on the larger and more complex projects. The Review involved all key management responsible for the execution and performance of each contract. Detailed financial information on each contract was analysed, including revenue and cost position to date, forecasts to completion and the underlying progress of that contract. The inherent complexity and risk of each contract was also considered in determining the final financial outcome. Recently won contracts, at the initial stages of execution, have been subject to additional scrutiny, involving cross Group peer reviews.

The financial outcome of the Review resulted in a charge to the profit and loss account of £20.1 million in the 12 months ended 31 December 2012. A proportion of the related cash flows occurred within the 12 month period ended 31 December 2012, with a further £8 million of cash outflow anticipated in 2013.

122 Leadenhall Street Contract

The Review established that the technical challenges of the site works on this contract were significantly greater than originally estimated and will require longer timescales and greater resources to complete. In response to this finding, a comprehensive reassessment of the works required to complete has been undertaken, along with a detailed review of all other forecast costs still to be incurred. The result was to change an expected profit on the overall life of the contract into a loss, with the Group incurring an incremental charge to the profit and loss account of £9.9 million in the 12 month period ended 31 December 2012.

Other Contract Cost Positions

In relation to a further three contracts, actual and potential cost overruns were identified totalling £2.9 million. These cost overruns were charged to the profit and loss account in the 12 month period ended 31 December 2012.

Forecast Contract Value Positions

On a further five contracts the value that the Board expects to be realisable under the contracts was reassessed and reduced. These contracts, three of which remain ongoing, have all been subject to significant variations from the terms agreed at the commencement of the contract. While much of the value of these variations has already been recovered by the Group (and this recovery process is continuing), the Board took a prudent approach in reducing the final account expectations, resulting in a reduction in the value realisable from these five contracts of £7.3 million. There was no cash impact on the Group as a result of this reduction in the balance sheet carrying value.

Remaining Contracts

The remaining 61 contracts were found to be performing in accordance with the Board's expectations with the Board satisfied that the financial out turn on these contracts had been appropriately estimated.

Actions Arising from the Review

The Review affirmed that the Group's core strengths remain the design, fabrication and erection of steel structures. Since August 2012, the Board had been taking steps to improve its contracting estimating procedures, the efficacy of which was borne out in the review of contracts recently entered into. The Review, however, identified a requirement for stronger contracting processes and discipline notably in execution and risk assessment, particularly in relation to its more complex contracts. The implementation of these improvements will be undertaken as expeditiously as possible.

The Review confirmed the rationale for the previously announced reorganisation and integration of its two largest businesses, Severfield-Rowen Structures and Watson Steel Structures, along with its erection business, Steelcraft. The integration of the merged businesses creates a less complex and more efficient management structure, under Severfield-Watson Structures Ltd, and became effective according to plan on 1 January 2013. Its implementation will continue throughout 2013.

On a positive note, while trading conditions remain difficult, the Group's order book has remained strong at £209 million and I have been encouraged by the continued support of our major customers. The order book contains a broad mix of London commercial offices, industrial, warehousing, waste to energy projects, transport including airports, health, education and leisure projects.

In India, our joint venture continues to build a solid foundation for future growth. A small profit was recorded in the second 6 month period, resulting in an overall positive contribution to the Group for the full 12 month period. The previously approved expansion of the Bellary site continues and is scheduled for completion by the summer of this year.

Financials

The Group's financial performance for the 12 months to 31 December 2012 reflects the impact of the contract execution issues, particularly on 122 Leadenhall Street, along with the other factors highlighted in the Review, as well as the impact of adverse contract final account settlements announced earlier in the year.

Revenue for the 12 month period of £256.6 million (12 month period to 31 December 2011: £267.8 million) was at a similar level to the previous year. This reflects a fairly constant level of production output and contracting activity throughout the year in what remained a relatively subdued market. There was also continued relative stability in steel pricing.

The Underlying Operating Loss before results of Associates was £18.2 million (2011: £14.2 million profit) representing margins of -7.1% and 5.3% respectively. This reflects the difficult trading conditions during the year, the £9.9 million charge to the profit and loss account in respect of the 122 Leadenhall Street contract and the other adjustments relating to additional costs and reductions in contract value expectations totalling £10.2 million arising from the Review. In respect of the reduced expectations around certain contract values, the Board continues to pursue value on these contracts, but a prudent view has been taken reflecting progress made to date and the difficult prevailing trading environment.

The share of results of Associates of a profit of £0.2 million (2011: £2.5 million loss) represents a step change in the performance of the Indian joint venture in recording its first positive contribution to Group profit, as production was running at good operating levels for most of the year.

The Group Underlying Operating Loss after share of results of Associates is £18.0m (2011: £11.7 million profit). The Underlying Loss before Tax for the period is £19.6 million (2011: £10.1 million profit).

Underlying profit is before the amortisation of acquired intangible assets of £2.7 million (2011: £2.7 million), incremental contract legal costs of £1.1m (2011: £0.6 million) and favourable movements in the valuation of derivatives of £0.1 million (2011: nil). The Group Operating Loss after share of results of Associates, including both underlying and non-underlying items, is £21.7 million (2011: £8.3 million profit).

The underlying tax charge is a credit of £2.9 million, representing an effective tax rate of 14.7 per cent. on the underlying loss before tax for the period. The statutory tax charge is a credit of £3.9 million (2011: £1.0 million charge).

The statutory loss before tax which includes both underlying and non-underlying items is £23.3 million (2011: £6.8 million profit). The statutory loss after tax is £19.4 million (2011: £5.8 million profit) and has been withdrawn from reserves.

Underlying basic earnings per share is -18.67p (2011: 8.05p). This calculation is based on the underlying loss after tax of £16.7 million and 89,251,076 shares, being the weighted average number of shares in issue during the period. Basic earnings per share, based on the profit or loss after tax after non-underlying items, is -21.76p (2011: 6.52p)

There are no contingent shares outstanding under share-based payment schemes and accordingly there is no difference between basic and diluted earnings per share.

During the 12 months, capital expenditure amounted to £1.5 million (2011: £2.1 million). This included ongoing replacement of essential equipment as well as a production optimisation programme at one of the Group's fabrication plants.

There was a net cash inflow from operating activities of £10.2 million (2011: outflow of £9.0 million). This is driven by improvements in all areas of working capital but particularly receivables where significant underlying improvements were made over the 12 month period.

Net debt of £29.7 million represents an improvement of £1.6 million on the position at 31 December 2011 of £31.3 million. This reflects the improvement in working capital offset by capital investment, further equity investment in India and financing costs.

The Group has also separately announced today its intention to raise approximately £44.8 million (net of expenses) by way of a rights issue ("Rights Issue"), conditional on shareholder approval at a General Meeting of the Company being convened for 11.00 a.m. on 18 March 2013 and on an Underwriting Agreement becoming unconditional and not being terminated.

The Directors intend to use the net proceeds of the Rights Issue (being approximately £44.8 million) to reduce the Group's drawings under its existing £50 million credit facility ("Existing Facilities Agreement").  Any balance of the net proceeds of the Rights Issue will be used for general corporate purposes. This will result in the Group operating at a structurally lower level of indebtedness. Accordingly, the Directors believe that the Rights Issue will have both immediate and longer-term benefits for the Group.

The Group has also entered into an amendment and restatement of the Existing Facilities Agreement dated 27 February 2013 ("Revised Facilities Agreement") with its lenders, as part of the overall refinancing of the business. The Revised Facilities Agreement will come into effect, among other conditions, upon the application of the net proceeds of the Rights Issue to reduce the outstanding borrowings under the Existing Facilities Agreement. The total revolving credit facility available under the Revised Facilities Agreement will be £35 million although only £20 million of the total commitments will be available for utilisation until 31 December 2013.

Dividend

As announced in our Interim Management Statement of 5^th November 2012, no second interim dividend is being declared. The Board remains focussed on strengthening the balance sheet and conserving cash. In light of this and against the backdrop of a continuing challenging UK market, while there are no restrictions in the Revised Facilities Agreement, the Board will not be recommending the payment of a final dividend for the 15 month period ending 31 March 2013. However, the Board is committed to reinstating the payment of dividends. Depending, among other things, on improved financial performance in 2013, it intends to introduce a progressive dividend policy, having regard to the Group's underlying earnings, cash flows and capital investment plans, the requirement to maintain an appropriate level of dividend cover and the then prevailing market outlook.

UK

The UK market remains challenging but the Group continues to maintain a strong order book, which at 31 December 2012 was £209m. As became very clear during the year, execution of some parts of the order book, particularly more complex projects, has been below expectations. While this has not impacted project delivery from a client perspective, it has significantly impacted the costs to the Group of executing such contracts. Additionally, the settlement of final accounts has become more challenging on a relatively small number of contracts. In response to these challenges, the Group announced in August the proposal to integrate its two largest businesses and its site erection company, into a single operating unit, Severfield-Watson Structures. This reorganisation is proceeding to plan and the new operating unit commenced trading as such on 1^st January 2013. The underlying changes to the management structure, along with communications and process improvements, will contribute to improved execution of projects in future. Additionally, from the Review, further requirements for stronger contracting processes and discipline were also identified, notably in execution and risk assessment. These improvements will be undertaken as expeditiously as possible.

The Group's core strengths remain the design, fabrication and erection of steel structures, and the improvements being made to the business are being undertaken with the objective of ensuring that it makes an appropriate return from provision of these strengths and capabilities to our clients. 

India

The 12 months to 31 December 2012 has seen an improvement across a number of areas for JSW Severfield Structures Ltd.

As expected, the company moved into overall profit resulting in a positive contribution to the Group's results for the first time.

Operational improvements and the increase of production levels were successful throughout the year. The approved expansion of the Bellary plant is on plan and is expected to start commissioning at the end of summer 2013. This, as well as continual improvement in operational efficiency and building the order book, are the key challenges for the business as its development continues.

Health and safety continues to be a key focus, both for management and all employees within the company, thus developing an environment which has achieved a best in class Accident Frequency Rate ("AFR"), comparable to UK levels.

The order book stands at £29 million, the most pleasing development of which is the company's first commercial office building in Mumbai for circa 5500 tonnes with a value of just over £6 million.

The company continues to build its quality reputation within the market, noted, for example, by the recent recognition by Proctor and Gamble at its site in Hyderabad for its fastest ever 'Dry Laundry Building' erected.

Operations

Group review

The main business of the Group is the design, fabrication and erection of structural steelwork for construction projects of varying types, including warehouses, commercial offices, industrial buildings and power stations.

UK

All of the Group's UK plants were fully loaded throughout 2012 and we continue to see prospective opportunities in 2013.

Although the Group had significant issues on a small number of contracts during the year, which impacted particularly its two largest businesses, Atlas Ward and Fisher Engineering both continued to perform well and contributed positively to the Group results. During the year, the Group was engaged in the supply of services to a large number of projects, including:

BMW Manufacturing Facility, Oxford

Asda Stores, Grangemouth and Rochdale

Jaguar Land Rover Industrial Buildings, Midlands

Heathrow Terminals

60 Holborn Commercial Office, London

Leeds Arena

Blackfriars Bridge, London

5 Broadgate Commercial Office, London

Shirley Town Centre redevelopment

India

JSSL has undertaken work in airports, power, commercial, industrial and retail sectors throughout India, including:

Siemens (DGen) CC Power Plant, Surat

JSW Cold Rolling Mill, Bellary

Air Traffic Control Tower, Mumbai International Airport

Proctor & Gamble Plant, Hyderabad

Prestige Trade Tower, Bangalore

Outlook

Trading conditions are difficult as previously stated. However, the order book as at 31 December 2012 remained strong at £209 million, as announced on 23 January 2013, and the re-organisation of the Group's largest businesses into Severfield-Watson Structures Ltd is continuing in line with plan. More than half of the anticipated overhead savings of £2 million, previously announced on 5 November 2012, have now been realised and the programme will be largely complete by 30 June 2013.

The performance of the Indian joint venture for the 12 months ended 31 December 2012 was in line with the Board's expectations. The first phase of expansion of the Bellary site to lift output from 35,000 tonnes to 55,000 tonnes by the end of summer 2013 is continuing and the order book at 31 December 2012 stood at £29 million.

The Board believes that the proposed Rights Issue announced today in conjunction with the Revised Facilities Agreement should enable the Group to protect and enhance shareholder value and are expected to provide greater operational and financial flexibility in the future while demonstrating financial strength to customers, relative to the Group's principal competitors, in a continuing difficult market environment. In addition, the Board believes the Rights Issue will enable the Group to commit to continued investment in the growth of the Indian Joint Venture over the next two to three years.

While the Group's performance was extremely disappointing in 2012, the Directors believe that this is a good business which remains well supported by its customers. With the reorganisation changes already underway and the further improvements identified as part of the recent Review, the Board believes that the Group can return operating margins to between 5 per cent and 6 per cent over time and is confident that the longer term fundamentals of the Group remain strong.

John Dodds

Executive Chairman

28 February 2013

Condensed Consolidated Income Statement

	Twelve months ended 31 December 2012 (unaudited)			Six months ended 31 December 2012 (unaudited)			Year ended 31 December 2011 (audited)			Six months ended 31 December 2011 (unaudited)
	Before Other Items £000	Other Items1 £000	Total £000	Before Other Items £000	Other Items1 £000	Total £000	Before Other Items £000	Other Items1 £000	Total £000	Before Other Items £000	Other Items1 £000	Total £000
Revenue	256,594	-	256,594	120,653	-	120,653	267,778	-	267,778	145,737	-	145,737
Cost of sales	(268,807)	(1,089)	(269,896)	(137,831)	(1,089)	(138,920)	(246,889)	(590)	(247,479)	(132,795)	(590)	(133,385)
Gross (loss)/profit	(12,213)	(1,089)	(13,302)	(17,178)	(1,089)	(18,267)	20,889	(590)	20,299	12,942	(590)	12,352
Other operating income	762	-	762	434	-	434	508	-	508	344	-	344
Distribution costs	(2,583)	-	(2,583)	(1,615)	-	(1,615)	(2,756)	-	(2,756)	(1,778)	-	(1,778)
Administrative expenses	(4,175)	(2,748)	(6,923)	(2,286)	(1,374)	(3,660)	(4,448)	(2,749)	(7,197)	(2,969)	(1,375)	(4,344)
Movements in the valuation of derivative financial instruments	-	104	104	-	-	-	-	4	4	-	(14)	(14)
Operating (loss)/profit before share of results of Associates	(18,209)	(3,733)	(21,942)	(20,645)	(2,463)	(23,108)	14,193	(3,335)	10,858	8,539	(1,979)	6,560
Share of results of Associates	232	-	232	354	-	354	(2,522)	-	(2,522)	(890)	-	(890)
Operating (loss)/profit after share of results of Associates	(17,977)	(3,733)	(21,710)	(20,291)	(2,463)	(22,754)	11,671	(3,335)	8,336	7,649	(1,979)	5,670
Investment income/(charge)	10	-	10	5	-	5	27	-	27	(15)	-	(15)
Finance charges	(1,596)	-	(1,596)	(799)	-	(799)	(1,581)	-	(1,581)	(925)	-	(925)
(Loss)/profit before tax	(19,563)	(3,733)	(23,296)	(21,085)	(2,463)	(23,548)	10,117	(3,335)	6,782	6,709	(1,979)	4,730
Tax	2,901	970	3,871	3,326	640	3,966	(2,929)	1,969	(960)	(1,568)	1,603	35
(Loss)/profit for the period	(16,662)	(2,763)	(19,425)	(17,759)	(1,823)	(19,582)	7,188	(1,366)	5,822	5,141	(376)	4,765
Earnings per share:
Basic	(18.67p)	(3.10p)	(21.76p)	(19.90p)	(2.04p)	(21.94p)	8.05p	(1.53p)	6.52p	5.76p	(0.42p)	5.34p
Diluted	(18.67p)	(3.10p)	(21.76p)	(19.90p)	(2.04p)	(21.94p)	8.05p	(1.53p)	6.52p	5.76p	(0.42p)	5.34p

¹     Other items relate to the amortisation of acquired intangibles, charges in respect of contract legal costs and movements in the valuation of derivative financial instruments and the associated tax effect of these items.

Condensed Consolidated Statement of Comprehensive Income

	Twelve months ended 31 December 2012 (unaudited) £000	Six months ended 31 December 2012 (unaudited) £000	Year ended 31 December 2011 (audited) £000	Six months ended 31 December 2011 (unaudited) £000
Actuarial loss on defined benefit pension scheme	(2,441)	(2,441)	(1,369)	(1,369)
Tax relating to components of other comprehensive income	635	635	172	172
Other comprehensive income for the period	(1,806)	(1,806)	(1,197)	(1,197)
(Loss)/profit for the period from continuing operations	(19,425)	(19,582)	5,822	4,765
Total comprehensive income for the period attributable to equity shareholders	(21,231)	(21,388)	4,625	3,568

Condensed Consolidated Statement of Changes in Equity

	Share Capital £000	Share Premium £000	Other Reserves £000	Retained Earnings £000	Total Equity £000
At 1 January 2012	2,231	46,152	469	83,446	132,298
Loss for the period (attributable to equity holders of the parent)	-	-	-	(19,425)	(19,425)
Dividends paid	-	-	-	(4,459)	(4,459)
Equity settled share based payments	-	-	17	-	17
Actuarial loss on defined benefit pension scheme	-	-	-	(2,441)	(2,441)
Deferred income taxes on defined pension benefit scheme	-	-	-	635	635
At 31 December 2012 (unaudited)	2,231	46,152	486	57,756	106,625

	Share Capital £000	Share Premium £000	Other Reserves £000	Retained Earnings £000	Total Equity £000
At 1 January 2011	2,231	46,152	169	82,391	130,943
Profit for the period (attributable to equity holders of the parent)	-	-	-	5,822	5,822
Dividends paid	-	-	-	(3,570)	(3,570)
Share based payments	-	-	300	-	300
Actuarial loss on defined benefit pension scheme	-	-	-	(1,369)	(1,369)
Deferred income taxes on defined pension benefit scheme	-	-	-	172	172
At 31 December 2011 (audited)	2,231	46,152	469	83,446	132,298

Condensed Consolidated Balance Sheet

	At 31 December 2012 (unaudited) £000	At 31 December 2011 (audited) £000
ASSETS
Non-current assets
Goodwill	54,712	54,712
Other intangible assets	15,726	18,227
Property, plant and equipment	76,237	79,594
Investment property	3,920	3,960
Interests in Associates	3,146	447
Deferred tax asset	1,840	-
	155,581	156,940
Current assets
Inventories	7,110	9,085
Trade and other receivables	61,217	89,161
Cash and cash equivalents	1,434	2,264
	69,761	100,510
Total assets	225,342	257,450
LIABILITIES
Current liabilities
Trade and other payables	(66,309)	(66,322)
Financial liabilities - borrowings	(30,697)	(33,159)
Financial liabilities - finance leases	(168)	(101)
Financial liabilities - derivative financial instruments	-	(104)
Tax liabilities	160	(3,883)
	(97,014)	(103,569)
Non-current liabilities
Retirement benefit obligations	(11,568)	(9,552)
Financial liabilities - finance leases	(280)	(254)
Deferred tax liabilities	(9,855)	(11,177)
Provisions	-	(600)
	(21,703)	(21,583)
Total liabilities	(118,717)	(125,152)
NET ASSETS	106,625	132,298
EQUITY
Share capital	2,231	2,231
Share premium	46,152	46,152
Other reserves	486	469
Retained earnings	57,756	83,446
TOTAL EQUITY	106,625	132,298

Condensed Consolidated Cash Flow Statement

	Twelve months ended 31 December 2012 (unaudited) £000	Year ended 31 December 2011 (audited) £000
Net cash from operating activities	10,169	(8,968)
Investing activities
Interest received	5	28
Proceeds on disposal of property, plant and equipment	1,308	624
Purchases of property, plant and equipment	(1,444)	(1,658)
Purchases of intangible fixed assets	(62)	(481)
Purchases of shares of Associates	(2,466)	(113)
Net cash (used in) investing activities	(2,659)	(1,600)
Financing activities
Interest paid	(1,350)	(2,072)
Dividends paid	(4,459)	(3,570)
Repayment of obligations under finance leases	(183)	(102)
Borrowings taken out	-	14,530
Borrowings repaid	(2,623)	-
Finance leases taken out	275	457
Net cash (used in)/ from financing activities	(8,340)	9,243
Net (decrease) in cash and cash equivalents	(830)	(1,325)
Cash and cash equivalents at beginning of period	2,264	3,589
Cash and cash equivalents at end of period	1,434	2,264

Notes to the Condensed Consolidated Financial Statements

1)         General information

The information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006, but is derived from the statutory accounts for that financial year. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by the way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The interim results for the six month period to 30 June 2011 were neither audited nor reviewed. The interim results to 30 June 2012 and to 31 December 2012 have been subject to an Interim Review by the Company's Auditor.

2)         Basis of preparation

The condensed interim financial information has been prepared in accordance with IAS 34 "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 2011 which have been applied consistently throughout the current and preceding period.

Adoption of new and revised accounting standards

In 2011, a number of new standards and interpretations became effective as noted in the 2011 Annual Report and Accounts (page 68). The adoption of these standards and interpretations has not had a material impact on the condensed interim financial statements of the Group. Since the Annual Report and Accounts was published no significant new standards and interpretations have been issued, or become effective.

3)         Going concern

In determining whether the Group's 2012 Interim Financial Statements can be prepared on a 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 borrowings facilities and the risks and uncertainties relating to its business activities in the current economic climate.  The key risks and uncertainties are set out in further detail in note 4 below.

The Directors have reviewed the trading and cash flow forecasts as part of their going concern assessment, including downside sensitivities, which take into account the uncertainties in the current operating environment.

In forming their conclusions over the adoption of the going concern basis, the Directors have considered the possibility of the relevant resolutions at the forthcoming General Meeting, relating to the proposed equity fundraising, not being approved and on the basis of the available evidence have considered this possibility to be remote.

Having considered all the factors above impacting the Group's businesses, including downside sensitivities, the Directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of time not less than 12 months from the date of this report. For this reason the going concern basis has been adopted in preparing this Interim Report.

4)         Risks and uncertainties

The principal risks and uncertainties which could have a material impact upon the Group's performance over the remaining three months of the 15 month period to 31 March 2013 have not changed significantly from those noted or referenced on pages 36-37 of the Directors' Report and pages 24-26 of the Financial Review included in the Annual Report 2011. These risks and uncertainties include, but are not limited to:

·      The commercial and market environment within which the Group operates

·      Possible steel price movements

·      Reliance on key skills and personnel within our workforce

·      Health and safety

·      Credit, liquidity, interest rate and foreign exchange risks

The Directors draw attention to the risk relating to the commercial and market environment within which the Group operates.  As set out in the Annual Report 2011, weak demand is resulting 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.  During the second half of 2012, the Board announced a reorganisation of parts of the business to improve its performance in the difficult prevailing trading conditions, particularly around contract engagement and execution. Additionally, following the significant cost overruns identified on the 122 Leadenhall Street contract and the subsequent Board Contract Review process, a further requirement was identified for stronger contracting processes and discipline notably in execution and risk assessment, particularly in relation to its more complex contracts.  The implementation of these improvements will be undertaken as expeditiously as possible.

5)         Segmental analysis

Revenue, profit before tax, and net assets all relate to the design, fabrication, and erection of structural steelwork and related activities.  All of the Group's subsidiary businesses have similar products and services, production processes, types of customer, methods of distribution, regulatory environments, and economic characteristics.

Revenue, which relates wholly to construction contracts and related assets in both years originated from the United Kingdom.

There has been no change in the basis of segmentation or in the basis of measurement of segment profit or loss in the period.

6)         Seasonality

There are no particular seasonal variations which impact the split of turnover over the course of the calendar year, including the first three months which will form part of the 15 month period to 31 March 2013. Underlying movements in contract timing and phasing, which are an on-going feature of the business, will continue to drive moderate fluctuations in half yearly revenues.

7)         Taxation

The income tax expense reflects the estimated effective rate on profit before taxation for the Group for the 15 month period ended 31 March 2013.

8)         Dividends payable to equity shareholders

	Twelve months ended 31 December 2012 £000	Six months ended 31 December 2012 £000	Year ended 31 December 2011 £000	Six months ended 31 December 2011 £000
Ordinary dividend paid	4,459 ______	1,335 ______	3,570 ______	1,339 ______

9)         Earnings per share

Earnings per share is calculated as follows:

	Twelve months ended 31 December 2012 £000	Six months ended 31 December 2012 £000	Year ended 31 December 2011 £000	Six months ended 31 December 2011 £000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company	(19,425) ______	(19,582) ______	5,822 ______	4,765 ______
Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company	(16,662) ______	(17,759) ______	7,188 ______	5,141 ______
Number of shares	Number	Number	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	89,251,076	89,251,076	89,251,076	89,251,076
Effect of dilutive potential ordinary shares and under share plans	-	-	-	-
	_________	_________	_________	_________
Weighted average number of ordinary shares for the purposes of diluted earnings per share	89,251,076	89,251,076	89,251,076	89,251,076
	_________	_________	_________	_________
Basic earnings per share	(21.76p)	(21.94p)	6.52p	5.34p
Underlying basic earnings per share	(18.67p)	(19.90p)	8.05p	5.76p
Diluted earnings per share	(21.76p)	(21.94p)	6.52p	5.34p
Underlying diluted earnings per share	(18.67p)	(19.90p)	8.05p	5.76p

10)        Property, plant and equipment

During the period fixed asset additions totalled £1,505,000.  The Group also disposed of certain fixed assets with carrying amounts of £796,000 for proceeds of £1,308,000.

11)        Net debt

The Group's net debt is as follows:

	Twelve months ended 31 December 2012 £000	Year ended 31 December 2011 £000
Cash and cash equivalents	1,434	2,264
Financial liabilities - borrowings	(30,697)	(33,159)
Financial liabilities - finance leases	(448)	(355)
Net debt	(29,711)	(31,250)

12)        Reconciliation of Group profit from operations to cash generated from operations

		Twelve months ended 31 December 2012 (unaudited) £000	Year ended 31 December 2011 (audited) £000
Operating (loss)/profit for the period		(21,710)	8,336
Adjustments for:
Provision releases and charges		(600)	-
Share of results of Associates		(232)	2,522
Depreciation of property, plant and equipment		4,057	4,504
Amortisation of intangible assets		2,783	2,749
Gain on disposal of property, plant and equipment		(512)	(20)
Share based payment expense		17	300
Movements in pension scheme		(425)	(349)
Unrealised gains on derivative financial instruments		(104)	(4)
Operating cash flows before movement in working capital		(16,726)	18,038
Movements in working capital
(Increase)/decrease in inventories		1,975	3,548
(Increase)/decrease in receivables		27,715	(17,301)
Increase/(decrease) in payables		(97)	(9,592)
Cash generated from operations		12,867	(5,307)
Tax paid		(2,698)	(3,661)
Net cash from operating activities		10,169	(8,968)

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.

13)        Related party transactions

Certain Related Party Transactions, as described in Note 31 on page 97 of the 2011 Annual Report, continued in the current period.  In addition, during the period the Group provided services in the ordinary course of business to JSW Severfield Structures Limited.  None of these transactions materially affected the financial position or performance of the Group during the period.

14)        Cautionary statement

The Interim Management Report ("IMR") has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

            The IMR contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

15)        Responsibility statement

We confirm that 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 Management Report includes a fair review of the information required by DTR4.2.7R (indication of important events during the first twelve months and description of principal risks and uncertainties for the remaining three months of the year); and

(c)        the Interim Management 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

John Dodds	Alan Dunsmore
Director	Director
28 February 2013	28 February 2013

Independent review report to Severfield-Rowen Plc

We have been engaged by the Company to review the condensed set of financial statements in the 2012 second interim financial report for the period ended 31 December 2012 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement and related notes 1 to 15.  We have read the other information contained in the 2012 second interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The 2012 second interim financial report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the 2012 second interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this 2012 second interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the 2012 second interim financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the 2012 second interim financial report for the period ended 31 December 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Leeds, UK

28 February 2013

The securities subject to the Rights Issue have not and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration under the Securities Act or pursuant to an exemption therefrom.

 

END

 

 

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