Results for the Year Ended 31 March 2021

RNS Number : 0188C

Severfield PLC

16 June 2021

Results for the year ended 31 March 2021

Resilient performance despite COVID-19, good cash generation and strong balance sheet, UK and Europe order book of £301m, India order book of £140m

Severfield plc, the market leading structural steel group, announces its results for the 12-month period ended 31 March 2021.

£m	12 months to 31 March 2021	12 months to 31 March 2020
Revenue	363.3	327.4
Underlying* operating profit (before JVs and associates)	25.5	27.0
Underlying* operating margin (before JVs and associates)	7.0%	8.2%
Operating profit (before JVs and associates)	22.7	24.7
Underlying* profit before tax	24.3	28.6
Profit before tax	21.1	25.8
Underlying* basic earnings per share	6.4p	7.7p
Basic earnings per share	5.6p	6.7p
Return on capital employed ('ROCE')	13.6%	17.2%

* Underlying results are stated before non-underlying items of £3.2m (2020: £2.8m) consisting of the amortisation of acquired intangible assets of £2.8m (2020: £1.4m) and acquisition-related expenses of £0.4m (2020: £1.4m)

** 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

Highlights

Revenue up 11% to £363.3m (2020: £327.4m)
Underlying* profit before tax of £24.3m (2020: £28.6m), demonstrates resilience of the Group against COVID-19 backdrop
Underlying* basic earnings per share of 6.4p (2020: 7.7p)
Total dividend of 2.9p per share (2020: 2.9p per share), includes proposed final dividend of 1.8p per share (2020: 1.8p per share)
A cquisition of DAM Structures, an innovative steel fabrication company, giving the Group immediate access to attractive, complementary market sectors with strong growth potential including the propping, railway and steel piling markets
Good cash generation resulting in y ear-end cash balances of £25.0m. Net funds (pre-IFRS 16 basis**) were £4.4m (2020: £16.4m), including acquisition loans of £20.7m (2020: £13.1m)
No claims made under COVID-related government schemes, all tax deferrals now fully up to date
Over 100 projects undertaken during the year in the UK, Ireland and continental Europe in diverse market sectors including industrial and distribution, data centres, nuclear and commercial offices
UK and Europe order book of £301m at 1 June 2021 (1 November 2020: £287m), including £18m for DAM Structures, of which £241m is for delivery over the next twelve months
Share of loss from Indian joint venture ('JSSL') of £0.7m (2020: profit of £2.2m), reflecting the COVID-19 impacted loss in H1 and break-even profit position in H2
India order book of £140m at 1 June 2021 (1 November 2020: £98m), a record high for the company, reflects strong underlying demand for structural steel in India

FY22 and outlook

High quality UK and Europe order book supports continued growth throughout the 2022 financial year and beyond
Tendering and pipeline activity in the UK and Europe remains very encouraging, albeit at tighter prices given current market conditions
Steel price increases and supply chain pressures continue to be effectively managed
India - output currently being disrupted by ongoing second wave of COVID-19, step up in order book, strong pipeline and existing client relationships leave JSSL very well positioned once current COVID-19 issues subside
New Group sustainability strategy with target to be operationally carbon neutral in the 2021 calendar year, the Group signed up to the SteelZero initiative in April 2021
S trategy remains unchanged, based on growth, both organic and through selective acquisitions, operational improvements and creating further value in India
Positive momentum is evident across the Group which, in combination with our cash generative nature and market sector, geographical and client diversity , provides the platform for further operational and strategic progress in the 2022 financial year

Alan Dunsmore, Chief Executive Officer commented:

' The Group's strategy to build a balanced business, with geographic, sector and client diversity, has facilitated not only revenue growth of around 30 per cent over the last three years but has also provided us with resilience during the pandemic. Our strong balance sheet and ability to generate cash has enabled us to continue to invest in our operations and in strategic acquisitions, such as DAM Structures. We have an established platform for further operational and strategic progress in the year ahead and with the current order book levels and pipeline activity, have the capacity to deliver enhanced shareholder returns in the future.'

For further information, please contact:

Severfield	Alan Dunsmore Chief Executive Officer	01845 577 896
	Adam Semple Group Finance Director	01845 577 896
Jefferies International	Simon Hardy	020 7029 8000
	Will Soutar	020 7029 8000
Camarco	Ginny Pulbrook	020 3757 4980
	Tom Huddart	020 3757 4980

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.165,000 tonnes of steel per annum. The Group has six sites, c.1,500 colleagues 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

Group overview

Whilst the year has been dominated by the COVID-19 pandemic, the 2021 results demonstrate the resilience of the Group and serve to highlight its many strengths including the benefit of the strategic and operational progress made in recent years, the a dditional resilience provided by our market sector, geographical and client diversity, the skill and adaptability of our workforce and our strong financial position.

The Group has coped well with the challenges presented by COVID-19. This is reflected in an increased UK and Europe order book of £301m, increased revenues and good cash generation in 2021, which has enabled us to continue to pay dividends and support ongoing investment in the business, both organically and by acquisition.

In 2021, we increased our revenue by 11 per cent to £363.3m (2020: £327.4m) and are pleased with our profit performance and an underlying profit before tax of £24.3m (2020: £28.6m), which was achieved despite the COVID-19 related disruption that particularly impacted profitability through the under-recovery of overheads in Q1. The Group's factories and sites in the UK and Europe are all fully operational, and we have been trading at normal (pre-pandemic) levels, in line with government and industry guidelines, since June 2020.

The 2021 results include the acquisition of DAM Structures, an innovative steel fabrication company, giving the Group immediate access to attractive, complementary market sectors with strong growth potential including the propping, railway and steel piling markets. DAM is integrating well into the Group's existing operations and has contributed revenue of £3.9m and a nominal profit for the one month of trading since its date of acquisition.

We have maintained a strong financial position throughout the year, allowing us to make the right decisions and take the right actions for the long-term benefit of the Group. Year-end net funds (on a pre-IFRS 16 basis) were £4.4m (2020: £16.4m), which includes the outstanding term loans of £20.7m (2020: £13.1m) for the DAM Structures and Harry Peers acquisitions.

The Indian joint venture ('JSSL') has continued its recovery from the disruptive effects of COVID-19. After a difficult first half, the company maintained a largely break-even profit position in H2 of 2021. The return to more normal trading conditions in India is being considerably disrupted by the ongoing second wave of COVID-19 which is currently impacting output in H1 of 2022. Notwithstanding this, JSSL's order book at 1 June 2021 has increased to a record level of £140m (1 November 2020: £98m), which together with a strong pipeline of potential orders, is reflective of the strong underlying demand for structural steel in India.

Strategy

The Group's strategy is focused on its core strengths of engineering and construction in the UK, Republic of Ireland and continental Europe. This well-established strategy is unchanged, focused on growth, both organic and through selective acquisitions, operational improvements and creating further value in JSSL.

In recent years, the evolution of this strategy has been particularly evident in our significant market sector, geographical and client diversification, which has enabled us to successfully navigate periods of market softness in certain of our main sectors in the UK, notably commercial offices. This has resulted in a more balanced business and a resilience which has seen us successfully negotiate the headwinds of Brexit and the COVID-19 pandemic, facilitated revenue growth of c.30 per cent over the last three years and reinforced the Group's strong balance sheet and ability to generate cash which have allowed us to continue to invest in our operations and in acquisitions through Harry Peers and DAM Structures.

As a result, our capabilities are applicable to many market sectors which are expected to see increasing opportunities in the medium to long term. The Group is well positioned to meet the demand for ongoing investment in the UK's infrastructure, while our diverse construction activities remain focused on key areas such as industrial and distribution, data centres, stadia and leisure, nuclear and commercial offices. In India, despite the current challenges of COVID-19, we remain positive about the long-term trajectory of the market and of the value creation potential of JSSL, especially considering the structural changes in the economy over recent years, the government's ongoing focus on simplifying regulations and the 'ease of doing business', and the significant expansion of the business already evidenced to date which has resulted in a business capable of producing over 100,000 tonnes of steelwork from one site in Bellary.

This platform provides Severfield with the capacity to deliver enhanced shareholder returns in the future and to fulfil our strategic growth aspirations.

Board change

In 2021, as part of our board succession planning process, we commenced a selection process for an additional non-executive director. This has resulted in Rosie Toogood being appointed to the board with effect from 16 June 2021. Rosie brings a wealth of manufacturing and engineering experience within the modular homes, aerospace and nuclear sectors to the board. She is currently CEO of L&G's modular homes business having previously had a successful 25-year career at Rolls-Royce, progressing from a finance executive into procurement and technology positions followed by a general management role where she was Executive Vice President for the Compressors division.

Specific actions in response to COVID-19

In managing our response to the pandemic, the primary focus has been on the health, safety and wellbeing of all colleagues, clients and the wider public, together with protecting the financial strength of the Group. During the year all our factories and sites implemented new operating procedures, in accordance with national government, devolved administration and industry guidance, including changes to working practices, enhanced levels of cleaning, additional hygiene facilities and social distancing.

The Group's strong cash position has been carefully managed during the pandemic whilst ensuring that we continue to support our supply chain partners. Since 31 March 2020, the Group has continued to operate in a net funds position, maintaining significant amounts of cash headroom in banking facilities, which mature in October 2023.

Our strong financial position has also meant that, whilst we furloughed some of our workforce in Q1, all of whom have long since returned to work, we did not claim for support under any employee-related government support packages including the Coronavirus Job Retention Scheme.

During the year, the Group took advantage of certain permissions to defer VAT, PAYE and other tax payments. At the year end, all these deferred amounts had been repaid and were fully up to date. In addition, borrowings of £15m, originally drawn down in late March 2020 under the Group's revolving credit facility ('RCF') as a precautionary measure in response to the COVID-19 outbreak, were repaid in June 2020.

UK and Europe

Revenue was up 11 per cent over the prior year mainly reflecting an increase in order flow and the full year revenue effect of Harry Peers which was acquired in October 2019. During the year, we continued to work on a large industrial facility, which includes a bespoke paint package, and a large data centre, both in the Republic of Ireland, a large data centre in Finland, several large distribution facilities in the UK and one in Germany, the new stadium works at Fulham F.C. and the redevelopment of Lord's Cricket Ground (Compton and Edrich stands). We have also continued our work on the new Google Headquarters at King's Cross, together with several mid-sized office developments, both in London and the UK regions (including another project at Kings Cross, Bankside Yards, the Assembly Buildings in Bristol, and Sky Studios in Elstree).

As expected, the disruption experienced by the Group due to COVID-19, both on its sites and within its factories, impacted 2021 profitability, particularly in Q1. Notwithstanding this, overall activity levels increased from the beginning of the first lockdown in March and returned to normal (pre-pandemic) levels from Q2 onwards. The subsequent regional and further national lockdown restrictions imposed in the second half of the year did not result in any further significant disruption or have a material impact on the Group's profitability.

The underlying operating margin (before JVs and associates) was 7.0 per cent (2020: 8.2 per cent), resulting in an underlying operating profit (before JVs and associates) of £25.5m (2020: £27.0m), which includes a one-off profit (the associated revenue is included in Group revenue) on the bespoke paint package on the large industrial facility in the Republic of Ireland (referred to above). Unsurprisingly, the disruptive effects of COVID-19 have resulted in the 2021 operating margin of 7.0 per cent falling below that achieved in the previous year, however the margin in H2 recovered well and, looking forward, we expect the 2022 operating margin to be approaching to our normal range of 8 to 10 per cent, which was established pre-pandemic.

Smarter, Safer, more Sustainable

The UK margin performance continues to reflect improvements to our operational execution. This includes the benefits from our programme of projects categorised under the banner of 'Smarter, Safer, more Sustainable' ('SSS'). These initiatives continue to focus on manufacturing efficiency and improving many aspects of our internal operations, including the application of Lean manufacturing techniques, optimisation of factory processes and production flows, quality control and cost reduction programmes, all of which have served the Group well during the pandemic.

During the year, we have continued the rollout of new software systems including dashboards, workflow management and project-specific commercial and operational tools to better inform decision-making and improve efficiencies both in our factories and on our construction sites. This includes the use of these systems on mobile devices to capture information at the point of use and to provide live information to operatives. As part of our digital transformation initiative, we are devoting skilled resource to reviewing and responding to developing technologies (including virtual reality) and are making good progress with the automation of repetitive tasks. COVID-19 has also allowed us to adapt to new ways of working including the adoption and widespread use of Microsoft Teams.

Engineering solutions are vital to our success, and our ability to deliver for our clients is dependent on us driving excellence throughout our engineering teams. In 2021, we have invested in this capability and have established a central engineering team, under the leadership of our new Group engineering director. This team is focusing on engineering efficiency, including looking at new and innovative ways of working, our approach to drawing and design, and the optimisation of engineering software, building on the previous work of our engineering forum.

We continue to invest in and streamline our factories, particularly at our main production centre in Dalton, where we are continuing to upgrade and expand our fabrication capability to improve the output and efficiency of these operations. During the year, we implemented a new coatings management system at Dalton covering improvements to the specification, management and application of paint systems, which are becoming ever more complex and bespoke. These improvements form part of the Group's ongoing capital investment programme, taking our capital investment in the Group to close to £50m over the last seven years.

Continued stability in our management teams remains a key strength of the business. During the year, we updated our succession plan which identifies and develops future senior leaders from within the business. We believe that being able to promote from within is critical so that we can retain specialist skills and experience, especially given the capabilities and expertise that we provide to our clients. We continue to promote our graduate and apprenticeship schemes, which are particularly focused on welders and technical staff, including our metal fabricator apprenticeship programme, which we developed in conjunction with the Institute of Apprenticeships.

Our new intranet, SeverfieldConnect, which was launched in 2021, has allowed us to keep colleagues up to date on the strategy, performance and progress of the organisation, general company news and health and wellbeing issues. In response to COVID-19, SeverfieldConnect was also used to provide additional regular updates to colleagues and to provide practical advice and support during the pandemic, through a dedicated intranet page, Coronavirus Hub. We also regularly use social network sites and emails to deliver key messages to colleagues and to encourage the use of our new communications platforms for colleague engagement.

Order book, pipeline and market conditions

The future success of the Group is determined, amongst other things, by the quality of the secured workload and our discipline to maintain contract selectivity irrespective of economic conditions. Despite the challenges associated with COVID-19, we have secured a significant value of new work over the past twelve months. This has resulted in a UK and Europe order book at 1 June 2021 of £301m (1 November 2020: £287m), of which £241m is for delivery over the next 12 months. This leaves the Group well-positioned with a strong future workload for the 2022 financial year and beyond.

Our balanced order book contains a healthy mix of projects across a diverse range of sectors including industrial and distribution, stadia and leisure, nuclear, transport infrastructure and commercial offices. Significant awards include several large distribution facilities in the UK, reflecting a sector which continues to remain buoyant, the Co-op Live Arena in Manchester, new nuclear orders secured by Harry Peers, and mid-sized office developments, both in London and outside, including one in Glasgow. We have also secured several HS2 bridge packages, following the HS2 Notice to Proceed issued by the UK Government in April. Largely unhindered by Brexit, our European business has also secured several smaller orders, along with proving its continued benefit to our UK operations when tendering for and executing projects in Europe. In terms of geographical spread, of the order book of £301m, 84 per cent represents projects in the UK, with the remaining 16 per cent representing projects for delivery in Europe and the Republic of Ireland (1 November 2020: 68 per cent in the UK, 32 per cent in Europe and the Republic of Ireland). The more UK-centric nature of the current order book is driven by the acquisition of DAM Structures' UK order book, together with a lower proportion of work in the Republic of Ireland, as several projects, including the large industrial facility, draw to completion. Furthermore, whilst the order book is currently around £300m, only c.25 per cent of this represents commercial offices, compared to the more normal previous range of 30 to 35 per cent and a peak of c.60 per cent around four years ago, showcasing the benefits of our strategic diversification.

We remain very encouraged by the current level of tendering and pipeline activity across the Group. We continue to see a good number of opportunities, albeit some at tighter prices given the current market conditions, in our key market sectors, including in the industrial and distribution, transport infrastructure, stadia and leisure, nuclear and data centre sectors. Opportunities exist in these sectors both in the UK and in Europe, where we have demonstrated our ability to win more work, supported by our European business. Looking slightly further ahead, although we are now much less reliant on this sector, we are now starting to see more bidding activity in the commercial office market, including in London, a trend which we expect to increase over the next few years, given that some of the challenges recently experienced by this sector are now starting to abate. We remain well-placed to win work in the diverse range of market sectors and geographies in which we operate and across a wide client base, especially with the return of more normal trading conditions, following the disruption of COVID-19 in the early part of the year. This diversity provides us with extra resilience and the ability to increase our market share in the future.

As a key component of economic growth, the construction industry will be central to a sustainable recovery from the effects of COVID-19. New, low carbon infrastructure (including HS2, wind power, new nuclear, rail electrification, energy efficient buildings) will play a leading role in stimulating growth. In November, the UK Government released details of its five-year plan, the National Infrastructure Strategy ('NIS'), which sets out its plans to transform infrastructure to drive economic recovery, levelling up and meeting the UK's net zero emissions target by 2050. This plan will provide increased funding of 640 billion for UK infrastructure projects including future work for HS2 and investment programmes for Highways England. At Network Rail, in addition to HS2, the total CP6 budget of £53 billion (2019-2024), which includes a significant amount of rail electrification work, is substantially higher than the previous CP5 budget of £38 billion (2014-2019) and at Highways England, the second Road Investment Strategy ('RIS2') has been increased by a further £2 billion. We continue to make good progress with several of these significant infrastructure opportunities, particularly with HS2, road bridges and rail electrification programmes and remain well positioned to win work in the transport sector given the Group's historical track record and our in-house bridge capability, together with the in-depth expertise of the recently acquired DAM Structures (see below).

The Brexit transition period between the EU and UK came to an end on 31 December 2020 and the Trade and Co-operation Agreement, which governs significant aspects of the trading relationship between the UK and EU, is now in force. Whilst, to date, these new trading arrangements have not had a significant impact on the Group's operations, we continue to monitor developments in this area, particularly in relation to the flow of goods and people across borders. Specific risks and mitigations continue to be monitored at a project level and controlled by individual business units.

Supply chain

We are mindful of industry-wide supply chain pressures which are, in some instances, impacting material costs and availability, over and above that seen in the second half of 2021. This includes certain steel products, in part reflecting the price of iron ore which has nearly doubled over the past nine months. Notwithstanding this, steel remains largely a pass-through cost for the Group, albeit the recent steel price increases are likely to impact working capital in the short term. In response to the current market conditions and the associated supply chain pressures, we remain in regular contact with our customers and our major supply chain partners and, for steel, we benefit from relationships with a number of partners in the UK and continental Europe, reducing the risk of interruptions to the Group's steel supply. We have also experienced some challenges with the restricted supply of cold rolled steel over the past 12 months, which we continue to manage by forward purchasing as appropriate.

Severfield (Products & Processing)

Severfield (Products & Processing) ('SPP'), which is based at our Sherburn facility, allows us to address smaller scale projects and provides a one-stop shop for smaller fabricators to source high quality processed steel and ancillary products, albeit at lower margins. Encouragingly, despite trading through a pandemic, SPP has continued to secure and successfully deliver orders to its expanding customer base. The business has also provided high-quality subcontract fabrication packages (including general fabrication, secondary beams, trusses, bracing and stairs) to assist other Group companies in the delivery of larger projects, thus ensuring a greater proportion of project work remains in-house. During 2021, we have continued to grow and invest in the business, both in the factory and in our people, including strengthening the engineering and commercial functions, to maintain our focus on business development and developing the modular product range of the business. This includes the 'Severstor' and 'Rotoflo' product ranges which we are continuing to develop organically, resulting in 2021 revenue of c.£2m and a growing number of orders for delivery to an expanding customer base. During the year, SPP has also been awarded 'Fit for Nuclear' and certain Network Rail accreditations which, together with the encouraging progress to date and our previous record in modular construction, we believe will help us to achieve our future growth aspirations for the business.

Harry Peers

Harry Peers continues to secure high quality orders and we have good visibility of a strong order pipeline including in the growing nuclear and power (waste-to-energy) sectors. As part of the 'SSS' programme, we are also focusing on certain operational initiatives including investment in technology-driven enhancements to make the business more competitive and efficient and to support the development of our client service offering.

As expected, in addition to the initial consideration of £18.9m which was paid in 2019, a further performance-based consideration of £6.0m was paid in December 2020, as the business achieved certain financial and operational targets for the period ended 31 August 2020.

DAM Structures

On 26 February 2021, the Group completed the acquisition of DAM Structures, an innovative steel fabrication company, giving the Group immediate access to attractive, complementary market sectors with strong growth potential including the propping, railway and steel piling markets. The initial consideration was £12.0m and a further deferred consideration of £7.0m is payable in cash in April 2022. An additional performance-based contingent consideration of up to £8.0m is also in place, payable if certain work-winning targets in the railway and steel piling sectors are achieved over a five-year period, ending in April 2026.

DAM Structures is integrating well into the Group's operations. In addition to its core steel fabrication markets, we are seeing significant opportunities for growth in the UK from Network Rail electrification programmes including piling, overhead line equipment and general rail works, and elements of the HS2 project that we were not previously addressing, such as temporary and permanent tunnel work. This will complement the Group's existing expertise in bridges and stations. We also see opportunities for growth in DAM's propping business which provides bespoke fabricated propping systems to demolition and groundwork contractors.

DAM's core business involves on-site work with main contractors and ground and demolition contractors, often prior to the stage of project construction at which the Group in the past would typically have become involved. The acquisition is allowing us to establish relationships and contracts at an earlier stage in site development with both existing and new customers and is another step in the implementation of the Group's strategy, enhancing our position as the UK's broadest structural steel services group.

Clients

Our proven ability to work collaboratively and innovatively with clients is fundamental to our success and is critical to securing new work. This involves early contract engagement with clients, anticipating the issues they face and providing problem-solving solutions to ensure greater clarity around scope, construction programmes and cost which, in combination, reduces delivery risk for all parties.

Our unique capability to deliver complex design solutions, our capacity and speed of fabrication, the expert capabilities of the Group and its colleagues and our management and integration of the construction process is important to our clients and a key differentiator for the Group. During the pandemic, when certain construction programmes were delayed and disrupted, these capabilities allowed us to help clients deliver changes to these programmes more quickly and efficiently.

We have again achieved national recognition for our projects including an award at the 2020 Structural Steel Design Awards (for the Brunel Building) and we have been shortlisted for awards (for the new Tottenham Hotspur F.C. stadium and the Brunel Building) at the prestigious 2020 Royal Institute of British Architects ('RIBA') Awards, which have been postponed until 2021 due to COVID-19.

The Group worked on over 100 projects with our clients during the year including:

Major projects - over £20 million	Google King's Cross, London Large industrial facility, Republic of Ireland Large data centres, Republic of Ireland and Finland Large distribution centres, Littlebrook and Swindon
Commercial offices - London and regional	King's Cross P2, London Bankside Yards, London 150 Holborn, London One Sherwood Street, London Argyle Street, Glasgow
Industrial and distribution	Distribution centres, East Midlands, Germany, Republic of Ireland Jaguar Land Rover, Logistics Operations Centre ('LOC') and car park
Transport infrastructure	M8 Footbridge, Glasgow Barking Riverside Bridge, London Luton Airport DART Parkway Station HS2 bridges, West Midlands
Data centres and other projects	Data centres, Republic of Ireland Sky Studios, Elstree
Stadia and leisure	Lord's Cricket Ground redevelopment (Compton and Edrich stands) Fulham FC, London

India

The Indian joint venture ('JSSL') has continued its recovery from the disruptive effects of COVID-19. After a difficult first half, the company maintained a largely break-even profit position in H2 of 2021. The impact of COVID-19 is evident in the Group's after-tax share of loss of £0.7m (2020: share of profit of £2.2m). The loss reflects a reduction in JSSL's revenue to £48.0m, compared to £109.3m in the previous year, and an operating margin of 3.3 per cent, compared with 8.5 per cent in the previous year. Financing expenses of £3.4m (2020: £2.9m) turn JSSL's much reduced operating profit into a loss before tax for the year of £1.8m (2020: profit before tax of £6.4m).

The return to normal trading conditions in India is being considerably disrupted by the ongoing second wave of COVID-19 which is currently impacting output in H1 of 2022. Despite the ongoing COVID-19 challenges, JSSL's clients have continued to place orders, resulting in an order book which has increased to a record level of £140m (1 November 2020: £98m). This reflects the strong underlying demand for structural steel in India and includes several recent commercial awards (a large data centre in Chennai and commercial offices in Bangalore, Hyderabad and Navi Mumbai) and some large industrial projects for JSW. In terms of mix, 68 per cent of the order book represents higher margin commercial work, with the remaining 32 per cent representing industrial projects, mainly for JSW.

JSSL's pipeline of potential orders continues to include several commercial projects for key developers and clients with whom it has established strong relationships. JSSL is also developing formal strategic alliances with certain key clients, mainly for commercial, data centre and healthcare projects. This, together with the step up in the order book, leaves the business very well positioned in the market once the current COVID-19 wave subsides. Overall, we remain positive about the long-term development of the Indian market and of the value creation potential of JSSL, especially considering the significant structural changes made in India over recent years, the government's ongoing focus on the 'ease of doing business' and the significant production capability of the business following the Bellary expansion in 2020.

Safety, health and the environment

Throughout COVID-19, we have maintained our 'safety first' core value across the Group and this assumed an even greater emphasis in 2021 as we developed new operating procedures to support safe working to government guidelines. Significant changes were made in adapting our operations to maintain social distancing, facilitate home working by office staff where appropriate and to provide a safe working environment in both our factories and on our sites.

We have also continued our focus on mental health, which we recognise has been impacted nationally by COVID-19, including issuing regular communications through our new Coronavirus Hub on how to cope with certain issues arising from the pandemic itself, assisted by our team of 60 mental health first aiders. In 2021, we rolled out our enhanced Employees Assistance Programme, which includes the launch of a new app (My Healthy Advantage), to provide support and advice to colleagues on physical and mental wellbeing issues.

In 2021, a new platform for reporting SHE incidents and completing inspections was implemented which has been designed to clearly identify trends to enable targeted improvements through enhanced reporting, root cause and data analysis. We have maintained our ISO 45001 and 14001 certifications, along with additional client and sector specific certifications. During the year, we continued to focus on the Group's injury frequency rate ('IFR') and high potential near misses (HiPos). Despite the challenges of adapting operations to maintain social distancing, we have seen a positive and significant reduction in injury rates, resulting in an IFR (including JSSL) of 1.48, compared to 1.81 in 2020, improving upon our Group targets in the process. The Group's accident frequency rate ('AFR') (including JSSL) for the year, which is based solely on the level of RIDDORS (reportable accidents) was 0.18, which continues to outperform the industry average. This represents a slight increase from the prior year AFR of 0.15 but this was not wholly unexpected given the significant improvement in the AFR over recent years.

ESG

Following the launch of our new sustainability policy in 2020, we established an executive working group to focus on the evolution of our sustainability strategy and to develop a more sustainable business, taking into account certain Environmental, Social and Governance ('ESG') reporting frameworks, current and future legislation, and climate science. Aligning ourselves to the UN Sustainable Development Goals and building on the requirements of the Task Force on Climate Related Financial Disclosure ('TCFD'), the Group has developed targets and KPIs to monitor progress against our ESG objectives.

A key element of our sustainability strategy is our target to become an operationally carbon neutral organisation in the 2021 calendar year. Carbon neutral in this context means that we will use carbon offsetting to eliminate the combined scope 1, scope 2 and operational scope 3 greenhouse gas ('GHG') emissions generated from our manufacturing facilities and construction sites. Projects set to benefit from our carbon offsetting include solar power projects in India, the manufacture of efficient cookstoves in Ghana, and the regeneration of degraded lands in Chile.

The Group has improved upon previous climate-related targets and in 2021, we saw a reduction of eight per cent in our scope 1 and 2 GHG emissions to 27.5 CO2e/£m revenue compared to 29.8 in 2020 and a reduction of 53 per cent compared to 58.9 in 2015. Using a market-based approach, which includes the positive impact of switching to green energy (see below), our 2021 scope 1 and 2 GHG emissions reduced further to 21.0 CO2e/£m revenue, 21 per cent and 64 per cent lower than 2020 and 2015, respectively. This progress has been recognised by our inclusion in the Financial Times inaugural listing of Europe's climate leaders (May 2021) which highlights the 300 companies that have achieved the greatest reduction in their GHG emissions between 2014 and 2019. We have also established new targets to reduce scope 1 and 2 GHG emissions by 25 per cent by 2025 against a 2018 baseline. These targets based on the 2015 International Treaty on Climate Change, also known as the Paris Agreement, which seeks to limit global warming to below 1.5 degrees Celsius, compared to pre-industrial levels.

Following our earlier switch to green electricity at our two largest facilities, we have now committed to switch to 100 per cent green electricity across all the Group's directly controlled facilities and we have achieved the level of 73 per cent during the year. In 2021, we maintained our 'B' rating in the CDP index and were awarded an 'A' in the CDP Supplier Engagement Rating, improving on our 'A minus' from the previous year.

SteelZero - building a sustainable future

The Group has strengthened its commitment to reducing carbon emissions by signing up to SteelZero, a global initiative to speed up the transition to a net zero steel industry. SteelZero is led by the international non-profit organisations, the Climate Group and ResponsibleSteel. Targeting net zero steel from the demand-side of the supply chain makes this the first initiative of its kind, with the potential for it to have significant impact on investment, policy, manufacturing, and production in the construction sector. The initiative is being signed up to by an increasing number of steel buyers, both in the UK and internationally. By signing up, we are making a public commitment to transition to procuring, specifying, or stocking 100 per cent net zero steel by 2050, with certain interim targets to be achieved by 2030.

Summary and outlook

The Group has coped well with the challenges presented by the COVID-19 pandemic and has delivered a resilient set of results for 2021, reflecting the benefit of the strategic and operational progress made over recent years. This resilience is reflected in a UK and Europe order book of £301m, a record Indian order book of £140m, increased Group revenues and a strong cash position, which has enabled us to continue to pay dividends, support our supply chain and continue with our investment plans, including the acquisition of DAM Structures. Our strategy remains unchanged, focused on growth, both organic and through selective acquisitions, operational improvements and creating further value in our Indian joint venture, JSSL.

Whilst we continue to be mindful of the COVID-19 backdrop, particularly in India, there is now considerable positive momentum across the Group, and we remain optimistic about the future. We continue to regularly win high-quality work resulting in a strong order book, which supports trading throughout the 2022 financial year and beyond. We have an encouraging pipeline of opportunities in the UK, Europe and India, expertise in managing complex projects and good long-standing client relationships. This, together with the construction industry's obvious role in the recovery of the UK economy, leaves us well-placed to win work in the diverse range of market sectors and geographies in which we operate and across a wide client base, providing us with extra resilience and the ability to increase our market share and to drive future profitable growth.

Throughout the year, the business has had to adapt quickly and decisively to a continually changing market backdrop. I would like to thank all our colleagues for their commitment and dedication throughout these challenging times.

Alan Dunsmore

Chief Executive Officer

16 June 2021

FINANCIAL REVIEW

£m	2021	2020
Revenue	363.3	327.4
Underlying* operating profit (before JVs and associates)	25.5	27.0
Underlying* operating margin (before JVs and associates)	7.0%	8.2%
Underlying* profit before tax	24.3	28.6
Underlying* basic earnings per share	6.4p	7.7p
Operating profit (before JVs and associates)	22.7	24.7
Profit before tax	21.1	25.8
Basic earnings per share	5.6p	6.7p
Return on capital employed ('ROCE')	13.6%	17.2%

* The basis for stating results on an underlying basis is set out on the highlights page. The board believes that non-underlying items should be separately identified on the face of the income statement to assist in understanding the underlying performance of the Group. Accordingly, certain Alternative Performance Measures ('APMs') have been used throughout this report to supplement, rather than replace the measures provided under IFRS.

Trading performance

Revenue for the year of £363.3m represents an increase of £35.9m (11 per cent) compared with the previous year, reflecting an increase in order flow (£20.0m), together with the full year effect of the Harry Peers acquisition (£12.0m), which was acquired in October 2019, and one month's trading from the recently acquired DAM Structures (£3.9m).

Underlying operating profit (before JVs and associates) of £25.5m (2020: £27.0m), which includes a one-off profit (the associated revenue is included in Group revenue) on a bespoke paint package on the large industrial facility in the Republic of Ireland that the Group is currently working on, was £1.5m lower than in the previous year reflecting the disruptive effects of COVID-19. This has also resulted in the 2021 operating margin of 7.0 per cent falling below that achieved in the previous year, however the margin in H2 recovered well and, looking forward, we expect the 2022 operating margin to be approaching our normal range of 8 to 10 per cent, which was established pre-pandemic. The statutory operating profit (before JVs and associates), which includes the Group's non-underlying items, was £22.7m (2020: £24.7m).

The share of results of JVs and associates was a loss of £0.3m (2020: profit of £2.4m), mainly reflecting a difficult year for our Indian joint venture ('JSSL'). Net finance costs were £0.8m (2020: £0.7m).

Underlying profit before tax, which is management's primary measure of Group profitability, was £24.3m (2020: £28.6m). The statutory profit before tax, reflecting both underlying and non-underlying items, was £21.1m (2020: £25.8m).

Acquisition of DAM Structures

On 26 February 2021, the Group completed the acquisition of 100 per cent of the share capital of DAM Structures Limited for an initial net cash consideration of £12.0m on a cash free, debt free basis assuming a normalised level of working capital on completion. The total initial consideration was £17.0m, including cash and cash equivalents of £5.0m, which was funded by a combination of Group cash reserves of £5.0m and a new term loan of £12.0m. A further deferred consideration of £7.0m is payable in 2022, together with a performance-based contingent consideration of up to £8.0m, which would be payable over a five-year period. Based on provisional fair values, the acquired assets included intangible assets of £4.8m, which were attributed to customer relationships and order books and residual goodwill of £15.1m. The business contributed revenue of £3.9m and a nominal operating profit in the year.

Share of results of JVs and associates

The share of results from JSSL was a loss of £0.7m (2020: profit of £2.2m), reflecting the impact of COVID-19 on JSSL's trading and profitability. Our specialist cold rolled steel business, Construction Metal Forming ('CMF'), contributed a share of profit of £0.4m (2020: £0.2m). The business is currently in the process of expanding its production operations in Wales and has continued to develop its product range, including modular steel products, to drive organic revenue growth. We continue to be the only hot rolled steel fabricator in the UK to have a cold rolled manufacturing capability.

Non-underlying items

Non-underlying items are classified as such as they do not form part of the profit monitored in the ongoing management of the Group. Non-underlying items for the year of £3.2m (2020: £2.8m) consisted of the amortisation of acquired intangible assets of £2.8m (2020: £1.4m) and other acquisition-related expenses of £0.4m (2020: £1.4m).

The 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. These assets are being amortised over a period of 18 months to five years. No amortisation has been recorded for the intangible assets which were provisionally identified on the acquisition of DAM Structures on grounds of materiality and as these fair values are currently provisional. Acquisition-related expenses include certain non-recurring legal and consultancy costs associated with the DAM Structures acquisition and movements in the valuation of the contingent consideration for the Harry Peers acquisition which was paid in December 2020.

Taxation

The Group's underlying taxable profits of £24.7m (2020: £26.3m) resulted in an underlying tax charge of £4.6m (2020: £5.0m), which represents an effective tax rate of 18.5 per cent (2020: 19.0 per cent). The total tax charge of £3.8m (2020: £5.4m) also includes adjustments relating to prior years which are categorised as non-underlying and included in non-underlying items.

Earnings per share

Underlying basic earnings per share decreased by 17 per cent to 6.4p (2020: 7.7p) based on the underlying profit after tax of £19.8m (2020: £23.7m) and the weighted average number of shares in issue of 307.3m (2020: 305.4m). Basic earnings per share, which is based on the statutory profit after tax, was 5.6p (2020: 6.7p), reflecting the decreased underlying profit after tax offset by a decrease in non-underlying items. Diluted earnings per share, which includes the effect of the Group's performance share plan, was 5.6p (2020: 6.6p).

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 net funds position.

The board considers the dividend to be a very important component of shareholder returns. Accordingly, based on the outlook for the year ahead and our strong financial position, and despite the significant impact of COVID-19 on the 2021 results, the board is recommending a final dividend of 1.8p per share (2020: 1.8p), payable on 4 September to shareholders on the register at the close of business on 12 August. This together with the interim dividend of 1.1p per share (2020: 1.1p), will result in a total dividend of 2.9p per share (2020: 2.9p), unchanged from the previous year.

Goodwill and intangible assets

Goodwill was £85.8m at 31 March 2021 (2020: £70.7m), the increase reflecting the provisional goodwill arising on the DAM Structures acquisition. In accordance with IFRS, an annual impairment review has been performed. No impairment was required either during the year ended 31 March 2021 or the year ended 31 March 2020. Other intangible assets are recorded at £9.6m (2020: £7.4m). This 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, with the value of the DAM Structures intangibles remaining provisional at 31 March 2021.

Property, plant and equipment

The Group has property, plant and equipment of £91.7m (2020: £88.9m). Capital expenditure of £6.6m (2020: £6.5m) represents the continuation of the Group's capital investment programme. This predominantly consisted of ongoing expansion to our Dalton production facility, including new equipment for our fabrication lines, and improvements to our site and office facilities. Depreciation in the period was £6.0m (2020: £5.5m), of which £1.6m (2020: £1.6m) relates to right-of-use assets under IFRS 16.

Joint ventures

The carrying value of our investment in joint ventures and associates was £28.8m (2020: £26.7m), which consists of the investment in India of £17.6m (2020: £18.3m) and in CMF of £11.2m (2020: £8.5m).

Pensions

The Group's defined benefit pension liability at 31 March 2021 was £22.4m, an increase of £3.7m from the 2020 position of £18.7m. The deficit has increased largely because of a reduction in the discount rate which reflects the significant fall in bond yields over the past year, together with higher long-term inflation assumptions. This has been partially offset by higher returns on the scheme's assets and by ongoing deficit contributions. The triennial funding valuation of the scheme is in progress, with a valuation date of 31 March 2020. 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 as 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. For 2021, ROCE was 13.6 per cent (2020: 17.2 per cent), which exceeds the Group's target of 10 per cent through the economic cycle.

Cash flow

£m	2021	2020
Operating cash flow (before working capital movements)	30.2	30.2
Cash generated from operations	30.0	28.0
Operating cash conversion	93%	81%
Cash balances	25.0	29.5
Net funds**	4.4	16.4

** 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.

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 financial year with net funds of £4.4m (2020: £16.4m). Net funds at 31 March 2021 consisted of cash of £25.0m offset by the outstanding term loans of £20.7m for the Harry Peers and DAM Structures acquisitions.

Operating cash flow for the year before working capital movements was £30.2m (2020: £30.2m). Net working capital was broadly stable over the course of the year, increasing by £0.2m. Excluding advance payments, year-end net working capital represented approximately two per cent of revenue (2020: three per cent). This is slightly below our well-established target range of four to six per cent, reflecting our continued focus on working capital management.

Our cash generation KPI shows the conversion of 93 per cent (2020: 81 per cent) of underlying operating profit (before JVs and associates) into operating cash (cash generated from operations less net capital expenditure), ahead of our target of 85 per cent.

Prompt Payment Code

We believe in treating our suppliers and subcontractors fairly and with respect. Our three main businesses are all signatories of the Prompt Payment Code ('PPC'). Our relationships with our supply chain partners are of strategic importance and key to the Group's success, and payment practices remained a major area of focus throughout the year and even more so against the backdrop of COVID-19. For the PPC reporting period of 1 October 2020 to 31 March 2021, all the Group's businesses that are signatories of the PPC, reported that at least 95 per cent of invoices were paid within 60 days.

Whilst we remain very focused on continuing to improve our payment performance, the Group operates in a sector where supply chains and contractual terms are complex, and prompt payment can often be significantly impacted by resolution of disputes and alignment to agreed contractual processes. On 1 March 2021, the UK's new VAT Domestic Reverse Charge regulations for construction services came into force, further increasing existing cash flow pressures on many businesses in our sector and which also may impact the ability of certain supply chain partners to accurately invoice the Group.

Bank facilities committed until 2023

The Group has a £25m revolving credit facility ('RCF') with HSBC Bank and Yorkshire Bank, which matures in October 2023. The RCF, of which £10m is available as an overdraft facility, continues to include an additional accordion facility of £20m, which allows the Group to increase the aggregate available borrowings to £45m. As part of the Harry Peers and DAM Structures acquisitions, new amortising term loans of £14m and £12m, respectively, were established as amendments to the existing RCF. These loans, for which £20.7m remained outstanding at 31 March 2021, also mature in October 2023. The RCF remains subject to three financial covenants, interest cover (>4x) and net debt to EBITDA (<2.5x) and cash flow cover (<1x). The Group operated well within these covenant limits throughout the year ended 31 March 2021.

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 COVID-19 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,
The Group's 'SSS' business improvement programme, which has delivered tangible benefits in 2021 and is expected to continue doing so in the 2022 financial year and for the period under forecast, and
The Group's net funds position and its bank finance facilities, which are committed until October 2023, including both the level of those facilities and the three financial covenants (see above) attached to them.

The Group has continued to trade safely and profitably with positive operating cash flows for the year ended 31 March 2021 whilst operating under various COVID-19 restrictions. Whilst there continues to be some uncertainty associated with COVID-19, the directors expect the Group to remain similarly resilient over the forecast period whilst it continues to operate under any further potential restrictions until the end of the pandemic.

The directors have reviewed the Group's forecasts and projections for the 2022 financial year and up to 12 months from the date of approval of the financial statements, including sensitivity analysis to assess the Group's resilience to potential adverse outcomes arising out of COVID-19 (or other similar significant disruptions) including a highly pessimistic 'worst case' scenario. This 'worst case' is based on the combined impact of securing no further orders for the next twelve months and further significant COVID-19 (or similar other) disruption for the entirety of the going concern period. Given the strong previous performance of the Group, despite three separate COVID-19 lockdowns, this scenario is only being modelled to stress test our strong financial position and demonstrate the existence of considerable headroom in the Group's covenants and borrowing facilities.

The directors also considered sensitivities in respect of other potential downside scenarios and the mitigating actions available in concluding that the Group can continue in operation for a period of at least 12 months from the date of approving the financial statements. Having also made appropriate enquiries, the directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and, for this reason, have continued to adopt the going concern basis in preparing the financial statements.

Adam Semple

Group Finance Director

16 June 2021

Consolidated income statement

For the year ended 31 March 2021

	Underlying 2021 £000	Non-underlying 2021 £000	Total 2021 £000	Underlying 2020 £000	Non-underlying 2020 £000	Total 2020 £000
Revenue	363,254	-	363,254	327,364	-	327,364
Operating costs	(337,784)	(2,795)	(340,579)	(300,386)	(2,294)	(302,680)
Operating profit before share of results of JVs and associates	25,470	(2,795)	22,675	26,978	(2,294)	24,684
Share of results of JVs and associates	(344)	-	(344)	2,355	-	2,355
Operating profit	25,126	(2,795)	22,331	29,333	(2,294)	27,039

Net finance expense	(795)	(429)	(1,224)	(712)	(514)	(1,226)
Profit before tax	24,331	(3,224)	21,107	28,621	(2,808)	25,813

Tax	(4,574)	771	(3,803)	(4,959)	(439)	(5,398)
Profit for the year attributable to the equity holders of the parent	19,757	(2,453)	17,304	23,662	(3,247)	20,415


Earnings per share:
Basic	6.43p	(0.80)p	5.63p	7.74p	(1.06)p	6.68p
Diluted	6.43p	(0.80)p	5.63p	7.70p	(1.06)p	6.64p

All the above activities relate to continuing operations.

Further details of 2021 non-underlying items are disclosed in note 3.

Consolidated statement of comprehensive income

For the year ended 31 March 2021

		2021		2020
		Year ended 31 March 2021 £000		Year ended 31 March 2020 £000
Actuarial (loss)/gain on defined benefit pension scheme*	(4,906)		255
Gains/(losses) taken to equity on cash flow hedges	1,699		(1,403)
Reclassification adjustments on cash flow hedges	251		(410)
Exchange difference on foreign operations	34		(34)
Tax relating to components of other comprehensive income*	734		(184)
Other comprehensive income for the year	(2,188)		(1,776)
Profit for the year from continuing operations	17,304		20,415
Total comprehensive income for the year attributable to equity shareholders	15,116		18,639

* These items will not be subsequently reclassified to the consolidated income statement.

Consolidated balance sheet

As at 31 March 2021

	2021 £000	2020 £000
ASSETS

Non-current assets
Goodwill	85,782	70,714
Other intangible assets	9,630	7,375
Property, plant and equipment	91,698	88,864
Right-of-use asset	9,808	10,140
Interests in JVs and associates	28,790	26,690
Contract assets, trade and other receivables	4,368	-
	230,076	203,783
Current assets
Inventories	10,231	6,856
Contract assets, trade and other receivables	67,847	74,612
Derivative financial instruments	1,049	-
Current tax assets	3,584	1,640
Cash and cash equivalents	24,983	44,338
	107,694	127,446

Total assets	337,770	331,229

LIABILITIES

Current liabilities
Trade and other payables	(77,803)	(84,366)
Financial liabilities - borrowings	(5,900)	(19,375)
Financial liabilities - leases	(1,744)	(1,502)
Derivative financial instruments	-	(1,135)
	(85,447)	(106,378)
Non-current liabilities
Trade and other payables	(10,639)	-
Retirement benefit obligations	(22,379)	(18,688)
Financial liabilities - borrowings	(14,850)	(8,750)
Financial liabilities - leases	(9,365)	(9,729)
Deferred tax liabilities	(4,161)	(4,009)
	(61,394)	(41,176)

Total liabilities	(146,841)	(147,554)

NET ASSETS	190,929	183,675

EQUITY

Share capital	7,706	7,648
Share premium	87,658	87,292
Other reserves	3,464	1,402
Retained earnings	92,101	87,333
TOTAL EQUITY	190,929	183,675

Consolidated statement of changes in equity

For the year ended 31 March 2021

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

At 1 April 2020	7,648	87,292	1,402	87,333	183,675
Total comprehensive income for the year	-	-	1,984	13,132	15,116
Ordinary shares issued *	58	366	-	-	424
Equity settled share-based payments	-	-	78	531	609
Dividend paid	-	-	-	(8,895)	(8,895)
At 31 March 2021	7,706	87,658	3,464	92,101	190,929

* The issue of shares represents shares allotted to satisfy the 2017 performance share plan award which vested in June 2020 and the 2017 Sharesave scheme.


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

At 1 April 2019	7,600	87,254	3,819	76,334	175,007
Changes in accounting policy	-	-	-	(895)	(895)
Restated total equity at 1 April 2019	7,600	87,254	3,819	75,439	174,112
Total comprehensive income for the year	-	-	(1,847)	20,486	18,639
Ordinary shares issued **	48	38	-	-	86
Equity settled share-based payments	-	-	(570)	259	(311)
Dividend paid	-	-	-	(8,851)	(8,851)
At 31 March 2020	7,648	87,292	1,402	87,333	183,675

** The issue of shares represents shares allotted to satisfy the 2016 performance share plan award which vested in June 2019 and the 2017 and 2018 Sharesave schemes.

Consolidated cash flow statement

For the year ended 31 March 2021

	2020	2019
	Year ended 31 March 2021 £000	Year ended 31 March 2020 £000
Net cash flow from operating activities	25,349	21,980

Cash flows from investing activities
Proceeds on disposal of other property, plant and equipment	104	267
Purchases of land and buildings	(247)	(1,519)
Purchases of other property, plant and equipment	(6,097)	(4,945)
Purchase of intangible assets	(276)	-
Investment in JVs and associates	(2,444)	-
Investment in subsidiary entities, net of cash acquired	(17,489)	(13,390)
Net cash used in investing activities	(26,449)	(19,587)

Cash flows from financing activities
Interest paid	(699)	(598)
Dividends paid	(8,895)	(8,851)
Proceeds from shares issued	424	86
Proceeds from borrowings	12,000	29,000
Repayment of borrowings	(19,375)	(875)
Repayment of obligations under finance leases	(1,710)	(1,796)
Net cash (used in)/generated from financing activities	(18,255)	16,966

Net (decrease)/increase in cash and cash equivalents	(19,355)	19,359
Cash and cash equivalents at beginning of year	44,338	24,979
Cash and cash equivalents at end of year	24,983	44,338

1) Basis of preparation

The preliminary announcement has been prepared in accordance with the Listing Rules of the FCA and is based on the 2021 financial statements which have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 ('the Act') and in accordance with International Financial Reporting Standards ('IFRS') as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The accounting policies applied in preparing the preliminary announcement are consistent with those used in preparing the statutory financial statements for the year ended 31 March 2020.

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 31 March 2020 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 31 March 2021, 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, 'Operating Segments' 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. On this basis, the CODM has identified one operating segment (construction contracts) which in turn is the only reportable segment of the Group. The constituent operating businesses have been aggregated as they have similar products and services, production processes, types of customers, methods of distribution, regulatory environments and economic characteristics. All revenue is derived from construction contracts and related assets. Group revenue includes revenue of £108,871,000 (2020: £47,655,000), spread over several contracts, relating to one major customer, who individually contributed more than 10 per cent of Group revenue in the year ended 31 March 2021.

3) Non-underlying items


	2021 £000	2020 £000
Operating costs	(2,795)	(2,294)
Finance expense	(429)	(514)
Non-underlying items before tax	(3,224)	(2,808)
Tax on non-underlying items	771	(439)
Non-underlying items after tax	(2,453)	(3,247)

Non-underlying items consisted of the amortisation of acquired intangible assets of £2,842,000 (2020: £1,421,000) and acquisition-related expenses of £382,000 (2020: £1,387,000).

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 in the previous year. No amortisation has been recorded in the year for the provisional intangible assets identified on the acquisition of DAM Structures since these fair values were provisional at 31 March 2021 and the applicable amortisation would be immaterial. Acquisition-related expenses include non-recurring legal and consultancy costs associated with these acquisitions of £689,000 (2020: £873,000) and unwinding of the discount on the Harry Peers contingent consideration of £429,000 (2020: £514,000) offset by movements of £736,000 (2020: £nil) in the valuation of the Harry Peers contingent consideration, which was paid in December 2020.

Non-underlying items have been separately identified to provide a better indication of the Group's underlying business performance. They are not considered to be 'business as usual' items and have a varying impact on different businesses and reporting years. They have been separately identified as a result of their magnitude, incidence or unpredictable nature. These items are presented as a separate column within their consolidated income statement category. Their separate identification results in a calculation of an underlying profit measure in the same way as it is presented and reviewed by management.

4) Taxation

The taxation charge comprises:

	2021 £000	2020 £000
Current tax
UK corporation tax	(3,940)	(3,945)
Adjustments to prior years' provisions	(69)	(578)
	(4,009)	(4,523)

Deferred tax
Current year credit/(charge)	25	(706)
Impact of change in future years' tax rates	-	(242)
Adjustments to prior years' provisions	181	73
	206	(875)

Total tax charge	(3,803)	(5,398)

5) Dividends

	2021 £000	2020 £000
Amounts recognised as distributions to equity holders in the year:
2020 final - 1.8p per share (2019: 1.8p per share)	(5,523)	(5,493)
2021 interim - 1.1p per share (2020: 1.1p per share)	(3,372)	(3,358)
	(8,895)	(8,851)

The directors are recommending a final dividend of 1.8p per share (2020: 1.8p). This together with the interim dividend of 1.1p per share (2020: 1.1p), will result in a total dividend of 2.9p per share (2020: 2.9p), unchanged from the previous year.

6) Earnings per share

Earnings per share is calculated as follows:

		2021 £000		2020 £000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company	17,304		20,415

Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company	19,757		23,662

Number of shares	Number		Number

Weighted average number of ordinary shares for the purposes of basic earnings per share	307,337,645		305,428,749
Effect of dilutive potential ordinary shares	112		1,701,466

Weighted average number of ordinary shares for the purposes of diluted earnings per share	307,337,757		307,130,215

Basic earnings per share	5.63p	6.68p	6.68p
Underlying basic earnings per share	6.43p	7.74p	7.74p
Diluted earnings per share	5.63p	6.64p	6.64p
Underlying diluted earnings per share	6.43p	7.70p	7.70p

7) Business combinations

Summary of acquisition

On 26 February 2021, the Company acquired 100 per cent of the share capital of DAM Structures Limited ('DAM Structures'), an innovative steel fabrication company. The board believe that the acquisition will give the Group immediate access to attractive, complimentary market sectors with strong growth potential including the propping, railway and steel piling market sectors.

The provisional net consideration of £23.0m comprises:


		2021 £000

Gross initial cash consideration		16,994
Provisional completion payment		918
Deferred consideration		6,930
Contingent consideration		3,709
Gross consideration		28,551
Net cash acquired		(5,505)
Net consideration		23,046

Acquisition consideration

DAM Structures was acquired for an initial gross consideration of £16,994,000, including cash and cash equivalents of £5,505,000, which has been funded by a combination of Group cash reserves and a new term loan.

In addition, a maximum deferred consideration of £7,000,000 is payable in cash in April 2022. An additional performance-based contingent consideration is also in place which could further increase the purchase price by up to £8,000,000, if certain work-winning targets in the railway and steel piling sectors are achieved over a five-year period, ending in April 2026.

The contingent consideration has been recorded at its provisional fair value of £3,709,000, which represents management's current assessment of the amount likely to be paid of £6,000,000 (out of the maximum £8,000,000), discounted at DAM Structures's cost of capital of 18.5 per cent.

The provisional fair value of the assets and liabilities recognised as a result of the acquisition are as follows:

Non-current assets		£000
	Property, plant and equipment	1,990

Current assets
	Inventories	2,235
	Contract assets, trade and other receivables	10,141
	Cash and cash equivalents	5,521
		17,897
Total provisional assets		19,887
Current liabilities
	Trade and other payables	(9,989)
	Current tax liabilities	(86)
		(10,075)
Non-current liabilities
	Deferred tax liabilities	(1,079)
Total provisional liabilities		(11,154)

Provisional net assets, identified intangible assets and goodwill: Net assets		8,733
Net cash acquired		(5,505)
Net identifiable assets acquired		3,228
Identified intangible assets		4,750
Goodwill		15,068
Provisional net assets acquired		23,046

Provisional goodwill of £15,068,000 represents both existing and new end user customers (including core fabrication and rail), which were not recognised separately in accordance with IFRS 3 (Revised) 'Business combinations', the ability and skill of DAM's employees and management, know-how, and the quality of the services provided (none of which qualify for recognition as a separate intangible asset under IFRS 3). The provisional goodwill arising from the acquisition is not expected to be deductible for income tax purposes.

Analysis of amounts disclosed in the cash flow statement in connection with acquisitions:


		2021 £000

Gross initial cash consideration		16,994
Net cash acquired		(5,505)
Total cash outflow - investing activities		11,489
Contingent consideration - Harry Peers		6,000
Total cash outflow - investing activities		17,489

Acquisition-related costs of £689,000 were fully expensed in the period to 31 March 2021 as non-underlying operating costs (see note 3).

The acquired business contributed revenues of £3,944,000 and profit after tax of £212,000.

8) Net cash flow from operating activities

	2021 £000	2020 £000
Operating profit from continuing operations	22,331	27,039
Adjustments:
Depreciation - property, plant and equipment	4,434	3,928
Depreciation - right-of-use assets	1,569	1,585
Loss/(gain) on disposal of other property, plant and equipment	40	(68)
Movements in contingent consideration	(736)	-
Amortisation of intangible assets	2,846	1,421
Movements in pension scheme	(1,215)	(1,029)
Share of results of JVs and associates	344	(2,355)
Share-based payments	610	(311)
Operating cash flows before movements in working capital	30,223	30,210
(Increase)/decrease in inventories	(1,140)	2,059
Decrease/(increase) in receivables	12,551	(12,174)
(Decrease)/increase in payables	(11,645)	7,898

Cash generated from operations	29,989	27,993
Tax paid	(4,640)	(6,013)
Net cash flow from operating activities	25,349	21,980

9) Net funds

The Group's net funds are as follows:


	2021 £000	2020 £000
Borrowings	(20,750)	(28,125)
Cash and cash equivalents	24,983	44,338
Unamortised debt arrangement fees	128	177
Net funds (pre-IFRS 16)	4,361	16,390
IFRS 16 lease liabilities	(11,109)	(11,231)
Net (debt)/funds (post-IFRS 16)	(6,748)	5,159

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.

10) Contingent liabilities

Liabilities have been recorded for the directors' best estimate of uncertain contract positions, known legal claims, investigations and legal actions in progress. The Group takes legal advice as to the likelihood of the success of claims and actions and no liability is recorded where the directors consider, based on that advice, that the action is unlikely to succeed, or that the Group cannot make a sufficiently reliable estimate of the potential obligation. The Group also has contingent liabilities in respect of other issues that may have occurred, but where no legal or contractual claim has been made and it is not possible to reliably estimate the potential obligation.

Principal risks and uncertainties

The board has carried out 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:

Health and safety

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.

Supply chain

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

§ Initiatives are 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 utilise alternative arrangements, including 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.

Commercial and market environment

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) and the impact of pandemics (including the ongoing COVID-19 pandemic).

The pace of recovery from the impact of the COVID-19 pandemic is unpredictable and could have a negative impact on future trading. A sluggish recovery from COVID-19 could adversely impact investor confidence.

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 customers 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 customer failure.

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

§ Acquisition of Harry Peers and DAM Structures has broadened our outreach and cross selling opportunities resulting in improved market resilience.

COVID-19

Description

Future outbreaks of COVID-19 or temporary emergency public measures such as travel bans, quarantines and public lockdowns could have a significant and prolonged impact on global economic conditions, disrupt our clients and suppliers, supply chain, increase employee absenteeism and adversely impact our operations.

Impact

The effect of the disease itself is on the health and safety of our people, the financial impact of implementing social distancing measures across our business and the economic slowdown that has resulted from the measures taken in the UK and abroad to combat the virus. A significant fall in demand and higher costs could adversely impact revenues, profits, ability to recover overheads and cash generation.

Mitigation

§ The safety and wellbeing of our clients and employees continues to be our overriding priority. Our executive committee are monitoring events closely with regular board oversight evaluating the impact and designing appropriate response strategies.

§ The availability of cash resources and committed facilities together with strong cash flow to support our strong financial position including the Group's longer-term viability.

Cyber security

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.

Failure to mitigate onerous contract terms

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.

Indian joint venture

Description

The growth, effective management and performance of our Indian joint venture ('JSSL') is a key element of the Group's overall strategy. The Indian market has continued to expand rapidly in recent years and the factory in Bellary has been expanded to meet current and anticipated future market growth.

The COVID-19 pandemic continues to impact JSSL and recovery is likely to take several months.

Impact

Failure to effectively manage our operations in India could lead to financial loss, reputational damage and a drain on cash resources to fund the operations.

Mitigation

§ In line with the response of the Group to COVID-19, local management in India continue to closely monitor cash flows and debt repayments, together with adopting specific actions to minimise the disruption on the joint venture operations during the Indian economy's recovery period.

§ Restructuring undertaken in 2021 to reduce overheads without compromising future growth plans.

§ Robust joint venture agreement and strong governance structure is in place.

§ Regular schedule of annual visits to India by UK executive and senior management to review operations and ensure appropriate oversight (suspended during the COVID-19 outbreak and conducted by video conference).

§ Two members of the Group's board of directors are members of the joint venture board.

§ Regular formal and informal meetings held with both joint venture management and joint venture partners.

§ Contract risk assessment, engagement and execution process now embedded in the joint venture.

§ Operational improvement programmes remain ongoing.

§ Ongoing review of controls environment and risk management processes undertaken by Group senior management.

People

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.

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, customer 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 commenced in 2021 to identify and develop future senior leaders within the business.

§ Attractive working environments, remuneration packages, technology tools and wellbeing initiatives to help improve employees' working lives.

§ 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.

§ A new HR structure implemented in 2021 and updated HR systems rolled out covering payroll and a new employee portal.

§ 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.

§ A review of the company approach to flexible working practices has been undertaken in the light of our experiences of remote working during the COVID 19 pandemic.

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