Final Results
Severfield-Rowen PLC
02 April 2008
2007 Full Year Results
Severfield-Rowen Plc, the market leading structural steel group, announces its
full year results to 31 December 2007 including record levels of output, revenue
and profitability.
Financial Highlights
£m 2007 2006 Change
Revenue 300.7 295.1 1.9%
Underlying* operating profit 42.7 29.1 46.6%
Underlying profit before tax 42.9 30.3 41.8%
Retained profit after tax 26.4 20.9 26.3%
Underlying basic earnings per share 35.74p 25.64p 39.4%
Dividend per share 20.00p 14.25p 40.4%
• Record margins due to focus on quality projects for major clients
• Record underlying operating margin increased to 14.2% (2006: 9.9%)
• Underlying profit before tax margin increased to 14.3% (2006: 10.3%)
• Underlying profit before tax increased to £42.9m (2006: £30.3m)
• Following acquisition and capital expenditure, year end net borrowings of
£48.1m (2006: net funds £38.2m)
Operational Highlights
• All core businesses performed strongly with a focus on prime projects
• Continued high quality projects undertaken, including:
• Completion on time and budget of Terminal 5, Heathrow
• Completion of the Westfield Centre shopping centre, London
• First ever inner city Ikea store on Queen Victoria Road, Coventry
• New Museum of Transport, Glasgow
• The Darwin Centre, Natural History Museum, London
• Premium office development at Holborn Viaduct for Balfour Beatty
Construction Ltd
• 12 storey offices, Piccadilly, Manchester
• The Point Shopping Centre, Dublin
• A supply chain partner to blue chip active clients:
• Westfield
• BAA
• Landsecurities / British Land / Stanhope
• Tesco, ASDA and Sainsbury
• Quinn Group
• Successful acquisition and integration of Fisher Engineering providing
major position in Ireland
Outlook
• Despite global financial and economic outlook, the Board remains
optimistic of future growth with a record order book of £455m providing a
solid platform for the next 12 to 18 months
• 2008 has commenced well and our outlook is positive
• Diverse range of projects and geography, including Power Stations,
Hospitals and Retail Malls
* Underlying is before the amortisation of acquired intangible assets of £2.2m
and the valuation of derivative financial instruments of £2.39m.
Peter Levine, Chairman, commented:
'2007 was a record year for Severfield-Rowen. We continued to deliver growth in
all core areas and as we move into a different economic environment we remain
confident that our focus on client service as well as prime quality projects
will enable us to continue our growth.
Our record order book is a reflection of the hard work undertaken by the team in
2007 and is the basis for a strong 2008. Despite current market conditions
Severfield-Rowen is very well placed to continue its development.
Retiring as Chairman at the forthcoming AGM, I am confident that Tom Haughey,
Peter Emerson and their team will take the Group forward to further prosperity
and success in the future.'
Chairman's Statement
Introduction - Another Great Year
On behalf of the Board I am delighted to report that the Group performed
extremely well in 2007 with all of our core businesses yet again delivering
record productivity and customer service, and producing record results.
In spite of the challenging global financial market conditions towards the end
of the year, the financial strength of Severfield-Rowen combined with increasing
demand for the Group's differentiated services, underline our confidence in the
Group's long-term growth prospects.
Overview - Further Growth
In 2007 underlying operating profit (before amortisation of acquired intangible
assets of £2.2m and the valuation of derivative financial instruments of £2.39m)
increased by 46.6% to a record £42.68m (2006:£29.12m) on increased revenue of
£300.7m (2006: £295.1m). The underlying operating margin increased to 14.2%
(2006: 9.9%). These impressive results were largely due to our quality service
level, underpinned by a focus on prime projects.
All of our core businesses performed strongly with a focus on high-margin, prime
projects. Accordingly, underlying profit before tax was 41.8% higher at £42.9m
(2006: £30.3m) producing a 39.4% increase in underlying basic earnings per share
of 35.74p (2006: 25.64p). The underlying profit before tax margin increased to
14.3% (2006: 10.3%).
Retained profit after tax was £26.4m (2006: £20.9m).
The Group's net assets increased to £116.8m (2006: £66.2m). Following the
funding of the Fisher Engineering acquisition and the purchase of the Dalton
Property, we ended the year with net borrowings of £48.1m (2006: net funds
£38.2m).
We increased our leading position in the structural steel industry and are
involved in many significant projects and developments. We are particularly
pleased that all of the Company's core subsidiaries in 2007, namely
Severfield-Reeve Structures, Watson Steel Structures, Atlas Ward Structures,
Rowen Structures, Fisher Engineering and Steelcraft Erection Services,
contributed to our record results.
Heathrow Terminal 5
Notable among our recent completed projects was Heathrow Airport's new Terminal
5, which has received worldwide acclaim not only for its impressive visual
impact, but more fundamentally for the completion of its construction time and
on budget. The Group should be extremely proud of this achievement.
Dividend - Improved Returns
With the record results announced today and in view of the strength of our
financial position, the Directors are pleased to announce a 40.4% increase in
the full dividend for the year to 20.0p per share which is covered 1.8 times by
underlying earnings. The final dividend is 13.25p per share (2006: 9.25p)
payable on 16 June 2008 to shareholders on register on 16 May 2008.
Fisher Engineering
The acquisition of Fisher Engineering was completed in October 2007 at a total
cost of £92.2m of which £36.6m was paid in shares and the balance in cash.
Based in Enniskillen, Northern Ireland, the Company has an established track
record as a very successful and profitable fabricator in both the province and
Eire and its incorporation into the Group has been speedy and effective. We look
forward to Fishers making a significant contribution to the Group in 2008 and
beyond
At the time of purchase, Ian Cochrane, the Managing Director of Fishers, joined
our main board. A planned upgrade investment of some £2.5m was completed in
2007, prior to the acquisition, and is now providing the strategic productivity
improvements envisaged.
Dalton Airfield Estate
During the same period as the Fisher acquisition, the Group acquired the
freehold reversion of Dalton, the Group's headquarters from certain directors
and management for the sum of £23.5m. The acquisition has a positive effect and
means Severfield regains control of this valuable extensive headquarters and
fabrication site thereby giving it both the flexibility in further development
and an increased asset base.
Board Changes
Chairmanship
With effect from the close of the Company's AGM on 30 May 2008 I will step down
both as Chairman and Main Board Director of Severfield-Rowen.
Having been first Deputy Chairman for a numbers of years, then Chairman for the
last ten years, it is time to pass on the baton. In all those years it has been
an honour to be part of the team that has made Severfield the pre-eminent force
in our industry. It has furthermore been a privilege to work alongside first the
creator of the modern Severfield, John Severs, and latterly the team that I have
no doubt will take it forward to further prosperity and success, namely Tom
Haughey, Peter Emerson, and their management colleagues. Shareholders should
have every confidence that the future of Severfield is in good hands and I
express sincere thanks to all my colleagues and our employees for their
friendship and support to me over many years.
My replacement as Chairman is to be Toby Hayward. Toby provides both valuable
accounting background, being a Chartered Accountant, qualifying with Deloitte
and Touche, and has very extensive city experience. For the last 21/2 years he
has been with Jefferies International Limited.
John Featherstone
Also with effect from the close of the Company's AGM, John Featherstone, one of
our non-executive directors will be standing down. I have known John since he
joined our board twenty years ago, as our then sole non-executive and he has
provided invaluable support throughout that time. The Company owes him much
gratitude and wishes him and his wife health, happiness and a lengthy and
vibrant retirement.
Board Re-organisation
Taking into account my departure and that of John Featherstone, the decision has
been taken to rationalise and streamline the Board structure.
Accordingly, with effect from close of business of the forthcoming AGM, Peter
Ellison, Brian Hick, Nigel Pickard and Ian Cochrane will step down as Main Board
members but will of course continue as executive managing directors of their own
companies being respectively Steelcraft, Severfield-Reeve, Atlas Ward and Fisher
Engineering. I express mine and the Board's appreciation of their important
support to the Main Board and look forward to many years of continued
contributions to the Group through a new Executive Management Committee.
Proposed Board structure post AGM
Main Board
Toby Hayward Non-Executive Chairman
Tom Haughey Chief Executive Officer
Peter Emerson Chief Operating Officer
Peter Davison Finance Director
Keith Elliott Senior Non-Executive Director
David Ridley Non-Executive Director
Geoff Wright Non-Executive Director
Divisional Executive Managing Directors
Peter Ellison Steelcraft Erection Services
Brian Hick Severfield-Reeve Structures
Nigel Pickard Atlas Ward Structures
Ian Cochrane Fisher Engineering
Employees - Key to Success
The consistent achievements of the Group continue to reflect directly on the
excellent management and workforce. The Directors' sincere gratitude is extended
to them.
Outlook - Still Positive
The Group's prospects are very good. Our position remains robust and demand for
our services continues to be significant, particularly larger projects, as
exemplified by our record order book and as observed by other leading
construction contractors.
We have begun this year well and are confident of further success in 2008 and
beyond, including the Company's expressed objective of exploring overseas
ventures.
Peter Levine
Chairman
1998-2008
2 April 2008
Operational Review
The Company continued to make very good progress through 2007, producing records
in output, turnover and profitability, and established the strongest forward
order book in its history.
Client satisfaction is very high as the focus continues to be on delivery of
value and on-time project execution for all contracts, large and small.
In the closing quarter of 2007 the Group achieved a significant strategic
objective with the acquisition of Fisher Engineering Limited. The Company has
settled in to the Group exceedingly well. Benefits to the Group include enhanced
flexibility, better service offerings and the greater collective optimisation of
our new scale and breadth. This acquisition consolidates the Group's leading
position, in terms of service and client preference throughout the UK and
Ireland.
The companies within the Group, while autonomous, are solidly co-operating to
provide 'best in industry' programmes, service and value to clients and their
projects.
Severfield-Reeve Structures
Many notable projects were undertaken by the Company, including:
• Completion of the Westfield Centre shopping centre, London
• Continuing specialist development of oil pipeline carrying racks on
Sakhalin Island, Russian Federation
• First ever inner city Ikea store on Queen Victoria Road, Coventry
• Extension to the Shires shopping centre in Leicester
• Retail, leisure and residential centre Eagles Meadow, Wrexham
• Concert hall, arts venue and office development with unique rippling glass
facade at King's Place, London
• Retail development at the Broadmead shopping complex in Bristol
• Office development using the innovative Bi-Steel Core at One Basinghall
Avenue, London
• New 1200 bed hospital development at Queen Elizabeth Medical Centre,
Edgbaston, Birmingham
• Mixed use retail and residential development at Livingston, near Edinburgh
• Ropemaker multi-storey office block, London
During the course of 2007, the Company prepared for and obtained a Gold Award
via the British Construction Steel Association Sustainability Charter. This is
a milestone achievement and is just the initial step in the Group's ambition to
generate an efficient sustainable business model. In the same timeframe BS EN
ISO 14001 Environmental and OHSAS 18001 Safety accreditations were achieved.
Further site development for improved logistics and enhanced product output were
implemented through 2007, ensuring that the Company strengthens its position as
the leading production facility in Europe.
Watson Steel Structures
The Company again continues to express its versatility and engineering expertise
through its participation in many high profile projects, including:
• The on-time/in budget completion of Terminal 5, Heathrow
• Terminal extension at Stansted for BAA
• Hackney Academy, London
• The Darwin Centre at the Natural History Museum, London
• Waste to Energy plant, Colnebrook
New projects awarded in 2008 include:
• New Museum of Transport, Glasgow
• Terminal 2 Dublin Airport
• Extensions to Terminals 3 and 4 at Heathrow Airport
• The exclusive residential development at Number 1 Hyde Park, London
• Cannon Place development, London
In 2007, the operations at Watson Steel were enhanced with the commission of
processing equipment and the improvement of site infrastructure.
The Company was also successfully accredited with BS EN ISO 14001 Environment
and OHSAS 18001 Safety awards, demonstrating its ongoing commitment to quality,
safety and sustainability.
Atlas Ward Structures
In 2007 Atlas Ward derived productivity benefits from the significant
investments made in 2006.
Investment during 2007 is further strengthening the Company's position in the
market place and makes it more flexible to compete across a range of
construction sectors.
Projects engaged during the year, include:
• New distribution centre for Tesco in Livingston, Scotland
• Project Storm, a new distribution centre for major supermarket chain ASDA
at Redhouse Interchange, Doncaster
• New distribution centre for Tesco in Goole
• New distribution hub for Sainsbury's in Pineham
• New Sainsbury's store and adjacent non-food retail units on Westfield
Road, Edinburgh
• Two new teaching blocks at Anniesland College in Glasgow
• ProLogis Park, Wellingbrough the third phase of a distribution
development totalling in excess of 4,000 tonnes of structural steelwork
• Lymedale Cross, a new speculative development for Helioslough in
Newcastle-under-Lyme
• New distribution centre for Tesco in Donabate, Dublin
• New factory and offices for JCB at Uttoxeter
• Cabot Park Plots 9 and 10, a new cross docking distribution facility based
in Bristol
• A new manufacturing facility for Goodman's in Avonmouth
Atlas Ward is heavily involved in the development of new Sustainability
strategies and initiatives for itself and other Group companies.
Atlas Ward attained OHSAS 18001 Safety and BS EN 14001:2004 Environment
accreditations in 2007.
Fisher Engineering
Fisher Engineering joined the Group in October 2007. The integration into
Severfield-Rowen has gone exceedingly well.
An upgrade investment of some £2.5m was completed in 2007, prior to its
acquisition, and is now providing the strategic productivity improvements
envisaged.
The projects completed or started by Fisher Engineering in 2007, include:
• Victoria Shopping Centre in Belfast
• Ireland's very first Ikea Store in Belfast
• Centrecor Pharmaceutical at Cashall, Ireland
• Dundrum Town Centre in Dublin
• Quinn Group Radiator Factory at Newport
• National Conference Centre in Dublin
• The Point Shopping Centre in Dublin
• MET University in Leeds (Feature Building)
• Commercial office block in Threadneedle Street, London
• BBC Now in Cardiff
During 2007, Fisher Engineering achieved Health and Safety Management
accreditation to ISO 18001.
Rowen Structures
Rowen Structures ceased the physical production of steelwork in the summer of
2007. It is now carried out at the other Company sites.
Rowen Structures continues to contract business on behalf of the Group with its
longstanding clients, providing its wholly retained project management skills
and Group services to many projects, including:
• Westfield Shopping Centre in Derby
• 12 storey office and retail unit at No 3 Piccadilly, Manchester for
Carillion Construction Ltd
• Premium office development at 40 Holborn Viaduct for Balfour Beatty
Construction Ltd
New projects commenced in the period, include:
• Prestigious new headquarters for Audi UK Ltd in London
• Premium office development (the 'LEX' Building) in Queen Street,
London
• 19 storey office development at 30 Crown Place, London
• Regents Place office development in London
• Large West End office development adjacent to Great Portland Street
tube station
• Premium office and retail development situated adjacent to St Paul's
Cathedral in central London
Rowen's management and staff will relocate to new, bespoke offices in the same
vicinity in June 2008, from where they will continue to provide a full service
to clients.
Steelcraft Erection Services
The Group's performance in relation to project execution and customer
satisfaction was again greatly influenced by the high level of professionalism
and dedication provided by Steelcraft Erection Services.
Steelcraft continues to lead the field in terms of innovation and is presently
first user of a new bespoke steel erector platform, developed as the optimum
current solution for the safer erection of steelwork.
Severfield-Reeve Projects
The Company continues to provide first class services to its clients and other
Group companies in the full development of small to medium scale projects.
Conclusion
2007 was a further milestone in the Company's development, both financially and
strategically. The acquisition of Fisher Engineering has consolidated the
Group's leading position in the UK and Ireland and our continued focus on client
service has assisted in obtaining a record order book of some £455m and
establishing us as preferred supplier on a significant pipeline of future work.
The Group is now positioned to derive growing synergy benefits from the
flexibility and scale of its existing operations, while beginning to explore new
growth opportunities overseas.
Tom Haughey
Chief Executive Officer
2 April 2008
Financial Review
I am delighted to announce that the Group has had another record year with
underlying profit before tax (before amortisation of acquired intangible assets
of £2.2m and the valuation of derivative financial instruments of £2.39m) of
£42.95m and importantly a record order book of £455m. This underlines the
financial strength of the Group and its long term prospects. In a year of
significant activity, including the acquisition of Fisher Engineering, this
presents an excellent base for growth in the current year.
Revenue of £300.66 m and underlying profit before tax of £42.95m have increased
1.9% and 41.8% respectively over the figures achieved in 2006.
Basic earnings per share, based on the underlying profit after tax, increased by
39.39% to 35.74p. Consequently, it is recommended that the total dividend for
the year is increased by 40.35% to 20.0p per share, giving a dividend cover of
1.8 times.
Retained profit after tax of £26.4m (2006: £20.9m) has been transferred to
reserves.
Following the acquisition of Fisher Engineering and the significant capital
expenditure in the period, we ended the year with net borrowings of £48.1 m.
Share Split
In October 2007 the Company's share capital was subject to a 4:1 share split
which increased the number of shares in issue to 88,607,876 shares of 2.5p each.
Consequently, where previous years comparative figures are shown in this
review they have been amended, where appropriate, to reflect the share split.
Revenue
Group revenue increased by 1.9% to a record level of £300.66 m. The relatively
small increase in revenue, despite the Fisher Engineering acquisition in October
2007, reflects the following during the year:
• In 2006 revenue increased to £295.08m from £236.72m in 2005, reflecting
the Group's approach towards its optimum output levels. In 2007 revenue
increased only marginally despite continuing high capacity utilisation,
due to a change in work mix which in turn generated significantly higher
margins.
• During 2007 there was a lower level of externally sourced products and
services which generate incremental revenue in addition to the revenue
generated by steel. Examples include decking, cladding and staircases, etc.
• Production at the Group's facility at Rowen Structures Limited in
Nottinghamshire ceased in July 2007 with the fabrication being carried out
at other more efficient Group companies, thus generating higher margins.
• The Group continues to follow its strategic objective of increasing its
own in-house capabilities to provide client services, eg Fabsec beams,
intumescent paint and staircases.
• At 31 December 2007 stock/work in progress was £14.60m higher than at the
end of 2006 reflecting the timing of project valuations and thus producing
a lower level of revenue.
Operating Profit
The Group's underlying operating profit increased by 46.6% to £42.68m. We are
particularly pleased that underlying operating margins, expressed as a
percentage of revenue, have continued to increase significantly to 14.20% from
the 9.87% achieved in 2006.
These figures continue to incorporate the Group's two associated companies,
Kennedy Watts Partnership Limited and Fabsec Limited, of which the Group owns
25.1% and 25% respectively. The Group's operating profit for the year includes
its share of these two companies' results which amounted to a net profit of
£58,000 (2006: £10,000).
Finance Costs
Net interest receivable for the Group amounted to £266,000 (2006: £1,168,000).
The reduction reflects the interest payable on the borrowings taken out to help
fund the acquisition of Fisher Engineering in October.
Profit before Tax
The table below provides a summary of the profit before tax:
2007 2006
£000 £000
Underlying profit before tax - 42,950 30,286 Excludes non-underlying
continuing operations items (see below)
Non-underlying items (4,590) - See section below for
explanation
Profit before tax - continuing 38,360 30,286
operations
The underlying profit before tax has increased to £42.95m, an increase of 41.8%
over the previous year. Margins, at this level, expressed as a percentage of
revenue, increased to 14.29% (2006: 10.26%).
Non-Underlying Items
Non-underlying items are included within the 'other items' column of the
Consolidated Income Statement and amount to £4.59m (2006: Nil) which relate to:
• Amortisation of acquired intangibles - £2.2m (2006: Nil).
• Forward contract valuations - £2.39m (2006: Nil). The Group, particularly
through Fisher Engineering, is increasingly selling in to the Euro zone
(principally Eire) and locks in the contract profit at the time of accepting
this work. Due to the weakening of Sterling against the Euro between the
date when the forward exchange contracts were put in place during the year
and the year end a negative fair value has arisen on these contracts. IAS 39
requires the movement in the fair value to be included as a charge in the
Consolidated Income Statement with an associated liability in the balance
sheet.
Taxation
The tax charge of £11.93m represents an effective tax rate of 31.09% compared
with 30.92% in the previous year. The rate is slightly higher than the
prevailing rate due to the adjustments made in respect of disallowable
expenditure incurred during the year.
During 2007 proposed amendments to the Industrial Buildings Allowance regime
were announced. Due to the fact that these amendments were not substantively
enacted as at 31 December 2007, their effects have not been reflected within the
Group's results.
The Directors have estimated that should these amendments be substantively
enacted during the year ending 31 December 2008, the deferred tax liability held
in the consolidated balance sheet would increase by £6.5 m with a corresponding
charge to the consolidated income statement.
Earnings per Share
Underlying basic earnings per share was at a record level of 35.74p, an increase
of 39.39% over the previous year. This calculation is based on the underlying
profit after tax of £29.74m and 83,218,835 shares, being the weighted average
number of shares in issue during the year.
Basic earnings per share, based on profit after tax after non-recurring items is
31.77p.
Underlying diluted earnings per share is 35.70p. This calculation is based on
the underlying profit after tax of £29.74m and 83,297,638 shares, being the
weighted average number of shares in issue, allowing for contingent shares under
a share based payments scheme.
Diluted earnings per share, based on profit after tax after non-recurring items
is 31.73p.
Dividend
The Board will be recommending a final dividend of 13.25p per share (2006:
9.25p) at the Company's Annual General Meeting on 30 May 2008, bringing the
total dividend for the year to 20.0p per share. This total dividend represents
a 40.35% increase over the total dividend of 14.25p per share paid for 2006.
This is in line with the underlying basic earnings per share increase and
maintains the total dividend cover at 1.8 times these earnings, a level at which
the Board remains comfortable and at which it remains confident of maintaining
in the future.
The final dividend will be paid on 16 June 2008 to shareholders on the register
on 16 May 2008. The ex-dividend date will be 14 May 2008.
Acquisitions
The Company made two acquisitions in the year for a total consideration of
almost £116 m as follows:
• Action Merchants Limited
Action Merchants Limited is the non-trading holding company of Fisher
Engineering Ltd, a leading steel fabrication company based in Enniskillen in
Northern Ireland. The total consideration amounted to £92.2m (including £2.2m
costs) of which £36.6 m was satisfied by the issue of 1,750,000 ordinary shares
of 10p each at £20.89 per share, with the balance paid in cash.
The Income Statement incorporates the result from 8 October 2007, the date of
the acquisition of the Action Merchants Limited Group.
Goodwill arising on the acquisition amounted, before allocation of intangibles,
initially to £76m. A valuation of any identifiable intangible assets of Action
Merchants Limited included in this figure has been carried out to identify and
estimate the fair value and estimated useful lives of these intangible assets as
required under IFRS 3. These intangible assets have been valued at
approximately £39m gross of the associated deferred tax liability of £10.92 m
and are included in the Balance Sheet under 'Other Intangible Assets'.
Goodwill will be subject to an annual impairment review as required under IFRS
3.
Fisher Engineering has been integrated into the Group very satisfactorily and
the results for the three month period of ownership are both very good and
encouraging for the future.
• Dalton Airfield Estate Limited (DAEL)
DAEL owned the long leasehold title to the Group's headquarters and the freehold
title to over half of Severfield-Reeve Structures Limited's fabrication
facility, both at Dalton Airfield Industrial Estate in North Yorkshire, for
which it was paid a rent of approximately £1.6m per annum. The Group acquired
the freehold reversion of this facility from certain directors and management to
regain Severfield-Rowen's control of this valuable and extensive headquarters
and fabrication site. The total consideration amounted to £23.5m and was
concluded on 9 October 2007.
The transaction has been included in the accounts as the acquisition of land and
buildings.
Balance Sheet
The Group's Balance Sheet continues to strengthen with shareholders' funds
increasing by £50.60m to £116.83m. This equates to a total equity value per
share at 31 December 2007 of 131.8p, compared with 67.6p at the end of 2006.
The Group's Balance Sheet now has property, plant and equipment totalling £79.42
m. Depreciation charged in the year amounted to £3.93 m. We continue to invest
heavily in our business with capital expenditure in the year of £33.68 m made up
as follows:
• Land and buildings at Dalton, North Yorkshire, as part of DAEL acquisition £23.5 m
• Land and extension of production facilities at Dalton £4.0 m
• Land and improvements to production facilities at Watson Steel Structures' facility at £2.0 m
Bolton
• Improvements to production facilities at Atlas Ward Structures' facility in North £0.7 m
Yorkshire
• Mobile cranes for use on sites £1.4 m
• Motor vehicles/vans £1.2 m
Expenditure in 2008 is budgeted to be approximately £4 m.
The value of goodwill on the Balance Sheet of £54.71 m is made up primarily as
follows:
• Acquisition of Action Merchants Limited (Fisher Engineering) in 2007 -
£47.98 m. The goodwill is subject to an annual impairment review under IFRS
3. Given the excellent performance of the company since acquisition no
impairment existed at 31 December 2007.
• Acquisition of the Atlas Ward Group of Companies in 2005 - £6.6 m. Subject
to an annual impairment review under IFRS 3. Given the excellent performance
of Atlas Ward in the year no impairment existed at 31 December 2007.
Other intangible assets on the Balance Sheet, amounting to £39.04 m, represents
the capitalisation of the Group's costs in the development of a pedestal mounted
powered work platform for use on sites in the erection of steel, which is now
being used on sites in London of £2.24 m and the gross value of the intangible
assets arising on the Fisher acquisition, after amortisation in the year of £2.2
m, of £36.80 m.
Unlike the rest of the Group, Atlas Ward has a defined benefit pension scheme
which, although closed to new members, had an IAS 19 deficit of £7.29m as at 31
December 2006. At 31 December 2007, largely as a result of the contributions
paid over during the year, the deficit decreased slightly to £6.75m and is shown
as a liability in the Group Balance Sheet, with the remaining movement going
through the Statement of Recognised Income and Expense as required under IFRS.
The provision made in the accounts to 31 December 2006 of £2.6m in respect of an
alleged leak to a roof of a contract carried out by Atlas Ward Structures
Limited has been under regular review during the year by the Directors.
Although the case went to adjudication no real progress was made with no further
indication of the likely outcome. Consequently, it was decided that the
provision should remain in place.
Cash Flow
Management of the Group's cash has always been of prime importance to the Board
and this remains the case with cash being tightly controlled. During the year a
significant amount of borrowings were taken out to fund the acquisitions in
October of Action Merchants Ltd and DAEL. Consequently the Group ended the year
with net borrowings of £48.06m (2006: positive cash £38.30m). The Group has a
revolving credit facility of £70m with RBS and National Australia Bank as joint
lenders until August 2010. The current level of borrowings leaves the Group
comfortably within the limits of its facility.
During the year £22.99m was generated from operations.
Outflows of cash during the year included dividends of £13.06m, corporation tax
paid of £9.13m and the purchase of property, plant and equipment, net of sale
proceeds, of £32.12m.
The cash outflow required for the Fisher acquisition, after cash and cash
equivalents acquired, amounted to £54.96m, including costs.
Due to the acquisitions the Group ended the year with borrowings for the first
time in many years and gearing of 41.14% (2006: Nil).
Treasury
Group treasury activities are managed and controlled centrally. Risks to assets
and potential liabilities to customers, employees and the public continue to be
insured. The Group maintains its low risk financial management policy by
insuring all significant trade debtors.
The treasury function seeks to reduce the Group's exposure to any interest rate,
foreign exchange and other financial risks, to ensure that adequate, secure and
cost effective funding arrangements are maintained to finance current and
planned future activities and to invest cash assets safely and profitably.
Following the acquisition of Fisher Engineering Ltd and the award to the Group
of a large contract at Dublin Airport, the Group now has more exposure to the
exchange rate fluctuations between Sterling and the Euro. In order to maintain
the projected level of profit budgeted on contracts foreign exchange contracts
are taken out to convert into Sterling at the expected date of receipt. As the
exchange rate between Sterling/Euro moved against us between the time the
foreign exchange contracts were taken out in 2007 and the year end, IAS 39
requires the company to provide for an accounting and non-cash flow loss to the
Income Statement of £2.39 m which is shown as a non-underlying item under 'other
items' on the Statement.
The Group remains committed to strong financial controls, cash management and
appropriate accounting and treasury policies.
Summary
The Group has had a very successful year with revenue, underlying profit before
tax, earnings per share and dividends per share once again reaching record
levels.
The acquisition of Fisher Engineering Ltd has proven to be very successful with
the company fitting into the Group very well.
The Group has continued to improve its already healthy financial position which,
together with its record order book of £455 m, means it is well placed for
future growth and cash generation.
Peter Davison
Finance Director
Consolidated Income Statement
For the year ended 31 December 2007
Before Other Other Total Total
Items Items *1
2007 2007 2007 2006
Continuing Operations £000 £000 £000 £000
Revenue 300,656 - 300,656 295,084
Cost of sales (250,936) - (250,936) (261,148)
Gross profit 49,720 - 49,720 33,936
Other operating income 479 - 479 79
Distribution costs (1,295) - (1,295) (877)
Administrative expenses (6,278) (2,200) (8,478) (4,030)
Share of results of associates 58 - 58 10
Unrealised losses on derivative - (2,390) (2,390) -
financial contracts
Operating Profit 42,684 (4,590) 38,094 29,118
Investment revenue - interest 1,405 - 1,405 1,250
Finance costs - interest (1,139) - (1,139) (82)
Profit before tax 42,950 (4,590) 38,360 30,286
Tax (13,211) 1,285 (11,926) (9,365)
Profit for the period attributable 29,739 (3,305) 26,434 20,921
to the equity holders of the parent
Earnings per share:*2
Basic 35.74p (3.97p) 31.77p 25.64p
Diluted 35.70p (3.97p) 31.73p 25.64p
*1 Other items relate to the amortisation of acquired intangibles and
unrealised losses on derivative contracts. Other items have been disclosed
separately in order to give an indication of the underlying earnings of the
Group.
There were no such items in 2006 or previous periods.
*2 The calculation of earnings per share for previous periods has been
adjusted to reflect the 4:1 share split in October 2007.
Consolidated Statement of Recognised Income and Expense
For the year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
£000 £000
Actuarial profit/(loss) on defined benefit 285 (1,169)
pension scheme
Tax on items taken directly to equity (85) 351
Impact of reduction in tax rate on deferred tax on (134) -
defined benefit pension scheme
Net gain/(expense) recognised directly 66 (818)
in equity
Profit for the year from 26,434 20,921
continuing operations
Total recognised income and 26,500 20,103
expense for the year attributable
to equity shareholders
Consolidated Balance Sheet
31 December 2007
At At
31 December 2007 31 December 2006
£000 £000
ASSETS
Non-current assets
Goodwill 54,712 6,732
Other intangible assets 39,040 1,608
Property, plant and equipment 79,423 43,602
Interests in associates 104 46
173,279 51,988
Current assets
Inventories 17,931 3,333
Trade and other receivables 65,614 46,786
Cash and cash equivalents 5,445 38,304
88,990 88,423
Total assets 262,269 140,411
LIABILITIES
Current liabilities
Trade and other payables 57,857 56,966
Financial liabilities - borrowings 53,504 -
Financial liabilities - derivative 2,850 -
financial instruments
Tax liabilities 10,394 6,125
Obligations under finance leases - 66
124,605 63,157
Non-current liabilities
Retirement benefit obligations 6,745 7,287
Deferred tax liabilities 11,490 742
Provisions 2,600 3,000
20,835 11,029
Total liabilities 145,440 74,186
NET ASSETS 116,829 66,225
EQUITY
Share capital 2,215 2,040
Share premium 46,152 9,770
Other reserves 743 139
Retained earnings 67,719 54,276
TOTAL EQUITY 116,829 66,225
Consolidated Cash Flow
For the year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
£000 £000
Cash flows from operating activities
Cash generated from operations 22,987 35,488
Interest paid (768) (82)
Tax paid (9,131) (6,341)
Net cash from operating activities 13,088 29,065
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 1,555 920
Interest received 1,384 1,239
Acquisition of subsidiary (net), including costs (55,641) -
Cash acquired with subsidiary 685 -
Purchases of property, plant and equipment (33,679) (13,010)
Purchases of intangible fixed assets (632) (600)
Net cash used in investing activities (86,328) (11,451)
Cash flows from financing activities
Payment of finance lease liabilities (66) (363)
Borrowings taken out 53,504 -
Dividends paid (13,057) (9,079)
Net cash generated from financing activities 40,381 (9,442)
Net (decrease)/increase in cash and cash equivalents (32,859) 8,172
Cash and cash equivalents at beginning of period 38,304 30,132
Cash and cash equivalents at end of period 5,445 38,304
1) Basis of preparation
The Group's financial statements have been computed in accordance with the prior
year accounting policies and IFRSs. The financial statements have also been
prepared in accordance with IFRSs adopted by the European Union and therefore
the consolidated financial statements comply with Article 4 of the EU IAS
Regulations. The financial statements have been prepared under the historical
cost basis, except for the revaluation of financial assets and liabilities under
IAS 39 'Financial instruments: recognition and measurement'. This preliminary
announcement does not constitute the full financial statements prepared in
accordance with International Financial Reporting Standards ('IFRSs') or within
the meaning of section 240 of the Companies Act 1985.
Full accounts for the year ended 31 December 2007 have not yet been audited or
delivered to the Registrar of Companies. The Annual Report is due to be posted
to shareholders on or around 7 May 2008. A copy of the statutory accounts for
the year ended 31 December 2006 has been delivered to the Registrar of
Companies. The Auditor's Report on those accounts was not qualified and did not
contain a statement under section 237 (2) or (3) of the Companies Act 1985.
2) Revenue and segmental analysis
Revenue in both years originated from the United Kingdom. Revenue, profit
before tax and net assets, in both years, related to the design, fabrication and
erection of structural steelwork and related activities.
3) Taxation
The taxation charge comprises:
2007 2006
£000 £000
Current tax
UK corporation tax 12,940 9,304
Adjustments to prior years' tax provision (16) (89)
12,924 9,215
Deferred tax
Current year charge (1,009) 86
Adjustments to prior years' provision 11 64
(998) 150
Total tax charge 11,926 9,365
During 2007 proposed amendments to the Industrial Buildings Allowance regime
were announced. Due to the fact that these amendments were not substantively
enacted as at 31 December 2007, their effects have not been reflected within the
Group's results.
The Directors have estimated that should these amendments be substantively
enacted during the year ending 31 December 2008, the deferred tax liability held
in the consolidated balance sheet would increase by £6.5 m with a corresponding
charge to the consolidated income statement.
4) Dividends
2007 2006
£000 £000
Final dividend for the year ended 7,549 4,998
31 December 2006 of 9.25p
(2005: 6.125p) per share
Interim dividend for the year ended 5,508 4,081
31 December 2007 of 6.75p
(2006: 5.00p) per share
13,057 9,079
Proposed final dividend for the year 11,741 7,549
ended 31 December 2007 of 13.25p
(2006: 9.25p) per share
The proposed final dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these financial
statements. The proposed dividend will be paid on 16 June 2008 to shareholders
on the register on 16 May 2008. The ex-dividend date is 14 May 2008.
5) Earnings per share
There are no discontinued operations in either the current or prior year.
The calculation of the basic and diluted earnings per share is based on the
following data, reflecting the 4:1 share split in October 2007:
2007 2006
£000 £000
Earnings
Profit for the year 26,434 20,921
Underlying profit for the year 29,739 20,921
2007 2006
Weighted average of number of shares 83,218,835 81,607,876
in issue
Weighted average of number of shares 83,297,638 81,607,876
in issue, allowing for dilutive effect
of contingent shares
Basic earnings per share 31.77p 25.64p
Underlying basic earnings per share 35.74p 25.64p
Diluted earnings per share 31.73p 25.64p
Underlying diluted earnings per share 35.70p 25.64p
6) Reconciliation of Group operating profit to cash generated from
operations
2007 2006
£000 £000
Operating profit 38,094 29,118
Adjustments for:
Depreciation of property, plant and equipment 3,925 4,238
(Profit)/loss on disposal of property, plant and equipment (114) 212
Movement in pension (257) (266)
Share of results of associated company (58) (10)
Movement in provisions (400) 3,000
Share based payments 604 -
Amortisation of acquired intangibles 2,200 -
Unrealised losses on derivative financial contracts 2,390 -
Operating cash flows before changes 46,384 36,292
in working capital
(Increase)/decrease in inventories (9,476) 4,807
Increase in receivables (4,364) (14,356)
(Decrease)/increase in payables (9,557) 8,745
Cash generated from operations 22,987 35,488
7) Statement of changes in equity
At At
31 December 31 December
2007 2006
£000 £000
Opening total equity 66,225 55,201
Total recognised income and expense 26,500 20,103
Dividends paid in period (13,057) (9,079)
Issue of share capital 36,557 -
Movement in equity associated with share 604 -
based payments
Closing total equity 116,829 66,225
8) Analysis of net (borrowings)/funds
At At
31 December 31 December
2007 2006
£000 £000
Cash in hand 5,445 38,304
Borrowings (53,504) -
Finance leases - (66)
Closing net (borrowings)/funds (48,059) 38,238
9) Acquisition of Subsidiary
On 8 October 2007 the Company acquired 100% of the issued share capital of
Action Merchants Limited for a total consideration (including expenses) of
£92.20 m. Action Merchants Limited is the parent company of Fisher Engineering
Limited, a company based in Enniskillen in Northern Ireland involved in the
design, fabrication and erection of structural steelwork. This transaction has
been accounted for by the acquisition method of accounting.
The provisional details of the acquisition are as follows:
Book Value Fair Value Fair Value
£000 Adjustments £000
£000
Net assets acquired:
Intangible assets - 39,000 39,000
Property, plant and equipment 7,508 - 7,508
Inventories 5,122 - 5,122
Trade and other receivables 14,443 - 14,443
Cash and cash equivalents 685 - 685
Trade and other payables (10,171) (460) (10,631)
Tax liabilities (382) - (382)
Deferred tax liability (736) (10,791) (11,527)
16,469 27,749 44,218
Goodwill 47,980
Total consideration 92,198
Satisfied by:
Issue of shares 36,557
Cash 55,641
92,198
Being:
Consideration 90,000
Costs 2,198
92,198
Acquisition cash flow:
Cash consideration 55,641
Cash and cash equivalents acquired (685)
Net cash outflow arising on acquisition 54,956
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