Final Results

RNS Number : 3540Q

Severfield PLC

17 June 2015

 

17 June 2015

Results for the year ended 31 March 2015
 

UK margin progression on track - strong order book positioned well for growth - improved performance from Indian joint venture

Severfield plc, the market leading structural steel group, is pleased to announce its results for the 12 month period ended 31 March 2015.

Highlights

§  Underlying* profit before tax of £8.3m (2014: £4.0m)

§  Improvement in UK underlying* operating margin to 4.5% (2014: 3.3%), in line with expectations

§  Improved tendering disciplines and operational processes, reflected in increased margin

§  Over 110 projects undertaken during the year in key market sectors:

-   Core construction: office developments, stadia, warehouses and distribution centres; and

-   Core infrastructure: transport

§  Share of losses from Indian joint venture of £0.2m (2014: £3.0m) reflecting higher production levels and operational improvements

§  Non-underlying charge of £6.0m for cost of Leadenhall remedial works programme

§  Strong cash performance, with year-end net funds of £6.4m (2014: £0.3m)

§  UK order book of £194m at 1 June 2015 (1 November 2014: £185m), reflecting improving market position

§  India order book of £38m at 1 June 2015 (1 November 2014: £38m)

§  Successful completion of new £25m revolving credit facility until July 2019

§  Reintroduction of proposed final dividend of 0.5p per share

£m		12 months to 31 March 2015	12 months to 31 March 2014
Revenue		201.5	231.3
Underlying* operating profit (before JVs and associates)		9.0	7.6
Underlying* operating margin (before JVs and associates)		4.5%	3.3%
Operating profit/(loss) (before JVs and associates)		0.5	(0.1)
Underlying* profit before tax		8.3	4.0
Profit/(loss) after tax		0.1	(2.6)
Underlying* basic earnings per share		2.31p	0.88p

* Underlying results are stated before non-underlying items of £8.5m (2014: £8.1m):

-  Contract remedial costs - £6.0m (2014: £nil)

-  Amortisation of acquired intangible assets - £2.6m (2014: £2.7m)

-  Valuation of derivative financial instruments - £0.1m favourable (2014: £nil)

-  Restructuring and redundancy costs - £nil (2014: £2.6m)

-  Retirement of acquired intangible assets - £nil (2014: £2.4m)

-  Impairment of investment in associates - £nil (2014: £0.4m)

-  The associated tax impact of the above

Ian Lawson, chief executive officer commented:

We are very pleased with the continued good progress made across the business, both in the UK and India, operationally and financially.  Margin improvement is being sustained, we have a very solid order book and pipeline and we are particularly pleased that we have recommended the reintroduction of a final dividend.

Our cash flows and balance sheet remain strong. Furthermore, our continued investment in our equipment, brand, market position and our people means that we have the skills and capacity to sustain momentum and fulfil demand, securing key projects in growth sectors as the UK, and Indian, infrastructure markets continue to develop.

The Group is well placed for the future and the board is confident that we will be able to maintain improved shareholder returns.

For further information, please contact:

Severfield plc	Ian Lawson Chief executive officer	01845 577 896
	Alan Dunsmore Group finance director	01845 577 896
Jefferies International Limited	Simon Hardy	020 7029 8000
	Harry Nicholas	020 7029 8000
Bell Pottinger	Nick Lambert	020 3772 2558
	Emma Kent	020 3772 2571
	Will Bland	020 3772 2591

Operating review

Group overview

This year has seen good progress on all key fronts. The UK operational improvement programme has contributed to an increase in the underlying operating margin from 3.3% to 4.5%, the performance of the Indian joint venture has improved greatly with the Group's share of losses reducing to £0.2m (2014: £3.0m) and cash flow has been good with net funds at year-end increasing to £6.4m (2014: £0.3m), even after an increase in capital investment to £6.6m.

Our health and safety performance has also improved, with the accident frequency rate (AFR) for our UK operations reducing from 0.57 to 0.33 (the Group AFR which includes our Indian joint venture was 0.21).

Our comprehensive review of the Group's brand and market position undertaken in early 2014 has also helped deliver operational improvement.  The rebrand has delivered increased brand penetration in our core market sectors, and has had a demonstrable impact on our ability to secure key projects and expand our capability. This has all helped to deliver solid progress with the implementation of the new Group strategy.

During the year, a small number of bolts failed on the Leadenhall building, the construction of which was completed in 2013. A programme of remedial works involving the replacement of all bolts at risk of failure is being undertaken in conjunction with British Land, Laing O'Rourke and Arup and is likely to continue until the end of the 2015 calendar year. Whilst these works progress, discussions continue to agree where the liability for the costs of the programme should rest. The Group incurred costs of £1.0m relating to the remedial works programme during the financial year and estimates that its total costs will be in the region of £6.0m. A non-underlying charge has been recognised for these costs as at 31 March 2015.

Based on the overall progress made by the Group over the past year, I am pleased that the board has agreed to recommend the reintroduction of a final dividend of 0.5p per share.

UK review

As previously stated, our objective moving from 2014 into 2015 has been to prioritise continued improvement in operating margins, rather than revenue growth. UK revenue of £201.5m was lower than the prior year level of £231.3m, consistent with this strategy. The revenue reduction reflected a more disciplined approach to pricing and bidding for work, along with a temporary softening of demand in the middle of the year. Despite this reduction in revenue, underlying operating profit (before the share of results of JVs and associates) increased to £9.0m (2014: £7.6m) reflecting an increase in margin from 3.3% to 4.5%.

The UK business has had a more stable year structurally following the reorganisations in the prior year. We appointed Gary Wintersgill as the new managing director for the main business, Severfield (UK), in November, which allowed Ian Cochrane to step back into his chief operating officer role on a full time basis. Further changes were made to strengthen management at all levels within the UK and these changes, coupled with the more stable organisation structure, allowed focus to be maintained on the operational improvement programme. This was initiated following the rights issue in 2013 to improve risk assessment as well as operational and contract management processes across the business. There has been real evidence of progress in all three of these areas during the year and this generates benefits on every new cycle of contracts which the Group undertakes. There continues to be scope for further improvement, particularly in some operational processes. This will help drive margins up to and beyond the previously stated target of 5-6% and towards our medium-term target of 8-10%.

Another important step during the year was the recruitment of a significant number of staff from the infrastructure division of Mabey Bridge, following the announcement of its closure. The Group has existing expertise in the UK bridge building market and this move expands our capability significantly both for bridges and other infrastructure projects, and will support stronger growth in these areas in the coming years.

Order book and market conditions

The UK order book at 1 June 2015 of £194m, has strengthened over the year and this provides the platform required to return to revenue growth in 2015/16. The current order book contains over 70 live contracts which are particularly focussed in the Group's key market sectors of commercial offices, retail, stadia and leisure, industrial and distribution and transport. New contracts won during the year, which remain in the order book, include London commercial office developments at Principal Place and Angel Court, the Anfield stadium redevelopment for Liverpool Football Club and the Ordsall Chord link bridge between Manchester's Victoria and Piccadilly stations.

The market conditions have shown some improvement over the last few months with the pipeline of opportunities growing particularly in the infrastructure and commercial office building sectors. We are also seeing some clients increasingly recognise the importance and value of efficient and consistent supply levels and production capabilities and this is leading to a more structured and rounded approach to procurement rather than it being solely price led. Pricing in some areas is still competitive but our more disciplined approach means that we are bringing a clearer sense of value, risk and reward to our pricing decisions.

Projects

We have continued to deliver projects to our clients' expectations. During the year we worked on over 110 projects covering many of the Group's key market sectors. These included:

§ Westfield Shopping Centre, Bradford

§ Nova, Victoria, London

§ Carrington Power Station

§ Manchester City Football Club (the expansion of the Etihad Stadium)

§ London Bridge Station Canopies

§ New London Embassy

§ Telehouse Data Centre, London

§ Manchester Victoria Station

§ South Bank Tower, London

§ Fetter Lane, London

§ Sports Direct, Derbyshire

§ Microsoft, Amsterdam

§ Western Approach Viaduct (WAV Bridge), London

India

The Indian joint venture has delivered a much improved performance during the year, with the Group's share of losses reducing to £0.2m from £3.0m in the prior year. The business delivered an operating margin of 9.0% (2014: -18.0%). However, it is the financing costs of the business's current debt structure which turned an operating profit into a net loss of which the Group reports its 50% share. This improved operating performance reflects the benefits of all the changes implemented in response to the prior year's very disappointing performance, including a significant reduction in overheads and an operational improvement programme. These changes also helped secure a higher volume of work for the factory, which made a major contribution to the success of the business, with 48,000 tonnes of fabricated steel being produced compared with 26,000 tonnes last year. There is now improved confidence amongst the JV partners that JSSL is a sustainable business which can support itself and deliver significant value to the Group in the medium to long-term.

The wider market in India is displaying two distinct characteristics at the moment. On the one hand, the initial exuberance following the election of the new Modi government last year has diminished and in many ways the construction market is relatively soft at the moment. This is expected to improve over the next 6-12 months as the government's structural reforms start to take effect. On the other hand, we are seeing continued progress in the conversion of the construction market from concrete to steel. The result is that we are seeing a growing number of enquiries for commercial projects which would previously have been delivered in concrete, when compared to industrial projects (which have traditionally been done in steel but at low margins). The year ahead is likely to see the mix of work in the business between commercial and industrial improve. This should mean another year of stable performance against the soft current market backdrop, whilst the longer-term outlook will continue to benefit from the shift in mix towards more commercial work.

Business investment

This year saw a step up in our level of capital investment to £6.6m, following several years at a more restrained level of £2-3m. This investment was focussed on replacing and upgrading some of the Group's older fabrication equipment along with increasing its owned fleet of mobile elevated work platforms for construction site work. Other capital investment in the UK included a new canteen and office facility at our Dalton plant in North Yorkshire.

This investment in equipment will enable us to deliver even greater efficiency across the business and we see further opportunity to increase efficiency with our ongoing investment programme which we have set at £4-5m per year. The Group's scale and resources will enable us to invest more readily than our competitors in new and emerging fabrication technology and continue building on our existing competitive advantage.

A further £1.7m of capital was invested in the Indian joint venture in the first half of the year, which was required to finance previous losses that it generated. With the business now operating at close to a break-even level, the requirement for future support should be reduced although the balance of debt to equity in the capital structure of the business will be kept under constant review, as repayments start on the existing term loan in 2015/16.

Safety

The Group's AFR for the year, which includes our Indian joint venture, was 0.21. The current year result of 0.21 includes an AFR of 0.33 for our UK operations which was a significant improvement on the prior year of 0.57. This reflects a continuation of the improving trend seen towards the end of the prior year along with some new initiatives launched in the current year following the appointment of a new Group SHE director in April 2014. These initiatives included a focus on near miss reporting, both in the factory and on site, improved health and safety communications, investment in technology and training and site SHE visits by directors to drive visible leadership and reaffirm our commitment to a zero accident culture. The safety of all our employees is of paramount importance and continues to receive priority attention from both the executive committee and the board.

Strategy, branding and communication

The change in the Group's name to Severfield plc and the associated simplification of the naming structure of the Group's main operating companies has been well received in the marketplace. It is also supporting a more proactive communication programme to raise the profile of both the Group's capabilities and our role in building many of the iconic structures around the UK. This is being mirrored with improved internal communications and, for the first time ever, an employee engagement survey was undertaken in the year. Improving employee engagement is vital to ensuring that the Group is an attractive place to work for both existing and potential new employees as we seek to develop and grow. During the year we launched a SAYE share scheme. This achieved a 28% take up rate which was pleasing when compared with more normal levels for these types of schemes of around 20%.

We have made good progress in starting to implement and develop further the new strategy introduced last year, particularly in respect of operating and margin improvements in the UK and creating a sustainable business in India. We appointed a Group strategic business development director to ensure that we could continue developing the wider business strategy without distracting operational management from the continued improvement of the core UK business.

Summary and outlook

The Group has made real progress in the UK and India in the year both operationally and financially. The quality of the current order book and sustained increase in the pipeline in the UK gives us the confidence to believe we can deliver improved revenues. We have the skills and capacity to deliver the expected demand as spend in the UK infrastructure markets and the power and energy sectors grow, alongside delivering improved margins.

As the JV in India stabilises with improved market conditions, as government and international funding become more readily available for infrastructure and commercial projects, along with the continued move from concrete to steel, we believe we are well placed to take advantage of this growing market. The JV has the potential to generate real shareholder value from a sustainable business over the next few years.

Finally, I would like to thank all of our people for their hard work and commitment over the past 12 months and look forward to their ongoing support as we continue to build a successful business.

Ian Lawson

Chief executive officer

17 June 2015

Financial review

	2015	2014
Revenue	£201.5m	£231.3m
Underlying operating profit (before results of JVs and associates)	£9.0m	£7.6m
Underlying operating margin	4.5%	3.3%
Underlying profit before tax	£8.3m	£4.0m
Underlying basic earnings per share	2.31p	0.88p
Net funds	£6.4m	£0.3m
Operating profit/(loss) (before results of JVs and associates)	£0.5m	(£0.1m)
Profit/(loss) after tax	£0.1m	(£2.6m)

Trading performance

Revenue for the year of £201.5m compared with £231.3m in the prior year. The reduction directly reflects the focus for the year being on operating margin recovery rather than revenue growth. Improved tendering disciplines contributed to the move away from winning work at uneconomic rates or with insufficient allowance for risk. The benefits of this approach, alongside improved operational processes, are evident in the underlying operating profit (before results of JVs and associates) of £9.0m, an increase of £1.4m over the prior year level of £7.6m, reflecting an increased operating margin of 4.5% (2014: 3.3%). Margins are progressing on track to achieve our previously stated 5-6% target for the 2015/16 financial year. The share of results of JVs and associates was a loss of £0.2m (2014: £3.0m) and net finance costs were £0.4m (2014: £0.6m). Underlying profit before tax, which is management's primary measure of Group profit, was £8.3m (2014: £4.0m). The statutory profit after tax, reflecting both underlying and non-underlying items was £0.1m (2014: £2.6m loss).

Share of losses of JVs and associates

The Group's share of losses from its Indian joint venture was £0.2m (2014: £3.0m). This significant reduction reflects the measures put in place to strengthen management and reduce overheads, alongside higher volume throughput in the factory.

Non-underlying items

Non-underlying items for the year of £8.5m (2014: £8.1m) consist of the following:

§ Contract remedial costs - £6.0m (2014: £nil)

§ Amortisation of acquired intangible assets - £2.6m (2014: £2.7m)

§ Valuation of derivative financial instruments - £0.1m favourable (2014: £nil)

The contract remedial costs relate to a programme of bolt replacement works at the Leadenhall building, a contract that was completed in 2013. They are treated as non-underlying costs in accordance with the Group's stated policy. This programme is being undertaken in conjunction with British Land, Laing O'Rourke and Arup and is likely to continue until the end of the calendar year. The liability of the Group and the other parties for the programme costs has not yet been determined and, therefore, the charge represents certain costs incurred at year-end, together with management's best estimate of the remaining cost to the Group. This is based on the current requirements of the programme and before taking account of possible future recoveries, as these cannot be recognised under IFRS.

Finance costs

Net finance costs in the year were £0.4m (2014: £0.6m).The reduction reflects the Group's move into a net funds position for most of the year, coupled with reduced bank facility costs following the refinancing which was completed in October 2014.

Taxation

The underlying tax charge of £1.4m represents an effective tax rate of 17.0 per cent on the applicable profit (which excludes results from JVs and associates). This compares with an effective tax rate of 20.2 per cent in the prior year. The reduction over prior year mainly reflects the UK statutory corporation tax rate which reduced from 23 per cent to 21 per cent on 1 April 2014.

The total tax credit for the year of £0.3m (2014: £1.4m) reflects the underlying tax charge, offset by deferred tax benefits arising from the amortisation of intangible assets in the year, together with the current tax credit on the contract remedial costs associated with the Leadenhall building.

Earnings per share

Underlying basic earnings per share was 2.31p (2014: 0.88p). This calculation is based on the underlying profit after tax of £6.9m and 297,503,587 shares, being the weighted average number of shares in issue during the year.

Basic earnings per share, based on the statutory profit after tax, is 0.05p (2014: -0.89p). There was no difference between basic and diluted earnings per share in the year (2014: no difference).

Dividend

The board recommends the reintroduction of a final dividend of 0.5p per share payable on 11 September 2015 to shareholders on the register at the close of business on 14 August 2015. This dividend is not reflected on the balance sheet at 31 March 2015 as it remains subject to shareholder approval.

During the year, the board considered what the dividend policy of the Group should be. The Group intends to follow a progressive dividend policy. Funding flexibility will be maintained to ensure there are sufficient cash resources to fund the Group's requirements. Additional dividends will be paid when the Group's cash generation exceeds the requirements of the business, and where its underlying financial position remains strong.

Balance sheet

Shareholders' funds at 31 March 2015 were £140.6m (2014: £143.4m). The reduction is primarily due to the non-underlying Leadenhall remedial costs coupled with an increase in the IAS 19 deficit on the Group's defined benefit pension scheme.

Goodwill on the balance sheet is valued at £54.7m (2014: £54.7m) and is subject to an annual impairment review under IFRS. No impairment existed either at 31 March 2015 or at 31 March 2014.

Other intangible assets on the balance sheet are valued at £7.1m (2014: £9.8m). This represents the net book value of the intangible assets identified on the acquisition of Fisher Engineering in 2007, along with certain software assets. Amortisation of £2.7m was charged in the year.

The Group has property, plant and equipment of £76.6m (2014: £74.1m). Capital expenditure in the year was £6.6m (2014: £2.2m). This included new equipment for our fabrication lines in Dalton and Northern Ireland, additional equipment for use on our construction sites, and a new canteen and employee welfare facility at our Dalton factory. Depreciation in the year was £3.6m.

The Group's ongoing replenishment levels of capital expenditure are expected to be £4-5m per annum. During the year the Group sold its investment property in Leeds for £3.9m. This was acquired several years ago, had no relevance to the Group's core steel fabrication activities and the sale price was within £0.1m of the property's book value.

The Group invested a further £1.7m of equity in its Indian joint venture in the first half of the year, primarily to fund the historical losses of the business. With the joint venture now operating at close to break-even levels, the need for further equity injections to finance trading losses should be much reduced.

As mentioned above, the Group has a defined benefit pension scheme which, although closed to new members, had an IAS 19 deficit of £16.5m (2014: £12.5m). The increase in the deficit is mainly as a result of the reduction in the assumption for corporate bond yields which is used to set the discount rate, partly offset by strong performance of the scheme's assets. Notwithstanding this, the 2014 triennial valuation of the scheme was completed during the year and resulted in the Group's deficit contributions being maintained at £1m per annum.

The Group is now adopting return on capital employed (ROCE) as an additional key performance indicator (KPI) to help ensure that its strategy and associated investment decisions recognise the underlying cost of capital of the business. The Group's ROCE will be calculated as underlying operating profit divided by the average of opening and closing capital employed. Capital employed is shareholders' equity excluding retirement benefit obligations (net of tax), acquired intangible assets and net funds. For the 2014/15 financial year, ROCE on this basis was 6.1% and the Group's target is for ROCE to exceed 10% over the whole economic cycle.

Cash flow

The Group finished the year with net funds of £6.4m (2014: £0.3m). Operating cash flows for the year before working capital movements were £6.6m. Net working capital, excluding the impact of Leadenhall remedial costs, increased by £1.2m during the year and represented 8.4% of revenue at the year-end. This is a little higher than the 5-7% range within which working capital has stabilised over the past 18 months but the difference can be attributed to the slower than expected final settlement of two older contracts.

Net investment during the year was £3.0m, with £5.7m in capital expenditure and £1.7m of additional equity investment in India. Offsetting this was the proceeds of £3.9m from the sale of the Group's investment property in June 2014.

The Group entered into a new banking facility in October 2014 with Yorkshire Bank (part of National Australia Bank) and HSBC. The new facilities are for £25m, with an accordion facility of a further £20m available at the Group's request, and are available until July 2019. There are two key financial covenants, with net debt: EBITDA of <2.5x, and interest cover of >4x. Other terms and conditions represent a return to normality in comparison with the terms required by the banks at the time of the rights issue in 2013. This new facility provides a solid foundation for the Group, with supportive partners, as it continues to improve its core profitability and implement its wider strategy.

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.

The Group continues to have some exposure to exchange rate fluctuations, currently 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.

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 UK order book, which is strengthening, and the pipeline of potential future orders.

§ The Group's operational improvement plan which has delivered stronger financial performance and is expected to continue doing so in the 2015/16 financial year and beyond.

§ The Group's net funds position and its new committed bank finance facilities, including both the level of those facilities and the covenants attached to them.

Based on the above, and having made appropriate enquiries and reviewed medium-term cash forecasts, the directors consider it reasonable to assume that the Group has adequate resources to continue for the foreseeable future and therefore that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Alan Dunsmore

Group finance director

17 June 2015

Consolidated income statement

For the year ended 31 March 2015

	Before other items  2015 £000	Other items 2015 £000	Total 2015 £000	Before other items  2014 £000	Other items 2014 £000	Total 2014 £000
Revenue	201,535	-	201,535	231,312	-	231,312
Operating costs	(192,561)	(8,502)	(201,063)	(223,691)	(7,729)	(231,420)
Operating profit/(loss) before share of results of JVs and associates	8,974	(8,502)	472	7,621	(7,729)	(108)
Share of results of JVs and associates	(213)	-	(213)	(3,038)	(353)	(3,391)
Operating profit/(loss)	8,761	(8,502)	259	4,583	(8,082)	(3,499)
Net finance expense	(450)	-	(450)	(558)	-	(558)
Profit/(loss) before tax	8,311	(8,502)	(191)	4,025	(8,082)	(4,057)
Tax	(1,449)	1,784	335	(1,427)	2,844	1,417
Profit/(loss) for the year attributable to the equity holders of the parent	6,862	(6,718)	144	2,598	(5,238)	(2,640)
Earnings per share:
Basic	2.31p	(2.26p)	0.05p	0.88p	(1.77p)	(0.89p)
Diluted	2.31p	(2.26p)	0.05p	0.88p	(1.77p)	(0.89p)

All of the above activities relate to continuing operations.

Further details of other items are disclosed in note 3.

Consolidated statement of comprehensive income

For the year ended 31 March 2015

	Year ended 31 March 2015 £000	Year ended 31 March 2014 £000
Actuarial loss on defined benefit pension scheme*	(4,471)	(1,261)
Tax relating to components of other comprehensive income*	1,033	(101)
Other comprehensive income for the year	(3,438)	(1,362)
Profit/(loss) for the year from continuing operations	144	(2,640)
Total comprehensive income for the year attributable to equity shareholders	(3,294)	(4,002)

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

Consolidated balance sheet

As at 31 March 2015

	2015 £000	2014 £000
ASSETS
Non-current assets
Goodwill	54,712	54,712
Other intangible assets	7,088	9,845
Property, plant and equipment	76,606	74,128
Investment property	-	3,870
Interests in JVs and associates	4,802	3,315
Deferred tax asset	1,870	1,780
	145,078	147,650
Current assets
Inventories	4,767	5,842
Trade and other receivables	64,530	60,801
Derivative financial instruments	118	-
Cash and cash equivalents	6,884	5,525
	76,299	72,168
Total assets	221,377	219,818
LIABILITIES
Current liabilities
Trade and other payables	(58,406)	(51,322)
Financial liabilities - borrowings	-	(5,000)
Financial liabilities - finance leases	(205)	(181)
Current tax liabilities	(1,123)	(1,422)
	(59,734)	(57,925)
Non-current liabilities
Retirement benefit obligations	(16,477)	(12,533)
Financial liabilities - finance leases	(589)	(25)
Deferred tax liabilities	(3,993)	(5,937)
	(21,059)	(18,495)
Total liabilities	(80,793)	(76,420)
NET ASSETS	140,584	143,398
EQUITY
Share capital	7,437	7,437
Share premium	85,702	85,702
Other reserves	1,250	770
Retained earnings	46,195	49,489
TOTAL EQUITY	140,584	143,398

Consolidated statement of changes in equity

For the year ended 31 March 2015

	Share      capital         £000	Share premium         £000	Other   reserves         £000	Retained   earnings          £000	Total       equity          £000
At 1 April 2014	7,437	85,702	770	49,489	143,398
Profit for the year (attributable to equity holders of the parent)	-	-	-	144	144
Equity settled shared-based payments	-	-	480	-	480
Actuarial loss on defined benefit pension scheme	-	-	-	(4,471)	(4,471)
Tax relating to components of other comprehensive income	-	-	-	1,033	1,033
At 31 March 2015	7,437	85,702	1,250	46,195	140,584

	Share       capital         £000	Share    premium         £000	Other    reserves         £000	Retained    earnings          £000	Total        equity          £000
At 1 April 2013	2,231	46,152	527	53,491	102,401
Loss for the year (attributable to equity holders of the parent)	-	-	-	(2,640)	(2,640)
Proceeds from shares issued	5,206	39,550	-	-	44,756
Equity settled shared-based payments	-	-	243	-	243
Actuarial loss on defined benefit pension scheme	-	-	-	(1,261)	(1,261)
Tax relating to components of other comprehensive income	-	-	-	(101)	(101)
At 31 March 2014	7,437	85,702	770	49,489	143,398

The prior year movements in share capital and share premium reflect the 7:3 rights issue of 208,252,511 new ordinary shares at 23p per share which was approved by shareholders on 18 March 2013.  The rights issue completed on 5 April 2013, with the Group receiving net proceeds of £44,756,000 consisting of gross proceeds of £47,898,000 offset by transaction costs of £3,142,000.

Consolidated cash flow statement

For the year ended 31 March 2015

	Year ended         31 March 2015                          £000	Year ended           31 March 2014                          £000
Net cash flow from operating activities	10,446	2,522
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment	4,434	746
Purchases of property, plant and equipment	(5,727)	(2,218)
Investment in JVs and associates	(1,700)	(3,538)
Net cash used in investing activities	(2,993)	(5,010)
Cash flows from financing activities
Interest paid	(782)	(759)
Repayment of obligations under finance leases	(312)	(194)
New borrowings	-	5,000
Repayment of borrowings	(5,000)	(41,461)
Proceeds from shares issued	-	44,756
Net cash (used in)/generated from financing activities	(6,094)	7,342
Net increase in cash and cash equivalents	1,359	4,854
Cash and cash equivalents at beginning of year	5,525	671
Cash and cash equivalents at end of year	6,884	5,525

1)         Basis of preparation

The preliminary announcement has been prepared in accordance with the Listing Rules of the FCA and is based on the 2015 financial statements which have been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

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 2014.

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 2014 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 2015, 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 matters by way of emphasis, 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

Revenue, profit before tax and net assets, in both years, all relate to the design, fabrication, and construction of structural steelwork and related activities. All of the Group's subsidiary businesses have similar products and services, production processes, types of customer, methods of distribution, regulatory environments and economic characteristics. The Group has one reported segment (construction contracts).

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

3)         Other items
 

	2015 £000	2014 £000
Contract remedial costs	(6,000)	-
Amortisation of acquired intangible assets	(2,620)	(2,748)
Restructuring and redundancy costs	-	(2,611)
Retirement of acquired intangible asset	-	(2,370)
Impairment of investment in associates	-	(353)
Movement in valuation of derivative financial instruments	118	-
Other items before tax	(8,502)	(8,082)
Tax on other items	1,784	2,844
Other items after tax	(6,718)	(5,238)

Other 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.

The contract remedial costs relate to a programme of bolt replacement works at the Leadenhall building, a contract that was completed in 2013. They are treated as non-underlying costs in accordance with the Group's stated policy. This programme is being undertaken in conjunction with British Land, Laing O'Rourke and Arup and is likely to continue until the end of the calendar year. The liability of the Group and the other parties for the programme costs has not yet been determined and, therefore, the charge represents certain costs incurred at year-end, together with management's best estimate of the remaining cost to the Group. This is based on the current requirements of the programme and before taking account of possible future recoveries, as these cannot be recognised under IFRS.

Restructuring and redundancy costs in the prior year arose on the reorganisation of the Group's largest business, Severfield (UK) (formerly Severfield-Watson Structures) in May 2013. This resulted in the reduction in factory capacity by approximately ten per cent and a reduction in headcount of 84 people.

The prior year retirement of the acquired intangible asset for the Fisher Engineering brand arose following the rebranding exercise undertaken by the Group in 2014.

During the prior year, Kennedy Watts Partnership, a company in which the Group had a holding of 25.1 per cent, went into administration. Accordingly, an impairment charge of £353,000 was recognised which represented the Group's historical investment in the associate.

4)         Taxation

The taxation credit comprises:

	2015                    £000	2014 £000
Current tax
UK corporation tax	(512)	(1,025)
Adjustments to prior years' tax provision	(154)	7
	(666)	(1,018)
Deferred tax
Current year credit	573	1,319
Impact of reduction in future years' tax rates	-	1,066
Adjustments to prior years' tax provision	428	50
	1,001	2,435
Total tax credit	335	1,417

5)         Dividends
 

No dividends were either paid or declared for the year ended 31 March 2014.  No interim dividend was either paid or declared for the six months ended 30 September 2014.

The directors are recommending a final dividend in respect of the financial year ended 31 March 2015 of 0.5p per share which will amount to an estimated dividend payment of £1,488,000. If approved by the shareholders at the annual general meeting on 2 September 2015, this dividend will be paid on 11 September 2015 to shareholders who are on the register of members at 14 August 2015. This dividend is not reflected in the balance sheet as at 31 March 2015 as it is subject to shareholder approval.

6)         Earnings per share

Earnings per share is calculated as follows:

	2015                    £000	2014                    £000
Earnings for the purposes of basic earnings per share being net profit/(loss) attributable to equity holders of the parent company	144	(2,640)
Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company	6,862	2,598
Number of shares	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	297,503,587	295,791,922
Weighted average number of ordinary shares for the purposes of diluted earnings per share	297,503,587	295,791,922

On completion of the rights issue on 5 April 2013 the number of ordinary shares in issue increased from 89,251,076 to 297,503,587.

Basic earnings per share	0.05p	(0.89p)
Underlying basic earnings per share	2.31p	0.88p
Diluted earnings per share	0.05p	(0.89p)
Underlying diluted earnings per share	2.31p	0.88p

7)         Net cash flow from operating activities

	2015                     £000	2014                     £000
Operating profit/(loss) from continuing operations	259	(3,499)
Adjustments:
Depreciation of property, plant and equipment	3,622	3,581
Depreciation of investment property	10	40
Gain on disposal of property, plant and equipment	(46)	(96)
Amortisation of intangible assets	2,757	2,885
Retirement of acquired intangible asset	-	2,370
Movements in pension scheme	(528)	(539)
Share of results of JVs and associates	213	3,391
Share-based payments	480	243
Movement in valuation of derivatives	(118)	-
Operating cash flows before movements in working capital	6,649	8,376
Decrease in inventories	1,075	2,372
(Increase)/decrease in receivables	(4,206)	10,798
Increase/(decrease) in payables	7,893	(19,433)
Cash generated from operations	11,411	2,113
Tax (paid)/received	(965)	409
Net cash flow from operating activities	10,446	2,522

8)         Net funds
 

The Group's net funds are as follows.

	2015                     £000	2014                    £000
Cash and cash equivalents	6,884	5,525
Unamortised debt arrangement fees	273	-
Financial liabilities - borrowings	-	(5,000)
Financial liabilities - finance leases	(794)	(206)
Net funds	6,363	319

On 31 October 2014, the Group entered into a new £25m revolving credit facility ('RCF') with HSBC Bank plc and Yorkshire Bank (a member of the National Australia Bank group) which matures in July 2019 and cancelled the existing RCF facility with Royal Bank of Scotland plc and Yorkshire Bank which was due to expire in November 2016.

The new facility includes an accordion facility of £20m, which allows the Group to increase the aggregate available borrowings to £45m, at the Group's request. The new facility is subject to certain covenants, similar to those previously in place, including the cover of interest costs and the ratio of net debt to EBITDA.

Information for shareholders
 

§ The shares will be marked ex-dividend on 13 August 2015.

§ The final dividend will be paid on 11 September 2015 to shareholders on the register at the close of business on 14 August 2015. Dividend warrants/vouchers will be posted on 9 September 2015.

§ The 2015 annual report and financial statements together with the notice of the annual general meeting will be posted to shareholders in July 2015.

§ The annual general meeting will be held on 2 September 2015 at Aldwark Manor Hotel, Aldwark, York, YO61 1UF.

Principal risk and uncertainties

The Group's ongoing operations and growth plans are subject to a number of different risks and uncertainties. Risk management processes are put in place to assess, manage and control these on an ongoing basis. The principal risks facing the business are set out below, and are listed in no particular order.
RISK / EXPLANATION	DESCRIPTION / IMPACT	MITIGATION
Commercial and market environment The UK construction market shows continued signs of improvement, however some market tension remains as main contractors continue to work through legacy contracts. There is also still some sensitivity in predicting the longer-term outlook. This continues to place pressure on certain elements of the supply chain, from end customers through to material suppliers and subcontractors. Through our different businesses we seek to win profitable work through successful tender processes. This success depends on our ability to identify, price and execute appropriate contracts to maintain a profitable order book.	Challenging trading conditions and lack of growth Changes in government and client spending or other external factors could lead to programme/contract delays or cancellations, or changes in market growth. 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. A significant fall in construction activity could impact revenues, profits and the ability to recover overheads. Cash generation could also be impacted resulting in breaches of banking facilities or failure to deliver on strategic objectives.	Continued strengthening of senior management to improve processes and discipline around contract risk assessment, engagement and execution. Recruitment of a Group strategic business development director to focus on markets and opportunities that fit the Group's risk appetite. 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 balance sheet, including refinanced banking facilities, supports the business through fluctuations in the economic conditions for the sector.
	Inadequate contract pricing, cost management and variation management Failure to accurately estimate and evaluate the contract risks, costs to complete, contract duration and the impact of price increases could result in a contract being mispriced. As contracts progress, there are likely to be changes to the work packages being undertaken which could result in the Group not being appropriately reimbursed for the cost of these variations as a result of poor commercial controls, disagreements or disputes. Failure to achieve targeted profitability of contracts resulting in a reduction in Group margins and missed growth targets. The Group may need to resort to legal action to resolve disputes, which can be costly and may damage client relationships.	Business planning identifies the markets and clients that the Group will target. Estimating processes are in place with approvals by appropriate levels of management. Tender settlement processes are in place to give senior management regular visibility of major tenders. Work performed under standard terms (to mitigate onerous contract terms) where possible. Established system of monthly reviews to measure and report contract progress and estimated outturns, including contract variations. Use of delegated authorities to ensure appropriate contract tendering and acceptance.
	Inadequate supply chain management We are heavily reliant on our supply chain partners for successful operational delivery of contracts to meet client expectations. We will be commercially, as well as reputationally, responsible for performance shortcomings by suppliers and subcontractors whether in terms of quality, safety, technical or ethical standards. Insolvency or poor performance of a key supplier or subcontractor could expose the Group to liability for defective workmanship, materials or design. This may affect contract profitability, cash flow, reputation and the Group's ability to win repeat business.	Strong relationships maintained with key suppliers including a programme of regular meetings and reviews. Contingency plans developed to address supplier and subcontractor failure. Contracts only entered into with suppliers and subcontractors after review at the appropriate level of delegated authority. Monthly review process to facilitate early warning of issues and subsequent mitigation strategies. Initiatives have been implemented to select supply chain partners that match our commitment to quality.
People The Group has established a market leading position over many years due in large part to the experience and skills of its key people. The Group prides itself on its industry leading practices and works in some high profile and technically challenging environments.	Recruitment and retention of talented people In the current improving economic environment, it can become increasingly difficult to recruit capable people and retain key employees, especially those targeted by competitors. Loss of key people could adversely impact the Group's existing market position and reputation. Insufficient growth and development of its people and skillsets could restrict its growth ambitions both in the UK and overseas.	Remuneration policy is regularly reviewed to ensure that it is competitive and strikes the appropriate balance between short and long-term rewards and incentives. Skills gaps are continually identified and actions put in place to bridge these by training, development or external recruitment. In 2015/16 we will conduct a Group wide review of emerging talent to ensure consistency and visibility of talent, succession planning and career opportunity. Performance management tools and processes were redefined in the current year. Leadership and management training plans are now in place. Further investment made in graduate, trainee and apprenticeship schemes to safeguard an inflow of new talent.
Interruption to fabrication facilities The Group's state-of-the-art production facilities are at the core of its business and the Group relies on their smooth continued operation, both in terms of the facilities themselves and the highly skilled employees who operate them.	Inadequate business continuity planning Every business faces the potential risk of its operations being impacted by disruption due to loss of supply, industrial disputes, failure with technology, unplanned outages and physical damage as a result of fire or other such event. Interruption could impact both the Group's performance on existing contracts, its ability to bid for future contracts and its reputation, thereby impacting its financial performance.	The Group has four main production facilities so interruption at one facility could to some extent be absorbed by increasing capacity at a sister facility. Detailed maintenance programmes are in place at each of the Group's facilities. A wide network of subcontract fabricators is used on a recurring basis, both for short-term peak capacity requirements and for more specialised fabrication. This network could also be used to mitigate disruption to the Group's own fabrication facilities. Appropriate levels of business interruption insurance cover are maintained and reviewed regularly with the assistance of independent advisers and brokers.
	Industrial action The Group (and the industry in general) has a significant number of employees who are members of trade unions. Industrial action taken by employees could impact on the ability of the Group to maintain effective levels of production. Interruption could impact both the Group's performance on existing contracts, its ability to bid for future contracts and its reputation, thereby impacting its financial performance.	Employee and union engagement takes place on a regular basis. The Group has four main production facilities so interruption at one facility could to some extent be absorbed by increasing capacity at a sister facility. Processes are in place to mitigate disruptions as a result of industrial action.
Indian joint venture The Group has invested in a joint venture in India, where the growth prospects are believed to be substantial.	Performance of the joint venture The growth, management and performance of the business is a key element of the Group's overall performance. Effective management of the joint venture is therefore important to the Group's continuing success. Crucial to the long-term success of the joint venture is the development of the market for steel (rather than concrete) construction. Failure to identify, understand and evaluate the risks of operating in India could lead to financial loss, reputational damage and a drain on cash resources to fund the operations.	Robust joint venture agreement. Two members of the Group's board of directors are members of the joint venture board. Strong governance in place at the joint venture. Regular formal and informal meetings held with both joint venture management and joint venture partners. Contract risk assessment, engagement and execution process now embedded. Overhead reduction and operational improvement plans being implemented by new management team.
Health and safety The construction industry sets very high standards of health and safety which the Group aims to exceed to maintain the health and well-being of its employees.	Serious health and safety incident Construction activities can result in injury or death to employees, leading to the potential for legal proceedings, regulatory intervention, project delays and, where at fault, potential loss of reputation. Loss of profitability and ultimately exclusion from future business.	Established safety systems, regular site visits, monitoring and reporting, and detailed health and safety policies and procedures, are in place across the Group. Thorough and regular employee training programmes, including new behavioural safety training initiatives, under the leadership of the new Group SHE director. 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. Priority board review of ongoing performance. Regular reporting of and investigation and root cause analysis of accidents and near misses. Achievement of challenging health and safety performance targets is a key element of management remuneration.
Information technology (IT) The Group's complex and interdependent IT systems support the effective and efficient running of the business. Ensuring our systems are reliable strengthens the day-to-day operations of the Group.	IT failure or disruption With insufficient IT disaster recovery planning, cyber-attack or property damage 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 avoid interruptions, keep pace with new technologies and respond to threats to data and security. Prolonged or major failure of IT systems could pose significant risk to the ability of the Group to operate and trade, thereby impacting its financial performance. If the Group fails to invest in its IT systems, it will ultimately be unable to meet the future needs of the business and fulfil its strategy.	IT is the responsibility of a central function which manages the systems across the Group. Significant investments in IT systems are subject to board approval. Group IT committee now in place ensuring focussed strategic development and resolution of issues impacting the Group's technology environment. Data protection and information security policies are in place across the Group including, anti-virus software, off-site and on-site back-ups, storage area networks, software maintenance agreements and virtualisation of the IT environment. Cyber-crimes and associated IT risks are assessed on a continual basis. ISO 27001 certification project is ongoing to further improve the Group's technology environment.

 

END

 

 

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