Interim Results

SEVERFIELD-ROWEN PLC
24 August 1999
 
 
                           INTERIM RESULTS
                  Record Order Book of £60 million
                                  
Severfield-Rowen Plc, the structural steel group, announces interim
results for the six months to 30 June 1999.
+   Turnover of £52.3 million (1998: £64.1 million)
+   Margins in the core business stabilised
+   Operating profit of £4.0 million (1998: £5.2 million)
+   Profit before tax of £4.0 million (1998: £5.1 million)
+   Earnings per share of 13.7 pence (1998: 18.0 pence)
+   Interim dividend maintained at 5.0 pence, reflecting the
    resilience of the core business
+   Progress at Manabo slower than expected
+   Continued tight cash control resulting in a positive balance of
    £4.4 million.
+   Record order book of £60 million and operating margins
    currently stabilised.
 
Commenting on the results, Peter Levine, Chairman, said:
 
'The tightening of prices and margins that we referred to six months
ago has continued, due principally to over-capacity in our market.
We have been able to limit the impact of these conditions on our
performance due to the production and cost efficiency of our plant.
These efficiencies are the result of a major five-year capex
programme we completed last year.
 
'Whilst it is impossible to be completely immune to pricing
pressures, the operating and financial strength of the Group place
us in a very strong position to substantially mitigate short-term
impact on margins and profits.  With our strong order book and the
underlying strength of our core business we remain confident in the
medium to long term prospects of the Group.'
 
For further information, please contact:
 
Severfield-Rowen Plc          )    0171 831 3113 - 24th August
Peter Levine, Chairman        )    01132 469 993 - thereafter
Peter Davison, Finance Director    )    01845 577 896 - thereafter
 
Financial Dynamics
Sarah Marsland                0171 831 3113

CHAIRMAN'S STATEMENT
 
The Group has traded satisfactorily in the first six months of 1999
given the prevailing market conditions.  During this period, the
Group's position as the most profitable company in the structural
steelwork industry has been maintained.
 
In my statement accompanying the results for the year ended 31
December 1998 I referred to evidence of tightening of prices and
margins.  Whilst this has continued to be the case, due principally
to over-capacity in the structural steelwork market, the Group has
been able to limit the consequential reduction in profits and
margins.  However, despite the over-capacity and reduction in prices
it is encouraging that order levels and enquiries remain buoyant.
 
The two major subsidiaries of the Group, Severfield-Reeve Structures
in Dalton and Rowen Structures in Nottingham which are both involved
in the design, manufacture and erection of structural steelwork,
reported creditable results.
 
Our steelwork order book is very good, currently standing at a
record £60 million, primarily in the UK market, which remains of
significant importance to us.  Whilst interest in overseas work is
increasing, we remain selective and careful in bidding for
international contracts.
 
Manabo remains a disappointment and even though progress this year
has so far been slower than we anticipated, definite inroads have
been made both in reducing the cost base and developing the
important export market of the United States.
 
The Group continues to have a positive cash balance which has been
reduced compared to the previous year as a result of timing and the
conversion of cash into working capital.  Our strong cash position
remains a significant strength of the Group.
 
FINANCE
 
Turnover in the period was £52.32 million (1998: £64.13 million)
producing an operating profit of £4.05 million (1998: £5.15
million).
 
Despite the pressure on prices, group margins at the operating
level, only reduced to 7.7% compared with 8.0% in the corresponding
period last year, and are expected to remain at about this level for
the remainder of the year.
 
After charging interest of £78,000 (1998: £8,000), profit before tax
was £3.97 million (1998: £5.14 million).  Assuming a tax charge of
31% (1998: 30.5%), earnings per share were 13.69 pence (1998: 18.04
pence).
 
As stated in the 1998 Annual Report, because we have now completed
our major expansion programme at Dalton, capital expenditure in 1999
will be lower than that in recent years.  During the first six
months of the year capital expenditure amounted to £595,000 with
approximately £1.5 million expected in the second half.
 
Management of the Group's cash continues to be tightly controlled.
At 30 June 1999 we had a positive balance of £4.35 million.
Although this balance is reduced from that of £7.49 million at 31
December 1998 it reflects the amount of cash tied up in working
capital due principally to longer payment terms on particular
contracts together with timing of contract valuation dates.
 
Borrowings, primarily representing amounts due on hire-purchase
contracts, amounted to £4.13 million leaving the group with a net
funds surplus and, therefore, no gearing.
 
DIVIDEND
 
Based on the resilience of our core business to the current trading
environment, together with our confidence for the medium term
prospects of the Group, the Board has decided to maintain the
interim dividend at 5.00 pence per share, which is covered 2.7 times
by earnings.  The interim dividend will be paid on 29 October 1999
to shareholders on the register on 1 October 1999.
 
STRUCTURAL STEEL
 
The continued flexibility and efficiency achieved in production not
only ensured we maintained our position at the forefront of our
market place, but has also confirmed the importance of the decisions
made to undertake major capital investment in our production
facilities over the last five years.
 
Severfield-Reeve Structures continues to have one of the most
efficient structural steel production facilities in Europe.  By
combining this efficiency with careful scheduling of production
capacity and control of the quality and timing of contracts
undertaken, we have been able to limit the impact of reducing prices
on the Group's margins and profits.
 
Development of the cellular beam continues and tests we have
conducted so far indicate that we can produce the beam cost-
effectively and efficiently at our Dalton site.
 
An important factor in the growth of the Dalton operation has been
its land bank.  Underlying the confidence in the future, a further
five acres of key land has been purchased for potential expansion of
the Dalton facility in the future.
 
Rowen has had a satisfactory start to the year.  Its contribution to
our business, and blue chip client base led us to change the name of
our Group to Severfield-Rowen Plc, which took effect on 1 July 1999.
 
Our reputation is growing on a worldwide basis and our international
exports are proceeding in a careful, planned and measured way.  A
clear indication of this is the Bechtel partnering agreement entered
into in early 1999.  Whilst very much in its infancy, new work for
Bechtel has already been won with a contract due to start later this
year for a power station in Egypt.
 
Projects carried out in the first six months included:
 
+  The new Royal Infirmary of Edinburgh and University of Edinburgh
   Medical School
+  Redevelopment of the City Point office block in London
+  A sports and leisure retail complex in Milton Keynes
+  A new building for British Aerospace at Broughton
+  A prestigious office block development at Christchurch Court in
   the City of London
+  Major projects at Gatwick and Heathrow for BAA
+  A major office development, Woolgate Exchange, in the City of
   London
+  Leisure/cinema development at West India Quay for Virgin
+  Office/research and development units for Pfizer in Kent
 
Our forward order book is very good, currently being at a record £60
million.  New contracts include:
 
+  The new London International Exhibition Centre
+  Production plants at Longbridge and Solihull for Rover
+  Power generation plant enclosure buildings at Damhead Creek
   Power Station and at Great Yarmouth Power Station
+  The Festival Place retail development in Basingstoke
+  A major retail/leisure centre in Birmingham
+  Cinema/leisure complex in Maidenhead
+  A number of projects for BAA at Heathrow, Gatwick and Stansted
   airports
+  Turbine hall steelwork for power generation plant in Egypt
 
MANABO
 
The first half of the year has proved disappointing.  Progress has
latterly been slower than anticipated and accordingly it has fallen
short of its budget.  Having reduced the cost base and achieved the
quality required in its core product of steel mesh gloves, the
management of Manabo recognises the need for an increase in sales.
At the time of the AGM in May we expressed optimism that Manabo
would achieve break-even at the operating level for the year as a
whole.  However, it is now estimated that the first break-even month
will only be achieved at the year end.
 
While sales of gloves are estimated to double this year over that
achieved in 1998, there is a need for further improvement beyond
this level.  A new subsidiary company has recently been set up in
the United States to distribute Manabo's products and sales have
started to increase in this very important region.
 
Manabo remains under the constant focus of the Board.
 
ACQUISITION
 
In January the company purchased a 25.1% strategic stake in Kennedy
Watts Partnership Ltd, a CAD/CAM steelwork design company for a
total consideration, including costs, of £450,000, of which £408,000
was paid by the issue of 136,912 10p ordinary shares.
 
The cost of the acquisition is shown on the balance sheet under
investments.  No other provision has been made in the results to 30
June 1999.
 
YEAR 2000
 
As we stated in April 1999 the Board commissioned a group wide
programme designed to identify problems caused by the advent of the
Year 2000 and to take appropriate action.
 
The board believes that it has achieved an acceptable state of
readiness and that it has provided adequate resources to deal
promptly with significant failures or issues as they arise.
 
Costs associated with this exercise are not material and are written
off to the profit and loss account as they are incurred.
 
OUTLOOK
 
Overall our core steelwork companies continue to trade well in the
current price and margin sensitive environment.  Whilst it is
impossible to be completely immune to pricing pressures, the Group's
reputation in its industry, unmatched production facilities and
efficiencies, good order book and buoyant enquiry levels place it in
a very strong position to continue to substantially mitigate any
possible short term impact on margins and thereby profits.
 
With our strong order book, prospects for our core business remain
good.  The Board continues to focus on delivery of shareholder value
and is confident for the medium to long term prospects of the Group.
 
 
 
 
                                                        Peter Levine
                                                            Chairman
                        Severfield-Rowen Plc
                                  
                Consolidated Profit and Loss Account
                                  
                           Six Months   Six Months     Year to
                               to           to       31 December
                          30 June 1999    30 June        1998
                           Unaudited       1998        Audited
                              £000       Unaudited       £000
                                           £000
                                                    
Turnover - continuing       52,320       64,129        129,805
operations
                           _______      _______        _______
Operating profit -           4,046        5,150         10,210
continuing operations
                                                    
Profit on disposal of            -            -          1,676
assets in continuing       _______      _______        _______
operations
                             4,046        5,150         11,886
                                                    
Net interest payable and      (78)          (8)            (4)
similar charges            _______      _______        _______
                                                    
Profit on ordinary           3,968        5,142         11,882
activities before
taxation
                                                    
Taxation on profit on      (1,230)      (1,568)        (3,175)
ordinary activities        _______      _______        _______
                                                    
Profit on ordinary           2,738        3,574          8,707
activities after
taxation for the period
                                                    
Dividends payable to       (1,001)        (993)        (2,384)
equity shareholders        _______      _______        _______
                                                    
Profit retained,             1,737        2,581          6,323
transferred to reserves    _______      _______        _______
                                                    
Basic earnings per share    13.69p       18.04p         43.88p
Profit on disposal of            -            -        (8.02p)
assets adjustment          _______      _______        _______
                                                    
Adjusted earnings per       13.69p       18.04p         35.86p
share based on operating   _______      _______        _______
profit
                                                    
Diluted earnings per        13.54p       17.74p         43.28p
share
                           _______      _______        _______
Dividends per share          5.00p        5.00p         12.00p
                                  
                                  
                                  
                        Severfield-Rowen Plc
                                  
                     Consolidated Balance Sheet
                                  
                           At 30 June   At 30 June      At 31
                              1999         1998        December
                           Unaudited     Unaudited       1998
                              £000         £000        Audited
                                                         £000
                                                    
Fixed Assets:                                       
 Intangible assets             396            -            396
 Tangible assets            24,431       24,420         24,620
 Investments                   683          156            233
                           _______      _______        _______
                            25,510       20,576         25,249
                           _______      _______        _______
Current Assets:                                     
 Stocks                      5,837        4,489          4,491
 Debtors                    26,927       30,125         23,881
 Cash at bank and in         4,349       10,040          7,492
hand
                           _______      _______        _______
                            37,113       44,654         35,864
                                                    
Current Liabilities:                                
 Creditors due within     (28,299)      (36,897)      (28,354)
one year
                           _______      _______        _______
Net current assets           8,814        7,757          7,510
                           _______      _______        _______
                                                    
Total assets less           34,324       28,333         32,759
current liabilities
                                                    
Creditors due after more   (2,639)      (3,059)        (3,370)
than one year
Provision for              (1,572)      (1,159)        (1,433)
liabilities and charges
                           _______      _______        _______
                            30,113       24,115         27,956
                           _______      _______        _______
                                                    
Capital and Reserves:                               
 Called up share capital     2,002        1,987          1,987
 Share premium account       8,526        8,121          8,121
 Revaluation reserve         1,536        1,427          1,536
 Merger reserve                114          114            114
 Profit and loss account    17,935       12,466         16,198
                           _______      _______        _______
                            30,113       24,115         27,956
                           _______      _______        _______
                                  
                                  
                        Severfield-Rowen Plc
                                  
                  Consolidated Cash Flow Statement
                                  
                           Six Months   Six Months     Year to
                               to           to       31 December
                          30 June 1999    30 June        1998
                           Unaudited       1998        Audited
                              £000       Unaudited       £000
                                           £000
                                                    
Net cash                     (159)        3,486          8,362
(outflow)/inflow from
operating activities
                                                    
Returns on investments        (28)         (15)              7
and servicing of finance
                                                    
Taxation                     (248)        (186)        (2,802)
                                                    
Capital expenditure and      (560)      (1,228)        (5,137)
financial investment
                                                    
Acquisitions and              (42)            -            784
disposals
                                                    
Equity dividends paid      (1,402)      (1,238)        (2,230)
                           _______      _______        _______
Cash (outflow)/inflow                               
before use of liquid       (2,439)          819        (1,016)
resources and financing
                                                    
Financing                    (704)        (597)        (1,310)
                           _______      _______        _______
                                                    
(Decrease)/increase in     (3,143)          222        (2,326)
cash in the period         _______      _______        _______
                                                    
                                  
Reconciliation of net cash flow to movement in net funds
                                                           
                           Six Months   Six Months     Year to
                               to           to       31 December
                          30 June 1999    30 June        1998
                           Unaudited       1998        Audited
                              £000       Unaudited       £000
                                           £000
                                                    
(Decrease)/increase in     (3,143)          222        (2,326)
cash in the period
                                                    
Cash flow from movement                             
in loans and hire-             716          649          1,362
purchase contracts
                           _______      _______        _______
Change in net funds from                            
cash flows                 (2,427)          871          (964)
                                                    
Loan acquired with               -            -          (188)
subsidiary
                                                    
New hire-purchase                -        (225)        (1,310)
contracts
                           _______      _______        _______
                                                    
Movement in net funds in   (2,427)          646        (2,462)
the period
                                                    
Net funds at beginning       2,651        5,113          5,113
of period
                           _______      _______        _______
Net funds at end of            224        5,759          2,651
period
                           _______      _______        _______
                                  
                               Notes:
                                  
 1. The interim financial statements, which are neither audited nor
    reviewed by the auditors, have been prepared on the basis of
    the accounting policies set out in the company's 1998 statutory
    accounts, amended for the introduction of FRS12.  The
    introduction of FRS12 has no effect on the results of the Group
    for the interim period or prior periods.
                                  
 2. Taxation for the six months to 30 June 1999 has been shown at
    the rate estimated to be applicable for the full year.
                                  
 3. The interim dividend of 5.00p per share (1998: 5.00) will be
    paid on 29 October 1999 to shareholders on the register on 1
    October 1999.  The ex-dividend date will be 27 September 1999.
                                  
 4. The basic earnings per share figure for the six months ended 30
    June 1999 is based on the profit after taxation of £2,738,000
    (1998: £3,574,000) and 20,003,124 (1998: 19,815,928) ordinary
    shares, being the weighted average of the number of shares on
    issue during the period.
                                  
    The calculation of adjusted earnings per share for the year to
    31 December 1998 is based on the profit after taxation,
    excluding the exceptional gain made on the disposal of assets
    in continuing operations.  This figure provides a more
    meaningful comparison.
                                  
    The calculation of diluted earnings per share is based on the
    profit after taxation of £2,738,000 (1998: £3,574,000) and
    20,224,867 (1998: 20,150,657) ordinary shares, being the
    weighted average of the number of shares in issue during the
    year, allowing for the full exercise of any outstanding share
    options.
                                  
 5. The results for the year to 31 December 1998 are an abridged
    version of the company's full accounts which carry an
    unqualified auditors' report and have been filed with the
    Registrar of Companies.
                                  
6.  The interim report will be posted to shareholders.  Copies are
    available from the Secretary, Severfield-Rowen Plc, Dalton
    Airfield Industrial Estate, Dalton, Thirsk, North Yorkshire YO7 3JN.
                                  
7.  Reconciliation of movement of shareholders' funds
                                  
                                                            £000
         At January 1999                                  27,956
         Retained profit for the period                    1,737
         Issue of share capital under share option scheme     12
                Issue of share capital for acquisition of
         associated undertaking                              408
                                  
         At 30 June 1999                                  30,113
                                                          ______
                                  
                                  
   8.   Reconciliation of operating profit to operating cash flow
                                  
                           Six Months   Six Months     Year to
                               to           to       31 December
                          30 June 1999    30 June        1998
                           Unaudited       1998        Audited
                              £000       Unaudited       £000
                                           £000
                                                    
     Operating profit        4,046        5,150         10,210
     Depreciation,                                  
     amortisation and          749          716          1,628
     profit/loss on
     disposal of assets
     Working capital       (4,954)      (2,380)        (3,476)
     increase
                           _______      _______        _______
     Net cash                                       
     (outflow)/inflow        (159)        3,486          8,362
     from operating
     activities
                           _______      _______        _______