Preliminary Results

RNS Number : 1901G

Severfield-Rowen PLC

04 June 2013

 



Preliminary Results

For 15 Month Period Ended 31 March 2013

Balance Sheet Strengthened - Operational Improvements Underway

Severfield-Rowen Plc, the market leading structural steel group, today announces its unaudited Preliminary Results for the 15 month period ended 31 March 2013.

Financial Highlights

·       Rights Issue completed successfully on 5 April 2013 raising £44.8m of new funds (net of expenses)

·       Revised revolving credit facility of £35m effective from completion of Rights Issue

·       UK business reorganisation and operational improvements continuing under new Group leadership

·       Underlying loss before tax of £21.5m (2011: £10.1m profit)

·       Share of losses from Indian joint venture £0.3m (2011: £2.5m)

·       Basic earnings per share of -25.91p (2011: 6.52p)

·       No final dividend recommended (first interim dividend 1.50p)

·       Period end net debt of £41.2m (31 December 2011: £31.3m)

·       Solid UK order book of £197m (31 December 2012: £209m)

·       Current JSSL (India) order book value £29m (31 December 2012: £29m)

£m		15 months to 31 March 2013	12 months to 31 December 2011
Revenue		318.3	267.8
Underlying* Group operating (loss)/profit (before results of Associates)		(19.2)	14.2
Operating (loss)/profit (before results of Associates)		(26.5)	10.9
Underlying operating margin (before results of Associates)		-6.0%	5.3%
Underlying (loss)/profit before tax		(21.5)	10.1
(Loss)/profit after tax (including non-underlying items)		(23.1)	5.8
Underlying basic earnings per share		-20.70p	8.05p
Dividend per share		1.50p	5.00p

* Underlying is before:

o  the amortisation of acquired intangible assets - £3.4m (2011: £2.7m)

o  contract legal costs and provision movements - £1.1m (2011: £0.6m)

o  all costs associated with amendment of Group banking facilities - £2.1m (2011: nil)

o  restructuring and redundancy costs - £0.8m (2011: nil)

o  movements in valuation of derivative financial instruments - £0.1m favourable (2011: nil)

o  the associated tax impact of the above, together with the impact of a reduction in future corporation tax rates on the Group's deferred tax liability.

John Dodds, Executive Chairman, commented:

"The 15 month period to 31 March 2013 has been extremely challenging for the Group with problems on its 122 Leadenhall Street contract being the most significant of several contract issues which contributed to the financial loss for the period.

Management and organisational changes have already been made and further changes are in process.  Meanwhile the Group retains its core strengths, a strong market position and the continued support of its major customers.  This, together with the shareholder support for the refinancing completed on 5 April, gives me confidence that the Group will improve financial performance in the near term and deliver returns commensurate with its strong market position in the longer term."

For further information, please contact:

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

CHAIRMAN'S STATEMENT

The 15 months ended 31 March 2013 have probably been the most challenging in the Group's history.  Problems with the contract for 122 Leadenhall Street were the most significant of several issues which adversely impacted the results for the period, and which were explained in detail with the 12 month interim results to 31 December 2012.  Tom Haughey, the Chief Executive, stepped down from his position in January 2013, since when I have taken on  the role of Executive Chairman on an interim basis.

We appreciated the overwhelming support of our shareholders during this period which enabled the Group to complete a Rights Issue which raised £44.8m net of fees.  The resultant strong balance sheet provides the Group with greater operational and financial flexibility while demonstrating financial strength to customers, relative to its principal competitors, in a continuing difficult market environment.

The Group announced in August 2012 the reorganisation of three of its operating businesses into a single trading entity, Severfield-Watson Structures.  A comprehensive management review since then has resulted in changes being made to the senior operating management structure of the Group and factory capacity is being reduced by approximately 10% to align with market conditions.  A further reorganisation of Severfield-Watson Structures has recently been announced  which will result in a reduction in headcount of 93 people.  These changes are difficult for all concerned but  are necessary to ensure that the Group  is on the best and most efficient footing to deliver improved performance in the continuing difficult climate.

Despite these challenges, I am encouraged by the Group's continuing strong relationship with key clients, and by its continued delivery of projects in line with client demands and expectations.  The order book remains solid  and reflects the continuing strength of the Group's market position.  I am confident that the strengthened balance sheet and the operational changes we are making will result in a recovery in performance in the near term, leaving the Group well placed to benefit when the UK construction cycle starts to recover.

Results

The Group has made an underlying operating loss of £19.5m on revenue of £318.3m for the period.  The Group loss after tax is £23.1m with basic earnings per share of -25.91p, both reflecting the impact of non-underlying items.

Dividend

As set out in the prospectus at the time of the Rights Issue, no final dividend is being recommended for the period.

Board Changes

As previously announced, Tom Haughey stepped down as Chief Executive on 22 January 2013, at which time I assumed the role of Executive Chairman.  I will continue in this role until a new Chief Executive is appointed.

On 8 January, Peter Emerson, Chief Operating Officer, announced his intention to retire upon his 60^th birthday on 5 June 2013.

Ian Cochrane, previously Managing Director of Fisher Engineering, is appointed to the Board as Chief Operating Officer with effect from 5 June 2013.

Geoff Wright retired from the Board at the end of December after six years of valuable service.

Our People

The past few months have been challenging for our management and employees.  We are committed to restoring the Group to a stronger financial performance and it is only through the continuing effort and dedication of our management teams and employees that this will be achieved.  On behalf of the Board, I would like to thank them all for their continued support and unstinting effort.

Outlook

While market conditions remain challenging, the Board is confident that with its strengthened financial position, and the reorganisation changes it is implementing, the Group is well placed to deliver improved financial performance in the near term, maintain its strong market position in the UK and achieve its strategic objectives in India.

REVIEW OF OPERATIONS

UK Overview

Market conditions remained very challenging during the period, exacerbated by very poor weather conditions in the final three months to 31 March 2013.  Continued pain has been evident both within the structural steel sector and throughout the wider construction market.  The need for improvement in the Group's estimating, risk management and contracting processes has been recognised and a change programme is now well underway which will lead towards improved efficiency and effectiveness in all of these key areas.

The Group's key strengths remain the design, fabrication and erection of steel structures, and we have continued to perform to clients' expectations throughout the past few difficult months. Client relationships are strong and the Group remains the market leader in the UK by some considerable margin.

Atlas Ward Structures and Fisher Engineering have continued to perform profitably throughout the difficult trading environment.

Order Book

The UK order book at £197m remains solid and contains a good mix of London commercial offices, industrial buildings, warehousing, waste to energy and transport projects.

The pipeline of future potential projects is encouraging, continuing at similar levels to those previously reported.

Reorganisation and Costs

The Group announced the reorganisation of its largest businesses in August 2012, which started trading as a single entity on 1 January 2013.  The change process will continue over several months and, following the refinancing and further management changes in the early part of 2013, a further stage in the reorganisation was announced on 15 May.  The overall reorganisation will reduce costs by an annualised saving in excess of £4m and will enable the Group to compete effectively and profitably for the right mix of projects in the coming years.

Operating margins of 5-6% remain the target in the prevailing economic climate and the reorganisation and associated improvement in contracting processes are essential to enable the Group to deliver this.

Projects

As mentioned previously, the Group's operational and performance issues have not impacted on its delivery of key projects for clients.  Projects undertaken during the period include:-

Leadenhall Building Heathrow Airport Blackfriars Bridge London Bridge Place Arla Super Dairy 60 Holborn Jaguar Land Rover, Midlands INEOS Runcorn Paris Philharmonic Hall BMW Extension, Oxford SDP Sellafield

Gatwick Pier 5 Tesco Distribution Centre, Reading East Croydon Footbridge Cleveland EfW ASDA, Rochdale Leeds Arena Streatham Hub Birmingham New Street Station Tate Modern London Cable Car ASDA, Grangemouth

Business Investment

UK investment once again was largely for essential replacement equipment.  The Group's stock of plant and equipment is  relatively new and in good operating condition.  The Group continues to invest in health and safety training and initiatives, both in our factories and at project sites.

India

Good production capability has now been established and the facility at Bellary is being expanded to increase overall capacity and flexibility.  Senior management in India has been recently changed to provide a greater emphasis on cost control, estimating and risk management.  The changes implemented in late 2012 to the business development management structure are being rewarded with an improved pipeline of opportunities.  Our Indian business is now consistently performing at good operating margins, however overall profitability is being eroded by the interest burden from the current debt equity structure.  As a result JSSL's overall result continues to fluctuate around the break-even level at this time.

The order book of £29m is satisfactory but is expected to grow as the additional capacity becomes available and the improving pipeline starts to convert to orders.

Corporate Social Responsibility

In 2012 we built on the significant progress made since we started our 'Steel Futures' continuous improvement programme, this focusses on safety, sustainability, carbon management, people development, community engagement and working in partnership with our supply chain.  In 2012 some key initiatives across the business also demonstrated our ability to profit from sustainability through smart procurement.

Some highlights of progress are:

·      A first again in our sector and part of a select few in construction to achieve the Carbon Trust Standard for our commitment to reducing our CO2 year on year, this is independently verified through external audit.

·      We maintain our leadership position in continuing accreditation to the BREEAM, BES 6001 Responsible Sourcing of Materials externally verified through BRE Global.

·      Completing the first phase of our theatre based behavioural safety programme we provided training for over 2,000 people which included employees and our subcontractor supply chain.

·      120+ employees involved in making design decisions for our projects were given external training on the management of risks and safety in design.

·      The business completed and implemented a whole life cost analysis of our company vehicles with the potential outcome when fully implemented being over £0.3m savings and a potential 450t of CO2 reduction.

·      Working with our supply chain we reduced electricity energy costs by £0.1m whilst still maintaining a CO2 levy exempt renewable energy supply at our Bolton facility.

·      At our Dalton factory we worked with our supplier to manage efficiencies and switched to Bio Fuel for our heating requirements.

·      Working as part of the UKCG in setting standards for the industry, the Group has introduced a training centre for internal and external organisations to improve anti-entrapment awareness.

·      The Group is committed to and is reporting externally our energy emissions through the Climate Change Agreement we have in place with DEFRA.

·      100% of our timber products are sourced from verified FSC timber suppliers.

·      Achilles Building Confidence - this external audit standard is stipulated by many of our clients, the Group achieved the highest score in 2012, a '5 Star Rating'.

·      The Group recently achieved its first Gold ROSPA Safety Award.

·      Community engagement - in 2012 our Atlas Ward business sponsored the Scarborough Engineering week where over 2000 students and school pupils attended.

We have plans for 2013 that we believe will further enhance our leadership position.

Summary and Outlook

The Group is now putting a very difficult period behind it and is implementing a number of changes aimed at improving operational and financial performance within a reduced Group risk profile.  The market is challenging but our position within the market and our customer relationships both remain strong.

The Indian joint venture has built a solid foundation and projects are now being successfully completed over a wider range of sectors for a broad range of customers.  Capacity is being expanded and the business model increasingly tailored to the developing Indian market.  The overall outlook for the joint venture business in India is positive.

Despite the difficult backdrop, our strong balance sheet combined with new management and organisation structure leaves the Group well placed to deliver improved performance in the near term. 

FINANCIAL REVIEW

£m	15 months to 31 March 2013	12 months to 31 December 2011
Revenue	318.3	267.8
Operating profit before results of Associates and non-underlying items	(19.2)	14.2
Results of Associates (underlying)	(0.3)	(2.5)
Non-underlying items (pre-tax)	(7.3)	(3.3)
(Loss)/profit before tax	(28.9)	6.8
(Loss)/profit after tax	(23.1)	5.8
Period-end net debt	(41.2)	(31.3)

Overview

The Group's results for the 15 months to 31 March 2013 reflect the impact of a number of contract execution issues during the year, particularly on the 122 Leadenhall Street contract, along with difficulties in securing appropriate value for contract variations on a small number of contracts.  These issues are described in detail in the Interim Statement for the 12 month period to 31 December 2012.  The financial impact of these issues required a Rights Issue, which raised £44.8m of funds net of expenses, and amendments to the Group's bank facilities.  As the Rights Issue completed on 5 April, the funds raised were not received by the Group until after the period end, although the costs relating to the amendment of the Group's bank facilities are reflected in the period as non-underlying items.  The period end net debt was £41.2m.  The proceeds from the Rights Issue and the amended bank facilities secured therefore leave the Group with a much stronger balance sheet with which to continue navigating through the UK construction downturn, and to make the operational and organisational changes required to improve performance.

Revenue and Operating Loss

Revenue for the period was £318.3m (2011: £267.8m) and represents relatively flat production volumes and continuing stability in steel prices from the prior period.  The underlying operating loss before results of Associates was £19.2m (2011: £14.2m profit), reflecting the impact of the Leadenhall Street contract and the results of the Board contract review undertaken in January, along with the weak trading highlighted during the period.  The underlying operating margin for the period was -6.0% (2011: 5.3%) and actions are in hand to return this to a positive level in the near term.  Market conditions remain challenging but there is opportunity to recover the Group's performance in the prevailing conditions and at current pricing levels.

Share of Losses of Associate Companies

The Group's share of losses from its Indian joint venture was £0.3m for the period (2011: £2.5m loss).  This reflects more solid operating volumes throughout the year and generally positive underlying contract performance.  The business is experiencing greater variability of contract timing than the Group is accustomed to in the UK market and order book loadings will need to be managed accordingly in future.  In addition, while the performance of the business is generally positive, and providing encouraging signs for the future, it is not yet strong enough to offset the interest burden on its current debt levels.  The debt/equity mix is being kept under review along with the developing operational and contract performance of the joint venture.

Finance Costs

Net finance costs for the period were £2.0m (2011: £1.6m) reflecting prevailing debt levels throughout the 15 months.  The amended facilities take effect from the start of the new financial year.

Non-Underlying Items

Non-underlying items for the period were £7.3m (2011: £3.3m) and include the following:

·      Amortisation of acquired intangibles - £3.4m (2011: £2.7m)

·      All costs relating to the amendment of the Group's banking facilities, including the write-off of fees relating to the November 2011 refinancing - £2.1m (2011: nil)

·      Incremental contract legal costs - £1.1m (2011: £0.6m)

·      Restructuring and redundancy costs - £0.8m (2011: nil)

·      Movement in valuation of derivatives - £0.1m favourable (2011: nil)

Taxation

The underlying tax credit of £3.1m represents an effective rate of 14.4% (on the applicable loss, which excludes results of Associates).  This compares with 23.2% on applicable profit in the prior period.  The current year credit reflects a prudent assessment of the future value of losses carried forward.

The total tax credit for the year was £5.7m which reflects an effective tax rate of 20.1%.  This includes the additional deferred tax benefit from the reduction in UK corporation tax to 23%.  This is categorised as non-underlying and is included in other items.

Earnings per Share

Underlying basic earnings per share was -20.70p (2011: 8.05p).  This calculation is based on the underlying loss after tax of £18.5m and 89,251,076 shares, being the weighted average number of shares in issue during the period.

Basic earnings per share, based on the loss after tax after non-underlying items is -25.91p (2011: 6.52p).  For the 15 month period, there is no difference between basic and diluted earnings per share (2011: no difference).

Dividend

As set out in the prospectus at the time of the Rights Issue, no final dividend is being recommended for the period.

Balance Sheet

Shareholders' funds decreased during the year from £132.3m to £102.4m.  This equates to a total equity value per share of 114.7p at 31 March 2013, compared with 148.2p at the end of 2011.

Goodwill on the balance sheet is valued at £54.7m (2011: £54.7m) and is subject to an annual impairment review under IFRS 3.  No impairment existed either at 31 March 2013 or 31 December 2011.

Other intangible assets on the balance sheet are valued at £15.1m (2011: £18.2m).  This represents the net book value of the intangible assets identified on the acquisition of Fisher Engineering in 2007, along with new software assets installed during 2011 and 2012.  The amortisation charged in the period was £3.5m (2011: £2.7m), giving a total amortised at the year end of £24.8m (2011: £21.3m).

The Group has property, plant and equipment and investment property totalling £80.1m (2011: £83.6m).  Depreciation charged in the period amounted to £5.0m (2011: £4.5m).  Capital expenditure in the period was £2.7m (2011: £2.1m).  This included further investment in new systems, modification of a production bay at our Lostock site, and the general replacement of capital equipment as required.  During the year, the Group invested £3.0m (2011: £0.1m) as equity into the joint venture company in India.  This was to support the expansion of the manufacturing facilities and to improve the equity base of the business.

The Group's capital expenditure in the year to 31 March 2014 in the UK is not expected to be more than £3.0m.

The Group's Atlas Ward subsidiary has a defined benefit pension scheme which, although closed to new members, had an IAS 19 deficit of £9.6m as at 31 December 2011.  At 31 March 2013, the deficit increased to £11.8m and is shown as a liability in the Group balance sheet.  The increase in the deficit is as a result of the changes in the assumptions made, including a reduction in corporate bond yields and an increase in mortality rates, partly offset by higher than expected returns on the scheme's assets.

Cashflow

There was an increase in net debt during the period of £9.9m to leave the period end position at £41.2m (2011: £31.3m).

Efforts to improve working capital management were offset by the operating loss for the period resulting in a cash inflow from operating activities of £0.8m.  Net capital expenditure of £1.4m, additional equity investment in the India joint venture of £3.0m, finance costs of £1.7m and dividends paid of £4.5m combine to generate the net cash outflow for the period.  With the previously mentioned contract performance issues, the resultant level of debt became unsustainable and the Group raised £44.8m of new net funds in April as a result of the Rights Issue announced on 28 February.  This leaves the Balance Sheet in a much stronger position for the current trading environment.

As part of the overall refinancing, the Group amended its banking facilities with RBS and Yorkshire Bank, a member of the National Australia Bank Group.  It now has a £35m facility in place until November 2016, of which £20m is available for utilisation until December 2013.  There are operating cash covenants but no profit covenants on the facility until 31 March 2014, which will allow the Group to rebuild its profitability without any short term bank facility pressure.

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, the euro and the US dollar.  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 a going concern basis, the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities.

In the Group's interim financial statements for the twelve months ended 31 December 2012, information was provided on the then proposed equity fundraising ('Rights Issue') which, at that time, remained conditional on the approval of shareholders at the General Meeting held on 18 March 2013.  Shareholder approval was obtained  and the Rights Issue completed on 5 April 2013, at which point the amendment and restatement of the Existing Facilities Agreement ('Revised Facilities Agreement') with the Group's lenders became effective.

The key areas of uncertainty considered by the Directors were as follows:

·      The UK order book, which currently stands at £197m, the pipeline of potential orders, including the relative attractiveness of the market sectors which are feeding that pipeline, and the anticipated conversion of this pipeline.

·      The implications of the continuing challenging economic environment on the Group's revenues and results.  The Group undertakes forecasts and projections of trading and cash flows on a regular basis.  Whilst this is essential for targeting performance and identifying areas of focus for management to improve performance and mitigate the possible adverse impact of a deteriorating economic outlook, they also provide projections of working capital requirements.

·      The impact of the very competitive environment within which the Group operates, including pressures on margins and counterparty risks.  This included an assessment of the current stage of the economic cycle of the construction industry, the prospects for any recovery in the short to medium term, and the potential development of the competitive environment.

·      The impact on our business of key suppliers being unable to meet their obligations to the Group including the ability of the Group to find alternative suppliers who could also enable the business to continue trading satisfactorily.

·      The potential mitigating actions that could be taken in the event that revenues are worse than expected, to ensure that operating profit and cash flows are protected.

·      The committed finance facilities to the Group, including both the level of the facilities and the banking covenants attached to them.  In accordance with the Revised Facilities Agreement, to meet day to day working capital requirements, the Group has access to £20m in credit facilities until 31 December 2013, when the facilities increase to £35m until their expiry in November 2016.  This facility provides the Group with sufficient headroom both on the facility itself and on the bank covenants in place.  This position is forecast to continue for the foreseeable future.

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

The Directors have a reasonable expectation that the company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the 2013 Annual Report.

Pro Forma Financial Information

As the Preliminary Results are for the 15 month statutory period to 31 March 2013, a pro forma consolidated income statement for the 12 months to 31 March 2013 has been included in note 8 of the preliminary announcement, to aid comparison with future years.

Summary

Overall the results reflect what has been a very difficult period for the Group, both financially and organisationally. The successful Rights Issue now gives the Group the opportunity to realise the operational improvements which are underway and deliver improved financial performance in the near term.

Consolidated Income Statement

For the 15 months ended 31 March 2013

Continuing operations	Before other items  2013 £000	Other items 2013 £000	Total 2013 £000	Before other items  2011 £000	Other items 2011 £000	Total *2011 £000
Revenue	318,256	-	318,256	267,778	-	267,778
Cost of sales	(330,945)	(1,766)	(332,711)	(246,889)	(590)	(247,479)
Gross (loss)/profit	(12,689)	(1,766)	(14,455)	20,889	(590)	20,299
Other operating income	993	-	993	508	-	508
Distribution costs	(2,912)	-	(2,912)	(2,756)	-	(2,756)
Administrative expenses	(4,610)	(5,664)	(10,274)	(4,448)	(2,749)	(7,197)
Movements in the valuation of derivative financial instruments	-	104	104	-	4	4
Operating (loss)/profit before share of results of Associates	(19,218)	(7,326)	(26,544)	14,193	(3,335)	10,858
Share of results of Associates	(310)	-	(310)	(2,522)	-	(2,522)
Operating (loss)/profit	(19,528)	(7,326)	(26,854)	11,671	(3,335)	8,336
Finance income	10	-	10	27	-	27
Finance expense	(2,014)	-	(2,014)	(1,581)	-	(1,581)
(Loss)/profit before tax	(21,532)	(7,326)	(28,858)	10,117	(3,335)	6,782
Tax	3,057	2,674	5,731	(2,929)	1,969	(960)
(Loss)/profit for the period attributable to the equity holders of the parent	(18,475)	(4,652)	(23,127)	7,188	(1,366)	5,822
(Loss)/earnings per share:
Basic	(20.70p)	(5.21p)	(25.91p)	8.05p	(1.53p)	6.52p
Diluted	(20.70p)	(5.21p)	(25.91p)	8.05p	(1.53p)	6.52p

* The comparative information represents the year ended 31 December 2011.

Other items relate to:

·      The amortisation of acquired intangibles.

·      Costs associated with the amendment of banking facilities.

·      Contract legal costs and provision movements.

·      Restructuring costs.

·      Movement in the valuation of derivative financial instruments.

·      The associated tax impact of these items, together with the impact of a reduction in future corporation tax rates on the Group's deferred tax liability.

Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group.

Consolidated Statement of Comprehensive Income

For the 15 months ended 31 March 2013

	Period ended 31 March 2013 £000	Year ended 31 December 2011 £000
Actuarial loss on defined benefit pension scheme	(2,824)	(1,369)
Tax relating to components of other comprehensive income	458	172
Other comprehensive income for the period	(2,366)	(1,197)
(Loss)/profit for the year from continuing operations	(23,127)	5,822
Total comprehensive income for the period attributable to equity shareholders	(25,493)	4,625

Consolidated Statement of Changes in Equity

31 March 2013

	Share capital £000	Share premium £000	Other reserves £000	Retained earnings £000	Total equity £000
At 1 January 2012	2,231	46,152	469	83,446	132,298
Loss for the period (attributable to equity holders of the parent)	-	-	-	(23,127)	(23,127)
Dividends paid	-	-	-	(4,462)	(4,462)
Equity settled shared-based payments	-	-	58	-	58
Actuarial loss on defined benefit pension scheme	-	-	-	(2,824)	(2,824)
Deferred income taxes on defined benefit pension scheme	-	-	-	458	458
At 31 March 2013	2,231	46,152	527	53,491	102,401

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

 

Consolidated Balance Sheet

31 March 2013

	At 31 March 2013 £000	At 31 December 2011 £000
ASSETS
Non-current assets
Goodwill	54,712	54,712
Other intangible assets	15,100	18,227
Property, plant and equipment	76,141	79,594
Investment property	3,910	3,960
Interests in Associates	3,168	447
Deferred tax asset	1,840	-
	154,871	156,940
Current assets
Inventories	8,214	9,085
Trade and other receivables	71,599	89,161
Cash and cash equivalents	671	2,264
	80,484	100,510
Total assets	235,355	257,450
LIABILITIES
Current liabilities
Trade and other payables	(70,894)	(66,322)
Financial liabilities - borrowings	(41,461)	(33,159)
Financial liabilities - finance leases	(194)	(101)
Financial liabilities - derivatives	-	(104)
Current tax liabilities	5	(3,883)
	(112,544)	(103,569)
Non-current liabilities
Retirement benefit obligations	(11,811)	(9,552)
Financial liabilities - finance leases	(206)	(254)
Deferred tax liabilities	(8,393)	(11,177)
Provisions	-	(600)
	(20,410)	(21,583)
Total liabilities	(132,954)	(125,152)
NET ASSETS	102,401	132,298
EQUITY
Share capital	2,231	2,231
Share premium	46,152	46,152
Other reserves	527	469
Retained earnings	53,491	83,446
TOTAL EQUITY	102,401	132,298

Consolidated Cash Flow

For the 15 months ended 31 March 2013

	Period ended 31 March 2013 £000	Year ended 31 December 2011 £000
Net cash flow from operating activities	804	(8,968)
Cash flows from investing activities
Interest received	10	28
Proceeds on disposal of property, plant and equipment	1,343	624
Purchases of property, plant and equipment	(2,311)	(1,658)
Purchases of intangible fixed assets	(402)	(481)
Investment in Associates	(3,031)	(113)
Net cash used in investing activities	(4,391)	(1,600)
Cash flows from financing activities
Interest paid	(1,687)	(2,072)
Dividends paid	(4,462)	(3,570)
New finance leases	275	457
Repayment of obligations under finance leases	(230)	(102)
New borrowings	8,098	14,530
Net cash generated from financing activities	1,994	9,243
Net decrease in cash and cash equivalents	(1,593)	(1,325)
Cash and cash equivalents at beginning of period	2,264	3,589
Cash and cash equivalents at end of period	671	2,264

1)         Basis of preparation

While the financial information in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this preliminary announcement does not constitute the full financial statements prepared in accordance with International Financial Reporting Standards or within the meaning of section 435 of the Companies Act 2006.

The financial information set out in the announcement does not constitute the company's statutory accounts for the period ended 31 March 2013 or the year ended 31 December 2011. The financial information for the year ended 31 December 2011 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies.  The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

The audit of the statutory accounts for the period ended 31 March 2013 is not yet complete. These financial statements will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.

2)         Revenue and segmental analysis

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

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

3)         Taxation

The taxation (credit)/charge comprises:

	2013  £000	2011  £000
Current tax
UK corporation tax	(1,429)	3,730
Adjustments to prior years' tax provision	(135)	(920)
	(1,564)	2,810
Deferred tax
Current year credit	(3,299)	(954)
Impact of reduction in future years' tax rates	(886)	(1,085)
Adjustments to prior years' provision	18	189
	(4,167)	(1,850)
Total tax (credit)/charge	(5,731)	960

4)         Dividends

	2013 £000	2011 £000
Final dividend for the year ended 31 December 2011 of 3.5p (31 December 2010: 2.5p) per share	3,123	2,231
Interim dividend for the period ended 31 March 2013 of 1.5p (31 December 2011: 1.5p) per share	1,339	1,339
	4,462	3,570
Proposed final dividend for the period ended 31 March 2013 of nil (31 December 2011: 3.5p) per share	-	3,123

5)         Earnings per share

There are no discontinued operations in either the current period or the prior year.

(Loss)/earnings per share is calculated as follows:

	2013 £000	2011 £000
(Loss)/earnings for the purposes of basic (loss)/ earnings per share being net (loss)/profit attributable to equity holders of the parent company	(23,127) _______	5,822 _______
(Loss)/earnings for the purposes of underlying basic (loss)/earnings per share being underlying net (loss)/profit attributable to equity holders of the parent company	(18,475) _______	7,188 _______
Number of shares	Number	Number
Weighted average number of ordinary shares for the purposes of basic (loss)/earnings per share	89,251,076	89,251,076
Effect of dilutive potential ordinary shares:
Share-based payments scheme	-	-
	_________	_________
Weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share	89,251,076	89,251,076
	_________	_________
Basic (loss)/earnings per share	(25.91p)	6.52p
Underlying basic (loss)/earnings per share	(20.70p)	8.05p
Diluted (loss)/earnings per share	(25.91p)	6.52p
Underlying diluted (loss)/earnings per share	(20.70p)	8.05p

6)         Reconciliation of Group operating (loss)/profit to cash generated

from/(used in) operations

	2013 £000	2011 £000
Operating (loss)/profit from continuing operations	(26,854)	8,336
Adjustments:
Depreciation of property, plant and equipment	4,930	4,464
Depreciation of investment property	50	40
Gain on disposal of property, plant and equipment	(507)	(20)
Amortisation of intangible assets	3,528	2,749
Movements in pension scheme	(565)	(349)
Share of results of Associates	310	2,522
Share-based payments	58	300
Movement in valuation of derivatives	(104)	(4)
Operating cash flows before movements in working capital	(19,154)	18,038
Decrease in inventories	871	3,548
Decrease/(increase) in receivables	17,562	(17,301)
Increase/(decrease) in payables	4,448	(9,592)
Decrease in provisions	(600)	-
Cash generated from/(used in) operations	3,127	(5,307)
Tax paid	(2,323)	(3,661)
Net cash flow from operating activities	804	(8,968)

7)         Analysis of net debt

	At 31 March 2013 £000	At 31 December 2011 £000
Cash and cash equivalents	671	2,264
Financial liabilities - borrowings	(41,461)	(33,159)
Financial liabilities - finance leases	(400)	(355)
Closing net debt	(41,190)	(31,250)

8)         Pro forma financial information

The Group's underlying results (before other items) for the 12 month period to 31 March 2013 are stated below.

This pro forma income statement has been prepared by deducting from the statutory results for the 15 month period ended 31 March 2013 the results for the 3 month period ended 31 March 2012, as derived from the Group's management accounts.  The split of administrative expenses and distribution costs for the 3 month period ended 31 March 2012 has been calculated on a pro rata basis based on those costs incurred in the 6 month interim period to 30 June 2012.

Continuing operations	Before other items
Revenue	248,254
Cost of sales	(262,532)
Gross loss	(14,278)
Other operating income	843
Distribution costs	(2,414)
Administrative expenses	(3,637)
Movements in the valuation of derivative financial instruments	-
Operating loss before share of results of Associates	(19,486)
Share of results of Associates	(135)
Operating loss	(19,621)
Finance income	10
Finance expense	(1,656)
Loss before tax	(21,267)

Principal Risks 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 ones facing the business are set out below, and are listed in no particular order.
Risk	Explanation	Impact	Mitigation/Comment
Commercial and market environment	The UK construction market, within which the Group operates, is currently at the bottom of the economic cycle, placing significant pressure on all parts of the supply chain, from end customers through to material and subcontract suppliers.	Weak demand is resulting in increased competition, tighter margins and the transfer of commercial, technical and financial risk down the supply chain, through more demanding contract terms and longer payment cycles.	l l l	Reorganisation of business and strengthening of senior management to improve process and discipline around contract risk assessment, engagement and execution.   Close engagement with both customers and suppliers and monitoring of payment cycles. Continuing use of credit insurance to minimise impact of customer failure.
Steel price movements	Steel is the key material used within the business and the largest single cost within a contract. Steel prices can vary significantly in a short period of time.	Such movements have the potential to impact the profitability of both individual contracts and the whole business significantly, particularly given the long duration of many of its contracts.	l l	Supply and pricing agreements with steel suppliers are negotiated to minimise individual contract risk. Customer bids are structured to reflect the prevailing conditions within the market for raw steel.
People/skills	The Group has established a market leading position over many years due in large part to the experience and skills of its key people.	Loss of key people could adversely impact the Group's existing market position. Insufficient growth and development of its people and skillsets could restrict its growth ambitions both in the UK and overseas.	l l l l l	Talent reviews undertaken regularly. Development opportunities identified for staff to broaden their range of skills and experience. A staff appraisal process continues to align the short and long term needs and goals of the business with those of key staff. 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 either training, development or external recruitment.
Interruption to fabrication facilities	The Group's production facilities are at the core of its business and the Group relies on smooth continued operation of them.	Interruption could impact both the Group's performance on existing contracts and its ability to bid for future contracts, thereby impacting its financial performance.	l l l	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. A wide network of sub-contract 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 advisors and brokers.
Indian joint venture	The Group has invested in a joint venture in India, where the growth prospects are believed to be substantial.	The growth, management and performance of this business will be a key element of the Group's development for the foreseeable future. Effective management of the joint venture is therefore key to the Group's continuing success.	l l l l l	Robust joint venture agreement. Two members of Group Board of Directors are members of joint venture Board. Strong governance in place at joint venture. Regular formal and informal meetings held with both joint venture management and joint venture partners. Key positions within joint venture management structure are occupied by Group employees seconded to the joint venture.
Health & Safety	The Construction Industry sets very high standards of Health and Safety which the Group aims to exceed to maintain the health and wellbeing of its employees.	Construction activities can result in injury or death to employees, with subsequent financial loss to the business, potential loss of reputation, where at fault, and ultimately exclusion from future business.	l l l l	Drive market leading standards for all employees at all times. 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. Achievement of challenging Health and Safety performance targets is a key element of management remuneration.

 

END

 

 

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