Severfield Regulatory News (SFR)

5 Apr 2005 07:01

Severfield-Rowen PLC05 April 2005 5 April 2005 2004 Full Year Results RECORD PROFITS, OUTSTANDING ORDER BOOK Severfield-Rowen Plc, the market leading structural steel group, announces itsfull year results to 31 December 2004. £m 2004 2003 Change Turnover 204.3 170.2 +20%Operating profit 12.3 9.3 +32%Profit before tax 12.2 9.1 +34%Basic earnings per share 41.44p 30.48p +36%Dividend per share 23.0p 17.0p +35% Headlines • Group operating margins continue to improve - 6.01% (2003: 5.48%) • All core businesses performing profitably • Terminal 5 and Arsenal Stadium contracts continue to progress well • Dividend increased 64.3% over last two years • Strong financial position at year end with gross cash balances of £17.8m (2003: £17.2m) Outlook • Year commenced ahead of Board's expectations • Outstanding order book of £165 m of which 76% is non-Terminal 5 work (2003: 39%) • Group now houses four major industry brands with broad range of expertise and services • Atlas Ward acquisition a positive benefit to the Group • Buoyant demand for structural steelwork projects • Robust enquiry level going forward • Board confident of further significant progress in 2005 Commenting on the results, Peter Levine, Chairman said: "Severfield-Rowen has had a record year with results ahead of marketexpectations. "We currently expect a year of continued significant progress underpinned by thestrong order book of £165m of which only 24% represents the major Terminal 5project, down from 61% last year. "As the Terminal 5 contract unwinds, the work going forward and the margins atwhich such work has been achieved point to much greater success. Indeed 2005has begun very well and is already ahead of initial expectations. "The Board is confident that further material progress will be achieved in 2005." Enquiries Severfield-Rowen PlcPeter Levine, Chairman 020 7493 7888Peter Davison, Finance Director 01845 577 896 Financial DynamicsRichard Mountain 020 7269 7121 CHAIRMAN'S STATEMENT Introduction The Group had a record year in 2004 with the results ahead of expectations.Progress was achieved throughout the core businesses with all performingprofitably and producing margin improvement for the Group. The Group's unmatched reputation, enhanced by the recent acquisition of AtlasWard, reinforces its place as the market leader and the benchmark for the entireindustry. This is complemented by the excellent financial position of the Group. With the acquisition of Atlas Ward now completed Nigel Pickard, its MD, willjoin the Main Board. The current year has started well and is already ahead of our budget. TheDirectors are very optimistic that further significant progress can be achieved. Overview In 2004 the Group improved its profit before tax by 34% to £12.2m (2003: £9.1m)on an increased turnover of £204.3m (2002: £170.2m), with operating profit at£12.3m (2003: £9.3m) producing, after the tax charge of £3.8m (2003 £3.0 m),increased earnings per share of 41.4p (2003: 30.5p). The Group's strong financial position reflects the record results. Net assetsincreased to £44.4m (2003: £40.7 m) and, despite capital expenditure out of cashflow of £5.9m (2003: £6.5m), the Group ended the year with a gross cash balanceof £17.8 m (2003: £17.2m). Whilst the major projects at Heathrow Terminal 5 and the new Arsenal Stadium areprogressing well, other major work has continued in parallel and with furthersuccessful contract awards arising from demand for the Group's unmatched rangeof services, it has allowed the Group to concentrate on greater value added andhigher margin work thereby giving a most positive post-Terminal 5 outlook. The results are set against a buoyant industry background with the increase indemand for structural steelwork forecast to continue. Each one of the Group's core subsidiaries contributed positively to the Groupresults, these being Severfield-Reeve Structures based in Dalton, NorthYorkshire, Watson Steel Structures based near Bolton, Lancashire and RowenStructures based near Nottingham. Severfield-Reeve Structures delivered yet another set of excellent figuresfurther underlining its reputation as the most efficient and profitablestructural steel fabrication plant in the UK. The plate line and theintumescent paint lines once again contributed to value added performance. Watson Steel Structures' progress continued under the stewardship of PeterEmerson, with a very good set of figures, demonstrating the continued success ofthe Group's capital expenditure programme. Rowen Structures successfully contributed to the Group's results in its firstfull year of trading after its 2003 re-organisation. Dividend As a result of the record results and reflecting the Board's confidence in thefuture prospects of the Group together with its strong cash position, the Boardintends to increase the full year dividend by 35% to 23.0p per share, which iscovered 1.8 times by earnings. The final dividend of 14.25p per share (2003:10.75p) is payable on 15 June 2005 to shareholders on the register on 13 May2005. Over the last two years the full year dividend has been increased by 64.3%(9.0p per share increase). Atlas Ward The Group completed the acquisition of Atlas Ward on 31 March 2005 for a cashconsideration of £1.21m on the basis set out in our previous announcements onthe subject. The acquisition brings into the Group another well known brand in the industry,with an experienced workforce and a complementary end-market and client base. This acquisition is a positive step and work has already begun planning theintegration of Atlas Ward into the Group, including the implementation of afocused programme of capital expenditure. Board changes We welcome Nigel Pickard on to our Board. Nigel is MD of Atlas Ward and priorto the acquisition he demonstrated great ability in turning round a then ailingbusiness in a short period of time and creating a company with future potentialwhich the Group is committed to develop and take on to the next stage. Outlook The Group's current expectations are for a year of continued progressunderpinned by an outstanding order book of £165m of which £125m (76%) isnon-Terminal 5 related which compares very favourably to £70m (39%) in 2003.Indeed, as the major Terminal 5 contract unwinds in its significance, the workgoing forward and the margins at which such work has been achieved point to muchgreater success. The Board will continue its focused capital investment programme with aparticular emphasis on the integration of Atlas Ward and new value added areasof the business to enhance Group margins. The Group's management and workforce are the cornerstone of the Group's success.The Board is greatly indebted to them and expresses to them its deepappreciation and gratitude. Without them the Group could not achieve theBoard's aim of maintaining the reputation of Severfield-Rowen as a centre of allround excellence for the industry. 2005 has begun well and is already above our initial expectations. The Board isconfident that further material progress will be achieved. Peter LevineChairman OPERATIONAL REVIEW Core Business Overview In 2004 the core businesses of the Group, being Severfield-Reeve Structures,Watson Steel Structures, and Rowen Structures turned in very profitable returnsin excess of our expectations at the start of that year. They were ablysupported by our erection company, Steelcraft Erection Services. The Group has once again produced figures which set new standards in ourindustry. However constant review of systems and performance takes place tomaintain our position as market leader and give enhanced services to our newclients with the increasing broad range of work the Group performs. Severfield-Reeve Structures The capital investment undertaken over the past two years on the upgrading ofplant and machinery has led to increased levels of efficiency with more tonnagenow being produced by fewer employees. The business continued to go fromstrength to strength working on a wide variety of projects including: • Twelve-storey commercial development on the old Spitalfields market site, London • New Withington Diagnostic and Treatment Centre Hospital, for the NHS, South Manchester • Six-storey retail development and transport interchange in Doncaster city centre, South Yorkshire • Specialist development of oil pipeline carrying racks on Sakhalin Island, Russian Federation • New Hospital development at Blackburn Hospital, Lancashire • Redevelopment of the Oval cricket ground's Vauxhall End stand, South London • Three-storey retail development in the centre of Hemel Hempstead Whilst the large Terminal 5 project progresses to its conclusion in 2006, wehave been able to smoothly and efficiently dovetail production with othernotable contracts including: • Two office developments for international law firms over-looking Tower Bridge and City Hall in the award-winning More London development • Warehouse and distribution centre on the Pioneer Business Park, Ellesmere Port, near Chester • Retail and leisure development on the old Flowers Brewery site in Cheltenham • New Tesco distribution centre in Peterborough • New research centre for Rutherford Appleton Laboratories in Chilton near Oxford • Retail development opposite BBC Television Centre, White City, London • Additional manufacturing facilities for the new Mini made by BMW at Cowley near Oxford • Redevelopment of office blocks at Aldermanbury Square, London • Development of several schools for North Lanarkshire PFI projects • Development of offices for Scottish Television in Glasgow • Development of "Knowledge Dock" and "Learning Resource Centre" buildings for the University of East London • Extension to the Antonine shopping centre, Cumbernauld, Glasgow • New B&Q superstore in Luton Watson Steel Structures Watson's excellent results demonstrate the commendable returns for the Group'spolicy of carefully managed strategic investment and Group integration.Contracts performed in 2004 included: • Channel Tunnel rail link works at St. Pancras Station, London • Arsenal Football Club Stadium and link bridges • BAE fuel test facility at Filton, Bristol • Gatwick Airport, Pier 6 connector; the world's longest over airport pedestrian bridge • Stratford and Ebbsfleet railway stations, London - for the Channel Tunnel rail link • Ongoing works at Heathrow Airport, Terminal 5 for BAA plc New contracts for 2005 include: • Footbridge spanning River Irwell, Manchester. • Steelwork to New Grandstand, Ascot Racecourse. • Tubular Arch Bridge in Bolton Town Centre. • Arch Bridge spanning River Clyde, Glasgow. • Two Grandstands, Aintree Racecourse. • Millennium Dome Arena. • Phase 2 of St Pancras Station Redevelopment. • Multi-Storey Car Park - Heathrow Airport. Rowen Structures Rowen played a very important part in the Group during 2004 especially withregard to specialist services relating to airport work. Its core expertisecontinues to play a crucial role within the Group. The contracts undertaken byRowen in 2004 principally were for BAA at Gatwick as well as Heathrow. Atlas Ward With a particular expertise in the distribution warehouse market and a highlyskilled work-force and complementary client base, the Group intends to integrateAtlas Ward during the course of 2005, apply a controlled capital investmentprogramme and make use of synergies to increase margins and profitability. Contracts for 2005 include: • New warehouse facility on the outskirts of Hemel Hempstead for Astral Developments • Three storey office development for the new Aylesbury College campus • New storage and distribution facility for Kimberley Clark • New warehouse for Prologis near Swindon • Second phase food distribution warehouse near Bridgewater, Somerset Steelcraft Erection Services The year 2004 saw Steelcraft once again providing the Group with invaluablesupport to whom it is a dedicated service provider. It produced very goodresults, testament to its effective management, control and close workingrelationship with other members of the Group. Conclusion The Group has had a record year with the results ahead of expectations. TheGroup's current expectations are for a year of continued significant progressunderpinned by the outstanding order book of £165m. This is a wonderfultestament to the status and position which Severfield-Rowen has achieved.Enquiry levels remain robust throughout the Group against a background ofbuoyant industry demand. As the major Heathrow, Terminal 5 contract unwinds, the work going forward andthe margins at which such work has been achieved point to much greaterachievements to come. We view this coming year with great confidence. John SeversManaging Director Financial Review Once again it is very pleasing for me to report that the Group's results for theyear ended 31 December 2004 show a further improvement in its financialperformance with turnover, profit before tax, earnings per share, dividends pershare and the year end gross cash position all reaching record levels. Profit before tax of £12.22m and turnover of £204.28m have increased 34.0% and20.1% respectively over the figures achieved in the previous year. This is an exceptional result in a market which has been largely dominated bysignificant increases in the cost price of raw steel throughout the year and iswell ahead of market expectations. The basic earnings per share of 41.44p is an increase of 36.0% over 2003.Consequently, it is recommended that the total dividend for the year beincreased by 35.3% to 23.0p per share, giving a dividend cover of 1.8 times. It is very satisfying that the Group ended the year with an exceptional grosscash balance of £17.8m and net funds of £14.6m. Net assets increased by 9.2% to£44.4m. Turnover Group turnover has increased by 20% to a record level of £204.28m. Thisincreased level of turnover includes a significant value in respect of one-offspecialist services procured by the Group in relation to the Heathrow Terminal 5project. These services included castings, heavy machining and box girders for the mainterminal roof and the control tower. The combined value of these services wasin the order of £24m. Operating Profit The Group's operating profit increased by 31.8% to £12.29m with operatingmargins increasing to 6.01% from the 5.48% achieved in 2003. The Group's results continue to incorporate those of its two associatedcompanies, Kennedy Watts Partnership Limited and Fabsec Limited, of which theGroup owns 25.1% and 25% respectively. In 2004 the Group's share of these twocompanies' results amounted to a net operating loss of £178,000 (2003:£142,000), thereby reducing the total profit before tax of the Group, after anet interest receivable figure for the Group of £111,000, to £12.22m, anincrease of 34% over the previous year. Taxation The tax charge of £3.82m represents an effective tax rate of 31.26% on pre-taxprofits for the year compared with 32.45% in the previous year. This effectiverate is higher than the standard corporation tax rate of 30% as a result ofadjustments made in respect of expenditure not deductible for corporation taxpurposes along with sundry losses not available for surrender for Group reliefpurposes. Earnings Per Share Basic earnings per share is a record 41.44p, an increase of 36.0% over theprevious year. This calculation is based on the profit after taxation of£8,400,000 and 20,269,235 ordinary shares, being the weighted average number ofshares in issue during the year. The diluted earnings per share figure of 41.36p is not materially different fromthe basic calculation. This is calculated using the same profit after taxationfigure and 20,309,730 ordinary shares, being the weighted average of the numberof shares in issue during the year, allowing for the full exercise of anyoutstanding dilutive share options. Dividend The Board is recommending a final dividend of 14.25p per share (2003: 10.75p)bringing the total dividend for the year to 23.0p per share. This totaldividend represents a 35.3% increase over the dividend of 17.0p per share paidfor 2003. This is in line with the basic earnings per share increase andmaintains the total dividend cover at 1.8 times earnings, a level at which theBoard remains comfortable and which it is confident of maintaining in thefuture. The final dividend is payable on 15 June 2005 to shareholders on the register on13 May 2005. The ex-dividend date will be 11 May 2005. Balance Sheet The Group's balance sheet continues to strengthen with shareholders' fundsincreasing by £3.75m to £44.4m. This equates to a net asset value per share at31 December 2004 of 219.1p, compared with 200.6p at the end of 2003. The Group's balance sheet now has fixed assets totalling almost £35m.Depreciation charged in the year amounted to over £2m. We have continued to invest in our business with capital expenditure in the yearat a similar level to the previous year at £6.4m. Associated Companies During 2001 the Company acquired a 25% shareholding in Fabsec Limited, a companyinvolved in the development of a bespoke and fire engineered beam made out ofplate. This company holds the master intellectual property rights for these andthe other Fabsec family of beams the world over. It also carries out marketingand promotion. The Group benefits from these functions whilst only contributing25% towards overheads. Fabsec Limited is not to be confused with the Group'ssuccessful and profitable plate and intumescent paint lines at Dalton whichproduce the Fabsec and fire engineered beams under a perpetual, no royaltylicence from Fabsec Limited. Investment in Fabsec Limited has continued in 2004 by way of further loans tothat company. The total investment by the Group as at 31 December 2004 amountedto £614,000. Fabsec continues to be heavily involved in technical and marketdevelopment and, therefore, the results for the year to 31 December 2004 show aloss for the period. The Group's 25% share of this loss amounted to £179,000.However, it is anticipated that from 2005 the company will agree and maintainsignificant levels of licence fees and royalty income from both the UK andoverseas which will greatly reduce, if not eliminate altogether, the lossescurrently generated. The Group also owns a 25.1% shareholding in Kennedy Watts Partnership Ltd, acompany involved in CAD/CAM steelwork design. The Group's share of theoperating profit of Kennedy Watts reduces the net operating loss arising fromthe associated companies to £178,000. Cash Flow Management of the Group's cash continues to be of prime importance and istightly controlled. It is particularly pleasing, therefore, to report that theGroup ended the year with a record positive cash balance of £17.85m. During the year £10.66m was generated from operating activities. Outflows ofcash during the year included dividends paid of £3.93m, corporation tax paid of£2.59m and the purchase of fixed assets, net of sale proceeds received, of£4.70m. As a result the cash balance increased from the end of 2003 by £0.66m. During the year Severfield-Reeve Projects Limited took out a short-term bankloan to fund the undertaking of a specific contract. This amounted to £2.13m atthe year end. This loan was re-paid in March 2005 when the total amount due onthis contract was received. Total borrowings, made up of the bank loan and amounts due on hire-purchasecontracts, amounted to £3.20m. Consequently, the Group had net funds available at the year end of £14.65m. Treasury Group treasury activities are managed and controlled centrally. Risks to assetsand potential liabilities to customers, employees and the public continue to beinsured. The Group maintains its low risk financial management policy byinsuring 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 and costeffective funding arrangements are maintained to finance current and plannedfuture activities and to invest cash assets safely and profitably. The Group remains committed to strong financial controls, cash management andprudent accounting and treasury policies. International Financial Reporting Standards Severfield-Rowen Plc will be required to adopt International Financial ReportingStandards (IFRS) for the financial year ending 31 December 2005. The Group ismaking progress on the conversion project to review all existing IFRS's, isworking to ensure that the procedures required to collect the necessary data arein place, and is looking to integrate swiftly the recent acquisition of AtlasWard into this work. The first results to be prepared under IFRS will be presented in the 2005Interim Report later this year. Within that Report the Group will also presenta full re-statement of these 2004 UK GAAP figures, together with thereconciliation of the adjustments from UK GAAP to IFRS. Post Balance Sheet Event On 31 March 2005 the Group acquired the entire issued share capital of AtlasWard Holdings Limited (Atlas) for a consideration of £1.21m in cash. Atlas,based at Sherburn near Scarborough in Yorkshire, designs, fabricates and erectsstructural steelwork, primarily for the distribution warehouse market. For theyear ended 31 December 2004 Atlas had unaudited turnover of approximately £35m,profit before tax of £250,000 and net assets of £1m, excluding a pension schemedeficit initially estimated as at 31 December 2004 at £4.8m . No furtherbenefits are being earned by members in the scheme. Summary The Group has had a most successful year with turnover, profit before tax,earnings per share, dividends per share and the year end gross cash balance allreaching record levels. It continues to improve its healthy financial position and is well placed forfuture growth and cash generation. Peter DavisonFinance Director Consolidated Profit and Loss AccountFor the year ended 31 December 2004 2004 2003 £000 £000 Turnover - continuing operations 204,277 170,152 Cost of sales (188,145) (157,353)Gross profit 16,132 12,799 Distribution costs (662) (610)Administration expenses (3,242) (2,948) 12,228 9,241 Other operating income 59 78Group operating profit - continuing operations 12,287 9,319 Share of associates'operating loss (178) (142) 12,109 9,177 Net finance income/(charges) 111 (56)Profit on ordinaryactivities before tax 12,220 9,121 Tax on profit on ordinary activities (3,820) (2,960)Profit on ordinary activitiesafter tax for the financial year 8,400 6,161 Dividends payable toequity shareholders (4,653) (3,429)Profit retained,transferred to reserves 3,747 2,732 Earnings per share Basic 41.44p 30.48p Diluted 41.36p 30.47pDividends per share Paid 8.75p 6.25p Proposed 14.25p 10.75pTotal 23.00p 17.00p Consolidated Balance Sheet31 December 2004 2004 2003 £000 £000Fixed assetsIntangible assets 161 170Tangible assets 34,131 31,148Investments 580 636 34,872 31,954 Current assetsStocks 6,678 3,316Debtors 36,833 35,223Cash at bank and in hand 17,845 17,184 61,356 55,723 Creditors - amounts falling duewithin one year (48,773) (44,120) Net current assets 12,583 11,603Total assets less current 47,455 43,557liabilities Creditors - amounts falling dueafter more than one year (429) (623) Provisions for liabilities andcharges (2,620) (2,279) 44,406 40,655 Capital and reservesCalled up share capital 2,027 2,027Share premium account 9,415 9,411Merger reserve 114 114Capital redemption reserve 25 25Profit and loss account 32,825 29,078Equity and total shareholders'funds 44,406 40,655 Consolidated Cash Flow StatementFor the year ended 31 December 2004 2004 2003 £000 £000 Net cash inflow from operating activities 10,664 17,635Returns on investments and servicing of financeTaxation 109 (70)Capital expenditure and financial (2,587) (2,196)investmentAcquisitions and disposals (4,701) (5,785)Equity dividends paid (123) (157) (3,930) (3,007)Cash (outflow)/inflow before use of liquidresources and financing (568) 6,420Financing 1,229 (653)Increase in cash in the year 661 5,767 Reconciliation of net cash flow to movement in net funds 2004 2003 £000 £000 Increase in cash in the year 661 5,767Cash flow from movement in loans and hire-purchase 909 842contracts Change in net funds from cash flows 1,570 6,609New borrowings (2,134) -New hire-purchase contracts (557) - Movement in net funds in the year (1,121) 6,609Net funds at 1 January 15,768 9,159 Net funds at 31 December 14,647 15,768 Supplementary StatementsFor the year ended 31 December 2004 Statement of Total Recognised Gains and Losses There are no recognised gains or losses in either period other than the profitattributable to members of the Group Reconciliation of Movements in Shareholders' Funds 2004 2003 £000 £000 Profit for the financial year 8,400 6,161Dividends (4,653) (3,429)Issues of shares 4 189 Net addition to shareholders' funds 3,751 2,921Opening shareholders' funds 40,655 37,734 Closing shareholders' funds 44,406 40,655 Notes: 1) The above financial information does not amount to full accounts within the meaning of section 240 of the Companies Act 1985. Full accounts for the year ended 31 December 2004 have not yet been audited or delivered to the Registrar of Companies. The Annual Report is due to be posted to shareholders on or around 18 May 2005. A copy of the statutory accounts for the year ended 31 December 2003 has been delivered to the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 2) The basic earnings per share figure for the year ended 31 December 2004 is based on the profit after taxation of £8,400,000 (2003:£6,161,000) and 20,269,235 (2003: 20,210,711) ordinary shares, being the weighted average of the number of shares in issue during the period. 3) The calculation of diluted earnings per share is based on the profit after taxation of £8,400,000 (2003: £6,161,000) and 20,309,730 (2003:20,219,657) ordinary shares, being the weighted average of the number of shares in issue during the period, allowing for the dilutive effect of share options. 4) The results have been prepared on the basis of the accounting policies set out in the 2003 Annual Report. This information is provided by RNS The company news service from the London Stock Exchange