Severfield Regulatory News (SFR)

Preliminary Results

For Year Ended 31 December 2011

UK Steady - Indian Foundations in Place

Severfield-Rowen Plc, the market leading structural steel group, today announces its unaudited Preliminary Results for the year ended 31 December 2011.

Financial Highlights

·; Revenue steady at £267.8m (2010: £266.7m)

·; Underlying Group operating margin before results of associates at 5.3% (2010: 6.2%)

·; Underlying Group profit before tax of £10.1m (2010: £15.3m)

·; Share of losses from Indian joint venture of £2.5m (2010: £0.4m)

·; Profit after tax (reflecting non-underlying items) of £5.8m (2010: £7.6m)

·; Basic earnings per share of 6.52p (2010: 8.58p)

·; Recommended final dividend per share of 3.5p giving total dividend of 5.0p (2010: 7.5p)

·; Year end net debt of £31.3m (2010: £15.0m)

·; Current UK order book value £221m

·; Current JSSL (India) order book value £43m

* Underlying is before:

o the amortisation of acquired intangible assets - £2.7m (2010: £2.7m)

o legal costs and provision movements £0.6m (2010: gain £2.0m)

o share of pre-operating losses of Indian joint venture - nil (2010: £1.4m)

o impairment in valuation of investment property - nil (2010: £2.1m)

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.

Tom Haughey, Chief Executive Officer, commented:

The Group is pleased to present a sound set of results, in-line with overall market expectations, underpinned by a strong UK performance, while operations in India continue to improve.

The Group has entered 2012 well placed to face the on-going challenges of a subdued domestic market with limited growth prospects. UK performance measured against our peers was again highly creditable, displaying the Group's financial, commercial and service strengths and its market leading position.

The UK economy remains lacklustre and the duration of the downturn is having a significant impact upon the durability of our industry competitors, several of whom exited the sector in 2011.

The Group's market share in its key sectors continues to grow with a post-Olympic order book of £221m. The order book composition is largely as forecast from commercial offices, industrial, warehousing and energy / power sectors.

Significantly, JSW Severfield Structures Ltd in India has continued to increase its market presence and operational outputs and we anticipate that it will contribute positively in 2012.

The Indian order book now stands at £43m, covering almost all of our production plans for 2012 and is strong in terms of quality and importantly product mix. The reduction in the size of the order book since November 2011 (£61m) is largely the result of a single contract cancellation which failed to conclude its project financing. The pipeline of potential orders continues to grow with some £80m of good opportunities being identified.

In the UK, the Group will continue to focus on those market areas where it sees or anticipates opportunity and competitive advantage with the power / energy sector continuing to evolve in importance.

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Chairman's Statement

Overview

The year to 31 December 2011 was my first full year as a Director with Severfield-Rowen and included my appointment to the role of Chairman in September 2011.

Against the backdrop of a continued challenging UK trading environment I am very pleased with the Company's results for the year and with its progress and direction. Our UK companies are market leaders in their respective fields and they work vigorously, individually and collectively, to sustain the Group's key competitive advantages.

The Group's view is that the UK market conditions over the coming years will remain lacklustre contrasting markedly with the increasing and exciting prospects for our joint venture company in India.

Results

The Group has made an underlying operating profit of £11.7m (2010: £16.2m) on revenue of £267.8m (2010: £266.7m). Group profit after tax is £5.8m (2010: £7.6m) with basic earnings per share of 6.52p (2010: 8.58p), both reflecting the impact of non-underlying items.

Dividend

Our UK markets remain challenging and consequently the Group continues to adopt a cautious dividend policy. We recommend a final dividend of 3.50p, giving 5.00p for the full year (2010: 7.5p) which is 1.6 times covered by underlying earnings per share.

Board Changes

As we announced at the time of our interim results in August 2011, I was appointed Chairman on 1 September 2011 in succession to Toby Hayward, who remains a Non-Executive Director and Chairman of the Group's Audit Committee.

Earlier in February 2011 Derek Randall, Executive Director for Business Development and International including JSW Severfield Structures Ltd in India, joined the Group's Board.

Jonathan Rhodes was appointed as Company Secretary in June 2011.

We were pleased that Chris Holt, formerly Chief Executive of MJ Gleeson Financial Plc, joined us as a Non-Executive Director of the Group in November 2011, succeeding David Ridley who left his role after 9 years of valued service.

In response to new and emerging opportunities, we continue to review the operation of the Board in order to provide the Group with the appropriate level of support as the shape and scale of the business changes.

Our People

Our management teams and employees continue to operate very well in challenging market conditions, which have now been in occurrence for a number of years. The expertise, experience and dedication of our people is a major asset of the business and, on behalf of the Board, I would like to thank them all for their continued support.

During a visit to JSW Severfield Structures Ltd in India in February this year, I was able to see the outcome of our joint efforts which has resulted in an effective and highly motivated team of management and employees working in a modern and safe environment.

Outlook

Notwithstanding the prevailing UK market conditions the Board is confident that the business has the talent, ambition and resource to achieve its strategic objectives both at home and abroad and I am very optimistic for its future.

Chief Executive's Review

UK Overview

In 2011 the UK structural steel sector endured a further year of slow demand and tough trading conditions, which was exacerbated by diminishing confidence levels for business prospects in 2012 as a result of the economic environment.

Against this background we were conditioned and prepared for the market and have produced resilient results and performance. Encouragingly our UK businesses entered 2012 with a strong order book of good quality contracts having now successfully executed all of our Olympic related work.

While there is little evidence of imminent UK recovery, either in the broad economy or the overall construction industry, we are confident that our capabilities, focus and relative financial strength, will in the meanwhile sustain creditable results and enhance our competitive position.

Order Book

The UK order book at £221m is similar to the order book 12 months ago (£226m), which contained Olympic related structures. The current order book contains a broad quality mix of London Commercial Offices, Industrial, Warehousing, Waste to Energy projects, Transport including Airports, Education and Leisure.

The prospective UK projects which we have identified as appropriate opportunities for the Group total some £510m and gives us confidence for the remainder of 2012 and beyond.

Costs

Costs within the business continued to be managed tightly and are under constant review, aided by the Group's new financial software and revised authority limits at all levels. Procurement related initiatives launched in 2011 are translating into benefits for 2012.

Prices and Margins

Prices remain generally tight in the UK market as surviving competitors seek to obtain a share of a smaller market.

The Group is pleased with its margin achievements of 5.3% against a tough back-drop and anticipates that margins will remain stable in 2012.

Projects

Some of the notable projects during 2011 include those from the predicted key sectors of Transport / Aviation, Commercial Offices, Industrial, Distribution and Power / Energy.

Heathrow Airport Paris Philharmonic Hall

Blackfriars Bridge, London Sellafield Building, SAVS

Leadenhall Street, London London Bridge Place

Gatwick North Terminal The Shard London Bridge

Park House, London Southmead Hospital

Ocado, Tamworth Amex House, Brighton

BMW, Oxford Amazon, Dunfermline

Morrisons, Bridgwater Warner Bros, Leavesden

Marks & Spencer, Cheshire Oaks Asda, Birkenhead

Co-operative HQ, Manchester Birmingham Library

Titanic Quarter, Belfast Ineos, Runcorn

Howick Place, London Leeds Arena

Business Investment

UK investment was largely restricted to essential replacement and new financial systems. The Company continues to invest in health and safety training and initiatives, both in our factories and for our project sites.

India

In the relatively short time since the plant in India was opened in November 2010 we have now clearly established strong foundations for a successful business capable of significant growth.

The order mix in 2010 was reflective of our entry into a new market with a new offering and a steep learning curve with some complex work, which contributed to lower productivity and higher start-up losses than planned.

The Indian order book now stands at £43m, covering almost all of our production plans for 2012 and is strong in terms of quality and importantly product mix. The reduction in the size of the order book since November 2011 (£61m) is largely the result of a single contract cancellation which failed to conclude its project financing. The pipeline of potential orders continues to grow with some £80m of good opportunities being identified.

As a result of these positive developments, we are now in a position to consider extending our production capacity in India and will be evaluating this further during the course of the first half of this financial year.

Corporate Social Responsibility

In our 2010 statement we outlined our intention to proactively implement our strategy for continuous improvement through our Steel Futures programme.

In 2011 we have been pleased with the significant progress that has been made across all of our operating companies.

Some highlights of progress are:

·; Rollout of the IOSH Directing Safely to 38 Operational Directors within the Group to help underpin the desired leadership behaviours.

·; The rollout of our Behavioural Safety Strategy through an innovative theatre-based learning programme. Working with our external consultants, the Group has engaged in excess of 800 direct employees and sub-contract supply chain.

·; The implementation and communication of our Golden Rules to help drive improved standards across all operations.

·; The implementation of focussed safety leadership reviews across key aspects of our business; Design, Construction and Factory operations.

·; Improved engagement of our employees through Director safety briefings, staff surveys and effective communications.

·; A significant investment in improved technology and IT solutions to maximise interaction, communication and team collaboration. Through our new Workspace platform where we expect to see significant efficiencies that will help drive improvements in the work / life balance for our employees.

·; The external recognition from key clients of our in-house training company Engineering Construction Training Ltd (ECTL).

·; The development and application of new products to help reduce risk and improve safety standards within the Group.

·; Positive recognition of JSW Severfield Structures Ltd in India as being pro-active in setting industry-leading standards and achieving client awards and commendations for our performance.

·; An intake of young apprentices to help sustain the skills necessary for the future success of the Group.

·; The continued and sustained leadership position as the only steel fabrication contractor to have achieved the BREEAM standard of BES 6001 for the Responsible Sourcing of Materials.

We also have an ambitious plan for 2012 and we expect to see further momentum as we continue our journey to be recognised as industry leaders.

Summary and Outlook

Given the uncertain economic outlook, the UK market is likely to remain extremely challenging. It is likely that more companies in our sector will exit their positions as pressures remain on their volumes, costs and cash. Overall however we believe that it is unlikely that the balance of supply and demand in the UK will worsen.

Significant opportunities are evident for Severfield-Rowen Plc in several important sectors, including Transport / Aviation, Power / Energy, Industrial, Commercial and others where the Group is well positioned to challenge and compete.

In India our joint venture is well established and has made progress in terms of operational outputs and market presence. In 2012 we anticipate a positive return on our investment and will seek to grow our scale of operations further.

Overall the Group continues to perform in-line with the Board's expectations despite the challenging conditions in the UK, and are encouraged by the competitive position of the business.

Financial Review

Overview

The Group's results for 2011 reflect a steady performance in a trading environment which remains very challenging. Underlying operating margins (before results of associates) have compressed as expected to 5.3% but the order book remains strong and the Group continues to operate at its current operating capacity.

2011 represented the first full year of operations at the Group's Indian joint venture business. It was very much a year of establishing commercial and production foundations and the loss of £2.5m reflects this. These foundations have now been established providing the basis for a more positive performance in future.

As expected, debt levels increased during the year and continue to be managed very closely in the current difficult trading environment. This is supported by the new bank facility which was agreed in November 2011.

Revenue and Operating Profit

Revenue of £267.8m was flat year on year (2010: £266.7m). This reflects stable production volumes in the year along with relative stability in underlying steel prices.

The underlying operating profit before results of Associates of £14.2m was 14% down on prior year (2010: £16.6m), reflecting the expected operating margin compression from 6.2% to 5.3%. Although overall pricing stabilised during the year, margins remain tight and there are still examples of uneconomic pricing from competitors.

Share of Losses of Associate Companies

The Group's share of losses from its Indian joint venture was £2.5m for the year (2010: £0.4m underlying). This has been generated from the first full year of operation at the business. The results reflect a gradual increase of production during the year but at levels which, for most of the year, were below the required break-even position. Although the order book developed very well during the year, a number of customer driven contractual delays were experienced which, as well as impacting the production ramp-up, also impacted the extent to which profit could be accounted for on some of the larger contracts. The position achieved at year end however, provides a better platform for a more positive contribution from the joint venture during 2012.

Finance Costs

Net finance costs for the Group amounted to £1.6m (2010: £0.9m). This reflects higher prevailing debt levels throughout the year, along with some costs relating to the re-financing of the Group's bank facilities in November 2011.

Non-underlying Items

Non-underlying items reduced the profit before tax for the year by £3.3m (2010: £4.2m) and include the following:

·; Amortisation of acquired intangibles - £2.7m (2010: £2.7m).

·; Legal costs and provision movements - £0.6m (2010: £2.0m gain). During the year, some litigation involving the Group expanded in scope resulting in additional costs of £0.6m. A provision for future costs of £0.6m is also being retained.

·; Share of pre-operating losses of Indian joint venture - nil (2010: £1.4m).

·; Impairment in valuation of Investment Property - nil (2010: £2.1m).

Taxation

The underlying tax charge of £2.9m represents an effective rate of 23.2% (on applicable profit which excludes results of associates) compared with 26.6% in the previous year. This reflected a benefit from the satisfactory conclusion of some outstanding matters relating to previous years.

The total tax charge for the year was £1.0m which represents an effective tax rate of 10.3%. This includes the additional deferred tax benefit from the reduction in UK corporation tax to 25%. This is categorised as non-underlying and is included in other items.

Earnings per Share

Underlying basic earnings per share was at 8.05p, a decrease of 36% over the previous year. This calculation is based on the underlying profit after tax of £7.2m and 89,251,076 shares, being the weighted average number of shares in issue during the year.

Basic earnings per share, based on profit after tax after non-underlying items is 6.52p (2010: 8.58p). For 2011, there is no difference between basic and diluted earnings per share (2010: no difference).

Dividend

The Board recommends a final dividend of 3.50p payable on 21 June 2012 to shareholders on the register at the close of business on 25 May 2012. This will give a total dividend for the year of 5.00p.

Balance Sheet

Shareholders' funds increased during the year from £130.9m to £132.3m. This equates to a total equity value per share at 31 December 2011 of 148.2p, compared with 146.7p at the end of 2010.

Goodwill on the Balance Sheet is valued at £54.7m (2010: £54.7m) and is subject to an annual impairment review under IFRS 3. No impairment existed at either 31 December 2011 or 2010.

Other intangible assets on the Balance Sheet are valued at £18.2m (2010: £20.5m). 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. The amortisation charged in the year was £2.7m (2010: £2.7m), giving a total amortised at the year-end of £21.3m (2010: £18.5m).

The Group has property, plant and equipment and investment property totalling £83.6m (2010: £86.9m). Depreciation charged in the year amounted to £4.5m (2010: £4.5m). Capital expenditure in the year was £2.1m (2010: £3.0m). This included investment in new financial systems and in value‑add equipment for the Light Steel Division and plate profiling capability.

During the year, the Group invested £0.1m (2010: £2.9m) as equity into the joint venture company in India.

The Group's capital expenditure in 2012 in the UK is not expected to be more than £3m.

The Group's Atlas Ward subsidiary has a defined benefit pension scheme which, although closed to new members, had an IAS 19 deficit of £8.5m as at 31 December 2010. At 31 December 2011, the deficit increased to £9.6m 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.

Cash Flow

There was an increase in net debt during the year of £16.3m to leave the year-end position at £31.3m (2010: £15.0m). This movement includes a cash outflow from operating activities of £9.0m, and also includes dividends of £3.6m, investment in capital expenditure of £2.1m, and £3.7m of corporation tax payments. An increase in the overall level of net debt was expected, but the outflow from operating activities was higher than expected, driven by the contract mix and phasing at the year-end, coupled with greater tightness in customer settlements. We expect the effects of the contract mix and phasing to start unwinding over the next 2-3 months.

The Group secured new and increased credit facilities from RBS and Yorkshire Bank, a member of National Australia Bank Group, in November 2011. It now has borrowing facilities of £50m, a £10m increase over its previous facility. These will remain in place until November 2016 and will enable the Group to continue trading from a position of relative strength in its markets, in what continues to be a tough environment.

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

·; The UK order book, which currently stands at £221m, 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 profits. 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; and

·; The committed finance facilities to the Group, including both the level of the facilities and the banking covenants attached to them. The Group has access to £50m in credit facilities to meet day to day working capital requirements, which is available until 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 2011 Annual Report.

Year-End Change

The Board has decided to change the year-end of the Group to 31 March, with effect from 31 March 2013. This is primarily to align the Group's reporting period with that of its Indian joint venture, which is expected to become an increasingly important element of the Group's financial performance in future years. The transitional 15 month period will consist of two six month interim reporting periods, ending 30 June and 31 December, and a 3 month final period to 31 March. It is expected that a second interim dividend will be paid so that the impact of the change is neutral on overall dividends receivable by shareholders.

Company Name Change

Two of the Group's operating companies; Severfield-Reeve Structures Ltd and Rowen Structures Ltd will be merged with effect from 1 April 2012 to become Severfield-Rowen Structures Ltd.

Summary

Overall, results for the year have been steady in a difficult trading environment. The Group's new banking facilities have reinforced our relative competitive strength in the current challenging market. While the Indian joint venture contributed a loss for the year, strong foundations have now been established for the future and a positive contribution is expected in 2012.

Alan Dunsmore

Finance Director

Consolidated Income Statement

For the year ended 31 December 2011

Other items relate to:

·; The amortisation of acquired intangibles.

·; Legal costs and provision movements.

·; The pre-operating losses of the Group's Indian joint venture.

·; 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 year ended 31 December 2011

Consolidated Statement of Changes in Equity

31 December 2011

Consolidated Balance Sheet

31 December 2011

Consolidated Cash Flow

For the year ended 31 December 2011

1) Basis of preparationWhile 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 announcement does not itself contain sufficient information to comply with IFRSs. The Group expects to publish full financial statements that comply with IFRSs in April 2012.The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2011 or 31 December 2010. The financial information for the year ended 31 December 2010 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 year ended 31 December 2011 is not yet complete. These accounts 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 analysisRevenue, 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) TaxationThe taxation charge comprises:

4) Dividends

5) Earnings per shareThere are no discontinued operations in either the current or prior year.Earnings per share is calculated as follows:

6) Reconciliation of Group operating profit to cash generated from operations

7) Analysis of net funds/(borrowings)

Principal Risks and Uncertainties