Severfield Regulatory News (SFR)

Half Year Results

for 6 Months ended 30 June 2011

ROBUST ORDER BOOK - INDIAN PROGRESS

Severfield-Rowen Plc, the market leading structural steel group, announces its half year results to 30 June 2011.

Highlights

·; Underlying Profit before Tax of £3.4m (2010: £8.2m) in line with management's expectations

·; Underlying Group Operating Profit before results of Associates of £5.7m (2010: £8.6m)

·; Net borrowings at period end of £22.8m (2010: £8.2m)

·; UK Order book at 19/08/11 £249m (May 2011: £221m) reflecting growth in UK market share

·; JSSL India order book at 19/08/11 £41m (May 2011: £36m)

·; Interim dividend of 1.50p per share (2010: 5.00p)

Financial Summary

* Underlying is before the amortisation of acquired intangible assets of £1.4m (2010: £1.4m) and in 2010 pre-operating costs of JSW Severfield Structures Limited (JSSL), the Indian joint venture, of £0.5m.

A copy of the Statement is available on the Company's website: www.sfrplc.com

Commenting, Tom Haughey, Chief Executive Officer, said:

The Company is pleased with its performance in the UK against the backdrop of a prolonged and unprecedented period of weak demand. The Company has grown its order book to £249m (May 2011: £221m) and maintained its position as market leader, winning key contracts in strategic sectors where activity levels still offer opportunity.

The financial performance of our UK operations in terms of revenues and margins is consistent with our expectations, with strong performances in all group companies and functions to deliver client value and satisfaction.

The Company has been consistently cautious about the timing and extent of recovery in the UK market, an approach which has been justified. The Company is forward planning on the basis that demand will remain subdued for the next few years, showing only marginal growth for the market as a whole but with further opportunity in the London commercial, power and industrial/distribution sectors.

A few select export projects from the UK have been engaged or are being pursued, but exports will remain a small proportion of turnover in light of the prevailing returns in many overseas markets.

India remains the focus of the Company's growth ambitions, with opportunity being translated into reality via the scale and content of JSW Severfield Structures' order book and the progress being made in achieving operational and commercial objectives.

JSSL's order book currently (19 August 2011) stands at £41m (May 2011: £36m) which provides full activity at maximum operational output levels until June 2012.

The Company and its partner, JSW Steel, are pleased with the development of the business and in the coming months look forward to the benefits of a fully commissioned operation and the associated financial contributions.

The prospects for JSSL in the Indian market are immense and both partners are seeking to further develop the business capability in line with their growth expectations.

INTERIM STATEMENT 2011

INTRODUCTION

Notwithstanding the long and severe UK downturn, the Company is trading well. Prospects, in our forward view, are marginally better but a full UK recovery remains some years distant.

Management actions continue to focus on strengthening the Company's market and service provision, as well as its operational performance and cost base. Limited and selective investments have aided performance to date and will continue to support our UK business objectives.

New orders in 2011, which include The Leadenhall Building ("The Cheesegrater") and Chichester Place commercial offices in London, Philharmonie de Paris, Sellafield SDP, BMW manufacturing facility at Cowley and Birmingham New Street Station, are representative of the most active sectors in the market. The Company's domestic share is estimated to remain around 20% and its order book value of £249m (at 19 August 2011) illustrates the strength of the Group's core competencies and market leading position.

The joint venture in India is rapidly approaching the successful achievement of its first stage milestones in terms of financial, operational and commercial performance.

FINANCIALS

The weak UK construction market continues to impact the Group results. Revenue of £122.0 million (2010: £126.7 million) is 4% lower than the previous year. Underlying Operating Profit before results of Associates, of £5.7 million (2010: £8.5 million) has reduced by 34% which reflects further pressure on underlying operating margins. This decline from 6.8% to 4.6% year on year is a reflection of order mix change over the period. The share of results of Associates from the India Joint Venture is a loss of £1.6 million in the period (2010: £nil). While the Indian order book has built up to a good level, contract timing has resulted in the factory production build up running about three months behind schedule, resulting in this loss for the period.

The Group Underlying Operating Profit after share of results of Associates is £4.0 million (2010: £8.5 million), a 53% reduction on the previous year. Underlying profit before tax for the period is £3.4 million (2010: £8.2 million) representing a 59% decline on the previous year.

Underlying profit is before the amortisation of acquired intangible assets of £1.4 million (2010: £1.4 million, plus £0.5 million of pre-operating losses from Indian Joint Venture). The underlying tax charge of £1.4 million represents an effective tax rate of 27.0% on the applicable profit, which excludes the share of results of Associates (2010: 29.0%).

Underlying basic earnings per share is 2.29p (2010: 6.58p). This calculation is based on the underlying profit after tax of £2.05m and 89,251,076 shares, being the weighted average number of shares in issue during the period. Basic earnings per share, based on profit after tax after non-underlying items, is 1.18p (2010: 4.87p).

There are no contingent shares outstanding under share based payment schemes and accordingly there is no difference between basic and diluted earnings per share.

Retained profit after tax of £1.1 million (2010: £4.3 million) has been transferred to reserves.

During the first six months of the year capital expenditure amounted to £0.6 million (2010: £0.4 million).

There was a net cash outflow from operating activities in the first six months of £4.5 million (2010: outflow of £12.4 million). This reflects an expected increase in working capital, and Corporation Tax payments of £4.3 million.

The outflow, combined with capital expenditure, interest payments, and dividends resulted in net borrowings of £22.8 million at the end of the period (31 December 2010: £15.0 million), in line with management expectations.

The Group has a revolving credit facility of £40.0 million with RBS and National Australia Bank as joint lender, maturing in March 2013.

DIVIDEND

An interim dividend of 1.50p per share is declared today and will be paid on 28 October 2011 to shareholders on the register on 7 October 2011.

INDIA

Since the opening of the fabrication facility 12 months ago, the business has now built up a very strong order book of £41m (19 August 2011) and is progressively increasing operational outputs to our target levels, which will be achieved in the coming months.

JSW Severfield Structures is now producing quality product and service speeds, which are the basis of its differentiated advantages in the Indian market.

Market demand is strong, with opportunities in all sectors, including infrastructure, industrial, power, retail, commercial offices and transport. The business is now firmly demonstrating the value of its "new service offerings" to the market.

The challenges of establishing and building this new business in India are very substantial, but our objectives are steadily being achieved and the success to date bodes well for the next stage of development.

OPERATIONS

Group Review

The main business of the Group is the design, fabrication and erection of structural steelwork for construction projects of varying types, including warehouses, commercial offices, retail centres, industrial buildings and power stations.

The Group's main subsidiary companies are all involved in the principal business of structural steelwork. Activities across the Group are co-ordinated to optimise value. However, all of the individual companies retain their own market identity and specialist capabilities.

UK

All of the Group companies have contributed positively to the results. During the first half of 2011 the companies were engaged in the successful supply of services to a large number of projects, including:

India

JSW Severfield Structures Ltd in India commenced production in August 2010 and was formally opened in November 2010.

The Company is modelled on the UK blueprint, providing enhanced design, fabrication and erection services to the Indian construction market.

The operational development of the business is approaching the targets set by JSSL, having successfully executed projects in the commercial, power and industrial sectors, which are proving the value of the speed and quality advantages inherent in our process which is new in India.

OUTLOOK

The Company's success in the UK and India is attributable to the contributions and support of all of its employees, who continue to extend their efforts to meet the (different) challenges faced at home and abroad.

The Board remains confident that its full year performance will be in line with its expectations, notwithstanding the weakness of the UK economy.

The Company's strong domestic market position, combined with growing contribution from its presence in India, leave it well positioned to take advantage of opportunities for further progress in the medium term.

TOM HAUGHEY

CHIEF EXECUTIVE OFFICER

23 August 2011

Condensed Consolidated Income Statement

1 Other items in 2011 relate to the amortisation of acquired intangibles and movements in the valuation of derivative financial instruments and the associated tax effect of these items. Other items in 2010 relate to the amortisation of acquired intangibles, pre-operating costs of JSW Severfield Structures Limited, the Group's Indian Joint Venture company, movements in the valuation of derivative financial instruments, partial release of a legal provision, the impairment of investment property and the associated tax impact of these items. Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group.

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Balance Sheet

Condensed Consolidated Cash Flow Statement

Notes to the Condensed Consolidated Financial Statements

1) General informationThe interim financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The interim results to 30 June 2011 and 2010 are neither audited nor reviewed in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. The financial information of the full preceding year is based on the statutory accounts for the financial year ended 31 December 2010. Those accounts 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 and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

2) Basis of preparationThe interim financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") and in accordance with IAS 34 "Interim Financial Reporting" as adopted for use in the European Union and in accordance with the accounting policies included in the Company's Annual Report for the year ended 31 December 2010 which have been applied consistently throughout the current and preceding periods.

In 2011, a number of new standards and interpretations have become effective as noted in the Annual Report 2010 (page 98). The adoption of these standards and interpretations has not had a material impact on the financial statements of the Group. Since the Annual Report was published the following significant new standards and interpretations which have not been applied in these condensed consolidated financial statements, have been issued but are not yet effective:

·; IFRS 10 "Consolidated Financial Statements" - effective for accounting periods beginning on or after 1 January 2013.

·; IFRS 11 "Joint Arrangements" effective for accounting periods beginning on or after 1 January 2013.

·; IFRS 12 "Disclosure of Interests in Other Entities" - effective for accounting periods beginning on or after 1 January 2013.

·; IFRS 13 "Fair Value Measurement" - effective for accounting periods beginning on or after 1 January 2013.

The adoption of these standards in future periods is not expected to have a material impact on the financial statements of the Group.

3) Going concern

The Group has access to a £40 million revolving credit facility to meet day-to-day working capital requirements. As at 30 June 2011 the Group had comfortable headroom on this facility and on the bank financial covenants in place and this position is forecast to continue for the foreseeable future. The bank facility is available to March 2013. 

Through its various business activities the Group is exposed to a number of risks and uncertainties (see Note 4), which could affect the Group's ability to meet these forecasts and hence its ability to meet its banking covenants. As part of the review of forecasts noted above the Directors have considered its order book, the challenging economic environment, the commercial environment, and its supplier and customer base, together with the potential mitigating actions that can be taken to protect operating profits and cash flows. The Directors believe the Group is well placed to manage these business risks despite the current uncertain economic environment. 

Accordingly after making enquiries, the Directors have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months from the date of this report. For this reason, the going concern basis has been adopted in preparing this Interim Report.

4) Risks and uncertainties

The principal risks and uncertainties which could have a material impact upon the Group's performance over the remaining six months of the 2011 financial year have not changed significantly from those noted or referenced on pages 34-35 of the Directors' Report and pages 22-24 of the Financial Review included in the Annual Report 2010. These risks and uncertainties include, but are not limited to:

·; The commercial and market environment which the Group operates

·; Possible steel price movements

·; Reliance on key skills and personnel within our workforce

·; Health and safety

·; Credit, interest rate and foreign exchange risks

5) Segmental analysis

Revenue, profit before tax, and net assets 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.There has been no change in the basis of segmentation or in the basis of measurement of segment profit or loss in the period.

6) Seasonality

There are no particular seasonal variations which impact the split of turnover between the first and second half of the financial year. Underlying movements in contract timing and phasing, which are an ongoing feature of the business, will continue to drive moderate fluctuations in half yearly revenues.

7) TaxationThe income tax expense reflects the estimated effective rate on profit before taxation for the Group for the year ending 31 December 2010.

8) Dividends payable to equity shareholders

9) Earnings per share

Earnings per share is calculated as follows:

10) Property, plant and equipmentDuring the period fixed asset additions totalled £879,000. The Group also disposed of certain fixed assets with carrying amounts of £200,000 for proceeds of £224,000.

11) Net DebtThe Group's net debt is as follows:

12) Reconciliation of group profit from operations to cash generated from operations

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

13) Related party transactions

Certain Related Party Transactions, as described in Note 31 on page 97 of the 2010 Annual Report, continued in the current period. None of these transactions materially affected the financial position or performance of the Group during the period.

14) Cautionary statementThe Interim Management Report ("IMR") has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

The IMR contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

15) Responsibility statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

(b) the Interim Report includes a fair review of the information required by DTR4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the Interim Report includes a fair review of the information required by DTR 4.2.8R (disclosure of the related party transactions and changes therein).

By order of the Board