Last checked at 27 Aug 2008 07:00
27 August 2008
SEVERFIELD-ROWEN PLC
2008 Half Year Results
RECORD HALF YEAR RESULTS
Severfield-Rowen Plc, the UK's market leading structural steel group, announces its half year results to 30 June 2008.
| 2008 (£m) | 2007 (£m) | Change | |
| Revenue | 173.324 | 137.564 | + 26.0% |
| Underlying* Group Operating Profit | 26.948 | 15.159 | + 77.8% |
| Underlying Profit before Tax | 25.342 | 15.883 | + 59.6% |
| Retained Profit after Tax | 13.891 | 10.965 | + 26.7% |
| Underlying Basic EPS | 20.04p | 13.44p | + 49.1% |
| Dividend per Share | 10.00p | 6.75p | + 48.1% |
Highlights
Underlying operating margin increased to 15.5%
Cash generated from operations of £35.64m contributing to the reduction in net debt to £35.86m
Very strong order book of £431m
Successful integration of Fisher Engineering
Confident of meeting management expectations for 2008
A more evenly balanced split between first and second half year revenues
Dividend increased 48.1% to 10.00p
Projects undertaken in the period include:More LondonDublin International AirportStaythorpe Power StationStratford City Retail DevelopmentWimbledon Centre CourtGlasgow Museum
* Underlying is before the amortisation of acquired intangible assets of £4.57m and the valuation of derivative financial instruments of £0.79m in 2008 (2007: Nil).
Commenting, Tom Haughey, Chief Executive Officer, said:
"Severfield-Rowen Plc has delivered substantial growth in the first half of 2008 and is very pleased with the improvement in its financial performance, the strength and longevity of the order book and the very strong cash generation.
The general UK economic background and its impact on the construction sector cannot be ignored, however, we are not exposed to the residential sector and our significant share of Olympic related work illustrates our competences and value, as well as our high supplier preference rating. Our order book continues to replenish and the Company's strengths enable it to increase UK domestic market share and engage large prime international contracts where significant opportunities prevail.
The Group's robust financial position and continued strong cash generation provides a platform for our growth ambitions, including overseas investment. Accordingly, we are confident of meeting the board's expectations for 2008 and have a clear strategy to deliver continued shareholder value over the medium and long term."
Enquiries
Severfield-Rowen Plc
Tom Haughey, CEO +44 (0)1845 577896
Peter Davison, FD +44 (0)1845 577896
Pelham PR
Alex Walters +44 (0)20 3170 7435
INTERIM STATEMENT 2008
INTRODUCTION
The Company has delivered substantial growth in the first half of 2008 and is very pleased with the improvement in its financial performance, the strength and longevity of the order book and its strong cash generation.
The general UK economic background cannot be ignored and may ultimately influence margins, but the Company's strengths will enable it to increase domestic market share and engage large prime international contracts in a range of market sectors.
We have a clear strategy to deliver continued shareholder value over the medium and long term and look forward to exciting developments in coming periods.
FINANCIALS
The Group has had a record first six months with underlying profit before tax (before amortisation of acquired intangible assets of £4.57 million and the movement in the valuation of derivative financial instruments of £0.79 million) of £25.34 million (2007: £15.88 million), an increase of 59.6% over the corresponding period of 2007.
This was achieved on revenue in the period of £173.32 million, a 26.0% increase over the £137.56 million achieved in the first half of 2007. This is partially due to our order book strength lessening traditional seasonality variations, to provide a more evenly balanced split between first and second half year revenues.
The Group's underlying operating profit increased by 77.8% to £26.95 million (2007: £15.16 million).
These results have produced an increase in the Group's margins to 15.55% at the underlying operating profit level and 14.62% at the underlying profit before tax level.
Non-underlying items are included in the 'other items' column of the Income Statement and amount to £5.36 million (2007: £Nil) which relates to:
a) Amortisation of acquired intangible assets - £4.57 million
b) Movement in forward contract valuations - £0.79 million
The tax charge of £6.09 million represents an effective tax rate of 30.47% compared with 31.09% the previous year, the fall helped by the change in corporation tax rate from 30% to 28% announced in the Finance Act 2007.
Various changes were also proposed to the industrial buildings allowance regime in the 2007 budget announcement. Provision in respect of the withdrawal of industrial buildings allowances forms part of the Finance Bill 2008 which was not substantively enacted at 30 June 2008. The directors believe that the result of these changes when substantively enacted will be a deferred tax charge of approximately £6.9 million, based on the estimated loss of tax base in April 2011.
Underlying basic earnings per share increase 49.1% to 20.04p (2007: 13.44p). This calculation is based on the underlying profit after tax of £17.75 million and 88,607,876 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 15.68p (2007: 13.44p).
Underlying diluted earnings per share is 19.96p. This calculation is based on the underlying profit after tax of £17.75 million and 88,938,488 shares, being the weighted average number of shares in issue during the period, allowing for contingent shares under a share based payment scheme.
Retained profit after tax of £13.89m (2007: £10.97m) has been transferred to reserves.
During the first six months of the year capital expenditure amounted to approximately £2.36 million (2007: £3.30 million).
The Group ended the period with net borrowings of £35.86 million, a considerable reduction in the net borrowings of £48.06 million as at 31 December 2007 (30 June 2007: net cash of £28.80 million). The Group has a revolving credit facility of £70 million with RBS and National Australia Bank as joint lenders until August 2010.
During the period £35.64 million was generated from operations (2007: £4.78 million). Significant cash outflows in the period included dividends paid of £11.74 million, corporation tax of £8.84 million and net expenditure on assets of £1.49 million.
DIVIDEND
Reflecting the Group performance in the first half and its strong financial position, the Board is pleased to recommend a significant increase in the interim dividend of 48.1% to a record 10.00p per share (2007: 6.75p). This maintains the Board's policy of having the dividend covered approximately 2.0 times by underlying earnings at the interim stage (2007: 2.0 times).
The interim dividend will be paid on 24 October 2008 to shareholders on the register on 3 October 2008.
BOARD CHANGES & EMPLOYEES
Peter Levine left his role in May 2008, ending a highly successful tenure as Company Chairman. The Company owes Peter immense gratitude for his guidance and his contribution to the growth of the Group since 1993.
Toby Hayward joined the Company as Non-Executive Chairman on 30 May 2008. His experience in the financial sector and his international exposure will be of immense value to the Company in the future.
Mr John Featherstone, our longest serving Non-Executive Director, retired from his role on 30 May 2008 and takes with him the board and management's sincere appreciation for his valued contributions over many years.
Messrs Peter Ellison, Brian Hick, Nigel Pickard and Ian Cochrane have moved from the Plc Board to take positions on the Company's Executive Management Committee, which is now effectively focused on strategic and operational performance matters relating to the business.
The management and workforce in all of the Group Companies continue to be the key asset in delivering our strong performances and shaping our future success.
OPERATIONS
Group Overview
The principal business of the Group is carried out by its five main operating companies: Severfield-Reeve Structures, Watson Steel Structures, Atlas Ward Structures, Fisher Engineering and Rowen Structures.
The Group is the clear market leader in its sector and its production facilities, technology and broad range of structural steel services are unparalleled in the industry. Sustained investment preserves the Group's advantage in the industry. Margins remain in the forefront of our attention and have shown further improvement in the first six months of 2008. Whilst we are confident that margins can be maintained in the short to medium term, they may come under some pressure in the longer term as export sales develop.
The core businesses of the Group have performed profitably and in line with management's expectations. They continue to be well placed to supply a balanced and comprehensive range of services and products to meet the needs of the structural steel markets:
Each of the companies above is supported by Steelcraft Erection Services, a wholly owned subsidiary of Severfield-Rowen, which is responsible for the on-site erection of the fabricated steel.
The broad range of capabilities outlined above, together with the Group's financial strength and excellence of its workforce, enable Severfield-Rowen to benefit from, and be resilient to, the ever changing market place.
Contracts
Projects being worked upon by the Group in the first 6 months, include:
Stratford City Retail Development, London
Wimbledon Centre Court's new closing roof
National Conference Centre in Dublin
Thameside Hospital, London
Commercial office no7 of the More London development
New production facility for Laing O'Rourke at Steetley
Dublin International Airport
Distribution centre for Tesco at Teesport
Staythorpe Power Station
Glasgow Museum
One Hyde Park, London
Erneside Shopping Centre, Enniskillen, Northern Ireland
Data Centres in Hertfordshire and Yorkshire
Distribution centre for Morrisons in Sittingbourne
Project Altitude, an indoor ski-slope at Hemel Hempstead
New rehearsal studio for the BBC at Cardiff
Commercial offices at Central Park, Dublin
Heathrow Airport, Terminal 2B, Phase 1 for BAA
St Andrews University, Scotland
OUTLOOK
The Group's robust financial position and continued strong cash generation provides both a platform for our growth ambitions, including overseas investment, and a comfort against any wider industry downturn.
The order book remains very strong and incorporates Olympic related work together with an excellent spread of business across all of our key sectors, including Power, Health and Education. The Company's prospects list extends to export markets and remains extensive.
We are, therefore, confident of meeting the board's expectations for 2008 and have a clear strategy to deliver continued shareholder value over the medium and long term.
TOM HAUGHEY
CHIEF EXECUTIVE OFFICER
27 August 2008
Condensed Consolidated Income Statement
| Six months ended 30 June 2008 (unaudited) | Six months ended 30 June 2007 (unaudited) | Year ended 31 December 2007 (audited) | |||||||
| Before Other Items £000 | Other Items1 £000 | Total £000 | £000 | Before Other Items £000 | Other Items1 £000 | Total £000 | |||
| Revenue | 173,324 | - | 173,324 | 137,564 | 300,656 | - | 300,656 | ||
| Cost of sales | (143,055) | - | (143,055) | (120,028) | (250,936) | - | (250,936) | ||
| Gross profit | 30,269 | - | 30,269 | 17,536 | 49,720 | - | 49,720 | ||
| Other operating income | 46 | - | 46 | 30 | 479 | - | 479 | ||
| Distribution costs | (682) | - | (682) | (587) | (1,295) | - | (1,295) | ||
| Administrative expenses | (2,731) | (4,574) | (7,305) | (1,836) | (6,278) | (2,200) | (8,478) | ||
| Share of results of associates | 46 | - | 46 | 16 | 58 | - | 58 | ||
| Unrealised losses on derivative financial contracts | - | (789) | (789) | - | - | (2,390) | (2,390) | ||
| Operating profit | 26,948 | (5,363) | 21,585 | 15,159 | 42,684 | (4,590) | 38,094 | ||
| Investment revenue - interest | 662 | - | 662 | 724 | 1,405 | - | 1,405 | ||
| Finance costs - interest | (2,268) | - | (2,268) | - | (1,139) | - | (1,139) | ||
| Profit before tax | 25,342 | (5,363) | 19,979 | 15,883 | 42,950 | (4,590) | 38,360 | ||
| Tax | (7,589) | 1,501 | (6,088) | (4,918) | (13,211) | 1,285 | (11,926) | ||
| Profit for the period | 17,753 | (3,862) | 13,891 | 10,965 | 29,739 | (3,305) | 26,434 | ||
| Earnings per share: | |||||||||
| Basic | 20.04p | (4.36p) | 15.68p | 13.44p | 35.74p | (3.97p) | 31.77p | ||
| Diluted | 19.96p | (4.34p) | 15.62p | 13.44p | 35.70p | (3.97p) | 31.73p | ||
1 Other items relate to the amortisation of acquired intangibles and unrealised losses on derivative contracts. Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group. There were no such items in the first half of 2007.
Condensed Consolidated Statement of Recognised Income and Expense
| Six months ended 30 June 2008 (unaudited) £000 | Six months ended 30 June 2007 (unaudited) £000 | Year ended 31 December 2007 (audited) £000 | |
| Actuarial loss on defined benefit pension scheme | - | - | 285 |
| Tax on items taken directly to equity | - | - | (85) |
| Impact of reduction in tax rate on deferred tax on defined benefit pension scheme | - | - | (134) |
| Net expense recognised directly in equity | - | - | 66 |
| Profit for the period from continuing operations | 13,891 | 10,965 | 26,434 |
| Total recognised income and expense for the period attributable to equity shareholders | 13,891 | 10,965 | 26,500 |
Condensed Consolidated Balance Sheet
| At 30 June 2008 (unaudited) £000 | At 30 June 2007 (unaudited) £000 | At 31 December 2007 (audited) £000 | |
| ASSETS | |||
| Non-current assets | |||
| Goodwill | 54,712 | 6,732 | 54,712 |
| Other intangible assets | 34,556 | 1,840 | 39,040 |
| Property, plant and equipment | 78,393 | 44,567 | 79,423 |
| Interests in associates | 150 | 62 | 104 |
| 167,811 | 53,201 | 173,279 | |
| Current assets | |||
| Inventories | 24,427 | 11,481 | 17,931 |
| Trade and other receivables | 78,749 | 52,070 | 65,614 |
| Cash and cash equivalents | 16,651 | 28,795 | 5,445 |
| 119,827 | 92,346 | 88,990 | |
| Total assets | 287,638 | 145,547 | 262,269 |
| LIABILITIES | |||
| Current liabilities | |||
| Trade and other payables | 84,027 | 58,460 | 57,857 |
| Financial liabilities - borrowings | 52,511 | - | 53,504 |
| Financial liabilities - derivative financial instruments | 3,639 | - | 2,850 |
| Tax liabilities | 9,147 | 6,417 | 10,394 |
| 149,324 | 64,877 | 124,605 | |
| Non-current liabilities | |||
| Retirement benefit obligations | 6,745 | 7,287 | 6,745 |
| Deferred tax liabilities | 9,989 | 742 | 11,490 |
| Provisions | 2,600 | 3,000 | 2,600 |
| 19,334 | 11,029 | 20,835 | |
| Total liabilities | 168,658 | 75,906 | 145,440 |
| NET ASSETS | 118,980 | 69,641 | 116,829 |
| EQUITY | |||
| Share capital | 2,215 | 2,040 | 2,215 |
| Share premium | 46,152 | 9,770 | 46,152 |
| Other reserves | 743 | 139 | 743 |
| Retained earnings | 69,870 | 57,692 | 67,719 |
| TOTAL EQUITY | 118,980 | 69,641 | 116,829 |
Condensed Consolidated Cash Flow
| Six months ended 30 June 2008 (unaudited) £000 | Six months ended 30 June 2007 (unaudited) £000 | Year ended 31 December 2007 (audited) £000 | |
| Cash flows from operating activities | |||
| Cash generated from operations | 35,642 | 4,782 | 22,987 |
| Interest paid | (1,991) | - | (768) |
| Tax paid | (8,836) | (4,626) | (9,131) |
| Net cash from operating activities | 24,815 | 156 | 13,088 |
| Cash flows from investing activities | |||
| Proceeds from sale of property, plant and equipment | 868 | 748 | 1,555 |
| Interest received | 617 | 738 | 1,384 |
| Acquisition of subsidiary, including costs | - | - | (55,641) |
| Cash acquired with subsidiary | - | - | 685 |
| Purchases of property, plant and equipment | (2,271) | (3,304) | (33,679) |
| Purchases of intangible fixed assets | (90) | (232) | (632) |
| Net cash used in investing activities | (876) | (2,050) | (86,328) |
| Cash flows from financing activities | |||
| Payment of finance lease liabilities | - | (66) | (66) |
| Borrowings taken out | - | - | 53,504 |
| Repayment of borrowings | (993) | - | - |
| Dividends paid | (11,740) | (7,549) | (13,057) |
| Net cash used in financing activities | (12,733) | (7,615) | 40,381 |
| Net increase/(decrease) in cash and cash equivalents | 11,206 | (9,509) | (32,859) |
| Cash and cash equivalents at beginning of period | 5,445 | 38,304 | 38,304 |
| Cash and cash equivalents at end of period | 16,651 | 28,795 | 5,445 |
Notes to the Condensed Consolidated Financial Statements
1) Basis of preparationThe interim financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") and in accordance with IAS34 "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 2007 which have been applied consistently throughout the current and preceding periods. The interim financial information does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The interim results to 30 June 2008 and 2007 are neither audited nor reviewed by the auditors. The financial information of the full preceding year is based on the statutory accounts for the financial year ended 31 December 2007. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.
2) 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 2008 financial year have been summarised in the Chief Executive Officer's Statement and have not changed significantly from those noted or referenced on page 34 of the Directors' Report included in the Annual Report 2007. These risks and uncertainties include, but are not limited to: (i) Credit, interest rate, and foreign exchange risks; (ii) Competitive risk in the face of ongoing innovation and price pressure; (iii) Commercial relationships with customers and suppliers; and (iv) Health and Safety.
3) Segmental analysisRevenue, profit before tax, and net assets related to the design, fabrication, and erection of structural steelwork and related activities and represents the Group's primary reported information. Revenue, which relates wholly to construction contracts, and related assets in both years originated from the United Kingdom.
4) TaxationThe income tax expense reflects the estimated effective rate on profit before taxation for the Group for the year ending 31 December 2008.In June 2007, the Finance Bill was presented to Parliament for approval and proposed a reduction in the rate of UK corporation tax from 30% to 28% with effect from 1 April 2008. At 30 June 2007 the rate reduction was substantively enacted, and accordingly the tax charge for the six months ended 30 June 2007 included the insignificant impact of this rate reduction on deferred tax. This rate reduction will also reduce the amount of tax payable on future profits.Various changes were also proposed to the industrial buildings allowance regime in the 2007 budget announcement. Provision in respect of the withdrawal of industrial buildings allowances forms part of the Finance Bill 2008 which was not substantively enacted at 30 June 2008. The directors believe that the result of these changes when substantively enacted will be a deferred tax charge of approximately £6.9 million, based on the estimated loss of tax base in April 2011.
5) Dividends payable to equity shareholders
| Six months ended 30 June 2008 £000 | Six months ended 30 June 2007 £000 | Year ended 31 December 2007 £000 | |
| Ordinary dividend paid | 11,740 ______ | 7,549 ______ | 13,057 ______ |
In addition to the above, an interim dividend of 10.00p per ordinary share (2007: 6.75p) will be paid on 24 October 2008 to shareholders on the register on 3 October 2008. The ex-dividend date will be 1 October 2008.
6) Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data, reflecting the 4:1 share split in October 2007.
Earnings per share is calculated as follows:
| Six months ended 30 June 2008 £000 | Six months ended 30 June 2007 £000 | Year ended 31 December 2007 £000 | |
| Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company | 13,891 ______ | 10,965 ______ | 26,434 ______ |
| Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company | 17,753 ______ | 10,965 ______ | 29,739 ______ |
| Number of shares | Number | Number | Number |
| Weighted average number of ordinary shares for the purposes of basic earnings per share | 88,607,876 | 81,607,876 | 83,218,835 |
| Effect of dilutive potential ordinary shares: | |||
| Share-based payments scheme | 330,612 | - | 78,803 |
| _________ | _________ | _________ | |
| Weighted average number of ordinary shares for the purposes of diluted earnings per share | 88,938,488 | 81,607,876 | 83,297,638 |
| _________ | _________ | _________ | |
| Basic earnings per share | 15.68p | 13.44p | 31.77p |
| Underlying basic earnings per share | 20.04p | 13.44p | 35.74p |
| Diluted earnings per share | 15.62p | 13.44p | 31.73p |
| Underlying diluted earnings per share | 19.96p | 13.44p | 35.70p |
7) Reconciliation of movement in total equity
| At 30 June 2008 £000 | At 30 June 2007 £000 | At 31 December 2007 £000 | |
| Opening total equity | 116,829 | 66,225 | 66,225 |
| Issue of new shares | - | - | 36,557 |
| Share based payments | - | - | 604 |
| Profit for the period | 13,891 | 10,965 | 26,434 |
| Dividends paid in period | (11,740) | (7,549) | (13,057) |
| Actuarial loss on defined benefit pension scheme | - | - | 285 |
| Deferred income taxes on defined pension benefit | - | - | (85) |
| Reduction in tax rate on deferred tax on defined benefit pension scheme | - | - | (134) |
| Closing total equity | 118,980 | 69,641 | 116,829 |
8) Analysis of net (debt)/funds
| At 30 June 2008 £000 | At 30 June 2007 £000 | At 31 December 2007 £000 | |
| Cash in hand | 16,651 | 28,795 | 5,445 |
| Borrowings | (52,511) | - | (53,504) |
| Closing net (debt)/funds | (35,860) | 28,795 | (48,059) |
9) Reconciliations of group profit from operations to cash generated from operations
| Six months ended 30 June 2008 £000 | Six months ended 30 June 2007 £000 | Year ended 31 December 2007 £000 | |
| Operating profit from continuing operations | 21,585 | 15,159 | 38,094 |
| Adjustments for: | |||
| Share of results of associated companies | (46) | (16) | (58) |
| Depreciation of property, plant and equipment | 2,593 | 1,687 | 3,925 |
| Pension movements | - | - | (257) |
| Profit on disposal of property, plant and equipment | (160) | (96) | (114) |
| Movement in provisions | - | - | (400) |
| Share-based payments | - | - | 604 |
| Amortisation of acquired intangibles | 4,574 | - | 2,200 |
| Unrealised losses on derivative financial contracts | 789 | - | 2,390 |
| Operating cash flows before movements in working capital | 29,335 | 16,734 | 46,384 |
| Increase in inventories | (6,496) | (8,148) | (9,476) |
| Increase in receivables | (13,090) | (5,298) | (4,364) |
| Increase/(decrease) in payables | 25,893 | 1,494 | (9,557) |
| Cash generated from operations | 35,642 | 4,782 | 22,987 |
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.
10) Seasonality
The Group's operations, and in particular the strength of its current order book, has now lessened any traditional seasonality variations to provide a more evenly balanced split between first and second half year revenues.
11) Related Party Transactions
Certain Related Party Transactions, as described in Note 36 on page 83 of the 2007 Annual Report, continued in the current period. None of these transactions materially affected the financial position or performance of the Group during the period.
12) Responsibility Statement
We confirm 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
Tom Haughey Peter Davison
Director Director
26 August 2008 26 August 2008