Last checked at 21 Apr 2020 07:00
21 April 2020
Severfield plc
('the Company' or 'the Group')
Pre-close trading update
Severfield plc, the market leading structural steel group, today announces the following trading update for the financial year ended 31 March 2020.
Update on COVID-19
In managing the Group's response to the COVID-19 pandemic, the primary focus is on the health, safety and wellbeing of all employees, clients and the wider public, together with protecting the financial strength of the Group. In line with the current guidance on COVID-19 from the UK government (and the latest Standard Operating Procedures ('SOPs') issued by the Construction Leadership Council), the Group's factories and sites are remaining operational where it is safe and practical to do so and with strict precautions in place including enhanced levels of cleaning, additional hygiene facilities and social distancing. All employees who can work from home are now doing so and have the technology and capability to service clients remotely. For construction sites in the Republic of Ireland and in continental Europe, the Group is following local government guidance.
The overall impact of COVID-19 remains uncertain and the Group is experiencing some disruption to its operations, both on its sites and within its factories, as a result of the outbreak. Notwithstanding this, the UK and Europe order book at 1 April 2020 stands at £293m (1 November 2019: £323m), providing the Group with a strong future workload during this unprecedented period of uncertainty. The level of tendering and pipeline activity for the Group remains good.
Current trading and outlook
Whilst the Group has started to see the initial impacts of COVID-19, these are not expected to have a material impact on the results for the year ended 31 March 2020 (FY20). The financial position of the Group remains good and year-end net funds (excluding IFRS 16 lease liabilities) were approximately £16m (31 March 2019: net funds of £25m). Net funds at 31 March 2020 comprised cash of £44m offset by borrowings under the Group's revolving credit facility ('RCF') of £15m and the outstanding term loan of £13m for the Harry Peers acquisition.
For the year ending 31 March 2021 (FY21), it is anticipated that the extent of the overall disruption from COVID-19 will inevitably have an impact on Group profitability. Whilst the majority of the Group's construction sites remain open and its factories remain operational, given the ongoing market uncertainty, it is not possible to accurately predict either the duration of the disruption or its impact on the FY21 outturn. We will continue to monitor external events, manage the situation closely and update the market as appropriate.
Focus on cash preservation
To mitigate the financial impact of COVID-19 and protect the Group's cash position during the current uncertain period, the following precautionary actions have been implemented:
§ The deferral of all non-essential and uncommitted capital expenditure, together with restrictions on discretionary operating expenditure;
§ Tight management of working capital whilst continuing to support supply chain partners;
§ Taking advantage of the opportunity to defer tax payments including PAYE, NIC and VAT;
§ The agreement with the Group's lenders to defer quarterly term loan repayments (due in March and June) until September 2020.
Focus on cash preservation (continued)
The Group has a £25m RCF which matures in October 2023, of which £10m is available as an overdraft facility. As a precautionary measure, the Group has fully drawn down all available amounts under this facility (£15m) to provide control over its own cash resources. Overall, cash headroom exceeds £50m at 31 March 2020.
India
Despite seeing the initial impacts of COVID-19, the Indian joint venture ('JSSL') has continued to perform well in the second half of FY20. Looking further ahead, in light of the extended nationwide lockdown announced by the Indian government in response to the COVID-19 outbreak and the developing impact of COVID-19 on the Indian economy, JSSL's operations are expected to be disrupted over a period of several months. Given the rapidly changing dynamics in the external environment, it is difficult to predict with any accuracy what the impact of this disruption will be on JSSL in FY21.
JSSL's order book was £112m at 1 April 2020 (1 November 2019: £134m), and this contains a good mix of higher margin commercial work. Despite the ongoing market uncertainty, JSSL's pipeline of potential orders continues to include a number of commercial projects for key developers and clients with whom it has established strong relationships.
The expansion of the Bellary facility, which has increased factory capacity from c.60,000 tonnes to c.90,000 tonnes, is now complete.
Full year results
Following discussions with its auditors, KPMG, the Group is currently planning to announce its financial results for the year ended 31 March 2020 on Wednesday 17 June 2020.
For further information, please contact:
Severfield Alan Dunsmore 01845 577 896
Chief Executive Officer
Adam Semple 01845 577 896
Group Finance Director
Jefferies International Simon Hardy 020 7029 8000
Will Soutar 020 7029 8000
Camarco Ginny Pulbrook 020 3757 4980
Tom Huddart 020 3757 4980
Notes to editors:
Severfield is the UK's market leader in the design, fabrication and construction of structural steel, with a total capacity of c.150,000 tonnes of steel per annum. The Group has five sites, c.1,400 employees and expertise in large, complex projects across a broad range of sectors. The Group also has an established presence in the expanding Indian market through its joint venture partnership with JSW Steel (India's largest steel producer).