TIDMSFR
RNS Number : 0235X
Severfield PLC
21 November 2017
21 November 2017
Interim results for the period ended 30 September 2017
59% increase in underlying profit before tax, 29% increase in
interim dividend, order book of GBP245m, full year results expected
to be comfortably ahead of expectations
Severfield plc, the market leading structural steel group,
announces its results for the six month period ended 30 September
2017.
Highlights
-- Revenue up 16% to GBP137.1m (H1 2016: GBP118.2m)
-- Underlying* profit before tax up 59% to GBP12.9m (H1 2016:
GBP8.1m)
-- Underlying basic earnings per share up 56% at 3.50p per share
(H1 2016: 2.25p per share)
-- Interim dividend increased by 29% to 0.9p per share (H1 2016:
0.7p per share)
-- Continued strong cash performance, resulting in period-end
net funds of GBP31.4m (31 March 2017: GBP32.6m) after equity
investment in Indian joint venture of GBP5.3m to repay term
debt
-- Over 80 projects undertaken during the period in key market
sectors including the new stadium for Tottenham Hotspur F.C., the
retractable roof for Wimbledon No. 1 Court and a new commercial
tower in London at 22 Bishopsgate
-- Share of profit from Indian joint venture of GBP0.1m (H1
2016: loss of GBP0.2m) reflecting continued stability and
profitability of the business
-- UK order book of GBP245m at 1 November 2017 (1 June 2017:
GBP229m)
-- India order book of GBP79m at 1 November 2017 (1 June 2017:
GBP73m)
-- 2018 full year results expected to be comfortably ahead of
previous expectations
GBPm 6 months to 6 months to
30 September 30 September
2017 2016
(unaudited) (unaudited)
Revenue 137.1 118.2
Underlying* operating profit
(before JVs and associates) 12.7 8.2
Underlying* operating margin
(before JVs and associates) 9.3% 7.0%
Operating profit (before JVs and
associates) 11.4 7.6
Underlying* profit before tax 12.9 8.1
Profit before tax 11.5 7.4
Underlying* basic earnings per
share 3.50p 2.25p
Basic earnings per share 3.14p 2.07p
* Underlying results are stated before non-underlying items of
GBP1.3m (H1 2016: GBP0.7m):
- Amortisation of acquired intangible assets - GBP1.3m (H1 2016: GBP1.3m)
- Movement in fair value of derivative financial instruments - GBPnil (H1 2016: gain of GBP0.6m)
- The associated tax impact of the above - GBP0.3m (H1 2016: GBP0.1m)
-
Alan Dunsmore, Acting Chief Executive Officer commented:
"I am delighted to be reporting a strong set of results for the
half year, which reflects the Group's continued delivery against
our strategic targets, improved margins and strong cash generation.
Building on this performance, we now expect that our full year
results will be comfortably ahead of our previous expectations.
Severfield, with its market-leading position, strong order book
and pipeline, is well placed to continue to deliver enhanced value
for shareholders."
For further information, please contact:
Alan Dunsmore
Acting Chief Executive
Severfield plc Officer 01845 577 896
Adam Semple
Acting Group Finance
Director 01845 577 896
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, which represents c.17 per cent
of UK structural steel production.
The Group has four sites, c.1,400 employees and expertise in
large, complex projects across a broad range of sectors. The Group
also has an established foothold in the developing Indian market
through its joint venture partnership with JSW Steel (India's
largest steel producer).
The Severfield management team has successfully undertaken an
operational turnaround plan since 2013 and in 2016 set out their
key strategic target, to double underlying profit before tax to
GBP26m by 2020.
Interim statement 2017
Introduction
For the first six months of the year we have delivered another
strong increase in operating profit, continued good cash generation
and an increase in the order book. The strength and quality of both
the order book and the UK pipeline of opportunities remain
consistent with our continued progress towards our strategic
targets, including the doubling of underlying profit before tax by
2020.
The Indian joint venture continues to perform steadily and
profitably. Operational performance remains good and the repayment
of the joint venture's term debt during the period will benefit its
ongoing profitability. With an improved order book and an
encouraging level of new opportunities, the Indian business remains
well positioned to take advantage of an improving local
economy.
Financials
The Group's performance for the first six months of the
financial year reflects continuing operating profit improvement on
a year-on-year basis, building on the strong commercial and risk
management disciplines established over the past four years, and
stable year-on-year performance from the Indian joint venture which
has, once again, recorded a small profit.
Revenue of GBP137.1m (2016: GBP118.2m) represents an increase of
GBP18.9m (16 per cent) compared with the prior period,
predominately reflecting an increase in production activity over
the same period, together with an increase in steel prices. The
order book has increased during the first half of 2018, resulting
in an order book at 1 November of GBP245m, a step up from recently
reported order book levels, of which GBP216m is for delivery over
the next 12 months.
Underlying operating profit (before JVs and associates) of
GBP12.7m (2016: GBP8.2m) represents an increase of GBP4.5m (55 per
cent) over the prior period, reflecting an increased underlying
operating margin (before JVs and associates) of 9.3 per cent (2016:
7.0 per cent). The underlying operating margin (before JVs and
associates) has continued to benefit from the embedding of
operational efficiencies across the Group through better risk and
contract management processes and production process improvements,
together with higher profits from certain project completions.
The share of results of JVs and associates in the first half of
the year was a profit of GBP0.3m (2016: nominal loss). This
includes a share of profit from the Indian joint venture of GBP0.1m
(2016: loss of GBP0.2m), reflecting the continued stability of the
business and higher operating margins of 9.2 per cent (2016: 7.6
per cent). The share of results of JVs and associates also includes
those of Composite Metal Flooring ('CMF') Limited which has
contributed a share of profit for the Group of GBP0.2m (2016:
GBP0.1m).
The Group's underlying operating profit was GBP13.0m (2016:
GBP8.2m) and underlying profit before tax was GBP12.9m (2016:
GBP8.1m), an increase of 59 per cent compared to the previous
period.
Non-underlying items in the period include the amortisation of
acquired intangible assets of GBP1.3m (2016: GBP1.3m), representing
the amortisation of customer relationships identified on the
acquisition of Fisher Engineering in 2007, which are now fully
amortised. Non-underlying items in the prior period included
non-cash gains of GBP0.6m in relation to the movement in the fair
value of derivative financial instruments. No similar items have
been recorded in the current period following the adoption of hedge
accounting at the 2017 financial year end, thereby mitigating the
impact of fair value changes in the income statement.
Non-underlying items are classified as such as they do not form
part of the profit monitored in the ongoing management of the
Group.
An underlying tax charge of GBP2.4m is shown for the period
(2016: GBP1.4m). This tax charge is recognised based upon the best
estimate of the average effective income tax rate on profit before
tax for the full financial year and equates to the UK statutory
rate of 19 per cent.
The statutory profit before tax, which includes both underlying
and non-underlying items, is GBP11.5m (2016: GBP7.4m). The
statutory profit after tax is GBP9.4m (2016: GBP6.2m) and has been
transferred to reserves.
Underlying basic earnings per share is 3.50p (2016: 2.25p). This
calculation is based on the underlying profit after tax of GBP10.5m
(2016: GBP6.7m) and 299,555,911 shares (2016: 298,497,784 shares),
being the weighted average number of shares in issue during the
period. Basic earnings per share, which is based on the statutory
profit after tax, is 3.14p (2016: 2.07p). There are no contingent
shares outstanding under share-based payment schemes and,
accordingly, there is no difference between basic and diluted
earnings per share.
Net funds at 30 September 2017 were GBP31.4m (31 March 2017:
GBP32.6m) following the investment of additional equity into the
Indian joint venture (GBP5.3m) and the payment of the 2017 final
dividend (GBP4.8m). Operating cash flow for the period before
working capital movements was GBP14.1m (2016: GBP10.6m).
Capital expenditure of GBP3.3m (2016: GBP2.6m) represents the
continuation of the Group's capital investment programme. This
included continued investment in the new in-house painting
facilities at Lostock and Ballinamallard, new equipment for our
fabrication lines, further enhancement of our in-house fleet of
construction site equipment and improvements to our staff welfare
facilities. Depreciation in the period was GBP1.8m (2016:
GBP1.8m).
The Group's defined benefit pension liability at 30 September
2017 was GBP20.2m, a decrease of GBP1.2m from the year-end position
of GBP21.4m. The decrease in the liability is primarily the result
of a small increase in the assumption for corporate bond yields
(used as the discount rate in the calculation of scheme
liabilities) and ongoing deficit contributions made by the Group
during the period. The triennial funding valuation of the scheme is
being carried out in the current financial year, with a valuation
date of 31 March 2017.
The Group has a GBP25m borrowing facility with Yorkshire Bank
and HSBC, with an accordion facility of a further GBP20m available
at the Group's request, and is available until July 2019. There are
two financial covenants which are tested quarterly, net debt:
EBITDA of < 2.5x, and interest cover of >4x.
Dividend
As part of the Group's commitment to a progressive dividend
policy, the board has decided to increase the interim dividend by
29 per cent to 0.9p per share (2016: 0.7p per share). The dividend
will be paid on 12 January 2018 to shareholders on the register on
15 December 2017.
UK review
The Group's main activities continue to be the design,
fabrication and construction of structural steel for construction
projects and more than 80 live projects were worked on during the
period. These cover a wide range of sectors that the Group can
service including commercial offices, stadia and leisure,
transport, industrial and distribution and power and energy. During
the period, we have continued to work on four large projects in
London each of which have project revenues in excess of GBP20m.
These are the new stadium for Tottenham Hotspur F.C., the
retractable roof for Wimbledon No. 1 Court, a major new commercial
head office building and a new commercial tower at 22 Bishopsgate.
Other significant projects in the period included commercial office
developments in London and outside (including Southbank Place,
Shard Place, Kings Cross S2 and Snowhill), the Ordsall Chord
railway bridges in Manchester and Ferrybridge Power Station.
Revenue has increased by 16 per cent from the prior period
predominately reflecting an increase in order flow and production
activity during the period, together with an increase in steel
prices. The UK order book at 1 November of GBP245m remains healthy
with a good mix of projects and reflects the anticipated increase
from the 1 June position of GBP229m at the time of announcing the
2017 full year results.
This leaves us well positioned to deliver good revenue
performance both in the second half of the current year and into
the next financial year. The current order book, of which GBP216m
is for delivery over the next 12 months, provides visibility of
earnings and remains at a level which supports continued progress
towards our strategic targets.
Significant new orders secured in the period include a number of
commercial office developments in London and in Cardiff, industrial
and distribution projects for a variety of clients, two large data
centres in Belgium and the Republic of Ireland and a pharmaceutical
facility in the Republic of Ireland.
Encouragingly, the UK market continues to appear stable and the
pipeline for potential future orders remains good. We have
identified a number of significant new potential projects in the
coming months across the commercial office (London and outside),
retail, industrial and distribution, and infrastructure sectors. In
addition, the Group is continuing to see the re-emergence of the
market in the Republic of Ireland as well as potential
opportunities in Europe.
UK Government policy is helping to drive a strong pipeline of
major infrastructure projects in the transport and power and energy
sectors. Over the next few years, we see significant opportunities
to participate in these sectors, whilst continuing our focus on
only bidding for projects where contract risks and rewards are
appropriately balanced. The combination of our in-house bridge
capability, which has seen significant investment over recent
periods, and our historical record in transport infrastructure,
leaves us well positioned to win work from such projects, all of
which have a significant steel content.
Underlying operating margins (before JVs and associates) have
continued to increase to 9.3 per cent (2016: 7.0 per cent)
resulting in an underlying operating profit (before JVs and
associates) of GBP12.7m (2016: GBP8.2m). This performance reflects
continued improvements to our operational execution including
further developments to our factory processes to drive efficiencies
and reduce costs, as well as better risk and contract management
processes. In many cases, this execution improvement only becomes
apparent towards the completion of a contract and this is reflected
in the improved results for the period, together with higher
profits from certain project completions. Operational improvements
implemented during the period include the continued roll out of a
new material requirements planning system across the Group to allow
seamless sharing of production and improved project information,
the opening of our new paint facilities at Lostock and
Ballinamallard which will shorten lead times, improve quality and
reduce reliance on external suppliers, further investment in our
bridge capability to improve the speed and efficiency of these
operations and the upgrade of our haulage facilities at Dalton.
Our specialist cold rolled steel joint venture business, CMF,
has continued to perform well during the period, having a
beneficial impact both on operating margins and the share of
results from JVs and associates. We continue to be the only hot
rolled steel fabricator in the UK to have this cold rolled
manufacturing capability, which has now been expanded to include
purlins and additional cold formed products, allowing the Group to
further consolidate elements of its supply chain.
In addition, the Group continues to be shaped by the programme
of projects launched in the previous year under the banner of
'Smarter, Safer, more Sustainable' which include ongoing
improvements to our business processes, use of technology and
operating efficiencies.
In November 2017, as part of this business process initiative,
we announced a proposal to reorganise our factory operations in
North Yorkshire, subject to a consultation process with the
workforce. This will result in steel fabrication at Dalton and
Sherburn being consolidated into the Dalton facility and a new
business venture, Severfield Products and Processing, being
launched at Sherburn. This proposed reorganisation addresses two
strategic aims for the Group. Firstly it allows us to make better
use of our operational footprint in Yorkshire and, secondly, allows
us to address smaller scale projects, a segment of the market which
we have not historically focused on.
The proposed new business venture will provide a one stop shop
to fabricators who specialise in smaller projects to source
processed steel and ancillary products, all delivered to the
Group's high standards of quality and service. We believe that this
proposed reorganisation will enhance our position as the UK's most
efficient structural steel fabricator, continuing to provide our
clients with a high quality product and service in the most cost
effective manner. The proposed reorganisation will result in the
transition of a number of job roles across the two facilities. All
affected employees have been offered a role within the Group.
The remedial bolt replacement works at Leadenhall were completed
during the prior year with the total expenditure being in line with
the non-underlying charge made back in 2015. Discussions remain
ongoing with all stakeholders to determine where the financial
liability for the remedial costs should rest.
India
The Indian joint venture continued to grow, performing steadily
and profitably in the period. The business generated strong
operating margins of 9.2 per cent which compares favourably to the
level of 7.6 per cent achieved in the previous period. The order
book at 1 November of GBP79m remains broadly consistent with the
position at 1 June of GBP73m, which represented a step change for
the business, and contains a similar mix of commercial work and
lower margin industrial work. The repayment of the joint venture's
term debt of GBP10.6m in June 2017 will benefit ongoing
profitability, however financing costs at the half year are still
at a level which masks JSSL's good operating performance resulting
in a share of after tax profit for the Group of GBP0.1m (2016: loss
of GBP0.2m). Overall, we remain confident in the long term
development of the business and believe it is well positioned to
take advantage of an improving local economy.
Strategy
In addition to making good progress towards our 2020 strategic
profit target of GBP26m, we continue to deliver on our other
strategic objectives. In May, we employed a European business
development director based in the Netherlands, whose focus is on
tailoring our established UK offering for expansion into this
market. This has resulted in a growing opportunity pipeline in
mainland Europe and has coincided with the continued re-emergence
of the market in the Republic of Ireland, where a number of orders
have been secured, together with the successful award of a project
in Belgium which we have been tracking for some time.
We have continued to identify opportunities to develop our
product offering and have been focusing our efforts on the market
for medium to high rise residential construction. This has
traditionally been a concrete market but we believe that we now
have a steel solution which will be attractive to our clients and
have commenced market testing on it.
Safety
Health and safety continues to be central to all of the Group's
activities and our strategic programme of activities and
improvements has supported progress in the period. We have
commenced the next stage of our behavioural safety programme and
are now seeing further enhancements around behaviour and cultural
change.
Sustainability remains a key part of the Group's strategy,
aiming to create visible leadership and objectives at all levels
and to all stakeholders. A number of projects have been identified
and progressed through an established working group, for example
emergency lighting upgrades.
All members of our board continue to participate in site safety
visits over the year and we continue to develop the monitoring and
analysis of all safety related issues including high potential for
harm incidents and also minor injuries for prevention programmes
and campaigns.
Safety stand downs have also continued and further developed
across the business to encourage feedback and suggestions for
improvement around safety. We have also held a drawing competition
for children of employees and their families to encourage
discussions around safety at home and what parents do at work.
The next phase of our behavioural safety programme has seen over
140 employees undertake safety coaching sessions and has also
inputted into the future development of the programme to facilitate
and encourage ownership across all levels of the business.
Our occupational health programme continues to evolve with focus
on prevention measures. A number of mental health first aiders have
been introduced across the business to raise awareness of mental
health in construction and support individuals to seek help where
appropriate. This is alongside the promotion of other positive
mental health initiatives.
Summary and outlook
The strong recent performance of the Group has continued in the
first six months of the current financial year, with revenue and
excellent profit growth supported by good cash generation. This,
combined with ongoing operational improvements which continue to
benefit margins and higher profits from certain project
completions, means that the Group's performance for the year ending
31 March 2018 is now expected to be comfortably ahead of previous
expectations.
In India, continued strong operational performance, the order
book of GBP79m and the repayment of the high cost local debt during
the period gives us confidence that the joint venture now has a
solid foundation from which to deliver future profitable
growth.
With a high quality order book of GBP245m and a strong UK
pipeline of opportunities, the outlook for the Group remains very
good. The underlying strength of the business and its performance
in the first half of the financial year remains consistent with our
continued progress towards delivering our 2020 strategic profit
target of GBP26m.
Alan Dunsmore
Acting Chief Executive Officer
Condensed consolidated interim financial information
Consolidated income statement
Six months ended Six months ended Year ended
30 September 2017 (unaudited) 30 September 2016 (unaudited) 31 March 2017 (audited)
Non- Non-underlying Non-underlying
Underlying underlying Total Underlying GBP000 Total Underlying GBP000 Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 137,107 - 137,107 118,153 - 118,153 262,224 - 262,224
Operating
costs (124,414) (1,333) (125,747) (109,920) (673) (110,593) (242,610) (1,790) (244,400)
------------ ------------- ------------ ----------- -------------- --------- -------------- --------------- --------------
Operating
profit
before
share of
results of
JVs
and
associates 12,693 (1,333) 11,360 8,233 (673) 7,560 19,614 (1,790) 17,824
Share of
results of
JVs
and
associates 283 - 283 (37) - (37) 457 - 457
Operating
profit 12,976 (1,333) 11,643 8,196 (673) 7,523 20,071 (1,790) 18,281
Finance
expense (119) - (119) (105) - (105) (226) - (226)
------------ ------------- ------------ ----------- -------------- --------- -------------- --------------- --------------
Profit
before tax 12,857 (1,333) 11,524 8,091 (673) 7,418 19,845 (1,790) 18,055
Taxation (2,386) 253 (2,133) (1,381) 135 (1,246) (3,306) 580 (2,726)
------------ ------------- ------------ ----------- -------------- --------- -------------- --------------- --------------
Profit for
the period 10,471 (1,080) 9,391 6,710 (538) 6,172 16,539 (1,210) 15,329
============ ============= ============ =========== ============== ========= ============== =============== ==============
Earnings
per share:
Basic 3.50p (0.36p) 3.14p 2.25p (0.18p) 2.07p 5.53p (0.40p) 5.13p
Diluted 3.50p (0.36p) 3.14p 2.25p (0.18p) 2.07p 5.49p (0.40p) 5.09p
Further details of non-underlying items are disclosed in note 7
to the condensed consolidated interim financial information.
Consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP000 GBP000 GBP000
Actuarial gain/(loss) on defined
benefit pension scheme* 940 (8,289) (7,412)
Profits/(losses) taken to equity
on cash flow hedges 253 - (93)
Reclassification adjustments
on cash flow hedges (420) - 110
Tax relating to components
of other comprehensive income* (160) 1,575 1,071
Other comprehensive income
for the period 613 (6,714) (6,324)
Profit for the period from
continuing operations 9,391 6,172 15,329
------------- ------------- ----------
Total comprehensive income
for the period attributable
to equity shareholders of the
parent 10,004 (542) 9,005
============= ============= ==========
* These items will not be subsequently reclassified to the
consolidated income statement.
Consolidated balance sheet
At At At
30 September 30 September 31 March
2017
(unaudited) 2016 2017
GBP000 (unaudited) (audited)
GBP000 GBP000
ASSETS
Non-current assets
Goodwill 54,712 54,712 54,712
Other intangible assets 172 2,989 1,574
Property, plant and equipment 80,172 77,788 78,909
Interests in JVs and associates 17,857 11,573 12,068
Deferred tax asset 513 559 1,029
------------- ------------- --------------------
153,426 147,621 148,292
------------- ------------- --------------------
Current assets
Inventories 6,368 6,979 7,750
Trade and other receivables 52,439 57,776 66,398
Derivative financial instruments - - 109
Cash and cash equivalents 31,602 24,677 32,849
------------- ------------- --------------------
90,409 89,432 107,106
------------- ------------- --------------------
Total assets 243,835 237,053 255,398
============= ============= ====================
LIABILITIES
Current liabilities
Trade and other payables (59,980) (65,286) (75,673)
Financial liabilities - finance
leases (180) (180) (180)
Financial liabilities - derivative
financial instruments (33) (193) -
Current tax liabilities (2,635) (2,509) (2,862)
(62,828) (68,168) (78,715)
------------- ------------- --------------------
Non-current liabilities
Retirement benefit obligations (20,167) (22,596) (21,414)
Financial liabilities - finance
leases (139) (319) (229)
Deferred tax liabilities (790) (507) (883)
(21,096) (23,422) (22,526)
------------- ------------- --------------------
Total liabilities (83,924) (91,590) (101,241)
------------- ------------- --------------------
NET ASSETS 159,911 145,463 154,157
============= ============= ====================
EQUITY
Share capital 7,488 7,461 7,471
Share premium 85,702 85,702 85,702
Other reserves 3,873 3,060 3,710
Retained earnings 62,848 49,240 57,274
------------- ------------- --------------------
TOTAL EQUITY 159,911 145,463 154,157
============= ============= ====================
Consolidated statement of changes in equity
Share Share Other Retained Total
capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April 2017 7,471 85,702 3,710 57,274 154,157
Total comprehensive income
for the period - - (167) 10,171 10,004
Ordinary shares issued* 17 - - - 17
Equity settled share-based
payments - - 330 196 526
Dividends paid - - - (4,793) (4,793)
At 30 September 2017 (unaudited) 7,488 85,702 3,873 62,848 159,911
=============== =============== =============== =============== =============
*The issue of shares represents shares allotted to satisfy the
2014 Performance Share Plan award, which vested in June 2017.
Share Share Other Retained Total
capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April 2016 7,437 85,702 2,300 52,767 148,206
Total comprehensive income
for the period - - - (542) (542)
Ordinary shares issued* 24 - - - 24
Equity settled share-based
payments - - 760 - 760
Dividends paid - - - (2,985) (2,985)
At 30 September 2016 (unaudited) 7,461 85,702 3,060 49,240 145,463
=============== =============== =============== =============== ==============
*The issue of shares represents shares allotted to satisfy the
2013 Performance Share Plan award, which vested in June and
September 2016.
Share Share Other Retained Total
capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April 2016 7,437 85,702 2,300 52,767 148,206
Total comprehensive income
for the period - - 17 8,988 9,005
Ordinary shares issued* 34 - - - 34
Equity settled share-based
payments - - 1,393 597 1,990
Dividends paid - - - (5,078) (5,078)
At 31 March 2017 (audited) 7,471 85,702 3,710 57,274 154,157
=============== =============== =============== =============== =============
*The issue of shares represents shares allotted to satisfy the
2013 Performance Share Plan award, which vested in June, September
and November 2016.
Consolidated cash flow statement
Six months Six months Year
ended ended
30 September 30 September ended
2017 2016
(unaudited) (unaudited) 31 March
GBP000 GBP000 2017
(audited)
GBP000
Net cash flow from operating activities 11,414 11,352 24,977
Cash flows from investing activities
Proceeds on disposal of land and
buildings - - 1,195
Proceeds on disposal of property,
plant and equipment 927 403 436
Purchases of land and building (137) - (1,517)
Purchases of property, plant and
equipment (3,160) (2,559) (5,442)
Investment in JVs and associates (5,330) (413) (413)
----------------------- ----------------------- --------------------
Net cash used in investing activities (7,700) (2,569) (5,741)
----------------------- ----------------------- --------------------
Cash flows from financing activities
Interest paid (78) (64) (162)
Dividends paid (4,793) (2,985) (5,078)
Repayment of obligations under
finance leases (90) (90) (180)
Net cash used in financing activities (4,961) (3,139) (5,420)
----------------------- ----------------------- --------------------
Net (decrease)/increase in cash
and cash equivalents (1,247) 5,644 13,816
Cash and cash equivalents at beginning
of period 32,849 19,033 19,033
----------------------- ----------------------- --------------------
Cash and cash equivalents at end
of period 31,602 24,677 32,849
======================= ======================= ====================
Notes to the condensed consolidated interim financial
information
1) General information
Severfield plc ('the Company') is a company incorporated and
domiciled in the UK. The address of its registered office is Severs
House, Dalton Airfield Industrial Estate, Dalton, Thirsk, North
Yorkshire, YO7 3JN.
The Company is listed on the London Stock Exchange.
The condensed consolidated interim financial information does
not constitute the statutory financial statements of the Group
within the meaning of section 435 of the Companies Act 2006. The
statutory financial statements for the year ended 31 March 2017
were approved by the board of directors on 14 June 2017 and have
been delivered to the registrar of companies. The report of the
auditors on those financial statements was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain any statement under section 498 of the Companies Act
2006.
The condensed consolidated interim financial information for the
six months ended 30 September 2017 has been reviewed, not audited,
and was approved for issue by the board of directors on 20 November
2017.
2) Basis of preparation
The condensed consolidated interim financial information for the
six months ended 30 September 2017 has been prepared in accordance
with IAS 34 'Interim Financial Reporting' as adopted by the
European Union. The condensed consolidated interim financial
information should be read in conjunction with the statutory
financial statements for year ended 31 March 2017 which have been
prepared in accordance with International Financial Reporting
Standards ('IFRS') as adopted by the European Union.
In determining whether the Group's condensed consolidated
interim financial information can be prepared on the 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.
Having considered all the factors impacting the Group's
business, including certain 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.
3) Accounting policies
Except as described below, the accounting policies applied in
preparing the condensed consolidated interim financial information
are consistent with those used in preparing the statutory financial
statements for the year ended 31 March 2017.
Taxes on profits in interim periods are accrued using the tax
rate that will be applicable to expected total annual profits.
New and amended standards and interpretations need to be adopted
in the first interim financial statements issued after their
effective date (or date of early adoption).
There are no new IFRSs or IFRICs that are effective for the
first time for the six months ended 30 September 2017 which have a
material impact on the Group. The Group continues to assess the
impact of IFRS 15, the new revenue standard, which becomes
effective for the 2019 year-end. This assessment is progressing and
further contract reviews will take place in conjunction with the
budget process in the fourth quarter of the financial year.
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 year ending 31 March 2018 have not changed
significantly from those disclosed on pages 55 to 59 of the
strategic report included in the annual report for the year ended
31 March 2017 which is available on the Company's website
www.severfield.com. These risks and uncertainties include, but are
not limited to:
-- Health and safety.
-- The commercial and market environment within which the Group
operates.
-- Mispricing a contract (at tender).
-- Supply chain.
-- The Indian joint venture.
-- Information technology resilience.
-- People.
-- Industrial relations.
5) Segmental analysis
In accordance with IFRS 8, the Group has identified its
operating segments with reference to the information regularly
reviewed by the executive committee (the chief operating decision
maker ('CODM')) to assess performance and allocate resources. On
this basis the CODM has identified one operating segment
(construction contracts) which in turn is the only reportable
segment of the Group.
The constituent operating segments have been aggregated as they
have businesses with similar products and services, production
processes, types of customer, methods of distribution, regulatory
environments and economic characteristics. Given that only one
operating and reporting segment exists, the remaining disclosure
requirements of IFRS 8 are provided within the consolidated income
statement and balance sheet.
Revenue, which relates wholly to construction contracts and
related assets, in all periods 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 revenue 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) Non-underlying items
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP000 GBP000 GBP000
Amortisation of acquired
intangible assets (1,333) (1,310) (2,620)
Movement in fair value of
derivative financial instruments - 637 830
Non-underlying items before
tax (1,333) (673) (1,790)
Tax on non-underlying items 253 135 580
---------------------- --------------------- --------------------
Non-underlying items after
tax (1,080) (538) (1,210)
====================== ===================== ====================
Non-underlying items have been separately identified to provide
a better indication of the Group's underlying business performance.
They have been separately identified as a result of their
magnitude, incidence or unpredictable nature. These items are
presented as a separate column within their consolidated income
statement category. Their separate identification results in a
calculation of an underlying profit measure in the same way as it
is presented and reviewed by management.
Amortisation of acquired intangible assets represents the
amortisation of customer relationships which were identified on the
acquisition of Fisher Engineering in 2007. These relationships are
now fully amortised.
A non-underlying profit of GBP637,000 was recognised in the
first half of the prior period reflecting the movement in the fair
value of derivative financial instruments. The Group adopted hedge
accounting in the second half of the prior year for all material
foreign currency hedging positions (cash flow hedges), thereby
mitigating the impact of fair value changes in the income statement
since to the extent that the hedge is effective, changes in the
fair value of the hedging instrument will be recognised directly in
other comprehensive income. When the hedged item is recognised in
the financial statements, the accumulated gains and losses
recognised in other comprehensive income will be recycled to the
income statement. In accordance with the Group's accounting policy,
these recycled gains or losses together with any movement in fair
values associated with ineffective hedging positions will be
treated as a component of underlying profit rather than separately
disclosed as 'non-underlying items'.
8) Taxation
The income tax expense reflects the estimated underlying
effective tax rate on profit before taxation for the Group for the
year ending 31 March 2018.
9) Dividends
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP000 GBP000 GBP000
2016 final - 1.0p per share - (2,985) (2,985)
2017 interim - 0.7p per share - - (2,093)
2017 final - 1.6p per share (4,793) - -
---------------------- -------------------- --------------------
(4,793) (2,985) (5,078)
====================== ==================== ====================
The directors have declared an interim dividend in respect of
the six months ended 30 September 2017 of 0.9p per share (2016:
0.7p per share) which will amount to an estimated dividend payment
of GBP2,696,000 (2016: GBP2,093,000). This dividend is not
reflected in the balance sheet as it will be paid after the balance
sheet date.
10) Earnings per share
Earnings per share is calculated as follows:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP000 GBP000 GBP000
Earnings for the purposes
of basic earnings per share
being net profit attributable
to equity holders of the parent
company 9,391 6,172 15,329
-------------------- ------------------- ---------------------
Earnings for the purposes
of underlying basic earnings
per share being underlying
net profit attributable to
equity holders of the parent
company 10,471 6,710 16,539
-------------------- ------------------- ---------------------
Number of shares Number Number Number
Weighted average number of
ordinary shares for the purposes
of basic earnings per share 299,555,911 298,497,784 298,855,911
Effect of dilutive potential
ordinary shares and under
share plans - - 2,218,914
Weighted average number of
ordinary shares for the purposes
of diluted earnings per share 299,555,911 298,497,784 301,074,825
==================== =================== =====================
Basic earnings per share 3.14p 2.07p 5.13p
Underlying basic earnings
per share 3.50p 2.25p 5.53p
Diluted earnings per share 3.14p 2.07p 5.09p
Underlying diluted earnings
per share 3.50p 2.25p 5.49p
11) Property, plant and equipment
During the period, the Group acquired land and buildings of
GBP137,000 (2016: GBPnil) and other property, plant and equipment
of GBP3,160,000 (2016: GBP2,559,000). The Group also disposed of
other property, plant and equipment for GBP927,000 (2016:
GBP403,000) resulting in a profit on disposal of GBP664,000 (2016:
GBP71,000).
12) Net funds
The Group's net funds are as follows:
At At At
30 September 30 September 31 March
2017 2016 2017
GBP000 GBP000 GBP000
Cash and cash equivalents 31,602 24,677 32,849
Unamortised debt arrangement
costs 114 178 146
Financial liabilities - finance
leases (319) (499) (409)
------------- ------------------ -------------------
Net funds 31,397 24,356 32,586
============= ================== ===================
13) Fair value disclosures
The Group's financial instruments consist of borrowings, cash,
items that arise directly from its operations and derivative
financial instruments. Cash and cash equivalents, trade and other
receivables and trade and other payables generally have short terms
to maturity. For this reason, their carrying values approximate to
their fair values. The Group's borrowings relate principally to
amounts drawn down against its revolving credit facility, the
carrying amounts of which approximate to their fair values by
virtue of being floating rate instruments.
Derivative financial instruments are the only instruments valued
at fair value through profit or loss, and are valued as such on
initial recognition. These are foreign currency forward contracts
measured using quoted forward exchange rates and yield curves
matching the maturities of the contracts. These derivative
financial instruments are categorised as level 2 financial
instruments.
The fair values of the Group's derivative financial instruments
which are marked-to-market and recorded in the balance sheet were
as follows:
At At At
30 September 30 September 31 March
2017 2016 2017
GBP000 GBP000 GBP000
(Liabilities)/assets
Foreign exchange contracts (33) (193) 109
============= ============= =========
14) Net cash flow from operating activities
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP000 GBP000 GBP000
Operating profit from continuing
operations 11,643 7,523 18,281
Adjustments:
Depreciation of property,
plant and equipment 1,772 1,801 3,583
Loss on disposal of land and
buildings - - 271
Gain on disposal of other
property, plant
and equipment (664) (71) (73)
Amortisation of intangible
assets 1,402 1,492 2,906
Movements in pension scheme
liabilities (307) (295) (600)
Share of results of JVs and
associates (283) 37 (457)
Share-based payments 526 760 1,990
Movement in fair value of
derivatives - (637) (830)
-------------- -------------- ---------------------
Operating cash flows before
movements in working capital 14,089 10,610 25,071
Decrease/(increase) in inventories 1,382 (1,685) (2,456)
Decrease/(increase) in receivables 13,927 (7,066) (11,648)
(Decrease)/increase in payables (15,884) 10,403 16,386
Cash generated from operations 13,514 12,262 27,353
Tax paid (2,100) (910) (2,376)
-------------- -------------- ---------------------
Net cash flow from operating
activities 11,414 11,352 24,977
============== ============== =====================
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.
15) Related party transactions
There have been no changes in the nature of related party
transactions as described in note 30 on page 145 of the annual
report for year ended 31 March 2017 and there have been no new
related party transactions which have had a material effect on the
financial position or performance of the Group in the six months
ended 30 September 2017.
During the period, the Group provided services in the ordinary
course of business to its Indian joint venture, JSW Severfield
Structures ('JSSL') and in the ordinary course of business
contracted with and purchased services from its UK joint venture,
Composite Metal Flooring Limited ('CMF'). The Group's share of the
retained profit in JVs and associates of GBP283,000 for the period
reflects a profit from JSSL of GBP90,000 and from CMF of
GBP193,000.
In May 2017, the board approved an additional equity investment
of GBP5,330,000 in JSSL, to support repayment of the joint
venture's remaining term debt. This decision was made with the
agreement of our joint venture partner, JSW, who also contributed a
similar investment.
16) Contingent liabilities
Liabilities have been recorded for the directors' best estimate
of uncertain contract positions, known legal claims, investigations
and legal actions in progress. The Group takes legal advice as to
the likelihood of success of claims and actions and no liability is
recorded where the directors consider, based on that advice, that
the action is unlikely to succeed, or that the Group cannot make a
sufficiently reliable estimate of the potential obligation. The
Group also has contingent liabilities in respect of other issues
that may have occurred, but where no claim has been made and it is
not possible to reliably estimate the potential obligation. These
potential liabilities are subject to uncertain future events, may
extend over several years and their timing may differ from current
assumptions. Management applies its judgement in determining
whether or not a liability on the balance sheet should be
recognised or a contingent liability should be disclosed.
The Company and its subsidiaries have provided unlimited
multilateral guarantees to secure any bank overdrafts and loans of
all other Group companies. At 30 September 2017 these amounted to
GBP15,000,000 (2016: GBP15,000,000). The Group has also given
performance bonds in the normal course of trade.
17) Cautionary statement
The 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.
18) Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the
condensed consolidated interim financial information has been
prepared in accordance with IAS 34 as adopted by the European
Union, and that the interim report includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed consolidated interim financial information, and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- Material related party transactions that have occurred in the
first six months of the financial year and any material changes in
the related party transactions described in the last annual report
and financial statements.
The current directors of Severfield plc are listed in the annual
report for the year ended 31 March 2017. There have been no changes
in directors during the six months ended 30 September 2017.
The maintenance and integrity of the Severfield plc website is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
By order of the board
John Dodds Alan Dunsmore
Director Director
20 November 2017 20 November 2017
Independent review report to Severfield plc
Conclusion
We have been engaged by the Company to review the condensed
consolidated interim financial information in the interim report
for the six months ended 30 September 2017 which comprises the
consolidated income statement, the consolidated statement of
comprehensive income, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated cash
flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial information in the interim report for the six months
ended 30 September 2017 is not prepared, in all material respects,
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ('the
DTR') of the UK's Financial Conduct Authority ('the UK FCA').
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the interim
report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed
consolidated financial information.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The interim report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the interim report in accordance with the DTR of the UK
FCA.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed consolidated interim
financial information included in the interim report in accordance
with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated interim financial information in the
interim report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Adrian Stone
for and on behalf of KPMG LLP
Chartered Accountants
One Sovereign Square
Sovereign Street
Leeds
LS1 4DA
20 November 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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