REG - Severfield PLC - Final Results
14/06/2023 07:00
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RNS Number : 6076C Severfield PLC 14 June 2023
14 June 2023
Results for the year ended 25 March 2023
Profits ahead of expectations, high-quality order books, post period-end
acquisition of Voortman to accelerate European growth strategy
Severfield plc, the market leading structural steel group, announces its
results for the year ended 25 March 2023.
£m Year ended(3) Year ended(3) Change
25 March 2023 26 March 2022
Revenue 491.8 403.6 +22%
Underlying(1) operating profit 33.1 26.9 +23%
(before JVs and associates)
Underlying(1) operating margin 6.7% 6.7% -
(before JVs and associates)
Operating profit 30.2 22.8 +32%
Operating margin 6.1% 5.7% +40 bps
Underlying(1) profit before tax 32.5 27.1 +20%
Profit before tax 27.1 21.0 +29%
Underlying(1) basic earnings per share 8.5p 7.2p +18%
Basic earnings per share 7.0p 5.1p +37%
Return on capital employed ('ROCE') 15.8% 13.5% +230 bps
Headlines
§ Revenue up 22% to £491.8m (2022: £403.6m)
§ Underlying(1) profit before tax up 20% to £32.5m (2022: £27.1m), ahead
of expectations due to strong operational delivery
§ Underlying(1) basic earnings per share up 18% at 8.5p (2022: 7.2p)
§ Total dividend increased by 10% to 3.4p per share (2022: 3.1p per share),
includes proposed final dividend of 2.1p per share (2022: 1.9p per share)
§ Year-end net funds (on a pre-IFRS-16 basis(2)) of £2.7m (2022: net debt
of £18.4m), reflects improvement in working capital
§ High-quality, diversified UK and Europe order book of £510m at 1 June
2023 (1 November 2022: £464m), includes new industrial and distribution, film
studio, commercial offices and nuclear orders
§ Value is building in JSSL - share of profit of £1.3m (2022: £0.8m),
reflects record EBITDA of £11m and output of 108,000 tonnes
§ India order book of £139m at 1 June 2023 (1 November 2022: £143m)
§ Post period-end €24m acquisition of Voortman, an innovative,
market-leading Dutch steel fabrication company, to accelerate our growth
strategy and strengthen our market position in Europe
Outlook
§ UK and Europe - significant pipeline opportunities in the UK and
continental Europe - many of our chosen markets continue to have a favourable
outlook
§ Voortman acquisition is on track to be earnings enhancing in 2024
§ India - well-positioned to take advantage of significant post-pandemic
growth opportunities, very encouraging outlook for Indian economy and strong
underlying demand for structural steel
§ Inflation falling in certain areas but we remain mindful of the
macro-economic backdrop
§ Well-positioned to deliver a result for 2024 which is in line with our
expectations
Alan Dunsmore, Chief Executive Officer commented:
"2023 was a very successful year for the Group. We reported record revenue,
delivered underlying profits ahead of expectations and secured a significant
value of new, high-quality work across all our geographies. This demonstrates
the success of our strategy to diversify the sectors and geographies we serve,
reflects the high-quality of our operations and is testament to the talent and
commitment of our people. We were also pleased to complete the acquisition of
Voortman, which brings in new clients, sectors and opportunities, enhancing
our position as one of Europe's strongest structural steel groups, and
positioning us for further growth in the region.
Whilst there are signs of inflation easing, we remain mindful of the
macro-economic backdrop. However, given the Group's performance to date and
the strength of our orders books, we are confident of delivering further
progress and a result for 2024 which is in line with our expectations."
For further information, please contact:
Severfield Alan Dunsmore 01845 577 896
Chief Executive Officer
Adam Semple 01845 577 896
Chief Financial Officer
Jefferies International Simon Hardy 020 7029 8000
Will Soutar 020 7029 8000
Liberum Capital Nicholas How 020 3100 2000
Ben Cryer 020 3100 2000
Camarco Ginny Pulbrook 020 3757 4980
Tom Huddart 020 3757 4980
Notes to financials:
(1) stated before non-underlying items of £5.4m (2022: £6.1m) including the
amortisation of acquired intangible assets of £3.3m (2022: £5.2m) and net
acquisition-related expenses of £2.0m (2022: £0.7m). Non-underlying items
have been separately identified by virtue of their magnitude or nature to
enable a full understanding of the Group's financial performance and to make
year-on-year comparisons. They are excluded by management for planning,
budgeting and reporting purposes and for the internal assessment of operating
performance across the Group and are normally excluded by investors, analysts
and brokers when making investment and other decisions (see note 3).
(2) the Group excludes IFRS 16 lease liabilities from its measure of net funds
/ debt as they are excluded from the definition of net debt as set out in the
Group's borrowing facilities (see note 7).
(3) except as otherwise stated '2022' and '2023' refer to the 52-week periods
ended 26 March 2022 and 25 March 2023 and '2024' refers to the 53-week period
ending 30 March 2024. The Group's accounts are made up to an appropriate
weekend date around 31 March each year.
(4) a reconciliation of the Group's underlying results to its statutory
results is provided in the Alternative Performance Measures ('APMs') section
(see note 9).
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 seven sites, c.1,800 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).
OPERATING REVIEW
Introduction
2023 was a very successful year, with the Group achieving record revenue,
delivering underlying profits of more than £32m and securing a significant
value of new, high-quality work. This strong performance reflects the high
quality of our operations and highlights the successful evolution of our
strategy and the benefits of our significant market sector, geographical and
client diversification. This has resulted in a well-balanced Group which has
provided us with the resilience to maintain and improve our market positions
and expert capabilities and has enabled us to keep growing the business
despite the ongoing market headwinds. The Group's strong overall performance
is reflected in our high-quality order books of £510m in the UK and Europe
and £139m in India.
In 2023, we increased our revenue by 22 per cent to £491.8m (2022: £403.6m)
and our underlying(1) profit before tax by 20 per cent to £32.5m (2022:
£27.1m). This performance has converted into cash, with operating cash
conversion(4) of 145 per cent (2022: (25) per cent), resulting in net funds
(on a pre-IFRS-16 basis(2)) at the year-end of £2.7m (2022: net debt of
£18.4m). Statutory profit before tax, which includes non-underlying items,
was £27.1m (2022: £21.0m), an increase of 29 per cent over the prior year.
In 2023, the Indian joint venture ('JSSL') recorded output of more than
100,000 tonnes, including sub-contracted work, an output equivalent to that of
the Group's operations in the UK and Europe and a record for the business.
This increased activity is evident in the Group's higher after-tax share of
profit of £1.3m (2022: £0.8m), which reflects an increase in revenue and a
record EBITDA of £11m. We remain very positive about the long-term trajectory
of the market and of the value creation potential of JSSL. Together with our
joint venture partner, our plans to secure a plot of land in India to
facilitate the future expansion of the business remain well advanced.
Based on the Group's continued progress, our strong balance sheet and
confidence in the future prospects of the business, the board is recommending
an increase in the final dividend to 2.1p per share, resulting in a total
dividend for the year of 3.4p per share (2022: 3.1p per share), an increase of
10 per cent on the prior year.
Strategic update
The Group's well-established strategy is unchanged, focused on growth and
diversification, both organic and through selective acquisitions, operational
improvements and building further value in JSSL, all of which, in combination,
will deliver strong EPS growth. Our clear focus on balance sheet strength and
cash generation enables us to continue making the right decisions for the
long-term, to maximise our competitive advantage and to best position us in
our chosen markets for continued sustainable, long-term growth.
Acquisitions
In April 2023, after the year-end, we completed the acquisition of Voortman
Steel Construction Holding B.V. ('VSCH'), an innovative steel construction
group based in the Netherlands, for a net consideration of €24m. This
provides us with a manufacturing base in Europe to complement our existing
European business and will help accelerate our European growth strategy. The
acquisition is expected to be earnings enhancing in 2024.
In addition to VSCH's core steel fabrication markets in the Netherlands, we
are seeing opportunities for growth through its access to the high growth
Dutch electricity distribution sector and capabilities in design and build
(turnkey) solutions for simpler structures, a business which is currently in
its infancy, serving SMEs and smaller projects. The acquisition also provides
us with growth opportunities through access to new European clients,
particularly in the industrial, commercial and residential sectors, a platform
to broaden our service offering and an ability to grow in different sectors
and geographies, enhancing our position as one of Europe's strongest
structural steel services groups.
VSCH is renowned in the Netherlands for its in-house knowledge, innovation and
expertise. The business is well invested with modern and highly efficient
production facilities, co-located with Voortman Steel Machinery Holding B.V.
('VSMH'), a manufacturer of steel fabrication machinery. The acquisition will
allow for areas of future collaboration with VSMH including the development of
robotic production technology, proprietary fabrication software and bespoke
equipment.
Clients
We continue to invest to meet the needs of our clients, building our
capabilities and driving efficiency across new and existing facilities, to
ensure our growth ambitions are fully supported. We remain focused on
providing value added results for our clients whilst balancing time, cost and
quality objectives, with an emphasis on building strong and long-standing
client partnerships.
Our unique capability to deliver complex design and engineering solutions, our
capacity and speed of fabrication and our management of the integrated
construction process is vital for our clients and a key differentiator for the
Group. This is fundamental to our success and has been critical to securing
new work and growing our revenues over recent years. This year we have
delivered challenging programmes for clients, reduced costs through both our
pre-tender value engineering and also post-award engineering solutions and
developed innovative building solutions for temporary works and pre-assembled
sections to work in live operating environments. In addition, when market
pressures stretched existing budgets or delayed certain construction
programmes, our operational delivery capabilities allowed us to help clients
deliver changes to these programmes quickly and efficiently, to provide them
with problem-solving solutions and to ensure that programme milestones were
achieved.
Business and operational improvement
In 2023, the Group launched Project Horizon, our new digitisation project. The
objective is to maximise the automation of our estimating, design, production
and contract delivery processes to improve client service and deliver
efficiency and capacity benefits. Workflows comprise over 100 short, medium
and long-term individual projects and initiatives designed to modernise and
further standardise processes and systems across the Group. We currently have
14 dedicated colleagues working on the project, which will initially be
self-funded through annual savings, with further benefits expected to be
realised as more of the identified projects and initiatives are implemented.
The project is a long-term initiative that we believe will shape our future as
we enhance our systems and leverage digital solutions, to ensure we remain at
the forefront of technology and innovation as market leaders in the industry.
As part of Project Horizon, we continued to make good progress with our
innovative approach to drawing and design, including the automation of
repetitive tasks and the optimisation of engineering software (including the
use of engineering apps), which is now being used on an increasing number of
construction projects across the Group. Other ongoing initiatives include the
digitisation of construction resource tracking and the automation of the
quality assurance certification process.
From an operational improvement perspective, initiatives worked on during the
year included the continued expansion and automation of our fabrication
capability and the ongoing improvements to real-time factory information at
our main production facility in Dalton. This included improvements in our
paint shops, 'right first time' initiatives to improve overall quality
including the targeted reduction of factory and site NCRs (rework items) and
drawing office errors, together with ongoing roll out of mobile devices to
capture information at the point of use and to provide live information to
both operatives and management.
UK and Europe review
The future success of the Group is determined, amongst other things, by the
quality of the secured workload and our discipline to maintain risk-based
contract selectivity irrespective of economic conditions. The UK and Europe
order book at 1 June includes a significant amount of new, high-quality work
and stands at £510m (1 November 2022: £464m), including £25m for VSCH, of
which £375m is planned for delivery over the next 12 months. This provides us
with good earnings visibility for 2024 and beyond. The order book remains
well-diversified and contains a good mix of projects across the Group's key
market sectors. In terms of geographical spread, 90 per cent of the order book
represents projects in the UK, with the remaining 10 per cent representing
projects for delivery in Europe and the Republic of Ireland (1 November 2022:
95 per cent in the UK, 5 per cent in Europe and the Republic of Ireland).
As well as our secured workload, we are encouraged by the current level of
tendering and pipeline activity across the Group. We are seeing some
significant opportunities in the UK and in continental Europe as, despite some
current softer market conditions in the distribution sector and delays in
client decision-making, many of our chosen markets continue to have a
favourable outlook - the Group has a prominent position in market sectors with
strong growth potential and is well-positioned to help accelerate the journey
to Net Zero. Many of these potential projects play to the Group's core
competencies - large complex projects that require high quality, rapid
throughput, on-time performance and full co-ordination between stakeholders.
As previously announced, with effect from 1 April 2022, to align our existing
businesses more closely with the ten market sectors that we serve and our
growing client base, the previous structure of six mainly location-based
business units has been streamlined into three new divisions. Under this new
divisional structure, we have separated our core construction operations
(delivering steel superstructures) into a Commercial and Industrial division
and a Nuclear and Infrastructure division, and created a new Modular Solutions
division. The Modular Solutions division consists of the growing modular
product ranges of Severfield (Products & Processing) ('SPP') and of
Construction Metal Forming ('CMF'), our cold rolled steel joint venture
business.
Commercial and Industrial
The Commercial and Industrial ('C&I') division brings together the Group's
strong capabilities in the industrial and distribution, commercial offices,
stadia and leisure, data centres, retail, and health and education market
sectors. During the year, we continued to work on the new stadium for Everton
F.C., the Co-op Live Arena in Manchester, Pinewood Studios in Shepperton and
the Google Headquarters at King's Cross, which is now largely complete. We
also started work on the Envision Battery Plant in Sunderland, creating an
electric vehicle hub supporting next generation EV production, to help
accelerate the transition to Net Zero carbon mobility. Other significant
revenue contributing projects include several large distribution facilities in
the UK, the ExCel Arena in London and a number of mid-sized office
developments, both in the UK and Republic of Ireland (including Wilton Park in
Dublin and new developments at King's Cross and Canada Water in London).
The C&I order book at 1 June of £372m (1 November 2022: £308m) includes
a significant amount of new work which we have secured over recent months.
This includes Sunset Studios in Hertfordshire, a large data centre in London,
two large commercial office developments in London, together with various
industrial and distribution facilities in the UK. Most of our work is derived
through either negotiated, framework or two-stage bidding procurement
processes, in line with the risk profile of the work being undertaken.
Despite some ongoing softness in the distribution sector and delays in client
decision-making, we continue to be encouraged by the current level of
tendering and pipeline activity across the Group, seeing some significant
opportunities both in the UK and in continental Europe, supported by the
acquisition of VSCH. These include data centres, stadia and leisure projects,
commercial offices, film studios and projects in support of a low-carbon
economy such as battery plants, energy efficient buildings and manufacturing
facilities for renewable energy.
In the UK and EU, we are seeing a new wave of opportunities for battery
gigafactories to support domestic zero carbon vehicle production, with a
number of facilities currently being planned or considered. Furthermore, the
UK's emergence as a major hub for film, television, advertising and gaming
production is also leading to an increase in demand for film and TV studios.
Demand for data centres in the UK and EU is also expected to continue, fuelled
by cloud computing, smartphones and artificial intelligence, together with the
continued post-pandemic trend for remote working. The Group's manufacturing
scale, speed of construction and on-time delivery capabilities, leaves us
well-positioned to win work from such projects, all of which are likely to be
designed in steel.
For the C&I division, we are targeting future revenue growth in line with
GDP, assisted by the acquisition of VSCH.
Nuclear and Infrastructure
The Nuclear and Infrastructure ('N&I') division encompasses the Group's
market-leading positions in the nuclear (new build, decommissioning and
defence), power and energy, transport (road and rail) and process industries
sectors. During the year, we continued to work on several HS2 bridge packages
for the Balfour Beatty and EKFB (Effage Kier) consortia, together with road
and rail bridges including the A1 Birtley to Coalhouse and A46 Binley bridges
and the M42 junction 6 and M25 junction 28 road improvement schemes. From a
nuclear perspective, ongoing contracts include work at Hinkley Point and some
large projects at Sellafield and in Berkshire for AWE.
The N&I order book at 1 June was £133m (1 November 2022: £151m) of which
47 per cent represents transport infrastructure (1 November 2022: 52 per cent)
and 47 per cent represents nuclear projects (1 November 2022: 46 per cent).
Notable recent awards include some new bridge projects reflecting investment
in infrastructure by Highways England and Network Rail, and a large secondary
steelwork package for General Electric at Hinkley Point. This involves a
unique flat pack delivery system for the steelwork (access platforms and
mechanical handling steel for the two turbines at Hinkley), greatly reducing
site storage space while providing greater cost and programme certainty. Our
nuclear business has also recently been selected as one of two 'key delivery
partners' to deliver structural steelwork with an estimated value of c.£250m
at Sellafield as part of the long-term Programme and Project Partners ('PPP')
framework.
As part of the Autumn Statement in November 2022, the UK Government
reconfirmed its commitment to deliver major infrastructure projects,
highlighting investment in infrastructure and sustainability, as central to
boosting growth and productivity. Despite the expected delays to some aspects
of the Road Investment Strategy and HS2, which the government confirmed in
March 2023, the Autumn Statement reaffirmed its commitment to deliver Sizewell
C, HS2 to Manchester and core Northern Powerhouse rail links as set out in the
£650 billion National Infrastructure Strategy ('NIS') from 2020.
The Group is well-placed to meet this demand for ongoing state-backed
investment, including a growing focus on infrastructure which can mitigate the
impacts of climate change and deliver energy security. These requirements
dictate a significant transition in national energy infrastructure including
renewable electricity generation and storage, nuclear power (including small
modular reactors ('SMRs')) and several other new energy supply initiatives. We
have already secured some significant road and rail bridge awards, new nuclear
and rail electrification work and we continue to make good progress with
several other similar opportunities in the pipeline. In general, we remain
well-positioned to win work in the transport, nuclear and power and energy
sectors sector given our in-house expertise and unmatched scale and capability
to deliver major infrastructure projects, together with the high entry
barriers for competitors.
For the N&I division, our medium-term target is to grow revenues to over
£125m, which would represent a doubling of FY22 revenues.
Modular Solutions
The Modular Solutions ('SMS') division consists of the growing modular product
ranges of SPP based in Sherburn and of CMF, our cold rolled steel joint
venture business based in Wales. We continue to be the only hot rolled steel
fabricator in the UK to have a cold rolled manufacturing capability. The
division has been awarded 'Fit for Nuclear' and certain Network Rail
accreditations which, together with an expanding client base and our previous
record in modular construction, we believe will help us to achieve our future
growth aspirations. The SMS division consists of three main business areas:
§ Severstor - specialist equipment housings for critical electrical
equipment and switchgear,
§ Supply chain (steel components for modular homes and buildings) - raw
material fabrication and modular systems including steel cassettes and
framing, and
§ Rotoflo - a high performance silo discharge system for the bulk handling
of materials such as paints and other dispersible solids.
In 2023, we have maintained our focus on growing our Severstor product ranges,
which attract higher margins. We continue to make significant progress in
growing our revenues and client base. We have secured repeat orders from
several blue-chip clients in the power, rail and oil and gas sectors as well
as continuing to develop our growing pipeline of opportunities, including in
growth areas such as renewable energy and data storage.
For supply chain, we see opportunities to supply the modular sector with steel
sub-assemblies and systems for temporary accommodation and other buildings,
and factory-built houses. These opportunities are being driven by the market
growth in the supply of modular buildings for education and healthcare and for
modular homes. To this end, to complement our hot-rolled capability, we have
continued to develop CMF's cold-rolled product range which now includes load
bearing frame and deck profiles, purlins and side rail systems, supported by
the business's new manufacturing facility in South Wales which is now
operational. As the modular market matures, clients are seeking greater scale,
reliability and quality in the supply chain, all of which Severfield can
offer, to ensure that its market share is maintained and increased in line
with market growth.
For our higher margin Rotoflo products, we have an established foothold in the
UK water treatment sector and have continued to develop the overseas footprint
of the business, aided by our sales manager in India. We have quickly
established a presence in the Indian paint manufacturing sector, where we see
some potentially interesting opportunities. Future growth markets also include
chemical processing, food processing and waste-water treatment in the UK, US,
India and Australia.
For the Modular Solutions division, our medium-term target is to grow revenues
to between £75m and £100m and we are targeting margins of greater than 10
per cent.
General market conditions
Inflationary pressures and supply issues for both us and our clients have
continued to present challenges throughout the year. Rising steel prices,
supply constraints on certain materials and increased energy and labour costs
have continued to drive upward pressure on total build costs, which in turn
has placed increased strain on the supply chain. Towards the end of the
financial year there were signs that some of these headwinds were starting to
ease, with inflation falling in certain areas.
We are continuing to manage these pressures well and the Group's scale,
financial and operational strengths and disciplined processes have helped to
ensure that we have not experienced any significant disruption or material
impact to profitability. For existing projects, any additional costs have
generally been offset by a combination of operating efficiencies, higher
selling prices, forward purchasing and contractual protection as steel remains
largely a pass-through cost for the Group. For steel, we also benefit from
relationships with supply chain partners in the UK and continental Europe,
reducing the risk of interruptions to the Group's steel supply.
India review
£m 2023 2022 Change
Revenue 137.7 100.3 +37%
EBITDA 11.0 6.8 +62%
Operating profit 8.7 5.2 +67%
Operating margin 6.3% 5.2% +110 bps
Finance expense (5.1) (3.3) - £1.8m
Profit before tax 3.6 1.9 +89%
Tax (1.0) (0.4) -£0.6m
Profit after tax 2.6 1.5 +73%
Group share of profit after tax (50%) 1.3 0.8 +73%
In 2023, JSSL recorded a record output of more than 100,000 tonnes, including
sub-contracted work, which is an output equivalent to that of the Group's
operations in the UK and Europe. This increased activity is evident in the
Group's higher after-tax share of profit of £1.3m (2022: £0.8m). The
improved performance reflects an increase in revenue of 37 per cent to
£137.7m (2022: £100.3m) and an improved operating margin of 6.3 per cent
(2022: 5.2 per cent). Financing expenses of £5.1m (2022: £3.3m) are higher
than the previous year, as a result of an increase in borrowings, partly
driven by the impact of inflation on working capital, and in the cost of
letters of credit which are linked to higher steel prices. These higher
financing costs result in JSSL's operating profit of £8.7m (2022: £5.2m),
which has increased by 67 per cent year-on-year, reducing to a profit before
tax of £3.6m (2022: £1.9m).
Notwithstanding some current market pressures in India, JSSL has continued to
win new work, resulting in a strong order book of £139m at 1 June 2023 (1
November 2022: £143m). In terms of mix, 55 per cent of the order book
represents higher margin commercial work, with the remaining 45 per cent
representing industrial projects (1 November 2022: commercial work of 36 per
cent, industrial work of 64 per cent).
Following JSSL's continued successful recovery from the effects of COVID-19,
which is reflected in its record EBITDA for 2023 of £11m, we have revalidated
our Indian business plan. This process has reaffirmed the numerous growth
opportunities that were identified pre-pandemic, including those in new and
existing market sectors, and the significant value creation potential of JSSL.
In conjunction with JSW, our joint venture partner, our plans to secure a plot
of land in India to facilitate the future expansion of the business remain
well advanced. This additional land will allow the business to expand its
geographical footprint whilst providing it with the platform to expand quickly
and add the necessary volume to support the expected future market growth.
In summary, JSSL's strong order book, improving pipeline of potential orders
and identified growth opportunities, leave the business well-positioned to
take advantage of a very encouraging outlook for the Indian economy and a
strong underlying demand for structural steel in construction.
ESG
Safety
The health, safety and wellbeing of our staff, subcontractors, suppliers,
clients and the public remains the Group's top priority. In 2023, following
significant improvements in safety performance in previous years, whilst our
accident frequency rate ('AFR') reduced to 0.14 from 0.16, we saw our injury
frequency rate ('IFR') increase to 1.61 from 1.49. Although the overall IFR
has increased, the result for 2023 reflects improved IFR performance in many
areas of the business, including in our manufacturing operations and for our
recently acquired infrastructure business (DAM Structures) which,
disappointingly, has been offset by higher IFRs in some areas of our
construction operations. Whilst our safety statistics continue to be
industry-leading, we remain committed to continually improving and focusing on
leading indicators in our pursuit of 'no harm'. We have updated our
behavioural safety programme, which is based on awareness, training, coaching
and visible leadership, and have launched our Safer@Severfield initiative,
which will further ingrain our culture of employee engagement, commitment and
our life saving rules.
Sustainability
ESG remains at the forefront of our strategic decision making. As a result of
decisions made in recent years, the Group remains in a prominent market
position in the high-growth markets of the future and is well-positioned to
assist in accelerating the journey to Net Zero in its core sectors. We align
our ESG approach with the UN Sustainable Development Goals ('SDGs'), through a
variety of central and local initiatives.
In 2023, we maintained our carbon neutral accreditation from the Carbon Trust
for scope 1, 2 and operational scope 3 emissions for our manufacturing, office
and construction operations. As part of our sustainability strategy towards
Net Zero, the Group monitors greenhouse gas ('GHG') emissions in line with the
Streamlined Energy and Carbon reporting ('SECR'). An interim target on this
transition to Net Zero, is our commitment to reducing our scope 1 and 2 GHG
emissions by 25 per cent by 2025 against a 2018 baseline, aligned with the
Paris Agreement to limit global warming to below 1.5 degrees Celsius. By the
end of the financial year, we had achieved this target ahead of schedule with
the successful transition to sustainability initiatives, including the use of
hydrogenated vegetable oil ('HVO') at our factory and construction sites and
switching to renewable energy contracts ('REGO').
In 2024, we will be submitting near and long-term carbon emissions targets for
approval by the Science-Based Target Initiative ('SBTi'). These targets are
aligned with the objectives of the Paris Agreement and a commitment to reach
Net Zero emissions by 2050 across scope 1, 2 and 3. We will disclose progress
against these targets on an annual basis through our annual report and our
Carbon Disclosure Project ('CDP') reporting.
In 2023, for the third year running, the Group was included in the Financial
Times ('FT') listing of Europe's climate leaders which showcases corporate
progress in fighting climate change. For 2023, this list includes the c.500
European companies that have achieved the greatest reduction in their GHG
intensity. In the FT listing, for businesses with a rating from the CDP, only
those with a score of at least 'B-' were considered. In 2023, we were awarded
a 'B' rating in the CDP index and a supply chain score of 'A-' as well as
maintaining our 'very good' BES 6001 responsible sourcing accreditation,
highlighting our continued engagement with our supply chain to promote
sustainability.
As a SteelZero signatory, we previously made the commitment to procure 100 per
cent low carbon steel by 2050, demonstrating the importance of transitioning
to low embodied carbon steel production in the construction sector. In 2023,
we joined the SteelZero policy taskforce collaborating with the Climate Group
and other members on the most effective approach to capturing and reporting
data for the SteelZero framework. In 2024, we plan to start disclosing our
progress against low carbon steel procurement to the Climate Group.
Recognising the importance of social value, we have adopted the National TOMs
- Themes, Outcomes and Measures - methodology framework to focus our future
commitments on all areas of social value both internally and in partnership
with our clients. This has included monitoring and measuring our social value
contribution as a Group including areas such as apprentices, local spend and
volunteering.
Social
The Group actively engages with its colleagues to hear their perspectives,
including through our Group-wide 'MyVoice' forums, which provide valuable,
ongoing insights and feedback for the board. In 2023, these forums, which form
a significant part of our listening and engagement strategy, have facilitated
improvements to health and wellbeing provisions, facilities and leadership
communication.
2023 was a particularly challenging time with the cost-of-living crisis and
the Group has provided support to its colleagues, including one‐off
cost‐of‐living payments and enhanced employee benefit packages. In
addition, our annual pay awards have taken into account ongoing inflationary
pressures, and we have implemented higher pay increases for our more junior
and lower paid colleagues. All of our colleagues are paid at or above the real
living wage.
During the year, the Group further bolstered its commitment to young people,
recruiting a record number of UK apprentices, across a range of disciplines
and becoming a gold member of The 5% Club, demonstrating our commitment to
'earning and learning'. This will help improve the innovative thinking and
fresh ideas required to sustain the industry and the Group into the future.
In 2023, the board also reviewed the performance and potential of an expanded
population of colleagues from Executive Committee downwards enabling us to
make better informed decisions on talent development and succession planning.
This has facilitated the roll out of new development programmes, including
through partnering with external bodies to deliver events such as a Team
Leader Development Programme and Senior Leadership Development Centres.
Board changes
In October 2022, the Group announced the appointment of Mark Pegler as a
non-executive director, to serve on the remuneration, nomination and audit
committees. This appointment forms part of the board succession process and it
is intended that Mark will become audit committee chairman following the
retirement of Tony Osbaldiston in July 2023. Mark spent over a decade as Chief
Financial Officer at Hill & Smith PLC, overseeing the significant
international growth of the business, both organically and through
acquisition. This knowledge will be highly beneficial to the Group as it
continues to build on the considerable positive momentum within the business.
Summary and outlook
In 2023, the Group has delivered a strong financial performance whilst
managing inflationary pressures well. We have significantly increased revenues
and profits in the UK and India, our order books are substantial and of high
quality, and our balance sheet and cash position remain healthy. The Group's
businesses are well-positioned in markets with excellent opportunities,
underpinned by our new, simplified divisional structure and the acquisition of
VSCH. All this provides us with an excellent platform to fulfil our strategic
growth aspirations.
Whilst there are signs of inflation easing, we remain mindful of the
macro-economic backdrop. However, given the Group's performance to date and
the strength of our order books, we are confident of delivering further
progress and a result for 2024 which is in line with our expectations.
Alan Dunsmore
Chief Executive Officer
14 June 2023
FINANCIAL REVIEW
£m 2023 2022 Change
Revenue 491.8 403.6 +22%
Underlying* operating profit (before JVs and associates) 33.1 26.9 +23%
Underlying* operating margin (before JVs and associates) 6.7% 6.7% -
Underlying* profit before tax 32.5 27.1 +20%
Underlying* basic earnings per share 8.5p 7.2p +18%
Operating profit 30.2 22.8 +32%
Operating margin 6.1% 5.7% +40 bps
Profit before tax 27.1 21.0 +29%
Basic earnings per share 7.0p 5.1p +37%
Return on capital employed ('ROCE') 15.8% 13.5% +230 bps
* The basis for stating results on an underlying basis is set out on
page 2. A reconciliation of the Group's underlying results to its statutory
results is provided in the Alternative Performance Measures ('APMs') section
(see note 9).
Trading performance
Revenue for the year of £491.8m represents an increase of £88.2m (22 per
cent) compared with the previous year, predominantly reflecting an increase in
order flow and production activity, together with an increase in steel prices.
Underlying operating profit (before JVs and associates) of £33.1m (2022:
£26.9m), represents an increase of £6.2m (23 per cent) over the prior year.
The increase in profit reflects the increase in production activity and
highlights our ability to offset inflationary cost increases through a
combination of operating efficiencies, higher selling prices and contractual
protection as steel remains largely a pass-through cost for the Group. The
2023 operating margin of 6.7 per cent remains below our previously stated
strategic margin range of 8 to 10 per cent, reflecting the dilutive impact of
the increases in steel prices over recent years which we continue to
successfully pass through to clients at zero margin (the revised margin range
is 6 to 8 per cent with current high steel prices). This dilutive effect on
margins would reverse if steel costs reduced to pre-2020 levels in the future.
The statutory operating profit, which includes the results of JVs and
associates and the Group's non-underlying items, was £30.2m (2022: £22.8m).
Underlying profit before tax, which is management's primary measure of Group
profitability, was £32.5m (2022: £27.1m), an increase of 20 per cent over
the prior year. The statutory profit before tax, which includes the Group's
non-underlying items, was £27.1m (2022: £21.0m), an increase of 29 per cent
over the prior year.
Share of results of JVs and associates
The share of results from JSSL was a profit of £1.3m (2022: £0.8m),
reflecting revenue growth and margin improvement. Within Modular Solutions,
our specialist cold rolled steel business, CMF, contributed a share of profit
of £0.6m (2022: £0.5m). The CMF business has expanded its production
operations in Wales and has continued to develop its product range to drive
organic revenue growth.
Acquisition of VSCH
On 3 April 2023, after the year-end date, the Group completed the acquisition
of VSCH for a net cash consideration of €24m (£21.2m), on a cash free, debt
free basis assuming a normalised level of working capital on completion. The
total cash consideration was €29.5m (£26.1m) including VSCH's cash and cash
equivalents of €5.5m (£4.9m), which was funded by a combination of Group
cash reserves of £2.2m and a new term loan of £19.0m, repayable over a
five-year period.
Non-underlying items
Non-underlying items have been separately identified by virtue of their
magnitude or nature to enable a full understanding of the Group's financial
performance and to make year-on-year comparisons. They are excluded by
management for planning, budgeting and reporting purposes and for the internal
assessment of operating performance across the Group and are normally excluded
by investors, analysts and brokers when making investment and other decisions.
Non-underlying items for the year of £5.4m (2022: £6.1m) includes the
amortisation of acquired intangible assets of £3.3m (2022: £5.2m) and net
acquisition-related expenses of £2.0m (2022: £0.7m). The amortisation of
acquired intangible assets represents the amortisation of customer
relationships, order books and brand name, which were identified on the
acquisitions of Harry Peers and DAM Structures. These assets are being
amortised over a period of 12 months to five years. Acquisition-related
expenses include acquisition and similar transaction costs associated with the
VSCH acquisition and movements in the valuation of the contingent
consideration for the DAM Structures acquisition which is payable over a
five-year period.
Taxation
The Group's underlying taxable profits of £30.6m (2022: £25.8m) resulted in
an underlying tax charge of £6.2m (2022: £4.8m), which represents an
effective tax rate of 20.4 per cent (2022: 18.6 per cent). The total tax
charge of £5.5m (2022: £5.4m) also includes a non-underlying tax credit of
£0.7m (2022: charge of £0.6m). This comprises a tax credit on non-underlying
items of £0.6m (2022: £1.0m) and tax adjustments relating to prior years of
£0.1m (2022: £0.2m). In the prior year, a non-underlying tax charge of
£1.5m was recognised, relating to the increase in future tax rates from 19
per cent to 25 per cent which, in line with the Group's policy, was included
in non-underlying items.
Earnings per share
Underlying basic earnings per share increased by 18 per cent to 8.5p (2022:
7.2p) based on the underlying profit after tax of £26.2m (2022: £22.3m) and
the weighted average number of shares in issue of 309.5m (2022: 308.8m). Basic
earnings per share, which is based on the statutory profit after tax, was 7.0p
(2022: 5.1p), reflecting the increased underlying profit after tax offset by a
slight decrease in non-underlying costs. Diluted earnings per share, which
includes the effect of the Group's performance share plan, was 6.9p (2022:
5.0p).
Dividend and capital structure
The Group has a progressive dividend policy. Funding flexibility is maintained
to ensure there are sufficient cash resources to fund the Group's
requirements. In this context, the board has established the following clear
priorities for the use of cash:
§ To support the Group's ongoing operational requirements, and to fund
profitable organic growth opportunities where these meet the Group's
investment criteria,
§ To support steady growth in the core dividend as the Group's profits
increase,
§ To finance strategic opportunities that meet the Group's investment
criteria, and
§ To return excess cash to shareholders in the most appropriate way, whilst
maintaining a good underlying cash position.
The board considers the dividend to be an important component of shareholder
returns and we have either increased or maintained dividends every year, since
the dividend was reintroduced in 2015, reflecting the strong cash generative
nature of the Group. Accordingly, based on the outlook for the year ahead and
our strong financial position, the board is recommending a final dividend of
2.1p per share (2022: 1.9p), payable on 13 October to shareholders on the
register at the close of business on 8 September. This together with the
interim dividend of 1.3p per share (2022: 1.2p), will result in a total
dividend of 3.4p per share (2022: 3.1p). Looking ahead, as in previous years,
the board expects the interim dividend to be approximately one third of the
prior year's full dividend.
Goodwill and intangible assets
Goodwill was £82.2m at 25 March 2023 (2022: £82.2m). In accordance with
IFRS, an annual impairment review has been performed. No impairment was
required either during the year ended 25 March 2023 or the year ended 26 March
2022. Other intangible assets of £7.1m (2022: £10.3m), largely represents
the net book value of the intangible assets (customer relationships, order
books and brand name) identified on the acquisitions of Harry Peers and DAM
Structures.
Property, plant and equipment
The Group had property, plant and equipment of £92.1m (2022: £91.4m) at 25
March 2023. Capital expenditure of £6.3m (2022: £7.4m) represents the
continuation of the Group's capital investment programme. This predominantly
consisted of new and upgraded equipment for our fabrication lines, the
purchase of construction site equipment and general improvements to the
Group's offices and facilities. Depreciation in the year was £7.2m (2022:
£6.9m), of which £1.8m (2022: £1.7m) relates to right-of-use assets under
IFRS 16.
Joint ventures
The carrying value of our investment in joint ventures and associates was
£31.8m (2022: £30.1m), which consists of investments in India of £19.5m
(2022: £18.4m) and in CMF of £12.3m (2022: £11.7m).
Pensions
The Group's defined benefit pension liability at 25 March 2023 was £12.9m
(scheme liabilities of £33.9m offset by scheme assets of £21.0m), a decrease
of £1.5m from the 2022 position of £14.4m. The deficit has reduced due to a
higher discount rate, reflecting the significant increase in bond yields, and
employer deficit contributions over the year. This has been offset to a lesser
extent by lower-than-expected returns on the scheme's assets and the recent
short-term increase in inflation, which has increased the scheme liabilities.
All other pension arrangements in the Group are of a defined contribution
nature.
Return on capital employed
The Group adopts ROCE as a KPI to help ensure that its strategy and associated
investment decisions recognise the underlying cost of capital of the business.
The Group's ROCE is defined in the APMs section (see note 9). For 2023, ROCE
was 15.8 per cent (2022: 13.5 per cent), which exceeds the Group's minimum
threshold of 10 per cent through the economic cycle.
Cash flow
£m 2023 2022
Operating cash flow (before working capital movements) 40.1 32.6
Cash generated from / (used in) operations 53.8 (1.9)
Operating cash conversion 145% (25%)
Cash balances 11.3 (4.0)
Net funds / (debt) (pre-IFRS-16 basis)** 2.7 (18.4)
Net funds / (debt) (10.7) (30.1)
** The Group excludes IFRS 16 lease liabilities from its measure of net
funds / debt as they are excluded from the definition of net debt as set out
in the Group's borrowing facilities. A reconciliation of the Group's
underlying results to its statutory results is provided in the APMs section
(see note 9).
The Group's business model has been established to generate surplus cash flows
and we have always placed a high priority on cash generation and the active
management of working capital. The Group ended the year with net funds (on a
pre-IFRS 16 basis) of £2.7m (2022: net debt £18.4m). Net funds at 25 March
2023 included cash balances of £11.3m (2022: overdraft of £4.0m) offset by
the outstanding term loans of £8.9m for acquisitions (2022: £14.9m).
Operating cash flow before working capital movements was £40.1m (2022:
£32.6m). Net working capital has decreased by £13.8m during the year mainly
reflecting the start of the unwind of the unusually high working capital
position (10 per cent of revenue) at the beginning of the year (£3.8m) and
new advance payments in H2 (£10.0m). The high 2022 working capital position
reflected the impact of steel and other input price rises in the prior year,
and higher contract-specific steel purchases at the previous year-end.
Year-end working capital represented approximately 5 per cent of revenue
(2022: 10 per cent), back within our well-established target range of 4 to 6
per cent. Operating cash conversion (defined in the APMs section - note 9) for
2023 was 145 percent (2022: minus 25 per cent), significantly above our KPI
target of 85 per cent.
Payment Practices Reporting
The Group's relationships with its supply chain partners are of major
strategic importance and the prompt payment of its suppliers remains a key
component of this. Strong supply chain relationships can provide a competitive
advantage and support superior operational delivery. However, the business
operates in a sector where supply chains and contractual terms are complex,
and prompt payment is often materially impacted by resolution of disputes and
alignment to agreed contractual terms. For the formal Payment Practices
Reporting period of 1 October 2022 to 25 March 2023, all the Group's
businesses that are signatories of the Prompt Payment Code, reported that
between 86 and 92 per cent of invoices were paid within 60 days.
Bank facilities committed until 2026
In March 2023, the Group increased its existing £50m revolving credit
facility ('RCF'), which matures in December 2026, to £60m. The increased
facility provides the Group with enhanced liquidity, following the acquisition
of VSCH, and additional long-term financing to help support its growth
strategy. The RCF remains subject to three financial covenants, namely
interest cover, net debt to EBITDA and debt service (cash flow) cover. The
Group operated well within these covenant limits throughout the year ended 25
March 2023.
In April 2023, as part of the VSCH acquisition, a new term loan of £19m,
repayable over a five-year period, was established as an amendment to the
existing facility agreement. This is also subject to refinancing in December
2026.
Going concern
In determining whether the Group's annual consolidated financial statements
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.
The following factors were considered as relevant:
§ The current market conditions and the impact of these (including the
potential future impact of the current inflationary market conditions and
similar other significant downside risks linked to our principal risks) on the
Group's profits and cash flows,
§ The UK and Europe order book and the pipeline of potential future orders,
and
§ The Group's cash position and its bank finance facilities, which are
committed until December 2026, including both the level of those facilities
and the three financial covenants (see above) attached to them.
The directors have reviewed the Group's forecasts and projections for 2024 and
for at least 12 months from the date of approval of the financial statements,
including sensitivity analysis to assess the Group's resilience to potential
adverse outcomes including a highly pessimistic 'severe but plausible'
scenario. This 'severe but plausible' scenario is based on the combined impact
of securing only 25 per cent of budgeted uncontracted orders for the next 12
months, one-off contract losses, a deterioration of market conditions and
other downside factors. Given the strong previous performance of the Group,
this scenario is only being modelled to stress test our strong financial
position and demonstrates the existence of considerable headroom in the
Group's covenants and borrowing facilities in this 'severe but plausible'
scenario.
Having also made appropriate enquiries, the directors consider it reasonable
to assume that the Group has adequate resources to be able to operate within
the terms and conditions of its financing facilities for at least 12 months
from the approval of the financial statements. For this reason, the directors
continue to adopt the going concern basis in preparing the financial
statements.
Adam Semple
Chief Financial Officer
14 June 2023
Consolidated income statement
For the year ended 25 March 2023
2023 00 3 2022
Year ended 25 March 2023 Year ended 26 March 2022
Non-underlying Non-underlying
Underlying 2023 Total Underlying 2022 Total
2023 £000 2023 2022 £000 2022
£000 £000 £000 £000
Revenue 491,753 - 491,753 403,563 - 403,563
Operating costs (458,686) (4,811) (463,497) (376,682) (5,424) (382,106)
Operating profit before share of results of JVs and associates 33,067 (4,811) 28,256 26,881 (5,424) 21,457
Share of results of JVs and associates 1,898 - 1,898 1,346 - 1,346
Operating profit 34,965 (4,811) 30,154 28,227 (5,424) 22,803
Net finance expense (2,489) (558) (3,047) (1,129) (674) (1,803)
Profit before tax 32,476 (5,369) 27,107 27,098 (6,098) 21,000
Tax (6,238) 697 (5,541) (4,795) (604) (5,399)
Profit for the year attributable to the equity holders of the parent 26,238 (4,672) 21,566 22,303 (6,702) 15,601
Earnings per share:
Basic 8.48p (1.51)p 6.97p 7.22p (2.17)p 5.05p
Diluted 8.39p (1.49)p 6.90p 7.19p (2.16)p 5.03p
Further details of 2023 non-underlying items are disclosed in note 3. A
reconciliation of the Group's underlying results to its statutory results is
disclosed in note 9.
Consolidated statement of comprehensive income
For the year ended 25 March 2023
Year ended Year ended
25 March 2023 26 March 2022
£000 £000
Items that will not be reclassified to profit and loss:
Actuarial (loss)/gain on defined benefit (701) 5,938
pension scheme
Tax relating to components that will not be reclassified 175 (1,205)
(526) 4,733
Items that may be reclassified to profit and loss:
Losses taken to equity on cash flow hedges (1,147) (22)
Reclassification adjustments on cash flow hedges 243 13
Exchange difference on foreign operations (86) 40
Tax relating to components that may be reclassified 153 21
(837) 52
Other comprehensive income for the year (1,363) 4,785
Profit for the year from continuing operations 21,566 15,601
Total comprehensive income for the 20,203 20,386
year attributable to equity holders of the parent
Consolidated balance sheet
As at 25 March 2023
As at As at
25 March 26 March
2023 2022
£000 £000
ASSETS
Non-current assets
Goodwill 82,188 82,188
Other intangible assets 7,095 10,343
Property, plant and equipment 92,067 91,436
Right-of-use asset 13,018 11,070
Interests in JVs and associates 31,784 30,136
Contract assets, trade and other receivables 2,245 4,881
228,397 230,054
Current assets
Inventories 13,231 18,005
Contract assets, trade and other receivables 109,721 117,859
Derivative financial instruments 25 670
Current tax assets 2,278 4,171
Cash and cash equivalents 11,338 -
136,593 140,705
Total assets 364,990 370,759
LIABILITIES
Current liabilities
Bank overdraft - (3,974)
Trade and other payables (102,699) (111,692)
Financial liabilities - borrowings (4,150) (5,900)
Financial liabilities - leases (2,172) (1,756)
(109,021) (123,322)
Non-current liabilities
Trade and other payables (2,377) (3,081)
Retirement benefit obligations (12,871) (14,396)
Financial liabilities - borrowings (4,800) (8,950)
Financial liabilities - leases (11,224) (9,884)
Deferred tax liabilities (6,979) (7,166)
(38,251) (43,477)
Total liabilities (147,272) (166,799)
NET ASSETS 217,718 203,960
EQUITY
Share capital 7,739 7,738
Share premium 88,522 88,511
Other reserves 5,959 4,485
Retained earnings 115,498 103,226
TOTAL EQUITY 217,718 203,960
Consolidated statement of changes in equity
For the year ended 25 March 2023
Share Share Other Retained Total
capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 27 March 2022 7,738 88,511 4,485 103,226 203,960
Total comprehensive income for the year - - (991) 21,194 20,203
Ordinary shares issued * 1 11 - - 12
Equity settled share-based payments - - 2,465 955 3,420
Dividend paid - - - (9,877) (9,877)
At 25 March 2023 7,739 88,522 5,959 115,498 217,718
* The issue of shares represents shares allotted to satisfy the 2018, 2020 and
2021 Sharesave schemes.
Share Share Other Retained Total
capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 28 March 2021 7,706 87,658 3,464 92,101 190,929
Total comprehensive income for the year - - 32 20,354 20,386
Ordinary shares issued * 32 853 - - 885
Equity settled share-based payments - - 989 - 989
Dividend paid - - - (9,229) (9,229)
At 26 March 2022 7,738 88,511 4,485 103,226 203,960
* The issue of shares represents shares allotted to satisfy the 2018 and 2020
and Sharesave scheme.
Consolidated cash flow statement
For the year ended 25 March 2023
Year ended Year ended
25 March 2023 26 March 2022
£000 £000
Net cash flow from operating activities 50,292 (5,685)
Cash flows from investing activities
Proceeds on disposal of other property, plant and equipment 317 376
Purchases of land and buildings (635) (2,759)
Purchase of intangible assets (168) (124)
Purchases of other property, plant and equipment (5,668) (2,507)
Payment of deferred and contingent consideration (8,534) (526)
Net cash used in investing activities (14,688) (5,540)
Cash flows from financing activities
Interest paid (2,495) (1,056)
Dividends paid (9,877) (9,229)
Proceeds from shares issued 12 885
Repayment of borrowings (5,900) (5,900)
Repayment of obligations under finance leases (2,032) (2,432)
Net cash used in financing activities (20,292) (17,732)
Net increase/(decrease) in cash and cash equivalents 15,312 (28,957)
Cash and cash equivalents at beginning of year (3,974) 24,983
Cash and cash equivalents at end of year 11,338 (3,974)
1) Basis of preparation
The preliminary announcement has been prepared on the basis of accounting
policies as set out in the statutory accounts for the year ended 25 March
2023. The consolidated financial statements have been prepared on the
historical cost convention, except for the revaluation of financial
instruments. The financial statements are prepared in accordance with
UK-adopted International Accounting Standards and in conformity with the
Companies Act 2006.
The preliminary announcement is made up to an appropriate Saturday around 31
March each year. For 2023, trading is shown for the 52-week period ended on 25
March 2023 (2022: 52-week period ended on 26 March 2022).
The financial statements of the Group's joint venture, JSSL, are made up to
the year ended 31 March 2023 (2022: year ended 31 March 2022).
The preliminary announcement does not constitute the statutory financial
statements of the Group within the meaning of Section 434 of the Companies Act
2006. The statutory financial statements for the year ended 26 March 2022 have
been filed with the Registrar of Companies. The auditor has reported on those
financial statements and on the statutory financial statements for the year
ended 25 March 2023, which will be filed with the Registrar of Companies
following the annual general meeting. Both the audit reports were unqualified,
did not draw attention to any emphasis of matter, without qualifying their
report, and did not contain any statements under Section 498(2) or (3) of the
Companies Act 2006.
The preliminary announcement has been agreed with the Company's auditor for
release.
2) Segment reporting
Following the adoption of 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. Management has identified multiple operating segments
which are reported to the CODM on a regular basis, however for the purpose of
presentation under IFRS 8, the individual operating segments meet the
aggregation criteria that allows them to be presented as one reportable
segment ('construction contracts') for the Group.
The constituent operating segments have been aggregated because the nature of
the products across the business, whilst serving different market sectors, are
consistent in that they relate to the design, purchase and fabrication of
steel products. They have similar production processes and facilities, types
of clients, methods of distribution, regulatory environments and economic
characteristics. This is reinforced through the shared production facilities
across the Group.
The divisions presented in the strategic report were created from April 2022
to provide better client service and increased organisational clarity, both
internally and externally. These still meet the aggregation criteria to be
presented as one reportable segment under IFRS 8.
All revenue is derived from construction contracts and related assets. Group
revenue includes revenue of £135,318,000 (2022: £57,619,000), spread over
several contracts, relating to two (2022: one) major clients, who individually
contributed more than 10 per cent of Group revenue in the year ended 25 March
2023.
3) Non-underlying items
2023 2022
£000 £000
Operating costs 4,811 5,424
Finance expense 558 674
Non-underlying items before tax 5,369 6,098
Tax on non-underlying items (697) 604
Non-underlying items after tax 4,672 6,702
Non-underlying items include the amortisation of acquired intangible assets of
£3,338,000 (2022: £5,191,000) and net acquisition-related expenses of
£2,031,000 (2022: £674,000). Net acquisition-related expenses include
£1,816,000 (2022: £nil) associated with the acquisition of VSCG and the
unwinding of discount on contingent consideration of £558,000 (2022:
£674,000) offset by a fair value adjustment to contingent consideration which
resulted in a credit of £343,000 (2022: £nil).
Amortisation of acquired intangible assets represents the amortisation of
customer relationships, order books and brand name, which were identified on
the acquisition of Harry Peers and DAM Structures in 2020 and 2021,
respectively.
For tax on non-underlying items in the year a credit of £697,000 has been
recognised, comprising a tax credit on non-underlying items of £634,000 and a
credit of £77,000 relating to prior year adjustments offset by a charge of
£14,000 relating to the increase in future corporation tax rates.
Non-underlying items have been separately identified by virtue of their
magnitude or nature to enable a full understanding of the Group's financial
performance and to make year-on-year comparisons. They are excluded by
management for planning, budgeting and reporting purposes and for the internal
assessment of operating performance across the Group and are normally excluded
by investors, analysts and brokers when making investment and other decisions.
For an item to be considered as non-underlying, it must satisfy at least one
of the following criteria:
§ A significant item, which may span more than one accounting period.
§ An item directly incurred as a result of either a business combination,
disposal, or related to a major business change or restructuring programme,
and
§ An item which is unusual in nature (outside the normal course of
business).
4) Taxation
The taxation charge comprises:
2023 2022
£000 £000
Current tax
UK corporation tax charge (5,460) (4,178)
Foreign tax relief / other relief 51 124
Foreign tax suffered (51) (125)
Adjustments to prior years' provisions 60 (251)
(5,400) (4,430)
Deferred tax
Current year credit (144) 415
Impact of change in future years' tax rates (14) (1,457)
Adjustments to prior years' provisions 17 73
(141) (969)
Total tax charge (5,541) (5,399)
5) Dividends
2023 2022
£000 £000
Amounts recognised as distributions to equity holders in the year:
2022 final - 1.9p per share (2022: 1.8p per share) 5,864 5,529
2023 interim - 1.3p per share (2022: 1.2p per share) 4,013 3,700
9,877 9,229
The directors are recommending a final dividend of 2.1p per share (2022:
1.9p), payable on 13 October 2023 to shareholders on the register at the close
of business on 8 September 2023. This together with the interim dividend of
1.3p per share (2022: 1.2p), will result in a total dividend of 3.4p per share
(2022: 3.1p).
6) Earnings per share
Earnings per share is calculated as follows:
2023 2022
£000 £000
Earnings for the purposes of basic earnings per share being net profit 21,566 15,601
attributable to equity holders of the parent company
Earnings for the purposes of underlying basic earnings per share being 26,238 22,303
underlying net profit attributable to equity holders of the parent company
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 309,533,696 308,834,123
per share
Effect of dilutive potential ordinary shares 3,239,813 1,335,323
Weighted average number of ordinary shares for the purposes of diluted 312,773,509 310,169,446
earnings per share
Basic earnings per share 6.97p 5.05p 5.63p
Underlying basic earnings per share 8.48p 7.22p 6.43p
Diluted earnings per share 6.90p 5.03p 5.63p
Underlying diluted earnings per share 8.39p 7.19p 6.43p
7) Net cash flow from operating activities
2023 2022
£000 £000
Operating profit from continuing operations 30,154 22,803
Adjustments:
Depreciation - property, plant and equipment 5,407 5,163
Depreciation - right-of-use assets 1,840 1,702
Gain on disposal of other property, plant and equipment (52) (11)
Movements in contingent consideration - -
Amortisation of intangible assets 3,416 5,369
Movements in pension scheme (2,226) (2,045)
Share of results of JVs and associates (1,898) (1,346)
Share-based payments 3,420 989
Operating cash flows before movements 40,061 32,624
in working capital
Decrease/(increase) in inventories 4,774 (7,774)
Decrease/(increase) in receivables 10,701 (50,533)
(Decrease)/increase in payables (1,724) 23,781
Cash generated/(used in) from operations 53,812 (1,902)
Tax paid (3,520) (3,783)
Net cash flow from operating activities 50,292 (5,685)
Net funds/(debt)
The Group's net funds/(debt) are as follows:
2023 2022
£000 £000
Borrowings (8,950) (14,850)
Cash and cash equivalents 11,338 (3,974)
Unamortised debt arrangement fees 321 402
Net funds/(debt) (pre-IFRS 16) 2,709 (18,422)
IFRS 16 lease liabilities (13,396) (11,640)
Net debt (post-IFRS 16) (10,687) (30,062)
The Group excludes IFRS 16 lease liabilities from its measure of net funds /
debt as they are excluded from the definition of net debt as set out in the
Group's borrowing facilities. A reconciliation of the Group's underlying
results to its statutory results is disclosed in note 9.
8) Subsequent events
On 3 April 2023 the Group acquired 100 per cent of the share capital of
Voortman Steel Construction Holding B.V. ('VSCH') and its subsidiaries, an
innovative European steel construction group located in the Netherlands. The
businesses were acquired for a net cash consideration of €24,000,000
(£21,200,000), payable on completion. This has been financed through a term
loan of £19,000,000 and the remainder through cash reserves of £2,200,000.
The acquisition provides the group with a manufacturing base in Europe, to
complement its existing business, and access to new and high-growth market
sectors.
£1,816,000 of costs relating to the acquisition have been included in
non-underlying expenses. Further details are included in note 3. The net
assets acquired of €6.6m (£5.9m), include cash of €5.5m (£4.9m). Due to
the proximity of the acquisition to the authorisation of the annual report and
accounts for issue, a purchase price allocation has not been completed. For
this reason, it is considered impracticable to present a split of net assets
acquired, an allocation of the purchase price in excess of net assets and
other related fair value disclosures. This exercise will be completed in the
year ending 30 March 2024.
9) Alternative Performance Measures
Our Alternative Performance Measures ('APMs') present useful information which
supplements the preliminary announcement. These measures are not defined under
IFRS and may not be directly comparable with APMs for other companies. The
APMs represent important measures for how management monitors the Group and
its underlying business performance. In addition, APMs enhance the
comparability of information between reporting periods by adjusting for
non-underlying items. The APMs are not intended to be a substitute for, or
superior to, any IFRS measures of performance.
In order to facilitate understanding of the APMs used by the Group, and their
relationship to reported IFRS measures, definitions and numerical
reconciliations are set out below.
Alternative performance measure ('APM') Definition Rationale
Underlying operating profit (before JVs and associates) Operating profit before non-underlying items and the results of JVs and Profit measure reflecting underlying trading performance of wholly owned
associates. subsidiaries.
Underlying profit before tax Profit before tax before non-underlying items. Profit measure widely used by investors and analysts.
Underlying basic earnings per share ('EPS') Underlying profit after tax divided by the weighted average number of shares Underlying EPS reflects the Group's operational performance per ordinary share
in issue during the year. outstanding.
Net funds / (debt) Balance drawn down on the Group's revolving credit facility, with unamortised Measure of the Group's cash indebtedness before IFRS-16 lease liabilities,
debt arrangement costs added back, less cash and cash equivalents (including which are excluded from the definition of net funds / (debt) in the Group's
(pre-IFRS 16) bank overdrafts) before IFRS-16 lease liabilities. borrowing facilities. This measure supports the assessment of available
liquidity and cash flow generation in the reporting period.
Operating cash conversion Cash generated from operations after net capital expenditure (before interest Measure of how successful we are in converting profit to cash through
and tax) expressed as a percentage of underlying operating profit (before JVs management of working capital and capital expenditure. Widely used by
and associates). investors and analysts.
Return on capital employed Underlying operating profit divided by the average of opening and closing Measures the return generated on the capital we have invested in the business
capital employed. and reflects our ability to add shareholder value over the long term. We have
an asset-intensive business model and ROCE reflects how productively we deploy
Capital employed is defined as shareholders' equity excluding retirement those capital resources.
benefit obligations (net of tax), acquired intangible assets and net funds.
Reconciliations to IFRS measures
2023 2022
A. Underlying operating profit (before JVs and associates) Note £000 £000
Underlying operating profit (before JVs and associates) 33,067 26,881
Non-underlying operating items 3 (4,811) (5,424)
Share of results of JVs and associates 1,898 1,346
Operating profit 30,154 22,803
2023 2022
B. Underlying profit before tax Note £000 £000
Underlying profit before tax 32,476 27,098
Non-underlying items 3 (5,369) (6,098)
Profit before tax 27,107 21,000
2023 2022
C. Underlying basic EPS Note £000 £000
Underlying net profit attributable to equity holders of the parent Company 26,238 22,303
Non-underlying items after tax 3 (4,672) (6,702)
Net profit attributable to equity holders of the parent Company 21,566 15,601
Weighted average number of ordinary shares 6 309,533,696 308,834,123
Underlying basic earnings per share 8.48p 7.22p
Basic earnings per share 6.97p 5.05p
2023 2022
D. Net funds / (debt) (pre-IFRS 16) Note £000 £000
Borrowings (8,950) (14,850)
Cash and cash equivalents 11,338 (3,974)
Unamortised debt arrangement costs 321 402
Net funds / (debt) (pre-IFRS 16) 7 2,709 (18,422)
IFRS 16 lease liabilities (13,396) (11,640)
Net debt (post-IFRS 16) 7 (10,687) (30,062)
2023 2022
E. Operating cash conversion Note £000 £000
Cash generated from/(used in) operations 53,812 (1,902)
Proceeds on disposal of other property, plant and equipment 317 376
Purchases of land and buildings (635) (2,759)
Purchases of other property, plant and equipment (5,668) (2,507)
47,826 (6,792)
Underlying operating profit (before JVs and associates) 33,067 26,881
Operating cash conversion 145% (25%)
Reconciliations to IFRS measures
2023 2022
F. Return on capital employed Note £000 £000
Underlying operating profit
Underlying operating profit (before JVs and associates) 33,067 26,881
Share of results from JVs and associates 1,898 1,346
Underlying operating profit 34,965 28,227
Capital employed
Shareholders' equity 217,718 203,960
Cash and cash equivalents (11,338) 3,974
Borrowings 8,950 14,850
Net (funds)/debt (for ROCE purposes) (2,388) 18,824
Acquired intangible assets (6,712) (10,050)
Retirement benefit obligation 9,654 10,797
(net of deferred tax)
218,272 223,531
Average capital employed 220,902 209,536
Return on capital employed 15.8% 13.5%
Principal risks and uncertainties
The board has conducted a robust assessment of the principal risks and
uncertainties which have the potential to impact the Group's profitability and
ability to achieve its strategic objectives. This list is not intended to be
exhaustive. Additional risks and uncertainties not presently known to
management or deemed to be less significant at the date of this report may
also have the potential to have an adverse effect on the Group. Risk
management processes are put in place to assess, manage and control these on
an ongoing basis. Our principal risks are set out below:
1 Health and safety
Movement: Description
No change The Group works on significant, complex and potentially hazardous projects,
which require continuous monitoring and management of health and safety risks.
Scoring: High Ineffective governance over and management of these risks could result in
serious injury, death and damage to property or equipment.
Impact
A serious health and safety incident could lead to the potential for legal
proceedings, regulatory intervention, project delays, potential loss of
reputation and ultimately exclusion from future business. Continued changes in
legislation can result in increased risks to both individuals and the Group.
Mitigation
• Established safety systems, site visits, safety audits, monitoring
and reporting, and detailed health and safety policies and procedures are in
place across the Group, all of which focus on prevention and risk reduction
and elimination.
• Thorough and regular employee training programmes.
• Director-led safety leadership teams established to bring
innovative solutions and to engage with all stakeholders to deliver continuous
improvement in standards across the business and wider industry.
• Close monitoring of subcontractor safety performance.
• Priority board review of ongoing performance and in-depth review
of both high potential and reportable incidents.
• Regular reporting of, and investigation and root cause analysis
of, accidents, incidents and high potential near misses.
• Behavioural safety cultural change programme.
• Occupational health programme, including mental health.
• Achievement of challenging health and safety performance targets
is a key element of management and staff remuneration.
• Detailed due diligence on new acquisitions and effective
integration of SHE processes and systems.
• Our new safety initiative, 'Safer@Severfield' was launched in
2023.
2 Supply chain
Movement: Description
Downward The Group is reliant on certain key supply chain partners for the successful
operational delivery of contracts to meet client expectations. The failure of
Scoring: Medium a key supplier, a breakdown in relationships with a key supplier or the
failure of a key supplier to meet its contractual obligations could
potentially result in some short to medium-term price increases and other
short-term delay and disruption to the Group's projects and operations. There
is also a risk that credit checks undertaken in the past may no longer be
valid.
Impact
Interruption of supply or poor performance by a supply chain partner could
impact the Group's execution of existing contracts (including the costs of
finding replacement supply),
its ability to bid for future contracts and its reputation, thereby adversely
impacting financial performance.
Mitigation
• Process in place to select supply chain partners that match our
expectations in terms of quality, sustainability and commitment to client
service - new sources of supply are quality controlled.
• Ongoing reassessment of the strategic value of supply relationships
and the potential to use alternative arrangements, including for steel supply.
• Contingency plans developed to address supplier and subcontractor
issues (including the failure of a supplier or subcontractor).
• Monthly review process to facilitate early warning of issues and
subsequent mitigation strategies.
• Strong relationships maintained with key suppliers, including a
programme of regular meetings and reviews.
• Implementation of best practice improvement initiatives, including
automated supplier accreditation processes.
• Key supplier audits are performed within projects to ensure they can
deliver consistently against requirements.
3 People
Movement: Description
Downward The ability to identify, attract, develop and retain talent is crucial to
satisfy the current and future needs of the business. Skills shortages in the
Scoring: Medium construction industry are likely to remain an issue for the foreseeable future
and it can become increasingly difficult to recruit capable people and retain
key employees, especially those targeted by competitors. This has been
exacerbated in the last 12 months due to macro-economic factors such as the
impact of inflation and shortages of labour.
Impact
Loss of key people could adversely impact the Group's existing market position
and reputation. Insufficient growth and development of its people and skill
sets could adversely affect its ability to deliver its strategic objectives.
A high level of staff turnover or low employee engagement could result in a
decrease of confidence in the business within the market, client relationships
being lost and an inability to focus on business improvements.
Mitigation
• Training and development schemes to build skills and experience,
such as our successful graduate, trainee and apprenticeship programmes.
• Detailed succession planning exercise completed in 2023 identifying
for development future senior leaders within the business.
• Attractive working environments, remuneration packages, technology
tools and wellbeing initiatives to help improve employees' working lives and
above average inflation pay review in 2022 and 2023.
• Annual appraisal process providing two-way feedback on performance.
• Internal communications continually improved.
• Interviews with leavers and joiners to understand the reasons for
their decision.
• Three-year goals have been defined around HR operational efficiency,
evolving our approach to performance, development and careers and creating an
environment where Severfield employees feel listened to and are fairly
recognised and rewarded for their contribution to the Group.
• One-off cost-of-living payment agreed for the start of 2024.
• Maintained our approach to flexible working practices and remote
working.
4 Commercial and market environment
Movement: Description
No change Changes in government and client spending or other external factors could lead
to programme and contract delays or cancellations, or changes in market
Scoring: Medium growth. External factors include national or market trends, political or
regulatory change (including the UK's trading relationship with the EU), the
impact of worldwide events such as war (including the impact of the Ukraine
crisis) and the impact of pandemics.
Lower than anticipated demand could result in increased competition, tighter
margins and the transfer of commercial, technical and financial risk down the
supply chain, through more demanding contract terms and longer payment cycles.
Impact
A significant fall in construction activity and higher costs could adversely
impact revenues, profits, ability to recover overheads and cash generation.
Mitigation
• Regular reviews of market trends performed (as part of the Group's
annual strategic planning and market review process) to ensure actual and
anticipated impacts from macroeconomic risks are minimised and managed
effectively.
• Regular monitoring and reporting of financial performance, orders
secured, prospects and the conversion rate of the pipeline of opportunities
and marshalling of market opportunities is undertaken on a co-ordinated
Group-wide basis.
• Selection of opportunities that will provide sustainable margins and
repeat business.
• Strategic planning is undertaken to identify and focus on the
addressable market (including new overseas and domestic opportunities).
• Monitoring our pipeline of opportunities in continental Europe and
in the Republic of Ireland, supported by our European business venture.
• The Group closely monitors the flows of goods and people across
borders for ongoing work with the EU and specific risks and related
mitigations are kept under review by the executive committee. We have taken
steps to ensure we can continue to deliver on current and future contractual
commitments.
• Maintenance and establishment of supply chain in mainland Europe.
• Close management of capital investment and focus on maximising asset
utilisation to ensure alignment of our capacity and volume demand from
clients.
• Close engagement with both clients and suppliers and monitoring of
payment cycles.
• Ongoing assessment of financial solvency and strength of
counterparties throughout the life of contracts.
• Continuing use of credit insurance to minimise impact of client
failure.
• Strong cash position supports the business through fluctuations in
the economic conditions of the sector.
• Acquisition of Harry Peers, DAM Structures and VSCH has broadened
our reach and cross-selling opportunities, resulting in improved market
resilience.
5 Mispricing a contract (at tender)
Movement: Description
No change Failure to accurately estimate and evaluate the contract risks, costs to
complete, contract duration and the impact of price increases could result in
Scoring: Medium a contract being mispriced. Execution failure on a high-profile contract could
result in reputational damage.
Impact
If a contract is incorrectly priced, particularly on complex contracts, this
could lead to loss of profitability, adverse business performance and missed
performance targets.
This could also damage relationships with clients and the supply chain.
Mitigation
• Improved contract selectivity (those that are right for the business
and which match our risk appetite) has de-risked the order book and reduced
the probability of poor contract execution.
• Estimating processes are in place with approvals by appropriate
levels of management.
• Tender settlement processes are in place to give senior management
regular visibility of major tenders.
• Use of the tender review process to mitigate the impact of rising
supply chain costs.
• Work performed under minimum standard terms (to mitigate onerous
contract terms) where possible.
• Use of Group authorisation policy to ensure appropriate contract
tendering and acceptance.
• Adoption of Group-wide project risk management framework ('PRMF')
brings greater consistency and embeds good practice in identifying and
managing contract risk.
• Professional indemnity cover is in place to provide further
safeguards.
• Use of price indexation clauses in certain contracts.
6 Cyber security
Movement: Description
No change Cyber-attack could lead to IT disruption with resultant loss of data, loss of
system functionality and business interruption.
Scoring: Medium
The Group's core IT systems must be managed effectively, to keep pace with new
technologies and respond to threats to data and security.
Impact
Prolonged or major failure of IT systems could result in business
interruption, financial losses, loss of confidential data, negative
reputational impact and breaches of regulations.
Mitigation
• IT is the responsibility of a central function which manages the
majority of the systems across the Group. Other IT systems are managed locally
by experienced IT personnel.
• Significant investments in IT systems which are subject to board
approval, including anti-virus software, off-site and on-site backups, storage
area networks, software maintenance agreements and virtualisation of the IT
environment.
• Specific software has been acquired to combat the risk of ransomware
attacks.
• Group IT committee ensures focused strategic development and
resolution of issues impacting the Group's technology environment.
• Robust business continuity plans are in place and disaster recovery
and penetration testing are undertaken on a systematic basis.
• Data protection and information security policies are in place
across the Group.
• Cyber-crimes and associated IT risks are assessed on a continual
basis and additional technological safeguards introduced. Cyber threats and
how they manifest themselves are communicated regularly to all employees
(including practical guidance on how to respond to perceived risks).
• ISO 27001 accreditation achieved for the Group's information
security environment and regular employee engagement undertaken to reinforce
key messages.
• Insurance covers certain losses and is reviewed annually to
establish further opportunities for affordable risk transfer to reduce the
financial impact of this risk.
7 Failure to mitigate onerous contract terms
Movement: Description
No change The Group's revenue is derived from construction contracts and related assets.
Given the highly competitive environment in which we operate, contract terms
Scoring: Medium need to reflect the risks arising from the nature or the work to be performed.
Failure to appropriately assess those contractual terms or the acceptance of a
contract with unfavourable terms could, unless properly mitigated, result in
poor contract delivery, poor understanding of contract risks and legal
disputes.
Impact
Loss of profitability on contracts as costs incurred may not be recovered, and
potential reputational damage for the Group.
Mitigation
• The group has identified minimum standard terms which mitigate
contract risk.
• Robust tendering process with detailed legal and commercial review
and approval of proposed contractual terms at a senior level (including the
risk committee) are required before contract acceptance so that onerous terms
are challenged, removed or mitigated as appropriate.
• Regular contract audits are performed to ensure contract acceptance
and approval procedures have been adhered to.
• We continue to work with the British Constructional Steelwork
Association to raise awareness of onerous terms across the industry.
• Through regular project reviews we capture early those occasions
where onerous terms could have an adverse impact and are able to implement
appropriate mitigating action at the earliest stage.
8. Sustainable and responsible business
Movement: Description
No change Risk of not being able to meet stakeholder expectations in the light of
uncertainty as to the direction in which stakeholder expectations will
Scoring: Medium develop.
Impact
Loss of position as market leader and wider losses of future opportunities in
the short term.
Mitigation
• We have demonstrated a commitment to reduce our carbon footprint by
becoming carbon neutral and established other stakeholder influenced
sustainability related targets such as Net Zero by 2050.
• We are rated B by CDP in the leadership band.
• We have a dedicated sustainability manager who monitors current
legislation and expectations and develops Group strategy to facilitate and
implement plans for compliance.
• We are raising internal awareness of the steps we are taking and
developing closer working relationships with clients and suppliers.
• We monitor shareholder comments on the annual report and accounts
and in one-to-one meetings.
9. Industrial relations
Movement: Description
New The Group (and the industry in general) has a significant number of members
who are members of trade unions. Industrial action taken by employees could
Scoring: Medium impact on the ability of the Group to maintain effective levels of production.
Impact
Interruption to production by industrial action could impact both the Group's
performance on existing contracts, its ability to bid for future contracts and
its reputation, thereby adversely impacting its financial performance.
Mitigation
• Employee and union engagement takes place on a regular basis.
• The Group has seven (including the recently acquired VSCH facilities
in Rijssen) main production facilities so interruption at one facility could
to some extent be absorbed by increasing capacity at a sister facility.
• Processes are in place to mitigate disruptions as a result of
industrial action.
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