REG - Severfield PLC - Final Results
19/06/2024 07:00
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RNS Number : 9496S Severfield PLC 19 June 2024
19 June 2024
Results for the year ended 30 March 2024
Profits ahead of expectations, strong order books, further strategic progress
in Europe
Severfield plc, the market leading structural steel group, announces its
results for the year ended 30 March 2024.
£m Year ended(3) Year ended(3) Change
30 March 2024 25 March 2023
Revenue 463.5 491.8 -6%
Underlying(1) operating profit 37.7 33.1 +14%
(before JVs and associates)
Underlying(1) operating margin 8.1% 6.7% +140 bps
(before JVs and associates)
Operating profit 26.4 30.2 -12%
Operating margin 5.7% 6.1% -40 bps
Underlying(1) profit before tax 36.5 32.5 +13%
Profit before tax 23.0 27.1 -15%
Underlying(1) basic earnings per share 8.9p 8.5p +5%
Basic earnings per share 5.2p 7.0p -26%
Underlying(1) return on capital employed ('ROCE') 17.5% 15.8% +170 bps
Headlines
§ Revenue of £463.5m (2023: £491.8m) reflects the impact of softer market
conditions in 2024
§ Underlying(1) profit before tax up 13% to £36.5m (2023: £32.5m), ahead
of expectations due to strong operational delivery
§ Underlying(1) basic earnings per share up 5% at 8.9p (2023: 8.5p)
§ Total dividend increased by 9% to 3.7p per share (2023: 3.4p per share),
includes proposed final dividend of 2.3p per share (2023: 2.1p per share) -
ten consecutive years of progressive dividends
§ Year-end net debt (on a pre-IFRS-16 basis(2)) of £9.4m (2023: net funds
of £2.7m), includes Voortman acquisition loan of £15.2m, and reflects an
operating cash conversion(4) of 110% (2023: 145%).
§ High-quality, diversified UK and Europe order book of £478m at 1 June
2024 (1 November 2023: £482m), includes higher proportion of European orders
§ Momentum and value is building in JSSL - increased share of profit of
£1.9m (2023: £1.3m), record EBITDA of £13m and output of over 100,000
tonnes, Gujarat expansion expected to commence in H2
§ Record India order book of £181m at 1 June 2024 (1 November 2023:
£165m)
§ £10m share buyback programme launched in April 2024 to return surplus
capital to shareholders
Outlook
§ UK and Europe:
- Market conditions are showing signs of improvement
- Voortman is integrating well into the Group's operations and helping
to strengthen our market position in Europe
- Medium-term strategic growth targets are reaffirmed
§ India: well-positioned to take advantage of significant growth
opportunities, new markets being targeted, very encouraging outlook and strong
underlying demand for structural steel
§ Our businesses remain well-positioned to win work in markets with
positive long-term growth trends including those which are driving the green
energy transition
§ On track to deliver a result for 2025 which is in line with our
expectations
Alan Dunsmore, Chief Executive Officer commented:
"We are delighted to be reporting another strong performance by the Group,
with our profits ahead of expectations. This is the result of an excellent
operational performance and the success of our strategy to diversify the
sectors and geographies we serve. This has enabled us to deliver enhanced
returns for shareholders through our recent share buyback scheme, building on
our ten consecutive years of progressive dividends.
Looking ahead, we have strong order books in the UK, Europe and India which
are providing us with good earnings visibility through 2025 and beyond. With
market conditions showing signs of improvement and with our businesses
well-placed in markets that are expected to benefit from positive long term
growth trends, which are unlikely to be impacted by the result of the upcoming
UK general election, we are confident in the outlook for the business."
For further information, please contact:
Severfield Alan Dunsmore 01845 577 896
Chief Executive Officer
Adam Semple 01845 577 896
Chief Financial Officer
Camarco severfield@camarco.co.uk (mailto:severfield@camarco.co.uk)
Ginny Pulbrook 07961 315 138
Tom Huddart 07967 521 573
Jefferies International Will Soutar 020 7029 8000
Liberum Capital Nicholas How 020 3100 2000
Notes to financials:
(1) stated before non-underlying items of £13.5m (2023: £5.4m) representing
the amortisation of acquired intangible assets of £5.4m (2023: £3.4m), asset
impairment charges of £4.5m (2023: £nil) and a legacy employment tax charge
of £4.4m (2023: £nil), offset by a net acquisition-related credit of £0.8m
(2023: charge of £2.0m). 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 '2023' and '2024' refers to the 52-week period
ended 25 March 2023 and the 53-week period ended 30 March 2024 and '2025'
refers to the 52-week period ending 29 March 2025. 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.1,900 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).
INTRODUCTION
The Group has had another successful year in 2024. We have reported
underlying(1) profits of more than £36m, delivered strong operating cash
generation, made further strategic progress in Europe on the back of the
Voortman ('VSCH') acquisition, and have secured a significant amount of new
work across all areas of the business. This strong performance is reflected in
our high-quality order books of £478m in the UK and Europe and £181m in
India, providing us with good earnings visibility for the remainder of the
2025 financial year and beyond.
The Group delivered further underlying profit growth in 2024 against a
backdrop of some challenging market conditions, particularly in the UK. The
combination of our significant market sector, geographical and client
diversification, the strength of our operations and management teams, our
expert capabilities in engineering and construction and our strong financial
position, underpin the performance and resilience of the Group. In 2024, we
increased our underlying profit before tax by 13 per cent to £36.5m (2023:
£32.5m), a result which includes the acquisition of VSCH which is providing
us with greater access to growing European market sectors and strengthening
our market position in Europe. VSCH, which has recently been combined with our
existing European business, is integrating well into the Group's operations
and has now adopted the Severfield brand, increasing our visual identity in
Europe.
We have maintained a strong financial position throughout the year, enabling
us to continue to support ongoing investment in the business, grow the
dividend again and provide us with the platform to launch a share buyback
programme to further increase returns to our shareholders. The Group continues
to be highly cash generative, with operating cash conversion(4) in the year of
110 per cent (2023: 145 per cent). This resulted in net debt (on a pre-IFRS-16
basis(2)) at the year-end of £9.4m (2023: net funds of £2.7m), including the
outstanding VSCH acquisition loan of £15.2m (2023: £nil). Our strong balance
sheet and consistent cash generation provides the Group with the flexibility
to continue to invest in both organic and inorganic growth opportunities.
In 2024, our Indian joint venture ('JSSL') recorded output of more than
100,000 tonnes, including sub-contracted work, for the second year running.
This high level of activity, an improved mix of work and good contract
execution is evident in the Group's higher after-tax share of profit of £1.9m
(2023: £1.3m), which reflects a record EBITDA of £13.2m. With the land in
Gujarat now acquired, we expect to start work on a new manufacturing facility
in the second half of the year, leaving the business well positioned to take
advantage of a very encouraging outlook in India. We remain very positive
about the long-term trajectory of the market and of the value creation
potential of JSSL.
The board considers the dividend to be a significant component of shareholder
returns and we have either increased or maintained dividends every year since
the dividend was reintroduced in 2015. Based on the Group's continued
progress, our strong cash position and confidence in the future prospects of
the business, the board is once again recommending an increase in the final
dividend to 2.3p per share, resulting in a total dividend for the year of 3.7p
per share (2023: 3.4p per share), an increase of 9 per cent on the prior year.
STRATEGY
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 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.
The Group delivers steel superstructures through its Core Construction
Operations, separated operationally into a Commercial and Industrial division
(bringing 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), which now includes VSCH, and a
Nuclear and Infrastructure division (encompassing the Group's market-leading
positions in the nuclear, power and energy, transport (road and rail) and
process industries sectors). The Group's Modular Solutions division consists
of the growing product ranges of Severfield Modular Solutions ('SMS')
(previously Severfield (Products and Processing)) and of Construction Metal
Forming ('CMF'), our specialist cold rolled steel joint venture business.
OUTLOOK
The Group is performing well and our businesses are well-positioned to win
work in markets with positive long-term growth trends, providing us with a
strong platform to fulfil our strategic growth aspirations. Whilst there
remains some uncertainty in the wider economy, we are seeing an improvement in
market conditions. All this, together with our high-quality order books,
diversified activities and operational delivery capabilities, mean that we are
well-placed for the future and on track to deliver a result for 2025 which is
in line with our expectations.
RESULTS OVERVIEW
2024 (£m) Revenue UOP* UPBT*
Core Construction Operations 449.2 37.4 37.4
Modular Solutions 21.5 0.3 0.3
India - - 1.9
Central items / eliminations (7.2) - (3.1)
Group 463.5 37.7 36.5
Underlying operating margin - 8.1% -
2023 (£m) Revenue UOP* UPBT*
Core Construction Operations 476.8 33.7 33.7
Modular Solutions 22.8 (0.6) (0.1)
India - - 1.3
Central items / eliminations (7.8) - (2.4)
Group 491.8 33.1 32.5
Underlying operating margin - 6.7% -
*The references to underlying operating profit (before JVs and associates) and
underlying profit before tax are 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).
Revenue of £463.5m (2023: £491.8m) represents a decrease of £28.3m (6 per
cent) compared to the prior year. This reflects a decrease in revenue from our
Core Construction Operations, mainly representing a reduction in steel prices
and lower production activity, offset by new revenue from VSCH, in the first
year of its acquisition.
Underlying operating profit (before JVs and associates) of £37.7m (2023:
£33.1m) represents an increase of £4.6m (14 per cent) over the prior year.
This reflects an increase in profit from our Core Construction Operations of
£3.7m, which includes new profit from VSCH and continued contract execution
improvements which have helped offset the impact of lower revenue in the year.
The higher profits also include improved profitability of £0.9m from SMS,
within Modular Solutions, reflecting the first time that this business has
reported a profit for the full year. Statutory operating profit was £26.4m
(2023: £30.2m), which includes non-underlying items of £13.5m (2023: £5.4m)
representing the amortisation of acquired intangible assets, asset impairment
charges and a legacy employment tax charge offset by a net acquisition-related
credit.
The share of profit from the Indian joint venture in the year was £1.9m
(2023: £1.3m), reflecting an improved work mix and good contract execution.
Within Modular Solutions, CMF contributed a share of profit of £0.1m (2023:
£0.5m), the reduction in profitability reflecting the softer market
conditions in the distribution sector during the year and some under-recovery
of overheads as the business ramps up its recently expanded production
operations in Wales.
The Group's underlying profit before tax was £36.5m (2023: £32.5m), an
increase of 13 per cent compared to the previous year. The statutory profit
before tax was £23.0m (2023: £27.1m).
OPERATIONAL REVIEW
UK AND EUROPE
The Group's established approach to strong risk management, commercial
discipline and careful contract selection has been particularly important to
enable the business to navigate the challenges of the last financial year.
These included softer market conditions in the distribution and infrastructure
sectors, and the cancellation of the Sunset Studios project. This approach is
reflected in our high-quality UK and Europe order book of £478m at 1 June (1
November: £482m), of which £384m is for delivery over the next 12 months,
providing us with good earnings visibility for the remainder of the 2025
financial year and beyond. The order book remains well-diversified and
contains a good mix of projects across the Group's key market sectors. The
composition of the order book reflects the continued strengthening of our
market position in Europe, supported by the acquisition of VSCH, which has
recently been combined with our existing European business. 32 per cent of the
order book now represents projects in continental Europe and Ireland (1
November 2023: 13 per cent).
In the second half of the year, we have continued to secure a significant
value of new work (c.£280m). We are also continuing to see good project
opportunities in the UK, as well as in Ireland and continental Europe, where
we are making good progress with our European growth strategy. In the
distribution and infrastructure sectors, we are seeing an increase in
tendering activity although pricing in these sectors remains competitive for
some projects.
Looking further ahead, 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 win projects in support of a
low-carbon economy and to deliver energy security. These include opportunities
in both Commercial and Industrial and Nuclear and Infrastructure, such as
battery plants, energy efficient buildings, manufacturing facilities for
renewable energy and offshore wind projects together with work in the
transport, nuclear and power and energy sectors given our capability to
deliver major infrastructure projects.
Project Horizon
Last year, the Group launched Project Horizon, our digital transformation
project. The overall 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. 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.
As part of Project Horizon, we continue to make good progress with drawing and
design automation which includes automated connection design and planning
tools. Other projects either being worked on or completed in the last year
include an automated quality assurance reporting system which improves
tracking and client reporting, new systems for purchase order approvals, the
use of barcoding for steel to improve traceability, the integration of
pricing, design and production databases to drive production and planning
processes, construction site asset and construction resource tracking tools,
together with ongoing work on artificial intelligence to improve
administrative processing times.
To date, based on the original plan, we have successfully completed 22
projects, and a further 22 of the 54 projects that we have classified as short
to medium term are currently on-going. Three additional projects have been
added to the plan, increasing the number of short to medium term projects to
57. Our dedicated project team is currently self-funded through annual
savings, with further benefits being tracked as more of the identified
projects and initiatives are implemented.
Clients
We continue to invest to meet the needs of our clients, building our
capabilities, developing new technologies and driving efficiency across our
production facilities, to ensure our growth ambitions are fully supported. We
remain focused on measures that matter most to our clients, providing value
added results whilst balancing time and cost 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, developing our client base and growing our revenues over recent
years. This year we have delivered challenging programmes for clients, reduced
costs and minimised waste through both our pre-tender value engineering and
also post-award engineering solutions and developed innovative building
solutions for reuseable temporary works and pre-assembled sections to work in
live operating environments. In addition, when market pressures stretched
existing budgets or caused delays, or when we were asked to accelerate
existing 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.
Core Construction Operations
£m 2024 2023 Change
Revenue 449.2 476.8 -6%
Underlying operating profit (before JVs and associates) 37.4 33.7 +11%
Underlying profit before tax 37.4 33.7 +11%
Revenue:
Commercial and Industrial 361.8 382.1 -5%
Nuclear and Infrastructure 87.4 94.7 -8%
Revenue of £449.2m (2023: £476.8m) represents a decrease of £27.6m (6 per
cent) compared to the prior year. This reflects a reduction in steel prices
and lower activity levels of £87.1m offset by revenue from VSCH of £59.5m.
Underlying operating profit of £37.4m was up 11 per cent on the prior year
(2023: £33.7m), which mainly represents profit from VSCH. Excluding VSCH,
underlying profitability has remained broadly unchanged from the prior year as
continued contract execution improvements have helped offset the impact of
lower revenue in the year.
Commercial and Industrial
Revenue has decreased by 5 per cent to £361.8m (2023: £382.1m),
predominantly due to the impact of the cancellation of the Sunset Studios
project and softer market conditions in the distribution sector, which
affected the number of projects coming to market during the year. This was
partly offset by revenue from VSCH. The removal of Sunset Studios (c.£50m)
from the order book was the result of a client-driven decision to pause
construction on this planned new contract in July 2023.
During the year, work progressed on the new stadium for Everton F.C., the
Envision Battery Plant in Sunderland, a manufacturing facility for BAE in
Scotland, the LHR 11 data centre, a commercial office at 81 Newgate and the
Excel Arena, all in London. We also continued our work on the SeAH Wind
monopile manufacturing facility, which forms part of the UK's fast-growing
alternative energy sector, a focus of the latest Government Energy Strategy.
The 800-metre-long building at the Teesworks site will be the world's largest
monopile facility when complete and is the first of its kind in the UK, with
annual production of up to 200 monopiles, which form the foundations of
offshore wind turbines.
The Commercial and Industrial order book at 1 June of £312m (1 November:
£326m) includes a significant amount of new work which we have secured over
recent months, particularly in Europe. This includes a package of data centres
in Sweden, two new data centres for Google in Belgium and the Netherlands, a
petrochemical project for Ineos in Belgium, and a logistics project for DHL in
Lyon. In the UK, project wins included two commercial offices, including the
Edge Building at London Bridge, which is set to be London's most sustainable
office tower, and several distribution centres, reflecting a market which is
showing signs of recovery. We have also successfully secured additional work
at SeAH Wind and at Envision. Almost all of our work continues to be derived
through either negotiated, framework or two-stage bidding procurement
processes, in line with our established approach to strong risk management,
commercial discipline and careful contract selection.
We continue to see some large opportunities including projects in markets
which are driving the green energy transition such as energy efficient
buildings, manufacturing facilities for renewable energy and offshore wind
projects, together with stadia and leisure projects, TV and film studios and
commercial offices in London and the regions. We are also seeing opportunities
for new battery gigafactories to support domestic zero carbon vehicle
production in the UK and EU, including the new Jaguar Land Rover facility in
Somerset, the Northvolt facility in Sweden and a further gigafactory in
Sunderland for Nissan.
Demand for data centres in the UK and EU is also expected to continue, fuelled
by cloud computing, 5G and the recent advancement of Artificial Intelligence
('AI') applications which are driving even greater dependence on data centre
infrastructure. The Group's manufacturing scale, speed of construction and
on-time delivery capabilities, leaves us well-positioned to win work from such
projects, the majority of which are likely to be designed in steel.
Strategic targets: we are targeting future revenue growth in line with GDP,
enhanced by the acquisition of VSCH, with margins of 8-10 per cent (6-8 per
cent based on recent high steel prices).
Nuclear and Infrastructure
Revenue has decreased by 8 per cent to £87.4m (2023: £94.7m) This reflects
some softer market conditions in the infrastructure business during the year
offset by the normal revenue timing differences inherent within our nuclear
operations. During the period, we continued to work on several HS2 bridge
packages for the Balfour Beatty Vinci ('BBV') and Effage Kier ('EKFB')
consortia, road and rail bridges and some large propping packages for
Silvertown Tunnel and at Old Oak Common for HS2. 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 £160m (1 November: £152m) of which 54
per cent represents transport infrastructure (1 November: 54 per cent) and 42
per cent represents nuclear projects (1 November: 41 per cent). Notable recent
awards include the Black Cat to Caxton Gibbet road improvement scheme for
National Highways, some bridge projects for the York Central infrastructure
scheme, secondary steelwork packages at Hinkley Point and a growing scope of
work at Sellafield where we are one of two 'key delivery partners' to deliver
structural steelwork with an estimated value of c.£250m as part of the
long-term Programme and Project Partners ('PPP') framework.
The markets in which we operate are showing signs of continued growth backed
by government supported spending that prioritises modern and reliable
infrastructure to support economic growth and help tackle climate change. In
the UK, with an election announced for 4 July, the requirement for clean and
domestically generated energy and improved transport infrastructure is a
stated priority for both the Conservative party and the Labour party.
Investment in transport and energy are both key components of the green energy
transition and of the government's £775 billion National Infrastructure and
Construction Pipeline, published in February 2024. The Group is well-placed to
meet this demand for ongoing state-backed investment, which includes a
significant increase in the volume of power transmission and distribution
projects being brought to market, with an acceleration of work to strengthen
and stabilise the power networks, together with areas such as offshore wind,
carbon capture, nuclear (including small modular reactors and Sizewell C) and
hydrogen production. We remain well-positioned to win work from these
structural opportunities given our in-house expertise and unmatched scale and
capability to deliver major infrastructure projects, together with the high
barriers to entry for competitors.
In the UK transport sector, the government's decision to cancel the northern
section of HS2 connecting Birmingham and Manchester has not impacted our order
book nor our outlook for the business, and we continue to make good progress
with several HS2 station opportunities in the pipeline including at Old Oak
Common and Birmingham Interchange. We also welcome the UK Government's
reaffirmed commitment to HS2 at Euston and to deliver Northern Powerhouse
rail, all of which is likely to have a significant steelwork content. Aligned
to the cancellation of the northern section of HS2, the government recently
announced Network North, a £36 billion plan to improve roads, buses and
railways in the north of England, which could also introduce new opportunities
for the Group.
Strategic targets: our medium-term target is to grow revenues to over £125m,
representing a doubling of 2022 revenues, with margins of 8-10 per cent (6-8
per cent based on recent high steel prices).
Modular Solutions
£m 2024 2023 Change
Revenue 21.5 22.8 -6%
Underlying operating profit (before JVs and associates) 0.3 (0.6) +0.9
Share of results of CMF* 0.1 0.5 -0.4
Underlying profit before tax 0.3 (0.1) +0.4
*In 2024, CMF reported revenue of £29.1m (2023: £40.6m) and a profit before
tax of £0.2m (2023: £1.0m).
Modular Solutions consists of the growing modular product ranges of SMS and
CMF. With CMF, 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 organic growth
aspirations. The 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
§ Bulk handling solutions - a high performance silo discharge system for
the bulk handling of materials such as paints and other dispersible solids (of
which Rotoflo is the premium product).
Although revenue of £21.5m (2023: £22.8m) represents a slight decrease
compared to the prior year, for the first time, Modular Solutions has reported
an underlying operating profit for the full year (2023: loss of £0.6m),
reflecting an improved mix of higher-margin Severstor products. Divisional
underlying PBT of £0.3m (2023: loss of £0.1m) also includes the post-tax
share of profit of CMF of £0.1m (2023: £0.5m). The reduction in
profitability at CMF reflected the softer market conditions in the
distribution sector, and some under-recovery of overheads as the business
continues the ramp up of its recently expanded production operations in Wales.
We have continued to make significant progress in growing our Severstor
revenues and client base, including in the power, rail and oil and gas
sectors. This is reflected in the expansion of our pipeline of opportunities
within growth markets including renewables and data centres, aided by new
product development including the development of steel framing solutions for
modular building manufacturers.
CMF's growing product range includes load bearing frame and deck profiles,
purlins and side rail systems, mezzanine floors and bespoke modular solutions
supported by the recent expansion which has increased its cold rolled
manufacturing capacity from c.10,000 tonnes to c.30,000 tonnes. During the
year, CMF has continued to invest in new product development, its salesforce,
and in new factory machinery to grow its client base and to expand into new
segments including nuclear and transport infrastructure. As the modular market
matures, clients are seeking greater scale, reliability and quality in the
supply chain, all of which we can offer, to ensure that we continue to
increase our share of a growing market.
For bulk handling solutions, we have an established foothold in the UK water
treatment sector and in the expanding Indian paint manufacturing sector. We
continue to introduce new products and services as we target growth in the
food processing, water treatment and paint sectors in the UK, India and
through our network of agents in the USA.
Strategic targets: our medium-term target is to grow combined SPP and CMF
revenues to between £75m and £100m, with margins of greater than 10 per
cent. In 2024, the Modular Solutions division delivered total revenue of
£50.6m (SMS: £21.5m and CMF: £29.1m).
INDIA
£m 2024 2023 Change
Revenue 130.8 137.7 -5%
EBITDA 13.2 11.5 +15%
Operating profit 10.5 8.9 +18%
Operating margin 8.0% 6.5% +150 bps
Finance expense (5.5) (5.5) -
Profit before tax 5.0 3.4 +47%
Tax (1.2) (0.8) -£0.4m
Profit after tax 3.8 2.6 +46%
Group share of profit after tax (50%) 1.9 1.3 +46%
In 2024, JSSL recorded an output of more than 100,000 tonnes, including
sub-contracted work, for the second year running. JSSL has also delivered
another step up in profitability in 2024 which is evident in a record EBITDA
of £13.2m (2023: £11.5m) and the Group's after-tax share of profit of £1.9m
(2023: £1.3m), an increase of 46 per cent over the prior year. This
performance mainly reflects an improved mix of work and good contract
execution resulting in an operating margin of 8.0 per cent (2023: 6.5 per
cent). Financing expenses of £5.5m (2023: £5.5m) are unchanged from the
previous year, as a result of a continued high level of 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 financing
costs result in JSSL's operating profit of £10.5m (2023: £8.9m) reducing to
a profit before tax of £5.0m (2023: £3.4m).
India's construction sector, and the use of steel within construction,
continues to grow rapidly, driven by factors such as an increasing population,
urbanisation, and a growing economy. The government is also investing heavily
in infrastructure development, which is further driving demand for
construction services. This position is evident in a record order book at 1
June of £181m (1 November: £165m), which now contains a mix of higher margin
commercial work of 71 per cent (1 November: 64 per cent), including a large
commercial project in Delhi. The expanding market picture is also reflected in
an improving pipeline of potential orders and in numerous identified growth
opportunities in target markets, including commercial real estate, data
centres, warehouses, infrastructure and in manufacturing sectors such as
steel, cement and speciality chemicals. As part of its growth strategy, JSSL
is also targeting new sectors and geographies including potential
opportunities in near markets such as Saudi Arabia, building on JSSL's brand
and reputation for delivering high-quality steel solutions.
In 2024, JSSL acquired a plot of land in Gujarat, in the west of India, to
develop a new manufacturing facility and to expand the geographical footprint
of the business. Initial work on this expansion is expected to commence in the
second half of the year and capacity will be added incrementally to support
the expected future market growth. JSSL is also strengthening its sales and
estimating teams, bringing people with new skills into the business and
enhancing its supply chain partnerships to support this expansion and to
provide the business with the springboard to deliver future profitable growth.
In summary, momentum is building in JSSL and with the land in Gujarat now
acquired, the business is well positioned to take advantage of a very
encouraging outlook in India and a strong underlying demand for structural
steel in construction. We remain very positive about the long-term trajectory
of the market and of the value creation potential of JSSL.
ESG
ESG remains an important part 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. To ensure
we continue to support the most relevant ESG issues, the Group undergoes
periodic materiality assessments and the outcomes of its 2024 assessment
reaffirmed the issues that we had previously identified as important to our
stakeholders - health and safety, the life cycle of our products, climate
change and carbon emissions, talent management, sustainability governance and
waste management.
Safety
The Group's top priority remains the health, safety and wellbeing of all our
stakeholders. Our safety statistics continue to be industry-leading whilst we
remain focused on continually improving our SHE culture including through the
ongoing roll out of our Safer@Severfield behavioural safety programme.
In 2024, we have seen a further reduction in our injury rates, resulting in an
injury frequency rate ('IFR') of 1.23, compared to 1.61 in 2023, and an
accident frequency rate ('AFR'), which is based solely on the level of RIDDORS
(reportable accidents), of 0.12, compared to 0.14 in 2023. Notwithstanding
this, we continue to evaluate new solutions, including the use of technology,
to further improve our safety performance, and are in the process of adopting
positive leading indicators to drive preventative behaviours in our workforce.
Sustainability
In 2024, the Group was awarded 'AAA' under MSCI's ESG ratings for a third
consecutive year and achieved an 'A' score for leadership on climate change
mitigation from CDP. We have again achieved a CDP score for supply chain
engagement of 'A-' as well as our 'very good' BES 6001 responsible sourcing
accreditation, highlighting our continued supply chain engagement to promote
sustainability. Other highlights in 2024 include:
§ Being third party verified and accredited as carbon neutral for the
fourth year running for scope 1, 2 and operational scope 3 GHG emissions for
our manufacturing, office and construction operations.
§ Received validation from the SBTi (Science Based Targets initiative) of
our Net Zero targets, one of the few companies in the UK construction and
engineering sector to have achieved this validation.
§ Being included in the Financial Times (FT) listing of Europe's climate
leaders for the fourth year running which showcases corporate progress in
fighting climate change.
§ Procuring 100 per cent of our energy from renewable sources at all UK
owned facilities.
We have continued to maintain our focus on social value, including adopting
defined social value objectives for the Group, and having established our
baseline, we continue to monitor how much value we deliver annually in line
with the National TOMs methodology framework. During the year, social value
was delivered by a wide range of activities including supporting local supply
chain partners, fundraising and volunteering schemes, through paying our
colleagues at or above the real living wage and 'earning and learning' through
our gold membership of 'The 5% Club', including increasing our intake of
annual apprentices.
As a SteelZero signatory, we have committed to procure 100 per cent low carbon
steel by 2050, with interim carbon reduction targets in place for 2030. We
continue to work with the Climate Group and other SteelZero members as the
industry continues its transition to low carbon steel production and, in 2024,
we have started to disclose our progress against certain low carbon steel
procurement targets to the Climate Group.
Culture and values
We have recently launched 'The Severfield Way', a framework designed to
harness the skills and expertise of our people and promote the positive
culture and ways of working that everyone at Severfield strives for. The
framework is made up of our new company values and behaviours, as well as our
long standing purpose - creating better ways to build, for a world of changing
demands. Our four new core values - we set the bar high, we are in it
together, we find better ways and we do the right thing - are the fundamental
beliefs that underpin everything we do and will serve the business well as we
continue to implement our successful growth strategy.
BOARD CHANGES
In April 2024, the Group announced the appointment of Charlie Cornish as
non-executive Chair and director of the Company. Charlie will take over as
Chair after the AGM on 30 July 2024 when Kevin Whiteman steps down from the
board, having reached the end of his tenure. Charlie is currently
non-executive Chair of Manchester Airports Group ('MAG'), Core Highways Group
and Ipsum Group and was previously CEO of MAG for 13 years. He also previously
served on the board of United Utilities Group plc for 7 years. He has
substantial experience of developing strategy and leading large complex
businesses across a number of relevant sectors, all of which will be highly
beneficial to the Group as it continues to grow and develop. During the year
there were several other changes to the board. Tony Osbaldiston retired,
having completed his nine year tenure, and the Group also saw the departures
of Rosie Toogood, who took up a senior executive role at Wates, a major
customer, and Ian Cochrane, previously the Chief Operating Officer, who left
to pursue other interests.
FINANCIAL REVIEW
£m 2024 2023 Change
Revenue 463.5 491.8 -6%
Underlying* operating profit (before JVs and associates) 37.7 33.1 +14%
Underlying* operating margin (before JVs and associates) 8.1% 6.7% +140 bps
Underlying* profit before tax 36.5 32.5 +13%
Underlying* basic earnings per share 8.9p 8.5p +5%
Operating profit 26.4 30.2 -13%
Operating margin 5.7% 6.1% -40 bps
Profit before tax 23.0 27.1 -15%
Basic earnings per share 5.2p 7.0p -26%
Underlying return on capital employed ('ROCE') 17.5% 15.8% +170 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).
Revenue of £463.5m (2023: £491.8m) was 6 per cent lower than the prior year,
as a result of a reduction in steel prices and lower production activity,
offset by new revenue from VSCH, in the first year of its acquisition.
Underlying operating profit (before JVs and associates) of £37.7m was 14 per
cent higher than the prior year, mainly due to new profit from VSCH, continued
contract execution improvements which have helped offset the impact of lower
revenue in the year, and higher profit from SMS, within Modular Solutions.
Statutory operating profit, which includes non-underlying items, was £26.4m
(2023: £30.2m).
Underlying profit before tax, which is management's primary measure of Group
profitability, was £36.5m (2023: £32.5m), 13 per cent higher than the prior
year. The statutory profit before tax was £23.0m (2023: £27.1m). The
underlying tax charge for the year was £9.1m (2023: £6.2m). which represents
an effective tax rate of 26.2 per cent (2023: 20.4 per cent). This broadly
equates to the statutory rate in the UK and the Netherlands of between 25 and
26 per cent (2023: statutory rate in the UK of 19 per cent). The total tax
charge of £7.1m (2023: £5.5m) includes a non-underlying tax credit of £2.0m
(2023: £0.7m).
Underlying basic earnings per share increased by 5 per cent to 8.9p (2023:
8.5p) based on the weighted average number of shares in issue of 307.1m (2023:
309.5m). Basic earnings per share was 5.2p (2023: 7.0p), reflecting the higher
underlying profit after tax offset by an increase in non-underlying items.
Diluted earnings per share, which includes the effect of the performance share
plan, was 5.1p (2023: 6.9p).
Non-underlying items
Non-underlying items for the year of £13.5m (2023: £5.4m) consisted of the
following:
£m 2024 2023
Amortisation of acquired intangible assets 5.4 3.4
Asset impairment charges 4.5 -
Legacy employment tax charge 4.4 -
Acquisition-related credits / charges (0.8) 2.0
Non-underlying items 13.5 5.4
The asset impairment charges relate to our leasehold facility at Sherburn,
currently being operated by SMS. During the year, we were advised of the
landlord's intention to terminate the factory lease. As a result, an
impairment review of property, plant and equipment was performed, resulting in
a non-cash charge of £4.5m. Given our growth aspirations for SMS, and the
Modular Solutions division as a whole, we have factored this development into
our wider footprint review which was already underway prior to the decision to
terminate the lease, and we expect to relocate to a new facility in the 2026
financial year.
The legacy employment tax charge relates to an assessment raised by HMRC for
historical income tax and national insurance ('NIC') liabilities which are
disputed by the Group. In common with many other construction companies, the
Group pays its site-based colleagues an income tax and NIC free allowance to
cover the costs of accommodation and subsistence that they incur whilst
working away from home on construction sites. HMRC is asserting that, as a
result of some procedural matters, largely associated with a change in tax
legislation in 2016, certain of these payments are subject to income tax and
NIC. The Group disagrees with the assessment raised and discussions are
ongoing with HMRC to bring this matter to a conclusion. Notwithstanding this,
since HMRC has issued formal determinations for the amounts it considers are
due, a charge of £4.4m has been recognised, including interest of £0.4m.
The amortisation of acquired intangible assets of £5.4m represents the
non-cash amortisation of customer relationships, order books and brand names.
These assets are being amortised over a period of 12 months to five years.
Acquisition-related credits of £0.8m represent the unwinding of the discount
on and movements in the contingent consideration for DAM Structures which is
payable over a five-year period. In the prior year, acquisition-related
charges of £2.0m included acquisition and similar transaction costs
associated with the VSCH acquisition.
Cash flow and financing
£m 2024 2023
Operating cash flow (before working capital movements) 41.4 40.1
Cash generated from / (used in) operations 52.4 53.8
Capital expenditure (11.3) (6.5)
Operating cash conversion 110% 145%
Net cash balances 10.4 11.3
Net (debt) / funds (pre-IFRS-16 basis)** (9.4) 2.7
Net (debt) / funds (28.4) (10.7)
** 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 generates surplus cash flows and we have always
placed a high priority on cash generation and working capital management. Net
debt (pre-IFRS 16 basis) at the year-end was £9.4m (2023: net funds of
£2.7m). This included net cash of £10.4m (2023: £11.3m) and term loans of
£20.0m (2023: £8.9m) which included the outstanding acquisition loan for
VSCH of £15.2m (2023: £nil).
Operating cash flow before working capital movements was £41.4m (2023:
£40.1m). Net working capital has improved by £11.0m during the year.
Excluding advance payments, year-end working capital represented approximately
4 per cent of revenue (2023: 5 per cent), which is within our normal range of
4 to 6 per cent. Capital expenditure of £11.3m (2023: £6.5m) represents the
continuation of the Group's capital investment programme (and compares to
depreciation in the year of £9.2m (2023: £7.2m), of which £2.7m (2023:
£1.8m) relates to right-of-use assets under IFRS 16). This predominantly
consisted of new and upgraded equipment for our fabrication lines, an
extension of the Dalton factory and general infrastructure improvements.
Operating cash conversion (defined in the APMs section - note 9) for 2024 was
110 per cent (2023: 145 per cent), significantly above our KPI target of 85
per cent.
In April 2023, the Group completed the acquisition of VSCH for a net cash
consideration of €25.7m (£22.6m), on a cash free basis. The total cash
consideration was €29.5m (£26.3m) including VSCH's cash and cash
equivalents of €4.3m (£3.8m), which was funded by a combination of Group
cash reserves of £3.6m and a term loan of £19.0m, repayable over a five-year
period. In addition, contingent consideration of £1.2m was paid in relation
to the acquisition of DAM Structures, taking the total contingent
consideration paid to date to £2.7m. The maximum contingent consideration is
£8.0m, payable if certain work-winning targets in the railway and steel
piling sectors are achieved over a five-year period, ending in April 2026.
The Group has a £60m revolving credit facility ('RCF') with HSBC Bank and
Virgin Money, which matures in December 2026. This provides the Group with
long-term financing to help support its growth strategy. The RCF is subject to
three financial covenants, namely interest cover, net debt to EBITDA and debt
service (cash flow) cover. In addition to the RCF, which was undrawn at 30
March 2024, amortising term loans have been used to fund previous
acquisitions, of which £20m remained outstanding at 30 March 2024.
Pensions
The Group's net defined benefit pension liability at 30 March 2024 was £11.5m
(scheme liabilities of £34.0m offset by scheme assets of £22.5m), a decrease
of £1.4m from the 2023 liability of £12.9m. The deficit has reduced as a
result of a higher discount rate, reflecting a rise in bond yields, and
employer deficit contributions, offset by higher than expected inflation. All
other pension arrangements in the Group are of a defined contribution nature.
Dividends and capital allocation
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 disciplined capital allocation policy:
§ 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 strong balance sheet position.
In line with the Group's progressive dividend policy, the board is
recommending an increased final dividend of 2.3p per share (2023: 2.1p),
payable on 11 October to shareholders on the register at the close of business
on 6 September. This together with the interim dividend of 1.4p per share
(2023: 1.3p), will result in a total dividend of 3.7p per share (2023: 3.4p).
Looking ahead, as in previous years, the board expects the interim dividend to
be approximately one third of the prior year's full dividend.
Consistent with the framework set out above, in April 2024 the Group announced
a share buyback programme to repurchase up to £10m of ordinary shares,
subject to market conditions. The board is satisfied with the progress of this
buyback programme, with a total of 1,370,344 shares purchased and cancelled
during the post balance sheet period, at a cost of £1.0m.
Return on capital employed
The Group adopts underlying 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 underlying ROCE is defined in the APMs section (see
note 9). For 2024, underlying ROCE was 17.5 per cent (2023: 15.8 per cent),
which exceeds the Group's minimum threshold of 10 per cent through the
economic cycle.
Alan
Dunsmore
Adam Semple
Chief Executive Officer
Chief Financial Officer
19 June 2024
Consolidated income statement
For the year ended 30 March 2024
2023 00 3 2022
Year ended 30 March 2024 Year ended 25 March 2023
Non-underlying Non-underlying
Underlying 2024 Total Underlying 2023 Total
2024 £000 2024 2023 £000 2023
£000 £000 £000 £000
Revenue 463,465 - 463,465 491,753 - 491,753
Operating costs (425,775) (13,225) (439,000) (458,686) (4,811) (463,497)
Operating profit before share of results of JVs and associates 37,690 (13,225) 24,465 33,067 (4,811) 28,256
Share of results of JVs and associates 1,950 - 1,950 1,898 - 1,898
Operating profit 39,640 (13,225) 26,415 34,965 (4,811) 30,154
Net finance expense (3,095) (300) (3,395) (2,489) (558) (3,047)
Profit before tax 36,545 (13,525) 23,020 32,476 (5,369) 27,107
Tax (9,076) 1,957 (7,119) (6,238) 697 (5,541)
Profit for the year attributable to the equity holders of the parent 27,469 (11,568) 15,901 26,238 (4,672) 21,566
Earnings per share:
Basic 8.94p (3.76)p 5.18p 8.48p (1.51)p 6.97p
Diluted 8.85p (3.72)p 5.13p 8.39p (1.49)p 6.90p
Further details of 2024 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 30 March 2024
Year ended Year ended
30 March 2024 25 March 2023
£000 £000
Items that will not be reclassified to profit and loss:
Actuarial loss on defined benefit (745) (701)
pension scheme
Share of other comprehensive income of JVs and associates accounted for using 869 -
the equity method
Tax relating to components that will not be reclassified 186 175
310 (526)
Items that may be reclassified to profit and loss:
Gains/(losses) taken to equity on cash flow hedges 1,239 (1,147)
Reclassification adjustments on cash flow hedges (314) 243
Exchange difference on foreign operations (264) (86)
Tax relating to components that may be reclassified (398) 153
263 (837)
Other comprehensive income for the year 573 (1,363)
Profit for the year from continuing operations 15,901 21,566
Total comprehensive income for the 16,474 20,203
year attributable to equity holders of the parent
Consolidated balance sheet
As at 30 March 2024
As at As at
30 March 25 March
2024 2023
£000 £000
ASSETS
Non-current assets
Goodwill 98,469 82,188
Other intangible assets 5,508 7,095
Property, plant and equipment 96,434 92,067
Right-of-use assets 18,651 13,018
Interests in JVs and associates 37,364 31,784
Deferred tax assets 1,828 -
Contract assets, trade and other receivables 1,050 2,245
259,304 228,397
Current assets
Inventories 11,648 13,231
Contract assets, trade and other receivables 88,334 109,721
Derivative financial instruments 675 25
Current tax assets 4,646 2,278
Cash and cash equivalents 13,803 11,338
119,106 136,593
Total assets 378,410 364,990
LIABILITIES
Current liabilities
Bank overdrafts (3,409) -
Trade and other payables (78,934) (102,699)
Provisions (11,819) -
Financial liabilities - borrowings (6,200) (4,150)
Financial liabilities - leases (2,931) (2,172)
(103,293) (109,021)
Non-current liabilities
Trade and other payables (1,095) (2,377)
Retirement benefit obligations (11,464) (12,871)
Financial liabilities - borrowings (13,800) (4,800)
Financial liabilities - leases (16,142) (11,224)
Deferred tax liabilities (11,865) (6,979)
(54,366) (38,251)
Total liabilities (157,659) (147,272)
NET ASSETS 220,751 217,718
EQUITY
Share capital 7,739 7,739
Share premium 88,522 88,522
Other reserves 4,728 5,959
Retained earnings 119,762 115,498
TOTAL EQUITY 220,751 217,718
Consolidated statement of changes in equity
For the year ended 30 March 2024
Share Share Other Retained Total
capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 26 March 2023 7,739 88,522 5,959 115,498 217,718
Total comprehensive income for the year - - 1,530 14,944 16,474
Equity settled share-based payments - - (1,234) 3,007 1,773
Purchase of owned shares - - (4,500) - (4,500)
Allocation of owned shares - - 2,973 (2,973) -
Dividend paid - - - (10,714) (10,714)
At 30 March 2024 7,739 88,522 4,728 119,762 220,751
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 scheme.
Consolidated cash flow statement
For the year ended 30 March 2024
Year ended Year ended
30 March 2024 25 March 2023
£000 £000
Net cash flow from operating activities 45,136 50,292
Cash flows from investing activities
Proceeds on disposal of other property, plant and equipment 408 317
Purchases of land and buildings (410) (635)
Purchase of intangible assets - (168)
Purchases of other property, plant and equipment (10,911) (5,668)
Acquisition of subsidiary, net of cash acquired (22,551) -
Investment in JVs and associates (2,801) -
Payment of deferred and contingent consideration (1,183) (8,534)
Net cash used in investing activities (37,448) (14,688)
Cash flows from financing activities
Interest paid (3,220) (2,495)
Dividends paid (10,714) (9,877)
Proceeds from shares issued - 12
Purchase of owned shares (net of SAYE cash received) (3,120) -
Proceeds from borrowing 19,000 -
Repayment of borrowings (7,950) (5,900)
Repayment of obligations under finance leases (2,628) (2,032)
Net cash used in financing activities (8,632) (20,292)
Net (decrease)/increase in cash and cash equivalents (944) 15,312
Cash and cash equivalents at beginning of year 11,338 (3,974)
Cash and cash equivalents at end of year 10,394 11,338
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 30 March
2024. 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 2024, trading is shown for the 53-week period ended on 30
March 2024 (2023: 52-week period ended on 25 March 2023).
The financial statements of the Group's joint venture, JSSL, are made up to
the year ended 31 March 2024 (2023: year ended 31 March 2023).
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 30 March 2023 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 30 March 2024, 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
In line with the requirements of IFRS 8, operating segments are identified on
the basis of the information that is regularly reported and reviewed by the
chief operating decision maker ('CODM'). The Group's CODM is deemed to be the
Executive Committee, who are primarily responsible for the allocation of
resources and the assessment of performance of the segments. Consistent with
previous periods, management continues to identify multiple operating
segments, primarily at an individual statutory entity level, which are
reported and reviewed by the CODM. For the purpose of presentation under IFRS
8, the individual operating segments meet the aggregation criteria that allows
them to be aggregated and presented as one reportable segment for the Group.
However, in the current year, management consider it appropriate to disclose
two operating segments as described below.
§ Core Construction Operations - comprising the combined results of the
Commercial and Industrial ('C&I') and Nuclear and Infrastructure
('N&I') divisions, including the results of Voortman Steel Construction
Holding ('VSCH').
§ Modular Solutions - comprising Severfield Modular Solutions ('SMS') and
the Group's share of profit (50 per cent) from the joint venture company,
Construction Metal Forming Limited ('CMF').
The separate presentation of the modular businesses, as 'Modular Solutions',
aligns with the maturity of the SMS business, which was established in 2018.
In the current year it has reduced the levels of intercompany fabrication work
as it grows external revenues from its core products.
The constituent operating segments that make up 'Core Construction Operations'
have been aggregated because the nature of the products across the businesses,
whilst serving different market sectors, are consistent in that they relate to
the design, fabrication and erection of steel products. They have similar
production processes and facilities, types of customers, methods of
distribution, regulatory environments and economic characteristics. This is
reinforced through the use of shared production facilities across the Group.
The C&I and N&I divisions presented in the operational review of the
preliminary announcement were established in 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 and are therefore presented as such within
Core Construction Operations.
Segment assets and liabilities are not presented as these are not reported to
the CODM.
Core Construction Operations Modular Solutions JSSL Central costs/ eliminations Total
Year ended 30 March 2024: £000 £000 £000 £000 £000
Revenue 449,168 21,489 - (7,192) 463,465
Underlying operating profit 37,430 260 - - 37,690
Underlying operating profit margin 8.3% 1.2% 8.1%
Result from joint ventures
- CMF - 92 - - 92
- JSSL - - 1,858 - 1,858
Finance costs - - - (3,095) (3,095)
Underlying profit before tax 37,430 352 1,858 (3,095) 36,545
Non-underlying items (note 3) (14,270) (115) - 860 (13,525)
Profit before tax 23,160 237 1,858 (2,235) 23,020
Other material items of income and expense:
- Depreciation of owned property, plant and equipment (6,317) (163) - - (6,480)
- Depreciation of right-of-use assets (2,644) (39) - - (2,683)
- Other operating income 1,625 245 - - 1,870
Core Construction Operations Modular Solutions JSSL Central costs/ eliminations Total
Year ended 25 March 2023*: £000 £000 £000 £000 £000
Revenue 476,815 22,820 - (7,882) 491,753
Underlying operating profit 33,705 (638) - - 33,067
Underlying operating profit margin 7.1% (2.8%) 6.7%
Result from joint ventures
- CMF - 583 - - 583
- JSSL - - 1,315 - 1,315
Finance costs - - - (2,489) (2,489)
Underlying profit before tax 33,705 (55) 1,315 (2,489) 32,476
Non-underlying items (note 3) (3,338) - - (2,031) (5,369)
Profit before tax 30,367 (55) 1,315 (4,520) 27,107
Other material items of income and expense:
- Depreciation of owned property, plant and equipment (5,247) (160) - - (5,407)
- Depreciation of right-of-use assets (1,816) (24) - - (1,840)
- Other operating income 1,659 193 - - 1,852
*Comparative information has been restated to provide additional segmental
disclosures.
Revenue
All revenue is derived from construction contracts and related assets.
Additional disclosures are made under IFRS 15 to enable users to understand
the relative size of the divisions. An analysis of the Group's revenue is as
follows:
2024
2023*
£000 £000
Commercial and Industrial 361,734 382,055
Nuclear and Infrastructure 87,434 94,760
Core Construction Operations 449,168 476,815
Modular Solutions 21,489 22,820
Elimination of inter-segment revenue (Modular Solutions) (7,192) (7,882)
Total Group revenue 463,465 491,753
*Comparative information has been restated to provide additional segmental
disclosures.
Geographical information
The following table presents revenue according to the primary geographical
markets in which the Group operates. This disaggregation of revenue is
presented for the Group's two operating segments described above.
2024
2023*
Core Construction Operations - revenue by destination £'000 £'000
United Kingdom 367,127 437,741
Republic of Ireland and continental Europe 82,041 39,074
449,168 476,815
2024
Modular Solutions - revenue by destination 2023*
£'000 £'000
United Kingdom 17,486 18,195
Republic of Ireland and continental Europe 4,003 4,625
21,489 22,820
Elimination of intercompany revenue (UK) (7,192) (7,882)
14,297 14,938
*Comparative information has been restated to provide additional segmental
disclosures.
All revenue is derived from construction contracts and related assets. Group
revenue includes revenue of £100,189,000 (2023: £135,318,000), relating to
one major client (2023: two major clients), who individually contributed more
than 10 per cent of Group revenue in the year ended 30 March 2024.
3) Non-underlying items
2024 2023
£000 £000
Amortisation of acquired intangible assets 5,399 3,338
Asset impairment charges 4,543 -
Legacy employment tax charge 4,413 -
Acquisition-related (credits) / charges (830) 2,031
Non-underlying items before tax 13,525 5,369
Tax on non-underlying items (1,957) (697)
Non-underlying items after tax 11,568 4,672
The amortisation of acquired intangible assets of £5,399,000 (2023:
£3,338,000) represents the amortisation of customer relationships, order
books and brand name, which were identified on the acquisition of Harry Peers,
DAM Structures and VSCH in 2020, 2021 and 2023, respectively.
The asset impairment charge of £4,543,000 relates to the impairment of assets
at our leasehold facility in Sherburn. During the year, we were advised of the
landlord's intention to terminate the factory lease. As a result, an
impairment review of property, plant and equipment was performed, resulting in
a non-cash charge.
The legacy employment tax charge of £4,413,000 relates to an assessment
raised by HMRC for historical income tax and national insurance ('NIC')
liabilities. The Group disputes the charge and is in ongoing discussions with
HMRC to bring this matter to a conclusion. Notwithstanding this, since HMRC
has issued formal determinations for the amounts it considers are due, a
charge of £4,413,000 has been recognised, including interest of £428,000.
The net acquisition-related credit of £830,000 (2023: charge of £2,031,000)
includes £nil (2023: £1,816,000) associated with the acquisition of VSCH,
the unwinding of discount on contingent consideration of £300,000 (2023:
£558,000), other legal fees of £30,000 (2023: £nil) offset by a fair value
adjustment to contingent consideration which resulted in a credit of
£1,160,000 (2023: £343,000).
For tax on non-underlying items in the year a credit of £1,957,000 has been
recognised, comprising a tax credit on non-underlying items of £2,454,000
offset by a charge of £497,000 relating to prior year adjustments.
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:
2024 2023
£000 £000
Current tax
Corporation tax charge (5,649) (5,460)
Foreign tax relief / other relief 70 51
Foreign tax suffered (70) (51)
Adjustments to prior years' provisions 136 60
(5,513) (5,400)
Deferred tax
Current year charge (973) (144)
Impact of change in future years' tax rates - (14)
Adjustments to prior years' provisions (633) 17
(1,606) (141)
Total tax charge (7,119) (5,541)
5) Dividends
2024 2023
£000 £000
Amounts recognised as distributions to equity holders in the year:
2023 final - 2.1p per share (2023: 1.9p per share) 6,423 5,864
2024 interim - 1.4p per share (2023: 1.3p per share) 4,291 4,013
10,714 9,877
The directors are recommending a final dividend of 2.3p per share (2023:
2.1p), payable on 11 October 2024 to shareholders on the register at the close
of business on 6 September 2024. This together with the interim dividend of
1.4p per share (2023: 1.3p), will result in a total dividend of 3.7p per share
(2023: 3.4p).
6) Earnings per share
Earnings per share is calculated as follows:
2024 2023
£000 £000
Earnings for the purposes of basic earnings per share being net profit 15,901 21,566
attributable to equity holders of the parent company
Earnings for the purposes of underlying basic earnings per share being 27,469 26,238
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 307,131,912 309,533,696
per share
Effect of dilutive potential ordinary shares 3,093,177 3,239,813
Weighted average number of ordinary shares for the purposes of diluted 310,225,089 312,773,509
earnings per share
Basic earnings per share 5.18p 6.97p
Underlying basic earnings per share 8.94p 8.48p
Diluted earnings per share 5.13p 6.90p
Underlying diluted earnings per share 8.85p 8.39p
Basic earnings per share is calculated by dividing the profit after tax
attributable to equity holders of the parent by the weighted average number of
ordinary shares in issue during the year, excluding those shares held in
employee benefit trusts. Shares held in employee benefit trusts are treated as
cancelled because, except for a nominal amount, dividends have been waived.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all potentially dilutive ordinary
shares from the vesting of share awards. Underlying earnings per share
calculations are included to give a better indication of the Group's
underlying performance.
7) Net cash flow from operating activities
2024 2023
£000 £000
Operating profit from continuing operations 26,415 30,154
Adjustments:
Depreciation - property, plant and equipment 6,480 5,407
Depreciation - right-of-use assets 2,683 1,840
Fixed asset impairments 4,543 -
Gain on disposal of other property, plant and equipment (92) (52)
Amortisation of intangible assets 5,489 3,416
Movements in pension scheme (2,152) (2,226)
Share of results of JVs and associates (1,950) (1,898)
Exchange adjustments (373) -
Share-based payments 392 3,420
Operating cash flows before movements 41,435 40,061
in working capital
Decrease in inventories 1,729 4,774
Decrease in receivables 31,232 10,701
Decrease in payables (21,962) (1,724)
Movements in working capital 10,999 13,751
Cash generated from operations 52,434 53,812
Tax paid (7,298) (3,520)
Net cash flow from operating activities 45,136 50,292
Net (debt)/funds
The Group's net (debt)/funds are as follows:
2024 2023
£000 £000
Borrowings (20,000) (8,950)
Cash and cash equivalents 10,394 11,338
Unamortised debt arrangement fees 235 321
Net (debt)/funds (pre-IFRS 16) (9,371) 2,709
IFRS 16 lease liabilities (19,073) (13,396)
Net debt (post-IFRS 16) (28,444) (10,687)
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) Business combinations
Summary of acquisition
On 3 April 2023, the Company acquired 100 per cent of the share capital of
VSCH.
VSCH is profitable, cash generative and provides a manufacturing base in
Europe, allowing Severfield to benefit from VSCH's strong reputation in the
Netherlands and its growing pipeline of opportunities.
The board believes that the acquisition is enhancing the Group's reputation
and presence in the European market, building on its existing European
business, and is helping to accelerate the Group's European growth strategy.
The acquisition provides Severfield with immediate access to new and
attractive market sectors, providing the Group with further market and
geographical diversification outside its core UK operations. VSCH is highly
regarded by its clients and is presenting Severfield with a number of
opportunities for further profitable growth, including access to a wider
European client base and a platform to offer a wider range of services to its
existing clients.
The net consideration of €25.7m (£22.6m) comprised:
2024
£000
Gross consideration 26,348
Cash acquired (excluding payments in advance) (3,797)
Net consideration 22,551
VSCH was acquired for an initial gross consideration of £26,348,000,
including cash and cash equivalents of £3,797,000, which has been funded by a
combination of Group cash reserves and a new term loan.
The fair value of the assets and liabilities recognised as a result of the
acquisition are as follows:
£000
Non-current assets
Investment in joint ventures 94
Property, plant and equipment 4,578
Right of use assets 5,041
9,713
Current assets
Inventories 146
Contract assets, trade and other receivables 8,367
Cash and cash equivalents 3,797
12,310
Total assets 22,023
Current liabilities
Trade and other payables (9,577)
Lease liabilities (212)
(9,789)
Non-current liabilities
Lease liabilities (4,829)
Deferred tax liability (233)
Total liabilities (14,851)
Net assets 7,172
Net cash acquired (3,797)
Net identifiable assets acquired 3,375
Identified intangible assets 3,902
Deferred tax on intangibles (1,007)
Goodwill 16,281
Net assets acquired 22,551
Goodwill of £16,281,000 represents the ability and skill of employees and
management, know-how and the quality of goods and services provided, which do
not meet the recognition criteria to be separately recognised in accordance
with IFRS 3 (Revised) 'Business Combinations'. The goodwill arising from the
acquisition is not deductible for income tax purposes.
Analysis of amounts disclosed in the cash flow statement in connection with
the acquisition:
2024
£000
Gross initial cash consideration 26,348
Net cash acquired (including payments in advance) (3,797)
Total cash outflow - investing activities 22,551
Acquisition-related costs of £1,816,000 were fully expensed in the period
ended 25 March 2023 as non-underlying operating costs (see note 3).
The acquired business contributed revenues of £59,480,000 and profit after
tax of £4,934,000, to the Group, since the acquisition date.
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.
Underlying 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
2024 2023
A. Underlying operating profit (before JVs and associates) Note £000 £000
Underlying operating profit (before JVs and associates) 37,690 33,067
Non-underlying operating items 3 (13,225) (4,811)
Share of results of JVs and associates 1,950 1,898
Operating profit 26,415 30,154
2024 2023
B. Underlying profit before tax Note £000 £000
Underlying profit before tax 36,545 32,476
Non-underlying items 3 (13,525) (5,369)
Profit before tax 23,020 27,107
2024 2023
C. Underlying basic EPS Note £000 £000
Underlying net profit attributable to equity holders of the parent Company 27,469 26,238
Non-underlying items after tax 3 (11,568) (4,672)
Net profit attributable to equity holders of the parent Company 15,901 21,566
Weighted average number of ordinary shares 6 307,131,912 309,533,696
Underlying basic earnings per share 8.94p 8.48p
Basic earnings per share 5.18p 6.97p
2024 2023
D. Net (debt) / funds (pre-IFRS 16) Note £000 £000
Borrowings (20,000) (8,950)
Cash and cash equivalents 10,394 11,338
Unamortised debt arrangement costs 235 321
Net (debt)/funds (pre-IFRS 16) 7 (9,371) 2,709
IFRS 16 lease liabilities (19,073) (13,396)
Net debt (post-IFRS 16) 7 (28,444) (10,687)
2024 2023
E. Operating cash conversion Note £000 £000
Cash generated from operations 52,434 53,812
Proceeds on disposal of other property, plant and equipment 408 317
Purchases of land and buildings (410) (635)
Purchases of other property, plant and equipment (10,911) (5,668)
41,521 47,826
Underlying operating profit (before JVs and associates) 37,690 33,067
Operating cash conversion 110% 145%
Reconciliations to IFRS measures
2024 2023
F. Underlying return on capital employed Note £000 £000
Underlying operating profit
Underlying operating profit (before JVs and associates) 37,690 33,067
Share of results from JVs and associates 1,950 1,898
Underlying operating profit 39,640 34,965
Capital employed
Shareholders' equity 220,751 217,718
Cash and cash equivalents (10,394) (11,338)
Borrowings 20,000 8,950
Net (funds)/debt (for ROCE purposes) 9,606 (2,388)
Acquired intangible assets (5,215) (6,712)
Retirement benefit obligation 8,599 9,654
(net of deferred tax)
233,741 218,272
Average capital employed 226,007 220,902
Underlying return on capital employed 17.5% 15.8%
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 'Safer@Severfield'
was launched this year.
• 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.
2 Supply chain
Movement: Description
No change 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
No change 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 recent years 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 for future senior leaders within the
business.
• Attractive working environments, remuneration packages, technology
tools and wellbeing initiatives to help improve employees' working lives,
recent above average inflation pay increases and a commitment to pay the real
living wage.
• 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.
• Robust people strategy focused on culture, and continually enhancing
all aspects of our approach to Performance, Development, Careers, Recruitment
and Reward.
• Maintained our approach to flexible working practices and remote
working.
4 Commercial and market environment
Movement: Description
Upward Changes in government and client spending or other external factors could lead
to programme and contract delays or cancellations, or changes in market
Scoring: High growth. External factors include national or market trends, political or
regulatory change (including the UK's trading relationship with the EU) and
the impact of geopolitical events.
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 operations.
• 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.
• Recent acquisitions have 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
Upward Cyber-attack could lead to IT disruption with resultant loss of data, loss of
system functionality and business interruption.
Scoring: High
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. A Group-wide
cyber attack simulation exercise was undertaken this year by the executive
committee.
• 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. Industrial relations
Movement: Description
No change 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 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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. END FR KZGMVVRZGDZMRecent news on Severfield
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