REG - Severfield PLC - Interim Results
22/11/2022 07:00
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RNS Number : 1194H Severfield PLC 22 November 2022
PRESS RELEASE
22 November 2022
Interim results for the period ended 24 September 2022
High quality order books, inflationary pressures being well-managed, positive
outlook
Severfield plc, the market leading structural steel group, announces its
results for the six-month period ended 24 September 2022.
£m 6 months to 6 months to
24 September 2022 25 September 2021
(unaudited) (unaudited)
Revenue 234.9 195.9
Underlying(1) operating profit 12.1 10.2
(before JVs and associates)
Operating profit (before JVs and associates) 10.5 8.2
Underlying(1) profit before tax 12.1 10.3
Profit before tax 10.2 7.9
Underlying(1) basic earnings per share 3.3p 2.7p
Basic earnings per share 2.8p 1.7p
Interim dividend per share 1.3p 1.2p
Headlines
§ Revenue up 20% to £234.9m (H1 2022: £195.9m) reflecting increased
activity and steel prices
§ Underlying(1) profit before tax up 17% to £12.1m (H1 2022: £10.3m)
§ Period-end net debt (excluding IFRS 16 lease liabilities(2)) of £15.8m
(26 March 2022: £18.4m) reflects stable working capital position
§ High quality, diversified UK and Europe order book of £464m at 1
November 2022 (1 June 2022: £486m), includes new industrial and distribution,
nuclear and data centre orders
§ Share of profit from JSSL of £0.6m (H1 2022: £0.3m) reflects further
revenue growth
§ India order book of £143m at 1 November 2022 (1 June 2022: £158m)
reflects strong continued demand for structural steel in India
§ Interim dividend increased by 8% to 1.3p per share (H1 2022: 1.2p per
share)
§ New simplified divisional structure is bedding in well, with three new
divisions aligned with our chosen market sectors
Outlook
§ UK and Europe - tendering and pipeline activity remain at consistently
high levels - including opportunities in the industrial and distribution,
transport infrastructure, nuclear, data centre and commercial office sectors
§ India - strong and growing demand for structural steel - JSSL remains
very well-positioned to take advantage of an economy which is expected to grow
significantly in the medium term
§ Inflationary pressures remain a challenge but continue to be well-managed
§ Management expectations are unchanged - high quality order books give us
good profit visibility through FY24
Alan Dunsmore, Chief Executive Officer commented:
'The Group has delivered a strong performance in the first six months of the
year against a difficult macroeconomic backdrop. Our high quality order book
reflects our significant market sector, geographical and client
diversification and provides us with good earnings visibility.
Our new simplified divisional structure in the UK and Europe, with our three
divisions: Commercial and Industrial, Nuclear and Infrastructure, and Products
and Processing, continues the evolution of our strategy and builds on the
momentum generated from the operational improvement initiatives that have been
put in place over the last eight years.
Our Indian business continues to see strong demand for structural steel and we
are ramping up the production at our Bellary facility towards its maximum
capacity of c.100,000 tonnes while also looking to identify another plot of
land to facilitate the future expansion of the business.
The resilient order book, combined with our strong balance sheet and
simplified divisional structure, gives us confidence in the future performance
of the business and so we are maintaining our expectations for FY23.'
For further information, please contact:
Severfield Alan Dunsmore 01845 577 896
Chief Executive Officer
Adam Semple 01845 577 896
Chief Financial Officer
Jefferies International Simon Hardy 020 7029 8000
Will Soutar 020 7029 8000
Liberum Capital Nicholas How 020 3100 2000
Ben Cryer 020 3100 2000
Camarco Ginny Pulbrook 020 3757 4980
Tom Huddart 020 3757 4980
Notes to financials:
(1) stated before non-underlying items of £2.0m (H1 2022: £2.4m) including
the amortisation of acquired intangible assets of £1.7m (H1 2022: £2.0m) and
net acquisition-related expenses of £0.3m (H1 2022: £0.4m). Non-underlying
items have been separately identified as a result of their magnitude,
incidence or unpredictable nature. Their separate identification results in a
calculation of an underlying profit measure in the same way as it is presented
and reviewed by management (see note 7 to the interim financial statements).
(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 13 to the interim financial
statements).
(3) except as otherwise stated '2021' and '2022' refer to the 52-week periods
ended 27 March 2021 and 26 March 2022. '2023' and '2024' refers to the 52-week
period ending 25 March 2023 and the 53-week period ending 30 March 2024. The
Group's accounts are made up to an appropriate weekend date around 31 March
each year.
A reconciliation of the Group's underlying results to its statutory results is
provided in the Alternative Performance Measures ('APMs') section (see note 18
to the interim financial statements).
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.130,000 tonnes of
steel per annum. The Group has six sites, c.1,700 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).
INTERIM STATEMENT
INTRODUCTION
The Group's strong performance in the first six months of 2023 highlights the
successful evolution of our strategy over recent years and the benefits of our
significant market sector, geographical and client diversification. This has
resulted in a well-balanced Group which, together with our strong balance
sheet, has provided us with the resilience to maintain and improve our market
positions and expert capabilities in engineering and construction throughout
the challenges of the past two years. This is reflected in our strong order
books of £464m in the UK and Europe and £143m in India, which provide us
with good visibility of earnings and position us with a strong future workload
throughout the second half of the year and beyond.
In the UK and Europe, we have a prominent position in market sectors with
strong growth potential and are well-positioned to help accelerate the journey
to net zero. Our Nuclear and Infrastructure division is well-placed to meet
the demand for ongoing state-backed investment, including a growing focus on
infrastructure which can mitigate climate change, including nuclear power. In
our Commercial and Industrial division, we continue to see some significant
opportunities, both in the UK and continental Europe, in key areas such as
data centres, stadia and leisure, commercial offices, and industrial and
distribution. This includes projects in support of a low-carbon economy such
as battery plants, energy efficient buildings and manufacturing facilities for
renewable energy.
In India, an improving pipeline of potential orders reflects a continuing
strong demand for structural steel in India. All this leaves the business very
well-positioned to take advantage of a strongly growing economy which,
together with the ongoing conversion of the market from concrete to steel,
will drive the success and value of the business.
At the same time, new global challenges have arisen, including higher steel
and other raw material prices, energy price volatility and tighter labour
markets. We are continuing to manage these pressures well and the Group's
scale, financial and operational strengths and disciplined processes have
helped to ensure that we have not experienced any significant disruption or
material impact to profitability.
FINANCIAL REVIEW
Revenue of £234.9m (H1 2022: £195.9m) represents an increase of £39.0m (20
per cent) compared to the prior period. This includes an increase in steel
prices of c.£23m.
Underlying operating profit (before JVs and associates) of £12.1m (H1 2022:
£10.2m) represents an increase of £1.9m (19 per cent) over the prior period.
The increase in profit highlights our ability to offset ongoing inflationary
cost increases through a combination of operating efficiencies, higher selling
prices and contractual protection as steel remains largely a pass-through cost
for the Group.
The share of results of JVs and associates in the period was a profit of
£1.0m (H1 2022: £0.6m). This includes a share of profit from the Indian
joint venture of £0.6m (H1 2022: £0.3m), reflecting increased revenue and a
strong operating performance as the business continues its post-COVID
recovery. The share of results of JVs and associates also includes those of
Construction Metal Forming ('CMF') Limited which has contributed a profit of
£0.4m (H1 2022: £0.3m). The CMF business has continued to develop its
product range, including modular steel products, to drive organic revenue
growth, and its expanded production facilities in Wales are expected to be
operational in H2.
The Group's underlying profit before tax was £12.1m (H1 2022: £10.3m), an
increase of 17 per cent compared to the previous period. The statutory profit
before tax, which includes both underlying and non-underlying items, was
£10.2m (H1 2022: £7.9m), an increase of 29 per cent.
Non-underlying items for the period of £2.0m (H1 2022: £2.4m) consisted of
the amortisation of acquired intangible assets of £1.7m (H1 2022: £2.0m) and
acquisition-related expenses of £0.3m (H1 2022: £0.4m). The amortisation of
acquired intangible assets represents the amortisation of customer
relationships, order books and brand name, which were identified on the
acquisitions of Harry Peers and DAM Structures. These assets are being
amortised over periods ranging from 12 months to five years.
Acquisition-related expenses include movements in the valuation of the
contingent consideration for the DAM Structure acquisition which is payable
over a five-year period.
An underlying tax charge of £2.1m is shown for the period (H1 2022: £1.9m).
This tax charge is recognised based upon the best estimate of the average
effective tax rate on profit before tax for the full financial year and
equates to the UK statutory rate of 19 per cent. A non-underlying tax credit
of £0.4m has also been recognised. In the prior period, a non-underlying tax
charge of £0.8m was recognised, comprising a tax credit on non-underlying
items of £0.5m, offset by a charge of £1.3m relating to the increase in
future tax rates from 19 per cent to 25 per cent.
Underlying basic earnings per share is 3.3p (H1 2022: 2.7p). This calculation
is based on the underlying profit after tax of £10.0m (H1 2022: £8.3m) and
309,532,076 shares (H1 2022: 308,287,952 shares) being the weighted average
number of shares in issue during the period. Basic earnings per share, which
is based on the statutory profit after tax, is 2.8p (H1 2022: 1.7p). Diluted
earnings per share, which includes the effect of the Group's performance share
plan, is 2.7p (H1 2022: 1.7p).
Net debt (pre-IFRS 16 basis) at 24 September 2022 was £15.8m (26 March 2022:
£18.4m). This represents an overdraft of £2.5m (26 March 2022: £3.5m) and
the outstanding term loans of £13.3m (26 March 2022: £14.9m) for
acquisitions. Operating cash flow for the period before working capital
movements was £15.9m (H1 2022: £13.3m). Net working capital remained broadly
stable following the large working capital outflow in the 2022 financial year
which included the impact of steel and other input price rises, higher steel
purchases close to the 2022 year-end, and the UK's new VAT Domestic Reverse
Charge regulations for construction services. Period-end working capital
represented approximately nine per cent of revenue (26 March 2022: ten per
cent). Although this remains higher than our well-established target range of
four to six per cent, we continue to expect an improvement in working capital
in H2.
During the period, deferred consideration of £7.0m was paid in relation to
the acquisition of DAM Structures, which was acquired in February 2021.
Capital expenditure of £2.1m (H1 2022: £3.5m) represents the continuation of
the Group's capital investment programme. There remain some significant
capital projects planned for the second half of the year, including new and
upgraded equipment for our fabrication lines, and we continue to expect 2022
capital expenditure levels to be around our normal run rate of £6m to £8m
per annum. Depreciation in the period was £3.6m (H1 2022: £3.3m), of which
£0.9m (H1 2022: £0.8m) relates to right-of-use assets under IFRS 16.
The Group's net defined benefit pension liability at 24 September 2022 was
£8.5m, a decrease of £5.9m from the year-end position of £14.4m. The
deficit has reduced as a result of a higher discount rate, reflecting the
significant increase in bond yields and employer deficit contributions over
the period. This has been offset by lower than assumed returns on the scheme's
assets and higher than expected inflation.
The Group has a £50m revolving credit facility ('RCF') with HSBC Bank and
Virgin Money (formerly Yorkshire Bank), 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. As part of the
Harry Peers and DAM Structures acquisitions, amortising term loans of £14m
and £12m respectively were established as amendments to the RCF. At 24
September 2022, of these original loans of £26m, £13.3m remained
outstanding.
The board considers the dividend to be a very important component of
shareholder returns. Based on its current assessment of the performance of the
business, our strong balance sheet and cash position, and longer term
prospects, the board has decided to increase the interim dividend by 8 per
cent to 1.3p per share (H1 2022: 1.2p per share). This dividend will be paid
in February 2023.
Capital Markets Day
We plan to host a Capital Markets Day for investors and analysts in early
2023, for which a separate RNS notice will be issued in due course.
OPERATIONAL REVIEW
New divisional structure
The Group has grown significantly over recent years, both organically and
through acquisition. To align our business more closely with the market
sectors we serve and our growing customer base, we have created a simpler
divisional structure for our UK and Europe operations. The creation of three
new market-focused divisions (see below) has also allowed us to adopt a more
holistic approach to manufacturing across the Group, under the leadership of
our Group Manufacturing Director, as we continue to invest in and optimise our
factories, particularly at our main production centres in Dalton, Lostock and
Enniskillen. There are no non-underlying costs associated with this
re-organisation which has been implemented for operational purposes.
With effect from 1 April 2022, the previous structure of six mainly
location-based business units is being streamlined into three new divisions
namely, the Commercial and Industrial division (mainly focusing on private
sector clients), the Nuclear and Infrastructure division (mainly supporting
public sector projects), and the Products and Processing division (including
our growing modular and cold rolled steel product ranges). Further details are
provided in the UK and Europe section below.
UK and Europe
The future success of the Group is determined, amongst other things, by the
quality of the secured workload and our discipline to maintain risk-based
contract selectivity irrespective of economic conditions. The UK and Europe
order book at 1 November includes a significant amount of high quality work
and stands at £464m (1 June 2022: £486m), of which £367m is planned for
delivery over the next 12 months. This leaves the Group very well-positioned
with a strong future workload for the remainder of the 2023 financial year and
beyond. The order book remains well-diversified and contains a good mix of
projects across the Group's key market sectors. In terms of geographical
spread of the order book of £464m, 95 per cent represents projects in the UK,
with the remaining 5 per cent representing projects for delivery in Europe and
the Republic of Ireland (1 June 2022: 96 per cent in the UK, 4 per cent in
Europe and the Republic of Ireland). The more UK-centric nature of the current
order book is driven by the recent completion of several projects in the
Republic of Ireland, including the large industrial facility near Dublin.
As well as maintaining an historically high level of orders across the Group,
we are also seeing a strong pipeline of further potential opportunities in the
UK and in continental Europe as, despite the broader macroeconomic picture,
many of our chosen markets continue to have a favourable outlook. Our scale
and product service offering means we are well-positioned to take advantage of
these opportunities across both our Commercial and Industrial and Nuclear and
Infrastructure divisions with a wide client base, operating in a diverse range
of market sectors and geographies. This provides us with resilience and the
ability to drive future profitable growth.
Commercial and Industrial
The Commercial and Industrial ('C&I') division brings together the Group's
strong capabilities in the industrial and distribution, commercial offices,
stadia and leisure, data centres, retail, and health and education market
sectors, working mainly with private sector clients.
During the period, we continued to work on several large distribution
facilities in the UK, the Co-op Live Arena in Manchester, the Google
Headquarters at King's Cross and a large industrial facility in the Republic
of Ireland, which is now complete. Other significant revenue contributing
projects include the new stadium for Everton F.C., Pinewood Studios in
Shepperton, the ExCel Arena in London and a number of mid-sized office
developments, both in the UK and Republic of Ireland (including Argyle Street
in Glasgow, Wilton Park in Dublin and a new development at King's Cross in
London).
The C&I order book at 1 November of £308m (1 June 2022: £348m) includes
a significant amount of new work which we have secured over recent months.
This includes the full order to supply and construct fabricated steel for the
Envision Battery Plant in Sunderland following the partnership with Nissan UK
and Sunderland City Council to create an electric vehicle hub supporting next
generation EV production, to help accelerate the transition to net zero carbon
mobility. During the period, we also secured some new office projects,
together with various large and several smaller industrial and distribution
facilities in the UK, reflecting a sector which continues to present good
opportunities. Most of our work is derived through either negotiated,
framework or two-stage bidding procurement processes, in line with the risk
profile of the work being undertaken.
We continue to be encouraged by the current level of tendering and pipeline
activity across the Group, seeing a consistently high level of opportunities
both in the UK and in continental Europe, in which we retain a good market
position and which remains an important part of our strategic growth plans.
The pipeline in continental Europe was adversely impacted by COVID-19 around
twelve months ago, but has since recovered strongly.
In the UK, the government's £850m Automotive Transformation Fund aims to
support the development of battery gigafactories and domestic zero carbon
vehicle production, with a number of new facilities currently being planned or
considered. A similar picture is also emerging in continental Europe. In
addition, the UK's emergence as a major hub for film, television, advertising
and gaming production is also leading to an increase in demand for film and TV
studios. The Group's scale, speed of construction and on-time delivery
capabilities, leaves us well-positioned to win work from such projects, all of
which are likely to have a significant steelwork content.
We are also well-positioned to take advantage of some significant other
opportunities in the industrial and distribution and data centre sectors and,
despite predictions of the demise of the office after COVID-19, in the
commercial office sector, including in London.
Nuclear and Infrastructure
The Nuclear and Infrastructure ('N&I') division encompasses the Group's
market-leading positions in the nuclear, power and energy, transport (road and
rail) and process industries sectors, mainly supporting public sector
projects.
During the period, we continued to work on HS2 bridge packages for a variety
of consortia including Water Orton Viaducts in the Midlands and PRA to Oxford
Road in Aylesbury, together with road and rail bridges including the A1
Birtley to Coalhouse and A46 Binley bridges and the M42 junction 6 road
improvement scheme. From a nuclear perspective, ongoing contracts include work
at Hinkley Point and some large projects at Sellafield.
The N&I order book at 1 November was £151m (1 June 2022: £136m) of which
52 per cent represents transport infrastructure (1 June 2022: 65 per cent) and
46 per cent represents nuclear projects (1 June 2022: 32 per cent). Notable
awards in the period include a large secondary steelwork package at Hinkley
Point and some new bridge awards reflecting investment in infrastructure by
Highways England and Network Rail.
As a key component of economic growth, the construction industry will be
central to a sustainable economic recovery. New, low carbon infrastructure
(including HS2, wind power, new nuclear, rail electrification, energy
efficient buildings) will play a leading role in stimulating sustainable
growth. The UK government's National Infrastructure Strategy ('NIS') sets out
its plans to transform infrastructure to drive economic recovery, levelling up
and meeting the UK's net zero emissions target by 2050. The funding of £650
billion for developments in roads, railways, power networks and other UK
infrastructure projects, represents an increase of around £100 billion from
the previous plan. Included within the NIS are increased budgets for some of
the Group's key customers such as Network Rail, including a significant amount
of rail electrification work and Highways England, including the second Road
Investment Strategy. We have already secured some significant road and rail
bridge awards, new nuclear and rail electrification work and we continue to
make good progress with several other similar opportunities in the pipeline.
In general, we remain well-positioned to win work in the transport sector
given the Group's historical track record and our in-house infrastructure
capabilities.
Looking further ahead, the UK government's Energy Security Strategy pledges a
new generation of nuclear power (under the banner of 'Great British Nuclear')
as well as offshore wind generation, together with several other new energy
supply initiatives, to reduce reliance on foreign energy supply. The
combination of the in-house nuclear expertise, together the Group's unmatched
scale and capability to deliver major infrastructure projects, leaves us
well-positioned to win work from such projects in the future.
Products and Processing
The Products and Processing ('P&P') division consists of the growing
modular product ranges of Severfield (Products & Processing) ('SPP') based
in Sherburn and of Construction Metal Forming ('CMF'), our cold rolled steel
joint venture business based in Wales. We continue to be the only hot rolled
steel fabricator in the UK to have a cold rolled manufacturing capability.
In SPP we have maintained our focus on growing our 'Severstor' modular product
range and 'Rotoflo' products, both of which attract higher margins. For
Severstor, we are already making significant progress in growing our client
base and have secured repeat orders from several blue-chip clients as well as
continuing to develop our pipeline of opportunities. For Rotoflo, we have
continued to develop the overseas footprint of the business, aided by our new
sales manager in India, and have secured some new orders from the Indian paint
industry, where we see some other potentially interesting opportunities. SPP
has already been awarded 'Fit for Nuclear' and certain Network Rail
accreditations which, together with an expanding client base and our previous
record in modular construction, we believe will help us to achieve our future
growth aspirations for the business.
CMF has continued to develop its product range which now includes load bearing
frame and deck profiles, purlins and side rail systems to service a cold
formed steel market which has grown significantly in recent years through the
increased use of steel in off-site and modular construction. The business's
new manufacturing facility in South Wales is now complete and the expanded
capacity is expected to be operational in H2. This will allow CMF to serve an
external client base and ensure that its market share is maintained and
increased in line with market growth.
Inflation and supply chain
Inflationary pressures and supply issues for both us and our clients have
continued to present challenges throughout the period. Rising steel prices,
supply constraints on certain materials and increased energy and labour costs
have continued to drive upward pressure on total build costs, which in turn is
placing increased strain on the supply chain. This is expected to continue
through the second half and beyond. For existing projects, any additional
costs have generally been offset by a combination of contractual protection,
operating efficiencies, higher selling prices and by forward purchasing,
leveraging the Group's scale and supply chain and sub-contract management
strengths. For steel, we also benefit from relationships with supply chain
partners in the UK and continental Europe, reducing the risk of interruptions
to the Group's steel supply.
Business improvement
During the period, the Group launched Project Horizon, our new digitisation
project. The objective is to maximise the automation of our estimating,
design, production and contract delivery processes to improve customer service
and increase efficiency. Workflows include a series of projects and
initiatives designed to modernise and further standardise processes and
systems across the Group. The project is a long-term initiative that we
believe will shape our future as we develop and enhance our systems, to ensure
we remain at the forefront of technology and innovation as market leaders in
the industry. During the period, as part of Project Horizon, we continued to
make good progress with our innovative approach to drawing and design,
including the automation of repetitive tasks and the optimisation of
engineering software, which is now being used on an increasing number of
construction projects across the Group.
From an operational improvement perspective, initiatives worked on during the
period included the continued expansion and automation of our fabrication
capability and the ongoing improvements to real-time factory information at
our main centre in Dalton. This included 'right first time' initiatives to
improve overall quality including the targeted reduction of factory and site
NCRs (rework items) and drawing office errors, together with ongoing roll out
of mobile devices to capture information at the point of use and to provide
live information to both operatives and management.
India
JSSL is continuing to ramp up its Bellary facility towards its maximum
capacity of c.100,000 tonnes, with total output for 2023 including
sub-contracted work likely to exceed 100,000 tonnes. This increased activity
is evident in the Group's higher after-tax share of profit of £0.6m (H1 2022:
£0.3m). The improved performance reflects an increase in revenue of 70 per
cent to £70.3m (H1 2022: £41.2m) and an unchanged operating margin of 5.6
per cent (H1 2022: 5.6 per cent), mainly reflecting increased steel prices
which have been successfully passed through to clients at zero margin.
Financing expenses of £2.5m (H1 2022: £1.6m) are higher than the previous
period, reflecting an increase in borrowings and in the cost of letters of
credit which are linked to higher steel prices. These higher financing costs
result in JSSL's operating profit of £3.9m (H1 2022: £2.3m) reducing to a
profit before tax of £1.4m (H1 2022: £0.7m).
Notwithstanding current inflationary pressures, JSSL has continued to win new
work, resulting in a strong order book of £143m at 1 November 2022 (1 June
2022: £158m). In terms of mix, 36 per cent of the order book represents
higher margin commercial work, with the remaining 64 per cent representing
industrial projects (1 June 2022: commercial work of 37 per cent, industrial
work of 63 per cent). The current higher level of industrial work is
consistent with the ongoing fluctuations in the timing and mix of industrial
and commercial work in a growing order book.
The company's strong order book, together with an improving pipeline of
potential orders, reflects a continuing strong demand for structural steel in
India. All this leaves the business very well-positioned to take advantage of
an economy which is expected to grow significantly in the medium term which,
together with the ongoing conversion of the market from concrete to steel,
will drive the success and long term value of the business.
In conjunction with our joint venture partner, we are close to selecting
another plot of land to facilitate the future expansion of the business. This
land purchase, which should be completed in H2, will allow the business to
expand its geographical footprint whilst providing it with the platform to
build quickly and add the necessary volume to support the expected future
market growth. We remain excited about the long-term trajectory of the market
and of the value creation potential of JSSL.
ESG
In the UK and Europe, we have a prominent position in many market sectors with
strong growth potential and are well-positioned to help accelerate the journey
to net zero. This includes infrastructure projects such as new nuclear, HS2
and rail electrification, together with other projects in support of a
low-carbon economy such as battery plants, energy efficient buildings and
manufacturing facilities for renewable energy.
Our sustainability strategy outlines our commitment to reach net zero for our
scope 1 and 2 carbon emissions by 2040 and we have begun implementing the
actions required to achieve this objective. We have already been accredited by
the Carbon Trust as carbon neutral for our manufacturing and construction
operations and have signed up to the United Nations 'Race to Zero' campaign,
which requires the establishment of a net zero target in line with a
1.5-degree world. We remain on schedule to submit this target for validation
by the Science-Based Target Initiative ('SBTi') by the end of the 2023
financial year. From a social value perspective, we have adopted the National
TOMs - Themes, Outcomes and Measures - methodology framework to focus our
future commitments on all areas of social value both internally and in
partnership with our clients.
The Group-wide 'MyVoice' forums recognise the importance of input from our
people in helping us deliver on our strategic ambitions. Our regular schedule
of meetings has continued during the period, which provide valuable, ongoing
insights and feedback for the board. During the period, the Group further
bolstered its commitment to young people, recruiting a record number of UK
apprentices, across a range of disciplines and becoming a gold member of The
5% Club, demonstrating our commitment to 'earning and learning'. This will
help improve the innovative thinking and fresh ideas required to sustain the
industry and the Group into the future.
SUMMARY AND OUTLOOK
In the first six months of 2023, the Group has delivered a strong financial
performance whilst managing ongoing inflationary pressures. We have increased
revenues and profits in the UK and India, our order books are substantial and
of high quality, and our balance sheet remains healthy, allowing us to operate
effectively and efficiently and to continue making the right long-term
decisions for the business. The Group's businesses are well-positioned in
markets with excellent opportunities, underpinned by our new, simplified
divisional structure, providing us with a better platform to fulfil our
strategic growth aspirations.
We remain mindful of the macro-economic backdrop, including ongoing
inflationary pressures. However, given the Group's performance to date and the
current visibility of future workload for delivery in the second half of the
year, we are confident of delivering further progress and a full year
performance which is in line with our previous expectations.
Alan Dunsmore
Chief Executive Officer
22 November 2022
Condensed consolidated interim financial information
Consolidated income statement
Six months ended Six months ended Year ended
24 September 2022 (unaudited) 25 September 2021 (unaudited) 26 March 2022 (audited)
Non-underlying Non-underlying Non-underlying
Underlying £000 Total Underlying £000 Total Underlying£000 £000 Total
£000 £000 £000 £000 £000
Revenue 234,869 - 234,869 195,890 - 195,890 403,563 - 403,563
Operating costs (222,741) (1,669) (224,410) (185,710) (2,025) (187,735) (376,682) (5,424) (382,106)
Operating profit before share of results of JVs and associates 12,128 (1,669) 10,459 10,180 (2,025) 8,155 26,881 (5,424) 21,457
Share of results of JVs and associates 1,039 - 1,039 581 - 581 1,346 - 1,346
Operating profit 13,167 (1,669) 11,498 10,761 (2,025) 8,736 28,227 (5,424) 22,803
Net finance expense (1,029) (289) (1,318) (479) (338) (817) (1,129) (674) (1,803)
Profit before tax 12,138 (1,958) 10,180 10,282 (2,363) 7,919 27,098 (6,098) 21,000
Taxation (2,090) 416 (1,674) (1,939) (809) (2,748) (4,795) (604) (5,399)
Profit for the period 10,048 (1,542) 8,506 8,343 (3,172) 5,171 22,303 (6,702) 15,601
Earnings per share:
Basic 3.25p (0.50)p 2.75p 2.71p (1.03)p 1.68p 7.22p (2.17)p 5.05p
Diluted 3.21p (0.49)p 2.72p 2.69p (1.02)p 1.67p 7.19p (2.16)p 5.03p
Further details of non-underlying items are disclosed in note 7 to the
condensed consolidated financial statements.
Consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
24 September 2022 25 September 2021 26 March 2022
(unaudited) (unaudited) (audited)
£000 £000 £000
Actuarial gain on defined benefit pension scheme* 4,787 1,030 5,938
Losses taken to equity on cash flow hedges (1,364) (177) (22)
Reclassification adjustments on cash flow hedges 207 14 13
Exchange difference on foreign operations (96) 1 40
Tax relating to components of other comprehensive income* (1,195) (258) (1,184)
Other comprehensive income 2,339 610 4,785
for the period
Profit for the period from continuing operations 8,506 5,171 15,601
Total comprehensive income for the period attributable to equity shareholders 10,845 5,781 20,386
of the parent
* These items will not be subsequently reclassified to the consolidated income
statement.
Consolidated balance sheet
At At At
24 September 2022 25 September 2021 26 March 2022
(unaudited) (unaudited) (audited)
£000 £000 £000
ASSETS
Non-current assets
Goodwill 82,188 85,390 82,188
Other intangible assets 8,713 7,610 10,343
Property, plant and equipment 90,297 92,401 91,436
Right-of-use asset 10,724 9,994 11,070
Interests in JVs and associates 31,175 29,371 30,136
Contract assets, trade and other receivables 5,656 4,282 4,881
228,753 229,048 230,054
Current assets
Inventories 17,589 9,102 18,005
Contract assets, trade and other receivables 118,274 88,112 117,859
Current tax asset 1,045 177 4,171
Derivative financial instruments - 679 670
Cash and cash equivalents - 11,045 -
136,908 109,115 140,705
Total assets 365,661 338,163 370,759
LIABILITIES
Current liabilities
Cash and cash equivalents (2,769) - (3,974)
Trade and other payables (109,080) (87,413) (111,692)
Financial liabilities - borrowings (7,375) (5,900) (5,900)
Financial liabilities - leases (1,576) (1,531) (1,756)
Derivative financial instruments (281) - -
(121,081) (94,844) (123,322)
Non-current liabilities
Trade and other payables (2,315) (4,009) (3,081)
Retirement benefit obligations (8,499) (20,366) (14,396)
Financial liabilities - borrowings (6,000) (11,900) (8,950)
Financial liabilities - leases (9,587) (9,321) (9,884)
Deferred tax liabilities (7,921) (5,225) (7,166)
(34,322) (50,821) (43,477)
Total liabilities (155,403) (145,665) (166,799)
NET ASSETS 210,258 192,498 203,960
EQUITY
Share capital 7,738 7,725 7,738
Share premium 88,518 88,167 88,511
Other reserves 4,542 4,090 4,485
Retained earnings 109,460 92,516 103,226
TOTAL EQUITY 210,258 192,498 203,960
Consolidated statement of changes in equity
Share Share Other Retained Total
Capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 26 March 2022 7,738 88,511 4,485 103,226 203,960
Total comprehensive income for the period - - (1,253) 12,098 10,845
Ordinary shares issued* - 7 - - 7
Equity settled share-based payments - - 1,310 - 1,310
Dividend provided for or paid ** - - - (5,864) (5,864)
At 24 September 2022 (unaudited) 7,738 88,518 4,542 109,460 210,258
*The issue of shares represents shares allotted for the 2018 Sharesave scheme.
**The 2022 final dividend of £5.9m was paid to shareholders on 14 October
2022.
Share Share Other Retained Total
Capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 28 March 2021 7,706 87,658 3,464 92,101 190,929
Total comprehensive income for the period - - (163) 5,944 5,781
Ordinary shares issued* 19 509 - - 528
Equity settled share-based payments - - 789 - 789
Dividend provided for or paid - - - (5,529) (5,529)
At 25 September 2021 (unaudited) 7,725 88,167 4,090 92,516 192,498
*The issue of shares represents shares allotted for the 2018 and 2020
Sharesave schemes.
Share Share Other Retained Total
Capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 28 March 2021 7,706 87,658 3,464 92,101 190,929
Total comprehensive income for the year - - 32 20,354 20,386
Ordinary shares issued * 32 853 - - 885
Equity settled share-based payments - - 989 - 989
Dividend provided for or paid - - - (9,229) (9,229)
At 26 March 2022 7,738 88,511 4,485 103,226 203,960
*The issue of shares represents shares allotted for the 2018 and 2020
Sharesave schemes.
Consolidated cash flow statement
Six months ended Six months ended Year
24 September 2022 25 September 2021 ended
(unaudited) (unaudited) 26 March
£000 £000 2022
(audited)
£000
Net cash flow from operating activities 13,292 (367) (5,685)
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment 468 185 376
Purchases of land and buildings - (2,098) (2,759)
Purchases of other property, plant and equipment (1,999) (1,310) (2,507)
Purchases of intangible assets (68) (125) (124)
Investment in subsidiary entity, net of cash acquired (7,000) (526) (526)
Net cash used in investing activities (8,599) (3,874) (5,540)
Cash flows from financing activities
Interest paid (975) (537) (1,056)
Dividends paid - (5,529) (9,229)
Proceeds from shares issued 7 528 885
Repayment of borrowings (1,475) (2,950) (5,900)
Repayment of lease liabilities (1,045) (1,209) (2,432)
Net cash used in financing activities (3,488) (9,697) (17,732)
Net increase/(decrease) in cash and cash equivalents 1,205 (13,938) (28,957)
Cash and cash equivalents at beginning (3,974) 24,983 24,983
of period
Cash and cash equivalents at end of period (2,769) 11,045 (3,974)
Notes to the condensed consolidated interim financial information
1) General information
Severfield plc ('the Company') is a company incorporated and domiciled in the
UK. The address of its registered office is Severs House, Dalton Airfield
Industrial Estate, Dalton, Thirsk, North Yorkshire, YO7 3JN. The Company is
listed on the London Stock Exchange.
The condensed consolidated interim financial information does not constitute
the statutory financial statements of the Group within the meaning of section
435 of the Companies Act 2006. The statutory financial statements for the year
ended 26 March 2022 were approved by the board of directors on 15 June 2022
and have been delivered to the registrar of companies. The report of the
auditors on those financial statements was unqualified, did not draw attention
to any matters by way of emphasis and did not contain any statement under
section 498 of the Companies Act 2006.
The condensed consolidated interim financial information for the six months
ended 24 September 2022 has been reviewed, not audited, and was approved for
issue by the board of directors on 21 November 2022.
2) Basis of preparation
The condensed consolidated interim financial information for the six months
ended 24 September 2022 has been prepared in accordance with IAS 34 'Interim
Financial Reporting' as adopted for use in the UK. As required by the
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority,
the condensed consolidated interim financial information has been prepared
applying the accounting policies and presentation that were applied in the
preparation of the statutory financial statements for year ended 26 March
2022, which were prepared in accordance with International Financial Reporting
Standards ('IFRS'). The condensed consolidated interim financial information
has also been prepared in accordance with UK-adopted financial reporting
standards.
Going concern
Net debt (pre-IFRS 16 basis) at 24 September 2022 was £15.8m, representing an
overdraft of £2.5m and the outstanding term loans of £13.3m. The Group has a
£50m revolving credit facility ('RCF') with HSBC and Virgin Money that
matures in December 2026. The RCF, of which £15m is available as an overdraft
facility, includes an additional accordion facility of £35m, which allows the
Group to increase the aggregate available borrowings to £50m. Throughout the
period, the Group has maintained significant amounts of headroom in its
financing facilities and associated covenants.
The directors have reviewed the Group's forecasts and projections for the
remainder of the 2023 financial year and up to 12 months from the date of
approval of the interim financial statements, including sensitivity analysis
to assess the Group's resilience to potential adverse outcomes including a
highly pessimistic 'worst case' scenario. This 'worst case' is based on the
combined impact of securing no further orders, some contract deteriorations
and further significant inflationary pressures for the entirety of the going
concern period. Given the strong previous performance of the Group, this
scenario is only being modelled to stress test our strong financial position
and demonstrate the existence of considerable headroom in the Group's
covenants and borrowing facilities.
Having also made appropriate enquiries, the directors consider it reasonable
to assume that the Group has adequate resources to be able to operate within
the terms and conditions of its financing facilities for at least 12 months
from the approval of the condensed Group financial statements. For this
reason, the directors continue to adopt the going concern basis in preparing
the condensed consolidated interim financial information.
3) Accounting policies
Except as described below, the accounting policies applied in preparing the
condensed consolidated interim financial information are consistent with those
used in preparing the statutory financial statements for the year ended 26
March 2022.
Taxes on profits in interim periods are accrued using the tax rate that will
be applicable to expected total annual profits.
New and amended standards and interpretations need to be adopted in the first
interim financial statements issued after their effective date (or date of
early adoption).
There are no new IFRSs and IFRICs that are effective for the first time for
the six months ended 24 September 2022 which have a material impact on the
Group.
4) Risks and uncertainties
The principal risks and uncertainties which could have a material impact upon
the Group's performance over the remaining six months of the year ending 25
March 2023, other than as disclosed below, have not changed from those
disclosed on pages 86 to 98 of the strategic report included in the annual
report for the year ended 26 March 2022. The annual report is available on the
Company's website www.severfield.com. These risks and uncertainties include,
but are not limited to:
§ Health and safety
§ Supply chain
§ People
§ Commercial and market environment
§ Mispricing a contract (at tender)
§ Cyber security
§ Failure to mitigate onerous contract terms
§ Indian joint venture
§ Sustainability (ESG)
The preparation of the condensed consolidated interim financial information
under IFRS requires management to make judgements, assumptions and estimates
that affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expense. Assumptions and estimates are
reviewed on an ongoing basis and any revisions to them are recognised in the
period in which they are revised. The Group's critical accounting judgements
and estimates have not changed significantly from those disclosed on page 177
of the annual report for the year ended 26 March 2022.
Revenue and profit recognition
Recognition of revenue and profit is based on judgements made in respect of
the ultimate profitability of a contract. Such judgements are arrived at
through the use of estimates in relation to the costs and value of work
performed to date and to be performed in bringing contracts to completion.
These estimates are made by reference to recovery of pre-contract costs,
surveys of progress against the construction programme, changes in design and
work scope, the contractual terms and site conditions under which the work is
being performed, delays, costs incurred, claims received by the Group,
external certification of the work performed and the recoverability of any
unagreed income from claims and variations.
Management continually reviews the estimated final outturn on contracts and
makes adjustments where necessary. Based on the above, management believes it
is reasonably possible, on the basis of existing knowledge, that outcomes
within the next financial year that are different from these assumptions could
require a material adjustment. However, due to the level of uncertainty,
combination of cost and income variables and timing across a large portfolio
of contracts at different stages of their contract life, it is impracticable
to provide a quantitative analysis of the aggregated judgements that are
applied at a portfolio level.
Within this portfolio, there are a limited number of long-term contracts where
the Group has incorporated significant judgements over revenue and profit,
which have been recognised at a level that is considered highly probable not
to significantly reverse. However, there are a host of factors affecting
potential outcomes in respect of these entitlements which could result in a
range of reasonably possible outcomes on these contracts in the following
financial year, ranging from a gain of £16,000,000 to a loss of £5,000,000.
Management has assessed the range of reasonably possible outcomes on these
limited number of contracts based on facts and circumstances that were present
and known at the balance sheet date. As with any contract applying long-term
contract accounting, these contracts are also affected by a variety of
uncertainties that depend on future events, and so often need to be revised as
contracts progress.
The Group has appropriate internal control procedures over the determination
of each of the above variables to ensure that profit recognised as at the
balance sheet date and the extent of future costs to contract completion are
reasonably and consistently determined and subject to appropriate review and
authorisation.
At the balance sheet date, amounts due from construction contract customers,
included in contract assets, trade and other receivables was £69,530,000 (26
March 2022: £74,898,000).
5) Segmental analysis
In accordance with IFRS 8, the Group has identified its operating segments
with reference to the information regularly reviewed by the executive
committee (the chief operating decision maker ('CODM')) to assess performance
and allocate resources. On this basis the CODM has identified one operating
segment (construction contracts) which in turn is the only reportable segment
of the Group.
The constituent operating businesses have been aggregated as they have
businesses with similar products and services, production processes, types of
customers, methods of distribution, regulatory environments, and economic
characteristics. Given that only one operating and reporting segment exists,
the remaining disclosure requirements of IFRS 8 are provided within the
consolidated income statement and balance sheet.
With effect from 1 April 2022, the Group is being streamlined into three
market-focused divisions namely, the Commercial and Industrial division
(mainly focusing on private sector clients), the Nuclear and Infrastructure
division (mainly supporting public sector projects), and the Products and
Processing division (including our growing modular and cold rolled steel
product ranges). Notwithstanding this, there has been no change in the basis
of segmentation or in the basis of measurement of segment profit or loss in
the period as the information regularly reviewed by the CODM (one reportable
segment) is in the process of being updated to enable the Group to report
additional operating segments (if required) under the new divisional
structure. This exercise will be completed in the second half of 2023 and, if
required, updated segmental information will be reported in the annual report
for the year-ending 25 March 2023.
6) Seasonality
There are no seasonal variations which impact the split of revenue between the
first and second half of the financial year. Underlying movements in contract
timing and phasing, which are an ongoing feature of the business, will
continue to drive moderate fluctuations in half yearly revenues.
7) Non-underlying items
At At At
24 September 2022 25 September 2021 26 March
£000 £000 2022
£000
Operating costs (1,669) (2,025) (5,424)
Finance expense (289) (338) (674)
Non-underlying items before tax (1,958) (2,363) (6,098)
Tax on non-underlying items 416 (809) (604)
Non-underlying items after tax (1,542) (3,172) (6,702)
Non-underlying items before tax consist of: At At At
24 September 2022 25 September 2021 26 March
£000 £000 2022
£000
Amortisation of acquired intangible assets (1,669) (2,025) (5,191)
Unwinding of discount on deferred and contingent consideration (289) (338) (674)
Other exceptional costs - - (233)
Non-underlying items before tax (1,958) (2,363) (6,098)
Amortisation of acquired intangible assets represents the amortisation of
customer relationships, order books and brand name, which were identified on
the acquisition of Harry Peers and DAM Structures.
Non-underlying items have been separately identified to provide a better
indication of the Group's underlying business performance. The board believe
that non-underlying items should be separately identified on the face of the
income statement to assist in understand the underlying performance of the
Group. Their separate identification results in the calculation of an
underlying profit measure which is the same as that presented and reviewed by
management. Accordingly, certain alternative performance measures ('APMs')
have been used throughout this annual report to supplement rather than replace
the measure provided under IFRS, see note 18.
8) Taxation
The corporation tax expense reflects the estimated underlying effective tax
rate of 19 per cent on profit before taxation for the Group for the year
ending 25 March 2023.
9) Dividends
Six months ended Six months ended Year
24 September 2022 25 September 2021 ended
£000 £000 26 March 2022
£000
2021 final - 1.8p per share - (5,529) (5,529)
2022 interim - 1.2p per share - - (3,700)
2022 final - 1.9p per share (5,864) - -
(5,864) (5,529) (9,229)
The 2022 final dividend of £5,864,000 was paid to
shareholders on 14 October 2022.
The directors have declared an interim dividend in respect of the six months
ended 24 September 2022 of 1.3p per share (H1 2022: 1.2p per share) which will
amount to an estimated dividend payment of £4,000,000 (H1 2022: £3,700,000).
This dividend is not reflected in the balance sheet as it was declared and
will be paid after the balance sheet date, on 3 February to shareholders on
the register at the close of business on 6 January.
10) Earnings per share
Earnings per share is calculated as follows:
Six months ended Six months ended Year
24 September 2022 25 September 2021 ended
£000 £000 26 March
2022
£000
Earnings for the purposes of basic earnings per share being net profit 8,506 5,171 15,601
attributable to equity holders of the parent company
Earnings for the purposes of underlying basic earnings per share being 10,048 8,343 22,303
underlying net profit attributable to equity holders of the parent company
Number of shares Number Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 309,532,076 308,287,952 308,834,123
per share
Effect of dilutive potential ordinary shares and under share plans 3,313,744 2,109,620 1,335,323
Weighted average number of ordinary shares for the purposes of diluted 312,845,820 310,397,572 310,169,446
earnings per share
Basic earnings per share 2.75p 1.68p 5.05p
Underlying basic earnings per share 3.25p 2.71p 7.22p
Diluted earnings per share 2.72p 1.67p 5.03p
Underlying diluted earnings per share 3.21p 2.69p 7.19p
11) Property, plant and equipment
During the period, the Group acquired land and buildings of £nil (H1 2022:
£2,098,000) and other property, plant and equipment of £1,999,000 (H1 2022:
£1,310,000). The Group also disposed of other property, plant and equipment
for £468,000 (H1 2022: £185,000) resulting in a gain on disposal of £17,000
(H1 2022: loss of £2,000).
12) Intangible assets
During the period, the Group capitalised software-related costs of £68,000.
In the prior period, the Group acquired intangible assets of £125,000,
relating to product licences.
13) Net debt
At At At
24 September 2022 25 September 2021 26 March
£000 £000 2022
£000
Borrowings (13,375) (17,800) (14,850)
Cash and cash equivalents (2,769) 11,045 (3,974)
Unamortised debt arrangement costs 364 103 402
Net debt (pre-IFRS 16) (15,780) (6,652) (18,422)
IFRS 16 lease liabilities (11,163) (10,852) (11,640)
Net debt (post-IFRS 16) (26,943) (17,504) (30,062)
The Group excludes IFRS 16 lease liabilities from its measure of net debt as
they are excluded from the definition of net debt as set out in the Group's
borrowing facilities.
14) Fair value disclosures
Financial instruments consist of borrowings, cash, items that arise directly
from its operations and derivative financial instruments. Cash and cash
equivalents, trade and other receivables and trade and other payables
generally have short terms to maturity. For this reason, their carrying values
approximate to their fair values. Borrowings relate to amounts drawn down
against the revolving credit facility and amounts outstanding under the term
loan, the carrying amounts of which approximate to their fair values by virtue
of being floating rate instruments.
Derivative financial instruments and contingent consideration (reported in
trade and other payables) are the only instruments valued at fair value
through profit or loss and are valued as such on initial recognition. These
are foreign currency forward contracts measured using quoted forward exchange
rates and yield curves matching the maturities of the contracts. These
derivative financial instruments are categorised as level 2 financial
instruments, which are financial assets and liabilities that do not have
regular market pricing, but whose fair value can be determined based on other
data values or market prices.
The fair values of the Group's derivative financial instruments which are
marked-to-market and recorded in the balance sheet were as follows:
At At At
24 September 2022 25 September 2021 26 March
£000 £000 2022
£000
(Liabilities)/assets
Foreign exchange contracts (281) 679 670
15) Net cash flow from operating activities
Six months ended Six months ended Year
24 September 2022 25 September 2021 ended
£000 £000 26 March
2022
£000
Operating profit from continuing operations 11,498 8,736 22,803
Adjustments:
Depreciation of property, plant and equipment 2,687 2,550 5,163
Right-of-use asset depreciation 914 765 1,702
(Gain)/loss on disposal of other property, plant (17) 2 (11)
and equipment
Amortisation of intangible assets 1,698 2,032 5,369
Movements in pension scheme liabilities (1,109) (983) (2,045)
Share of results of JVs and associates (1,039) (581) (1,346)
Share-based payments 1,310 789 989
Operating cash flows before movements in working capital 15,942 13,310 32,624
Decrease/(increase) in inventories 416 1,196 (7,774)
Decrease/(increase) in receivables 1,666 (16,864) (50,533)
(Decrease)/increase in payables (2,887) 3,852 23,781
Cash generated from operations 15,137 1,494 (1,902)
Tax paid (1,845) (1,861) (3,783)
Net cash flow from operating activities 13,292 (367) (5,685)
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and demand deposits and
other short-term highly liquid investments with a maturity of three months or
less at inception.
16) Related party transactions
There have been no changes in the nature of related party transactions as
described in note 31 on page 203 of the annual report for year ended 26 March
2022 and there have been no new related party transactions which have had a
material effect on the financial position or performance of the Group in the
six months ended 24 September 2022, except as stated below.
During the period, the Group provided services in the ordinary course of
business to its Indian joint venture, JSW Severfield Structures ('JSSL') and
in the ordinary course of business contracted with and purchased services from
its UK joint venture, Construction Metal Forming Limited ('CMF'). The Group's
share of the retained profit in JVs and associates of £1,039,000 (H1 2022:
£581,000) for the period reflects a profit from JSSL of £586,000 (H1 2022:
£275,000) and a profit from CMF of £453,000 (H1 2022: £306,000).
The Group incurred additional operating costs in relation to the day-to-day
running of its Indian joint venture ('JSSL') of £130,000 (H1 2022:
£133,000). Those costs were recharged to JSSL during the period and the
amount due from JSSL at 24 September 2022 was £699,000 (26 March 2022:
£575,000). The amount due to JSSL at 24 September 2022 was £30,000 (26 March
2022: £nil).
During the period, the Group has contracted with and purchased services from
CMF amounting to sales of £nil (H1 2022: £81,000) and purchases of
£4,774,000 (H1 2022: £6,973,000). The amounts due from and to CMF at 24
September 2022 was £1,360,000 (26 March 2022: £1,545,000) and £3,449,000
(26 March 2022: £106,000) respectively.
During the period, the Group contracted with and purchased services from MET
Structures, amounting to sales of £6,701,000 (H1 2022: £7,570,000) and
purchases of £nil (H1 2022: £1,450,000). The amount due from MET Structures
at 24 September 2022 was £3,568,000 (26 March 2022: £2,890,000). MET
Structures shares common directors with the Group.
17) Contingent liabilities
Liabilities have been recorded for the directors' best estimate of uncertain
contract positions, known legal claims, investigations and legal actions in
progress. The Group takes legal advice as to the likelihood of success of
claims and actions and no liability is recorded where the directors consider,
based on that advice, that the action is unlikely to succeed, or that the
Group cannot make a sufficiently reliable estimate of the potential
obligation. The Group also has contingent liabilities in respect of other
issues that may have occurred, but where no legal or contractual claim has
been made and it is not possible to reliably estimate the potential
obligation.
The Company and its subsidiaries have provided unlimited multilateral
guarantees to secure any bank overdrafts and loans of all other Group
companies. At 24 September 2022 this amounted to £35,000,000 (26 March 2022:
£35,000,000). The Group has also given performance bonds in the normal course
of trade.
18) Alternative performance measures
Our alternative performance measures ('APM's) present useful information which
supplements the financial statements. 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) (pre-IFRS 16) 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
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.
Reconciliations to IFRS measures
Six months Six months Year
ended ended ended
24 September 2022 25 September 2021 26 March 2022
(unaudited) (unaudited) (audited)
Underlying operating profit (before JVs and associates) £000 £000 £000
Underlying operating profit (before JVs and associates) 12,128 10,180 26,881
Non-underlying operating items (1,669) (2,025) (5,424)
Share of results of JVs and associates 1,039 581 1,346
Operating profit 11,498 8,736 22,803
Six months Six months Year
ended ended ended
24 September 2022 25 September 2021 26 March 2022
(unaudited) (unaudited) (audited)
Underlying profit before tax £000 £000 £000
Underlying profit before tax 12,138 10,282 27,098
Non-underlying items (1,958) (2,363) (6,098)
Profit before tax 10,180 7,919 21,000
18) Alternative performance measures (continued)
Six months Six months Year
ended ended ended
24 September 2022 25 September 2021 26 March 2022
(unaudited) (unaudited) (audited)
Underlying basic earnings per share £000 £000 £000
Underlying net profit attributable to equity holders of the parent Company 10,048 8,343 22,303
Non-underlying items after tax (1,542) (3,172) (6,702)
Net profit attributable to equity holders of the parent Company 8,506 5,171 15,601
Weighted average number of ordinary shares 309,532,076 308,287,952 308,834,123
Underlying basic earnings per share 3.25p 2.71p 7.22p
Basic earnings per share 2.75p 1.68p 5.05p
Six months Six months Year
ended ended ended
24 September 2022 25 September 2021 26 March 2022
(unaudited) (unaudited) (audited)
Net debt £000 £000 £000
Borrowings (13,375) (17,800) (14,850)
Cash and cash equivalents (2,769) 11,045 (3,974)
Unamortised debt arrangement costs 364 103 402
Net debt (pre-IFRS 16) (15,780) (6,652) (18,422)
IFRS 16 lease liabilities (11,163) (10,852) (11,640)
Net debt (post-IFRS 16) (26,943) (17,504) (30,062)
19) Cautionary statement
The Interim Management Report ('IMR') has been prepared solely to provide
additional information to shareholders to assess the Group's strategies and
the potential for those strategies to succeed. The IMR should not be relied on
by any other party or for any other purpose.
The IMR contains certain forward-looking statements. These statements are made
by the directors in good faith based on the information available to them up
to the time of their approval of this report but such statements should be
treated with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such forward-looking
information.
20) Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the condensed
consolidated interim financial information has been prepared in accordance
with IAS 34 as adopted for use in the UK, and that the interim report includes
a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
§ An indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed consolidated
interim financial information, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
§ Material related party transactions that have occurred in the first six
months of the financial year and any material changes in the related party
transactions described in the last annual report and financial statements.
The maintenance and integrity of the Severfield plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
By order of the board
Alan Dunsmore Adam Semple
Chief Executive Officer Chief Financial Officer
22 November 2022 22 November 2022
Independent review report to Severfield plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 24
September 2022 which comprises the consolidated income statement, the
consolidated statement of comprehensive income, the consolidated balance
sheet, the consolidated statement of changes in equity, the consolidated cash
flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 24 September 2022 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the half-yearly financial report and consider whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA. As
disclosed in note 2, the annual financial statements of the group are prepared
in accordance with UK-adopted financial reporting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK. In preparing the condensed set of financial
statements, the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease operations, or have
no realistic alternative but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Craig Parkin
for and on behalf of KPMG LLP
Chartered Accountants
St Nicholas House
Park Row
Nottingham
NG1 6FQ
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