REG - Severfield PLC - Interim Results
21/11/2023 07:00
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RNS Number : 0492U Severfield PLC 21 November 2023
21 November 2023
PRESS RELEASE
Interim results for the period ended 23 September 2023
Good first half results, high-quality order books, market conditions continue
to be challenging but longer-term outlook remains favourable with excellent
growth opportunities
Severfield plc, the market-leading structural steel group, announces its
results for the six-month period ended 23 September 2023.
£m H1 2024 H1 2023 Change
(unaudited) (unaudited)
Revenue 215.3 234.9 -8%
Underlying(1) operating profit 14.8 12.1 +22%
(before JVs and associates)
Operating profit (before JVs and associates) 11.9 10.5 +13%
Underlying(1) profit before tax 14.2 12.1 +17%
Profit before tax 11.0 10.2 +8%
Underlying(1) basic earnings per share 3.5p 3.3p +7%
Basic earnings per share 2.7p 2.8p -2%
Interim dividend per share 1.4p 1.3p +8%
Headlines
§ Revenue of £215.3m (H1 2023: £234.9m)
§ Underlying(1) profit before tax up 17% to £14.2m (H1 2023: £12.1m)
§ €24m acquisition of Voortman, an innovative, market-leading Dutch steel
fabrication company, accelerating our European growth strategy and
strengthening our market position in Europe
§ Period-end net funds (on a pre-IFRS 16 basis(2)) of £0.4m (25 March
2023: £2.7m), includes Voortman acquisition loan of £18m, and reflects
improvement in working capital
§ High-quality, diversified UK and Europe order book of £482m at 1
November 2023 (1 September 2023: £479m), includes new industrial, commercial
office, data centre, transport and nuclear orders
§ Value continues to build in JSSL - share of profit of £0.6m (H1 2023:
£0.6m), additional land now secured to facilitate future expansion
§ India order book of £165m at 1 November 2023 (1 September 2023: £170m)
§ Interim dividend increased by 8% to 1.4p per share (H1 2023: 1.3p per
share)
Outlook
§ UK and Europe:
- market conditions remain challenging but our diversified client base
and broad sector exposure provide resilience
- continue to see some large project opportunities in the UK and
continental Europe
- Voortman is integrating well into the Group's operations and helping
us strengthen our market position in Europe
§ India: well-positioned to take advantage of significant growth
opportunities, very encouraging economic outlook and strong underlying demand
for structural steel - land for expansion now secured
§ We continue to expect to deliver further progress and a full-year
performance which is in line with our previous expectations
§ Our businesses remain well-positioned in markets with excellent
longer-term growth opportunities
Alan Dunsmore, Chief Executive Officer commented:
"In the period we have delivered further profit growth, successfully
integrated Voortman, our latest acquisition, reported strong cash generation
and have continued to strengthen our balance sheet. We have secured a
significant amount of high-quality new work, across a variety of sectors, in
the UK, EU and India. Although the wider market backdrop continues to be
challenging, given our successful track record, diversified activities, the
strength of our order books and the favourable longer-term outlook, we have
increased the interim dividend by 8 per cent and continue to expect to deliver
further progress across the Group."
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 £3.1m (H1 2023: £2.0m) including
the amortisation of acquired intangible assets of £2.8m (H1 2023: £1.7m) and
acquisition-related expenses of £0.3m (H1 2023: £0.3m). 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 7).
(2) The Group excludes IFRS 16 lease liabilities from its measure of net
funds/debt as they are excluded from the definition of net funds/debt as set
out in the Group's borrowing facilities (see note 13).
(3) Except as otherwise stated '2022' and '2023' refer to the 52-week periods
ended 26 March 2022 and 25 March 2023. '2024' and '2025' refer to the 53-week
period ending 30 March 2024 and 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.
A reconciliation of the Group's underlying results to its statutory results is
provided in the Alternative Performance Measures ('APMs') section (see note
19).
Notes to editors:
Severfield is the UK's market leader in the design, fabrication and
construction of structural steel, with a total capacity of c.150,000 tonnes of
steel per annum. The Group has seven sites, c.1,800 employees and expertise in
large, complex projects across a broad range of sectors. The Group also has an
established presence in the expanding Indian market through its joint venture
partnership with JSW Steel (India's largest steel producer).
INTERIM STATEMENT
INTRODUCTION
The Group has performed well in the period, despite the continuation of the
challenging market conditions which were highlighted in the Group's AGM
trading update on 6 September 2023. In the first half of 2024, we have
delivered further profit growth, reported good cash generation and
strengthened our balance sheet, and have secured a significant amount of
high-quality new work and variations to existing contracts in the UK, EU and
India.
The current market conditions remain a challenge for the business, with some
ongoing delays in the conversion of our existing pipeline of opportunities, as
clients wait for economic stability, and some lower tendering activity and
competitive pricing, particularly in the distribution sector. Despite this, we
continue to see some large project opportunities in the UK and continental
Europe and we have a prominent position in market sectors with strong growth
potential and are well-positioned to win projects in support of a low-carbon
economy. These include battery plants, energy efficient buildings,
manufacturing facilities for renewable energy, together with work in the
transport, nuclear and power and energy sectors given our capability to
deliver major infrastructure projects.
The half year results include the acquisition of Voortman Steel Construction
('VSCH'), an innovative, market-leading Dutch steel fabrication company, which
is providing us with greater access to growing European market sectors and is
strengthening our market position in Europe. VSCH is integrating well into the
Group's operations and has contributed revenue of £28m and an underlying
profit before tax of £1.5m for the six months since its acquisition.
The Group's diversified activities, our strong, high-quality order books and
market-leading positions have provided us with the resilience to deliver
improved financial results during periods of challenging economic conditions.
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 stability of the Group.
In India, we remain very positive about the long-term trajectory of the market
and of the value creation potential of JSSL. Together with our joint venture
partner, we have now secured a plot of land in Gujarat, in the west of the
country, to expand the geographical footprint of the business and to
facilitate the expansion required to support the expected future market
growth.
The board considers the dividend to be a very important component of
shareholder returns. Based on our strong balance sheet and cash position and
longer-term prospects, the board has decided, once again, to increase the
interim dividend by 8 per cent to 1.4p per share.
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 modular product ranges of Severfield (Products and Processing)
('SPP') and of Construction Metal Forming ('CMF'), our cold rolled steel joint
venture business.
FINANCIAL REVIEW
H1 2024 (£m) Revenue UOP* UPBT*
Core Construction Operations 208.0 14.7 14.7
Modular Solutions 10.7 0.1 0.2
India - - 0.6
Central items / eliminations (3.4) - (1.3)
Group 215.3 14.8 14.2
H1 2023 (£m) Revenue UOP* UPBT*
Core Construction Operations 227.8 12.7 12.7
Modular Solutions 11.5 (0.6) (0.1)
India - - 0.6
Central items / eliminations (4.4) - (1.0)
Group 234.9 12.1 12.1
*The references to underlying operating profit (before JVs and associates) and
underlying profit before tax are defined in the 'notes to financials' and
reconciled to the statutory measures in note 19.
Revenue of £215.3m (H1 2023: £234.9m) represents a decrease of £19.6m (8
per cent) compared to the prior period. This reflects a decrease in revenue
from our Core Construction Operations, mainly representing lower production
activity of c.£47m offset by the revenue contribution from VSCH of £27.8m.
Underlying operating profit (before JVs and associates) of £14.8m (H1 2023:
£12.1m) represents an increase of £2.7m (22 per cent) over the prior period.
This reflects an increase in profit from our Core Construction Operations of
£2.0m, which includes the profit contribution from VSCH of £1.5m and
continued contract execution improvements which have helped offset the impact
on profit of lower revenue in the period. The higher profits also include
improved profitability of £0.7m from SPP, within Modular Solutions,
reflecting the first time that SPP has reported a profit. Statutory operating
profit (before JVs and associates), which includes the Group's non-underlying
items, was £11.9m (H1 2023: £10.5m), an increase of 13 per cent over the
prior period.
The share of profit from the Indian joint venture in the period was £0.6m (H1
2023: £0.6m), following an improvement in operating margin offset by lower
activity levels in H1, reflecting the timing and mix of work in JSSL's order
book.
The Group's underlying profit before tax was £14.2m (H1 2023: £12.1m), an
increase of 17 per cent compared to the previous period. The statutory profit
before tax was £11.0m (H1 2023: £10.2m), an increase of 8 per cent over the
prior period.
Non-underlying items for the period of £3.1m (H1 2023: £2.0m) consisted of
the amortisation of acquired intangible assets of £2.8m (H1 2023: £1.7m) and
acquisition-related expenses of £0.3m (H1 2023: £0.3m). 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, DAM Structures and VSCH. These assets are being
amortised over a period of 12 months to five years. Acquisition-related
expenses include the unwinding of the discount on the contingent consideration
for DAM Structures which is payable over a five-year period.
An underlying tax charge of £3.4m is shown for the period (H1 2023: £2.1m).
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 statutory rate in the UK and the Netherlands of 25 per cent (H1
2023: statutory rate in the UK of 19 per cent). The total tax charge of £2.7m
(H1 2023: £1.7m) also includes a non-underlying tax credit of £0.7m (H1
2023: £0.4m).
Underlying basic earnings per share is 3.5p (H1 2023: 3.3p). This calculation
is based on the underlying profit after tax of £10.8m (H1 2023: £10.0m) and
309,538,321 shares (H1 2023: 309,532,076 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 2.7p (H1 2023: 2.8p). Diluted
earnings per share, which includes the effect of the Group's performance share
plan, is 2.6p (H1 2023: 2.7p).
Net funds (pre-IFRS 16 basis) at 23 September 2023 were £0.4m (25 March 2023:
£2.7m). This included cash balances of £25.7m (25 March 2023: £11.3m) and
outstanding term loans of £25.5m (25 March 2023: £8.9m) which include the
acquisition loan for VSCH of £18.0m (25 March 2023: £nil). Operating cash
flow for the period before working capital movements was £19.0m (H1 2023:
£15.9m). Net working capital has decreased by £15.6m during the period
mainly reflecting an improvement in underlying working capital of £5.6m and
new advance payments in H1 (£10.0m). Excluding total advance payments of
£20.0m, which were secured on a large project, period-end net working capital
represented approximately five per cent of revenue, within our normal range of
four to six per cent (net working capital including advance payments was two
per cent of revenue). We continue to expect an outflow from working capital in
H2 as the remaining advance payments unwind.
During the period, 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 for DAM
Structures 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.
Capital expenditure of £5.4m (H1 2023: £2.1m) represents the continuation of
the Group's capital investment programme. This predominantly consisted of new
and upgraded equipment for our fabrication lines, an extension of the Dalton
factory and general infrastructure improvements. Depreciation in the period
was £4.4m (H1 2023: £3.6m), of which £1.2m (H1 2023: £0.9m) relates to
right-of-use assets under IFRS 16.
The Group's net defined benefit pension liability at 23 September 2023 was
£11.2m (scheme liabilities of £31.9m offset by scheme assets of £20.8m), a
decrease of £1.7m from the year-end position of £12.9m. The deficit has
reduced as a result of a higher discount rate, reflecting an 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 £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. As part of the Harry Peers, DAM Structures and VSCH
acquisitions, amortising term loans of £14m, £12m and £19m respectively
were established as amendments to the RCF. At 23 September 2023, of these
original loans of £45m, £25.5m remained outstanding.
OPERATIONAL REVIEW
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. The Group is pleased with the continuing high quality of
the UK and Europe order book which stands at £482m at 1 November (1
September: £479m, 1 June: £510m), of which £319m is for delivery over the
next 12 months. 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, 87 per cent of the order book represents projects in the
UK, with the remaining 13 per cent representing projects for delivery in
continental Europe and the Republic of Ireland (1 June: 90 per cent in the UK,
10 per cent in continental Europe and the Republic of Ireland).
Since the announcement of the 2023 results in June, we have secured a
significant amount of high-quality new work and variations to existing
contracts (c.£200m), and our large order book continues to provide us with
good earnings visibility for the remainder of the 2024 financial year and
beyond. We are also continuing to see some large project opportunities in the
UK and in continental Europe, supported by the recent acquisition of VSCH,
which is integrating well into the Group's operations. Notwithstanding this,
the continued backdrop of more persistent high inflation and high interest
rates is resulting in some ongoing delays in the conversion of our existing
pipeline of opportunities, together with some lower tendering activity and
competitive pricing, particularly in the distribution sector. In addition, the
decision by Sunset Studios (in Commercial and Industrial) to pause
construction on its planned new film production base in Hertfordshire,
resulted in this contract (c.£50m) being removed from the order book in July.
Looking further ahead, many of our chosen markets continue to have a
favourable outlook with excellent longer-term growth opportunities - 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
improve 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, together
with work in the transport, nuclear, oil and gas, and power and energy sectors
given our capability to deliver major infrastructure projects.
Project Horizon
Last year, the Group launched Project Horizon, our digitisation project. The
objective is to maximise the automation of our estimating, design, production
and contract delivery processes to improve client service and deliver
efficiency and capacity benefits. Workflows comprise over 100 short, medium
and long-term individual projects and initiatives designed to modernise and
further standardise processes and systems across the Group. To date, we have
completed nine projects and 20 of the 54 projects that we have classified as
short to medium term are currently on-going. Our dedicated project team is
currently self-funded through annual savings, with further benefits expected
to be realised as more of the identified projects and initiatives are
implemented. 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.
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 include an automated quality assurance reporting system
which improves traceability and client reporting, new systems for purchase
order approvals, construction stores and construction resource tracking,
including built-in fatigue management, together with ongoing work on
artificial intelligence to improve administrative processing times.
Core Construction Operations
£m H1 2024 H1 2023 Change
Revenue 208.0 227.8 -9%
Underlying operating profit (before JVs and associates) 14.7 12.7 +16%
Profit before tax 14.7 12.7 +16%
Revenue:
Commercial and Industrial 166.5 183.4 -9%
Nuclear and Infrastructure 41.5 44.4 -7%
Revenue of £208.0m (H1 2023: £227.8m) represents a decrease of £19.8m (9
per cent) compared to the prior period. This reflects lower activity levels of
£47.6m offset by new revenue from VSCH of £27.8m. Underlying operating
profit of £14.7m was up 16 per cent on the prior period (H1 2023: £12.7m),
which represents an increase in underlying profitability of £0.5m and the
profit contribution from VSCH of £1.5m. The increase in underlying
profitability reflects continued contract execution improvements which have
helped offset the impact on profit of lower revenue in the period.
Commercial and Industrial
Revenue has decreased by 9 per cent to £166.5m (HY 2023: £183.4m),
predominantly due to the pause in construction at Sunset Studios and the
ongoing softer market conditions in the distribution sector, which is
impacting the number of projects coming to market and resulting in a
competitive pricing environment for new work.
During the period, we continued to work on the new stadium for Everton F.C.,
the Envision Battery Plant in Sunderland, and the LHR 11 data centre and the
Excel Arena, both in London. We also started work on the SeAH Wind monopile
manufacturing facility, which forms part of the UK's fast-growing alternative
energy sector, responding to 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 November of £326m (1 June:
£372m) includes a significant amount of new work which we have secured over
recent months. This includes the full order for SeAH Wind, a manufacturing
facility for BAE in Barrow, a large data centre in Dublin, a commercial office
(334 Oxford Street) in London and a large development in the Netherlands,
secured by VSCH. Most of our work is derived through either negotiated,
framework or two-stage bidding procurement processes, in line with the risk
profile of the work being undertaken.
Despite the current market conditions, we continue to see some large project
opportunities in the UK and the EU, supported by the recent acquisition of
VSCH. These include data centres, particularly in continental Europe and
Ireland, oil and gas projects, stadia and leisure projects, commercial offices
in London and the regions, and projects in support of a low-carbon economy
such as battery plants, energy efficient buildings and manufacturing
facilities for renewable energy.
In the UK and EU, we are seeing opportunities for new battery gigafactories to
support domestic zero carbon vehicle production, including the Jaguar Land
Rover facility in Somerset, one of the biggest in Europe, which was recently
confirmed. The UK's emergence as a major hub for film, television, advertising
and gaming production has also led to an increase in demand for film and TV
studios. Demand for data centres in the UK and EU is also expected to
continue, fuelled by cloud computing, smartphones and artificial intelligence.
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 7 per cent to £41.5m (HY 2023: £44.4m) reflecting
some softer market conditions in the infrastructure business 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 and EKFB (Effage Kier) 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 November was £152m (1 June: £133m) of which 54
per cent represents transport infrastructure (1 June: 47 per cent) and 41 per
cent represents nuclear projects (1 June: 47 per cent). Notable recent awards
include some new HS2 bridge projects, 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 UK government remains committed to driving economic growth through major
infrastructure projects, highlighting investment in infrastructure and
sustainability, as central to boosting growth and productivity. The recent
announcement 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.
The Group is well-placed to meet this demand for ongoing state-backed
investment, including a growing focus on infrastructure which can mitigate the
impacts of climate change and deliver energy security. In addition to the
RIIO-T2 spend period (2021-2026), which includes £30 billion for investment
in energy networks and potential for a further £10 billion on green energy
projects, the UK Government has committed significant investment through its
Powering Up Britain programme. These plans, published in March 2023, set out
energy transition and security strategies under which major infrastructure
projects are already being brought to market in 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
entry barriers for competitors.
Strategic targets: our medium-term target is to grow revenues to over £125m,
representing a doubling of FY22 revenues, with margins of 8-10 per cent (6-8
per cent based on recent high steel prices).
Modular Solutions
£m H1 2024 H1 2023 Change
Revenue 10.7 11.5 -7%
Underlying operating profit (before JVs and associates) 0.1 (0.6) +0.7
Share of results of CMF 0.1 0.5 -0.4
Profit before tax 0.2 (0.1) +0.3
Modular Solutions consists of the growing modular product ranges of SPP based
in Sherburn and of CMF, our cold rolled steel joint venture business based in
Wales. We continue to be the only hot rolled steel fabricator in the UK to
have a cold rolled manufacturing capability. The division has been awarded
'Fit for Nuclear' and certain Network Rail accreditations which, together with
an expanding client base and our previous record in modular construction, we
believe will help us to achieve our future 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
§ Rotoflo - a high performance silo discharge system for the bulk handling
of materials such as paints and other dispersible solids.
Although revenue of £10.7m (H1 2023: £11.5m) represents a decrease of £0.8m
(7 per cent) compared to the prior period, for the first time, Modular
Solutions has reported an underlying operating profit for the period (H1 2023:
loss of £0.6m), reflecting an improved sales mix of higher-margin Severstor
and Rotoflo products. Divisional PBT of £0.2m (H1 2023: loss of £0.1m) also
includes the post-tax share of profit of CMF of £0.1m (H1 2023: £0.5m). The
reduction in profitability at CMF reflects some under-recovery of overheads as
the business continues the ramp up of its recently expanded production
operations in Wales.
In the period, 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. We have also continued to develop our growing pipeline of
opportunities, including in growth areas such as renewable energy and data
storage.
CMF's growing cold-rolled product range now includes load bearing frame and
deck profiles, purlins and side rail systems, supported by the business's new
manufacturing facility. During the period, we have continued to work on
several opportunities to supply the modular sector with steel sub-assemblies
and systems for temporary accommodation and other buildings, and factory-built
houses. These opportunities are being driven by the market growth in the
supply of modular buildings for education and healthcare and for modular
homes. 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 Rotoflo, we have an established foothold in the UK water treatment sector
and in the Indian paint manufacturing sector, where we see some further
opportunities to grow the overseas footprint of the business. Future growth
markets also include chemical processing, food processing and waste-water
treatment in the UK, US, India and Australia.
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 the 2023 financial year, Modular Solutions delivered revenue of
c.£60m (SPP: c.£20m and CMF: c.£40m).
INDIA
£m H1 2024 H1 2023 Change
Revenue 47.8 70.3 -32%
EBITDA 5.0 4.9 +2%
Operating profit 3.9 3.9 -
Operating margin 8.2% 5.5% +270 bps
Finance expense (2.5) (2.5) -
Profit before tax 1.4 1.4 -
Tax (0.2) (0.2) -
Profit after tax 1.2 1.2 -
Group share of profit after tax (50%) 0.6 0.6 -
In the first half of 2024, JSSL recorded an output of 32,000 tonnes, compared
to 44,000 tonnes in the prior period. This reduced output is evident in JSSL's
revenue of £47.8m, a reduction of 32 per cent compared to the prior period,
reflecting the timing of work in JSSL's order book. Despite the lower activity
levels in H1, JSSL's total output for 2024 is expected to exceed 100,000
tonnes, including sub-contracted work, for the second year running.
Despite the reduction in revenue, JSSL has reported an unchanged operating
profit of £3.9m (H1 2023: £3.9m), reflecting an improved operating margin of
8.2 per cent (H1 2023: 5.5 per cent). Financing expenses of £2.5m (H1 2023:
£2.5m) are also unchanged from the previous period, 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
reducing to a profit before tax of £1.4m (H1 2023: £1.4m).
The order book was £165m at 1 November (1 September: £170m, 1 June: £139m).
In terms of mix, 64 per cent of the order book represents higher margin
commercial work, with the remaining 36 per cent representing industrial
projects (1 June: commercial work of 55 per cent, industrial work of 45 per
cent). In the last financial year, we revalidated our Indian business plan
which reaffirmed the numerous growth opportunities that were identified
pre-pandemic, including those in new and existing market sectors, and the
significant value creation potential of JSSL. Together with our joint venture
partner, we have now secured a plot of land in Gujarat, in the west of India,
to expand the geographical footprint of the business and to facilitate the
expansion required to support expected future market growth.
With a record order book, improving pipeline of potential orders and numerous
identified growth opportunities, JSSL is well-positioned to take advantage of
a very encouraging outlook for the Indian economy and a strong underlying
demand for structural steel in construction.
ESG
Safety
The 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.
Sustainability
We have submitted near and long-term carbon emissions targets for approval by
the Science-Based Target initiative ('SBTi'). These targets are in line with
the objectives of the Paris Agreement and a commitment to reach Net Zero
emissions by 2050 across Scopes 1, 2 and 3. Once verified, we will disclose
progress against these targets on an annual basis through our annual report
and our Carbon Disclosure Project ('CDP') reporting. During the period, we
were shortlisted as a finalist for two sustainability awards - London
Construction awards and Green Apple Environment awards - for our innovative
approach to reducing deliveries of fabricated steel and hence carbon emissions
on our projects.
We have continued to maintain our focus on social value, including adopting
contract and business-specific defined social value objectives, supported by
our social and charitable committees and the Severfield Foundation. During the
period, social value was delivered by a wide range of activities including
fundraising, attending school fairs and careers days to promote STEM subjects,
increasing the intake of our annual apprentices and the successful delivery of
a pilot volunteering scheme at one of our factories. We have also completed a
Group mapping exercise, which means we now understand how much value we
delivered in the 2022 calendar year in line with the National TOMs methodology
framework.
We are currently undertaking a new ESG materiality assessment for the Group to
help shape our sustainability strategy. The results of this exercise will
highlight which issues (such as climate, biodiversity, health and safety and
diversity) are important to our stakeholders and we will report on the results
of this exercise in the 2024 annual report.
SUMMARY AND OUTLOOK
In the first six months of 2024, the Group has performed well. We have
increased Group profits and cashflows, our order books continue to be
substantial, well-diversified and of high quality, and our balance sheet
remains healthy, allowing us to continue making the right long-term decisions
for the business. Our businesses are well-positioned in markets with excellent
longer-term growth opportunities which gives the board the confidence to
increase the interim dividend by 8 per cent.
Although the wider economic backdrop continues to be challenging, given the
Group's successful track record, diversified activities and strong order
books, we continue to expect to deliver further progress and a full year
performance which is in line with expectations.
Alan Dunsmore
Chief Executive Officer
21 November 2023
Condensed consolidated interim financial statements
Consolidated income statement
Six months ended Six months ended Year ended
23 September 2023 (unaudited) 24 September 2022 (unaudited) 25 March 2023 (audited)
Non-underlying Non-underlying Non-underlying
Underlying £000 Total Underlying £000 Total Underlying£000 £000 Total
£000 £000 £000 £000 £000
Revenue 215,256 - 215,256 234,869 - 234,869 491,753 - 491,753
Operating costs (200,490) (2,853) (203,343) (222,741) (1,669) (224,410) (458,686) (4,811) (463,497)
Operating profit before share of results of JVs and associates 14,766 (2,853) 11,913 12,128 (1,669) 10,459 33,067 (4,811) 28,256
Share of results of JVs and associates 800 - 800 1,039 - 1,039 1,898 - 1,898
Operating profit 15,566 (2,853) 12,713 13,167 (1,669) 11,498 34,965 (4,811) 30,154
Net finance expense (1,408) (289) (1,697) (1,029) (289) (1,318) (2,489) (558) (3,047)
Profit before tax 14,158 (3,142) 11,016 12,138 (1,958) 10,180 32,476 (5,369) 27,107
Taxation (3,371) 713 (2,658) (2,090) 416 (1,674) (6,238) 697 (5,541)
Profit for the period 10,787 (2,429) 8,358 10,048 (1,542) 8,506 26,238 (4,672) 21,566
Earnings per share:
Basic 3.48p (0.78)p 2.70p 3.25p (0.50)p 2.75p 8.48p (1.51)p 6.97p
Diluted 3.40p (0.77)p 2.63p 3.21p (0.49)p 2.72p 8.39p (1.49)p 6.90p
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
23 September 2023 24 September 2022 25 March 2023
(unaudited) (unaudited) (audited)
£000 £000 £000
Items that will not be reclassified to income statement:
Actuarial gain/(loss) on defined benefit pension scheme 737 4,787 (701)
Tax relating to components that will not be reclassified (183) (1,195) 175
554 3,592 (526)
Items that are or may be reclassified to income statement:
Cash flow hedges - reclassified to income statement (165) 207 243
Exchange difference on foreign operations (122) (96) (86)
Tax relating to components that may be reclassified - - 153
Gains/(losses) taken to equity on cash flow hedges 78 (1,364) (1,147)
(209) (1,253) (837)
Other comprehensive income 345 2,339 (1,363)
for the period
Profit for the period from continuing operations 8,358 8,506 21,566
Total comprehensive income for the period attributable to equity shareholders 8,703 10,845 20,203
of the parent
Consolidated balance sheet
At At At
23 September 2023 24 September 2022 25 March 2023
(unaudited) (unaudited) (audited)
£000 £000 £000
ASSETS
Non-current assets
Goodwill 98,510 82,188 82,188
Other intangible assets 8,100 8,713 7,095
Property, plant and equipment 99,421 90,297 92,067
Right-of-use assets 18,040 10,724 13,018
Interests in JVs and associates 32,580 31,175 31,784
Contract assets, trade and other receivables 2,805 5,656 2,245
259,456 228,753 228,397
Current assets
Inventories 12,823 17,589 13,231
Contract assets, trade and other receivables 77,997 118,274 109,721
Current tax asset 1,235 1,045 2,278
Derivative financial instruments 254 - 25
Cash and cash equivalents 25,664 - 11,338
117,973 136,908 136,593
Total assets 377,429 365,661 364,990
LIABILITIES
Current liabilities
Overdraft - (2,769) -
Trade and other payables (94,413) (109,080) (102,699)
Financial liabilities - borrowings (8,625) (7,375) (4,150)
Financial liabilities - leases (2,572) (1,576) (2,172)
Derivative financial instruments - (281) -
(105,610) (121,081) (109,021)
Non-current liabilities
Trade and other payables (1,483) (2,315) (2,377)
Retirement benefit obligations (11,155) (8,499) (12,871)
Financial liabilities - borrowings (16,900) (6,000) (4,800)
Financial liabilities - leases (16,076) (9,587) (11,224)
Deferred tax liabilities (7,948) (7,921) (6,979)
(53,562) (34,322) (38,251)
Total liabilities (159,172) (155,403) (147,272)
NET ASSETS 218,257 210,258 217,718
EQUITY
Share capital 7,739 7,738 7,739
Share premium 88,522 88,518 88,522
Other reserves 3,530 4,542 5,959
Retained earnings 118,466 109,460 115,498
TOTAL EQUITY 218,257 210,258 217,718
Consolidated statement of changes in equity
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 period - - (209) 8,912 8,703
Equity settled share-based payments - - 433 478 911
Purchase of shares - - (2,653) - (2,653)
Dividend provided for or paid* - - - (6,422) (6,422)
At 23 September 2023 (unaudited) 7,739 88,522 3,530 118,466 218,257
*The 2023 final dividend of £6.4m was paid to shareholders on 11 October
2023.
Share Share Other Retained Total
Capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 27 March 2022 7,738 88,511 4,485 103,226 203,960
Total comprehensive income for the 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
schemes.
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 provided for or paid - - - (9,877) (9,877)
At 25 March 2023 (audited) 7,739 88,522 5,959 115,498 217,718
*The issue of shares represents shares allotted for the 2018, 2020 and 2021
Sharesave schemes.
Consolidated cash flow statement
Six months ended Six months ended Year
23 September 2023 24 September 2022 ended
(unaudited) (unaudited) 25 March
£000 £000 2023
(audited)
£000
Net cash flow from operating activities 31,390 13,292 50,292
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment 94 468 317
Purchases of land and buildings (240) - (635)
Purchases of other property, plant and equipment (5,127) (1,999) (5,668)
Purchases of intangible assets - (68) (168)
Payment of deferred and contingent consideration (1,183) (7,000) (8,534)
Investment in subsidiary entity, net of cash acquired (22,554) - -
Net cash used in investing activities (29,010) (8,599) (14,688)
Cash flows from financing activities
Interest paid (1,106) (975) (2,495)
Dividends paid - - (9,877)
Proceeds from shares issued - 7 12
Proceeds from borrowings 19,000 - -
Repayment of borrowings (2,425) (1,475) (5,900)
Repayment of lease liabilities (870) (1,045) (2,032)
Purchase of shares (net of SAYE cash received) (2,653) - -
Net cash generated from/(used in) financing activities 11,946 (3,488) (20,292)
Net increase in cash and cash equivalents 14,326 1,205 15,312
Cash and cash equivalents at beginning 11,338 (3,974) (3,974)
of period
Cash and cash equivalents at end of period 25,664 (2,769) 11,338
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 25 March 2023 were approved by the board of directors on 14 June 2023
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 23 September 2023 has been reviewed, not audited, and was approved for
issue by the board of directors on 20 November 2023.
2) Basis of preparation
The condensed consolidated interim financial statements for the six months
ended 23 September 2023 has been prepared in accordance with the UK-adopted
international accounting standard 34 'Interim Financial Reporting' as adopted
for use in the UK and the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority. The condensed consolidated interim financial
statements have been prepared applying the accounting policies and
presentation that were applied in the preparation of the statutory financial
statements for year ended 25 March 2023, which were prepared in accordance
with UK-adopted international accounting standards (IFRS) and the requirements
of the companies Act 2006. The condensed consolidated financial statements
have also been prepared in accordance with UK-adopted financial reporting
standards.
Going concern
Net funds (pre-IFRS 16 basis) at 23 September 2023 were £0.4m, representing
cash of £25.7m and the outstanding term loans of £25.5m, net of debt
arrangement costs of £0.2m. The Group has a £60m 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
facility of £45m, which allows the Group to increase the aggregate available
borrowings to £60m. 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 2024 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 only 25 per cent of forecast uncontracted orders
for the next 12 months, one-off contract losses, a deterioration of market
conditions and other downside factors. Given the Group's diversified
operations, successful track record and previous strong performance during
periods of challenging market conditions, this scenario was only modelled to
stress test our strong financial position and demonstrates 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 statements are consistent with those
used in preparing the statutory financial statements for the year ended 25
March 2023.
Taxes on profits in interim periods are accrued using the tax rate is expected
to be applicable to total earning for the full year based on enacted rates at
the interim date.
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 accounting standards that are effective for the first time
for the six months ended 23 September 2023 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 30
March 2024, other than as disclosed below, have not changed from those
disclosed on pages 92 to 104 of the strategic report included in the annual
report for the year ended 25 March 2023. 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
§ Sustainable and responsible business
§ Industrial relations
The preparation of the condensed consolidated interim financial statements
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 pages 189
and 190 of the annual report for the year ended 25 March 2023.
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 £17,000,000 to a loss of £4,000,000.
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 £39,545,000 (25
March 2023: £48,840,000).
5) Segmental analysis
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 the recently acquired Voortman
Steel Construction Holding B.V. group of companies.
§ Modular Solutions - comprising Severfield Products and Processing ('SPP')
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 SPP 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 interim statement 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.
Segment assets and liabilities are not presented as these are not reported to
the CODM.
Segmental results
Core Construction Operations Modular Solutions JSSL Central costs/ elimination Total
Period ended 23 September 2023: £000 £000 £000 £000 £000
Revenue 207,986 10,726 - (3,456) 215,256
Underlying operating profit 14,716 50 - - 14,766
Underlying operating profit margin 7.1% 0.5% 6.9%
Result from joint ventures
- CMF - 191 - - 191
- JSSL - - 609 609
Finance costs - - - (1,408) (1,408)
Underlying profit before tax 14,716 241 609 (1,408) 14,158
Non-underlying items (note 7) (2,853) - - (289) (3,142)
Profit before tax 11,863 241 609 (1,697) 11,016
Other material items of income and expense:
- Depreciation of owned property, plant and equipment (3,162) (77) - - (3,239)
- Depreciation of right-of-use assets (1,145) (17) - - (1,162)
- Other operating income 788 56 - - 844
Core Construction Operations Modular Solutions JSSL Central costs/ elimination Total
Period ended 24 September 2022*: £000 £000 £000 £000 £000
Revenue 227,772 11,518 - (4,421) 234,869
Underlying operating profit 12,706 (578) - - 12,128
Underlying operating profit margin 5.6% -5.0% 5.2%
Result from joint ventures
- CMF - 453 - - 453
- JSSL - - 586 - 586
Finance costs - - - (1,029) (1,029)
Underlying profit before tax 12,706 (125) 586 (1,029) 12,138
Non-underlying items (note 7) (1,669) - - (289) (1,958)
Profit before tax 11,037 (125) 586 (1,318) 10,180
Other material items of income and expense:
- Depreciation of owned property, plant and equipment (2,622) (65) - - (2,687)
- Depreciation of right-of-use assets (891) (23) - - (914)
- Other operating income 658 25 - - 683
*Comparative information has been represented to provide segmental disclosures
in line with the period ended 23 September 2023.
Core Construction Operations Modular Solutions JSSL Central costs/ elimination Total
52 week 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 7) (3,338) - - (2,031) (5,369)
Profit before tax 30,710 (55) 1,315 (4,863) 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
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:
Half year Year ended 25 March 2023*
2024 2023*
£000 £000 £000
Construction contracts:
- Commercial and Industrial 166,468 183,443 382,055
- Nuclear and Infrastructure 41,518 44,329 94,760
Core Construction Operations 207,986 227,772 476,815
Modular Solutions 10,726 11,518 22,820
Elimination of inter-segment revenue (3,456) (4,421) (7,882)
Total Group revenue 215,256 234,869 491,753
*Comparative information has been represented to provide additional
disclosures on revenue at a divisional level.
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.
Half year Year ended 25 March 2023*
2024 2023*
Core Construction Operations - revenue by destination £'000 £'000 £'000
United Kingdom 171,210 204,014 437,741
Republic of Ireland and continental Europe 36,776 23,758 39,074
207,986 227,772 476,815
Half year Year ended 25 March 2023*
Modular Solutions - revenue by destination 2024 2023*
£'000 £'000 £'000
United Kingdom 7,270 7,097 14,938
Republic of Ireland and continental Europe - - -
7,270 7,097 14,938
*Comparative information has been represented to provide additional
disclosures on revenue at a divisional level.
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
March
2
At At At
23 September 2023 24 September 2022 25 March
£000 £000 2023
£000
Operating costs (2,853) (1,669) (4,811)
Finance expense (289) (289) (558)
Non-underlying items before tax (3,142) (1,958) (5,369)
Tax on non-underlying items 713 416 697
Non-underlying items after tax (2,429) (1,542) (4,672)
1
Non-underlying items before tax consist of: At At At
23 September 2023 24 September 2022 25 March
£000 £000 2023
£000
Amortisation of acquired intangible assets (2,853) (1,669) (3,338)
Acquisition-related expenses - - (1,816)
Unwinding of discount on contingent consideration (289) (289) (558)
FV adjustment to contingent consideration - - 343
Non-underlying items before tax (3,142) (1,958) (5,369)
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, DAM Structures and the Voortman Steel
Construction Group.
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).
Accordingly, certain alternative performance measures ('APMs') have been used
throughout this report to supplement rather than replace the measure provided
under IFRS, see note 19 for further details.
8) Taxation
The corporation tax expense reflects the estimated underlying effective tax
rate of 25 per cent on profit before taxation for the Group for the year
ending 30 March 2024.
9) Dividends
March 2022
Six months ended Six months ended Year
23 September 2023 24 September 2022 ended
£000 £000 25 March 2023
£000
2022 final - 1.9p per share - (5,864) (5,864)
2023 interim - 1.3p per share - - (4,013)
2023 final - 2.1p per share (6,422) - -
(6,422) (5,864) (9,877)
The 2023 final dividend of £6,422,000 was paid to
shareholders on 11 October 2023.
The directors have declared an interim dividend in respect of the six months
ended 23 September 2023 of 1.4p per share (H1 2023: 1.3p per share) which will
amount to an estimated dividend payment of £4,300,000 (H1 2023: £4,013,000).
This dividend is not reflected in the balance sheet as it was declared and
will be paid after the balance sheet date, on 2 February to shareholders on
the register at the close of business on 5 January.
10) Earnings per share
Earnings per share is calculated as follows:
Six months ended Six months ended Year
23 September 2023 24 September 2022 ended
£000 £000 25 March
2023
£000
Earnings for the purposes of basic earnings per share being net profit 8,358 8,506 21,566
attributable to equity holders of the parent company
Earnings for the purposes of underlying basic earnings per share being 10,787 10,048 26,238
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 309,538,321 309,532,076 309,533,696
per share
Effect of dilutive potential ordinary shares and under share plans 7,670,171 3,313,744 3,239,813
Weighted average number of ordinary shares for the purposes of diluted 317,208,492 312,845,820 312,773,509
earnings per share
Basic earnings per share 2.70p 2.75p 6.97p
Underlying basic earnings per share 3.48p 3.25p 8.48p
Diluted earnings per share 2.63p 2.72p 6.90p
Underlying diluted earnings per share 3.40p 3.21p 8.39p
11) Property, plant and equipment
During the period, the Group acquired land and buildings of £240,000 (H1
2023: £nil) and other property, plant and equipment of £5,127,000 (H1 2023:
£1,999,000). The Group also disposed of other property, plant and equipment
for £94,000 (H1 2023: £468,000) resulting in a loss on disposal of £5,000
(H1 2023: gain of £17,000).
12) Intangible assets
During the period, the Group capitalised software-related costs of £nil (H1
2023: £68,000).
13) Net funds/(debt)
1
1
At At At
23 September 2023 24 September 2022 25 March
£000 £000 2023
£000
Borrowings (25,525) (13,375) (8,950)
Cash and cash equivalents 25,664 (2,769) 11,338
Unamortised debt arrangement costs 278 364 321
Net funds/(debt) (pre-IFRS 16) 417 (15,780) 2,709
IFRS 16 lease liabilities (18,648) (11,163) (13,396)
Net debt (post-IFRS 16) (18,231) (26,943) (10,687)
The Group also presents net debt/funds on a pre-IFRS 16 basis as lease
liabilities are excluded from the definition of net debt/funds 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
23 September 2023 24 September 2022 25 March
£000 £000 2023
£000
Assets/(liabilities)
Foreign exchange contracts 254 (281) 25
15) Net cash flow from operating activities
March
2
Six months ended Six months ended Year
23 September 2023 24 September 2022 ended
£000 £000 25 March
2023
£000
Operating profit from continuing operations 12,713 11,498 30,154
Adjustments:
Depreciation of property, plant and equipment 3,239 2,687 5,407
Right-of-use asset depreciation 1,162 914 1,840
Loss/(gain) on disposal of other property, plant and equipment 5 (17) (52)
Amortisation of intangible assets 2,898 1,698 3,416
Movements in pension scheme liabilities (1,066) (1,109) (2,226)
Share of results of JVs and associates (800) (1,039) (1,898)
FX movements (86) - -
Share-based payments 911 1,310 3,420
Operating cash flows before movements in working capital 18,976 15,942 40,061
Decrease in inventories 554 416 4,774
Decrease in receivables 41,298 1,666 10,701
Decrease in payables (26,248) (2,887) (1,724)
Cash generated from operations 34,580 15,137 53,812
Tax paid (3,190) (1,845) (3,520)
Net cash flow from operating activities 31,390 13,292 50,292
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 30 on page 216 of the annual report for year ended 25 March
2023 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 23 September 2023, 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 £800,000 (H1 2023:
£1,039,000) for the period reflects a profit from JSSL of £608,000 (H1 2023:
£586,000) and a profit from CMF of £192,000 (H1 2023: £453,000).
The Group incurred additional operating costs in relation to the day-to-day
running of its Indian joint venture ('JSSL') of £128,000 (H1 2023:
£130,000). Those costs were recharged to JSSL during the period and the
amount due from JSSL at 23 September 2023 was £943,000 (25 March 2023:
£806,000). The amount due to JSSL at 23 September 2023 was £583,000 (25
March 2023: £nil).
During the period, the Group has purchased services from CMF of £5,226,000
(H1 2023: £4,744,000). The amounts due from and to CMF at 23 September 2023
was £nil (25 March 2023: £1,001,000) and £679,000 (25 March 2023:
£4,637,000) respectively.
During the period, the Group contracted with and purchased services from MET
Structures, amounting to sales of £65,000 (H1 2023: £6,701,000) and
purchases of £151,000 (H1 2023: £nil). The amount due from MET Structures at
23 September 2023 was £1,199,000 (25 March 2023: £2,109,000). MET Structures
shared common directors with the Group during the period.
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 Company and its subsidiaries have provided unlimited multilateral
guarantees to secure any bank overdrafts and loans of all other Group
companies. At 23 September 2023 this amounted to £nil (25 March 2023: £nil).
The Group has also given performance bonds in the normal course of trade.
18) Business combinations
Summary of acquisition
On 3 April 2023, the Company acquired 100 per cent of the share capital of
Voortman Steel Construction Holding B.V. ('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 will enhance the Group's reputation
and presence in the European market, building on its existing European
business, and will help accelerate Severfield'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 presents 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) comprises:
£000
Gross consideration 26,348
Net cash acquired (excluding payments in advance) (3,794)
Net consideration 22,554
VSCH was acquired for an initial gross consideration of £26,348,000,
including cash and cash equivalents of £3,794,000, which has been funded by a
combination of Group cash reserves and a new term loan.
The provisional 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 4,611
Right of use assets 5,264
9,969
Current assets
Inventories 146
Contract assets, trade and other receivables 8,367
Cash and cash equivalents 3,794
12,307
Total assets 22,276
Current liabilities
Trade and other payables (9,249)
Lease liabilities (435)
(9,684)
Non-current liabilities
Lease liabilities (4,829)
Retirement benefit obligations (88)
Deferred tax liability (228)
Provisions (317)
Total liabilities (15,146)
Net assets 7,130
Net cash acquired (3,794)
Net identifiable assets acquired 3,336
Identified intangible assets 3,903
Deferred tax on intangibles (1,007)
Goodwill 16,322
Net assets acquired 22,554
The initial accounting for the business combination is considered provisional
whilst fair values are finalised.
Provisional goodwill of £16,322,000 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.
The fair value of trade receivables is £7,306,000 which is equal to the gross
contractual amount of trade receivables.
Analysis of amounts disclosed in the cash flow statement in connection with
the acquisition:
2023
£000
Gross initial cash consideration 26,348
Net cash acquired (including payments in advance) (3,794)
Total cash outflow - investing activities 22,554
Acquisition-related costs of £1,816,000 were fully expensed in the period
ended 25 March 2023 as non-underlying operating costs (see note 7).
The acquired business contributed revenues of £27,781,000 and profit before
tax of £1,546,000, to the Group, since the acquisition date.
19) 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
23 September 2023 24 September 2022 25 March 2023
(unaudited) (unaudited) (audited)
Underlying operating profit (before JVs and associates) £000 £000 £000
Underlying operating profit (before JVs and associates) 14,766 12,128 33,067
Non-underlying operating items (2,853) (1,669) (4,811)
Share of results of JVs and associates 800 1,039 1,898
Operating profit 12,713 11,498 30,154
Six months Six months Year
ended ended ended
23 September 2023 24 September 2022 25 March 2023
(unaudited) (unaudited) (audited)
Underlying profit before tax £000 £000 £000
Underlying profit before tax 14,158 12,138 32,476
Non-underlying items (3,142) (1,958) (5,369)
Profit before tax 11,016 10,180 27,107
Six months Six months Year
ended ended ended
23 September 2023 24 September 2022 25 March 2023
(unaudited) (unaudited) (audited)
Underlying basic earnings per share £000 £000 £000
Underlying net profit attributable to equity holders of the parent Company 10,787 10,048 26,238
Non-underlying items after tax (2,429) (1,542) (4,672)
Net profit attributable to equity holders of the parent Company 8,358 8,506 21,566
Weighted average number of ordinary shares 309,538,321 309,532,076 309,533,696
Underlying basic earnings per share 3.48p 3.25p 8.48p
Basic earnings per share 2.70p 2.75p 6.97p
Six months Six months Year
ended ended ended
23 September 2023 24 September 2022 25 March 2023
(unaudited) (unaudited) (audited)
Net debt £000 £000 £000
Borrowings (25,525) (13,375) (8,950)
Cash and cash equivalents 25,664 (2,769) 11,338
Unamortised debt arrangement costs 278 364 321
Net funds/(debt) (pre-IFRS 16) 417 (15,780) 2,709
IFRS 16 lease liabilities (18,648) (11,163) (13,396)
Net debt (post-IFRS 16) (18,231) (26,943) (10,687)
20) Cautionary statement
The condensed interim financial statements (interim report) have 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 interim report 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.
21) 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
21 November 2023 21 November 2023
Independent review report to Severfield plc
Conclusion
We have been engaged by Severfield plc "the Company" to review the condensed
set of financial statements in the half-yearly financial report for the six
months ended 23 September 2023 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 23 September 2023 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 Company to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Company 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 Company are
prepared in accordance with UK-adopted international 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 Company'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 Company 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
1 Sovereign Square
Sovereign Street
Leeds
West Yorkshire
LS1 4DA
21 November 2023
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