REG - Severfield PLC - Results for the year ended 26 March 2022
15/06/2022 07:00
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RNS Number : 8679O Severfield PLC 15 June 2022
15 June 2022
Results for the year ended 26 March 2022
Record order book, good earnings visibility through 2023, inflationary
pressures being well managed
Severfield plc, the market leading structural steel group, announces its
results for the year ended 26 March 2022.
£m Year ended Year ended
26 March 2022 27 March 2021
Revenue 403.6 363.3
Underlying(1) operating profit 26.9 25.5
(before JVs and associates)
Underlying(1) operating margin 6.7% 7.0%
(before JVs and associates)
Operating profit 22.8 22.3
Operating margin 5.7% 6.1%
Underlying(1) profit before tax 27.1 24.3
Profit before tax 21.0 21.1
Underlying(1) basic earnings per share 7.2p 6.4p
Basic earnings per share 5.1p 5.6p
Return on capital employed ('ROCE') 13.5% 13.6%
Headlines
§ Revenue up 11% to £403.6m (2021: £363.3m)
§ Underlying(1) profit before tax up 11% to £27.1m (2021: £24.3m),
demonstrates resilience of the Group in challenging market conditions
§ Underlying(1) basic earnings per share up 12% at 7.2p (2021: 6.4p)
§ Total dividend increased by 7% to 3.1p per share (2021: 2.9p per share),
includes proposed final dividend of 1.9p per share (2021: 1.8p per share)
§ Year-end net debt (on a pre-IFRS-16 basis(2)) of £18.4m (2021: net funds
of £4.4m), reflects higher steel purchases to meet production needs in 2023
and the impact of steel price rises
§ Record UK and Europe order book of £486m at 1 June 2022 (1 November
2021: £393m), includes new industrial and distribution, film studio,
commercial office and bridge orders and the new stadium for Everton F.C.
§ Share of profit from Indian joint venture ('JSSL') of £0.8m (2021: loss
of £0.7m), reflecting revenue growth and margin improvement following the
disruptive impact of COVID-19 in 2021
§ India order book of £158m at 1 June 2022 (1 November 2021: £140m),
reflects strong underlying demand for structural steel in India
§ Successful completion of new £50m revolving credit facility maturing in
December 2026
§ New simplified divisional structure implemented for UK and Europe
operations from 1 April 2022 - creating three new divisions aligned with our
chosen market sectors
ESG
§ Certified by the Carbon Trust as carbon neutral, CDP 'A-' rating for
leadership on climate change
§ Top UK construction business in the 2022 Financial Times listing of
Europe's climate leaders
§ Net zero carbon target established for 2040
Outlook
§ UK and Europe - tendering and pipeline activity remains encouraging -
including opportunities in the industrial and distribution (battery plants and
distribution centres), transport infrastructure, nuclear, data centre and
commercial office sectors
§ India - strong and growing underlying demand for structural steel - JSSL
is very well-positioned to take advantage of an improving economy
§ Record order book provides good earnings visibility through 2023 and
beyond
§ Inflationary and supply chain pressures remain a challenge but continue
to be well managed
§ Expectations for 2023 are unchanged despite the challenging
macro-economic backdrop
Alan Dunsmore, Chief Executive Officer commented:
'We are delighted to be reporting a resilient and strong performance despite
the ongoing market challenges. The Group's growth strategy is delivering a
record order book with a broad diversity of sectors, geographies and clients,
providing us with good earnings visibility through 2023 and beyond. Although
inflation and supply chain pressures remain, we are managing these well and
the earnings visibility gives us confidence in maintaining our positive
performance expectations for 2023.'
For further information, please contact:
Severfield Alan Dunsmore 01845 577 896
Chief Executive Officer
Adam Semple 01845 577 896
Group Finance Director
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 £6.1m (2021: £3.2m) including the
amortisation of acquired intangible assets of £5.2m (2021: £2.8m) and net
acquisition-related expenses of £0.7m (2020: £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 3 to the 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 9 to the financial statements).
(3) except as otherwise stated '2021' and '2022' refer to the 52-week periods
ended 27 March 2021 and 26 March 2022 and '2023' refers to the 52-week period
ending 25 March 2023. 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 11
to the 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.165,000 tonnes of
steel per annum. The Group has six sites, c.1,500 employees and expertise in
large, complex projects across a broad range of sectors. The Group also has an
established presence in the expanding Indian market through its joint venture
partnership with JSW Steel (India's largest steel producer).
OPERATING REVIEW
Group overview
The Group has had another successful year in 2022, delivering profit growth
both in the UK and India against a backdrop of some challenging market
conditions, and securing a significant value of new work, which is reflected
in our order books of £486m in the UK and Europe and £158m in India.
Together, these provide us with good visibility of earnings and leave us
well-positioned with a strong future workload for the 2023 financial year and
beyond.
Despite inflationary and supply chain pressures which have been a feature of
most of the year, with an already challenging trading environment now being
exacerbated by the Russian invasion of Ukraine, the 2022 results demonstrate
the resilience of the Group and serve to highlight its many strengths. These
include the additional resilience provided by our market sector, geographical
and client diversity, the talent and commitment of our workforce, our supply
chain management expertise, and our strong financial position.
In 2022, we have increased our revenue by 11 per cent to £403.6m (2021:
£363.3m) and our underlying(1) profit before tax by 11 per cent to £27.1m
(2021: £24.3m), following the operational disruption experienced in 2021 from
the COVID-19 pandemic. The increase in profit also reflects our ability to
offset inflationary cost increases through a combination of operating
efficiencies, higher selling prices and contractual protection as steel
remains largely a pass-through cost for the Group.
We have maintained a good financial position throughout the year, enabling us
to continue to grow the dividend and support ongoing investment in the
business. Year-end net debt (on a pre-IFRS 16 basis(2)) was £18.4m (2021: net
funds of £4.4m), which includes the outstanding term loans for acquisitions
of £14.9m (2021: £20.8m). The increase in borrowings mainly reflects a
normalisation of working capital, the impact of steel and other input price
rises, together with higher steel purchases to meet production requirements
when executing our record order book in 2023.
The Indian joint venture ('JSSL') has performed profitably in 2022, following
a difficult start to the year when output was disrupted by the second wave of
COVID-19. JSSL continues its recovery towards pre-pandemic levels of output in
2023 and the company's strong order book, together with an improving pipeline
of potential orders, reflects a continuing strong underlying demand for
structural steel in India. All this leaves the business very well-positioned
to take advantage of an improving economy.
Strategy
The Group's strategy is driven by its core strengths of engineering and
construction. This well-established strategy is unchanged, focused on growth,
both organic and through selective acquisitions, operational improvements and
building further value in JSSL.
In recent years, the evolution of this strategy has been particularly evident
in our significant market sector, geographical and client diversification,
which has enabled us to successfully navigate periods of market softness in
certain of our main sectors in the UK, notably commercial offices. This has
resulted in a more balanced business (the Group now serves ten market sectors)
and a resilience which has seen us successfully negotiate the headwinds of
Brexit, the COVID-19 pandemic and the inflationary pressures in the current
year. The successful implementation of our strategy has also facilitated
revenue growth and reinforced the Group's strong balance sheet and ability to
generate cash which have allowed us to continue to invest in our operations
and in acquisitions such as Harry Peers and DAM Structures. As a result, our
capabilities are aligned with many market sectors with strong growth
potential. The Group is well positioned to meet the demand for ongoing
investment in the UK's infrastructure, while our diverse construction
activities remain focused on key areas such as industrial and distribution,
data centres, stadia and leisure, nuclear and commercial offices.
In India, we remain positive about the long-term trajectory of the market and
of the value creation potential of JSSL. This is especially considering the
structural changes in the economy over recent years, the government's ongoing
focus on simplifying regulations and the 'ease of doing business', and the
significant expansion of the business already evidenced to date which has
resulted in a business capable of producing over 100,000 tonnes of steelwork
from one site in Bellary.
In response to the strong long-term growth projections for India, and in
tandem with our joint venture partner, we are in the process of selecting a
plot of land to facilitate expansion of the business in the future. We expect
that this land purchase will be completed in the 2023 financial year. This
will allow the business to expand its geographical footprint whilst providing
it with the platform to build quickly and incrementally add the necessary
volume to support the expected future market growth.
New divisional structure
The Group has grown significantly over recent years, both organically and
through acquisition. In response to this, since the size and shape of the
Group has changed and evolved significantly over the last five years, we have
created a simpler divisional structure for our UK and Europe operations. This
has resulted in three new market-focused divisions (see below) in a structure
designed to align our existing businesses more closely with the ten market
sectors that we serve and our growing customer base. Further information on
how this new structure will be presented will be provided at a Capital Markets
Day ('CMD') later in the calendar year (a separate RNS notice will be issued
for the CMD in due course). There are no non-underlying costs associated with
this re-organisation which has been implemented for operational purposes.
The market dynamics of our three new divisions are different, in terms of the
solutions that customers seek, project characteristics, the competitive
landscape and their economic cycles. This in turn offers very different
opportunities for the Group in terms of the growth rates and margin
opportunities available to us. By creating a Group structure with three
divisions focused on our chosen markets, we will not only optimise the
operations of each division to the market dynamics they face but provide us
with a better platform to fulfil our strategic growth aspirations, both
organically and by acquisition.
This new structure will also allow 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.
With effect from 1 April 2022, the current structure of six mainly
location-based business units was streamlined into three market-focused
divisions as follows:
The Commercial and Industrial division will bring together the Group's strong
capabilities which serve the following market sectors - industrial and
distribution, commercial offices, stadia and leisure, data centres, retail and
health and education.
The Nuclear and Infrastructure division will encompass the Group's
market-leading positions in the nuclear, power and energy, transport (road and
rail) and process industries sectors.
The Products and Processing division will include the growing modular product
ranges of Severfield (Products & Processing) 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.
UK and Europe review
Revenue was up 11 per cent over the prior year mainly reflecting an increase
in steel prices and the full year revenue effect of DAM Structures which was
acquired in February 2021. During the year, we continued to work on several
large distribution facilities in the UK, our first HS2 bridge package, Water
Orton Viaducts in the Midlands, and a large industrial facility in the
Republic of Ireland, which is now substantially complete. Other significant
revenue contributing projects include the Google Headquarters at King's Cross,
the Co-op Live Arena in Manchester and Sky Studios in Elstree, together with a
number of mid-sized office developments, both in London and the UK regions
(including Argyle Street in Glasgow, and 30 Grosvenor Square and 30 South
Colonnade, both in London).
The underlying(1) operating margin (before JVs and associates) was 6.7 per
cent (2021: 7.0 per cent), resulting in an underlying(1) operating profit
(before JVs and associates) of £26.9m (2021: £25.5m). This represents profit
growth of six per cent against a comparator which included a one-off profit of
£1.5m on a bespoke paint package on the large industrial project in the
Republic of Ireland (if this one-off profit is disregarded, the Group's
results show profit growth of over 12 per cent).
Whilst underlying operating profits have increased year-on-year, the slight
reduction in the margin percentage mainly reflects the dilutive impact of
steel prices which have recently more than doubled and are largely passed on
to the client at zero margin. This has resulted in an increase in revenue of
c.£20m in 2022 but no associated increase in the Group's absolute
profitability. This dilutive effect on margins would reverse if steel costs
reduced to pre-pandemic levels in the future.
Across the Group, inflationary pressures and supply issues for both us and our
clients have presented challenges in 2022, with an already difficult trading
environment now being exacerbated by the war in Ukraine. We have experienced
some increases in lead times and supply restrictions, upward pressures on
costs due to tighter labour markets and significant price increases for
certain products and services. This has included steel products, reflecting
the volatility in iron ore prices, increased energy costs and, latterly, some
supply restrictions as a number of steel products previously originated in
Russia and Ukraine. Whilst not immune to these pressures, we have not
experienced any significant disruptions to operations and the impact has
generally been managed through contractual protection, operating efficiencies,
higher selling prices and by forward purchasing as appropriate, leveraging the
Group's scale and supply chain and sub-contract management strengths. For
steel supply, we benefit from relationships with several partners in the UK
and continental Europe, reducing the risk of interruptions to the Group's
steel supply.
Inflationary pressures remain present and are expected to continue into 2023,
however we expect to be able to minimise the impact of these through the
focused sourcing of materials through the supply chain and ongoing operational
efficiencies.
Smarter, Safer, more Sustainable
The Group's operational improvement programme has engendered a self-help
culture within the organisation. This programme has served us well in
maintaining efficient operations during the pandemic and in helping us to
offset many of the supply chain and cost pressures currently being experienced
by the Group.
During the year, we have continued our drive to reduce costs and increase and
upgrade our fabrication capacity and efficiency. This includes the continued
roll out of our new coatings management system at Dalton covering the
reduction of paint waste and improvements to the specification, management and
application of factory paint systems, together with 'right first time'
initiatives to improve overall quality including the targeted reduction of
factory and site NCRs (rework items) and drawing office errors. Having rolled
out a new Group-wide production management system (StruMIS) in 2019, we are
currently in the process of further streamlining production flows and
improving real-time factory information at our main centre in Dalton. This
includes the use of mobile devices to capture information at the point of use
and to provide live information to both operatives and management. This will
help drive quality, reduce bottlenecks, and improve the reliability and speed
of our operations. As part of our ongoing capital investment programme, we
have also continued to expand and automate our fabrication capability at
Dalton to improve the throughput and efficiency of these operations.
The Group also continues to make good progress on its digital journey. This is
focused on driving operational excellence through process standardisation and
data alignment supported by the implementation of new systems. This includes
our innovative approach to drawing and design, where we continue to make good
progress with the automation of repetitive tasks, and the optimisation of
engineering software under the leadership of our Group Engineering Director.
Order book, pipeline and market conditions
The future success of the Group is determined, amongst other things, by the
quality of the secured workload and our discipline to maintain contract
selectivity irrespective of economic conditions. The UK and Europe order book
at 1 June includes a significant amount of new work which we have secured over
the past twelve months and now stands at a record level of £486m (1 November
2021: £393m), of which £397m is planned for delivery over the next 12
months. This leaves the Group very well-positioned with a strong future
workload for the 2023 financial year and beyond. The growth in the order book
has been driven by several significant project awards. These include the new
stadium for Everton F.C., a film studio, two large commercial office
developments in London, and various large and several smaller industrial and
distribution facilities in the UK, reflecting a sector which continues to
remain buoyant. We have also secured several new HS2 bridge packages and other
bridge awards reflecting investment in infrastructure by Highways England and
Network Rail. The order book remains well-balanced, showcasing the benefits of
our strategic diversification over recent years, and contains a healthy mix of
projects across the Group's key market sectors.
In terms of geographical spread of the order book of £486m, 96 per cent
represents projects in the UK, with the remaining 4 per cent representing
projects for delivery in Europe and the Republic of Ireland (1 November 2021:
95 per cent in the UK, 5 per cent in Europe and the Republic of Ireland). The
more UK-centric nature of the current order book is driven by a lower
proportion of work in the Republic of Ireland, as several projects, including
the large industrial facility, draw to completion. This, together with fewer
ongoing projects in continental Europe, reflects a pipeline which was
adversely impacted by COVID-19 twelve months ago, but which has since
recovered strongly over recent months. Furthermore, whilst the order book is
currently at record levels, only 16 per cent of this represents commercial
offices in London, compared a peak of c.60 per cent around five years ago.
This highlights the success of our strategic diversification.
We remain encouraged by the current level of tendering and pipeline activity
across the Group, 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. We are well-positioned to take advantage of some significant
opportunities in the industrial and distribution (battery plants and
distribution centres), transport infrastructure, nuclear and data centre
sectors, and, despite predictions of the demise of the office following the
pandemic, in the commercial office market, including in London. Although we
remain mindful of the ongoing effects of Russia's invasion of Ukraine, with
the most significant effects of COVID-19 now behind us, we remain well-placed
to win work across a wide client base and in a diverse range of market sectors
and geographies. This provides us with greater resilience and the ability to
drive future profitable growth.
'A golden age of infrastructure'
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. In November 2020, the UK Government released details of its five-year
plan, the National Infrastructure Strategy ('NIS') to invest in digital,
transport and energy to drive economic recovery, levelling up and meeting the
UK's net zero emissions target by 2050. This plan announced funding of £650
billion, an increase of around £100 billion from the previous plan, for
developments in roads, railways, power networks and other UK infrastructure
projects. At Network Rail, in addition to HS2, the CP6 (control period) budget
of around £53 billion (2019-2024), which includes a significant amount of
rail electrification work, is substantially higher than the previous CP5
budget of £38 billion (2014-2019). At Highways England, the second Road
Investment Strategy ('RIS2') budget of £24 billion (2020-2025) is a
significant increase over the expenditure of £15 billion during 'RIS1'
(2015-2020). We have already secured some significant road bridge awards and
orders for HS2 from a variety of consortia, together with some ancillary
steelwork packages at Hinkley Point, and we continue to make good progress
with several other similar opportunities, including rail electrification work.
We remain well-positioned to win work in the transport sector given the
Group's historical track record and our in-house bridge capability, together
with the in-depth expertise of DAM Structures.
Looking further ahead, in April 2022, prompted by Russia's invasion of
Ukraine, the UK government published its Energy Security Strategy, pledging 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 acquired with Harry Peers,
together the Group's unmatched scale and capability to deliver major
infrastructure projects, leaves us well positioned to win work from such
projects, many of which are likely to have a significant steelwork content.
Clients - increasingly broad spread and diverse
Our proven ability to work collaboratively and innovatively with clients is
fundamental to our success and is critical to securing new work. Our preferred
and predominant two-stage and negotiated procurement routes help significantly
by allowing early collaboration with the client and supply chain and providing
increased price and programme certainty.
Our unique capability to deliver complex design solutions, our capacity and
speed of fabrication, the expert capabilities of the Group and its colleagues
and our management and integration of the construction process is important to
our clients and a key differentiator for the Group. During the year, when
certain construction programmes were delayed and disrupted due to supply chain
challenges or when inflationary pressures stretched existing budgets, our
operational delivery capabilities allowed us to help clients deliver changes
to these programmes quickly and efficiently, to provide clients with
problem-solving solutions and to ensure that programme milestones were
achieved.
We have again achieved national recognition though several awards including at
the 2021 Structural Steel Design Awards (for 60 London Wall), the Royal
Society for the Prevention of Accidents ('RoSPA') (Harry Peers won the
President's award) and at the 2021 Morgan Sindall Supply Chain Awards. We have
also been shortlisted for training excellence at the Construction News
Specialists Awards.
The Group worked on over 100 projects with our clients during the year
including:
Commercial offices Google King's Cross, London
Argyle Street, Glasgow
30 Grosvenor Square, London
30 South Colonnade, London
Wilton Park, Dublin
Industrial and distribution Large industrial facility, Republic of Ireland
Large distribution centres, Wakefield, Stockton, Luton, Belvedere
Nuclear Atomic Weapons Establishment (various)
Transport infrastructure M8 Footbridge, Glasgow
Water Orton Viaducts, Midlands
A46 Binley bridge, Midlands
Data centres and other projects Data centre, Republic of Ireland
Sky Studios, Elstree
Stadia and leisure Fulham FC, London
Everton FC, Liverpool
Co-op Live Arena, Manchester
Pinewood Studios, London
Modular construction
Our modular (off-site) construction offering continues to include the growing
product ranges of Severfield (Products & Processing) ('SPP') based in
Sherburn and of CMF, our cold rolled steel joint venture business based in
Wales. These businesses will make up the Group's new Products and Processing
division.
SPP
SPP was originally established to allow us to address smaller scale projects
and provide a one-stop shop for smaller fabricators to source high-quality
processed steel and ancillary products, at lower margins. We have continued to
grow and invest in the business, including strengthening the factory
management, engineering and commercial functions, to maintain 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. During the year, to help develop the overseas footprint of the
business, the Rotoflo team appointed a new sales manager in India where we see
some potentially interesting opportunities, particularly for the paint
industry. 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.
As well as servicing its growing external client base, SPP has also continued
to provide high-quality sub-contract fabrication packages for other Group
companies to assist in the delivery of our record UK and Europe order book,
thus ensuring a greater proportion of project work remains in-house and
subject to Severfield quality standards.
CMF
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. In response to
these market developments, the business is currently being expanded through
the development of a new, separate manufacturing facility in South Wales. This
new facility is required as the existing CMF facility in Pontypool is
operating at close to full capacity and cannot be developed any further due to
space constraints. The expanded capacity will allow CMF to serve an external
client base and ensure that its market share is maintained and increased in
line with market growth.
The expansion project commenced earlier in 2022 and the facility is expected
to be operational in the next six months. The overall cost of construction for
CMF is c.£10m, including land of £3m, which is being financed by a
combination of equity of c.£5m, provided in equal amounts by the joint
venture partners in 2021, and bank debt of c.£5m.
India review
JSSL returned to profitability in 2022 despite a difficult start to the year
when output was disrupted by the second wave of COVID-19. This follows the
loss recorded in the previous year which was severely impacted by COVID-19.
This recovery is evident in the Group's after-tax share of profit of £0.8m
(2021: share of loss of £0.7m). The improved performance reflects a doubling
of revenue to £100.3m, compared with £48.0m in the previous year, and an
increase in the operating margin to 5.2 per cent, compared with 3.3 per cent
in the previous year. Financing expenses of £3.3m (2021: £3.4m) are broadly
unchanged from the previous year and turn JSSL's operating profit of £5.2m
(2021: £1.6m) into a profit before tax of £1.9m (2021: loss before tax of
£1.8m).
Notwithstanding some current inflationary pressures, JSSL has continued to win
new work, resulting in a strong order book of £158m at 1 June 2022 (1
November 2021: £140m). In terms of mix, 37 per cent of the order book
represents higher margin commercial work, with the remaining 63 per cent
representing industrial projects (1 November 2021: commercial work of 62 per
cent, industrial work of 38 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.
JSSL's pipeline of potential orders continues to include several commercial
projects for key developers and clients with whom it has established strong
relationships, including in the commercial office, data centre and healthcare
sectors. This, together with JSSL's healthy order book, reflects a strong and
growing underlying demand for structural steel in India, leaving the business
very well-positioned to take advantage of an improving economy. Accordingly,
we expect the business to recover to pre-pandemic levels of output in 2023.
In response to this demand, which is supported by strong long-term growth
projections for India and the continued conversion of the market from concrete
to steel, and in tandem with our joint venture partner, we are in the process
of selecting a plot of land to facilitate expansion of the business in the
future. We expect that this land purchase will be completed in the 2023
financial year. Whilst Bellary continues to ramp up towards its maximum
capacity of c,100,000 tonnes in 2023, this land purchase will allow the
business to expand its geographical footprint in India whilst providing it
with the platform to build quickly and incrementally add the necessary volume
to support the expected future market growth.
ESG
Health and safety
Our updated SHE strategy is based around three key areas: people,
communication and engagement, and systems and processes. The strategy will
serve to further enhance and progress our SHE culture and values as we strive
to be industry-leading in our approach. The Group's safety focus remains on
its six Life Saving Rules namely, Fundamentals (do not carry out a task unless
you are trained to do it), Working at Height, Control of Lifting Operations,
Machine Safety, Vehicle Movement and Material Stability.
In the previous year, we rolled out a new platform for reporting SHE incidents
and completing inspections to identify trends and root causes in safety
performance to enable targeted improvements. Following the improvements in
safety performance in 2021, we have made further improvements in 2022, and
maintained our primary focus on the Group's injury frequency rate ('IFR') and
high potential near misses ('HiPos'). Despite wider industry trends moving in
the opposite direction as working practices return to normal post-pandemic, we
have seen a further reduction in injury rates, resulting in an IFR (including
JSSL) of 1.32, compared to 1.48 in 2021. The 2022 result excludes DAM
Structures, which will be included in the reported IFR statistics in 2023 now
that we have established a baseline performance in the year following its
acquisition. Furthermore, the Group's accident frequency rate ('AFR')
(including JSSL) for the year, which is based solely on the level of RIDDORS
(reportable accidents), of 0.16 (2021: 0.18) continues to outperform the
industry average.
Sustainability
The Board gives full and close consideration to environmental, social and
governance ('ESG') factors when assessing the impact of the decisions it makes
and supports. As a result of strategic decisions made in recent years, the
Group now has a prominent market position in the high-growth markets of the
future and is well-positioned to help accelerate the journey to net zero in
its core sectors.
As part of our ambitious sustainability strategy, the Group has committed to
reduce our scope 1 and 2 greenhouse gas ('GHG') emissions by 25 per cent by
2025 against a 2018 baseline, aligned with the Paris Agreement to limit global
warming to below 1.5 degrees Celsius. We remain well on course to achieve this
target through the successful implementation of sustainability initiatives
including the switch to 'green' electricity at all our production facilities
(which is now largely complete), through mandating hydrogenated vegetable oil
('HVO') fuels and the transition to electric and hydrogen construction plant
where possible. Progress of all targets is measured and monitored and reported
monthly through ESG dashboards.
In 2022, for the second year running, the Group was included in the Financial
Times ('FT') listing of Europe's climate leaders which showcases corporate
progress in fighting climate change. For 2022, this list includes the c.400
European companies that have achieved the greatest reduction in their GHG
intensity between 2015 and 2020, over which the Group's emissions fell by 34
per cent. In the FT listing, for businesses with a rating from the Carbon
Disclosure Project ('CDP'), only those with a score of at least 'B-' were
considered. In 2022, we were awarded an 'A-' rating in the CDP index,
improving on our 'B' rating from the previous year.
Our sustainability strategy also outlines our commitment to reach net zero for
our scope 1 and 2 carbon emissions by 2040. Ahead of COP26 in 2021, the Group
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, to hold
off some of the worst climate impacts. We are on schedule to submit this
target for validation by the Science-Based Target Initiative ('SBTI') by the
end of the 2022 financial year. During the year, we achieved our target to be
accredited as carbon neutral for our manufacturing and construction operations
by the Carbon Trust, in accordance with PAS 2060, the only recognised
international standard for carbon neutrality. This is an important milestone
in our journey towards net zero. Carbon neutral in this context means that we
use carbon offsetting to eliminate our combined scope 1, scope 2 and
operational scope 3 greenhouse gas emissions.
During the year we continued to collaborate with several clients, attending
workshops in areas such as sustainable procurement, low embodied carbon steel,
and material passporting. Early engagement with clients remains vital in
reducing the embodied carbon in the structures we build, in tandem with our
existing SteelZero commitments which demonstrate how important the transition
to low embodied carbon steel production is to the construction sector.
Social
We recognise the importance of input from our people in helping us deliver on
our strategic ambitions and, in 2022, we launched our Group-wide 'MyVoice'
forums. These provide a formal, structured way for colleagues and management
to connect, gain feedback and exchange information and views on any
business-related topic. Louise Hardy, our designated non-executive director
responsible for workforce engagement, Alan Dunsmore, our CEO and Samantha
Brook, our Group HR Director, regularly meet with forum representatives. These
meetings have provided valuable, ongoing insights and feedback for the board
during a challenging year for everyone, and we look forward to continuing this
work with our colleagues in the year ahead.
Summary and outlook
The Group has had a successful year in the face of some challenging market
conditions, highlighting the benefit of the strategic and operational progress
made over recent years. We have increased revenues and profits, including a
return to profitability for JSSL, we have continued to drive efficiencies
through our operational improvement programme, and our balance sheet remains
healthy, allowing us to make the right long-term decisions for the business.
Our new, simplified divisional structure in the UK and Europe will optimise
the operations of each division to the market dynamics they face and provide
us with a better platform to fulfil our strategic growth aspirations.
We continue to make strong positive progress in our key market sectors, with
the size and quality of our secured workload increasing during the year. This
success is reflected in our order books of £486m in the UK and Europe and
£158m in India. Our capabilities are aligned with many market sectors with
strong growth potential, and we have an encouraging pipeline of significant,
profitable opportunities in the UK, Europe and India, leaving us well
positioned to increase our market share and to drive future profitable growth.
Whilst we remain mindful of the macro-economic backdrop, particularly
regarding inflationary pressures which are expected to continue in 2023, we
continue to expect to deliver further progress and our expectations for the
year ahead remain unchanged.
Alan Dunsmore
Chief Executive Officer
15 June 2022
FINANCIAL REVIEW
£m 2022 2021
Revenue 403.6 363.3
Underlying* operating profit (before JVs and associates) 26.9 25.5
Underlying* operating margin (before JVs and associates) 6.7% 7.0%
Underlying* profit before tax 27.1 24.3
Underlying* basic earnings per share 7.2p 6.4p
Operating profit 22.8 22.3
Operating margin 5.7% 6.1%
Profit before tax 21.0 21.1
Basic earnings per share 5.1p 5.6p
Return on capital employed ('ROCE') 13.5% 13.6%
* The basis for stating results on an underlying basis is set out on
page 2. A reconciliation of the Group's underlying results to its statutory
results is provided in the Alternative Performance Measures ('APMs') section
(see note 11 to the financial statements).
Trading performance
Revenue for the year of £403.6m represents an increase of £40.3m (11 per
cent) compared with the previous year, reflecting an increase in steel prices
(£19.2m) and the full year revenue effect of DAM Structures which was
acquired in February 2021 (c.£20m).
Underlying operating profit (before JVs and associates) of £26.9m (2021:
£25.5m), was £1.4m higher than in the previous year which included a one-off
profit of £1.5m on a bespoke paint package on the large industrial facility
in the Republic of Ireland. This represents year-on-year profit growth of 6
per cent but if the one-off prior year profit is disregarded, the results show
profit growth of 12 per cent. Whilst underlying operating profits have
increased, the slight reduction in the margin to 6.7 per cent (2021: 7.0 per
cent) reflects the dilutive impact of steel price increases which are largely
a pass through to the client at zero margin. This has resulted in an increase
in revenue of c.£20m in 2022 but no associated increase in the Group's
absolute profitability. The statutory operating profit, which includes the
results of JVs and associates and the Group's non-underlying items, was
£22.8m (2021: £22.3m).
Underlying profit before tax, which is management's primary measure of Group
profitability, was £27.1m (2021: £24.3m). The statutory profit before tax,
which includes the Group's non-underlying items, was £21.0m (2021: £21.1m).
Share of results of JVs and associates
The share of results from JSSL was a profit of £0.8m (2021: loss of £0.7m),
reflecting revenue growth and margin improvement following the disruptive
impact of COVID-19 on JSSL's prior year trading and profitability. Our
specialist cold rolled steel business, CMF, contributed a share of profit of
£0.5m (2021: £0.4m), the prior year for CMF also having been impacted by
COVID-19. The CMF business is currently in the process of expanding its
production operations in Wales and has continued to develop its product range,
including modular steel products, to drive organic revenue growth.
Non-underlying items
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. Non-underlying items for the year of
£6.1m (2021: £3.2m) includes the amortisation of acquired intangible assets
of £5.2m (2021: £2.8m) and other acquisition-related expenses of £0.7m
(2021: £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 a period of 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.
Taxation
The Group's underlying taxable profits of £25.8m (2021: £24.7m) resulted in
an underlying tax charge of £4.8m (2021: £4.6m), which represents an
effective tax rate of 18.6 per cent (2021: 18.5 per cent). The total tax
charge of £5.4m (2021: £3.8m) also includes adjustments relating to prior
years and the deferred tax impact of the future increase in UK corporation tax
from 19 per cent to 25 per cent which, in line with the Group's policy, are
categorised as non-underlying and included in non-underlying items.
Earnings per share
Underlying basic earnings per share increased by 12 per cent to 7.2p (2021:
6.4p) based on the underlying profit after tax of £22.3m (2021: £19.8m) and
the weighted average number of shares in issue of 308.8m (2021: 307.3m). Basic
earnings per share, which is based on the statutory profit after tax, was 5.1p
(2021: 5.6p), reflecting the increased underlying profit after tax offset by
an increase in non-underlying costs. Diluted earnings per share, which
includes the effect of the Group's performance share plan, was 5.1p (2021:
5.6p).
Dividend and capital structure
The Group has a progressive dividend policy. Funding flexibility is maintained
to ensure there are sufficient cash resources to fund the Group's
requirements. In this context, the board has established the following clear
priorities for the use of cash:
§ To support the Group's ongoing operational requirements, and to fund
profitable organic growth opportunities where these meet the Group's
investment criteria,
§ To support steady growth in the core dividend as the Group's profits
increase,
§ To finance strategic opportunities that meet the Group's investment
criteria, and
§ To return excess cash to shareholders in the most appropriate way, whilst
maintaining a good underlying cash position.
The board considers the dividend to be a very important component of
shareholder returns. Accordingly, based on the outlook for the year ahead and
our strong financial position, and despite the current uncertain
macro-economic backdrop, the board is recommending a final dividend of 1.9p
per share (2021: 1.8p), payable on 14 October to shareholders on the register
at the close of business on 9 September. This together with the interim
dividend of 1.2p per share (2021: 1.1p), will result in a total dividend of
3.1p per share (2021: 2.9p).
Goodwill and intangible assets
Goodwill was £82.2m at 26 March 2022 (2021: £85.8m), the movement reflecting
the finalisation of goodwill and intangible assets arising on the DAM
Structures acquisition. In accordance with IFRS, an annual impairment review
has been performed. No impairment was required either during the year ended 26
March 2022 or the year ended 27 March 2021. Other intangible assets were
£10.3m (2021: £9.6m). This largely represents the net book value of the
intangible assets (customer relationships, order books and brand name)
identified on the acquisitions of Harry Peers and DAM Structures.
Property, plant and equipment
The Group has property, plant and equipment of £91.4m (2021: £91.7m).
Capital expenditure of £7.4m (2021: £6.6m) represents the continuation of
the Group's capital investment programme. This predominantly consisted of site
improvements at Ballinamallard, the purchase of additional land at Dalton to
future-proof the site, new and upgraded equipment for our fabrication lines
and the acquisition of cranes to support our site operations. Depreciation in
the year was £6.9m (2021: £6.0m), of which £1.7m (2021: £1.6m) relates to
right-of-use assets under IFRS 16.
Joint ventures
The carrying value of our investment in joint ventures and associates was
£30.1m (2021: £28.8m), which consists of investments in India of £18.4m
(2021: £17.6m) and in CMF of £11.7m (2021: £11.2m).
Pensions
The Group's defined benefit pension liability at 26 March 2022 was £14.4m, a
decrease of £8.0m from the 2021 position of £22.4m. The deficit has reduced
due to a higher discount rate, reflecting the significant increase in bond
yields, and employer deficit contributions over the year. This has been offset
to a lesser extent by higher expectations of long-term future inflation. All
other pension arrangements in the Group are of a defined contribution nature.
Return on capital employed
The Group adopts ROCE as a KPI to help ensure that its strategy and associated
investment decisions recognise the underlying cost of capital of the business.
The Group's ROCE is defined in the APMs section (see note 11 to the financial
statements). For 2022, ROCE was 13.5 per cent (2021: 13.6 per cent), which
exceeds the Group's minimum threshold of 10 per cent through the economic
cycle.
Cash flow
£m 2022 2021
Operating cash flow (before working capital movements) 32.6 30.2
Cash (used in) / generated from operations (1.9) 30.0
Operating cash conversion (25%) 93%
Cash balances (4.0) 25.0
Net (debt) / funds (pre-IFRS-16 basis)** (18.4) 4.4
Net (debt) / funds (30.1) (6.7)
** The Group excludes IFRS 16 lease liabilities from its measure of net
funds / debt as they are excluded from the definition of net debt as set out
in the Group's borrowing facilities. A reconciliation of the Group's
underlying results to its statutory results is provided in the Alternative
Performance Measures ('APMs') section (see note 11 to the financial
statements).
The Group's business model has been established to generate surplus cash flows
and we have always placed a high priority on cash generation and the active
management of working capital. The Group ended the year with net debt (on a
pre-IFRS 16 basis) of £18.4m (2021: net funds £4.4m). Net debt at 26 March
2022 included an overdraft of £4.0m (2021: cash of £25.0m) and the
outstanding term loans of £14.9m for acquisitions (2021: £20.7m).
Operating cash flow for the year before working capital movements was £32.6m
(2021: £30.2m). Net working capital has increased by £34.5m during the year
mainly reflecting the expected unwinding of the unusually low working capital
position (two per cent of revenue) at the start of the year, together with the
impact of steel and other input price rises, and higher steel purchases to
meet production requirements in early 2023 when executing our record order
book. Furthermore, on 1 March 2021, the UK's new VAT Domestic Reverse Charge
regulations for construction services came into force, further increasing
existing cash flow pressures on many businesses in our sector, and this was
also a contributary factor in the Group's higher working capital position at
the year-end.
Year-end working capital represented approximately ten per cent of revenue
(2021: two per cent). Although this is higher than our well-established target
range of four to six per cent, we expect an improvement in working capital in
2023, as some of the 2022 working capital pressures abate. Similarly, although
we have missed our operating cash conversion (defined in the APMs section -
note 11 to the financial statements) target of 85 per cent in 2022, we expect
to exceed this target once again in 2023.
Prompt Payment Code
We believe in treating our suppliers and subcontractors fairly and with
respect. Our three main businesses are all signatories of the Prompt Payment
Code ('PPC'). Our relationships with our supply chain partners are of
strategic importance and key to the Group's success, and payment practices
remained a major area of focus throughout the year. However, the business
operates in a sector where supply chains and contractual terms are complex,
and prompt payment is often materially impacted by resolution of disputes and
alignment to agreed contractual terms. For the PPC reporting period of 1
October 2021 to 26 March 2022, all the Group's businesses that are signatories
of the PPC, reported that between 90 and 95 per cent of invoices were paid
within 60 days.
From 1 July 2021 the PPC introduced the requirement to pay 95 per cent of
invoices to businesses with fewer than 50 employees within 30 days instead of
60 days. In the second half of 2022, the Group paid over 80 per cent of its
suppliers identified with fewer than 50 employees within the 30-day timeframe.
Whilst we acknowledge that not all businesses with fewer than 50 employees
have the latest systems to ensure prompt payment, the Group continues to take
the appropriate action to further streamline its systems and processes, and
work with them, to try to meet the timeframe set out by the Code.
Bank facilities committed until 2026
In December 2021, the Group completed a refinancing of its revolving credit
facility ('RCF'). The new £50m RCF provides additional liquidity above the
£25m RCF which it replaced and extends the term of the facility which now
matures in December 2026. The new facility provides the Group with enhanced
liquidity and long-term financing to help support its growth strategy. The RCF
remains subject to three financial covenants, namely interest cover, net debt
to EBITDA and debt service (cash flow) cover. The Group operated well within
these covenant limits throughout the year ended 26 March 2022.
Going concern
In determining whether the Group's annual consolidated financial statements
can be prepared on the going concern basis, the directors considered all
factors likely to affect its future development, performance and its financial
position, including cash flows, liquidity position and borrowing facilities
and the risks and uncertainties relating to its business activities.
The following factors were considered as relevant:
§ The current market conditions and the impact of these (including the
potential future impact of the current inflationary market conditions and
similar other significant downside risks linked to our principal risks) on the
Group's profits and cash flows,
§ The UK and Europe order book and the pipeline of potential future orders,
§ The Group's operational improvement programme, which has delivered
tangible benefits in 2022 and is expected to continue doing so in 2023 and for
the period under forecast, and
§ The Group's cash position and its bank finance facilities, which are
committed until December 2026, including both the level of those facilities
and the three financial covenants (see above) attached to them.
In the previous year, the Group continued to trade safely and profitably with
positive operating cash flows whilst operating under various COVID-19
restrictions. The directors expect the Group to remain similarly resilient
over the forecast period. The directors have reviewed the Group's forecasts
and projections for 2023 and for at least 12 months from the date of approval
of the financial statements, including sensitivity analysis to assess the
Group's resilience to potential adverse outcomes including a highly
pessimistic 'severe but plausible' scenario. This 'severe but plausible'
scenario is based on the combined impact of securing no further orders 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 demonstrates the existence of considerable headroom in the Group's
covenants and borrowing facilities in this 'severe but plausible' scenario.
Having also made appropriate enquiries, the directors consider it reasonable
to assume that the Group has adequate resources to be able to operate within
the terms and conditions of its financing facilities for at least 12 months
from the approval of the financial statements. For this reason, the directors
continue to adopt the going concern basis in preparing the financial
statements.
Adam Semple
Group Finance Director
15 June 2022
Consolidated income statement
For the year ended 26 March 2022
Year ended 26 March 2022 Year ended 27 March 2021
Non-underlying Non-underlying
Underlying 2022 Total Underlying 2021 Total
2022 £000 2022 2021 £000 2021
£000 £000 £000 £000
Revenue 403,563 - 403,563 363,254 - 363,254
Operating costs (376,682) (5,424) (382,106) (337,784) (2,795) (340,579)
Operating profit before share of results of JVs and associates 26,881 (5,424) 21,457 25,470 (2,795) 22,675
Share of results of JVs and associates 1,346 - 1,346 (344) - (344)
Operating profit 28,227 (5,424) 22,803 25,126 (2,795) 22,331
Net finance expense (1,129) (674) (1,803) (795) (429) (1,224)
Profit before tax 27,098 (6,098) 21,000 24,331 (3,224) 21,107
Tax (4,795) (604) (5,399) (4,574) 771 (3,803)
Profit for the year attributable to the equity holders of the parent 22,303 (6,702) 15,601 19,757 (2,453) 17,304
Earnings per share:
Basic 7.22p (2.17)p 5.05p 6.43p (0.80)p 5.63p
Diluted 7.19p (2.16)p 5.03p 6.43p (0.80)p 5.63p
All the above activities relate to continuing operations.
Further details of 2022 non-underlying items are disclosed in note 3. A
reconciliation of the Group's underlying results to its statutory results is
disclosed in note 11.
Consolidated statement of comprehensive income
For the year ended 26 March 2022
Year ended Year ended
26 March 2022 27 March 2021
£000 £000
Actuarial gain/(loss) on defined benefit 5,938 (4,906)
pension scheme*
(Losses)/gains taken to equity on cash flow hedges (22) 1,699
Reclassification adjustments on cash flow hedges 13 251
Exchange difference on foreign operations 40 34
Tax relating to components of other comprehensive income* (1,184) 734
Other comprehensive income for the year 4,785 (2,188)
Profit for the year from continuing operations 15,601 17,304
Total comprehensive income for the 20,386 15,116
year attributable to equity shareholders
* These items will not be subsequently reclassified to the consolidated income
statement.
Consolidated balance sheet
As at 26 March 2022
As at As at
26 March 27 March
2022 2021
£000 £000
ASSETS
Non-current assets
Goodwill 82,188 85,782
Other intangible assets 10,343 9,630
Property, plant and equipment 91,436 91,698
Right-of-use asset 11,070 9,808
Interests in JVs and associates 30,136 28,790
Contract assets, trade and other receivables 4,881 4,368
230,054 230,076
Current assets
Inventories 18,005 10,231
Contract assets, trade and other receivables 117,859 67,847
Derivative financial instruments 670 1,049
Current tax assets 4,171 3,584
Cash and cash equivalents - 24,983
140,705 107,694
Total assets 370,759 337,770
LIABILITIES
Current liabilities
Cash and cash equivalents (3,974) -
Trade and other payables (111,692) (77,803)
Financial liabilities - borrowings (5,900) (5,900)
Financial liabilities - leases (1,756) (1,744)
(123,322) (85,447)
Non-current liabilities
Trade and other payables (3,081) (10,639)
Retirement benefit obligations (14,396) (22,379)
Financial liabilities - borrowings (8,950) (14,850)
Financial liabilities - leases (9,884) (9,365)
Deferred tax liabilities (7,166) (4,161)
(43,477) (61,394)
Total liabilities (166,799) (146,841)
NET ASSETS 203,960 190,929
EQUITY
Share capital 7,738 7,706
Share premium 88,511 87,658
Other reserves 4,485 3,464
Retained earnings 103,226 92,101
TOTAL EQUITY 203,960 190,929
Consolidated statement of changes in equity
For the year ended 26 March 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 year - - 32 20,354 20,386
Ordinary shares issued * 32 853 - - 885
Equity settled share-based payments - - 989 - 989
Dividend paid - - - (9,229) (9,229)
At 26 March 2022 7,738 88,511 4,485 103,226 203,960
* The issue of shares represents shares allotted to satisfy the 2018 and 2020
Sharesave scheme.
Share Share Other Retained Total
capital premium reserves earnings equity
£000 £000 £000 £000 £000
At 29 March 2020 7,648 87,292 1,402 87,333 183,675
Total comprehensive income for the year - - 1,984 13,132 15,116
Ordinary shares issued ** 58 366 - - 424
Equity settled share-based payments - - 78 531 609
Dividend paid - - - (8,895) (8,895)
At 27 March 2021 7,706 87,658 3,464 92,101 190,929
** The issue of shares represents shares allotted to satisfy the 2017
performance share plan award which vested in June 2020 and the 2017 Sharesave
schemes.
Consolidated cash flow statement
For the year ended 26 March 2022
Year ended Year ended
26 March 2022 27 March 2021
£000 £000
Net cash flow from operating activities (5,685) 25,349
Cash flows from investing activities
Proceeds on disposal of other property, plant and equipment 376 104
Purchases of land and buildings (2,759) (247)
Purchases of other property, plant and equipment (2,507) (6,097)
Purchase of intangible assets (124) (276)
Investment in JVs and associates - (2,444)
Investment in subsidiary entities, net of cash acquired (526) (17,489)
Net cash used in investing activities (5,540) (26,449)
Cash flows from financing activities
Interest paid (1,056) (699)
Dividends paid (9,229) (8,895)
Proceeds from shares issued 885 424
Proceeds from borrowings - 12,000
Repayment of borrowings (5,900) (19,375)
Repayment of obligations under finance leases (2,432) (1,710)
Net cash used in financing activities (17,732) (18,255)
Net decrease in cash and cash equivalents (28,957) (19,355)
Cash and cash equivalents at beginning of year 24,983 44,338
Cash and cash equivalents at end of year (3,974) 24,983
1) Basis of preparation
The preliminary announcement has been prepared in accordance with the Listing
Rules of the FCA and is based on the 2022 financial statements which have been
prepared in accordance with UK-adopted International Financial Reporting
Standards ('IFRS'), with IFRS as issued by the International Accounting
Standards Board ('IASB') and with the requirements of the Companies Act
2006.
The accounting policies applied in preparing the preliminary announcement are
consistent with those used in preparing the statutory financial statements for
the year ended 27 March 2021.
The preliminary announcement is made up to an appropriate week end date around
31 March each year. For 2022, trading is shown for the 52-week period ended on
26 March 2022 (2021: 52-week period ended on 27 March 2021).
The financial statements of the Group's joint venture, JSSL, are made up to
the year ended 31 March 2022 (2021: year ended 31 March 2021).
The preliminary announcement does not constitute the statutory financial
statements of the Group within the meaning of Section 434 of the Companies Act
2006. The statutory financial statements for the year ended 27 March 2021 have
been filed with the Registrar of Companies. The auditor has reported on those
financial statements and on the statutory financial statements for the year
ended 26 March 2022, which will be filed with the Registrar of Companies
following the annual general meeting. Both the audit reports were unqualified,
did not draw attention to any emphasis of matter, without qualifying their
report, and did not contain any statements under Section 498(2) or (3) of the
Companies Act 2006.
The preliminary announcement has been agreed with the Company's auditor for
release.
2) Segment reporting
Following the adoption of IFRS 8, 'Operating Segments' 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 similar products and services,
production processes, types of customers, methods of distribution, regulatory
environments and economic characteristics. All revenue is derived from
construction contracts and related assets. Group revenue includes revenue of
£57,619,000 (2021: £108,871,000), spread over several contracts, relating to
one major customer, who individually contributed more than 10 per cent of
Group revenue in the year ended 27 March 2022.
3) Non-underlying items
2022 2021
£000 £000
Operating costs (5,424) (2,795)
Finance expense (674) (429)
Non-underlying items before tax (6,098) (3,224)
Tax on non-underlying items (604) 771
Non-underlying items after tax (6,702) (2,453)
Non-underlying items include the amortisation of acquired intangible assets of
£5,191,000 (2021: £2,842,000) and acquisition-related expenses of £674,000
(2021: £382,000).
Amortisation of acquired intangible assets represents the amortisation of
customer relationships, order books and brand name, which were identified on
the acquisition of Harry Peers and DAM Structures in 2020 and 2021
respectively. In the current year, acquisition-related expenses consist of the
unwinding of the discount on the DAM Structures contingent consideration of
£674,000. The prior year acquisition-related expenses include non-recurring
legal and consultancy costs associated with these acquisitions of £689,000
and unwinding of the discount on the Harry Peers contingent consideration of
£429,000 offset by movements of £736,000 in the valuation of the Harry Peers
contingent consideration, which was paid in December 2020.
Tax on non-underlying items includes the impact of an increase in future
corporation tax rates from 19 per cent to 25 per cent, that have been
substantially enacted, on the Group's deferred tax liability. In the year, a
charge of £604,000 has been recognised, comprising a tax credit on
non-underlying items of £1,030,000 offset by a charge of £1,457,000 relating
to the increase in future corporation tax rates and a charge of £177,000
relating to prior year adjustments.
Non-underlying items have been separately identified to provide a better
indication of the Group's underlying business performance. They are not
considered to be 'business as usual' items and have a varying impact on
different businesses and reporting years. They have been separately identified
as a result of their magnitude, incidence or unpredictable nature. These items
are presented as a separate column within their consolidated income statement
category. Their separate identification results in a calculation of an
underlying profit measure in the same way as it is presented and reviewed by
management. A reconciliation of the Group's underlying results to its
statutory results is disclosed in note 11.
4) Taxation
The taxation charge comprises:
2022 2021
£000 £000
Current tax
UK corporation tax charge (4,178) (3,940)
Foreign tax relief / other relief 124 -
Foreign tax suffered (125) -
Adjustments to prior years' provisions (251) (69)
(4,430) (4,009)
Deferred tax
Current year credit 415 25
Impact of change in future years' tax rates (1,457) -
Adjustments to prior years' provisions 73 181
(969) 206
Total tax charge (5,399) (3,803)
5) Dividends
2022 2021
£000 £000
Amounts recognised as distributions to equity holders in the year:
2021 final - 1.8p per share (2020: 1.8p per share) (5,529) (5,523)
2022 interim - 1.2p per share (2021: 1.1p per share) (3,700) (3,372)
(9,229) (8,895)
The directors are recommending a final dividend of 1.9p per share (2021:
1.8p), payable on 14 October to shareholders on the register at the close of
business on 9 September. This together with the interim dividend of 1.2p per
share (2021: 1.1p), will result in a total dividend of 3.1p per share (2021:
2.9p).
6) Earnings per share
Earnings per share is calculated as follows:
2022 2021
£000 £000
Earnings for the purposes of basic earnings per share being net profit 15,601 17,304
attributable to equity holders of the parent company
Earnings for the purposes of underlying basic earnings per share being 22,303 19,757
underlying net profit attributable to equity holders of the parent company
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 308,834,123 307,337,645
per share
Effect of dilutive potential ordinary shares 1,335,323 112
Weighted average number of ordinary shares for the purposes of diluted 310,169,446 307,337,757
earnings per share
Basic earnings per share 5.05p 5.63p
Underlying basic earnings per share 7.22p 6.43p
Diluted earnings per share 5.03p 5.63p
Underlying diluted earnings per share 7.19p 6.43p
7) Business combinations
Summary of prior year acquisition
On 26 February 2021, the Company acquired 100 per cent of the share capital of
DAM Structures Limited ('DAM Structures'), an innovative steel fabrication
company. The board believe that the acquisition will give the Group immediate
access to attractive, complimentary market sectors with strong growth
potential including the propping, railway and steel piling market sectors.
The final net consideration of £22.9m comprised:
Provisional Movement Final
£000 £000 £000
Gross initial cash consideration 16,994 - 16,994
Completion payment 934 (408) 526
Contingent consideration 3,709 268 3,977
Deferred consideration 6,930 - 6,930
Gross consideration 28,567 (140) 28,427
Net cash acquired (excluding payments in advance) (5,521) - (5,521)
Net consideration 23,046 (140) 22,906
7) Business combinations (continued)
DAM Structures was acquired for an initial gross consideration of
£16,994,000, including cash and cash equivalents of £5,521,000, which was
funded by a combination of Group cash reserves and a new term loan.
In addition, a maximum deferred consideration of £7,000,000 is payable in
cash in H1 of FY23. An additional performance-based contingent consideration
is also in place which could further increase the purchase price by up to
£8,000,000, if certain work-winning targets in the railway and steel piling
sectors are achieved over a five-year period, ending in April 2026.
Following the finalisation of the acquisition accounting for DAM Structures in
2022, the provisional completion payment was agreed at £526,000, which has
been paid in cash during the year, and the fair value of the contingent
consideration has increased from the provisional stage to £3,977,000. This
represents management's current assessment of the amount likely to be paid of
£6,565,000 (out of the maximum £8,000,000), discounted at DAM Structures's
cost of capital of 18.5 per cent.
The fair value of the assets and liabilities recognised as a result of the
acquisition are as follows:
Provisional£000 Movement Final
£000 £000
Non-current assets
Property, plant and equipment 1,990 - 1,990
Current assets
Inventories 2,235 - 2,235
Contract assets, trade and other receivables 10,141 (1,121) 9,020
Cash and cash equivalents 5,521 - 5,521
(excluding payments in advance)
17,897 (1,121) 16,776
Total assets 19,887 (1,121) 18,766
Current liabilities
Trade and other payables (9,973) (493) (10,466)
Current tax liabilities (86) (40) (126)
(10,059) (533) (10,592)
Non-current liabilities
Deferred tax liabilities (1,079) (850) (1,929)
Total liabilities (11,138) (1,383) (12,521)
Net assets 8,749 (2,504) 6,245
Net cash acquired (excluding payments in advance) (5,521) - (5,521)
Net identifiable assets acquired 3,228 (2,504) 724
Identified intangible assets 4,750 5,958 10,708
Goodwill 15,068 (3,594) 11,474
Net assets acquired 23,046 (140) 22,906
The finalisation of the acquisition accounting for DAM Structures resulted in
an amount of £3,594,000 being reclassified from goodwill to intangible assets
during the year. This reflects additional identified intangible assets on
acquisition of £5,958,000, offset by fair value adjustments of £1,514,000
and related deferred tax liabilities of £850,000. The fair value adjustments
relate to adjustments to contract balances, updated using the best estimates
available, which are based on conditions existing at the date of acquisition.
Due to the proximity of the acquisition to the previous year-end date, the
valuation of these assets was not finalised until the year ended 26 March
2022.
7) Business combinations (continued)
Goodwill of £11,474,000 represents both existing and new end user customers
(including core fabrication and rail), which were not recognised separately in
accordance with IFRS 3 (Revised) 'Business combinations', the ability and
skill of DAM's employees and management, know-how, and the quality of the
services provided (none of which qualify for recognition as a separate
intangible asset under IFRS 3). The goodwill arising from the acquisition is
not expected to be deductible for income tax purposes.
Analysis of amounts disclosed in the cash flow statement in connection with
the acquisition:
DAM Structures: 2022 2021
£000 £000
Gross initial cash consideration - 16,994
Completion payment 526 -
Net cash acquired (including payments in advance) - (5,505)
Total cash outflow - investing activities 526 11,489
Contingent consideration - Harry Peers - 6,000
Net initial cash consideration 526 17,489
Acquisition-related costs of £689,000 were fully expensed in the period to 27
March 2021 as non-underlying operating costs (see note 3).
8) Net cash flow from operating activities
2022 2021
£000 £000
Operating profit from continuing operations 22,803 22,331
Adjustments:
Depreciation - property, plant and equipment 5,163 4,434
Depreciation - right-of-use assets 1,702 1,569
(Gain)/loss on disposal of other property, plant and equipment (11) 40
Movements in contingent consideration - (736)
Amortisation of intangible assets 5,369 2,846
Movements in pension scheme (2,045) (1,215)
Share of results of JVs and associates (1,346) 344
Share-based payments 989 610
Operating cash flows before movements 32,624 30,223
in working capital
Increase in inventories (7,774) (1,140)
(Increase)/decrease in receivables (50,533) 12,551
Increase/(decrease) in payables 23,781 (11,645)
Cash (used in)/generated from operations (1,902) 29,989
Tax paid (3,783) (4,640)
Net cash flow from operating activities (5,685) 25,349
9) Net (debt) / funds
The Group's net (debt) / funds are as follows:
2022 2021
£000 £000
Borrowings (14,850) (20,750)
Cash and cash equivalents (3,974) 24,983
Unamortised debt arrangement fees 402 128
Net (debt) / funds (pre-IFRS 16) (18,422) 4,361
IFRS 16 lease liabilities (11,640) (11,109)
Net (debt) (post-IFRS 16) (30,062) (6,748)
The Group excludes IFRS 16 lease liabilities from its measure of net funds /
debt as they are excluded from the definition of net debt as set out in the
Group's borrowing facilities. A reconciliation of the Group's underlying
results to its statutory results is disclosed in note 11.
10) 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 the 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.
11) Alternative Performance Measures
Our Alternative Performance Measures ('APMs') present useful information which
supplements the preliminary announcement. These measures are not defined under
IFRS and may not be directly comparable with APMs for other companies. The
APMs represent important measures for how management monitors the Group and
its underlying business performance. In addition, APMs enhance the
comparability of information between reporting periods by adjusting for
non-underlying items. The APMs are not intended to be a substitute for, or
superior to, any IFRS measures of performance.
In order to facilitate understanding of the APMs used by the Group, and their
relationship to reported IFRS measures, definitions and numerical
reconciliations are set out below.
Alternative performance measure ('APM') Definition Rationale
Underlying operating profit (before JVs and associates) Operating profit before non-underlying items and the results of JVs and Profit measure reflecting underlying trading performance of wholly owned
associates. subsidiaries.
Underlying profit before tax Profit before tax before non-underlying items. Profit measure widely used by investors and analysts.
Underlying basic earnings per share ('EPS') Underlying profit after tax divided by the weighted average number of shares Underlying EPS reflects the Group's operational performance per ordinary share
in issue during the year. outstanding.
Net funds / (debt) Balance drawn down on the Group's revolving credit facility, with unamortised Measure of the Group's cash indebtedness before IFRS-16 lease liabilities,
debt arrangement costs added back, less cash and cash equivalents (including which are excluded from the definition of net funds / (debt) in the Group's
(pre-IFRS 16) bank overdrafts) before IFRS-16 lease liabilities. borrowing facilities. This measure supports the assessment of available
liquidity and cash flow generation in the reporting period.
Operating cash conversion Cash generated from operations after net capital expenditure (before interest Measure of how successful we are in converting profit to cash through
and tax) expressed as a percentage of underlying operating profit (before JVs management of working capital and capital expenditure. Widely used by
and associates). investors and analysts.
Return on capital employed Underlying operating profit divided by the average of opening and closing Measures the return generated on the capital we have invested in the business
capital employed. and reflects our ability to add shareholder value over the long term. We have
an asset-intensive business model and ROCE reflects how productively we deploy
Capital employed is defined as shareholders' equity excluding retirement those capital resources.
benefit obligations (net of tax), acquired intangible assets and net funds.
Reconciliations to IFRS measures
2022 2021
A. Underlying operating profit (before JVs and associates) Note £000 £000
Underlying operating profit (before JVs and associates) 26,881 25,470
Non-underlying operating items 3 (5,424) (2,795)
Share of results of JVs and associates 1,346 (344)
Operating profit 22,803 22,331
2022 2021
B. Underlying profit before tax Note £000 £000
Underlying profit before tax 27,098 24,331
Non-underlying items 3 (6,098) (3,224)
Profit before tax 21,000 21,107
2022 2021
C. Underlying basic EPS Note £000 £000
Underlying net profit attributable to equity holders of the parent Company 22,303 19,757
Non-underlying items after tax 3 (6,702) (2,453)
Net profit attributable to equity holders of the parent Company 15,601 17,304
Weighted average number of ordinary shares 6 308,834,123 307,337,645
Underlying basic earnings per share 7.22p 6.43p
Basic earnings per share 5.05p 5.63p
2022 2021
D. Net funds / (debt) (pre-IFRS 16) Note £000 £000
Borrowings (14,850) (20,750)
Cash and cash equivalents (3,974) 24,983
Unamortised debt arrangement costs 402 128
Net funds / (debt) (pre-IFRS 16) 9 (18,422) 4,361
IFRS 16 lease liabilities (11,640) (11,109)
Net funds / (debt) (post-IFRS 16) 9 (30,062) (6,748)
2022 2021
E. Operating cash conversion Note £000 £000
Cash (used in) / generated from operations (1,902) 29,989
Proceeds on disposal of other property, plant and equipment 376 104
Purchases of land and buildings (2,759) (247)
Purchases of other property, plant and equipment (2,507) (6,097)
(6,792) 23,749
Underlying operating profit (before JVs and associates) 26,881 25,470
Operating cash conversion (25%) 93%
Reconciliations to IFRS measures
2022 2021
F. Return on capital employed Note £000 £000
Underlying operating profit
Underlying operating profit (before JVs and associates) 26,881 25,470
Share of results from JVs and associates 1,346 (344)
Underlying operating profit 28,227 25,126
Capital employed
Shareholders' equity 203,960 190,929
Cash and cash equivalents 3,974 (24,983)
Borrowings 14,850 20,750
Net debt / (funds) (for ROCE purposes) 18,824 (4,233)
Acquired intangible assets (9,735) (9,283)
Retirement benefit obligation 10,797 18,127
(net of deferred tax)
223,846 195,540
Average capital employed 209,693 185,382
Return on capital employed 13.5% 13.6%
Principal risks and uncertainties
The board has carried out a robust assessment of the principal risks and
uncertainties which have the potential to impact the Group's profitability and
ability to achieve its strategic objectives. This list is not intended to be
exhaustive. Additional risks and uncertainties not presently known to
management or deemed to be less significant at the date of this report may
also have the potential to have an adverse effect on the Group. Risk
management processes are put in place to assess, manage and control these on
an ongoing basis. Our principal risks are set out below:
Health and safety
Description
The Group works on significant, complex and potentially hazardous projects,
which require continuous monitoring and management of health and safety risks.
Ineffective governance over and management of these risks could result in
serious injury, death and damage to property or equipment.
Impact
A serious health and safety incident could lead to the potential for legal
proceedings, regulatory intervention, project delays, potential loss of
reputation and ultimately exclusion from future business. Continued changes in
legislation can result in increased risks to both individuals and the Group.
Mitigation
§ Established safety systems, site visits, safety audits, monitoring and
reporting, and detailed health and safety policies and procedures are in place
across the Group, all of which focus on prevention and risk reduction and
elimination.
§ Thorough and regular employee training programmes.
§ Director-led safety leadership teams established to bring innovative
solutions and to engage with all stakeholders to deliver continuous
improvement in standards across the business and wider industry.
§ Close monitoring of subcontractor safety performance.
§ Priority board review of ongoing performance and in-depth review of both
high potential and reportable incidents.
§ Regular reporting of, and investigation and root cause analysis of,
accidents, incidents and high potential near misses.
§ Behavioural safety cultural change programme.
§ Occupational health programme, including mental health.
§ Achievement of challenging health and safety performance targets is a key
element of management and staff remuneration.
§ Detailed due diligence on new acquisitions and effective integration of SHE
processes and systems.
§ A detailed gap analysis and strategy review was undertaken in 2022.
Supply chain
Description
The Group is reliant on certain key supply chain partners for the successful
operational delivery of contracts to meet client expectations. The failure of
a key supplier, a breakdown in relationships with a key supplier or the
failure of a key supplier to meet its contractual obligations could
potentially result in some short to medium-term price increases and other
short-term delay and disruption to the Group's projects and operations. There
is also a risk that credit checks undertaken in the past may no longer be
valid.
Impact
Interruption of supply or poor performance by a supply chain partner could
impact the Group's execution of existing contracts (including the costs of
finding replacement supply), its ability to bid for future contracts and its
reputation, thereby adversely impacting financial performance.
Mitigation
• Process in place to select supply chain partners that match our
expectations in terms of quality, sustainability and commitment to client
service - new sources of supply are quality controlled.
• Ongoing reassessment of the strategic value of supply relationships
and the potential to utilise alternative arrangements, including for steel
supply.
• Contingency plans developed to address supplier and subcontractor
issues (including the failure of a supplier or subcontractor).
• Monthly review process to facilitate early warning of issues and
subsequent mitigation strategies.
• Strong relationships maintained with key suppliers, including a
programme of regular meetings and reviews.
• Implementation of best practice improvement initiatives, including
automated supplier accreditation processes.
• Key supplier audits are performed within projects to ensure they can
deliver consistently against requirements.
People
Description
The ability to identify, attract, develop and retain talent is crucial to satisfy the current and future needs of the business. Skills shortages in the construction industry are likely to remain an issue for the foreseeable future and it can become increasingly difficult to recruit capable people and retain key employees, especially those targeted by competitors. This has been exacerbated in the last 12 months due to macro-economic factors such as the impact of inflation and shortages of labour.
Impact
Loss of key people could adversely impact the Group's existing market position
and reputation. Insufficient growth and development of its people and skill
sets could adversely affect its ability to deliver its strategic objectives. A
high level of staff turnover or low employee engagement could result in a
decrease of confidence in the business within the market, customer
relationships being lost and an inability to focus on business improvements.
Mitigation
• Training and development schemes to build skills and experience,
such as our successful graduate, trainee and apprenticeship programmes.
• Detailed succession planning exercise completed in 2022 identifying
for development future senior leaders within the business.
• Attractive working environments, remuneration packages, technology
tools and wellbeing initiatives to help improve employees' working lives and
above average inflation pay review in 2021.
• Annual appraisal process providing two-way feedback on performance.
• Internal communications continually improved.
• Interviews with leavers and joiners to understand the reasons for
their decision.
• A new HR structure implemented in 2021 and updated HR systems rolled
out covering payroll and a new employee portal.
• Three-year goals have been defined around HR operational efficiency,
evolving our approach to performance, development and careers and creating an
environment where Severfield employees feel listened to and are fairly
recognised and rewarded for their contribution to the Group.
• A review of the company approach to flexible working practices has
been undertaken in the light of our experiences of remote working during the
COVID-19 pandemic.
Commercial and market environment
Description
Changes in government and client spending or other external factors could lead
to programme and contract delays or cancellations, or changes in market
growth. External factors include national or market trends, political or
regulatory change (including the UK's trading relationship with the EU), the
impact of worldwide events such as war (including the impact of the Ukraine
crisis) and the impact of pandemics (including the ongoing COVID-19 pandemic).
Lower than anticipated demand could result in increased competition, tighter
margins and the transfer of commercial, technical and financial risk down the
supply chain, through more demanding contract terms and longer payment cycles.
Impact
A significant fall in construction activity and higher costs could adversely
impact revenues, profits, ability to recover overheads and cash generation.
Mitigation
• Regular reviews of market trends performed (as part of the Group's
annual strategic planning and market review process) to ensure actual and
anticipated impacts from macroeconomic risks are minimised and managed
effectively.
• Regular monitoring and reporting of financial performance, orders
secured, prospects and the conversion rate of the pipeline of opportunities
and marshalling of market opportunities is undertaken on a co-ordinated
Group-wide basis.
• Selection of opportunities that will provide sustainable margins and
repeat business.
• Strategic planning is undertaken to identify and focus on the
addressable market (including new overseas and domestic opportunities).
• Monitoring our pipeline of opportunities in continental Europe and
in the Republic of Ireland, supported by our European business venture.
• The Group closely monitors the flows of goods and people across
borders for ongoing work with the EU and specific risks and related
mitigations are kept under review by the executive committee. We have taken
steps to ensure we can continue to deliver on current and future contractual
commitments.
• Maintenance and establishment of supply chain in mainland Europe.
• Close management of capital investment and focus on maximising asset
utilisation to ensure alignment of our capacity and volume demand from
clients.
• Close engagement with both customers and suppliers and monitoring of
payment cycles.
• Ongoing assessment of financial solvency and strength of
counterparties throughout the life of contracts.
• Continuing use of credit insurance to minimise impact of customer
failure.
• Strong cash model and balance sheet supports the business through
fluctuations in the economic conditions of the sector.
• Acquisition of Harry Peers and DAM Structures has broadened our
reach and cross-selling opportunities, resulting in improved market
resilience.
Mispricing a contract (at tender)
Description
Failure to accurately estimate and evaluate the contract risks, costs to
complete, contract duration and the impact of price increases could result in
a contract being mispriced. Execution failure on a high-profile contract could
result in reputational damage,
Impact
If a contract is incorrectly priced, particularly on complex contracts, this
could lead to loss of profitability, adverse business performance and missed
performance targets.
This could also damage relationships with clients and the supply chain.
Mitigation
• Improved contract selectivity (those that are right for the business
and which match our risk appetite) has de-risked the order book and reduced
the probability of poor contract execution.
• Estimating processes are in place with approvals by appropriate
levels of management.
• Tender settlement processes are in place to give senior management
regular visibility of major tenders.
• Use of the tender review process to mitigate the impact of rising
supply chain costs.
• Work performed under minimum standard terms (to mitigate onerous
contract terms) where possible.
• Use of Group authorisation policy to ensure appropriate contract
tendering and acceptance.
• Adoption of Group-wide project risk management framework ('PRMF')
brings greater consistency and embeds good practice in identifying and
managing contract risk.
• Professional indemnity cover is in place to provide further
safeguards.
Cyber security
Description
Cyber-attack could lead to IT disruption with resultant loss of data, loss of
system functionality and business interruption.
The Group's core IT systems must be managed effectively, to keep pace with new
technologies and respond to threats to data and security.
Impact
Prolonged or major failure of IT systems could result in business
interruption, financial losses, loss of confidential data, negative
reputational impact and breaches of regulations.
Mitigation
• IT is the responsibility of a central function which manages the
majority of the systems across the Group. Other IT systems are managed locally
by experienced IT personnel.
• Significant investments in IT systems which are subject to board
approval, including anti-virus software, off-site and on-site backups, storage
area networks, software maintenance agreements and virtualisation of the IT
environment.
• Specific software has been acquired to combat the risk of ransomware
attacks.
• Group IT committee ensures focused strategic development and
resolution of issues impacting the Group's technology environment.
• Robust business continuity plans are in place and disaster recovery
and penetration testing are undertaken on a systematic basis.
• Data protection and information security policies are in place
across the Group.
• Cyber-crimes and associated IT risks are assessed on a continual
basis and additional technological safeguards introduced. Cyber threats and
how they manifest themselves are communicated regularly to all employees
(including practical guidance on how to respond to perceived risks).
• ISO 27001 accreditation achieved for the Group's information
security environment and regular employee engagement undertaken to reinforce
key messages.
• Insurance covers certain losses and is reviewed annually to
establish further opportunities for affordable risk transfer to reduce the
financial impact of this risk.
Failure to mitigate onerous contract terms
Description
The Group's revenue is derived from construction contracts and related assets.
Given the highly competitive environment in which we operate, contract terms
need to reflect the risks arising from the nature or the work to be performed.
Failure to appropriately assess those contractual terms or the acceptance of a
contract with unfavourable terms could, unless properly mitigated, result in
poor contract delivery, poor understanding of contract risks and legal
disputes.
Impact
Loss of profitability on contracts as costs incurred may not be recovered, and
potential reputational damage for the Group.
Mitigation
• The Group has identified minimum standard terms which mitigate
contract risk.
• Robust tendering process with detailed legal and commercial review
and approval of proposed contractual terms at a senior level (including the
risk committee) are required before contract acceptance so that onerous terms
are challenged, removed or mitigated as appropriate.
• Regular contract audits are performed to ensure contract acceptance
and approval procedures have been adhered to.
• We continue to work with the British Constructional Steelwork
Association to raise awareness of onerous terms across the industry.
• Through regular project reviews we capture early those occasions where
onerous terms could have an adverse impact and are able to implement
appropriate mitigating action at the earliest stage.
Indian joint venture
Description
The growth, effective management and performance of our Indian joint venture
('JSSL') is a key element of the Group's overall strategy. The Indian market
has continued to expand rapidly in recent years and the factory in Bellary has
been expanded to meet current and anticipated future market growth. The
COVID-19 pandemic has impacted JSSL and recovery is continuing.
Impact
Failure to effectively manage our operations in India could lead to financial
loss, reputational damage and a drain on cash resources to fund the
operations.
Mitigation
• In line with the response of the Group to COVID-19, local management
in India continue to closely monitor cash flows and debt repayments, together
with adopting specific actions to minimise the disruption on the joint venture
operations during the Indian economy's recovery period.
• Restructuring undertaken in 2021 to reduce overheads without
compromising future growth plans.
• Robust joint venture agreement and strong governance structure is in
place.
• Regular schedule of annual visits to India by UK executive and
senior management to review operations and ensure appropriate oversight
• Two members of the Group's board of directors are members of the
joint venture board.
• Regular formal and informal meetings held with both joint venture
management and joint venture partners.
• Contract risk assessment, engagement and execution process now
embedded in the joint venture.
• Operational improvement programmes remain ongoing.
• Ongoing review of controls environment and risk management processes
undertaken by Group senior management.
Sustainable and responsible business
Description
Risk of not being able to meet stakeholder expectations in the light of
uncertainty as to the direction in which stakeholder expectations will
develop.
Impact
Loss of position as market leader and wider losses of future opportunities in
the short term.
Mitigation
• We have demonstrated a commitment to reduce our carbon footprint by
becoming carbon neutral and established other stakeholder influenced
sustainability related targets such as net zero by 2050.
• We are rated A- by CDP in the leadership band.
• We have a dedicated sustainability manager who monitors current
legislation and expectations and develops Group strategy to facilitate and
implement plans for compliance.
• We are raising internal awareness of the steps we are taking and
developing closer working relationships with clients and suppliers.
• We monitor shareholder comments on the annual report and accounts and
in one-to-one meetings.
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