Final Results

RNS Number : 9696I

Severfield-Rowen PLC

23 March 2010

 



23 March 2010

Preliminary Results

For Year Ended 31 December 2009

STRONG RESULTS DESPITE TOUGH UK MARKET

Severfield-Rowen Plc, the market leading structural steel group, today announces its Preliminary Results for the year ended 31 December 2009.

Financial Highlights

£m	2009	2008	% Change
Revenue	349.4	394.3	-11.4
Underlying* operating profit	50.8	55.1	-  7.8
Operating profit	45.1	45.2	-  0.2
Underlying profit before tax	49.8	52.5	-  5.1
Retained profit after tax	31.3	24.0	30.6
Underlying basic earnings per share	40.00p	42.20p	-  5.2
Dividend per share	15.00p	20.00p	-25.0

·       Revenue decreased by £44.9m to £349.4m (2008: £394.3m)

·       Underlying operating margin at 14.6% (2008: 14.0%)

·       Underlying profit before tax margin at 14.3% (2008: 13.3%)

·       Underlying profit before tax decreased to £49.8m (2008: £52.5m)

·       Profit after tax (reflecting non-underlying items) of £31.3m (2008: £24.0m)

·       Basic earnings per share of 35.34p (2008: 27.06p)

·       Second interim dividend of 5.00p per share payable giving total dividend of 15.00p (2008: 20.00p)

·       Year end net cash of £11.6m (2008: £15.8m net borrowings)

·       Current order book value £219m

* Underlying is before:

o  the amortisation of acquired intangible assets - £4.4m (2008: £9.2m)

o  movements in the valuation of derivative financial instruments - gain £3.4m (2008: loss £0.7m)

o  impairment of capitalised development costs - £2.4m (2008: Nil)

o  restructuring costs - £2.3m (2008: Nil)

o  the associated tax impact of the above

o  the one-off tax effect in 2008 from the phasing out of Industrial Buildings Allowance - Nil (2008: £6.3m)

Tom Haughey, Chief Executive Officer, commented:

The Company is pleased with its results for 2009 which were achieved despite a very difficult UK construction climate, producing good levels of profitability and, importantly, debt reduction.  The Company has a relatively strong order book for 2010.

General trading conditions remain poor, with pressure from reduced UK demand and lower pricing in all markets.  The very creditable margin performance in 2009 will, as previously stated, be unsustainable in 2010.

The Company maintains its view that 2010 will be the low point for structural steel demand in the UK but demand will only grow slowly in 2011.  We remain vigilant and will maintain our focus on costs, capacity deployment and client satisfaction in our efforts to enhance our increased UK market share. 

In the Middle Eastern markets we have established a good presence and network which has aided our first major award in Abu Dhabi.   Notwithstanding this success, prices have recently fallen and the Company will be very selective in export markets for the remainder of 2010.  The Company will, in the main, look to fulfil its ambitions via higher UK market share.

We are nearing the period when our plans in India will translate into operational reality.  The Company is excited and confident of success.  Early enquiries reviewed by the Joint Venture suggest that a strong demand exists for our services in this large and fertile market.

2009 was a year of significant change and sacrifice for the whole Company, but it is now well positioned for the challenging market conditions through 2010 in the UK, and is prepared and looks forward to growth through its joint venture in India.

For further information, please contact:

Severfield-Rowen Plc                           Toby Hayward                      01845 577896

                                                         Chairman

                                                         Tom Haughey                       01845 577896

                                                         Chief Executive Officer

                                                         Peter Davison                       01845 577896

                                                         Finance Director

RBS Hoare Govett Ltd                         John MacGowan                   020 7678 8000

                                                         Stephen Bowler                    020 7678 8000

Pelham Bell Pottinger                         Alex Walters                        020 7337 1500

                                                         Francesca Tuckett                020 7337 1500

Chairman's Statement

Overview

 I have been pleased with the Company's performance in my first full year as Chairman.  The good profits in 2009 and the Company's strengthened balance sheet have been achieved against a worsening market backdrop.  Decisive actions by the executive team have established conditions whereby the Company's position of market leadership will be sustained and a solid future provided for.

Looking ahead we will be able to resume with our growth ambitions when the UK market recovers and our Joint Venture in India realises some of the Indian market's vast potential.

Results

Underlying operating profit (before the non-underlying items charge of £5.7 million) reduced by 7.7% to £50.8 million on revenue reduced by 11.4% to £349.4 million.

The underlying operating margin rose from 14.0% to 14.6% reflecting the prime business mix engaged for 2009.

Following net finance costs of £1.0 million, underlying profit before tax reduced by only 5.1% to £49.8 million resulting in a 5.2% reduction in underlying basic earnings per share to 40.00p per share. 

Profit after tax of £31.3 million (2008: £24.0 million), with basic earnings per share of 35.34p (2008: 27.06p), both reflecting non-underlying items.

We ended the year with net cash of £11.6 million (2008: net borrowings £15.8 million).

Dividend

On 25 February, the Company declared a second interim dividend payment of 5.00p per ordinary share in lieu of the final dividend for the year ended 31 December.  The dividend will be paid on 29 March 2010 to shareholders on the register on 5 March 2010.  The ex-dividend date was 3 March 2010. 

The Company will maintain a prudent dividend policy going forward.

Board Changes

Peter Davison, our Finance Director, will leave his role full-time at the AGM on 3 June 2010.  Peter has been a dedicated director in the company for some 22 years and has played a vital part in the Company's development and expansion over that time.  The Company is grateful to Peter for his outstanding contributions.  Peter will remain as Company Secretary.

Alan Dunsmore joined the Company on 1 March 2010 as our new Finance Director.  Alan joins the Board from Smiths Group Plc where he was Director of Finance of Smiths Detection and we look forward to his contributions in the coming years.

From the beginning of 2010, the Board, including Non-Executive members and the Company's Executives took a 20% reduction in basic salary as part of the overall measures being implemented throughout the Company.

People

The past 12 months has been a difficult period for all of our employees with the Company seeking to streamline employee numbers, reduce capacity and introduce substantial changes to pay, terms and conditions.  Such radical change is required to enable the business to operate effectively within a weaker market and the highly competitive environment prevailing in the sector.  The Company is appreciative of the sacrifices being made and is encouraged that, as a result, it can emerge in better times significantly stronger.

Outlook

The Company has enjoyed several very successful years and is in a strong position in terms of its balance sheet, cost base and core market advantages to compete in the current market. 

2010 will be a challenging year during which the Company is confident that it will grow its UK market share.  Although prices have bottomed, margins will remain under pressure until supply and demand are brought into better balance.  During 2011 a mild recovery in structural steel demand is anticipated, albeit subject to macro-economic factors.

In India the Company sees strong demand and good prospects for the products and services being offered by our joint venture.  Indian construction spending is some three times the current UK level and is growing healthily.

Management is confident that the Company can progress through prevailing conditions and will be in a position for a return to growth when its Indian joint venture plant opens this summer. 

Chief Executive's Review

I am pleased that, despite more difficult trading conditions in 2009, the Company returned very strong results.  Through the year the Board has taken steps to prepare its capacities, costs and sales focus for the tougher UK market situation in 2010 and beyond.

Business

Many prime projects were started or successfully completed in the last 12 months, including several related to the London 2012 Olympics; the 46 storey Heron Tower; The Shard of Glass, London Bridge; PFI hospitals; Westfield Stratford, Europe's largest retail development; and new gas power stations in Nottinghamshire.  The Company has performed admirably on all of its projects.

The Company's strong focus on client satisfaction, value and programme adherence continues to generate repeat business and high market share.

As we entered 2010, the Company secured a target petrochemical project in the Middle East.  Regrettably since then the market has weakened, particularly in price terms, to the extent that we will be very selective when tendering for new business through the remainder of this year.  Our Joint Venture in India is a very important driver for future growth and production is scheduled to commence this summer.

UK Market

In 2010, the consensus view is that the overall construction market for steel will be approximately 50% down from its peak in 2007, but that it will stabilise and recover gently from 2011.

The key sectors going forward include transport, power (including waste), health and education, together with fewer but important individual UK projects in the traditional commercial, retail, industrial and warehousing sectors.

The Company will continue to monitor the UK's demand/supply balances and price levels to determine its optimum business configuration.

Order Book

The Company's order book remains relatively strong at £219 million and for the last six months has reflected the change in the market, consisting of a higher proportion of smaller scale, lower margin projects.  The Company has a good workload base for 2010 and beyond.

Costs and Capacities

In January 2010, significant salary and pay reductions were introduced across the business to lower costs.  These, together with other measures, will generate savings of over £10 million in the current year.

The employees of the business have recognised these difficult measures as necessary to maintain the competitiveness of the Company against the background of intense market pressures.

Around 20% of our fabrication capacity has been removed through streamlining and reduced working hours, resulting in improved optimisation against demand across the Group.

Notwithstanding our recent successes, conditions in 2010 remain poor in the general UK market and opportunities in the Middle Eastern markets are tight.  The Company will continue to monitor developments and evidence of recovery.

Prices and Margins

As expected, the last quarter of 2009 saw UK market prices fall to lower levels, which will have a subsequent impact on margins.  The Company's view is that current prices have reached the bottom of their trough, albeit that they are likely to recover slowly and generally in line with prevailing material cost increases.  The Company, through its joint venture Steel UK, remains one of Europe's largest buyers of structural steel.

In international markets our exchange rate benefits and relatively low shipping costs are being offset by competitive pricing pressures.

India

The opportunities in India continue to manifest positively.  JSW Severfield Structures Ltd will commission its plant in the summer, with the overall project remaining on time and within budget.  The 35,000 tonnes per annum output plant will be fully commissioned by the end of this year and will employ 270 people.  The second joint venture with Structural Metal Decking will also become operational in the summer.

The total Indian construction expenditure in 2010 is estimated at £100 billion and predicted growth for the sector is 8-9% per annum.  The comparative UK expenditure in 2009 was approximately £33 billion.  First contract awards are being targeted during May 2010.

Both Joint Venture partners regard the Indian market and its prospects very positively, with associated, strong potential for further growth in coming years.

Projects

A significant number of major projects have been completed or undertaken during the past 12 months, including:

2012 Olympic Stadium                                       Heron Tower Commercial Office, London

Riverside Museum, Glasgow                               Westfield Stratford City Shopping Centre, London

ExCeL Exhibition Centre Extension, London         Staythorpe Power Station, Newark

The Rock Shopping Centre, Bury                        West Burton Power Station, Nottinghamshire

2012 Olympic Media Centre                                Victoria Hospital, Kirkcaldy

Dublin Airport Extension                                     Heathrow Terminal 5C

York University                                                  Bombardier, Belfast

West Cheshire College, Ellesmere Port               Montevetro Commercial Office, Dublin

St Botolphs House Commercial Office, London     Riverbank House Commercial Office, London

Cannon Place Commercial Office, London            Stratford City Link Bridge, London

London Borough of Newham Schools                   One New Change, London

The Shard of Glass, London Bridge                      New Court Commercial Office, London

The Angel Building Commercial Office, London     Data Centres in Yorkshire and Hertfordshire

Health, Safety and Sustainability

The Company is pleased to have made demonstrated progress in these most important areas.  Improvements in statistical measures have been supported by a strong emphasis on organisation, responsibility, awareness, training and attitude development.

Further ambitious objectives have been set for 2010, particularly in relation to Sustainability.

Risk Management

The Company has had a proactive and formal approach to risk management.  It is nearing the completion of another major review being conducted in conjunction with Willis.  The emphasis of this review has been changed to reflect issues arising from more challenging operating conditions for the whole supply chain and the Company's growing international presence.

Summary

The Company has enjoyed several very successful years and is in a strong position in terms of its balance sheet, cost base and core market advantages to compete in the current market.  In the UK, recovery is likely to be slow beyond 2010, with the Company's focus on growth coming from overseas business, primarily from its joint venture in India.

Financial Review

I am delighted to announce that once again, despite the difficult economic trading conditions, the Group has had another good year with underlying profit before tax (before a net charge in respect of non-underlying items of £5.7 million) of £49.8 million.  Importantly we also continue to have a relatively strong order book which currently stands at £219 million.

Revenue of £349.4 million and underlying profit before tax of £49.8 million have fallen 11.4% and 5.1% respectively compared with 2008.

Basic earnings per share, based on the underlying profit after tax, reduced by 5.2% to 40.00p.  The Board declared a second interim dividend, in lieu of the final dividend, of 5.00p per share on 25 February, payable on 29 March 2010, resulting in a total dividend for the year of 15.00p per share.

Retained profit after tax (after non-underlying items) of £31.3 million (2008: £24.0 million) has been transferred to reserves.

We ended the year with net cash of £11.6 million, a significant improvement on the net borrowings at the end of 2008 of £15.8 million.

Revenue

Group revenue fell by 11.4% to £349.4 million (2008: £394.3 million).   Despite this reduction in revenue, capacity at all the Group's production facilities was fully utilised throughout the year.  The reduction is attributable to a number of factors. 

·      The outsourcing of third party products and services, such as decking or cladding, which the Group is sometimes asked to provide to its clients.  These generate incremental revenue in addition to the revenue generated by steel.

During 2009 these third party products and services were not as prevalent in the mix of contracts undertaken by the Group.

·      The general lowering of sales prices during the year, particularly towards the end.

·      The stage of completion of contracts in that revenue recognition on those contracts can be significantly different from one year to another.

Operating Profit

The Group's underlying operating profit reduced slightly by 7.7% to £50.8 million.  Underlying operating margins, expressed as a percentage of revenue, increased to 14.6% compared to 14.0% achieved in 2008.  The improvement reflects the very strong mix of work in the order book throughout 2009.  In addition, incremental products supplied by the Group were lower than in the previous year.  As margins on these products are not as high as those achieved on steel, a reduction in the volume equates to better margins overall.  The Group's relative purchasing power also helped in protecting its margins from the reduction in the overall selling price during the year.

For the first time the results also incorporate those of the Group's joint venture in India.  Progress remains on plan and within budget with production in the new facility expected to commence later this year.  The joint venture generated a loss of almost £2.0 million to December 2009, in line with budget.  This related primarily to salary costs and other pre-operative expenses together with set up costs.  Consequently, our 50% share of this loss, taken to our Income Statement, amounts to £991,000.

Finance Costs

Net finance costs for the Group amounted to £1.0 million (2008: £2.6 million).   The reduction reflects both lower borrowings and lower interest rates during the year.

Profit Before Tax

The table below provides a summary of the profit before tax:

	2009 £000	2008 £000
Underlying profit before tax -        continuing operations	49,823	52,479
Non-underlying items (described below)	(5,732)	(9,885)
Profit before tax - continuing operations	44,091	42,594

The underlying profit before tax has decreased by only 5.1% to £49.8 million.  Margins, at this level, expressed as a percentage of revenue, increased to 14.3% (2008: 13.3%), reflecting the lower finance costs in addition to the increase in operating margins above.

Non-Underlying Items

Non-underlying items are included within the "Other Items" column of the Consolidated Income Statement and have reduced the underlying profit before tax by £5.7 million (2008: £9.9 million).  These relate to:

·      Amortisation of acquired intangibles - £4.4 million (2008: £9.2million). 

·      Movements in the valuation of derivative financial instruments - gain £3.4 million (2008: loss £0.7 million).  The Group enters into contracts in other currencies and fixes the contract profit by locking in the exchange rate at the time of accepting this work.  Each year due to the change of the value of Sterling against these currencies between the date when the forward exchange contracts were put in place during the year and the year end a fair value creditor has been accrued in the Balance Sheet on these contracts.  The gain in 2009 reflects the reduction in the creditor to £0.2 million (2008: £3.6 million) in the Balance Sheet.

·      Restructuring costs in the year - £2.3 million (2008: Nil).  These are primarily redundancy costs as a result of the capacity reductions throughout the Group.

·      Development costs written-off - £2.4 million (2008: Nil).  These costs were expended by the Group over the last several years on the development of a pedestal mounted power work platform for use on sites in the erection of steel, particularly on high rise buildings.  Changing market conditions have led the Directors to conclude that the future economic value of these machines cannot be guaranteed and that consequently the carrying value of this intangible asset has been written off in the year.

Re-Structuring

As previously announced, actions were taken towards the end of the year in an effort to reduce the impact of the worsening economic climate and to maintain the Group's competitive advantages in 2010 and beyond.

Capacity across the Group was reduced by approximately 20% including a reduction of 15% in the number of employees.  In addition wages and salaries have been reduced substantially and in some cases other terms and conditions amended for the remaining employees.

The cost to the Group of carrying out these redundancies amounted to £2.3 million.  This cost has been included on the Income Statement as a non-underlying item in the "Other Items" column.  In addition, overhead expenditure is continually being reviewed in order to generate savings and to match with the current level of capacity.  The actions taken are expected to save the Group £10 million per annum on salaries, wages and other overhead costs.  Management will continue to monitor its operations and cost base to maintain market competitiveness.

Taxation

The underlying tax charge of £14.4 million represents an effective tax rate of 28.9% compared with 28.7% in the previous year.  This rate is slightly higher than the prevailing rate of 28% due to the adjustments made in respect of disallowable expenditure incurred during the year. 

The total tax charge for the year was £12.8 million, representing an effective tax rate of 29.0% (2008: 43.7%).  The high rate in 2008 reflected a one-off charge of £6.3 million due to changes to the Industrial Buildings Allowance regime during that year.

Earnings per Share

Underlying basic earnings per share were at 40.00p, a decrease of 5.2% over the previous year's figure of 42.2p.  This calculation is based on the underlying profit after tax of £35.4 million and 88,607,876 shares, being the weighted average number of shares in issue during the year.

Basic earnings per share, based on profit after tax after non-underlying items were 35.3p (2008: 27.1p).

Underlying diluted earnings per share were 39.8p (2008: 42.2p).  This calculation is based on the underlying profit after tax of £35.4 million and 89,048,692 shares, being the weighted average number of shares in issue, allowing for contingent shares under a share based payments scheme.

Diluted earnings per share, based on profit after tax after non-underlying items were 35.2p (2008: 27.0p).

Dividend

On 25 February the payment of a second interim dividend was announced.  This dividend of 5.00p per share brings the total dividend for the year to 15.00p per share.  This total dividend of 15.00p is down from the 20.00p paid in respect of 2008 and is in line with the statement made in the Company's Interim Statement on 25 August 2009.

The second interim dividend is being paid in lieu of the final dividend which is normally paid in June.  It will be paid on 29 March 2010 to shareholders on the register on 5 March 2010 with the ex-dividend date being 3 March 2010.

Balance Sheet

The Group's Balance Sheet continues to strengthen with shareholders' funds increasing by £12.7 million to £132.5 million.  This equates to a total equity value per share at 31 December 2009 of 149.5p, compared with 135.2p at the end of 2008.

Goodwill on the Balance Sheet is valued at £54.7 million (2008: £54.7 million) and is subject to an annual impairment review under IFRS 3.  No impairment existed at either 31 December 2009 or 2008.

Other intangible assets on the Balance Sheet are valued at £23.2 million (2008: £30.1 million) and are made up as follows:

a)         Intangible Assets Acquired in Acquisition £23.2 million (2008: £27.7 million)

Intangible assets identified when we acquired Fisher Engineering in 2007 were valued at £39 million.  These assets are amortised on a straight-line basis over a varying period of time for each class of asset.  The amortisation charged in the year was £4.4m (2008: £9.2 million), giving a total amortised at the year end of £15.8 million (2008: £11.4 million).

b)         Development Costs £Nil (2008: £2.4 million)

At 31 December 2008 this represented capitalisation of the Group's costs in the development of the pedestal mounted powered work platform.  During 2009 these costs were written-off, as outlined above.

The Group now has property, plant and equipment and Investment Property totalling £91.0 million.  Depreciation charged in the year amounted to £5.2 million.  Capital Expenditure in the year was reduced from that expended in previous years at £4.8 million.  This included £3.7 million on general improvements to buildings and development of external storage areas at our production sites, with the balance primarily being the maintenance to and improvement of existing plant and machinery.

During the year the Group also invested £2.4 million as equity into the joint venture company in India.

Combined expenditure in 2010 on capital expenditure in the UK and equity injections into the Indian joint venture is not expected to be more than £5million.

Unlike the rest of the Group, Atlas Ward has a defined benefit pension scheme which, although closed to new members, had an IAS 19 deficit of £6.7 million as at 31 December 2008.  At 31 December 2009, the deficit increased to £8.4 million and is shown as a liability in the Group Balance Sheet.  The increase in the deficit is as a result of the changes in the assumptions made, in particular increases to both the inflation rate and mortality rates used.  This increase in deficit was despite there being a better than expected return on the scheme's assets in the year.

The provision held in the accounts of £2.6 million in respect of an alleged leak to a roof of a contract carried out by Atlas Ward Structures Limited has been under regular review by the Directors.  Although there has been a partial judgement in our favour, the client is appealing against the decision.  Consequently, it was decided that the provision should remain in place at its current level.

Cash Flow

Management of the Group's cash has always been of prime importance to the Board and this remains the case with cash being tightly controlled.  At the end of 2008 net borrowings were £15.8 million.  During 2009, particularly towards the end of the year, careful cash management resulted in borrowings being eliminated and we ended the year with a net cash balance of £11.6 million.  This position was significantly better than expected, helped by a £10 million unwinding of the amount of cash held in working capital at the end of the year. The Group has recently agreed a new revolving credit facility with RBS and Clydesdale Bank Plc, a member of the National Australia Bank Group, as joint lenders until March 2013.  This facility is for £40 million and leaves the Group very comfortably within the limits of its facility.

During the year £65.4 million of cash was generated from operations.

Outflows of cash during the year included dividends of £17.7 million, corporation tax paid of £13.2 million, the purchase of property, plant and equipment, net of sale proceeds, of £3.6 million and £2.4 million injected as equity into our Indian joint venture. 

Treasury

Group treasury activities are managed and controlled centrally.  Risks to assets and potential liabilities to customers, employees and the public continue to be insured.  The Group maintains its low risk financial management policy by insuring all significant trade debtors.

The treasury function seeks to reduce the Group's exposure to any interest rate, foreign exchange and other financial risks, to ensure that adequate, secure and cost effective funding arrangements are maintained to finance current and planned future activities and to invest cash assets safely and profitably.

The Group continues to have exposure to exchange rate fluctuations, currently between Sterling, the Euro and the Dollar.  In order to maintain the projected level of profit budgeted on contracts foreign exchange contracts are taken out to convert into Sterling at the expected date of receipt. 

Following the actions taken last year on the Group re-structuring there will be further efforts made to ensure the Group's financial controls, cash management and appropriate accounting and treasury policies remain robust.   This will involve the installation of a new accounting software system throughout the Group during the current year.

Going Concern

In determining whether the Group's annual consolidated financial statements can be prepared on a 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 key factors considered by the Directors were as follows:

·      The order book, which currently stands at £219 million;

·      The implications of the continuing challenging economic environment on the Group's revenues and profits.  The Group undertakes forecasts and projections of trading and cash flows on a regular basis.  Whilst this is essential for targeting performance and identifying areas of focus for management to improve performance and mitigate the possible adverse impact of a deteriorating economic outlook, they also provide projections of working capital requirements;

·      The impact of the increasingly competitive environment within which the Group operates, including pressures on margins and counterparty risks;

·      The impact on our business of key suppliers being unable to meet their obligations to the Group;

·      The potential mitigating actions that could be taken in the event that revenues are worse than expected, to ensure that operating profit and cash flows are protected; and

·      The committed finance facilities to the Group.  The Group has recently re-negotiated its banking facilities.  It now has access to a £40 million revolving credit facility to meet day to day working capital requirements.  The Group had sufficient headroom on its old facility of £70 million as well as its banking covenants at 31 December 2009.  The new facility provides the Group with sufficient headroom both on the facility itself and on the bank covenants in place.  This position is forecast to continue for the foreseeable future.  The new bank facility is available until March 2013.

Having considered all the factors impacting the Group's business, including downside sensitivities, the Directors are satisfied that the Group will be able to operate within the terms and conditions of the Group financing facilities for the foreseeable future.  In addition, the Group does not expect to have to refinance or renegotiate its facilities during the next 12 months.

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the 2009 Annual Report.

Retirement

With effect from the close of the Company's Annual General Meeting on 3 June 2010, I will be retiring from my full-time role as Finance Director and Company Secretary of the Group.  Having been with the Group for 22 years I have seen it grow from a Company in 1988 with Revenue of only £11 million to the industry's market leader with Revenue now of approximately £350 million.  It has certainly been an interesting journey.

My thanks must go to John Severs, one of the original founders of the Company who I worked with for 19 years, and to Tom Haughey my Chief Executive Officer for the past 3 years.  In addition, Peter Emerson has been a good friend and colleague since he joined the Group in 1996.  I also express my sincere thanks to all of my colleagues for their friendship and support of the past 22 years, in particular my own staff, many of whom have been with me for the majority of my tenure.

I am delighted to hand over the reins as Finance Director to Alan Dunsmore who, I am sure, will help drive the Group forward in the future.

Following the Annual General Meeting I will continue in the role of Company Secretary, albeit on a part-time basis.

Summary

Despite the prevailing market conditions, the Group has had a successful year with revenue, underlying profit before tax and earnings per share reaching expected levels.

It is particularly pleasing that the Group's borrowings have been reduced further and we actually ended the year with net funds of £11.6 million.  This position obviously leaves the Group with substantial headroom on its borrowing facilities.

The Group has continued to improve its already healthy financial position which, together with its relatively strong order book of £219 million, means it is well placed to trade satisfactorily despite the current recession.

Consolidated Income Statement

For the year ended 31 December 2009

Continuing operations	Before Other Items  2009 £000	Other Items 2009 £000	Total 2009 £000	Before Other Items  2008 £000	Other Items 2008 £000	Total 2008 £000
Revenue	349,417	-	349,417	394,325	-	394,325
Cost of sales	(288,658)	(2,283)	(290,941)	(331,216)	-	(331,216)
Gross profit	60,759	(2,283)	58,476	63,109	-	63,109
Other operating income	568	-	568	563	-	563
Distribution costs	(2,123)	-	(2,123)	(2,993)	-	(2,993)
Administrative expenses	(7,425)	(6,889)	(14,314)	(5,700)	(9,148)	(14,848)
Share of results of associates	(942)	-	(942)	128	-	128
Movements in the valuation of derivative financial contracts	-	3,440	3,440	-	(737)	(737)
Operating profit	50,837	(5,732)	45,105	55,107	(9,885)	45,222
Investment revenue - interest	131	-	131	1,265	-	1,265
Finance costs - interest	(1,145)	-	(1,145)	(3,893)	-	(3,893)
Profit before tax	49,823	(5,732)	44,091	52,479	(9,885)	42,594
Tax	(14,383)	1,605	(12,778)	(15,085)	(3,533)	(18,618)
Profit for the period attributable to the equity holders of the parent	35,440	(4,127)	31,313	37,394	(13,418)	23,976
Earnings per share:
Basic	40.00p	(4.66p)	35.34p	42.20p	(15.14p)	27.06p
Diluted	39.80p	(4.64p)	35.16p	42.15p	(15.13p)	27.02p

Other items relate to:

·      The amortisation of acquired intangibles.

·      Movements in the valuation of derivative financial instruments.

·      Impairment of capitalised development costs.

·      Re-structuring costs.

·      The associated tax impact of these items.

·      In 2008 the one-off tax effect from the phasing out of Industrial Buildings Allowance.

Other items have been disclosed separately in order to give an indication of the underlying earnings of the Group.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

	Year ended 31 December 2009 £000	Year ended 31 December 2008 £000
Actuarial loss on defined benefit pension scheme	(2,091)	(190)
Tax on items taken directly to equity	586	53
Net expense recognised directly in equity	(1,505)	(137)
Profit for the year from continuing operations	31,313	23,976
Total recognised income and expense for the year attributable to equity shareholders	29,808	23,839

Consolidated Statement of Changes in Equity

31 December 2009

	Share Capital £000	Share Premium £000	Other Reserves £000	Retained Earnings £000	Total Equity £000
At 1 January 2008	2,215	46,152	743	67,719	116,829
Profit for the period (attributable to equity holders of the parent)	-	-	-	23,976	23,976
Dividends paid	-	-	-	(20,601)	(20,601)
Share based payments	-	-	(304)	-	(304)
Actuarial loss on defined benefit pension scheme	-	-	-	(190)	(190)
Deferred income taxes on defined pension benefit scheme	-	-	-	53	53
At 31 December 2008	2,215	46,152	439	70,957	119,763

	Share Capital £000	Share Premium £000	Other Reserves £000	Retained Earnings £000	Total Equity £000
At 1 January 2009	2,215	46,152	439	70,957	119,763
Profit for the period (attributable to equity holders of the parent)	-	-	-	31,313	31,313
Dividends paid	-	-	-	(17,722)	(17,722)
Share based payments	-	-	626	-	626
Actuarial loss on defined benefit pension scheme	-	-	-	(2,091)	(2,091)
Deferred income taxes on defined pension benefit scheme	-	-	-	586	586
At 31 December 2009	2,215	46,152	1,065	83,043	132,475

Consolidated Balance Sheet

31 December 2009

	At 31 December 2009 £000	At 31 December 2008 £000
ASSETS
Non-current assets
Goodwill	54,712	54,712
Other intangible assets	23,244	30,133
Property, plant and equipment	84,907	86,713
Investment property	6,135	6,197
Interests in associates	1,733	232
	170,731	177,987
Current assets
Inventories	9,810	8,327
Trade and other receivables	54,655	60,958
Cash and cash equivalents	11,548	11,918
	76,013	81,203
Total assets	246,744	259,190
LIABILITIES
Current liabilities
Trade and other payables	82,564	77,322
Financial liabilities - borrowings	-	27,673
Financial liabilities - derivative      financial instruments	147	3,587
Tax liabilities	6,034	5,976
	88,745	114,558
Non-current liabilities
Retirement benefit obligations	8,407	6,651
Deferred tax liabilities	14,517	15,618
Provisions	2,600	2,600
	25,524	24,869
Total liabilities	114,269	139,427
NET ASSETS	132,475	119,763
EQUITY
Share capital	2,215	2,215
Share premium	46,152	46,152
Other reserves	1,065	439
Retained earnings	83,043	70,957
TOTAL EQUITY	132,475	119,763

Consolidated Cash Flow

For the year ended 31 December 2009

	Year ended 31 December 2009 £000	Year ended 31 December 2008 £000
Cash flows from operating activities
Cash generated from operations	65,369	84,503
Interest paid	(1,223)	(4,164)
Tax paid	(13,235)	(18,861)
Net cash from operating activities	50,911	61,478
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	1,260	2,730
Interest received	144	1,307
Purchases of property, plant and equipment	(4,847)	(12,094)
Purchases of shares of associates	(2,443)	-
Purchases of intangible fixed assets	-	(516)
Net cash used in investing activities	(5,886)	(8,573)
Cash flows from financing activities
Repayment of borrowings	(27,673)	(25,831)
Dividends paid	(17,722)	(20,601)
Net cash generated from financing activities	(45,395)	(46,432)
Net (decrease)/increase in cash and cash equivalents	(370)	6,473
Cash and cash equivalents at beginning of period	11,918	5,445
Cash and cash equivalents at end of period	11,548	11,918

1)         Basis of preparation

The Group's financial statements have been prepared on a basis consistent with that adopted in the previous year and in accordance with IFRSs. The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the consolidated financial statements comply with Article 4 of the EU IAS Regulations. The financial statements have been prepared under the historical cost basis, except for the revaluation of financial assets and liabilities under IAS 39 "Financial instruments: recognition and measurement". This preliminary announcement does not constitute the full financial statements prepared in accordance with International Financial Reporting Standards ("IFRSs") or within the meaning of section 435 of the Companies Act 2006.

The Group has adopted IFRS 8 "Operating Segments" for the first time in 2009. This standard requires the Group to report segmental information on the basis of internal reports which are regularly reviewed by the Group Board and used to allocate the resources of the business, and supersedes IAS 14 "Segment Reporting".

The Group has also adopted IAS 1 "Presentation of Financial Statements"(revised 2007) for the first time in 2009. The amendments arising from this require the inclusion of the Consolidated Statement of Changes in Equity as a primary statement in the financial information.

The Group has complied fully with the requirements of IFRS 8 and IAS 1 in the year, which apply to disclosure matters only.

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2009 or 31 December 2008. The financial information for the year ended 31 December 2008 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

The audit of the statutory accounts for the year ended 31 December 2009 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.

2)         Revenue and segmental analysis

Revenue, profit before tax, and net assets, in both years, all relate to the design, fabrication, and erection of structural steelwork and related activities.  All of the Group's subsidiary businesses have similar products and services, production processes, types of customer, methods of distribution, regulatory environments, and economic characteristics.

Revenue, which relates wholly to construction contracts and related assets in both years originated from the United Kingdom.

3)         Taxation

The taxation charge comprises:

	2009  £000	2008 £000
Current tax
UK corporation tax	13,661	15,174
Adjustments to prior years' tax provision	(367)	(737)
	13,294	14,437
Deferred tax
Current year (credit)/charge	(542)	4,131
Adjustments to prior years' provision	26	50
	(516)	4,181
Total tax charge	12,778	18,618

The total tax charge in 2008 is significantly higher due to the one-off charge of £6.3 million reflecting changes to the Industrial Buildings Allowance regime during that year.

4)         Dividends

	2009 £000	2008 £000
Final dividend for the year ended 31 December 2008 of 10.00p (2007: 13.25p) per share	8,861	11,741
Interim dividend for the year ended 31 December 2009 of 10.00p (2008: 10.00p) per share	8,861	8,860
	17,722	20,601
Second interim dividend for the year ended 31 December 2009 of 5.00p (2008: £Nil) per share	4,430	-
Proposed final dividend for the year ended 31 December 2009 of £Nil (2008: 10.00p) per share	-	8,861

The second interim dividend is being paid in lieu of the final dividend which is normally paid in June.  It will be paid on 29 March 2010 to shareholders on the register on 5 March 2010, the ex-dividend date being 3 March 2010.

5)         Earnings per share

There are no discontinued operations in either the current or prior year.

Earnings per share is calculated as follows:

	2009 £000	2008 £000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company	31,313 ______	23,976 ______
Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company	35,440 ______	37,394 ______
Number of shares	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	88,607,876	88,607,876
Effect of dilutive potential ordinary shares:
Share-based payments scheme	440,816	110,204
	_________	_________
Weighted average number of ordinary shares for the purposes of diluted earnings per share	89,048,692	88,718,080
	_________	_________
Basic earnings per share	35.34p	27.06p
Underlying basic earnings per share	40.00p	42.20p
Diluted earnings per share	35.16p	27.02p
Underlying diluted earnings per share	39.80p	42.15p

6)         Reconciliation of Group operating profit to cash generated from operations

	2009 £000	2008  £000
Operating profit	45,105	45,222
Adjustments for:
Depreciation of property, plant and equipment	5,173	5,094
Depreciation of investment properties	62	-
Loss/(profit) on disposal of property, plant and equipment	220	(764)
Movement in pension	(335)	(284)
Share of results of associated companies	942	(128)
Share based payments	626	(304)
Amortisation of intangible assets	4,408	9,423
Impairment of capitalised development costs	2,481	-
Movement in valuation of derivative financial contracts	(3,440)	737
Operating cash flows before changes in working capital	55,242	58,996
(Increase)/decrease in inventories	(1,483)	1,150
Decrease in receivables	6,290	4,618
Increase in payables	5,320	19,739
Cash generated from operations	65,369	84,503

7)         Analysis of net funds/(borrowings)

	At 31 December 2009 £000	At   31 December   2008   £000
Cash in hand	11,548	11,918
Borrowings	-	(27,673)
Closing net funds/(borrowings)	11,548	(15,755)

 

END

 

 

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