Half Yearly Report

RNS Number : 8975T

Severfield-Rowen PLC

26 November 2013

 



Interim Results

for Half-Year ended 30 September 2013

Solid Overall Result - UK Margin Recovering - Operational Improvements Continue

Severfield-Rowen Plc, the market leading structural steel group, announces its interim results for the 6 months to 30 September 2013.

Highlights

·      Underlying* profit before tax of £1.4m (2012: £21.1m loss)

·      UK underlying operating margin (before JVs and associates) recovery to 2.5% (2012: -17.1%)

·      Share of losses from Indian joint venture of £1.3m (2012: £0.4m profit)

·      Period end net cash position of £1.5m (31 March 2013: £41.2m net debt)

·      Further restructuring of largest business, Severfield-Watson Structures, concluded successfully

·      Operational improvement programme progressing well and continuing

·      UK order book steady at £172m at 31 October (August 2013: £178m)

·      India order book of £34m at 31 October (August 2013: £35m)

·      New Chief Executive, Ian Lawson, appointed on 1 November 2013

£m		6 months to 30 September 2013	6 months to 31 December 2012
Revenue		117.1	120.7
Underlying* Group operating profit/(loss) (before JVs and associates)		3.0	(20.6)
Underlying operating margin (before JVs and associates)		2.5%	(17.1%)
Operating loss (before JVs and associates)		(0.8)	(23.1)
Underlying profit/(loss) before tax		1.4	(21.1)
Loss after tax (including non-underlying items)		(2.5)	(19.6)
Underlying basic earnings per share		0.28p	(10.36p)
Dividend per share		Nil	Nil

* Underlying is before:

o  restructuring and redundancy costs - £2.6m (2012: nil)

o  amortisation of acquired intangible assets - £1.4m (2012: £1.4m)

o  impairment of investment in associates - £0.4m (2012: nil)

o  contract legal costs and provision movements - nil (2012: £1.1m)

o  movements in valuation of derivative financial instruments - £0.2m favourable (2012: nil)

o  the associated tax impact of the above

John Dodds, Non-Executive Chairman, commented:

"The first six months of the financial year have been marked by significant operational change and progress.  While certain challenges still remain the Group has achieved an important turning point; there is, however, still further work to be done under Ian's leadership.  The completion of the restructuring at Severfield-Watson Structures and on-going operational improvements, combined with some signs of the UK market improving into 2014, gives me confidence for the future and the Group's ability to build on its strong market position."

For further information, please contact:

Severfield-Rowen Plc	John Dodds Non-Executive Chairman	01845 577896
	Ian Lawson Chief Executive Officer	01845 577896
	Alan Dunsmore Finance Director	01845 577896
Jefferies International Limited	Simon Hardy	020 7029 8000
	Harry Nicholas	020 7029 8000
Bell Pottinger	David Rydell	020 7861 3886
	Guy Scarborough	020 7861 3870

Introduction

The first six months of the financial year has been a period of good operational progress for the Group.  The restructuring programme within the largest business, Severfield-Watson Structures, is now complete and capacity has been reduced as planned.  In parallel with this, the operational improvement programme put in place earlier in the year is progressing well and will continue for the remainder of the year and beyond.  Operating margins in the UK are recovering in line with our expectations and I am pleased to report a positive net cash position at the period end.  While there are some signs of the UK market improving in 2014, it remains challenging.  There has also been some evidence of pricing improvements but they have been sporadic rather than evidence of a sustainable trend.

Our Indian joint venture has experienced a challenging period of trading in a difficult economic climate.  As highlighted previously, volumes generated by the order book have not been at a level to sustain factory production at a break-even position.  The focus remains on commercial development to improve this situation combined with a tight control of costs.

It was with pleasure that we were able to announce on 26 September the appointment of a new Chief Executive.  Ian Lawson started on 1 November and it leaves me to thank our shareholders, and staff, for all their support as we have guided the business through a difficult period.

Financials

The Group's financial performance in the first six months of the financial year reflects a steady improvement in operational performance despite a challenging environment in the UK, a restructuring charge for the UK, and a disappointing result from the Indian joint venture arising from low production volumes.

Revenue of £117.1m (2012: £120.7m) reflects a modest reduction in volumes in the period as the 10% capacity reduction in the largest business, Severfield-Watson Structures, started to take effect.  Underlying operating profit before results of JVs and associates, of £3.0m (2012: £20.6m loss), representing a margin of 2.5% (2012:-17.1%), reflects a good start in building margin as the Group recovers from the challenges of the last financial period.  New contracts secured are performing in line with expectations and the small number of large legacy contracts are, in aggregate, broadly in line with expectations although individual variations in the performance of these contracts have presented some challenges in the period.  The further passage of time and completion of these legacy contracts will lead to a more controlled and better managed risk environment within the business.

The underlying share of results of JVs and associates of a loss of £1.3m (2012: £0.4m profit) reflects the Indian joint venture operating at below break-even production volumes.  The underlying cause of this is a much higher degree of variability in contract timing than expected and a challenging economic and trading backdrop in India.  We are focused on increasing the order book to ensure that the factory remains fully-loaded throughout the year with a mix of good quality contracts.

The Group's underlying operating profit after share of results of JVs and associates is £1.6m (2012: £20.3m loss) and underlying profit before tax for the period is £1.4m (2012: £21.1m loss).

The restructuring of the Group's largest business, Severfield-Watson Structures, resulted in a charge of £2.6m (2012: nil) which is included in "other items" and excluded from the underlying profit before tax.  The restructuring is complete and the resultant savings are being delivered as expected.  Other items also excluded from the underlying profit before tax includes the amortisation of acquired intangible assets of £1.4m (2012: £1.4m), favourable movements in the valuation of derivatives of £0.2m (2012: nil) and a write off of £0.4m (2012: nil) from the Group's historical investment in Kennedy Watts Partnership Limited, a drawing office which went into administration in the period.

The statutory loss before tax, which includes both underlying and non-underlying items, is £2.7m (2012: £23.5m).  The statutory loss after tax is £2.5m (2012: £19.6m) and has been withdrawn from reserves.

Underlying basic earnings per share is 0.28p (2012: 10.36p loss).  This calculation is based on the underlying profit after tax of £0.8m and 294,089,611 shares, being the weighted average number of shares in issue during the period.  Basic earnings per share, based on the statutory loss after tax, is a loss of 0.86p (2012: 11.42p loss).

There are no contingent shares outstanding under share-based payment schemes and accordingly there is no difference between basic and diluted earnings per share.

Following the successful completion of the rights issue on 5 April, net cash at 30 September was £1.5m.  This represents an improvement of £42.7m from the position at 31 March.  The rights issue raised £44.8m net of fees, operating activities during the period generated £0.1m in cash, financing used £0.5m and the previously planned additional equity investment in India used £1.7m of cash.  Within the cash generated from operating activities,  contract debt has been reduced by £13m, which reflects some of the operational improvements within the business in the period and some of the outstanding issues on legacy contracts have also been reduced.

Capital expenditure in the period amounted to £0.5m (2012: £0.9m).

Following the completion of the rights issue and the associated refinancing, the Group has a £35m bank facility in place until November 2016 with RBS and National Australia Bank as joint lenders, of which £20m is available for utilisation until December 2013.  There are operating cash covenants but no profit covenants on the facility until 31 March 2014.

Dividend

Consistent with statements made by the Board at the time of the rights issue, no interim dividend is being declared.

UK

A second phase of restructuring in Severfield-Watson Structures was undertaken during the period.  This required a charge to profit of £2.6m, the loss of 84 jobs, and takes the combined savings from both phases of the restructuring to £4m.  This restructuring is now complete.  In parallel with this, capacity at Severfield-Watson Structures was reduced by approximately 10% to help position the business more effectively for prevailing market conditions. 

At the same time an operational improvement programme was initiated to improve risk assessment, estimating control and discipline, improved cross-functional communication and greater standardisation and formalisation of process.  This is being combined with improved contract management processes.  These improvements are on-going but are already delivering greater stability and control of new projects being secured by the Group.

The Group's main activities continue to be the design, fabrication and construction of structural steelwork for construction projects of varying types, including warehouses, commercial offices, industrial buildings and power stations.  During the period, all the Group's UK plants were fully-loaded, albeit at slightly reduced capacity in Severfield-Watson Structures, and its three businesses were engaged in a number of successful contracts, working both with main contractors and directly with clients, including:-

·      Birmingham New Street Station ·      Tate Modern ·      Moorgate Exchange ·      5 Broadgate ·      Old Livestock Market, Hereford ·      Aldgate Tower ·      BMW Extension, Oxford ·      Jaguar Land Rover, Midlands

·      Sainsbury's, Basingstoke ·      Asda, Avonmouth ·      Asda, Sheffield ·      Aldi, Rotherham ·      Gatwick Pier 5 ·      Suffolk EfW ·      Cardiff EfW ·      Essex Waste Handling Plant

India

The joint venture has had a challenging six months.  While the order book has remained stable at £34m (August 2013: £35m), this has not been at a high enough level to maintain production at the plant at a break-even position.  We have experienced a much higher level of variability of contract timing than expected, even when they are securely in the order book, in addition to operating in a generally challenging economic environment.  In response to this, some lower margin work is being secured to keep the plant as fully loaded as possible but this means that losses will continue into the second half of the year.

The long term market outlook for India remains positive, despite the current economic climate being difficult with the significant weakening of the Rupee and forthcoming elections creating further uncertainty.  Even in these challenging conditions the business has been winning and executing good quality work for blue chip companies.  The focus now is to increase the level and proportion of such commercial contracts within the order book.  The expansion of the factory is almost complete and this additional capability will help secure a wider range of good quality commercial contracts.

Contracts undertaken by the joint venture business in the period include:

·      Proctor and Gamble Plant, Hyderabad

·      JSW Ispat, Pellet Plant

·      Reliance Commercial HQ

·      Michelin Tyre Plant

·      OPG Power Project

Appointment of Chief Executive

Our new Chief Executive, Ian Lawson, started on 1 November.  Ian's extensive construction and management experience both in the UK and overseas, will support the continuing improvement and development of the UK business and the Indian joint venture.  I have now reverted to my previous role of Non-Executive Chairman.

Outlook

The UK market remains challenging, although there are some signs of it improving into 2014.  In the meantime, the restructuring is now complete and the operational improvement programme remains on track; even without any upturn in the UK market, we anticipate continuing margin development.

The Indian joint venture has its challenges and the Indian economy is also going through a period of uncertainty.  The priorities are to continue developing the commercial side of the business and control costs tightly, while the market continues its conversion from concrete to steel over the medium term.

Overall, with a strong balance sheet, improving operational and contracting procedures and a full strength management team once again, the Group is well placed to continue building a solid platform for profitable growth.

John Dodds

Chairman

Condensed consolidated interim financial information

Consolidated income statement

	Six months ended 30 September 2013 (unaudited)				Six months ended 31 December 2012 (unaudited)				15 month period ended 31 March 2013 (audited)
	Before other items £000	Other items1 £000	Total £000		Before other items £000	Other items1 £000	Total £000		Before other items £000	Other items1 £000	Total £000
Revenue	117,147	-	117,147		120,653	-	120,653		318,256	-	318,256
Cost of sales	(111,185)	(2,017)	(113,202)		(137,831)	(1,089)	(138,920)		(330,945)	(1,766)	(332,711)
Gross profit/(loss)	5,962	(2,017)	3,945		(17,178)	(1,089)	(18,267)		(12,689)	(1,766)	(14,455)
Other operating income	273	-	273		434	-	434		993	-	993
Distribution costs	(1,063)	(79)	(1,142)		(1,615)	-	(1,615)		(2,912)	-	(2,912)
Administrative expenses	(2,222)	(1,889)	(4,111)		(2,286)	(1,374)	(3,660)		(4,610)	(5,664)	(10,274)
Movements in the valuation of derivative financial instruments	-	213	213		-	-	-		-	104	104
Operating profit/(loss) before share of results of JVs and associates	2,950	(3,772)	(822)		(20,645)	(2,463)	(23,108)		(19,218)	(7,326)	(26,544)
Share of results of JVs and associates	(1,325)	(354)	(1,679)		354	-	354		(310)	-	(310)
Operating profit/(loss)	1,625	(4,126)	(2,501)		(20,291)	(2,463)	(22,754)		(19,528)	(7,326)	(26,854)
Finance income	-	-	-		5	-	5		10	-	10
Finance expense	(245)	-	(245)		(799)	-	(799)		(2,014)	-	(2,014)
Profit/(loss) before tax	1,380	(4,126)	(2,746)		(21,085)	(2,463)	(23,548)		(21,532)	(7,326)	(28,858)
Tax	(543)	754	211		3,326	640	3,966		3,057	2,674	5,731
Profit/(loss) for the period	837	(3,372)	(2,535)		(17,759)	(1,823)	(19,582)		(18,475)	(4,652)	(23,127)
Earnings per share2:
Basic	0.28p	(1.15p)	(0.86p)		(10.36p)	(1.06p)	(11.42p)		(10.78p)	(2.71p)	(13.49p)
Diluted	0.28p	(1.15p)	(0.86p)		(10.36p)	(1.06p)	(11.42p)		(10.78p)	(2.71p)	(13.49p)

¹    Further details of other items are disclosed in note 7 to the condensed interim financial statements.

²     Earnings per share for the period ending 31 December 2012 and 31 March 2013 has been restated to take into account the impact of the discount element of the rights issue which completed in April 2013 (see note 10).

Consolidated statement of comprehensive income

	Six months ended 30 September 2013 (unaudited) £000	Six months ended 31 December 2012 (unaudited) £000	15 month period ended 31 March 2013 (audited) £000
Actuarial gain/(loss) on defined benefit pension scheme*	335	(2,441)	(2,824)
Tax relating to components of other comprehensive income*	(67)	635	458
Other comprehensive income for the period	268	(1,806)	(2,366)
Loss for the period from continuing operations	(2,535)	(19,582)	(23,127)
Total comprehensive income for the period attributable to equity shareholders of the parent	(2,267)	(21,388)	(25,493)

*  These items will not be subsequently reclassified to the consolidated income statement.

Consolidated statement of changes in equity

	Share capital £000	Share premium £000	Other reserves £000	Retained earnings £000	Total equity £000
At 1 April 2013	2,231	46,152	527	53,491	102,401
Loss for the period (attributable to equity holders of the parent)	-	-	-	(2,535)	(2,535)
Proceeds from shares issued	5,206	39,550	-	-	44,756
Equity settled share-based payments	-	-	162	-	162
Actuarial gain on defined benefit pension scheme	-	-	-	335	335
Deferred income taxes on defined pension scheme	-	-	-	(67)	(67)
At 30 September 2013 (unaudited)	7,437	85,702	689	51,224	145,052

The movements in share capital and share premium reflect the 7:3 rights issue of 208,252,511 new ordinary shares at 23p per share which was approved by shareholders on 18 March 2013.  The rights issue completed on 5 April 2013, with the Group receiving net proceeds of £44,756,000 consisting of gross proceeds of £47,898,000 offset by transaction costs of £3,142,000.

	Share capital £000	Share premium £000	Other reserves £000	Retained earnings £000	Total equity £000
At 1 January 2012	2,231	46,152	469	83,446	132,298
Loss for the period (attributable to equity holders of the parent)	-	-	-	(23,127)	(23,127)
Dividends paid	-	-	-	(4,462)	(4,462)
Equity settled share-based payments	-	-	58	-	58
Actuarial loss on defined benefit pension scheme	-	-	-	(2,824)	(2,824)
Deferred income taxes on defined pension benefit scheme	-	-	-	458	458
At 31 March 2013 (audited)	2,231	46,152	527	53,491	102,401

	Share capital £000	Share premium £000	Other reserves £000	Retained earnings £000	Total equity £000
At 1 July 2012	2,231	46,152	476	80,479	129,338
Loss the period (attributable to equity holders of the parent)	-	-	-	(19,582)	(19,582)
Dividends paid	-	-	-	(1,335)	(1,335)
Equity settled share-based payments	-	-	10	-	10
Actuarial loss on defined benefit pension scheme	-	-	-	(2,441)	(2,441)
Deferred income taxes on benefit pension scheme	-	-	-	635	635
At 31 December 2012 (unaudited)	2,231	46,152	486	57,756	106,625

Consolidated balance sheet

	At 30 September 2013 (unaudited) £000	At 31 December 2012 (unaudited) £000	At 31 March 2013 (audited) £000
ASSETS
Non-current assets
Goodwill	54,712	54,712	54,712
Other intangible assets	13,657	15,726	15,100
Property, plant and equipment	74,356	76,237	76,141
Investment property	3,890	3,920	3,910
Interests in JVs and associates	3,190	3,146	3,168
Deferred tax asset	1,840	1,840	1,840
	151,645	155,581	154,871
Current assets
Inventories	6,650	7,110	8,214
Trade and other receivables	52,562	61,217	71,599
Derivative financial instruments	213	-	-
Cash and cash equivalents	1,832	1,434	671
	61,257	69,761	80,484
Total assets	212,902	225,342	235,355
LIABILITIES
Current liabilities
Trade and other payables	(47,107)	(66,309)	(70,894)
Financial liabilities - borrowings	-	(30,697)	(41,461)
Financial liabilities - finance leases	(196)	(168)	(194)
Current tax liabilities	(1,031)	160	5
	(48,334)	(97,014)	(112,544)
Non-current liabilities
Retirement benefit obligations	(11,179)	(11,568)	(11,811)
Financial liabilities - finance leases	(108)	(280)	(206)
Deferred tax liabilities	(8,229)	(9,855)	(8,393)
	(19,516)	(21,703)	(20,410)
Total liabilities	(67,850)	(118,717)	(132,954)
NET ASSETS	145,052	106,625	102,401
EQUITY
Share capital	7,437	2,231	2,231
Share premium	85,702	46,152	46,152
Other reserves	689	486	527
Retained earnings	51,224	57,756	53,491
TOTAL EQUITY	145,052	106,625	102,401

Consolidated cash flow statement

	Six months ended 30 September 2013 (unaudited) £000	Six months ended 31 December 2012 (unaudited) £000	15 months ended 31 March 2013 (audited) £000
Net cash generated from operating activities	56	2,807	804
Cash flows from investing activities
Interest received	-	-	10
Proceeds on disposal of property, plant and equipment	581	1,175	1,343
Purchases of property, plant and equipment	(513)	(889)	(2,311)
Purchases of intangible fixed assets	-	-	(402)
Investment in JVs and associates	(1,700)	(2,400)	(3,031)
Net cash used in investing activities	(1,632)	(2,114)	(4,391)
Cash flows from financing activities
Interest paid	(462)	(702)	(1,687)
Dividends paid	-	(1,335)	(4,462)
New finance leases	-	-	275
Repayment of obligations under finance leases	(96)	(96)	(230)
New borrowings	-	-	8,098
Repayment of borrowings	(41,461)	(907)	-
Proceeds from shares issued	44,756	-	-
Net cash generated from/(used in) financing activities	2,737	(3,040)	1,994
Net increase/(decrease) in cash and cash equivalents	1,161	(2,347)	(1,593)
Cash and cash equivalents at beginning of period	671	3,781	2,264
Cash and cash equivalents at end of period	1,832	1,434	671

Notes to the condensed consolidated interim financial information

1)         General information

The Company is a limited liability company, incorporated and domiciled in the UK.  The address of its registered office is Dalton Airfield Industrial Estate, Dalton, Thirsk, North Yorkshire, YO7 3JN.

The Company is listed on the London Stock Exchange.

The condensed consolidated interim financial information does not constitute the statutory financial statements of the Group within the meaning of section 434 of the Companies Act 2006.  The statutory financial statements for the 15 month period ended 31 March 2013 were approved by the board of directors on 19 July 2013 and have been delivered to the Registrar of Companies.  The report of the auditors on those financial statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498 of the Companies Act 2006.

The condensed consolidated interim financial information for the six months ended 30 September 2013 has been reviewed, not audited, and was approved for issue by the board of directors on 25 November 2013.

2)         Basis of preparation

The condensed consolidated interim financial information for the six months ended 30 September 2013 has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.  The condensed consolidated interim financial information should be read in conjunction with the statutory financial statements for the 15 month period ended 31 March 2013 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

In determining whether the Group's condensed consolidated interim financial information 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.

In the Group's statutory financial statements for the 15 months ended 31 March 2013, information was provided on the equity fundraising ('rights issue') which was approved by shareholders at the general meeting held on 18 March 2013. The rights issue completed on 5 April 2013, at which point the amendment and restatement of the existing facilities agreement ('Revised Facilities Agreement') with the Group's lenders became effective.

In accordance with the Revised Facilities Agreement, to meet day-to-day working capital requirements, the Group has access to £20m in credit facilities until 31 December 2013, when the facilities increase to £35m until their expiry in November 2016.  This 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.

Having considered all the factors impacting the Group's business, including certain 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.

3)         Accounting policies

Except as described below, the accounting policies applied in preparing the condensed consolidated interim financial information are consistent with those used in preparing the statutory financial statements for the 15 month period ended 31 March 2013.

Taxes on profits in interim periods are accrued using the tax rate that will be applicable to expected total annual profits.

New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date (or date of early adoption). The following standards were effective for the first time during the six months ended 30 September 2013.

Amendments to IAS 1, Presentation of Financial Statements, have increased the disclosure within the consolidated statement of comprehensive income by highlighting items that will not be reclassified subsequently to the consolidated income statement.  The amendments affect presentation only.

IFRS 13, 'Fair Value Measurement', has been adopted from 1 April 2013. The standard has introduced new disclosure requirements as set out in note 13. However, there has been no impact on the measurement of fair value for the Group.

IAS 19, 'Employee Benefits' was amended in June 2011 and was applicable for the Group from 1 April 2013. The Group has not applied the amended standard retrospectively since the impact on prior accounting periods is not significant but has instead disclosed the financial impact in the paragraphs below.

The changes to the standard require the Group to calculate its annual pension charge as the current service cost plus or minus the discount rate applied to the net pension liability. This replaces the previous calculation which was the current service cost plus the expected return on plan assets less the unwinding of the discount rate on liabilities. In effect, this requires the Group to replace its long-term rate of return on assets assumption with its discount rate.

The retrospective application would result in an increase in operating profit of £87,000 in the 15 month period ended 31 March 2013 and £35,000 in the six month period ended 31 December 2012 with a corresponding adjustment to the actuarial movement on the retirement benefit liability recorded in the consolidated statement of comprehensive income. There is, therefore, no balance sheet impact.

4)         Risks and uncertainties

The principal risks and uncertainties which could have a material impact upon the Group's performance over the remaining six months of the year ending 31 March 2014 have not changed significantly from those noted or referenced on pages 36-37 of the directors' report and pages 20‑24 of the financial review included in the Annual Report for the 15 month period ended 31 March 2013 which is available on the Company's website www.sfrplc.com. These risks and uncertainties include, but are not limited to:

·      The commercial and market environment within which the Group operates.

·      Possible steel price movements.

·      Reliance on key skills and personnel within our workforce.

·      Interruption to steel fabrication facilities.

·      The Indian joint venture.

·      Health and safety.

·      Credit, liquidity, interest rate and foreign exchange risks.

5)         Segmental analysis

Revenue, profit before tax, and net assets all relate to the design, fabrication, and construction 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.  The Group has one reported segment.

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

There has been no change in the basis of segmentation or in the basis of measurement of segment profit or loss in the period.

6)         Seasonality

There are no particular seasonal variations which impact the split of revenue between the first and second half of the financial year.  Underlying movements in contract timing and phasing, which are an on-going feature of the business, will continue to drive moderate fluctuations in half yearly revenues.

7)         Other items

	Six months ended 30 September 2013 £000	Six months ended 31 December 2012 £000	15 month period ended 31 March 2013 £000
Amortisation of acquired intangible assets	1,374	1,374	3,435
Restructuring and redundancy costs	2,611	-	767
Impairment of investment in associates	354	-	-
Refinancing related transaction costs	-	-	2,139
Contract legal costs and provision movements	-	1,089	1,089
Valuation of derivative financial instruments	(213)	-	(104)
Other items before tax	4,126	2,463	7,326
Tax on other items	(754)	(640)	(2,674)
Other items after tax	3,372	1,823	4,652

Restructuring and redundancy costs have arisen on the re-organisation of the Group's largest businesses (Severfield-Rowen Structures and Watson Steel Structures) which commenced trading as a single entity, Severfield-Watson Structures, from January 2013.  A comprehensive review since then resulted in changes to the senior operating management structure.  In May, a further re-organisation of Severfield-Watson Structures was announced, resulting in the reduction in factory capacity by approximately ten per cent and a reduction in headcount of 84 people.

Refinancing related transaction costs in the prior year consist of all costs associated with the amendment of the Group's banking facilities, including the write-off of all costs relating to the November 2011 refinancing.

8)         Taxation

The income tax expense reflects the estimated effective tax rate of 20% on profit before taxation for the Group for the year ending 31 March 2014.

9)         Dividends

	Six months ended 30 September 2013 £000	Six months ended 31 December 2012 £000	15 month period ended 31 March 2013 £000
2011 final dividend (3.5p per share)	-	-	3,127
2013 interim dividend (1.5p per share)	-	1,335	1,335
2013 final dividend (nil per share)	-	-	-
Dividends paid	-	1,335	4,462

The directors have not declared an interim dividend for the six months ended 30 September 2013.

10)        Earnings per share

Earnings per share is calculated as follows:

	Six months ended 30 September 2013 £000	Six months ended 31 December 2012 £000	15 month period ended 31 March 2013 £000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company	(2,535)	(19,582)	(23,127)
Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company	837	(17,759)	(18,475)
Number of shares	Number	Number*	Number*
Weighted average number of ordinary shares for the purposes of basic earnings per share	294,089,611	171,455,780	171,455,780
Effect of dilutive potential ordinary shares and under share plans	-	-	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	294,089,611	171,455,780	171,455,780

On completion of the rights issue on 5 April 2013 the number of ordinary shares in issue increased from 89,251,076 to 297,503,587.

In accordance with IAS 33, Earnings per Share, the Group has treated the discount element to the open offer part of the increase in share capital as if it were a bonus issue.  The effect is to increase the weighted average number of shares for the reported prior periods with a resulting reduction in the basic and diluted earnings per share for the periods ended 31 December 2012 and 31 March 2013.  The adjustment is based on the relationship between the last day cum rights issue share price (73p) and the theoretical ex-rights price (38p) giving a factor of 1.92105.

Basic earnings per share	(0.86p)	(11.42p)*	(13.49p)*
Underlying basic earnings per share	0.28p	(10.36p)*	(10.78p)*
Diluted earnings per share	(0.86p)	(11.42p)*	(13.49p)*
Underlying diluted earnings per share	0.28p	(10.36p)*	(10.78p)*

*  As restated.

11)        Property, plant and equipment

During the period the Group acquired property, plant and equipment of £513,000.  The Group also disposed of certain assets for £581,000 resulting in a profit on disposal of £84,000.

12)        Net debt

The Group's net debt is as follows:

	At 30 September 2013 £000	At 31 December 2012 £000	At 31 March 2013 £000
Cash and cash equivalents	1,832	1,434	671
Financial liabilities - borrowings	-	(30,697)	(41,461)
Financial liabilities - finance leases	(304)	(448)	(400)
Net debt	1,528	(29,711)	(41,190)

The Group has access to a revolving credit facility of £20,000,000 until December 2013, when the facility increases to £35,000,000 until its expiry in November 2016.

13)        Fair value disclosures

The Group's financial instruments consist of borrowings, cash, items that arise directly from its operations and derivative financial instruments.  Cash and cash equivalents, trade and other receivables and trade and other payables generally have short terms to maturity.  For this reason, their carrying values approximate to fair value.  The Group's borrowings relate principally to amounts drawn down against its revolving credit facility, the carrying amounts of which approximate to their fair values by virtue of being floating rate instruments.

Derivative financial instruments are the only instruments valued at fair value through profit or loss, and are valued as such on initial recognition. These are foreign currency forward contracts measured using quoted forward exchange rates and yield curves matching the maturities of the contracts. These derivative financial instruments are categorised as level 2 financial instruments.

The fair values of the Group's derivative financial instruments which are marked-to-market and recorded in the balance sheet were as follows:

	At 30 September 2013 £000	At 31 December 2012 £000	At 31 March 2013 £000
Assets
Foreign exchange contracts	213	-	-

14)        Reconciliation of operating profit to cash generated from operations

	Six months ended 30 September 2013 £000	Six months ended 31 December 2012 £000	15 month period ended 31 March 2013 £000
Operating loss from continuing operations	(2,501)	(22,754)	(26,854)
Adjustments:
Depreciation of property, plant and equipment	1,801	1,953	4,930
Depreciation of investment property	20	20	50
Gain on disposal of property, plant and equipment	(84)	(505)	(507)
Amortisation of intangible assets	1,443	1,412	3,528
Movements in pension scheme	(297)	(425)	(565)
Share of results of JVs and associates	1,679	(354)	310
Share-based payments	162	10	58
Movement in valuation of derivatives	(213)	-	(104)
Operating cash flows before movements in working capital	2,010	(20,643)	(19,154)
Decrease in inventories	1,564	1,963	871
Decrease in receivables	19,037	23,325	17,562
Increase/(decrease) in payables	(23,570)	(1,018)	4,448
Decrease in provisions	-	(375)	(600)
Cash (used in)/generated from operations	(959)	3,252	3,127
Tax received/(paid)	1,015	(445)	(2,323)
Net cash flow from operating activities	56	2,807	804

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

15)        Related party transactions

There have been no changes in the nature of related party transactions as described in note 32 on page 101 of the Annual Report for the 15 month period ended 31 March 2013 and there have been no new related party transactions which have had a material effect on the financial position or performance of the Group in the six months ended 30 September 2013.

During the period the Group provided services in the ordinary course of business to its Indian joint venture, JSW Severfield Structures Limited, and invested in it a further £1,700,000 of equity.  Subsequent to the period end, the Group has provided an undertaking, not exceeding £3,500,000, to secure a loan facility of the Indian joint venture until 31 March 2016.  The Group's share of the retained loss in JVs and associates of £1,679,000 for the period includes £1,325,000 in respect of the Indian joint venture.

16)        Cautionary statement

The Interim Management Report ("IMR") has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

            The IMR contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

17)        Statement of directors' responsibilities

The directors confirm that, to the best of their knowledge, the condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

·      An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated interim financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      Material related party transactions that have occurred in the first six months of the financial year and any material changes in the related party transactions described in the last annual report and financial statements.

The current directors of Severfield-Rowen Plc are listed in the Annual Report for the 15 months ended 31 March 2013.  Ian Lawson was appointed to the board on 1 November 2013. There have been no other changes in directors during the six months ended 30 September 2013.

The maintenance and integrity of the Severfield-Rowen Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

Ian Lawson	Alan Dunsmore
Director	Director
25 November 2013	25 November 2013

Independent review report to Severfield-Rowen Plc

We have been engaged by the Company to review the condensed consolidated interim financial information in the interim report for the six months ended 30 September 2013 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes 1 to 17.  We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed consolidated interim financial information included in this interim report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial information in the interim report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the interim report for the six months ended 30 September 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Leeds, United Kingdom

25 November 2013

 

END

 

 

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