Interim Management Statement

RNS Number : 3431Q

Severfield-Rowen PLC

05 November 2012

 



Trading Update and Interim Management Statement

Severfield-Rowen Plc (the "Group"), the market leading structural steel group, issues this Interim Management Statement covering the period from 1 July 2012 to 5 November 2012.

Trading Update

The Group's UK businesses continue to operate in a difficult climate with the previously flagged pricing pressure and protraction of contractual settlements still posing significant challenges as clients and the supply chain compete harder in a shrinking market.  

Our UK businesses have experienced mixed performances. Atlas Ward Structures and Fisher Engineering, have performed, and continue to perform, at or above expectations. Our other businesses, Severfield-Rowen Structures, Watson Steel Structures and Steelcraft Erection Services, which we announced in August will be merged into Severfield-Watson Structures at the end of 2012, are delivering below expectations. Their performances have been adversely affected by unfavourable final account settlements and cost overruns on a small number of contracts, as well as the re-phasing of other projects by clients.

As a result, it is the Board's view that the Group's profits before tax in 2012 will now be around £1 million.  The Board remains confident that the ongoing business reorganisation and the conclusion of the affected projects will see an improvement in performance from Severfield-Watson Structures in calendar Q1 2013, together with continued strong performance from Atlas Ward Structures and Fisher Engineering. 

UK

All four UK factories are producing at planned levels, underpinned by our consistently strong order book (currently £211 million) and market position.

The Group achieved constant levels of revenues in the period. The performance levels at Atlas Ward Structures and Fisher Engineering have been good and these are expected to be sustained in the coming periods.

However, despite maintained revenues, UK profitability in 2012 is now expected to be materially lower, as a result of the performance of Severfield-Rowen Structures, Watson Steel Structures and Steelcraft Erection Services.

The re-organisation of these businesses, announced in August 2012, is proceeding to schedule with the new company, Severfield-Watson Structures, being established from 1 January 2013, supported by a small number of external management appointments.  The re-organisation is likely to see a headcount reduction in these businesses of around 50 positions.  The resultant changes will deliver overhead savings of greater than £2 million which, combined with improved performance in contract engagement and execution, are expected to return operating margins to between 5% and 6%, over time.  One-off costs for the delivery of the new organisation are not expected to exceed £1 million and will be non-underlying.

Demand in the UK remains depressed, however the Group's order book levels continue to be consistently strong.  Our outlook for UK demand does not anticipate a recovery, but we remain confident that our market leading position and identified future prospects will enable the Group to sustain activity levels in the coming periods.

JSW Severfield Structures Ltd (JSSL), India

Operations in India have made good progress and are pleasing to both JV partners.

The current order book of £31 million supports activity through its calendar Q2 2013, and is strongly backed by a robust pipeline of project enquiries, now totalling in value £168 million.

The planned expansion at our Bellary operations, lifting output from 35,000 tonnes to 55,000 tonnes by summer 2013 is under way and remains on schedule and to budget.

The level of prospects and opportunities in a wide range of market sectors is very encouraging.

Directors

Geoff Wright has supported the Company since September 2006 serving as a non-executive director on the main board, providing valuable advice on the status and trends of the UK commercial markets.  Geoff has continuously served as a member of the Remuneration, Audit and Nominations committees.

Geoff will stand down from his role at the end of 2012 but will continue to provide advice in some commercial areas.  The Board and the Company express their sincere appreciation for his contributions.

Financial Position

As announced in August, net borrowings at the half year period end were £28.3 million and we continue to target a modest improvement in debt levels for the calendar year, despite the reduced profit outlook.

Cash generation and conservation remain a key focus for the business and accordingly, there will be no second interim dividend for 2012 but the Board will consider the final dividend level in 2013.

Outlook

The Company's results this year are being adversely impacted by a small number of projects in three of our UK businesses.  However, our overall leading position in terms of market share and activity is undiminished. 

The UK order book and the known mix of secured projects, together with the reorganisation of the affected businesses, lead us to expect a recovery in business performance starting in 2013.

In India, we see very strong demand for our services and we will continue to work with our partner to grow the business at the fastest appropriate pace.

T Haughey

Chief Executive Officer

For further information, please contact:

Severfield-Rowen Plc                           Tom Haughey                       01845 577896

                                                         Chief Executive Officer

                                                         Alan Dunsmore                    01845 577896

                                                         Finance Director

                                                         John Dodds                          01845 577896

                                                         Chairman

Jefferies Hoare Govett                         Simon Hardy                        020 7029 8000

                                                         Harry Nicholas                     020 7029 8000

Pelham Bell Pottinger                         Archie Berens                      020 7861 3112

                                                         Guy Scarborough                 020 7861 3870

 

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