Interim Results

SEVERFIELD-ROWEN PLC 24 August 1999 INTERIM RESULTS Record Order Book of £60 million Severfield-Rowen Plc, the structural steel group, announces interim results for the six months to 30 June 1999. + Turnover of £52.3 million (1998: £64.1 million) + Margins in the core business stabilised + Operating profit of £4.0 million (1998: £5.2 million) + Profit before tax of £4.0 million (1998: £5.1 million) + Earnings per share of 13.7 pence (1998: 18.0 pence) + Interim dividend maintained at 5.0 pence, reflecting the resilience of the core business + Progress at Manabo slower than expected + Continued tight cash control resulting in a positive balance of £4.4 million. + Record order book of £60 million and operating margins currently stabilised. Commenting on the results, Peter Levine, Chairman, said: 'The tightening of prices and margins that we referred to six months ago has continued, due principally to over-capacity in our market. We have been able to limit the impact of these conditions on our performance due to the production and cost efficiency of our plant. These efficiencies are the result of a major five-year capex programme we completed last year. 'Whilst it is impossible to be completely immune to pricing pressures, the operating and financial strength of the Group place us in a very strong position to substantially mitigate short-term impact on margins and profits. With our strong order book and the underlying strength of our core business we remain confident in the medium to long term prospects of the Group.' For further information, please contact: Severfield-Rowen Plc ) 0171 831 3113 - 24th August Peter Levine, Chairman ) 01132 469 993 - thereafter Peter Davison, Finance Director ) 01845 577 896 - thereafter Financial Dynamics Sarah Marsland 0171 831 3113 CHAIRMAN'S STATEMENT The Group has traded satisfactorily in the first six months of 1999 given the prevailing market conditions. During this period, the Group's position as the most profitable company in the structural steelwork industry has been maintained. In my statement accompanying the results for the year ended 31 December 1998 I referred to evidence of tightening of prices and margins. Whilst this has continued to be the case, due principally to over-capacity in the structural steelwork market, the Group has been able to limit the consequential reduction in profits and margins. However, despite the over-capacity and reduction in prices it is encouraging that order levels and enquiries remain buoyant. The two major subsidiaries of the Group, Severfield-Reeve Structures in Dalton and Rowen Structures in Nottingham which are both involved in the design, manufacture and erection of structural steelwork, reported creditable results. Our steelwork order book is very good, currently standing at a record £60 million, primarily in the UK market, which remains of significant importance to us. Whilst interest in overseas work is increasing, we remain selective and careful in bidding for international contracts. Manabo remains a disappointment and even though progress this year has so far been slower than we anticipated, definite inroads have been made both in reducing the cost base and developing the important export market of the United States. The Group continues to have a positive cash balance which has been reduced compared to the previous year as a result of timing and the conversion of cash into working capital. Our strong cash position remains a significant strength of the Group. FINANCE Turnover in the period was £52.32 million (1998: £64.13 million) producing an operating profit of £4.05 million (1998: £5.15 million). Despite the pressure on prices, group margins at the operating level, only reduced to 7.7% compared with 8.0% in the corresponding period last year, and are expected to remain at about this level for the remainder of the year. After charging interest of £78,000 (1998: £8,000), profit before tax was £3.97 million (1998: £5.14 million). Assuming a tax charge of 31% (1998: 30.5%), earnings per share were 13.69 pence (1998: 18.04 pence). As stated in the 1998 Annual Report, because we have now completed our major expansion programme at Dalton, capital expenditure in 1999 will be lower than that in recent years. During the first six months of the year capital expenditure amounted to £595,000 with approximately £1.5 million expected in the second half. Management of the Group's cash continues to be tightly controlled. At 30 June 1999 we had a positive balance of £4.35 million. Although this balance is reduced from that of £7.49 million at 31 December 1998 it reflects the amount of cash tied up in working capital due principally to longer payment terms on particular contracts together with timing of contract valuation dates. Borrowings, primarily representing amounts due on hire-purchase contracts, amounted to £4.13 million leaving the group with a net funds surplus and, therefore, no gearing. DIVIDEND Based on the resilience of our core business to the current trading environment, together with our confidence for the medium term prospects of the Group, the Board has decided to maintain the interim dividend at 5.00 pence per share, which is covered 2.7 times by earnings. The interim dividend will be paid on 29 October 1999 to shareholders on the register on 1 October 1999. STRUCTURAL STEEL The continued flexibility and efficiency achieved in production not only ensured we maintained our position at the forefront of our market place, but has also confirmed the importance of the decisions made to undertake major capital investment in our production facilities over the last five years. Severfield-Reeve Structures continues to have one of the most efficient structural steel production facilities in Europe. By combining this efficiency with careful scheduling of production capacity and control of the quality and timing of contracts undertaken, we have been able to limit the impact of reducing prices on the Group's margins and profits. Development of the cellular beam continues and tests we have conducted so far indicate that we can produce the beam cost- effectively and efficiently at our Dalton site. An important factor in the growth of the Dalton operation has been its land bank. Underlying the confidence in the future, a further five acres of key land has been purchased for potential expansion of the Dalton facility in the future. Rowen has had a satisfactory start to the year. Its contribution to our business, and blue chip client base led us to change the name of our Group to Severfield-Rowen Plc, which took effect on 1 July 1999. Our reputation is growing on a worldwide basis and our international exports are proceeding in a careful, planned and measured way. A clear indication of this is the Bechtel partnering agreement entered into in early 1999. Whilst very much in its infancy, new work for Bechtel has already been won with a contract due to start later this year for a power station in Egypt. Projects carried out in the first six months included: + The new Royal Infirmary of Edinburgh and University of Edinburgh Medical School + Redevelopment of the City Point office block in London + A sports and leisure retail complex in Milton Keynes + A new building for British Aerospace at Broughton + A prestigious office block development at Christchurch Court in the City of London + Major projects at Gatwick and Heathrow for BAA + A major office development, Woolgate Exchange, in the City of London + Leisure/cinema development at West India Quay for Virgin + Office/research and development units for Pfizer in Kent Our forward order book is very good, currently being at a record £60 million. New contracts include: + The new London International Exhibition Centre + Production plants at Longbridge and Solihull for Rover + Power generation plant enclosure buildings at Damhead Creek Power Station and at Great Yarmouth Power Station + The Festival Place retail development in Basingstoke + A major retail/leisure centre in Birmingham + Cinema/leisure complex in Maidenhead + A number of projects for BAA at Heathrow, Gatwick and Stansted airports + Turbine hall steelwork for power generation plant in Egypt MANABO The first half of the year has proved disappointing. Progress has latterly been slower than anticipated and accordingly it has fallen short of its budget. Having reduced the cost base and achieved the quality required in its core product of steel mesh gloves, the management of Manabo recognises the need for an increase in sales. At the time of the AGM in May we expressed optimism that Manabo would achieve break-even at the operating level for the year as a whole. However, it is now estimated that the first break-even month will only be achieved at the year end. While sales of gloves are estimated to double this year over that achieved in 1998, there is a need for further improvement beyond this level. A new subsidiary company has recently been set up in the United States to distribute Manabo's products and sales have started to increase in this very important region. Manabo remains under the constant focus of the Board. ACQUISITION In January the company purchased a 25.1% strategic stake in Kennedy Watts Partnership Ltd, a CAD/CAM steelwork design company for a total consideration, including costs, of £450,000, of which £408,000 was paid by the issue of 136,912 10p ordinary shares. The cost of the acquisition is shown on the balance sheet under investments. No other provision has been made in the results to 30 June 1999. YEAR 2000 As we stated in April 1999 the Board commissioned a group wide programme designed to identify problems caused by the advent of the Year 2000 and to take appropriate action. The board believes that it has achieved an acceptable state of readiness and that it has provided adequate resources to deal promptly with significant failures or issues as they arise. Costs associated with this exercise are not material and are written off to the profit and loss account as they are incurred. OUTLOOK Overall our core steelwork companies continue to trade well in the current price and margin sensitive environment. Whilst it is impossible to be completely immune to pricing pressures, the Group's reputation in its industry, unmatched production facilities and efficiencies, good order book and buoyant enquiry levels place it in a very strong position to continue to substantially mitigate any possible short term impact on margins and thereby profits. With our strong order book, prospects for our core business remain good. The Board continues to focus on delivery of shareholder value and is confident for the medium to long term prospects of the Group. Peter Levine Chairman Severfield-Rowen Plc Consolidated Profit and Loss Account Six Months Six Months Year to to to 31 December 30 June 1999 30 June 1998 Unaudited 1998 Audited £000 Unaudited £000 £000 Turnover - continuing 52,320 64,129 129,805 operations _______ _______ _______ Operating profit - 4,046 5,150 10,210 continuing operations Profit on disposal of - - 1,676 assets in continuing _______ _______ _______ operations 4,046 5,150 11,886 Net interest payable and (78) (8) (4) similar charges _______ _______ _______ Profit on ordinary 3,968 5,142 11,882 activities before taxation Taxation on profit on (1,230) (1,568) (3,175) ordinary activities _______ _______ _______ Profit on ordinary 2,738 3,574 8,707 activities after taxation for the period Dividends payable to (1,001) (993) (2,384) equity shareholders _______ _______ _______ Profit retained, 1,737 2,581 6,323 transferred to reserves _______ _______ _______ Basic earnings per share 13.69p 18.04p 43.88p Profit on disposal of - - (8.02p) assets adjustment _______ _______ _______ Adjusted earnings per 13.69p 18.04p 35.86p share based on operating _______ _______ _______ profit Diluted earnings per 13.54p 17.74p 43.28p share _______ _______ _______ Dividends per share 5.00p 5.00p 12.00p Severfield-Rowen Plc Consolidated Balance Sheet At 30 June At 30 June At 31 1999 1998 December Unaudited Unaudited 1998 £000 £000 Audited £000 Fixed Assets: Intangible assets 396 - 396 Tangible assets 24,431 24,420 24,620 Investments 683 156 233 _______ _______ _______ 25,510 20,576 25,249 _______ _______ _______ Current Assets: Stocks 5,837 4,489 4,491 Debtors 26,927 30,125 23,881 Cash at bank and in 4,349 10,040 7,492 hand _______ _______ _______ 37,113 44,654 35,864 Current Liabilities: Creditors due within (28,299) (36,897) (28,354) one year _______ _______ _______ Net current assets 8,814 7,757 7,510 _______ _______ _______ Total assets less 34,324 28,333 32,759 current liabilities Creditors due after more (2,639) (3,059) (3,370) than one year Provision for (1,572) (1,159) (1,433) liabilities and charges _______ _______ _______ 30,113 24,115 27,956 _______ _______ _______ Capital and Reserves: Called up share capital 2,002 1,987 1,987 Share premium account 8,526 8,121 8,121 Revaluation reserve 1,536 1,427 1,536 Merger reserve 114 114 114 Profit and loss account 17,935 12,466 16,198 _______ _______ _______ 30,113 24,115 27,956 _______ _______ _______ Severfield-Rowen Plc Consolidated Cash Flow Statement Six Months Six Months Year to to to 31 December 30 June 1999 30 June 1998 Unaudited 1998 Audited £000 Unaudited £000 £000 Net cash (159) 3,486 8,362 (outflow)/inflow from operating activities Returns on investments (28) (15) 7 and servicing of finance Taxation (248) (186) (2,802) Capital expenditure and (560) (1,228) (5,137) financial investment Acquisitions and (42) - 784 disposals Equity dividends paid (1,402) (1,238) (2,230) _______ _______ _______ Cash (outflow)/inflow before use of liquid (2,439) 819 (1,016) resources and financing Financing (704) (597) (1,310) _______ _______ _______ (Decrease)/increase in (3,143) 222 (2,326) cash in the period _______ _______ _______ Reconciliation of net cash flow to movement in net funds Six Months Six Months Year to to to 31 December 30 June 1999 30 June 1998 Unaudited 1998 Audited £000 Unaudited £000 £000 (Decrease)/increase in (3,143) 222 (2,326) cash in the period Cash flow from movement in loans and hire- 716 649 1,362 purchase contracts _______ _______ _______ Change in net funds from cash flows (2,427) 871 (964) Loan acquired with - - (188) subsidiary New hire-purchase - (225) (1,310) contracts _______ _______ _______ Movement in net funds in (2,427) 646 (2,462) the period Net funds at beginning 2,651 5,113 5,113 of period _______ _______ _______ Net funds at end of 224 5,759 2,651 period _______ _______ _______ Notes: 1. The interim financial statements, which are neither audited nor reviewed by the auditors, have been prepared on the basis of the accounting policies set out in the company's 1998 statutory accounts, amended for the introduction of FRS12. The introduction of FRS12 has no effect on the results of the Group for the interim period or prior periods. 2. Taxation for the six months to 30 June 1999 has been shown at the rate estimated to be applicable for the full year. 3. The interim dividend of 5.00p per share (1998: 5.00) will be paid on 29 October 1999 to shareholders on the register on 1 October 1999. The ex-dividend date will be 27 September 1999. 4. The basic earnings per share figure for the six months ended 30 June 1999 is based on the profit after taxation of £2,738,000 (1998: £3,574,000) and 20,003,124 (1998: 19,815,928) ordinary shares, being the weighted average of the number of shares on issue during the period. The calculation of adjusted earnings per share for the year to 31 December 1998 is based on the profit after taxation, excluding the exceptional gain made on the disposal of assets in continuing operations. This figure provides a more meaningful comparison. The calculation of diluted earnings per share is based on the profit after taxation of £2,738,000 (1998: £3,574,000) and 20,224,867 (1998: 20,150,657) ordinary shares, being the weighted average of the number of shares in issue during the year, allowing for the full exercise of any outstanding share options. 5. The results for the year to 31 December 1998 are an abridged version of the company's full accounts which carry an unqualified auditors' report and have been filed with the Registrar of Companies. 6. The interim report will be posted to shareholders. Copies are available from the Secretary, Severfield-Rowen Plc, Dalton Airfield Industrial Estate, Dalton, Thirsk, North Yorkshire YO7 3JN. 7. Reconciliation of movement of shareholders' funds £000 At January 1999 27,956 Retained profit for the period 1,737 Issue of share capital under share option scheme 12 Issue of share capital for acquisition of associated undertaking 408 At 30 June 1999 30,113 ______ 8. Reconciliation of operating profit to operating cash flow Six Months Six Months Year to to to 31 December 30 June 1999 30 June 1998 Unaudited 1998 Audited £000 Unaudited £000 £000 Operating profit 4,046 5,150 10,210 Depreciation, amortisation and 749 716 1,628 profit/loss on disposal of assets Working capital (4,954) (2,380) (3,476) increase _______ _______ _______ Net cash (outflow)/inflow (159) 3,486 8,362 from operating activities _______ _______ _______

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