Final Results

Severfield-Rowen PLC 26 March 2001 26 March 2001 Severfield-Rowen Plc 2000 Full Year Results Severfield-Rowen plc, the structural steel group, announces its full year results to 31 December 2000. Overview * Turnover up 15% to £128.9m (1999: £112.0m) * Pre-tax profit of core business increased to £10.6m (1999: £9.8m) * Group pre-tax profit, after exceptional items, of £10.3m (1999: £ 5.9m) * Adjusted earnings per share increased by 15.8% to 35.69p (1999: 30.82p) * Total dividend increased by 16.7% to 14.0p per share (1999: 12.0p) * Nil gearing at year end with cash balance of £5.6m (1999: £4.9m) after capital expenditure during year of £5.6m (1999: £2.8m) * Record order book in excess of £75m * Fifth production line contributing to profit and the sixth line for plate production being built for commissioning in summer 2001 * Group in strongest ever financial position supplemented by proceeds of £14m sale and leaseback of Dalton Facility through disposal of Dalton Airfield Properties Ltd completed in March 2001 * Market leadership maintained, industry reputation enhanced * Focus on carefully planned and structured organic and acquisitive growth Commenting on the results, Peter Levine, Chairman, said: 'Severfield-Rowen has produced a remarkable result in the face of some very challenging market conditions. We are now in the strongest position we have ever been in, both financially and in terms of market position. We have invested for the future by building a fifth production line, which is now contributing to profit, and a sixth line for plate production which will be commissioned in the summer. The sale and leaseback of the Dalton facility through the disposal of our former subsidiary Dalton Airfield Properties Ltd for £14m has released significant funds which we will deploy strategically, with a clear focus on enhancing shareholder value. The year has started well and we look forward to another good performance, relative to our industry, from the Group in 2001.' Enquiries Severfield-Rowen plc 020 7269 7291 - 26 March 2001 Peter Levine, Chairman Thereafter: 01132 469 993 Peter Davison, Finance Director Thereafter: 01845 577 896 Financial Dynamics Richard Mountain 020 7269 7291 CHAIRMAN'S STATEMENT Introduction Despite a challenging year, the Group produced another excellent result in 2000 which, when put into an industry context, looks even better. It reflects the Directors' commitment to deliver sustained value to its shareholders, while focusing on forward-looking strategic planning. Overview The Group generated operating profits of £10.6m (1999: £7.2m), on turnover of £128.9m (1999: £112.0m), after taking into account the closing losses of £0.3m resulting from the sale of the Manabo business in March 2000. Profit before tax was £10.3m. Adjusted earnings per share increased to 35.69p (1999: 30.82p). Severfield-Rowen ended the year with net assets of £33.1m (1999: £30.2m) nil gearing and £5.6m in cash, after increasing capital expenditure in 2000 to £ 5.6m. The effective tax charge for the year was 37.7% compared to 30.8% in the previous year. The year saw the Group's market leadership position consolidated and its reputation enhanced. The 'brand' image referred to in my last annual statement has become acknowledged by an ever-increasing circle of customers and professionals. While the industry as a whole endured a competitive year, careful management and planning allowed operating margins to increase from 8.09% in 1999 to 8.19%. Our production efficiency remains unsurpassed within the industry. During 2000 Production Line 5 came on stream and contributed profitably to the Group in line with our expectations. The last quarter saw the Dalton site consistently producing in excess of 1,400 tonnes of fabricated steel a week, levels not before seen in Europe from a single fabrication facility. In the last quarter of 2000 building commenced at Dalton on Production Line 6, a plate welding line, at a total budgeted cost of £5m. This facility gives the Group greater flexibility in the delivery to our customers of cost effective and innovative structural steelwork solutions reflecting their varying requirements. This line is anticipated to begin operation during the summer of 2001 and to make a positive contribution to the results for the current year. The Group's two major subsidiaries remain Severfield-Reeve Structures based at Dalton, North Yorkshire and Rowen Structures based near Nottingham. Sale of Dalton Airfield Properties Limited Shareholders were sent a circular on 21 February 2001 detailing the sale and leaseback of our Dalton Facility, effected by the sale of the subsidiary, Dalton Airfield Properties Limited. I am pleased to report that at the extraordinary meeting of members, held on 9 March 2001 to consider the transaction, the resolution relating to the proposals was passed. Accordingly, after the meeting, the sale of the entire share capital of Dalton Airfield Properties Limited was completed and the full cash consideration of £ 14 m was received by the Group. This significant inflow of cash, combined with the strong financial position of the Group, is an important platform for the future success and strategic planning of Severfield-Rowen. The Board is committed to make these sizeable financial resources work hard for the benefit of the Group's core business while retaining the benefits that significant liquidity gives to Severfield-Rowen. Dividend Reflecting both the past successful year and the Directors' confidence in the future, the Board has decided to increase the total dividend to 14p per share representing an increase of 16.7% over the previous year. Dividend cover remains at a comfortable level of 2.55 times adjusted earnings. The final dividend is payable on 13 June 2001, to shareholders on the register on 11 May 2001. Manabo I reported in my statement for the year 1999 that the business of this non-core subsidiary was disposed of in March 2000. The impact of this disposal in 2000 is a pre-tax loss of £308,000 reflecting its trading for the first two months of 2000 until its sale and the associated closure costs. Share Buy Back During 2000 the company purchased for cancellation a total of 248,510 shares at a cost of £487,000. As highlighted in the past, the Board may wish to continue Severfield-Rowen's share buy-back programme in the future. However it is intended to operate this programme selectively, only when circumstances and market conditions are appropriate and when such purchases will enhance shareholder value. Accordingly the Company will ask shareholders at the Annual General Meeting on 11 June 2001 to renew the authorisation of the Board to purchase for cancellation up to 10% of the issued share capital of the Company. Plate Line and Fire Engineering Work commenced on the building of Plate Line 6 in the last quarter of 2000 and is scheduled for completion in the summer of 2001. As well as plated products complementing the Group's existing production, the new line is intended to manufacture a new type of steel beam specifically developed and fire engineered. A patent has been applied for in relation to this innovation. The beam is still being tested, but results already obtained from extensive trials carried out to date show that a fire protection level in excess of two hours should be attainable. This opens up significant new value added markets and will give the Group's clients a new, cost effective fire protection solution for steel framed buildings. This is particularly important in high-rise construction where increasingly two hour fire protection of steelwork is required. This level of protection is currently being achieved only through certain costly procedures such as 'boxing-in' of beams by specialist sub-contractors. It is anticipated that this beam will start to be marketed in 2001. In addition discussions continue with another UK fabricator and two major non-fabricator parties related to our industry, in connection with the construction of such beams alongside an existing cellular beam equivalent, demand for which is already growing. A further announcement in respect of this proposed venture is expected to be made shortly. Board Appointment On 11 July 2000, Brian Hick was appointed to the Board as an Executive Director, responsible for our international operations. Brian is Managing Director of our International subsidiary and is also a Director of Severfield-Reeve Structures. He has been with the Group for 11 years and we look forward to him playing a significant role in the future. Outlook In recent statements I have said that the market remains competitive and challenging. The present outlook is no different and this position should be set against the background of general economic concerns to which our industry is not immune. Nevertheless, the Group finds itself in the strongest financial position in its history. Since its foundation in 1979, the Group has become the recognised market leader in the United Kingdom and a force within the industry world-wide. Our roster of repeat business from blue chip main contractors and end user clients is testament to this. Our financial strength matches our position and reputation and is a significant comfort factor to our customers when involved in major projects. Furthermore it gives us the ability to exploit acquisitive as well as organic opportunities for growth, as and when they arise. The Group remains strongly focused on competitiveness, efficiency and customer service, just as it does on margins and order levels. Currently orders are at record levels, in excess of £75m, with a significant proportion arising from negotiated contracts. Current margin levels are, relative to a difficult market place, broadly firm. Investment in leading edge products and improvements to our production facilities continues. The new Plate Line 6 and fire-engineered beam are reflective of the Board's emphasis in this direction. Challenges in 2001 abound, both inside our industry and macro-economically. However the Board's outlook is one of studied confidence for enhancement of the Group's position and the continued profitable success of Severfield-Rowen. The Board looks forward to delivering to shareholders a further year of satisfactory progress and demonstrable growth. Peter Levine Chairman OPERATIONAL REVIEW Core Business Overview While the challenging market conditions of the last few years remain, the core businesses of our Group, primarily Severfield-Reeve Structures and Rowen Structures, produced excellent returns. Key features of the core businesses in 2000 were: * Pre-tax operating profit of £10.6m (1999: £9.8m) * Record order book in excess of £75m * Benefits of production from the fifth production line at our Dalton site for the second half of 2000 * Commencement of building of the sixth production line for plated products. Through careful management and planning, the Group's operating margins increased in the second half of 2000 and the year ended very satisfactorily. The fifth production line commenced operation in summer 2000 and, as anticipated, performed in line with budget and contributed profitably to the results. At the end of the year production from the Dalton site alone was averaging in excess of 1,400 tonnes per week as predicted in my Operational Review last year. Rowen Structures also maintained its good contribution to the Group. Severfield-Reeve Structures The outstanding levels of production efficiency achieved in previous years continued during 2000. Contracts were undertaken in a wide variety of sectors and projects included: * Extension to town centre shopping complex in Basingstoke * A production facility for Caterpillar in Leicester * Two office blocks in the City, at Northcliffe House and Bishopsgate * Retail development at Ocean Terminal, Leith Docks, Edinburgh * Lowry Galleria entertainment centre in Manchester * Power stations in Turkey, Egypt and Great Yarmouth for Bechtel * Distribution centre for Gap in Rugby * Distribution centre for Tibbett & Britten in Daventry * Global Switch 'Internet Hotel' building at East India Docks, London * Shopping complex and multiplex cinema in Romford * Large car park at the new exhibition centre, ExCel, in Docklands, London * Manufacturing facility in Scotland for Sun Microsystems * Computer data centre for Citibank in London The current year has commenced most satisfactorily for Severfield-Reeve Structures in persistently challenging conditions and the order book remains at a record level. New contracts include: * Distribution warehouse for LM Solutions in Hatfield * Office block for Standard Life in London * Distribution depots for Sainsbury * High rise office/residential block in Cardiff * New stadium for Darlington Football Club * Selfridges Store which forms part of the new Bull Ring development in Birmingham Relative to prevailing market conditions Severfield-Reeve Structures achieved significant success in 2000. Taking into account the present strong order book and enquiry levels, combined with the operating efficiencies of our Dalton site, Severfield-Reeve Structures is well positioned to continue progress in 2001. This positioning will be complemented by the new Production Line 6 which is in the process of being built for commencement of operation in summer 2001. Line 6 will produce welded products and is also intended to manufacture a unique fire engineered beam which will revolutionise fire protection solutions for structural steelwork. The preliminary benefits of these developments will be felt towards the end of 2001 with the first full year of such benefits going into 2002. Rowen Structures Rowen Structures had another good year in 2000. The quality of work produced by Rowen is once again significant to mention as is the contribution by our workforce in Nottingham. A number of major contracts were performed by Rowen in 2000. These included: * Stansted Passenger Terminal extension for BAA * North Terminal extension at Gatwick for BAA * Leisure and residential development at Broadway Plaza, Birmingham * Distribution depot for Sainsbury in Haydock * Distribution warehouse for Federal Express at Stansted * Theatre complex in Durham * A number of office developments in the City of London, including Arundel Great Court * Retail and Leisure Centre at Solihull for Lend Lease * A number of retail projects for Sainsbury Contracts for 2001 include: * Tower Place office development in City of London for Tishman Speyer * Car park for BAA at Southampton Airport * Hospital development in Bromley, Kent * A number of projects for BAA at Heathrow/Gatwick * Office development in Finsbury Square, London * Refurbishment of Treasury Building in Whitehall In 2001 Rowen is set to make a further positive contribution to the success of the Group. Steelcraft Erection Services During 2000 Steelcraft continued demonstrating the value and importance of its in-house erection service. The flexibility it gives to the Group should not be underestimated and this Company remains a positive contributor to the success story of Severfield-Rowen. Severfield-Reeve Projects Severfield-Reeve Projects had a very good year in 2000 with turnover and profit before tax at record levels. As forecast, certain large contracts, including the one for the National Crime Squad Northern Regional Head Quarters, provided a significant contribution to performance. The company is currently engaged on its largest single commercial development providing a three storey office block for Teleware plc in Thirsk, North Yorkshire. 2001 should be another very good year for this company with a number of projects having been in negotiation for some time coming to fruition, including a major relocation scheme in York for Dowding and Mills. John Severs Managing Director FINANCIAL REVIEW Overview The Group's results for the year ended 31 December 2000 show a profit before tax of £10.3 million after exceptional items, in line with City expectations, and are very good in the continually demanding market conditions which have broadly prevailed in the structural steel industry. Returns in the core business of the design, fabrication and erection of structural steelwork actually exceeded expectations at £10.6 million. In March 2000 the principal business and assets of the loss-making subsidiary, Manabo, were sold. The majority of the expected loss on sale was provided in the 1999 Accounts with only an additional small loss affecting the 2000 results. Group turnover in 2000 increased to £128.9 million, with Group profit before tax being £10.3 million after exceptionals. Basic earnings per share were 32.3p, with adjusted earnings being 35.7p. It is proposed that the level of dividend cover will be slightly reduced to 2.55 times adjusted earnings, with the total dividend for the year being increased to 14.0p per share. The year ended with an increased cash balance of £5.6 million, and no gearing. Net assets increased by 9.8% to £33.1 million. Turnover Group turnover increased by 15.1% from that achieved in 1999 to £128.9 million and can be analysed as follows: 2000 1999 £000 £000 Structural Steelwork - Severfield-Reeve Structures UK 77,320 63,848 Overseas 4,148 3,690 40,600 39,812 - Rowen Structures 19,691 16,649 - Steelcraft Erection Services 141,759 123,999 Other Group Companies - Severfield-Reeve Projects 9,406 4,294 - Steel (UK) 2,460 1,523 - Manabo 288 839 - Surreal 3 3 153,916 130,658 Inter-Group Trading (24,986) (18,664) Total 128,930 111,994 Operating Profit The Group's operating profit increased by 16.6% to £10.6 million, prior to the deduction of the exceptional item in the 1999 Accounts caused by the sale of the assets of Manabo. It is also pleasing to report that, on a similar basis, the overall Group operating margin increased from an already most satisfactory 8.1% in 1999 to 8.2% in 2000. Manabo On 3 March 2000 the glove making business and assets of Manabo were sold to Wells Lamont Limited, a member of the American based Marmon Group of Companies for a total consideration of £2.7 million. This consideration was paid as an initial payment of £2.1 million to be followed by two equal instalments paid over the next two years of a total of £600,000. In addition, a variable royalty payment, based on the volume of gloves sold, will be paid over the next five years up to a maximum of £475,000. The remaining Manabo business, comprising the manufacture and sale of glove and knife cleaning machines, together with knife sharpening machines, is now non-trading. Full provision for the total write-off as a result of the write-down to net realisable value of the glove making fixed assets and stock, together with the total write-down of the assets remaining was made in the Group accounts for the year ended 31 December 1999, and amounted, in total, to £2.85 million. Trading performance in the first two months of 2000, together with costs associated with the closure of Manabo, produced a loss before tax for the year of £308,000. Taxation The effective tax charge for the year was 37.7% compared to 30.8% in the previous year. In March 2001 the land and buildings at Dalton were sold as part of a sale and leaseback transaction. The effect of the sale and leaseback in terms of taxation for the Group is that it will suffer a liability of approximately £670,000 in respect of claw back of industrial buildings allowances by the Inland Revenue. Consequently this liability has been provided for in these accounts as a deferred tax provision. Had this liability not been processed through the taxation charge in the profit and loss account then the effective tax charge would be similar to 1999 at 31.2%. Earnings Per Share Basic earnings per share were 32.3p. This calculation is based on the profit after taxation of £6,429,000 and 19,890,551 ordinary shares, which is the weighted average of the number of shares in issue during the year. This calculation, however, reflects the increase of £670,000 to the tax charge caused by the claw back of industrial buildings allowances. Adjusted earnings per share, based on the profit after taxation, excluding the additional tax charge, of £7,099,000 is, therefore, 35.7p. Dividend The Board is recommending a final dividend of 8.75p per share (1999: 7.0p), bringing the total dividend for the year to 14.0p per share, a 16.7% increase over the total of 12.0p paid in 1999. This total dividend is covered 2.31 times by basic earnings per share. The cover based on adjusted earnings is 2.55 times, slightly lower than the 2.57 times covered by 1999 adjusted earnings. The final dividend is payable on 13 June 2001 to shareholders on the register on 11 May 2001. The ex-dividend date will be 9 May 2001. Balance Sheet The balance sheet continues to strengthen with shareholders' funds increasing by £2.9 million in the year to £33.1 million, which equates to a value per share at 31 December 2000 of 167.3p, compared to 150.6p at the end of 1999. We have continued our capital investment programme, with capital expenditure for the Group amounting to £5.6 million. The majority of this expenditure was carried out at the main fabrication plant at Dalton, where over £4.2 million was expended. This consisted primarily of the building and equipping of the No. 5 production line. Other significant expenditure during the year included the purchase of three new mobile cranes by Steelcraft for use on sites for the erection of steel. Towards the end of the year we commenced the building of the No. 6 production line. As highlighted in the Chairman's Statement and Operational Review this will involve the manufacture of plated products using state-of-the-art technology, as well as a unique fire engineered product. This line is expected to be operational by June 2001 at a budgeted cost of £5 million. This expenditure accounts for the majority of the Group's budgeted capital expenditure of £6 million for 2001. During the year the Company purchased for cancellation a total of 248,510 ordinary shares at a cost of £487,000 with net assets, consequently, being reduced by this amount. A revaluation of the Group's land and buildings at Dalton was carried out in February 2001 in connection with its sale and leaseback. This valuation produced a deficit of £251,000, compared to net book value, which has been offset against the revaluation reserve. Sale and Leaseback On 9 March 2001 at an extraordinary general meeting of the Company it was agreed that the sale and leaseback of the Dalton facility should proceed through the disposal of the shares of Dalton Airfield Properties Ltd. Full particulars of the sale are provided in a circular issued to shareholders on 21 February 2001. The facility has been sold for a cash consideration of £ 14 million and then leased back to the Company at an initial rent of £1.36 million. The sale proceeds will initially be used to fund the building of the new plate line, to finance the ongoing share buy-back programme and to provide sufficient additional working capital for the Group. Cash Flow Management of the Group's cash has always been of prime importance and will continue to be so. During the year £8.7 million was generated from operating activities, plus a further £2.1 million from the Manabo disposal during the year and the final balance of £400,000 as a result of the sale of the assets of Structural Metal Decks in 1998. Outflows of cash during the year included dividends paid of £2.4 million, corporation tax of £1.5 million and the purchase of fixed assets, net of sale proceeds and new hire-purchase contracts, of £3.7 million. In addition, the repayment of financing amounted to £2.5 million. Consequently, the year brought an overall increase in cash of almost £700,000, with the Group ending the year with a positive cash balance of £5.6 million. Borrowings, represented by amounts due on hire-purchase contracts, amounted to £2.7 million leaving a net funds surplus of £2.9 million and, therefore, no gearing. 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 with reputable insurers. The Group maintains its low risk financial management policy by insuring all significant trade debtors. The Group is committed to strong financial controls, cash management and prudent accounting and treasury policies. P J Davison Finance Director Consolidated Profit and Loss Account For the year ended 31 December 2000 Continuing Discontinued 2000 1999 Operations Operations Total Total £000 £000 £000 £000 Turnover 128,642 288 128,930 111,994 Cost of sales * (114,591) (357) (114,948) (101,719) Gross profit 14,051 (69) 13,982 10,275 Distribution costs (437) (63) (500) (817) Administration costs (2,842) (150) (2,992) (2,357) 10,772 (282) 10,490 7,101 Other operating income 75 - 75 91 Operating profit 10,847 (282) 10,565 7,192 Loss on disposal of assets in discontinued business - - - (980) 10,847 (282) 10,565 6,212 Interest payable and similar (215) (26) (241) (287) charges Profit on ordinary 10,632 (308) 10,324 5,925 activities before tax Tax on profit on ordinary (3,953) 58 (3,895) (1,822) activities Profit on ordinary activities 6,679 (250) 6,429 4,103 after tax for the financial year Dividends payable to equity shareholders (2,748) - (2,748) (2,414) Profit retained, 3,931 (250) 3,681 1,689 transferred to reserves Basic earnings per share 32.32p 20.50p Adjustment for exceptional items 3.37p 10.32p Adjusted earnings per share, excluding exceptional items 35.69p 30.82p Diluted earnings per share 32.22p 20.32p Dividends per share Interim dividend paid 5.25p 5.00p Final dividend proposed 8.75p 7.00p Total 14.00p 12.00p * The comparative figure for 1999 includes £1.872 million in relation to exceptional costs. Consolidated Balance Sheet 31 December 2000 2000 1999 £000 £000 Fixed assets Tangible assets 26,432 24,558 Investment properties 88 330 Investments 464 464 26,984 25,352 Current assets Stocks 4,670 5,236 Debtors 28,739 25,312 Cash at bank and in hand 5,618 4,938 39,027 35,486 Creditors - amounts falling due within one (29,177) (27,404) year Net current assets 9,850 8,082 Total assets less current liabilities 36,834 33,434 Creditors - amounts falling due after more than one year (1,554) (1,885) Provisions for liabilities and charges (2,185) (1,399) 33,095 30,150 Capital and reserves Called up share capital 1,978 2,002 Share premium account 8,527 8,526 Revaluation reserve 1,335 1,609 Merger reserve 114 114 Capital redemption reserve 25 - Profit and loss account 21,116 17,899 33,095 30,150 Consolidated Cash Flow Statement For the year ended 31 December 2000 2000 1999 £000 £000 Net cash inflow from operating activities 8,657 6,387 Returns on investments and servicing of finance (276) (197) Taxation (1,477) (2,944) Capital expenditure and financial investment (3,735) (2,269) Acquisitions and disposals 2,490 344 Equity dividends paid (2,430) (2,403) Cash inflow/(outflow) before use of liquid resources and financing 3,229 (1,082) Financing (2,549) (1,472) Increase/(decrease) in cash in the year 680 (2,554) Reconciliation of net cash flow to movement in net funds 2000 1999 £000 £000 Increase/(decrease) in cash in the year 680 (2,554) Cash flow from movement in loans and hire-purchase 2,064 1,484 contracts Change in net funds from cash flows 2,744 (1,070) New hire-purchase contracts (1,385) - Movement in net funds in the year 1,359 (1,070) Net funds at 1 January 1,581 2,651 Net funds at 31 December 2,940 1,581 Supplementary Statements For the year ended 31 December 2000 Statement of Total Recognised Gains and Losses 2000 1999 £000 £000 Profit attributable to members of the Group 6,429 4,103 Unrealised (deficit)/surplus on revaluation of properties (251) 73 Foreign currency translation gain - 12 Total recognised gains and losses for the year 6,178 4,188 Reconciliation of Movements in Shareholders' Funds 2000 1999 £000 £000 Profit for the financial year 6,429 4,103 Dividends (2,748) (2,414) Issues of shares - net 2 420 Purchase of shares (487) - Revaluation adjustment (251) 73 Foreign currency translation gain - 12 Net addition to shareholders' funds 2,945 2,194 Opening shareholders' funds 30,150 27,956 Closing shareholders' funds 33,095 30,150 Notes: 1) The above financial information does not amount to full accounts within the meaning of section 240 of the Companies Act 1985. Full accounts for the year ended 31 December 2000 have not yet been audited or delivered to the Registrar of Companies. The Annual Report is due to be posted to shareholders on or around 9 May 2001. A copy of the statutory accounts for the year ended 31 December 1999 has been delivered to the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 2) The basic earnings per share figure for the year ended 31 December 2000 is based on the profit after taxation of £6,429,000 (1999: £ 4,103,000) and 19,890,551 (1999: 20,013,133) ordinary shares, being the weighted average of the number of shares in issue during the period. The adjusted earnings per share figure for the year ended 31 December 2000 is based on the profit after tax, excluding the £670,000 exceptional tax charge caused by the claw back of industrial buildings allowances, of £7,099,000 and 19,890,551 ordinary shares, being the weighted average of the number of shares in issue during the period. The adjusted earnings per share figure for the year ended 31 December 1999 is based on the profit after taxation, excluding the exceptional item, of £ 6,169,000 and 20,013,133 ordinary shares, being the weighted average of the number of shares in issue during the period.


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