Final Results

Severfield-Rowen PLC 9 April 2002 9 April 2002 Severfield-Rowen Plc 2001 Full Year Results Severfield-Rowen Plc, the market leading structural steel group, announces its full year results to 31 December 2001. Financial Headlines • Turnover up 13.1% to £145.8m (2000: £128.9m) • Operating profit of £6.5m (2000: £10.6m) • Basic earnings per share 22.42p (2000: 32.32p) • Final dividend maintained at 14.0p per share • Strong gross cash balance at year end of £13.4m (2000: £5.6m) • Nil gearing Operational Headlines • Excellent order book in excess of £77m • Plate production line contributing to profit • Sale and leaseback of Dalton site completed releasing net proceeds of £13.2m • Key acquisition of Watson Steel • Acquisition of Tubemasters in early 2002 to complement the business of Watson Steel Commenting on the results, Peter Levine, Chairman, said: 'In the face of very difficult market conditions Severfield-Rowen has produced a very resilient set of results, which are particularly pleasing when placed in the context of the sector as a whole. 'The Watson Steel and Tubemasters acquisitions are in the process of being integrated into the Group and it is already clear that these purchases, which were financed out of existing resources were both good value and timely. 'I am pleased to report that the plate production and intumescent paint lines at Dalton, commissioned in the summer of 2001, are proving a significant success and are performing well ahead of forecast for both production and profitability. 'The year has started soundly, in line with forecasts, and whilst the Group is not immune to industry price pressures, the Board looks forward to a successful and industry beating year.' Enquiries Severfield-Rowen Plc 020 7269 7291 - 9 April 2002 Peter Levine, Chairman Thereafter: 01132 469 993 Peter Davison, Finance Director Thereafter: 01845 577 896 Financial Dynamics Peter Otero 020 7269 7291 CHAIRMAN'S STATEMENT Introduction The Group's results for 2001 reflect a resilient performance achieved in very difficult market conditions. These were particularly creditable results when viewed against the backdrop of the sector as a whole and its constituent members. These results should also be viewed in the context of the significant steps forward taken during the year, including the commissioning of the new plate and intumescent paint line and the acquisition of Watson Steel. These events will impact favourably on the future prospects of the Group. Overview The Group generated operating profits of £6.5m (2000: £10.6m), on turnover of £145.8m (2000: £128.9m), Profit before tax was £6.5m (2000: £10.3m) giving earnings per share of 22.4p (2000: 32.3p). The Group ended the year in its strongest ever financial position. Net assets increased to £34.8m (2000: £33.1m), gearing was nil and the Group had a gross cash balance of £13.4m. This was after taking into account cash outflows of £11m comprising capital expenditure of £8.4m (2000: £5.6m) and £2.6m for the purchase of Watson Steel and its associated costs, and cash inflows of £13.2m being the net proceeds from the sale and leaseback of the Dalton site. The effective tax charge for the year was 31.8% compared with 37.7% in the previous year. The results for the year were impacted by a combination of factors including the unusually varied and complicated mix of work at the beginning of 2001 combined with a difficult and complicated contract and the carrying over of significant work into the current year. These all contributed to the results not being in accordance with our earlier forecasts. Although the challenging market conditions in the structural steel sector continued through the year, the Group's industry leadership and reputation was enhanced. The 'state of the art' and innovative plate line, together with a new intumescent paint facility, came on stream during the course of the year and early results are encouraging. On 30 November 2001 we announced the acquisition of Watson Steel for a price of £2.6m including costs. This significant purchase was widely welcomed by our clients and brought a further industry renowned and respected brand name within the Group's ownership. The purchase of Tubemasters in early 2002 is also a welcome addition to the Group. The Group now has three distinct subsidiaries: Severfield-Reeve Structures based at Dalton, North Yorkshire, Rowen Structures based in Nottingham and Watson Steel Structures based in Bolton, Lancashire. Watson Steel Structures At the time of the sale and leaseback of Dalton Airfield, we stated that the Board was committed to investing the Group's financial resources to develop the Group and therefore work harder for our shareholders. The strong financial position of the Group has enabled us to acquire, at very short notice, the business and assets of Watson Steel. On 30 November 2001 the Group announced the completion of this purchase for a total cash consideration of £2.6m including costs. Watson Steel itself is one of the UK's largest construction engineering businesses which registered a turnover of around £29m for the year ended 31 December 2001. The purchase is another key milestone in the Group's progress and strategy for the future. It is not only an internationally respected brand but also has specialist skills in relation to steelwork including bridges, infrastructure works, tubular frame structures, plate work and pipe work, which is highly complementary to Severfield-Rowen's businesses. It will also play a significant role in the Group's forthcoming work at Heathrow's Terminal 5 where the Group is BAA's structural steelwork partner. Tubemasters and its management team will enhance the business of Watson Steel. The integration of both Watson and Tubemasters into the Group is continuing successfully and we have embarked upon an investment strategy to upgrade Watson's facilities, for which £4m has been budgeted for in 2002 and will be satisfied by the Group's existing financial resources. Dividend Reflecting the directors' confidence in the future the Board has recommended a maintained dividend of 14.0p per share, covered by earnings 1.6 times. The final dividend is payable on 17 June 2002 to shareholders on the register on 17 May 2002. Board Appointments On 7 February 2002 Tom Haughey was appointed to the Board as Commercial Director. Mr Haughey joins the Group from Corus where he was Commercial Director of the division which supplied the Group with core steel supplies. A well known and highly respected man in our industry, Tom is already making a significant contribution to the Group. At the same time our Board colleague, Peter Emerson took up the key role of Managing Director, Watson Steel Structures. Outlook The outlook for the first half of the year is considered by the Board to be generally in line with our expectations. However, the Board is mindful that both general and industry specific economic factors can affect results going forward. We do, however, have a strong forward order book in excess of £77m with a continued significant proportion arising from negotiated contracts (this figure does not include the major Heathrow Terminal 5 Project). Current industry prices, whilst starting to recover at the beginning of 2002, may be softening but at this stage it is too early to say how this will impact on the current year. The Group benefits from its market leading position and is, by some way, the most significant player in the market. Along with our strong finances this places the Group in an ideal position to exploit further opportunities, both in the UK and abroad as and when they occur. Constant monitoring and upgrading of internal information systems are being made to ensure we have tight control over costs, especially with the Group expanding so rapidly. As our reputation and strength grow so does our ability to attract talented people to the workforce at all levels. The Group is lucky to have a highly motivated, loyal and widely respected workforce and the Board recognises that they, combined with a coherent and planned recruitment strategy, are the lifeblood of the future. We extend our sincere gratitude to all our employees for their outstanding contribution. To summarise, whilst it is hard to form an opinion regarding the second half of the year, we feel that the business is well balanced, structured and in an ideal position to take advantage of future opportunities. We therefore look forward to 2002 with optimism. Peter Levine Chairman OPERATIONAL REVIEW Core Business Overview The core businesses of the Group in 2001, Severfield-Reeve Structures and Rowen Structures, produced solid returns, although these were impacted by a combination of factors. The results were nevertheless particularly satisfactory when compared with the industry as a whole. The factors which combined to depress profits below the Board's expectations at the start of the year included an unusually varied and complicated mix of work, a difficult project conducted for Rowen and the major £20m Bull Ring contract in Birmingham carrying over into the present year. Severfield-Reeve Structures Once again the business achieved outstanding production efficiencies and contracts were undertaken in a wide variety of areas and projects, including: • New Bull Ring development in Birmingham • Office block for Standard Life in London • Distribution warehouse for L M Solutions in Hatfield • High rise office / residential block in Cardiff • Mixed development in Edinburgh for Pillar Properties • New process facility for Huntsman Tioxide on Teesside • Distribution depots for Sainsbury • Distribution depots for Costco • Multi-storey car park in East Kilbride The current year has commenced in line with our expectations. The order book is strong and whilst there are definite signs of increased downward price pressure in the market place towards the middle and latter half of this year, there is room for optimism for 2002. New contracts include: • Office block in Cambridge for the Department of Farming and Rural Affairs and Inland Revenue • Factory extension in Edinburgh for British Aerospace • Multi-functional retail / leisure complex in Croydon • Residential building in Gateshead • A major new development at Paternoster Square in London, including the new home for The Stock Exchange • Several major office block developments in London At the end of the year the Dalton site, including plate line six, was processing some 2,000 tonnes of steel work per week, which is not only a record performance for the Group but, we believe, an unmatched performance for the industry as a whole. Output is continuing at around these levels. Severfield-Reeve Structures and the Dalton site in particular remain a model example in the industry. However, capital investment is being continued to ensure that our leadership and efficiencies are maintained and that the business is kept lean. Information systems have also been upgraded to ensure constant monitoring of costs from production through to erection and completion of work. We are placing increasing emphasis on encouraging and developing a strong middle and senior management team. The efficiencies and productivity of both the new plate and intumescent paint lines have exceeded the Board's expectations and the Group looks forward to a significant contribution from both of these facilities in the future. Research and development of the Group's fire beam continues. The plate and intumescent lines are representative of the Group's market leading innovation. The fire engineered beam has already produced significant interest from clients and, like the plated products already being produced in line six, has significant potential to impact favourably on profits over the coming years. Rowen Structures Rowen Structures had another good year in 2001. Rowen fully justifies its place alongside Severfield-Reeve Structures within our Group of companies and the contribution by our workforce in Nottingham is much appreciated. A number of major contracts were performed by Rowen in 2001. These included: • Office development in Central London • Refurbishment of Hampstead Theatre • New car park facility at Southampton Airport for BAA • Purpose built maintenance hanger for servicing Virgin International's new wide bodied aircraft at Heathrow • New Headquarters for the General Council, Cheltenham • Conversion of Royal Mail sorting office into a high class retail development in Central Birmingham Contracts for 2002 include: • Development of the New Scottish Parliament building on the Royal Mile, Edinburgh • Multi-storey office building in Abingdon, Oxfordshire for Sophos • Multi-storey office building in Central London • Office, retail and leisure facility for Paddington Corporation • New headquarters for Marks and Spencer, Paddington • New passenger facility at Terminal 1, Heathrow • Development of residential flats in Leeds Expectations for 2002 are that Rowen will make a further positive contribution to the success of the Group. Steelcraft Erection Services During 2001 Steelcraft continued to provide sterling support to the Group and remains an integral part of the Group's success. Whilst principally providing services to the Group, Steelcraft is believed to be the largest structural steel erection business in the UK. Severfield-Reeve Projects 2001 proved to be yet another successful year for this business. Not only did it service the constant needs of the Group, the company also worked on a number of other significant third party contracts including the relocation of Dowding & Mills Engineering Services from its old established premises in the centre of York to a purpose built multi-million pound facility on the outskirts of the City. Severfield-Reeve Projects was responsible for providing the complete operational factory premises and also the relocation, installation and commissioning of all the existing engineering plant and machinery and fixtures and fittings. Current projections for 2002 demonstrate that the current year will be another one of success and profitability for this business. Watson Steel Structures The major acquisition of Watson Steel was only completed at the end of November 2001. Watson Steel was a very significant purchase for us, being the Group's largest acquisition since that of Rowen Structures in 1996. A world famous brand, originally established in 1933, it is already working on significant projects. Contracts for 2002 include: • Welsh Millennium Centre in Cardiff • English Institute of Sport building in Sheffield • Three bridges for the Channel Tunnel Rail Link • Naval shipyard maintenance facility in Portsmouth Integration of Watson Steel within the Group is progressing well and the first part of a projected two year capital expenditure programme of £6m is underway. Current expectations are that Watson Steel will at least break-even in 2002 with profitable results starting to come through in the following years, after the completion of the capital expenditure programme. Conclusion The Group now has, within its portfolio, three great and renowned companies in the industry, each a significant player in their own right but also possessing complementary skills. This, combined with the value added specialist plate and paint lines - the former with its leading edge technology - provides a springboard for continued prosperity of the Group in the medium to long term. Our efforts for 2002 are focused on ensuring the best return from our newly enlarged Group. This includes ensuring effective management control and efficiencies to deliver our investors the maximum possible shareholder value against the background of what is still, as far as our industry is concerned, challenging times. John Severs Managing Director FINANCIAL REVIEW Overview The Group's results for the year ended 31 December 2001 show a profit before tax of £6.5m on turnover of £145.8m. Whilst profit before tax is lower than that achieved in 2000 it is broadly in line with expectations and continues to be a very good result in the difficult market conditions which continue to prevail in the structural steel industry. In fact this result is unmatched both within our peer group and our industry as a whole, where the Group remains the market leader in terms of financial efficiency and productivity performance. The basic earnings per share are 22.4p and the total dividend for the year is recommended to be maintained at 14.0p per share, reflecting the Board's confidence in the future, and giving a level of dividend cover reduced to 1.6 times. The year ended with a significantly increased gross cash balance of £13.4m with no gearing. Net assets increased by 5.2% to £34.8m. Operating Profit The Group's operating profit decreased to £6.5m with operating margins decreasing to 4.5%. Although less than anticipated at the beginning of the year, these results are robust both in comparison with other companies in the structural steel industry and when set against the very difficult trading conditions which continue to beset the industry. Taxation The effective tax charge for the year is 31.8% compared with 37.7% in the previous year. The high rate in 2000 resulted from the claw-back of industrial buildings allowances by the Inland Revenue of approximately £670,000 due to the sale and leaseback of the Dalton site transaction. Although the sale did not take place until 2001, this liability was provided for last year through increasing the deferred tax provision. Earnings Per Share Basic earnings per share is 22.4p. This calculation is based on the profit after taxation of £4,437,000 and 19,792,739 ordinary shares, which is the weighted average of the number of shares in issue during the year. Dividend The Board is recommending a final dividend of 8.75p per share (2000: 8.75p), bringing the total dividend for the year to 14.0p per share. Despite the reduction in operating profit and, hence, earnings per share, the board has decided to maintain the dividend at 14.0p per share. This total dividend is now covered 1.6 times by earnings which, whilst lower than historical dividend cover, reflects the directors' confidence for the future. The final dividend is payable on 17 June 2002 to shareholders on the register on 17 May 2002. The ex-dividend date will be 15 May 2002. Balance Sheet The balance sheet continues to strengthen with shareholders' funds increasing in the year by £1.7m to £34.8m, which equates to a value per share at 31 December 2001 of 175.7p, compared with 167.3p at the end of 2000. Capital expenditure during the year amounted to £8.4m, the majority of this being attributable to the upgrade of the main fabrication plants at Dalton. This involved the building and equipping of production line six (the plate line). This produces beams and other products out of plate using the very latest technology. Additional land was also acquired during the year at Dalton which will facilitate further expansion plans and will provide further storage areas for fabricated steel. Sale and Leaseback During the year the majority of the site at Dalton was subject to a sale and leaseback transaction where it was sold for a cash consideration of £14m and then leased back to the Company at an initial rent of £1.36m. The land and buildings comprising line six were not subject to this transaction. Part of the sale proceeds have been used to fund the ongoing capital expenditure of the Group and for the purchase of the business and assets of Watson Steel towards the end of the year. Revaluations of the Dalton site over a number of years had led to a revaluation reserve in the balance sheet of £1.34m. As the property to which the revaluation reserve related was sold during the year this reserve has been realised and transferred to the retained profit and loss account balance. Acquisitions On 30 November 2001 the Group acquired the structural steelwork business and assets of Watson Steel Limited from the AMEC Group for a cash consideration of £2.5m plus costs. The assets comprised the freehold land and buildings of its fabrication site at Bolton, together with plant and machinery and fixtures and fittings. Goodwill arising of £112,000 has been included in the consolidated balance sheet as an intangible fixed asset and will be amortised on a straight line basis over 20 years. Trading results since acquisition are not material. During the year we entered into a joint venture with three other participants under which an established and proven cellular beam equivalent, made out of plate and marketed under the Fabsec trademark, was acquired for use by the Group. The cost of this venture was £221,000 and has been included in the balance sheet under Investments. On 31 January 2002 the Company acquired the entire issued share capital of Tubemasters Limited for a total consideration of £330,000. Cash Flow Management of the Group's cash continues to be of prime importance and is tightly controlled. During the year £6.1m was generated from operating activities. In addition £14m was generated from the sale and leaseback of the Dalton production facility. Outflows of cash during the year included dividends paid of £2.8m, corporation tax of £3.0m and the purchase of fixed assets, net of sale proceeds and new hire-purchase contracts, of £6.8m. The acquisition of Watson Steel and the investment in Fabsec accounted for £2.8m and the repayment of financing a further £1.2m. During the year Severfield-Reeve Projects Limited took out a short term bank loan to fund the undertaking of a particularly large contract. This amounted to £3.9m at the year end. This loan is repayable in May 2002 when the total amount due on this contract is receivable. Consequently, the year brought an overall increase in cash of £7.8m, with the Group ending the year with a positive cash balance of £13.4m. Borrowings, represented by amounts due on hire-purchase contracts of £2.6m and the loan outstanding of £3.9m, amounted to £6.5m. As a result, the Group had net funds available at the year end of £6.9m 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. Summary In relative terms, the Group has had a successful year and continues to improve its healthy financial position. The generation of profits and cash continues to be very good. The proceeds from the sale and leaseback have placed the Group in a stronger position, enabling it to exploit further opportunities for growth, such as the acquisition of Watson Steel and the building of line six. It is now in a position of unsurpassed financial strength within the structural steelwork market. Peter Davison Finance Director Consolidated Profit and Loss Account For the year ended 31 December 2001 2001 2000 £000 £000 Turnover - continuing operations 145,786 128,930 Cost of sales (136,722) (114,948) Gross profit 9,064 13,982 Distribution costs (392) (500) Administration costs (2,254) (2,992) 6,418 10,490 Other operating income 94 75 Operating profit 6,512 10,565 Interest payable and similar charges (5) (241) Profit on ordinary activities before tax 6,507 10,324 Tax on profit on ordinary activities (2,070) (3,895) Profit on ordinary activities after tax for the financial year 4,437 6,429 Dividends payable to equity shareholders (2,748) (2,748) Profit retained, transferred to reserves 1,689 3,681 Basic earnings per share 22.42p 32.32p Adjustment for exceptional items - 3.37p Adjusted earnings per share, excluding exceptional items 22.42p 35.69p Diluted earnings per share 22.30p 32.22p Dividends per share Paid 5.25p 5.25p Proposed 8.75p 8.75p Total 14.00p 14.00p Consolidated Balance Sheet 31 December 2001 2001 2000 £000 £000 Fixed assets Tangible assets 21,115 26,432 Investment properties - 88 Investments 685 464 Intangible assets 112 - 21,912 26,984 Current assets Stocks 1,902 4,670 Debtors 42,669 28,739 Cash at bank and in hand 13,418 5,618 57,989 39,027 Creditors - amounts falling due within one year (41,646) (29,177) Net current assets 16,343 9,850 Total assets less current liabilities 38,255 36,834 Creditors - amounts falling due after more than (1,713) (1,554) one year Provisions for liabilities and charges (1,736) (2,185) 34,806 33,095 Capital and reserves Called up share capital 1,981 1,978 Share premium account 8,546 8,527 Revaluation reserve - 1,335 Merger reserve 114 114 Capital redemption reserve 25 25 Profit and loss account 24,140 21,116 Equity and total shareholders' funds 34,806 33,095 Consolidated Cash Flow Statement For the year ended 31 December 2001 2001 2000 £000 £000 Net cash inflow from operating activities 6,077 8,657 Returns on investments and servicing of finance (15) (276) Taxation (3,016) (1,477) Capital expenditure and financial investment 7,219 (3,735) Acquisitions and disposals (2,526) 2,490 Equity dividends paid (2,761) (2,430) Cash inflow before use of liquid resources and financing 4,978 3,229 Financing 2,822 (2,549) Increase in cash in the year 7,800 680 Reconciliation of net cash flow to movement in net funds 2001 2000 £000 £000 Increase in cash in the year 7,800 680 Cash flow from movement in loans and hire-purchase contracts 1,168 2,064 Change in net funds from cash flows 8,968 2,744 New borrowings (3,968) - New hire-purchase contracts (1,066) (1,385) Movement in net funds in the year 3,934 1,359 Net funds at 1 January 2,940 1,581 Net funds at 31 December 6,874 2,940 Supplementary Statements For the year ended 31 December 2001 Statement of Total Recognised Gains and Losses 2001 2000 £000 £000 Profit attributable to members of the Group 4,437 6,429 Unrealised deficit on revaluation of properties - (251) Total recognised gains and losses for the year 4,437 6,178 Reconciliation of Movements in Shareholders' Funds 2001 2000 £000 £000 Profit for the financial year 4,437 6,429 Dividends (2,748) (2,748) Issues of shares - net 22 2 Purchase of shares - (487) Revaluation adjustment - (251) Net addition to shareholders' funds 1,711 2,945 Opening shareholders' funds 33,095 30,150 Closing shareholders' funds 34,806 33,095 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 2001 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 10 May 2002. A copy of the statutory accounts for the year ended 31 December 2000 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 2001 is based on the profit after taxation of £4,437,000 (2000: £6,429,000) and 19,792,739 (2000: 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 2000 is based on the profit after tax, excluding the £670,000 additional 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. This information is provided by RNS The company news service from the London Stock Exchange


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