Final Results

Severfield-Rowen PLC 08 April 2003 8 April 2003 2002 Full Year Results Severfield-Rowen Plc, the market leading structural steel group, announces its full year results to 31 December 2002. Financial Headlines • Turnover up 8% to £157.4m (2001: £145.8m) • Group operating profit up 18.1% to £7.7m (2001: £6.5m) • Group margins improved • Basic earnings per share up 11.9% to 25.08p (2001: 22.42p) • Total dividend maintained at 14.0p per share • Strong financial position at year end with nil gearing and cash balances of £11.4m (2001: £13.4m) Operational Headlines • All core businesses performing profitably • Integration of Watsons successfully completed with first full year contribution to profits • Continuing success of plate and paint lines Outlook • Work has recently commenced for BAA in respect of the significant Heathrow, Terminal 5 project. • Good order book • Rationalisation and re-engineering of Rowen in progress Commenting on the results, Peter Levine, Chairman said: 'The Group has never been in such a strong financial position, with each of our core subsidiaries contributing profitably to the 2002 results. With the good order book and robust blue chip client base, it is possible to consider the future with quiet confidence. 'We are also pleased to announce that work has now commenced for BAA's Heathrow, Terminal 5 development. Severfield-Rowen is pleased to be associated with this prestigious project as BAA's structural steelwork partner. This very significant contract extends into 2006 but such is the strength of Severfield-Rowen that it will not degrade from the Group's ability to service both existing and new clients' needs and exploit further opportunities as they arise.' Enquiries Severfield-Rowen plc Peter Levine, Chairman 01132 469 993 Peter Davison, Finance Director 01845 577 896 Financial Dynamics Peter Otero 020 7831 3113 CHAIRMAN'S STATEMENT Introduction The Group's results for 2002 demonstrate an excellent performance in the context of very challenging market conditions and, as anticipated, notably improved profitability over the previous year. The Group's market leadership in its sector is unquestioned and indeed is more marked now than at any previous time. This is underpinned by the excellent financial position of the Group which gives it a demonstrable advantage in its market place in the current uncertain economic environment. All core businesses of the Group performed profitably and Watson Steel has not only been integrated successfully but also modestly performed ahead of expectations in the period. When the 2002 results are viewed together with a good order book and the blue chip client base, it is possible to consider the future with quiet confidence. Overview In 2002 the Group improved operating profits to £7.7m (2001: £6.5m), on turnover up at £157.4m (2001: £145.8m). Profit before tax, after associated company losses, was £7.5m (2001: £6.5m) producing, after the tax charge of £2.5m, earnings per share up to 25.1p (2001: 22.4p). The Group has never been in such a strong financial position. Net assets increased to £37.7m (2001: £34.8m). With strong year end cash balances of £11.4m, despite capital expenditure out of cash flow of £8.9m (2001: £8.4m), the Group has no gearing. Although 2002 commenced with even higher expectations than those actually achieved, as the year progressed we reviewed our forecasts to reflect realistically the impact on our business of the prevailing sector and general economic circumstances. These factors impacted on prices during the year but nevertheless the strength of the Group, and its reputation in our industry, provided a strong backbone to what was, in the context of our market place, a very good set of results for the year. Despite the challenging conditions, the Group achieved genuine and consistent progress over the previous year. Each one of our core subsidiaries contributed positively to the Group results, these being Severfield-Reeve Structures based at Dalton, North Yorkshire, Rowen Structures based in Nottingham and Watson Steel Structures based in Bolton, Lancashire. Watson Steel Structures, acquired in late 2001, contributed to profitability ahead of expectations following the completion of its integration. Severfield-Reeve Structures continued to perform outstandingly, reinforcing its reputation as the premier fabricator in the UK. The Fabsec plate and intumescent paint lines performance demonstrated the sound judgement in their initial investment and further profitable progress can be expected. Rowen Structures delivered a solid performance. However, following a review of the business, proposals have been made to re-engineer Rowen as a specialist steelwork contractor. This reflects the changing demands in its market place whilst at the same time retaining its renowned expertise in important sectors such as airports. Dividend Reflecting the Board's confidence in the future of the Group it is pleased to maintain the dividend of 14.0 p per share, which is covered 1.8 times by earnings. The final dividend is payable on 5 June 2003 to shareholders on the register on 16 May 2003. Board Appointments At the last Annual General Meeting, held on 14 June 2002, David Ridley was confirmed as a non-executive director of the Group. Outlook Despite the external general economic circumstances and some very challenging industry sector conditions in respect of which the Group is not totally immune, the Group has a good order book supported by a blue chip client base. The Group is now able to announce that we have been awarded the main steelwork contract for the new Terminal 5 at Heathrow and is proud to be associated with this prestigious project as BAA's structural steelwork partner. This very significant contract extends into 2006. Despite the size of this project, the resources and flexibility of Severfield-Rowen are such that the contract will not affect the ability of the Group to continue servicing its existing and new clients, whilst at the same time exploiting further opportunities as and when they arise. The Board is determined to maintain its policy of carefully managed growth and prudent use of resources combined with focused capital investment with a particular emphasis on new value added areas of the business to maintain and enhance Group margins. The Board is looking forward with quiet confidence to another year of steady and continued year on year progress both in margins and profits. Peter Levine Chairman OPERATIONAL REVIEW Core Business Overview The core businesses of the Group in 2002, Severfield-Reeve Structures, Watson Steel Structures and Rowen Structures, produced excellent returns despite the challenging market conditions. The results were particularly satisfactory when viewed in the context of the industry as a whole. Severfield-Reeve Structures Once again the business continued to achieve outstanding production efficiencies. Contracts were undertaken in a wide variety of areas and a number of projects, including: • Office block in Cambridge for the Department of Farming and Rural Affairs and Inland Revenue • Major development at Paternoster Square London, including the new home for The Stock Exchange • Innovative new Tesco store on stilts, Altrincham • New Ebor stand at York racecourse • Office development near Tower Bridge, London • Multi-functional retail/leisure complex in Croydon • Residential building in Gateshead • Completion of Bull Ring development, Birmingham The current year has commenced in line with expectations and the order book is at a record level. Apart from the Heathrow, Terminal 5 project for BAA where the work will be divided as appropriate between our Group companies, new contracts for Severfield-Reeve Structures include: • New Rolls Royce building in Glasgow for the manufacture of turbine blades • Two large office developments in Manchester - Hardman Boulevard and Spinningfields • Bechtel power station in Spalding, Lincolnshire • Office development in Belgravia • New waste treatment facility at Arsenal, North London • State of the art music, performing arts and media centre at Newcastle College • Retail and car park development at Fremlims Walk, Maidstone • New Sainsbury in Belfast, Northern Ireland • New Warehouse for Pirelli tyres, Carlisle At the end of the year the Dalton site, including plate line six, was processing 2,000 tonnes of steel work per week, which continues to be a performance unmatched in the industry as a whole. Output is continuing at around these levels. Severfield-Reeve Structures, and the Dalton site in particular, remains a model example in the industry. Focused capital investment continues to be required to ensure that our market leadership and production efficiencies are maintained and that the business is kept cost efficient and competitive. Although a continuing process, progress has been made in the development of a strong senior and middle management team. The efficiencies and productivity of the plate and intumescent paint lines continue to exceed the Board's expectations and the Group looks forward to further 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 innovation. The fire engineered beam is continuing to develop significant interest from clients. We continue in our efforts to explore and identify other areas of value added products which can successfully expand the Group's range of services. Rowen Structures On 14 March 2003 we announced that it was proposed that due to changing market conditions, particularly in London, Rowen be re-engineered as a specialist steelworker manufacturing value added products for the Group. These proposals include redundancies at Rowen and discussions in respect of these are ongoing. The important expertise that Rowen's employees, have developed in key areas such as airport work, will be retained. A number of major contracts were performed by Rowen in 2002. These included: • Development of the New Scottish Parliament building on the Royal Mile, Edinburgh • Multi-storey office building in Abingdon, Oxfordshire for Sophos • Office, retail and leisure facility for Paddington Corporation • New passenger facility for BAA at Heathrow Terminal 1 • Multi-storey office block in Central London • Several projects for BAA at Heathrow • Multi-functional retail/leisure development in Wandsworth SW London • New Headquarters for Marks & Spencer, Paddington • Development of residential flats in Leeds In the event that the re-engineering proposals are implemented, expectations for 2003 are that a re-focused Rowen will continue to make a positive contribution to the success of the Group. Watson Steel Structures The 2001 purchase of the Watson Steel Structures business for £2.5m plus costs (including all the freehold land and buildings) has proved to be an excellent acquisition. During 2002 £5.8m was invested in buildings and plant to improve the production process. Results for the first full year of ownership were satisfactory. During the year the Tubemaster's business, acquired at the end of January 2002, was integrated within Watson Steel and full integration of Watsons itself into the Group is now completed. Contracts performed in 2002 included: • Multi purpose football and rugby stadium in Hull • New concert hall at the Welsh Millennium centre, Cardiff • Naval dockyard development for Vosper Thornicroft, Portsmouth • English Institute of Sport • Channel Tunnel Rail Link Bridges New contracts for 2003 include: • Extension to St. Pancras station roof - to accommodate Channel Tunnel Rail Link • Elevated roadway - new access roadway for Dover docks • Cheltenham Racecourse - multi functional arena building • Arsenal North & South bridges - pedestrian access to new Arsenal Stadium • Gogaburn Bridge, Edinburgh - access to new Royal Bank of Scotland HQ This year's budget shows that Watsons is on course for a successful year being the first full 12 month period benefiting from the significant levels of capital expenditure invested so far. Steelcraft Erection Services During 2002 Steelcraft continued to provide invaluable support to the Group and remains an integral part of the Group's success. Whilst providing services only to the Group, Steelcraft is believed to be the largest structural steel erection business in the UK. Severfield-Reeve Projects 2002 proved to be yet another successful year for this business. It is always difficult to service the constant needs of the Group whilst at the same time working on a number of other significant third party contracts. These included: • Bootham Engineers - completion of new site manufacturing and office facilities to the North of York • Extension of warehouse facilities for Encore Direct, Near York • Office development in Wakefield for Winston IOM • Development of a new school - Grewelthorpe Primary, North Yorkshire • Extension to Best Western Hotel, York • Union Trucks facility, Thirsk However Severfield-Reeve Projects successfully managed this and despite a difficult market place returned a profitable and satisfactory performance. Current projections for 2003 demonstrate that the current year will be another one of success and profitability for this business. Conclusion The Group is the clear market leader, with each of our three core subsidiaries regarded highly within the industry. This, combined with the value added specialist plate and paint lines (the former with its leading edge technology) provides the platform for success of the Group in the medium to long term. The good order book of the Group, including the Heathrow, Terminal 5 contract places the Group in an unrivalled position in an industry which in general is expected to continue facing difficult times over the short term. Our efforts for 2003 are focused on providing the best returns for our shareholders. This includes continuing with our efforts to ensure effective management control and efficiencies within our Group whilst at the same time delivering to our customers the level of quality, service and commitment which they expect from the industry's market leader. John Severs Managing Director Financial Review Overview The Group's results for the year ended 31 December 2002 show a profit before tax of £7.5 million on turnover of £157.4 million, increases of 15.6% and 8% respectively over the previous year. Whilst profit before tax is slightly lower than expectations it is an exceptional result in a year in which the only other quoted structural steelwork company went into receivership. The second half of the year proved particularly difficult with enquiry levels reducing along with selling prices and, hence, margins. Nevertheless, the Group has strengthened its position as the market leader in terms of financial efficiency and productivity performance. The basic earnings per share are 25.1p and it is recommended that the total dividend for the year be maintained at 14.0p per share, giving a level of dividend cover of 1.8 times. The year ended with a gross cash balance of £11.4 million with no gearing. Net assets increased by 8.4% to £37.7 million. Operating Profit The Group's operating profit increased by 18.1% to £7.7 million, with operating margins increasing to 4.9% from the 4.5% achieved in 2001. However, for the first time the Group's results now include its share of the results of its two associated companies, Kennedy Watts Partnership Limited and Fabsec Limited of which the Group owns 25.1% and 25% respectively. The Group's share of these two companies' results amount to a net operating loss of £164,000, reducing the total profit before tax of the Group to £7.5 million, which still represents a 15.6% increase over the previous year. In addition, if the £570,000 operating loss of the subsidiary Steel (UK) Limited which ceased trading during the year is excluded the total Group operating profit in the ongoing businesses amounted to £8.3 million. Taxation The tax charge of £2.5 million represents an effective tax rate of 33.2% on pre-tax profits for the year, compared with 31.8% in the previous year. The higher effective rate is due to the adjustments made in respect of expenditure incurred during the year which is disallowed for tax purposes. In addition, no tax relief has been recognised in respect of the losses incurred by Fabsec Limited in the period consolidated into the Group result. The adoption during the year of the accounting standard FRS19 on deferred tax has not had a significant impact on the financial statements. Earnings Per Share Basic earnings per share is 25.1p, an increase of 11.9% over the previous year. This calculation is based on the profit after taxation of £5,023,000 and 20,024,284 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 (2001: 8.75p) bringing the total dividend for the year to 14.0p per share. At this level the dividend is, therefore, maintained at that paid in 2001. The total dividend is now covered 1.8 times by earnings. This is slightly higher than the 1.6 times earnings produced last year, but still somewhat lower than the historical dividend cover of between 2.5 and 3 times. This reflects the Directors' continued confidence in the Group for the future. The final dividend is payable on 5 June 2003 to shareholders on the register on 16 May 2003. The ex-dividend date will be 14 May 2003. At the share price on 7 April 2003 of 207.5p the total dividend of 14.0p per share produces a dividend yield of approximately 6.7 % net. Balance Sheet The Group balance sheet continues to strengthen with shareholders funds increasing by £2.9 million to £37.7 million, which equates to a value per share at 31 December 2002 of 186.9p, compared with 175.7p at the end of 2001. As in previous years we have continued to invest heavily in our business with capital expenditure during the year amounting to £9.2 million. A significant proportion of this expenditure was carried out on the upgrading and improvement of the fabrication site at Bolton where the business of Watson Steel Structures is carried out. In addition, further investment was made in the Group's main production facility at Dalton, North Yorkshire. The Group's balance sheet now has fixed assets totalling almost £29 million. Depreciation charged in the year amounted to £2 million. Acquisitions The profit and loss account includes for the first time the full year results of Watson Steel Structures, a business acquired on 30 November 2001 from the AMEC Group for a cash consideration of £2.5 million plus costs. Goodwill arising on the transaction amounted in total to £163,000 and has been included in the consolidated balance sheet as an intangible fixed asset to be amortised, in line with FRS10, over 20 years. On 31 January 2002 the Company acquired the entire share capital of Tubemasters Limited for a total consideration, including costs, of £405,000. This consideration consisted of £117,000 in cash with the balance of £288,000 by way of 5% redeemable loan notes. The Group's results to 31 December 2002 include those of Tubemasters for the 11 month period from the date of acquisition. Goodwill arising of £26,000 will also be amortised over 20 years. Trading results and cash flow since acquisition are not material and have not been separately disclosed. Cessation of Operations On 31 August 2002 the business of Steel (UK) Limited, a 90% subsidiary of the Company, ceased. The principal activity of this company was the trading of ferrous metals. Due to the difficult trading conditions it has had to endure in its market place for a number of years, the company regularly produced a loss before tax and was no longer a material part of the Group. Consequently, the Board decided that it could no longer justify operating the company and made the decision to cease its operations. In order to sell off the remaining stocks of raw steel prior to closedown some of it was sold at below cost price. Consequently, along with costs associated with the closure, this has contributed to a result for the year 2002 which is substantially worse than those achieved previously. Turnover in the year amounted to £993,000 producing an operating loss of £570,000. Interest payable of £38,000 increased this figure to a loss before tax of £608,000. Associated Companies During 2001 the Company acquired a 25% shareholding in Fabsec Limited, a company involved in the development of a bespoke and fire engineered beam made out of plate. This company holds the master intellectual property rights for these and the Fabsec beams the world over. It also carries out marketing and promotion. The Group benefits from these functions whilst only contributing 25% towards overheads. Fabsec Limited is not to be confused with the Group's successful and profitable plate and intumescent paint lines, which produce at our Dalton site the Fabsec and fire engineered beams under a perpetual, no royalty licence from Fabsec Limited. Investment in Fabsec Limited has continued by way of further loans to that company in 2002. The total investment at 31 December 2002 amounted to £333,000. However, for the first time since the business commenced trading in 2001, Fabsec has produced its own accounts and our 25% share of its results has been incorporated into the Group's figures. At the moment, Fabsec is heavily involved in technical and market development and, therefore, the results to 31 December 2002 show a loss for the period. The Group's 25% share of this loss amounted to £206,000. The Group also owns a 25.1% shareholding in Kennedy Watts Partnership Ltd, a company involved in CAD/CAM steelwork design. For the first time this year the results of Kennedy Watts have been incorporated into the Group. The Group's share of the operating profit of Kennedy Watts reduces the net operating loss arising from associated companies to £164,000. Cash Flow Management of the Group's cash continues to be of prime importance and is tightly controlled. During the year £16.3 million was generated from operating activities. Outflows of cash during the year included dividends paid of £2.8 million, corporation tax paid of £2.5 million and the purchase of fixed assets, net of sale proceeds and new hire purchase contracts, of £8.1 million. During the year a short term bank loan, which had been made available to Severfield-Reeve Projects for a particularly large contract, of £3.9 million was repaid. The Group ended the year with a positive cash balance of £11.4 million. Borrowings, represented primarily by amounts due on hire-purchase contracts, amounted to £2.2 million. As a result, the Group had net funds available at the year end of £9.2 million, an increase of £2.3 million from the end of 2001 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 treasury function seeks to reduce the Group's exposure to any interest rate, foreign exchange and other financial risks, to ensure that adequate and cost effective funding arrangements are maintained to finance current and planned future activities and to invest cash assets safely and profitably. The Group remains committed to strong financial controls, cash management and prudent accounting and treasury policies. Summary The Group has had a successful year and continues to improve its healthy financial position. The generation of profits continues to be strong as does that of cash where despite capital expenditure in the year of £9.2 million, the net funds of the Group increased by £2.3 million to £9.2 million. The acquisition of Watson Steel Structures is proving to be a very successful one enabling the Group to build on its position of unsurpassed financial strength within the structural steelwork industry. Peter Davison Finance Director Consolidated Profit and Loss Account For the year ended 31 December 2002 2002 2001 Total Total £000 £000 Turnover - continuing operations 157,418 145,786 Cost of sales (146,030) (136,722) Gross profit 11,388 9,064 Distribution costs (580) (392) Administration expenses (3,196) (2,254) 7,612 6,418 Other operating income 78 94 Group operating profit 7,690 6,512 Share of associates' operating loss (164) - 7,526 6,512 Interest payable and similar charges (7) (5) Profit on ordinary activities before tax 7,519 6,507 Tax on profit on ordinary activities (2,496) (2,070) Profit on ordinary activities after tax for the financial year 5,023 4,437 Dividends payable to equity shareholders (2,817) (2,748) Profit retained, transferred to reserves 2,206 1,689 Earnings per share Basic 25.08p 22.42p Diluted 25.05p 22.29p Dividends per share Paid 5.25p 5.25p Proposed 8.75p 8.75p Total 14.00p 14.00p Consolidated Balance Sheet 31 December 2002 2002 2001 £000 £000 Fixed assets Tangible assets 28,069 21,115 Investments 629 685 Intangible assets 180 112 28,878 21,912 Current assets Stocks 5,742 1,902 Debtors 32,571 42,669 Cash at bank and in hand 11,417 13,418 49,730 57,989 Creditors - amounts falling due within one year (37,613) (41,646) Net current assets 12,117 16,343 Total assets less current liabilities 40,995 38,255 Creditors - amounts falling due after more than one year (1,240) (1,713) Provisions for liabilities and charges (2,021) (1,736) 37,734 34,806 Capital and reserves Called up share capital 2,018 1,981 Share premium account 9,231 8,546 Merger reserve 114 114 Capital redemption reserve 25 25 Profit and loss account 26,346 24,140 Equity and total shareholders' funds 37,734 34,806 Consolidated Cash Flow Statement For the year ended 31 December 2002 2002 2001 £000 £000 Net cash inflow from operating activities 16,304 6,077 Returns on investments and servicing of finance 6 (15) Taxation (2,467) (3,016) Capital expenditure and financial investment (8,141) 7,219 Acquisitions and disposals (647) (2,526) Equity dividends paid (2,784) (2,761) Cash inflow before use of liquid resources and financing 2,271 4,978 Financing (4,272) 2,822 (Decrease)/increase in cash in the year (2,001) 7,800 Reconciliation of net cash flow to movement in net funds 2002 2001 £000 £000 (Decrease)/increase in cash in the year (2,001) 7,800 Cash flow from movement in loans and hire-purchase contracts 4,994 1,168 Change in net funds from cash flows 2,993 8,968 Loan acquired with subsidiary (107) - New borrowings (288) (3,968) New hire-purchase contracts (313) (1,066) Movement in net funds in the year 2,285 3,934 Net funds at 1 January 6,874 2,940 Net funds at 31 December 9,159 6,874 Supplementary Statements For the year ended 31 December 2002 Statement of Total Recognised Gains and Losses There are no recognised gains or losses in either period other than the profit attributable to members of the Group Reconciliation of Movements in Shareholders' Funds 2002 2001 £000 £000 Profit for the financial year 5,023 4,437 Dividends (2,817) (2,748) Issues of shares 722 22 Net addition to shareholders' funds 2,928 1,711 Opening shareholders' funds 34,806 33,095 Closing shareholders' funds 37,734 34,806 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 2002 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 6 May 2003. A copy of the statutory accounts for the year ended 31 December 2001 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 2002 is based on the profit after taxation of £5,023,000 (2001: £4,437,000) and 20,024,284 (2001: 19,792,739) ordinary shares, being the weighted average of the number of shares in issue during the period. 3) The calculation of diluted earnings per share is based on the profit after taxation of £5,023,000 (2001: £4,437,000) and 20,050,587 (2001: 19,902,896) ordinary shares, being the weighted average of the number of shares in issue during the period, allowing for the dilutive effect of share options. This information is provided by RNS The company news service from the London Stock Exchange


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