TIDMSFR
RNS Number : 1194H
Severfield PLC
22 November 2022
PRESS RELEASE
22 November 2022
Interim results for the period ended 24 September 2022
High quality order books, inflationary pressures being
well-managed, positive outlook
Severfield plc, the market leading structural steel group,
announces its results for the six-month period ended 24 September
2022.
GBPm 6 months to 6 months to
24 September 25 September
2022 2021
(unaudited) (unaudited)
---- ---------------
Revenue 234.9 195.9
Underlying(1) operating profit
(before JVs and associates) 12.1 10.2
Operating profit (before JVs and
associates) 10.5 8.2
Underlying(1) profit before tax 12.1 10.3
Profit before tax 10.2 7.9
Underlying(1) basic earnings per
share 3.3p 2.7p
Basic earnings per share 2.8p 1.7p
Interim dividend per share 1.3p 1.2p
---------------------------------------- --------------- ---------------
Headlines
-- Revenue up 20% to GBP234.9m (H1 2022: GBP195.9m) reflecting
increased activity and steel prices
-- Underlying(1) profit before tax up 17% to GBP12.1m (H1 2022:
GBP10.3m)
-- Period -end net debt (excluding IFRS 16 lease liabilities(2)
) of GBP15.8m (26 March 2022: GBP18.4m) reflects stable working
capital position
-- High quality, diversified UK and Europe order book of GBP464m
at 1 November 2022 (1 June 2022: GBP486m), includes new industrial
and distribution, nuclear and data centre orders
-- Share of profit from JSSL of GBP0.6m (H1 2022: GBP0.3m)
reflects further revenue growth
-- India order book of GBP143m at 1 November 2022 (1 June 2022:
GBP158m) reflects strong continued demand for structural steel in
India
-- Interim dividend increased by 8% to 1.3p per share (H1 2022:
1.2p per share)
-- New simplified divisional structure is bedding in well, with
three new divisions aligned with our chosen market sectors
Outlook
-- UK and Europe - tendering and pipeline activity remain at
consistently high levels - including opportunities in the
industrial and distribution, transport infrastructure, nuclear,
data centre and commercial office sectors
-- India - strong and growing demand for structural steel - JSSL
remains very well-positioned to take advantage of an economy which
is expected to grow significantly in the medium term
-- Inflationary pressures remain a challenge but continue to be
well-managed
-- Management expectations are unchanged - high quality order
books give us good profit visibility through FY24
Alan Dunsmore, Chief Executive Officer commented:
'The Group has delivered a strong performance in the first six
months of the year against a difficult macroeconomic backdrop. Our
high quality order book reflects our significant market sector,
geographical and client diversification and provides us with good
earnings visibility.
Our new simplified divisional structure in the UK and Europe,
with our three divisions: Commercial and Industrial, Nuclear and
Infrastructure, and Products and Processing, continues the
evolution of our strategy and builds on the momentum generated from
the operational improvement initiatives that have been put in place
over the last eight years.
Our Indian business continues to see strong demand for
structural steel and we are ramping up the production at our
Bellary facility towards its maximum capacity of c.100,000 tonnes
while also looking to identify another plot of land to facilitate
the future expansion of the business.
The resilient order book, combined with our strong balance sheet
and simplified divisional structure, gives us confidence in the
future performance of the business and so we are maintaining our
expectations for FY23.'
For further information, please contact:
Alan Dunsmore
Severfield Chief Executive Officer 01845 577 896
Adam Semple
Chief Financial Officer 01845 577 896
Jefferies International Simon Hardy 020 7029 8000
Will Soutar 020 7029 8000
Liberum Capital Nicholas How 020 3100 2000
Ben Cryer 020 3100 2000
Camarco Ginny Pulbrook 020 3757 4980
Tom Huddart 020 3757 4980
Notes to financials:
(1) stated before non-underlying items of GBP2.0m (H1 2022:
GBP2.4m) including the amortisation of acquired intangible assets
of GBP1.7m (H1 2022: GBP2.0m) and net acquisition-related expenses
of GBP0.3m (H1 2022: GBP0.4m). Non-underlying items have been
separately identified as a result of their magnitude, incidence or
unpredictable nature. Their separate identification results in a
calculation of an underlying profit measure in the same way as it
is presented and reviewed by management (see note 7 to the interim
financial statements).
(2) the Group excludes IFRS 16 lease liabilities from its
measure of net funds / debt as they are excluded from the
definition of net debt as set out in the Group's borrowing
facilities (see note 13 to the interim financial statements).
(3) except as otherwise stated '2021' and '2022' refer to the
52-week periods ended 27 March 2021 and 26 March 2022. '2023' and
'2024' refers to the 52-week period ending 25 March 2023 and the
53-week period ending 30 March 2024. The Group's accounts are made
up to an appropriate weekend date around 31 March each year.
A reconciliation of the Group's underlying results to its
statutory results is provided in the Alternative Performance
Measures ('APMs') section (see note 18 to the interim financial
statements).
Notes to editors:
Severfield is the UK's market leader in the design, fabrication
and construction of structural steel, with a total capacity of
c.130,000 tonnes of steel per annum. The Group has six sites,
c.1,700 employees and expertise in large, complex projects across a
broad range of sectors. The Group also has an established presence
in the expanding Indian market through its joint venture
partnership with JSW Steel (India's largest steel producer).
INTERIM STATEMENT
INTRODUCTION
The Group's strong performance in the first six months of 2023
highlights the successful evolution of our strategy over recent
years and the benefits of our significant market sector,
geographical and client diversification. This has resulted in a
well-balanced Group which, together with our strong balance sheet,
has provided us with the resilience to maintain and improve our
market positions and expert capabilities in engineering and
construction throughout the challenges of the past two years. This
is reflected in our strong order books of GBP464m in the UK and
Europe and GBP143m in India, which provide us with good visibility
of earnings and position us with a strong future workload
throughout the second half of the year and beyond.
In the UK and Europe, we have a prominent position in market
sectors with strong growth potential and are well-positioned to
help accelerate the journey to net zero. Our Nuclear and
Infrastructure division is well-placed to meet the demand for
ongoing state-backed investment, including a growing focus on
infrastructure which can mitigate climate change, including nuclear
power. In our Commercial and Industrial division, we continue to
see some significant opportunities, both in the UK and continental
Europe, in key areas such as data centres, stadia and leisure,
commercial offices, and industrial and distribution. This includes
projects in support of a low-carbon economy such as battery plants,
energy efficient buildings and manufacturing facilities for
renewable energy.
In India, an improving pipeline of potential orders reflects a
continuing strong demand for structural steel in India. All this
leaves the business very well-positioned to take advantage of a
strongly growing economy which, together with the ongoing
conversion of the market from concrete to steel, will drive the
success and value of the business.
At the same time, new global challenges have arisen, including
higher steel and other raw material prices, energy price volatility
and tighter labour markets. We are continuing to manage these
pressures well and the Group's scale, financial and operational
strengths and disciplined processes have helped to ensure that we
have not experienced any significant disruption or material impact
to profitability.
FINANCIAL REVIEW
Revenue of GBP234.9m (H1 2022: GBP195.9m) represents an increase
of GBP39.0m (20 per cent) compared to the prior period. This
includes an increase in steel prices of c.GBP23m.
Underlying operating profit (before JVs and associates) of
GBP12.1m (H1 2022: GBP10.2m) represents an increase of GBP1.9m (19
per cent) over the prior period. The increase in profit highlights
our ability to offset ongoing inflationary cost increases through a
combination of operating efficiencies, higher selling prices and
contractual protection as steel remains largely a pass-through cost
for the Group.
The share of results of JVs and associates in the period was a
profit of GBP1.0m (H1 2022: GBP0.6m). This includes a share of
profit from the Indian joint venture of GBP0.6m (H1 2022: GBP0.3m),
reflecting increased revenue and a strong operating performance as
the business continues its post-COVID recovery. The share of
results of JVs and associates also includes those of Construction
Metal Forming ('CMF') Limited which has contributed a profit of
GBP0.4m (H1 2022: GBP0.3m). The CMF business has continued to
develop its product range, including modular steel products, to
drive organic revenue growth, and its expanded production
facilities in Wales are expected to be operational in H2.
The Group's underlying profit before tax was GBP12.1m (H1 2022:
GBP10.3m), an increase of 17 per cent compared to the previous
period. The statutory profit before tax, which includes both
underlying and non-underlying items, was GBP10.2m (H1 2022:
GBP7.9m), an increase of 29 per cent.
Non-underlying items for the period of GBP2.0m (H1 2022:
GBP2.4m) consisted of the amortisation of acquired intangible
assets of GBP1.7m (H1 2022: GBP2.0m) and acquisition-related
expenses of GBP0.3m (H1 2022: GBP0.4m). The amortisation of
acquired intangible assets represents the amortisation of customer
relationships, order books and brand name, which were identified on
the acquisitions of Harry Peers and DAM Structures. These assets
are being amortised over periods ranging from 12 months to five
years. Acquisition-related expenses include movements in the
valuation of the contingent consideration for the DAM Structure
acquisition which is payable over a five-year period.
An underlying tax charge of GBP2.1m is shown for the period (H1
2022: GBP1.9m). This tax charge is recognised based upon the best
estimate of the average effective tax rate on profit before tax for
the full financial year and equates to the UK statutory rate of 19
per cent. A non-underlying tax credit of GBP0.4m has also been
recognised. In the prior period, a non-underlying tax charge of
GBP0.8m was recognised, comprising a tax credit on non-underlying
items of GBP0.5m, offset by a charge of GBP1.3m relating to the
increase in future tax rates from 19 per cent to 25 per cent.
Underlying basic earnings per share is 3.3p (H1 2022: 2.7p).
This calculation is based on the underlying profit after tax of
GBP10.0m (H1 2022: GBP8.3m) and 309,532,076 shares (H1 2022:
308,287,952 shares) being the weighted average number of shares in
issue during the period. Basic earnings per share, which is based
on the statutory profit after tax, is 2.8p (H1 2022: 1.7p). Diluted
earnings per share, which includes the effect of the Group's
performance share plan, is 2.7p (H1 2022: 1.7p).
Net debt (pre-IFRS 16 basis) at 24 September 2022 was GBP15.8m
(26 March 2022: GBP18.4m). This represents an overdraft of GBP2.5m
(26 March 2022: GBP3.5m) and the outstanding term loans of GBP13.3m
(26 March 2022: GBP14.9m) for acquisitions. Operating cash flow for
the period before working capital movements was GBP15.9m (H1 2022:
GBP13.3m). Net working capital remained broadly stable following
the large working capital outflow in the 2022 financial year which
included the impact of steel and other input price rises, higher
steel purchases close to the 2022 year-end, and the UK's new VAT
Domestic Reverse Charge regulations for construction services.
Period-end working capital represented approximately nine per cent
of revenue (26 March 2022: ten per cent). Although this remains
higher than our well-established target range of four to six per
cent, we continue to expect an improvement in working capital in
H2.
During the period, deferred consideration of GBP7.0m was paid in
relation to the acquisition of DAM Structures, which was acquired
in February 2021.
Capital expenditure of GBP2.1m (H1 2022: GBP3.5m) represents the
continuation of the Group's capital investment programme. There
remain some significant capital projects planned for the second
half of the year, including new and upgraded equipment for our
fabrication lines, and we continue to expect 2022 capital
expenditure levels to be around our normal run rate of GBP6m to
GBP8m per annum. Depreciation in the period was GBP3.6m (H1 2022:
GBP3.3m), of which GBP0.9m (H1 2022: GBP0.8m) relates to
right-of-use assets under IFRS 16.
The Group's net defined benefit pension liability at 24
September 2022 was GBP8.5m, a decrease of GBP5.9m from the year-end
position of GBP14.4m. The deficit has reduced as a result of a
higher discount rate, reflecting the significant increase in bond
yields and employer deficit contributions over the period. This has
been offset by lower than assumed returns on the scheme's assets
and higher than expected inflation.
The Group has a GBP50m revolving credit facility ('RCF') with
HSBC Bank and Virgin Money (formerly Yorkshire Bank), which matures
in December 2026. This provides the Group with long-term financing
to help support its growth strategy. The RCF is subject to three
financial covenants, namely interest cover, net debt to EBITDA and
debt service (cash flow) cover. As part of the Harry Peers and DAM
Structures acquisitions, amortising term loans of GBP14m and GBP12m
respectively were established as amendments to the RCF. At 24
September 2022, of these original loans of GBP26m, GBP13.3m
remained outstanding.
The board considers the dividend to be a very important
component of shareholder returns. Based on its current assessment
of the performance of the business, our strong balance sheet and
cash position, and longer term prospects, the board has decided to
increase the interim dividend by 8 per cent to 1.3p per share (H1
2022: 1.2p per share). This dividend will be paid in February
2023.
Capital Markets Day
We plan to host a Capital Markets Day for investors and analysts
in early 2023, for which a separate RNS notice will be issued in
due course.
OPERATIONAL REVIEW
New divisional structure
The Group has grown significantly over recent years, both
organically and through acquisition. To align our business more
closely with the market sectors we serve and our growing customer
base, we have created a simpler divisional structure for our UK and
Europe operations. The creation of three new market-focused
divisions (see below) has also allowed us to adopt a more holistic
approach to manufacturing across the Group, under the leadership of
our Group Manufacturing Director, as we continue to invest in and
optimise our factories, particularly at our main production centres
in Dalton, Lostock and Enniskillen. There are no non-underlying
costs associated with this re-organisation which has been
implemented for operational purposes.
With effect from 1 April 2022, the previous structure of six
mainly location-based business units is being streamlined into
three new divisions namely, the Commercial and Industrial division
(mainly focusing on private sector clients), the Nuclear and
Infrastructure division (mainly supporting public sector projects),
and the Products and Processing division (including our growing
modular and cold rolled steel product ranges). Further details are
provided in the UK and Europe section below.
UK and Europe
The future success of the Group is determined, amongst other
things, by the quality of the secured workload and our discipline
to maintain risk-based contract selectivity irrespective of
economic conditions. The UK and Europe order book at 1 November
includes a significant amount of high quality work and stands at
GBP464m (1 June 2022: GBP486m), of which GBP367m is planned for
delivery over the next 12 months. This leaves the Group very
well-positioned with a strong future workload for the remainder of
the 2023 financial year and beyond. The order book remains
well-diversified and contains a good mix of projects across the
Group's key market sectors. In terms of geographical spread of the
order book of GBP464m, 95 per cent represents projects in the UK,
with the remaining 5 per cent representing projects for delivery in
Europe and the Republic of Ireland (1 June 2022: 96 per cent in the
UK, 4 per cent in Europe and the Republic of Ireland). The more
UK-centric nature of the current order book is driven by the recent
completion of several projects in the Republic of Ireland,
including the large industrial facility near Dublin.
As well as maintaining an historically high level of orders
across the Group, we are also seeing a strong pipeline of further
potential opportunities in the UK and in continental Europe as,
despite the broader macroeconomic picture, many of our chosen
markets continue to have a favourable outlook. Our scale and
product service offering means we are well-positioned to take
advantage of these opportunities across both our Commercial and
Industrial and Nuclear and Infrastructure divisions with a wide
client base, operating in a diverse range of market sectors and
geographies. This provides us with resilience and the ability to
drive future profitable growth.
Commercial and Industrial
The Commercial and Industrial ('C&I') division brings
together the Group's strong capabilities in the industrial and
distribution, commercial offices, stadia and leisure, data centres,
retail, and health and education market sectors, working mainly
with private sector clients.
During the period, we continued to work on several large
distribution facilities in the UK, the Co-op Live Arena in
Manchester, the Google Headquarters at King's Cross and a large
industrial facility in the Republic of Ireland, which is now
complete. Other significant revenue contributing projects include
the new stadium for Everton F.C., Pinewood Studios in Shepperton,
the ExCel Arena in London and a number of mid-sized office
developments, both in the UK and Republic of Ireland (including
Argyle Street in Glasgow, Wilton Park in Dublin and a new
development at King's Cross in London).
The C&I order book at 1 November of GBP308m (1 June 2022:
GBP348m) includes a significant amount of new work which we have
secured over recent months. This includes the full order to supply
and construct fabricated steel for the Envision Battery Plant in
Sunderland following the partnership with Nissan UK and Sunderland
City Council to create an electric vehicle hub supporting next
generation EV production, to help accelerate the transition to net
zero carbon mobility. During the period, we also secured some new
office projects, together with various large and several smaller
industrial and distribution facilities in the UK, reflecting a
sector which continues to present good opportunities. Most of our
work is derived through either negotiated, framework or two-stage
bidding procurement processes, in line with the risk profile of the
work being undertaken.
We continue to be encouraged by the current level of tendering
and pipeline activity across the Group, seeing a consistently high
level of opportunities both in the UK and in continental Europe, in
which we retain a good market position and which remains an
important part of our strategic growth plans. The pipeline in
continental Europe was adversely impacted by COVID-19 around twelve
months ago, but has since recovered strongly.
In the UK, the government's GBP850m Automotive Transformation
Fund aims to support the development of battery gigafactories and
domestic zero carbon vehicle production, with a number of new
facilities currently being planned or considered. A similar picture
is also emerging in continental Europe. In addition, the UK's
emergence as a major hub for film, television, advertising and
gaming production is also leading to an increase in demand for film
and TV studios. The Group's scale, speed of construction and
on-time delivery capabilities, leaves us well-positioned to win
work from such projects, all of which are likely to have a
significant steelwork content.
We are also well-positioned to take advantage of some
significant other opportunities in the industrial and distribution
and data centre sectors and, despite predictions of the demise of
the office after COVID-19, in the commercial office sector,
including in London.
Nuclear and Infrastructure
The Nuclear and Infrastructure ('N&I') division encompasses
the Group's market-leading positions in the nuclear, power and
energy, transport (road and rail) and process industries sectors,
mainly supporting public sector projects.
During the period, we continued to work on HS2 bridge packages
for a variety of consortia including Water Orton Viaducts in the
Midlands and PRA to Oxford Road in Aylesbury, together with road
and rail bridges including the A1 Birtley to Coalhouse and A46
Binley bridges and the M42 junction 6 road improvement scheme. From
a nuclear perspective, ongoing contracts include work at Hinkley
Point and some large projects at Sellafield.
The N&I order book at 1 November was GBP151m (1 June 2022:
GBP136m) of which 52 per cent represents transport infrastructure
(1 June 2022: 65 per cent) and 46 per cent represents nuclear
projects (1 June 2022: 32 per cent). Notable awards in the period
include a large secondary steelwork package at Hinkley Point and
some new bridge awards reflecting investment in infrastructure by
Highways England and Network Rail.
As a key component of economic growth, the construction industry
will be central to a sustainable economic recovery. New, low carbon
infrastructure (including HS2, wind power, new nuclear, rail
electrification, energy efficient buildings) will play a leading
role in stimulating sustainable growth. The UK government's
National Infrastructure Strategy ('NIS') sets out its plans to
transform infrastructure to drive economic recovery, levelling up
and meeting the UK's net zero emissions target by 2050. The funding
of GBP650 billion for developments in roads, railways, power
networks and other UK infrastructure projects, represents an
increase of around GBP100 billion from the previous plan. Included
within the NIS are increased budgets for some of the Group's key
customers such as Network Rail, including a significant amount of
rail electrification work and Highways England, including the
second Road Investment Strategy. We have already secured some
significant road and rail bridge awards, new nuclear and rail
electrification work and we continue to make good progress with
several other similar opportunities in the pipeline. In general, we
remain well-positioned to win work in the transport sector given
the Group's historical track record and our in-house infrastructure
capabilities.
Looking further ahead, the UK government's Energy Security
Strategy pledges a new generation of nuclear power (under the
banner of 'Great British Nuclear') as well as offshore wind
generation, together with several other new energy supply
initiatives, to reduce reliance on foreign energy supply. The
combination of the in-house nuclear expertise, together the Group's
unmatched scale and capability to deliver major infrastructure
projects, leaves us well-positioned to win work from such projects
in the future.
Products and Processing
The Products and Processing ('P&P') division consists of the
growing modular product ranges of Severfield (Products &
Processing) ('SPP') based in Sherburn and of Construction Metal
Forming ('CMF'), our cold rolled steel joint venture business based
in Wales. We continue to be the only hot rolled steel fabricator in
the UK to have a cold rolled manufacturing capability.
In SPP we have maintained our focus on growing our 'Severstor'
modular product range and 'Rotoflo' products, both of which attract
higher margins. For Severstor, we are already making significant
progress in growing our client base and have secured repeat orders
from several blue-chip clients as well as continuing to develop our
pipeline of opportunities. For Rotoflo, we have continued to
develop the overseas footprint of the business, aided by our new
sales manager in India, and have secured some new orders from the
Indian paint industry, where we see some other potentially
interesting opportunities. SPP has already been awarded 'Fit for
Nuclear' and certain Network Rail accreditations which, together
with an expanding client base and our previous record in modular
construction, we believe will help us to achieve our future growth
aspirations for the business.
CMF has continued to develop its product range which now
includes load bearing frame and deck profiles, purlins and side
rail systems to service a cold formed steel market which has grown
significantly in recent years through the increased use of steel in
off-site and modular construction. The business's new manufacturing
facility in South Wales is now complete and the expanded capacity
is expected to be operational in H2. This will allow CMF to serve
an external client base and ensure that its market share is
maintained and increased in line with market growth.
Inflation and supply chain
Inflationary pressures and supply issues for both us and our
clients have continued to present challenges throughout the period.
Rising steel prices, supply constraints on certain materials and
increased energy and labour costs have continued to drive upward
pressure on total build costs, which in turn is placing increased
strain on the supply chain. This is expected to continue through
the second half and beyond. For existing projects, any additional
costs have generally been offset by a combination of contractual
protection, operating efficiencies, higher selling prices and by
forward purchasing, leveraging the Group's scale and supply chain
and sub-contract management strengths. For steel, we also benefit
from relationships with supply chain partners in the UK and
continental Europe, reducing the risk of interruptions to the
Group's steel supply.
Business improvement
During the period, the Group launched Project Horizon, our new
digitisation project. The objective is to maximise the automation
of our estimating, design, production and contract delivery
processes to improve customer service and increase efficiency.
Workflows include a series of projects and initiatives designed to
modernise and further standardise processes and systems across the
Group. The project is a long-term initiative that we believe will
shape our future as we develop and enhance our systems, to ensure
we remain at the forefront of technology and innovation as market
leaders in the industry. During the period, as part of Project
Horizon, we continued to make good progress with our innovative
approach to drawing and design, including the automation of
repetitive tasks and the optimisation of engineering software,
which is now being used on an increasing number of construction
projects across the Group.
From an operational improvement perspective, initiatives worked
on during the period included the continued expansion and
automation of our fabrication capability and the ongoing
improvements to real-time factory information at our main centre in
Dalton. This included 'right first time' initiatives to improve
overall quality including the targeted reduction of factory and
site NCRs (rework items) and drawing office errors, together with
ongoing roll out of mobile devices to capture information at the
point of use and to provide live information to both operatives and
management.
India
JSSL is continuing to ramp up its Bellary facility towards its
maximum capacity of c.100,000 tonnes, with total output for 2023
including sub-contracted work likely to exceed 100,000 tonnes. This
increased activity is evident in the Group's higher after-tax share
of profit of GBP0.6m (H1 2022: GBP0.3m). The improved performance
reflects an increase in revenue of 70 per cent to GBP70.3m (H1
2022: GBP41.2m) and an unchanged operating margin of 5.6 per cent
(H1 2022: 5.6 per cent), mainly reflecting increased steel prices
which have been successfully passed through to clients at zero
margin. Financing expenses of GBP2.5m (H1 2022: GBP1.6m) are higher
than the previous period, reflecting an increase in borrowings and
in the cost of letters of credit which are linked to higher steel
prices. These higher financing costs result in JSSL's operating
profit of GBP3.9m (H1 2022: GBP2.3m) reducing to a profit before
tax of GBP1.4m (H1 2022: GBP0.7m).
Notwithstanding current inflationary pressures, JSSL has
continued to win new work, resulting in a strong order book of
GBP143m at 1 November 2022 (1 June 2022: GBP158m). In terms of mix,
36 per cent of the order book represents higher margin commercial
work, with the remaining 64 per cent representing industrial
projects (1 June 2022: commercial work of 37 per cent, industrial
work of 63 per cent). The current higher level of industrial work
is consistent with the ongoing fluctuations in the timing and mix
of industrial and commercial work in a growing order book.
The company's strong order book, together with an improving
pipeline of potential orders, reflects a continuing strong demand
for structural steel in India. All this leaves the business very
well-positioned to take advantage of an economy which is expected
to grow significantly in the medium term which, together with the
ongoing conversion of the market from concrete to steel, will drive
the success and long term value of the business.
In conjunction with our joint venture partner, we are close to
selecting another plot of land to facilitate the future expansion
of the business. This land purchase, which should be completed in
H2, will allow the business to expand its geographical footprint
whilst providing it with the platform to build quickly and add the
necessary volume to support the expected future market growth. We
remain excited about the long-term trajectory of the market and of
the value creation potential of JSSL.
ESG
In the UK and Europe, we have a prominent position in many
market sectors with strong growth potential and are well-positioned
to help accelerate the journey to net zero. This includes
infrastructure projects such as new nuclear, HS2 and rail
electrification, together with other projects in support of a
low-carbon economy such as battery plants, energy efficient
buildings and manufacturing facilities for renewable energy.
Our sustainability strategy outlines our commitment to reach net
zero for our scope 1 and 2 carbon emissions by 2040 and we have
begun implementing the actions required to achieve this objective.
We have already been accredited by the Carbon Trust as carbon
neutral for our manufacturing and construction operations and have
signed up to the United Nations 'Race to Zero' campaign, which
requires the establishment of a net zero target in line with a
1.5-degree world. We remain on schedule to submit this target for
validation by the Science-Based Target Initiative ('SBTi') by the
end of the 2023 financial year. From a social value perspective, we
have adopted the National TOMs - Themes, Outcomes and Measures -
methodology framework to focus our future commitments on all areas
of social value both internally and in partnership with our
clients.
The Group-wide 'MyVoice' forums recognise the importance of
input from our people in helping us deliver on our strategic
ambitions. Our regular schedule of meetings has continued during
the period, which provide valuable, ongoing insights and feedback
for the board. During the period, the Group further bolstered its
commitment to young people, recruiting a record number of UK
apprentices, across a range of disciplines and becoming a gold
member of The 5% Club, demonstrating our commitment to 'earning and
learning'. This will help improve the innovative thinking and fresh
ideas required to sustain the industry and the Group into the
future.
SUMMARY AND OUTLOOK
In the first six months of 2023, the Group has delivered a
strong financial performance whilst managing ongoing inflationary
pressures. We have increased revenues and profits in the UK and
India, our order books are substantial and of high quality, and our
balance sheet remains healthy, allowing us to operate effectively
and efficiently and to continue making the right long-term
decisions for the business. The Group's businesses are
well-positioned in markets with excellent opportunities,
underpinned by our new, simplified divisional structure, providing
us with a better platform to fulfil our strategic growth
aspirations.
We remain mindful of the macro-economic backdrop, including
ongoing inflationary pressures. However, given the Group's
performance to date and the current visibility of future workload
for delivery in the second half of the year, we are confident of
delivering further progress and a full year performance which is in
line with our previous expectations.
Alan Dunsmore
Chief Executive Officer
22 November 2022
Condensed consolidated interim financial information
Consolidated income statement
Six months ended Six months ended Year ended
24 September 2022 (unaudited) 25 September 2021 (unaudited) 26 March 2022 (audited)
Non-underlying Non-underlying Non-underlying
Underlying GBP000 Total Underlying GBP000 Total UnderlyingGBP000 GBP000 Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 234,869 - 234,869 195,890 - 195,890 403 ,563 - 403,563
Operating
costs (222,741) (1,669) (224,410) (185,710) (2,025) (187,735) (376,682) (5,424) (382,106)
----------- -------------- --------- ----------- -------------- --------- ----------------- -------------- ---------
Operating
profit
before
share of
results of
JVs and
associates 12,128 (1,669) 10,459 10,180 (2,025) 8,155 26,881 (5,424) 21,457
Share of
results of
JVs and
associates 1,039 - 1,039 581 - 581 1,346 - 1,346
Operating
profit 13,167 (1,669) 11,498 10,761 (2,025) 8,736 28,227 (5,424) 22,803
Net finance
expense (1,029) (289) (1,318) (479) (338) (817) (1,129) (674) (1,803)
----------- -------------- --------- ----------- -------------- --------- ----------------- -------------- ---------
Profit
before tax 12,138 (1,958) 10,180 10,282 (2,363) 7,919 27,098 (6,098) 21,000
Taxation (2,090) 416 (1,674) (1,939) (809) (2,748) (4,795) (604) (5,399)
----------- -------------- --------- ----------- -------------- --------- ----------------- -------------- ---------
Profit for
the period 10,048 (1,542) 8,506 8,343 (3,172) 5,171 22,303 (6,702) 15,601
=========== ============== ========= =========== ============== ========= ================= ============== =========
Earnings
per share:
Basic 3.25p (0.50)p 2.75p 2.71p (1.03)p 1.68p 7.22p (2.17)p 5.05p
Diluted 3.21p (0.49)p 2.72p 2.69p (1.02)p 1.67p 7.19p (2.16)p 5.03p
Further details of non-underlying items are disclosed in note 7
to the condensed consolidated financial statements.
Consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
24 September 25 September 26 March 2022
2022 2021
(unaudited) (unaudited) (audited)
GBP000 GBP000 GBP000
Actuarial gain on defined
benefit pension scheme* 4,787 1,030 5,938
Losses taken to equity
on cash flow hedges (1,364) (177) (22)
Reclassification adjustments
on cash flow hedges 207 14 13
Exchange difference on
foreign operations (96) 1 40
Tax relating to components
of other comprehensive
income* (1,195) (258) (1,184)
Other comprehensive
income
for the period 2,339 610 4,785
Profit for the period
from continuing operations 8,506 5,171 15,601
-------------- ------------- --------------
Total comprehensive
income for the period
attributable to equity
shareholders of the parent 10,845 5,781 20,386
============== ============= ==============
* These items will not be subsequently reclassified to the
consolidated income statement.
Consolidated balance sheet
At At At
24 September 25 September 26 March 2022
2022 2021
(unaudited) (unaudited) (audited)
GBP000 GBP000 GBP000
ASSETS
Non-current assets
Goodwill 82,188 85,390 82,188
Other intangible assets 8,713 7,610 10,343
Property, plant and equipment 90,297 92,401 91,436
Right-of-use asset 10,724 9,994 11,070
Interests in JVs and associates 31,175 29,371 30,136
Contract assets, trade and
other receivables 5,656 4,282 4,881
228,753 229,048 230,054
-------------- ------------- --------------
Current assets
Inventories 17,589 9,102 18,005
Contract assets, trade and
other receivables 118,274 88,112 117,859
Current tax asset 1,045 177 4,171
Derivative financial instruments - 679 670
Cash and cash equivalents - 11,045 -
136,908 109,115 140,705
-------------- ------------- --------------
Total assets 365,661 338,163 370,759
============== ============= ==============
LIABILITIES
Current liabilities
Cash and cash equivalents (2,769) - (3,974)
Trade and other payables (109,080) (87,413) (111,692)
Financial liabilities -
borrowings (7,375) (5,900) (5,900)
Financial liabilities -
leases (1,576) (1,531) (1,756)
Derivative financial instruments (281) - -
(121,081) (94,844) (123,322)
-------------- ------------- --------------
Non-current liabilities
Trade and other payables (2,315) (4,009) (3,081)
Retirement benefit obligations (8,499) (20,366) (14,396)
Financial liabilities -
borrowings (6,000) (11,900) (8,950)
Financial liabilities -
leases (9,587) (9,321) (9,884)
Deferred tax liabilities (7,921) (5,225) (7,166)
(34,322) (50,821) (43,477)
-------------- ------------- --------------
Total liabilities (155,403) (145,665) (166,799)
-------------- ------------- --------------
NET ASSETS 210,258 192,498 203,960
============== ============= ==============
EQUITY
Share capital 7,738 7,725 7,738
Share premium 88,518 88,167 88,511
Other reserves 4,542 4,090 4,485
Retained earnings 109,460 92,516 103,226
-------------- ------------- --------------
TOTAL EQUITY 210,258 192,498 203,960
============== ============= ==============
Consolidated statement of changes in equity
Share Share Other Retained Total
Capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 26 March 2022 7,738 88,511 4,485 103,226 203,960
Total comprehensive income
for the period - - (1,253) 12,098 10,845
Ordinary shares issued* - 7 - - 7
Equity settled share-based
payments - - 1,310 - 1,310
Dividend provided for
or paid ** - - - (5,864) (5,864)
At 24 September 2022
(unaudited) 7,738 88,518 4,542 109,460 210,258
========= ========= ========== ========== ========
*The issue of shares represents shares allotted for the 2018
Sharesave scheme.
**The 2022 final dividend of GBP5.9m was paid to shareholders on
14 October 2022.
Share Share Other Retained Total
Capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 28 March 2021 7,706 87,658 3,464 92,101 190,929
Total comprehensive income
for the period - - (163) 5,944 5,781
Ordinary shares issued* 19 509 - - 528
Equity settled share-based
payments - - 789 - 789
Dividend provided for
or paid - - - (5,529) (5,529)
At 25 September 2021
(unaudited) 7,725 88,167 4,090 92,516 192,498
========= ========= ========== ========== ========
*The issue of shares represents shares allotted for the 2018 and
2020 Sharesave schemes.
Share Share Other Retained Total
Capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 28 March 2021 7,706 87,658 3,464 92,101 190,929
Total comprehensive income
for the year - - 32 20,354 20,386
Ordinary shares issued
* 32 853 - - 885
Equity settled share-based
payments - - 989 - 989
Dividend provided for
or paid - - - (9,229) (9,229)
At 26 March 2022 7,738 88,511 4,485 103,226 203,960
========= ========= ========== ========== ========
*The issue of shares represents shares allotted for the 2018 and
2020 Sharesave schemes.
Consolidated cash flow statement
Six months Six months Year
ended ended
24 September 25 September ended
2022 2021
(unaudited) (unaudited) 26 March
GBP000 GBP000 2022
(audited)
GBP000
Net cash flow from operating
activities 13,292 (367) (5,685)
Cash flows from investing activities
Proceeds on disposal of property,
plant and equipment 468 185 376
Purchases of land and buildings - (2,098) (2,759)
Purchases of other property, plant
and equipment (1,999) (1,310) (2,507)
Purchases of intangible assets (68) (125) (124)
Investment in subsidiary entity,
net of cash acquired (7,000) (526) (526)
Net cash used in investing activities (8,599) (3,874) (5,540)
-------------- ------------- ----------
Cash flows from financing activities
Interest paid (975) (537) (1,056)
Dividends paid - (5,529) (9,229)
Proceeds from shares issued 7 528 885
Repayment of borrowings (1,475) (2,950) (5,900)
Repayment of lease liabilities (1,045) (1,209) (2,432)
Net cash used in financing activities (3,488) (9,697) (17,732)
-------------- ------------- ----------
Net increase/(decrease) in cash
and cash equivalents 1,205 (13,938) (28,957)
Cash and cash equivalents at
beginning
of period (3,974) 24,983 24,983
-------------- ------------- ----------
Cash and cash equivalents at
end of period (2,769) 11,045 (3,974)
============== ============= ==========
Notes to the condensed consolidated interim financial
information
1) General information
Severfield plc ('the Company') is a company incorporated and
domiciled in the UK. The address of its registered office is Severs
House, Dalton Airfield Industrial Estate, Dalton, Thirsk, North
Yorkshire, YO7 3JN. The Company is listed on the London Stock
Exchange.
The condensed consolidated interim financial information does
not constitute the statutory financial statements of the Group
within the meaning of section 435 of the Companies Act 2006. The
statutory financial statements for the year ended 26 March 2022
were approved by the board of directors on 15 June 2022 and have
been delivered to the registrar of companies. The report of the
auditors on those financial statements was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain any statement under section 498 of the Companies Act
2006.
The condensed consolidated interim financial information for the
six months ended 24 September 2022 has been reviewed, not audited,
and was approved for issue by the board of directors on 21 November
2022.
2) Basis of preparation
The condensed consolidated interim financial information for the
six months ended 24 September 2022 has been prepared in accordance
with IAS 34 'Interim Financial Reporting' as adopted for use in the
UK. As required by the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority, the condensed consolidated
interim financial information has been prepared applying the
accounting policies and presentation that were applied in the
preparation of the statutory financial statements for year ended 26
March 2022, which were prepared in accordance with International
Financial Reporting Standards ('IFRS'). The condensed consolidated
interim financial information has also been prepared in accordance
with UK-adopted financial reporting standards.
Going concern
Net debt (pre-IFRS 16 basis) at 24 September 2022 was GBP15.8m,
representing an overdraft of GBP2.5m and the outstanding term loans
of GBP13.3m. The Group has a GBP50m revolving credit facility
('RCF') with HSBC and Virgin Money that matures in December 2026.
The RCF, of which GBP15m is available as an overdraft facility,
includes an additional accordion facility of GBP35m, which allows
the Group to increase the aggregate available borrowings to GBP50m.
Throughout the period, the Group has maintained significant amounts
of headroom in its financing facilities and associated
covenants.
The directors have reviewed the Group's forecasts and
projections for the remainder of the 2023 financial year and up to
12 months from the date of approval of the interim financial
statements, including sensitivity analysis to assess the Group's
resilience to potential adverse outcomes including a highly
pessimistic 'worst case' scenario. This 'worst case' is based on
the combined impact of securing no further orders, some contract
deteriorations and further significant inflationary pressures for
the entirety of the going concern period. Given the strong previous
performance of the Group, this scenario is only being modelled to
stress test our strong financial position and demonstrate the
existence of considerable headroom in the Group's covenants and
borrowing facilities.
Having also made appropriate enquiries, the directors consider
it reasonable to assume that the Group has adequate resources to be
able to operate within the terms and conditions of its financing
facilities for at least 12 months from the approval of the
condensed Group financial statements. For this reason, the
directors continue to adopt the going concern basis in preparing
the condensed consolidated interim financial information.
3) Accounting policies
Except as described below, the accounting policies applied in
preparing the condensed consolidated interim financial information
are consistent with those used in preparing the statutory financial
statements for the year ended 26 March 2022.
Taxes on profits in interim periods are accrued using the tax
rate that will be applicable to expected total annual profits.
New and amended standards and interpretations need to be adopted
in the first interim financial statements issued after their
effective date (or date of early adoption).
There are no new IFRSs and IFRICs that are effective for the
first time for the six months ended 24 September 2022 which have a
material impact on the Group.
4) Risks and uncertainties
The principal risks and uncertainties which could have a
material impact upon the Group's performance over the remaining six
months of the year ending 25 March 2023, other than as disclosed
below, have not changed from those disclosed on pages 86 to 98 of
the strategic report included in the annual report for the year
ended 26 March 2022. The annual report is available on the
Company's website www.severfield.com. These risks and uncertainties
include, but are not limited to:
-- Health and safety
-- Supply chain
-- People
-- Commercial and market environment
-- Mispricing a contract (at tender)
-- Cyber security
-- Failure to mitigate onerous contract terms
-- Indian joint venture
-- Sustainability (ESG)
The preparation of the condensed consolidated interim financial
information under IFRS requires management to make judgements,
assumptions and estimates that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expense. Assumptions and estimates are reviewed on an ongoing
basis and any revisions to them are recognised in the period in
which they are revised. The Group's critical accounting judgements
and estimates have not changed significantly from those disclosed
on page 177 of the annual report for the year ended 26 March
2022.
Revenue and profit recognition
Recognition of revenue and profit is based on judgements made in
respect of the ultimate profitability of a contract. Such
judgements are arrived at through the use of estimates in relation
to the costs and value of work performed to date and to be
performed in bringing contracts to completion. These estimates are
made by reference to recovery of pre-contract costs, surveys of
progress against the construction programme, changes in design and
work scope, the contractual terms and site conditions under which
the work is being performed, delays, costs incurred, claims
received by the Group, external certification of the work performed
and the recoverability of any unagreed income from claims and
variations.
Management continually reviews the estimated final outturn on
contracts and makes adjustments where necessary. Based on the
above, management believes it is reasonably possible, on the basis
of existing knowledge, that outcomes within the next financial year
that are different from these assumptions could require a material
adjustment. However, due to the level of uncertainty, combination
of cost and income variables and timing across a large portfolio of
contracts at different stages of their contract life, it is
impracticable to provide a quantitative analysis of the aggregated
judgements that are applied at a portfolio level.
Within this portfolio, there are a limited number of long-term
contracts where the Group has incorporated significant judgements
over revenue and profit, which have been recognised at a level that
is considered highly probable not to significantly reverse.
However, there are a host of factors affecting potential outcomes
in respect of these entitlements which could result in a range of
reasonably possible outcomes on these contracts in the following
financial year, ranging from a gain of GBP16,000,000 to a loss of
GBP5,000,000. Management has assessed the range of reasonably
possible outcomes on these limited number of contracts based on
facts and circumstances that were present and known at the balance
sheet date. As with any contract applying long-term contract
accounting, these contracts are also affected by a variety of
uncertainties that depend on future events, and so often need to be
revised as contracts progress.
The Group has appropriate internal control procedures over the
determination of each of the above variables to ensure that profit
recognised as at the balance sheet date and the extent of future
costs to contract completion are reasonably and consistently
determined and subject to appropriate review and authorisation.
At the balance sheet date, amounts due from construction
contract customers, included in contract assets, trade and other
receivables was GBP69,530,000 (26 March 2022: GBP74,898,000).
5) Segmental analysis
In accordance with IFRS 8, the Group has identified its
operating segments with reference to the information regularly
reviewed by the executive committee (the chief operating decision
maker ('CODM')) to assess performance and allocate resources. On
this basis the CODM has identified one operating segment
(construction contracts) which in turn is the only reportable
segment of the Group.
The constituent operating businesses have been aggregated as
they have businesses with similar products and services, production
processes, types of customers, methods of distribution, regulatory
environments, and economic characteristics. Given that only one
operating and reporting segment exists, the remaining disclosure
requirements of IFRS 8 are provided within the consolidated income
statement and balance sheet.
With effect from 1 April 2022, the Group is being streamlined
into three market-focused divisions namely, the Commercial and
Industrial division (mainly focusing on private sector clients),
the Nuclear and Infrastructure division (mainly supporting public
sector projects), and the Products and Processing division
(including our growing modular and cold rolled steel product
ranges). Notwithstanding this, there has been no change in the
basis of segmentation or in the basis of measurement of segment
profit or loss in the period as the information regularly reviewed
by the CODM (one reportable segment) is in the process of being
updated to enable the Group to report additional operating segments
(if required) under the new divisional structure. This exercise
will be completed in the second half of 2023 and, if required,
updated segmental information will be reported in the annual report
for the year-ending 25 March 2023.
6) Seasonality
There are no seasonal variations which impact the split of
revenue between the first and second half of the financial year.
Underlying movements in contract timing and phasing, which are an
ongoing feature of the business, will continue to drive moderate
fluctuations in half yearly revenues.
7) Non-underlying items
At At At
24 September 25 September 26 March
2022 2021 2022
GBP000 GBP000 GBP000
Operating costs (1,669) (2,025) (5,424)
Finance expense (289) (338) (674)
------------- -------------
Non-underlying items before
tax (1,958) (2,363) (6,098)
Tax on non-underlying items 416 (809) (604)
------------- ------------- ---------
Non-underlying items after
tax (1,542) (3,172) (6,702)
============= ============= =========
At At At
24 September 25 September 26 March
Non-underlying items before 2022 2021 2022
tax consist of: GBP000 GBP000 GBP000
Amortisation of acquired intangible
assets (1,669) (2,025) (5,191)
Unwinding of discount on deferred
and contingent consideration (289) (338) (674)
Other exceptional costs - - (233)
Non-underlying items before
tax (1,958) (2,363) (6,098)
============= ============= =========
Amortisation of acquired intangible assets represents the
amortisation of customer relationships, order books and brand name,
which were identified on the acquisition of Harry Peers and DAM
Structures.
Non-underlying items have been separately identified to provide
a better indication of the Group's underlying business performance.
The board believe that non-underlying items should be separately
identified on the face of the income statement to assist in
understand the underlying performance of the Group. Their separate
identification results in the calculation of an underlying profit
measure which is the same as that presented and reviewed by
management. Accordingly, certain alternative performance measures
('APMs') have been used throughout this annual report to supplement
rather than replace the measure provided under IFRS, see note
18.
8) Taxation
The corporation tax expense reflects the estimated underlying
effective tax rate of 19 per cent on profit before taxation for the
Group for the year ending 25 March 2023.
9) Dividends
Six months Six months ended Year
ended 25 September 2021 ended
24 September GBP000 26 March 2022
2022 GBP000
GBP000
2021 final - 1.8p per share - (5,529) (5,529)
2022 interim - 1.2p per share - - (3,700)
2022 final - 1.9p per share (5,864) - -
(5,864) (5,529) (9,229)
============== =================== ===============
The 2022 final dividend of GBP5,864,000 was paid to shareholders
on 14 October 2022.
The directors have declared an interim dividend in respect of
the six months ended 24 September 2022 of 1.3p per share (H1 2022:
1.2p per share) which will amount to an estimated dividend payment
of GBP4,000,000 (H1 2022: GBP3,700,000). This dividend is not
reflected in the balance sheet as it was declared and will be paid
after the balance sheet date, on 3 February to shareholders on the
register at the close of business on 6 January.
10) Earnings per share
Earnings per share is calculated as follows:
Six months Six months Year
ended ended ended
24 September 25 September 26 March
2022 2021 2022
GBP000 GBP000 GBP000
Earnings for the purposes
of basic earnings per share
being net profit attributable
to equity holders of the parent
company 8,506 5,171 15,601
-------------- -------------- ----------------
Earnings for the purposes
of underlying basic earnings
per share being underlying
net profit attributable to
equity holders of the parent
company 10,048 8,343 22,303
-------------- -------------- ----------------
Number of shares Number Number Number
Weighted average number of
ordinary shares for the purposes
of basic earnings per share 309,532,076 308,287,952 308,834,123
Effect of dilutive potential
ordinary shares and under
share plans 3,313,744 2,109,620 1,335,323
Weighted average number of
ordinary shares for the purposes
of diluted earnings per share 312,845,820 310,397,572 310,169,446
============== ============== ================
Basic earnings per share 2.75p 1.68p 5.05p
Underlying basic earnings
per share 3.25p 2.71p 7.22p
Diluted earnings per share 2.72p 1.67p 5.03p
Underlying diluted earnings
per share 3.21p 2.69p 7.19p
11) Property, plant and equipment
During the period, the Group acquired land and buildings of
GBPnil (H1 2022: GBP2,098,000) and other property, plant and
equipment of GBP1,999,000 (H1 2022: GBP1,310,000). The Group also
disposed of other property, plant and equipment for GBP468,000 (H1
2022: GBP185,000) resulting in a gain on disposal of GBP17,000 (H1
2022: loss of GBP2,000).
12) Intangible assets
During the period, the Group capitalised software-related costs
of GBP68,000. In the prior period, the Group acquired intangible
assets of GBP125,000, relating to product licences.
13) Net debt
At At At
24 September 25 September 26 March
2022 2021 2022
GBP000 GBP000 GBP000
Borrowings (13,375) (17,800) (14,850)
Cash and cash equivalents (2,769) 11,045 (3,974)
Unamortised debt arrangement
costs 364 103 402
Net debt (pre-IFRS 16) (15,780) (6,652) (18,422)
------------- ------------- ---------
IFRS 16 lease liabilities (11,163) (10,852) (11,640)
------------- ------------- ---------
Net debt (post-IFRS 16) (26,943) (17,504) (30,062)
============= ============= =========
The Group excludes IFRS 16 lease liabilities from its measure of
net debt as they are excluded from the definition of net debt as
set out in the Group's borrowing facilities.
14) Fair value disclosures
Financial instruments consist of borrowings, cash, items that
arise directly from its operations and derivative financial
instruments. Cash and cash equivalents, trade and other receivables
and trade and other payables generally have short terms to
maturity. For this reason, their carrying values approximate to
their fair values. Borrowings relate to amounts drawn down against
the revolving credit facility and amounts outstanding under the
term loan, the carrying amounts of which approximate to their fair
values by virtue of being floating rate instruments.
Derivative financial instruments and contingent consideration
(reported in trade and other payables) are the only instruments
valued at fair value through profit or loss and are valued as such
on initial recognition. These are foreign currency forward
contracts measured using quoted forward exchange rates and yield
curves matching the maturities of the contracts. These derivative
financial instruments are categorised as level 2 financial
instruments, which are financial assets and liabilities that do not
have regular market pricing, but whose fair value can be determined
based on other data values or market prices.
The fair values of the Group's derivative financial instruments
which are marked-to-market and recorded in the balance sheet were
as follows:
At At At
24 September 25 September 26 March
2022 2021 2022
GBP000 GBP000 GBP000
(Liabilities)/assets
Foreign exchange contracts (281) 679 670
============= ============= =========
15) Net cash flow from operating activities
Six months Six months Year
ended ended ended
24 September 25 September 26 March
2022 2021 2022
GBP000 GBP000 GBP000
Operating profit from continuing
operations 11,498 8,736 22,803
Adjustments:
Depreciation of property,
plant and equipment 2,687 2,550 5,163
Right-of-use asset depreciation 914 765 1,702
(Gain)/loss on disposal of
other property, plant
and equipment (17) 2 (11)
Amortisation of intangible
assets 1,698 2,032 5,369
Movements in pension scheme
liabilities (1,109) (983) (2,045)
Share of results of JVs and
associates (1,039) (581) (1,346)
Share-based payments 1,310 789 989
Operating cash flows before
movements in working capital 15,942 13,310 32,624
Decrease/(increase) in inventories 416 1,196 (7,774)
Decrease/(increase) in receivables 1,666 (16,864) (50,533)
(Decrease)/increase in payables (2,887) 3,852 23,781
Cash generated from operations 15,137 1,494 (1,902)
Tax paid (1,845) (1,861) (3,783)
-------------- -------------- ----------
Net cash flow from operating
activities 13,292 (367) (5,685)
============== ============== ==========
Cash and cash equivalents (which are presented as a single class
of assets on the face of the balance sheet) comprise cash at bank
and demand deposits and other short-term highly liquid investments
with a maturity of three months or less at inception.
16) Related party transactions
There have been no changes in the nature of related party
transactions as described in note 31 on page 203 of the annual
report for year ended 26 March 2022 and there have been no new
related party transactions which have had a material effect on the
financial position or performance of the Group in the six months
ended 24 September 2022, except as stated below.
During the period, the Group provided services in the ordinary
course of business to its Indian joint venture, JSW Severfield
Structures ('JSSL') and in the ordinary course of business
contracted with and purchased services from its UK joint venture,
Construction Metal Forming Limited ('CMF'). The Group's share of
the retained profit in JVs and associates of GBP1,039,000 (H1 2022:
GBP581,000) for the period reflects a profit from JSSL of
GBP586,000 (H1 2022: GBP275,000) and a profit from CMF of
GBP453,000 (H1 2022: GBP306,000).
The Group incurred additional operating costs in relation to the
day-to-day running of its Indian joint venture ('JSSL') of
GBP130,000 (H1 2022: GBP133,000). Those costs were recharged to
JSSL during the period and the amount due from JSSL at 24 September
2022 was GBP699,000 (26 March 2022: GBP575,000). The amount due to
JSSL at 24 September 2022 was GBP30,000 (26 March 2022:
GBPnil).
During the period, the Group has contracted with and purchased
services from CMF amounting to sales of GBPnil (H1 2022: GBP81,000)
and purchases of GBP4,774,000 (H1 2022: GBP6,973,000). The amounts
due from and to CMF at 24 September 2022 was GBP1,360,000 (26 March
2022: GBP1,545,000) and GBP3,449,000 (26 March 2022: GBP106,000)
respectively.
During the period, the Group contracted with and purchased
services from MET Structures, amounting to sales of GBP6,701,000
(H1 2022: GBP7,570,000) and purchases of GBPnil (H1 2022:
GBP1,450,000). The amount due from MET Structures at 24 September
2022 was GBP3,568,000 (26 March 2022: GBP2,890,000). MET Structures
shares common directors with the Group.
17) Contingent liabilities
Liabilities have been recorded for the directors' best estimate
of uncertain contract positions, known legal claims, investigations
and legal actions in progress. The Group takes legal advice as to
the likelihood of success of claims and actions and no liability is
recorded where the directors consider, based on that advice, that
the action is unlikely to succeed, or that the Group cannot make a
sufficiently reliable estimate of the potential obligation. The
Group also has contingent liabilities in respect of other issues
that may have occurred, but where no legal or contractual claim has
been made and it is not possible to reliably estimate the potential
obligation.
The Company and its subsidiaries have provided unlimited
multilateral guarantees to secure any bank overdrafts and loans of
all other Group companies. At 24 September 2022 this amounted to
GBP35,000,000 (26 March 2022: GBP35,000,000). The Group has also
given performance bonds in the normal course of trade.
18) Alternative performance measures
Our alternative performance measures ('APM's) present useful
information which supplements the financial statements. These
measures are not defined under IFRS and may not be directly
comparable with APMs for other companies. The APMs represent
important measures for how management monitors the Group and its
underlying business performance. In addition, APMs enhance the
comparability of information between reporting periods by adjusting
for non-underlying items. The APMs are not intended to be a
substitute for, or superior to, any IFRS measures of
performance.
In order to facilitate understanding of the APMs used by the
Group, and their relationship to reported IFRS measures,
definitions and numerical reconciliations are set out below.
Alternative Definition Rationale
performance
measure ('APM')
Underlying Operating profit before Profit measure reflecting
operating profit non-underlying items and underlying trading
(before JVs the results of JVs and performance of wholly
and associates) associates. owned subsidiaries.
----------------------------------- ------------------------------------
Underlying Profit before tax before Profit measure widely
profit before non-underlying items. used by investors and
tax analysts.
----------------------------------- ------------------------------------
Underlying Underlying profit after Underlying EPS reflects
basic earnings tax divided by the weighted the Group's operational
per share ('EPS') average number of shares performance per ordinary
in issue during the year. share outstanding.
----------------------------------- ------------------------------------
Net funds / Balance drawn down on Measure of the Group's
(debt) (pre-IFRS the Group's revolving cash indebtedness before
16) credit facility, with IFRS-16 lease liabilities,
unamortised debt arrangement which are excluded
costs added back, less from the definition
cash and cash equivalents of net funds / (debt)
(including bank overdrafts) in the Group's borrowing
before IFRS-16 lease liabilities. facilities. This measure
supports the assessment
of available liquidity
and cash flow generation
in the reporting period.
----------------------------------- ------------------------------------
Reconciliations to IFRS measures
Six months Six months Year
ended ended ended
24 September 25 September 26 March
2022 2021 2022
(unaudited) (unaudited) (audited)
Underlying operating profit GBP000 GBP000 GBP000
(before JVs and associates)
Underlying operating profit
(before JVs and associates) 12,128 10,180 26,881
Non-underlying operating items (1,669) (2,025) (5,424)
Share of results of JVs and
associates 1,039 581 1,346
--------------- -------------- -----------
Operating profit 11,498 8,736 22,803
=============== ============== ===========
Six months Six months Year
ended ended ended
24 September 25 September 26 March
2022 2021 2022
(unaudited) (unaudited) (audited)
Underlying profit before GBP000 GBP000 GBP000
tax
Underlying profit before tax 12,138 10,282 27,098
Non-underlying items (1,958) (2,363) (6,098)
--------------- -------------- -----------
Profit before tax 10,180 7,919 21,000
=============== ============== ===========
18) Alternative performance measures (continued)
Six months Six months Year
ended ended ended
24 September 25 September 26 March
2022 2021 2022
(unaudited) (unaudited) (audited)
Underlying basic earnings GBP000 GBP000 GBP000
per share
Underlying net profit attributable
to equity holders of the parent
Company 10,048 8,343 22,303
Non-underlying items after
tax (1,542) (3,172) (6,702)
--------------- -------------- ------------
Net profit attributable to
equity holders of the parent
Company 8,506 5,171 15,601
Weighted average number of
ordinary shares 309,532,076 308,287,952 308,834,123
Underlying basic earnings
per share 3.25p 2.71p 7.22p
--------------- -------------- ------------
Basic earnings per share 2.75p 1.68p 5.05p
=============== ============== ============
Six months Six months Year
ended ended ended
24 September 25 September 26 March
2022 2021 2022
(unaudited) (unaudited) (audited)
Net debt GBP000 GBP000 GBP000
Borrowings (13,375) (17,800) (14,850)
Cash and cash equivalents (2,769) 11,045 (3,974)
Unamortised debt arrangement
costs 364 103 402
--------------- -------------- ------------
Net debt (pre-IFRS 16) (15,780) (6,652) (18,422)
IFRS 16 lease liabilities (11,163) (10,852) (11,640)
--------------- -------------- ------------
Net debt (post-IFRS 16) (26,943) (17,504) (30,062)
=============== ============== ============
19) Cautionary statement
The Interim Management Report ('IMR') has been prepared solely
to provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. The IMR should not be relied on by any other party or for
any other purpose.
The IMR contains certain forward-looking statements. These
statements are made by the directors in good faith based on the
information available to them up to the time of their approval of
this report but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
20) Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the
condensed consolidated interim financial information has been
prepared in accordance with IAS 34 as adopted for use in the UK,
and that the interim report includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed consolidated interim financial information, and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- Material related party transactions that have occurred in the
first six months of the financial year and any material changes in
the related party transactions described in the last annual report
and financial statements.
The maintenance and integrity of the Severfield plc website is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
By order of the board
Alan Dunsmore Adam Semple
Chief Executive Chief Financial
Officer Officer
22 November 2022 22 November 2022
Independent review report to Severfield plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 24 September 2022 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and the
related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 24
September 2022 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the half-yearly financial
report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed
set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the basis of conclusion
section of this report, nothing has come to our attention that
causes us to believe that the directors have inappropriately
adopted the going concern basis of accounting, or that the
directors have identified material uncertainties relating to going
concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the Group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA. As disclosed in note 2, the annual financial
statements of the group are prepared in accordance with UK-adopted
financial reporting standards.
The directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 as adopted for use in the UK. In
preparing the condensed set of financial statements, the directors
are responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review. Our conclusion, including our
conclusions relating to going concern, are based on procedures that
are less extensive than audit procedures, as described in the basis
for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Craig Parkin
for and on behalf of KPMG LLP
Chartered Accountants
St Nicholas House
Park Row
Nottingham
NG1 6FQ
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IR EAXFFAFPAFFA
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