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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Severfield Plc | LSE:SFR | London | Ordinary Share | GB00B27YGJ97 | ORD 2.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.60 | -0.88% | 67.60 | 67.20 | 67.80 | 69.80 | 67.80 | 69.80 | 106,123 | 16:35:13 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Structural Steel Erection | 493.61M | 21.57M | 0.0697 | 9.73 | 209.87M |
From Apr 2019 to Apr 2024
TIDMSFR
RNS Number : 6744C
Severfield PLC
19 June 2019
19 June 2019
Results for the year ended 31 March 2019
Continued operational and strategic progress, further profit growth, UK and Europe order book of GBP295m, India order book of GBP134m
Severfield plc, the market leading structural steel group, announces its results for the 12 month period ended 31 March 2019.
Highlights
-- Revenue of GBP274.9m (2018: GBP274.2m) -- Underlying* profit before tax up 5% to GBP24.7m (2018: GBP23.5m) -- Underlying* basic earnings per share up 5% at 6.7p (2018: 6.4p)
-- Year-end net funds of GBP25.1m (2018: GBP33.0m) after payment of 2018 special dividend (GBP5.2m) and equity investment (GBP4.2m) in India to finance expansion of the Bellary factory
-- Total dividend increased by 8% to 2.8p per share (2018: 2.6p per share), includes proposed final dividend of 1.8p per share (2018: 1.7p per share)
-- Over 100 projects undertaken during the year in diverse market sectors including the new stadium for Tottenham Hotspur FC, the retractable roof for Wimbledon No.1 Court and a new commercial tower at 22 Bishopsgate
-- UK and Europe order book of GBP295m at 1 June 2019 (1 November 2018: GBP230m), including the first orders secured by our new European business
Hot Features
Premium
-- Share of profit from Indian joint venture ('JSSL') up 140% at GBP1.2m (2018: GBP0.5m)
-- Step change in Indian market position reflected in order book of GBP134m at 1 June 2019 (1 November 2018: GBP124m), expansion of the Bellary factory in progress
GBPm 12 months to 12 months to
31 March 2019 31 March 2018
Revenue 274.9 274.2
Underlying* operating profit
(before JVs and associates) 23.3 22.9
Underlying* operating margin
(before JVs and associates) 8.5% 8.3%
Operating profit (before JVs and
associates) 23.3 21.5
Underlying* profit before tax 24.7 23.5
Profit before tax 24.7 22.2
Underlying* basic earnings per
share 6.7p 6.4p
Basic earnings per share 6.7p 6.1p
* Underlying results are stated before non-underlying items of GBPnil (2018: GBP1.3m):
- Amortisation of acquired intangible assets - GBPnil (2018: GBP1.3m)
- The associated tax impact of the above, together with the impact of a reduction in future corporation tax rates on deferred tax liabilities - GBPnil (2018: GBP0.4m)
Alan Dunsmore, Chief Executive Officer commented:
'We are pleased to have delivered another year of good performance. Our UK and Europe order book of GBP295m contains a healthy mix of projects across a diverse range of sectors and we have made strategic progress in the UK, Europe and India.
There is now considerable positive momentum within the Group which, in combination with our cash generative nature and strong positions in our core markets, provides us with the platform for further operational and strategic progress. We remain on track to deliver on our strategic targets, including the doubling of underlying profit before tax to GBP26m by 2020 and we look forward to another positive year ahead.'
For further information, please contact:
Alan Dunsmore
Severfield Chief Executive Officer 01845 577 896
Adam Semple
Group Finance Director 01845 577 896
Jefferies International Simon Hardy 020 7029 8000
Will Soutar 020 7029 8000
Camarco Ginny Pulbrook 020 3757 4980
Tom Huddart 020 3757 4980
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.150,000 tonnes of steel per annum. The Group has four sites, c.1,200 employees and expertise in large, complex projects across a broad range of sectors. The Group also has an established presence in the developing Indian market through its joint venture partnership with JSW Steel (India's largest steel producer).
OPERATING REVIEW
Group overview
The Group has delivered a good set of results in 2019, with further profit growth in the UK assisted by strong project delivery and ongoing improvements in operational performance, together with improved profitable performance from our Indian joint venture.
In 2019, we have continued to grow our overall profitability with underlying profit before tax up five per cent to GBP24.7m (2018: GBP23.5m) against a particularly strong profit performance in the prior year, which included higher than normal profits from certain project completions in the first half of 2018. This improved profit performance has been achieved despite slightly softer market conditions in the UK.
Cash remains one of the main measures of our underlying financial performance and our year-end net funds of GBP25.1m (2018: GBP33.0m) reinforces our solid balance sheet and provides us with a competitive benefit with both clients and our supply chain. Our strong cash position has allowed us the flexibility to fund the 2018 special dividend and to continue to invest in our UK businesses and in India, where the expansion of the Bellary factory is now underway.
The Indian joint venture ('JSSL') has performed well in 2019. The market for structural steel in India continues to expand as evidenced in JSSL's order book of GBP134m (1 November 2018: GBP124m) and a growing pipeline of commercial and industrial opportunities, which will benefit the business in 2020 and beyond. JSSL's good operational performance, revenue growth and lower financing costs, following the repayment of the term debt, have resulted in a Group share of profit after tax of GBP1.2m (2018: GBP0.5m) which is now beginning to reflect the step change in the Indian market position.
We continue to exceed our return on capital employed ('ROCE') target of 10 per cent and have achieved a return of 15.7 per cent in the year (2018: 16.5 per cent), maintaining the Group's alignment with its construction and engineering clients and peers.
We have made good progress during the year towards our strategic targets, including the doubling of 2016 underlying profit before tax to GBP26m by 2020. Based on this progress, the board has recommended a final dividend of 1.8p per share, making a total for the year of 2.8p per share (2018: 2.6p per share), an eight per cent increase on the prior year.
UK and Europe
Revenue was broadly flat year-on-year, mainly as a result of the softer UK market conditions and some project delays, to both contracts within the order book and in the conversion of our pipeline of opportunities, which predominantly impacted volumes in the second half of 2019. During the year, we continued to work on three large projects in London, each of which had project revenues in excess of GBP20m. These comprised a new commercial tower at 22 Bishopsgate, the new stadium for Tottenham Hotspur FC and the retractable roof for Wimbledon No. 1 Court, all of which are either now complete or substantially complete.
The underlying operating margin (before JVs and associates) was 8.5 per cent (2018: 8.3 per cent) resulting in an underlying operating profit (before JVs and associates) of GBP23.3m (2018: GBP22.9m). Although underlying operating profit shows a moderate increase year-on-year, it was against a strong comparator in the prior year, which included higher than normal profits in the first half from certain project completions.
The UK margin performance continues to reflect better risk and contract management processes, which are now deeply embedded within the Group's methodologies, and improvements in our operational execution. This includes the benefits from our programme of projects categorised under the banner of 'Smarter, Safer, more Sustainable', which provides a framework for the ongoing improvements to our business and factory processes, use of technology and operating efficiencies.
'Smarter, Safer, more Sustainable'
Our 'SSS' initiatives continue to focus on improving many aspects of our internal operations. These include the application of Lean manufacturing techniques, further automation of factory processes and waste elimination initiatives, together with our engineering forum which is looking at new and innovative ways of working including the use of technology across a number of existing manual processes and enhanced BIM (3D) modelling.
During the year, we have continued to invest in research and development into advanced technologies (including virtual reality and digital technologies) to further improve efficiencies and client service. We have also now fully rolled out our new Group-wide production management system (StruMIS) which will help drive ongoing value through increased productivity coupled with greater transparency and assurance.
Following the improvements to our IT infrastructure and manufacturing processes over recent years, we are also continuing to take steps to better capture and utilise real-time data, to better inform decision-making and improve efficiencies both in our factories and on our construction sites. This will minimise time spent manually collating and processing data, freeing up resource to focus on project delivery and facilitating more streamlined ways of working.
In January 2018, we reorganised our factory operations in North Yorkshire to drive further operational improvements, resulting in the consolidation of steel fabrication at Dalton and Sherburn into the Dalton facility. This combined facility is now operating at scale and the reorganisation of our footprint has contributed to increased operational efficiencies which are benefitting the Group's profitability.
Underpinning our culture of continuous improvement is the ongoing focus on human resources and the training and development of our people and our priority is to recruit, train and retain the highest calibre of workforce. Throughout the year we have continued to strengthen our leadership at both executive committee and at business unit levels and we are in the process of refreshing our Group people strategy. We continue to work with industry bodies and have developed initiatives to encourage people into a career in construction. During 2019, the Group recruited a number of apprentices, graduates and trainees, another means of ensuring that we have all the desired skill bases available in the future.
In 2019, demonstrating our ongoing commitment to people development, we launched the second wave of the Severfield development programme, which focuses on emerging leaders who have the potential to move into senior positions. We have also continued to develop and support our people to apply Lean manufacturing techniques to develop new skills, achieve new qualifications and, as part of the 'Smarter, Safer, more Sustainable' initiative, continually improve our businesses and client offering.
Order book and market conditions
The order book of GBP295m at 1 June 2019 represents an increase of GBP65m from the position of GBP230m at the time of announcing the half year results and will generate higher production and therefore revenue in the second half of the 2020 financial year. Pleasingly, this increase in the order book has been achieved whilst maintaining our focus on contract selectivity to ensure that the Group wins work only at acceptable terms and conditions and with acceptable levels of risk.
The order book, of which GBP256m is for delivery over the next 12 months, continues to contain a high proportion of lower risk, regional projects with shorter lead times. In addition, our order book continues to include the new Google Headquarters, for which an order of GBP50m was secured in December 2017, and which will require us to provide over 15,000 tonnes of structural steelwork for an 11 storey head office building at Kings Cross. Work on this project commenced late in the 2019 financial year and is scheduled to be substantially completed in the 2020 financial year.
The order book contains a healthy mix of projects across a diverse range of sectors including commercial offices, industrial and distribution, data centres and transport infrastructure. In 2019, our teams have been successful in securing a number of projects in the regions including mid-sized commercial office developments in Manchester and Nottingham, together with several other office developments in London. Other significant orders secured in the year include a large project at Heathrow airport, a car park development at Manchester airport and two large data centres in Finland and the Republic of Ireland. We have also had success in continental Europe with our new European business and, accordingly, the order book now includes the first orders secured by the European team based in the Netherlands.
Overall, the UK market continues to appear largely stable, with modest economic growth forecast, however we have seen evidence of some UK investment decisions being delayed in some of our market sectors particularly in the second half of the year against a backdrop of a generally more cautious commercial investment climate. Pricing remains an important factor and we continue to see some tender margins tightening on projects that we are bidding in the UK where some spare fabrication capacity now exists in the market. The impact of these UK market conditions is being mitigated by the continued re-emergence of the market in the Republic of Ireland and certain other significant opportunities in continental Europe where we have demonstrated our ability to win more work, supported by our new European business.
In general, our pipeline of potential future orders remains stable with a good balance of work across all key market sectors. The market for data centres and the industrial and distribution sector continues to be strong, both in the UK and in Europe, and these projects play to our strengths, requiring high-quality, rapid throughput, on-time performance and full co-ordination between stakeholders.
Looking further ahead, we are now starting to see more bidding activity in the London commercial market, a trend which we expect to increase over the next few years. In addition, we continue to pursue a number of significant infrastructure opportunities, particularly in the transport sector, which are being driven by the UK government's investment in infrastructure commitment, which is targeted to increase over the next few years. This will include projects such as HS2 (both stations and bridges) and the expansion of Heathrow airport. In addition, we also see good opportunities from the government's ongoing Network Rail and Highways England investment programmes. The combination of the Group's historical track record in transport infrastructure, together with our in-house bridge operations, leaves us well positioned to win work from such projects, all of which have significant steelwork content.
The Group is working with industry bodies to identify and manage any challenges and opportunities which may result in the UK's exit from the European Union. Being a largely UK-centric business, no changes have been required to our operating model, however we continue to monitor the pace of conversion of our pipeline of opportunities and, amongst other things, the availability of materials from our suppliers. Whilst there remains a great deal of uncertainty as to what Brexit will mean for the construction industry, we are scenario-planning and working with our clients and others in the industry to ensure we are able to respond to any future changes in market conditions.
Clients - increasingly broad spread and diverse
We are known for our strong relationships with clients, working collaboratively with them, anticipating issues they face, providing problem-solving solutions and demonstrating our capability to deliver complex engineering solutions. Our management and integration of the construction process, our capacity and speed of fabrication, our engineering excellence and the expert capabilities of the Group and its employees has allowed us to improve project delivery times to meet and exceed the requirements of our clients.
We believe that working more closely with our clients provides the best outcomes and is critical to securing new work. We continue to work with a number of clients to use innovative and collaborative ways of contracting which have enabled risk and reward to be appropriately shared and to explore and develop cost effective solutions to overcome project challenges. These arrangements require early contract engagement with clients to ensure greater clarity around scope, programme and cost which, in combination, reduces delivery risk for all parties.
During the year, we have focused on developing new client relationships both in the UK and also in Europe, where we are gaining good traction with our new European business. We believe that a stronger and wider client base and market focus will allow us to target an increased pipeline of opportunities, providing us with extra resilience and the ability to increase our market share.
Our client base, which represents a broad range of sectors and regions, includes Balfour Beatty, BAM, Bowmer and Kirkland, Buckingham, Canary Wharf Contractors, Ferrovial Agroman, Fluor, Galliford Try, H.B. Reavis, Hitachi, ISG, John Graham, John Sisk, Kier, Laing O'Rourke, LendLease, Mace, Morgan Sindall, McLaren, McLaughlin & Harvey, Multiplex, Readie, Sir Robert McAlpine, Skanska, Stanhope, TSL, Vinci, VolkerFitzpatrick, Winvic and Westfield. The Group worked on over 100 projects with our clients during the year including:
Major projects - over GBP20 Wimbledon (No. 1 Court roof),
million London
Tottenham Hotspur FC, London
22 Bishopsgate, London
Google Kings Cross, London
Commercial offices St Giles Circus, London
80 Fenchurch Street, London
Snowhill, Birmingham
Central Square, Cardiff
One Braham, London
60 London Wall, London
-------------------------------------
Industrial and distribution Large distribution centres,
East Midlands and Darlington
Large warehouses, Wixam and
Lutterworth
-------------------------------------
Transport infrastructure Chiswick Bridge, London
Ely Southern Bridge, Cambridgeshire
M20 Road Bridge, Kent
Luton Viaduct, Bedfordshire
Multi-storey Car Park, Manchester
Airport
-------------------------------------
Data centres Data centres in Dublin, Belgium
and Finland
-------------------------------------
Health and education Manchester Engineering Campus
Development
-------------------------------------
Our specialist cold rolled steel joint venture business, Construction Metal Forming Limited ('CMF'), has continued to grow and has performed well during the year. We are the only fabricator in the UK to have both a hot and cold rolled manufacturing capability. We continue to look at ways to improve factory efficiencies at CMF and to expand the product range, which now includes a growing purlin business, allowing the Group to continue integrating elements of its supply chain.
Following extensive negotiations with all stakeholders, we have now agreed a final settlement for the remedial bolt replacement works at Leadenhall, resulting in no further costs for the Group.
India
JSSL performed strongly in 2019 and its results are now beginning to reflect the step change in the market for structural steel in India. The Indian market has continued to expand, and we are seeing clear signs of the conversion of the market from concrete to steel which will drive the success and long term value of the business. This position is evident in an order book at 1 June 2019 of GBP134m (1 November 2018: GBP124m), which now contains a stronger mix of higher margin commercial work. Significant new orders secured in the year include two large commercial projects - Sattva, in the state of Hyderabad, and Amaravati, in the state of Andhra Pradesh, together with numerous industrial projects, many of which are for our joint venture partner, JSW Steel ('JSW'). The expanding market position is also reflected in a pipeline which includes a growing large number of potentially interesting commercial projects for key developers and clients with whom we are now developing strong relationships. In addition, we also have visibility of an increased pipeline of industrial work, including those for JSW, which is currently expanding its domestic steel output, a process which we expect to continue for the foreseeable future.
In 2019, JSSL continued to grow and has increased its profit during the year, of which the Group's after tax share was GBP1.2m (2018: GBP0.5m). The higher profitability in the year reflects both increased revenue and good operational performance, together with lower financing costs following the repayment of the term debt in June 2017. JSSL's revenue has increased significantly to GBP84m compared with GBP48m in the previous year, driven by higher volumes of industrial work in 2019, a position which was also manifest in the higher order book coming into the financial year. This greater mix of industrial work has resulted in a reduction in the operating margin to 6.4 per cent compared to 9.2 per cent in 2018, however, given the greater proportion of commercial work in the current order book, we expect to see an improvement in the operating margin in the 2020 financial year and beyond.
The expansion of the Bellary facility, which will increase factory capacity from c.60,000 tonnes to c.90,000 tonnes, is now well underway and is expected to be completed towards the end of the 2020 financial year. During the year, JSSL has strengthened its senior management team, enhanced and expanded its subcontracting supply chain partnerships and is upskilling its workforce, bringing people with new skills into the business to support the expansion and to provide the business with the springboard to deliver future profitable growth.
Overall, we remain excited about the long-term development of the market and of the business, especially considering the encouraging market developments and step up in the order book and we expect that value will continue to build in JSSL as it continues to expand and develop.
Safety
Health and safety continue to be at the forefront of everything we do and, for the third year running, we have seen an improvement in our overall safety performance. The Group's accident frequency rate ('AFR') for the year, which includes our Indian joint venture, was 0.11, compared to 0.22 in 2018, mainly driven by our UK operations which reduced its AFR from 0.40 to 0.21 during the year. As a recognised measure of safety performance, our AFR not only reflects how we do business but is a key differentiator in the market. Indeed, safety is becoming increasingly important for our clients at the selection stage.
Our executive committee is focused on continually promoting and improving our safety culture. Reviews of safety performance are conducted monthly, with emphasis on not only RIDDORs but also high potential near miss incidents and minor injuries. All high potential incidents are investigated and resolved by our businesses, in conjunction with the Group SHE director, chief operating officer and the relevant managing director.
Behavioural safety continues to be an integral part of improving our safety culture and our behavioural safety coaches are empowered to encourage ownership of safety across all levels of the business. Escalating the programme to the senior management team has promoted better ownership and accountability and has allowed us to further embed our 'safety first' values and to see positive tangible changes in our culture.
Board members are engaging with employees and promoting our safety campaigns with positive results. The number of visits to site by board members has increased year-on-year and the content of these visits has been enhanced, encouraging suggestions for improvement and the sharing of best practise across the Group. Building on senior management's responsibility for safety, our management teams now deliver quarterly presentations which include 'lessons learned' from recent incidents and the reinforcement of our safety values.
In raising awareness of mental health, our internal 'heads up' campaign has now become embedded in our culture. Our commitment to mental health and well-being stems from a strong recognition of our responsibility to provide a safe working environment, which transcends physical health and actively promotes the importance of mental health and well-being. As an organisation, we have a responsibility to take care of each other and ourselves. Promotion of positive mental health is continual, and help is accessible to all with our 24-hour employee assistance line. All our employees have now attended an awareness session to assist them in understanding the signs and symptoms of poor mental health.
Sustainability as a topic continues to be more prevalent within the Group. Employees are becoming more and more aware of what impact they can have on shaping our future, and making our business 'Smarter, Safer and more Sustainable'. Suggestions for sustainable improvements across the business are collected from colleagues and implemented where appropriate. Employees are given opportunities to support local and national charities through our social and charitable committees, creating better community relationships. The Group encourages employees to continue developing their skillsets through both our internal learning and development programmes, and through the achievement of appropriate professional qualifications. Apprenticeships are encouraged throughout the business, and we work closely with local college and university communities to attract the best and most diverse talent.
Strategy
We are continuing to deliver on our strategic objectives including making good progress towards our 2020 strategic profit target. In 2019, as part of the ongoing 'Smarter, Safer, more Sustainable' programme, we have continued to implement a number of operational, factory and technological improvements and supply chain enhancements as well as continuing to invest in our leadership teams and people to ensure we are well placed to capture the opportunities presented by our markets. The improvement in our safety performance during the year will also benefit future performance and productivity.
During the year, the continuation of the Group's capital investment programme, which includes new state-of-the-art, high speed and high performance equipment for our UK factories, is helping our operating businesses to be highly competitive and operationally efficient. We will continue to invest GBP6m to GBP7m per annum to support the development of our client service offering and to drive operational improvements and efficiencies.
Over the last two years, we have been targeting three new areas of organic growth - Europe, Severfield (Products & Processing) ('SPP') and medium to high-rise residential construction - and we are pleased to report good progress with the first two of these potential areas of growth.
Firstly, we have continued to develop our new European business, which is based in the Netherlands, aided by a small but growing locally-based team which includes our business development director. During the year, the business has been successful in securing its first orders which will generate incremental revenue for the Group in the 2020 financial year. The business also has a number of live tenders for work in continental Europe and there is now a growing pipeline of opportunities which includes many potentially interesting and high quality projects, certain of which are with clients with whom we are used to working in the UK. The European team's market knowledge and experience has also been invaluable to our UK business when tendering for and delivering an increased pipeline of European work, providing us with a competitive advantage and the ability to deliver excellent client service as we look to expand into new market sectors.
Secondly, SPP, our new business venture at the Sherburn facility, commenced trading in April 2018. This business is allowing us to address smaller scale projects and provides a one-stop shop for smaller fabricators to source high quality processed steel and ancillary products. Notwithstanding the slightly softer UK market conditions, which have resulted in a lower than expected number of enquiries in the second half of the year, the business has secured and successfully delivered a number of orders to a variety of new customers. During this time, we have also gained more intelligence on both our competitors and customers in what is clearly a competitive and lower margin marketplace. Notwithstanding this, we remain focused on improving our factory efficiency, client service and range of products and continue to develop our customer relationships and pipeline of potential future orders to enable us to increase our market share.
In addition, we have also maintained our focus on the market for medium to high-rise residential construction where we have developed a steel solution. We continue to see potential opportunities in what is an attractive market for us and discussions with a number of interested parties remain ongoing. We continue to push hard to secure our first order, which we believe will be an important step in establishing a track record in what is currently a concrete-dominated market sector.
Summary and outlook
The Group has performed well in 2019, with good profit and margin growth in the UK, where we continue to see tangible benefits from our 'SSS' business improvement initiatives, coupled with a strong performance from our Indian joint venture. Whilst market conditions in the UK have been more challenging recently, the impact of this is being offset by an improved picture in the Republic of Ireland and in Europe and with an order book of GBP295m and a stable pipeline of opportunities, we expect 2020 to be another year of progress for our core businesses in the UK.
In India, with the expansion of the operations in Bellary now underway, an order book of GBP134m and a growing level of new opportunities which includes a number of interesting commercial projects, our joint venture business remains well positioned to take advantage of a market for structural steel which continues to expand.
There is now considerable positive momentum within the Group which, in combination with our cash generative nature and strong positions in our core markets, provides us with the platform for further operational and strategic progress. We remain on track to deliver on our strategic targets, including the doubling of 2016 underlying profit before tax to GBP26m by 2020 and we look forward to another positive year ahead.
Finally, I would like to thank all of our employees for their hard work and commitment during the year. The success of our business is without doubt dependent on their continued support.
Alan Dunsmore
Chief Executive Officer
19 June 2019
FINANCIAL REVIEW
2019 2018
Revenue GBP274.9m GBP274.2m
---------- ----------
Underlying* operating profit (before JVs GBP23.3m GBP22.9m
and associates)
---------- ----------
Underlying* operating margin (before JVs
and associates) 8.5% 8.3%
---------- ----------
Underlying* profit before tax GBP24.7m GBP23.5m
---------- ----------
Underlying* basic earnings per share 6.7p 6.4p
---------- ----------
Operating profit (before JVs and associates) GBP23.3m GBP21.5m
---------- ----------
Profit before tax GBP24.7m GBP22.2m
---------- ----------
Basic earnings per share 6.7p 6.1p
---------- ----------
Return on capital employed ('ROCE') 15.7% 16.5%
---------- ----------
* The basis for stating results on an underlying basis is set out on the highlights page. The board believes that non-underlying items should be separately identified on the face of the income statement to assist in understanding the underlying performance of the Group. Accordingly, adjusted performance measures have been used throughout this report to describe the Group's underlying performance.
Trading performance
2019 has been another successful year for the Group. Revenue for the year ended 31 March 2019 of GBP274.9m represents a slight increase of GBP0.7m compared with the previous year reflecting a solid performance in the UK in light of softer market conditions, which particularly impacted the second half of the year. The Group's order book at 1 June 2019 of GBP295m represents an increase of GBP65m from the position at the time of announcing the half year results (1 November 2018: GBP230m) and will generate higher production and therefore revenue in the second half of the 2020 financial year.
Underlying operating profit (before JVs and associates) of GBP23.3m (2018: GBP22.9m) reflects an increase of GBP0.4m over the year. This mainly reflects a higher underlying operating margin (before JVs and associates) of 8.5 per cent (2018: 8.3 per cent) against a particularly strong margin comparator in 2018, which benefitted from higher than normal profits from certain project completions. The 2019 margin demonstrates further margin progression and improvements to our operational execution. The Group continues to maintain a high level of focus on operational efficiency through better risk and contract management processes as well as driving process improvements in the Group's production facilities. There were no non-underlying items in the year and accordingly no difference between underlying operating profit (before JVs and associates) and its statutory equivalent of GBP23.3m (2018: GBP21.5m).
The share of results of JVs and associates was a profit of GBP1.7m (2018: GBP0.9m) and net finance costs were GBP0.2m (2018: GBP0.2m).
Underlying profit before tax, which is management's primary measure of Group profitability, was GBP24.7m (2018: GBP23.5m). The statutory profit before tax, reflecting both underlying and non-underlying items, was GBP24.7m (2018: GBP22.2m).
Share of results of JVs and associates
The Group's share of results from its Indian joint venture was a profit of GBP1.2m (2018: GBP0.5m) with the improved result due to both good contract performance together with lower financing costs. The operating margin has decreased to 6.4 per cent (2018: 9.2 per cent) reflecting a significantly higher mix of (lower margin) industrial work in the order book coming into the 2019 financial year. The current order book now shows a higher proportion of commercial work, reflecting the award of several large commercial orders in 2019, which will benefit the operating margin in the 2020 financial year.
Our specialist cold rolled steel joint venture business, CMF, contributed a Group share of profit of GBP0.4m (2018: GBP0.4m). The business has continued to develop its product range, having expanded its metal decking supply to allow the production of purlins and additional cold formed products in 2018 to drive organic revenue growth. We continue to be the only hot rolled steel fabricator in the UK to have this cold rolled manufacturing capability.
Non-underlying items
Non-underlying items are classified as such as they do not form part of the profit monitored in the ongoing management of the Group. There were no non-underlying items in the current financial year (2018: GBP1.3m). The charge in the prior year represented the amortisation of customer relationships which were identified on the acquisition of Fisher Engineering in 2007 and are now fully amortised.
Finance costs
Net finance costs in the year were GBP0.2m (2018: GBP0.2m). The Group has been in a net funds position for the whole of the financial year; consequently, the finance costs of GBP0.2m primarily represent non-utilisation fees for the revolving credit facility and the amortisation of capitalised transaction costs.
Taxation
The Group's underlying taxable profits (which excludes results from the JVs and associates) of GBP23.1m (2018: GBP22.6m) resulted in an underlying tax charge of GBP4.5m (2018: GBP4.4m) which represents an effective tax rate of 19.7 per cent (2018: 19.4 per cent).
Earnings per share
Underlying basic earnings per share increased by five per cent to 6.7p (2018: 6.4p) based on the underlying profit after tax of GBP20.2m (2018: GBP19.1m) and the weighted average number of shares in issue of 303.1m (2018: 299.7m). Basic earnings per share, which is based on the statutory profit after tax, was 6.7p (2018: 6.1p), this growth reflects the increased profit after tax and a reduction in non-underlying items. Diluted earnings per share, including the effect of the Group's performance share plan, was 6.6p (2018: 6.0p).
Dividend and capital structure
The Group has a progressive dividend policy. Funding flexibility is maintained to ensure there are sufficient cash resources to fund the Group's requirements. In this context, the board has established the following clear priorities for the use of cash:
-- To support the Group's ongoing operational requirements, and to fund profitable organic growth opportunities where these meet the Group's investment criteria;
-- To support steady growth in the core dividend as the Group's profits increase;
-- To finance other possible strategic opportunities that meet the Group's investment criteria;
-- To return excess cash to shareholders in the most appropriate way, whilst maintaining a good underlying net funds position on the balance sheet.
The board is recommending a final dividend of 1.8p per share (2018: 1.7p), payable on 13 September 2019 to shareholders on the register at the close of business on 16 August 2019. This, together with the Group's interim dividend of 1.0p per share (2018: 0.9p), will result in a total dividend per share for 2019 of 2.8p (2018: 2.6p), an increase on the prior year of eight per cent. The final dividend is not reflected on the balance sheet at 31 March 2019 as it remains subject to shareholder approval.
A special dividend of 1.7p per share was recommended for the previous financial year, which was approved by shareholders and paid during the current financial year.
Goodwill and intangible assets
Goodwill on the balance sheet is valued at GBP54.7m (2018: GBP54.7m). In accordance with IFRS, an annual impairment review has been performed. No impairment was required either during the year ended 31 March 2019 or the year ended 31 March 2018.
Other intangible assets on the balance sheet are recorded at GBPnil (2018: GBP0.1m). Amortisation of GBP0.1m (2018: GBP1.5m) was charged in the year.
Capital investment
The Group has property, plant and equipment of GBP84.0m (2018: GBP81.2m). Capital expenditure of GBP7.0m (2018: GBP6.4m) represents the continuation of the Group's capital investment programme. This included investment in production machinery, site lifting equipment, yard improvements, and factory and site enhancements. Depreciation in the year was GBP3.6m (2018: GBP3.7m).
Joint ventures
The carrying value of our investment in joint ventures and associates was GBP24.3m (2018: GBP18.5m) which consists of the investment in India of GBP16.1m (2018: GBP10.7m) and in CMF of GBP8.2m (2018: GBP7.8m). During the year, we invested additional equity of GBP4.2m in the Indian joint venture business (matched by an equivalent investment by our joint venture partner JSW Steel) to support the expansion of the Bellary facility.
Pensions
The Group has a defined benefit pension scheme which, although closed to new members, had an IAS 19 deficit of GBP20.0m at 31 March 2019 (2018: GBP17.2m). The increase in the liability is mainly due to:
-- changes to the scheme's demographic assumptions (updated mortality assumptions and a lower proportion of members assumed to take tax-free cash at retirement, based on broader trends in the pensions market); and
-- changes to the scheme's financial assumptions (lower discount rate and higher RPI price inflation assumption, both of which increased liabilities).
The impact has been partly offset by the ongoing deficit contributions by the Group during the year. The last formal triennial funding valuation of the scheme was completed, with a valuation date of 5 April 2017. All other pension arrangements in the Group are of a defined contribution nature.
Return on capital employed
The Group adopts ROCE as a KPI to help ensure that its strategy and associated investment decisions recognise the underlying cost of capital of the business. The Group's ROCE is defined as underlying operating profit divided by the average of opening and closing capital employed. Capital employed is defined as shareholders' equity excluding retirement benefit obligations (net of tax), acquired intangible assets and net funds. For 2019, ROCE was 15.7 per cent (2018: 16.5 per cent), which exceeds the Group's target of 10 per cent through the economic cycle.
Cash flow
2019 2018
Operating cash flow (before working capital GBP25.8m GBP26.7m
movements)
--------- ---------
Cash generated from operations GBP18.0m GBP23.0m
--------- ---------
Operating cash conversion 50% 77%
--------- ---------
Net funds GBP25.1m GBP33.0m
--------- ---------
The Group has always placed a high priority on cash generation and the active management of working capital. The Group ended the financial year with net funds of GBP25.1m (2018: GBP33.0m), following capital expenditure of GBP7.0m, the payment of the 2018 special dividend of GBP5.2m and the investment of additional equity into the Indian joint venture of GBP4.2m.
Operating cash flow for the year before working capital movements was GBP25.8m (2018: GBP26.7m). Net working capital increased by GBP7.9m mainly due to movements in the phasing of contract cash flows and a normalisation of working capital following the atypically low working capital position (two per cent of sales) coming into the year. Excluding advance payments, year-end net working capital represented approximately five per cent of revenue (2018: two per cent). This is within the four to six per cent range which we have been targeting, reflecting our continued focus on working capital management.
In 2019, our cash generation KPI shows a conversion of 50 per cent (2018: 77 per cent) of underlying operating profit (before JVs and associates) into operating cash (cash generated from operations less net capital expenditure). This is below our target conversion of 85 per cent largely as a result of the increase in working capital as described above.
Net investment during the year was GBP6.3m (2018: GBP5.4m), reflecting capital expenditure of GBP7.0m (2018: GBP6.4m) less proceeds from disposals of GBP0.7m (2018: GBP1.0m).
Bank facilities committed until 2023
On 31 October 2018, the Group refinanced its existing borrowing facilities of GBP25m with HSBC Bank plc and Yorkshire Bank. This new facility, also a GBP25m revolving credit facility ('RCF'), matures in October 2023. The facility continues to include an accordion facility of GBP20m, which allows the Group to increase the aggregate available borrowings to GBP45m at the Group's request.
The facility is subject to two key financial covenants, namely net debt: EBITDA of <2.5x, and interest cover of >4x. The Group operated well within these covenant limits throughout the year ended 31 March 2019.
Due to the continued net funds position of the Group, the facilities were not utilised during the year and continue to provide ongoing funding headroom and financial security for the Group.
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. 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, secure and cost-effective funding arrangements are maintained to finance current and planned future activities and to invest cash assets safely and profitably.
The Group continues to have some exposure to exchange rate fluctuations, currently between sterling and the euro. In order to maintain the projected level of profit budgeted on contracts, foreign exchange forward contracts are taken out to convert into sterling at the expected date of receipt. The Group adopts hedge accounting for the majority of transaction hedging positions, thereby mitigating the impact of market value changes in the income statement.
New accounting standards
IFRS 15 - in the prior year, the Group undertook a detailed exercise comparing the existing revenue recognition policies against the requirements of IFRS 15, the new revenue accounting standard which is effective for the current financial year. This assessment involved identifying the significant areas of difference and quantifying their effect on a sample of different types of contract to ensure that the impact of the new standard is fully understood and acted upon in advance of the effective date. The conclusion of the assessment was that the directors are satisfied that no material adjustments were required on the initial application of the new standard. The standard has been implemented with full retrospective application in the financial statements. Additional disclosures, as required by IFRS 15, are incorporated into the financial statements.
IFRS 16 - during the current financial year, the Group assessed the impact of adopting IFRS 16, the new leasing standard which becomes effective for the 2020 financial year. The adoption of IFRS 16 will result in a right-of-use asset of approximately GBP11m and a lease liability of approximately GBP12m being brought onto the Group's balance sheet (based on the Group's leases as at 1 April 2019). The profit impact of the adoption of this new accounting standard is not expected to be material.
Impact of Brexit
Following the UK referendum vote to leave the European Union ('EU'), the UK government continues to negotiate the terms of the UK's future relationship with the EU, which has led to a period of economic uncertainty. The Group has taken steps to prepare for the potential outcomes of Brexit and has plans in place to ensure it can continue to deliver on current and future contractual commitments.
Going concern
In determining whether the Group's annual consolidated financial statements can be prepared on the going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities.
The following factors were considered as relevant:
-- The UK order book and the pipeline of potential future orders;
-- The Group's operational improvement programme which has delivered stronger financial performance and is expected to continue doing so in the 2020 financial year and beyond;
-- The Group's net funds position and its bank finance facilities which are committed until October 2023, including both the level of those facilities and the covenants attached to them.
Based on the above, having made appropriate enquiries and reviewed medium-term cash forecasts, the directors consider it reasonable to assume that the Group has adequate resources to continue for at least 12 months from the date of approval of the financial statements and therefore that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
Viability statement
In accordance with provision C.2.2 of the 2016 revision of the UK Corporate Governance Code (the 'Code'), the directors have carried out a robust assessment of the principal risks and uncertainties and assessed the Group's viability over a three-year period ending on 31 March 2022. The starting point in making this assessment was the annual strategic planning process. While this process and associated financial projections cover a period of four years, the first three years of the plan are considered to contain all of the key underlying assumptions that will provide the most appropriate information on which to assess the Group's viability. This assessment also considered:
-- The programmes associated with the majority of the Group's most significant construction contracts, the execution period of which is normally less than three years;
-- The good visibility of the Group's future revenues for the next three years which is provided by external forecasts for the construction market, market surveys and our own order book and pipeline of opportunities (prospects).
In making their assessment, the directors took account of the Group's strategy, current strong financial position, recent and planned investments, together with the Group's main committed bank facilities. These committed bank facilities mature in October 2023.
The directors assessed the potential financial and operational impact of possible scenarios resulting from the crystallisation of one of more of the principal risks described in the annual report as well as taking into consideration recent issues (such as recent corporate failures and the uncertainties caused by the UK's pending exit from the EU) that are relevant to the industry sector in which the Group operates. In particular, the impact of a reduction in margin of 25 per cent, a reduction in revenue of 25 per cent, a deterioration in working capital (the extension of customer payment terms by one month), a period of business interruption (two months with no factory production) and a significant one-off event resulting in a cost to the Group of GBP15m.
The range of scenarios tested was considered in detail by the directors, taking account of the probability of occurrence and the effectiveness of likely mitigation actions.
Based on this assessment, the directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.
Adam Semple
Group Finance Director
19 June 2019
Consolidated income statement
For the year ended 31 March 2019
Non-underlying Non-underlying
Underlying 2019 Total Underlying 2018 Total
2019 GBP000 2019 2018 GBP000 2018
GBP000 GBP000 GBP000 GBP000
Revenue 274,917 - 274,917 274,203 - 274,203
Operating costs (251,661) - (251,661) (251,337) (1,333) (252,670)
-------------- ---------------- -------------- -------------- ---------------- --------------
Operating profit
before
share of results
of
JVs and
associates 23,256 - 23,256 22,866 (1,333) 21,533
Share of results
of
JVs and
associates 1,650 - 1,650 882 - 882
Operating profit 24,906 - 24,906 23,748 (1,333) 22,415
Finance expense (195) - (195) (236) - (236)
-------------- ---------------- -------------- -------------- ---------------- --------------
Profit before tax 24,711 - 24,711 23,512 (1,333) 22,179
Tax (4,549) - (4,549) (4,385) 352 (4,033)
-------------- ---------------- -------------- -------------- ---------------- --------------
Profit for the
year
attributable to
the
equity holders of
the
parent 20,162 - 20,162 19,127 (981) 18,146
============== ================ ============== ============== ================ ==============
Earnings per
share:
Basic 6.65p - 6.65p 6.38p (0.33p) 6.05p
Diluted 6.58p - 6.58p 6.29p (0.32p) 5.97p
All of the above activities relate to continuing operations.
Further details of 2018 non-underlying items are disclosed in note 3.
Consolidated statement of comprehensive income
For the year ended 31 March 2019
Year ended Year ended
31 March 2019 31 March 2018
GBP000 GBP000
Actuarial (loss)/gain on defined
benefit
pension scheme* (3,702) 3,606
Gains taken to equity on cash
flow hedges 540 435
Reclassification adjustments
on cash flow hedges 129 (346)
Exchange difference on foreign 16 -
operations
Tax relating to components of
other comprehensive income* 624 (700)
Other comprehensive income for
the year (2,393) 2,995
Profit for the year from continuing
operations 20,162 18,146
Total comprehensive income for
the
year attributable to equity shareholders 17,769 21,141
============================== ===============================
* These items will not be subsequently reclassified to the consolidated income statement.
Consolidated balance sheet
As at 31 March 2019
2019 2018
GBP000 GBP000
ASSETS
Non-current assets
Goodwill 54,712 54,712
Other intangible assets - 103
Property, plant and equipment 83,986 81,239
Interests in JVs and associates 24,335 18,456
163,033 154,510
------------------------------- --------------------------------
Current assets
Inventories 8,915 9,646
Contract assets, trade and other
receivables 57,117 56,270
Derivative financial instruments 762 167
Cash and cash equivalents 24,979 33,114
------------------------------- --------------------------------
91,773 99,197
------------------------------- --------------------------------
Total assets 254,806 253,707
=============================== ================================
LIABILITIES
Current liabilities
Trade and other payables (57,661) (64,225)
Financial liabilities - finance
leases (49) (180)
Current tax liabilities (928) (1,645)
(58,638) (66,050)
------------------------------- --------------------------------
Non-current liabilities
Retirement benefit obligations (19,972) (17,248)
Financial liabilities - finance
leases - (49)
Deferred tax liabilities (1,189) (1,363)
(21,161) (18,660)
------------------------------- --------------------------------
Total liabilities (79,799) (84,710)
=============================== ================================
NET ASSETS 175,007 168,997
=============================== ================================
EQUITY
Share capital 7,600 7,492
Share premium 87,254 85,702
Other reserves 3,819 4,749
Retained earnings 76,334 71,054
------------------------------- --------------------------------
TOTAL EQUITY 175,007 168,997
=============================== ================================
Consolidated statement of changes in equity
For the year ended 31 March 2019
Share Share Other Retained Total
capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April 2018 7,492 85,702 4,749 71,054 168,997
Total comprehensive
income for the year - - 685 17,084 17,769
Ordinary shares issued
* 108 1,552 - - 1,660
Equity settled share-based
payments - - (1,615) 1,549 (66)
Dividend paid - - - (13,353) (13,353)
At 31 March 2019 7,600 87,254 3,819 76,334 175,007
================ ================ ================ ================ ================
* The issue of shares represents shares allotted to satisfy the 2015 performance share plan award which vested in June 2018 and the 2015 sharesave scheme.
Share Share Other Retained Total
capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April 2017 7,471 85,702 3,710 57,274 154,157
Total comprehensive
income for the year - - 89 21,052 21,141
Ordinary shares issued
** 21 - - - 21
Equity settled share-based
payments - - 950 218 1,168
Dividend paid - - - (7,490) (7,490)
---------------- ----------------- ----------------- --------------- ---------------
At 31 March 2018 7,492 85,702 4,749 71,054 168,997
================ ================= ================= =============== ===============
** The issue of shares represents shares allotted to satisfy the 2014 performance share plan award which vested in June and November 2017.
Consolidated cash flow statement
For the year ended 31 March 2019
Year ended Year ended
31 March 2019 31 March 2018
GBP000 GBP000
Net cash flow from operating activities 14,616 19,039
Cash flows from investing activities
Proceeds on disposal of land and 10 -
buildings
Proceeds on disposal of other property,
plant and equipment 724 1,012
Purchases of land and buildings (485) (412)
Purchases of other property, plant
and equipment (6,516) (5,996)
Investment in JVs and associates (4,229) (5,506)
Net cash used in investing activities (10,496) (10,902)
------------------------------ -------------------------------
Cash flows from financing activities
Interest paid (382) (202)
Dividends paid (13,353) (7,490)
Proceeds from shares issued 1,660 -
Repayment of obligations under finance
leases (180) (180)
Net cash used in financing activities (12,255) (7,872)
------------------------------ -------------------------------
Net (decrease)/increase in cash
and
cash equivalents (8,135) 265
Cash and cash equivalents at beginning
of year 33,114 32,849
------------------------------ -------------------------------
Cash and cash equivalents at end
of year 24,979 33,114
============================== ===============================
1) Basis of preparation
The preliminary announcement has been prepared in accordance with the Listing Rules of the FCA and is based on the 2019 financial statements which have been prepared under International Financial Reporting Standards ('IFRS') as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The accounting policies applied in preparing the preliminary announcement are consistent with those used in preparing the statutory financial statements for the year ended 31 March 2018, except as detailed below.
The Group has adopted IFRS 15, 'Revenue from Contracts with Customers' from 1 April 2018. The new standard modifies the determination of how much revenue to recognise, and when, and introduces a single, principles based five-step model to be applied to all contracts with customers. IFRS 15 replaces the separate models for goods, services and construction contracts currently included in IAS 11 'Construction Contracts' and IAS 18 'Revenue'. The implementation of IFRS 15 did not have a material impact on the timing or amount of revenue recognised by the Group in the current or comparative period.
The preliminary announcement does not constitute the statutory financial statements of the Group within the meaning of Section 434 of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2018 have been filed with the Registrar of Companies. The auditor has reported on those financial statements and on the statutory financial statements for the year ended 31 March 2019, which will be filed with the Registrar of Companies following the annual general meeting. Both the audit reports were unqualified, did not draw attention to any matters by way of emphasis, without qualifying their report, and did not contain any statements under Section 498(2) or (3) of the Companies Act 2006.
The preliminary announcement has been agreed with the Company's auditor for release.
2) Segment reporting
Following the adoption of IFRS 8, 'Operating Segments' 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 similar products and services, production processes, types of customer, methods of distribution, regulatory environments and economic characteristics.
3) Non-underlying items
2019 2018
GBP000 GBP000
Amortisation of acquired intangible
assets - (1,333)
Non-underlying items before tax - (1,333)
Tax on non-underlying items - 352
--------- ------------------------
Non-underlying items after tax - (981)
========= ========================
Non-underlying items have been separately identified to provide a better indication of the Group's underlying business performance. They are not considered to be 'business as usual' items and have a varying impact on different businesses and reporting years. They have been separately identified as a result of their magnitude, incidence or unpredictable nature. These items are presented as a separate column within their consolidated income statement category. Their separate identification results in a calculation of an underlying profit measure in the same way as it is presented and reviewed by management.
In the prior year, amortisation of acquired intangible assets represented the amortisation of customer relationships which were identified on the acquisition of Fisher Engineering in 2007. These customer relationships were fully amortised during the 2018 financial year and no additional non-underlying items have been identified in the current year.
4) Taxation
The taxation charge comprises:
2019 2018
GBP000 GBP000
Current tax
UK corporation tax (3,721) (3,047)
Adjustments to prior years' provisions (378) (176)
------------------------- --------------------------
(4,099) (3,223)
------------------------- --------------------------
Deferred tax
Current year charge (625) (963)
Impact of reduction in future years'
tax rates - 99
Adjustments to prior years' provisions 175 54
------------------------- --------------------------
(450) (810)
------------------------- --------------------------
Total tax charge (4,549) (4,033)
========================= ==========================
5) Dividends
2019 2018
GBP000 GBP000
Amounts recognised as distributions
to equity holders in the year:
2018 final - 1.7p per share (2017:
1.6p per share) (5,158) (4,793)
2018 special - 1.7p per share (2017: (5,158) -
nil per share)
2019 interim - 1.0p per share (2018:
0.9p per share) (3,036) (2,697)
------------------------- --------------------------
(13,353) (7,490)
------------------------- --------------------------
The directors are recommending a final dividend in respect of the financial year ended 31 March 2019 of 1.8p per share, which will amount to an estimated dividend payment of GBP5.5m. If approved by the shareholders at the annual general meeting on 3 September 2019, this dividend will be paid on 13 September 2019 to shareholders who are on the register of members at 16 August 2019. The final dividend is not reflected in the balance sheet at 31 March 2019 as it remains subject to shareholder approval.
6) Earnings per share
Earnings per share is calculated as follows:
2019 2018
GBP000 GBP000
Earnings for the purposes of
basic earnings per share being
net profit attributable to equity
holders of the parent company 20,162 18,146
----------------------- --------------------------
Earnings for the purposes of
underlying basic earnings per
share being underlying net profit
attributable to equity holders
of the parent company 20,162 19,127
----------------------- --------------------------
Number of shares Number Number
Weighted average number of ordinary
shares for the purposes of basic
earnings per share 303,092,067 299,682,810
Effect of dilutive potential
ordinary shares 3,170,237 4,520,463
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 306,262,304 304,203,273
======================= ==========================
Basic earnings per share 6.65p 6.05p
Underlying basic earnings per
share 6.65p 6.38p
Diluted earnings per share 6.58p 5.97p
Underlying diluted earnings per
share 6.58p 6.29p
7) Net cash flow from operating activities
2019 2018
GBP000 GBP000
Operating profit from continuing
operations 24,906 22,415
Adjustments:
Depreciation of property, plant
and equipment 3,649 3,656
Gain on disposal of other property,
plant and equipment (129) (590)
Amortisation of intangible assets 103 1,471
Movements in pension scheme (978) (560)
Share of results of JVs and associates (1,650) (882)
Share-based payments (66) 1,168
Operating cash flows before movements
in working capital 25,835 26,678
Decrease / (increase) in inventories 731 (1,896)
(Increase) / decrease in receivables (1,969) 10,064
Decrease in payables (6,625) (11,897)
Cash generated from operations 17,972 22,949
Tax paid (3,356) (3,910)
-------------------------- --------------------------
Net cash flow from operating activities 14,616 19,039
========================== ==========================
8) Net funds
The Group's net funds are as follows:
2019 2018
GBP000 GBP000
Cash and cash equivalents 24,979 33,114
Unamortised debt arrangement fees 226 83
Financial liabilities - finance
leases (49) (229)
-------------------------- ---------------------------
Net funds 25,156 32,968
========================== ===========================
9) 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 the 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.
Information for shareholders
-- The shares will be marked ex-dividend on 15 August 2019.
-- The final dividend will be paid on 13 September 2019 to shareholders on the register at the close of business on 16 August 2019. Dividend warrants/vouchers will be posted on 11 September 2019.
-- The 2019 annual report and financial statements together with the notice of the annual general meeting will be posted to shareholders in July 2019.
-- The annual general meeting will be held on 3 September 2019 at Aldwark Manor Hotel, Aldwark, York, YO61 1UF.
Principal risks and uncertainties
The board has carried out a robust assessment of the principal risks and uncertainties which have the potential to impact the Group's profitability and ability to achieve its strategic objectives. This list is not intended to be exhaustive. Additional risks and uncertainties not presently known to management or deemed to be less significant at the date of this report may also have the potential to have an adverse effect on the Group. Risk management processes are put in place to assess, manage and control these on an ongoing basis. Our principal risks are set out below:
Health and safety
Description
The Group works on significant, complex and potentially hazardous
projects, which require continuous monitoring and management
of health and safety risks. Ineffective governance over and
management of these risks could result in serious injury,
death and damage to property or equipment.
Impact
A serious health and safety incident could lead to the potential
for legal proceedings, regulatory intervention, project delays,
potential loss of reputation and ultimately exclusion from
future business. Continued changes in legislation can result
in increased risks to both individuals and the Group.
Mitigation
* Established safety systems, site visits, safety
audits, monitoring and reporting, and detailed health
and safety policies and procedures are in place
across the Group, all of which focus on prevention
and risk reduction and elimination.
* Thorough and regular employee training programmes.
* Director-led safety leadership teams established to
bring innovative solutions and to engage with all
stakeholders to deliver continuous improvement in
standards across the business and wider industry.
* Close monitoring of subcontractor safety performance.
* Priority board review of ongoing performance and in
depth review of both high potential and reportable
incidents.
* Regular reporting of, and investigation and root
cause analysis of accidents and near misses.
* Behavioural safety cultural change programme.
* Occupational health programme including mental
health.
* Achievement of challenging health and safety
performance targets is a key element of management
and staff remuneration.
Commercial and market environment
Description
Changes in government and client spending or other external
factors could lead to programme and contract delays or cancellations,
or changes in market growth. External factors include national
or market trends, political or regulatory change (including
the UK's exit from the EU). Although the wider implications
of Brexit are difficult to predict, an unfavourable Brexit
outcome could adversely impact investor and customer confidence.
Lower than anticipated demand could result in increased competition,
tighter margins and the transfer of commercial, technical
and financial risk down the supply chain, through more demanding
contract terms and longer payment cycles.
Impact
A significant fall in construction activity and higher costs
could adversely impact revenues, profits, ability to recover
overheads and cash generation.
Mitigation
* The Group closely monitors Brexit developments and
specific risks and related mitigations are kept under
review by the executive committee. We have taken
steps to prepare for the various potential outcomes
of Brexit and have plans in place to ensure we can
continue to deliver on current and future contractual
commitments.
* Regular reviews of market trends performed (as part
of the Group's annual strategic planning and market
review process) to ensure actual and anticipated
impacts from macroeconomic risks are minimised and
managed effectively.
* Regular monitoring and reporting of financial
performance, orders secured, prospects and the
conversion rate of the pipeline of opportunities and
marshalling of market opportunities is undertaken on
a co-ordinated Group-wide basis.
* Selection of opportunities that will provide
sustainable margins and repeat business.
* Strategic planning is undertaken to identify and
focus on the addressable market (including new
overseas and domestic opportunities).
* Development of a pipeline of opportunities in
continental Europe and in the Republic of Ireland,
supported by our new European business.
* Maintenance and establishment of supply chain
capacity in mainland Europe.
* Close management of capital investment and focus on
maximising asset utilisation to ensure alignment of
our capacity and volume demand from clients.
* Close engagement with both customers and suppliers
and monitoring of payment cycles.
* Ongoing assessment of financial solvency and strength
of counterparties throughout the life of contracts.
* Continuing use of credit insurance to minimise impact
of customer failure.
* Strong cash position supports the business through
fluctuations in the economic conditions of the
sector.
Information technology resilience
Description
Technology failure, cyber-attack or property damage could
lead to IT disruption with resultant loss of data, loss of
system functionality and business interruption. The Group's
core IT systems must be managed effectively, to avoid interruptions,
keep pace with new technologies and respond to threats to
data and security.
Impact
Prolonged or major failure of IT systems could result in business
interruption, financial losses, loss of confidential data,
negative reputational impact and breaches of regulations.
If the Group fails to invest in its IT systems, it will ultimately
be unable to meet the future needs of the business and fulfil
its strategy.
Mitigation
* IT is the responsibility of a central function which
manages the majority of the systems across the Group.
Other IT systems are managed locally by experienced
IT personnel.
* Significant investments in IT systems which are
subject to board approval, including anti-virus
software, off-site and on-site backups, storage area
networks, software maintenance agreements and
virtualisation of the IT environment.
* Specific software has been acquired to combat the
risk of ransomware attacks.
* Group IT committee ensures focused strategic
development and resolution of issues impacting the
Group's technology environment.
* Robust business continuity plans are in place and
disaster recovery and penetration testing are
undertaken on a systematic basis.
* Data protection and information security policies are
in place across the Group and have been updated for
GDPR.
* Cybercrimes and associated IT risks are assessed on a
continual basis and additional technological
safeguards introduced. Cyber threats and how they
manifest themselves are communicated regularly to all
employees (including practical guidance on how to
respond to perceived risks).
* ISO 27001 accreditation achieved for the Group's
information security environment and regular employee
engagement undertaken to reinforce key messages.
* Insurance covers certain losses and is reviewed
annually to establish further opportunities for
affordable risk transfer with revised cover being
purchased in 2019 to reduce the financial impact of
this risk.
Mispricing a contract (at tender)
Description
Failure to accurately estimate and evaluate the contract risks,
costs to complete, contract duration and the impact of price
increases could result in a contract being mispriced. Execution
failure on a high-profile contract could result in reputational
damage.
Impact
If a contract is incorrectly priced, particularly on complex
contracts, this could lead to loss of profitability, adverse
business performance and missed performance targets. This
could also damage relationships with clients and the supply
chain.
Mitigation
* Improved contract selectivity (those that are right
for the business and which match our risk appetite)
has de-risked the order book and reduced the
probability of poor contract execution.
* Estimating processes are in place with approvals by
appropriate levels of management.
* Tender settlement processes are in place to give
senior management regular visibility of major
tenders.
* Use of the tender review process to mitigate the
impact of rising supply chain costs.
* Work performed under minimum standard terms (to
mitigate onerous contract terms) where possible.
* Use of Group authorisation policy to ensure
appropriate contract tendering and acceptance.
* Adoption of new Group-wide project risk management
framework ('PRMF') brings greater consistency and
embeds good practice in identifying and managing
contract risk.
* Professional indemnity cover is in place to provide
further safeguards.
Failure to mitigate onerous contract terms
Description
The Group's revenue is derived from construction contracts
and related assets. Given the highly competitive environment
in which we operate, contract terms need to reflect the risks
arising from the nature or the work to be performed. Failure
to appropriately assess those contractual terms or the acceptance
of a contract with unfavourable terms could, unless properly
mitigated, result in poor contract delivery, poor understanding
of contract risks and legal disputes.
Impact
Loss of profitability on contracts as costs incurred may not
be recovered and potential reputational damage for the Group.
Mitigation
* The Group has identified minimum standard terms which
mitigate contract risk.
* Robust tendering process with detailed legal and
commercial review and approval of proposed
contractual terms at a senior level (including the
risk committee) are required before contract
acceptance so that onerous terms are challenged,
removed or mitigated as appropriate.
* Regular contract audits are performed to ensure
contract acceptance and approval procedures have been
adhered to.
* We have worked with the British Constructional
Steelwork Association to raise awareness of onerous
terms across the industry.
* Through regular project reviews we capture early
those occasions where onerous terms could have an
adverse impact and are able to implement appropriate
mitigating action at the earliest stage.
Supply chain
Description
The Group is reliant on certain key supply chain partners
for the successful operational delivery of contracts to meet
client expectations. The failure of a key supplier or a breakdown
in relationships with a key supplier could result in some
short-term delay and disruption to the Group's operations.
There is also a risk that credit checks undertaken in the
past may no longer be valid.
Impact
Interruption of supply or poor performance by a supply chain
partner, including British Steel, could impact the Group's
execution of existing contracts (including the costs of finding
a replacement), its ability to bid for future contracts and
its reputation, thereby adversely impacting financial performance.
Mitigation
* Initiatives are in place to select supply chain
partners that match our expectations in terms of
quality, sustainability and commitment to client
service. New sources of supply are quality
controlled.
* Implementation of best practice improvement
initiatives including automated supplier
accreditation processes.
* Strong relationships maintained with key suppliers
including a programme of regular meetings and
reviews.
* Contingency plans developed to address supplier and
subcontractor failure (whilst our current steel
supply from British Steel remains uninterrupted we
have contingency plans in place to deal with the wide
range of potential outcomes associated with the
ongoing liquidation process being conducted by the
Official Receiver).
* Ongoing reassessment of the strategic value of supply
relationships and the potential to utilise
alternative arrangements, in particular for steel
supply.
* Key supplier audits are performed within projects to
ensure they are in a position to deliver consistently
against requirements.
* Monthly review process to facilitate early warning of
issues and subsequent mitigation strategies.
Indian joint venture
Description
The growth, effective management and performance of our Indian
joint venture ('JSSL') is a key element of the Group's overall
strategy. The factory in Bellary is currently being expanded
to meet these market developments.
The Indian market has continued to expand rapidly and we are
now seeing clear signs of the conversion of the market from
concrete to steel, which is required to drive long term value
in the business.
Impact
Failure to effectively manage our expanding operations in
India could lead to financial loss, reputational damage and
a drain on cash resources to fund the operations.
Mitigation
* Robust joint venture agreement and strong governance
structure is in place.
* In 2019, senior management team strengthened,
subcontracting capability expanded and workforce
upskilled to support expanded operations.
* Regular schedule of annual visits to India by UK
executive and senior management to review operations
and ensure appropriate oversight.
* Two members of the Group's board of directors are
members of the joint venture board and succession
planning was undertaken effectively in 2019.
* Regular formal and informal meetings held with both
joint venture management and joint venture partners.
* Contract risk assessment, engagement and execution
process now embedded in the joint venture.
* Market and operational plan now implemented and
overhead reduction and operational improvement
programmes remain ongoing.
* Close monitoring of cash flow and debt repayments.
* Ongoing review of controls environment and risk
management processes undertaken by Group senior
management.
People
Description
The ability to identify, attract, develop and retain talent
is crucial to satisfy the current and future needs of the
business. Skills shortages in the construction industry are
likely to remain an issue for the foreseeable future and it
can become increasingly difficult to recruit capable people
and retain key employees, especially those targeted by competitors.
Impact
Loss of key people could adversely impact the Group's existing
market position and reputation. Insufficient growth and development
of its people and skill sets could adversely affect its ability
to deliver its strategic objectives.
A high level of staff turnover or low employee engagement
could result in a decrease of confidence in the business within
the market, customer relationships being lost and an inability
to focus on business improvements.
Mitigation
* HR team strengthened in 2019 and the Group's people
strategy is currently being refreshed.
* Recruitment of specialist recruitment resource within
the team to review, revise and improve our HR
practices.
* Second wave of our Severfield Development Programme
launched in 2019.
* Annual appraisal process providing two-way feedback
on performance.
* Attractive remuneration packages benchmarked, where
possible.
* Graduate, trainee and apprenticeship schemes in place
to safeguard an inflow of new talent.
* Internal communications improved in 2019.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR LLFLRREITLIA
(END) Dow Jones Newswires
June 19, 2019 02:00 ET (06:00 GMT)
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