Severfield : 2022 Interim Report.pdf

Severfield plc Interim report for the six months ended 30 September 2021

DEVELOPING BETTER WAYS TO BUILD FOR A WORLD OF CHANGING DEMANDS

Directors and advisers

Alan Dunsmore	Kevin Whiteman	Secretary and
Chief executive officer	Non-executive chairman	registered office
Adam Semple	Alun Griffiths	Mark Sanderson
Severs House
Group finance director	Senior independent director
Dalton Airfield Industrial Estate
	(chairman of the remuneration
Ian Cochrane	Dalton, Thirsk
committee)
Chief operating officer	North Yorkshire, YO7 3JN
Derek Randall	Tony Osbaldiston	Registered number
Non-executive director
Executive director and	1721262
(chairman of the audit
managing director at
committee)	Registered in England
JSW Severfield Structures
	and Wales
	Louise Hardy
	Non-executive director
	Rosie Toogood
	Non-executive director
Auditor	Registrars	Bankers
KPMG LLP	Computershare Investor	HSBC Bank plc
Chartered Accountants	Services PLC	Maingate
1 Sovereign Square	PO Box 82	Kingsway North
Leeds, LS1 4DA	The Pavilions	Team Valley Trading Estate
Solicitors	Bridgwater Road	Gateshead, NE11 0BE
Bristol, BS99 7NP
Ashurst LLP	Yorkshire Bank
Broadwalk House	Public relations	(part of Virgin Money UK plc)
5 Appold Street	Camarco	94 Albion Street
London, EC2A 2HA	107 Cheapside	Leeds, LS1 6AG
Stockbrokers	London, EC2V 6DN
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London, EC4V 3BJ

Severfield plc Interim report

for the six months ended 30 September 2021

Highlights

	Underlying1 operating profit
Revenue	(before JVs and associates)
£195.9m	£10.2m
(2020: £186.0m)	(2020: £9.5m)
Operating profit (before JVs and associates)	Underlying1 profit before tax
£8.2m	£10.3m
(2020: £8.1m)	(2020: £8.4m)
Profit before tax	Underlying1 basic earnings per share
£7.9m	2.7p
(2020: £6.6m)	(2020: 2.2p)
Basic earnings per share	Interim dividend per share
1.7p	1.2p
(2020: 1.7p)	(2020: 1.1p)

Headlines

• Revenue up 5% to £195.9m (H1 2020: £186.0m)
• Underlying1 profit before tax up 23% to £10.3m (H1 2020: £8.4m)
• Period-endnet debt (excluding IFRS 16 lease liabilities2) of £6.7m (31 March 2021: net funds of £4.4m),
  including acquisition loans of £17.8m (31 March 2021: £20.7m), reflects unwinding of unusually low March 2021 working capital position
• Record UK and Europe order book of £393m at 1 November 2021 (1 June 2021: £301m), includes new industrial and distribution and bridge orders and the new stadium for Everton F.C.
• Share of profit from JSSL of £0.3m (H1 2020: loss of £0.7m), return to profitability reflects an Indian market, which is now showing clear signs of recovery from the second wave of COVID-19
• India order book of £140m at 1 November 2021 (1 June 2021: £140m)
• Interim dividend increased by 9% to 1.2p per share (H1 2020: 1.1p per share)

ESG

• Certified by the Carbon Trust as carbon neutral for manufacturing and construction operations
• Net Zero carbon target established for 2040, Group signed up to the UN 'Race to Zero' campaign

Outlook

• UK and Europe - tendering and pipeline activity remain very encouraging - including opportunities in the industrial and distribution, transport infrastructure, nuclear and data centre sectors
• India - strong and growing underlying demand for structural steel - JSSL is very well-positioned to take advantage of an improving economy
• Expectations are unchanged despite ongoing supply chain and inflationary pressures for us and our clients
• Record UK and Europe order book gives us good profit visibility through FY23

1. Stated before non-underlying items of £2.4m (H1 2020: £1.8m) consisting of the amortisation of acquired intangible assets of £2.0m
   (H1 2020: £1.4m) and acquisition-related expenses of £0.4m (H1 2020: £0.4m). 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)

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Stock Code: SFR

Interim statement 2021

Introduction

The Group has continued to perform well in the first half, building on the positive momentum coming into the financial year, following our successful response to the challenges of COVID-19. This, together with the benefits of further operational and strategic progress, is reflected in our record UK and Europe order book of £393m, increased revenues, improved profitability, and a significantly improved performance from JSSL, our Indian joint venture.

The Group's first-half profit performance is slightly ahead of the previously anticipated profit weighting for H1 / H2 of approximately one third / two thirds. Notwithstanding this, profits for the 2022 financial year are still expected to have a second-half bias reflecting the phasing of ongoing contract works in our record UK and Europe order book. This order book provides us with good visibility over the next 18 months and gives us confidence of

a strong future performance by the Group. Furthermore, we continue to be very encouraged by the current level of tendering and pipeline activity across the Group. We remain well- positioned to take advantage of some significant opportunities, including in the industrial and distribution, transport infrastructure, nuclear and data centre sectors, providing us with greater resilience and the ability to drive future profitable growth.

JSSL has continued to recover well from the effects of the second wave of COVID-19. The factory in Bellary and all the business' construction sites are currently operational. After a difficult start to the first half, when output was disrupted, the company has reported a slightly above break-even profit position in H1, reflecting an improving Indian market picture. Despite the recent COVID-19 challenges, JSSL has continued to win new work, resulting in

a strong order book of £140m. This, together

with JSSL's ever-improving pipeline of potential orders, reflects a continuing strong underlying demand for structural steel in India, leaving the business very well-positioned to take advantage of an improving economy.

Financials

Revenue of £195.9m (2020: £186.0m) represents an increase of £9.9m compared to the prior period. This predominately reflects six months of additional revenue for DAM Structures, which was acquired in February 2021.

Underlying operating profit (before JVs and associates) of £10.2m (2020: £9.5m) represents an increase of £0.7m over the prior period, which included the disruptive effects of COVID-19, particularly in the first quarter of the previous year. As anticipated, the results for the 2022 financial year are expected to be considerably weighted to the second half, with several contracts in the order book expected to deliver higher profits during this period.

The share of results of JVs and associates in the first half of the year was a profit of £0.6m (2020: loss of £0.6m). This includes a share of profit from the Indian joint venture of £0.3m (2020: loss of £0.7m), reflecting revenue growth and margin improvement as the business continues its recovery from the effects of the second wave of COVID-19. The share of results of JVs and associates also includes those of Construction Metal Forming ('CMF') Limited which has contributed a share of profit for the Group of £0.3m (2020: £0.1m), the prior period for CMF also having been impacted by COVID-19.

The Group's underlying profit before tax was £10.3m (2020: £8.4m), an increase of 23 per cent compared to the previous period. The statutory profit before tax, which includes both underlying and non-underlying items, was £7.9m

(2020: £6.6m), an increase of 20 per cent.

02 Severfield plc Interim report

for the six months ended 30 September 2021

Non-underlying items for the period of £2.4m (2020: £1.8m) consisted of the amortisation of acquired intangible assets of £2.0m (2020: £1.4m) and acquisition-related expenses of £0.4m (2020: £0.4m). 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 a period of 18 months to five years.

An underlying tax charge of £1.9m is shown for the period (2020: £1.7m). This tax charge is recognised based upon the best estimate of the average effective income 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 charge of £0.8m has been recognised, comprising a tax credit on non- underlying items of £0.5m, offset by a charge of £1.3m relating to the increase in future tax rates from 19 per cent to 25 per cent.

Underlying basic earnings per share is

2.7p (2020: 2.2p). This calculation is based on the underlying profit after tax of £8.3m (2020: £6.7m) and 308,287,952 shares

(2020: 306,860,362 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 1.7p (2020: 1.7p). Diluted earnings per share, which includes the effect of the Group's performance share plan, is 1.7p (2020: 1.7p).

Net debt (pre-IFRS 16 basis) at 30 September 2021 was £6.7m (31 March 2021: net funds of £4.4m) following the payment of the 2021 final dividend (£5.5m).This represents cash of £11.1m offset by the outstanding term loans of £17.8m for the Harry Peers and DAM Structures acquisitions. Operating cash flow for the period before working capital movements was £13.3m (2020: £11.8m). Net working capital increased by £11.8m in the period reflecting the impact of recent steel and

other input price rises, together with the expected unwinding of the unusually low (two per cent of revenue) working capital position at 31 March 2021. Excluding advance payments, period-end net working capital was slightly below six per cent of revenue, which is within our well-established target range of four to six per cent.

Capital expenditure of £3.5m (2020: £1.8m) represents the continuation of the Group's capital investment programme. This predominantly consisted of site improvements at Ballinamallard and the purchase of additional land at Dalton to future-proof the site. 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 higher than our recent run rate of £6m to £8m per annum. Depreciation in the period was £3.3m (2020: £3.0m), of which £0.8m (2020: £0.8m) relates to right-of-use assets under IFRS 16.

The Group's net defined benefit pension liability at 30 September 2021 was £20.4m, a decrease of £2.0m from the year-end position of £22.4m. The deficit has decreased largely because of higher-than-expected returns on the scheme's assets and ongoing deficit contributions.

The Group has a £25m revolving credit facility ('RCF') with HSBC Bank and Virgin Money (formerly Yorkshire Bank), which matures

in October 2023. The RCF, of which £10m is available as an overdraft facility, continues to include an additional accordion facility of £20m, which allows the Group to increase the aggregate available borrowings to £45m. As part of the Harry Peers and DAM Structures acquisitions, new amortising term loans of £14m and £12m respectively, were established as amendments to the existing RCF. At

30 September 2021, of these original loans of £26m, £17.8m remained outstanding.

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Stock Code: SFR