RNS Number:7488J
Severfield-Rowen PLC
08 April 2003
8 April 2003
2002 Full Year Results
Severfield-Rowen Plc, the market leading structural steel group, announces its
full year results to 31 December 2002.
Financial Headlines
* Turnover up 8% to #157.4m (2001: #145.8m)
* Group operating profit up 18.1% to #7.7m (2001: #6.5m)
* Group margins improved
* Basic earnings per share up 11.9% to 25.08p (2001: 22.42p)
* Total dividend maintained at 14.0p per share
* Strong financial position at year end with nil gearing and cash balances
of #11.4m (2001: #13.4m)
Operational Headlines
* All core businesses performing profitably
* Integration of Watsons successfully completed with first full year
contribution to profits
* Continuing success of plate and paint lines
Outlook
* Work has recently commenced for BAA in respect of the significant
Heathrow, Terminal 5 project.
* Good order book
* Rationalisation and re-engineering of Rowen in progress
Commenting on the results, Peter Levine, Chairman said:
"The Group has never been in such a strong financial position, with each of our
core subsidiaries contributing profitably to the 2002 results. With the good
order book and robust blue chip client base, it is possible to consider the
future with quiet confidence.
"We are also pleased to announce that work has now commenced for BAA's Heathrow,
Terminal 5 development. Severfield-Rowen is pleased to be associated with this
prestigious project as BAA's structural steelwork partner. This very
significant contract extends into 2006 but such is the strength of
Severfield-Rowen that it will not degrade from the Group's ability to service
both existing and new clients' needs and exploit further opportunities as they
arise."
Enquiries
Severfield-Rowen plc
Peter Levine, Chairman 01132 469 993
Peter Davison, Finance Director 01845 577 896
Financial Dynamics
Peter Otero 020 7831 3113
CHAIRMAN'S STATEMENT
Introduction
The Group's results for 2002 demonstrate an excellent performance in the context
of very challenging market conditions and, as anticipated, notably improved
profitability over the previous year.
The Group's market leadership in its sector is unquestioned and indeed is more
marked now than at any previous time. This is underpinned by the excellent
financial position of the Group which gives it a demonstrable advantage in its
market place in the current uncertain economic environment.
All core businesses of the Group performed profitably and Watson Steel has not
only been integrated successfully but also modestly performed ahead of
expectations in the period.
When the 2002 results are viewed together with a good order book and the blue
chip client base, it is possible to consider the future with quiet confidence.
Overview
In 2002 the Group improved operating profits to #7.7m (2001: #6.5m), on turnover
up at #157.4m (2001: #145.8m). Profit before tax, after associated company
losses, was #7.5m (2001: #6.5m) producing, after the tax charge of #2.5m,
earnings per share up to 25.1p (2001: 22.4p).
The Group has never been in such a strong financial position. Net assets
increased to #37.7m (2001: #34.8m). With strong year end cash balances of
#11.4m, despite capital expenditure out of cash flow of #8.9m (2001: #8.4m), the
Group has no gearing.
Although 2002 commenced with even higher expectations than those actually
achieved, as the year progressed we reviewed our forecasts to reflect
realistically the impact on our business of the prevailing sector and general
economic circumstances.
These factors impacted on prices during the year but nevertheless the strength
of the Group, and its reputation in our industry, provided a strong backbone to
what was, in the context of our market place, a very good set of results for the
year. Despite the challenging conditions, the Group achieved genuine and
consistent progress over the previous year.
Each one of our core subsidiaries contributed positively to the Group results,
these being Severfield-Reeve Structures based at Dalton, North Yorkshire, Rowen
Structures based in Nottingham and Watson Steel Structures based in Bolton,
Lancashire.
Watson Steel Structures, acquired in late 2001, contributed to profitability
ahead of expectations following the completion of its integration.
Severfield-Reeve Structures continued to perform outstandingly, reinforcing its
reputation as the premier fabricator in the UK. The Fabsec plate and
intumescent paint lines performance demonstrated the sound judgement in their
initial investment and further profitable progress can be expected.
Rowen Structures delivered a solid performance. However, following a review of
the business, proposals have been made to re-engineer Rowen as a specialist
steelwork contractor. This reflects the changing demands in its market place
whilst at the same time retaining its renowned expertise in important sectors
such as airports.
Dividend
Reflecting the Board's confidence in the future of the Group it is pleased to
maintain the dividend of 14.0 p per share, which is covered 1.8 times by
earnings. The final dividend is payable on 5 June 2003 to shareholders on the
register on 16 May 2003.
Board Appointments
At the last Annual General Meeting, held on 14 June 2002, David Ridley was
confirmed as a non-executive director of the Group.
Outlook
Despite the external general economic circumstances and some very challenging
industry sector conditions in respect of which the Group is not totally immune,
the Group has a good order book supported by a blue chip client base.
The Group is now able to announce that we have been awarded the main steelwork
contract for the new Terminal 5 at Heathrow and is proud to be associated with
this prestigious project as BAA's structural steelwork partner. This very
significant contract extends into 2006.
Despite the size of this project, the resources and flexibility of
Severfield-Rowen are such that the contract will not affect the ability of the
Group to continue servicing its existing and new clients, whilst at the same
time exploiting further opportunities as and when they arise.
The Board is determined to maintain its policy of carefully managed growth and
prudent use of resources combined with focused capital investment with a
particular emphasis on new value added areas of the business to maintain and
enhance Group margins.
The Board is looking forward with quiet confidence to another year of steady and
continued year on year progress both in margins and profits.
Peter Levine
Chairman
OPERATIONAL REVIEW
Core Business Overview
The core businesses of the Group in 2002, Severfield-Reeve Structures, Watson
Steel Structures and Rowen Structures, produced excellent returns despite the
challenging market conditions. The results were particularly satisfactory when
viewed in the context of the industry as a whole.
Severfield-Reeve Structures
Once again the business continued to achieve outstanding production
efficiencies. Contracts were undertaken in a wide variety of areas and a number
of projects, including:
* Office block in Cambridge for the Department of Farming and Rural Affairs
and Inland Revenue
* Major development at Paternoster Square London, including the new home for
The Stock Exchange
* Innovative new Tesco store on stilts, Altrincham
* New Ebor stand at York racecourse
* Office development near Tower Bridge, London
* Multi-functional retail/leisure complex in Croydon
* Residential building in Gateshead
* Completion of Bull Ring development, Birmingham
The current year has commenced in line with expectations and the order book is
at a record level.
Apart from the Heathrow, Terminal 5 project for BAA where the work will be
divided as appropriate between our Group companies, new contracts for
Severfield-Reeve Structures include:
* New Rolls Royce building in Glasgow for the manufacture of turbine blades
* Two large office developments in Manchester - Hardman Boulevard and
Spinningfields
* Bechtel power station in Spalding, Lincolnshire
* Office development in Belgravia
* New waste treatment facility at Arsenal, North London
* State of the art music, performing arts and media centre at Newcastle
College
* Retail and car park development at Fremlims Walk, Maidstone
* New Sainsbury in Belfast, Northern Ireland
* New Warehouse for Pirelli tyres, Carlisle
At the end of the year the Dalton site, including plate line six, was processing
2,000 tonnes of steel work per week, which continues to be a performance
unmatched in the industry as a whole. Output is continuing at around these
levels.
Severfield-Reeve Structures, and the Dalton site in particular, remains a model
example in the industry. Focused capital investment continues to be required to
ensure that our market leadership and production efficiencies are maintained and
that the business is kept cost efficient and competitive. Although a continuing
process, progress has been made in the development of a strong senior and middle
management team.
The efficiencies and productivity of the plate and intumescent paint lines
continue to exceed the Board's expectations and the Group looks forward to
further contribution from both of these facilities in the future. Research and
development of the Group's fire beam continues.
The plate and intumescent lines are representative of the Group's market
innovation. The fire engineered beam is continuing to develop significant
interest from clients. We continue in our efforts to explore and identify other
areas of value added products which can successfully expand the Group's range of
services.
Rowen Structures
On 14 March 2003 we announced that it was proposed that due to changing market
conditions, particularly in London, Rowen be re-engineered as a specialist
steelworker manufacturing value added products for the Group. These proposals
include redundancies at Rowen and discussions in respect of these are ongoing.
The important expertise that Rowen's employees, have developed in key areas such
as airport work, will be retained.
A number of major contracts were performed by Rowen in 2002. These included:
* Development of the New Scottish Parliament building on the Royal Mile,
Edinburgh
* Multi-storey office building in Abingdon, Oxfordshire for Sophos
* Office, retail and leisure facility for Paddington Corporation
* New passenger facility for BAA at Heathrow Terminal 1
* Multi-storey office block in Central London
* Several projects for BAA at Heathrow
* Multi-functional retail/leisure development in Wandsworth SW London
* New Headquarters for Marks & Spencer, Paddington
* Development of residential flats in Leeds
In the event that the re-engineering proposals are implemented, expectations for
2003 are that a re-focused Rowen will continue to make a positive contribution
to the success of the Group.
Watson Steel Structures
The 2001 purchase of the Watson Steel Structures business for #2.5m plus costs
(including all the freehold land and buildings) has proved to be an excellent
acquisition. During 2002 #5.8m was invested in buildings and plant to improve
the production process. Results for the first full year of ownership were
satisfactory. During the year the Tubemaster's business, acquired at the end of
January 2002, was integrated within Watson Steel and full integration of Watsons
itself into the Group is now completed.
Contracts performed in 2002 included:
* Multi purpose football and rugby stadium in Hull
* New concert hall at the Welsh Millennium centre, Cardiff
* Naval dockyard development for Vosper Thornicroft, Portsmouth
* English Institute of Sport
* Channel Tunnel Rail Link Bridges
New contracts for 2003 include:
* Extension to St. Pancras station roof - to accommodate Channel Tunnel Rail
Link
* Elevated roadway - new access roadway for Dover docks
* Cheltenham Racecourse - multi functional arena building
* Arsenal North & South bridges - pedestrian access to new Arsenal Stadium
* Gogaburn Bridge, Edinburgh - access to new Royal Bank of Scotland HQ
This year's budget shows that Watsons is on course for a successful year being
the first full 12 month period benefiting from the significant levels of capital
expenditure invested so far.
Steelcraft Erection Services
During 2002 Steelcraft continued to provide invaluable support to the Group and
remains an integral part of the Group's success. Whilst providing services only
to the Group, Steelcraft is believed to be the largest structural steel erection
business in the UK.
Severfield-Reeve Projects
2002 proved to be yet another successful year for this business. It is always
difficult to service the constant needs of the Group whilst at the same time
working on a number of other significant third party contracts. These included:
* Bootham Engineers - completion of new site manufacturing and office
facilities to the North of York
* Extension of warehouse facilities for Encore Direct, Near York
* Office development in Wakefield for Winston IOM
* Development of a new school - Grewelthorpe Primary, North Yorkshire
* Extension to Best Western Hotel, York
* Union Trucks facility, Thirsk
However Severfield-Reeve Projects successfully managed this and despite a
difficult market place returned a profitable and satisfactory performance.
Current projections for 2003 demonstrate that the current year will be another
one of success and profitability for this business.
Conclusion
The Group is the clear market leader, with each of our three core subsidiaries
regarded highly within the industry. This, combined with the value added
specialist plate and paint lines (the former with its leading edge technology)
provides the platform for success of the Group in the medium to long term.
The good order book of the Group, including the Heathrow, Terminal 5 contract
places the Group in an unrivalled position in an industry which in general is
expected to continue facing difficult times over the short term.
Our efforts for 2003 are focused on providing the best returns for our
shareholders. This includes continuing with our efforts to ensure effective
management control and efficiencies within our Group whilst at the same time
delivering to our customers the level of quality, service and commitment which
they expect from the industry's market leader.
John Severs
Managing Director
Financial Review
Overview
The Group's results for the year ended 31 December 2002 show a profit before tax
of #7.5 million on turnover of #157.4 million, increases of 15.6% and 8%
respectively over the previous year. Whilst profit before tax is slightly lower
than expectations it is an exceptional result in a year in which the only other
quoted structural steelwork company went into receivership. The second half of
the year proved particularly difficult with enquiry levels reducing along with
selling prices and, hence, margins. Nevertheless, the Group has strengthened
its position as the market leader in terms of financial efficiency and
productivity performance.
The basic earnings per share are 25.1p and it is recommended that the total
dividend for the year be maintained at 14.0p per share, giving a level of
dividend cover of 1.8 times. The year ended with a gross cash balance of #11.4
million with no gearing. Net assets increased by 8.4% to #37.7 million.
Operating Profit
The Group's operating profit increased by 18.1% to #7.7 million, with operating
margins increasing to 4.9% from the 4.5% achieved in 2001. However, for the
first time the Group's results now include its share of the results of its two
associated companies, Kennedy Watts Partnership Limited and Fabsec Limited of
which the Group owns 25.1% and 25% respectively. The Group's share of these two
companies' results amount to a net operating loss of #164,000, reducing the
total profit before tax of the Group to #7.5 million, which still represents a
15.6% increase over the previous year.
In addition, if the #570,000 operating loss of the subsidiary Steel (UK) Limited
which ceased trading during the year is excluded the total Group operating
profit in the ongoing businesses amounted to #8.3 million.
Taxation
The tax charge of #2.5 million represents an effective tax rate of 33.2% on
pre-tax profits for the year, compared with 31.8% in the previous year. The
higher effective rate is due to the adjustments made in respect of expenditure
incurred during the year which is disallowed for tax purposes. In addition, no
tax relief has been recognised in respect of the losses incurred by Fabsec
Limited in the period consolidated into the Group result.
The adoption during the year of the accounting standard FRS19 on deferred tax
has not had a significant impact on the financial statements.
Earnings Per Share
Basic earnings per share is 25.1p, an increase of 11.9% over the previous year.
This calculation is based on the profit after taxation of #5,023,000 and
20,024,284 ordinary shares, which is the weighted average of the number of
shares in issue during the year.
Dividend
The Board is recommending a final dividend of 8.75p per share (2001: 8.75p)
bringing the total dividend for the year to 14.0p per share. At this level the
dividend is, therefore, maintained at that paid in 2001. The total dividend is
now covered 1.8 times by earnings. This is slightly higher than the 1.6 times
earnings produced last year, but still somewhat lower than the historical
dividend cover of between 2.5 and 3 times. This reflects the Directors'
continued confidence in the Group for the future.
The final dividend is payable on 5 June 2003 to shareholders on the register on
16 May 2003. The ex-dividend date will be 14 May 2003. At the share price on 7
April 2003 of 207.5p the total dividend of 14.0p per share produces a dividend
yield of approximately 6.7 % net.
Balance Sheet
The Group balance sheet continues to strengthen with shareholders funds
increasing by #2.9 million to #37.7 million, which equates to a value per share
at 31 December 2002 of 186.9p, compared with 175.7p at the end of 2001.
As in previous years we have continued to invest heavily in our business with
capital expenditure during the year amounting to #9.2 million. A significant
proportion of this expenditure was carried out on the upgrading and improvement
of the fabrication site at Bolton where the business of Watson Steel Structures
is carried out. In addition, further investment was made in the Group's main
production facility at Dalton, North Yorkshire. The Group's balance sheet now
has fixed assets totalling almost #29 million. Depreciation charged in the year
amounted to #2 million.
Acquisitions
The profit and loss account includes for the first time the full year results of
Watson Steel Structures, a business acquired on 30 November 2001 from the AMEC
Group for a cash consideration of #2.5 million plus costs. Goodwill arising on
the transaction amounted in total to #163,000 and has been included in the
consolidated balance sheet as an intangible fixed asset to be amortised, in line
with FRS10, over 20 years.
On 31 January 2002 the Company acquired the entire share capital of Tubemasters
Limited for a total consideration, including costs, of #405,000. This
consideration consisted of #117,000 in cash with the balance of #288,000 by way
of 5% redeemable loan notes. The Group's results to 31 December 2002 include
those of Tubemasters for the 11 month period from the date of acquisition.
Goodwill arising of #26,000 will also be amortised over 20 years. Trading
results and cash flow since acquisition are not material and have not been
separately disclosed.
Cessation of Operations
On 31 August 2002 the business of Steel (UK) Limited, a 90% subsidiary of the
Company, ceased. The principal activity of this company was the trading of
ferrous metals. Due to the difficult trading conditions it has had to endure in
its market place for a number of years, the company regularly produced a loss
before tax and was no longer a material part of the Group. Consequently, the
Board decided that it could no longer justify operating the company and made the
decision to cease its operations.
In order to sell off the remaining stocks of raw steel prior to closedown some
of it was sold at below cost price. Consequently, along with costs associated
with the closure, this has contributed to a result for the year 2002 which is
substantially worse than those achieved previously. Turnover in the year
amounted to #993,000 producing an operating loss of #570,000. Interest payable
of #38,000 increased this figure to a loss before tax of #608,000.
Associated Companies
During 2001 the Company acquired a 25% shareholding in Fabsec Limited, a company
involved in the development of a bespoke and fire engineered beam made out of
plate. This company holds the master intellectual property rights for these and
the Fabsec beams the world over. It also carries out marketing and promotion.
The Group benefits from these functions whilst only contributing 25% towards
overheads. Fabsec Limited is not to be confused with the Group's successful and
profitable plate and intumescent paint lines, which produce at our Dalton site
the Fabsec and fire engineered beams under a perpetual, no royalty licence from
Fabsec Limited.
Investment in Fabsec Limited has continued by way of further loans to that
company in 2002. The total investment at 31 December 2002 amounted to #333,000.
However, for the first time since the business commenced trading in 2001,
Fabsec has produced its own accounts and our 25% share of its results has been
incorporated into the Group's figures. At the moment, Fabsec is heavily
involved in technical and market development and, therefore, the results to 31
December 2002 show a loss for the period. The Group's 25% share of this loss
amounted to #206,000.
The Group also owns a 25.1% shareholding in Kennedy Watts Partnership Ltd, a
company involved in CAD/CAM steelwork design. For the first time this year the
results of Kennedy Watts have been incorporated into the Group. The Group's
share of the operating profit of Kennedy Watts reduces the net operating loss
arising from associated companies to #164,000.
Cash Flow
Management of the Group's cash continues to be of prime importance and is
tightly controlled. During the year #16.3 million was generated from operating
activities.
Outflows of cash during the year included dividends paid of #2.8 million,
corporation tax paid of #2.5 million and the purchase of fixed assets, net of
sale proceeds and new hire purchase contracts, of #8.1 million.
During the year a short term bank loan, which had been made available to
Severfield-Reeve Projects for a particularly large contract, of #3.9 million was
repaid.
The Group ended the year with a positive cash balance of #11.4 million.
Borrowings, represented primarily by amounts due on hire-purchase contracts,
amounted to #2.2 million.
As a result, the Group had net funds available at the year end of #9.2 million,
an increase of #2.3 million from the end of 2001 and, therefore, no gearing.
Treasury
Group treasury activities are managed and controlled centrally. Risks to assets
and potential liabilities to customers, employees and the public continue to be
insured with reputable insurers. The Group maintains its low risk financial
management policy by insuring all significant trade debtors.
The treasury function seeks to reduce the Group's exposure to any interest rate,
foreign exchange and other financial risks, to ensure that adequate and cost
effective funding arrangements are maintained to finance current and planned
future activities and to invest cash assets safely and profitably.
The Group remains committed to strong financial controls, cash management and
prudent accounting and treasury policies.
Summary
The Group has had a successful year and continues to improve its healthy
financial position. The generation of profits continues to be strong as does
that of cash where despite capital expenditure in the year of #9.2 million, the
net funds of the Group increased by #2.3 million to #9.2 million. The
acquisition of Watson Steel Structures is proving to be a very successful one
enabling the Group to build on its position of unsurpassed financial strength
within the structural steelwork industry.
Peter Davison
Finance Director
Consolidated Profit and Loss Account
For the year ended 31 December 2002
2002 2001
Total Total
#000 #000
Turnover - continuing operations 157,418 145,786
Cost of sales (146,030) (136,722)
Gross profit 11,388 9,064
Distribution costs (580) (392)
Administration expenses (3,196) (2,254)
7,612 6,418
Other operating income 78 94
Group operating profit 7,690 6,512
Share of associates'
operating loss (164) -
7,526 6,512
Interest payable and similar charges (7) (5)
Profit on ordinary
activities before tax 7,519 6,507
Tax on profit on ordinary activities (2,496) (2,070)
Profit on ordinary activities
after tax for the financial year 5,023 4,437
Dividends payable to
equity shareholders (2,817) (2,748)
Profit retained,
transferred to reserves 2,206 1,689
Earnings per share
Basic 25.08p 22.42p
Diluted 25.05p 22.29p
Dividends per share
Paid 5.25p 5.25p
Proposed 8.75p 8.75p
Total 14.00p 14.00p
Consolidated Balance Sheet
31 December 2002
2002 2001
#000 #000
Fixed assets
Tangible assets 28,069 21,115
Investments 629 685
Intangible assets 180 112
28,878 21,912
Current assets
Stocks 5,742 1,902
Debtors 32,571 42,669
Cash at bank and in hand 11,417 13,418
49,730 57,989
Creditors - amounts falling due
within one year (37,613) (41,646)
Net current assets 12,117 16,343
Total assets less current
liabilities 40,995 38,255
Creditors - amounts falling due
after more than one year (1,240) (1,713)
Provisions for liabilities and
charges (2,021) (1,736)
37,734 34,806
Capital and reserves
Called up share capital 2,018 1,981
Share premium account 9,231 8,546
Merger reserve 114 114
Capital redemption reserve 25 25
Profit and loss account 26,346 24,140
Equity and total shareholders'
funds 37,734 34,806
Consolidated Cash Flow Statement
For the year ended 31 December 2002
2002 2001
#000 #000
Net cash inflow from operating activities 16,304 6,077
Returns on investments and servicing of finance 6 (15)
Taxation (2,467) (3,016)
Capital expenditure and financial investment (8,141) 7,219
Acquisitions and disposals (647) (2,526)
Equity dividends paid (2,784) (2,761)
Cash inflow before use of liquid
resources and financing 2,271 4,978
Financing (4,272) 2,822
(Decrease)/increase in cash in the year (2,001) 7,800
Reconciliation of net cash flow to movement in net funds
2002 2001
#000 #000
(Decrease)/increase in cash in the year (2,001) 7,800
Cash flow from movement in loans and hire-purchase
contracts 4,994 1,168
Change in net funds from cash flows 2,993 8,968
Loan acquired with subsidiary (107) -
New borrowings (288) (3,968)
New hire-purchase contracts (313) (1,066)
Movement in net funds in the year 2,285 3,934
Net funds at 1 January 6,874 2,940
Net funds at 31 December 9,159 6,874
Supplementary Statements
For the year ended 31 December 2002
Statement of Total Recognised Gains and Losses
There are no recognised gains or losses in either period other than the profit attributable to
members of the Group
Reconciliation of Movements in Shareholders' Funds
2002 2001
#000 #000
Profit for the financial year 5,023 4,437
Dividends (2,817) (2,748)
Issues of shares 722 22
Net addition to shareholders' funds 2,928 1,711
Opening shareholders' funds 34,806 33,095
Closing shareholders' funds 37,734 34,806
Notes:
1) The above financial information does not amount to full accounts within
the meaning of section 240 of the Companies Act 1985. Full accounts for the
year ended 31 December 2002 have not yet been audited or delivered to the
Registrar of Companies. The Annual Report is due to be posted to shareholders
on or around 6 May 2003. A copy of the statutory accounts for the year ended 31
December 2001 has been delivered to the Registrar of Companies. The Auditor's
Report on those accounts was not qualified and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985.
2) The basic earnings per share figure for the year ended 31 December 2002
is based on the profit after taxation of #5,023,000 (2001: #4,437,000) and
20,024,284 (2001: 19,792,739) ordinary shares, being the weighted average of the
number of shares in issue during the period.
3) The calculation of diluted earnings per share is based on the profit
after taxation of #5,023,000 (2001: #4,437,000) and 20,050,587 (2001:
19,902,896) ordinary shares, being the weighted average of the number of shares
in issue during the period, allowing for the dilutive effect of share options.
This information is provided by RNS
The company news service from the London Stock Exchange
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