RNS Number : 9496S
Severfield PLC
19 June 2024
 

19 June 2024

Results for the year ended 30 March 2024

Profits ahead of expectations, strong order books, further strategic progress in Europe

Severfield plc, the market leading structural steel group, announces its results for the year ended 30 March 2024.

£m

Year ended3

30 March 2024

Year ended3

25 March 2023

Change

Revenue

463.5

491.8

-6%

Underlying1 operating profit

(before JVs and associates)

37.7

33.1

+14%

Underlying1 operating margin

(before JVs and associates)

8.1%

6.7%

+140 bps

Operating profit

26.4

30.2

-12%

Operating margin

5.7%

6.1%

-40 bps

Underlying1 profit before tax

36.5

32.5

+13%

Profit before tax

23.0

27.1

-15%

Underlying1 basic earnings per share

8.9p

8.5p

+5%

Basic earnings per share

5.2p

7.0p

-26%

Underlying1 return on capital employed ('ROCE')

17.5%

15.8%

+170 bps

Headlines

§  Revenue of £463.5m (2023: £491.8m) reflects the impact of softer market conditions in 2024

§  Underlying1 profit before tax up 13% to £36.5m (2023: £32.5m), ahead of expectations due to strong operational delivery

§  Underlying1 basic earnings per share up 5% at 8.9p (2023: 8.5p)

§  Total dividend increased by 9% to 3.7p per share (2023: 3.4p per share), includes proposed final dividend of 2.3p per share (2023: 2.1p per share) - ten consecutive years of progressive dividends

§  Year-end net debt (on a pre-IFRS-16 basis2) of £9.4m (2023: net funds of £2.7m), includes Voortman acquisition loan of £15.2m, and reflects an operating cash conversion4 of 110% (2023: 145%).

§  High-quality, diversified UK and Europe order book of £478m at 1 June 2024 (1 November 2023: £482m), includes higher proportion of European orders

§  Momentum and value is building in JSSL - increased share of profit of £1.9m (2023: £1.3m), record EBITDA of £13m and output of over 100,000 tonnes, Gujarat expansion expected to commence in H2

§  Record India order book of £181m at 1 June 2024 (1 November 2023: £165m)

§  £10m share buyback programme launched in April 2024 to return surplus capital to shareholders

 

Outlook

§  UK and Europe:

-    Market conditions are showing signs of improvement

-    Voortman is integrating well into the Group's operations and helping to strengthen our market position in Europe

-    Medium-term strategic growth targets are reaffirmed

§  India: well-positioned to take advantage of significant growth opportunities, new markets being targeted, very encouraging outlook and strong underlying demand for structural steel

§  Our businesses remain well-positioned to win work in markets with positive long-term growth trends including those which are driving the green energy transition



 

§  On track to deliver a result for 2025 which is in line with our expectations

Alan Dunsmore, Chief Executive Officer commented:

 

"We are delighted to be reporting another strong performance by the Group, with our profits ahead of expectations. This is the result of an excellent operational performance and the success of our strategy to diversify the sectors and geographies we serve. This has enabled us to deliver enhanced returns for shareholders through our recent share buyback scheme, building on our ten consecutive years of progressive dividends.

 

Looking ahead, we have strong order books in the UK, Europe and India which are providing us with good earnings visibility through 2025 and beyond. With market conditions showing signs of improvement and with our businesses well-placed in markets that are expected to benefit from positive long term growth trends, which are unlikely to be impacted by the result of the upcoming UK general election, we are confident in the outlook for the business."

 

For further information, please contact:

 

Severfield

Alan Dunsmore

Chief Executive Officer

01845 577 896


Adam Semple

Chief Financial Officer

01845 577 896




Camarco

severfield@camarco.co.uk



Ginny Pulbrook

07961 315 138


Tom Huddart

07967 521 573

Jefferies International

Will Soutar

020 7029 8000

Liberum Capital

Nicholas How

020 3100 2000

 

Notes to financials:

1 stated before non-underlying items of £13.5m (2023: £5.4m) representing the amortisation of acquired intangible assets of £5.4m (2023: £3.4m), asset impairment charges of £4.5m (2023: £nil) and a legacy employment tax charge of £4.4m (2023: £nil), offset by a net acquisition-related credit of £0.8m (2023: charge of £2.0m). Non-underlying items have been separately identified by virtue of their magnitude or nature to enable a full understanding of the Group's financial performance and to make year-on-year comparisons. They are excluded by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group and are normally excluded by investors, analysts and brokers when making investment and other decisions (see note 3).

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 7).

3 except as otherwise stated '2023' and '2024' refers to the 52-week period ended 25 March 2023 and the 53-week period ended 30 March 2024 and '2025' refers to the 52-week period ending 29 March 2025. The Group's accounts are made up to an appropriate weekend date around 31 March each year.

4 a reconciliation of the Group's underlying results to its statutory results is provided in the Alternative Performance Measures ('APMs') section (see note 9).

 

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 seven sites, c.1,900 employees and expertise in large, complex projects across a broad range of sectors. The Group also has an established presence in the expanding Indian market through its joint venture partnership with JSW Steel (India's largest steel producer).



 

INTRODUCTION

The Group has had another successful year in 2024. We have reported underlying1 profits of more than £36m, delivered strong operating cash generation, made further strategic progress in Europe on the back of the Voortman ('VSCH') acquisition, and have secured a significant amount of new work across all areas of the business. This strong performance is reflected in our high-quality order books of £478m in the UK and Europe and £181m in India, providing us with good earnings visibility for the remainder of the 2025 financial year and beyond.

 

The Group delivered further underlying profit growth in 2024 against a backdrop of some challenging market conditions, particularly in the UK. The combination of our significant market sector, geographical and client diversification, the strength of our operations and management teams, our expert capabilities in engineering and construction and our strong financial position, underpin the performance and resilience of the Group. In 2024, we increased our underlying profit before tax by 13 per cent to £36.5m (2023: £32.5m), a result which includes the acquisition of VSCH which is providing us with greater access to growing European market sectors and strengthening our market position in Europe. VSCH, which has recently been combined with our existing European business, is integrating well into the Group's operations and has now adopted the Severfield brand, increasing our visual identity in Europe.

 

We have maintained a strong financial position throughout the year, enabling us to continue to support ongoing investment in the business, grow the dividend again and provide us with the platform to launch a share buyback programme to further increase returns to our shareholders. The Group continues to be highly cash generative, with operating cash conversion4 in the year of 110 per cent (2023: 145 per cent). This resulted in net debt (on a pre-IFRS-16 basis2) at the year-end of £9.4m (2023: net funds of £2.7m), including the outstanding VSCH acquisition loan of £15.2m (2023: £nil). Our strong balance sheet and consistent cash generation provides the Group with the flexibility to continue to invest in both organic and inorganic growth opportunities.

 

In 2024, our Indian joint venture ('JSSL') recorded output of more than 100,000 tonnes, including sub-contracted work, for the second year running. This high level of activity, an improved mix of work and good contract execution is evident in the Group's higher after-tax share of profit of £1.9m (2023: £1.3m), which reflects a record EBITDA of £13.2m. With the land in Gujarat now acquired, we expect to start work on a new manufacturing facility in the second half of the year, leaving the business well positioned to take advantage of a very encouraging outlook in India. We remain very positive about the long-term trajectory of the market and of the value creation potential of JSSL.

 

The board considers the dividend to be a significant component of shareholder returns and we have either increased or maintained dividends every year since the dividend was reintroduced in 2015. Based on the Group's continued progress, our strong cash position and confidence in the future prospects of the business, the board is once again recommending an increase in the final dividend to 2.3p per share, resulting in a total dividend for the year of 3.7p per share (2023: 3.4p per share), an increase of 9 per cent on the prior year.

 

STRATEGY

The Group's well-established strategy is unchanged, focused on growth and diversification (both organic and through selective acquisitions), operational improvements and building further value in JSSL which, in combination, will deliver strong EPS growth. Our clear focus on balance sheet strength and cash generation enables us to continue making the right decisions for the long-term, to maximise our competitive advantage and to best position us in our chosen markets for continued sustainable, long-term growth.

 

The Group delivers steel superstructures through its Core Construction Operations, separated operationally into a Commercial and Industrial division (bringing together the Group's strong capabilities in the industrial and distribution, commercial offices, stadia and leisure, data centres, retail, and health and education market sectors), which now includes VSCH, and a Nuclear and Infrastructure division (encompassing the Group's market-leading positions in the nuclear, power and energy, transport (road and rail) and process industries sectors). The Group's Modular Solutions division consists of the growing product ranges of Severfield Modular Solutions ('SMS') (previously Severfield (Products and Processing)) and of Construction Metal Forming ('CMF'), our specialist cold rolled steel joint venture business.

 

OUTLOOK

The Group is performing well and our businesses are well-positioned to win work in markets with positive long-term growth trends, providing us with a strong platform to fulfil our strategic growth aspirations. Whilst there remains some uncertainty in the wider economy, we are seeing an improvement in market conditions. All this, together with our high-quality order books, diversified activities and operational delivery capabilities, mean that we are well-placed for the future and on track to deliver a result for 2025 which is in line with our expectations.

 

RESULTS OVERVIEW

 

2024 (£m)

Revenue

UOP*

UPBT*

Core Construction Operations

449.2

37.4

37.4

Modular Solutions

21.5

0.3

0.3

India

-

-

1.9

Central items / eliminations

(7.2)

-

(3.1)

Group

463.5

37.7

36.5

Underlying operating margin

-

8.1%

-

 

2023 (£m)

Revenue

UOP*

UPBT*

Core Construction Operations

476.8

33.7

33.7

Modular Solutions

22.8

(0.6)

(0.1)

India

-

-

1.3

Central items / eliminations

(7.8)

-

(2.4)

Group

491.8

33.1

32.5

Underlying operating margin

-

6.7%

-

*The references to underlying operating profit (before JVs and associates) and underlying profit before tax are set out on page 2. A reconciliation of the Group's underlying results to its statutory results is provided in the Alternative Performance Measures ('APMs') section (see note 9).

 

Revenue of £463.5m (2023: £491.8m) represents a decrease of £28.3m (6 per cent) compared to the prior year. This reflects a decrease in revenue from our Core Construction Operations, mainly representing a reduction in steel prices and lower production activity, offset by new revenue from VSCH, in the first year of its acquisition.

 

Underlying operating profit (before JVs and associates) of £37.7m (2023: £33.1m) represents an increase of £4.6m (14 per cent) over the prior year. This reflects an increase in profit from our Core Construction Operations of £3.7m, which includes new profit from VSCH and continued contract execution improvements which have helped offset the impact of lower revenue in the year. The higher profits also include improved profitability of £0.9m from SMS, within Modular Solutions, reflecting the first time that this business has reported a profit for the full year. Statutory operating profit was £26.4m (2023: £30.2m), which includes non-underlying items of £13.5m (2023: £5.4m) representing the amortisation of acquired intangible assets, asset impairment charges and a legacy employment tax charge offset by a net acquisition-related credit.

 

The share of profit from the Indian joint venture in the year was £1.9m (2023: £1.3m), reflecting an improved work mix and good contract execution. Within Modular Solutions, CMF contributed a share of profit of £0.1m (2023: £0.5m), the reduction in profitability reflecting the softer market conditions in the distribution sector during the year and some under-recovery of overheads as the business ramps up its recently expanded production operations in Wales.

 

The Group's underlying profit before tax was £36.5m (2023: £32.5m), an increase of 13 per cent compared to the previous year. The statutory profit before tax was £23.0m (2023: £27.1m).



 

OPERATIONAL REVIEW

 

UK AND EUROPE

The Group's established approach to strong risk management, commercial discipline and careful contract selection has been particularly important to enable the business to navigate the challenges of the last financial year. These included softer market conditions in the distribution and infrastructure sectors, and the cancellation of the Sunset Studios project. This approach is reflected in our high-quality UK and Europe order book of £478m at 1 June (1 November: £482m), of which £384m is for delivery over the next 12 months, providing us with good earnings visibility for the remainder of the 2025 financial year and beyond. The order book remains well-diversified and contains a good mix of projects across the Group's key market sectors. The composition of the order book reflects the continued strengthening of our market position in Europe, supported by the acquisition of VSCH, which has recently been combined with our existing European business. 32 per cent of the order book now represents projects in continental Europe and Ireland (1 November 2023: 13 per cent).

 

In the second half of the year, we have continued to secure a significant value of new work (c.£280m). We are also continuing to see good project opportunities in the UK, as well as in Ireland and continental Europe, where we are making good progress with our European growth strategy. In the distribution and infrastructure sectors, we are seeing an increase in tendering activity although pricing in these sectors remains competitive for some projects.

 

Looking further ahead, many of our chosen markets continue to have a favourable outlook - the Group has a prominent position in market sectors with strong growth potential and is well-positioned to win projects in support of a low-carbon economy and to deliver energy security. These include opportunities in both Commercial and Industrial and Nuclear and Infrastructure, such as battery plants, energy efficient buildings, manufacturing facilities for renewable energy and offshore wind projects together with work in the transport, nuclear and power and energy sectors given our capability to deliver major infrastructure projects.

 

Project Horizon

Last year, the Group launched Project Horizon, our digital transformation project. The overall project is a long-term initiative that we believe will shape our future as we enhance our systems and leverage digital solutions to ensure we remain at the forefront of technology and innovation as market leaders in the industry. The objective is to maximise the automation of our estimating, design, production, and contract delivery processes to improve client service and deliver efficiency and capacity benefits. Workflows comprise over 100 short, medium, and long-term individual projects and initiatives designed to modernise and further standardise processes and systems across the Group.

 

As part of Project Horizon, we continue to make good progress with drawing and design automation which includes automated connection design and planning tools. Other projects either being worked on or completed in the last year include an automated quality assurance reporting system which improves tracking and client reporting, new systems for purchase order approvals, the use of barcoding for steel to improve traceability, the integration of pricing, design and production databases to drive production and planning processes, construction site asset and construction resource tracking tools, together with ongoing work on artificial intelligence to improve administrative processing times.

 

To date, based on the original plan, we have successfully completed 22 projects, and a further 22 of the 54 projects that we have classified as short to medium term are currently on-going. Three additional projects have been added to the plan, increasing the number of short to medium term projects to 57. Our dedicated project team is currently self-funded through annual savings, with further benefits being tracked as more of the identified projects and initiatives are implemented.

 

Clients

We continue to invest to meet the needs of our clients, building our capabilities, developing new technologies and driving efficiency across our production facilities, to ensure our growth ambitions are fully supported. We remain focused on measures that matter most to our clients, providing value added results whilst balancing time and cost objectives, with an emphasis on building strong and long-standing client partnerships.

 

Our unique capability to deliver complex design and engineering solutions, our capacity and speed of fabrication and our management of the integrated construction process is vital for our clients and a key differentiator for the Group. This is fundamental to our success and has been critical to securing new work, developing our client base and growing our revenues over recent years. This year we have delivered challenging programmes for clients, reduced costs and minimised waste through both our pre-tender value engineering and also post-award engineering solutions and developed innovative building solutions for reuseable temporary works and pre-assembled sections to work in live operating environments. In addition, when market pressures stretched existing budgets or caused delays, or when we were asked to accelerate existing construction programmes, our operational delivery capabilities allowed us to help clients deliver changes to these programmes quickly and efficiently, to provide them with problem-solving solutions and to ensure that programme milestones were achieved.

 

Core Construction Operations

 

£m

2024

2023

Change

Revenue

449.2

476.8

-6%

Underlying operating profit (before JVs and associates)

37.4

33.7

+11%

Underlying profit before tax

37.4

33.7

+11%





Revenue:




Commercial and Industrial

361.8

382.1

-5%

Nuclear and Infrastructure

87.4

94.7

-8%

 

Revenue of £449.2m (2023: £476.8m) represents a decrease of £27.6m (6 per cent) compared to the prior year. This reflects a reduction in steel prices and lower activity levels of £87.1m offset by revenue from VSCH of £59.5m. Underlying operating profit of £37.4m was up 11 per cent on the prior year (2023: £33.7m), which mainly represents profit from VSCH. Excluding VSCH, underlying profitability has remained broadly unchanged from the prior year as continued contract execution improvements have helped offset the impact of lower revenue in the year.

 

Commercial and Industrial

Revenue has decreased by 5 per cent to £361.8m (2023: £382.1m), predominantly due to the impact of the cancellation of the Sunset Studios project and softer market conditions in the distribution sector, which affected the number of projects coming to market during the year. This was partly offset by revenue from VSCH. The removal of Sunset Studios (c.£50m) from the order book was the result of a client-driven decision to pause construction on this planned new contract in July 2023.

 

During the year, work progressed on the new stadium for Everton F.C., the Envision Battery Plant in Sunderland, a manufacturing facility for BAE in Scotland, the LHR 11 data centre, a commercial office at 81 Newgate and the Excel Arena, all in London. We also continued our work on the SeAH Wind monopile manufacturing facility, which forms part of the UK's fast-growing alternative energy sector, a focus of the latest Government Energy Strategy. The 800-metre-long building at the Teesworks site will be the world's largest monopile facility when complete and is the first of its kind in the UK, with annual production of up to 200 monopiles, which form the foundations of offshore wind turbines.

 

The Commercial and Industrial order book at 1 June of £312m (1 November: £326m) includes a significant amount of new work which we have secured over recent months, particularly in Europe. This includes a package of data centres in Sweden, two new data centres for Google in Belgium and the Netherlands, a petrochemical project for Ineos in Belgium, and a logistics project for DHL in Lyon. In the UK, project wins included two commercial offices, including the Edge Building at London Bridge, which is set to be London's most sustainable office tower, and several distribution centres, reflecting a market which is showing signs of recovery. We have also successfully secured additional work at SeAH Wind and at Envision. Almost all of our work continues to be derived through either negotiated, framework or two-stage bidding procurement processes, in line with our established approach to strong risk management, commercial discipline and careful contract selection.

 

We continue to see some large opportunities including projects in markets which are driving the green energy transition such as energy efficient buildings, manufacturing facilities for renewable energy and offshore wind projects, together with stadia and leisure projects, TV and film studios and commercial offices in London and the regions. We are also seeing opportunities for new battery gigafactories to support domestic zero carbon vehicle production in the UK and EU, including the new Jaguar Land Rover facility in Somerset, the Northvolt facility in Sweden and a further gigafactory in Sunderland for Nissan.

 

Demand for data centres in the UK and EU is also expected to continue, fuelled by cloud computing, 5G and the recent advancement of Artificial Intelligence ('AI') applications which are driving even greater dependence on data centre infrastructure. The Group's manufacturing scale, speed of construction and on-time delivery capabilities, leaves us well-positioned to win work from such projects, the majority of which are likely to be designed in steel.

 

Strategic targets: we are targeting future revenue growth in line with GDP, enhanced by the acquisition of VSCH, with margins of 8-10 per cent (6-8 per cent based on recent high steel prices).

 

Nuclear and Infrastructure

Revenue has decreased by 8 per cent to £87.4m (2023: £94.7m) This reflects some softer market conditions in the infrastructure business during the year offset by the normal revenue timing differences inherent within our nuclear operations. During the period, we continued to work on several HS2 bridge packages for the Balfour Beatty Vinci ('BBV') and Effage Kier ('EKFB') consortia, road and rail bridges and some large propping packages for Silvertown Tunnel and at Old Oak Common for HS2. From a nuclear perspective, ongoing contracts include work at Hinkley Point and some large projects at Sellafield and in Berkshire for AWE.

 

The N&I order book at 1 June was £160m (1 November: £152m) of which 54 per cent represents transport infrastructure (1 November: 54 per cent) and 42 per cent represents nuclear projects (1 November: 41 per cent). Notable recent awards include the Black Cat to Caxton Gibbet road improvement scheme for National Highways, some bridge projects for the York Central infrastructure scheme, secondary steelwork packages at Hinkley Point and a growing scope of work at Sellafield where we are one of two 'key delivery partners' to deliver structural steelwork with an estimated value of c.£250m as part of the long-term Programme and Project Partners ('PPP') framework.

 

The markets in which we operate are showing signs of continued growth backed by government supported spending that prioritises modern and reliable infrastructure to support economic growth and help tackle climate change. In the UK, with an election announced for 4 July, the requirement for clean and domestically generated energy and improved transport infrastructure is a stated priority for both the Conservative party and the Labour party. Investment in transport and energy are both key components of the green energy transition and of the government's £775 billion National Infrastructure and Construction Pipeline, published in February 2024. The Group is well-placed to meet this demand for ongoing state-backed investment, which includes a significant increase in the volume of power transmission and distribution projects being brought to market, with an acceleration of work to strengthen and stabilise the power networks, together with areas such as offshore wind, carbon capture, nuclear (including small modular reactors and Sizewell C) and hydrogen production. We remain well-positioned to win work from these structural opportunities given our in-house expertise and unmatched scale and capability to deliver major infrastructure projects, together with the high barriers to entry for competitors.

 

In the UK transport sector, the government's decision to cancel the northern section of HS2 connecting Birmingham and Manchester has not impacted our order book nor our outlook for the business, and we continue to make good progress with several HS2 station opportunities in the pipeline including at Old Oak Common and Birmingham Interchange. We also welcome the UK Government's reaffirmed commitment to HS2 at Euston and to deliver Northern Powerhouse rail, all of which is likely to have a significant steelwork content. Aligned to the cancellation of the northern section of HS2, the government recently announced Network North, a £36 billion plan to improve roads, buses and railways in the north of England, which could also introduce new opportunities for the Group.

 

Strategic targets: our medium-term target is to grow revenues to over £125m, representing a doubling of 2022 revenues, with margins of 8-10 per cent (6-8 per cent based on recent high steel prices).

 

Modular Solutions

 

£m

2024

2023

Change

Revenue

21.5

22.8

-6%

Underlying operating profit (before JVs and associates)

0.3

(0.6)

+0.9

Share of results of CMF*

0.1

0.5

-0.4

Underlying profit before tax

0.3

(0.1)

+0.4

*In 2024, CMF reported revenue of £29.1m (2023: £40.6m) and a profit before tax of £0.2m (2023: £1.0m).

 

Modular Solutions consists of the growing modular product ranges of SMS and CMF. With CMF, we continue to be the only hot rolled steel fabricator in the UK to have a cold rolled manufacturing capability. The division has been awarded 'Fit for Nuclear' and certain Network Rail accreditations which, together with an expanding client base and our previous record in modular construction, we believe will help us to achieve our future organic growth aspirations. The division consists of three main business areas:

 

§  Severstor - specialist equipment housings for critical electrical equipment and switchgear,

§  Supply chain (steel components for modular homes and buildings) - raw material fabrication and modular systems including steel cassettes and framing, and

§  Bulk handling solutions - a high performance silo discharge system for the bulk handling of materials such as paints and other dispersible solids (of which Rotoflo is the premium product).

 

Although revenue of £21.5m (2023: £22.8m) represents a slight decrease compared to the prior year, for the first time, Modular Solutions has reported an underlying operating profit for the full year (2023: loss of £0.6m), reflecting an improved mix of higher-margin Severstor products. Divisional underlying PBT of £0.3m (2023: loss of £0.1m) also includes the post-tax share of profit of CMF of £0.1m (2023: £0.5m). The reduction in profitability at CMF reflected the softer market conditions in the distribution sector, and some under-recovery of overheads as the business continues the ramp up of its recently expanded production operations in Wales.

 

We have continued to make significant progress in growing our Severstor revenues and client base, including in the power, rail and oil and gas sectors. This is reflected in the expansion of our pipeline of opportunities within growth markets including renewables and data centres, aided by new product development including the development of steel framing solutions for modular building manufacturers.

 

CMF's growing product range includes load bearing frame and deck profiles, purlins and side rail systems, mezzanine floors and bespoke modular solutions supported by the recent expansion which has increased its cold rolled manufacturing capacity from c.10,000 tonnes to c.30,000 tonnes. During the year, CMF has continued to invest in new product development, its salesforce, and in new factory machinery to grow its client base and to expand into new segments including nuclear and transport infrastructure. As the modular market matures, clients are seeking greater scale, reliability and quality in the supply chain, all of which we can offer, to ensure that we continue to increase our share of a growing market.

 

For bulk handling solutions, we have an established foothold in the UK water treatment sector and in the expanding Indian paint manufacturing sector. We continue to introduce new products and services as we target growth in the food processing, water treatment and paint sectors in the UK, India and through our network of agents in the USA.

 

Strategic targets: our medium-term target is to grow combined SPP and CMF revenues to between £75m and £100m, with margins of greater than 10 per cent. In 2024, the Modular Solutions division delivered total revenue of £50.6m (SMS: £21.5m and CMF: £29.1m).

INDIA

 

£m

2024

2023

Change

Revenue

130.8

137.7

-5%

EBITDA

13.2

11.5

+15%

Operating profit

10.5

8.9

+18%

Operating margin

8.0%

6.5%

+150 bps

Finance expense

(5.5)

(5.5)

-

Profit before tax

5.0

3.4

+47%

Tax

(1.2)

(0.8)

-£0.4m

Profit after tax

3.8

2.6

+46%

Group share of profit after tax (50%)

1.9

1.3

+46%

 

In 2024, JSSL recorded an output of more than 100,000 tonnes, including sub-contracted work, for the second year running. JSSL has also delivered another step up in profitability in 2024 which is evident in a record EBITDA of £13.2m (2023: £11.5m) and the Group's after-tax share of profit of £1.9m (2023: £1.3m), an increase of 46 per cent over the prior year. This performance mainly reflects an improved mix of work and good contract execution resulting in an operating margin of 8.0 per cent (2023: 6.5 per cent). Financing expenses of £5.5m (2023: £5.5m) are unchanged from the previous year, as a result of a continued high level of borrowings, partly driven by the impact of inflation on working capital, and in the cost of letters of credit which are linked to higher steel prices. These financing costs result in JSSL's operating profit of £10.5m (2023: £8.9m) reducing to a profit before tax of £5.0m (2023: £3.4m).

 

India's construction sector, and the use of steel within construction, continues to grow rapidly, driven by factors such as an increasing population, urbanisation, and a growing economy. The government is also investing heavily in infrastructure development, which is further driving demand for construction services. This position is evident in a record order book at 1 June of £181m (1 November: £165m), which now contains a mix of higher margin commercial work of 71 per cent (1 November: 64 per cent), including a large commercial project in Delhi. The expanding market picture is also reflected in an improving pipeline of potential orders and in numerous identified growth opportunities in target markets, including commercial real estate, data centres, warehouses, infrastructure and in manufacturing sectors such as steel, cement and speciality chemicals. As part of its growth strategy, JSSL is also targeting new sectors and geographies including potential opportunities in near markets such as Saudi Arabia, building on JSSL's brand and reputation for delivering high-quality steel solutions.

 

In 2024, JSSL acquired a plot of land in Gujarat, in the west of India, to develop a new manufacturing facility and to expand the geographical footprint of the business. Initial work on this expansion is expected to commence in the second half of the year and capacity will be added incrementally to support the expected future market growth. JSSL is also strengthening its sales and estimating teams, bringing people with new skills into the business and enhancing its supply chain partnerships to support this expansion and to provide the business with the springboard to deliver future profitable growth.

 

In summary, momentum is building in JSSL and with the land in Gujarat now acquired, the business is well positioned to take advantage of a very encouraging outlook in India and a strong underlying demand for structural steel in construction. We remain very positive about the long-term trajectory of the market and of the value creation potential of JSSL.

 

ESG

ESG remains an important part of our strategic decision making. As a result of decisions made in recent years, the Group remains in a prominent market position in the high-growth markets of the future and is well-positioned to assist in accelerating the journey to Net Zero in its core sectors. To ensure we continue to support the most relevant ESG issues, the Group undergoes periodic materiality assessments and the outcomes of its 2024 assessment reaffirmed the issues that we had previously identified as important to our stakeholders - health and safety, the life cycle of our products, climate change and carbon emissions, talent management, sustainability governance and waste management.



 

Safety

The Group's top priority remains the health, safety and wellbeing of all our stakeholders. Our safety statistics continue to be industry-leading whilst we remain focused on continually improving our SHE culture including through the ongoing roll out of our Safer@Severfield behavioural safety programme.

 

In 2024, we have seen a further reduction in our injury rates, resulting in an injury frequency rate ('IFR') of 1.23, compared to 1.61 in 2023, and an accident frequency rate ('AFR'), which is based solely on the level of RIDDORS (reportable accidents), of 0.12, compared to 0.14 in 2023. Notwithstanding this, we continue to evaluate new solutions, including the use of technology, to further improve our safety performance, and are in the process of adopting positive leading indicators to drive preventative behaviours in our workforce.

 

Sustainability

In 2024, the Group was awarded 'AAA' under MSCI's ESG ratings for a third consecutive year and achieved an 'A' score for leadership on climate change mitigation from CDP. We have again achieved a CDP score for supply chain engagement of 'A-' as well as our 'very good' BES 6001 responsible sourcing accreditation, highlighting our continued supply chain engagement to promote sustainability. Other highlights in 2024 include:

 

§  Being third party verified and accredited as carbon neutral for the fourth year running for scope 1, 2 and operational scope 3 GHG emissions for our manufacturing, office and construction operations.

§  Received validation from the SBTi (Science Based Targets initiative) of our Net Zero targets, one of the few companies in the UK construction and engineering sector to have achieved this validation.

§  Being included in the Financial Times (FT) listing of Europe's climate leaders for the fourth year running which showcases corporate progress in fighting climate change.

§  Procuring 100 per cent of our energy from renewable sources at all UK owned facilities.

 

We have continued to maintain our focus on social value, including adopting defined social value objectives for the Group, and having established our baseline, we continue to monitor how much value we deliver annually in line with the National TOMs methodology framework. During the year, social value was delivered by a wide range of activities including supporting local supply chain partners, fundraising and volunteering schemes, through paying our colleagues at or above the real living wage and 'earning and learning' through our gold membership of 'The 5% Club', including increasing our intake of annual apprentices.

 

As a SteelZero signatory, we have committed to procure 100 per cent low carbon steel by 2050, with interim carbon reduction targets in place for 2030. We continue to work with the Climate Group and other SteelZero members as the industry continues its transition to low carbon steel production and, in 2024, we have started to disclose our progress against certain low carbon steel procurement targets to the Climate Group.

 

Culture and values

We have recently launched 'The Severfield Way', a framework designed to harness the skills and expertise of our people and promote the positive culture and ways of working that everyone at Severfield strives for. The framework is made up of our new company values and behaviours, as well as our long standing purpose - creating better ways to build, for a world of changing demands. Our four new core values - we set the bar high, we are in it together, we find better ways and we do the right thing - are the fundamental beliefs that underpin everything we do and will serve the business well as we continue to implement our successful growth strategy.

 

BOARD CHANGES

In April 2024, the Group announced the appointment of Charlie Cornish as non-executive Chair and director of the Company. Charlie will take over as Chair after the AGM on 30 July 2024 when Kevin Whiteman steps down from the board, having reached the end of his tenure. Charlie is currently non-executive Chair of Manchester Airports Group ('MAG'), Core Highways Group and Ipsum Group and was previously CEO of MAG for 13 years. He also previously served on the board of United Utilities Group plc for 7 years. He has substantial experience of developing strategy and leading large complex businesses across a number of relevant sectors, all of which will be highly beneficial to the Group as it continues to grow and develop. During the year there were several other changes to the board. Tony Osbaldiston retired, having completed his nine year tenure, and the Group also saw the departures of Rosie Toogood, who took up a senior executive role at Wates, a major customer, and Ian Cochrane, previously the Chief Operating Officer, who left to pursue other interests.

 

FINANCIAL REVIEW

 

£m

2024

2023

Change

Revenue

463.5

491.8

-6%

Underlying* operating profit (before JVs and associates)

37.7

33.1

+14%

Underlying* operating margin (before JVs and associates)

8.1%

6.7%

+140 bps

Underlying* profit before tax

36.5

32.5

+13%

Underlying* basic earnings per share

8.9p

8.5p

+5%

Operating profit

26.4

30.2

-13%

Operating margin

5.7%

6.1%

-40 bps

Profit before tax

23.0

27.1

-15%

Basic earnings per share

5.2p

7.0p

-26%

Underlying return on capital employed ('ROCE')

17.5%

15.8%

+170 bps

*     The basis for stating results on an underlying basis is set out on page 2. A reconciliation of the Group's underlying results to its statutory results is provided in the Alternative Performance Measures ('APMs') section (see note 9).

Revenue of £463.5m (2023: £491.8m) was 6 per cent lower than the prior year, as a result of a reduction in steel prices and lower production activity, offset by new revenue from VSCH, in the first year of its acquisition. Underlying operating profit (before JVs and associates) of £37.7m was 14 per cent higher than the prior year, mainly due to new profit from VSCH, continued contract execution improvements which have helped offset the impact of lower revenue in the year, and higher profit from SMS, within Modular Solutions. Statutory operating profit, which includes non-underlying items, was £26.4m (2023: £30.2m).

 

Underlying profit before tax, which is management's primary measure of Group profitability, was £36.5m (2023: £32.5m), 13 per cent higher than the prior year. The statutory profit before tax was £23.0m (2023: £27.1m). The underlying tax charge for the year was £9.1m (2023: £6.2m). which represents an effective tax rate of 26.2 per cent (2023: 20.4 per cent). This broadly equates to the statutory rate in the UK and the Netherlands of between 25 and 26 per cent (2023: statutory rate in the UK of 19 per cent). The total tax charge of £7.1m (2023: £5.5m) includes a non-underlying tax credit of £2.0m (2023: £0.7m).

 

Underlying basic earnings per share increased by 5 per cent to 8.9p (2023: 8.5p) based on the weighted average number of shares in issue of 307.1m (2023: 309.5m). Basic earnings per share was 5.2p (2023: 7.0p), reflecting the higher underlying profit after tax offset by an increase in non-underlying items. Diluted earnings per share, which includes the effect of the performance share plan, was 5.1p (2023: 6.9p).

 

Non-underlying items

Non-underlying items for the year of £13.5m (2023: £5.4m) consisted of the following:

 

£m

2024

2023

Amortisation of acquired intangible assets

5.4

3.4

Asset impairment charges

4.5

-

Legacy employment tax charge

4.4

-

Acquisition-related credits / charges

(0.8)

2.0

Non-underlying items

13.5

5.4

 

The asset impairment charges relate to our leasehold facility at Sherburn, currently being operated by SMS. During the year, we were advised of the landlord's intention to terminate the factory lease. As a result, an impairment review of property, plant and equipment was performed, resulting in a non-cash charge of £4.5m. Given our growth aspirations for SMS, and the Modular Solutions division as a whole, we have factored this development into our wider footprint review which was already underway prior to the decision to terminate the lease, and we expect to relocate to a new facility in the 2026 financial year.

 

The legacy employment tax charge relates to an assessment raised by HMRC for historical income tax and national insurance ('NIC') liabilities which are disputed by the Group. In common with many other construction companies, the Group pays its site-based colleagues an income tax and NIC free allowance to cover the costs of accommodation and subsistence that they incur whilst working away from home on construction sites. HMRC is asserting that, as a result of some procedural matters, largely associated with a change in tax legislation in 2016, certain of these payments are subject to income tax and NIC. The Group disagrees with the assessment raised and discussions are ongoing with HMRC to bring this matter to a conclusion. Notwithstanding this, since HMRC has issued formal determinations for the amounts it considers are due, a charge of £4.4m has been recognised, including interest of £0.4m.

 

The amortisation of acquired intangible assets of £5.4m represents the non-cash amortisation of customer relationships, order books and brand names. These assets are being amortised over a period of 12 months to five years. Acquisition-related credits of £0.8m represent the unwinding of the discount on and movements in the contingent consideration for DAM Structures which is payable over a five-year period. In the prior year, acquisition-related charges of £2.0m included acquisition and similar transaction costs associated with the VSCH acquisition.

 

Cash flow and financing

 

£m

 2024

 2023

Operating cash flow (before working capital movements)

41.4

40.1

Cash generated from / (used in) operations

52.4

53.8

Capital expenditure

(11.3)

(6.5)

Operating cash conversion

110%

145%

Net cash balances

10.4

11.3

Net (debt) / funds (pre-IFRS-16 basis)**

(9.4)

2.7

Net (debt) / funds

(28.4)

(10.7)

**   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. A reconciliation of the Group's underlying results to its statutory results is provided in the APMs section (see note 9).

The Group's business model generates surplus cash flows and we have always placed a high priority on cash generation and working capital management. Net debt (pre-IFRS 16 basis) at the year-end was £9.4m (2023: net funds of £2.7m). This included net cash of £10.4m (2023: £11.3m) and term loans of £20.0m (2023: £8.9m) which included the outstanding acquisition loan for VSCH of £15.2m (2023: £nil).

 

Operating cash flow before working capital movements was £41.4m (2023: £40.1m). Net working capital has improved by £11.0m during the year. Excluding advance payments, year-end working capital represented approximately 4 per cent of revenue (2023: 5 per cent), which is within our normal range of 4 to 6 per cent. Capital expenditure of £11.3m (2023: £6.5m) represents the continuation of the Group's capital investment programme (and compares to depreciation in the year of £9.2m (2023: £7.2m), of which £2.7m (2023: £1.8m) relates to right-of-use assets under IFRS 16). This predominantly consisted of new and upgraded equipment for our fabrication lines, an extension of the Dalton factory and general infrastructure improvements. Operating cash conversion (defined in the APMs section - note 9) for 2024 was 110 per cent (2023: 145 per cent), significantly above our KPI target of 85 per cent.

 

In April 2023, the Group completed the acquisition of VSCH for a net cash consideration of €25.7m (£22.6m), on a cash free basis. The total cash consideration was €29.5m (£26.3m) including VSCH's cash and cash equivalents of €4.3m (£3.8m), which was funded by a combination of Group cash reserves of £3.6m and a term loan of £19.0m, repayable over a five-year period. In addition, contingent consideration of £1.2m was paid in relation to the acquisition of DAM Structures, taking the total contingent consideration paid to date to £2.7m. The maximum contingent consideration is £8.0m, payable if certain work-winning targets in the railway and steel piling sectors are achieved over a five-year period, ending in April 2026.

 

The Group has a £60m revolving credit facility ('RCF') with HSBC Bank and Virgin Money, which matures in December 2026. This provides the Group with long-term financing to help support its growth strategy. The RCF is subject to three financial covenants, namely interest cover, net debt to EBITDA and debt service (cash flow) cover. In addition to the RCF, which was undrawn at 30 March 2024, amortising term loans have been used to fund previous acquisitions, of which £20m remained outstanding at 30 March 2024.

 

Pensions

The Group's net defined benefit pension liability at 30 March 2024 was £11.5m (scheme liabilities of £34.0m offset by scheme assets of £22.5m), a decrease of £1.4m from the 2023 liability of £12.9m. The deficit has reduced as a result of a higher discount rate, reflecting a rise in bond yields, and employer deficit contributions, offset by higher than expected inflation. All other pension arrangements in the Group are of a defined contribution nature.

 

Dividends and capital allocation

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 disciplined capital allocation policy:

 

§  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 strategic opportunities that meet the Group's investment criteria, and

§  To return excess cash to shareholders in the most appropriate way, whilst maintaining a strong balance sheet position.

 

In line with the Group's progressive dividend policy, the board is recommending an increased final dividend of 2.3p per share (2023: 2.1p), payable on 11 October to shareholders on the register at the close of business on 6 September. This together with the interim dividend of 1.4p per share (2023: 1.3p), will result in a total dividend of 3.7p per share (2023: 3.4p). Looking ahead, as in previous years, the board expects the interim dividend to be approximately one third of the prior year's full dividend.

 

Consistent with the framework set out above, in April 2024 the Group announced a share buyback programme to repurchase up to £10m of ordinary shares, subject to market conditions. The board is satisfied with the progress of this buyback programme, with a total of 1,370,344 shares purchased and cancelled during the post balance sheet period, at a cost of £1.0m.

 

Return on capital employed

The Group adopts underlying 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 underlying ROCE is defined in the APMs section (see note 9). For 2024, underlying ROCE was 17.5 per cent (2023: 15.8 per cent), which exceeds the Group's minimum threshold of 10 per cent through the economic cycle.

 

 

 

Alan Dunsmore                                    Adam Semple

Chief Executive Officer                          Chief Financial Officer

 

19 June 2024



 

Consolidated income statement

For the year ended 30 March 2024

 

 

 

 

2023

 

 

 

 

00

 

 

3

 

 

 

2022

 

 

 

 

 

 

 

 

 

 


Year ended 30 March 2024

Year ended 25 March 2023

 

 

 

Underlying

 2024

£000

Non-underlying

2024

£000

 

Total

2024

£000

 

Underlying

 2023

£000

Non-underlying

2023

£000

 

Total

2023

£000

Revenue

     463,465

               -

     463,465

     491,753

               -

     491,753

Operating costs

    (425,775)

     (13,225)

    (439,000)

    (458,686)

       (4,811)

    (463,497)

Operating profit before share of results of JVs and associates

      37,690

     (13,225)

      24,465

      33,067

       (4,811)

      28,256

Share of results of JVs and associates

        1,950

               -

        1,950

        1,898

               -

        1,898

Operating profit

      39,640

     (13,225)

      26,415

      34,965

       (4,811)

      30,154


 

 

 




Net finance expense

       (3,095)

          (300)

       (3,395)

       (2,489)

          (558)

       (3,047)

Profit before tax          

      36,545

     (13,525)

      23,020

      32,476

       (5,369)

      27,107


 

 

 




Tax

       (9,076)

        1,957

       (7,119)

       (6,238)

           697

       (5,541)

Profit for the year attributable to the equity holders of the parent

      27,469

     (11,568)

      15,901

      26,238

       (4,672)

      21,566


 

 

 





 

 

 




Earnings per share:

 

 

 




Basic

8.94p

(3.76)p

5.18p

8.48p

(1.51)p

6.97p

Diluted

8.85p

(3.72)p

5.13p

8.39p

(1.49)p

6.90p

 

Further details of 2024 non-underlying items are disclosed in note 3. A reconciliation of the Group's underlying results to its statutory results is disclosed in note 9.



Consolidated statement of comprehensive income

For the year ended 30 March 2024

 


Year ended

30 March 2024

£000

Year ended

25 March 2023

£000

Items that will not be reclassified to profit and loss:

 


Actuarial loss on defined benefit

pension scheme

                          (745)

                          (701)

Share of other comprehensive income of JVs and associates accounted for using the equity method

                           869

-

Tax relating to components that will not be reclassified

                           186

                           175


                           310

                          (526)

Items that may be reclassified to profit and loss:

 


Gains/(losses) taken to equity on cash flow hedges

                         1,239

                        (1,147)

Reclassification adjustments on cash flow hedges

                          (314)

                           243

Exchange difference on foreign operations

                          (264)

                            (86)

Tax relating to components that may be reclassified

                          (398)

                           153


                           263

                          (837)

Other comprehensive income for the year

                           573

                        (1,363)

Profit for the year from continuing operations

                       15,901

                       21,566

Total comprehensive income for the

year attributable to equity holders of the parent

16,474

 



 

Consolidated balance sheet

As at 30 March 2024


 

 

 

 


                       As at

30 March

2024

                         £000

                       As at

25 March 

2023

                        £000

ASSETS

 


Non-current assets

 


     Goodwill

                      98,469

                     82,188

     Other intangible assets

                        5,508

                       7,095

     Property, plant and equipment

                      96,434

                     92,067

     Right-of-use assets

                      18,651

                     13,018

     Interests in JVs and associates

                      37,364

                     31,784

     Deferred tax assets

                        1,828

                              -

     Contract assets, trade and other receivables

                        1,050

                       2,245


                    259,304

                   228,397

Current assets

 


     Inventories

                      11,648

                     13,231

     Contract assets, trade and other receivables

                      88,334

                   109,721

     Derivative financial instruments

                           675

                           25

     Current tax assets

                        4,646

                       2,278

     Cash and cash equivalents

                      13,803

                     11,338


                    119,106

                   136,593

Total assets

                    378,410

                   364,990


 


LIABILITIES

 


Current liabilities

 


     Bank overdrafts

                       (3,409)

                              -

     Trade and other payables

                     (78,934)

                  (102,699)

     Provisions

                     (11,819)

                              -

     Financial liabilities - borrowings

                       (6,200)

                      (4,150)

     Financial liabilities - leases

                       (2,931)

                      (2,172)


                   (103,293)

                  (109,021)

Non-current liabilities

 


 Trade and other payables

                       (1,095)

                      (2,377)

     Retirement benefit obligations

                     (11,464)

                    (12,871)

     Financial liabilities - borrowings

                     (13,800)

                      (4,800)

     Financial liabilities - leases

                     (16,142)

                    (11,224)

     Deferred tax liabilities

                     (11,865)

                      (6,979)


                     (54,366)

                    (38,251)

Total liabilities

                   (157,659)

                  (147,272)


 


NET ASSETS

                    220,751

                   217,718


 


EQUITY

 


Share capital

                        7,739

                       7,739

Share premium

                      88,522

                     88,522

Other reserves

                        4,728

                       5,959

Retained earnings

                    119,762

                   115,498

TOTAL EQUITY

                    220,751

                   217,718



 

Consolidated statement of changes in equity

For the year ended 30 March 2024

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Share

     capital

         £000

       Share

  premium

         £000

       Other

   reserves

         £000

  Retained

  earnings

         £000

        Total

      equity

         £000

 

 

 

 

 

 

At 26 March 2023

        7,739

     88,522

      5,959

    115,498

   217,718

Total comprehensive income for the year

               -

              -

      1,530

     14,944

    16,474

Equity settled share-based payments

               -

              -

     (1,234)

       3,007

      1,773

Purchase of owned shares

               -

              -

     (4,500)

              -

     (4,500)

Allocation of owned shares

               -

              -

      2,973

      (2,973)

             -

Dividend paid

               -

              -

             -

    (10,714)

   (10,714)

At 30 March 2024

        7,739

     88,522

      4,728

    119,762

   220,751

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


       Share

      capital

         £000

       Share

   premium

         £000

        Other

   reserves

         £000

   Retained

   earnings

         £000

        Total

       equity

         £000







At 27 March 2022

        7,738

       88,511

        4,485

   103,226

    203,960

Total comprehensive income for the year

               -

                -

          (991)

     21,194

      20,203

Ordinary shares issued *

              1

             11

               -

              -

            12

Equity settled share-based payments

               -

                -

        2,465

         955

        3,420

Dividend paid

               -

                -

               -

      (9,877)

       (9,877)

At 25 March 2023

        7,739

      88,522

        5,959

   115,498

    217,718







* The issue of shares represents shares allotted to satisfy the 2018, 2020 and 2021 Sharesave scheme.



 

Consolidated cash flow statement

For the year ended 30 March 2024

 


Year ended

30 March 2024

£000

Year ended

25 March 2023

£000

Net cash flow from operating activities

              45,136

                      50,292


 


Cash flows from investing activities

 


Proceeds on disposal of other property, plant and equipment

                  408

                           317

Purchases of land and buildings

                 (410)

                          (635)

Purchase of intangible assets

                      -

                          (168)

Purchases of other property, plant and equipment

             (10,911)

                       (5,668)

Acquisition of subsidiary, net of cash acquired

             (22,551)

                               -

Investment in JVs and associates

              (2,801)

                               -

Payment of deferred and contingent consideration

              (1,183)

                       (8,534)

Net cash used in investing activities

             (37,448)

                     (14,688)


 


Cash flows from financing activities

 


Interest paid

              (3,220)

                       (2,495)

Dividends paid

             (10,714)

                       (9,877)

Proceeds from shares issued

                      -

                            12

Purchase of owned shares (net of SAYE cash received)

              (3,120)

                               -

Proceeds from borrowing

              19,000

                               -

Repayment of borrowings

              (7,950)

                       (5,900)

Repayment of obligations under finance leases

              (2,628)

                       (2,032)

Net cash used in financing activities

              (8,632)

                     (20,292)


 


Net (decrease)/increase in cash and cash equivalents

                 (944)

                      15,312

Cash and cash equivalents at beginning of year

              11,338

                       (3,974)

Cash and cash equivalents at end of year

              10,394

                      11,338


 




 

1)         Basis of preparation

 

The preliminary announcement has been prepared on the basis of accounting policies as set out in the statutory accounts for the year ended 30 March 2024. The consolidated financial statements have been prepared on the historical cost convention, except for the revaluation of financial instruments. The financial statements are prepared in accordance with UK-adopted International Accounting Standards and in conformity with the Companies Act 2006.

The preliminary announcement is made up to an appropriate Saturday around 31 March each year. For 2024, trading is shown for the 53-week period ended on 30 March 2024 (2023: 52-week period ended on 25 March 2023).

The financial statements of the Group's joint venture, JSSL, are made up to the year ended 31 March 2024 (2023: year ended 31 March 2023).

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 30 March 2023 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 30 March 2024, 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 emphasis of matter, 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

 

In line with the requirements of IFRS 8, operating segments are identified on the basis of the information that is regularly reported and reviewed by the chief operating decision maker ('CODM'). The Group's CODM is deemed to be the Executive Committee, who are primarily responsible for the allocation of resources and the assessment of performance of the segments. Consistent with previous periods, management continues to identify multiple operating segments, primarily at an individual statutory entity level, which are reported and reviewed by the CODM. For the purpose of presentation under IFRS 8, the individual operating segments meet the aggregation criteria that allows them to be aggregated and presented as one reportable segment for the Group. However, in the current year, management consider it appropriate to disclose two operating segments as described below.

 

§  Core Construction Operations - comprising the combined results of the Commercial and Industrial ('C&I') and Nuclear and Infrastructure ('N&I') divisions, including the results of Voortman Steel Construction Holding ('VSCH').

§  Modular Solutions - comprising Severfield Modular Solutions ('SMS') and the Group's share of profit (50 per cent) from the joint venture company, Construction Metal Forming Limited ('CMF').

 

The separate presentation of the modular businesses, as 'Modular Solutions', aligns with the maturity of the SMS business, which was established in 2018. In the current year it has reduced the levels of intercompany fabrication work as it grows external revenues from its core products.

 

The constituent operating segments that make up 'Core Construction Operations' have been aggregated because the nature of the products across the businesses, whilst serving different market sectors, are consistent in that they relate to the design, fabrication and erection of steel products. They have similar production processes and facilities, types of customers, methods of distribution, regulatory environments and economic characteristics. This is reinforced through the use of shared production facilities across the Group.



 

The C&I and N&I divisions presented in the operational review of the preliminary announcement were established in April 2022 to provide better client service and increased organisational clarity, both internally and externally. These still meet the aggregation criteria to be presented as one reportable segment under IFRS 8 and are therefore presented as such within Core Construction Operations.

 

Segment assets and liabilities are not presented as these are not reported to the CODM.

 


Core Construction Operations

Modular Solutions

JSSL

Central costs/ eliminations

Total

Year ended 30 March 2024:

£000

£000

£000

£000

£000

Revenue

449,168

21,489

-

(7,192)

463,465

Underlying operating profit

37,430

260

-

-

37,690

Underlying operating profit margin

8.3%

1.2%

 


8.1%

 





 

Result from joint ventures





 

- CMF

-

92

-

-

92

- JSSL

-

-

1,858

-

1,858

Finance costs

-

-

-

(3,095)

(3,095)


 




 

Underlying profit before tax

37,430

352

1,858

(3,095)

36,545

 





 

Non-underlying items      (note 3)

(14,270)

(115)

-

860

(13,525)


 




 

Profit before tax

23,160

237

1,858

(2,235)

23,020

 





 

Other material items of income and expense:





 

- Depreciation of owned property, plant and equipment

(6,317)

(163)

-

-

(6,480)

- Depreciation of right-of-use assets

(2,644)

(39)

-

-

(2,683)

- Other operating income

1,625

245

-

-

1,870

 



 


Core Construction Operations

Modular Solutions

JSSL

Central costs/ eliminations

Total

Year ended 25 March 2023*:

£000

£000

£000

£000

£000

Revenue

476,815

22,820

-

(7,882)

491,753

Underlying operating profit

33,705

(638)

-

-

33,067

Underlying operating profit margin

7.1%

(2.8%)

 


6.7%

 





 

Result from joint ventures





 

- CMF

-

583

-

-

583

- JSSL

-

-

1,315

-

1,315

Finance costs

-

-

-

(2,489)

(2,489)


 




 

Underlying profit before tax

33,705

(55)

1,315

(2,489)

32,476

 





 

Non-underlying items (note 3)

(3,338)

-

-

(2,031)

(5,369)


 




 

Profit before tax

30,367

(55)

1,315

(4,520)

27,107

 





 

Other material items of income and expense:





 

- Depreciation of owned property, plant and equipment

(5,247)

(160)

-

-

(5,407)

- Depreciation of right-of-use assets

(1,816)

(24)

-

-

(1,840)

- Other operating income

1,659

193

-

-

1,852

 

*Comparative information has been restated to provide additional segmental disclosures.

 

Revenue

 

All revenue is derived from construction contracts and related assets. Additional disclosures are made under IFRS 15 to enable users to understand the relative size of the divisions. An analysis of the Group's revenue is as follows:


2024



2023*


£000

£000

Commercial and Industrial

361,734

382,055

Nuclear and Infrastructure

87,434

94,760

Core Construction Operations

449,168

476,815

Modular Solutions

21,489

22,820

Elimination of inter-segment revenue (Modular Solutions)

(7,192)

(7,882)

Total Group revenue

463,465

491,753

 

*Comparative information has been restated to provide additional segmental disclosures.



 

Geographical information

 

The following table presents revenue according to the primary geographical markets in which the Group operates. This disaggregation of revenue is presented for the Group's two operating segments described above.

 


2024

 

 


2023*

Core Construction Operations - revenue by destination

£'000

£'000

United Kingdom

367,127

437,741

Republic of Ireland and continental Europe

82,041

39,074


449,168

476,815

 




2024


Modular Solutions - revenue by destination

2023*

£'000

£'000

United Kingdom

17,486

18,195

Republic of Ireland and continental Europe

4,003

4,625


21,489

22,820

Elimination of intercompany revenue (UK)

(7,192)

(7,882)


14,297

14,938

 

*Comparative information has been restated to provide additional segmental disclosures.

 

All revenue is derived from construction contracts and related assets. Group revenue includes revenue of £100,189,000 (2023: £135,318,000), relating to one major client (2023: two major clients), who individually contributed more than 10 per cent of Group revenue in the year ended 30 March 2024.



 

3)         Non-underlying items


2024

£000

2023

£000

Amortisation of acquired intangible assets

                  5,399

               3,338

Asset impairment charges

                  4,543

                      -

Legacy employment tax charge

                  4,413

                      -

Acquisition-related (credits) / charges

                   (830)

               2,031

Non-underlying items before tax

                13,525

               5,369

Tax on non-underlying items

                 (1,957)

                 (697)

Non-underlying items after tax

                11,568

               4,672

 

The amortisation of acquired intangible assets of £5,399,000 (2023: £3,338,000) represents the amortisation of customer relationships, order books and brand name, which were identified on the acquisition of Harry Peers, DAM Structures and VSCH in 2020, 2021 and 2023, respectively.

 

The asset impairment charge of £4,543,000 relates to the impairment of assets at our leasehold facility in Sherburn. During the year, we were advised of the landlord's intention to terminate the factory lease. As a result, an impairment review of property, plant and equipment was performed, resulting in a non-cash charge.

 

The legacy employment tax charge of £4,413,000 relates to an assessment raised by HMRC for historical income tax and national insurance ('NIC') liabilities. The Group disputes the charge and is in ongoing discussions with HMRC to bring this matter to a conclusion. Notwithstanding this, since HMRC has issued formal determinations for the amounts it considers are due, a charge of £4,413,000 has been recognised, including interest of £428,000.

 

The net acquisition-related credit of £830,000 (2023: charge of £2,031,000) includes £nil (2023: £1,816,000) associated with the acquisition of VSCH, the unwinding of discount on contingent consideration of £300,000 (2023: £558,000), other legal fees of £30,000 (2023: £nil) offset by a fair value adjustment to contingent consideration which resulted in a credit of £1,160,000 (2023: £343,000).

 

For tax on non-underlying items in the year a credit of £1,957,000 has been recognised, comprising a tax credit on non-underlying items of £2,454,000 offset by a charge of £497,000 relating to prior year adjustments.

 

Non-underlying items have been separately identified by virtue of their magnitude or nature to enable a full understanding of the Group's financial performance and to make year-on-year comparisons. They are excluded by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group and are normally excluded by investors, analysts and brokers when making investment and other decisions. For an item to be considered as non-underlying, it must satisfy at least one of the following criteria:

 

§  A significant item, which may span more than one accounting period.

§  An item directly incurred as a result of either a business combination, disposal, or related to a major business change or restructuring programme, and

§  An item which is unusual in nature (outside the normal course of business).



 

4)         Taxation

The taxation charge comprises:


    2024

£000

                   2023

                   £000

Current tax

 


Corporation tax charge

                   (5,649)

                 (5,460)

Foreign tax relief / other relief

                        70

                      51

Foreign tax suffered

                       (70)

                     (51)

Adjustments to prior years' provisions

                       136

                      60


                   (5,513)

                 (5,400)


 


Deferred tax

 


Current year charge

                      (973)

                    (144)

Impact of change in future years' tax rates

                           -

                     (14)

Adjustments to prior years' provisions

                      (633)

                      17


                   (1,606)

                    (141)

Total tax charge

                   (7,119)

                 (5,541)

 

5)         Dividends


                     2024

                     £000

                   2023

                   £000

Amounts recognised as distributions to equity holders in the year:

 


2023 final - 2.1p per share (2023: 1.9p per share)

                    6,423

                  5,864

2024 interim - 1.4p per share (2023: 1.3p per share)

                    4,291

                  4,013

                  10,714

                  9,877

 

The directors are recommending a final dividend of 2.3p per share (2023: 2.1p), payable on 11 October 2024 to shareholders on the register at the close of business on 6 September 2024. This together with the interim dividend of 1.4p per share (2023: 1.3p), will result in a total dividend of 3.7p per share (2023: 3.4p).



 

6)         Earnings per share

Earnings per share is calculated as follows:


2024

£000

                      2023

                      £000

Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent company

15,901

21,566


 


Earnings for the purposes of underlying basic earnings per share being underlying net profit attributable to equity holders of the parent company

27,469

26,238


 


Number of shares

Number

Number


 


Weighted average number of ordinary shares for the purposes of basic earnings per share

307,131,912

309,533,696

Effect of dilutive potential ordinary shares

3,093,177

3,239,813


 


Weighted average number of ordinary shares for the purposes of diluted earnings per share

310,225,089

312,773,509


 


 

Basic earnings per share

5.18p

6.97p

Underlying basic earnings per share

8.94p

8.48p

Diluted earnings per share

5.13p

6.90p

Underlying diluted earnings per share

8.85p

8.39p

 

Basic earnings per share is calculated by dividing the profit after tax attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year, excluding those shares held in employee benefit trusts. Shares held in employee benefit trusts are treated as cancelled because, except for a nominal amount, dividends have been waived.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares from the vesting of share awards. Underlying earnings per share calculations are included to give a better indication of the Group's underlying performance.



 

7)         Net cash flow from operating activities


                    2024

                    £000

                    2023

                    £000

Operating profit from continuing operations

                  26,415

                  30,154

Adjustments:

 


Depreciation - property, plant and equipment

                   6,480

                   5,407

Depreciation - right-of-use assets

                   2,683

                   1,840

Fixed asset impairments

                   4,543

                          -

Gain on disposal of other property, plant and equipment

                       (92)

                       (52)

Amortisation of intangible assets

                   5,489

                   3,416

Movements in pension scheme

                  (2,152)

                  (2,226)

Share of results of JVs and associates

                  (1,950)

                  (1,898)

Exchange adjustments

                     (373)

                          -

Share-based payments

                      392

                   3,420

Operating cash flows before movements

in working capital

                  41,435

                  40,061

Decrease in inventories

                   1,729

                   4,774

Decrease in receivables

                  31,232

                  10,701

Decrease in payables

                 (21,962)

                  (1,724)

Movements in working capital

                  10,999

                  13,751

Cash generated from operations

                  52,434

                  53,812

Tax paid

                  (7,298)

                  (3,520)

Net cash flow from operating activities

                  45,136

                  50,292

 

Net (debt)/funds
The Group's net (debt)/funds are as follows:


 

 

 

 

 

 


                    2024

                    £000

                    2023

                    £000

Borrowings

                 (20,000)

                  (8,950)

Cash and cash equivalents

                  10,394

                  11,338

Unamortised debt arrangement fees

                      235

                      321

Net (debt)/funds (pre-IFRS 16)

                  (9,371)

                   2,709

IFRS 16 lease liabilities

                 (19,073)

                 (13,396)

Net debt (post-IFRS 16)

                 (28,444)

                 (10,687)

 

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. A reconciliation of the Group's underlying results to its statutory results is disclosed in note 9.

 



 

8)         Business combinations

 

Summary of acquisition

On 3 April 2023, the Company acquired 100 per cent of the share capital of VSCH.

 

VSCH is profitable, cash generative and provides a manufacturing base in Europe, allowing Severfield to benefit from VSCH's strong reputation in the Netherlands and its growing pipeline of opportunities.

 

The board believes that the acquisition is enhancing the Group's reputation and presence in the European market, building on its existing European business, and is helping to accelerate the Group's European growth strategy.

 

The acquisition provides Severfield with immediate access to new and attractive market sectors, providing the Group with further market and geographical diversification outside its core UK operations. VSCH is highly regarded by its clients and is presenting Severfield with a number of opportunities for further profitable growth, including access to a wider European client base and a platform to offer a wider range of services to its existing clients.

 

The net consideration of €25.7m (£22.6m) comprised:


 

2024

£000

Gross consideration

 

              26,348

Cash acquired (excluding payments in advance)

 

              (3,797)

Net consideration

 

              22,551

 

VSCH was acquired for an initial gross consideration of £26,348,000, including cash and cash equivalents of £3,797,000, which has been funded by a combination of Group cash reserves and a new term loan.



 

The fair value of the assets and liabilities recognised as a result of the acquisition are as follows:




£000

Non-current assets


Investment in joint ventures

94

Property, plant and equipment

4,578

Right of use assets

5,041

 

9,713

Current assets


Inventories

146

Contract assets, trade and other receivables

8,367

Cash and cash equivalents

3,797


12,310

Total assets

22,023

Current liabilities

 

Trade and other payables

(9,577)

Lease liabilities

(212)


(9,789)

Non-current liabilities

 

Lease liabilities

(4,829)

Deferred tax liability

(233)

Total liabilities

(14,851)


 

Net assets

7,172

Net cash acquired

(3,797)

Net identifiable assets acquired

3,375

Identified intangible assets

3,902

Deferred tax on intangibles

(1,007)

Goodwill

16,281

Net assets acquired

22,551

 

Goodwill of £16,281,000 represents the ability and skill of employees and management, know-how and the quality of goods and services provided, which do not meet the recognition criteria to be separately recognised in accordance with IFRS 3 (Revised) 'Business Combinations'. The goodwill arising from the acquisition is not deductible for income tax purposes.

Analysis of amounts disclosed in the cash flow statement in connection with the acquisition:




2024

£000

Gross initial cash consideration

26,348

Net cash acquired (including payments in advance)

(3,797)

Total cash outflow - investing activities

22,551

 

 

Acquisition-related costs of £1,816,000 were fully expensed in the period ended 25 March 2023 as non-underlying operating costs (see note 3).

 

The acquired business contributed revenues of £59,480,000 and profit after tax of £4,934,000, to the Group, since the acquisition date.



 

9)         Alternative Performance Measures

 

Our Alternative Performance Measures ('APMs') present useful information which supplements the preliminary announcement. These measures are not defined under IFRS and may not be directly comparable with APMs for other companies. The APMs represent important measures for how management monitors the Group and its underlying business performance. In addition, APMs enhance the comparability of information between reporting periods by adjusting for non-underlying items. The APMs are not intended to be a substitute for, or superior to, any IFRS measures of performance.

 

In order to facilitate understanding of the APMs used by the Group, and their relationship to reported IFRS measures, definitions and numerical reconciliations are set out below.




Alternative performance measure ('APM')

Definition

Rationale

Underlying operating profit (before JVs and associates)

Operating profit before non-underlying items and the results of JVs and associates.

Profit measure reflecting underlying trading performance of wholly owned subsidiaries.

Underlying profit before tax

Profit before tax before non-underlying items.

Profit measure widely used by investors and analysts.

Underlying basic earnings per share ('EPS')

Underlying profit after tax divided by the weighted average number of shares in issue during the year.

Underlying EPS reflects the Group's operational performance per ordinary share outstanding.

Net funds / (debt)

(pre-IFRS 16)

Balance drawn down on the Group's revolving credit facility, with unamortised debt arrangement costs added back, less cash and cash equivalents (including bank overdrafts) before IFRS-16 lease liabilities.

Measure of the Group's cash indebtedness before IFRS-16 lease liabilities, which are excluded from the definition of net funds / (debt) in the Group's borrowing facilities. This measure supports the assessment of available liquidity and cash flow generation in the reporting period.

Operating cash conversion

Cash generated from operations after net capital expenditure (before interest and tax) expressed as a percentage of underlying operating profit (before JVs and associates).

Measure of how successful we are in converting profit to cash through management of working capital and capital expenditure. Widely used by investors and analysts.

Underlying return on capital employed

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.

Measures the return generated on the capital we have invested in the business and reflects our ability to add shareholder value over the long term. We have an asset-intensive business model and ROCE reflects how productively we deploy those capital resources.

 



 





Reconciliations to IFRS measures

 

 

 



2024

2023

A. Underlying operating profit (before JVs and associates)

Note

£000

£000





Underlying operating profit (before JVs and associates)


37,690

33,067

Non-underlying operating items

3

(13,225)

(4,811)

Share of results of JVs and associates


1,950

1,898

Operating profit


26,415

30,154







2024

2023

B. Underlying profit before tax

Note

£000

£000





Underlying profit before tax


36,545

32,476

Non-underlying items

3

(13,525)

(5,369)

Profit before tax


23,020

27,107

 


 


 


2024

2023

C. Underlying basic EPS

Note

£000

£000





Underlying net profit attributable to equity holders of the parent Company


27,469

26,238

Non-underlying items after tax

3

(11,568)

(4,672)

Net profit attributable to equity holders of the parent Company


15,901

21,566

Weighted average number of ordinary shares

6

307,131,912

309,533,696





Underlying basic earnings per share


8.94p

8.48p

Basic earnings per share


5.18p

6.97p



 




2024

2023

D. Net (debt) / funds (pre-IFRS 16)

Note

£000

£000



 


Borrowings


(20,000)

(8,950)

Cash and cash equivalents


10,394

11,338

Unamortised debt arrangement costs


235

321

Net (debt)/funds (pre-IFRS 16)

7

(9,371)

2,709

IFRS 16 lease liabilities


(19,073)

(13,396)

Net debt (post-IFRS 16)

7

(28,444)

(10,687)



 




2024

2023

E. Operating cash conversion

Note

£000

£000

 


 




 


Cash generated from operations


52,434

53,812

Proceeds on disposal of other property, plant and equipment


408

317

Purchases of land and buildings


(410)

(635)

Purchases of other property, plant and equipment


(10,911)

(5,668)



41,521

47,826

Underlying operating profit (before JVs and associates)


37,690

33,067

Operating cash conversion


110%

145%

 

Reconciliations to IFRS measures


 

2024

 

2023

F. Underlying return on capital employed

Note

£000

£000

 


 


Underlying operating profit


 


Underlying operating profit (before JVs and associates)


37,690

33,067

Share of results from JVs and associates


1,950

1,898

Underlying operating profit


39,640

34,965

 


 


Capital employed


 


Shareholders' equity


220,751

217,718



 


Cash and cash equivalents


(10,394)

(11,338)

Borrowings


20,000

8,950

Net (funds)/debt (for ROCE purposes)


9,606

(2,388)

Acquired intangible assets


(5,215)

(6,712)

Retirement benefit obligation

(net of deferred tax)


8,599

9,654



233,741

218,272

Average capital employed


226,007

220,902

Underlying return on capital employed


17.5%

15.8%



 

Principal risks and uncertainties

 

The board has conducted 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:

 

1 Health and safety

Movement:

No change

Scoring: High

 

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, incidents and high potential near misses.

•     Behavioural safety cultural change programme 'Safer@Severfield' was launched this year.

•     Occupational health programme, including mental health.

•     Achievement of challenging health and safety performance targets is a key element of management and staff remuneration.

•     Detailed due diligence on new acquisitions and effective integration of SHE processes and systems.

 

2 Supply chain

Movement:

No change

Scoring: Medium

 

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, a breakdown in relationships with a key supplier or the failure of a key supplier to meet its contractual obligations could potentially result in some short to medium-term price increases and other short-term delay and disruption to the Group's projects and 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 could impact the Group's execution of existing contracts (including the costs of finding replacement supply),

 

its ability to bid for future contracts and its reputation, thereby adversely impacting financial performance.

Mitigation

•    Process 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.

•    Ongoing reassessment of the strategic value of supply relationships and the potential to use alternative arrangements, including for steel supply.

•    Contingency plans developed to address supplier and subcontractor issues (including the failure of a supplier or subcontractor).

•    Monthly review process to facilitate early warning of issues and subsequent mitigation strategies.

•    Strong relationships maintained with key suppliers, including a programme of regular meetings and reviews.

•    Implementation of best practice improvement initiatives, including automated supplier accreditation processes.

•    Key supplier audits are performed within projects to ensure they can deliver consistently against requirements.

 

 

3 People

Movement:

No change

Scoring: Medium

 

 

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. This has been exacerbated in recent years due to macro-economic factors such as the impact of inflation and shortages of labour.

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, client relationships being lost and an inability to focus on business improvements.

Mitigation

•    Training and development schemes to build skills and experience, such as our successful graduate, trainee and apprenticeship programmes.

•    Detailed succession planning for future senior leaders within the business.

•    Attractive working environments, remuneration packages, technology tools and wellbeing initiatives to help improve employees' working lives, recent above average inflation pay increases and a commitment to pay the real living wage.

•    Annual appraisal process providing two-way feedback on performance.

•    Internal communications continually improved.

•    Interviews with leavers and joiners to understand the reasons for their decision.

•    Robust people strategy focused on culture, and continually enhancing all aspects of our approach to Performance, Development, Careers, Recruitment and Reward.

•    Maintained our approach to flexible working practices and remote working.

 

 

 

 

 

 

4 Commercial and market environment

Movement:

Upward

Scoring: High

 

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 trading relationship with the EU) and the impact of geopolitical events.

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

•    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).

•    Monitoring our pipeline of opportunities in continental Europe and in the Republic of Ireland, supported by our European operations.

•    The Group closely monitors the flows of goods and people across borders for ongoing work with the EU and specific risks and related mitigations are kept under review by the executive committee. We have taken steps to ensure we can continue to deliver on current and future contractual commitments.

•    Maintenance and establishment of supply chain 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 clients 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 client failure.

•    Strong cash position supports the business through fluctuations in the economic conditions of the sector.

•    Recent acquisitions have broadened our reach and cross-selling opportunities, resulting in improved market resilience.

 

 

5 Mispricing a contract (at tender)

Movement:

No change

Scoring: Medium

 

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 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.

•    Use of price indexation clauses in certain contracts.

 

 

6 Cyber security

Movement:

Upward

Scoring: High

 

 

Description

Cyber-attack 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 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.

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. A Group-wide cyber attack simulation exercise was undertaken this year by the executive committee.

•    Data protection and information security policies are in place across the Group.

•    Cyber-crimes 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 to reduce the financial impact of this risk.

 

 

 

 

 

 

7 Failure to mitigate onerous contract terms

Movement:

No change

Scoring: Medium

 

 

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 continue to work 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.

 

 

 

8. Industrial relations

Movement:

No change

Scoring: Medium

 

Description

The Group (and the industry in general) has a significant number of members who are members of trade unions. Industrial action taken by employees could impact on the ability of the Group to maintain effective levels of production.

 

Impact

Interruption to production by industrial action could impact both the Group's performance on existing contracts, its ability to bid for future contracts and its reputation, thereby adversely impacting its financial performance.

 

Mitigation

•    Employee and union engagement takes place on a regular basis.

•    The Group has seven main production facilities so interruption at one facility could to some extent be absorbed by increasing capacity at a sister facility.

•    Processes are in place to mitigate disruptions as a result of industrial action.

 

 

 

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