TIDMSFR
RNS Number : 8679O
Severfield PLC
15 June 2022
15 June 2022
Results for the year ended 26 March 2022
Record order book, good earnings visibility through 2023,
inflationary pressures being well managed
Severfield plc, the market leading structural steel group,
announces its results for the year ended 26 March 2022.
GBPm Year ended Year ended
26 March 2022 27 March 2021
---------------
Revenue 403.6 363.3
Underlying(1) operating profit
(before JVs and associates) 26.9 25.5
Underlying(1) operating margin
(before JVs and associates) 6.7% 7.0%
Operating profit 22.8 22.3
Operating margin 5.7% 6.1%
Underlying(1) profit before tax 27.1 24.3
Profit before tax 21.0 21.1
Underlying(1) basic earnings per
share 7.2p 6.4p
Basic earnings per share 5.1p 5.6p
Return on capital employed ('ROCE') 13.5% 13.6%
-------------------------------------- --------------- ---------------
Headlines
-- Revenue up 11% to GBP403.6m (2021: GBP363.3m)
-- Underlying(1) profit before tax up 11% to GBP27.1m (2021:
GBP24.3m), demonstrates resilience of the Group in challenging
market conditions
-- Underlying(1) basic earnings per share up 12% at 7.2p (2021:
6.4p)
-- Total dividend increased by 7% to 3.1p per share (2021: 2.9p
per share), includes proposed final dividend of 1.9p per share
(2021: 1.8p per share)
-- Year-end net debt (on a pre-IFRS-16 basis(2) ) of GBP18.4m
(2021: net funds of GBP4.4m), reflects higher steel purchases to
meet production needs in 2023 and the impact of steel price
rises
-- Record UK and Europe order book of GBP486m at 1 June 2022 (1
November 2021: GBP393m), includes new industrial and distribution,
film studio, commercial office and bridge orders and the new
stadium for Everton F.C.
-- Share of profit from Indian joint venture ('JSSL') of GBP0.8m
(2021: loss of GBP0.7m), reflecting revenue growth and margin
improvement following the disruptive impact of COVID-19 in 2021
-- India order book of GBP158m at 1 June 2022 (1 November 2021:
GBP140m), reflects strong underlying demand for structural steel in
India
-- Successful completion of new GBP50m revolving credit facility
maturing in December 2026
-- New simplified divisional structure implemented for UK and
Europe operations from 1 April 2022 - creating three new divisions
aligned with our chosen market sectors
ESG
-- Certified by the Carbon Trust as carbon neutral, CDP 'A-'
rating for leadership on climate change
-- Top UK construction business in the 2022 Financial Times
listing of Europe's climate leaders
-- Net zero carbon target established for 2040
Outlook
-- UK and Europe - tendering and pipeline activity remains
encouraging - including opportunities in the industrial and
distribution (battery plants and distribution centres), transport
infrastructure, nuclear, data centre and commercial office
sectors
-- India - strong and growing underlying demand for structural
steel - JSSL is very well-positioned to take advantage of an
improving economy
-- Record order book provides good earnings visibility through
2023 and beyond
-- Inflationary and supply chain pressures remain a challenge
but continue to be well managed
-- Expectations for 2023 are unchanged despite the challenging
macro-economic backdrop
Alan Dunsmore, Chief Executive Officer commented:
' We are delighted to be reporting a resilient and strong
performance despite the ongoing market challenges. The Group's
growth strategy is delivering a record order book with a broad
diversity of sectors, geographies and clients, providing us with
good earnings visibility through 2023 and beyond. Although
inflation and supply chain pressures remain, we are managing these
well and the earnings visibility gives us confidence in maintaining
our positive performance expectations for 2023.'
For further information, please contact:
Alan Dunsmore
Severfield Chief Executive Officer 01845 577 896
Adam Semple
Group Finance Director 01845 577 896
Jefferies International Simon Hardy 020 7029 8000
Will Soutar 020 7029 8000
Liberum Capital Nicholas How 020 3100 2000
Ben Cryer 020 3100 2000
Camarco Ginny Pulbrook 020 3757 4980
Tom Huddart 020 3757 4980
Notes to financials:
(1) stated before non-underlying items of GBP6.1m (2021:
GBP3.2m) including the amortisation of acquired intangible assets
of GBP5.2m (2021: GBP2.8m) and net acquisition-related expenses of
GBP0.7m (2020: GBP0.4m). Non-underlying items have been separately
identified as a result of their magnitude, incidence or
unpredictable nature. Their separate identification results in a
calculation of an underlying profit measure in the same way as it
is presented and reviewed by management (see note 3 to the
financial statements).
(2) the Group excludes IFRS 16 lease liabilities from its
measure of net funds / debt as they are excluded from the
definition of net debt as set out in the Group's borrowing
facilities (see note 9 to the financial statements).
(3) except as otherwise stated '2021' and '2022' refer to the
52-week periods ended 27 March 2021 and 26 March 2022 and '2023'
refers to the 52-week period ending 25 March 2023. The Group's
accounts are made up to an appropriate weekend date around 31 March
each year.
A reconciliation of the Group's underlying results to its
statutory results is provided in the Alternative Performance
Measures ('APMs') section (see note 11 to the financial
statements).
Notes to editors:
Severfield is the UK's market leader in the design, fabrication
and construction of structural steel, with a total capacity of
c.165,000 tonnes of steel per annum. The Group has six sites,
c.1,500 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).
OPERATING REVIEW
Group overview
The Group has had another successful year in 2022, delivering
profit growth both in the UK and India against a backdrop of some
challenging market conditions, and securing a significant value of
new work, which is reflected in our order books of GBP486m in the
UK and Europe and GBP158m in India. Together, these provide us with
good visibility of earnings and leave us well-positioned with a
strong future workload for the 2023 financial year and beyond.
Despite inflationary and supply chain pressures which have been
a feature of most of the year, with an already challenging trading
environment now being exacerbated by the Russian invasion of
Ukraine, the 2022 results demonstrate the resilience of the Group
and serve to highlight its many strengths. These include the a
dditional resilience provided by our market sector, geographical
and client diversity, the talent and commitment of our workforce,
our supply chain management expertise, and our strong financial
position.
In 2022, we have increased our revenue by 11 per cent to
GBP403.6m (2021: GBP363.3m) and our underlying(1) profit before tax
by 11 per cent to GBP27.1m (2021: GBP24.3m), following the
operational disruption experienced in 2021 from the COVID-19
pandemic. The increase in profit also reflects our ability to
offset inflationary cost increases through a combination of
operating efficiencies, higher selling prices and contractual
protection as steel remains largely a pass-through cost for the
Group.
We have maintained a good financial position throughout the
year, enabling us to continue to grow the dividend and support
ongoing investment in the business. Year-end net debt (on a
pre-IFRS 16 basis(2) ) was GBP18.4m (2021: net funds of GBP4.4m),
which includes the outstanding term loans for acquisitions of
GBP14.9m (2021: GBP20.8m). The increase in borrowings mainly
reflects a normalisation of working capital, the impact of steel
and other input price rises, together with higher steel purchases
to meet production requirements when executing our record order
book in 2023.
The Indian joint venture ('JSSL') has performed profitably in
2022, following a difficult start to the year when output was
disrupted by the second wave of COVID-19. JSSL continues its
recovery towards pre-pandemic levels of output in 2023 and the
company's strong order book, together with an improving pipeline of
potential orders, reflects a continuing strong underlying demand
for structural steel in India. All this leaves the business very
well-positioned to take advantage of an improving economy.
Strategy
The Group's strategy is driven by its core strengths of
engineering and construction. This well-established strategy is
unchanged, focused on growth, both organic and through selective
acquisitions, operational improvements and building further value
in JSSL.
In recent years, the evolution of this strategy has been
particularly evident in our significant market sector, geographical
and client diversification, which has enabled us to successfully
navigate periods of market softness in certain of our main sectors
in the UK, notably commercial offices. This has resulted in a more
balanced business (the Group now serves ten market sectors) and a
resilience which has seen us successfully negotiate the headwinds
of Brexit, the COVID-19 pandemic and the inflationary pressures in
the current year. The successful implementation of our strategy has
also facilitated revenue growth and reinforced the Group's strong
balance sheet and ability to generate cash which have allowed us to
continue to invest in our operations and in acquisitions such as
Harry Peers and DAM Structures. As a result, our capabilities are
aligned with many market sectors with strong growth potential. The
Group is well positioned to meet the demand for ongoing investment
in the UK's infrastructure, while our diverse construction
activities remain focused on key areas such as industrial and
distribution, data centres, stadia and leisure, nuclear and
commercial offices.
In India, we remain positive about the long-term trajectory of
the market and of the value creation potential of JSSL. This is
especially considering the structural changes in the economy over
recent years, the government's ongoing focus on simplifying
regulations and the 'ease of doing business', and the significant
expansion of the business already evidenced to date which has
resulted in a business capable of producing over 100,000 tonnes of
steelwork from one site in Bellary.
In response to the strong long-term growth projections for
India, and in tandem with our joint venture partner, we are in the
process of selecting a plot of land to facilitate expansion of the
business in the future. We expect that this land purchase will be
completed in the 2023 financial year. This will allow the business
to expand its geographical footprint whilst providing it with the
platform to build quickly and incrementally add the necessary
volume to support the expected future market growth.
New divisional structure
The Group has grown significantly over recent years, both
organically and through acquisition. In response to this, since the
size and shape of the Group has changed and evolved significantly
over the last five years, we have created a simpler divisional
structure for our UK and Europe operations. This has resulted in
three new market-focused divisions (see below) in a structure
designed to align our existing businesses more closely with the ten
market sectors that we serve and our growing customer base. Further
information on how this new structure will be presented will be
provided at a Capital Markets Day ('CMD') later in the calendar
year (a separate RNS notice will be issued for the CMD in due
course). There are no non-underlying costs associated with this
re-organisation which has been implemented for operational
purposes.
The market dynamics of our three new divisions are different, in
terms of the solutions that customers seek, project
characteristics, the competitive landscape and their economic
cycles. This in turn offers very different opportunities for the
Group in terms of the growth rates and margin opportunities
available to us. By creating a Group structure with three divisions
focused on our chosen markets, we will not only optimise the
operations of each division to the market dynamics they face but
provide us with a better platform to fulfil our strategic growth
aspirations, both organically and by acquisition.
This new structure will also allow us to adopt a more holistic
approach to manufacturing across the Group, under the leadership of
our Group Manufacturing Director, as we continue to invest in and
optimise our factories, particularly at our main production centres
in Dalton, Lostock and Enniskillen.
With effect from 1 April 2022, the current structure of six
mainly location-based business units was streamlined into three
market-focused divisions as follows:
The Commercial and Industrial division will bring together the
Group's strong capabilities which serve the following market
sectors - industrial and distribution, commercial offices, stadia
and leisure, data centres, retail and health and education.
The Nuclear and Infrastructure division will encompass the
Group's market-leading positions in the nuclear, power and energy,
transport (road and rail) and process industries sectors.
The Products and Processing division will include the growing
modular product ranges of Severfield (Products & Processing)
based in Sherburn and of Construction Metal Forming ('CMF'), our
cold rolled steel joint venture business based in Wales. We
continue to be the only hot rolled steel fabricator in the UK to
have a cold rolled manufacturing capability.
UK and Europe review
Revenue was up 11 per cent over the prior year mainly reflecting
an increase in steel prices and the full year revenue effect of DAM
Structures which was acquired in February 2021. During the year, we
continued to work on several large distribution facilities in the
UK, our first HS2 bridge package, Water Orton Viaducts in the
Midlands, and a large industrial facility in the Republic of
Ireland, which is now substantially complete. Other significant
revenue contributing projects include the Google Headquarters at
King's Cross, the Co-op Live Arena in Manchester and Sky Studios in
Elstree, together with a number of mid-sized office developments,
both in London and the UK regions (including Argyle Street in
Glasgow, and 30 Grosvenor Square and 30 South Colonnade, both in
London).
The underlying(1) operating margin (before JVs and associates)
was 6.7 per cent (2021: 7.0 per cent), resulting in an
underlying(1) operating profit (before JVs and associates) of
GBP26.9m (2021: GBP25.5m). This represents profit growth of six per
cent against a comparator which included a one-off profit of
GBP1.5m on a bespoke paint package on the large industrial project
in the Republic of Ireland (if this one-off profit is disregarded,
the Group's results show profit growth of over 12 per cent).
Whilst underlying operating profits have increased year-on-year,
the slight reduction in the margin percentage mainly reflects the
dilutive impact of steel prices which have recently more than
doubled and are largely passed on to the client at zero margin.
This has resulted in an increase in revenue of c.GBP20m in 2022 but
no associated increase in the Group's absolute profitability. This
dilutive effect on margins would reverse if steel costs reduced to
pre-pandemic levels in the future.
Across the Group, inflationary pressures and supply issues for
both us and our clients have presented challenges in 2022, with an
already difficult trading environment now being exacerbated by the
war in Ukraine. We have experienced some increases in lead times
and supply restrictions, upward pressures on costs due to tighter
labour markets and significant price increases for certain products
and services. This has included steel products, reflecting the
volatility in iron ore prices, increased energy costs and,
latterly, some supply restrictions as a number of steel products
previously originated in Russia and Ukraine. Whilst not immune to
these pressures, we have not experienced any significant
disruptions to operations and the impact has generally been managed
through contractual protection, operating efficiencies, higher
selling prices and by forward purchasing as appropriate, leveraging
the Group's scale and supply chain and sub-contract management
strengths. For steel supply, we benefit from relationships with
several partners in the UK and continental Europe, reducing the
risk of interruptions to the Group's steel supply.
Inflationary pressures remain present and are expected to
continue into 2023, however we expect to be able to minimise the
impact of these through the focused sourcing of materials through
the supply chain and ongoing operational efficiencies.
Smarter, Safer, more Sustainable
The Group's operational improvement programme has engendered a
self-help culture within the organisation. This programme has
served us well in maintaining efficient operations during the
pandemic and in helping us to offset many of the supply chain and
cost pressures currently being experienced by the Group.
During the year, we have continued our drive to reduce costs and
increase and upgrade our fabrication capacity and efficiency. This
includes the continued roll out of our new coatings management
system at Dalton covering the reduction of paint waste and
improvements to the specification, management and application of
factory paint systems, together with 'right first time' initiatives
to improve overall quality including the targeted reduction of
factory and site NCRs (rework items) and drawing office errors.
Having rolled out a new Group-wide production management system
(StruMIS) in 2019, we are currently in the process of further
streamlining production flows and improving real-time factory
information at our main centre in Dalton. This includes the use of
mobile devices to capture information at the point of use and to
provide live information to both operatives and management. This
will help drive quality, reduce bottlenecks, and improve the
reliability and speed of our operations. As part of our ongoing
capital investment programme, we have also continued to expand and
automate our fabrication capability at Dalton to improve the
throughput and efficiency of these operations.
The Group also continues to make good progress on its digital
journey. This is focused on driving operational excellence through
process standardisation and data alignment supported by the
implementation of new systems. This includes our innovative
approach to drawing and design, where we continue to make good
progress with the automation of repetitive tasks, and the
optimisation of engineering software under the leadership of our
Group Engineering Director.
Order book, pipeline and market conditions
The future success of the Group is determined, amongst other
things, by the quality of the secured workload and our discipline
to maintain contract selectivity irrespective of economic
conditions. The UK and Europe order book at 1 June includes a
significant amount of new work which we have secured over the past
twelve months and now stands at a record level of GBP486m (1
November 2021: GBP393m), of which GBP397m is planned for delivery
over the next 12 months. This leaves the Group very well-positioned
with a strong future workload for the 2023 financial year and
beyond. The growth in the order book has been driven by several
significant project awards. These include the new stadium for
Everton F.C., a film studio, two large commercial office
developments in London, and various large and several smaller
industrial and distribution facilities in the UK, reflecting a
sector which continues to remain buoyant. We have also secured
several new HS2 bridge packages and other bridge awards reflecting
investment in infrastructure by Highways England and Network Rail.
The order book remains well-balanced, showcasing the benefits of
our strategic diversification over recent years, and contains a
healthy mix of projects across the Group's key market sectors.
In terms of geographical spread of the order book of GBP486m, 96
per cent represents projects in the UK, with the remaining 4 per
cent representing projects for delivery in Europe and the Republic
of Ireland (1 November 2021: 95 per cent in the UK, 5 per cent in
Europe and the Republic of Ireland). The more UK-centric nature of
the current order book is driven by a lower proportion of work in
the Republic of Ireland, as several projects, including the large
industrial facility, draw to completion. This, together with fewer
ongoing projects in continental Europe, reflects a pipeline which
was adversely impacted by COVID-19 twelve months ago, but which has
since recovered strongly over recent months. Furthermore, whilst
the order book is currently at record levels, only 16 per cent of
this represents commercial offices in London, compared a peak of
c.60 per cent around five years ago. This highlights the success of
our strategic diversification.
We remain encouraged by the current level of tendering and
pipeline activity across the Group, both in the UK and in
continental Europe, in which we retain a good market position and
which remains an important part of our strategic growth plans. We
are well-positioned to take advantage of some significant
opportunities in the industrial and distribution (battery plants
and distribution centres) , transport infrastructure, nuclear and
data centre sectors, and, despite predictions of the demise of the
office following the pandemic, in the commercial office market,
including in London. Although we remain mindful of the ongoing
effects of Russia's invasion of Ukraine, with the most significant
effects of COVID-19 now behind us, we remain well-placed to win
work across a wide client base and in a diverse range of market
sectors and geographies. This provides us with greater resilience
and the ability to drive future profitable growth.
'A golden age of infrastructure'
As a key component of economic growth, the construction industry
will be central to a sustainable economic recovery. New, low carbon
infrastructure (including HS2, wind power, new nuclear, rail
electrification, energy efficient buildings) will play a leading
role in stimulating sustainable growth. In November 2020, the UK
Government released details of its five-year plan, the National
Infrastructure Strategy ('NIS') to invest in digital, transport and
energy to drive economic recovery, levelling up and meeting the
UK's net zero emissions target by 2050. This plan announced funding
of GBP650 billion, an increase of around GBP100 billion from the
previous plan, for developments in roads, railways, power networks
and other UK infrastructure projects. At Network Rail, in addition
to HS2, the CP6 (control period) budget of around GBP53 billion
(2019-2024), which includes a significant amount of rail
electrification work, is substantially higher than the previous CP5
budget of GBP38 billion (2014-2019). At Highways England, the
second Road Investment Strategy ('RIS2') budget of GBP24 billion
(2020-2025) is a significant increase over the expenditure of GBP15
billion during 'RIS1' (2015-2020). We have already secured some
significant road bridge awards and orders for HS2 from a variety of
consortia, together with some ancillary steelwork packages at
Hinkley Point, and we continue to make good progress with several
other similar opportunities, including rail electrification work.
We remain well-positioned to win work in the transport sector given
the Group's historical track record and our in-house bridge
capability, together with the in-depth expertise of DAM
Structures.
Looking further ahead, in April 2022, prompted by Russia's
invasion of Ukraine, the UK government published its Energy
Security Strategy, pledging a new generation of nuclear power
(under the banner of 'Great British Nuclear') as well as offshore
wind generation, together with several other new energy supply
initiatives, to reduce reliance on foreign energy supply. The
combination of the in-house nuclear expertise acquired with Harry
Peers, together the Group's unmatched scale and capability to
deliver major infrastructure projects, leaves us well positioned to
win work from such projects, many of which are likely to have a
significant steelwork content.
Clients - increasingly broad spread and diverse
Our proven ability to work collaboratively and innovatively with
clients is fundamental to our success and is critical to securing
new work. Our preferred and predominant two-stage and negotiated
procurement routes help significantly by allowing early
collaboration with the client and supply chain and providing
increased price and programme certainty.
Our unique capability to deliver complex design solutions, our
capacity and speed of fabrication, the expert capabilities of the
Group and its colleagues and our management and integration of the
construction process is important to our clients and a key
differentiator for the Group. During the year, when certain
construction programmes were delayed and disrupted due to supply
chain challenges or when inflationary pressures stretched existing
budgets, our operational delivery capabilities allowed us to help
clients deliver changes to these programmes quickly and
efficiently, to provide clients with problem-solving solutions and
to ensure that programme milestones were achieved.
We have again achieved national recognition though several
awards including at the 2021 Structural Steel Design Awards (for 60
London Wall), the Royal Society for the Prevention of Accidents
('RoSPA') (Harry Peers won the President's award) and at the 2021
Morgan Sindall Supply Chain Awards. We have also been shortlisted
for training excellence at the Construction News Specialists
Awards.
The Group worked on over 100 projects with our clients during
the year including:
Commercial offices Google King's Cross, London
Argyle Street, Glasgow
30 Grosvenor Square, London
30 South Colonnade, London
Wilton Park, Dublin
Industrial and distribution Large industrial facility, Republic
of Ireland
Large distribution centres,
Wakefield, Stockton, Luton,
Belvedere
------------------------------------
Nuclear Atomic Weapons Establishment
(various)
------------------------------------
Transport infrastructure M8 Footbridge, Glasgow
Water Orton Viaducts, Midlands
A46 Binley bridge, Midlands
------------------------------------
Data centres and other projects Data centre, Republic of Ireland
Sky Studios, Elstree
------------------------------------
Stadia and leisure Fulham FC, London
Everton FC, Liverpool
Co-op Live Arena, Manchester
Pinewood Studios, London
------------------------------------
Modular construction
Our modular (off-site) construction offering continues to
include the growing product ranges of Severfield (Products &
Processing) ('SPP') based in Sherburn and of CMF, our cold rolled
steel joint venture business based in Wales. These businesses will
make up the Group's new Products and Processing division.
SPP
SPP was originally established to allow us to address smaller
scale projects and provide a one-stop shop for smaller fabricators
to source high-quality processed steel and ancillary products, at
lower margins. We have continued to grow and invest in the
business, including strengthening the factory management,
engineering and commercial functions, to maintain our focus on
growing our 'Severstor' modular product range and 'Rotoflo'
products, both of which attract higher margins. For Severstor, we
are already making significant progress in growing our client base
and have secured repeat orders from several blue-chip clients as
well as continuing to develop our pipeline of opportunities. During
the year, to help develop the overseas footprint of the business,
the Rotoflo team appointed a new sales manager in India where we
see some potentially interesting opportunities, particularly for
the paint industry. SPP has already been awarded 'Fit for Nuclear'
and certain Network Rail accreditations which, together with an
expanding client base and our previous record in modular
construction, we believe will help us to achieve our future growth
aspirations for the business.
As well as servicing its growing external client base, SPP has
also continued to provide high-quality sub-contract fabrication
packages for other Group companies to assist in the delivery of our
record UK and Europe order book, thus ensuring a greater proportion
of project work remains in-house and subject to Severfield quality
standards.
CMF
CMF has continued to develop its product range which now
includes load bearing frame and deck profiles, purlins and side
rail systems to service a cold formed steel market which has grown
significantly in recent years through the increased use of steel in
off-site and modular construction. In response to these market
developments, the business is currently being expanded through the
development of a new, separate manufacturing facility in South
Wales. This new facility is required as the existing CMF facility
in Pontypool is operating at close to full capacity and cannot be
developed any further due to space constraints. The expanded
capacity will allow CMF to serve an external client base and ensure
that its market share is maintained and increased in line with
market growth.
The expansion project commenced earlier in 2022 and the facility
is expected to be operational in the next six months. The overall
cost of construction for CMF is c.GBP10m, including land of GBP3m,
which is being financed by a combination of equity of c.GBP5m,
provided in equal amounts by the joint venture partners in 2021,
and bank debt of c.GBP5m.
India review
JSSL returned to profitability in 2022 despite a difficult start
to the year when output was disrupted by the second wave of
COVID-19. This follows the loss recorded in the previous year which
was severely impacted by COVID-19. This recovery is evident in the
Group's after-tax share of profit of GBP0.8m (2021: share of loss
of GBP0.7m). The improved performance reflects a doubling of
revenue to GBP100.3m, compared with GBP48.0m in the previous year,
and an increase in the operating margin to 5.2 per cent, compared
with 3.3 per cent in the previous year. Financing expenses of
GBP3.3m (2021: GBP3.4m) are broadly unchanged from the previous
year and turn JSSL's operating profit of GBP5.2m (2021: GBP1.6m)
into a profit before tax of GBP1.9m (2021: loss before tax of
GBP1.8m).
Notwithstanding some current inflationary pressures, JSSL has
continued to win new work, resulting in a strong order book of
GBP158m at 1 June 2022 (1 November 2021: GBP140m). In terms of mix,
37 per cent of the order book represents higher margin commercial
work, with the remaining 63 per cent representing industrial
projects (1 November 2021: commercial work of 62 per cent,
industrial work of 38 per cent). The current higher level of
industrial work is consistent with the ongoing fluctuations in the
timing and mix of industrial and commercial work in a growing order
book.
JSSL's pipeline of potential orders continues to include several
commercial projects for key developers and clients with whom it has
established strong relationships, including in the commercial
office, data centre and healthcare sectors. This, together with
JSSL's healthy order book, reflects a strong and growing underlying
demand for structural steel in India, leaving the business very
well-positioned to take advantage of an improving economy.
Accordingly, we expect the business to recover to pre-pandemic
levels of output in 2023.
In response to this demand, which is supported by strong
long-term growth projections for India and the continued conversion
of the market from concrete to steel, and in tandem with our joint
venture partner, we are in the process of selecting a plot of land
to facilitate expansion of the business in the future. We expect
that this land purchase will be completed in the 2023 financial
year. Whilst Bellary continues to ramp up towards its maximum
capacity of c,100,000 tonnes in 2023, this land purchase will allow
the business to expand its geographical footprint in India whilst
providing it with the platform to build quickly and incrementally
add the necessary volume to support the expected future market
growth.
ESG
Health and safety
Our updated SHE strategy is based around three key areas:
people, communication and engagement, and systems and processes.
The strategy will serve to further enhance and progress our SHE
culture and values as we strive to be industry-leading in our
approach. The Group's safety focus remains on its six Life Saving
Rules namely, Fundamentals (do not carry out a task unless you are
trained to do it), Working at Height, Control of Lifting
Operations, Machine Safety, Vehicle Movement and Material
Stability.
In the previous year, we rolled out a new platform for reporting
SHE incidents and completing inspections to identify trends and
root causes in safety performance to enable targeted improvements.
Following the improvements in safety performance in 2021, we have
made further improvements in 2022, and maintained our primary focus
on the Group's injury frequency rate ('IFR') and high potential
near misses ('HiPos'). Despite wider industry trends moving in the
opposite direction as working practices return to normal
post-pandemic, we have seen a further reduction in injury rates,
resulting in an IFR (including JSSL) of 1.32, compared to 1.48 in
2021. The 2022 result excludes DAM Structures, which will be
included in the reported IFR statistics in 2023 now that we have
established a baseline performance in the year following its
acquisition. Furthermore, the Group's accident frequency rate
('AFR') (including JSSL) for the year, which is based solely on the
level of RIDDORS (reportable accidents), of 0.16 (2021: 0.18)
continues to outperform the industry average.
Sustainability
The Board gives full and close consideration to environmental,
social and governance ('ESG') factors when assessing the impact of
the decisions it makes and supports. As a result of strategic
decisions made in recent years, the Group now has a prominent
market position in the high-growth markets of the future and is
well-positioned to help accelerate the journey to net zero in its
core sectors.
As part of our ambitious sustainability strategy, the Group has
committed to reduce our scope 1 and 2 greenhouse gas ('GHG')
emissions by 25 per cent by 2025 against a 2018 baseline, aligned
with the Paris Agreement to limit global warming to below 1.5
degrees Celsius. We remain well on course to achieve this target
through the successful implementation of sustainability initiatives
including the switch to 'green' electricity at all our production
facilities (which is now largely complete), through mandating
hydrogenated vegetable oil ('HVO') fuels and the transition to
electric and hydrogen construction plant where possible. Progress
of all targets is measured and monitored and reported monthly
through ESG dashboards.
In 2022, for the second year running, the Group was included in
the Financial Times ('FT') listing of Europe's climate leaders
which showcases corporate progress in fighting climate change. For
2022, this list includes the c.400 European companies that have
achieved the greatest reduction in their GHG intensity between 2015
and 2020, over which the Group's emissions fell by 34 per cent. In
the FT listing, for businesses with a rating from the Carbon
Disclosure Project ('CDP'), only those with a score of at least
'B-' were considered. In 2022, we were awarded an 'A-' rating in
the CDP index, improving on our 'B' rating from the previous
year.
Our sustainability strategy also outlines our commitment to
reach net zero for our scope 1 and 2 carbon emissions by 2040.
Ahead of COP26 in 2021, the Group signed up to the United Nations
'Race to Zero' campaign, which requires the establishment of a net
zero target in line with a 1.5-degree world, to hold off some of
the worst climate impacts. We are on schedule to submit this target
for validation by the Science-Based Target Initiative ('SBTI') by
the end of the 2022 financial year. During the year, we achieved
our target to be accredited as carbon neutral for our manufacturing
and construction operations by the Carbon Trust, in accordance with
PAS 2060, the only recognised international standard for carbon
neutrality. This is an important milestone in our journey towards
net zero. Carbon neutral in this context means that we use carbon
offsetting to eliminate our combined scope 1, scope 2 and
operational scope 3 greenhouse gas emissions.
During the year we continued to collaborate with several
clients, attending workshops in areas such as sustainable
procurement, low embodied carbon steel, and material passporting.
Early engagement with clients remains vital in reducing the
embodied carbon in the structures we build, in tandem with our
existing SteelZero commitments which demonstrate how important the
transition to low embodied carbon steel production is to the
construction sector.
Social
We recognise the importance of input from our people in helping
us deliver on our strategic ambitions and, in 2022, we launched our
Group-wide 'MyVoice' forums. These provide a formal, structured way
for colleagues and management to connect, gain feedback and
exchange information and views on any business-related topic.
Louise Hardy, our designated non-executive director responsible for
workforce engagement, Alan Dunsmore, our CEO and Samantha Brook,
our Group HR Director, regularly meet with forum representatives.
These meetings have provided valuable, ongoing insights and
feedback for the board during a challenging year for everyone, and
we look forward to continuing this work with our colleagues in the
year ahead.
Summary and outlook
The Group has had a successful year in the face of some
challenging market conditions, highlighting the benefit of the
strategic and operational progress made over recent years. We have
increased revenues and profits, including a return to profitability
for JSSL, we have continued to drive efficiencies through our
operational improvement programme, and our balance sheet remains
healthy, allowing us to make the right long-term decisions for the
business. Our new, simplified divisional structure in the UK and
Europe will optimise the operations of each division to the market
dynamics they face and provide us with a better platform to fulfil
our strategic growth aspirations.
We continue to make strong positive progress in our key market
sectors, with the size and quality of our secured workload
increasing during the year. This success is reflected in our order
books of GBP486m in the UK and Europe and GBP158m in India. Our
capabilities are aligned with many market sectors with strong
growth potential, and we have an encouraging pipeline of
significant, profitable opportunities in the UK, Europe and India,
leaving us well positioned to increase our market share and to
drive future profitable growth. Whilst we remain mindful of the
macro-economic backdrop, particularly regarding inflationary
pressures which are expected to continue in 2023, we continue to
expect to deliver further progress and our expectations for the
year ahead remain unchanged.
Alan Dunsmore
Chief Executive Officer
15 June 2022
FINANCIAL REVIEW
GBPm 2022 2021
------
Revenue 403.6 363.3
Underlying* operating profit (before JVs
and associates) 26.9 25.5
Underlying* operating margin (before JVs
and associates) 6.7% 7.0%
Underlying* profit before tax 27.1 24.3
Underlying* basic earnings per share 7.2p 6.4p
Operating profit 22.8 22.3
Operating margin 5.7% 6.1%
Profit before tax 21.0 21.1
Basic earnings per share 5.1p 5.6p
Return on capital employed ('ROCE') 13.5% 13.6%
------------------------------------------ ------ ------
* 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 11 to the financial
statements).
Trading performance
Revenue for the year of GBP403.6m represents an increase of
GBP40.3m (11 per cent) compared with the previous year, reflecting
an increase in steel prices (GBP19.2m) and the full year revenue
effect of DAM Structures which was acquired in February 2021
(c.GBP20m).
Underlying operating profit (before JVs and associates) of
GBP26.9m (2021: GBP25.5m), was GBP1.4m higher than in the previous
year which included a one-off profit of GBP1.5m on a bespoke paint
package on the large industrial facility in the Republic of
Ireland. This represents year-on-year profit growth of 6 per cent
but if the one-off prior year profit is disregarded, the results
show profit growth of 12 per cent. Whilst underlying operating
profits have increased, the slight reduction in the margin to 6.7
per cent (2021: 7.0 per cent) reflects the dilutive impact of steel
price increases which are largely a pass through to the client at
zero margin. This has resulted in an increase in revenue of
c.GBP20m in 2022 but no associated increase in the Group's absolute
profitability. The statutory operating profit, which includes the
results of JVs and associates and the Group's non-underlying items,
was GBP22.8m (2021: GBP22.3m).
Underlying profit before tax, which is management's primary
measure of Group profitability, was GBP27.1m (2021: GBP24.3m). The
statutory profit before tax, which includes the Group's
non-underlying items, was GBP21.0m (2021: GBP21.1m).
Share of results of JVs and associates
The share of results from JSSL was a profit of GBP0.8m (2021:
loss of GBP0.7m), reflecting revenue growth and margin improvement
following the disruptive impact of COVID-19 on JSSL's prior year
trading and profitability. Our specialist cold rolled steel
business, CMF, contributed a share of profit of GBP0.5m (2021:
GBP0.4m), the prior year for CMF also having been impacted by
COVID-19. The CMF business is currently in the process of expanding
its production operations in Wales and has continued to develop its
product range, including modular steel products, to drive organic
revenue growth.
Non-underlying items
Non-underlying items have been separately identified as a result
of their magnitude, incidence or unpredictable nature. Their
separate identification results in a calculation of an underlying
profit measure in the same way as it is presented and reviewed by
management. Non-underlying items for the year of GBP6.1m (2021:
GBP3.2m) includes the amortisation of acquired intangible assets of
GBP5.2m (2021: GBP2.8m) and other acquisition-related expenses of
GBP0.7m (2021: GBP0.4m).
The amortisation of acquired intangible assets represents the
amortisation of customer relationships, order books and brand name,
which were identified on the acquisitions of Harry Peers and DAM
Structures. These assets are being amortised over a period of 12
months to five years. Acquisition-related expenses include
movements in the valuation of the contingent consideration for the
DAM Structure acquisition which is payable over a five-year
period.
Taxation
The Group's underlying taxable profits of GBP25.8m (2021:
GBP24.7m) resulted in an underlying tax charge of GBP4.8m (2021:
GBP4.6m), which represents an effective tax rate of 18.6 per cent
(2021: 18.5 per cent). The total tax charge of GBP5.4m (2021:
GBP3.8m) also includes adjustments relating to prior years and the
deferred tax impact of the future increase in UK corporation tax
from 19 per cent to 25 per cent which, in line with the Group's
policy, are categorised as non-underlying and included in
non-underlying items.
Earnings per share
Underlying basic earnings per share increased by 12 per cent to
7.2p (2021: 6.4p) based on the underlying profit after tax of
GBP22.3m (2021: GBP19.8m) and the weighted average number of shares
in issue of 308.8m (2021: 307.3m). Basic earnings per share, which
is based on the statutory profit after tax, was 5.1p (2021: 5.6p),
reflecting the increased underlying profit after tax offset by an
increase in non-underlying costs. Diluted earnings per share, which
includes the effect of the Group's performance share plan, was 5.1p
(2021: 5.6p).
Dividend and capital structure
The Group has a progressive dividend policy. Funding flexibility
is maintained to ensure there are sufficient cash resources to fund
the Group's requirements. In this context, the board has
established the following clear priorities for the use of cash:
-- To support the Group's ongoing operational requirements, and
to fund profitable organic growth opportunities where these meet
the Group's investment criteria,
-- To support steady growth in the core dividend as the Group's
profits increase,
-- To finance strategic opportunities that meet the Group's
investment criteria, and
-- To return excess cash to shareholders in the most appropriate
way, whilst maintaining a good underlying cash position.
The board considers the dividend to be a very important
component of shareholder returns. Accordingly, based on the outlook
for the year ahead and our strong financial position, and despite
the current uncertain macro-economic backdrop, the board is
recommending a final dividend of 1.9p per share (2021: 1.8p),
payable on 14 October to shareholders on the register at the close
of business on 9 September. This together with the interim dividend
of 1.2p per share (2021: 1.1p), will result in a total dividend of
3.1p per share (2021: 2.9p).
Goodwill and intangible assets
Goodwill was GBP82.2m at 26 March 2022 (2021: GBP85.8m), the
movement reflecting the finalisation of goodwill and intangible
assets arising on the DAM Structures acquisition. In accordance
with IFRS, an annual impairment review has been performed. No
impairment was required either during the year ended 26 March 2022
or the year ended 27 March 2021. Other intangible assets were
GBP10.3m (2021: GBP9.6m). This largely represents the net book
value of the intangible assets (customer relationships, order books
and brand name) identified on the acquisitions of Harry Peers and
DAM Structures.
Property, plant and equipment
The Group has property, plant and equipment of GBP91.4m (2021:
GBP91.7m). Capital expenditure of GBP7.4m (2021: GBP6.6m)
represents the continuation of the Group's capital investment
programme. This predominantly consisted of site improvements at
Ballinamallard, the purchase of additional land at Dalton to
future-proof the site, new and upgraded equipment for our
fabrication lines and the acquisition of cranes to support our site
operations. Depreciation in the year was GBP6.9m (2021: GBP6.0m),
of which GBP1.7m (2021: GBP1.6m) relates to right-of-use assets
under IFRS 16.
Joint ventures
The carrying value of our investment in joint ventures and
associates was GBP30.1m (2021: GBP28.8m), which consists of
investments in India of GBP18.4m (2021: GBP17.6m) and in CMF of
GBP11.7m (2021: GBP11.2m).
Pensions
The Group's defined benefit pension liability at 26 March 2022
was GBP14.4m, a decrease of GBP8.0m from the 2021 position of
GBP22.4m. The deficit has reduced due to a higher discount rate,
reflecting the significant increase in bond yields, and employer
deficit contributions over the year. This has been offset to a
lesser extent by higher expectations of long-term future inflation.
All other pension arrangements in the Group are of a defined
contribution nature.
Return on capital employed
The Group adopts ROCE as a KPI to help ensure that its strategy
and associated investment decisions recognise the underlying cost
of capital of the business. The Group's ROCE is defined in the APMs
section (see note 11 to the financial statements). For 2022, ROCE
was 13.5 per cent (2021: 13.6 per cent), which exceeds the Group's
minimum threshold of 10 per cent through the economic cycle.
Cash flow
GBPm 2022 2021
-----------
Operating cash flow (before working capital
movements) 32.6 30.2
Cash (used in) / generated from operations (1.9) 30.0
Operating cash conversion (25%) 93%
Cash balances (4.0) 25.0
Net (debt) / funds (pre-IFRS-16 basis)** (18.4) 4.4
Net (debt) / funds (30.1) (6.7)
--------------------------------------------- ----------- -----------
** 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 Alternative Performance Measures
('APMs') section (see note 11 to the financial statements).
The Group's business model has been established to generate
surplus cash flows and we have always placed a high priority on
cash generation and the active management of working capital. The
Group ended the year with net debt (on a pre-IFRS 16 basis) of
GBP18.4m (2021: net funds GBP4.4m). Net debt at 26 March 2022
included an overdraft of GBP4.0m (2021: cash of GBP25.0m) and the
outstanding term loans of GBP14.9m for acquisitions (2021:
GBP20.7m).
Operating cash flow for the year before working capital
movements was GBP32.6m (2021: GBP30.2m). Net working capital has
increased by GBP34.5m during the year mainly reflecting the
expected unwinding of the unusually low working capital position
(two per cent of revenue) at the start of the year, together with
the impact of steel and other input price rises, and higher steel
purchases to meet production requirements in early 2023 when
executing our record order book. Furthermore, o n 1 March 2021, the
UK's new VAT Domestic Reverse Charge regulations for construction
services came into force, further increasing existing cash flow
pressures on many businesses in our sector, and this was also a
contributary factor in the Group's higher working capital position
at the year-end.
Year-end working capital represented approximately ten per cent
of revenue (2021: two per cent). Although this is higher than our
well-established target range of four to six per cent, we expect an
improvement in working capital in 2023, as some of the 2022 working
capital pressures abate. Similarly, although we have missed our
operating cash conversion (defined in the APMs section - note 11 to
the financial statements) target of 85 per cent in 2022, we expect
to exceed this target once again in 2023.
Prompt Payment Code
We believe in treating our suppliers and subcontractors fairly
and with respect. Our three main businesses are all signatories of
the Prompt Payment Code ('PPC'). Our relationships with our supply
chain partners are of strategic importance and key to the Group's
success, and payment practices remained a major area of focus
throughout the year. However, the business operates in a sector
where supply chains and contractual terms are complex, and prompt
payment is often materially impacted by resolution of disputes and
alignment to agreed contractual terms. For the PPC reporting period
of 1 October 2021 to 26 March 2022, all the Group's businesses that
are signatories of the PPC, reported that between 90 and 95 per
cent of invoices were paid within 60 days.
From 1 July 2021 the PPC introduced the requirement to pay 95
per cent of invoices to businesses with fewer than 50 employees
within 30 days instead of 60 days. In the second half of 2022, the
Group paid over 80 per cent of its suppliers identified with fewer
than 50 employees within the 30-day timeframe. Whilst we
acknowledge that not all businesses with fewer than 50 employees
have the latest systems to ensure prompt payment, the Group
continues to take the appropriate action to further streamline its
systems and processes, and work with them, to try to meet the
timeframe set out by the Code.
Bank facilities committed until 2026
In December 2021, the Group completed a refinancing of its
revolving credit facility ('RCF'). The new GBP50m RCF provides
additional liquidity above the GBP25m RCF which it replaced and
extends the term of the facility which now matures in December
2026. The new facility provides the Group with enhanced liquidity
and long-term financing to help support its growth strategy. The
RCF remains subject to three financial covenants, namely interest
cover, net debt to EBITDA and debt service (cash flow) cover. The
Group operated well within these covenant limits throughout the
year ended 26 March 2022.
Going concern
In determining whether the Group's annual consolidated financial
statements can be prepared on the going concern basis, the
directors considered all factors likely to affect its future
development, performance and its financial position, including cash
flows, liquidity position and borrowing facilities and the risks
and uncertainties relating to its business activities.
The following factors were considered as relevant:
-- The current market conditions and the impact of these
(including the potential future impact of the current inflationary
market conditions and similar other significant downside risks
linked to our principal risks) on the Group's profits and cash
flows,
-- The UK and Europe order book and the pipeline of potential
future orders,
-- The Group's operational improvement programme, which has
delivered tangible benefits in 2022 and is expected to continue
doing so in 2023 and for the period under forecast, and
-- The Group's cash position and its bank finance facilities,
which are committed until December 2026, including both the level
of those facilities and the three financial covenants (see above)
attached to them.
In the previous year, the Group continued to trade safely and
profitably with positive operating cash flows whilst operating
under various COVID-19 restrictions. The directors expect the Group
to remain similarly resilient over the forecast period. The
directors have reviewed the Group's forecasts and projections for
2023 and for at least 12 months from the date of approval of the
financial statements, including sensitivity analysis to assess the
Group's resilience to potential adverse outcomes including a highly
pessimistic 'severe but plausible' scenario. This 'severe but
plausible' scenario is based on the combined impact of securing no
further orders and further significant inflationary pressures for
the entirety of the going concern period. Given the strong previous
performance of the Group, this scenario is only being modelled to
stress test our strong financial position and demonstrates the
existence of considerable headroom in the Group's covenants and
borrowing facilities in this 'severe but plausible' scenario.
Having also made appropriate enquiries, the directors consider
it reasonable to assume that the Group has adequate resources to be
able to operate within the terms and conditions of its financing
facilities for at least 12 months from the approval of the
financial statements. For this reason, the directors continue to
adopt the going concern basis in preparing the financial
statements.
Adam Semple
Group Finance Director
15 June 2022
Consolidated income statement
For the year ended 26 March 2022
Year ended 26 March 2022 Year ended 27 March 2021
Non-underlying Non-underlying
Underlying 2022 Total Underlying 2021 Total
2022 GBP000 2022 2021 GBP000 2021
GBP000 GBP000 GBP000 GBP000
Revenue 403,563 - 403,563 363,254 - 363,254
Operating costs (376,682) (5,424) (382,106) (337,784) (2,795) (340,579)
------------- --------------- ------------- -------------- --------------- --------------
Operating profit
before
share of results of
JVs and associates 26,881 (5,424) 21,457 25,470 (2,795) 22,675
Share of results of
JVs and associates 1,346 - 1,346 (344) - (344)
Operating profit 28,227 (5,424) 22,803 25,126 (2,795) 22,331
Net finance expense (1,129) (674) (1,803) (795) (429) (1,224)
------------- --------------- ------------- -------------- --------------- --------------
Profit before tax 27,098 (6,098) 21,000 24,331 (3,224) 21,107
Tax (4,795) (604) (5,399) (4,574) 771 (3,803)
------------- --------------- ------------- -------------- --------------- --------------
Profit for the year
attributable to the
equity holders of the
parent 22,303 (6,702) 15,601 19,757 (2,453) 17,304
============= =============== ============= ============== =============== ==============
Earnings per share:
Basic 7.22p (2.17)p 5.05p 6.43p (0.80)p 5.63p
Diluted 7.19p (2.16)p 5.03p 6.43p (0.80)p 5.63p
All the above activities relate to continuing operations.
Further details of 2022 non-underlying items are disclosed in
note 3. A reconciliation of the Group's underlying results to its
statutory results is disclosed in note 11.
Consolidated statement of comprehensive income
For the year ended 26 March 2022
Year ended Year ended
26 March 2022 27 March 2021
GBP000 GBP000
Actuarial gain/(loss) on defined
benefit
pension scheme* 5,938 (4,906)
(Losses)/gains taken to equity
on cash flow hedges (22) 1,699
Reclassification adjustments
on cash flow hedges 13 251
Exchange difference on foreign
operations 40 34
Tax relating to components of
other comprehensive income* (1,184) 734
Other comprehensive income for
the year 4,785 (2,188)
Profit for the year from continuing
operations 15,601 17,304
Total comprehensive income for
the
year attributable to equity
shareholders 20,386 15,116
=============================== ==============================
* These items will not be subsequently reclassified to the
consolidated income statement.
Consolidated balance sheet
As at 26 March 2022
As at As at
26 March 27 March
2022 2021
GBP000 GBP000
ASSETS
Non-current assets
Goodwill 82,188 85,782
Other intangible assets 10,343 9,630
Property, plant and equipment 91,436 91,698
Right-of-use asset 11,070 9,808
Interests in JVs and associates 30,136 28,790
Contract assets, trade and other
receivables 4,881 4,368
230,054 230,076
------------------------------- --------------------------------
Current assets
Inventories 18,005 10,231
Contract assets, trade and other
receivables 117,859 67,847
Derivative financial instruments 670 1,049
Current tax assets 4,171 3,584
Cash and cash equivalents - 24,983
------------------------------- --------------------------------
140,705 107,694
------------------------------- --------------------------------
Total assets 370,759 337,770
=============================== ================================
LIABILITIES
Current liabilities
Cash and cash equivalents (3,974) -
Trade and other payables (111,692) (77,803)
Financial liabilities - borrowings (5,900) (5,900)
Financial liabilities - leases (1,756) (1,744)
(123,322) (85,447)
------------------------------- --------------------------------
Non-current liabilities
Trade and other payables (3,081) (10,639)
Retirement benefit obligations (14,396) (22,379)
Financial liabilities - borrowings (8,950) (14,850)
Financial liabilities - leases (9,884) (9,365)
Deferred tax liabilities (7,166) (4,161)
(43,477) (61,394)
------------------------------- --------------------------------
Total liabilities (166,799) (146,841)
=============================== ================================
NET ASSETS 203,960 190,929
=============================== ================================
EQUITY
Share capital 7,738 7,706
Share premium 88,511 87,658
Other reserves 4,485 3,464
Retained earnings 103,226 92,101
------------------------------- --------------------------------
TOTAL EQUITY 203,960 190,929
=============================== ================================
Consolidated statement of changes in equity
For the year ended 26 March 2022
Share Share Other Retained Total
capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 28 March 2021 7,706 87,658 3,464 92,101 190,929
Total comprehensive
income for the year - - 32 20,354 20,386
Ordinary shares issued
* 32 853 - - 885
Equity settled share-based
payments - - 989 - 989
Dividend paid - - - (9,229) (9,229)
At 26 March 2022 7,738 88,511 4,485 103,226 203,960
================ =============== ================ =============== ===============
* T he issue of shares represents shares allotted to satisfy the
2018 and 2020 Sharesave scheme.
Share Share Other Retained Total
capital premium reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 29 March 2020 7,648 87,292 1,402 87,333 183,675
Total comprehensive
income for the year - - 1,984 13,132 15,116
Ordinary shares issued
** 58 366 - - 424
Equity settled share-based
payments - - 78 531 609
Dividend paid - - - (8,895) (8,895)
---------------- ----------------- ----------------- --------------- ---------------
At 27 March 2021 7,706 87,658 3,464 92,101 190,929
================ ================= ================= =============== ===============
** T he issue of shares represents shares allotted to satisfy
the 2017 performance share plan award which vested in June 2020 and
the 2017 Sharesave schemes.
Consolidated cash flow statement
For the year ended 26 March 2022
Year ended Year ended
26 March 27 March 2021
2022 GBP000
GBP000
Net cash flow from operating activities (5,685) 25,349
Cash flows from investing activities
Proceeds on disposal of other property,
plant and equipment 376 104
Purchases of land and buildings (2,759) (247)
Purchases of other property, plant and
equipment (2,507) (6,097)
Purchase of intangible assets (124) (276)
Investment in JVs and associates - (2,444)
Investment in subsidiary entities, net
of cash acquired (526) (17,489)
Net cash used in investing activities (5,540) (26,449)
---------------------- ------------------------------
Cash flows from financing activities
Interest paid (1,056) (699)
Dividends paid (9,229) (8,895)
Proceeds from shares issued 885 424
Proceeds from borrowings - 12,000
Repayment of borrowings (5,900) (19,375)
Repayment of obligations under finance
leases (2,432) (1,710)
Net cash used in financing activities (17,732) (18,255)
---------------------- ------------------------------
Net decrease in cash and cash equivalents (28,957) (19,355)
Cash and cash equivalents at beginning
of year 24,983 44,338
---------------------- ------------------------------
Cash and cash equivalents at end of
year (3,974) 24,983
====================== ==============================
1) Basis of preparation
The preliminary announcement has been prepared in accordance
with the Listing Rules of the FCA and is based on the 2022
financial statements which have been prepared in accordance with
UK-adopted International Financial Reporting Standards ('IFRS'),
with IFRS as issued by the International Accounting Standards Board
('IASB') and with the requirements of the Companies Act 2006.
The accounting policies applied in preparing the preliminary
announcement are consistent with those used in preparing the
statutory financial statements for the year ended 27 March
2021.
The preliminary announcement is made up to an appropriate week
end date around 31 March each year. For 2022, trading is shown for
the 52-week period ended on 26 March 2022 (2021: 52-week period
ended on 27 March 2021).
The financial statements of the Group's joint venture, JSSL, are
made up to the year ended 31 March 2022 (2021: year ended 31 March
2021).
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 27 March 2021 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 26
March 2022, 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
Following the adoption of IFRS 8, 'Operating Segments' the Group
has identified its operating segments with reference to the
information regularly reviewed by the executive committee ((the
chief operating decision maker) ('CODM')) to assess performance and
allocate resources. On this basis, the CODM has identified one
operating segment (construction contracts) which in turn is the
only reportable segment of the Group. The constituent operating
businesses have been aggregated as they have similar products and
services, production processes, types of customers, methods of
distribution, regulatory environments and economic characteristics.
All revenue is derived from construction contracts and related
assets. Group revenue includes revenue of GBP57,619,000 (2021:
GBP108,871,000), spread over several contracts, relating to one
major customer, who individually contributed more than 10 per cent
of Group revenue in the year ended 27 March 2022.
3) Non-underlying items
2022 2021
GBP000 GBP000
Operating costs (5,424) (2,795)
Finance expense (674) (429)
Non-underlying items before tax (6,098) (3,224)
Tax on non-underlying items (604) 771
------------------------ ----------------------
Non-underlying items after tax (6,702) (2,453)
======================== ======================
Non-underlying items include the amortisation of acquired
intangible assets of GBP5,191,000 (2021: GBP2,842,000) and
acquisition-related expenses of GBP674,000 (2021: GBP382,000).
Amortisation of acquired intangible assets represents the
amortisation of customer relationships, order books and brand name,
which were identified on the acquisition of Harry Peers and DAM
Structures in 2020 and 2021 respectively. In the current year,
acquisition-related expenses consist of the unwinding of the
discount on the DAM Structures contingent consideration of
GBP674,000. The prior year acquisition-related expenses include
non-recurring legal and consultancy costs associated with these
acquisitions of GBP689,000 and unwinding of the discount on the
Harry Peers contingent consideration of GBP429,000 offset by
movements of GBP736,000 in the valuation of the Harry Peers
contingent consideration, which was paid in December 2020.
Tax on non-underlying items includes the impact of an increase
in future corporation tax rates from 19 per cent to 25 per cent,
that have been substantially enacted, on the Group's deferred tax
liability. In the year, a charge of GBP604,000 has been recognised,
comprising a tax credit on non-underlying items of GBP1,030,000
offset by a charge of GBP1,457,000 relating to the increase in
future corporation tax rates and a charge of GBP177,000 relating to
prior year adjustments.
Non-underlying items have been separately identified to provide
a better indication of the Group's underlying business performance.
They are not considered to be 'business as usual' items and have a
varying impact on different businesses and reporting years. They
have been separately identified as a result of their magnitude,
incidence or unpredictable nature. These items are presented as a
separate column within their consolidated income statement
category. Their separate identification results in a calculation of
an underlying profit measure in the same way as it is presented and
reviewed by management. A reconciliation of the Group's underlying
results to its statutory results is disclosed in note 11.
4) Taxation
The taxation charge comprises:
2022 2021
GBP000 GBP000
Current tax
UK corporation tax charge (4,178) (3,940)
Foreign tax relief / other relief 124 -
Foreign tax suffered (125) -
Adjustments to prior years' provisions (251) (69)
-------------------------- --------------------------
(4,430) (4,009)
-------------------------- --------------------------
Deferred tax
Current year credit 415 25
Impact of change in future years' (1,457) -
tax rates
Adjustments to prior years' provisions 73 181
-------------------------- --------------------------
(969) 206
-------------------------- --------------------------
Total tax charge (5,399) (3,803)
========================== ==========================
5) Dividends
2022 2021
GBP000 GBP000
Amounts recognised as distributions
to equity holders in the year:
2021 final - 1.8p per share (2020:
1.8p per share) (5,529) (5,523)
2022 interim - 1.2p per share (2021:
1.1p per share) (3,700) (3,372)
--------------------------- --------------------------
(9,229) (8,895)
=========================== ==========================
The directors are recommending a final dividend of 1.9p per
share (2021: 1.8p), payable on 14 October to shareholders on the
register at the close of business on 9 September. This together
with the interim dividend of 1.2p per share (2021: 1.1p), will
result in a total dividend of 3.1p per share (2021: 2.9p).
6) Earnings per share
Earnings per share is calculated as follows:
2022 2021
GBP000 GBP000
Earnings for the purposes of basic
earnings per share being net profit
attributable to equity holders
of the parent company 15,601 17,304
------------ -----------------------------
Earnings for the purposes of underlying
basic earnings per share being
underlying net profit attributable
to equity holders of the parent
company 22,303 19,757
------------ -----------------------------
Number of shares Number Number
Weighted average number of ordinary
shares for the purposes of basic
earnings per share 308,834,123 307,337,645
Effect of dilutive potential ordinary
shares 1,335,323 112
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 310,169,446 307,337,757
============ =============================
Basic earnings per share 5.05p 5.63p
Underlying basic earnings per
share 7.22p 6.43p
Diluted earnings per share 5.03p 5.63p
Underlying diluted earnings per
share 7.19p 6.43p
7) Business combinations
Summary of prior year acquisition
On 26 February 2021, the Company acquired 100 per cent of the
share capital of DAM Structures Limited ('DAM Structures'), an
innovative steel fabrication company. The board believe that the
acquisition will give the Group immediate access to attractive,
complimentary market sectors with strong growth potential including
the propping, railway and steel piling market sectors.
The final net consideration of GBP22.9m comprised:
Provisional Movement Final
GBP000 GBP000 GBP000
Gross initial cash consideration 16,994 - 16,994
Completion payment 934 (408) 526
Contingent consideration 3,709 268 3,977
Deferred consideration 6,930 - 6,930
-------------------------------------- ----------- -------- -------
Gross consideration 28,567 (140) 28,427
Net cash acquired (excluding payments
in advance) (5,521) - (5,521)
-------------------------------------- ----------- -------- -------
Net consideration 23,046 (140) 22,906
====================================== =========== ======== =======
7) Business combinations (continued)
DAM Structures was acquired for an initial gross consideration
of GBP16,994,000, including cash and cash equivalents of
GBP5,521,000, which was funded by a combination of Group cash
reserves and a new term loan.
In addition, a maximum deferred consideration of GBP7,000,000 is
payable in cash in H1 of FY23. An additional performance-based
contingent consideration is also in place which could further
increase the purchase price by up to GBP8,000,000, if certain
work-winning targets in the railway and steel piling sectors are
achieved over a five-year period, ending in April 2026.
Following the finalisation of the acquisition accounting for DAM
Structures in 2022, the provisional completion payment was agreed
at GBP526,000, which has been paid in cash during the year, and the
fair value of the contingent consideration has increased from the
provisional stage to GBP3,977,000. This represents management's
current assessment of the amount likely to be paid of GBP6,565,000
(out of the maximum GBP8,000,000), discounted at DAM Structures's
cost of capital of 18.5 per cent.
The fair value of the assets and liabilities recognised as a
result of the acquisition are as follows:
Movement Final
ProvisionalGBP000 GBP000 GBP000
Non-current assets
Property, plant and equipment 1,990 - 1,990
Current assets
Inventories 2,235 - 2,235
Contract assets, trade and other
receivables 10,141 (1,121) 9,020
Cash and cash equivalents
(excluding payments in advance) 5,521 - 5,521
-------------------------------------- ----------------- --------------- -------------
17,897 (1,121) 16,776
-------------------------------------- ----------------- --------------- -------------
Total assets 19,887 (1,121) 18,766
-------------------------------------- ----------------- --------------- -------------
Current liabilities
Trade and other payables (9,973) (493) (10,466)
Current tax liabilities (86) (40) (126)
-------------------------------------- ----------------- --------------- -------------
(10,059) (533) (10,592)
Non-current liabilities
Deferred tax liabilities (1,079) (850) (1,929)
-------------------------------------- ----------------- --------------- -------------
Total liabilities (11,138) (1,383) (12,521)
-------------------------------------- ----------------- --------------- -------------
Net assets 8,749 (2,504) 6,245
-------------------------------------- ----------------- --------------- -------------
Net cash acquired (excluding payments
in advance) (5,521) - (5,521)
-------------------------------------- ----------------- --------------- -------------
Net identifiable assets acquired 3,228 (2,504) 724
Identified intangible assets 4,750 5,958 10,708
Goodwill 15,068 (3,594) 11,474
-------------------------------------- ----------------- --------------- -------------
Net assets acquired 23,046 (140) 22,906
====================================== ================= =============== =============
The finalisation of the acquisition accounting for DAM
Structures resulted in an amount of GBP3,594,000 being reclassified
from goodwill to intangible assets during the year. This reflects
additional identified intangible assets on acquisition of
GBP5,958,000, offset by fair value adjustments of GBP1,514,000 and
related deferred tax liabilities of GBP850,000. The fair value
adjustments relate to adjustments to contract balances, updated
using the best estimates available, which are based on conditions
existing at the date of acquisition. Due to the proximity of the
acquisition to the previous year-end date, the valuation of these
assets was not finalised until the year ended 26 March 2022.
7) Business combinations (continued)
Goodwill of GBP11,474,000 represents both existing and new end
user customers (including core fabrication and rail), which were
not recognised separately in accordance with IFRS 3 (Revised)
'Business combinations', the ability and skill of DAM's employees
and management, know-how, and the quality of the services provided
(none of which qualify for recognition as a separate intangible
asset under IFRS 3). The goodwill arising from the acquisition is
not expected to be deductible for income tax purposes.
Analysis of amounts disclosed in the cash flow statement in
connection with the acquisition:
2022 2021
DAM Structures: GBP000 GBP000
Gross initial cash consideration - 16,994
Completion payment 526 -
Net cash acquired (including payments
in advance) - (5,505)
-------------------------------------- ------- -------
Total cash outflow - investing
activities 526 11,489
Contingent consideration - Harry
Peers - 6,000
-------------------------------------- ------- -------
Net initial cash consideration 526 17,489
====================================== ======= =======
Acquisition-related costs of GBP689,000 were fully expensed in
the period to 27 March 2021 as non-underlying operating costs (see
note 3).
8) Net cash flow from operating activities
2022 2021
GBP000 GBP000
Operating profit from continuing
operations 22,803 22,331
Adjustments:
Depreciation - property, plant and
equipment 5,163 4,434
Depreciation - right-of-use assets 1,702 1,569
(Gain)/loss on disposal of other
property, plant and equipment (11) 40
Movements in contingent consideration - (736)
Amortisation of intangible assets 5,369 2,846
Movements in pension scheme (2,045) (1,215)
Share of results of JVs and associates (1,346) 344
Share-based payments 989 610
Operating cash flows before movements
in working capital 32,624 30,223
Increase in inventories (7,774) (1,140)
(Increase)/decrease in receivables (50,533) 12,551
Increase/(decrease) in payables 23,781 (11,645)
Cash (used in)/generated from operations (1,902) 29,989
Tax paid (3,783) (4,640)
-------------------------- --------------------------
Net cash flow from operating activities (5,685) 25,349
========================== ==========================
9) Net (debt) / funds
The Group's net (debt) / funds are as follows:
2022 2021
GBP000 GBP000
Borrowings (14,850) (20,750)
Cash and cash equivalents (3,974) 24,983
Unamortised debt arrangement fees 402 128
-------------------------- ---------------------------
Net (debt) / funds (pre-IFRS
16) (18,422) 4,361
IFRS 16 lease liabilities (11,640) (11,109)
Net (debt) (post-IFRS 16) (30,062) (6,748)
========================== ===========================
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 11.
10) Contingent liabilities
Liabilities have been recorded for the directors' best estimate
of uncertain contract positions, known legal claims, investigations
and legal actions in progress. The Group takes legal advice as to
the likelihood of the success of claims and actions and no
liability is recorded where the directors consider, based on that
advice, that the action is unlikely to succeed, or that the Group
cannot make a sufficiently reliable estimate of the potential
obligation. The Group also has contingent liabilities in respect of
other issues that may have occurred, but where no legal or
contractual claim has been made and it is not possible to reliably
estimate the potential obligation.
11) 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 Definition Rationale
measure ('APM')
----------------------------- --------------------------
Underlying operating Operating profit Profit measure reflecting
profit (before JVs before non-underlying underlying trading
and associates) items and the results performance of wholly
of JVs and associates. owned subsidiaries.
----------------------------- --------------------------
Underlying profit Profit before tax Profit measure widely
before tax before non-underlying used by investors
items. and analysts.
----------------------------- --------------------------
Underlying basic Underlying profit Underlying EPS reflects
earnings per share after tax divided the Group's operational
('EPS') by the weighted average performance per ordinary
number of shares share outstanding.
in issue during the
year.
----------------------------- --------------------------
Net funds / (debt) Balance drawn down Measure of the Group's
on the Group's revolving cash indebtedness
credit facility, before IFRS-16 lease
with unamortised liabilities, which
debt arrangement are excluded from
costs added back, the definition of
less cash and cash net funds / (debt)
equivalents (including in the Group's borrowing
bank overdrafts) facilities. This
before IFRS-16 lease measure supports
liabilities. the assessment of
available liquidity
and cash flow generation
in the reporting
period.
(pre-IFRS 16)
----------------------------- --------------------------
Operating cash conversion Cash generated from Measure of how successful
operations after we are in converting
net capital expenditure profit to cash through
(before interest management of working
and tax) expressed capital and capital
as a percentage of expenditure. Widely
underlying operating used by investors
profit (before JVs and analysts.
and associates).
----------------------------- --------------------------
Return on capital Underlying operating Measures the return
employed profit divided by generated on the
the average of opening capital we have invested
and closing capital in the business and
employed. reflects our ability
Capital employed to add shareholder
is defined as shareholders' value over the long
equity excluding term. We have an
retirement benefit asset-intensive business
obligations (net model and ROCE reflects
of tax), acquired how productively
intangible assets we deploy those capital
and net funds. resources.
----------------------------- --------------------------
Reconciliations to IFRS
measures
2022 2021
A. Underlying operating Note GBP000 GBP000
profit (before JVs and associates)
Underlying operating profit
(before JVs and associates) 26,881 25,470
Non-underlying operating
items 3 (5,424) (2,795)
Share of results of JVs
and associates 1,346 (344)
------------------------------------- ----- ------------ ------------
Operating profit 22,803 22,331
------------------------------------- ----- ------------ ------------
2022 2021
B. Underlying profit before Note GBP000 GBP000
tax
Underlying profit before
tax 27,098 24,331
Non-underlying items 3 (6,098) (3,224)
------------------------------------- ----- ------------ ------------
Profit before tax 21,000 21,107
------------------------------------- ----- ------------ ------------
2022 2021
C. Underlying basic EPS Note GBP000 GBP000
Underlying net profit attributable
to equity holders of the
parent Company 22,303 19,757
Non-underlying items after
tax 3 (6,702) (2,453)
------------------------------------- ----- ------------ ------------
Net profit attributable
to equity holders of the
parent Company 15,601 17,304
Weighted average number
of ordinary shares 6 308,834,123 307,337,645
Underlying basic earnings
per share 7.22p 6.43p
Basic earnings per share 5.05p 5.63p
------------------------------------- ----- ------------ ------------
2022 2021
D. Net funds / (debt) (pre-IFRS Note GBP000 GBP000
16)
Borrowings (14,850) (20,750)
Cash and cash equivalents (3,974) 24,983
Unamortised debt arrangement
costs 402 128
------------------------------------- ----- ------------ ------------
Net funds / (debt) (pre-IFRS
16) 9 (18,422) 4,361
IFRS 16 lease liabilities (11,640) (11,109)
------------------------------------- ----- ------------ ------------
Net funds / (debt) (post-IFRS
16) 9 (30,062) (6,748)
------------------------------------- ----- ------------ ------------
2022 2021
E. Operating cash conversion Note GBP000 GBP000
Cash (used in) / generated
from operations (1,902) 29,989
Proceeds on disposal of
other property, plant and
equipment 376 104
Purchases of land and buildings (2,759) (247)
Purchases of other property,
plant and equipment (2,507) (6,097)
------------------------------------- ----- ------------ ------------
(6,792) 23,749
Underlying operating profit
(before JVs and associates) 26,881 25,470
------------------------------------- ----- ------------ ------------
Operating cash conversion (25%) 93%
------------------------------------- ----- ------------ ------------
Reconciliations to IFRS
measures 2022 2021
F. Return on capital employed Note GBP000 GBP000
Underlying operating profit
Underlying operating profit
(before JVs and associates) 26,881 25,470
Share of results from JVs
and associates 1,346 (344)
--------------------------------------- -------- ---------
Underlying operating profit 28,227 25,126
Capital employed
Shareholders' equity 203,960 190,929
Cash and cash equivalents 3,974 (24,983)
Borrowings 14,850 20,750
--------------------------------------- -------- ---------
Net debt / (funds) (for
ROCE purposes) 18,824 (4,233)
Acquired intangible assets (9,735) (9,283)
Retirement benefit obligation
(net of deferred tax) 10,797 18,127
--------------------------------------- -------- ---------
223,846 195,540
Average capital employed 209,693 185,382
--------------------------------------- -------- ---------
Return on capital employed 13.5% 13.6%
--------------------------------------- -------- ---------
Principal risks and uncertainties
The board has carried out a robust assessment of the principal
risks and uncertainties which have the potential to impact the
Group's profitability and ability to achieve its strategic
objectives. This list is not intended to be exhaustive. Additional
risks and uncertainties not presently known to management or deemed
to be less significant at the date of this report may also have the
potential to have an adverse effect on the Group. Risk management
processes are put in place to assess, manage and control these on
an ongoing basis. Our principal risks are set out below:
Health and safety
Description
The Group works on significant, complex and potentially hazardous
projects, which require continuous monitoring and management
of health and safety risks. Ineffective governance over and
management of these risks could result in serious injury,
death and damage to property or equipment.
Impact
A serious health and safety incident could lead to the potential
for legal proceedings, regulatory intervention, project delays,
potential loss of reputation and ultimately exclusion from
future business. Continued changes in legislation can result
in increased risks to both individuals and the Group.
Mitigation
* Established safety systems, site visits, safety
audits, monitoring and reporting, and detailed health
and safety policies and procedures are in place
across the Group, all of which focus on prevention
and risk reduction and elimination.
* Thorough and regular employee training programmes.
* Director-led safety leadership teams established to
bring innovative solutions and to engage with all
stakeholders to deliver continuous improvement in
standards across the business and wider industry.
* Close monitoring of subcontractor safety performance.
* Priority board review of ongoing performance and
in-depth review of both high potential and reportable
incidents.
* Regular reporting of, and investigation and root
cause analysis of, accidents, incidents and high
potential near misses.
* Behavioural safety cultural change programme.
* Occupational health programme, including mental
health.
* Achievement of challenging health and safety
performance targets is a key element of management
and staff remuneration.
* Detailed due diligence on new acquisitions and
effective integration of SHE processes and systems.
* A detailed gap analysis and strategy review was
undertaken in 2022.
Supply chain
Description
The Group is reliant on certain key supply chain partners
for the successful operational delivery of contracts to meet
client expectations. The failure of a key supplier, 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 utilise
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.
People
Description The ability to identify, attract, develop and
retain talent is crucial to satisfy the current and future
needs of the business. Skills shortages in the construction
industry are likely to remain an issue for the foreseeable
future and it can become increasingly difficult to recruit
capable people and retain key employees, especially those
targeted by competitors. This has been exacerbated in the
last 12 months 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, customer
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 exercise completed in
2022 identifying for development future senior
leaders within the business.
* Attractive working environments, remuneration
packages, technology tools and wellbeing initiatives
to help improve employees' working lives and above
average inflation pay review in 2021.
* 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.
* A new HR structure implemented in 2021 and updated HR
systems rolled out covering payroll and a new
employee portal.
* Three-year goals have been defined around HR
operational efficiency, evolving our approach to
performance, development and careers and creating an
environment where Severfield employees feel listened
to and are fairly recognised and rewarded for their
contribution to the Group.
* A review of the company approach to flexible working
practices has been undertaken in the light of our
experiences of remote working during the COVID-19
pandemic.
Commercial and market environment
Description
Changes in government and client spending or other external
factors could lead to programme and contract delays or cancellations,
or changes in market growth. External factors include national
or market trends, political or regulatory change (including
the UK's trading relationship with the EU), the impact of
worldwide events such as war (including the impact of the
Ukraine crisis) and the impact of pandemics (including the
ongoing COVID-19 pandemic).
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 business venture.
* 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 customers and suppliers
and monitoring of payment cycles.
* Ongoing assessment of financial solvency and strength
of counterparties throughout the life of contracts.
* Continuing use of credit insurance to minimise impact
of customer failure.
* Strong cash model and balance sheet supports the
business through fluctuations in the economic
conditions of the sector.
* Acquisition of Harry Peers and DAM Structures has
broadened our reach and cross-selling opportunities,
resulting in improved market resilience.
Mispricing a contract (at tender)
Description
Failure to accurately estimate and evaluate the contract risks,
costs to complete, contract duration and the impact of price
increases could result in a contract being mispriced. Execution
failure on a high-profile contract could result in reputational
damage,
Impact
If a contract is incorrectly priced, particularly on complex
contracts, this could lead to loss of profitability, adverse
business performance and missed performance targets.
This could also damage relationships with clients and the
supply chain.
Mitigation
* Improved contract selectivity (those that are right
for the business and which match our risk appetite)
has de-risked the order book and reduced the
probability of poor contract execution.
* Estimating processes are in place with approvals by
appropriate levels of management.
* Tender settlement processes are in place to give
senior management regular visibility of major
tenders.
* Use of the tender review process to mitigate the
impact of rising supply chain costs.
* Work performed under minimum standard terms (to
mitigate onerous contract terms) where possible.
* Use of Group authorisation policy to ensure
appropriate contract tendering and acceptance.
* Adoption of 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.
Cyber security
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.
* 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.
Failure to mitigate onerous contract terms
Description
The Group's revenue is derived from construction contracts
and related assets. Given the highly competitive environment
in which we operate, contract terms need to reflect the risks
arising from the nature or the work to be performed. Failure
to appropriately assess those contractual terms or the acceptance
of a contract with unfavourable terms could, unless properly
mitigated, result in poor contract delivery, poor understanding
of contract risks and legal disputes.
Impact
Loss of profitability on contracts as costs incurred may not
be recovered, and potential reputational damage for the Group.
Mitigation
-- The Group has identified minimum standard terms which mitigate
contract risk.
* Robust tendering process with detailed legal and
commercial review and approval of proposed
contractual terms at a senior level (including the
risk committee) are required before contract
acceptance so that onerous terms are challenged,
removed or mitigated as appropriate.
* Regular contract audits are performed to ensure
contract acceptance and approval procedures have been
adhered to.
* We 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.
Indian joint venture
Description
The growth, effective management and performance of our Indian
joint venture ('JSSL') is a key element of the Group's overall
strategy. The Indian market has continued to expand rapidly
in recent years and the factory in Bellary has been expanded
to meet current and anticipated future market growth. The
COVID-19 pandemic has impacted JSSL and recovery is continuing.
Impact
Failure to effectively manage our operations in India could
lead to financial loss, reputational damage and a drain on
cash resources to fund the operations.
Mitigation
* In line with the response of the Group to COVID-19,
local management in India continue to closely monitor
cash flows and debt repayments, together with
adopting specific actions to minimise the disruption
on the joint venture operations during the Indian
economy's recovery period.
* Restructuring undertaken in 2021 to reduce overheads
without compromising future growth plans.
* Robust joint venture agreement and strong governance
structure is in place.
* Regular schedule of annual visits to India by UK
executive and senior management to review operations
and ensure appropriate oversight
* Two members of the Group's board of directors are
members of the joint venture board.
* Regular formal and informal meetings held with both
joint venture management and joint venture partners.
* Contract risk assessment, engagement and execution
process now embedded in the joint venture.
* Operational improvement programmes remain ongoing.
* Ongoing review of controls environment and risk
management processes undertaken by Group senior
management.
Sustainable and responsible business
Description
Risk of not being able to meet stakeholder expectations in
the light of uncertainty as to the direction in which stakeholder
expectations will develop.
Impact
Loss of position as market leader and wider losses of future
opportunities in the short term.
Mitigation
* We have demonstrated a commitment to reduce our
carbon footprint by becoming carbon neutral and
established other stakeholder influenced
sustainability related targets such as net zero by
2050.
* We are rated A- by CDP in the leadership band.
* We have a dedicated sustainability manager who
monitors current legislation and expectations and
develops Group strategy to facilitate and implement
plans for compliance.
* We are raising internal awareness of the steps we are
taking and developing closer working relationships
with clients and suppliers.
* We monitor shareholder comments on the annual report
and accounts and in one-to-one meetings.
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END
FR EZLFFLQLLBBV
(END) Dow Jones Newswires
June 15, 2022 02:00 ET (06:00 GMT)
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