The results for the year reflect the stability restored to the UK business and the resolution of legacy contract issues.
Alan Dunsmore Group finance director
Revenue for the year of £231.3m compared with £318.3m for the 15 month period to 31 March 2013. This represented a more stable underlying performance along with a modest reduction in capacity in our largest operating business during the year. The underlying operating profit before results of JVs and associates was £7.6m which reflects a significant turnaround from the loss of £19.2m in the prior 15 month period. The underlying operating margin of 3.3 per cent (2013: -6.0 per cent) reflects the stability restored to the UK business and the resolution of legacy contracts which marks a significant progression towards the target of 5–6 per cent for the 2015/16 financial year. The share of results of JVs and associates was a loss of £3.0m (2013: loss of £0.3m) and net finance costs were £0.6m (2013: £2.0m). Underlying profit before tax was £4.0m (2013: loss of £21.5m). The statutory loss before tax, reflecting both underlying and non-underlying items, was £4.1m (2013: loss of £28.9m).
Share of losses of JVs and associates
The Group's share of losses from its Indian joint venture was £3.0m for the year (2013: loss of £0.3m). This reflected the impact of unused capacity and therefore under-recovered overheads in the factory, a poorer mix of work going through the factory, and losses booked on negative margin contracts secured to provide some factory throughput. The underlying issue was a high level of delays and timing variability on existing orders, coupled with a lack of good quality, higher margin work in the pipeline to fill the available capacity. Actions to improve the order book, strengthen management and reduce overheads have been taken which should lead to an improved result in the coming year.
Underlying operating margin
|Underlying operating profit/(loss) (before results of JVs and associates)||7.6||(19.2)|
|Underlying profit/(loss) before tax||4.0||(21.5)|
|Underlying earnings per share||0.88p||(10.78p)|
|Operating loss (before results of JVs and associates)||(0.1)||(26.5)|
|Loss after tax||(2.6)||(23.1)|
Non-underlying items for the year were £8.1m (2013: £7.3m) and include the following:
Amortisation of acquired intangible assets — £2.7m (2013: £3.4m).
Retirement of acquired intangible asset relating to brand value of Fisher Engineering — £2.4m (2013: nil).
Restructuring and redundancy costs — £2.6m (2013: £0.8m).
Impairment of investment in associates — £0.4m (2013: nil).
During the past six months, a review has been undertaken of the Group's market position and branding. As a result of this, the Group's name has been changed to Severfield plc and the names of the Group's main operating businesses have also been changed to incorporate the Severfield name. Accordingly, the directors have concluded that there is no ongoing value in the legacy Fisher Engineering brand and the residual net book value has been written off.
A further restructuring of the Group's main business, Severfield (UK) Limited was undertaken during the year. This resulted in a one-time restructuring charge of £2.6m which included redundancy costs of £1.8m and a provision of £0.8m for an onerous lease on a property no longer used.
In the first half of the year, Kennedy Watts Partnership Limited, an associate company in which the Group had a 25.1 per cent shareholding, went into administration. The Group's net investment in this business of £0.4m was correspondingly impaired to nil.
Significant progress has been made towards the target underlying margin of 5–6 per cent for 2015/16."
Net finance costs in the year were £0.6m (2013: £2.0m). The reduction over the prior period reflects substantially reduced net debt levels throughout the year following the completion of the rights issue on 5 April 2013.
The underlying tax charge of £1.4m represents an effective tax rate of 20.2 per cent on the applicable profit (which excludes results from JVs and associates). This compares with an underlying credit of 14.4 per cent in the prior period relating to the losses incurred in that period.
The total tax credit for the year of £1.4m reflects the underlying tax charge, offset by deferred tax benefits arising from the amortisation and retirement of intangibles in the year, and also the benefit of the reduction in UK corporation tax to 20 per cent in the deferred tax calculation. This item is categorised as non-underlying and is included in other items.
Earnings per share
Underlying basic earnings per share was 0.88p (2013: -10.78p). This calculation is based on the underlying profit after tax of £2.6m and 295,791,922 shares, being the weighted average number of shares in issue during the year.
Basic earnings per share, based on the statutory loss after tax, is -0.89p (2013: -13.49p). There was no difference between basic and diluted earnings per share in the year (2013: no difference).
No final dividend is being recommended. The board is committed to reinstating the payment of dividends. Depending, among other things, on improved financial performance, it intends to introduce a progressive dividend policy, having regard to the Group's underlying earnings, cash flows and capital investment plans, the requirement to maintain an appropriate level of dividend cover and the prevailing market outlook.
Shareholders' funds increased from £102.4m to £143.4m in the year, following the completion of the rights issue on 5 April 2013, which raised £44.8m of new funds.
Goodwill on the balance sheet is valued at £54.7m (2013: £54.7m) and is subject to an annual impairment review under IFRS 3. No impairment existed either at 31 March 2014 or 31 March 2013.
Other intangible assets on the balance sheet are valued at £9.8m (2013: £15.1m). This represents the net book value of the intangible assets identified on the acquisition of Fisher Engineering in 2007, along with some new software assets installed during 2011 and 2012. Amortisation of £2.9m was charged in the year and the asset of £2.4m relating to the Fisher Engineering brand was retired, as a result of the rebranding of the Group and renaming of its main operating businesses.
The Group has property, plant and equipment and investment property totalling £78.0m (2013: £80.1m). Depreciation charged in the year amounted to £3.6m (2013: £5.0m). Capital expenditure in the year was £2.2m (2013: £2.7m). This included new equipment for use on our construction sites and general replacement of capital equipment as required. During the year the Group invested £3.5m (2013: £3.0m) as equity into its Indian joint venture company to finance its trading losses in the year and also the balance of its investment to expand capability and capacity.
The Group's capital expenditure in the year to 31 March 2015 is expected to return towards long-term replenishment levels of £4–5m per annum.
The Group has a defined benefit pension scheme which, although closed to new members, had an IAS 19 deficit of £12.5m at 31 March 2014 (2013: £11.8m). The increase in the deficit is as a result of an increase in the assumption made on mortality rates and a lower investment return on scheme assets, offset by contributions made by the Group during the year to reduce the deficit.
The Group finished the year with net funds on the balance sheet of £0.3m (2013: £41.2m net debt). The debt was repaid with the £44.8m net proceeds from the rights issue which completed on 5 April 2013. Operating cash flows for the year before working capital movements were £8.4m. Net working capital increased by £6.3m reflecting good progress in reducing outstanding balances on legacy contracts at 31 March 2013, offset by a normalisation of the trade creditor position which was somewhat stretched immediately preceding the rights issue, and the unwind of advance payments of £5.3m. The working capital position at 31 March 2014 is believed to represent a more normal position in relation to the underlying contracts which the business is now working on.
Net investment during the year was £5.0m, with £3.5m going into the Indian joint venture as additional equity and £1.5m being the net capital expenditure outflow for the year.
The Group has a £35m banking facility with Yorkshire Bank, part of National Australia Bank, and RBS in place until November 2016. Following a recovery period after completion of the rights issue, normal debt and interest cover covenants are now operating on this facility.
Group treasury activities are managed and controlled centrally. Risks to assets and potential liabilities to customers, employees and the public continue to be insured. The Group maintains its low risk financial management policy by insuring all significant trade debtors.
The treasury function seeks to reduce the Group's exposure to any interest rate, foreign exchange and other financial risks, to ensure that adequate, secure and cost-effective funding arrangements are maintained to finance current and planned future activities and to invest cash assets safely and profitably.
The Group continues to have some exposure to exchange rate fluctuations, currently between sterling and the euro. In order to maintain the projected level of profit budgeted on contracts, foreign exchange contracts are taken out to convert into sterling at the expected date of receipt.
In determining whether the Group's annual consolidated financial statements can be prepared on the going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities. The following factors were considered as relevant:
- The UK order book, which remains strong, and the pipeline of potential future orders.
- The Group's operational improvement plan which is driving stronger financial performance and is expected to continue doing so in the current competitive commercial environment.
- The committed finance facilities to the Group, including both the level of the facilities and the banking covenants attached to them.
Based on the above, and having made appropriate enquiries and reviewed medium-term cash forecasts, the directors consider it reasonable to assume that the Group has adequate resources to continue for the foreseeable future and therefore that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
Group finance director
11 July 2014
Suffolk Waste-to-Energy Plant
Client: SITA Waste Management (for Suffolk Council)
Main contractor: Lagan Construction
This Suffolk energy from waste facility will use modern technology to provide enough electricity to power 30,000 homes, saving the equivalent of 75,000 tonnes of carbon dioxide each year. The new plant will treat 260,000 tonnes of waste per annum. The facility features a state-of-the-art glazed visitor centre, landscaped wetland area and an on-site ash processing facility.
The project involves the supply and construction of structural and secondary steelwork for a high free-standing structure including 30 metre roof trusses, span trusses and crane beams, elements of which were erected adjacent to a live railway line, the supply and installation of pre cast walls, stairs and lift cores and 2,500 square metres of metal decking with construction handrail.