John Dodds

We continue to make progress in executing our strategy and have exceeded our 2020 strategic profit target of £26m.


John Dodds

Non-executive chairman

2020 was another year of strong progress for the Group. We have grown the business, exceeded our 2020 strategic profit target of £26m, have entered new markets through the acquisition of Harry Peers and have made further progress with our 'Smarter, Safer, more Sustainable' business improvement programme.

Group revenue for the year was £327.4m, an increase of 19 per cent on 2019, which has been achieved despite some challenging market conditions in 2020. We have also delivered another year of profit growth, with underlying* profit before tax increasing by 16 per cent to £28.6m, from £24.7m in 2019. This reflects a good operating performance from our core UK businesses, where margins have remained above 8 per cent, a contribution from the acquisition of Harry Peers, and strong profit growth from our Indian joint venture ('JSSL').

The strength of our balance sheet and cash generation have remained high priorities for us and our positive operating cash flow has enabled further capital investment in 2020, demonstrating our continued commitment to developing and improving the business. Year-end net funds were £16.4m which includes the outstanding acquisition loan for Harry Peers of £13.1m.

Unfortunately, after such an encouraging financial year in 2020, we are now faced with the continued uncertainty of the COVID-19 pandemic. Although we have seen some disruption to our operations as a result of the outbreak, all of our construction sites in the UK and Europe remain open and all of our factories are operational. Our primary focus is on the health, safety and wellbeing of all employees, clients and the wider public, together with protecting the financial strength of the Group. We have taken a number of precautionary actions to protect our cash position and, with our strong balance sheet, we are confident that we have sufficient resources in place for the foreseeable future. The diverse range of market sectors in which the Group operates also provides us with extra resilience during this unprecedented period of uncertainty.

Board changes

Louise Hardy joined the board as a non-executive director in September 2019. Louise has a wealth of relevant experience in the delivery of complex infrastructure projects and experience as a non-executive director of other publicly listed companies. We welcome Louise to the board, to which she has been a valuable addition.

Markets and strategy

The strong current year performance has been achieved in spite of challenging times. Whilst the conclusive outcome of the December 2019 General Election and the UK's departure from the European Union in January 2020 has provided some much-needed certainty to the political landscape, our future trading relationship with the EU remains unresolved. Unfortunately, we are also seeing the emerging headwinds from COVID-19. Despite this, our UK and Europe order book of £271m provides the Group with a strong future workload and we are encouraged by the current level of tendering and pipeline activity across the Group.

From a strategic perspective, we have exceeded our 2020 profit target of £26m which was set back in 2016, and we continue to deliver on our other strategic objectives. We have seen further growth in our revenue and profits, both in the UK and India, and continued investment in our people and facilities and in the expansion of our client base. The acquisition of Harry Peers, which is integrating well into the existing Group, gives us the opportunity to expand and extend our current capabilities into attractive complementary market sectors, broaden our market exposure and enhance our areas of expertise.

Our 'Smarter, Safer, more Sustainable' programme has continued to drive improvements to operational efficiencies and business processes, now with an increased focus on manufacturing efficiency. As part of our digital transformation initiative, we have overseen further technology enhancements in both our manufacturing and contracting operations. We have also implemented improvements to our supply chain, with our new supplier accreditation process, and have continued to invest in and streamline our factories, particularly at Dalton, which is increasingly operating as a fulfilment centre for the Group as a whole.

Dividends

The board is not currently recommending a final dividend (2019: 1.8p per share). Following a successful year, we would ordinarily expect to propose a final dividend in line with our progressive policy. However, given the wide range of potential profit and cash flow outcomes for the 2021 financial year, the board believes it is prudent to defer any dividend payment decisions until there is greater visibility on the impact of COVID-19.

India

JSSL has continued to grow in the year and has increased its profit by more than 80 per cent over the previous year. This reflects both revenue growth and higher operating margins driven by an improved mix of commercial work. The expansion of the Bellary facility is now complete.

COVID-19 is also impacting JSSL in the new financial year. Given the rapidly changing dynamics in the Indian economy, it is difficult to predict with any accuracy what the extent of this disruption will be on JSSL's profitability in 2021. Despite the ongoing uncertainty, JSSL has maintained an order book of £110m and their pipeline continues to include a number of commercial projects for key developers and clients with whom it has established strong relationships. We remain positive about the long-term development of the Indian market and the value creation potential of JSSL.

Safety and sustainability

The Group strategy continues to support health and safety as being at the forefront of everything we do, and the wellbeing of our people is a key priority of the board. This has been particularly important during the COVID-19 outbreak where we have continued to run our operations safely and in line with the appropriate guidelines.

Pleasingly, we have achieved our Group safety targets for the year. The Group's accident frequency rate ('AFR'), including our Indian joint venture, of 0.15, continues to outperform the industry average. We have also widened our safety measures to focus on the Group's injury frequency rate ('IFR'), to highlight minor injuries and to identify prevention measures. The Group's IFR has reduced year-on-year with targeted reductions in almost all areas of the business.

Recognising the importance of Environmental, Social, and Governance ('ESG') and sustainability, a new sustainability policy was published by our sustainability committee. We have made progress during the year in this area including switching to 100 per cent green electricity at our two largest production facilities, reducing our greenhouse gas ('GHG') emissions and maintaining our 'B' rating in the CDP (formerly the Carbon Disclosure Project) index. We continue to review ways to reduce our carbon footprint, working collaboratively with customers, industry and the supply chain.

People

The success of the Group depends on our people. On behalf of the board, I would like to thank our employees for their hard work and dedication during the past year and in the current challenging times for both them and their families.

Outlook

We continue to make progress in executing our strategy which is underpinned by our market-leading positions, our strong balance sheet and the quality of our workforce and senior leadership teams. The acquisition of Harry Peers is another step in the implementation of this strategy and will enhance our position as the UK's broadest structural steel services group.

Whilst the economic agenda is currently being dominated by COVID-19, we have a resilient business model, a strong order book and have now taken sensible, decisive actions to protect our employees, cash flows and liquidity, all of which give me confidence in the Group's ability to emerge successfully from the current crisis.

I am, today, announcing my retirement as chairman of the Group, with effect from 3 September 2020, when I will be handing over to Kevin Whiteman. It has been a privilege to serve as chairman since 2011 and I am immensely proud of the development of the Group over this period, which has been transformed into the diverse and very successful business it is today. I look forward to seeing Severfield go from strength to strength under the guidance of Kevin as chairman.

John Dodds

Non-executive chairman

17 June 2020

* The basis for stating results on an underlying basis is set out in Our year in review.