BUILDING ON OUR MARKET SHARE FROM CONSTRUCTION ACTIVITIES
The Group's strategic focus in the UK and Europe is to continue to build on our market share from construction activities.
Market output for structural steelwork in the UK
During the 2019 calendar year, the UK constructional steelwork market, as measured by the British Constructional Steelwork Association ('BCSA'), remained relatively stable at 856,000 tonnes, broadly in line with the previous year.
This is the third consecutive year in which the market has shown no significant change. 856,000 tonnes represents a UK constructional steelwork market totalling approximately £1.7 billion.
The Group's potential production capability is approximately 150,000 tonnes. In 2020, Group revenue of £327.4m represented a 19 per cent increase, to a ten-year high, reinforcing our market-leading position and the continued delivery of our strategic objectives. This strong performance has been achieved despite a softer market backdrop in the UK, particularly in the run-up to the General Election in December 2019. In 2020, we increased our market share in certain sectors, including industrial and distribution, data centres and stadia and leisure, illustrating our ability to generate growth even against a relatively flat UK market backdrop.
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 now 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 during this unprecedented period of uncertainty and we are encouraged by the current level of tendering and pipeline activity across the Group.
The Group welcomed the news of the sale of British Steel to Jingye Group ('Jingye') on 9 March 2020. Jingye have pledged to invest £1.2 billion to place the business on a more competitive and sustainable footing, helping to provide stability and certainty to the steel supply market in the UK.
Group potential capacity
UK and Europe order book
Outlook and our response – UK
Group potential capacity in the UK
The Group remains well positioned to win work in the diverse range of market sectors in which we operate.
However, the construction industry now faces an unprecedented period of uncertainty over the extent and longevity of the COVID-19 pandemic and these forecasts are likely to be subject to significant revision as the impact of COVID-19 becomes clearer over the coming months.
Notwithstanding the current market uncertainty, the Group remains well positioned to win work in the diverse range of market sectors in which we operate and across a wide client base, providing us with extra resilience and the ability to increase our market share.
The Group's successful record in the transport infrastructure sector, means we are well positioned to capitalise on the UK government's strong pipeline of major infrastructure projects. The government's commitment to HS2 and its April announcement to proceed quickly with phase one construction work, which is worth an estimated £12 billion, has provided some much-needed certainty to the construction industry.
We also continue to see a good number of opportunities in the industrial and distribution and data centre sectors, which remain strong. These projects play to our strengths, requiring high-quality, rapid throughput, on-time performance and full co-ordination between stakeholders.
In accordance with our strategic objectives, the Group has diversified into new sectors and continues to enhance its product ranges. During the year, the acquisition of Harry Peers will significantly expand and extend Severfield's current capabilities into attractive complementary market sectors, including nuclear, process industries and power generation. In particular, the nuclear sector is forecasted to grow through the UK government's decommissioning investment programme which is based on an expected decommissioning budget of £164 billion over the next 120 years. In addition, our Severfield (Products & Processing) business has developed its product range to include new 'Severstor' and 'Seversilo' ranges, which we are developing organically. 'Severstor', for which we have already secured our first orders, is the manufacture of secure, steel storage units that house critical systems technology for a range of main contractors and end-users.
The mix of work within the market sectors that we target will be a key determinant of the Group's future performance during the current uncertain times as the UK economy recovers from the COVID-19 crisis. With a strong market position, entry into new UK markets through acquisition and organic growth and a continued focus on driving our 'Smarter, Safer, more Sustainable' initiatives, the outlook for the Group remains positive.
Tailoring our offering for the european market
During the year, the Group successfully delivered a number of projects in the Republic of Ireland, Sweden and Finland, supported by our Netherlands-based European business, which is now fully integrated into the main operations of the Group.
Our European team is dedicated to tailoring our established UK offering for the European market, with a particular focus on Northern Europe and Scandinavia. Attractive opportunities have been identified in the Group's key markets, including in the data centre and industrial and distribution markets, although the timing of some of these remains uncertain as a result of COVID-19. We continue to engage with our stakeholders in the European market and develop our network with clients, designers and developers. The European team's market knowledge and experience has also been of significant benefit to our UK businesses, when tendering for and executing projects in Europe, providing us with a commercial advantage and the ability to enhance our reputation through the delivery of excellent client service.
Whilst the UK's eventual exit from the European Union in early 2020 has reduced some of the earlier political uncertainty, elements remain as the nature of the UK's future trading relationship with the EU remains unresolved. We continue to monitor developments in this area and we have plans in place to mitigate, where possible, the impact of leaving the EU on the fulfilment of orders in the Republic of Ireland and continental Europe and on our supply chain.
UK and Europe order book
The Group's order book at 1 June 2020 of £271m reflects a decrease from the record order book of £323m announced at the time of the half year results (at 1 November 2019) as a result of increased Group activity levels in the second half of 2020. Significant orders reflected in our order book include a large industrial facility and a large data centre, both in the Republic of Ireland, a large data centre in Finland, a large distribution facility in the UK, the new stadium works at Fulham F.C. and the redevelopment of Lord's Cricket Ground (Compton and Edrich stands).
The Group continues to monitor the future pipeline of projects currently being tendered.
This provides forward visibility of future orders and allows us to make strategic decisions that impact on our production planning and facilities. Whilst the impact of COVID-19 on the global economy, the industry and the Group remains uncertain, we are encouraged by the current level of tendering and pipeline activity. This includes a range of projects in the industrial and distribution, data centre, commercial office, transport infrastructure and nuclear sectors in the UK and Europe.
Strategy in action: Growth
Harry Peers acquisition
During the year, the Group acquired Harry Peers, a leading structural steelwork business within the nuclear, process industries and power generation sectors.
The initial consideration for the business was £18.9 million payable in cash on completion. A performance based deferred consideration is in place, which could increase the purchase price by up to £7.0m, payable in late 2020.
The acquisition will significantly expand and extend Severfield's current capabilities into attractive complementary market sectors including nuclear, process industries and power generation. Combining these businesses has enhanced the Group's position as the UK's broadest structural steel services group.
Strategic rationale for the acquisition
The board believes that the long-term investment profile of Harry Peers' key market positions in the highly regulated markets as above, enhances its areas of expertise and broadens its market exposure. With the scale and capabilities already existing in the Group, there are substantial opportunities to grow Harry Peers through a number of combined operational initiatives such as new business development function, European contract opportunities and investment in technology-driven enhancements. Harry Peers has also demonstrated capability in modular structural steel offerings, which the Group will look to develop across its offerings.
Harry Peers commercial markets
The nuclear sector, including both the defence and commercial sectors, in which Harry Peers commands a niche, well-established and trusted position with blue chip customers, is forecasted to grow through the UK Government's decommissioning investment programme. The UK Government is forecasted to require a decommissioning budget of £164 billion over the next 120 years.
The process industries sector is wide ranging and includes pharmaceutical and petrochemical sectors. The installed base in the UK is extensive. Upgrades and development to operational sites provide ongoing opportunities for offsite modular solutions.
The power generation market, including energy-from-waste plants, which contribute 5.57TWh of electricity per annum, is forecast to grow on the back of the world economy seeking alternatives to carbon fuels. The UK government has set a target of 15 per cent of final energy consumption from renewable sources by 2020, meaning that 30 per cent of electricity production will have to come from renewable sources.