Severfield sees no signs of an imminent recovery in the UK

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SHARES in Severfield-Rowen fell 14 per cent last night after the structural steel company said annual profits fell by a third and there is no sign of an imminent UK recovery.

The Thirsk-based company said 2011 was a year of slow demand and tough trading conditions. These were exacerbated by diminishing confidence levels for business prospects in 2012.

Severfield’s chief executive Tom Haughey said that against this background, the company produced resilient results and the UK business has entered 2012 with a strong order book of good quality contracts.

But the market took fright and the shares fell 29p to 174.5p.

Analyst Dominic Convey, at Peel Hunt, said: “We are now assuming no recovery in UK volume or pricing in 2012.”

Analyst Ben Archer, at Charles Stanley, said: “The UK order book remains robust at £221m and is of ‘good quality’, but has shown limited progress recently.

“While we expect a return to modest growth in the UK in 2012, earnings momentum this year is expected to be mainly driven by a move into profits for the group’s Indian joint venture.”

Severfield said the foundations of its Indian business are now in place. The Indian order book stands at £43m, covering almost all of the division’s production plans for 2012.

Mr Haughey said the order book is strong in terms of both quality and product mix. “We’ve had our first full year in India and it’s been tough,” he said.

“We’ve got production under control and the order book and activity levels are very strong. The opportunities in India are immense and every sector is buoyant.”

He added the Indian business will become profitable in 2012, with the group recovering from a significant loss to a small profit.

Severfield’s share of losses from the Indian joint venture was £2.5m last year.

The company said that underlying group pre-tax profits fell from £15.3m to £10.1m in the year to December 31.

Revenues rose marginally to £267.8m.

Mr Haughey blamed the fall in profits on pricing levels, which have stabilised but not at levels that would deliver higher margins.

Finance director Alan Dunsmore said the market is at half the level it was at in 2007/8.

Severfield, which supplied the steel for the Shard skyscraper at London Bridge and the London Olympic stadium, expects limited growth prospects for 2012, but it hopes to overcome this by focusing on growth areas such as transport, aviation, power and energy.

“We see further work on retrofits on coal stations and ultimately nuclear power stations,” said Mr Haughey.

“There will be investment in wind energy, which will require new building and structures. The growth in transport reflects what’s happening in London with the Crossrail project and further work at the airports as well as the Manchester tram.”

He added that there will be less focus on public spending, health and education.

The company’s net debt more than doubled to £31.3m, but it said it will continue to manage costs tightly to hold margins at a steady rate.

Severfield is to pay a final dividend of 3.5p a share, taking its total dividend to 5p per share, down by a third from last year.

Despite the expectation that the UK will be “lacklustre” over the coming years, Mr Haughey said there are no plans to reduce the group’s exposure to its home market.

“These are the worst market conditions for a long time, but we’re still making good profits. When the market does pick up, we’ll be very well positioned in the UK,” he said.

“I’m very happy with our performance. We’re still very profitable. We’re happy but not complacent. It’s another tough year ahead,” he added.

Aside from The Shard and the Olympic stadium, the group’s main projects over the past year were Heathrow Airport, Blackfriars Bridge in London, Gatwick North Terminal, the Titanic Quarter in Belfast, the Philharmonic Hall in Paris and the Leeds Arena.

It also carried out work for a number of retailers including Morrisons in Bridgwater, Marks & Spencer in Cheshire Oaks, Asda in Birkenhead, Ocado in Tamworth and work on the Co-operative headquarters in Manchester.

Severfield announced plans to merge two of its operating companies, Severfield-Reeve Structures and Rowen Structures, into a new unit, to be called Severfield-Rowen Structures.

ros.snowdon@ypn.co.uk