Group aims to grow after dire year for steel

Revenues slumped by 26 per cent from £57.2m in 2009 to £42.3m in 2010. Pre-tax profits were just over a quarter of 2009’s £5.3m total at £1.4m.

The Barnsley-based group, which supplied steel to projects including Rotherham’s new civic centre and the University of Bristol, insisted the results were “robust” amid the toughest market for decades.

“It’s been pretty dire,” said chief executive Steve Fareham. “We’re probably at the bottom of the cycle but it’s been very difficult.

“It’s been a long time since we experienced a recession in this sector; it’s been steady growth for the best part of 20 years.”

He estimated total volumes of structural steel supplied to the UK construction industry in 2010 may have halved to 700,000 tonnes. “That demonstrates just how big the cliff was.”

Within this, Billington supplied more than 20,000 tonnes, compared with 21,000 tonnes a year earlier, helping it grow market share to three per cent.

Billington’s listed rival Severfield-Rowen, the UK’s biggest structural steel firm, recently warned the UK’s construction hangover could drag into 2013 as soaring steel prices and developers’ caution holds back new projects.

Billington said it was tough to forecast 2011 with any certainty, as tough trading conditions and increasing costs stymie growth. But the group said its current workload is at its highest level for about five years, giving it confidence in maintaining sales for this year. However, the profit margins it earns on these contracts is lower than usual, as Billington contends with higher energy and steel prices, plus fierce competition.

Billington ended the year with cash of £4.9m, down on the £8.5m a year earlier. Earnings per share almost halved to 7.1p compared with 13.5p a year earlier.

It cancelled its final dividend, insisting it is a “prudent” move given the uncertainties the group faces.

Shares in the company shed 5p to close down five per cent at 95p.

“The current order book does mean that there will be high activity levels during the first six months, which will provide a good platform from which to move forward,” said chairman Peter Hems.

“Despite the outflow of cash during the period, the group still has a strong balance sheet, which provides a degree of security in the current difficult market conditions.”

Mr Fareham said the pool of structural steel suppliers is shrinking – “perhaps slower than we anticipated” – as rivals struggle to make ends meet and are forced to close. He said “unsustainable bids below real cost” threaten bidders’ existence.

“Survival of the fittest sums it up,” he said. “We will be fitter and stronger if this ever comes to an end. We will be in better shape than the vast majority.”

He added the group has been reducing its reliance on public sector work, bringing it down to about 20 per cent from about 60 per cent two years ago.

“We’ve worked hard to explore new markets. Certainly the retail side is still holding up.”

Billington said steel prices have increased by about 25 per cent in 2011, fuelled by higher coking coal prices and surging Asian demand.

“We’re managing the prices as best we can,” said Mr Fareham. “We’re using every opportunity to bring steel in early. All our future bids have included for these upcoming prices.”

Its easi-edge steel barrier business consolidated its position as market leader and grew market share. Billington’s hoard-it site security hoardings business opened a new site in Barnsley and is winning work.

Analysts at house brokers WH Ireland said Billington is a “an interesting cyclical recovery play” and set a target price of 120p. They expect 2011 to be the industry’s trough year, “before the supply/demand balance begins to improve from 2012 onwards”.

They see the group reporting a £900,000 loss this year, based on revenues of £44.1m.

“2011 is no doubt going to be another challenging year for the group,” they said. “Although cost and margin pressures will continue to increase in the short term, workloads in the first part of 2011 are at their highest in recent years due to recent contract awards.

“Although a broad-based economic recovery is still far from certain, we expect a broader pick-up in construction activity to be seen from 2012.

“This, combined with further corporate failures in the sector helping to reduce fabrication capacity in the UK, this rebalancing supply and demand, in addition to the operational gearing inherent within the business model, should enable significant margin expansion from 2011.”