Recovery still a long way off, says Severfield

The UK’s biggest structural steel supplier, which is working on projects including London’s Shard skyscraper and the 2012 Olympic Stadium, said demand remains relatively low with big construction projects scarce.

Thirsk-based Severfield is also battling soaring steel and energy prices. Steel prices have been driven up by floods in Australia and surging Asian demand.

Severfield said prices are tight, but have improved “marginally” compared with 2009, as it is able to force through some of the steel price increase to customers.

It believes trading conditions will improve only marginally towards the end of the year, before better opportunities materialise in 2012.

“Look at all the forecasts and our discussions: it’s all pretty flat and it’s just that bit of glimmer for 2012 but not necessarily that strong,” said chief executive Tom Haughey.

“We’re looking at a very minor increase in 2012 and then probably a minor increase in 2013. There are sectors within that that are a bit warmer or a bit colder. Overall it’s relatively flat and not tremendously exciting.”

Severfield said it is focusing its attention on sectors where activity and opportunity are being sustained. It sees the best prospects in industrial, transport, waste-to-energy and commercial offices.

The group’s order book is down slightly at £221m from £226m at the end of March, which Severfield said ensures all four of its factories have a healthy workload until September.

Its industrial pipeline includes winning an extension to a BMW car factory near Oxford, work on a paper mill, plus various warehousing jobs.

In transport, projects include airport schemes plus work on the London Crossrail scheme. Waste-to-energy prospects include an unnamed large power scheme in the Merseyside area, thought to be a project for conglomerate Peel Holdings.

In London, where the commercial office block market is buoyant, Severfield is bidding for work on projects including the Leadenhall ‘Cheesegrater’ and the Walkie Talkie skyscraper.

Severfield said its trading performance and financial position are in line with its expectations, keeping debt in line with its plans.

The group added it is maintaining its strong UK market position, with the supply/demand balance improving slightly as weaker rivals fall by the wayside.

The group is expanding abroad to combat UK weakness. Its joint venture in Bellary, India, is seeing “robust demand”, said the group.

The joint venture with India’s third-largest steelmaker, JSW Steel, should eventually produce 35,000 tonnes of steel annually when it reaches full capacity.

Severfield said the JV’s order book has grown to £36m from £33m a couple of months ago, but some of its initial projects have fallen behind schedule, resulting in below-target output and revenues so far.

“In the grand scheme of things it’s not major,” said Mr Haughey. “We were going that fast that sites were not ready.

“Once we have a pipeline that won’t suffer from that. The demand is enormous. We’ll be increasing output in the second half.”

The JV is targeting a £100bn construction market, and the group hopes its expertise in high rise schemes, big retail developments and power stations will prove invaluable. It hopes to achieve sales of £50m in the first year.

It plans to move to a three-shift working pattern from the summer, to boost production.

For the next 12 months it will mainly work on industrial and power projects, with a smaller but growing proportion of multi-storey commercial and residential buildings.

Shares in Severfield dropped 4.75p to 241.25p, falling almost two per cent.

Analysts at house brokers Royal Bank of Scotland maintained a hold recommendation.

“In our view the outlook for the group is largely unchanged,” They said. “We do not expect to see any particular improvement in Severfield’s domestic UK market in the current year. However, we expect Severfield to continue to win market share and generally outperform its domestic peers.

“We also anticipate an improved trading performance in 2012.”

Reaching for the sky

Severfield-Rowen is supplying 12,700 tonnes of structural steel to the Shard of Glass skyscraper, which when completed in 2012 will be Europe’s tallest building.

Towering 1,017 ft (310m) over London, it will feature 87 floors and a viewing deck. On a clear day visitors will be able to see for 40 miles.

It will also include a five-star hotel and restaurants.

The Shard was designed by Renzo Piano and will be clad entirely in glass.

Severfield is still on-site at the project in London Bridge, having finished the main steel up to the 40th floor. The next 30 storeys are in concrete and the group will work on installing steel staircases.

In August the group will begin installing steel for its spire.