Severfield leads contraction in structural steel

Thirsk-based Severfield will merge Severfield-Rowen Structures, Watson Steel Structures and Steelcraft Erection Services into one business called Severfield-Watson Structures Ltd.

It said job cuts are possible, but insisted the overhaul is about “efficiency, not cost”.

Revenues increased to £135.9m in the first six months, from £122m a year earlier.

But underlying pre-tax profits fell to £1.5m from £3.4m a year earlier. Margins are under pressure as clients and the supply chain “push much harder to compete in a shrinking market”.

It still plans a flat dividend payout of 1.5p per share. Shares fell 6.5p to close at 139.5p.

Severfield supplied and erected the steel for London’s Shard skyscraper and the 2012 Olympic stadium. Its factories are full for 2012, and Severfield said a bright spot is its Indian joint venture, which is expanding fast.

Chief executive Tom Haughey said: “Competitors in our sector remain under significant pressure, reflected in many cases by loss-making financial returns which are not sustainable and further rationalisation is expected in the industry.

“The demand outlook for the UK, with the current exceptions of London commercial, industrial, warehousing and some energy sectors, continues to be stagnant at best.”

Severfield was forced to slash costs in 2009, including job cuts and wage reductions across the group. Mr Haughey said demand is “weakening” again, prompting its latest overhaul.

“This is not primarily about cost saving,” he said. “The benefits of this are for improvements in efficiency.

“We’ve got three operating companies that work on the same projects and what we’re trying to do is get better coordination and better focus from these three activities. We’re not closing any of the locations.

“In the short term we’ve got good activity levels in all of these businesses.”

The group employs about 1,300 staff in the UK, and has major factories in North Yorkshire and Bolton, Lancashire.

It declined to quantify the cost-savings from the overhaul. The business will start trading under the new name from January.

It is working on projects including the Tate Modern in London, Leeds Arena, a new BMW plant in Oxford and London’s Leadenhall skyscraper.

Mr Haughey estimated 30 to 40 per cent of capacity has been cut from the UK structural steel market since the economy nosedived in 2008. But despite this it “never seems to reach an equilibrium of supply and demand”, he said.

The downturn has claimed recent casualties including Pocklington Steel and Bradford’s Barrett Steel Buildings Ltd.

“It links right back not just to the UK economy but the European and global economy,” said Mr Haughey. “At the moment it does not feel very good.

“What we’re doing is making ourselves as fit and as competitive as possible to endure all of this.”

Chief operating officer Peter Emerson said a number of private rivals’ results posted at Companies House reveal significant losses.

“If we’ve been trading at relatively low levels of profit then they will be trading below that and therefore in loss,” he said.

He added: “It’s about being sustainable. What will emerge from this is Severfield-Watson will be Europe’s largest structural steel work contractor by a long way.”

The group called for swift action on energy policy by politicians, to boost the construction sector.

“We would like to see clarity on the balance of how we are going to obtain our power in the medium and longer term,” said Mr Haughey.

“Is it going to be a balance of nuclear combined with offshore wind, combined with gas? What proportion? What’s the pricing expectation? At the moment we seem to be frozen in the headlights.”

Net debt shrunk to £28.3m from £31.3m a year earlier. Its debt facility of £50m with Royal Bank of Scotland and National Australia Bank expires in November 2016.

“Whilst we are pleased by the stability in the order book and our market position, with uncertain demand levels and a difficult pricing environment in the UK having an impact on our margins, we envisage a challenging six months ahead and are taking actions in response to this,” said Mr Haugh- ey.

“Looking further out, we remain determined to grow the business at home and in India, despite the economic backdrop, and are confident that our strategy leaves the group well positioned to take advantage of opportunities both in India and in the UK.”