Severfield plans to merge three businesses

The Thirsk-based company said its financial performance in the first six months of the year reflected the continuing challenging trading environment in the UK.

However, there was a “much improved” performance from the firm’s Indian joint venture.

In the half year ended June 30 2012, the company achieved revenue of £135.9m, compared with £122m in the same period the year before.

The underlying operating profit after share of results of associates was £2.3m, a 42 per cent reduction on the previous year. Underlying profit before tax for the period was £1.5m, compared with £3.4m the year before.

Tom Haughey, the chief executive, said: “The group has continued to encounter challenges in the UK business with diminishing overall UK construction demand, the re-emergence of pricing pressure and the protraction of contractual settlements.

“Despite the backdrop, the UK order book remains stable at £218m, which maintains full activity at all UK plants into 2013 and suggests further growth in market share. UK margins are nonetheless coming under pressure again as clients and the supply chain push much harder to compete in a shrinking market.

“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. Political policy direction on UK energy would be a helpful stimulus to UK construction but the potential projects pipeline of £465m in the UK remains sufficient for our needs in 2013.

“In response to these conditions and to allow it to achieve improved efficiency, cost base and performance benefits, the group is proposing to merge three of its UK businesses, namely Severfield-Rowen Structures, Watson Steel Structures and Steelcraft Erection Services, which it hopes to complete before the end of 2012.

“In India, JSW Severfield Structures , our joint venture company, is now operating profitably and will contribute positively to the second half of this year. The group and its partner JSW Steel have agreed to a £7m investment to increase the product range and increase capacity levels by some 50 per cent at its facility in Vidyanagar. The new investment will be commissioned by the middle of 2013. Further investment in JSSL is being contemplated for 2013 at a second location in India.

“While 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. 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.”