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Sat June 25 2022

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Severfield insulated from rising steel prices

15 Jun A doubling in the cost of its raw materials has had remarkably little impact on the profitability of structural steelwork contractor Severfield.

Manchester's Ordsall Chord – steelwork by Severfield
Manchester's Ordsall Chord – steelwork by Severfield

Severfield’s underlying profits were up by 11% in the year to 26th March 2022 despite steel prices doubling in that time.

“The increase in profit also reflects our ability to offset inflationary cost increases through a combination of operating efficiencies, higher selling prices and contractual protection as steel remains largely a pass-through cost for the group,” said chief executive Alan Dunsmore.

Revenue for the year was up 11% to £403.6m (2021: £363.3m). Underlying profit before tax was also up 11%, to £27.1m (2021: £24.3m). Total pre-tax profit was largely unchanged at £21.0m (2021: £20.1m).

The revenue increase mainly reflects the increase in steel prices and the full year revenue effect of DAM Structures which was acquired in February 2021.

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If steel prices came down, Severfield would be quids in. “Whilst underlying operating profits have increased year-on-year, the slight reduction in the margin percentage mainly reflects the dilutive impact of steel prices which have recently more than doubled and are largely passed on to the client at zero margin,” Alan Dunsmore said. “This has resulted in an increase in revenue of c.£20m in 2022 but no associated increase in the group’s absolute profitability. This dilutive effect on margins would reverse if steel costs reduced to pre-pandemic levels in the future.”

He concluded: “Although inflation and supply chain pressures remain, we are managing these well and the earnings visibility gives us confidence in maintaining our positive performance expectations for 2023.”

Severfield has a record UK and Europe order book of £486m at 1st June 2022 (up from £393m six months ago). Work in hand includes warehouses, film studios, offices, bridges and the new stadium for Everton Football Club for which Laing O’Rourke is main contractor.

During the year, Severfield worked on several large distribution facilities in the UK, its first HS2 bridge package, Water Orton Viaducts in the Midlands, and a large industrial facility in the Republic of Ireland, which is now substantially complete. Other significant revenue contributing projects include the Google Headquarters at King’s Cross, the Co-op Live Arena in Manchester and Sky Studios in Elstree, together with a number of mid-sized office developments (including Argyle Street in Glasgow, and 30 Grosvenor Square and 30 South Colonnade, both in London).

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