26 November 2024

Interim results for the period ended 28 September 2024

Revenue and underlying profit growth, diversified order books, challenging market backdrop but remain well-positioned in markets with positive long-term growth trends

Severfield plc, the market-leading structural steel group, announces its results for the six-month period ended 28 September 2024.

Headlines

§ Revenue up 17% to £252.3m (H1 2024: £215.3m)

§ Underlying¹ profit before tax up 14% to £16.1m (H1 2024: £14.2m)

§ Period-end net debt (on a pre-IFRS 16 basis²) of £11.6m (30 March 2024: £9.4m), includes acquisition loans of £16.9m, and reflects a stable working capital position

§ Results include non-underlying cost of £20.4m for bridge remedial works programme, excludes potential recoveries from third parties, assessment of any further remedial costs remains ongoing

§ Diversified UK and Europe order book of £410m at 1 November 2024 (1 July 2024: £460m), includes new industrial, data centre, infrastructure, energy and commercial office orders

§ Continued strategic progress in India - expansion plans have been accelerated, new production facilities expected to be operational in FY26

§ Record India order book of £197m at 1 November 2024 (1 July 2024: £181m)

§ Interim dividend of 1.4p per share (H1 2024: 1.4p per share)

§ Additional capital returns through ongoing £10m share buyback programme

Outlook

§ UK and Europe:

-    wider market backdrop is challenging

-    previously anticipated recovery in some sectors has been slower than expected and tighter prices are continuing to impact our profitability in the short-term

-    some large project opportunities for FY25 and FY26 have been either delayed or cancelled and increased risk of delay to expected orders in the short-term

-    continued progress in growing European market sectors

§ India: well-positioned to take advantage of significant growth opportunities, new markets being targeted, expansion plans have been accelerated

§ Underlying profits for FY25 are now expected to be below our previous expectations

§ Our businesses remain well-positioned in markets with excellent longer-term growth opportunities and our medium-term growth targets remain unchanged

Alan Dunsmore, Chief Executive Officer commented:

"In the first half of the year, we have delivered further underlying profit growth and have secured some attractive projects which are reflected in our diversified order books. We continue to see some good projects coming to market however, the predicted recovery in certain sectors has been slower than previously anticipated, and pricing has remained tighter for longer than expected. In addition, a number of large project opportunities for FY25 and FY26 have been either delayed or cancelled and, given the current market backdrop, we remain vigilant to the increased risk of delay to expected orders in the short-term. Although the wider market backdrop continues to be challenging, our successful track record and diversified activities give us confidence in delivering the targets we have set for the medium-term.

Looking further ahead, we welcome the new government's budget which established a National Wealth Fund to invest in energy, transport projects and critical national infrastructure. We have a prominent position in market sectors with strong growth potential and are well-positioned to win projects in markets with positive long-term growth trends including in support of a low-carbon economy and those which are driving the green energy transition, providing us with a strong platform to fulfil our strategic growth aspirations."

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Notes to financials:

¹ Stated before non-underlying items of £21.9m (H1 2024: £3.1m) including bridge testing and remedial costs of £20.4m (H1 2024: £nil), the amortisation of acquired intangible assets of £1.3m (H1 2024: £2.8m) and other expenses of £0.2m (H1 2024: £0.3m). Non-underlying items have been separately identified by virtue of their magnitude or nature to enable a full understanding of the Group's financial performance and to make year-on-year comparisons. They are excluded by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group and are normally excluded by investors, analysts and brokers when making investment and other decisions (see note 7).

² The Group excludes IFRS 16 lease liabilities from its measure of net funds/debt as they are excluded from the definition of net funds/debt as set out in the Group's borrowing facilities (see note 13).

³ Except as otherwise stated '2023 and FY23' and '2024 and FY24' refer to the 52-week period ended 25 March 2023 and the 53-week period ended 30 March 2024. '2025 and FY25' and '2026 and FY26' refer to the 52-week periods ending 29 March 2025 and 28 March 2026. The Group's accounts are made up to an appropriate weekend date around 31 March each year.

A reconciliation of the Group's underlying results to its statutory results is provided in the Alternative Performance Measures ('APMs') section (see note 17).

Notes to editors:

Severfield is the UK's market leader in the design, fabrication and construction of structural steel, with a total capacity of c.150,000 tonnes of steel per annum. The Group has seven sites, c.1,900 employees and expertise in large, complex projects across a broad range of sectors. The Group also has an established presence in the expanding Indian market through its joint venture partnership with JSW Steel (India's largest steel producer).

Inside information

This announcement contains inside information as stipulated under the Market Abuse Regulation (EU) No.596/2014 (as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018) and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations. On the publication of this announcement via a Regulatory Information Service, such information is now considered to be in the public domain. The person responsible for arranging for the release of this announcement on behalf of Severfield is Adam Semple, Chief Financial Officer.

INTERIM STATEMENT

INTRODUCTION

The Group has reported a good underlying performance in the first half, with revenue and underlying profit before tax both showing growth in the period. We have secured some attractive projects in the period which are reflected in our diversified order books of £410m in the UK and Europe and £197m in India, providing us with a good volume of work for the remainder of FY25 and beyond.

In the UK and Europe, the current market backdrop remains challenging. Whilst we continue to see some good projects coming to market, the predicted recovery in certain sectors, particularly for our shorter cycle businesses such as distribution, has been slower than previously anticipated, and pricing has remained at tighter levels for longer than expected for some projects. In addition, some large project opportunities for FY25 and FY26 have been either delayed or cancelled and, given the current market backdrop, we remain vigilant to the increased risk of delay to expected orders in the short-term. Looking further ahead, our businesses remain well-positioned to win work in markets with positive long-term growth trends including those which are driving the green energy transition, providing us with a strong platform to fulfil our strategic growth aspirations.

Our balance sheet, supported by our strong cash position, has enabled us to focus on making the right capital allocation decisions to drive growth over the longer-term, including through our ongoing capital investment programme, while also supporting the returns to shareholders, through the interim dividend and our ongoing share buyback programme.

In India, despite the lower first half profits, which have been driven by short-term delays to existing and expected projects in the run up to and immediately following the Indian elections in June 2024, we remain very positive about the long-term trajectory of the market and of the value creation potential of JSSL. To support this expected market growth, we have agreed with our joint venture partner, JSW, to accelerate expansion plans for the business, with some new factory capacity increases expected to be completed in H2 and a new production facility expected to be operational in FY26.

Bridge remedial works programme

Since the publication of the 2024 results, the Group identified some bridge structures which were not in compliance with the client's weld specification requirements, predominantly relating to twelve bridge projects that are either ongoing or were completed over the past four years. The issues all arise out of a particular bridge specification and related sub-optimal choices of welding procedures, exacerbated by limitations in the specified weld testing regime for these projects. A comprehensive review is currently being undertaken by the Group, in conjunction with its affected clients, relevant industry authorities and insurers to fully understand the extent of the actions required to resolve the issue, which has not affected the safety of any operational bridges. Notwithstanding this, we are continuing our work on ongoing road and rail bridges for a variety of clients, which we are confident will meet the required specification.

Whilst the precise nature of the overall remedial work required for all affected bridge structures has not yet been fully determined, the Group has incurred costs of £7.1m relating to testing and remedial works undertaken during H1 and for eight bridge projects, where the Group is able to estimate with sufficient reliability the remaining testing and remedial costs, a further liability of £13.3m has been assessed. A non-underlying charge of £20.4m has therefore been recognised for these costs as at 28 September 2024. All amounts will be kept under review until our assessment of all affected structures has been concluded. The Group will be pursuing all potential recoveries from third parties, including insurance, with preliminary indications suggesting a good prospect of insurance recovery, albeit not yet with the level of certainty required for such recovery to be recognised under accounting standards.

At this stage, the Group is not able to estimate with sufficient reliability the cost of its obligation for the four remaining bridge projects where either the results of the ongoing testing are not yet known or a rectification solution has not yet been agreed with the client, as any estimate is subject to a number of unknown factors. These include what the proposed rectification solution is (if any is required), sequencing, timeline and consequential disruption. Furthermore, the Group is also not able to estimate with sufficient reliability any possible consequential costs (if any) from third parties as these are not yet known. As such there is a range of potential outcomes in these specific cases and since the Group is unable to quantify the possible exposure based on current information, a contingent liability has been disclosed.

STRATEGY

The Group's well-established strategy is unchanged, focused on growth and diversification (both organic and through selective acquisitions), operational improvements and building further value in JSSL which, in combination, is expected to deliver strong EPS growth in the medium term. Our clear focus on balance sheet strength and cash generation enables us to continue making the right capital allocation decisions for the long-term, to maximise our competitive advantage and to best position us in our chosen markets for long-term growth.

The Group delivers steel superstructures through its Core Construction Operations, separated operationally into a Commercial and Industrial division (bringing together the Group's strong capabilities in the industrial and distribution, commercial offices, stadia and leisure, data centres, retail, and health and education market sectors), which includes our European operations, and a Nuclear and Infrastructure division (encompassing the Group's market-leading positions in the nuclear, power and energy, transport (road and rail) and process industries sectors). The Group's Modular Solutions division consists of the growing product ranges of Severfield Modular Solutions ('SMS') and of Construction Metal Forming ('CMF'), our specialist cold rolled steel joint venture business.

OUTLOOK

In the UK and Europe, the market backdrop is currently challenging. The previously anticipated recovery in some sectors has been slower than expected and tighter prices are continuing to impact our profitability in the short-term. In addition, some large project opportunities for FY25 and FY26 have been either delayed or cancelled and, given the current market backdrop, we remain vigilant to the increased risk of delay to expected orders in the short-term. As such, the Group now expects underlying profits for the full year to be below our previous expectations. The increase in employer national insurance rates announced by the UK Government in the October budget will impact our business from FY26 onwards. We estimate the combination of lowering the earnings threshold at which employers start paying national insurance contributions together with the increase in rate will in aggregate increase our employment costs by c.£2m per annum before any possible mitigation.

Underpinned by a strong balance sheet, the Group remains in a strong financial position with a successful track record and, looking further ahead, the longer-term outlook for the Group remains very encouraging. Our businesses remain well-positioned to win work in markets with positive long-term growth trends including those which are driving the green energy transition in both Europe and the UK, with the new government reinforcing commitments to critical national infrastructure. Our prospects across these markets provide the board with confidence that the Group will continue to deliver significant and attractive shareholder returns in the coming years and our medium-term growth targets remain unchanged.

FINANCIAL REVIEW

*The references to underlying operating profit (before JVs and associates) and underlying profit before tax are defined in the 'notes to financials' and reconciled to the statutory measures in note 17.

Revenue of £252.3m (H1 2024: £215.3m) represents an increase of £37.0m (17 per cent) compared to the prior period. This reflects an increase in revenue from our Core Construction Operations, mainly representing an increase in production activity in the period.

Underlying operating profit (before JVs and associates) of £17.2m (H1 2024: £14.8m) represents an increase of £2.4m (16 per cent) over the prior period. This reflects the increase in revenue and final account upsides, which helped to offset the impact of some tighter pricing in certain market sectors. The statutory operating loss (before JVs and associates), which includes the non-underlying costs associated with the programme of bridge remedial works and other non-underlying items, was £4.6m (H1 2024: profit of £11.9m), a reduction in profit of £16.5m over the prior period.

The share of profit from the Indian joint venture in the period was £0.1m (H1 2024: £0.6m). The lower H1 profits have been driven by short-term delays to existing and expected projects before and after the Indian elections in June 2024.

The Group's underlying profit before tax was £16.1m (H1 2024: £14.2m), an increase of 14 per cent compared to the previous period. The statutory loss before tax was £5.8m (H1 2024: profit of £11.0m), a reduction in profit of £16.8m over the prior period.

An underlying tax charge of £3.9m is shown for the period (H1 2024: £3.4m). This tax charge is recognised based upon the best estimate of the average effective tax rate on profit before tax for the full financial year and equates to the statutory rate in the UK and the Netherlands of c.25 per cent (H1 2024: statutory rate of c.25 per cent). The total tax credit of £1.5m (H1 2024: charge of £2.7m) also includes a non-underlying tax credit of £5.4m (H1 2024: credit of £0.7m).

Underlying basic earnings per share is 4.0p (H1 2024: 3.5p). This calculation is based on the underlying profit after tax of £12.2m (H1 2024: £10.8m) and 307,188,953 shares (H1 2024: 309,538,321 shares) being the weighted average number of shares in issue during the period. Basic loss per share, which is based on the statutory loss after tax, is 1.4p (H1 2024: earning per share of 2.7p).

Non-underlying items

Non-underlying items for the period of £21.9m (H1 2024: £3.1m) consisted of the following:

The costs of £20.4m relate to a programme of remedial work that is predominantly affecting twelve bridge structures and represent works undertaken during H1 and the remaining testing and remedial costs for eight bridge projects where management is able to reliably estimate the cost to the Group. The possible liability of the Group for the four remaining bridge projects and for any possible consequential costs from third parties has not yet been determined and has been disclosed as a contingent liability. In addition, no possible recoveries from third parties have been recognised in H1, including insurance as, although preliminary indications suggest a good prospect of insurance recovery, these cannot yet be recognised under IFRS.

The amortisation of acquired intangible assets of £1.3m represents the non-cash amortisation of customer relationships and order books which are being amortised over a period of 12 months to five years. Acquisition-related expenses of £0.2m include the unwinding of the discount on the contingent consideration for DAM Structures which is payable over a five-year period.

In H2 of the prior year, the Group recorded a non-underlying legacy employment tax charge of £4.4m relating to an assessment raised by HMRC for historical income tax and national insurance ('NIC') liabilities. The Group is disputing this assessment but since HMRC issued formal determinations for the amounts it considers are due, a charge was recognised in the FY24 results. Discussions are ongoing with HMRC to attempt to reach a final settlement and we expect this matter to be concluded by the end of FY25.

Cash flow and financing

Net debt (pre-IFRS 16 basis) at 28 September 2024 was £11.6m (30 March 2024: £9.4m). This included net cash balances of £5.1m (30 March 2024: £10.8m) and outstanding acquisition-related term loans of £16.9m (30 March 2024: £20.0m). Operating cash flow for the period before working capital movements was £20.8m (H1 2024: £19.0m), the reduction over the prior period mainly reflects bridge testing and remedial cash costs of £3.0m incurred in H1. Net working capital has increased by £8.4m during the period mainly reflecting the unwinding of advance payments held on the balance sheet at 30 March 2024. Excluding advance payments, period-end net working capital represented approximately five per cent of revenue, within our normal range of four to six per cent (net working capital including advance payments was three per cent of revenue).

Capital expenditure of £3.1m (H1 2024: £5.4m) represents the continuation of the Group's capital investment programme. Depreciation in the period was £4.8m (H1 2024: £4.4m), of which £1.3m (H1 2024: £1.2m) relates to right-of-use assets under IFRS 16.

The Group has a £60m revolving credit facility ('RCF') with HSBC Bank and Virgin Money, which matures in December 2026. This provides the Group with long-term financing to help support its growth strategy. The RCF is subject to three financial covenants, namely interest cover, net debt to EBITDA and debt service (cash flow) cover. In addition to the RCF, which was undrawn at 28 September 2024, amortising term loans have been used to fund previous acquisitions, of which £16.9m remained outstanding at 28 September 2024.

Share buyback programme update

In April 2024, the Group announced a share buyback programme to repurchase up to £10m of ordinary shares, subject to market conditions. The board is satisfied with the progress of this buyback programme, with a total of 8,611,558 shares purchased and cancelled to date, at a cost of £6.8m.

Pensions

The Group's net defined benefit pension liability at 28 September 2024 was £9.1m (scheme liabilities of £32.5m offset by scheme assets of £23.4m), a decrease of £2.4m from the year-end position of £11.5m. The deficit has reduced as a result of a higher discount rate, reflecting an increase in bond yields, lower inflation assumptions and employer deficit contributions over the period.

OPERATIONAL REVIEW

UK AND EUROPE

Maintaining contract selectivity and bidding discipline to ensure there remains the appropriate risk balance in the order book is of critical importance to the future success of the Group. Almost all of our work continues to be derived through either negotiated, framework or two-stage bidding procurement processes, in line with our established approach to strong risk management, commercial discipline and careful contract selection.

The Group is pleased with the volume of work secured in the UK and Europe order book which stands at £410m at 1 November (1 July: £460m, 1 June: £478m), of which £307m is for delivery over the next 12 months. The order book remains well-diversified and contains a good mix of projects across the Group's key market sectors including in Europe, with 29 per cent of the order book representing projects in continental Europe and Ireland (1 June: 32 per cent). This reflects our greater access to growing European market sectors and our stronger market position in Europe, facilitated by the acquisition of Voortman ('VSCH') in the previous financial year. Notwithstanding this, the current market backdrop remains challenging and whilst we continue to see some good projects coming to market in the UK and in Europe, the predicted recovery in certain market sectors, particularly for our shorter cycle businesses such as distribution, has been slower than previously anticipated, and pricing has remained at tighter levels for longer than expected for some projects. In addition, some large project opportunities for FY25 and FY26 have been either delayed or cancelled and, given the current market backdrop, we remain vigilant to the increased risk of delay to expected orders in the short-term.

Looking further ahead, we welcome the new UK government's budget which established a National Wealth Fund to invest in energy, transport projects and critical national infrastructure. Many of our chosen markets continue to have a favourable long-term outlook - the Group has a prominent position in market sectors with strong growth potential and is well-positioned to win projects in support of a low-carbon economy and to deliver energy security. These include opportunities in both Commercial and Industrial and Nuclear and Infrastructure, such as battery plants, energy efficient buildings, manufacturing facilities for renewable energy and offshore wind projects together with work in the transport, nuclear and power and energy sectors given our capability to deliver major infrastructure projects.

Project Horizon

As part of Project Horizon, our digital transformation project, we continue to make good progress with drawing and design automation which includes automated connection design and planning tools. Other projects either being worked on or completed recently include a new estimating system (part of an overall project to integrate pricing, design and production databases to drive production and planning processes), a digital time recording system to facilitate improved monitoring of factory processes, the use of barcoding for steel to improve traceability and for paint to reduce waste, the creation of 'digital twins' to provide real-time insights into project performance, together with ongoing work on artificial intelligence to improve administrative processing times.

To date, based on the original plan, we have successfully completed 24 projects, and a further 25 of the 59 projects that we have classified as short to medium term are currently on-going. Our dedicated project team is currently self-funded through annual savings, with further benefits being tracked as more of the identified projects and initiatives are implemented.

Core Construction Operations

Revenue of £247.2m (H1 2024: £208.0m) represents an increase of £39.2m (19 per cent) compared to the prior period, reflects higher activity levels in the current period. Underlying operating profit of £17.1m was up 16 per cent on the prior period (H1 2024: £14.7m), which reflects the increase in revenue and final account upsides which have helped offset the impact of some tighter pricing in certain market sectors, particularly in distribution and short cycle infrastructure.

Commercial and Industrial

Revenue has increased by 23 per cent to £205.0m (HY 2024: £166.5m), mainly due to an increase in production activity over the comparable period which was adversely impacted by the pause in construction at Sunset Studios in July 2023. During the period, work progressed on the SeAH Wind monopile manufacturing facility in Teeside, the AESC UK (Envision) battery plant in Sunderland, a manufacturing facility for BAE in Scotland, an Energy from Waste facility based near the River Thames in London and a petrochemical project for Ineos in Belgium. We have also worked on a number of data centre projects including two for Google in Belgium and the Netherlands, one in Dublin and a package of data centres in Sweden, together with various mid-sized office developments, both in London and Ireland (including Harcourt Square in Dublin and Salisbury Square, 334 Oxford Street and 105 Victoria, in London).

The Commercial and Industrial order book at 1 November was £202m (1 June: £312m). This includes projects secured in recent months such as new industrial facilities, commercial offices, data centres and distribution centres. Whilst not yet included in the order book, we have also recently received the client recommendation for 'Building One' of the new state-of-the-art battery cell manufacturing facility for Agratas in Somerset, which will initially supply batteries for Jaguar Land Rover and Tata Motors. This gigafactory, for which production is expected to commence in Q4 of FY25, is set to be the largest of its kind in the UK once it is fully operational, and by the early 2030s could provide 40 per cent of the batteries needed by the domestic car industry.

We continue to see opportunities in markets which are driving the green energy transition such as energy efficient buildings, manufacturing facilities for renewable energy and offshore wind projects, together with new battery gigafactories in the UK and Europe. The Group's manufacturing scale, speed of construction and on-time delivery capabilities, leaves us well-positioned to win work from such projects, the majority of which are likely to be designed in steel. We are also seeing strong continued demand for data centres in the UK and Europe, driven by cloud computing, 5G and Artificial Intelligence ('AI') applications which are driving even greater dependence on data centre infrastructure.

Strategic targets: we are targeting future revenue growth in line with GDP, enhanced by our European operations, with margins of 8-10 per cent.

Nuclear and Infrastructure

Revenue has remained broadly flat at £42.2m (HY 2024: £41.5m). During the period, despite the bridge weld issues, we continued our work on road and rail bridges for a variety of clients. From a nuclear perspective, ongoing contracts include work at Hinkley Point and some large projects at Sellafield. Our nuclear operations have recently been awarded the ISO 19443:2018 certification, making us only the twelfth company in the UK to achieve this accreditation, which sets strict requirements for quality management systems, ensuring compliance with stringent statutory and regulatory requirements. This achievement also creates new opportunities for the Group in the UK and Europe as a Tier-1 supplier in the nuclear industry.

The N&I order book at 1 November was £201m (1 June: £160m) of which 44 per cent represents transport infrastructure (1 June: 54 per cent) and 56 per cent represents power and energy (including nuclear) projects (1 June: 41 per cent). Recent orders include a recycling infrastructure project in Scotland, a large energy project in the Netherlands and a growing scope of nuclear work at Hinkley Point and also at Sellafield as part of the long-term Programme and Project Partners ('PPP') framework. We are also seeing some near-term opportunities for offshore wind projects, which would represent another major step into the renewables market for the Group.

In the 2024 full year results announcement, we highlighted that the markets in which we operate are showing signs of continued growth supported by state backed spending on clean and domestically generated energy and improved transport infrastructure, both key components of the green energy transition. Our outlook for these markets remains encouraging, driven by a combination of bidding activity and improved economic and political stability, particularly in the UK. The new Labour government has committed to grow the UK economy and has highlighted proposed investment in energy and transport infrastructure, the leveraging of private investment, planning reform and upskilling the UK's workforce as key components of their plan to achieve this.

In the UK energy sector, we are seeing an increased volume of attractive opportunities including from the strengthening and upgrading of the power transmission network, for which the demand for engineering and construction expertise continues to outweigh supply, together with areas such as offshore wind, carbon capture, nuclear (including small modular reactors and Sizewell C) and hydrogen production. In the UK transport sector, we continue to make good progress with HS2 station opportunities in the pipeline including at Birmingham Interchange and we welcome the UK government's commitment to improving connectivity across cities in the north of England and giving more power to devolved regions to deliver their own transport solutions, all of which align to our transport expertise. We remain well-positioned to win work from these structural opportunities given our end-to-end capabilities and complex infrastructure project experience.

Strategic targets: our medium-term target is to grow revenues to over £125m, representing a doubling of FY22 revenues, with margins of 8-10 per cent.

Modular Solutions

Modular Solutions consists of the growing modular product ranges of SMS and of CMF, our cold rolled steel joint venture business. We continue to be the only hot rolled steel fabricator in the UK to have a cold rolled manufacturing capability. The division has been awarded 'Fit for Nuclear' and certain Network Rail accreditations which, together with an expanding client base and our previous record in modular construction, we believe will help us to achieve our future organic growth aspirations. The division consists of three main business areas:

§ Severstor - specialist equipment housings for critical electrical equipment and switchgear,

§ Supply chain (steel components for modular homes and buildings) - raw material fabrication and modular systems including steel cassettes and framing, and

§ Bulk handling solutions - a high-performance silo discharge system for the bulk handling of materials such as paints and other dispersible solids (of which Rotoflo is the premium product).

Although revenue of £9.8m (H1 2024: £10.7m) represents a slight decrease compared to the prior period, overall profitability has remained broadly unchanged. The lack of growth in H1 reflects some delays to higher-margin Severstor orders which are now expected to be delivered in H2. Divisional underlying PBT of £0.4m (H1 2024: £0.2m) also includes the post-tax share of profit of CMF of £0.3m (H1 2024: £0.1m). The increased profitability at CMF reflected better volumes in the period, as the business continues the ramp up of its expanded manufacturing operations in Wales.

We have made further progress in growing our client base for Severstor and for steel framing solutions for modular building manufacturers, which is evident in SMS's growing order book and pipeline of opportunities. For Severstor, we are seeing future opportunities in growth markets such as renewables and data centres, alongside work in areas such as power, rail and oil and gas, and we now have visibility of some large projects in the pipeline (>£5m). We are also encouraged by the pipeline of opportunities in steel framing solutions, supported by our expanding customer base, and by CMF's growing product range and its recently enlarged cold rolled manufacturing capacity.

Strategic targets: our medium-term target is to grow combined SMS and CMF revenues to between £75m and £100m, with margins of greater than 10 per cent. In FY24, the Modular Solutions division delivered revenue of £50.6m (SMS: £21.5m and CMF: £29.1m).

INDIA

In the first half of 2025, JSSL recorded an output of 31,000 tonnes, broadly in line with the 32,000 tonnes achieved in the prior period. This position is evident in JSSL's revenue of £49.3m, also broadly unchanged from the prior period. Despite the lower than expected activity levels in H1, output in H2 is expected to increase, reflecting the volume of work in JSSL's record order book.

JSSL has reported a reduced operating profit of £2.5m (H1 2024: £3.9m), which has been driven by short-term delays to existing and expected projects in the run up to and immediately following the Indian elections in June 2024, together with a sub-optimal mix of sub-contracted work, which has resulted in some production gaps at the Bellary factory. Financing expenses of £2.5m (H1 2024: £2.5m) are unchanged from the previous period and result in JSSL's operating profit reducing to a break-even position (H1 2024: profit before tax of £1.4m).

Despite the lower first half profits, India's construction sector, and the use of steel within construction, continues to grow strongly, supported by public and private sector investment in manufacturing and energy projects, and government investment to improve and expand transport infrastructure. This position is evident in a record order book at 1 November of £197m (1 July: £181m, 1 June: £181m), which contains a mix of higher margin commercial work of 77 per cent (1 June: 71 per cent). The expanding market picture is reflected in an improving pipeline of potential orders and in numerous growth opportunities in target markets, including commercial real estate, data centres, warehouses, infrastructure and in manufacturing sectors such as steel, cement and speciality chemicals. JSSL is also targeting opportunities for growth markets in new sectors and export markets including in Saudi Arabia, building on its brand and reputation for delivering high-quality steel solutions.

To support this expected market growth, in conjunction with our joint venture partner, JSW, we are accelerating the expansion plans for the business. Work is already underway on some of these expansion projects, which are expected to be completed by the end of H2, increasing factory capacity at the Bellary site to c.110,000 tonnes (c.160,000 tonnes including sub-contracted work). The development of the new site at Gujarat is also already underway, with new open yard and factory production facilities expected to be completed and ready for operation in FY26, further increasing JSSL's in-house production capacity from c.110,000 tonnes to c.180,000 tonnes. Further expansion work at Gujarat is expected in future years which, once complete, will result in JSSL's combined factory capacity (Bellary and Gujarat) increasing to c.250,000 tonnes (c.350,000 tonnes including sub-contracted work). The majority of this investment will be financed by debt, provided directly to JSSL by Indian lenders. JSSL is also in the process of strengthening its sales and estimating teams, bringing people with new skills into the business and enhancing its supply chain partnerships to support the expansion of the business and to provide a springboard to deliver future profitable growth.

Value continues to build in JSSL and the business is well positioned to take advantage of a very encouraging outlook for the Indian economy and a strong underlying demand for structural steel. We remain very positive about the long-term trajectory of the market and of the value creation potential of JSSL.

ESG

Safety

The Group's top priority remains the health, safety and wellbeing of all our stakeholders and we have maintained our unrelenting focus on safety through a number of initiatives, ensuring that our safety statistics remain industry leading. During the period we continued to roll out our Safer@Severfield behavioural safety programme and are in the process of implementing a new risk management process, to improve the management and control of critical safety risks, further enhancing our safety processes.

Sustainability and ESG

During the period, we have continued to make good progress against our near and long-term carbon emissions targets, which were validated by the Science-Based Target initiative ('SBTi') in the previous year. We also achieved ESOS (Energy Savings Opportunity Scheme) Phase 3 compliance ahead of schedule, demonstrating our effectiveness in reducing energy demand and improving efficiency.

We have continued to maintain our focus on social value, exploring key partnerships to help support delivery of our social value commitments. During the period, we have partnered with Chapter One, an organisation that provides one-to-one reading support to young children who need help with their reading skills. This initiative is fully supported by our new Group volunteering policy, which supports initiatives which make a positive impact in our communities. We continue to monitor how much value we deliver annually in line with the National TOMs methodology framework.

BOARD CHANGES

As previously announced, Cynthia Gordon, Janice Crawford and Ian McAulay have all recently joined the board as non-executive directors. Cynthia has become Chair of the Remuneration Committee and Ian has assumed the responsibilities of workforce engagement director, taking over from Louise Hardy, who stepped down from the board in October. Their considerable combined strategic, financial, operational and commercial expertise and their knowledge and experience gained in global organisations will be highly beneficial to the Group as it continues to grow and diversify.

Furthermore, as part of our ongoing board succession and retirement process, Derek Randall will retire from his position on the Severfield plc board at the end of the current financial year. Derek has recently transitioned from his previous position of Managing Director to Non-Executive Chair of JSSL, and he will continue to represent the Group in this capacity on JSSL's board in India, together with Alan Dunsmore. Derek will also continue in his role as Chair of JSWSMD, the Indian joint venture metal decking business.

Alan Dunsmore                                                Adam Semple

Chief Executive Officer                                      Chief Financial Officer