Spiralling costs on a raft of contracts including the City’s Cheesegrater skyscraper today dealt a £20 million blow to the UK’s biggest structural steelwork firm.
Severfield-Rowen has been forced to gain breathing space from lenders, who agreed to waive tests of its banking covenants, and is poised to tap major shareholders for £50 million.
The firm admitted the “technical challenges” of the Leadenhall Street building are “significantly greater than originally estimated and will require longer timescales and greater resources to complete”, turning a contract expected to make a profit into a £9.9 million loss.
A root and branch review of all its contracts after the cost overruns emerged last month also uncovered losses of £10.2 million on another eight deals. This will tip Severfield heavily into the red for 2012 while the board’s expectations for this year and next are “somewhat lower”.
Former chief executive Tom Haughey was sacked last month after the board said a “change to the leadership is required to re-establish confidence with all the group’s stakeholders”.
Severfield is also set to take a far more conservative view of risk after its review “identified a requirement for stronger contracting processes and discipline notably in execution and risk assessment, particularly in relation to its more complex contracts”.
Executive chairman John Dodds, who took the helm temporarily following Haughey’s departure, said he was encouraged by the backing of the banks and leading shareholders. The shares shed 9%, or 6.75p, to 71.75p.
Severfield’s banks are RBS and National Australia Bank, while the top five shareholders are Prudential, M&G Investments, JO Hambro, Aviva Investors and Threadneedle.Reuse content