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Last updated: November 6, 2012 5:26 pm
The Yorkshire-based engineering group, which supplied the structured steel for City buildings such as the Shard and the Cheesegrater, on Tuesday warned that pre-tax profit in 2012 would be “materially lower” than last year.
Severfield-Rowen, whose other projects have included the 2012 Olympic stadium and the retractable roof over Wimbledon’s Centre Court, said it expected to report pre-tax profit of about £1m for 2012 – an 85 per cent fall from the £6.8m recorded last year.
Tom Haughey, chief executive, told the Financial Times that the group’s estimations department had underestimated the cost of several jobs, which had resulted in cost overruns.
“A few of our projects have been more challenging than first estimated. If a job is expected to last six weeks but takes seven, there is an additional cost,” he said.
“Margins are tighter, customers are not willing to pay as much for value, and final payment settlements are taking longer to conclude.”
Mr Haughey said that changes to the group’s estimation procedures had already been enacted to eliminate “internal management and execution” problems. Severfield-Rowen’s first-half figures had already been depressed by £1.6m of cost overruns from two projects.
As a result of Tuesday’s profit warning, the London-listed group will shed 50 jobs in an effort to lower its cost base by £2m.
The group narrowed the problems down to the three divisions that it is in the process of merging – Severfield-Rowen Structures, Watson Steel Structures and Steelcraft Erection Services – which were all “delivering below expectations”.
Severfield-Rowen has branched out into the booming Indian construction market, setting up a joint venture in Mumbai in 2010 – a move intended to compensate for sluggish UK demand.
It has changed its financial year-end from December 31 to March 31, primarily to align its reporting period with that of its Indian joint venture.
The group had been expected to pay a “second interim dividend” for the final six months of 2012, but chose not to after Tuesday’s profit warning.
Furthermore, it cautioned that it would “consider the final dividend level” for the 15 months to March 31, which Mr Haughey said would be confirmed at a board meeting later in the financial year.
Severfield-Rowen shares closed down more than 2.5 per cent to 104p.
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