Steel giant says cost overruns on a 鈥渟mall number of contracts鈥 has hit its profit expectations, as it announces 50 job losses

Shard

Steel giant Severfield-Rowen has warned that cost overruns on a 鈥渟mall number of contracts鈥 has hit its profit expectations, as it announced 50 jobs would be cut.

In a statement to the City this afternoon, Severfield-Rowen said three of its UK businesses - Severfield-Rowen Structures, Watson Steel Structures and Steelcraft Erection Services - were 鈥渄elivering below expectations鈥, with their performances 鈥渁dversely affected by unfavourable final account settlements and cost overruns on a small number of contracts, as well as the re-phasing of other projects by clients鈥.

The performance of the three businesses, which are being merged into one business - Severfield-Watson Structures - had led to a revision of the Group鈥檚 profit expectation, the company said. 鈥淎s a result, it is the Board鈥檚 view that the Group鈥檚 profits before tax in 2012 will now be around 拢1 million,鈥 the company said.

鈥淭he Company鈥檚 results this year are being adversely impacted by a small number of projects in three of our UK businesses. However, our overall leading position in terms of market share and activity is undiminished.

鈥淭he UK order book and the known mix of secured projects, together with the reorganisation of the affected businesses, lead us to expect a recovery in business performance starting in 2013.鈥

The profit warning comes that operational overruns of 拢1.6m on two unnamed 鈥渃omplex鈥 projects in the UK would hit profits in the first half of the year.

the firm, which worked on the Shard (pictured), said pre-tax profit fell to 拢1.5m in the six months to 30 June 2012, down 56% on 拢3.4m the previous year.

Severfield-Rowen said the re-organisation of the three businesses, announced in August, was proceeding to schedule with the new company, Severfield-Watson Structures, to be established from 1 January 2013.

It said the restructure would see the loss of around 50 jobs, with the changes delivering overhead savings of 鈥済reater than 拢2 million鈥. The firm said when this was combined with 鈥渋mproved performance in contract engagement and execution鈥 operating margins were expected to return to between 5% and 6% 鈥渙ver time鈥.

鈥淥ne-off costs for the delivery of the new organisation are not expected to exceed 拢1 million and will be non-underlying,鈥 the firm added.

鈥淭he Group鈥檚 UK businesses continue to operate in a difficult climate with the previously flagged pricing pressure and protraction of contractual settlements still posing significant challenges as clients and the supply chain compete harder in a shrinking market.鈥

鈥淒emand in the UK remains depressed, however the Group鈥檚 order book levels continue to be consistently strong. Our outlook for UK demand does not anticipate a recovery, but we remain confident that our market leading position and identified future prospects will enable the Group to sustain activity levels in the coming periods.

鈥淭he Board remains confident that the ongoing business reorganisation and the conclusion of the affected projects will see an improvement in performance from Severfield-Watson Structures in calendar Q1 2013, together with continued strong performance from Atlas Ward Structures and Fisher Engineering.鈥

The statement said Atlas Ward Structures and Fisher Engineering, 鈥渉ave performed, and continue to perform, at or above expectations鈥.

The firm added that its operations in India had made good progress, with an order book of 拢31m. 鈥淚n India, we see very strong demand for our services and we will continue to work with our partner to grow the business at the fastest appropriate pace,鈥 the firm said.

It also said that non-executive director Geoff Wright, who has been in post since 2006, would stand down at the end of the year.