Chief axed as steel group warns on profits

The shock profits warning sent its shares plunging 35 per cent to close down almost 42p at 78p.

Its contract to supply and erect structural steel at The Cheesegrater skyscraper in central London has been “materially, adversely affected by cost overruns”.

Severfield is now examining all its contracts and will update on any financial impact.

Tom Haughey, who has been CEO since July 2007, quit the Thirsk-based group with immediate effect. Chairman John Dodds becomes executive chairman while it searches for a permanent replacement.

“The board has concluded that a change to the leadership of Severfield-Rowen is required to re-establish confidence with all the group’s stakeholders,” said the company. It declined to comment further.

Severfield has been dogged by soaring costs, pricing pressure, delays over contract settlement, tough competition and weak demand. In June it warned over higher-than-expected costs on two unnamed UK projects.

In November it said 2012 pre-tax profits are likely to be £1m, compared with £10.1m in 2011.

But Michael O’Brien, analyst at Canaccord Genuity, speculated Severfield could swing as much as £8m into the red, and suggested a rights issue may be needed.

“Given the group’s unwillingness to provide guidance in relation to the scale of this, we believe a current year impact of circa £10m may not be unreasonable- implying a loss of circa £8m for 2012/13,” he said.

“Now, Severfield is in talks with its banks and ‘other stakeholders’ (perhaps implying a rescue rights issue?), without whose support the synopsis that Severfield would be last man standing looks potentially precarious.”

Severfield is talking to its lenders Royal Bank of Scotland and Yorkshire Bank over “compliance with its covenants”.

Net debt stood at £30m at the end of 2012. The group declined to specify the ratio of net debt to earnings required under the £50m facility, which it sealed in November 2011.

“I am... extremely disappointed in the need to make this latest trading update,” said Mr Dodd, former chief executive of Kier Group. “My task, now, is to re-establish the credibility of the group with all its stakeholders, bring greater control and discipline to its operations and secure Severfield-Rowen’s longer-term financing.”

Severfield won The Cheesegrater contract – also called 122 Leadenhall Street – in August 2011 from main contractor Laing O’Rourke. The highly-complex 52-storey, 224m skyscraper is being built for British Land and Oxford Properties.

Severfield’s order book was worth £209m at the end of 2012.

An industry source said the latest profits warning and review of contracts “implies they have not got a clue what’s going on”. “The nature of contracting is things do go wrong. But you would have thought they would have built in sufficient risk,” they said. “Having seen the announcements through Q3 (third quarter) and Q4 of last year, you would have thought that was the end of the problems. To see that this morning was amazing.”

Mr Haughey did not return calls. Severfield did not say whether he will receive a pay-off, but according to its 2011 annual report, he is entitled to a year’s salary, which was around £335,000 in 2012.

Graham Elliot-Shircore, fund manager at Aviva Investors, which holds 8.7 per cent of its shares, said: “Severfield-Rowen’s trading update was disappointing but we are hopeful that with John Dodds taking on the role of executive chairman, the company will be able to make significant progress from this point forward.”

Andy Douglas, analyst at house broker Jefferies, said: “Given management’s comments in this update, there is clearly considerable uncertainty over the group’s 2012 results, and clearly this also makes for tough negotiations with the group’s stakeholders.”

A towering challenge

Known as The Cheesegrater because of its distinctive shape, main contractor Laing O’Rourke described 122 Leadenhall Street’s construction as “exceptionally challenging”.

With no central core, the structure is stabilised by external ‘mega-frames’ of inclined steel columns.

The structure’s asymmetrical shape was needed to maintain views of St Paul’s Cathedral.

“The geometry of the 52-storey skyscraper makes it theoretically unstable,” said Laing O’Rourke.