Blackfriar: Cheesegrater shredding the nerves of Severfield investors

Steel group Severfield-Rowen yesterday sent its shares plunging by more than a third by admitting it is having to talk to its lenders, Royal Bank of Scotland and Yorkshire Bank, about staying within its banking covenants, as profits dive.

Breach of its covenants would put the UK’s biggest structural steel firm at the mercy of its lenders.

Severfield yesterday refused to say what the precise ratio of debt to earnings is specified in its banking covenants.

But writing down the cost overrun on the 122 Leadenhall skyscraper will likely place the North Yorkshire firm in breach of the terms.

Analysts expect the company to swing to a loss, with Canaccord Genuity predicting a pre-tax loss of as much as £8m.

Severfield’s woes may not stop there either.

The group is now reviewing its other contracts “expeditiously”, and will update when it knows the financial impact of this.

In other words, its troublesome Cheesegrater contract threatens to be the tip of the iceberg for Severfield.

Whether or not more problems actually exist, the group’s decision to sift through its current contracts implies more skeletons are hiding in the closet.

For a company with a long track record of major projects – from Arsenal’s Emirates Stadium, to the Shard skyscraper, to the London 2012 Olympic stadium – such a situation is perplexing.

As one industry source put it to Blackfriar, it “implies they have not got a clue what’s going on”.

Chief executive Tom Haughey was the obvious fall guy, and stood down yesterday.

A number of scenarios can now unfold. A rescue rights issue could prop up its finances, but will be unpopular with shareholders who have been badly burned.

Renegotiation of its debt without the need for equity funding looks an “optimistic” outcome to Canaccord.

Meanwhile, all of this threatens to damage its relationship with potential customers, who will want assurances over a sub-contractor’s solvency before handing out contracts.

Credibility is everything when you’re building 224m-tall skyscrapers.

A first glance at the listed housebuilders’ soaring profits, rising output and better margins might suggest a rosy outlook for the building sector.

London-focused Crest Nicholson even underlined the increasingly buoyant prospects for big housebuilders by announcing plans to return to the stock market this year.

But don’t be fooled into thinking all is well with the entire building trade.

Asked if a sustained market upturn is underway, Bovis Homes’ David Ritchie warned “absolutely not”.

“The market is not bailing the housebuilders out,” he said.

“Every housebuilder should be showing strong improvements in profitability. That’s not because houses are getting more expensive.

“That’s because we are trading through old land and replacing it with shiny new land.”

Able to access cheap capital, building on cheap land and turning steadily-increasing volumes into cash, the listed builders are caught in a virtuous circle and are pulling away from their smaller peers.

Meanwhile, the Federation of Master Builders (FMB) warns a third of all small to medium-sized building firms fear they will have to slash staff numbers this year.

Its State of Trade Survey shows building firms believe the outlook for 2013 is bleak as prices rise and overheads continue to eat into profit margins.

Quoted housebuilders are just one side of the story.

Trinity Leeds aims to be the most digitally enabled and technologically advanced retail destination in the UK when it opens in two months’ time.

At a time when bricks and mortar retailers are losing out to the internet, Trinity Leeds has ambitious plans to lure in tech savvy shoppers.

It’s all about the experience.

Gone are the days when shopping was a chore.

Shopping now has to compete with leisure for people’s time.

Forget multichannel, which refers to using every available way of selling, the new buzzword is omnichannel – successfully joining up PC, tablet, mobile and physical shopping.

Trinity Leeds is hooking up with Google to launch an app that allows shoppers to navigate themselves around the centre by providing real-time information about products and promotions.

The landmark shopping centre is making itself fit for purpose in this new digital age.

Retailers should take note if they want to avoid the same fate as HMV, Blockbuster and Jessops, which all went into administration this month.

Bricks and mortar can survive but they must go hand in hand with online.