Blackfriar: Prestige projects don’t always deliver but Shard pays off

HIGH profile contracts can often be headline grabbing but disastrous for the bottom line.

Last month structural steel firm Severfield-Rowen confessed it had experienced “probably the most challenging period in the group’s history” after uncovering heavy losses on contracts.

The Thirsk-based company has a long track record of major projects – from Arsenal’s Emirates Stadium, to the Shard skyscraper, to the London 2012 Olympic stadium.

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But the group made an underlying pre-tax loss of £21.5m for the 15-month period to March 31 and axed its chief executive Tom Haughey, who had been CEO since July 2007.

Severfield was forced to seek emergency funds after uncovering severe losses on contracts, most notably the Cheesegrater skyscraper in London.

The overrun on the 122 Leadenhall skyscraper has cost the company far more than the kudos of working on such an iconic building will provide in the future.

John Dodds, executive chairman, said the problems on the Cheesegrater contract were the most significant of “several contract issues”.

We are yet to learn what the others could be.

Yet sometimes high profile contracts can be good for profits as well as kudos.

Yesterday construction consultancy Turner & Townsend reported a number of new contract wins including Yorkshire Water and the iconic Battersea Power Station in London.

The Leeds-based group said its high profile work on The Shard in London, the tallest building in the European Union, had helped it to win a number of new contracts at home and abroad.

The Shard’s crystalline facade has transformed the London skyline with a multi-use, 310m (1,016 ft) vertical city of offices, restaurants, the 5-star Shangri-La hotel, ten prestige apartments selling for upwards of £50m each, and the capital’s highest viewing gallery, with 360 degree views as far as the coast.

The building, designed by international architect, Renzo Piano, and developed by Sellar Property Group, has put Turner & Townsend on the map.

The group’s annual profits rose £7m to £30m and global turnover exceeded £300m for the first time to £318m, defying volatile market conditions.

UK profits rose 27 per cent to nearly £15m despite challenging market conditions in its home market.

While much of the British construction sector struggled in the face of weak demand, T&T reported strong growth.

A series of high-profile project wins included the long awaited redevelopment of Battersea Power Station and the refurbishment of the world’s biggest greenhouse at the Royal Botanic Gardens.

T&T’s chairman Tim Wray said: “In the UK our brand has grown. The Shard has really helped. I’m sure that being involved in such a high profile project helped with us winning Battersea Power Station.”

Blackfriar is reminded of a Northern ice-cream manufacturer whose boss insisted the company made ice cream after-dinner treats for Marks & Spencer despite making a loss on the contract.

When asked why the company was continuing to invest man hours in such a wasteful exercise, the boss said that his Mum always served the ice-creams at dinner parties, proudly boasting that her son’s company had made them.

Kudos is important but companies should never lose sight of the bottom line.

While Turner & Townsend can wax lyrical about the Shard, Battersea Power station and the Royal Botanic Gardens, it hasn’t lost sight of its Northern roots.

Over the past year it also won three big projects in Yorkshire.

The company’s role as Framework Consultants for Yorkshire Water’s next asset management period was extended from 2015 until 2020.

The group has also won work on a new engineering campus at Sheffield University where it will project manage a £50m refurbishment programme and the third local project is working on a fan blade casting facility for Rolls-Royce in Rotherham.

Yorkshire Water’s treatment works, Sheffield University’s engineering campus and blades may not be that headline grabbing, but Turner & Townsend knows that every project has to make sense.

Will the new royal baby boost the UK economy?

Blackfriar suspects that the royal birth will have little impact on the millions of British families who are struggling to get by and Steve Denison, assurance partner at PwC in Leeds, spoke sense when he said the royal birth won’t change the growth outlook for the UK economy greatly.

However he does point out that the last two long periods of strong UK growth followed the birth of Prince Charles in 1948 and Prince William in 1982. You never know.

If you have a view on this or any other City story please contact Blackfriar at [email protected]