Olympics and Shard structural steel giant Severfield-Rowen will make 50 people redundant after issuing a profit warning this afternoon.
Its board expects UK profitability in 2012 to be “materially lower”, with pre-tax profit for the year declining to £1 million compared with £6.8m in 2011.
The warning follows its announced merger of three of its businesses – Severfield-Rowen Structures, Watson Steel Structures and Steelcraft Erection Services – into Severfield-Watson Structures at the end of 2012.
Chief executive Tom Haughey told CN in August that he could not rule out “some reductions” to staff levels as a result of its merger plans.
Severfield-Rowen said that previously flagged pricing pressure and protraction of contractual settlements “are still posing significant challenges as clients and the supply chain compete harder in a shrinking market”.
It comes after cost overruns of £1.6m on two unnamed complex projects hit the half-year results.
The firm said today there had been “unfavourable final account settlements and cost overruns on a small number of contracts, as well as the re-phasing of other projects by clients”.
Severfield-Watson Structures will be established from 1 January 2013, supported by a small number of external management appointments.
One-off restructure costs for the delivery of the new organisation are expected to be below £1m, although the changes are anticipated to make savings of more than £2m which, “combined with improved performance in contract engagement and execution, are expected to return operating margins to between 5 per cent and 6 per cent, over time”, said the firm.
Other divisions Atlas Ward Structures and Fisher Engineering are performing at or above expectations, the company added.
The firm said it is confident of a turnaround next year after the business reorganisations and conclusion of affected projects, stating that it retains its “overall leading position in terms of market share and activity is undiminished”.
It added: “Demand in the UK remains depressed; however, the group’s 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.”
There will be no second interim dividend for 2012 but the board will consider the final dividend level in 2013.
The company also continues to focus on debt, at £28.3m at the half-year.
It said operations in India have made good progress. Expansion of the Bellary plant, to lift output from 35,000 tonnes to 55,000 tonnes by summer 2013, is under way and remains on schedule and to budget.