Eight other contracts are also causing problems, resulting in a hit of 拢20.1m in the 2012 accounts.
Last month Severfield-Rowen over cost overruns on projects including the high-profile 122 Leadenhall Street. The 224m-high building, designed by Rogers Stirk Harbour + Partners, is known as the Cheesegrater because of its distinctive shape.
The board has since conducted a detailed review of 70 of its main contracts and found that nine are causing problems and performing below expectation. Leading the way is the Cheesegrater, on which the board has concluded that it will never make any money and has booked a 拢9.9m loss on it for 2012.
The board said about the Cheesegrater: 鈥淭he review established that the technical challenges of the site works on this contract are significantly greater than originally estimated and will require longer timescales and greater resources to complete. In response to this finding, a comprehensive reassessment of the works required to complete has been undertaken, along with a detailed review of all other forecast costs still to be incurred. The result has been to change an expected profit on the overall life of the contract into a loss, with the group incurring an incremental charge to the profit and loss account of 拢9.9 million in the 12 month period ended 31 December 2012.鈥�
On three other contracts, actual and potential cost overruns totalling 拢2.9m have been identified.
On a further five contracts, expected value has been downgraded by 拢7.3m.
The remaining 61 contracts were found to be performing in accordance with the board's expectations.
The board said that its review had 鈥渋dentified a requirement for stronger contracting processes and discipline notably in execution and risk assessment, particularly in relation to its more complex contracts. The implementation of these improvements will be undertaken as expeditiously as possible.鈥�
The financial outcome of the Review will result in a charge to the profit and loss account of 拢20.1m in the 12 months ended 31 December 2012. A proportion of the related cashflows occurred within the 12 month period ended 31 December 2012, with a further 拢8m of cash outflow anticipated in 2013.
As a result of the problems, Severfield-Rowen is in discussions with its lending banks about compliance with its covenants and a possible 拢50m rights issue, subject to shareholder approval.
Chairman John Dodds was determined to sound an upbeat note, saying: "Despite the disappointment of the financial impact on the group from the findings of this review, I am encouraged by many of the conclusions drawn from it and by the actions we will be taking to improve our business. This is a good business which remains well supported by its customers. It is important to note that, following our rigorous review process the vast majority of the group's contracts are progressing satisfactorily, with both Atlas Ward and Fisher Engineering performing particularly well.
鈥淚 am also greatly encouraged by the strong and visible support we have received from our leading shareholders and the constructive discussions we continue to have with our lenders around the longer term financing of the group. We believe that the group can return operating margins to between 5% and 6% over time and I am confident that the longer term fundamentals of the group remain strong."
Above: Artist's impression of the Cheesegrater
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