AMEC dives as charges mount up

The support services group said it hopes to meet full year expectations despite a weaker first half but investors were sorely disappointed by an update on a raft of writedowns and its shares plummeted

Morningstar.co.uk Editors 16 June, 2006 | 3:55PM
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AMEC said in an update that, while it has benefited from a buoyant oil and gas sector and healthy levels of North American industrial activity, trading remains 'poor' in UK construction and this has resulted in a weaker than expected first half ending 30 June.

It also revealed that two days ago Essex Rivers NHS Trust announced the cancellation of the Colchester General Hospital PFI scheme where AMEC, in a joint venture, was preferred bidder. The project had been expected to reach financial close during 2006. The reimbursement of costs of £7m has been raised by the company with both the Trust and the NHS centrally.

Despite the weaker first half, it expects to meet full year targets but that is on the basis that it manages to recover the £7m in costs on the Colchester PFI scheme.

AMEC, which is pulling out of most of its construction markets in the UK and US as part of a break-up of the group, spooked investors further with an update on exceptionals relating to the restructuring and rationalisation.

Last November 2005 it said the total costs of exiting road building n the UK and US together would be approximately £30m after tax. Today it warned that finalisation of remaining contracts has been more difficult than expected, forcing a further post tax provision of £20m to be made. In addition there is now a £15m after tax provision for exiting an oil and gas project.

It is also making provisions for future legal and other dispute costs relating to its exit from certain construction activities in the UK and US. It has set aside £20m for costs of litigation, mainly in the US.

The group furthermore is in a dispute over two construction projects completed some years ago. It is worried its insurance may not be enough to cover the dispute so has made an after tax provision of another £10m.

If all that was not enough, AMEC warned that it believes that these first half charges 'represent a cautious assessment'. It added that around £40m of the charges will be cash items, to be booked in 2006 or later.

The group also announced that it has made an exceptional gain of £295m after tax on the sale of AMEC SPIE, its France-based technical services arm. SPIE was sold last month for a better than expected £707m.

The dismal update resulted in the shares diving 32.75p or 9.5% to 312.75p by mid afternoon.

Based on consensus forecasts before today's statement, the shares trade on a forward PER of 12, with a prospective yield of 3.6%.

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