AAF warning sends shares tumbling: Problems at system building division come to light three months after rights issue

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The Independent Online
SHARES in AAF, which makes prefabricated buildings and alloy car wheels, plunged 66p to 125p yesterday after it warned that profits in the first six months of the year would be much lower than expected.

The bad news, which came just three months after a rights issue was launched at 175p to raise pounds 8m, has left investors nursing a heavy loss. However, W&A Investment, the South African conglomerate that owned more than half AAF's shares at the time of the cash call, passed up its rights.

It emerged yesterday that AAF's system building division, Premier, had been tendering for work at less than cost after an increase in overheads and disappointing orders.

John Paton, divisional chairman, left the company in March having failed to agree contract terms. A review of the internal controls he instituted has begun, and the results are expected to be ready for the interim announcement in September.

Problems first emerged at the subsidiary soon after Mr Paton's replacement, Roger Jordan, arrived from Hanson in May. He immediately issued a report to W&A, which sent its own team in to investigate his concerns.

Mr Jordan has subsequently left the company himself after less than two months in the job. He is thought to have been upset by the imposition by W&A - a group of scaffolding, hosiery and tyre companies - of one of its own senior executives as chief operating officer at AAF.

A spokesman for AAF said that there was no indication at the time of the rights issue that there were problems at Premier. W&A had passed up its rights in order to reduce its holding and improve the shares' marketability.

Premier was the main cause of yesterday's profits warning, but AAF also disclosed that its US West Coast operation had been closed. The future of its other US operation, in the east, is also under review.

A charge of pounds 1.4m will be made against this year's figures to cover the US closure, taking a sizeable slice out of last year's interim pre-tax profit of pounds 2.3m. It is not yet known whether AAF is likely to achieve more than break-even in the first half.