Gloomy week in store for builders

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The Independent Online
A ROUND of dividend cuts from top building companies will this week deal a further blow to the sector, which has already been ravaged by falling profits in the wake of the prolonged housing slump and a sharp decline in commercial building.

Three of Britain's biggest building companies - Amec, George Wimpey and Taylor Woodrow - are expected to cut their dividends as gloom deepens in the construction sector.

Building shares have already lost more than 65 per cent of their value relative to the rest of the market since the general election.

The cuts from Amec and Wimpey, both expected to reduce dividends from 4p to 2.5p, will be the biggest shock to the market. Amec, reporting on Thursday, raised pounds 110.6m in a rights issue at 200p a share last March - almost three times last week's closing price of 68p - and has between pounds 30m and pounds 40m of cash on its balance sheet.

It is expected to announce pre-tax profits of pounds 10m, down from pounds 21.9m last time, which means the 2.4p of earnings will not cover even the reduced dividend. Last year it increased its dividend from 9.7p to 10.25p despite losing pounds 9.9m before tax.

Wimpey, reporting tomorrow, has been selling assets and restructuring its business, which helped it to cut borrowings from pounds 372m to pounds 206.4m - 35 per cent of net assets - in 1991 and a further pounds 155m is due from the sale of Little Britain this year.

It has never had a rights issue, so its dividend costs only pounds 30m, but the payment was not covered by earnings in either 1990 or 1991.

Until a few weeks ago both companies appeared determined to use their balance sheet strength to hold their interim payments, deferring a decision until the final results in March.

Since then the climate has changed, partly because of BP's decision to slash its interim payment.

Taylor Woodrow's dividend cut has been well signalled. Analysts expect the interim payment to fall from 1.86p to 1p when it reports on Wednesday as part of a full-year cut from 9.5p to 2.5p.