Profit alert puts skids under contractor Amec

Amec, the engineering and contracting group, yesterday saw almost a fifth wiped off its share price after issuing a profits warning and telling investors not to expect any organic growth next year.

The company said it now expected profits for the current year to be £15m lower than forecast at about £105m while the only growth in the coming 12 months would be from acquiring businesses.

Amec blamed the shortfall in this year's profits on a sudden downturn in big capital equipment orders from process industry customers in the US and Europe.

It said that 20 major projects with a capital value of $500m (£320m), which it had expected to commence this year, had been deferred into 2003 and beyond. The company has been particularly hard hit by the slowdown in the power generation, mining and pulp and paper markets.

Sir Peter Mason, Amec's chief executive, said the downturn was more pronounced in the US although a number of big capital projects in the UK had also been put on hold. This ties in with official UK capital investment figures showing the biggest slowdown in 30 years.

Amec shares slid 19 per cent to close 35p lower at 147p, having at one stage been almost 30 per cent down. The fall in the shares wiped £100m off Amec's market capitalisation.

Sir Peter said the profits downgrade had come as a particular blow because Amec had prided itself over the past few years by not disappointing the market.

Despite the profit setback, the dividend is not thought to be at risk. The shares are trading on a dividend yield of 6 per cent and this year the payout will be covered about two times by earnings.

Amec also dismissed claims by some analysts that it had reassured the markets only six weeks ago about current trading, saying no such guidance had been provided.

Sir Peter said that Amec's other businesses such as oil and gas, support services and infrastructure projects were performing well. Even its private finance initiative schemes were progressing well despite the vocal criticisms Sir Peter has made of the PFI in general.

He said: "The PFI remains frustrating. It is unnecessarily protracted and unnecessarily expensive but we are still in the market."

The profit warning was coupled with an announcement that Amec has paid £172m to buy out the remaining 54 per cent it did not own in Spie, the French electrical engineering, infrastructure and construction group. The move will lift Amec's turnover to £5.5bn and its worldwide workforce to 50,000 and increase the contribution to sales from support services to more than 50 per cent for the first time. The deal will be financed from existing bank facilities.