International Power yesterday dashed investors' hopes of a recovery in its fortunes, warning that profits would continue to slide next year.
The power generator blamed problems in the US, its biggest division in turnover terms, and implied the business would make a loss.
Sir Neville Simms, the chairman, confirmed that earnings would be 9p to 11p a share in 2003. But they would drop to 7p to 9p next year.
IP shares slumped 25p to 103.5p but later narrowed their loss to end at 116p, 12.5p adrift.
ING and Smith Barney, the brokers, said the shares could fall to 100p. Deutsche Bank analyst Iain Turner said: "We knew that next year would be bad but we did not think it would get worse." He had hoped for 2004 earnings of 10p to 11p a share. The figure for 2002 was 15.5p.
IP said pre-tax profits for the third quarter ended September fell from £48m to £38m, dragging the total for the first nine months of the year down from £196m to £141m. The full-year figure should reach the consensus forecast of about £170m. City forecasts for next year had run as high as £200m before yesterday's bombshell.
IP said a key factor in the US had been reduced compensation from the contractor Alsthom for two stations that were completed late and that failed to produce the required power. Mr Turner at Deutsche said IP had made more money from the compensation than it would have done had the stations been fully operational.
Now the plant is up and running, IP is considering mothballing some US capacity. The operations in Texas and New England face a low spread between their fuel costs and the price of electricity. Sir Neville said: "The pricing environment in the US remains weak and in the absence of significant improvement in our US markets we expect 2004 to be a difficult year."
IP's US profits fell from £29m to £12m in the quarter, before interest payments on £600m worth of US-based debt.
The finance director, Phil Cox, said power prices in the UK had improved and the company expected to see the benefit next year. Other assets, such as in the Middle East and Australia, were expected to continue their good performance. "However ... the US forward price curve is very weak," he said. "We are currently unable to see that improving during 2004."
IP was demerged from National Power three years ago. Although it was initially seen as a growth stock it has yet to pay a dividend.
The US energy group NRG recently recruited IP chief executive David Crane to fill a similar post at three times his current salary. NRG said yesterday that Mr Crane would start his £1.5m-a-year job as planned on 1 December.