Exceptional £65m charges knock Amec’s share price

Amec’s share price dived by 10% last week on the day following the group’s announcement of two items of bad news.

First came yet more exceptional charges, relating to its ongoing businesses, this time running to £65m. And on top of that was a warning that first
half trading of the on-going businesses had been weaker than expected.

The problems were tucked away in a Stock Exchange announcement intended to highlight the £295m exceptional gain from the disposal of Spie.

Despite sugaring the pill, by revealing that the £707m sale of Amec Spie, the French-based division, provided a windfall gain of £295m (£85m higher than expected) the City gave Amec the thumbs-down.

Amec’s exceptional charges reported over the past two years now run to £190m. The latest £65m will be used to cure a handful of internal problems.

Closure and exit costs will take £35m of this deck-clearing operation with £20m relating to former construction activities and £15m to oil/gas projects.

In November 2005, Amec said the cost of getting out of road building on a lump-sum basis in the UK and US, together with certain building/refurbishment activities in the UK, would be £30m after tax. This was over-optimistic, as the sort-out has cost an extra £20m, half of this being for disputes where settlement has not yet been reached.

The balance of £30m will go into the pot to cover future legal and other dispute costs: £20m of this is the result of "exiting from certain construction activities in both the UK and US" which are beset by "prolonged and costly" contract disputes.

The remaining £10m balance is to provide cover against two projects completed in the past – one ended 15 years ago – where Amec had expected its insurance policies would cough up should claims be proven against Amec.

However, the insurance cover was not as water-tight as previously thought. A further twist is that one of the insurance companies has itself gone bust.

Turning to on-going prospects, Amec reported: "Trading remains poor in UK construction, resulting in a first half weaker than previously anticipated."

Amec bought its initial stake in Spie back in 1997. "We doubled our investment," said a spokesman. "It was a good move."

A large chunk of Amec’s bumper windfall will be used to cut the group’s net debt, which ran at £400m per week during 2005. The 2006 figure will be halved.

The sale of Spie will leave Amec with £130m of cash.