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Amec shares plunge ahead of separation

FINANCE Stock falls 10 per cent as major contractor announces £65 million charges

AMEC'S shares plunged 10 per cent last week after it reported £65 million of fresh exceptional costs to cover its exit from lowmargin construction work and provisions against legal disputes.

It also admitted its UK construction trading had been weaker than expected in the first half.

The charges are in addition to the £70 million set aside last November to cover closure costs and restructuring ahead of the separation and possible sale of its infrastructure arm expected later this year.

Despite generating a better-than-expected £295 million exceptional gain from the sale of its French operation, Amec Spie, the group's shares have now fallen by 25 per cent in the past five weeks.

Sir Peter Mason, chief executive, said Amec now had flexibility for future investment while allowing consideration of a return of capital to shareholders. He said: 'The changes allow us to draw a line under previously announced closures.'

Analysts believe the losses mark the final stage of the separation of the group's businesses before a demerger. The group recently reorganised itself internally into an energy and process division and a UK infrastructure and construction operation.

Amec is exiting lump-sum UK and US road building and certain UK building and refurb activities. The finalisation of remaining contracts on areas it is pulling out of had been more difficult than expected, prompting a new provision of £20 million to the £30 million already made. A further £15 million provision has been made on an oil and gas fabrication project.

Amec has also set £20 million aside to cover litigation on prolonged contract disputes, particularly in the USA, and a £10 million provision against two projects where insurance policies may not pay out.

But Amec said it performed strongly in oil and gas, its North American industrial activities were recovering and trading had been better than expected in mining and Iraq. The board maintained expectations for full-year pre-exceptional profits.