Shift to engineering hits Amec

British engineering services company Amec today said it had fallen into the red as its exit from traditional construction hit half-yearly results.

Amec, based in Cheshire, posted losses of £5.1m (€7.5m) against profits of £27m (€39.8m) last time, due to costs linked with the sale of operations in France, the US and Hong Kong.

However, the group was upbeat as it posted a 5% hike in underlying profits and revealed its order book had increased by 10% to £3.3bn (€4.9bn).

It said projects in Iraq should compensate for the transfer of UK rail maintenance to Network Rail, helping it to maintain a “positive outlook” and to predict further growth in 2005.

Amec, which employs about 45,000 people in the UK and 40 countries worldwide, supplies design, project delivery and maintenance support services to the oil and gas, transport, industrial and infrastructure industries.

It has been switching its focus from traditional construction to engineering services, resulting in exceptional costs of £19.6m (€28.8m) during the six months to June 30. This was slightly above original expectations.

This came from the disposal of engineering firm Spie Batignolles in France, its Hong Kong-based mechanical and electrical engineering business and its US construction management division.

After accounting for one-off costs, pre-tax profits increased to £37.5m (€55.2m). Amec said that was in line with expectations and confirmed it was on track to make further progress in 2004.

The disposals contributed to a fall in total turnover to £2.24bn (€3.3bn) from £2.32bn (€3.4bn).

Amec recently signed a contract to work on the restoration of damaged power generation, transmission and distribution systems in Iraq for prime contractor Fluor.

Although these projects had no impact on the first half, they are expected to start contributing in the second half of the current financial year, increasing further in 2005.

The company said: “Despite the obvious challenges of working in Iraq, projects are proceeding largely to plan and major milestones are being achieved.”

Work being undertaken in Iraq includes restoring damaged power stations in Baghdad, reconstructing a 132kV transmission line in northern Iraq and restoring a water intake facility at a thermal power station in southern Iraq.

Amec said its services division now accounted for 69% of turnover as a result of the shift from construction. Within this, the regional services business reported another “robust” performance, while the environmental consulting business also performed well.

Despite encouraging signs earlier in the year, Amec’s North American engineering operations were mixed.

Shares fell as much as 4%, recovering to stand 1% lower, down 3.75p to 316.25p.