UK engineering group issues third profits warning

Shares in troubled engineering group Mowlem plummeted today after it issued its third profits warning in eight months.

Mowlem’s stock dropped 8% after it said a review of the way it values contracts and accounts for profits would result in a £20m (€29m) reduction in profit expectations for 2005.

The group said in December that 2004 profits would be at the low end of hopes, then told the market in February that it expected to make losses for last year of about £7.5m (€11m).

It said in an update today that the lower expectations for 2005 related to a range of contracts across the group.

Around two thirds of the impact would fall in Mowlem’s UK and Australian construction activities, it said.

Mowlem has embarked on a business shake-up to improve its performance after the profits warnings, which related to accounting write-downs on UK construction contracts and losses in its Australian building business.

However, the company said business activity and order intake in the first half of 2005 had been slightly ahead of last year.

“The group’s order book therefore remains at similar levels to the 2004 year-end and contains the same high proportion of contracts offering visible longer term revenues, repeat business, negotiated work and partnership-based contracts,” it said.

Mowlem said it had made good progress in restructuring its UK construction services business, where problems in valuing contracts led to a £15 million exceptional charge and December’s profit warning.

The group said an associated cost-cutting programme was now largely complete, which included an unspecified number of job losses, and it had achieved annual savings of £5m (€7.3m).

It said it expected the total cost of the reorganisation to be £6m (€8.8m), the majority of which would be reflected in the company’s first half results.

Mowlem reached financial close on three Private Finance Initiative (PFI) projects in the first half including a housing scheme in Leeds, two schools projects in Yorkshire and the north east and a joint venture scheme for the Ministry of Defence.

After the departure of former chief executive Sir John Gains at the start of the year, Mowlem said in February that finance chief Gerald Brown was quitting.

It then announced in May that chairman Charles Fisher had decided to step aside, although it said the latter’s decision was not linked to the company’s problems.

New chief executive Simon Vivian has implemented the changes after completing a review earlier this year.

The group, which is involved in a number of markets including Government Private Finance Initiative (PFI) projects and rail work, is splitting construction services into three divisions – Mowlem Building, Mowlem Infrastructure and Mowlem Engineering.

Mowlem, based in Isleworth in Middlesex, has UK regional offices at locations including Bath, Bracknell, Bromborough on Merseyside and Leeds.

By mid-afternoon, shares in the group had fallen 14.75p to 168p.