Second profits warning by Huntingdon hurts shares: Demand weakens in US divisons after brief improvement

SHARES in Huntingdon International Holdings slumped 28p to 119p after the life sciences and environmental services group made a second profits warning within a year.

Last March the company shocked investors with a sharp downturn at its US engineering and environmental division because of weak trading conditions and the impact of bad weather. Its shares have since fallen from about 200p.

Yesterday's warning was prompted by a further weakening in US demand after a short-lived pick-up last autumn.

'We experienced a marked upturn in demand in the final quarter of last year and had taken an optimistic view of conditions. But the upturn has not been sustained,' Christopher Cliff, finance director, said.

Its problems have been compounded by delayed orders at its UK engineering consultancy and life sciences divisions.

As a result, Huntingdon's operating income in the three months ended 31 December 1993 was 'significantly below' the corresponding period in 1992.

'It is unlikely that the deterioration in earnings will be made up in later quarters and little or no improvement is currently expected in the main markets in which group companies operate,' it said. 'Consequently, operating income in the full year will be lower than analysts' published expectations.'

The statement prompted City analysts to slash profits forecasts from about pounds 17m to pounds 11m for the year ending 30 September, compared with taxable profits of pounds 14.4m for 1993, also down on the previous year. For next year the stock market is looking for profits of about pounds 14m before tax.

The declining profits have also sparked sharp criticism about Huntingdon's management and accounting policies. A leading analyst said: 'The company does not appear to have sufficient control over its US businesses.

'It has also used aggressive accounting methods when booking profits on long-term contracts. It is not surprising they now face some problems.'

Others have also questioned the group's diversification into the US engineering and environmental services during the last decade.

In response, it has ordered a strategy review that could lead to a shake-up of the division.

Mr Cliff said: 'The decision to diversify was right at the time but the review is aimed at repositioning or down-sizing the business.'

At present the division is concentrated in California and the North- east, both of which have been hit hard by the recession.

However, the group said it was continuing to generate cash and all three divisions were profitable.

At the end of November, the group's net debts amounted to pounds 49m - equivalent to about 70 per cent of shareholders' funds.

The company said it had taken no decision on this year's dividend prospects.

'At this stage we see no reason to review our dividend because of strong cash flow and balance sheet.'

(Graph omitted)