City frets over Amey accounting

FEARS about troubled services group Amey's accounts are refusing to die down in the City even after two changes in accounting policy. Although the stock rose 7 1/2p to 116p following positive comments from broker ABN Amro, it is still 70% off its peak of 433 1/2p in 2001 and just over a third of its value in March when it shocked the market with a £70m accounting black hole.

The City remains confused by Amey's accounts. Observers are concerned about its ability to cover the hefty start-up losses of Government contracts, particularly its share in the £13bn contract to refurbish the London Underground.

Scepticism began to take hold in March when it introduced what it claimed was an 'ultra prudent' method for booking the large costs of bidding for contracts. It was the second significant change in Amey's accounting treatment of long-term contracts in as many years and knocked the company into a 2001 loss of £18m, instead of an expected profit of £52m. Amey warned last month that it would miss profit forecasts unless it was awarded the Tube contract this year, raising concerns that it might breach its bank loan agreements.

Its debt already stands at more than £106m and it is facing significant calls on its dwindling reserves of cash.

The City is also concerned that Amey may be stretched by its involvement in the development of the Tramtrack light rail in Croydon. In its most recent accounts the company controversially booked some £14m it was owed for developing the light rail system as an investment.

Baird analyst Mike Foster said: 'The accounts are detailed but opaque. Any one change could affect the group dramatically.'

Amey said it was confident it could meet its commitments. It said: 'We are satisfied with the report of the independent auditors as set out in the accounts.'