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Amec saved by services
00:00 08 Sep 1999
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by John Leitch
Amec's margins in construction work slipped to just 0.7 per cent in the first six months of 1999, turnover of its capital projects division being unchanged at £1 billion. Despite the setback, chief executive Peter Mason insisted last week that Amec's margins would hit the 3 per cent target in "two to three years."
Mason was unveiling Amec's interim results (six months to 30 June 1999) which showed a pre-tax profit on continuing activities of £27 million (£19 million) on a group turnover of £1.4 billion (£1.6 billion).
Amec now splits its workload into three business streams. The services division was in the driving seat, delivering an operating profit of £18 million on a £400 million turnover, while investments made £4 million on a £40 million turnover, which left capital projects to chip in £7 million despite having the lion's share of group turnover.
The deal struck over the disposal of Fairclough Homes to US housebuilder Centex ensures that in addition to Centex's £109 million down-payment, Amec will receive a share of Fairclough's profits for the next two years. These will be substantial, Mason insisted. "They will not be less than when we had full ownership," he said.
Amec's PFI equity investments are achieving returns in excess of 20 per cent. Simon Bates, finance director, said bid costs are not included in this calculation. "We recover them because they go into the capital cost of the project," he said. Amec's highest individual bid cost to date was the £5 million spent on the DSS Longbenton project in Newcastle upon Tyne. "Virtually all this spend was after we became preferred bidder," Batey pointed out.
"On a more typical year, Amec spends £5-8 million a year on total PFI bids. We write the sum off as we spend it, so we recover the money on the projects we are successful in."
Asked if PFI work offers margins of 5 per cent, Mason said: "Margins are a few percentage points higher than normal. We work in a half-an-arm's-length scenario: We're in a concession with other players such as a facilities management provider, so it's not a free-for-all [on margins]."
Asked if margins for re-bid track maintenance contracts for Railtrack had now fallen to 5 per cent, Mason said: "That's commercially sensitive." Amec recently lost the Wessex contract. "Our margin wasn't acceptable," said Mason. "We're not sad to have lost it and we're by no means exiting the market. In the short-term, what we lose in rail maintenance we'll more than regain on the major projects side.
Amec is not committed to bidding for the London Underground privatisation - its view is that the size of projects are questionable and the whole deal is not immediately attractive.
AMEC
Interim results
(6 months to 30 June 1999)
Pre-tax profit s £27m s 42%
Turnover s £1.4bn s 13%
Amec's margins in construction work slipped to just 0.7 per cent in the first six months of 1999, turnover of its capital projects division being unchanged at £1 billion. Despite the setback, chief executive Peter Mason insisted last week that Amec's margins would hit the 3 per cent target in "two to three years."
Mason was unveiling Amec's interim results (six months to 30 June 1999) which showed a pre-tax profit on continuing activities of £27 million (£19 million) on a group turnover of £1.4 billion (£1.6 billion).
Amec now splits its workload into three business streams. The services division was in the driving seat, delivering an operating profit of £18 million on a £400 million turnover, while investments made £4 million on a £40 million turnover, which left capital projects to chip in £7 million despite having the lion's share of group turnover.
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The deal struck over the disposal of Fairclough Homes to US housebuilder Centex ensures that in addition to Centex's £109 million down-payment, Amec will receive a share of Fairclough's profits for the next two years. These will be substantial, Mason insisted. "They will not be less than when we had full ownership," he said.
Amec's PFI equity investments are achieving returns in excess of 20 per cent. Simon Bates, finance director, said bid costs are not included in this calculation. "We recover them because they go into the capital cost of the project," he said. Amec's highest individual bid cost to date was the £5 million spent on the DSS Longbenton project in Newcastle upon Tyne. "Virtually all this spend was after we became preferred bidder," Batey pointed out.
"On a more typical year, Amec spends £5-8 million a year on total PFI bids. We write the sum off as we spend it, so we recover the money on the projects we are successful in."
Asked if PFI work offers margins of 5 per cent, Mason said: "Margins are a few percentage points higher than normal. We work in a half-an-arm's-length scenario: We're in a concession with other players such as a facilities management provider, so it's not a free-for-all [on margins]."
Asked if margins for re-bid track maintenance contracts for Railtrack had now fallen to 5 per cent, Mason said: "That's commercially sensitive." Amec recently lost the Wessex contract. "Our margin wasn't acceptable," said Mason. "We're not sad to have lost it and we're by no means exiting the market. In the short-term, what we lose in rail maintenance we'll more than regain on the major projects side.
Amec is not committed to bidding for the London Underground privatisation - its view is that the size of projects are questionable and the whole deal is not immediately attractive.
AMEC
Interim results
(6 months to 30 June 1999)
Pre-tax profit s £27m s 42%
Turnover s £1.4bn s 13%
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