US business to shift away from high-rise office development towards high-growth industries.
Amec chief executive Peter Mason plans to revolutionise the group’s struggling US operations by shunning high-rise developments in favour of more profitable work for major industrial clients.

Speaking to Building this week, Mason said the shift in emphasis could lead to the purchase of at least one US design-and-build business before the end of 2000.

But he added that this would not necessarily lead to the disposal of the group’s current US business, Morse Diesel.

By the end of the year, Amec will have completed a strategic review of its US business that is intended to determine which market sectors the company should target next. Mason is looking at a number of markets, including pharmaceuticals and utilities, where Amec has considerable experience in the UK.

Funding delay hits profit

Mason said he instigated the review because Morse Diesel, which has built high-rise office developments in US cities including New York and Chicago for more than 50 years has been underperforming on margins.

“We need to change our focus because, despite the buoyancy of the US market, we are still finding it very difficult to knock out a decent margin,” he said.

He explained that Morse Diesel’s problems centred around the tendering processes for office developers. In the USA, this type of job usually goes out to tender before the client has funding. The contractors bid for work, then negotiate a final price before selection. But construction will not start until funding is secured.

“Normally this takes a few months, but this month in Chicago we got through a glut of about £400m of projects that had been in this preconstruction phase for 12-18 months. We expect a further £400m-500m to come through in the next six months.

“In that phase, we don’t recover our overheads and we have really suffered as result,” he said. “So whilst we have some terrific projects and some very able people, it is not the best sector for us to be in.” Mason said the company would now look to work in high-growth sectors and areas where Amec has, or could buy in, a strong design capability.

Mark Hake, analyst at Merrill Lynch, said the move made good sense: “Amec does need to refocus its US activities if it genuinely has ambitions to be a global player. Its expertise is not really in office developments but in added value, civil engineering, infrastructure and offshore oil and gas-type work.”

Selecting UK targets

For Amec’s UK business, Mason said he thought utilities and telecommunications had “very considerable growth prospects”. He said outsourcing, maintenance and remedial work were all growing areas in these sectors, particularly as many clients are rationalising their supplier bases.

“Utilities is a fairly unsexy sector but it has a very big spend, and its spend compared with rail is huge,” he said.

Mason said work for the rail industry had limited prospects as it was not an expanding market.

“In two to three years, capital projects work will peak and then decline,” he said.

But he believed work for the offshore oil and gas industry – where Amec already has a number of partnership deals set up, including one with BP Amoco – would grow strongly as more clients rationalised their supply base.

Mason also expressed concerns that the government was “softening” its approach to the private finance initiative.

“It is possible that, eventually, PFI will simply mean providing the money and building the asset, rather like a property developer. This is less attractive than design, build, finance and run,” he said.

Mason said the company’s current plan was to acquire the balance of French electrical engineering and building contractor Spie, in which it has established a 41.6% stake within two years.

He said this would mean a third of Amec’s business would be in the UK, a third in France and a third in the rest of the world. “That would give us the best balance compared with the rest of the European construction industry,” he said.