Chief executive expresses dissatisfaction with low margins in construction division, despite 20% rise in group profit.
Amec chief executive Peter Mason said the group’s capital projects arm needed to show “considerable improvement” to meet his 3% target for operating margins, after it was revealed they were only 0.7% in the six months to 30 June 1999.

Mason said the division, which includes healthcare, manufacturing and retail work, would continue to search for high-margin, fee-based business, rather than simple volume.

Margins were up from 0.2% to 0.5% year-on-year, helping the division to lift operating profit 38% to £7.3m on turnover down 7% to £1.02bn.

Group pre-tax profit was up 20% to £27.1m on turnover down 13% at £1.4bn.

Mason said that the group’s recent reorganisation into three divisions – capital projects, services and investments – would help achieve the margins he wanted in capital projects.

“It may not look like a big deal, but I assure you it is. It will allow us to deliver projects in a more efficient, multidisciplinary way, and we have already been awarded substantial contracts on that basis,” he said.

Mason also said the group had been rolling out a supply-chain management initiative to lock in subcontractors and suppliers. All business, apart from one-off projects, would be done on that basis in the future, he said.

He added that the continuing reorganisation could lead to some job losses in the coming year but he would not say how many.

Although turnover in capital projects was more than twice that of Amec’s services businesses, services, which includes rail, facilities management and maintenance work, now accounts for more than two-thirds of Amec’s operating profit. The services arm saw operating profit rise 3% to £18.2m on operating margins of 4.3%. Turnover was static at £422m.

Mason said he expected rail margins to continue to drop as first-time Railtrack contracts came to an end and more firms started bidding for work.

The investments division, which is made up of property development and private finance initiative work, turned a £2.5m operating loss in the first half of last year into a £3.6m operating profit. Mason put this down to the timing of property transactions.

Amec’s order book stands at £3bn, the same level as last year. But more than half is now derived from services work, compared with 45% 12 months ago. However, Mason said the group had no plans to relist itself on the stock market as a support services company.

The company’s US operation, Morse Diesel, was hit by an operating loss of £4.4m despite a 13% increase in turnover to £242.8m. Mason put the loss down to project delays, but said the group was well placed to win a $70m (£43.75m) bridge project in Virginia. Morse Diesel is currently the subject of a year-long review by Amec.