AMEC'S CONSTRUCTION businesses reported margins of just 0.7% on a turnover down 6% to £1,022M for the half year, despite a major push away from traditional contracting.
Workload downturn in Hong Kong in advance of recent contract awards on the West Rail project, and its under performing US subsidiary Morse Diesel, were largely to blame for this dip. Both were expected to improve in the second half of the year.
Chief executive Peter Mason said increased activity in the UK civils market, coupled with greater emphasis on higher margin fee-based work, had offset problems overseas. 'I expect to see a noticeable improvement in margins in the second half of the year, but it will be two to three years before we get to our 3% target,' he said.
Mason has just completed a major reorganisation to divide Amec into three core businesses: Capital Projects, Services (including rail and facilities management), and Investments, which encompasses PFI work. He predicted that performance would improve as the results of this new structure kicked in.
Amec's rail maintenance business grew 4% year on year despite the recent loss of its West Anglia contract. Mason said that although it had won the Wessex area, second half margins in rail were likely to drop as Railtrack replaces its original 'dowry' contracts.
He added that returns from its PFI contracts, particularly on the construction side, were steady but continued to be offset by the high bidding costs for such work. However, he insisted that proceeds from the recent sale of Fairclough Homes were available to invest in new PFI schemes.