The Signs Were There by Tim Steer

Author:Tim Steer
Language: eng
Format: epub
Publisher: Profile
Published: 2018-02-24T16:00:00+00:00

Amey

INTERLOCKING WEAKNESSES

‘Interlocking Strengths’ – that was the company mantra proudly stamped across the front cover of the 2001 Amey Annual Report, published just before its shares started their precipitous fall. ‘Interlocking weaknesses’, more like.

Amey provided support services to a wide range of government organisations and private sector companies. It operated in a broad range of sectors, including rail, highways, defence, health, local government, utilities and education, many of which were serviced through PFIs – at the time a popular way for government to arrange financing for big capital projects. PFIs allow the government access to private sector finance in order to enable infrastructure such as hospitals to be built. The government does not have to fork out for the capital costs of building a hospital but in return its (and future governments’) hands are tied into paying for its use once the hospital becomes available for use. In the short term, the capital expenditure is kept off the government’s balance sheet. In the longer term, government has to find more out of its budget for current expenditure in order to pay for using the hospital.

Amey’s strategic aim was by all accounts to become a FTSE 100 company, but some said that it lacked the strategic thinking on the nuts and bolts of how to get there. Part of the problem was that, like Carillion (see page 144), Amey was not selective enough about the work it bid for, taking on big contracts that had large upfront costs and which often took longer than expected to complete – which inevitably put pressure on its already stretched balance sheet. The company concentrated on contracts that looked as if they would make decent margins, but it had scant regard for the timings of cash flows – much like other UK support service companies, it would appear.

Share price reaction to large asset write downs

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