Clayton Hirst: Amey will need all its 'added value solutions' to stay out of the red

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The Independent Online

You've got to be suspicious of companies that decide to reinvent themselves but then have difficulty expressing exactly what they do.

You've got to be suspicious of companies that decide to reinvent themselves but then have difficulty expressing exactly what they do.

A "global communications and information technology company that provides the superhighways for information traffic to move rapidly from origin to destination" should set alarm bells ringing. It's what the loss-making Marconi now claims it does, having turned its back on making money from defence electronics.

Being a "consumer-focused, performance-driven, values-based global media and communications company" has done nothing for Vivendi Universal, the French conglomerate struggling to keep its head above water.

So what, then, should we make of Amey? Only a few years ago it was a plain old construction company. Today it provides "added value solutions through well-applied customer focus..." You must get the picture by now. Like Marconi and Vivendi, Amey has jumped on to a business bandwagon, or to be precise, three: bidding for Private Finance Initiative contracts, maintenance of road and rail, and blue-collar outsourcing.

But its transformation seems to be coming unstuck. The business is now in the red after Amey was forced to restate its accounts, turning a £56m profit into a £18m loss overnight. It has become one of this year's worst-performing stocks among the 350 largest quoted companies, which is no mean feat in this market.

Tomorrow, the company's chief executive, Brian Staples, is expected to reveal more pain when he announces the interim results and outlines measures to get the company back on track. As we report today, the sale of the technology business, possible redundancies and putting the breaks on PFI bidding will all feature.

But will it be enough to prevent Amey going the same way as so many other companies that have tried to reinvent themselves? Maybe not. Amey is a member of the consortium set to take over the running of three London Underground lines. With the deal comes an early £60m cash commitment, which would balloon Amey's net debt to around £170m by the end of the year. Assuming Amey meets its earnings targets, then it will be a squeeze. If Amey misses its numbers, then it could be forced into talks with its banks.

Doesn't this sound just a bit familiar? A company, once regarded as dull, goes after the next big thing, sees massive growth but then falls to earth and is forced into talks with its creditors.

Power failure

Another week, another failed government privatisation. After the bail-out of Railtrack and the partial rescue of National Air Traffic Services, it's now the turn of British Energy to go cap in hand. In this case, however, the biggest problem arose after the company was privatised: namely the creation of Neta, the new electricity trading market.

Neta's architect, the regulator Ofgem, spent much of last week defending its reputation, arguing that Neta had led to lower electricity prices and greater transparency. But there are five critical failings the Government must address in its reform of the energy market.

Neta has led to a 40 per cent fall in wholesale electricity prices, squeezing companies such as British Energy. Unlike London Electricity, which as well as operating power stations owns distribution and retail operations, British Energy has no way of offsetting the losses.

Domestic consumers have seen little benefit from Neta, either, as electricity companies have passed a modest 2.5 per cent reduction on to households, in spite of larger falls at the wholesale level.

There have been consistent fears – some raised by Ofgem's chief executive, Callum McCarthy – that power companies have deliberately manipulated Neta by withholding capacity.

Green energy producers have complained that they are unfairly disadvantaged by Neta, which financially penalises wind-farm generators because they are unable to offer a predictable stream of electricity.

And since its formation, fears have been voiced that Neta could threaten the future security of electricity supply. A number of power stations are to be mothballed in the next 10 years, but because prices are currently so low, power companies have no incentive to invest in new plants.

Clayton.hirst@independent.co.uk

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