Amec chief orders radical overhaul

CEO says 'no progress made in 10 years'. Disposals and buy-back. Profit warning issued
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The Independent Online

Amec's new chief executive yesterday unveiled a share buy-back, disposals, and a promise to more than double margins, as the engineering and construction group continues to resist a £1.5bn takeover bid.

Announcing the results of a strategic review, Samir Brikho, two months into the top job at Amec, was also forced to put out a profits warning yesterday, saying that profits would be £15m, or some 20 per cent, below expectations. The company also revealed provisions for lawsuits and other problems of £230m. It will return £100m to shareholders.

Mr Brikho, who joined from the European engineering group ABB, was highly critical of Amec's previous management.

"This company has not been performing for the last 10 years. The structure is too complex - why are there 40 businesses within a relatively small group? There are lots of excess costs in the organisation - with four offices in London alone. All these questions have not been tackled," Mr Brikho, a Swedish citizen of Lebanese origin, said.

Last month, Amec rejected an offer thought to have valued the company at 450p a share from a private equity consortium of Texas Pacific Group and First Reserve. Analysts said yesterday that the group had probably succeeded in driving up the price - perhaps to 475p - rather than doing enough to see off bid interest altogether.

Howard Seymour, an analyst at Bridgewell Securities, said: "I see the share buy-back and the margins promise as something in the way of a defence. They are designed to get a bidder to pay up."

Mr Brikho pointed out that he was working on the strategic review before the group received a bid approach.

"I don't see this as a defence document. I don't feel under pressure. The approach was highly conditional and the price was below our value," he said.

Mr Brikho said that it was possible to improve the results "dramatically" in a short space of time. He pledged to ramp up margins from 3.1 per cent last year to 6.0 per cent in 2008 and 8.0 per cent in 2010.

Amec announced that the company would sell off its construction, facilities management, property development and PFI interests. These contributed over a third of the company's £3.1bn annual turnover but produced just £14m of profits last year.

Industry experts suggested that these businesses would not fetch much money, as they were either loss-making - such as construction - or only marginally profitable. They also pointed out that Amec had, in effect, been quietly marketing some of these divisions for the past year, without managing to secure a sale. Mr Brikho said there was more value in selling the businesses separately, as some were "jewels" and other were "dogs".

Analysts pointed out that selling the non-core businesses would get margins close to the 6 per cent 2008 target anyway.

Mark Howson of ABN Amro said: "Getting from 6 per cent [margin] to 8 per cent may be a tougher ask but we find Brikho to be a breath of fresh air."

Amec will concentrate on its engineering businesses in future, which include units that serve the oil and gas industry, the nuclear sector and wind energy. Amec shares closed up 3 per cent at 439.5p, their highest level since 2002.

Mr Brikho said part of the strategy was to invest in these growth sectors, as Amec is not large enough in some of its most promising markets.

Amec is retaining operations which last year had revenue of £1.8bn and an underlying profit of £83m, producing a margin of 4.6 per cent.