News analysis Ameys Tube prospects prove its saving grace

24 Apr 03
If Amey, the cash-strapped former linchpin of the support services contracting world, were to rise from the ashes, it was hardly surprising that it should be under a foreign flag. Overseas firms have long coveted a share in the UK's Private Finance Initi.

25 April 2003

If Amey, the cash-strapped former linchpin of the support services contracting world, were to rise from the ashes, it was hardly surprising that it should be under a foreign flag. Overseas firms have long coveted a share in the UK's Private Finance Initiative market.

What is certain is that Amey has been granted a significant financial reprieve that might just secure the jobs of thousands of rail and road workers – and re-launch the company back into the public-private partnership market.

Spain's Grupo Ferrovial, Europe's second biggest construction firm, swooped at a time when serious questions were being asked about the Oxfordshire-based firm's future – it is currently £190m in debt – and those of the thousands of personnel it employs.

Once the darling of the City's flirtations with the PFI and public-private partnerships, Amey has been plagued with difficulties.

In March 2001, in anticipation of new accounting practices, the firm revised its systems, turning a pre-tax profit of £55m into a £18.3m loss. At the time, its share price was around £3.

Rapidly, the firm announced that future profits would depend heavily on involvement in the controversial London Tube PPP that it could no longer afford to invest in; it lost two finance directors; suspended its interim dividend; and was bailed out to the tune of £60m by its partners in the Tube Lines consortium.

It then suffered an £85m 'write down' in value; issued a succession of profit warnings; lost former chief executive Brian Staples; sold its holding in eight major PFI projects; agreed a £200m refinancing deal; and unveiled a massive £130m pre-tax loss for 2002/03. Much of the debt, the firm revealed, was due to the burden of the Croydon Tramlink project. Shares hit a low of 27p and jobs were axed. The picture could not have been bleaker.

But the surprise rescue deal announced on April 16 will see Ferrovial pay £81m, just 32p per share, to assume control of Amey. And its new Spanish owners are in no doubt about what they see as the firm's saving grace.

Explaining the takeover bid, Grupo Ferrovial's chief finance director, Nicolas Villen, wasted no time in raising the 'P' words. 'We wanted to grow our business structure, and a presence in the UK means we can tap into the PPP/PFI market through a firm with existing knowhow.'

Villen was also gushing about Amey's 'large forward order book' and the consequent 'guaranteed stable revenues' (despite its financial problems, the firm still holds major transport infrastructure support contracts across the UK).

The most politically sensitive of these 'forward orders' will now become the catalyst for Amey's return to the PFI/PPP fold: the firm's £60m option to join the Tube Lines consortium, which holds a 30-year contract to run parts of the London Underground.

In order to exercise the option, Amey must buy back into the Tube contract before June 13. It doesn't leave much time: Ferrovial's acquisition will be completed by May 16 at the earliest.

But Villen told Public Finance that the firm 'would do everything it can to exercise [the option] before that deadline'.

Amey's chief executive, Mel Ewell, added that he expected the Tube PPP to be 'a significant part' of Amey's future revenue.

The irony of the firm's very public decline, therefore, is that its most controversial public contract has been its salvation. Both Villen and Ewell claimed the Tube would be Amey's 'launching pad' for further PFI/PPP contracts.

But first the firm must reassure its workforce that it has a future. The GMB union, which represents thousands of Amey's public service staff, this week 'demanded reassurances' from Spain that staffing levels would stay stable.

Villen said there are 'no plans' beyond the current reorganisation to shed staff 'because Ferrovial has no alternative workforce in the UK and wants Amey to grow, not shrink'. Indeed, there is hope that the deal will give staff the chance to underpin PPP/PFI contracts with new wage structures.

The GMB, however, is broadly positive about the takeover. A spokeswoman for the union told PF: 'If the takeover means Ferrovial must renegotiate Amey's PFI/PPP deals, then it would provide us with the opportunity to lobby for staff terms and conditions similar to those of the recent "two-tier" settlement in local government.'

So Amey is reborn, with the support, it would seem, of all and sundry. And its ambitious new owners are waving a chequebook at the UK's public sector.


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