Just three months into his reign, Andy Milner faced substantial losses and hundreds of job cuts. Now, the chief executive speaks exclusively to CN about what really happened at Amey and how it is turning things around.
2016 will be remembered as a year of surprises.
It was a year that saw the shattering of status quos, with the UK voting to leave the European Union and the US electing Donald Trump as president.
And for Amey this sense of change rings true.
After 15 years of consistent growth and five years of posting profit well above the £20m mark, 2016 saw the company – which is owned by Spanish giant Ferrovial – post a pre-tax loss of £43.9m.
The results would be enough to make any chief executive shudder, never mind one thrust into the role just nine months earlier. But for Amey’s chief executive Andy Milner, the problems facing the company became apparent early into his tenure.
“As we started 2016 we quickly came to realise that we were not the right shape or size to be able to accommodate tightening in the market,” he tells me. “Last year we knew we had to do something fundamental to the business.”
This resulted in the launch of Amey’s Fit 4 the Future programme: a major overhaul of how the company was run and a streamlining of its operations. In the 12 months to 31 December 2016, more than 1,300 staff were taken out of the business, and Mr Milner oversaw the removal of an entire management layer as well as a complete revamp of the company’s divisional directors.
For the chief executive, who repeatedly tells me it’s the people that make Amey what it is, the process has taken its toll. “We worked with the unions and tried to make it as painless as possible,” he says. “But it was very painful.”
I meet Mr Milner in Amey’s London office.
“In some cases, particularly local authorities, budgets have been decimated. It’s not a subtle squeeze; there is huge downward pressure”
Behind him in the boardroom where we sit is a photo of Sheffield’s Park Square Bridge, which carries the city’s tram service. It provides an apt backdrop, not only because Mr Milner is Sheffield born and bred, but also because the tram system was designed by Owen Williams, the engineering firm with whom Mr Milner got his first big break.
“I joined Owen Williams on the motorways and maintenance contract for Yorkshire and Humberside,” he recalls. “And then I moved onto the bridges team.”
While Mr Milner enjoyed the technical side of the job, he soon realised his talents were better suited to winning work and managing people. “It was clear the direction I was heading,” he laughs. “I was proud of being a chartered engineer but it was probably a good thing that I didn’t design too many bridges.”
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Owen Williams, known for its design work on projects such as the M1, Tinsley Viaduct and Wembley Stadium, was snapped up by Amey in 2006. Within two years of the acquisition Mr Milner was made head of Amey’s consulting division, a job he held for nine years until March last year when he replaced the retiring 15-year Amey stalwart Mel Ewell.
Upon his appointment, Mr Milner spoke of his excitement at taking charge of the Oxford-based firm, describing it as a “strong, profitable business”.
But the warning signs were already there.
The company’s accounts for 2015, published just three months after Mr Milner’s appointment, revealed pre-tax profit had plunged 77 per cent from £107m in 2014 to £23.6m within a year. Fast forward 12 months and that profit had disappeared entirely, with the firm instead reporting that £43.9m pre-tax loss.
For Mr Milner, however, 2016’s results were an anomaly – an exception rather than the rule. “Last year had to be a year of pain, and we had to take that pain on the chin,” he says.
Shrinking public budgets
This idea of taking it on the chin comes up regularly in our conversation, and serves as a good description of what the company has gone through.
With the losses, including a group reorganisation and redundancy bill topping £17.3m, it is fair to say Amey’s chin has been well and truly bruised over the past 18 months.
“We did see it coming, but the problem is once you see it coming it is often already happening and you have just got to take some pain”
Mr Milner says the Fit 4 the Future programme launched last year has taken the necessary steps to adapt to changing market conditions and secure Amey’s future. “Amey has benefited from good performance over 15 years with not much deviance from strategy,” he explains. “But there is no doubt the market has changed beyond all recognition in some respects around us.”
For a firm that relies on 75 per cent of its revenue coming through public sector contracts, the pressure on public sector budgets has been of increasing concern for the firm. This has been felt particularly in the maintenance and renewals space – Amey’s bread and butter. “In some cases, particularly local authorities, budgets have been decimated,” he says “It’s not a subtle squeeze; there is huge downward pressure.”
Shouldn’t firms spot problems like these earlier so that action can be taken sooner? “We did see it coming, but the problem is once you see it coming it is often already happening and you have just got to take some pain,” he says.
Look at Amey’s books and it is easy to see where the company took its biggest financial hit in 2016.
While its utilities and facilities management and rail and consulting divisions chalked up a combined operating profit of nearly £80m, the firm’s highways arm nearly wiped that out all on its own, slumping to an operating loss of £77m.
“Some contracts in this space were allowed to develop in wrong way. Things went wrong, we had to sort them out”
Arguably the most high-profile of this division’s difficulties was its removal from Highways England contracts to deliver maintenance on Areas 6 (covering East Anglia) and 8 (covering Cambridgeshire, Hertfordshire, Bedfordshire and parts of Suffolk), two years earlier than expected. Kier subsequently took over the deals earlier this year.
Mr Milner is refreshingly honest about problems in the highways division.
While the firm did lose money on the Area 6 and 8 contracts, Mr Milner says this did not have the biggest financial impact on the company. It was other deals, some of which Amey is still involved in, that made up the majority of the losses. “Some contracts in this space were allowed to develop in the wrong way,” he says. “Things went wrong, we had to sort them out.”
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As part of the overhaul, James Haluch, who Mr Milner calls a “superstar” and a “natural fit” for the division, was chosen to turn around its fortunes last May.
I ask the chief executive if the high-profile nature of these contracts has done any damage to its reputation or relationships in the highways space. He dismisses this, pointing to the work the company has won from Highways England since the removal from Areas 6 and 8, including the design maintenance contracts under the client’s new Asset Delivery contracts for Areas 13 and 14.
“If you look at the highways business now, we are really pleased with the progress”
“We have turned around difficult positions thanks to good relationships with customers and we are doing well across the piece,” he says. “If you look at the highways business now, we are really pleased with the progress.”
Restructuring the business
Highways isn’t the only division that has undergone significant changes.
Before Mr Milner took the reins, Amey operated across three major business units, something he believes made the firm cumbersome when responding to market changes and dealing with problems. “The structure often left management too far away from the frontline,” he argues. “This meant when there was a problem it would often take a long time to react effectively.”
The three units were removed as part of Fit 4 the Future and replaced with five more clearly defined divisions: highways; consulting and rail; utilities; facilities management & defence and justice; and environmental services.
“What we wanted to do was increase visibility across the sectors and ensure we were making the most of our core disciplines,” he says.
Mr Milner brought in five fresh faces to head up these new business units. Amanda Fisher was poached from Balfour Beatty’s Living Places division to head up Amey’s FM and justice division, while the other four were all internal promotions. “We were keen to show that we were able to build capability in the company and promote from within where we could,” Mr Milner says.
“Could we have been more proactive with the council? Possibly. But we have learned lessons so we avoid long protracted and difficult disputes in the future”
Mr Haluch became highways head after leading the company’s strategic highways division, with Kev Fowlie promoted to head of utilities after being a business director for water and gas.
Nicola Hindle, who had spent more than a decade as financial director for consulting and strategic infrastructure, was made MD of the new rail and consulting arm, while Rob Edmonson became the final promotion, taking on environmental services after time in the environmental services and waste treatment business.
“We wanted to create a powerful team that could work together,” Mr Milner says.
Even with more defined units across the business, there is no denying that Amey is still a vast organisation with diverse interests and capabilities. “You have to know a lot about some things, and a little about a lot,” he quips.
And, no doubt, this comes with a lot of headaches too.
The past 12 months have seen the conclusion of two disputes with local authorities, which have resulted in nearly £15m of extra costs.
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In 2016, the firm was unsuccessful in defending a claim against Herefordshire Council with regards to a 10-year highways maintenance deal, resulting in a £9.9m exceptional cost.
And the highways division also incurred a £5m exceptional charge following an agreement of claims associated with a £300m roads maintenance deal signed in 2004 with Cumbria Council.
Reflecting on the cases, Mr Milner says that when the deals were signed no-one could have expected the sustained period of austerity the country would go through. “Could we have been more proactive with the council and helped them with their issues? Possibly,” Mr Milner admits. “But we have learned lessons so we avoid long protracted and difficult disputes like this in the future.”
He has also undertaken a review of every contract the firm has taken on. “There are clear measures now of what good looks like, and clear early warnings for when things aren’t going right,” he says.
2,000 job posts removed
Mr Milner explains to me that in situations like the one Amey has gone through, the difficulty is not necessarily seeing the impact from an economic point of view, but understanding the effect on contracts and bids – and what action to take.
“We also stopped recruitment, so that meant that almost 2,000 roles disappeared”
The action taken by Mr Milner and the Amey management team was to take a £50m chunk out of the business. “We did a very thorough but very quick cost-cutting exercise to take cash out of the business,” he says.
The result: hundreds of job losses.
At the start of 2016, the number of contract-based employees in the company stood at 19,895; by the end of the year this had dropped to 18,541.
However, as Mr Milner admits, in real terms the figure was even higher. “We also stopped recruitment, which meant that almost 2,000 roles disappeared,” he says.
Of those to go, just over 100 came from the management and administration teams. “Effectively, a whole layer of management was taken out,” he says.
“We clearly benefit from a strong parent company. And after 15 years of growth, one difficult year will not have too much of an impact”
Mr Milner looks back at that time as a “very painful process”, but says he feels the company was sympathetic to the workforce, offering early redundancy and providing support to staff it had to let go.
So how did the firm survive?
This, Mr Milner believes, was due to the company’s previous good performance, as well as the support of its Spanish owner Ferrovial. The European giant bought Amey in 2003 and has supported the company through its period of growth and, more recently, upheaval. “We clearly benefit from a strong parent company,” he says. “And after 15 years of growth, one difficult year will not have too much of an impact.”
Keeping the chin in
With phase one of Fit 4 the Future coming to an end in the next 12 months, the work is not over for Mr Milner, with part two of the plan still to come. “We are nowhere near finished. The second phase is about process engineering and simplifying how we operate.”
But while simplification is good, rectification is better and Mr Milner will hope the changes will reap rewards with a positive impact on the firm’s accounts next year.
The signs are already positive that the overhaul is working. In Ferrovial’s half-year report, Amey was reported to be running at an operating margin of 2.4 per cent for the six months to 30 June 2017.
“This is really positive. We are ahead of all of our aims so far this year.”
Mr Milner will be hopeful this direction of travel continues – and that his company keeps its chin well out of harm’s way.
Amey's CEO: 'We had to take a year of pain'