Inside the Gate

Oct. 1, 2002
RER: AMECO has obviously changed over the past few years. Can you describe the company's new direction? Bernardez: Best starting timeline is the end of

RER: AMECO has obviously changed over the past few years. Can you describe the company's new direction?

Bernardez: Best starting timeline is the end of 2000. There was a real focus from Fluor Corporate (AMECO's parent company) and AMECO to look at two factors, growth and return on assets. We began looking at strategic business units and correlating return on assets and growth as the drivers of our stock price, not just growth, which had been the primary emphasis in the past.

One of the things we looked at as part of the corporate process, was the fact that AMECO had grown significantly through acquisition of U.S. dealerships, and it built up a significant asset base on its balance sheet, but the returns were not where they needed to be. We developed a new strategy for AMECO which included divestiture of the U.S. dealerships and a total focus on Site Services for construction projects and Fleet Outsourcing services to industrial companies. We also exited some international geographic markets. The new AMECO executive team was put in place at the end of 2000.

We looked at what the marketplace was doing and what our target customers were asking for as well as the growth and returns we could achieve with Site Services and Fleet Outsourcing. Fluor was refocusing on engineering, procurement, construction and maintenance, what it calls its EPCM core business. We wanted to strategically fit our model into that corporate strategy of Fluor and devise a growth and return strategy to fit with Fluor's goal of improving share price. So we knew we had to divest some distributor companies and analyze where the site/fleet model would be effective and earn the right to grow AMECO consistent with Fluor guidelines. We had to reestablish credibility with Fluor and demonstrate our new business model was achievable and sustainable.

So we exited the distributor business model and we exited the Asia market when we finished the big projects we were involved in there. We re-focused our business in South America into just Chile, and we began working to shape ourselves to meet the current market conditions. In addition to our focus on Site Service and Fleet Outsourcing, we also improved our ability to share/leverage our fleet across North America with our new geographic platform.

How is the company been doing since refocusing?

So far it's been very successful. 2001 was our first year, in 2001 we separated the AMECO brand from the dealerships, with the site/fleet business going forward. The distributor companies are now separated and managed by Fluor Corporate in the divestiture process. That allowed us to focus on the business, without having to spend our time concerning ourselves with the divestiture process, which can be very time-consuming and demanding.

Can you explain about what Site Services and Fleet Outsourcing consists of?

Site Services grew out of what we had done traditionally in supporting Fluor construction projects. Our focus was not just to provide rental equipment but to be a supplier of all required indirect materials and services that help the contractor be more productive and provide the best total value to the site. That means everything from cranes, tools and supplies down to screwdrivers and earplugs, scaffolding and welding supplies. In dealing with the contractor, we not only expanded what services are inside the box, but whom we provide it to. Historically we provided those services to Fluor's customer base, but now we've added companies such as the Williams Group in Atlanta, and the Shaw Co. in Baton Rouge. We decided we had to prove its value to other contractors besides Fluor. The contractor is worrying about the budget, about productivity, about schedule, about so many details. Our job is to be a partner with the contractor early in the project and focus on helping them achieve their cost and schedule by providing best overall value for indirects.

With Site Services, we get involved at the front end of projects, putting in plans for equipment, tools, supplies and indirects. It's a one-vendor process, looking at all aspects of what it takes to get that job built. It's supportive of the craft manpower curve and the way the contractor will execute the construction job. We do an economic analysis on the front end, and then we suggest to the customer what it should rent, what it should own. There are a lot of indirect materials on a job, and we provide a wide range of products and services so that the contractor can focus on their business.

What about Fleet Outsourcing services?

Fleet Outsourcing services are more focused on the industrial end user, such as refineries, mining companies, power, utility and telecommunications companies. We're finding more and more data showing customers willingness to outsource non-core functions, including fleet ownership and management. We can demonstrate to the CFO of an organization how a fully serviced fleet management program can allow them to focus their human and capital resources on their business while we manage their fleet, people and logistics on a more cost-effective basis over time. That's a valuable service. Customers are looking for cost and process improvements over time and we can demonstrate our experience and ability to deliver that in the area of fleet management. If you're rolling steel or refining oil or extracting copper, many times the fleet is the last thing that gets attention. Our job is to provide a turnkey fleet outsourcing solution, including workforce and asset transition to AMECO and long term agreement to provide a fully serviced fleet to the customer.

We can demonstrate that we can be at least as cost competitive as them doing it themselves and that we can take headaches away from them. If we can be as cost competitive and more productive, we provide a valuable service. Many customers are going through a redefinition of their core business as well, so we as a vendor can be true outsourcing partners. We have to demonstrate that our value proposition is more efficient than the way they do it internally.

How aggressively is AMECO still pursuing what we would consider the traditional equipment rental business — where a customer wants a piece of equipment, contacts a company and rents it on a long- or short-term basis?

While most companies are looking at day-to-day, periodic rental business, we are looking at changing the dynamics of the business to the long-range rental business, the complete planning of a project. We're trying to grow that business, which is longer-term contracted. We are trying to get inside the gate rather than be outside the gate waiting for the phone call. If we function from inside the gate, we try to gain incremental business once we're inside the gate. We're looking at tool management and warehouse management opportunities, where companies are outsourcing the entire supply chain process. They have a demand; our job is to manage that supply chain process. We still do transactional rentals typically where we can support that business.

What is involved in trying to present the concept to customers?

With Site Services, we have to demonstrate a broader range of value. I don't mean just product value, but we have to sit with the contractor and walk through how the project will be executed — and how we help them manage cost and risk.

For Fleet Outsourcing, our people must be able to talk to CFOs and plant managers on the value of the outsourcing process. We have to be good businesspeople to figure out how to quantify the value and put it in front of the client to show how we can add value to their operations. We have to be able to spot and identify where the fleet outsourcing proposition will add value and put it in a structure the customer will buy. We are getting better at this every day.

I visited the headquarters of AMECO, then known as American Equipment Co., in 1995 and aspects of the site/fleet model were discussed back then, but it seemed as though your current business model evolved considerably since that time. Was this a natural evolution?

The company was more focused on growth at that point. We were given incentives to grow the organization. We had a team focused on expanding the company through the acquisition of distributorships. Since that time, of course, Fluor changed its demands and the market changed dramatically, through consolidation and outside pressures on the distributorship model. As you know, these topics have been discussed a great deal over the past four or five years. In the midst of that, I always looked at opportunities to organically grow the company by bringing something new to contractors and industrial owners.