2011 Interim Results

AMEC plc 2011 interim results

Operating performance in line with expectations

H1 2011 results

Operating performance in line with expectations

·; Revenue £1,484 million, up 4 per cent

·; EBITA1 £122 million, up 9 per cent; margin 8.2 per cent, up 40 basis points

·; Group EBITA margin2 expected to be maintained at around 9 per cent in 2011

·; Diluted EPS from continuing operations4 28.8 pence, up 13 per cent

·; Operating cashflow5 £75 million, up £18 million

Order book strong at £3.4 billion (December 2010: £3.1 billion; June 2010: £3.5 billion)

·; Order intake and forward visibility remain good

Completed MACTEC and three other acquisitions for a total consideration of £261 million

Interim dividend per share up 40 per cent, to 10.2 pence

·; Rebased in line with the 2010 final dividend increase

Chief Executive Samir Brikho said:

"AMEC made good progress in the first half of 2011. A strong performance in mining and Power & Process and increased activity in the UK North Sea more than offset the anticipated reduction in activity levels within our oil sands and federal businesses.

"Demand for our services and investment in our end markets remain strong, and we expect new contract awards to support future growth despite increased economic uncertainty. Margins are expected to be maintained at about 9 per cent in 2011.

"Management remains focused on the delivery of our Vision 2015 strategy. We completed four acquisitions in the first half and integration is progressing well. Our balance sheet is strong and we continue to target further acquisitions."

Results presentation and live webcast: AMEC will host a presentation on the interim results for analysts and investors at 9.00am today. A live webcast of the event and presentation slides will be available on amec.com.

Interview: with Samir Brikho, Chief Executive, and Ian McHoul, Chief Financial Officer, is available at http://amec.tamarinduk.com

Next event:Interim Management Statement on 17 November 2011.

Analyst consensus estimates are collated and published on AMEC's website on a periodic basis amec.com/investors/key facts.

Enquiries to:

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Financial highlights

Six months ending 30 June

Notes:

1. EBITA for continuing operations before intangible amortisation and exceptional items but including joint venture EBIT

2. EBITA as defined above as a percentage of revenue

3. EBITA, as defined above, plus net financing income (including joint ventures) of £4 million (2010: £4 million)

4. Diluted earnings per share from continuing operations before intangible amortisation and exceptional items

5. Cash generated from operations before exceptional items and discontinued operations, legacy settlements and the difference between pension payments and amounts recognised in the income statement but including dividends received from joint ventures

Basis of presentation

The following commentary is based on the results for continuing operations before intangible amortisation and exceptional items but including joint venture EBITA.

During 2011, the basis of presentation has been revised to present the results to the nearest million rather than to 1 decimal place. Percentage movements and calculated numbers, such as EPS and margin rates, continue to be based on the underlying numbers to 1 decimal place precision.

Segmental analysis

Segmental analysis is provided for the group's core activities in the Natural Resources, Power & Process and Environment & Infrastructure divisions, as well as fornon-core Investments and other activities.

Amounts and percentage movements relating to continuing segmental earnings before net financing income, tax and intangible amortisation (EBITA) are stated before corporate costs of £17 million (2010: £17 million) and pre-tax exceptional costs of £4 million (2010: income of £12 million). The segmental analysis for the six months ending 30 June 2010 and year ending 31 December 2010 has been restated for certain changes to the reporting allocation as explained on page 11.

The average numbers of employees stated in this review include agency staff. The average number of employees has been restated in line with the changes to reporting allocations as described on page 11 and also those of Environment & Infrastructure in 2010 have been restated to bring the definition of full time equivalents in line with the other divisions.

Discontinued operations

In accordance with IFRS 5*, the post-tax results of discontinued operations are disclosed separately in the consolidated income statement.

The cash flows of discontinued businesses are fully consolidated within AMEC up to the date of sale.

*International Financial Reporting Standard 5: 'Non-current assets held for sale and discontinued operations'.

Any forward looking statements made in this document represent management's best judgement as to what may occur in the future. However, the group's actual results for the current and future fiscal periods and corporate developments will depend on a number of economic, competitive and other factors, some of which will be outside the control of the group. Such factors could cause the group's actual results for future periods to differ materially from those expressed in any forward looking statements made in this document.

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Six months ending 30 June

Revenue for the first six months of 2011 increased by 4 per cent to £1,484 million (30 June 2010: £1,430 million). The underlying revenue increased by 2 per cent driven by a strong performance in mining and Power & Process and a resurgence of North Sea activity, which more than offset the expected reduction in both federal and oil sands activity. The latter declined as expected due to the phasing of work on Imperial Oil's Kearl project.

EBITA increased 9 per cent to £122 million (30 June 2010: £112 million) and margin improved by 40 basis points to 8.2 per cent (30 June 2010: 7.8 per cent). The underlying EBITA increased by 8 per cent.

Adjusted profit before tax of £126 million in H1 2011 was ahead of the previous year (30 June 2010: £116 million). A reconciliation of the movement from adjusted profit before tax to profit before tax of £101 million (30 June 2010: £114 million) is shown in note 2 on page 24. The tax charge for H1 2011 was £22 million (30 June 2010: £25 million) resulting in a total profit for H1 2011 of £79 million (30 June 2010: £89 million).

Adjusted diluted earnings per sharefrom continuing operations were 28.8 pence (30 June 2010: 25.5 pence).

Operating cash flow for the period was £75 million, up £18 million from the comparable period last year, reflecting the continued focus on cash management.

Dividend

A 40 per cent increase in the interim dividend to 10.2 pence per share (30 June 2010: 7.3 pence) demonstrates the board's continuing confidence in the group's future performance. This rebasing brings consistency with the 2010 full-year dividend increase and the intention is to re-establish a more typical pattern of the interim dividend being one-third of the total in any year.

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Outlook

In line with our expectations at the start of the year, revenues in the second half of 2011 will be driven by the usual seasonality together with new contracts coming on line and the full six-month impact of MACTEC, which was acquired in June 2011.

Demand for AMEC's services and investment in end markets remains strong, and new contract awards are expected to support future growth, despite increased economic uncertainty.

Full year margins are expected to be maintained at around the 9 per cent mark. Second half margins are expected to show the normal seasonal uplift, although lower than the same period last year due to the mix of business and the acquisition of MACTEC. This is expected to be dilutive in the early stages whilst integration and reorganisation takes place.

AMEC's balance sheet remains strong and operating cash flow in the full year is expected to be good. Management remains focused on the delivery of Vision 2015, which includes maximising shareholder value via further selective acquisitions.

Acquisitions

A number of acquisitions were made during the first half in support of the Vision 2015 strategy, for a total consideration of £261 million. Integration on each is progressing well.

Further details can be found in note 11, page 30

Average number of employees

Average number of employees is up 12 per cent compared to the same period in 2010, reflecting the part year impact of the acquisitions shown above and increase in activity levels expected in the second half.

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Segmental review

Natural Resources

Natural Resources provides total life of asset services ranging from consulting, engineering and design through to asset support and decommissioning. Approximately 73 per cent of H1 2011 revenues were generated by asset development (capex) services, with the remainder in asset support (opex) (2010: capex 68 per cent; opex 32 per cent).

The revenue can be analysed by sector as shown below:

Activities are concentrated mainly in the upstream sector (85 per cent of H1 revenues), with the balance being in midstream and downstream.

*As restated, see page 11 for details

The Natural Resources division performed in line with expectations in the first half of 2011.

Overall revenue in the first half was up 1 per cent at £790 million. As expected, oil sands activity declined due to the phasing of work on Imperial Oil's Kearl project, the first phase of which peaked in 2010. This was offset by an increase in mining and North Sea brownfield activity.

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EBITA was maintained at £84 million, whilst the EBITA margin declined to 10.6 per cent, down 10 basis points from H1 2010. Margins in both capex and opex activities declined, to 11.8 per cent and 7.5 per cent respectively (30 June 2010: capex 12.2 per cent; opex 7.6 per cent). This is partly the result of the shift in work mix outlined above, and partly results from continued margin pressure.

The average number of employees in Natural Resources increased to 11,657 (30 June 2010: 10,737). The increase reflected the part-period inclusion of Zektingroup (Australia) and qedi (UK), both acquired in February, as well as the ramping up of resources for projects in the North Sea.

New contract wins in 2011 reflect the increased activity in the mining sector, the resurgence in the UK North Sea market, a significant project in the Gulf of Mexico, and strategic investment in Australia. They include:

Oil and gas

·; BP Exploration and Production: programme management of BP's existing portfolio of on and offshore projects in the North Sea, UK

·; BG: five-year services contract for all BG's North Sea upstream assets, UK

·; Teeside Gas and Liquid Processing (TGLP): engineering, procurement, construction contract for the modification and extension of Teeside gas processing plant, UK

·; BP Oil UK Limited: engineering, procurement, construction management (EPCM) contract for the client's capital investment projects for existing oil storage terminals, UK

·; BASF Polyurethane Specialities (China) and Chongqing Chemical and Pharmaceutical Holding Company: project management services for the development of a new US$5 billion diphenylmethane diisocyanate facility, China

·; Marine Well Containment Company (MWCC): design and delivery of the MWCC's expanded containment system, Gulf of Mexico, US

·; BP: extended scope of engineering and project management services to include onshore projects. The contract life has also been extended, Azerbaijan

·; Eastern Star Gas: feasibility study for the Narrabri Coal Seam gas project in NSW, Australia

·; Queensland Gas Company/BG: commissioning technology and consultancy services on BG's Queensland Curtis liquefied natural gas development, Australia.

Mining

·; Paladin Energy: definitive feasibility study for the Langer Heinrich uranium project, Namibia

·; Bannerman Resources: definitive feasibility study for the Etango uranium project, Namibia

·; Southdown Magnetite JV: definitive feasibility study for the Southdown Magnetite iron ore project, Australia.

Other on-going projects include: BP: front end engineering and design for the Clair Ridge project, offshore Shetland; Inpex: front end engineering and design for the Ichthys development project, offshore Australia; ConocoPhillips: detailed engineering, procurement and hook up services for the Judy and Jasmine fields, UK North Sea; KOC: long-term project management contract (PMC), Kuwait; and work in the oil sands for Imperial Oil, Syncrude, Teck, Suncor and Connacher, among others. 

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Order intake has improved with mining, North Sea brownfield projects and Gulf of Mexico activity driving the increase. The order book at 30 June 2011 was up 12 per cent at £2.1 billion (30 June 2010: £1.9 billion). Capex activity represents 62 per cent of the order book (2010: 47 per cent), with opex at 38 per cent (2010: 53 per cent).

H2 revenue is expected to be stronger than H1, with a number of new projects coming on line. Margins in the second half are not expected to be as strong as last year, impacted by procurement activities for strategic clients and business mix.

Power & Process

Power & Process provides a balanced portfolio of services including consulting, EPC (Engineering, Procurement and Construction) and asset support services across the life cycle of projects and investments, particularly in the areas of clean energy and carbon efficiency.

In H1 2011, 40 per cent of revenues were generated by capex services with the rest in opex (2010: capex 39 per cent; opex 61 per cent).

The revenue can be analysed by sector as shown below:

*As restated, see page 11 for details

Revenue for the period was up 9 per cent, to £432 million (30 June 2010: £396 million). This reflects continued organic growth, particularly in North America.

EBITA increased 37 per cent, to £35 million (30 June 2010: £26 million), driven by volume growth, mix of work and gains from the UK wind business. The Sellafield decommissioning joint venture contract contributed £10 million (30 June 2010: £7 million), and as always, there was no impact on revenue. Overall EBITA margin improved to 8.1 per cent, up 160 basis points from 6.5 per cent in the prior comparable period.

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Following the earthquake in Japan, the outlook for AMEC's nuclear activity, which involves reactor support, waste management, decommissioning and new build in the UK, Canada and Central and Eastern Europe, remains positive and unchanged. Although there have been delays in the UK nuclear new build programme, EDF is moving forward with its new build activities and AMEC continues to support their architect engineer operation. The outcome of the Dounreay decommissioning bidding process is expected to be announced in November and AMEC is bidding in joint venture with Energy Solutions of the US. In July, AMEC strengthened its existing position in South Africa when it acquired a majority shareholding in Nuclear Consultants International, a 40-person nuclear engineering service provider to the South African engineering market.

Power & Process contract awards in 2011 highlight the focus on clean energy sectors, particularly nuclear, where AMEC has benefited from an increase in safety engineering work.

·; URENCO: three-year contract to provide the client with a range of nuclear services, UK

·; Magnox Limited: four-year contract to provide hazard reduction services at eight nuclear sites across the UK

·; Magnox Limited: two-year contract to provide specialist nuclear and safety case services across the Nuclear Decommissioning Authority's 10 Magnox sites, UK.

Elsewhere, AMEC continues to deliver on current projects, notably a combined cycle turbine power station project in the UK. In the clean energy sector, good progress is being made in expanding the facility and improving environmental standards at CMPC Celulosa SA's Laja pulp and paper mill in Chile. In North America, the Chatham wind farm project in Canada and the Sapphire Energy biofuel project in the US are also progressing well.

The order book at 30 June was down on the previous year at £0.8 billion (30 June 2010: £1.3 billion). As previously reported, this reduction is partly due to adjustments made relating to National Grid in the US,

where the scope of future work on the infrastructure replacement programme was reduced significantly. It also reflects continued selectivity around work mix. Capex activity represents 41 per cent of the orderbook (30 June 2010: 41 per cent) with opex at 59 per cent. The 'Tier One' Sellafield decommissioning contract, as an equity accounted joint venture, is not included in these figures.

Progress continues to be made on the resolution of the 'older contracts' which, as previously referenced, do not meet the revised criteria of low-risk services with high value-add. There was no significant impact on the first six months.

Activity levels are expected to gradually improve as the division continues to focus on sectors with long-term growth potential.

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Environment & Infrastructure

Environment & Infrastructure (previously Earth & Environmental) is a leading international environmental and engineering consulting organisation with full service capabilities covering a wide range of disciplines, including environmental engineering and science, geotechnical, water resources, surveying and programme management.

The first half revenues can be analysed by sector as follows: Government services 24 per cent, Industrial/Commercial 18 per cent, Transportation/Infrastructure 15 per cent, Water 14 per cent, Mining 11 per cent, Oil & Gas 9 per cent, Unconventional Oil & Gas 7 per cent, Nuclear 1 per cent, Renewables/Bioprocess 1 per cent.

Revenue increased by 5 per cent to £289 million in the first half (30 June 2010: £275 million). Performance was strongest in the industrial/commercial and mining sectors, offsetting lower levels of activity in the federal sector. MACTEC, acquired in June 2011, is expected to contribute in the second half.

EBITA increased 12 per cent to £24 million in the six months to 30 June 2011 (30 June 2010: £21 million). Overall EBITA margin increased 50 basis points to 8.3 per cent (2010: 7.8 per cent).

The average number of employees in Environment & Infrastructure for the period increased by 23 per cent compared to the previous comparable period. This included a full six months' impact of Entec and five months of BCI Engineering. The integration of all acquisitions is progressing well.

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The order book improved in the first half of the year to £0.5 million (30 June 2010: £0.3 billion) with the inclusion of MACTEC. Unlike AMEC's other divisions, Environment & Infrastructure conducts a large number of small contracts; average contract size is approximately $40,000. Some of the on-going contracts include:

▪ Northumbrian Water Limited: technical and commercial services framework contracts to provide multidisciplinary engineering, contract supervision services and associated environmental support as well as contract and cost management services, UK

▪ ArcelorMittal: investigation, design and implementation services across a range of distinct projects, from annual dyke raises for the tailings disposal facility, to a culvert replacement programme across the AMMC's rail line, Canada.

Normal underlying seasonal improvement in activity levels is expected in the second half of the year and revenue will be boosted by the MACTEC acquisition. However margins in the second half are forecast to be lower than the prior year due to MACTEC, which is expected to be dilutive in the early stages whilst integration and reorganisation takes place.

Investments and other activities

This principally comprises the Incheon Bridge PPP project in Korea, now in the operational phase, the Lancashire Waste PPP project (under construction), and AMEC's residual UK Wind development activities. Revenue increased to £3 million (30 June 2010: £2 million) reflecting progress achieved on these projects. The division made a loss of £4 million in the first half (30 June 2010: a loss of £2 million), reflecting normal operating costs and development expenditure.

Board changes

As previously announced, John Connolly, formerly Global Chairman of Deloitte Touche Tohamatsuand Chief Executive of Deloitte UK, joined the board as Chairman on 1 June 2011.

Financial review

Geographic analysis

The group's largest market was the UK with 31 per cent of revenues (30 June 2010: 28 per cent), driven by oil and gas, nuclear, power and environmental services. Canada was the group's largest market in 2010, but in 2011 revenue was affected by the decline in oil sands activity, as previously referenced.

Administrative expenses 

Administrative expenses of £105 million are in line with 2010, as the impact of acquisitions has been offset by other savings.

Net financing income

The net financing income for the first half increased to £7 million (2010: £5 million), with the average interest rate received for the first six months of the year approximately 0.8 per cent (2010: 0.7 per cent).

In addition, AMEC's share of interest payable of equity accounted joint ventures was £3 million (2010: £1 million).

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Restatements and changes to reporting allocations

As described in note 1 to the accounts, the results for 2010 have been restated to present the net interest on pension assets and liabilities within net financing income rather than within EBIT.

In addition, the segmental analysis of the results, including employees and order book, has been revised to reflect the following changes:

▪ The UK Asset Support business (2010: EBITA c. £7 million) has been transferred from Power & Process to Natural Resources; and

▪ The net interest within equity accounted JVs was transferred from EBITA and is now presented within net financing income rather than EBIT (total impact on 2010 interest: credit c. £3 million).

The changes described above are reallocations only and there has been no overall impact to profit before tax or earnings.

Taxation

Continuing operations

The group's effective tax rate for the first six months of 2011 for the continuing businesses (including tax attributable to joint venture interests) before exceptional items and excluding intangible amortisation was 24.1 per cent (30 June 2010: 26.6 per cent). The reduction principally reflects decreases in statutory tax rates, the use of tax losses not previously recognised and more active management.

The full year tax rate is expected to remain around 24 per cent and AMEC's tax affairs will continue to be managed actively.

Financial position and net cash

The group remains in a strong financial position, with net cash as at 30 June 2011 of £455 million (30 June 2010: £669 million). Consistent with Vision 2015, a progressive approach has been adopted for the interim dividend.

Going concern

The directors are satisfied that the group has adequate resources to operate for the foreseeable future. As at 30 June 2011, the group held net cash of £455 million.

Intangible amortisation

Intangible amortisation relates to capitalised software and intangible assets acquired as part of the group's expansion programme. The first half charge of £18 million is £7 million higher than in 2010 with the increase largely due to recent acquisitions as well as a full period's charge for 2010 acquisitions.

Exceptional items

Total pre-tax exceptional losses of £5 million (2010: gain of £11 million) include:

·; Profit on business disposals and closures of £2 million arising from adjustments to existing provisions made in respect of prior year disposals and closures and foreign exchange movements on provisions established on the disposal of SPIE; and

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·; Other exceptional items of £(7) million which include the transaction costs of acquisitions made in the period, certain deferred compensation costs on prior year acquisitions and the costs of exiting the group's activities in Libya.

Legacy issues

There have been no new significant changes to contingent liabilities in the first half of 2011.

Cash generated from operations in the first half of 2011 was £54 million (30 June 2010: £38 million). After adjusting for exceptional items and discontinued operations, legacy settlements and the differences between pension payments and amounts recognised in the income statement but including dividends received from joint ventures, operating cash flow was £75 million (30 June 2010: £57 million). The year-on-year increase in operating cash flow reflects the continued focus on cash management.

Pensions 

The IAS 19 surplus of the principal UK pension schemes at 30 June 2011 was £66 million (31 December 2010 £63 million). The schemes have operated on a career average salary basis since 1 January 2008, and remain open to future accrual and new entrants.

The net charge to the profit and loss account in 2011 from pensions, including both the current service accrual and net financing income, is expected to be broadly in-line with last year (31 December 2010: £6 million).

Provisions

Provisions held at 30 June 2011 were £185 million (31 December 2010: £187 million). During 2011, £20 million of the brought forward provisions were utilised. As part of the ongoing review of the potential liabilities, £20 million of provisions were released as they were no longer required but an additional £14 million of provisions were created. An additional £22 million of provisions were created following the MACTEC acquisition, which are matched by an indemnity receivable.

Provisions are analysed as follows:

Business risks and opportunities

AMEC operates in more than 40 countries globally, serving a broad range of markets and customers. As such, the company is subject to certain general and industry-specific risks. Where practicable, the company seeks to mitigate exposure to all forms of risk through effective risk management and risk transfer practices.

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AMEC operates predominately in the UK and North America and is therefore particularly affected by political

and economic conditions in those markets.

Changes in general economic conditions may influence customers' decisions on capital investment and/or asset maintenance, which could lead to volatility in the development of AMEC's order intake. The risk associated with economic conditions resulting in a downturn and affecting the demand for AMEC's services has been addressed, as far as practicable, by seeking to maintain a balanced business portfolio.

AMEC continues to assess and monitor potential impacts from the global economic uncertainty on project opportunities and address potential increased supply chain risk. The overall market for AMEC's services continues to improve and customer spending in most areas is returning, as evidenced by a growing order book and project pipeline. The group's order book has remained strong at £3.4 billion (December 2010: £3.1 billion).

Other risks

Other than the specific risks detailed above, the board considers that the nature of the principal risks and uncertainties which may have a material effect on the group's performance in the second half of the year is unchanged from those identified on pages 10 to 13 of the 2010 annual report and accounts. These are environmental and social risk; health and safety; security of employees; business continuity; credit; customer concentration; bidding risk; project execution risk; litigation; pensions; counterparty risk management; funding and liquidity risk; treasury risks; interest rate risk; foreign exchange risk; transaction exposures; translation exposures; information technology; legacy risk; and acquisitions.

Notes to Editors:

AMEC (LSE: AMEC) is a focused supplier of consultancy, engineering and project management services to its customers in the world's oil and gas, minerals and metals, clean energy, environment and infrastructure markets. With annual revenues of around £3 billion, AMEC designs, delivers and maintains strategic and complex assets and employs some 27,000 people in around 40 countries worldwide. See amec.com.

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CONDENSED CONSOLIDATED INCOME STATEMENT

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CONDENSED CONSOLIDATED INCOME STATEMENT

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CONDENSED CONSOLIDATED INCOME STATEMENT

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CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME