AMEC plc 2011 Final Results

AMEC plc 2011 results

Strong performance continues

Highlights

Strong operating performance

▪ Revenue £3,261 million, up 11 per cent on 2010

▪ EBITA1 £299 million, up 12 per cent

▪ EBITA margin2 9.2 per cent (2010: 9.1 per cent)

▪ Diluted EPS from continuing operations4 70.5 pence, up 13 per cent

▪ Operating cash flow5 £267 million, up 22 per cent

Good order intake and forward visibility

▪ Order book £3.7 billion (31 December 2010: £3.1 billion)

Invested £263 million in acquisitions in 2011; pipeline remains strong

Dividend per share up 15 per cent, to 30.5 pence

Commencing share buyback programme of £400 million

Expect to deliver EPS target of greater than 100 pence ahead of 2015

Chief Executive Samir Brikho said:

"AMEC continued to make good progress in 2011 boosted by oil and gas and mining in particular. The business demonstrated strong cash generation and a record order book.

"Acquisitions strengthened our service offering and broadened our exposure to high-growth markets. The pipeline of further acquisition opportunities remains strong.

"Today we are announcing a 15 per cent increase in the dividend for the full year and, given the strength of the group's balance sheet, are commencing a £400 million share buyback programme, which is expected to be completed over the next 12 months.

"The outlook for 2012 is underpinned by the positive industry backdrop and the strength of the order book. We are now targeting an EPS of greater than 100 pence before 2015."

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

Interviews: with Samir Brikho, Chief Executive, Ian McHoul, Chief Financial Officer and Neil Bruce, Chief Operating Officer are available at http://www.amec.com/resultsvideo 

Next event: Interim Management Statement on 16 April 2012 and Annual General Meeting on 19 April 2012. An analyst and investor seminar focused on the minerals and metals market is planned for 25 April 2012.

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

Enquiries to:

AMEC plc: + 44 (0)20 7539 5800

Samir Brikho, Chief Executive

Ian McHoul, Chief Financial Officer

Sue Scholes, Director of Communications

Nicola-Jane Brooks, Head of Investor Relations

Media: Brunswick Group LLP - Mike Harrison and Craig Breheny + 44 (0)20 7404 5959

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Financial highlights

Notes:

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

2. EBITA as defined above as a percentage of revenue

3. EBITA, as defined above, plus net financing income (including joint ventures) of £12 million (2010: £11 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 and percentage movements to the nearest percent. 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 (previously Earth & Environmental) 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 £34 million (2010: £36 million) and pre-tax exceptional costs of £6 million (2010: income of £11 million). The segmental analysis for the year ended 31 December 2010 has been restated for certain changes to the reporting allocation as explained on page 12. The average numbers of employees stated in this review include agency staff and 2010 figures have been restated in line with the changes to reporting allocations.

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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2011 results overview

Revenue for the year increased 11 per cent to £3,261 million (2010: £2,951 million). Underlying revenue increased by 3 per cent, driven by a strong performance within the oil and gas and minerals and metals markets, offset by a decline in oil sands and US federal activities.

EBITA increased 12 per cent to £299 million (2010: £269 million) with margins broadly in line at 9.2 per cent (2010: 9.1 per cent). The underlying EBITA increased by 6 per cent.

Adjusted profit before tax of £311 million was ahead of the previous year (2010: £280 million) driven by volume growth and acquisitions. There was joint venture tax of £7 million (2010: £7 million), amortisation of £39 million (2010: £25 million) and exceptional losses of £6 million (2010: profits of £11 million) resulting in profit before tax of £259 million (2010: £259 million). The tax charge for the year, including tax on amortisation and exceptional items, was £52 million (2010: £23 million) resulting in a total profit for the year from continuing operations of £207 million (2010: £236 million).

Adjusted diluted earnings per share from continuing operations were 70.5 pence (2010: 62.5 pence), an increase of 13 per cent.

Operating cash flowfor the period was £267 million (2010: £219 million), up £48 million from last year, reflecting EBITA growth and the continued focus on cash management. Cash conversion was 89 per cent (2010: 81 per cent).

Dividend

The board is recommending a final dividend of 20.3 pence per share, which together with the interim dividend of 10.2 pence results in a total dividend of 30.5 pence per share (2010: 26.5 pence), an increase of 15 per cent.

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The board expects to maintain a progressive policy with dividend cover in the range of 2.0 to 2.5 times. The final dividend will be payable on 2 July 2012 to shareholders on the register at the close of business on 1 June 2012.

Share buyback programme

Given the strength of the balance sheet, the board has decided to commence a share buyback programme of £400 million, which is expected to be completed over the next 12 months.

Acquisitions

The group invested £263 million in acquisitions in 2011 and integration is progressing well. The largest was MACTEC, a 2,600-person environmental consultancy focused on engineering services, water and mining and headquartered in Atlanta. This was acquired in June 2011 for £183 million. Other significant acquisitions were:

·; qedi: a 350-person project delivery company focused on completion and commissioning services for major projects in the oil and gas industry, headquartered in Aberdeen (Feb 2011)

·; Zektingroup: a 200-person specialist engineering consultancy for the oil and gas and resources industries, headquartered in Melbourne (Feb 2011)

·; BCI: a 200-person Florida based consulting firm focused on water and mining sectors (Feb 2011).

The acquisition pipeline in 2012 continues to be strong.

Average number of employees

The average number of employees was up 17 per cent in 2011, to 25,757. This reflects increased activity levels, particularly in UK North Sea and the Americas, as well as the impact of acquisitions. The largest increase was seen in the Environment & Infrastructure division, which was up 39 per cent to 6,262 (2010: 4,517) boosted by the impact of MACTEC and ten months' impact of BCI.

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Outlook

The priority for 2012 remains to grow the business by continuing to deliver for customers whilst investing in AMEC's people.

AMEC is on track to deliver double-digit underlying revenue growth in 2012, despite the continued macro economic uncertainty. The strength of the order intake during 2011, the continued demand for AMEC's services and the on-going customer investment in AMEC's core markets are driving growth expectations. The full-year impact of acquisitions made in 2011 will further boost revenue growth. In addition, the pipeline for further acquisitions in 2012 remains strong.

Overall margins are expected to reduce somewhat, impacted by a shift in business mix and an increase in procurement activities for strategic customers.

Management remains focused on the Vision 2015 strategy and now expects to achieve earnings per share of greater than 100 pence ahead of 2015.

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Segmental review

Natural Resources

Natural Resources provides engineering, project management and asset support services, particularly in upstream oil and gas, unconventional oil and in surface mining. It has particular expertise in large and complex projects in growth regions and in extending the life of assets.

Approximately 71 per cent of 2011 revenue was generated by asset development (capex) activities, with the remainder in asset support (opex) (2010: capex 74 per cent; opex 26 per cent).

The revenue can be analysed by market and sectors as shown below:

Oil & gas activities are concentrated mainly in the upstream segment (90 per cent of 2011 revenues), with the balance being in downstream.

Revenue in the Natural Resources division improved 9 per cent to £1,742 million through a mix of organic growth and acquisitions. The oil and gas and mining sectors were the primary drivers, both up compared to 2010. This was offset by a decline in oil sands activities due to the phasing of work on Imperial Oil's Kearl project, which peaked in 2010 at the height of the first phase.

EBITA (£192 million) was up 7 per cent, and the EBITA margin remained broadly stable at 11.0 per cent.

Contract wins in 2011reflect continued customer spending in core energy and commodity markets, the strength of UK North Sea activity and AMEC's work on strategic customer relationships. They included:

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Oil & Gas

▪ BP: engineering and project management services for the main platform design for Clair Ridge, west of Shetland, following the completion of the conceptual engineering studies and the define phase of the same project, UK North Sea

▪ Centrica: asset support contract for a mixture of manned and unmanned offshore assets, as well as onshore gas terminals, East Irish Sea

▪ ConocoPhillips: two-year contract extension to provide operations and maintenance services to the Bayu Undan facilities, Indonesia East Timor Sea

▪ GDF SUEZ: front end engineering design for the Cygnus gas field development, UK North Sea

▪ MWCC: designing and delivering components of the Marine Well Containment Company's (MWCC) expanded containment system, US Gulf of Mexico

Mining

▪ Bannerman Resources: definitive feasibility study for the Etango uranium projects, Namibia

▪ Fortescue Metals Group: (AMEC JV) engineering, procurement, construction (EPC) contract for the Cloudbreak ore handling wet front end project, Australia

▪ Paladin Energy: definitive feasibility study for the Langer Heinrich uranium projects, Namibia

In addition, in January 2012 AMEC was awarded extensions to two asset support contracts worth £70 million over three years for SABIC.

Other on-going projects include detailed engineering and procurement for ConocoPhillips' existing Judy platform and the hook-up and commissioning of the new Jasmine facilities in the North Sea, a long-term project management contract for KOC in Kuwait, and on-going oil sands work for Imperial Oil, Syncrude, Teck, Suncor and Connacher among others. 

Order intake has improved with oil and gas and mining activity driving the increase. The order book at 31 December 2011 was up 17 per cent at £2.2 billion.

The outlook for growth in 2012 is good. This is driven by positive trends in the oil and gas market, particularly within the UK North Sea and the Gulf of Mexico, and the minerals and metals market, with oil sands volumes also expected to improve.

The shift in business mix and the increase in procurement activities for strategic customers will impact margins.

Power & Process

Power & Process is principally based in the UK and Americas and provides engineering, project management and asset support services in the clean energy market. It has a leading position in the nuclear sector, particularly in the UK, where its services are well-balanced across the asset lifecycle.

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Capex services generated 49 per cent of revenue with the rest in opex (2010: capex 48 per cent, opex 52 per cent).

The revenue can be analysed by market and sectors as shown below:

Revenue increased 6 per cent, to £849 million in 2011 (2010: £802 million), reflecting increased activity in North America and in the UK nuclear sector in particular.

EBITA was up 11 per cent, to £72 million (2010: £65 million), with the Sellafield decommissioning joint venture contributing £20 million (2010: £16 million). The overall EBITA margin improved by 40 basis points to 8.5 per cent.

Contract awards in 2011 reflect the focus on the clean energy market, particularly nuclear where AMEC has benefited from an increase in safety engineering work.

Nuclear

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

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

▪ Sellafield: radiological, environmental and site characterisation support in Cumbria, UK

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

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Bioprocess

▪ INEOS Bio: selected to be global license support engineering firm - for the licensing programme roll-out for bioenergy facilities using INEOS Bio's advanced waste-to-bioenergy technology

▪ Sappi: EPCM services for its GoCell project, South Africa

In addition, National Grid awarded the AMEC JV a five-year extension to the Electricity Alliance West contract worth £650 million, to upgrade overhead power lines and underground cables across the western half of England and all of Wales. The award was announced in January 2012.

In the North American clean energy market, good progress is being made on the Sapphire Energy biofuel project in the US and new contracts were signed for the 99 MW Erieau wind project and the 10 MW Brockville PV solar project in Canada.

The order book at 31 December 2011 was £1.0 billion, (2010: £1.0 billion). The tier one Sellafield decommissioning contract, as it is 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.

Looking ahead, activity levels are expected to improve through the ongoing customer focus and the growing market for AMEC's engineering, project management and consultancy services in the clean energy market.

Environment & Infrastructure

Environment & Infrastructure (previously Earth & Environmental) is a leading international environmental and engineering consulting organisation. It works across all AMEC's markets and provides a complementary offering to many customers common to the Natural Resources or Power & Process divisions.

The division provides services from approximately 250 offices, mainly in North America, but with an increasing presence in the growth markets of Europe, South America and Australasia.

Revenues can be analysed by market and sector as follows:

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Revenue increased by 22 per cent to £722 million in 2011 (2010: £593 million), driven by the MACTEC acquisition. There were lower levels of activity in the federal sector, but performance in the industrial / commercial and mining sectors was strong.

EBITA increased 21 per cent in 2011 to £66 million (2010: £55 million), driven by the North American acquisitions. Overall EBITA margin was maintained at 9.2 per cent (2010: 9.2 per cent).

The order book improved to £0.5 billion (31 December 2010: £0.3 billion) largely due to the inclusion of MACTEC. Environment & Infrastructure conducts a large number of small contracts with the average contract size 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

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

In 2012, revenue growth is expected to continue, boosted by the MACTEC acquisition and a more favourable outlook for both the natural resource sectors and the North American economy in general.

Investment and other activities

This principally comprises the Incheon Bridge PPP project in Korea, now in operational phase, the Lancashire Waste PPP project, and AMEC's residual UK wind development activities. Revenue was £7 million (2010: £7 million) with EBITA £3 million (2010: £6 million).

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 Board changes

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

Peter Byrom retired from the board at the end of his appointment term as non-executive director on 9 February 2011.

Following the resignation of Eleanor Evans, Christopher Fidler is Acting Company Secretary, until a successor is appointed.

Financial review

Geographical analysis

The group's largest market was the UK with 30 per cent of revenue (2010: 29 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 increased by £2 million to £209 million (2010: £207 million) as a result of acquisitions during the period. The impact was partially offset by a reduced charge in respect of share-based payments.

Net financing income

Net financing income of £16 million was £1 million higher than last year (2010: £15 million) and included bank interest of £4 million (2010: £6 million), net interest on pensions assets and liabilities of £9 million (2010: £7 million) and foreign exchange gains and other items of £3 million (2010: £2 million).

The average interest rate received was approximately 0.8 per cent compared to 0.9 per cent in 2010.

In addition, AMEC's share of interest payable of equity accounted joint ventures was £4 million (2010: £4 million).

Taxation

Continuing operations

The group's effective tax rate in 2011 for the continuing businesses (including tax attributable to joint venture interests) before exceptional items and excluding intangible amortisation was 24.1 per cent (2010: 25.9 per cent). The reduction principally reflects the benefit of previously unrecognised tax losses, decreases in statutory tax rates, the agreement of historical items with various tax authorities and more proactive management.

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The tax rate in 2012 and beyond is expected to be in the mid-20s.

Deferred tax

At 31 December 2011, the group had deferred tax assets of £72 million (2010: £60 million) arising primarily from short-term timing differences relating to provisions, property, plant and equipment, retirement benefits and tax losses, offset by liabilities in respect of intangible assets.

Changes to reporting allocations

In 2011 the allocation of certain items was changed:

▪ The UK Asset Support business was transferred from Power & Process to Natural Resources

▪ The net interest on pension assets and liabilities and the net interest within equity accounted JVs were transferred from EBITA to net financing income.

These were reallocations only and there was no overall impact to profit before tax or earnings.

Financial position and net cash

The group remains in a strong financial position, with net cash as at 31 December 2011 of £521 million (2010: £740 million).

Cash generated from operations in 2011 was £209 million (2010: £172 million). After adjusting for exceptional items and discontinued operations, legacy settlements, pension payments in excess of amounts recognised in the income statement and dividends received from joint ventures, operating cash flow was £267 million (2010: £219 million).

Going concern

The directors are satisfied that the group has adequate resources to operate for the foreseeable future.

Intangible amortisation and goodwill impairment

The charge of £39 million for 2011 (2010: £25 million) includes intangible amortisation of £37 million and goodwill impairment of £2 million. Intangible amortisation relates to capitalised software and intangible assets acquired as part of the group's expansion programme. The 2011 charge is £12 million higher than the prior year (2010: £25 million) with the increase due to the acquisitions in the year and the full-year impact of acquisitions in 2010.

In line with IAS 36 'Impairment of assets', annual impairment reviews have been performed on the goodwill carried on the balance sheet. As a result of the disposal of a small business during the year, there was a £2 million impairment charge in 2011 (2010: £nil).

Exceptional items

One small business was divested during 2011 and there were various adjustments to existing provisions in respect of prior year disposals. Other exceptional items include transaction and deferred compensation costs on acquisitions, costs associated with exiting the group's activities

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in Libya and restructuring costs in Environment & Infrastructure following the acquisition of MACTEC.

In aggregate, there was a post-tax exceptional gain of £25 million (2010: £45 million).

Legacy issues

No new significant contingent liabilities were added in 2011. Provisions currently held for future costs of litigation total £54 million (2010: £50 million).

Balance sheet highlights

Key movements in the balance sheet are discussed below:

Intangible assets

The net book value of intangible assets as at 31 December 2011 was £848 million (2010: £621 million) comprising goodwill £725 million, software £27 million and other acquired intangible assets £96 million.

The increase in goodwill of £164 million, primarily relates to the acquisitions in the year of Zektingroup, qedi, BCI and MACTEC. Other acquired intangible assets include the value of customer relationships, brand names/trademarks, non-compete agreements and order backlogs of acquired businesses.

Working capital

Days' sales in inventory/WIP and receivables are as follows:

The increase in days' sales in inventory/WIP and receivables reflects the increase in activity during the second half of the year compared with the same period in 2010.

Derivative financial instruments

As at 31 December 2011, there were derivative financial instruments with a net liability of £14 million (2010: £37 million) on the balance sheet. This net liability represents the fair value of foreign exchange contracts used to hedge the cash flows of foreign currency contracts and cross currency instruments used to hedge the net investment in overseas subsidiaries.

Distributable reserves

As at 31 December 2011, distributable reserves of AMEC plc stood at £820 million (2010: £696 million).

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A dividend of £19 million received from a subsidiary company in a prior period is not considered to be distributable.

Pensions

The IAS 19 surplus of the principal UK pension schemes at the end of 2011 of £32 million was lower than in 2010 (£63 million) reflecting principally a reduction on the discount rate, which was partly offset by higher than expected asset returns and other actuarial gains.

The triennial valuation of the main UK schemes was finalised during 2011. The actuarial assumptions adopted for IAS 19 purposes as at 31 December 2011 have been updated in line with the scheme experience identified as part of the triennial valuation. The revised mortality assumption was chosen with regard to the latest available tables, adjusted where appropriate to reflect the experience of the schemes' membership. The tables adopted are part of the S1 series of tables, taking into account each member's year of birth adjusted by an age rating of -½ year for males and +¼ year for females, and allowing for an underpin of 1.25 per cent per annum improvements in longevity. For a male/female aged 65 in 2011, these tables show a life expectancy of 22.7/24.1 years. For a male/female aged 45 in 2011, these tables show a life expectancy from age 65 of 24.5/26.1 years.

In association with the Trustees of the Schemes, AMEC will continue to monitor scheme mortality experience and will revise assumptions as appropriate.

Contributions of £28 million were paid to the company's defined benefit schemes during the year (2010: £22 million). This included special contributions agreed with the Trustees of £5 million (2010: £5 million).

There are a number of smaller schemes which are in a deficit position. The combined deficit as at 31 December 2011 was £81 million (2010: £36 million) with the increase in the year being due to an actuarial loss in a Canadian scheme and a deficit on a scheme which was acquired with MACTEC.

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Provisions

Provisions held at 31 December 2011 were £169 million (31 December 2010: £187 million). During 2011, £36 million of the brought forward provisions were utilised. As part of the ongoing review of the potential liabilities, £29 million of provisions were released as they were no longer required but an additional £47 million of provisions were created, which included £23 million arising from business combinations matched by a corresponding indemnity asset.

Provisions are analysed as follows:

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CONSOLIDATED INCOME STATEMENT

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CONSOLIDATED INCOME STATEMENT

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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CONSOLIDATED BALANCE SHEET

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY