AMEC plc 2012 Half-year Results

AMEC plc 2012 half-year results

Strong performance continues

Highlights

·; Revenue £2,026 million, up 37 per cent

o Underlying revenue up 28 per cent: up 15 per cent excluding £200 million of incremental procurement

o Positions group for full year double-digit underlying growth, as expected

·; EBITA1 £152 million, up 25 per cent

·; Margin2 7.5 per cent, down 70 basis points largely as a result of increased procurement

·; Diluted EPS from continuing operations4 36.1 pence, up 25 per cent

·; Operating cash flow5 £142 million, up £67 million

·; Order intake and forward visibility remain good

o Order book strong at £3.7 billion (June 2011: £3.4 billion; December 2011: £3.7 billion)

·; Completed two acquisitions for a total consideration of £156 million

·; Purchased £158 million of shares under the £400 million share buyback programme

·; Interim dividend per share up 15 per cent, to 11.7 pence

Chief Executive Samir Brikho said:

"AMEC has had an excellent start to the year, with revenue growth boosted by phasing of project execution and procurement in our oil & gas and mining businesses in particular. This flowed into EPS, which was up 25 per cent at 36.1 pence, and operating cash flow - where we also achieved a good performance.

"We have completed two acquisitions year-to-date, expanding our engineering capability in the nuclear sector and further strengthening our geographic footprint in Australia. The pipeline of further acquisition opportunities remains good.

"The order book has been maintained at record levels. We see continued demand for our services, and this has not been significantly impacted by the on-going economic uncertainty. Second half revenues are anticipated to be maintained at broadly the same level as the first half, leaving us on track to deliver double-digit underlying revenue growth for the full-year. We expect to continue to deliver good growth in 2013."

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, Ian McHoul, Chief Financial Officer and Neil Bruce, Chief Operating Officer is available at www.merchantcantos.net/amec/2012/interim-results

Next events:

▪ AMEC is hosting a capital market event focused on the oil & gas market on 30 October 2012

▪ Interim Management Statement on 14 November 2012.

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

Group

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 £5 million (2011: £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 and legacy settlements 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.

The results are presented to the nearest million. Percentage movements and calculated numbers, such as EPS and margin rates, are 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 £18 million (2011: £17 million) and pre-tax exceptional costs of £10 million (2011: £4 million).

The average numbers of employees stated in this review include agency staff.

Discontinued operations

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

*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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Group

Revenue for the first six months of 2012 increased by 37 per cent to £2,026 million (30 June 2011: £1,484 million). The underlying revenue (excluding the impact of currency and net acquisitions) increased by 28 per cent, driven by a strong performance in the oil & gas and mining sectors and assisted by project phasing and the incremental impact of procurement activities on certain Natural Resources contracts. Excluding this incremental procurement, underlying revenue increased by 15 per cent.

EBITA increased 25 per cent to £152 million (30 June 2011: £122 million) with underlying EBITA up 21 per cent, despite lower than anticipated profits from key performance indicator targets (KPIs) on Kearl initial development due to schedule delays. EBITA margin declined by 70 basis points to 7.5 per cent (30 June 2011: 8.2 per cent), impacted, as expected, by the increase in procurement activities and a shift in work mix in the Natural Resources division, and offset in part by margin improvements in the other two divisions. Excluding the impact of the incremental procurement activity, the margin was broadly in line with H1 2011.

Adjusted profit before tax of £157 million in H1 2012 was ahead of the previous year (30 June 2011: £126 million) driven by volume growth and acquisitions. There was joint venture tax of £2 million (30 June 2011: £3 million), amortisation of £19 million (30 June 2011: £18 million) and exceptional losses of £10 million (30 June 2011: £4 million) resulting in profit before tax of £126 million (30 June 2011: £101 million). The tax charge for H1 2012 was £27 million (30 June 2011: £22 million) giving a total profit from continuing operations for H1 2012 of £99 million (30 June 2011: £79 million).

Adjusted diluted earnings per sharefrom continuing operations were 36.1 pence (30 June 2011: 28.8 pence).

Operating cash flow for the period was £142 million, up £67 million from the comparable period last year, an increase of 89 per cent.

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Dividend

A 15 per cent increase in the interim dividend to 11.7 pence per share (30 June 2011: 10.2 pence) demonstrates the board's continuing confidence in the group's future performance and is in line with AMEC's progressive dividend policy.

Share buyback

As at 30 June, 14,820,000 shares had been purchased at a cost of £158 million under the £400 million share buyback programme announced in February. The average cost was £10.68 per share. As at 8 August 2012, a further £33 million of shares had been purchased under an irrevocable, non-discretionary arrangement (see note 8), bringing the total purchased to £191 million.

Acquisitions

In the first six months of the year, the group invested £156 million in two acquisitions . The larger was Serco's nuclear technical services business (TS), a 600-person team based in the UK, acquired in June for £139 million. As expected, the Office of Fair Trading is currently carrying out its review of the transaction and has invited comments by 10 August 2012. The second was Unidel, a 260-person energy, resources and infrastructure engineering and consultancy business based in Australia (May 2012). Acquisitions made in 2011, including MACTEC, which was purchased in June 2011, have now been fully integrated into AMEC's activities.

The acquisition pipeline in 2012 continues to be good.

Average number of employees

The average number of employees in the first half was 27,733, up 15 per cent compared with the same period in 2011 reflecting increased activity levels, particularly in UK North Sea and the Americas, as well as the impact of acquisitions.

Outlook  

The demand for AMEC's services continues to be strong, despite on-going economic uncertainty.

Although second half underlying revenue growth is expected to be significantly lower than H1 2012 due to phasing of project execution in Natural Resources, the group remains on track to deliver double-digit underlying revenue growth for the full year. The group expects to continue to deliver good growth in 2013.

Consistent with previous years, second half margin is expected to increase, although it will be lower than in H2 last year due to the shift in business mix and increased procurement activities as previously identified.

AMEC's balance sheet remains strong and operating cash flow in the full year is expected to be good.

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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 mining. It has particular expertise in large and complex projects in growth regions and in extending the life of assets.

Approximately three-quarters of revenues are generated by asset development (capex) activities, with the remainder in asset support (opex). Oil and gas activities are concentrated mainly in the upstream sector (90 per cent of revenues), with the balance being in midstream and downstream.

H1 revenue can be analysed by sector as shown below:

Revenue in the Natural Resources division improved by 52 per cent in the first half to £1,200 million (30 June 2011: £790 million). A strong underlying performance across all three sectors was supported by the timing of contract awards and phasing of project execution, and was further boosted by the incremental effect of increased procurement activities (approximately £200 million) on key projects. Excluding this increase in procurement, underlying growth was 26 per cent.

EBITA (£92 million) was up by 10 per cent, reflecting this increase in volume. Margins declined to 7.6 per cent, down 300 basis points from H1 2011. This is largely the result of the increased procurement activities and a shift in work mix to the more mature markets of the UK North Sea and Gulf of Mexico, as previously flagged. In addition, profits from KPIs on Kearl initial development in Alberta, Canada were lower than anticipated due to schedule delays.

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Contract wins in H1 2012 reflect the continued customer spending in energy and commodity markets. They included:

·; BP: front end engineering and design (FEED) for the second phase of the substantial Mad Dog field, Gulf of Mexico, US

·; BP: £10 million contract to modify and extend its Kinneil Terminal, UK

·; SABIC UK Petrochemicals Limited: extensions to two existing asset support contracts worth £70 million, UK

·; Abu Dhabi Marine Operating Company (ADMA OPCO): project management consultancy (PMC) services for the 'execute phase' of the Nasr Phase 1 and Umm Lulu Phase 1 field development projects offshore Abu Dhabi, UAE

·; Abu Dhabi Gas Liquefaction Company (ADGAS): PMC services contract for the FEED phase of the flaring and emissions reduction project at their LNG facilities on the island of Das, UAE

·; ENI and Chevron: two asset support contracts for AMEC Clough JV - from repeat customers in Australia.

Other on-going projects include engineering and project management for the main platform design for BP Clair Ridge, the detailed engineering and procurement of ConocoPhillips' existing Judy platform and the hook-up and commissioning of the new Jasmine facilities in the UK North Sea, the design and delivery of components of the Marine Well Containment Company's expanded containment system in the US Gulf of Mexico , a long-term project management contract for KOC in Kuwait, and the EPC contract for Fortescue Metals Group's Cloudbreak project in Australia, as well as the on-going oil sands work for Imperial Oil, Syncrude, Teck, Suncor and Connacher, among others.

The order book at 30 June 2012 was up 6 per cent at £2.2 billion (30 June 2011: £2.1 billion).

The incremental impact of procurement in H2 is expected to be about half that seen in H1. Excluding this effect, revenue in the second half is expected to be similar to H1, with the relative weighting of growth compared with 2011 significantly impacted by the phasing of project execution. Overall, 2012 is expected to deliver double-digit underlying revenue growth and this is expected to continue in 2013, even excluding procurement.

Consistent with previous years, second half margins are expected to increase, although they will remain impacted by the shift in the business mix towards more mature regions and low-margin procurement activities.

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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.

Approximately halfof the division's revenues are generated by capex services with the remainder in asset support (opex).

H1 revenue can be analysed by sector as shown below:

Revenue for the period increased by 5 per cent, to £454 million (30 June 2011: £432 million), reflecting a strong performance in the renewable/bioprocess sector in the Americas in particular and continued activity in the UK nuclear sector.

EBITA was up 11 per cent, to £39 million (30 June 2011: £35 million). The overall EBITA margin improved by 40 basis points to 8.5 per cent.

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Serco's nuclear technical services business was acquired on 29 June 2012.

Contract awards in H1 2012 include:

·; Sellafield Ltd (two contracts): the first is a three-year framework agreement to provide specialist environmental consultancy support on the Sellafield site. The second is a 15-year design support framework contract to provide Sellafield with the full range of engineering services for the development and refurbishment of new and existing facilities and for decommissioning. The latter was awarded to AMEC's AXIOM joint venture (JV).

·; National Grid: five-year extension to the Electricity Alliance West contract, worth about £650 million. AMEC has approximately 48 per cent share of the JV, UK.

In addition, in July 2012, AMEC was awarded a three-year contract to provide waste treatment services to the Bohunice nuclear power plant in Slovakia.

In the North American clean energy market, the Sapphire Energy biofuel project in the US continues to advance, and in Canada, good progress is being made on the 99 MW Erieau wind project and the 10 MW Brockville PV solar project. Work is also continuing on a variety of other clean energy projects.

The order book at 30 June was up on the previous year at £0.9 billion (30 June 2011: £0.8 billion). 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.

Progress is expected to continue during the second half. The TS acquisition is expected to be earnings enhancing from 2013.

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Environment & Infrastructure

Environment & Infrastructure 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 230 offices, mainly in North America, but with an increasing presence in the growth markets of Europe, South America and Australasia.

H1 revenues can be analysed by market and sector as follows:

Revenue increased by 38 per cent to £397 million in the first half (30 June 2011: £289 million). Performance was strongest in the oil & gas, minerals & metals and transportation & infrastructure sectors, boosted by the full six-month impact of MACTEC. Unidel, acquired in May 2012, is expected to contribute in the second half.

EBITA increased 50 per cent to £36 million in the six months to 30 June 2012 (30 June 2011: £24 million). Overall EBITA margin increased 80 basis points to 9.1 per cent (2011: 8.3 per cent). The margin uplift is largely the result of overhead efficiency resulting from the MACTEC acquisition.

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The order book improved in the first half of the year to £0.6 billion (30 June 2011: £0.5 billion). Some of the recent on-going contracts include:

▪ Government Procurement Services: three-year framework agreement to provide environmental and sustainability advice, support and delivery services across the UK public sector

▪ North London Waste Authority: framework contract to help deliver state-of-the-art new waste services for North London, UK.

The expansion of the business has made seasonal effects less pronounced, though the Unidel acquisition will contribute to the second half. Margins are expected to be stable year-on-year.

Investment and other activities

This principally comprises the Incheon Bridge PPP project in Korea, now in operational phase, the group's insurance captive, and AMEC's residual UK Wind development activities. Revenue was maintained at £3 million (30 June 2011: £3 million) with EBITA of £3 million in the first half (30 June 2011: a loss of £4 million).

Financial review

Geographic analysis

The group's largest market was Canada with 30 per cent of revenues (30 June 2011: UK 31 per cent).

Administrative expenses 

Administrative expenses of £114 million are 9 per cent higher than last year (30 June 2011: £105 million), reflecting recent acquisitions.

Net financing income

The net financing income for the first half of £7 million is in line with last year and includes bank interest of £2 million (2011: £3 million), net interest on pensions assets of £5 million (2011: £3 million) and other items of £nil (2011: £1 million).

The average interest rate received for the first six months of the year was approximately 0.7 per cent (2011: 0.8 per cent).

Taxation

Continuing operations

The group's effective tax rate for the first six months of 2012 for the continuing businesses (including tax attributable to joint venture interests) before exceptional items and excluding intangible amortisation was 24.0 per cent (30 June 2011: 24.1 per cent). The full year tax rate is expected to remain around the 24 per cent level.

Financial position and net cash

The group remains in a strong financial position, with net cash as at 30 June 2012 of £290 million (30 June 2011: £455 million). On 18 July, the Group entered into a five-year multi-currency revolving credit facility of £377 million, to be used as required for general business purposes.

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Going concern

The directors are satisfied that the group has adequate resources to operate for the foreseeable future. As at 30 June 2012, the group held net cash of £290 million.

Intangible amortisation and goodwill impairment

Intangible amortisation relates to capitalised software and intangible assets acquired as part of the group's expansion programme. The first half charge of £19 million is £1 million higher than in 2011 (£18 million) reflecting acquisition activity and a £2 million goodwill impairment in 2011.

Exceptional items

Total pre-tax exceptional losses of £1 million (2011: £5 million) include:

·; a loss on business disposals and closures of £8 million arising from adjustments to existing provisions made in respect of prior year disposals and closures

·; other exceptional gains of £7 million which include the transaction costs of acquisitions made in the period and certain deferred compensation costs on prior year acquisitions, along with the costs of funding a joint venture which was part of a recent acquisition. These costs have been offset by the recognition, within discontinued operations,of an insurance receivable following the Supreme Court Judgement on mesothelioma liability, a provision against which was established a number of years ago.

Legacy issues

There have been no significant contingent liabilities identified in the first half of 2012.

Cash generated from operations in the first half of 2012 was £130 million (30 June 2011: £54 million). After adjusting for exceptional items and discontinued operations and legacy settlements but including dividends received from joint ventures, operating cash flow was £142 million (30 June 2011: £75 million). The year-on-year increase in operating cash flow reflects the higher EBITA and reduced working capital outflows.

Pensions 

The IAS 19 surplus of the principal UK pension schemes at 30 June 2012 was £35 million (31 December 2011: £32 million). The schemes have operated on a career average salary basis since 1 January 2008. During 2012 it was announced that the principal UK pension scheme will be closed to new entrants from 1 October 2012, but will remain open to future accrual for existing members.

The net charge to the income statement in 2012 from pensions, including both the current service accrual and net financing income, is expected to be higher than last year (31 December 2011: £12 million) as a result of the reductions in bond yields experienced towards the end of 2011.

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Provisions

Provisions held at 30 June 2011 were £178 million (31 December 2011: £169 million). During 2012, £10 million of the brought forward provisions were utilised, and as part of the ongoing review of the potential liabilities, an additional £22 million of provisions were created.

Provisions are analysed as follows:

Business risks and opportunities

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

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. These may also lead to change in the customer base, competition and in the way customers procure the services we provide.

AMEC seeks to maintain a balanced geographic presence, and, through acquisition and organic growth, will continue to increase its exposure to other attractive regions of the world.

The risks 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 in terms of geographies, markets, clients and service offering / business model.

In light of current global economic uncertainties, steps have been taken to assess and monitor any potential impact on AMEC's business opportunities and address potential increased supply chain and, more broadly counterparty risk.

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 22 and 23 of the 2011 annual report and accounts. These are:

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changes in commodity prices, expansion of global footprint, mergers and acquisitions, project delivery, pensions, health, safety and security, legacy risk, information technology, staff recruitment and retention and ethical breach.

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 some £3.3 billion, AMEC designs, delivers and maintains strategic and complex assets and employs over 29,000 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