AMEC plc 2013 half-year results

AMEC plc 2013 half-year results

Trading in line with expectations

Highlights

·; Adjusted diluted EPS5 40.4 pence, up 16 per cent

o Revenue stable at £1,998 million

o EBITA1 £158 million, up 4 per cent

o Margin2 7.9 per cent, up 40 basis points

o Completed £400 million buyback in February 2013

·; Operating cash flow4 £56 million

o Continue to expect strong cash conversion for full year

·; Strong order intake and record order book

·; Interim dividend per share up 15 per cent, to 13.5 pence

Chief Executive Samir Brikho said:

"AMEC has started 2013 solidly, with stable revenues and improving margins in the first six months.

"Our record order book of £3.9 billion demonstrates how the geographic structure is creating new opportunities for us to grow and service our clients more broadly across our four markets. We continue to see good demand for our services, despite some challenging markets and this gives us confidence to reaffirm our outlook for this year's earnings.

"A 15 per cent increase in the interim dividend signals our belief in the underlying strength of AMEC and we continue to expect to achieve an EPS of greater than 100 pence in 2014."

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

Next event: Interim Management Statement on 19 November 2013

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

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, less net financing costs (including joint ventures) of £4 million (H1 2012: £1 million)

4. 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

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

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.

The comparative figures for 2012 have been restated as a result of the adoption of IAS 19(2011R) 'Employee Benefits'. The impact on the six months ended 30 June 2012 is a reduction in net financing income of £6 million and a reduction in the tax charge of £2 million, resulting in a reduction of £4 million in profit after tax. See note 2 for more details.

Segmental analysis

Segmental analysis is now provided for the group's activities in three geographic zones (Americas, Europe and Growth Regions), as well as for non-core Investment Services. 2012 half-year figures have been restated on this same basis.

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 (H1 2012: £18 million) and pre-tax exceptional costs of £14 million (H1 2012: £10 million).

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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H1 2013 results overview

Revenue for the first six months of 2013 was stable at £1,998 million (H1 2012: £2,026 million). Underlying revenue, excluding incremental procurement, was also in line with last year. A strong performance in conventional oil & gas in particular was offset by continued weakness in Australia, softening in mining and the gradual phasing down of Imperial Oil's Kearl project in the Canadian oil sands.

EBITA increased 4 per cent to £158 million (H1 2012: £152 million) with EBITA margins up by 40 basis points to 7.9 per cent (H1 2012: 7.5 per cent). Margins benefited from the reduction in incremental procurement activities in the Americas and cost efficiencies relating to the business restructuring in October 2012, which were partially offset by weakness in Europe.

Adjusted profit before tax of £154 million in H1 2013 was 2 per cent ahead of the previous year (H1 2012: £151 million). After joint venture tax of £1 million (H1 2012: £2 million), amortisation of £22 million (H1 2012: £19 million) and exceptional losses of £14 million (H1 2012: £10 million), profit before tax was £117 million (H1 2012: £120 million). The tax charge for H1 2013, including tax on amortisation and exceptional items, was £22 million (H1 2012: £25 million) resulting in a total profit from continuing operations for H1 2013 of £95 million (H1 2012: £95 million).

Adjusted diluted earnings per sharefrom continuing operations were 40.4 pence (H1 2012: 34.8 pence).

Operating cash flow for the period was £56 million, down £86 million from the comparable period last year. This reduction is predominately due to short-term timing effects in working capital, and also reflects the unusually high cash flow in the first half of 2012. Full-year cash flow is expected to be strong once again, with cash conversion in line with recent years.

Balance sheet and use of cash

AMEC has a low-risk, asset-light business model and expects to generate substantial free cash flow each year. AMEC expects to maintain its progressive dividend policy, with periodic additional returns of surplus cash to shareholders when appropriate.

Acquisitions remain a key component of the company's growth strategy. The board is prepared to assume debt of up to 2x EBITDA for the right acquisition. The pipeline for acquisitions in 2013 remains strong.

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Moving to a more efficient balance sheet remains a key component of AMEC's strategy. The company completed a £400 million share buyback programme in February 2013.

Dividend

A 15 per cent increase in the interim dividend to 13.5 pence per share (H1 2012: 11.7 pence) demonstrates the board's continuing confidence in the group's future performance and is in line with AMEC's progressive dividend policy.

Average number of employees

The average number of employees was up 4 per cent in the first half, to 28,928.

Outlook  

AMEC continues to see good demand for its services, despite some challenging markets and is identifying additional opportunities from the new geographic focus. Full year 2013 underlying revenue, excluding incremental procurement, is expected to be in line with 2012, with good visibility provided by the order book of £3.9 billion. Incremental procurement in 2013 is still expected to be £200 million lower than in 2012.

Second half margins are expected to be stronger than H1 2013, reflecting the usual seasonal uplift. Compared with the same period last year, they are also expected to benefit from the reduction in incremental procurement and from cost efficiencies relating to the business restructure.

Operating cash flow in the full year is expected to be strong.

The pipeline of acquisition opportunities remains strong. Depending on progress on acquisitions, additional cash returns to shareholders will be considered in the fourth quarter, consistent with the philosophy described previously.

AMEC continues to expect to achieve earnings per share of greater than 100 pence in 2014.

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Segmental review

AMEC announced a reorganisation into three geographic business units in October 2012. This reorganisation became effective on 1 January 2013.

For comparative purposes, restated half-year splits for 2010, 2011 and 2012 are appended to this announcement and provided in the supplementary information pack, available in the investor relations section of the AMEC website: amec.com/investors.

Americas

Americas is the largest business unit, generating 57 per cent of group revenue in H1 2013.

The portfolio of activities is well balanced across all four markets, with revenue broken down as follows:

Revenue in Americas was down 5 per cent to £1,154 million, while underlying revenue, excluding incremental procurement, was up 1 per cent compared with the same period last year. A strong performance in conventional oil & gas and a good performance in clean energy helped to offset weakness in oil sands and mining.

EBITA was up 2 per cent to £113 million (H1 2012: £111 million). The EBITA margin at 9.8 per cent was up 70 basis points from 2012, reflecting the reduction in incremental procurement.

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Contract wins in H1 2013 included:

Since the period end, Sempra US Gas & Power has appointed AMEC to design and build the 'Copper Mountain III' EPC solar project in Nevada. Other projects currently underway include various mining consulting projects and a number of existing copper, gold and potash EPCM projects for Newmont, Thompson Creek, PotashCorp and K&S Potash, as well as on-going oil sands work for Imperial Oil, Syncrude, CNRL, Suncor, Shell and AMR among others, and the provision of environmental services in US shale gas. Oil & gas activity in the Gulf of Mexico continues with the delivery of the Marine Well Containment System scheduled for early 2014 and additional FEED work awarded to the BP Big Dog team.

Order intake in the first half of 2013 improved significantly compared with the same period in 2012, with oil & gas and clean energy activity driving the increase. The order book as at 30 June 2013 was £1.6 billion, up 8 per cent since the same period last year.

Americas outlook

First half revenue trends (underlying and excluding incremental procurement) are expected to continue into the second half. Incremental procurement is still expected to be £200 million lower in 2013 than in 2012.

Full-year margins are expected to improve compared with 2012, benefiting from lower levels of procurement and cost efficiencies from the restructure.

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Europe

Europe generated 30 per cent of group revenue in H1 2013. It has market leading positions in the UK North Sea and UK nuclear decommissioning and waste management markets.

H1 revenue can be analysed by market as shown below:

Revenue in Europe was up 7 per cent to £596 million. The six-month impact of the ESRC nuclear business, acquired in June last year, was the primary driver, boosted by strong activity in the UK North Sea.

EBITA was down 11 per cent at £39 million with EBITA margin down 130 basis points to 6.5 per cent (H1 2012: 7.8 per cent). A strong performance in UK North Sea was offset by a one-off loss of £7 million arising from delays to the Teesside Gas Processing Plant (TGPP) contract, which led to a significant cost escalation. The contract is now largely complete. The Sellafield joint venture contributed £3 million (H1 2012: £7 million), the reduction reflecting lower realisation of performance-based payments.

Contract awards announced in H1 2013 reflect continued investment in the UK North Sea and the clean energy market.

Other current projects include the detailed design for BP's Clair Ridge field and GDF Suez's Cygnus field, 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 five-year call-off contract to provide brownfield engineering for Talisman and the Shell ONEgas asset support contract in the Southern North Sea. Beyond oil & gas projects, on-going clean energy projects include reactor services support work for EDF's nuclear power stations in the UK.

The order book as at 30 June was £1.6 billion (30 June 2012: £1.7 billion). The Sellafield decommissioning contract, as an equity accounted joint venture, is not included in these figures.

Europe outlook

Underlying revenue trends in the second half are expected to be similar to H1 2013.

Second half margins are expected to benefit from the usual seasonality and are not expected to be adversely impacted by the TGPP project. When compared to the second half in 2012, margins will benefit from the decline of activity in conventional power and cost efficiencies relating to the business restructure.

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Growth Regions

Growth Regions generated 13 per cent of group revenue in H1 2013, with oil & gas activities driving much of the activity. The medium-term goal is to establish a sustainable position in core countries within the Growth Regions, with a balanced portfolio across all four markets.

H1 revenues can be analysed by market as follows:

Revenue in the Growth Regions was stable at £265 million. A strong performance in the Middle East oil & gas market and the Unidel acquisition in May 2012 were offset by weakness in Australia, as previously flagged.

EBITA was up 31 per cent, to £16 million and the EBITA margin was 6.1 per cent, up 130 basis points from H1 2012. The margin improvement is largely the result of a strong performance in the oil & gas market and the impact of cost efficiencies following integration across the geography.

Contract awards in 2013 reflect the strength of the oil & gas market in the Middle East and Azerbaijan. In June, AMEC was awarded a four-year extension to its programme management consultancy services contract for ZADCO-Zakum Development Company in Abu Dhabi.

Other current projects include providing asset support for ConocoPhillips' Bayu Udan gas facilities in East Timor Sea, operational readiness services for Chevron's Wheatstone facility offshore Australia, and onshore turnaround and maintenance support to ENI's onshore gas treatment plant and offshore unmanned wellhead platform, also in Australia. In the Middle East, AMEC continues to provide support to the long-term PMC contract for KOC in Kuwait and the KNPC's new oil refinery at Al Zour.

The order book at 30 June 2013 was £0.7 billion, up 24 per cent.

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Growth Regions outlook

Revenue in 2013 is expected to be stable, with good performance in most regions but significant weakness in Australia where demand continues to be soft. Full-year margins are expected to improve as a result of efficiencies from the integration of operations.

Investment Services

This comprises the Incheon Bridge PPP project in Korea and the Lancashire Waste PFI project, both now operational, the group's insurance captive, AMEC's residual wind development activities and a range of other non-core activities. Revenue was £2 million (H1 2012: £2 million). EBITA of £8 million (H1 2012: £3 million) is atypically high, reflecting the successful exit from assets in North America.

Management changes

Dr Hisham Mahmoud, President Growth Regions, has informed AMEC that he wishes to resign for personal reasons. The board wishes to thank him for all he has contributed during his time with the group. His successor will be announced in due course.

Financial review

Administrative expenses 

Administrative expenses of £114 million were in line with last year (H1 2012: £114 million), though 5 per cent lower if the impact of acquisitions is excluded.

Net financing costs

The net financing costs for the first half of £1 million included net bank interest of £nil (H1 2012: £2 million receivable), net interest on pensions assets of £nil (H1 2012: £1 million) and other items, primarily fees, of £1 million (H1 2012: £nil). AMEC's share of interest payable of equity accounted joint ventures was £3 million (H1 2012: £2 million).

Taxation

Continuing operations

The group's effective tax rate for the first six months of 2013 for the continuing businesses (including tax attributable to joint venture interests) before exceptional items and excluding intangible amortisation was 22.0 per cent (H1 2012: 23.5 per cent). The full year tax rate is expected to be approximately 23 per cent.

Deferred tax

As at 30 June 2013, the group had net deferred tax assets of £44 million (30 June 2012: £66 million, 31 December 2012: £33 million) arising from short-term timing differences relating to provisions, property, plant and equipment, and tax losses, offset by liabilities in respect of intangible assets and retirement benefits.

Financial position and net cash

The group remains in a strong financial position, with net cash as at 30 June 2013 of £25 million (30 June 2012: £290 million, 31 December 2012: £99 million) and committed facilities of £477 million, including a five-year multi-

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currency revolving facility plus a £100 million one-year term loan. AMEC completed a £400 million share buyback programme in February 2013.

Derivative financial instruments

As at 30 June 2013, there were derivative financial instruments with a net asset of £1 million (30 June 2012: net liability £10 million, 31 December 2012: net liability £3 million) on the balance sheet. This net asset 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.

Intangible amortisation

Intangible amortisation relates to capitalised software and intangible assets acquired as part of the group's expansion programme. The first half charge was £22 million (H1 2012: £19 million).

Going concern

The directors are satisfied that the group has adequate resources to operate for the foreseeable future. As at 30 June 2013, the group held net cash of £25 million and had committed banking facilities of £477 million.

Exceptional items

Total pre-tax exceptional losses of £19 million (H1 2012: £1 million) included:

·; a loss on business disposals and closures of £11 million arising from adjustments to existing provisions made in respect of prior year disposals and closures

·; other exceptional costs of £8 million, which includes £7 million of restructuring costs associated with the management reorganisation into geographic business units.

Cash flow

Cash generated from operations in the first half of 2013 was £41 million (H1 2012: £130 million). After adjusting for 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, operating cash flow was £56 million (H1 2012: £142 million). This reduction was predominately due to short-term timing effects in working capital, and also reflects the unusually high cash flow in the first half of 2012. Full-year cash flow is expected to be strong once again, with cash conversion in line with recent years.

Pensions 

The IAS 19 surplus of the principal UK pension schemes as at 30 June 2013 was £85 million (30 June 2012: £35 million, 31 December 2012: £86 million). The schemes have operated on a career average salary basis since 1 January 2008. During 2012 the principal UK pension scheme was closed to new entrants, but remains open to future accrual for existing members.

There are a number of smaller schemes which are in a deficit position. The combined deficit as at 30 June 2013 was £99 million (30 June 2012: £80 million, 31 December 2012: £93 million).

Legacy issues

There have been no significant contingent liabilities identified in the first half of 2013. 

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Provisions

Provisions held as at 30 June 2013 were £173 million (30 June 2012: £178 million, 31 December 2012: £171 million). During 2013, £12 million of the brought forward provisions were utilised, and as part of the ongoing review of the potential liabilities, an additional £17 million of provisions were created and £6 million released as no longer required.

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 continuing 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 counter-party 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 2012 annual report and accounts. These are a major

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third party environmental event, changes in commodity prices, restructure to focus on 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.

Restatement of historic results

Six months ended 30 June

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CONDENSED CONSOLIDATED INCOME STATEMENT

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CONDENSED CONSOLIDATED INCOME STATEMENT

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CONDENSED CONSOLIDATED INCOME STATEMENT