15th Mar 2006 07:01
AMEC PLC15 March 2006 15 March 2006 AMEC plc Preliminary Results 2005 ADJUSTED PRE-TAX PROFIT* UP 7% TO £124.1 MILLION BOARD CONFIRMS DECISION TO RESTRUCTURE THE GROUP Financial highlights*: • Adjusted pre-tax profit* of £124.1m - up 7% • Pre-tax profit after exceptional items £25.4m • Engineering and Technical Services profit* up 18% • Oil and Gas profit* up 25%, order book up 46% • Value of PPP portfolio up 42% to £109m • UK infrastructure underperformed • Dividends increased by 4.5% to 11.5p per share Strategic restructuring: • Sale of AMEC SPIE under way • Restructuring to create two separate businesses focused on energy and process industries and UK infrastructure respectively Commenting on the results and prospects, Chief Executive, Sir Peter Mason KBE,said: "This was a really excellent year across most of our main businesses, withprofits in Oil and Gas up 25%, and in Engineering and Technical Services up 18%.However, a poor performance in UK Construction significantly depressed thisresult. Looking ahead, confirmation of our strategy of the sale of AMEC SPIE, followedby the separation of the remaining activities, will allow us on the one hand tocapitalise on the profitability and growth opportunities in our core energy andprocess markets, and on the other to achieve turnaround in our constructionactivities. Meanwhile, our investment portfolio has increased in value substantially and weare delivering a pipeline of attractive future PFI, property and wind energyinvestment opportunities." * Unless otherwise stated, amounts and percentage movements throughout thisdocument relating to the income statement are stated before the impact of IAS39, joint venture tax, intangible amortisation and pre-tax exceptional items butincluding joint venture profit before tax. Financial highlights*: 2005 2004 £ million £ million Revenue 4,942.5 4,657.5 +6.1% Adjusted pre-tax profit* 124.1 115.6 +7.4% Profit before intangible amortisation,exceptional 120.9 113.2 +6.8%items and income tax Profit after intangible amortisation,exceptional 25.4 91.2 -72.1%items and before income tax Effective tax rate* 32.0% 35.0% Average weekly net debt 420.0 450.0 -6.7% Adjusted diluted earnings per share** 25.4p 24.5p +3.7% Diluted earnings per share 1.2p 16.8p -92.9% Dividends per share 11.5p 11.0p +4.5% * Unless otherwise stated, amounts and percentage movements throughout thisdocument relating to the income statement are stated before the impact of IAS 39"Financial Instruments: Recognition and Measurement" ("IAS 39") of £0.4m (2004:not applicable), joint venture tax of £2.8m (2004: £2.4m), intangibleamortisation of £6.0m (2004: £0.5m) and pre-tax exceptional items of £89.5m(2004: £21.5m) but including joint venture profit before tax of £13.3m (2004:£10.4m). ** Before the impact of IAS 39 of £0.4m (2004: not applicable), intangibleamortisation of £6.0m (2004: £0.5m) and post-tax exceptional items of £74.5m(2004: £22.9m). Any forward looking statements made in this document represent management's bestjudgement as to what may occur in the future. However, the group's actualresults for the current and future fiscal periods and corporate developmentswill depend on a number of economic, competitive and other factors includingsome of which will be outside the control of the group. Such factors could causethe group's actual results for future periods to differ materially from thoseexpressed in any forward looking statements made in this document. The preliminary results slide presentation and speaking remarks will beavailable on AMEC's web site www.amec.com from approximately 9:00 am on 15 March2006. Enquiries to:AMEC plc: + 44 (0)20 7634 0000 Analysts and investors:Sir Peter Mason KBE, Chief ExecutiveStuart Siddall, Finance DirectorNeil Jamieson, Director of Investor Relations Media:Juliet Sychrava, Director of CorporateCommunicationsCharles Reynolds, Head of Media Relations Results of operationsRevenue for the year increased by £285.0m to £4,942.5m, (2004: £4,657.5m)principally as a result of strong growth in Iraq and Oil and Gas, partly offsetby reduced revenues in construction activities. Adjusted pre-tax profit was £124.1m, an increase of 7.4% on the previous year(2004: £115.6m). Pre-tax profit before intangible amortisation and exceptional items for the yearwas £120.9m (2004: £113.2m). There was a pre-tax exceptional charge of £89.5m,as detailed below, and intangible amortisation of £6.0m, resulting in pre-taxprofit of £25.4m (2004: £91.2m). The effective tax rate at 32.0% has declinedfrom last year (2004: 35.0%) as a result of stronger performance in NorthAmerica where tax losses have been utilised. Adjusted diluted earnings per sharefor the year increased to 25.4p (2004: 24.5p), with the growth of 3.7%reflecting the dilutive impact in the first year of the share placing in January2005. Diluted earnings per share were 1.2p (2004: 16.8p). Proposed dividends forthe year are increased by 4.5% to 11.5p per share. Strategic acquisitionsDuring 2005 we successfully completed strategic acquisitions in the oil and gasand nuclear sectors. The acquisition in January 2005 of the US based oil and gas engineering services company Paragon Engineering Services Inc. ("Paragon") provides us with a major presence in Houston, the home of many of the world's major oil and gas companies. In the nuclear sector, we acquired a 49% interest in the French nuclear engineering business, GAME Nucleaire SAS in April 2005. In July 2005, we acquired NNC Holdings Limited ("NNC"), the UK's leading private sector nuclear services business and created AMEC Nuclear. This new business combines NNC's heritage of nuclear engineering services with AMEC's project management expertise, thereby strengthening our position to support the design, operations, maintenance and decommissioning of civil nuclear infrastructure in the UK, Canada and other international markets. OUTLOOKWe continue to see generally strong market conditions in our EuropeanMultitechnical and Environmental businesses and recovery in the North Americanindustrial markets is expected to continue. These positive developments areexpected to be offset by a significant reduction in our activities in Iraqduring 2006. Oil and Gas markets are expected to remain robust and the order book is strong.Overall performance for the Oil and Gas segment in 2006 is expected to be offsetby a lower contribution from mining activity in Canada following an outstandingyear in 2005. With construction activities now stabilised and another strong performanceexpected from the PPP business, we expect to see Project Solutions makesatisfactory progress during 2006. Taking these factors into account, the board maintains its earlier expectationsfor overall progress* in 2006. * For the AMEC group as currently structured STRATEGIC DEVELOPMENTSSale of AMEC SPIEOn 24 November 2005 the board announced its decision to initiate a sale of AMECSPIE, to allow it to participate in the accelerating consolidation in its sectorand to release resources to promote growth in AMEC's remaining services andinvestments activities. The AMEC SPIE sale process is under way and an encouraging level of interest hasbeen received both from trade and private equity buyers. The businesses thatwill be the subject of the disposal comprise the AMEC SPIE Continental EuropeanMultitechnical Services business, the French rail business and 50% of railactivities in the UK, together with AMEC SPIE's Oil and Gas activities,excluding pipelines. Together, these businesses generated profit beforeinterest, intangible amortisation and income tax of £49.7m and revenues of£1,755m in 2005. Completion of the sale is anticipated around the middle of this year. Review of future development of continuing businessesThe board also announced on 24 November 2005 a review of the future developmentof AMEC's continuing businesses to assess how best to deliver maximum value forshareholders. The review was to include, inter alia, possible restructuring tocreate two separate businesses focused on energy and process businesses and UKinfrastructure respectively. Following further examination of the strategic options, the board confirms thatit is working on the separation of the continuing operations into these twoentities. Shareholders will be updated on progress following the sale of AMEC SPIE. Segmental reviewAmounts and percentage movements relating to segmental activities are statedbefore corporate costs of £25.0m (2004: £24.3m), the impact of IAS 39 of £0.4m(2004: not applicable), joint venture tax of £2.8m (2004: £2.4m), intangibleamortisation of £6.0m (2004: £0.5m) and pre-tax exceptional items of £89.5m(2004: £21.5m) but include joint venture profit before tax of £13.3m (2004:£10.4m). Commentary for each of AMEC's principal segments of activity is set out below. Engineering and Technical Services£ million 2005 2004 changeRevenue 2,614.7 2,252.0 +16%Profit before net financing 95.4 80.8 +18%costsMargin 3.6% 3.6%Net liabilities (101.3) (70.7)Ratio of order intake to 4% ahead 5% aheadsales Engineering and Technical Services ("ETS") produced strong results in 2005, withthe 18% growth in profit reflecting improved performance in Iraq, increasedactivity and margin in the Continental European Multitechnical Services businessand another record year in the Environmental business. The Continental European Multitechnical Services business benefited from strongdemand in the Paris region during 2005. The business is embarked on a marginimprovement programme that contributed to margin increase during the year andwhich is expected to result in further improvement during 2006. Growth in thatbusiness is driven by organic growth together with small acquisitions thatextend the local services network. During the course of 2005, a series of fivesmall businesses were acquired (2004: eight). The Environmental Services business continues to report record levels ofperformance, largely due to increased US Federal Government work, includingcontracts in Iraq, the US and elsewhere around the world. AMEC's share of 2005 revenue under the Nash water and power contracts in Iraqwas £180m. Levels of activity in Iraq are expected to decline significantlybeyond the first quarter of 2006. In the important market for nuclear services, we have been awarded a major contract by Bruce Power, with a value up to Cdn$510m (£245m), to manage the restart of two nuclear reactors at the Bruce A power station in Ontario, Canada. The contract was the first major award for AMEC Nuclear, which was created in July 2005 following the acquisition of the UK's leading private sector nuclear services company, NNC Holdings Ltd.In January 2006, AMEC Nuclear formed a major alliance with the United Kingdom Atomic Energy Authority ("UKAEA") and the US company CH2M HILL to target opportunities in the UK's £56bn (£2bn a year) market for nuclear decommissioning and clean up. The alliance complements our own nuclear, commercial and programme management skills with UKAEA's deep knowledge of operating UK nuclear facilities and CH2M HILL's track record in many of the largest and most complex decommissioning projects in the US. We believe that through this alliance we are well placed to secure a substantial share of this market. During the year we worked on a number of important contracts in UK power utilitymarket, including refurbishing overhead power transmission lines for NationalGrid in the south-west of England and in Nottinghamshire. ETS order intake has been strong during 2005. Excluding Iraq, order intake was10% ahead of sales during the period. The Continental European Multitechnical Services business is expected to makefurther progress in 2006. In the largely North American Environmental Servicesbusiness, higher commodity prices, increasing environmental regulation andfederal spending continue to drive growth. Following a prolonged period of weakness, our US industrial markets showed somerecovery during the second half of 2005 and further recovery is anticipated in2006. Given the long-term nature of the projects in this market, the fullbenefit to earnings of recent contract awards will not be felt until 2007. These positive developments are expected to be offset by a significant reductionin our activities in Iraq during 2006. Oil and Gas£ million 2005 2004 changeRevenue 1,405.6 1,172.6 +20%Profit before net financing 63.9 51.2 +25%costsMargin 4.5% 4.4%Margin excluding lump-sumupstream 5.5% 5.0%fabrication (now discontinued)Net assets 123.8 129.0Order book 1,900 1,300 +46% Revenue increased by 20% to £1,405.6m, including over £240m (2004: £140m) inrespect of lump-sum fabrication activity on which we are not earning any margin.After adjusting for this activity, which is now completed, revenue for the yearincreased by 12%, with the margin for the year improving by 0.5% to 5.5%compared with 2004. With the business no longer performing upstream lump-sum fabrication, risk hasbeen reduced and the quality of future earnings improved. Profit was 25% ahead of 2004 and reflected a good performance across our UKupstream asset services business, an outstanding year in Canada and a firstcontribution from Paragon, which has been successfully integrated and hasperformed in line with our expectations. Net assets of £123.8m (2004: £129.0m) remain above normal levels and reflectcapital employed on several projects. Positive progress is being made towardsfinal contract settlement on these projects and we should see a reduction incapital employed during 2006. The market for oil and gas services is growing in all areas, with increases inboth capital expenditure and operating expenditure as oil and gas companies seeknew resources, especially in emerging markets. This is reflected in the Oil andGas order book, which was up by 46% to £1.9bn at the year-end (2004: £1.3bn). Recent contract awards include engineering/project management services for BPHarding and brownfield services for BG Group, both in the UK North Sea, assetsupport services for Woodside in Australia and an extension of our asset supportcontract with Shell at their Malampaya facility in the Philippines. Investmentin new capacity to extract oil from the Canadian oil sands is currentlyundergoing rapid growth and recent joint venture contracts for new facilitiesinclude asset development services for Petro Canada and for Shell Canada. In theUK gas utilities market, we secured contracts for gas importing, storage anddistribution, including an eight year alliance contract worth approximately£280m from National Grid to replace gas mains along the M1 corridor. Whilst the Canadian oil sands and mining businesses had an outstanding year in2005 and we expect the oil sands market to remain strong, activity levels in ourmining operations are expected to moderate in 2006. The order book is strong, increasingly services-based and well diversifiedgeographically. This remains a very strong market, with significant long-termopportunities in brownfield developments, new areas of production and anexpanding client base, now including smaller private and national oil companiesaround the world. In the oil and gas supply chain, we work primarily in theproduction and operations areas of activity and so tend to follow thosebusinesses engaged in the earlier exploration phase that are currently seeingvery strong demand for their services. We should be next in the cycle, andadditionally we will have long-term follow through with our asset supportservices activities. Project Solutions£ million 2005 2004 changeRevenue 976.5 1,290.8 -24%Profit before net financing 11.2 26.7 -58%costsMargin 1.1% 2.1%Net assets 43.3 61.9Order book 1,000 1,100 -9% Revenue for the period declined by 24% to £976.5m, largely reflecting our exitfrom unattractive activities in the US (civil engineering and constructionmanagement) and reduced rail activity in the UK and France. Profit before netfinancing costs for the year declined by 58% to £11.2m (2004: £26.7m),reflecting weakness in UK Construction Services, particularly roads, partlyoffset by a strong performance from our PPP activities. Following weak performance in certain of our construction markets in the UK andthe US, steps have been taken to exit unattractive market segments and torestructure the business, costs for which were provided during 2005. The UKConstruction Services business has exited road building on a lump-sum basis andcertain building and refurbishment activities, which have been loss-making forthe last two years. All ongoing contracts in these areas are nearing completion.This business is being refocused to concentrate on design and build activitiesin the education, healthcare and infrastructure sectors for PPP clients,together with design and build in sectors including defence, rail, airport andindustrial. In the US, we continue to wind down our remaining constructionmanagement activities and have decided to exit our road building activities. The PPP business performed strongly in 2005. During the year the Docklands LightRailway extension to London City Airport was opened, having been completed aheadof schedule. Contracts were also entered into for the design, construction,operation and investment in the next extension to Woolwich Arsenal and for theproject management of and investment in the Incheon Bridge project in SouthKorea. In addition to our portfolio of 11 PPP projects, we are preferred bidderon South Lanarkshire Schools, the largest PFI schools project undertaken to datein the UK, and on Colchester Hospital, both of which are due to reach financialclose in the first half of 2006. We are also shortlisted for two more hospitalsprojects, Fife in Scotland and St Luke's in Middlesbrough and two more schoolprojects, East Dunbartonshire in Scotland and the Knowsley Building Schools forthe Future project. In Property Developments, we continue to make good progress on our two majormulti-project joint ventures with ISIS Waterside Regeneration (British Waterwaysand Morley) and English Cities Fund (English Partnerships and Legal & General). In the Wind Energy business we continue to invest in the development of ouronshore portfolio of around 1,400MW (including third party shares). Offshore, weare leading a 75MW development near Aberdeen and are providing services toCentrica on projects with a potential output exceeding 1,000MW. The large Isle of Lewis project received local authority support at the end ofJune 2005, but this and other proposed developments remain subject to planningconsents. Continued investment in this business resulted in a small loss in2005. However, once planning consents are secured, we expect to be able torealise substantial value quite quickly. The order book in Project Solutions was £1.0bn at the year end, down slightly onthe previous year (2004: £1.1bn) and reflecting the changed focus of thissegment. In 2006, performance will benefit from stabilisation of UK ConstructionServices. We have created a pipeline of investment opportunities in ProjectSolutions which should continue to generate good returns. PPP portfolio valuationThe portfolio valuation has increased by 42% in the year from £76.9m at the endof 2004 to £109.5m at 31st December 2005, based on a weighted average discountrate of 10.6% (2004 10.5%). The main reasons for the increase in value of the portfolio are the addition oftwo new projects, Incheon Bridge in Korea, where we hold a 23% interest in theproject company and the Woolwich Arsenal Rail Extension in London's Docklands.In addition, the completion of construction on the City Airport Rail Extensionalso increases the value of our equity in this scheme. We are currentlypreferred bidder for two further projects and short-listed for four more. The valuation is sensitive to discount rates, which have recently beenimproving. For illustrative purposes, a discount rate of 8.6% would value theportfolio at £149m. Net debt At 31 December 2005 net debt was £246m (2004: £284m), being better than ourprevious expectations. Average weekly net debt in 2005 was £420m (2004: £450m) and was in line with ourexpectations at the time of the interim results in August 2005. On 20 January 2005 the company successfully completed a placing of new ordinaryshares, which resulted in net proceeds of £89m. These were used mainly toacquire Paragon, the oil and gas services company and the nuclear servicesbusiness NNC Holdings Ltd for an aggregate £57m in cash, together with furtherinvestment of £16m in our project equity investments business. Average weekly net debt for 2006 is expected to decline to around £400m as ouractivities in Iraq run down and we achieve final account settlement on the oiland gas fabrication projects mentioned above. Net financing costs Interest costs increased to £21.4m (excluding the impact of IAS 39) (2004:£18.8m), largely due to increased borrowing costs and the inclusion in 2004 ofthe gain on the disposal of PPP subordinated debt as a credit to interest. PensionsThe IAS19 pre-tax surplus of £74.7m in our principal UK pension schemes at theend of 2005 was lower than in 2004, following the 2005 triennial valuation whichreflected changes in financial conditions and improved mortality assumptions. In order to maintain the relatively strong funding position of the schemes, AMEChas increased its cash contribution and provided employees with a choice ofeither paying higher contributions to maintain current benefits or accepting alower benefit scale. Intangible amortisation and exceptional itemsIntangible amortisation increased in the year to £6.0m (2004: £0.5m). Theincreased charge principally reflects the acquisitions of Paragon and NNC. Aggregate post-tax exceptional costs in 2005 were £74.5m (2004: £22.9m,). Thesecosts, the substantial majority of which were non-cash items, relate to AMEC'swithdrawal from certain construction markets in the UK and US, oil and gasupstream lump-sum fabrication and a provision against an old legal dispute inthe US, as announced in November 2005. As previously reported, the Oil and Gas business is no longer pursuing lump-sumfabrication projects in upstream and certain other areas. As a result of boththis and delays in the settlement of final accounts on several major projects,the board believes that it is prudent to make a post-tax provision ofapproximately £13m.AMEC announced in May 2004 that it was to exit the US Construction Managementmarket. Actions to close the US Construction Management business are now welladvanced. AMEC continues to be involved in protracted litigation in respect ofcertain US Construction Management contracts, some of which date back a decade.In view of the slow progress in resolution of these disputes and following areview of the costs of exiting this business, AMEC is making a post-taxprovision of approximately £26m. The post-tax cost of exiting UK and US contracting activities, which in the pasttoo often lead to contractual disputes and therefore uncertain financialoutcome, is expected to be approximately £35m. CONSOLIDATED INCOME STATEMENT 2005 Before exceptional Exceptional items and items and intangible intangible amortisation amortisation Total Note £ million £ million £ million Revenue 2 4,942.5 - 4,942.5 Cost of sales (4,307.8) (26.2) (4,334.0) ---------- ---------- --------- Gross profit/(loss) 634.7 (26.2) 608.5 Administrative expenses (502.5) (6.0) (508.5) Loss on business disposals andclosures - (63.3) (63.3) ---------- ---------- --------- Profit/(loss) before netfinancing 2 132.2 (95.5) 36.7costs ---------- ---------- ---------Financial income 22.3 - 22.3 Financial expense (44.1) - (44.1) ---------- ---------- --------- Net financing costs (21.8) - (21.8) Share of post tax results ofjoint 10.5 - 10.5ventures ---------- ---------- --------- Profit/(loss) before income tax 120.9 (95.5) 25.4 Income tax 4 (36.7) 15.0 (21.7) ---------- ---------- --------- Profit/(loss) for the year 84.2 (80.5) 3.7 ========== ========== ========= Attributable to: Equity holders of the company 4.0 Minority interests (0.3) --------- 3.7 ========= Earnings per share: 5 Basic 1.3p Diluted 1.2p Dividends per share: 6 11.5p CONSOLIDATED INCOME STATEMENT 2004 Before exceptional Exceptional items and items and intangible intangible amortisation amortisation Total Note £ million £ million £ million Revenue 2 4,657.5 - 4,657.5 Cost of sales (4,053.5) - (4,053.5) ---------- ---------- --------- Gross profit/(loss) 604.0 - 604.0 Administrative expenses (480.0) (0.5) (480.5) Loss on business disposals andclosures - (21.5) (21.5) ---------- ---------- --------- Profit/(loss) before netfinancing 2 124.0 (22.0) 102.0costs ---------- ---------- ---------Financial income 28.3 - 28.3 Financial expense (47.1) - (47.1) ---------- ---------- --------- Net financing costs (18.8) - (18.8) Share of post tax results ofjoint 8.0 - 8.0ventures ---------- ---------- --------- Profit/(loss) before income tax 113.2 (22.0) 91.2 Income tax 4 (38.1) (1.4) (39.5) ---------- ---------- --------- Profit/(loss) for the year 75.1 (23.4) 51.7 ========== ========== ========= Attributable to: Equity holders of the company 50.9 Minority interests 0.8 --------- 51.7 ========= Earnings per share: 5 Basic 17.3p Diluted 16.8p Dividends per share: 6 11.0p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 2005 2004 Note £ million £ million Exchange differences ontranslation offoreign subsidiaries 44.4 (12.3) Actuarial loss on defined benefitpension schemes (56.7) (10.1) Net loss on hedges of netinvestmentin foreign subsidiaries (12.0) - Cash flow hedges: Effective portion of changes infair value (3.8) - Transferred to the income (1.0) -statement Group share of change in fairvalue of cash flow hedges within joint ventureentities (8.0) -(net of tax) Tax in respect of items recogniseddirectly in equity 18.3 3.8 ---------- --------- Net expense recognised directly inequity (18.8) (18.6) Profit for the year 3.7 51.7 ---------- --------- Total recognised income and expensefor the year (15.1) 33.1 Effect of change in accountingpolicy Effect of adoption of IAS 32 and 39 on 1 January 2005(with 2004 not restated) on: ---------- ---------Hedging and translation reserves (17.7) - Retained earnings (4.4) - ---------- --------- (22.1) - ---------- --------- (37.2) 33.1 ========== ========= Attributable to: Equity holders of the company 7 (12.1) 32.3 Minority interests (3.0) 0.8 ---------- --------- Total recognised income and expensefor the year (15.1) 33.1 ========== ========= CONSOLIDATED BALANCE SHEET Note 31 December 31 December 2005 2004 £ million £ million ASSETS Non-current assets Property, plant andequipment 158.3 149.0 Intangible assets 477.9 392.5 Interests in joint ventures 85.0 75.6 Other investments 4.5 16.0 Other receivables 24.0 21.5 Retirement benefit assets 74.7 118.9 Deferred tax assets 70.9 45.5 ------------ ------------- Total non-current assets 895.3 819.0 ------------ ------------- Current assets Inventories 73.8 87.2 Trade and other receivables 1,884.2 1,823.8 Derivative financialinstruments 0.8 - Cash and cash equivalents 351.9 299.5 ------------ ------------- Total current assets 2,310.7 2,210.5 ------------ ------------- Total assets 3,206.0 3,029.5 ------------ ------------- LIABILITIES Current liabilities Bank loans and overdrafts (39.1) (46.0) Trade and other payables (2,007.7) (1,911.0) Derivative financialinstruments (3.3) - Tax payable (56.1) (29.9) ------------ ------------- Total current liabilities (2,106.2) (1,986.9) ------------ ------------- Non-current liabilities Bank loans (558.3) (537.2) Trade and other payables (73.7) (67.8) Derivative financialinstruments (13.0) - Retirement benefitliabilities (56.2) (52.3) Deferred tax liabilities (47.1) (45.6) Provisions (28.6) (32.1) ------------ ------------- Total non-currentliabilities (776.9) (735.0) ------------ ------------- Total liabilities (2,883.1) (2,721.9) ------------ ------------- Net assets 2 322.9 307.6 ============ ============= TOTAL EQUITY Share capital 166.4 151.0 Share premium account 89.5 88.8 Hedging and translationreserves (5.8) (11.8) Capital redemption reserve 17.2 17.2 Retained earnings 55.3 59.1 ------------ ------------- Total equity attributableto equity holders of parent 7 322.6 304.3 Minority interests 0.3 3.3 ------------ ------------- Total equity 322.9 307.6 ============ ============= CONSOLIDATED CASH FLOW STATEMENT 2005 2004 Note £ million £ million Cash flow from operating activities Profit before income tax 25.4 91.2 Financial income (22.3) (28.3) Financial expense 44.1 47.1 Share of post tax results of jointventures (10.5) (8.0) Intangible amortisation 6.0 0.5 Depreciation 38.4 37.9 Profit on disposal of property, plant andequipment (9.5) (3.7) Equity settled share-based payments (0.8) (4.7) -------- --------- 70.8 132.0 Decrease in inventories 21.9 10.0 Increase in trade and other receivables (30.5) (204.7) Increase in trade and other payables andprovisions 70.6 75.6 -------- --------- Cash generated from operations 132.8 12.9 Interest paid (43.7) (46.6) Tax received/paid 3.9 (26.6) -------- --------- Net cash flow from operating activities 93.0 (60.3) -------- --------- Cash flow from investing activities Acquisition of subsidiaries, net of cashacquired (57.8) (11.0) Acquisition of joint ventures (25.0) (20.1) Purchase of property, plant and equipment (55.4) (35.1) Purchase of intangible assets (9.3) (16.3) Disposal of joint ventures 10.0 19.7 Disposal of property, plant and equipment 16.9 52.8 Interest received 23.2 29.1 Dividends received from joint ventures 3.5 0.2 -------- --------- Net cash flow from investing activities (93.9) 19.3 -------- --------- Net cash flow before financing activities (0.9) (41.0) -------- --------- Cash flow from financing activities Proceeds from shares issued 89.7 7.4 Proceeds from new loans 5.8 (1.7) Dividends paid (34.5) (30.8) -------- --------- Net cash flow from financing activities 61.0 (25.1) -------- --------- Increase/(decrease) in cash and cashequivalents 60.1 (66.1) Cash and cash equivalents as at thebeginning of the year 270.0 341.9 Exchange gains/(losses) on cash and cashequivalents 2.6 (5.8) -------- --------- Cash and cash equivalents as at the endof the year 332.7 270.0 ======== ========= Cash and cash equivalents consist of: Cash at bank and in hand 320.8 214.5 Short-term investments 31.1 85.0 -------- --------- 351.9 299.5 Overdrafts (19.2) (29.5) -------- --------- Cash and cash equivalents 8 332.7 270.0 ======== ========= NOTES 1. BASIS OF PREPARATION In accordance with EU law (IAS Regulation EC 1606/2002) the preliminary resultshave been prepared in accordance with International Financial ReportingStandards ("IFRS") adopted for use in the EU as at 31 December 2005 ("adoptedIFRS"), International Financial Reporting Interpretations Committee ("IFRIC")Interpretations and those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. These are the group's first accounts prepared under IFRS and IFRS 1 "First timeadoption of International Reporting Standards" has been applied. Details of howthe group's results and financial position are impacted by the change to IFRSare set out in AMEC's Restatement Report which was issued on 27 June 2005. Thisalso includes reconciliations from UK Generally Accepted Accounting Principles("UK GAAP") to IFRS for the 2004 accounts. In determining the appropriate accounting policy for AMEC's PPP activities, thedirectors have considered the current status of the draft IFRIC Interpretationson service concession arrangements. The draft interpretations were issued in2005 and IFRIC is currently reviewing the responses it has received. However,the final form of the interpretations and the timetable for their finalisationby IFRIC and adoption by the EU remains uncertain. In view of this uncertainty,adopted IFRS contains no accounting requirements that specifically apply toservice concession arrangements and the directors consider that it remainsappropriate to apply the approach set out in Application Note F of the UKFinancial Reporting Standard 5 "Reporting the substance of transactions" indetermining the accounting model to be applied to AMEC's PPP activities. Oncethe accounting model has been determined, the assets and liabilities of theservice concession arrangement are accounted for in accordance with adoptedIFRS. This accounting policy does not differ significantly from that appliedunder UK GAAP. The financial information for the years ended 31 December 2005 and 2004 set outabove does not constitute statutory accounts within the meaning of section 240of the Companies Act 1985 ("the Act"). Statutory accounts for the year ended 31December 2004, which were prepared under UK GAAP, have been delivered to theRegistrar of Companies. The accounts for the year ended 31 December 2005 will bedelivered to the Registrar of Companies following the Annual General Meeting.The company's auditors, KPMG Audit Plc, have reported on the 2005 and 2004accounts under section 235(1) of the Act. These reports were not qualifiedwithin the meaning of section 235(2) of the Act and did not contain statementsmade under section 237(2) and section 237(3) of the Act. The annual report and accounts for the year ended 31 December 2005 will beposted to shareholders on 18 April 2006. The results for 2005 were approved by the board of directors on 15 March 2006and are audited. The Annual General Meeting will take place on 17 May 2006. The final dividend will be payable on 3 July 2006 to shareholders on theregister at the close of business on 12 May 2006. Interim and preliminary announcements notified to the London Stock Exchange areavailable on the internet at www.amec.com Copies of annual reports and accountsare also available from: WILink, Hook Rise South, Surbiton, Surrey, KT6 7LD. 2. ANALYSIS OF REVENUE, PROFIT/(LOSS) BEFORE FINANCING COSTS AND NET ASSETS The business and financial review is based on the reported results before IAS39, intangible amortisation and exceptional items but including joint ventureprofit before tax. The results as presented in the business and financial revieware reconciled to those presented in the following tables in note 3. Profit/(loss) before net Revenue financing costs 2005 2004 2005 2004 £ million £ million £ million £ million Geographical origin:United Kingdom 1,770.7 1,887.0 9.9 64.6Rest of Europe 1,643.8 1,594.6 48.7 58.5Americas 963.9 686.3 1.1 (19.6)Rest of the world 564.1 489.6 2.0 22.8 --------- -------- ------- -------- 4,942.5 4,657.5 61.7 126.3 Corporate costs - - (25.0) (24.3) --------- -------- ------- -------- 4,942.5 4,657.5 36.7 102.0 ========= ======== ======= ======== Class of business:Engineering andTechnical Services 2,614.7 2,252.0 90.3 88.9Oil and Gas 1,405.6 1,172.6 41.4 49.0Project Solutions 976.5 1,290.8 (70.0) (11.6) --------- -------- ------- -------- 4,996.8 4,715.4 61.7 126.3 Internal revenue (54.3) (57.9) - - Corporate costs - - (25.0) (24.3) --------- -------- ------- -------- 4,942.5 4,657.5 36.7 102.0 ========= ======== ======= ======== Net assets 2005 2004 £ million £ million Geographical origin:United Kingdom 1.9 (3.6)Rest of Europe (81.7) (47.5) Americas 75.7 105.2Rest of the world 27.6 21.4 ------- -------- 23.5 75.5 Goodwill 435.2 361.6Interests in joint ventures 85.0 75.6Unallocated net assets 24.7 78.6Net debt (245.5) (283.7) ------- -------- 322.9 307.6 ======= ========Class of business:Engineering and Technical Services (82.3) (51.3)Oil and Gas 128.3 129.6 Project Solutions (22.5) (2.8) ------- -------- 23.5 75.5 Goodwill 435.2 361.6Interests in joint ventures 85.0 75.6Unallocated net assets 24.7 78.6Net debt (245.5) (283.7) ------- -------- 322.9 307.6 ======= ======== 2. ANALYSIS OF REVENUE, PROFIT/(LOSS) BEFORE FINANCING COSTS AND NET ASSETScontinued The Project Solutions sector is further analysed as follows: Revenue Net assets 2005 2004 2005 2004 £ million £ million £ million £ millionProject Solutions Construction 920.3 1,196.9 (30.9) (0.9)Investments 56.2 93.9 8.4 (1.9) -------- -------- -------- -------- 976.5 1,290.8 (22.5) (2.8) ======== ======== ======== ======== 3. PROFIT AND NET ASSETS RECONCILIATIONS RECONCILIATION OF ADJUSTED PROFIT BEFORE TAX Exceptional Year ended 31 December 2005 Adjusted items Pre-tax Taxation profit and joint on joint Impact Profit before intangible venture venture of before tax amortisation results results IAS 39 tax £ million £ million £ million £ million £ million £ million Engineering andTechnicalServices 95.4 (3.1) (2.0) - - 90.3Oil and Gas 63.9 (20.8) (1.7) - - 41.4ProjectSolutions 11.2 (71.6) (9.6) - - (70.0) ------- --------- ------- ------- ------- ------- 170.5 (95.5) (13.3) - - 61.7 Corporatecosts (25.0) - - - - (25.0) ------- --------- ------- ------- ------- ------- Profit/(loss) beforenet financingcosts 145.5 (95.5) (13.3) - - 36.7 Net financingcosts (21.4) - - - (0.4) (21.8) Share of post taxresults ofjoint ventures - - 13.3 (2.8) - 10.5 ------- --------- ------- ------- ------- ------- 124.1 (95.5) - (2.8) (0.4) 25.4 ======= ========= ======= ======= ======= ======= Exceptional Year ended 31 December 2004 Adjusted items Pre-tax Taxation profit and joint on joint Impact Profit before intangible venture venture of before tax amortisation results results IAS 39 tax £ million £ million £ million £ million £ million £ millionEngineering andTechnicalServices 80.8 9.4 (1.3) - - 88.9Oil and Gas 51.2 (0.2) (2.0) - - 49.0ProjectSolutions 26.7 (31.2) (7.1) - - (11.6) ------- --------- ------- ------- ------- ------- 158.7 (22.0) (10.4) - - 126.3 Corporatecosts (24.3) - - - - (24.3) ------- --------- ------- ------- ------- ------- Profit/(loss)before netfinancingcosts 134.4 (22.0) (10.4) - - 102.0 Net financingcosts (18.8) - - - - (18.8) Share of post taxresults ofjoint ventures - - 10.4 (2.4) - 8.0 ------- --------- ------- ------- ------- ------- 115.6 (22.0) - (2.4) - 91.2 ======= ========= ======= ======= ======= ======= 3. PROFIT AND NET ASSETS RECONCILIATIONS continued RECONCILIATION OF ADJUSTED NET ASSETS 31 December 2005 Interests in Adjusted joint Intangible net assets ventures assets Net assets £ million £ million £ million £ million Engineering andTechnical Services (101.3) (13.7) 32.7 (82.3)Oil and Gas 123.8 0.6 3.9 128.3Project Solutions 43.3 (71.9) 6.1 (22.5) -------- -------- -------- -------- 65.8 (85.0) 42.7 23.5 Goodwill 435.2 - - 435.2 Intangible assets 42.7 - (42.7) - Interests in jointventures - 85.0 - 85.0 Unallocated net assets 24.7 - - 24.7 Net debt (245.5) - - (245.5) -------- -------- -------- -------- 322.9 - - 322.9 ======== ======== ======== ======== 31 December 2004 Interests in Adjusted joint Intangible net assets ventures assets Net assets £ million £ million £ million £ million Engineering andTechnical Services (70.7) (10.8) 30.2 (51.3)Oil and Gas 129.0 0.6 - 129.6Project Solutions 61.9 (65.4) 0.7 (2.8) -------- -------- -------- -------- 120.2 (75.6) 30.9 75.5 Goodwill 361.6 - - 361.6 Intangible assets 30.9 - (30.9) - Interests in jointventures - 75.6 - 75.6 Unallocated net assets 78.6 - - 78.6 Net debt (283.7) - - (283.7) -------- -------- -------- -------- 307.6 - - 307.6 ======== ======== ======== ======== 4. INCOME TAX Income tax on the profit before exceptional items and intangible amortisationfor the year is based on an effective rate of 32.0% (2004: 35.0%). 5. EARNINGS PER SHARE The calculation of the average number of shares in issue has been made havingdeducted the shares held by the trustees of the Long-Term Incentive Plan and thePerformance Share Plan 2002 and those held by the qualifying employee shareownership trust. 2005 Weighted average shares Earnings per Earnings number share £ million million pence Basic earnings 4.0 323.3 1.3 Share options - 4.0 - Employee share and incentive schemes - 6.8 (0.1) -------- -------- --------- Diluted earnings 4.0 334.1 1.2 ======== ======== ========= 2004 Weighted average shares Earnings per Earnings number share £ million million pence Basic earnings 50.9 295.0 17.3 Share options - 1.5 (0.1) Employee share and incentive schemes - 6.7 (0.4) -------- -------- --------- Diluted earnings 50.9 303.2 16.8 ======== ======== ========= 5. EARNINGS PER SHARE continued In order to appreciate the effects of IAS 39, exceptional items and intangibleamortisation on the reported performance, additional calculations of earningsper share are presented. 2005 Weighted average shares Earnings per Earnings number share £ million million pence Basic earnings before IAS 39, exceptionalitems andintangible amortisation, net of 84.9 323.3 26.3attributable tax Impact of IAS 39 (0.4) - (0.1) Exceptional items (net of attributable (74.5) - (23.0)tax) Intangible amortisation (6.0) - (1.9) -------- -------- --------- Basic earnings 4.0 323.3 1.3 ======== ======== ========= Basic earnings before IAS 39 exceptionalitems andintangible amortisation, net of 84.9 323.3 26.3attributable tax Share options - 4.0 (0.3) Employee share and incentive schemes - 6.8 (0.6) -------- -------- --------- Diluted earnings before IAS 39, intangibleamortisationand exceptional items, net of attributable 84.9 334.1 25.4tax Impact of IAS 39 (0.4) - (0.1) Exceptional items (net of attributable (74.5) - (22.3)tax) Intangible amortisation (6.0) - (1.8) -------- -------- --------- Diluted earnings 4.0 334.1 1.2 ======== ======== ========= 2004 Weighted average shares Earnings per Earnings number share £ million million pence Basic earnings before IAS 39, exceptionalitems andintangible amortisation, net of 74.3 295.0 25.2attributable tax Exceptional items (net of attributable (22.9) - (7.8)tax) Intangible amortisation (0.5) - (0.1) -------- -------- --------- Basic earnings 50.9 295.0 17.3 ======== ======== ========= Basic earnings before IAS 39, exceptionalitems andintangible amortisation, net of 74.3 295.0 25.2attributable tax Share options - 1.5 (0.1) Employee share and incentive schemes - 6.7 (0.6) -------- -------- --------- Diluted earnings before IAS 39, intangibleamortisationand exceptional items, net of attributable 74.3 303.2 24.5tax Exceptional items (net of attributable (22.9) - (7.5)tax) Intangible amortisation (0.5) - (0.2) -------- -------- --------- Diluted earnings 50.9 303.2 16.8 ======== ======== ========= 6. DIVIDENDS Dividends proposed during the year were as follows: 2005 2004 pence £ million pence £ million Interim 4.0 12.9 3.8 11.3 Final 7.5 24.3 7.2 23.5 -------- -------- -------- -------- 11.5 37.2 11.0 34.8 ======== ======== ======== ======== After the balance sheet date the directors proposed a dividend of 7.5 pence pershare payable on 3 July 2006 to equity holders on the register at the close ofbusiness on 12 May 2006. This dividend has not been provided for and there areno income tax consequences for the company. Dividends paid during the year comprise a final dividend of 7.2 pence per sharein respect of the year ended 31 December 2004, together with an interim dividendin respect of the year ended 31 December 2005 of 4.0p per share. 7. RECONCILIATION OF MOVEMENTS IN EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THEPARENT 2005 2004 £ million £ million Total recognised income and expense attributable toequity holders of the company (12.1) 32.3 Dividends (36.4) (31.5) Shares issued 89.7 7.4 Movements relating to share-based payments (0.8) 0.3 --------- --------- Net increase in total equity 40.4 8.5 --------- --------- Equity as at beginning of the year (as previouslystated) 304.3 295.8 Effect of adoption of IAS 32 and 39 on 1 January 2005 (22.1) - --------- --------- Equity as at beginning of the year (as restated) 282.2 295.8 --------- --------- Total equity attributable to equity holders of theparent as at end of the year 322.6 304.3 ========= ========= 8. ANALYSIS OF NET DEBT 2005 2004 £ million £ million Cash at bank and in hand 320.8 214.5 Short-term investments 31.1 85.0 --------- --------- Cash and cash equivalents in the balance sheet 351.9 299.5Overdrafts (19.2) (29.5) --------- --------- Cash and cash equivalents in the cash flow statement 332.7 270.0 Current bank loans (19.9) (16.5)Non-current bank loans (558.3) (537.2) --------- --------- Net debt as at end of the year (245.5) (283.7) ========= ========= 9. APPLICATION OF IAS 32 AND IAS 39 PROSPECTIVELY FROM 1 JANUARY 2005 As permitted by the transitional provisions of IFRS 1, AMEC elected to adopt IAS32, Financial Instruments : Presentation and disclosure ("IAS 32") and IAS 39prospectively from 1 January 2005. The 2004 comparative figures have not beenrestated to comply with these standards. Prior to the adoption of IAS 32 and IAS 39, the group did not recognisederivatives. In accordance with IAS 39, derivatives have been recorded at fairvalue with effect from 1 January 2005, these principally relate to interest andinflation rate derivatives in the PPP projects. 9. APPLICATION OF IAS 32 AND IAS 39 PROSPECTIVELY FROM 1 JANUARY 2005 continued The effect of adopting IAS 32 and IAS 39 on the balance sheet as at 1 January2005 is as follows: Adjustment £ millionASSETSNon-current assets Interests in joint ventures (12.9)Other receivables (3.7)Deferred tax assets 4.1 Current assetsDerivative financial instruments 3.5 LIABILITIESCurrent liabilitiesTrade and other payables 1.0Derivative financial instruments (6.1) Non-current liabilitiesDerivative financial instruments (8.8)Deferred tax provisions 0.8 --------- Net assets (22.1) ========= EQUITYHedging and translation reserves (17.7)Retained earnings (4.4) --------- Total equity (22.1) ========= This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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