Half-year results 2015

Amec Foster Wheeler plc

First half 2015 results

Chief Executive Samir Brikho said:

"In the challenging conditions we find in many of our markets our priorities are clear: to make the most of the integrated Amec Foster Wheeler platform, innovate and adapt to offer customers relevant services and continue to keep a tight control on our own costs.

I continue to believe our low-risk, multi-market model is a strong platform from which to create long-term value for shareholders."

H1 2015: Key performance measures1

H1 2015: Reported under IFRS

Outlook statement

Our expectations for the group's full year results remain consistent with previous guidance: underlying scope revenue is expected to be modestly lower than last year's pro forma result, and we continue to expect a reduction in trading margins. For the full year, based on current forecasts, scope revenue will now benefit by c. £50 million from a stronger US dollar.

We expect to see challenging market conditions continue - particularly in upstream Oil & Gas and Mining. Downstream Oil & Gas, particularly petrochemicals, continues to be resilient. Clean Energy E&C scope revenue is likely to be lower than in 2014, due to delays to the start of work for significant projects in our order book. Our strong pipeline also gives us confidence that we will see further progression in the order book from its current level of £6.6 billion.

Contacts:

Notes:

1) Adjusted performance measures used by the group are reconciled to the equivalent IFRS measures in the 'Performance measures' section

2) Unaudited pro forma information provided for comparative purposes only, assuming the AMEC and Foster Wheeler businesses had been combined from 1 January 2014. A full description of the adjustments can be found at the beginning of 'Performance measures'

3) Excluding the impacts of currency movements, bolt-on acquisitions, and pass through procurement

4) Scope revenue represents reported revenue less pass-through procurement revenue

5) Trading profit represents profit before net financing expense excluding exceptional items, the amortisation of intangible assets and asbestos-related costs (net of insurance recoveries). Trading profit includes the group's share of the trading profit of joint ventures

6) Includes £20m one-off income from a license settlement within GPG. The impact on group trading margin is c. 80 basis points, and excluding this, the comparable margin in 2014 was 8.5%.

Results presentation:

We will host a presentation on the results for analysts and investors at 8.30am (UK time) today at the offices of Nomura International, One Angel Lane London EC4R 3AB. For those unable to attend, dial-in details are as follows:

UK: 0800 368 0649

International: +44 20 3059 8125

Code: 2490313

An accompanying slide pack will also be available shortly before the meeting at: amecfw.com/investors/results-centre/half-year-results-2015 . A recording and transcript will be available after a few hours.

Analyst consensus estimates:

Regularly updated on our website at amecfw.com/investors/consensus_estimates.htm

Notes to editors:

Amec Foster Wheeler (www.amecfw.com) designs, delivers and maintains strategic and complex assets for its customers across the global energy and related sectors.

With pro-forma 2014 scope revenues of £5.5 billion and over 40,000 people in more than 55 countries, the company operates across the whole of the oil and gas industry - from production through to refining, processing and distribution of derivative products - and in the mining, clean energy, power generation, pharma, environment and infrastructure markets.

Amec Foster Wheeler offers full life-cycle services to offshore and onshore oil and gas (conventional and unconventional, upstream, midstream and downstream) for greenfield, brownfield and asset support projects, plus leading refining technology.

Amec Foster Wheeler shares are publicly traded on the London Stock Exchange and its American Depositary Shares are traded on the New York Stock Exchange. Both trade under the ticker AMFW.

Segmental review by business units

With effect from 1 January 2015, the group adopted new geographical operating segments within its E&C business: Americas; Northern Europe & CIS; and Asia, Middle East, Africa & Southern Europe. The Global Power Group continues to be reported as a separate operating segment. In this section, all 2014 numbers are provided on a pro forma basis, as if the AMEC and Foster Wheeler businesses had combined on 1 January 2014. A full description of the adjustments can be found in the 'Performance measures' section.

Americas

Americas is the largest business unit, with substantial positions in each of our four markets: Oil and Gas, Mining, Clean Energy, and Environment and Infrastructure.

We support our customers in consulting, through the EPC project lifecycle (including engineering, procurement, project management and construction), into operations & maintenance, and remediation and reinstatement. 

1 Non-IFRS measure (see 'Performance measures')

Scope revenue in Americas was £1,255 million (2014: £1,235 million), an increase of 2%. Excluding pass-through procurement, the effect of bolt-on acquisitions and currency movements, underlying revenue was down 2%. Growth in underlying revenue in the downstream Oil & Gas and Mining, was offset by declines in Clean Energy and E&I.

Trading profit fell by 32% to £82 million (2014: £121 million), as a result of pricing pressure in Oil & Gas and increased procurement and construction within scope, due to the increase in downstream work. Trading margin was 6.5%, down by 330 basis points compared with 2014.

Key Oil & Gas projects currently underway include oil sands work for Imperial Oil, Syncrude, CNRL, Suncor and Shell among others. In downstream, we continue to work on a propane dehydrogenation project in Texas for Enterprise Products and projects for LyondellBassell and Dow. In Latin America we continue to build our relationship through project activity with PEMEX in Mexico and Ecopetrol in Colombia. Mining activity in project delivery include a number of copper, gold and potash projects for Codelco, Newmont, Thompson Creek and K+S Potash. In E&I we are working on site remediation programmes for Honeywell and Duke.

Earlier this year we completed the 250 MW Copper Mountain III solar project for Sempra US Gas & Power, and we have a strong pipeline of similar projects in the US.

Contract wins announced in 2015 so far include:

Northern Europe & CIS (NECIS)

Operating from more than 120 locations in 15 countries, our NECIS business unit focuses on three of our markets, Oil & Gas, Clean Energy and Environment & Infrastructure. The largest exposure is to Oil & Gas, with strong positions in the North Sea and Azerbaijan. We are also one of the largest service providers to the UK nuclear industry.

1 Non-IFRS measure (see 'Performance measures')

Scope revenue in NECIS fell by 4% to £721 million (2014: £749 million), primarily due to a lower level of Oil & Gas activity in the North Sea. Excluding pass-through procurement, the effect of bolt-on acquisitions and currency movements, underlying revenue was down 5%.

Trading profit increased by 6% to £70 million (2014: £66 million). Trading margin was 9.7%, up 90 basis points compared with 2014, boosted by favourable contract settlements and cost savings.

Key projects worked on during the year include a five-year call-off contract to provide brownfield engineering for Talisman, Clair Ridge hook up and commissioning project for BP and multiple projects with BG and Conoco Phillips in the UK North Sea. In Azerbaijan, work continues on Shah Deniz 2 and the long term engineering and construction management services contract for BP.

Ongoing Clean Energy projects include reactor services support work for EDF's nuclear power stations in the UK and ongoing clean-up work at the Sellafield site, as well as framework agreements with National Grid.

Contract wins announced in 2015 so far include:

Asia, Middle East, Africa & Southern Europe (AMEASE)

AMEASE is a diverse region with our people spread across more than 40 locations. We now have enhanced capabilities and significantly increased customer reach which positions us well for growth across all of our four markets - Oil & Gas, Environment & Infrastructure, Mining and Clean Energy.

1 Non-IFRS measure (see 'Performance measures')

Scope revenue in AMEASE grew by 6% to £462 million (2014: £437 million), driven by an increase in revenue from Oil & Gas activities in the Middle East and Environment and Infrastructure work. Excluding pass-through procurement, the effect of bolt-on acquisitions and currency movements, underlying revenue was up 5%.

Trading profit rose by 45% to £33 million (2014: £23 million), reflecting higher contributions from Oil & Gas and E&I. Trading margin was 7.1%, up 180 basis points compared with 2014, due to the early benefits of cost saving initiatives.

Key upstream Oil & Gas projects include providing asset support for ConocoPhillips' Bayu-Udan gas facilities in the 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 we are providing technical and project management services on the Upper Zakum project for Zadco, supporting KNPC's new oil refinery at Al Zour and delivering the propylene oxide plant at Jubail for Sadara Chemical Company. Other downstream projects include the Son refinery in Vietnam, and work on the synthetic rubber plant for Lanxess Butyl in Singapore. In Mining we continue to work on the Husab Uranium project in Namibia.

We have a strong pipeline for future projects, including in the Middle East and Africa for Oil & Gas and emerging opportunities across the region for Clean Energy.

Contract wins announced in 2015 so far include:

Global Power Group (GPG)

GPG has market-leading capabilities in the design, supply and erection of circulating fluidised bed (CFB) boilers, auxiliary steam and air pollution control equipment including a wide range of aftermarket products and services. Customers include utilities, independent power producers, and industrial concerns.

1 Non-IFRS measure (see 'Performance measures')

Scope revenue in GPG fell by 14% to £195 million (2014: £227 million), primarily driven by a decline in project activity. On an underlying basis, scope revenue was down 16%.

Trading profit fell by 63% to £21 million (2014: £58 million). The first half 2014 trading profit includes £20 million one-off income from a license settlement. Trading margin was 10.8%, down 1480 basis points. Excluding the one-off license settlement, trading margin fell 580 basis points from 16.6% in 2014.

Key project activity includes the erection of the 4 x 550MWe Samcheok ultra-supercritical CFB boilers, the largest CFB units in the world. Commercial operation is expected in early 2016. 

The pipeline of future work remains strong - with over US$500 million of work awarded for projects that are awaiting the go-ahead from customers (and therefore not yet recorded in our order book).

Contract wins announced so far in 2015 include:

Integration and cost savings update

The integration of AMEC and Foster Wheeler is on track, and we plan to deliver $125 million of cost savings from the integration by 2017. In the year to date we have delivered £15 million of savings, and taken an exceptional charge of £22 million.

Financing update

We have extended the term of our acquisition bridge facility to February 2017, ahead of our proposed refinancing in the capital markets.

Ahead of this potential bond issue, we have received ratings from Moody's (Baa3) and Standard & Poors (BBB-).

Board changes

There have been two changes to the board in the first half. Following completion of the acquisition of Foster Wheeler, Kent Masters joined the board as non-executive director.

Simon Thompson retired as a non-executive director after the AGM in May 2015. Earlier this year, we announced that Neil Carson would assume the roles of senior independent director and chairman of the remuneration committee from the AGM in May 2015, replacing Simon Thompson in both roles.

Operating and financial review

Basis of preparation

Accounting policies

The condensed financial statements for the six months ended 30 June 2015 have been prepared in accordance with IAS 34 as adopted for use in the EU. From the group's perspective, there are no differences between IFRS as adopted for use in the EU and IFRS as issued by the IASB.

There have been no changes to the group's principal accounting policies during the six months ended 30 June 2015.

Adjusted performance measures

We report adjusted performance measures because they provide both management and investors with useful additional information about the underlying trading performance of the business.

Adjusted performance measures used by the group are reconciled to the equivalent IFRS measures in the section entitled 'Performance measures'.

Continuing operations

Revenue

Following the acquisition of Foster Wheeler, revenue for the period at £2,664m was 43% higher than last year (six months ended 30 June 2014: £1,858m).

Revenue increased by £207m in the Americas, by £126m in NECIS and £308m in AMEASE, and in addition there was revenue of £195m in the Global Power Group. Pass-through procurement increased by £33m to £83m (2014: £50m).

On a pro-forma basis and excluding the effect of currency movements and bolt-on acquisitions, underlying revenue decreased by 4%. Underlying revenue from Oil & Gas was up 3% and E&I was up 3%, but Mining was down 1% and Clean Energy and GPG were down 17% and 16% respectively. The pipeline remains strong in these businesses but revenue in the period was impacted by project delays.

Administrative expenses

Administrative expenses were £250m (six months ended 30 June 2014: £153m), including exceptional items, intangibles amortisation and asbestos-related items of £83m (six months ended 30 June 2014: £50m).

Administrative expenses before intangibles amortisation, exceptional items and asbestos-related items increased by £64m following the Foster Wheeler acquisition.

Corporate costs, which comprise the costs of operating central corporate functions and certain regional overheads, were £9m higher at £25m (six months ended 30 June 2014: £16m).

Profit before net financing expense

Profit before net financing expense of £83m was £7m higher than 2014 (six months ended 30 June 2014: £76m) with the profit contribution from Foster Wheeler partly offset by higher intangibles amortisation.

Amortisation and impairment of intangible assets

Intangible assets principally comprise goodwill and identifiable intangible assets that were recognised in relation to acquired businesses. Goodwill is not amortised but is subject to an annual impairment test. No impairment was recognised in either 2015 or 2014.

Amortisation of intangible assets was £65m (2014: £21m), with the increase due to the amortisation of the intangible assets acquired with Foster Wheeler and Scopus, both of which we acquired in late 2014. We expect the full-year impact of the amortisation of intangible assets acquired with Foster Wheeler to be approximately £85m.

Asbestos-related items (net of insurance recoveries)

During the six months ended 30 June 2015, the group recognised net asbestos-related income of £7m (six months ended 30 June 2014: £nil) in profit before net financing expense, which related to the movement in the discount rate applied to the net asbestos-related liabilities assumed on the acquisition of Foster Wheeler. In addition, there was an asbestos-related interest expense of £4m (six months ended 30 June 2014: £nil) related to the unwinding of the discount applied to the liability.

Exceptional items

Pre-tax exceptional costs of £30m were incurred during the period (six months ended 30 June 2014: £44m) as follows:

· costs of £22m in relation to the restructuring and integration of the Amec and Foster Wheeler businesses (including severance, office rationalisation, consultancy and internal staff costs associated with integration activities and identifying and achieving cost synergies);

· transaction costs of £3m, principally changes to deferred consideration on prior year acquisitions; and

· acquisition-related facility fees amortisation of £5m within net financing expense.

Trading profit and trading margin

1 Non-IFRS measure (see 'Performance measures')

Trading profit increased by 24% to £188m (six months ended 30 June 2014: £152m). Trading margin decreased by 110 basis points to 7.3% (six months ended 30 June 2014: 8.4%). In Americas, trading profit fell by £20m with increased activity in Oil and Gas but at lower margins and project delays in Clean Energy. Actual trading profit increased by £21m in NECIS and £20m in AMEASE and there was a profit contribution of £21m from GPG (see note 3).

Net financing expense

The net financing expense was £26m (six months ended 30 June 2014: £1m credit) including bank interest and finance lease interest payable of £15m and other items of £2m. In H1 2015 the net financing expense also included an expense of £4m due to the unwinding of the discount on the net asbestos-related liabilities and £5m amortisation of facility arrangement fees.

A net currency exchange gain of £37m (six months ended 30 June 2014: loss of £1m) was recognised in the translation reserve in respect of foreign currency borrowings and derivatives held in designated net investment hedging relationships.

Share of results of joint ventures

The group's share of joint ventures' profit for the period was £16m (2014: £6m), with the inclusion of the results of Foster Wheeler joint ventures, the largest of which is PetroPower.

Profit before tax

Profit before tax was £73m (2014: £83m) after intangibles amortisation of £65m (2014: £21m), a net asbestos-related credit of £3m (2014: £nil), exceptional charges of £30m (2014: £44m) and the group's share of joint ventures' tax expense of £5m (2014: £2m). Adjusted profit before tax was 13% higher at £170m (2014: £150m).

Taxation

Our tax policy is to manage our obligations in compliance with all relevant tax laws, disclosure requirements and regulations. We seek to ensure that our approach to tax and the tax payments that we make in all territories in which we have operations is fully consistent with local requirements, taking into account available tax incentives and allowances and is aligned with the group's wider business strategy. We seek to develop good, open working relationships with tax authorities and to engage with them proactively, recognising that tax legislation can be complex and may be subject to differing interpretations.

The group's effective tax rate for the first six months of 2015 on continuing operations (including its share of joint ventures' income tax expense but before exceptional items, intangibles amortisation and asbestos-related items) was 22.3% (six months ended 30 June 2014: 22.0%). The full year tax rate is expected to be approximately 22%.

During the first six months of 2015, there was a tax credit on exceptional items of £6m (including tax on exceptional items of discontinued operations of £2m) (six months ended 30 June 2014: £2m (including tax on exceptional items of discontinued operations of £1m), and a tax credit of £12 m on intangibles amortisation (six months ended 30 June 2014: £6m).

The group's share of joint ventures' income tax expense was £5m (six months ended 30 June 2014: £2m).

Profit for the period from continuing operations

Profit for the period from continuing operations was £56m (2014: £59m) after adjusting for intangibles amortisation of £65m (2014: £21m), the net asbestos-related credit of £3m (2014: £nil), exceptional items of £30m (2014: £44m), and income tax credits on those items of £16m (2014: £7m), adjusted profit for the period was £132m (2014:£117m).

Earnings per share

Diluted EPS was 11.8p (2014: 14.7p), comprising earnings per share of 14.5p (2014: 19.8p) from continuing operations and a loss of 2.7p (2014: 5.1p) from discontinued operations.

Adjusted diluted EPS from continuing operations was 34.0p (2014: 39.1p), due to the increase in the number of shares in issue as a consequence of the acquisition of Foster Wheeler.

Dividend

The board has declared interim dividend of 14.8p per share, in line with 2014. This will be paid on 5 January 2016 to shareholders on the register at the close of business on 27 November 2015.

Commentary on the results of the operating segment is included in the segmental review on pages 3 to 6.

Investment Services

During the periods under review, Investment Services principally comprised the Incheon Bridge PPP project in Korea, the group's insurance captive, the group's wind development activities and a number of Build Own Operate assets that were acquired with Foster Wheeler.

Revenue in Investment Services was £8m (2014: £3m) with trading profit of £7m (2014:£4m) which, following positive developments in the first half of 2015, included the release of a provision no longer required on a non-core asset acquired with Foster Wheeler.

Discontinued operations

Discontinued operations represent the residual assets and retained obligations of businesses sold in prior years, as well as the UK conventional power business which was discontinued in 2013.

Discontinued operations generated a pre-tax trading loss before tax of £5m as a result of an additional provision on a completed contract (six months ended 30 June 2014: £10m). There was an associated tax credit of £1m (six months ended 30 June 2014: £2m) resulting in a post-tax loss for the period of £4m (six months ended 30 June 2014: £8m).

Discontinued operations included a pre-tax loss on disposals of £8m (six months ended 30 June 2014: £8m) arising from additional indemnity provisions and costs associated with businesses sold in prior years, there was an associated tax credit of £2m (six months ended 30 June 2014: £1m) giving post-tax exceptional loss of £6m (six months ended 30 June 2014: £7m).

Discontinued operations generated an overall post-tax loss for the period of £10m (six months ended 30 June 2014: £15m).

Acquisitions

Acquisition of Foster Wheeler

On 13 November 2014, the group acquired a 95.3% interest in Foster Wheeler AG by way of a public tender offer. In January 2015, the group acquired the remaining 4.7% interest in Foster Wheeler AG by way of a 'squeeze-out merger' under Swiss law for consideration of £85m, of which £51m was paid in cash and £34m was settled by the issue of 4.3m of the Company's ordinary shares and ADSs.

The results of the preliminary purchase price allocation were published in the 2014 annual report and accounts. The purchase price allocation will be finalised during the second half of 2015 and the final position will be published with the 2015 annual results.

Cash flow

Trading cash flow

Trading cash flow of £84m was £45m higher than 2014 (2014: £39m), as a result of higher trading profit and dividends received from legacy Foster Wheeler joint ventures.

Cash conversion from trading profit was 45% (2014: 26%).

Capital expenditure

Capital expenditure was £9m (2014: £7m). Additionally, there were purchases of computer software of £15m (2014: £12m) and proceeds from disposals of £1m (2014: nil).

Acquisitions and disposals

A cash outflow of £56m in respect of acquisitions and disposals principally related to the acquisition of the minority interest in Foster Wheeler in January 2015 following the squeeze out merger.

The cash outflow on exceptional items principally related to settlement of asbestos claims, integration and restructuring costs.

Movement in net (debt)/cash

Net (debt)/ cash comprised:

Balance sheet

Goodwill and other intangibles

As at 30 June 2015, the carrying amount of goodwill was £2,280m (31 December 2014: £2,390m), with the decrease during the period entirely due to foreign exchange movements.

As at 30 June 2015, the carrying amount of other intangibles was £842m (31 December 2014: £929m), which comprised acquired identifiable intangible assets of £760m (31 December 2014: £851m) and computer software of £82m (31 December 2014: £78m). Movements in the period relate include amortisation of £65m and exchange and other movements of £39m offset by software additions of £13m.

Property, plant and equipment

As at 30 June 2015, property, plant and equipment amounted to £137m (31 December 2014: £157m), with the reduction in the period due to depreciation of £14m and exchange and other movements of £15m offset by capex additions of £9m.

We hold the majority of the properties through which the group operates under operating leases which are for varying periods and on differing terms.

Post-retirement benefits

The group has a number of defined benefit pension plans. Following the acquisition of Foster Wheeler, there are three principal plans: two in the UK and one in the US. Each of these plans is closed to new entrants and the two Foster Wheeler plans are also closed to future service accruals. As at 30 June 2015, the net deficit on the group's defined benefit pension plans amounted to £75m (31 December 2014: £86m).

Provisions

Provisions held at 30 June 2015 were £598m (31 December 2014: £631m). Following a review of the presentation of certain balances related to onerous leases and tax risks these balances have been reclassified between provisions and non-current trade and other payables. The December 2014 balance sheet has been restated accordingly.

During the six months ended 30 June 2015 provisions of £29m were utilised and £7m of provisions no longer required were released to the income statement. Additional provisions of £17m were created including £8m in relation to businesses sold in prior years and there were exchange movements of £11m.

Provisions are summarised as follows:

Details of the provisions held by the group are set out in note 10 to the accompanying financial information.

Asbestos-related obligations

Certain of the company's subsidiaries in the UK and US are subject to claims by individuals who allege that they have suffered personal injury alleged to have arisen from exposure to asbestos primarily in connection with equipment allegedly manufactured by certain of our subsidiaries during the 1970s or earlier.

As at 30 June 2015, the group recognised:

· asbestos-related liabilities of £387m, which included estimates of indemnity amounts and defence costs for open and yet to be asserted claims expected to be incurred in each year in the period to 2050; and

· insurance recoveries of £105m

The net liability of £(282)m in respect of asbestos-related obligations is presented on the balance sheet within other non-current receivables (£93m); trade and other receivables (£12m); trade and other payables (£(37)m) and provisions (£(350)m).

There was a net cash outflow of £13m during H1 2015 due to the excess of forecast indemnity payments and defence costs over insurance proceeds.

Going concern

Based on internal forecasts and projections that take into account reasonably possible changes in the group's trading performance, the directors consider that the group has adequate financial resources to continue in operation for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the group's financial statements.

Performance measures

Pro forma information

The pro forma information is provided for comparative purposes only and does not necessarily reflect what the revenue and trading results of the combined group would have been, nor is it necessarily indicative of the combined group's future revenue and trading results.

The unaudited pro forma information has been prepared based on information derived from the following:

· the unaudited consolidated financial statements of Amec Foster Wheeler plc (formerly AMEC plc) for the six months ended 30 June 2014 prepared in accordance with IFRS;

· the unaudited consolidated financial information of Foster Wheeler for the six months ended 30 June 2014 prepared in accordance with US GAAP.

Adjustments have been made to restate Foster Wheeler's results in accordance with AMEC's accounting policies under IFRS and to convert them from US dollars into Sterling using the exchange rates that AMEC used to convert the results of its US subsidiaries from US dollars into Sterling for the period presented. Foster Wheeler's results have not, however, been further adjusted to retrospectively apply the purchase accounting adjustments that were made by AMEC to Foster Wheeler's balance sheet at the acquisition date in accordance with IFRS.

Scope revenue

Scope revenue represents reported revenue less pass-through procurement revenue. Pass-through procurement revenue is recognised when we purchase materials, equipment or third-party services for our customers on a reimbursable basis and do not recognise any profit. Scope revenue therefore represents the revenue that we have earned from providing services to our customers.

Profitability measures

We use three measures of profitability that are not recognised measures under IFRS: trading profit, trading margin and adjusted profit before tax. As appropriate, we exclude the following specific items in arriving at these measures: exceptional items, the amortisation of intangible assets, and asbestos-related costs (net of insurance recoveries). Exceptional items are items of income and expense that are material by their size, incidence or nature and may include, but are not restricted to: acquisition-related costs, restructuring costs, gains and losses on the disposal of fixed assets, and gains and losses on the disposal or closure of businesses. Acquisition-related costs may include transaction costs (including external advisory, legal, valuation and other professional fees and attributable internal costs), the amortisation of acquisition-related facility fees, payments to selling shareholders that are accounted for as remuneration and changes in the fair value of contingent consideration.

Trading profit

Trading profit represents profit before net financing expense excluding exceptional items, the amortisation of intangible assets and asbestos-related costs (net of insurance recoveries). Trading profit includes the group's share of the trading profit of joint ventures.

Trading margin

Trading margin represents trading profit expressed as a percentage of scope revenue.

The pro forma trading profit for 2014 includes $32m (£20m) in respect of an intellectual property settlement within GPG. Excluding this, margin would be 8.5%.

Adjusted profit before tax

Adjusted profit before tax represents profit before tax before exceptional items, the amortisation of intangible assets, asbestos-related costs and interest expense (net of insurance recoveries), and the group's share of tax on the results of joint ventures.

Cash flow measures

Trading cash flow

Trading cash flow represents cash generated from operations before cash flows arising from exceptional items, asbestos-related payments (net of insurance recoveries), the difference between retirement benefits contributions and the current service cost, legacy settlements and discontinued operations, and currency translation differences on working capital, but including dividends received from joint ventures.

Cash conversion

Cash conversion represents trading cash flow expressed as a percentage of trading profit.

Other measures

Adjusted diluted EPS

Adjusted diluted earnings per share represents profit for the year from continuing operations before exceptional items, the amortisation of intangible assets, asbestos-related items and the tax effect of those items, divided by the diluted number of ordinary shares.

Reconciliations of adjusted diluted EPS to diluted EPS from continuing operations for each period presented are included in note 7 to the accompanying financial information.

Order book

Our order book represents the total remaining value of secured projects to be executed up to any break point in the relevant contracts. Contracts are included in our order book only when they are signed and we do not include contracts won by joint ventures.

Business risks and opportunities

Amec Foster Wheeler operates in some 50 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 Foster Wheeler operates predominantly in Europe 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 Foster Wheeler'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 Foster Wheeler 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 Foster Wheeler'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 Foster Wheeler's business opportunities and address potential increased supply chain and, more broadly counter-party risk.

In order to mitigate the risks associated with the acquisition of Foster Wheeler and the integration of the AMEC and Foster Wheeler businesses, Amec Foster Wheeler has put in place:

· robust processes for the preparation and submission of the documents and filings, including anti-trust documents

· guidelines around communications and investor relations

· detailed integration planning with an Integration Director appointed to lead the integration project steering committee supported by external consultants.

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 20 to 23 and in the risk factors on pages 164 to 168 of the 2014 annual report and accounts. These are changes in commodity prices; project delivery; lump sum contracts; staff recruitment and retention; health, safety, security and environment; environmental licences; information technology; ethical breach; pensions; legacy risks and asbestos liabilities.

CONDENSED CONSOLIDATED INCOME STATEMENT

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CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME