Half-year results 2016

Amec Foster Wheeler plc

First half 2016 results

· Mixed H1 trading results

o Record solar and UK North Sea revenue, offset by weak performance from Americas O&G

o Non-cash impairment charge and asset write-offs of £440m (including Americas O&G and GPG)

o Interim dividend of 7.4p

· Reiterate key guidance

o Expectations for FY2016 trading result unchanged

o Target £500m of proceeds from disposals by June 2017

· Strategy, organisation and cost review initiated; to be completed in autumn

H1 2016: Key performance measures1

H1 2016: Reported under IFRS

Chief Executive, Jonathan Lewis said:

"Our industry continues to face very challenging conditions, with capital projects across natural resources markets being delayed and cancelled in many parts of the world.

Despite this, we continue to benefit from the diversity of our platform and we remain on track to deliver the operational guidance we gave at the beginning of the year.

I have initiated a wide-ranging review of the strategy, our organisation structure and cost base - which we are now part-way through. I expect to update investors on these issues in the autumn."

Contacts:

Notes:

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

2. Excluding the impacts of currency movements

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

Results presentation:

We will host a webcast for analysts and investors at 8.30am (UK time) today. The webcast can be accessed via: amecfw.com/investors/results-centre/half-year-results-2016

A recording will be available shortly after the event has finished.

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.

Employing around 36,000 people in more than 55 countries and with 2015 revenues of £5.5 billion, the company operates across 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 projects (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

Americas

Americas is the largest business unit, with 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. 

Poor trading in the Oil & Gas business during the first half has required significant remedial action to be taken. Senior management positions have been changed, and a consolidation of operating units and office space has commenced. As a result, a non-cash impairment charge of £125m has also been taken.

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

Revenue in Americas was £1,394 million (2015: £1,267 million), an increase of 10%. Excluding the effect of currency movements, underlying revenue was up 7%. Significant growth in the Clean Energy and Environment & Infrastructure sectors offset declines in Oil & Gas and Mining.

Trading profit fell by 23% to £64 million (2015: £82 million), the main impact was in Oil & Gas where key contracts were delayed or cancelled by customers which caused a major decline in utilisation rates in Houston. As a result trading margin was 4.6%, down by 190 basis points compared with 2015.

Oil & Gas projects currently underway include capital and sustaining capital projects at Kearl for Imperial Oil, Conoco Phillips and Suncor and early stage work on a greenfield methanol plant for YCI. In Latin America we continue to build our relationship through early stage project activity with PEMEX in Mexico. We are nearing the completion of our scope for K+S at Legacy, and although Mining project activity remains subdued, we are currently working on a number of FEEDs. In E&I we are working on site remediation programmes for Honeywell and Duke.

We are working on a number of utility-scale solar projects, with 2016 set to be a record year. The renewables market in the US is expected to attract new investment for the next few years, helped by the extension of investment tax credits by the US Congress late last year. We have a strong pipeline of these projects in the US with a range of customers, including Sempra, Dominion, Panoche Valley and Georgia Power.

Contract wins announced in 2016 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 main operations are in Oil & Gas with a leading position in brownfield operations, maintenance and modifications as well as upstream and downstream capital projects. We are also one of the largest service providers to the UK nuclear industry.

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

Revenue in NECIS rose by 3% to £759 million (2015: £736 million), primarily due to a higher level of Oil & Gas activity in the North Sea, driven by major offshore hook ups. Excluding the effect of currency movements, underlying revenue was also up 3%.

Trading profit decreased by 21% to £55 million (2015: £70 million). Trading margin was 7.3%, down 220 basis points compared with 2015, reflecting last year's strong performance on contract close outs and the ending of the NMP contract at Sellafield during the half.

Key UK North Sea projects worked on during the first half include 4 hook up and commissioning projects, including Clair Ridge and Quad 204 for BP and Cygnus for Engie. Work has continued under long-term brownfield contracts with Conoco Phillips, Nexen, Maersk, Marathon and Shell. In Azerbaijan, work continues on Shah Deniz 2 for BP.

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 and Scottish Power.

Contract wins announced in 2016 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 have capabilities and customer relationships 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')

Revenue in AMEASE was 3% lower at £505 million (2015: £518 million). Weaker Oil & Gas revenues, with growth in the Middle East impacted by project deferrals, was partially offset by stronger performances from Mining and E&I. Excluding the effect of currency movements, underlying revenue was down 6%.

Trading profit rose by 11% to £36 million (2015: £33 million) reflecting the continued benefits of the integration of the legacy businesses in the region. Trading margin was 7.2%, up 90 basis points.

Key upstream Oil & Gas projects include providing asset support for ConocoPhillips' Bayu-Udan gas facilities in the East Timor Sea and we are providing technical and project management services on the Upper Zakum project for Zadco and for ADMA Opco at Umm Lulu. Downstream projects in Asia include front end design for the expansion of the Dung Quat refinery in Vietnam for Binh Son Refining Company and two work packages at ExxonMobil's new halobutyl rubber and hydrocarbon resins plant in Singapore. In the Middle East downstream projects include supporting KNPC's new oil refinery at Al Zour, delivering the propylene oxide plant at Jubail for Sadara Chemical Company. In Europe, we are working on the revamp of ExxonMobil's refinery at Antwerp.

In Mining we continue to work on the Çőpler gold mine in Turkey, and are about to complete our scope on the Husab uranium project in Namibia. US Government work includes the Space Fence project in the Marshall Islands with Lockheed Martin and projects in Qatar and Afghanistan.

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, evidenced by the encouraging order book growth.

Contract wins announced in 2016 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.

GPG's recent results and medium term forecasts are well down on prior expectations giving rise to another impairment in goodwill and intangible assets of £246m, and the book value is now £180m. Further information can be found in note 10.

As previously announced GPG is undergoing a sale process. The Board expects that this process will conclude in the coming months.

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

2 Includes £246m impairment of goodwill and intangible assets plus £15m impairment of asset held for sale

Revenue in GPG rose by 11% to £216 million (2015: £195 million), reflecting good progress in projects in execution. On an underlying basis, revenue was up 6%.

Trading profit rose by 60% to £33 million (2015: £21 million). Trading margin rose 480 basis points to 15.4% in 2016, due to the successful conclusion of projects and the impact of cost saving measures.

The erection of the 4 x 550MWe ultra-supercritical CFB boilers at Samcheok in South Korea, the largest CFB units in the world has continued to progress, and the plant is now undergoing trial operations. We are currently working on four projects in Mexico, including the supply of two heat steam recovery generators for Iberdrola and providing an arch fired steam generator at the Thai Binh Thermal Power Plant in Vietnam. 

Order in-take remains weak, and the pipeline of future work remains uncertain - 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 2016 include:

Financing update

On 2 March we announced we had completed the refinancing of our main debt facilities by entering into a new facility with a syndicate of 20 banks. No capital repayments are required to be made until 2019 under the terms of the facility.

The facility is denominated in GBP. However, we have drawn down monies in a range of currencies (including using swaps) to provide a natural hedge with our key operating currencies (GBP, EUR, USD and CAD).

We have current credit ratings from Moody's (Ba1, negative outlook) and Standard & Poors (BB+, negative outlook).

Cost savings update

The previously announced cost saving programme is on track, and we plan to deliver £130 million of cost savings per annum by 2017. In the year to date we have taken an exceptional charge of £55 million.

Board changes

On 18 January we announced that Samir Brikho was stepping down as Chief Executive and leaving the board with immediate effect.

On 27 April we announced the appointment of Dr Jonathan (Jon) Lewis, as Chief Executive Officer, with effect from 1 June 2016. On the same day Ian McHoul ceased to be interim CEO, and reverted to being CFO.

Roy Franklin joined the board as a non-executive director on 1 January 2016.

Strategy and disposals review

The disposal process for GPG is ongoing, and is expected to conclude in the coming months. Assets held for sale on the balance sheet comprise our interests in an infrastructure asset and three power generating assets. Together with GPG, the proceeds expected from these assets is c£300m.

Jon Lewis and his senior team have initiated a wide-ranging review of the strategy, organisation and cost base which is expected to be completed in the autumn. The project incorporates a review of our portfolio of assets, with further candidates for disposal expected to be identified, with an aggregate value of proceeds of at least £200m.

Therefore, the board continues to believe that disposals can deliver £500m of proceeds to reduce leverage by June 2017.

Investor event

The senior management will be holding a series of presentations for investors and analysts on 15 November. Further details will be provided ahead of the event.

Outlook

For the full-year 2016, our trading result expectations are unchanged, including the benefit of forecast weaker Sterling in the second half.

Second half like-for-like revenues will be down double-digit compared to last year's comparator, with trading margins expected to be similar to the first half result this year.

Net debt is expected to be circa £1.1 billion at the year end, before proceeds from disposals, but including the impact of weaker Sterling and anticipated higher restructuring costs.

Operating and financial review

Basis of preparation

Accounting policies

The condensed financial statements for the six months ended 30 June 2016 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 2016.

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'.

Restatement

On 13 November 2014 (the acquisition date), the group acquired 95.3 per cent of the issued share capital of Foster Wheeler AG. Management had not finalised its assessment of the fair values of certain of Foster Wheeler's assets and liabilities at the time that the 2015 interim financial statements were completed, and as a result, the 2015 interim financial statements reflected the provisional assessment of the fair values as at the acquisition date.

During the latter part of 2015, management completed the fair value assessment and the comparative amounts for June 2015 shown in the Balance Sheet, Statement of Comprehensive Income and Statement of Changes in Equity have been restated to reflect changes made to the carrying amounts of assets and liabilities recognised on the acquisition of Foster Wheeler, details of which are set out in note 24 to the 2015 Annual Report and Accounts.

As the acquisition of Foster Wheeler AG in November 2014 represented more than 90% of Foster Wheeler's issued share capital, the acquisition qualifies for merger relief under section 612 of the Companies Act 2006 from crediting the share premium that arose on the new shares issued in consideration for Foster Wheeler to a share premium account. The balance sheet as at 30 June 2015 has been restated to present excess of the nominal value of the shares issued of £877m as a merger reserve.

Continuing operations

Revenue

Revenue for the period at £2,842m was 7% higher than last year (six months ended 30 June 2015: £2,664m).

Revenue increased by £127m in the Americas, by £23m in NECIS and by £21m in the Global Power Group. This was offset by a decline of £13m in AMEASE. Weakness in the Oil & Gas markets in the Americas and AMEASE was offset by growth in Clean Energy, Mining and Environment & Infrastructure.

Excluding the effect of currency movements, underlying revenue increased by 4%.

Administrative expenses

Administrative expenses were £741m (six months ended 30 June 2015: £250m), including exceptional items, intangibles amortisation and impairment and asbestos-related items of £580m (six months ended 30 June 2015: £83m).

Administrative expenses before intangibles amortisation and impairment, exceptional items and asbestos-related items declined by £6m to £161m.

Corporate costs, which comprise the costs of operating central corporate functions and certain regional overheads, were £3m lower at £22m (six months ended 30 June 2015: £25m).

(Loss)/profit before net financing expense

There was a loss before net financing expense of £414m (six months ended 30 June 2015: profit of £83m) as a result of the impairment losses and exceptional items recognised in the period.

Amortisation and impairments

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. There were a number of impairments recognised against goodwill and other assets which are discussed below. Amortisation of intangible assets was £66m (2015: £65m). During the period, impairments of £440m were recognised of which £405m was recorded directly against goodwill and intangible assets and £35m against assets classified as held for sale:

· £246m - impairment of GPG goodwill and intangible assets. During 2016, there has been a further deterioration in the forecast results of the GPG business with further delays and project cancellations and reduced bookings in the period. This has resulted in a further impairment charge of £246m (year ended 31 December 2015: £308m).

· £125m - impairment of the Americas intangible assets. During the first half of 2016 there was a significant deterioration in the trading conditions and forecast outturn for the oil and gas business based in Houston. Management has impaired the ongoing value of the intangible assets in the light of current trading conditions and uncertainty over prospects; resulting in a charge of £125m in the first half.

· £35m - impairment of two operations transferred to held for sale in the period, including £11m transfer of goodwill attributable to the disposal group.

· £34m - impairment of ERP systems which will be replaced with a scalable, global system.

Exceptional items

Pre-tax exceptional costs of £53m were incurred during the period (six months ended 30 June 2015: £30m) of which £51m (six months ended 30 June 2015: £25m) are recorded in trading profit and £2m (six months ended 30 June 2015: £5m) is recorded in net financing expense as follows:

· costs of £55m in relation to the restructuring and integration costs (including severance, office rationalisation, consultancy as well as IT and other costs);

· £2m release of provisions no longer required

Asbestos-related items (net of insurance recoveries)

During the six months ended 30 June 2016, the group recognised net asbestos-related costs of £24m (six months ended 30 June 2015: income of £3m) of which £21m (six months ended 30 June 2015: income of £7m) related to the movement in the discount rate applied to the net asbestos-related liabilities assumed on the acquisition of Foster Wheeler and is reported in trading profit. In addition, there was an asbestos-related interest expense of £3m (six months ended 30 June 2015: £4m) related to the unwinding of the discount applied to the liability.

Trading profit and trading margin

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

Trading profit fell by 6% to £177m (six months ended 30 June 2015: £188m). Trading profit in the Americas fell by £18m with reduced utilisation in Houston following project delays and cancellations. Trading profit also fell by £15m in NECIS as the NMP joint venture at Sellafield came to an end and 2015 benefitted from successful project close outs. Trading profit was £3m higher in AMEASE and £12m higher in GPG which saw the benefits of cost savings and successful project close outs.

Net financing expense

The net financing expense was £40m (six months ended 30 June 2015: £26m) including bank interest and finance lease interest payable of £29m. In H1 2016 the net financing expense also included expenses of £5m associated with the cost of refinancing activities, £3m due to the unwinding of the discount on the net asbestos-related liabilities, £1m amortisation of facility arrangement fees, and £2m other items.

A net currency exchange loss of £92m (six months ended 30 June 2015: gain of £37m) was recognised in the translation reserve in respect of foreign currency borrowings and derivatives held in designated net investment hedging relationships. The exchange loss was principally caused by a weakening of Sterling during the period.

Share of results of post-tax results of joint ventures

The group's share of joint ventures' post-tax profit for the period was £8m (six months ended 30 June 2015: £16m). Two of the Group's joint ventures are now classified as held for sale and so will cease equity accounting.

(Loss)/profit before tax

There was a loss before tax of £446m (six months ended 30 June 2015: profit of £73m) after impairment charges of £440m (2015: nil) intangibles amortisation of £66m (six months ended 30 June 2015: £65m), a net asbestos-related charge of £24m (six months ended 30 June 2015: credit of £3m), exceptional charges of £53m (six months ended 30 June 2015: £30m) and the group's share of joint ventures' tax expense of £3m (six months ended 30 June 2015: £5m). Adjusted profit before tax was 17% lower at £140m (six months ended 30 June 2015: £170m).

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 2016 on continuing operations (including its share of joint ventures' income tax expense but before exceptional items, intangibles amortisation and impairment and asbestos-related items) was 21.1% (six months ended 30 June 2015: 22.3%). The full year tax rate is expected to be in the range 21-22%.

During the first six months of 2016, there was a tax credit on exceptional items of £3m (including a tax charge on exceptional items of discontinued operations of £1m) (six months ended 30 June 2015: £6m, including tax on exceptional items of discontinued operations of £2m), and a tax credit of £27m on intangibles amortisation and impairment (six months ended 30 June 2015: £12m).

The group's share of joint ventures' income tax expense was £3m (six months ended 30 June 2015: £5m).

(Loss)/profit for the period from continuing operations

There was a loss for the period from continuing operations of £441m (six months ended 30 June 2015: profit of £56m) after adjusting for intangibles impairment and amortisation of £506m (six months ended 30 June 2015: £65m), the net asbestos-related charge of £24m (six months ended 30 June 2015: income of £3m), exceptional items of £53m (six months ended 30 June 2015: £30m), and income tax credits on those items of £31m (six months ended 30 June 2015: £16m), adjusted profit for the period was £111m (six months ended 30 June 2015: £132m).

(Loss)/earnings per share

Diluted loss per share was (112.7)p (six months ended 30 June 2015: EPS of 11.8p), comprising loss per share of (115.8)p (six months ended 30 June 2015: EPS of 14.5p) from continuing operations and an EPS of 3.1p (six months ended 30 June 2015: loss of 2.7p) from discontinued operations.

Adjusted diluted EPS from continuing operations was 28.2p (six months ended 30 June 2015: 34.0p), due to the reduction in trading profit in the period.

Dividend

The board has declared an interim dividend of 7.4p per share. This will be paid on 4 January 2017 to shareholders on the register at the close of business on 25 November 2016.

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

Discontinued operations

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

Discontinued operations generated a pre-tax trading profit before tax of £6m as a result of a provision release on a completed contract (six months ended 30 June 2015: loss of £5m). There was an associated tax charge of £1m (six months ended 30 June 2015: credit of £1m) resulting in a post-tax profit for the period of £5m (six months ended 30 June 2015: loss of £4m).

Discontinued operations included a pre-tax profit on disposals of £8m (six months ended 30 June 2015: loss of £8m) arising from the release of indemnity provisions no longer required following favourable settlements and costs associated with businesses sold in prior years, there was an associated tax charge of £1m (six months ended 30 June 2015: tax credit of £2m) giving a total post-tax profit for the period of £12m (six months ended 30 June 2015: loss of £10m).

Cash flow

Trading cash flow

Trading cash flow of £125m was £41m higher than 2015 (2015: £84m), as a result of a stronger working capital performance.

Cash conversion from trading profit was 71% (2015: 45%).

Capital expenditure

Capital expenditure was £3m (2015: £9m). Additionally, there were cash payments in respect of computer software of £7m (2015: £15m) and proceeds from disposals of £1m (2015: £1m).

Acquisitions and disposals

There was a cash outflow of £5m in respect of acquisitions and disposals principally related to settlement of liabilities relating to businesses disposed in prior years. In the prior period, a cash outflow of £56m principally related to the acquisition of the minority interest in Foster Wheeler in January 2015 following the squeeze out merger.

Exceptional items

The cash outflow on exceptional items principally related to settlement of asbestos claims, integration and restructuring costs. In addition, £49m was paid during the period in settlement of the Longview dispute.

Movement in net debt

The movement in net debt may be analysed as follows

Net debt comprised:

Balance sheet

Goodwill and other intangibles

As at 30 June 2016, the carrying amount of goodwill was £2,185m (31 December 2015: £2,192m), with the reduction during the year being an impairment of £214m recognised against the goodwill attributable to the Global Power Group business and the allocation of £11m of goodwill to the disposal group. This was offset by exchange movements of £218m. See note 10 for further details.

As at 30 June 2016, the carrying amount of other intangibles was £648m (31 December 2015: £833m), which comprised acquired identifiable intangible assets of £608m (31 December 2015: £753m) and computer software of £40m (31 December 2015: £80m). During the period there was an impairment charge of £157m recognised against the customer relationship intangible assets arising as part of the Foster Wheeler acquisition and allocated to the Americas and GPG and a £34m write off of computer software.

Property, plant and equipment

As at 30 June 2016, property, plant and equipment amounted to £83m (31 December 2015: £127m), with the reduction in the period due to the transfer of PPE (power generation assets) to held for sale along with depreciation of £13m offset by exchange and other movements of £11m and capex additions of £3m.

The Group holds 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 in a number of countries. There were three principal plans: two in the UK and one in the US. As at 31 December 2015, each of these plans was closed to new entrants and the two legacy Foster Wheeler plans were also closed to future service accruals. Following an employee consultation exercise at the end of 2015, the Company confirmed its intention to close its two main UK defined benefit pension schemes to future accrual from 1 April 2016 and replace them with a new defined contribution arrangement. The necessary Trustee approvals have now been received, and all legacy defined benefit plans in the UK have now been merged into the new arrangement.

As at 30 June 2016, there was a net deficit of £109m on the group's defined benefit pension plans (31 December 2015: surplus of £63m) with the movement in the period principally due to movements in the discount rates applied to the liabilities.

Provisions

Provisions held at 30 June 2016 were £670m (31 December 2015: £664m).

During the six months ended 30 June 2016 provisions of £40m were utilised and £36m of provisions no longer required were released to the income statement. Additional provisions of £9m were created and the asbestos provision increased by £21m as a result of changes in the discount rate applied to the provision and there were exchange and other movements of £48m.

Provisions are summarised as follows:

Details of the provisions held by the group are set out in note 11 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 2016, the group recognised:

· asbestos-related liabilities of £464m, 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 £127m

The net liability of £(337)m in respect of asbestos-related obligations is presented on the balance sheet within other non-current receivables (£112m); trade and other receivables (£15m); trade and other payables (£(39)m) and provisions (£(425)m).

There was a net cash outflow of £12m during H1 2016 due to the excess of forecast indemnity payments and defence costs over insurance proceeds.

Investments

Following the impairment charges against goodwill and intangible assets, the carrying value of subsidiary company investments held on the parent company balance sheet was reviewed and a write down of £507m was charged against the merger reserve created on the acquisition of Foster Wheeler. This has no impact on distributable reserves.

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

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 and impairment 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 and impairment 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 revenue.

Adjusted profit before tax

Adjusted profit before tax represents profit before tax before exceptional items, the amortisation and impairment 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 and impairment 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 8 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 awarded to joint ventures.

Principal business and strategic risks

The table below shows Amec Foster Wheeler's principal business and strategic risks. Each is specific to the Group and could have a material impact on it. Actions have been taken to mitigate these risks and these are also shown.

CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED INCOME STATEMENT `

CONDENSED CONSOLIDATED INCOME STATEMENT