Half Yearly Report

AMEC plc 2014 half-year results

Highlights

· Underlying1 revenue up 4% and EBITA up 5%

o Underlying margins stable

· Reported revenue £1,858 million, and EBITA £152 million

o Down 7% and 4% respectively

· Order book of £4.2 billion, up 16% on underlying basis

· Interim dividend per share up 10%, to 14.8p pence

· Offer for Foster Wheeler expected to complete in early Q4

· Expected full year impact on reported numbers of stronger Sterling remains

o Revenue £250 million and EBITA £25 million

Chief Executive Samir Brikho said:

"We have reported underlying revenue growth of 4% and stable margins in the first half. As expected, we are seeing less greenfield activity in some of our key upstream oil and gas markets, which is partially offsetting the strong growth from Clean Energy and Middle Eastern Oil & Gas.

"We now expect to see modest underlying revenue growth in 2014 for our existing operations. As discussed previously, the mix of business will result in a slight reduction in group margins compared to last year. As in 2013, profits and cash flow generation will be second-half weighted.

"The acquisition of Foster Wheeler continues to make good progress, with integration planning well underway and completion now expected early in the fourth quarter. We believe the combination of AMEC and Foster Wheeler is a compelling one, for our shareholders, our customers and our employees.

"A 10 per cent increase in the interim dividend signals our belief in the underlying strength of AMEC."

Results presentation and live webcast: AMEC will host a presentation on the half-year results and update on the combination with Foster Wheeler for analysts and investors at 8.30am today. A live webcast of the event and presentation slides will be available on amec.com.

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

(1) Underlying excludes the impact of acquisitions, disposals, currency fluctuations and changes to levels of pass through incremental procurement

Enquiries to:

Financial highlights

Group

Notes:

1. EBITA for continuing operations before intangible amortisation and exceptional items but including joint venture EBITA

2. EBITA as defined above as a percentage of revenue

3. EBITA, as defined above, less net financing costs (including joint ventures) of £2 million (H1 2013: £4 million)

4. Cash generated from operations before: exceptional items, discontinued operations and legacy settlements, pension payments in excess of current service cost and certain foreign exchange movements, but including dividends received from joint ventures

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

Basis of presentation

The following commentary is based on the results for continuing operations before intangible amortisation and exceptional items but including joint venture EBITA.

The results are presented to the nearest million. Percentage movements and calculated numbers, such as EPS and margin rates, are based on the underlying numbers to 1 decimal place precision.

Segmental analysis

Amounts and percentage movements relating to continuing segmental earnings before net financing income, tax and intangible amortisation (EBITA) are stated before corporate costs of £16 million (H1 2013: £18 million) and pre-tax exceptional costs of £44 million (H1 2013: £14 million).

Discontinued operations

The comparative figures for 2013 have been restated to present the UK Conventional Power business as a discontinued operation. The impact on the six months ended 30 June 2013 is an increase in profit from continuing operations of £1 million with a corresponding increase in the loss from discontinued operations. See note 2 for more details.

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

*International Financial Reporting Standard 5: 'Non-current assets held for sale and discontinued operations'.

H1 2014 results overview

Revenue for the first six months of 2014 fell 7 per cent to £1,858 million (H1 2013: £1,991 million), including the £160 million impact of adverse currency translation arising from the strength of Sterling. Underlying revenue, excluding incremental procurement, was 4 per cent ahead of last year.

EBITA declined 4 per cent to £152 million (H1 2013: £159 million) with EBITA margins up by 20 basis points to 8.2 per cent (H1 2013: 8.0 per cent). Excluding the impact of incremental procurement, margins were flat.

Adjusted profit before tax of £150 million in H1 2014 was 3 per cent lower than the previous year (H1 2013: £155 million). After joint venture tax of £2 million (H1 2013: £1 million), amortisation of £21 million (H1 2013: £22 million) and exceptional costs of £44 million (H1 2013: £14 million), profit before tax was £83 million (H1 2013: £118 million). The tax charge for H1 2014, including tax on amortisation and exceptional items, was £24 million (H1 2013: £22 million) resulting in a total profit from continuing operations for H1 2014 of £59 million (H1 2013: £96 million).

Adjusted diluted earnings per sharefrom continuing operations were 39.1 pence (H1 2013: 40.6 pence).

Operating cash flow for the period was £39 million, down £20 million from the comparable period last year (H1 2013: £59 million). This reduction was predominantly due to short-term timing effects in working capital. Full-year cash flow is expected to be good once again, with cash conversion in line with recent years.

Dividend, balance sheet and use of cash

AMEC has a low-risk, asset-light business model and expects to generate substantial free cash flow each year, and therefore expects to maintain its progressive dividend policy. Maintaining an efficient capital structure also remains a key component of AMEC's strategy.

At 30 June 2014 AMEC had net cash of £28 million. Post the acquisition of Foster Wheeler AMEC will retain a strong balance sheet.

A 10 per cent increase in the interim dividend to 14.8 pence per share (H1 2013: 13.5 pence) demonstrates the board's continuing confidence in the group's future performance.

Acquisition of Foster Wheeler

On 13 February 2014 AMEC announced it had entered into a definitive agreement to acquire Foster Wheeler.

The terms of the acquisition were originally announced on 13 January 2014, with Foster Wheeler shareholders receiving 0.8998 new AMEC securities and $16.00 in cash for each Foster Wheeler share.

The cash portion of the consideration will be financed by a combination of AMEC's existing cash resources and new debt financing. The securities portion of the consideration will be satisfied by the issuance of approximately 90 million new AMEC securities to Foster Wheeler shareholders, which, at the election of Foster Wheeler shareholders, will be issued in the form of either ordinary shares or American Depositary Shares (for which AMEC is seeking a US listing).

All anti-trust approvals required for completion have been now been received. Foster Wheeler held a general meeting on 10 July 2014, where its shareholders approved the amendments to its articles of association necessary for the transaction. In due course, it is expected that an AMEC shareholder meeting will be called in order to approve the transaction and the tender offer to Foster Wheeler shareholders will be launched. The acquisition of Foster Wheeler is expected to complete early in the fourth quarter.

On completion of the acquisition, Foster Wheeler shareholders will hold shares in AMEC representing approximately 23 per cent of AMEC's enlarged share capital. It is expected that following completion two current directors of Foster Wheeler will join the AMEC board as non-executive directors.

Average number of employees

The average number of employees was down 7 per cent in the first half, to 27,032.

The reduction in Americas reflects in particular de-manning on the Kearl project during the second half of 2013. Movements in the other regions broadly reflect underlying performance.

Outlook  

We now expect to see modest underlying revenue(1) growth in 2014 for our existing operations, led by ongoing strength in the Clean Energy market and Middle Eastern Oil and Gas. As discussed previously, the mix of business will result in a slight reduction in group margins compared to last year. As in 2013, profits and cash flow generation will be second-half weighted.

Actual exchange rates year to date, and forecast average North American exchange rates for the remainder of 2014, continue to be less favourable than 2013. This currently translates into a year on year impact on revenues of circa £250 million, and for EBITA of circa £25 million for the full year.

The acquisition of Foster Wheeler is expected to close early in the fourth quarter, and be double-digit earnings enhancing in the first 12 months after completion. The combination of Foster Wheeler and AMEC is expected to create sustainable value for shareholders for the long term, with ROIC expected to exceed the cost of capital in the second twelve months' period after completion.

(1) Underlying revenue excludes the impact of acquisitions, disposals, currency fluctuations and changes to the levels of pass through incremental procurement

Segmental review

Americas

Americas is the largest business unit, generating 56 per cent of group revenue in H1 2014. The portfolio of activities is well balanced across all four markets, with revenue broken down as follows:

Revenue in Americas was down 8 per cent to £1,060 million, while underlying revenue was up 7 per cent compared with the same period last year. Incremental procurement at £50 million was £50 million lower than the first half last year. A strong performance in Clean Energy helped to offset a slow-down in conventional oil & gas and continued weakness in oil sands. Underlying Mining revenues were flat.

EBITA was down 9 per cent to £102 million (H1 2013: £113 million). The EBITA margin at 9.7 per cent was down 10 basis points from 2013.

Contract wins in 2014 included:

Other current projects include an EPC contract for a 250MW solar array for SEMPRA Energy, engineering and procurement for the Kearl expansion phase for Imperial, programme management work for Honeywell.

The order book as at 30 June 2014 was £1.4 billion, down 13 per cent since the same period last year, was stable on an underlying basis.

Americas outlook

First half revenue trends (underlying and excluding incremental procurement) are expected to continue into the second half. Incremental procurement is expected to be minimal in the second half.

Full-year margins are expected to be lower compared to the full year 2013 due to the mix in end market activities.

Europe

Europe generated 29 per cent of group revenue in H1 2014, with most of the work in the UK North Sea and nuclear markets. H1 revenue can be analysed by market as shown below:

The comparative figures for 2013 have been restated to present the UK Conventional Power business as a discontinued operation.

Revenue in Europe was down 7 per cent to £545 million, reflecting lower greenfield activity in the UK North Sea, as expected.

EBITA was up 13 per cent at £45 million with EBITA margin up 150 basis points to 8.2 per cent (H1 2013: 6.7 per cent). Margins benefited from the non-recurrence of the losses arising from delays to the Teesside Gas Processing Plant (TGPP) contract, and reflect a good performance in UK North Sea brownfield and asset support. The Sellafield joint venture contributed £3 million (H1 2013: £3 million).

Contract awards announced in 2014 reflect continued investment in the UK North Sea and the clean energy market.

Other projects include ongoing work on Clair Ridge for BP, the general operating contract for the Dunlin assets for Fairfield, consulting and engineering services for the UK nuclear new build programme of EDF.

The order book as at 30 June was £1.9 billion (30 June 2013: £1.6 billion). The Sellafield decommissioning contract, as an equity accounted joint venture, is not included in these figures.

Europe outlook

Underlying revenue trends and margin are expected to improve in H2.

Growth Regions

Growth Regions generated 15 per cent of group revenue in H1 2014, with oil & gas activities driving much of the activity. H1 revenues can be analysed by market as follows:

Revenue in the Growth Regions was £279 million, led by a strong performance in the Middle East oil & gas market, and an increase in early stage mining activity. Underlying revenue growth was 15 per cent.

EBITA was up 4 per cent, to £17 million and the EBITA margin was 6.0 per cent, down 10 basis points from H1 2013. Margin improvement continued to be held back by the overall lack of scale across the region.

Contract awards so far in 2014 reflect the strength of the oil & gas market in the Middle East and Azerbaijan.

Other current projects include project management services for the new refinery project and engineering support services at existing refineries for KNPC, project management on the Umm Lulu field for ADMA and Zadco phase II for Zadkum and engineering on the Husab uranium mine in Namibia for Swakop.

The order book at 30 June 2014 was £0.9 billion, up 30 per cent.

Growth Regions outlook

Underlying revenue trends are expected to continue into H2, with margin remaining flat this year.

Investment Services

This now comprises the Incheon Bridge PPP project in Korea, the group's insurance captive, AMEC's wind development activities and a range of other non-core activities.

Lancashire Waste PFI project was divested during the period.

Revenue was £3 million (H1 2013: £2 million). EBITA of £4 million (H1 2013: £8 million) reflects the successful exit from assets in North America during 2013.

FINANCIAL REVIEW

Administrative expenses 

Administrative expenses of £103 million were £9 million lower than the prior period (H1 2013: £112 million), as a result of currency movements and a reassessment of the expected vesting of certain share based payment awards.

Net financing income/(expense)

The net financing income for the first half of £1 million (H1 2013: net financing expense of £1 million) included net interest on pensions assets of £1 million (H1 2013: £nil) and other items of £nil (H1 2013: £(1) million). AMEC's share of interest payable of equity accounted joint ventures was £3 million (H1 2013: £3 million).

Taxation

Continuing operations

The group's effective tax rate for the first six months of 2014 for the continuing businesses (including tax attributable to joint venture interests) before exceptional items and excluding intangible amortisation was 22 per cent (H1 2013: 22 per cent). The full year tax rate is expected to be approximately 22 per cent.

Deferred tax

As at 30 June 2014, the group had net deferred tax assets of £25 million (30 June 2013: £44 million, 31 December 2013: £15 million) arising from short-term timing differences relating to provisions, property, plant and equipment, and tax losses, offset by liabilities in respect of intangible assets and retirement benefits.

Financial position and net cash

The group remains in a strong financial position, with net cash as at 30 June 2014 of £28 million (30 June 2013: £25 million, 31 December 2013: £121 million) and committed and available facilities of £477 million, including a £377 million five-year multi-currency revolving facility plus a £100 million one-year term loan.

On 13 February 2014, the group entered into a $2.16 billion credit facility. The funds provided under this facility are to finance the acquisition of Foster Wheeler and the fees, expenses, costs and taxes associated with the acquisition; repaying the existing £100 million term loan and general corporate purposes. On 14 July 2014 one of the facilities was increased by $100 million to allow for a transition of Letters of Credit issued under the main Foster Wheeler facility.

Intangible amortisation

Intangible amortisation relates to capitalised software and intangible assets acquired as part of the group's expansion programme. The first half charge was £21 million (H1 2013: £22 million).

Going concern

The directors are satisfied that the group has adequate resources to operate for the foreseeable future. As at 30 June 2014, the group held net cash of £28 million and had committed and available banking facilities of £477 million.

Exceptional items

Total pre-tax exceptional losses of £52 million (H1 2013: £19 million) included:

§ A loss of £20 million on the disposal of the group's investment in the Lancashire Waste JV;

§ A loss on business disposals of £8 million arising from adjustments to existing provisions made in respect of prior year business disposals and a gain of £5 million from the release of a provision no longer required in respect of a business closed in a prior year; and

§ Other exceptional costs of £29 million including transaction costs of £26 million associated with the proposed acquisition of Foster Wheeler AG.

Cash flow

Cash generated from operations in the first half of 2014 was £11 million (H1 2013: £41 million). After adjusting for exceptional items, discontinued operations and legacy settlements, the difference between pension payments and current service cost and certain foreign exchange movements but including dividends received from joint ventures, operating cash flow was £39 million (H1 2013: £59 million). This reduction was predominately due to short-term timing effects in working capital. Full-year cash flow is expected to be good once again, with cash conversion in line with recent years.

Pensions 

The IAS 19 surplus of the principal UK pension schemes as at 30 June 2014 was £102 million (30 June 2013: £85 million, 31 December 2013: £102 million). The schemes have operated on a career average salary basis since 1 January 2008. The principal UK pension scheme is closed to new entrants, but remains open to future accrual for existing members.

There are a number of smaller schemes which are in a deficit position. The combined deficit as at 30 June 2014 was £63 million (30 June 2013: £99 million, 31 December 2013: £62 million).

Legacy issues

There have been no significant new legacy issues identified in the first half of 2014. Provisions currently held for future costs of litigation total £30 million (30 June 2013: £40 million, 31 December 2013: £37 million).

Provisions

Provisions held as at 30 June 2014 were £155 million (30 June 2013: £173 million, 31 December 2013: £163 million). During H1 2014, £14 million of the brought forward provisions were utilised.

As part of the ongoing review of the potential liabilities, £8 million of provisions were released as they were no longer required; this included £5 million in respect of a prior year business closure which has been credited as an adjustment to the previously reported loss on disposal within continuing operations.

Additional provisions of £12 million were created which included £8 million in respect of indemnities granted on prior year disposals, which have been charged as an adjustment to the previously reported profit on disposal within discontinued operations.

Provisions are analysed as follows:

Business risks and opportunities

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

AMEC operates predominantly in the UK and North America and is therefore particularly affected by political and economic conditions in those markets.

Changes in general economic conditions may influence customers' decisions on capital investment and/or asset maintenance, which could lead to volatility in the development of AMEC's order intake. These may also lead to change in the customer base, competition and in the way customers procure the services we provide.

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

The risks associated with economic conditions resulting in a downturn and affecting the demand for AMEC's services has been addressed, as far as practicable, by seeking to maintain a balanced business portfolio in terms of geographies, markets, clients and service offering / business model.

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

In order to mitigate the risks associated with the acquisition of Foster Wheeler and the integration of the AMEC and Foster Wheeler businesses, AMEC 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 16, 19, 23, 26, 34 and 38 of the 2013 annual report and accounts. These are a major third party environmental event, changes in commodity prices, restructure to focus on expansion of global footprint, mergers and acquisitions, project delivery, pensions, health, safety and security, legacy risk, information technology, staff recruitment and retention and ethical breach. As a result of the acquisition of Foster Wheeler, AMEC may be exposed to new risks and/or its exposure to its principal risks may be augmented.

CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME