AMEC plc INTERIM RESULTS 2009

RECORD TRADING PERFORMANCE

• EBITA1 up 25% to £94.5 million (2008: £75.9 million)

• 7.5% EBITA margin2 (2008: 6.0%); firmly on track to deliver 8.5% in 2010 

• Diluted earnings per share4 from continuing operations 20.8 pence, up 11%

• Interim dividend increased 15% to 6.1 pence per share

• Group order book £3.2 billion (June 2008: £2.5 billion; December 2008: £3.3 billion)

• Average weekly net cash for 2009 expected to be £700 million before further acquisitions

Chief Executive Samir Brikho said:

"These results, achieved in a challenging trading environment, are further evidence of our improved competitive position and internal efficiency. Our investment in developing relationships with key customers continues to result in new contract awards and the quality of our backlog has never been better.

"With our Operational Excellence programme now close to completion, we expect to achieve a margin approaching eight per cent this year, and are firmly on track to deliver our group margin target for 2010 of 8.5 per cent.

"The 15 per cent increase in our interim dividend demonstrates our continuing confidence in the future. We are well positioned in long-term growth markets and upon completion of Operational Excellence, will benefit from unrivalled strength and operational flexibility. With £700 million of cash on the balance sheet, we will seek to supplement organic growth in the business with further value adding acquisitions."

Results interview, presentation and live webcast

An interview with Samir Brikho and Ian McHoul, Chief Financial Officer, is available at amec.com

A presentation of the interim results for analysts and investors will take place at 8.30am today. A live webcast of the event and the presentation slides will be available on amec.com.

Enquiries to:

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Financial highlights:

Notes:

• EBITA for continuing operations before net financing income, intangible amortisation, pre-tax exceptional items and £2.0 million (2008: £nil) relating to elements of deferred consideration on acquisitions in the Earth and Environmental division (see below), but including joint venture profit before tax.

• EBITA, as defined above, as a percentage of revenue.

• EBITA, as defined above, plus net financing income of £3.0 million (2008: £14.5 million).

• Diluted earnings per share for continuing operations before intangible amortisation, exceptional items and elements of deferred    consideration on acquisitions in the Earth and Environmental division (see below).

Basis of presentation and discontinued activities

Adjusted profit before tax is based on the results for continuing operations before intangible amortisation and pre-tax exceptional items but including joint venture profit before tax. The results of the group and the Earth and Environmental division also exclude £2.0 million of costs relating to elements of deferred consideration on acquisitions by the Earth and Environmental division which, in line with IFRS 3*, are included within EBIT in the consolidated income statement.

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

Segmental analysis

Segmental analysis is provided for the group's core activities in the Natural Resources, Power and Process and Earth and Environmental divisions, as well as for non-core Investments and other activities. 

Amounts and percentage movements relating to continuing segmental earnings before net financing income, tax and intangible amortisation (EBITA) are stated before corporate costs of £18.8 million (2008: £17.3 million) and pre-tax exceptional income of £2.2 million (2008: £4.7 million). 

The average numbers of employees stated in this review include agency staff. The average number of employees in the Power and Process division for the six months ended 30 June 2008 has been restated to include all categories of employees in the Americas on a consistent basis.

* International Financial Reporting Standard 3 'Business combinations'.

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

Any forward looking statements made in this document represent management's best judgement as to what may occur in the future. However, the group's actual results for the current and future fiscal periods and corporate developments will depend on a number of economic, competitive and other factors, some of which will be outside the control of the group. Such factors could cause the group's actual results for future periods to differ materially from those expressed in any forward looking statements made in this document.

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INTERIM RESULTS

Total group revenues for the six months ended 30 June 2009 increased by 0.4 per cent to £1,259.7 million (2008: £1,255.2 million). Growth in the Natural Resources and Earth and Environmental divisions was offset by the effects of the strategic refocusing of the Power and Process division on the provision of low-risk services with high value added, and the progressive run-off of old contracts that do not meet the new criteria.

Set against the backdrop of a challenging trading environment, EBITA margin increased strongly in each of the group's three core divisions, resulting in a new group record of 7.5 per cent for the six months ended 30 June 2009 (2008: 6.0 per cent). 

Adjusted profit before tax of £97.5 million was eight per cent ahead of last year (2008: £90.4 million) and sets another new record for the group. Performance was strong in the Natural Resources and Earth and Environmental divisions, being offset by a weaker performance in the Power and Process division. Adjusted profit before tax also included an £11.5 million reduction in net financing income, which reflected lower market rates of interest on cash deposits during the period.

There were pre-tax exceptional profits of £2.2 million (2008: £4.7 million), intangible amortisation of £6.6 million (2008: £2.6 million), deferred consideration on acquisitions in Earth and Environmental of £2.0 million (2008: £nil) and joint venture tax of £2.7 million (2008: £0.2 million), resulting in pre-tax profit from continuing operations of £88.4 million (2008: £92.3 million).

Adjusted diluted earnings per share from continuing operations were 20.8 pence (2008: 18.8 pence). 

The 15 per cent increase in the interim dividend to 6.1 pence per share (2008: 5.3 pence) demonstrates the board's continuing confidence in the future.

Order book

During the first half, the group continued to be successful in winning major contracts from key clients including BG, BP, EDF, INPEX, National Grid, and Shell.

The group order book at the end of June was £3.2 billion  (30 June 2008: £2.5 billion; 31 December 2008: £3.3 billion). In constant currency terms the backlog is ahead of the record position reported at the end of 2008, which was £3.1 billion when translated at June 2009 exchange rates for the group's major currencies. The quality of the order book continues to improve as a result of the group's change in focus to higher value-added services. The order book is conservatively stated, and takes no account of the major Sellafield contract, which is equity accounted, and is expected to generate income of over £10 million per annum.

At 30 June 2009, revenue cover* for 2009 stood at 90 per cent, this being an improvement on the already strong position in 2008. 

* Order book as at 30 June 2009 for execution in 2009 plus first half 2009 revenue as a proportion of forecast 2009 revenue.

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  Performance improvement

Actions associated with the Operational Excellence programme will be substantially complete by the end of 2009.  

As expected, the programme incurred implementation costs of c.£5 million during the first half, these being partly offset by benefits, which will continue to build during the second half of 2009 and beyond. Benefits arise from a number of areas, including new contract wins through strategic relationship and account management and efficiency improvements across the business.

For the full year 2009, gross annual benefits of some £18 million are expected, rising to over £40 million by the end of 2010.

Acquisitions

AMEC will continue to exercise financial discipline in targeting future acquisitions. All acquisitions made to date are targeted to achieve post-tax returns ahead of deal-specific cost of capital in the first or second full year post acquisition.

In the year to date, AMEC has announced five acquisitions in the Natural Resources and Earth and Environmental divisions with an aggregate cash consideration of £74 million, of which four (aggregate cash consideration £22 million) were completed in the six months to June 2009. Up to £70 million of total consideration is expected to be paid in the current year, with the balance to be paid in future years. In addition, c.£10 million has been paid in the first half in respect of deferred consideration on prior year acquisitions.

With c.£700 million of cash on the balance sheet, the group continues to target acquisitions, with the focus being on geographical expansion of operations in the Middle East, Australasia and Latin America. 

Board changes

On 21 January 2009, Simon Thompson was appointed to the board as a Non-Executive Director. On the same date, Neil Bruce, Chief Operating Officer of the Natural Resources division, was appointed to the board as an Executive Director.

Liz Airey, Senior Independent Director, stepped down from the board following the company's annual general meeting on 13 May 2009, being replaced as Senior Independent Director by Tim Faithfull.

OUTLOOK

The second half of 2009 is expected to be stronger than the first six months of the year. The board continues to expect another year of improved performance in 2009. 

EBITA margin approaching eight per cent is expected this year, putting AMEC firmly on track to deliver the group margin target for 2010 of 8.5 per cent.

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  SEGMENTAL REVIEW

Natural Resources

Natural Resources comprises AMEC's activities in Oil and Gas Services (55 per cent of revenues in the six months ended June 2009), Oil Sands (28 per cent of revenues) and Minerals and Metals Mining (17 per cent of revenues). Services include asset development and asset support including consultancy and engineering design, project management, commissioning and operational support. 

'Capex' activities (those activities related to customers' capital expenditure) and 'Opex' activities (relating to customers' operating expenditure) accounted for 60 per cent and 40 per cent respectively of Natural Resources revenues in the first half. Profit is weighted towards Capex, which accounted for 71 per cent of EBITA during the period.

1  Growth measured against H1 2008 as restated for material acquisitions and movements in material currencies.

2  Full time equivalents, including agency staff.

Demand for AMEC's services in Natural Resources' end markets remained robust despite some weakness in certain areas. Revenue for the period was £631.5 million, with the 12 per cent increase reflecting currency movements and acquisitions.  Good organic growth was seen in the Oil Sands and in Mining. In Oil and Gas, two projects were completed in the UK during the period, with new contracts in the early phases of development expected to ramp up in the second half of 2009 and on into 2010. 

EBITA increased by 29 per cent to £73.0 million (2008: £56.6 million). During the period, margins in both Capex and Opex increased, to 13.6 per cent and 8.6 per cent from 12.7 per cent and 6.9 per cent respectively in 2008. As a result of this, changes in business mix and efficiency improvements, EBITA margin increased strongly during the period to 11.6 per cent (2008: 10.1 per cent).  

The average number of employees in Natural Resources for the period was 9,608, some 10 per cent below the comparable figure last year, with the reduction reflecting a greater proportion of higher margin, less labour intensive, front-end work and improved operational efficiency in the business.

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The Natural Resources order book at 30 June 2009 stood at £1.73 billion, slightly ahead of the position at 31 December 2008 (£1.71 billion) and an increase of 30 per cent on the same time last year (30 June 2008: £1.33 billion). The order book can be analysed as follows: 

• Capex 78%; Opex 22% (30 June 2008: Capex 83%; Opex 17%)

• UK/Europe 35%; Americas 24%; Rest of world 41% (30 June 2008: UK/Europe 48%; Americas 16%; Rest of world 36%).

Natural Resources has seen further success in terms of major contract awards resulting from strategic relationship management and other aspects of the Operational Excellence programme. During the first half, major contract awards included: 

• BG: two year contract extension to support assets in the UK North Sea

• BP: Capex engineering services on the Tubular Bells and Kodiak discoveries (Gulf of Mexico); engineering and project management services for onshore gas facilities in Sharjah; and Opex support services on the Unity platform in the UK North Sea

• INPEX: front end engineering design on the Ichthys Field (offshore Western Australia)

• Shell: two year contract extension for an AMEC joint venture to support assets in the UK North Sea.  

These contracts underscore AMEC's improved competitive position in engineering and project management services in the oil and gas industry, together with its increasing ability to support customers worldwide. Further details on these, and other contract awards, may be found at amec.com/media.

This division continues to make acquisitions consistent with the group's strategy of geographic and capacity expansion:

• January 2009; Performance Improvements Group (PI) Limited (UK); asset optimisation consultancy services

• July 2009; agreement signed for the acquisition of the Australian engineering and project development company GRD Limited (GRD), by way of a scheme of arrangement. The transaction remains conditional on factors including GRD shareholder approval and is expected to complete in October 2009.

Further acquisitions are anticipated, with the focus in this division being expansion in the Middle East, Australasia and Latin America.

Natural Resources expects the first half/second half split of revenue in 2009 before further acquisitions to follow a similar pattern to the previous year.

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  Power and Process

This division is focused on the power and process markets, principally in the UK and the Americas, and the nuclear market globally. The business designs, delivers, enhances and maintains infrastructure for a broad range of customers in the public and private sectors. 

Revenues during the six months ended 30 June 2009 were split between each of the three principal areas of activity in Power and Process as follows:  Process 45 per cent, Nuclear 28 per cent and Power 27 per cent.

1  Growth measured against H1 2008 as restated for material acquisitions and movements in material currencies.

2  Including AMEC's share of profit from the Sellafield contract.

3  Full time equivalents, including agency staff.

Results in Power and Process continue to reflect the change of management focus towards the provision of low-risk services with high value added. Consistent with this approach, EBITA margin increased by 110 basis points compared with the first half of 2008.

Revenue of £406.4 million was 29 per cent lower than the previous year, when adjusted for currency and acquisitions, with over half of the reduction reflecting the winding down of older contracts. These are contracts that do not meet the new criteria of low-risk services with high value added, and which are now substantially complete. The remainder of the reduction came primarily from weakness in process industry end markets in the UK and Americas.

EBITA decreased by eight per cent to £25.0 million (2008: £27.3 million). Improvements in margin and a maiden contribution of £7 million from the Sellafield contract were offset by lower levels of activity and a net loss of £7 million on the older contracts described above. 

Average employees in Power and Process declined by nine per cent, reflecting lower levels of activity during the period. 

The quality of the Power and Process order book continues to improve consistent with winding down of the older contracts described above. At the end of June the backlog was £1.27 billion, being similar to the position at 31 December 2008 (£1.28 billion) and up 21 per cent on the same time last year. As it is equity accounted, the major contract at Sellafield, with expected income of over £10 million per annum, is not included in the order book.

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The order book can be analysed as follows: 

• Capex 34%; Opex 66% (30 June 2008: Capex 21%; Opex 79%)

• UK/Europe 60%; Americas 40% (30 June 2008: UK/Europe 77%; Americas 23%).

Power and Process has seen further success in terms of major contract awards resulting from strategic relationship management and other aspects of the Operational Excellence programme. During the first half, major contract awards included:

• National Grid: five year contract to support capital investment in the electricity transmission infrastructure in New York State (US) 

• EDF Energy: three year contract for mechanical, electrical and instrumentation installation at the new West Burton Combined Cycle Gas Turbine power station (UK). 

In April 2009, AMEC signed a major joint venture agreement with the Korea Electric Power Corporation (KEPCO), the Korea Gas Corporation (KOGAS) and the Korea Development Bank (KDB) to develop energy-related business opportunities and projects in South Korea and internationally. The joint venture was established in July 2009, with AMEC providing start up capital of £0.3 million in cash and having a 54 per cent shareholding. 

Further details on these, and other Power and Process announcements, may be found at amec.com/media.

With the order book having increased by 21 per cent over the last 12 months, Power and Process expects see revenue performance in the second half of 2009 to be stronger than the first six months of the year. Profits in the second half will benefit from the discontinuation of losses on older contracts. However, profit recognition on the Sellafield contract is expected to be weighted towards the first half of each year, as the year end for the performance incentivised contract is 31 March.

Earth and Environmental

AMEC's Earth and Environmental business provides specialist environmental, geotechnical, programme management and consultancy services to a broad range of customers in the public and private sectors, primarily in North America. Earth and Environmental operates from a regional network and is characterised by a large number of small value contracts.

1  Growth measured against H1 2008 as restated for material acquisitions and movements in material currencies.

2  Full time equivalents, including agency staff.

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  Earth and Environmental continues to perform well and benefited during the period from the acquisition of Geomatrix in June 2008.

Revenue for the period increased by 47 per cent (four per cent underlying), with EBITA up by 66 per cent (21 per cent underlying) to £17.4 million (2008: £10.5 million).  Profit improvement was achieved despite weakness in certain of the division's end markets and clearly demonstrates the high degree of operational flexibility in the business.

The average number of employees in Earth and Environmental for the period increased by 18 per cent on the comparable figure last year, with the increase reflecting acquisitions, particularly Geomatrix (with some 500 employees at the time of acquisition).

Earth and Environmental continues with its strategy of making small acquisitions in selected markets or regions. During the first half, the division made three small acquisitions in Canada:

• March 2009; Philips Engineering Ltd. (Canada); specialist civil engineering consultancy services

• June 2009; Arcas Consulting Archeologists Limited (Canada); archaeological consulting services 

• June 2009; Journeaux, Bédard and Assoc. Inc. (Canada); geotechnical, mining and environmental engineering consultancy services.

Further acquisitions are expected as this division continues to build its network of offices across North America and Europe.

Earth and Environmental expects to see the normal underlying seasonal improvement in activity levels in the second half of 2009. Despite ongoing pilot studies, spending associated with stimulus packages in the US and Canada now looks more likely to take place in 2010.

Investments and other activities

This division principally comprises the Incheon Bridge PPP project in Korea, which is expected to be opened in October 2009. The level of other activities in this division continues to decline, reflecting small non-core business disposals.

nm: not meaningful

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FINANCIAL REVIEW

Administrative expenses

Administrative expenses increased by £11.2 million to £91.9 million (2008: £80.7 million) reflecting currency movements, acquisitions, £2.0 million deferred consideration in the Earth and Environmental division and a reduced level of net interest income from the pension schemes.

Corporate costs, which represent the costs of operating the central corporate functions of AMEC and certain regional overheads, were £18.8 million (2008: £17.3 million), with the increase for the period reflecting costs of Operational Excellence.

Exceptional items

Two small businesses were divested during the first half of 2009 generating a small loss on disposal. In addition, there was a net release of provisions reflecting progress made in resolving issues relating to various legacy projects. This resulted in pre-tax exceptional gains of £2.2 million from continuing operations. Further details of exceptional items are provided in note 3.

AMEC continues to make progress in settling legacy disputes where it is reasonable to do so. As previously disclosed, settlement was reached in early 2009 on the major issues on the US Courthouses dispute, within the provisions originally made. 

No new significant contingent liabilities were added in the first half of 2009.

Intangible amortisation

Intangible amortisation relates to capitalised software and intangible assets acquired as part of the group's acquisitions. The first half 2009 charge of £6.6 million is £4.0 million higher than in 2008, with the increase due to the acquisitions in the year and the full impact of acquisitions made in 2008.

Tax

Income tax on the profit before exceptional items and intangible amortisation for the six months ended 30 June 2009 is based on an effective rate of 28.7 per cent (six months ended 30 June 2008: 30.9 per cent), which has been calculated by reference to the projected charge for the full year (2008: 30.8 per cent). The reduction principally reflects the agreement of historical items with various tax authorities.

Financial position and net cash

The group remains in an exceptionally strong financial position, with net cash as at 30 June 2009 of £698.8 million (31 December 2008: £764.5 million; 30 June 2008 £600.8 million), of which advance cash from customers was c.£15 million. The half year position is typically weaker than the full year as a result of seasonal working capital movements  and the weighting of tax payments to the first half. 

Average weekly net cash for the six months ended 30 June 2009 was better than expected, standing at a record level of £690 million. 

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Expectations for group average weekly net cash in 2009 have improved to c.£700 million. This figure is after taking account of c.£30 million spent on acquisitions in the first half.

During the six months ended 30 June 2008, £94.3 million of this cash was placed on deposit for periods of three to six months. This is shown as short-term investments on the balance sheet.

Pensions

At 30 June 2009, there was a pre-tax surplus under IAS19 on the UK pension schemes of £168.2 million. The expected return on retirement benefit assets is down significantly in 2009 compared with 2008, as a result of conditions in the financial markets. Largely as a consequence of this, the net financing income from pensions, which is included in the income statement in profit before net financing income, is expected to decline by some £12 million in 2009 from the figure of £18.4 million reported in 2008. £6 million of this impact is included in the first half of 2009.

The results of the latest triennial actuarial valuations of the main UK defined benefit schemes have been agreed with the Trustees. The schemes had a surplus of £47 million at the date of the valuation (1 April 2008) on the valuation basis agreed with the Trustees incorporating enhanced longevity assumptions, and it has been agreed that there will be no material change in the overall level of contributions to the schemes going forward.

The schemes operate on a career average salary basis and remain open to future accrual and new entrants. 

Provisions

Provisions held at 30 June 2009 were £185.6 million (31 December 2008: £204.3 million). During 2009, c.£17 million of the provisions were utilised, and exchange movements of £12 million on retranslating the opening balances were largely offset by amounts transferred from payables in the balance sheet. 

Provisions currently held for future costs of litigation total £53.7 million (31 December 2008: £65.3 million).

Issued share capital

As at 17 August 2009, AMEC had a total of 332,660,438  ordinary shares with voting rights. In addition 5,305,433 shares were held in treasury. 

Share schemes - share buybacks

AMEC presently holds a total of 5,305,433 shares as treasury shares, all of which have been allocated to the group's SAYE scheme awards up to 2008. Given the likelihood of further share schemes in 2009 and subsequent years, the group intends to purchase in the market sufficient shares to meet the needs of the 

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schemes,  in anticipation of future payouts. The purchases will be made at regular, but not fixed, intervals throughout the year, outside close periods. The shares will be held as treasury shares following purchase.

Business risks and opportunities

AMEC operates in more than 30 countries globally, serving a broad range of markets and customers. As such, the company is subject to certain general and industry-specific risks. Where practicable, the company seeks to mitigate exposure to all forms of risk through effective risk management and risk transfer practices. 

AMEC operates predominately in the UK and North America and is therefore particularly affected by political and economic conditions in those markets. The company is not, however, dependent on any one area of economic activity.

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. The risk 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.

AMEC continues to assess and monitor potential impacts from the global economic downturn on project opportunities and address potential increased supply chain risk. Demand for AMEC's services in Natural Resources' end markets remains robust despite some weaknesses in certain areas. There has also been weakness in process industry end markets in US and the Americas and certain of the Earth and Environmental end markets. However, the majority of the reduction in the Power and Process revenue was due to the wind down of older contracts that do not meet the new criteria of low-risk services with high value added and the profit improvement in the Earth and Environmental sector demonstrates the high degree of operational flexibility in the business. The group's order book has remained strong at £3.2 billion (December 2008: £3.3 billion).

Other risks

Other than the specifics 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 60 to 63 of the 2008 annual report and accounts. These are environmental and social risk; health and safety; security of employees; business continuity; credit; customer concentration; bidding risk; project execution risk; litigation; pensions; counterparty risk management; funding and liquidity risk; treasury risks; interest rate risk; foreign exchange risk; transaction exposures; translation exposures; information technology; legacy risk; and acquisitions.

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CONDENSED CONSOLIDATED INCOME STATEMENT            

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  CONDENSED CONSOLIDATED INCOME STATEMENT

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  CONDENSED CONSOLIDATED INCOME STATEMENT

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  CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME