AMEC plc Interim results 2005

1
AMEC plcInterim results 2005
2
AMEC plcInterim results 2005

• Jock Green-ArmytageChairman

3
Highlights

• Underlying pre-tax profit up 7.1 to 40.9m
• IFRS pre-tax profit 35.3m in line with 2004
• Interim dividend increased by 5.3 to 4.0p per
  share
• Balance sheet strengthened acquisitions funded
• Good growth in Engineering and Technical Services
  and Oil and Gas
• Weaker performance in UK Construction Services
• Value of PPP portfolio increased to 99m
• Order book up 20 to 2.9bn

Before the impact of fair value based
standards, IAS 39, joint venture tax, intangible
amortisation and business disposals and
closures, but including joint venture profit
before tax Before intangible amortisation and
business disposals and closures
4
AMEC plcInterim results 2005

• Stuart SiddallFinance Director

5
Agenda

• Impact of IFRS
• Half year results
• Net debt
• PPP portfolio valuation
• Pensions

6
Impact of IFRS

• Interim and full year accounts for 2004 have been
  restated
• Interim accounts for 2005 prepared under IFRS
• Underlying business performance is unchanged
• Increased costs arising from fair value based
  standards
• Significant changes to reporting formats
• Use of adjusted IFRS numbers
• IAS 39 (negligible impact in H1 2005)
• Joint venture tax
• Intangible amortisation
• Business disposals and closures (nil impact in H1
  2005)
• Reconciliations provided in supplementary slides

7
Financial summary million

• Revenue 2,256.4 2,162.7 4
• Pre-tax profit, underlying 40.9 38.2 7
• Share options granted (1.7) (0.8) 125
• Pensions (2.5) (1.1) 127
• Pre-tax profit, adjusted 36.7 36.3
• IAS 39 and joint venture tax (1.4) (1.2) 17
• Pre-tax profit, IFRS 35.3 35.1
• Effective tax rate 33.5 32.5
• Diluted earnings per share, underlying 8.3p 8.4p
• Proposed dividend per share 4.0p 3.8p
• Dividend cover, underlying 2.1x 2.2x

Before intangible amortisation and business
disposals and closures Including joint venture
tax
8
Engineering and Technical Services million

• Revenue 1,167.8 992.6 18
• Profit 36.2 29.6 22
• Margin 3.1 3.0
• Revenue growth is both organic and acquired
• Good contribution from Iraq and framework
  agreements
• Second half will benefit from NNC acquisition

Before IAS 39, joint venture tax, intangible
amortisation and business disposals and closures,
but including joint venture profit before tax
9
Engineering and Technical Services Net
liabilities million

• Net liabilities (4.0)
  (2.0)
• Capital employed remains negative
• Sale of properties in France offset by increases
  in Iraq

30 Jun 2005
30 Jun 2004
10
Engineering and Technical Services Order intake
million
30 Jun 2005
31 Dec 2004

• Order intake to sales 10 ahead 5 ahead
• Order intake gives confidence in volume growth in
  2005 and 2006

11
Oil and Gas Good performance million
30 Jun 2004
30 Jun 2005

• Revenue 621.4 599.1 4
• Profit 21.5 19.8 9
• Margin 3.5 3.3
• Revenue includes 100m (2004 50m) at nil margin
• First contribution from Paragon
• Underlying margins have increased

Before IAS 39, joint venture tax, intangible
amortisation and business disposals and closures,
but including joint venture profit before tax
12
Oil and Gas Net assets million

• Net assets 137.5 157.1
• Net assets remain at higher levels than normal
• Capital employed to be released by year end

30 Jun 2005
30 Jun 2004
13
Oil and Gas Order book million

• Order book 1,800.0 1,300.0 38
• Increased levels of activity in UK, good
  opportunities exist in overseas markets

30 Jun 2005
31 Dec 2004
14
Project Solutions Performance million

• Revenue 489.3 593.9 -18
• Profit (before joint venture interest) 9.0 11.4 -2
  1
• Joint venture interest (6.5) (6.4)
• Profit (after joint venture interest) 2.5 5.0 -50
  
• Margin (before joint venture interest) 1.8 1.9
• Revenue reflects exit in 2004 of non-core
  construction
• Steady progress in PPP concessions

30 Jun 2005
30 Jun 2004
Before IAS 39, joint venture tax, intangible
amortisation and business disposals and closures,
but including joint venture profit before tax
15
Project Solutions Developments

• Sales activity low
• Profit contribution similar to 2004
• Normal contribution expected for the full year

16
Project Solutions Wind

• Planning process slower than expected
• First half as expected, small loss anticipated in
  2005
• Contribution should flow quickly once planning
  consents secured

17
Project Solutions Construction Services

• Cost overruns on UK PPP road project
• All PPP road projects nearing completion
• Good results from other projects

18
Project Solutions Net assets million

• Net assets 112.0 63.1 77
• Capital employed reflects reduced levels of
  advance payments

30 Jun 2004
30 Jun 2005
19
Project Solutions Order book million
30 Jun 2005
31 Dec 2004

• Order book 1,100.0 1,100.0
• Order book reflects an Early Contractor
  Involvement Road and DLR wins

20
Segmental analysis Performance million
30 Jun 2005
30 Jun 2004

• margin margin
• Engineering Technical Services 36.2 29.6
• Oil and Gas 21.5 19.8
• Project Solutions 2.5 5.0
• 60.2 2.7 54.4 2.5
• Corporate costs (11.0) (12.1)
• Profit before net financing costs 49.2
  2.2 42.3 2.0
• Net financing costs (12.5) (6.0)
• Pre-tax profit, adjusted 36.7 36.3

Before IAS 39, joint venture tax, intangible
amortisation and business disposals and closures,
but including joint venture profit before tax
21
Abridged cash flow million
Year ended 30 Jun 2005

• Net debt as at 1 July 2004 (389)
• Placing/securitisation proceeds 145
• Acquisitions/disposals and capex (net) (21)
• Iraq working capital (37)
• Advance cash (73)
• US construction management (15)
• Tax, dividends and interest (81)
• Other trading 127
• Net debt as at 30 June 2005 (344)
• Including proceeds from Cayman Hotel and SPIE
  properties H2 2004

22
Average net debt million
2nd half movement
Outlook 2005
1st half 2005
Average weekly net debt
410 420
30 40
380

• Average weekly net debt
• Original expectations of 350m for full year
• Slower than anticipated reimbursement on an oil
  and gas contract
• Sharp reduction in levels of advance cash

23
Year-end net debt Estimate million
31 Dec 2005 outlook
30 Jun 2005
Net debt
210 - 240
344

• Cautious view of 2005 outturn
• Around 70m lower than 2004 year-end

24
PPP portfolio valuation million

• NPV of portfolio 99.0 76.9
• Net book value 55.7 42.3
• Valuation of portfolio
• 11 projects in PPP portfolio
• Portfolio valuation updated by AMEC
• Availability-based fee projects most valuable
• Range of discount rates reflecting operational
  phase

31 Dec 2004
30 Jun 2005
Including Incheon Bridge Excluding Cross
Israel Highway (sold) See supplementary
slides for valuation basis
25
PPP portfolio valuation
26
Accounting for PPP

• AMEC continues to account for its PPP interests
  in line with UK GAAP
• IFRIC developing a solution to concession
  accounting

International Financial Reporting
Interpretations Committee
27
Pensions

• 2005
• IFRS adds volatility to income statement
• Increased charge of 5m in 2005
• 2006
• Triennial valuation underway for three principal
  UK schemes
• Improving mortality will increase costs and
  reduce surplus
• AMEC one of very few FTSE 250 companies with
  IAS19 surplus
• Overall effect of IFRS and mortality about 10m
  in 2006

As compared with UK GAAP
28
AMEC plcInterim results 2005

• Sir Peter Mason KBEChief Executive

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Agenda

• Strategic developments
• Recent developments and prospects
• Oil and Gas
• Nuclear
• North America
• Outlook

30
Strategy Acquisitions have improved our
competitive position

• Continued small bolt-ons in ETS
• Multitechnical Services PK SAS FAST
  Maintenance Informatique
• Environmental Services Shapiro Associates
• Nuclear
• NNC Holdings Limited
• Game Nucléaire SAS (49)
• Oil and Gas
• Paragon
• Balance sheet stronger
• Operational flexibility maintained

31
Oil and Gas Prospects are good

• Our markets remain generally buoyant
• Order book up 0.5 billion to 1.8 billion
• 70 of activity in services
• Underlying margin around 5
• Major contracts include
• Talisman Tweedsmuir
• Nexen Buzzard
• Shell Canadian oil sands
• 8 year alliance with NGT

32
Nuclear One of the most exciting prospects today

• New build
• Decommissioning and clean-up
• Bringing mothballed plants back into service
• Maintaining reactors and fuel facilities

33
Nuclear We are well placed to benefit

• UK Nuclear Decommissioning Authority
• Opportunities initially 2 billion a year
• 50 of sites to be put to tender by 2008
• NNC positions us as a major player in the UK
  market
• Enhanced portfolio of services covering
  engineering solutions and nuclear consultancy
  services
• Negotiating with Bruce Power to provide services
  relating to the restart of reactors in Canada
• Competitive position in France enhanced through
  acquisition of Game Nucléaire SAS (49)

34
North America Early signs of recovery in capital
expenditure
US construction expenditure - manufacturing
31
27
US billion
23
19
Jun 05
Jul 04
Jan 04
Jul 03
Jan 03
Jul 02
Jan 02
Jan 05
Source Datastream
35
North America Our prospects are brighter

• Early signs of recovery in industrial capital
  expenditure
• Pharmaceuticals, food beverage and general
  manufacturing is flat
• Mining remains strong
• Orders being secured in pulp and paper and for
  cement plants
• Growth in Environmental Services driven largely
  by US Federal work
• AMEC share of aggregate commitment in Iraq almost
  US400 million
• Level of activity after first quarter 2006
  uncertain
• Through our management actions and with early
  recovery in industrial markets some improvement
  in profitability is anticipated

36
Outlook

• ETS growing strongly
• Volume growth
• Multitechnical Services margin improvement
  programme
• Rising margins and profits in Oil and Gas
• Significant long-term opportunities
• Substantial value expected in Project Solutions
  over the next 2-3 years
• 2005
• Overall outturn continues to be in line with
  earlier expectations
• Taking into account IFRS
• 2006
• Good underlying profit growth in each of our
  business segments
• Change in pensions costs

37
Supplementary information
38
Basis of valuation of PPP portfolio (August 2005)

• Cash flows extracted from concession models
• Cash flows post tax concession pre-tax AMEC plc
• Discount rate 9.5 Availability based projects
  10.5 Volume risk based projects
• Risk premium range 2 Ramp up 4 Construction
  phase
• Additional risk premium for overseas projects 1
• Tax rate 30
• Tax - benefit of UK consortium relief discounted
  at 9 included within valuation ( but not
  reflected in aggregate cash flows)

39
AMEC PPP portfolio aggregate cash flows
Shareholder cashflows (2005 2040)
40
Results of Project Equity Investments million

• Profit (before joint venture interest) 4.9 5.1
• Joint venture interest (6.5) (6.7)
• Loss (after joint venture interest) (1.6) (1.6)

30 Jun 2004
30 Jun 2005
Before the impact of fair value based
standards, IAS 39, joint venture tax, intangible
amortisation and business disposals and
closures, but including joint venture profit
before tax
41
AMEC PPP projects Operational
Equity committed
Net equity invested
Date operational
Concession period
Equity stake
Fin. close
Transport
-
6.6m
1998
30 years
25
1996
A1(M) Peterborough to Alconbury
-
2.4m
1998
30 years
25
1996
A419/417 Swindon to Gloucester
Hospitals
-
2.9m
2000
45 years
50
1997
Cumberland Infirmary
Accommodation
-
0.5m
2000
25 - 31 years
50
1998
Inland Revenue Newcastle Estate
Net equity invested is the equity and
subordinated debt invested less subordinated debt
repaid to date.
42
AMEC PPP projects Ramp Up
Equity committed
Net equity invested
Date operational
Concession period
Equity stake
Fin. close
Water Treatment
1.9m
2002
30 years
25
2000
Ayrshire Wastewater Treatment
-
Hospitals
0.4m
2000
9.0m
2005
38 years
33
University College London Hospital
43
AMEC PPP projects Delivery
Equity committed
Net equity invested
Date operational
Concession period
Equity stake
Fin. close
Transport
-
5.9m
2005
30 years
25
2000
A13 Thames Gateway
4.7m
-
2006
33 years
25
2003
A1(M) Darrington to Dishforth
7.2m
-
2005
30 years
50
2003
Docklands Light Railway City Airport extension
9.1m
2009
30 years
23
2005
Incheon Bridge, Korea
10.7m
2005
50
-
Docklands Light Railway Woolwich Arsenal extension
30 years
2008
11.5m
44
AMEC PPP projects Preferred bidder status
Equity committed
Net equity invested
Date operational
Concession period
Equity stake
Fin. close
Hospitals
8.5m
-
2009
30 years
50
Q4 2005
Colchester Hospital
Schools
8.2m
-
2009
30 years
33
Q4 2005
South Lanarkshire Schools
49.6m
39.9
Total
45
Segmental analysis IFRS Reconciliation
millionSix months ended 30 June 2005
Underlying JV IFRS
profit results profit

• ETS 36.2 (0.7) 35.5
• Oil and Gas 21.5 (1.0) 20.5
• Project Solutions 2.5 (1.6) 0.9
• 60.2 (3.3) 56.9
• Corporate costs (11.0) - (11.0)
• Profit/(loss) before net financing
  costs 49.2 (3.3) 45.9

After the impact of fair value based
standards (additional charges arising from the
adoption of IFRS 2 Share-based payments and IAS
19 Employee benefits) but including joint
venture profit before tax and before the impact
of intangible amortisation and business disposals
and closures Before the impact of intangible
amortisation and business disposals and closures
46
Segmental analysis IFRS Reconciliation
millionSix months ended 30 June 2004
Underlying JV IFRS
profit results profit

• ETS 29.6 (0.8) 28.8
• Oil and Gas 19.8 (1.3) 18.5
• Project Solutions 5.0 (3.5) 1.5
• 54.4 (5.6) 48.8
• Corporate costs (12.1) - (12.1)
• Profit/(loss) before net financing
  costs 42.3 (5.6) 36.7

After the impact of fair value based
standards (additional charges arising from the
adoption of IFRS 2 Share-based payments and IAS
19 Employee benefits) but including joint
venture profit before tax and before the impact
of intangible amortisation and business disposals
and closures Before the impact of intangible
amortisation and business disposals and closures
47
Segmental analysis UK GAAP v IFRS million Year
ended 31 December 2004

• UK GAAP IFRS
• ETS 75.3 80.9
• Oil and Gas 57.2 50.8
• Project Solutions 41.4 39.7
• 173.9 171.4
• Corporate costs (24.3) (24.3)
• 149.6 147.1
• Group interest (18.8) (18.8)
• JV interest (12.7) (12.7)
• (31.5) (31.5)
• Pre-tax profit, adjusted 118.1 115.6

• Segmental growth rates in 2005 will be distorted
  by IFRS re-classification in 2004

Before goodwill amortisation and
exceptional items Before intangible
amortisation and business disposals and closures